As filed with the Securities and Exchange Commission on December 23 , 1997
REGISTRATION NO. 333-41629
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KASPER A.S.L., LTD.
(Exact name of registrant as specified in its charter)
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DELAWARE 2337 22-3497645
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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77 METRO WAY
SECAUCUS, NEW JERSEY 07094
TEL: (201) 864-0328
FAX: (201) 864-7768
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
MR. LESTER E. SCHREIBER
77 METRO WAY
SECAUCUS, NEW JERSEY 07094
TEL: (201) 864-0328
FAX: (201) 864-7768
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-------------------------
COPIES TO:
MARK ABRAMOWITZ, ESQ.
MARK S. HIRSCH, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
TEL.: (212) 704-6000
FAX: (212) 704-6288
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SECURITY PRICE REGISTRATION FEE
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Common Stock 1,350,131 $13.125(1) $17,720,469 $5,227.54
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Senior Notes
(Face Amount) $12,141,438 106%(1) $12,869,924 $3,796.63
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Total $9,024.17*
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(1) Estimated pursuant to Rules 457(c) and 457(o) solely for the purpose of
computing the amount of the registration fee. The fee for the Common Stock
was based on the average of the bid ($13) and asked price ($13.25) of the
Common Stock on the over-the-counter market on December 1, 1997. The fee
for the Senior Notes was based on the average of the bid ($106) and asked
price ($106) of the Senior Notes on the over-the-counter market on December
1, 1997.
* Filing fee has been previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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KASPER A.S.L., LTD.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
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ITEM NUMBER AND CAPTION OF FORM S-1 LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.......................... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.............................................. Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges............................... Prospectus Summary; Risk Factors
4. Use of Proceeds......................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......................... Not Applicable
6. Dilution................................................ Not Applicable
7. Selling Security Holders................................ Outside Front Cover Page of Prospectus;
Principal Stockholders; Selling
Stockholders and Plan of Distribution.
8. Plan of Distribution.................................... Selling Stockholders and Plan of
Distribution.
9. Description of Securities to be Registered.............. Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Capital Stock.
10. Interests of Named Experts and Counsel.................. Legal Matters; Experts
11. Information with respect to the Registrant.............. Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Non-
Comparability of Historical Financial
Statements; Use of Proceeds; Dividend
Policy; Capitalization; Selected
Consolidated/Combined Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Stockholders; Selling
Stockholders and Plan of Distribution;
Certain Transactions; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.......... Not Applicable
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
================================================================================
SUBJECT TO COMPLETION, DATED DECEMBER __, 1997
PROSPECTUS
-------------------------
Kasper A.S.L., Ltd.
1,350,131 Shares of Common Stock
and
$12,141,438 Principal Amount of 12.75% Senior Notes
This Prospectus relates to the resale by certain stockholders of Kasper
A.S.L., Ltd., a Delaware corporation (the "Company"), of (i) up to 1,350,131
shares of Common Stock, par value $0.01 per share, of the Company; and (ii)
$12,141,438 principal amount of 12.75% Senior Note (the "Senior Notes") issued
to certain creditors of the Company's predecessor under a reorganization plan.
See "Business - Reorganization of Leslie Fay." The Common Stock and the Senior
Notes are sometimes referred to herein as the "Securities."
The Securities may be offered from time to time by the Selling
Shareholders in the over-the-counter market, in negotiated transactions or
otherwise, at market prices then prevailing at the time of sale or at negotiated
prices.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS " BEGINNING ON PAGE 5 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1997
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Except for the historical information contained herein, matters discussed or
incorporated by reference in this Prospectus are forward-looking statements that
involve risks and uncertainties. These forward-looking statements include, but
are not limited to, statements about (i) improvements in the markets served by
the Company; and (ii) the consummation of contracts and other transactions
described herein. The Company's actual results, financial and otherwise, could
differ materially from such forward-looking statements because of, among other
things, factors discussed in the section entitled "Risk Factors" as well as
those discussed in this summary and elsewhere in this Prospectus.
THE COMPANY
Kasper A.S.L., Ltd., a Delaware corporation (the "Company"), is one of
the largest manufacturers and marketers of women's suits in the United States.
The Company designs, contracts for the manufacture of, markets and distributes
women's suits, dresses, knitwear and sportswear. From its established position
in the "upper moderate" suit market, under its Kasper for ASL(R) brand name, the
Company has diversified into the lower price point "moderate" suit market under
its Le Suit(TM) brand name and to a lesser extent, the higher price point
"bridge" and designer women's suit markets under its Albert Nipon(R) and
Nipon(R) brand names. The Company markets and distributes its products under
eight different brands: (i) Kasper for ASL(R) suit, the leading brand name in
"upper moderate" women's suits; (ii) Le Suit(TM), a line of suits introduced to
create a less expensive alternative to Kasper for ASL(R) suits; (iii) Albert
Nipon Suits(R), a line of suits designed and marketed to compete in the bridge
area of the market; (iv) Albert Nipon Evening(TM), a line of beaded and sequined
evening suits; (v) Kasper for ASL(R) dresses, a line of "better" career dresses;
(vi) Kasper and Company(R) ASL Sportswear, a line of sportswear under the Kasper
brand name priced between the moderate and better markets; (vii) Nina
Charles(TM), a better priced knitwear line comprised of two distinct product
classifications: better knit dresses and better knit sportswear/separates; and
(viii) b. bennett(TM), a line of suits catering to the younger woman seeking an
updated look.
The Company also designs and manufactures suits for sale under private
labels for various department stores. Management believes the Company's primary
strengths are the quality, styling, value and brand name recognition of its
products. The Company's products are sold to approximately 1,400 retail accounts
having approximately 2,000 retail locations throughout the United States and
through the Company's chain of 45 retail outlet stores.
The Company was incorporated in Delaware on March 5, 1997 under the
name Sassco Fashions, Ltd. in connection with the June 4, 1997 reorganization
(the "Reorganization") of the Leslie Fay Companies, Inc. ("Leslie Fay"), the
Company's former parent. The Company changed its name from Sassco Fashions, Ltd.
to Kasper A.S.L., Ltd. on November 5, 1997. As a result of the Reorganization,
the Company emerged from bankruptcy as a separate stand-alone corporation with
its own financing sources. Pursuant to the Amended Joint Plan of Reorganization
(the "Reorganization Plan") approved by the U.S. Bankruptcy Court on April 29,
1997, the former creditors of Leslie Fay received 6,800,000 shares of Common
Stock of the Company and 12.75% Senior Notes in the aggregate principal amount
of $110,000,000. See "Business - Reorganization of Leslie Fay." The Company also
issued options ("Management Options") to certain members of management to
purchase 1,753,459 shares of Common Stock, which upon issuance will represent
approximately 20.5% of the Company's outstanding Common Stock. The Company also
issued options to purchase 100,000 shares of Common Stock to its current
non-employee directors. See "Management."
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The Company is based in Secaucus, New Jersey and has sales, production
and design offices in New York City, Dallas, London and Montreal and a buying
office in Hong Kong. The Company's executive office is located at 77 Metro Way,
Secaucus, New Jersey 07094, Tel: (201) 864-0328.
Kasper(R), Kasper for ASL(R), Kasper II(R), Kasper for ASL Petite(R),
Kasper and Company(R), Kasper and Company Petite(R), Kasper Dress(R), Kasper
Dress Petite(R), Albert Nipon(R), Nipon Boutique(R), Executive Dress by Albert
Nipon(R), Nipon Night(R), Albert Nipon Suits(R) and Nipon Studio(R) are
registered trademarks of the Company. Le Suit(TM), b. bennett(TM), Nina
Charles(TM) and Albert Nipon Evening(TM) are non-registered tradenames used by
the Company. See "Business--Trademarks". This Prospectus also includes
trademarks, tradenames and service marks of other companies.
In this Prospectus, unless the context otherwise requires, all
references to the "Company" are to Kasper A.S.L., Ltd., a Delaware corporation,
and its wholly owned subsidiaries ASL/K Licensing Corp., ASL Retail Outlets,
Inc. and Sassco Europe Ltd., each a Delaware corporation, and Asia Expert, Ltd.,
Viewmon Ltd. and Tomwell Ltd., each a Hong Kong corporation.
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THE OFFERING
Securities offered by the
Selling Shareholders................ 1,350,131 shares of Common Stock and
12.75% Senior Notes in the aggregate
principal amount of $12,141,438. See
"Description of Capital Stock."
Terms of Senior Notes................ The Senior Notes bear interest at an
annual rate of 12.75%, payable
semi-annually in arrears, and mature on
March 31, 2004. The Senior Notes may be
redeemed starting January 1, 2000 at the
Company's option, in whole or in part, at
a prepayment premium. The Senior Notes
are unsecured obligations of the Company
and rank PARI PASSU with the Company's
other permitted unsecured indebtedness.
See "Description of Capital Stock -
Senior Notes."
Common Stock outstanding
prior to this offering.......... 6,800,000 shares
after this offering ............ 6,800,000 shares (1)
Use of proceeds...................... The Company will not receive any proceeds
from the sale of the Securities subject
of this Prospectus. See "Use of
Proceeds".
Risk Factors......................... An investment in the securities offered
hereby involves a high degree of risk.
Prospective investors should carefully
consider the matters set forth herein
under the caption "Risk Factors".
- --------------
(1) Does not include (i) 2,500,000 shares of Common Stock reserved for issuance
upon the exercise of options available for grant under the Company's 1997
Management Stock Option Plan, of which 1,753,459 options have been granted
as of the date hereof; and (ii) 100,000 shares reserved for issuance upon
the exercise of options granted to the Company's current non-employee
directors. See "Management."
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RISK FACTORS
An investment in the Securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this Prospectus, prospective investors should carefully consider
the following risk factors before purchasing the Securities offered hereby.
INDUSTRY RISKS
- --------------
APPAREL RETAILING; CHANGES IN THE RETAIL INDUSTRY
The apparel industry is a cyclical industry, with purchases of apparel
and related goods tending to decline during recessionary periods when disposable
income is low. In addition, the Company, like many of its competitors, sells to
major retailers, some of whom have engaged in leveraged buyouts or transactions
in which such retailers incurred significant amounts of debt, and some of whom
have in recent years operated under the protection of the federal bankruptcy
laws. In addition, the retail industry periodically has experienced
consolidation and other ownership changes. In the future, other retailers in the
United States and in foreign markets may consolidate, undergo restructurings or
reorganizations, or realign their affiliations, any of which would decrease the
number of stores that carry the Company's products or increase the ownership
concentration within the retail industry which could have a material adverse
effect on the Company's operations, business or financial condition.
FASHION TRENDS
The Company believes that its success depends in substantial part on
its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner. There can be no assurance that the Company
will continue to be successful in this regard. The Company attempts to reduce
the risks of changing fashion trends and product acceptance by holding positions
in its inventory in certain "fashion staple" piece goods to ensure an
uninterrupted supply of finished garments and piece goods inventory. If the
Company misjudges the market for its collections, it may be faced with a
significant amount of unsold finished goods inventory and piece goods inventory,
which could have an adverse effect on the Company's operations, business and
financial condition.
COMPETITION
Competition is strong in the areas of the fashion industry in which the
Company operates. Although the Company is a leader in the United States "upper
moderate" and "bridge" suit market, in the career dress and sportswear markets,
the Company competes with numerous designers and manufacturers of apparel and
accessory products, domestic and foreign, none of which accounts for a
substantially larger percentage of total industry sales than the others, but
some of which are significantly larger and have substantially greater resources
than the Company. The Company's business depends, in part, on its ability to
shape and stimulate consumer tastes and demands by producing innovative,
attractive, and exciting fashion products, as well its ability to remain
competitive in the areas of design, price and quality. No assurance can be given
that the Company will continue to compete favorably in the industries in which
it operates. Such failure or inability to compete could have a material adverse
effect on the Company's operations, business or financial condition. See
"Business--Competition."
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BUSINESS RISKS
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DEPENDENCE ON FOREIGN SUPPLIERS AND CONTRACTORS
The Company uses a variety of raw materials, principally consisting of
woven and knitted fabrics and yarns. Generally, the raw materials are purchased
by the Company directly from suppliers and sent to contractors to be cut and
sewn. The Company purchases the raw materials required for the production of its
products from more than 100 suppliers. Purchases from the Company's four major
suppliers of raw materials accounted for approximately 34%, 14.8%, 9.4%, and
4.3%, respectively, of the Company's total purchases of raw materials for 1996.
The Company's transactions with its suppliers are based on written instructions
issued by the Company from time to time and, except for these instructions, the
Company has no written agreements with its suppliers. Although the Company has
not experienced any difficulty in obtaining needed raw materials, the inability
of certain suppliers to provide needed items on a timely basis could materially
adversely affect the operations, business and financial condition of the
Company. See "Business -- Suppliers."
The Company does not own any significant production facilities. The
Company's apparel products are produced for the Company by approximately 40
different contractors. All of the Company's products are manufactured to its
exacting specifications outside of the United States. The Company schedules work
with its contractors so that each factory, or at least multiple floors of each
factory, are entirely dedicated to the Company's products, thereby ensuring
quality control. Purchases of finished goods from the Company's four major
contractors accounted for 25.4%, 14.6%, 11.7% and 10.6% of the Company's total
production during 1996. Although the Company does not have written agreements
with its contractors, it has had long-term relationships with many of them.
However, the termination of the Company's relationship with any one of its four
major contractors and any delays in finding a substitute contractor, could
result in delays in the Company's production plans and have a material adverse
effect on the Company's operations, business and financial condition. See
"Business--Manufacturing."
FOREIGN OPERATIONS; IMPORT RESTRICTIONS
During 1996, 98% of the Company's finished goods and approximately 80%
of the Company's direct purchases of raw materials for its products were
produced in Taiwan, the Philippines, Hong Kong and the Peoples' Republic of
China and other Asian countries, all through arrangements with independent
suppliers and contractors. As a result of the location of the Company's
suppliers and contractors, the Company's operations may be affected adversely by
political instability resulting in the disruption of trade from the countries in
which such suppliers and contractors operate, the imposition of additional
regulations relating to imports, the imposition of additional duties, taxes, and
other charges on imports, or restrictions on the transfer of funds. The
inability of a supplier or contractor to ship orders of the Company's products
in a timely manner could cause the Company to miss the delivery date
requirements of its customers for those items, which could result in
cancellation of orders, refusal to accept deliveries, or a reduction in sales
prices, thereby having a material adverse effect on the Company's operations,
business or financial condition. See "Business-- Manufacturing."
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Taiwan, South Korea, and Hong Kong. These agreements, which
have been negotiated bilaterally either under the Arrangement Regarding
International Trade in Textiles, known as the Multifiber Agreement, and other
applicable statutes, impose quotas on the amounts and types of merchandise which
may be imported into the United States from these countries. These agreements
also allow the United States to impose restraints at any time on the importation
of categories of merchandise that, under the terms of the agreements, are not
currently subject to specified limits. The Company's
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imported products are also subject to United States customs duties which
comprise a material portion of the cost of the merchandise. A substantial
increase in customs duties could have an adverse effect on the Company's
operating results. The United States and the countries in which the Company's
products are produced or sold may, from time to time, impose new quotas, duties,
tariffs, or other restrictions, or adversely adjust prevailing quota, duty, or
tariff levels, any of which could have a material adverse effect on the Company.
See "Business--Imports and Import Restrictions."
RISKS RELATING TO OPERATIONS IN CHINA
At present, a significant portion of the economic activity in China is
export-driven and, therefore, is affected by developments in the economies of
China's principal trading partners. The U.S. Congress considers annually the
renewal of China's current "Most Favored Nation" trading status and may attach
conditions to the renewal of such status which China may decline, or be unable,
to meet. In 1994, President Clinton announced delinkage of such status to
China's achievement of overall significant progress in the area of human rights.
Prior to this announcement, renewal of such status had been contingent on the
achievement of such progress. There can be no assurance that renewal of such
status in the future will not be linked to human rights issues or other
requirements or that, notwithstanding continuing presidential support for such
status, Congress for any reason in the future will not deny such status beyond
the President's ability to veto such denial. Revocation or conditional extension
by the United States of China's "Most Favored Nation" trading status could have
a material adverse effect on the trade and economic development of China and on
the operations, business or financial condition of the Company. See
"Business--Imports and Import Restrictions."
The Company's interests may be adversely affected by the political
environment in China. China is a socialist state which since 1949 has been, and
is expected to continue to be, controlled by the Communist Party of China.
Changes in the top political leadership of the Chinese government may have a
significant impact on policy and the political and economic environment in
China. Moreover, economic reforms and growth in China have been more successful
in certain provinces than in others, and the continuation or increase of such
disparities could affect political or social stability. See "Business--Imports
and Import Restrictions."
RISKS RELATING TO OPERATIONS IN HONG KONG
The Company has a buying office that conducts quality control,
sourcing, beading and embroidery and other activities in Hong Kong. Accordingly,
the Company may be materially adversely affected by factors affecting Hong
Kong's political situation and its economy or its international political and
economic relations. Sovereignty of Hong Kong reverted to China on July 1, 1997.
The 1984 Sino-British Joint Declaration, the 1990 Basic Law of Hong Kong, the
1992 United States-Hong Kong Policy Act and other agreements provide some
indication of the business climate the Company believes will exist in Hong Kong
after the change in sovereignty. As of July 1, 1997, Hong Kong became a Special
Administrative Region of China, with certain autonomies from the Chinese
government, including (i) being a separate customs territory from China with
separate tariff rates and export control procedures; and (ii) maintaining a
separate intellectual property registration system. All land leases in effect at
the time of the transfer of sovereignty will be extended for a period of 50
years, except for those leases without a renewal option expiring after June 30,
1997 and before June 30, 2047. Hong Kong will continue to be a member of the
World Trade Organization and the Hong Kong dollar will continue to be legal
tender freely convertible into Reminmbi and not subject to foreign exchange
controls. The Hong Kong government, as set up by China, will have sole
responsibility for tax policies, though the Chinese government must approve all
budgets. Notwithstanding the provisions of these international agreements, there
can be no assurance as to the continued stability of political, economic or
commercial conditions in Hong Kong. Changes affecting Hong Kong's political
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<PAGE>
situation and its economy or its international political and economic relations
may have a material adverse effect on the Company's operations, business or
financial condition.
SEASONALITY OF BUSINESS
The Company's business varies with general seasonal trends that are
characteristic of the apparel industry and it generally experiences higher net
revenues and net income in the first and third quarters of each fiscal year as
compared to the second and fourth quarters of each fiscal year. On a quarter to
quarter basis, the Company's operations may vary with production and shipping
schedules, the introduction of new products, and variations in the timing of
certain holidays from year to year.
The Company historically has experienced lower net revenues and
operating income in the second and fourth quarters than in other quarters due to
(i) lower demand among retail customers typical of the apparel industry, and
(ii) certain expenses that are constant throughout the year being relatively
higher as a percentage of net revenues.
ABILITY TO MANAGE GROWTH
As part of the Company's growth strategy, the Company plans to increase
sales by increasing the number of outlet stores through which its products are
sold. In addition, the Company's plan has been and continues to be to extend its
existing collections. There can be no assurance that certain of the Company's
collections or any new products or collections that it may add in the future
will achieve the same degree of success as that achieved by the Kasper ASL(R)
suit line, dress line and sportswear line, Albert Nipon(R), Le Suit(TM), and
Nina Charles(TM) collections of women's apparel or that such collections or
products will be profitable. The introduction of new collections and products
generally is characterized by relatively high start-up costs, as well as
production, distribution, and marketing inefficiencies associated with the
initial limited distribution of such collections and products. There can be no
assurance that any collection or product which the Company has or may introduce
will achieve sales levels sufficient to enable it to generate profits or
positive cash flow. Expansion of the Company's operations or of its collections
or products also could require capital beyond that provided by the Company's
cash flow or available credit facilities. There can be no assurance that such
capital will be available to the Company, or, if available, that it will be
available on terms the Company considers reasonable. The failure or inability of
the Company to obtain such capital on favorable terms could have a material
adverse effect on the Company's operations, business or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY CUSTOMERS
Certain of the Company's customers have accounted for significant
portions of the Company's net revenues. During 1996, Federated Department
Stores, May Merchandising Co. and Dillards Department Stores accounted for
approximately 18%, 15% and 11% of total sales respectively. A decision by one or
more of such substantial customers, whether motivated by fashion concerns,
financial difficulties, or otherwise, to decrease the amount of merchandise
purchased from the Company or to cease carrying the Company's products could
have a material adverse affect on the Company's operations, business and
financial condition.
DEPENDENCE UPON KEY PERSONNEL
The future success of the Company largely is dependent on the talents
and efforts of Mr. Arthur S. Levine, the Company's Chairman of the Board, as
well as on the talents and abilities of key members of the
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Company's design teams and other key management executives. The Company believes
that it has developed depth and experience within its design teams and
management; however, no assurance can be given that the Company's business would
not be adversely affected if certain key members of the Company's design teams
or management ceased to be active in the business of the Company. Mr. Levine is
also integral to the Company's marketing efforts. The Company has entered into a
five-year employment agreement dated June 4, 1997 with Mr. Levine but does not
maintain a key person life insurance policy on the life of Mr. Levine. The loss
of Mr. Levine could have a material adverse effect on the Company's operations,
business and financial condition. See "Management--Employment Agreements."
DEPENDENCE ON AND PROTECTION OF LICENSED INTELLECTUAL PROPERTY RIGHTS
The Company is the holder of several registered marks in the United
States, including Kasper(R), Kasper for ASL(R), Kasper II(R), Kasper for ASL
Petite(R), Kasper and Company(R), Kasper and Company Petite(R), Kasper Dress(R),
Kasper Dress Petite(R), Albert Nipon(R), Nipon Boutique(R), Executive Dress by
Albert Nipon(R), Nipon Night(R), Albert Nipon Suits(R) and Nipon Studio(R)
(collectively, the "Marks"). Le Suit(TM), b. bennett(TM), Nina Charles(TM) and
Albert Nipon Evening(TM) are non-registered tradenames used by the Company. The
Company believes its ability to market its products under the Marks is a
substantial factor in the success of the Company's products. The Company relies
primarily upon a combination of trademark, copyright, know-how, trade secrets,
and contractual restrictions to protect its intellectual property rights. The
Company believes that such measures afford only limited protection and,
accordingly, there can be no assurance that the actions taken by the Company to
establish and protect its trademarks, including the Marks, and other proprietary
rights will prevent imitation of its products or infringement of its
intellectual property rights by others, or prevent the loss of revenue or other
damages caused thereby. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or obtain and use information that the Company regards as proprietary
which could have a material adverse effect on the Company's operations, business
or financial condition. In addition, there can be no assurance that one or more
parties will not assert infringement claims against the Company; the cost of
responding to any such assertion could be significant, regardless of whether the
assertion is valid. See "Business -- Trademarks."
FINANCIAL RISKS
- ---------------
SUBSTANTIAL LEVERAGE
As of the date hereof, the Company has consolidated indebtedness that
is substantial in relation to its stockholders' equity. As of October 4, 1997,
the Company has total debt of approximately $122.7 million (excluding $27.1
million of trade payables and other accrued liabilities) and stockholders'
equity of approximately $124.4 million. The Company's leveraged financial
position poses substantial consequences to holders of Common Stock, including
the risks that (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of interest on such indebtedness,
(ii) the Company's leveraged position may impede its ability to obtain financing
in the future for working capital, capital expenditures and general corporate
purposes, and (iii) the Company's highly leveraged financial position may make
it more vulnerable to economic downturns and may limit its ability to withstand
competitive pressures. If the Company is unable to generate sufficient cash flow
from operations in the future to service its indebtedness and to meet its other
commitments, the Company will be required to adopt one or more alternatives,
such as refinancing or restructuring its indebtedness, selling material assets
or operations, or seeking to raise additional debt or equity capital. There can
be no assurance that any of these actions could be effected on satisfactory
terms, that they would enable the Company to continue to satisfy its capital
requirements or that they would be permitted by the terms of existing or future
debt agreements, including the terms and conditions of the Senior Notes and the
$100 million working
-9-
<PAGE>
capital facility with BankBoston as the agent bank for a consortium of lending
institutions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources".
DEBT COMPLIANCE
The Company is required to meet certain financial covenants under the
terms of the Company's $100 million revolving credit facility with its banks.
The agreement which provides that the banks are secured by all the assets of the
Company, also requires the maintenance of quarterly consolidated EBITDA
(earnings before interest, taxes, depreciation and amortization), a minimum Debt
Service Coverage Ratio (the ratio of consolidated operating cash flow to
consolidated total debt service), a semi-annual Inventory Coverage Ratio (the
ratio of inventory to accounts receivable), an annual limit on capital
expenditures, monthly maximum limitation on levels of piece goods inventory and
a monthly minimum excess availability under the revolving credit facility.
Should the Company be unable to meet any of these tests when required, it will
be necessary to request waivers and/or amendments of the facility from the
banks. There can be no assurance that the necessary waivers and/or amendments
will be granted or that if granted, they will be on terms acceptable or
favorable to the Company. There are no financial covenants under the terms of
the Senior Notes. However, they do provide for default in the event the Company
is not in compliance with its other loan agreements. The inability or failure of
the Company to obtain such necessary waivers or amendments when needed could
have a material adverse effect on the Company's operations, business or
financial condition.
EMERGENCE FROM CHAPTER 11
The Company emerged from Chapter 11 on June 4, 1997. The Company's
experience in Chapter 11 may affect its ability to negotiate favorable trade
terms with manufacturers and other vendors and to negotiate favorable lease
terms with landlords. The failure to obtain such favorable terms could have a
material adverse effect on the Company's operations, business or financial
condition.
STOCKHOLDER RISKS
- -----------------
ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
POSSIBLE VOLATILITY OF MARKET PRICE
Prior to this offering, there has not been an established market for
any of the Securities, and, although the Common Stock and the Senior Notes trade
in the over-the-counter market, there can be no assurance that an active trading
market will develop or be sustained. The Securities may be offered from time to
time by the Selling Shareholders in the over-the-counter market, in negotiated
transactions or otherwise, at market prices then prevailing at the time of sale
or at negotiated prices. The market price of the Securities may be subject to
significant fluctuations in response to variations in the Company's financial
position, operating results, developments concerning acquisitions, government
regulations, general trends in the industry and other factors.
SHARES ELIGIBLE FOR FUTURE SALE
The prevailing market price of Common Stock after this offering could
be adversely affected by future sales of substantial amounts of Common Stock by
existing shareholders. There will be 6,800,000 shares of Common Stock
outstanding immediately following this offering. Of which 6,774,984 will be
tradeable without restriction and 25,016 of which may be sold subject to the
restrictions of Rule 144 under the Securities Act of 1933 (the "Securities
Act"). The 25,016 shares of Common Stock owned by certain officers and directors
of the Company are "restricted securities" within the meaning of Rule 144 under
the Securities Act, and, together with
-10-
<PAGE>
any Shares which are purchased by affiliates of the Company, as the term is
defined in Rule 144, may be sold only by the respective holders thereof pursuant
to an effective registration statement under the Securities Act or in accordance
with one or more other exemptions under the Securities Act (including Rule 144).
