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NAME: Bennett Gross TITLE: Formerly senior vice president and general counsel for The Caldor Corp. As of today, he becomes of counsel at Philadelphia-based Morgan Lewis & Bockius’ New York office. AGE: 49 COMPANY: Eight years ago, Caldor, formerly located in Norwalk, Conn., was a retail success story. The Bennetts, Carl and Dorothy — hence Caldor — started the business as a mom-and-pop operation in 1951. By 1995, it had become the nation’s fourth largest discount department store, with annual sales of $2.6 billion. At its peak, it had 166 stores and 24,000 employees. What was thought to be a short-term liquidity crisis before the all-important holiday shopping season in 1995 resulted in the company’s filing for protection from its creditors in September 1995 in U.S. Bankruptcy Court in the Southern District of New York. The company hoped to reorganize the business within a year. But three years later, Caldor still could not meet its performance goals. When a compromise could not be reached with creditors, the board approved the winding down of its business in January 1999. DEPARTMENT: When Gross joined Caldor in 1993 as general counsel and secretary, he was the sole attorney in the legal unit. He decided to change that by building a five-attorney department and bringing the “bread-and-butter” legal work inside. The lawyers handled legislative work, real estate matters, public filings, computer technology agreements, intellectual property and vendor and supplier agreements. In addition, it reviewed consumer advertisements to assure compliance with state and federal laws. Once the company filed for bankruptcy, Gross became very active in the case and soon it began to permeate most aspects of his department’s work. “Bankruptcy becomes the business. There’s virtually no part of the business that bankruptcy doesn’t affect,” he says. Gross managed all legal aspects of the bankruptcy, from working with creditor committees to developing a business plan for the liquidation to negotiating employee-retention programs. At times during the proceedings, Gross was in court once a week. Today, the legal department has been cut down to Gross and one part-time attorney. CHAPTER 11: Caldor’s troubles first appeared when its biggest competitor — Bradlees — filed for bankruptcy in spring 1995. Fearful that Caldor was in similar straits, vendors tightened credit, slowed or cut shipments and were less flexible about payment. “When Bradlees filed, it set off speculation by vendors that regional retails couldn’t compete with Wal-Mart,” says Gross. “It was sort of a mob psychology.” Management explored options to avoid a crisis. Gross remembers broaching the possibility of reorganization in bankruptcy. “They didn’t want to hear it. Everybody who files for bankruptcy is in denial. Here we were, this success story, and now we’re filing for bankruptcy?” The first meetings with creditors’ committees were humbling experiences, he says, and the legal department went to work both planning and implementing a reorganization plan. “You just don’t decide to close a store and say, ‘That’s done,’ ” Gross says. Part of the process included regular meetings with the banks, creditors and equity holders. When it became apparent that the company had to liquidate, Gross, working with outside counsel, decided to bifurcate the bankruptcy proceeding chronologically. There was the operating period — the time between the filing and the 1999 decision to liquidate — and the winding-down period after January 1999. This somewhat unusual structure added another layer of complexity by creating different classes of claims. Some creditors would fight it. LIQUIDATION: This involved closing 145 stores and reducing staff from 20,000 to 400. Besides doing work related to the termination of employees, the legal staff also was immersed in drafting the agreements with companies that handled the going-out-of-business sales, as well as reviewing ads for such sales. The attorneys also had to dispose of leases for Caldor stores around the country. Negotiations went on continuously, Gross says, and eventually Kohl Department Stores, Wal-Mart, Ames and Kmart bought the leases. The good news was that rather than fetching $250 million for its real estate, as the term-debt holders had estimated, Gross and other members of management negotiated a disposition of the leases that brought in roughly $400 million. In addition, Gross undertook an aggressive claims reconciliation process, reducing claims from $1.1 billion to $240 million. A potential $470 million in personal injury claims were unloaded by paying a company $5.7 million to take them over. The result: Caldor expects to return 45 to 55 cents on the dollar to creditors. OUTSIDE COUNSEL: Perhaps the most important task for a distressed company is the selection of outside bankruptcy counsel, Gross says. “Choose somebody you will want to be with for years, because it’s like a marriage. I can’t stress that enough. I’ve seen bankruptcies where there’s constant conflict. That didn’t happen here,” Gross says. With this in mind, Gross hired as lead bankruptcy counsel New York’s Kaye Scholer. A big reason was its experience in representing Jamesway Corp. and Hills Department Stores Inc. in their bankruptcy proceedings. Kaye Scholer’s lead counsel for Caldor was Michael J. Crames. LITIGATION: Gross is proud there was no litigation with the creditors’ committees, but there were other complaints. After Caldor asked the court for an extension of the time period during which 425 utility companies were not permitted to alter or discontinue service, 22 utilities objected. The court granted Caldor’s request. A group of utilities then unsuccessfully appealed to the 2nd U.S. Circuit Court of Appeals. Gross worked closely with outside counsel on the matter. Other disputes involved the company being hired to handle going-out-of-business sales and some of the landlords. Gross handled the negotiations that led to settlements. Also, one of Caldor’s vendors filed a motion seeking an order authorizing prompt payment of expense claims. The U.S. District Court for the Southern District of New York ruled for Caldor, finding that the process was appropriate and within the bankruptcy court’s powers under Section 364 of the Bankruptcy Code. BIGGEST ACCOMPLISHMENT: By negotiating with the senior secured creditors, Gross obtained $20 million in severance and $5 million in medical benefits for terminated employees. Gross said he used as leverage the fact that the lenders were eager to liquidate the company as soon as possible and the benefits were an incentive for key employees to stay on. “You have to have people from the company to run the liquidation,” he says. ROUTE TO THE TOP: After graduating from Georgetown University Law Center in 1978, Gross joined Weil, Gotshal & Manges in New York, where he did antitrust, intellectual property and contracts, among other things, for an international corporation. In 1985, he joined Macy’s in New York as an attorney and rose to become vice president and general attorney. There, he handled international buying, intellectual property and commercial matters. Then in the early 1990s, Macy’s filed for Chapter 11. Gross then decided to join Caldor — known in the retail industry as an operational and financial model — as senior vice president, general counsel and secretary. “Basically, I thought: ‘Who needs the stress and trauma and uncertainty of bankruptcy at Macy’s? I’ll go to a healthy company.’ “ Gross finds it ironic that “something I had fled from was actually a very stimulating and challenging area of law,” he says. FAMILY: Gross lives in Westport, Conn., with his wife, Ellen, and 9-year-old daughter, Joanna. LAST BOOK READ: “Seabiscuit: An American Legend,” by Laura Hillenbrand.

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