As filed with the Securities and Exchange Commission
on December 16, 1997
Registration No. 333-
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
J. Crew Operating Corp.
(Exact name of registrant as specified in its charter)
Delaware 6719 22-3540930
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
J. Crew, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 5961 22-2516360
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
Popular Club Plan, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 5961 22-2916172
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
Clifford & Wills, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 5961 22-2888247
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
Grace Holmes, Inc.
(Exact name of registrant as specified in its charter)
Delaware 5651 22-1691409
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
H.F.D. No. 55, Inc.
(Exact name of registrant as specified in its charter)
Delaware 5651 22-1869438
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
C & W Outlet, Inc.
(Exact name of registrant as specified in its charter)
New York 5651 13-3541598
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
J. Crew International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 6719 51-0342712
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
J. Crew Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 6719 51-0344583
(State or other (Primary standard (I.R.S. employer
jurisdition of industrial identification
incorporation or classification number)
organization) code number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
Michael P. McHugh
Vice President
J. Crew Operating Corp.
770 Broadway
New York, New York 10003
(212) 209-2500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of correspondence to:
Paul J. Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
------------------
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the Registration Statement
becomes effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and
there is compliance with General Instruction G, check the
following box: |_|
------------------
CALCULATION OF REGISTRATION FEE
===========================================================================
Proposed Proposed
Title of maximum maximum
each class of Amount offering aggregate Amount of
securities to to be price offering registration
be registered registered per unit price(1) fee
- ---------------------------------------------------------------------------
Series B 10 3/8%
Senior Subordinated
Notes due 2007 $150,000,000 100% $150,000,000 $44,250
- ---------------------------------------------------------------------------
(1) Estimated solely for the purposes of calculating the
registration fee pursuant to Rule 457 under the Securities
Act of 1933, as amended.
===========================================================================
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
===========================================================================
<PAGE>
J. CREW OPERATING CORP.
Registration Statement on Form S-4
(Cross Reference Sheet Furnished Pursuant to Item 501(b) of
Regulation S-K )
Item Location in Prospectus
---- ----------------------
1. Forepart of the Registration
Statementand Outside Front
Cover Page of Prospectus ....... Facing Page of the Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus ...... Available Information; Incorporation
of Certain Documents by Reference;
Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information .................... Prospectus Summary; Risk Factors;
Selected Financial Data
4. Terms of the Transaction ......... Prospectus Summary; Risk Factors;
The Exchange Offer; Description of
the New Notes; Plan of Distribution;
Certain U.S. Federal Tax
Considerations
5. Pro Forma Financial Information .. Capitalization; Unaudited
Pro Forma Consolidated Financial
Data
6. Material Contracts With the
Company Being Acquired ......... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters ................... Not Applicable
8. Interests of Named Experts and
Counsel ........................ Not Applicable
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities .................... Not Applicable
10. Information with Respect to
S-3 Registrants ................ Not Applicable
11. Incorporation of Certain
Information by
Reference ...................... Not Applicable
12. Information with Respect to
S-2 or S-3 Registrants ......... Not Applicable
13. Incorporation of Certain
Information by Reference ....... Not Applicable
14. Information with Respect to
Registrants Other Than S-3
or S-2 Registrants ............. Outside Front Cover of Prospectus;
Prospectus Summary; Selected
Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations; Business; Consolidated
Financial Statements
15. Information with Respect to
S-3 Companies .................. Not Applicable
16. Information with Respect to
S-2 or S-3 Companies ........... Not Applicable
17. Information with Respect to
Companies Other Than S-3
or S-2 Companies ............... Not Applicable
18. Information if Proxies,
Consents or Authorizations
Are To Be Solicited ............ Not Applicable
19. Information if Proxies,
Consents or Authorizations
Are Not To Be Solicited or
in an Exchange Offer ........... Prospectus Summary; Management;
Capital Stock of Holdings and the
Issuer; Certain Relationships and
Related Transactions
<PAGE>
*********************************************************************
* Information contained herein is subject to completion or *
* amendment. A registration statement relating to these securities *
* has been filed with the Securities and Exchange Commission. These *
* securities may not be sold nor may offers to buy be accepted *
* prior to the time the registration statement becomes effective. *
* This prospectus shall not constitute an offer to sell or the *
* solicitation of an offer to buy nor shall there be any sale of *
* these securities in any State in which such offer, solicitation *
* or sale would be unlawful prior to registration or qualification *
* under the securities laws of any such State. *
*********************************************************************
SUBJECT TO COMPLETION-DATED DECEMBER 16, 1997
PROSPECTUS
J. Crew Operating Corp.
Offer to Exchange Series B 10 3/8% Senior Subordinated Notes
due 2007, which have been registered under the
Securities Act of 1933, as amended, for any and all
outstanding Series A 10 3/8% Senior Subordinated Notes due 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________, 1997, UNLESS EXTENDED.
J. Crew Operating Corp., a Delaware corporation (the
"Issuer"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal" and such offer
being the "Exchange Offer"), to exchange Series B 10 3/8% Senior
Subordinated Notes due 2007 of the Issuer (the "New Notes"),
which are guaranteed by the Issuer's subsidiaries (the
"Guarantors") and which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an
equal principal amount of outstanding Series A 10 3/8% Senior
Subordinated Notes due 2007 of the Issuer (the "Old Notes"),
which are guaranteed by the Guarantors and of which $150,000,000
aggregate principal amount is outstanding as of the date hereof.
The New Notes and the Old Notes are collectively referred to
herein as the "Notes."
Any and all Old Notes that are validly tendered and not
withdrawn on or prior to 5:00 P.M., New York City time, on the
date the Exchange Offer expires, which will be _________, 1997
(30 calendar days following the commencement of the Exchange
Offer) unless the Exchange Offer is extended (such date,
including as extended, the "Expiration Date"), will be accepted
for exchange. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 P.M., New York City time on the Expiration Date.
The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions, which
may be waived by the Issuer, and to the terms of the Registration
Rights Agreement, dated as of October 17, 1997, by and among the
Issuer, the Guarantors and Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc. (the "Initial
Purchasers") (the "Registration Rights Agreement"). Old Notes may
only be tendered in integral multiples of $1,000. See "The
Exchange Offer."
The New Notes will be entitled to the benefits of the same
Indenture (as defined herein) that governs the Old Notes and that
will govern the New Notes. The form and terms of the New Notes
are the same in all material respects as the form and terms of
the Old Notes, except that the New Notes have been registered
under the Securities Act and therefore will not bear legends
restricting the transfer thereof. See "The Exchange Offer" and
"Description of the New Notes."
The New Notes will be represented by permanent global notes
in fully registered form and will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the
name of a nominee of DTC. Beneficial interests in the permanent
global notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants.
Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988),
Morgan Stanley & Co. Incorporated, SEC No-Action Letter
(available June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993) (collectively, the "Exchange
Offer No-Action Letters"), the Issuer and the Guarantors believe
that the New Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by each
holder (other than a broker-dealer who acquires such New Notes
directly from the Issuer for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the
Securities Act and other than any holder that is an "affiliate"
(as defined in Rule 405 under the Securities Act) of the Issuer)
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes
are acquired in the ordinary course of such holder's business and
such holder is not engaged in, and does not intend to engage in,
a distribution of such New Notes and has no arrangement with any
person to participate in a distribution of such New Notes. By
tendering Old Notes in exchange for New Notes, each holder, other
than a broker-dealer, will represent to the Issuer and the
Guarantors that: (i) it is not an affiliate (as defined in Rule
405 under the Securities Act) of the Issuer; (ii) it is not a
broker-dealer tendering Old Notes acquired for its own account
directly from the Issuer; (iii) any New Notes to be received by
it will be acquired in the ordinary course of its business; and
(iv) it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If a
holder of Old Notes is engaged in or intends to engage in a
distribution of New Notes or has any arrangement or understanding
with respect to the distribution of New Notes to be acquired
pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and
must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
secondary resale transaction.
(continued on next page)
------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 16 OF THIS PROSPECTUS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
The date of this Prospectus is _________, 1997
<PAGE>
(continued from cover page)
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making
activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Issuer and the Guarantors have
agreed that they will make this Prospectus available to any
Participating Broker-Dealer for a period of time not to exceed
one year after the date on which the Exchange Offer is
consummated for use in connection with any such resale. See "Plan
of Distribution."
Neither the Issuer nor the Guarantors will receive any
proceeds from this offering. The Issuer has agreed to pay the
expenses of the Exchange Offer. No underwriter is being utilized
in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
ISSUER ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES
IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES AND BLUE
SKY LAWS OF SUCH JURISDICTION.
The Old Notes have been designated as eligible for trading
in the Private Offerings, Resale and Trading through Automated
Linkages ("PORTAL") market. Prior to this Exchange Offer, there
has been no public market for the New Notes. If such a market
were to develop, the New Notes could trade at prices that may be
higher or lower than their principal amount. Neither the Issuer
nor any of the Guarantors intends to apply for listing of the New
Notes on any securities exchange or for quotation of the New
Notes on The Nasdaq Stock Market's National Market or otherwise.
The Initial Purchasers have previously made a market in the Old
Notes, and the Issuer and the Guarantors have been advised that
the Initial Purchasers currently intend to make a market in the
New Notes, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. The Initial Purchasers are
not obligated, however, to make a market in the Old Notes or the
New Notes and any such market making activity may be discontinued
at any time without notice at the sole discretion of the Initial
Purchasers. There can be no assurance as to the liquidity of the
public market for the New Notes or that any active public market
for the New Notes will develop or continue. If an active public
market does not develop or continue, the market price and
liquidity of the New Notes may be adversely affected. See "Risk
Factors--Absence of a Public Market."
<PAGE>
AVAILABLE INFORMATION
Neither the Issuer nor any of the Guarantors is currently
subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Issuer will become subject to such
requirements upon the effectiveness of the Registration Statement
(as defined herein). Pursuant to the indenture by and among the
Issuer, the Guarantors and State Street Bank and Trust Company
(as trustee), dated as of October 17, 1997 (the "Indenture"), the
Issuer has agreed to file with the Commission and provide to the
holders of the Old Notes annual reports and the information,
documents and other reports which are required to be delivered
pursuant to Sections 13 and 15(d) of the Exchange Act.
This Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits,
the "Registration Statement") filed by the Issuer and the
Guarantors with the Commission, through the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), under the
Securities Act, with respect to the New Notes offered hereby.
This Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the
Registration Statement for further information with respect to
the Issuer and the securities offered hereby. Although statements
concerning and summaries of certain documents are included
herein, reference is made to the copies of such documents filed
as exhibits to the Registration Statement or otherwise filed with
the Commission. These documents may be inspected without charge
at the office of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained
at fees and charges prescribed by the Commission. Copies of such
materials may also be obtained from the Web site that the
Commission maintains at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and any definitive proxy or information
statements filed by the Issuer pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
New Notes offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by
reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
-----------------------------
The Guarantors (which term does not include any receivables
subsidiary of the Issuer) are the subsidiaries guaranteeing the
Issuer's obligations under the Notes and are each wholly owned
subsidiaries of the Issuer. The guarantee of each Guarantor is
full and unconditional. Separate financial statements of the
Guarantors are not set forth in this Prospectus as the Issuer has
determined that they would not be material to investors.
i
<PAGE>
PROSPECTUS SUMMARY
Prior to the Recapitalization (as defined herein), Holdings
(as defined herein) owned all of the stock, directly or
indirectly, of the various subsidiaries that had carried on the
businesses described herein. In connection with the
Recapitalization, Holdings organized the Issuer and immediately
prior to the consummation of the Recapitalization, Holdings
transferred substantially all of its assets and liabilities to
the Issuer. Holdings' current operations are, and future
operations are expected to be, limited to owning the stock of the
Issuer. Holdings, the Issuer and its subsidiaries are
collectively referred to herein as the "Company." The financial
statements and other financial data herein are, for the periods
prior to the consummation of the Recapitalization, those of
Holdings, as predecessor to the Issuer. The following summary is
qualified in its entirety by the more detailed information and
financial statements and the Unaudited Pro Forma Consolidated
Financial Data of the Issuer, including the notes thereto,
appearing elsewhere in this Prospectus. Except as otherwise set
forth herein, references herein to "pro forma" financial data of
the Issuer are to financial data of the Issuer which gives effect
to the Recapitalization, including the issuance of the Notes, the
consummation of the Securitization (as defined herein) and the
incurrence of indebtedness under the Bank Facilities (as defined
herein). References herein to fiscal years are to the fiscal
years of Holdings, as predecessor to the Issuer, which end on the
Friday closest to January 31 in the following calendar year.
Accordingly, fiscal years 1992, 1993, 1994, 1995 and 1996 ended
on January 29, 1993, January 28, 1994, February 3, 1995, February
2, 1996 and January 31, 1997. All fiscal years for which
financial information is included in this Prospectus had 52
weeks, except fiscal 1994 which had 53 weeks.
The Company
Overview
The Company is a leading mail order and store retailer of
women's and men's apparel, shoes and accessories operating
primarily under the J. Crew(R) brand name. Under the direction of
Emily Woods and Arthur Cinader (co-founders of the J. Crew brand
and father and daughter), the Company has built a strong and
widely recognized brand name known for its timeless styles at
price points that the Company believes represent exceptional
product value. The J. Crew image has been built and reinforced
over its 14-year history through the circulation of more than
one-half billion catalogs that use magazine-quality photography
to portray a classic American perspective and aspirational
lifestyle. Many of the original items introduced by the Company
in the early 1980s (such as the rollneck sweater, weathered
chino, barn jacket and pocket tee) were instrumental in
establishing the J. Crew brand and continue to be core product
offerings. The Company has capitalized on the strength of the J.
Crew brand to provide customers with clothing to meet more of
their lifestyle needs, including casual, career and sport. The
strength of the J. Crew brand is demonstrated by a compound
annual growth rate of 15.4% in J. Crew brand revenues between
fiscal 1992 and fiscal 1996.
The J. Crew merchandising strategy emphasizes timeless
styles and a broad assortment of high-quality products designed
to provide customers with one-stop shopping opportunities at
attractive prices. J. Crew catalogs and retail stores offer a
full line of men's and women's basic durables (casual weekend
wear), sport, swimwear, accessories and shoes, as well as the
more tailored men's sportswear and women's "Classics" lines.
Approximately 60% of the Company's J. Crew brand sales are
derived from its core offerings of durables and sport clothing,
the demand for which the Company believes is stable and resistant
to changing fashion trends. The Company believes that the J. Crew
image and merchandising strategy appeal to college-educated,
professional and affluent customers who, in the Company's
experience, have demonstrated strong brand loyalty and a tendency
to make repeat purchases.
J. Crew products are distributed exclusively through the
Company's catalog and store distribution channels. The Company
currently circulates over 76 million J. Crew catalogs per annum
and owns and operates 49 J. Crew retail stores and 42 J. Crew
factory outlets. In addition, J. Crew products are distributed
through 67 free-standing and shop-in-shop stores in Japan under a
licensing agreement with Itochu Corporation and Itochu Fashion
System Co., Ltd. (collectively "Itochu").
1
<PAGE>
In addition to the Company's J. Crew operations, the Company
operates Clifford & Wills, Inc. ("C&W"), a mail order and factory
store women's apparel business that targets older, more
conservative customers, and Popular Club Plan, Inc. ("PCP"), a
direct selling catalog merchandiser of consumer branded goods
through a "club" concept that provides credit sales to
lower-income customers. During the twelve-month period ended
November 7, 1997, the Company generated total revenues of $836.7
million, of which $583.1 million or approximately 70% was
attributable to the J. Crew brand, and total Adjusted EBITDA of
$47.6 million. See "--Summary Unaudited Pro Forma Consolidated
Financial Data" for a description of Adjusted EBITDA.
Business Strengths
Since its inception, the Company has pursued a consistent
operating strategy which has resulted in the following key
strengths and distinguishing characteristics:
- Strong, Recognizable Brand. The Company has created a
recognizable, differentiated brand image reflecting an
American aspirational lifestyle. The J. Crew image is
consistently communicated through all aspects of the
Company's business including its merchandise design,
distinctive catalogs and retail store environment. The
Company's high-quality products, strong brand image and
customer loyalty have resulted in strong gross margins and
retail sales productivity.
- Premium Quality Products and Distinctive Designs at
Attractive Price Points. The Company offers premium quality
products reflecting a classic, clean aesthetic with a
consistent design philosophy. All J. Crew products are
designed by an in-house team of 15 designers led by Emily
Woods. The Company believes that its in-house design
capabilities ensure a coherent set of product offerings from
season to season and year to year that provides significant
value to its customers through attractive price points.
- Proven Retail Store Concept. J. Crew retail stores historically
have generated strong and stable operating results. The Company
believes that its sales per gross square foot are among the
highest in its industry segment. J. Crew retail stores open
during all of fiscal 1996 generated the following key operating
statistics:
Fiscal 1996
Average
Sales per gross square foot.....$575
Store contribution margin.......25.9%
Approximately 81% of the J. Crew retail stores that were
open during all of 1996 had store contribution margins above 20%.
All of the Company's J. Crew retail stores are profitable and
have generated positive store contribution within the first
twelve months of operation. In addition, J. Crew retail stores
opened since fiscal 1992 have averaged approximately $550 in
sales per gross square foot and 23.0% store contribution margin
during the first twelve months of operation.
- Broad and Stable Product Offering. The Company's J. Crew
product offering includes a broad array of items which appeal
to a diverse customer base, spanning gender and age segments.
A substantial portion of the J. Crew product line consists of
basic durables, such as chinos, jeans and sweaters, which are
not significantly modified from year to year and, in the
Company's opinion, are resistant to shifting fashion trends.
In 1996, sales of durables and sport clothing represented
approximately 60% of total J. Crew brand revenues, having
increased at a compound annual growth rate of approximately
15% since 1992.
- Synergistic Distribution Channels. The Company believes that
the concurrent operation of the J. Crew mail order business and
J. Crew retail stores provides a distinct advantage in the
development of the J. Crew brand. Visibility and exposure of the
brand are enhanced by the broad circulation of catalogs, aiding
the expansion of the retail concept. In addition, the Company
believes that the retail operations help attract first-
2
<PAGE>
time "walk-by" customers to the catalog and improve the
salability of fit-critical items through the catalog. The
Company further believes that diversified distribution
channels help insulate the Company against circumstances and
events uniquely affecting one distribution channel or the
other.
- Tightly Controlled Distribution. By selling products
exclusively through J. Crew catalogs, J. Crew retail stores
and J. Crew factory outlets, the Company is able to present
and maintain a consistent brand image, control the
presentation and pricing of its merchandise, provide a higher
level of customer service, and closely monitor retail
sell-through. The Company believes that tight control over
the distribution of its products provides competitive
advantages over other branded apparel retailers that
distribute their goods through department stores.
Opportunities
The Company believes that substantial opportunities exist
to enhance revenue and profitability by increasing efficiencies
in the J. Crew mail order business and by expanding the J. Crew
retail business.
- Implement Tactical Cost Savings Opportunities. While the
Company believes that gross margins in the J. Crew mail order
business have been strong, overall catalog profitability has
been depressed by unnecessarily high operating expenses. The
Company has identified a number of tactical cost savings that
could be realized without affecting the Company's franchise
or brand image. Included in Adjusted EBITDA are $7.5 million in
estimated annual savings resulting from actions implemented
prior to the Recapitalization, including the recent renegotiation
of its catalog vendor contract, selected headcount and net
payroll reductions and the insourcing of certain photography
functions. The Company has identified approximately $7
million of further potential annual savings that are not
reflected in Adjusted EBITDA, including process efficiencies
currently under review, reduction of the Base Book trim size,
installation of automatic sorting equipment and consolidation
of the J. Crew and C&W New York corporate offices. The
Company believes these additional cost savings could be
implemented by mid-1998.
- Realize Cash Flow Increases Through J. Crew Mail Order SKU
Rationalization. The Company's J. Crew mail order product
offerings have increased from 33,000 stock-keeping units
("SKUs") in 1992 to 66,000 SKUs in 1996, partly as a result
of a proliferation in colors and sizes offered. In recent
season-to-season testing on the Company's swimwear and chino
lines, the Company reduced SKUs by 33% and 45%, respectively,
while posting category revenue increases. By eliminating
slower-selling colors and sizes from its core offering, the
Company believes it will be better able to forecast demand,
increase fill rates and increase inventory turns, resulting
in enhanced operating cash flow.
- Increase J. Crew Catalog Productivity Through Increased
Segmentation. The Company believes that it circulates fewer
and less-targeted catalog editions than its competitors, and
that catalog productivity (as measured by initial demand per
page circulated) could be enhanced by more precise targeting
of catalog mailings through further customer segmentation.
For example, in 1996 the Company introduced a Women's catalog
which to date has achieved 20% higher initial demand per page
circulated than that of the Company's primary mailing, the
Base Book. To further enhance its segmentation efforts, the
Company has recently introduced a College catalog and plans
to introduce a Swimwear catalog in 1998. From 1997 to 1998,
the increased segmentation is expected to result in an
approximately 5% increase in the number of catalogs
circulated, but an approximately 8% decrease in total pages
circulated. Reductions in total pages circulated should
result in a decrease in paper and postage expenses.
- Expand J. Crew Retail Operations. The Company's J. Crew
retail store expansion strategy is to continue to increase
its market share in its existing markets and to penetrate
new markets. The Company expects to open a total of 12
stores in fiscal 1997, ten of which were open as of November
7, 1997. The Company currently intends to open 12 to 20
stores annually, funded primarily by cash flow generated
from operations, resulting
3
<PAGE>
in approximately 100 stores in operation by the end of
fiscal 2000. Historically, new stores have cost the Company
an average of $1.5 million in building improvements and
working capital expenditures and have experienced a pay-back
period of approximately 20 months. The Company has
established an administrative infrastructure that it
believes is sufficient to accommodate the retail expansion
plan, providing the Company with additional margin
improvement through overhead leverage. In addition, the
Company believes, with a store base of only 49 stores, its
markets are underpenetrated relative to its competitors and
enough suitable locations exist nationwide to accommodate
its expansion plan.
The Issuer is a wholly-owned subsidiary of J. Crew Group,
Inc. ("Holdings") and was incorporated under the laws of the
State of Delaware in 1997 as part of the Recapitalization. On
September 29, 1997, the Issuer changed its name from J. Crew
Corp. to J. Crew Operating Corp. The Issuer maintains its
principal executive office at 770 Broadway, New York, New York,
10003, and its telephone number is (212) 209-2500.
J. Crew (R) is a registered trademark of a wholly-owned
subsidiary of the Company.
The Recapitalization
Holdings, its shareholders (the "Shareholders") and TPG
Partners II, L.P. ("TPG Partners II") entered into a
Recapitalization Agreement dated as of July 22, 1997, as amended
as of October 17, 1997 (the "Recapitalization Agreement"), which
provided for the recapitalization of Holdings (the
"Recapitalization"). Pursuant to the Recapitalization Agreement,
Holdings purchased from the Shareholders all outstanding shares
of Holdings' capital stock, other than shares having an implied
value of $11.1 million, almost all of which continues to be held
by Emily Woods, and which represented 14.8% of the outstanding
shares of common stock, par value $.01 per share, of Holdings
("Holdings Common Stock") immediately following the transaction.
In connection with the Recapitalization, Holdings organized
the Issuer and immediately prior to the consummation of the
Recapitalization, Holdings transferred substantially all of its
assets and liabilities to the Issuer. Holdings' current
operations are, and future operations are expected to continue to
be, limited to owning the stock of the Issuer. The Issuer has
repaid substantially all of the Company's funded debt obligations
existing immediately before the consummation of the
Recapitalization (the "Debt Retirement"). At October 17, the
aggregate principal amount of the Company's funded indebtedness
was $186.0 million, consisting of $85.0 million aggregate
principal amount of Senior Notes (the "Retired Senior Notes"),
$99.0 million outstanding under a seasonal revolving credit
facility (the "Retired Bank Credit Facility") and $2.0 million
outstanding under an industrial revenue bond (the "Industrial
Revenue Bond").
Cash funding requirements for the Recapitalization (which
was consummated on October 17, 1997), including the Initial
Purchasers' discount in connection with the issuance and sale of
the Old Notes and other fees and expenses, totalled $559.7
million (including $99.0 million in seasonal borrowings) and were
satisfied through the purchase by TPG Partners II and investors
of an aggregate $188.9 million in Holdings' equity securities
together with an aggregate $330.8 million in borrowings and $40.0
million in proceeds from the securitization of certain of the
Company's accounts receivable, as follows: (i) the purchase by
TPG Partners II, its affiliates and other investors of shares of
Holdings' Common Stock (representing 85.2% of the outstanding
shares) for $63.9 million (the "Holdings Common Equity
Contribution"); (ii) the purchase by TPG Partners II, its
affiliates and other investors of $125.0 million in liquidation
value of preferred stock issued by Holdings (the "Holdings
Preferred Stock"); (iii) gross proceeds of $75.3 million from the
issuance and sale by Holdings of senior discount debentures due
2008 (the "Holdings Senior Discount Debentures") in a separate
offering in which the Initial Purchasers acted as initial
purchasers; (iv) $150.0 million from the gross proceeds of the
offering of the Old Notes (the "Offering"); (v) $40.0 million in
proceeds from the securitization of certain of the Company's
accounts receivable (the "Securitization"); (vi) $70.0 million of
borrowings under a senior secured term loan facility among the
Issuer, Holdings, the several lenders from time to time parties
thereto (collectively, the "Banks"), The Chase Manhattan Bank, as
administrative and collateral agent ("Chase"), and Donaldson,
Lufkin & Jenrette Securities Corporation, as syndication agent
4
<PAGE>
("DLJ"), (the "Term Loan Facility"); and (vii) $35.6 million of
borrowings under a senior secured revolving credit facility among
the Issuer, Holdings, the Banks, Chase and DLJ (the "Revolving
Credit Facility" and, together with the Term Loan Facility, the
"Bank Facilities"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Description of the New Notes," "Description
of Other Issuer Indebtedness," "Description of Holdings
Indebtedness" and "Capital Stock of Holdings and the Issuer."
The Recapitalization was accounted for as a
recapitalization transaction for accounting purposes. The
repurchase of shares from the Shareholders, the Debt Retirement,
the Holdings Common Equity Contribution, the issuance and sale by
Holdings of the Holdings Preferred Stock and the Holdings Senior
Discount Debentures, the borrowing by the Issuer of funds under
the Bank Facilities, the Securitization and the Offering were
effected in connection with the "Recapitalization."
The following table sets forth the sources and uses of
funds in connection with the Recapitalization as it occurred on
October 17, 1997:
(dollars in
thousands)
Sources:
Revolving Credit Facility (1)............. $ 35,559
Term Loan Facility........................ 70,000
Securitization (2)........................ 40,000
Notes offered in the Offering............. 150,000
Holdings Senior Discount Debentures....... 75,257
Holdings Preferred Stock.................. 125,000
Holdings Common Equity Contribution....... 63,891
---------
Total Sources........................... $ 559,707
=========
Uses:
Repurchase of Holdings' Capital Stock..... $ 316,688
Repayment of Retired Bank Credit
Facility (3) ............................. 99,212
Repayment of Retired Senior Notes (4)..... 93,104
Retirement of Industrial Revenue Bond..... 1,963
Transaction Fees and Expenses and
Other Transaction Payments (5)........... 48,740
---------
Total Uses.............................. $ 559,707
=========
(1) Reflects borrowings to partially refinance seasonal borrowings
outstanding under the Retired Bank Credit Facility. Giving
effect to the Recapitalization, average outstanding
borrowings under the Revolving Credit Facility would have
been $12.2 million during the twelve months ended November
7, 1997. Excludes outstanding letters of credit issued to
facilitate international merchandise purchases, which had an
aggregate outstanding balance of $37.4 million as of
November 7, 1997. See the notes to the "Unaudited Pro Forma
Statements of Operations" included herein.
(2) The Company securitized approximately $40 million of PCP
consumer loan installment receivables off-balance sheet
simultaneously with the consummation of the Recapitalization
pursuant to a facility arranged by affiliates of the Initial
Purchasers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Other Issuer
Indebtedness--Receivables Facility."
(3) Includes $0.2 million of accrued interest.
(4) Includes a $5.8 million make-whole premium in connection
with the prepayment of the Retired Senior Notes and $2.3
million of accrued interest.
(5) Includes Holdings' expenses, management bonuses, financial
advisory, consulting and other professional fees and
deferred financing costs. See "Certain Relationships and
Related Transactions."
Texas Pacific Group
Texas Pacific Group ("TPG") was founded by David Bonderman,
James G. Coulter and William S. Price, III in 1992 to pursue
public and private investment opportunities through a variety of
methods, including leveraged buyouts, recapitalizations, joint
ventures, restructurings and strategic public securities
investments. The principals of TPG operate TPG Partners, L.P. and
TPG Partners II, both Delaware limited partnerships with
aggregate committed capital of over $3.2 billion. Among TPG's
investments are branded consumer products companies Beringer Wine
5
<PAGE>
Estates, Del Monte Foods Company and Ducati Motor. Other TPG
portfolio companies include America West Airlines, Belden & Blake
Corporation, Favorite Brands International, Paradyne, Virgin
Entertainment and Vivra Specialty Partners. In addition, the
principals of TPG led the $9 billion reorganization of
Continental Airlines in 1993.
