Edgar Filing: BURLINGTON COAT FACTORY WAREHOUSE CORP

Special Notice & Proxy Statement

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) Of the

Securities Exchange Act of 1934

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BURLINGTON COAT FACTORY WAREHOUSE CORPORATION

(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than Registrant)

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BURLINGTON COAT FACTORY WAREHOUSE CORPORATION

1830 ROUTE 130

BURLINGTON, NEW JERSEY 08016

March 10, 2006

Dear Stockholder:

You are cordially invited to attend the special meeting of stockholders of Burlington Coat Factory Warehouse Corporation (the “Company”) to be held at 9:00 a.m., Eastern Time, on Monday, April 10, 2006 at the offices of the Company, 1830 Route 130, Burlington, New Jersey 08016.

At the special meeting you will be asked to consider and vote upon a proposal to adopt an Agreement and Plan of Merger, dated as of January 18, 2006 (as it may be amended from time to time, the “Merger Agreement”), pursuant to which BCFWC Acquisition, Inc., a Delaware corporation, has agreed to acquire the Company in a cash merger. BCFWC Acquisition, Inc. is a new corporation formed for this purpose by Bain Capital Partners, LLC. If the Company’s stockholders adopt the Merger Agreement and the merger is completed, you will receive $45.50 in cash, without interest, for each share of the Company’s common stock you own (unless you have properly exercised your appraisal rights with respect to the merger).

Your Board of Directors has unanimously determined that the Merger Agreement is advisable, has approved and adopted the Merger Agreement and recommends that you vote “FOR” the adoption of the Merger Agreement.

The accompanying proxy statement provides you with detailed information about the proposed merger and the special meeting. Please give this material your careful attention. You may also obtain more information about the Company from documents we have filed with the Securities and Exchange Commission.

Your Board of Directors has fixed the close of business on March 8, 2006 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting. Whether or not you plan to attend the special meeting, please fill in, date, sign and return the enclosed proxy which is solicited by, and on behalf of, the Board of Directors. The failure to vote has the same effect as a vote against the adoption of the Merger Agreement.

Thank you for your cooperation and continued support.

Sincerely,

LOGO

Monroe G. Milstein

Chairman of the Board, Chief Executive Officer

and President

Burlington, New Jersey

March 10, 2006

THIS PROXY STATEMENT IS DATED MARCH 10, 2006 AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT MARCH 13, 2006.

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION

1830 ROUTE 130

BURLINGTON, NEW JERSEY 08016

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

Burlington, New Jersey

March 10, 2006

To the Stockholders of

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Burlington Coat Factory Warehouse Corporation, a Delaware corporation (the “Company”), will be held at 9:00 a.m., Eastern Time, on Monday, April 10, 2006 at the offices of the Company, 1830 Route 130, Burlington, New Jersey 08016 for the following purposes:

To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of January 18, 2006 (as it may be amended from time to time, the “Merger Agreement”), by and among the Company, BCFWC Acquisition, Inc., a Delaware corporation (“Parent”), and BCFWC Mergersub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). A copy of the Merger Agreement is attached as Appendix A to the accompanying proxy statement. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and becoming a wholly-owned subsidiary of Parent, and each share of common stock of the Company, other than those shares held by stockholders, if any, who properly exercise their appraisal rights under Delaware law, will be converted into the right to receive $45.50 in cash without interest.

To transact such other business as may properly come before the special meeting or any adjournment or postponement of the meeting.

Only stockholders of record at the close of business on March 8, 2006 are entitled to notice of and to vote at the special meeting and at any adjournment or postponement of the special meeting. All stockholders of record are cordially invited to attend the special meeting in person. Whether or not you plan to attend the special meeting, you are urged to vote your shares by marking, signing, dating and returning the proxy card as promptly as possible in the postage prepaid envelope enclosed for that purpose. The failure to vote has the same effect as a vote against the adoption of the Merger Agreement. Any stockholder attending the special meeting may vote in person even if he or she has returned a proxy card.

The Company’s stockholders have the right to dissent from the merger and obtain payment in cash of the fair value of their shares of common stock under applicable provisions of Delaware law. In order to perfect and exercise appraisal rights, stockholders must give written demand for appraisal of their shares before the taking of the vote on the merger at the special meeting and must not vote in favor of the merger. A copy of the applicable Delaware statutory provisions is included as Appendix D to the accompanying proxy statement, and a summary of these provisions can be found under “Dissenters’ Rights of Appraisal” in the accompanying proxy statement.

By Order of the Board of Directors

LOGO

Paul C. Tang

Secretary

Please do not send your stock certificates at this time. If the Merger Agreement is adopted, you will be sent instructions regarding the surrender of your stock certificates.

TABLE OF CONTENTS


		Page
SUMMARY		3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION		8
THE PARTIES TO THE MERGER		9
Burlington Coat Factory Warehouse Corporation		9
BCFWC Acquisition, Inc.		9
BCFWC Mergersub, Inc.		10
THE SPECIAL MEETING		10
Time, Place and Purpose of the Special Meeting		10
Who Can Vote at the Special Meeting		10
Vote Required		10
Voting By Proxy		11
THE MERGER		11
Background of the Merger		11
Reasons for the Merger		16
Recommendation of the Board of Directors		18
Interests of the Company’s Directors and Executive Officers in the Merger		18
Treatment of Stock Options		18
Indemnification and Insurance		19
Audit Committee Shares		19
Potential Employment Arrangements		19
Death Benefit Agreements		20
FINANCING		20
ABL Facility		21
Term Loan Facility		21
Notes		22
Bridge Facilities		22
OPINION OF THE COMPANY’S FINANCIAL ADVISOR		22
Historical Premium Analysis		24
Implied Transaction Multiples Analysis		24
Historical Trading Multiples Analysis		25
Selected Companies Analysis		25
Off-Price Retailers		25
Mass-Market Retailers		25
Department Stores		25
Selected Transactions Analysis		27
General Department Stores		28
High-End Department Stores		28
Discounted Cash Flow Analysis		29
Present Value of Future Stock Price Analysis		30
Leveraged Buyout Analysis		31
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES		33
REGULATORY APPROVALS		34
LITIGATION		34
THE MERGER AGREEMENT		34
Effective Time		35
The Structure		35
Treatment of Stock and Options		35
Company Common Stock		35
Company Stock Options		35


		Page
Exchange and Payment Procedures		36
Representations and Warranties		37
Conduct of the Company’s Business Pending the Merger		39
No Solicitation of Alternative Proposals		40
Employee Benefit Plans		42
Indemnification; Directors’ and Officers’ Insurance		43
Access to Information, Financing and Cooperation		43
Additional Covenants		44
Stockholders’ Meeting		44
Further Assurances		45
Obligations of Merger Sub		45
Conditions to the Merger		45
Termination		46
Termination Fees		47
Amendment and Waiver		48
THE VOTING AGREEMENT		49
MARKET PRICE OF COMPANY COMMON STOCK		50
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		50
DISSENTERS’ RIGHTS OF APPRAISAL		54
SUBMISSION OF STOCKHOLDER PROPOSALS		57
OTHER MATTERS		57
Other Business at the Special Meeting		57
Multiple Stockholders Sharing One Address		57
WHERE YOU CAN FIND ADDITIONAL INFORMATION		57
APPENDIX A – Agreement and Plan of Merger
Exhibit A to Merger Agreement – Form of Non-Competition Agreement
Exhibit B to Merger Agreement – Form of Restated Certificate of Incorporation
Exhibit C to Merger Agreement – Form of By-Laws
APPENDIX B – Voting Agreement
APPENDIX C – Opinion of the Company’s Financial Advisor
APPENDIX D – Section 262 of the Delaware General Corporation Law

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of Burlington Coat Factory Warehouse Corporation. Please refer to the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to or incorporated by reference in this proxy statement. In this proxy statement, the terms “Company,” “we,” “our,” “ours,” and “us” refer to Burlington Coat Factory Warehouse Corporation.

Q:	What is the proposed transaction?

The proposed transaction is the acquisition of the Company pursuant to an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), dated as of January 18, 2006, by and among the Company, BCFWC Acquisition, Inc. (“Parent”), and BCFWC Mergersub, a wholly-owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are newly-formed affiliates of Bain Capital Partners, LLC. If the Merger Agreement is adopted by the Company’s stockholders and the other closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub will merge with and into the Company (the “Merger”). The Company will be the surviving corporation in the Merger (the “surviving corporation”) and will become a wholly-owned subsidiary of Parent.

Q:	What will I receive in the Merger?

A:	Upon completion of the Merger, you will receive $45.50 in cash, without interest, for each share of our common stock that you own. For example, if you own 100 shares of our common stock, you will receive $4,550 in cash in exchange for your Company shares.

Q:	Where and when is the special meeting?

A:	The special meeting will be held at 9:00 a.m., Eastern Time, on Monday, April 10, 2006 at the offices of the Company, 1830 Route 130, Burlington, New Jersey 08016.

Q:	What vote of our stockholders is required to adopt the Merger Agreement?

For us to complete the Merger, stockholders holding at least a majority of the shares of our common stock outstanding at the close of business on the record date must vote “FOR” the adoption of the Merger Agreement. Accordingly, failure to vote or an abstention will have the same effect as a vote against adoption of the Merger Agreement. Members of the Milstein family and affiliated entities, representing approximately 60.9% of the outstanding shares of our common stock, have entered into a voting agreement with Parent pursuant to which they have agreed to vote (and have granted Parent a proxy to vote) all their shares in favor of the adoption of the Merger Agreement, unless the Merger Agreement is terminated in accordance with its terms.

Q:	How does the Company’s Board of Directors recommend that I vote?

Our Board of Directors unanimously recommends that our stockholders vote “FOR” the adoption of the Merger Agreement. You should read “The Merger—Reasons for the Merger” for a discussion of the factors that our Board of Directors considered in deciding to recommend the adoption of the Merger Agreement.

Q:	What do I need to do now?

We urge you to read this proxy statement carefully, including its appendices, and to consider how the Merger affects you. If you are a stockholder of record, then you can ensure that your shares are voted at the special meeting by submitting your proxy via the mail, by marking, signing, dating and mailing each proxy card and returning it in the envelope provided.

Q:	If my shares are held in “street name” by my broker, will my broker vote my shares for me?

Yes, but only if you provide instructions to your broker on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the Merger.

Q:	How do I revoke or change my vote?

You can change your vote at any time before your proxy is voted at the special meeting. You may revoke your proxy by notifying the Secretary of the Company in writing or by submitting a new proxy by mail, in each case, dated after the date of the proxy being revoked. In addition, your proxy may be revoked by attending the special meeting and voting in person. However, simply attending the special meeting will not revoke your proxy. If you have instructed a broker to vote your shares, the above-described options for changing your vote do not apply, and instead you must follow the instructions received from your broker to change your vote.

Q:	What does it mean if I get more than one proxy card?

A:	If your shares are registered differently and are in more than one account, you will receive more than one card. Please complete and return all of the proxy cards you receive to ensure that all of your shares are voted.

