As filed with the Securities and Exchange Commission on December 5, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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
-------------------------
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
================================================================================================
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
- ------------------------------------------------------------------------------------------------
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.
---------------------
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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<PAGE>
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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<PAGE>
================================================================================
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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
-46-
<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.
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
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 $1,198 65,112 | -- --
Trademarks, net of accumulated amortization of $486 50,514 | -- --
Other Assets, at cost less accumulated amortization of $269 2,152 | -- --
-------- | -------- --------
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 $ 17,097 |
Establishment of reorganization in excess of identifiable assets upon |
emergence from Bankruptcy $ (66,212)|
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 17,097 -0-
Reorganization value in excess of
identifiable assets D 66,212 66,212
Other assets -- E 53,422 -- 53,422
--------- --------- ---------- ----------
TOTAL ASSETS $ 147,050 $ 120,870 $ 18,310 $ 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 STOCKHOLDERS 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>
======================================= =======================================
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.
======================================= =======================================
II-2
<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-3
<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-4
<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 Amended and Restated Certificate of Incorporation as filed on May
30, 1997.
3.2 Amendment to Certificate of Incorporation as filed on November 5,
1997.
3.3 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 Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1 Credit Agreement dated June 5, 1997 by and between the Registrant
and BankBoston (without exhibits).
10.2 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-5
<PAGE>
10.4 Acquisition Agreement dated June 2, 1997 by and among the
Registrant, ASL/K Licensing Corp, Herbert Kasper and Forecast
Designs, Inc.
10.5 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 1997 Management Stock Option Plan.
10.7 Form of Stock Option Agreement issued to Directors.
21 Subsidiaries of the Registrant.
23.1 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 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.
(B) FINANCIAL STATEMENT SCHEDULE
None.
II-6
<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-7
<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-8
<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
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/ Lester E. Schreiber Chief Operating Officer and December 4, 1997
- -------------------------- Director
Lester E. Schreiber
/s/ Clifford B. Cohn Director December 4, 1997
- --------------------------
Clifford B. Cohn
/s/ William J. Nightingale Director December 4, 1997
- --------------------------
William J. Nightingale
/s/ Larry G. Schafran Director December 4, 1997
- --------------------------
Larry G. Schafran
/s/ Robert L. Sind Director December 4, 1997
- --------------------------
Robert L. Sind
/s/ Olivier Trouveroy Director December 4, 1997
- --------------------------
Olivier Trouveroy
II-9
<PAGE>
Commission File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
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 Amended and Restated Certificate of Incorporation as
filed on May 30, 1997.
3.2 Amendment to Certificate of Incorporation as filed on
November 5, 1997.
3.3 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 Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1 Credit Agreement dated June 5, 1997 by and between the
Registrant and BankBoston (without exhibits).
10.2 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 Acquisition Agreement dated June 2, 1997 by and among
the Registrant, ASL/K Licensing Corp, Herbert Kasper and
Forecast Designs, Inc.
10.5 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 1997 Management Stock Option Plan.
10.7 Form of Stock Option Agreement issued to Directors.
21 Subsidiaries of the Registrant
23.1 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 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.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SASSCO FASHIONS, LTD.
1. The name of the corporation (which is hereinafter referred to
as the Corporation) is "Sassco Fashions, Ltd."
2. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 5, 1997, under the name
Sassco Fashions, Ltd.
3. This Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted at a meeting of the Board of Directors of the
Corporation and duly executed and acknowledged by the officers of the
Corporation in accordance with the provisions of Section 103, 141, 242 and 245
of the General Corporation Law of the State of Delaware and, upon filing with
the Secretary of State in accordance with Section 245 shall thenceforth
supercede the original Certificate of Incorporation and shall, as it may
thereafter be amended in accordance with its terms and applicable law, be the
Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation of the
Corporation is hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Sassco Fashions, Ltd.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
<PAGE>
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
A. AUTHORIZED STOCK. The total number of shares of stock which
the Corporation shall have authority to issue is Twenty-One Million
(21,000,000), consisting of Twenty Million (20,000,000) shares of common stock,
par value $.01 per share ("Common Stock"), and One Million(1,000,000) shares of
preferred stock, par value $.01 per share ("Preferred Stock").
B. PREFERRED STOCK. The Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is hereby authorized to
create and provide for the issuance of shares of Preferred Stock in series and,
by filing a certificate pursuant to the applicable law of the State of Delaware
(hereinafter referred to as a "Preferred Stock Designation"), to establish from
time to time the number of shares to be included in each such series, and to fix
the designation, power, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(i) The designation of the series, which may be by
distinguishing number, letter or title.
(ii) The number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise provided in
the Preferred Stock Designation) increase or decrease (but not below
the number of shares thereof then outstanding).
(iii) Whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series.
(iv) The dates at which dividends, if any, shall be payable.
(v) The redemption rights and price or prices, if any, for
shares of the series.
(vi) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
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(vii) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation.
(viii) Whether the shares of the series shall be convertible
into or exchangeable for shares of any other class or series, or any
other security, of the Corporation or any other corporation, and, if
so, the specification of such other class or series of such other
security, the conversion or exchange price or prices or rate or rates,
any adjustments thereof, the date or dates at which such shares shall
be convertible or exchangeable and all other terms and conditions upon
which such conversion may be made.
(ix) Restrictions on the issuance of shares of the same series
or of any other class or series.
(x) The voting rights, if any, of the holders of shares of the
series.
(xi) Such other powers, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof as the Board of
Directors shall determine.
C. COMMON STOCK. The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. Each share of Common Stock
shall be equal to each other share of Common Stock. The holders of shares of
Common Stock shall be entitled to one vote for each such share upon all
questions presented to the stockholders.
D. VOTE. Except as may be provided in this Certificate of
Incorporation or in a Preferred Stock Designation, or as may be required by
application law, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of shares of
Preferred Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote.
E. RECORD HOLDERS. The Corporation shall be entitled to treat the
person in whose name any share of its registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable law.
F. NON-VOTING EQUITY SECURITIES. In accordance with Section
1123(a)(6) of the United States Bankruptcy Code, the Corporation shall be
prohibited from issuing any shares of stock (including any series of Preferred
Stock) that have no voting rights.
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<PAGE>
ARTICLE V
A. In furtherance and not in limitation of the powers conferred
by law, the Board of Directors is expressly authorized and empowered:
(i) to adopt, amend or repeal the By-Laws of the Corporation,
provided, however, that the By-laws may also be altered, amended or
repealed by the affirmative vote of the holders of a least 66-2/3
percent of the voting power of the then outstanding Voting Stock (as
hereinafter defined), voting together as a single class; and
(ii) from time to time to determine whether and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of them,
shall be open to inspection of stockholders; and, except as so
determined, or as expressly provided in this Certificate of
Incorporation or in any Preferred Stock Designation, no stockholder
shall have any right to inspect any account, book or document of the
Corporation other than such rights as may be conferred by applicable
law .
B. The Corporation may in its By-laws confer powers upon the
Board of Directors in addition to the foregoing and in addition to the powers
and authorities expressly conferred upon the Board of Directors by applicable
law. Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 66-2/3 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend, repeal or adopt any provision
inconsistent with subparagraph (i) of paragraph (A) of this Article V. For the
purposes of this Certificate of Incorporation, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors of the Corporation.
C. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, during the term of employment of Arthur S. Levine
as Chief Executive Officer of the Corporation, no material amendment shall be
made by the By-laws without the consent of Arthur S. Levine.
ARTICLE VI
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specific circumstances or to consent to
specific actions taken by the Corporation, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing in lieu of a meeting of such stockholders,
provided, however, that actions with respect to the approval of the Sassco
Fashions, Ltd. 1997 Management Stock Option Plan, and stock options granted with
respect to such plan, may be affected by consent in writing in lieu of a
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<PAGE>
meeting of stockholders of the Corporation. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of at
least 66 2/3 percent of the voting power of the then outstanding Voting Stock,
voting together as a single class, shall be required to amend or appeal, or
adopt any provision inconsistent with, this Article VI.
ARTICLE VII
A. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specific circumstances, the
number of directors of the Corporation shall be fixed by the By-laws of the
Corporation and may be increased or decreased from time to time in such a manner
as may be prescribed by the By-laws.
B. Unless and except to the extent that the By-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
C. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, and
unless the Board of Directors otherwise determines or the By-laws otherwise
provide, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, and directors so
chosen shall hold office until the next annual meeting of stockholders and until
such director's successors shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Whole Board
shall shorten the term of any incumbent director.
D. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specific circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least 66 2/3 percent of the voting
power of the then outstanding Voting Stock, voting together as a single class.
E. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66 2/3 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required toamend or appeal or adopt any
provision inconsistent with this Article VII.
ARTICLE VIII
Section 1. VOTE REQUIRED FOR CERTAINBUSINESS COMBINATIONS.
A. Higher Vote for Certain Business Combinations. In addition to
any affirmative vote required by law or this Certificate of Incorporation or by
any Preferred Stock Designation, and except as otherwise expressly provided in
Section 2 of this Article VIII:
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<PAGE>
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder
(as hereinafter defined) or (b) any other person (whether or no itself
an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction orf a series of transactions) to
or with any Interested Stockholder, including all Affiliates of the
(Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of $10,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) or any
securities of the Corporation or any Subsidiary to any Interested
Stockholder, including all Affiliates of any Interested Stockholder, in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of $10,000,000 or more;
or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliates of an Interested Stockholder;
or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction(whether or not an Interested Stockholder is a party
thereto) which has the affect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any Subsidiary
which is Beneficially Owned (as hereinafter defined) by any Interested
Stockholder or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, including the affirmative vote of the holders of at least 80 percent of
the voting power of the then outstanding Voting Stock not owned directly or
indirectly by any Interested Stockholder or any Affiliate of any Interested
Stockholder. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation, any Preferred Stock Designation
or any provision of law or of any agreement with any national securities
exchange or otherwise which might otherwise permit a lessor vote or no vote.
B. Definition of "Business Combination." The term "Business
Combination" as used in this Article VIII shall mean any transaction described
in any one or more of clauses (i) through (v) of paragraph A of this Section 1.
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<PAGE>
Section 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section
1 of this Article VIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law or any other provision of this Certificate of
Incorporation and any Preferred Stock Designation, if, in the case of a Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation, the condition specified in the following
paragraph A is met or, in the case of any other Business Corporation, the
conditions specified in either the following paragraph A or B are met.
A. Approval by Continuing Directors. The Business Combination
shall have been approved by a majority of the Continuing Directors (as
hereinafter defined); provided, however, that this condition shall not be
capable of satisfaction unless there are at least five Combination Directors.
B. Price and Procedure Requirements. All of the following
conditions shall have been met:
(i) The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock (including
Common Stock and other than Excluded Preferred Stock (as hereinafter
defined) shall be in cash or in the same form as the Interested
Stockholder or any of its Affiliates has previously paid for shares of
such class (or series) of capital stock. In the Interested Stockholder
or any of its Affiliates have paid for shares of any class (or series)
of capital stock capital stock with varying forms of consideration, the
form of consideration to be received per share by holders of shares of
such class (or series) of capital stock shall be either cash or the
form used to acquire the largest number of shares of such class (or
series) of capital stock previously acquired by the Interested
Stockholder.
(ii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the date (the "Consummation Date") of the
consummation of the Business Combination, of the consideration other
than cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the higher of the
following (in each case approximately adjusted in the event of any
stock dividend, stock split, combination or shares or similar event):
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested Stockholder or
any of its Affiliates for any shares of the Common Stock
acquired by them within the two-year period immediately prior
the date of the first public announcement of the proposal of
the Business Combination (the "Announcement Date") or in any
transaction in which the Interested Stockholder became an
Interested Stockholder, whichever is higher, plus interest
compounded annual from the first date on which the Interested
Stockholder became an Interested Stockholder (the
"Determination Date') through the Consummation Date at the
publicly announced base rate of
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<PAGE>
interest of The Chase Manhattan Bank (or such other bank
headquarters in the City of New York as may be selected by the
Continuing Directors) from time to time in effect in the City
of New York, less the aggregate amount of any cash dividends
paid, and the Fair Market Value of any dividends paid in other
than cash, on each share of Common Stock from the
Determination Date through the Consummation Date in an amount
up to but not exceeding the amount of interest so payable per
share of Common Stock; and
(b) the Fair Market Value per share of Common Stock
on the Announcement Date or the Determination Date, whichever
is higher.
(iii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, of the Consummation Date, of the consideration other than
cash to be received per share by holders of shares of any class (or
series), other than Common Stock or Excluded Preferred Stock, of
outstanding capital stock shall be at least equal to the highest of the
following (in each case appropriately adjusted in the event of any
stock dividend, stock split, combination of shares or similar event),
it being intended that the requirements of this paragraph B(iii) shall
be required to be met with respect to every such class (or series) of
outstanding capital stock whether or nor the Interested Stockholder or
any of its Affiliates has previously acquired any shares of a
particular class (or series) of capital stock:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested Stockholder or
any of its Affiliates for any shares of such class (or series)
of capital stock acquired by them within the two-year period
immediately prior to the Announcement Date or in any
transactions in which it became an Interested Stockholder,
whichever is higher, plus interest compounded annually from
the Determination Date through the Consummation Date at the
publicly announced base rate of interest of The Chase
Manhattan Bank (or such other major bank headquarters in the
City of New York as may be selected by the Continuing
Directors) from time to time in effect in the City of New
York, less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than
cash, on each share of such class (or series) of capital stock
from the Determination Date through the Consummation Date in
an amount up to but not exceeding the amount so payable per
share of such class (or series) or capital stock;
(b) the Fair Market Value per share of such class (or
series) of capital stock on the Announcement Date or on the
Determination Date, whichever is higher; and
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<PAGE>
(c) the highest preferential amount per share, if
any, to which the holders of shares of such class (or series)
of capital stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination; (a)
except as approved by a majority of the Continuing Directors, there shall have
been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding Preferred
Stock; (b) there shall have been (I) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Continuing Directors, and (ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of Common Stock, unless the failure
so to increase such annual rate is approved by a majority of the Continuing
Directors; and (c) neither such Interested Stockholder nor any of its Affiliates
shall have become the beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such Interested Stockholder
becoming an Interested Stockholder; provided however, that no approval by
Continuing Directors shall satisfy the requirements of this subparagraph (iv)
unless at the time of such approval there are at least five Continuing
Directors.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder and any of its Affiliates shall not
have received the benefit, directly or indirectly (except proportionately,
solely in such Interested Stockholder's or Affiliates's capacity as a
stockholder of the Corporation), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax advantages provided
by the Corporation, whether in anticipation of or in connection with such
Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
(vii) Such Interested Stockholder shall have supplied the
Corporation with such information as shall have been requested pursuant to
Section 4 of this Article VIII within the time period set forth therein.
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<PAGE>
Section 3. For the purposes of this Article VIII:
1. A "person " means any individual, limited partnership, general
partnership, corporation or other firm or entity.
2. "Interested Stockholder" means any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner (as hereinafter defined), directly
or indirectly, of ten percent or more of the voting power of the
outstanding Voting Stock; or
(ii) is an Affiliate or an Associate of the Corporation and at
any time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then-outstanding Voting
Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933, as amended, or any successor act thereto.
3. A person shall be a "beneficial owner" of, or shall
"Beneficially Own," any Voting Stock:
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3, or any successor rule thereto, under
the Securities Exchange Act of 1934, as amended, or any successor act
thereto; or
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options or otherwise or
(b) the right to vote pursuant to any agreement, arrangement or
understanding (but neither such person nor any such Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such person nor any such Affiliate or Associate is otherwise deemed the
beneficial owner); or
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<PAGE>
(iii) which are beneficially owned, directly or indirectly,
within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended, or any successor rule thereto, by any other person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting (other than solely by reason or a revocable proxy as
described in subparagraph (ii) of this paragraph (3)) or disposing of
any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with respect
thereto (nor any Affiliate of such trustee), solely by reason of such
capacity of such trustee, shall be deemed, for any purposes hereof, to
beneficially own any shares of Voting Stock held under any such plan.
4. For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph (2) of this Section 3, the number
of shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph (3) of this Section 3 but shall not
include any other unissued shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
5. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, or any successor rule thereto.
6. "Subsidiary" means any person of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph (2) of this Section 3, the term "Subsidiary"
shall mean only a person of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
7. "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested Stockholder
and was a member of the Board prior to the time that the Interested Stockholder
became an Interested Stockholder, and any director who is thereafter chosen to
fill any vacancy on the Board of Directors or who is elected and who, in either
event, is unaffiliated with the Interested Stockholder and in connection with
his or her initial assumption of office is recommended for appointment or
election by a majority of Continuing Directors then on the Board.
8. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange Listed Stocks, of, if such stock is not listed
-11-
<PAGE>
on such Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share of such
stock as determined by the Board in accordance with Section 4 of this Article
VIII; and (ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by the Board of
Directors in accordance with Section 4 of this Article VIII.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in paragraphs (B)(ii) of Section 2 of this Article VIII shall include
the shares of Common Stock and/or the shares of any other class (or series) of
outstanding capital stock retained by the holders of such shares.
10. "Whole Board" means the total number of directors which this
Corporation would have if there were no vacancies.
11. "Excluded Preferred Stock" means any series of Preferred Stock
with respect to which the Preferred Stock Designation creating such series
expressly provides that the provisions of this Article VIII shall not apply.
Section 4. (a) A majority of the Whole Board, but only if a majority
of the Whole Board shall then consist of Continuing Directors or, if a majority
of the Whole Board shall not then consist of Continuing Directors, a majority of
the then Continuing Directors, shall have the power and duty to determine, on
the basis of information known to them after reasonable inquiry, all facts
necessary to determine compliance with this Article VIII, including, without
limitation, (i) whether a person is an Interested Stockholder, (ii) the number
of shares of Voting Stock beneficially owned by any person, (iii) whether a
person is an Affiliate or Associate of another, (iv) whether the applicable
conditions set forth in paragraph (B) of Section 2 have been met with respect to
any Business Combination, (v) the Fair Market Value of stock or other property
in accordance with paragraph (8) of Section 3 of this Article VIII, and (vi)
whether the assets which are the subject of any Business Combination referred to
in paragraph (1)(A)(ii) of Section 1 have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination referred to in paragraph (1)(A)(iii) of Section 1
has, an aggregate Fair Market Value of $10,000,000 or more.
(b) A majority of the Whole Board shall have the right to
demand, but only if a majority of the Whole Board shall then consist of
Continuing Directors, or, if a majority of the Whole Board shall not then
consist of Continuing Directors, a majority of the then Continuing Directors
shall have the right to demand, that any person who it is reasonably believed is
an Interested Stockholder (or holds of record shares of Voting Stock
Beneficially Owned by any Interested Stockholder) supply this Corporation with
complete information as to (i) the record owner(s) of all
-12-
<PAGE>
shares Beneficially Owned by such person who it is reasonably believed is an
Interested Stockholder, (ii) the number of, and class or series of, shares
Beneficially Owned by such person who it is reasonably believed is an Interested
Stockholder and held of record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (iii) any other factual
matter relating to the applicability or effect of this Article VIII, as may be
reasonably requested of such person, and such person shall furnish such
information within 10 days after receipt of such demand.
Section 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
STOCKHOLDERS. Nothing contained in this Article VIII shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
Section 6. WHEN STOCKHOLDER APPROVAL IS REQUIRED. Notwithstanding any
other provisions of this Certificate of Incorporation (including, without
limitation, Sections 1 and 2 of this Article VIII), but in addition to any
affirmative vote required by law or this Certificate of Incorporation or by any
Preferred Stock Designation:
(i) any merger or consolidation of the Corporation with any
person (whether or not an Interested Stockholder); or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any person (whether or not an Interested Stockholder or
Affiliate thereof) of all or substantially all of the assets of the
Corporation;
shall require the affirmative vote of the holders of at least 66-2/3 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation, any Preferred Stock Designation
or any provision of law or of any agreement with any national securities
exchange or otherwise permit a lesser vote or no vote.
Section 7. AMENDMENT, REPEAL, ETC. Notwithstanding any other
provisions of this Certificate of Incorporation or the By-laws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
permitted by law, this Certificate of Incorporation, any Preferred Stock
Designation or the By-laws of the Corporation), but in addition to any
affirmative vote of the holders of any particular class of Voting Stock required
by law, this Certificate of Incorporation or any Preferred Stock Designation,
(a) the affirmative vote of the holders of 80 percent of the voting power of the
shares of the then outstanding Voting Stock voting together as a single class,
including the affirmative vote of the holders of 80 percent of the voting power
of the then outstanding Voting Stock not owned directly or indirectly by any
Interested Stockholder or any Affiliate of any Interested Stockholder, shall be
required to amend or repeal, or adopt any provisions inconsistent with, Sections
1 through 5 and this clause (a) of Section 7 of this Article VIII; and (b) the
affirmative vote of the holders of 66-2/3 percent of the voting power of the
shares of the then outstanding Voting Stock
-13-
<PAGE>
voting together as a single class shall be required to amend or repeal, or adopt
any provisions inconsistent with, Section 6 and this clause (b) of Section 7 of
this Article VIII.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or modification of this Article IX
shall not adversely affect any right or protection of a director of the
Corporation existing hereunder in respect of any act or omission occurring prior
to such amendment or appeal.
ARTICLE X
Each person who is or was or had agreed to become a director or officer
of the Corporation, or each such person who is or was serving or who had agreed
to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executor, administrators or
estate or such person), shall be indemnified by the Corporation, in accordance
with the By-laws of the Corporation, to the fullest extent permitted from time
to time by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) or any other applicable laws as presently or hereafter in
effect. The Corporation may, by action of the Board of Directors, provide
indemnification to employees and agents of the Corporation, and to persons
serving as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, at the request of the Corporation, with the
same scope and effect as the foregoing indemnification of directors and
officers. The Corporation shall be required to indemnify any person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors or is a proceeding to enforce such person's claim to
indemnification pursuant to the rights granted by this Certificate of
Incorporation or otherwise by the Corporation. Without limiting the generality
of the effect of the foregoing, the Corporation may enter into one or more
agreements with any person which provide for indemnification greater or
different than that provided in this Article X. Any amendment or repeal of this
Article X shall not adversely affect any right or protection existing hereunder
in respect of any act or omission occurring prior to such amendment or repeal.
-14-
<PAGE>
ARTICLE XI
In furtherance and not in limitation of the powers conferred by law or
in this Certificate of Incorporation, the Board of Directors (and any committee
of the Board of Directors) is expressly authorized, to the extent permitted by
law, to take such action or actions as the Board of Directors or such committee
may determine to be reasonably necessary or desirable to (A) encourage any
person (as defined in Article VIII of this Certificate of Incorporation) to
enter into negotiations with the Board of Directors and management of the
Corporation with respect to any transaction which may result in a change in
control of the Corporation which is proposed or initiated by such person or (B)
contest or oppose any such transaction which the Board of Directors or such
committee determines to be unfair, abusive or otherwise undesirable with respect
to the Corporation and its business, assets or properties or the stockholders of
the Corporation, including, without limitation, the adoption of such plans or
the issuance of such rights, options, capital stock, notes, debentures or other
evidence of indebtedness or other securities of the Corporation, which rights,
options, capital stock, notes, evidences of indebtedness and other securities
(i) may be exchangeable for or convertible into cash or other securities on such
terms and conditions as may be determined by the Board of Directors or such
committee and (ii) may provide for the treatment of any holder or class of
holders thereof designated by the Board of Directors or any such committee in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
ARTICLE XII
Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, or any Preferred Stock Designation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or by
law; and all rights, preferences and privileges of whatsoever nature conferred
upon stockholders, directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the right reserved in this Article XII; provided,
however, that any amendment or repeal of Article IX or Article X of this
Certificate of Incorporation shall not adversely affect any right or protection
existing hereunder in respect of any act or omission occurring prior to such
amendment or repeal; and provided, further, that no Preferred Stock Designation
shall be amended after the issuance of any shares of the series of Preferred
Stock created thereby, except in accordance with the terms of such Preferred
Stock Designation and the requirements of applicable law; and provided, further,
that during the term of employment of Arthur S. Levine as Chief Executive
Officer of the Corporation, no material amendment shall be made to this
Certificate of Incorporation without the consent of Arthur S. Levine.
IN WITNESS WHEREOF, said Sassco Fashions, Ltd. has caused this Restated
Certificate of Incorporation to be signed by its Chief Executive Officer and
Chairman of the Board
-15-
<PAGE>
and attested by its Chief Operating Officer and Secretary and has caused its
corporate seal to be hereunto affixed, this 1st day of June, 1997.
SASSCO FASHIONS, LTD.
By: /s/ Arthur S. Levine
---------------------------
Arthur S. Levine
Chief Executive Office and
Chairman of the Board
Attest: /s/ Lester E. Schreiber
---------------------------
Lester E. Schreiber
Chief Operating Office and Secretary
-16-
AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SASSCO FASHIONS, LTD.
(a Delaware corporation)
(Pursuant to Sections 222 and 242 of the
General Corporation Law of the State of Delaware)
Sassco Fashions, Ltd., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does by
its Chief Executive Officer and its Secretary and under its corporate seal
hereby certify as follows:
FIRST: That the Certificate of Incorporation of the
Corporation was filed in the office of the Secretary of State of
Delaware on March 5, 1997 (the "Certificate of Incorporation").
SECOND: That an Amended and Restated Certificate of
Incorporation was filed in the office of the Secretary of State of
Delaware on May 30, 1997 (the "Amended and Restated Certificate of
Incorporation").
THIRD: That the Board of Directors of the Corporation has duly
adopted resolutions setting forth a proposed amendment to the Amended
and Restated Certificate of Incorporation, declaring said amendment to
be advisable and directing said amendment to be submitted to a vote of
the stockholders of the issued and outstanding shares of the
Corporation for adoption pursuant to Section 242 of the General
Corporation Law of the State of Delaware. The resolutions setting forth
the proposed amendment are as follows:
"RESOLVED, that the name of the Corporation be
changed to "Kasper A.S.L., Ltd.", and that Article I of the
Corporation's Amended and Restated Certificate of
Incorporation be amended to read as follows:
ARTICLE I
The name of the corporation (which is hereinafter
referred to as the "Corporation") is:
Kasper A.S.L., Ltd."
FOURTH: That such resolutions of the Board of Directors of the
Corporation were duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware on
September 22, 1997.
FIFTH: That the foregoing amendments to the Amended and
Restated Certificate of Incorporation were duly adopted by a majority
of the voting power of the Company's
<PAGE>
outstanding voting stock on September 22, 1997, the record date,
pursuant to Section 242 of the General Corporation Law of the State of
Delaware.
SIXTH: The foregoing amendment to the Amended and Restated
Certificate of Incorporation shall be effective on and as of the date
of filing of this Certificate of Amendment in the office of the
Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by Arthur S. Levine, its Chief Executive Officer and
Chairman of the Board, and attested to by Lester E. Schreiber, its Chief
Operating Officer and Secretary, this 31st day of October, 1997.
SASSCO FASHIONS, LTD.
By: /s/ Arthur S. Levine
------------------------
Arthur S. Levine
Chief Executive Officer
and Chairman of the Board
(SEAL)
ATTEST:
By: /s/ Lester E. Schreiber
------------------------
Lester E. Schreiber
Chief Operating Officer and Secretary
-2-
PARKER CHAPIN FLATTAU & KLIMPL, LLP
[Letterhead]
December 4, 1997
Kasper A.S.L., Ltd.
77 Metro Way
Secaucus, New Jersey 07094
Gentlemen:
We have acted as counsel to Kasper A.S.L., Ltd. (the "Company") in
connection with the Registration Statement on Form S-1 filed by the Company with
the Securities and Exchange Commission (the "Registration Statement") relating
to the registration of 1,350,131 (the "Shares") of the Company's Common Stock,
par value $0.01 per share (the "Common Stock") and $12,141,438 principal amount
of 12.75% Senior Notes (the "Senior Notes").
Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Registration Statement.
In connection with the foregoing, we have examined, among other things,
the Registration Statement and originals or copies, satisfactory to us, of all
such corporate records and of all such agreements, certificates and other
documents as we have deemed relevant and necessary as a basis for the opinion
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with the original documents of documents submitted to us as
copies. As to any facts material to such opinion, we have, to the extent that
relevant facts were not independently established by us, relied on certificates
of public officials and certificates, oaths and declarations of officers or
other representatives of the Company.
Based upon the foregoing, we are of the opinion that (i) the Shares, as
issued to the Selling Shareholders pursuant to the terms of the Reorganization
Plan, are legally issued, fully paid and non-assessable; and (ii) the Senior
Notes, as issued to the Selling Shareholders pursuant to the terms of the
Reorganization Plan, constitute legal and binding obligations of the Company.
<PAGE>
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part of the Registration Statement and
to the filing of this opinion as an exhibit thereto.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
REVOLVING CREDIT AGREEMENT
DATED as of June 4, 1997
by and among
SASSCO FASHIONS, LTD.,
the Guarantors named herein,
The Lenders listed on SCHEDULE 1 hereto, and
BANKBOSTON, N.A.,
as Facility Agent for the Lenders,
BANCBOSTON SECURITIES, INC.,
as Syndication Agent
CITICORP USA, INC.,
as Documentation Agent for the Lenders,
and
HELLER FINANCIAL, INC.,
as co-Agent
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1 Lenders; Commitment Amounts
Schedule 4.8 Existing Letters of Credit
Schedule 8.3 Title to Properties; Leases
Schedule 8.7 Litigation
Schedule 8.19 Environmental Compliance
Schedule 8.20 Subsidiaries
Schedule 8.21 Bank Accounts
Schedule 8.23 Inventory Locations
Schedule 10.1 Indebtedness
Schedule 10.2 Liens
Schedule 10.3 Investments
Exhibit A Borrowing Base Report
Exhibit B Revolving Credit Note
Exhibit C Loan Request
Exhibit D-1 Agency Account Agreement - Store Accounts
Exhibit D-2 Agency Account Agreement - Non-Store Accounts
Exhibit E Principal Financial Officer Certificate
Exhibit F Assignment and Acceptance
Exhibit G Cash Collateral Agreement
Exhibit H Customs Agent Agreement
<PAGE>
-2-
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AGREEMENT is made as of June 4, 1997, by and
among (a) SASSCO FASHIONS, LTD. (the "BORROWER"), a Delaware corporation having
its principal place of business at 77 Metro Way, Secaucus, NJ 07094, (b) the
Guarantors named herein, (c) the lending institutions listed on SCHEDULE 1
hereto (collectively, the "Lenders"), and (d) BANKBOSTON, N.A., as
administrative and collateral agent for the Lenders (the "FACILITY AGENT"),
BANCBOSTON SECURITIES, INC., as syndication agent (the "Syndication Agent"),
CITICORP USA, INC., as documentation agent for the Lenders (the "DOCUMENTATION
AGENT") and HELLER FINANCIAL, INC. as co-Agent hereunder (together with the
Facility Agent and the Documentation Agent, the "AGENTS").
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. DEFINITIONS. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to
below:
ACCOUNTS RECEIVABLE. All rights of the Borrower or any of its
Subsidiaries to payment for goods sold, leased or otherwise marketed in the
ordinary course of business and all rights of the Borrower or any of its
Subsidiaries to payment for services rendered in the ordinary course of business
and all sums of money or other proceeds due thereon pursuant to transactions
with account debtors, except for that portion of the sum of money or other
proceeds due thereon that relate to sales, use or property taxes in conjunction
with such transactions, recorded on books of account in accordance with
generally accepted accounting principles.
AEL. Asia Expert Limited, a company organized under the laws of Hong
Kong.
AFFILIATE. Any Person that would be considered to be an affiliate of
the Borrower or any of its Subsidiaries under Rule 144(a) of the Rules and
Regulations of the Securities and Exchange Commission, as in effect on the date
hereof, if the Borrower or such Subsidiary were issuing securities.
AGENCY ACCOUNT AGREEMENT. Any Agency Account Agreement in the form of
EXHIBIT D-1 OR EXHIBIT D-2 attached hereto (or a form otherwise approved by the
Facility Agent in its sole discretion) entered into by the
<PAGE>
2
Borrower, the Facility Agent and a depository institution satisfactory to the
Facility Agent.
AGENTS. As defined in the preamble hereto.
APPROVED CUSTOMS BROKER. A customs broker satisfactory to the Facility
Agent which has entered into a Customs Agent Agreement with the Facility Agent
and the Borrower.
ASSIGNMENT AND ACCEPTANCE. See ss.20.1.
BALANCE SHEET DATE. December 28, 1996.
BANKRUPTCY COURT. The United States Bankruptcy Court for the Southern
District of New York or such other court having jurisdiction over the Chapter 11
cases.
BASE RATE. The higher of (i) the annual rate of interest announced from
time to time by the Facility Agent at its head office in Boston, Massachusetts,
as its "base rate" and (ii) one-half of one percent (0.50%) above the Federal
Funds Effective Rate. For the purposes of this definition, "Federal Funds
Effective Rate" shall mean for any day, the rate per annum equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations for such day
on such transactions received by the Facility Agent from three funds brokers of
recognized standing selected by the Facility Agent.
BASE RATE APPLICABLE MARGIN. At all times from the Closing Date through
the first Performance Adjustment Date, seventy-five one-hundredths percent
(0.75%), and thereafter, the percentage determined by reference to the
provisions of ss.6.12.
BASE RATE LOANS. Revolving Credit Loans bearing interest calculated by
reference to the Base Rate.
BORROWER. As defined in the preamble hereto.
BORROWING BASE. At the relevant time of reference thereto, an amount
determined by the Facility Agent by reference to the most recent Borrowing Base
Report delivered to the Lenders and the Facility Agent pursuant to ss.9.4(f),
which is equal to the sum of:
<PAGE>
3
(a) If the Heller Factoring Agreement is in effect,
(i) 90% of Accounts Receivable (net of any credits, rebates,
offsets, holdbacks, claims, unapplied cash or other adjustments or
commissions payable to third parties that are adjustments to such
Accounts Receivable) which the Facility Agent shall be reasonably
satisfied that Heller has an unconditional obligation to purchase
pursuant to the Heller Factoring Agreement; PLUS
(ii) 70% of Eligible Receivables which Heller does not have an
obligation to purchase pursuant to the Heller Factoring Agreement;
MINUS;
(iii) an amount equal to the sum of (A) 12% of Item (a)(i)
PLUS (B) 12% of Item (a)(ii); PLUS
(b) if the Heller Factoring Agreement is not in effect,
(i) 85% of Eligible Receivables; MINUS
(ii) an amount equal to 12% of Item (b)(i); PLUS
(c) 50% of Eligible Inventory consisting of finished goods
located within the United States of America, PROVIDED, HOWEVER that for
any period listed in the table below, the aforementioned percentage
rate shall be the percentage rate corresponding to such period in the
table below:
PERIOD ADVANCE RATE
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
6/21/97 - 7/20/97 55%
- ----------------------------- --------------------------------
7/21/97 - 8/20/97 60%
- ----------------------------- --------------------------------
8/21/97 - 9/20/97 60%
- ----------------------------- --------------------------------
1/21/98 - 2/20/98 60%
- ----------------------------- --------------------------------
2/21/98 - 3/20/98 55%
- ----------------------------- --------------------------------
7/21/98 - 8/20/98 55%
- ----------------------------- --------------------------------
1/21/99 - 2/20/99 60%
- ----------------------------- --------------------------------
2/21/99 - 3/20/99 55%
- ----------------------------- --------------------------------
7/21/99 - 8/20/99 55%; PLUS
- ----------------------------- --------------------------------
(d) 25% of Eligible Inventory consisting of piece goods which
are located within the United States of America; plus
(e) the lesser of (i) $9,000,000 and (ii) 25% of the SUM of
(A) Eligible Inventory consisting of piece goods stored in the Hong
Kong
<PAGE>
4
Warehouse ("HONG KONG PIECE GOODS") PLUS (B) the Maximum Drawing Amount
of Letters of Credit issued by the Facility Agent hereunder in
connection with the purchase by AEL (or as applicable, the Borrower) of
inventory consisting of piece goods which are to be delivered to the
Hong Kong Warehouse, with respect to which AEL (or as applicable, the
Borrower) has not yet taken title and which goods shall meet the
requirements set forth in the definition of "Eligible Inventory" upon
the receipt thereof by AEL (or as applicable, the Borrower) and payment
therefor under such Letter of Credit so long as such Letters of Credit
can not be drawn upon until either (I) the piece goods covered thereby
become Hong Kong Piece Goods or (II) all title documents relating to
such piece goods have been consigned (endorsed) to the Facility Agent
in a manner reasonably acceptable to the Facility Agent and the
Facility Agent or an Approved Customs Broker is in possession of all
documents of title relating to such piece goods; PLUS
(f) 50% of Eligible Inventory consisting of finished goods in
transit to an Eligible Port ("IN TRANSIT INVENTORY"); PROVIDED,
HOWEVER, that for any period listed in the table below, the
aforementioned percentage rate shall be the percentage rate
corresponding to such period in the table below:
PERIOD ADVANCE RATE
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
6/21/97 - 7/20/97 55%
- ----------------------------- --------------------------------
7/21/97 - 8/20/97 60%
- ----------------------------- --------------------------------
8/21/97 - 9/20/97 60%
- ----------------------------- --------------------------------
1/21/98 - 2/20/98 60%
- ----------------------------- --------------------------------
2/21/98 - 3/20/98 55%
- ----------------------------- --------------------------------
7/21/98 - 8/20/98 55%
- ----------------------------- --------------------------------
1/21/99 - 2/20/99 60%
- ----------------------------- --------------------------------
2/21/99 - 3/20/99 55%
- ----------------------------- --------------------------------
7/21/99 - 8/20/99 55%; PLUS
- ----------------------------- --------------------------------
(g) 50% of the Maximum Drawing Amount of documentary Letters
of Credit issued by the Facility Agent hereunder, in a form reasonably
acceptable to the Facility Agent, in connection with the purchase by
the Borrower of inventory consisting of finished goods, with respect to
which the Borrower has not yet taken title and which goods shall meet
the requirements set forth in the definition of "Eligible Inventory"
upon the receipt thereof by the Borrower and payment therefor under
such Letter of Credit so long as such
<PAGE>
5
Letters of Credit cannot be drawn until the inventory covered thereby
becomes In Transit Inventory; plus
(h) 100% of the Maximum Drawing Amount of documentary Letters
of Credit issued by the Facility Agent hereunder in connection with the
purchase by the Borrower of inventory consisting of cut, make and trim
inventory, with respect to which the Borrower has not yet taken title
and which goods shall meet the requirements set forth in the definition
of "Eligible Inventory" upon the receipt thereof by the Borrower and
payment therefor under such Letter of Credit, so long as (i) such
Letters of Credit cannot be drawn until the inventory covered thereby
becomes In Transit Inventory and (ii) the value of the inventory
covered by each such Letter of Credit shall not be less than 200% of
the Maximum Drawing Amount of each such Letter of Credit; PLUS
(i) 100% of cash and Cash Equivalents in the Cash Collateral
Account; MINUS
(j) the Landlord Lien Reserve; MINUS
(k) such reserves as the Facility Agent may determine from
time to time in its reasonable discretion consistent with the Facility
Agent's usual business practices and policies.
For purposes of determining the Borrowing Base, the value of inventory shall be
its net book value (determined on a first-in first-out basis of lower of cost or
market in accordance with generally accepted accounting principles). Inventory
may not be counted in more than one part of this definition of Borrowing Base.
For purposes of this Credit Agreement and the other Loan Documents, the Facility
Agent may assume, subject to adjustment based upon the provisions of this Credit
Agreement, that the Borrowing Base in effect on any given date is the Borrowing
Base as indicated on the most recent Borrowing Base Report delivered on a timely
basis to the Lenders and the Agents in accordance with the provisions of
ss.9.4(f) hereof.
BORROWING BASE REPORT. A Borrowing Base Report signed by the chief
financial officer, the president, the treasurer, the chief operating officer, or
the comptroller of the Borrower and in substantially the form of EXHIBIT A
hereto.
BUSINESS DAY. Any day (other than Saturday or Sunday) on which banking
institutions in Boston, Massachusetts, are open for the transaction of banking
business and on which each of the Agents shall be
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6
open for business and, in the case of Eurodollar Rate Loans, also a day which is
a Eurodollar Business Day.
CAPITAL ASSETS. Any property or other fixed assets, both tangible (such
as land, buildings, fixtures, machinery and equipment) and intangible (such as
patents, copyrights, trademarks, franchises and good will); PROVIDED that
Capital Assets shall not include any item customarily charged directly to
expense or depreciated over a useful life of twelve (12) months or less in
accordance with generally accepted accounting principles.
CAPITAL EXPENDITURES. Amounts paid or indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with the purchase or lease by
the Borrower or any of its Subsidiaries of Capital Assets that would be required
to be capitalized and shown on the balance sheet of such Person in accordance
with generally accepted accounting principles.
CAPITALIZED LEASES. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CASH COLLATERAL ACCOUNT. The cash collateral account in the name of the
Borrower but under the sole dominion and control of the Facility Agent and
subject to the Cash Collateral Agreement.
CASH COLLATERAL AGREEMENT. See ss.4.7.
CASH EQUIVALENTS. Items listed in paragraphs (a), (b) and (c) of
Section 10.3 hereof.
CERCLA. See ss.8.19.
