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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
COMMISSION FILE NO. 0-24179
KASPER A.S.L., LTD.
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DELAWARE 22-3497645
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 METRO WAY 07094
SECAUCUS, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 864-0328
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /
There were 6,800,000 shares of Common Stock outstanding at March 24, 2000.
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant at March 24, 2000 was approximately $7,370,000. Such aggregate market
value is computed by reference to the last sales price of the Common Stock on
such date.
DOCUMENTS INCORPORATED BY REFERENCE
None
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DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
The statements contained in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and section 21E of the Securities
Act of 1934, as amended. Those statements appear in a number of places in this
report, including in "Business", "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations," and
include all discussions of trends affecting the Company's financial condition
and results of operations and the Company's business and growth strategies as
well as statements that contain such forward-looking statements as "believes,"
"anticipates," "could," "estimates," "expects," "intends," "may," "plans,"
"predicts," "projects," "will," and similar terms and phrases, including the
negative thereof. In addition, from time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Furthermore, forward-looking statements may be included in our other
filings with the Securities and Exchange Commission as well as in press releases
or oral statements made by or with the approval of the Company's authorized
executive officers.
We caution you to bear in mind that forward-looking statements, by their
very nature, involve assumptions and expectations and are subject to risks and
uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained in this report are
reasonable, no assurance can be given that those assumptions or expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations include but are not limited
to, the following cautionary statements ("Cautionary Statements"):
- general economic conditions;
- the ability of the Company to adapt to changing consumer preferences and
tastes;
- the Company's limited operating history;
- potential fluctuations in the Company's operating costs and results;
- potential exchange rate fluctuations;
- the Company's concentration of revenues;
- the Company's dependence on a limited number of suppliers;
- the ability of the Company to successfully integrate the Trademark
Purchase, the FSA acquisition (both defined elsewhere herein) and any
future acquisitions into the Company's existing businesses.
All subsequent written or oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
PART I
ITEM 1. BUSINESS
GENERAL
Kasper A.S.L., Ltd., (the "Company" or "Kasper") is one of the leading
women's branded apparel companies in the United States. The Company designs,
markets, sources, manufactures and distributes women's career and special
occasion suits, sportswear and dresses. The Company's brands include such
well-recognized names as Kasper-Registered Trademark-, ANNE
KLEIN-Registered Trademark-, A LINE ANNE KLEIN-TM-, ANNE KLEIN2-TM-, Albert
Nipon-Registered Trademark- and Le Suit-Registered Trademark-. In addition, the
Company has granted licenses for the manufacture and distribution of certain
other products under the ANNE KLEIN-Registered Trademark-, ANNE KLEIN
II-Registered Trademark- and ANNE KLEIN2-TM- (both hereinafter referred to as
"ANNE KLEIN2"), A LINE ANNE KLEIN-TM-, Kasper-Registered Trademark-, and
Nipon-Registered Trademark- brand names, including women's watches, jewelry,
footwear, coats, eyewear and swimwear and men's apparel. The Company's
long-established position as a market leader in women's suits was complemented
in 1999
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with the purchase of trademarks owned by Anne Klein Company LLC. The Company's
strategy is to become a multi-brand company, catering to the women's career and
special occasion sportswear and suit business, along with brand strengthening
through licensing. The Company believes that the complementary
strengths--Kasper's expertise in merchandising and manufacturing and Anne
Klein's powerful brand name--will result in a stronger, balanced Company, with
significant growth potential in apparel and licensing.
Contributing to the Company's on-going diversification are the Company-owned
retail outlet stores, which provide an additional distribution channel for its
products. As of January 1, 2000, the Company operated 61 stores under the Kasper
A.S.L. name. In November 1999, the Company acquired 25 Anne Klein outlet stores,
which not only sell company produced apparel, but also showcase and sell
licensed products. In addition to generating sales and profitability, the
Company uses its network of retail stores to control, reinforce and capitalize
on the image of its brands. The retail stores enable the Company to more closely
track sales and other product data, which in turn is used to help the Company's
wholesale customers respond more quickly to consumer preferences.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Kasper's business consists of three integrated operations: wholesale, retail
and licensing. During fiscal 1999, approximately 96% of the Company's wholesale
net sales were derived from sales within the United States. Financial
information with regard to the Company's wholesale, retail and licensing
segments, including revenue, earnings before interest, taxes, depreciation and
amortization, and segment assets, appears in Note 11 to the Company's
consolidated/combined financial statements included elsewhere herein.
WHOLESALE
The Company's wholesale business designs, sources and distributes to the
Company's wholesale customers, women's apparel under various labels owned by the
Company. The Company's products are sold to approximately 1,400 retail accounts
having approximately 2,000 retail locations throughout the United States, Canada
and Europe.
The Company participates in three principal areas of the women's wholesale
apparel market: suits, sportswear and dresses.
SUITS
The women's suit market is generally defined as tailored jackets, skirts and
pants, sold as a set. The Company's brands encompass a number of segments within
the market from its "upper moderate" Kasper ASL brand and its "moderate" Le Suit
line, to the "bridge" and "better" categories with its Albert Nipon suit lines.
The Company believes it dominates the "moderate" to "upper moderate" suit market
for department stores with an estimated 60% share of the United States market.
For fiscal 2000, the Company plans to further penetrate the "bridge" category
with its introduction of ANNE KLEIN suits for the Fall 2000 season.
Kasper ASL is the leading brand name in "upper moderate" women's suits, with
approximately 70% of the "upper moderate" women's suit market in the United
States. Suits marketed under the Kasper ASL brand name represent the core of the
Company's business. The Kasper ASL suit brand business 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 Woman 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 ASL 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
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ASL, as a percentage of the Company's net domestic wholesale sales for the 1999,
1998 and 1997 fiscal years were approximately 47%, 48% and 41%, respectively.
The Le Suit line of suits was marketed to create a less expensive
alternative to Kasper ASL suits. The Le Suit business uses the best styles
designed for Kasper ASL suits from the preceding year, while maintaining the
same level of quality, fit and construction as Kasper ASL suits. In addition to
regular sizes, the Le Suit division also produces suits in petite and large
sizes. The Le Suit brand offers an alternative to retailers' private label
business. Sales of Le Suit, as a percentage of the Company's net domestic
wholesale sales, for the 1999, 1998 and 1997 fiscal years were approximately
19%, 21% and 17% respectively.
The Company also manufactures suits under the Albert Nipon, Albert Nipon
Evening, and b. bennett labels, and also designs and manufactures suits for sale
under private labels for various department stores. The Company coordinates with
buyers to design and manufacture private label products in specified colors,
fabrics and styles. All garments have the same level of quality and consistent
fit as the Company's other products.
SPORTSWEAR
Career sportswear includes groups of skirts, pants, jackets, blouses and
sweaters which, while sold as separates, are coordinated as to styles, color
palettes and fabrics and are designed to be worn together or as separates.
Products offered in this area of the market are suitable for both a working
environment and casual wear. The Company offers a collection of career
sportswear under the brand name Kasper and Company ASL Sportswear, which is
priced between the "moderate" and "better" markets. Beginning with the 1999
Resort season, the Company introduced its ANNE KLEIN and A LINE ANNE KLEIN
lines, marketed in the "bridge" category of the designer price point. The
Company plans to broaden it's presence in the women's sportswear market with the
introduction of its ANNE KLEIN2 sportswear line in Fall 2000, which will compete
in the growing "better" market and further capitalize on the synergies of Anne
Klein and Kasper.
ANNE KLEIN
Anne Klein introduced the world to the straightforward concept of
coordinating separates to create outfits for day and evening. The ANNE KLEIN
sportswear line is the traditional classic sportswear collection which includes
jackets, skirts, blouses, sweaters, dresses and knits, for the woman of
achievement who has a strong self-image. Successful, and self-assured, she wants
clothes and accessories that are modern, elegant and practical.
A LINE ANNE KLEIN
A LINE ANNE KLEIN is a sportswear line that is sportier than the ANNE KLEIN
line and includes everything from jackets and dresses to jeans and twill shirts.
The line offers basic, high quality, conservative options for weekend, "casual
Friday", or more casual attire.
KASPER AND COMPANY ASL SPORTSWEAR
The Kasper and Company ASL sportswear division designs and markets jackets,
pants, skirts, knit tops and blouses to be sold as separates. The Company's
focus for the line is a "suited separate" concept. The ability to mix sizes and
wear jackets with skirts or pants under this concept fulfills the consumers
desire to have both comfortable and versatile clothing. The Kasper and Company
ASL sportswear division uses fabrics of similar quality as those used for the
suits, maintaining the consistency of excellent fit and quality tailoring. Sales
of Kasper and Company ASL sportswear, as a percentage of the Company's net
domestic wholesale sales, for the 1999, 1998 and 1997 fiscal years were
approximately 9%, 8% and 12%, respectively.
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DRESSES
The Company produces collections of dresses under the Kasper ASL 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. The Company believes that the Kasper ASL
dress division is one of the largest "better" dress labels in the United States,
offering 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.
INTERNATIONAL OPERATIONS
The Company's wholesale business includes two wholly owned subsidiaries,
Kasper Holdings Inc. and Kasper A.S.L. Europe, Ltd., (collectively referred to
as "International"). Kasper Holdings Inc. owns 100% of Kasper Canada ULC, which
is a 70% owner of Kasper Partnership G.P., a Canadian Partnership through which
the Company conducts sales and distribution activity in Canada. Kasper A.S.L.
Europe, Ltd. operates a sales and distribution office in London, England, where
it sells the Company's products to retailers and distributors throughout the
European continent.
The Company's wholly-owned subsidiary, Asia Expert Limited, ("AEL"), a Hong
Kong corporation, is 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. operates the Company's China factory,
which began production in May 1998, and also provides beading services for Nipon
and Kasper garments. These subsidiaries receive arms-length fees for their
services.
RETAIL
The Company's retail outlet store program establishes another distribution
channel for its products and takes advantage of the current consumer trend
towards shopping at "company outlet" stores. At January 1, 2000, the Company
operated 61 Kasper ASL retail outlet stores and 25 Anne Klein retail outlet
stores, which in total represented approximately 17%, 15% and 12% of total net
sales for the 1999, 1998 and 1997 fiscal years, respectively. These stores,
which stock current line merchandise, including styles made exclusively for the
stores, are generally located in an outlet center mall where other women's
apparel companies have established retail outlet stores. The Anne Klein stores,
which were acquired on November 24, 1999, stock both Anne Klein apparel and
licensed products. The Company believes the retail outlet stores help develop
customer awareness of the Company's brand names while allowing management to
control the image and price range of its products. The Company currently has
retail locations throughout the United States.
LICENSING
Licensing activity has increased significantly within the fashion industry
over the last fifteen years. Companies within the industry began to utilize
licensing as a key growth strategy as various products were added to their
licensed product portfolio. Licensing provides an avenue for highly profitable
growth, as well as serving as a platform to develop a brand franchise or
capitalize on an existing brand franchise. Licensing has become a key marketing
strategy for companies to build strong brand names while controlling costs. The
Company currently licenses its products under its ANNE KLEIN, ANNE KLEIN2, A
LINE ANNE KLEIN, Kasper and Nipon trademarks. The Company is continually
identifying and exploring license categories that have significant growth
opportunities. The Company believes that successfully entering these categories
will continue to strengthen the Company's brands.
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Each of the licenses provide for the payment of a percentage of the
licensee's sales of the licensed products against a guaranteed minimum royalty,
which generally increases over the term of the agreement. Generally, the
licensees are required to contribute, on either a percentage of sales or fixed
minimum amount, to the ongoing marketing of the licensed brand.
ANNE KLEIN, ANNE KLEIN2 AND A LINE ANNE KLEIN
As of January 1, 2000, the Company had thirteen domestic and two
international licensing agreements under the Company's ANNE KLEIN, ANNE KLEIN II
and A LINE ANNE KLEIN trademarks and related logos, and including the new ANNE
KLEIN2 label which will be introduced at retail for Fall 2000. Each of the
existing licensees represents the pinnacle of its product area. The licenses
span a wide range of categories critical to the ongoing strategy of extending
product offerings to meet the needs of the customer, including watches, jewelry,
footwear, coats, eyewear, swimwear, scarves, sleepwear, socks and hosiery, small
leather goods, sewing patterns and umbrellas. The Company has an international
master license with a right to sublicense, which includes women's apparel and
accessory products in Japan and women's apparel in Korea. Sublicensees for
accessory products are granted the exclusive right to use the licensed trademark
in connection with the manufacture, promotion and sale of specified categories
of articles in Japan.
KASPER
As of January 1, 2000, the Company had five licensing arrangements pursuant
to which third party licensees produce merchandise under the Company's Kasper
trademark in accordance with designs furnished or approved by the Company.
Current licenses include women's coats and blouses; men's woven sport shirts,
sweaters and casual pants; and handbags, portfolios and wallets.
NIPON
As of January 1, 2000, the Company had five licensing arrangements under the
Company's Nipon trademark. Current licenses include men's tailored clothing,
neckwear, and small leather goods; ladies' and girls' coats and outerwear; and
eyewear.
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
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, the majority of 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 trends and innovations. In addition, the
Company monitors the sales of its products to determine 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,
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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
The Company primarily contracts for the cutting and sewing of its garments
with over 30 contractors located principally in Taiwan, the Philippines, Hong
Kong and China. Purchases of finished goods from the Company's four major
contractors accounted for 56% of the Company's total finished goods purchases in
1999. Apparel sold by the Company is manufactured in accordance with its design,
detailed specification and production schedules. In May 1998, the Company began
production in its own manufacturing facility in China. Finished goods produced
in the Company's China factory accounted for less than 4% of total finished
goods production during 1999. 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, Korea,
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 contractors' capabilities, the availability of
production capacity and quota, quality, pricing and flexibility in meeting
changing production requirements on relatively short notice. The Company seeks
to maintain low cost production through high unit volume and captive
manufacturing facilities by manufacturing products 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 consistent 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 seeks to
maintain its dominant position in the contractor's facility and allow for the
continuous flow of its product.
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
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 production and
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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 for
defective merchandise, incorrect shipments and/or late/early shipments only.
Average total returns of the Company's products for each of the 1999, 1998 and
1997 fiscal years were less than 2.0% of gross sales.
SUPPLIERS
Generally, the raw materials required for the manufacturing of the Company's
products are purchased from the Far East and Europe, 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 approximately 65% of the Company's
total purchases of raw materials for 1999. 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. Over the past year, the Far East has suffered extreme volatility in
its local financial markets and currency exchanges. As a result, no assurance
can be given that the Company will continue to have an uninterrupted source of
supply from the region. The inability of certain suppliers to provide needed
items on a timely basis could materially adversely affect the Company's
operations, business and financial condition. During 1999, the Company
experienced favorable pricing as a result of the Asian financial situation,
which may not be sustainable in the long term.
DISTRIBUTION
The Company operates a 400,000 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.
CUSTOMERS
The Company sells approximately 96% of its products within the United
States. The Company distributes its products through approximately 1,400
department stores and specialty retail accounts throughout the United States and
Canada representing approximately 2,000 locations. Department stores accounted
for approximately 73%, 74% and 75% of the Company's sales for the 1999, 1998 and
1997 fiscal years, respectively. In 1999, Federated Department Stores, May
Merchandising Co. and Dillard's Department Stores accounted for approximately
23%, 19% and 17% of total sales, respectively. Sales to any individual
divisional unit of either Federated Department Stores, May Merchandising Co. or
Dillard's Department Stores did not exceed 17% of 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 77% of the Company's total sales during 1999. A decision by one or
more of such substantial customers, whether motivated by fashion concerns,
financial issues or difficulties, or otherwise, to decrease the amount of
merchandise purchased from the Company or to cease carrying the Company's
products could materially adversely affect the financial condition and
operations of the Company.
SALES
The Company has a direct sales staff in the United States, which is
organized by product and brand. All sales personnel are salaried. With the
exception of the Kasper suit division and Anne Klein apparel division, each
brand and product segment has a separate division manager responsible for sales
and
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marketing. The President of the Company is the primary manager of the Kasper
suit product line, and the President of Anne Klein apparel is in charge of the
Anne Klein product lines. The divisional managers report primarily to the
President for all matters relating to sales and to the CEO for matters relating
to product line development. The Company also uses commissioned agents for
various special accounts and in certain territories. In addition, senior
management is actively involved in selling to major accounts. The management
team has long-standing relationships with the senior management of their retail
accounts. Products are marketed to department stores and specialty retailing
establishments 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 and Canada.
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 prominent in-store
placement. The Company's in-store Kasper ASL shops average 800 square feet and
present an in-depth Kasper suit line. The Company's ANNE KLEIN and A LINE ANNE
KLEIN concept shops average 800 square feet and reflect the merchandising
concept of the brand and carry a range of the brands' products. The Company
provides all of the necessary fixtures in return for store commitments regarding
location and average inventory levels. The Company plans to continue to expand
this program to stores that historically have had strong Kasper sales and are
willing to provide prominent floor placement and commit to minimum average
inventory levels. The Company intends to invigorate the ANNE KLEIN and A LINE
ANNE KLEIN concept shops at selected locations, which will enhance the overall
brand image and sales profitability. These concept shops are an integral part of
the new ANNE KLEIN2 product launch.
The Company maintains a staff of Regional Account Managers who service the
department stores carrying the Company's products and retail merchandise. The
Regional team acts as a liaison between the New York office and retail accounts
ensuring implementation of financial plans and pricing strategies, maximizing
sales through extensive analyses of sales and stock trends. In addition, the
Regional Managers continually visit each of their assigned stores throughout the
year to: provide assistance in negotiating prime real estate; manage and
motivate the selling specialists; conduct training seminars; provide
merchandising assistance; and interact with and assist the store's customers
both informally and at fashion shows organized by the Regional Managers. Through
monthly written analyses and standardized spreadsheets, the Regional Managers
document opportunities and challenges to optimize sales and margin.
Of the approximately 2,000 stores that carry the Company's products,
Regional Managers track approximately 560 of the largest locations which, in
fiscal 1999, aggregated approximately 70% of the Kasper suit sales. Selling
specialists, at the highest volume Kasper and Anne Klein 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 Company branded products as incentive bonuses for above average
performance and by providing feedback via monthly reports to the Company. The
Company expects to continue to increase the number of selling specialists as it
identifies motivated sales people who are willing to assume additional
responsibilities. The Company believes that this marketing support is
instrumental in maintaining its competitive position.
STRATEGY
The Company's strategy is to become a multi-brand company, catering to the
women's career and special occasion sportswear and suit business, along with
brand strengthening through licensing. The Company believes that by combining
Anne Klein's strong brand name and design capabilities with Kasper's high
quality, efficient production and extensive distribution capabilities, the
Company has the
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opportunity to broaden its reach into the larger "better" market ultimately
resulting in a stronger brand name and platform for growth.
The major elements of the Company's business strategy are as follows:
EXPAND PRODUCT LINE OFFERINGS
The Company believes the Anne Klein trademarks present an outstanding
opportunity for Kasper to grow its business in the "better" sportswear and suit
markets. In addition, the Company believes the broader penetration of the Anne
Klein label provides a valuable platform for growth and continued development of
the licensing business. The Company continues to explore new opportunities for
its existing brands as well as new brands, while seeking potential acquisitions
of complementary brands.
DEVELOP NEW LICENSING OPPORTUNITIES
Licensing activity has increased significantly within the fashion industry
over the last fifteen years. Companies within the industry began to utilize
licensing as a key growth strategy as various products were added to their
licensed product portfolio. The Company believes that licensing provides an
avenue for highly profitable growth, as well as serving as a platform to develop
a brand franchise or capitalize on an existing brand franchise. Licensing has
become a key marketing strategy for companies to build strong brand names while
controlling costs. The Company currently licenses its products under its various
trademarks and logos, including ANNE KLEIN, ANNE KLEIN2, A LINE ANNE KLEIN,
Kasper, and Nipon trademarks. The Company is continually identifying and
exploring license categories that have significant growth opportunities.
Successfully entering these categories will continue to strengthen the Company's
brands. The Company's licensing strategy focuses on providing: consistency with
the overall brand strategy; target market segments; target category
introductions; appropriate distribution and pricing points; and criteria for
selecting and evaluating licensees.
INCREASE PROFITABILITY AND PENETRATION OF EXISTING ACCOUNTS
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 sportswear and
dress labels. At the same time, the Company feels it can expand its penetration
of the Kasper suit label through increased use of in-store shops throughout the
department store channel. In order to build and enhance its brands, as well as
to maximize sales, the Company has and will continue to increase steadily the
number of such in-store shops. To continue to enhance profitability, the Company
is focusing attention on the most profitable locations in major department and
specialty stores.
CONTINUE RETAIL STORE EXPANSION
The Company plans to expand its retail outlet store business by adding
several new outlet stores per year over the next several years. As of January 1,
2000, the Company had 61 Kasper ASL retail outlet stores and 25 Anne Klein
retail outlet stores throughout the United States. These stores have provided
the Company with an additional distribution channel at favorable profit margins,
and take advantage of the consumer trend toward shopping in outlet stores.
OFFER QUALITY CAREER WEAR AT REASONABLE PRICE POINTS
The Company's products are well recognized for their consistently top
quality and fit at prices that offer value to the consumer, regardless of the
price points. 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. In addition, the
Company's operating strategy is to maintain low cost production
10
<PAGE>
through high unit volume and captive manufacturing facilities. By utilizing this
strategy, the Company believes that it can competitively price its products
while not compromising its quality or margins.
MARKETING EFFORTS
These strategies are supported by compelling and targeted advertising
initiatives designed to enhance and build on the Company's brand names. In 1998,
the Company initiated an institutional advertising program for Kasper that
included VOGUE, BRITISH VOGUE, GLAMOUR, IN STYLE, HARPER'S BAZAAR, MODE, MARIE
CLAIRE AND W. The ads also appear on phone kiosks, buses and selected billboards
in New York. This advertising program enhances the power of the Kasper brand,
which, in turn, can benefit both in-store sales and licensing efforts. The Anne
Klein brands have been supported in recent years by the very successful
"Significant Women" campaign. The campaign is based on "real clothes for real
women" and highlights self-confident, successful, highly regarded, recognizable
women wearing Anne Klein apparel and licensed goods. The Company intends to
continue to support the "Significant Women" campaign and complement it with
product driven advertising for both new and licensed products.
kasper.com
kasper.com was launched in August 1999 to showcase Kasper's collection and
provide wardrobe solutions for every day of the week and every occasion. As an
additional benefit, Kasper's Kareer Center provides a personalized resource for
today's busy professional, with daily planning and development tools plus
up-to-the-minute news and information. Kasper's online store opened in November
1999, offering select Kasper suits and sportswear. The site was redesigned in
March 2000 to showcase the Spring line and offer updated and expanded fashion
and online store selections.