Q:	When do you expect the Merger to be completed?

A:	We are working to complete the Merger as soon as possible, subject to receipt of stockholder approval and satisfaction of the other closing conditions under the Merger Agreement. See “The Merger Agreement—Conditions to the Merger.”

Q:	Should I send in my stock certificates now?

No. Shortly after the Merger is completed, you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the paying agent in order to receive the Merger consideration. You should use the letter of transmittal to exchange stock certificates for the Merger consideration to which you are entitled as a result of the Merger. DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.

Q:	Who can help answer my other questions?

If you have more questions about the Merger, need assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, you should contact the Secretary of the Company, telephone: (609) 387-7800. If your broker holds your shares, you should also call your broker for additional information.

SUMMARY

This summary highlights selected information from the proxy statement and may not contain all of the information that is important to you. You should carefully read the entire proxy statement to fully understand the Merger. The Merger Agreement is attached as Appendix A to this proxy statement. We encourage you to read the Merger Agreement because it is the legal document that governs the Merger. Each item in this summary includes a page reference directing you to a more complete description of that item.

PARTIES TO THE MERGER (PAGE 9)

Burlington Coat Factory Warehouse Corporation

1830 Route 130

Burlington, New Jersey 08016

Telephone: (609) 387-7800

The Company offers a broad selection of branded apparel and other merchandise at everyday low pricing across many product divisions, including coats, ladies sportswear, menswear, family footwear, baby furniture and accessories, and home decor and gifts. Burlington Coat Factory, founded in 1972 by the Milstein family, has expanded from a single store selling coats to a multi-department retail chain with 366 stores as of March 1, 2006 (exclusive of three stores temporarily closed due to damage caused by Hurricanes Katrina and Wilma) in 42 states, predominantly under the “Burlington Coat Factory” name. The Company also offers merchandise for sale through its Internet subsidiary, Burlington Coat Factory Direct Corporation, on the worldwide web (www.burlingtoncoatfactory.com and www.babydepot.com). The Company’s policy of buying significant quantities of merchandise throughout the year, maintaining inventory control and using a “no-frills” merchandising approach, allows it to offer merchandise at prices below traditional full retail prices. The Company is incorporated in the state of Delaware.

BCFWC Acquisition, Inc.

111 Huntington Avenue

Boston, Massachusetts 02199

Telephone: (617) 516-2000

Parent is a Delaware corporation formed by Bain Capital Partners, LLC (“Bain Capital”). Parent was organized solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the Merger Agreement.

BCFWC Mergersub, Inc.

111 Huntington Avenue

Boston, Massachusetts 02199

Telephone: (617) 516-2000

Merger Sub is a Delaware corporation wholly-owned by Parent. Merger Sub was organized solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the Merger Agreement.

THE MERGER (PAGES 11 AND 34)

You are being asked to vote to adopt the Merger Agreement. The Merger Agreement provides that Merger Sub will be merged with and into the Company, and each outstanding share of the common stock, par value $1.00 per share, of the Company (“Company common stock”) (other than shares held in the treasury of the

Company and other than shares held by a stockholder who properly demands statutory appraisal rights), will be converted into the right to receive $45.50 in cash, without interest.

THE SPECIAL MEETING OF STOCKHOLDERS (PAGE 10)

•

Place, Date and Time. The special meeting will be held at 9:00 a.m., Eastern Time, on Monday, April 10, 2006 at the offices of the Company, 1830 Route 130, Burlington, New Jersey 08016.

•

What Vote is Required for Adoption of the Merger Agreement. The adoption of the Merger Agreement requires the approval of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon. The failure to vote has the same effect as a vote against adoption of the Merger Agreement. Stockholders who together own approximately 60.9% of the outstanding shares of Company common stock have agreed to vote (and have granted Parent a proxy to vote) all their shares in favor of the adoption of the Merger Agreement. See “The Voting Agreement.”

•

Who Can Vote at the Meeting. You can vote at the special meeting all of the shares of Company common stock you own of record as of March 8, 2006, which is the record date for the special meeting. If you own shares that are registered in someone else’s name (for example, a broker), you need to direct that person to vote those shares or obtain an authorization from them and vote the shares yourself at the meeting. As of the close of business on March 8, 2006, there were 44,770,813 shares of Company common stock outstanding held by approximately 209 holders of record.

•

Procedure for Voting. You can vote your shares by attending the special meeting and voting in person or by mailing the enclosed proxy card. You may revoke your proxy at any time before the vote is taken at the meeting. To revoke your proxy, you must either advise the Secretary of the Company in writing, or deliver a new proxy dated after the date of the proxy being revoked, before your Company common stock has been voted at the special meeting, or attend the meeting and vote your shares in person. Merely attending the special meeting will not constitute revocation of your proxy.

If your shares are held in “street name” by your broker, you should instruct your broker on how to vote your shares using the instructions provided by your broker. If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” adoption of the Merger Agreement.

EFFECTIVE TIME OF THE MERGER (PAGE 35)

We are working to complete the Merger as soon as possible, subject to receipt of stockholder approval and satisfaction of the closing conditions under the Merger Agreement, including the conditions described below under “The Merger Agreement – Conditions to the Merger.”

BOARD RECOMMENDATION (PAGE 18)

After careful consideration, the Company’s Board of Directors (the “Board of Directors”), by unanimous vote:

•

has determined that the Merger Agreement is advisable;

•

has approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement; and

•

recommends that the Company’s stockholders vote “FOR” the adoption of the Merger Agreement.

FAIRNESS OPINION (PAGE 22)

Goldman, Sachs & Co. (“Goldman Sachs”) delivered its opinion to the Board of Directors that, as of January 18, 2006 and based upon and subject to the factors and assumptions set forth therein, the $45.50 per share in cash to be received by the holders of the outstanding shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to those holders.

The full text of the written opinion of Goldman Sachs, dated January 18, 2006, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix C to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Company common stock should vote with respect to the Merger.

FINANCING (PAGE 20)

In connection with the execution and delivery of the Merger Agreement, Parent obtained commitments to provide approximately $2.075 billion in debt financing, not all of which is expected to be drawn at the closing of the Merger. The debt financing consists of (a) an $800 million senior secured revolving credit facility, (b) a $775 million senior secured term loan facility and (c) either (i) a combination of $200 million in gross proceeds from the issuance and sale of senior unsecured notes and $300 million in gross proceeds from the issuance and sale of senior subordinated unsecured notes or (ii) if such notes are not issued, then $200 million of senior unsecured bridge loans under a senior bridge facility and $300 million of senior subordinated unsecured bridge loans under a subordinated bridge facility. In addition, Parent has obtained an aggregate of up to $500 million in equity commitments from affiliates of Bain Capital.

VOTING AGREEMENT (PAGE 49)

In connection with the Merger, Samgray, L.P., Article Sixth Trust, MM 2005 Intangibles Trust, MHLAS Limited Partnership No. 1, MH Family LLC, Andrew Milstein, Stephen Milstein and Lazer Milstein (the “Milstein Stockholders”) have entered into a voting agreement with Parent, dated as of January 18, 2006 (as it may be amended from time to time, the “Voting Agreement”). Pursuant to the Voting Agreement, the Milstein Stockholders have agreed to vote (and have granted to Parent a proxy to vote) all their shares of Company common stock in favor of the adoption of the Merger Agreement, unless the Merger Agreement is terminated in accordance with its terms. As of March 8, 2006, 27,251,340 shares of Company common stock, or approximately 60.9% of the outstanding shares, were subject to the Voting Agreement. A copy of the Voting Agreement is attached as Appendix B to this proxy statement.

TREATMENT OF STOCK OPTIONS (PAGE 35)

The Merger Agreement provides that each outstanding stock option that remains unexercised as of the completion of the Merger, whether or not the option is vested and exercisable, will be canceled, and the holder of such stock option will be entitled to receive a cash payment, without interest and less applicable withholding taxes, equal to the product of:

•

the number of shares of Company common stock subject to the option as of the effective time of the Merger, multiplied by

•

the excess, if any, of the greater of (A) $45.50 or (B) in the case of any nonqualified stock option, the Adjusted Fair Market Value (as defined in the applicable Company option plan) of each share of Company common stock subject to such option, over the exercise price per share of Company common stock subject to such option.

If the amount of such product is zero, no payment will be made.

INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (PAGE 18)

In considering the recommendation of the Board of Directors with respect to the Merger, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally. These interests, to the extent material, are described below under “The Merger – Interests of the Company’s Directors and Executive Officers in the Merger.” The Board of Directors was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger.

SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS (PAGES 49 AND 50)

As of March 8, 2006, the directors and executive officers of the Company owned approximately 61.1% of the shares of Company common stock entitled to vote at the special meeting. Each of them has advised us that they plan to vote all of their shares in favor of the adoption of the Merger Agreement. Certain directors and executive officers are also parties to the Voting Agreement.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 33)

The Merger will be a taxable transaction to you. For United States federal income tax purposes, your receipt of cash in exchange for your shares of Company common stock generally will result in your recognizing gain or loss measured by the difference, if any, between the cash you receive in the Merger and your tax basis in your shares of Company common stock. You should consult your own tax advisor for a full understanding of the Merger’s tax consequences that are particular to you.

PROCEDURE FOR RECEIVING MERGER CONSIDERATION (PAGE 36)

Parent will appoint a paying agent reasonably acceptable to us to coordinate the payment of the cash Merger consideration following the Merger. Promptly after the effective time of the Merger, the paying agent will mail a letter of transmittal and instructions to you and the other stockholders. The letter of transmittal and instructions will tell you how to surrender your Company common stock certificates in exchange for the Merger consideration. Please do not send in your share certificates now.

NO SOLICITATION OF ALTERNATIVE PROPOSALS (PAGE 40)

The Merger Agreement contains certain restrictions on our ability to solicit or engage in discussions or negotiations with a third party regarding specified transactions involving the Company. Notwithstanding these restrictions, under certain circumstances, the Board of Directors may (i) respond to an unsolicited bona fide written proposal for an alternative acquisition or terminate the Merger Agreement and (ii) enter into an agreement with respect to a superior proposal (in which case the Company will be required to pay a $70 million termination fee to Parent). If the Merger Agreement terminates, the Voting Agreement will also terminate.

CONDITIONS TO COMPLETING THE MERGER (PAGE 45)

Before we can complete the Merger, a number of conditions must be satisfied. These conditions include:

•

adoption of the Merger Agreement by our stockholders;

•

no governmental entity having enacted any law or regulation, or issued any judgment, order, writ, decree or injunction, that prohibits the completion of the Merger;

•

the performance, in all material respects, by all parties to the Merger Agreement of their respective agreements and covenants in the Merger Agreement, and the representations and warranties of the Company, Parent and Merger Sub in the Merger Agreement being true and correct, subject to various materiality qualifications;

•

the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) (this condition was satisfied on February 10, 2006);

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Monroe Milstein, Andrew Milstein and Stephen Milstein having entered into non-competition and non-solicitation agreements with Parent;

•

no governmental entity having initiated any proceeding or investigation seeking to prevent the completion of the Merger; and

•

holders of no more than 5% of the outstanding shares of Company common stock having exercised (and not withdrawn or failed to perfect) appraisal rights under Delaware law.