The Exchange Offer
Registration Rights
Agreement.................... The Old Notes were issued on
October 17, 1997 to the Initial
Purchasers. The Initial
Purchasers placed the Old Notes
with institutional investors. In
connection therewith, the Issuer,
the Guarantors and the Initial
Purchasers entered into the
Registration Rights Agreement,
providing, among other things,
for the Exchange Offer. See "The
Exchange Offer."
The Exchange Offer........... New Notes are being offered in
exchange for an equal principal
amount of Old Notes. As of the
date hereof, $150,000,000
aggregate principal amount of Old
Notes is outstanding. Old Notes
may be tendered only in integral
multiples of $1,000.
Resale of New Notes.......... Based on interpretations by the
staff of the Commission, as set
forth in no-action letters issued
to third parties, including the
Exchange Offer No-Action Letters,
the Issuer and the Guarantors
believe that the New Notes issued
pursuant to the Exchange Offer
may be offered for resale, resold
or otherwise transferred by each
holder thereof (other than a
broker-dealer who acquires such
New Notes directly from the
Issuer for resale pursuant to
Rule 144A under the Securities
Act or any other available
exemption under the Securities
Act and other than any holder
that is an "affiliate" (as
defined under Rule 405 of the
Securities Act) of the Issuer)
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act, provided that
such New Notes are acquired in
the ordinary course of such
holder's business and such holder
is not engaged in, and does not
intend to engage in, a
distribution of such New Notes
and has no arrangement with any
person to participate in a
distribution of such New Notes.
By tendering the Old Notes in
exchange for New Notes, each
holder, other than a
broker-dealer, will represent to
the Issuer and the Guarantors
that: (i) it is not an affiliate
(as defined in Rule 405 under
the Securities Act) of the
Issuer; (ii) it is not a
broker-dealer tendering Old
Notes acquired for its own
account directly from the
Issuer; (iii) any New Notes to
be received by it were acquired
in the ordinary course of its
business; and (iv) it is not
engaged in, and does not intend
to engage in, a distribution of
such New Notes and has no
arrangement or understanding to
participate in a distribution of
the New Notes. If a holder of
Old Notes is engaged in or
intends to engage in a
distribution of the New Notes or
has any arrangement or
understanding with respect to
the distribution of the New
Notes to be acquired pursuant to
the Exchange Offer, such holder
may not rely on the applicable
interpretations of the staff of
the Commission and must comply
with the registration and
prospectus delivery requirements
of the Securities Act in
connection with any secondary
resale transaction. Each
6
<PAGE>
Participating Broker-Dealer that
receives New Notes for its own
account pursuant to the Exchange
Offer must acknowledge that it
will deliver a prospectus
meeting the requirements of the
Securities Act in connection
with any resale of such New
Notes. The Letter of Transmittal
states that by so acknowledging
and by delivering a prospectus,
a Participating Broker-Dealer
will not be deemed to admit that it
is an "underwriter" within the
meaning of the Securities Act.
This Prospectus, as it may be
amended or supplemented from
time to time, may be used by a
Participating Broker-Dealer in
connection with resales of New
Notes received in exchange for
Old Notes where such Old Notes
were acquired by such
Participating Broker-Dealer as a
result of market-making
activities or other trading
activities. The Issuer and the
Guarantors have agreed that they
will make this Prospectus
available to any Participating
Broker-Dealer for a period of
time not to exceed one year
after the date on which the
Exchange Offer is consummated
for use in connection with any
such resale. See "Plan of
Distribution." To comply with
the securities laws of certain
jurisdictions, it may be
necessary to qualify for sale or
register the New Notes prior to
offering or selling such New
Notes. The Issuer and the
Guarantors have agreed, pursuant
to the Registration Rights
Agreement and subject to certain
specified limitations therein,
to register or qualify the New
Notes for offer or sale under
the securities or "blue sky"
laws of such jurisdictions as
may be necessary to permit
consummation of the Exchange
Offer.
Consequences of Failure
to Exchange Old Notes........ Upon consummation of the Exchange
Offer, subject to certain
exceptions, holders of Old Notes
who do not exchange their Old
Notes for New Notes in the
Exchange Offer will no longer be
entitled to registration rights
and will not be able to offer or
sell their Old Notes, unless such
Old Notes are subsequently
registered under the Securities
Act (which, subject to certain
limited exceptions, the Issuer
will have no obligation to do),
except pursuant to an exemption
from, or in a transaction not
subject to, the Securities Act
and applicable state securities
laws. See "Risk Factors--Risk
Factors Relating to the
Notes--Consequences of Failure
to Exchange" and "The Exchange
Offer--Terms of the Exchange
Offer."
Expiration Date.............. 5:00 p.m., New York City time, on
_________, 1997 (30 calendar days
following the commencement of the
Exchange Offer), unless the
Exchange Offer is extended, in
which case the term "Expiration
Date" means the latest date and
time to which the Exchange Offer
is extended.
Interest on the New Notes.... The New Notes will accrue
interest at the applicable per
annum rate set forth on the cover
page of this Prospectus, from (i)
the later of (A) the last
interest payment date on which
interest was paid on the Old
Notes surrendered in exchange
therefor or (B) if the Old Notes
are surrendered for exchange on a
date subsequent to the record
date for an interest payment date
to occur on or after
7
<PAGE>
the date of such exchange and as to
which interest will be paid, the date
of such interest payment or (ii)
if no interest has been paid on
the Old Notes, from the Issue
Date (as defined herein) of such
Old Notes. Interest on the New
Notes is payable on April 15 and
October 15 of each year,
commencing April 15, 1998.
Conditions to the
Exchange Offer............... The Exchange Offer is not
conditioned upon any minimum
principal amount of Old Notes
being tendered for exchange.
However, the Exchange Offer is
subject to certain customary
conditions, which may, under
certain circumstances, be waived
by the Issuer and the
Guarantors. See "The Exchange
Offer--Conditions." Except for
the requirements of applicable
federal and state securities
laws, there are no federal or
state regulatory requirements to
be complied with or obtained by
the Issuer or the Guarantors in
connection with the Exchange
Offer.
Procedures for Tendering
Old Notes.................... Each holder of Old Notes wishing
to accept the Exchange Offer must
complete, sign and date the
Letter of Transmittal, or a
facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Old Notes to be
exchanged and any other required
documentation to the Exchange
Agent (as defined herein) at the
address set forth herein or
effect a tender of Old Notes
pursuant to the procedures for
book-entry transfer as provided
for herein. See "The Exchange
Offer--Procedures for Tendering"
and "--Book Entry Transfer."
Guaranteed Delivery
Procedures................... Holders of Old Notes who wish to
tender their Old Notes and whose
Old Notes are not immediately
available or who cannot deliver
their Old Notes and a properly
completed Letter of Transmittal
or any other documents required
by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date may tender their
Old Notes according to the
guaranteed delivery procedures
set forth in "The Exchange
Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............ Tenders of Old Notes may be
withdrawn at any time prior to
5:00 p.m., New York City time,
on the Expiration Date. To
withdraw a tender of Old Notes,
a written or facsimile
transmission notice of
withdrawal must be received by
the Exchange Agent at its
address set forth herein under
"The Exchange Offer--Exchange
Agent" prior to 5:00 p.m., New
York City time, on the
Expiration Date.
Acceptance of Old Notes
and Delivery of New
Notes........................ Subject to certain conditions,
any and all Old Notes that are
properly tendered in the Exchange
Offer prior to 5:00 p.m., New
York City time, on the Expiration
Date will be accepted for
exchange. The New Notes issued
pursuant to the Exchange Offer
will be delivered promptly
following the Expiration Date.
See "The Exchange Offer--Terms of
the Exchange Offer."
8
<PAGE>
Certain Tax
Considerations............... The exchange of New Notes for Old
Notes should not be considered a
sale or exchange or otherwise a
taxable event for Federal income
tax purposes. See "Certain U.S.
Federal Tax Considerations."
Exchange Agent............... State Street Bank and Trust
Company is serving as exchange
agent (the "Exchange Agent") in
connection with the Exchange
Offer.
Fees and Expenses............ All expenses incident to
consummation of the Exchange
Offer and compliance with the
Registration Rights Agreement
will be borne by the Issuer. See
"The Exchange Offer--Fees and
Expenses."
Use of Proceeds.............. There will be no cash proceeds
payable to the Issuer or the
Guarantors from the issuance of
the New Notes pursuant to the
Exchange Offer. See "Use of
Proceeds."
9
<PAGE>
Summary of Terms of New Notes
The Exchange Offer relates to the exchange of up to
$150,000,000 aggregate principal amount of Old Notes for up to an
equal aggregate principal amount of New Notes. The New Notes will
be entitled to the benefits of the same Indenture that governs
the Old Notes and that will govern the New Notes. The form and
terms of the New Notes are the same in all material respects as
the form and terms of the Old Notes, except that the New Notes
have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof. See
"Description of the New Notes."
Maturity Date................ October 15, 2007.
Interest Rate and
Payment Dates................ The New Notes will bear interest
at a rate of 10-3/8% per annum.
Interest will be payable
semi-annually on each April 15
and October 15, commencing April
15, 1998.
Guarantee.................... The Issuer's payment obligations
under the New Notes are jointly
and severally guaranteed by the
Guarantors.
Optional Redemption.......... Prior to October 15, 2000, the
Issuer may redeem up to an
aggregate of 35% of the principal
amount of the New Notes
originally issued at a redemption
price equal to 110.375% of the
principal amount thereof, plus
accrued and unpaid interest and
Liquidated Damages (as defined
herein) thereon with the net cash
proceeds of one or more Equity
Offerings. After October 15,
2002, the New Notes will be
subject to redemption at any time
at the option of the Issuer, upon
not less than 30 nor more than 60
days' notice, at the redemption
prices set forth in this
Prospectus plus accrued and
unpaid interest and Liquidated
Damages. See "Description of the
New Notes--Optional Redemption."
Repurchase at the
Option of Holders............ Upon the occurrence of a Change
of Control (as defined herein)
each holder of New Notes will
have the right to require the
Company to repurchase all or any
part of such holder's New Notes
at a price in cash equal to 101%
of the aggregate principal
amount thereof plus accrued and
unpaid interest and Liquidated
Damages thereon. In addition, if
the Issuer or any of its
Restricted Subsidiaries (as
defined herein), consummates an
Asset Sale (as defined herein),
which is permitted in limited
circumstances, and the Issuer or
its Restricted Subsidiaries has
Excess Proceeds (as defined
herein), from such Asset Sale in
an amount exceeding $10.0
million, the Issuer will be
required to make an offer to all
holders of New Notes and, to the
extent required by the terms of
any debt which ranks pari passu
with the New Notes ("Pari Passu
Indebtedness") to purchase the
maximum principal amount of New
Notes and any such Pari Passu
Indebtedness, that may be
purchased out of the Excess
Proceeds, at a price in cash
equal to 100% of the principal
amount thereof plus accrued and
unpaid interest and Liquidated
Damages thereon, in accordance
with the procedures set forth in
the Indenture or such Pari Passu
Indebtedness, as applicable. See
"Description of the New
Notes--Repurchase at the Option
of Holders."
10
<PAGE>
Subordination................ The New Notes will be general
unsecured obligations of the
Issuer and will be subordinated
in right of payment to all
existing and future Senior Debt
(as defined herein) of the
Issuer. The New Notes will rank
pari passu with any present and
future senior subordinated
indebtedness of the Issuer and
will rank senior to all other
subordinated indebtedness of the
Issuer. See "Description of the
New Notes."
Covenants.................... The Indenture under which the New
Notes will be issued will contain
certain covenants that limit the
ability of the Issuer and its
Restricted Subsidiaries to, among
other things, incur additional
indebtedness, pay dividends or
make certain other restricted
payments, consummate certain
asset sales, enter into certain
transactions with affiliates,
incur indebtedness that is
subordinate in right of payment
to any Senior Debt and senior in
right of payment to the New
Notes, incur liens, impose
restrictions on the ability of a
Restricted Subsidiary to
guarantee the payment of any
indebtedness of the Issuer or any
indebtedness of any other
Restricted Subsidiary, merge or
consolidate with any other person
or sell, assign, transfer, lease,
convey or otherwise dispose of
all or substantially all of the
assets of the Issuer. See
"Description of the New
Notes--Certain Covenants."
Use of Proceeds
There will be no cash proceeds payable to the Issuer or the
Guarantors from the issuance of the New Notes pursuant to the
Exchange Offer. The proceeds from the sale of the Old Notes were
to fund the Recapitalization. See "Use of Proceeds" and "The
Recapitalization."
Risk Factors
See "Risk Factors" for a discussion of certain factors that
should be considered in evaluating an investment in the Notes.
Summary Unaudited Pro Forma Consolidated Financial Data
The following table sets forth summary unaudited pro forma
consolidated statement of operations data of the Issuer for the
fiscal year ended January 31, 1997, for the forty weeks ended
November 8, 1996 and November 7, 1997 and for the twelve months
ended November 7, 1997. The pro forma consolidated statement of
operations data for the fiscal year ended January 31, 1997, for
the forty weeks ended November 8, 1996 and November 7, 1997, and
for the twelve months ended November 7, 1997 give effect to the
Recapitalization as if it had occurred at February 3, 1996. The
data presented below should be read in conjunction with the
Consolidated Financial Statements, including the related Notes
thereto, included herein, the other financial information
included herein, "Unaudited Pro Forma Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
11
<PAGE>
Fiscal Year Forty Weeks Twelve Months
Ended Ended November Ended
January 31, ----------------- November 7,
1997 8, 1996 7, 1997 1997
---- ------- ------- ----
(dollars in thousands)
Statement of Operations
Data:
Revenues (1)............... $806,193 $536,743 $564,958 $834,408
Gross profit............... 377,474 244,687 254,093 386,880
Selling, general and
administrative expenses... 350,105 241,582 254,544 363,067
Income from operations
(loss).................... 27,369 3,105 (451) 23,813
Net income (loss) (2)...... 2,030 (8,962) (34,749) (23,758)
Other Data:
Depreciation and
amortization.............. $10,541 $7,625 $10,191 $13,107
Net capital expenditures (3)
New store openings....... 10,894 6,903 15,253 19,244
Other.................... 11,587 8,044 13,012 16,555
------ ----- ------ ------
Total net capital
expenditures............ $22,481 $14,947 $28,265 $35,799
Credit Ratios:
Total average debt (6)..... $232,200
Adjusted EBITDA (4)........ 47,590
Cash interest expense (5).. 22,941
Adjusted EBITDA/cash
interest expense.......... 2.1
Total average debt/
Adjusted EBITDA (6)....... 4.9
Cash flows from operating
activities ................ $(2,842)
Cash flows from investing
activities ................ $(35,799)
Cash flows from financing
activities ................ $ 40,995
(1) Revenues include the pro forma effect of the Securitization
of accounts receivable. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and
"Description of Other Issuer Indebtedness--Receivables
Facility."
(2) In the forty weeks ended November 7, 1997, the Company
recognized an extraordinary loss of $4.5 million, net of
income tax benefit, related to the early retirement of debt.
The Company also recognized expenses of $19.9 million in
connection with the Recapitalization.
(3) Capital expenditures are net of proceeds from construction
allowances.
(4) EBITDA represents income (loss) before extraordinary item
and cumulative effect of accounting changes, income taxes,
interest expense, depreciation and amortization and expenses
incurred in connection with the Recapitalization of $19.9
million. The Issuer believes that EBITDA provides useful
information regarding the Issuer's ability to service its
debt; however, holders tendering Old Notes in the Exchange
Offer should consider the following factors in evaluating
such measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with generally accepted
accounting principles ("GAAP"), (iii) should not be
construed as alternatives or substitutes for income from
operations, net income or cash flows from operating
activities in analyzing the Issuer's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
Adjusted EBITDA is defined as EBITDA, as defined above,
revised to reflect management's estimate of certain cost
savings and cost eliminations prior to the Recapitalization.
Holders tendering Old Notes in the Exchange Offer should
consider that Adjusted EBITDA (i) should not be considered
in isolation, (ii) is not a measure of performance
calculated in accordance with GAAP, (iii) should not be
construed as alternatives or substitutes for income from
operations, net income or cash flows from operating
activities in analyzing the Issuer's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. See notes to "Unaudited Pro Forma
Statements of Operations" included herein. This information
should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Data and the related Notes thereto
included herein.
Twelve Months Ended
November 7, 1997
(dollars in thousands)
Historical EBITDA .................... $ 40,970
12
<PAGE>
Recapitalization pro forma
adjustments:
Loss on Securitization
of accounts receivable ......... (2,250)
Cost savings and cost
eliminations implemented
prior to the Recapitalization:
Renegotiation of catalog
vendor contract(a) ............. 2,100
Headcount and net payroll
reductions(b) .................. 4,550
Insourcing of photography
shop(c) ........................ 820
Non-recurring severance(d) 1,400
Total adjustments .............. 6,620
---------
Adjusted EBITDA ....................... $ 47,590
========
(a) Reflects the recent renegotiation of the Company's
catalog vendor contract. The adjustment represents the
difference between the amounts previously expensed for
such items and the amounts which are expected to be
expensed under the terms of the new contract.
(b) Represents compensation savings as a result of the
termination of certain positions.
(c) Represents the estimated cost savings from bringing
in-house certain photography functions that were
previously performed by outside vendors.
(d) Reflects non-recurring severance associated with the
termination of certain managers.
(5) Gives effect to the increase in estimated cash interest
expense from the use of borrowings to finance the
Recapitalization and future working capital requirements.
(6) For purposes of computing the ratio of total average debt to
Adjusted EBITDA, total average debt on a pro forma basis as
of November 7, 1997 reflects average outstanding balances
under the Revolving Credit Facility of $12.2 million during
the twelve months ended November 7, 1997 (giving effect to
the Recapitalization), $70.0 million in aggregate principal
amount of indebtedness under the Term Loan Facility and
$150.0 million in aggregate principal amount of the Notes
offered hereby. See the notes to "Unaudited Pro Forma
Statements of Operations" included herein.
Summary Consolidated Financial And Operating Data
The following table sets forth summary consolidated
historical financial, operating and other data of Holdings, as
predecessor to the Issuer. The summary financial data for each of
the five fiscal years ended January 31, 1997 are derived from the
Consolidated Financial Statements of Holdings, as predecessor to
the Issuer, which have been audited by Deloitte & Touche LLP,
independent auditors. The summary financial data for the forty
weeks ended November 8, 1996 and November 7, 1997 have been
derived from the Unaudited Condensed Consolidated Financial
Statements of Holdings, as predecessor to the Issuer, and the
Unaudited Condensed Consolidated Financial Statements of the
Issuer, respectively, and, in each case, include, in the opinion
of management, all adjustments necessary to present fairly the
data for such periods. The results for the forty weeks ended
November 7, 1997 are not necessarily indicative of the results to
be expected for the fiscal year ending January 30, 1998 or for
any future period. The data presented below should be read in
conjunction with the Consolidated Financial Statements, including
the related Notes thereto included herein, the other financial
information included herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended Forty Weeks Ended
--------------------------------------------------------------------- -------------------
January 29, January 28, February 3, February 2, January 31, Nov. 8, Nov. 7,
1993 1994 1995 1996 1997 1996 1997
(dollars in thousands, except per square foot data)
Financial Data:
Revenues .................... $571,047 $646,972 $737,725 $745,909 $808,843 $538,781 $566,596
Gross profit ................ 267,120 292,083 343,652 346,241 380,124 246,725 255,731
Selling, general and
administrative expenses .... 238,730 265,857 311,468 327,672 348,305 240,197 253,159
Income from operations ...... 28,390 26,226 32,184 18,569 31,819 6,528 2,572
Net income (loss) (1) ....... 14,019 12,019 14,919 6,450 12,549 (573) (28,235)
13
<PAGE>
Operating Data:
Revenues:
J. Crew mail order ...... $201,463 $199,954 $247,272 $274,653 $289,772 $165,936 $157,840
J. Crew retail .......... 72,906 108,650 135,726 134,959 167,957 110,399 140,574
J. Crew factory ......... 38,563 49,253 62,626 79,203 94,579 70,266 75,965
J. Crew licensing ....... -- 1,900 3,269 3,975 3,817 3,729 2,968
-------- -------- -------- -------- -------- -------- --------
Total J. Crew brand ..... 312,932 359,757 448,893 492,790 556,125 350,330 377,347
Other divisions (2) ..... 258,115 287,215 288,832 253,119 252,718 188,451 189,249
-------- -------- -------- -------- -------- -------- --------
Total ................... $571,047 $646,972 $737,725 $745,909 $808,843 $538,781 $566,596
======== ======== ======== ======== ======== ======== ========
EBITDA(3):
J. Crew mail order ...... $12,840 $11,980 $24,345 $16,831 $17,524 $(1,924) $(8,225)
J. Crew retail .......... 6,720 5,055 13,333 15,194 16,847 8,800 8,177
J. Crew factory ......... 3,660 1,797 1,653 (66) 2,876 3,395 3,244
J. Crew licensing ....... (51) 1,239 2,422 2,820 2,467 2,797 2,285
Total J. Crew brand ..... 23,169 20,071 41,753 34,779 39,714 13,068 5,481
Other divisions (2) ..... 11,611 12,941 (1,459) (5,938) 2,646 1,085 7,282
-------- -------- -------- -------- -------- -------- --------
Total ................... $34,870 $33,012 $40,294 $28,841 $42,360 $14,153 $12,763
======== ======== ======== ======== ======== ======== ========
<PAGE>
14
Other Data:
Cash flows from
operating activities ........ $22,400 $1,467 $1,774 $(7,849) $16,497 $(42,766) $(62,105)
Cash flows from
investing activities ........ $(14,965) $(11,086) $(13,467) $(14,640) $(22,481) $(14,947) $(28,265)
Cash flows from
financing activities ........ $638 $5,020 $6,763 $17,763 $(413) $54,822 $96,230
J. Crew Mail Order:
Number of
catalogs circulated
(in thousands) .......... 56,983 62,547 61,187 67,519 76,087 53,942 53,977
Number of pages
circulated
(in millions) ........... 6,576 6,965 8,277 10,198 9,827 6,341 6,293
J. Crew Retail:
Sales per gross
square foot (4) ......... $622 $559 $594 $533 $551 NM NM
Store contribution
margin (5) .............. 24.0% 18.7% 22.7% 25.5% 25.4% NM NM
Number of stores
open at end of
period .................. 18 28 29 31 39 39 49
Comparable store
sales change (6) ........ 22.0% (8.0)% 6.9% (6.0)% 4.5% 4.0% (6.1)%
Depreciation and
amortization ................ $6,390 $6,786 $8,110 $10,272 $10,541 $7,625 $10,191
Net capital
expenditures (7)
New store openings ...... 5,519 2,789 2,804 6,009 10,894 6,903 15,253
Other ................... 9,446 8,297 10,663 8,631 11,587 8,044 13,012
-------- -------- -------- -------- -------- -------- --------
Total net capital
expenditures ............ $14,965 $11,086 $13,467 $14,640 $22,481 $14,947 $28,265
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------------
(1) In fiscal 1995, Holdings changed its method of accounting
for catalog costs and for merchandise inventories and
recognized an increase in net income from the aggregate
cumulative effect of such accounting changes, net of income
taxes, of $2.6 million. In the same year, Holdings
recognized an extraordinary loss of $1.7 million, net of
income tax benefit, related to the early retirement of debt.
See Notes 11 and 12 of Notes to Consolidated Financial
Statements.
During the forty weeks ended November 7, 1997, the Company
recognized an extraordinary loss of $4.5 million, net of
income tax benefit, related to the early retirement of debt
and incurred other expenses of $19.9 million in connection
with the Recapitalization.
(2) Includes the Company's PCP and C&W divisions and finance
charge income derived from PCP installment sales.
(3) EBITDA represents income (loss) before extraordinary items
and cumulative effect of accounting changes plus income
taxes, interest expense, depreciation and amortization and
expenses of $19.9 million incurred in connection with the
Recapitalization. The Company believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted
accounting principles and should not be considered as a
substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of
liquidity. Holders tendering Old Notes in the Exchange Offer
should consider the following factors in evaluating such
measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should
not be construed as alternatives or substitutes for income
from operations, net income or cash flows from operating
activities in analyzing the Issuer's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
(4) Sales per gross square foot is the result of dividing
annualized net retail sales for the period (reflecting
adjustments based on management estimates of the impact of
opening stores in different periods during the year) by
gross square footage at the end of each fiscal period.
(5) Store contribution margin is computed as gross profit less
in-store operating expenses divided by sales.
(6) Comparable store sales includes stores that have been open
for one full twelve-month period.
(7) Capital expenditures are net of proceeds from construction
allowances.
15
<PAGE>
RISK FACTORS
Prospective holders of the New Notes should carefully
review the information contained and incorporated by reference in
this Prospectus and should particularly consider the following
matters:
Risk Factors Relating to the Company
Substantial Leverage; Liquidity; Stockholders' Deficit
In connection with the Recapitalization, the Issuer
incurred a significant amount of additional indebtedness. As of
November 7, 1997, the Issuer had $267.0 million of indebtedness
and its stockholders' equity was $4.5 million. In addition,
subject to the restrictions in the Bank Facilities and the
Indenture, the Issuer may incur additional senior or other
indebtedness from time to time to finance acquisitions or capital
expenditures or for other general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." The Bank
Facilities and the Indenture restrict, but do not prohibit, the
payment of dividends by the Issuer to Holdings to finance the
payment of interest on the Holdings Senior Discount Debentures.
See "Description of Holdings Indebtedness," "Description of the
New Notes" and "Description of Other Issuer Indebtedness."
The level of the Issuer's indebtedness could have important
consequences to the holders of the Notes, including, but not
limited to, the following: (i) the Issuer's ability to obtain
additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a significant portion of the
Issuer's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Issuer for its operations;
(iii) significant amounts of the Issuer's borrowings will bear
interest at variable rates, which could result in higher interest
expense in the event of increases in interest rates; (iv) the
Indenture and the Bank Facilities contain financial and
restrictive covenants, the failure to comply with which may
result in an event of default which, if not cured or waived,
could have a material adverse effect on the Issuer; (v) the
indebtedness outstanding under the Bank Facilities is secured and
matures prior to the maturity of the Notes; (vi) the Issuer may
be substantially more leveraged than certain of its competitors,
which may place the Issuer at a competitive disadvantage; and
(vii) the Issuer's substantial degree of leverage may limit its
flexibility to adjust to changing market conditions, reduce its
ability to withstand competitive pressures and make it more
vulnerable to a downturn in general economic conditions or its
business. See "Description of the New Notes" and "Description of
Other Issuer Indebtedness."
The Issuer's ability to make scheduled payments or to
refinance its debt obligations will depend upon its future
financial and operating performance, which will be affected by
prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. There can be no
assurance that the Issuer's operating results, cash flow and
capital resources will be sufficient for payment of its
indebtedness in the future. In the absence of such operating
results and resources, the Issuer could face substantial
liquidity problems and might be required to dispose of material
assets or operations to meet its debt service and other
obligations, and there can be no assurance as to the timing of
such sales or the proceeds that the Issuer could realize
therefrom. In addition, because significant amounts of the
Issuer's borrowings will bear interest at variable rates, an
increase in interest rates could adversely affect, among other
things, the Issuer's ability to meet its debt service
obligations. If the Issuer is unable to service its indebtedness,
it may take actions such as reducing or delaying planned
expansion and capital
expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be
no assurance that any of these actions could be effected on
satisfactory terms, if at all.
Dependence on Key Personnel
Emily Woods' leadership in the areas of design,
merchandising and operations has been a significant factor in the
Company's success. The loss of Ms. Woods' services could have a
material adverse affect on the Company. The Company also depends
on the services of key members of its design and merchandising
teams and other key officers and employees. While the Company
believes that it has developed depth and experience among its key
16
<PAGE>
personnel, there can be no assurance that the Company's business
would not be affected if one or more of these individuals left
the Company.
The Company has entered into an employment agreement with
Ms. Woods and has employment agreements with certain other
employees. See "Management--Employment Agreements and Other
Compensation Arrangements." The Company maintains key person life
insurance on Ms. Woods.
Fashion and Apparel Industry Risks
The Company believes that its success depends in
substantial part on its ability to originate and define product
and fashion trends as well as to anticipate, gauge and react to
changing consumer demands in a timely manner. There can be no
assurance that the Company will continue to be successful in this
regard. The Company attempts to reduce the risks of changing
fashion trends and product acceptance by devoting a substantial
portion of its product line to basic durables which are not
significantly modified from year to year. Nevertheless, if the
Company misjudges the market for its products, it may be faced
with significant excess inventories for some products and missed
opportunities with others.
The industry in which the Company operates is cyclical.
Purchases of apparel and related merchandise tend to decline
during recessionary periods and also may decline at other times.
There can be no assurance that the Company will be able to
maintain its historical growth in revenues or earnings, or remain
profitable in the future. Further, a recession in the general
economy or uncertainties regarding future economic prospects
could affect consumer spending habits and have an adverse effect
on the Company's results of operations.