CHAPTER 11 CASE. The case of The Leslie Fay Companies, Inc. and certain
of its affiliates, under Chapter 11 of Title 11 of the United States Bankruptcy
Code, bearing the Chapter 11 Case No. 93B41724 et seq. (TLB) (Jointly
Administered).
CLEAN-UP DAYS. As of any Performance Adjustment Date, the number of
consecutive calendar days during the immediately preceding fiscal year of the
Borrower on which (i) the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations was less than $32,000,000 and (ii) the amount of
Revolving Credit Loans outstanding was equal to $0.
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7
CLEAN-DOWN DAYS. As of any Performance Adjustment Date, the number of
consecutive calendar days during the immediately preceding fiscal year of the
Borrower on which the amount of Revolving Credit Loans outstanding was less than
$20,000,000.
CLOSING DATE. The first date on which the conditions set forth in ss.12
have been satisfied and any Revolving Credit Loans are to be made or any Letter
of Credit is to be issued hereunder.
CODE. The Internal Revenue Code of 1986 and the regulations promulgated
thereunder.
COLLATERAL. All of the property, rights and interests of the Borrower
and its Subsidiaries that are or are intended to be subject to the security
interests created by the Security Documents.
COMMITMENT. With respect to each Lender, the amount set forth on
SCHEDULE 1 hereto as the amount of such Lender's commitment to make Loans to,
and to participate in the issuance, extension and renewal of Letters of Credit
for the account of, the Borrower, as the same may be reduced from time to time;
or if such commitment is terminated pursuant to the provisions hereof, zero.
COMMITMENT FEE RATE. At all times from the Closing Date through the
first Performance Adjustment Date, one- half of one percent (0.50%), and
thereafter, the percentage determined by reference to the provisions of ss.6.12.
COMMITMENT PERCENTAGE. With respect to each Lender, the percentage set
forth on SCHEDULE 1 hereto as such Lender's percentage of the aggregate
Commitments of all of the Lenders.
CONFIRMATION ORDER. See ss.12.21.
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
CONSOLIDATED EBITDA. For any period the RESULT of (A) Consolidated Net
Income, PLUS (B) to the extent included in the calculation of Consolidated Net
Income and without duplication, the SUM of (i) Consolidated Total Interest
Expense, PLUS (ii) income tax expense for such period, PLUS (iii) depreciation
and amortization, PLUS (iv) all other non-cash charges and non-cash reserves
taken during such period
<PAGE>
8
(including any non-cash charges related to the issuance or grant of stock
options with respect to the Borrower's capital stock), PLUS (v) extraordinary
charges or expenses associated with the Borrower's reorganization, MINUS (C) to
the extent included in the calculation of Consolidated Net Income and without
duplication, extraordinary items of gain or income, in each case determined on a
consolidated basis for the Borrower and its Subsidiaries in accordance with
generally accepted accounting principles. For purposes of calculating
Consolidated EBITDA for the fiscal month of the Borrower ending April 5, 1997
there shall be added to the actual amount of Consolidated EBITDA an amount up to
$161,000 to the extent such amount represents amounts listed on SCHEDULE 2 which
were deducted in the computation of Consolidated Net Income for such period. For
purposes of calculating Consolidated EBITDA for the fiscal month of the Borrower
ending May 31, 1997 there shall be added to the actual amount of Consolidated
EBITDA an amount up to $270,000 to the extent such amount represents amounts
listed on SCHEDULE 2 which were deducted in the computation of Consolidated Net
Income for such period.
CONSOLIDATED NET INCOME. The consolidated net income (or deficit) of
the Borrower and its Subsidiaries, after deduction of all expenses, taxes, and
other proper charges, determined in accordance with generally accepted
accounting principles, after eliminating therefrom all extraordinary
nonrecurring items of gain or income and before any adjustments for LIFO
inventory expense for the Borrower and its Subsidiaries.
CONSOLIDATED OPERATING CASH FLOW. With respect to the Borrower and its
Subsidiaries and for any fiscal period, an amount equal to the RESULT (without
duplication) of (i) Consolidated EBITDA, MINUS (ii) cash payments for all taxes
paid during such period, MINUS (iii) Capital Expenditures made during such
period.
CONSOLIDATED TOTAL DEBT SERVICE. With respect to the Borrower and its
Subsidiaries and for any fiscal period, the SUM (without duplication) of (i)
Consolidated Total Interest Expense for such period PLUS (ii) Consolidated Total
Financial Obligations for such period.
CONSOLIDATED TOTAL FINANCIAL OBLIGATIONS. With respect to the Borrower
and its Subsidiaries on a consolidated basis and for any fiscal period, an
amount equal to the SUM (without duplication) of all principal payments on
Funded Debt that become due and payable or that are to become due and payable
during such fiscal period pursuant to any agreement or instrument to which the
Borrower or any of its Subsidiaries
<PAGE>
9
is a party relating to the borrowing of money or the obtaining of credit or in
respect of Capitalized Leases. Demand obligations shall be deemed to be due and
payable during any fiscal year during which such obligations are outstanding.
CONSOLIDATED TOTAL INTEREST EXPENSE. For any period, the aggregate
amount of interest required to be paid or accrued by the Borrower and its
Subsidiaries on a consolidated basis during such period on all Indebtedness of
the Borrower and its Subsidiaries on a consolidated basis outstanding during all
or any part of such period, whether such interest was or is required to be
reflected as an item of expense or capitalized, including payments consisting of
interest in respect of Capitalized Leases and including commitment fees, agency
fees, cash loan fees, letter of credit fees, facility fees, balance deficiency
fees and similar fees or expenses in connection with the borrowing of money or
the obtaining of credit.
CONVERSION REQUEST. A notice given by the Borrower to the Facility
Agent of the Borrower's election to convert or continue a Loan in accordance
with ss.2.7.
CREDIT AGREEMENT. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto.
CUSTOMS AGENT AGREEMENT. A Customs Agent Agreement, substantially in
the form of EXHIBIT H hereto, entered into among the Facility Agent, the
Borrower and an Approved Customs Broker.
DEBT SERVICE COVERAGE RATIO. For any fiscal period, the ratio of (i)
Consolidated Operating Cash Flow for such period to (ii) Consolidated Total Debt
Service for such period.
DEFAULT. See ss.14.1.
DISTRIBUTION. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock, warrants, options or other
similar equity securities representing the right to acquire common stock of the
Borrower; the purchase, redemption, or other retirement of any shares of any
class of capital stock of the Borrower, other than by way of issuance of shares
of common stock; directly or indirectly through a Subsidiary of the Borrower or
otherwise; the return of capital by the Borrower to its shareholders as such; or
any other distribution on or in respect of any shares of any class of capital
stock of the Borrower.
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10
DOCUMENTATION AGENT. As defined in the preamble hereto.
DOLLARS or $. Dollars in lawful currency of the United States of
America.
DOMESTIC LENDING OFFICE. Initially, the office of each Lender
designated as such in SCHEDULE 1 hereto; thereafter, such other office of such
Lender, if any, located within the United States that will be making or
maintaining Base Rate Loans.
DRAWDOWN DATE. The date on which any Revolving Credit Loan is made or
is to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with ss.2.7.
EFFECTIVE DATE. As defined in the Plan.
ELIGIBLE ASSIGNEE. Any of (i) a commercial bank or other financial
institution organized under the laws of the United States, or any State thereof
or the District of Columbia, and having total assets in excess of
$1,000,000,000; (ii) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof or the District of
Columbia, and having a net worth of at least $100,000,000, calculated in
accordance with generally accepted accounting principles; (iii) a commercial
bank organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, PROVIDED that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (iv) the central bank of any country which is a member of
the OECD; and (v) if, but only if, any Event of Default has occurred and is
continuing, any other bank, insurance company, commercial finance company or
other financial institution approved by the Facility Agent, such approval not to
be unreasonably withheld.
ELIGIBLE INVENTORY. With respect to the Borrower and AEL, finished
goods and piece goods owned by the Borrower or, ONLY with respect to finished
goods and piece goods inventory located in Hong Kong, AEL or the Borrower if the
Borrower has taken all steps requested by the Facility Agent to grant to the
Facility Agent, for the benefit of the Agents and the Lenders, a first-priority
perfected charge over the assets of the Borrower located in Hong Kong, pursuant
to such documentation (including, without limitation, a debenture, corporate
authority documentation, and one or more legal opinion(s)) as shall be
satisfactory, in form and substance, to the Facility Agent; PROVIDED that
Eligible Inventory shall
<PAGE>
11
not include any inventory (a) held on consignment, or not otherwise owned by the
Borrower or AEL or of a type no longer sold by the Borrower, (b) which has been
returned by a customer or is damaged or subject to any legal encumbrance other
than Permitted Liens, (c) which (i) if such goods are located in the United
States, is not in the possession of the Borrower or any of its Subsidiaries
unless the Facility Agent has received a waiver from the party in possession of
such inventory in form and substance reasonably satisfactory to the Facility
Agent or (ii) if such goods are in transit, with respect to which all documents
of title relating to such Inventory have not been consigned to the Facility
Agent in a manner reasonably acceptable to the Facility Agent and the Facility
Agent or an Approved Customs Broker is not in possession of all documents of
title relating to such goods, (d) which is held by the Borrower or any of its
Subsidiaries on property leased by the Borrower or any of its Subsidiaries,
unless the Facility Agent has received a waiver from the lessor of such leased
property and, if any, sublessor thereof in form and substance reasonably
satisfactory to the Facility Agent, (e) as to which the security interest of the
Facility Agent has not been duly perfected under applicable local law, (f) which
has been shipped to a customer of the Borrower or any of its Subsidiaries
regardless of whether such shipment is on a consignment basis, (g) which the
Facility Agent reasonably deems to be obsolete or not marketable or otherwise
does not consider "Eligible Inventory", (h) which is reasonably deemed by the
Facility Agent, based upon reasonable credit, commercial, accounting or other
considerations, to be unacceptable for inclusion in Eligible Inventory, or (i)
which is owned by the Borrower and located in Hong Kong unless the Borrower has
taken all steps requested by the Facility Agent to grant to the Facility Agent,
for the benefit of the Agents and the Lenders, a first-priority perfected charge
over the assets of the Borrower located in Hong Kong, pursuant to such
documentation (including, without limitation, a debenture, corporate authority
documentation, and one or more legal opinion(s)) as shall be satisfactory, in
form and substance, to the Facility Agent.
ELIGIBLE PORT. Any of Anchorage, Alaska; New York City, New York;
Newark, New Jersey; Los Angeles, California; Long Beach, California; San
Francisco, California; Seattle, Washington; New Orleans, Louisiana; Miami,
Florida; Philadelphia, Pennsylvania; and San Diego, California.
ELIGIBLE RECEIVABLES. The aggregate of the unpaid portions of the
Borrower's Accounts Receivable (net of any credits, rebates, offsets, holdbacks,
unapplied cash or other adjustments or commissions payable to third parties that
are adjustments to such Accounts Receivable) (a) that the Borrower reasonably
and in good faith determines to be collectible; (b) that are with account
debtors that (i) are not Affiliates or employees of the
<PAGE>
12
Borrower, (ii) purchased the goods or services giving rise to the relevant
Account Receivable in an arm's length transaction, (iii) are not insolvent or
involved in any case or proceeding, whether voluntary or involuntary, under any
bankruptcy, reorganization, arrangement, insolvency, adjustment of debt,
dissolution, liquidation or similar law of any jurisdiction, (iv) are, in the
Facility Agent's reasonable judgment, creditworthy and (v) are not the United
States of America or any state or other subdivision thereof; (c) that are in
payment of obligations that have been fully performed and are not subject to
dispute or any other similar claims that would reduce the cash amount payable
therefor; (d) that are not subject to any pledge, restriction, security interest
or other lien or encumbrance other than Permitted Liens; (e) in which the
Facility Agent has a valid and perfected first priority security interest; (f)
that are not outstanding for more than (i) sixty (60) days past the due date
therefor or (ii) ninety (90) days past the earlier to occur of (A) the date of
the respective invoices therefor and (B) the date of shipment thereof in the
case of goods or the end of the calendar month following the provision thereof
in the case of services; (g) that are not due from an account debtor located in
Indiana, Minnesota or New Jersey unless the Borrower (i) has received a
certificate of authority to do business and is in good standing in such state or
(ii) has filed a notice of business activities report with the appropriate
office or agency of such state for the current year; (h) that are not due from
any single account debtor if more than fifty percent (50%) of the aggregate
amount of all Accounts Receivable owing from such account debtor would otherwise
not be Eligible Receivables; (i) that are payable in Dollars; (j) that are not
payable from an office outside of the United States; (k) that are not secured by
a letter of credit unless the Facility Agent has a prior, perfected security
interest in such letter of credit; and (l) that relate to goods which have been
shipped by the Borrower and are not the subject of a bill and hold arrangement.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of
ss.3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
ENVIRONMENTAL LAWS. See ss.8.19(a).
EPA. See ss.8.19(a).
ERISA. The Employee Retirement Income Security Act of 1974 and the
regulations promulgated thereunder.
ERISA AFFILIATE. Any Person which is treated as a single employer with
the Borrower under ss.414(a), (b), (m) or (o) of the Code.
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13
ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of ss.4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
EUROCURRENCY RESERVE RATE. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
EURODOLLAR BUSINESS DAY. Any day (other than Saturday or Sunday) on
which commercial banks are open for international business (including dealings
in Dollar deposits) in London or such other eurodollar interbank market as may
be reasonably selected by the Facility Agent in its sole discretion acting in
good faith.
EURODOLLAR LENDING OFFICE. Initially, the office of each Lender
designated as such in SCHEDULE 1 hereto; thereafter, such other office of such
Lender, if any, that shall be making or maintaining Eurodollar Rate Loans.
EURODOLLAR RATE. For any Interest Period with respect to a Eurodollar
Rate Loan, the rate of interest equal to (i) the rate per annum (rounded upwards
to the nearest 1/16 of one percent) at which the Facility Agent's Eurodollar
Lending Office is offered Dollar deposits two Eurodollar Business Days prior to
the beginning of such Interest Period in the interbank eurodollar market where
the eurodollar and foreign currency and exchange operations of such Eurodollar
Lending Office are customarily conducted, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of the Eurodollar Rate Loan to which such Interest
Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency
Reserve Rate, if applicable.
EURODOLLAR RATE APPLICABLE MARGIN. At all times from the Closing Date
through the first Performance Adjustment Date, two and seventy-five one
hundredths percent (2.75%), and thereafter, the percentage determined by
reference to the provisions of ss.6.12.
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14
EURODOLLAR RATE LOANS. Revolving Credit Loans bearing interest
calculated by reference to the Eurodollar Rate.
EVENT OF DEFAULT. See ss.14.1.
EXISTING CREDIT AGREEMENT. The Post-Petition Credit Agreement, dated as
of May 2, 1995, among The Leslie Fay Companies, Inc., the Guarantors named
therein, the Lenders named therein, and FNBB and BankAmerica Business Credit,
Inc., as facility agents thereunder and FNBB as administrative agent thereunder,
as amended from time to time.
EXISTING LETTERS OF CREDIT. See ss.4.8.
FACILITY AGENT. As defined in the preamble hereto.
FACILITY AGENT'S FEE. See ss.6.1.
FACILITY AGENT'S HEAD OFFICE. The Facility Agent's head office located
at 100 Federal Street, Boston, Massachusetts 02110, or at such other location as
the Facility Agent may designate from time to time.
FACILITY AGENT'S SPECIAL COUNSEL. Bingham, Dana & Gould LLP or such
other counsel as may be approved by the Facility Agent.
FEE LETTER. The separate letter agreement, dated as of March 3, 1997,
between the Borrower and the Facility Agent.
FNBB. BankBoston, N.A., a national banking association, in its
individual capacity.
FNBB CONCENTRATION ACCOUNT. See ss.9.15 hereof.
FUNDED DEBT. With respect to the Borrower and its Subsidiaries on a
consolidated basis and without duplication, the aggregate amount of all
Indebtedness of such Persons for borrowed money, the deferred purchase price of
assets and Capitalized Leases.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) When used in (i) ss.11,
whether directly or indirectly through reference to a capitalized term used
therein or (ii) in the definition of "Indebtedness", means (A) principles that
are consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, in effect for the fiscal year
ended on the Balance Sheet Date, and (B) to the extent consistent with such
principles, the accounting practice of the Borrower reflected in its financial
statements for the year ended on the Balance Sheet Date, and (b) when used in
general, other than as provided above,
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15
means principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (ii) consistently applied with past financial
statements of the Borrower adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
GREEN SHEETS. See ss.9.17.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
GUARANTORS. Each of the undersigned Subsidiaries of the Borrower
executing the signature page to this Credit Agreement as "guarantor", and each
additional Person which shall become a Guarantor hereunder.
GUARANTY. The Guaranty contained in ss.5 hereof.
HAZARDOUS SUBSTANCES. See ss.8.19(b).
HELLER. Heller Financial, Inc., a Delaware corporation.
HELLER FACTORING AGREEMENT. The factoring agreement dated June 4, 1997
by and between the Borrower and Heller, and any renewals or extensions thereof,
in each case, in form and substance acceptable to the Lenders and the Facility
Agent.
HONG KONG SECURITY DOCUMENTS. Collectively, (i) the several Corporate
Debentures, executed by each of AEL, Viewmon Limited and Tomwell Limited, in
each case, in favor of the Facility Agent; (ii) the several agreements of
Guarantee and Indemnity, executed by each of AEL, Viewmon Limited and Tomwell
Limited, in each case, in favor of the Facility Agent; (iii) the several
Mortgage of Shares agreements, given by the Borrower with respect to the shares
of AEL and by AEL with respect to the shares of Viewmon Limited and Tomwell
Limited; (iv) the Deed of Counter-Indemnity given by the Borrower in favor of
AEL, Viewmon Limited and Tomwell Limited; and (v) the Line of Credit executed by
the Borrower and AEL.
<PAGE>
16
HONG KONG WAREHOUSE. The warehouse facility located at: 6Fl-8Fl, 1-12
Ka Ting Road, Kwai Chung, N.T., Kowloon, Hong Kong, leased to Asia Expert,
Limited pursuant to the Tenancy Agreement, by and between the Tino Level Limited
and Asia Expert Limited, dated January 21, 1997.
INDEBTEDNESS. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (i) all debt and similar monetary obligations, whether direct or
indirect; (ii) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (iii) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
INTEREST PAYMENT DATE. (i) As to any Base Rate Loan, the last day of
each calendar month, including the month which includes the Drawdown Date
thereof; and (ii) as to any Eurodollar Rate Loan in respect of which the
Interest Period is (A) 3 months or less, the last day of such Interest Period
and (B) more than 3 months, the date that is 3 months from the first day of such
Interest Period and, in addition, the last day of such Interest Period.
INTEREST PERIOD. With respect to each Revolving Credit Loan, (i)
initially, the period commencing on the Drawdown Date of such Loan and ending on
the last day of one of the periods set forth below, as selected by the Borrower
in a Loan Request (A) for any Base Rate Loan, the last day of the calendar
month; and (B) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii)
thereafter, each period commencing on the first day after the last day of the
next preceding Interest Period applicable to such Revolving Credit Loan and
ending on the last day of one of the periods set forth above, as selected by the
Borrower in a Conversion Request; PROVIDED that all of the foregoing provisions
relating to Interest Periods are subject to the following:
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17
(a) if any Interest Period with respect to a Eurodollar Rate
Loan would otherwise end on a day that is not a Eurodollar Business
Day, that Interest Period shall be extended to the next succeeding
Eurodollar Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Eurodollar
Business Day;
(b) if any Interest Period with respect to a Base Rate Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in
ss.2.7, the Borrower shall be deemed to have requested a conversion of
the affected Eurodollar Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last day
of the then current Interest Period with respect thereto;
(d) any Interest Period relating to any Eurodollar Rate Loan
that begins on the last Eurodollar Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Eurodollar Business Day of a calendar month; and
(e) any Interest Period relating to any Eurodollar Rate Loan
that would otherwise extend beyond the Revolving Credit Loan Maturity
Date shall end on the Revolving Credit Loan Maturity Date.
INVENTORY COVERAGE RATIO. The ratio of inventory to accounts
receivable. As used in this definition of Inventory Coverage Ratio and ss.11.3
only, (a) "inventory" shall mean the SUM of "Other AR" PLUS "Inventory" PLUS
"Other Inventory" and (b) "accounts receivable" shall mean "Accounts Receivable,
gross", in each case as such terms are used in the Borrower's projections
delivered to the Lenders and the Facility Agent pursuant to ss.8.4.2.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and
<PAGE>
18
still outstanding; (ii) there shall be included as an Investment all interest
accrued with respect to Indebtedness constituting an Investment unless and until
such interest is paid; (iii) there shall be deducted in respect of each such
Investment any amount received as a return of capital (but only by repurchase,
redemption, retirement, repayment, liquidating dividend or liquidating
distribution); (iv) there shall not be deducted in respect of any Investment any
amounts received as earnings on such Investment, whether as dividends, interest
or otherwise, except that accrued interest included as provided in the foregoing
clause (ii) may be deducted when paid; and (v) there shall not be deducted from
the aggregate amount of Investments any decrease in the value thereof.
KASPER AGREEMENTS. Collectively, (i) the Sale Agreement, dated June 4,
1997, among the Borrower, ASL/K Licensing Corp., a Delaware corporation, Herbert
Kasper and Forecast Designs, Inc., a New York corporation; (ii) the Reserved
Licenses License Agreement, dated June 4, 1997, between the Borrower and
Forecast Designs, Inc.; (iii) the Trademark License Agreement, dated June 4,
1997, between the Borrower and ASL/K Licensing Corp.; (iv) the Employment,
Consulting and Non-Competition Agreement, dated June 4, 1997, among the
Borrower, ASL/K Licensing Corp. and Herbert Kasper; (v) Letter Agreement, dated
May 29, 1997, from The Sassco Division of The Leslie Fay Companies, Inc. to
Forecast Designs, Inc.; (vi) Trademark Assignment (Worldwide), dated June 1,
1997, from Forecast Designs, Inc. to the Borrower; (vii) Trademark Assignment
(U.S.), dated June 1, 1997, from Forecast Designs, Inc. to the Borrower; (viii)
Trademark Assignment (Canada), dated June 1, 1997, from Forecast Designs, Inc.
to the Borrower; (ix) Consent and Trademark Assignment, dated June 1, 1997,
between Herbert Kasper and the Borrower; (x) Letter of Credit Agreement, dated
June 4, 1997, from the Borrower and ASL/K Licensing Corp. to Herbert Kasper;
(xi) Non-Disturbance Agreement, dated June 4, 1997, from the Facility Agent to
Forecast Designs, Inc.; (xii) Letter Agreement, dated May 8, 1997, from Arthur
S. Levine to Herbert Kasper; and (xiii) Reserved Licenses letter, dated June 1,
1997, from the Borrower to Herbert Kasper and Forecast Designs, Inc.; in each
case, in form and substance satisfactory to the Facility Agent.
LANDLORD LIEN RESERVE. At any time of reference, an amount reasonably
determined by the Facility Agent as a reserve against inventory located in
locations with respect to which the landlord thereof may have a common law or
statutory landlord's lien for past-due or future obligations senior in priority
to the lien in favor of the Facility Agent for the benefit of the Lenders. It is
understood by the parties hereto that, with respect to the Hong Kong Warehouse,
the Landlord Lien Reserve
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19
shall be an amount equal to at least four (4) months rent for such facility, as
such amount may be adjusted from time to time by the Facility Agent in
accordance herewith.
LENDERS. As defined in the preamble hereto.
LETTER OF CREDIT. See ss.4.1.1.
LETTER OF CREDIT APPLICATION. See ss.4.1.1.
LETTER OF CREDIT CASH COLLATERAL ACCOUNT. See ss.4.7.
LETTER OF CREDIT FEE. See ss.4.6.
LETTER OF CREDIT FEE RATE. At all times from the Closing Date through
the first Performance Adjustment Date, one and seventy-five one-hundredths
percent (1.75%) per annum, and thereafter, the percentage determined by
reference to the provisions of ss.6.12.
LETTER OF CREDIT PARTICIPATION. See ss.4.1.4.
LOAN DOCUMENTS. This Credit Agreement, the Notes, the Fee Letter, the
Letter of Credit Applications, the Letters of Credit and the Security Documents.
LOAN REQUEST. See ss.2.6.
LOANS. The Revolving Credit Loans.
MAJORITY LENDERS. As of any date, the Lenders holding at least
fifty-one percent (51%) of the outstanding principal amount of the Notes on such
date; and if no such principal is outstanding, the Lenders whose aggregate
Commitments constitutes at least fifty-one percent (51%) of the Total
Commitment.
MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
NOTES. The Revolving Credit Notes.
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20
OBLIGATIONS. All indebtedness, obligations and liabilities of any of
the Borrower and its Subsidiaries to any of the Lenders and the Facility Agent,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Loans made or Reimbursement Obligations incurred or any of
the Notes, Letter of Credit Applications, Letters of Credit or other instruments
at any time evidencing any thereof.
OPERATING ACCOUNT. The Borrower's operating account (No. 512-99228)
with FNBB.
OSHA. The Occupational Safety and Health Act of 1970 (29 U.S.C. ss.651
et. seq.), as amended, and all regulations promulgated thereunder.
OUTSTANDING. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
PERFECTION CERTIFICATES. The Perfection Certificates as defined in the
Security Agreements.
PERFORMANCE ADJUSTMENT DATE. See ss.6.12.
PERMITTED INVENTORY LOCATIONS. The Hong Kong Warehouse and the retail
stores and warehouse distribution centers of the Borrower set forth on SCHEDULE
8.23 hereto, and any future retail stores and warehouse distribution centers of
the Borrower located in the United States of America, in each case so long as
(i) the Borrower has provided the Facility Agent with ten (10) days prior
written notice of the establishment of such other retail store or warehouse
distribution center and (ii) applicable Uniform Commercial Code financing
statements or other applicable documents shall have been filed in the proper
filing offices so as to fully perfect the Facility Agent's first priority
security interest in the inventory and other assets of the Borrower located at
such retail store or warehouse distribution center.
PERMITTED LIENS. Liens, security interests and other encumbrances
permitted by ss.10.2.
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21
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
PIECE GOODS INVENTORY. The SUM of "Other AR" PLUS "Other Inventory", in
each case as such terms are used in the Borrower's projections delivered to the
Lenders and the Facility Agent pursuant to ss.8.4.2.
PLAN. The Third Amended and Restated Joint Plan of Reorganization for
the Leslie Fay Companies, Inc., ET. AL., proposed By Debtors and Creditors'
Committee, distributed pursuant to the Second Supplemental Disclosure Statement
dated February 28, 1997.
REAL ESTATE. All real property at any time owned or leased (as lessee
or sublessee) by the Borrower or any of its Subsidiaries.
RECORD. The grid attached to a Note, or the continuation of such grid,
or any other similar record, including computer records, maintained by any
Lender with respect to any Loan referred to in such Note.
RECOVERY EVENT. The receipt by the Borrower or any of its Subsidiaries
of any cash insurance proceeds or condemnation award payable (i) by reason of
theft, loss, physical destruction or damage or any other similar event with
respect to any property or assets of the Borrower or any of its Subsidiaries and
(ii) under any policy of insurance required to be maintained by the Borrower
under Section 8.03.
REGISTER. See ss.20.3.
REIMBURSEMENT OBLIGATION. The Borrower's obligation to reimburse the
Facility Agent and the Lenders on account of any drawing under any Letter of
Credit as provided in ss.4.2.
REQUIRED LENDERS. As of any date, the Lenders holding at least
seventy-five percent (75%) of the outstanding principal amount of the Notes on
such date; and if no such principal is outstanding, the Lenders whose aggregate
Commitments constitute at least seventy-five percent (75%) of the Total
Commitment.
REVOLVING CREDIT LOAN MATURITY DATE. June 4, 2000.
REVOLVING CREDIT LOANS. Revolving credit loans made or to be made by
the Lenders to the Borrower pursuant to ss.2.
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22
REVOLVING CREDIT NOTE RECORD. A Record with respect to a Revolving
Credit Note.
REVOLVING CREDIT NOTES. See ss.2.4.
SASSCO EUROPE. Sassco Europe, Ltd., a corporation organized under the
laws of Delaware.
SECURITY AGREEMENTS. The several Security Agreements, dated or to be
dated on or prior to the Closing Date, between the Borrower and its Subsidiaries
and the Facility Agent and in form and substance reasonably satisfactory to the
Lenders and the Facility Agent.
SECURITY DOCUMENTS. The Security Agreements, the Trademark Security
Agreements, the Stock Pledge Agreement, the Agency Account Agreements, the
Customs Agent Agreement(s), the Hong Kong Security Documents and the Cash
Collateral Agreement.
SENIOR NOTE INDENTURE. The Indenture, dated as of June 4, 1997, between
the Borrower and IBJ Schroder Bank & Trust Company, as Trustee, in form and
substance reasonably satisfactory to the Facility Agent.
SENIOR NOTES. The 12.75% senior unsecured notes, due 2004, issued by
the Borrower pursuant to the Senior Note Indenture, in an aggregate principal
amount not to exceed $110,000,000.
SETTLEMENT. The making of, or receiving of payments, in immediately
available funds, by the Lenders, to the extent necessary to cause each Lender's
actual share of the outstanding amount of Revolving Credit Loans (after giving
effect to any Loan Request) to be equal to each Lender's Commitment Percentage
of the outstanding amount of such Revolving Credit Loans (after giving effect to
any Loan Request), in any case where, prior to such event or action, the actual
share is not so equal.
SETTLEMENT AMOUNT. See ss.2.9(a).
SETTLEMENT DATE. (a) The Drawdown Date relating to any Loan Request or
the date any Revolving Credit Loans are repaid pursuant to ss.3.4, (b) Friday of
each week, or if Friday is not a Business Day, the Business Day immediately
following such Friday, (c) the Business Day immediately following the Facility
Agent becoming aware of the existence of an Event of Default, (d) any Business
Day on which the amount of Revolving Credit Loans outstanding from FNBB PLUS
FNBB's Commitment Percentage of the sum of the Maximum Drawing Amount
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23
and any Unpaid Reimbursement Obligations is equal to or greater than FNBB's
Commitment Percentage of the Total Commitment, (e) the Business Day immediately
following any Business Day on which the amount of Loans outstanding increases or
decreases by more than $5,000,000 as compared to the previous Settlement Date,
(f) any day on which any conversion of a Base Rate Loan to a Eurodollar Rate
Loan occurs, (g) any Business Day on which the amount of outstanding Revolving
Credit Loans decreases and the amount of the Facility Agent's Loans outstanding
equals zero Dollars ($0), or (h) any other Business Day which the Facility Agent
shall choose upon one (1) Business Day prior written or telephonic notice to the
Lenders.
SETTLING LENDER. See ss.2.9(a).
STOCK PLEDGE AGREEMENT. The Stock Pledge Agreement, dated or to be
dated on or prior to the Closing Date, between the Borrower and the Facility
Agent.
STORE ACCOUNTS. Depository accounts in depository institutions for, or
on behalf of, the Borrower or any of its Subsidiaries and listed on SCHEDULE
8.21 hereto (as such may be amended from time to time in accordance with
ss.10.11 hereof).
SUBSIDIARY. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.
SYNDICATION AGENT. As defined in the preamble hereto.
TOTAL COMMITMENT. The sum of the Commitments of the Lenders, as in
effect from time to time. As of the Closing Date, the Total Commitment is
$100,000,000.
TRADEMARK SECURITY AGREEMENTS. The several Trademark Security
Agreements, dated or to be dated on or prior to the Closing Date, made by the
Borrower and its Subsidiaries in favor of the Facility Agent and in form and
substance satisfactory to the Lenders and the Facility Agent.
TYPE. As to any Revolving Credit Loan, its nature as a Base Rate Loan
or a Eurodollar Rate Loan.
UNIFORM CUSTOMS. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor
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24
version thereto adopted by the Facility Agent in the ordinary course of its
business as a letter of credit issuer and in effect at the time of issuance of
such Letter of Credit.
UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for which
the Borrower does not reimburse the Facility Agent and the Lenders on the date
specified in, and in accordance with, ss.4.2.
VOTING STOCK. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.
1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from
time to time in accordance with its terms and the terms of this Credit
Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
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25
(h) Reference to a particular "ss." refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not to
any particular section or subdivision of this Credit Agreement.
2. THE REVOLVING CREDIT FACILITY.
2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth
in this Credit Agreement, each of the Lenders severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Revolving Credit Loan Maturity Date upon notice
by the Borrower to the Facility Agent given in accordance with ss.2.6, such sums
as are requested by the Borrower up to a maximum aggregate amount outstanding
(after giving effect to all amounts requested) at any one time equal to such
Lender's Commitment MINUS such Lender's Commitment Percentage of the sum of the
Maximum Drawing Amount and all Unpaid Reimbursement Obligations, PROVIDED that
the sum of the outstanding amount of the Revolving Credit Loans (after giving
effect to all amounts requested) PLUS the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations shall not at any time exceed the lesser of (i) the
Total Commitment and (ii) the Borrowing Base. The Revolving Credit Loans shall
be made PRO RATA in accordance with each Lender's Commitment Percentage. Each
request for a Revolving Credit Loan hereunder shall constitute a representation
and warranty by the Borrower that the conditions set forth in ss.12 and ss.13,
in the case of the initial Revolving Credit Loans to be made on the Closing
Date, and ss.13, in the case of all other Revolving Credit Loans, have been
satisfied on the date of such request.
2.2. COMMITMENT FEE. The Borrower agrees to pay to the Facility Agent,
for the accounts of the Lenders PRO RATA in accordance with their respective
Commitment Percentages, a commitment fee calculated at the Commitment Fee Rate
on the average daily amount during each calendar month or portion thereof from
the Closing Date to the Revolving Credit Loan Maturity Date by which the Total
Commitment MINUS the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations exceeds the outstanding amount of Revolving Credit
Loans during such calendar quarter. The commitment fee shall be payable monthly
in arrears on the first day of each calendar month for the immediately preceding
calendar month commencing on the first such date following the date hereof, with
a final payment on the Revolving Credit
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26
Loan Maturity Date or any earlier date on which the Commitments shall terminate.
2.3. REDUCTION OF TOTAL COMMITMENT. The Borrower shall have the right
at any time and from time to time upon five (5) Business Days prior written
notice to the Facility Agent to reduce by $5,000,000 or an integral multiple
thereof or terminate entirely the Total Commitment, whereupon the Commitments of
the Lenders shall be reduced PRO RATA in accordance with their respective
Commitment Percentages of the amount specified in such notice or, as the case
may be, terminated. Promptly after receiving any notice of the Borrower
delivered pursuant to this ss.2.3, the Facility Agent will notify the Lenders of
the substance thereof. Upon the effective date of any such reduction or
termination, the Borrower shall pay to the Facility Agent for the respective
accounts of the Lenders the full amount of any commitment fee then accrued on
the amount of the reduction. No reduction or termination of the Commitments may
be reinstated.
2.4. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall be
evidenced by separate promissory notes of the Borrower in substantially the form
of EXHIBIT B hereto (each a "REVOLVING CREDIT NOTE"), dated as of the Closing
Date and completed with appropriate insertions. One Revolving Credit Note shall
be payable to the order of each Lender in a principal amount equal to such
Lender's Commitment or, if less, the outstanding amount of all Revolving Credit
Loans made by such Lender, plus interest accrued thereon, as set forth below.
The Borrower irrevocably authorizes each Lender to make or cause to be made, at
or about the time of the Drawdown Date of any Revolving Credit Loan or at the
time of receipt of any payment of principal on such Lender's Revolving Credit
Note, an appropriate notation on such Lender's Revolving Credit Note Record
reflecting the making of such Revolving Credit Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the Revolving Credit Loans
set forth on such Lender's Revolving Credit Note Record shall (in the absence of
manifest error)be PRIMA FACIE evidence of the principal amount thereof owing and
unpaid to such Lender, but the failure to record, or any error in so recording,
any such amount on such Lender's Revolving Credit Note Record shall not limit or
otherwise affect the obligations of the Borrower hereunder or under any
Revolving Credit Note to make payments of principal of or interest on any
Revolving Credit Note when due.
2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided
in ss.6.11,
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27
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate equal to the sum
of (i) the Base Rate PLUS (ii) the Base Rate Applicable Margin as in
effect from time to time.
(b) Each Eurodollar Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last
day of the Interest Period with respect thereto at the rate equal to
the sum of (i) the Eurodollar Rate determined for such Interest Period
PLUS (ii) the Eurodollar Rate Applicable Margin as in effect from time
to time.
(c) The Borrower promises to pay interest on each Revolving
Credit Loan in arrears on each Interest Payment Date with respect
thereto.
2.6. REQUESTS FOR REVOLVING CREDIT LOANS. (a) The Borrower shall give
the Facility Agent written notice in the form of EXHIBIT C hereto (or telephonic
notice confirmed in a writing in the form of EXHIBIT C hereto) of each Revolving
Credit Loan requested hereunder (a "LOAN REQUEST") no less than (i) one (1)
Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (ii)
three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any
Eurodollar Rate Loan. Each such notice shall specify (A) the principal amount of
the Revolving Credit Loan requested, (B) the proposed Drawdown Date of such
Revolving Credit Loan, (C) the Interest Period for such Revolving Credit Loan
and (D) the Type of such Revolving Credit Loan. Notwithstanding the foregoing,
the Facility Agent may (in its sole and absolute discretion) make Base Rate
Loans available to the Borrower on the same Business Day as such Loans are
requested. The Lenders hereby agree to comply with the provisions hereof,
including, without limitation, the provisions of ss.2.8 hereof, with respect to
any such Loan. Promptly upon receipt of any such notice, the Facility Agent
shall notify each of the Lenders thereof. Each Loan Request shall be irrevocable
and binding on the Borrower and shall obligate the Borrower to accept the
Revolving Credit Loan requested from the Lenders on the proposed Drawdown Date.
Each Loan Request with respect to a Base Rate Loan shall be in the minimum
aggregate amount of $500,000 or a larger integral multiple thereof and each Loan
Request with respect to a Eurodollar Rate Loan shall be in a minimum aggregate
amount of $500,000 or an integral multiple thereof.
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28
(b) Notwithstanding the notice and minimum amount requirements set
forth in ss.2.6(a) but otherwise in accordance with the terms and conditions of
this Credit Agreement, the Facility Agent may, in its sole discretion and
without conferring with the Lenders, make Revolving Credit Loans to the Borrower
(i) by entry of credits to the Operating Account to cover checks or other
charges which the Borrower has drawn or made against such account or (ii) in an
amount as otherwise requested by the Borrower. The Borrower hereby requests and
authorizes the Facility Agent to make from time to time such Revolving Credit
Loans by means of appropriate entries of such credits sufficient to cover checks
and other charges then presented. The Borrower acknowledges and agrees that the
making of such Revolving Credit Loans shall, in each case, be subject in all
respects to the provisions of this Credit Agreement as if they were Revolving
Credit Loans covered by a Loan Request including, without limitation, the
limitations set forth in ss.2.1 and the requirements that the applicable
provisions of ss.ss.12 and 13, in the case of Revolving Credit Loans made on the
Closing Date, and ss.13, in the case of all Revolving Credit Loans, be
satisfied. All actions taken by the Facility Agent pursuant to the provisions of
this ss.2.6(b) shall be conclusive and binding on the Borrower absent the
Facility Agent's gross negligence or willful misconduct. Revolving Credit Loans
made pursuant to this ss.2.6(b) shall be Base Rate Loans until converted in
accordance with the provisions of the Credit Agreement and, prior to a
Settlement, interest payable on such Revolving Credit Loans shall be for the
account of the Facility Agent and payment of principal on such Revolving Credit
Loans shall for the account of the Facility Agent.
2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN.
The Borrower may elect from time to time to convert any outstanding
Revolving Credit Loan to a Revolving Credit Loan of another Type,
PROVIDED that (i) with respect to any such conversion of a Revolving
Credit Loan to a Base Rate Loan, the Borrower shall give the Facility
Agent at least three (3) Business Days prior written notice of such
election; (ii) with respect to any such conversion of a Revolving
Credit Loan to a Eurodollar Rate Loan, the Borrower shall give the
Facility Agent at least three (3) Eurodollar Business Days prior
written notice of such election; (iii) with respect to any such
conversion of a Eurodollar Rate Loan into a Revolving Credit Loan of
another Type, such conversion shall only be made on the last day of the
Interest Period with respect thereto and (iv) no Loan may be converted
into a Eurodollar Rate Loan when any Default or Event of Default has
occurred and is
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29
continuing. On the date on which such conversion is being made each
Lender shall take such action as is necessary to transfer its
Commitment Percentage of such Revolving Credit Loans to its Domestic
Lending Office or its Eurodollar Lending Office, as the case may be.
All or any part of outstanding Revolving Credit Loans of any Type may
be converted into a Revolving Credit Loan of another Type as provided
herein, PROVIDED that any partial conversion shall be in an aggregate
principal amount of $500,000 or a whole multiple thereof. Each
Conversion Request relating to the conversion of a Revolving Credit
Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower.