Rule 144, as amended, permits sales of restricted securities by any person
(whether or not an affiliate) after one year, at which time sales can be made
subject to the Rule's existing volume and other limitations and by
non-affiliates without adhering to Rule 144's existing volume or other
limitations after two years. Future sales of substantial amounts of Shares in
the public market, or the perception that such sales could occur, could
adversely affect the price of the Shares in any market that may develop for the
trading of such shares. See "Shares Eligible for Future Sales."
POSSIBLE EFFECTS OF BLANK CHECK PREFERRED STOCK; ANTITAKEOVER
PROVISIONS
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the relative voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be used, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company and could prevent
stockholders from receiving a premium for their shares in the event of a third
party tender offer or change of control transaction. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. Additionally, if the
Company issues preferred stock, the issuance may have a dilutive effect upon the
holders of the Company's Common Stock, including the purchasers of the shares of
Common Stock offered hereby. In addition, the Company is subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with an "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
See "Description of Capital Stock - Section 203 of the Delaware General
Corporation Law."
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains provisions limiting
the liability of directors of the Company for monetary damages to the fullest
extent permissible under Delaware law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the name of the Company for breach of a director's duties to the Company or
its stockholders except in certain limited circumstances. In addition, the
Certificate of Incorporation contains provisions requiring the Company to
indemnify directors, officers, employees and agents of the Company serving at
the request of the Company against expenses, judgments (including derivative
actions), fines and amounts paid in settlement. This indemnification is limited
to actions taken in good faith in the reasonable belief that the conduct was
lawful and in or not opposed to the best interests of the Company. The
Certificate of Incorporation provides for the indemnification of directors and
officers in connection with civil, criminal, administrative or investigative
proceedings when acting in their capacities as agents for the Company. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors and officers and may discourage or deter stockholders or management
from suing directors or officers for breaches of their duties to the Company,
even though such an action, if successful, might otherwise benefit the Company
and its stockholders. See "Description of Capital Stock - Limitations on
Liability and Indemnification of Officers and Directors."
-11-
<PAGE>
NON-COMPARABILITY OF HISTORICAL FINANCIAL STATEMENTS
The Company's historical combined financial statements prior to the
date the Reorganization Plan was consummated, are not comparable to the
financial statements after such date as a result of the application of "fresh
start" reporting and, therefore, are not indicative of the Company's future
performance.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Securities subject to this Prospectus.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the growth of the
Company and repay outstanding debt. In addition, certain of the Company's
agreements with lending institutions limit the Company's ability to declare any
dividends for the duration of such agreements.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 4, 1997. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"and the
Financial Statements and the notes thereto, included elsewhere in this
Prospectus.
October 4, 1997
(in thousands)
Long-Term Debt:
12.75% Senior Notes in the aggregate principal
amount of $110,000,000 ....................... $110,000
Bank Revolving Credit Agreement ....................... 12,664
--------
Total Debt ............................................ 122,664
Stockholders' Equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized; no shares issued
and outstanding .............................. --
Common Stock, $0.01 par value;
20,000,000 shares authorized; 6,800,000 shares
issued and outstanding ....................... 68
Capital in excess of par value ................... 119,932
Cumulative translation adjustment ................ 38
Retained Earnings ................................. 4,314
--------
Total Stockholders' Equity ................... 124,352
--------
Total Capitalization ......................... $247,016
========
-12-
<PAGE>
SELECTED CONSOLIDATED/COMBINED FINANCIAL DATA
(in thousands, except share and per share data)
The following financial information is qualified by reference to, and
should be read in conjunction with, the Company's Consolidated/Combined
Financial Statements and Notes thereto, and "Managements's Discussion and
Analysis of Financial Condition and Results of Operations," contained elsewhere
in this Prospectus. The selected consolidated financial information for each of
the four years in the period ended December 28, 1996 is derived from the
Company's audited Divisional Combined Financial Statements for the fiscal years
ended January 1, 1994, December 31, 1994, December 30, 1995 and December 28,
1996 as described in Note (1) to the Selected Financial Data Table. The
financial information presented for the fiscal year ended January 2, 1993 is
unaudited. The selected consolidated/combined financial data for the periods
ended September 28, 1996, June 4, 1997 and October 4, 1997 is derived from
financial statements that are unaudited but which, in the opinion of management,
include all adjustments necessary for a fair presentation of the Company's
financial condition and results of operations.
-13-
<PAGE>
SELECTED CONSOLIDATED/COMBINED FINANCIAL DATA (1)
(in thousands, except per share data)
[TABLE 1 0F 2]
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: PREDECESSOR COMPANY (3)
----------------------------------------------------------------
FISCAL YEARS ENDED (2)
--------------------------------------------------------------
JAN. 2, JAN. 1, DEC. 31, DEC. 30, DEC. 28,
1993 1994 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)(1)
--------------
<S> <C> <C> <C> <C> <C>
Net sales ..........................................$229,322 $254,525 $250,748 $279,974 $311,550
Cost of Goods Sold ................................. 158,105 182,381 180,192 207,161 238,268
Gross profit ....................................... 71,217 72,144 70,556 72,813 73,282
Selling, general and administrative expenses (1) ... 39,636 39,776 42,010 49,604 50,263
Income before interest, taxes, depreciation and
amortization ....................................... 31,581 32,368 28,546 23,209 23,019
Amortization of reorganization asset (5) ........... -- -- -- -- --
Depreciation and amortization (6) .................. 1,155 1,318 1,486 2,033 2,238
Interest and financing costs ....................... 450 450 450 525 1,634
Income before taxes ................................ 29,976 30,600 26,610 20,651 19,147
Provision for income taxes (7) ..................... 11,990 12,240 10,644 8,260 7,659
-------- -------- -------- -------- --------
Net income .........................................$ 17,986 $ 18,360 $ 15,966 $ 12,391 $ 11,488
======== ======== ======== ======== ========
Net income per share (8) ........................... -- -- -- -- --
Weighted average number of shares outstanding (8) .. -- -- -- -- --
BALANCE SHEET DATA:
AS OF
--------
JAN. 2, JAN. 1, DEC. 31, DEC. 30, DEC. 28,
1993 1994 1994 1995 1996
-------- -------- -------- -------- --------
Working Capital ....................................$ 83,737 $ 74,829 $ 87,428 $109,671 $127,900
Reorganization value in excess of identifiable
assets ........................................... -- -- -- -- --
Total Assets ....................................... 122,951 115,086 127,931 162,109 172,881
Long-term Debt (9) ................................. -- -- -- -- --
Stockholders' Equity (9) ...........................$107,255 $ 97,259 $109,563 $135,601 $157,204
</TABLE>
[TABLE 2 0F 2]
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: |REORGANIZED |
|COMPANY (3) | PRO FORMA
---------------------- |-------------|-----------
| | COMBINED
NINE MONTHS FIVE MONTHS|FOUR MONTHS |NINE MONTHS
ENDED ENDED | ENDED | ENDED (4)
SEPT. 28, JUNE 4, | OCT. 4, | OCT. 4,
1996 1997 | 1997 | 1997
---------- ---------- |---------- |----------
(UNAUDITED) |(UNAUDITED) |(UNAUDITED)
----------------------- |----------- |-----------
<S> <C> <C> <C> <C>
Net sales ............................................ $ 247,630 $ 136,107| $ 120,659 | $ 256,766
Cost of Goods Sold ................................... 185,577 101,479| 86,685 | 188,164
Gross profit ......................................... 62,053 34,628| 33,974 | 68,602
Selling, general and administrative expenses (1) ..... 38,145 23,374| 18,005 | 41,379
Income before interest, taxes, depreciation and | |
amortization ......................................... 23,908 11,254| 15,969 | 27,223
Amortization of reorganization asset (5) ............. -- -- | 1,198 | 1,198
Depreciation and amortization (6) .................... 1,629 1,191| 1,464 | 2,655
Interest and financing costs ......................... 1,645 667| 5,462 | 6,129
Income before taxes .................................. 20,634 9,396| 7,845 | 17,241
Provision for income taxes (7) ....................... 8,253 3,758| 3,531 | 7,289
---------- ----------| ---------- | ----------
Net income ........................................... $ 12,381 $ 5,638| $ 4,314 | $ 9,952
========== ==========| ========== | ==========
Net income per share (8) ............................. -- -- | | $ 0.63
Weighted average number of shares outstanding (8) .... -- -- | 6,800,000 |
| | ==========
| |
BALANCE SHEET DATA: | |
| |
SEPT. 28, JUNE 4, | OCT. 4, |
1996 1997 | 1997 |
---------- ----------| ---------- |
Working Capital ...................................... $ 156,665 $ 101,264| $ 115,151 |
Reorganization value in excess of identifiable
assets ............................................. -- -- | 65,112 |
Total Assets ......................................... 204,503 147,050| 274,124 |
Long-term Debt (9) ................................... -- -- | 122,664 |
Stockholders' Equity (9) ............................. $ 183,094 $ 132,363| $ 124,352 |
</TABLE>
-14-
<PAGE>
(1) The Selected Consolidated/Combined Financial Data presented above has been
prepared to show the Company as a free standing entity apart from Leslie
Fay. Due to the accounting irregularities that resulted in misstatements of
the Leslie Fay financial statements, financial data for the fiscal year
ended January 2, 1993 represents restated and unaudited data. Until 1996,
the Company was totally dependent upon Leslie Fay for all administrative
support, including accounting, credit, collections and legal support. As
such, the financial statements reflect an allocation of Leslie Fay's
administrative expenses to the Company.
(2) The change in the fiscal year-end from year to year is based on the
Company's internal policy to close the fiscal year-end on the Saturday
closest to December 31 of each year. As such, data for the fiscal year
ended January 2, 1993, January 1, 1994, December 31, 1994, December 30,
1995 and December 28, 1996 include the Company's results of operations for
53, 52, 52, 52 and 52 weeks, respectively.
(3) The Company has accounted for the reorganization using the principles of
"fresh start" reporting as required by AICPA Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
("SOP 90-7"). Pursuant to such principles, in general, the Company's assets
and liabilities were revalued. Therefore, due to the restructuring and
implementation of "fresh start" reporting, the consolidated financial
statements for the reorganized company (starting June 4, 1997) are not
comparable to the combined financial statements of the predecessor company.
(4) Provided solely for convenience of the reader in reviewing "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Results reflect the combination of historical results for the five months
ended June 4, 1997 for the predecessor company and for the four months
ended October 4, 1997 for the reorganized company. As such, this
information, as presented, does not comply with generally accepted
accounting principles applicable to companies upon emergence from
bankruptcy which calls for separate reporting for the reorganized company
and the predecessor company.
(5) For "fresh start" reporting purposes, any portion of the Company's
reorganization value not attributable to specific identifiable assets is
reported as "reorganization value in excess of identifiable assets." This
asset is being amortized over a 20 year period beginning June 4, 1997.
(6) Included in Depreciation and Amortization for the four month period ended
October 4, 1997 is the amortization of trademarks and bank fees.
(7) As a division of Leslie Fay, the Company was not subject to Federal, State
and Local income taxes. Effective June 4, 1997, the Company became subject
to such taxes. The effective tax rate used for the historical financial
statements reflects the rate that would have been applicable, had the
Company been an independent entity. Provisions for deferred taxes were not
reflected on the Company's books but were reflected on the books and
records of Leslie Fay. Going forward, the Company will record deferred
taxes in accordance with the provision of Statement of Accounting Standards
Number 109, Accounting for Income Taxes.
(8) Due to the implementation of the Reorganization and fresh start accounting,
per share data for the predecessor company have been excluded as they are
not comparable.
(9) Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior Notes and 6,800,000 shares of Common Stock of the Company to the
former creditors of Leslie Fay. Prior to the Reorganization, the Company
operated as a division of Leslie Fay. As such, the Stockholders' Equity as
reported was the Company's divisional equity as of the respective date.
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the "Selected Combined Financial Data" and the Company's combined financial
statements and the related notes thereto which are included elsewhere in this
Prospectus. The Company utilizes a 52-53 week fiscal year ending on the Saturday
nearest December 31. Accordingly, fiscal years 1992, 1993, 1994, 1995 and 1996
ended on January 2, 1993 ("fiscal 1992"), January 1, 1994 ("fiscal 1993"),
December 31, 1994 ("fiscal 1994"), December 30, 1995 ("fiscal 1995") and
December 28, 1996 ("fiscal 1996"), respectively. All information with respect to
the nine month period ended September 28, 1996 (the "1996 Interim Period") and
October 4, 1997 (the "1997 Interim Period") is unaudited.
On June 4, 1997, the Company was separated from Leslie Fay, in
accordance with the Reorganization Plan approved by the U.S. Bankruptcy Court.
On that date, all assets and corresponding liabilities associated with the
operation of the Sassco Fashions Division were sold to the Company. Prior to
that date, the Company operated as the Sassco Fashions Division of the Leslie
Fay Companies, Inc., from the time it was acquired by Leslie Fay in 1980. The
Company is one of the largest marketers and manufacturers of career women's
suits in the United States. The Company also markets career dresses, sportswear
and knitwear. The Company has grown through the extension of existing product
lines, the introduction of new brands and the expansion of its retail outlet
operations.
The accompanying audited financial statements have been prepared to
show the Company as a free standing entity apart from Leslie Fay. Until 1996,
the Company was totally dependent upon Leslie Fay for all administrative
support, including accounting, credit, collections, legal, etc. As such, the
financial statements reflect an allocation of Leslie Fay administrative expenses
to the Company.
As a division of Leslie Fay, the Company was not subject to Federal,
State and Local income taxes. Effective June 4, 1997, the Company became subject
to such taxes. The effective tax rate used for the historical financial
statements reflects the rate that would have been applicable, had the Company
been independent. Provisions for deferred taxes were not reflected on the
Company's books, but were reflected on Leslie Fay's books and records. Going
forward, the Company will record deferred taxes in accordance with the provision
of Statement of Accounting Standards Number 109, "Accounting for Income Taxes."
The Company's business is primarily the design, distribution and
wholesale sale of women's career suits, dresses and sportswear to principally
major department stores and specialty shops. Over the last five years, the
Company has increased its share of the wholesale market by expanding into all
markets, including the "lower moderate" (LeSuit), "upper moderate" (Kasper) and
"bridge" (Nipon) markets. The Company has also introduced a career sportswear
label, Kasper and Company(R), and career knitwear under the name Nina
Charles(TM).
In July, 1995, the Company started its retail outlet operations by
acquiring 22 lease properties. As of October 4, 1997, the Company had 45 retail
outlet stores throughout the United States. Sales at the retail outlet stores
totaled $22 million in the year ended December 28, 1996. The stores operate
under the name Kasper ASL(R), but also sell the Company's other labels,
including Nipon(R), Kasper and Company(R), Nina Charles(TM), Le Suit(TM) and b.
bennett(TM).
In connection with the separation from Leslie Fay, Leslie Fay
transferred all rights and title to the Nipon trademarks to the Company. At the
time of the transfer, there were several licensing agreements in effect,
-16-
<PAGE>
including men's sportswear, dress slacks, ties, ladies coats, etc. In 1996 the
Company received approximately $800,000 in licensing income from licensing
agreements.
On June 4, 1997, the Company acquired the trade name Kasper(R) from
Forecast Designs, Inc., a company owned by Herbert Kasper. Prior to June 4, the
Company paid royalties for the use of the Kasper name to Forecast Designs, Inc.
In accordance with the agreement, Forecast Designs, Inc. will retain the right
to the licensing income from pre-existing licenses, which licenses will be
transferred to the Company upon Mr. Kasper's death. The Company will be entitled
to 50% of the income generated by any new licenses. Pursuant to the terms of the
acquisition agreement, the Company also entered into an Employment, Consulting
and Non-Competition Agreement with Herbert Kasper. Such agreement, which has a
term of ten years, provides for the payment to Mr. Kasper of $300,000 in annual
salary and $7,500 for each 1% by which the gross profits from the Company's
sales of Kasper women's apparel, namely suits, dresses and sportswear in each of
the six years 1998 to 2003 exceeds the total gross profit derived by the Company
from the sale of such products in the year 1995.
40 WEEKS ENDED OCTOBER 4, 1997 AS COMPARED TO 39 WEEKS ENDED SEPTEMBER 28, 1996
- -------------------------------------------------------------------------------
NET SALES
Net sales for the 1997 Interim Period were $256.8 million as compared
to $247.6 million for the 1996 Interim Period, an increase of approximately $9.2
million or 3.7%. The extra week's sales in the 1997 Interim Period were $11.5
million, resulting in a decrease of $2.3 million in net sales in the 1996
Interim Period on a comparable 39-week basis, which was in line with the
Company's plans to reduce suit production in 1997 in order to avoid the excess
inventory situation which occurred in 1996. In addition, there were sales of the
Nina Charles(TM) knitwear line totaling $2.7 million in the first half of 1997
as compared to no sales in the same period in 1996.
GROSS PROFIT
Gross profit as a percentage of net sales increased to 26.7% for the
1997 Interim Period, compared to 25.1% for the 1996 Interim Period. The increase
was due to the higher percentage of retail sales in the 1997 Interim Period as
compared to the 1996 Interim Period, as well as improved margins in the Kasper &
Co.(R) Sportswear business. The suit business, primarily Kasper for ASL(R),
experienced an increase in gross profit due to lower markdowns as a result of
having less excess merchandise to dispose of at close-out prices due to better
performance of the Company's products at the retail level and favorable finished
goods prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $41.4 million
in the 1997 Interim Period from $38.1 million for the 1996 Interim Period, an
increase of approximately $3.3 million or 8.7%. The increase was primarily
attributable to: an extra week of selling, general and administrative expenses,
which totaled approximately $1.0 million; 17 additional retail outlet stores,
which accounted for an additional $2.9 million in selling, general and
administrative expenses; the move to a new warehouse location and a rent
increase in its New York office, which together accounted for additional
occupancy and related expenses of approximately $500,000 and other net increases
of $300,000. In addition, these increases were offset by a $1.4 million decrease
in consulting services expenses as a result of the termination of certain
consulting agreements as of June 4, 1997.
-17-
<PAGE>
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $6.1 million in the 1997
Interim Period from $1.6 million in the 1996 Interim Period, an increase of
approximately $4.5 million. The increase is primarily attributable to the four
month's interest expense on the $110 million Senior Notes, which were issued on
June 4, 1997.
FISCAL 1996 COMPARED TO 1995
- ----------------------------
NET SALES
Net Sales in fiscal 1996 were $311.6 million, an increase of
approximately $31.6 million or 11.3% , from $280.0 million in fiscal 1995. The
increase is primarily attributable to a $16.0 million increase in both wholesale
and retail sales in fiscal 1996 from fiscal 1995, which reflects the benefit of
a full year of sales for the retail outlet stores plus the addition of 18 new
stores during fiscal 1996. The wholesale sales increase reflects the addition of
the Nina Charles(TM) knitwear line, as well as an increase in sportswear sales.
Unit sales of suits increased, but were relatively equal in dollars at the net
sales level due to increased markdowns and allowances.
GROSS PROFIT
Gross profit, as a percentage of net sales, decreased to 23.5% in
fiscal 1996 from 26.0% in fiscal 1995. This decrease is primarily attributable
to a decline in wholesale gross margins in fiscal 1996 associated with the sale
of excess inventory. In addition, the consolidation of certain traditional
discount chain stores, where the Company had historically been able to dispose
of excess goods at favorable margins, resulted in reduced gross profit in fiscal
1996. Also, for the first quarter of 1996, gross profit was adversely impacted
by the late delivery of the spring product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $50.3 million
for fiscal 1996 from $49.6 for fiscal 1995, an increase of approximately
$700,000 or 1.4%. The decrease was primarily due to the lower allocation of
expenses from Leslie Fay, as the Company provided most of its own administrative
support independently of Leslie Fay during fiscal 1996. In addition, the
reduction in allocation of administrative costs was partially offset by the
increase in selling, general and administrative expenses associated with a full
year's operation of the retail outlet stores plus the addition of 18 more stores
during fiscal 1996.
INTEREST AND FINANCING COSTS
Interest and financing costs increased from $525,000 in fiscal 1995 to
$1.6 million in fiscal 1996, an increase of approximately $1.1 million. This
increase is primarily attributable to Company's execution of a factoring
agreement with Heller Financial effective February 1996. Prior to that time, the
Company's receivables were managed by Leslie Fay.
FISCAL 1995 COMPARED TO FISCAL 1994
- -----------------------------------
NET SALES
Net sales increased to $280.0 million in fiscal 1995 from $250.7
million for the fiscal 1994, an increase of approximately $29.3 million or
11.7%. Approximately $6.0 million of this increase is primarily attributable
-18-
<PAGE>
to the opening of 22 retail outlet stores in fiscal 1995. At the wholesale
level, the Company experienced an increase in net sales throughout all labels,
but more particularly in the Kasper and Company(R) Sportswear and Le Suit(TM)
lines due to improvements in the styling of the product line.
GROSS PROFIT
Gross profit decreased as a percentage of net sales from 28.1% in
fiscal 1994 to 26.0% in fiscal 1995. This decrease was primarily attributable to
the continued difficult environment at the retail level for women's apparel, an
increase in raw material costs, as well as the continued trend toward
"casualization" of dress in the work place. In addition, the consolidation of
the major retail department stores had an adverse impact on the Company's gross
profit due to the decrease in the number of "doors" as a result of
consolidation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $49.6 million
in fiscal 1995 from $42.0 million in fiscal 1994, an increase of approximately
$7.6 million or 18.1%. This increase was primarily attributable to the $5.5
million investment in infrastructure in preparation to support the Company as an
independent operation, along with a disproportionately higher allocation of
administrative costs from Leslie Fay, and the start up expenses associated with
the opening of 22 retail outlet stores.
INTEREST AND FINANCING COSTS
Interest and financing costs remained relatively equal in fiscal 1995
at $525,000 as compared to $450,000 in fiscal 1994. Interest expense primarily
related to bank fees for letters of credit, as well as to the Company's share of
interest on borrowings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities increased to $20.6 million
during the 1997 Interim Period as compared to cash usage of $30.8 million during
the 1996 Interim Period, primarily as a result of reductions in inventory levels
from 1996 to 1997. The reduction in inventory levels is a direct result of
management's plan to reduce excess inventories in both piece goods and finished
goods to avoid the excess inventory situation which occurred in 1996. In
addition, accounts receivables also decreased during the period as a result of
earlier shipments in the 1997 Interim Period resulting in earlier collections as
compared to the 1996 Interim Period.
The Company's main sources of liquidity historically have been cash
flows from operations and credit facilities. Prior to June 4, 1997, as a
division of Leslie Fay, the Company either borrowed from, or invested its excess
cash with, Leslie Fay. The Company's capital requirements primarily result from
working capital needs, retail expansion and renovation of department store
boutiques and other corporate activities.
Effective June 5, 1997, the Company entered into a $100 million working
capital facility with BankBoston as the agent bank for a consortium of lending
institutions. The facility provides for a sub-limit for letters of credit of $50
million. The working capital facility is secured by substantially all the assets
of the Company. The working capital facility expires in fiscal 2000 and provides
for various borrowing rate options, including rates based upon a fixed spread
over LIBOR. The facility provides for the maintenance of certain financial
ratios and covenants and sets limits on the amount of capital expenditures and
dividends to shareholders. Availability under the facility is limited to a
borrowing base calculated upon eligible accounts receivable,
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inventory and letters of credit. As of October 4, 1997 there was $12.7 million
in direct borrowings, $21.3 million in letters of credit outstanding under the
facility and $24.6 million available for future borrowings.
Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior Notes. The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable semi-annually on March 31 and September 30.
There are no principal payments due until maturity. To the extent that the
Company elects to undertake a secondary stock offering or elects to prepay
certain amounts a premium (as defined in the agreement) will be required to be
paid.
Capital expenditures were $3.9 million and $3.6 million for the 1997
and 1996 Interim Periods, respectively, and $7.0 million and $3.1 million for
fiscal 1996 and fiscal 1995, respectively. The capital expenditures represent
funds spent for computer systems and hardware to enable the Company to operate
independently, the retail outlet store development and the customization of, and
improvements to, the Company's new warehouse facility in early 1997.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
The Company has adopted the 1997 Management Stock Option Plan effective
December 2, 1997 (See Note 9 to Unaudited Interim Financial Statements ). In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement establishes the fair
market value based method of accounting for an employee stock option but allows
companies to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees." Companies which elect to continue
using the accounting under APB Opinion No. 25 must, however, make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS No. 123 had been applied. The Company has
elected to account for its stock based compensation awards to employees and
directors under the accounting prescribed by APB Opinion No. 25 and will be
required to provide the disclosures required by SFAS No. 123 at fiscal year end.
The Company does not expect the adoption of this statement to have a material
effect on its financial position or results of operations.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS and Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed on the weighted average number of shares
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for financial statements issued for periods ending December 15, 1997,
and earlier adoption is not permitted. The Company does not expect the adoption
of this statement to have a material effect on its financial position or results
of operations.
CHANGE IN METHOD OF ACCOUNTING
- ------------------------------
The effects of the Company's reorganization under Chapter 11 have been
accounted for in the Company's financial statements using the principles
required by the American Institute of Certified Public Accountants' Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to such principles, the
Company's assets, upon emergence from Chapter 11 are stated at "reorganization
value", which is defined as the value of the entity before considering
liabilities
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on a going-concern basis following the reorganization and represents the
estimated amount a willing buyer would pay for the assets of the Company
immediately after the reorganization. The reorganization value for the Company
was determined by reference to the remaining liabilities plus the estimated
value of shareholders' equity of the outstanding shares of the Common Stock. The
reorganization value of the Company was allocated to the assets of the Company
in conformity with the procedures specified by Accounting Principles Board
Opinion No. 16, Business Combinations, for transactions reported on the basis of
the purchase method of accounting. In this allocation, identifiable assets were
valued at estimated fair values, and any excess reorganization value has been
recorded as "reorganization value in excess of amounts allocated to identifiable
assets" (a long-term intangible asset similar to "goodwill").
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BUSINESS
GENERAL
- -------
The Company is one of the largest manufacturers and marketers of
women's suits in the United States. The Company designs, contracts for the
manufacture of, markets and distributes women's suits, dresses, knitwear and
sportswear. From its established position in the "upper moderate" suit market,
under its Kasper for ASL(R) brand name, the Company has diversified into the
lower price point "moderate" suit market under its Le Suit(TM) brand name and to
a lesser extent, the higher price point "bridge" and designer women's suit
markets under its Albert Nipon(R) and Nipon(R) brand names. The Company markets
and distributes its products under eight different brands: (i) Kasper for ASL(R)
suit, the leading brand name in "upper moderate" women's suits; (ii) Le
Suit(TM), a line of suits introduced to create a less expensive alternative to
Kasper for ASL(R) suits; (iii) Albert Nipon Suits(R), a line of suits designed
and marketed to compete in the bridge area of the market; (iv) Albert Nipon
Evening(TM), a line of beaded and sequined evening suits; (v) Kasper for ASL(R)
dresses, a line of "better" career dresses; (vi) Kasper and Company(R) ASL
Sportswear, a line of sportswear under the Kasper brand name priced between the
moderate and better markets; (vii) Nina Charles(TM), a better priced knitwear
line comprised of two distinct product classifications: better knit dresses and
better knit sportswear/separates; and (viii) b. bennett(TM), a line of suits
catering to the younger woman seeking an updated look.