Increases in Costs of Mailing, Paper and Printing
Postal rate increases and paper and printing costs affect
the cost of the Company's catalog and promotional mailings. The
Company relies on discounts from the basic postal rate structure,
such as discounts for bulk mailings and sorting by zip code and
carrier routes. The Company is not a party to any long-term
contracts for the supply of paper. The Company's cost of paper
has fluctuated significantly during the past three fiscal years,
and its future paper costs are subject to supply and demand
forces external to its business. The Company's average cost per
hundred-pound weight of paper was $39, $58 and $52 during fiscal
1994, 1995 and 1996, respectively, and $52 and $41 during the
forty weeks ended November 8, 1996 and November 7, 1997,
respectively. Consequently, there can be no assurance that the
Company will not be subject to an increase in paper costs.
Although the Company has recently entered into a new four-year
contract for the printing of its catalogs, the contract offers no
assurance that the Company's printing costs will not increase
following expiration of the contract. Future increases in postal
rates or paper or printing costs would have a negative impact on
the Company's earnings to the extent that the Company is unable
to pass such increases on directly to customers or offset such
increases by raising selling prices or by implementing more
efficient mailings. See "Business--J. Crew Brand--J. Crew Mail
Order--Catalog Creation and Production."
Reliance on Foreign Sourcing
In 1996, approximately 50% of the J. Crew brand and
Clifford & Wills merchandise was sourced from independent foreign
factories located primarily in the Far East, and many of the
Company's domestic vendors import a substantial portion of their
merchandise from abroad. The Company has no long-term merchandise
supply contracts and many of its imports are subject to existing
or potential duties, tariffs or quotas that may limit the
quantity of certain types of goods which may be imported into the
United States from countries in those regions. The Company
competes with other companies for production facilities and
import quota capacity. The Company's business is also subject to
a variety of other risks generally associated with doing business
abroad, such as political instability (including issues
concerning the future of Hong Kong following the transfer of Hong
Kong to The People's Republic of China on July 1, 1997), currency
and exchange risks and potential local issues. The Company's
future performance will be subject to such factors, which are
beyond its control, and there can be no assurance that such
factors would not have a material adverse effect on the Company's
results of operations. See "Business--General--Sourcing,
Production and Quality."
17
<PAGE>
The Company requires its licensing partners and independent
manufacturers to operate in compliance with applicable laws and
regulations. While the Company's internal and vendor operating
guidelines promote ethical business practices, the Company does
not control such manufacturers or their labor practices. The
violation of labor or other laws by an independent manufacturer
of the Company or by one of the Company's licensing partners, or
the divergence of an independent manufacturer's or licensing
partner's labor practices from those generally accepted as
ethical in the United States, could have a material adverse
effect on the Company's financial condition and results of
operations.
Uncertainty Relating to Ability to Implement J. Crew
Retail Growth Strategy
The Company intends to expand its base of J. Crew retail
stores as part of its growth strategy. There can be no assurance
that this strategy will be successful. The actual number and type
of such stores to be opened and their success will be dependent
upon a number of factors, including, among other things, the
ability of the Company to manage such expansion and hire and
train qualified associates, the availability of suitable store
locations and the negotiation of acceptable lease terms for new
locations and upon lease renewals for existing locations. There
is no assurance that the Company will be able to open and operate
new stores on a timely or profitable basis. In 1996, net of
construction allowances, the Company spent $10.9 million for new
stores and remodeling and anticipates spending approximately
$16.2 million in 1997 and $23.0 million in 1998 for such capital
expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--J.
Crew Brand--J. Crew Retail--New Store Expansion." The Company
believes that the opening of J. Crew retail stores has diverted
some customer revenues from the J. Crew mail order operations.
There can be no assurance that future store openings will not
continue to have such an effect.
Seasonality
The Company experiences seasonal fluctuations in its
revenues and operating income, with a disproportionate amount of
the Company's revenues and a majority of its income from
operations typically realized during the fourth quarter of its
fiscal year. Revenues and income from operations are generally
weakest during the first and second quarters of the Company's
fiscal year. The Company's quarterly results of operations may
also fluctuate significantly as a result of a variety of other
factors, including the timing of new store openings and of
catalog mailings, and the revenues contributed by new stores,
merchandise mix and the timing and level of markdowns. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality."
Competition
All aspects of the Company's businesses are highly
competitive. The Company competes primarily with other catalog
operations, specialty brand retailers, department stores, and
mass merchandisers engaged in the retail sale of men's and
women's apparel, accessories, footwear and general merchandise.
The Company believes that the principal bases upon which it
competes are quality, design, efficient service, selection and
price. However, certain of the Company's competitors are larger
and have greater financial, marketing and other resources than
the Company, and there can be no assurance that the Company will
be able to compete successfully with them in the future.
Cautionary Statement Concerning Ability to Achieve Anticipated
Cost Savings and Forward-Looking Statements
Management of the Company estimates that approximately $7
million of annualized net cost savings (in addition to the $7.5
million in estimated annual savings included in Adjusted EBITDA)
could be achieved by mid- 1998, including process efficiencies,
reduction of the Base Book trim size, installation of an
automated sortation system at the Company's Lynchburg, Virginia
distribution center and relocation of C&W to the J. Crew
corporate headquarters office. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Overview," "Business--Overview" and
"--Opportunities." The cost savings estimates were prepared
solely by members of the management of the Company. The estimates
necessarily reflect numerous assumptions as to future sales
levels and other operating results, the availability of funds for
capital expenditures as well as general industry and business
conditions and other matters, many of which are beyond the
control of the Company. Other
18
<PAGE>
estimates were based on a management consensus as to what levels
of purchasing and similar efficiencies should be achievable by an
entity the size of the Company. All of these forward-looking
statements are based on estimates and assumptions made by
management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict.
There can be no assurance that the savings anticipated in these
forward-looking statements will be achieved. In addition, there
can be no assurance that unforeseen costs and expenses or other
factors will not offset the estimated cost savings or other
components or the Company's plan in whole or in part.
The information contained herein contains forward-looking
statements that involve a number of risks and uncertainties. A
number of factors could cause actual results, performance,
achievements of the Company, or industry results to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These
factors include, but are not limited to, the competitive
environment in the apparel industry in general and in the
Company's specific market areas; changes in prevailing interest
rates and the availability of and terms of financing to fund the
anticipated growth of the Company's business; inflation; changes
in costs of goods and services; economic conditions in general
and in the Company's specific market areas; demographic changes;
changes in or failure to comply with federal, state and/or local
government regulations; liability and other claims asserted
against the Company; changes in operating strategy or development
plans; the ability to attract and retain qualified personnel; the
ability to control inventory levels; the significant indebtedness
of the Company; labor disturbances; the ability to negotiate
agreements with suppliers on favorable terms; changes in the
Company's capital expenditure plan; and other factors referenced
herein. In addition, such forward-looking statements are
necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown
risks, uncertainties and other factors. Forward-looking
statements regarding revenues and EBITDA are particularly subject
to a variety of assumptions, some or all of which may not be
realized. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements
can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may,"
"will," "should," "seeks," "pro forma," "anticipates" or
"intends" or the negative of any thereof, or other variations
thereon or comparable terminology, or by discussions of strategy
or intentions. Given these uncertainties, prospective purchasers
of New Notes are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations
to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
Risk Factors Relating to the Notes
Subordination of Notes; Asset Encumbrance
The Notes are subordinated in right of payment to all
existing and future Senior Debt of the Issuer, including the Bank
Facilities. By reason of such subordination, in the event of
bankruptcy, liquidation, reorganization or other winding-up of
the Issuer or upon a default in payment with respect to, or the
acceleration of, any Senior Debt of the Issuer, the assets of the
Issuer will be available to pay obligations on the Notes only
after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of
the Notes then outstanding. In addition, under certain
circumstances, no payments may be made with respect to principal
of or interest on the Notes if a default exists with respect to
Senior Debt. If the Issuer incurs any additional pari passu debt,
the holders of such debt would be entitled to share ratably with
the holders of the Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization,
dissolution or other winding-up of the Issuer. This may have the
effect of reducing the amount of proceeds paid to holders of the
Notes. In addition, no cash payments may be made with respect to
the Notes during the continuance of a payment default with
respect to the Senior Debt and, under certain circumstances, no
payments may be made with respect to the principal of (and
premium, if any) on the Notes for a period of up to 179 days if a
nonpayment default exists with respect to Senior Debt. The
Subsidiary Guarantees (as defined herein) are subordinated to the
Guarantor Senior Debt of each Guarantor (which includes the
Guarantors' guarantees under the Bank Facilities) to the same
extent that the Notes are subordinated to Senior Debt of the
Issuer, and the ability to collect under the Subsidiary
Guarantees may therefore be similarly limited. See "Description
of the New Notes." In addition, indebtedness outstanding under the
19
<PAGE>
Bank Facilities are secured by substantially all of the assets of
the Issuer. As of November 7, 1997, the Issuer had $117.0 million
of Senior Debt (all of which was secured borrowings) and the
Issuer had approximately $153.0 million of additional revolving
borrowing availability under the Revolving Credit Facility.
Additional Senior Debt may be incurred by the Issuer from time to
time subject to certain restrictions contained in the Bank
Facilities and the Indenture. See "--Restrictive Debt Covenants,"
"Description of the New Notes" and "Description of Other Issuer
Indebtedness."
Restrictive Debt Covenants
The Indenture and the Bank Facilities contain a number of
significant covenants that, among other things, restrict the
ability of the Issuer and its subsidiaries to dispose of assets,
incur additional indebtedness, prepay other indebtedness
(including the Notes) or amend certain debt instruments
(including the Indenture), pay dividends, create liens on assets,
enter into sale and leaseback transactions, make investments,
loans or advances, make acquisitions, engage in mergers or
consolidations, change the business conducted by the Issuer or
its subsidiaries, or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities.
In addition, under the Bank Facilities, the Issuer is required to
comply with specified financial ratios and tests, including
minimum interest coverage ratios, leverage ratios below a
specified maximum, minimum net worth levels and minimum ratios of
inventory to senior debt. See "Description of the New Notes" and
"Description of Other Issuer Indebtedness."
The Issuer's ability to comply with such agreements may be
affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any of
such covenants or restrictions could result in a default under
the Bank Facilities and/or the Indenture, which would permit the
senior lenders, or the holders of the Notes, or both, as the case
may be, to declare all amounts borrowed thereunder to be due and
payable, together with accrued and unpaid interest, and the
commitments of the senior lenders to make further extensions of
credit under the Bank Facilities could be terminated. If the
Issuer were unable to repay its indebtedness to its senior
lenders, such lenders could proceed against the collateral
securing such indebtedness as described under "Description of
Other Issuer Indebtedness." See "--Subordination of Notes; Asset
Encumbrance."
Possible Inability to Repurchase Notes upon Change of Control
The Bank Facilities prohibits the Issuer from purchasing
any of the Notes (except in certain limited amounts) and also
provides that certain change of control events with respect to
the Issuer constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which
the Issuer becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time
when the Issuer is prohibited from purchasing the Notes, the
Issuer could seek the consent of its lenders to the purchase of
the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Issuer does not obtain such
consent or repay such borrowings, the Issuer will remain
prohibited from purchasing the Notes by the relevant Senior Debt.
In such case, the Issuer's failure to purchase the tendered Notes
would constitute an event of default under the Indenture which
would, in turn, constitute a default under the Bank Facilities
and could constitute a default under other Senior Debt. In such
circumstances, the subordination provisions in the Indenture
would likely restrict payments to the holders of the Notes.
Furthermore, no assurance can be given that the Issuer will have
sufficient resources to satisfy its repurchase obligation with
respect to the Notes following a Change of Control. See
"Description of the New Notes" and "Description of Other Issuer
Indebtedness."
Fraudulent Transfer Statutes
Under federal or state fraudulent transfer laws, if a court
were to find that, at the time the Notes and Subsidiary
Guarantees were issued, the Issuer or a Guarantor, as the case
may be, (i) issued the Notes or a Subsidiary Guarantee with the
intent of hindering, delaying or defrauding current or future
creditors or (ii) (A) received less than fair consideration or
reasonably equivalent value for incurring the indebtedness
represented by the Notes or a Subsidiary Guarantee, and (B)(1)
was insolvent or was rendered insolvent by reason of the issuance
of the Notes or such Subsidiary Guarantee, (2) was engaged, or
about to engage, in a business or transaction for which its
assets were unreasonably small or (3) intended to incur, or
believed (or should have believed) it would incur, debts beyond
its ability to pay as such debts mature (as all of the foregoing
terms are defined in or interpreted
20
<PAGE>
under such fraudulent transfer statutes), such court could avoid
all or a portion of the Issuer's or a Guarantor's obligations to
the holders of Notes, subordinate the Issuer's or a Guarantor's
obligations to the holders of the Notes to other existing and
future indebtedness of the Issuer or such Guarantor, as the case
may be, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on
the Notes, and take other action detrimental to the holders of
the Notes, including in certain circumstances, invalidating the
Notes. In that event, there would be no assurance that any
repayment on the Notes would ever be recovered by the holders of
the Notes.
The definition of insolvency for purposes of the foregoing
considerations varies among jurisdictions depending upon the
federal or state law that is being applied in any such
proceeding. However, the Issuer or a Guarantor generally would be
considered insolvent at the time it incurs the indebtedness
constituting the Notes or a Subsidiary Guarantee, as the case may
be, if (i) the fair market value (or fair saleable value) of its
assets is less than the amount required to pay its total existing
debts and liabilities (including the probable liability on
contingent liabilities) as they become absolute or matured or
(ii) it is incurring debts beyond its ability to pay as such
debts mature. There can be no assurance as to what standard a
court would apply in order to determine whether the Issuer or a
Guarantor was "insolvent" as of the date the Notes and Subsidiary
Guarantees were issued, or that, regardless of the method of
valuation, a court would not determine that the Issuer or a
Guarantor was insolvent on that date. Nor can there be any
assurance that a court would not determine, regardless of whether
the Issuer or a Guarantor was insolvent on the date the Notes and
Subsidiary Guarantees were issued, that the payments constituted
fraudulent transfers on another ground. To the extent that
proceeds from the sale of the Notes are used to repay
indebtedness under the Bank Facilities, or to make a distribution
to a stockholder on account of the ownership of capital stock, a
court may find that the Issuer or a Guarantor did not receive
fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented by the Notes or a
Subsidiary Guarantee, as the case may be.
To the extent any Subsidiary Guarantees were avoided as a
fraudulent conveyance or held unenforceable for any other reason,
holders of the Notes would cease to have any claim in respect of
such Guarantor and would be creditors solely of the Issuer and
any Guarantor whose Subsidiary Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the
Notes against the issuer of an invalid Subsidiary Guarantee would
be subject to the prior payment of all liabilities and preferred
stock claims of such Guarantor. There can be no assurance that,
after providing for all prior claims and preferred stock
interests, if any, there would be sufficient assets to satisfy
the claims of the holders of the Notes relating to any voided
portions of any of the Subsidiary Guarantees.
Based upon financial and other information currently
available to it, management of the Issuer and each Guarantor
believes that the Notes and the Subsidiary Guarantees are being
incurred for proper purposes and in good faith and that the
Issuer and each Guarantor (i) is solvent and will continue to be
solvent after issuing the Notes or its Subsidiary Guarantees, as
the case may be, (ii) will have sufficient capital for carrying
on its business after such issuance, and (iii) will be able to
pay its debts as they mature. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
In addition, if a court were to avoid the Subsidiary
Guarantees under fraudulent conveyance laws or other legal
principles, or, by the terms of such Subsidiary Guarantees, the
obligations thereunder were reduced as necessary to prevent such
avoidance, or the Subsidiary Guarantees were released, the claims
of other creditors of the Guarantors, including trade creditors,
would to such extent have priority as to the assets of such
Guarantors over the claims of the holders of the Notes. The
Subsidiary Guarantees of the Notes by any Guarantor will be
released upon the sale of such Guarantor or upon the release by
the lenders under the Bank Facilities of such Guarantor's
guarantee of the Issuer's obligation under the Bank Facilities.
The Indenture limits the ability of the Issuer and its
subsidiaries to incur additional indebtedness and to enter into
agreements that would restrict the ability of any subsidiary to
make distributions, loans or other payments to the Issuer.
However, these limitations are subject to certain exceptions. See
"Description of the New Notes."
21
<PAGE>
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes
for New Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. The Issuer does not currently anticipate
that it will register the Old Notes under the Securities Act. To
the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected.
Absence of Public Market
The Old Notes have been designated as eligible for trading
in the PORTAL market. Prior to this Exchange Offer, there has
been no public market for the New Notes. If such a market were to
develop, the New Notes could trade at prices that may be higher
or lower than their principal amount. Neither the Issuer nor any
of the Guarantors intends to apply for listing of the New Notes
on any securities exchange or for quotation of the New Notes on
The Nasdaq Stock Market's National Market or otherwise. The
Initial Purchasers have previously made a market in the Old
Notes, and the Issuer and the Guarantors have been advised that
the Initial Purchasers currently intend to make a market in the
New Notes, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. The Initial Purchasers are
not obligated, however, to make a market in the Old Notes or the
New Notes and any such market making activity may be discontinued
at any time without notice at the sole discretion of the Initial
Purchasers. There can be no assurance as to the liquidity of the
public market for the New Notes or that any active public market
for the New Notes will develop or continue. If an active public
market does not develop or continue, the market price and
liquidity of the New Notes may be adversely affected.
22
<PAGE>
THE RECAPITALIZATION
The Shareholders, Holdings and TPG Partners II are parties
to the Recapitalization Agreement which provided for the
recapitalization of Holdings. Pursuant to the Recapitalization
Agreement, Holdings purchased from the Shareholders all
outstanding shares of Holdings' capital stock, other than shares
having an implied value of $11.1 million, almost all of which
continues to be held by Emily Woods, and which represented 14.8%
of the outstanding shares of Holdings' Common Stock immediately
following the transaction.
In connection with the Recapitalization, Holdings organized
the Issuer and immediately prior to the consummation of the
Recapitalization, Holdings transferred substantially all of its
assets and liabilities to the Issuer. Holdings' current
operations are, and future operations are expected to be, limited
to owning the stock of the Issuer. The Issuer repaid
substantially all of the Company's funded debt obligations
existing immediately before the consummation of the
Recapitalization. At October 17, 1997, the aggregate principal
amount of the Company's funded indebtedness was $186.0 million,
consisting of the Retired Senior Notes, the Retired Bank Credit
Facility and the Industrial Revenue Bond.
Cash funding requirements for the Recapitalization (which
was consummated on October 17, 1997), including the Initial
Purchasers' discount in connection with the issuance and sale of
the Old Notes and other fees and expenses, totalled $559.7
million (including $99.0 million in seasonal borrowings) and were
satisfied through the purchase by TPG Partners II and investors
of an aggregate $188.9 million in Holdings' equity securities
together with an aggregate $330.8 million in borrowings and $40.0
million in proceeds from the Securitization, as follows: (i) the
purchase by TPG Partners II, its affiliates and other investors
of shares of Holdings' Common Stock (representing 85.2% of the
outstanding shares) for $63.9 million; (ii) the purchase by TPG
Partners II, its affiliates and other investors of $125.0 million
in liquidation value of Holdings Preferred Stock; (iii) gross
proceeds of $75.3 million from the issuance and sale by Holdings
of Holdings Senior Discount Debentures; (iv) $150.0 million from
the gross proceeds of the Offering; (v) $40.0 million in proceeds
from the Securitization; (vi) $70.0 million of borrowings under
the Term Loan Facility; and (vii) $35.6 million of borrowings
under the Revolving Credit Facility. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of the
New Notes," "Description of Other Issuer Indebtedness" and
"Description of Holdings Indebtedness and "Capital Stock of
Holdings and the Issuer."
The Recapitalization was accounted for as a
recapitalization transaction for accounting purposes. The
repurchase of shares from the Shareholders, the Debt Retirement,
the Holdings Common Equity Contribution, the issuance and sale by
Holdings of the Holdings Preferred Stock and the Holdings Senior
Discount Debentures, the borrowing by the Issuer of funds under
the Bank Facilities, the Securitization and the Offering were
effected in connection with the Recapitalization.
23
<PAGE>
The following table summarizes the sources and uses of
funds in the Recapitalization:
(dollars in
thousands)
Sources:
Revolving Credit Facility (1)............. $ 35,559
Term Loan Facility........................ 70,000
Securitization (2)........................ 40,000
Notes offered............................. 150,000
Holdings Senior Discount Debentures....... 75,257
Holdings Preferred Stock.................. 125,000
Holdings Common Equity Contribution....... 63,891
Total Sources........................... $559,707
========
Uses:
Repurchase of Holdings' Capital Stock..... $ 316,688
Repayment of Retired Bank Credit
Facility (3)............................. 99,212
Repayment of Retired Senior Notes (4)..... 93,104
Retirement of Industrial Revenue
Bond (5)................................. 1,963
Transaction Fees and Expenses and
Other Transaction Payments (6)........... 48,740
Total Uses.............................. $559,707
========
- -----------------
(1) Reflects borrowings to partially refinance seasonal
borrowings outstanding under the Retired Bank Credit
Facility. Giving effect to the Recapitalization, average
outstanding borrowings under the Revolving Credit Facility
would have been $12.2 million during the twelve months ended
November 7, 1997. Excludes outstanding letters of credit
issued to facilitate international merchandise purchases,
which had an aggregate outstanding balance of $37.4 million
as of November 7, 1997. See the notes to the "Unaudited Pro
Forma Statements of Operations" included herein.
(2) The Company securitized approximately $40 million of PCP
consumer loan installment receivables off-balance sheet
simultaneously with the consummation of the Recapitalization
pursuant to a facility arranged by affiliates of the Initial
Purchasers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Other Issuer
Indebtedness--Receivables Facility."
(3) The Retired Bank Credit Facility was in an aggregate
principal amount of up to $200.0 million, of which up to
$120.0 million was available for direct borrowings.
Borrowings under the Retired Bank Credit Facility were
prepaid in whole without penalty or premium and included
accrued interest of $0.2 million.
(4) The Retired Senior Notes were prepaid in connection with the
Recapitalization. The prepayment required the Issuer to pay
a make-whole premium in the amount of $5.8 million. Also
included is $2.3 million of accrued interest.
(5) The industrial revenue bond was prepaid in whole without
penalty or premium.
(6) Includes Holdings' expenses, management bonuses, financial
advisory, consulting and other professional fees and
deferred financing costs. See "Certain Relationships and
Related Transactions."
TEXAS PACIFIC GROUP
TPG was founded by David Bonderman, James G. Coulter and
William S. Price, III in 1992 to pursue public and private
investment opportunities through a variety of methods, including
leveraged buyouts, recapitalizations, joint ventures,
restructurings and strategic public securities investments. The
principals of TPG operate TPG Partners, L.P. and TPG Partners II,
both Delaware limited partnerships with aggregate committed
capital of over $3.2 billion. Among TPG's investments are branded
consumer products companies Beringer Wine Estates, Del Monte
Foods Company and Ducati Motor. Other TPG portfolio companies
include America West Airlines, Belden & Blake Corporation,
Favorite Brands International, Paradyne, Virgin Entertainment and
Vivra Specialty Partners. In addition, the principals of TPG led
the $9 billion reorganization of Continental Airlines in 1993.
24
<PAGE>
The principal executive office of TPG is located at 201 Main
Street, Suite 2420, Fort Worth, Texas 76102 and its telephone
number is (817) 871-4000.
USE OF PROCEEDS
There will be no cash proceeds payable to the Issuer or the
Guarantors from the issuance of the New Notes pursuant to the
Exchange Offer. The proceeds from the sale of the Old Notes were
used for the retirement of debt, to consummate the other
components of the Recapitalization and to pay related fees and
expenses.
CAPITALIZATION
The following table sets forth as of November 7, 1997 the
actual unaudited capitalization of the Issuer. See "The
Recapitalization," "Use of Proceeds," "Description of the New
Notes" and "Description of Other Issuer Indebtedness." This table
should be read in conjunction with the "Selected Consolidated
Financial Data" and "Unaudited Pro Forma Consolidated Financial
Data" included elsewhere in this Prospectus.
As of November 7, 1997
Actual
(dollars in thousands)
Cash and cash equivalents....... $12,992
=======
Debt:
Revolving Credit Facility(1).. $47,000
Term Loan Facility............ 70,000
10-3/8% Senior Subordinated
Notes due 2007............. 150,000
--------
Total debt............... 267,000
Stockholders' equity............ 4,467
--------
Total capitalization......... $271,467
========
(1) Excludes letters of credit issued to facilitate
international merchandise purchases, which had an aggregate
outstanding balance of $37.4 million as of November 7, 1997.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial
data with respect to the Issuer (the "Unaudited Pro Forma
Financial Data") is based on the historical Consolidated
Financial Statements of Holdings, as predecessor to the Issuer,
and subsidiaries included elsewhere in this Prospectus adjusted
to give effect to the Recapitalization. The Unaudited Pro Forma
Statements of Operations give effect to the Recapitalization as
if it had occurred on February 3, 1996. The Recapitalization and
the related adjustments are described in the accompanying notes.
The pro forma adjustments are based upon preliminary estimates
and certain assumptions that management of the Issuer believes
are reasonable in the circumstances. In the opinion of
management, all adjustments have been made that are necessary to
present fairly the pro forma data. Actual amounts could differ
from those set forth below.
The Unaudited Pro Forma Financial Data should be read in
conjunction with the notes included herewith, Holdings'
Consolidated Financial Statements and notes thereto as of
February 2, 1996 and January 31, 1997 and for each of the fiscal
years in the three-year period ended January 31, 1997, the Company's
Unaudited Condensed Consolidated Financial Data as of November 7,
1997 and for the forty week periods ended November 7, 1997 and
November 8, 1996, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere
in this Prospectus. The Unaudited Pro Forma Financial Data do not
purport to represent what the Issuer's results of operations
would have been had the Recapitalization occurred on the dates
specified, or to project the Issuer's results of operations for
any future period or date.
The unaudited supplemental data reflect (i) certain pro
forma adjustments and (ii) management's estimates of certain cost
savings and cost eliminations which management believes will be
attained. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Twelve Months Ended November 7, 1997
Pro Forma
Historical Adjustments Pro Forma
(dollars in thousands)
Revenues .......................... $836,658 $(2,250)(1) $834,408
Cost of sales ..................... 447,528 -- 447,528
-------- ------- --------
Gross profit ...................... 389,130 (2,250)(1) 386,880
Selling, general and
administrative expenses ......... 361,267 1,800 (5) 363,067
-------- ------- --------
Income (loss) from operations ..... 27,863 (4,050) 23,813
Interest expense:
Non-cash interest expense ....... 489 1,397 (2) 1,886
Cash interest expense ........... 13,736 9,205 (3) 22,941
Expenses incurred in connection
with the Recapitalization ......... 19,851 -- (6) 19,851
Provision (benefit) for
income taxes .................... 4,400 (6,007)(4) (1,607)
Extraordinary loss (net of
income tax benefit) ............. 4,500 -- 4,500
-------- ------- --------
Net income (loss) $(15,113) $(8,645) $(23,758)
======== ======= ========
Pro Forma
and
Supplemental
Historical Adjustments Pro Forma
(dollars in thousands)
Supplemental Data:
Depreciation and amortization ..... $ 13,107 $ -- $ 13,107
EBITDA ............................ 40,970 6,620 47,590
Ratio of Adjusted EBITDA/
cash interest expense ........... 2.1x
Ratio of total average
debt/Adjusted EBITDA (7) ........ 4.9x
Cash flows from operating
activities ........................ $(2,842)
Cash flows from investing
activities ........................$(35,799)
Cash flows from financing
activities ....................... $40,995
26
<PAGE>
Fiscal Year Ended January 31, 1997
Pro Forma
Historical Adjustments Pro Forma
(dollars in thousands)
Revenues .......................... $808,843 $(2,650)(1) $806,193
Cost of sales ..................... 428,719 -- 428,719
-------- ------- --------
Gross profit ...................... 380,124 (2,650)(1) 377,474
Selling, general and
administrative expenses ......... 348,305 1,800 (5) 350,105
-------- ------- --------
Income (loss) from operations ..... 31,819 (4,450) 27,369
Interest expense:
Non-cash interest expense ....... 401 1,485 (2) 1,886
Cash interest expense ........... 10,069 11,894 (3) 21,963
Provision (benefit) for
income taxes .................... 8,800 (7,310)(4) 1,490
-------- ------- --------
Net income (loss) $ 12,549 $(10,519)(5) $ 2,030
======== ======= ========
See accompanying notes to the unaudited pro forma statements of
operations.