2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any
Revolving Credit Loan of any Type may be continued as a Revolving
Credit Loan of the same Type upon the expiration of an Interest Period
with respect thereto by compliance by the Borrower with the notice
provisions contained in ss.2.7.1; PROVIDED that no Eurodollar Rate Loan
may be continued as such when any Default or Event of Default has
occurred and is continuing, but shall be automatically converted to a
Base Rate Loan on the last day of the first Interest Period relating
thereto ending during the continuance of any Default or Event of
Default of which officers of the Facility Agent active upon the
Borrower's account have actual knowledge. In the event that the
Borrower fails to provide any such notice with respect to the
continuation of any Eurodollar Rate Loan as such, then such Eurodollar
Rate Loan shall be automatically converted to a Base Rate Loan on the
last day of the first Interest Period relating thereto. The Facility
Agent shall notify the Lenders promptly when any such automatic
conversion contemplated by this ss.2.7 is scheduled to occur.
2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from
Eurodollar Rate Loans shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, there shall not be
more than five (5) Eurodollar Rate Loans outstanding.
2.8. FUNDS FOR REVOLVING CREDIT LOAN.
2.8.1. FUNDING PROCEDURES. Not later than 2:00 p.m. (Boston
time) on the proposed Drawdown Date of any Revolving Credit Loans, each
of the Lenders will make available to the Facility Agent, at the
Facility Agent's Head Office, in immediately available funds, the
amount of such Lender's Commitment Percentage of the amount of the
requested Revolving Credit Loans.
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30
Upon receipt from each Lender of such amount, and upon receipt of the
documents required by ss.ss.12 and 13 and the satisfaction of the other
conditions set forth therein, to the extent applicable, the Facility
Agent will make available to the Borrower the aggregate amount of such
Revolving Credit Loans made available to the Facility Agent by the
Lenders. The failure or refusal of any Lender to make available to the
Facility Agent at the aforesaid time and place on any Drawdown Date the
amount of its Commitment Percentage of the requested Revolving Credit
Loans shall not relieve any other Lender from its several obligation
hereunder to make available to the Facility Agent the amount of such
other Lender's Commitment Percentage of any requested Revolving Credit
Loans.
2.8.2. ADVANCES BY FACILITY AGENT. With respect to any
Revolving Credit Loans made pursuant to ss.2.6(a), the Facility Agent
may, unless notified to the contrary by any Lender prior to a Drawdown
Date, assume that such Lender has made available to the Facility Agent
on such Drawdown Date the amount of such Lender's Commitment Percentage
of the Revolving Credit Loans to be made on such Drawdown Date, and the
Facility Agent may (but it shall not be required to), in reliance upon
such assumption, make available to the Borrower a corresponding amount.
If any Lender makes available to the Facility Agent such amount on a
date after such Drawdown Date, such Lender shall pay to the Facility
Agent on demand an amount equal to the product of (i) the average,
computed for the period referred to in clause (iii) below, of the
weighted average interest rate paid by the Facility Agent for federal
funds acquired by the Facility Agent during each day included in such
period, TIMES (ii) the amount of such Lender's Commitment Percentage of
such Revolving Credit Loans, TIMES (iii) a fraction, the numerator of
which is the number of days that elapse from and including such
Drawdown Date to the date on which the amount of such Lender's
Commitment Percentage of such Revolving Credit Loans shall become
immediately available to the Facility Agent, and the denominator of
which is 360. A statement of the Facility Agent submitted to such
Lender with respect to any amounts owing under this paragraph shall be
PRIMA FACIE evidence of the amount due and owing to the Facility Agent
by such Lender. If the amount of such Lender's Commitment Percentage of
such Revolving Credit Loans is not made available to the Facility Agent
by such Lender within three (3) Business Days following such Drawdown
Date, the Facility Agent shall be entitled to recover such amount from
the Borrower on demand, with interest thereon at the rate per annum
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31
applicable to the Revolving Credit Loans made on such Drawdown Date;
PROVIDED that the Borrower's compliance with such demand shall not
constitute a waiver of the Borrower's claims, if any, against such
Lender.
2.9. SETTLEMENTS; FAILURE TO MAKE FUNDS AVAILABLE.
(a) On each Settlement Date, the Facility Agent shall, not
later than 11:00 a.m. (Boston time), give telephonic or facsimile
notice (i) to the Lenders and the Borrower of the respective
outstanding amount of Revolving Credit Loans made by the Facility Agent
on behalf of the Lenders pursuant to ss.2.6(b) and payments made
against the Facility Agent's Revolving Credit Loans pursuant ss.3.2(c)
from the immediately preceding Settlement Date through the close of
business on the prior day and the amount of any Eurodollar Rate Loans
to be made (following the giving of notice pursuant to ss.2.6(a)) on
such date pursuant to a Loan Request and (ii) to the Lenders of the
amount (a "SETTLEMENT AMOUNT") that each Lender (the "SETTLING LENDER")
shall pay to effect a Settlement of any Loan. A statement of the
Facility Agent submitted to the Lenders and the Borrower with respect
to any amounts owing under this ss.2.9 shall (absent manifest error) be
PRIMA FACIE evidence of the amount due and owing. The Settling Lender
shall, not later than 3:00 p.m. (Boston time) on such Settlement Date,
effect a wire transfer of immediately available funds to the Facility
Agent in the amount of the Settlement Amount. All funds advanced by any
Lender as a Settling Lender pursuant to this ss.2.9 shall for all
purposes be treated as a Revolving Credit Loan made by such Settling
Lender to the Borrower and all funds received by any Lender pursuant to
this ss.2.9 shall for all purposes be treated as repayment of amounts
owed with respect to Revolving Credit Loans made by such Lender. In the
event that any bankruptcy, reorganization, liquidation, receivership or
similar cases or proceedings in which the Borrower is a debtor prevent
a Settling Lender from making any Revolving Credit Loan to effect a
Settlement as contemplated hereby, such Settling Lender will make such
disposition and arrangements with the other Lenders with respect to
such Revolving Credit Loans, either by way of purchase of
participations, distribution, PRO TANTO assignment of claims,
subrogation or otherwise as shall result in each Lender's share of the
outstanding Revolving Credit Loans being equal, as nearly as
practicable, to such Lender's Commitment Percentage of the outstanding
amount of the Revolving Credit Loans.
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(b) If any Lender makes available to the Facility Agent its
Settlement Amount on a date after such Settlement Date, such Lender
shall pay to the Facility Agent on demand an amount equal to the
product of (i) the average computed for the period referred to in
clause (iii) below, of the weighted average interest rate paid by the
Facility Agent for federal funds acquired by the Facility Agent during
each day included in such period, times (ii) the amount of such
Settlement Amount, times (iii) a fraction, the numerator of which is
the number of days that elapse from and including such Settlement Date
to the date on which the amount of such Settlement Amount shall become
immediately available to the Facility Agent, and the denominator of
which is 360. A statement of the Facility Agent submitted to such
Lender with respect to any amounts owing under this paragraph shall be
prima facie evidence of the amount due and owing to the Facility Agent
by such Lender. If such Lender's Settlement Amount is not made
available to the Facility Agent by such Lender within three (3)
Business Days following such Settlement Date, the Facility Agent shall
be entitled to recover such amount from the Borrower on demand, with
interest thereon at the rate per annum applicable to Base Rate Loans as
of such Settlement Date.
(c) The failure or refusal of any Lender to make available to
the Facility Agent at the aforesaid time and place on any Settlement
Date the amount of its Settlement Amount (i) shall not relieve any
other Lender from its several obligations hereunder to make available
to the Facility Agent the amount of such other Lender's Settlement
Amount and (ii) shall not impose upon such other Lender any liability
with respect to such failure or refusal or otherwise increase the
Commitment of such other Lender.
2.10. CHANGE IN BORROWING BASE. The Borrowing Base shall be determined
weekly (or at such other interval as may be specified pursuant to ss.9.4(f)) by
the Facility Agent by reference to the Borrowing Base Report delivered to the
Lenders and the Facility Agent pursuant to ss.9.4(f).
3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
3.1. MATURITY. The Borrower promises to pay on the Revolving Credit
Loan Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Loan Maturity Date, all of the Revolving Credit Loans
outstanding on such date, together with any and all accrued and unpaid interest
thereon.
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33
3.2. REPAYMENTS OF LOANS PRIOR TO EVENT OF DEFAULT.
(a) (i) All funds and cash proceeds in the form of money,
checks and like items received in the FNBB Concentration Account as
contemplated by ss.9.15 shall be credited, on the first Business Day
immediately following the date of the Facility Agent's receipt of such
amounts (or on such later date as the Facility Agent determines that
good collected funds have been received), to the Obligations or to the
Operating Account as contemplated by ss.3.2(c), and (ii) all funds and
cash proceeds in the form of a wire transfer received in the FNBB
Concentration Account as contemplated by ss.9.15 shall be credited on
the same Business Day as the Facility Agent's receipt of such amounts
if received prior to 2:00 p.m. (Boston time) and on the following
Business Day if received after 2:00 p.m. (Boston time) (or on such
later date as the Facility Agent determines that good collected funds
have been received), to the Obligations or to the Operating Account as
contemplated by ss.3.2(c).
(b) If at any time the sum of the outstanding amount of the
Revolving Credit Loans, the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations exceeds the lesser of (i) the Total
Commitment and (ii) the Borrowing Base, the Borrower shall immediately
pay the amount of such excess to the Facility Agent for the respective
accounts of the Lenders for application in accordance with
ss.3.2(c).
(c) Any amounts required to be repaid pursuant to ss.3.2(a) or
(b) shall be applied to the Obligations as follows:
(A) first, to pay Obligations then due and payable;
(B) second, to reduce Base Rate Loans made by the
Facility Agent which are subject to Settlement;
(C) third, to reduce Eurodollar Rate Loans made by
the Facility Agent which are subject to Settlement (except as
provided below);
(D) fourth, to reduce Base Rate Loans which are not
subject to Settlement;
(E) fifth, to reduce Eurodollar Loans which are not
subject to Settlement; and
(F) sixth, to the Borrower's Operating Account.
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34
All prepayments of Eurodollar Rate Loans prior to the end of an
Interest Period shall obligate the Borrower to pay any breakage costs associated
with such Eurodollar Rate Loans in accordance with ss.6.10 hereof. Prior to the
occurrence of an Event of Default, the Borrower may elect to avoid such breakage
costs by requesting that the Facility Agent apply such amounts that would
otherwise be used to reduce Eurodollar Rate Loans to cash collateralize such
Eurodollar Rate Loans, but in no event shall the Borrower be deemed to have paid
such Eurodollar Rate Loans until such cash has been paid to the Facility Agent
for application to such Eurodollar Rate Loans; PROVIDED, HOWEVER, that if, at
any time at which the Facility Agent shall be holding any amounts as cash
collateral for Eurodollar Rate Loans after application of ss.ss.3.2(a) and (b)
hereof on any Business Day, there shall be any Obligations (other than such
Eurodollar Rate Loans) outstanding, the Facility Agent shall apply such amounts
being so held as cash collateral to the repayment of such other Obligations, in
the order set forth in this ss.3.2(c). The Facility Agent may elect to cause
such cash collateral to be deposited into either (i) the Cash Collateral Account
(which may, at the reasonable discretion of the Facility Agent, be an interest
bearing or a non-interest bearing account) or (ii) the FNBB Concentration
Account. All prepayments of the Loans pursuant to this ss.3.2(c) shall be
allocated among the Lenders making such Loans, in proportion, as nearly as
practicable, to the respective unpaid principal amount of such Loans
outstanding, with adjustments to the extent practicable to equalize any prior
payments or repayments not exactly in proportion.
3.3. REPAYMENTS OF LOANS AND DISTRIBUTION OF COLLATERAL PROCEEDS AFTER
EVENT OF DEFAULT. In the event that following the occurrence and during the
continuance of an Event of Default, the Facility Agent or any Lender, as the
case may be, received any monies, whether pursuant to ss.9.15 or ss.14.5 or
otherwise with respect to the realization upon any of the Collateral, such
monies shall be distributed for application, without duplication, as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Facility Agent for or in respect of all reasonable
costs, expenses, disbursements and losses which shall have been
incurred or sustained by the Facility Agent in connection with the
collection of such monies by the Facility Agent, for the exercise,
protection or enforcement by the Facility Agent of all or any of the
rights, remedies, powers and privileges of the Facility Agent, for the
benefit of the Facility Agent and the Lenders, under the Credit
Agreement or any of the other Loan Documents or in respect of the
Collateral or in support of any provision of adequate
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35
indemnity to the Facility Agent against any taxes or liens which by law
shall have, or may have, priority over the rights of the Facility Agent
to such monies;
(b) Second, to all other Obligations in such order or
preference as the Majority Lenders may determine; PROVIDED, HOWEVER,
that (i) distributions in respect of such Obligations shall be made
PARI PASSU among Obligations with respect to the Facility Agent's fees
payable pursuant to ss.6.2 and all other Obligations and (ii)
distributions in respect of Obligations owing to the Lenders with
respect to each type of Obligation such as interest, principal, fees
and expenses, shall be made among the Lenders PRO RATA based upon each
Lender's share of the outstanding Obligations, and PROVIDED, FURTHER,
that the Facility Agent may in its discretion make proper allowance to
take into account any Obligations not then due and payable;
(c) Third, thereafter to obligations required to be paid
pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts;
(d) Fourth, to repayment of the Borrower's obligations to any
Lender arising under, or pursuant to, any interest rate hedging
agreements between the Borrower and one or more Lenders; and
(e) Fifth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
3.4. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. Without diminishing
the requirements of ss.3.2, the Borrower shall have the right, at its election,
to repay the outstanding amount of the Revolving Credit Loans, as a whole or in
part, at any time without penalty or premium, PROVIDED that any full or partial
prepayment of the outstanding amount of any Eurodollar Rate Loans pursuant to
this ss.3.4 may be made only on the last day of the Interest Period relating
thereto unless the Borrower pays any breakage costs associated with the
prepayment of such Eurodollar Rate Loan in accordance with ss.6.10 hereof. The
Borrower shall give the Facility Agent, no later than 10:00 a.m., Boston time,
at least one (1) Business Day prior written notice of any proposed prepayment
pursuant to this ss.3.4 of Base Rate Loans, and three (3) Eurodollar Business
Days notice of any proposed prepayment pursuant to this ss.3.4 of Eurodollar
Rate Loans, in each case specifying the proposed date of prepayment of Revolving
Credit Loans and the principal amount to be prepaid. Each such partial
prepayment of the Revolving Credit Loans shall be in an integral multiple of
$100,000, shall be accompanied by the
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36
payment of accrued interest on the principal prepaid to the date of prepayment
and shall be applied, in the absence of instruction by the Borrower, first to
the principal of Base Rate Loans and then to the principal of Eurodollar Rate
Loans, at the Facility Agent's option. Each partial prepayment shall be
allocated among the Lenders, in proportion, as nearly as practicable, to the
respective unpaid principal amount of each Lender's Revolving Credit Note, with
adjustments to the extent practicable to equalize any prior repayments not
exactly in proportion.
4. LETTERS OF CREDIT.
4.1. LETTER OF CREDIT COMMITMENTS.
4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the
terms and conditions hereof and the execution and delivery by the
Borrower and/or its Subsidiaries of a letter of credit application on
the Facility Agent's customary form or such other form as has been
approved by the Facility Agent (a "LETTER OF CREDIT APPLICATION"), the
Facility Agent on behalf of the Lenders and in reliance upon the
agreement of the Lenders set forth in ss.4.1.4 and upon the
representations and warranties of the Borrower contained herein,
agrees, in its individual capacity, to issue, extend and renew for the
account of the Borrower and/or its Subsidiaries one or more standby or
documentary letters of credit (individually, a "LETTER OF CREDIT"), in
such form as may be requested from time to time by the Borrower and/or
its Subsidiaries and agreed to by the Facility Agent; PROVIDED,
HOWEVER, that, after giving effect to such request, (a) the sum of the
aggregate Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall not exceed $50,000,000 at any one time and (b) the
sum of (i) the Maximum Drawing Amount on all Letters of Credit, PLUS
(ii) all Unpaid Reimbursement Obligations, PLUS (iii) the amount of all
Revolving Credit Loans outstanding shall not exceed the lesser of (A)
the Total Commitment and (B) the Borrowing Base. No Letter of Credit
shall be issued after the date that is thirty (30) days before the
Revolving Credit Loan Maturity Date.
4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
Application shall be completed to the satisfaction of the Facility
Agent. In the event that any provision of any Letter of Credit
Application shall be inconsistent with any provision of this Credit
Agreement, then the provisions of this Credit Agreement shall, to the
extent of any such inconsistency, govern.
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37
4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit
issued, extended or renewed hereunder shall, among other things,
provide for the payment of sight drafts for honor thereunder when
presented in accordance with the terms thereof and when accompanied by
the documents described therein. Each Letter of Credit so issued,
extended or renewed shall be subject to the Uniform Customs.
4.1.4. REIMBURSEMENT OBLIGATIONS OF LENDERS. Each Lender
severally agrees that it shall be absolutely liable, without regard to
the occurrence of any Default or Event of Default or any other
condition precedent whatsoever, to the extent of such Lender's
Commitment Percentage, to reimburse the Facility Agent on demand for
the amount of each draft paid by the Facility Agent under each Letter
of Credit to the extent that such amount is not reimbursed by the
Borrower pursuant to ss.4.2; PROVIDED, HOWEVER, that the Lenders shall
not be obligated to reimburse the Facility Agent for any wrongful
payment made by the Facility Agent under a Letter of Credit as a result
of acts or omissions not done in good faith or which constitute gross
negligence on the part of the Facility Agent (such agreement for a
Lender being called herein the "Letter of Credit Participation" of such
Lender).
4.1.5. PARTICIPATIONS OF LENDERS. Each such payment made by a
Lender shall be treated as the purchase by such Lender of a
participating interest in the Borrower's Reimbursement Obligation under
ss.4.2 in an amount equal to such payment. Each Lender shall share in
accordance with its participating interest in any interest which
accrues pursuant to ss.4.2.
4.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce the
Facility Agent to issue, extend and renew each Letter of Credit and the Lenders
to participate therein, the Borrower hereby agrees to reimburse or pay to the
Facility Agent, for the account of the Facility Agent or (as the case may be)
the Lenders, with respect to each Letter of Credit issued, extended or renewed
by the Facility Agent hereunder,
(a) except as otherwise expressly provided in ss.4.2(b) and
(c), on each date that any draft presented under such Letter of Credit
is honored by the Facility Agent, or the Facility Agent otherwise makes
a payment with respect thereto, (i) the amount paid by the Facility
Agent under or with respect to such Letter of Credit, and (ii) the
amount of any taxes, interest, commissions, fees, charges or other
costs, disbursements and expenses whatsoever incurred by the
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38
Facility Agent or any Lender in connection with any payment made by the
Facility Agent or any Lender under, or with respect to, such Letter of
Credit,
(b) upon the reduction (but not termination) of the Total
Commitment to an amount less than the Maximum Drawing Amount, an amount
equal to such difference, which amount shall be held by the Facility
Agent for the benefit of the Lenders and the Facility Agent as cash
collateral for all Reimbursement Obligations, and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to all
Letters of Credit in accordance with ss.14, an amount equal to one
hundred and five percent (105%) of the then Maximum Drawing Amount on
all Letters of Credit, which amount shall be held by the Facility Agent
for the benefit of the Lenders and the Facility Agent as cash
collateral for all Reimbursement Obligations.
Each such payment shall be made to the Facility Agent at the Facility Agent's
Head Office in immediately available funds. Interest on any and all amounts
remaining unpaid by the Borrower under this ss.4.2 at any time from the date
such amounts become due and payable (whether as stated in this ss.4.2, by
acceleration or otherwise) until payment in full (whether before or after
judgment) shall be payable to the Facility Agent on demand at the rate specified
in ss.6.11 for overdue principal on the Revolving Credit Loans.
4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the Facility
Agent shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft or
honor such demand for payment. If the Borrower fails to reimburse the Facility
Agent as provided in ss.4.2 on or before the date that such draft is paid or
other payment is made by the Facility Agent, the Facility Agent may at any time
thereafter notify the Lenders of the amount of any such Unpaid Reimbursement
Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next
following the receipt of such notice, each Lender shall make available to the
Facility Agent, at the Facility Agent's Head Office, in immediately available
funds, such Lender's Commitment Percentage of such Unpaid Reimbursement
Obligation, together with an amount equal to the product of (i) the average,
computed for the period referred to in clause (iii) below, of the weighted
average interest rate paid by the Facility Agent for federal
<PAGE>
39
funds acquired by the Facility Agent during each day included in such period,
TIMES (ii) the amount equal to such Lender's Commitment Percentage of such
Unpaid Reimbursement Obligation, TIMES (iii) a fraction, the numerator of which
is the number of days that elapse from and including the date the Facility Agent
paid the draft presented for honor or otherwise made payment to the date on
which such Lender's Commitment Percentage of such Unpaid Reimbursement
obligation shall become immediately available to the Facility Agent, and the
denominator of which is 360. The responsibility of the Facility Agent to the
Borrower and the Lenders shall be only to determine that the documents
(including each draft) delivered under each Letter of Credit in connection with
such presentment shall be in conformity in all material respects with such
Letter of Credit.
4.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this ss.4
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Facility Agent, any Lender
or any beneficiary of a Letter of Credit; PROVIDED, HOWEVER, that the Borrower
shall not be obligated to reimburse the Facility Agent and the Lenders for any
wrongful payment made by the Facility Agent under a Letter of Credit as a result
of acts or omissions not done in good faith or which constitute gross negligence
on the part of the Facility Agent or the Lenders. The Borrower further agrees
with the Facility Agent and the Lenders that the Facility Agent and the Lenders
shall not be responsible for, and the Borrower's Reimbursement Obligations under
ss.4.2 shall not be affected by, among other things, (a) the validity or
genuineness of documents or of any endorsements thereon, even if such documents
should in fact prove to be in any or all respects invalid, fraudulent or forged,
(b) any dispute between or among the Borrower, the beneficiary of any Letter of
Credit or any financing institution or other party to which any Letter of Credit
may be transferred, (c) any claims or defenses whatsoever of the Borrower
against the beneficiary of any Letter of Credit or any such transferee, or (d)
any claims or disputes arising as a result of any actions of an Approved Customs
Broker, including, without limitation, any claims or disputes arising as a
result of an Approved Customs Broker's release of any goods. The Facility Agent
and the Lenders shall not be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; PROVIDED, HOWEVER, that
the Borrower shall not be obligated to reimburse the Facility Agent and the
Lenders for any wrongful payment made by the Facility Agent under a Letter of
Credit as
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40
a result of acts or omissions not done in good faith or which constitute gross
negligence on the part of the Facility Agent or the Lenders. The Borrower agrees
that any action taken or omitted by the Facility Agent or any Lender under or in
connection with each Letter of Credit and the related drafts and documents, if
done in good faith, shall be binding upon the Borrower and shall not result in
any liability on the part of the Facility Agent or any Lender to the Borrower.
4.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.4.4,
the Facility Agent shall be entitled to rely, and shall be fully protected in
relying upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Facility Agent in good faith. The
Facility Agent shall be fully justified in failing or refusing to take any
action under this Credit Agreement unless it shall first have received such
advice or concurrence of the Majority Lenders as it reasonably deems appropriate
or it shall first be indemnified to its reasonable satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Facility Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement in accordance with a request of the Majority Lenders or all Lenders,
as applicable, and such request and any action taken or failure to act pursuant
thereto shall be binding upon the Lenders and all future holders of the
Revolving Credit Notes or of a Letter of Credit Participation.
4.6. LETTER OF CREDIT FEES. The Borrower shall pay a fee (in each case,
a "LETTER OF CREDIT FEE") to the Facility Agent (i) in respect of each standby
Letter of Credit equal to the Letter of Credit Fee Rate on the maximum amount
available to be drawn on each standby Letter of Credit PLUS the Facility Agent's
customary issuance fee or amendment fee, as the case may be, and (ii) in respect
of each documentary Letter of Credit equal to (A) the Facility Agent's customary
issuance fee or amendment fee, as the case may be, PLUS (B) the Facility Agent's
customary time negotiation fee per document examination PLUS (C) an amount which
is the Letter of Credit Fee Rate on the maximum amount available to be drawn on
each documentary Letter of Credit, such Letter of Credit Fees (but not such
issuance, amendment, negotiation or document examination fee) to be for the
accounts of the Lenders in accordance with their respective Commitment
Percentages. Other than issuance, amendment, negotiation and document
examination fees (which shall be paid to the Facility Agent
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41
on the date of such issuance, amendment, negotiation or examination), Letter of
Credit Fees in respect of (a) each standby Letter of Credit shall be paid
quarterly (or at the sole discretion of the Facility Agent monthly) in arrears
based upon the daily maximum amount available to be drawn under all standby
Letters of Credit and (b) each documentary Letter of Credit shall be paid
monthly in arrears based upon the daily maximum amount available to be drawn
under all documentary Letters of Credit .
4.7. CASH COLLATERAL FOR LETTERS OF CREDIT. Thirty days prior to the
then scheduled Revolving Credit Loan Maturity Date, the Borrower shall, with
respect to each Letter of Credit then outstanding and pursuant to a cash
collateral agreement (the "CASH COLLATERAL AGREEMENT") in substantially the form
of EXHIBIT G, (a) pay to the Facility Agent in cash for deposit into an interest
bearing cash collateral account established with the Facility Agent (the "LETTER
OF CREDIT CASH COLLATERAL ACCOUNT") an amount equal to one hundred and five
percent (105%) of the Maximum Drawing Amount of such Letter of Credit as of such
date, which amount shall be deemed cash collateral for any Reimbursement
Obligations incurred with respect to such Letter of Credit or (b) deliver to the
Facility Agent a "back-to-back" letter of credit issued by a financial
institution satisfactory to the Facility Agent in its sole discretion and naming
the Facility Agent as beneficiary in an amount equal to one hundred and five
percent (105%) of the Maximum Drawing Amount of such Letter of Credit as of such
date. Any cash sums deposited into the Letter of Credit Cash Collateral Account
pursuant to clause (a) and naming the Facility Agent as beneficiary of this
ss.4.7 shall be released, and any back-to-back letter of credit issued pursuant
to clause (b) and naming the Facility Agent as beneficiary of this ss.4.7 shall
be reduced, if and to the extent that the Maximum Drawing Amount with respect to
the applicable Letter of Credit has been reduced or terminated and all Unpaid
Reimbursement Obligations have been paid.
4.8. EXISTING LETTERS OF CREDIT. On the Closing Date, each of the
letters of credit issued pursuant to the Existing Credit Agreement and listed on
SCHEDULE 4.8 hereto (the "Existing Letters of Credit") shall be deemed to be
Letters of Credit issued hereunder. The Borrower, the Guarantors and each of the
Lenders acknowledges and agrees that each such Letter of Credit shall, in each
case, be subject in all respects to the provisions of this Credit Agreement as
if they were Letters of Credit issued hereunder.
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5. GUARANTY.
5.1. GUARANTY OF PAYMENT AND PERFORMANCE. Each of the Guarantors hereby
jointly and severally guarantees to the Facility Agent and the Lenders, the full
and punctual payment when due (whether at stated maturity, by required
pre-payment, by acceleration or otherwise), as well as the performance, of all
of the Obligations including all such which would become due but for the
operation of the automatic stay pursuant to ss.362(a) of the Federal Bankruptcy
Code and the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy
Code. This Guaranty is an absolute, unconditional and continuing guaranty of the
full and punctual payment and performance of all of the Obligations and not of
their collectability only and is in no way conditioned upon any requirement that
the Facility Agent or any Lender first attempt to collect any of the Obligations
from the Borrower or resort to any collateral security or other means of
obtaining payment. Should the Borrower default in the payment or performance of
any of the Obligations, the obligations of the Guarantors hereunder with respect
to such Obligations in default shall, upon demand by the Facility Agent, become
immediately due and payable to the Facility Agent, for the benefit of the
Lenders and the Facility Agent, without demand or notice of any nature, all of
which are expressly waived by each of the Guarantors. Payments by the Guarantors
hereunder may be required by the Facility Agent on any number of occasions. All
payments by any of the Guarantors hereunder shall be made to the Facility Agent,
in the manner and at the place of payment specified therefor in ss.6.3.1 hereof,
for the account of the Lenders and the Facility Agent.
5.2. GUARANTORS' AGREEMENT TO PAY ENFORCEMENT COSTS, ETC. Each of the
Guarantors further jointly and severally agrees, as the principal obligor and
not as a guarantor only, to pay to the Facility Agent, on demand, all reasonable
costs and expenses (including court costs and legal expenses, including the
allocated cost of staff counsel) incurred or expended by any Facility Agent or
any Lender in connection with the Obligations, this Guaranty and the enforcement
thereof, together with interest on amounts recoverable under this ss.5 from the
time when such amounts become due until payment, whether before or after
judgment, at the rate of interest for overdue principal set forth in ss.6.11
hereof, PROVIDED that if such interest exceeds the maximum amount permitted to
be paid under applicable law, then such interest shall be reduced to such
maximum permitted amount.
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5.3. WAIVERS BY THE GUARANTORS; LENDERS' FREEDOM TO ACT. Each of the
Guarantors agrees that the Obligations will be paid and performed strictly in
accordance with their respective terms, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Facility Agent or any Lender with respect thereto. Each of
the Guarantors waives promptness, diligence, presentment, demand, protest,
notice of acceptance, notice of any Obligations incurred and all other notices
of any kind, all defenses which may be available by virtue of any valuation,
stay, moratorium law or other similar law now or hereafter in effect, any right
to require the marshalling of assets of the Borrower or any other entity or
other Person primarily or secondarily liable with respect to any of the
Obligations, and all suretyship defenses generally. Without limiting the
generality of the foregoing, each of the Guarantors agrees to the provisions of
any instrument evidencing, securing or otherwise executed in connection with any
Obligation and agrees that the obligations of such Guarantor hereunder shall not
be released or discharged, in whole or in part, or otherwise affected by (i) the
failure of the Facility Agent or any Lender to assert any claim or demand or to
enforce any right or remedy against the Borrower or any other entity or other
person primarily or secondarily liable with respect to any of the Obligations;
(ii) any extensions, compromise, refinancing, consolidation or renewals of any
Obligation; (iii) any change in the time, place or manner of payment of any of
the Obligations or any rescissions, waivers, compromise, refinancing,
consolidation or other amendments or modifications of any of the terms or
provisions of this Credit Agreement, the other Loan Documents or any other
agreement evidencing, securing or otherwise executed in connection with any of
the Obligations, (iv) the addition, substitution or release of any entity or
other person primarily or secondarily liable for any Obligation; (v) the
adequacy of any rights which the Facility Agent or any Lender may have against
any collateral security or other means of obtaining repayment of any of the
Obligations; (vi) the impairment of any collateral securing any of the
Obligations, including without limitation the failure to perfect or preserve any
rights which the Facility Agent or any Lender might have in such collateral
security or the substitution, exchange, surrender, release, loss or destruction
of any such collateral security; or (vii) any other act or omission which might
in any manner or to any extent vary the risk of such Guarantor or otherwise
operate as a release or discharge of such Guarantor, all of which may be done
without notice to such Guarantor. To the fullest extent permitted by law, each
of the Guarantors hereby expressly waives any and all rights or defenses arising
by reason of (A) any "one action" or "anti-deficiency" law which would otherwise
prevent the Facility Agent or any Lender from bringing any action, including any
claim for a deficiency, or exercising any other
<PAGE>
44
right or remedy (including any right of set-off), against such Guarantor before
or after the Facility Agent's or such Lender's commencement or completion of any
foreclosure action, whether judicially, by exercise of power of sale or
otherwise, or (B) any other law which in any other way would otherwise require
any election of remedies by the Facility Agent or any Lender.
5.4. UNENFORCEABILITY OF OBLIGATIONS AGAINST BORROWER. If for any
reason the Borrower has no legal existence or is under no legal obligation to
discharge any of the Obligations, or if any of the Obligations have become
irrecoverable from the Borrower by reason of the Borrower's insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this Guaranty shall nevertheless be binding on each of the Guarantors to
the same extent as if each such Guarantor at all times had been the principal
obligor on all such Obligations. In the event that acceleration of the time for
payment of any of the Obligations is stayed upon the insolvency, bankruptcy or
reorganization of the Borrower, or for any other reason, all such amounts
otherwise subject to acceleration under the terms of this Credit Agreement, the
other Loan Documents or any other agreement evidencing, securing or otherwise
executed in connection with any Obligation shall be immediately due and payable
by each of the Guarantors.
5.5. SUBROGATION; SUBORDINATION.
5.5.1. POSTPONEMENT OF RIGHTS AGAINST BORROWERS. Until the
final payment and performance in full in cash of all of the
Obligations: none of the Guarantors shall exercise any rights against
the Borrower arising as a result of payment by each such Guarantor
hereunder, by way of subrogation, reimbursement, restitution,
contribution or otherwise, and will not prove any claim in competition
with the Facility Agent or any Lender in respect of any payment
hereunder in any bankruptcy, insolvency or reorganization case or
proceedings of any nature; none of the Guarantors will claim any
setoff, recoupment or counterclaim against the Borrower in respect of
any liability of any such Guarantor to the Borrower; and each of the
Guarantors waives any benefit of and any right to participate in any
collateral security which may be held by the Facility Agent or any
Lender.
<PAGE>
45
5.5.2. SUBORDINATION. The payment of any amounts due with
respect to any indebtedness of the Borrower for money borrowed or
credit received now or hereafter owed to any of the Guarantors is
hereby subordinated to the prior payment in full in cash of all of the
Obligations. Each of the Guarantors agrees that, after the occurrence
of any default in the payment or performance of any of the Obligations,
such Guarantor will not demand, sue for or otherwise attempt to collect
any such indebtedness of the Borrower to such Guarantor until all of
the Obligations shall have been paid in full. If, notwithstanding the
foregoing sentence, any of the Guarantors shall collect, enforce or
receive any amounts in respect of such indebtedness while any
Obligations are still outstanding, such amounts shall be collected,
enforced and received by such Guarantor as trustee for the Lenders and
the Facility Agent and be paid over to the Facility Agent, for the
benefit of the Lenders and the Facility Agent, on account of the
Obligations without affecting in any manner the liability of the
Guarantors under the other provisions of this Guaranty.
5.5.3. PROVISIONS SUPPLEMENTAL. The provisions of this ss.5.5
shall be supplemental to and not in derogation of any rights and
remedies of the Lenders and the Facility Agent under any separate
subordination agreement which the Facility Agent may at any time and
from time to time enter into with any of the Guarantors for the benefit
of the Lenders and the Facility Agent.
5.6. SECURITY; SETOFF. Each of the Guarantors grants to the Facility
Agent and the Lenders, as security for the full and punctual payment and
performance of all of the Guarantors' obligations hereunder, a continuing lien
on and security interest in all securities, investment property or other
property belonging to each such Guarantor now or hereafter held by the Facility
Agent or such Lender and in all deposits (general or special, time or demand,
provisional or final) and other sums credited by or due from the Facility Agent
or such Lender to such Guarantor or subject to withdrawal by such Guarantor.
Regardless of the adequacy of any collateral security or other means of
obtaining payment of any of the Obligations, each of the Facility Agent and the
Lenders is hereby authorized at any time and from time to time, without notice
to any of the Guarantors (any such notice being expressly waived by each of the
Guarantors) and to the fullest extent permitted by law, to set off and apply
such deposits and other sums against the obligations of such Guarantor under
this Guaranty, whether or not the Facility Agent or such Lender shall have made
any demand under this Guaranty and although such obligations may be contingent
or unmatured.
<PAGE>
46
5.7. FURTHER ASSURANCES. Each of the Guarantors agrees that it will
from time to time, at the request of the Facility Agent, do all such things and
execute all such documents as the Facility Agent may consider necessary or
desirable to give full effect to this Guaranty and to perfect and preserve the
rights and powers of the Lenders and the Facility Agent hereunder. Each of the
Guarantors acknowledges and confirms that such Guarantor itself has established
its own adequate means of obtaining from the Borrower on a continuing basis all
information desired by such Guarantor concerning the financial condition of the
Borrower and that such Guarantor will look to the Borrower and not to the
Facility Agent or any Lender in order for such Guarantor to keep adequately
informed of changes in any of the Borrower's financial condition.
5.8. REINSTATEMENT. Notwithstanding any termination of this Guaranty,
this Guaranty shall continue to be effective or be reinstated, if at any time
any payment made or value received with respect to any Obligation is rescinded
or must otherwise be returned by the Facility Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower, or otherwise, all as
though such payment had not been made or value received.
5.9. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon each
of the Guarantors, its successors and assigns, and shall inure to the benefit of
the Facility Agent and the Lenders and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing sentence, each
Lender may, in accordance with the provisions of ss.20, assign or otherwise
transfer this Credit Agreement, the other Loan Documents or any other agreement
or note held by it evidencing, securing or otherwise executed in connection with
the Obligations, or sell participations in any interest therein, to any other
entity or other person, and such other entity or other person shall thereupon
become vested, to the extent set forth in the agreement evidencing such
assignment, transfer or participation, with all the rights in respect thereof
granted to such Lender herein. None of the Guarantors may assign any of its
obligations hereunder.
6. CERTAIN GENERAL PROVISIONS.
6.1. STRUCTURING FEE; FACILITY AGENT'S FEE. The Borrower shall pay to
the Facility Agent on the Closing Date a structuring fee as provided in the Fee
Letter. The Borrower shall pay to the Facility Agent on the Closing Date an
agency fee as provided in the Fee Letter (the "FACILITY AGENT'S FEE").
<PAGE>
47
6.2. FACILITY FEE. The Borrower shall pay to the Facility Agent on the
Closing Date a facility fee as provided in the commitment letter, dated April 4,
1997, among The Leslie Fay Companies, Inc., the Syndication Agent and the
Agents.
6.3. FUNDS FOR PAYMENTS.
6.3.1. PAYMENTS TO FACILITY AGENT. All payments of principal,
interest, Reimbursement Obligations, commitment fees, Letter of Credit
Fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made to the Facility Agent, for the respective
accounts of the Lenders and the Facility Agent, at the Facility Agent's
Head Office or at such other location in the Boston, Massachusetts,
area that the Facility Agent may from time to time designate, in each
case in immediately available funds.
6.3.2. NO OFFSET, ETC. All payments by the Borrower hereunder
and under any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction for any
taxes, levies, imposts, duties, charges, fees, deductions,
withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein
unless the Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon the Borrower with
respect to any amount payable by it hereunder or under any of the other
Loan Documents (other than an obligation which arises due to the
failure of any Lender to comply with the provisions of ss.6.3.3, if
applicable to such Lender), the Borrower will pay to the Facility
Agent, for the account of the Lenders or (as the case may be) the
Facility Agent, on the date on which such amount is due and payable
hereunder or under such other Loan Document, such additional amount in
Dollars as shall be necessary to enable the Lenders or the Facility
Agent to receive the same net amount which the Lenders or the Facility
Agent would have received on such due date had no such obligation been
imposed upon the Borrower. The Borrower will deliver promptly to the
Facility Agent certificates or other valid vouchers for all taxes or
other charges deducted from or paid with respect to payments made by
the Borrower hereunder or under such other Loan Document.
<PAGE>
48
6.3.3. NON-U.S. LENDERS. Prior to the Closing Date, in the
case of each Lender which is an original signatory hereto, and on the
date of the Assignment and Acceptance pursuant to which it becomes a
Lender in the case of each other Lender, and from time to time
thereafter if requested by the Borrower or the Facility Agent, each
Lender organized under the laws of a jurisdiction outside the United
States of America that is entitled to an exemption from United States
of America withholding tax, or that is subject to such tax at a reduced
rate under an applicable tax treaty, shall provide the Facility Agent
and the Borrower with an Internal Revenue Service Form 4224 or Form
1001 or other applicable form, certificate or document prescribed by
the Internal Revenue Service of the United States of America certifying
as to such Lender's entitlement to such exemption or reduced rate with
respect to all payments to be made to such Lender hereunder and under
the Notes. Unless the Borrower and the Facility Agent have received
forms or other documents satisfactory to them indicating that payments
hereunder or under any Note are not subject to United States of America
withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Borrower or the Facility Agent shall
withhold taxes from such payments at the applicable statutory rate in
the case of payments to or for any Lender organized under the laws of a
jurisdiction outside the United States of America.
6.4. COMPUTATIONS. All computations of interest on the Loans and of
commitment fees, Letter of Credit Fees and any other amounts due hereunder shall
be based on a 360-day year and paid for the actual number of days elapsed.
Except as otherwise provided in the definition of the term "Interest Period"
with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any
of the other Loan Documents becomes due on a day that is not a Business Day, the
due date for such payment shall be extended to the next succeeding Business Day,
and interest shall accrue during such extension. The outstanding amount of the
Loans as reflected on the Revolving Credit Note Records from time to time shall
be considered correct and binding on the Borrower unless within five (5)
Business Days after receipt of any notice by the Borrower of such outstanding
amount, the Borrower shall notify the Facility Agent and the Lenders to the
contrary.
6.5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the
commencement of any Interest Period relating to any Eurodollar Rate Loan, the
Facility Agent shall reasonably determine or be notified by the Majority Lenders
acting reasonably that adequate and
<PAGE>
49
reasonable methods do not exist for ascertaining the Eurodollar Rate that would
otherwise determine the rate of interest to be applicable to any Eurodollar Rate
Loan during any Interest Period, the Facility Agent shall forthwith give notice
of such determination (which shall be conclusive and binding on the Borrower and
the Lenders) to the Borrower and the Lenders. In such event (i) any Loan Request
or Conversion Request with respect to Eurodollar Rate Loans shall be
automatically withdrawn and shall be deemed a request for Base Rate Loans, (ii)
each Eurodollar Rate Loan will automatically, on the last day of the then
current Interest Period relating thereto, become a Base Rate Loan, and (iii) the
obligations of the Lenders to make Eurodollar Rate Loans shall be suspended
until the Facility Agent or the Majority Lenders reasonably determine that the
circumstances giving rise to such suspension no longer exist, whereupon the
Facility Agent or, as the case may be, the Facility Agent upon the instruction
of the Majority Lenders, shall so notify the Borrower and the Lenders.