The Company also designs and manufactures suits for sale under private
labels for various department stores. Management believes the Company's primary
strengths are the quality, styling, value and brand name recognition of its
products. The Company's products are sold to approximately 1,400 retail accounts
having approximately 2,000 retail locations throughout the United States and
through the Company's chain of 45 retail outlet stores.
The Company operates four wholly-owned subsidiaries, ASL/K Licensing
Corp., ASL Retail Outlets, Inc. and Sassco Europe Ltd., each a Delaware
corporation, and Asia Expert, Ltd. ("AEL"), a Hong Kong corporation, the owner
of Viewmon Ltd. and Tomwell Ltd., each Hong Kong corporations.
Generally, AEL acts as a buying agent for the Company for which it
receives an arms length commission. AEL also provides a quality control function
at the sewing contractors in China, Hong Kong and other parts of the Far East as
part of its buying service. Viewmon Ltd. provides services regarding the
acquisition of quota, while Tomwell Ltd. provides beading services for Nipon(R)
and some Kasper for ASL(R) garments. These subsidiaries receive arms length fees
for their services.
Sassco Europe, Ltd. operates a sales office in London, England, where
it sells the Company's products to retailers and distributors throughout the
European continent. ASL Retail Outlets, Inc. operates the chain of 45 retail
outlet stores that sell the Company's products directly to consumers. These
stores purchase the merchandise directly from the Company at an arms length
price. ASL/K Licensing Corp. was established to coordinate the licensing of the
Kasper(R) trade name that was acquired on June 4, 1997. In connection with the
separation from Leslie Fay, Leslie Fay transferred all rights and title to the
Nipon trademarks to the Company. At the time of the transfer, there were several
licensing agreements in effect, including men's sportswear, dress slacks, ties,
ladies coats, etc. In 1996 the Company received approximately $800,000 in
licensing income from licensing agreements. As of October 4, 1997 ASL/K
Licensing Corp. had not entered into any new license agreements, although some
were in the advanced stage of negotiations.
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REORGANIZATION OF LESLIE FAY
- ----------------------------
In 1980, the Company was acquired by Leslie Fay but continued to
operate as a stand-alone division with Arthur S. Levine remaining as the
Company's Chief Executive Officer. In February 1993, Leslie Fay announced that
its 1990, 1991 and 1992 financial statements were incorrect due to fraudulent
accounting entries. As a result of the misstated financial statements, Leslie
Fay defaulted on its unsecured bank and insurance debt. On February 26, 1993,
the bank creditors informed Leslie Fay that no additional revolving borrowings
could be made and that no new letters of credit would be issued under the bank
facilities until the negotiations for a revised credit facility were completed.
The uncertainty surrounding Leslie Fay's financing quickly spread to trade
creditors, most of whom refused to extend further credit to Leslie Fay. As a
result of its inability to obtain credit, Leslie Fay filed for protection under
Chapter 11 of the Bankruptcy Code on April 3, 1993.
Leslie Fay's Plan of Reorganization, which became effective on June 4,
1997 (the "Effective Date"), provided for the Company and a reorganized entity
named The Leslie Fay Company, Inc. to emerge from bankruptcy as separate
stand-alone U.S. corporations, each with its own financing sources. Pursuant to
the Reorganization Plan, the former creditors of Leslie Fay received 6,800,000
shares of Common Stock of the Company and 12.75% Senior Notes in the principal
aggregate amount of $110 million. The Company also issued (i) Management Options
to certain members of management to purchase 1,753,459 shares of Common Stock,
which upon issuance will represent approximately 20.5% of the Company's
outstanding Common Stock; and (ii) options to purchase 100,000 of Common Stock
to its non-employee directors. 1,350,131 of the Common Stock issued pursuant to
the Reorganization and $12,141,438 face amount of the Senior Notes are the
subject of this Prospectus.
Pursuant to the Reorganization Plan, and based on the Company's
estimate of the amount of certain outstanding claims by creditors of Leslie Fay
that ultimately will be allowed by the Bankruptcy Court, the Company retained
approximately 1,427,746 shares of Common Stock and $23,095,893 principal amount
of Senior Notes for payment of certain classes of claims against Leslie Fay (the
"Holdback"). Such shares of Common Stock and Senior Notes are being held in
trust by the Plan Administrator under the Reorganization Plan and are disbursed
as such claims are either settled or dismissed.
STRATEGY
- --------
The Company believes that the women's suit category will continue to
grow notwithstanding the "casualization" of dress in the workplace. More women
are entering the work force and the current fashion cycle seems to favor
structured apparel. The Company's principal retail customers, the department and
specialty department stores, are continuing to invest in women's suits because
this category is strategically important as a destination department for career
women and other women desiring structured, versatile apparel. The Company's
growth in the suit category has been assisted by its ability to bring its goods
to the forefront of the store by increasing and updating its in-store shops and
have been further enhanced by the development of certain areas of its businesses
including petite sizes, increasing emphasis on pantsuits and seasonless fabrics.
The Company extended its sportswear line through a wide variety of products and
the introduction of a full knitwear line with the Fall 1996 delivery.
The Company's marketing strategy is to maintain and grow all its suit
business, while continuing to extend its presence in women' s apparel by
focusing on those competitive advantages that have made it the leading marketer
of women's suits. The Company believes that its strong Kasper(R) brand name,
coupled with its continuous emphasis on excellent fit, high quality and
excellent price-to-value relationship, will enable it to expand consumer
acceptance of its Kasper(R) dresses and sportswear lines.
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The Company's business strategy is directed at maintaining and
enhancing its position as a leader in the United States women's suits market.
The Company plans to introduce new products and expand its retail operations,
including the opening of one or more full price flagship stores. Implementation
of these strategies may require significant investments for advertising,
infrastructure, furniture and fixtures, and additional inventory. There can be
no assurance that the growth strategies will be successful. The major elements
of the Company's business strategy are as follows:
OFFER QUALITY CAREER WEAR AT REASONABLE PRICE POINTS
The Company's products are well recognized for their consistently
superior quality and fit at prices that offer value to the consumer. The Company
intends to continue the evolution of this process whereby the Company's
designers work closely with its merchandising, sales and production teams to
offer a product that is consistent in quality and fit season after season and
reflects current fashion influences.
INCREASE STORE PENETRATION
The Company distributes its products through approximately 2,000
department and specialty stores throughout the United States. The Company
believes that it has opportunities for increased store penetration in the Kasper
and Company(R) sportswear label and in its knitwear business. At the same time,
the Company feels it can expand its penetration of the Kasper(R) suit label
through increased use of in store shops throughout the department store channel.
The Company currently has 600 such shops in place.
CONTINUE RETAIL STORE EXPANSION
The Company plans to expand its retail outlet store business by adding
10 to 15 new outlet stores per year over the next several years. The Company
currently has 45 retail outlet stores throughout the United States. These stores
have provided the Company with an additional distribution channel at favorable
profit margins. In addition, the Company is exploring the opening of one or more
full price retail outlet stores in key markets, such as New York, Chicago and
San Francisco. The full price stores would be a showcase for the Company's
products that would give additional credence to the Company's licensing efforts
and brand awareness.
DEVELOP NEW LICENSING OPPORTUNITIES
The Company currently has several licensing agreements in place for the
Nipon trade name. In 1996 these licenses generated approximately $800,000 in
revenue. The Company believes there are even greater opportunities to license
not only the Nipon name but also the Kasper name.
EXPAND PRODUCT LINE OFFERINGS
Over the years, the Company has added new product lines such as
LeSuit(TM) to counteract the retailers trend to private label. It has also added
the Nina Charles(TM) knitwear line in Fall of 1996 and the b. bennett(TM) line
of suits, catering to the younger woman, in Spring 1997. The Company intends to
continue its efforts to seek out new promising markets for its existing brands
as well as new brands.
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PRODUCTS
- --------
The Company participates in three principal areas of the women's
apparel market: (i) suits, which include "upper moderate" women's suits sold
under the Kasper for ASL(R) brand name; "moderate" women's suits sold under the
Le Suit(TM) brand name; suits sold under the Albert Nipon(R) brand name that are
priced consistent with the bridge area of the ready-to-wear market; evening
suits sold under the Nipon(R) brand name which compete in the designer market,
and suits sold under the b. bennett(TM) name, a line of suits catering to the
younger woman seeking an updated look; (ii) dresses, which includes Kasper for
ASL(R) dresses, a line of "better" career dresses; and (iii) sportswear, which
includes Kasper and Company ASL(R) sportswear, a line of sportswear under the
Kasper brand name priced between the moderate and better markets and Nina
Charles(TM), a better priced knitwear line comprised of two distinct product
classifications: better knit dresses and better knit sportswear/separates.
Career sportswear are marketed as groups of skirts, pants, jackets, blouses,
sweaters and related accessories which, while sold as separates, are coordinated
as to styles, color palettes and fabrics and are designed to be worn together or
as separates.
SUITS
-----
The Company produces suits which are designed to sell primarily in four
price ranges under the brand names Kasper for ASL(R), Le Suit(TM), Albert
Nipon(R), and Albert Nipon Evening(TM).
KASPER FOR ASL(R) SUIT
Kasper for ASL(R) is a leading brand name in "upper moderate" women's
suits, with approximately 70% of the "upper moderate" women's suit market. Suits
marketed under the Kasper for ASL(R) brand name represent the core of the
Company's business. The Kasper for ASL(R) Suit division seeks to produce a wide
variety of high quality, excellent fitting suits at affordable prices, and
produces suits in petite, misses and large sizes (large sizes are distributed
under the Kasper II(R) brand name). These suits are designed to achieve an
updated classic look that can be worn from one season to the next without
looking dated. In order to maintain a state of newness in its product inventory
and on the retail sales floor, the Kasper for ASL(R) Suit division introduces a
new line of suits five times a year. Many of these suits are made of
"seasonless" fabrics that can extend the selling and wearing season of the
garments. Sales of Kasper for ASL(R), as a percentage of the Company's net
sales, for the 1994, 1995 and 1996 fiscal years and the nine months ended
October 4, 1997 were approximately 49.3%, 46.2%, 40.5% and 41.5%, respectively.
The retail price for suits sold under the Kasper for ASL(R) brand name is $160
to $275.
LE SUIT(TM)
The Le Suit(TM) line of suits were introduced to create a less
expensive alternative to Kasper for ASL(R) Suits. The Le Suit(TM) division uses
the best styles designed for Kasper for ASL(R) Suits for the preceding year with
less expensive fabrics maintaining the same level of quality, fit and
construction as Kasper for ASL(R) Suits. In addition to regular sizes, the Le
Suit(TM) division also produces suits in petite and large sizes. The Le Suit(TM)
brand offers an alternative to retailers' private label suits at an attractive
price to the retailer without the attendant costs of maintaining their own
private label business. Sales of Le Suit(TM), as a percentage of the Company's
net sales, for the 1994, 1995 and 1996 fiscal years and the nine months ended
October 4, 1997 were approximately 13.6%, 15.3%, 16.9% and 16.5%, respectively.
The retail price for suits sold under the Le Suit(TM) brand name is $99 to $189.
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ALBERT NIPON(R) SUIT
The Albert Nipon(R) Suit division designs and markets suits to compete
in the bridge area of the market. These suits, which are primarily distributed
to high-end department and specialty stores, are designed to provide higher
styling and a more sophisticated look than Kasper for ASL(R) Suits and use more
expensive fabrics. In addition to garments in regular sizes, the Albert Nipon(R)
division also produces suits in petite sizes. Sales of Albert Nipon(R) Suits, as
a percentage of the Company's net sales, for the 1994, 1995 and 1996 fiscal
years and the nine months ended October 4, 1997 were approximately 3.1%, 4.2%,
4.5% and 4.2%, respectively. The retail price for suits sold under the Albert
Nipon(R) brand name is $275 to $450.
ALBERT NIPON EVENING(TM)
The Albert Nipon Evening(R) division designs and markets primarily
beaded and sequined evening suits and occupies an unique niche in the suit
marketplace. Sales of Albert Nipon Evening(TM) garments, as a percentage of the
Company's net sales, for the 1994, 1995 and 1996 fiscal years and the nine
months ended October 4, 1997 were approximately 2.8%, 2.0%, 1.5% and 1.6%,
respectively. The retail price for garments sold under the Albert Nipon
Evening(TM) brand name is $350 to $700.
B. BENNETT(TM)
In Spring 1997, the Company introduced the b. bennett(TM) line of
suits. This product line is targeted to reach the younger woman seeking a more
updated look and offers her an alternative to the classic business suit. The b.
bennett(TM) line utilizes distinctive fabrics and trim detail to achieve this
look. All garments have the same level of quality and consistent fit as the
Company's other products. Sales of b. bennett(TM) garments, as a percentage of
the Company's net sales, for the 1997 Interim Period were approximately 1.5%.
The retail price for garments sold under the b. bennett(TM) brand name is $199
to $300.
PRIVATE LABEL
The Company also designs and manufactures suits for sale under private
labels for various department stores. Sales of products for sale under these
private labels, as a percentage of the Company's net sales, for the 1994, 1995
and 1996 fiscal years and the nine months ended October 4, 1997 were
approximately 14.3%, 12.6%, 14% and 10.2%, respectively. The retail price for
suits sold under private labels is $139 to $199.
DRESSES
-------
The Company produces collections of dresses under the Kasper for ASL(R)
Dresses brand name, targeted to sell at "better" prices. The Company's strategy
is to leverage its position in the career suit market by designing and marketing
dresses suitable for the career woman.
KASPER FOR ASL(R) DRESSES
The Company believes the Kasper for ASL(R) Dress division is one of the
largest "better" dress companies in the United States. The Kasper for ASL(R)
Dress division has expanded its line and offers a wide variety of high quality
dresses at affordable prices, including career and classic, desk to dinner
dresses. Kasper dresses, like Kasper suits, are designed with subtle changes
from season to season rather than drastic trends that tend to become outdated
quickly. In order to maintain a state of "newness" in its product line, the
Kasper for
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ASL(R) Dress division introduces a new line of dresses five times a year. Sales
of Kasper for ASL(R) Dresses, as a percentage of the Company's net sales, for
the 1994, 1995 and 1996 fiscal years and the nine months ended October 4, 1997
were approximately 10.6%, 10.9%, 8.2% and 6.7%, respectively. The retail price
for dresses sold under the Kasper for ASL(R) Dresses brand name is $110 to $180.
SPORTSWEAR
The Company offers a collection of "better" career sportswear under the
brand names Kasper and Company ASL(R) Sportswear and Nina Charles(TM). Products
offered in this area of the market are intended for a less formal working
environment as well as for casual wear.
KASPER AND COMPANY ASL(R) SPORTSWEAR
In 1993, the Company introduced a line of sportswear under the Kasper
brand name priced between the moderate and better markets. This was a logical
extension that enabled the Company to capitalize on the competitive advantages
it had developed with its suit business. The Kasper and Company ASL(R)
Sportswear division designs and markets blazers, pants, skirts, knit tops and
blouses to be sold as separates. The Kasper and Company ASL(R) Sportswear uses
fabrics of similar quality as those used for the suits and maintaining the
consistency of excellent fit and quality tailoring. Sales of Kasper and Company
for ASL(R) Sportswear, as a percentage of the Company's net sales, for the 1994,
1995 and 1996 fiscal years and the nine months ended October 4, 1997 were
approximately 6.3%, 8.8%, 10.6% and 11.5%, respectively. The retail price for
garments sold under the Kasper for ASL(R) brand name is $49 to $198.
NINA CHARLES(TM)
Nina Charles(TM) for Kasper ASL, also known for its consistency in
quality and fit, is a better priced knitwear division comprised of two distinct
product classifications: "better" knit dresses and "better" knit
sportswear/separates. Both product lines are designed with a modern approach to
career dressing. The styles are current but avoid fashion extremes. Sales of
Nina Charles(TM) garments, as a percentage of the Company's net sales, for the
1994, 1995 and 1996 fiscal years and the nine months ended October 4, 1997 were
approximately 0%, 0%, 3.7% and 5.6%, respectively. The retail price for garments
sold under the Nina Charles(TM) brand name is $49 to $199.
DESIGN
- ------
The Company designs its products based on seasonal plans that reflect
prior seasons' experience, current design trends, economic conditions and
management's estimates of the product's future performance. Product lines are
developed primarily for the two major selling seasons, spring and fall. The
Company also produces lines for the transitional periods within these seasons.
As "seasonless" fabrics become increasingly popular in women's apparel, the
Company's has integrated these fabrics into its product lines.
The average lead time from the selection of fabric to the production
and shipping of finished goods ranges from approximately eight to nine months.
Although the Company retains significant flexibility to change production
scheduling, production, for other than private label goods, begins before the
Company has received customer orders.
The Company's design teams travel around the world to select fabrics
and colors and stay abreast of the latest design trends and innovations. In
addition, the Company monitors the sales of its products to determine
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changes in consumer trends. In-house designers use a computer-aided design
("CAD") system to customize designs. The Company's designers meet regularly with
the piece good and sales departments to review design concepts, fabrics and
styles.
Each of the Company's product lines has its own design team which is
responsible for the development and coordination of the product offerings within
each line. Once colors and fabrics are selected, production and showroom samples
are produced and incorporated into the product line, and the design and sourcing
departments begin to develop preliminary production samples. After approval of
the samples, production begins. As a line of products is being finalized,
customer reaction is evaluated and samples are modified as appropriate.
After production samples are approved for production, various patterns
that will be used to cut the fabric are produced by the Company's team of
experienced pattern makers. This process is aided by the use of a computerized
marker and grading system.
MANUFACTURING
- -------------
Apparel sold by the Company is manufactured in accordance with its
design, detailed specification and production schedules. The Company does not
own any significant manufacturing facilities, but contracts for the cutting and
sewing of its garments with over 40 contractors located principally in Taiwan,
the Philippines, Hong Kong and China. Purchases of finished goods from the
Company's four major contractors accounted for 25.4%, 14.6%, 11.7% and 10.6% of
the Company's total production during 1996. The Company schedules work with its
contractors so that each factory, or at least one floor of each factory, is
dedicated 100% to the Company's products, thereby ensuring quality control and
continuous flow of merchandise. The Company believes that outsourcing allows it
to maximize production flexibility while avoiding significant capital
expenditures, work-in-process inventory build ups and costs of managing a large
production work force. The Company's production and sourcing staffs in Hong
Kong, Taiwan and the Philippines oversee all aspects of apparel manufacturing
and production, including quality control, as well as researching and developing
new sources of supply. Although the Company does not have any long-term
agreements with any of its manufacturing contractors it has had long-term
mutually satisfactory relationships with its four principal contractors and has
engaged each of them for more than 15 years. The Company allocates product
manufacturing among contractors based on the contractor's capabilities, the
availability of production capacity and quota, quality, pricing and flexibility
in meeting changing production requirements on relatively short notice. The
Company is able to maintain low cost production through high unit volume and
captive manufacturing facilities as it has products manufactured 52 weeks per
year.
In order to ensure the continuous flow of current merchandise, the
Company maintains an inventory of piece goods in base cloths and colors at its
Hong Kong facility, as well as at various contractors. This enables the Company
to manufacture its products on a constant basis, keeping manufacturing
facilities busy during the slower time periods thus freeing up these facilities
for manufacture of the more recently designed products with a lesser lead time.
By keeping a steady flow of production to its contractors, the Company is able
to retain its dominant position in the contractors facility and allow for the
continuous flow of its products.
QUALITY CONTROL
- ---------------
The Company's comprehensive quality control program is designed to
ensure that purchased piece goods and finished goods meet the Company's exacting
standards. The Company monitors the quality of its fabrics and approves
"strike-offs" prior to the production of such fabrics. Production samples are
submitted to the Company for approval prior to production. The Company maintains
a quality control staff who, in addition, to the contractors' own quality
control staff, inspect prototypes of each garment before production runs are
commenced
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and perform random in-line quality control checks during production and after
production before the garments leave each contractor's premises. In addition,
inspectors perform quality control at the Company's distribution center in New
Jersey, where each style is measured against detailed specifications, and each
garment undergoes a sewing, button and thread inspection and is then steamed in
a state-of-the-art steam tunnel and pressed. Garments are selected at random
from shipments received in the distribution center and sent to New York for
inspection and approval by the production and sales staff before shipment. The
Company believes that its policy of inspection at the offshore contractors'
facilities, together with the inspection and refinishing at its distribution
center, are essential to maintaining the quality and reputation that its
garments enjoy.
The Company permits garments to be returned for credit by its
customers. Average returns of the Company's products for the 1994, 1995 and 1996
fiscal years and the 1997 Interim Period were less than 1.9% of net sales.
SUPPLIERS
- ---------
Generally, the raw materials required for the manufacturing of the
Company's products are purchased directly by the Company. Raw materials, which
are in most instances made and/or colored especially for the Company, consist
principally of piece goods and yarn. Purchases from the Company's four major
suppliers, accounted for 34.0%, 14.8%, 9.4%, and 4.3%, respectively, of the
Company's total purchases of raw materials for 1996. The Company's transactions
with its suppliers are based on written instructions issued by the Company from
time to time and, except for these instructions, the Company has no written
agreements with its suppliers. However, the Company has experienced little
difficulty in satisfying its raw material requirements and considers its sources
of supply adequate.
DISTRIBUTION
- ------------
The Company operates a 300,000 square foot distribution and refinishing
center in Secaucus, New Jersey. To ensure that each of its retail customers
receives the merchandise ordered in excellent condition, all apparel produced
for the Company is processed through the Company's distribution center before
delivery to the retail customer. No merchandise is drop-shipped directly from
the contractor to the customer.
The Company sells approximately 98% of its products within the United
States. The Company distributes its products through approximately 1,400
department stores and specialty retailer accounts throughout the United States
and Canada representing approximately 2,000 locations. Department stores
accounted for approximately 68%, 77%, 72%, and 73% of the Company's sales for
the 1994, 1995 and 1996 fiscal years and the nine months ended October 4, 1997,
respectively. Federated Department Stores, May Merchandising Co. and Dillards
Department Stores accounted for approximately 18%, 15% and 11% of total sales,
respectively, for fiscal 1996. Sales to any individual store unit of either
Federated Department Stores, May Merchandising Co. and Dillards Department
Stores did not exceed 4.7% of net sales. While the Company believes that
purchasing decisions are generally made independently by each department store,
in some cases the trend may be toward more centralized purchasing decisions. The
Company's 10 largest customers accounted for approximately 70% of the Company's
total sales during 1996. A decision by one or more of such substantial
customers, whether motivated by fashion concerns, financial difficulties, or
otherwise, to decrease the amount of merchandise purchased form the Company or
to cease carrying the Company's products could materially adversely affect the
financial condition and operations of the Company.
The Company has a direct sales staff of 46 sales employees, of which 30
are located in New York and 16 are located in Dallas, Texas. The Dallas sales
staff consists of two full-time employees and fourteen part-time
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employees. All sales personnel are salaried. The Company also uses commissioned
agents at three regional showrooms in the United States. In addition, senior
management is actively involved in selling to major accounts. Products are
marketed to department stores and specialty retailing customers during the
"market weeks," which are generally four to six months in advance of the five
corresponding industry selling seasons. The Company also has a sales office in
London comprised of 7 employees.
The Company employs a cooperative advertising program with its major
retail accounts, whereby it contributes to the cost of its retail accounts'
advertising programs. An important part of the marketing process includes
prominent displays of the Company's products in retail accounts' sales
brochures.
The Company expects that its continuing emphasis on its retail
relationships with strong in-store marketing support will enable it to secure
broad retail distribution for its new and expanding apparel lines with good
in-store placement. The Company's retail relationships are long-standing, at
senior retail management levels. In 1993, the Company began implementing its
in-store Kasper for ASL(R) shops, which average 800 square feet and dominate the
retail floor with presentation of an in-depth Kasper for ASL(R) suit line. The
Company provides all of the necessary fixtures in return for store commitments
on location and average inventory levels. At October 4, 1997, the Company had
600 Kasper(R) in-store shops. The Company plans to continue to expand this
program to stores which historically have had strong Kasper(R) sales and are
willing to provide prominent floor placement and commit to minimum average
inventory levels.
The Company maintains a staff of 13 regional specialists who service
the department stores carrying the Company's products, focusing principally on
the Kasper for ASL(R) suit line. Retail specialists visit each of their assigned
stores several times a year, depending on the store's volume, to track stock and
sales at each store, conduct training seminars and provide assistance in
displaying the products, collect information on the positioning and appearance
of the Company's products in each store and interact with and assist the store's
customers both informally and at fashion shows organized by the specialists.
These regional specialists provide written reports to the Company's management
and to store management, with the goal of assisting each store to optimize sales
and margins.
Of the approximately 2,000 stores that carry the Company's products,
regional specialists track approximately 800 of the largest locations which, in
fiscal 1996, aggregated approximately 60% of the Kasper suit sales.
Approximately 100 selling specialists, at the highest volume Kasper(R) in-store
boutiques, also report weekly to the Company on sales and inventory positions.
Although these selling specialists are store employees, they are trained by the
Company and can earn Kasper(R) suits from the Company as incentive bonuses for
above average performance. The Company expects to continue to increase the
number of selling specialists as it identifies motivated sales people who are
willing to assume the additional responsibilities. The Company believes that
this in-house marketing support is instrumental in maintaining its competitive
position.
RETAIL OUTLET STORES
- --------------------
In July 1995, the Company commenced its retail outlet store program to
establish another distribution channel for its products and to take advantage of
the current consumer trend towards shopping at "company outlet" stores. At
October 4, 1997, the Company operated 45 retail outlet stores which represented
approximately 7.1% and 10.6% of total sales for the 1996 fiscal year and the
nine month period ended October 4, 1997. These stores, which stock current line
merchandise, are generally located in an outlet center mall where other women's
apparel companies have established retail outlet stores. The Company believes
the retail outlet stores help develop customer awareness of the Company's brand
names while allowing management to control the price range of its products.
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TRADEMARKS
- ----------
The Company is the holder of several registered marks in the United
States, including Kasper(R), Kasper for ASL(R), Kasper II(R), Kasper for ASL
Petite(R), Kasper and Company(R), Kasper and Company Petite(R), Kasper Dress(R),
Kasper Dress Petite(R), Albert Nipon(R), Nipon Boutique(R), Executive Dress by
Albert Nipon(R), Nipon Night(R), Albert Nipon Suits(R), Nipon Studio(R). The
Company believes its ability to market its products under the Marks is a
substantial factor in the success of the Company's products. The Company relies
primarily upon a combination of trademark, copyright, know-how, trade secrets,
and contractual restrictions to protect its intellectual property rights. The
Company believes that such measures afford only limited protection and,
accordingly, there can be no assurance that the actions taken by the Company to
establish and protect its trademarks, including the Marks, and other proprietary
rights will prevent imitation of its products or infringement of its
intellectual property rights by others, or prevent the loss of revenue or other
damages caused thereby. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or obtain and use information that the Company regards as proprietary.
In addition, there can be no assurance that one or more parties will not assert
infringement claims against the Company; the cost of responding to any such
assertion could be significant, regardless of whether the assertion is valid.