The Company intends to develop a site to support the Anne Klein brands
within the next year.
TRADEMARKS
The Company owns and/or uses a variety of trademarks in connection with its
products and businesses, including, Kasper, Kasper ASL, Kasper Woman, Kasper ASL
Petite, Kasper and Company, Kasper and Company Petite, Kasper Dress, Kasper
Dress Petite, Albert Nipon, Nipon Boutique, Executive Dress by Albert Nipon,
Nipon Night, Albert Nipon Suits, Nipon Studio, ANNE KLEIN, the LION HEAD DESIGN,
ANNE KLEIN2 and ANNE KLEIN II, A LINE ANNE KLEIN and the A ANNE KLEIN Logo
(collectively, the "Marks"). 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 has registered or applied for registration for many of its
trademarks, including certain of those listed above, for use on apparel and
footwear and other products such as accessories, watches and jewelry in the
United States and in many foreign territories. 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
11
<PAGE>
textile agreements between the United States and a number of foreign countries,
including Taiwan, South Korea, and Hong Kong. These agreements impose quotas on
the amounts and types of merchandise that 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. Also of significance to the Company and other domestic textile and
apparel companies is the effect of the World Trade Organization ("WTO")
established under the Uruguay Round of negotiations to revise the General
Agreement on Tariffs and Trade with the responsibility for overseeing
international trade in a variety of areas, including manufacturing, intellectual
property and services. The WTO will lead to the phase-out of textile and apparel
quotas over a period of years. The Clinton Administration has reached an
agreement with China, subject to Congressional approval, which will facilitate
China's entry into the WTO and grant it so-called "Normal Trade Relations"
status thus assuring applicability of the more liberal treatment to imports from
China.
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 import
products at current or increased levels. The Company cannot predict the
likelihood or frequency of any such events occurring.
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.
Because the Company's foreign manufacturers are located at significant
distance from the Company, the Company is generally required to incur greater
lead time for orders manufactured overseas, 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 March 22, 2000, the Company had unfilled customer orders of
approximately $96.8 million, compared to approximately $74.0 million of such
orders at March 19, 1999. 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 as its ability to remain competitive in the areas of
design, quality and price.
12
<PAGE>
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 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 contract manufacturing
facilities, and long-standing relationships with retailers.
EMPLOYEES
At January 1, 2000, the Company had approximately 1,400 employees in the
United States including 1,000 full-time employees and 400 part-time employees.
Approximately 340 of the Company's employees are members of UNITE, the Union
representing the Needle Trades, Industrial and Textile Employees, which has a
three-year labor agreement with the Company expiring on May 31, 2000. The
Company considers its relations with its employees to be satisfactory. In
addition, the Company employs 5 full-time and 2 part-time employees in the
United Kingdom, as well as 700 employees in the Far East.
ITEM 2. PROPERTIES
The Company leases the following properties:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION USE
- -------- -------- ---------------- --------------------------------
<S> <C> <C> <C>
Secaucus, New Jersey............ 400,000 February 2007 Administrative offices,
warehouse and distribution
New York, New York.............. 41,000 August 2008 Kasper executive, sales,
production and design offices
and showroom
New York, New York.............. 80,000 June 2012 Anne Klein executive, sales,
production and design offices
and showroom
Kwai Chung, New Territories,
Hong Kong..................... 56,000 September 2002 AEL warehouse
Shenzhen, China................. 23,000 February 2005 China Garment Factory
New York, New York.............. 3,000 February 2002 Albert Nipon showroom
</TABLE>
In addition, as of January 1, 2000, the Company operated 61 Kasper ASL
retail outlet stores and 25 Anne Klein retail outlet stores throughout the
United States. The majority of all newly entered leases are for a period of five
years. The average store size is approximately 2,800 square feet, ranging from a
minimum of 1,500 square feet to a maximum of 4,700 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising in the ordinary
course of business. The Company does not expect any of the legal proceedings to
have a material adverse effect on its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999 (as hereinafter defined), no matter was
submitted to a vote of the Company's security holders by means of proxies or
otherwise.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock had been quoted in the over-the-counter market
under the symbol "SASX" from June 4, 1997, when the Company emerged from
bankruptcy as a separate stand-alone entity, until August 7, 1998, at which time
the Company's common stock commenced trading on The Nasdaq National Market under
the symbol "KASP". The high and low prices for the Company's common stock for
each quarter indicated are set forth below. The prices (i) from January 4, 1998
until August 7, 1998 reflect the high asked and low bid prices for the common
stock as provided by www.pcquote.com and reflect interdealer prices, without
retail mark-ups, mark-downs or commission and may not represent actual
transactions and (ii) after August 7, 1998, reflect the high and low sales price
for the common stock as reported by the Nasdaq Stock Market's National Market.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ -------- --------
<S> <C> <C> <C>
1998 First Quarter............................................... $13 1/2 $11 3/8
Second Quarter.............................................. 14 1/2 11
Third Quarter............................................... 14 7 1/2
Fourth Quarter.............................................. 8 4 1/2
1999 First Quarter............................................... $ 5 1/4 $ 3 5/8
Second Quarter.............................................. 6 1/8 3 7/8
Third Quarter............................................... 6 3 1/2
Fourth Quarter.............................................. 3 5/8 1 5/8
</TABLE>
As of March 24, 2000, there were 1,166 holders of record of the Company's
common stock. 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
debt instruments and agreements with lending institutions limit the Company's
ability to declare any dividends for the duration of such agreements.
ITEM 6. SELECTED FINANCIAL 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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations," contained elsewhere in this
report. On June 4, 1997, the Company was separated from The Leslie Fay
Companies, Inc. ("Leslie Fay"), in accordance with the Reorganization Plan
approved by the U.S. Bankruptcy Court. Prior to that date, the Company operated
as the Sassco Fashions Division of Leslie Fay. As a result, the consolidated
financial statements for the "Reorganized Company" (period starting June 4,
1997) are not comparable to the combined financial statements of the
"Predecessor Company" (period ending June 4, 1997).
The selected consolidated financial information for the seven months ended
January 3, 1998 and the fiscal years ended January 2, 1999 and January 1, 2000
is derived from the Company's audited Consolidated Financial Statements included
elsewhere herein. The selected combined financial information for each of the
two years in the period ended December 28, 1996 and for the five months ended
June 4, 1997 is derived from the Company's audited Divisional Combined Financial
Statements for the fiscal years ended December 30, 1995 and December 28, 1996
and for the five months ended June 4, 1997. Certain amounts in prior fiscal
years have been reclassified to conform to the presentation of similar items for
the fiscal year ended January 1, 2000.
14
<PAGE>
SELECTED CONSOLIDATED/COMBINED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
REORGANIZED COMPANY (3)
PREDECESSOR COMPANY ------------------------------
------------------------------
FIVE SEVEN
FISCAL YEAR ENDED MONTHS MONTHS FISCAL YEAR ENDED
(2) ENDED ENDED (2)
------------------- -------- -------- -------------------
DEC. 30, DEC. 28, JUNE 4, JAN. 3, JAN. 2, JAN. 1,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $279,974 $311,550 $136,107 $175,602 $312,089 $311,209
Royalty income......................... 835 799 286 609 852 7,033
Cost of sales.......................... 207,161 238,268 101,479 127,784 219,060 219,520
Gross profit........................... 73,648 74,081 34,914 48,427 93,881 98,722
Selling, general and administrative
expenses (1)......................... 50,439 51,062 23,660 32,411 62,836 76,152
Amortization of reorganization asset
(4).................................. -- -- -- 1,902 3,258 3,258
Depreciation and amortization (5)...... 2,033 2,238 1,191 2,365 4,537 6,018
Interest and financing costs........... 525 1,634 667 9,829 17,788 20,494
Income (loss) before taxes............. 20,651 19,147 9,396 1,920 5,462 (7,200)
Provision for income taxes (6)......... 8,260 7,659 3,758 948 2,292 (2,426)
-------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 12,391 $ 11,488 $ 5,638 $ 972 $ 3,170 $ (4,774)
======== ======== ======== ======== ======== ========
Net income (loss) per share (7)........ -- -- -- $ 0.14 $ 0.47 $ (0.70)
Weighted average number of shares
outstanding (7)...................... -- -- -- 6,800 6,800 6,800
- --------------------------------------------------------------------------------------------------------
Other Financial Data:
Income before interest, taxes,
depreciation and amortization........ $ 23,209 $ 23,019 $ 11,254 $ 16,016 $ 31,045 $ 22,570
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF:
---------------------------------------------------------------
DEC. 30, DEC. 28, JUNE 4, JAN. 3, JAN. 2, JAN. 1,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital........................ $109,671 $127,900 $101,264 $100,876 $116,011 $ 94,715
Reorganization value in excess of
identifiable assets.................. -- -- -- 63,279 60,021 56,763
Total Assets........................... 162,109 172,881 147,050 260,656 269,358 329,765
Long-term Debt (8)..................... -- -- -- 110,000 117,569 163,444
Shareholders' Equity (8)............... $135,601 $157,204 $132,363 $120,958 $124,050 $119,140
</TABLE>
- ------------------------
(1) The Selected Consolidated/Combined Financial Data presented above has been
prepared to show the Company as a freestanding entity apart from Leslie Fay.
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 years
ended December 30, 1995, December 28, 1996, January 3, 1998, January 2, 1999
and January 1, 2000 include the Company's results of operations for 52, 52,
53, 52 and 52 weeks, respectively.
15
<PAGE>
(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" (period starting June 4, 1997) are
not comparable to the combined financial statements of the "Predecessor
Company" (period ending June 4, 1997).
(4) 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.
(5) Included in Depreciation and Amortization for the seven month period ended
January 3, 1998 and the fiscal years ended January 2, 1999 and January 1,
2000 is the amortization of trademarks.
(6) 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 has recorded deferred taxes in
accordance with the provisions of Statement of Accounting Standards Number
109, Accounting for Income Taxes.
(7) 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.
(8) 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 Shareholders' Equity as
reported was the Company's divisional equity as of the respective date and
therefore is not comparable to the capital structure of the Reorganized
Company.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED/COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
HEREIN. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING
OF CERTAIN EVENTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN SUCH
FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH
UNDER "DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS."
OVERVIEW
The Company utilizes a 52-53 week fiscal year ending on the Saturday nearest
December 31. Accordingly, fiscal years 1997, 1998 and 1999 ended on January 3,
1998 ("fiscal 1997"), January 2, 1999 ("fiscal 1998") and January 1, 2000
("fiscal 1999"), respectively.
On June 4, 1997, the Company was separated from Leslie Fay, in accordance
with the Reorganization Plan. On that date, all assets and corresponding
liabilities associated with the operation of the Sassco Fashions Division of
Leslie Fay, including the Nipon trademarks, were sold to the Company. Prior to
that date, the Company operated as the Sassco Fashions Division of Leslie Fay,
from the time it was acquired by Leslie Fay in 1980. The Company received the
assets and liabilities of the former Sassco Fashions Division of Leslie Fay as
part of the Reorganization Plan. In the aggregate, $249.6 million of assets,
subject to $19.6 million of liabilities, were sold by Leslie Fay to the
creditors in satisfaction of creditor claims of like amount. The Company in turn
transferred to the creditors 6,800,000 shares of Common Stock with a market
value of $120 million and 12.75% Senior Notes (the "Senior Notes") with an
aggregate principal amount of $110 million in exchange for the net assets.
Accordingly, the Company's financial statements and capital structure of the
Reorganized Company are not comparable to those of the Predecessor Company. The
accompanying audited financial statements have been prepared to show the Company
as a freestanding entity apart from Leslie Fay.
On July 9, 1999, the Company completed the purchase of the Anne Klein
trademarks including ANNE KLEIN, ANNE KLEIN II, and A LINE ANNE KLEIN and the
LION HEAD DESIGN Logo (the "Trademark Purchase"). The aggregate purchase price
for these assets was $67,900,000. As a result of the Trademark Purchase, the
Company immediately began incurring selling, general and administrative expenses
for ANNE KLEIN and A LINE ANNE KLEIN Resort collections, which were introduced
to the retail market in July 1999. Deliveries of the Resort lines commenced in
the fourth quarter of fiscal 1999. Accordingly, the results of operations for
fiscal 1999 reflect the product development costs related to the new Anne Klein
division for six months with the benefit of initial sales for only two months.
In addition, the Company has begun to incur product development costs relating
to the ANNE KLEIN suits and ANNE KLEIN2 sportswear lines, which are scheduled to
commence deliveries for the Fall 2000 season.
Concurrent with the Trademark Purchase, the Company entered into an Amended
and Restated Credit Facility led by The Chase Manhattan Bank ("Chase") in order
to fund the Company's working capital requirements and to finance the Trademark
Purchase (the "Chase Facility"). The Chase Facility provides the Company with a
revolving credit line of $160 million. The Company paid $2,364,000 in commitment
and related fees in connection with the Chase Facility in July 1999. These fees
will be amortized as interest and financing costs over the remaining life of the
financing agreement at the time of the amendment (four and one half years). In
addition, the Company wrote off approximately $750,000 in unamortized bank fees
remaining under the old facility with BankBoston, which is included in interest
and financing costs.
On June 16, 1999, the Company received consents from a majority of the
aggregate principal amount of its outstanding Senior Notes due 2004 as of May
21, 1999, to certain amendments to the Indenture, dated as of June 1, 1997 and
effective June 4, 1997 (as amended by the Supplemental Indenture, dated as of
June 30, 1997, the "Indenture"), between the Company and IBJ Whitehall Bank &
Trust Company
17
<PAGE>
(f/k/a IBJ Schroder Bank & Trust Company), as Trustee, governing the Senior
Notes, and had executed a Second Supplemental Indenture (the "Second
Supplemental Indenture") with respect thereto. The primary purpose of the
amendments was to enable the Company to consummate the Trademark Purchase. On
July 9, 1999, as a result of the closing of the Chase Facility, the Second
Supplemental Indenture, dated as of June 16, 1999, became effective. As a
result, the Company was required to pay to each registered holder of Senior
Notes as of May 21, 1999, $0.02 in cash for each $1.00 in principal amount of
Senior Notes held by such registered holder as of that date, totaling $2.2
million. In addition, the interest rate on the Senior Notes increased to 13.00%,
beginning January 1, 2000.
On November 24, 1999, the Company completed the purchase of substantially
all the assets and the assumption of certain liabilities of 25 Anne Klein retail
outlet stores from Fashions of Seventh Avenue, Inc. and Affiliates ("FSA"), (the
"FSA Acquisition"). The aggregate purchase price was $3,963,000, which included
a cash payment of $300,000 and assumed liabilities of $3,663,000. As a result of
the FSA Acquisition, the Company recognized approximately $1.0 million in
goodwill, which will be amortized over the average life of the leases acquired,
which is four years.
For purpose of comparison, Management's Discussion and Analysis of Financial
Condition and Results of Operations for fiscal 1997 reflects the combined
results of the Predecessor Company for five months and the Reorganized Company
for seven months.
RESULTS OF OPERATIONS
TOTAL REVENUE BY SEGMENT
(000'S EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
% % %
FISCAL OF FISCAL OF FISCAL OF
1999 TOTAL 1998 TOTAL 1997 TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Wholesale........................... $258,836 81.3% $265,986 85.0% $273,096 87.4%
Retail.............................. 52,373 16.5% 46,103 14.7% 38,613 12.3%
-------- ------ -------- ------ -------- ------
Net Sales........................... 311,209 97.8% 312,089 99.7% 311,709 99.7%
Licensing........................... 7,033 2.2% 852 0.3% 895 0.3%
-------- ------ -------- ------ -------- ------
Total revenue....................... $318,242 100.0% $312,941 100.0% $312,604 100.0%
======== ======== ========
</TABLE>
EBITDA BY SEGMENT
(000'S EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
% % %
FISCAL OF FISCAL OF FISCAL OF
1999 TOTAL 1998 TOTAL 1997 TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Wholesale........................... $ 11,276 50.0% $ 24,896 80.2% $ 22,132 81.1%
Retail.............................. 5,744 25.4% 5,297 17.1% 4,243 15.6%
Licensing........................... 5,550 24.6% 852 2.7% 895 3.3%
-------- ------ -------- ------ -------- ------
Total............................... $ 22,570 100.0% $ 31,045 100.0% $ 27,270 100.0%
======== ======== ========
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
TOTAL REVENUES
Net sales in fiscal 1999 were $311.2 million as compared to $312.1 for
fiscal 1998. Wholesale sales decreased to $258.8 million in fiscal 1999 from
$266.0 million in fiscal 1998, a drop of 2.7%. The discontinuance of the Nina
Charles label at wholesale for the Fall 1998 season accounted for $2.5 million
18
<PAGE>
of the $7.2 million decline. Sales of the Company's suit and dress lines were
impacted by higher markdowns in order to move seasonal merchandise and the
highly promotional retail environment during the last six months of 1999. Sales
of the Company's sportswear increased during the Fall season after a planned
reduction in the first six months of the year. Deliveries of the ANNE KLEIN and
A LINE ANNE KLEIN Resort lines commenced in the fourth quarter of fiscal 1999
and contributed sales of $6.6 million and $2.1 million, respectively.
Sales at the Company's retail outlet stores ("Retail") increased to $52.4
million in fiscal 1999 from $46.1 million in fiscal 1998, an increase of $6.3
million or 13.7% due to the net addition of 3 Kasper retail stores in fiscal
1999, along with sales of approximately $1.7 million as a result of the purchase
of the Anne Klein retail outlet stores on November 24, 1999. Comparable store
sales for fiscal 1999 were $39.8 million as compared to $39.7 million for fiscal
1998.
Royalty income increased to $7.0 million in fiscal 1999 from $850,000 in
fiscal 1998 primarily as a result of the Trademark Purchase completed on July 9,
1999.
GROSS PROFIT
Gross Profit as a percentage of total revenues increased to 31.0% for fiscal
1999, compared to 30.0% for fiscal 1998 primarily as a result of the increase in
licensing revenue as a result of the Trademark Purchase. Wholesale gross profit
decreased in fiscal 1999 as a result of the initial investment in product
development costs relating to the ANNE KLEIN and ANNE KLEIN2 product lines prior
to their shipment for Resort and Fall 2000, along with increased markdowns, as a
result of the highly promotional retail environment during 1999. These decreases
were partially offset by improved margins in the Company's sportswear line.
Retail gross profit as a percentage of sales increased to 41.6% in fiscal 1999
from 41.4% in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $76.2 million in
fiscal 1999 as compared to $62.8 million in fiscal 1998, an increase of $13.4
million. Approximately $10.0 million of this increase can be attributed to the
new Anne Klein wholesale operations, which began incurring expenses in July 1999
but realized sales only from Resort deliveries of the ANNE KLEIN line in
November 1999 and has yet to benefit from sales relating to the ANNE KLEIN2
sportswear line expected to roll out in Fall 2000. Kasper wholesale operations
were relatively flat versus the prior year. Increases relating to Year 2000
compliance and remediation expenses were offset by modest variances in other
areas resulting in a net decrease of approximately $400,000. Retail store
expansion, including the net addition of 3 Kasper retail outlet stores and the
25 Anne Klein retail outlet stores acquired from FSA, contributed approximately
$2.3 million in increased selling, administrative and occupancy costs. Licensing
division operations accounted for approximately $1.5 million in administrative
expenses during fiscal 1999 as result of the Trademark Purchase.
Selling, general and administrative expenses include the following: (i)
design expenses; (ii) production expenses, which includes purchasing of raw
materials, production planning and scheduling and product costing; (iii) selling
and marketing expenses, including showroom sales personnel and sales
representatives outside the showroom; (iv) administrative expenses, which
include all back office functions such as finance and accounting, human
resources, import management, accounts receivable and payable, etc.; (v)
advertising expenses; (vi) shipping expenses; and (vii) occupancy expenses,
which include costs related to all leased facilities, including rent, utilities,
etc.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before Interest, Taxes, Depreciation and Amortization, ("EBITDA")
were $22.6 million in fiscal 1999 versus $31.0 million in fiscal 1998, a
decrease of $8.4 million. Wholesale EBITDA decreased $13.6 million during the
period as a result of product development costs relating to the new Anne Klein
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<PAGE>
lines prior to the realization of sales, increased markdowns and allowances and
lower sales. Retail experienced a slight increase in EBITDA reflecting the
increased sales relating to store additions offset by associated selling,
general and administrative expenses. Licensing contributed an additional $4.7
million in EBITDA over fiscal 1998 as the result of the Trademark Purchase.
AMORTIZATION OF REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS
As a result of the Reorganization Plan, the portion of the Company's
reorganization value not attributable to specific identifiable assets has been
reported as "reorganization value in excess of identifiable assets". This asset
is being amortized over a 20-year period beginning June 4, 1997. Accordingly,
the Company incurred amortization charges in both fiscal 1999 and 1998 totaling
approximately $3.3 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $6.0 million in fiscal 1999, up from
$4.5 million in fiscal 1998 and consist of the amortization charges associated
with the trademarks as well as fixed asset depreciation. As a result of the
Trademark Purchase, the Company incurred an additional $900,000 in amortization
in fiscal 1999. The trademarks are being amortized over 35 years. The remaining
increase relates to depreciation and amortization associated with capital
expenditures in fiscal 1999, along with approximately $120,000 of depreciation
relating to fixed assets acquired from FSA and amortized under the half-year
convention.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to approximately $20.5 million in
fiscal 1999 from $17.8 million in fiscal 1998, an increase of $2.7 million.
Interest is attributable to the expense on the Senior Notes and the amortization
of the related bondholder consent fee paid on July 9, 1999, along with interest
on the financing agreement and the amortization of the associated bank fees. The
Senior Notes bore interest at 12.75% per annum in fiscal 1999 and mature on
March 31, 2004. Beginning January 1, 2000, the interest rate increased to 13.0%.
