-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GVWTnATCxJwxOEnOhYdmbwC89DsaWE96o0Ea7icU8leDRhhDHy6T+ZK/GF9SzJYX jvIJCnD+fwTmVOe2JTbaSg== 0000950123-98-004324.txt : 19980504 0000950123-98-004324.hdr.sgml : 19980504 ACCESSION NUMBER: 0000950123-98-004324 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALDOR CORP CENTRAL INDEX KEY: 0000857954 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 061282044 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10745 FILM NUMBER: 98605364 BUSINESS ADDRESS: STREET 1: 20 GLOVER AVE CITY: NORWALK STATE: CT ZIP: 06856 BUSINESS PHONE: 2038461641 MAIL ADDRESS: STREET 2: 20 GLOVE AVE CITY: NORWALK STATE: CT ZIP: 068565620 10-K 1 CALDOR CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-10745 ------- THE CALDOR CORPORATION ---------------------- (Exact name of Registrant as specified in its charter) DELAWARE 06-1282044 -------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 20 GLOVER AVENUE, NORWALK, CT 06856-5620 ----------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 846-1641 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class - ------------------- COMMON STOCK, $.01 PAR VALUE PER SHARE COMMON STOCK PURCHASE RIGHTS Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value at April 15, 1998 of the Common Stock, based on the average bid and asked prices of such stock on the OTC Bulletin Board, held by non-affiliates of the Registrant was $10,756,031. As of April 15, 1998, there were issued and outstanding 16,902,839 shares of Common Stock of the Registrant. Documents incorporated by reference None 2 PART I ITEM 1. BUSINESS INTRODUCTION The Caldor Corporation (the "Registrant"), a Delaware corporation, and its subsidiaries (collectively, the "Company") operate a leading upscale discount retail chain offering a diverse line of branded and private-label merchandise, including hardline products such as housewares, electronics, furniture and toys and softline products such as apparel, shoes, jewelry, cosmetics and domestics. As of April 15, 1998, the Company operated 145 stores in nine East Coast and Mid-Atlantic states, including the key markets of Connecticut, New York City, Long Island, Westchester County, the Hudson River Valley of New York State, northern New Jersey and the greater Boston, Philadelphia and Baltimore areas. The Company's stores are located primarily in urban/suburban areas with high population densities. For further information, see "Item 2. Properties." From time to time, information provided by the Company, statements made by its employees ("Associates") or information included in its filings with the Securities and Exchange Commission (the "SEC") (including the Annual Report on Form 10-K) may contain statements that are not historical facts, so-called "forward-looking statements," which involve risks and uncertainties. In particular, statements in "Business" related to the Company's business strategies and the Company's ability to compete, and in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to the sufficiency of capital to meet working capital and capital expenditures requirements may be forward-looking statements. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company's filings with the SEC. The Company's future results are subject to substantial risks and uncertainties. As described below, the Company is presently operating its business as a debtor-in-possession under the Bankruptcy Code and its future results are subject to the development and confirmation of a plan of reorganization. The Company's business is seasonal; a majority of its sales and income from operations are generated during the fourth quarter of the fiscal year which includes the Christmas selling season. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Selected Quarterly Data (Unaudited)" for additional information concerning quarterly results. Any substantial decrease in sales during such period would have a material adverse effect on the financial condition, results of operations and liquidity of the Company. The Company has working capital needs which are currently funded largely through borrowings under the post-petition revolving credit and letter of credit facility (the "DIP Facility"). On June 4, 1997, the Bankruptcy Court entered a final order approving the Fourth Amendment to the DIP Facility which extended the DIP Facility to June 15, 1998 (the "Extended DIP Facility"). The Extended DIP Facility contains financial and other covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, pay dividends on or repurchase shares of capital stock, and make certain loans, investments or guarantees. Such restrictions may limit the Company's operating and financial flexibility. The Registrant has received a commitment (the "Commitment") from BankBoston, N. A. ("BBNA") to provide the Company with separate fully underwritten and committed senior secured $450 million guaranteed revolving credit facilities for debtor-in-possession financing (the "New DIP Facility") and exit financing (the "Exit Facility", and together with the New DIP Facility, the "New Facilities"). The New DIP Facility will be used for the working capital and general business needs of the Company as well as to repay in full the Company's Extended DIP Facility. The Exit Facility will be used to provide for the working capital and general business needs of the reorganized Company beyond the effective date of a plan of reorganization (the "Effective Date") as well as to repay in full the New DIP Facility. For further information, see "Reorganization Case." References in this Annual Report on Form 10-K to a particular year mean the Company's fiscal year; e.g. references to 1997 mean the fiscal year ended January 31, 1998. REORGANIZATION CASE On September 18, 1995, the Registrant and certain of its subsidiaries (collectively, the "Debtors" or the "Company") filed voluntary petitions (the "Filing") for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11" or "Bankrupcy Code"). The Debtors are presently operating their business as debtors-in-possession subject to the jurisdiction of the U. S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). For further -2- 3 information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and notes to consolidated financial statements. In connection with the Filing, on October 17, 1995, the Bankruptcy Court entered a final order (the "Final Order") approving the DIP Facility as provided under the Amended and Restated Revolving Credit and Guaranty Agreement dated as of October 17, 1995, among the Registrant, as the borrower thereunder, the subsidiaries of the Registrant named therein, as the guarantors thereunder, and a bank group led by The Chase Manhattan Bank ("Chase"). The DIP Facility amended and restated, in its entirety, the Registrant's Debtor-In-Possession Revolving Credit and Guaranty Agreement dated as of September 18, 1995 with Chase as agent. On June 4, 1997, the Bankruptcy Court entered a final order approving the Fourth Amendment to the DIP Facility which extended the DIP Facility to June 15, 1998. The Extended DIP Facility provides for a revolving credit and letter of credit facility in an aggregate principal amount not to exceed $450 million, divided into two (2) separate tranches consisting of (i) a post petition revolving credit and letter of credit facility in an aggregate principal amount not to exceed $250 million made available by the Tranche A Banks (the "Tranche A Facility") and (ii) the continued use of the revolving credit and letter of credit portion of the pre-petition credit facility made available by the Tranche B Banks (the "Tranche B Facility") in an aggregate principal amount of $200 million which principal may be borrowed, paid and reborrowed. The Company's maximum borrowing under the Tranche A Facility, up to $250 million, may not exceed the lesser of 60% of Eligible Cost Value of Inventory or 50% of Eligible Retail Value of Inventory (the "Borrowing Base"). At January 31, 1998, the Borrowing Base was $217.4 million. The Extended DIP Facility has a sublimit of $175 million for the issuance of letters of credit. The Tranche B Facility must be fully utilized before the Company can borrow under the Tranche A Facility. In addition, the Extended DIP Facility provides for, among other things, capital expenditures not to exceed $16 million from January 31, 1998 through the maturity date, revised earnings before interest, taxes, depreciation, amortization and reorganization items ("EBITDAR") thresholds for the fiscal quarter ending May 2, 1998 and revised monthly inventory amounts through June 15, 1998. The Company was in compliance with the financial covenants contained in the Extended DIP Facility at January 31, 1998. The Final Order provides that (i) the Company pay monthly interest payments on the outstanding principal amount of pre-petition indebtedness under the term portion of the pre-petition credit facility (the "Term Loan") and the real estate based loan agreement (the "Real Estate Loan") between the Company and Chase and (ii) the lenders under such pre-petition facilities be granted a replacement security interest in and lien upon all of the properties and assets of the Company. The outstanding principal amounts on the Term Loan and the Real Estate Loan have been classified as liabilities subject to compromise on the consolidated balance sheet (see note 6 to consolidated financial statements). The Registrant has received the Commitment from BBNA to provide the Company with the separate fully underwritten and committed senior secured $450 million New Facilities. The New DIP Facility will be used for the working capital and general business needs of the Company as well as to repay in full the Company's Extended DIP Facility. The Exit Facility will be used to provide for the working capital and general business needs of the reorganized Company beyond the Effective Date as well as to repay in full the New DIP Facility. BBNA intends, with the Company's consent, to syndicate part of the New Facilities to other financial institutions (collectively, including BBNA, the "Lenders"). BBNA's commitment to provide the New DIP Facility is subject to certain conditions precedent including approval by the Bankruptcy Court of the New DIP Facility. The New DIP Facility will be replaced by the Exit Facility on the Effective Date provided that the plan is not inconsistent with certain terms of the Commitment and is otherwise reasonably satisfactory to BBNA and that all conditions precedent to confirmation of the plan have been met. Among other things, the plan must provide for repayment in full of the New DIP Facility, the Company must have had a 12-month rolling EBITDAR on the closing date of the Exit Facility no less than $60 million (EBITDAR for the 1997 fiscal year was $53.7 million), and the Company's borrowing availability under the Exit Facility on the closing date thereof must exceed certain specified minimum levels. The New DIP Facility will terminate on the earlier of (i) the Effective Date or (ii) 18 months after the closing date for the New DIP Facility. The Exit Facility will terminate four years after the closing date of the New DIP Facility. The Company's maximum borrowing under the New DIP Facility may not exceed the lesser of (a) the sum of (i) 72% (77% for the fiscal months of March through December of each year (the "Overadvance Rate") provided that the Overadvance Rate shall not increase the borrowing base by more than $30 million) of the cost value of the Company's Eligible Inventory and, without duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $45 million and (B) under certain circumstances, 70% of the agreed upon value of the Company's leasehold interests in real estate and (b) $450 million(the "New DIP Facility Borrowing Base"). The Company's maximum borrowing under the Exit Facility may not exceed the lesser of (a) the sum of (i) 75% (73% for the fiscal months of January and February of each year) of the cost value of the Company's Eligible Inventory and, without duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $40 million and (B) under certain circumstances, 60% of the agreed upon value of the Company's leasehold interests in real estate and (b) $450 million (the "Exit Facility Borrowing Base"). The New Facilities have a sublimit of $150 million for the issuance of letters of credit. The New Facilities also contain restrictive covenants, including, among other things, limitations on the creation of additional liens and indebtedness, capital leases and annual rents, the sale of assets, and the maintenance of minimum earnings before interest, taxes, depreciation, amortization and reorganization items, the maintenance of ratio of accounts payable to inventory levels, and a prohibition on the payment of dividends. Advances under the New Facilities will bear interest, at the Company's option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75% during any period that the Company is utilizing the Overadvance Rate) for periods of one, two and three months. The Eurodollar Applicable Margin is subject to reduction by up to 0.50% if the Company achieves certain specified EBITDAR levels. Under the New Facilities, the Company will pay an unused line fee of 0.25% per annum on the unused portion thereof, a letter of credit fee equal to 1.625% per annum of average outstanding letters of credit and certain other fees. In connection with the receipt of the Commitment and the closing of the New DIP Facility, the Company will pay fees to BBNA of approximately $5.6 million. The Company will also pay BBNA an annual agency fee of $150,000. Obligations of the Company under the New DIP Facility will be granted (i) superpriority administrative claim status pursuant to section 364 (c) (1) of the Bankruptcy Code, subject only to an exclusion for certain administrative and professional fees and (ii) secured perfected first priority security interests in and liens upon all assets of the Company. Obligations of the Company under the Exit Facility will be granted secured perfected first priority security interests in and liens upon all assets of the Company. The United States Trustee for the Southern District of New York has appointed Official Committees ("Committees") of Unsecured Creditors and Equity Security Holders for the Chapter 11 case. The role of the Committees includes, among other things: (a) consultation with the Debtors concerning the administration of the Chapter 11 case; (b) investigation of the acts, conduct, assets, liabilities, financial condition and operations of the Debtors, and the desirability of the continuation of their business and other relevant matters; and (c) participation in the formulation of a plan of reorganization. In discharging these responsibilities, the Committees have standing to raise issues with the Bankruptcy Court relating to the business of the Debtors and the conduct and course of the Chapter 11 case. The Debtors are required to pay certain expenses of the Committees and those of the Steering Committee of the banks participating in the Extended DIP Facility, including professional fees, to the extent allowed by the Bankruptcy Court. In the Chapter 11 case, substantially all liabilities as of the date of the Filing are subject to resolution under a plan of reorganization to be voted upon by the Debtors' creditors and stockholders and confirmed by the Bankruptcy Court. Amended and restated schedules were filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the date of the Filing as shown by the Debtors' accounting records. The Bankruptcy Court fixed August 12, 1996 as the last date by which creditors of the Debtors could file proofs of claim for claims that arose prior to the Filing. The Debtors are in the process of reconciling differences between amounts shown by the Debtors and claims filed by creditors. The amount and settlement terms for such disputed liabilities are subject to -3- 4 allowance by the Bankruptcy Court. Ultimately, the adjustment of the total liabilities of the Debtors remains subject to a Bankruptcy Court approved plan of reorganization and, accordingly, the amount of such liabilities is not presently determinable. The Bankruptcy Court has extended the period in which the Debtors possess the exclusive right to file a plan of reorganization through September 1, 1998, and the period in which the Debtors can solicit acceptances for the plan of reorganization through October 30, 1998. The Debtors have distributed a term sheet and drafts of their proposed plan of reorganization and disclosure statement to the professionals representing the Debtors' Creditor, Bank and Equity Committees. The Debtors are negotiating the terms and timing of their emergence from Chapter 11 with these Committees. At this time, it is not expected that such a plan would provide for recovery by equity security holders. On September 18, 1997, the New York Stock Exchange suspended trading in the Company's Common Stock and, on November 25, 1997, the SEC delisted the Company's Common Stock. Subsequent to September 18, 1997, the Company's Common Stock has been traded on the "OTC Bulletin Board." On December 6, 1996 the Company presented its Five-Year Business Plan (the "Business Plan") to the Company's Creditor, Bank and Equity Committees setting forth its strategy to restore the Company to long-term profitability by raising customer satisfaction levels, revamping advertising programs, lowering everyday prices and focusing its promotional activity, narrowing and refocusing merchandise assortments, and implementing improved operating efficiencies and cost reductions. In order to raise customer satisfaction levels, the Company has focused on improving in-stocks and customer service by reducing levels of promotional activity combined with more efficient product flow as a result of its regionalized distribution network. The Company discontinued regular coupon sales and one-day sale events, reduced the number of circular pages and the number of promotional items in each circular and eliminated the distribution of midweek circulars, with the exception of selected weeks. The Company made the determination that the discontinued marketing programs were neither profitable nor compatible with its long term marketing strategy. In 1998, the Company plans to continue to reduce the number of circular pages and promotional items in order to reduce costs and improve in-stock positions. In order to draw more customers into its stores, the Company will focus on key items and categories through more compelling circulars that emphasize value, fashion and quality. In the third and fourth quarters of 1996, the Company introduced its Price Cut Program which lowered everyday prices on selected items in electronics, health and beauty aids, diapers, household chemicals, furniture, hardware and housewares. In 1997, the Company extended the Price Cut Program to basic apparel commodities, paper products, film and cosmetics. The Company believes that this will reinforce customers' perceptions of Caldor as an everyday fair price store. The Company plans to extend the Price Cut Program to other product categories. By lowering everyday prices on a variety of frequently purchased items, the Company has been able to stimulate regular priced business. The Company will continue to offer a broad range of products, but plans to prioritize the family apparel and fashion home categories that it believes differentiate the Company from the competition and appeal to its upscale core customer. In addition, the Company has examined each of its departments and has reallocated selling space to present a more focused value and quality message to its customers. The Company believes that the Business Plan sets forth a strategic direction to take advantage of its strengths and to improve key areas of its business. The Company will continue to review and refine the Business Plan. On June 7, 1996, the Bankruptcy Court approved the Debtors' reclamation program, which authorizes the Debtors to settle the claims of 425 vendors that submitted reclamation demands at the time of Filing. The program provides for each reclamation vendor that extends mutually acceptable credit support to receive both a cash payment of up to 50% of its eligible reclamation claim and, subject to certain conditions, priority treatment for the remainder of its claim. Reclamation cash payments of $1.5 million and $11.6 million were made in 1997 and 1996, respectively. To the extent these payments exceed $10 million, the Debtors are required to apply such excess to pay down the Term Loan in an equivalent amount (up to $8.5 million). In 1997 and 1996, the Debtors had paid down $1.4 million per year of the Term Loan related to the reclamation program. -4- 5 Under Chapter 11, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory pre-petition contracts, subject to Bankruptcy Court approval. Under Section 502 of the Bankruptcy Code, a lessor's claim for damages resulting from the rejection of a real property lease is limited to the rent provided under such lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term of the lease following the earlier of the date of the Filing or the date on which the property is returned to the landlord. Forty-five of the Company's store leases, including three which were rejected in 1996, are guaranteed by the Company's former parent, The May Department Stores Company ("May Company"). In 1989 as part of its leveraged buyout from May Company, the Company agreed to indemnify May Company for any damages incurred by May Company under its guaranties. The Company's liability to May Company for amounts paid by May Company under its guaranties of these leases, if rejected, may not be limited under Section 502 of the Bankruptcy Code. As a pre-petition claim, however, this liability is subject to compromise and discharge. A landlord may also have a claim for unpaid pre-petition rent. As of April 15, 1998, the Debtors had rejected leases for 32 locations, assumed 17 real estate leases (two of which were for warehouses and the balance were for stores) and had reached agreements with landlords to terminate an additional seven leases, without liability. Subsequent to assuming these leases, the Company announced its plans to close the Under-Performing Stores (as hereinafter defined), including three locations for which leases had been assumed (the "Previously Assumed Stores"). The claims of the landlords of the Previously Assumed Stores are treated as administrative expenses under Chapter 11 subject to both the landlords' obligation to mitigate damages and limitations on damages agreed upon by the Company and each landlord. The Company is required by an order of the Bankruptcy Court, subject to the right of both the Company and the applicable landlord to move to accelerate for due cause shown, to make a decision to assume or reject 39 leases by August 31, 1998 and the balance of real property leases on confirmation of its plan of reorganization. The Company is currently negotiating with landlords regarding rent reductions and lease restructurings. As part of the Company's ongoing review process, the Company identified, and on March 25, 1998 obtained Bankruptcy Court approval to close, 12 under-performing stores (the "Under-Performing Stores"). The Company completed a liquidation sale at one of the locations and has retained a liquidator who is currently conducting store closing sales at the other locations (the "Under-Performing Stores Sales"). The net proceeds of these sales will be placed in a segregated interest bearing account with Chase, in its capacity as agent under the Extended DIP Facility, pending agreement between the Company and the bank group concerning distribution of the proceeds. On March 12, 1997 the Bankruptcy Court approved the closing of 4 under-performing stores (the "1997 Closed Stores") and the Debtor's retention of a liquidator to conduct store closing sales (the "1997 Closing Sales"). These sales were completed and the stores were closed by the end of May 1997. Concurrently, the Company, the guarantors, and the bank group entered into an amendment (the "Third Amendment") to the Extended DIP Facility. Pursuant to the Third Amendment, all of the proceeds of the 1997 Closing Sales were applied to a prepayment of the Tranche B loans and the Tranche B facility commitment was reduced by such amount. On April 2, 1996, the Bankruptcy Court approved the closing of 12 under-performing stores (the "1996 Closed Stores") and the Debtors' retention of a liquidator to conduct store closing sales (the "1996 Closing Sales"). These sales were completed and the stores were closed by the end of June 1996. On July 16, 1996, the Bankruptcy Court directed the application of the net proceeds of such 1996 Closing Sales to the payment of the Term Loan. The Company paid $2.2 million and $22.5 million to Chase, as agent for the Term Loan banks, in 1997 and 1996, respectively, for application to the Term Loan. The Debtors continue to review leases and contracts, as well as other operational and merchandising changes, and cannot presently determine or reasonably estimate the ultimate outcome of, or liability resulting from, this review. -5- 6 MERCHANDISING The Company seeks to position itself as an upscale discount store. To achieve this objective, the Company emphasizes quality and value in branded hardline and softline products, seeks to respond quickly to emerging fashion and product trends and has enhanced its softlines presentation and assortment. In the third and fourth quarters of 1996, to better balance its promotional and regular-priced business and to provide fair prices everyday, the Company introduced its Price Cut Program, which lowered everyday prices on selected items in electronics, health and beauty aids, diapers, household chemicals, furniture, hardware and housewares. In 1997, the Company extended the Price Cut Program to basic apparel commodities, paper products, film and cosmetics. The Company believes that this will reinforce customers' perceptions of Caldor as an everyday fair price store. The Company plans to extend the Price Cut Program to other product categories. The Company's stores feature nationally branded hardline and softline merchandise, including KitchenAid, Farberware, Nikko, Westpoint Stevens, Fieldcrest Cannon, SunBeam, Scotts, Fiesta, Rubbermaid, Springs, Sony, Braun, Wrangler, Hanes, Fruit of The Loom and Playtex. Softline sales and hardline sales as a percentage of total sales in 1997 were 39% and 61%, respectively. The Company's softline merchandise balances quality, fashion and price and its principal apparel lines consist of casual and weekend wear. Although the Company relies primarily on purchases from domestic resources, the Company's direct imports in 1997 totaled approximately 11% of total purchases. STORES Management. The management of the Company's stores is regionalized in order to provide operational and merchandising assistance to the stores. Each of the Company's store managers reports to one of 12 district managers, who in turn report to one of two regional vice presidents. The districts are divided into two geographical regions, each of which is headed by a regional vice president who reports to the Senior Vice President - Stores. In addition, the store management team at the corporate level monitors store functions and attempts to implement improvements to enhance the efficiency and effectiveness of work processes. Prototype. From 1991 to 1996 the Company remodeled 31 stores. These remodeled stores feature a customer-friendly store format with upscale fixtures, bright color schemes, improved lighting, focal and impact areas (for electronics, jewelry, domestics and housewares) and wider aisles which are an integral part of the Company's customer-oriented strategy. In 1997, the Company remodeled two stores using an updated prototype that incorporated these features as well as an improved store lay-out. This includes a reallocation of selling space to reflect merchandise sales volume, better adjacencies, improved merchandise presentation and displays utilizing innovative fixturing, improved signing designed to more clearly identify specific as well as major categories of merchandise and a numbering system for its merchandise displays to help customers locate goods. The Company plans to remodel 5 stores in 1998. The Company also plans to continue to refine its model and to develop variations of its prototype for stores of different sizes. CUSTOMER DRIVEN The Company emphasizes a customer-driven culture throughout its organization in order to improve the shopping experience. The Company provides management training and incentives to promote and reward customer service in its stores. A Company-wide Friendliness Program, monitored by customer surveys, encourages proactive customer service by store Associates. Positive recognition and performance evaluations are tied to stores' Friendliness ratings and in-stock performance. -6- 7 MARKETING, ADVERTISING AND PROMOTION Color circulars are the primary components of the Company's advertising program. Circulars are distributed in major newspapers and by hand delivery in each of the Company's markets on every weekend of the year and selectively during midweek. These circulars generally range from 16 to 48 pages and average 28 pages. The Company has taken steps to better focus its advertising and reduce the number of items featured, which will also simplify ordering and store handling of merchandise. In 1998, the Company plans to continue to reduce the number of circular pages and the number of promotional items in order to reduce costs and improve in-stock positions. In order to draw more customers into its stores, the Company will focus on key item and categories through more compelling circulars that emphasize value, fashion and quality. The Company also participates with vendors in vendor-paid cooperative advertising. In 1997, 1996 and 1995, net advertising costs constituted approximately 2.4%, 2.7% and 2.5%, respectively, of the Company's total sales. PURCHASING, DISTRIBUTION AND INVENTORY MANAGEMENT Merchandise is purchased, primarily through the Company's centralized buying organization, from over 3,000 manufacturers and suppliers. During 1997, the Company's top 25 domestic vendors accounted for approximately 27% of net purchases, and no one vendor accounted for more than 4%. The Company's distribution centers are located in North Bergen, New Jersey and Westfield, Massachusetts. In September 1996, the Company converted to a regionalized distribution network by closing its Newburgh, New York facility and opening a new facility in Westfield, Massachusetts. Under this new regionalized network, using automated sortation handling systems, each facility handles the full range of merchandise distribution for its respective region. The North Bergen facility was expanded in 1989 and upgraded in 1992. The Company has introduced a comprehensive warehouse management system to enhance merchandise receiving, inventory management and paperless processing in order to further increase efficiency and reduce overhead costs. The Company installed the system at the Westfield, Massachusetts distribution center in January 1998 and plans to complete implementation of the system at the North Bergen facility in August 1998. COMPETITION The general merchandise discount retail business is highly competitive. The Company considers merchandise selection, quality, in-stock positions, pricing, store location, shopping environment, customer service and advertising to be the most significant competitive factors. Because of the broad range of merchandise sold, the Company, which on the basis of annual sales volume is the fourth largest discount department store chain in the U.S., competes with a variety of national, regional and local discounters, department stores, specialty stores and retail chains, some of which are larger and better capitalized than the Company. Among the Company's discount department store competitors are Bradlees Stores, Inc., Ames Department Stores, Inc., Kmart Corporation and Wal-Mart Stores, Inc. ("Wal-Mart"). In addition, Target Stores, a discount department store division of Dayton-Hudson Corporation, has recently opened stores in some of Caldor's market areas and plans to expand its presence in the Northeast. Wal-Mart has continued to open additional stores in Caldor's market areas. The Company's department store competitors include Sears, Roebuck and Co. and J. C. Penney Company, Inc. Competition will increase as competitors open additional stores in the Company's market areas and no assurance can be given that the Company's business and financial performance will not be adversely affected by future competitive pressures. TRADEMARKS AND LICENSES The Company owns the "Caldor" name, which it uses as a tradename and service mark and as a trademark in connection with various merchandise. The Company also uses various other registered and common law trademarks -7- 8 and trade names pursuant to which it markets certain merchandise. The Company believes that no individual trademark or tradename, other than "Caldor", is material to the Company's competitive position in the industry. ASSOCIATES As of April 15, 1998, the Company and its subsidiaries employed approximately 22,000 Associates. Approximately 8,000 additional persons are employed temporarily during the Christmas season. Substantially all of the Company's retail store and distribution center Associates are represented by unions. The Company has never had a strike and believes that its relations with its Associates and their unions are good. STATEMENT REGARDING FORWARD LOOKING STATEMENTS Sections of this Annual Report contain various forward looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations and business of the Company. These forward looking statements involve certain risks and uncertainties, and no assurance can be given that any of such matters will be realized. Actual results may differ materially from those contemplated by such forward looking statements. See Introduction, Competition and "Management's Discussion and Analysis - Statement Regarding Forward Looking Disclosures." -8- 9 ITEM 2. PROPERTIES As of April 15, 1998, the Company and its subsidiaries operated 145 stores in a corridor comprised of nine East Coast and Mid-Atlantic states. The Company's stores are located in well-established, high-traffic retail corridors, strip shopping centers and enclosed shopping malls, or operate as free-standing units, primarily in or near densely populated urban and suburban locations. The Company's stores average approximately 100,400 square feet. Approximately 75% of the square footage is used as selling space and the remainder is used for merchandise processing, temporary storage and store administration. As of April 15, 1998, the Company operated stores in the following states: Connecticut (30), Delaware (3), Maryland (8), Massachusetts (22), New Hampshire (1), New Jersey (26), New York (43), Pennsylvania (10), and Rhode Island (2). The Company owns nine stores (five of which include land and building, and four, the building only) and its MIS facility in Trumbull, Connecticut and has construction loans on two store locations (including the owned Silver Spring, Maryland store to be closed in 1998), with the remainder of its facilities operated under predominantly long-term leases. The typical store lease has an initial term of 20 years, with renewal options between 10 and 30 years, exercisable at the Company's option. The Company leases a 649,521 square foot distribution center in Westfield, Massachusetts with an option to add up to 350,500 square feet to the facility. The Company leases a 616,000 square foot distribution center and a 235,000 square foot warehouse located in North Bergen, New Jersey. For further information, see "Item 1. Business--Purchasing, Distribution and Inventory Management." The Company also leases its corporate headquarters located in Norwalk, Connecticut and an administrative facility located in North Ridgeville, Ohio. All of these facilities have leases with terms subject to renewal by the Company. The Company sublets its excess land parcels and retail space to generate additional revenue. All of the properties and assets of the Company currently are subject to security interests and liens under the Company's various credit facilities. In addition, one of the Company's store locations is subject to a mortgage and another store location is subject to an industrial revenue bond. For further information, see "Item 1. Business--Reorganization Case." On March 25, 1998, the Company obtained Bankruptcy Court approval to close the twelve Under-Performing Stores, consisting of all of the Company's seven stores in the Washington, D.C. market, two stores in the Baltimore market, two stores in the Albany, New York market and one store in the Long Island, New York market. One of the Under-Performing Stores has been closed and store closing sales are being conducted currently at the other Under-Performing Stores by a liquidator retained by the Company. The four 1997 Closed Stores consisted of two stores in the New York City market; one store in Massachusetts; and one store in Rhode Island. In 1996, the Company closed the twelve 1996 Closed Stores. The Company did not open any stores in 1997. In 1996, the Company opened seven new stores. -9- 10 As of April 15, 1998, the Debtors had rejected leases for 32 locations, assumed 17 real estate leases (two of which were for warehouses and the balance were for stores) and reached agreements with landlords to terminate an additional seven leases without liability. Subsequent to assuming these leases, the Company announced its plans to close the Under-Performing Stores, including three Previously Assumed Stores. The claims of the landlords of the Previously Assumed Stores are treated as administrative expenses under Chapter 11 subject to both the landlords' obligation to mitigate damages and limitations on damages agreed upon by the Company and each landlord. For further information regarding "assumption" and "rejection," see "Item 3. Legal Proceedings--Commencement of Chapter 11 Cases -- Chapter 11 Reorganization Under the Bankruptcy Code." -10- 11 ITEM 3. LEGAL PROCEEDINGS - -------------------------- COMMENCEMENT OF CHAPTER 11 CASE While the following discussion provides general background information regarding the Debtors' Chapter 11 case, it is not intended to be an exhaustive summary. General. On September 18, 1995, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code. The individual Chapter 11 cases were consolidated for procedural purposes only and are being jointly administered by the Bankruptcy Court. See "Item 1. Business -- Reorganization Case". Chapter 11 Reorganization Under the Bankruptcy Code. Pursuant to Section 362 of the Bankruptcy Code, during a Chapter 11 case, creditors and other parties in interest may not, without Bankruptcy Court approval: (i) commence or continue judicial, administrative or other proceedings against the Debtors which were or could have been commenced prior to commencement of the Chapter 11 case, or recover a claim that arose prior to commencement of the case; (ii) enforce any pre-petition judgments against the Debtors; (iii) take any action to obtain possession of or exercise control over property of the Debtors or their estates; (iv) create, perfect or enforce any lien against the property of the Debtors; (v) collect, assess or recover claims against the Debtors that arose before the commencement of the case; or (vi) set off any debt owing to the Debtors that arose prior to the commencement of the case against a claim of such creditor or party in interest against the Debtors that arose before the commencement of the case. Although the Debtors are authorized to operate their businesses and manage their properties as debtors-in-possession, they may not engage in transactions outside of the ordinary course of business without complying with the notice and hearing provisions of the Bankruptcy Code and obtaining Bankruptcy Court approval. An Official Unsecured Creditors' Committee and an Official Committee of Equity Security Holders have been appointed by the United States Trustee and are acting in the Chapter 11 case of the Debtors. The Debtors are required to pay certain expenses of these committees and those of the Steering Committee of the banks participating in the Extended DIP Facility, including counsel, accountants' and financial advisors' fees to the extent allowed by the Bankruptcy Court. As debtors-in-possession, the Debtors have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory, pre-petition contracts and unexpired leases. In this context, "assumption" requires the Debtors to perform their obligations and cure all existing defaults under the assumed contract or lease and "rejection" means that the Debtors are relieved from their obligations to perform further under the rejected contract or lease, but are subject to a claim for damages for the breach thereof subject to certain limitations contained in the Bankruptcy Code. Any damages resulting from rejection are treated as general unsecured claims in the reorganization. Under the Bankruptcy Code, a creditor's claim is treated as secured only to the extent of the value of such creditor's collateral, and the balance of such creditor's claim is treated as unsecured. Generally, unsecured and undersecured debt does not accrue interest after the Filing. Pre-petition claims which were contingent or unliquidated at the commencement of the Chapter 11 cases are generally allowable against the Debtors in amounts to be fixed by the Bankruptcy Court or otherwise agreed upon. These claims, including, without limitation, those which arise in connection with the rejection of executory contracts, including leases, are expected to be substantial. The Company has established a reserve approximating what the Company believes will be its liability under these claims. The Bankruptcy Court fixed August 12, 1996 as the last date by which creditors of the Debtors could file proofs of claim for claims that arose prior to the Filing. -11- 12 Plan of Reorganization - Procedures. For 120 days after the date of the filing of a voluntary Chapter 11 petition, a debtor has the exclusive right to propose and file a plan of reorganization with the Bankruptcy Court and an additional 60 days within which to solicit acceptances to any plan so filed (the "Exclusive Period"). The Bankruptcy Court may increase or decrease the Exclusive Period for cause shown, and as long as the Exclusive Period continues, no other party may file a plan of reorganization. Given the magnitude of the Debtors' operations and the number of interested parties asserting claims that must be resolved in the Chapter 11 case, the plan formulation process is complex. The Debtors currently retain the exclusive right to propose and solicit acceptances of a plan or plans of reorganization