TERMINATION OF THE MERGER AGREEMENT (PAGE 46)

The Company and Parent can agree to terminate the Merger Agreement without completing the Merger, even if our stockholders have adopted the Merger Agreement. The Merger Agreement may also be terminated in certain other circumstances, including:

•

by either Parent or the Company, if:

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any governmental entity has issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such order or other action is final and non-appealable;

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the closing has not occurred on or before June 30, 2006, except that under certain conditions such date will be extended to August 14, 2006 (the “Outside Date”);

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any state or federal law, order, rule or regulation is adopted or issued which has the effect of prohibiting the Merger;

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our stockholders do not adopt the Merger Agreement at the special meeting or any postponement or adjournment thereof;

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there is a material breach by the non-terminating party of any of its representations, warranties, covenants or agreements in the Merger Agreement such that the closing conditions would not be satisfied and such breach has not been cured within 45 days following notice by the terminating party or cannot be cured by the Outside Date;

•

by the Company, if the Company’s Board of Directors approves a superior proposal in accordance with the terms of the Merger Agreement; and

•

by Parent, if the Company’s Board of Directors withdraws or modifies in a manner adverse to Parent its recommendation that the Company’s stockholders adopt the Merger Agreement or recommends to stockholders an alternative proposal or superior proposal, or the Company enters into a definitive agreement with respect thereto.

TERMINATION FEES (PAGE 47)

We will be required to pay a termination fee of $70 million to Parent if the Merger Agreement is terminated under certain circumstances, and Parent will be required to pay a termination fee of $70 million to us if the Merger Agreement is terminated under certain other circumstances.

THE COMPANY’S STOCK PRICE (PAGE 50)

The Company common stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol “BCF.” On June 24, 2005, which was the trading day immediately prior to the date on which we announced that the Board of Directors was exploring possible strategic alternatives for the Company to enhance stockholder value, the Company common stock closed at $36.04 per share. On January 17, 2006, which was the last trading day before we announced the Merger Agreement, the Company common stock closed at $44.58 per share. On March 9, 2006, which was the last trading day before this proxy statement was printed, the closing price per share of Company common stock on the NYSE was $45.20.

DISSENTERS’ RIGHTS OF APPRAISAL (PAGE 54)

The Delaware General Corporation Law (“DGCL”) provides you with appraisal rights in the Merger. This means that if you are not satisfied with the amount you are receiving in the Merger, you are entitled to have the

value of your shares determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive as a dissenting stockholder in an appraisal proceeding may be more or less than, or the same as, the amount you would have received in the Merger. To exercise your appraisal rights, you must deliver a written demand for appraisal to the Company before the Merger Agreement is voted on at the special meeting and you must not vote in favor of the adoption of the Merger Agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights.

QUESTIONS

If you have additional questions about the Merger or other matters discussed in this proxy statement after reading this proxy statement, you should contact:

Burlington Coat Factory Warehouse Corporation

1830 Route 130

Burlington, NJ 08016

Attention: Secretary of the Company

Telephone: (609) 387-7800

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby. There are “forward looking” statements throughout this proxy statement, including, among others, under the headings “Questions and Answers About the Special Meeting and the Merger,” “Summary,” “The Merger,” “Opinion of the Company’s Financial Advisor,” “Regulatory Approvals” and “Litigation,” and in statements containing the words “believes,” “expects,” “anticipates,” “intends,” “estimates” or other similar expressions.

You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. These forward-looking statements speak only as of the date on which the statements were made.

In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

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the timing of, and regulatory and other conditions associated with, the completion of the Merger;

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volatility in the stock markets;

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proposed store openings and closings;

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proposed capital expenditures;

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projected financing requirements;

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proposed developmental projects;

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projected sales and earnings, and the Company’s ability to maintain selling margins;

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general economic conditions;

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consumer demand;

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consumer preferences;

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weather patterns;

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competitive factors, including pricing and promotional activities of major competitors;

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the availability of desirable store locations on suitable terms;

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the availability, selection and purchasing of attractive merchandise on favorable terms;

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import risks;

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the Company’s ability to control costs and expenses;

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unforeseen computer related problems;

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any unforeseen material loss or casualty;

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the effect of inflation; and

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other factors that may be described in the Company’s filings with the Securities and Exchange Commission (the “SEC”).

The internal financial information that the Company provided to Goldman Sachs in connection with its opinion described below under “Opinion of the Company’s Financial Advisor” was prepared by the Company’s management. As a matter of policy, the Company does not publicly disclose internal management forecasts, projections or estimates of the type furnished to Goldman Sachs in connection with its opinion, and such forecasts, projections and estimates were not prepared with a view towards public disclosure. These forecasts, projections and estimates were based on numerous variables and assumptions which are inherently uncertain and many of which are beyond the control of the Company, including, without limitation, factors related to general economic, business, regulatory, and competitive conditions. They involve significant elements of subjective judgment which may or may not be correct. Accordingly, actual results can be expected to vary from those set forth in or implied by such forecasts, projections and estimates, and such variations may be material.

THE PARTIES TO THE MERGER

Burlington Coat Factory Warehouse Corporation

BCFWC Acquisition, Inc.

Parent is a Delaware corporation with its principal executive offices at 111 Huntington Avenue, Boston, Massachusetts 02199. Parent’s telephone number is (617) 516-2000. Parent was formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the Merger Agreement.

BCFWC Mergersub, Inc.

Merger Sub is a Delaware corporation and a wholly-owned subsidiary of Parent. Merger Sub’s principal executive offices are located at 111 Huntington Avenue, Boston, Massachusetts 02199 and its telephone number is (617) 516-2000. Merger Sub was formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the Merger Agreement. Under the terms of the Merger Agreement, Merger Sub will merge with and into the Company. The Company will survive the Merger and Merger Sub will cease to exist.

Parent and Merger Sub were formed by Bain Capital Partners, LLC (“Bain Capital”). Bain Capital is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity and leveraged debt assets with more than $27 billion in assets under management. Since its inception in 1984, Bain Capital has made private equity investments and add-on acquisitions in over 230 companies around the world, including such leading retailers and consumer companies as Toys “R” Us, Burger King, Staples, Shopper’s Drug Mart, Brookstone, Domino’s Pizza, Sealy Corp., Sports Authority, Duane Reade and Dollarama. Headquartered in Boston, Bain Capital has offices in New York, London, Munich, Hong Kong, Shanghai and Tokyo.

THE SPECIAL MEETING

Time, Place and Purpose of the Special Meeting

The special meeting will be held at 9:00 a.m. Eastern Time, on Monday, April 10, 2006 at the offices of the Company, 1830 Route 130, Burlington, New Jersey 08016. The purpose of the special meeting is to consider and vote on the proposal to adopt the Merger Agreement.

Who Can Vote at the Special Meeting

The holders of record of Company common stock as of the close of business on March 8, 2006, which is the record date for the special meeting, are entitled to receive notice of and to vote at the special meeting. If you own shares that are registered in someone else’s name (for example, a broker), you need to direct that person to vote those shares or obtain an authorization from them and vote the shares yourself at the meeting. On the record date, there were 44,770,813 shares of Company common stock outstanding held by approximately 209 holders of record.

Vote Required

The adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote. Each share of Company common stock is entitled to one vote. Failure to return a properly executed proxy card or to vote in person will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. Stockholders who together own approximately 60.9% of the outstanding shares of Company common stock have agreed to vote in favor of the adoption of the Merger Agreement. See “The Voting Agreement.”

Under the rules of the NYSE, brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to the approval of non-routine matters such as the adoption of the Merger Agreement and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” Abstentions and broker non-votes will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining whether a quorum exists and will have the same effect as votes “AGAINST” adoption of the Merger Agreement.

The holders of a majority of the outstanding shares of Company common stock entitled to be cast as of the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum and any adjournment of the special meeting, unless the holder is present solely to object to the special meeting. However, if a new record date is set for an adjourned meeting, then a new quorum will have to be established.

Voting By Proxy

This proxy statement is being sent to you on behalf of the Board of Directors for the purpose of requesting that you allow your shares of Company common stock to be represented at the special meeting by the persons named in the enclosed proxy card. All shares of Company common stock represented at the meeting by proxies voted by properly executed proxy cards will be voted in accordance with the instructions indicated on that proxy. If you sign and return a proxy card without giving voting instructions, your shares will be voted as recommended by the Board of Directors. The Board recommends a vote “FOR” adoption of the Merger Agreement.

The persons named in the proxy card will use their own judgment to determine how to vote your shares regarding any matters not described in this proxy statement that are properly presented at the special meeting. The Company does not know of any matter to be presented at the meeting other than the proposal to adopt the Merger Agreement.

You may revoke your proxy at any time before the vote is taken at the meeting. To revoke your proxy, you must either advise the Secretary of the Company in writing, deliver a proxy dated after the date of the proxy you wish to revoke or attend the meeting and vote your shares in person. Merely attending the special meeting will not constitute revocation of your proxy.

If your Company common stock is held in street name, you will receive instructions from your broker, bank or other nominee that you must follow to have your shares voted. If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” adoption of the Merger Agreement.

The Company will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of the Company may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies. The Company will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

THE MERGER

The discussion of the Merger in this proxy statement is qualified by reference to the Merger Agreement and the Voting Agreement, which are attached to this proxy statement as Appendices A and B, respectively. You should read each agreement carefully.

Background of the Merger

Beginning in late 2004, the Company on several occasions received preliminary, non-binding expressions of interest by or on behalf of a certain third party to acquire the Company at a purchase price ranging from $23.00 per share up to amounts in the low $30s per share. These expressions of interest, which ultimately contemplated different forms of consideration for the Milstein family (whose consideration would include non-cash consideration) and the other Company stockholders (who would receive cash), were not pursued by the Company. Prior to the Board of Directors’ consideration of strategic alternatives described below, which resulted in the Company’s entry into the Merger Agreement, the Company did not have any formal policy for dealing

with proposals or expressions of interest received by the Company regarding any sale, lease, transfer or other disposition of the Company or any of its assets.

On February 10, 2005, in response to a request by Monroe Milstein that the Company consider paying a special cash dividend to the holders of Company common stock (a “Special Dividend”) of up to $6.00 per share, the Board of Directors appointed a special committee of three independent directors, Messrs. Harvey Morgan, Irving Drillings and Roman Ferber (the “Special Committee”), to consider such dividend. Mr. Milstein felt that it would be desirable for the Company to consider a Special Dividend of up to $6.00 per share in light of the Company’s current cash position and debt structure, his belief that investors might view such action favorably, and to facilitate tax planning for the Milstein family. After considering, among other things, the size of the potential Special Dividend and the fact that the request had been made by, and such dividend might benefit, one of the Company ‘s principal stockholders, the Board of Directors formed the Special Committee.