Interest is payable semi-annually on March 31 and September 30. Interest
relating to the Senior Notes totaled $14.0 million for both fiscal 1999 and
fiscal 1998. 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 will be required to be paid. Amortization of
the bondholder consent fee, which is being amortized over the remaining life of
the Senior Notes beginning July 9, 1999, totaled approximately $220,000 in
fiscal 1999.
Interest under the financing agreement totaled $3.8 million in fiscal 1999,
an increase of $1.8 million over the prior year due primarily to the increased
borrowings needed to finance the Trademark Purchase.
The associated bank fees are being amortized over the remaining life of the
financing agreement, four and one half years, beginning July 9, 1999 and
resulted in approximately $900,000 of amortization charges in fiscal 1999 and
$800,000 in fiscal 1998. In addition, during fiscal 1999, the Company wrote off
approximately $750,000 of unamortized bank fees relating to the Company's old
facility with BankBoston. The offsetting decrease relates to miscellaneous
interest and factoring fees.
INCOME TAXES
Income tax benefit was $(2.4) million in fiscal 1999, primarily related to
the carry back of current year losses. This amount differs from the amount
computed by applying the federal income tax statutory rate of 34% to income
before taxes because of state and foreign taxes.
20
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
TOTAL REVENUES
Net Sales in fiscal 1998 were $312.1 million as compared to $311.7 for
fiscal 1997. Wholesale sales decreased to $266.0 million in fiscal 1998 from
$273.1 million in fiscal 1997, a drop of $7.1 million or 2.6%. The extra week's
wholesale sales in fiscal 1997 were $5.2 million, resulting in an overall
decrease of $1.9 million or 0.7% on a comparable 52-week basis. The decision to
discontinue the Nina Charles label at wholesale in the United States for the
Fall 1998 season resulted in a reduction in sales of $14.1 million. Sales of
Sportswear and Private Label lines declined a combined $19.3 million as a result
of continuing competitive pressure in career sportswear and tighter credit
policies impacting the private label business. Counteracting these declines in
the Company's less formal lines were sharp increases in the more classic, less
casual suit lines, in particular Kasper ASL and Le Suit, as well as the
Company's dress line. Sales of Kasper ASL and Le Suit contributed an additional
$23.0 million over the prior year, boosted by sales under the Company's "quick
response" program totaling $11.6 million, which increased 82.0% over 1997. The
dress line added an additional $4.4 million in sales, while Nipon and b. bennett
sales remained relatively flat, with a combined increase of approximately
$300,000. International operations sales totaled $9.6 million, an increase of
$3.8 million over fiscal 1997.
Sales at the Company's retail outlet stores increased to $46.1 million in
fiscal 1998 from $38.6 million in fiscal 1997, an increase of $7.5 million or
19.4%. The extra week's retail sales in fiscal 1997 amounted to $0.8 million,
resulting in an overall increase of $8.3 million on a comparable 52-week basis,
due primarily to the net addition of 11 stores in fiscal 1998. Comparable store
sales for fiscal 1998 were $36.7 million as compared to $36.5 million for fiscal
1997, an increase of 0.5%, and reflects a general decline in consumer spending
experienced at outlet centers during the second-half of fiscal 1998.
GROSS PROFIT
Gross profit as a percentage of net sales increased to 30.0% for fiscal
1998, compared to 26.7% for fiscal 1997. Wholesale gross profit as a percentage
of sales, adjusted for the extra week's sales, increased to 27.8% in fiscal 1998
from 24.8% in fiscal 1997. The improvement over fiscal 1997 can be attributed to
lower supply and production costs in fiscal 1998 due to macroeconomic conditions
in the Far East and was offset partially by higher markdowns and allowances
which reflect the general slowdown in retail sales at the Company's customers'
stores.
Retail gross profit as a percentage of sales, adjusted for the extra week's
sales, increased to 41.4% in fiscal 1998 from 39.2% in fiscal 1997. The increase
is primarily due to a decrease in markdowns and lower supply and production
costs in fiscal 1998 due to macroeconomic conditions in the Far East.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $62.8 million in
fiscal 1998 as compared to $54.9 million in fiscal 1997, adjusted for the extra
week, an increase of $7.9 million or 14.4%. Approximately $3.0 million of this
increase can be attributed to increased selling, administrative and occupancy
costs related to the net addition of 11 retail outlet stores. The consolidation
of Kasper Holdings Inc. in 1998 contributed approximately $1.2 million in
additional selling, general and administrative expenses along with an increase
in other expenses of approximately $500,000 pertaining to the minority interest.
The remaining increase of $3.2 million can be attributed to domestic wholesale
operations. Advertising expense increased $1.8 million, primarily as a result of
the Company's new advertising campaign that was launched in 1998. Administrative
expenses increased by approximately $2.0 million over the prior year due to
increased professional and consulting fees relating to the development of a new
information system, Year 2000 consulting, and other expenses as a result of
becoming an independent, public company. These increases are compensated for in
part by decreases in selling expenses as a result of the Kasper trademark
acquisition in fiscal 1997 and the discontinuance of the Nina Charles line in
fiscal 1998. Wholesale
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<PAGE>
shipping, production, design and occupancy expenses, as well as International
expenses, aside from the consolidation of Kasper Holdings Inc., remained
relatively flat, with incremental increases relating to occupancy offsetting
decreases elsewhere.
Prior to the separation from Leslie Fay, Arthur S. Levine was a principal in
two companies, Kerrison Trading Co. and Alco Design Associates, Inc. that
provided consulting services with regard to design, manufacturing and
importation of apparel for the Sassco Fashions Division of Leslie Fay. Those
consulting arrangements ceased as of June 4, 1997. For the 1997 fiscal year, Mr.
Levine received $1,487,920 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. Such payments were included in selling,
general and administrative expenses.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA increased to $31.0 million in fiscal 1998 from $27.3 million in
fiscal 1997, an increase of $3.7 million or 13.6%. Wholesale EBITDA increased
$2.7 million during the period as a result of increased gross profits from the
cost benefits gained from Far East macroeconomic conditions, which were
partially offset by the increased selling, general and administrative expenses
discussed above. Retail, which also benefited from the lower supply and
production costs from the Far East, experienced an increase in EBITDA of $1.0
million reflecting the increased sales and associated selling, general and
administrative expenses relating to the additional 11 new stores during 1998, as
well as lower markdowns.
AMORTIZATION OF REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS
As a result of the Reorganization, the portion of the Company's
reorganization value not attributable to specific identifiable assets has been
reported as "reorganization value in excess of identifiable assets". This asset
is being amortized over a 20-year period beginning June 4, 1997. Accordingly,
the Company incurred amortization charges in fiscal 1998 totaling approximately
$3.3 million as opposed to approximately $1.9 million in fiscal 1997. The
increase is attributable to a full year of amortization charges in fiscal 1998
versus only seven months in fiscal 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to $4.5 million in fiscal 1998 from
$3.5 million in fiscal 1997 primarily as a result of the amortization charges
associated with the Company's trademarks. The trademarks are being amortized
over 35 years beginning June 4, 1997 and resulted in amortization charges for
fiscal 1998 of approximately $1.5 million compared with $850,000 in fiscal 1997.
The remaining increase relates to depreciation and amortization associated with
capital expenditures in fiscal 1998.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to approximately $17.8 million in
fiscal 1998 from $10.5 million in fiscal 1997, an increase of $7.3 million. The
increase is primarily attributable to the full year's interest expense in 1998
on the Senior Notes, which were issued on June 4, 1997 versus only seven months
in fiscal 1997. The Senior Notes bore interest at 12.75% per annum in fiscal
1998 and 1997, and mature on March 31, 2004. Interest is payable semi-annually
on March 31 and September 30. Interest relating to the Senior Notes totaled
$14.0 million for fiscal 1998 compared to approximately $8.2 million in fiscal
1997. 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 will be required to be paid.
The bank fees are being amortized over the life of the financing agreement,
which is three years, beginning June 4, 1997 and resulted in approximately
$800,000 of amortization charges for fiscal 1998 versus approximately $470,000
in fiscal 1997. These increases are primarily attributable to a full year of
bank fee and trademark amortization charges in fiscal 1998 versus only seven
months in fiscal 1997.
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<PAGE>
INCOME TAXES
Provision for income taxes was $2.3 million in fiscal 1998. This amount
differs from the amount computed by applying the federal income tax statutory
rate of 34% to income before taxes because of state and foreign taxes. Income
taxes for the periods ended June 4, 1997 and prior were computed using the
effective tax rate that would have been applicable, had the Company been an
independent entity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's main sources of liquidity historically have been cash flows
from operations, vendor credit terms and credit facilities. Prior to June 4,
1997, 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.
Net cash provided by operating activities was $31.8 million in fiscal 1999
as compared to cash used by operations of $16.0 million during fiscal 1998. The
increase was primarily the result of the continued focus on controlling
inventory levels along with an increase in accounts payables as a result of
improved trade terms and the addition of Anne Klein, which were partially offset
by the net loss for the year as well as fluctuations in various other accounts
as a result of the Trademark Purchase including deferred income relating to
licensing agreements. The decrease in cash flows from investing activities and
the increase in cash flows financing activities are both the direct result of
the Trademark Purchase and the FSA Acquisition.
Net cash used by operating activities was $16.0 million in fiscal 1998 as
compared to cash provided by operations of $49.0 million during fiscal 1997. The
decrease was primarily the result of the increase in inventory and the increase
in accounts receivable both of which had decreased in the prior year. The
increase in inventories is primarily due to higher levels of finished goods
necessary to stock the expanding Quick Response replenishment program and the
growing retail store operations, and due to the earlier receipt of inventory to
ensure timely shipments to customers. Inventory in the Company's retail outlet
stores increased by approximately $1.9 million as a result of the net addition
of 11 stores in 1998, as well as overall increases in average store inventory
levels. The swing in accounts receivable from a decrease in 1997 of $25.2
million to an increase in 1998 of $750 thousand is the result of higher sales in
the final months of 1998, reflecting the earlier receipt of goods and ultimately
earlier shipments to customers.
Effective June 4, 1997, the Company entered into a $100 million working
capital facility with BankBoston as the agent bank for a consortium of lending
institutions (the "Original Facility"). The Original Facility, as amended,
provided for a sub-limit for letters of credit of $50 million. The Original
Facility was secured by substantially all the assets of the Company. The
Original Facility was to expire in the fiscal year 2000 and provided for various
borrowing rate options, including rates based upon a fixed spread over LIBOR.
The Original Facility provided 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 Original Facility was limited
to a borrowing base calculated upon eligible accounts receivable, inventory and
letters of credit. The Original Facility had been amended to update certain
financial ratios, covenants and limits on capital expenditures.
On July 9, 1999, the Original Facility was amended by the Chase Facility in
order to fund Kasper's working capital requirements and to finance the Trademark
Purchase. The Chase Facility provides Kasper with a revolving credit line of
$160 million. The Chase Facility provides for the maintenance of certain
financial ratios and covenants, sets limits on capital expenditures, and expires
on December 31, 2003. The Company paid $2,364,000 in commitment and related fees
in connection with the Chase Facility in July 1999. These fees will be amortized
as interest and financing costs over the remaining life of the financing
agreement at the time of the amendment (four and one-half years). In addition,
the Company wrote off approximately $750,000 in unamortized bank fees remaining
under the Original Facility. The Chase Facility was amended on December 22, 1999
to modify certain financial ratios and covenants.
23
<PAGE>
Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior Notes. The Senior Notes initially bore interest at 12.75% per annum and
mature on March 31, 2004. Interest is payable semi-annually on March 31 and
September 30. Interest relating to the Senior Notes for fiscal 1999 totaled
$14.0 million. 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 will be required to be paid.
On June 16, 1999 the Company received consents from a majority of the
aggregate principal amount of its Senior Notes as of May 21, 1999, to certain
amendments to the Indenture and had executed the Second Supplemental Indenture.
The primary purpose of the amendments was to enable the Company to consummate
the Trademark Purchase. On July 9, 1999, as a result of the closing of the Chase
Facility, the Second Supplemental Indenture became effective. As a result, the
Company paid to each registered holder of Senior Notes as of May 21, 1999, $0.02
in cash for each $1.00 in principal amount of Senior Notes held by such
registered holder as of that date, totaling $2.2 million (the "Consent Fee").
The Consent Fee is being amortized over the remaining life of the Senior Notes
and is included in interest and financing costs In addition, the interest rate
on the Senior Notes increased to 13.00%, beginning January 1, 2000.
The Company had a factoring/financing agreement with Heller Financial, Inc.
("Heller"). It provided for Heller to act as the credit and collection arm of
the Company. The Company received funds from Heller as the receivables were
collected. Any amounts unpaid after 120 days were guaranteed and paid to the
Company by Heller. The agreement had a two-year term expiring in February 1998.
The cost was .4% for the first $240 million in sales and .35% for sales above
that amount. The agreement was amended in January 1998 to add an additional 18
months to the term of the arrangement and lower the rate to .35% for the first
$250 million in sales and .3% on the excess over that amount.
On October 4, 1999, the Company terminated the factoring agreement with
Heller and entered into a new agreement with The CIT Group/Commercial Services,
Inc. ("CIT"). Under the new agreement CIT purchases the receivables from the
Company and remits the funds to the Company when collected. Any amounts unpaid
after 120 days are guaranteed to be paid to the Company by CIT. The agreement
has no expiry date but may be terminated upon 60 days written notice by either
party. For its factoring services CIT charges the Company $75,000 per month. If
during a twelve-month period the number of invoices exceeds 425,000, CIT is
entitled to an additional fee of $1.75 per additional invoice.
Capital expenditures were $6.4 million, $5.7 million and $4.7 million for
fiscal 1999, fiscal 1998 and fiscal 1997, respectively. Capital expenditures for
1999 represent spending associated with warehouse expansion, improvements to the
Anne Klein office and showroom space, continued retail outlet store and overseas
facilities development and computer system improvements. Capital expenditures
for 1998 represent spending associated with the relocation to a new sales,
production and design office, retail outlet store development, overseas
facilities development and computer system improvements. Fiscal 1997 capital
expenditures represent funds spent for computer systems and hardware to enable
the Company to operate independently, retail outlet store development and the
customization of, and improvements to, the Company's new warehouse facility.
The Company's business strategy over the next two to three years will be to
capitalize on the consumer recognition of the Anne Klein brands through new
product introductions, extend the Kasper product and brand reach, license the
Company's various brands and product categories to support its trademarks and
selectively expand its retail and international operations.
The Company currently expects that it will be able to generate adequate cash
flow from operations and its vendor and credit facilities to pursue these
business strategies.
24
<PAGE>
YEAR 2000 COMPLIANCE
The Company believes it has resolved the potential impact of the Year 2000
on its processing of date sensitive information and network systems. As of the
date of this report, the Company has not incurred any significant negative
effects due to the Year 2000 problem, either internally or with its customers or
vendors. The Company's Year 2000 efforts encompassed testing, upgrading,
enhancing and remediating when necessary its computer systems, operations
systems, microprocessors and other significant computer-based devices and
applications. The Company also communicated with a significant portion of its
customers, suppliers and vendors to determine the extent to which the Company
may have been vulnerable to those third parties' failure to remediate their own
Year 2000 issues.
The total cost incurred relating to ensuring compliance and remediation of
the current systems was approximately $800,000, of which $700,000 was expensed
in fiscal 1999. Additional costs to be incurred in fiscal 2000 are expected to
be minimal.
The Company recognizes the importance of ensuring its operations will not be
adversely affected by Year 2000 issues and that issues related to Year 2000
remediation constitute an uncertainty. Its procedures are believed to have been
effective to identify and manage the risks associated with Year 2000 compliance,
and the probability of a serious Year 2000 issue arising at this time is low.
However, there can be no assurance that its remediation process has been fully
effective. The failure to identify and remediate the Company's systems or the
failure of key third parties who do business with the Company or governmental
agencies to fully remediate their systems that interface with the Company's
systems could result in system failures or errors or business interruptions,
which could have a material adverse effect on the Company's results of
operations and financial condition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In 1999, the FASB approved SFAS No. 137 "Accounting for
Derivative Instruments, and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133," which amends SFAS No. 133 to be effective for all
fiscal years beginning after June 15, 2000. The Company is currently analyzing
the impact, if any, this new pronouncement may have on its financial position
and result 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 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 identifiable assets" (a long-term
intangible asset similar to "goodwill").
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<PAGE>
IMPACT OF ASIAN FINANCIAL AND CURRENCY CRISIS
To date, the Company has not experienced any difficulty in obtaining needed
raw materials from its primary sources of supply in the Far East, which are
located in Japan, nor has it experienced any problems with its sewing
contractors in Taiwan, the Philippines, Hong Kong and China. Recently, the
region has suffered extreme volatility in its local financial markets and
currency exchanges. As a result, no assurance can be given that the Company will
continue to have an uninterrupted source of supply from the region. The
inability of certain suppliers to provide needed items on a timely basis could
materially adversely affect the Company's operations, business and financial
condition. During 1999, the Company experienced favorable pricing as a result of
the Asian financial situation, which may not be sustainable in the long term.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not invest in derivative financial instruments or other
market risk sensitive instruments, except for short-term government and
commercial securities. Accordingly, the Company does not believe that it is
exposed to any material market risk with regard to such instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated/Combined Financial Statements and Financial Statement
Schedule of the Company attached hereto and listed on the index to financial
statements set forth in Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company's directors, executive officers and key employees, as of March
24, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Arthur S. Levine..................... 59 Chairman of the Board and Chief Executive Officer (1)
H. Sean Mathis....................... 52 Director (3)
William J. Nightingale............... 70 Director (1)
Salvatore M. Salibello............... 54 Director (2)
Lester E. Schreiber.................. 51 Chief Operating Officer and Director (1)
Denis J. Taura....................... 60 Director (2)
Olivier Trouveroy.................... 44 Director (1)
Gregg I. Marks....................... 47 President
Mary Ann Domuracki................... 45 Executive Vice President--Finance and Administration
Gwen Gepfert......................... 42 Chief Financial Officer
Barbara Bennett...................... 47 Senior Vice President--Design
Beverly I. Katz...................... 57 Senior Vice President--General Counsel; Asst. Secretary
Peter Eng............................ 45 Senior Vice President--Piece Goods
Peter Lee............................ 52 Managing Director--Asia Expert, Ltd.
Wendy R. Chivian..................... 39 President--Anne Klein Apparel
Merle Sloss.......................... 52 President--Anne Klein Licensing
Isaac Franco......................... 35 Senior Vice President--Co-Creative Director--Anne Klein
Kenneth Kaufman...................... 36 Senior Vice President--Co-Creative Director--Anne Klein
</TABLE>
- ------------------------
(1) Directors of the Company who have served in such capacity since June 1997.
(2) Directors of the Company who have served in such capacity since July 1998.
(3) Director of the Company who has served in such capacity since March 2000.
DIRECTORS AND EXECUTIVE OFFICERS
The term of office of each director of the Company expires on the date of
the next Annual Meeting of Stockholders and until their respective successors
are elected and qualified. The Company's directors and executive officers are as
follows:
ARTHUR S. LEVINE has been the Chairman of the Board and Chief Executive
Officer of the Company since June 1997. He has been in the apparel business his
entire 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.
H. SEAN MATHIS has been a director of the Company since March 14, 2000. Mr.
Mathis is the President of Litchfield Asset Holdings, an investment advisory
company he founded in 1983. He served as Chairman of the Board of Allis
Chalmers, Inc., an industrial manufacturer, from 1996 to 1999, and as Chairman
of Universal Gym Equipment, Inc., a private exercise equipment manufacturer,
from 1996 to 1997. In 1997, Universal Gym Equipment, Inc. filed for protection
under the United States federal bankruptcy laws. Mr. Mathis served as a Director
of Allied Digital Technologies, Corp. from 1993 to 1998; as President of its
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<PAGE>
predecessor, RCL Acquisition Corp., from 1991 to 1993; and as President and as a
Director of RCL Capital Corp. from 1993 until it was merged into DISC Graphics,
Inc. in November 1995. He currently serves as a Director of Thousand Trails,
Inc., an operator of recreational parks, and ARCH Communications Group, Inc., a
communications company.
WILLIAM J. NIGHTINGALE has been a director of the Company since June 1997.
Mr. 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 Furr's/Bishops, Inc., and Rings End, Inc.,
and a trustee of the Churchill Tax Free Fund of Kentucky, Churchill Cash
Reserves Trust, and Narragansett Tax Free Bond Fund.
SALVATORE M. SALIBELLO has been a director of the Company since July 1998.
Mr. Salibello is a certified public accountant and founded Salibello & Broder,
an accounting/consulting firm in 1978 and currently serves as its managing
partner. Prior to founding Salibello & Broder, Mr. Salibello worked at Coopers &
Lybrand LLP and Ernst & Young LLP.
LESTER E. SCHREIBER has served as Chief Operating Officer since May 1996 and
has been a Director of the Company since June 1997. Mr. Schreiber's
responsibilities include the general operations of the Company including the
reprocessing and distribution center and management information systems. 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.
DENIS J. TAURA has been a director of the Company since July 1998. He is a
certified public accountant and a partner in Taura Flynn & Asscociates, a firm
specializing in reorganization and management consulting, which he founded in
1998. From September 1991 to March 1998, he served as Chairman of D. Taura &
Associates, a consulting firm. From 1972 to 1991, Mr. Taura was a partner of
KPMG Peat Marwick LLP. Mr. Taura is Chairman of the Board and Chief Executive
Officer of Darling International, Inc.
OLIVIER TROUVEROY has been a director of the Company since June 1997. Since
1992, Mr. Trouveroy has been with ING Equity Partners, and its predecessors and
affiliates, and currently serves as a Managing Partner, responsible for
originating, structuring and managing equity and debt investments. From 1990 to
1992, Mr. Trouveroy was a Managing Director in the Corporate Finance Group
("CFG") of General Electric Capital Corporation in charge of CFG's office in
Paris, France. From 1984 to 1990, Mr. Trouveroy held various positions in the
Mergers and Acquisition department of Drexel Burnham Lambert in New York. Mr.
Trouveroy also serves as a director of e.spire Communications, Inc. and Cost
Plus, Inc.
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.
MARY ANN DOMURACKI, Executive Vice President--Finance and Administration,
joined the Company in January 1999. Ms. Domuracki's responsibilities include
corporate finance, financial and general administrative matters of the Company.