until September 1, 1998 and October 30, 1998, respectively. If a Chapter 11 debtor fails to file its plan during the Exclusive Period or after such plan has been filed fails to obtain acceptance of such plan from impaired classes of creditors and equity security holders during the exclusive solicitation period, any party in interest, including a creditor, an equity security holder or a committee of creditors or equity security holders, may file a plan of reorganization for such Chapter 11 debtor. Inherent in a successful plan of reorganization is a capital structure which permits the Company to generate sufficient cash flow after reorganization to meet its restructured obligations and fund the current obligations of the Company. Under the Bankruptcy Code, the rights and treatment of pre-petition creditors and stockholders may be substantially altered. At this time it is not possible to predict the outcome of the Chapter 11 case, in general, or the effects of the Chapter 11 case on the business of the Company or on the interests of creditors. At this time, it is not expected that such a plan would provide for recovery by equity security holders. Generally, after a plan has been filed with the Bankruptcy Court, it will be sent, with a disclosure statement approved by the Bankruptcy Court following a hearing, to members of all classes of impaired creditors and equity security holders for acceptance or rejection. Following acceptance or rejection of any such plan by impaired classes of creditors and equity security holders, the Bankruptcy Court, after notice and a hearing, would consider whether to confirm the plan. Among other things, to confirm a plan the Bankruptcy Court is required to find that (i) each impaired class of creditors and equity security holders will, pursuant to the plan, receive at least as much as the class would have received in a liquidation of the debtor and (ii) confirmation of the plan is not likely to be followed by the liquidation or need for further financial reorganization of the debtor or any successor to the debtor, unless the plan proposes such liquidation or reorganization. To confirm a plan, the Bankruptcy Court generally is also required to find that each impaired class of creditors and equity security holders has accepted the plan by the requisite vote. If any impaired class of creditors or equity security holders does not accept a plan but all of the other requirements of the Bankruptcy Code are met, the proponent of the plan may invoke the so-called "cram down" provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met, including that (i) at least one impaired class of claims has accepted the plan, (ii) the plan "does not discriminate unfairly" and (iii) the plan "is fair and equitable with respect to each class of claims or interests that is impaired under, and has not accepted, the plan." As used by the Bankruptcy Code, the phrases "discriminate unfairly" and "fair and equitable" have narrow and specific meanings unique to bankruptcy law. -12- 13 OTHER PENDING LEGAL PROCEEDINGS: CLASS ACTIONS On or about September 13, 1995, a class action complaint was filed in the United States District Court for the District of Connecticut (the "Connecticut District Court") by Joel A. Gerber (the "Gerber Action") against the Company and certain of its former officers and directors alleging violations of the provisions of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). A second class action complaint was filed on or about September 21, 1995 in the Connecticut District Court against certain of the Company's former officers and directors (but not the Company) by Lawrence Cowit and others (the "Cowit Action"). A third class action complaint was filed by Dominic Pignetti (the "Pignetti Action") on or about October 27, 1995 in the Connecticut District Court against certain of the Company's former officers and directors (but not the Company). A fourth class action complaint was filed on or about November 30, 1995 in the Connecticut District Court by Ann V. Nelms and others (the "Nelms Action") against certain of the Company's former officers and directors (but not the Company). A consolidated amended complaint was served in the Gerber, Cowit and Nelms Actions on December 18, 1995 (the "Consolidated Action"). On the same date, a separate amended complaint was served in the Pignetti Action, which was not consolidated. The amended complaints in both actions assert claims only against certain of the Company's former officers and directors. The Consolidated Action seeks to recover damages on behalf of all persons who purchased the Company's common stock between February 6, 1995 and September 15, 1995. The amended complaint in the Consolidated Action alleges that the defendants made false statements in the Company's annual report and in the press regarding the Company's continued growth, alleged problems in its relationships with its factors and lenders, and the sufficiency of available financing to fund normal business operations and the Company's expansion plan, all in violation of the provisions of the Exchange Act. The Pignetti Action seeks to recover damages on behalf of all persons who purchased the Company's common stock between January 5, 1995 and September 15, 1995. The amended complaint in the Pignetti Action alleges that the defendants disseminated false and misleading information by misrepresenting the Company's financial condition and performance and its ability to finance its normal business operations and expansion plans, all in violation of the provisions of the Exchange Act. The amended complaint in the Pignetti Action also asserts claims for negligent misrepresentation and common law fraud, based upon the same allegations. Although the Company is not a named defendant in either the Consolidated Action or the Pignetti Action, a proof of claim was filed in the Chapter 11 case by the plaintiffs in the Consolidated Action. The amount of liability, if any, related to these actions is not presently determinable. On December 18, 1995, the Company commenced an adversary proceeding in the Bankruptcy Court and brought on, by order to show cause, a motion for a preliminary injunction to stay proceedings in the Consolidated Action and the Pignetti Action. The Bankruptcy Court entered an order, dated February 7, 1997, granting the Company's motion for a preliminary injunction enjoining prosecution of the class actions until further order of the Bankruptcy Court. On or about February 24, 1998, the plaintiffs in the Consolidated Action filed a motion with the Bankruptcy Court seeking to vacate or modify the order granting the preliminary injunction. A hearing on the motion is presently scheduled to be held on May 12, 1998. Although the Company is required to indemnify the defendants to the extent provided by Delaware law, the Company has directors and officers liability coverage. As a result of the preliminary injunction, none of the former officers or directors named as a defendant in any of the actions has been required to answer any of the foregoing complaints, which actions are believed by the Company to be without merit and will be vigorously defended. -13- 14 OTHER ACTIONS The Company and certain of its subsidiaries are defendants in various other actions commenced by vendors, customers, former employees and others that are incidental to the normal course of its business. Similarly situated persons have asserted claims against the Company but have not made those claims the subject of litigation. However, cases that relate to a claim that arose before the Filing generally were stayed pursuant to Section 362 of the Bankruptcy Code and are to be dealt with as part of the claims resolution process. The Company believes that the ultimate outcome of the foregoing actions and claims pending will not have a material adverse effect on its consolidated financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. -14- 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - ------------------------------------------------------------------------- MATTERS ------- The Company's Common Stock was listed on the New York Stock Exchange ("NYSE") under the symbol "CLD" until September 18, 1997, at which time it was suspended. On November 25, 1997, the SEC delisted the Company's Common Stock. Subsequent to September 18, 1997, the Company's stock has been traded on the "OTC Bulletin Board" under the symbol "CLDRQ." The high and low sales prices for the Company's Common Stock on the NYSE (until September 18, 1997) and the high and low bid prices on the OTC Bulletin Board thereafter for each of the quarters during 1997 and 1996 were as follows: COMMON STOCK PRICE
First Quarter Second Quarter Third Quarter Fourth Quarter 1997 ------------- -------------- ------------- -------------- High 2-1/2 1-7/8 2 3/4 Low 1-3/8 1 3/8 1/4 1996 High 4-3/4 4-1/4 2-3/8 1-7/8 Low 2-7/8 1-5/8 1-5/8 1
As of April 15, 1998, the closing bid price on the OTC Bulletin Board was 5/8 and the approximate number of holders of the Company's Common Stock was 16,500. The Company has not paid, and has no current plans to pay in the foreseeable future, dividends on its Common Stock. As detailed in "Item 3. Legal Proceedings," the Debtors have filed for protection under Chapter 11 of the Bankruptcy Code and the Company is precluded from paying dividends until such cases have been concluded. The Extended DIP Facility and the New Facilities prohibit the declaration of cash dividends on the Company's Common Stock. The Debtors have distributed a term sheet and drafts of its proposed plan of reorganization and disclosure statement to the professionals representing the Debtors' Creditor, Bank and Equity Committees. The Debtors are negotiating the terms and timing of its emergence from Chapter 11 with these Committees. At this time it is not expected that such a plan would provide for recovery by equity security holders. -15- 16 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - --------------------------------------------- THE CALDOR CORPORATION AND SUBSIDIARIES (in thousands, except per share data)
1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- OPERATING DATA: Net sales $ 2,496,747 $ 2,602,456 $ 2,765,525 $2,748,634 $2,414,124 Cost of merchandise sold 1,828,343 1,938,861 2,131,281 1,961,475 1,742,276 ------------------------------------------------------------------------------------ Gross margin 668,404 663,595 634,244 787,159 671,848 Selling, general and administrative expenses (net of depreciation and amortization) 619,538 666,073 713,916 631,805 528,913 Depreciation and amortization 51,209 54,594 59,894 45,819 39,851 Loss on disposition of property and equipment 671 729 1,187 2,659 650 Interest expense, net 43,864 39,502 40,973 34,948 34,904 ------------------------------------------------------------------------------------ Earnings (loss) before reorganization items, income taxes, extraordinary items and cumulative effect of accounting changes (46,878) (97,303) (181,726) 71,928 67,530 Reorganization items 84,931 87,522 170,731 ------------------------------------------------------------------------------------ Earnings (loss) before income taxes, extraordinary items and cumulative effect of accounting changes (131,809) (184,825) (352,457) 71,928 67,530 Income tax provision (benefit) 800 500 (59,825) 27,569 26,152 ------------------------------------------------------------------------------------ Earnings (loss) before extraordinary items and cumulative effect of accounting changes (132,609) (185,325) (292,632) 44,359 41,378 Extraordinary items (8,396) (5,378) Cumulative effect of accounting changes (2,768) ------------------------------------------------------------------------------------ Net earnings (loss) $ (132,609) $ (185,325) $ (301,028) $ 44,359 $ 33,232 ==================================================================================== EARNINGS (LOSS) PER SHARE(1): Basic net earnings (loss) $ (7.84) $ (10.91) $ (17.81) $ 2.68 $ 2.04 Diluted earnings (loss) before extraordinary items and cumulative effect of accounting changes $ (7.84) $ (10.91) $ (17.31) $ 2.65 $ 2.50 ------------------------------------------------------------------------------------ Diluted net earnings (loss) $ (7.84) $ (10.91) $ (17.81) $ 2.65 $ 2.01 ------------------------------------------------------------------------------------ BALANCE SHEET DATA: Merchandise inventories $ 419,682 $ 450,499 $ 499,948 $ 550,932 $ 468,069 Working capital 44,987 102,119 271,365 42,220 80,587 Total assets 949,120 1,050,880 1,174,019 1,149,472 1,006,196 Long-term debt 10,525 18,463 8,640 236,699 272,065 Liabilities subject to compromise 729,039 719,980 783,102 Stockholders' equity (deficit) (282,676) (148,208) 37,208 337,166 291,757
(1) In 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" and all prior year per share information has been restated. -16- 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS ------------- OVERVIEW The notes to consolidated financial statements are an integral part of Management's Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction herewith. On September 18, 1995, the Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code and are presently operating their business as debtors-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the Southern District of New York. For further discussion of Chapter 11 proceedings, see "Item 1. Business--Reorganization Case" and note 1 to consolidated financial statements. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The Filing, related circumstances and the losses from operations, raise substantial doubt about the Company's ability to continue as a going concern. The appropriateness of using the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, and the ability to generate sufficient cash from operations and financing sources to meet obligations. As a result of the Filing and related circumstances, however, such realization of assets and liquidation of liabilities is subject to significant uncertainty. While under the protection of Chapter 11, the Debtors may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the accompanying consolidated financial statements. Further, a plan of reorganization could materially change the amounts reported in the accompanying consolidated financial statements. The consolidated financial statements do not include any adjustments relating to a recoverability of the value of recorded asset amounts or the amounts and classification of liabilities that might be necessary as a consequence of a plan of reorganization. -17- 18 RESULTS OF OPERATIONS The Company's fiscal year ends on the Saturday closest to January 31. References to 1997, 1996, and 1995 relate to the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996, respectively. Each of these fiscal years included 52 weeks except for 1995 which included 53 weeks. References to years relate to fiscal years rather than calendar years. The following table summarizes the Company's operating results for the years 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- (dollars in thousands) $ % $ % $ % - ------------------------------------------------------------------------------------------------------------------------ Net sales 2,496,747 100.0 2,602,456 100.0 2,765,525 100.0 Cost of merchandise sold 1,828,343 73.2 1,938,861 74.5 2,131,281 77.1 Gross margin 668,404 26.8 663,595 25.5 634,244 22.9 Selling, general and administrative expenses 670,747 26.9 720,667 27.7 773,810 28.0 Interest expense, net 43,864 1.8 39,502 1.5 40,973 1.5 Loss before reorganization items, income taxes and extraordinary item (46,878) (1.9) (97,303) (3.7) (181,726) (6.6) Net loss (132,609) (5.3) (185,325) (7.1) (301,028) (10.9)
1997 VS. 1996 Net sales during 1997 decreased by 4.1% from 1996 due to the closing of 16 stores since the first quarter of 1996 (a $102.8 million reduction in sales) and a 2.1% decrease in comparable store sales, partly offset by sales from the opening of 7 new stores since mid-April 1996 (incremental sales of $48 million in 1997). The decrease in comparable store sales was primarily attributable to the intensely competitive retail environment, unseasonable weather in the Northeast that negatively impacted the Company's sales of seasonal merchandise and changes in the Company's marketing strategy including the discontinuance of one-day sales events, mid-week circulars in May 1996, and coupon sales. The Company made the determination that the discontinued marketing programs were neither profitable nor compatible with its long-term marketing strategy. Hardline sales, exclusive of the stores closed in 1997 and 1996, increased in 1997 primarily due to increased sales of consumables, electronics, housewares and toys. Sales of these items at regular prices have increased as a result of the Price Cut Program. Softline sales, exclusive of the stores closed in 1997 and 1996, decreased in 1997 mainly as a result of decreased sales of men's and boy's, children's and ready-to-wear merchandise. Gross margin as a percentage of sales increased to 26.8% for 1997 compared to 25.5% in 1996. The increase was primarily due to reduced markdowns, partially offset by lower overall initial markups as compared to 1996 due to the change in the Company's marketing strategy and the Price Cut Program. In the third quarter of 1996, to better balance its promotional and regular-priced business and to provide fair prices everyday, the Company introduced the Price Cut Program which lowered everyday prices on selected items in electronics, health and beauty aids, diapers, household chemicals, furniture, hardware and housewares. In the second quarter of 1997, the Company extended the Price Cut Program to certain other product categories such as basic apparel commodities, paper products, film and cosmetics. The Company plans to extend the Price Cut Program to other product categories. Selling, general and administrative expenses ("SG&A") as a percentage of sales decreased to 26.9% in 1997 from 27.7% in 1996, primarily attributable to store closings and initiatives to control and reduce SG&A. These initiatives, adopted by the Company in the second quarter of 1996, include changes in marketing strategy, which have reduced advertising expenses, and a reduction of corporate overhead. The Company continues to evaluate its operating -18- 19 procedures and is pursuing additional reductions in SG&A through increased operating efficiencies at both the corporate and store level. Interest expense, net, increased in 1997 primarily due to an increase in average revolving credit borrowings and an increase in the related weighted average interest rates as compared to 1996. Average revolving credit borrowings were $210.5 million at a weighted average interest rate of 7.1% in 1997 compared to $151.8 million at 6.6% in 1996. The weighted average interest rate on the Term Loan was 6.5% in 1997 compared to 6.3% in 1996. The Company recorded reorganization charges of $84.9 million and $87.5 million in 1997 and 1996, respectively. The costs primarily include provisions of $70.5 million and $51.6 million in 1997 and 1996, respectively, related to the lease rejections and closings of locations, as well as the reduction to net realizable value of fixed assets in the closed stores. For further information, see "Item 2. Properties" and note 8 to consolidated financial statements. On March 25, 1998, the Company obtained Bankruptcy Court approval to close the Under-Performing Stores. The net proceeds of these liquidation sales will be placed in a segregated interest-bearing account with Chase, in its capacity as agent under the DIP Facility, pending agreement between the Company and the bank group concerning distribution of the proceeds. The Company closed four stores in 1997. The lease obligations and related reserves for closings include rejected real property leases and amounts for other executory contracts that have been identified for rejection pursuant to Bankruptcy Code and are reflected at estimated settlement amounts. The costs relating to these facilities closings are based on management's best estimates, however actual costs could differ from those presently recorded in the consolidated financial statements. Also included in reorganization costs are $1.7 million and $15.0 million related to employee retention plans and $5.3 million and $13.7 million in professional fees for 1997 and 1996, respectively. For further information, see note 8 to consolidated financial statements. The Company's effective income tax rate was 0.6% and 0.3% in 1997 and 1996, respectively. A provision of $0.8 million and $0.5 million for certain state franchise and capital taxes was recorded in 1997 and 1996, respectively. The Company did not record a tax benefit in 1997 or 1996 since the utilization of the Company's loss carryforwards is dependent upon sufficient future taxable income and the Company has established a full valuation allowance against these carryforward benefits. 1996 VS. 1995 Net sales during 1996 decreased by 5.9% from 1995 due to the closing of 12 stores in 1996 (a $115.5 million reduction in sales), a decrease in same store sales and one less week of sales, partly offset by sales from the opening of 10 new stores since July 1995 (incremental sales of $116.9 million in 1996). For 1996, same store sales decreased 5.3% on a comparable 52 week basis from 1995. The decrease in same store sales was primarily attributable to changes in the Company's marketing strategy, including the discontinuance of one-day sale events, mid-week circulars in May 1996 and coupon sales, as well as the intensely competitive retail environment. In addition, same store sales for the fiscal month of December were lower primarily due to five fewer Christmas shopping days and unseasonably warm weather in the Northeast. Hardline sales, exclusive of the 12 stores closed in 1996, decreased in 1996 primarily due to decreased sales of electronics, cameras, housewares and small electrical appliances. Softline sales, exclusive of the 12 stores closed in 1996, increased in 1996 mainly as a result of increased sales of ready-to-wear merchandise. Additionally, the Price Cut Program lowered everyday prices in the third and fourth quarters of 1996 on items in electronics, health and beauty aids, diapers, household chemicals, furniture, hardware and housewares. Gross margin as a percentage of sales increased to 25.5% for 1996 compared to 22.9% in 1995. The increase was mainly attributable to reduced promotional markdowns due to the change in the Company's marketing strategy, partly offset by an increase in the reserve for shrinkage. In addition, gross margin in 1995 included a provision for vendor claims estimated to result upon reconciliation of differences between pre-petition liabilities shown by the -19- 20 Company and claims filed by creditors in connection with the Filing, and provision to cover anticipated losses on the liquidation of inventory. For further information, see note 7 to consolidated financial statements. Selling, general and administrative expenses ("SG&A") as a percentage of sales decreased to 27.7% in 1996 from 28.0% in 1995, primarily attributable to store closings and initiatives to control and reduce SG&A adopted by the Company in the second quarter of 1996, including changes in marketing strategy, which have reduced advertising expenses, a reduction of corporate overhead and the discontinuance of additional accruals related to the pension plan. Interest expense, net, decreased in 1996 primarily due to a decrease in average revolving credit borrowings as well as a decrease in the related weighted average interest rates as compared to 1995. Average revolving credit borrowings were $151.8 million at a weighted average interest rate of 6.6% in 1996 compared to $160.0 million at 7.2% in 1995. The weighted average interest rate on the Term Loan was 6.3% in 1996 compared to 6.7% in 1995. The Company recorded reorganization charges of $87.5 million and $170.7 million in 1996 and 1995, respectively. The costs primarily include provisions of $51.6 million and $143.7 million in 1996 and 1995, respectively, related to the lease rejections and closings of locations, as well as the reduction to net realizable value of fixed assets in the closed stores. For further information, see "Item 2. Properties" and note 8 to consolidated financial statements. The Company closed four stores in 1997 and 12 stores in 1996. The lease obligations and related reserves for closings include numerous real property leases rejected and amounts for other executory contracts that have been identified for rejection pursuant to the Bankruptcy Code and are reflected at estimated settlement amounts. The costs relating to these facilities closings are based on management's best estimates, however actual costs could differ from those presently recorded in the consolidated financial statements. Also included in reorganization costs are $15.0 million and $12.5 million related to employee retention plans and $13.7 million and $8.8 million in professional fees for 1996 and 1995, respectively. For further information, see note 8 to consolidated financial statements. The Company's effective income tax rate in 1996 was 0.3% primarily due to the non-recognition by the Company of deferred tax assets related to net operating loss carryforwards, other credit carryforwards and certain deductible temporary differences. A provision of $0.5 million for certain state franchise and capital taxes was recorded in 1996. The Company realized an income tax benefit of $59.8 million in 1995 as a result of the net losses incurred and the recognition by the Company of the reduction of previously recorded deferred income tax liabilities as well as the receipt by the Company of refunds of previously paid income taxes. The effective income tax rate in 1995 was (17.0)% primarily due to the non-recognition of operating loss carryforwards in 1995. -20- 21 LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION The Company's working capital as of January 31, 1998 decreased by $57.1 million from February 1, 1997. This decrease was primarily due to increased borrowings under the Extended DIP Facility of $35.7 million, which resulted from a net loss of $132.6 million in 1997, capital expenditures of $29.5 million and reorganization item payments of $16.9 million. In addition, inventories decreased by $30.8 million, partly related to the Company's program to reduce inventories and due to the closure of certain stores. Refundable income taxes decreased by $13 million due to receipt of federal income tax refunds in 1997 and current maturities of long-term debt increased by $9.4 million due to the reclassification of the long-term portion of a construction loan related to the Silver Spring, Maryland store to be closed in 1998. These decreases were partially offset by a net increase in assets held for disposal of $21.9 million relating to assets of the Under-Performing Stores partly offset by liquidation sales of the assets of 1997 Closed Stores. The Company's working capital as of February 1, 1997 decreased by $169.2 million from February 3, 1996. This decrease was primarily due to increased borrowings under the DIP Facility of $112.0 million, which resulted from a net loss of $185.3 million in 1996, capital expenditures of $36.6 million, and reorganization item payments of $29.9 million. In addition, inventories decreased by $49.4 million, partly related to the Company's program to reduce inventories and due to the closure of certain stores. Assets held for disposal at year-end 1995 were liquidated through 1996 Closing Sales and the proceeds were applied to the Term Loan, contributing to a decrease in working capital. Refundable income taxes and deferred income taxes decreased by $9.0 million primarily due to the receipt of federal income tax refunds in 1996. Net cash used in operating activities for 1997 was $15.8 million. This use of cash for operating activities was primarily due to the Company's net loss of $132.6, a reduction in liabilities subject to compromise of $29 million and reorganization item payments of $16.9 million. The reduction in liabilities subject to compromise included application of the 1996 Closing Sales proceeds to the Term Loan, reclamation payments made to vendors, a reduction in the liability for vendor claims, payments for rent, real estate taxes and common area maintenance charges relating to assumed leases and normal amortization of capital lease obligations. Net cash used in operating activities for 1996 was $73.0 million as compared to net cash provided by operating activities of $93.2 million in 1995. This use of cash for operating activities in 1996 was primarily due to the Company's net loss of $185.3 million, a reduction in liabilities subject to compromise of $78.2 million and reorganization items of $29.9 million. The reduction of liabilities subject to compromise included application of the 1996 Closing Sales proceeds to the Term Loan, reclamation payments made to vendors, a reduction in the liability for vendor claims, payments for sales and use tax, the refinancing of the loan related to the Silver Spring, Maryland store, and normal amortization of capital lease obligations. Capital expenditures of $29.5 million in 1997 were primarily for management information systems (mostly related to the implementation of warehouse management systems at the distribution centers and for merchandising systems) and store remodels. Capital expenditures of $36.6 million in 1996 were primarily for conversion to a regionalized distribution network (which included opening a new facility in Westfield, Massachusetts and updating the facility in North Bergen, New Jersey to accommodate regionalization) and for costs associated with opening new stores. Capital expenditures of $81.1 million in 1995 primarily represented costs associated with opening new stores. The Company opened three new stores in 1995 and seven new stores in 1996. The decrease in capital expenditures in 1996 as compared to 1995 was due to a substantial portion of the expenditures related to the stores that opened in 1996 being incurred in 1995. In 1995, the Company utilized construction loans to build two of its new store locations. The Company's capital expenditures for 1998 are projected to be approximately $34 million to be used primarily for -21- 22 management information systems (approximately $15.0 million), store remodeling (approximately $10.0 million) and distribution center and store upgrades and improvements (approximately $9.0 million). The Company and its key vendors utilize software and related technologies that will be affected by the ability of these technologies to distinguish and properly process date-sensitive information when the year changes to 2000. Many existing applications, as was common in the market place, were designed to only accommodate a two-digit date position which represents the year. The Company's program to address the Year 2000 issue (the "Year 2000 Program") is currently underway and the Company has identified significant systems requiring modification or replacement to ensure Year 2000 compliance. In addition, the Company is initiating communication with its key external suppliers of goods and services in order to assess their assurance efforts and the Company's exposure to them. The Company currently estimates expenditures for the Year 2000 Program to be approximately $7 million for modification and remediation of existing software, being expensed as incurred. The costs of the Year 2000 Program are based on management's current best estimates, including the continued availability of resources and third party modification plans. However, there can be no assurance that the Company's systems or the systems of other companies on which the Company's operations rely will be timely converted and that the lack of such timely conversion would not have an adverse effect on the Company's operations. On October 17, 1995, the Bankruptcy Court entered a final order approving the DIP Facility as provided under the Amended and Restated Revolving Credit and Guaranty Agreement dated as of October 17, 1995, among the Registrant, as the borrower thereunder, the subsidiaries of the Registrant named therein, as the guarantors thereunder, and a bank group led by Chase. The DIP Facility amended and restated, in its entirety, the Registrant's Debtor-In-Possession Revolving Credit and Guaranty Agreement dated as of September 18, 1995 with Chase as agent. On June 4, 1997, the Bankruptcy Court entered a final order approving the Fourth Amendment which extended the DIP Facility to June 15, 1998. Pursuant to the terms of the Extended DIP Facility, the bank group has made available to the Registrant an aggregate principal amount of up to $450 million consisting of (i) up to $250 million under the Tranche A Facility and (ii) $200 million under the Tranche B Facility which principal amount may be borrowed, paid and reborrowed. The Company's maximum borrowing under the Tranche A Facility, up to $250 million, may not exceed the lesser of 60% of Eligible Cost Value of Inventory or 50% of Eligible Retail Value of Inventory (the "Borrowing Base"). At January 31, 1998, the Borrowing Base was $217.4 million. The Extended DIP Facility has a sublimit of $175 million for the issuance of letters of credit. The Tranche B Facility must be fully utilized before the Company can borrow under the Tranche A Facility. Borrowings under the Extended DIP Facility may be used to fund working capital and inventory purchases and for other general corporate purposes. The Extended DIP Facility provides for, among other things, capital expenditures not to exceed $16 million from January 31, 1998 through the maturity date and revised EBITDAR thresholds for the fiscal quarter ending May 2, 1998. The Extended DIP Facility also contains restrictive covenants, including, among other things, limitations on the creation of additional liens and indebtedness, capital leases and annual rents, the sale of assets, and the maintenance of minimum earnings before interest, taxes, depreciation, amortization and reorganization items, the maintenance of inventory levels, and a prohibition on the payment of dividends. The Company was in compliance with the financial covenants contained in the Extended DIP Facility at January 31, 1998. The Extended DIP Facility provides that advances made (i) under the Tranche A Facility will bear interest at a rate of 0.75% per annum in excess of Chase's Alternative Base Rate ("ABR"), or, at the Registrant's option, a rate of 1.75% per annum in excess of LIBOR for the interest periods of one, three or six months or (ii) under the Tranche B Facility will bear interest at 0.25% per annum in excess of ABR, or, at the Registrant's option, at a rate of 1.0% per -22- 23 annum in excess of LIBOR. The Registrant incurred approximately $3 million in bank fees associated with the extension of the DIP Facility, which were paid in 1997. Under the Tranche A Facility, the Company pays a commitment fee of 0.5% per annum on the unused portion thereof, a letter of credit fee equal to 1.5% per annum of average outstanding letters of credit and certain other fees. Under the Tranche B Facility, the Company pays a commitment fee of 0.3125% per annum on the unused portion thereof, a letter of credit fee equal to 0.75% per annum of average outstanding letters of credit and certain other fees. Commitment fees were approximately $0.9 million and $1.2 million in 1997 and 1996, respectively. Letter of credit fees were approximately $0.7 million, $0.5 million and $0.4 million in 1997, 1996 and 1995, respectively. The Tranche B Facility must be fully utilized before the Company can borrow under the Tranche A Facility. The Tranche A Banks and the Tranche B Banks were granted a lien on all of the assets of the Debtors and a superpriority claim over all obligations of the Debtors arising under the Tranche A Facility and the Tranche B Facility, respectively. However, the claim of the Tranche B Banks is subordinate in priority to the claim of the Tranche A Banks. In addition, Chase, as agent, was granted a security interest in all of the shares of capital stock now or hereafter issued to the Registrant by certain of its subsidiaries. The pre-petition banks have been granted a security interest in all assets of the Debtors, subordinate to the security interests and liens thereon granted to the Tranche A Banks and the Tranche B Banks, subject to the conditions of the financing order of the Bankruptcy Court, dated October 17, 1995. As of January 31, 1998, the outstanding borrowings under the Extended DIP Facility were $187.7 million and open letters of credit were $61.8 million. In addition, the Company had outstanding borrowings of $187.5 million and $191.1 million on its Term Loan as of January 31, 1998 and February 1, 1997, respectively. The Term Loan was reduced by application of the net proceeds of the Closing Sales of $2.2 million and $22.5 million in 1997 and 1996, respectively. The Term Loan was also reduced by $1.4 million per year in payments related to the reclamation program in 1997 and 1996. The borrowings outstanding under the Term Loan have been classified as liabilities subject to compromise in the consolidated balance sheets (see note 6 to consolidated financial statements). In February 1995, the Company increased the Term Loan borrowings by $50 million to $215 million. Using the additional $50 million in Term Loan borrowings and $16 million in revolving credit borrowings, the Company executed an in-substance defeasance of the outstanding 15% Senior Subordinated Notes (the "Notes") by depositing $66 million of U.S. Government Securities into an irrevocable trust to cover the redemption value (including principal, call premium and interest) of the Notes on June 1, 1995, at which time the Notes were called. The Company borrowed $10.9 million in 1996 under a construction loan relating to the Silver Spring, Maryland store. The proceeds of this loan were used to refinance an existing construction loan and for capital expenditures for such store. As of January 31, 1998, the outstanding borrowings under this loan were $9.9 million and bore interest at a rate of 1.75% per annum in excess of LIBOR. On March 25, 1998, the Company obtained Bankruptcy Court approval to close this store. The Registrant has received the Commitment from BBNA to provide the Company with the separate fully underwritten and committed senior secured $450 million New Facilities. The New DIP Facility will be used for the working capital and general business needs of the Company as well as to repay in full the Company's Extended DIP Facility. The Exit Facility will be used to provide for the working capital and general business needs of the reorganized Company beyond the effective date of a plan of reorganization (the "Effective Date") as well as to repay in full the New DIP Facility. BBNA intends, with the Company's consent, to syndicate part of the New Facilities to other Lenders. BBNA's commitment to provide the New DIP Facility is subject to certain conditions precedent including approval by the Bankruptcy Court of the New DIP Facility. The New DIP Facility will be replaced by the Exit Facility on the Effective Date provided that the plan is not inconsistent with certain terms of the Commitment and is otherwise reasonably satisfactory to BBNA and that all conditions precedent to confirmation of the plan have been met. Among other things, the plan must provide for repayment in full of the New DIP Facility, the Company must have had a 12-month rolling EBITDAR on the closing date of the Exit Facility no less than $60 million (EBITDAR for the 1997 fiscal year was $53.7 million), and the Company's borrowing availability under the Exit Facility on the closing date thereof must exceed certain specified minimum levels. -23- 24 The New DIP Facility will terminate on the earlier of (i) the Effective Date or (ii) 18 months after the closing date for the New DIP Facility. The Exit Facility will terminate four years after the closing date of the New DIP Facility. The Company's maximum borrowing under the New DIP Facility may not exceed the lesser of (a) the sum of (i) 72% (77% for the fiscal months of March through December of each year (the "Overadvance Rate") provided that the Overadvance Rate shall not increase the borrowing base by more than $30 million) of the cost value of the Company's Eligible Inventory and, without duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $45 million and (B) under certain circumstances, 70% of the agreed upon value of the Company's leasehold interests in real estate and (b) $450 million (the "New DIP Facility Borrowing Base"). The Company's maximum borrowing under the Exit Facility may not exceed the lesser of (a) the sum of (i) 75% (73% for the fiscal months of January and February of each year) of the cost value of the Company's Eligible Inventory and, without duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $40 million and (B) under certain circumstances, 60% of the agreed upon value of the Company's leasehold interests in real estate and (b) $450 million (the "Exit Facility Borrowing Base"). The New Facilities have a sublimit of $150 million for the issuance of letters of credit. The New Facilities also contain restrictive covenants, including, among other things, limitations on the creation of additional liens and indebtedness, capital leases and annual rents, the sale of assets, and the maintenance of minimum earnings before interest, taxes, depreciation, amortization and reorganization items, the maintenance of ratio of accounts payable to inventory levels, and a prohibition on the payment of dividends. Advances under the New Facilities will bear interest, at the Company's option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75% during any period that the Company is utilizing the Overadvance Rate) for periods of one, two and three months. The Eurodollar Applicable Margin is subject to reduction by up to 0.50% if the Company achieves certain specified EBITDAR levels. Under the New Facilities, the Company will pay an unused line fee of 0.25% per annum on the unused portion thereof, a letter of credit fee equal to 1.625% per annum of average outstanding letters of credit and certain other fees. In connection with the receipt of the Commitment and the closing of the New DIP Facility, the Company will pay fees to BBNA of approximately $5.6 million. The Company will also pay BBNA an annual agency fee of $150,000. Obligations of the Company under the New DIP Facility will be granted (i) superpriority administrative claim status pursuant to section 364 (c) (1) of the Bankruptcy Code, subject only to an exclusion for certain administrative and professional fees and (ii) secured perfected first priority security interests in and liens upon all assets of the Company. Obligations of the Company under the Exit Facility will be granted secured perfected first priority security interests in and liens upon all assets of the Company. The Company believes that cash on hand, amounts available under the New DIP Facility and funds from operations will enable the Company to meet its current liquidity and capital expenditure requirements through emergence from Chapter 11. Until a plan of reorganization is approved, the Company's long-term liquidity and the adequacy of its capital resources cannot be determined. In August 1995, the Company entered into the Real Estate Loan with Chase consisting of a $37.1 million non-amortizing term loan. The borrowing is secured by mortgages on certain real estate. The outstanding borrowings of $37.1 million for 1997, 1996 and 1995 have been classified as liabilities subject to compromise in the consolidated balance sheets (see note 6 to consolidated financial statements). Inherent in a successful plan of reorganization is a capital structure which permits the Company to generate sufficient cash flow after reorganization to meet its restructured obligations and fund the current obligations of the -24- 25 Company. Under the Bankruptcy Code, the rights and treatment of pre-petition creditors and stockholders may be substantially altered. At this time it is not possible to predict the outcome of the Chapter 11 case, in general, or the effects of such case on the business of the Company or on the interests of creditors and stockholders. The Debtors have distributed a term sheet and drafts of its proposed plan of reorganization and disclosure statement to the Debtors' Creditor, Bank and Equity Committees. The Debtors are negotiating the terms and timing of its emergence from Chapter 11 with these Committees. While no plan of reorganization has been proposed, it is not expected that such a plan would provide for recovery by equity security holders. As a result of the Filing, the prosecution of litigation against the Debtors involving matters arising prior to the Filing for bankruptcy generally was stayed. Such stay may be modified by the Bankruptcy Court for cause shown in appropriate circumstances. Certain former officers and directors of the Company are defendants in class actions brought on behalf of all persons who purchased the Company's stock during specified periods of time. These actions are discussed in "Item 3. Legal Proceedings." Although the Company is not a named defendant in these actions, a proof of claim was filed in the Chapter 11 case by the plaintiffs in the Consolidated Action. The amount of liability, if any, related to these actions is not presently determinable. The Company is required to indemnify the defendants to the extent provided by Delaware law and the Company has directors' and officers' liability coverage. Accordingly, no amounts have been provided for such liability in the consolidated financial statements. -25- 26 STATEMENT REGARDING FORWARD LOOKING STATEMENTS From time to time, information provided by the Company, statements made by its employees or information included in its filings with the SEC (including the Annual Report on Form 10-K) may contain statements that are not historical facts, so-called "forward-looking statements", which involve risks and uncertainties. In particular, statements in "Item 1. Business" related to the Company's business strategies and the Company's ability to compete, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to the sufficiency of capital to meet working capital and capital expenditures requirements may be forward-looking statements. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time-to-time in the Company's filings with the SEC. The Company assumes no obligation to update or revise any such forward-looking statements, even if experience or future events or changes make it clear that any projected financial or operating results implied by such forward-looking statements will not be realized. The Company's future results are subject to substantial risks and uncertainties. The Company is operating as a debtor-in-possession under the Bankruptcy Code and its future results are subject to the development and confirmation of a plan of reorganization. The Company's business is seasonal; a substantial portion of its sales and income from operations are generated during the fourth quarter of the fiscal year which includes the Christmas selling season. Any substantial decrease in sales during such period would have a material adverse effect on the financial condition, results of operations and liquidity of the Company. The Company may be adversely affected as competitors open additional stores in the Company's market areas. The Company has working capital needs which are expected to be funded largely through borrowings under the Extended DIP Facility and the New DIP Facility. The Extended DIP Facility and the New Facilities contain restrictive covenants, including, among other things, limitations on the creation of additional liens and indebtedness, limitations on capital expenditures, capital leases and annual rents, the sale of assets and the maintenance of minimum earnings before interest, taxes, depreciation, amortization, and reorganization items, the maintenance of inventory levels, and a prohibition on the payment of dividends. Such restrictions may limit the Company's operating and financial flexibility. For further information, see "Item 1. Business--Reorganization Case." SEASONALITY The Company's business is highly seasonal with a major portion of its annual sales occurring in the fourth quarter of the year due to increased customer buying during the Christmas selling season. As a result, the Company's operating earnings have historically been concentrated in the fourth quarter. In 1997 and 1996, approximately 32% of the Company's total sales were recorded in the fourth quarter of each year. INFLATION The Company believes that the impact of inflation and changing prices has not significantly affected the Company's sales or results of operations. The Company uses the LIFO inventory accounting method for financial reporting purposes, because it is believed to provide a better matching of current costs with revenue than does the FIFO method. Therefore, the cost of merchandise sold included in the results of operations are already adjusted for inflation. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which is effective for the Company's fiscal year ending January 30, 1999 ("Fiscal Year 1998"). SFAS No. 130 establishes standards for reporting and display of comprehensive income (the change in equity from transactions and other events except those resulting from investment by owners). The Company is currently evaluating the impact of this statement on its financial statements. -26- 27 In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which is effective beginning with Fiscal Year 1998. SFAS No. 131 will require that segment financial information be publicly reported on the basis that is used internally for evaluating segment performance. The Company is currently evaluating the effects of this change on its financial statements. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which is effective beginning with Fiscal Year 1998. SFAS No. 132 standardizes the disclosure requirements for pension and other postretirement benefits, but does not change the existing measurement or recognition provisions of previous standards. The Company is currently evaluating the effects of this change on its financial statement disclosures. -27- 28 SELECTED QUARTERLY DATA (UNAUDITED) The following quarterly results are determined in accordance with the same accounting policies used for the annual information, including certain items based upon estimates for the entire year:
- ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) First Second Third Fourth Year - ---------------------------------------------------------------------------------------------------------------------------- 1997 Net sales $ 525,635 $ 598,151 $ 562,859 $ 810,102 $2,496,747 Gross margin (LIFO) 140,438 161,150 151,769 215,047 668,404 Selling, general and administrative expenses 160,088 162,658 170,408 177,593 670,747 Reorganization items 6,274 5,560 4,615 68,482(1) 84,931 Net loss (36,315) (18,024) (35,091) (43,179) (132,609) PER SHARE AMOUNTS(4): Basic and diluted loss per share $ (2.14) $ (1.07) $ (2.08) $ (2.55) $ (7.84) ------------------------------------------------------------------------------------ Weighted average number of shares used in computing basic and diluted net loss per share 16,936 16,903 16,903 16,903 16,911
- ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) First Second Third Fourth Year - ------------------------------------------------------------------------------------------------------------------------------------ 1996 Net sales $ 568,560 $ 622,212 $ 568,596 $ 843,088 $ 2,602,456 Gross margin (LIFO) 145,055 170,823 148,208(2) 199,509 663,595 Selling, general and administrative expenses 171,179 179,419 179,111 190,958 720,667 Reorganization items 8,761 10,779 5,881 62,101(3) 87,522 Net loss (43,281) (28,420) (47,960) (65,664) (185,325) PER SHARE AMOUNTS(4): Basic and diluted loss per share $ (2.57) $ (1.67) $ (2.81) $ (3.86) $ (10.91) ------------------------------------------------------------------------------------------ Weighted average number of shares used in computing basic and diluted net loss per share 16,857 17,012 17,062 17,046 16,994
(1) The 1997 fourth quarter reorganization items included $38.0 million for lease rejection obligations, $32.5 million of provisions for closed stores, and a $5.6 million reduction to the Employee Retention Plan accrual. (2) The 1996 third quarter gross margin includes a $15 million reduction in the provision for vendor claims that was recorded during 1995. In addition, the Company has refined its practice of capitalizing certain costs in inventory, resulting in additional cost of merchandise sold, of approximately $13 million upon liquidation of such inventory. (3) The 1996 fourth quarter reorganization items included $30.8 million of provisions for closed stores, $20.8 million for lease rejection obligations, $7.2 million for the Employee Retention Plan and $2.4 million for professional fees. (4) In the fourth quarter of 1997, the Company adopted SFAS No. 128. All previously reported share and per share information has been restated. The sum of the quarterly per share data may not equal the annual amounts due to changes in the weighted average shares and share equivalents outstanding. -28- 29 ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA - --------------------------------------------------- See the consolidated financial statements of The Caldor Corporation and Subsidiaries attached hereto and listed on the index to consolidated financial statements set forth in Item 14 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURES --------------------- None. -29- 30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ Directors as of April 29, 1998:
Name Age Election Position ---- --- -------- -------- Warren D. Feldberg(1) 48 1996 Chairman and Chief Executive Officer John G. Reen 48 1996 Executive Vice President, Chief Financial Officer and Director Bruce Carswell(2) 68 1994 Director Steven M. Friedman(1)(3) 43 1989 Director Verna K. Gibson(4) 55 1991 Director William F. Glavin(4)(5) 66 1991 Director
(1) Member of the Executive Committee of the Board of Directors. (2) Member of the Compensation Committee of the Board of Directors (the "Compensation Committee"). (3) Chairman of the Audit Committee of the Board of Directors (the "Audit Committee"). (4) Member of the Audit Committee. (5) Chairman of the Compensation Committee. Executive officers as of April 29, 1998:
Name Age Positions ---- --- --------- Warren D. Feldberg 48 Chairman and Chief Executive Officer John G. Reen 48 Executive Vice President and Chief Financial Officer Elliott J. Kerbis 45 Executive Vice President-General Merchandise Manager-Hardlines Dennis M. Lee 48 Executive Vice President-Human Resources and Merchandise Logistics James E. Fothergill 46 Senior Vice President-Human Resources Bennett S. Gross 46 Senior Vice President-General Counsel and Secretary Gary A. Maxwell 36 Senior Vice President-Merchandise Distribution and Replenishment Mark E. Minsky 48 Senior Vice President-General Merchandise Manager-Softlines Daniel C. O'Harra 47 Senior Vice President-Operations John A. Polizzi 51 Senior Vice President - Management Information Systems Edward F. Sadler 53 Senior Vice President - Stores Susan V. Sprunk 56 Senior Vice President-Marketing John Tempesta 49 Senior Vice President-Distribution and Logistics Brian Woolf 49 Senior Vice President-General Merchandise Manager-Homelines Daniel L. Anderton 49 Vice President-Treasurer Bruce A. Caldwell 40 Vice President-Controller
-30- 31 Certain information concerning the directors and executive officers of the Registrant: WARREN D. FELDBERG has been Chairman of the Board of Directors and Chief Executive Officer of the Registrant since January 1997. He was President and Chief Operating Officer of the Registrant and a director of the Registrant from April 1996 to January 1997. From 1991 to 1995, Mr. Feldberg was Chairman and Chief Executive Officer of Marshall's, a division of Melville Corporation ("Marshalls"). From December 1990 to October 1991, he served as President of Target Stores ("Target"), a division of Dayton Hudson Corporation ("Dayton Hudson"). From October 1988 to November 1990, he served as Executive Vice President, Merchandising of Target. From March 1988 to November 1988, he was Senior Vice President, General Merchandise Manager, Softlines of Target. From 1984 to 1988, Mr. Feldberg was Executive Vice President, Marketing of Lechmere, Inc., a division of Dayton Hudson. From 1976 to 1984, Mr. Feldberg held a variety of management positions with Bloomingdales, a division of Federated Department Stores ("Federated"). He is also a director of CompUSA, Inc. JOHN G. REEN has been Executive Vice President and Chief Financial Officer of the Registrant and a director of the Registrant since January 1996. From 1991 to 1995, Mr. Reen was Executive Vice President and Chief Financial Officer of Hills Department Stores ("Hills"). From 1979 to 1991, he held various positions including Vice President-Controller of Hills. Mr. Reen was also a director and Chairman of the Finance Committee of Hills from 1993 to 1995. In October 1993, Hills emerged from reorganization proceedings under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). Hills had voluntarily filed a petition for reorganization under Chapter 11 in February 1991. BRUCE CARSWELL has been a consultant to GTE Corporation ("GTE") since April 1995. He was Senior Vice President of Human Resources and Administration of GTE from 1986 to March 1995, when he retired. He is a director of the Electronic Industries Association, the Electronic Industries Foundation ("EIF") and Cornell Center for Advanced Human Resources Studies (and its first Visiting CAHRS Executive). Mr. Carswell was appointed to the National Skill Standards Board by the Congress of the United States and currently is Vice Chairman. STEVEN M. FRIEDMAN was Chairman of the Board and Vice President of the Registrant from 1989 to 1991 and, prior thereto, in 1989, he was President of the Registrant. He was a director of Caldor, Inc. ("Caldor") from 1989 to 1993. Since January 1, 1994, Mr. Friedman has been a General Partner of Eos Partners, L.P. From 1988 to 1993, he was a General Partner of Odyssey Partners, L.P. ("Odyssey"). From 1983 to 1988, he was a principal of Odyssey. He is also a director of Eagle Food Centers, Inc. VERNA K. GIBSON has been a consultant since 1994 to Retail Options, a business advisory firm founded in June 1993, and has been a retail industry consultant and President of Outlook Consulting, Inc. since 1991. From 1994 to 1997 she served as Chairman of the Board of Petrie Retail, Inc. ("Petrie"). Petrie filed a voluntary petition for reorganization under Chapter 11 in October 1995. From 1985 to 1991, she was President of The Limited Stores, Inc. and was a director of the Federal Reserve Board, Cleveland, Ohio, for six years ending December 31, 1993. Ms. Gibson is currently a director of Today's Man, Inc., Chico's FAS Inc. and Mother's Work, Inc. WILLIAM F. GLAVIN has been President Emeritus of Babson College (Wellesley, Mass.) since June 1997. From 1989 to May 1997, he was President of Babson College. From 1985 to 1989, he was Vice Chairman of Xerox Corporation. He is also a director of Reebok International Ltd., INCO Limited and John Hancock Mutual Funds, Inc. ELLIOTT J. KERBIS has been Executive Vice President-General Merchandise Manager-Hardlines of the Registrant since January 1996. He was Senior Vice President-General Merchandise Manager-Hardlines for the Registrant and its predecessors from March 1987 to January 1996. From 1985 to 1987, he was Group Vice President with Macy's New York, Inc. DENNIS M. LEE has been Executive Vice President-Human Resources and Merchandise Logistics of the Registrant since January 1997. He was Executive Vice President-Human Resources and Merchandise Distribution and Replenishment of the Registrant from January 1996 to January 1997. He was Senior Vice President-Human Resources -31- 32 and Merchandise Distribution and Replenishment of the Registrant from May 1994 to January 1996. He was Senior Vice President-Human Resources of the Registrant and its predecessors since 1987. From 1985 to 1987, he was Vice President, Executive Development for May Company. JAMES E. FOTHERGILL has been Senior Vice President-Human Resources of the Registrant since January 1997. He was Vice President-Human Resources of the Registrant from May 1994 to January 1997. From February 1986 to May 1994, he held various positions with the Registrant, including Vice President-Organizational Planning, Field Personnel and Special Businesses. BENNETT S. GROSS has been Senior Vice President-General Counsel of the Registrant since January 1997 and Secretary of the Registrant since February 1996. He was Vice President-General Counsel of the Registrant and its predecessors from May 1993 to January 1997. He held various positions, including Vice President-General Attorney, with R.H. Macy & Co., Inc. from 1985 to May 1993, prior to which he was an Associate with the law firm of Weil, Gotshal & Manges. GARY A. MAXWELL has been Senior Vice President-Merchandise Distribution and Replenishment of the Registrant since January 1997. Previously, he was Vice President-Merchandise Distribution and Replenishment of the Registrant from January 1994 to January 1997. From June 1993 to January 1994, he was Vice President-Merchandise Planning and Control of the Registrant. From May 1990 to June 1993, he was a Consultant for Webb and Shirley, a department of KPMG Peat Marwick LLP. MARK E. MINSKY has been Senior Vice President-General Merchandise Manager-Softlines of the Registrant and its predecessors since July 1992. Previously, he was Operating Vice President, Divisional Merchandise Manager-Ready to Wear of Caldor from 1991 to July 1992. From 1985 to 1991, he was Operating Vice President, Divisional Merchandise Manager-Jewelry, Accessories and Intimate Apparel of Caldor. DANIEL C. O'HARRA has been Senior Vice President-Operations of the Registrant and its predecessors since 1987. From 1985 to 1987, he was Senior Vice President-Facilities Management of Caldor. JOHN A. POLIZZI has been Senior Vice President-Management Information Systems of the Registrant since April 1997. He was Senior Vice President of Horace Small Apparel Company from April 1996 to April 1997. From October 1994 to April 1996, he was Operating Vice President-Management Information Systems of the Registrant. From November 1993 to October 1994, he was Senior Director-Management Information Systems of Finast Supermarkets Inc. From July 1993 to November 1993, he was Project Executive of International Business Machines Corporation's ISSC Division. From August 1990 to July 1993, he was Director-Management Information Systems Applications of Rite Aid Corporation. EDWARD F. SADLER has been Senior Vice President-Stores of the Registrant since May 1997. Previously, he was Regional Vice President-Stores of the Registrant from June 1995 until May 1997. From 1976 to February 1995, he held various positions with Target, including Vice President-Store Operations, Regional Merchandise Manager and District Manager. SUSAN V. SPRUNK has been Senior Vice President-Marketing of the Registrant since August 1996. Previously, she was Vice President-Marketing of Hills from November 1993 to August 1996. From 1983 to 1993, she held a number of positions with Mervyn's, a division of Dayton Hudson, including Vice President-Sales Promotion. JOHN TEMPESTA has been Senior Vice President-Distribution and Logistics of the Registrant since November 1993. From 1988 to 1993, he was Senior Vice President-Operations of Chadwicks of Boston, and from 1983 to 1988 he was Senior Vice President-Operations of Filene's Basement. -32- 33 BRIAN WOOLF has been Senior Vice President-General Merchandise Manager-Homelines of the Registrant since May 1996. From March 1995 to February 1996, he was Vice President-General Merchandise Manager-Women's Ready-to-Wear of Marshall's. From 1988 to 1995, he was Senior Vice President-General Merchandise Manager of Lazarus, a department store division of Federated. DANIEL L. ANDERTON has been Vice President-Treasurer of the Registrant since June 1997. From May 1996 to June 1997, he was Vice President-Treasurer of Petrie. From July 1995 to May 1996, he was principal of RM Outsourcing Company. He held various positions, including Assistant Treasurer, with Crystal Brands, Inc., from 1985 to July 1995. BRUCE A. CALDWELL has been Vice President-Controller of the Registrant since February 1997 and was Vice President-Treasurer of the Registrant from February 1996 to February 1997. He held various positions, including Vice President-Treasurer, with Hills from 1987 to February 1996. Pursuant to Section 16 of the Exchange Act, officers, directors and holders of more that 10% of the outstanding shares of the Registrant's Common Stock are required to file periodic reports of their ownership of, and transactions involving, the Registrant's Common Stock with the SEC. Based solely on its review of copies of such reports received by the Registrant or written representations from certain reporting persons that no Annual Statement of Changes in Beneficial Ownership on Form 5 was required for those persons, the Registrant believes that its reporting persons have complied with all Section 16 filing requirements applicable to them with respect to the Registrant's fiscal year ended January 31, 1997, except the failure by Mr. Glavin to file a Statement of Changes in Beneficial Ownership on Form 4 (which transaction was reported in his Form 5 for 1997). -33- 34 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- SUMMARY OF CASH AND CERTAIN OTHER INFORMATION. The following table shows, for the fiscal years ended 1997, 1996 and 1995, the compensation paid or accrued by the Registrant and its subsidiaries to those persons who were at January 31, 1998 (i) the persons who served as Chief Executive Officer and (ii) the other four most highly compensated executive officers of the Registrant (the "Named Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL ---------------------- COMPENSATION (1) RESTRICTED SECURITIES NAME & PRINCIPAL FISCAL ------------------------ STOCK UNDERLYING ALL OTHER POSITION YEAR SALARY (2) BONUS AWARDS OPTIONS/SARs COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------- Warren D. Feldberg 1997 $950,000 $450,000 .-- -- $ 2,000(3) Chairman and Chief 1996 681,923 405,000 120,621(4) -- 796,731(5) Executive Officer (6) John G. Reen 1997 517,500 206,250 -- -- 14,985(7) Executive Vice President 1996 472,500 145,500 -- -- 219,108(8) and Chief Financial 1995 5,308 -- -- -- -- Officer (9) Dennis M. Lee 1997 395,000 129,874 -- -- 6,924(10) Executive Vice President- 1996 371,618 112,500 50,928(4) -- 1,875(3) Human Resources and 1995 330,370 50,160 417,994(11) 20,000 1,875(3) Merchandise Logistics (12) Elliott J. Kerbis 1997 410,163 103,956 -- -- 4,664(10) Executive Vice President- 1996 401,674 121,530 52,404(4) -- 2,186(13) General Merchandise 1995 387,600 58,710 403,688(11) 20,000 1,889(13) Manager-Hardlines(14) Susan V. Sprunk 1997 346,666 102,647 -- -- 250,854(15) Senior Vice President- 1996 125,000 -- -- -- 92,849(16) Marketing (17)
- --------------------- 1. Perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of reported annual salary and bonus for any of the Named Officers. 2. The table reflects salary paid or deferred during the respective fiscal years shown. 3. Consists of matching contribution credited to the 401(k) plan. -34- 35 4. Consists of 30,634, 13,309 and 12,934 shares of restricted stock for Messrs. Feldberg, Kerbis and Lee, respectively. These restricted stock awards vest the later of 3 years from the date of grant or 6 months following the date of reorganization. The value of the restricted stock awards at fiscal year end for Messrs. Feldberg, Kerbis and Lee was $16,274, $7,070 and $6,871, respectively. Amounts in the Restricted Stock Awards column reflect the value of the restricted stock awards at the date of grant. 5. Consists of $750,000 signing bonus and $46,731 relocation allowance paid to Mr. Feldberg. 6. Mr. Feldberg served as President and Chief Operating Officer of the Company from April 1996 to January 1997. Mr. Feldberg has been Chairman of the Board of Directors and Chief Executive Officer of the Company since January 31, 1997. 7. Consists of $2,000 matching contribution credited to the 401(k) plan, with the balance representing reimbursement of miscellaneous relocation expenses. 8. Consists of $200,000 relocation bonus and $19,108 relocation allowance paid to Mr. Reen. 9. Since January 1996 Mr. Reen has been Executive Vice President, Chief Financial Officer and Director of the Company. 10. Consists of $2,000 matching contribution credited to the 401(k) plan with the balance representing an increase in the executive's share of the cash value of the split dollar plan. 11. Consists of 21,530 and 22,293 shares of restricted stock for Messrs. Kerbis and Lee, respectively. These restricted stock awards vest one-third on each of the 3rd, 4th and 5th anniversaries of the grant date. The value of the restricted stock awards at fiscal year-end for Messrs. Kerbis and Lee was $11,438 and $11,843, respectively. Amounts in the Restricted Stock Awards column reflect the value of the restricted stock awards at the date of grant. 12. Since January 1997 Mr. Lee has been Executive Vice President-Human Resources and Merchandise Logistics. From January 1996 to January 1997 Mr. Lee was Executive Vice President-Human Resources and Merchandise Distribution and Replenishment. From May 1994 to January 1996 Mr. Lee was Senior Vice President-Human Resources and Merchandise Distribution and Replenishment. 13. Consists of $1,875 matching contribution credited to the 401(k) plan, with the balance representing an increase in the executive's share of the cash value of the split dollar plan. 14. Prior to January 1996 Mr. Kerbis was Senior Vice President-General Merchandise Manager-Hardlines. 15. Consists of $854 matching contribution credited to the 401(k) plan, with the balance representing a one-time payment to Ms. Sprunk. 16. Consists of an upfront bonus of $75,000 and reimbursement of relocation expenses of $17,849 paid to Ms. Sprunk. 17. Since August 1996 Ms. Sprunk has been Senior Vice President-Marketing. STOCK OPTIONS. During the 1997 fiscal year, there were no grants to Named Officers of stock options or of performance-based Stock Appreciation Rights ("SARs"). No stock option or SAR was exercised by a Named Officer during the 1997 fiscal year and no Named Officer held an unexercised stock option or SAR at the end of the 1997 fiscal year. -35- 36 RETIREMENT AND CERTAIN OTHER BENEFIT PLANS The following table shows the estimated pension benefits payable to a covered participant at normal retirement age under the Company's qualified defined benefit pension plan ("Caldor, Inc. Retirement Plan") as well as the Company's non-qualified supplemental pension plan ("Supplemental Executive Retirement Plan") based on covered compensation and years of service with the Company. All future benefits accruals for the Caldor, Inc. Retirement Plan and the Supplemental Executive Retirement Plan have been frozen as of July 31, 1996.
Highest Average Annual Covered Compensation for Annual Benefits for Years of Consecutive 36 Months (1) Credited Service After January 1, 1990(2) - ------------------------------------------ --------------------------------------------------- 5 Years 10 Years -------- -------- $ 100,000 $ 6,000 $ 12,000 200,000 12,000 24,000 300,000 18,000 36,000 400,000 24,000 48,000 500,000 30,000 60,000 600,000 36,000 72,000 700,000 42,000 84,000 800,000 48,000 96,000 900,000 54,000 108,000 1,000,000 60,000 120,000 1,100,000 66,000 132,000 1,200,000 72,000 144,000
- ----------------------------- (1) A participant's covered compensation (base salary plus bonus) is his or her highest average annual compensation for 36 consecutive months prior to August 1, 1996. Benefits shown on the table include benefits from the qualified plan plus 100% of the estimated Social Security benefits. (2) The target benefit has been 25% to 35% (depending upon Company performance and prorated for less than 25 years of credited service since January 1, 1990 and prior to August 1, 1996) of the highest average annual compensation for 36 consecutive months prior to August 1, 1996. Benefits are reduced if they begin prior to age 60. Annual benefits, for participants in the Supplemental Executive Retirement Plan as of January 1, 1993 are 125% of the above amounts. Messrs. Lee and Kerbis have each been credited with six years of service. None of the other Named Officers has been credited with years of service. -36- 37 DIRECTOR COMPENSATION Directors who are members of management receive no compensation or fees for service as directors. All other directors receive annual retainers of $25,000 and meeting fees of $1,000 for each Board of Directors meeting attended. The Chairmen of the Compensation and Audit Committees each receive an additional annual retainer of $5,000. EMPLOYMENT CONTRACTS, TERMINATION, SEVERANCE AND CHANGE-OF-CONTROL ARRANGEMENTS Each of the Named Officers was during fiscal 1997 and is currently a party to an employment agreement with the Company. On June 7, 1996, the Bankruptcy Court approved the employment agreement dated as of April 15, 1996, as amended on June 7, 1996, between the Company and Warren D. Feldberg, pursuant to which Mr. Feldberg was appointed President and Chief Operating Officer of the Company and was designated a director of the Company, subject to continued election by its stockholders. The agreement provides for an initial three year term of employment and continues for successive periods of one year each, unless terminated by the Company or Mr. Feldberg upon not less than 180 days written notice prior to the expiration of the then applicable term of employment. Since January 1997, Mr. Feldberg has served as Chairman of the Board of Directors and Chief Executive Officer of the Company. The agreement provides for an annual base salary of $900,000 per annum with increases at the discretion of the Board of Directors. Mr. Feldberg received a lump sum cash bonus of $750,000. In addition, on the date the Company's plan of reorganization (the "Plan of Reorganization") becomes effective in accordance with its terms (the "Effective Date"), Mr. Feldberg will be paid an amount equal to (i) 35% of his annual base salary then in effect plus (ii) up to 52.5% of his annual base salary depending upon the level of the Company's achievement as determined under the Company's Performance Retention Program approved by the Bankruptcy Court by order dated March 27, 1996; and six months following the Effective Date, Mr. Feldberg will be paid an additional amount equal to the amount paid on the Effective Date (the "Feldberg Retention Payments"). The Feldberg Retention Payments will be made only if, at the time that they are payable, Mr. Feldberg is employed by the Company, or, if not then employed, Mr. Feldberg's employment was terminated (i) by the Company without cause (as defined in the agreement) or (ii) by Mr. Feldberg for Good Reason for Resignation (as defined in the agreement). Mr. Feldberg will be entitled to participate in any cash bonus arrangements, including the Performance Incentive Plan ("PIP"), applicable to his position during the term of his employment. However, notwithstanding any limitations contained in the PIP, Mr. Feldberg will receive a minimum annual amount each year, from the date on which he commenced employment with the Company through the Effective Date, equal to 50% of the maximum amount payable to him under the PIP for any fiscal year irrespective of the financial performance of the Company, and will have the opportunity to be paid up to the additional 50% depending upon the attainment of certain financial performance goals by the Company under the PIP. If the Company elects not to renew the agreement, Mr. Feldberg will be entitled to receive, within 30 days after termination, a lump sum severance payment equal to twelve (12) multiplied by the sum of (i) 1/12 of his annual base salary in effect at the time of such expiration plus (ii) 1/12 of 100% of his Target Bonus Opportunity (as defined in the agreement) for the fiscal year of the Company in which such expiration occurs (the sum of (i) plus (ii), as measured as of the time of the applicable expiration or termination under the agreement, the "Monthly Severance Amount"). Upon termination by the Company without cause (as defined in the agreement) or by Mr. Feldberg for Good Reason for Resignation (as defined in the agreement), the severance payment would be equal to (i) the Monthly Severance Amount as of the date of such termination, multiplied by (ii) the greater of (a) the number of full calendar months remaining in his then current term of employment and (b) twelve (12); provided that if he terminates his employment by virtue of a Good Reason for Resignation relating to failure of the Company to maintain officer and director insurance, the severance payment will be reduced by one-half. If Mr. Feldberg terminates his employment (or, in certain circumstances, is dismissed) following the occurrence of certain "change -37- 38 in control" events specified in the agreement, then he will be entitled to receive, within 30 days after termination, in cash, as severance, a lump sum payment equal to the excess of 2.99 times (or in certain circumstances 1.50 times) his "base amount" over the "present value" of any other "parachute payments" that he has received or to which he is entitled ("base amount," "present value," and "parachute payments" have the meanings set forth in Section 280G of the Code except that "parachute payments" is determined without regard to whether or not they equal or exceed three times Mr. Feldberg's "base amount"). The obligations of the Company under the agreement are secured by a $3.9 million standby letter of credit. On March 6, 1996, the Bankruptcy Court approved the employment agreement dated as of January 29, 1996, as amended on March 5, 1996, between the Company and John G. Reen, pursuant to which Mr. Reen serves as an Executive Vice President and Chief Financial Officer of the Company and was designated a director of the Company, subject to continued election by its stockholders. The agreement provides for an initial term of employment expiring on March 6, 1999 and continuing for successive periods of one year each unless terminated by the Company or the employee upon not less than 120 days written notice prior to the expiration of the then applicable term of employment. The agreement provides for an annual base salary of $460,000 per annum with increases at the discretion of the Board of Directors. In addition Mr. Reen received a lump sum cash bonus of $200,000 upon his relocation. On the Effective Date of the Company's Plan of Reorganization, Mr. Reen will be paid an amount equal to 60% of his annual base salary then in effect; and, six months following the Effective Date, Mr. Reen will be paid an additional amount equal to the greater of (i) $600,000 minus the amount paid at the Effective Date or (ii) 60% of his base salary in effect on such subsequent date (the "Reen Retention Payments"). The Reen Retention Payments will be made only if, at the time that they are payable, Mr. Reen is employed by the Company, or, if not then employed, Mr. Reen's employment was terminated (i) by reason of Mr. Reen's death, (ii) by the Company other than for cause (as defined in the Agreement), (iii) by Mr. Reen for Good Reason for Resignation (as defined in the Agreement) or (iv) as a result of non-renewal of the agreement by the Company. Mr. Reen will be entitled to participate in any cash bonus arrangements, including the PIP, applicable to his position during the term of his employment. However, notwithstanding any limitations contained in the PIP, Mr. Reen will receive a minimum annual bonus each year, from the date on which he commenced employment with the Company through the date the Court enters an order confirming the Company's Plan of Reorganization ("Confirmation"), equal to 30% of his annual base salary (as in effect on May 1 of the fiscal year for which the bonus is to be paid) and will have the opportunity to be paid up to an additional 30% of his annual base salary depending upon the attainment of achievable financial objectives determined by the Company and applicable to all senior executives who participate in the PIP. Mr. Reen will also be entitled to participate on a level immediately below that of "Principal" in any equity or cash bonus program included or contemplated by any Plan of Reorganization confirmed by the Bankruptcy Court. If the Company elects not to renew the agreement, then he will be entitled to receive, within 30 days after termination, a lump sum severance payment equal to the sum of (i) 100% of his annual base salary in effect at the time of such termination plus (ii) 100% of his target bonus opportunity (the bonus payable upon the Company achieving, but not exceeding, its business plan) for the fiscal year in which such termination occurs. Upon termination of the agreement by the Company without cause (as defined in the agreement) or by Mr. Reen for Good Reason for Resignation (as defined in the agreement), the severance payment would be equal to the sum of (i) 1/12 of the annual base salary plus 1/12 of the target bonus opportunity for the fiscal year of the Company in which such termination occurs multiplied by the greater of (a) the number of full calendar months remaining in his then current term of employment and (b) twelve (12). If Mr. Reen terminates his employment (or, in certain circumstances, is dismissed) pursuant to certain "change in control" provisions (as described in the agreement), then he will be entitled to receive, within 30 days after termination, in cash, as severance, a lump sum payment equal to the excess of 2.99 times his "base amount" over the "present value" of any other "parachute payments" that he has received or to which he is entitled ("base amount," "present value," and "parachute payments" have the meanings set forth in Section 280G of the Code, except that "parachute payments" is determined without regard to whether or not they equal or exceed three times Mr. Reen's "base amount"). -38- 39 The employment agreements of each of Mr. Kerbis, Mr. Lee and Ms. Sprunk are substantially identical and expire on October 31, 1998, October 31, 1998 and September 3, 1998, respectively. Each such agreement continues for successive periods of one year unless terminated by either party upon not less than two months' written notice prior to the expiration of the then applicable term of employment. Such agreements provide for an annual salary during their respective terms (the base salary for the fiscal year ended January 31, 1998 is the amount set forth for 1997 in the above Summary Compensation Table), with increases subject to the discretion of the Board of Directors. On October 3, 1997, the Company and Ms. Sprunk entered into an agreement providing for a one-time payment of $250,000 to her by the Company. If the Company elects not to renew the employment agreement of Mr. Kerbis, Mr. Lee or Ms. Sprunk, then such employee would receive, within 30 days after termination, a lump sum payment equal to the sum of (i) 1/12 of the employee's annual base salary in effect at the time of such termination plus (ii) 1/12 of 100% of the employee's target bonus opportunity for the fiscal year in which such termination occurs, which sum is multiplied by nine. Such agreements also provide for the continuation of health and insurance benefits for a period of nine months following termination. If, during the term of any such employment agreement, the Company terminates the employment of the employee other than for "cause" (as defined below), or the employee terminates his or her employment because the Company, upon 30 days' prior written notice by the employee specifying a material breach of any of its obligations to the employee under such agreement, has failed to cure such material breach (within such 30-day notice period), then such employee is entitled to receive, within 30 days after termination, a lump sum payment equal to (X) the sum of (i) 1/12 of his or her annual base salary in effect at the time of such termination plus (ii) 1/12 of 100% of the employee's target bonus opportunity for the fiscal year in which such termination occurs, multiplied by (Y) the greater of (a) the number of calendar months remaining in the employee's term of employment and (b) nine. Such agreements also provide for the continuation of health and insurance benefits for the number of months determined under clause (Y) above. ("Cause" is defined as (i) the willful failure to perform any material obligations under the employment agreement, (ii) an act of fraud, theft or dishonesty likely to result in financial harm to the Company, (iii) the conviction of any felony or (iv) the conviction of any misdemeanor involving moral turpitude which might cause embarrassment to the Company.) In addition, Mr. Kerbis, Mr. Lee and Ms. Sprunk each has the right to terminate his or her employment within 12 months after (i) the employee has obtained actual knowledge that a "change in control" (as defined) of the Company has occurred and (ii) an assignment to the employee of any duties inconsistent with the status of his or her office and/or position with the Company as constituted immediately prior to the change in control or a significant adverse change in the nature or scope of his or her authorities, powers, functions or duties as constituted immediately prior to the change in control. The employment agreements of each of Mr. Kerbis, Mr. Lee and Ms. Sprunk provide that if the employee terminates his or her employment following a change in control, then the employee is entitled to receive, within 30 days after termination, in cash, as severance, a lump sum payment equal to the salary and bonus amounts paid by the Company to the employee during the 24 month period immediately preceding the termination (the "Payment Period"), but not to exceed 2.99 times the employee's "base amount" (as defined below). In each of the foregoing employment agreements, a "change in control" is deemed to have occurred (i) if there has occurred a change in control as provided under certain rules or regulations under the federal securities laws, (ii) when any person or entity becomes a beneficial owner of 20% or more of the Company's securities, (iii) if the stockholders of the Company approve a plan of complete liquidation; or (iv) if there occurs a change in ownership or effective control of the Company or a substantial portion of its assets. The term "base amount" as used in each of the foregoing employment agreements has the meaning ascribed to such term in Section 280G of the Code. -39- 40 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS During fiscal 1997, the Compensation Committee consisted of Steven M. Friedman, Bruce Carswell and William F. Glavin. Steven M. Friedman was an officer of the Registrant from 1989 to 1991. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------------- (a) To the best of the Registrant's knowledge, there were no beneficial owners of more than 5% of the issued and outstanding shares of Common Stock as of March 15, 1998. (b) The following table sets forth information regarding the beneficial ownership at March 15, 1998 of the issued and outstanding shares of Common Stock of (a) each of the current directors of the Registrant, (b) each of the Named Officers and (c) all 19 current directors and executive officers of the Registrant as a group:
Name of Beneficial Owner Number of Shares Percent of Total Common Stock(1) - ------------------------ ---------------- -------------------------------- Warren D. Feldberg 30,634(2) * John G. Reen 0 * Bruce Carswell 4,943 * Steven M. Friedman 0 * Verna K. Gibson 0 * William F. Glavin 2,000 * Elliott J. Kerbis 34,839(2) * Dennis M. Lee 35,227(2) * Susan V. Sprunk 0 * All current directors and executive officers as a group (19 persons) 217,036(3)(4) 1%
* Ownership does not exceed 1% of the outstanding shares. (1) Unless otherwise noted, each beneficial owner has sole voting and investment power with respect to the shares attributable to such owner. The percent of total stock owned is based on 16,902,839 shares issued and outstanding at the close of business on March 15, 1998. (2) Consists of shares of restricted stock subject to cancellation if the employee leaves the employ of the Company prior to vesting. (3) Includes an aggregate of 183,718 shares of restricted stock held by officers subject to cancellation if such executive officers leave the employ of the Company prior to vesting. (4) Includes an aggregate of 25,875 shares which may be acquired within 60 days of March 15, 1998 upon exercise of options or SARs. (c) The Registrant is not aware of any arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change of control of the Registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- None -40- 41 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) Documents filed as part of this annual report: (1) Financial Statements: The Consolidated Financial Statements are set forth in the Index to Consolidated Financial Statements on page F-1 hereof. (2) Financial Statement Schedules: None. (b) Reports on Form 8-K: None. (c) Exhibits: (1) Exhibits are set forth in the "Exhibits to Form 10-K" on page E-1. -41- 42 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. THE CALDOR CORPORATION By: /s/ Warren D. Feldberg ------------------------------------ Warren D. Feldberg Dated April 29, 1998 Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ Warren D. Feldberg Chairman, Chief Executive Officer April 29, 1998 - ------------------------------------------ and Director (Principal Executive Warren D. Feldberg Officer) /s/ John G. Reen Executive Vice President, April 29, 1998 - ------------------------------------------ Chief Financial Officer and Director John G. Reen (Principal Financial and Accounting Officer) /s/ Bruce Carswell Director April 29, 1998 - ------------------------------------------ Bruce Carswell /s/ Steven M. Friedman Director April 29, 1998 - ------------------------------------------ Steven M. Friedman /s/ Verna K. Gibson Director April 29, 1998 - ------------------------------------------ Verna K. Gibson /s/ William F. Glavin Director April 29, 1998 - ------------------------------------------ William F. Glavin
-42- 43 THE CALDOR CORPORATION INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page No. -------- Independent Auditors' Report F-2 Consolidated Financial Statements Consolidated Statements of Operations F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Stockholders' Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7
F-1 44 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Caldor Corporation Norwalk, Connecticut We have audited the accompanying consolidated balance sheets of The Caldor Corporation (Debtor-in-Possession) and subsidiaries (the "Company") as of January 31, 1998 and February 1, 1997, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Caldor Corporation (Debtor-in-Possession) and subsidiaries as of January 31, 1998 and February 1, 1997, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1998 in conformity with generally accepted accounting principles. As discussed in Note 1, the Company and certain of its subsidiaries filed for reorganization under Chapter 11 of the United States Bankruptcy Code in September 1995. The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; (d) as to operations, the effect of any changes that may be made in its business; or (e) as to the litigation, claims and contingencies discussed in Note 16, the amounts that may be allowed for such matters. The eventual outcome of these matters is not presently determinable. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the bankruptcy filings and related circumstances and the recurring losses from operations raise substantial doubt about its ability to continue as a going concern. The continuation of its business as a going concern is contingent upon, among other things, future profitable operations, the ability to generate sufficient cash from operations and financing sources to meet its obligations, and the development and confirmation of a plan of reorganization. Management's plans concerning these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties referred to herein and in the preceding paragraph. DELOITTE & TOUCHE LLP New York, New York April 24, 1998 F-2 45 THE CALDOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED --------------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, (in thousands, except per share data) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Net sales $ 2,496,747 $ 2,602,456 $ 2,765,525 Cost of merchandise sold (note 7) 1,828,343 1,938,861 2,131,281 Selling, general and administrative expenses (notes 2, 13 and 15) 670,747 720,667 773,810 Loss on disposition of property and equipment 671 729 1,187 Interest expense, net (note 14) 43,864 39,502 40,973 ----------- ----------- ----------- Loss before reorganization items, income taxes and extraordinary item (46,878) (97,303) (181,726) Reorganization items (note 8) 84,931 87,522 170,731 ----------- ----------- ----------- Loss before income taxes and extraordinary item (131,809) (184,825) (352,457) Provision (benefit) for income taxes (note 11) 800 500 (59,825) ----------- ----------- ----------- Loss before extraordinary item (132,609) (185,325) (292,632) Extraordinary loss on early retirement of debt (note 12) -- -- (8,396) ----------- ----------- ----------- Net loss $ (132,609) $ (185,325) $ (301,028) =========== =========== =========== BASIC AND DILUTED PER SHARE AMOUNTS (NOTE 2): Loss per share before extraordinary item $ (7.84) $ (10.91) $ (17.31) Extraordinary loss -- -- (0.50) ----------- ----------- ----------- Loss per share $ (7.84) $ (10.91) $ (17.81) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES USED IN COMPUTING BASIC AND DILUTED PER SHARE AMOUNTS 16,911 16,994 16,902 =========== =========== ===========
See notes to consolidated financial statements. F-3 46 THE CALDOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data) JANUARY 31, 1998 FEBRUARY 1, 1997 - ---------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 21,561 $ 27,477 Restricted cash (note 2) 1,023 5,254 Accounts receivable 12,853 12,573 Merchandise inventories (note 2) 419,682 450,499 Assets held for disposal, net (note 2) 30,076 8,177 Refundable income taxes (note 11) 13,040 Prepaid expenses and other current assets 20,987 17,422 ----------- ----------- Total current assets 506,182 534,442 ----------- ----------- Property and equipment, net (notes 2 and 3) 436,658 508,071 Debt issuance costs (note 2) 1,086 2,516 Other assets 5,194 5,851 ----------- ----------- Total $ 949,120 $ 1,050,880 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 149,659 $ 152,508 Accrued expenses 60,360 62,787 Other accrued liabilities (note 4) 53,542 64,478 Current maturities of long-term debt (note 5) 9,936 550 Borrowings under revolving credit agreement (note 5) 187,698 152,000 ----------- ----------- Total current liabilities 461,195 432,323 ----------- ----------- Long-term debt (note 5) 10,525 18,463 Other long-term liabilities 31,037 28,322 Liabilities subject to compromise (note 6) 729,039 719,980 Commitments and contingencies (notes 6,8,13,15 and 16) Stockholders' deficit (notes 9,10 and 15): Preferred stock, par value $.01- authorized, 10,000,000 shares; issued and outstanding, none Common stock, par value $.01- authorized, 50,000,000 shares; issued and outstanding, 16,902,839 and 16,939,106 shares, respectively 169 169 Additional paid-in capital 201,334 201,823 Deficit (481,419) (348,810) Unearned compensation (616) (1,390) Minimum pension liability adjustment (2,144) -- ----------- ----------- Total stockholders' deficit (282,676) (148,208) ----------- ----------- Total $ 949,120 $ 1,050,880 =========== ===========
See notes to consolidated financial statements. F-4 47 THE CALDOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
OUTSTANDING COMMON STOCK ADDITIONAL RETAINED ------------ PAID-IN EARNINGS (in thousands, except share data) SHARES AMOUNT CAPITAL (DEFICIT) - ---------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 28, 1995 16,697,467 $ 167 $ 199,456 $ 137,543 Exercise of stock options and warrants 2,725 43 Issuance of common stock 5,053 117 Shares issued under restricted stock plan 216,188 2 5,432 Amortization of unearned compensation Net loss (301,028) ----------- --------- ------------------ ------------------ BALANCE, FEBRUARY 3, 1996 16,921,433 169 205,048 (163,485) Cancellation of restricted stock (187,372) (2) (4,030) Shares issued under director stock plan 13,876 42 Shares issued under restricted stock plan 191,169 2 763 Amortization of unearned compensation Net loss (185,325) ----------- --------- ------------------ ------------------ BALANCE, FEBRUARY 1, 1997 16,939,106 169 201,823 (348,810) Cancellation of restricted stock (36,267) (489) Amortization of unearned compensation Minimum pension liability adjustment Net loss (132,609) ----------- --------- ------------------ ------------------ BALANCE, JANUARY 31, 1998 16,902,839 $ 169 $ 201,334 $(481,419) =========== ========= ================== ================== MINIMUM UNEARNED PENSION STOCKHOLDERS' (in thousands, except share data) COMPENSATION LIABILITY EQUITY (DEFICIT) - ------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 28, 1995 $ $ $ 337,166 Exercise of stock options and warrants 43 Issuance of common stock 117 Shares issued under restricted stock plan (5,434) Amortization of unearned compensation 910 910 Net loss (301,028) --------------- ----------------- -------------------- BALANCE, FEBRUARY 3, 1996 (4,524) 37,208 Cancellation of restricted stock 2,974 (1,058) Shares issued under director stock plan 42 Shares issued under restricted stock plan (765) Amortization of unearned compensation 925 925 Net loss (185,325) --------------- ----------------- -------------------- BALANCE, FEBRUARY 1, 1997 (1,390) (148,208) Cancellation of restricted stock 312 (177) Amortization of unearned compensation 462 462 Minimum pension liability adjustment (2,144) (2,144) Net loss (132,609) --------------- ----------------- -------------------- BALANCE, JANUARY 31, 1998 $ (616) $ (2,144) $ (282,676) =============== ================= ====================
See notes to consolidated financial statements. F-5 48 THE CALDOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED ------------------------------------------------------- (in thousands) JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(132,609) $(185,325) $(301,028) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Amortization of debt issuance costs 4,061 1,778 900 Depreciation and other amortization 51,209 54,594 59,894 Loss on disposition of property and equipment 671 729 1,187 Extraordinary loss on early retirement of debt -- -- 3,471 Amortization of unearned compensation 462 925 910 Reorganization items 84,931 87,522 170,731 Working capital and other 21,361 74,894 160,274 --------- --------- --------- Net cash provided by operating activities before reorganization items 30,086 35,117 96,339 Reorganization items: Reduction in liabilities subject to compromise (28,977) (78,182) -- Reorganization items paid (16,936) (29,890) (3,090) --------- --------- --------- Net cash (used in) provided by operating activities (15,827) (72,955) 93,249 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (29,468) (36,553) (81,084) --------- --------- --------- Net cash used in investing activities (29,468) (36,553) (81,084) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of Senior Secured Notes -- -- (59,500) Proceeds from borrowings under Term Loan -- -- 50,000 Proceeds from Real Estate Loan -- -- 37,145 Proceeds from issuance of common stock and exercise of stock options -- 42 160 Repayment of construction loan previously subject to compromise -- (5,753) -- Proceeds from borrowings under construction loans -- 10,942 -- Proceeds from (repayment of) borrowings under revolving credit agreement 35,698 112,000 (30,243) Decrease (increase) in restricted cash 4,231 (5,254) -- Repayment of long-term debt (550) (569) (5,250) --------- --------- --------- Net cash provided by (used in) financing activities 39,379 111,408 (7,688) --------- --------- --------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,916) 1,900 4,477 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 27,477 25,577 21,100 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,561 $ 27,477 $ 25,577 ========= ========= ========= WORKING CAPITAL AND OTHER: Accounts receivable $ (280) $ 5,486 $ (9,834) Merchandise inventories 30,817 49,449 22,251 Assets held for disposal, net (21,899) 17,088 -- Refundable income taxes and deferred income taxes 13,040 8,966 (28,296) Prepaid expenses and other current assets (3,565) (375) (5,857) Accounts payable (2,849) (3,732) 113,847 Accrued expenses (2,427) (8,048) 122,525 Other accrued liabilities (3,755) 5,371 (3,822) Federal and state income taxes payable -- -- (44,584) Other assets and long-term liabilities 12,279 689 (5,956) --------- --------- --------- WORKING CAPITAL AND OTHER $ 21,361 $ 74,894 $ 160,274 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Interest payments $ 38,613 $ 36,278 $ 36,210 Income tax payments 688 562 8,101 Capital lease obligations incurred -- 462 14,756
See notes to consolidated financial statements. F-6 49 THE CALDOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) - ----------------------------------------------- NOTE 1 - CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION On September 18, 1995, The Caldor Corporation (the "Registrant") and certain of its subsidiaries (collectively, the "Debtors", "Caldor" or the "Company") filed voluntary petitions (the "Filing") for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The Debtors are presently operating their business as debtors-in-possession subject to the jurisdiction of the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). In the Chapter 11 case, substantially all liabilities as of the date of the Filing are subject to resolution under a plan of reorganization to be voted upon by the Debtors' creditors and stockholders and confirmed by the Bankruptcy Court. Amended and restated schedules were filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the date of the Filing as shown by the Debtors' accounting records. The Bankruptcy Court fixed August 12, 1996 as the last date by which creditors of the Debtors could file proofs of claim for claims that arose prior to the Filing. The Debtors are in the process of reconciling differences between amounts shown by the Debtors and claims filed by creditors. The amount and settlement terms for such disputed liabilities are subject to allowance by the Bankruptcy Court. Ultimately, the adjustment of the total liabilities of the Debtors remains subject to a Bankruptcy Court approved plan of reorganization and, accordingly, the amount of such liabilities is not presently determinable. The Bankruptcy Court has extended the period in which the Debtors possess the exclusive right to file a plan of reorganization through September 1, 1998 and the period in which the Debtors can solicit acceptances for the plan of reorganization through October 30, 1998. The Debtors have distributed a term sheet and drafts of their proposed plan of reorganization and disclosure statement to the professionals representing the Debtors' Creditor, Bank and Equity Committees. The Debtors are negotiating the terms and timing of their emergence from Chapter 11 with these Committees. At this time it is not expected that such plan would provide for recovery by equity security holders. On September 18, 1997, the New York Stock Exchange suspended trading in the Company's Common Stock and on November 25, 1997, the Securities and Exchange Commission delisted the Company's Common Stock. Subsequent to September 18, 1997, the Company's Common Stock has been traded on the "OTC Bulletin Board." The United States Trustee for the Southern District of New York has appointed Official Committees ("Committees") of Unsecured Creditors and Equity Security Holders for the Chapter 11 case. The role of the Committees includes, among other things: (a) consultation with the Debtors concerning the administration of the Chapter 11 case; (b) investigation of the acts, conduct, assets, liabilities, financial condition and operations of the Debtors, and the desirability of the continuation of their business and other relevant matters; and (c) participation in the formulation of a plan of reorganization. In discharging these responsibilities, the Committees have standing to raise issues with the Bankruptcy Court relating to the business of the Debtors and the conduct and course of the Chapter 11 case. The Debtors are required to pay certain expenses of the Committees and those of the Steering Committee of the banks participating in the Extended DIP Facility (as hereinafter defined), including professional fees, to the extent allowed by the Bankruptcy Court. F-7 50 On December 6, 1996 the Company presented its Five-Year Business Plan (the "Business Plan") to the Company's Creditor, Bank and Equity Committees setting forth its strategy to restore the Company to long-term profitability by raising customer satisfaction levels, revamping advertising programs, lowering everyday prices and focusing its promotional activity, narrowing and refocusing merchandise assortments, and implementing improved operating efficiencies and cost reductions. The Company believes that the Business Plan sets forth a strategic direction to take advantage of its strengths and to improve key areas of its business. The Company will continue to review and refine the Business Plan. On June 7, 1996, the Bankruptcy Court approved the Debtors' reclamation program, which authorizes the Debtors to settle the claims of 425 vendors that submitted reclamation demands at the time of Filing. The program provides for each reclamation vendor that extends mutually acceptable credit support to receive both a cash payment of up to 50% of its eligible reclamation claim and, subject to certain conditions, priority treatment for the remainder of its claim. Reclamation cash payments of $1.5 million and $11.6 million were made in 1997 and 1996, respectively. To the extent these payments exceed $10 million, the Debtors are required to apply such excess to pay down the term portion of the pre-petition credit facility (the "Term Loan") in an equivalent amount (up to $8.5 million). In 1997 and 1996, the Debtors had paid down $1.4 million per year of the Term Loan related to the reclamation program. Under Chapter 11, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory pre-petition contracts, subject to Bankruptcy Court approval. Under Section 502 of the Bankruptcy Code, a lessor's claim for damages resulting from the rejection of a real property lease is limited to the rent provided under such lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term of the lease following the earlier of the date of the Filing or the date on which the property is returned to the landlord. Forty-five of the Company's store leases, including three which were rejected in 1996, are guaranteed by the Company's former parent, The May Department Stores Company ("May Company"). In 1989 as part of its leveraged buyout from May Company, the Company agreed to indemnify May Company for any damages incurred by May Company under its guaranties. The Company's liability to May Company for amounts paid by May Company under its guaranties of these leases, if rejected, may not be limited under Section 502 of the Bankruptcy Code. As a pre-petition claim, however, this liability is subject to compromise and discharge. A landlord may also have a claim for unpaid pre-petition rent. As of April 15, 1998, the Debtors had rejected leases for 32 locations, assumed 17 real estate leases (two of which were for warehouses and the balance were for stores) and had F-8 51 reached agreement with landlords to terminate, without liability, seven additional leases. Subsequent to assuming these leases, the Company announced its plans to close the Under-Performing Stores (as hereinafter defined), including three locations for which leases had been assumed (the "Previously Assumed Stores"). The claims of the landlords of the Previously Assumed Stores are treated as administrative expenses under Chapter 11 subject to both the landlords' obligation to mitigate damages and limitations on damages agreed upon by the Company and each landlord. The Company is required by an order of the Bankruptcy Court, subject to the right of both the Company and the applicable landlord to move to accelerate for due cause shown, to make a decision to assume or reject 39 leases by August 31, 1998 and the balance of the real property leases on confirmation of its plan of reorganization. As part of the ongoing review of its operations, the Company is currently negotiating with landlords regarding rent reductions and lease restructurings (See note 8). On April 2, 1996, the Bankruptcy Court approved the closing of 12 under-performing stores (the "1996 Closed Stores") and the Debtors' retention of a liquidator to conduct store closing sales (the "1996 Closing Sales"). The 1996 Closing Sales were completed and the stores were closed by the end of June 1996. On July 16, 1996, the Bankruptcy Court directed the application of the net proceeds of the 1996 Closing Sales to the payment of the Term Loan. The Company paid $2.2 million and $22.5 million to The Chase Manhattan Bank ("Chase"), as agent for the Term Loan banks in 1997 and 1996, respectively. On March 12, 1997 the Bankruptcy Court approved the closing of 4 under-performing stores (the "1997 Closed Stores") and the Debtor's retention of a liquidator to conduct store closing sales (the "1997 Closing Sales"). These sales were completed and the stores were closed by the end of May 1997. Concurrently, the Registrant, as the borrower thereunder, the subsidiaries of the Registrant named therein, as the guarantors thereunder, and the bank group led by Chase entered into an amendment (the "Third Amendment") to the Amended and Restated Revolving Credit and Guaranty Agreement dated as of October 17, 1995 among the Registrant, as the borrower thereunder, the subsidiaries of the Registrant named therein, as the guarantors, thereunder, and a bank group led by Chase ("the DIP Facility"). Pursuant to the Third Amendment, all of the proceeds of the 1997 Closing Sales were applied to a prepayment of the Tranche B (as hereinafter defined) loans and the Tranche B facility commitment was reduced by such amount. As part of the Company's ongoing review process, the Company identified, and on March 25, 1998 obtained Bankruptcy Court approval to close, 12 under-performing stores in 1998 (the "Under-Performing Stores"). The Company completed a liquidation sale at one of the locations and has retained a liquidator who is currently conducting store closing sales at the other locations. The net proceeds of these sales will be placed in a segregated interest bearing account with Chase, in its capacity as agent under the DIP Facility, pending agreement between the Company and the bank group concerning distribution of the proceeds. The Debtors continue to review leases and contracts, as well as other operational and merchandising changes, and cannot presently determine or reasonably estimate the ultimate outcome of, or liability resulting from this review. The consolidated financial statements of the Company have been presented in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7: "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") and have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates continuity of operations, realization of assets and the liquidation of liabilities and commitments in the normal course of business. The Filing, related circumstances and the losses from operations, raise substantial doubt about the Company's ability to continue as a going concern. The appropriateness of using the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, and the ability to generate sufficient cash from operations and financing sources to meet obligations. As a result of the Filing and related circumstances, however, such realization of assets and liquidation of liabilities is subject to significant uncertainty. While under the protection of Chapter 11, the Debtors may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the F-9 52 consolidated financial statements. Further, a plan of reorganization could materially change the amounts reported in the consolidated financial statements. The consolidated financial statements do not include any adjustments relating to a recoverability of the value of recorded asset amounts or the amounts and classification of liabilities that might be necessary as a consequence of a plan of reorganization. NOTE 2 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Description of Business - The Company operates a regional chain of upscale discount retail stores located in nine East Coast and Mid-Atlantic states. The Company's fiscal year ends on the Saturday closest to January 31. References to 1997, 1996 and, 1995 relate to the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996, respectively. Each of these fiscal years included 52 weeks except for 1995 which included 53 weeks. References to years relate to fiscal years rather than calendar years. b. Principles of Consolidation and Basis of Presentation - The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany accounts and transactions between the entities have been eliminated. c. Cash Equivalents - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. d. Restricted Cash - As of January 31, 1998, the restricted cash balance of $1 million was being held in a segregated account, pursuant to stipulation, pending resolution of a motion filed in Bankruptcy Court by a vendor of the Company. As of February 1, 1997, the restricted cash balance of $5.3 million was being held in an escrow account pending final resolution of issues concerning the closing sales agreement between the Company and the liquidator who conducted the 1996 Closing Sales. e. Merchandise Inventories -The value of merchandise inventories is determined by the lower of LIFO (last-in, first-out) cost, using the retail inventory method, or market. The LIFO cost of merchandise inventories exceeded current cost at January 31, 1998 and February 1, 1997. Therefore, the reported amounts of merchandise inventory approximate market at January 31, 1998 and February 1, 1997. f. Assets Held for Disposal - Assets held for disposal represent the net realizable value of inventories located at the stores to be closed and the net realizable value of land and building for the Silver Spring, Maryland store to be closed. g. Property and Equipment - Property and equipment are stated at cost (or purchase cost) less accumulated depreciation and amortization. Provisions for depreciation and amortization are computed using the straight-line method based upon the estimated useful lives of the assets, which are 40 to 50 years for buildings and 3 to 15 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of their economic lives or the terms of the leases. Leasehold interests and investments in property under capital leases are amortized over the related lease term. h. Debt Issuance Costs - Debt issuance costs are amortized over the term of the related debt agreements (See note 14). i. Selling, General and Administrative Expenses - Buying and store occupancy costs are included in selling, general and administrative expenses. F-10 53 j. Store Pre-Opening Expenses - Costs associated with the opening of new stores are expensed in the year the stores are opened. The Company did not incur any pre-opening expenses in 1997. The Company incurred pre-opening expenses of $3.1 million and $1.6 million in 1996 and 1995, respectively. k. Advertising Costs - Advertising costs, net are expensed as incurred and were $60.4 million, $70.8 million and $70.4 million in 1997, 1996 and 1995, respectively. l. Income Taxes - The Company provides for deferred income taxes under the asset and liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," whereby deferred income taxes result from the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements (see Note 11). m. Earnings (Loss) Per Share - In 1997, the Company adopted SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 establishes standards for computing and presenting earnings per share. Basic and diluted earnings (loss) per share were computed by dividing net income by the weighted average number of common shares outstanding during each period. Stock options to purchase 190,525, 279,299 and 1,083,037 shares of common stock were outstanding at January 31, 1998, February 1, 1997 and February 3, 1996 respectively, but were not included in the computation of diluted earnings per share since they would have resulted in an antidilutive effect. n. Self Insurance Programs - The Company is self insured for workers compensation and general liability claims, and recognizes the projected costs of such programs on a discounted basis using a risk-free rate. Use of a risk-free rate to discount future cash payments produces a reserve that approximates the amount at which such claims could be settled in an arm's length transaction with a third party. o. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The consolidated financial statements include estimates of restructuring charges for certain facilities closings (see note 8) and do not purport to reflect or provide for the consequences of the bankruptcy proceedings and other uncertainties. Actual results could differ from reported results. p. Reclassifications - Certain balances in prior fiscal years have been reclassified to conform with the current year's classifications. q. Stock-Based Compensation - The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. In 1996, the Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation Plans." (See note 9). r. Recent Accounting Pronouncements - In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for the Company's fiscal year ending January 30, 1999 ("Fiscal Year 1998"). SFAS No. 130 establishes standards for reporting and display of comprehensive income (the change in equity from transactions and other events except those resulting from investment by owners). The Company is currently evaluating the effects of this change on its financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related information," which is effective beginning with Fiscal Year 1998. SFAS No. 131 will require that segment F-11 54 financial information be publicly reported on the basis that is used internally for evaluating segment performance. The Company is currently evaluating the effects of this change on its financial statements. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" which is effective beginning with Fiscal Year 1998. SFAS No. 132 standardizes the disclosure requirements for pension and other postretirement benefits, but does not change the existing measurement or recognition provisions of previous standards. The Company is currently evaluating the effects of this change on its financial statement disclosures. s. Fair Value of Financial Instruments - SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" requires disclosures of estimated fair values of financial instruments both reflected and not reflected in the accompanying consolidated financial statements. The estimated fair values of the Company's cash and cash equivalents, accounts receivable, borrowings under credit agreements and accounts payable (post-petition) approximate the carrying amounts at January 31, 1998 and February 1, 1997 due to their short maturities or variable-rate nature of the borrowings. As judgment is involved, the estimates are not necessarily indicative of the amounts the Company could realize in a current market exchange. The fair value of the Company's liabilities subject to compromise is not presently determinable as a result of the Chapter 11 proceedings. F-12 55 NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment is recorded at cost, less accumulated depreciation and amortization, as follows:
January 31, 1998 February 1, 1997 ---------------- ---------------- Land $ 10,464 $ 15,561 Buildings, leasehold interests and improvements 278,791 293,023 Furniture, fixtures and equipment 251,810 263,743 Property under capital leases 105,144 123,633 --------- --------- 646,209 695,960 Less: Accumulated depreciation and amortization (209,551) (187,889) --------- --------- Property and equipment, net $ 436,658 $ 508,071 ========= =========
NOTE 4 - OTHER ACCRUED LIABILITIES Other accrued liabilities consisted of the following:
January 31, 1998 February 1, 1997 ---------------- ---------------- Accrued reorganization costs $26,532 $33,713 Accrued wages and benefits 15,469 18,557 Other accruals 11,541 12,208 ------- ------- Total $53,542 $64,478 ======= =======
F-13 56 Note 5 - Debt Debt consisted of the following:
January 31, 1998 February 1, 1997 ---------------- ---------------- Short-term debt: Borrowings under revolving credit agreement $ 187,698 $ 152,000 ========= ========= Long-term debt: Capital lease obligations, due 1998 - 2018, 10.5% to 11.1% $ 10,525 $ 8,527 Construction loan 9,936 10,486 --------- --------- 20,461 19,013 Less: Current maturities (9,936) (550) --------- --------- Total long-term debt $ 10,525 $ 18,463 ========= =========
On October 17, 1995, the Bankruptcy Court entered a final order (the "Final Order") approving the DIP Facility. The DIP Facility amended and restated, in its entirety, the Registrant's Debtor-In-Possession Revolving Credit and Guaranty Agreement dated as of September 18, 1995 with Chase as agent. On June 4, 1997, the Bankruptcy Court entered a final order approving the Fourth Amendment to the DIP Facility (the "Fourth Amendment") which extended the DIP Facility to June 15, 1998 (the "Extended DIP Facility"). The Extended DIP Facility provides for a revolving credit and letter of credit facility in an aggregate principal amount not to exceed $450 million, divided into two (2) separate tranches consisting of (i) a post petition revolving credit and letter of credit facility in an aggregate principal amount not to exceed $250 million made available by the Tranche A Banks (the "Tranche A Facility") and (ii) the continued use of the revolving credit and letter of credit portion of the pre-petition credit facility made available by the Tranche B Banks (the "Tranche B Facility") in an aggregate principal amount of $200 million which principal amount may be borrowed, paid and reborrowed. The Company's maximum borrowing under the Tranche A Facility, up to $250 million, may not exceed the lesser of 60% of Eligible Cost Value of Inventory or 50% of Eligible Retail Value of Inventory (the "Borrowing Base"). At January 31, 1998, the Borrowing Base was $217.4 million. The Extended DIP Facility has a sublimit of $175 million for the issuance of letters of credit. The Tranche B Facility must be fully utilized before the Company can borrow under the Tranche A Facility. In addition, the Extended DIP Facility provides for, among other things, capital expenditures not to exceed $16 million from January 31, 1998 through the maturity date, revised earnings before interest, taxes, depreciation, amortization and reorganization items ("EBITDAR") thresholds for the fiscal quarter ending May 2, 1998 and revised monthly inventory amounts through June 15, 1998. The Extended DIP Facility also contains restrictive covenants, including, among other things, limitations on the creation of additional liens and indebtedness, capital leases and annual rents, the sale of assets and a prohibition on the payment of dividends. The Company was in compliance with the financial covenants contained in the Extended DIP Facility at January 31, 1998. The Extended DIP Facility provides that advances made (i) under the Tranche A Facility will bear interest at a rate of 0.75% per annum in excess of Chase's Alternative Base Rate ("ABR"), or at the Registrant's option, a rate of 1.75% per annum in excess of LIBOR for the interest periods of one, three or six months or (ii) under the Tranche B Facility will bear interest at 0.25% per annum in excess of ABR, or, at the Registrant's option, a rate of F-14 57 1.0% per annum in excess of LIBOR. The Registrant incurred approximately $3 million in bank fees associated with the extension of the DIP Facility, which were paid in 1997. In all other material respects, the DIP Facility remains unchanged. The Final Order provides that (i) the Company pay monthly interest payments on the outstanding principal amount of pre-petition indebtedness under the Term Loan and the real estate based loan agreement (the "Real Estate Loan") between the Company and Chase at an annual rate equal to LIBOR plus 3/4 of 1% and (ii) the lenders under such pre-petition facilities be granted a replacement security interest in and lien upon all of the properties and assets of the Company. The outstanding principal amounts on the Term Loan and the Real Estate Loan have been classified as liabilities subject to compromise on the consolidated balance sheets (see note 6). Under the Tranche A Facility, the Company pays a commitment fee of 0.5% per annum on the unused portion thereof, a letter of credit fee equal to 1.5% per annum of average outstanding letters of credit and certain other fees. Under the Tranche B Facility, the Company pays a commitment fee of 0.3125% per annum on the unused portion thereof, a letter of credit fee equal to 0.75% per annum of average outstanding letters of credit and certain other fees. Commitment fees were approximately $0.9 million and $1.2 million in 1997 and 1996, respectively. Letter of credit fees were approximately $0.7 million and $0.5 million in 1997 and 1996, respectively. The Tranche A Banks and the Tranche B Banks were granted a lien on all of the assets of the Debtors and a superpriority claim for all obligations of the Debtors arising under the Tranche A Facility and the Tranche B Facility, respectively. However, the claim of the Tranche B Banks is subordinate in priority to the claim of the Tranche A Banks. In addition, Chase, as agent, was granted a security interest in all of the shares of capital stock now or hereafter issued to the Registrant by certain of its subsidiaries. At January 31, 1998 and February 1, 1997, the respective principal amounts outstanding were $187.7 million and $152 million in revolving credit borrowings and $61.8 million and $52.6 million in letters of credit, which were issued primarily to import merchandise in the normal course of the Company's business. The effective interest rate at January 31, 1998 and February 1, 1997 was 7.0% and 6.3%, respectively, on revolving credit borrowings. The maximum amounts of revolving credit borrowings at any month-end were $300.2 million in 1997, $267 million in 1996 and $222.1 million in 1995. Average revolving credit borrowings outstanding were $210.5 million at a weighted average interest rate of 7.1% in 1997, $151.8 million at a weighted average interest rate of 6.6% in 1996 and $160.0 million at a weighted average interest rate of 7.2% in 1995. The Company borrowed $10.9 million in 1996 under a construction loan relating to the Silver Spring, Maryland store. As of January 31, 1998 and February 1, 1997, the outstanding borrowings under this loan were $9.9 million and $10.5 million, respectively and bear interest at a rate of 1.75% per annum in excess of LIBOR. On March 25, 1998, the Company obtained Bankruptcy Court approval to close the Silver Spring, Maryland store in 1998, and accordingly, the outstanding balance of the loan as of January 31, 1998 has been classified as current maturities of long-term debt on the consolidated balance sheet. The Registrant has received a commitment (the "Commitment") from BankBoston, N. A. ("BBNA") to provide the Company with separate fully underwritten and committed senior secured $450 million guaranteed revolving credit facilities for debtor-in-possession financing (the "New DIP Facility") and exit financing (the "Exit Facility", and together with the New DIP Facility, the "New Facilities"). The New DIP Facility will be used for the working capital and general business needs of the Company as well as to repay in full the Company's Extended DIP Facility. The Exit Facility will be used to provide for the working capital and general business needs of the reorganized Company beyond the Effective Date as well as to repay in full the New DIP Facility. BBNA intends, with the Company's consent, to syndicate part of the New Facilities to other financial institutions (collectively, including BBNA, the "Lenders"). BBNA's commitment to provide the New DIP Facility is subject to certain conditions precedent including approval by the Bankruptcy Court of the New DIP Facility. The New DIP Facility will be replaced by the Exit Facility on the effective date of a plan of reorganization (the "Effective Date") provided that the plan is not inconsistent with certain terms of the Commitment and is otherwise reasonably satisfactory to BBNA and that all conditions precedent to confirmation of the plan have been met. Among other things, the plan must provide for repayment in full of the New DIP Facility, the Company must have had a 12-month rolling EBITDAR on the closing date of the Exit Facility no less than $60 million (EBITDAR for the 1997 fiscal year was $53.7 million), and the Company's borrowing availability under the Exit Facility on the closing date thereof must exceed certain specified minimum levels. The New DIP Facility will terminate on the earlier of (i) Effective Date or (ii) 18 months after the closing date for the New DIP Facility. The Exit Facility will terminate four years after the closing date of the New DIP Facility. F-15 58 The Company's maximum borrowing under the New DIP Facility may not exceed the lesser of (a) the sum of (i) 72% (77% for the fiscal months of March through December of each year (the "Overadvance Rate") provided that the Overadvance Rate shall not increase the borrowing base by more than $30 million) of the cost value of the Company's Eligible Inventory and, without duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $45 million and (B) under certain circumstances, 70% of the agreed upon value of the Company's leasehold interests in real estate and (b) $450 million (the "New DIP Facility Borrowing Base"). The Company's maximum borrowing under the Exit Facility may not exceed the lesser of (a) the sum of (i) 75% (73% for the fiscal months of January and February of each year) of the cost value of the Company's Eligible Inventory and, without duplication, Eligible Letter of Credit Inventory, Eligible In Transit Inventory and Eligible FOB Inventory minus applicable Reserves, (ii) 80% of the Company's Eligible Accounts Receivable minus applicable Reserves (as such terms are defined in the New DIP Facility) and (iii) the lesser of (A) $40 million and (B) under certain circumstances, 60% of the agreed upon value of the Company's leasehold interests in real estate and (b) $450 million (the "Exit Facility Borrowing Base"). The New Facilities have a sublimit of $150 million for the issuance of letters of credit. The New Facilities also contain restrictive covenants, including, among other things, limitations on the creation of additional liens and indebtedness, capital leases and annual rents, the sale of assets, and the maintenance of minimum earnings before interest, taxes, depreciation, amortization and reorganization items, the maintenance of ratio of accounts payable to inventory levels, and a prohibition on the payment of dividends. Advances under the New Facilities will bear interest, at the Company's option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75% during any period that the Company is utilizing the Overadvance Rate) for periods of one, two and three months. The Eurodollar Applicable Margin is subject to reduction by up to 0.50% if the Company achieves certain specified EBITDAR levels. Under the New Facilities, the Company will pay an unused line fee of 0.25% per annum on the unused portion thereof, a letter of credit fee equal to 1.625% per annum of average outstanding letters of credit and certain other fees. In connection with the receipt of the Commitment and the closing of the New DIP Facility, the Company will pay fees to BBNA of approximately $5.6 million. The Company will also pay BBNA an annual agency fee of $150,000. Obligations of the Company under the New DIP Facility will be granted (i) superpriority administrative claim status pursuant to section 364 (c) (1) of the Bankruptcy Code, subject only to an exclusion for certain administrative and professional fees and (ii) secured perfected first priority security interests in and liens upon all assets of the Company. Obligations of the Company under the Exit Facility will be granted secured perfected first priority security interests in and liens upon all assets of the Company. F-16 59 NOTE 6 - LIABILITIES SUBJECT TO COMPROMISE Liabilities subject to compromise are subject to future adjustments depending on Bankruptcy Court actions and further developments with respect to disputed claims. Liabilities subject to compromise were as follows:
January 31, 1998 February 1, 1997 ---------------- ---------------- Accounts payable $224,185 $226,506 Term Loan 187,469 191,100 Real Estate Loan 37,145 37,145 Rejected leases and other miscellaneous claims 167,936 129,900 Accrued expenses 75,288 80,784 Capital lease obligations 21,789 39,318 Construction loan 11,511 11,511 Industrial revenue bonds and mortgage notes 3,716 3,716 -------- -------- Total $729,039 $719,980 ======== ========
Liabilities subject to compromise under reorganization proceedings include substantially all current and long-term unsecured debt as of the date of the Filing. Pursuant to the provisions of the Bankruptcy Code, payment of those liabilities may not be made except pursuant to a plan of reorganization or Bankruptcy Court order while the Debtors continue to operate as debtors-in-possession. The Company has recorded an estimated liability for certain leases that have either been rejected or the Company anticipates rejecting. Accounts payable subject to compromise was reduced by reclamation payments of $1.5 million and a reduction to the liability for vendor claims of $2 million (see note 7). The outstanding principal amount of the Term Loan was reduced by application of the closing sale proceeds of $2.2 million for the 1996 Closed Stores and $1.4 million in payments related to the reclamation program. Rejected leases and other miscellaneous claims increased to reflect lease rejection claims for the Under-Performing Stores. Accrued expenses were reduced principally by payments for rent, real estate taxes and common area maintenance charges relating to assumed leases, pursuant to Section 365 of the Bankruptcy Code. Capital lease obligations were reduced by normal amortization and the reclassification of leases assumed in 1997 to long-term debt. F-17 60 NOTE 7 - COST OF MERCHANDISE SOLD During 1995, the Company recorded reserves for additional vendor claims of approximately $29 million estimated to result upon the reconciliation of pre-petition liabilities and for anticipated losses on the liquidation of inventories in 1996 of approximately $39 million. Based upon actual claims reconciliation experience, the Company reduced its provision and liability for vendor claims by approximately $2 million and $15 million in 1997 and 1996, respectively. In addition, the Company refined its practice of capitalizing certain costs in inventory, which resulted in additional cost of merchandise sold in 1996 of approximately $13 million upon liquidation of such inventories. The impact of these items, which was included in cost of merchandise sold in 1997 and 1996, was not material to the Company's consolidated financial position or results of operations. NOTE 8 - REORGANIZATION ITEMS The components of reorganization items and accrual activity that were directly associated with the Company's Chapter 11 reorganization proceedings and the resulting restructuring of its operations were as follows:
1997 1996 1995 ------- ------- -------- Reorganization items Provision for closed stores $32,471 $30,770 $ 47,250 Lease rejection obligations 38,036 20,813 96,458 Retention costs (note 15) 1,686 15,042 12,509 Professional fees 5,317 13,700 8,816 Write-off of deferred financing costs 690 1,261 2,200 Other 6,731 5,936 3,498 ------- ------- -------- Total $84,931 $87,522 $170,731 ======= ======= ========
1997 1996 1995 --------- --------- --------- Accrual activity Balance - beginning of year $ 163,613 $ 136,530 $ -- Reorganization items 84,931 87,522 170,731 Cash payments (16,936) (29,890) (3,090) Asset write-offs (37,140) (30,549) (31,111) --------- --------- --------- Balance - end of year $ 194,468 $ 163,613 $ 136,530 ========= ========= =========
Cash payments made in 1997 included $8.1 million for professional fees, $5.1 million for severance payments, $2.0 million for bankruptcy expenses and $1.7 million for store closing expenses. Cash payments made in 1996 included $15.9 million for professional fees, $3.8 million for severance payments, $7.2 million for bankruptcy expenses and $3.0 million for store closing expenses. Cash payments in 1995 were $1.5 million for bankruptcy expenses and $1.6 million for professional fees. As discussed in note 1, the Company closed 12 under-performing stores in 1996 and four under-performing stores in 1997. The Company identified, and on March 25, 1998, the Bankruptcy Court approved, the closing of the Under-Performing Stores. The Company completed a liquidation sale at one of the locations and has retained a liquidator who is currently conducting store closing sales at the other locations. The provision for closed stores covers costs associated F-18 61 with the closing of the stores and primarily relates to fixed asset and inventory write-offs. The lease obligations and related reserves for the facilities closings include numerous real property leases rejected and to be rejected (including three previously assumed leases) and amounts for other executory contracts that have been identified for rejection pursuant to Section 365 of the Bankruptcy Code and are reflected at the estimated amount of the eventually allowed claims of the lessors in the Chapter 11 case as prescribed by Section 502 of the Bankruptcy Code for the rejection of leases. Forty-five of the Company's store leases, including three which were rejected in 1996, are guaranteed by the Company's former parent, The May Company. In 1989 as part of its leveraged buyout from May Company, the Company agreed to indemnify May Company for any damages incurred by May Company under its guaranties. The Company's liability to May Company for amounts paid by May Company under its guaranties of these leases, if rejected, may not be limited under Section 502 of the Bankruptcy Code. As a pre-petition claim, however, this liability is subject to compromise and discharge. The costs relating to these facilities closings are based on management's best estimates, however actual costs could differ from those presently recorded in the consolidated financial statements. Net sales of the Under-Performing Stores were approximately $156.9 million, $157.1 million and $132.9 million in 1997, 1996 and 1995, respectively. Net sales of the 1997 Closed Stores were approximately $8.0 million, $92.6 million and $88.2 million during 1997, 1996 and 1995, respectively. Net sales of the 1996 Closed Stores were approximately $18.1 million and $133.6 million during 1996 and 1995, respectively. NOTE 9 - STOCK COMPENSATION PLANS At January 31, 1998, the Company had four stock-based compensation plans which are described below. The Company applies Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock-based compensation plans other than for its restricted stock awards. The Company determined that had compensation cost for the Company's stock-based compensation plans been determined consistent with the methodology prescribed under SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the impact on the Company's net loss and loss per share would not be material. The effects of applying SFAS No. 123 are not indicative of future results as SFAS No. 123 does not take into consideration compensation expense related to awards granted prior to 1995. a. Stock Option Plans - The Company's 1995 Stock Option Plan for Key Employees, 1991 Stock Option Plan for Key Employees and 1991 Stock Option Plan for Directors provide for the granting of options to purchase 1,500,000 shares of the Company's common stock to key employees and directors. The option price under the plans is the fair market value of the shares on the grant date. Exercise terms are determined at each grant date. Stock options granted during 1995 and 1994 become exercisable in installments of 25% per year on each of the first through fourth anniversaries of the grant date and have a maximum term of ten years. F-19 62 A summary of the status of the Company's three stock option plans and changes during the years ended January 31, 1998, February 1, 1997 and February 3, 1996 is presented below:
1997 1996 1995 -------------------------------- ------------------------- --------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- -------- --------- --------- -------- ---------- Outstanding at beginning of year 279,299 $25.12 1,083,037 $26.15 972,600 $28.05 Granted 316,350 20.54 Exercised (2,725) 15.63 Canceled (88,774) 25.70 (803,738) 26.51 (203,188) 26.63 ------- --------- --------- Outstanding at end of year 190,525 24.87 279,299 25.12 1,083,037 26.15 ======= ========= ========= Options exercisable at year-end 163,626 $24.82 182,323 $24.40 401,342 $24.88
b. Stock Appreciation Rights and Restricted Stock Plan - The Company's 1994 Performance Stock Appreciation Rights ("SARs") and Restricted Stock Plan provides for the granting of 1,300,000 shares of the Company's common stock to key employees in the form of SARs or as restricted stock. No more than 546,000 shares will be granted as restricted stock. During fiscal 1995, 225,000 SARs were granted at a weighted average fair market value of $18.63. No SARs were granted during 1997 or 1996. At January 31, 1998, SARs which had been awarded and were outstanding amounted to 5,000 shares at a price of $31.88, 7,500 shares at a price of $18.75 and 5,000 shares at a price of $13.50. No compensation expense was recognized in connection with the granting of SARs. During fiscal 1996 and 1995, 191,169 and 216,188 restricted stock awards at a weighted average fair market value of $4.00 and $21.44, respectively, were granted to certain key employees at no cost to these employees. There were no restricted stock awards granted during 1997. The outstanding restricted stock awards vest on the later of three years subsequent to the 1996 award date or six months following the date of a plan of reorganization. The cost of restricted stock awards, based on the stock's fair market value at the award date is charged to stockholders' equity and subsequently amortized against earnings over the vesting period. In 1997, the Company amortized $0.5 million and for 1996 and 1995 $0.9 million per year of unamortized compensation related to restricted stock awards. At January 31, 1998, 183,718 shares were outstanding under restricted stock awards. F-20 63 NOTE 10 - SHAREHOLDER RIGHTS PLAN On August 2, 1995, the Company adopted a Shareholder Rights Plan and declared a distribution of one Right for each outstanding share of Common Stock, par value $.01 per share (the "Company Common Stock"). Such Rights only become exercisable ten business days after a person or group (an "Acquiring Person") acquires beneficial ownership of, or commences a tender or exchange offer for, 15% or more of the Company's Common Stock (the "Stock Acquisition Date"). Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, par value $.01 per share, at a purchase price of $64 for each one one-hundredth of a share, subject to adjustment. Thereafter, upon the occurrence of certain events (for example, if the Company is the surviving corporation of a merger with an Acquiring Person), each holder of a Right will have the right to receive, upon exercise, shares of Preferred Stock (or, in certain circumstances, Common Stock, cash, property or other securities of the Company) having a value of twice the exercise price of the Rights. Alternatively, upon the occurrence of certain other events (for example, if the Company is acquired in a merger or other business combination in which the Company is not the surviving corporation), each holder (other than the Acquiring Person) of a Right will have the right to receive, upon exercise, shares of Common Stock of the surviving corporation having a value of twice the exercise price of the Rights. At any time until 10 business days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (subject to adjustment in certain events) payable at the option of the Company. The Rights will expire on August 2, 2005. F-21 64 NOTE 11 - INCOME TAXES The provision (benefit) for income taxes included the following:
1997 1996 1995 - ------------------------------------------------------------------------------ Current: Federal $ $ $(32,394) State and local 800 500 865 ---- -------- -------- 800 500 (31,529) ---- -------- -------- Deferred: Federal (28,296) State and local ---- -------- -------- (28,296) ---- -------- -------- Total $800 $ 500 $(59,825) ==== ======== ========
A reconciliation between income taxes computed using the effective income tax rate and the statutory income tax rate is as follows:
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Federal income taxes (benefit) at statutory rates $(46,133) $(64,689) $(123,360) State and local income taxes, net of federal benefit 520 325 562 Unrecognized deferred tax asset 46,649 62,879 62,973 Other (236) 1,985 -------- -------- --------- Provision (benefit) for income taxes $ 800 $ 500 $ (59,825) ======== ======== =========
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Federal tax rate (35.0)% (35.0)% (35.0)% State and local income taxes, net of federal benefit 0.4 0.2 0.1 Unrecognized deferred tax asset 35.4 34.0 17.9 Other (0.2) 1.1 ---- ---- ---- Effective income tax rate 0.6% 0.3% (17.0)% ==== ==== ====
F-22 65 The tax effect of temporary differences and carry forwards which give rise to deferred tax assets and liabilities were as follows:
1997 1996 - ------------------------------------------------------------------------------------------- Net operating loss carryforward $ 133,136 $ 95,308 Targeted jobs tax credit carryforward 6,108 6,108 Alternative minimum tax credit carryforward 6,011 6,011 Reserves for reorganization items 24,195 29,780 Reserves for restructuring items 72,633 62,797 --------- --------- Total deferred tax assets 242,083 200,004 --------- --------- Fixed assets and accumulated depreciation (26,238) (32,892) Current assets and accrued liabilities (11,225) (15,591) --------- --------- Total deferred tax liabilities (37,463) (48,483) --------- --------- Total deferred tax assets (liabilities), net 204,620 151,521 Less: Valuation allowance (204,620) (151,521) --------- --------- Net deferred tax assets $ -- $ -- ========= =========
The Company and its subsidiaries file a consolidated federal income tax return. For tax reporting purposes, the Company has adopted the year ending on the Thursday occurring nearest to the last day of the calendar month of October. The Company has certain federal and state net operating loss carryforwards at October 1997 which will expire in the years 1998 through 2012. The Company has an alternative minimum tax credit carryforward of approximately $6.0 million available to offset future regular income taxes payable to the extent such regular taxes exceed alternative minimum taxes payable. The Company has approximately $6.1 million of targeted jobs tax credit carryforwards, which expire in the years 2005 through 2010. The valuation allowance relates to the uncertainty associated with future realization of net operating loss carryforwards, credit carryforwards and certain deductible temporary differences. NOTE 12 - EXTRAORDINARY ITEM During February 1995, the Company amended its credit agreement to increase the amortizing Term Loan to $215 million. Using $50 million in Term Loan borrowings and $16 million of non-amortizing revolver borrowings, the Company executed, on February 7, 1995, an in-substance defeasance of the outstanding 15% Senior Subordinated Notes (the "Notes") by depositing $66 million of U.S. government securities into an irrevocable trust to cover the redemption value (including principal, call premium and interest) of the Notes on June 1, 1995, at which time the Notes were called. For financial reporting purposes, the Notes were considered extinguished during the first quarter of fiscal 1995, and the defeasance transaction resulted in an extraordinary loss of $8.4 million. During the fourth quarter of fiscal 1995, the previously recorded tax benefit from this extraordinary loss was reversed and allocated to continuing operations. F-23 66 NOTE 13 - LEASE OBLIGATIONS AND COMMITMENTS The Company leases the majority of its stores and certain equipment under noncancelable leases. Certain of the store leases provide for contingent rentals based on sales. Substantially all of the store leases require the Company to pay taxes, insurance and other occupancy costs and contain renewal options which range from 5 to 60 years. Rental expense for operating leases consisted of:
1997 1996 1995 -------- -------- -------- Real property: Minimum rentals $ 83,583 $ 89,865 $ 91,093 Contingent rentals 2,756 2,509 2,485 -------- -------- -------- 86,339 92,374 93,578 Equipment rentals 16,364 19,200 23,182 -------- -------- -------- Total $102,703 $111,574 $116,760 ======== ======== ======== Rental income $ 3,710 $ 3,192 $ 3,333 ======== ======== ========
Excluding leases rejected or identified to be rejected, future minimum lease payments at January 31, 1998 for each of the next five years were as follows:
Capital Year Leases Operating Leases Total - ------------------------------------------------------------------------------------------------------------ 1998 $ 7,180 $ 78,798 $ 85,978 1999 7,611 77,731 85,342 2000 6,183 74,680 80,863 2001 4,353 72,680 77,033 2002 3,937 68,750 72,687 Thereafter 27,161 751,825 778,986 -------- ---------- ---------- Minimum lease payments 56,425 $1,124,464 $1,180,889 ========== ========== Less: Imputed interest component and executory costs (24,111) -------- Present value of net minimum lease payments $ 32,314 ========
F-24 67 NOTE 14 - INTEREST EXPENSE, NET Interest expense, net, included the following:
1997 1996 1995 - -------------------------------------------------------------------------------------------- Interest expense $ 40,216 $ 38,208 $ 40,767 Amortization of debt issuance costs 4,061 1,778 900 -------- -------- -------- 44,277 39,986 41,667 Interest income (413) (484) (694) -------- -------- -------- Interest expense, net $ 43,864 $ 39,502 $ 40,973 ======== ======== ========
F-25 68 NOTE 15 - BENEFIT PLANS a. Pension Plans - The Company has three defined benefit plans, which cover employees ("Associates") who meet certain requirements including age, length of service, and hours worked per year. The benefits provided are based upon years of service and compensation during employment. The Caldor Corporation Retirement Plan and the Supplemental Executive Retirement Plan were amended effective August 1, 1996 to discontinue additional accruals for participants. The Caldor Pension Plan and Trust was amended on October 1, 1997 to discontinue additional accruals for participants. Under both the Caldor Corporation Retirement Plan and the Caldor Pension Plan and Trust, benefits accrued prior to the effective dates of the future accrual discontinuations, are not affected by these changes and current participants not yet fully vested are eligible to vest with additional years of service after such dates. Contributions to the pension plans, which are made solely by the Company, are determined by an outside actuarial firm. To compute net pension costs, the actuarial firm estimates the total benefits which will ultimately be paid to eligible Associates and then allocates these costs to service periods. Each of the actuarial assumptions used to calculate pension costs is reviewed annually. The following tables summarize the funded status of the pension plans, components of pension expense and actuarial assumptions. At December 31, 1997, the Company recorded a minimum pension liability of $2.1 million in accordance with SFAS No. 87, "Employers' Accounting for Pensions."
DECEMBER 31, -------------------------------- 1997 1996 - -------------------------------------------------------------------------------------- FUNDED STATUS Actuarial present value of benefit obligation: Vested benefit obligation $ 23,664 $ 21,397 -------- -------- Accumulated benefit obligation (ABO) $ 27,351 $ 25,221 -------- -------- Projected benefit obligation (PBO) $ 27,351 $ 25,333 -------- -------- Plan assets at fair value (primarily equity and income securities) $ 24,507 $ 22,294 -------- -------- PBO in excess of plan assets 2,844 3,039 Unrecognized net loss (612) (110) Additional minimum liability 2,144 -------- -------- Accrued pension liability $ 4,376 $ 2,929 -------- -------- ABO in excess of plan assets $ 2,844 $ 2,927 -------- --------
F-26 69
December 31, ------------------------------------------------ 1997 1996 1995 - ----------------------------------------------------------------------------------------- Components of Net Pension Expense Service cost $ 1,308 $ 3,348 $ 3,827 Interest on PBO 1,832 1,852 1,603 Actual return loss on plan assets (3,762) (1,773) (2,987) Net amortization and deferral 1,692 218 1,488 Curtailment gain -- (712) ------- ------- ------- Total $ 1,070 $ 2,933 $ 3,931 ======= ======= ======= Actuarial assumptions: Discount rate 7.00% 7.75% 7.25% Expected return on plan assets 10.00 10.00 10.00 Salary increases N/A 3.00 3.50
B. Profit Sharing Plan - The Company has a profit sharing plan pursuant to Section 401 of the Internal Revenue Code, whereby eligible participants (all nonunion Associates who meet certain hour requirements) may contribute a percentage of compensation, but not in excess of the maximum allowed. The plan provides for matching contributions and additional contributions depending upon achievement of specific earnings levels. Charges to earnings for the Company's contributions during 1997, 1996 and 1995 were approximately $0.7 million, $0.9 million and $1.0 million, respectively. C. Employee Retention Plan - Included in reorganization costs for 1997, 1996 and 1995 are charges of $1.7 million, $15.0 million and $12.5 million, respectively for the employee retention program. The Company has implemented an employee retention program, which provides for retention payments and enhanced severance payments to key employees who continue their employment with the Company during the Chapter 11 proceedings. The retention plan provides, among other things, a payment to be made to employees upon confirmation of a plan of reorganization and a second payment 6 months thereafter. The severance plan provides for enhanced severance payments and change in control severance payments to be made to certain employees upon involuntary termination. F-27 70 NOTE 16 - CONTINGENCIES As a result of the Filing, the prosecution of litigation against the Debtors involving matters arising prior to the Filing is stayed. Such stay may be lifted by the Bankruptcy Court handling the bankruptcy proceedings in appropriate circumstances. Four class actions against certain former officers of the Company were brought on behalf of all persons who purchased the Company's stock during specified periods of time. The Company is not a defendant in these actions (three of which have been consolidated). A proof of claim was filed in the Chapter 11 case by the plaintiffs in the consolidated action. Although it is required to indemnify the defendants to the extent required by Delaware law, the Company has directors' and officers' liability coverage. The amount of liability, if any, related to these actions is not presently determinable. As a pre-petition claim, any liability to the Company would be subject to compromise. These actions are believed by the Company to be without merit and will be vigorously defended. The Company and certain of its subsidiaries are defendants in various other actions commenced by vendors, customers, former employees and others. Other persons have asserted similar claims against the Company but have not made those claims the subject of litigation. However, cases that relate to a claim that arose before the Filing generally were stayed pursuant to Section 362 of the Bankruptcy Code and are to be dealt with as part of the claims reconciliation process. The Company believes that the ultimate outcome of the foregoing actions and claims pending against the Company and its subsidiaries will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. F-28 71 EXHIBIT INDEX ------------- EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3.1 Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed September 28, 1994, File No. 33-84526 (the "1994 Form S-8")). 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, filed September 10, 1990, File No. 33-35157 (the "1990 Registration Statement")). 4.1 Rights Agreement dated as of August 2, 1995 between the Company and Chemical Bank, as Rights Agent (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 8-A, filed on August 11, 1995). 10.1 Credit Agreement dated as of October 21, 1993 (the "Credit Agreement") among the Company, Caldor, Inc. - NY, Caldor, Inc. - CT, certain lenders named therein and Chemical Bank as Administrative Agent and Fronting Bank (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K, reporting an event occurring on October 21, 1993, File No. 1-10745 (the "October 1993 Form 8-K")). 10.1(i) First Amendment dated as of August 16, 1994, to the Credit Agreement among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, the lenders listed on the signature pages thereto, Chemical Bank as Administrative Agent, the Fronting Banks named therein and the Swingline Lender named therein (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K reporting an event occurring on August 16, 1994, File No. 1-10745). 10.1(ii) Second Amendment dated as of February 6, 1995, to the Credit Agreement among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, the lenders listed on the signature pages thereto, Chemical Bank as Administrative Agent, the Fronting Banks named therein and the Swingline Lender named therein (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K reporting an event occurring on February 6, 1995, File No. 1-10745 (the "February 1995 Form 8-K")). 10.1(iii) Third Amendment dated as of April 18, 1995, to the Credit Agreement among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, the lenders listed on the signature pages thereto, Chemical Bank as Administrative Agent, the Fronting Banks named therein and the Swingline Lender named therein (incorporated by reference to Exhibit 99.8 to the February 1995 Form 8-K). 10.1(iv) Fifth Amendment dated as of August 7, 1995 to the Credit Agreement among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT, Chemical Bank as Administrative Agent, and the lenders listed on the signature pages thereto (incorporated by reference to Exhibit 99.7 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 29, 1995, File No. 1-10745 (the "July 1995 Form 10-Q")). 10.1(v) Amended and Restated Revolving Credit and Guaranty Agreement dated as of October 17, 1995 (the "DIP Agreement") among the Company as borrower, Caldor, Inc.-CT 72 and Caldor, Inc.-NY as retail guarantors, the other subsidiaries of the borrower named therein as guarantors, the banks party thereto and Chemical Bank as agent (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K reporting an event occurring on October 17, 1995, File No. 1-10745 (the "October 1995 Form 8-K")). 10.1(vi) Amendment Letter Agreement dated April 24, 1996 to the DIP Agreement among the Company as borrower, certain of its subsidiaries as guarantors, the banks party thereto and Chemical Bank (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K reporting an event occurring on May 7, 1996, File No. 1-10745). 10.1(vii) Second Amendment dated as of June 28, 1996 to the DIP Agreement among the Company as borrower, certain of its subsidiaries as guarantors, the banks party thereto and Chemical Bank (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K reporting an event occurring on July 16, 1996, File No. 1-10745). 10.1(viii) Four Store Amendment Letter Agreement dated as of March 12, 1997 to the DIP Agreement among the Company as borrower, certain of its subsidiaries as guarantors, the banks party thereto and The Chase Manhattan Bank, N.A. (formerly, Chemical Bank) ("Chase") (incorporated by reference to Exhibit 10.1 (viii) to the Company's Annual Report on Form 10-K for the year ended February 1, 1997, File No. 1-10745 (the "1996 Form 10-K"). 10.1(ix) Fourth Amendment dated as of April 30, 1997 to the DIP Agreement among the Company as borrower, certain of its subsidiaries as guarantors, the banks party thereto and Chase (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended May 3, 1997, File No. 1-10745). 10.2 Form of Term Note (contained in Exhibit 10.1 as Exhibit A-3). 10.3 Guarantee Agreement dated as of October 21, 1993 among Lacdor Realty Corp., Premier Service Programs, Inc. and Chemical Bank as Collateral Agent (incorporated by reference to Exhibit 99.7 to the October 1993 Form 8-K). 10.4 Guarantee, dated as of April 13, 1995 (the "Guarantee") from the Company, Caldor, Inc.-NY and Caldor, Inc.-CT to Chemical Bank as agent (incorporated by reference to Exhibit 99.4 to the February 1995 Form 8-K) . 10.4(i) Second Amendment dated as of August 7, 1995 to the Guarantee from the Company, Caldor, Inc.-NY and Caldor, Inc.-CT in favor of Chemical Bank as agent and the lenders party thereto (incorporated by reference to Exhibit 99.8 to the July 1995 Form 10-Q). 10.5 Amended and Restated Pledge Agreement dated as of April 13, 1995 between the Company and Chemical Bank as Collateral Agent (incorporated by reference to Exhibit 99.5 to the February 1995 Form 8-K). 10.5(i) Amended and Restated Pledge Agreement dated as of October 17, 1995 between the Company and Chemical Bank as agent for the banks party to the DIP Agreement (incorporated by reference to Exhibit 99.2 to the October 1995 Form 8-K). 73 10.6 Amended and Restated Security Agreement dated as of April 13, 1995 among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT and Chemical Bank as Collateral Agent (incorporated by reference to Exhibit 99.6 to the February 1995 Form 8-K). 10.6(i) Amended and Restated Security Agreement dated as of October 17, 1995 between the Company and Chemical Bank as agent for the banks party to the DIP Agreement (incorporated by reference to Exhibit 99.3 to the October 1995 Form 8-K). 10.7 Collateral Agent Agreement dated as of April 13, 1995 among the Company, Caldor, Inc.-CT, Caldor Lease Financing Trust and Chemical Bank as Collateral Agent and agent for the lenders party thereto (incorporated by reference to Exhibit 99.7 to the February 1995 Form 8-K). 10.8 Credit Agreement dated as of August 8, 1995 among the Company, Caldor, Inc.-NY, Caldor, Inc.-CT and Chemical Bank as Administrative Assistant and as Collateral Agent (incorporated by reference to Exhibit 99.6 to the July 1995 Form 10-Q). 10.9 Amended and Restated Stockholders' and Warrant Holders' Agreement dated as of May 24, 1990 among the Company, Odyssey Partners, L.P., May Funding, Inc., certain institutional investors named therein, certain management stockholders named therein and certain members of the Investor Group (as defined therein) named therein (the "Amended and Restated Stockholders' and Warrant Holders' Agreement") (incorporated by reference to Exhibit 10.7 to the 1990 Registration Statement). 10.9(i) Amendment No. 1, dated as of August 24, 1990 to the Amended and Restated Stockholders' and Warrant Holders' Agreement (incorporated by reference to Exhibit 10.6(i) to the Company's Annual Report on Form 10-K for the year ended February 1, 1992, File No. 1-10745 (the "1991 Form 10-K")). 10.9(ii) Amendment No. 2 dated as of March 14, 1991 to the Amended and Restated Stockholders' and Warrant Holders' Agreement (incorporated by reference to Exhibit 10.6(ii) to the 1991 Form 10-K). 10.9(iii) Amendment No. 3 dated as of March 14, 1991 to the Amended and Restated Stockholders' and Warrant Holders' Agreement (incorporated by reference to Exhibit 10.6(iii) to the 1991 Form 10-K). 10.9(iv) Amendment No. 4 dated as of January 26, 1993 to the Amended and Restated Stockholders' and Warrant Holders' Agreement (incorporated by reference to Exhibit 4.11(iv) to the Company's Registration Statement on Form S-3, filed on January 27, 1993, File No. 33-57476 (the "1993 Registration Statement")). 10.9(v) Amendment No. 5 dated as of January 26, 1993 to the Amended and Restated Stockholders' and Warrant Holders' Agreement (incorporated by reference to Exhibit 4.11(v) to the 1993 Registration Statement). 10.9(vi) Amendment No. 6 dated as of September 28, 1994 to the Amended and Restated Stockholders' and Warrant Holders' Agreement (incorporated by reference to Exhibit 4.8(vi) to the Company's Registration Statement on Form S-3, filed on September 29, 1994, File No. 33-84488). 74 10.10+ Employment Agreement dated as of April 15, 1996 between the Company and Warren D. Feldberg (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, reporting an event occurring on June 7, 1996, File No. 1-10745 (the "June 1996 Form 8-K")). 10.10(i)+ Amendment dated as of June 7, 1996 to the Employment Agreement between the Company and Warren D. Feldberg (incorporated by reference to Exhibit 99.2 to the June 1996 Form 8-K). 10.11+ Employment Agreement dated April 24, 1991 between the Company and Elliot J. Kerbis (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended February 3, 1996, File No. 1-10745 (the "1995 Form 10-K")). 10.11(i)+ Amendment dated June 20, 1995 to the Employment Agreement between the Company and Elliott J. Kerbis (incorporated by reference to Exhibit 10.13 (i) to the 1995 Form 10-K). 10.12+ Employment Agreement dated April 24, 1991 between the Company and Dennis M. Lee (incorporated by reference to Exhibit 10.14 to the 1995 Form 10-K). 10.12(i)+ Amendment dated June 20, 1995 to the Employment Agreement between the Company and Dennis M. Lee (incorporated by reference to Exhibit 10.14 (i) to the 1995 Form 10-K). 10.13+ Employment Agreement dated as of January 29, 1996 between the Company and John G. Reen (incorporated by reference to Exhibit 99.1 to the Company's current Report on Form 8-K, reporting an event occurring on March 6, 1996, File No. 1-10745) (the "March 1996 Form 8-K"). 10.13(i)+ Amendment dated March 5, 1996 to the Employment Agreement between the Company and John G. Reen (incorporated by reference to Exhibit 99.2 to the March 1996 Form 8-K). 10.14+ Employment Agreement dated as of August 16, 1996 between the Company and Susan Sprunk.* 10.14(i)+ Agreement dated October 3, 1997 between the Company and Susan Sprunk.* 10.15+ Caldor, Inc. Retirement Plan, effective January 1, 1990 (incorporated by reference to Exhibit 10.25 to the 1990 Registration Statement). 10.16+ Caldor, Inc. Supplemental Non-Qualified Retirement Plan, effective February 1, 1990 (incorporated by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-1, filed on March 18, 1991, File No. 33-39475). 10.17+ Caldor, Inc. Profit Sharing Plan, amended and restated effective January 1, 1991 (incorporated by reference to Exhibit 28.01(b) to the Company's Registration Statement on Form S-8, filed on January 9, 1992, File No. 33-44996). 75 10.18+ The Caldor Performance Incentive Plan (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended January 28, 1995, File No. 1-10745). 10.18(i)+ Summary of Amendment to The Caldor Performance Incentive Plan (incorporated by reference to Exhibit 10.19 (i) to the 1995 Form 10-K). 10.19+ 1991 Stock Option Plan for Directors, as amended through May 25, 1994 (incorporated by reference to Exhibit 99.1 of the 1994 Form S-8). 10.19(i)+ 1991 Stock Option Plan for Directors, as amended through October 31, 1996 (incorporated by reference to Exhibit 10.19(i) to the 1996 Form 10-K). 10.20+ 1991 Stock Option Plan for Key Employees, as amended through May 25, 1994 (incorporated by reference to Exhibit 99.2 of the 1994 Form S-8). 10.20(i)+ 1991 Stock Option Plan for Key Employees, as amended through October 31, 1996 (incorporated by reference to Exhibit 10.20 (i) to the 1996 Form 10-K). 10.21+ 1993 Retainer Stock Plan for Non-Employee Directors (incorporated by reference to Exhibit 99.3 of the 1994 Form S-8). 10.22+ 1994 Performance SAR and Restricted Stock Plan (incorporated by reference to Exhibit 10.23 to the 1995 Form 10-K). 10.22(i)+ 1994 Performance SAR and Restricted Stock Plan as amended through October 31, 1996 (incorporated by reference to Exhibit 10.22(i) to the 1996 Form 10-K). 10.23+ 1995 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10.24 to the 1996 Form 10-K). 10.23(i)+ 1995 Stock Option Plan for Key Employees as amended through October 31, 1996 (incorporated by reference to Exhibit 10.23 (i) to the 1996 Form 10-K) . 10.24+ Summary of Severance Program (incorporated by reference to Exhibit 10.25 to the 1995 Form 10-K). 10.25+ Summary of Performance Retention Program (incorporated by reference to Exhibit 10.26 to the 1995 Form 10-K). 10.26 Commitment Letter dated April 24, 1998 between BankBoston N.A. and the Registrant.* 11 Statement regarding the computation of per share earnings.* 21 List of Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the 1995 Form 10-K). 23 Consent of Deloitte & Touche LLP* 27 Financial Data Schedule * * Filed herewith + Management contract or compensation plan or arrangement required to be noted as provided in Item 14(a)(3). EX-10.14 2 EMPLOYMENT AGREEMENT RE SUSAN SPRUNK 1 EMPLOYMENT AGREEMENT AGREEMENT made as of the 16th day of August, 1996 between The Caldor Corporation, a Delaware corporation and debtor-in-possession under Chapter 11 of the Federal Bankruptcy Code, with principal offices at 20 Glover Avenue, Norwalk, Connecticut 06856 (hereinafter referred to as the "Company"), and Susan Sprunk with a permanent residence located at 98 Livingston Road, Wellesley, MA 02181 (hereinafter referred to as the "Employee"). W I T N E S S E T H WHEREAS, the Company desires that the Employee shall be employed by the Company, and the Employee is desirous of such employment, upon the terms and conditions set forth in this Agreement; WHEREAS, the Company is entering into this Agreement in the ordinary course of its business such that no approval by the court overseeing the Company's bankruptcy proceeding is necessary; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereby agree as follows: 1. Employment. The Company shall employ the Employee, and the Employee shall serve the Company and its subsidiaries (the "Subsidiaries"), upon the terms and conditions hereinafter set forth. 