While the study of a potential Special Dividend was pending, at a meeting of the Board of Directors on May 25, 2005, the Board of Directors discussed and unanimously approved a proposal to explore possible strategic alternatives for the Company to enhance stockholder value. The Board of Directors took such action because it believed that it would be in the interests of stockholders for the Board of Directors to explore possible strategic alternatives for the Company to enhance stockholder value. The Board of Directors did not approve such proposal in response to any expression of interest, proposal or offer by any party to acquire the Company or any of its shares or assets. The Board of Directors also determined that the Special Committee’s study of a potential Special Dividend should proceed simultaneously with the consideration of strategic alternatives, which would be undertaken and overseen by the entire Board of Directors. The Company retained Goldman Sachs as the Company’s financial advisor, and Hughes Hubbard & Reed LLP (“Hughes Hubbard”) as the Company’s legal counsel, to assist in the possible strategic alternative process.

On June 27, 2005, the Company announced to the public that its Board of Directors was exploring possible strategic alternatives for the Company to enhance stockholder value and had retained Goldman Sachs as its financial advisor to assist in that process. The Company stated that no decision had been made to engage in a transaction or transactions resulting from the Board’s exploration of strategic alternatives, and that there could be no assurance that any transaction would occur or, if undertaken, the terms or timing thereof.

The Special Committee continued its study of a potential Special Dividend with the assistance of special legal counsel and a financial advisor retained by it. The Special Committee considered, among other things, whether a Special Dividend might adversely affect the possible sale of the Company. Hughes Hubbard did not serve as legal counsel to the Special Committee. Goldman Sachs did not serve as financial advisor to the Special Committee and did not provide advice to the Special Committee with respect to the advisability of a Special Dividend but did generally discuss the potential impact, or lack thereof, of a possible Special Dividend on the possible strategic alternative process.

At a meeting of the Board of Directors on July 28, 2005, the Special Committee reported that it had considered a Special Dividend of $5.00 per share and did not recommend the payment of a dividend in such amount, but would consider a modified proposal to pay a Special Dividend of $4.20 per share. After further deliberation and meetings with its counsel and financial advisor, the Special Committee reported that it could recommend to the Board of Directors that the Board of Directors declare a Special Dividend in the amount of $4.20 per share. The Board of Directors decided to defer consideration of the declaration of such Special Dividend pending the determination of full fiscal year net earnings and the completion of the audit of the Company’s financial statements for the fiscal year ended May 28, 2005. On November 14, 2005, the Board of Directors declared a regular annual cash dividend to stockholders in the amount of $0.04 per share, which dividend was paid on January 9, 2006. Pursuant to the Merger Agreement, the Board of Directors may not declare any further dividends without Parent’s consent. See “The Merger Agreement – Conduct of the Company’s Business Pending the Merger.”

Throughout the summer of 2005, the Company consulted with Goldman Sachs and Hughes Hubbard concerning the Board of Directors’ exploration of strategic alternatives. Beginning in August 2005, Goldman Sachs, at the direction of the Board of Directors, contacted on behalf of the Company and on a confidential basis more than 40 parties (most of which were possible financial bidders) that the Board of Directors selected to be contacted on the basis of various discussions between Goldman Sachs and Company management, discussions between Company management and the Board of Directors, and inbound inquiries from certain of the parties. The parties were identified, on the basis of observations of Goldman Sachs based on its experience in such matters, industry knowledge of Company management and Goldman Sachs and other factors (including inquiries received by Goldman Sachs or the Company both prior to and following the Company’s press release on June 27, 2005), as parties that might be interested in acquiring the Company. Of the more than 40 parties contacted by Goldman Sachs on behalf of the Company, 30 expressed interest in participating in the process and were provided with materials containing publicly available information concerning the Company. At the direction of the Board of Directors, two possible corporate bidders were not invited into the process because they were competitors of the Company and their inclusion in the process and access to competitive information could, in management’s view, among other things, have a very damaging effect on the Company and stockholder value, but other possible corporate bidders were contacted. With respect to the two excluded parties, neither party, after being informed of the Board of Directors’ decision, requested the Board of Directors to reconsider its decision and neither has submitted a proposal to acquire the Company.

Of the 30 parties that were provided with materials containing publicly available information concerning the Company, 18 prospective financial bidders and four prospective corporate bidders negotiated and entered into confidentiality agreements with the Company for the purpose of facilitating the delivery of confidential information. Following execution of their respective confidentiality agreements, beginning in mid-September 2005, each of the 22 prospective bidders (including Bain Capital) received a confidential memorandum from Goldman Sachs on behalf of the Company.

On September 23, 2005, the Board of Directors appointed Alan Silverglat as a new independent director. On November 8, 2005, the Company held its annual meeting of stockholders, at which the following directors were elected: Irving Drillings, Roman Ferber, Andrew Milstein, Monroe G. Milstein, Stephen Milstein, Mark A. Nesci, and Alan Silverglat.

On or about September 27, 2005, Goldman Sachs, at the direction of the Company, sent letters to the 22 prospective bidders inviting preliminary indications of interest by October 17, 2005.

On or about October 17, 2005, the Company received four preliminary indications of interest. Of the 22 prospective bidders, two parties (Bain Capital and a second party referred to below as “Bidder 2”) submitted indications of interest individually and four parties formed two groups, consisting of two parties each. Each group (referred to below as “Bidder 3” and “Bidder 4”) submitted an indication of interest. All of the preliminary indications of interest contemplated the acquisition of the Company in a cash transaction.

At a meeting of the Board of Directors on October 20, 2005, management, Goldman Sachs and Hughes Hubbard provided the Board of Directors with an update regarding the potential sale process and the preliminary indications of interest that had been received. Goldman Sachs reviewed the details of each of the four preliminary indications of interest and, among other things, provided the directors with a discussion of certain financial information and information regarding the preliminary bidders, and Goldman Sachs’ preliminary assessment, based on current market conditions and other factors, of the ability of each of the preliminary bidders to finance a potential acquisition of the Company. Goldman Sachs recommended that the Company invite all the preliminary bidders to move to the next round of the Board’s process of exploring strategic alternatives and proceed with due diligence. The Board unanimously approved Goldman Sachs’ recommendation.

Representatives of the parties that had submitted preliminary indications of interest were then invited to conduct due diligence investigations of the Company, which continued until the submission of definitive

proposals on January 10, 2006. In addition, beginning in late October 2005, the Company made management presentations to such parties.

In early November 2005, Bidder 4 informed Goldman Sachs that it had determined not to proceed further in the process. On November 22, 2005, at the direction of the Company, Goldman Sachs sent to Bain Capital, Bidder 2 and Bidder 3 a letter setting forth instructions for submitting definitive proposals, along with a draft merger agreement prepared by Hughes Hubbard. Recipients were requested (i) to submit a copy of the draft merger agreement marked with any proposed changes to the Company in care of Hughes Hubbard on or before December 28, 2005 and (ii) to submit their definitive proposal to the Company in care of Goldman Sachs on or before the bidding deadline of January 10, 2006, with such proposal to include confirmation of fully committed financing, including copies of commitment letters with any external financing sources.

On or about December 28, 2005, Bain Capital and Bidder 2 submitted their comments on the draft merger agreement. Bidder 3 did not submit comments and did not participate further in the process, after informing Goldman Sachs that it was suspending due diligence due to concerns that the Company’s stock was trading at too high a value.

At the request of the Company, based on the markups received and discussions with management, Hughes Hubbard prepared a revised draft of the merger agreement for Bain Capital, and a revised draft of the merger agreement for Bidder 2, which it delivered to each of them on January 4, 2006 and offered to discuss with them prior to the January 10, 2006 bidding deadline. Thereafter, Hughes Hubbard was contacted by counsel to Bain Capital, Kirkland & Ellis LLP (“Kirkland”), and, following discussions with such counsel, prepared a revised draft of the merger agreement for Bain Capital, which it delivered to Kirkland on January 9, 2006. Kirkland, Hughes Hubbard and Phillips Nizer LLP (counsel to Messrs. Monroe, Andrew and Stephen Milstein and the other “Milstein Stockholders” referred to below under “The Voting Agreement”) also commenced discussions on the draft voting agreement prepared by Kirkland and contemplated by Bain Capital’s markup of the draft merger agreement as a condition to its willingness to enter into a merger agreement with the Company. Counsel for Bidder 2 did not contact Hughes Hubbard to engage in discussions on the draft merger agreement delivered to them on January 4, 2006.

On January 10, 2006, Bain Capital submitted a definitive proposal to acquire the Company in a cash merger for a price of $43.65 per share. Bidder 2 (together with a real estate partner) submitted a definitive proposal to acquire the Company in a cash merger for a price of $42.00 per share. Each proposal included copies of executed equity and debt commitment letters and a markup reflecting the bidder’s comments on the most recent draft of the merger agreement that the bidder had received from Hughes Hubbard. The Company had informed the bidders that it was contemplating possible sale bonus payments to employees, and each bidder communicated that the cash merger consideration would be reduced by up to the amount of any such bonuses paid.

At a meeting of the Board of Directors on January 12, 2006, management, Goldman Sachs and Hughes Hubbard discussed the two proposals with the Board of Directors. Goldman Sachs reviewed with the Board of Directors, among other things, the financial aspects of the proposals, the financing commitments submitted by the bidders and certain preliminary financial analyses undertaken by Goldman Sachs. Hughes Hubbard discussed, among other things, the legal aspects of the proposals (including the Board of Directors’ fiduciary duties under Delaware law), the status of the negotiations with respect to the merger documentation, and the current drafts of such documentation. Management and the advisors responded to numerous questions from the Board of Directors. Following additional discussion and deliberation, the Board of Directors instructed Goldman Sachs to inform each bidder that the Board of Directors would not consider its proposal further unless the bidder increased its proposed merger price. In seeking higher proposals from the bidders, the Board of Directors did not set a price at which it would be willing to approve the sale of the Company.

On January 13, 2006, Bidder 2 withdrew from the negotiations after informing Goldman Sachs that it was prepared to pay only up to, but not more than, $43.00 per share in cash to acquire the Company. Negotiations

with Bain Capital and its counsel continued with respect to the merger consideration and merger documentation, including negotiations between Kirkland and Phillips Nizer with respect to a draft form of non-competition and non-solicitation agreement prepared by Kirkland and contemplated by Bain Capital’s markup of the draft merger agreement to be entered into between the Company and each of Monroe Milstein, Andrew Milstein and Stephen Milstein at or prior to the closing of the proposed merger as a condition to Bain Capital’s obligations to consummate the merger (the “Non-Competition Agreements”). Bain Capital’s willingness to enter into a merger agreement with the Company was conditioned on the negotiation of the proposed Non-Competition Agreements to its satisfaction. (For a discussion of the Non-Competition Agreements as finally negotiated, see “The Merger Agreement—Conditions to the Merger.”)