Prior to joining the Company, Ms. Domuracki worked as a consultant with the
financial advisory firm Conway Del Genio Gries & Co., LLC from April 1998 to
December 1998. From June 1987 to March 1998, Ms. Domuracki held several
executive positions at Danskin, Inc., ultimately
28
<PAGE>
serving as Chief Executive Officer and President from April 1996 to March 1998.
Ms. Domuracki is a certified public accountant.
GWEN GEPFERT, Chief Financial Officer, joined the Company in March 2000. Ms.
Gepfert is responsible for the financial and accounting functions of the
Company. Prior to joining the Company, Ms. Gepfert served as Chief Financial
Officer of Ariat International, Inc., a manufacturer and wholesaler of athletic
footwear for a period of four years. From 1988 to 1995, Ms. Gepfert served in
several executive positions at Esprit de Corp., ultimately serving as Vice
President of Finance. Ms. Gepfert is a certified public accountant.
BARBARA BENNETT, Senior Vice President--Design, joined the Company in
October 1980. As head of the Company's Kasper 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.
Prior to joining the Company, Ms. Bennett was a designer at Leslie Fay for two
years.
BEVERLY I. KATZ was appointed Senior Vice President, General Counsel and
Assistant Secretary of the Company in March 2000. Ms. Katz is responsible for
the legal matters of the Company. From 1987 to 1999, Ms. Katz was the General
Counsel of Takihyo Inc., the parent company of Anne Klein Company LLC, and
Senior Vice President, General Counsel and Secretary from November 1988.
KEY EMPLOYEES
The following key employees of the Company make significant contributions to
the operations of the Company:
PETER ENG, Senior 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.
PETER LEE, Managing 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.
WENDY R. CHIVIAN has been the President of Anne Klein Apparel since August
1999. She is directly responsible for the sales and merchandising of the Anne
Klein apparel product lines. She maintains relationships with the management of
all major customers, focusing on the various needs of the stores and ultimately
the consumer. Prior to her return to Anne Klein, Ms. Chivian was President of
DKNY Kids from 1997 to 1999, where she was responsible for launching DKNY
children's apparel, a license by Esprit de Corp. From 1991 to 1997, she was with
Anne Klein Company LLC where she held various senior level positions and most
recently served as Senior Vice President of Sales.
MERLE SLOSS has been the President of Anne Klein Licensing since December
1999, a position that she also held from 1995 to 1996. Her responsibilities
include the management of existing domestic and international licensees as well
as the expansion of licensing into additional product categories. Most recently,
Ms. Sloss served as President of Ralph Lauren Footwear, a division of Rockport,
from 1996 to 1999. She served as a consultant to Gucci Group in 1994 developing
global merchandising and sales structure. In addition, she previously spent 11
years at Bally of Switzerland of North America and last held the position of
President and Chief Executive Officer from 1992 to 1993.
ISAAC FRANCO, formerly Creative Director of Anne Klein apparel since 1997,
was appointed Co-Creative Director and Senior Vice President of Anne Klein in
August 1999. Mr. Franco's responsibilities include
29
<PAGE>
creative design direction for all Anne Klein lines and brands, as well as
creative direction for the brand image of the division and its various product
lines. From 1991 to 1997, he was a designer for Emanuel/ Emanuel Ungaro and
prior to that, for Valentino, in Rome, working on all his women's collections.
Previously, Mr. Franco designed for Bob Mackie II, and for Pringle of Scotland
and Geoffrey Beene Knitwear, where he met Mr. Kaufman in 1987.
KENNETH KAUFMAN, formerly Creative Director of Anne Klein apparel since
1997, was appointed Co-Creative Director and Senior Vice President of Anne Klein
in August 1999. Mr. Kaufman's responsibilities include creative design direction
for all Anne Klein lines and brands, as well as creative direction for the brand
image of the division and its various product lines. From 1991 to 1997, he was a
designer for Emanuel/Emanuel Ungaro and prior to that, for Valentino, in Rome,
working on all his women's collections. In 1987, Mr. Kaufman hired Mr. Franco
while at Warnaco to work on Pringle of Scotland and Geoffery Beene Knitwear.
Soon after, Bob Mackie approached Mr. Kaufman and Mr. Franco to design Bob
Mackie II, his signature sportswear collection.
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. Mathis,
Nightingale and Salibello. 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 restrictions 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. Mathis,
Salibello, Taura and Trouveroy. 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. Mathis, Nightingale,
Salibello, Taura and Trouveroy. 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 Company's finance department; and to
participate in the development and implementation of the investment and the
investor programs.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended
("Section 16(a)") requires the Company's directors and certain of its officers
and persons who own more than 10% of its common stock (collectively,
"Insiders"), to file reports of ownership and changes in their ownership of
common stock with the Securities and Exchange Commission (the "Commission").
Insiders are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16(a) filing requirements for fiscal 1999, with the
exception of Mr. Levine, who filed a late Form 4 and Mr. Franco, Ms. Chivian and
Ms. Sloss, each of whom filed a late Form 3.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual
compensation paid by the Company for services rendered during the fiscal years
ended January 3, 1998, January 2, 1999 and January 1, 2000 to the Chief
Executive Officer, and the four most highly compensated executive officers/key
employees (the "Named Executive Officers") and to all executive officers of the
Company as a group.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- -------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Arthur S. Levine.................. 1999 $2,000,000 $ --(1) -- $ 19,868(2)
Chairman of the Board and Chief 1998 2,000,000 --(1) -- 20,540(3)
Executive Officer 1997 1,200,000 -- 1,240,252(9) 1,507,635(4)
Gregg I. Marks.................... 1999 $ 800,000 $200,000 -- $ 15,924(5)
President 1998 830,769 115,000 -- 16,218(5)
1997 500,000 370,000 171,068(9) 16,824(5)
Lester E. Schreiber............... 1999 $ 269,616 $ 85,000 -- $ 16,841(6)
Chief Operating Officer 1998 258,173 50,000 -- 17,052(6)
1997 162,580 62,500 85,536(9) 16,382(6)
Mary Ann Domuracki................ 1999 $ 259,135 $ -- -- $ 1,522(7)
Executive Vice 1998 -- -- -- --
President--Finance & 1997 -- -- -- --
Administration
Barbara Bennett................... 1999 $ 600,000 $150,000 -- $ 1,135(8)
Vice President--Design 1998 623,077 50,000 -- 1,591(8)
1997 600,000 50,000 171,068(9) 3,566(8)
All Executive Officers as a 1999 $3,928,751 $435,000 -- $ 55,290
group........................... 1998 3,712,019 215,000 -- 55,401
(5 persons) 1997 2,462,580 482,500 1,667,924(9) 1,544,407
</TABLE>
- ------------------------
(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. Such hurdles were not met in either fiscal
1999 or 1998.
(2) Includes $2,478 in Group Term Life Insurance and $17,390 in automobile
allowance.
(3) Includes $3,150 in Group Term Life Insurance and $17,390 in automobile
allowance.
(4) Includes $2,325 in Group Term Life Insurance, $17,390 in automobile
allowance and $1,487,920 in consulting fees which Mr. Levine received as
principal of two consulting firms prior to June 4, 1997 at which time Mr.
Levine became Chairman of the Board and Chief Executive Officer of the
Company.
(5) Includes $924, $1,218 and $1,824 in Group Term Life Insurance and $15,000,
$15,000 and $15,000 in automobile allowance for fiscal years 1999, 1998 and
1997, respectively.
(6) Includes $941, $1,152 and $482 in Group Term Life Insurance and $15,900,
$15,900 and $15,900 in automobile allowance for fiscal years 1999, 1998 and
1997, respectively.
(7) Represents $464 in Group Term Life Insurance and a clothing allowance of
$1,058.
31
<PAGE>
(8) Represents $924, $1,218 and $1,566 in Group Term Life Insurance and a
clothing allowance of $211, $373 and $2,000 for fiscal years 1999, 1998 and
1997, respectively.
(9) Cancelled on November 10, 1999 pursuant to an agreement between the Company
and the optionholders.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options or SAR's to the Named Officers
during 1999.
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR END VALUE
TABLE
No Management Options were issued during 1999. On November 10, 1999 all
outstanding Management Options issued to the Named Officers were cancelled
pursuant to an agreement between the Company and the optionholders.
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 non-employee
Director, who held such position prior to January 1, 2000, also received an
option to purchase 20,000 shares of common stock at the time of joining the
Board of Directors. 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.
EMPLOYMENT AGREEMENTS
The Company has entered into a five-year employment agreement dated June 4,
1997 with Mr. Levine, which provides for his employment as Chief Executive
Officer and Chairman of the Board of the Company. The agreement 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 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 agreement provides that, upon termination for cause, Mr. Levine will be
entitled to receive accrued but unpaid salary and benefit payments and expense
reimbursements; provided, however, that if Mr. Levine's termination for cause
arises out of his material insubordination (as defined in the agreement), he
shall also be entitled to any bonus he would have received if he had not been
terminated. The agreement also provides that, upon termination, without good
reason, Mr. Levine will be entitled to receive a severance payment in one lump
sum equal to his base salary for the remainder of his term of employment, plus
any benefits to which he is entitled, and expense reimbursements; provided,
however, that if his termination without good reason occurs following a change
in control (as defined in the agreement), his lump sum payment of base salary
shall be reduced by 43%.
The Company has entered into a three-year employment agreement with both
Kenneth Kaufman and Isaac Franco, commencing July 9, 1999, which provides for
their employment as Co-Creative Directors and
32
<PAGE>
Senior Vice Presidents of Design of the Anne Klein Division of the Company.
Their agreements each provide for an annual compensation of $750,000 in 1999,
$775,000 in 2000, $800,000 in 2001 and $850,000 in 2002. In addition, the
agreements provide for a performance-based bonus. Messrs. Kaufman and Franco are
also entitled to participate in the Company's 1999 Share Incentive Plan. Messrs.
Kaufman and Franco are entitled to participate in the standard benefit plans
made available by the Company to its senior officers.
The agreements require that Messrs. Kaufman and Franco provide 30 days'
notice of intent to terminate the agreement (45 days' notice if without
"adequate justification" (as defined in the agreement); 60 days' notice in the
case of (i) a change in control (as defined in the agreement) or (ii) the
termination without "cause" (as defined in the agreement) or for adequate
justification of the other Co-Creative Director) of intent to terminate the
agreement. Upon termination, Messrs. Kaufman and Franco may not participate or
engage in, either directly or indirectly, any business activity competitive with
the Company for a period of six months from the effective date of the
termination. If Messrs. Kaufman and Franco are terminated without cause, upon a
change in control or for adequate justification, they will be entitled to
severance payments equal to their base salary for the remainder of the term of
employment, paid out according to the standard payroll procedures of the
Company, plus any accrued but unpaid bonus and other benefit payments and
expense reimbursements. Upon termination with cause, Messrs. Kaufman and Franco
will be entitled to receive severance payments equal to their accrued but unpaid
salary, paid out according to the standard payroll procedures of the Company,
and other benefit payments and expense reimbursements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Messrs. Mathis,
Salibello, Taura and Trouveroy. No executive officer of the Company serves as a
member of the Board of Directors or Compensation Committee of any entity, which
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
1999 SHARE INCENTIVE PLAN
On March 14, 2000, the Company's shareholders approved the Company's 1999
Share Incentive Plan (the "1999 Plan"). Pursuant to the terms of the 1999 Plan,
the 1999 Plan became effective as of July 28, 1999, the date on which the 1999
Plan was approved by the Compensation Committee. The 1999 Plan is intended to
provide incentives which will attract, retain and motivate highly competent
persons as non-employee Directors, officers and key employees of, and
consultants to, the Company and its subsidiaries and affiliates.
Participants in the 1999 Plan will consist of such Directors, officers,
officers and key employees of, and such consultants to, the Company and its
subsidiaries and affiliates as the Compensation Committee in its sole discretion
determines to be responsible for the success and future growth and profitability
of the Company and whom the Compensation Committee may designate from time to
time to receive benefits under the 1999 Plan. All of the Company's non-employee
Directors will be eligible to participate in the 1999 Plan. Currently, there are
five non-employee Directors. The number of officers and key employees who are
eligible to participate in the 1999 Plan is estimated to be 100. An estimate of
the number of consultants who are eligible to participate in the 1999 Plan has
not been made.
The 1999 Plan provides for the grant of any or all of the following types of
benefits: (1) stock options, including incentive stock options and non-qualified
stock options; (2) stock appreciation rights; (3) stock awards; (4) performance
awards; and (5) stock units.
The maximum number of shares of common stock that may be granted under the
1999 Plan is 2,500,000 and the maximum number of shares that may be granted to
an individual participant shall not exceed 1,500,000. The unanimous consent of
the Compensation Committee is required for the grant of options to any recipient
if the aggregate number of shares held by that recipient is equal to or greater
than 20,000. As of March 24, 2000, no shares had been granted under the 1999
Plan.
The 1999 Plan terminates on July 28, 2009.
33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of March 24, 2000, 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 Named 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>
NUMBER OF SHARES PERCENTAGE OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF COMMON STOCK
- ------------------------------------ ------------------ --------------------
<S> <C> <C>
Arthur S. Levine.......................................... 136,740(1) 2.0%
William J. Nightingale.................................... 13,534(2) *
H. Sean Mathis............................................ -- --
Salvatore M. Salibello.................................... 6,767(3) *
Lester E. Schreiber....................................... 400(4) *
Denis J. Taura............................................ 6,667(3) *
Olivier Trouveroy......................................... 639,535(5) 9.4%
Gregg I. Marks............................................ 14,200(6) *
Mary Ann Domuracki........................................ -- --
Barbara Bennett........................................... -- --
Whippoorwill Associates, Inc.............................. 1,279,091(7) 18.8%
11 Martine Avenue
White Plains, NY 10606
Bay Harbor Management, L.C................................ 975,771(8) 14.3%
777 South Harbour Island Boulevard,
Ste. 270
Tampa, FL 33602
Blue Ridge L.P............................................ 730,000(9) 10.7%
660 Madison Avenue
New York, NY 10021
ING Equity Partners, L.P. I............................... 639,535(5) 9.4%
135 East 57 Street
New York, NY 10022
Harvard Management Company................................ 357,304(10) 5.3%
660 Atlantic Avenue
Boston, MA 02210
Officers and Directors as a group (10 persons)............ 817,843(11) 12.0%
</TABLE>
- ------------------------
* Less than one percent
(1) Does not include approximately 709 shares of Common Stock which may be
distributed to Mr. Levine on an "if and when issued" basis from shares of
Common Stock held for the benefit of creditors (the "Holdback") of the
Company pending the resolution of certain creditor claims.
(2) Includes 13,334 shares of Common Stock issuable upon exercise of currently
exercisable Director Options. Mr. Nightingale disclaims beneficial ownership
of 100 shares of Common Stock held by his spouse.
(3) Includes 6,667 shares of Common Stock issuable upon exercise of currently
exercisable Director Options.
(4) Mr. Schreiber disclaims beneficial ownership of 100 shares of Common Stock
held by his spouse and 100 shares of Common Stock held by each of his two
children.
34
<PAGE>
(5) Includes 13,334 shares of Common Stock issuable upon exercise of currently
exercisable Director Options, which were issued to ING Equity Partners, L.P.
I ("ING") pursuant to Mr. Trouveroy's status as a non-employee Director of
the Company, a position for which he was designated by ING. Mr. Trouveroy, a
director of the Company, is a partner of the general partner of Hampshire
Equity Partners. He disclaims beneficial ownership of all shares of Common
Stock listed. Notwithstanding his disclaimer, Mr. Trouveroy may be deemed to
be a beneficial owner to the extent of his pecuniary interests in the
partnership. Does not include approximately 17,195 shares of Common Stock
which may be distributed to ING on an "if and when issued" basis pursuant to
the Holdback. Mr. Trouveroy's business address is c/o ING Equity Partners,
520 Madison Avenue (33(rd) Floor), New York, New York 10022.
(6) Mr. Marks disclaims beneficial ownership of 100 shares of Common Stock held
by each of his two daughters.
(7) These shares of Common Stock are owned by various limited partnerships, a
limited liability company, a trust and third party accounts for which
Whippoorwill Associates, Inc. has discretionary authority and acts as
general partner or investment manager.
(8) Based on information contained in a Schedule 13G/A, filed with the
Commission on February 14, 2000. These shares of Common Stock are also
indirectly owned by Tower Investment Group, Inc. ("Tower"), the majority
stockholder of Bay Harbor Management, L.C., Steven A. Van Dyke, a
stockholder and President of Tower, and Douglas P. Teitelbaum, a stockholder
of Tower, each of whom may also be deemed to be a beneficial owner of such
shares of Common Stock.
(9) Based on information contained in a Schedule 13G/A, filed with the
Commission on February 16, 2000. These shares of Common Stock are also
indirectly owned by JAG Holdings, LLC ("JAG"), the general partner of Blue
Ridge L.P., and John A. Griffin, the Managing Member of JAG, each of whom
may also be deemed to be a beneficial owner of such shares of Common Stock.
(10) Based on information contained in a Schedule 13, filed with the Commission
on February 11, 2000.
(11) Includes 40,002 shares of Common Stock issuable upon exercise of currently
exercisable Director Options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(a) Documents filed as part of this report:
(1) Financial Statements:
The Consolidated/Combined Financial Statements are set forth in the Index
to Consolidated/ Combined Financial Statements and Financial Statement
Schedules on page F-1 hereof.
(2) Financial Statement Schedule:
The Financial Statement Schedule is set forth in the Index to Financial
Statements and Financial Statement Schedules on page F-1 hereof.
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
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.
2.1(10) Asset Purchase Agreement, dated as of March 15, 1999, among
the Company, Anne Klein Company LLC and Takihyo Inc.
2.2(16) Asset Purchase Agreement, dated as of November 24, 1999,
among the Company and A.S.L. Retail Outlets, Inc., as buyers
and Fashions of Seventh Avenue, Inc., Fashions of Destin,
Inc., Fashions of Michigan, Inc., Fashions of Reno, Inc.,
Fashions of Vero Beach, Inc., Anne Klein of Massachusetts,
Inc. and Fashions of Clinton, Inc., as sellers.
3.1(5) Amended and Restated Certificate of Incorporation as filed
on May 30, 1997.
3.2(5) Amendment to Certificate of Incorporation as filed on
November 5, 1997.
3.3(5) 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.
4.21(12) Second Supplemental Indenture, dated as of June 16, 1999, to
the Indenture, dated as of June 1, 1997 and effective as of
June 4, 1997, as amended, between the Company and IBJ
Whitehall Bank & Trust Company, as trustee.
4.3(2) Form of Senior Note issued under the Indenture.
4.4(7) Specimen Certificate of the Company's Common Stock.
10.1(5) Revolving Credit Agreement dated as of June 4, 1997, by and
among the Registrant BankBoston N.A., BancBoston Securities,
Inc., Citicorp USA, Inc., Heller and certain other lenders
(without exhibits).
10.1(a)(9) Amendment No. 1 to Revolving Credit Agreement, dated October
4, 1997.
10.1(b)(9) Amendment No. 2 to Revolving Credit Agreement, dated
November 11, 1997.
10.1(c)(9) Amendment No. 3 to Revolving Credit Agreement, dated May 29,
1998.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.1(d)(9) Amendment No. 4 to Revolving Credit Agreement, dated
December 31, 1998.
10.1(e)(11) Amended and Restated Credit Agreement, dated as of July 9,
1999, among the Company, as Borrower, the guarantors named
therein, the lenders named therein, The Chase Manhattan
Bank, as administrative and collateral agent, and The CIT
Group / Commercial Services, Inc., as collateral monitor.
10.11 Amendment Agreement No. 1 to the Amended and Restated Credit
Agreement, dated December 22, 1999.
10.2(5) Employment Agreement dated June 4, 1997 between the
Registrant and Arthur S. Levine.
10.3(7) Lease Modification Agreement and Lease Agreement, each dated
August 20, 1996, between the Registrant and Import Hartz
Associates.
10.31 First Lease Modification Agreement, dated April 30, 1999, by
and between the Company and Import Hartz Associates.
10.4(5) Acquisition Agreement dated June 2, 1997, by and among the
Registrant, ASL/K Licensing Corp, Herbert Kasper and
Forecast Designs, Inc.
10.5(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(5) 1997 Management Stock Option Plan.
10.61(17) 1999 Share Incentive Plan.
10.7(5) Form of Stock Option Agreement issued to Directors.
10.8(15) Letter Agreement, dated as of September 13, 1999, between
the Company and Whippoorwill Associates, Inc., as agent for
various discretionary accounts.
10.9(13) Lease, dated as of June 4, 1996, among 11 West 42(nd)
Limited Partnership as Landlord, and Anne Klein & Company
and Mark of the Lion Associates, as tenants.
10.10(14) Omnibus Agreement, dated as of March 15, 1999, among the
Company and Anne Klein Company LLC.
21(8) Subsidiaries of the Registrant.
24(6) Power of Attorney (included in signature page).
27 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated by reference to Exhibit No. 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 No. 1 to the Registrant's Report on
Form 8-K.
(3) Incorporated by reference to Exhibit No. 3 to the Registrant's Report on
Form 8-K.
(4) Incorporated by reference to Exhibit No. 2 to the Registrant's Report on
Form 8-K.
(5) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Commission File No. 333-41629) filed with the Commission on December 5,
1997.
(6) Incorporated by reference to the Registrant's Amendment No. 1 to
Registration Statement on Form S-1 (Commission File No. 333-41629) filed
with the Commission on December 23, 1997.
37
<PAGE>
(7) Incorporated by referenced to the Registrant's Amendment No. 2 to
Registration Statement on Form S-1 (Commission File No. 333-41629) filed
with the Commission on April 3, 1998.
(8) Incorporated by reference to Exhibit No. 21.1 to the Company's Report on
Form 10-K filed with the Commission on March 31, 1999.
(9) Incorporated by reference to Exhibit No. 10.1 to the Company's Report on
Form 10-Q filed with the Commission on May 18, 1999.
(10) Incorporated by reference to Exhibit No. 2 to the Company's Report on
Form 8-K filed with the Commission on July 13, 1999.
(11) Incorporated by reference to Exhibit No. 10.1 to the Company's Report on
Form 8-K filed with the Commission on July 13, 1999.