2. Term. The employment of the Employee by the Company hereunder shall commence on September 3, 1996 and, unless sooner terminated in the 2 manner as hereinafter provided, shall terminate on September 3, 1998; provided, however, that the term of this Agreement shall be renewed for additional periods of one year each unless and until either party shall give the other party not less than two months' written notice prior to the expiration of the then applicable term. 3. Duties. a. During the term of her employment hereunder, the Employee shall serve as Senior Vice President - Marketing of the Company, faithfully and to the best of her ability, and perform such duties and have such responsibilities and authority as are assigned to her by the Company, consistent with the practices and policies of the Company. b. During the term of her employment hereunder, the Employee shall devote her full business time, energy and skill to such employment and shall not, without the prior written approval of the Company, directly or indirectly, engage or participate in, or become employed by, or become a director, officer or partner of, or render advisory services to or provide other services in connection with, any business activity other than that of the Company and the Subsidiaries; provided, however, that the Employee shall be permitted to personally invest in any corporation, partnership or other entity, so long as any such investment, unless Employee has obtained prior written approval from the Company, does not require or involve the active participation of the Employee in the management of the business of any such corporation, partnership or other entity, does not interfere with the execution of the Employee's duties hereunder and does not otherwise violate any provisions of this 2 3 Agreement or of the Company's Conflict of Interest Policy; and, provided, further, that the Employee may engage in other activities, such as activities involving charitable, educational, religious and similar types of organizations, speaking engagements and similar type activities to the extent that such other activities do not interfere with the execution of the Employee's duties hereunder, do not otherwise violate any provision of this Agreement or of the Company's Conflict of Interest Policy, or otherwise conflict in any material way with the business of the Company or the Subsidiaries. 4. Base Salary. As of the date hereof and during the term of her employment hereunder, the Company shall pay to the Employee a base salary for her services at the minimum rate of $300,000, per annum, through the end of the initial two year term of this Agreement payable in accordance with the regular payroll practices of the Company. The base salary of the Employee shall be subject to annual review by the Company (provided however, that such review will not result in a decrease of base salary) with the first such review to be made on or about May 1, 1997. 5. Bonus Arrangements. In addition to the base salary provided for in Paragraph 4 hereof, the Employee shall be entitled to the following bonuses: a. The Employee shall be paid an up front cash bonus of $75,000 (less applicable taxes) (the "Bonus") payable in lump sum upon her relocation to Fairfield County, Connecticut or its vicinity, contingent upon Employee's fulfillment of her obligations under the initial two (2) year term of this Agreement. In the event Employee's employment is terminated either voluntarily or for cause during the initial 3 4 two year term of this Agreement, Employee shall be required to repay the Bonus pursuant to the following schedule; i. 100% of the Bonus if employment is terminated prior to December 31, 1996: ii. if employment has not terminated on December 31, 1996, then Employee shall have earned and will not be required to repay $37,000 of the Bonus; iii. if employment is terminated subsequent to December 31, 1996 but prior to the expiration of the initial two year term of this Agreement, Employee shall have to repay $38,000 of the Bonus, provided, however, that Employee will be deemed to have earned and shall not be required to repay $1,900 of said $38,000 for each and every month beyond December 31, 1996 that employment has not terminated. For example, if employment terminates on March 31, 1997 (i.e., 3 months after December 31, 1996), Employee shall have earned an additional $5,700 of the Bonus and will be required to pay back to the Company $32,300. Employee agrees that, in the event Employee's employment is terminated within the above designated period and the applicable amount of the Bonus is not repaid to the Company by Employee, in whole or in part, then the Company may offset the amount owed against any payments due to the Company from Employee, including, without 4 5 limitation, salary or bonus. However, such right of offset shall not be the sole or exclusive means of recovery of repayments owed to the Company by Employee, and the Company, or its assigns shall retain all other rights and remedies which may be available. b. The Employee shall be entitled to participate as a Level II employee in the Performance Retention Program of the Company approved by the Bankruptcy Court by order dated March 27, 1996, subject to the terms and conditions of such program as from time to time in effect. c. The Employee shall be entitled to participate in cash bonus arrangements, such as the Performance Incentive Plan ("PIP") applicable to her position during the term of her employment hereunder. In 1996, the PIP provides the opportunity to earn up to sixty percent (60%) of salary based upon predetermined annual Company financial performance criteria. For 1996, fifty percent (50%) of the Maximum will be guaranteed if Employee remains with the Company through April 1, 1997. The remaining fifty percent (50%) of the Maximum can be earned based upon Company financial performance factors. Following the bankruptcy period, the normal terms and conditions of the PIP shall apply. The cash bonus arrangements shall be based on the attainment of achievable financial objectives determined by the Company. 6. Other Employee Benefits and Perquisites. During the term of this Agreement, the Company will provide to the Employee benefits under the Company's current and future benefit plans and programs applicable to executives at the Employee's level. As of the date hereof, these include the contributory and non- 5 6 contributory programs listed on Schedule A. (For certain of the programs listed on Schedule A, the Employee will be entitled to participate only upon satisfaction of generally-applicable eligibility requirements, such as length of service requirements.) It is expressly understood that the Company may in its discretion from time to time modify any bonus, benefit or other employee programs, including without limitation terms of eligibility, benefit levels and other terms and conditions, and that all such modifications shall be binding upon the Employee. The Employee shall be entitled to vacations (taken consecutively or in segments), aggregating four weeks each calendar year during the term of employment, and to reasonable sick leave as determined by the Company. 7. Expenses. It is contemplated that, in connection with her employment hereunder, the Employee may be required to incur reasonable and necessary travel, business entertainment and other business expenses. The Company agrees to reimburse the Employee, consistent with the Company's policies, for all reasonable and necessary travel, business entertainment and other business expenses incurred or expended by her incident to the performance of her duties hereunder. 8. Permanent Disability; Death. a. In the event of the permanent disability (as hereinafter defined) of the Employee during the term of her employment hereunder, the Company shall have the right, upon written notice to the Employee, to terminate her employment hereunder, effective upon the giving of such notice. Upon such termination, the Company shall be discharged and released from any further obligations under this Agreement, but the 6 7 Employee shall have the obligations provided for in Paragraph 11 hereof. Disability benefits, if any, due under applicable plans and programs of the Company shall be determined under the provisions of such plans and programs. For purposes of this Paragraph 8a, "permanent disability" shall mean any physical or mental disability or incapacity which continues for 180 consecutive days or an aggregate period of more than 180 days in any 12-month period and which shall render the Employee permanently incapable of performing the services required of her by the Company. b. In the event of the death of the Employee during the term of her employment hereunder, the base salary to which the Employee is entitled pursuant to Paragraph 4 hereof shall continue to be paid through the end of the month in which death occurs to the last beneficiary designated by the Employee pursuant to Paragraph 23 hereof, or, failing such designation, to her estate. In accordance with Paragraph 23 hereof, upon payment of such base salary and of any vested but unpaid benefits due to the beneficiary's estate in accordance with the Company's policies then in effect (i.e. bonus, vacation, etc.), the Company shall have no further obligations hereunder. 9. Termination and Expiration of Employment. a. The Employee's employment hereunder may be terminated by the Company for "cause" at any time if the Employee shall commit any of the following Acts of Default: (i) The Employee shall have willfully failed to perform any of her material obligations as set forth herein 7 8 and shall have failed to cure such failure within 10 days after receiving written notice thereof from the Company; or (ii) The Employee shall have committed an act of fraud, theft or dishonesty which is likely to result in financial harm to the Company; or (iii) The Employee shall be convicted of (or plead nolo contendere to) any felony or misdemeanor involving moral turpitude, which misdemeanor might, in the reasonable opinion of the Company, cause embarrassment to the Company. If the Employee is terminated for "cause," or the Employee terminates her employment hereunder (except pursuant to Paragraph 12 hereof), the Company shall have no further obligations under this Agreement, but the Employee shall have the obligations provided for in Paragraph 11 hereof. b. If the Company notifies the Employee that it elects not to continue her employment pursuant to Paragraph 2 hereof (whether at the end of the initial two-year term or any renewal term), then, subject to the provisions of Paragraph 10, the Employee shall be entitled to receive a liquidated severance payment, payable in a lump sum within 30 days after the date of such termination, equal to nine (9) multiplied by the sum of (i) 1/12 of her annual base salary in effect at the time of such termination in accordance with the provisions of Paragraph 4 hereof plus (ii) 1/12 of 100% of her Target Bonus Opportunity (as hereinafter defined) for the fiscal year of the Company in 8 9 which such termination occurs. In the event of such termination, the Employee shall also be entitled to a continuation of the health insurance benefits upon the same terms and conditions in which she is participating at the time of such termination for a period of six months commencing on the date of such termination. As used herein, "Target Bonus Opportunity" means the bonus which would be earned under the Performance Incentive Plan or under applicable bonus programs were the Company to achieve, but not exceed, its business plan. c. If (i) the Company terminates the employment of the Employee during the term of this Agreement other than for "cause" (as defined in Paragraph 9(a) hereof) or (ii) if the Employee terminates her employment during the term of this Agreement because the Company, upon 30 days' prior written notice specifying a material breach of this Agreement, has failed to cure such material breach (within such 30-day notice period) of any of its obligations to the Employee pursuant to this Agreement, then, subject to the provisions of Paragraph 10, the Employee shall be entitled to receive a liquidated severance payment, payable in a lump sum within 30 days after the date of such termination, equal to (X) the sum of (A) 1/12 of her annual base salary in effect at the time of such termination in accordance with the provisions of Paragraph 4 hereof plus (B) 1/12 of 100% of her Target Bonus Opportunity for the fiscal year of the Company in which such termination occurs, multiplied by (Y) the greater of (a) the number of calendar months remaining in the Employee's then-current term of employment (determined without giving effect to the termination hereunder) and (b) nine. In the event of such termination, the Employee shall also be entitled to a 9 10 continuation of health insurance benefits upon the same terms and conditions in which she is participating at the time of such termination, for a period equal to the greater of the remaining term of her employment (determined without giving effect to the termination hereunder) and nine months. 10. Enhanced Severance Program. During the period in which the Special Severance Plan during Chapter 11 Proceedings (the "Enhanced Severance Program") of the Company approved by the Bankruptcy Court by order dated November 20, 1995 remains in effect (i.e., until the first business day following six (6) months after the Company's bankruptcy plan of reorganization becomes effective pursuant to its term), (hereinafter, the "Bankruptcy Period") the Employee shall be entitled to the benefits of such program, subject to all terms and conditions thereof, as from time to time in effect. Those benefits shall be in lieu of the severance benefits provided for in Paragraph 9 of this Agreement and the Change in Control benefits provided for in Paragraph 12. 11. Restrictive Covenants and Confidentiality; Injunctive Relief. a. The Employee agrees, as a condition to the performance by the Company of its obligations hereunder, particularly its obligations under Paragraphs 4 and 5 hereof, that during the term of her employment hereunder and during the further period of the Remaining Term (as defined below) the Employee shall not, without the prior written approval of the Company, directly or indirectly through any other person, firm or corporation, (i) engage or participate or make any financial investment in or become employed by or render advisory or other services to or for any person, firm or 10 11 corporation, or in connection with any business enterprise, which is, directly or indirectly, in competition with the Company or (ii) solicit, entice or induce any person who on the date of termination of employment of the Employee is, or within the last three months of the Employee's employment by the Company was, an employee of the Company or any Subsidiary, to become employed by any person, firm or corporation, and the Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person. Nothing herein contained, however, shall restrict the Employee from (i) making any investments in any company so long as such investment does not give her the right to control or influence the policy decisions of any business or enterprise which is or might be, directly or indirectly, in competition with any of the business operations or activities of the Company and the Subsidiaries; (ii) maintaining investments or exercising investment opportunities (i.e., stock options) which the Employee owns or is entitled to exercise and which investments or rights existed prior to the effective date of this Agreement; or (iii) obtaining employment with any company, including a competitor of the Company, during any period in which Employee is entitled to severance payments under this Agreement, provided, however, that in addition to the provisions of paragraph 10 hereof, any compensation received by Employee for such employment with a competitor shall be offset against the amount of severance payments owed to her by the Company. For the purposes hereof, a person, firm, corporation or other business enterprise shall be deemed to be in competition with the Company only if it operates a 11 12 discount department store within a radius of 75 miles of any discount department store operated by the Company or any Subsidiary. As used herein, the "Remaining Term" shall mean the period, commencing on the date of termination of employment (whether upon normal expiration or early termination of the term of employment), equal to the greater of the remaining term of employment (determined without giving effect to any early termination hereunder) and nine months. b. Recognizing that the knowledge, information and relationship with customers, suppliers, and agents, and the knowledge of the Company's and the Subsidiaries' business methods, systems, plans and policies which she shall hereafter establish, receive or obtain as an employee of the Company or any subsidiary, are valuable and unique assets of the respective businesses of the Company and the Subsidiaries, the Employee agrees that, during and after the term of her employment hereunder, she shall not (otherwise than pursuant to her duties hereunder) disclose, without the prior written approval of the Company's Chief Executive Officer, any such knowledge or information pertaining to the Company or any Subsidiary, their business, personnel or policies, to any person, firm, corporation or other entity, for any reason or purpose whatsoever. The provisions of this Paragraph 11b. shall not apply to information which is or shall become generally known to the public or the trade (except by reason of the Employee's breach of her obligations hereunder), information which is or shall become available in trade or other publications, information known to the Employee prior to entering the employ of the Company, and information which the Employee is required to disclose by law or an order of a court of competent jurisdiction. 12 13 If the Employee is required by law or a court order to disclose such information, she shall notify the Company of such requirement and provide the Company an opportunity (if the Company so elects) to contest such law or court order. c. The Employee acknowledges that the services to be rendered by her are of a special, unique and extraordinary character and, in connection with such services, she will have access to confidential information vital to the Company's and the Subsidiaries' businesses. By reason of this, the Employee consents and agrees that if she violates any of the provisions of this Agreement with respect to diversion of the Company's or the Subsidiaries' customers or employees, or confidentiality, the Company and the Subsidiaries would sustain irreparable harm and, therefore, in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be entitled to apply to any court of competent jurisdiction for an injunction restraining the Employee from committing or continuing any such violation of this Agreement, and the Employee shall not object to any such application. 12. Change in Control, Termination of Employment and Compensation in Event of Termination. a. For purposes hereof, a "Change in Control" shall be deemed to have occurred (i) if there has occurred a "change in control" as such term is used in Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as in effect at the date hereof (the "Act"); or (ii) if there has occurred a change in control as the term "control" is defined in Rule 12b-2 promulgated under the Act; or (iii) when any "person" (as such term is defined in Sections 3(a)(9) and 13 14 13(d)(3) of the Act) becomes a beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the Company's then outstanding securities having the right to vote on the election of directors; or (iv) if the shareholders of the Company approve a plan of complete liquidation of the Company; or (v) if there is a change in the ownership of a substantial portion of the assets of the Company (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")). Notwithstanding the foregoing, no issuance of equity securities of the Company to its creditors pursuant to a Plan of Reorganization, irrespective of the effect of such issuance on beneficial ownership of the Company's securities or on control of the Company shall be deemed to constitute or to result in a "Change in Control". b. The Employee may terminate her employment at any time within 12 months after she has obtained actual knowledge of a Change of Control, provided there is an assignment to the Employee of any duties inconsistent with the status of the Employee's office and/or position with the Company as constituted immediately prior to the Change in Control or a significant adverse change in the nature or scope of the Employee's authorities, powers, functions or duties as constituted immediately prior to the Change in Control. An election by the Employee to terminate her employment under this subparagraph b. shall not be deemed a voluntary termination of employment by the Employee for the purpose of interpreting the provisions of any of the Company's employee benefit plans. The Employee's continued employment with the Company for any period of time during the Employment Term after a Change in Control shall not be 14 15 considered a waiver of any right she may have to terminate her employment to the extent permitted under this subparagraph b. c. If (i) the Company terminates the employment of Employee subsequent to a change in control other than for cause or (ii) the Employee's employment with the Company is terminated under subparagraph b. above, the Employee (i) shall continue to receive her base salary, bonuses, awards, perquisites and benefits, including, without limitation, benefits and awards under the Company stock option plans and the Company's other employee benefit plans and programs, through the Termination Date (as defined in paragraph 13b. hereof) and, in addition thereto, (ii) shall be paid in a lump sum, within 30 days after the Termination Date, in cash, severance pay in an amount equal to the sum of (i) 1/12 of her annual base salary in effect at the time of such termination in accordance with the provisions of Paragraph 4 hereof and (ii) 1/12 of 100% of her Target Bonus Opportunity for the fiscal year of the Company in which such termination occurs, multiplied by twenty-four (24); provided, however, that such severance payment shall be reduced by the amount by which 2.99 times the Employee's "base amount" exceeds the sum of the "present value" of all "parachute payments" with respect to the Company which have been paid to (or for the benefit of) the Employee or to which she may be entitled, whether under this Agreement or otherwise (including the severance payment under this subparagraph c.). Such lump sum severance payment is referred to as the "Termination Compensation." For purposes of this Agreement, the terms "base amount," "present value," and "parachute payments" shall have the meanings as set forth in Section 280G of the 15 16 Code, except that "parachute payments" shall be determined without regard to whether or not they equal or exceed three times the Employee's "base amount." The amount of the Termination Compensation shall be determined, at the Company's expense, by its regular certified public accountant (the "Accountant") immediately prior to the Notice of Termination, whose determination shall be conclusive and binding on the parties. Upon payment of the Termination Compensation, this Agreement shall terminate and be of no further force or effect. d. After a Change in Control has occurred, the Company will honor the Employee's exercise of the Employee's outstanding stock options, in accordance with the plan under which issued. After a Change in Control has occurred and the Employee's employment is terminated as a result thereof, the Employee (or her designated beneficiary or personal representative pursuant to Paragraph 23 hereof) shall also receive, except to the extent already paid pursuant to Paragraph 12c hereof or otherwise, the sums the employee would otherwise have received (whether under this Agreement, by law or otherwise) by reason of termination of employment if a Change in Control had not occurred; provided, however, that this Paragraph 12d. shall not be construed to indicate that the Employee is entitled to payment of any amounts under Paragraph 9c. hereof. e. It is intended that the "present value" of the payments and benefits to the Employee, whether under this Agreement or otherwise, which are includable in the computation of "parachute payments" shall not, in the aggregate, exceed 2.99 times the "base amount." Accordingly, if the Employee received (or is guaranteed to receive 16 17 in the future) payments or benefits from the Company which, when added to the Termination Compensation, would, in the opinion of the Accountant, subject any of the payments or benefits to the Employee to the excise tax imposed by Section 4999 of the Code, the Termination Compensation shall be reduced by the smallest amount necessary, in the opinion of the Accountant, to avoid such tax. In addition, the Company shall have no obligation to make any payment or provide any benefit to the Employee subsequent to payment of the Termination Compensation which, in the opinion of the Accountant, would subject any of the payments or benefits to the Employee to the excise tax imposed by Section 4999 of the Code. No reduction in Termination Compensation or release of the Company from any payment or benefit obligation in reliance upon any aforesaid opinion of the Accountant shall be permitted unless the Company shall have provided a copy of any such opinion, specifically entitling the Employee to rely thereon, to the Employee no later than ten (10) days prior to the date otherwise required for payment of the Termination Compensation or any such later payment or benefit. f. The Employee shall not be required to mitigate the payment of the Termination Compensation by seeking other employment. To the extent that the Employee shall, during (in accordance with Paragraph 3b. hereof) or after the Employment Term, receive compensation from any other employment, except as provided in paragraph 11(a) of this Agreement, the payment of Termination Compensation shall not be adjusted. 17 18 g. Notwithstanding the above, the provisions of this Paragraph 12 shall not apply during the Bankruptcy Period, but the Employee shall be entitled in lieu thereof to the benefits provided under the Enhanced Severance Program referred to in Paragraph 10. 13. Notice of Termination and Termination Date. a. Any termination of the Employee's employment by the Company or by the Employee shall be communicated by a "Notice of Termination" to the other party hereto. For purposes hereof, a "Notice of Termination" shall mean a notice which shall state the "Termination Date" (as defined below) and the reasons for such termination. b. "Termination Date" shall mean the date specified in the Notice of Termination as the last day of the Employee's employment by the Company. 14. Deductions and Withholding. The Employee agrees that the Company shall withhold from any and all payments required to be made to the Employee pursuant to this Agreement, all federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect. In the unlikely event that Employee is required to repay any portion of the Bonus paid to her by the Company as provided in Paragraph 5 hereof, and notwithstanding its provisions, Employee's repayment obligation will be limited to only such sums as Employee receives after all applicable withholdings (net Bonus after taxes). For example, Employee's pay back requirements as illustrated in Paragraph 5(a)(iii) would be limited to $32,300.00, less any and all amounts withheld with respect to said $32,300.00. 18 19 15. Prior Agreements. This Agreement cancels and supersedes any and all prior agreements and understandings between the parties hereto respecting the employment of the Employee by the Company. 16. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the other party hereto at this or its address as set forth at the beginning of this Agreement. Either party may change the address to which notices, requests, demands and other communications hereunder shall be sent by sending written notice of such change of address to the other party. 17. Assignability, Binding Effect and Survival. This Agreement shall inure to the benefit of and shall be binding upon the heirs, executors, administrators, successors and legal representatives of the Employee, and shall inure to the benefit of and be binding upon the Company and its successors and assigns. Notwithstanding the foregoing, the obligations of the Employee may not be delegated and, except as expressly provided in Paragraph 23 hereof relating to the designation of beneficiaries, the Employee may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement, or any of her rights hereunder, and any such attempted delegation or disposition shall be null and void and without effect. The provisions of Paragraphs 8, 9, and 11 hereof shall survive termination of this Agreement and, to the extent appropriate to the intention of the parties and the subject matter of this Agreement, other rights and obligations of the parties may survive the termination of this Agreement. 19 20 18. Complete Understanding; Amendment. This Agreement constitutes the complete understanding between the parties with respect to the employment of the Employee hereunder, and no statements, representation, warranty or covenant has been made by either party with respect thereto except as expressly set forth herein. this Agreement shall not be altered, modified, amended or terminated except by written instrument signed by each of the parties hereto. Waiver by either party hereto of any breach hereunder by the other party shall not operate as a waiver of any other breach, whether similar to or different from the breach waived. 19. Governing Law. Except to the extent superseded by federal bankruptcy law, this Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without giving effect to principles of conflicts of law. 20. Paragraph Headings. The paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 21. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 20 21 22. Arbitration. Any dispute arising out of or relating to the obligations of either party hereto shall be settled by arbitration in accordance with the rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding on the parties hereto. As part of her decision, the arbitrator shall determine if such dispute was frivolous and, if so, the reasonable fees and expenses of the parties shall be paid by the party against whom such a determination is made or, in the absence of such a determination, the Company shall pay all such reasonable fees and expenses. 23. Designation of Beneficiary. The Employee shall have the right to name, from time to time by written notice to the Company, any one person as beneficiary hereunder or, with the consent of the Company, she may make other forms of designation of beneficiary or beneficiaries. The Employee's designated beneficiary or personal representative, as the case may be, shall accept the payments provided for in Paragraph 9 or Paragraph 12d. hereof, as applicable, in full discharge and release of the Company of and from any further obligations under this Agreement. Any other benefits due under applicable plans and programs of the Company shall be determined under the provisions of such plans and programs. 21 22 IN WITNESS WHEREOF, the parties hereto set their hands as of the dates set forth below. THE CALDOR CORPORATION By: ------------------------- --------------------------- Dennis M. Lee Date ------------------------- --------------------------- Susan Sprunk Date 22 23 Schedule A -- Employee Benefit Programs Cash Bonus and Profit-Sharing Programs: Performance Incentive Plan Caldor Profit Sharing Plan Insurance Programs: Company-Paid Life Insurance Optional Life Insurance Split Dollar Life Insurance Plan Group Medical Plan Long-Term Disability Insurance Travel Accident Insurance Other: Standard Automobile allowance Tax Preparation/Financial Planning/Executive Physicals/ Club Membership/Car Phone 10% Associate Discount Program Relocation Program 23 EX-10.14.I 3 AGREEMENT BETWEEN THE COMPANY AND SUSAN SPRUNK 1 Exhibit 10.14 AGREEMENT This Agreement is made and entered into by The Caldor Corporation ("Caldor") and SUSAN SPRUNK (Executive"). Caldor agrees to pay to Executive the gross sum of $250,000.00 as a special bonus. Executive acknowledges receipt of such bonus. In consideration for Caldor's payment of a special bonus, Executive agrees to pay back to Caldor the amount of the bonus (net of taxes) in the event that Executive's employment is terminated either voluntarily or otherwise for cause within two years of the date of this agreement. The amount agreed to be paid back is as follows: One hundred percent (100%) of special bonus if employment terminates within one (1) year from date of this agreement. Fifty percent (50%) of special bonus if employment terminates within two (2) years (but more than one year) from date of this agreement. Executive agrees that, in the event Executive's employment is terminated within the above designated period and the relevant amount of the bonus is not repaid to Caldor by Executive, in whole or in part, then Caldor may offset the amount owed against any payments due to Executive from Caldor, including, without limitation, salary or bonus. However, such right of offset shall not be the sole or exclusive means of recovery of repayments owed to Caldor by Executive, and Caldor, or its assigns shall retain all other rights and remedies which may be available. Executive acknowledges that nothing in this Agreement constitutes an agreement to employ Executive for any specified period of time or otherwise affects Caldor's right to terminate Executive's employment. Executive further acknowledges that he/she has carefully read this Agreement, that he/she understands its terms, and that he/she voluntarily signs his/her name to it. /s/ Susan Sprunk October 3, 1997 - --------------------- ----------------------- Susan Sprunk Date THE CALDOR CORPORATION By /s/ Dennis M Lee Oct 3, 1997 - --------------------- ----------------------- Date EX-10.26 4 COMMITMENT LETTER 1 [EXECUTION COPY] BANKBOSTON, N.A. 100 Federal Street Boston, Massachusetts 02110 April 24, 1998 The Caldor Corporation 20 Glover Avenue Norwalk, Connecticut 06856-5620 Attention: Mr. Jack Reen Re: Commitment Letter Ladies and Gentlemen: You have advised BankBoston, N.A. ("BBNA") and the other financial institutions from time to time executing a counterpart signature page to this Commitment Letter substantially in the form attached as Exhibit B hereto and listed on a revised Schedule A hereto (together with BBNA, the "Lenders"), that The Caldor Corporation, as debtor and debtor-in-possession (the "Debtor") in a case (the "Case") filed under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), is seeking (i) debtor-in-possession financing in order to provide for the working capital and general business needs of the Debtor and to repay in full the Debtor's current debtor-in-possession credit facility dated as of October 17, 1995 (as amended, the "Current Credit Facility"), and (ii) post-confirmation financing in connection with a plan of reorganization to be filed by the Debtor (the "Plan") to provide for the working capital and general business needs of the reorganized Debtor following the effective date of the Plan (the "Plan Effective Date") as well as to repay in full the DIP Facility (as defined below). In that regard, the Lenders are pleased to advise you of their commitment, upon the terms and subject to the conditions set forth in this Commitment Letter, in the term sheet attached as Exhibit A to this Commitment Letter (the "Term Sheet") and in the letter of even date herewith addressed to you (the "Fee Letter") providing, among other things, for the payment of certain fees relating to the Facilities (as defined below) (this Commitment Letter, the Term Sheet and the Fee Letter are referred to collectively herein as the "Commitment Letter"), to provide (i) to the Debtor a senior secured $450,000,000 guaranteed revolving credit facility (the "DIP Facility") and (ii) to the reorganized Debtor a senior secured $450,000,000 guaranteed revolving credit facility (the "Exit Facility" and together with the DIP Facility, the "Facilities"). 2 The Caldor Corporation April 24, 1998 Page 2 Each Lender, severally and not jointly, agrees to provide its share of each Facility as set forth opposite its name on Schedule A attached hereto (as amended from time to time in accordance with the terms hereof). The Lenders' commitment to provide the DIP Facility in accordance with Exhibit A attached hereto is subject to the negotiation, execution and delivery of a Revolving Credit and Guarantee Agreement (the "DIP Credit Agreement") reasonably appropriate security documents in connection therewith and other definitive documentation (collectively, the "Definitive DIP Documentation") with respect to the DIP Facility reasonably satisfactory in form and substance to the Lenders. The Lenders' commitment to provide the DIP Facility is also subject to: (A) The approval by the Bankruptcy Court of: (i) All aspects of this Commitment Letter (as it relates to the DIP Facility) and the Definitive DIP Documentation and the transactions contemplated by this Commitment Letter relating to the DIP Facility and by the Definitive DIP Documentation, and (ii) All actions to be taken, undertakings to be made and obligations to be incurred by the Debtor and the Guarantors (as defined in the Term Sheet) in connection with the DIP Facility; All such approvals of the Bankruptcy Court shall be evidenced by the entry of one or more orders satisfactory in form and substance to the Lenders; (B) The Lenders' completion of and satisfaction, in the Lenders' sole judgment, with the scope and results of their legal due diligence investigation of the Debtor and each of the Guarantors; (C) The satisfaction of each of the conditions precedent to effectiveness and funding applicable to the DIP Facility set forth in the Term Sheet and in the DIP Credit Agreement; and (D) There not having occurred or become known to any Lender any material adverse change in the condition (financial and otherwise), operations or assets of the Debtor and the Guarantors, taken as a whole (including, without limitation, any material reduction in the value of the assets of the Debtor and the Guarantors, taken as a whole), from that shown in the information made available to the Lenders on or prior to the date of this Commitment Letter. The Lenders' commitment to provide the Exit Facility in accordance with Exhibit A hereto is subject to the negotiation, execution and delivery of a Revolving Credit and 3 The Caldor Corporation April 24, 1998 Page 3 Guarantee Agreement (the "Exit Credit Agreement"), reasonably appropriate security documents in connection therewith and other definitive documentation (collectively, the "Definitive Exit Documentation", and together with the Definitive DIP Documentation, the "Definitive Documentation") with respect to the Exit Facility, reasonably satisfactory in form and substance to the Lenders. The Lenders' commitment to provide the Exit Facility is also subject to: (A) The approval by the Bankruptcy Court of: (i) all aspects of this Commitment Letter (as it relates to the Exit Facility) and the Definitive Exit Documentation and the transactions contemplated by this Commitment Letter relating to the Exit Facility and by the Definitive Exit Documentation; and (ii) All actions to be taken, undertakings to be made and obligations to be incurred by the reorganized Debtor and the Guarantors in connection with the Exit Facility; All such approvals of the Bankruptcy Court shall be evidenced by the entry of one or more orders satisfactory in form and substance to the Lenders; (B) The satisfaction of each of the conditions precedent to effectiveness and to funding applicable to the Exit Facility set forth in the Term Sheet and in the Exit Credit Agreement, including, without limitation: (i) The final terms of the Plan and the order of the Bankruptcy Court approving the Plan (the "Confirmation Order") shall not be inconsistent with Schedule A to the Term Sheet and otherwise reasonably satisfactory to the Administrative Agent; (ii) All conditions precedent to the confirmation of the Plan and to the Plan Effective Date shall have been met (or the waiver thereof shall have been consented to by the Administrative Agent (as defined below)) and the Plan Effective Date shall have occurred or shall be scheduled to occur, except for the initial extension of credit under the Exit Facility; (iii) Except as consented to by the Administrative Agent, the Bankruptcy Court's retention of jurisdiction under the Confirmation Order shall not govern the enforcement of the Definitive Exit Documentation after the Plan Effective Date or any rights or remedies relating thereto (except with respect to the granting of the Leasehold Security Interest (as defined in the Term 4 The Caldor Corporation April 24, 1998 Page 4 Sheet) to the Collateral Agent (as defined below) for its benefit and the benefit of the Administrative Agent (as defined below), the Managing Agent (as defined below) and the Lenders); (iv) There shall exist no defaults or events of default under the DIP Facility; and (v) Simultaneous with the initial extension of credit under the Exit Facility, all amounts outstanding under the DIP Facility shall be paid in full in immediately available funds; and (C) There not having occurred or become known to any Lender any material adverse change in the condition (financial and otherwise), operations or assets of the Debtor and the Guarantors, taken as a whole (including, without limitation, any material reduction in the value of the assets of the Debtor and the Guarantors, taken as a whole), from that shown in the information made available to the Lenders on or prior to the date of this Commitment Letter. The terms and conditions of the Lenders' commitments under this Commitment Letter with respect to the Facilities are not limited to the terms and conditions set forth in this Commitment Letter. Those matters that are not covered by or made clear under the provisions of this Commitment Letter are subject to the reasonable approval and agreement of the Lenders and the Debtor. The Lenders reserve the right, prior to or after the execution of the Definitive DIP Documentation or the Definitive Exit Documentation, as the case may be, to syndicate part of their respective commitments to one or more banks, commercial finance companies or other financial institutions, in each case with the prior written consent of the Debtor (except as set forth in the Term Sheet), which consent shall not be unreasonably withheld, that will become parties to such Definitive Documentation, with each syndicate member having a minimum commitment of at least $10,000,000, although BBNA agrees to endeavor to identify prospective syndicate members who are willing (without the payment of money or other economic concessions on the part of BBNA) to participate in the Facilities for a commitment of $20,000,000 or more. Accordingly, you agree to actively assist the Lenders in completing a timely syndication that is reasonably satisfactory to them. Such assistance shall be accomplished by a variety of means, including direct contact during the syndication process between senior officers and representatives of the Debtor and representatives of advisors and consultants retained by the Debtor on the one hand, and the proposed syndicate assignees and participants, on the other hand, and the participation at reasonably convenient times and places by senior officers and representatives of the Debtor (and representatives of advisors and consultants retained by the Debtor) in one or more meetings to be arranged by a Lender with the proposed syndicate assignees and participants. 