On January 14, 2006, Bain Capital informed Goldman Sachs that it was prepared (i) to increase the proposed merger price to $44.50 per share in cash, provided that Monroe, Andrew and Stephen Milstein purchased $25 million of preferred stock of the Company, Parent or an affiliate of Parent in connection with the closing of the Merger, (ii) to provide aggregate payments to Monroe Milstein, Andrew Milstein and Stephen Milstein under the proposed Non-Competition Agreements of $15 million over a three-year non-competition period, and (iii) to refrain from reducing the cash merger consideration if sale bonuses were paid in an amount not to exceed $20 million. Bain Capital’s proposal was rejected and negotiations continued.

During the ensuing negotiations, Bain Capital proposed an increase in the merger price to $45.25 per share in cash, without any requirement for the Milsteins to purchase preferred stock and without any payments being made for the Non-Competition Agreements or sale bonuses. That proposal was also rejected.

Shortly thereafter, representatives of Bain Capital informed Goldman Sachs that Bain Capital was prepared to increase the proposed merger price to $45.50 per share in cash, provided that all remaining contractual issues were resolved to its satisfaction. The parties then continued their negotiations through the night of January 16, 2006 and into January 17, 2006.

At a meeting of the Board of Directors in the evening on January 17, 2006, Goldman Sachs discussed with the Board of Directors, among other things, the financial aspects of Bain Capital’s merger proposal, the financing commitments submitted by Bain Capital and certain financial analyses undertaken by Goldman Sachs in connection with its fairness opinion referred to below. Goldman Sachs delivered to the Board of Directors its oral opinion, confirmed by delivery of a written opinion dated January 18, 2006, to the effect that, as of such date and based upon and subject to the factors and assumptions set forth in such opinion, the $45.50 per share in cash to be received by the holders of the outstanding shares of Company common stock pursuant to the proposed merger agreement was fair from a financial point of view to such holders. Hughes Hubbard discussed with the Board of Directors, among other things, the legal aspects of Bain Capital’s merger proposal (including the directors’ fiduciary duties under Delaware law), the terms of the proposed merger documentation (including, if a party other than Bain Capital were to make an alternative proposal to acquire the Company, the Company’s ability under certain circumstances to engage in substantive discussions and negotiations with such party and to terminate the merger agreement, and pay a $70 million termination fee, in order to accept a superior offer), changes in the documentation since the review by the Board of Directors on January 12, 2006, and the financing commitments submitted by Bain Capital. With respect to the proposed Non-Competition Agreements, the Board of Directors was advised that Bain Capital’s willingness to enter into the proposed merger agreement was conditioned upon the entry into the Non-Competition Agreements being a condition to the merger, and that Monroe Milstein, Andrew Milstein and Stephen Milstein would not receive any payment from the Company, Bain Capital or any of their affiliates under or in respect of such agreements. Management and the advisors responded to numerous questions from the Board of Directors. Following additional discussion and deliberation, the Board of Directors unanimously approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and unanimously resolved to recommend that the stockholders of the Company vote to adopt the Merger Agreement.

On January 18, 2006, prior to the opening of trading on the NYSE, (i) the Company, Parent and Merger Sub executed the Merger Agreement and (ii) Parent and the Milstein Stockholders executed the Voting Agreement.

The Company and Parent thereupon issued a joint press release announcing the execution of the Merger Agreement and the Voting Agreement.

Reasons for the Merger

The Board of Directors consulted with senior management and the Company’s financial and legal advisors and considered a number of factors in reaching its decision to approve the Merger Agreement and the transactions contemplated by the Merger Agreement, and to recommend that the Company’s stockholders vote “FOR” the adoption of the Merger Agreement. These factors included, without limitation, the following:

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the price being paid for each share of Company common stock in the Merger (1) represented a substantial premium to historic trading prices, for example, a premium of over 26% over the closing price of $36.04 on the NYSE on June 24, 2005 (the trading day immediately prior to the date on which the Company announced that the Board of Directors was exploring possible strategic alternatives for the Company to enhance stockholder value) and a premium of over 96% over the average closing price of $23.16 on the NYSE for the one year ended May 20, 2005 (the last trading day prior to an unexplained increase in trading volume of Company common stock), and (2) was higher than the highest price at which our shares had ever traded;

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the presentations made by Goldman Sachs, the Company’s financial advisor, and Goldman Sachs’ oral opinion (subsequently confirmed by delivery of a written opinion dated January 18, 2006), to the effect that, as of such date and based upon and subject to the matters described in its opinion, the $45.50 per share in cash to be received by the holders of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders (the full text of the written opinion of Goldman Sachs is attached as Appendix C to this proxy statement);

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the financial aspects and other terms of the final bids received from Bain Capital and from a second bidding party with respect to the sale of the Company, including the superiority of the price proposed by Bain Capital compared with the price proposed by the second bidder;

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the possible alternatives to the sale of the Company, including continuing to operate the Company on a stand-alone basis and the possible payment of a Special Dividend, and the risks associated with such alternatives, each of which the Board of Directors determined not to pursue in light of its belief that the sale of the Company to Parent maximized stockholder value and represented the best transaction reasonably available to stockholders;

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the Company’s business, current financial condition and results of operations and future prospects;

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the fact that the Merger consideration is all cash, which provides certainty of value to our stockholders, and treats all stockholders on the same basis;

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the fact that the Company, in connection with the Board of Directors’ consideration of strategic alternatives, conducted an extensive process for the acquisition of the Company involving more than 40 parties and entered into confidentiality agreements and sent confidential information to 22 parties that resulted in two definitive proposals to acquire the Company;

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the limited number and nature of the conditions to Parent’s obligation to consummate the Merger and the limited risk of non-satisfaction of these conditions, including the likelihood that the Merger would be approved by the requisite regulatory authorities;

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the absence of a financing condition to the Merger Agreement and Goldman Sachs’ observations that the debt and equity commitment letters obtained by Parent, in their experience, contained generally customary conditions;

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the inclusion in the Merger Agreement of a provision obligating Parent to pay a $70 million termination fee to the Company if the Merger Agreement is terminated by Parent or the Company under certain circumstances;

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the provisions of the Merger Agreement that allow the Company, under certain circumstances, to furnish information to and conduct negotiations with third parties;

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the provisions of the Merger Agreement that allow the Board of Directors, under certain circumstances, to change its recommendation that the Company’s stockholders vote in favor of the adoption of the Merger Agreement;

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the other terms of the Merger Agreement, including the ability of the Board of Directors to terminate the Merger Agreement in order to accept a superior proposal (subject to the Company paying Parent a $70 million termination fee);

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the Board of Directors’ understanding that such $70 million termination fee, and the circumstances when such fee is payable, are reasonable in light of the benefits of the Merger, the auction process conducted by the Company, with the assistance of Goldman Sachs, and commercial practice;

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the terms of the Voting Agreement, including the fact that the Voting Agreement will terminate if the Merger Agreement terminates; and

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the ability of the Company’s stockholders to exercise appraisal rights under Section 262 of the DGCL.

The Board of Directors also took into account a number of potentially adverse factors concerning the Merger including, without limitation, the following:

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the risk that the Merger might not be completed in a timely manner or at all, including the risk that the Merger will not occur if Parent does not obtain the requisite financing notwithstanding the absence of a financing condition to the Merger Agreement;

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the fact that Parent and Merger Sub are newly-formed corporations with essentially no assets, and the $70 million termination fee payable by Parent to the Company under certain circumstances serves as a contractual limitation on our ability to recover damages in connection with an uncured breach of the Merger Agreement by Parent or Merger Sub;

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the opportunities for growth and the potential for increased stockholder value if the Company were to remain independent;

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the Merger consideration consists of cash and will therefore be taxable to our stockholders for U.S. federal income tax purposes, and because stockholders are receiving cash for their stock, they will not participate in the future growth of the Company;

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the requirement that the Company pay Parent a $70 million termination fee in order for the Board of Directors to accept a superior proposal (or under certain other circumstances);

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the inclusion in the Merger Agreement of a condition to Parent’s obligations that holders of no more than 5% of the outstanding shares of Company common stock exercise (and do not withdraw or fail to perfect) appraisal rights in accordance with Section 262 of the DGCL;

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the interests of the Company’s directors and executive officers in the Merger (see “Interests of the Company’s Directors and Executive Officers in the Merger”); and

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diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the Merger, and the possibility of management and employee disruption associated with the Merger.

The foregoing discussion of the information and factors considered by the Board of Directors, while not exhaustive, includes the material factors considered by the Board of Directors. In view of the variety of factors considered in connection with its evaluation of the Merger, the Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative or specific weight or values to any of these factors, and individual directors may have given different weights to different factors.

Recommendation of the Board of Directors

After careful consideration, the Board of Directors, by unanimous vote:

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has determined that the Merger Agreement is advisable;

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has approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement; and

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recommends that the Company’s stockholders vote “FOR” the adoption of the Merger Agreement.

Interests of the Company’s Directors and Executive Officers in the Merger

In considering the recommendation of the Board of Directors with respect to the Merger, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally. These interests, to the extent material, are described below. The Board of Directors was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger.

Treatment of Stock Options

As of the record date, there were approximately 364,400 shares of Company common stock subject to stock options granted to our executive officers under the Company’s stock option plans. (No stock options are held by our non-employee directors.) All such stock options are vested and exercisable. Each outstanding stock option that remains unexercised as of the effective time of the Merger will be canceled, and the holder of such stock option will be entitled to receive a cash payment, without interest and less applicable withholding taxes, equal to the product of:

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the number of shares of Company common stock subject to the option as of the effective time of the Merger, multiplied by

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If the amount of such product is zero, no payment will be made.

The following table summarizes the options, all of which have exercise prices of less than $45.50 per share, held by our executive officers as of March 8, 2006 and the approximate consideration that each of them will receive pursuant to the Merger Agreement in connection with the cancellation of their options, based on the weighted average exercise prices of the options:


	No. of Shares Underlying Vested Options	Weighted Average Exercise Price of Vested Options		Resulting Approximate Consideration
Executive Officers:
Mark A. Nesci	152,000	$	17.59	$	4,242,320
Andrew R. Milstein	67,200	$	17.11	$	1,907,808
Stephen E. Milstein	67,200	$	17.11	$	1,907,808
Steve Koster	25,000	$	17.14	$	709,000
Robert Grapski	23,600	$	18.49	$	637,436
Paul C. Tang	17,400	$	18.83	$	464,058
Robert LaPenta	12,000	$	20.21	$	303,480

Indemnification and Insurance

The Merger Agreement provides that, after the Merger, Parent and the surviving corporation will, jointly and severally, and Parent will cause the surviving corporation to, indemnify and hold harmless the individuals who are now, or have been at any time prior to the execution of the Merger Agreement or who become such prior to the effective time of the Merger, a director or officer of the Company or any of the Company’s subsidiaries, or an employee of the Company or any of its subsidiaries providing services to or for such a director or officer in connection with the Merger Agreement or any of the transactions contemplated by the Merger Agreement, against costs and liabilities incurred in connection with any pending, threatened or completed claim, action, suit, proceeding or investigation arising out of or pertaining to (i) the fact that such individual is or was an officer, director, employee, fiduciary or agent of the Company or any of its subsidiaries, or (ii) matters occurring or existing at or prior to the effective time of the Merger (including acts or omissions occurring in connection with the Merger Agreement and the transactions contemplated thereby), whether asserted or claimed prior to, at or after the effective time of the Merger.