IMPORTS AND IMPORT RESTRICTIONS
- -------------------------------
The Company's transactions with its foreign manufacturers and suppliers
are subject to the risks of doing business abroad.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Taiwan, South Korea, and Hong Kong. These agreements, which
have been negotiated bilaterally either under the Arrangement Regarding
International Trade in Textiles, known as the Multifiber Agreement, and other
applicable statues, impose quotas on the amounts and types of merchandise which
may be imported into the United States from these countries. These agreements
also allow the United States to impose restraints at any time on the importation
of categories of merchandise that, under the terms of the agreements, are not
currently subject to specified limits. The Company's imported products are also
subject to United States customs duties which comprise a material portion of the
cost of the merchandise. A substantial increase in customs duties could have an
adverse effect on the Company's operating results. The United States and the
countries in which the Company's products are produced or sold may, from time to
time, impose new quotas, duties, tariffs, or other restrictions, or adversely
adjust prevailing quota, duty, or tariff levels, any of which could have a
material adverse effect on the Company.
The Company monitors duty, tariff and quota-related developments and
continually seeks to minimize its potential exposure to quota-related risks
through, among other measures, geographical diversification of its manufacturing
sources, the maintenance of overseas offices, allocation of production to
merchandise categories where more quota is available and shifts production among
countries and manufacturers.
The Company's imported products are also subject to United States
custom duties and duties imposed in the ordinary course of business.
The United States and the other countries in which the Company's
products are manufactured may, from time to time, impose new quotas, duties,
tariffs or other restrictions, or adversely adjust presently prevailing quotas,
duty or tariff levels, which could adversely affect the Company's operations and
its ability to continue to
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<PAGE>
import products at current or increased levels. The Company cannot predict the
likelihood or frequency of any such events occurring.
Because the Company's foreign manufacturers are located at greater
geographic distances from the Company, the Company is generally required to
allow greater lead time for foreign orders, which reduces the Company's
manufacturing flexibility. Foreign imports are also affected by the high cost of
transportation into the United States. These costs are generally offset by the
lower labor costs.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by political instability resulting in the
disruption of trade from exporting countries, any significant fluctuation in the
value of the dollar against foreign currencies and restrictions on the transfer
of funds.
BACKLOG
- -------
As of October 4, 1997, the Company had unfilled customer orders of
approximately $77.4 million, compared to approximately $75.0 million of such
orders at September 28, 1996, an increase of 3.2% over the comparable period in
1996. These amounts include both confirmed orders for shipment within the next
six months and unconfirmed orders which, the Company believes, based on industry
practice and past experience, will be confirmed. The amount of unfilled orders
at a particular time is affected by a number of factors, including the
scheduling of the manufacture and shipping of the product, which in some
instances is dependent on the desires of the customer. Accordingly, a comparison
of unfilled orders from period to period is not necessarily meaningful and may
not be indicative of eventual actual shipments.
COMPETITION
- -----------
Competition is strong in the areas of the fashion industry in which the
Company operates. The Company competes with numerous designers and manufacturers
of apparel and accessory products, domestic and foreign, none of which accounts
for a significant percentage of total industry sales, but some of which are
significantly larger and have substantially greater resources than the Company.
The Company's business depends, in part, on its ability to shape and stimulate
consumer tastes and demands by producing innovative, attractive, and exciting
fashion products, as well its ability to remain competitive in the areas of
design and quality.
The Company competes primarily on the basis of consistency of quality
and fit, design, diversity of its product lines and service to its retail
customers. The Company's principal competitors are Seville, Jones New York,
Bicci and Liz Claiborne and department stores' private labels. The Company
believes that its competitive advantages at the customer and retail levels have
served to modulate its competition in the "upper moderate" women's suit
category. These competitive advantages include excellent quality and consistent
fit of the garments with high price-to-value relationship, long-standing
relationships with fabric suppliers, low-cost but high-quality production
through high unit volume and captive manufacturing facilities, and long-standing
relationship with retailers.
EMPLOYEES
- ---------
At October 4, 1997, the Company had approximately 990 employees
including 687 full-time employees and 303 part-time employees. Of the 687
full-time employees, approximately 83 are employed in executive, managerial,
administrative, clerical and office positions, approximately 91 in design, 270
in distribution, 97 in production, 46 in sales and marketing and 100 in retail
sales. Of the 303 part-time employees, approximately 289 are employed in the
Company's retail outlet stores and 14 in the Dallas showroom. Approximately 350
of
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the Company's 990 employees are members of UNITE, the Union representing the
Needle Trades, Industrial and Textile Employees, which has a 3 year labor
agreement with the Company expiring on May 31, 2000. The Company considers its
relations with its employees to be satisfactory.
PROPERTIES
- ----------
The Company's principal executive office, warehousing and distribution
facilities are located in a 289,894 square foot facility located in Secaucus,
New Jersey. The Company leases its headquarters facility from Hartz Import
Associates. The lease, which expires on December 31, 2006, requires an annual
average rent payment of approximately $1.4 million during the term of the lease.
At October 4, 1997, the Company operated 45 retail outlet stores, of
which approximately 18 stores are currently operating on month-to-month leases.
The Company is currently negotiating five-year leases for all such 18 store
locations. The majority of all the new stores are leased under five-year leases.
The average store size is approximately 2,700 square feet, ranging from a
minimum of 1,500 square feet to a maximum of 5,700 square feet.
LEGAL PROCEEDINGS
- -----------------
During 1988, Leslie Fay purchased substantially all of the assets of
Albert Nipon, Inc., including, without limitation, the "Nipon" trademarks and
tradenames. As part of such transaction, Albert Nipon and Pearl Nipon
(collectively, the "Nipons"), each entered into employment contracts with Leslie
Fay (the "Nipon Employment Contracts"), which contracts were rejected by Leslie
Fay during the course of the Chapter 11 cases. Both of the foregoing agreements
contain non-competition covenants.
On January 4, 1995, the Nipons commenced an adversary proceeding
against Leslie Fay in the U.S. Federal Bankruptcy Court in New York (the "Nipon
Complaint"), pursuant to which the Nipons sought a declaratory judgment that
they are not bound or restricted by the non-competition covenants set forth in
the Nipon Employment Contracts. By motion dated April 3, 1995, Leslie Fay sought
to dismiss the Nipon Complaint pursuant to Rule 7012 of the Federal Rules of
Bankruptcy Procedure and Rule 12(b)(1) of the Federal Rules of Civil Procedure
for lack of subject matter jurisdiction because insufficient facts were
presented to establish a judiciable controversy, and directed the parties to
engage in mediation of the issues raised in the Nipon Complaint. After oral
argument, the Bankruptcy Court deferred ruling on Leslie Fay's motion and
appointed a mediator to attempt to reconcile the parties' differences. The
mediation concluded in an impasse and, thereafter, by opinion dated September
21, 1995, the Bankruptcy Court granted Leslie Fay's motion to dismiss the
adversary proceeding pending the Nipons' filing of an amended complaint within
thirty days. Because the Nipons failed to file an amended complaint setting
forth a justiciable case or controversy, the court dismissed the Nipon Complaint
on or about October 30, 1995.
On February 27, 1996, Albert Nipon, together with American Pop
Marketing Group, Inc., filed a second complaint against Leslie Fay and the
Leslie Fay Licensing Corporation (the "Second Complaint") alleging breach of
contract and requesting, INTER ALIA, a declaration that Nipon may use his name
in a manner outlined in the Second Complaint and as contained in Opinion Letters
of his special trademark/tradename counsel. Leslie Fay and the Leslie Fay
Licensing Corporation served an answer to the complaint and simultaneously filed
a counterclaim against the Nipon parties for, INTER ALIA, trademark infringement
of Leslie Fay's federally registered "NIPON" trademarks. Following the
conclusion of discovery, the Court and the parties agreed to have the matter
resolved based on a stipulated record. The parties thereafter negotiated to
certain stipulated facts, submitted contentions of fact as to the remaining
factual issues, and prepared memoranda of law. The parties further agreed
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to reserve briefing and argument on Nipon's claims for breach of contract and
tortious interference and Leslie Fay's claims for damages and attorney's fees
until after the Court issues its decision on the core trademark claims. Oral
argument in respect of these issues was held on May 9, 1997. The matter is
currently pending before the Court.
On November 17, 1997, the Company's wholly-owned subsidiary, Asia
Expert, Ltd. received a letter from the United States Customs Service stating
that a monetary claim in the amount of $694,860 was being contemplated against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor. At this time, the case is in the preliminary stages
of investigation. However, it is the Company's position that its subsidiary did
not knowingly or intentionally participate in any violation of U.S. Custom laws
and the Company intends to vigorously pursue all appropriate legal defenses.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company's directors, executive officers and key employees are as
follows:
NAME AGE POSITION
- ---- --- --------
Arthur S. Levine 57 Chairman of the Board and Chief Executive Officer
Clifford B. Cohn 46 Director (1)
William J. Nightingale 68 Director (1)
Larry G. Schafran 59 Director (1)
Robert L. Sind 64 Director (1)
Olivier Trouveroy 42 Director (1)
Gregg I. Marks 45 President
Lester E. Schreiber 48 Chief Operating Officer and Director (1)
Dennis P. Kelly 50 Chief Financial Officer
Barbara Bennett 45 Vice President - Design
Peter Eng 43 Vice President - Piece Goods
Leonard Feinberg 45 President - Knitwear Group
Peter Huang 62 Director of Production - Taiwan/Philippines
Peter Lee 49 Managing Director - Asia Expert, Ltd.
(1) All the directors of the Company have served in such capacity since
June 1997.
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------
The Company's directors and executive officers and key employees are as
follows:
ARTHUR S. LEVINE, the Chairman of the Board and Chief Executive Officer
of the Company, has been in the apparel business all his career having started
with Stacy Ames. In 1975, Mr. Levine established Sassco Fashions, Ltd. which he
then sold to Leslie Fay in May 1980 and since that date has operated the Company
as an autonomous entity. Mr. Levine is responsible for the Company's dominance
in the suit business. This has been accomplished through his emphasis on
product, quality, fit and value. His attention to detail and consistency of
product (fit and make) has propelled Kasper to its number one position in the
suit marketplace.
CLIFFORD B. COHN is an attorney and principal of Cohn & Associates, a
private law practice he established in September 1994. Prior to organizing Cohn
& Associates, Mr. Cohn was affiliated with the law firm of Sernovitz & Cohn for
a period of two years. Mr. Cohn also serves as a director of Publicker
Industries, a diversified investment company and an affiliated company of
Balfour Investors Incorporated, a shareholder and Noteholder of the Company's
Securities. Mr. Cohn has been a director of Leslie Fay since June 1997.
WILLIAM J. NIGHTINGALE is currently a Senior Advisor of Nightingale &
Associates, LLC, a general management consulting firm, and has served in various
capacities with the firm, including Chairman and Chief Executive Officer, since
July 1975. Mr. Nightingale is also a director of Leslie Fay, a position he has
held since June 1997 and a director of Rings End, Inc., Tune Up Masters, Inc.;
and a trustee of the Churchill Tax Free Fund of Kentucky, Churchill Cash
Reserves Trust, and Narragansett Insured Tax Free Income Fund.
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<PAGE>
LARRY G. SCHAFRAN, has served as the managing general partner of L.G.
Schafran & Associates, a real estate investment and development firm, since
October 1984. Mr. Schafran is also Chairman of the Board of Delta-Omega
Technologies, Inc., a specialty chemical company involved in the research,
development, manufacturing and marketing of environmentally safe products that
have applications in soil remediation. He also serves as a director of Publicker
Industries, a diversified investment company and an affiliated company of
Balfour Investors Incorporated, a shareholder and Noteholder of the Company's
Securities.
ROBERT L. SIND has been the president and chief executive officer of
Recovery Management Corporation, an operating and financial management company
which he founded with a group of experienced industry and operating
professionals, having served over 40 companies since its inception in May 1984.
Previously, Mr. Sind had been an investment banker, and had held senior
corporate operating and financial positions, including Londontown Manufacturing
Company, Beker Industries Corp., and more recently, was chief operating officer
of Nice-Pak Products, Inc. Mr. Sind has been a director of Leslie Fay since June
1997.
OLIVIER TROUVEROY has served as the managing partner of ING Equity
Partners, a private equity investment firm, and its predecessors since February
1992. Mr. Trouveroy also serves as a director of Cost Plus, Inc., a specialty
retailing company, and American Communications Services, Inc., a
telecommunications company.
GREGG I. MARKS, the President of the Company, has been affiliated with
the Company since August 1983 and has held the position of President since
January 1989. Mr. Marks has been an integral part of the Company's growth
through the development of numerous marketing strategies. Mr. Marks maintains
numerous relationships with the management of all major customers, balancing the
various product lines of the Company with the needs of the stores, and
ultimately, the consumer. He is directly responsible for the supervision of the
Kasper suit line sales staff and the heads of all other divisions report
directly to him. Prior to joining the Company in August 1983, Mr. Marks served
as sales manager at Suits Galore, a manufacturer of women's suits, for a period
of two years.
LESTER E. SCHREIBER has served as Chief Operating Officer since May
1996 and a Director of the Company since June 1997. Mr. Schreiber's
responsibilities constitute the overall general management of the Company
including all administrative areas as well as the operations of the Company's
reprocessing and distribution center. Prior to becoming Chief Operating Officer
of the Company, Mr. Schreiber served as Vice President of Operations from
January 1989 to April 1996. Prior to joining the Company, Mr. Schreiber was
Chief Financial Officer and Vice President of Operations at Maytex Mills, a
manufacturer and distributor of household furnishings from March 1987 to
December 1988.
DENNIS P. KELLY, Chief Financial Officer, has been affiliated with the
Company since May 1995. Mr. Kelly is responsible for all financial and
accounting functions of the Company as well as personnel. Prior to joining the
Company, Mr. Kelly worked in several executive positions, most recently as Vice
President and Controller of Crystal Brands, Inc., a diversified apparel and
jewelry manufacturer from October 1985 to February 1995. Mr. Kelly is a
certified public accountant and an attorney.
KEY EMPLOYEES
The following key employees of the Company make significant
contributions to the operations of the Company:
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BARBARA BENNETT, Vice President - Design, joined the Company in October
1980. As head of the Company's in-house design studio, Ms. Bennett is
responsible for coordinating the input she receives from the Company's sales
staff, her design staff, and her analysis of the market to oversee the design of
each of the Company's product lines on a timely basis. Ms. Bennett travels
frequently to Europe and monitors the domestic market to keep abreast of fashion
trends. In addition, Ms. Bennett works with key customers and is involved in the
development of the Company's computer design system. Prior to joining the
Company, Ms. Bennett was a designer at Leslie Fay for two years.
PETER ENG, Vice President - Piece Goods, joined the Company in November
1982. Mr. Eng is responsible for the development of new fabrics as well as
variations of current fabrics. Mr. Eng travels through Europe in search of new
ideas and trends, and to the Far East to ensure that the fabrics purchased by
the Company meet the Company's specifications. As a result, Mr. Eng has
developed key relationships with the management of the Company's contractors and
suppliers.
LEONARD FEINBERG, President - Knitwear Group, joined the Company in
September 1995 to establish the Nina Charles(TM) knitwear line. Prior to joining
the Company, Mr. Feinberg was a principal from January 1994 to August 1995 of
the Nina Patrick Company, a women's knitwear company. From December 1982 to
December 1993, Mr. Feinberg served as President of Leslie Fay's Outlander
Division for a period of 11 years.
PETER HUANG, Director of Production - Taiwan/Philippines, has been
affiliated with the Company since April 1977. Through his long-standing
relationships with the Company's production factories and his staff, Mr. Huang
is responsible for the timeliness of the Company's deliveries and ensuring the
adherence to the Company's standards of quality.
PETER LEE, Director - Asia Expert, Ltd., joined the Company in January
1997 as Managing Director of the Hong Kong buying office. Prior to joining the
Company, Mr. Lee served for 25 years as Vice President in charge of
administration and production in Taiwan and the Philippines for Carnival
Textiles, a publicly traded Taiwan company and one of the Company's largest
suppliers.
COMMITTEES
- ----------
On June 10, 1997, the Board of Directors established an Audit
Committee, a Compensation Committee and a Finance Committee.
The Company's Audit Committee is currently composed of Messrs.
Nightingale, Schafran and Sind. The function of the Audit Committee is to make
recommendations concerning the selection each year of independent auditors of
the Company, to review the effectiveness of the Company's internal accounting
methods and procedures, and to determine, through discussions with the
independent auditors, whether any instructions or limitations have been placed
upon them in connection with the scope of their audit or its implementation.
The Compensation Committee is currently composed of Messrs. Trouveroy,
Cohn and Schafran. The function of the Compensation Committee is to review and
recommend to the Board of Directors policies, practices and procedures relating
to compensation of key employees and to administer employee benefit plans.
The Finance Committee is currently composed of Messrs. Sind, Trouveroy,
Cohn, Nightingale, and Schafran. The function of the Finance Committee is to
evaluate and review on a continuing basis specific financing programs and
requirements to meet the near and long-term needs of the Company; to advise
management on the Company's business plans and budgets; to review the
organization and functions of the
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Company's finance department; and to participate in the development and
implementation of the investment and the investor programs.
COMPENSATION OF DIRECTORS
- -------------------------
Each Director who is not an employee of the Company is paid for service
on the Board of Directors a retainer at the rate of $40,000. Each current
non-employee Director also received an option to purchase 20,000 shares of
Common Stock. Such options vest ratably over the first three anniversaries of
the date of grant and are exercisable at a price of $14.00 per share. The
Company also reimburses each Director for reasonable expenses in attending
meetings of the Board of Directors. Directors who are also employees of the
Company are not separately compensated for their services as Directors.
EXECUTIVE COMPENSATION
- ----------------------
The following table sets forth information concerning the annual
compensation paid by the Company for services rendered during the fiscal year
ended December 28, 1996 and expected to be paid during the fiscal year ending
December 31, 1997 to each of the Company's executive officers whose total
compensation exceeded or is expected to exceed $100,000 and to all executive
officers of the Company as a group.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS COMPENSATION
---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Arthur S. Levine
Chairman of the Board and 1997 $1,200,000 $ --(1) -- $1,504,010 (2)
Chief Executive Officer 1996 $ 100,000 $ 65,000 -- $3,418,732 (3)
Gregg I. Marks 1997 $ 500,000 $ 370,000 -- $ 15,428 (4)
President 1996 $ 260,000 $ 474,200 -- $ 11,228 (5)
Lester E. Schreiber 1997 $ 162,580 $ 62,500 -- $ 16,060 (6)
Chief Operating Officer 1996 $ 100,080 $ 131,500 -- $ 15,310 (7)
Dennis P. Kelly 1997 $ 150,000 $ 60,000 -- $ 348 (8)
Chief Financial Officer 1996 $ 150,000 $ 60,000 -- $ 348 (8)
Barbara Bennett 1997 $ 600,000 $ 50,000 -- $ 3,218 (9)
Vice President - Design 1996 $ 600,000 $ 50,000 -- $ 1,477 (9)
All Executive Officers as a 1997 $2,012,580 $ 492,500 -- $1,535,846
group (4 persons) 1996 $ 610,080 $ 730,700 -- $3,445,618
</TABLE>
- ----------
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<PAGE>
(1) Mr. Levine's employment agreement with the Company provides for a bonus
commencing in the 1998 fiscal year in an amount between $500,000 and $1.5
million based upon the fulfillment of certain EBITDA hurdles for the fiscal
years 1998, 1999 and thereafter.
(2) Includes $450 in Group Term Life Insurance, $15,640 in automobile allowance
and $1,487,920 in consulting fees. See "Certain Transactions."
(3) Includes $450 in Group Term Life Insurance, $15,640 in automobile allowance
and $3,402,642 in consulting fees. See "Certain Transactions."
(4) Includes $428 in Group Term Life Insurance and $15,000 in automobile
allowance.
(5) Includes $428 in Group Term Life Insurance and $10,800 in automobile
allowance.
(6) Includes $160 in Group Term Life Insurance and $15,900 in automobile
allowance.
(7) Includes $160 in Group Term Life Insurance and $15,150 in automobile
allowance.
(8) Represents $348 in Group Term Life Insurance.
(9) Represents $1,218 in Group Term Life Insurance for fiscal 1997 and fiscal
1996 and a clothing allowance of $2,000 and $259 for fiscal 1997 and fiscal
1996, respectively.
EMPLOYMENT AGREEMENTS
- ---------------------
The Company has entered into a five-year employment agreement dated
June 4, 1997 with Mr. Levine which provides for an annual compensation of $2
million. In addition to the base compensation, the agreement provides for a
bonus commencing in the 1998 fiscal year in an amount between $500,000 and $1.5
million based upon the fulfillment of certain EBITDA hurdles for the fiscal
years 1998, 1999 and thereafter. The Company does not maintain a key person life
insurance policy on the life of Mr. Levine. The loss of Mr. Levine could have a
material adverse effect on the Company's business if a suitable replacement or
replacements could not be promptly found.
The employment agreement requires Mr. Levine to provide at least 30
days' notice of intent to terminate the agreement. In addition, the employment
agreement provides that following termination, other than termination by Mr.
Levine for "good reason" (as defined in the agreement) or by the Company without
"cause" (as defined in the agreement) Mr. Levine shall not participate or engage
in, either directly or indirectly, any business activity that is directly
competitive with the Company for the balance of the original term of the
employment agreement.
The Company is currently negotiating employment agreements with Messrs.
Schreiber and Marks.
1997 MANAGEMENT STOCK OPTION PLAN
- ---------------------------------
On December 2, 1997, the Board of Directors approved the 1997
Management Stock Option Plan (the "Management Plan"). To date, the Company has
issued Management Options to purchase 1,753,459 shares of Common Stock, which
upon issuance will represent approximately 20.5% of the Company's outstanding
Common Stock. Such options are exercisable at $14.00 per share and vest as
follows: 25% vested immediately with 15% vesting annually thereafter on June 4
from the years 1998 to 2002. The Management Options expire on December 1, 2005.
The Management Plan provides for the grant to officers and employees of
and consultants to the Company and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company of options
to purchase Common Stock. The total number of shares of Common Stock for which
options may be granted under the Plan is 2,500,000 shares. No participant may be
granted stock options covering in excess of 1,500,000 shares of Common Stock
over the life of the Management Plan. Management Options
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<PAGE>
are not transferable by the optionee other than by will or the laws of descent
and distribution or to facilitate estate planning, and each option is
exercisable during the lifetime of the optionee only by such optionee.
The Management Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Management Options granted as of
the dated hereof are nonqualified stock options. The term of each option granted
pursuant to the Management Plan may be established by the Committee, in its sole
discretion; provided, however, that the maximum term of each option granted
pursuant to the Management Plan is eight years. Options shall become exercisable
at such times and in such installments as the Committee shall provide in the
terms of each individual option agreement.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
- -----------------------------------
On June 10, 1997, the Board of Directors approved the grant of stock
options ("Director Options") to purchase 20,000 shares of Common Stock to each
of its five non-employee directors. Each option has an exercise price of $14.00
per share and a term of ten years vesting ratably over three years. Director
Options are not transferable by the optionee other than by will or the laws of
descent and distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee.
-40-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding (i) the
beneficial ownership of the Common Stock as of December 2, 1997 based upon the
most recent information available to the Company for (i) each person known by
the Company who owns beneficially more than five percent of the Common Stock,
(ii) each of the Company's executive officers and directors and (iii) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, each stockholder's address is c/o the Company, 77 Metro Way,
Secaucus, New Jersey 07094.
<TABLE>
<CAPTION>
NAMES AND ADDRESS OF BENEFICIAL OWNER
NUMBER OF SHARES PERCENTAGE OWNERSHIP
BENEFICIALLY OWNED OF COMMON STOCK
------------------ ---------------
<S> <C> <C>
Arthur S. Levine 341,333(1) 4.8%
Clifford B. Cohn 6,667(2) *
William J. Nightingale 6,667(2) *
Larry G. Schafran 6,667(2) *
Robert L. Sind 6,667(2) *
Olivier Trouveroy 6,667(2) *
Gregg I. Marks 42,767(3) 0.6%
Lester E. Schreiber 21,384(4) 0.3%
Dennis P. Kelly -- *
ING Equity Partners, L.P. I
135 East 57 Street
New York, N.Y. 10022 610,971(5) 8.8%
Officers and Directors as a group (9 persons) 438,819(6) 6.1%
</TABLE>
- ----------------------
(1) Includes 310,063 shares of Common Stock issuable upon exercise of currently
exercisable Management Options, 6,254 shares of Common Stock subject to the
Holdback and 25,016 shares issued to Alco Design Associates, Inc.
(2) Includes 6,667 shares of Common Stock issuable upon exercise of currently
exercisable options.
(3) Includes 42,767 shares of Common Stock issuable upon exercise of currently
exercisable Management Options.
(4) Includes 21,384 shares of Common Stock issuable upon exercise of currently
exercisable Management Options.
(5) Includes 119,043 shares of Common Stock subject to the Holdback. Mr.
Trouveroy, a director of the Company, is a partner of ING Equity Partners,
L.P. He disclaims beneficial ownership of all securities beneficially owned
by ING Equity Partners, L.P.
(6) Includes 407,549 shares of Common Stock issuable upon exercise of currently
exercisable Management Options.
-41-
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued an aggregate of 6,800,000 shares of Common Stock
and 12.75% Senior Notes in the aggregate principal amount of $110 million. Of
such Common Stock and Senior Notes, 1,350,131 shares of Common Stock and
$12,141,438 principal amount of Senior Notes were issued to the Selling
Stockholders and are being offered pursuant to this Prospectus. The Selling
Stockholders may effect sales of shares of Common Stock and Senior Notes from
time to time by themselves, their pledgees and/or their donees, in transactions
(which may include block transactions) on the over-the-counter market, in
negotiated transactions, through the writing of options on the Common Stock or
Senior Notes or a combination of such methods of sale, at a fixed price or at
prices that may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders, their pledgees and/or their
donees, may effect such transactions by selling Common Stock and Senior Notes
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of shares of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Company has agreed to bear all expenses in connection with the registration of
the Securities. The Selling Shareholders shall pay any underwriting discounts or
commissions relating to the Securities sold by them pursuant to this Prospectus.
The Selling Stockholders, their pledgees and/or their donees, and any
broker-dealers that act in connection with the sale of the shares of the
Securities as principals may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any commissions received by them and
any profit on the resale of the shares of the Securities as principals might be
deemed to be underwriting discounts and commissions under the Securities Act.
The Selling Stockholders, their pledgees and/or their donees, may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Securities against certain liabilities, including
liabilities arising under the Securities Act.