6.6. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Rate Loans, such Lender shall forthwith give notice of such
circumstances to the Borrower, the Facility Agent and the other Lenders and
thereupon (i) the commitment of such Lender to make Eurodollar Rate Loans or
convert Loans of another Type to Eurodollar Rate Loans shall forthwith be
suspended and (ii) such Lender's Revolving Credit Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate
Loans on the last day of each Interest Period applicable to such Eurodollar Rate
Loans or within such earlier period as may be required by law. The Borrower
hereby agrees promptly to pay the Facility Agent for the account of such Lender,
upon demand by such Lender, any additional amounts necessary to compensate such
Lender for any costs incurred by such Lender in making any conversion in
accordance with this ss.6.6, including any interest or fees payable by such
Lender to lenders of funds obtained by it in order to make or maintain its
Eurodollar Rate Loans hereunder.
6.7. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Lender or the Facility
<PAGE>
50
Agent by any central bank or other fiscal, monetary or other authority (whether
or not having the force of law), shall:
(a) subject any Lender or the Facility Agent to any tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature with
respect to this Credit Agreement, the other Loan Documents, any Letters
of Credit, such Lender's Commitment or the Loans (other than taxes
based upon or measured by the income or profits of such Lender or the
Facility Agent), or
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to any Lender of the
principal of or the interest on any Loans or any other amounts payable
to any Lender or the Facility Agent under this Credit Agreement or any
of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or letters of credit issued by, or commitments of an office of any
Lender, or
(d) impose on any Lender or the Facility Agent any other
conditions or requirements with respect to this Credit Agreement, the
other Loan Documents, any Letters of Credit, the Loans, such Lender's
Commitment, or any class of loans, letters of credit or commitments of
which any of the Loans or such Lender's Commitment forms a part, and
the result of any of the foregoing is
(i) to increase the cost to any Lender of making,
funding, issuing, renewing, extending or maintaining any of
the Loans or such Lender's Commitment or any Letter of Credit,
or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such
Lender or the Facility Agent hereunder on account of such
Lender's Commitment, any Letter of Credit or any of the Loans,
or
(iii) to require such Lender or the Facility Agent to
make any payment or to forego any interest or Reimbursement
Obligation or other sum payable hereunder,
<PAGE>
51
the amount of which payment or foregone interest or
Reimbursement Obligation or other sum is calculated by
reference to the gross amount of any sum receivable or deemed
received by such Lender or the Facility Agent from the
Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Lender
or (as the case may be) the Facility Agent at any time and from time to time and
as often as the occasion therefor may arise, as long as such request is made
within a reasonable period after the Lender becomes aware that such additional
cost is incurred, pay to such Lender or the Facility Agent such additional
amounts as will be sufficient to compensate such Lender or the Facility Agent
for such additional cost, reduction, payment or foregone interest or
Reimbursement Obligation or other sum.
6.8. CAPITAL ADEQUACY. If after the date hereof any Lender or the
Facility Agent determines that (i) the adoption of or change in any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) regarding capital requirements for banks or bank
holding companies or any change in the interpretation or application thereof by
a court or governmental authority with appropriate jurisdiction, or (ii)
compliance by such Lender or the Facility Agent or any corporation controlling
such Lender or the Facility Agent with any law, governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law) of any
such entity regarding capital adequacy, has the effect of reducing the return on
such Lender's or the Facility Agent's commitment with respect to any Loans to a
level below that which such Lender or the Facility Agent could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or the Facility Agent's then existing policies with respect to capital adequacy
and assuming full utilization of such entity's capital) by any amount reasonably
deemed by such Lender or (as the case may be) the Facility Agent to be material,
then such Lender or the Facility Agent may notify the Borrower of such fact. To
the extent that the amount of such reduction in the return on capital is not
reflected in the Base Rate, the Borrower agrees to pay such Lender or (as the
case may be) the Facility Agent for the amount of such reduction in the return
on capital as and when such reduction is determined upon presentation by such
Lender or (as the case may be) the Facility Agent of a certificate in accordance
with ss.6.9 hereof. Each Lender shall reasonably allocate such cost increases
among its customers in good faith and on an equitable basis.
<PAGE>
52
6.9. CERTIFICATE. A certificate setting forth in reasonable detail any
additional amounts payable pursuant to ss.ss.6.7or 6.8 and a brief explanation
of such amounts which are due, submitted by any Lender or the Facility Agent to
the Borrower, shall be conclusive, absent manifest error or bad faith, that such
amounts are due and owing.
6.10. INDEMNITY. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from and against any loss, cost or expense (including
loss of anticipated profits) that such Lender may sustain or incur as a
consequence of (i) default by the Borrower in payment of the principal amount of
or any interest on any Eurodollar Rate Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by such
Lender to lenders of funds obtained by it in order to maintain its Eurodollar
Rate Loans, (ii) default by the Borrower in making a borrowing or conversion
after the Borrower has given (or is deemed to have given) a Loan Request or a
Conversion Request relating thereto in accordance with ss.2.6 or ss.2.7 or (iii)
the making of any payment of a Eurodollar Rate Loan or the making of any
conversion of any such Loan to a Base Rate Loan on a day that is not the last
day of the applicable Interest Period with respect thereto, including interest
or fees payable by such Lender to lenders of funds obtained by it in order to
maintain any such Loans.
6.11. INTEREST AFTER DEFAULT.
6.11.1. OVERDUE AMOUNTS. Overdue principal and (to the extent
permitted by applicable law) interest on the Loans and all other
overdue amounts payable hereunder or under any of the other Loan
Documents shall bear interest compounded monthly and payable on demand
at a rate per annum equal to three percent (3%) above the Base Rate
until such amount shall be paid in full (after as well as before
judgment).
6.11.2. AMOUNTS NOT OVERDUE. During the continuance of an
Event of Default the principal of the Revolving Credit Loans not
overdue shall, until such Default or Event of Default has been cured or
remedied or such Default or Event of Default has been waived by the
Majority Lenders pursuant to ss.27, bear interest at a rate per annum
equal to the rate of interest applicable to overdue principal pursuant
to ss.6.11.1.
6.12. PERFORMANCE ADJUSTMENTS.
(a) Based upon, and following receipt by the Lenders of (a)
the Borrower's annual audited consolidated financial statements for
<PAGE>
53
the fiscal year of the Borrower then ended delivered to the Lenders
pursuant to ss.9.4(a) (beginning with the fiscal year of the Borrower
ending on or about December 31, 1997) and (b) a certificate of the
chief financial officer of the Borrower setting forth calculations of
the financial information set forth below, the Base Rate Applicable
Margin, the Eurodollar Rate Applicable Margin, the Letter of Credit Fee
Rate and the Commitment Fee Rate shall be subject to possible
adjustment in accordance with the provisions of paragraph (c) below
(each such adjustment, a "PERFORMANCE ADJUSTMENT").
(b) Performance Adjustments shall be effective (the date of
the effectiveness of any Performance Adjustment, a "PERFORMANCE
ADJUSTMENT DATE") (i) with respect to adjustments to the Base Rate
Applicable Margin, the Letter of Credit Fee Rate and the Commitment Fee
Rate on the first day of the calendar month immediately following the
month in which the Facility Agent receives the Borrower's annual
audited consolidated financial statements pursuant to ss.9.4(a) and a
certificate of the chief financial officer of the Borrower setting
forth calculations of the financial information set forth below and
(ii) with respect to the Eurodollar Rate Applicable Margin, at the end
of the relevant Interest Period applicable to each Eurodollar Rate
Loan.
(c) The Eurodollar Rate Applicable Margin, the Base Rate
Applicable Margin, the Letter of Credit Fee Rate and the Commitment Fee
Rate with respect to any period following any Performance Adjustment
Date until the next succeeding Performance Adjustment Date shall be as
set forth in the table below on the line highest up in such table with
respect to which (i) the number of Clean-Up Days or Clean-Down Days, as
the case may be, during the prior fiscal year, (ii) the Debt Service
Coverage Ratio for such prior fiscal year, and (iii) Consolidated
EBITDA for such prior fiscal year are all greater than the numbers (or
ratios) corresponding to such items on each line in the table below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Performance Clean-Up Days Debt Service Base Rate Eurodollar Letter of Commitment
Level and Clean- Down Coverage EBITDA Applicable Rate Credit Fee Fee Rate
Days Ratio Margin Applicable Rate
Margin
- ----------- --------------- ------------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 >60 Consecutive >2.00 >$43 0.00% 1.50% 1.25% 0.375%
Clean-Up Days million
- ----------- --------------- ------------ -------- ---------- ---------- ---------- ----------
2 >30 Consecutive >1.75 >$37 0.50% 2.50% 1.50% 0.375%
Clean- Down million
Days
- ----------- --------------- ------------ -------- ---------- ---------- ---------- ----------
3 -- -- -- 0.75% 2.75% 1.75% 0.500%
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
54
If the Borrow er has failed to meet all three tests in any one
Perfor mance Level in the table set forth above, then the Base Rate
Applica ble Margin, the Eurodo llar Rate Applica ble Margin, the Letter
of Credit Fee Rate and the Commit ment Fee Rate shall be as set forth
in the row corresp onding to Perfor mance Level 3 in the table set
forth above.
7. COLLATERAL SECURITY AND GUARANTIES.
7.1. SECURITY OF BORROWER. The Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in substantially all of the assets of
the Borrower, whether now owned or hereafter acquired, pursuant to the terms of
the Security Documents to which the Borrower is a party. The Security Documents
shall also secure the obligations of the Borrower to the Lenders arising under,
or pursuant to, interest rate hedging arrangements between the Borrower and one
or more of the Lenders.
7.2. GUARANTIES AND SECURITY OF SUBSIDIARIES. The Obligations shall
also be guaranteed by each Subsidiary of the Borrower pursuant to the terms of
the Guaranty. The obligations of the Borrower's Subsidiaries under the Guaranty
shall be in turn secured by a perfected first priority security interest
(subject only to Permitted Liens entitled to priority under applicable law) in
all of the assets of each such Subsidiary, whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which such
Subsidiary is a party.
8. REPRESENTATIONS AND WARRANTIES.
The Borrower and the Guarantors represent and warrant to the Lenders
and the Facility Agent as follows:
8.1. CORPORATE AUTHORITY.
8.1.1. INCORPORATION; GOOD STANDING. Each of the Borrower and
its Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of its state or other jurisdiction
of incorporation, (ii) has all requisite corporate power to own its
property and conduct its business as now conducted and as presently
contemplated, and (iii) is in good standing as a foreign corporation
and is duly authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so qualified
would not have a materially adverse effect on the business, assets or
condition
<PAGE>
55
(financial or otherwise) of the Borrower and its Subsidiaries, taken as
a whole.
8.1.2. AUTHORIZATION. The execution, delivery and performance
of this Credit Agreement and the other Loan Documents to which the
Borrower or any of its Subsidiaries is or is to become a party and the
transactions contemplated hereby and thereby (i) are within the
corporate authority of such Person, (ii) have been duly authorized by
all necessary corporate proceedings, (iii) do not conflict with or
result in any breach or contravention of any provision of law, statute,
rule or regulation to which the Borrower or any of its Subsidiaries is
subject or any judgment, order, writ, injunction, license or permit
applicable to the Borrower or any of its Subsidiaries and (iv) do not
conflict with any provision of the corporate charter or bylaws of, or
any agreement or other instrument binding upon, the Borrower or any of
its Subsidiaries.
8.1.3. ENFORCEABILITY. The execution and delivery of this
Credit Agreement and the other Loan Documents to which the Borrower or
any of its Subsidiaries is or is to become a party will result in valid
and legally binding obligations of each such Person enforceable against
it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent
that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
8.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
the Borrower and each of its Subsidiaries of this Credit Agreement and the other
Loan Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
8.3. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 8.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including
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56
any mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens.
8.4. FINANCIAL STATEMENTS.
8.4.1. FINANCIAL STATEMENTS. There has been furnished to each
of the Lenders a consolidated balance sheet of the Borrower and its
Subsidiaries as at the Balance Sheet Date, and a consolidated statement
of income of the Borrower and its Subsidiaries for the fiscal year then
ended, certified by Arthur Andersen. Such balance sheet and statement
of income have been prepared in accordance with generally accepted
accounting principles and fairly present the financial condition of the
Borrower as at the close of business on the date thereof and the
results of operations for the fiscal year then ended. There are no
contingent liabilities of the Borrower or any of its Subsidiaries as of
such date involving material amounts, known to the officers of the
Borrower, which were not disclosed in such balance sheet and the notes
related thereto.
8.4.2. PROJECTIONS. The (i) projections of the annual
operating budgets of the Borrower and its Subsidiaries on a
consolidated basis, balance sheets and cash flow statements for the
1997 to 2000 fiscal years, and (ii) the projections of the Borrower
delivered to the Agents on or within five (5) days of the Closing Date
(which include an updated projection of the working capital adjustment
between the Borrower and Reorganized Leslie Fay (as defined in the
Plan) to occur forty-five days after Effective Date) copies of which
have been delivered to each Lender, contain no material
misrepresentations or omissions. As of the Closing Date, to the
knowledge of the Borrower or any of its Subsidiaries, no facts exist
that (individually or in the aggregate) would result in any material
change in any of such projections. The projections have been prepared
in good faith based upon assumptions deemed reasonable by the Borrower
as of the date made, have been prepared on the basis of the assumptions
stated therein and reflect estimates deemed reasonable by the Borrower
as of the date made of the results of operations and other information
projected therein.
8.4.3. PRO FORMA BALANCE SHEET. The pro forma balance sheet of
the Borrower and its Subsidiaries as of the Closing Date has been
prepared in accordance with generally accepted accounting principles
and fairly presents the financial condition of the
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57
Borrower and its Subsidiaries on a pro forma basis as of the date
thereof.
8.5. NO MATERIAL CHANGES, ETC. There has occurred no materially adverse
change in the operations, business, properties, assets or condition (financial
or otherwise) of the Borrower and its Subsidiaries as shown on or reflected in
the financial statements of the Borrower and its Subsidiaries reflecting the
Plan, other than changes contemplated by the Plan and the Projections. Since the
Balance Sheet Date, the Borrower has not made any Distribution.
8.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others, except such failure to possess or conflict
with the rights of others which could not reasonably be expected to have a
material adverse effect on the business, assets or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole.
8.7. LITIGATION. Except as set forth in SCHEDULE 8.7 hereto, there are
no actions, suits, proceedings or investigations of any kind pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries before any court, tribunal or administrative agency or board which
have not been resolved or fully reserved for under the Plan or which (i) pose a
reasonable possibility of being adversely determined against any such Person and
(ii) would, if adversely determined, either in any case or in the aggregate,
have a material adverse effect on the operations, business, properties, assets
or condition (financial or otherwise) of the Borrower and its Subsidiaries,
taken as a whole, or on the validity, enforceability or effectiveness of the
Loan Documents, or which question the validity of this Credit Agreement or any
of the other Loan Documents, or any action taken or to be taken pursuant hereto
or thereto.
8.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
reasonably expected in the judgment of the Borrower in the future to have a
materially adverse effect on the operations, business, properties, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole. Neither the Borrower nor any of its Subsidiaries is a party to any
contract or agreement that has or is
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58
expected, in the judgment of the Borrower's officers, to have any materially
adverse effect on the operations, business, properties, assets or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole.
8.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of (i) its charter
documents or bylaws, (ii) any agreement or instrument to which it may be subject
or by which it or any of its properties may be bound, or (iii) any decree,
order, judgment, statute, license, rule or regulation, except, in the case of
items (ii) and (iii), where such violation could not reasonably be expected to
have a material adverse effect on the operations, business, properties, assets
or condition (financial or otherwise) of the Borrower and its Subsidiaries,
taken as a whole.
8.10. TAX STATUS. The Borrower and its Subsidiaries (i) have made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which any of them is subject,
except where the failure to file could not reasonably be expected to have a
material adverse effect on the business, properties, assets or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole,
(ii) have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (iii) have set
aside on their books provisions reasonably adequate, in the judgment of the
Borrower's officers, for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Borrower know of no basis for any such
claim.
8.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
8.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
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59
8.13. NO CLAIMS, LIENS. Except as set forth on Schedule 8.13, other
than claims and liens which are to be discharged on the Effective Date, there
are no claims against, or liens on the assets of, the Borrower and its
Subsidiaries, other than Permitted Liens.
8.14. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens and with respect to claims which have been discharged by the
Confirmation Order, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or any
rights relating thereto.
8.15. PERFECTION OF SECURITY INTEREST. All filings, assignments,
pledges and deposits of documents or instruments have been made and all other
actions have been taken that are necessary or advisable, under applicable law,
to establish and perfect the Facility Agent's security interest in the
Collateral. The Collateral and the Facility Agent's rights with respect to the
Collateral are not subject to any setoff, claims, withholdings or other
defenses. The Borrower or a Subsidiary of the Borrower party to one of the
Security Agreements is the owner of the Collateral free from any lien, security
interest, encumbrance and any other claim or demand, except for Permitted Liens.
8.16. CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Borrower or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Borrower or
such Subsidiary could obtain from third parties, none of the officers,
directors, or employees of the Borrower or any of its Subsidiaries is presently
a party to any transaction with the Borrower or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
8.17. EMPLOYEE BENEFIT PLANS.
8.17.1 IN GENERAL. Each Employee Benefit Plan has been
maintained and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the
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60
Code, including but not limited to the provisions thereunder respecting
prohibited transactions. The Borrower has heretofore delivered to the
Facility Agent the most recently completed annual report, Form 5500,
with all required attachments, and actuarial statement required to be
submitted under ss.103(d) of ERISA, with respect to each Guaranteed
Pension Plan.
8.17.2. TERMINABILITY OF WELFARE PLANS. Under each Employee
Benefit Plan which is an employee welfare benefit plan within the
meaning of ss.3(1) or ss.3(2)(B) of ERISA, no benefits are due unless
the event giving rise to the benefit entitlement occurs prior to plan
termination (except as required by Title I, Part 6 of ERISA). The
Borrower or an ERISA Affiliate, as appropriate, may terminate each such
Employee Benefit Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining agreement) in the discretion of
the Borrower or such ERISA Affiliate without liability to any Person.
8.17.3 GUARANTEED PENSION PLANS. Each contribution required to
be made to a Guaranteed Pension Plan, whether required to be made to
avoid the incurrence of an accumulated funding deficiency, the notice
or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely
made. No waiver of an accumulated funding deficiency or extension of
amortization periods has been received with respect to any Guaranteed
Pension Plan. No liability to the PBGC (other than required insurance
premiums, all of which have been paid) has been incurred by the
Borrower or any ERISA Affiliate with respect to any Guaranteed Pension
Plan and there has not been any ERISA Reportable Event, or any other
event or condition which presents a material risk of termination of any
Guaranteed Pension Plan by the PBGC. Based on the latest valuation of
each Guaranteed Pension Plan (which in each case occurred within twelve
months of the date of this representation), and on the actuarial
methods and assumptions employed for that valuation, the aggregate
benefit liabilities of all such Guaranteed Pension Plans within the
meaning of ss.4001 of ERISA did not exceed the aggregate value of the
assets of all such Guaranteed Pension Plans, disregarding for this
purpose the benefit liabilities and assets of any Guaranteed Pension
Plan with assets in excess of benefit liabilities.
8.17.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any
ERISA Affiliate has incurred any material unsatisfied liability
(including secondary liability) to any Multiemployer Plan as a
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61
result of a complete or partial withdrawal from such Multiemployer Plan
under ss.4201 of ERISA or as a result of a sale of assets described in
ss.4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has been
notified that any Multiemployer Plan is in reorganization or insolvent
under and within the meaning of ss.4241 or ss.4245 of ERISA or that any
Multiemployer Plan intends to terminate or has been terminated under
ss.4041A of ERISA.
8.18. USE OF PROCEEDS; REGULATIONS U AND X. The proceeds of the Loans
shall be used to make payments pursuant to the Plan and for working capital and
general corporate purposes including, without limitation, to replace or support
the Existing Letters of Credit. The Borrower will obtain Letters of Credit
solely for working capital purposes. No portion of any Loan is to be used, and
no portion of any Letter of Credit is to be obtained, for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such terms are
used in Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
8.19. ENVIRONMENTAL COMPLIANCE. Except as set forth on SCHEDULE 8.19
hereto:
(a) none of the Borrower, its Subsidiaries or any operator of
the Real Estate or any of their operations thereon is in violation, nor
have they received actual notice of any alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising
under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the
Federal Clean Air Act, the Toxic Substances Control Act, or any state
or local statute, regulation, ordinance, order or decree relating to
health, safety or the environment (hereinafter "ENVIRONMENTAL LAWS"),
which violation could reasonably be expected to have a material adverse
effect on the business, assets or financial condition of the Borrower
and its Subsidiaries, taken as a whole;
(b) neither the Borrower nor any of its Subsidiaries has
received written notice from any third party which is presently
outstanding or unresolved including, without limitation, any federal,
state or local governmental authority, (i) that any one of them has
been identified by the United States Environmental
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62
Protection Agency ("EPA") as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities List,
40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as
defined by 42 U.S.C. ss.6903(5), any hazardous substances as defined by
42 U.S.C. ss.9601(14), any pollutant or contaminant as defined by 42
U.S.C. ss.9601(33) and any toxic substances, oil or hazardous materials
or other chemicals or substances regulated by any Environmental Laws
("HAZARDOUS SUBSTANCES") which any one of them has generated,
transported or disposed of has been found at any site at which a
federal, state or local agency or other third party has conducted or
has ordered that the Borrower or any of its Subsidiaries conduct a
remedial investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that it is or shall be a named party to
any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses
or damages of any kind whatsoever in connection with the release of
Hazardous Substances;
(c) except as set forth on SCHEDULE 8.19 attached hereto and
to the best of the Borrower's knowledge: (i) no portion of the Real
Estate has been used for the handling, processing, storage or disposal
of Hazardous Substances except in accordance with applicable
Environmental Laws or except where non-compliance could not reasonably
be expected to have a material adverse effect on the business, assets
or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole; and no underground tank or other
underground storage receptacle for Hazardous Substances is located on
any portion of the Real Estate; (ii) in the course of any activities
conducted by the Borrower, its Subsidiaries or operators of its
properties, no Hazardous Substances have been generated or are being
used on the Real Estate except in accordance with applicable
Environmental Laws or except where non-compliance could not reasonably
be expected to have a material adverse effect on the business, assets
or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole; (iii) there have been no releases (i.e.
any past or present releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or
dumping) of Hazardous Substances on, upon, into or from the properties
of the Borrower or its Subsidiaries, which releases would have a
material adverse effect on the value of any of the Real Estate or
adjacent properties or the environment; (iv) there have been no
releases on, upon, from or into any real property in the vicinity of
any of the
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63
Real Estate which, through soil or groundwater contamination, may have
come to be located on, and which could reasonably be expected to have a
material adverse effect on the business, assets or condition (financial
or otherwise) of the Borrower and its Subsidiaries, taken as a whole;
and (v) in addition, any Hazardous Substances that have been generated
on any of the Real Estate which have been transported offsite have been
transported offsite only by carriers having an identification number
issued by the EPA, treated or disposed of only by treatment or disposal
facilities maintaining valid permits as required under applicable
Environmental Laws, which transporters and facilities have been and
are, to the best of the Borrower's knowledge, operating in material
compliance with such permits and applicable Environmental Laws; and
(d) None of the Borrower and its Subsidiaries or any of the
Real Estate is subject to any material applicable environmental law
requiring the performance of Hazardous Substances site assessments, or
the removal or remediation of Hazardous Substances, or the giving of
notice to any governmental agency or the recording or delivery to other
Persons of an environmental disclosure document or statement by virtue
of the transactions set forth herein and contemplated hereby or as a
condition to the effectiveness of any other transactions contemplated
hereby.
8.20. SUBSIDIARIES, ETC. Each of the Subsidiaries of the Borrower is
listed on SCHEDULE 8.20 hereto. Except as set forth on SCHEDULE 8.20 hereto,
neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint
venture or partnership with any other Person.
8.21. BANK ACCOUNTS. SCHEDULE 8.21 sets forth the account numbers and
location of all bank accounts of the Borrower and each of its Subsidiaries, as
such Schedule is updated pursuant to notices given by the Borrower to the
Facility Agent pursuant to ss.10.11.
8.22. ASSETS, INVENTORY. The inventory and other assets of the Borrower
and the Guarantor are substantially in the amounts and of the quality and value
previously represented by the Borrower to the Facility Agent.
8.23. INVENTORY LOCATIONS. The inventory of the Borrower and its
Subsidiaries is located at the locations set forth on SCHEDULE 8.23 hereto (as
such Schedule is updated pursuant to notices given by the Borrower to the
Facility Agent pursuant to ss.9.16) or is in transit from one such location to
another such location.
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64
8.24. INSURANCE. The insurance maintained by the Borrower and its
Subsidiaries is sufficient for the conduct of the Borrower's and such
Subsidiary's business, is of the types and the amounts and has been issued
pursuant to policies which are customarily carried by companies engaged in
similar lines of business as the Borrower and its Subsidiaries, and the Facility
Agent is named as loss payee under each such casualty policy and as additional
insured under each such liability policy.
8.25. PLAN EFFECTIVE. The Effective Date has occurred and the
Confirmation Order has been entered and is not subject to any stay.
8.26. DISCLOSURE. No representation or warranty made by the Borrower or
any of its Subsidiaries in this Credit Agreement or any agreement, instrument,
document, certificate, or other written statement furnished to the Facility
Agent or any Lender by or on behalf of the Borrower and any of its Subsidiaries
in connection with any of the transactions contemplated by any of the Loan
Documents (other than the projections referred to in ss.8.4.2, which have been
prepared in good faith and based upon assumptions deemed to be reasonable by the
Borrower at the time of preparation) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which they are
made.
9. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower and the Guarantors covenant and agree that, so long as any
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding
or any Lender has any obligation to make any Loans or the Facility Agent has any
obligation to issue, extend or renew any Letters of Credit:
9.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loans, all Reimbursement
Obligations, the Letter of Credit Fees, the commitment fees, the Facility
Agent's fee and all other amounts provided for in this Credit Agreement and the
other Loan Documents to which the Borrower or any of its Subsidiaries is a party
(including, without limitation, the reasonable fees and expenses of any
consultants, appraisers, examiners or advisors retained by the Facility Agent in
connection with and pursuant to this Credit Agreement), all in accordance with
the terms of this Credit Agreement and such other Loan Documents.
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9.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office and the chief executive office of each of the Guarantors in New
York, New York and Secaucus, New Jersey or at such other place in the United
States of America as the Borrower shall designate upon written notice to the
Facility Agent, where notices, presentations and demands to or upon the Borrower
and the Guarantors in respect of the Loan Documents to which the Borrower or any
Guarantor is a party may be given or made.
9.3. RECORDS AND ACCOUNTS. The Borrower will (i) keep, and cause each
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles and (ii) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation, depletion, obsolescence
and amortization of its properties and the properties of its Subsidiaries,
contingencies, and other reserves.
9.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower
will deliver to each of the Lenders:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries and the
consolidating balance sheet of the Borrower and its Subsidiaries, each
as at the end of such year, and the related consolidated statement of
income and consolidated statement of cash flow and consolidating
statement of income and consolidating statement of cash flow for such
year, each setting forth in comparative form the figures for the
previous fiscal year and the figures provided in the projections
provided to the Lenders pursuant to ss.8.4.2 or ss.9.4(g), as the case
may be, and all such consolidated and consolidating statements to be in
reasonable detail, prepared in accordance with generally accepted
accounting principles, and, with respect to the consolidated financial
statements, certified without qualification by Arthur Andersen or by
other independent certified public accountants satisfactory to the
Facility Agent, together with a written statement from such accountants
to the effect that they have read a copy of this Credit Agreement, and
that, in making the examination necessary to said certification, they
have obtained no knowledge of any Default or Event of Default, or, if
such accountants shall have obtained knowledge of any then existing
Default or Event of Default they shall disclose in such statement any
such Default or Event of Default; PROVIDED that such
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66
accountants shall not be liable to the Lenders for failure to obtain
knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the fiscal quarters of
the Borrower (other than the last fiscal quarter in each fiscal year),
copies of the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries and the unaudited consolidating balance sheet of the
Borrower and its Subsidiaries, each as at the end of such quarter, and
the related consolidated statement of income and consolidated statement
of cash flow and consolidating statement of income and consolidating
statement of cash flow for the portion of the Borrower's fiscal year
then elapsed, each setting forth in comparative form the figures
provided in the projections provided to the Lenders pursuant to
ss.8.4.2 or ss.9.4(g), as the case may be, and all in reasonable detail
and prepared in accordance with generally accepted accounting
principles (subject to year-end adjustments and the absence of
footnotes), together with a certification by the principal financial or
accounting officer of the Borrower that the information contained in
such financial statements fairly presents the financial position of the
Borrower and its Subsidiaries on the date thereof (subject to year-end
adjustments and the absence of footnotes);
(c) as soon as practicable, but in any event within thirty
(30) days after the end of each month in each fiscal year of the
Borrower, unaudited monthly consolidated financial statements of the
Borrower and its Subsidiaries for such month and unaudited monthly
consolidating financial statements of the Borrower and its Subsidiaries
for such month, each setting forth in comparative form the figures
provided in the projections provided to the Lenders pursuant to
ss.8.4.2 or ss.9.4(g), as the case may be, and each prepared in
accordance with generally accepted accounting principles (subject to
year-end adjustments and the absence of footnotes), together with a
certification by the principal financial or accounting officer of the
Borrower that the information contained in such financial statements
fairly presents the financial condition of the Borrower and its
Subsidiaries on the date thereof (subject to year-end adjustments and
the absence of footnotes);
(d) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a statement
certified by the principal financial or accounting officer of the
Borrower in substantially the form of EXHIBIT E hereto and setting
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67
forth in reasonable detail computations evidencing compliance with the
covenants contained in ss.11 and (if applicable) reconciliations to
reflect changes in generally accepted accounting principles since the
Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities
and Exchange Commission or sent to the stockholders of the Borrower;
(f) not later than Wednesday of each fiscal week or at such
other times as the Facility Agent may reasonably request, a Borrowing
Base Report setting forth the Borrowing Base as at the end of the prior
fiscal week (ending on the Saturday of such week) or such other date so
requested by the Facility Agent, together with any supporting schedules
as may be required by the Facility Agent;
(g) as soon as practicable, but in any event no later than
forty-five (45) days prior to the beginning of each fiscal year of the
Borrower, projections of the Borrower and its Subsidiaries updating
those projections delivered to the Lenders and referred to in ss.8.4.2
or, if applicable, updating any later such projections delivered
pursuant to this ss.9.4(g); and
(h) from time to time such other financial data and
information (including accountants' management letters) as the Facility
Agent or any Lender may reasonably request.
9.5. NOTICES.
9.5.1. DEFAULTS. The Borrower will promptly notify the
Facility Agent and each of the Lenders in writing of the occurrence of
any known Default or Event of Default. If any Person shall give any
notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Credit
Agreement, any of the Notes, or any other note, evidence of
indebtedness, indenture or other obligation to which or with respect to
which the Borrower or any of its Subsidiaries is a party or obligor,
whether as principal, guarantor, surety or otherwise, the Borrower
shall forthwith give written notice thereof to the Facility Agent and
each of the Lenders, describing the notice or action and the nature of
the claimed default.
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9.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give
notice to the Facility Agent and each of the Lenders (i) of any known
violation of any Environmental Law that the Borrower or any of its
Subsidiaries reports in writing or is reportable by such Person in
writing (or for which any written report supplemental to any oral
report is made) to any federal, state or local environmental agency and
(ii) upon becoming aware thereof, of any inquiry, proceeding,
investigation, or other action, including a notice from any agency of
potential environmental liability, of any federal, state or local
environmental agency or board; in each case, that could reasonably be
expected to materially affect the operations, business, assets,
liabilities, condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole, or the Facility Agent's security
interests pursuant to the Security Documents.
9.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL. The Borrower
will, immediately upon becoming aware thereof, notify the Facility
Agent and each of the Lenders in writing of any setoff, claims
(including, with respect to the Real Estate, environmental claims),
withholdings or other defenses to which any of the Collateral, or the
Facility Agent's rights with respect to the Collateral, are subject
(excluding mark downs and allowances incurred in the ordinary course of
business).
9.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will,
and will cause each of its Subsidiaries to, give notice to the Facility
Agent and each of the Lenders in writing within fifteen (15) days of
becoming aware of any litigation or proceedings threatened in writing
or any pending litigation and proceedings affecting the Borrower or any
of its Subsidiaries or to which the Borrower or any of its Subsidiaries
is or becomes a party involving an uninsured claim against the Borrower
or any of its Subsidiaries that could reasonably be expected to have a
materially adverse effect on the Borrower and its Subsidiaries, taken
as a whole, or on the validity, enforceability or effectiveness of the
Loan Documents, and stating the nature and status of such litigation or
proceedings. The Borrower will, and will cause each of its Subsidiaries
to, give notice to the Facility Agent and each of the Lenders, in
writing, in form and detail satisfactory to the Facility Agent, within
ten (10) days of any judgment not covered by insurance, final or
otherwise, against the Borrower or any of its Subsidiaries in an amount
in excess of $100,000.
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9.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, material rights and material franchises and
those of its Subsidiaries and will not, and will not cause or permit any of its
Subsidiaries to, convert to a limited liability company. It (i) will cause all
of its properties and those of its Subsidiaries necessary for the conduct of its
business or the business of its Subsidiaries to be reasonably maintained and
kept in reasonably good condition, repair and working order and supplied with
all reasonably necessary equipment, (ii) will cause to be made all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be reasonably necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times, and (iii) will, and will cause each of its Subsidiaries
to, continue to engage primarily in the businesses now conducted by them and in
related businesses; PROVIDED that nothing in this ss.9.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties or any of those of its Subsidiaries if such discontinuance is, in the
judgment of the Borrower, desirable in the conduct of its or their business and
that do not in the aggregate materially adversely affect the business of the
Borrower and its Subsidiaries on a consolidated basis.
9.7. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies and of the type and amount as shall be in accordance with the
general practices of companies engaged in similar lines of businesses in similar
geographic areas and in amounts, containing such terms, in such forms and for
such periods as may be reasonable and prudent and in accordance with the terms
of the Security Documents.
9.8. TAXES. The Borrower will, and will cause each of its Subsidiaries
to, duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes (including, without limitation, sales taxes and
withholding taxes), assessments and other governmental charges imposed upon it
and its real properties, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials, or
supplies that if unpaid might by law become a lien or charge upon any of its
property; PROVIDED that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate proceedings and if the Borrower or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto;
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and PROVIDED FURTHER that the Borrower and each Subsidiary of the Borrower will
pay all such taxes, assessments, charges, levies or claims forthwith upon the
commencement of proceedings to foreclose any lien that may have attached as
security therefor.
9.9. INSPECTION OF PROPERTIES AND BOOKS, ETC.
9.9.1. GENERAL. The Borrower shall permit the Lenders, the
Facility Agent and its agents, to visit and inspect the premises of the
Borrower and its Subsidiaries, to examine the books of account and
records of the Borrower and its Subsidiaries (and to make copies
thereof and extracts therefrom) and to discuss the affairs, finances
and accounts of the Borrower and its Subsidiaries with, and to be
advised as to the same by, the officers of the Borrower and its
Subsidiaries, all during normal business hours and at such intervals as
the Facility Agent or any Lender may reasonably request; PROVIDED, that
if and to the extent that any of such books and records of the Borrower
are legally privileged, such books and records need not be disclosed to
the Lenders or the Facility Agent so long as the Borrower and its
Subsidiaries shall discuss with the Lenders or the Facility Agent the
matters covered by such privileged materials. The Borrower shall permit
the Facility Agent and its agents to (a) conduct examinations,
collateral examinations and verifications of the components of the
Borrowing Base and any other assets of the Borrower and its
Subsidiaries and (b) examine and verify the systems and procedures of
the Borrower and its Subsidiaries (including, without limitation, those
relating to the cash management arrangements of the Borrower and its
Subsidiaries), all during normal business hours and at such intervals
as the Facility Agent may reasonably request.
9.9.2. COLLATERAL REPORTS. From time to time upon the request
of the Facility Agent the Borrower will obtain and deliver to the
Facility Agent a report of an independent collateral auditor reasonably
satisfactory to the Facility Agent (which may be affiliated with one of
the Lenders) with respect to the Accounts Receivable and inventory
components included in the Borrowing Base, which report shall indicate
whether or not the information set forth in the Borrowing Base Report
most recently delivered is accurate and complete in all material
respects based upon a review by such auditors of the Accounts
Receivable (including verification with respect to the amount, aging,
identity and credit of the respective account debtors and the billing
practices of the Borrower or its applicable Subsidiary) and inventory
(including verification as
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to the value, location and respective types). All such collateral value
reports shall be conducted and made at the expense of the Borrower.
9.9.3. APPRAISALS. From time to time upon the reasonable
request of the Facility Agent in a prior written notice the Borrower
will obtain and deliver to the Facility Agent appraisal reports in form
and substance and from appraisers satisfactory to the Facility Agent,
stating (i) the then current fair market, orderly liquidation and
forced liquidation values of all or any portion of the equipment or
real estate owned by the Borrower or any of its Subsidiaries and (ii)
the then current business value of each of the Borrower and its
Subsidiaries. All such appraisals shall be conducted and made at the
expense of the Borrower.
9.9.4. COMMUNICATIONS WITH ACCOUNTANTS. The Borrower
authorizes the Facility Agent and, if accompanied by the Facility
Agent, the Lenders to communicate directly with the Borrower's
independent certified public accountants and authorizes such
accountants to disclose to the Facility Agent and the Lenders any and
all financial statements and other supporting financial documents and
schedules including copies of any management letter with respect to the
business, financial condition and other affairs of the Borrower or any
of its Subsidiaries. At the reasonable request of the Facility Agent,
the Borrower shall deliver a letter addressed to such accountants
instructing them to comply with the provisions of this ss.9.9.4.
9.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, and will cause each of its Subsidiaries to, comply with (i) the
applicable laws and regulations wherever its business is conducted, including,
without limitation, all Environmental Laws and OSHA, (ii) the provisions of its
charter documents and by-laws, (iii) all agreements and instruments by which it
or any of its properties may be bound and (iv) all applicable decrees, orders,
and judgments, except, in the case of items (i), (iii), and (iv) only, such
non-compliance as could not reasonably be expected to have a material adverse
effect on the business, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole. If any authorization, consent,
approval, permit or license from any officer, agency or instrumentality of any
government shall become necessary or required in order that the Borrower or any
of its Subsidiaries may fulfill any of its obligations hereunder or any of the
other Loan Documents to which the Borrower or such Subsidiary is a party, the
Borrower will, or (as the case may be) will cause
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such Subsidiary to, immediately take or cause to be taken all reasonable steps
within the power of the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Facility
Agent and the Lenders with evidence thereof.
9.11. EMPLOYEE BENEFIT PLANS. The Borrower will (i) promptly upon
filing the same with the Department of Labor or Internal Revenue Service and
upon request of the Facility Agent, furnish to the Facility Agent a copy of the
most recent actuarial statement required to be submitted under ss.103(d) of
ERISA and Annual Report, Form 5500, with all required attachments, in respect of
each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish
to the Facility Agent any notice, report or demand sent or received in respect
of a Guaranteed Pension Plan under ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066
and 4068 of ERISA, or in respect of a Multiemployer Plan, under ss.ss.4041A,
4202, 4219, 4242, or 4245 of ERISA.
9.12. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans
solely to make payments pursuant to the Plan and for working capital and general
corporate purposes. The Borrower will obtain Letters of Credit solely for
working capital purposes including, without limitation, to replace and/or
support Existing Letters of Credit.
9.13. COLLATERAL. The Borrower shall take all steps necessary or
reasonably desirable to maintain the first priority perfected security interest
of the Facility Agent in the Collateral.
9.14. MORTGAGED PROPERTY; U.K. COLLATERAL. (a) If, after the Closing
Date, the Borrower or any of its Subsidiaries acquires or leases for a term in
excess of five (5) years real estate used as a manufacturing or warehouse
facility, the Borrower shall, or shall cause such Subsidiary to, notify the
Facility Agent and upon the Facility Agent's request, forthwith deliver to the
Facility Agent a fully executed mortgage or deed of trust over such real estate,
in form and substance reasonably satisfactory to the Facility Agent, together
with title insurance policies, surveys, evidences of insurances with the
Facility Agent named as loss payee and additional insured, legal opinions and
other documents and certificates with respect to such real estate as shall be
satisfactory to the Facility Agent. The Borrower further agrees that, following
the taking of such actions with respect to such real estate, the Facility Agent
shall have for the benefit of the Lenders and the Facility Agent a valid and
enforceable first priority mortgage or deed of trust over such real estate, free
and clear of all defects and encumbrances except for Permitted Liens.