The Merger Agreement provides that the surviving corporation will provide, for a period of six years after the Merger becomes effective, directors’ and officers’ liability insurance for the benefit of those persons covered under our officers’ and directors’ liability insurance policy on terms with respect to coverage and amounts no less favorable than those of the policy in effect as of the execution of the Merger Agreement, provided that, subject to certain exceptions, the surviving corporation will not be obligated to pay premiums in excess of 300% of the annualized policy premium based on a rate as of the execution of the Merger Agreement. Notwithstanding the foregoing, prior to the effective time of the Merger the Company is permitted to purchase prepaid “tail” policies in favor of such indemnified persons with respect to the matters referred to above (provided that the annual premium for such tail policy may not exceed 300% of the annualized policy premium based on a rate as of the execution of the Merger Agreement), in which case Parent has agreed to maintain such tail policies in effect and continue to honor the obligations under such policies.

Parent and Merger Sub have also agreed (i) to continue in effect for at least six years after the effective time of the Merger all rights to indemnification existing in favor of, and all exculpations and limitations of the personal liability of, the directors, officers, employees, fiduciaries and agents of the Company and its subsidiaries in the Company’s certificate of incorporation as of the effective time of the Merger with respect to matters occurring at or prior to the effective time of the Merger and (ii) to honor the Company’s indemnification agreements with the Company’s directors (including one former director, Harvey Morgan) and with certain officers, including Messrs. Tang, Grapski, Koster and LaPenta. Each such indemnification agreement provides, among other things, that the Company will indemnify such indemnified person to the fullest extent permitted by the DGCL, including advancement of legal fees and other expenses incurred by the indemnified person in connection with any legal proceedings arising out the indemnified person’s service as director and/or officer, subject to certain exclusions and procedures set forth in the indemnification agreement.

Audit Committee Shares

The Company typically issues, after the end of each fiscal year, up to 100 shares of Company common stock to each of the three members of the Audit Committee of the Board of Directors as payment for services rendered during such fiscal year. With respect to the current fiscal year (ending June 3, 2006), the Company issued such shares on March 3, 2006, for an aggregate issuance of 300 shares to Messrs. Silverglat, Drillings and Ferber.

Potential Employment Arrangements

As of the date of this proxy statement, (i) none of the Company’s executive officers has entered into any employment or separation agreements with the Company or any of its subsidiaries in anticipation of the Merger and (ii) none of the Company’s directors or executive officers has entered into any agreements with Parent or any of its affiliates (including Bain Capital) in anticipation of the Merger (except, in the case of Monroe Milstein, Andrew Milstein and Stephen Milstein, for the Voting Agreement with Parent described under “The Voting Agreement”).

Although no such agreements currently exist, the Merger Agreement permits the Company to enter into agreements with certain employees (including each of Messrs. Nesci, Tang, Grapski, Koster and LaPenta) on terms and conditions agreed to by the Company and Parent. The Merger Agreement also prohibits the Company from adopting any benefit plans for its directors, officers or employees without Parent’s consent. Such agreements or plans, if entered into or adopted, may provide for bonus and/or separation payments to the individuals named above. See “The Merger Agreement – Conduct of the Company’s Business Pending the Merger.”

Death Benefit Agreements

On November 8, 2005, the Company entered into death benefit agreements with each of Mark Nesci, Andrew Milstein and Stephen Milstein. Each such agreement provides that, subject to certain conditions set forth in the agreement, the Company will pay to the executive’s estate or designated beneficiary a death benefit in the amount of $1,000,000 (less applicable withholding taxes) payable at the election of the payee in either (i) a single lump sum, (ii) five equal annual installments (together, in the case of each installment after the first, with interest on the unpaid balance) or (iii) the form of an annuity selected by the payee to be purchased by the Company. Each death benefit agreement also provides that, in the event that the applicable executive is terminated without “cause” (as defined in such agreement), the death benefit will continue to be payable. Accordingly, if any of the executives named above are terminated without cause following the Merger, the death benefit would continue to be payable to them.

FINANCING

In connection with the Merger, Parent will cause approximately $2.05 billion to be paid to the Company’s stockholders and holders of Company stock options. See “The Merger Agreement – Treatment of Stock and Options.” These payments are expected to be funded by a combination of equity contributions by affiliates of Bain Capital to Parent and debt financing (the “Financing”). Bain Capital Fund VIII, L.P., an affiliate of Bain Capital, has agreed to contribute, subject to the satisfaction of certain conditions, up to $500 million of equity to Parent and the remaining funds necessary to finance the Merger are expected to be obtained through Parent’s and its subsidiaries’ debt financing.

Parent has obtained equity and debt financing commitments for the transactions contemplated by the Merger Agreement, which commitments are subject to customary conditions. After giving effect to contemplated draws by the subsidiaries of the Company or Parent and its affiliates under the new debt commitments, Parent currently expects total existing and new debt outstanding at the closing of the Merger will be approximately $1.5 billion.

In its equity commitment letter with Parent (the “Equity Commitment”), Bain Capital Fund VIII, L.P. has agreed that the Company is entitled to enforce the equity commitment in the event that the Company or Parent purports to, and is entitled to, terminate the Merger Agreement under circumstances giving rise to Parent’s obligation to pay to the Company a $70 million termination fee as described below under “The Merger Agreement – Termination Fees” (provided that the maximum amount that the Company may recover thereunder is $70 million).

In connection with the execution and delivery of the Merger Agreement, Parent obtained commitments to provide approximately $2.075 billion in debt financing (the “Debt Commitments” and, together with the Equity Commitment, the “Financing Commitments”), not all of which is expected to be drawn at the closing of the Merger. The Financing Commitments consist of (a) an $800 million senior secured revolving credit facility (the “ABL Facility”), (b) a $775 million senior secured term loan facility (the “Term Loan Facility”) and (c) either (i) a combination of $200 million in gross proceeds from the issuance and sale of senior unsecured notes (the “Senior Notes”) and $300 million in gross proceeds from the issuance and sale of senior subordinated unsecured notes (the “Senior Subordinated Notes” and, together with the Senior Notes, the “Notes”) or (ii) if the Notes are

not issued, then $200 million of senior unsecured bridge loans under a senior bridge facility (the “Senior Bridge Facility”) and $300 million of senior subordinated unsecured bridge loans under a subordinated bridge facility (the “Subordinated Bridge Facility” and, together with the Senior Bridge Facility, the “Bridge Facilities”). Parent expects to use the ABL Facility, the Term Loan Facility and the Bridge Facilities, together with Bain Capital Fund VIII, L.P.’s equity investment, to finance the Merger.

ABL Facility

The commitments to provide the ABL Facility were issued by Bank of America, N.A. and Bear Stearns Corporate Lending Inc. Banc of America Securities LLC and Bear, Stearns & Co. Inc. have agreed to act as joint lead arrangers and joint bookrunners for the ABL Facility. Borrowings under the ABL Facility are limited by a borrowing base which is calculated periodically based on specified percentages of the value of eligible inventory and eligible credit card receivables, subject to certain reserves and other adjustments. The ABL Facility will be an obligation of the Company, and certain U.S. subsidiaries of the Company will either be co-obligors or guarantors of the facility. The ABL Facility will be secured by (a) a perfected first priority lien on all inventory, accounts and personal property related to inventory and accounts of the Company and such subsidiaries and (b) a perfected second priority lien on substantially all other real and personal property of the Company and such subsidiaries, in each case subject to various limitations and exceptions. The ABL Facility commitments are conditioned on the Merger being consummated by June 30, 2006 (which date may be extended 45 days under certain conditions in accordance with the terms of the Merger Agreement), as well as other customary conditions including:

•

the absence of a Company Material Adverse Effect (as defined in the Merger Agreement);

•

the creation of security interests;

•

the execution of satisfactory definitive documentation;

•

receipt of at least 20% of the total capitalization of Parent and its subsidiaries in cash proceeds of a common equity contribution from equity investors, including affiliates of Bain Capital;

•

receipt of certain proceeds from the Term Loan Facility;

•

receipt of certain proceeds from either the issuance and sale of the Notes or from the Bridge Facilities;

•

receipt of all consents and approvals that, individually or in the aggregate, are material to the Company and its subsidiaries, taken as a whole;

•

the contemporaneous consummation of the Merger and the absence of any material amendments or waivers to the Merger Agreement to the extent materially adverse to the lenders which have not been approved by specified representatives of the lenders; and

•

the absence of any event of default after giving effect to the Merger and the Financing.

Term Loan Facility

The commitments to provide the Term Loan Facility were issued by Bear Stearns Corporate Lending Inc. and Bank of America, N.A. Bear, Stearns & Co. Inc. and Banc of America Securities LLC have agreed to act as joint lead arrangers and joint bookrunners for the Term Loan Facility. Borrowings under the Term Loan Facility will be available in a single drawing on the closing date of the Financing. The Term Loan Facility will be an obligation of the Company, and certain U.S. subsidiaries of the Company will either be co-obligors or guarantors of the facility. The Term Loan Facility will be secured by (a) a perfected first priority lien on substantially all real and personal property (other than inventory, accounts and personal property related to inventory and accounts) of the Company and such subsidiaries and (b) a perfected second priority lien on all inventory and accounts of the Company and such subsidiaries, in each case subject to various limitations and exceptions. Bain Capital has informed the Company that up to $100 million of the Term Loan Facility may be transferred to the Notes and/or

the Bridge Facilities at or prior to the closing of the Financing; provided, that if Banc of America Securities LLC and Bear, Stearns & Co. have not been afforded at least 20 days following the completion of the confidential information memorandum relating to the Financing to syndicate the ABL Facility, Term Loan Facility and Bridge Facilities, then such option shall survive until the earlier of completion of a successful bank syndication or 20 days after the closing of the Financing. The Term Loan Facility commitments are subject to the same conditions as the ABL Facility commitments, as well as receipt of certain proceeds from the ABL Facility.

Notes

Banc of America Securities LLC and Bear, Stearns & Co. Inc. have agreed to act as co-underwriters, co-initial purchasers, joint arrangers and co-placements agents for the Notes or, if any Bridge Facility is funded, the unsecured senior notes, senior subordinated notes or any other debt securities or combination of debt securities of the Company or any of its subsidiaries that may be issued thereafter to refinance any loans made under the Bridge Facilities. The Notes will be obligations of the Company and will be guaranteed by certain U.S. subsidiaries of the Company, and are subject to the same conditions as the ABL Facility commitments, as well as receipt of certain proceeds from the ABL Facility.