5 The Caldor Corporation April 24, 1998 Page 5 Although the Term Sheet sets forth the principal terms of the proposed financing, you should understand that we reserve the right to propose terms in addition to those terms which will not materially change or alter the terms of this Commitment Letter (including the Term Sheet). It is agreed that if the Lenders deem such actions advisable in order to ensure a successful syndication, the Lenders may propose, and you agree to negotiate in good faith (although you have no obligation to agree to such modifications), reasonable modifications to the structure and the amount of the Facilities from that described herein or in the Term Sheet, provided that the aggregate principal amount of each Facility, taken as a whole, remains the same. Moreover, the Term Sheet does not purport to include all of the representations, warranties, defaults, definitions and other terms which will be contained in the Definitive DIP Documentation or the Definitive Exit Documentation, all of which must be reasonably satisfactory to the Lenders. To assist each Lender in its syndication efforts, you agree promptly to provide, and to cause your advisors to provide, any Lender, upon request, with all information deemed reasonably necessary by such Lender to complete successfully the syndication, including, without limitation, all information that is reasonably available and projections prepared by you or on your behalf relating to the transactions contemplated hereby. Upon your acceptance of this Commitment Letter as provided herein, BBNA will have committed, as of the date hereof, to provide the full amount of each Facility upon the terms and subject to the conditions set forth herein and in the Term Sheet. To the extent that additional banks, commercial finance companies or other financial institutions assume a portion of BBNA's (or any other Lender's) commitment by executing a counterpart signature page to this Commitment Letter (a copy of which we will provide to you (as well as a revised Schedule A hereto)), substantially in the form attached as Exhibit B (thereby becoming a "Lender" hereunder), BBNA's (or such other Lender's) commitment hereunder will be reduced dollar-for-dollar by the amount of the commitment assumed by each such new Lender and the commitment of each Lender hereunder will be several and not joint. Each such new Lender will be entitled to all of the rights and benefits, and subject to all of the obligations, applicable to Lenders under this Commitment Letter. You hereby represent and covenant that (a) all information concerning the Debtor and the Guarantors (the "Information") that has been or will be made available to the Lenders and any other financial institutions that become parties to either Facility by you or any of your authorized representatives in connection with the transactions contemplated by this Commitment Letter is and will be, as of the date when so made available (or, if later, the date of this Commitment Letter), complete and correct in all material respects and does not and will not, as of the date when so made available (or, if later, the date of this Commitment Letter), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained in such Information, taken as a whole, not materially misleading in light of the circumstances under which such statements are made and (b) all financial projections 6 The Caldor Corporation April 24, 1998 Page 6 concerning the Debtor and the Guarantors (the "Projections") that have been or will be prepared by you and made available to the Lenders have been or will be prepared in good faith based upon reasonable assumptions. You agree to revise the Information and Projections from time to time in order that the foregoing representations and warranties remain true from time to time. In arranging and syndicating the Facilities, the Lenders will be using and relying on the Information and Projections. BBNA will serve as administrative agent (the "Administrative Agent") for itself and the other Lenders under each Facility and will perform the customary duties related to that function. BankBoston Retail Finance, Inc. ("BBRF"), an affiliate of BBNA, will act as managing agent (in such capacity, the "Managing Agent") and as collateral agent (in such capacity, the "Collateral Agent") for itself and the other Lenders under each Facility and will perform the customary duties related to that function. By your signature below, you further agree (a) to pay all reasonable out-of-pocket costs and expenses incurred by BBNA, the Administrative Agent, the Managing Agent and the Collateral Agent in connection with this Commitment Letter, the transactions contemplated hereby (including, without limitation, preparation, negotiation, closing and administration of the Definitive DIP Documentation and the Definitive Exit Documentation) and BBNA's and the Collateral Agent's ongoing due diligence in connection therewith (including, without limitation, reasonable travel expenses; reasonable attorneys' fees and expenses; reasonable asset evaluation expenses and reasonable audit expenses (including, without limitation, tradename appraisals); reasonable syndication expenses, recording and filing fees, title insurance premiums and other reasonable charges and disbursements and any other reasonable out-of-pocket costs and expenses of BBNA, the Administrative Agent, the Managing Agent and the Collateral Agent), from time to time promptly upon request whether or not such transactions are consummated, (b) to pay all fees and other amounts contemplated by this Commitment Letter (including the Fee Letter) when such amounts are due and (c) to indemnify and hold harmless the Administrative Agent, the Managing Agent, the Collateral Agent, BancBoston Securities Inc., the Lenders, the other financial institutions that become parties to either Facility and each of their respective officers, directors, partners, beneficiaries, trustees, employees, professionals, affiliates, agents and controlling persons (collectively, the "Indemnified Persons") from and against any and all losses, claims, damages, costs, expenses and liabilities to which any such Indemnified Person may become subject arising out of, or in connection with, this Commitment Letter, the transactions contemplated hereby or any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any of such Indemnified Persons is a party thereto, and to reimburse each of such Indemnified Persons, from time to time upon their demand, for any reasonable legal or other expenses incurred in connection with investigating or defending any of the foregoing, whether or not the transactions contemplated hereby are consummated, provided that the foregoing indemnity set forth in this clause (c) will not, as to any Indemnified Person, apply to losses, claims, damages, liabilities or related expenses to the extent that they have been 7 The Caldor Corporation April 24, 1998 Page 7 determined by a court of competent jurisdiction by final non-appealable order to arise from the bad faith, willful misconduct or gross negligence of such Indemnified Person. All such out-of-pocket costs and expenses, fees and other amounts and indemnities shall be considered and treated as superpriority administrative expenses of the Debtor in the Case and in any subsequent or superseding bankruptcy proceeding of the Debtor, subject to the Carve Out (as defined in the Term Sheet). Upon execution of this Commitment Letter by the Borrower, the Borrower will promptly seek approval from the Bankruptcy Court of a $500,000 non-refundable commitment fee (the "Commitment Fee") and the Documentation Deposit (as defined in the Term Sheet) payable to BBNA in immediately available funds within one business day after such approval. If the DIP Closing Date occurs, the Commitment Fee will be credited toward the Closing Fee (as defined in the Fee Letter). You agree that this Commitment Letter (including the Fee Letter) is for your confidential use only and that it will not be disclosed by you or any of the Guarantors to any person (including any lender bidding for any portion of the financing contemplated by this Commitment Letter) other than to your employees, officers, accountants, attorneys, and other advisors (subject to appropriate confidentiality restrictions) and, to the extent necessary for acceptance of this Commitment Letter, to the Bankruptcy Court, and then only in connection with the transactions contemplated hereby and on a confidential basis. However, upon your acceptance of this Commitment Letter, this Commitment Letter may be disclosed in connection with obtaining Bankruptcy Court approval of the terms and conditions contemplated herein. Each Lender agrees to keep any information delivered or made available by you to it confidential from anyone other than such Lenders' employees, officers, partners, beneficiaries, trustees, attorneys and other advisors who are or are expected to become engaged in evaluating, approving, structuring or administering the Facilities or rendering legal advice in connection therewith, provided that nothing herein shall prevent the Lenders from disclosing such information (a) upon the order of any court or administrative agency or upon the request of any administrative agency or authority, (b) upon the request or demand of any regulatory agency or authority, (c) to the extent that such information has been publicly disclosed other than as a result of a disclosure by the Lenders, (d) to any other Lender, (e) to any actual or potential syndicate assignee or participant, provided that each such assignee or participant has been notified of the provisions of this paragraph and agrees to be bound by them, or (f) otherwise as required by law. You hereby agree that the Lenders' commitment hereunder to provide the Exit Facility is separate and distinct from their commitment to provide the DIP Facility and that the Exit Facility is subject to its own conditions precedent. Accordingly, you agree that your obligation to repay all amounts outstanding under the DIP Facility on the "Termination Date" thereof is absolute and unconditional and not subject to or conditioned upon the closing of the Exit Facility or the making of any loans thereunder. 8 The Caldor Corporation April 24, 1998 Page 8 This Commitment Letter shall not be assignable by you without the prior written consent of the Lenders and may not be amended or any provision hereof waived or modified except by an instrument in writing signed by you and the Lenders. This Commitment Letter supersedes all our prior letters to you regarding the subject of this Commitment Letter. This Commitment Letter shall be governed by, and construed in accordance with, the laws of the State of New York. If the foregoing correctly sets forth our agreement, please indicate your acceptance of the terms hereof by signing and returning to the Administrative Agent by telecopy not later than 5:00 p.m., Boston time, on Friday, April 24, 1998 (with an original to follow by overnight mail), the enclosed duplicate originals of this Commitment Letter and the Fee Letter. The commitments contained herein shall be terminated if (a) you shall have failed to accept this Commitment Letter and the Fee Letter in the time and manner set forth in the previous sentence, (b) the Lenders shall not have received evidence of the Bankruptcy Court's approval of your executing and performing this Commitment Letter and the payment of the fees, expenses or other amounts contemplated hereby including, without limitation, the Commitment Fee and the Documentation Deposit, on or prior to May 30, 1998, or (c) the Lenders shall not have received evidence of the Bankruptcy Court's approval of your executing and performing the Fee Letter and the Definitive DIP Documentation, and the payment of the fees, expenses or other amounts as contemplated thereby on or prior to May 30, 1998. With respect to the Exit Facility, if the initial funding under the Exit Credit Agreement has not previously or contemporaneously occurred, this Commitment Letter (other than the indemnity and confidentiality provisions hereof) shall expire and be of no further force and effect on the earlier to occur of (i) termination of the DIP Facility in accordance with the terms thereof and (ii) one (1) Business Day (as defined in the DIP Facility) after the Plan Effective Date (or, at the request of the Borrower, within five (5) Business Days after the Plan Effective Date). This Commitment Letter may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. [SIGNATURE PAGES FOLLOW] 9 The Caldor Corporation April 24, 1998 Page 9 We are pleased to have been given the opportunity to participate in this transaction. Very truly yours, BANKBOSTON, N.A. By: ---------------------------------------- Name: Title: 10 The Caldor Corporation April 24, 1998 Page 10 Agreed to and accepted as of the date first above written: THE CALDOR CORPORATION, as Debtor and Debtor-in-Possession By: ----------------------------------- Name: Title: 11 Schedule A to Commitment Letter ------------------------------- (as of April 24, 1998)
Commitment Commitment Lender Percentage Amount - ------ ---------- ------ BankBoston, N.A. 100% $450,000,000
12 Exhibit A to Commitment Letter THE TERMS AND CONDITIONS SUMMARIZED HEREIN ARE INTENDED SOLELY AS A GENERAL DESCRIPTION OF THE PRINCIPAL TERMS OF THE FACILITIES AND WILL BE EXTENSIVELY SUPPLEMENTED BY THE ADMINISTRATIVE AGENT IN THE DEFINITIVE DIP DOCUMENTATION AND THE DEFINITIVE EXIT DOCUMENTATION (AS APPLICABLE). CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION SHALL HAVE THE SAME MEANINGS GIVEN TO SUCH TERMS IN THE COMMITMENT LETTER TO WHICH THIS TERM SHEET IS ATTACHED. THE CALDOR CORPORATION DEBTOR-IN-POSSESSION AND EXIT FACILITY TERM SHEET APRIL 24, 1998 Borrower: The Caldor Corporation (the "Borrower"). Guarantors: Caldor, Inc. - CT and Caldor, Inc. - NY (collectively, the "Retail Guarantors") and each other wholly-owned subsidiary of the Borrower (other than American East, Inc.) (collectively with the Retail Guarantors, the "Guarantors") Administrative Agent: BankBoston, N.A. ("BBNA"), as administrative agent (the "Administrative Agent") for itself and other Lenders (as defined below). Collateral Agent: BankBoston Retail Finance, Inc. (the "Collateral Agent"). Managing Agent: BankBoston Retail Finance, Inc. (the "Managing Agent"). Underwriter: BancBoston Securities Inc. ("BSI") Lenders: BBNA will provide the Borrower with separate fully underwritten and committed $450,000,000 Facilities as described below. As set forth in the Commitment Letter, BBNA expressly reserves the right to syndicate part of either or both such Facilities to other financial institutions (collectively, including BBNA, the "Lenders"). The Borrower shall assist and cooperate with BBNA and the other Lenders in achieving a successful syndication, including participating in lender meetings and responding to reasonable information requests in a timely manner. Closing Date: The closing of and initial funding under the DIP Facility (the "DIP Closing Date") will occur on or before May 15, 1998, or as soon as reasonably practicable thereafter (but in no event later than June 15, 1998) (provided that all conditions precedent thereto have been satisfied or waived as provided herein) and substantially concurrent with the entry of an order by the Bankruptcy Court approving the DIP Facility (the "Financing Order") provided that there is no stay of the order pending at such time. The closing of and initial funding under 1 13 the Exit Facility (the "Exit Closing Date") will occur on or within one (1) business day after the Plan Effective Date (provided that all conditions precedent to the Exit Closing Date have been satisfied or waived as provided herein). Facilities: The DIP Facility will consist of up to an eighteen (18) month debtor-in-possession revolving credit facility in a maximum principal amount of $450,000,000. The Exit Facility will consist of up to a four (4) year (less the actual term of the DIP Facility) post-confirmation revolving credit facility in a maximum principal amount of $450,000,000. With respect to either Facility, the sum of direct borrowings plus letters of credit outstanding and unpaid reimbursement obligations in respect of letters of credit shall not exceed $450,000,000. Furthermore, the sum of direct borrowings under either Facility plus letters of credit outstanding and unpaid reimbursement obligations in respect of letters of credit minus fully cash collateralized secured letters of credit (as provided below) shall not exceed the Borrowing Base described below. Both Facilities will have a sublimit of $150,000,000 for letters of credit (documentary and standby) and bankers' acceptances to be issued by BBNA. Availability: During the term of either Facility, revolving credit loans will be available daily upon notice (if received prior to 3:00 p.m., Boston time, on that day) for Base Rate Loans (as defined below) and upon two business days' notice, and in minimum amounts of $1,000,000 or larger integral multiples thereof, for Eurodollar Loans (as defined below). The Borrower may not have more than seven Eurodollar Loans outstanding at any one time. Letters of credit will be available upon notice customary for facilities of this type in agreed upon amounts. Notwithstanding the foregoing, the Administrative Agent may in its sole discretion make Base Rate Loans available to the Borrower on a same day basis. Termination Date: All obligations under the DIP Facility will be due and payable, and all commitments under the DIP Facility shall be permanently terminated, on the earlier to occur of (a) the Plan Effective Date or (b) eighteen (18) months from the DIP Closing Date (the "DIP Termination Date"). All obligations under the Exit Facility will be due and payable, and all commitments under the Exit Facility shall be permanently terminated, four (4) years (less the actual term of the DIP Facility) from the Exit Closing Date (the "Exit Termination Date"). 2 14 Prepayments; Repayments: Loans under both Facilities shall be repaid on a daily basis from the proceeds of collections received in the Borrower's cash concentration account to be maintained at BBNA, as provided below. Immediate prepayment shall be required if and to the extent that loans outstanding under either Facility exceed any availability limitations thereunder. The Borrower shall also immediately (and, in any event, on the same business day) reimburse BBNA for any drawing under any letter of credit or bankers acceptance through the conversion of an availability reserve in connection with such letter of credit and bankers' acceptance to a loan under either Facility or otherwise. Subject to applicable conditions, amounts prepaid under either Facility may be reborrowed prior to the applicable Termination Date. No loans repaid or prepaid at any time under either Facility shall be charged a premium or penalty except for breakage costs associated with Eurodollar Loans as provided below and default interest as provided herein. Interest: All loans outstanding under either Facility shall bear interest at the Administrative Agent's Alternate Base Rate in effect from time to time or, at the Borrower's option, so long as no default or Event of Default (as defined below) has occurred and is then continuing, at the fully reserve adjusted Eurodollar rate (the "Eurodollar Rate") plus 2.25% (2.75% during any period that the Borrower is utilizing the Overadvance Rate (as defined below)) (the "Eurodollar Applicable Margin") for interest periods of one (1) two (2) and three (3) months. Notwithstanding the foregoing, commencing with the first fiscal quarter of the Borrower beginning after receipt by the Administrative Agent of the Borrower's audited financial statements for fiscal year 1998, the Eurodollar Applicable Margin will be reduced by (i) 0.25% for any fiscal quarter for which the rolling 12-month EBITDA of the Borrower for the immediately preceding 12-month period is greater than or equal to $75,000,000, but less than $100,000,000 or (ii) without duplication, 0.50% for any fiscal quarter for which the rolling 12-month EBITDA of the Borrower for the immediately preceding 12-month period is greater than or equal to $100,000,000. "EBITDA" shall mean, for any period, all as determined in accordance with GAAP, the consolidated net income (or net loss) of the Borrower and the Guarantors for such period, plus (a) the sum of (i) depreciation expense, (ii) amortization expense, (iii) other non-cash expense, (iv) provision for LIFO adjustment for inventory valuation, (v) net total Federal, state and local income tax expenses, (vi) gross interest expense for such period less gross interest income for such period, (vii) extraordinary losses, (viii) the non-cash portion, if any, of any non-recurring charge or restructuring charge, (ix) the 3 15 cumulative effect of any change in accounting principles and (x) "Chapter 11 expenses" (or "administrative costs" reflecting Chapter 11 expenses) as shown on the Borrower's consolidated statement of income for such period, less extraordinary gains. The "Alternate Base Rate" shall be defined as the higher of (i) the annual rate of interest announced from time to time by the Administrative Agent at its head office in Boston, Massachusetts, as its "Base Rate" or (ii) one-half of one percent (.50%) above the Federal Funds Effective Rate. "Federal Funds Effective Rate" shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a business day, for the next preceding business day) by the Federal Reserve Bank of New York; or, if such rate is not published for any day that is a business day, the average of the quotations for such day on such transactions received by the Administrative Agent from three funds brokers of recognized standing selected by the Administrative Agent. Loans bearing interest based on the Alternate Base Rate shall herein be referred to as "Base Rate Loans" and loans bearing interest based on the Eurodollar Rate shall herein be referred to as "Eurodollar Loans." For both Facilities, interest on Base Rate Loans shall be payable monthly in arrears on the first business day of each calendar month following the month in which such interest accrued, commencing on the first such date after the applicable Closing Date, and at maturity. Interest on all Eurodollar Loans shall be payable at the end of the applicable interest period. The Borrower will be responsible for all costs related to the termination for any reason of any Eurodollar Loan prior to its scheduled maturity. Letters of Credit: Letters of credit will support ordinary course obligations of the Borrower and the Guarantors and will be issued in a form acceptable to the Administrative Agent. At the request of the Borrower, letters of credit will be issued under the DIP Facility on the DIP Closing Date to support documentary and/or standby letters of credit outstanding on the DIP Closing Date which have been issued by other financial institutions. Letters of credit issued under either Facility will have expiration dates of no later than, (i) for standby letters of credit, one (1) year from the date of issuance (with agreed upon renewal provisions) and (ii) for documentary letters of credit, 180 days from the date of issuance. In no event shall any letters of credit expire later than ninety (90) days after the DIP Termination Date, or, if the Exit Closing Date has occurred, ninety (90) days after the Exit Termination Date. 4 16 Letter of Credit Fees: For standby and documentary letters of credit, a letter of credit fee of 1.50% per annum (the "L/C Fee") on the maximum amount available to be drawn under each such letter of credit. All L/C Fees will be payable to the Administrative Agent (for the pro-rata account of the Lenders), monthly in arrears based on the average daily outstanding undrawn face amount of all letters of credit. In addition, the Borrower will pay to the Administrative Agent for its own account an issuance fee of 0.125% per annum on the face amount of each letter of credit as well as customary fees to cover the costs of negotiation, issuance, settlement, amendment and processing of such letters of credit. Agency Fee: To be paid in accordance with the Fee Letter. Borrowing Base: DIP Facility: The "Borrowing Base" for the DIP Facility shall be equal to the lesser of (a) the sum of (i) seventy-two percent (72%) (the "Inventory Advance Rate") (or, during the fiscal months of March through December only, 77% (the "Overadvance Rate"); provided that the Overadvance Rate shall not increase the Borrowing Base by more than $30,000,000) of the cost value of the Borrower's and the Retail Guarantors' Eligible Inventory (as defined below) and, without duplication, Eligible Letter of Credit Inventory (as defined below), Eligible In-Transit Inventory and Eligible FOB Inventory minus applicable Reserves (as described below), (ii) eighty percent (80%) of the Borrower's Eligible Accounts Receivable (as defined below) minus applicable Reserves and (iii) the lesser of (A) $45,000,000 and (B) seventy percent (70%) of the "low liquidation value" of the Borrower's and the Guarantors' leasehold interests in real estate (as determined by Keen Realty in an appraisal dated October 7, 1997), but only to the extent that the Collateral Agent has an enforceable first-priority perfected security interest in such leasehold interests as provided under "Priority and Security" below (the "Perfection Conditions"); and (b) $450,000,000. Exit Facility: The "Borrowing Base" for the Exit Facility shall be equal to the lesser of (a) the sum of (i) seventy-five percent (75%) (seventy-three percent (73%) for the months of January and February of each year) (the "Inventory Advance Rate") of the cost value of the Borrower's and the Retail Guarantors' Eligible Inventory (as defined below) and, without duplication, Eligible Letter of Credit Inventory (as defined below), Eligible In-Transit Inventory and Eligible FOB Inventory minus applicable Reserves (as described below), (ii) eighty percent (80%) of the Borrower's Eligible Accounts Receivable (as defined below) minus applicable Reserves and (iii) the lesser of (A) $40,000,000 and (B) sixty percent (60%) of the "low liquidation value" of the Borrower's and the Guarantors' 5 17 leasehold interests in real estate (as determined by Keen Realty in an appraisal dated October 7, 1997), subject to the Perfection Conditions; and (b) $450,000,000. "Eligible Inventory" will consist of stock ledger inventory calculated by the retail method of accounting valued at cost less capitalized cost. The Lender must have a valid and perfected first-priority security interest in such inventory for it to be included for Borrowing Base purposes. Eligible Inventory will exclude inventory that is not salable, including, without limitation: non-merchandise categories (labels, bags, packaging, etc.), inventory in foreign locations (except for Eligible Letter of Credit Inventory (as defined below), and samples. Eligible Inventory will specifically exclude damaged goods and return-to-vendor merchandise and consignment goods. "Eligible Accounts Receivable" will consist of current amounts due to the Borrower from major credit card companies (the "Accounts Receivable") which are unpaid for no more than five (5) business days from the date of sale and which companies have signed a payment direction agreement (a "Payment Direction Agreement") satisfactory to the Administrative Agent and subject to certain other eligibility criteria customary for credit card receivables. The Lender must have a valid and perfected first-priority security interest in such Accounts Receivable for them to be included in the Borrowing Base. "Eligible Letter of Credit Inventory" will consist of inventory which has not been received by the Borrower and for which a documentary letter of credit has been issued which has an expiration date within 75 days of the inclusion of such inventory as Eligible Letter of Credit Inventory. "Eligible In-Transit Inventory" will consist of inventory in an aggregate amount not to exceed $65,000,000 at any time (i) for which a documentary letter of credit has been issued and paid, but such inventory has not yet been received in the Borrower's warehouse and, if such inventory is in the possession of any of the Borrower's customs brokers, it is, if required by the Collateral Agent, subject to a customs broker agreement in form and substance reasonably satisfactory to the Collateral Agent (a "Customs Broker Agreement") and (ii) that has been received in the Borrower's warehouse, but has not yet been recorded in the Borrower's stock ledger report. "Eligible FOB Inventory" will consist of inventory which has not been received by the Borrower but which has been sold to the Borrower "FOB shipping point," is subject to a common carrier agreement in form and substance reasonably satisfactory to the Collateral Agent (a "Common Carrier 6 18 Agreement") and the invoice with respect to such inventory is not dated earlier than 30 days prior to the date of the then-current Borrowing Base certificate provided to the Collateral Agent. The amount of Eligible FOB Inventory to be included in the Borrowing Base at any time shall be determined by the Administrative Agent in its sole discretion. The Eligible FOB Inventory amount will be initially set at zero (-0-) at least until such time as the Borrower is able to deliver to the Administrative Agent a detailed methodology for tracking Eligible FOB Inventory through invoices on a weekly basis that is acceptable to the Administrative Agent; provided, however, that the Administrative Agent will be under no obligation to increase the amount of the Eligible FOB Inventory above zero in the event that such a methodology is delivered to the Administrative Agent, any such increase to remain in the sole discretion of the Administrative Agent. The Collateral Agent shall be entitled to obtain periodic inventory liquidation analyses performed by Gordon Brothers Companies, Inc., or another liquidation analysis firm chosen by the Collateral Agent in its reasonable discretion, and follow-up reviews of the Borrower's books and records to be conducted by a commercial finance audit firm chosen by the Collateral Agent. The Administrative Agent shall be entitled to make reasonable adjustments to the Borrowing Base of either or both Facilities on the basis of the results of such analysis and review, provided that such adjustment shall take effect seven (7) business days after written notice to the Borrower. Reserves: Accounts receivable, inventory availability and other Borrowing Base reserves may be established by the Administrative Agent in its reasonable discretion. An initial Borrowing Base reserve will include a "Professional Fee Carve Out Reserve" consisting of the accrued and unpaid professional fees arising from the Case in an amount not to exceed $6,000,000. In addition, with respect to the Exit Facility, to the extent that, at any time (based upon appraisals conducted by the Collateral Agent), the loan-to-inventory value ratio of the Borrower and the Retail Guarantors exceeds eighty-five percent (85%) (using the same methodology previously disclosed to the Borrower by the Collateral Agent as of the DIP Closing Date) a Borrowing Base reserve will be established with respect to such excess. Changes to reserves will be initiated on seven business days notice to the Borrower. Use of Proceeds: DIP Facility: To repay in full the Current Credit Facility and to fund the working capital and general business needs of the Borrower and the Retail Guarantors. Exit Facility: To repay in full the DIP Facility and to fund the working capital and general business needs of the reorganized 7 19 Borrower and the Retail Guarantors following the Plan Effective Date. Unused Line Fee: During the term of both Facilities, an unused line fee (the "Unused Line Fee") in the amount of 0.25% per annum on the average daily unused amount for the immediately preceding calendar month of the then existing Facility will accrue for the pro rata benefit of all Lenders. The aggregate amount of outstanding letters of credit issued under the applicable Facility will be treated as a use of the Facilities in such amount for purposes of calculating the Unused Line Fee. The Unused Line Fee will be payable for the period from the DIP Closing Date to the DIP Termination Date (or, if the Exit Closing Date has occurred, the Exit Termination Date), monthly in arrears on the first business day of each month commencing on the first such date after the DIP Closing Date with the final payment due on the DIP Termination Date. Closing Fee: To be paid in accordance with the Fee Letter. Diligence and Documentation Fees: The Borrower will obtain Bankruptcy Court approval for a documentation deposit of $150,000 (the "Documentation Deposit") to cover a portion of BBNA's continuing due diligence costs and expenses, including appraisals, field examinations, legal costs and expenses related to this Commitment Letter and other normal costs and expenses associated with a transaction of this nature and legal costs and expenses in preparing and negotiating the Definitive DIP Documentation and closing the DIP Facility. The Documentation Deposit shall be in addition to the $100,000 due diligence deposit (the "Diligence Deposit") to be provided to BBNA pursuant to a separate order of the Bankruptcy Court. Such approval shall be obtained as promptly as possible after the date hereof. Any unused amount of the Diligence Deposit will be returned to the Borrower upon the termination of the Commitment Letter or execution of the Definitive DIP Documentation. Nature of Fees: Non-refundable under all circumstances except for any unused amount of the Diligence Deposit. Calculations, Payments: All computations of interest and fees shall be based on a 360-day year and paid for the actual number of days elapsed. All payments shall be made to the Administrative Agent in United States dollars in immediately available funds. Default Interest: Upon the occurrence and during the continuance of an Event of Default (as defined below), and notwithstanding any otherwise applicable interest rate, the interest rate shall be the interest rate then in effect plus 2.00% per annum. 8 20 Cash Concentration Account: No later than the DIP Closing Date, and subject to the immediately following paragraph, BBNA will become (and shall remain throughout the terms of both Facilities) the concentration bank for the Borrower's cash management system. All collections from any source and proceeds from asset sales (including inventory) will be deposited either directly into an account with BBNA or into an account at institutions with which the Administrative Agent has in place a blocked account, agency or similar agreement satisfactory to it in its sole discretion. The Borrower will establish cash management systems reasonably satisfactory to the Administrative Agent in its sole discretion. All amounts in accounts at institutions referred to above (other than BBNA) shall be swept daily into a cash concentration account at BBNA (the "Cash Concentration Account") and applied as follows: first, to pay amounts, including interest, due and payable under the DIP Facility or Exit Facility, as applicable (other than principal of Base Rate Loans and Eurodollar Loans); second, to reduce outstanding Base Rate Loans under the DIP Facility or Exit Facility, as applicable; third, to reduce or, at the Borrower's option, cash collateralize outstanding Eurodollar Loans under the DIP Facility or Exit Facility, as applicable (with the Borrower being obligated to pay any breakage fees associated with a reduction of Eurodollar Loans); and fourth, if an Event of Default has occurred and is then continuing, to cash collateralize letters of credit outstanding under the DIP Facility or Exit Facility, as applicable, in an amount equal to 105% of the maximum amount available to be drawn under such letters of credit. As needed, the Administrative Agent will charge the concentration account for the unpaid amount of any and all fees, costs, expenses, interest and other amounts payable under the Facilities; provided that the Administrative Agent provides the Borrower with notice reasonable under the circumstances prior to any such charge. So long as no default or Event of Default has occurred and is then continuing, excess funds not applied in the manner described in the preceding sentence shall be released to the Borrower. Funds swept into the Cash Concentration Account shall be applied or released as described above as of the business day immediately following the day on which such funds are received in the Cash Concentration Account with the Borrower agreeing to indemnify BBNA against the nonpayment of any provisional items. For the first thirty (30) days following the DIP Closing Date, the Borrower may maintain its existing concentration account arrangements with Chase, and agency accounts under which funds are transferred daily or nearly daily to that concentration account, so long as Chase enters into blocked account, agency or similar agreements reasonably acceptable to the 9 21 Administrative Agent, and pursuant to arrangements reasonably satisfactory to the Administrative Agent funds are swept daily from the Chase concentration account to the Cash Concentration Account for application as set forth above. Priority and Security: DIP Facility: All direct borrowings, all reimbursement obligations under letters of credit and all other obligations of the Borrower under the DIP Facility shall at all times (a) be entitled to superpriority claim status under Section 364(c)(1) of the Bankruptcy Code and have priority over any and all administrative expenses specified in Bankruptcy Code Sections 503(b), 507(b), 364(c) and any subsequent Chapter 7 case pursuant to Section 364(c)(1) of the Bankruptcy Code, or otherwise, subject only to a Carve Out (as defined below) for allowed professional fees and expenses incurred by the Borrower's professionals and those of any statutory committees appointed in the Case and (b) be secured under Sections 364(c) or 364(d) of the Bankruptcy Code (as necessary to effectuate the following) by a first-priority and perfected security interest in and lien upon (i) all of the Borrower's and the Guarantors' inventory, Accounts Receivable, general intangibles, equipment, intellectual property and leasehold interests in real property (with such security interests in leaseholds to have been granted by an order of the Bankruptcy Court in form and substance satisfactory to the Administrative Agent in its sole discretion), (ii) all of the Borrower's interest in the real property associated with six stores of the Borrower listed on Schedule C hereto and (iii) all unencumbered assets of the Borrower and the Guarantors; and (c) be secured under Section 364(c) of the Bankruptcy Code by a perfected second-priority security interest in and lien upon all other property, rights, and assets of the Borrower and the Guarantors. "All property, rights and assets" includes all real and personal property of the Borrower and the Guarantors, whether now owned or hereafter acquired. In any event, the DIP Facility shall be secured by at least the same collateral (with at least the same level of priority) as that securing the Current Credit Facility (but shall not be senior to any existing liens to which the Current Credit Facility is not senior (subject always to the requirement that the DIP Facility be secured by an unshared first-priority security interest in any inventory, Accounts Receivable and leaseholds included in the Borrowing Base)). "Carve Out" shall mean (i) allowed administrative expenses incurred pursuant to 28 U.S.C. Section 1930(a)(6) and (ii) allowed accrued and unpaid and future fees and expenses incurred by the Debtors' professionals and any statutory committee professionals appointed in the Case pursuant to Sections 327 and 1103 of the Bankruptcy Code, which shall not exceed $6,000,000 in the aggregate subsequent to the 10 22 occurrence of an Event of Default. Exit Facility: All direct borrowings, all reimbursement obligations under letters of credit and all other obligations of the Borrower under the Exit Facility shall at all times be secured by a first-priority perfected lien on and security interest in all existing and after acquired assets, properties, and rights of the Borrower and the Guarantors (including, without limitation, inventory, accounts receivable, general intangibles, equipment, intellectual property and real estate (including leasehold interests, such security interests in leaseholds (the "Leasehold Security Interest") to have been expressly granted and ordered by the Bankruptcy Court with such order to contain provisions acceptable to the Administrative Agent in its sole discretion to ensure that the Lenders receive at least the full benefit (economic or otherwise) of such leaseholds as would be enjoyed by the relevant lessee absent the grant of such security interest, whether now owned or hereafter acquired or arising, and all proceeds thereof, subject only to permitted liens satisfactory to the Collateral Agent. In the event that the Bankruptcy Court does not include an order as specified above with respect to the Leasehold Security Interest, the Lenders' commitment hereunder shall have full force and effect except that the Borrowing Base shall exclude clause (a)(iii), except to the extent of any leasehold mortgages that are delivered to the Collateral Agent and filed in the appropriate filing office and that otherwise comply with the provisions of paragraph 19 below. In addition, the Collateral Agent shall be named as loss payee on all insurance policies relating to property subject to the Lenders' security interest. 