The following table sets forth certain information with respect to
persons for whom the Company is registering the Securities for resale to the
public. Beneficial ownership of the Securities by such Selling Shareholders
after the offering will depend on the number of Selling Shareholders' Securities
sold by each Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL MAXIMUM
OWNERSHIP AMOUNT TO
PRIOR TO OFFERING BE SOLD
----------------- -------
<S> <C> <C>
SELLING SHAREHOLDER
COMMON STOCK
Betje Partners 8,732(1) 8,732(1)
Phaeton BVI 17,336(2) 17,336(2)
Phoenix Partners 25,054(3) 25,054(3)
Endowment Restart 44,603(4) 44,603(4)
Morgens Waterfall Income Partners 23,344(5) 23,344(5)
Restart Partners I, L.P. 141,137(6) 141,137(6)
Restart Partners II, L.P. 210,944(7) 210,944(7)
Restart Partners III, L.P. 147,932(8) 147,932(8)
Restart Partners IV, L.P. 89,015(9) 89,015(9)
Restart Partners V, L.P. 31,063(10) 31,063(10)
ING Equity Partners, L.P. I 610,971(11) 610,971(11)
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<PAGE>
TOTAL SHARES OF COMMON STOCK 1,350,131 1,350,131
SENIOR NOTES (12)
Betje Partners $31,170(13) $31,170(13)
Phaeton BVI $61,884(14) $61,884(14)
Phoenix Partners $89,434(15) $89,434(15)
Endowment Restart $159,217(16) $159,217(16)
Morgens Waterfall Income Partners $83,330(17) $83,330(17)
Restart Partners I, L.P. $503,808(18) $503,808(18)
Restart Partners II, L.P. $752,995(19) $752,995(19)
Restart Partners III, L.P. $528,061(20) $528,061(20)
Restart Partners IV, L.P. $317,750(21) $317,750(21)
Restart Partners V, L.P. $110,884(22) $110,884(22)
General Motors Retirement Program for Salaried
Employees High Yield Account $800,000 $800,000
The Prudential Series Fund, Inc. High Yield Bond
Portfolio $2,200,000 $2,200,000
Dreyfus Short-Term High Yield Fund $1,317,519 $1,317,519
Dreyfus Premier Limited Term High Income $3,000,000 $3,000,000
ING Equity Partners, L.P. I $2,185,386(23) $2,185,386(23)
TOTAL SENIOR NOTES $12,141,438 $12,141,438
</TABLE>
- ----------------------
(1) Includes 1,615 shares of Common Stock subject to the Holdback.
(2) Includes 3,206 shares of Common Stock subject to the Holdback.
(3) Includes 4,633 shares of Common Stock subject to the Holdback.
(4) Includes 8,248 shares of Common Stock subject to the Holdback.
(5) Includes 4,317 shares of Common Stock subject to the Holdback.
(6) Includes 26,099 shares of Common Stock subject to the Holdback.
(7) Includes 39,007 shares of Common Stock subject to the Holdback.
(8) Includes 27,355 shares of Common Stock subject to the Holdback.
(9) Includes 16,461 shares of Common Stock subject to the Holdback.
(10) Includes 5,744 shares of Common Stock subject to the Holdback.
(11) Includes 119,043 shares of Common Stock subject to the Holdback.
(12) Refers to face amount of the Senior Notes.
(13) Includes $25,996 face amount of Senior Notes subject to the Holdback.
(14) Includes $51,611 face amount of Senior Notes subject to the Holdback.
(15) Includes $77,588 face amount of Senior Notes subject to the Holdback.
(16) Includes $132,786 face amount of Senior Notes subject to the Holdback.
(17) Includes $69,497 face amount of Senior Notes subject to the Holdback.
(18) Includes $420,173 face amount of Senior Notes subject to the Holdback.
(19) Includes $627,994 face amount of Senior Notes subject to the Holdback.
(20) Includes $440,400 face amount of Senior Notes subject to the Holdback.
(21) Includes $265,002 face amount of Senior Notes subject to the Holdback.
(22) Includes $92,477 face amount of Senior Notes subject to the Holdback.
(23) Includes $1,823,133 face amount of Senior Notes subject to the Holdback.
-43-
<PAGE>
CERTAIN TRANSACTIONS
Prior to the separation from Leslie Fay, Arthur S. Levine was a
principal in two companies that provided design and consulting services to the
Company and its subsidiaries. Those consulting arrangements ceased as of June 4,
1997. For the 1996 and 1997 fiscal years, Mr. Levine received $3,402,642 and
$1,487,920, respectively, as compensation for such consulting services. Payments
totaling $236,000 were made to the two companies in August 1997 for services
rendered prior to June 5, 1997. No amounts remain outstanding with the two
entities.
DESCRIPTION OF CAPITAL STOCK
The following is a summary description of the Company's capital stock,
the Senior Notes and certain provisions of the Company's Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The following
discussion is qualified in its entirety by reference to such exhibits.
COMMON STOCK
- ------------
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $0.01 per share. Prior to this offering, there were issued and
outstanding 6,800,000 shares of Common Stock.
PREFERRED STOCK
- ---------------
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $0.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions.
No shares of preferred stock will be outstanding as of the closing of
this offering, and the Company has no present plans for the issuance thereof.
The issuance of any such preferred stock could adversely affect the rights of
the holders of Common Stock and, therefore, reduce the value of the Common
Stock. The ability of the Board of Directors to issue preferred stock could
discourage, delay, or prevent a takeover of the Company.
VOTING, SHAREHOLDERS' MEETINGS AND RESOLUTIONS
- ----------------------------------------------
Holders of Common Stock have one vote for each share held on all
matters submitted to a vote of shareholders. The quorum required for an ordinary
meeting of shareholders consists of at least a majority of the voting power of
the outstanding shares of the Company entitled to vote generally in the election
of directors, represented in person or by proxy. The chairman of the meeting or
a majority of the shares voting at such meeting may adjourn such meeting from
time to time, whether or not there is a quorum. No notice of the time and place
of adjourned meetings need be given except as required by law.
An ordinary resolution (such as resolutions for the election of
directors, the declaration of dividends and the appointment of auditors)
requires approval by the holders of a majority of the Common Stock represented
at the meeting, in person or by proxy, and voting thereon. A special or
extraordinary resolution (such as resolutions regarding mergers, consolidations,
and winding up) requires approval of the holders of at least 80% of the Common
Stock then outstanding, including the affirmative vote of the holders of at
least 80% of the voting
-44-
<PAGE>
power of the then outstanding voting stock not owned directly or indirectly by
an interested stockholder or any affiliate of any interested stockholder.
DIVIDEND AND LIQUIDATION RIGHTS
- -------------------------------
Subject to the prior rights of any series of preferred stock which may
from time to time be outstanding, if any, holders of Common Stock are entitled
to receive dividends when, as, and if declared by the Board of Directors out of
funds legally available therefor and, upon the liquidation, dissolution or
winding up of the Company, are entitled to share ratably in all assets remaining
after payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
other securities. The outstanding Common Stock is, and the Common Stock to be
outstanding upon completion of this offering will be, duly authorized and
validly issued, fully paid and nonassessable.
In case of a stock dividend (or bonus shares), holders of each class of
Common Stock are entitled to receive Common Stock of one class, whether such
class existed prior thereto or was created therefor, or shares of the same class
which conferred upon the holder the right to receive such dividend.
TRANSFER OF COMMON STOCK; TRANSFER AGENT AND REGISTRAR
- ------------------------------------------------------
Fully paid shares of Common Stock are issued in registered form and may
be transferred freely. Each shareholder of record is entitled to receive at
least ten days' prior notice of shareholders' meetings. The Transfer Agent and
Registrar in the United States for the Company's Common Stock is American Stock
Transfer.
ELECTION OF DIRECTORS
- ---------------------
The Shares do not have cumulative voting rights in the election of
Directors. Thus, the holders of the Common Stock conferring more than 50% of the
voting power have the power to elect all the Directors, to the exclusion of the
remaining shareholders. See "Principal Stockholders."
SENIOR NOTES
- ------------
The Senior Notes were issued pursuant to an Indenture Agreement dated
June 4, 1997 between the Company and IBJ Schroder Bank & Trust Company, as
trustee. The Senior Notes bear interest at an annual rate of 12.75% payable
semi-annually in arrears and mature on March 31, 2004. The Senior Notes are
unsecured obligations of the Company and rank PARI PASSU with the Company's
other permitted unsecured indebtedness which, under the terms of the Indenture,
include (i) restricted investments in existence as of June 4, 1997; (ii)
certificates of deposit with final maturities of one year or less issued by
commercial banks chartered in the United States of America (a "Commercial Bank")
with capital and surplus in excess of $100 million; (iii) commercial paper rated
at least P-1 by Moody's Investors Service, Inc. or at least A-1 by Standard &
Poor's Corporation; (iv) direct obligations issued by the United States of
America or any agency thereof with a maturity not more than one year from the
date of acquisition; (v) money market preferred stock rated A or above; (vi)
tax-exempt floating rate option tender bonds backed by a letter of credit issued
by a Commercial Bank rated AA by Standard & Poor's Corporation or AA by Moody's
Investors Service, Inc.; and (vii) equity or debt investments in wholly-owned
subsidiaries with lines of business similar to that of the Company or any of its
subsidiaries' existing lines of business. The Senior Notes may be redeemed
starting January 1, 2000 at the Company's option, in whole or in part, at a
prepayment premium.
-45-
<PAGE>
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
- ------------------------------------------------------------------
The Company believes the issuance of the Common Stock and the Senior
Notes was exempt from the registration requirements of the Securities Act and
the equivalent state securities and "blue sky" laws pursuant to Section
1145(a)(1) of the U.S. Bankruptcy Code. Generally, Section 1145(a)(1) of the
Bankruptcy Code exempts the offer and sale of securities under a bankruptcy plan
of reorganization from registration under the Securities Act and under
equivalent state securities and "blue sky" laws if the following requirements
are satisfied: (i) the securities are issued under a plan of reorganization by
the debtor or a successor to the debtor under the plan; (ii) the recipients of
the securities hold a claim against the debtor, an interest in the debtor or a
claim for an administrative expense against the debtor; and (iii) the securities
are issued entirely in exchange for the recipient's claim against or interest in
the debtor or are issued "principally" in such exchange and "partly" for cash or
property. The Company believes that the offer and exchange of the Common and the
Senior Notes under the Reorganization Plan satisfies such requirements and
therefore, such offer and exchange is exempt from the registration requirements
referred to above.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
- ---------------------------------------------------
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). In general, this statute prohibits a publicly
held Delaware corporation from engaging, under certain circumstances, in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder unless (i) prior to the date at which the stockholder became an
interested stockholder, the Board of Directors approved either the business
combination or the transaction in which the person became an interested
stockholder; (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of the
transaction in which the stockholder became an interested stockholder; or (iii)
the business combination is approved by the Board of Directors and by at least
66-2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder) at a meeting of stockholders (and not by
written consent) held on or subsequent to the date such stockholder became an
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 15% or more of the corporation's voting stock. Section 203
defines a "business combination" to include, without limitation, mergers,
consolidations, stock sales and asset-based transactions and other transactions
resulting in a financial benefit to the interested stockholder.
LIMITATION ON DIRECTOR'S LIABILITY
- ----------------------------------
In accordance with the DGCL, the Certificate of Incorporation provides
that the directors of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for breach of duty as a director except
(i) for any breach of the director's duty of loyalty to the Company and its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct, or knowing violation of law; (iii) under Section 174 of
the DGCL, which relates to unlawful payments of dividends and unlawful stock
repurchases and redemptions; or (iv) for any transaction from which the director
derived an improper personal benefit. This provision does not eliminate a
director's fiduciary duties; it merely eliminates the possibility of damage
awards against a director personally which may be occasioned by certain
unintentional breaches (including situations that may involve grossly negligent
business decisions) by the director of those duties. The provision has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission, which might be necessitated by a director's breach of his or her
fiduciary duties. However, equitable remedies may not be available as a
practical matter where transactions (such as merger transactions) have already
been consummated. The inclusion of this
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<PAGE>
provision in the Certificate of Incorporation may have the effect of reducing
the likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders.
INDEMNIFICATION
- ---------------
The Certificate of Incorporation provides that the Company shall
indemnify its officers, directors, employees and agents to the fullest extent
permitted by the DGCL. Section 145 of the DGCL provides that the Company may
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than a "derivative"
action by or in the right of the Company) by reason of the fact that such person
is or was a director, officer, employee or agent of the Company, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that no indemnification shall be made where the person is adjudged to be
liable to the Company, unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action was brought
determines that such person is fairly and reasonably entitled to such indemnity
and such expenses.
-47-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have an aggregate of
6,800,000 shares of Common Stock outstanding. Of these shares, 6,774,894 shares
of Common Stock of which 1,350,131 are offered hereby will be freely tradeable
without restriction or limitation under the Securities Act, except for any
shares purchased by "affiliates" of the Company, as such term is defined under
the Securities Act. The remaining 25,016 shares will be "restricted securities"
within the meaning of Rule 144 adopted under the Securities Act.
Of the 6,800,000 shares of Common Stock outstanding, 6,774,894 shares
are exempt from the registration requirements of the Securities Act under
Section 1145(a) of the Bankruptcy Code. Such shares are deemed to be issued in a
registered public offering under the Securities Act and, therefore, may be
resold by any holder thereof without registration under the Securities Act
pursuant to the exemption provided by Section 4(1) thereof, unless the holder is
an "underwriter" with respect to such securities, as that term is defined in
Section 1145(b)(1) of the Bankruptcy Code.
Section 1145(b) of the Bankruptcy Code defines "underwriter" for
purposes of the Securities Act as one who (a) purchases a claim with a view to
distribution of any security to be received in exchange for the claim, or (b)
offers to sell securities issued under a plan for the holders of such
securities, or (c) offers to buy securities issued under a plan for persons
receiving such securities, if the offer to buy is made with a view to
distribution of such securities, or (d) is an issuer of the securities within
the meaning of Section 2(11) of the Securities Act (or a "control person" of the
issuer, i.e. officers, directors and 10% shareholders of the issuer). Shares
held by such persons will be deemed to be "restricted securities" under Rule 144
under the Securities Act and may be resold without registration pursuant to the
resale provisions of Rule 144A under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year and persons who are deemed "affiliates" of the Company,
are entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(68,000 shares of Common Stock immediately after this offering) or the average
weekly trading volume in the Company's Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about the Company. However, a person who is not deemed to
have been an "affiliate" of the Company at any time during the three months
preceding a sale and who has beneficially owned restricted securities for at
least two years, would be entitled to sell his shares under Rule 144 without
regard to the volume limitations, manner-of-sale provisions, notice or current
public information requirements. The foregoing summary of Rule 144 is not
intended to be a complete description thereof.
The Company's shares of Common Stock and Senior Notes currently trade
in the over-the counter market. No predictions can be made of the effect, if
any, that market sales of restricted shares of Common Stock or their eligibility
for sale under Rule 144 will have on the market price prevailing from time to
time. Nevertheless, sales of substantial amounts of the restricted Common Stock
on the public market could adversely affect such market price and could impair
the Company's future ability to raise capital through the sale of equity
securities.
-48-
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been
passed upon for the Company by Parker Chapin Flattau & Klimpl, LLP, New York,
New York.
EXPERTS
The combined balance sheets of the Company as of December 28, 1996 and
December 30, 1995 and the combined statements of operations, shareholder's
equity and cash flows for each of the three years in the period ended December
28, 1996 included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving the said reports.
The consolidated balance sheet of the Company as of June 4, 1997
included in this Prospectus has been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report thereto and is included in
reliance upon the authority of said firm as experts in giving the said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in the exhibits and schedules thereto as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60604 and Seven World Trade Center, New York, New York 10048.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also makes electronic filings publicly
available on the Internet within 24 hours of acceptance. The Commission's
Internet address is http:\\www.sec.gov. The Commission's web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission.
Upon the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, will file
periodic reports and other information with the Commission. The Company intends
to furnish its stockholders and the holders of Senior Notes with annual reports
containing audited financial statements and such interim reports as it deems
appropriate and as may be required by law.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Registration Statement on Form T-3 filed with the
Commission on April 14, 1997 and the Report on Form 8-K filed on July 14, 1997
(File No. 022-22269) are hereby incorporated by reference.
-49-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS PAGE
- ---------------------------- ----
Report of Arthur Andersen LLP...............................................F-2
Combined Balance Sheets of the Company at December 28, 1996
and December 30, 1995................................................F-3
Combined Statements of Operations for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994...........F-4
Combined Statements of Divisional Equity for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994...........F-5
Combined Statements of Cash Flows for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994...........F-6
Notes to Combined Financial Statements for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994...........F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
- --------------------------------------
Unaudited Condensed Consolidated/Combined Balance Sheets at
October 4, 1997, June 4, 1997 and September 28, 1996................F-20
Unaudited Condensed Consolidated/Combined Statements
of Operations for the period from inception through
October 4, 1997, the Five Months Ended June 4, 1997,
and the Nine Months Ended September 28, 1996........................F-21
Unaudited Condensed Consolidated/Combined Statements of Shareholders'
Equity for the period from inception through October 4, 1997,
the Five Months Ended June 4, 1997, and the Nine Months
Ended September 28, 1996............................................F-22
Unaudited Condensed Consolidated/Combined Statements of Cash
Flows for the period from inception through October 4, 1997,
the Five Months Ended June 4, 1997, and the Nine
Months Ended September 28, 1996.....................................F-23
Notes to Condensed Consolidated/Combined Financial Statements
for the period from inception through October 4, 1997,
the Five Months Ended June 4, 1997, and the Nine
Months Ended September 28, 1996.....................................F-25
AUDITED FINANCIAL STATEMENTS
- ----------------------------
Report of Arthur Andersen LLP...............................................F-36
Consolidated Balance Sheet of the Company at June 4, 1997...................F-37
Notes to Consolidated Balance Sheet at June 4, 1997 (inception).............F-38
F-1
<PAGE>
Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
The Leslie Fay Companies, Inc.:
We have audited the accompanying combined balance sheets of Sassco Fashions,
Ltd. (a division of The Leslie Fay Companies, Inc., a Delaware corporation),
Asia Expert Limited, Tomwell Limited and Viewmon Limited (each of which are
either direct or indirect wholly owned subsidiaries of The Leslie Fay Companies,
Inc. and incorporated in Hong Kong), collectively referred to herein as
"Sassco," as of December 28, 1996 and December 30, 1995, and the related
combined statements of operations and divisional equity and cash flows for the
fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994.
These financial statements are the responsibility of the management of The
Leslie Fay Companies, Inc.. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sassco as of December 28, 1996
and December 30, 1995, and the results of their operations and their cash flows
for the fiscal years ended December 28, 1996, December 30, 1995 and December 31,
1994 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
May 2, 1997, except for Note 12,
as to which the date is June 4, 1997
F-2
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
A DIVISION OF THE LESLIE FAY COMPANIES, INC.
(A DEBTOR IN POSSESSION - NOTE 1)
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS DECEMBER 28, DECEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................................... $ 1,886 $ 1,819
Accounts receivable-net of allowances for possible losses
of $18,369 and $15,532, respectively .............................. 55,389 47,936
Inventories ....................................................... 84,425 84,446
Prepaid expenses and other current assets ......................... 1,877 1,978
-------- --------
Total Current Assets .......................................... 143,577 136,179
-------- --------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $8,084 and $6,539,
respectively ........................................................... 11,904 6,467
Excess of Purchase Price over Net Assets Acquired-net of
accumulated amortization of $8,035 and $7,342, respectively ............ 17,400 17,982
Deferred Charges and Other Assets ...................................... -- 1,481
-------- --------
Total Assets .................................................. $172,881 $162,109
======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities:
Accounts payable .................................................. $ 11,412 $ 15,351
Accrued expenses and other current liabilities .................... 3,862 9,125
Income taxes payable .............................................. 403 2,032
-------- --------
Total Current Liabilities ................................... 15,677 26,508
Commitments and Contingencies .......................................... -- --
Divisional Equity ...................................................... 157,204. 135,601
-------- --------
Total Liabilities and Divisional Equity ........................... $172,881 $162,109
======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-3
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession - Note 1)
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Sales .............................. $311,550 $279,974 $250,748
Cost of Sales .......................... 238,268 207,161 180,192
-------- -------- --------
Gross profit ...................... 73,282 72,813 70,556
-------- -------- --------
Operating Expenses:
Selling, warehouse, general and
administrative expenses ................ 50,263 49,604 42,010
Depreciation and Amortization .......... 2,238 2,033 1,486
-------- -------- --------
Total operating expenses .......... 52,501 51,637 43,496
-------- -------- --------
Operating income ....................... 20,781 21,176 27,060
Interest and Financing Costs ........... 1,634 525 450
-------- -------- --------
Income before provision for income taxes 19,147 20,651 26,610
Provision for Income Taxes ............. 7,659 8,260 10,644
-------- -------- --------
Net Income ............................. $ 11,488 $ 12,391 $ 15,966
======== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-4
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession - Note 1)
COMBINED STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Divisional Equity, beginning of year ...................... $ 135,601 $ 109,563 $ 97,259
Net Income ................................................ 11,488 12,391 15,966
Less: Net increase (decrease) in investment with Leslie Fay 10,115 13,647 (3,662)
--------- --------- ---------
Divisional Equity, end of year ............................ $ 157,204 $ 135,601 $ 109,563
========= ========= =========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-5
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession - Note 1)
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
--------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 11,488 $ 12,391 $ 15,966
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization .................................... 1,546 1,456 1,006
Amortization of excess purchase price over
net assets acquired ......................................... 693 577 577
Excess of cost over fair value of assets acquired ................ (111) (1,524) --
Change in provision for possible losses on accounts receivable ... 2,836 2,636 3,056
(Increase) Decrease in:
Accounts receivable ............................................ (10,290) (8,313) (1,068)
Inventories .................................................... 21 (22,900) (15,836)
Prepaid expenses and other current assets ...................... 101 (1,361) 190
Deferred charges and other assets .............................. 1,481 (1,155) (16)
Increase (Decrease) in:
Accounts payable, accrued expenses and other
current liabilities ....................................... (9,202) 7,397 79
Income taxes payable ........................................... (1,629) 743 462
-------- -------- --------
Total adjustments ......................................... (14,554) (22,444) (11,550)
-------- -------- --------
Net cash (used in)/provided by operating activities ...... (3,066) (10,053) 4,416
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures net of proceeds from the sale of fixed assets (6,982) (3,149) (1,272)
-------- -------- --------
Net cash (used in) investing activities .................. (6,982) (3,149) (1,272)
-------- -------- --------
Cash Flows from Financing Activities:
Net increase (decrease) in cash invested with Leslie Fay ......... 10,115 13,647 (3,662)
-------- -------- --------
Net cash provided by/(used in) financing activities ...... 10,115 13,647 (3,662)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............... 67 445 (518)
Cash and cash equivalents, at beginning of period .................. 1,819 1,374 1,892
-------- -------- --------
Cash and cash equivalents, at end of period ........................ $ 1,886 $ 1,819 $ 1,374
======== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-6
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession - Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION:
Sassco Fashions, Ltd. ("Sassco") is a division of The Leslie Fay
Companies, Inc. ("Leslie Fay"), a Delaware corporation operating its business as
a debtor in possession subject to the jurisdiction and supervision of the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). The combined financial statements herein presented include the
operations of three related Hong Kong corporations, Asia Expert Limited ("AEL"),
Tomwell Limited ("Tomwell") and Viewmon Limited ("Viewmon"), none of which are
part of the Leslie Fay bankruptcy proceeding. These three Hong Kong corporations
are subsidiaries of Leslie Fay that procure and arrange for the manufacture of
apparel products in the Far East solely for the benefit of Sassco. The combined
financial statements of Sassco, AEL, Tomwell and Viewmon (Sassco being sometimes
individually referred to, and together with its related entities collectively
referred to, as the "Company" as the context may require) have been prepared on
a stand-alone basis in accordance with generally accepted accounting principles
applicable to a going concern. The Company's fiscal year ends on the Saturday
closest to December 31st. The fiscal years ended December 28, 1996 ("1996"),
December 30, 1995 ("1995"), and December 31, 1994 ("1994") included 52 weeks in
each year.
On April 29, 1997, the Bankruptcy Court confirmed Leslie Fay's Plan of
Reorganization (the "Plan") (see Note 11). The Plan called for the spin-off of
Sassco as a newly organized entity and will consist of Sassco, AEL, Tomwell,
Viewmon, Sassco Europe and ASL Retail (collectively referred to as "Sassco
Fashions, Ltd.").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) BUSINESS
The Company is principally engaged in the design and sale of women's
apparel.
(b) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Sassco, AEL,
Tomwell, Viewmon, Sassco Europe and ASL Retail. All significant intercompany
balances and transactions have been eliminated in combination.
(c) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reflected at fair value because of the
short term maturity of these instruments.
F-7
<PAGE>
(d) CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months
or less at the date of acquisition are classified as cash equivalents.
(e) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out;
"FIFO") or market.
(f) PROPERTY, PLANT AND EQUIPMENT
Land, buildings, fixtures, equipment and leasehold improvements are
recorded at cost. Major replacements or betterments are capitalized. Maintenance
and repairs are charged to earnings as incurred. For financial statement
purposes, depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets.
(g) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired is amortized on a
straight-line basis, primarily over a forty year period. In 1995, Sassco Europe
purchased assets from Leslie Fay and recorded excess purchase price over net
assets acquired of $1,043,500.
The Company continually evaluates, based upon income and/or cash flow
projections and other factors as appropriate, whether events and circumstances
have occurred that indicate that the remaining estimated useful life of this
asset warrants revision or that the remaining balance of this asset may not be
recoverable.
(h) DIVISIONAL EQUITY
Divisional equity as used in these financial statements, represents a
summary of all intercompany activity between Sassco and Leslie Fay and its
affiliates as well as the accumulation of earnings.
(i) FOREIGN CURRENCY TRANSLATION
The functional currency of the Hong Kong subsidiaries is the U.S.
dollar, and remeasurement gains and losses (which were not material) are
included in determining net income for the period.
(j) INCOME TAXES
Leslie Fay and its subsidiaries file a consolidated Federal income tax
return. As a division of Leslie Fay, Sassco is not a separate taxable entity.
Its results have been included in Leslie Fay's consolidated Federal income tax
return. AEL, Tomwell and Viewmon file separate tax returns in Hong Kong. Income
taxes have been provided for herein as if the Company had filed a separate
return in the United States, in addition to the separate returns mentioned
above. The Company accounts for income taxes under the liability method. Under
this method, any deferred income taxes recorded are provided for at currently
enacted statutory rates on the differences in the basis of assets and
liabilities for tax and financial reporting purposes. If recorded, deferred
income taxes are classified in the balance sheet as current or non-current based
upon the expected future period in which such deferred income taxes are
anticipated to reverse.
F-8
<PAGE>
(k) USE OF ESTIMATES
The financial statements are prepared in conformity with generally
accepted accounting principles, such preparation requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
3. INVENTORIES:
Inventories consist of the following:
December 28, December 30,
1996 1995
---- ----
(In thousands)
Raw materials $25,061 $36,035
Work in process 30 23
Finished goods 59,334 48,388
------- -------
Total inventories $84,425 $84,446
------- -------
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 28, December 30, Estimated
1996 1995 Useful Lives
------- ------- ------------
(In thousands)
<S> <C> <C> <C>
Land and buildings $ 32 $ 32 25-40 years
Building under capitalized lease
obligation 122 122 Term of lease
Machinery, equipment and fixtures 11,179 7,256 5-10 years
Leasehold improvements 5,044 4,331 5 years
Construction in progress 3,611 1,265 N/A
------- -------
Property, plant and equipment, at cost 19,988 13,006
Less: Accumulated depreciation and
amortization 8,084 6,539
------- -------
Total property, plant and equipment, net $11,904 $ 6,467
======= =======
</TABLE>
F-9
<PAGE>
5. DEBT:
(a) FNBB CREDIT AGREEMENT/DIP CREDIT AGREEMENT
Leslie Fay utilizes a centralized cash management system. As such, cash
has not been allocated on a divisional level. Cash and cash equivalents on the
accompanying balance sheets is primarily held by AEL, Tomwell and Viewmon. On
occasion, the Company has required funding from Leslie Fay for short periods.