Bridge Facilities

The commitments to provide the Bridge Facilities were issued by Banc of America Bridge LLC and Bear Stearns Corporate Lending Inc. Banc of America Securities LLC and Bear, Stearns & Co. Inc. have agreed to act as joint lead arrangers and joint bookrunners for each Bridge Facility. In the absence of the consummation of the issuance and sale of the Notes, the Bridge Facilities will be obligations of the Company and will be guaranteed by certain U.S. subsidiaries of the Company, and are subject to the same conditions as the ABL Facility commitments, as well as receipt of certain proceeds from the ABL Facility and the requirements to provide Banc of America Securities LLC and Bear, Stearns & Co. Inc. with a completed printed preliminary prospectus or preliminary offering memorandum or preliminary private placement memorandum at least 30 days prior to the closing of the Financing and with at least a 20-day marketing period for the Notes following the receipt of such completed printed preliminary prospectus or preliminary offering memorandum or preliminary private placement memorandum.

On February 15, 2006, (i) Wachovia Bank, National Association became a party to the commitments for the ABL Facility and the Term Loan Facility and (ii) Wachovia Investment Holdings, LLC became a party to the commitments for the Bridge Facilities, in each case committing to provide 15% of the financings contemplated by each such facility. The commitments of (i) Bank of America, N.A. and Bear Stearns Corporate Lending Inc. under each of the ABL Facility and Term Loan Facility and (ii) Banc of America Bridge LLC and Bear Stearns Corporate Lending Inc. under each Bridge Facility, in each case were ratably reduced. In addition, Parent offered to retain Wachovia Capital Markets, LLC to act as a joint bookrunning managing underwriter, joint bookrunning managing placement agent or joint bookrunning managing initial purchaser for the Notes or, if any Bridge Facility is funded, the unsecured senior notes, senior subordinated notes or any other debt securities or combination of debt securities of the Company or any of its subsidiaries that may be issued thereafter to refinance any loans made under the Bridge Facilities.

OPINION OF THE COMPANY’S FINANCIAL ADVISOR

On January 17, 2006, Goldman Sachs rendered its oral opinion, subsequently confirmed by delivery of its written opinion, dated January 18, 2006, to the Board of Directors that, as of the date of its opinion and based upon and subject to the factors and assumptions set forth in the opinion, the $45.50 per share in cash to be received by the holders of the outstanding shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to those holders.

The full text of the written opinion of Goldman Sachs, dated January 18, 2006, which sets forth the assumptions made, procedures followed, matters considered, and limitations on the review undertaken in connection with the opinion, is attached as Appendix C to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Merger. Goldman Sachs’ opinion is not a recommendation as to how any holder of Company common stock should vote with respect to the Merger.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

•

the Merger Agreement;

•

annual reports to stockholders and Annual Reports on Form 10-K of the Company for the five fiscal years ended May 28, 2005;

•

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company;

•

certain other communications from the Company to its stockholders; and

•

certain internal financial analyses and forecasts for the Company prepared by its management.

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company.

In addition, Goldman Sachs:

•

reviewed the reported price and trading activity for Company common stock;

•

compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded;

•

reviewed the financial terms of certain recent business combinations in the retail industry specifically and in other industries generally; and

•

performed such other studies and analyses, and considered such other factors, as Goldman Sachs considered appropriate.

Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering its opinion. In that regard, Goldman Sachs assumed, with the consent of the Board of Directors, that the internal financial forecasts prepared by the management of the Company were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance sheet assets and liabilities) of the Company or any of its subsidiaries and Goldman Sachs was not furnished with any such evaluation or appraisal. Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the Merger.

The following is a summary of the material financial analyses presented by Goldman Sachs to the Board of Directors in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs. The order of analyses described does not represent the relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 17, 2006, and is not necessarily indicative of current market conditions.

Historical Premium Analysis

Goldman Sachs calculated the implied premia represented by the $45.50 per share purchase price to be received by the holders of Company common stock pursuant to the Merger Agreement based on the following trading prices for Company common stock:

•

the closing price on January 13, 2006, the latest practicable trading day before Goldman Sachs made its presentation of its financial analyses to the Board of Directors;

•

the trading price prior to the Company’s announcement on June 27, 2005 that the Board of Directors was considering possible strategic alternatives for the Company to enhance stockholder value;

•

the closing price on May 20, 2005, the last trading day prior to an unexplained increase in trading volume of Company common stock; and

•

the average of closing prices for the one year period ended May 20, 2005.

The results of Goldman Sachs’ calculations are reflected below:


	Stock Price or Average of Closing Prices		Implied Premium
January 13, 2006	$	44.14	3.1	%
Pre-June 27, 2005 announcement	$	36.04	26.2	%
May 20, 2005	$	29.92	52.1	%
One year ended May 20, 2005	$	23.16	96.5	%

Implied Transaction Multiples Analysis

Goldman Sachs calculated and compared various implied transaction multiples based on the fully diluted equity consideration to be received by the holders of the outstanding shares of Company common stock, giving effect to stock options that are or would become exercisable based on the Merger Agreement, or equity value, and the enterprise value of the Company, which is equity value, plus book value of net debt (which is total debt and estimated transaction expenses less cash and cash equivalents). Goldman Sachs calculated equity value, enterprise value and the various multiples referred to below based on the Company’s latest publicly available information for historical results and projections prepared by the Company’s management for estimated future results. The following multiples were calculated for the Company:

•

enterprise value as a multiple of net sales and earnings before interest, taxes, depreciation and amortization, or EBITDA;

•

adjusted enterprise value, which is the enterprise value of the Company adjusted to include capitalized operating lease obligations, as a multiple of earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR; and

•

equity value as a multiple of net income.

Each of the multiples was calculated for the latest 12 months, or LTM, ended November 30, 2005 and for each of fiscal years 2006 and 2007. The following table sets forth the results of this analysis:


	Enterprise Value as a Multiple of		Adjusted Enterprise Value as a Multiple of EBITDAR	Equity Value as a Multiple of
	Net Sales	EBITDA	Adjusted Enterprise Value as a Multiple of EBITDAR	Net Income
LTM, November 30, 2005	0.6x	6.8x	7.2x	18.5x
FY 2006E	0.5x	6.8x	7.1x	18.7x
FY 2007E	0.5x	6.4x	6.6x	17.4x

Historical Trading Multiples Analysis

Goldman Sachs calculated and compared LTM EBITDA as a multiple of historical trading price for the Company against LTM EBITDA as a multiple of trading price for a composite average of two selected comparable companies, Ross Stores and TJX Companies, or the Average Comparable Multiple, over the five-year period between January 12, 2001 and January 12, 2006. Historical financial results utilized by Goldman Sachs for purposes of this analysis were based upon information provided by FactSet Research Systems (a data service that compiles historical and estimated financial data), or FactSet, and historical trading price information was based upon publicly available information. The results of this analysis indicated that the average value of the ratio of the Company’s LTM EBITDA as a multiple of trading price to the Average Comparable Multiple during the five-year period was 0.55.

Goldman Sachs also calculated and compared the ratio of the trading price per share to estimated earnings per share for the next company fiscal year, or the One Year Forward P/E Multiple, for the Company to the One Year Forward P/E Multiple for a composite average of two selected comparable companies, Ross Stores and TJX Companies, or the Average Comparable One Year Forward P/E Multiple, over the five-year period between January 12, 2001 and January 12, 2006. Historical financial results utilized by Goldman Sachs for purposes of this analysis were based upon information provided by FactSet, estimates of one year forward earnings were based on median estimates provided by FactSet and historical trading price information was based upon publicly available information. The results of this analysis indicated that the average value of the Company’s One Year Forward P/E Multiple to the Average Comparable One Year Forward P/E Multiple during the five-year period was 0.75.

Selected Companies Analysis

Goldman Sachs compared selected publicly available financial information, ratios and multiples for the Company and the following selected publicly traded retail companies, certain of which companies were designated “Off-Price” retailers because these companies generally sell branded merchandise at prices significantly below full retail prices, others of which were designated “Mass Market” retailers because these companies maintain larger footprint retail locations in which they sell a broad range of hardlines and softlines merchandise typically at reduced prices and others of which were designated “Department Stores” because these companies sell a broad range of apparel for men, women and children in a larger-footprint format.

Off-Price Retailers

•

Retail Ventures, Inc.

•

Ross Stores, Inc.

•

Stein Mart, Inc.

•

The TJX Companies, Inc.

Mass-Market Retailers

•

J.C. Penney Corporation, Inc.

•

Kohl’s Corporation

•

Sears Holdings Corp.

Department Stores

•

The Bon-Ton Stores, Inc.

•

Dillard’s, Inc.

•

Federated Department Stores, Inc.

•

Gottschalks Inc.

Although none of the selected companies are directly comparable to the Company, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of the Company.

Goldman Sachs calculated and compared various public market multiples and ratios of the selected companies based on information it obtained from SEC filings and median estimates provided by the Institutional Brokerage Estimate System (a data service that compiles estimates issued by securities analysts), or IBES. Historical financial results utilized by Goldman Sachs for purposes of this analysis were based upon information contained in the applicable company’s latest publicly available financial statements prior to January 13, 2006. The LTM period for this analysis refers to the LTM period from the most recent publicly available information for the Company and the selected companies as of January 13, 2006. Estimates of future results used by Goldman Sachs in this analysis, for the selected companies and the Company, were based on median estimates provided by IBES and calendarized to year-end December 31. With respect to the Company and the selected companies, Goldman Sachs calculated:

•

the enterprise value, which is equity market capitalization for each company, calculated using the per share closing trading price as of January 13, 2006 and fully diluted shares outstanding based on each company’s latest publicly available information, plus book value of net debt, which is total debt less cash and cash equivalents, as a multiple of LTM sales, LTM EBITDA, estimated 2006 and 2007 EBITDA, LTM EBITDAR and LTM earnings before interest and taxes, or EBIT;

•

the ratio of the price per share to the estimated 2006 and 2007 earnings per share, or P/E multiple;

•

the ratio of the estimated 2006 P/E multiple to the five-year earnings per share estimated compound annual growth rate, or CAGR;

•

LTM EBITDA and EBIT margins, calculated by dividing each company’s LTM EBITDA and EBIT by its LTM sales; and

•

the dividend yield as of January 13, 2006.

The results of these analyses are summarized in the following tables:

Enterprise Value Multiples

Calendarized
P/E Multiples

Sales
LTM

EBITDA

EBITDAR
LTM

EBIT
LTM

2006E

2007E

LTM

2006E

2007E

Off-Price Retailers

Retail Ventures, Inc.

0.3x

20.1x

5.3x

5.0x

10.3x

N.A.

50.4x

36.6x

Ross Stores, Inc.

0.9x

11.0x

8.8x

7.9x

10.0x

15.0x

17.9x

14.7x

Stein Mart, Inc.