11 23 All liens granted under the Facilities will be granted to the Collateral Agent for the benefit of itself, the Lenders, the Managing Agent and the Administrative Agent Conditions to Effectiveness The effectiveness of each Facility and the and Initial Extension of Credit: obligation of the Lenders to provide the initial extension of credit under the DIP Facility or, as the case may be, the Exit Facility (such closing conditions to be applicable to both Facilities unless otherwise indicated) shall be subject to the satisfaction of usual and customary conditions, including, without limitation, the applicable conditions set forth in the Commitment Letter as well as the following conditions: 1. With respect to the DIP Facility, the Bankruptcy Court shall have entered the Financing Order in the Case satisfactory in form and substance to the Administrative Agent approving the Definitive DIP Documentation, the transactions contemplated hereby and thereby and including, specifically but without limiting the foregoing, the grant to the Lenders, the Administrative Agent, the Managing Agent and the Collateral Agent of superpriority status, subject to the Carve Out, and the first and second-priority liens contemplated herein under the heading "Priority and Security" and the payment and performance by the Borrower and the Guarantors of all of their obligations under the Definitive DIP Documentation. The Financing Order shall have authorized extensions of credit in the full amount of the DIP Facility or otherwise in an amount satisfactory to the Lenders, shall contain such other provisions reasonably required by the Administrative Agent and shall not have been reversed, modified, amended, or stayed, unless otherwise agreed by the Administrative Agent; 2. With respect to the Exit Facility, the final terms of the Plan and the Confirmation Order shall not be inconsistent with the requirements set forth on Schedule A hereto and otherwise reasonably satisfactory to the Administrative Agent. All conditions precedent to confirmation and to the Plan Effective Date shall have been met (or the waiver thereof shall have been consented to by the Administrative Agent) and the Plan Effective Date shall have occurred or shall be scheduled to occur but for such initial extension of credit under the Exit Facility. The Confirmation Order shall not have been reversed, modified, amended, or stayed and, unless otherwise agreed by the Administrative Agent, and no appeals from the Confirmation Order shall be outstanding which could have a material adverse effect on (i) the effectiveness, priority, perfection or validity of the Collateral Agent's security interests in the collateral securing the Exit Facility (the "Exit Collateral"), (ii) the value of the Exit Collateral or the 12 24 Collateral Agent's or the Lenders' ability to realize thereon or (iii) the prospect of full and timely repayment of all amounts due or to be due under the DIP Facility or the Exit Facility (any such potential material adverse effect, an "Exit Facility Material Adverse Effect"), the existence or non-existence of such potential material adverse effect to be determined in an order of the Bankruptcy Court (an "MAE Order") upon a motion (an "MAE Motion") to be filed by the Administrative Agent within five (5) Business Days (as defined in the DIP Facility) of its receipt of a copy of the statement of the issues on such appeal (it being understood that (a) assuming the timely filing of the MAE Motion as provided above, the Lenders shall have no obligation to advance any funds under the Exit Facility unless and until the Bankruptcy Court has entered an MAE Order finding that such appeal will not have an Exit Facility Material Adverse Effect and two (2) Business Days have elapsed from the time of entry of such Order (provided that all of the other conditions precedent to effectiveness of the Exit Facility and funding thereunder contained herein and therein have been satisfied or waived by the Administrative Agent) and (b) if the Administrative Agent fails to file the MAE Motion within the 5-day time period provided above, the Lenders shall not be entitled to refuse to advance any funds under the Exit Facility based solely upon the existence of such appeal (although all of the other conditions precedent to effectiveness of the Exit Facility and funding thereunder contained herein and therein shall continue to apply; provided, however, that the assertion in any appeal that the Borrower cannot provide the Collateral Agent and/or the Lenders with a first-priority perfected security interest in any leasehold shall not be a basis, in whole or in part, for an Exit Facility Material Adverse Effect (provided, that such leasehold will be excluded from the Borrowing Base during the pendency of such appeal). Except as consented to by the Administrative Agent, the Bankruptcy Court's retention of jurisdiction under the Confirmation Order shall not govern the enforcement of the Definitive Exit Documentation after the Plan Effective Date or any rights or remedies relating thereto (except with respect to the granting of the Leasehold Security Interest to the Collateral Agent for its benefit and the benefit of the Administrative Agent and Lenders). The financial condition, capital structure, liabilities and financial projections, including cash flow, of the Borrower shall be reasonably satisfactory to the Administrative Agent in all respects, and the terms of any capital stock shall be reasonably satisfactory to the Administrative Agent in all respects; 13 25 3. Execution and delivery to the Administrative Agent of the applicable Definitive Documentation (including a certified Borrowing Base certificate and reasonably appropriate security documentation); 4. Receipt of other closing documents including, without limitation, if applicable, Customs Broker Agreements, Common Carrier Agreements and Payment Direction Agreements required by the Administrative Agent reasonably satisfactory in form and substance to the Administrative Agent; 5. Legal opinions of counsel to the Borrower and the Guarantors reasonably satisfactory in form and substance to the Administrative Agent, including, without limitation, with respect to the enforceability and perfection of the Collateral Agent's security interests; 6. Payment by the Borrower of all fees then payable as referenced herein and in the Fee Letter; 7. With respect to the DIP Facility, the Administrative Agent shall have received and be satisfied with detailed one-year financial projections and business assumptions for the Borrower. With respect to the Exit Facility, the Agent shall have received no later than sixty (60) days prior to the Plan Effective Date a three year business plan for the Borrower which shall not indicate any prospective defaults under the Commitment Letter (including the Term Sheet) or the Exit Facility; 8. Any other information (financial or otherwise) requested by the Administrative Agent shall have been received by the Administrative Agent and shall be in form and substance reasonably satisfactory to the Administrative Agent; 9. With respect to the DIP Facility, the Collateral Agent shall be reasonably satisfied that the assets of the Borrower and the Guarantors are in the amounts and of the quality previously represented by the Borrower to the Collateral Agent, and the Collateral Agent shall have received such valuations, credit and background checks and other reports, material and information concerning such assets as shall reasonably be satisfactory to the Collateral Agent. In addition, the Collateral Agent shall be reasonably satisfied that the inventory of the Borrower is located at such places and is in the amounts and of the quality and value previously represented by the Borrower to the Collateral Agent (and that no inventory is owned by the Guarantors other than the Retail Guarantors) and the Collateral Agent shall have received such reports, material and other 14 26 information concerning the inventory and the Borrower's suppliers as shall be satisfactory to the Collateral Agent in its sole discretion; 10. The Collateral Agent shall have received results of searches or other evidence satisfactory to the Collateral Agent (in each case dated as of a date reasonably satisfactory to the Collateral Agent) indicating the absence of liens on the assets of the Borrower and the Guarantors, except for liens permitted by the applicable Definitive Documentation and liens for which termination statements and releases reasonably satisfactory in form and substance to the Collateral Agent are being tendered concurrently with such extension of credit; 11. The Collateral Agent shall have filed all such financing statements and shall have given all such notices as may be necessary for the Collateral Agent to perfect its security interest in the collateral for itself and for the benefit of the Lenders and the Administrative Agent and to assure its first- and second- priority status therein (as described above in "Priority and Security"); 12. With respect to the DIP Facility, the Borrower and Guarantors shall have minimum excess availability under the Borrowing Base of not less than $60 million at closing (excluding any Eligible FOB Inventory). 13. There shall not have occurred or become known to the Administrative Agent any material adverse change in the financial condition, operations or assets of the Borrower or the Guarantors since January 1, 1998; 14. With respect to the Exit Facility, the Administrative Agent shall be reasonably satisfied with all ongoing post-confirmation litigation risks and the adequacy of all reserves therefor; 15. The cash management system described above shall have been substantially implemented, including the obtaining of a blocked account, agency or similar agreement in form and substance reasonably acceptable to the Collateral Agent from each concentration bank and depository bank of the Borrower; 16. All corporate proceedings and all instruments and agreements in connection with the transactions among the Borrower, the Guarantors and the Administrative Agent contemplated by the applicable Definitive Documentation shall be reasonably satisfactory in form and substance to the Administrative Agent and the Administrative Agent shall have received all information and copies of all documents or papers that it may reasonably request; 15 27 17. The Collateral Agent shall be reasonably satisfied with the insurance arrangements of the Borrower and the Guarantors, taken as a whole, and shall have received all documentation requested in connection with such insurance including documentation naming the Collateral Agent as "loss payee" under each casualty policy and the Collateral Agent, the Administrative Agent, the Managing Agent, BSI and each Lender as an "additional insured" under each liability policy. All proceeds from insurance shall be subject to the cash management requirements outlined herein; 18. With respect to the DIP Facility, the Administrative Agent shall have received a payoff letter in form and substance reasonably satisfactory to the Administrative Agent from the Borrower's existing debtor-in-possession lender as well as tender of releases and discharge of all collateral security for the Current Credit Facility. 19. With respect to the Exit Facility, in order for the value of such leaseholds to be included in the Borrowing Base, the Borrower shall have delivered to the Collateral Agent (i) duly-executed and acknowledged leasehold mortgages with respect to each of its and the Guarantors' inventory locations, in form and substance satisfactory to the Collateral Agent and in form sufficient for recording in the applicable jurisdiction, (ii) binders of title insurance with respect to each such mortgage, and (iii) such other instruments, documents and opinions as reasonably deemed necessary by the Collateral Agent in connection therewith (including, without limitation, landlord and mortgagee consents, memorandums of lease (to the extent necessary to record any mortgages) and the like). Conditions to Each Extension of Credit: The obligation of the Lenders to provide each extension of credit (including the initial extension of credit) shall be subject to the satisfaction of the following conditions and such other conditions determined by the Administrative Agent: (a) No default or Event of Default shall exist or shall result from the requested extension of credit; (b) Representations and warranties shall be true and correct in all material respects at the date of each extension of credit except to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date; (c) Timely receipt of a notice of borrowing from the Borrower; 16 28 (d) The Collateral Agent shall have received a Borrowing Base certificate within three business days following the end of the prior business week (ending on the Saturday of such week), which Borrowing Base certificate shall include supporting schedules as required by the Collateral Agent; and (e) The Borrower shall have paid the balance of all fees then due and payable as referenced herein. The request and acceptance by the Borrower of each extension of credit shall be deemed to be a representation and warranty by the Borrower that the conditions specified above have been satisfied and that after giving effect to such extension of credit the Borrower shall continue to be in compliance with the Borrowing Base. Representations and Warranties: With respect to each Facility (unless otherwise noted) the Borrower and the Guarantors shall represent and warrant in a manner reasonably satisfactory to the Administrative Agent as to usual and customary matters, including, without limitation, the following, with carve-outs and materiality limitations where appropriate and agreed upon by the Borrower and the Administrative Agent: (a) Due incorporation and good standing; (b) No required consent or approval which has not been obtained; (c) Due authorization, execution and delivery of Definitive Documentation; no violation of other agreements; no violation of laws (including environmental laws); (d) Absence of liens, other than liens expressly permitted by the applicable Definitive Documentation; (e) Accuracy, fairness and completeness of financial information and financial statements previously delivered to the Administrative Agent (and that such financial statements have been prepared in a manner consistent with GAAP); (f) Compliance in all material respects with applicable laws and regulations including, without limitation, applicable environmental laws and regulations; (g) With respect to the DIP Facility, no material adverse change in the operations, business, properties, assets or financial condition of the Borrower since the date of the financial statements delivered prior to the date of the 17 29 Commitment Letter. With respect to the Exit Facility, no material adverse change in the operations, business, properties, assets or financial condition of the Borrower from that set forth in the Borrower's financial statements reflecting the Plan, other than those contemplated by the Plan; (h) With respect to the Exit Facility, no litigation which has not been resolved or fully reserved for under the Plan which, if determined adversely, would have a material adverse effect on the operations, business, properties, assets or financial condition of the Borrower; (i) Use of proceeds; (j) ERISA, OSHA, environmental, labor and employment representations; (k) Customary insurance representations; (l) All store and other inventory locations and inventory ownership; (m) With respect to the Exit Facility, absence of pre-petition or administrative claims or liens other than those discharged on the Plan Effective Date (which includes the DIP Facility) or, notwithstanding any other provision herein, those claims contemplated by the Plan (as approved by the Administrative Agent and in an aggregate principal amount not to exceed $20,000,000) to survive the Plan Effective Date, other than any post-petition, ordinary course expenses or trade payables (but not those which are materially delinquent); (n) All bank account locations and numbers; (o) Status of franchises, patents, copyrights, trademarks, tradenames, licenses and permits; (p) That the assets of the Borrower and the Guarantors are in the amounts and of the quality previously represented by the Borrower to the Administrative Agent and the inventory of the Borrower is located at such places and is in such amounts and of the quality and value previously represented by the Borrower to the Administrative Agent; (q) Payment of taxes (after taking into account, with respect to the Exit Facility, the deferral of any priority tax claims under the Plan); 18 30 (r) That no information that has been furnished by the Borrower to the Administrative Agent contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made; (s) With respect to the DIP Facility, that the Financing Order has been entered, has not been reversed, modified, amended or stayed and otherwise remains in full force and effect; and (t) With respect to the Exit Facility, that the Plan has become effective and that the Confirmation Order has been entered and remains in full force and effect. Affirmative Covenants: With respect to each Facility (unless otherwise noted), the Borrower and the Guarantors shall agree to comply with usual and customary affirmative covenants, including, without limitation, the following, with carve-outs or "baskets" and materiality limitations where appropriate and agreed upon by the Borrower and the Administrative Agent: (a) Keep financial statements in accordance with GAAP and maintain true and complete books and records; (b) Furnish weekly Borrowing Base certificates, monthly, quarterly and annual financial statements and other reports (in each case within appropriate time periods) as may be specified in the Definitive Documentation or as reasonably requested by the Administrative Agent or any of the Lenders, such annual financial statements to be audited and/or reviewed by the Borrower's certified public accountants in a manner consistent with the Borrower's past practices; (c) Maintain insurance on all its property in a manner which is customary in the industry for similar companies with financially sound and responsible insurance companies and in amounts and coverages reasonably satisfactory to the Collateral Agent and maintain the Collateral Agent's status as loss payee under each casualty policy and the Collateral Agent, the Administrative Agent, the Managing Agent, BSI and each Lender as an "additional insured" under each liability policy; (d) Do all things necessary to preserve, renew and keep in full force its corporate existence; 19 31 (e) Pay all sales, withholding, income and other taxes (after taking into account, with respect to the Exit Facility, the deferral of any priority tax claims under the Plan) and other obligations as and when due except where contested in good faith and by appropriate proceedings (but only if the Borrower has set aside on its books adequate reserves therefor); (f) Notify the Administrative Agent of any default or Event of Default and of any litigation that could reasonably be expected to have a material adverse effect on the Borrower, if adversely determined; (g) As soon as practicable and in any event no less frequently than on an annual basis and no later than 60 days prior to the commencement of each fiscal year, deliver to and discuss with the Lenders its future financial projections; (h) Permit the Administrative Agent, the Collateral Agent and their respective agents to visit the premises of the Borrower and the Guarantors, confer with officers and representatives of the Borrower and the Guarantors, review all of their books and records during regular business hours and conduct examinations, verifications and appraisals of the components of the Borrowing Base, including appraisals of leases, the other assets of the Borrower and all systems and procedures of the Borrower and the Guarantors during regular business hours, including those relating to cash management, and permit the Lenders and their agents in agreed upon circumstances to communicate directly with the Borrower's and the Guarantors' independent certified public accountants concerning the business, financial condition and other affairs of the Borrower and the Guarantors; (i) Timely pay reasonable fees and expenses of any consultants, appraisers and advisors retained by the Administrative Agent in connection with the Facility; (j) Establish and maintain its cash concentration system with BBNA as provided above; (k) Comply with customary environmental, ERISA and OSHA covenants; and (l) Maintain procedures satisfactory to the Collateral Agent for assuring and maintaining the Collateral Agent's first and second-priority perfected security interest in the 20 32 collateral for the benefit of itself, the Administrative Agent and the Lenders. Negative Covenants: With respect to each Facility (unless otherwise noted), the Borrower and the Guarantors shall comply with usual and customary negative covenants, including, without limitation, the following, with materiality limitations and baskets where appropriate and agreed upon by the Borrower and the Administrative Agent: (a) Not merge or consolidate with any other party (other than with subsidiaries or parent entities so long as the Borrower is the survivor), or enter into any stock or asset acquisitions; (b) Not create or permit to exist any liens or encumbrances on any assets (including, without limitation, any inventory) or capital stock except (i) liens in favor of the Administrative Agent and (ii) such other liens as are permitted in the applicable Definitive Documentation (the Definitive Documentation will permit liens imposed by law for taxes not yet due; statutory carriers' and other like liens; pledges or deposits in connection with workers' compensation and other social security obligations and other scheduled existing liens not conflicting with the provisions of "Priority and Security" above; deposits to secure the performance of tenders, bids and other contracts, other than for the payment of borrowed money, arising in the ordinary course of business; easements and other similar encumbrances that are not material; the interests of lessors under leases of real property; liens (other than on inventory) securing purchase money indebtedness permitted by the applicable Definitive Documentation and subordinated liens created as security for the Junior Facility (as defined below)); (c) Not create or permit to exist indebtedness (excluding normal expense or merchandise payables and taxes not yet due and payable) other than: (i) indebtedness under the respective Facilities; (ii) purchase money indebtedness and indebtedness consisting of rental obligations under capital leases not to exceed, in the aggregate, an amount to be determined and refinancings of any of the foregoing thereof on terms and conditions no less favorable to the Borrower and the Lenders as the indebtedness being refinanced; (iii) with respect to the Exit Facility, other indebtedness incurred pre-petition to be discharged upon the Plan Effective Date; and (iv) certain other indebtedness to be agreed, including a junior secured credit facility (the "Junior Facility") in 21 33 an amount not to exceed $30 million, all of the terms of which shall be acceptable to the Administrative Agent in its sole discretion, and, in any event, (a) shall be subordinated in right of payment to the Exit Facility and subordinated with respect to rights in the collateral that secures the Exit Facility, (b) shall not have the ability to exercise or enforce any rights with respect to the Junior Facility or its collateral until such time as the obligations under the Exit Facility have been satisfied in full, (c) shall not contain any cross-default rights to the Exit Facility (although a right of cross-acceleration (subject to all of the other requirements herein) shall be permitted), (d) shall not provide the lenders under the Junior Facility with any right to consent to or approve any amendments, modifications, refinancings or other changes to the Exit Facility and (e) shall be subject to an intercreditor agreement with the Administrative Agent satisfactory to the Administrative Agent in its sole discretion; (d) Not permit the financial covenants to be violated (indicative covenants and levels are outlined in Schedule B attached hereto); (e) Not guaranty the obligations of others, except for existing guarantees; (f) Not conduct transactions with shareholders and affiliates on anything other than an arm's length basis and in the ordinary course of business consistent with past practices; (g) Not make investments other than investments in short term obligations of, or which are guaranteed by, the United States of America, short term commercial paper bearing the highest credit rating obtainable, certain certificates of deposit and time deposits, and certain other investments satisfactory to the Administrative Agent; (h) Not declare or make any dividend or make any distribution on account of or purchase of capital stock of the Borrower; (i) Not sell or otherwise dispose of assets except for (i) sales of inventory in the ordinary course of business and (ii) so long as no Event of Default has occurred and is continuing or would occur after giving effect to such sale or disposition, (A) sales of assets having a fair market value not exceeding $10,000,000 in the aggregate and (B) sales of obsolete fixtures and 22 34 equipment no longer used or useful in the Borrower's or the Guarantors' business; and (j) Not make any cash interest payments with respect to the term loan under that certain credit agreement, dated as of October 31, 1993 among the Borrower, the Retail Guarantors, Chemical Bank, as administrative agent and fronting bank and the other lenders thereto (the "Term Loan") or on that certain credit agreement, dated August 8, 1995, among Chemical Bank, individually and as administrative agent and collateral agent, the Borrower and the Retail Guarantors (the "Real Estate Loan"). Events of Default: With respect to the DIP Facility, "Events of Default" will include, without limitation, failure to pay interest, principal fees or expenses when due; conversion of the Borrower's Case (or the bankruptcy case of any Guarantor) to Chapter 7; appointment of a Chapter 11 Trustee or an examiner with powers similar to a Trustee; the grant of any other superpriority claims; the Bankruptcy Court entering a relief of stay of payment of pre-petition indebtedness in an amount exceeding amounts to be determined per annum or permitting the foreclosure upon security interests in assets of the Borrower or the Guarantors (other than the security interests created under the DIP Facility); the reversal, vacatur, stay, amendment or modification of the Financing Order; change in control; any judgment on a post-petition claim in excess of an amount to be determined; the Borrower or the Guarantors being enjoined from conducting business or the disruption of business for more than a number of days to be determined and that results in an impairment or decrease in the value of the assets of the Borrower or the Guarantors in an amount that exceeds an amount to be determined; failure to deliver to the Administrative Agent reports when due; any representation or warranty found to be incorrect in any material respect; and breach of any negative covenant or affirmative covenant. Cure periods, notice periods with respect to enforcement of remedies and "knowledge" qualifiers will be provided where appropriate, as determined by the Borrower and the Administrative Agent. With respect to the Exit Facility, "Events of Default" shall include, without limitation, failure by the Borrower to pay principal, interest, fees, or other amounts when due; breach by the Borrower or the Guarantors of any of its affirmative or negative covenants (with agreed upon grace periods where appropriate); commencement of a bankruptcy or similar proceeding by the Borrower or the Guarantors or commencement of an involuntary case against the Borrower or any Guarantor which is not dismissed within 30 days; any 23 35 representation or warranty made by the Borrower or the Guarantors shall prove to have been incorrect in any material respect when made or deemed made; loss of any lease, permit, or agreement the loss of which could reasonably be expected to have a material adverse effect on the Borrower or any Guarantor; defaults under other agreements or obligations in agreed upon amounts and other cross default provisions to material obligations of the Borrower or any Guarantor; any material provision of the Definitive Exit Documentation shall cease to be valid and binding on the Borrower or any Guarantor or the liens in favor of the Administrative Agent shall cease to be first-priority perfected liens (subject to the liens permitted by the Administrative Agent); change of control; the Borrower or any Guarantor being enjoined from conducting its business or there shall be a disruption of its business for more than 10 days; and certain insolvency, judgment, ERISA and OSHA related defaults, with appropriate limitations and time periods. Cure periods and "knowledge" qualifiers will be provided where appropriate, as determined by the Borrower and the Administrative Agent. Then and in such event under the applicable Facility, the Administrative Agent may, and at the request of the Lenders holding 51% of outstanding obligations under such Facility shall, take all or any of the following actions: (a) Declare the principal of and accrued interest on the outstanding borrowings to be immediately due and payable; (b) Terminate any further commitment to lend to the Borrower or to issue letters of credit; (c) Set off any amounts held as cash collateral or in any accounts maintained with the Administrative Agent, the Collateral Agent, the Lenders or their respective agents; (d) Require the Borrower upon demand to furnish immediate cash collateral for letters of credit then outstanding; and (e) Take any other action or exercise any other right or remedy permitted under the Agreement or by applicable law. Voting: Consent of the Majority Lenders (as defined below) will be necessary for consents, amendments, and waivers concerning the applicable Definitive Documentation; provided, however, that the rate of interest, the terms of the Facilities, the conditions set forth on Schedule A hereto, the amount of the commitments, the date and amount of any principal payments, 24 36 and the amount of fees may not be changed, and advance rates may not be increased (provided, however, the Administrative Agent will have the discretion, but not the obligation, to provide not more than 2 "agent advances" during a fiscal year in an amount not to exceed $15,000,000 for a period not to exceed 60 days), without the consent of all Lenders under the applicable Facility. Collateral may not be released without the consent of all Lenders (with customary exceptions). "Majority Lenders" shall mean the Lenders under the applicable Facility holding at least 51% of the loans under such Facility then outstanding; and if no loans are outstanding under such Facility, then it shall mean Lenders under such Facility whose aggregate commitments constitute at least 51% of the total commitments. Yield Protection and Standard yield protection and Increased Costs: indemnification provisions including regarding capital adequacy will be incorporated in the Definitive Documentation that will compensate the Lenders in the event that any present or future law, requirement, guideline or request of relevant authorities shall increase costs, reduce payments or earnings, or increase capital requirements. Costs and Expenses: With respect to each Facility, all reasonable out-of-pocket costs and expenses of the Administrative Agent, the Managing Agent and the Collateral Agent, their business and legal advisors (including, without limitation, reasonable legal fees and fees of other agents to the Administrative Agent, the Managing Agent and the Collateral Agent, reasonable expenses in connection with (i) (a) periodic field examinations, (b) audits, and (c) collateral (including lease) appraisals; provided that the Borrower shall not be required to reimburse the Administrative Agent, the Managing Agent or the Collateral Agent for more than 3 field examinations/audits, 3 inventory appraisals and 3 lease appraisals in any year (subject at all times to an aggregate yearly cap of $180,000) provided, further, that during the existence of an Event of Default, the Borrower shall pay for all field examinations/audits, inventory appraisals and lease appraisals conducted by the Administrative Agent, the Managing Agent or the Collateral Agent, without cost limitation, (ii) monitoring of assets, syndication, enforcement of rights and publicity and (iii) other miscellaneous disbursements) and legal review costs of the Administrative Agent, the Managing Agent and the Collateral Agent shall be payable by the Borrower on demand whether or not the transactions contemplated hereby are consummated. Assignments and Participations: Rights and obligations under each Facility will be assignable (subject to $10,000,000 minimum amounts) by the Lenders to Eligible Assignees (to be defined in a manner satisfactory to the Borrower and BBNA; provided that the Borrower shall have the right to consent to such assignments (except with 25 37 respect to assignments from current Lenders to their affiliates (or between Lenders) or subsequent to an event of default), such consent not to be unreasonably withheld) and otherwise as set forth in the Commitment Letter. All assignments shall require the consent of the Administrative Agent. The Administrative Agent will receive a processing and recordation fee of $3,000 from each assignee with each assignment. The Borrower shall not be required to pay the expenses of the assignor, but shall pay its own expenses and that of the Administrative Agent with respect to each assignment. Each Lender shall have the right to sell participations in its loans, subject to customary voting limitations. Indemnity: With respect to each Facility, the Borrower and the Guarantors shall indemnify and hold harmless the Administrative Agent, the Collateral Agent, the Managing Agent, BSI and the Lenders and their respective officers, directors, employees, affiliates, agents and controlling persons from and against any and all losses, claims, damages, costs, expenses and liabilities to which any such person may become subject arising out of, or in connection with, either Facility, the transactions contemplated hereby or thereby or any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any of such indemnified persons is a party thereto, and to reimburse each of such indemnified persons, from time to time upon their demand, for any reasonable legal or other expenses incurred in connection with investigating or defending any of the foregoing, whether or not the transactions contemplated hereby or thereby are consummated; provided that the foregoing indemnity will not, as to any indemnified person, apply to losses, claims, damages, liabilities or related expenses to the extent that they arise from the bad faith, willful misconduct or gross negligence of such indemnified person as finally determined by a final non-appealable order of a court of competent jurisdiction. Insurance Subsidiary: Certain representations and warranties, covenants, events of default and certain other provisions of the Definitive Documentation may be made applicable to American East, Inc. Definitive Documentation: Satisfactory in form and substance to the Administrative Agent, the Collateral Agent, the Lenders and the Borrower. Governing Law: All Definitive Documentation shall be governed by, and construed in accordance with, the laws of the State of New York and, to the extent applicable with respect to the DIP Facility, the provisions of the Bankruptcy Code. 26 38 SCHEDULE A TO TERM SHEET Additional Conditions to Exit Facility: - - Repayment in full of DIP Facility - - All equity settlement on pre-petition debt. - - 12-month rolling EBITDA of the Borrower on Exit Closing Date shall be no less than $60 million. - - No existing defaults under DIP Facility and no projected defaults under Exit Facility or the Commitment Letter (including the Term Sheet) based on projections provided by the Borrower. - - All material undisputed outstanding post-petition trade credit as of the Exit Closing Date must be paid to date in accordance with payment terms of the applicable vendor, as agreed to the Borrower. - - Excess borrowing availability under Exit Facility on the Exit Closing Date (after giving effect to payment of the administrative claims under the Plan, including repayment of the DIP Facility, with the proceeds of the Exit Facility) shall be no less than the following:
Fiscal Month in which Exit Closing Date Occurs Required Availability ------------------- --------------------- February $ 70,000,000 March $ 60,000,000 April $ 50,000,000 May $ 50,000,000 June $ 50,000,000 July $ 50,000,000 August $ 50,000,000 September $ 50,000,000 October $ 50,000,000 November $ 50,000,000 December $ 110,000,000 January $ 75,000,000
27 39 SCHEDULE B TO TERM SHEET DIP FACILITY COVENANTS 1. Ratio of Accounts Payable to Inventory of the Borrower shall not be less than the following during each fiscal month of the Borrower:
Fiscal Month Accounts Payable to ------------ ------------------- Inventory Ratio --------------- February 30% March 27% April 27% May 26% June 23% July 28% August 29% September 30% October 30% November 33% December 34% January 28%
2. Rolling 12-month EBITDA (tested on a quarterly basis) of the Borrower shall not be less than the following:
Fiscal Quarter Ending On or About Required EBITDA ----- --------------- July 31, 1998 $ 40,000,000 October 31, 1998 $ 40,000,000 January 31, 1999 $ 50,000,000 April 30, 1999 $ 60,000,000 July 31, 1999 $ 60,000,000 October 31, 1999 $ 65,000,000
3. Maximum annual Capital Expenditures of the Borrower to be set at the amount set at $40,000,000 per annum. EXIT FACILITY COVENANTS 1. Ratio of Accounts Payable to Inventory of the Borrower shall be as set forth in the DIP Facility. 2. Rolling 12-month EBITDA (after cash restructuring costs) of the Borrower shall be not less than the following: 28 40
Fiscal Quarter Ending On or About Required EBITDA ----- --------------- July 31, 1998 $ 60,000,000 October 31, 1998 $ 60,000,000 January 31, 1999 $ 60,000,000 April 30, 1999 $ 60,000,000 July 31, 1999 $ 60,000,000 October 31, 1999 $ 65,000,000 January 31, 2000 $ 70,000,000 April 30, 2000 $ 70,000,000 July 31, 2000 $ 75,000,000 October 31, 2000 $ 80,000,000 January 31, 2001 and thereafter $ 80,000,000
3. Beginning at the end of the Borrower's 1999 fiscal year, the Borrower shall have a Fixed Charge Coverage Ratio (EBITDA - Capital Expenditures - cash Taxes to cash Interest (other than interest under the Term Loans and the Real Estate Loan) + Principal Payments) of not less than 1.25:1 (tested quarterly on a rolling 12-month basis) 4. Maximum annual Capital Expenditures to be $40,000,000 in the aggregate for fiscal year 1998, $45,000,000 in the aggregate for fiscal year 1999 and $50,000,000 in the aggregate for fiscal year 2000 and each fiscal year thereafter. 41 SCHEDULE C TO TERM SHEET MORTGAGED PROPERTIES Owned Real Properties Caldor Store #19 - Rocky Hill 80 Town Line Road Rocky Hill, Connecticut 06067 Caldor Store #61 - Bedford Daniel Webster Highway and Kilton Road Bedford, NH 03102 Caldor Store #16 - Wappingers Falls Route 9 & Vassar Road Wappingers Falls, NY 12590 Leasehold Interests Caldor Store #134 - Ledgewood Roxbury Mall 275 Route 10 Succasunna, NJ 07876 Caldor Store #70 - Westboro Route 9 - 18 Lyman Westboro, MA 01581 Caldor Store #77 - Swansea Swansea Mall Route 118 Swansea, MA 02777 42 Exhibit B to Commitment Letter [Form of Counterpart Signature Page of Additional Lender] Reference is made to the Commitment Letter, dated April 23, 1998 (the "Commitment Letter"), among BankBoston, N.A., each of the other Lenders party thereto, and The Caldor Corporation, as Debtor and Debtor-in-Possession. Capitalized terms used herein without definition shall have the meanings given to such terms in the Commitment Letter. The undersigned hereby agrees that, as of the date set forth below, it is a Lender under the Commitment Letter with a commitment amount equal to the amount set forth opposite its name on Schedule A hereto (which shall be attached to the Commitment Letter as a revised Schedule A thereto) and agrees to be bound by all of the terms and conditions thereof. [Date] [LENDER] By:___________________________ Name: Title: EX-11 5 COMPUTATION OF PER SHARE EARNINGS 1 - -------------------------------------------------------------------------------- Statement Re Computation of Per Share Earnings Exhibit 11 The Caldor Corporation and Subsidiaries (dollars in thousands, except share and per share data)
Year Ended Year Ended Year Ended January 31, February 1, February 3, 1998 1997 1996 ---------------------------------------------------------------- BASIC AND DILUTED EPS: Net loss $ (132,609) $ (185,325) $ (30l,028) ============== ============== ============== Weighted average number of common shares outstanding 16,911,009 16,994,234 16,902,339 ============== ============== ============== Basic and diluted loss per share $ (7.84) $ (10.91) $ (17.81) ============== ============== ==============
- ------------------------------- EX-23 6 CONSENT OF DELOITTE & TOUCHE LLP 1 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 - -------------------------------------------------------------------------------- We consent to the incorporation by reference in a) Registration Statement No. 33-44996 of The Caldor Corporation (Debtor-In-Possession) ("Caldor") on Form S-8, b) Registration Statement No. 33-41321 of Caldor on Form S-8, c) Registration Statement No. 33-51510 of Caldor on Form S-8, d) Registration Statement No. 33-67438 of Caldor on Form S-8, and e) Registration Statement No. 33-84526 of Caldor on Form S-8, of our report dated April 24, 1998 which expresses an unqualified opinion and includes explanatory paragraphs relating to the Company's reorganization proceedings and its ability to continue as a going concern, appearing in this Annual Report on Form 10-K of Caldor for the year ended January 31, 1998. /s/ Deloitte & Touche LLP - ------------------------- DELOITTE & TOUCHE LLP New York, New York April 28, 1998 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JAN-31-1998 FEB-02-1997 JAN-31-1998 21,561 0 12,853 0 419,682 506,182 646,209 209,551 949,120 461,195 272,155 0 0 169 (282,845) 949,120 2,496,747 2,496,747 1,828,343 1,828,343 756,349 0 43,864 (131,809) 800 (132,609) 0 0 0 (132,609) (7.84) (7.84)
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