(12) Incorporated by reference to Exhibit No. 10.2 to the Company's Report on
Form 8-K filed with the Commission on July 13, 1999.
(13) Incorporated by reference to Exhibit No. 10.1 to the Company's Report on
Form 10-Q filed with the Commission on August 17, 1999.
(14) Incorporated by reference to Exhibit No. 10.2 to the Company's Report on
Form 10-Q filed with the Commission on August 17, 1999.
(15) Incorporated by reference to Exhibit No. 10.3 to the Company's Report on
Form 8-K/A filed with the Commission on September 22, 1999.
(16) Incorporated by reference to Exhibit No. 2 to the Company's Report on
Form 8-K filed with the Commission on December 8, 1999.
(17) Incorporated by reference to Annex A of the Company's Definitive Proxy
Statement filed with the Commission on January 28, 2000.
(b) Reports on Form 8-K:
On December 8, 1999, the Company filed a current report on Form 8-K to
disclose that it had acquired substantially all of the assets, and assumed
certain liabilities, of twenty-five Anne Klein factory outlet stores from
Fashions of Seventh Avenue, Inc. and Associates.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED FINANCIAL STATEMENTS PAGE
- ---------------------------- --------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets at January 1, 2000 and January
2, 1999................................................... F-3
Consolidated/Combined Statements of Operations for the
Fiscal Years Ended January 1, 2000 and January 2, 1999,
the Seven Months Ended January 3, 1998 and the Five Months
Ended June 4, 1997........................................ F-4
Consolidated/Combined Statements of Shareholders' Equity for
the Fiscal Years Ended January 1, 2000 and January 2,
1999, the Seven Months Ended January 3, 1998 and the Five
Months Ended June 4, 1997................................. F-5
Consolidated/Combined Statements of Cash Flows for the
Fiscal Years Ended January 1, 2000 and January 2, 1999,
the Seven Months Ended January 3, 1998 and the Five Months
Ended June 4, 1997........................................ F-6
Notes to Consolidated/Combined Financial Statements......... F-8
Schedule II--Valuation and Qualifying Accounts.............. F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Kasper A.S.L., Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Kasper
A.S.L., Ltd. (a Delaware corporation) and subsidiaries (the "Reorganized
Company" see Note 2) as of January 1, 2000 and January 2, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended January 1, 2000 and January 2, 1999 and the seven-month period
ended January 3, 1998. We have also audited the accompanying combined statements
of operations, divisional equity and cash flows of the Predecessor Company for
the five-month period ended June 4, 1997. These financial statements are the
responsibility of the Reorganized Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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.
As more fully described in Note 2 to the consolidated/combined financial
statements, effective June 4, 1997, the Reorganized Company emerged from
protection under Chapter 11 of the U.S. Bankruptcy Code pursuant to a
Reorganization Plan which was confirmed by the Bankruptcy Court on April 21,
1997. In accordance with AICPA Statement of Position 90-7, the Reorganized
Company adopted "Fresh Start Reporting" whereby its assets, liabilities and new
capital structure were adjusted to reflect estimated fair values as of June 4,
1997. As a result, the consolidated financial statements for the periods
subsequent to June 4, 1997 reflect the Reorganized Company's new basis of
accounting and are not comparable to the Predecessor Company's
pre-reorganization financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, (a) the financial position of the Reorganized Company
as of January 1, 2000 and January 2, 1999 and the results of their operations
and their cash flows for the years ended January 1, 2000 and January 2, 1999 and
the seven-month period ended January 3, 1998, and (b) the results of the
operations and cash flows of the Predecessor Company for the five-month period
ended June 4, 1997, all in conformity with accounting principles generally
accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule Valuation and Qualifying
Accounts--Schedule II of this Form 10-K for the year ended January 1, 2000 is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 3, 2000
F-2
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 5,086 $ 2,437
Accounts receivable, net.................................. 26,207 32,721
Inventories............................................... 95,068 100,435
Prepaid expenses and other current assets................. 3,207 3,125
Income taxes receivable................................... 2,668 --
Deferred taxes............................................ 5,077 2,943
-------- --------
Total Current Assets........................................ 137,313 141,661
-------- --------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $9,004 and $5,500,
respectively.............................................. 19,803 16,881
Reorganization value in excess of identifiable assets, net
of accumulated amortization of $8,418 and $5,160,
respectively.............................................. 56,763 60,021
Trademarks, net of accumulated amortization of $4,668 and
$2,307, respectively...................................... 109,565 48,693
Other Assets, at cost less accumulated amortization of $717
and $1,449, respectively.................................. 6,321 2,102
-------- --------
Total Assets................................................ $329,765 $269,358
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 28,753 $ 14,539
Accrued expenses and other current liabilities............ 8,219 6,668
Interest payable.......................................... 4,032 3,797
Deferred income........................................... 1,000 --
Income taxes payable...................................... 594 646
-------- --------
Total Current Liabilities................................... 42,598 25,650
Long-Term Liabilities:
Deferred taxes............................................ 3,064 1,630
Deferred income........................................... 1,000 --
Long-Term Debt............................................ 110,000 110,000
Bank Revolver............................................. 53,444 7,569
Minority Interest......................................... 519 459
-------- --------
Total Liabilities........................................... 210,625 145,308
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $0.01 par value; 20,000,000 shares
authorized; 6,800,000 shares issued and outstanding..... 68 68
Preferred Stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding................. -- --
Capital in excess of par value............................ 119,932 119,932
(Accumulated Deficit) Retained Earnings................... (632) 4,142
Cumulative Other Comprehensive Income (Loss).............. (228) (92)
-------- --------
Total Shareholders' Equity.................................. 119,140 124,050
-------- --------
Total Liabilities and Shareholders' Equity.................. $329,765 $269,358
======== ========
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements
are an integral part of these balance sheets.
F-3
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<S> <C> <C> <C> <C>
PREDECESSOR
REORGANIZED COMPANY COMPANY
---------------------------------- -----------
SEVEN
FISCAL YEAR MONTHS FIVE MONTHS
ENDED ENDED ENDED
--------------------- ---------- -----------
JANUARY JANUARY
1, 2, JANUARY 3, JUNE 4,
2000 1999 1998 1997
--------- --------- --------- ---------
Net Sales..................................... $ 311,209 $ 312,089 $ 175,602 $ 136,107
Royalty Income................................ 7,033 852 609 286
Cost of Sales................................. 219,520 219,060 127,784 101,479
--------- --------- --------- ---------
Gross Profit.................................. 98,722 93,881 48,427 34,914
Operating Expenses:
Selling, general and administrative
expenses.................................... 76,152 62,836 32,411 23,660
Depreciation and Amortization................. 9,276 7,795 4,267 1,191
--------- --------- --------- ---------
Total operating expenses...................... 85,428 70,631 36,678 24,851
--------- --------- --------- ---------
Operating income.............................. 13,294 23,250 11,749 10,063
Interest and Financing Costs.................. 20,494 17,788 9,829 667
--------- --------- --------- ---------
(Loss) Income before provision for income
taxes....................................... (7,200) 5,462 1,920 9,396
(Benefit) Provision for Income Taxes.......... (2,426) 2,292 948 3,758
--------- --------- --------- ---------
Net (Loss) Income............................. $ (4,774) $ 3,170 $ 972 $ 5,638
========= ========= ========= =========
Basic (loss) earnings per common share........ (.70) .47 .14 --
========= ========= ========= =========
Diluted (loss) earnings per common share...... (.70) .47 .14 --
========= ========= ========= =========
Weighted average number of shares used in
computing Basic earnings per common share... 6,800,000 6,800,000 6,800,000 --
Weighted average number of shares used in
computing Diluted earnings per common
share....................................... 6,800,000 6,800,000 6,805,000 --
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements are an
integral part of these financial statements.
F-4
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
PREDECESSOR COMPANY
<TABLE>
<CAPTION>
DIVISIONAL
EQUITY
----------
<S> <C>
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
========
</TABLE>
- --------------------------------------------------------------------------------
REORGANIZED COMPANY
<TABLE>
<CAPTION>
CUMULATIVE RETAINED
CAPITAL IN OTHER EARNINGS /
COMMON EXCESS OF COMPREHENSIVE (ACCUMULATED
STOCK PAR INCOME DEFICIT) TOTAL
-------- ---------- ------------- ------------ --------
<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................ -- -- (14) -- (14)
Net Income for the period............. -- -- -- 972 972
--- -------- ----- ------- --------
Comprehensive Income.................. -- -- -- -- 958
--- -------- ----- ------- --------
BALANCE AT JANUARY 3, 1998............ $68 $119,932 $ (14) $ 972 $120,958
=== ======== ===== ======= ========
Translation Adjustment................ -- -- (78) -- (78)
Net Income for the period............. -- -- -- 3,170 3,170
--- -------- ----- ------- --------
Comprehensive Income.................. -- -- -- -- 3,092
--- -------- ----- ------- --------
BALANCE AT JANUARY 2, 1999............ $68 $119,932 $ (92) $ 4,142 $124,050
=== ======== ===== ======= ========
Translation Adjustment................ -- -- (136) -- (136)
Net Loss for the period............... -- -- -- (4,774) (4,774)
--- -------- ----- ------- --------
Comprehensive Income.................. -- -- -- -- (4,910)
--- -------- ----- ------- --------
BALANCE AT JANUARY 1, 2000............ $68 $119,932 $(228) $ (632) $119,140
=== ======== ===== ======= ========
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements
are an integral part of these financial statements.
F-5
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
--------------------------------------------- -----------
FISCAL YEAR SEVEN MONTHS FIVE MONTHS
ENDED ENDED ENDED
----------------------------- ------------- -----------
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 4,
2000 1999 1998 1997
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income....................................... $ (4,774) $ 3,170 $ 972 $ 5,638
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 6,815 5,342 2,762 916
Amortization of reorganization value in excess of
identifiable assets................................. 3,258 3,258 1,902 --
Amortization of excess purchase price over net assets
acquired............................................ -- -- -- 275
Excess of cost over fair value of assets acquired..... -- -- -- (26)
Income applicable to minority interest................ 60 459 -- --
Write-off of net book value of property, plant and
equipment........................................... -- 114 -- --
Write-off of unamortized financing fees............... 740 -- -- --
(Increase) decrease in:
Accounts receivable, net.............................. 6,514 (2,721) 20,882 4,723
Inventories........................................... 7,332 (21,639) (18,529) 24,158
Prepaid expenses and other current assets............. 18 (358) (1,023) (1,080)
Income taxes receivable............................... (2,668) -- -- --
Deferred taxes........................................ (2,134) (1,248) (1,695) --
Other assets.......................................... (1,289) -- -- --
(Decrease) increase in:
Accounts payable, accrued expenses and other current
liabilities......................................... 14,290 (3,133) 5,421 (1,236)
Interest payable...................................... 235 242 3,513 --
Deferred income....................................... 2,000 -- -- --
Income taxes payable.................................. (52) (518) 515 246
Deferred taxes........................................ 1,434 991 639 --
-------- -------- -------- --------
Total adjustments....................................... 36,553 (19,211) 14,387 27,976
-------- -------- -------- --------
Net cash provided by (used in) operating activities..... 31,779 (16,041) 15,359 33,614
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net............................. (5,425) (5,690) (1,749) (2,960)
FSA Acquisition....................................... (2,488) -- -- --
Trademark Purchase.................................... (66,956) -- -- --
-------- -------- -------- --------
Net cash used in investing activities................... (74,869) (5,690) (1,749) (2,960)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under Bank Revolver.................... 45,875 7,569 -- --
Net decrease in cash invested with Leslie Fay......... -- -- -- (30,479)
-------- -------- -------- --------
Net cash provided by (used in) financing activities..... 45,875 7,569 -- (30,479)
Effect of exchange rate changes on cash and cash
equivalents........................................... (136) (78) (14) --
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 2,649 (14,240) 13,596 175
Cash and cash equivalents, at beginning of period....... 2,437 16,677 3,081 1,886
-------- -------- -------- --------
Cash and cash equivalents, at end of period............. $ 5,086 $ 2,437 $ 16,677 $ 2,061
======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements
are an integral part of these financial statements.
F-6
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
PREDECESSOR
REORGANIZED COMPANY COMPANY
---------------------------------------- ------------
FISCAL YEAR SEVEN MONTHS FIVE MONTHS
ENDED ENDED ENDED
-------------------------- ------------ ------------
JANUARY 1, JANUARY 2, JANUARY 3, JUNE 4,
2000 1999 1998 1997
-------- -------- -------- --------
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
Inventories acquired in FSA Acquisition........... (1,965) -- -- --
Fixed assets acquired in FSA Acquisition.......... (1,001) -- -- --
Goodwill recorded in FSA Acquisition.............. (997) -- -- --
Current liabilities assumed in FSA Acquisition.... 1,475 -- -- --
Elimination of divisional equity upon emergence
from Bankruptcy................................. -- -- (132,363) --
Elimination of excess of costs over fair value of
assets upon emergence from Bankruptcy........... -- -- 16,066 --
Establishment of reorganization in excess of
identifiable assets upon emergence from
Bankruptcy...................................... -- -- (65,181) --
Establishment of Trademark valuation upon
emergence from Bankruptcy....................... -- -- (51,000) --
NONCASH FINANCING
Senior notes issued to creditors upon emergence
from Bankruptcy................................. -- -- 110,000 --
Issuance of Common Stock to creditors upon
emergence from Bankruptcy....................... -- -- 120,000 --
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements
are an integral part of these financial statements.
F-7
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION:
The Consolidated/Combined Financial Statements included herein have been
prepared by Kasper A.S.L., Ltd. (name changed from Sassco Fashions, Ltd. on
November 5, 1997) and subsidiaries (Kasper A.S.L., Ltd. being sometimes referred
to, and together with its subsidiaries collectively referred to, as the
"Company" or "Kasper" as the context may require). The Company's fiscal year
ends on the Saturday closest to December 31st. The fiscal years ended
January 1, 2000 ("1999"), January 2, 1999 ("1998") and January 3, 1998 ("1997"),
included 52, 52 and 53 weeks, respectively.
Due to the Company's Reorganization, the Consolidated Financial Statements
for the new "Reorganized Company" (period starting June 4, 1997, the effective
date of the Reorganized Company's emergence from bankruptcy) are not comparable
to the Combined Financial Statements of the "Predecessor Company" (period ending
June 4, 1997).
Kasper was a division of The Leslie Fay Companies, Inc. ("Leslie Fay"), a
Delaware corporation which operated its business as a debtor in possession
subject to the jurisdiction and supervision of the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") until June
4, 1997. The Consolidated/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 Consolidated/Combined Financial Statements also include the
financial statements of Kasper A.S.L. Europe, Ltd., Kasper Holdings Inc., ASL
Retail Outlets, Inc. ("ASL Retail"), ASL/K Licensing Corp., AKC Acquisition,
Ltd. and Lion Licensing, Ltd., all of which are wholly-owned subsidiaries of the
Company. Kasper Holdings Inc. owns 100% of Kasper Canada ULC, which is a 70%
owner of Kasper Partnership, G.P. ("Kasper Partnership"), a Canadian Partnership
through which the Company conducts sales and distribution activity in Canada.
The portion of Kasper Partnership pertaining to its minority owner is reflected
in the accompanying financial statements as minority interest. The Predecessor
Company financial data reflects the combined results of Kasper, AEL, Tomwell,
and Viewmon. The financial statements of the Reorganized Company are
consolidated as opposed to combined because as of the date of the
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.
Prior to June 4, 1997, 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 Leslie Fay and its directors,
and the breach of certain provisions of its financing agreement at the time. On
October 31, 1995, the Debtors and the Committee of Unsecured Creditors (the
"Creditors Committee") filed the Plan pursuant to Chapter 11 of the Bankruptcy
Code.
The Plan was subsequently amended on March 13, 1996, December 5, 1996,
February 3, 1997 and February 28, 1997. On December 5, 1996, the Debtors filed a
Disclosure Statement for the Amended Joint Plan of Reorganization pursuant to
Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"), which was also
subsequently amended on February 3, 1997 and February 28, 1997. The Plan
provided for, among other things, the separation of the Debtors' estates and
assets into two separate reorganized entities. Under the Plan, stockholders of
the Company would not retain or receive any value for their
F-8
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION: (CONTINUED)
interest. The Debtors obtained Bankruptcy Court approval of the Disclosure
Statement on February 28, 1997. The Plan was approved by the creditors and on
April 21, 1997, the Bankruptcy Court confirmed the Plan. Refer to the
Consolidated Financial Statements of Leslie Fay for the fiscal year ended
December 28, 1996, included in Leslie Fay's Annual Report on Form 10-K, for more
information regarding Leslie Fay's bankruptcy proceedings.
The Plan called for the spin-off of Kasper as a newly organized entity,
which consisted of Kasper, AEL, Tomwell, Viewmon, Sassco Europe, Ltd. (now known
as Kasper A.S.L. Europe, Ltd.) and ASL Retail Outlets, Inc.
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 (the "Senior Notes") payable by Kasper; and 3) transferring the
assets (including $10,963,000 of cash) and liabilities of the Sassco division to
Kasper and the assets and liabilities of Leslie Fay's Dress and Sportswear
divisions to three wholly owned subsidiaries of Leslie Fay. In addition, Leslie
Fay retained approximately $41,080,000 in cash, of which $23,580,000 was used to
pay administrative claims as defined in the Plan. On June 4, 1997, Leslie Fay
emerged from bankruptcy and Kasper emerged as a newly organized separate entity.
NOTE 2. FRESH START REPORTING:
The effects of the Company's reorganization under Chapter 11 have been
accounted for in the Company's balance sheet as of June 4, 1997 using principles
required by the American Institute of Certified Public Accountants--Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to the guidelines provided
by SOP 90-7, the Company adopted fresh start accounting 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 forecasted operations (fiscal
years ended 1997-2001) was prepared by management and a discounted cash flow
methodology was applied to those numbers. An equity value was determined by
calculating the impact of various assumption changes to the five-year forecasts
and adding the forecasted cash flows for the first four years to a
"capitalization" of the fifth year's forecasted cash flow under each assumption.
The fifth year's forecasted 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 forecasts were based on estimates and assumptions
about circumstances and events that have not yet taken place. Such estimates and
assumptions are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Company, including,
but not limited to, those with respect to the future course of the Company's
business activity.
Since fresh start reporting has been reflected in the accompanying
Consolidated Balance Sheet as of June 4, 1997, the Consolidated Balance Sheet as
of that date is not comparable to prior periods.
F-9
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. FRESH START REPORTING: (CONTINUED)
The Reorganization and the adoption of Fresh Start Reporting resulted in the
following adjustments to the Company's Consolidated Balance Sheet for the period
ended June 4, 1997:
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZATION FRESH REORGANIZED
COMPANY START ADJUSTMENTS COMPANY
------------ ----------------------- ------------
JUNE 4, 1997 DEBIT CREDIT JUNE 4, 1997
------------ -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets
Total current assets...................... $115,951 $ 1,236(a) $ 1,213(b) $115,974
Property and equipment, net............... 14,002 -- -- 14,002
Excess of purchase price over net assets
acquired................................ 17,097 -- 16,066(c) 1,031
Reorganization value in excess of
identifiable assets..................... -- 65,181(d) -- 65,181
Other assets.............................. -- 53,422(e) -- 53,422
-------- -------- -------- --------
Total Assets................................ $147,050 $119,839 $ 17,279 $249,610
======== ======== ======== ========
Liabilities And Shareholders' Equity
Total current liabilities................. $ 14,687 -- $ 4,923(f) $ 19,610
Long-term debt............................ -- -- 110,000(g) 110,000
Common Stock.............................. -- -- 120,000(h) 120,000
Divisional Equity......................... 132,363 132,363(i) -- --
-------- -------- -------- --------
Total Liabilities And Shareholders'
Equity.................................... $147,050 $132,363 $234,923 $249,610
======== ======== ======== ========
</TABLE>
The significant fresh start reporting adjustments are summarized as follows:
a. Cash and other receivables recorded at closing.
b. Reclass prepaid bank fees to other assets.
c. Elimination of excess of purchase price over net asset acquired.
d. Allocation of the fair market value of identifiable net assets in excess
of the reorganization value in accordance with the purchase method of
accounting. The goodwill will be amortized over twenty (20) years.
e. Recording $51,000,000 of trademark valuation and $2,422,000 in bank
commitment and related fees.
f. To record additional liabilities.
g. Recording of $110,000,000 of ten-year notes that bear interest at 12.75%
per annum with interest payable semi-annually in September and March.
h. Recording of the reorganization value of $120,000,000.
i. Elimination of divisional equity and intercompany accounts with Leslie
Fay.
F-10
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS:
On March 15, 1999, the Company and Anne Klein Company LLC entered into a
definitive agreement for the Company to purchase the Anne Klein trademarks and
selected related assets (the "Trademark Purchase"). On July 9, 1999, the Company
completed the Trademark Purchase which included the ANNE KLEIN, ANNE KLEIN II
and A LINE ANNE KLEIN trademarks and the "LION HEAD DESIGN" and "A ANNE KLEIN"
logos, along with the related licensing agreements. The aggregate purchase price
for these assets was $67,900,000 and was funded by cash provided by operations
and by the Company's credit facility. The trademarks acquired are being
amortized over their expected useful life, which is 35 years. Trademark
amortization is included in depreciation and amortization in the accompanying
financial statements.
On November 24, 1999 the Company completed the purchase of substantially all
the assets and the assumption of certain liabilities of 25 Anne Klein retail
outlet stores of Fashions of Seventh Avenue, Inc. and Affiliates ("FSA"), (the
"FSA Acquisition"). The aggregate purchase price was $3,963,000, which included
a cash payment of $300,000 and assumed liabilities of $3,663,000. As a result of
the transaction, the Company recognized approximately $1.0 million in goodwill,
which will be amortized over the average life of the leases acquired, which is
four years, and is included in the accompanying consolidated balance sheet in
other assets. Goodwill amortization is included in depreciation and amortization
in the financial statements.
Both acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the consolidated financial statements include the
results of operations of the acquired businesses from their respective
acquisition dates.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if both acquisitions had
taken place on January 4, 1998. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition occurred on
January 4, 1998, or which may result in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 1, 2000 JANUARY 2, 1999
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales.................................... $357,051 $414,869
Royalty income............................... 11,512 10,789
Net loss..................................... (10,070) (15,571)
Basic loss per common share.................. (1.48) (2.29)
Diluted loss per common share................ (1.48) (2.29)
</TABLE>
NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) BUSINESS--
The Company is principally engaged in the design and sale of women's
apparel.