The Company has not reflected either interest income or interest expense on
centralized cash balances or borrowings in the statement of operations. Interest
expense on the accompanying combined statements of operations and divisional
equity represents fees for letters of credit utilized by Sassco during
respective fiscal years.
In connection with Leslie Fay's chapter 11 filing on April 5, 1993,
Leslie Fay and certain of its subsidiaries entered into an interim post-petition
credit agreement with Citibank N.A. On April 28, 1993, Leslie Fay refinanced
this agreement when they entered into a Post-Petition Credit Agreement (the "DIP
Credit Agreement") which was to expire on the earlier of April 26, 1994 or the
consummation of a plan of reorganization.
In April 1994, the Bankruptcy Court signed an order approving an
amendment to the DIP Credit Agreement which extended this facility until April
27, 1995. This DIP Credit Agreement was further amended to extend the facility
until December 15, 1995, subject to Bankruptcy Court approval. On May 2, 1995, a
replacement credit facility for a new $80,000,000 credit agreement with The
First National Bank of Boston ("FNBB") and BankAmerica Business Credit, Inc.
("BABC"), as facility Agents and FNBB as Administrative Agent (the "FNBB Credit
Agreement") was approved by the Bankruptcy Court. This facility replaced the
original post-petition credit agreement (the "DIP Credit Agreement") and was
subsequently extended twice and currently matures on the earlier of (i) May 16,
1997, (ii) the date of termination of the Commitments (as the term is defined in
the FNBB Credit Agreement) or (iii) the first date on which a reorganization
plan for the Company is substantially consummated. The FNBB Credit Agreement
provides for post-petition direct borrowings and the issuance of letters of
credit on Leslie Fay's behalf in an aggregate amount not exceeding $80,000,000,
subject to being permanently reduced on an equal basis for any net cash proceeds
received from the sale of assets after March 20, 1995 for which the cumulative
proceeds exceed $20,000,000 up to a maximum of $40,000,000 on a cumulative
basis. On November 15, 1995, the facility was amended to reduce the aggregate
borrowing limit to $60,000,000, and beginning January 1, 1996 a sublimit for
borrowings under the revolving line of credit was set at $15,000,000 and a
sublimit for letters of credit was set at $50,000,000. No qualifying asset sales
have been made which would reduce the facility borrowing limits. Direct
borrowings bear interest at prime plus 1.5% (9.75% at December 28, 1996 and
10.0% at December 30, 1995 and December 31, 1994).
The FNBB Credit Agreement as amended contains certain reporting
requirements, as well as financial and operating covenants through December 28,
1996, related to minimum and maximum inventory levels, capital expenditures and
attainment of minimum earnings before reorganization, interest, taxation,
depreciation and amortization. As collateral for borrowings under the FNBB
Credit Agreement, Leslie Fay has granted to FNBB and BABC a security interest in
substantially all assets of Leslie Fay, including the Sassco division assets. In
addition, the FNBB Credit Agreement contains certain restrictive covenants
including limitations on the incurrence of additional liens and indebtedness and
a prohibition on paying dividends. Leslie Fay is in compliance with all
covenants contained in the FNBB Credit Agreement.
The above Facilities were utilized during 1996, 1995 and 1994 primarily
to provide letter of credit facilities to Sassco and Leslie Fay's other
divisions. Approximately $17,692,000, $24,847,200 and $21,401,000,
F-10
<PAGE>
respectively, was committed under unexpired letters of credit as of December 28,
1996 and December 30, 1995, and December 31, 1994, relating to Sassco.
(b) NEW COMPANY FINANCING AGREEMENTS
On February 24, 1997, the Bankruptcy Court approved in substance the
term sheet from a financial institution to provide financing for Sassco
Fashions, Ltd. upon consummation of Leslie Fay's Plan of Reorganization. This
agreement takes effect upon consummation of the Plan. The financing agreement
for Sassco Fashions, Ltd. provides a revolving line of credit and letters of
credit to support their working capital needs. This agreement contains financial
operating covenants and other limitations which require Sassco Fashions, Ltd. to
achieve a level of profitability within a range included in Leslie Fay's
December 5, 1996 Disclosure Statement For Amended Joint Plan of Reorganization.
6. INCOME TAXES:
The financial statements reflect an effective tax rate of 40%, which
reasonably reflects what the Company's tax rate would have been as a separate
company. Deferred taxes are reflected as a component of divisional equity as
Leslie Fay is the taxable legal entity.
For 1996, 1995 and 1994, the following provisions for income taxes were
made:
1996 1995 1994
------- ------- -------
Current: (In thousands)
Federal $ 5,744 $ 6,195 $ 8,044
State 1,302 1,409 1,829
Foreign 613 656 771
------- ------- -------
Provision for income taxes $ 7,659 $ 8,260 $10,644
======= ======= =======
F-11
<PAGE>
The difference between the Company's effective income tax rate and the
statutory federal income tax rate for 1996, 1995 and 1994, respectively, is as
follows:
1996 1995 1994
--------- --------- ---------
(In thousands, except percentages)
Provision for income taxes $ 7,659 $ 8,260 $ 10,644
========= ========= =========
Income before taxes $ 19,147 $ 20,651 $ 26,610
========= ========= =========
Effective tax rate 40.0% 40.0% 40.0%
Net state tax (6.8) (6.8) (6.9)
Foreign tax rate differential 2.8 2.8 2.9
Other (1.0) (1.0) (1.0)
--------- --------- ---------
Federal statutory rate 35.0% 35.0% 35.0%
========= ========= =========
At December 28, 1996, Leslie Fay had consolidated federal tax loss
carryforwards of $135,100,000 expiring in 2009, 2010 and 2011. No benefit with
respect to these tax loss carryforwards has been reflected in the accompanying
financial statements.
7. COMMITMENTS AND CONTINGENCIES:
(a) LEASES
The Company rents real and personal property under leases expiring at
various dates through 1999. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses. Total rent expenses charged to
operations for 1996, 1995 and 1994, amounted to $4,356,709, $2,498,608 and
$2,659,000, respectively.
F-12
<PAGE>
Minimum annual rental commitments under leases in effect at December
28, 1996 are summarized as follows:
(In thousands)
REAL ESTATE EQUIPMENT
& OTHER
1997 $ 3,808 $ 56
1998 3,397 56
1999 2,488 25
2000 2,032 --
2001 1,781 --
Later years 8,520 --
------- -------
Total minimum lease payments $22,026 $ 137
======= =======
(b) LEGAL PROCEEDINGS
On April 5, 1993, Leslie Fay and several of its subsidiaries filed
voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy
Code. All civil litigation commenced against Leslie Fay and those referenced
subsidiaries prior to that date has been stayed under the Bankruptcy Code.
(c) SETTLEMENT OF LABOR DISPUTE
On July 8, 1994 Leslie Fay and the International Ladies Garment
Workers' Union (the "ILGWU") reached a negotiated settlement agreement (the
"ILGWU Agreement") following a six-week labor strike which commenced at the end
of the expiration of the contract period, May 31, 1994. The Final Settlement
Agreement was approved by the Bankruptcy Court on September 15, 1995 and all
payments were made by December 1995.
(d) ILGWU NATIONAL RETIREMENT FUND
Leslie Fay is obligated to contribute to the ILGWU Retirement Fund (the
"Fund"), a multi-employer pension fund, pursuant to its collective bargaining
agreement with the ILGWU. The Fund has filed a proof of claim with the
Bankruptcy Court for Leslie Fay's estimated withdrawal liability representing
its allocable share of unfunded vested benefits under the Multi-employer Pension
Plan Amendments Act ("MPPA") of the Employee Retirement Income Security Act. The
Fund's most recent estimate of Leslie Fay's withdrawal liability through plan
year 1996 is approximately $14,875,000. In February 1997, the Company and the
Fund resolved the claim for withdrawal liability within reserves that had been
established for the claim (included in Liabilities subject to compromise). It
has not been determined what effect, if any, this will have on Sassco. As such,
no reserve has been provided in the accompanying financial statements.
F-13
<PAGE>
(e) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade accounts receivable. The Company's customers are not concentrated in any
specific geographic region, but are concentrated in the retail apparel business.
In 1996, three customers accounted for 19%, 16% and 12% of the Company's sales.
In 1995, three customers accounted for 21%, 14% and 12% of the Company's sales.
In 1994, three customers accounted for 17%, 15% and 11% of the Company's sales.
The Company has established an allowance for possible losses based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
(f) GEOGRAPHIC SEGMENTS
Identifiable assets in the United States and the Far East are
$104,129,600 and $68,751,800 at December 28, 1996 and $86,047,500 and
$76,061,000 at December 30, 1995, and $72,877,000 and $55,054,000 at December
31, 1994, respectively. The Company's Hong Kong entities sole source of revenues
comes from intercompany transactions as their sole function is to procure and
arrange for the manufacture of apparel in the Far East for Sassco.
8. RELATED PARTY TRANSACTIONS:
(a) INTERCOMPANY ACTIVITIES
Leslie Fay has provided services to Sassco, including but not limited
to financial, systems and legal services, administration of benefit and
insurance programs, income tax management, cash management and treasury
services. These financial statements include an allocation of Leslie Fay's
administrative expenses totaling $1,858,969, $10,781,475 and $8,653,436 for
1996, 1995 and 1994, respectively. In addition, Sassco incurred $5,737,054 of
administrative expenses in 1996. Management estimates that Sassco would have
incurred $5,550,000 and $5,225,000 in 1995 and 1994, respectively, relative to
the type of services provided to it by Leslie Fay, had Sassco been operating as
an unaffiliated entity. This estimate does not include costs associated with the
factoring of receivable which would have been approximately $136,000, $1,120,000
and $960,000 in 1996, 1995 and 1994 respectively. In addition, Sassco incurred
$1,161,900 of factoring charges from Heller Financial in 1996.
In 1994 Sassco engaged in transactions with Leslie Fay U.K. Limited and
Leslie Fay Canada Inc., subsidiaries of Leslie Fay, both of which have ceased
operations, and Leslie Fay's Retail Outlet division. Although no transactions
occurred between Sassco and these entities in 1996 and 1995, sales and gross
margin related to these transactions totaled $10,772,000 and $2,814,000,
respectively, for 1994.
Sassco has taken possession of the Albert Nipon trademark in 1996.
Royalty income of $798,000 in 1996 is included as an offset to Sassco operating
expenses. In 1995 and 1994, royalty income of $835,000 and $1,033,000,
respectively, relating to this trademark was included in the books and records
of Leslie Fay.
(b) CONSULTING SERVICES
Sassco is a party to a consulting agreement with Alco Design
Associates, Inc. ("Alco"), whereby Alco performs consulting services relating to
the manufacture and importation of apparel for Sassco. The senior executive of
Sassco is a controlling stockholder of Alco. This consulting agreement had been
continuing on a
F-14
<PAGE>
month to month basis and has been terminated effective June 4, 1997. During
1996, 1995 and 1994, charges associated with this agreement were $2,176,047,
$3,958,567 and $4,347,000, respectively.
AEL, Viewmon and Tomwell are parties to a consulting agreement with
Kerrison Trading Co. ("Kerrison"), whereby Kerrison performs consulting services
relating to the manufacture and importation into the United States of apparel
for Sassco and the manufacturing operations of Tomwell. The senior executive of
Sassco and the senior executive of AEL are controlling stockholders of Kerrison.
This consulting agreement had been continuing on a month to month basis and was
subsequently terminated effective June 4, 1997. During 1996, 1995 and 1994,
charges associated with this agreement were $2,459,000, $2,277,000 and
$2,057,000, respectively.
(c) OTHER
AEL sources product from two factories in Hong Kong which are
controlled by the husband of the senior executive of AEL. In February 1997, the
senior executive of AEL resigned from the Company. The Company believes that all
purchases were made under ordinary and customary practices of the industry.
During 1996, 1995 and 1994, AEL purchased goods from these two factories in the
amount of $20,344,000, $19,204,000 and $16,117,000, respectively.
F-15
<PAGE>
9. RETIREMENT PLANS:
(a) DEFINED BENEFIT PLAN
In January 1992, Leslie Fay established a non-contributory defined
benefit pension plan covering certain salaried, hourly and commission-based
employees. Sassco employees participate in this plan. Plan benefits are based
upon the participants' salaries and years of service. The plan has been amended
to freeze benefit accruals effective December 31, 1994 and to terminate the plan
effective December 31, 1996. Investments are made primarily in U.S. Government
obligations and common stock. The following major assumptions were used in the
actuarial valuations:
1996 1995 1994
---- ---- ----
Discount rate 7.5% 8.8% 8.8%
Long-term rate of return on assets 8.8% 8.8% 8.8%
Average increase in compensation N/A N/A 5.0%
Net periodic pension cost was recognized by Leslie Fay in 1996, 1995
and 1994, respectively, of $195,000, $341,000 and $234,000. The components of
this cost are as follows:
(In thousands)
1996 1995 1994
----- ----- -----
Service costs $ -- $ -- $ 860
Interest cost 127 223 124
Actual return on assets (111) 417 64
SFAS No. 88 net curtailment gain -- -- (507)
Recognition of partial settlement of pension 106 200 --
obligations
Net amortization and deferral 73 (499) (307)
----- ----- -----
Net periodic pension cost $ 195 $ 341 $ 234
===== ===== =====
Net periodic pension cost charged to Sassco in 1996, 1995 and 1994,
respectively, was $107,000, $85,000 and $238,000.
The following table summarizes the funding status of the plan at
December 28, 1996 and December 30, 1995:
F-16
<PAGE>
Actuarial present value of benefit obligations: (In thousands)
Accumulated benefit obligation: 1996 1995
------- -------
Vested $(2,034) $(1,639)
Non-vested (97) (196)
------- -------
Total accumulated benefit obligation $(2,131) $(1,835)
======= =======
Projected benefit obligation $(2,131) $(1,835)
Estimated fair value of assets 1,062 1,359
------- -------
Excess of projected benefit obligation
over plan assets (1,069) (476)
Unrecognized prior service costs -- 262
Unrecognized net loss -- 313
Additional minimum liability under SFAS No. 87 -- (575)
Leslie Fay Accrued Pension Costs $(1,069) $ (476)
======= =======
The above accrued pension costs have not been allocated to Sassco.
Under the requirements of SFAS No. 87 - "Employers' Accounting for
Pension", an additional minimum pension liability representing the excess of
accumulated benefits over plan assets and accrued pension costs, was recognized
at December 30, 1995. A corresponding amount was recognized as an intangible
asset to the extent of unrecognized prior service costs with the balance
recorded as a separate reduction of stockholders' equity. As a result of the
plan termination, the Company recorded an additional $676,000 as reorganization
expenses to write-off these assets and record an additional liability to fully
fund the plan in the fourth quarter of 1996.
(b) DEFINED CONTRIBUTION PLAN
Leslie Fay also maintains a qualified voluntary contributory profit
sharing plan covering certain salaried, hourly and commission-based employees,
which also covers some Sassco employees. Certain matching contributions to the
plan are mandatory. Other contributions to the plan are discretionary. Total
contributions to the plan may not exceed the amount permitted as a deduction
pursuant to the Internal Revenue Code. The contributions charged to Sassco for
1996, 1995 and 1994, amounted to $175,000, $130,000 and $113,000, respectively.
(c) OTHER
Leslie Fay participates in multi-employer pension plans, which also
cover certain Sassco employees. Such plans were underfunded as of January 1,
1994. The plans provide defined benefits to unionized employees. Amounts charged
to Sassco's operations for contributions to the pension funds in 1996, 1995 and
1994, amounted to approximately $629,400, $545,400 and $422,000.
The Company does not provide for postemployment or postretirement
benefits other than the plans described above.
F-17
<PAGE>
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest and income taxes were as follows:
(In thousands)
1996 1995 1994
---- ---- ----
Interest $496 $525 $450
Income taxes $626 $230 $255
11. LESLIE FAY BANKRUPTCY
As mentioned in Note 1, Leslie Fay was operating its business as a
debtor in possession subject to the jurisdiction of the Bankruptcy Court. On
April 5, 1993, Leslie Fay and certain of its wholly owned subsidiaries filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), as a result of the announcement of accounting
irregularities, numerous stockholder and other party lawsuits filed against the
Company and its directors, and the breach of certain provisions of its financing
agreement at the time. On February 28, 1997, Leslie Fay filed an Amended Joint
Plan of Reorganization pursuant to Chapter 11 of the Bankruptcy Code. The Plan
has been approved by the creditors and on April 29, 1997, the Bankruptcy Court
confirmed the Plan. Refer to the consolidated financial statements of Leslie Fay
for the fiscal year ended December 28, 1996, included in Leslie Fay's Annual
Report on Form 10-K, for more information regarding Leslie Fay's bankruptcy
proceedings and reorganization case.
Leslie Fay's ability to continue as a going concern is dependent upon
the confirmation of a plan of reorganization by the Bankruptcy Court, securing
ongoing debtor in possession financing, compliance with all debt covenants under
their debtor in possession financing, the achievement of profitable operations
and positive cash flow, a favorable resolution of certain legal proceedings
against Leslie Fay, the success of future operations, the resolutions of future
uncertainties in the Chapter 11 cases and legal proceedings as discussed in
Notes 2 and 8, respectively, of Notes to the Consolidated Financial Statements
contained in the 1996 Form 10-K, and the ability to obtain financing for its
operations that will enable it to emerge from Chapter 11. Because of the
uncertainties relating to Leslie Fay's bankruptcy and future operations, the
financial condition of Leslie Fay raises substantial doubt as to Sassco's
ability to continue as a going concern. In addition, Sassco is supported by the
overall financing facility of Leslie Fay. The accompanying combined financial
statements do not include any adjustments relating to recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should Sassco be unable to continue as a
going concern.
12. SUBSEQUENT EVENTS
At the close of business on June 4, 1997, Leslie Fay emerged from
bankruptcy and Sassco Fashions, Ltd. emerged as a newly organized separate
entity.
On June 4, 1997, the Plan was consummated by Leslie Fay 1) transferring
the equity interest in both Leslie Fay and Sassco, to its creditors in exchange
for relief from the aggregate amount of the claims estimated at $338,000,000; 2)
assigning to certain creditors the ownership rights to notes aggregating
$110,000,000 payable by Sassco; and 3) transferring the assets (including
$10,963,000 of cash) and liabilities of the then Sassco division to Sassco and
the assets and liabilities of Leslie Fay Dress and Sportswear divisions to three
wholly owned subsidiaries of Leslie Fay. In addition, Leslie Fay retained
approximately $41,080,000 in cash, of which $23,580,000 will be used to pay
administrative claims as defined in the Plan. As provided for in the Plan, the
Company will issue eighty (80%) percent of its 6,800,000 of new shares to its
creditors in July 1997.
F-18
<PAGE>
The remaining twenty (20%) percent will be held back pending the resolutions of
certain litigation before the Bankruptcy Court. On June 4, 1997, Leslie Fay
emerged from bankruptcy and Kasper has emerged as a newly organized separate
entity.
The effects of the Company's reorganization under Chapter 11 will be
accounted for in the Company's financial statements using the principles
required by the American Institute of Certified Public Accountants' Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to such principles, the
Company's assets, upon emergence from Chapter 11 will be stated at
"reorganization value", which is defined as the value of the entity before
considering liabilities on a going-concern basis following the reorganization
and represents the estimated amount a willing buyer would pay for the assets of
the Company immediately after the reorganization. The reorganization value for
the Company will be determined by reference to the remaining liabilities plus
the estimated value of shareholders' equity of the outstanding shares of the
Common Stock. The reorganization value of the Company will be allocated to the
assets of the Company in conformity with the procedures specified by Accounting
Principles Board Opinion No. 16, Business Combinations, for transactions
reported on the basis of the purchase method of accounting. In this allocation,
identifiable assets were valued at estimated fair values, and any excess
reorganization value has been recorded as "reorganization value in excess of
amounts allocated to identifiable assets" (a long-term intangible asset similar
to "goodwill").
F-19
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
---------- | -----------------------
ASSETS OCTOBER 4, | June 4, December 28,
1997 | 1997 1996
-------- | -------- --------
(Unaudited) | (Unaudited)
<S> <C> <C> <C>
Current Assets: |
Cash and cash equivalents $ 1,805 | $ 2,061 $ 1,886
Accounts receivable-net of allowances for possible losses of |
$17,933, $14,021 and $18,369, respectively 75,170 | 50,666 55,389
Inventories 62,209 | 60,267 84,425
Prepaid expenses and other current assets 3,075 | 2,957 1,877
-------- | -------- --------
Total Current Assets 142,259 | 115,951 143,577
-------- | -------- --------
Property, Plant and Equipment, at cost less accumulated |
depreciation and amortization of $2,386, $8,968 and |
$8,084, respectively 14,087 | 14,002 11,904
Excess of Purchase Price over Net Assets Acquired-net of |
accumulated amortization of $8,312 and $8,035, |
respectively -- | 17,097 17,400
Reorganization value in excess of identifiable assets, net of |
accumulated amortization of $1,100 64,081 | -- --
Trademarks, net of accumulated amortization of $486 50,514 | -- --
Other Assets, at cost less accumulated amortization of $368 3,183 | -- --
-------- | -------- --------
Total Assets $274,124 | $147,050 $172,881
======== | ======== ========
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
Current Liabilities: |
Accounts payable $ 14,744 | $ 9,941 $ 11,412
Accrued expenses and other current liabilities 8,294 | 4,097 3,862
Income taxes payable 4,070 | 649 403
-------- | -------- --------
Total Current Liabilities 27,108 | 14,687 15,677
Long-Term Liabilities: |
Long-Term Debt 110,000 | -- --
Bank Revolver 12,664 | -- --
-------- | -------- --------
Total Liabilities 149,772 | 14,687 15,677
Commitments and Contingencies |
Shareholders' Equity: |
Common Stock, $0.01 par value; 20,000,000 shares |
authorized; 6,800,000 shares issued and outstanding 68 | -- --
Preferred Stock, $0.01 par value; 1,000,000 shares |
authorized; none issued and outstanding |
Capital in excess of par value 119,932 |
Retained Earnings 4,314 |
Divisional Equity -- | 132,363 157,204
Cumulative Translation Adjustment 38 |
-------- | -------- --------
Total Shareholders' Equity 124,352 | 132,363 157,204
Total Liabilities and Shareholders' Equity $274,124 | $147,050 $172,881
======== | ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated/Combined Financial Statements
are an integral part of these financial statements.
F-20
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
RECOGNIZED |
COMPANY | PREDECESSOR COMPANY
---------- | -----------------------
FOUR MONTHS | FIVE MONTHS NINE MONTHS
ENDED | ENDED ENDED
OCTOBER 4, | JUNE 4, SEPTEMBER 28,
1997 | 1997 1996
---------- | ---------- ----------
(Unaudited)| (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net Sales $ 120,659 | $ 136,107 $ 247,630
Cost of Sales 86,685 | 101,479 185,577
---------- | ---------- ----------
Gross profit 33,974 | 34,628 62,053
Operating Expenses: |
Selling, warehouse, general and |
administrative expenses 18,005 | 23,374 38,145
Depreciation and Amortization 2,662 | 1,191 1,629
---------- | ---------- ----------
Total operating expenses 20,667 | 24,565 39,774
---------- | ---------- ----------
Operating income 13,307 | 10,063 22,279
Interest and Financing Costs 5,462 | 667 1,645
---------- | ---------- ----------
Income before provision for income taxes 7,845 | 9,396 20,634
Provision for Income Taxes 3,531 | 3,758 8,253
---------- | ---------- ----------
Net Income $ 4,314 | $ 5,638 $ 12,381
========== | ========== ==========
Net Income per share 0.63 |
========== |
Weighted average number of shares used in |
computing Income per Share 6,800,000 |
========== |
</TABLE>
The accompanying Notes to Condensed Consolidated/Combined Financial Statements
are an integral part of these financial statements.
F-21
<PAGE>
KASPER, A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
NINE MONTHS ENDED SEPTEMBER 28, 1996 - PREDECESSOR COMPANY
DIVISIONAL
EQUITY
---------------
(Unaudited)
BALANCE AT DECEMBER 30, 1995 $ 135,601
Net Income for the period 12,381
Increase in investment with Leslie Fay 35,112
---------------
BALANCE AT SEPTEMBER 28, 1996 $ 183,094
===============
FIVE MONTHS ENDED JUNE 4, 1997 - PREDECESSOR COMPANY
DIVISIONAL
EQUITY
---------------
(Unaudited)
BALANCE AT DECEMBER 28, 1996 $ 157,204
Net Income for the period 5,638
Decrease in investment with Leslie Fay (30,479)
---------------
BALANCE AT JUNE 4, 1997 $ 132,363
===============
FOUR MONTHS ENDED OCTOBER 4, 1997 - REORGANIZED COMPANY
<TABLE>
<CAPTION>
CAPITAL
IN CUMULATIVE
COMMON EXCESS TRANSLATION RETAINED
STOCK OF PAR ADJUSTMENT EARNING TOTAL
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 4, 1997 -- -- -- -- --
Common Stock issued to Leslie Fay
Creditors $ 68 $119,932 $ -- $ -- 120,000
Translation Adjustment for the period -- -- 38 -- 38
Net Income for the period -- -- -- 4,314 4,314
-------- -------- -------- -------- --------
BALANCE AT OCTOBER 4, 1997 $ 68 $119,932 $ 38 $ 4,314 $124,352
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated/Combined Financial Statements
are an integral part of these financial statements.
F-22
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
----------- | ----------------------------
FOUR MONTHS | FIVE MONTHS NINE MONTHS
ENDED | ENDED ENDED
----------- | ----------- -----------
OCTOBER 4, | JUNE 4, SEPTEMBER 28,
1997 | 1997 1996
----------- | ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) | (unaudited) (unaudited)
<S> <C> <C> <C>
Net income $ 4,314 | $ 5,638 $ 12,381
Adjustments to reconcile net income to net cash provided |
by/(used in) operating activities: |
Depreciation and amortization 1,578 | 916 1,102
Amortization of reorganization value in excess of |
identifiable assets 1,100 |
Amortization of excess purchase price over net |
Assets acquired | 275 527
Change in provision for possible losses on accounts receivable 3,912 | (4,348) 3,119
Decrease (increase) in: |
Accounts receivable (28,199) | 9,071 (43,415)
Inventories (1,942) | 24,158 531
Prepaid expenses and other current assets (1,332) | (1,080) (1,675)
Deferred charges and other assets | 1,481
Increase (decrease) in: |
Accounts payable, accrued expenses and other |
current liabilities 3,608 | (1,236) (5,376)
Income taxes payable 3,890 | 246 566
-------- | -------- --------
Total adjustments (17,385) | 28,002 (43,140)
-------- | -------- --------
Net cash provided by/(used in) operating activities (13,071) | 33,640 (30,759)
-------- | -------- --------
-- | (26) (40)
Cash flows from investing activities: |
Excess of cost over fair value of assets acquired |
Capital expenditures net of proceeds from the sale of fixed assets (907) | (2,961) (3,570)
-------- | -------- --------
Net cash used in investing activities (907) | (2,987) (3,610)
-------- | -------- --------
|
Cash flows from financing activities: |
Long term debt 12,664 |
Net increase (decrease) in cash invested with Leslie Fay -- | (30,478) 34,824
-------- | -------- --------
Net cash provided by/(used in) financing activities 12,664 | (30,478) 34,824
-------- | -------- --------
Effect of exchange rate changes on cash and cash equivalents 38 |
-------- | -------- --------
Net (decrease) increase in cash and cash equivalents (1,276) | 175 455
|
Cash and cash equivalents, at beginning of period 3,081 | 1,886 1,820
-------- | -------- --------
|
Cash and cash equivalents, at end of period $ 1,805 | $ 2,061 $ 2,275
======== | ======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated/combined Financial Statements
are an integral part of these financial statements.