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(b) At any time after the Closing Date and upon the request of the
Facility Agent, the Borrower shall, and shall cause Sassco Europe to (in each
case, within thirty (30) days of such request of the Facility Agent), take all
steps reasonably requested by the Facility Agent to cause Sassco Europe to grant
to the Facility Agent, for the benefit of the Agents and the Lenders, a first
priority perfected security interest in all of the assets of Sassco Europe,
pursuant to such documentation and together with such supporting documentation
(including, without limitation, legal opinions and evidence of proper corporate
authorization) as shall be in form and substance satisfactory to the Facility
Agent.
9.15. BANK ACCOUNTS.
(a) On or prior to the Closing Date, the Borrower will, and
will cause each of its Subsidiaries to, (i) establish a depository
account (the "FNBB CONCENTRATION ACCOUNT") under the control of the
Facility Agent for the benefit of the Lenders and the Facility Agent,
in the name of the Borrower and such Subsidiaries, (ii) direct all
depository institutions with Store Accounts to cause all funds in
excess of $2,500 held in each such Store Account to be transferred no
less frequently than once each week to, and only to, the FNBB
Concentration Account or such other location as the Facility Agent
shall designate, (iii) cause all proceeds of Accounts Receivable of the
Borrower (including, without limitation, proceeds received from Heller
pursuant to the Heller Factoring Agreement) to be deposited only into
the FNBB Concentration Account or depository accounts with financial
institutions which have entered into Agency Account Agreements, and
(iv) except for amounts in any Store Account which are less than
$2,500, at all times ensure that, within five (5) days following the
Borrower's or any of its Subsidiaries' receipt of any cash or cash
equivalents or any other proceeds of Collateral, all such amounts shall
have been deposited in the FNBB Concentration Account.
(b) The Borrower will, and will cause each of its Subsidiaries
to, use its best efforts to obtain Agency Account Agreements (whereby
such depository institution shall, among other things, waive any right
to set-off, other than for service charges and returns incurred in
connection therewith) from each depository institution (other than
FNBB) at which any depository account is located.
(c) The Borrower hereby agrees that all amounts belonging to
the Borrower and received by the Facility Agent in the FNBB
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Concentration Account will be the sole and exclusive property of the
Facility Agent, for the accounts of the Lenders and the Facility
Agents, to be applied in accordance with (i) ss.3.2 prior to the
occurrence of an Event of Default and (ii) ss.3.3 after the occurrence
and during the continuance of an Event of Default.
(d) The Borrower will, and will cause each of its Subsidiaries
to maintain, at all times, cash management arrangements which shall be
satisfactory to the Facility Agent (in its sole and absolute
discretion).
(e) The Borrower hereby authorizes the Facility Agent to
charge the Operating Account for any principal, interest, fees and
other amounts payable under this Credit Agreement or the other Loan
Documents.
9.16. INVENTORY RESTRICTIONS. The Borrower shall cause all Eligible
Inventory to be located at all times solely at Permitted Inventory Locations (or
in transit to such a location), and to be sold or otherwise disposed of in the
ordinary course of the Borrower's business, consistent with past practices or as
required pursuant to the terms of this Credit Agreement. If an additional
Permitted Inventory Location is established by the Borrower hereunder by
compliance with the requirements set forth in the definition of "Permitted
Inventory Locations", SCHEDULE 8.23 shall be updated by the Facility Agent to
reflect such additional Permitted Inventory Location.
9.17. GREEN SHEETS. As soon as practicable but in any event no later
than one hundred eighty (180) days after the Closing Date, the Borrower will
cause the production, planning, and tracking system maintained in the Borrower's
offices located in New York, New York (the "GREEN SHEETS") to be computerized so
that such Green Sheets are available (on a daily basis, if necessary) to the
Borrower's production and finance business units located in New Jersey and in a
form containing the most recent information available to those employees of the
Borrower located in New York, New York who are responsible for maintaining the
Green Sheets.
9.18. LANDLORD WAIVERS. The Borrower shall deliver to the Facility
Agent waivers from the landlords of all leased warehouse properties (except for
the Hong Kong Warehouse) permitting the exercise of all remedies under the
Security Documents by the Facility Agent.
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9.19. FURTHER ASSURANCES. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Lenders and the Facility Agent and execute
such further instruments and documents as the Lenders or the Facility Agent
shall reasonably request to carry out to their reasonable satisfaction the
transactions contemplated by this Credit Agreement and the other Loan Documents.
10. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
The Borrower and the Guarantors covenant and agree that, so long as any
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding
or any Lender has any obligation to make any Loans or the Facility Agent has any
obligations to issue, extend or renew any Letters of Credit:
10.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Lenders and the Facility Agent arising
under any of the Loan Documents;
(b) current liabilities of the Borrower or such Subsidiary
incurred in the ordinary course of business not incurred through (i)
the borrowing of money or (ii) the obtaining of credit except for
credit on an open account basis customarily extended and in fact
extended in connection with normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of ss.9.8;
(d) Indebtedness (i) constituting contingent obligations with
respect to pending litigation which is being contested in good faith by
appropriate proceedings and as to which appropriate reserves have been
established and (ii) in respect of judgments or awards that (A) have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
the Borrower or such Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have been obtained pending such appeal or
review and (B) otherwise comply with the terms of Section 14.1(h)
hereof;
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(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(f) Indebtedness represented by (i) the Senior Notes and (ii)
the Kasper Agreements;
(g) Indebtedness consisting of notes payable to The Leslie Fay
Companies, Inc. or its affiliates or certain professionals retained in
the Chapter 11 case, in any event pursuant to the Plan, in an aggregate
principal amount not to exceed $8,000,000;
(h) Indebtedness constituting rental obligations under
Capitalized Leases and Indebtedness incurred in connection with the
acquisition after the date hereof of any real or personal property by
the Borrower or such Subsidiary, PROVIDED that the aggregate principal
amount of such Indebtedness of the Borrower and its Subsidiaries
(excluding any leases entered into by the Borrower with respect to 1412
Broadway, New York, New York so long as the annual rental obligations
thereunder do not exceed $1,200,000) shall not exceed the aggregate
amount of $500,000 at any one time;
(i) Indebtedness existing on the date hereof and listed and
described on SCHEDULE 10.1 hereto and any refinancings of any such
Indebtedness PROVIDED that any such refinancing shall be on terms and
conditions no less favorable than such existing Indebtedness to the
Borrower, the Lenders and the Facility Agent;
(j) Indebtedness of (i) a Subsidiary of the Borrower to the
Borrower so long as the corresponding Investment of the Borrower is
permitted pursuant to ss.10.3(e) hereof and (ii) the Borrower to a
Subsidiary of the Borrower;
(k) Indebtedness of the Borrower and its Subsidiaries in
respect of operating leases and guaranties thereof by the Borrower;
(l) Indebtedness of the Borrower and its Subsidiaries incurred
in connection with employment contracts, severance agreements and stock
option plans entered into in the ordinary course of business of such
Person(s); and
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(m) other Indebtedness of the Borrower and its Subsidiaries;
provided that the aggregate amount of Indebtedness permitted pursuant
to this ss.10.1(m) shall not exceed, at any time, $1,000,000.
10.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not permit
any of its Subsidiaries to, (i) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property,
assets (including, without limitation, any inventory) or capital stock of any
character whether now owned or hereafter acquired, or upon the income or profits
therefrom; (ii) transfer any of such property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to payment of its general
creditors; (iii) acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money security
agreement, device or arrangement; (iv) suffer to exist for a period of more than
thirty (30) days after the same shall have been incurred any Indebtedness or
claim or demand against it that if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its general
creditors; or (v) sell, assign, pledge or otherwise transfer any accounts,
contract rights, general intangibles, chattel paper or instruments, with or
without recourse (other than pursuant to the Heller Factoring Agreement);
PROVIDED that the Borrower and any Subsidiary of the Borrower may create or
incur or suffer to be created or incurred or to exist:
(a) liens in favor of the Borrower on all or part of the
assets of Subsidiaries of the Borrower securing Indebtedness owing by
Subsidiaries of the Borrower to the Borrower;
(b) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue pursuant to the terms of
ss.9.8 or liens to secure claims for labor, material or supplies in
respect of obligations not overdue pursuant to the terms of ss.9.8;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(d) deposits or pledges to secure the performance of tenders,
bids and other contracts, made in the ordinary course of business and
other than for the payment of borrowed money;
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(e) liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by ss.10.1(d);
(f) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens in existence less than 120 days from
the date of creation thereof (i) in respect of obligations not overdue
or (ii) in respect of overdue obligations for which the liability of
the Borrower or such Subsidiary is being contested in good faith and by
appropriate proceedings; PROVIDED, that the aggregate amount of
obligations permitted pursuant to this clause (ii) shall not, at any
time, exceed $100,000;
(g) encumbrances on Real Estate consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which the Borrower or a
Subsidiary of the Borrower is a party, and other minor liens or
encumbrances none of which in the opinion of the Borrower interferes
materially with the use of the property affected in the ordinary
conduct of the business of the Borrower and its Subsidiaries, which
defects do not individually or in the aggregate have a materially
adverse effect on the business of the Borrower individually or of the
Borrower and its Subsidiaries on a consolidated basis;
(h) liens existing on the date hereof and listed and described
on SCHEDULE 10.2 hereto;
(i) purchase money security interests in or purchase money
mortgages on real or personal property (other than inventory) acquired
after the date hereof to secure purchase money Indebtedness of the type
and amount permitted by ss.10.1(h), incurred in connection with the
acquisition of such property, which security interests or mortgages
cover only the real or personal property so acquired;
(j) liens in favor of the Facility Agent for the benefit of
the Lenders and the Facility Agent under the Loan Documents;
(k) liens arising from precautionary UCC financing statement
filings regarding operating leases, equipment under construction for
the Borrower or any of its Subsidiaries or equipment being used by the
Borrower or any of its Subsidiaries on a trial basis (and anticipated
to be leased pursuant to an operating lease, or purchased, by the
Borrower or such Subsidiary);
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(l) customary restrictions imposed by licensors of software or
trademarks on users thereof;
(m) subject to the rights of the Facility Agent and the
Lenders under the Security Documents, interests of licensees and
sublicensees in any trademarks or other intellectual property license
or sub- license by the Borrower or any of its Subsidiaries;
(n) liens arising from precautionary Uniform Commercial Code
financing statement filings with respect to the sale of accounts
receivable of the Borrower pursuant to the Heller Factoring Agreement;
and
(o) liens consisting of Uniform Commercial Code financing
statement filings with respect to claims which have been discharged by
the Confirmation Order.
10.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except:
(a) Investments in marketable direct or guaranteed obligations
of the United States of America that mature within one (1) year from
the date of purchase by the Borrower;
(b) Investments in demand deposits, certificates of deposit,
bankers acceptances and time deposits of United States banks having
total assets in excess of $1,000,000,000;
(c) Investments in securities commonly known as "commercial
paper" issued by a corporation organized and existing under the laws of
the United States of America or any state thereof that at the time of
purchase have been rated and the ratings for which are not less than "P
1" if rated by Moody's Investors Services, Inc., and not less than "A
1" if rated by Standard and Poor's;
(d) Investments existing on the date hereof and listed and
described on SCHEDULE 10.3 hereto;
(e) Investments by the Borrower in Subsidiaries of the
Borrower so long as such entities remain Subsidiaries of the Borrower,
PROVIDED that the aggregate amount of cash Investments permitted
pursuant to this ss.10.3(e) shall not, at any time, exceed $2,500,000;
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(f) Investments consisting of the Guaranty;
(g) Investments in shares of mutual funds investing
substantially in Investments permitted pursuant to ss.ss.10.3(a), (b),
and (c);
(h) Investments consisting of loans and advances to employees
for moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $350,000 in the aggregate at
any time outstanding;
(i) Investments consisting of accounts receivables owing to
the Borrower or any of its Subsidiaries, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance
with customary terms;
(j) Investments in capital stock or promissory notes resulting
from the conversion of uncollectible accounts receivable of the
Borrower or any of its Subsidiaries;
(k) Investments consisting of loans, advances and other
investments in partnership, joint ventures and similar investments with
Persons that are not Affiliates of the Borrower so long as the
aggregate principal amount thereof at any time outstanding (exclusive
of Investments permitted pursuant to ss.10.3(m) and determined without
regard to any write-downs or write-offs thereof) shall not exceed
$500,000;
(l) Investments consisting of noncash consideration received
by the Borrower or any of its Subsidiaries in connection with any asset
sale to the extent permitted by ss.10.5.2; and
(m) Investments in a Canadian distributorship for goods to be
sold in Canada; provided that the aggregate amount of Investments
permitted pursuant to this ss.10.3(m) shall not, at any time, exceed
$2,000,000;
PROVIDED, HOWEVER, that, with the exception of demand deposits of Lenders
referred to in ss.10.3(b), Investments referred to in ss.10.3(f) and loans and
advances referred to in ss.10.3(h), such Investments will be considered
Investments permitted by this ss.10.3 only if all actions have been taken to the
reasonable satisfaction of the Facility Agent to provide to the Facility Agent,
for the benefit of the Lenders and the Facility Agent, a first priority
perfected security interest in all of such Investments free of all encumbrances
other than Permitted Liens.
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10.4. DISTRIBUTIONS. The Borrower will not make any Distributions.
10.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
10.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and
will not permit any of its Subsidiaries to, become a party to any
merger or consolidation, or agree to or effect any asset acquisition or
stock acquisition (other than the acquisition of assets in the ordinary
course of business consistent with past practices) except the merger or
consolidation of one or more of the Subsidiaries of the Borrower with
and into the Borrower so long as the Borrower is the surviving
corporation, or the merger or consolidation of two or more Subsidiaries
of the Borrower.
10.5.2. DISPOSITION OF ASSETS. The Borrower will not, and will
not permit any of its Subsidiaries to, become a party to or agree to or
effect any disposition of assets, other than (i) the sale of inventory
in the ordinary course of business, consistent with past practices,
(ii) the sale of obsolete fixtures and equipment no longer used or
useful in the Borrower's or such Subsidiaries business PROVIDED that
(a) immediately before, immediately after and after giving effect to
any such sale, no Default or Event of Default shall have occurred and
be continuing and (b) the aggregate amount of gross cash proceeds
received by the Borrower and its Subsidiaries from all such sales
described in this clause (ii) during any period of twelve (12)
consecutive calendar months shall not exceed $250,000, (iii) assets
disposed of in arms-length transactions for fair market value (as
reasonably determined by the Borrower) having an aggregate value over
the term of the Agreement of not more than $750,000, and (iv) transfers
of assets from a wholly-owned Subsidiary of the Borrower to the
Borrower or another wholly-owned Subsidiary of the Borrower which is a
Guarantor hereunder; PROVIDED that, in connection with any such
transfer, the Borrower shall have taken all steps requested by the
Facility Agent to maintain the Facility Agent's first-priority
perfected security interest in such transferred assets, pursuant to
such documentation (including, without limitation, security
documentation, corporate authority documentation and one or more legal
opinion(s)) as shall be satisfactory, in form and substance, to the
Facility Agent.
10.6. SALE AND LEASEBACK. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall
<PAGE>
82
sell or transfer any property owned by it in order then or thereafter to lease
such property or lease other property that the Borrower or any Subsidiary of the
Borrower intends to use for substantially the same purpose as the property being
sold or transferred.
10.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and
will not permit any of its Subsidiaries to, other than in material compliance
with any applicable material Environmental Law, (i) use any of the Real Estate
or any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances, (ii) cause or permit to be located on any of the Real
Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real
Estate, or (iv) otherwise conduct any activity at any Real Estate or use any
Real Estate in any manner that would violate any Environmental Law or bring such
Real Estate in violation of any Environmental Law in each case except when such
act could not reasonably be expected to have a material adverse effect on the
business, assets or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
10.8. OTHER INDEBTEDNESS. The Borrower will not, and will not permit
any of its Subsidiaries to, amend, supplement or otherwise modify any of the
terms or provisions of the Senior Note Indenture or the terms of any
Indebtedness for borrowed money to which it or they are a party (including,
without limitation, the Senior Notes) or prepay, redeem or repurchase any of
such Indebtedness, other than a prepayment, redemption or repurchase of the
Senior Notes pursuant to ss.4.12 of the Senior Note Indenture upon a "Change of
Control" (as defined in the Senior Note Indenture); PROVIDED, that nothing
contained herein shall limit the right of the Lenders or the Agents contained
herein to declare a Default or Event of Default under ss.14.1(p) hereof and take
all actions available to the Agent and the Lenders upon the occurrence of such
Default or Event of Default.
10.9. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will
(a) engage in any "prohibited transaction" within the meaning
of ss.406 of ERISA or ss.4975 of the Code which could result in a
liability in excess of $500,000 for the Borrower or any of its
Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency" in excess of $500,000, as such
<PAGE>
83
term is defined in ss.302 of ERISA, whether or not such deficiency is
or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could reasonably result in the imposition of a lien or
encumbrance on the assets of the Borrower or any of its Subsidiaries
pursuant to ss.302(f) or ss.4068 of ERISA; or
(d) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of
all Guaranteed Pension Plans materially exceeding the value of the
aggregate assets of such Guaranteed Pension Plans, disregarding for
this purpose the benefit liabilities and assets of any such Guaranteed
Pension Plan with assets in excess of benefit liabilities
10.10. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will
not permit any of its Subsidiaries to, conduct any transactions among
themselves, any of their shareholders or with any Affiliates of the Borrower
(other than for services as employees, directors or officers, including through
stock option plans or management contracts), other than transactions in the
ordinary course of the Borrower's or such Subsidiary's business, consistent with
past practices, and upon terms not less favorable to such Borrower or Subsidiary
than would be obtained in a comparable arm's-length transaction with a party
other than the Borrower, such Subsidiary, such shareholder or such Affiliate.
10.11. BANK ACCOUNTS. The Borrower will not, and will not permit any of
its Subsidiaries to, (i) establish any bank accounts other than those listed on
SCHEDULE 8.21 without the Facility Agent's prior written consent, (ii) violate
directly or indirectly any bank agency or lock box agreement in favor of the
Facility Agent for the benefit of the Lenders and the Facility Agent with
respect to such account, (iii) deposit into any of the payroll accounts listed
on SCHEDULE 8.21 any amounts in excess of amounts necessary to pay current
payroll obligations from such accounts, (iv) deposit into any of the customs
duty accounts listed on SCHEDULE 8.21 any amounts in excess of amounts necessary
to pay United States of America customs duties, (v) permit, at any time, funds
in the account located at Trust Company of New Jersey to exceed in the aggregate
$550,000, or (vi) permit, at any time, funds in the account located at Citibank,
N.A. to exceed in the aggregate $125,000. Upon the written consent of the
Facility Agent to the establishment of an additional bank
<PAGE>
84
account pursuant to clause (i) of this ss.10.11, SCHEDULE 8.21 hereto will be
amended to reflect the addition of such bank account.
10.12. CAPITAL STOCK. The Borrower shall not, and shall not permit any
of its Subsidiaries to, grant a lien on the capital stock of any such Person.
The Borrower will not, and will not permit any of its Subsidiaries to, enter
into any agreement limiting such Person's right to grant a lien on or security
interest in any such Person's capital stock.
10.13. NEW STORES. The Borrower shall not, and shall not permit any of
its Subsidiaries to, open more than fifteen (15) new or additional retail stores
or outlets in any one fiscal year, net of retail outlets and stores closed
during such fiscal year.
10.14. NEGATIVE PLEDGES. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into any agreement or instrument which shall
prohibit the Borrower or any of its Subsidiaries from granting security
interests, mortgages, pledges or liens on, or otherwise encumbering, any of its
property or assets to secure the Borrower's or such Subsidiary's Obligations
under this Credit Agreement or any refinancing, replacement, restatement,
modification, supplement or amendment of this Credit Agreement.
11. FINANCIAL COVENANTS OF THE BORROWER.
The Borrower and the Guarantors covenant and agree that, so long as any
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding
or any Lender has any obligation to make any Loans or the Facility Agent has any
obligation to issue, extend or renew any Letters of Credit:
11.1. MINIMUM EBITDA. The Borrower will not permit Consolidated EBITDA,
determined at the end of each fiscal quarter of the Borrower for the period of
four consecutive fiscal quarters then ending, to be less than the amount set
forth opposite such fiscal quarter in the table below:
FISCAL QUARTER MINIMUM CONSOLIDATED EBITDA
ENDING
- ----------------------------- -------------------------------------------
4/5/97 $7,200,000
- ----------------------------- -------------------------------------------
7/5/97 $9,500,000
- ----------------------------- -------------------------------------------
10/4/97 $20,300,000
- ----------------------------- -------------------------------------------
1/3/98 $22,200,000
- ----------------------------- -------------------------------------------
<PAGE>
85
- ----------------------------- -------------------------------------------
4/4/98 $24,700,000
- ----------------------------- -------------------------------------------
7/4/98 $25,200,000
- ----------------------------- -------------------------------------------
10/3/98 $27,500,000
- ----------------------------- -------------------------------------------
1/2/99 $29,100,000
- ----------------------------- -------------------------------------------
4/3/99 $30,800,000
- ----------------------------- -------------------------------------------
7/3/99 $31,700,000
- ----------------------------- -------------------------------------------
10/2/99 $33,600,000
- ----------------------------- -------------------------------------------
1/1/00 $34,600,000
- ----------------------------- -------------------------------------------
4/1/00 $35,800,000
- ----------------------------- -------------------------------------------
provided that, for the fiscal quarter of the Borrower ending on or about (i)
March 31, 1997, Consolidated EBITDA shall be calculated for the period of three
(3) consecutive months then ending, (ii) June 30, 1997, Consolidated EBITDA
shall be calculated for the period of the six (6) consecutive months then
ending, and (iii) September 30, 1997, Consolidated EBITDA shall be calculated
for the period of nine (9) consecutive months then ending.
11.2. DEBT SERVICE COVERAGE. The Borrower will not permit the Debt
Service Coverage Ratio, determined at the end of each fiscal quarter of the
Borrower for the period of four consecutive fiscal quarters then ending, to be
less than the ratio set forth opposite such fiscal quarter in the table below:
FISCAL QUARTER ENDING RATIO
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
7/5/97 1.81:1
- --------------------------------- ---------------------------------
10/4/97 2.06:1
- --------------------------------- ---------------------------------
1/3/98 1.43:1
- --------------------------------- ---------------------------------
4/4/98 1.23:1
- --------------------------------- ---------------------------------
7/4/98 1.22:1
- --------------------------------- ---------------------------------
10/3/98 1.32:1
- --------------------------------- ---------------------------------
1/2/99 1.42:1
- --------------------------------- ---------------------------------
4/3/99 1.51:1
- --------------------------------- ---------------------------------
7/3/99 1.55:1
- --------------------------------- ---------------------------------
10/2/99 1.60:1
- --------------------------------- ---------------------------------
1/1/00 1.66:1
- --------------------------------- ---------------------------------
4/1/00 1.65:1
- --------------------------------- ---------------------------------
provided that, for the fiscal quarter of the Borrower ending on or about (i)
June 30, 1997, the Debt Service Coverage Ratio shall be calculated for the
period of the six (6) consecutive months then ending and (ii) September
<PAGE>
86
30, 1997, the Debt Service Coverage Ratio shall be calculated for the period of
nine (9) consecutive months then ending.
11.3. INVENTORY COVERAGE RATIO. The Borrower will not permit the
Inventory Coverage Ratio, determined semi-annually at the end of each fiscal
quarter set forth in the table below, to be less than the ratio set forth
opposite such fiscal quarter ending date in the table below:
FISCAL QUARTER ENDING RATIO
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
4/5/97 1.51:1
- --------------------------------- ---------------------------------
10/4/97 1.66:1
- --------------------------------- ---------------------------------
4/4/98 1.88:1
- --------------------------------- ---------------------------------
10/3/98 1.72:1
- --------------------------------- ---------------------------------
4/3/99 1.75:1
- --------------------------------- ---------------------------------
10/2/99 1.62:1
- --------------------------------- ---------------------------------
4/1/00 1.70:1
- --------------------------------- ---------------------------------
11.4. CAPITAL EXPENDITURES. The Borrower will not make, or permit any
Subsidiary of the Borrower to make, Capital Expenditures in any fiscal year set
forth in the table below to exceed the amount set forth opposite such year in
such table:
FISCAL YEAR ENDING Maximum Permitted
Capital Expenditures
- ------------------------------------------ -----------------------------------
- ------------------------------------------ -----------------------------------
1/3/98 $4,000,000
- ------------------------------------------ -----------------------------------
1/2/99 and for each fiscal year ending
thereafter $3,000,000
- ------------------------------------------ -----------------------------------
provided that there shall be deducted from the actual amount of Capital
Expenditures in any such period the amount that the Borrower has actually
received in cash from its landlord in order to construct build-outs at its
facility located at 1412 Broadway, New York City PROVIDED, FURTHER, (A) the
Borrower and its Subsidiaries may make additional Capital Expenditures in any
fiscal year in an amount equal to the amount of insurance proceeds received by
the Borrower or any of its Subsidiaries from any Recovery Event occurring within
one year prior to the start of such fiscal year and (B) to the extent that the
amount of Capital Expenditures permitted in a fiscal year as set forth in this
Section 11.4 (and without increasing any such amount by the amount of any
additional amounts permitted to be spent in such fiscal year pursuant to this
<PAGE>
87
sentence) exceeds the amount of Capital Expenditures actually made by the
Borrower and its Subsidiaries during such fiscal year, an amount (the "ROLLOVER
AMOUNT") equal to 90% of such excess may be carried forward and utilized to make
Capital Expenditures in addition to the amount permitted above in the
immediately succeeding fiscal year; PROVIDED that no amount once carried forward
to the next fiscal year may be carried forward to a fiscal year thereafter and
PROVIDED FURTHER that such carried forward amounts shall be the last amount
utilized under the permitted baskets.
11.5. MINIMUM EXCESS AVAILABILITY. The Borrower shall not, at any time
during any period set forth in the table below, permit (a) the lesser of (i) the
Total Commitment and (ii) the Borrowing Base MINUS (b) the SUM of (i) the
outstanding amount of the Revolving Credit Loans (after giving effect to all
amounts requested), PLUS (ii) the Maximum Drawing Amount, plus (iii) all Unpaid
Reimbursement Obligations, to be less than the amount set forth opposite such
period in the table below under the heading "Minimum Excess Availability":
PERIOD MINIMUM EXCESS
AVAILABILITY
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
5/21/97 - 6/20/97 $0
- --------------------------------- ---------------------------------
6/21/97 - 7/20/97 $0
- --------------------------------- ---------------------------------
7/21/97 - 8/20/97 $5,000,000
- --------------------------------- ---------------------------------
8/21/97 - 9/20/97 $5,000,000
- --------------------------------- ---------------------------------
9/21/97 - 10/20/97 $5,000,000
- --------------------------------- ---------------------------------
10/21/97 - 11/20/97 $5,000,000
- --------------------------------- ---------------------------------
11/21/97 - 12/20/97 $5,000,000
- --------------------------------- ---------------------------------
12/21/97 - 1/20/98 $10,000,000
- --------------------------------- ---------------------------------
1/21/98 - 2/20/98 $5,000,000
- --------------------------------- ---------------------------------
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88
- --------------------------------- ---------------------------------
2/21/98 - 3/20/98 $10,000,000
- --------------------------------- ---------------------------------
3/21/98 - 4/20/98 $10,000,000
- --------------------------------- ---------------------------------
4/21/98 - 5/20/98 $10,000,000
- --------------------------------- ---------------------------------
5/21/98 - 6/20/98 $5,000,000
- --------------------------------- ---------------------------------
6/21/98 - 7/20/98 $5,000,000
- --------------------------------- ---------------------------------
7/21/98 - 8/20/98 $5,000,000
- --------------------------------- ---------------------------------
8/21/98 - 9/20/98 $5,000,000
- --------------------------------- ---------------------------------
9/21/98 - 10/20/98 $10,000,000
- --------------------------------- ---------------------------------
10/21/98 - 11/20/98 $10,000,000
- --------------------------------- ---------------------------------
11/21/98 - 12/20/98 $10,000,000
- --------------------------------- ---------------------------------
12/21/98 - 1/20/99 $10,000,000
- --------------------------------- ---------------------------------
1/21/99 - 2/20/99 $10,000,000
- --------------------------------- ---------------------------------
2/21/99 - 3/20/99 $10,000,000
- --------------------------------- ---------------------------------
3/21/99 - 4/20/99 $10,000,000
- --------------------------------- ---------------------------------
4/21/99 - 5/20/99 $10,000,000
- --------------------------------- ---------------------------------
5/21/99 - 6/20/99 $10,000,000
- --------------------------------- ---------------------------------
6/21/99 - 7/20/99 $10,000,000
- --------------------------------- ---------------------------------
7/21/99 - 8/20/99 $10,000,000
- --------------------------------- ---------------------------------
8/21/99 - 9/20/99 $10,000,000
- --------------------------------- ---------------------------------
9/21/99 - 10/20/99 $10,000,000
- --------------------------------- ---------------------------------
10/21/99 -11/20/99 $10,000,000
- --------------------------------- ---------------------------------
11/21/99 - 12/20/99 $10,000,000
- --------------------------------- ---------------------------------
12/21/99 - 1/20/00 $10,000,000
- --------------------------------- ---------------------------------
1/21/00 - 2/20/00 $10,000,000
- --------------------------------- ---------------------------------
2/21/00 - 3/20/00 $10,000,000
- --------------------------------- ---------------------------------
3/21/00 - 4/20/00 $10,000,000
- --------------------------------- ---------------------------------
11.6. MAXIMUM PIECE GOODS INVENTORY. The Borrower shall not, at any
time during any calendar month set forth in the table below, permit the
aggregate amount of Piece Goods Inventory of the Borrower and its Subsidiaries
to exceed the amount set forth opposite such month in such table under the
heading "Maximum Piece Goods Inventory":
MONTH Maximum Piece Goods
Inventory
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
May, 1997 $63,600,000
- --------------------------------- ---------------------------------
June, 1997 $66,000,000
- --------------------------------- ---------------------------------
July, 1997 $62,200,000
- --------------------------------- ---------------------------------
August, 1997 $60,100,000
- --------------------------------- ---------------------------------
September, 1997 $58,800,000
- --------------------------------- ---------------------------------
October, 1997 $58,200,000
- --------------------------------- ---------------------------------
November, 1997 $58,800,000
- --------------------------------- ---------------------------------
December, 1997 $54,800,000
- --------------------------------- ---------------------------------
January, 1998 $60,800,000
- --------------------------------- ---------------------------------
February, 1998 $61,200,000
- --------------------------------- ---------------------------------
March, 1998 $63,400,000
- --------------------------------- ---------------------------------
April, 1998 $64,700,000
- --------------------------------- ---------------------------------
May, 1998 $64,000,000
- --------------------------------- ---------------------------------
June, 1998 $66,400,000
- --------------------------------- ---------------------------------
July, 1998 $62,600,000
- --------------------------------- ---------------------------------
August, 1998 $60,600,000
- --------------------------------- ---------------------------------
September, 1998 $59,200,000
- --------------------------------- ---------------------------------
<PAGE>
89
- --------------------------------- ---------------------------------
October, 1998 $58,700,000
- --------------------------------- ---------------------------------
November, 1998 $59,300,000
- --------------------------------- ---------------------------------
December, 1998 $55,300,000
- --------------------------------- ---------------------------------
January, 1999 $58,400,000
- --------------------------------- ---------------------------------
February, 1999 $58,800,000
- --------------------------------- ---------------------------------
March, 1999 $60,900,000
- --------------------------------- ---------------------------------
April, 1999 $62,200,000
- --------------------------------- ---------------------------------
May, 1999 $61,500,000
- --------------------------------- ---------------------------------
June, 1999 $63,800,000
- --------------------------------- ---------------------------------
July, 1999 $60,100,000
- --------------------------------- ---------------------------------
August, 1999 $58,200,000
- --------------------------------- ---------------------------------
September, 1999 $56,900,000
- --------------------------------- ---------------------------------
October, 1999 $56,400,000
- --------------------------------- ---------------------------------
November, 1999 $57,000,000
- --------------------------------- ---------------------------------
December, 1999 $53,400,000
- --------------------------------- ---------------------------------
January, 2000 $60,600,000
- --------------------------------- ---------------------------------
February, 2000 $61,200,000
- --------------------------------- ---------------------------------
March, 2000 $63,300,000
- --------------------------------- ---------------------------------
12. CLOSING CONDITIONS.
The obligations of the Lenders to make the initial Revolving Credit
Loans and of the Facility Agent to issue any initial Letters of Credit shall be
subject to the satisfaction of the following conditions precedent on or prior to
June 4, 1997:
12.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance reasonably satisfactory to each of
the Lenders. Each Lender shall have received a fully executed copy of each such
document.
12.2. CERTIFIED COPIES OF CHARTER DOCUMENTS; BYLAWS. The Facility Agent
shall have received from the Borrower and each of its Subsidiaries a copy,
certified by a duly authorized officer of such Person to be true and complete on
the Closing Date, of each of (i) its charter or other incorporation documents as
in effect on such date of certification, and (ii) its by-laws as in effect on
such date.
12.3. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively
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90
taken, and evidence thereof reasonably satisfactory to the Lenders shall have
been provided to each of the Lenders.
12.4. INCUMBENCY CERTIFICATE. The Facility Agent shall have received
from the Borrower and each of its Subsidiaries an incumbency certificate, dated
as of the Closing Date, signed by a duly authorized officer of the Borrower or
such Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (i) to sign, in the name and on behalf of
each of the Borrower of such Subsidiary, each of the Loan Documents to which the
Borrower or such Subsidiary is or is to become a party; (ii) in the case of the
Borrower, to make Loan Requests and Conversion Requests and to apply for Letters
of Credit; and (iii) to give notices and to take other action on its behalf
under the Loan Documents.
12.5. VALIDITY OF LIENS. The Security Documents shall be effective to
create in favor of the Facility Agent a legal, valid and enforceable first
priority (except for Permitted Liens entitled to priority under applicable law)
security interest in or charge over, as the case may be, the Collateral. All
filings, recordings, deliveries of instruments and other actions necessary or
desirable in the opinion of the Facility Agent to protect and preserve such
security interests and such charge shall have been duly effected. The Facility
Agent shall have received evidence thereof in form and substance reasonably
satisfactory to the Facility Agent.
12.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Facility
Agent shall have received from each of the Borrower and its Subsidiaries a
completed and fully executed Perfection Certificate and the results of UCC
searches and searches of the Companies Registry with respect to any Hong Kong
locations with respect to the Collateral, indicating no liens other than
Permitted Liens or liens for which termination statements or other suitable
releases reasonably satisfactory to the Facility Agent have been delivered to
the Facility Agent and otherwise in form and substance reasonably satisfactory
to the Facility Agent.
12.7. CERTIFICATES OF INSURANCE. The Facility Agent shall have received
(i) one or more certificates of insurance from an independent insurance broker
dated as of the Closing Date, identifying insurers, types of insurance,
insurance limits, and policy terms, naming the Facility Agent as loss payee
under each casualty policy and additional insured under each liability policy,
and otherwise describing the insurance obtained in accordance with the
provisions of the Security Agreements
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91
and (ii) certified copies of all policies evidencing such insurance (or
certificates therefore signed by the insurer or an agent authorized to bind the
insurer). All such insurance arrangements shall be satisfactory to the Facility
Agent.
12.8. BORROWING BASE REPORT, ETC. The Facility Agent shall have
received from the Borrower the initial Borrowing Base Report dated as of the
Closing Date. The Facility Agent shall be reasonably satisfied with the
components of, and the Borrower's method of calculating, the Borrowing Base. The
Facility Agent shall be reasonably satisfied with all other terms and conditions
of this Credit Agreement to be agreed upon.
12.9. OPINIONS OF COUNSEL. Each of the Lenders and the Facility Agent
shall have received a favorable legal opinion addressed to the Lenders and the
Facility Agent, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Lenders and the Facility Agent, from:
(a) Wachtell, Lipton, Rosen & Katz, counsel to the Borrower
and its Subsidiaries;
(b) Cowan, Liebowitz & Latman, P.C., intellectual property
counsel to the Borrower and its Subsidiaries;
(c) Deacons, Graham & James, Hong Kong counsel to the Borrower
and its Subsidiaries;
(d) Bachner, Tally, Polevoy & Misher LLP, counsel to ASL/K
Licensing Corp.;
(e) Weil, Gotshal & Manges LLP, counsel to The Leslie Fay
Company, Inc.; and
(f) Richards Butler, Hong Kong counsel to the Agents and the
Lenders.
12.10 PAYMENT OF FEES; DEPOSIT. The Borrower shall have paid to the
Lenders or the Facility Agent, as appropriate, the closing fee, the Facility
Agent's fee and the facility fee pursuant to ss.ss.6.1 and 6.2, respectively.
There shall have been paid to the Facility Agent a deposit in the amount of
$150,000 to cover the fees and expenses of the Facility Agent's Special Counsel
(it being understood that such amount shall not be a cap on the legal expenses
of the Agent). To the extent such deposit exceeds the fees and expenses of the
Facility Agent's Special Counsel with
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92
respect to this Credit Agreement, such excess shall be returned to the Borrower.
12.11. PAYOFF LETTER. The Facility Agent shall have received a payoff
letter from BankBoston, N.A. (formerly known as The First National Bank of
Boston), BankAmerica Business Credit, Inc. and Heller Financial, Inc.,
indicating the amount of the loan obligations of the Borrower to such lenders to
be discharged on the Closing Date.
12.12. FINANCIAL STATEMENTS, PROJECTIONS. The Facility Agent and the
Lenders shall have received (a) copies of the financial statements and
projections referred to in ss.8.4, together with any updates or revisions
thereto and (b) any other information (financial and other information)
reasonably requested by the Facility Agent. All such financial statements,
projections and other information shall be in form and substance reasonably
satisfactory to the Facility Agent.
12.13. FNBB CONCENTRATION ACCOUNT; AGENCY ACCOUNT AGREEMENTS; CASH
MANAGEMENT. The Borrower and its Subsidiaries shall have established the FNBB
Concentration Account, and the Facility Agent shall have received an Agency
Account Agreement, in form and substance reasonably satisfactory to the Facility
Agent, from (i) each bank (other than FNBB) at which the Borrower and its
Subsidiaries maintains depository accounts into which proceeds of Accounts
Receivable of the Borrower are deposited, (ii) Trust Company of New Jersey, and
(iii) Citibank, N.A., in each case concerning the Facility Agent's interest for
the benefit of the Lenders and the Facility Agent, in the depository accounts
maintained by the Borrower and its Subsidiaries with such banks. The Facility
Agent shall be satisfied with the cash management arrangements of the Borrower
and its Subsidiaries.
12.14. SENIOR NOTES; KASPER AGREEMENTS. The Lenders and the Agents
shall have received copies, certified by an officer of the Borrower to be true,
correct and complete, of the documentation relating to the Senior Notes and the
Kasper Agreements, and the Lenders shall be reasonably satisfied with the form
and substance of such notes.
12.15. LANDLORD LIEN WAIVERS. The Facility Agent shall have received
landlord lien waivers, in form and substance reasonably satisfactory to the
Facility Agent, with respect to each warehouse facility (other than the Hong
Kong Warehouse), retail store or other location leased by the Borrower or its
Subsidiaries at which inventory is located, PROVIDED that with respect to any
store or other location (but excluding any warehouse facility) if the Facility
Agent shall not receive a waiver with respect to any such property, then the
Facility Agent shall have
<PAGE>
93
received a certificate, signed by an officer of the Borrower, stating the
maximum potential claim of the landlord of such property and the value of the
inventory located at such property.
12.16. BORROWING AVAILABILITY. The Facility Agent shall have received
evidence satisfactory to it that, after giving effect to all transactions to
occur on the Closing Date including, without limitation, all payments required
to be made on the Effective Date under the Plan, the Borrower shall have
unrestricted cash and aggregate borrowing availability under this Credit
Agreement of not less than $18,000,000.
12.17. COLLATERAL. The Facility Agent shall be satisfied (in its sole
reasonable discretion) that the assets (including trademarks) of the Borrower
and its Subsidiaries are in the amounts and of the quality previously
represented by the Borrower to the Facility Agent and the Facility Agent shall
have received such valuations, credit and background checks and other reports,
material and information concerning such assets as shall be reasonably
satisfactory to the Facility Agent (in its sole reasonable discretion). The
Facility Agent shall be satisfied that the inventory of the Borrower and its
Subsidiaries is located at such locations, and is in the amounts and of the
quality and value previously represented by the Borrower to the Facility Agent
and the Facility Agent shall have received such reports, material and other
information concerning such inventory and the Borrower's supplies as shall be
satisfactory to the Facility Agent (in its sole reasonable discretion).
12.18. EXAMINATIONS. The Facility Agent shall be reasonably satisfied
with the results of the commercial finance examinations performed with respect
to the Borrower and its Subsidiaries, including satisfactory review of the
Borrower's books and records in connection with the calculation of the Borrowing
Base.
12.19. NO MATERIAL ADVERSE CHANGE. There shall have occurred no
material adverse change in the business, operations, assets, properties or
condition (financial or otherwise) of the Borrower and/or its Subsidiaries.
12.20. FACTORING ARRANGEMENTS; INTERCREDITOR AGREEMENT. The Borrower
and Heller shall have entered into the Heller Factoring Agreement, and such
agreement shall be reasonably satisfactory in all respects to the Facility Agent
(in its sole reasonable discretion). The Facility Agent and Heller shall have
entered into an intercreditor agreement with respect to the Heller Factoring
Agreement, and such agreement shall be satisfactory in all respects to the
Facility Agent (in its sole reasonable discretion).