27
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Forty Weeks Ended November 7, 1997
Pro Forma
Historical Adjustments Pro Forma
(dollars in thousands)
Revenues........................... $566,596 $(1,638)(1) $564,958
Cost of sales...................... 310,865 -- 310,865
-------- ------- --------
Gross profit....................... 255,731 (1,638)(1) 254,093
Selling, general and
administrative expenses ......... 253,159 1,385 (5) 254,544
-------- ------- --------
Income (loss) from operations...... 2,572 (3,023) (451)
Interest expense:
Non-cash interest expense........ 399 1,052 (2) 1,451
Cash interest expense............ 10,907 6,966 (3) 17,873
Expenses incurred in connection
with the Recapitalization.......... 19,851 -- 19,851
Provision (benefit) for
income taxes .................... (4,850) (4,527)(4) (9,377)
Extraordinary loss (net of
income tax benefit) ............. 4,500 -- 4,500
-------- ------- --------
Net income (loss).................. $(28,235) $(6,514) $(34,749)
======== ======= ========
Forty Weeks Ended November 8, 1996
Pro Forma
Historical Adjustments Pro Forma
(dollars in thousands)
Revenues....................... $538,781 $(2,038)(1) $536,743
Cost of sales.................. 292,056 -- 292,056
-------- ------- --------
Gross profit................... 246,725 (2,038)(1) 244,687
Selling, general and
administrative expenses ..... 240,197 1,385 (5) 241,582
-------- ------- --------
Income (loss) from operations.. 6,528 (3,423) 3,105
Interest expense:
Non-cash interest expense.... 311 1,140 (2) 1,451
Cash interest expense........ 7,240 9,655 (3) 16,895
Provision (benefit) for
income taxes (450) (5,829)(4) (6,279)
-------- ------- --------
Net income (loss).............. $ (573) $(8,389) $ (8,962)
======== ======= ========
See accompanying notes to the unaudited pro forma statements of
operations.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(1) Represents the estimated loss on the Securitization of
accounts receivable. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and
"Description of Other Issuer Indebtedness--Receivables
Facility."
(2) Represents the net increase in non-cash interest expense
relating to the amortization of debt issuance costs of the
Issuer of $13.0 million relating to debt issued in
connection with the Recapitalization.
(3) Gives effect to the increase in estimated cash interest
expense from the use of borrowings to finance the
Recapitalization and future working capital requirements:
Fiscal Year Forty Weeks Ended Twelve Months
Ended Ended Ended
January 31, November 8, November 7, November 7,
1997 1996 1997 1997
(dollars in thousands)
Interest on the Notes(a) .. $15,563 $11,972 $11,972 $15,563
Interest on the Bank
Facilities:
Term Loan Facility(b) .. 5,600 4,308 4,308 5,600
Revolving Credit
Facility(b)(c) ....... -- -- 978 978
Other ..................... 800 615 615 800
----- ----- ----- ------
Total 21,963 16,895 17,873 22,941
Less: amounts in
historical statement of
operations 10,069 7,240 10,907 13,736
------ ----- ------ ------
Adjustment to interest
expene .................. $11,894 $9,655 $6,966 $9,205
======= ====== ====== =======
(a) Interest is calculated at an effective interest rate of
10.375% for the period indicated.
(b) Interest is calculated at an estimated weighted average
effective interest rate of 8.0%.
(c) Interest is based on the average of historical daily
outstanding borrowings under the revolving credit
facility during the period, reduced (without giving
effect to any negative average daily balances) by $63.5
million, reflecting the application of the proceeds of
the Recapitalization. No interest income was assumed.
(4) Estimated income tax effects of the pro forma adjustments at
an effective tax rate of 41%.
(5) Reflects non-cash compensation expense in connection with a
grant of restricted stock.
(6) Historical EBITDA is defined as income (loss) before extraordinary
items and cumulative effect of accounting changes, interest
expense, income tax expense, depreciation and amortization
and expenses of $19.9 million incurred in connection with
the Recapitalization. The Issuer believes that EBITDA
provides useful information regarding the Issuer's ability
to service its debt; however holders tendering Old Notes in
the Exchange Offer should consider the following factors in
evaluating such measures: EBITDA and related measures (i)
should not be considered in isolation, (ii) are not measures
of performance calculated in accordance with GAAP, (iii)
should not be construed as alternatives or substitutes for
income from operations, net income or cash flows from
operating activities in analyzing the Issuer's operating
performance, financial position or cash flows (in each case,
as determined in accordance with GAAP) and (iv) should not
be used as indicators of the Issuer's operating performance
or measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
Adjusted EBITDA is defined as EBITDA, revised to reflect
management's estimate of certain cost savings and cost
eliminations implemented prior to the Recapitalization.
The Issuer believes that EBITDA provides useful information
regarding the Issuer's ability to service its debt; however,
Adjusted EBITDA (i) should not be considered in isolation,
(ii) is not a measure of performance calculated in
accordance with GAAP, (iii) should not be construed as
alternatives or substitutes for income from operations, net
income or cash flows from operating activities in analyzing
the Issuer's operating performance, financial position or
cash flows (in
29
<PAGE>
each case, as determined in accordance with GAAP) and (iv)
should not be used as indicators of the Issuer's operating
performance or measures of its liquidity. The management
estimates of cost savings and cost eliminations which are
anticipated on a going-forward basis and which are reflected
in Adjusted EBITDA are as set forth below:
Twelve Months Ended
November 7, 1997
(dollars in thousands)
Historical EBITDA ............................ $40,970
Recapitalization pro forma adjustments:
Loss on Securitization of accounts
receivable ................................. (2,250)
Cost savings and cost eliminations
implemented prior to the Recapitalization:
Renegotiation of catalog vendor
contract(a) ................................ 2,100
Headcount and net payroll reductions(b) .... 4,550
Insourcing of photography shop(c) .......... 820
Non-recurring severance(d) ................. 1,400
-------
Total adjustments ......................... 6,620
-------
Adjusted EBITDA .............................. $47,590
=======
(a) Reflects the recent renegotiation of the Company's
catalog vendor contract. The adjustment represents the
difference between the amounts previously expensed for
such items and the amounts which are expected to be
expensed under the terms of the new contract.
(b) Represents compensation savings as a result of the
termination of certain positions.
(c) Represents the estimated cost savings from bringing
in-house certain photography functions that were
previously performed by outside vendors.
(d) Reflects non-recurring severance associated with the
termination of certain managers.
(7) For purposes of computing the ratio of total average debt to
Adjusted EBITDA, total average debt on a pro forma basis as
of November 7, 1997 reflects average outstanding balances
under the Revolving Credit Facility of $12.2 million during
the twelve months ended November 7, 1997 (giving effect to
the Recapitalization), $70.0 million in aggregate principal
amount of indebtedness under the Term Loan Facility and
$150.0 million in aggregate principal amount of the Old
Notes issued in the Offering. Actual daily outstanding
borrowings under the revolving credit facility were reduced
(without giving effect to any negative average daily
balances) by $63.5 million, reflecting the application of
the proceeds of the Recapitalization, in computing average
outstanding borrowings.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
historical financial, operating, other and balance sheet data of
Holdings, as predecessor to the Issuer. The selected financial
and balance sheet data for each of the five fiscal years ended
January 31, 1997 are derived from the Consolidated Financial
Statements of Holdings, as predecessor to the Issuer, which have
been audited by Deloitte & Touche LLP, independent auditors. The
selected financial data for the forty weeks ended November 8,
1996 and November 7, 1997 have been derived from the Unaudited
Condensed Consolidated Financial Statements of Holdings, as
predecessor to the Issuer, and include, in the opinion of
management, all adjustments necessary to present fairly the data
for such periods. The results for the forty weeks ended November
7, 1997 are not necessarily indicative of the results to be
expected for the fiscal year ending January 30, 1998 or for any
future period. The data presented below should be read in
conjunction with the Consolidated Financial Statements, including
the related Notes thereto, included herein, the other financial
information included herein, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended Forty Weeks Ended
------------------------------------------------------- --------------------
January January February February January November November
29, 28, 3, 2, 31, 8, 7,
1993 1994 1994 1996 1997 1996 1997
(dollars in thousands, except per square foot data) (unaudited)
Financial Data:
Revenues ...............$571,047 $646,972 $737,725 $745,909 $808,843 $538,781 $566,596
Cost of goods sold(1) .. 303,927 354,889 394,073 399,668 428,719 292,056 310,865
------- ------- ------- ------- ------- ------- -------
Gross profit ....... 267,120 292,083 343,652 346,241 380,124 246,725 255,731
Selling, general
and administrative
expenses ............... 238,730 265,857 311,468 327,672 348,305 240,197 253,159
------- ------- ------- ------- ------- ------- -------
Income (loss)
from operations .... 28,390 26,226 32,184 18,569 31,819 6,258 2,572
Interest expense-net ... 5,241 6,107 6,965 9,350 10,470 7,551 11,306
Expenses incurred
- -Recapitalization ...... -- -- -- -- -- -- 19,851
Provision (benefit)
for income taxes ....... 9,130 8,100 10,300 3,700 8,800 (450) (4,850)
Extraordinary item
and cumulative
effect of accounting
changes(2) ............. -- -- -- 931 -- -- (4,500)
------- ------- ------- ------- ------- ------- -------
Net income (loss)(2) ... $14,019 $12,019 $14,919 $6,450 $12,549 (573) (28,235)
======= ======= ======= ======= ======= ======= =======
Operating Data:
Revenues:
J. Crew mail order .$201,463 $199,954 $247,272 $274,653 $289,772 $165,936 $157,840
J. Crew retail ..... 72,906 108,650 135,726 134,959 167,957 110,399 140,574
J. Crew factory .... 38,563 49,253 62,626 79,203 94,579 70,266 75,965
J. Crew licensing .. -- 1,900 3,269 3,975 3,817 3,729 2,968
------- ------- ------- ------- ------- ------- -------
Total J. Crew brand 312,932 359,757 448,893 492,790 556,125 350,330 377,347
Other divisions(3) . 258,115 287,215 288,832 253,119 252,718 188,451 189,249
------- ------- ------- ------- ------- ------- -------
Total ..............$571,047 $646,972 $737,725 $745,909 $808,843 $538,781 $566,596
======= ======= ======= ======= ======= ======= =======
EBITDA(4):
J. Crew mail order . $12,840 $11,980 $24,345 $16,831 $17,524 $(1,924) $(8,225)
J. Crew retail ..... 6,720 5,055 13,333 15,194 16,847 8,800 8,177
J. Crew factory .... 3,660 1,797 1,653 (66) 2,876 3,395 3,244
J. Crew licensing .. (51) 1,239 2,422 2,820 2,467 2,797 2,285
------- ------- ------- ------- ------- ------- -------
Total J. Crew brand 23,169 20,071 41,753 34,779 39,714 13,068 5,481
Other divisions(3) . 11,611 12,941 (1,459) (5,938) 2,646 1,085 7,282
------- ------- ------- ------- ------- ------- -------
Total .............. $34,780 $33,012 $40,294 $28,841 $42,360 $14,153 $12,763
======= ======= ======= ======= ======= ======= =======
Other Data:
Cash flows from
operating activities $22,400 $1,467 $1,774 $(7,849) $16,497 $(42,766) $(62,105)
Cash flows from
investing activities $(14,965) $(11,086) $(13,467) $(14,640) $(22,481) $(14,947) $(28,265)
Cash flows from
financing activities $638 $5,020 $6,763 $17,763 $(413) $54,822 $96,230
J. Crew Mail Order:
Number of catalogs
circulated (in
thousands) ......... 56,983 62,547 61,187 67,519 76,087 53,942 53,977
Number of pages
circulated (in
millions) .......... 6,576 6,965 8,277 10,198 9,827 6,341 6,293
31
<PAGE>
Fiscal Year Ended Forty Weeks Ended
------------------------------------------------------- --------------------
January January February February January November November
29, 28, 3, 2, 31, 8, 7,
1993 1994 1994 1996 1997 1996 1997
(dollars in thousands, except per square foot data) (unaudited)
J. Crew Retail:
Sales per gross
square foot(5) ..... $622 $559 $594 $533 $551 NM NM
Store contribution
margin(6) .......... 24.0% 18.7% 22.7% 25.5% 25.4% NM NM
Number of stores
open at end of
period ............. 18 28 29 31 39 39 49
Comparable store
sales change(7) .... 22.0% (8.0)% 6.9% (6.0)% 4.5% 4.0% (6.1)%
Depreciation and
amortization ........... $6,390 $6,786 $8,110 $10,272 $10,541 $7,625 $10,191
Net capital
expenditures(8)
New store openings . 5,519 2,789 2,804 6,009 10,894 6,903 15,253
Other .............. 9,446 8,297 10,663 8,631 11,587 8,044 13,012
------- ------- ------- ------- ------- ------- -------
Total net capital
expenditures ....... 14,965 11,086 13,467 14,640 22,481 14,947 28,265
Ratio of earnings
to fixed charges(9) .... 3.1x 2.5x 2.6x 1.5x 2.0x 1.5x 1.1x
Balance Sheet Data
(at period end):
Cash and cash
equivalents ............ $27,784 $23,185 $18,255 $13,529 $7,132 $10,638 $12,992
Working capital(10) .... 56,864 75,391 96,437 118,964 125,327 167,908 174,696
Total assets ........... 232,582 287,233 324,795 355,249 410,821 454,177 490,758
Total debt ............. 56,783 61,803 69,566 87,329 87,092 142,151 267,000
Stockholders' equity ... 53,584 66,221 82,041 89,633 102,006 89,060 4,467
</TABLE>
- -------------------
(1) Includes buying and occupancy costs.
(2) In fiscal 1995, Holdings changed its method of accounting
for catalog costs and for merchandise inventories and
recognized an increase in net income from the aggregate
cumulative effect of such accounting changes, net of income
taxes, of $2.6 million. In the same year, Holdings recognized
an extraordinary loss of $1.7 million, net of income tax
benefit, related to the early retirement of debt. See Notes
11 and 12 of Notes to Consolidated Financial Statements. In
the forty weeks ended November 7, 1997, the Company recognized
an extraordinary loss of $4.5 million net of income tax
benefit related to the early retirement of debt.
(3) Includes the Company's PCP and C&W divisions and finance
charge income derived from PCP installment sales.
(4) EBITDA represents income (loss) before extraordinary items
and cumulative effect of accounting changes plus income
taxes, interest expense, depreciation and amortization, and
expenses of $19.9 million incurred in connection with the
Recapitalization. The Company believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted
accounting principles and should not be considered as a
substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of
liquidity. Holders tendering Old Notes in the Exchange Offer
should consider the following factors in evaluating such
measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should
not be construed as alternatives or substitutes for income
from operations, net income or cash flows from operating
activities in analyzing the Issuer's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
(5) Sales per gross square foot is the result of dividing
annualized net retail sales for the period (reflecting
adjustments based on management estimates of the impact of
opening stores in different periods during the year) by
gross square footage at the end of each fiscal period.
(6) Store contribution margin is computed as gross profit less
in-store operating expenses divided by sales.
(7) Comparable store sales includes stores that have been open
for one full twelve-month period.
(8) Capital expenditures are net of proceeds from construction
allowances.
(9) For purposes of computing the ratio of earnings to fixed
charges, earnings include income before income taxes,
extraordinary items and cumulative effect of accounting
changes and expenses incurred in connection with the
Recapitalization of $19.9 million in the forty weeks ended
November 7, 1997, plus fixed charges. Fixed charges consist
of interest expense and one-third of rental expense (deemed
by management to be representative of the interest factor of
rental payments).
(10) Working capital is computed as current assets less current
liabilities, excluding cash and cash equivalents, current
portion of long-term debt and borrowings under the revolving
credit facility.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Selected Consolidated Financial Data and the
Consolidated Financial Statements of Holdings, as predecessor to
the Issuer, and the related notes thereto which are included
elsewhere in this Prospectus. The Company's fiscal year ends on
the Friday closest to January 31. Accordingly, fiscal years 1992,
1993, 1994, 1995 and 1996 ended on January 29, 1993, January 28,
1994, February 3, 1995, February 2, 1996 and January 31, 1997.
All fiscal years for which financial information is included in
this Prospectus had 52 weeks, except fiscal 1994 which had 53
weeks.
Overview
The Company's origins date back to the 1947 founding of
Popular Merchandising Co. which operated PCP, a direct selling
catalog merchandiser of consumer branded goods. In 1983, drawing
upon their family's 35- year experience in catalog retailing,
Arthur Cinader and Emily Woods, the son and granddaughter of
PCP's founder, founded the J. Crew brand with innovative durables
products (including the rollneck sweater, weathered chino, barn
jacket and pocket tee) that continue to be core J. Crew brand
product offerings today. In 1984, C&W was founded as a mail order
women's apparel business targeting an older, more conservative
customer than J. Crew. Capitalizing on the strength of its J.
Crew brand franchise, the Company began developing select retail
store locations in 1989. Today, the Company is a leading mail
order and store retailer of women's and men's apparel, shoes and
accessories operating primarily under the J. Crew brand name.
Since the introduction of the J. Crew brand in 1983, the Company
has mailed more than one-half billion J. Crew catalogs, opened 49
J. Crew retail stores and 42 J. Crew Factory Outlet stores. In
addition, J. Crew products are distributed through 67
free-standing and shop-in-shop stores in Japan under a licensing
agreement with Itochu. The Company's J. Crew brand revenues have
increased from $312.9 million in fiscal 1992 to $556.1 million in
fiscal 1996, representing a compound annual growth rate of 15.4%.
33
<PAGE>
The following table sets forth, for the periods indicated,
revenues and EBITDA for the Company's major operating divisions:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Twelve
Forty Weeks Ended Months
Fiscal Year ------------------------ Ended
----------------------------------------------------------- Novemer 8, November 7, November 7,
1992 1993 1994 1995 1996 1996 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
Revenues:
J. Crew mail
order ............... $201.5 $200.0 $247.3 $274.6 $289.8 $166.0 $157.8 $281.6
J. Crew
retail .............. 72.9 108.7 135.7 135.0 168.0 110.4 140.6 198.2
J. Crew
factory ............. 38.5 49.2 62.6 79.2 94.5 70.2 76.0 100.3
J. Crew
licensing ........... -- 1.9 3.3 4.0 3.8 3.7 2.9 3.0
----- ----- ----- ----- ----- ----- ----- -----
Total
J. Crew brand ..... 312.9 359.8 448.9 492.8 556.1 350.3 377.3 583.1
Other
divisions (1) ....... 258.1 287.2 288.8 253.1 252.7 188.4 189.3 253.6
----- ----- ----- ----- ----- ----- ----- -----
Total revenues .... $571.0 $647.0 $37.7 $745.9 $808.8 $538.7 $566.6 $836.7
===== ===== ===== ===== ===== ===== ===== =====
EBITDA (2):
J. Crew mail
order ............... $12.8 $12.0 $24.4 $16.8 $17.5 $(1.9) $(8.2) $11.2
J. Crew
retail .............. 6.7 5.1 13.3 15.2 16.8 8.8 8.2 16.2
J. Crew
factory ............. 3.7 1.8 1.7 -- 2.9 3.4 3.2 2.7
J. Crew
licensing ........... -- 1.2 2.4 2.8 2.5 2.8 2.3 2.0
----- ----- ----- ----- ----- ----- ----- -----
Total
J. Crew brand .... 23.2 20.1 41.8 34.8 39.7 13.1 5.5 32.1
Other
divisions (3) ....... 11.6 12.9 (1.5) (5.9) 2.6 1.0 7.3 8.9
----- ----- ----- ----- ----- ----- ----- -----
Total
EBITDA .............. $34.8 $33.0 $40.3 $28.9 $42.3 $14.1 $12.8 $41.0
===== ===== ===== ===== ===== ===== ===== =====
Other Data:
Cash flow from
operating
activities .......... $22.4 $1.5 $1.8 $(7.8) $16.5 $(42.8) $(62.1) $(2.8)
Cash flow from
investing
activities .......... $(15.0) $(11.1) $(13.5) $(14.6) $(22.5) $(14.9) $(28.3) $(35.8)
Cash flow fro
financing
activities .......... $0.6 $5.0 $6.8 $17.8 $(0.4) $54.8 $96.2 $41.0
</TABLE>
(1) Includes net sales from the Company's PCP and C&W divisions
and finance charge income derived from PCP installment
sales.
(2) EBITDA represents income (loss) before extraordinary items
and cumulative effect of accounting changes plus income
taxes, interest expense, depreciation and amortization and
expenses of $19.9 million incurred in connection with the
Recapitalization. The Company believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted
accounting principles and should not be considered as a
substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of
liquidity. Holders tendering Old Notes in the Exchange Offer
should consider the following factors in evaluating such
measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should
not be construed as alternatives or substitutes for income
from operations, net income or cash flows from operating
activities in analyzing the Issuer's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
(3) Includes EBITDA from the Company's PCP and C&W divisions.
The following sets forth, for the periods indicated, the
percentage relationship to revenues of certain items in the
Company's consolidated statements of operations for the fiscal
periods shown below:
Forty
Fiscal Year Weeks Ended
------------------------ ----------------
1994 1995 1996 1996 1997
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold,
including buying and
occupancy costs 53.4 53.6 53.0 54.2 54.9
----- ----- ----- ----- -----
Gross profit 46.6 46.4 47.0 45.8 45.1
Selling, general and
administrative expenses 42.2 43.9 43.1 44.6 44.7
----- ----- ----- ----- -----
Income
from operations 4.4 2.5 3.9 1.2 0.4
Interest expense, net 1.0 1.3 1.3 1.4 2.0
Expenses incurred
- recapitalizat -- -- -- -- 3.5
----- ----- ----- ----- -----
Income (loss) before
provision for income
taxes, extraordinary item
and cumulative effect of
accounting changes 3.4 1.2 2.6 (0.2) (5.1)
Provision (benefit)
for income taxes 1.4 0.5 1.0 (0.1) (0.9)
----- ----- ----- ----- -----
Income (loss) before
extraordinary item and
cumulative effect
of accounting changes 2.0% 0.7% 1.6% (0.1)% (4.2)%
===== ===== ===== ===== =====
The Company's revenues include sales of the Company's
merchandise offered through the J. Crew, C&W and PCP catalogs, as
well as through the C&W Factory stores, the retail stores
operated through Grace Holmes, Inc. ("J. Crew Retail") and the
factory outlet stores operated through H.F.D. No. 55, Inc. ("J.
Crew Factory Outlet"). Also included in revenues are J. Crew
brand licensing royalties and finance charge income derived from
PCP installment sales. Cost of goods sold includes the cost of
products purchased for sale, design, purchasing and
34
<PAGE>
warehousing costs, as well as occupancy costs of the Company's
retail and factory stores. Selling, general and administrative
expenses include all other operating expenses, principally
catalog and other selling costs, payroll, depreciation and
corporate expenses.
In fiscal 1995, the Company operations were affected by:
(i) an increase in selling, general and administrative expenses
tied to a spike in paper prices to levels never before
experienced in the Company's history coupled with an increase in
catalog circulation; (ii) the unsuccessful repositioning of C&W
from targeting more mature, conservative customers to targeting
younger, more urban customers; and (iii) negative comparable
store sales in the J. Crew Retail and J. Crew Factory Outlet
operations, primarily as a result of severe weather conditions
during the holiday season and weak menswear performance. Since
1995, paper prices have declined in each period indicated and C&W
has been reoriented toward its traditional conservative,
career-oriented customer base and its operating results have
stabilized.
The Company has identified a number of tactical cost
savings that could be realized without affecting the Company's
franchise or brand image. The Company implemented actions prior to
the Recapitalization which management believes will result in
estimated annual savings of $7.5 million. These actions include the
recent renegotiation of its new catalog vendor contract, selected
headcount and net payroll reductions and insourcing of certain
photography functions. The Company has identified approximately
$7 million of further potential savings through process
efficiencies, reduction of the Base Book trim size, installation
of automatic sorting equipment and consolidation of J. Crew and
C&W New York corporate offices. The Company believes these
additional cost savings could be implemented by mid-1998. See
"Risk Factors--Cautionary Statement Concerning Ability to Achieve
Anticipated Cost Savings and Forward-Looking Statements."
In August 1997, United Parcel Service ("UPS"), which had
traditionally shipped approximately 60% of merchandise orders for
J. Crew Mail Order and C&W, experienced a two-week strike. In
anticipation of the strike, J. Crew Mail Order, C&W and PCP made
alternative arrangements with the United States Postal Service to
ensure uninterrupted delivery service for the same volume of
shipments as ordinarily made during the affected period. However,
under the perception that orders would not be filled in a timely
manner, many consumers hesitated to place orders for catalog
merchandise during the strike, adversely affecting operations of
J. Crew Mail Order, C&W and PCP. The Company also delayed, by
approximately three weeks of the "back-to-school" season mailing
of its J. Crew College catalog during the pendency of the strike.
Results of Operations
The Forty Weeks Ended November 7, 1997 Compared to the Forty
Weeks Ended November 8, 1996
Revenues
Revenues increased 5.2% to $566.6 million in the forty
weeks ended November 7, 1997 from $538.7 million in the forty
weeks ended November 8, 1996, as a result of increased sales of
J. Crew brand merchandise. J. Crew brand revenues increased by
7.7% to $377.3 million in the forty weeks ended November 7, 1997
from $350.3 million in the comparable 1996 period. Other
divisions contributed $189.3 million of revenues during the forty
weeks ended November 7, 1997 as compared to $188.4 million in the
same period in 1996.
J. Crew Mail Order revenues decreased 4.9% to $157.8 million
in the forty weeks ended November 7, 1997 from $166.0 million in
the forty weeks ended November 8, 1996. The percentage of the
Company's total revenues derived from J. Crew Mail Order
decreased to 27.9% in the forty weeks ended November 7, 1997 from
30.8% in the forty weeks ended November 8, 1996. The decrease in
J.Crew Mail Order revenues was primarily the result of the UPS
strike. Gross sales were down 19% from July 18, 1997 to the end
of the UPS strike on August 23, 1997
35
<PAGE>
compared to the same period in 1996. Additionally, weak
performance in menswear sales and unseasonably warm weather on
the east coast in the first part of the fall season also
contributed to the decreased sales. The number of catalogs mailed
were at the same approximate level of 54 million as in the same
forty week period in the prior year.
J. Crew Retail revenues increased by 27.4% to $140.6
million in the forty weeks ended November 7, 1997 from $110.4
million in the forty weeks ended November 8,1996. The percentage
of the Company's total revenues derived from its J. Crew Retail
stores increased to 24.8% in the forty weeks ended November 7,
1997 from 20.5% in the forty weeks ended November 8, 1996. The
increase in J. Crew Retail revenues is the result of opening 10
new stores since the comparable period in 1996. Comparable store
sales decreased 6.1% as the result of the opening of new stores
in proximity to existing store locations and weak performance in
menswear sales. Unseasonably warm weather in the first part of
the fall season also contributed to a decreased sales of fall and
winter clothing.
J. Crew Factory Outlet revenues increased by 8.1% to $76.0
million in the forty weeks ended November 7, 1997 from $70.2
million in the forty weeks ended November 8, 1996. The percentage
of the Company's total revenue derived from J. Crew Factory
Outlet remained at approximately 13.0% in the forty weeks ended
November 7, 1997 as compared to the forty weeks ended November 8,
1996. J. Crew Factory stores comparable store sales increased 6%
in the forty weeks ending November 7, 1997. The comparable store
sales increase was principally due to the overall improvement in
store merchandising under the direction of a new factory outlet
merchandising Vice President. J. Crew Factory Outlet opened two
new stores and closed one store.
PCP revenues increased 2.0% to $136.7 million in the forty
weeks ended November 7, 1997 compared to $134.0 million in the
forty weeks ended November 8, 1996. The percentage of the
Company's total revenues derived from PCP decreased to 24.1% in
the forty weeks ended November 7, 1997 from 24.9% in the forty
weeks ended November 8, 1996. The number of catalogs mailed
remained at the same approximate level of 7 million and the
number of selling agents remained unchanged at approximately
106,000 during the forty weeks ended November 7, 1997 compared to
the same period in 1996. The increased sales in the forty week
period ended November 7, 1997 over the same period in the prior
year is attributable to better performance in ready-to-wear and
specifically in the new branded merchandise.
C&W revenues decreased 3.3% to $52.6 million in the forty
weeks ended November 7, 1997 from $54.4 million in the forty
weeks ended November 8, 1996. The percentage of the Company's
revenues derived from C&W decreased to 9.3% in the forty weeks
ended November 7, 1997 from 10.1% in the forty weeks ended
November 8, 1996. The number of catalogs mailed increased to
approximately 27.9 million in the forty weeks ended November 7,
1997 from approximately 24.8 million in the forty weeks ended
November 8, 1996. The decrease in sales is the result of
unseasonably warm weather on the east coast in the first part of
the fall season affecting the sales of fall and winter clothing.
Gross Profit
Gross profit as a percentage of revenues was 45.1% for the
forty weeks ended November 7, 1997 as compared to 45.8% in the
same period in 1996. The slight decrease in gross profit was
primarily due to an increase in J. Crew Retail buying and
occupancy costs, reflecting the higher cost associated with
opening new stores in urban areas such as New York City.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a
percentage of revenues increased to 44.7% in the forty weeks
ended November 7, 1997 from 44.6% in the forty weeks ended
November 8, 1996. The increase as a percentage of revenues is a
result of increased general and administration expenses of 2.2%
of revenues primarily in J. Crew Mail Order, which was partially
offset by decreases in selling expenses in J. Crew Mail Order,
C&W and PCP of 2.1% of revenues. The increase in general and
administrative expenses was primarily a result of increased
staffing and the decrease in selling expenses was principally a
result of decreased paper costs.