(B) PRINCIPLES OF CONSOLIDATION--
The consolidated financial statements of Kasper include the accounts of all
majority-owned companies. All significant intercompany balances and transactions
have been eliminated in consolidation.
F-11
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Minority interest represents the minority shareholder's proportionate share in
the equity or income of the Company's wholly-owned Kasper Holdings Inc.
subsidiary.
(C) FAIR VALUE OF FINANCIAL INSTRUMENTS--
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments" requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reflected at fair value
because of the short term maturity of these instruments.
(D) USE OF ESTIMATES--
The financial statements are prepared in conformity with generally accepted
accounting principles. Such preparation requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
(E) REORGANIZATION VALUE--
Reorganization value in excess of identifiable assets is being amortized
using the straight-line method over 20 years. The Company, under the
requirements of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", will continually evaluate,
based upon operating income and/or cash flow projections and other factors as
appropriate, whether events and circumstances have occurred that indicate that
the remaining estimated useful life of this asset warrants revision or that the
remaining balance of this asset may not be recoverable.
(F) TRADEMARKS--
Trademarks are being amortized using the straight-line method over 35 years,
which is the estimated useful life. The Company, under the requirements of SFAS
No. 121, will continually evaluate, based upon income and/or cash flow
projections and other factors as appropriate, whether events and circumstances
have occurred that indicate that the remaining estimated useful life of this
asset warrants revision or that the remaining balance of this asset may not be
recoverable.
(G) CASH AND CASH EQUIVALENTS--
All highly liquid investments with a remaining maturity of three months or
less at the date of acquisition are classified as cash and cash equivalents.
(H) INVENTORIES--
Inventories are valued at the lower of cost (first-in, first-out; "FIFO") or
market.
(I) PROPERTY, PLANT AND EQUIPMENT--
Land, buildings, fixtures, equipment and leasehold improvements are stated
at cost. Major replacements or betterments are capitalized. Maintenance and
repairs are charged to earnings as incurred. For
F-12
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
financial statement purposes, depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets.
(J) REVENUE RECOGNITION--
Sales are recognized upon shipment of products to customers and, in the case
of sales by Company owned retail stores, when goods are sold to customers.
Allowances for estimated uncollected accounts and discounts are provided when
sales are recorded.
(K) INCOME TAXES--
Prior to the reorganization, as a division of Leslie Fay, the Company was
not subject to Federal, State and Local income taxes. Concurrent with the
reorganization, the Company became fully subject to such taxes and is subject to
the provisions of SFAS No. 109, "Accounting for Income Taxes". 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. When 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.
(L) STOCK-BASED COMPENSATION--
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees"("APB No. 25"). Compensation cost for stock options,
if any, is measured as the excess of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company elected to
account for its stock-based compensation under APB No. 25, and has adopted the
disclosure requirements of SFAS No. 123.
(M) EARNINGS PER COMMON SHARE--
Basic and Fully Diluted Earnings Per Common Share ("EPS") are computed under
the provisions of SFAS No. 128, "Earnings Per Share"). Under this standard,
Basic EPS is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. 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.
(N) FOREIGN CURRENCY TRANSLATION--
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation". All
balance sheet accounts have been translated using the exchange rate in effect at
the balance sheet date. Income statement amounts have been translated using the
average exchange rate for the year. The gains and losses resulting from the
changes in exchange rates from year to year have been reported in other
comprehensive income.
F-13
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(O) RECLASSIFICATION--
Certain amounts reflected in Fiscal 1998 and Fiscal 1997 financial
statements have been reclassified to conform to the presentation of similar
items in Fiscal 1999.
(P) NEW ACCOUNTING STANDARDS--
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information." These statements modified and expanded the Company's stockholders'
equity and segment disclosures and had no impact on the Company's results of
operations, financial condition and cash flow.
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In 1999, the FASB approved SFAS No. 137 "Accounting for
Derivative Instruments, and Hedging Activities--Deferral of the Effective Date
of SFAS No. 133," which amends SFAS No. 133 to be effective for all fiscal years
beginning after June 15, 2000. The Company is currently analyzing the impact, if
any, this new pronouncement may have on its financial position and result of
operations.
NOTE 5. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................... $45,849 $ 38,470
Finished goods.......................................... 49,219 61,965
------- --------
Total inventories................................... $95,068 $100,435
======= ========
</TABLE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, ESTIMATED
2000 1999 USEFUL LIVES
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Machinery, equipment and fixtures............ $15,947 $13,370 5-10 years
Leasehold improvements....................... 10,974 8,700 5 years
Construction in progress..................... 1,886 311 N/A
------- -------
Property, plant and equipment, at cost....... 28,807 22,381
Less: Accumulated depreciation and
amortization............................... (9,004) (5,500)
------- -------
Total property, plant and equipment, net... $19,803 $16,881
======= =======
</TABLE>
F-14
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT:
CREDIT FACILITY--
On June 4, 1997 the Company entered into a three-year financing agreement
with BankBoston ("BB") to provide direct borrowings and the issuance of letters
of credit on the Company's behalf in an aggregate amount not exceeding $100
million, with a sublimit on letters of credit of $50 million (the "Original
Facility"). The Original Facility, as amended, provided for interest on direct
borrowings at the higher of the annual rate of interest announced from time to
time by BB as its "Base Rate" or one-half of one percent (0.5%) above the
Federal Funds Effective Rate, plus the Base Rate Applicable Margin of 0.75%, and
required a fee, payable monthly, on average outstanding letters of credit at a
rate of 1.75% annually.
On July 9, 1999, the Company entered into an Amended and Restated Credit
Facility led by The Chase Manhattan Bank ("Chase") in order to fund the
Company's working capital requirements and to finance the Trademark Purchase
(the "Chase Facility"). The Chase Facility provides the Company with a secured
revolving credit and letter of credit facility of $160 million. Interest on
outstanding borrowing is determined, at the Company's option, based on stated
margins above the prime rate at Chase, or in excess of LIBOR rates, which on
January 1, 2000, was one-half percent (0.5%) above the prime rate or two and
one-half percent (2.5%) above the LIBOR rate. For fiscal 1999, the weighted
average interest rate on the Chase Facility from July 9, 1999, was 8.7%. The
Chase Facility requires a fee, payable quarterly, on average outstanding letters
of credit, of 1.8% per annum for documentary letters of credit and two and
one-half percent (2.5%) plus a stated margin per annum, for standby letters of
credit. At January 1, 2000, the standby letter of credit fee was three percent
(3.0%). The Chase Facility has a standby letter of credit sublimit of $20
million. At January 1, 2000, there were direct borrowings of approximately
$53,444,000 outstanding under the Chase Facility and approximately $22,735,000
outstanding in letters of credit. The Company has approximately $20,852,000
available for future borrowings as of January 1, 2000. Total interest expense
under both facilities for fiscal 1999 was $3.8 million.
The Chase Facility provides for the maintenance of certain financial ratios
and covenants, sets limits on capital expenditures and expires on March 31,
2003. In addition, the Chase Facility contains certain restrictive covenants,
including limitations on the incurrence of additional liens and indebtedness and
a prohibition on paying dividends.
The Company paid $2,364,000 in commitment and related fees in connection
with the Chase Facility in July 1999, which is included in other assets in the
accompanying balance sheet. These fees will be amortized as interest and
financing costs over the remaining life of the financing agreement at the time
of the amendment (four and one-half years). In addition, the Company wrote off
approximately $750,000 in unamortized bank fees relating to the Original
Facility, which is included in interest and financing costs. The Chase Facility
was amended on December 22, 1999 to modify certain financial ratios and
covenants.
LONG TERM DEBT--
Pursuant to the reorganization, the former creditors of Leslie Fay received
Senior Notes in the aggregate principal amount of $110,000,000. These notes bear
interest at twelve and three-quarter percent (12.75%) and mature on March 31,
2004. Interest is paid semi-annually on March 31 and September 30. Interest
expense for fiscal 1999 was $14.0 million. The Senior Notes contain certain
restrictive covenants which include, among others: (i) generally, no addition to
long term debt is allowed until the interest coverage exceeds 1.75 for 1 for
four consecutive quarters; (ii) the Company can only make investments in
F-15
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT: (CONTINUED)
certain high quality investments, such as treasury bills, etc.; (iii) generally,
the Company cannot incur any liens upon its property other than those incurred
in the ordinary course of business; and (iv) the Company cannot make restricted
payments including dividends until it is permitted to incur additional
indebtedness in accordance with item (i) above and the Company has accumulated a
minimum amount of funds prior to the restrictive payment.
On June 16, 1999 the Company received consents from a majority of the
aggregate principal amount of its Senior Notes outstanding as of May 21, 1999,
to certain proposed amendments to the Indenture, dated as of June 1, 1997 and
effective June 4, 1997 (as amended by the Supplemental Indenture, dated as of
June 30, 1997, the "Indenture"), between the Company and IBJ Whitehall Bank &
Trust Company (f/k/a IBJ Schroder Bank &Trust Company), as Trustee, governing
the Senior Notes, and had executed a Second Supplemental Indenture (the "Second
Supplemental Indenture") with respect thereto. The primary purpose of the
amendments was to enable the Company to consummate the Trademark Purchase. On
July 9, 1999 as a result of the closing of the Chase Facility, the Second
Supplemental Indenture became effective. As a result, the Company was required
to pay to each registered holder of Senior Notes as of May 21, 1999, $0.02 in
cash for each $1.00 in principal amount of Senior Notes held by such registered
holder as of that date totaling $2.2 million (the "Consent Fee"). The Consent
Fee is being amortized over the remaining life of the Senior Notes and is
included in interest and financing costs. In addition, the interest rate on the
Senior Notes increased to 13.00%, beginning January 1, 2000.
The Company was in compliance with all covenants under both the Chase
Facility and Senior Notes as of January 1, 2000.
NOTE 8. DEFERRED INCOME:
In connection with the signing of a licensing agreement during 1999, the
Company received a prepayment of royalties of $2.0 million. The proceeds are to
be applied to minimum royalty payments and required advertising and marketing
initiatives for the 2000 and 2001 contract years. The payment has been recorded
as deferred income and income will be recognized as earned based upon actual
sales information provided by the licensee.
NOTE 9. INCOME TAXES:
As a division of Leslie Fay, the Predecessor 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. AEL, Tomwell and Viewmon file separate returns in Hong Kong. Income
taxes have been provided herein for the Predecessor Company as if the Company
had filed a separate return in the United States, in addition to the separate
returns mentioned above.
Beginning June 4, 1997, the Reorganized Company became fully subject to such
taxes and accounts for income taxes under the liability method prescribed by
SFAS No. 109. Under this method, any deferred income taxes recorded are provided
for at currently enacted statutory rates on the differences in the basis of
assets and liabilities for tax and financial reporting purposes. When 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-16
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES: (CONTINUED)
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.
For January 1, 2000 and January 2, 1999, the following (benefit) provision
for income taxes was made:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal............................................... $(2,481) $ 1,590
State................................................. 359 520
Foreign............................................... 396 439
------- -------
Total Current:.......................................... $(1,726) $ 2,549
======= =======
Deferred:
Federal............................................... (242) (257)
State................................................. (458) --
------- -------
(Benefit) Provision for income taxes.................... $(2,426) $ 2,292
======= =======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
A/R reserve........................................... $(2,472) $(1,757)
Inventory, net........................................ (1,911) (1,018)
Other accruals........................................ (982) (168)
------- -------
Total deferred tax assets............................... (5,365) (2,943)
------- -------
Deferred tax liabilities
Amortization.......................................... 3,064 1,630
Other................................................. 288 --
------- -------
Total deferred tax liabilities.......................... 3,352 1,630
------- -------
Net deferred tax assets................................. $(2,013) $(1,313)
======= =======
</TABLE>
Management has determined based on the Company's history of operating
earnings and its expected income, that operating income will more likely than
not be sufficient to fully utilize these deferred tax assets. Accordingly, a
valuation allowance is not required for the $2.0 million of deferred tax assets
in excess of deferred tax liabilities.
F-17
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES: (CONTINUED)
The difference between the Company's effective income tax rate and the
statutory federal income tax rate for fiscal years ended January 1, 2000 and
January 2, 1999 and the seven months ended January 3, 1998, is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
(Benefit) Provision for income taxes......... $(2,426) $2,292 $ 948
------- ------ ------
(Loss) Income before taxes................... $(7,200) $5,462 $1,920
------- ------ ------
Effective tax rate........................... 33.7% 42.0% 49.4%
Net state tax................................ 1.7 (6.3) (9.5)
Other........................................ (1.4) (1.7) (5.9)
------- ------ ------
Federal statutory rate....................... 34.0% 34.0% 34.0%
======= ====== ======
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES:
LEGAL PROCEEDINGS--
On April 5, 1993, Leslie Fay and several of its subsidiaries filed voluntary
petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. All
civil litigation commenced against Leslie Fay and those referenced subsidiaries
prior to that date was stayed under the Bankruptcy Code. By an order dated April
30, 1997 (the "Confirmation Order"), the Bankruptcy Court confirmed the Plan.
The Plan was consummated on June 4, 1997.
The Confirmation Order, inter alia, dismissed with prejudice all pending
litigation, and released all claims that could have been brought in litigation.
Both prior to and subsequent to the filing dates, various class action suits
were commenced on behalf of certain prior stockholders of the Company. Any
claims against the Company arising out of these suits were discharged as part
of, and in accordance with the terms of the Plan. Accordingly, whatever the
eventual outcome of these cases, there can be no material financial impact on
the Company based on the terms of the Plan.
GENERAL LITIGATION--
In the ordinary course of business, the Company is exposed to a number of
asserted and unasserted potential claims. In the opinion of Management, the
resolution of these matters is not presently expected to have a material adverse
effect upon the Company's financial position and results of operations.
EMPLOYMENT AGREEMENTS--
The Company has employment and compensation agreements with three key
employees of the Company. One agreement provides for annual compensation of $2.0
million through June 2002. The other two agreements provide for annual
compensation to each employee in an amount ranging from $750,000 to $850,000
through July 2002. All agreements provide that upon termination, without good
reason, as defined in their respective agreements, each employee will be
entitled to receive a severance payment equal to the employee's base salary for
the remainder of the employment term. The three agreements also
F-18
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
include covenants against competition with the Company, as well as change in
control provisions. As of January 1, 2000, if all three employees were to be
terminated without good reason, under these contracts, the Company's liability
would be approximately $8.8 million.
LEASES--
The Company rents real and personal property under leases expiring at
various dates through 2012. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses.
Minimum annual rental commitments under leases in effect at January 1, 2000
are summarized as follows:
<TABLE>
<CAPTION>
EQUIPMENT
FISCAL YEAR ENDED REAL ESTATE & OTHER
- ----------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000................................................... $10,446 $100
2001................................................... 9,829 97
2002................................................... 8,962 48
2003................................................... 7,768 --
2004................................................... 6,941 --
Thereafter............................................. 27,804 --
------- ----
Total minimum lease payments........................... $71,750 $245
======= ====
</TABLE>
Rent expense for the fiscal years ended January 1, 2000 and January 2, 1999,
the seven months ended January 3, 1998 and the five months ended June 4, 1997
amounted to $7,990,299, $6,563,262, $3,431,529 and $3,226,566, respectively.
CONCENTRATIONS OF CREDIT RISK--
Financial instruments that potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk", consist primarily of trade accounts receivable.
The Company's customers are not concentrated in any specific geographic region,
but are concentrated in the retail apparel business. The Company has established
an allowance for possible losses based upon factors surrounding the credit risk
of specific customers, historical trends and other information. For the years
ended January 1, 2000, January 2, 1999 and January 3, 1998 sales to three
customers accounted for approximately 23%, 19% and 17%, 20%, 19% and 17%, and
18%, 17% and 14% of total sales, respectively.
NOTE 11. SEGMENT INFORMATION:
The Company's primary segment is the design, distribution and wholesale sale
of women's career suits, dresses and sportswear to principally major department
stores and specialty shops. In addition, the Company operates 86 retail outlet
stores throughout the United States as another distribution channel for its
products. As a result of the Trademark Purchase, the Company now considers
licensing to be a reportable segment. For the purposes of decision-making and
assessing performance, Management
F-19
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SEGMENT INFORMATION: (CONTINUED)
includes the operations of AEL in its wholesale segment. International
operations are immaterial for segment reporting and have been included in the
wholesale segment.
The Company measures segment profit as earnings before interest, taxes,
depreciation and amortization ("EBITDA"). All intercompany revenues and expenses
are eliminated in computing revenues and EBITDA. Information on segments and a
reconciliation to the consolidated/combined financial statements is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 1, 2000
WHOLESALE RETAIL LICENSING CONSOLIDATED
--------- -------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................................ $258,836 $52,373 $ 7,033 $318,242
EBITDA.............................................. 11,276 5,744 5,550 22,570
Depreciation and amortization....................... 9,276
--------
Operating income.................................... 13,294
Interest and financing costs........................ 20,494
--------
Loss before provision for income taxes.............. (7,200)
Income taxes........................................ (2,426)
--------
Net loss............................................ $ (4,774)
========
Total Assets........................................ $250,667 $16,768 $62,330 $329,765
Capital Expenditures................................ $ 4,209 $ 2,217 $ -- $ 6,426
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 2, 1999
WHOLESALE RETAIL LICENSING CONSOLIDATED
--------- -------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................................ $265,986 $46,103 $ 852 $312,941
EBITDA.............................................. 24,896 5,297 852 31,045
Depreciation and amortization....................... 7,795
--------
Operating income.................................... 23,250
Interest and financing costs........................ 17,788
--------
Income before provision for income taxes............ 5,462
Income taxes........................................ 2,292
--------
Net income.......................................... $ 3,170
========
Total Assets........................................ $258,397 $10,961 $ -- $269,358
Capital Expenditures................................ $ 4,917 $ 773 $ -- $ 5,690
</TABLE>
F-20
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SEGMENT INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED JANUARY 3, 1998
WHOLESALE RETAIL LICENSING CONSOLIDATED
--------- -------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................................ $150,774 $24,828 $ 609 $176,211
EBITDA.............................................. 12,306 3,101 609 16,016
Depreciation and amortization....................... 4,267
--------
Operating income.................................... 11,749
Interest and financing costs........................ 9,829
--------
Income before provision for income taxes............ 1,920
Income taxes........................................ 948
--------
Net income.......................................... $ 972
========
Total Assets........................................ $251,888 $ 8,768 $ -- $260,656
Capital Expenditures................................ $ 1,247 $ 502 $ -- $ 1,749
</TABLE>
<TABLE>
<CAPTION>
FIVE MONTHS ENDED JUNE 4, 1997
WHOLESALE RETAIL LICENSING CONSOLIDATED
--------- -------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................................ $122,322 $13,785 $ 286 $136,393
EBITDA.............................................. 9,826 1,142 286 11,254
Depreciation and amortization....................... 1,191
--------
Operating income.................................... 10,063
Interest and financing costs........................ 667
--------
Income before provision for income taxes............ 9,396
Income taxes........................................ 3,758
--------
Net income.......................................... $ 5,638
========
Total Assets........................................ $138,960 $ 8,090 $ -- $147,050
Capital Expenditures................................ $ 2,592 $ 517 $ -- $ 3,109
</TABLE>
NOTE 12. RETIREMENT PLANS:
(A) DEFINED CONTRIBUTION PLAN
Kasper established a 401(k) Savings Plan for its employees on June 4, 1997.
It is open to employees over the age of 21, who have completed at least twelve
consecutive months of service. The Company makes matching contributions up to a
percentage of employee contributions. Total contributions to the plan may not
exceed the amount permitted pursuant to the Internal Revenue Code. Contributions
to the plan for the years ended January 1, 2000, January 2, 1999 and seven
months ended January 3, 1998 were $307,763, $259,007 and $52,650, respectively.
Leslie Fay also maintained a qualified voluntary contributory profit sharing
plan covering certain salaried, hourly and commission-based employees, including
some employees of the Predecessor Company. Certain matching contributions to the
plan were mandatory. Other contributions to the plan were discretionary. Total
contributions to the plan may not exceed the amount permitted as a deduction
F-21
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. RETIREMENT PLANS: (CONTINUED)
pursuant to the Internal Revenue Code. The contributions charged to Kasper for
the five months ended June 4, 1997 amounted to $46,200.
(B) OTHER
Leslie Fay participates in multi-employer pension plans, which also covered
certain Predecessor Company employees. The plans provide defined benefits to
unionized employees. Amounts charged to Kasper for contributions to the pension
funds for the five months ended June 4, 1997 amounted to approximately $283,000.
The Company has not established a multi-employer pension plan subsequent to June
4, 1997
The Company does not provide for post-employment or post-retirement benefits
other than the plans described above.
NOTE 13. STOCK OPTION PLANS:
MANAGEMENT STOCK OPTION PLAN--
On December 2, 1997, the Board of Directors approved the 1997 Management
Stock Option Plan (the "Management Plan"). At that time, the Company issued
Management Options to purchase 1,753,459 shares of Common Stock, which upon
issuance would 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. On November 10, 1999, 1,710,692 of the Management Options were
voluntarily cancelled pursuant to an agreement between the Company and the
optionholders. The remaining shares expire if not exercised before October 30,
2001.
The Management Plan provides for the grant to officers and employees of and
consultants to the Company and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company of options
to purchase Common Stock. The total number of shares of Common Stock for which
options may be granted under the Plan is 2,500,000 shares. No participant may be
granted stock options in excess of 1,500,000 shares of Common Stock over the
life of the Management Plan. Management Options are not transferable by the
optionee other than by will or the laws of descent and distribution or to
facilitate estate planning, and each option is exercisable during the lifetime
of the optionee only by such optionee.
The Management Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). The Management Options granted as of the
date hereof are nonqualified stock options. The term of each option granted
pursuant to the Management Plan may be established by the Committee, in its sole
discretion: provided, however, that the maximum term of each option granted
pursuant to the Employee Plan is six and one-half years. Options shall become
exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option agreement.