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12.21. PLAN AND CONFIRMATION ORDER. The final terms of the Plan to be
consummated and the order of the Bankruptcy Court approving such Plan (the
"CONFIRMATION ORDER") shall be reasonably satisfactory to the Agents in all
respects including, without limitation, (i) the requirement that, except as
otherwise provided in the Plan, all prepetition claims against and all interests
in the Borrower shall be discharged and/or extinguished pursuant to the Plan;
(ii) the treatment of classes shall not be materially different from the
treatment provided for in the Plan; and (iii) the Plan shall not contain
provisions (including retention of jurisdiction) relating to the exercise of
remedies (including foreclosure) by the Facility Agent or the Lenders. The
Bankruptcy Court shall have approved any amendments or modifications to the Plan
or the Confirmation Order and entered any and all related orders requested by
the Facility Agent in connection with this Credit Agreement, and no other
amendments or modifications thereto shall have occurred. All conditions
precedent to the consummation of the Plan shall have been met (or the waiver
thereof shall have been consented to by the Agents), the effectiveness of the
Plan shall not be subject to any stay and the substantial consummation of the
Plan shall have occurred or shall be scheduled to occur but for the initial
Loans to be made on the Closing Date. The Facility Agent and the Lenders shall
be reasonably satisfied with the Affiliates of the Borrower, the composition of
the Borrower's board of directors, and the key executive and financial
management of the Borrower. The Confirmation Order shall not have been reversed,
modified, amended, or stayed, shall be in full force and effect, and, unless
otherwise consented to in writing by the Agents, all appeal periods relating to
the Confirmation Order shall have expired, and, unless otherwise consented to in
writing by the Agents, no appeals from the Confirmation Order shall be
outstanding. Except as consented to in writing by the Agents, the Bankruptcy
Court's retention of jurisdiction under the Confirmation Order shall not govern
the enforcement of the Loan Documents or the Security Documents from and after
the Effective Date, or any rights or remedies relating thereto. With respect to
the provisions of this Credit Agreement which permit matters provided for in the
Plan, such permission is granted only to the extent such matters are clearly
disclosed and expressly provided for in the Plan and only to the extent the Plan
is expressly approved by the Agents on or prior the Closing Date.
12.22. DISTRIBUTIONS UNDER PLAN. The amount of cash and cash
equivalents distributed by the Borrower pursuant to the Plan to the bankruptcy
estate (including (i) contributions necessary to repay the existing credit
facilities under the Plan and (ii) any amounts evidenced by notes payable under
the Plan to the Leslie Fay Companies, Inc. or its
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Affiliates or professionals retained during the Chapter 11 Case under the Plan),
and cash retained by the bankruptcy estate, on the Effective Date shall not have
exceeded such amount as is reasonably acceptable to the Agents reasonably
consistent with the Borrower's projections previously delivered to the Agents.
12.23. POST-CONFIRMATION CAPITAL STRUCTURE AND LIABILITIES. The
Facility Agent and the Lenders shall be reasonably satisfied with all
liabilities (including contingent liabilities) and post-confirmation litigation
risks that are to survive the consummation of the Plan and with the adequacy of
appropriate accounting reserves therefor. The Facility Agent and the Lenders
shall be reasonably satisfied with the financial condition, capital structure,
corporate structure, assets, liabilities and financial projections (including
cash flow) of the Borrower and its Subsidiaries and the terms of all capital
stock and Indebtedness of the Borrower and its Subsidiaries.
13. CONDITIONS TO ALL BORROWINGS.
The obligations of the Lenders to make any Loan and of the Facility
Agent to issue, extend or renew any Letter of Credit, in each case whether on or
after the Closing Date, shall also be subject to the satisfaction of the
following conditions precedent:
13.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true and correct in all material respects as of the date as of which
they were made and shall also be true and correct in all material respects at
and as of the time of the making of such Loan or the issuance, extension or
renewal of such Letter of Credit, with the same effect as if made at and as of
that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate could not reasonably be expected to have a materially adverse effect
on the business, assets or condition (financial or otherwise) of the Borrower
and its Subsidiaries, taken as whole, and to the extent that such
representations and warranties relate expressly to an earlier date, in which
case, such representations and warranties shall be true as of such earlier
date). No Default or Event of Default shall have occurred and be continuing or
shall result from the making of such Loan or the issuance, extension or renewal
of such Letter of Credit.
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13.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Lender would make it illegal for such Lender to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Facility Agent would make it illegal for the
Facility Agent to issue, extend or renew such Letter of Credit.
13.3. GOVERNMENTAL REGULATION. Each Lender shall have received such
statements in substance and form reasonably satisfactory to such Lender as such
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
13.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be reasonably satisfactory in
substance and in form to the Lenders, the Facility Agent and the Facility
Agent's Special Counsel, and the Lenders, the Facility Agent and such counsel
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Facility Agent may reasonably request.
13.5. LOAN REQUEST; ETC. The Facility Agent shall have received a Loan
Request or a Letter of Credit Application with respect to the Loan or Letter of
Credit requested.
13.6. BORROWING BASE REPORT. The Facility Agent shall have received the
most recent Borrowing Base Report, dated within three (3) Business Days
following the end of the most recently ended fiscal week of the Borrower (ending
on the Saturday of such week).
13.7. NO UNPAID FEES. The Borrower shall have paid all fees then due
and payable as provided in this Credit Agreement.
14. EVENTS OF DEFAULT; ACCELERATION; ETC.
14.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "DEFAULTS") shall
occur:
(a) the Borrower or any of its Subsidiaries shall fail to pay
any principal of the Loans, any Reimbursement Obligation, any interest
on the Loans, the commitment fee, any Letter of Credit Fee,
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the Facility Agent's Fee, or other sums due hereunder or under any of
the other Loan Documents, when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment;
(b) the Borrower shall fail to comply with any of its
covenants contained in ss.9 (other than ss.ss.9.8, 9.10, 9.11, 9.14,
9.17, 9.19), ss.10 (other than ss.10.9) or ss.11;
(c) the Borrower or any of its Subsidiaries shall fail to
perform any term, covenant or agreement contained herein or in any of
the other Loan Documents (other than those specified elsewhere in this
ss.14.1) for thirty (30) days after written notice of such failure has
been given to the Borrower by the Facility Agent;
(d) any representation or warranty of the Borrower or any of
its Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to
or in connection with this Credit Agreement shall prove to have been
false in any material respect upon the date when made or deemed to have
been made or repeated (subject to any materiality thresholds therein);
(e) the Borrower or any of its Subsidiaries shall fail to pay
at maturity, or within any applicable period of grace, any obligation
for borrowed money or credit received (including, without limitation,
the Senior Notes), or in respect of any Capitalized Leases in either
case in excess of $500,000, or fail to observe or perform any material
term, covenant or agreement contained in any agreement by which it is
bound, evidencing or securing borrowed money or credit received
(including, without limitation, the Senior Notes) or in respect of any
Capitalized Leases in either case in excess of $500,000 for such period
of time as would permit (assuming the giving of appropriate notice if
required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof;
(f) the Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or
become due, or shall petition or apply for the appointment of a trustee
or other custodian, liquidator or receiver of the Borrower or any of
its Subsidiaries or of any substantial part of the assets of the
Borrower or any of its Subsidiaries or shall commence any case or other
proceeding relating to the Borrower or any of its Subsidiaries
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under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or shall take any action to
authorize or in furtherance of any of the foregoing, or if any such
petition or application shall be filed or any such case or other
proceeding shall be commenced against the Borrower or any of its
Subsidiaries and the Borrower or any of its Subsidiaries shall indicate
its approval thereof, consent thereto or acquiescence therein or such
petition or application shall not have been dismissed within thirty
(30) days following the filing thereof;
(g) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any
of its Subsidiaries bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is
entered in respect of the Borrower or any Subsidiary of the Borrower in
an involuntary case under federal bankruptcy laws as now or hereafter
constituted;
(h) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
final judgment against the Borrower or any of its Subsidiaries that,
with other outstanding final judgments, undischarged, against the
Borrower or any of its Subsidiaries exceeds (net of any applicable
insurance coverage) in the aggregate $500,000;
(i) if any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded or the Facility Agent's security
interests or liens in any portion of the Collateral shall cease to be
perfected, or shall cease to have the priority contemplated by the
Security Documents, in each case otherwise than in accordance with the
terms thereof or with the express prior written agreement, consent or
approval of the Lenders, or any action at law, suit or in equity or
other legal proceeding to cancel, revoke or rescind any of the Loan
Documents shall be commenced by or on behalf of the Borrower or any of
its Subsidiaries party thereto or any of their Affiliates, or any court
or any other governmental or regulatory authority or agency of
competent jurisdiction shall make a determination that, or issue a
judgment, order, decree or ruling to the effect that, any one or more
of the Loan Documents is illegal, invalid or unenforceable in
accordance with the terms thereof;
(j) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Lenders
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shall have determined in their reasonable discretion that such event
reasonably could be expected to result in liability of the Borrower or
any of its Subsidiaries to the PBGC or such Guaranteed Pension Plan in
an aggregate amount exceeding $500,000 and such event in the
circumstances occurring reasonably could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC or for the
appointment by the appropriate United States District Court of a
trustee to administer such Guaranteed Pension Plan; or a trustee shall
have been appointed by the United States District Court to administer
such Plan; or the PBGC shall have instituted proceedings to terminate
such Guaranteed Pension Plan;
(k) the Borrower or any of its Subsidiaries (other than Sassco
Europe, Viewmon, Ltd., or Tomwell, Ltd.) shall be enjoined, restrained
or in any way prevented by the order of any court or any administrative
or regulatory agency from conducting any material part of their
respective businesses and such order shall continue in effect for more
than ten (10) consecutive days;
(l) there shall occur any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty, which in any such case either (i)
could reasonably be expected to have a material adverse effect on the
business or financial condition of ASL Retail Outlets, Inc. or (ii)
causes, for more than ten (10) consecutive days, the cessation or
substantial curtailment of the revenue producing activities at any
facility of the Borrower or any of its Subsidiaries (other than ASL
Retail Outlets, Inc., Sassco Europe, Viewmon, Ltd. or Tomwell, Ltd.);
(m) there shall occur the loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter
acquired by the Borrower or any of its Subsidiaries if such loss,
suspension, revocation or failure to renew could reasonably be expected
to have a material adverse effect on the business or financial
condition of the Borrower or any of its Subsidiaries (other than Sassco
Europe, Viewmon, Ltd. or Tomwell, Ltd.);
(n) the Borrower or any of its Subsidiaries shall be indicted
for a state or federal crime, or any civil or criminal action shall
otherwise have been brought against the Borrower or any of its
Subsidiaries, a punishment for which in any such case could include the
forfeiture of any assets of the Borrower or such Subsidiary
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included in the Borrowing Base or any assets of the Borrower or such
Subsidiary not included in the Borrowing Base but having a fair market
value in excess of $1,000,000; or
(o) any Person or group of persons (within the meaning of
Section 13 or Section 14 of the Securities Exchange Act of 1934, as
amended) shall acquire more than fifty percent (50%) of the capital
stock of the Borrower, other than a group controlled by Arthur S.
Levine;
(p) Arthur S. Levine (or another person reasonably
satisfactory to the Agents, other than BancBoston Securities, Inc.)
shall cease to be the Chairman of the Board of Directors and the Chief
Executive Officer of the Borrower; or
(q) the Confirmation Order or the Plan shall be amended,
stayed or otherwise modified without the prior written consent of the
Agents, unless such amendment, stay or modification shall not, in the
reasonable opinion of the Agents, (i) adversely affect (A) any of the
rights, properties or interests of the Borrower and its Subsidiaries,
(B) any of the rights or interests of the Agents and the Lenders
hereunder or under the other Loan Documents, or (C) the perfection or
priority of any security interests or liens granted to the Facility
Agent pursuant to the Loan Documents or (ii) impose any additional
obligations on the Borrower or any of its Subsidiaries;
then, and in any such event, so long as the same may be continuing, the Facility
Agent may, and upon the request of the Majority Lenders shall, by notice in
writing to the Borrower declare and require (i) the unpaid principal amount of
the Loans and all Reimbursement Obligations and all interest accrued and unpaid
thereon to be due and payable and (ii) all other amounts payable hereunder and
under the other Loan Documents to be, and they shall thereupon forthwith become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED
that in the event of any Event of Default specified in ss.ss.14.1(f), 14.1(g) or
14.1(i), all such amounts shall become immediately due and payable automatically
and without any requirement of notice from the Facility Agent or any Lender.
14.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in ss.14.1(f), ss.14.1(g) or ss.14.1(i) shall occur, any
unused portion of the credit hereunder shall forthwith terminate and each of the
Lenders shall be relieved of all further obligations to make Loans to
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the Borrower and the Facility Agent shall be relieved of all further obligations
to issue, extend or renew Letters of Credit. If any other Event of Default shall
have occurred and be continuing, the Facility Agent may and, upon the request of
the Majority Lenders, shall, by notice to the Borrower, terminate the unused
portion of the credit hereunder, and upon such notice being given such unused
portion of the credit hereunder shall terminate immediately and each of the
Lenders shall be relieved of all further obligations to make Loans and the
Facility Agent shall be relieved of all further obligations to issue, extend or
renew Letters of Credit. No termination of the credit hereunder shall relieve
the Borrower or any of its Subsidiaries of any of the Obligations.
14.3. REMEDIES. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Lenders shall have
accelerated the maturity of the Loans pursuant to ss.14.1, each Lender, if owed
any amount with respect to the Loans or the Reimbursement Obligations, may, with
the consent of the Majority Lenders but not otherwise, proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Lender are evidenced,
including as permitted by applicable law the obtaining of the EX PARTE
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Lender. No remedy herein conferred upon any
Lender or the Facility Agent or the holder of any Note or purchaser of any
Letter of Credit Participation is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or any other provision of law.
14.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that, following
the occurrence or during the continuance of any Default or Event of Default, the
Facility Agent or any Lender, as the case may be, receives any monies in
connection with the enforcement of any the Security Documents, or otherwise with
respect to the realization upon any of the Collateral, such monies shall be
applied in accordance with ss.3.3 hereof.
14.5. CASH COLLATERAL TO SECURE OUTSTANDING LETTERS OF CREDIT. In case
any one or more Events of Default shall have occurred and be continuing, and
whether or not the Lenders shall have accelerated the maturity of the Loans, the
Facility Agent may, or at the request of the
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Majority Lenders shall, require the Borrower to furnish upon one day's notice
cash collateral to secure the Borrower's Obligations with respect to any Letters
of Credit at the time outstanding in an amount equal to one hundred and five
percent (105%) of the Maximum Drawing Amount of each such Letter of Credit as of
such date and according to the Cash Collateral Agreement and such other terms as
the Facility Agent shall reasonably require.
15. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Lenders to the Borrower and any securities or other property of the Borrower
in the possession of such Lender may be applied to or set off by such Lender
against the payment of Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrower to such Lender. Each of the Lenders agrees
with each other Lender that (i) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Lender, other than Indebtedness evidenced
by the Notes held by such Lender or constituting Reimbursement Obligations owed
to such Lender, such amount shall be applied ratably to such other Indebtedness
and to the Indebtedness evidenced by all such Notes held by such Lender or
constituting Reimbursement Obligations owed to such Lender, and (ii) if such
Lender shall receive from the Borrower, whether by voluntary payment, exercise
of the right of setoff, counterclaim, cross action, enforcement of the claim
evidenced by the Notes held by, or constituting Reimbursement Obligations owed
to, such Lender by proceedings against the Borrower at law or in equity or by
proof thereof in bankruptcy, reorganization, liquidation, receivership or
similar proceedings, or otherwise, and shall retain and apply to the payment of
the Note or Notes held by, or Reimbursement Obligations owed to, such Lender any
amount in excess of its ratable portion of the payments received by all of the
Lenders with respect to the Notes held by, and Reimbursement Obligations owed
to, all of the Lenders, such Lender will make such disposition and arrangements
with the other Lenders with respect to such excess, either by way of
distribution, PRO TANTO assignment of claims, subrogation or otherwise as shall
result in each Lender receiving in respect of the Notes held by it or
Reimbursement obligations owed it, its proportionate payment as contemplated by
this Credit Agreement; PROVIDED that if all or any part of such excess payment
is thereafter recovered from such Lender, such disposition and arrangements
shall be rescinded and the amount restored to the extent of such recovery, but
without interest.
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16. THE FACILITY AGENT.
16.1. AUTHORIZATION.
(a) The Facility Agent is authorized to take such action on
behalf of each of the Lenders and to exercise all such powers as are
hereunder and under any of the other Loan Documents and any related
documents delegated to the Facility Agent, together with such powers as
are reasonably incident thereto, PROVIDED that no duties or
responsibilities not expressly assumed herein or therein shall be
implied to have been assumed by the Facility Agent.
(b) The relationship between the Facility Agent and each of
the Lenders is that of an independent contractor. The use of the term
"Facility Agent" is for convenience only and is used to describe, as a
form of convention, the independent contractual relationship between
the Facility Agent and each of the Lenders. Nothing contained in this
Credit Agreement nor the other Loan Documents shall be construed to
create an agency, trust or other fiduciary relationship between the
Facility Agent and any of the Lenders.
(c) As an independent contractor empowered by the Lenders to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Facility Agent is
nevertheless a "representative" of the Lenders, as that term is defined
in Article 1 of the Uniform Commercial Code, for purposes of actions
for the benefit of the Lenders and the Facility Agent with respect to
all collateral security and guaranties contemplated by the Loan
Documents. Such actions include the designation of the Facility Agent
as "secured party", "mortgagee" or the like on all financing statements
and other documents and instruments, whether recorded or otherwise,
relating to the attachment, perfection, priority or enforcement of any
security interests, mortgages or deeds of trust in collateral security
intended to secure the payment or performance of any of the
Obligations, all for the benefit of the Lenders and the Facility Agent.
16.2. EMPLOYEES AND FACILITY AGENTS. The Facility Agent may exercise
its powers and execute its duties by or through employees or Facility Agents and
shall be entitled to take, and to rely on, advice of counsel concerning all
matters pertaining to its rights and duties under this Credit Agreement and the
other Loan Documents. The Facility Agent may utilize the services of such
Persons as the Facility Agent in its sole
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discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.
16.3. NO LIABILITY. Neither the Facility Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for any
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Facility Agent
or such other Person, as the case may be, may be liable for losses due to its
willful misconduct or gross negligence.
16.4. NO REPRESENTATIONS. The Facility Agent shall not be responsible
for the execution or validity or enforceability of this Credit Agreement, the
Notes, the Letters of Credit, any of the other Loan Documents or any instrument
at any time constituting, or intended to constitute, collateral security for the
Notes, or for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrower or any of its
Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Obligations or to inspect any of the properties, books or
records of the Borrower or any of its Subsidiaries. The Facility Agent shall not
be bound to ascertain whether any notice, consent, waiver or request delivered
to it by the Borrower or any holder of any of the Notes shall have been duly
authorized or is true, accurate and complete. The Facility Agent has not made
nor does it now make any representations or warranties, express or implied, nor
does it assume any liability to the Lenders, with respect to the credit
worthiness or financial conditions of the Borrower or any of its Subsidiaries.
Each Lender acknowledges that it has, independently and without reliance upon
the Facility Agent or any other Lender, and based upon such information and
documents as it has deemed appropriate, made its own credit analysis and
decision to enter into this Credit Agreement.
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16.5. PAYMENTS.
16.5.1. PAYMENTS TO FACILITY AGENT. A payment by the Borrower
to the Facility Agent hereunder or any of the other Loan Documents for
the account of any Lender shall constitute a payment to such Lender;
PROVIDED, however, for the purposes of the settlement arrangements
hereunder, such Lender shall not be deemed to have received such
payment until it is actually received by such Lender. The Facility
Agent agrees promptly to distribute to each Lender such Lender's PRO
RATA share of payments received by the Facility Agent for the account
of the Lenders except as otherwise expressly provided herein or in any
of the other Loan Documents.
16.5.2. DISTRIBUTION BY FACILITY AGENT. If in the opinion of
the Facility Agent the distribution of any amount received by it in
such capacity hereunder, under the Notes or under any of the other Loan
Documents might involve it in liability, it may refrain from making
distribution until its right to make such distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and
distributed by the Facility Agent is to be repaid, each Person to whom
any such distribution shall have been made shall either repay to the
Facility Agent its proportionate share of the amount so adjudged to be
repaid or shall pay over the same in such manner and to such Persons as
shall be determined by such court.
16.5.3. DELINQUENT LENDERS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan
Documents, any Lender that fails (i) to make available to the Facility
Agent its PRO RATA share of any Loan or to purchase any Letter of
Credit Participation or (ii) to comply with the provisions of ss.15
with respect to making dispositions and arrangements with the other
Lenders, where such Lender's share of any payment received, whether by
setoff or otherwise, is in excess of its PRO RATA share of such
payments due and payable to all of the Lenders, in each case as, when
and to the full extent required by the provisions of this Credit
Agreement, shall be deemed delinquent (a "Delinquent Lender") and shall
be deemed a Delinquent Lender until such time as such delinquency is
satisfied. A Delinquent Lender shall be deemed to have assigned any and
all payments due to it from the Borrower, whether on account of
outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or
otherwise, to the remaining nondelinquent Lenders for application to,
and reduction
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of, their respective PRO RATA shares of all outstanding Loans and
Unpaid Reimbursement Obligations. The Delinquent Lender hereby
authorizes the Facility Agent to distribute such payments to the
nondelinquent Lenders in proportion to their respective PRO RATA shares
of all outstanding Loans and Unpaid Reimbursement Obligations. A
Delinquent Lender shall be deemed to have satisfied in full a
delinquency when and if, as a result of application of the assigned
payments to all outstanding Loans and Unpaid Reimbursement Obligations
of the nondelinquent Lenders, the Lenders' respective PRO RATA shares
of all outstanding Loans and Unpaid Reimbursement Obligations have
returned to those in effect immediately prior to such delinquency and
without giving effect to the nonpayment causing such delinquency.
16.6. HOLDERS OF NOTES. The Facility Agent may deem and treat the payee
of any Note or the purchaser of any Letter of Credit Participation as the
absolute owner or purchaser thereof for all purposes hereof until it shall have
been furnished in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
16.7. INDEMNITY. The Lenders ratably agree hereby to indemnify and hold
harmless the Facility Agent from and against any and all claims, actions and
suits (whether groundless or otherwise), losses, damages, costs, expenses
(including any expenses for which the Facility Agent has not been reimbursed by
the Borrower as required by ss.17), and liabilities of every nature and
character arising out of or related to this Credit Agreement, the Notes, or any
of the other Loan Documents or the transactions contemplated or evidenced hereby
or thereby, or the Facility Agent's actions taken hereunder or thereunder,
except to the extent that any of the same shall be directly caused by the
Facility Agent's bad faith, willful misconduct or gross negligence. To the
extent that there is any conflict between this Section and ss.2.9(c) hereof,
ss.2.9(c) shall control.
16.8. FACILITY AGENT AS LENDER. In its individual capacity, FNBB shall
have the same obligations and the same rights, powers and privileges in respect
to its Commitment and the Loans made by it, and as the holder of any of the
Notes and as the purchaser of any Letter of Credit Participations, as it would
have were it not also the Facility Agent.
16.9. RESIGNATION. The Facility Agent may resign at any time by giving
sixty (60) days prior written notice thereof to the Lenders and the Borrower.
Upon any such resignation, the Majority Lenders shall have the right to appoint
a successor Facility Agent. Unless a Default or Event of Default shall have
occurred and be continuing, such successor Facility
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Agent shall be reasonably acceptable to the Borrower. If no successor Facility
Agent shall have been so appointed by the Majority Lenders and shall have
accepted such appointment within thirty (30) days after the retiring Facility
Agent's giving of notice of resignation, then the retiring Facility Agent may,
on behalf of the Lenders, appoint a successor Facility Agent, which shall be a
financial institution having a rating of not less than "A" or its equivalent by
Standard & Poor's Corporation. Upon the acceptance of any appointment as
Facility Agent hereunder by a successor Facility Agent, such successor Facility
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Facility Agent, and the retiring Facility
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Facility Agent's resignation, the provisions of this Credit Agreement
and the other Loan Documents shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as
Facility Agent.
16.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Lender
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Facility Agent thereof. The Facility Agent
hereby agrees that upon learning of the existence of a Default or Event of
Default or receipt of any notice under this ss.16.10 it shall promptly notify
the other Lenders of the existence of such Default or Event of Default or the
receipt of such notice.
16.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one or more Events of
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Facility Agent shall, if (i) so
requested by the Majority Lenders and (ii) the Lenders have provided to the
Facility Agent such additional indemnities and assurances against expenses and
liabilities as the Facility Agent may reasonably request, proceed to enforce the
provisions of the Security Documents authorizing the sale or other disposition
of all or any part of the Collateral and exercise all or any such other legal
and equitable and other rights or remedies as it may have in respect of such
Collateral. The Majority Lenders may direct the Facility Agent in writing as to
the method and the extent of any such sale or other disposition, the Lenders
hereby agreeing to indemnify and hold the Facility Agent, harmless from all
liabilities incurred in respect of all actions taken or omitted in accordance
with such directions, PROVIDED that the Facility Agent need not comply with any
such direction to the extent that the Facility Agent reasonably believes the
Facility Agent's compliance with such direction to be unlawful or commercially
unreasonable in any applicable jurisdiction.
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17. EXPENSES.
The Borrower agrees to pay (i) the reasonable costs of producing and
reproducing this Credit Agreement, the other Loan Documents and the other
agreements and instruments mentioned herein, (ii) any taxes (including any
interest and penalties in respect thereto) payable by the Facility Agent or any
of the Lenders (other than taxes based upon the Facility Agent's or any Lender's
net income) on or with respect to the transactions contemplated by this Credit
Agreement (the Borrower hereby agreeing to indemnify the Facility Agent and each
Lender with respect thereto), (iii) the reasonable fees, expenses and
disbursements of the Facility Agent's Special Counsel and any local counsel to
the Facility Agent incurred in connection with the preparation, administration
or interpretation of the Loan Documents and other instruments mentioned herein,
each closing hereunder, and amendments, modifications, approvals, consents or
waivers hereto or hereunder, (iv) the fees, expenses and disbursements of the
Facility Agent and the Syndication Agent incurred by the Facility Agent and the
Syndication Agent in connection with the preparation, syndication,
administration or interpretation of the Loan Documents and other instruments
mentioned herein, including the fees and expenses related to commercial finance
examinations, collateral monitoring, and publicity and all title insurance
premiums and surveyor, engineering and appraisal charges, (v) any fees, costs,
expenses and bank charges, including bank charges for returned checks, incurred
by the Facility Agent in establishing, maintaining or handling agency accounts,
lock box accounts and other accounts for the collection of any of the
Collateral; (vi) all reasonable out-of-pocket expenses (including without
limitation reasonable attorneys' fees and costs, which attorneys may be
employees of any Lender or the Facility Agent, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by any Lender or the Facility Agent in connection with the
enforcement of or preservation of rights under any of the Loan Documents against
the Borrower or any of its Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default; (vii) all reasonable out-of-pocket
expenses (including without limitation reasonable attorneys' fees and costs,
which attorneys may be employees of the Facility Agent, and reasonable
consulting, accounting, appraisal, investment banking and similar professional
fees and charges) incurred by the Facility Agent in connection with any
litigation, proceeding or dispute whether arising hereunder or otherwise, in any
way related to the Facility Agent's relationship with the Borrower or any of its
Subsidiaries; and (viii) all reasonable fees, expenses and disbursements of the
Facility Agent incurred in connection with searches and filings under the
Uniform Commercial Code and any other system for the registration of
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liens or charges over property or mortgage recordings. The covenants of this
ss.17 shall survive payment or satisfaction of all other Obligations.
18. INDEMNIFICATION.
The Borrower agrees to indemnify and hold harmless the Facility Agent
and the Lenders and their respective officers, directors, employees, affiliates,
agents and controlling persons (whether or not any of such indemnified persons
is a party hereto) from and against any and all claims, actions, litigation,
investigation, proceeding and suits whether groundless or otherwise, and from
and against any and all liabilities, losses, damages and expenses of every
nature and character arising out of, or in connection with, this Credit
Agreement or any of the other Loan Documents or the transactions contemplated
hereby including, without limitation, (i) any actual or proposed use by the
Borrower or any of its Subsidiaries of the proceeds of any of the Loans or
Letters of Credit, (ii) the reversal or withdrawal of any provisional credits
granted by the Facility Agent upon the transfer of funds from bank agency or
lock box accounts or in connection with the provisional honoring of checks or
other items, (iii) any actual or alleged infringement of any patent, copyright,
trademark, service mark or similar right of the Borrower or any of its
Subsidiaries comprised in the Collateral, (iv) the Borrower or any of its
Subsidiaries entering into or performing this Credit Agreement or any of the
other Loan Documents, (v) with respect to the Borrower and its Subsidiaries and
their respective properties and assets, the violation of any Environmental Law,
the presence, disposal, escape, seepage, leakage, spillage, discharge, emission,
release or threatened release of any Hazardous Substances or any action, suit,
proceeding or investigation brought or threatened with respect to any Hazardous
Substances (including, but not limited to, claims with respect to wrongful
death, personal injury or damage to property), (vi) any release by an Approved
Customs Broker of goods pursuant to a Customs Agent Agreement, or (vii) any
obligations under a "steamship guarantee" or similar arrangement relating to the
Borrower or its Subsidiaries, in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding. In litigation, or the preparation therefor, the Lenders, the
Facility Agent and each other indemnified person shall be entitled to select
their own counsel and, in addition to the foregoing indemnity, the Borrower
agrees to pay promptly the reasonable fees and expenses of such counsel. If, and
to the extent that the obligations of the Borrower under this ss.18 are
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment in satisfaction of such obligations which is
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permissible under applicable law. The covenants contained in this ss.18 shall
survive payment or satisfaction in full of all other Obligations. The foregoing
indemnity shall not, as to any indemnified person, apply to such person's
losses, claims, damages, liabilities or related expenses to the extent that they
arise from the bad faith, willful misconduct, or gross negligence of such
indemnified person, as may be conclusively and finally determined by a final
non-applicable order of a court of competent jurisdiction.
19. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or any of its Subsidiaries
pursuant hereto shall be deemed to have been relied upon by the Lenders and the
Facility Agent, notwithstanding any investigation heretofore or hereafter made
by any of them, and shall survive the making by the Lenders of any of the Loans
and the issuance, extension or renewal of any Letters of Credit, as herein
contemplated, and shall continue in full force and effect so long as any Letter
of Credit or any amount due under this Credit Agreement or the Notes or any of
the other Loan Documents remains outstanding or any Lender has any obligation to
make any Loans or the Facility Agent has any obligation to issue, extend or
renew any Letter of Credit, and for such further time as may be otherwise
expressly specified in this Credit Agreement. All statements contained in any
certificate or other paper delivered to any Lender or the Facility Agent at any
time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto
or in connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower or such Subsidiary hereunder.
20. ASSIGNMENT AND PARTICIPATION.
20.1. CONDITIONS TO ASSIGNMENT BY LENDERS. Except as provided herein,
each Lender may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Loans at the time owing to it, the Notes held by it and its participating
interest in the risk relating to any Letters of Credit); PROVIDED that (i) each
of the Facility Agent and, except for the initial syndication of the commitments
hereunder and so long as no Default or Event of Default shall have occurred and
be continuing, the Borrower shall have given its prior written consent to such
assignment, (each such consent not to be
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unreasonably withheld), (ii) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Lender's rights and obligations
under this Credit Agreement, (iii) after giving effect to such assignment, each
Lender will have a Commitment of not less than $7,500,000, and (iv) the parties
to such assignment shall execute and deliver to the Facility Agent, for
recording in the Register (as hereinafter defined), an Assignment and
Acceptance, substantially in the form of EXHIBIT F hereto (an "Assignment and
Acceptance"), together with any Notes subject to such assignment. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five (5) Business Days after the execution thereof, (i) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder, and (ii) the assigning Lender shall, to the extent provided in such
assignment and upon payment to the Facility Agent of the registration fee
referred to in ss.20.3, be released from its obligations under this Credit
Agreement.
20.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS.
By executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Lender makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage,
(b) the assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition
of the Borrower and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the
performance or observance by the Borrower and its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under
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this Credit Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in ss.8.4 and ss.9.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance
upon the assigning Lender, the Facility Agent or any other Lender and
based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not
taking action under this Credit Agreement;
(e) such assignee represents and warrants that it is an
Eligible Assignee;
(f) such assignee appoints and authorizes the Facility Agent
to take such action as Facility Agent on its behalf and to exercise
such powers under this Credit Agreement and the other Loan Documents as
are delegated to the Facility Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Credit Agreement are required to be performed by it as a Lender;
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements
with the assigning Lender satisfactory to such assignee with respect to
its PRO RATA share of Letter of Credit Fees in respect of outstanding
Letters of Credit.
20.3. REGISTER. The Facility Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register or similar list (the
"REGISTER") for the recordation of the names and addresses of the Lenders and
the Commitment Percentage of, and principal amount of the Revolving Credit Loans
owing to and Letter of Credit Participations purchased by, the Lenders from time
to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower,
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the Facility Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Credit Agreement. The Register shall be available for inspection by the
Borrower and the Lenders at any reasonable time and from time to time
upon reasonable prior notice. Upon each such recordation, the assigning
Lender agrees to pay to the Facility Agent a registration fee in the
sum of $3,000.
20.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Facility Agent shall (i) record the information contained
therein in the Register, and (ii) give prompt notice thereof to the Borrower and
the Lenders (other than the assigning Lender). Within five (5) Business Days
after receipt of such notice, the Borrower, at its own expense, shall execute
and deliver to the Facility Agent, in exchange for each surrendered Note, a new
Note to the order of such Eligible Assignee in an amount equal to the amount
assumed by such Eligible Assignee pursuant to such Assignment and Acceptance
and, if the assigning Lender has retained some portion of its obligations
hereunder, a new Note to the order of the assigning Lender in an amount equal to
the amount retained by it hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such in Assignment and Acceptance and shall
otherwise be substantially the form of the assigned Notes. Within five (5) days
of issuance of any new Notes pursuant to this ss.20.4 (other than the issuance
of any new Notes resulting from an assignment constituting part of the initial
syndication of the Loans hereunder), the Borrower shall deliver an opinion of
counsel, addressed to the Lenders and the Facility Agent, relating to the due
authorization, execution and delivery of such new Notes and the legality,
validity and binding effect thereof, in form and substance satisfactory to the
Lenders. The surrendered Notes shall be cancelled and returned to the Borrower.
20.5. PARTICIPATIONS. Each Lender may sell participations to one or
more Lenders or other entities in all or a portion of such Lender's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED
that (i) any such sale or participation shall not affect the rights and duties
of the selling Lender hereunder to the Borrower and (ii) the only rights granted
to the participant pursuant to such participation arrangements with respect to
waivers, amendments or modifications of the Loan Documents shall be the rights
to approve waivers, amendments or modifications that would reduce the principal
of
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or the interest rate on any Loans, extend the term or increase the amount of
the Commitment of such Lender as it relates to such participant, reduce the
amount of any commitment fees or Letter of Credit Fees to which such participant
is entitled or extend any regularly scheduled payment date for principal or
interest.
20.6. DISCLOSURE. The Borrower agrees that in addition to disclosures
made in accordance with standard and customary banking practices any Lender may
disclose information obtained by such Lender pursuant to this Credit Agreement
to assignees or participants and potential assignees or participants hereunder;
PROVIDED that such assignees or participants or potential assignees or
participants shall agree (i) to treat in confidence such information unless such
information otherwise becomes public knowledge, (ii) not to disclose such
information to a third party, except as required by law or legal process and
(iii) not to make use of such information for purposes of transactions unrelated
to such contemplated assignment or participation.
20.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Lender is an Affiliate of the Borrower, then any such assignee Lender
shall have no right to vote as a Lender hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Facility Agent pursuant to ss.14.1 or
ss.14.2, and the determination of the Majority Lenders shall for all purposes of
this Agreement and the other Loan Documents be made without regard to such
assignee Lender's interest in any of the Loans. If any Lender sells a
participating interest in any of the Loans or Reimbursement Obligations to a
participant, and such participant is the Borrower or an Affiliate of the
Borrower, then such transferor Lender shall promptly notify the Facility Agent
of the sale of such participation. A transferor Lender shall have no right to
vote as a Lender hereunder or under any of the other Loan Documents for purposes
of granting consents or waivers or for purposes of agreeing to amendments or
modifications to any of the Loan Documents or for purposes of making requests to
the Facility Agent pursuant to ss.14.1 or ss.14.2 to the extent that such
participation is beneficially owned by the Borrower or any Affiliate of the
Borrower, and the determination of the Majority Lenders shall for all purposes
of this Agreement and the other Loan Documents be made without regard to the
interest of such transferor Lender in the Loans to the extent of such
participation.
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20.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. The Borrower shall pay its
own fees and expenses and the fees and expenses of the Facility Agent in
connection with any assignment hereunder. With the exception of the initial
syndication of the Loans and the Commitment by FNBB, the Borrower shall not be
obligated to pay the fees and expenses of the Assignor party to any assignment.
Any assigning Lender shall retain its rights to be indemnified pursuant to ss.17
with respect to any claims or actions arising prior to the date of such
assignment. If any assignee Lender is not incorporated under the laws of the
United States of America or any state thereof, it shall, prior to the date on
which any interest or fees are payable hereunder or under any of the other Loan
Documents for its account, deliver to the Borrower and the Facility Agent
certification as to its exemption from deduction or withholding of any United
States federal income taxes. Anything contained in this ss.20 to the contrary
notwithstanding, any Lender may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Lenders organized under ss.4 of
the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement
thereof shall release the pledgor Lender from its obligations hereunder or under
any of the other Loan Documents.
20.9. ASSIGNMENT BY BORROWER. Neither the Borrower nor any of its
Subsidiaries shall assign or transfer any of their rights or obligations under
any of the Loan Documents without the prior written consent of each of the
Lenders.
21. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes or any Letter of Credit Applications shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telecopy and confirmed by delivery via overnight courier or postal service,
addressed as follows:
(a) if to the Borrower or any of the Guarantors, at 77 Metro
Way, Secaucus, New Jersey 07094, Attention: Mr. Dennis Kelly, Telecopy
No.: (201) 864-7768 or at such other address for notice as the Borrower
shall last have furnished in writing to the Person giving the notice;
(b) if to the Facility Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Paul Feloney, Vice President,
Telecopy No.: (617) 434-2309 or such other address for
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notice as the Facility Agent shall last have furnished in writing to
the Person giving the notice; and
(c) if to any Lender, at such Lender's address set forth on
SCHEDULE 1 hereto, or such other address for notice as such Lender
shall have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
telecopier to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such telecopy and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
22. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH OF THE
BORROWER AND THE GUARANTORS AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
CREDIT AGREEMENT, THE GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT
IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING
THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE
OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER OR SUCH GUARANTOR BY
MAIL AT THE ADDRESS SPECIFIED IN SS.21. EACH OF THE BORROWER AND THE GUARANTORS
HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF
ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT
COURT.
23. HEADINGS.
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
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24. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
25. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in ss.27.
26. WAIVER OF JURY TRIAL.
Each of the Borrower and the Guarantors hereby waives its right to a
jury trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of which rights and obligations. Except as prohibited by law, each of the
Borrower and the Guarantors hereby waives any right it may have to claim or
recover in any litigation referred to in the preceding sentence any special,
exemplary, punitive or consequential damages or any damages other than, or in
addition to, actual damages. Each of the Borrower and the Guarantors (i)
certifies that no representative, agent or attorney of any Lender or the
Facility Agent has represented, expressly or otherwise, that such Lender or the
Facility Agent would not, in the event of litigation, seek to enforce the
foregoing waivers and (ii) acknowledges that the Facility Agent and the Lenders
have been induced to enter into this Credit Agreement, the other Loan Documents
to which it is a party by, among other things, the waivers and certifications
contained herein.
27. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Credit Agreement
to be given by the Lenders may be given, and any term of this Credit Agreement,
the other Loan Documents or any other instrument related hereto or mentioned
herein may be amended, and the performance or observance by the Borrower or any
of its Subsidiaries of any terms of this Credit Agreement, the other Loan
Documents or such other
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instrument or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Borrower and the
written consent of the Majority Lenders. Notwithstanding the foregoing, (a) the
rate of interest on the Notes (other than interest accruing pursuant to
ss.6.11.2 following the effective date of any waiver by the Majority Lenders of
the Default or Event of Default relating thereto), the provisions of ss.6.12,
the term of the Notes, the amount of the Commitments of any of the Lenders, the
date and amount of any principal payments required hereunder, the amount of the
commitment fee or Letter of Credit Fees hereunder, and this ss.27 may not be
changed without the written consent of the Borrower and the written consent of
all the Lenders; (b) the definition of Majority Lenders or Required Lenders may
not be amended without the written consent of all of the Lenders; (c) the
components of, or percentage advance rates under, the Borrowing Base, may not be
modified without the consent of all the Lenders, PROVIDED that such components
may be modified with the consent of the Required Lenders so long as (i) such
modifications would not exist for a period of more than ninety (90) days and
(ii) such modifications, in the aggregate, would not increase availability under
the Borrowing Base by an amount greater than the lesser of (X) $10,000,000 and
(Y) ten percent (10%) of such availability, in each case determined immediately
before such modification; and (d) the amount of the Facility Agent's Fee or any
Letter of Credit Fees payable for the Facility Agent's account, ss.16 hereof and
this clause (d) may not be amended without the written consent of the Facility
Agent. Except for (a) dispositions permitted pursuant to ss.10.5.2 (which, in
the case of this clause (a), would require the consent of the Facility Agent),
and (b) the use of cash collateral in a bankruptcy proceeding (which, in the
case of this clause (b), would require the consent of the Required Lenders), no
Collateral may be released without the consent of all the Lenders. No waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon. No course of dealing or delay or omission on the part
of the Facility Agent or any Lender in exercising any right shall operate as a
waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon
the Borrower shall entitle the Borrower to other or further notice or demand in
similar or other circumstances.
28. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof,
<PAGE>
119
in such jurisdiction, and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or provision of this
Credit Agreement in any jurisdiction.
<PAGE>
120
IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as
a sealed instrument as of the date first set forth above.
SASSCO FASHIONS, LTD.
By: /s/ Arthur S. Levine
---------------------------
Name: Arthur S. Levine
Title: Chief Executive Officer
ASIA EXPERT, LIMITED, as Guarantor
By: /s/ Arthur S. Levine
---------------------------
Name: Arthur S. Levine
Title: Director
ASL RETAIL OUTLETS, INC., as
Guarantor
By: /s/ Arthur S. Levine
---------------------------
Name: Arthur S. Levine
Title: Vice President
SASSCO EUROPE, LTD. as Guarantor
By: /s/ Arthur S. Levine
---------------------------
Name: Arthur S. Levine
Title: Senior Vice President
<PAGE>
ASL/K LICENSING CORP., as Guarantor
By: /s/ Lester E. Schreiber
---------------------------
Name: Lester E. Schreiber
Title: Vice President
TOMWELL, LIMITED, as Guarantor
By: /s/ Lester E. Schreiber
---------------------------
Name: Lester E. Schreiber
Title: Director
VIEWMON, LIMITED, as Guarantor
By: /s/ Lester E. Schreiber
---------------------------
Name: Lester E. Schreiber
Title: Director
<PAGE>
BANKBOSTON, N.A., individually and as
Facility Agent
By: /s/ Paul Feloney, Jr.
---------------------------
Name: Paul Feloney, Jr.
Title: Vice President
BANCBOSTON SECURITIES, INC., as
Syndication Agent
By: /s/ Anne Helgen
---------------------------
Name: Anne Helgen
Title: Managing Director
CITICORP USA, INC., individually and as
Documentation Agent
By: /s/ Shapleigh B. Smith
---------------------------
Name: Shapleigh B. Smith
Title: Vice President
HELLER FINANCIAL, INC., individually and
as Co-Agent
By: /s/ Iris Steinhardt
---------------------------
Name: Iris Steinhardt
Title: Vice President
BTM CAPITAL CORPORATION
By: /s/ [?]
---------------------------
Name:
Title: Executive Vice President
<PAGE>
CORESTATES BANK, N.A.
By: /s/ [?]
---------------------------
Name:
Title:
LASALLE NATIONAL BANK
By: /s/ Sara K. [?]
---------------------------
Name:
Title: Vice President
FOOTHILL CAPITAL CORPORATION
By: /s/ Mike [?]
---------------------------
Name:
Title: Vice President
Execution Copy
EMPLOYMENT AGREEMENT
AGREEMENT, made the 4th day of June, 1997, between SASSCO FASHIONS,
LTD., a Delaware corporation, with its principal office at 77 Metro Way,
Secaucus, NJ (the "Corporation"), and ARTHUR S. LEVINE, residing at 97 Hoagsland
Lane, Old Brookville, N.Y. 11545 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is the chief executive officer of the Sassco
Division of The Leslie Fay Companies, Inc. (the "Division"), the predecessor to
the Corporation; and
WHEREAS, the Corporation desires to secure the continued services of
the Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereto hereby agree as follows:
1. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
2. Term. Subject to the terms and conditions hereinafter set forth, the
term of the Executive's employment hereunder shall commence on June 4, 1997 (the
"Effective Date") and shall continue until the fifth anniversary of the
Effective Date, unless earlier terminated pursuant to the Sections 7, 8 or 9
(the "Term").
3. Duties and Extent of Services.
(a) Chief Executive Officer. During the Term, the Executive
shall serve as Chief Executive Officer of the Corporation faithfully and to the
best of his ability, and shall devote substantially all of his business time,
energy and skill to such employment, it being understood and agreed that the
Executive may serve on the boards of directors or equivalent governing bodies of
other business corporations or other business organizations, provided that (i)
such other corporations or other organizations are not in direct competition
with the Corporation and/or its subsidiaries and (ii) such service does not
materially interfere with the performance by the Executive of his duties
hereunder. The Executive shall be invested with the duties and authority that
are customarily delegated to a chief executive officer of a corporation, and
shall report to and be subject to the direction of the Board of Directors of the
Corporation, it being understood that the day-to-day operations of the
Corporation shall be within the purview of the Executive as Chief Executive
Officer of the Corporation, to the maximum extent consistent with the standards
for comparable public companies in the Corporation's industry. The Executive
shall also perform such specific duties and
<PAGE>
services of a senior executive nature as the Board of Directors of the
Corporation shall request, including, without limitation, serving as a senior
officer and/or director of any of the Corporation's subsidiaries.
(b) Board Membership. Although it is understood that the
right to elect directors of the Corporation is by law vested in the stockholders
of the Corporation, it is nevertheless mutually contemplated that the Board of
Directors of the Corporation (the "Board") shall consist of seven persons, and
that during the Term (i) the stockholders of the Corporation will elect the
Executive and a designee of the Executive to the Board, (ii) the executive shall
serve as Chairman of the Board and of the Executive Committee of the Board (if
any) and (iii) the Executive shall have the right to designate one observer to
the Board, which observer shall be entitled to receive notice of, and attend
meetings of, the Board, but shall not have the right to vote at such meetings.
4. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of Two Million United States Dollars
(U.S. $2,000,000) per annum, or such higher amount as the Board may from time to
time determine, payable in equal weekly installments.
5. Incentive Compensation.
(a) 1998 Fiscal Year. If the Corporation's EBITDA (as
hereinafter defined) for the fiscal year ended closest to December 31, 1998 (the
"1998 Fiscal Year") is at least (i) Thirty-Three Million Eight Hundred Thousand
United States Dollars (U.S. $33,800,000) minus (ii) to the extent that the same
reduces EBITDA, the aggregate compensation expense charged to 1998 Fiscal Year
earnings for (A) fees and expenses paid to nonmanagement members of the Board
and (B) the grant or exercise of stock options issued to management of the
Corporation or to nonmanagement members of the Board (the "1998 EBITDA Target"),
the Corporation shall pay a bonus to the Executive no later that 120 days after
the end of the 1998 Fiscal Year, in an amount equal to the sum of (x) Five
Hundred Thousand United States Dollars (U.S. $500,000) plus (y) 50% of the
Corporation's EBITDA for such fiscal year in excess of the 1998 EBITDA Target,
provided that (aa) in no event shall such bonus exceed One Million Five Hundred
Thousand United States Dollars (U.S. $1,500,000) and (bb) in the event that the
Corporation's EBITDA for the 1998 Fiscal Year is less than the 1998 EBITDA
Target plus Two Million Five Hundred Thousand United States Dollars (U.S.
$2,500,000), the Corporation shall defer payment of Five Hundred Thousand United
States Dollars (U.S. $500,000) of such bonus and pay the same to the Executive
no later than 120 days after the end of the first fiscal year following the 1998
Fiscal Year in which the Corporation's EBITDA is at least equal to the 1998
EBITDA Target plus Two Million Five Hundred Thousand United States Dollars (U.S.
$2,500,000).
(b) 1999 Fiscal Year and thereafter. If the Corporation's
EBITDA exceeds 85% (the "Minimum Percentage") of the Corporation's Budgeted
EBITDA (as hereinafter defined) for any fiscal year (after the 1998 Fiscal Year)
during the Term, the Corporation shall pay a bonus to the Executive no later
than 120 days after the end of such fiscal year, in an amount equal to One
Hundred Thousand United States Dollars (U.S. $100,000) or portion thereof for
each percentage point or portion thereof of such Budgeted EBITDA by which such
EBITDA exceeds the Minimum
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<PAGE>
Percentage, provided that in no event shall such bonus exceed One Million Five
Hundred Thousand United States Dollars (U.S. $1,500,000).
(c) Certain Definitions. "EBITDA" means, for any fiscal year
of the Corporation, the consolidated earnings before interest, taxes,
depreciation and amortization of the Corporation and its subsidiaries, as
determined pursuant to generally accepted accounting principles in effect in the
United States of America from time to time.
"Budgeted EBITDA" for any fiscal year shall be the single EBITDA target
for such fiscal year contained in the operating budget established by the Board
in good faith for the Corporation as a whole; provided, however, that if the
following amounts have not been deducted from projected earnings in determining
such EBITDA target, such amounts shall be deducted from such EBITDA target for
purposes of determining Budgeted EBITDA, but only to the extent the same would
reduce actual EBITDA: (i) the aggregate compensation expense charged to earnings
during such fiscal year for fees paid to non-management members of the Board,
and (ii) up to Two Hundred Thousand United States Dollars (U.S. $200,000) in
rental payments for the Corporation's lease of offices at 1412 Broadway, New
York, New York.
6. Employee Benefits.
(a) During the Term, the Executive shall receive coverage
and/or benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and other employee benefit plans of the
Corporation generally made available to senior executives of the Corporation
from time to time.
(b) During the Term, the Corporation shall provide (x) the
Executive and members of his immediate family with (i) supplemental disability
coverage and (ii) medical insurance for all medical costs and services incurred
by the foregoing, including costs of dental, vision and custodial care, and (y)
the Executive with the services of an automobile selected by him and a driver
for his use, all of the foregoing coverages and benefits to be substantially
equivalent to those currently provided to the Executive by the Division.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior executives, but in no event less than five weeks
each calendar year during the Term.
Such vacations shall be taken at times consistent with the effective
discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office
facilities and secretarial assistance commensurate with his position as Chief
Executive Officer of the Corporation and adequate for the performance of his
duties hereunder.
-3-
<PAGE>
7. Termination - Death or Disability.
(a) In the event of the termination of the Executive's
employment because of the death of the Executive during the Term, the
Corporation shall pay to any one or more beneficiaries designated by the
Executive pursuant to notice to the Corporation, or, failing such designation,
to the Executive's estate, (i) the unpaid Base Salary owing to the Employee
through the end of the month of his death, in a lump sum within five business
days after his death, and (ii) a bonus for the year in which such termination
occurs, equal to the bonus (if any) that would have been paid for such year if
no such termination had occurred, times a fraction, the numerator of which is
the number of months in such year through the end of the month in which such
termination occurs, and the denominator of which is twelve (such bonus to be
computed and paid at the time and in the manner specified in Section 5).
(b) In the event that Executive shall become Disabled (as
hereinafter defined), the Corporation shall have the right to terminate the
Executive's employment hereunder by giving him written notice of such
termination. Upon receipt of such notice, the Executive's employment hereunder
shall terminate. In the event of such termination, the Corporation shall pay to
the Executive (i) the unpaid Base Salary owing to the Executive through the end
of the month of such termination, in a lump sum within five business days of
such termination, and (ii) a bonus for the year in which such termination
occurs, equal to the bonus (if any) that would have been paid for such year if
no such termination had occurred, times a fraction, the numerator of which is
the number of months in such year through the end of the month in which such
termination occurs, and the denominator of which is twelve (such bonus to be
computed and paid at the time and in the manner specified in Section 5). For the
purposes hereof, "Disabled" shall mean, with respect to the Executive, being
physically or mentally disabled, whether totally or partially, so that he is
substantially unable to perform his services hereunder for a consecutive period
of more than six months or for shorter periods aggregating six months during any
twelve-month period.
8. Termination for Cause by Corporation.
(a) The Executive's employment hereunder may be terminated by
the Corporation for Cause (as defined in Section 8(b)) upon compliance with the
provisions of Section 8(c). In the event that Executive's employment hereunder
shall validly be terminated by the Corporation for Cause pursuant to this
Section 8(a), the Corporation shall promptly pay accrued but unpaid Base Salary
and reimburse or pay any other accrued but unpaid amounts due under Sections 6
and 12 hereof as of the date of termination, and thereafter shall have no
further obligations under this Agreement, provided that if the Executive's
employment is terminated by the Corporation for cause by reason of Section
8(b)(iii), the Corporation shall also pay the Executive his bonus (if any) that
would have been paid for the fiscal year in which such termination occurs, as if
no such termination had occurred (such bonus to be computed and paid at the time
and in the manner specified in Section 5).
Upon termination of the Executive's employment hereunder for
Cause, the Executive shall nonetheless remain bound by the obligations provided
for in Sections 10 and 11 hereof.
-4-
<PAGE>
(b) For the purposes hereof, "Cause" shall mean (i) conviction
by the Executive of a felony, (ii) perpetration by the Executive of (x) an
illegal act which causes significant economic injury to the Corporation or (y) a
common law fraud against the Corporation, or (iii) willful violation by the
Executive of a specific written direction from the Corporation's Board of
Directors concerning one or more matters material to the Corporation's business
and not within the Executive's purview as set forth in the penultimate sentence
of Section 3(a) ("Material Insubordination").
(c) Termination for Cause shall be effected only by action of
a majority of the Directors of the Corporation then in office (excluding the
Executive) at a meeting duly called and held upon at least ten days' prior
written notice to the Executive specifying the particulars of the action or
inaction alleged to constitute "Cause" (and at which meeting the Executive and
his counsel were entitled to be present and given reasonable opportunity to be
heard). In the event of a dispute between the Executive and the Corporation as
to whether Material Insubordination has occurred, such dispute shall be subject
to arbitration in accordance with Section 23.
9. Termination for Good Reason by the Executive; Severance Payment.
(a) The Executive's employment hereunder may be terminated by
the Executive for Good Reason (as hereinafter defined) by providing written
notice to the Corporation to such effect (such termination to be effective on
the date specified in such notice, which date shall not be more than sixty (60)
days nor less than thirty (30) days after date of such notice).
(b) For the purposes hereof, "Good Reason" means the
continuation of any of the following events for more than ten (10) days after
the Corporation's receipt from the Executive of written notice thereof:
(i) the Executive shall fail to be re-elected as a
Director of the Corporation and as Chairman of the Board and Chairman of the
Executive Committee of the Board (if any) or shall be removed from any such
positions or from the position of Chief Executive Officer at any time during the
Term hereof (other than fr Cause), any designee or observer of the Executive
pursuant to Section 3(b) shall fail to be re-elected or shall be removed as a
Director or observer during the Term, or the size of the Board of Directors
shall be expanded and the Executive shall not be given reasonable opportunity to
designate one or more additional Directors such that the Executive and all
Directors designated by the Executive shall comprise at least 28% of the
membership of the Board;
(ii) the Executive shall fail to be vested with the
powers and authority of Chief Executive Officer of the Corporation as described
in Section 3(a), or the powers and authority of such position or his
responsibilities with respect thereto shall be diminished in any material
respect;
(iii) the Executive shall have assigned to him
without his express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions described
in Section 3;
-5-
<PAGE>
(iv) the Executive's principal place of employment is
changed to a location more than twenty-five miles from the prior location
without the Executive's prior written consent;
(v) any material failure by the Corporation to
fulfill any of its obligations under this Agreement, including, without
limitation, the failure to make any material payment required to be made by the
Corporation pursuant to Section 4 or 5 within five (5) business days after the
date such payment is required to be made;
(vi) any purported termination by the Corporation of
the Executive's employment otherwise than as expressly permitted by, and in
compliance with all conditions and procedures of, this Agreement;
(vii) the Corporation shall fail to comply with the
provisions of Section 13 or 18(a);
(viii) there shall occur a Change of Control (as
defined in the Indenture dated as of June 4, 1997 (the "Indenture") among the
Corporation and IBJ Schroder Bank & Trust Company, as Trustee), other than a
Change of Control in connection with, or resulting in whole or part from, the
acquisition by the Executive or any Affiliate (as defined in the Indenture) of
the Executive of "beneficial ownership" (as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended), directly or indirectly, of shares
of capital stock of the Corporation;
(ix) without the Executive's consent, (i) the
Corporation shall sell substantially all of its assets to, or merge or
consolidate with, any other person or entity (other than a subsidiary of the
Corporation) or (ii) the Corporation's charter or bylaws shall be materially
amended; or
(x) the shareholders of the Corporation shall fail to
approve, at or before the earlier of the Corporation's first annual meeting of
shareholders following the Effective Date and June 15, 1998, the Sassco Fashions
Ltd. 1997 Stock Option Plan in the form adopted by the Board, to the extent that
such approval is required pursuant to Section 1 of the form of Stock Option
Agreement attached as Annex A to Schedule I of such Stock Option Plan.
(c) If at any time (i) the Executive terminates his employment
for Good Reason (other than on the grounds of Section 8(b)(viii)) or (ii) the
Corporation terminates the Executive's employment without Cause, then the
Corporation shall pay to the Executive, in lieu of any other amounts that might
otherwise have been payable hereunder (other than pursuant to Sections 6 and
12), an amount (the "Severance Amount") equal to the discounted present value as
of the date of termination (using a discount factor of 10% per annum) of the
aggregate amount which would have been payable to the Executive had he continued
to be employed by the Corporation as Base Salary through the end of the Term (at
the rate in effect as of the date of termination), which amount shall be payable
within ten days following such termination, provided that if the Executive
terminates his employment for Good Reason solely on the grounds of Section
8(b)(viii), then the Corporation shall pay to the Executive within ten days
following such termination, in lieu of any other amounts that might otherwise
have been payable hereunder (other than pursuant to Sections 6 and 12), 57% of
the Severance Amount.
-6-
<PAGE>
10. Confidential Information. In addition to any other confidentiality
obligation the Executive may have to the Corporation, from and after the date
hereof the Executive shall keep secret and retain in strictest confidence, and
shall not use for his benefit or the benefit of others, any and all confidential
information relating to the Corporation and its subsidiaries, including, without
limitation, customer lists, financial plans or projections, pricing policies,
marketing plans or strategies, business acquisition or divestiture plans, new
personnel acquisition plans, designs, and, except in connection with the
performance of his duties hereunder, he shall not disclose any such information
to anyone outside the Corporation and any of its subsidiaries, except as
required by law (provided prior written notice thereof is given by the Executive
to the Corporation) or except with the Corporation's prior written consent,
unless such information is known generally to the public or the trade through
sources other than the Executive's unauthorized disclosure.
11. Competitive Activity. The Executive acknowledges that the
Corporation and its subsidiaries do business in many places in the world, and
that the knowledge and relationships of the Executive with, among others,
customers and suppliers to the Corporation and its subsidiaries are an important
asset of the Corporation. Accordingly, the Executive agrees that during his
employment hereunder, and, following a termination of his employment other than
termination by the Executive for Good Reason or by the Corporation without
Cause, for the balance (if any) of the original Term, the Executive shall not,
without the prior consent of the Board (i) directly or indirectly, engage or be
interested in (as owner, partner, shareholder, employee, director, officer,
agent, consultant or otherwise), with or without compensation, any business
wherever located in the world engaged in the manufacture, distribution, design
marketing or sale of women's apparel or (ii) induce or attempt to persuade any
employee of the Corporation or of any subsidiary of the Corporation, or any
person who was employed by the Corporation or any subsidiary of the Corporation
within the preceding six months, to leave the employ of the Corporation or any
subsidiary of the Corporation (but the foregoing shall not be deemed to prevent
the Executive in his capacity as Chief Executive Officer of the Corporation from
hiring or dismissing any employee of the Corporation or any subsidiary for the
benefit of the Corporation).
Nothing in this Section shall prohibit the Executive from acquiring or
holding not more than five percent of any class of publicly traded securities of
any business.
-7-
<PAGE>
12. Expenses.
(a) The Corporation shall reimburse the Executive for all
reasonable, ordinary and necessary expenses incurred by the Executive in the
performance of the Executive's duties hereunder; provided, however, that the
Executive accounts to the Corporation for such expenses in the manner
customarily prescribed by the Corporation for its senior executives.
(b) Promptly following the Effective Date, the Corporation
shall pay the Executive $200,000 as a liquidated payment to cover the reasonable
legal and other fees and expenses incurred by the Executive in connection with
the negotiation, execution and delivery of this Agreement and other prior
matters concerning the Corporation.
13. Directors' and Officers' Insurance; Indemnification. Within 30 days
after the execution and delivery hereof, the Executive shall be provided with
directors' and officers' insurance in connection with his employment hereunder
and service as a director as contemplated hereby with such coverage (including
with respect to unpaid wages and taxes not remitted when done) as shall be
reasonably satisfactory to the Executive and with aggregate limits of liability
for all covered officers and directors of not less than $10,000,000, and the
Corporation shall maintain such insurance in effect for the period of the
Executive's employment hereunder and for not less than five years thereafter;
provided, however, that in the event that the Corporation shall not obtain such
insurance, it shall provide or cause the Executive to be provided with indemnity
(or a combination of indemnity and directors' and officers' insurance) in
connection with his employment hereunder with substantially equivalent coverage
and amounts, and the Corporation shall maintain such indemnity (or combination
of indemnity and directors' and officers' insurance) or cause such indemnity (or
such combination) to be maintained for the period of the Executive's employment
hereunder and for not less than five years thereafter.
14. No Duty to Mitigate. The Executive shall have no duty to mitigate
the Severance Amount or any other amounts payable to him hereunder and such
amounts shall not be subject to reduction for any compensation received by the
Executive from employment in any capacity or other source following the
termination of Executive's employment with the Corporation and its subsidiaries.
15. Prior Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. No failure on
the part of either party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any partial exercise of
any right hereunder preclude any further exercise thereof.
16. Survival of Provisions. The provisions of Sections 10 and 11 shall
survive the termination or expiration of this Agreement as provided therein.
Such provisions are unique and extraordinary, which give them a value peculiar
to the Corporation, and cannot be reasonably or adequately
-8-
<PAGE>
compensated in damages for its loss. Accordingly, any breach by the Executive of
such provisions will cause the Corporation irreparable injury and damage.
Therefore, the Corporation, in addition to all other remedies available to i,
shall be entitled to injunctive and other available equitable relief in any
court of competent jurisdiction to prevent or otherwise restrain a breach of
such provisions for the purposes of enforcing such provisions.
17. Withholding. The Corporation shall be entitled to withhold from any
and all amounts payable to the Executive hereunder such amounts as may from time
to time be required to be withheld pursuant to applicable tax laws and
regulations.
18. Succession, Assignability and Binding Effect.
(a) The Corporation will require any successor or successors
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Corporation
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would be required to perform it if no
such succession had taken place. Failure of the Corporation to obtain such
agreement prior to the effectiveness of any such succession shall constitute
"Good Reason" for resignation by the Executive.
(b) This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and its successors and permitted assigns and upon
the Executive and his heirs, executors, legal representatives, successors and
permitted assigns. However, without prejudice to the rights of the Corporation
under Section 18(a), neither party may assign, transfer, pledge, encumber,
hypothecate or otherwise dispose of this Agreement or any of its or his rights
hereunder without the prior written consent of the other party, and any such
attempted assignment, transfer, pledge, encumbrance, hypothecation or other
disposition without such consent shall be null and void and without effect.
19. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
20. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
21. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York applicable to
contracts made and to be performed wholly in that state, without giving effect
to the principles thereof relating to the conflict of laws.
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<PAGE>
22. Legal Fees and Expenses. In order to induce the Executive to enter
into this Agreement and to provide the Executive with reasonable assurance that
the purposes of this Agreement will not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the benefit of the Corporation or any
subsidiary contesting the validity or enforceability of this Agreement or any
provision hereof to be performed by the Corporation, which action shall have
been dismissed by a final, non-appealable court order.
23. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the
Corporation terminates the Executive's employment on the grounds set forth in
Section 8(b)(iii), the Corporation and the Executive mutually consent to the
resolution by arbitration of any dispute between the Corporation and the
Executive as to whether Material Insubordination has occurred (a "Dispute").
Unless the Corporation and the Executive otherwise agree, no other disputes,
issues, claims or controversies arising out of the Executive's employment (or
its termination), or any other matter whatsoever, shall be submitted to or
resolved by arbitration.
(b) Arbitration Procedures. (i) The Corporation and the
Executive agree that, except as provided in this Agreement, any arbitration
shall be in accordance with the then current National Rules for the Resolution
of Employment Disputes Model Employment Arbitration Procedures of the American
Arbitration Association ("AAA") before an arbitrator who is licensed to practice
law in the state in which the arbitration is convened (the "Arbitrator"). The
arbitration shall take place in or near the city in the Executive is or was last
employed by the Corporation.
(ii) The Arbitrator shall be selected as follows. The
AAA shall give each party a list of 11 arbitrators drawn from its panel of labor
and employment arbitrators.
Each side may strike all names on the list it deems
unacceptable. If only one common name remains on the lists of all parties said
individual shall be designated as the Arbitrator. If more than one common name
remains on the lists of all parties, the parties shall strike names
alternatively until only one remains. If no common name remains on the lists of
all parties, the AAA shall furnish an additional list and the parties shall
alternate striking names on such second list until an arbitrator is selected.
(iii) The Arbitrator shall apply the law of the state
of New York applicable to contracts made and to be performed wholly in that
state (without giving effect to the principles thereof relating to conflicts of
law). The Federal Rules of Evidence shall apply. The Arbitrator, and not any
federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the interpretation, applicability or formation
of the term "Material Insubordination". The Arbitrator shall render a decision
within thirty days of the date upon which the Arbitrator is selected pursuant to
-10-
<PAGE>
Section 23(b)(ii), which decision shall be final and binding upon the parties.
In the event that the Arbitrator decides that Material Insubordination has (x)
occurred, then the Executive's employment shall be deemed to have been
terminated for Cause pursuant to Section 8(a) or (y) not occurred, then the
Executive's employment shall be deemed to have been terminated without Cause
pursuant to Section 9(c).
(iv) The Arbitrator shall have jurisdiction to hear
and rule on pre-hearing disputes and is authorized to hold pre-hearing
conferences by telephone or in person as the Arbitrator deems necessary. The
Arbitrator shall have the authority to entertain a motion to dismiss and/or a
motion for summary judgment by any party and shall apply the standards governing
such notions under the Federal Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and
pay the costs of a court reporter to provide a stenographic report of
proceedings.
(vi) Either party, upon request at the close of
hearing, shall be given leave to file a post-hearing brief. The time for filing
such a brief shall be set by the Arbitrator.
(vii) Either party may bring an action in any court
of competent jurisdiction to compel arbitration under this Section 23. Except as
otherwise provided in this Section 23, both the Corporation and the Executive
agree that neither such party shall initiate or prosecute any lawsuit or
administrative action in any way related to any Dispute covered by this Section
23.
(viii) The arbitrator shall render an opinion in the
form typically rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the
Executive shall equally share the fees and costs of the Arbitrator. Each party
will deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, ten (10)
days before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any. However, if any party prevails on a statutory claim
that affords the prevailing party attorneys' fees, the Arbitrator may award
reasonable fees to the prevailing party.
(d) Opportunity to Review. The Executive acknowledge that he
has been given the opportunity to discuss this Agreement, including this Section
23, with his private legal counsel and has availed himself of that opportunity
to the extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration
provisions set forth in this Section 23 will be governed by the Federal
Arbitration Act, 9 U.S.C. 1-16, ("FAA"). The parties further agree that all
Disputes, whether arising under state or federal law, will be subject to the
FAA, notwithstanding any state or local laws to the contrary.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
SASSCO FASHIONS, LTD.
By:
---------------------------
Name:
Title
/s/ ARTHUR S. LEVINE
-------------------------------
ARTHUR S. LEVINE
-12-
SALE AGREEMENT
AGREEMENT dated June 4, 1997 among SASSCO FASHIONS, LTD. ("NEW
SASSCO"), a Delaware corporation, ASL/K LICENSING CORP., a Delaware corporation
("LICENSECO"), HERBERT KASPER and FORECAST DESIGNS, INC. ("FORECAST"), a New
York corporation.
RECITALS
I. Herbert Kasper owns 100% percent of Forecast.
II. Herbert Kasper and/or Forecast together own all of the
trademark rights relating to the use of the name "Kasper," including, without
limitation, the trademarks and trademark registrations listed on Exhibit B
hereto (the trademarks that are the subject of these registrations hereinafter
the "TRADEMARKS") for products and services relating to the sale, manufacture,
or distribution of apparel and apparel-related items, including, without
limitation (i) certain women's apparel items which are the subject of licenses
from Kasper and/or Forecast to the Sassco Division ("OLD SASSCO") of The Leslie
Fay Companies, Inc. ("LESLIE FAY") (the "LESLIE FAY LICENSES") and (ii) other
apparel and allied items which are the subject of licenses from Kasper and/or
Forecast to entities other than Leslie Fay (the RESERVED LICENSES"). (Exhibit
"All lists all Reserved Licenses).
III. (a) In a transaction to close June 4, 1997 in connection with
New Sassco's acquisition of Old Sassco's assets under the plan approved in the
Chapter 11 Bankruptcy of Leslie Fay (the "CLOSING"), New Sassco will purchase
from Forecast and Kasper, and Forecast and Kasper will assign, transfer and
convey to New Sassco, all of Forecast's and/or Kasper's trademark rights
<PAGE>
relating to the use of the name "Kasper" and the Trademarks and effective upon
such purchase New Sassco will own 100% of the rights theretofore held by
Forecast and Herbert Kasper to use the name "Kasper" and the Trademarks for use
with products and services relating to the sale, manufacture, or distribution of
apparel and apparel-related items, including, without limitation, all apparel
items, shoes, cosmetics, toiletries and fragrances and any other products
worldwide, male or female, adult and child (the "RIGHTS").
The parties hereby agree as follows, such agreement to become effective
at the Closing:
1. At the Closing,
(a) Forecast and Kasper will transfer the Rights and the
Trademarks to New Sassco by the execution and delivery of appropriate
instruments of transfer satisfactory to New Sassco (but providing for no other
warranties than are provided in this agreement).
(b) As the purchase price for the Rights,
(i) New Sassco will pay Forecast $6 million by wire
transfer or bank cashier's or certified check to the order of Forecast.
(ii) (A) As used in this Section (ii) the following
definitions shall apply:
"INCOME FROM LICENSES" - means (x) all income received by New Sassco,
LicenseCo or any of their affiliates, subsidiaries or related entities from
licenses of the Rights (INCLUDING any of the Reserved Licenses which may be
assigned to LicenseCo or licenses for products which were the subject of any
expired or terminated Reserved License, but EXCLUDING income from New Sassco
Reserved Rights) LESS (y) Promotional Costs.
2
<PAGE>
"NEW SASSCO RESERVED RIGHTS" - means (x) Rights with respect to the
license or manufacture of women's apparel, namely suits, dresses and sportswear
in all female sizes (other than for girls or children) but not jeans, coats,
activewear, underwear, rainwear, lingerie, robes, pajamas, scarves, gloves,
hats, bags, shoes, jewelry, and perfumes; and (y) rights to operate stores whose
name includes the name "Kasper" and which sells women's apparel an d other
products.
"PROMOTIONAL COSTS" - means LicenseCo's costs and expenses of
promoting, registering, executing and implementing LicenseCo's licenses of the
Rights, or defending and enforcing the Rights with respect to such licenses,
INCLUDING, without limitation, related accounting and attorney's fees and
marketing consultant fees as provided in paragraph 2 below. Promotional Costs
shall NOT INCLUDE costs or expenses applicable to any of the New Sassco Reserved
Rights or amounts payable to Herbert Kasper under the Employment, Consulting and
Non-Competition Agreement referred to in (e) below.
(B) New Sassco will pay Forecast 50-06 of
the Income from Licenses. If New Sassco elects to exercise any of the Rights
(other than New Sassco Reserved Rights) itself or to license a subsidiary,
affiliate or related entity rather than an unrelated third party to manufacture
a product available for licensing through New Sassco, there will be credited to
Income from Licenses a "Normal Royalty" based on sales of that product. The
amount or percentage of the "NORMAL ROYALTY" shall be determined in accordance
with prevailing standards in the market for licenses of such scope and licensor
responsibilities. If Forecast and New Sassco are unable to agree on the
appropriate royalty, they shall submit the matter to be resolved by an
arbitrator selected jointly by them or their representatives. Payment of amounts
due Forecast shall be-accounted for and remitted quarterly and subject to
adjustment at year-end
3
<PAGE>
based on audited figures. Forecast shall have reasonable rights of inquiry and
verification as to underlying data.
(c) New Sassco will grant a security interest to BankBoston,
N.A., as Facility Agent, in all Trademarks that are subject to this Agreement
which security agreement (or a separate related agreement) will provide
expressly that BankBoston will disturb neither (A) the Reserved Licenses nor (B)
the Reserved Licenses License Agreement from New Sassco to Forecast (in the form
previously initialled by the parties) (the "RESERVED LICENSES LICENSE
AGREEMENT"). New Sassco will deliver to Forecast a copy of the security
agreement (and any such related non-disturbance agreement) with BankBoston.
(d) upon acquiring the Rights, New Sassco will grant the
following licenses:
(i) the "Reserved Licenses License Agreement" to
Forecast.
(ii) A license to LicenseCo in the form previously
initialled by the parties under which LicenseCo may sublicense some or all of
the Rights other than New Sassco Reserved Rights to the extent not licensed
under the Reserved Licenses. Any such sublicense shall contain quality control
provisions designed to preserve the goodwill, reputation for high quality and
prestige associated with the Kasper name.
(e) Herbert Kasper and New Sassco shall enter into an
Employment, Consulting and Non-Competition Agreement in the form previously
initialled by the parties.
2. A trademark or marketing consultant, mutually satisfactory to
Herbert Kasper and New Sassco, will be retained by New Sassco for the purposes
of making recommendations and implementing a program for the mutually beneficial
exploitation of licensing
4
<PAGE>
opportunities for the Trademarks. The parties shall cooperate for their mutual
benefit in the development of a licensing program for the Trademarks.
3. Herbert Kasper and Forecast, jointly and severally, represent
and warrant to New Sassco that:
(i) To the best of their knowledge, Exhibit B
contains a complete and accurate listing of all marks, applications and
registrations owned by them relating to the use of the name "Kasper" in any
connection. Exhibit A contains a complete and accurate listing of all Reserved
Licenses insofar as the information is known to Herbert Kasper and Forecast.
(ii) Neither of them has sold, licensed or otherwise
disposed of any right held by them relating to the use of the name "Kasper" in
any connection, except for the Leslie Fay Licenses and Reserved Licenses.
(iii) Their rights in respect of the- name or
trademark "Kasper" granted in the Leslie Fay Licenses and Reserved Licenses were
(as of the effective dates thereof) sufficient to confer the right to use said
name or trademark as provided in said licenses and they do not know of any facts
or circumstances impairing the rights of Herbert Kasper and/or Forecast to grant
the rights, or a licensee to use such rights, for the uses provided in said
licenses or of any conflicting rights or claim to use the name "Kasper" for
apparel items, shoes, cosmetics, toiletries and fragrances worldwide, men and
women, adult and child in any geographical market. New Sassco acknowledges that
this representation is based on information which has heretofore been obtained
by Herbert Kasper and Forecast, as well as Herbert Kasper's and Forecast's
present knowledge, and that no new search has been made by them.
5
<PAGE>
4. (a) Kasper and Forecast will promptly execute and deliver
such-further instruments and documents, and take such further actions, as New
Sassco may reasonably request in order to effectuate, confirm and perfect the
transfer of the Trademarks and the Rights to New Sassco and its rights to own,
use and register the Trademarks and the Rights to the extent provided in this
Agreement.
(b) All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally, or when
sent by fax if during normal business hours and confirmed by mailing, or three
(3) business days after mailing by prepaid registered or certified mail, return
receipt requested, to the parties at the following addresses (or at such other
address as a party may specify by notice to the other):
(i) If to Kasper and/or Forecast TO:
c/o Camhy, Karlinsky & Stein LLP
1740 Broadway
16th floor
New York, NY 10019-4315
Att: Sheldon Camhy, Esq.
(ii) If to New Sassco to:
77 Metro Way
Secaucus, NJ 07094
Att: President
with a copy to:
(A) John A. Friedman, Esq.
430 Park Avenue
4th floor
New York, NY 10022
6
<PAGE>
(B) Roger E. Berg, Esq.
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, NY 10017-2590
(c) This Agreement shall benefit and bind the parties and
their respective successors, assigns, personal representatives and heirs,
contains a complete statement of all the arrangements among the parties with
respect to its subject matter, supersedes all existing agreements among them
concerning its subject matter (including but not limited to the Leslie Fay
Licenses), cannot be changed or terminated orally, and shall be governed by and
construed in accordance with the law of the State of New York applicable to
agreements made and to be performed in New York.
SASSCO FASHIONS, LTD.
By /S/ ARTHUR S. LEVINE
-------------------------
/S/ HERBERT KASPER
-------------------------
HERBERT KASPER
FORECAST DESIGNS, INC.
By /S/ HERBERT KASPER
-------------------------
ASL/K LICENSING CORP.
By /S/ ARTHUR S. LEVINE
-------------------------
<PAGE>
EXHIBIT "A"
LIST OF RESERVED LICENSES
1. Licensee: Peerless Clothing International, Inc.
Date: 06/30/92, amended 10/26/92
Licensed Goods: Men's suits, sportcoats, pants, bermuda shorts,
tuxedos
Territory: U.S., Canada (the mark in Canada is sublicensed to
Peerless Clothing, Inc.), Mexico; Licensee has a
Right of First Refusal in the rest of the world
Last Possible Expiration December 31, 2012
Date:
2. Licensee: Elite Formal Accessories, Inc.
Date: 01/01/94
Licensed Goods: Men's formal wear accessories; formal ties,
cummerbunds, vests, suspenders, pocket
handkerchiefs
Territory: U.S. and duty free shops
Last Possible Expiration June 30, 1997
Date:
3. Licensee: George Weintraub & Sons, Inc.
Date: 02/19/93
Licensed Goods: Men's overcoats (excl. raincoats)
Territory: U.S.
Last Possible Expiration December 31, 1999
Date:
<PAGE>
4. Licensee: Isaco International Corp.
Date: 02/01/93, additional License (re: men's socks)
granted September 1993
Licensed Goods: Men's ties, socks; Licensee has a Right of First
Refusal for men's loungewear
Territory: U.S. and duty free shops
Last Possible Expiration June 30, 2005
Date:
5. Licensee: John Forsyth Copr.
Date: 01/01/94
Licensed Goods: Men's dress shirts for business & informal wear
Territory: U.S., Canada and duty free shops
Last Possible Expiration December 31, 2002
Date:
6. Licensee: Kasper Footwear Corp.
Date: 12/01/94
Licensed Goods: Women's daytime & evening shoes
Territory: U.S.
Last Possible Expiration May 31, 2001
Date:
7. Licensee: MDP Designs Ltd.
Date: 02/01/95
Licensed Goods: Women's wool coats, short jacket coats
Territory: U.S. and duty free shops
Last Possible Expiration December 31, 1999
Date:
<PAGE>
8. Licensee: Swaxx Corp. (d/b/a Collezione)
Date: 10/01/94
Licensed Goods: Men's cloth & leather outerwear (excl. overcoats,
topcoats and raincoats)
Territory: U.S.
Last Possible Expiration December 31, 2000
Date:
9. Licensee: TR Clothing Enterprises Inc.
Date: 12/16/93
Licensed Goods: Women's wool coats
Territory: U.S. and duty free shops
Last Possible Expiration December 31, 2000
Date:
10.Licensee: Whaling Mfg. Co., Inc.
Date: 12/00/92
Licensed Goods: Men's raincoats (excl. overcoats)
Territory: U.S.
Last Possible Expiration December 31, 2004
Date:
11.Licensee: Whaling Mfg. Co., Inc.
Date: 09/01/94
Licensed Goods: Women's rainwear and poly-filled outerwear
Territory: U.S.
Last Possible Expiration December 31, 2000
Date:
<PAGE>
12.Licensee: Terry USA Alba Sales Associates
Date: 02/03/97
Licensed Goods: Women's dress line and women's designer separates
Territory: Worldwide
Last Possible Expiration December 31, 2009
Date:
13.Licensee: Wearwolf Group Ltd.