36
<PAGE>
Interest Expense
Interest expense increased to $11.3 million or 2.0% of
revenues in the forty weeks ended November 7, 1997 from $7.6
million or 1.4% of revenues in the forty weeks ended November 8,
1996. This increase was due to an over 90% increase in average
borrowing under the revolving credit facility to $66.7 million in
the forty weeks ended November 7, 1997 compared to average
borrowings of $34.5 million in the same period last year. The
borrowings were required to fund the increased inventory levels
and the increased capital expenditures. Additionally, the
issuance of the Old Notes in the Offering in aggregate principal
amount of $150 million contributed approximately $0.9 million to
the increased interest.
Fiscal 1996 Compared to Fiscal 1995
Revenues
Revenues increased 8.4% to $808.8 million in fiscal 1996
from $745.9 million in fiscal 1995, as the result of increased
sales of J. Crew brand merchandise. J. Crew brand revenues
increased 12.8% to $556.1 million in fiscal 1996 from $492.8
million in fiscal 1995. Other divisions contributed $252.7
million in revenues in fiscal 1996 as compared to $253.1 million
in fiscal 1995.
J. Crew Mail Order revenues increased 5.5% to $289.8
million in fiscal 1996 from $274.6 million in fiscal 1995. The
percentage of the Company's total revenues derived from J. Crew
Mail Order decreased to 35.8% in fiscal 1996 from 36.8% in fiscal
1995. The increase in J. Crew Mail Order revenues principally
resulted from the introduction of the Women's Book and the
related increase in overall J. Crew catalog circulation to
approximately 76 million in 1996 from approximately 68 million in
1995.
J. Crew Retail revenues increased by 24.4% to $168.0
million in fiscal 1996 from $135.0 million in fiscal 1995. The
percentage of the Company's total revenues derived from its J.
Crew Retail stores increased to 20.8% in 1996 from 18.1% in 1995.
The increase in revenues was principally the result of the
opening of eight new stores and a 4.5% increase in comparable
store sales in fiscal 1996. The increase in comparable store
sales was principally due to strong performance in the J. Crew
womenswear lines, including Durables, Classics and Collection.
J. Crew Factory Outlet revenues increased by 19.3% to $94.5
million in fiscal 1996 from $79.2 million in fiscal 1995. The
percentage of the Company's total revenues derived from its J.
Crew Factory Outlet stores increased to 11.7% in fiscal 1996 from
10.6% in fiscal 1995. The increase in J. Crew Factory Outlet
revenues was principally the result of a 7.0% increase in
comparable store sales. During fiscal 1996, J. Crew Factory
Outlets opened three stores and closed four stores. Similar to J.
Crew Retail, the increase in comparable store sales for J. Crew
Factory Outlets was principally due to strong performance in the
J. Crew womenswear lines.
PCP revenues decreased by 2.4% to $177.7 million in fiscal
1996 from $182.1 million in fiscal 1995. The percentage of the
Company's total revenues derived from PCP decreased to 22.0% in
fiscal 1996 from 24.4% in fiscal 1995. The decrease in revenues
primarily resulted from competitive discounting in the
northeastern market which was partially offset by revenues from
the introduction of brand-name apparel. During fiscal 1996, the
number of catalogs mailed remained flat at approximately seven
million and the number of selling agents remained unchanged at
approximately 106,000.
C&W revenues increased by 5.6% to $75.0 million in fiscal
1996 from $71.0 million in fiscal 1995. The percentage of the
Company's revenues derived from C&W decreased slightly to 9.3% in
fiscal 1996 from 9.5% in fiscal 1995. The increase in C&W
revenues during fiscal 1996 reflected: (i) the return to its
original merchandising strategy of providing conservative
career-oriented clothing, see "--Overview;" and (ii) the
introduction of a value pricing strategy. In addition, the
Company reduced the catalog circulation of C&W in fiscal 1996 to
38 million from 40 million in fiscal 1995. The Company believes
that C&W's return to its original focus is in place and currently
plans to increase its C&W catalog mailings.
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Gross Profit
Gross profit increased to 47.0% of revenues in 1996 as
compared to 46.4% of revenues in 1995. This increase primarily
resulted from an increase in merchandise margins in J. Crew Mail
Order.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to
43.1% of revenues in fiscal 1996 from 43.9% of revenues in 1995.
The decline in selling, general and administrative expenses as a
percentage of revenues principally reflects a decrease in catalog
circulation costs (consisting primarily of paper, postage and
printing). These costs declined to 15.9% of revenues in fiscal
1996 from 16.9% of revenues in fiscal 1995, principally as a
result of a decrease in paper costs to 3.2% of revenues in fiscal
1996 from 3.9% of revenues in fiscal 1995, and a decrease in
number of pages circulated by J. Crew Mail Order from 10.2
billion in fiscal 1995 to 9.8 billion in fiscal 1996 as a result
of the J. Crew Mail Order customer segmentation strategy.
Circulation at C&W also decreased. This decrease was partially
offset by an increase in general and administrative expenses
related to payroll for new J. Crew retail stores opened during
the period. Absolute dollar amounts of selling, general and
administrative expenses increased to $348.3 million in fiscal
1996 from $327.7 million in fiscal 1995, primarily reflecting
volume related costs.
Interest Expense
Interest expense increased to $10.5 million or 1.3% of
revenues in fiscal 1996 from $9.4 million or 1.3% of revenues in
fiscal 1995. This increase was due primarily to higher average
borrowings under the revolving credit agreement.
Fiscal 1995 Compared to Fiscal 1994
Revenues.
Revenues increased 1.1% to $745.9 million in fiscal 1995
from $737.7 million in fiscal 1994, reflecting increased sales of
J. Crew brand merchandise, which more than offset declines in
other divisions. J. Crew brand revenues increased by 9.8% to
$492.8 million in fiscal 1995 from $448.9 million in fiscal 1994.
Other divisions contributed $253.1 million in revenues in fiscal
1995 compared to $288.8 million in fiscal 1994, a decrease of
12.4%.
J. Crew Mail Order revenues increased 11.0% to $274.6
million in fiscal 1995 from $247.3 million in fiscal 1994. The
percentage of the Company's total revenues derived from J. Crew
Mail Order increased to 36.8% in fiscal 1995 from 33.5% in fiscal
1994. The revenue improvement was primarily due to an increase in
the number of catalogs mailed to approximately 68 million in
fiscal 1995 from approximately 61 million in fiscal in 1994 as a
result of growth in the 12-month buyer file.
J. Crew Retail revenues were $135.0 million in fiscal 1995
compared to $135.7 million in fiscal 1994. The percentage of the
Company's total revenues derived from its J. Crew Retail stores
decreased to 18.1% in fiscal 1995 from 18.4% in fiscal 1994. The
sales performance was primarily the result of a 6.3% decrease in
comparable store sales which was partially offset by the opening
of two new stores in November, 1995. The decrease in comparable
store sales was principally a result of: (i) severe weather
conditions in the Northeast, which negatively affected sales
during the holiday season; and (ii) weak performance in menswear
as a result of competitive pressures from men's sport offerings
by the Company's principal competitors.
J. Crew Factory Outlet revenues increased by 26.5% to $79.2
million in fiscal 1995 from $62.6 million in fiscal 1994. The
percentage of the Company's total revenues derived from its J.
Crew Factory Outlet stores increased to 10.6% in fiscal 1995 from
8.5% in fiscal 1994. J. Crew Factory Outlet revenue improvement
primarily reflected the opening of 12 new stores (and the closing
of two underperforming stores) in fiscal 1995, partially offset
by a 9.9% decrease in comparable store sales. The decrease in
comparable store sales was principally due to
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the lack of key products in the merchandise assortment in the
stores and poor weather in the Northeast which negatively
affected the holiday retail season.
PCP revenues decreased by 4.0% to $182.1 million in fiscal
1995 from $189.7 million in fiscal 1994. The percentage of the
Company's total revenues derived from PCP decreased to 24.4% in
fiscal 1995 from 25.7% in fiscal 1994. The decrease in revenues
principally resulted from fulfillment disruptions during PCP's
relocation to its new distribution center in Edison, New Jersey.
During fiscal 1995, the number of catalogs mailed remained flat
at approximately seven million and the number of selling agents
remained unchanged at approximately 106,000.
C&W revenues decreased by 28.4% to $71.0 million in fiscal
1995 from $99.1 million in fiscal 1994. The percentage of the
Company's revenues derived from C&W decreased to 9.5% in fiscal
1995 from 13.4% in fiscal 1994. The decrease in revenues
reflected the unsuccessful attempt at repositioning C&W as a
retailer of urban-oriented clothing. See "--Overview." The number
of C&W catalogs circulated remained at 40 million during fiscal
1995 compared to fiscal 1994.
Gross Profit
In 1995, gross profit was 46.4% of revenues as compared to
46.6% of revenues in 1994. The decrease was primarily
attributable to an increase in buying and occupancy costs, which
was offset by improved merchandise margins in J. Crew Mail Order.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 43.9% of
revenues in fiscal 1995 as compared to 42.2% of revenues in 1994.
The increase primarily reflects a substantial increase in catalog
circulation costs (consisting primarily of paper, postage and
printing) to 16.9% of revenues in fiscal 1995 from 14.5% of
revenues in fiscal 1994. Paper costs increased from 2.7% of
revenues in fiscal 1994 to 3.9% of revenues in fiscal 1995,
reflecting a spike in paper prices to levels not previously
experienced in the Company's history. Postage costs increased
sharply, as a result of an approximately 14% postal rate increase
that occurred in January, 1995. Increased catalog circulation
costs also reflected an approximately 10% increase in catalogs
circulated by J. Crew Mail Order, from 61 million in fiscal 1994
to 68 million in fiscal 1995 and an approximately 23% increase in
pages circulated from 8.3 billion in fiscal 1994 to 10.2 billion
in fiscal 1995. C&W circulation was unchanged. These factors more
than offset a decrease in general and administrative expenses and
a decrease in J. Crew Retail store operating expenses.
Interest Expense
Interest expense increased to $9.4 million or 1.3% of
revenues in fiscal 1995 from $7.0 million or 1.0% of revenues in
fiscal 1994. This increase was due primarily to higher average
borrowings under the revolving credit agreement and the issuance
of an additional $15.0 million of long-term debt.
Seasonality
The Company's retail and mail order businesses experience
two distinct selling seasons, spring and fall. The spring season
is comprised of the first and second quarters, consisting of
twelve and sixteen weeks, respectively, and the fall season is
comprised of the third and fourth quarters, each consisting of
twelve weeks. J. Crew Retail stores, J. Crew Factory Outlet
stores, C&W Factory stores and PCP are stronger in the third and
fourth quarters and the J. Crew and C&W Mail Order businesses are
strongest in the fourth quarter. In addition, the Company's
working capital requirements fluctuate throughout the year,
increasing substantially in September and October in anticipation
of the holiday season inventory requirements. The Company funds
its working capital requirements primarily through a revolving
credit facility, which historically has been paid down in full at
the end of the Company's fiscal year.
39
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The following table sets forth certain unaudited quarterly
information for fiscal 1995 and 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1995 Fiscal Year 1996
------------------------------------------- -----------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- --
(dollars in millions)
J. Crew mail order ....... $45.5 $57.5 $61.8 $109.8 $46.1 $54.1 $65.6 $124.0
J. Crew retail ........... 23.3 35.3 33.1 43.3 27.3 40.8 42.3 57.6
J. Crew factory .......... 13.0 25.3 21.2 19.7 15.4 30.9 24.0 24.2
J. Crew licensing ........ 1.2 1.2 1.2 0.4 1.2 1.2 1.3 0.1
------ ------ ------ ------ ------ ------ ------ ------
Total J. Crew brand ... 83.0 119.3 117.3 173.2 90.0 127.0 133.2 205.9
Other divisions .......... 57.8 61.0 72.2 62.1 56.5 60.8 71.0 64.4
------ ------ ------ ------ ------ ------ ------ ------
Total revenues ........ $140.8 $180.3 $189.5 $235.3 $146.5 $187.8 $204.2 $270.3
====== ====== ====== ====== ====== ====== ====== ======
% of full year ........ 18.9% 24.2% 25.4% 31.5% 18.1% 23.3% 25.2% 33.4%
Gross profit ............. $66.5 $87.3 $82.9 $109.5 $68.9 $83.6 $94.2 $133.4
% of full year ........ 19.2% 25.2% 23.9% 31.7% 18.1% 22.0% 24.8% 35.1%
Operating income (loss) .. $(2.3) $(3.1) $11.3 $12.7 $(4.5) $(9.6) $20.7 $25.2
% of full year ........ (12.4)% (16.7)% 60.8% 68.3% (14.2)% (30.2)% 65.1% 79.3%
</TABLE>
Liquidity and Capital Resources
Historical
The Company's primary cash needs have been for opening new
stores, warehouse expansion and working capital. The Company's
sources of liquidity have been cash flow from operations,
proceeds from the private placement of long-term debt and
borrowings under a revolving credit facility.
In April 1997, the Company entered into the Retired Bank
Credit Facility with a group of twelve banks with Morgan Guaranty
Trust Company of New York as agent. The Retired Bank Credit
Facility provided for commitments in an aggregate amount of up to
$200.0 million of which up to $120.0 million was available for
direct borrowings. The Retired Bank Credit Facility replaced the
Company's previous revolving credit agreement which provided for
commitments in an aggregate amount of up to $125.0 million, of
which up to $75.0 million was available for direct borrowings.
Borrowings under the Retired Bank Credit Facility were unsecured
and bore interest, at the Company's option, at the base rate
(defined as the higher of the bank's prime rate or the Federal
Funds rate plus 0.5%) or the London Interbank Offering Rate
("LIBOR") plus 0.625%. The Retired Bank Credit Facility was to
expire on April 17, 2000. There were no borrowings outstanding
under the Company's revolving credit agreements at January 31,
1997 and February 2, 1996. Average borrowings under the Company's
revolving credit agreements were $25.5 million and $31.2 million
for the years ended on February 2, 1996 and January 31, 1997
respectively. Outstanding letters of credit issued to facilitate
international merchandise purchases were $25.9 million and $37.8
million on February 2, 1996 and January 31, 1997, respectively.
Borrowings under the Retired Bank Credit Facility on October
17, 1997, prior to the Recapitalization, were $99.0 million and
letters of credit outstanding were $38.7 million. Average
borrowings under the credit agreement were $68.8 million for the
period ended on October 17, 1997.
In June 1995, the Company issued $85.0 million of the
Retired Senior Notes to institutional investors in a private
placement. At October 17, 1997 the Retired Senior Notes were
retired by the Company at a cost of $93.1 million that included
accrued interest on the Retired Senior Notes and a make-whole
premium.
In the first forty weeks of fiscal 1997, cash used in
operating activities was $62.1 million compared to $42.8 million
in the comparable period in 1996, an increase of $19.3 million.
This increase resulted primarily from an increase in the net loss
of $27.6 million and is primarily attributable to $19.9 million
of cash paid relating to expenses incurred in connection with the
Recapitalization and an extraordinary item of $4.5 million
relating to the early retirement of debt.
Net cash provided by (used in) operating activities was
$16.5 million, ($7.8) million and $1.8 million for fiscal years
1996, 1995 and 1994, respectively. The improvement in cash flow
from operations in 1996 was
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<PAGE>
primarily attributable to the increase in net income and the
timing of income tax payments/refunds for fiscal years 1995 and
1996. In 1995, the decrease in cash flow from operations was
attributable to the decrease in net income.
Net cash used in investing activities included capital
expenditures, primarily for the Company's J. Crew Retail
expansion strategy, net of construction allowances. Net capital
expenditures increased from $14.9 million in the forty weeks
ended November 8, 1996 to $28.3 million in the comparable period
in 1997. Capital expenditures in the 1996 period resulted from
the opening of eight J. Crew Retail stores and the $6.0 million
relocation of the retail warehouse to Asheville, North Carolina.
Capital expenditures in the 1997 period included the opening of
ten J. Crew Retail stores and the $6.0 million relocation of
the Company's headquarters office in New York City.
Net capital expenditures totaled $22.5 million, $14.6
million and $13.5 million in fiscal years 1996, 1995 and 1994.
Capital expenditures included the opening of eight J. Crew Retail
stores and three J. Crew Factory Outlet stores in 1996, two J.
Crew Retail stores and 12 J. Crew Factory Outlet stores in 1995
and one J. Crew Retail store and seven J. Crew Factory Outlet
stores in 1994. In fiscal 1994, $4.2 million was expended for the
PCP distribution facility in Edison, New Jersey and $2.2 million
was used to expand the Lynchburg, Virginia telemarketing and
distribution center.
Net cash provided by (used in) financing activities totaled
($0.4) million, $17.8 million and $6.8 million in fiscal years
1996, 1995 and 1994. In fiscal 1995, the Company borrowed $85.0
million in private placement debt of which $67.0 million was used
to repay then outstanding long-term debt. In fiscal 1994, $15.0
million of additional long-term debt was offset by required
payments of $7.0 million for outstanding long-term debt and a
$1.0 million dividend.
After the Recapitalization
Since consummating the Recapitalization, the Company's
primary sources of liquidity have been cash flow from operations
and borrowings under the Revolving Credit Facility. The Company's
primary uses of cash have been debt service requirements, capital
expenditures and working capital. The Company expects that
ongoing requirements for debt service, capital expenditures and
working capital will be funded from operating cash flow and
borrowings under the Revolving Credit Facility.
The Issuer has incurred substantial indebtedness in
connection with the Recapitalization. After giving effect to the
Recapitalization and application of the proceeds of the Notes,
the Securitization and the Bank Facilities, the Issuer had $267.0
million of indebtedness outstanding as of November 7, 1997 as
compared to historical indebtedness outstanding of $142.2 million
as of November 8, 1996. In addition, the Issuer had a
stockholders' equity of $4.5 million at November 7, 1997 as
compared to historical stockholders' equity of $89.1 million as
of November 8, 1996. The Issuer's significant debt service
obligations following the Recapitalization could, under certain
circumstances, have material consequences to security holders of
the Issuer, including holders of New Notes.
See "Risk Factors."
Concurrent with the Recapitalization, the Issuer issued the
Old Notes for $150.0 million in gross proceeds, entered into the
Term Loan Facility and the Revolving Credit Facility and
consummated the Securitization. The Term Loan Facility is a
single tranche term loan in the aggregate principal amount of
$70.0 million. The Revolving Credit Facility provides revolving
loans in an aggregate amount of up to $200.0 million. Upon
closing of the Recapitalization, the Issuer borrowed the full
amount available under the Term Loan Facility and $35 million
under the Revolving Credit Facility. Borrowings under the
Revolving Credit Facility were used to partially refinance
seasonal borrowings outstanding under the Retired Bank Credit
Facility. The amount remaining available under the Revolving
Credit Facility is available to fund the working capital
requirements of the Issuer. The Securitization generated
approximately $40 million in proceeds. Proceeds to the Issuer
from the issuance of the Old Notes, the Securitization and from
initial borrowings under the Bank Facilities, less the repayment
of the Retired Bank Credit Facility, the Retired Senior Notes and
other indebtedness and transaction expenses, were distributed to
Holdings to
41
<PAGE>
finance the Recapitalization and the fees and expenses in
connection therewith. To provide additional financing to fund the
Recapitalization, Holdings raised $264.2 million through (i) the
sale to TPG Partners II, its affiliates and other investors of
approximately 46,853 shares of Holdings Common Stock
(representing 85.2% of the outstanding shares) for $63.9 million,
(ii) gross proceeds of $75.3 million from the issuance of the
Holdings Senior Discount Debentures and (iii) the issuance of
$125.0 million in liquidation value of Holdings Preferred Stock.
The proceeds of the Old Notes, the Securitization, the
Holdings Senior Discount Debentures, the Holdings Preferred
Stock, the purchase of Holdings Common Stock by TPG Partners II,
its affiliates and other investors and the initial borrowings
under the Bank Facilities were used to finance the repurchase
from the Shareholders of all outstanding shares of Holdings'
capital stock (other than shares of Holdings Common Stock having
an implied value of $11.1 million, almost all of which continues
to be held by Emily Woods, and which represented 14.8% of the
shares of Holdings Common Stock immediately following the
transaction) to refinance outstanding indebtedness of Holdings
and to pay fees and expenses incurred in connection with the
Recapitalization.
Borrowings under the Bank Facilities bear interest at a
rate per annum equal (at the Issuer's option) to a margin over
either a base rate or LIBOR. The Bank Facilities will mature six
years after the closing date of the Recapitalization. The
Issuer's obligations under the Bank Facilities are guaranteed by
each of the Issuer's direct and indirect subsidiaries. The Bank
Facilities and the guarantees thereof are secured by
substantially all assets of Holdings (including the capital stock
of the Issuer) and its direct and indirect subsidiaries (other
than any receivables subsidiary) and a pledge of the capital
stock of all the Issuer's direct and indirect subsidiaries,
subject to certain limitations with respect to foreign
subsidiaries. The Bank Facilities contain customary covenants and
events of default, including substantial restrictions on the
Issuer's ability to make dividends or distributions to Holdings.
See "Description of Other Issuer Indebtedness."
Simultaneously with the consummation of the
Recapitalization, the Company entered into an agreement with
affiliates of the Initial Purchasers establishing a revolving
securitization facility in which the initial transaction was the
securitization of approximately $40 million of PCP consumer loan
installment receivables. The Securitization involved the transfer
of receivables to a trust in exchange for cash and subordinated
interests in the pool of receivables, and the subsequent sale by
the trust of certificates of beneficial interest to third party
investors. Although the Company remains obligated to repurchase
receivables in the event of return of the related merchandise and
under certain other limited circumstances, the Company has no
obligation to reimburse the trust or the purchasers of beneficial
interests for credit losses. The trust is held by a
special-purpose, bankruptcy remote subsidiary ("SPV") established
by PCP. At November 7, 1997, the SPV had net assets of
approximately $17.5 million. The SPV is not a guarantor of the
Notes or the Bank Facilities. See "Description of the New
Notes--Guarantees" and "Description of Other Issuer
Indebtedness--Receivables Facility." The Securitization was
accounted for as a sale of receivables, and resulted in a charge
to earnings of approximately $0.4 million for the period ended
November 7, 1997.
The Holdings Preferred Stock bears cumulative dividends at
the rate of 14.50% per annum (payable quarterly) for all periods
ending on or prior to October 17, 2009 and 16.50% per annum
thereafter. Dividends compound to the extent not paid in cash.
Subject to restrictions imposed by the Indenture, the Bank
Facilities, the Notes and other documents relating to Holdings'
or the Issuer's indebtedness, Holdings may redeem the Holdings
Preferred Stock at any time, at the then-applicable redemption
price and, in certain circumstances (including the occurrence of
a change of control of Holdings), may be required to repurchase
shares of Holdings Preferred Stock at liquidation value plus
accumulated and unpaid dividends to the date of repurchase. See
"Description of Holdings Indebtedness" and "Capital Stock of
Holdings and the Issuer."
The Holdings Senior Discount Debentures will mature on
October 15, 2008. Cash interest will not accrue on the Holdings
Senior Discount Debentures prior to October 15, 2002. Thereafter,
interest on the Holdings Senior Discount Debentures will be
payable semiannually in cash. See "Description of Holdings
Indebtedness."
42
<PAGE>
The Company expects that capital expenditures, net of
construction allowances, during fiscal 1997 will be approximately
$34 million, primarily to fund the opening of 12 retail stores,
the relocation of the Company's headquarters office in New York
City and the consolidation of J. Crew and C&W corporate offices.
Capital expenditures are expected to be funded from internally
generated cash flows and by borrowing from available financing
sources. See "Business--J. Crew Brand--J. Crew Retail--New Store
Expansion."
Borrowings outstanding under the Revolving Credit Facility
on November 7, 1997 were $47.0 million and letters of credit
outstanding as of November 7, 1997 were $37.4 million.
Management believes that cash flow from operations and
availability under the Revolving Credit Facility will provide
adequate funds for the Company's foreseeable working capital
needs, planned capital expenditures and debt service obligations.
The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to
refinance indebtedness and to remain in compliance with all of
the financial covenants under its debt agreements depends on its
future operating performance and cash flow, which in turn, are
subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond its control.
See "Risk Factors."
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related
Information, which will be effective for financial statements
beginning after December 15, 1997. SFAS No. 131 redefines how
operating segments are determined and requires expanded
quantitative and qualitative disclosures relating to a company's
operating segments. The Company has not yet completed its
analysis of how it will be affected.
Impact of Inflation
The Company's results of operations and financial condition
are presented based upon historical cost. While it is difficult
to accurately measure the impact of inflation due to the
imprecise nature of the estimates required, the Company believes
that the effects of inflation, if any, on its results of
operations and financial condition have been minor. However,
there can be no assurance that during a period of significant
inflation, the Company's results of operations would not be
adversely affected.
43
<PAGE>
BUSINESS
Overview
The Company is a leading mail order and store retailer of
women's and men's apparel, shoes and accessories operating
primarily under the J. Crew(R) brand name. Under the direction of
Emily Woods and Arthur Cinader (co-founders of the J. Crew brand
and father and daughter), the Company has built a strong and
widely recognized brand name known for its timeless styles at
price points that the Company believes represent exceptional
product value. The J. Crew image has been built and reinforced
over its 14-year history through the circulation of more than
one-half billion catalogs that use magazine-quality photography
to portray a classic American perspective and aspirational
lifestyle. Many of the original items introduced by the Company
in the early 1980s (such as the rollneck sweater, weathered
chino, barn jacket and pocket tee) were instrumental in
establishing the J. Crew brand and continue to be core product
offerings. The Company has capitalized on the strength of the J.
Crew brand to provide customers with clothing to meet more of
their lifestyle needs, including casual, career and sport. The
strength of the J. Crew brand is demonstrated by a compound
annual growth rate of 15.4% in J. Crew brand revenues between
fiscal 1992 and fiscal 1996.
The J. Crew merchandising strategy emphasizes timeless
styles and a broad assortment of high-quality products designed
to provide customers with one-stop shopping opportunities at
attractive prices. J. Crew catalogs and retail stores offer a
full line of men's and women's basic durables (casual weekend
wear), sport, swimwear, accessories and shoes, as well as the
more tailored men's sportswear and women's "Classics" lines.
Approximately 60% of the Company's J. Crew brand sales are
derived from its core offerings of durables and sport clothing,
the demand for which the Company believes is stable and resistant
to changing fashion trends. The Company believes that the J. Crew
image and merchandising strategy appeal to college-educated,
professional and affluent customers who, in the Company's
experience, have demonstrated strong brand loyalty and a tendency
to make repeat purchases.
J. Crew products are distributed exclusively through the
Company's catalog and store distribution channels. The Company
currently circulates over 76 million J. Crew catalogs per annum
and owns and operates 49 J. Crew retail stores and 42 J. Crew
factory outlets. In addition, J. Crew products are distributed
through 67 free-standing and shop-in-shop stores in Japan under a
licensing agreement with Itochu.
In addition to the Company's J. Crew operations, the
Company operates C&W, a mail order and factory store women's
apparel business that targets older, more conservative customers,
and PCP, a direct selling catalog merchandiser of consumer
branded goods through a "club" concept that provides credit sales
to lower-income customers. During the twelve-month period ended
November 7, 1997, the Company generated total revenues of $836.7
million, of which $583.1 million or approximately 70% was
attributable to the J. Crew brand, and total Adjusted EBITDA of
$47.6 million. See "Summary--Summary Unaudited Pro Forma
Consolidated Financial Data" for a description of Adjusted
EBITDA.
Business Strengths
Since its inception, the Company has pursued a consistent
operating strategy which has resulted in the following key
strengths and distinguishing characteristics:
- Strong, Recognizable Brand. The Company has created a
recognizable, differentiated brand image reflecting an
American aspirational lifestyle. The J. Crew image is
consistently communicated through all aspects of the
Company's business including its merchandise design,
distinctive catalogs and retail store environment. The
Company's high-quality products, strong brand image and
customer loyalty have resulted in strong gross margins and
retail sales productivity.
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- Premium Quality Products and Distinctive Designs at
Attractive Price Points. The Company offers premium quality
products reflecting a classic, clean aesthetic with a
consistent design philosophy. All J. Crew products are
designed by an in-house team of 15 designers led by Emily
Woods. The Company believes that its in-house design
capabilities ensure a coherent set of product offerings from
season to season and year to year that provides significant
value to its customers through attractive price points.
- Proven Retail Store Concept. J. Crew Retail stores
historically have generated strong and stable operating
results. The Company believes that its sales per gross
square foot are among the highest in its industry segment.
J. Crew Retail stores open during all of fiscal 1996
generated the following key operating statistics:
Fiscal 1996
Average
Sales per gross square foot.... $575
Store contribution margin...... 25.9%
Approximately 81% of the J. Crew Retail stores that were
open during all of 1996 had store contribution margins above
20%. All of the Company's J. Crew Retail stores are
profitable and have generated positive store contribution
within the first twelve months of operation. In addition, J.