F-22
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. STOCK OPTION PLANS: (CONTINUED)
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN--
On June 10, 1997, the Board of Directors approved the grant of stock options
("Director Options") to purchase 20,000 shares of Common Stock to each of its
five non-employee directors for a total of 100,000 options. Each option has an
exercise price of $14.00 per share and will vest ratably over the first three
anniversaries following the date of grant. The Director Options will expire on
the fifth anniversary of the date of grant. Director Options are not
transferable by the optionee other than by will or the laws of descent and
distribution or to facilitate estate planning, and each option is exercisable
during the lifetime of the optionee only by such optionee. At the date of
issuance, the fair market value per share was $15.50.
On July 30, 1998, the Board of Directors approved the grant of stock options
to purchase 20,000 shares of Common Stock to each of its two newly elected
directors under the same terms of the Director Options granted on June 10, 1997.
In addition, the Director Options granted to the two outgoing directors became
fully vested as of that date. The market value per share on July 30, 1998 was
$13.00.
The Company has elected to account for its stock based compensation awards
to employees and directors under the accounting prescribed by APB No. 25, under
which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with SFAS
No. 123, net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED SEVEN MONTHS ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
----------------- ----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net (Loss) Income: As Reported........ $(4,774) $3,170 $ 972
Pro Forma.......... (5,860) 1,562 (1,007)
Basic EPS: As Reported........ (.70) .47 .14
Pro Forma.......... (.86) .23 (.15)
Diluted EPS: As Reported........ (.70) .47 .14
Pro Forma.......... (.86) .23 (.15)
</TABLE>
The option price under the Management Plan exceeded the stock's market price
on the date of grant. The option price under the Director Options granted on
June 4, 1997 was less than the stock's market price on the date of grant. The
option price under the Director Options granted on July 30, 1998 was greater
than the stock's market price on the date of grant. A summary of the status of
the Company's two stock plans at January 1, 2000, January 2, 1999 and
January 3, 1998 and changes during the years then ended are presented in the
table and narrative below:
F-23
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. STOCK OPTION PLANS: (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR SEVEN MONTHS
ENDED ENDED ENDED
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year...................... 1,893 $ 14 1,853 $ 14 -- $ --
Granted............................................ -- -- 40 14 1,853 14
Exercised.......................................... -- -- -- -- -- --
Forfeited.......................................... -- -- -- -- -- --
Cancelled.......................................... 1,711 $ 14 -- -- -- --
Expired............................................ -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Outstanding end of year............................ 182 $ 14 1,893 $ 14 1,853 $ 14
----- ----- ----- ----- ----- -----
Exercisable end of year............................ 117 $ 14 761 $ 14 438 $ 14
Weighted average of fair value of options
granted.......................................... $6.79 $4.66 $4.65
</TABLE>
All of the options outstanding at January 1, 2000 have an exercise price of
$14 and a weighted average remaining contractual life of 6.2 years. 117 of these
options are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997 respectively: risk-free
interest rate of 5.8% for the Management Plan and 6.4% and 5.6% for the Director
Options; expected stock price volatility of 43% in 1999 and 34% in 1998 and 1997
for the Management Plan and 43%, 34% and 40% in 1999, 1998 and 1997,
respectively, for the Director Plan; and expected dividend yield of 0% and
expected lives of 5 years for both plans.
F-24
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. INCOME PER SHARE:
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No. 128.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR SEVEN MONTHS
ENDED ENDED ENDED
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Basic EPS
(Loss) income available to common shareholders......... $(4,774) $3,170 $ 972
Effect of Dilutive Securities:
Non-Employee Director Stock Options.................. -- -- --
Management Stock Options............................. -- -- --
------- ------ -----
Diluted EPS
(Loss) income available to common shareholders......... $(4,774) $3,170 $ 972
- -----------------------------------------------------------------------------------------------------
Denominator:
Basic EPS
Weighted average shares outstanding.................... 6,800 6,800 6,800
Effect of Dilutive Securities:
Non-Employee Director Stock Options.................. -- -- 5
Management Stock Options............................. -- -- --
------- ------ -----
Diluted EPS
Weighted average shares outstanding and assumed
conversions.......................................... 6,800 6,800 6,805
- -----------------------------------------------------------------------------------------------------
Basic EPS................................................ (.70) .47 .14
Diluted EPS.............................................. (.70) .47 .14
</TABLE>
The Management Stock Options issued on December 2, 1997 and the Director
Options granted on July 30, 1998 were not included in the computation of diluted
EPS because the options' exercise price was greater than the average market
price of the common shares, for the entire time outstanding during the year.
42,767 Management Stock Options and all Director Options were outstanding at
January 1, 2000.
NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 JANUARY 2, 1999 JANUARY 3, 1998
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest........................... $18,790 $16,866 $5,869
Income Taxes....................... 1,138 3,202 1,462
</TABLE>
F-25
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. UNAUDITED QUARTERLY RESULTS:
Unaudited quarterly financial information for 1999 and 1998 is set forth as
follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............................... $98,286 $55,760 $87,959 $69,204
Gross Profit............................ 32,229 16,632 30,309 19,552
Net Income (loss)....................... 5,147 (3,408) 1,091 (7,604)
Net Income (loss) per share............. 0.76 (0.50) 0.16 (1.12)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............................... $96,132 $62,371 $94,080 $59,506
Gross Profit............................ 28,388 18,095 31,011 16,387
Net Income (loss)....................... 4,008 (2,225) 5,175 (3,788)
Net Income (loss) per share............. 0.59 (0.33) 0.76 (0.56)
</TABLE>
F-26
<PAGE>
SCHEDULE II
KASPER A.S.L., LTD. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT COSTS BALANCE AT
BEGINNING CHARGED END OF
DESCRIPTION OF PERIOD TO EXPENSE DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 1, 2000:
Allowance for doubtful accounts................... $(184) $(221) $204 $(201)
FISCAL YEAR ENDED JANUARY 2, 1999:
Allowance for doubtful accounts................... $(168) $ (81) $ 65 $(184)
SEVEN MONTHS ENDED JANUARY 3, 1998:
Allowance for doubtful accounts................... $(244) $ 43 $ 33 $(168)
</TABLE>
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
KASPER A.S.L., LTD.
(REGISTRANT)
By: /s/ MARY ANN DOMURACKI
-----------------------------------------
Mary Ann Domuracki
EXECUTIVE VICE PRESIDENT--
FINANCE AND ADMINISTRATION
</TABLE>
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ARTHUR S. LEVINE Chairman of the Board and Chief
- ------------------------------- Executive Officer (Principal March 30, 2000
Arthur S. Levine Executive Officer)
/s/ MARY ANN DOMURACKI Executive Vice President--Finance and
- ------------------------------- Administration (Principal Financial March 30, 2000
Mary Ann Domuracki and Accounting Officer)
/s/ LESTER E. SCHREIBER
- ------------------------------- Chief Operating Officer and Director March 30, 2000
Lester E. Schreiber
/s/ H. SEAN MATHIS
- ------------------------------- Director March 30, 2000
H. Sean Mathis
/s/ WILLIAM J. NIGHTINGALE
- ------------------------------- Director March 30, 2000
William J. Nightingale
- ------------------------------- Director March , 2000
Salvatore M. Salibello
/s/ DENIS J. TAURA
- ------------------------------- Director March 30, 2000
Denis J. Taura
/s/ OLIVIER TROUVEROY
- ------------------------------- Director March 30, 2000
Olivier Trouveroy
</TABLE>
<PAGE>
AMENDMENT AGREEMENT NO. 1
AMENDMENT AGREEMENT NO. 1, dated December 22, 1999 (this "Agreement"), to
the Amended and Restated Credit Agreement dated as of July 9, 1999 (the "Credit
Agreement"), among KASPER A.S.L., LTD., a Delaware corporation (the "Borrower"),
the Guarantors named therein, the financial institutions from time to time party
thereto (collectively, the "Lenders"), THE CHASE MANHATTAN BANK, as
administrative and collateral agent for the Lenders (in such capacity, the
"Agent") and THE CIT GROUP/COMMERCIAL SERVICES, INC., as collateral monitor (in
such capacity, the "Collateral Monitor"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement.
WHEREAS, the Borrower has requested that the Lenders agree to amend certain
terms and provisions of the Credit Agreement;
WHEREAS, the Lenders party hereto, Borrower and Guarantors have agreed to
amend the Credit Agreement as described herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and subject to the fulfillment of the conditions
set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
Upon the fulfillment of the conditions set forth in Section 3 below the
Credit Agreement is hereby amended as follows:
1.1 Section 7.08 of the Credit Agreement is hereby amended by deleting the
percentage "59%" appearing opposite the date December 31, 2000 in such section
and substituting the percentage "62%" therefor.
1.2 Section 7.09 of the Credit Agreement is hereby amended in its entirety
to read as follows:
SECTION 7.09 Interest Coverage Ratio. Permit the Interest Coverage Ratio of
the Borrower and its subsidiaries on a Consolidated basis for the four
consecutive fiscal quarter periods ending on the dates set forth below to be
less than the respective amounts set forth below opposite such dates:
<TABLE>
<CAPTION>
QUARTER ENDING ON OR ABOUT RATIO
- -------------------------- ---------
<S> <C>
December 31, 1999........................................... 1.00:1.00
March 31, 2000.............................................. 0.85:1.00
June 30, 2000............................................... 0.95:1.00
September 30, 2000.......................................... 1.20:1.00
December 31, 2000........................................... 1.45:1.00
March 31, 2001.............................................. 1.80:1.00
June 30, 2001............................................... 1.80:1.00
September 30, 2001.......................................... 1.80:1.00
December 31, 2001........................................... 2.30:1.00
March 31, 2002.............................................. 2.30:1.00
June 30, 2002............................................... 2.30:1.00
September 30, 2002.......................................... 2.30:1.00
December 31, 2002........................................... 2.80:1.00
March 31, 2003.............................................. 2.80:1.00
June 30, 2003............................................... 2.80:1.00
September 30, 2003.......................................... 2.80:1.00
</TABLE>
1
<PAGE>
1.3 Section 7.10 of the Credit Agreement is hereby amended in its entirety
to read as follows:
SECTION 7.10 Net Worth. Permit the Net Worth of the Borrower and its
subsidiaries on a Consolidated basis at any time to be less than $115,000,000
through June 30, 2000 and thereafter at any time to be less than the respective
amounts set forth below for the periods indicated:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------ ------------
<S> <C>
July 1, 2000 through December 31, 2000...................... $118,000,000
January 1, 2001 through March 31, 2001...................... $122,000,000
April 1, 2001 through June 30, 2001......................... $124,000,000
July 1, 2001 through September 30, 2001..................... $126,000,000
October 1, 2001 through December 31, 2001................... $128,000,000
January 1, 2002 through March 31, 2002...................... $130,000,000
April 1, 2002 through June 30, 2002......................... $132,000,000
July 1, 2002 through September 30, 2002..................... $134,000,000
October 1, 2002 through December 31, 2002................... $136,000,000
January 1, 2003 through March 31, 2003...................... $138,000,000
April 1, 2003 through June 30, 2003......................... $140,000,000
July 1, 2003 through September 30, 2003..................... $142,000,000
October 1, 2003 through December 31, 2003................... $144,000,000
</TABLE>
SECTION 2. CONFIRMATION OF LOAN DOCUMENTS
2.1 Each Loan Party, by its execution and delivery of this Agreement,
irrevocably and unconditionally ratifies and confirms in favor of the Agent that
it consents to the terms and conditions of the Credit Agreement as it has been
amended by this Agreement and that notwithstanding this Agreement, each Loan
Document to which such Loan Party is a party shall continue in full force and
effect in accordance with its terms, as it has been amended by this Agreement,
and is and shall continue to be applicable to all of the Obligations.
SECTION 3. CONDITIONS PRECEDENT
This Agreement shall become effective upon the execution and delivery to the
Agent of counterparts hereof by the Borrower, each Guarantor and the Lenders
constituting Required Lenders and the fulfillment of the following conditions:
3.1 The Agent shall have received an executed copy of the fee agreement,
dated the date hereof, between the Agent and the Borrower.
3.2 Messrs. Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the
Agent, shall have received payment in full for all legal fees charged, and all
costs and expenses incurred and invoiced, by such counsel through the date
hereof and all legal fees charged, and all costs and expenses incurred, by such
counsel in connection with the transactions contemplated under this Agreement
and the other Loan Documents and instruments in connection herewith and
therewith.
3.3 All legal matters in connection with this Agreement shall be
satisfactory to the Agent and its counsel in their sole discretion.
3.4 The Agent shall have received a certificate signed by a Financial
Officer of the Borrower and each Guarantor that (i) both before and after giving
effect to this Agreement all representations and warranties contained in this
Agreement and the Credit Agreement shall be true and correct and (ii) both
before and after giving effect to the transactions contemplated herein there
exists no Default or Event of Default.
3.5 The Agent shall have received such other documents as the Agent or
Agent's counsel shall reasonably deem necessary.
2
<PAGE>
SECTION 4. MISCELLANEOUS
4.1 The Borrower and each Guarantor reaffirms and restates the
representations and warranties set forth in Article IV of the Credit Agreement,
and both before and after giving effect to this Agreement, and all such
representations and warranties shall be true and correct on the date hereof with
the same force and effect as if made on such date. Each Loan Party represents
and warrants (which representations and warranties shall survive the execution
and delivery hereof) to the Agent that:
(a) It has the corporate power and authority to execute, deliver and carry
out the terms and provisions of this Agreement hereby and has taken or caused to
be taken all necessary corporate action to authorize the execution, delivery and
performance of this Agreement;
(b) No consent of any other person (including, without limitation,
shareholders or creditors of any Loan Party), and no action of, or filing with
any governmental or public body or authority is required to authorize, or is
otherwise required in connection with the execution, delivery and performance of
this Agreement;
(c) This Agreement has been duly executed and delivered on behalf of each
Loan Party by a duly authorized officer, and constitutes a legal, valid and
binding obligation of each Loan Party enforceable in accordance with its terms,
subject to bankruptcy, reorganization, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and the exercise
of judicial discretion in accordance with general principles of equity; and
(d) The execution, delivery and performance of this Agreement will not
violate any law, statute or regulation, or any order or decree of any court or
governmental instrumentality, or conflict with, or result in the breach of, or
constitute a default under any contractual obligation of any Loan Party.
4.2 Except, as herein expressly amended, the Credit Agreement is ratified
and confirmed in all respects and shall remain in full force and effect in
accordance with its terms.
4.3 All references to the Credit Agreement in the Credit Agreement and the
other Loan Documents and the other documents and instruments delivered pursuant
to or in connection therewith shall mean the Credit Agreement as amended hereby
and as may in the future be amended, restated, supplemented or modified from
time to time.
4.4 This Agreement may be executed by the parties hereto individually or in
combination, in one or more counterparts, each of which shall be an original and
all of which shall constitute one and the same agreement.
4.5 Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
4.6 THIS AGREEMENT, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL
OBLIGATION LAW OF THE STATE OF NEW YORK, SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE
LAWS OF ANY OTHER JURISDICTION.
4.7 The parties hereto shall, at any time and from time to time following
the execution of this Agreement, execute and deliver all such further
instruments and take all such further actions as may be reasonably necessary or
appropriate in order to carry out the provisions of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
3
<PAGE>
IN WITNESS WHEREOF, the Borrower, Guarantors, the Agent, the Collateral
Monitor and the Required Lenders have caused this Amendment Agreement No. 1 to
be duly executed by their respective authorized officers as of the day and year
first above written.
<TABLE>
<S> <C> <C>
KASPER A.S.L., LTD., as Borrower
By: /s/ MARY ANN DOMURACKI
-----------------------------------------
Name: Mary Ann Domuracki
Title: Executive Vice President--Finance
and Administration
A.S.L. RETAIL OUTLETS, INC., as a Guarantor
By: /s/ MARY ANN DOMURACKI
-----------------------------------------
Name: Mary Ann Domuracki
Title: Executive Vice President--Finance
and Administration
ASL/K LICENSING CORP., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
KASPER A.S.L. EUROPE, LTD., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Secretary
KASPER HOLDINGS INC., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Vice President
AKC ACQUISITION, LTD., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Secretary
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
LION LICENSING, LTD., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Secretary
ASIA EXPERT LIMITED, as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
TOMWELL LIMITED, as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
VIEWMON LIMITED, as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
THE CHASE MANHATTAN BANK, as Lender
By: /s/ DANIEL GREENE
-----------------------------------------
Name: Daniel Greene
Title: Vice President
THE CHASE MANHATTAN BANK, as Agent
By: /s/ DANIEL GREENE
-----------------------------------------
Name: Daniel Greene
Title: Vice President
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
THE CIT GROUP/COMMERCIAL SERVICES, INC., as
Lender
By: /s/ DEBORAH ROGUT
-----------------------------------------
Name: Deborah Rogut
Title: Vice President
THE CIT GROUP/COMMERCIAL SERVICES, INC., as
Collateral Monitor
By: /s/ DEBORAH ROGUT
-----------------------------------------
Name: Deborah Rogut
Title: Vice President
LASALLE BANK, N.A., as Lender
By: /s/ MICHAEL W. KISS
-----------------------------------------
Name: Michael W. Kiss
Title: Senior Vice President
FLEET CAPITAL CORPORATION, as Lender
By: /s/ FRANK J. GALLE
-----------------------------------------
Name: Frank J. Galle
Title: Vice President
FINOVA CAPITAL CORPORATION, as Lender
By: /s/ GERARD C. WORDELL
-----------------------------------------
Name: Gerard C. Wordell
Title: Authorized Signer
ISRAEL DISCOUNT BANK OF NEW YORK,
as Lender
By: /s/ R. DAVID KORNGRUEN
-----------------------------------------
Name: R. David Korngruen
Title: Vice President
By: /s/ ANDREW FINKLE
-----------------------------------------
Name: Andrew Finkle
Title: Assistant Manager
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
PNC BANK, NATIONAL ASSOCIATION, as Lender
By: /s/ ROSE M. CRUMP
-----------------------------------------
Name: Rose M. Crump
Title: Vice President
DEBIS FINANCIAL SERVICES, INC., as Lender
By: /s/ J. STONE
-----------------------------------------
Name: J. Stone
Title: Legal Counsel
BANK LEUMI USA, as Lender
By: /s/ STEVEN FARRON
-----------------------------------------
Name: Steven Farron
Title: Vice President
</TABLE>
7
<PAGE>
FIRST LEASE MODIFICATION AGREEMENT
THIS FIRST LEASE MODIFICATION AGREEMENT, made this 30th day of April, 1999
by and between IMPORT HARTZ ASSOCIATES, a New Jersey limited partnership, having
an office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred
to as "Landlord") and KASPER A.S.L., LTD., (formerly known as Sassco
Fashions, Ltd.), a Delaware corporation having an office at 77 Metro Way,
Secaucus, New Jersey 07094 (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease dated August 20, 1996 (the "Lease") Landlord
leased to Tenant's predecessor-in-interest, The Leslie Faye Companies, Inc. and
The Leslie Faye Companies, Inc. hired from Landlord 292,894 square feet of Floor
Space located at 77 Metro Way, Secaucus, New Jersey (hereinafter the "Demised
Premises"); and
WHEREAS, Landlord and Tenant wish to modify the Lease to reflect an increase
in the area of the Demised Premises and amend the Lea5e accordingly;
NOW, THEREFORE, for and in consideration of the Lease, the mutual covenants
herein contained and the consideration set forth herein, the parties agree as
follows:
1. Incorporation by Reference; Defined Terms: The foregoing "WHEREAS"
recitals and definitions contained therein are hereby incorporated into this
First Lease Modification Agreement. Capitalized terms used but separately
defined "in this First Lease Modification Agreement shall have their respective
meaning used in the Lease.
2. Additional Premises: That certain space located on the first floor and
mezzanine in the Building containing 91,649 square feet of Floor Space (as more
particularly shown cross-hatched on Exhibit A annexed hereto and made a part
hereof) (the "Additional Premises") is hereby added to and deemed a part of the
Demised Premises effective on the Additional Premises Commencement Date (as
hereinafter defined) for the balance of the Term. Effective as of the Additional
Premises Commencement Date, the term "Demised Premises" as used in the Lease, as
amended hereby, shall be deemed to include the Additional Premises, for a total
of 384,543 square feet of Floor Space. Said Additional Premises is being leased
in its "as is" condition, as of the date hereof, subject to the removal
therefrom by the existing tenant thereof of its personal property, including,
without limitation, the existing racks and racking system in the Additional
Premises. Landlord shall cause any damage to the Demised Premises resulting from
such removal to be repaired prior to the Additional Premises Commencement Date
and shall deliver the Additional Premises to Tenant in broom-clean condition.
Such repair shall be deemed performed for the purposes of the foregoing sentence
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment or decoration remain to be performed, the noncompletion of
which does not materially interfere with Tenant's use of the Demised Premises.
Landlord represents and warrants that the roof of the Building over the
Additional Premises is leak-free and that the mechanical, electrical, sanitary,
HVAC and other Building systems servicing the Additional Premises are currently
"in good working order, or alternatively, Landlord shall cause same to be
leak-free and/or in good working order, as the case may be, on or before the
Additional Premises Commencement Date. Landlord shall obtain any initial or
continued certificate of occupancy for the Additional Premises, after which the
terms and provisions of Section 4.02 of the Lease shall apply.
For the purposes hereof, "Additional Premises Commencement Date" shall mean
the date on which actual possession of the Additional Premises shall have been
delivered to Tenant by notice to Tenant. It is anticipated that the Additional
Premises Commencement Date shall occur not later than July 31, 1999. In no event
shall the Additional Premises Commencement Date occur before June 15,1999. If
the Additional Premises Commencement Date shall not have occurred by July 31,
1999, then thereafter Tenant shall have the right to cancel and terminate this
First Lease Modification Agreement, by notice given to Landlord, if
1
<PAGE>
at all, not later than August 2, 1999, and if Tenant shall give such notice,
then as of August 2, 1999, this First Lease Modification Agreement shall be
deemed null and void ab initio. For the purposes of the preceding sentence, and
notwithstanding anything to the contrary in Section 32.01 of the Lease, notice
shall be given, if at all, as follows: either via hand-delivery (with evidence
of receipt), or via telecopier to Landlord at 201-348-4221 or 201-348-9144,
Attention: Irwin A. Horowitz, General Counsel, with a copy to 201-348-4358,
Attention: Ernest A. Christoph, Vice President/Leasing, with the hard copy to
follow for delivery not later than August 3, 1999 via nationally recognized
overnight courier service.