F-23
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
----------- | ----------------------------
FOUR MONTHS | FIVE MONTHS NINE MONTHS
ENDED | ENDED ENDED
----------- | ----------- -----------
OCTOBER 4, | JUNE 4, SEPTEMBER 28,
1997 | 1997 1996
----------- | ----------- -----------
(UNAUDITED) | (UNAUDITED) (UNAUDITED)
<S> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING AND |
FINANCING ACTIVITIES |
|
NONCASH OPERATING |
Other current assets recorded upon emergence from Bankruptcy $ (23)|
Other current liabilities recorded upon emergence from Bankruptcy $ 4,923 |
Deferred financing costs recorded upon emergence from Bankruptcy $ (2,422)|
|
NONCASH INVESTING |
Elimination of divisional equity upon emergence from Bankruptcy $(132,363)|
Elimination of excess of costs over fair value of assets upon emergence |
from Bankruptcy $ 16,066 |
Establishment of reorganization in excess of identifiable assets upon |
emergence from Bankruptcy $ (65,181)|
Establishment of Trademark valuation upon emergence from |
Bankruptcy $ (51,000)|
|
NONCASH FINANCING |
Senior notes issued to creditors upon emergence from Bankruptcy $ 110,000 |
Issuance of Common Stock to creditors upon emergence from $ 120,000 |
Bankruptcy |
</TABLE>
F-24
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED/COMBINED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The Condensed Consolidated Financial Statements included herein have
been prepared by Kasper A.S.L., Ltd. (name legally changes from Sassco Fashions,
Ltd. on November 5, 1997) and subsidiaries (Kasper A.S.L., Ltd. being sometimes
referred to, and together with its subsidiaries collectively referred to, as the
"Company" or "Kasper" as the context may require) without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals have been
condensed or omitted from this report; as is permitted by such rules and
regulations; however the Company believes that the disclosures are adequate to
make the information presented not misleading. These Condensed Consolidated
Financial Statements included herein should be read in conjunction with the
combined financial statements and the notes thereto included in this
registration statement for the fiscal year ended December 28, 1996.
In the Opinion of management, the accompanying interim Condensed
Consolidated Financial Statements contain all material adjustments necessary to
present fairly the Condensed Consolidated financial condition, results of
operations, and changes in financial position of shareholders' equity of Kasper
and its subsidiaries for the interim periods presented.
Due to the Company's Reorganization and implementation of Fresh Start
Reporting (see Note 2), the Condensed Consolidated Financial Statements for the
new Reorganized Company (period starting June 5, 1997, the effective date of the
reorganized Company's emergence from bankruptcy) are not comparable to those of
the Predecessor Company.
A black line has been drawn on the accompanying Condensed Consolidated
Financial Statements to distinguish between the reorganized company and the
Predecessor Company.
NOTE 2. FRESH START REPORTING
Kasper was a division of The Leslie Fay Company, Inc. ("Leslie Fay",
formerly The Leslie Fay Companies, Inc.), a Delaware corporation which operated
its business as a debtor in possession subject to the jurisdiction and
supervision of the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court") until June 4, 1997. The Condensed
Consolidated/Combined Financial Statements herein presented include the
operations of three related Hong Kong corporations, Asia Expert Limited ("AEL"),
Tomwell Limited ("Tomwell"), and Viewmon Limited ("Viewmon"), none of which were
part of the Leslie Fay bankruptcy proceeding. These three Hong Kong corporations
were subsidiaries of Leslie Fay (upon emergence from bankruptcy these entities
became subsidiaries of Kasper) that procure and arrange for the manufacture of
apparel products in the Far East solely for the benefit of Kasper. The Condensed
Consolidated/Combined Financial Statements also include the results of Sassco
Europe, Ltd., ASL Retail Outlets, Inc. And ASL/K Licensing Corp., all of which
are wholly owned subsidiaries of the Company. The Condensed
Consolidated/Combined Financial Statements of Kasper, AEL, Tomwell and Viewmon
have been prepared on a stand-alone basis in accordance with generally accepted
accounting principles applicable to a going concern. The predecessor Company
financial data reflects the combined results of Kasper, AEL, Tomwell, Viewmon.
The
F-25
<PAGE>
financial statements of the Reorganized Company are consolidated as opposed to
combined because as of the date of reorganization, the three Hong Kong
corporations became subsidiaries of Kasper. Prior to the reorganization, these
entities were subsidiaries of Leslie Fay and, accordingly, the financial
statements were combined for those periods. The Company's fiscal year ends on
the Saturday closest to December 31st. The fiscal year ended December 28, 1996
("1996") included 52 weeks.
Leslie Fay was operating its business as a debtor in possession subject
to the jurisdiction of the Bankruptcy Court. On April 5, 1993, Leslie Fay and
certain of its wholly owned subsidiaries filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), as a
result of the announcement of accounting irregularities, numerous stockholder
and other party lawsuits filed against the Company and its directors, and the
breach of certain provisions of its financing agreement at the time. On October
31, 1995, the Debtors and the Committee of Unsecured Creditors (the "Creditors
Committee") filed Leslie Fay's Plan of Reorganization (the "Plan") pursuant to
Chapter 11 of the Bankruptcy Code.
The Plan was subsequently amended on March 13, 1996, December 5, 1996,
February 3, 1997 and February 28, 1997. On December 5, 1996, the Debtors filed a
Disclosure Statement for the Amended Joint Plan of Reorganization pursuant to
Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"), which was also
subsequently amended on February 3, 1997 and February 28, 1997. The Plan
provided for, among other things, the separation of the Debtors' estates and
assets into two separate reorganized entities. Under the Plan, stockholders of
the Company would not retain or receive any value for their interest. The
Debtors obtained Bankruptcy Court approval of the Disclosure Statement on
February 28, 1997. The Plan was approved by the creditors and on April 21, 1997,
the Bankruptcy Court confirmed the Plan. Refer to the Condensed Consolidated
Financial Statements of Leslie Fay for the fiscal year ended December 28, 1996,
included in Leslie Fay's Annual Report on Form 10-K, for more information
regarding Leslie Fay's bankruptcy proceedings.
The Plan called for the spin-off of Kasper as a newly organized entity
and which consists of Kasper, AEL, Tomwell, Viewmon, Sassco Europe and ASL
Retail (collectively referred to as "Kasper A.S.L., Ltd. and Subsidiaries).
On June 4, 1997, the Plan was consummated by Leslie Fay 1) transferring
the equity interest in both Leslie Fay and Kasper, to its creditors in exchange
for relief from the aggregate amount of the claims estimated at $338,000,000; 2)
assigning to certain creditors the ownership rights to notes aggregating
$110,000,000 payable by Kasper; and 3) transferring the assets (including
$10,963,000 of cash) and liabilities of the then Sassco division to Kasper and
the assets and liabilities of Leslie Fay's Dress and Sportswear divisions to
three wholly owned subsidiaries of Leslie Fay. In addition, Leslie Fay retained
approximately $41,080,000 in cash, of which $23,580,000 will be used to pay
administrative claims as defined in the Plan. As provided for in the Plan, the
Company has issued eighty (80%) percent of its 6,800,000 of new shares to its
creditors in July 1997. The remaining twenty (20%) percent will be held back
pending the resolutions of certain litigation before the Bankruptcy Court. On
June 4, 1997, Leslie Fay emerged from bankruptcy and Kasper has emerged as a
newly organized separate entity. As a result of the consummation of the Plan.
Kasper reported its financial results for the forty weeks ended October 4, 1997.
This period contains financial statements and notes, including the effects of
the consummation of the Plan.
F-26
<PAGE>
Pursuant to the guidelines provided by SOP 90-7, the Company adopted
fresh-start reporting with a reorganization value of $120,000,000 and allocated
the reorganization value to its net assets on the basis of the purchase method
of accounting.
The fresh-start reporting reorganization value of $120,000,000 was
based on averaging several valuation methodologies prepared by an independent
appraiser. A five-year analysis of the Company's actual and projected operations
(fiscal years ended 1997-2001) was prepared by management and a discounted cash
flow methodology was applied to those numbers. A equity value was determined by
calculating the impact of various assumption changes to the five year
projections and adding the projected cash flows for the first four years to a
"capitalization" of the fifth year's projected cash flow under each assumption.
The fifth year's projected cash flow was capitalized into value and discounted
to the present.
The aggregate cash flow value was then discounted to its present value,
using a discount rate of 14%. The reorganization values were then weighted with
a range between $118,000,000 and $123,000,000, and $120,000,000 was established
as the Company's reorganization value.
The five-year cash flow projections were based on estimates and
assumptions about circumstances and events that have not yet taken place. Such
estimates and assumptions are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Company,
including, but not limited to, those with respect to the future course of the
Company's business activity.
Since fresh-start reporting has been reflected in the accompanying
Condensed Consolidated Balance Sheet as of October 4, 1997, the Condensed
Consolidated Balance Sheet and Statement of Operations as of that date is not
comparable to prior periods.
F-27
<PAGE>
The Reorganization and the adoption of Fresh Start Reporting resulted
in the following adjustments to the Company's Condensed Consolidated Balance
Sheet for the period ended June 4, 1997:
<TABLE>
<CAPTION>
REORGANIZATION
PREDECESSOR FRESH START REORGANIZED
COMPANY ADJUSTMENTS COMPANY
(000s) (000s) (000s)
JUNE 4, 1997 DEBIT CREDIT JUNE 4, 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Total current assets $ 115,951 $A 1,236 $B 1,213 $ 115,974
Property and equipment, net 14,002 -- -- 14,002
Excess of purchase price over net assets acquired 17,097 -- C 16,066 1,031
Reorganization value in excess of
identifiable assets D 65,181 65,181
Other assets -- E 53,422 -- 53,422
--------- --------- ---------- ----------
TOTAL ASSETS $ 147,050 $ 119,839 $ 17,279 $ 249,610
========= ========= ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total current liabilities $ 14,687 $ -- $F 4,923 $ 19,610
Long-term debt G 110,000 110,000
Divisional Equity
Common Stock H 120,000 120,000
Cumulative translation adjustment
Divisional Equity (deficit) 132,363 I 132,363 -- --
--------- --------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 147,050 $ 132,363 $ 234,923 $ 249,610
========= ========= ========== ==========
</TABLE>
The significant fresh-start reporting adjustments are summarized as
follows:
A. Cash and other receivables recorded at closing.
B. Reclass prepaid bank fees to other assets.
C. Elimination of excess of purchase price over net asset
acquired.
D. Allocation of the fair market value of identifiable net assets
in excess of the reorganization value in accordance with the
purchase method of accounting. The goodwill will be amortized
over twenty (20) years.
E. Recording $51,000,000 of trademark valuation and $2,422,000 in
bank commitment and related fees.
F. To record additional liabilities.
G. Recording of $110,000,000 of ten year notes that bear interest
at 12.75% per annum, with interest payable semiannually in
September and March.
H. Recording of the reorganization value of $120,000,000.
I. Cancellation of divisional equity and intercompany accounts
with Leslie Fay.
F-28
<PAGE>
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES:
REORGANIZATION VALUE
Reorganization value in excess of identifiable assets is being
amortized using the straight line method over 20 years. Accumulated amortization
amounted to $1.1 million at October 4, 1997.
TRADEMARKS
Trademarks are being amortized using the straight line method over 35
years which is the estimated useful life. Accumulated amortization amounted to
$486 thousand at October 4, 1997.
F-29
<PAGE>
NOTE 4. COMPONENTS OF CERTAIN BALANCE SHEET ACCOUNTS:
INVENTORIES
Inventories are valued at lower of cost or (first-in, first-out,
"FIFO") market.
The cost of inventories, net of reserves, is distributed as follows:
OCTOBER 4, JUNE 4, DECEMBER 28,
1997 1997 1996
------- ------- -------
(In thousands)
Raw materials $27,145 $29,943 $25,061
Work in process 26 65 30
Finished goods 35,038 30,259 59,334
------- ------- -------
Total inventories $62,209 $60,267 $84,425
======= ======= =======
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, fixtures, equipment and leasehold improvements are
recorded at cost. Major replacements or betterments are capitalized. Maintenance
and repairs are charged to earnings as incurred. For financial statement
purposes, depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets.
SHAREHOLDERS' EQUITY
Shareholders' equity of the Predecessor Company (equity prior to June
4, 1997) is the divisional equity that Kasper maintained while operating as the
Sassco division of Leslie Fay. Divisional equity represents a
F-30
<PAGE>
summary of all intercompany activity between Kasper and Leslie Fay and its
affiliates as well as the accumulation of earnings.
As provided under the Plan, the authorized common stock of the
reorganized Company consists of 20,000,000 shares of common stock with a par
value $.01 per share. At June 4, 1997, 6,800,000 were issued and outstanding and
were being held by the plan administrator in trust. In July 1997, 5,440,000
(80%) of the shares were distributed. The remaining twenty (20%) percent will be
held back pending the resolution of certain disputed claims before the
Bankruptcy Court.
In addition, 1,000,000 shares of Preferred Stock of the reorganized
Company were authorized at June 4,1997 with a par value of $.01. None of such
shares have been issued.
NOTE 5. INCOME TAXES
As a division of Leslie Fay, the Company was not subject to Federal,
State and Local income taxes. Provisions for deferred taxes were not reflected
on the Company's books, but were reflected on Leslie Fay's books and records.
Leslie Fay and its subsidiaries filed a consolidated Federal income tax return.
As a division of Leslie Fay, Kasper was not a separate legal entity. Its results
were included in Leslie Fay's consolidated federal income tax return. AEL,
Tomwell and Viewmon file separate returns in Hong Kong. Income taxes have been
provided for herein as if the Company had filed a separate return in the United
States, in addition to the separate returns mentioned above. The Company
accounts for income taxes under the liability method. Under this method, any
deferred income taxes recorded are provided for at currently enacted statutory
rates on the differences in the basis of assets and liabilities for tax and
financial reporting purposes. If recorded, deferred income taxes are classified
in the balance sheet as current or non-current based upon the expected future
period in which such deferred income taxes are anticipated to reverse.
The financial statements for the Predecessor Company reflect an
effective tax rate of 40%, which reasonably reflects what the Company's tax rate
would have been as a separate company. Deferred taxes were reflected as a
component of divisional equity as Leslie Fay was the taxable legal entity.
For October 4, 1997, June 4, 1997 and December 28, 1996, the following
provisions for income taxes were made:
OCTOBER 4, JUNE 4, DECEMBER 28,
1997 1997 1997
------ ------ ------
(In thousands)
Current:
Federal $2,667 $2,818 $5,744
State 510 639 1,302
Foreign 354 301 613
------ ------ ------
Provision for income taxes $3,531 $3,758 $7,659
====== ====== ======
F-31
<PAGE>
The difference between the Company's effective income tax rate and the
statutory federal income tax rate for October 4, 1997, June 4, 1997 and December
28, 1996, respectively, is as follows:
OCTOBER 4, JUNE 4, DECEMBER 28,
1997 1997 1996
---------- ---------- ---------
(In thousands, except percentages)
Provision for income taxes $ 3,531 $ 3,758 $ 7,659
========== ========== =========
Income before taxes $ 7,845 $ 9,396 $ 19,147
========== ========== =========
Effective tax rate 45.0% 40.0% 40.0%
Net state tax (3.9) (6.8) (6.8)
Foreign tax rate differential (4.5) 2.8 2.8
Other (2.6) (1.0) (1.0)
---------- ---------- ---------
Federal statutory rate 34.0% 35.0% 35.0%
========== ========== =========
At December 28, 1996, Leslie Fay had consolidated federal tax loss
carryforwards of $135,100,000 expiring in 2009, 2010 and 2011. No benefit with
respect to these tax loss carryforwards has been reflected in the June 4, 1997
and December 28, 1996 financial statements. As of October 4, 1997, Kasper has no
net operating loss carryforwards.
NOTE 6. INCOME PER SHARE
The computation of income per common share is based upon the weighted
average number of common shares outstanding during the period. The pro forma
weighted average number of common shares outstanding and pro forma net income
per common share for the periods prior to June 4, 1997 have not been presented
because, due to the restructuring and implementation of Fresh Start Reporting
they are not comparable to subsequent periods.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS and Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed on the weighted average number of shares
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, and earlier adoption is not permitted. The Company does not expect the
adoption of this statement to have a material effect on its financial position
or results of operations.
F-32
<PAGE>
NOTE 7. DEBT:
CREDIT AGREEMENT
On June 4, 1997 the Company entered into a three-year financing
agreement (the "Credit Agreement") with BankBoston ("BOB") to provide direct
borrowings and the issuance of letters of credit on Company's behalf in an
aggregate amount not exceeding $ 100,000,000, with a sublimit on letters of
credit of $50,000,000. Direct borrowings bear interest at the higher of the
annual rate of interest announced from time to time by BOB as its "Base Rate" or
one-half of one percent (0.50%) above the Federal Funds Effective Rate, plus the
Base Rate Applicable Margin of 0.75%. (9.25% at October 4, 1997) and the Credit
Agreement requires a fee, payable monthly, on average outstanding letters of
credit at a rate of 1.75% annually. Direct borrowings of $12,664,000 outstanding
under the BOB Credit Agreement and approximately $21,296,000 was committed under
unexpired letters of credit as of October 4, 1997. The Company has approximately
$24,600,000 available for future borrowings as of October 4, 1997.
The BOB Credit Agreement, as amended, contains certain reporting
requirements, as well as financial and operating covenants related to capital
expenditures and the attainment of a current assets to current liabilities
ratio, an interest to earnings ratio and minimum earnings. As collateral for
borrowings under the BOB Credit Agreement, the Company has granted to BOB a
security interest in substantially all of its assets.
In addition, the BOB Credit Agreement contains certain restrictive
covenants, including limitations on the incurrence of additional liens and
indebtedness and a prohibition on paying dividends. The Company is currently in
compliance with all requirements contained in the BOB Credit Agreement.
The Company paid $2,422,000 in commitment and related fees in
connection with the credit facility in June 1997. These fees are included in
other assets and will be amortized as interest and financing costs over the term
of the Credit Agreement (three years).
LONG TERM DEBT
Pursuant to the reorganization the former creditors of Leslie Fay
received 12.75% Senior Notes in the aggregate principal amount of $110,000,000.
These notes bear interest at twelve and three quarter percent (12.75%) interest
and mature on June 4, 2004. Interest is paid semi-annually on March 31 and
September 30. The Senior Notes contain certain restrictive covenants, including
limitations on the incurrence of additional liens, indebtedness, and a
prohibition on paying dividends.
NOTE 8. COMMITMENTS AND CONTINGENCIES
On April 5, 1993, Leslie Fay and several of its subsidiaries filed
voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy
Code. All civil litigation commenced against Leslie Fay and those referenced
subsidiaries prior to that date was stayed under the Bankruptcy Code. By an
order dated April 30, 1997 (the "Confirmation Order"), the Bankruptcy Court
confirmed the Plan. The Plan was consummated on June 4, 1997.
F-33
<PAGE>
The Confirmation Order, inter alia, dismissed with prejudice all
pending litigation's, and released all claims that could have been brought in
litigation. Both prior to and subsequent to the Filing Dates, various class
action suits were commenced on behalf of certain prior stockholders of the
Company. Any claims against the Company arising out of these suits were
discharged as part of, and in accordance with the terms of the Plan.
Accordingly, whatever the eventual outcome of these cases, there can be no
material financial impact on the Company based on the terms of the Plan.
On November 17, 1997, the Company's wholly-owned subsidiary, Asia
Expert, Ltd. received a letter from the United States Customs Service stating
that a monetary claim in the amount of $694,860 was being contemplated against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor. At this time, the case is in the preliminary stages
of investigation. However, it is the Company's position that its subsidiary did
not knowingly or intentionally participate in any violation of U.S. Custom laws
and the Company intends to vigorously pursue all appropriate legal defenses.
NOTE 9. STOCK OPTION PLANS
In October, 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". This statement establishes a
fair market value based method of accounting for an employee stock option but
allows companies to continue to measure compensation cost for those plans using
the intrinsic value based method prescribed by APB Opinion No. 25 "Accounting
for Stock Issued to Employees". Companies electing to continue using the
accounting under APB Opinion No. 25 must, however, make pro forma disclosure of
net income and earnings per share as if the fair value based method of
accounting in SFAS No. 123 had been applied. The Company has elected to account
for its stock based compensation awards to employees and directors under the
accounting prescribed by APB Opinion No. 25, and will be required to provide the
disclosures required by SFAS No. 123 at year end. The Company does not expect
the adoption of this statement to have a material effect on its financial
position or results of operation.
On December 2, 1997, the Board of Directors approved the 1997
Management Stock Option Plan (the "Management Plan"). To date, the Company has
issued Management Options to purchase 1,753,459 shares of Common Stock, which
upon issuance will represent approximately 20.5% of the Company's outstanding
Common Stock. Such options are exercisable at $14.00 per share and vest as
follows: 25% vested immediately with 15% vesting annually thereafter on June 4
from the years 1998 to 2002. The Management Options expire on June 1, 2003.
The Management Plan provides for the grant to officers and employees of
and consultants to the Company and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company of options
to purchase Common Stock. The total number of shares of Common Stock for which
options may be granted under the Plan is 2,500,000 shares. No participant may be
granted stock options covering in excess of 1,500,000 shares of Common Stock
over the life of the Management Plan. Management Options are not transferable by
the optionee other than by will or the laws of descent and distribution or to
facilitate estate planning, and each option is exercisable during the lifetime
of the optionee only by such optionee.
The Management Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Management Options granted as of
the dated hereof are nonqualified stock options. The term of each option granted
pursuant to the Management Plan may be established by the Committee, in its sole
F-34
<PAGE>
discretion; provided, however, that the maximum term of each option granted
pursuant to the Employee Plan is six and one-half years. Options shall become
exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option agreement.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
On June 10, 1997, the Board of Directors approved the grant of stock
options ("Director Options") to purchase 20,000 shares of Common Stock to each
of its five non-employee directors. Each option has an exercise price of $14.00
per share and a term of ten years vesting ratably over three years. Director
Options are not transferable by the optionee other than by will or the laws of
descent and distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee.
At the date of issuance the FMV was $15.50. The FMV in excess of the
exercise price paid is being amortized over the vesting period.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Kasper A.S.L. Ltd., (formerly
Sassco Fashions, Ltd., a division of the Leslie Fay Companies).
We have audited the accompanying consolidated balance sheet of Kasper A.S.L.
Ltd. (a Delaware Corporation) and subsidiaries as of June 4, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated balance sheet based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As more fully described in Note 2 to the consolidated balance sheet, effective
June 4, 1997, the Company emerged from protection under Chapter 11 of the U.S.
Bankruptcy Code pursuant to a Reorganization Plan which was confirmed by the
Bankruptcy Court on April 21, 1997. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start Reporting" whereby its assets,
liabilities and new capital structure were adjusted to reflect estimated fair
values as of June 4, 1997. As a result, the consolidated financial statements
for the periods subsequent to June 4, 1997 will reflect the Successor Company's
new basis of accounting and are not comparable to the Predecessor Company's
pre-reorganization financial statements.
In our opinion, the consolidated balance sheet referred to above present fairly,
in all material respects, the financial position of Kasper A.S.L. Ltd., and
subsidiaries as of June 4, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, NY
December 5, 1997
F-36
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
Reorganized
Company
June 4,
ASSETS 1997
--------
Current Assets:
Cash and cash equivalents $ 3,081
Accounts receivable-net of allowances for possible losses
of $14,021 50,882
Inventories .................................... 60,267
Prepaid expenses and other current assets 1,744
--------
Total Current Assets 115,974
--------
Property, Plant and Equipment, at cost less accumulated depreciation
and amortization of $1,571 14,002
Reorganization value in excess of identifiable assets............. 65,181
Trademark 51,000
Other Assets, at cost less accumulated amortization of $98 3,453
--------
Total Assets $249,610
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,915
Accrued expenses and other current liabilities 9,046
Income taxes payable 649
--------
Total Current Liabilities 19,610
Long Term Liabilities:
Long Term Debt 110,000
--------
Total Liabilities 129,610
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $0.01 par value; 20,000,000 shares authorized;
6,800,000 shares issued and outstanding 68
Preferred Stock, $0.01 par value; 1,000,000 shares authorized;
none issued and outstanding
Capital in excess of par value 119,932
Retained Earnings --
--------
Total Shareholders' Equity 120,000
--------
Total Liabilities and Shareholders' Equity $249,610
========
The accompanying Notes to the Consolidated Balance sheet are an
integral part of this balance sheet.
F-37
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION
The Consolidated Balance Sheet included herein has been prepared by
Kasper A.S.L., Ltd. (name changed from Sassco Fashions, Ltd. on November 5,
1997) and subsidiaries (Kasper A.S.L., Ltd. being sometimes referred to, and
together with its subsidiaries collectively referred to, as the "Company" or
"Kasper" as the context may require).
Due to the Company's Reorganization and implementation of Fresh
Start Reporting (see Note 2), the Consolidated Balance Sheet for the new
Reorganized Company (period starting June 4, 1997, the effective date of the
reorganized Company's emergence from bankruptcy) are not comparable to those of
the Predecessor Company.
Kasper was a division of The Leslie Fay Company, Inc. ("Leslie
Fay"-formerly The Leslie Fay Companies, Inc.), a Delaware corporation which
operated its business as a debtor in possession subject to the jurisdiction and
supervision of the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court") until June 4, 1997. The Consolidated Balance
Sheet herein presented include the operations of three related Hong Kong
corporations, Asia Expert Limited ("AEL"), Tomwell Limited ("Tomwell"), and
Viewmon Limited ("Viewmon"), none of which were part of the Leslie Fay
bankruptcy proceeding. These three Hong Kong corporations were subsidiaries of
Leslie Fay (upon emergence from bankruptcy these entities became subsidiaries of
Kasper) that procure and arrange for the manufacture of apparel products in the
Far East solely for the benefit of Kasper. This consolidated balance sheet also
includes the balance sheets of Sassco Europe, Ltd., ASL Retail Outlets Inc. and
ASL/K Licensing Corp., all of which are wholly owned subsidiaries of the
Company. The Consolidated Balance Sheet has been prepared on a stand-alone basis
in accordance with generally accepted accounting principles applicable to a
going concern.