Crew Retail stores opened since fiscal 1992 have averaged
approximately $550 in sales per gross square foot and 23.0%
store contribution margin during the first twelve months of
operation.
- Broad and Stable Product Offering. The Company's J. Crew
product offering includes a broad array of items which appeal
to a diverse customer base, spanning gender and age segments.
A substantial portion of the J. Crew product line consists of
basic durables, such as chinos, jeans and sweaters, which are
not significantly modified from year to year and, in the
Company's opinion, are resistant to shifting fashion trends.
In 1996, sales of durables and sport clothing represented
approximately 60% of total J. Crew brand revenues, having
increased at a compound annual growth rate of approximately
15% since 1992.
- Synergistic Distribution Channels. The Company believes that
the concurrent operation of the J. Crew Mail Order business
and J. Crew Retail stores provides a distinct advantage in
the development of the J. Crew brand. Visibility and exposure
of the brand are enhanced by the broad circulation of
catalogs, aiding the expansion of the retail concept. In
addition, the Company believes that the retail operations
help attract first-time "walk-by" customers to the catalog
and improve the salability of fit-critical items through the
catalog. The Company further believes that diversified
distribution channels help insulate the Company against
circumstances and events uniquely affecting one distribution
channel or the other.
- Tightly Controlled Distribution. By selling products
exclusively through J. Crew catalogs, J. Crew Retail stores
and J. Crew Factory Outlets, the Company is able to present
and maintain a consistent brand image, control the
presentation and pricing of its merchandise, provide a higher
level of customer service, and closely monitor retail
sell-through. The Company believes that tight control over
the distribution of its products provides competitive
advantages over other branded apparel retailers that
distribute their goods through department stores.
Opportunities
The Company believes that substantial opportunities exist
to enhance revenue and profitability by increasing efficiencies
in the J. Crew Mail Order business and by expanding the J. Crew
Retail business.
- Implement Tactical Cost Savings Opportunities--While the
Company believes that gross margins in the J. Crew Mail Order
business have been strong, overall catalog profitability has
been depressed by unnecessarily high operating expenses. The
Company has identified a number of tactical cost savings that
could be realized
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without affecting the Company's franchise or brand image.
Included in Adjusted EBITDA are $7.5 million in estimated
annual savings resulting from actions implemented prior to the
Recapitalization, including negotiation of a new catalog vendor
contract, selected headcount and net payroll reductions and
the insourcing of certain photography functions. The Company
has identified approximately $7 million of further potential
annual savings that are not reflected in Adjusted EBITDA,
including process efficiencies currently under review,
reduction of the Base Book trim size, installation of
automatic sorting equipment and consolidation of the J. Crew
and C&W New York corporate offices. The Company believes
these additional cost savings could be implemented by
mid-1998.
- Realize Cash Flow Increases Through J. Crew Mail Order SKU
Rationalization--The Company's J. Crew Mail Order product
offerings have increased from 33,000 SKUs in 1992 to 66,000
SKUs in 1996, partly as a result of a proliferation in colors
and sizes offered. In recent season-to-season testing on the
Company's swimwear and chino lines, the Company reduced SKUs
by 33% and 45%, respectively, while posting category revenue
increases. By eliminating slower-selling colors and sizes
from its core offering, the Company believes it will be
better able to forecast demand, increase fill rates and
increase inventory turns, resulting in enhanced operating
cash flow.
- Increase J. Crew Catalog Productivity Through Increased
Segmentation--The Company believes that it circulates fewer
and less-targeted catalog editions than its competitors, and
that catalog productivity (as measured by initial demand per
page circulated) could be enhanced by more precise targeting
of catalog mailings through further customer segmentation.
For example, in 1996 the Company introduced a Women's catalog
which to date has achieved 20% higher initial demand per page
circulated than that of the Company's primary mailing, the
Base Book. To further enhance its segmentation efforts, the
Company has recently introduced a College catalog and plans
to introduce a Swimwear catalog in 1998. From 1997 to 1998,
the increased segmentation is expected to result in an
approximately 5% increase in the number of catalogs
circulated, but an approximately 8% decrease in total pages
circulated. Reductions in total pages circulated should
result in a decrease in paper and postage expenses.
- Expand J. Crew Retail Operations--The Company's J. Crew
Retail store expansion strategy is to continue to increase
its market share in its existing markets and to penetrate new
markets. The Company expects to open a total of 12 stores in
fiscal 1997, ten of which were open as of November 7, 1997.
The Company currently intends to open 12 to 20 stores
annually, funded primarily by cash flow generated from
operations, resulting in approximately 100 stores in
operation by the end of fiscal 2000. Historically, new stores
have cost the Company an average of $1.5 million in building
improvements and working capital expenditures and have
experienced a pay-back period of approximately 20 months. The
Company has established an administrative infrastructure that
it believes is sufficient to accommodate the retail expansion
plan, providing the Company with additional margin
improvement through overhead leverage. In addition, the
Company believes, with a store base of only 49 stores, its
markets are underpenetrated relative to its competitors and
enough suitable locations exist nationwide to accommodate its
expansion plan.
The Company has five major operating divisions: J. Crew Mail
Order, J. Crew Retail, J. Crew Factory Outlets, PCP and C&W. J.
Crew Mail Order, J. Crew Retail and J. Crew Factory Outlets each
operate under the J. Crew brand name. In 1996, products sold
under the J. Crew brand contributed $556.1 million in revenues
(including licensing revenues) or 68.8% of the Company's total
revenues. J. Crew brand revenues in 1996 were comprised of $289.8
million (52.1%) from J. Crew Mail Order, $168.0 million (30.2%)
from J. Crew Retail and $94.5 million (17.0%) from J. Crew
Factory Outlets. In fiscal 1996, PCP and C&W contributed revenues
of $177.7 million and $75.0 million, respectively, representing
approximately 22.0% and 9.3%, respectively, of the Company's
total revenues.
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J. Crew Brand
Merchandising and Design Strategy
The J. Crew merchandising strategy focuses on creating and
delivering a broad assortment of high-quality products in
timeless styles intended to provide customers with one-stop
shopping opportunities at attractive prices. Many of the original
items introduced by the Company in the early 1980s (such as the
rollneck sweater, weathered chino, barn jacket and pocket tee)
were instrumental in establishing the J. Crew brand, and continue
to be core product offerings. The Company has capitalized on the
strength of the J. Crew brand image to provide its customers with
clothing to meet more of their lifestyle needs, including casual,
career and sport.
Over time, the J. Crew merchandising strategy has evolved
from providing unisex products to creating full lines of men's
and women's clothing, shoes and accessories. This has had the
effect of increasing overall J. Crew brand sales volume, and
significantly increasing revenues from sales of women's apparel
as a percentage of total J. Crew brand sales. J. Crew Mail Order
sales in 1996 were approximately 55% women's and 45% men's, while
sales in the J. Crew Retail stores were approximately 60% women's
and 40% men's. The following table sets forth the J. Crew
merchandise mix as a percentage of total J. Crew Mail Order and
Retail revenues for the years 1992 through 1996. (J. Crew brand
sales statistics throughout this section exclude sales in J. Crew
Factory Outlets.)
FY 1992 FY 1993 FY 1994 FY 1995 FY 1996
Women's....... 38% 42% 47% 53% 56%
Men's......... 62 58 53 47 44
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
J. Crew Womenswear
The ready-to-wear women's apparel market is divided by
price point into five segments ranging from lowest to highest as
follows: Budget, Moderate, Better, Bridge and Designer. J. Crew
womenswear competes primarily in the Better and Bridge segments
of the market. J. Crew womenswear comprises the Durables, Sport,
Classics, Collection, Swim, Shoes, Accessories and Intimates
lines. The Durables and Sport lines consist of casual apparel and
comprised 52.5% of J. Crew womenswear sales in 1996. The Durables
line includes core items such as jeans, knits and sweaters that
retail between $20 to $100, while the Sport line includes basic
outerwear and knits that retail between $40 to $200. Revenues
from the Durables and Sport lines have increased from $44.2
million in 1992 to $135.6 million in 1996, representing a
compound annual growth rate of 32.3%. The Company has capitalized
on the strength of these lines with the successful extension of
its womenswear offering through its Classics and Collection
lines. The Classics line features women's suits, dresses, jackets
and trousers that retail between $50 to $300. Women's Collection
is positioned as a designer line at substantially lower price
points than other designer lines, and features suits, dresses,
jackets and trousers made of fine Italian fabrics that retail
between $250 to $1,800. Women's Accessories includes sunglasses,
hats, scarves, gloves, belts, bags, hosiery, hair products and
small leather goods.
J. Crew catalogs provide a broader selection of the
Durables and Sport lines than the retail stores, while the retail
stores provide a broader selection of the Classics line than the
catalogs. The Collection line is featured exclusively in select
retail stores, and Classics are sold primarily through retail
stores, to reinforce a high-end brand image and to accommodate
customer fit, fabric and price considerations before purchase.
J. Crew Menswear
J. Crew menswear comprises the Durables, Sport, Sportswear,
Swim, Shoes, Accessories and Underwear/Loungewear lines. The
Durables and Sport lines consist of casual apparel and comprised
78.2% of J. Crew menswear sales in 1996. The Durables line
includes casual jeans and chinos, sweaters and outerwear that
retail between $40 and $400. The Company recently introduced the
Sport line to meet growing consumer demand for sport and outdoor
apparel that combines designer styling with technical
authenticity. Revenues from the
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Durables and Sport lines have increased from $121.8 million in
1992 to $155.8 million in 1996, representing a compound annual
growth rate of 6.3%. The Sportswear line includes men's
sportscoats, shirts and trousers that retail between $50 and
$500.
J. Crew catalogs feature a broader selection of men's
casual Durables and Sport merchandise than in the retail stores.
Men's Sportswear is featured exclusively in the retail stores to
reinforce a high-end brand image and to accommodate customer fit,
fabric and price considerations before purchase.
Design
Every J. Crew product is designed by Emily Woods and her
in-house design staff of 15 designers to reflect a classic, clean
aesthetic that is consistent with the brand's American lifestyle
image. Design teams are formed around J. Crew product lines and
categories to develop concepts, themes and products for each of
the Company's J. Crew businesses. Members of the J. Crew
technical design team develop construction and fit specifications
for every product to ensure quality workmanship and consistency
across product lines. These teams work in close collaboration
with the merchandising and production staff in order to gain
market and other input. Product merchandisers provide designers
with market trend and other information at initial stages of the
design process. J. Crew designers and merchants source globally
for fabrics, yarns and finishing products to ensure quality and
value, while manufacturing teams research and develop key vendors
worldwide to identify and maintain the essential characteristics
for every style.
J. Crew Mail Order
Since its inception in 1983, J. Crew Mail Order has
distinguished itself from other catalog retailers by its
award-winning catalog, which utilizes magazine-quality "real
moment" pictures to depict an aspirational lifestyle image.
During fiscal 1996, J. Crew Mail Order distributed 30 catalog
editions with a combined circulation of more than 76 million,
generating $289.8 million in revenues or 52.1% of the Company's
total J. Crew brand revenues.
Circulation Strategy
J. Crew Mail Order's circulation strategy focuses on
continually improving the segmentation of customer files and the
acquisition of additional customer names. In 1996, approximately
60% of J. Crew Mail Order revenues were from customers in the
12-month buyer file (buyers who have made a purchase from any J.
Crew catalog in the prior 12 months). Between 1992 and 1996 the
J. Crew Mail Order 12-month buyer file grew at a compound annual
growth rate of 10.0%.
Customer Segmentation. In 1996, the Company began
segmenting its customer file and tailoring its catalog offerings
to address the different product needs of its customer segments.
To increase core catalog productivity and improve the
effectiveness of marginal and prospecting circulation, each
customer segment is offered different catalog editions. The
Company currently circulates Base, Women's, Prospect and Sale
catalogs to targeted customer segments, has recently introduced a
College catalog and intends to introduce a Swimwear catalog in
1998.
Descriptions of the Company's current catalogs follow:
- Base Books. These catalogs contain the entire mail order
product offering and are sent primarily to 12- month buyers.
- Women's Books. Introduced in the spring of 1996, the Women's
books feature women's merchandise and are sent to buyers who
purchase primarily women's merchandise. These books represent
an additional customer contact potentially generating
incremental revenue from women customers.
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Prospect Books. Introduced in late 1995, these editions are
abridged versions of the Base Books and are sent to less
active and prospective customers in order to cost-effectively
reactivate old customers and acquire new customers.
- Sale Books. These catalogs contain overstock merchandise to
be sold at reduced prices without adversely affecting the J.
Crew brand image.
The following are descriptions of the recently introduced
College book and the Swimwear book planned for 1998:
- College Books. College books present a merchandise mix
(primarily men's and women's Durables, Sport and Swimwear)
that is most often purchased by and for students. These
catalogs consist of a new creative presentation involving a
lifestyle setting appealing to the youth market. The Company
believes that these new catalogs will also be effective as
prospecting vehicles: the page counts are relatively low (68
pages) and the product lines offered are of above average
productivity.
- Swimwear Books. The Company plans to offer its full swimwear
line together with selected casual weekend clothing in a
special catalog edition to be mailed to its most productive
women customers as well as to prospective customers. The
Company's analysis of buyer performance indicates that
swimwear is the most productive category for existing buyers
and the product classification most frequently purchased by
first-time buyers.
The Company believes that it circulates fewer and
less-targeted catalog editions than its competitors, and that
segmentation will improve the productivity (as measured by
initial demand per page circulated) of its circulation by: (i)
increasing its offers to its most productive customers and
decreasing its offers to its less productive customers, and (ii)
reducing both the page count and number of mailings of its Base
Books. For example, in 1996, the Company introduced the Women's
catalog which to date has achieved 20% higher initial demand per
page circulated than that of the Base Book. The overall effect of
increased segmentation is expected to be an increase in books
circulated (and customer contacts made) and a decrease in pages
circulated. In 1996, total circulation increased to approximately
76 million from approximately 68 million in 1995, primarily as a
result of the introduction of Prospect and Women's catalogs,
while pages circulated during this period decreased to 9.8
billion from 10.2 billion. From 1997 to 1998, the increased
segmentation is expected to result in an approximately 5%
increase in the number of catalogs circulated, but an
approximately 8% decrease in total pages circulated. Reductions
in total pages circulated should result in a decrease in paper
and postage expenses.
Customer Acquisition and List Management. J. Crew Mail
Order's name acquisition programs are designed to attract new
customers in a cost-effective manner. The Company acquires new
names from various sources, including list rentals, exchanges
with other catalog and credit card companies, "friends' name"
card inserts and, recently, through J. Crew Retail stores which
represent an increasingly significant resource in prospecting for
new names. Names and addresses of 25% to 30% of the customers
making credit card purchases at J. Crew Retail stores are
automatically captured at the point of sale. Customers are also
asked to fill out cards at the cash register when they make
purchases. In addition, the Company is exploring the feasibility
of placing telephones in its J. Crew Retail stores with direct
access to the J. Crew Mail Order telemarketing center to allow
customers in the stores to order catalog-specific or out-of-stock
items.
The Company believes that circulation planning based on
more sophisticated statistical circulation models will increase
the effectiveness of catalog mailings and maximize the
productivity of its buyer file. As a result, the Company is
testing increasingly sophisticated statistical circulation
planning models to improve its ability to predict customer
purchase behavior based on a wide range of variables. The Company
plans to use these analyses to enhance its circulation
efficiencies.
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Catalog Creation and Production
The Company is distinguished from other catalog retailers
by its award-winning catalog, which utilizes magazine-quality
"real moment" pictures to depict an aspirational lifestyle image.
All creative work on the catalogs is coordinated by J. Crew
personnel to maintain and reinforce the J. Crew brand image.
Photography is executed both on location and in studios, and
creative design and copy writing are executed on a desk-top
publishing system. Digital images are transmitted directly to
outside printers, thereby reducing lead times and improving
reproduction quality. The Company believes that appropriate page
presentation of its merchandise stimulates demand and therefore
places great emphasis on page layout.
J. Crew Mail Order does not have long-term contracts with
paper mills and, instead, purchases paper from paper mills at a
two and one-half month specified rate. Projected paper
requirements are communicated on an annual basis to paper mills
to ensure the availability of an adequate supply. Management
believes that the Company's long-standing relationships with a
number of the largest coated paper mills in the United States
allow it to purchase paper at favorable prices commensurate with
the Company's size and payment terms. See "Risk
Factors--Increases in Costs of Mailing, Paper and Printing."
Telemarketing and Customer Service
J. Crew Mail Order's primary telemarketing and fulfillment
facilities are located in Lynchburg, Virginia. Telemarketing
operations are open 24 hours a day, seven days a week and handled
over 7.5 million calls in fiscal 1996. Orders for merchandise may
be received by telephone, facsimile, mail and the Company's
website, although orders through the toll-free telephone service
accounted for 90% of orders in fiscal 1996. The telemarketing
center is staffed by a total of 900 full-time telemarketing
associates, and up to 2,500 associates during peak periods, who
are trained to assist customers in determining the customer's
correct size and to describe merchandise fabric, texture and
function. Each telemarketing associate utilizes a terminal with
access to an IBM mainframe computer which houses complete and
up-to-date product and order information. The fulfillment
operations are designed to process and ship customer orders in a
quick and cost-effective manner. Orders placed before 9:00 p.m.
are shipped the following day. Same-day shipping is available for
orders placed before noon. During non-peak periods, approximately
11,000 packages are shipped daily, and during peak periods,
25,000 daily.
J. Crew Retail
An important aspect of the Company's business strategy is
an expansion program designed to reach new and existing customers
through the opening of J. Crew Retail stores. In addition to
generating sales of J. Crew products, J. Crew Retail stores help
set and reinforce the J. Crew brand image. The stores are
designed in-house and fixtured to create a distinctive J. Crew
environment and store associates are trained to maintain high
standards of visual presentation and customer service. The result
is a complete statement of J. Crew's timeless American style,
classic design and attractive product value. During fiscal 1996,
J. Crew Retail generated revenues of $168.0 million, representing
30.2% of the Company's total J. Crew brand revenues.
The Company believes that J. Crew Retail derives
significant benefits from the concurrent operation of J. Crew
Mail Order. The broad circulation of J. Crew catalogs performs an
advertising function, enhancing the visibility and exposure of
the brand, aiding the expansion of the retail concept and
increasing the profitability of the stores.
J. Crew Retail maintains a uniform appearance throughout
its store base, in terms of merchandise display and location on
the selling floor. Store managers receive detailed store plans
that dictate fixture and merchandise placement to ensure uniform
execution of the merchandising strategy at the store level.
Standardization of store design and merchandise presentation also
maximizes usage and productivity of selling space and lowers the
cost of store furnishings allowing J. Crew Retail to
cost-effectively open new stores and refurbish existing ones.
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Store Economics
The Company believes that its J. Crew Retail stores are
among the most productive in its industry segment. All of the
Company's J. Crew Retail stores are profitable and have generated
positive store contribution within the first 12 months of
opening. J. Crew Retail stores that were open during all of
fiscal 1996 averaged $4.8 million per store in sales, produced
sales per gross square foot of approximately $575 and generated
store contribution margins of approximately 25.9%. The Company
believes that these results compare favorably to the average
among retailers that the Company believes to be its primary
competitors. J. Crew Retail stores have an average size of 8,300
gross square feet. The Company's historical average cost for
leasehold improvements, furniture and fixtures for new stores was
approximately $950,000 per store, after giving effect to
construction allowances. The Company anticipates that the cost of
these improvements will increase as it targets more urban,
high-traffic areas for its stores. Average pre-opening costs per
store, which are expensed as incurred, were $87,000. In addition,
working capital requirements, consisting almost entirely of
inventory purchases, averaged approximately $550,000 per store.
Current Stores
As of November 7, 1997 J. Crew Retail operated 49 retail
stores nationwide, having expanded from 18 stores in 1993. The
Company intends to open 12 stores in fiscal 1997, ten of which
were open as of November 7, 1997. The stores are located in
upscale shopping malls and in retail areas within major
metropolitan markets that have an established higher-end retail
business.
The table below highlights certain information regarding J.
Crew Retail stores opened through fiscal 1996.
Stores
Open Average
at Store
Begin- Stores Stores Stores Total
ning Opened Closed at Total Square
Of During During End of Square Footage
Fiscal Fiscal Fiscal Fiscal Footage at End
Year Year Year Year (000's) of Year
---- ---- ---- ---- ------- -------
1992....... 9 9 -- 18 140 7,778
1993....... 18 10 -- 28 226 8,071
1994....... 28 1 -- 29 235 8,103
1995....... 29 2 -- 31 266 8,581
1996....... 31 8 -- 39 338 8,667
New Store Expansion
J. Crew Retail plans to expand its store base to 51 in 1997
and currently intends to increase the number of stores in
operation by 12 to 20 stores annually, resulting in approximately
100 stores in operation by the end of fiscal 2000. The retail
expansion plan will initially focus on markets in which J. Crew
Mail Order has been successful and, more generally, in areas
within major metropolitan markets with affluent and well educated
populations. The Company will continue to cluster stores in
markets which provide the greatest sales potential, such as New
York, New Jersey, Massachusetts, California and Florida.
Historically, new stores have cost the Company an average of $1.5
million in building and working capital expenditures and have
experienced a pay-back period of approximately 20 months. The
Company believes, with a base of 49 stores, its markets are
underpenetrated relative to its competitors and enough suitable
locations exist nationwide to accommodate its expansion plan.
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The following is a summary of the stores opened as of November 7,
1997 and those expected to be opened in 1997 after November 7,
1997
Total
Opening Square
Location Date Footage
Opened: 91 Fifth Avenue, New York, NY 3/4 5,875
Boca Town Center, Boca Raton, FL 4/16 7,099
Copley Place, Boston, MA 5/9 6,792
Short Hills Mall, Short Hills, NJ 6/4 10,000
South Park, Charlotte, NC 6/18 8,402
Danbury Fair (Durables), Danbury, 7/16 5,398
Century City, Los Angeles, CA 7/30 6,497
Westfarms, West Hartford, CT 8/1 8,000
Beachwood, Cleveland, OH 9/19 7,900
Fashion Valley, San Diego, CA 10/8 8,312
Expected: South Shore Mall, Braintree, MA 11/12 7,600
Aventura Mall, Miami, FL 11/30 7,749
J. Crew Factory Outlets
The Company extends its reach to additional consumer groups
through its 42 J. Crew Factory Outlets. Offering J. Crew products
at an average of 30% below full retail prices, J. Crew Factory
Outlets target value-oriented consumers. The factory outlet
stores also serve to liquidate excess, irregular or out-of-season
J. Crew products outside of the Company's two primary
distribution channels. During fiscal 1996, J. Crew Factory
Outlets generated revenues of $94.5 million, representing 17.0%
of the Company's total J. Crew brand revenues.
J. Crew Factory Outlets offer selections of J. Crew
menswear and womenswear. Ranging in size from 3,800 to 10,000
square feet with an average of 6,500 square feet, the stores are
generally located in major outlet centers in 25 states across the
United States. The Company believes that the outlet stores, which
are designed in-house, maintain fixturing, visual presentation
and service standards superior to those typically associated with
outlet stores.
Popular Club Plan
PCP is a direct selling catalog business offering a broad
range of department store merchandise on proprietary, in-house
credit plans to the lower and lower-middle income market. PCP
markets its catalog products primarily in eleven states in the
northeastern United States. PCP offers two distinct product
categories: Home Store (53% of 1996 sales) and Ready-to-Wear (47%
of 1996 sales). Home Store products include textiles, home
furnishings, housewares and electronics. Ready-to-Wear includes
men's and women's sportswear, coats, lingerie, juniors,
accessories, jewelry, shoes, children's wear, infants, special
size and swimwear. During fiscal 1996, Popular Club Plan's annual
circulation of 7.3 million catalogs generated revenues of $177.7
million, representing 22.0% of total Company revenues.
PCP markets products through an extensive network of over
100,000 local independent sales representatives ("Secretaries"),
using a unique combination of mail order and direct selling
methods. In contrast to a retail store sales associate, a
Secretary is a lead shopper who solicits his or her own circle of
friends, relatives, and co-workers to shop from the catalog.
Secretaries are compensated through commission reward credits
which can be redeemed for free merchandise. This provides them
with both a sales and collection incentive. All Secretary
applicants are screened and scored with proprietary behavior
models in conjunction with national credit bureau information.
Only 60% of applicants are set up as new accounts.
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PCP offers customers a 22-week payment plan and a 44-week payment
plan for payment of merchandise ordered from PCP. Sales through
these proprietary credit products accounted for 96.3% of PCP
revenues in 1996. PCP performs ongoing credit analysis on each
Secretary and his or her club. Although Secretaries do not
guarantee payment of members they recruit, reward credits of club
Secretaries may be withheld to offset poor credit performance.
PCP monitors collections through its approximately 70-person
credit and collection department. While the primary dunning
process is done through club Secretaries, if an individual is
delinquent more than ten weeks, credit collectors will also take
on the responsibility of contacting the customer directly. Over
the last five years, PCP's annual credit losses have averaged
approximately 4% of net credit sales.
Clifford & Wills
C&W is a direct mail order and factory store business which
offers a broad range of women's updated apparel covering career
to casual as well as accessories and shoes. The typical customer
is a 36 to 55 year old upper-moderate to better-priced women's
apparel customer, parallel to that of a full-price department
store.
The brand is positioned to offer bridge level clothing at
prices which are 20% to 30% below the prices offered in better
departments of department stores, thereby satisfying the target
customer's desire for updated apparel at a compelling price
advantage. The Company also operates nine C&W outlet stores in
Pennsylvania, Florida, Wisconsin, Indiana, Texas, Georgia and
Connecticut. During 1996, C&W had revenues of $75.0 million
representing 9.3% of total Company revenues.
General
Sourcing, Production and Quality
The Company maintains separate merchandising, design,
manufacturing and quality assurance teams for the production of
J. Crew and C&W merchandise. The Company's products are designed
exclusively by in-house design and product development teams
which support each line and class of product. These teams provide
individual attention and expertise to every style, ensuring that
these styles fit the respective J. Crew and C&W brand images. PCP
primarily purchases merchandise from manufacturers and
distributors.
The Company's merchandise is produced for the Company by a
variety of manufacturers, both domestically and outside the
United States. The Company does not own or operate any
manufacturing facilities, instead contracting with third party
vendors for the production of its products. Manufacturing teams
research and develop products and source from vendors across 38
countries to identify and maintain essential quality and value
for every product. In 1996, approximately 60% of the Company's J.
Crew brand products were sourced in the Far East, 20% were
sourced domestically and 20% were from Europe and other regions.
PCP and C&W source the majority of their products through
domestic vendors. Rarely does the Company represent the majority
of any one vendor's business and no one vendor supplies more than
10% of the Company's merchandise.
The Company employs independent buying agents to conduct
in-line and final quality inspections at each manufacturing site.
Random inspections of all incoming J. Crew and C&W merchandise at
the Lynchburg and Asheville distribution facilities further
assure that the Company's products are of a consistently high
quality. PCP primarily sells consumer goods which have been
subjected to the manufacturer's own quality control processes
prior to receipt by PCP.
Due to the high concentration of foreign suppliers of J.
Crew brand merchandise, the Company estimates 10-month lead times
for its products. Currently, the Company must make commitments on
its piece goods eight to nine months prior to the issuance of the
respective catalog and must decide on SKU color buys within six
months of issuance. The Company is working to establish, either
through the use of more domestic vendors or through strategic
partnerships, a core group of long-term suppliers that provide
quicker response times. The Company
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believes that the implementation of shorter lead times will
improve fill rates, reduce the overall complexity in inventory
management and improve its ability to more accurately forecast
demand, all of which should provide substantial savings to the
Company.
Distribution
The Company operates three main telemarketing and
distribution facilities for its operations. Order fulfillment for
J. Crew Mail Order and C&W takes place at the 406,500 square foot
telemarketing and distribution center located in Lynchburg,
Virginia. The Lynchburg facility processes approximately 3.8
million orders per year and employs approximately 1,800 full- and
part-time employees during its peak season.
The 192,500 square foot telemarketing and distribution
facility in Asheville, North Carolina was recently converted into
the main distribution center to service the retail and outlet
store operations and also houses a J. Crew Mail Order
telemarketing center. This facility employs approximately 700
full- and part-time employees during its non-peak season and an
additional 1,100 employees during the peak holiday season. PCP
conducts its fulfillment operations from a 369,000 square foot
distribution facility located in Edison, New Jersey. The Edison
facility employs approximately 300 and 600 full- and part-time
employees during the non-peak and peak seasons, respectively.
Each fulfillment center is designed to process and ship
customer orders in a quick and cost-efficient manner. Same-day
shipping is available for orders placed before noon; and orders
placed before 9:00 p.m. are shipped the following day. The
Company ships merchandise via the UPS, the United States Postal
Service and FedEx. To enhance efficiency, each facility is fully
equipped with a highly advanced telephone system, an automated
warehouse locator system and an inventory bar coding system. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Developments."