Date: May 1, 1996
Licensed Goods: Men's raincoats
Territory: U.S., duty free shops and Canada
Last Possible Expiration September 30, 2001
Date:
<PAGE>
EXHIBIT "B"
THE "KASPER" TRADEMARKS
COUNTRY MARK APP./REG. NO. DATE INT'L CLASS
USA KASPER 1,070,795 08/02/77 42
USA KASPER 1,162,830 07/28/81 25
Canada KASPER 715,144 10/20/92
UK KASPER FOR ASL 1,430,616 06/25/90 25
========= ================= =========== ============== ===========
In addition to the foregoing, the Trademarks include (a) any and all
other marks, registrations and applications consisting of or containing the term
KASPER which are owned by Herbert Kasper, Forecast Designs, Inc., The Leslie Fay
Companies, Inc., Leslie Fay Licensing Corp., or any of their respective
affiliates; and (b) all of the following marks, and the registrations and
applications thereof, which are owned by Herbert Kasper, Forecast Designs, Inc.,
The Leslie Fay Companies, Inc., or any of their respective affiliates:
1. Kasper for ASL
2. Kasper II
3. Kasper for ASL Petite
4. Kasper and Company
4a. Kasper and Company Petite
5. Kasper Dress
5a. Kasper Dress Petite
EMPLOYMENT, CONSULTING AND NON-COMPETITION AGREEMENT dated June 4, 1997
among Sassco Fashions, Ltd., a Delaware corporation ("Sassco"), ASL/K Licensing
Corp., a Delaware corporation ("License Co.") and together with Sassco, the
"Companies") and Herbert Kasper ("Kasper").
Kasper is a designer with a long-established and internationally
recognized reputation. Sassco is today acquiring the business of the Sassco
Fashions Division ("Old Sassco"), of The Leslie Fay Companies Inc. ("Leslie
Fay"), which, under the "Kasper for ASL" label, is the market leader in women's
suits, and whose sales of Kasper branded products represent a substantial
majority of the sales of all Kasper branded products. Sassco is today acquiring
the rights to the "Kasper" trademark and granting License Co. rights to license
it. The Companies desire to provide for the continuing affiliation of Kasper
with the Companies on a substantially exclusive basis.
1.(a) The Companies hereby retain Kasper and he accepts such retention
with the title of President of License Co., reporting to its Board of Directors
and to Arthur S. Levine, Chairman of the Companies (or his successor). Kasper
will devote his business time to the licensing activities of License Co. (And to
any such other activities as he and Mr. Levine (or his successor) shall agree
upon), except that he will be permitted substantial time to devote to promoting
the operations of sublicensees of Forecast Designs, Inc. under the license being
granted it by Sassco. It is expressly acknowledged that the Companies are
seeking the affiliation of Kasper and identification of his name as President in
connection with licensing the "Kasper" trademark but that Kasper will not be
required to perform any particular service hereunder and will not be liable for
failure to achieve any results or other activity.
(b) The term of Kasper's affiliation under paragraph (a) (the "Initial
Term") shall commence on the date hereof and shall terminate ten years
thereafter (or on such later date as Kasper and the Companies may hereafter
agree upon), subject to earlier termination only in the event of his death or
the commission by him of an act of gross dishonesty having a material adverse
impact on the Companies.
(c) Upon the termination of the Initial Term, Kasper shall be retained
by the Companies as a consultant, in which capacity he shall provide such
consulting services as he and Mr. Levine (or his successor) shall agree upon, it
being understood that Kasper will not be required to spend any specific amount
of time or to render services in any particular place except as he agrees. The
term of Kasper's retention as consultant (the "Consulting Period") shall
terminate only upon Kasper's death.
2. Kasper shall not, during either the Initial Term or the Consulting
Period:
(a) directly or indirectly, engaged or be interested in (as owner,
partner, shareholder, employee, director, officer, agent, consultant or
otherwise), with or without compensation, any business then being conducted by
either of the Companies, except that his interest or activities in
<PAGE>
connection with the license referred to at the end of paragraph 1(a) above shall
not be deemed in violation of this paragraph.
(b) disparage in any manner and in any respect the Companies, their
financial soundness and responsibility, their personnel, products or practices
or their soundness, integrity and quality.
(c) Kasper acknowledges that the provisions of this Section 2 are
reasonable and necessary for the protection of the Companies and that the
companies will be irrevocably damaged if such covenants are not specifically
enforced. Accordingly, he agrees that the Companies shall be entitled to seek
and obtain injunctive relief from a court of competent jurisdiction for the
purposes of restraining Kasper from any actual or threatened breach of such
covenants.
3. Kasper shall receive from the Companies:
(a) During the Initial Term:
(i) salary of $300,000 annually (in equal monthly
installments).
(ii) $7,500 for each 1% by which the gross profit from
Sassco's sales of Covered Products (as defined below) products in each of the
six years 1998-2003 exceeds the total gross profit derived by Old Sassco sales
of such products in the year 1995 (the term total gross profit means total net
sales of such products, less the cost of goods sold thereof determined in the
same manner as by Old Sassco). Amounts payable to Kasper under this subparagraph
for any single year shall not, however, exceed a maximum of $375,000 (i.e.,
$375,000 would be paid if a year's total gross profit is at least 50% higher
than that of Old Sassco for sales of such products in 1995, but not more than
$375,000 would be paid if the total gross profit is more than 50% higher). As
used herein, Covered Products means women's apparel, namely suits, dresses and
sportswear in all female sizes (other than for girls or children) but does not
include jeans, coats, activen wear, underwear, rainwear, lingerie, robes,
pajamas, scarves, gloves, hats, bags, shoes, jewelry or perfumes.
(iii) Kasper will always be entitled to participate at the
Companies' expense in all health, stock option, profit sharing, insurance or
other employee benefit plans as a senior executive of Sassco; provided that if
there is a primary public offering ("PPO") of Sassco's stock within three years,
(i.e., a public offering other than the issuance of shares to Leslie Fay or its
creditors or a secondary offering by then existing shareholders):
(A) if any employees are given the right to buy stock
in the PPO, Kasper will have that right; and
-2-
<PAGE>
(B) if in connection with or after the PPO a stock
option plan is adopted by Sassco, Kasper will participate on a basis appropriate
to his position (he will not be entitled to participate in any stock option plan
theretofore adopted by Sassco).
(iv) Notwithstanding paragraph 1(b) above, in the event of
Kasper's death during the Initial Term, monthly payments equal to those provided
for under paragraph 3(a)(i) shall be made to his legal representatives, heirs or
assigns until the date ten years from the date hereof as a death benefit.
(v) Kasper will also have an annual promotional expense
allowance of $25,000 to be used as he sees fit (including home entertainment but
expenditure must be documented or otherwise verified to be reimbursed.
(b) During the Consulting Period, he will receive an annual fee of
$200,000 (payable in equal monthly installments) and, to the extent the services
requested of and performed by him require the incurring of any expenses
(including travel related expenses as applicable), he will receive an advance to
cover such expenses.
4.(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed in that state.
(b) Any notice or other communication under this Agreement shall be
in writing and shall be considered given when delivered personally or by
telecopier or three business days after mailing by U.S. registered mail, return
receipt requested, to the parties at the following address or at such other
address as a party may specify by notice to the other.
If to Kasper:
Mr. Herbert Kasper
c/o Sheldon Camhy, Esq.
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, NY 10019
If to the Companies:
Mr. Lester Schreiber
Sassco Fashions Ltd.
52 Metro Way
Secaucus, NJ 07094
-3-
<PAGE>
with copies to:
Roger e. E. Berg, Esq.
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, NY 10017-2594
and
John A. Friedman, Esq.
540 Madison Avenue
New York, NY 10022
(c) This Agreement shall supercede any existing agreement between
Kasper and the Companies relating to the subject matter hereof. It may not be
amended except by a written agreement signed by all parties.
(d) The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver thereof or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(e) Subject to the limitations below, this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
representatives, successors and assigns. Except as otherwise provided herein,
this Agreement shall not be assignable by Kasper, and shall be assignable by
Companies only to a corporation resulting from the reorganization, merger or
consolidation of such Companies with any other corporation or any corporation to
which the Companies may sell all or substantially all of its assets, and it must
be so assigned by the Companies to, and accepted as binding upon it by such
other corporation, in connection with any such reorganization, merger,
consolidation or sale.
SASSCO FASHIONS, LTD.
By /S/ ARTHUR S. LEVINE
-----------------------
ASL/K LICENSING CORP.
By /S/ ARTHUR S. LEVINE
-----------------------
/S/ HERBERT KASPER
-----------------------
Herbert Kasper
-4-
KASPER A.S.L., LTD.
1997 MANAGEMENT STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive
advantage in attracting, retaining and motivating key employees (including
officers and directors who are employees) and consultants to provide the
Corporation and its Affiliates with a stock option plan providing incentives
more directly linked to the profitability of the Corporation's businesses and
increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
(a) "Affiliate " means a corporation or other entity controlled
by, or under common control with, the Corporation and designated by the
Committee from time to time as such.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Cause" shall have the meaning ascribed thereto in an
employment or consulting agreement, if any, between the optionee and the
Corporation or any of its Affiliates. In the absence of such an employment or
consulting agreement, "Cause" shall mean (unless otherwise defined in the Stock
Option Agreement) (i) conviction of an optionee for committing a felony under
federal law or the law of the state in which such action occurred, (ii)
perpetration by the optionee of an illegal act which causes significant economic
injury to the Corporation or any of its Affiliates or of a common law fraud
against the Corporation or any of its Affiliates, or (iii) failure on the part
of an optionee to perform his or her employment or consulting duties in a
materially satisfactory manner, which failure is not cured by the optionee
following written notice from the Company of such failure.
(d) "Code " means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(e) "Commission " means the Securities and Exchange Commission or
any successor agency.
(f) "Committee " means the Committee referred to in Section 2.
(g) "Common Stock" means the common stock, par value $. 01 per
share, of the Corporation.
(h) "Corporation " means Kasper A.S.L., Ltd., a Delaware
corporation.
<PAGE>
(i) "Disability" means permanent and total disability as
determined under procedures established by the Committee for purposes of the
Plan.
(j) "Early Retirement" means retirement from active employment
with the Corporation or any of its Affiliates pursuant to the early retirement
provisions of the applicable pension plan of such employer.
(k) "Effective Date" means December 2, 1997.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(m) "Fair Market Value" means, as of any given date, the mean
between the highest and lowest reported sale prices of a share of Common Stock
on the New York Stock Exchange, Inc. Composite Tape or, if not listed on such
exchange, on any other national securities exchange on which the Common Stock is
then listed or admitted to unlisted trading privileges or on NASDAQ. If there is
no regular public trading market for such Common Stock, the Fair Market Value of
the Common Stock shall be determined by the Committee in good faith.
(n) "Incentive Stock Option" means any Stock Option designated as,
and qualified as, an "incentive stock option" within the meaning of section 422
of the Code.
(o) "NASDAQ" means the National Association of Securities Dealers,
Inc. Automated Quotation System.
(p) "Non-Employee Director" means a member of the Board who
qualifies as a Non-Employee Director as defined in Rule 16b-3(b)(3), as
promulgated by the Commission under the Exchange Act, or any successor
definition adopted by the Commission.
(q) "Nonqualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(r) "Normal Retirement" means retirement from active employment
with the Corporation or any of its Affiliates at or after age 65.
(s) "Plan" means the Kasper A.S.L., Ltd. 1997 Management Stock
Option Plan, as set forth herein and as hereinafter amended from time to time.
(t) "Resignation" means any resignation from active employment
with the Corporation or any of its Affiliates other than a Resignation for Good
Reason.
(u) "Resignation for Good Reason" shall have the meaning ascribed
thereto in an
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employment, consulting or severance agreement, if any, between the optionee and
the Corporation or its Affiliates. In the absence of such an agreement,
"Resignation for Good Reason" shall mean (unless otherwise defined in the Stock
Option Agreement) (i) assignment to the optionee without his express written
consent of any duties, functions, authority or responsibilities that are
materially inconsistent with his executive position, (ii) failure by the
Corporation to pay to the optionee any material amount of salary, expense
reimbursement or benefits to which he or she is entitled, or (iii) the
occurrence of a "change of control", as such term is defined in the Indenture
dated as of June 4, 1997 between the Corporation and IBJ Schroder Bank & Trust
Company, as trustee (the "Indenture"), other than a change of control in
connection with, or resulting in whole or in part from, the acquisition by the
optionee or any affiliate (as such term is defined in the Indenture) of the
optionee of "beneficial ownership" (as such term is defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of shares of capital stock of the
Corporation.
(v) "Retirement" means Normal Retirement or Early Retirement.
(w) "Rule 16b-3" means Rule 16b-3, as promulgated by the
Commission under Section 16(b) of the Exchange Act, as amended from time to
time.
(x) "Stock Option" means an option granted under Section 5.
(y) "Stock Option Agreement" means the agreement with an optionee
pursuant to which a Stock Option is granted, as provided in Section 5.
(aa) "Termination of Employment" means the termination of the
optionee's employment or service with the Corporation and any of its Affiliates.
An optionee employed by an Affiliate shall also be deemed to incur a Termination
of Employment if the Affiliate ceases to be an Affiliate and the optionee does
not immediately thereafter become an employee or consultant of the Corporation
or another Affiliate. Temporary absences from employment or service because of
illness, vacation or leave of absence and transfers among the Corporation its
Affiliates shall not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee or such
other committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.
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The Committee shall have plenary authority to grant Stock Options
pursuant to the terms of the Plan to employees (including officers and directors
who are employees) and consultants to the Corporation and its Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan (including Schedule I thereto):
(a) To select the employees and consultants to whom Stock Options
may from time to time be granted;
(b) To determine whether and to what extent Incentive Stock
Options and Non Qualified Stock Options or any combination thereof are to be
granted hereunder;
(c) To determine the number of shares of Common Stock to be
covered by each Stock Option granted hereunder;
(d) To determine the terms and conditions of any Stock Option
granted hereunder (including, but not limited to, the exercise price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which may be
related to the performance of the optionee, the Corporation or any of its
Affiliates) and any vesting acceleration, forfeiture or waiver regarding any
Stock Option and the shares of Common Stock relating thereto, based on such
factors as the Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any
Stock Option, at any time or from time to time;
(f) To determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to a Stock Option shall be
deferred; and
(g) To determine under what circumstances a Stock Option may be
settled in cash or Common Stock under Section 5(j));
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Stock Option issued under the Plan (and any agreement relating
thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the Committee may (i) delegate to an officer of the Corporation such
of its powers and authority under the Plan as it deems appropriate (provided
that no such delegation may be made that would cause Stock Options or other
transactions under the Plan to fail to be exempt from Section 16(b) of the
Exchange Act) and (ii) authorize any one or more of the members of the Committee
or any officer of the Corporation to execute and deliver documents on behalf of
the Committee.
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Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Stock
Option shall be made in the sole discretion of the Committee or such delegate at
the time of the grant of the Stock Option or, unless in contravention of any
express term of the Plan or Stock Option Agreement, at any time thereafter. All
decisions made by the Committee or any appropriately delegated officer pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Corporation and optionees.
Notwithstanding any provision of the Plan to the contrary, the mere
fact that a Committee member shall fail to qualify as a "Non-Employee Director"
or "outside director" within the meaning of Rule 16b-3 and section 162(m) of the
Code, respectively, shall not invalidate any Stock Option granted by the
Committee, which Stock Option is otherwise validly granted under the Plan.
No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Option
granted hereunder.
Any authority granted to the Committee may also be exercised by the
full Board, except to the extent that the grant or exercise of such authority
would cause any Stock Option or transaction to become subject to (or lose an
exemption under) the short-swing profit recovery provisions of Section 16 of the
Exchange Act. To the extent that any permitted action taken by the Board
conflicts with action taken by the Committee, the Board action shall control.
Notwithstanding the foregoing or any other provision of this Plan,
there is hereby approved and authorized, and the Committee shall grant, Stock
Options to purchase up to 1,753,459 shares of Common Stock (the "Emergence
Grants") to the persons and on the terms and conditions set forth in Schedule I
and the form of Stock Option Agreement appended thereto, which terms the
Committee shall not have the discretion to modify without the consent of the
optionee affected thereby. In the event of any inconsistency between the terms
of this Plan and Schedule I (including the appended form of Stock Option
Agreement), the terms of Schedule I shall prevail.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 2,500,000. No participant may be granted Stock
Options covering in excess of 1,500,000 shares of Common Stock over the life of
the Plan. Unless otherwise determined by the Committee, Stock Options will be
granted in accordance with the grant schedule set forth in Schedule I attached
hereto. Shares subject to a Stock Option under the Plan may be authorized and
unissued shares or may be treasury shares.
If any Stock Option terminates or is canceled without being exercised,
shares subject to such Stock Option shall again be available for distribution in
connection with Stock Options granted under the Plan.
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SECTION 4. ELIGIBILITY
Employees of and consultants to the Corporation and any of its
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Corporation and its Affiliates are eligible
to be granted Stock Options under the Plan. No grant shall be made under this
Plan to a director who is not an employee of the Corporation or any of its
Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be of two types: Incentive Stock Options and
Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve. Notwithstanding the
foregoing, no Stock Option granted may constitute an Incentive Stock Option
unless stockholder approval is obtained in a manner necessary to satisfy section
422(c) of the Code, and if such approval is not obtained, all provisions
pertaining to Incentive Stock Options shall have no force or effect; PROVIDED,
HOWEVER, that no stockholder approval shall be required in connection with the
granting of Nonqualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options;
provided, however, that grants hereunder are subject to the aggregate limit on
grants to individual optionees set forth in Section 3 and the grant schedule set
forth in Schedule I attached hereto. Incentive Stock Options may be granted only
to employees of the Corporation and its subsidiaries (within the meaning of
section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Nonqualified Stock
Option.
Stock Options shall be evidenced by Stock Option Agreements, the terms
and provisions of which may differ. A Stock Option agreement shall indicate on
its face whether it is intended to be an agreement for an Incentive Stock Option
or a Nonqualified Stock Option. The grant of a Stock Option shall occur on the
date the Committee by resolution selects an individual to be a participant in
any grant of a Stock Option, determines the number of shares of Common Stock to
be subject to such Stock Option to be granted to such individual and specifies
the terms and provisions of the Stock Option. The Corporation shall notify a
participant of any grant of a Stock Option, and a written option agreement or
agreements shall be duly executed and delivered by the Corporation to the
participant.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under section 422 of the Code or, without
the consent of the optionee affected, to disqualify any Incentive Stock Option
under such section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions
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and shall contain such additional terms and conditions as the Committee shall
deem desirable, except as otherwise specified on Schedule I and the form of
Option Agreement attached thereto:
(a) Exercise Price. With respect to the Emergence Grants, the
exercise price per share of Common Stock purchasable under a Stock Option shall
be $14.00. The exercise price per share of Common Stock purchasable under a
Stock Option shall be determined by the Committee, but in the case of an
Incentive Stock Option, shall not be less than the Fair Market Value of the
Common Stock subject to the Incentive Stock Option on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more than
eight years after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock
Options shall be exercisable when vested. If the Committee provides that any
Stock Option is exercisable only in installments, the Committee may at any time
waive such installment exercise provisions, in whole or in part, based on such
factors as the Committee may determine. In addition, the Committee may at any
time accelerate the exercisability of any Stock Option. Any Stock Option that is
not exercised within its applicable exercise period shall expire automatically.
(d) Method of Exercise. Subject to the provisions of this Section
5, Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Corporation specifying
the number of shares of Common Stock subject to the Stock Option to be
purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Corporation may
accept. If approved by the Committee, payment, in full or in part, may also be
made in the form of Common Stock already owned by the optionee of the same class
as the Common Stock subject to the Stock Option (based on the Fair Market Value
of the Common Stock on the date the Stock Option is exercised); provided,
however, that such shares of already owned Common Stock do not constitute
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act of 1933, as amended, and have been held by the optionee for such
period of time and in such manner as is required by Generally Accepted
Accounting Principles ("GAAP") to prevent the exercise of the Stock Option from
being deemed additional cash compensation to the optionee chargeable against the
earnings of the Corporation; and provided, further, that, in the case of an
Incentive Stock Option the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject to the
Stock Option must be authorized by the Committee at the time the Stock Option is
granted.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Corporation, together with a copy of irrevocable instructions to a broker
to deliver promptly to the Corporation the amount of sale or loan proceeds
necessary to pay the purchase price, and, if requested, the amount of any
federal, state,
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local or foreign withholding taxes. To facilitate the foregoing, the Corporation
may enter into agreements for coordinated procedures with one or more brokerage
firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value equal to the
aggregate exercise price of such Stock Option (a so-called "cashless exercise").
It is understood the application of this provision will result in "variable"
accounting treatment under GAAP.
No shares of Common Stock shall be issued until full payment therefor
has been made. Except as otherwise provided in Section 5(k) below, an optionee
shall have all of the rights of a stockholder of the Corporation holding the
class or series of Common Stock that is subject to such Stock Option (including,
if applicable, the right to vote the shares and the right to receive dividends),
when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in Section
9(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution; (ii) in the case of a Nonqualified Stock Option, pursuant to
(A) a qualified domestic relations order (as defined in the Code or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder) or (B) a gift to such optionee's children, whether directly or
indirectly or by means of a trust or partnership or otherwise; or (iii) if
expressly permitted under the applicable Stock Option Agreement, pursuant to the
terms set forth therein. All Stock Options shall be exercisable, subject to the
terms of this Plan, during the optionee's lifetime, only by the optionee, the
guardian or legal representative of the optionee named in the Stock Option
Agreement, or any person to whom an option is transferred in accordance with the
preceding sentence.
(f) Termination by Reason of Death or Disability. Unless otherwise
determined by the Committee, or as otherwise provided on Schedule I or the form
of Option Agreement attached thereto, if an optionee's employment terminates by
reason of death or Disability, any Stock Option held by such optionee shall
automatically become fully vested and may thereafter be exercised by the
optionee, or his or her executor or administrator, in the case of death, until
the earlier of (i) the end of the second calendar year after the date of such
death or Disability and (ii) the end of the sixth calendar month following the
sixth anniversary of the Effective Date. Any Stock Option not exercised by such
date shall expire automatically. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of section 422 of the
Code, such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(g) Termination by Reason of Retirement or Resignation or
Termination for Cause. Unless otherwise determined by the Committee, or as
otherwise provided on Schedule I or the form of Option Agreement attached
thereto, if an optionee's employment terminates by reason of Retirement,
Resignation or termination for Cause (but only for the event specified in
Section 1(c)(iii)), any Stock Option held by such optionee may
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thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, until the ninetieth day following the date of such Retirement,
Resignation or termination for Cause. If the Optionee's employment terminates
for Cause by reason of the events specified in Section 1(c)(i) or (ii), any
Stock Option held by the optionee shall terminate and expire immediately. In the
event of termination of employment by reason of Retirement, Resignation or
termination for Cause, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of section 422 of the
Code, such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(h) Termination without Cause or by Reason of Resignation for Good
Reason. Unless otherwise determined by the Committee, or as otherwise provided
on Schedule I or the form of Option Agreement attached thereto, if an optionee's
employment terminates without Cause or by reason of Resignation for Good Reason,
any Stock Option held by such optionee shall automatically become fully vested
and may thereafter be exercised by such optionee until the later of (i) the end
of the sixth calendar month following the sixth anniversary of the Effective
Date, and (ii) eighteen months following the date of termination of employment,
if such optionee remains employed by the Corporation or an Affiliate through, or
is terminated without Cause or by reason of Resignation for Good Reason prior
to, the fifth anniversary of the Effective Date. Any such Stock Option not
exercised by the end the applicable period under clause (i) or (ii), as the case
may be, shall expire automatically. In the event of termination of employment
without Cause or by reason of Resignation for Good Reason, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply for
purposes of section 422 of the Code, such Stock Option will thereafter be
treated as a Nonqualified Stock Option.
(i) Forfeiture; Other Termination. Unless otherwise determined by
the Committee, if an optionee incurs a Termination of Employment for Cause, by
reason of voluntary Retirement or by reason of Resignation, all non-vested Stock
Options held by such optionee shall automatically be forfeited to, and canceled
by, the Corporation. In the event of a Termination of Employment, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of section 422 of the Code, such Stock Option will
thereafter be treated as a Nonqualified Stock Option.
(j) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee with the consent of the optionee may elect to cash out
all or part of the portion of the shares of Common Stock for which a Stock
Option is being exercised by paying the optionee an amount, in cash or Common
Stock, equal to the excess of the Fair Market Value of the Common Stock over the
exercise price times the number of shares of Common Stock for which the Stock
Option is being exercised on the effective date of such cash-out. It is
understood that the application of this provision will result in "variable"
accounting treatment under GAAP.
(k) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of a Stock Option, receipt of all or a
portion of the shares of Common Stock subject to such Stock Option at such later
time or times in lieu of such deferred shares, all on such terms and conditions
as the Committee shall determine, which under this provision requires the
payment of the
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exercise price through the use of shares of Common Stock previously owned for at
least six months. If any such deferrals are permitted, then notwithstanding
Section 5(d) above, an optionee who elects such deferral shall not have any
rights as a stockholder with respect to such deferred shares unless and until
shares of Common Stock are actually delivered to the optionee with respect
thereto, except to the extent otherwise determined by the Committee.
SECTION 6. TERM, AMENDMENT AND TERMINATION
The Plan will terminate 10 years after the Effective Date. Under the
Plan, Stock Options outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option theretofore granted without the optionee's
consent. In addition, no such amendment shall be made without the approval of
the Corporation's stockholders to the extent such approval is required by law or
agreement.
The Committee may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without the holder's consent.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules
as well as other developments, and to grant Stock Options which qualify for
beneficial treatment under such rules without stockholder approval.
SECTION 7. UNFUNDED STATUS OF PLAN
It is currently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 8. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS, REORGANIZATIONS AND
RELATED TRANSACTIONS
(a) Recapitalizations and Related Transactions. If, through or as
a result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Corporation, or (ii) additional shares
or new or different shares or other non-cash assets are distributed with respect
to such shares of
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Common Stock or other securities, if the Board determines it appropriate, an
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or other
securities subject to any then outstanding options under the Plan, and (z) the
price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8 if such adjustment would cause an Incentive Stock Option to
cease to qualify as an incentive stock option or would cause the Plan to fail to
comply with section 422 of the Code.
(b) Reorganization, Merger and Related Transactions If the
Corporation shall be the surviving corporation in any reorganization, merger or
consolidation of the Corporation with one or more other corporations, any then
outstanding option granted pursuant to the Plan shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock subject
to such options would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the purchase price as to which such options may be exercised so
that the aggregate purchase price as to which such options may be exercised
shall be the same as the aggregate purchase price as to which such options may
be exercised for the shares remaining subject to the options immediately prior
to such reorganization, merger, or consolidation.
In the event of a consolidation or merger in which the Company
is not the surviving corporation, or sale of all or substantially all of the
assets of the Company in which outstanding shares of Common Stock are exchanged
for securities, cash or other property of any other corporation or business
entity or in the event of a liquidation of the Company (collectively, a
"Corporate Transaction"), the Board or the board of directors of any corporation
assuming the obligations of the Company shall in its discretion, take any one or
more of the following actions, as to outstanding options: (x) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof), PROVIDED that any
such options substituted for Incentive Stock Options shall meet the requirements
of section 424(a) of the Code, (y) in the event of a Corporate Transaction under
the terms of which holders of the Common Stock of the Company will receive upon
consummation thereof of a cash payment for each share surrendered in the
Corporate Transaction (the "Transaction Price"), make or provide for a cash
payment to the optionees equal to the difference between (A) the Transaction
Price times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the
Transaction Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options and (z) provide that all
or any outstanding options shall become exercisable in full immediately prior to
such event and expire, if not exercise on or prior to the date such transaction
is consummated.
The Company may grant options under the Plan in substitution
for options held by employees of another corporation who become employees of the
Corporation or any of its Affiliates as the result of a merger or consolidation
of the acquisition by the Corporation, or one of its Affiliates, of property or
stock of the employing Corporation. The Corporation may direct that
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substitute options be granted on such terms and conditions as the Board
considers appropriate in the circumstances.
(c) Board Authority to Make Adjustments. Any adjustments under this
Section 8 will be made by the Board, whose determination as to what adjustments,
if any, will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued under the Plan on account of any
such adjustments.
SECTION 9. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving
shares pursuant to a Stock Option to represent to and agree with the Corporation
in writing that such person is acquiring the shares without a view to the public
resale or distribution thereof in violation of applicable securities laws. The
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
(b) Nothing contained in the Plan shall prevent the Corporation or
any Affiliate from adopting other or additional compensation arrangements for
its employees.
(c) Adoption of the Plan shall not confer upon any employee or
consultant any right to continued employment or service, nor shall it interfere
in any way with the right of the Corporation or any Affiliate to terminate the
employment or service of any employee or consultant at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the optionee for federal income tax purposes
with respect to any Stock Option under the Plan, the optionee shall pay to the
Corporation, or make arrangements satisfactory to the Corporation regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Corporation, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Stock Option that gives rise to the
withholding requirement. The obligations of the Corporation under the Plan shall
be conditional on such payment or arrangements, and the Corporation and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the optionee. The Committee may
establish such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with Common Stock.
(e) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid or by whom any
rights of the participant, after the participant's death, may be exercised.
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(f) In the case of a grant of a Stock Option to any employee or
consultant of any Affiliate, the Corporation may, if the Committee so directs,
issue or transfer the shares of Common Stock, if any, covered by the Stock
Option to the Affiliate, for such lawful consideration as the Committee may
specify, upon the condition or understanding that the Affiliate thereafter will
transfer the shares of Common Stock to the employee or consultant in accordance
with the terms of the Stock Option specified by the Committee pursuant to the
provisions of the Plan.
(g) The Plan and all Stock Options granted and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Delaware, without reference to principles of conflict of laws.
(h) No participant or other person shall have any claim to be
granted any Stock Option, and there is no obligation for uniformity of treatment
of participants, or holders or beneficiaries of Stock Options. The terms and
conditions of Stock Options and the Committee's determinations and
interpretations with respect thereto need not be the same with respect to each
participant (whether or not such participants are similarly situated).
(i) Nothing contained in the Plan shall prevent the Corporation or
any Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of options (subject
to stockholder approval if such approval is required), and such arrangements may
be either generally applicable or applicable only in specific cases.
(j) If any provision of the Plan or any Stock Option Agreement is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any Stock Option under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Stock Option Agreement, such provision
shall be stricken and the remainder of the Plan and any such Stock Option
Agreement shall remain in full force and effect.
(k) No fractional share shall be issued or delivered pursuant to
the Plan or any Stock Option Agreement, and the Committee shall determine
whether cash, securities or other property shall be paid or transferred in lieu
of any fractional share or whether such fractional share or any rights thereto
shall be canceled, terminated or otherwise eliminated.
(l) Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(m) Any and all payments of shares of Common Stock or cash
hereunder shall be granted, transferred or paid in consideration of services
performed for the Corporation or for its Affiliates by the optionee. All such
grants, issuances and payments shall constitute a special incentive payment to
the optionee and shall not, unless otherwise determined by the Committee,
-13-
<PAGE>
be taken into account in computing the amount of salary or compensation of the
optionee for the purposes of determining any pension, retirement, death or other
benefits under (i) any pension, retirement, life insurance or other benefit plan
of the Corporation or any Affiliate or (ii) any agreement between the
Corporation or any Affiliate, on the one hand, and the optionee, on the other
hand.
-14-
<PAGE>
Schedule I
----------
A. GRANT SCHEDULE. On the Effective Date, Stock Options ("Emergence
Grants") will be granted for an aggregate of 1,753,459 shares of the
Common Stock.
B. VESTING OF EMERGENCE GRANTS. 25 % of the Emergence Grants will vest
immediately and 15 % of the Emergence Grants will vest on each of the
first five anniversaries of June 4, 1997 (the "Reference Date").
Notwithstanding the foregoing, vesting in full will occur automatically
upon the death, Disability, termination without Cause or Resignation
for Good Reason of the optionee.
C. TRANSFERABILITY OF SHARES ACQUIRED UPON EXERCISE OF EMERGENCE GRANTS.
Shares acquired upon the exercise of the Emergence Grants will become
transferable in accordance with the percentages of the Emergence Grants
set forth below:
ANNUAL AGGREGATE
YEAR PERCENTAGE PERCENTAGE
---- ---------- ----------
Prior to the first anniversary of the
Reference Date 0% 0%
On and after the first anniversary (but prior to the
second anniversary) of the Reference Date 10% 10%
On and after the second anniversary (but prior to
the third anniversary) of the Reference Date 10% 20%
On and after the third anniversary (but prior to
the fourth anniversary) of the Reference Date 10% 30%
On and after the fourth anniversary (but prior to
the fifth anniversary) of the Reference Date 25% 55%
On and after the fifth anniversary of the
Reference Date 45% 100%
Notwithstanding the above, Arthur S. Levine will have the right to sell
up to $1,500,000 per year (based upon actual gross sales price) on a
cumulative basis (i.e., up to $1,500,000 on and after the first
anniversary of the Reference Date, up to $3,000,000 (less prior sales)
on and after the second anniversary of the Reference Date, etc.) of his
stock acquired
<PAGE>
upon exercise of the Emergence Grants, subject to applicable law.
D. OPTIONEES.
Arthur S. Levine 14.5% 1,240,252 shares
Gregg I. Marks 2.0% 171,069 shares
Barbara Bennett 2.0% 171,069 shares
Lester E. Schreiber 1.0% 85,535 shares
Peter Huang 0.5% 42,767 shares
Peter Eng 0.5% 42,767 shares
---------
Total 1,753,459 shares
=========
KASPER A.S.L., LTD.
NONQUALIFIED STOCK OPTION CONTRACT
THIS NONQUALIFIED STOCK OPTION CONTRACT entered into as of
June 10, 1997 between KASPER A.S.L., LTD., a Delaware corporation (the
"Company"), and _________________ ("Optionee").
W I T N E S S E T H:
--------------------
1. The Company hereby grants to the Optionee an option to purchase an
aggregate of 20,000 shares of Common Stock (the "Option Shares") at an
exercise price of $14.00 per share, being not less than the fair market
value of such shares on the date hereof. This option is not intended to
constitute an incentive stock option within the meaning of section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. The term of this option shall be five years from the date hereof,
subject to earlier termination as provided hereafter. This option shall
vest and become exercisable (i) with respect to 6,666 of the Option
Shares on the first anniversary of the date of grant; (ii) with respect
to an additional 6,667 of the Option Shares on the second anniversary
of the date of grant; and (iii) with respect to an additional 6,667 of
the Option Shares on the third anniversary of the date of grant.
The right to purchase Option Shares under this option shall be
cumulative, so that if the full number of Option Shares
purchasable in a period shall not be purchased, the balance
may be purchased at any time or from time to time thereafter,
but not after the expiration of the option.
3. This option shall be exercised by giving five business days' written
notice to the Company at its then principal office stating that the
Optionee is exercising the option hereunder, specifying the number of
shares being purchased and accompanied by payment in full of the
aggregate purchase price therefor (a) in cash or by certified check,
(b) with previously acquired shares of Common Stock which have been
held by the Optionee for at least six months, or (c) a combination of
the foregoing. Notwithstanding the foregoing, the purchase price may be
paid by delivery by the Optionee of a properly executed notice,
together with a copy of his irrevocable instructions to a broker
acceptable to the Board of Directors of the Company (the "Board"), to
deliver promptly to the Company the amount of sale or loan proceeds
sufficient to pay such purchase price.
4. The Company may withhold cash or shares of Common Stock to be issued to
the Optionee in the amount that the Company determines is necessary to
satisfy its obligation to withhold taxes or other amounts incurred by
reason of the grant or exercise of this option or the disposition of
the underlying shares of Common Stock. Alternatively, the Company may
require the Optionee to pay the Company such amount in cash promptly
upon demand.
<PAGE>
5. If the Optionee ceases to be a director of the Company one year or more
after the Optionee's initial election or appointment to the Board, this
option, to the extent vested, shall continue to be exercisable for a
period of three years or the remainder of the option term, whichever is
shorter. If the Optionee ceases to be a director of the Company within
one year of the Optionee's initial election or appointment to the Board
for any reason other than death, this option shall terminate and be
canceled as of the date of such termination. If the Optionee dies
within one year of initial election or appointment to the Board, this
option shall be exercisable by will or in accordance with the laws of
descent and distribution for a period of three years following the date
of death.
6. Notwithstanding the foregoing, this option shall not be exercisable by
the Optionee unless (a) a Registration Statement under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the
Option Shares to be received upon the exercise of this option shall be
effective and current at the time of exercise or (b) there is an
exemption from registration under the Securities Act for the issuance
of the Option Shares upon such exercise. The Optionee hereby represents
and warrants to the Company that, unless such a Registration Statement
is effective and current at the time of exercise of this option, the
shares of Common Stock to be issued upon the exercise of this option
will be acquired by the Optionee for his own account, for investment
only and not with a view to the resale or distribution thereof.
7. Notwithstanding anything herein to the contrary, if at any time the
Board shall determine, in its discretion, that the listing or
qualification of the shares of Common Stock subject to this option on
any securities exchange or under any applicable law, or the consent or
approval of any governmental agency or regulatory body, is necessary or
desirable as a condition to, or in connection with, the granting of
this option or the issue of shares of Common Stock hereunder, this
option may not be exercised in whole or in part unless such listing,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board.
8. The Company may affix appropriate legends upon the certificates for
shares of Common Stock issued upon exercise of this option and may
issue such "stop transfer" instructions to its transfer agent in
respect of such shares as it determines, in its discretion, to be
necessary or appropriate to (a) prevent a violation of, or to perfect
an exemption from, the registration requirements of the Securities Act,
or (b) implement the provisions of this Contract or any other agreement
between the Company and the Optionee with respect to such shares of
Common Stock.
9. Nothing herein shall confer upon the Optionee any right to continue in
the service of the Company or any affiliate, or interfere in any way
with any right of the Company or any affiliate to terminate such
service at any time.
10. The Optionee (by his or her acceptance of this option) represents and
agrees that he will comply with all applicable laws relating to the
grant and exercise of this option and the disposition of the shares of
Common Stock acquired upon exercise of the option, including, without
limitation, federal and state securities and "blue sky" laws.
-2-
<PAGE>
11. This option is not transferable by the Optionee otherwise than by will
or the laws of descent and distribution and may be exercised, during
the lifetime of the Optionee, only by the Optionee or the Optionee's
legal representatives.
12. If, through or as a result of any recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar
transaction, (i) the outstanding shares of Common stock are increased,
decreased or exchanged for a different number or kind of shares or
other securities of the Company, or (ii) additional shares or new or
different shares or other non- cash assets are distributed with respect
to such shares of Common Stock or other securities, if the Board
determines it appropriate, an adjustment shall be made in (x) the
number and kind of shares subject to this option, and (y) the price for
each share subject to this option, without changing the aggregate
purchase price as to which this option remains exercisable.
If the Company shall be the surviving corporation in any
reorganization, merger or consolidation of the Company with
one or more other corporations, this option shall pertain to
and apply to the securities to which a holder of the number of
shares of Common Stock subject to this option would have been
entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment
of the purchase price as to which this option may be exercised
so that the aggregate purchase price as to which this option
may be exercised shall be the same as the aggregate purchase
price as to which this option may be exercised for the shares
remaining subject to this option immediately prior to such
reorganization, merger, or consolidation.
In the event of a consolidation or merger in which the Company
is not the surviving corporation, or sale of all or
substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the
Company (collectively, a "Corporate Transaction"), the Board
or the board of directors of any corporation assuming the
obligations of the Company shall in its discretion, take any
one or more of the following actions, as to this option: (x)
provide that this option shall be assumed, or an equivalent
option shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), (y) in the event of a
Corporate Transaction under the terms of which holders of the
Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the
Corporate Transaction (the "Transaction Price"), make or
provide for a cash payment to the optionee equal to the
difference between (A) the Transaction Price times the number
of shares of Common Stock then subject this option (to the
extent then exercisable) and (B) the aggregate exercise price
of this option in exchange for the termination of such option
and (z) provide that this option shall become exercisable in
full immediately prior to such event and expire, if not
exercised on or prior to the date such transaction is
consummated.
-3-
<PAGE>
Any adjustment under this paragraph 12 will be made by the
Board, whose determination as to what adjustment, if any, will
be made and the extent thereof will be final, binding and
conclusive. No fractional share may be issued on account of
any such adjustment.
13. This Contract shall be binding upon and inure to the benefit of any
successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled to the
Optionee's rights hereunder.
14. This Contract shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware, without regard to
the conflicts of law rules thereof.
15. The invalidity, illegality or unenforceability of any provision herein
shall not affect the validity, legality or enforceability of any other
provision.
IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.
KASPER A.S.L., LTD.
By:
------------------------------
Name:
Title:
------------------------------
[Optionee]
-4-
Exhibit 21.1
List of Subsidiaries
--------------------
Wholly Owned Subsidiary State of Incorporation
- ----------------------- ----------------------
Asia Expert Limited Hong Kong
Tomwell Limited Hong Kong
Viewmon Limited Hong Kong
ASL/K Licensing Corp. Delaware
ASL Retail Outlets, Inc. Delaware
Sassco Europe Ltd. Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(an all references to our firm) included in or made part of this registration
statement.
/s/ Arthur Andersen LLP
New York, New York
December 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001037067
<NAME> KASPER A.S.L., LTD.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> OCT-04-1997
<PERIOD-TYPE> 9-MOS
<CASH> 1,800
<SECURITIES> 0
<RECEIVABLES> 93,103
<ALLOWANCES> 17,933
<INVENTORY> 62,209
<CURRENT-ASSETS> 142,259
<PP&E> 16,473
<DEPRECIATION> 2,386
<TOTAL-ASSETS> 274,124
<CURRENT-LIABILITIES> 27,108
<BONDS> 110,000
<COMMON> 120,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 274,124
<SALES> 256,766
<TOTAL-REVENUES> 256,766
<CGS> 188,164
<TOTAL-COSTS> 233,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,129
<INCOME-PRETAX> 17,241
<INCOME-TAX> 7,289
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,952
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