Leslie Fay was operating its business as a debtor in possession
subject to the jurisdiction of the Bankruptcy Court. On April 5, 1993, Leslie
Fay and certain of its wholly owned subsidiaries filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"),
as a result of the announcement of accounting irregularities, numerous
stockholder and other party lawsuits filed against the Company and its
directors, and the breach of certain provisions of its financing agreement at
the time. On October 31, 1995, the Debtors and the Committee of Unsecured
Creditors (the "Creditors Committee") filed the Plan pursuant to Chapter 11 of
the Bankruptcy Code.
The Plan was subsequently amended on March 13, 1996, December 5,
1996, February 3, 1997 and February 28, 1997. On December 5, 1996, the Debtors
filed a Disclosure Statement for the Amended Joint Plan of Reorganization
pursuant to Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"),
which was also subsequently amended on February 3, 1997 and February 28, 1997.
The Plan provided for, among other things, the separation of the Debtors'
estates and assets into two separate reorganized entities. Under the Plan,
stockholders of the Company would not retain or receive any value for their
interest. The Debtors obtained Bankruptcy Court approval of the Disclosure
Statement on February 28, 1997. The Plan was approved by the creditors and on
April 21, 1997, the Bankruptcy Court confirmed the Plan. Refer to the
Consolidated Financial Statements of Leslie Fay for the fiscal year ended
December 28, 1996, included in Leslie Fay's Annual Report on Form 10-K, for more
information regarding Leslie Fay's bankruptcy proceedings.
F-38
<PAGE>
The Plan called for the spin-off of Kasper as a newly organized
entity and will consist of Kasper, AEL, Tomwell, Viewmon, Sassco Europe and ASL
Retail (collectively referred to as "Kasper A.S.L., Ltd. and Subsidiaries").
On June 4, 1997, the Plan was consummated by Leslie Fay 1)
transferring the equity interest in both Leslie Fay and Kasper, to its creditors
in exchange for relief from the aggregate amount of the claims estimated at
$338,000,000; 2) assigning to certain creditors the ownership rights to notes
aggregating $110,000,000 payable by Kasper; and 3) transferring the assets
(including $10,963,000 of cash) and liabilities of the Sassco division to Kasper
and the assets and liabilities of Leslie Fay's Dress and Sportswear divisions to
three wholly owned subsidiaries of Leslie Fay. In addition, Leslie Fay retained
approximately $41,080,000 in cash, of which $23,580,000 will be used to pay
administrative claims as defined in the Plan. As provided for in the Plan, the
Company has issued eighty (80%) percent of its 6,800,000 of new shares to its
creditors in July 1997. The remaining twenty (20%) percent will be held back
pending the resolutions of certain litigation before the Bankruptcy Court. On
June 4, 1997, Leslie Fay emerged from bankruptcy and Kasper has emerged as a
newly organized separate entity.
NOTE 2. FRESH START REPORTING
The effects of the Company's reorganization under Chapter 11 have
been accounted for in the Company's Balance Sheet using principles required by
the American Institute of Certified Public Accountants - Statement of Position
90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code ("Fresh Start Accounting"). Pursuant to the guidelines provided by SOP
90-7, the Company adopted fresh-start reporting with a reorganization value of
$120,000,000 and allocated the reorganization value to its net assets on the
basis of the purchase method of accounting.
The fresh-start reporting reorganization value of $120,000,000 was
based on averaging several valuation methodologies prepared by an independent
appraiser. A five-year analysis of the Company's actual and projected operations
(fiscal years ended 1997-2001) was prepared by management and a discounted cash
flow methodology was applied to those numbers. A equity value was determined by
calculating the impact of various assumption changes to the five year
projections and adding the projected cash flows for the first four years to a
"capitalization" of the fifth year's projected cash flow under each assumption.
The fifth year's projected cash flow was capitalized into value and discounted
to the present.
The aggregate cash flow value was then discounted to its present
value, using a discount rate of 14%. The reorganization values were then
weighted with a range between $118,000,000 and $123,000,000, and $120,000,000
was established as the Company's reorganization value.
The five-year cash flow projections were based on estimates and
assumptions about circumstances and events that have not yet taken place. Such
estimates and assumptions are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Company,
including, but not limited to, those with respect to the future course of the
Company's business activity.
Since fresh-start reporting has been reflected in the accompanying
Consolidated Balance Sheet as of June 4, 1997, the Consolidated Balance Sheet as
of that date is not comparable to prior periods.
F-39
<PAGE>
The Reorganization and the adoption of Fresh Start Reporting
resulted in the following adjustments to the Company's Consolidated Balance
Sheet for the period ended June 4, 1997:
<TABLE>
<CAPTION>
REORGANIZATION
PREDECESSOR FRESH START REORGANIZED
COMPANY ADJUSTMENTS COMPANY
JUNE 4, 1997 DEBIT CREDIT JUNE 4, 1997
---------- ---------- ---------- ---------
ASSETS (in thousands)
<S> <C> <C> <C> <C>
Total current assets $ 115,951 $A 1,236 $B 1,213 $ 115,974
Property and equipment, net 14,002 14,002
Excess of purchase price over net assets acquired 17,097 C 16,066 1,031
Reorganization value in excess of
identifiable assets D 65,181 65,181
Other assets E 53,422 53,422
---------- ---------- ---------- ---------
TOTAL ASSETS $ 147,050 $ 119,839 $ 17,279 $ 249,610
========== ========== ========== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total current liabilities $ 14,687 $ -- $F 4,923 $ 19,610
Long-term debt -- -- G 110,000 110,000
Divisional Equity
Common Stock -- -- H 120,000 120,000
Divisional Equity 132,363 I 132,363 -- --
---------- ---------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 147,050 $ 132,363 $ 234,923 $ 249,610
========== ========== ========== =========
</TABLE>
The significant fresh-start reporting adjustments are summarized as
follows:
A. Cash and other receivables recorded at closing.
B. Reclass prepaid bank fees to other assets.
C. Elimination of excess of purchase price over net asset
acquired.
D. Allocation of the fair market value of identifiable net assets
in excess of the reorganization value in accordance with the
purchase method of accounting. The goodwill will be amortized
over twenty (20) years.
E. Recording $51,000,000 of trademark valuation and $2,422,000 in
bank commitment and related fees.
F. To record additional liabilities.
G. Recording of $110,000,000 of ten-year notes that bear interest
at 12.75% per annum, with interest payable semiannually in
September and March.
H. Recording of the reorganization value of $120,000,000.
I. Cancellation of divisional equity and intercompany accounts
with Leslie Fay.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) BUSINESS -
The Company is principally engaged in the design and sale of women's
apparel.
F-40
<PAGE>
(B) PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of
Sassco, AEL, Tomwell, Viewmon, Sassco Europe and ASL Retail. All significant
intercompany balances and transactions have been eliminated in consolidation.
(C) FAIR VALUE OF FINANCIAL INSTRUMENTS -
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reflected at fair value
because of the short term maturity of these instruments.
(D) USE OF ESTIMATES -
The financial statements are prepared in conformity with generally
accepted accounting principles, such preparation requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
(E) REORGANIZATION VALUE -
Reorganization value in excess of identifiable assets is being
amortized using the straight-line method over 20 years. The Company will
continually evaluate, based upon income and/or cash flow projections and other
factors as appropriate, whether events and circumstances have occurred that
indicate that the remaining estimated useful life of this asset warrants
revision or that the remaining balance of this asset may not be recoverable.
(F) TRADEMARKS -
Trademarks are being amortized using the straight-line method over
35 years which is the estimated useful life.
(G) CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three
months or less at the date of acquisition are classified as cash equivalents
(H) INVENTORIES -
Inventories are valued at the lower of cost (first-in, first-out;
"FIFO") or market.
(I) PROPERTY, PLANT AND EQUIPMENT -
Land, buildings, fixtures, equipment and leasehold improvements are
recorded at cost. Major replacements or betterments are capitalized. Maintenance
and repairs are charged to earnings as incurred. For financial statement
purposes, depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets.
F-41
<PAGE>
(J) INCOME TAXES -
The Company accounts for income taxes in accordance with SFAS 109.
Under this method, any deferred income taxes recorded are provided for at
currently enacted statutory rates on the differences in the basis of assets and
liabilities for tax and financial reporting purposes. If recorded, deferred
income taxes are classified in the balance sheet as current or non-current based
upon the expected future period in which such deferred income taxes are
anticipated to reverse.
NOTE 4. INVENTORIES:
Inventories, net of reserves, consist of the following:
June 4,
1997
(in thousands)
--------------
Raw materials $29,943
Work in process 65
Finished goods 30,259
-------
Total inventories $60,267
=======
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
JUNE 4, ESTIMATED
1997 USEFUL LIVES
---- ------------
(In thousands)
Machinery, equipment and fixtures $ 10,665 5 - 10 years
Leasehold improvements 4,805 5 years
Construction in Progress 103 N/A
--------
Property, plant and equipment, at cost 15,573
Less: Accumulated depreciation and
amortization (1,571)
--------
Total property, plant and equipment, net $ 14,002
========
NOTE 6. DEBT:
CREDIT AGREEMENT -
On June 4, 1997 the Company entered into a three-year financing
agreement (the "Credit Agreement") with BankBoston ("BOB") to provide direct
borrowings and the issuance of letters of credit on Company's behalf in an
aggregate amount not exceeding $ 100,000,000, with a sublimit on letters of
credit of $50,000,000. Direct borrowings bear interest at the higher of the
annual rate of interest announced from time to time by BOB as its "Base Rate" or
one-half of one percent (0.50%) above the Federal Funds Effective Rate, plus the
Base Rate Applicable Margin of 0.75%. (9.25% at June 4, 1997) and the Credit
Agreement requires a fee, payable monthly, on average outstanding letters of
credit at a rate of 1.75% annually.
F-42
<PAGE>
The BOB Credit Agreement, as amended, contains certain reporting
requirements, as well as financial and operating covenants related to capital
expenditures and the attainment of a current assets to current liabilities
ratio, an interest to earnings ratio and minimum earnings. As collateral for
borrowings under the BOB Credit Agreement, the Company has granted to BOB a
security interest in substantially all of its assets. In addition, the BOB
Credit Agreement contains certain restrictive covenants, including limitations
on the incurrence of additional liens and indebtedness and a prohibition on
paying dividends.
The Company paid $2,422,000 in commitment and related fees in
connection with the credit facility in June 1997. These fees are included in
other assets and will be amortized as interest and financing costs over the term
of the Credit Agreement (three years).
LONG TERM DEBT -
Pursuant to the reorganization the former creditors of Leslie Fay
received 12.75% Senior Notes in the aggregate principal amount of $110,000,000.
These notes bear interest at twelve and three quarter percent (12.75%) and
mature on June 4, 2004. Interest is paid semi-annually on March 31 and September
30. The Senior Notes contain certain restrictive covenants, including
limitations on the occurrence of additional liens, indebtedness, and a
prohibition on paying dividends.
NOTE 7. SHAREHOLDERS EQUITY:
As provided under the Plan, the authorized common stock of the
reorganized company consist of 20,000,000 shares of common stock with a par
value of $.01 per share. At June 4, 1997, 6,800,000 were issued and outstanding
and were being held by the plan administrator in trust. In July 1997, 5,440,000
(80%) of the shares were distributed. The remaining twenty (20%) will be held
back pending the resolution of certain disputed claims before the Bankruptcy
Court. In addition, 1,000,000 shares of Preferred Stock of the new reorganized
Company were authorized at June 4, 1997 with a par value of $.01. None of the
shares have been issued.
NOTE 8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS -
On April 5, 1993, Leslie Fay and several of its subsidiaries filed
voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy
Code. All civil litigation commenced against Leslie Fay and those referenced
subsidiaries prior to that date was stayed under the Bankruptcy Code. By an
order dated April 30, 1997 (the "Confirmation Order"), the Bankruptcy Court
confirmed the Plan. The Plan was consummated on June 4, 1997.
The Confirmation Order, inter alia, dismissed with prejudice all
pending litigation, and released all claims that could have been brought in
litigation. Both prior to and subsequent to the Filing Dates, various class
action suits were commenced on behalf of certain prior stockholders of the
Company. Any claims against the Company arising out of these suits were
discharged as part of, and in accordance with the terms of the Plan.
Accordingly, whatever the eventual outcome of these cases, there can be no
material financial impact on the Company based on the terms of the Plan.
On November 17, 1997, the Company's wholly-owned subsidiary, Asia
Expert, Ltd. received a letter from the United States Customs Service stating
that a monetary claim in the amount of $694,860 was being contemplated against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor. At this time, the case is in preliminary stages of
investigation. However, it is the Company's position that its subsidiary did not
knowingly or intentionally participate in any violation of U.S. Custom laws and
the Company intends to vigorously pursue all appropriate legal defenses.
F-43
<PAGE>
LEASES -
The Company rents real and personal property under leases expiring
at various dates through 1999. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses.
Minimum annual rental commitments under leases in effect at June 4,
1997 are summarized as follows:
(In thousands)
EQUIPMENT
FISCAL YEAR ENDED REAL ESTATE & OTHER
----------------- ----------- -------
1997 $ 2,316 $ 33
1998 3,675 56
1999 2,744 31
2000 2,281 --
2001 2,031 --
Later years 12,392 --
------- -------
Total minimum lease payments $25,439 $ 120
======= =======
CONCENTRATIONS OF CREDIT RISK -
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade accounts receivable. The Company's customers are not concentrated in any
specific geographic region, but are concentrated in the retail apparel business.
The Company has established an allowance for possible losses based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
GEOGRAPHIC SEGMENTS -
Identifiable assets in the United States and the Far East are
$93,430,485 and $53,619,800 at June 4, 1997. The Company's Hong Kong entities
sole source of revenues comes from intercompany transactions, as their sole
function is to procure and arrange for the manufacture of apparel in the Far
East for Kasper.
NOTE 9. STOCK OPTION PLANS
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation". This statement
establishes a fair market value based method of accounting for an employee stock
option but allows companies to continue to measure compensation cost for those
plans using the intrinsic value based method prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees". Companies electing to continue using
the accounting under APB Opinion No. 25 must, however, make pro forma disclosure
of net income and earnings per share as if the fair value based method of
accounting in SFAS No. 123 had been applied. The Company has elected to account
for its stock based compensation awards to employees and directors under the
accounting prescribed by APB Opinion No. 25, and will be required to provide the
disclosures required by SFAS No. 123 at year end. The Company does not expect
the adoption of this statement to have a material effect on its financial
position or results of operation.
F-44
<PAGE>
On December 2, 1997, the Board of Directors approved the 1997
Management Stock Option Plan (the "Management Plan"). To date, the Company has
issued Management Options to purchase 1,753,459 shares of Common Stock, which
upon issuance will represent approximately 20.5% of the Company's outstanding
Common Stock. Such options are exercisable at $14.00 per share and vest as
follows: 25% vested immediately with 15% vesting annually thereafter on June 4
from the years 1998 to 2002. The Management Options expire on June 1, 2003.
The Management Plan provides for the grant to officers and employees
of and consultants to the Company and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company of options
to purchase Common Stock. The total number of shares of Common Stock for which
options may be granted under the Plan is 2,500,000 shares. No participant may be
granted stock options in excess of 1,500,000 shares of Common Stock over the
life of the Management Plan. Management Options are not transferable by the
optionee other than by will or the laws of descent and distribution or to
facilitate estate planning, and each option is exercisable during the lifetime
of the optionee only by such optionee.
The Management Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Management Options granted as of
the date hereof are nonqualified stock options. The term of each option granted
pursuant to the Management Plan may be established by the Committee, in its sole
discretion: provided, however, that the maximum term of each option granted
pursuant to the Employee Plan is six and one-half years. Options shall become
exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option agreement.
On June 10, 1997, the Board of Directors approved the grant of stock
options ("Director Options") to purchase 20,000 shares of Common Stock to each
of its five non-employee directors for a total of 100,000 options. Each option
has an exercise price of $14.00 per share and a term of ten years vesting
ratably over three years. Director Options are not transferable by the optionee
other than by will or the laws of descent and distribution or to facilitate
estate planning, and each option is exercisable during the lifetime of the
optionee only by such optionee.
NOTE 10. INCOME PER SHARE
The computation of income per common share will be based upon the
weighted average number of common shares outstanding during the period.
In 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". This statement establishes standards for computing
and presenting earnings per share ("EPS"), replacing the presentation of
currently required Primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations. Under
this new standard, Basic EPS is computed on the weighted average number of
shares actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, and earlier adoption is not permitted. The Company does not expect the
adoption of this statement to have a material effect on its financial position
or results of operations.
F-45
<PAGE>
======================================= =======================================
NO PERSON IS AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION KASPER A.S.L., LTD.
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY 1,350,131 SHARES OF COMMON STOCK AND
JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. $12,141,438 OF 12.75% SENIOR NOTES
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
----------------- ----------------
PROSPECTUS
TABLE OF CONTENTS ----------------
PAGE
Prospectus Summary...................2
Risk Factors.........................5
Non-Comparability of Historical
Financial Statements........12
Use of Proceeds.....................12
Dividend Policy.....................12
Capitalization......................12
Selected Consolidated / Combined
Financial Information..............13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................16
Business............................22
Management..........................35
Principal Stockholders..............41
Selling Stockholders'
and Plan of Distribution....42
Certain Transactions................44
Description of Capital Stock........44 , 1998
Shares Eligible for Future Sale.....48
Legal Matters.......................49
Experts.............................49
Additional Information..............49
Incorporation of Certain
Documents by Reference.............49
Index to Financial Statements......F-1
-----------------
UNTIL _________ __, 1998 (25 DAYS
AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN
THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS
TO DELIVER A PROSPECTUS WHEN ACTING AS
REPRESENTATIVES AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================= =======================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the following expenses will be incurred in
connection with the proposed Offering hereunder. All of such expenses will be
borne by the registrant.
Registration fee - Securities and Exchange Commission......$9,024.17
NASD filing fee............................................
New York Stock Exchange listing fee........................ *
Legal fees and expenses.................................... *
Accounting fees and expenses............................... *
Transfer agent fees and expenses........................... *
Blue sky fees and expenses (including counsel fees)........ *
Printing expenses.......................................... *
Miscellaneous.............................................. *
---------
Total.......................................$ *
=========
- -------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
1. Section 145 of Delaware General Corporation Law. Section 145 of the
Delaware General Corporation Law provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, in and of itself, create a
presumption that his conduct was unlawful.
Section 145 also provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon adjudication that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person
II-1
<PAGE>
is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
therewith.
Any such indemnification (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth above. Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action,
suit or proceeding; or
(2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) by the stockholders.
Section 145 permits a Delaware business corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by him in such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify such person.
2. Charter Provisions on Indemnity. Article Ten of the Certificate of
Incorporation of the Company sets forth the extent to which the Company's
directors and officers may be indemnified by the Company against liabilities
which they may incur while serving in such capacity. Such indemnification will
be provided to the fullest extent permitted and in the manner required by the
Delaware General Corporation Law. This article generally provides that the
Company shall indemnify the directors and officers of the Company who are or
were a party to any threatened, pending, or completed action, suit or
proceeding, whether in nature civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director or officer of the Company or
of any constituent corporation absorbed into the Company by consolidation or
merger or serves or served with another corporation, partnership, joint venture,
trust or other enterprise at the request of the Company or of any such
constituent corporation and, at the Company's option, provides advances for
expenses incurred in defending any such action, suit or proceeding, upon receipt
of an undertaking by or on behalf of such officer or director to repay such
advances unless it is ultimately determined that he is entitled to
indemnification by the Company.
3. Limitation of Liability of Directors. As permitted by the Delaware
General Corporation Law, the Company's Certificate of Incorporation provides
that a director of the Company will not be personally liable to the Company or
its stockholders for monetary damages for breach of the fiduciary duty of care
as a Director. By its terms and in accordance with the Delaware General
Corporation Law, however, this provision does not eliminate or limit the
liability of a director of the Company (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law
II-2
<PAGE>
(relating to unlawful payments of dividends or unlawful stock repurchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
4. Director and Officer Liability Insurance. The Company has purchased
director and officer liability. Such insurance covers its directors and officers
with respect to liability which they may incur in connection with their serving
as such, which liability includes liability under the Securities Act. The
insurance also provides certain additional coverage for the directors and
officers against certain liability even though such liability would not be
subject to indemnification under Article Ten of the Company's Certificate of
Incorporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2(1) Fourth Amended and Restated Joint Plan of Reorganization for
Debtors (Leslie Fay Companies, Inc.) Pursuant to Chapter 11 of the
United States Bankruptcy Code Proposed by Debtors and Creditors'
Committee, dated April 18, 1997.
3.1(6) Amended and Restated Certificate of Incorporation as filed on May
30, 1997.
3.2(6) Amendment to Certificate of Incorporation as filed on November 5,
1997.
3.3(6) By-laws, as amended.
4.1(2) Indenture dated as of June 4, 1997 by and between the Registrant
AND IBJ Schroder Bank & Trust Company, as trustee.
4.2(3) Supplemental Indenture, dated as of June 30, 1997, by and between
the Registrant and IBJ Schroder Bank & Trust Company, as trustee.
4.3(4) Form of Senior Note issued under the Indenture.
5(6) Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1(6) Credit Agreement dated June 5, 1997 by and between the Registrant
and BankBoston (without exhibits).
10.2(6) Employment Agreement dated June 4, 1997 between the Registrant and
Arthur S. Levine.
10.3(5) Lease Modification Agreement and Lease Agreement, each dated
August 20, 1996, Between The Registrant and Import Hartz
Associates.
II-3
<PAGE>
10.4(6) Acquisition Agreement dated June 2, 1997 by and among the
Registrant, ASL/K Licensing Corp, Herbert Kasper and Forecast
Designs, Inc.
10.5(6) Employment, Consulting and Non-competition Agreement dated as of
June 4, 1997 by and among Sassco Fashions, Ltd., ASL/K Licensing
Corp. and Herbert Kasper.
10.6(6) 1997 Management Stock Option Plan.
10.7(6) Form of Stock Option Agreement issued to Directors.
21(6) Subsidiaries of the Registrant.
23.1(6) Consents of Arthur Andersen LLP.
23.2 Consent of Parker Flattau & Klimpl, LLP (included in Exhibit 5).
24 Power of Attorney (included in signature page).
27(6) Financial Data Schedule.
- ----------------------------------------
(1) Incorporated by reference to Exhibit #4 to the Registrant's Report on
Form 8-K (Commission File No. 022-22269) filed with the Commission on
July 14, 1997 (the "Report On Form 8-K").
(2) Incorporated by reference to Exhibit #1 to the Registrant's Report on
Form 8-K.
(3) Incorporated by reference to Exhibit #3 to the Registrant's Report on
Form 8-K.
(4) Incorporated by reference to Exhibit #2 to the Registrant's Report on
Form 8-K.
(5) To be filed by Amendment.
(6) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (Commission File No. 333-41629) filed with the Commission
on December 5, 1997.
(B) FINANCIAL STATEMENT SCHEDULE
None.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum Offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate Offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, as amended, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide Offering thereof.
(c) The undersigned registrant hereby undertakes to provide to the
Representatives, at the closing specified in the underwriting agreement included
in Exhibit 1.1 hereto, certificates in such denominations and registered in such
names as required by the Representatives to permit delivery to each purchaser.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 14 above, or otherwise, the registrant has been advised that in the opinion
of the Securities
II-5
<PAGE>
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended,
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide Offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 4th day of December 1997.
KASPER A.S.L., LTD.
By /S/ ARTHUR S. LEVINE
---------------------------
Arthur S. Levine
Chairman of the Board and
Chief Executive Officer
Know all men by these presents, that each individual whose signature
appears below constitutes Arthur S. Levine and Lester E. Schreiber and each of
them, his true and lawful attorneys-in-fact and agents, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Arthur S. Levine Chairman of the Board and December 23, 1997
- -------------------------- Chief Executive Officer
Arthur S. Levine
/s/ Lester E. Schreiber Chief Operating Officer and December 23, 1997
- -------------------------- Director
Lester E. Schreiber
/s/ Dennis P. Kelly Chief Financial Officer December 23, 1997
- --------------------------
Dennis P. Kelly
/s/ Clifford B. Cohn Director December 23, 1997
- --------------------------
Clifford B. Cohn
/s/ William J. Nightingale Director December 23, 1997
- --------------------------
William J. Nightingale
II-7
<PAGE>
Director December 23, 1997
- --------------------------
Larry G. Schafran
/s/ Robert L. Sind Director December 23, 1997
- --------------------------
Robert L. Sind
/s/ Olivier Trouveroy Director December 23, 1997
- --------------------------
Olivier Trouveroy
II-8
<PAGE>
Commission File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
Amendment No. 1 to
REGISTRATION STATEMENT ON FORM S-1
KASPER A.S.L., LTD.
<PAGE>
EXHIBIT DOCUMENT PAGE
NUMBER NUMBER
2(1) Fourth Amended and Restated Joint Plan of Reorganization
for Debtors (Leslie Fay Companies, Inc.) Pursuant to
Chapter 11 of the United States Bankruptcy Code Proposed
by Debtors and Creditors' Committee, dated April 18,
1997.
3.1(6) Amended and Restated Certificate of Incorporation as
filed on May 30, 1997.
3.2(6) Amendment to Certificate of Incorporation as filed on
November 5, 1997.
3.3(6) By-laws, as amended.
4.1(2) Indenture dated as of June 4, 1997 by and between the
Registrant and IBJ Schroder Bank & Trust Company, as
trustee.
4.2(3) Supplemental Indenture, dated as of June 30, 1997, by
and between the Registrant and IBJ Schroder Bank & Trust
Company, as trustee.
4.3(4) Form of Senior Note issued under the Indenture.
5(6) Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1(6) Credit Agreement dated June 5, 1997 by and between the
Registrant and BankBoston (without exhibits).
10.2(6) Employment Agreement dated June 4, 1997 between the
Registrant and Arthur S. Levine.
10.3(5) Lease Modification Agreement and Lease Agreement, each
dated August 20, 1996, between the Registrant and Import
Hartz Associates.
10.4(6) Acquisition Agreement dated June 2, 1997 by and among
the Registrant, ASL/K Licensing Corp, Herbert Kasper and
Forecast Designs, Inc.
10.5(6) Employment, Consulting and Non-Competition Agreement
dated as of June 4, 1997 by and among Sassco Fashions,
Ltd., ASL/K Licensing Corp. and Herbert Kasper.
10.6(6) 1997 Management Stock Option Plan.
10.7(6) Form of Stock Option Agreement issued to Directors.
21(6) Subsidiaries of the Registrant
23.1(6) Consents of Arthur Andersen LLP.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (Included
in Exhibit 5).
<PAGE>
EXHIBIT DOCUMENT PAGE
NUMBER NUMBER
24 Power of Attorney (included in signature page).
27(6) Financial Data Schedule.
- -------------------------
(1) Incorporated by reference to Exhibit #4 to the Registrant's Report on Form
8-K (Commission File No. 022-22269) filed with the Commission on July 14,
1997 (the "Report on Form 8-K").
(2) Incorporated by reference to Exhibit #1 to the Registrant's Report on Form
8-K.
(3) Incorporated by reference to Exhibit #3 to the Registrant's Report on Form
8-K.
(4) Incorporated by reference to Exhibit #2 to the Registrant's Report on Form
8-K.
(5) To be filed by amendment.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Commission File No. 333-41629) filed with the Commission on
December 5, 1997.