Management Information Systems
The Company's management information systems are designed
to provide, among other things, comprehensive order processing,
production, accounting and management information for the
marketing, manufacturing, importing and distribution functions of
the Company's business. The Company has installed sophisticated
point-of-sale registers in its J. Crew Retail and Factory Outlet
stores that enable it to track inventory from store receipt to
final sale on a real-time basis. The Company believes its
merchandising and financial system, coupled with its
point-of-sale registers and software programs, allow for rapid
stock replenishment, concise merchandise planning and real-time
inventory accounting practices. J. Crew Mail Order and C&W share
the same management information system and each of the Company's
business units has its own information system that is customized
to the needs of that particular business.
The Company's telephone and telemarketing systems,
warehouse package sorting systems, automated warehouse locators
and inventory bar coding systems utilize advanced technology.
These systems have provided the Company with a number of benefits
in the form of enhanced customer service, improved operational
efficiency and increased management control and reporting. The
Company's IBM 3990 system stores data, such as customer list
segmentation and analysis of market trends, and rapidly transfers
the information throughout the Company. In addition, the
Company's real-time inventory computer systems provide inventory
management on a per SKU basis and allow for a more efficient
fulfillment process. J. Crew's management information systems
also produce daily and weekly sales and performance reports.
Trademarks and International Licensing
J. Crew International, Inc., an indirect subsidiary of
Holdings, currently owns all of the trademarks for the J. Crew
name that the Company holds in the United States and
internationally, as well as its international licensing
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<PAGE>
contracts with third parties. Trademarks related to the J. Crew
name are registered in the United States Patent and Trademark
Office.
The Company derives revenues from the international
licensing of its trademarks in the J. Crew name and the know-how
it has developed. The Company has entered into a licensing
agreement with Itochu in Japan which gives the Company the right
to receive payments of percentage royalty fees in exchange for
the exclusive right to use the Company's trademarks in Japan. In
1996, licensee sales at retail stores in Japan were approximately
$100 million through 67 free-standing and shop-in-shop stores.
Under the license agreement the Company retains a high degree of
control over the manufacture, design, marketing and sale of
merchandise under the J. Crew trademarks. The Company is
currently negotiating a five-year renewal of this agreement which
otherwise expires in January, 1998.
The Company believes there is significant growth potential
in international markets as the Company can leverage off its base
in Japan into other key Asian markets. The Company is in the
process of exploring licensing agreements covering Hong Kong,
China, Singapore, Thailand and Malaysia. In 1996, licensing
revenues totaled $3.8 million.
Employees
The Company focuses significant resources on the selection
and training of sales associates in both its mail order, retail
and factory operations. Sales associates are required to be
familiar with the full range of merchandise of the business in
which they are working and have the ability to assist customers
with merchandise selection. Both retail and factory store
management are compensated in a combination of annual salary plus
performance-based bonuses. Retail, telemarketing and factory
associates are compensated on an hourly basis and may earn
team-based performance incentives.
At November 7, 1997, the Company had approximately 6,300
associates, of whom approximately 4,300 were full-time associates
and 2,000 were part-time associates. In addition, approximately
3,000 associates are hired on a seasonal basis to meet demand
during the peak holiday buying season. None of the associates
employed by J. Crew Mail Order, J. Crew Retail, J. Crew Factory
Outlets or C&W are represented by a union. Approximately 240
warehouse employees at PCP are represented by the Teamsters under
a collective bargaining agreement which expires in June 1999. The
Company believes that its relationship with its associates is
good.
Properties
The Company is headquartered in New York City, although PCP
maintains a separate main office in Garfield, New Jersey. Both
the New York City headquarters offices and PCP's Garfield office
are leased from third parties. The Company owns two telemarketing
and distribution facilities: a 406,500-square-foot telemarketing
and distribution center for J. Crew and C&W mail order in
Lynchburg, Virginia and a 192,500-square-foot distribution center
in Asheville, North Carolina servicing the J. Crew Retail and J.
Crew and C&W outlet store operations. The Company also leases
from a third party a 369,000-square-foot distribution facility
located in Edison, New Jersey dedicated to PCP's fulfillment
operations.
As of November 7, 1997, the Company operated 100 retail and
factory outlet stores. All of the retail and factory outlet
stores are leased from third parties, and the leases in most
cases have terms of 10 to 12 years, not including renewal
options. As a general matter, the leases contain standard
provisions concerning the payment of rent, events of default and
the rights and obligations of each party. Rent due under the
leases is comprised of annual base rent plus a contingent rent
payment based on the store's sales in excess of a specified
threshold. Substantially all the leases are guaranteed by
Holdings.
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The table below sets forth the number of stores by state
operated by the Company in the United States as of November 7,
1997:
Total
Retail Outlet Number
Stores Stores(1) of Stores
------ -------- ---------
Alabama............. -- 1 1
Arizona............. 1 -- 1
California.......... 8 3 11
Colorado............ 1 2 3
Connecticut......... 3 2 5
Delaware............ -- 1 1
Florida............. 2 5 7
Georgia............. 1 3 4
Illinois............ 4 -- 4
Indiana............. 1 3 4
Kansas.............. -- 1 1
Maine............... -- 2 2
Maryland............ 1 -- 1
Massachusetts....... 4 1 5
Michigan............ 1 1 2
Minnesota........... 1 -- 1
Missouri............ 1 1 2
New Hampshire....... -- 2 2
New Jersey.......... 2 1 3
New Mexico.......... 1 -- 1
New York............ 4 4 8
North Carolina...... 2 -- 2
Ohio................ 2 -- 2
Oregon.............. 1 -- 1
Pennsylvania........ 2 5 7
South Carolina...... -- 1 1
Tennessee........... -- 1 1
Texas............... 3 5 8
Utah................ -- 1 1
Vermont............. -- 1 1
Virginia............ 1 1 2
Washington.......... 1 1 2
Wisconsin........... -- 2 2
District of Columbia 1 -- 1
----- ----- -----
Total.......... 49 51 100
===== ===== =====
(1) Includes nine C&W outlet stores.
Competition
All aspects of the Company's businesses are highly
competitive. The Company competes primarily with other catalog
operations, specialty brand retailers, department stores, and
mass merchandisers engaged in the retail sale of men's and
women's apparel, accessories, footwear and general merchandise.
The Company believes that the principal bases upon which it
competes are quality, design, efficient service, selection and
price.
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The Company believes that it has significant competitive
strength because of its strong brand name, distinctive designs,
premium quality products, controlled distribution and strong
catalog and retail market positions. However, certain of the
Company's competitors are larger and have greater financial,
marketing and other resources than the Company, and there can be
no assurance that the Company will be able to compete
successfully with them in the future.
Legal and Regulatory Matters
The Company is a defendant in several lawsuits arising in
the ordinary course of business. Although the amount of any
liability that could arise with respect to any such lawsuit
cannot be accurately predicted, in the opinion of management, the
resolution of these matters is not expected to have a material
adverse effect on the financial position or results of operations
of the Company.
A 1992 Supreme Court decision confirmed that the Commerce
Clause of the United States Constitution prevents a state from
requiring the collection of its use tax by a mail order company
unless the company has a physical presence in the state. However,
there continues to be some uncertainty in this area due to
inconsistent application of the Supreme Court decision by state
and federal courts. The Company attempts to conduct its
operations in compliance with its interpretation of the
applicable legal standard, but there can be no assurance that
this compliance will not be challenged. From time to time,
various states have sought to require companies to begin
collection of use taxes and/or pay taxes from previous sales. The
Company has not received assessments from any state in which it
is not currently collecting sales taxes since the 1992 Supreme
Court decision.
The Supreme Court decision also established that Congress
has the power to enact legislation that would permit states to
require collection of use taxes by mail order companies. Congress
has from time to time considered proposals for such legislation.
The Company anticipates that any legislative change, if adopted,
would be applied only on a prospective basis.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position
of individuals who are serving as the directors and executive
officers of the Issuer and the Guarantors. Each director of the
Issuer or any of the Guarantors will hold office until the next
annual meeting of shareholders or until his or her successor has
been elected and qualified. Officers of the Issuer and each of
the Guarantors are elected by their respective Boards of
Directors and serve at the discretion of such Boards.
Name Age Position
Emily Woods...... 35 Director--J. Crew Operating Corp.; C&W
Outlet, Inc.; Clifford & Wills, Inc.; Grace
Holmes, Inc; H.F.D. No. 55, Inc.; J. Crew Inc.;
J. Crew International, Inc.; J. Crew Services,
Inc.; Popular Club Plan, Inc.
Chief Executive Officer--J. Crew Operating
Corp.
President--J. Crew Inc.
David Bonderman.. 54 Director--J. Crew Operating Corp.
James G. Coulter. 37 Director--J. Crew Operating Corp.
Richard W. Boyce. 43 Director--J. Crew Operating Corp.; C&W
Outlet, Inc.; Clifford & Wills, Inc.; Grace
Holmes, Inc; H.F.D. No. 55, Inc.; J. Crew Inc.;
J. Crew International, Inc.; J. Crew Services,
Inc.; Popular Club Plan, Inc.
Jonathan Coslet.. 33 Director--C&W Outlet, Inc.; Clifford & Wills,
Inc.; Grace Holmes, Inc; H.F.D. No. 55, Inc.; J.
Crew Inc., J. Crew International, Inc.; J. Crew
Services, Inc.; Popular Club Plan, Inc.
Michael P. McHugh 58 President--J. Crew International, Inc.; J. Crew
Services, Inc.
Vice President--Finance--CFO--J. Crew
Operating Corp.
David M. DeMattei 41 President--Grace Holmes, Inc; H.F.D. No. 55,
Inc.
Matthew E. Rubel. 39 President--Popular Club Plan, Inc.
Trudy F. Sullivan 46 President--C&W Outlet, Inc.; Clifford &
Wills, Inc.
Nicholas Lamberti 55 Vice President--J. Crew Operating Corp.
Emily Woods
Director--J. Crew Operating Corp.; C&W Outlet, Inc.; Clifford &
Wills, Inc.; Grace Holmes, Inc; H.F.D. No. 55, Inc.; J. Crew
Inc; J. Crew International, Inc.; J. Crew Services, Inc.; Popular
Club Plan, Inc.; Chief Executive Officer--J.Crew Operating Corp.;
President--J. Crew Inc.
Ms. Woods became a director and Chief Executive Officer of
the Issuer and the President of J. Crew Inc. upon consummation
of the Recapitalization. Ms. Woods is also currently serving as
Chairman of the Board of Directors and the Chief Executive
Officer of Holdings and has served as Vice-Chairman of Holdings.
Ms. Woods co-founded the J. Crew brand in 1983 and is currently
its designer.
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<PAGE>
David Bonderman
Director--J. Crew Operating Corp.
Mr. Bonderman became a director of the Issuer upon
consummation of the Recapitalization. Mr. Bonderman is also
currently serving as a director of Holdings. Mr. Bonderman is a
principal and founding partner of TPG. Prior to forming TPG, Mr.
Bonderman was Chief Operating Officer and Chief Investment
Officer of Keystone Inc. ("Keystone"), the private investment
firm, from 1983 to August 1992. Mr. Bonderman serves on the
Boards of Directors of Continental Airlines, Inc., Bell & Howell
Company, Virgin Entertainment, Beringer Wine Estates, Inc.,
Denbury Resources, Inc., Ducati Motor Holdings, S.p.A.,
Washington Mutual, Inc., Ryanair, Ltd., and Credicom Asia, N.V.
Mr. Bonderman also serves in general partner advisory board roles
for Acadia Partners, L.P., Newbridge Investment Partners, L.P.,
Newbridge Latin America, L.P. and Aqua International, L.P.
James G. Coulter
Director--J. Crew Operating Corp.
Mr. Coulter became a director of the Issuer upon
consummation of the Recapitalization. Mr. Coulter is also
currently serving as a director of Holdings. Mr. Coulter is a
principal and founding partner of TPG. Prior to forming TPG, Mr.
Coulter was a Vice President of Keystone from 1986 to 1992. Mr.
Coulter serves on the Boards of Directors of America West
Airlines, Inc., Virgin Entertainment, Beringer Wine Estates, Inc.
and Paradyne Partners, L.P. and was formerly on the Board of
Directors of Allied Waste Industries Inc. and Continental
Airlines, Inc.
Richard W. Boyce
Director--J. Crew Operating Corp.; C&W Outlet, Inc.; Clifford &
Wills, Inc.; Grace Holmes, Inc; H.F.D. No. 55, Inc.; J. Crew
Inc.; J. Crew International, Inc.; J. Crew Services, Inc.; Popular
Club Plan, Inc.
Mr. Boyce became a director of the Issuer and each of the
Guarantors upon consummation of the Recapitalization. Mr. Boyce
is also currently serving as a director of Holdings. Mr. Boyce is
the President of CAF, Inc., a management consulting firm which
advises various companies controlled by TPG. Prior to founding
CAF, Inc. in 1997, Mr. Boyce served as Senior Vice President of
Operations for Pepsi-Cola North America ("PCNA") from 1996 to
1997, and Chief Financial Officer of PCNA from 1994 to 1996. From
1992 to 1994, Mr. Boyce served as Senior Vice President-Strategic
Planning for PepsiCo. Prior to joining PepsiCo., Mr. Boyce was a
Director at the management consulting firm of Bain & Company
where he was employed from 1980 to 1992.
Jonathan Coslet
Director--C&W Outlet, Inc.; Clifford & Wills, Inc.; Grace Holmes,
Inc; H.F.D. No. 55, Inc.; J. Crew Inc.; J. Crew International, Inc.;
J. Crew Services, Inc.; Popular Club Plan, Inc.
Mr. Coslet became a director of each of the Guarantors upon
consummation of the Recapitalization. Mr. Coslet has been a
partner of TPG since 1993. Prior to joining TPG, Mr. Coslet was
in the Investment Banking Department of Donaldson, Lufkin &
Jenrette, specializing in leveraged acquisitions and high-yield
finance. Mr. Coslet currently also serves on the Board of
Directors of PPOM, L.P.
Michael P. McHugh
President--J. Crew International, Inc.; J. Crew Services, Inc.;
Vice President Finance - CFO--J. Crew Operating Corp.
Mr. McHugh became Vice President Finance and Chief Financial
Officer of the Issuer and President of J. Crew International,
Inc. and J. Crew Services, Inc. upon consummation of the
Recapitalization. Mr. McHugh has been with the Company since
September 1986 and is also currently the Vice President-Finance
and Chief Financial Officer of Holdings. Prior to joining the
Company, Mr. McHugh was the Vice President of Finance and
Director of the Regina Company from 1983 to 1986, served as the
Controller of Operations for Revlon, Inc. from 1977 to 1983, was
the U.S. Controller for Canada Dry Corp. from 1975 to 1977 and
was a Division Controller and Division Vice President of Finance
and Administration at Borden, Inc. from 1968 to 1975.
David M. DeMattei
President--Grace Holmes, Inc; H.F.D. No. 55, Inc.
Mr. DeMattei became President of J. Crew Factory Outlet upon
consummation of the Recapitalization. Mr. DeMattei joined the
Company in 1995 and has served as President of J. Crew Retail
since June 1995. From 1993 to 1994, Mr. DeMattei served as
President of Banana Republic, a division of The Gap, Inc., and
from 1983 to 1993, Mr. DeMattei worked in various other executive
level positions at The Gap, Inc., including Executive Vice
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<PAGE>
President-Chief Financial Officer from April 1992 to May 1995 and
Senior Vice President-Chief Financial Officer from February 1991
to March 1992.
Matthew E. Rubel
President--Popular Club Plan, Inc.
Mr. Rubel joined the Company in September 1994 as the
President of PCP. Prior to joining the Company, Mr. Rubel served
as the President, CEO, and a member of the Board of Directors at
Pepe Jeans USA in 1994, and from 1987 to 1993, he was the
President of Specialty Division at Revlon, Inc. From 1984 to
1987, Mr. Rubel served as an Executive Vice President of Murjani
International and from 1980 to 1984, he was employed by Bonwit
Teller.
Trudy F. Sullivan
President--Clifford & Wills, Inc.; C&W Outlet, Inc.
Ms. Sullivan joined the Company in November 1995 as
President of C&W. Ms. Sullivan became President of C&W Outlet,
Inc. upon consummation of the Recapitalization. Prior to joining
the Company, Ms. Sullivan served as a Senior Vice-President of
United Retail Group, Inc. from February 1993 to November 1995 and
as the President of Decelle Inc. from 1989 through 1992.
Nicholas Lamberti
Vice President--J. Crew Operating Corp.
Mr. Lamberti joined the Company in January 1991 as Vice
President-Corporate Controller. Prior to joining the Company, Mr.
Lamberti was with Deloitte & Touche from 1966 to 1991.
Employment Agreements and Other Compensation Arrangements
Holdings and the Issuer (the "Employers") and Ms. Woods
entered into an employment agreement, which provides that, for a
period of five years commencing on the closing of the
Recapitalization, she will serve as Chief Executive Officer of
the Issuer and as Chairman of the Board of Directors and Chief
Executive Officer of Holdings. The employment agreement provides
for an annual base salary of $1.0 million, and provides an annual
target bonus of up to $1.0 million based on achievement of
earnings objectives to be determined each year. The employment
agreement also provides for the grant of 3,308 shares of Holdings
Common Stock (the "Restricted Shares") on January 1, 1998. The
Restricted Shares will vest as follows: (i) 393 shares
immediately upon grant; (ii) 972 shares on each of the third and
fourth anniversaries of the Recapitalization and (iii) 971 shares
on the fifth anniversary of the Recapitalization. In connection
with the grant of the Restricted Shares, the Employers will pay
Ms. Woods an amount equal to the federal, state and local income
and payroll taxes incurred by Ms. Woods in 1998 as a result of
the grant of the Restricted Shares and any federal, state and
local income and payroll taxes incurred as a result of such
payment. Ms. Woods is also entitled to various executive benefits
and perquisites under the employment agreement.
In connection with the Recapitalization, Ms. Woods retained
shares of Holdings Common Stock representing approximately 14.8%
of the total outstanding shares of Holdings Common Stock
determined immediately after the closing of the Recapitalization
such retention effected using an implied purchase price for the
retained shares equal to the price that TPG Partners II paid for
shares of Holdings Common Stock in connection with the
Recapitalization (the "TPG Partners II Price"). Ms. Woods also
purchased approximately $3.0 million of Preferred Stock issued in
connection with the Recapitalization.
Under the Option Plan (as defined herein), Holdings has
granted Ms. Woods an option to purchase 1,641 shares of Holdings
Common Stock at an exercise price equal to the TPG Partners II
Price, 20% of which shall become exercisable following the end of
each of fiscal years 1998 through 2002, provided that the Company
attains certain earnings targets; however, all unvested options
shall become exercisable (i) if Ms. Woods' employment is
terminated by Holdings without cause, by Ms. Woods for good
reason or by reason of death or disability, (ii) in the event of
a change in control of Holdings, or (iii) if Ms. Woods is still
employed by Holdings, on the seventh anniversary of the closing
of the Recapitalization.
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<PAGE>
Also under the Option Plan, Holdings has granted Ms. Woods
the option to purchase 820 shares of Holdings Common Stock. Under
this option, Ms. Woods has the right to exercise 20% of the
option after each of the first through the fifth anniversaries of
the grant date at an exercise price equal to 125%, 156.25%,
195.31%, 244.14% and 305.18% of the TPG Partners II Price,
respectively. The exercise of this option may require Ms. Woods
to purchase a proportional amount of Preferred Stock issued in
connection with the Recapitalization. In addition, all options
shall become exercisable (i) if Ms. Woods' employment is
terminated by Holdings without cause, by Ms. Woods for good
reason or by reason of her death or disability or (ii) in the
event of a change in control of Holdings.
All options granted to Ms. Woods are generally governed by
and subject to the J. Crew Group, Inc. Stock Option Plan
described below.
The shares of Holdings Common Stock acquired by Ms. Woods
pursuant to the foregoing are subject to a shareholders'
agreement providing for certain transfer restrictions,
registration rights and customary tag-along and drag-along
rights.
The Issuer and Mr. DeMattei are parties to an employment
agreement which provides that Mr. DeMattei will be employed as
president of J. Crew Retail Division with an annual salary of
$525,000, which increases by $25,000 on each of June 1, 1998 and
June 1, 1999. In addition, the agreement provides that Mr.
DeMattei is eligible for an annual bonus for fiscal year 1997 of
up to approximately $350,000 and a long-term incentive bonus if
certain performance objectives are satisfied. Annual bonuses for
subsequent years will be determined on a year to year basis. Mr.
DeMattei is also entitled to various executive benefits and
perquisites under the agreement. The agreement expires on January
28, 2000.
The Issuer and Mr. Rubel are parties to an employment
agreement which provides that Mr. Rubel will be employed as
president of PCP with an annual salary of $475,000. The agreement
provides that Mr. Rubel is eligible for annual bonus and
long-term incentive bonus based on the performance of PCP. The
agreement expires on January 31, 1999.
Holdings has adopted, subject to the receipt of applicable
stockholder approval, the J. Crew Group Inc. Stock Option Plan
(the "Option Plan") in order to promote the interests of the
Company and its shareholders by providing the Company's key
employees and consultants with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company. Under the
Option Plan, the Board of Directors of Holdings will appoint a
committee to administer the Option Plan and to grant options to
purchase shares of Holdings Common Stock to certain key employees
and consultants of the Company. Currently, there is an aggregate
of 7,388 shares of Holdings Common Stock available for grants to
key employees and consultants under the Option Plan (including
the 2,461 shares underlying the options granted to Ms. Woods as
described above). The options granted under the Option Plan may
be subject to various vesting conditions, including, under some
circumstances, the achievement of certain performance objectives.
All shares of Holdings Common Stock acquired by key employees or
consultants pursuant to the foregoing shall be subject to a
shareholders' agreement providing for certain transfer
restrictions, registration rights and customary tag-along and
drag-along rights.
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Executive Compensation
The following table sets forth compensation paid by the
Company for fiscal years 1994, 1995 and 1996 to each individual
serving as its Chief Executive Officer during fiscal 1996 and to
each of the four other most highly compensated executive officers
of the Company as of the end of fiscal 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Long Term
Compensation
------------
Other Annual LTIP All Other
Name and Principal Fiscal Salary Bonus Comp. Payouts Comp.
Positions Year ($) ($) ($) ($)
Arthur Cinader (1) 1996 307,692 -- -- -- --
Chief Executive 1995 700,000 109,000 -- -- --
Officer 1994 700,000 83,000 -- -- --
Emily Woods (2)... 1996 700,000 -- -- -- --
President 1995 700,000 1,327,700(3) 1,079,713(4) -- --
1994 700,000 1,970,040(5) 1,816,811(6) -- --
David DeMattei (7) 1996 475,771 100,000 -- -- --
President, J. 1995 352,661 100,000 -- -- --
Crew Retail
Matthew Rubel..... 1996 422,418 150,000 -- -- --
President, 1995 391,346 50,000 -- -- --
Popular Club 1994 112,500 -- -- -- --
Plan
Paul Raffin (8) (9) 1996 426,663 75,000 -- -- --
President, 1995 304,200 50,000 -- -- --
J. Crew Catalogue
Robert Bernard (10) 1996 650,000 136,500 752,500(11) -- --
1995 650,000 350,000 -- -- --
1994 581,930 -- -- -- --
</TABLE>
- ----------------------
(1) Mr. Cinader was replaced as Chief Executive Officer on
October 17, 1997.
(2) Ms. Woods became Chief Executive Officer on October 17,
1997.
(3) Of this amount, $1,139,000 represents the value of a grant
to the executive of Holdings Common Stock.
(4) This amount was paid as reimbursement for income taxes
incurred as a result of the grant of Holdings Common Stock.
(5) Of this amount, $1,884,240 represents the value of a grant
to the executive of Holdings Common Stock.
(6) This amount was paid as reimbursement for income taxes
incurred as a result of the grant of Holdings Common Stock.
(7) Mr. DeMattei was not employed by the Company in 1994.
(8) Mr. Raffin resigned from the Company as of November 13,
1997.
(9) Mr. Raffin was not employed by the Company in 1994.
(10) Mr. Bernard resigned from the Company as of October 28,
1996.
(11) This amount represents severance payment to the executive.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of arrangements made prior to the negotiation and
execution of the Recapitalization Agreement, Holdings agreed to
make bonus payments to certain of its executive officers upon
consummation of any merger, acquisition, recapitalization or
other transaction resulting in a change of control of Holdings.
Thus, Holdings made bonus payments in the amount of (i) $10.0
million to Emily Woods, (ii) $0.3 million to Matthew Rubel, (iii)
$0.3 million to Michael McHugh and (iv) $1.2 million to other
employees.
In addition, effective on the closing of the
Recapitalization, the Company and Arthur Cinader entered into an
Employment/Consulting and Non-Compete Agreement, under which Mr.
Cinader agreed to serve as an employee and/or consultant for
twelve months following the closing of the Recapitalization.
Under the agreement, Mr. Cinader agreed, for a period of five
years from the closing of the Recapitalization, not to compete,
directly or indirectly, in association with or as a stockholder,
director, officer, consultant, employee, partner, joint venturer,
member or otherwise through any person or entity work for, act as
a consultant to, or own any interest in, any competitor of the
Company or its affiliates. In consideration of Mr. Cinader's
non-compete, employment and consulting undertakings, the Company
paid Mr. Cinader a total of $4.2 million. In addition, during
this five-year period, Mr. Cinader is entitled to coverage under
the Company's health and welfare plans.
In connection with the Recapitalization, the Company paid
TPG a financial advisory fee in the amount of $5.5 million.
Holdings and its subsidiaries also entered into a tax
sharing agreement providing (among other things) that each of the
subsidiaries will reimburse Holdings for its share of income
taxes determined as if such subsidiary had filed its tax returns
separately from Holdings.
DESCRIPTION OF HOLDINGS INDEBTEDNESS
The Holdings Senior Discount Debentures were issued in an
aggregate principal amount at maturity of $142.0 million and will
mature on October 15, 2008. The Holdings Senior Discount
Debentures were issued under an Indenture dated as of October 17,
1997 (the "Holdings Indenture") between Holdings and State Street
Bank and Trust Company, as trustee, and are senior unsecured
obligations of Holdings. Cash interest will not accrue on the
Holdings Senior Discount Debentures prior to October 15, 2002,
and the principal of the Holdings Senior Discount Debentures will
accrete at a rate of 13 1/8% per annum. Thereafter, cash interest
on the Holdings Senior Discount Debentures will accrue at the
rate of 13 1/8% per annum and will be payable semiannually in
arrears on each April 15 and October 15 of each year, commencing
April 15, 2003, to the holders of record on the immediately
preceding April 1 and October 1, respectively.
On or after October 15, 2002, the Holdings Senior Discount
Debentures may be redeemed at the option of Holdings, in whole at
any time or in part from time to time, at a redemption price
equal to the applicable percentage of the principal amount
thereof set forth below plus accrued and unpaid interest, if any,
to the redemption date, if redeemed during the twelve-month
period commencing on October 15 in the years set forth below:
Year Redemption Price
---- ----------------
2002.......................... 106.563%
2003.......................... 104.375%
2004.......................... 102.188%
2005 and thereafter........... 100.000%
Notwithstanding the foregoing, at any time on or prior to
October 15, 2000, Holdings may use the net proceeds of one or
more equity offerings to redeem up to 35% of the Holdings Senior
Discount Debentures at a
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redemption price equal to 113.125% of the accreted value thereof
plus accrued and unpaid interest and Liquidated Damages, if any,
to the redemption date; provided, however, that after any such
redemption the aggregate principal amount of the Holdings Senior
Discount Debentures outstanding must equal at least 65% of the
aggregate principal amount of the Holdings Senior Discount
Debentures originally issued.
In the event of certain change of control transactions,
each holder of Holdings Senior Discount Debentures has the right
to require the repurchase of such holder's Holdings Senior
Discount Debentures at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if
any, to the purchase date.
The Holdings Indenture contains covenants that, among other
things, limit the ability of Holdings to enter into certain
mergers or consolidations or incur certain liens and of Holdings
and its subsidiaries to incur additional indebtedness, pay
dividends and make certain other restricted payments and engage
in certain transactions with affiliates. Under certain
circumstances Holdings will be required to make an offer to
purchase Holdings Senior Discount Debentures at a price equal to
100% of the principal amount thereof, plus accrued interest to
the date of purchase with the proceeds of certain asset sales.
The Holdings Indenture contains certain customary events of
defaults, which will include the failure to pay interest and
principal, the failure to comply with certain covenants in the
Holdings Senior Discount Debentures or such Indenture, a default
under certain indebtedness, the imposition of certain final
judgments or warrants of attachment and certain events occurring
under bankruptcy laws.
CAPITAL STOCK OF HOLDINGS AND THE ISSUER
General
The Issuer is authorized by the terms of its certificate of
incorporation to issue 1,000 shares of common stock and 1,000
shares of preferred stock. The Issuer has issued and outstanding
100 shares of common stock, each share of which is entitled to
one vote. Holdings owns all of the issued and outstanding stock
of the Issuer. Holdings does not have any material assets other
than the common stock of the Issuer. Each of the Guarantors is a
wholly-owned subsidiary of the Issuer.