0.5x

6.9x

6.0x

5.2x

7.3x

8.4x

13.4x

11.4x

The TJX Companies, Inc.

0.8x

9.2x

8.2x

7.3x

8.8x

11.8x

16.0x

13.7x

High

0.9x

20.1x

8.8x

7.9x

10.3x

15.0x

50.4x

36.6x

Mean

0.6x

11.8x

7.1x

6.3x

9.1x

11.7x

24.4x

19.1x

Median

0.6x

10.1x

7.1x

6.2x

9.4x

11.8x

16.9x

14.2x

Low

0.3x

6.9x

5.3x

5.0x

7.3x

8.4x

13.4x

11.4x

Enterprise Value Multiples

Calendarized
P/E Multiples

Sales
LTM

LTM

EBITDA

2006E

2007E

EBITDAR
LTM

EBIT
LTM

2006E

2007E

Mass-Market Retailers

J.C. Penney Corporation

0.8x

7.8x

7.1x

6.4x

7.8x

9.8x

14.0x

12.4x

Kohl’s Corporation

1.3x

10.2x

8.6x

7.2x

9.9x

12.7x

16.3x

13.8x

Sears Holding Corp.

0.5x

7.1x

7.4x

6.7x

N.A.

9.5x

17.0x

12.6x

High

1.3x

10.2x

8.6x

7.2x

9.9x

12.7x

17.0x

13.8x

Mean

0.9x

8.4x

7.7x

6.7x

8.9x

10.6x

15.8x

13.0x

Median

0.8x

7.8x

7.4x

6.7x

8.9x

9.8x

16.3x

12.6x

Low

0.5x

7.1x

6.4x

7.8x

9.5x

14.0x

12.4x

Department Stores

The Bon-Ton Stores, Inc.

0.4x

9.9x

N.A.

22.3x

N.A.

Dillard’s, Inc.

0.5x

6.3x

6.5x

6.1x

6.4x

14.2x

20.0x

19.1x

Federated Department Stores, Inc.

1.0x

8.0x

8.3x

7.4x

8.0x

12.5x

15.1x

11.3x

Gottschalk’s, Inc.

0.2x

4.2x

N.A.

6.0x

7.5x

12.4x

12.1x

High

1.0x

9.9x

8.3x

7.4x

8.0x

22.3x

20.0x

19.1x

Mean

0.5x

7.1x

7.4x

6.8x

14.1x

15.8x

14.2x

Median

0.4x

7.2x

7.4x

6.8x

6.4x

13.4x

15.1x

12.1x

Low

0.2x

4.2x

6.5x

6.1x

6.0x

7.5x

12.4x

11.3x

Burlington Coat Factory Warehouse Corporation

0.5x

6.5x

6.3x

5.5x

7.0x

9.6x

15.6x

14.0x


	2007 PE/ 5-Year EPS CAGR	LTM Margins		Dividend Yield
	2007 PE/ 5-Year EPS CAGR	EBITDA	EBIT	Dividend Yield
Off-Price Retailers
Retail Ventures, Inc.	N.A.	1.3%	(0.8)%	0.0%
Ross Stores, Inc.	1.0x	8.5%	6.2%	0.8%
Stein Mart, Inc.	0.7x	6.8%	5.6%	1.4%
The TJX Companies, Inc.	1.0x	8.8%	6.8%	1.0%
High	1.0x	8.8%	6.8%	1.4%
Mean	0.9x	6.3%	4.5%	0.8%
Median	1.0x	7.6%	5.9%	0.9%
Low	0.7x	1.3%	(0.8)%	0.0%
Mass-Market Retailers
J.C. Penney Corporation	0.8x	10.1%	8.1%	0.9%
Kohl’s Corporation	0.8x	13.2%	10.6%	0.0%
Sears Holding Corp.	1.3x	7.1%	5.3%	0.0%
High	1.3x	13.2%	10.6%	0.9%
Mean	1.0x	10.1%	8.0%	0.3%
Median	0.8x	10.1%	8.1%	0.0%
Low	0.8x	7.1%	5.3%	0.0%


	2007 PE/ 5-Year EPS CAGR	LTM Margins		Dividend Yield
	2007 PE/ 5-Year EPS CAGR	EBITDA	EBIT	Dividend Yield
Department Stores
The Bon-Ton Stores, Inc.	N.A.	4.0%	1.8%	0.5%
Dillard’s, Inc.	3.5x	7.4%	3.3%	0.6%
Federated Department Stores, Inc.	1.0x	12.9%	8.3%	1.3%
Gottschalk’s, Inc.	N.A.	4.4%	2.5%	0.0%
High	3.5x	12.9%	8.3%	1.3%
Mean	2.2x	7.2%	4.0%	0.6%
Median	2.2x	5.9%	2.9%	0.5%
Low	1.0x	4.0%	1.8%	0.0%
Burlington Coat Factory Warehouse Corporation	1.4x	8.3%	5.6%	0.1%

Selected Transactions Analysis

Goldman Sachs reviewed available information for the following announced merger or acquisition transactions in the U.S. involving companies in the retail industry, with certain of these companies being

classified as “General Department Stores” because of the generally lower to moderate price points at which these companies sell their merchandise and certain other of these companies being classified as “High-End Department Stores” because of the higher typical price points at which these companies sell their merchandise. While none of the companies participating in the selected transactions are directly comparable to the Company, the companies participating in the selected transactions are publicly traded companies with operations that, for purposes of analysis, may be considered similar to certain operations of the Company. These transactions (listed by acquirer/target and month and year announced) included:

General Department Stores

•

Apollo Management & Silver Point Capital/Linens ‘N Things, Inc. (November 2005)

•

Maple Leaf Heritage Investments (Hostile Bid)/Hudson’s Bay Company (October 2005)

•

Prentice Capital Management & GMM Capital/Goody’s Family Clothing, Inc. (October 2005)

•

Sun Capital Partners /Shopko Stores, Inc. (October 2005)

•

Trimaran Capital & Kier Group/Fortunoff Fine Jewelry & Silverware, Inc. (November 2004)

•

K-Mart Holding Corp./Sears, Roebuck & Co. (November 2004)

•

Investor Group/Mervyn’s LLC (July 2004)

High-End Department Stores

•

The Bon-Ton Stores, Inc./Northern Department Store Group (Saks Incorporated) (October 2005)

•

Warburg Pincus & Texas Pacific Group/The Neiman Marcus Group, Inc. (May 2005)

•

Belk, Inc./Profitt’s & McRae’s (Saks Incorporated) (April 2005)

•

Federated Department Stores, Inc./The May Department Stores Company (February 2005)

•

Jones Apparel Group, Inc./Barney’s New York, Inc. (November 2004)

•

The May Department Stores Company/Marshall Field’s (Target Corporation) (June 2004)

•

The May Department Stores Company / Saks Incorporated (9 stores) (January 2001)

Goldman Sachs calculated and compared the transaction value as a multiple of the target company’s publicly reported LTM sales, LTM EBITDA and LTM EBITDAR prior to announcement of the applicable transaction. For purposes of this analysis, the transaction value of each target company was calculated by adding the announced transaction price for the equity of the target company to the book value of the company’s net debt as disclosed in the company’s most recent SEC filings prior to the announcement of the applicable transaction. Goldman Sachs also calculated and compared the EBITDA margin, which is LTM EBITDA divided by LTM sales, for each of the selected target companies. The following table sets forth the results of this analysis:


	Transaction Value as a Multiple of
	LTM Sales		LTM EBITDA		EBITDAR		EBITDA Margin
*General Department Stores*
Apollo Management & Silver Point Capital/ Linens ‘N Things, Inc.	0.5	x	8.7	x	8.3	x	5.6	%
Maple Leaf Heritage Investments (Hostile Bid)/ Hudson’s Bay Company	0.2	x	5.5	x	6.7	x	4.2	%
Prentice Capital Management & GMM Capital/ Goody’s Family Clothing, Inc.	0.2	x	9.6	x	8.4	x	2.0	%
Sun Capital Partners/ ShopKo Stores, Inc.	0.4	x	5.9	x	6.1	x	6.2	%
Trimaran Capital & Kier Group/ Fortunoff Fine Jewelry & Silverware, Inc.	0.5	x	6.5	x	6.5	x	7.7	%
K-Mart Holding Corp./ Sears Roebuck & Co.	0.4	x	7.5	x	7.6	x	5.5	%
Investor Group/ Mervyn’s LLC	0.5	x	5.9	x	6.1	x	7.9	%
Mean	0.4	x	7.1	x	7.1	x	5.6	%
Median	0.4	x	6.5	x	6.7	x	5.6	%
High	0.5	x	9.6	x	8.4	x	7.9	%
Low	0.2	x	5.5	x	6.1	x	2.0	%


	Transaction Value as a Multiple of
	LTM Sales		LTM EBITDA		EBITDAR		EBITDA Margin
*High-End Department Stores*
The Bon-Ton Stores, Inc./ Northern Department Stores Group (Saks Incorporated)	0.5	x	N.A.		N.A.		N.A.
Warburg Pincus & Texas Pacific Group/ The Neiman Marcus Group, Inc.	1.4	x	10.3	x	10.0	x	13.6	%
Belk, Inc./ Proffitt’s & McRae’s (Saks Incorporated)	0.9	x	N.A.		N.A.		N.A.
Federated Department Stores, Inc./ The May Department Stores Company	1.1	x	8.6	x	8.5	x	12.6	%
Jones Apparel Group/ Barney’s New York, Inc.	0.8	x	7.3	x	7.5	x	11.2	%
The May Department Stores Company/ Marshall Field’s	1.2	x	14.4	x	14.4	x	8.6	%
The May Department Stores Company/ Saks Incorporated (9 Stores)	1.5	x	N.A.		N.A.		N.A.
Mean	1.1	x	10.1	x	10.1	x	11.5	%
Median	1.1	x	9.4	x	9.3	x	11.9	%
High	1.5	x	14.4	x	14.4	x	13.6	%
Low	0.5	x	7.3	x	7.5	x	8.6	%

Discounted Cash Flow Analysis

Goldman Sachs performed an illustrative discounted cash flow analysis to determine a range of implied present values per share of Company common stock. All cash flows were discounted to the end of February 2006 and terminal values were based upon estimated fiscal year 2010 EBITDA multiples. Forecasted financial information used in this analysis was based on projections provided by the management of the Company, which consisted of a higher growth case and a lower growth case. The differentials between the higher growth case and the lower growth case were based on different rates for annual same store sales growth. Goldman Sachs used discount rates ranging from 8.5% to 10.5%, reflecting estimates of the weighted average cost of capital of the Company, forecasts of the Company’s EBITDA through December 31, 2010 provided by the Company’s management and terminal EBITDA multiples ranging from 4.5x to 6.5x. This analysis resulted in a range of implied present values of $38.92 to $53.29 per share of Company common stock under the higher growth case and a range of implied present values of $34.06 to $46.43 per share of Company common stock under the lower growth case. The results of these analyses were as follows:

Higher Growth Case