3. Fixed Rent: Fixed Rent for the Additional Premises will be at the rates
set forth in the Lease (i.e. for the period from the Additional Premises
Commencement Date through December 31, 2001 an amount at the annual rate of
$5.00 multiplied by the Floor Space of the Additional Premises; and for the
period from January 1, 2002 through the Expiration Date, an amount at the annual
rate of $5.75 multiplied by the Floor Space of the Additional Premises).
4. Tenant's Fraction: From and after the Additional Premises Commencement
Date, Tenant's Fraction shall be 95.73% (i.e., 384,543/401,678).
5. Tenant Parking: Effective as of the Additional Premises Commencement
Date, Paragraph R5 and the accompanying Exhibit G to the Lease shall be deemed
deleted and the following substituted therefor:
R5. Tenant shall have the right during the Term hereof to use all of the
parking spaces on the Land, except for those parking spaces within the area
outlined in red on the attached Exhibit "X".
6. Section 13.05 of the Lease is hereby deleted and the following
substituted therefor:
13.05. Neither party shall be liable or responsible for, and each party
hereby releases the other from, all liability and responsibility to the
other and any person claiming by, through or under the other, by way of
subrogation for any injury, loss or damage to any person or property in or
around the Demised Premises or to the other's business covered by insurance
carried or required to be carried hereunder irrespective of the cause of
such injury, loss or damage, and each party shall require its insurers to
include in all of such party's insurance policies which could give rise to a
right of subrogation against the other a clause or endorsement whereby the
insurer waives any rights of subrogation against the other or permits the
insured, prior to any loss, to agree with a third party to waive any claim
it may have against said third party without invalidating the coverage under
the insurance policy.
7. Section 32.01 of the Lease is hereby amended so as to permit notices to
be sent via reputable, nationally recognized overnight courier service for next
day delivery. Notices sent via such method shall be deemed to have been given,
rendered or made upon receipt or refusal of receipt.
8. Notwithstanding anything to contrary contained in Section 36.13, in no
event shall Tenant be responsible for any compliance with ISRA or any costs or
expenses of and to the extent of any required cleanup or clean-up plan where the
spills or discharges which create the need for such compliance, cleanup or plan
occurred prior to the Commencement Date (with respect to the initial Demised
Premises) or the Additional Premises Commencement Date (with respect to the
Additional Premises), as the case may be, unless such spill or discharge is
caused by Tenant's acts or action or those of its contractors, agents or
employees.
9. Tenant hereby represents and warrants to Landlord that it has full right,
power and authority to enter into the transactions provided for in this First
Lease Modification Agreement.
[NO FURTHER TEXT ON THIS PAGE]
2
<PAGE>
Except as modified by this First Lease Modification Agreement, the Lease and
all covenants, agreements, terms and conditions thereof shall remain in full
force and effect and are hereby in all respects ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this First Lease
Modification Agreement to be duly executed as of the day and year first above
written.
<TABLE>
<S> <C> <C>
("Landlord")
IMPORT HARTZ ASSOCIATES
By: HARTZ MOUNTAIN INDUSTRIES, INC.
By: /s/ IRWIN A. HOROWITZ
-----------------------------------------
Irwin A. Horowitz
Executive Vice President
("Tenant")
KASPER A.S.L., LTD.
By: /s/ LESTER E. SCHREIBER
-----------------------------------------
Lester E. Schreiber
Chief Operating Officer and Secretary
</TABLE>
3
<PAGE>
EXHIBIT 10.11
AMENDMENT AGREEMENT NO. 1
AMENDMENT AGREEMENT NO. 1, dated December 22, 1999 (this "Agreement"), to
the Amended and Restated Credit Agreement dated as of July 9, 1999 (the "Credit
Agreement"), among KASPER A.S.L., LTD., a Delaware corporation (the "Borrower"),
the Guarantors named therein, the financial institutions from time to time party
thereto (collectively, the "Lenders"), THE CHASE MANHATTAN BANK, as
administrative and collateral agent for the Lenders (in such capacity, the
"Agent") and THE CIT GROUP/COMMERCIAL SERVICES, INC., as collateral monitor (in
such capacity, the "Collateral Monitor"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement.
WHEREAS, the Borrower has requested that the Lenders agree to amend certain
terms and provisions of the Credit Agreement;
WHEREAS, the Lenders party hereto, Borrower and Guarantors have agreed to
amend the Credit Agreement as described herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and subject to the fulfillment of the conditions
set forth below, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
Upon the fulfillment of the conditions set forth in Section 3 below the
Credit Agreement is hereby amended as follows:
1.1 Section 7.08 of the Credit Agreement is hereby amended by deleting the
percentage "59%" appearing opposite the date December 31, 2000 in such section
and substituting the percentage "62%" therefor.
1.2 Section 7.09 of the Credit Agreement is hereby amended in its entirety
to read as follows:
SECTION 7.09 Interest Coverage Ratio. Permit the Interest Coverage Ratio of
the Borrower and its subsidiaries on a Consolidated basis for the four
consecutive fiscal quarter periods ending on the dates set forth below to be
less than the respective amounts set forth below opposite such dates:
<TABLE>
<CAPTION>
QUARTER ENDING ON OR ABOUT RATIO
- -------------------------- ---------
<S> <C>
December 31, 1999........................................... 1.00:1.00
March 31, 2000.............................................. 0.85:1.00
June 30, 2000............................................... 0.95:1.00
September 30, 2000.......................................... 1.20:1.00
December 31, 2000........................................... 1.45:1.00
March 31, 2001.............................................. 1.80:1.00
June 30, 2001............................................... 1.80:1.00
September 30, 2001.......................................... 1.80:1.00
December 31, 2001........................................... 2.30:1.00
March 31, 2002.............................................. 2.30:1.00
June 30, 2002............................................... 2.30:1.00
September 30, 2002.......................................... 2.30:1.00
December 31, 2002........................................... 2.80:1.00
March 31, 2003.............................................. 2.80:1.00
June 30, 2003............................................... 2.80:1.00
September 30, 2003.......................................... 2.80:1.00
</TABLE>
1
<PAGE>
1.3 Section 7.10 of the Credit Agreement is hereby amended in its entirety
to read as follows:
SECTION 7.10 Net Worth. Permit the Net Worth of the Borrower and its
subsidiaries on a Consolidated basis at any time to be less than $115,000,000
through June 30, 2000 and thereafter at any time to be less than the respective
amounts set forth below for the periods indicated:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------ ------------
<S> <C>
July 1, 2000 through December 31, 2000...................... $118,000,000
January 1, 2001 through March 31, 2001...................... $122,000,000
April 1, 2001 through June 30, 2001......................... $124,000,000
July 1, 2001 through September 30, 2001..................... $126,000,000
October 1, 2001 through December 31, 2001................... $128,000,000
January 1, 2002 through March 31, 2002...................... $130,000,000
April 1, 2002 through June 30, 2002......................... $132,000,000
July 1, 2002 through September 30, 2002..................... $134,000,000
October 1, 2002 through December 31, 2002................... $136,000,000
January 1, 2003 through March 31, 2003...................... $138,000,000
April 1, 2003 through June 30, 2003......................... $140,000,000
July 1, 2003 through September 30, 2003..................... $142,000,000
October 1, 2003 through December 31, 2003................... $144,000,000
</TABLE>
SECTION 2. CONFIRMATION OF LOAN DOCUMENTS
2.1 Each Loan Party, by its execution and delivery of this Agreement,
irrevocably and unconditionally ratifies and confirms in favor of the Agent that
it consents to the terms and conditions of the Credit Agreement as it has been
amended by this Agreement and that notwithstanding this Agreement, each Loan
Document to which such Loan Party is a party shall continue in full force and
effect in accordance with its terms, as it has been amended by this Agreement,
and is and shall continue to be applicable to all of the Obligations.
SECTION 3. CONDITIONS PRECEDENT
This Agreement shall become effective upon the execution and delivery to the
Agent of counterparts hereof by the Borrower, each Guarantor and the Lenders
constituting Required Lenders and the fulfillment of the following conditions:
3.1 The Agent shall have received an executed copy of the fee agreement,
dated the date hereof, between the Agent and the Borrower.
3.2 Messrs. Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the
Agent, shall have received payment in full for all legal fees charged, and all
costs and expenses incurred and invoiced, by such counsel through the date
hereof and all legal fees charged, and all costs and expenses incurred, by such
counsel in connection with the transactions contemplated under this Agreement
and the other Loan Documents and instruments in connection herewith and
therewith.
3.3 All legal matters in connection with this Agreement shall be
satisfactory to the Agent and its counsel in their sole discretion.
3.4 The Agent shall have received a certificate signed by a Financial
Officer of the Borrower and each Guarantor that (i) both before and after giving
effect to this Agreement all representations and warranties contained in this
Agreement and the Credit Agreement shall be true and correct and (ii) both
before and after giving effect to the transactions contemplated herein there
exists no Default or Event of Default.
3.5 The Agent shall have received such other documents as the Agent or
Agent's counsel shall reasonably deem necessary.
2
<PAGE>
SECTION 4. MISCELLANEOUS
4.1 The Borrower and each Guarantor reaffirms and restates the
representations and warranties set forth in Article IV of the Credit Agreement,
and both before and after giving effect to this Agreement, and all such
representations and warranties shall be true and correct on the date hereof with
the same force and effect as if made on such date. Each Loan Party represents
and warrants (which representations and warranties shall survive the execution
and delivery hereof) to the Agent that:
(a) It has the corporate power and authority to execute, deliver and carry
out the terms and provisions of this Agreement hereby and has taken or caused to
be taken all necessary corporate action to authorize the execution, delivery and
performance of this Agreement;
(b) No consent of any other person (including, without limitation,
shareholders or creditors of any Loan Party), and no action of, or filing with
any governmental or public body or authority is required to authorize, or is
otherwise required in connection with the execution, delivery and performance of
this Agreement;
(c) This Agreement has been duly executed and delivered on behalf of each
Loan Party by a duly authorized officer, and constitutes a legal, valid and
binding obligation of each Loan Party enforceable in accordance with its terms,
subject to bankruptcy, reorganization, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and the exercise
of judicial discretion in accordance with general principles of equity; and
(d) The execution, delivery and performance of this Agreement will not
violate any law, statute or regulation, or any order or decree of any court or
governmental instrumentality, or conflict with, or result in the breach of, or
constitute a default under any contractual obligation of any Loan Party.
4.2 Except, as herein expressly amended, the Credit Agreement is ratified
and confirmed in all respects and shall remain in full force and effect in
accordance with its terms.
4.3 All references to the Credit Agreement in the Credit Agreement and the
other Loan Documents and the other documents and instruments delivered pursuant
to or in connection therewith shall mean the Credit Agreement as amended hereby
and as may in the future be amended, restated, supplemented or modified from
time to time.
4.4 This Agreement may be executed by the parties hereto individually or in
combination, in one or more counterparts, each of which shall be an original and
all of which shall constitute one and the same agreement.
4.5 Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
4.6 THIS AGREEMENT, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL
OBLIGATION LAW OF THE STATE OF NEW YORK, SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE
LAWS OF ANY OTHER JURISDICTION.
4.7 The parties hereto shall, at any time and from time to time following
the execution of this Agreement, execute and deliver all such further
instruments and take all such further actions as may be reasonably necessary or
appropriate in order to carry out the provisions of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
3
<PAGE>
IN WITNESS WHEREOF, the Borrower, Guarantors, the Agent, the Collateral
Monitor and the Required Lenders have caused this Amendment Agreement No. 1 to
be duly executed by their respective authorized officers as of the day and year
first above written.
<TABLE>
<S> <C> <C>
KASPER A.S.L., LTD., as Borrower
By: /s/ MARY ANN DOMURACKI
-----------------------------------------
Name: Mary Ann Domuracki
Title: Executive Vice President--Finance
and Administration
A.S.L. RETAIL OUTLETS, INC., as a Guarantor
By: /s/ MARY ANN DOMURACKI
-----------------------------------------
Name: Mary Ann Domuracki
Title: Executive Vice President--Finance
and Administration
ASL/K LICENSING CORP., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
KASPER A.S.L. EUROPE, LTD., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Secretary
KASPER HOLDINGS INC., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Vice President
AKC ACQUISITION, LTD., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Secretary
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
LION LICENSING, LTD., as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Secretary
ASIA EXPERT LIMITED, as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
TOMWELL LIMITED, as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
VIEWMON LIMITED, as a Guarantor
By: /s/ DENNIS P. KELLY
-----------------------------------------
Name: Dennis P. Kelly
Title: Treasurer
THE CHASE MANHATTAN BANK, as Lender
By: /s/ DANIEL GREENE
-----------------------------------------
Name: Daniel Greene
Title: Vice President
THE CHASE MANHATTAN BANK, as Agent
By: /s/ DANIEL GREENE
-----------------------------------------
Name: Daniel Greene
Title: Vice President
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
THE CIT GROUP/COMMERCIAL SERVICES, INC., as
Lender
By: /s/ DEBORAH ROGUT
-----------------------------------------
Name: Deborah Rogut
Title: Vice President
THE CIT GROUP/COMMERCIAL SERVICES, INC., as
Collateral Monitor
By: /s/ DEBORAH ROGUT
-----------------------------------------
Name: Deborah Rogut
Title: Vice President
LASALLE BANK, N.A., as Lender
By: /s/ MICHAEL W. KISS
-----------------------------------------
Name: Michael W. Kiss
Title: Senior Vice President
FLEET CAPITAL CORPORATION, as Lender
By: /s/ FRANK J. GALLE
-----------------------------------------
Name: Frank J. Galle
Title: Vice President
FINOVA CAPITAL CORPORATION, as Lender
By: /s/ GERARD C. WORDELL
-----------------------------------------
Name: Gerard C. Wordell
Title: Authorized Signer
ISRAEL DISCOUNT BANK OF NEW YORK,
as Lender
By: /s/ R. DAVID KORNGRUEN
-----------------------------------------
Name: R. David Korngruen
Title: Vice President
By: /s/ ANDREW FINKLE
-----------------------------------------
Name: Andrew Finkle
Title: Assistant Manager
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
PNC BANK, NATIONAL ASSOCIATION, as Lender
By: /s/ ROSE M. CRUMP
-----------------------------------------
Name: Rose M. Crump
Title: Vice President
DEBIS FINANCIAL SERVICES, INC., as Lender
By: /s/ J. STONE
-----------------------------------------
Name: J. Stone
Title: Legal Counsel
BANK LEUMI USA, as Lender
By: /s/ STEVEN FARRON
-----------------------------------------
Name: Steven Farron
Title: Vice President
</TABLE>
7
<PAGE>
EXHIBIT 10.31
FIRST LEASE MODIFICATION AGREEMENT
THIS FIRST LEASE MODIFICATION AGREEMENT, made this 30th day of April, 1999
by and between IMPORT HARTZ ASSOCIATES, a New Jersey limited partnership, having
an office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred
to as "Landlord") and KASPER A.S.L., LTD., (formerly known as Sassco
Fashions, Ltd.), a Delaware corporation having an office at 77 Metro Way,
Secaucus, New Jersey 07094 (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease dated August 20, 1996 (the "Lease") Landlord
leased to Tenant's predecessor-in-interest, The Leslie Faye Companies, Inc. and
The Leslie Faye Companies, Inc. hired from Landlord 292,894 square feet of Floor
Space located at 77 Metro Way, Secaucus, New Jersey (hereinafter the "Demised
Premises"); and
WHEREAS, Landlord and Tenant wish to modify the Lease to reflect an increase
in the area of the Demised Premises and amend the Lea5e accordingly;
NOW, THEREFORE, for and in consideration of the Lease, the mutual covenants
herein contained and the consideration set forth herein, the parties agree as
follows:
1. Incorporation by Reference; Defined Terms: The foregoing "WHEREAS"
recitals and definitions contained therein are hereby incorporated into this
First Lease Modification Agreement. Capitalized terms used but separately
defined "in this First Lease Modification Agreement shall have their respective
meaning used in the Lease.
2. Additional Premises: That certain space located on the first floor and
mezzanine in the Building containing 91,649 square feet of Floor Space (as more
particularly shown cross-hatched on Exhibit A annexed hereto and made a part
hereof) (the "Additional Premises") is hereby added to and deemed a part of the
Demised Premises effective on the Additional Premises Commencement Date (as
hereinafter defined) for the balance of the Term. Effective as of the Additional
Premises Commencement Date, the term "Demised Premises" as used in the Lease, as
amended hereby, shall be deemed to include the Additional Premises, for a total
of 384,543 square feet of Floor Space. Said Additional Premises is being leased
in its "as is" condition, as of the date hereof, subject to the removal
therefrom by the existing tenant thereof of its personal property, including,
without limitation, the existing racks and racking system in the Additional
Premises. Landlord shall cause any damage to the Demised Premises resulting from
such removal to be repaired prior to the Additional Premises Commencement Date
and shall deliver the Additional Premises to Tenant in broom-clean condition.
Such repair shall be deemed performed for the purposes of the foregoing sentence
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment or decoration remain to be performed, the noncompletion of
which does not materially interfere with Tenant's use of the Demised Premises.
Landlord represents and warrants that the roof of the Building over the
Additional Premises is leak-free and that the mechanical, electrical, sanitary,
HVAC and other Building systems servicing the Additional Premises are currently
"in good working order, or alternatively, Landlord shall cause same to be
leak-free and/or in good working order, as the case may be, on or before the
Additional Premises Commencement Date. Landlord shall obtain any initial or
continued certificate of occupancy for the Additional Premises, after which the
terms and provisions of Section 4.02 of the Lease shall apply.
For the purposes hereof, "Additional Premises Commencement Date" shall mean
the date on which actual possession of the Additional Premises shall have been
delivered to Tenant by notice to Tenant. It is anticipated that the Additional
Premises Commencement Date shall occur not later than July 31, 1999. In no event
shall the Additional Premises Commencement Date occur before June 15,1999. If
the Additional Premises Commencement Date shall not have occurred by July 31,
1999, then thereafter Tenant shall have the right to cancel and terminate this
First Lease Modification Agreement, by notice given to Landlord, if
1
<PAGE>
at all, not later than August 2, 1999, and if Tenant shall give such notice,
then as of August 2, 1999, this First Lease Modification Agreement shall be
deemed null and void ab initio. For the purposes of the preceding sentence, and
notwithstanding anything to the contrary in Section 32.01 of the Lease, notice
shall be given, if at all, as follows: either via hand-delivery (with evidence
of receipt), or via telecopier to Landlord at 201-348-4221 or 201-348-9144,
Attention: Irwin A. Horowitz, General Counsel, with a copy to 201-348-4358,
Attention: Ernest A. Christoph, Vice President/Leasing, with the hard copy to
follow for delivery not later than August 3, 1999 via nationally recognized
overnight courier service.
3. Fixed Rent: Fixed Rent for the Additional Premises will be at the rates
set forth in the Lease (i.e. for the period from the Additional Premises
Commencement Date through December 31, 2001 an amount at the annual rate of
$5.00 multiplied by the Floor Space of the Additional Premises; and for the
period from January 1, 2002 through the Expiration Date, an amount at the annual
rate of $5.75 multiplied by the Floor Space of the Additional Premises).
4. Tenant's Fraction: From and after the Additional Premises Commencement
Date, Tenant's Fraction shall be 95.73% (i.e., 384,543/401,678).
5. Tenant Parking: Effective as of the Additional Premises Commencement
Date, Paragraph R5 and the accompanying Exhibit G to the Lease shall be deemed
deleted and the following substituted therefor:
R5. Tenant shall have the right during the Term hereof to use all of the
parking spaces on the Land, except for those parking spaces within the area
outlined in red on the attached Exhibit "X".
6. Section 13.05 of the Lease is hereby deleted and the following
substituted therefor:
13.05. Neither party shall be liable or responsible for, and each party
hereby releases the other from, all liability and responsibility to the
other and any person claiming by, through or under the other, by way of
subrogation for any injury, loss or damage to any person or property in or
around the Demised Premises or to the other's business covered by insurance
carried or required to be carried hereunder irrespective of the cause of
such injury, loss or damage, and each party shall require its insurers to
include in all of such party's insurance policies which could give rise to a
right of subrogation against the other a clause or endorsement whereby the
insurer waives any rights of subrogation against the other or permits the
insured, prior to any loss, to agree with a third party to waive any claim
it may have against said third party without invalidating the coverage under
the insurance policy.
7. Section 32.01 of the Lease is hereby amended so as to permit notices to
be sent via reputable, nationally recognized overnight courier service for next
day delivery. Notices sent via such method shall be deemed to have been given,
rendered or made upon receipt or refusal of receipt.
8. Notwithstanding anything to contrary contained in Section 36.13, in no
event shall Tenant be responsible for any compliance with ISRA or any costs or
expenses of and to the extent of any required cleanup or clean-up plan where the
spills or discharges which create the need for such compliance, cleanup or plan
occurred prior to the Commencement Date (with respect to the initial Demised
Premises) or the Additional Premises Commencement Date (with respect to the
Additional Premises), as the case may be, unless such spill or discharge is
caused by Tenant's acts or action or those of its contractors, agents or
employees.
9. Tenant hereby represents and warrants to Landlord that it has full right,
power and authority to enter into the transactions provided for in this First
Lease Modification Agreement.
[NO FURTHER TEXT ON THIS PAGE]
2
<PAGE>
Except as modified by this First Lease Modification Agreement, the Lease and
all covenants, agreements, terms and conditions thereof shall remain in full
force and effect and are hereby in all respects ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this First Lease
Modification Agreement to be duly executed as of the day and year first above
written.
<TABLE>
<S> <C> <C>
("Landlord")
IMPORT HARTZ ASSOCIATES
By: HARTZ MOUNTAIN INDUSTRIES, INC.
By: /s/ IRWIN A. HOROWITZ
-----------------------------------------
Irwin A. Horowitz
Executive Vice President
("Tenant")
KASPER A.S.L., LTD.
By: /s/ LESTER E. SCHREIBER
-----------------------------------------
Lester E. Schreiber
Chief Operating Officer and Secretary
</TABLE>
3
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<PAGE>
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