Holdings' restated certificate of incorporation authorizes
Holdings to issue capital stock consisting of 100,000,000 shares
of common stock, par value $.01 per share, 1,000,000 shares of
Series A cumulative preferred stock, par value $.01 per share
("Series A Preferred Stock"), and 1,000,000 shares of Series B
cumulative preferred stock, par value $.01 per share ("Series B
Preferred Stock"). Holdings currently has outstanding 55,000
shares of common stock, 92,500 shares of Series A Preferred Stock
and 32,500 shares of Series B Preferred Stock.
The Series A Preferred Stock and Series B Preferred Stock
will (collectively, the "Holdings Preferred Stock") accumulate
dividends at the rate of 14.50% per annum (payable quarterly) for
periods ending on or prior to October 17, 2009. Thereafter, the
Series A Preferred Stock will accumulate dividends at the rate of
16.50% per annum. Dividends on the Holdings Preferred Stock will
compound to the extent not paid. The Holdings Preferred Stock
will have an initial liquidation preference of $1,000 per share.
Holdings will be required on October 17, 2009 to redeem shares of
Series B Preferred Stock and to pay all accumulated dividends
that have been applied, if any, to increase liquidation value of
the Series A Preferred Stock (the "clean-down"). Shares of
Holdings Preferred Stock may be redeemed at the option of
Holdings, in whole or in part, at the redemption prices set forth
below (expressed as percentages of liquidation preference),
together with all accumulated and unpaid dividends to the
redemption date, if redeemed during the six month period
beginning on the dates indicated below:
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October 17, 1997.............103.0%
April 17, 1998...............102.5%
October 17, 1998.............102.0%
April 17, 1999...............101.5%
October 17, 1999.............101.0%
April 17, 2000...............100.5%
October 17, 2000 and
thereafter...................100.0%
Optional redemption of the Holdings Preferred Stock is
subject to, and expressly conditioned upon, certain limitations
under the Indenture, the Bank Facilities, the Notes and other
documents relating to Holdings' or the Issuer's indebtedness.
Holdings may also be required to redeem shares of Holdings
Preferred Stock in certain other circumstances, including the
occurrence of a change of control of Holdings, in each case
subject to the terms of the Indenture, the Bank Facilities, the
Notes and other documents relating to Holdings' or the Issuer's
indebtedness. Holders of Holdings Preferred Stock do not have any
voting rights with respect thereto, except for such rights as are
provided under applicable law, the right to elect, as a class,
two directors of Holdings in the event that Holdings fails to
comply with its redemption and clean-down obligations and class
voting rights with respect to transactions adversely affecting
the rights, preferences or powers of the Holdings Preferred
Stock.
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Beneficial Owners of More Than 5% of the
Issuer's Voting Securities1
(1) (2) (3) (4)
Title Name and Address Amount and Nature of Percent of
of Class of Beneficial Owner Beneficial Ownership Class
- --------------------------------------------------------------------------
Holdings TPG Partners II 31,566.779 shares 57.39%
Common 201 Main Street,
Stock Suite 2420
Fort Worth, TX 76102
Holdings Emily Woods 8,017.883 shares 14.58%
Common Chairman and Chief
Stock Executive Officer
J. Crew Group, Inc.
770 Broadway
New York, NY 10003
Security Ownership of Management
(1) (2) (3) (4)
Title Name Amount and Nature of Percent of
of Class of Beneficial Owner Beneficial Ownership Class
- --------------------------------------------------------------------------
Holdings Emily Woods 8,017.883 14.58%
Common
Stock
Holdings Emily Woods 2,978.505 3.22%
Series A
Preferred
Stock
- --------
1 Because the Issuer is a wholly-owned subsidiary of Holdings,
this chart identifies beneficial owners of more than 5% of
the voting securities of Holdings.
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DESCRIPTION OF OTHER ISSUER INDEBTEDNESS
Bank Facilities
On the closing date of the Recapitalization, the Issuer
entered into the Bank Facilities among the Issuer, Holdings, the
several lenders from time to time parties thereto (collectively,
the "Banks"), Chase, as administrative and collateral agent (the
"Administrative Agent") and DLJ as syndication agent
(collectively, the "Agents"). The following is a summary
description of the principal terms of the Bank Facilities and the
other loan documents. The description set forth below does not
purport to be complete and is qualified in its entirety by
reference to certain agreements setting forth the principal terms
and conditions of the Bank Facilities, which are available upon
request from the Issuer.
Structure. The Bank Facilities provide the Issuer with: (i)
a senior secured term loan facility of up to $70.0 million; and
(ii) a senior secured revolving credit facility of up to $200.0
million.
The full amount of the Term Loan Facility and approximately
$35.6 million of Revolving Credit Facility were borrowed on the
closing date under the Bank Facilities (i) to partially finance
the Recapitalization, (ii) to repay certain existing outstanding
indebtedness of the Issuer and (iii) to pay certain fees and
expenses related to the Recapitalization. See "The
Recapitalization." The Bank Facilities may be utilized to fund
the Issuer's working capital requirements, including issuance of
stand-by and trade letters of credit, bankers' acceptances and
for other general corporate purposes.
The Term Loan Facility is a single tranche term facility of
$70.0 million which has a maturity of six years. Loans, letters
of credit and bankers' acceptances under the Revolving Credit
Facility will be available at any time during its six-year term
subject to the fulfillment of customary conditions precedent
including the absence of a default under the Bank Facilities;
provided, that at least once during each fiscal year, for a
period of 30 consecutive days, the Company must repay all loans
outstanding under the Revolving Credit Facility in excess of the
amounts set forth below:
Amount
Fiscal Year (in millions)
1998......................... $ 25.0
1999......................... $ 20.0
2000......................... $ 15.0
2001......................... $ 10.0
2002 and thereafter.......... $ 0.0
Security; Guaranty. The Issuer's obligations under the Bank
Facilities are guaranteed by each of the Issuer's direct and
indirect domestic and, to the extent no adverse tax consequences
would result, foreign subsidiaries, other than any receivables
subsidiary. The Bank Facilities and the guarantees thereof are
secured by a perfected first priority security interest in
substantially all assets of the Issuer and its direct and
indirect domestic and, to the extent no adverse tax consequences
would result, foreign subsidiaries including: (i) all real
property; (ii) all accounts receivable (but excluding the
accounts receivable of PCP), inventory and intangibles; and (iii)
all of the capital stock of the Issuer and the Issuer's direct
and indirect domestic and, to the extent no adverse tax
consequences would result, foreign subsidiaries.
Interest; Maturity. Borrowings under the Bank Facilities
bear interest at a rate per annum equal (at the Issuer's option)
to: (i) the Administrative Agent's Eurodollar rate plus an
applicable margin or (ii) an alternate base rate equal to the
highest of the Administrative Agent's prime rate, a certificate
of deposit rate plus 1%, or the
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Federal Funds effective rate plus 1/2 of 1% plus, in each case,
an applicable margin. Initially, the applicable margin is 2.25%
per annum for Eurodollar rate loans and 1.25% per annum for
alternate base rate loans. The Bank Facilities will mature
October 17, 2003.
Fees. The Issuer is required to pay the Banks, on a
quarterly basis, a commitment fee on the undrawn portion of the
Bank Facilities at a rate equal to 1/2 of 1% per annum. The
Issuer is also obligated to pay (i) a per annum letter of credit
fee on the aggregate amount of outstanding letters of credit;
(ii) a fronting bank fee for the letter of credit issuing bank;
(iii) certain fees in connection with the issuance of bankers'
acceptances; and (iv) customary agent, arrangement and other
similar fees.
Covenants. The Bank Facilities contain a number of
covenants that, among other things, restrict the ability of the
Issuer and its subsidiaries to dispose of assets, incur
additional indebtedness, prepay other indebtedness (including the
Notes) or amend certain debt instruments (including the
Indenture), pay dividends, create liens on assets, enter into
sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations,
change the business conducted by the Issuer or its subsidiaries,
or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the
Bank Facilities, the Issuer is required to maintain specified
financial ratios and tests, including minimum interest coverage
ratios, leverage ratios below a specified maximum, minimum net
worth levels and minimum ratios of inventory to senior debt.
Events of Default. The Bank Facilities contain customary
events of default, including nonpayment of principal, interest or
fees, material inaccuracy of representations and warranties,
violation of covenants, cross-default and cross-acceleration to
certain other indebtedness, certain events of bankruptcy and
insolvency, material judgments against the Issuer, invalidity of
any guarantee or security interest and a change of control of the
Issuer in certain circumstances as set forth therein.
Receivables Facility
In connection with the Recapitalization, affiliates of the
Initial Purchasers (the "Receivables Lenders") arranged a
facility to securitize certain PCP consumer loan installment
receivables (the "Receivables") on a revolving basis under a
receivables program (the "Receivables Facility"). The
Securitization involved the transfer of the Receivables with
limited recourse through a special purpose, bankruptcy-remote
subsidiary to a trust in exchange for cash and subordinated
certificates representing undivided interests in the pool of
Receivables, and the subsequent sale by the trust of certificates
of beneficial interests, also representing undivided interests in
the Receivables, to third party investors. The Securitization
provided approximately $40 million of proceeds. The Company is
obligated to repurchase Receivables related to customer credits
such as merchandise returns and other Receivables defects. The
Company has no obligation to reimburse the trust or the
purchasers of beneficial interests for credit losses.
The Receivables Facility is contemplated to be an interim
agreement pending the consummation of a private placement of
Receivables-based securities or such other refinancing as the
parties may agree to, proceeds of which will be used to prepay
the Receivables Facility. If the Receivables Facility is not
refinanced within two months of the date of closing, the interest
rates thereunder will increase.
THE EXCHANGE OFFER
The summary herein of certain provisions of the
Registration Rights Agreement does not purport to be complete and
reference is made to the provisions of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration
Statement and a copy of which is available as set forth under the
heading "Available Information."
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<PAGE>
Terms of the Exchange Offer
In connection with the issuance of the Old Notes pursuant
to a Purchase Agreement dated as of October 14, 1997, by and
among the Issuer, the Guarantors and the Initial Purchasers, the
Initial Purchasers and their respective assignees became entitled
to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Issuer and the
Guarantors are required to file within 60 days after October 17,
1997 (the date the Registration Rights Agreement was entered into
(the "Closing Date")) a registration statement (the "Exchange
Offer Registration Statement") for a registered exchange offer
with respect to an issue of new notes identical in all material
respects to the Old Notes except that the new notes shall contain
no restrictive legend thereon. Under the Registration Rights
Agreement, the Issuer and the Guarantors are required to (i)
cause the Exchange Offer Registration Statement to be filed with
the Commission no later than 60 days after the Closing Date, (ii)
use their respective best efforts to cause such Exchange Offer
Registration Statement to become effective within 135 days after
the Closing Date, (iii) use their respective best efforts to keep
the Exchange Offer open for at least 20 Business Days (or longer
if required by applicable law), (iv) use their respective best
efforts to consummate the Exchange Offer on or prior to the 30th
Business Day following the date on which the Exchange Offer
Registration Statement is declared effective by the Commission
and (v) cause the Exchange Offer to comply with all applicable
federal and state securities laws. The Exchange Offer being made
hereby, if commenced and consummated within the time periods
described in this paragraph, will satisfy those requirements
under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal, all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will be accepted for exchange.
New Notes of the same class will be issued in exchange for an
equal principal amount of outstanding Old Notes accepted in the
Exchange Offer. Old Notes may be tendered only in integral
multiples of $1,000. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of
_______ __, 1997. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered in exchange.
However, the obligation to accept Old Notes for exchange pursuant
to the Exchange Offer is subject to certain conditions as set
forth herein under "--Conditions."
Old Notes shall be deemed to have been accepted as validly
tendered when, as and if the Trustee has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act
as agent for the tendering holders of Old Notes for the purposes
of receiving the New Notes and delivering New Notes to such
holders.
Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, including
the Exchange Offer No-Action Letters, the Issuer and the
Guarantors believe that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise
transferred by each holder thereof (other than a broker-dealer
who acquires such New Notes directly from the Issuer for resale
pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act and other than any
holder that is an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Issuer without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder is not engaged
in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement with any person to participate in a
distribution of such New Notes. By tendering the Old Notes in
exchange for New Notes, each holder, other than a broker-dealer,
will represent to the Issuer and the Guarantors that: (i) it is
not an affiliate (as defined in Rule 405 under the Securities
Act) of the Issuer; (ii) it is not a broker-dealer tendering Old
Notes acquired for its own account directly from the Issuer;
(iii) any New Notes to be received by it will be acquired in the
ordinary course of its business; and (iv) it is not engaged in,
and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a
distribution of the New Notes. If a holder of Old Notes is
engaged in or intends to engage in a distribution of the New
Notes or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder may not rely on the applicable
interpretations of the staff of the Commission and must comply
with the registration and prospectus delivery
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<PAGE>
requirements of the Securities Act in connection with any
secondary resale transaction. Each Participating Broker-Dealer
that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Issuer and the
Guarantors have agreed that they will make this Prospectus
available to any Participating Broker-Dealer for a period of time
not to exceed one year after the date on which the Exchange Offer
is consummated for use in connection with any such resale. See
"Plan of Distribution."
In the event that (i) any changes in law or the applicable
interpretations of the staff of the Commission do not permit the
Issuer and the Guarantors to effect the Exchange Offer, or (ii)
if any holder of Old Notes shall notify the Issuer within 20
business days following the consummation of the Exchange Offer
that (A) such holder was prohibited by law or Commission policy
from participating in the Exchange Offer or (B) such holder may
not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (C)
such holder is a broker-dealer and holds Old Notes acquired
directly from the Issuer or one of its affiliates, then the
Issuer and the Guarantors shall (x) cause to be filed a shelf
registration statement pursuant to Rule 415 under the Act (the
"Shelf Registration Statement") on or prior to 30 days after the
date on which the Issuer determines that it is not required to
file the Exchange Offer Registration Statement pursuant to clause
(i) above or 60 days after the date on which the Issuer receives
the notice specified in clause (ii) above and shall (y) use their
respective best efforts to cause such Shelf Registration
Statement to become effective within 135 days after the date on
which the Issuer becomes obligated to file such Shelf
Registration Statement. If, after the Issuer has filed an
Exchange Offer Registration Statement, the Issuer is required to
file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the
requirements of clause (x) above. Such an event shall have no
effect on the requirements of clause (y) above. The Issuer and
the Guarantors shall use their respective best efforts to keep
the Shelf Registration Statement continuously effective,
supplemented and amended to the extent necessary to ensure that
it is available for sales of Transfer Restricted Securities (as
defined below) by the holders thereof for a period of at least
two years following the date on which such Shelf Registration
Statement first becomes effective under the Securities Act. The
term "Transfer Restricted Securities" means each Note, until the
earliest to occur of (a) the date on which such Note is exchanged
in the Exchange Offer and entitled to be resold to the public by
the holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Note has been
disposed of in accordance with a Shelf Registration Statement,
(c) the date on which such Note is disposed of by a broker-dealer
pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the
prospectus contained therein) or (d) the date on which such Note
is distributed to the public pursuant to Rule 144 under the Act.
If (i) the Exchange Offer Registration Statement or the
Shelf Registration Statement is not filed with the Commission on
or prior to the date specified in the Registration Rights
Agreement, (ii) any such Registration Statement has not been
declared effective by the Commission on or prior to the date
specified for such effectiveness in the Registration Rights
Agreement, (iii) the Exchange Offer has not been consummated
within 180 days after the Closing Date or (iv) any Registration
Statement required by the Registration Rights Agreement is filed
and declared effective but shall thereafter cease to be effective
or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself
declared effective immediately (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the
Issuer and the Guarantors hereby jointly and severally agree to
pay liquidated damages to each holder of Transfer Restricted
Securities. With respect to the first 90-day period immediately
following the occurrence of such Registration Default the
liquidated damages shall equal $.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such holder for
each week or portion thereof that the Registration
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Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.25
per week per $1,000 principal amount of Transfer Restricted
Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness
of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of
(ii) above, (3) upon consummation of the Exchange Offer, in the
case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf
Registration Statement) to again be declared effective or made
usable in the case of (iv) above, the liquidated damages payable
with respect to the Transfer Restricted Securities a result of
such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the holder
of the global note representing the Old Notes by wire transfer of
immediately available funds or by federal funds check and to
holders of certificated securities by mailing checks to their
registered addresses on each April 15 and October 15. All
obligations of the Issuer and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any
Transfer Restricted Security at the time such security ceases to
be a Transfer Restricted Security shall survive until such time
as all such obligations with respect to such security shall have
been satisfied in full.
Upon consummation of the Exchange Offer, subject to certain
exceptions, holders of Old Notes who do not exchange their Old
Notes for New Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be able to offer or
sell their Old Notes, unless such Old Notes are subsequently
registered under the Securities Act (which, subject to certain
limited exceptions, the Issuer will have no obligation to do),
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. See "Risk Factors--Risk Factors Relating to the
Notes--Consequences of Failure to Exchange."
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean _________, 1997 (30
calendar days following the commencement of the Exchange Offer),
unless the Exchange Offer is extended, if and as required by
applicable law, in which case the term "Expiration Date" shall
mean the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Issuer will
notify the Exchange Agent of any extension by oral or written
notice and will notify the holders of the Old Notes by means of a
press release or other public announcement prior to 9:00 A.M.,
New York City time, on the next business day after the previously
scheduled Expiration Date.
The Issuer and the Guarantors reserve the right (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer
or to terminate the Exchange Offer and not permit acceptance of
Old Notes not previously accepted if any of the conditions set
forth herein under "-- Conditions" shall have occurred and shall
not have been waived by the Issuer and the Guarantors, by giving
oral or written notice of such delay, extension or termination to
the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the
holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the Exchange
Agent. If the Exchange Offer is amended in a manner determined by
the Issuer to constitute a material change, the Issuer will
promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Notes of such
amendment.
Interest on the New Notes
The New Notes will accrue interest at the applicable per
annum rate set forth on the cover page of this Prospectus, from
(i) the later of (A) the last interest payment date on which
interest was paid on the Old Notes
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<PAGE>
surrendered in exchange therefor or (B) if the Old Notes are
surrendered for exchange on a date subsequent to the record date
for an interest payment date to occur on or after the date of
such exchange and as to which interest will be paid, the date of
such interest payment or (ii) if no interest has been paid on the
Old Notes, from the date the Old Notes were issued (the "Issue
Date"). Interest on the New Notes is payable on April 15 and
October 15 of each year commencing April 15, 1998.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at DTC (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS OF
THE NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED,
BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE ISSUER. Delivery of all documents must be
made to the Exchange Agent at its address set forth below.
Holders of Notes may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect
such tender for such holders.
The tender by a holder of Old Notes will constitute an
agreement between such holder and the Issuer in accordance with
the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the
Exchange Offer. The term "holder" with respect to the Exchange
Offer means any person in whose name Old Notes are registered on
the books of the Issuer or any other person who has obtained a
properly completed bond power from the registered holder.
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact such registered
holder promptly and instruct such registered holder to tender on
his behalf. If such beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by any member
firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other
than the registered holder of any Old Notes listed therein, such
Old Notes must be endorsed or accompanied by bond powers and a
proxy which authorizes such
<PAGE>
person to tender the Old Notes on behalf of the registered
holder, in each case as the name of the registered holder or
holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond
powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility
(including time of receipt) and withdrawal of the tendered Old
Notes will be determined by the Issuer in its sole discretion,
which determination will be final and binding. The Issuer
reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted, would, in
the opinion of counsel for the Issuer, be unlawful. The Issuer
also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Old Notes. The Issuer's
interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuer shall determine. Neither the
Issuer, the Guarantors, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall
any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have
been made until such irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering holders of Old
Notes, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Issuer reserves the right in its sole
discretion, subject to the provisions of the Indenture, to (i)
purchase or make offers for any Old Notes that remain outstanding
subsequent to the Expiration Date or, as set forth under "--
Conditions", (ii) to terminate the Exchange Offer in accordance
with the terms of the Registration Rights Agreement and (iii) to
the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, all Old Notes properly tendered will be accepted,
promptly after the Expiration Date, and the New Notes will be
issued promptly after acceptance of the Old Notes. See "--
Conditions" below. For purposes of the Exchange Offer, Old Notes
shall be deemed to have been accepted as validly tendered for
exchange when, as and if the Issuer has given oral or written
notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of certificates
for such Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the holder desires
to exchange, such unaccepted or nonexchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer procedures
described below, such nonexchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of
the Exchange Offer.
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Book-Entry Transfer
The Exchange Agent will make a request to establish an
account with respect to the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution
that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures
for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof with any
required signature guarantees and any other required documents
must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender
such Old Notes, and the Old Notes are not immediately available,
or time will not permit such holder's Old Notes or other required
documents to reach the Exchange Agent before the Expiration Date,
or the procedures for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of
Transmittal and Notice of Guaranteed Delivery, substantially in
the form provided by the Issuer (by mail or hand delivery),
setting forth the name and address of the holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York
Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal of Tenders
Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent prior to 5:00
p.m., New York City time on the Expiration Date at one of the
addresses set forth below under "--Exchange Agent." Any such
notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes)
and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates,
the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to
be credited with the withdrawn Old Notes and otherwise comply
with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of
such notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any Old
Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of
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Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to
the book-entry transfer procedures described above, such Old
Notes will be credited to an account maintained with such
Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination
of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--
Procedures for Tendering" and "--Book-Entry Transfer" above at
any time on or prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Old
Notes will not be required to be accepted for exchange, nor will
New Notes be issued in exchange for any Old Notes, and the Issuer
and the Guarantors may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Old Notes, if
because of any change in law, or applicable interpretations
thereof by the Commission, the Issuer and the Guarantors
determine that they are not permitted to effect the Exchange
Offer. The Issuer and the Guarantors have no obligation to, and
will not knowingly, permit acceptance of tenders of Old Notes
from affiliates of the Issuer or the Guarantors (within the
meaning of Rule 405 under the Securities Act) or from any other
holder or holders who are not eligible to participate in the
Exchange Offer under applicable law or interpretations thereof by
the Commission, or if the New Notes to be received by such holder
or holders of Old Notes in the Exchange Offer, upon receipt, will
not be tradable by such holder without restriction under the
Securities Act and the Exchange Act and without material
restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
Exchange Agent
State Street Bank & Trust Company has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this Prospectus
or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02102
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.:
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporation Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, New York 10006
For information call:
(617) 664-5587
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange
Offer will be borne by the Issuer. The principal solicitation for
tenders pursuant to the Exchange Offer is being made by mail;
however, additional solicitations may be made by telegraph,
telephone, telecopy or in person by officers and regular
employees of the Company.
The Issuer will not make any payments to brokers, dealers or
other persons soliciting acceptances of the Exchange Offer. The
Issuer, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse the Exchange
Agent for its reasonable out-of-pocket expenses in connection
therewith. The
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Issuer may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and
related documents to the beneficial owners of the Old Notes, and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer, including fees and expenses of
the Exchange Agent and Trustee and accounting, legal, printing
and related fees and expenses.
The Issuer will pay all transfer taxes, if any, applicable
to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of,
any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of
any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by
the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
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DESCRIPTION OF THE NEW NOTES
General
The Old Notes were issued, and the New Notes offered hereby
will be issued pursuant to the Indenture which is dated as of
October 17, 1997 and is among the Issuer, the Guarantors and
State Street Bank and Trust Company, as trustee (the "Trustee").
The terms of the New Notes will include those stated in the
Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
New Notes will be subject to all such terms, and prospective
holders of New Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of
the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms
used below. Copies of the proposed form of Indenture and
Registration Rights Agreement are available as set forth below
under "--Additional Information." The definitions of certain
terms used in the following summary are set forth below under
"--Certain Definitions."
The New Notes will be general unsecured obligations of the
Issuer and will be subordinated in right of payment to all
current and future Senior Debt. The operations of the Issuer are
conducted in part through its Subsidiaries and, therefore, the
Issuer is dependent in part upon the cash flow of its
Subsidiaries to meet its obligations under the New Notes on a
senior subordinated unsecured basis. See "Risk
Factors--Fraudulent Transfer Statutes." As of the Issue Date, all
of the Issuer's subsidiaries other than any Receivables
Subsidiary will be Restricted Subsidiaries. However, under
certain circumstances, the Issuer will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture. As of November
7, 1997, the Issuer had Senior Debt of approximately $117.0
million and, through its Subsidiaries, had additional liabilities
(including trade payables and other accrued liabilities)
aggregating approximately $164.1 million. The Indenture will
permit the incurrence of additional Senior Debt in the future.
Principal, Maturity and Interest
The New Notes in an aggregate principal amount of up to
$150.0 million will be issued in the Exchange Offer. The New
Notes will mature on October 15, 2007. Interest on the New Notes
will accrue at the rate of 10- 3/8% per annum and will be payable
semi-annually in arrears on April 15 and October 15, commencing
on April 15, 1998, to holders of record on the immediately
preceding April 1 and October 1, respectively. Interest on the
New Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal,
premium, if any, and interest and Liquidated Damages on the New
Notes will be payable at the office or agency of the Issuer
maintained for such purpose within the City and State of New York
or, at the option of the Issuer, payment of principal, premium,
interest and Liquidated Damages may be made by check mailed to
the holders of the New Notes at their respective addresses set
forth in the register of holders of New Notes; provided that all
payments of principal, premium, interest and Liquidated Damages
with respect to New Notes represented by one or more permanent
global notes ("Global Notes") will be required to be made by wire
transfer of immediately available funds to the accounts of DTC or
any successor thereto. Until otherwise designated by the Issuer,
the Issuer's office or agency in New York will be the office of
the Trustee maintained for such purpose. The New Notes will be
issued in denominations of $1,000 and integral multiples thereof.
Guarantees
The Issuer's payment obligations under the New Notes are
jointly and severally guaranteed (the "Subsidiary Guarantees") by
the Guarantors. The Subsidiary Guarantee of each Guarantor will
be subordinated to the prior payment in full of all Senior Debt
of such Guarantor, which would include approximately $117.0
million of Senior Debt outstanding as of November 7, 1997, and
the amounts for which the Guarantors will be liable under
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the guarantees issued from time to time with respect to Senior
Debt. The obligations of each Guarantor under its Subsidiary
Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Transfer Statutes."
The Indenture provides that no Guarantor may consolidate
with or merge with or into (whether or not such Guarantor is the
surviving Person), another corporation, Person or entity whether
or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or
surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor,
pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Indenture and
the Subsidiary Guarantees; and (ii) immediately after giving
effect to such transaction, no Default or Event of Default (as
defined herein) exists.
The Indenture provides that in the event of a sale or other
disposition of all of the assets of any Guarantor, by way of
merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary
Guarantee. See "--Repurchase at the Option of Holders--Asset
Sales." In addition, the Indenture provides that, in the event
the Company (i) designates a Restricted Subsidiary to be an
Unrestricted Subsidiary in accordance with the Indenture or (ii)
designates a Subsidiary as a Receivables Subsidiary in accordance
with the Indenture, then such Restricted Subsidiary or
Receivables Subsidiary, as the case may be, shall be released
from its obligations under its Subsidiary Guarantee.
Subordination
The payment of Obligations in respect of the New Notes is
subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full of all Obligations in respect of
Senior Debt, whether outstanding on the date of the Indenture or
thereafter incurred.
Upon any payment or distribution to creditors of the Issuer
of any kind, whether in cash, property or securities in a
liquidation or dissolution of the Issuer or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding
relating to the Issuer or its property, an assignment for the
benefit of creditors or any marshaling of the Issuer's assets and
liabilities, whether voluntary or involuntary, the holders of
Senior Debt of the Issuer will be entitled to receive payment in
full in cash of all Obligations due in respect of such Senior
Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt)
before the holders of New Notes will be entitled to receive any
payment or distribution of any kind with respect to the New
Notes, and until all Obligations with respect to Senior Debt are
paid in full, any payment or distribution to which the holders of
New Notes would be entitled shall be made to the holders of
Senior Debt (except that holders of New Notes may receive and
retain Permitted Junior Securities and payments made from the
trust described under "--Legal Defeasance and Covenant
Defeasance").
The Issuer also may not make any payment upon or in respect
of the New Notes (except in Permitted Junior Securities or from
the trust described under "--Legal Defeasance and Covenant
Defeasance") if (i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Debt occurs and
is continuing or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits holders of
the Designated Senior Debt as to which such default relates to
accelerate its maturity, in the case of this clause (ii) only,
and the Trustee receives a notice of such default invoking the
provisions described in this paragraph (a "Payment Blockage
Notice") from the holders of any Designated Senior Debt or any
agent or trustee therefor. Payments on the New Notes may and
shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived and (b) in case of
a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date
on which the applicable Payment Blockage Notice is received,
unless a payment default has occurred and is continuing (as a
result of the maturity of any Designated Senior Debt having
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been accelerated). No new period of payment blockage (other than
for a payment default) may be commenced unless and until (i)
360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the New Notes that
have come due have been paid in full in cash. No nonpayment
default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such
default shall have been cured or waived for a period of not less
than 90 days.
Whenever the Issuer is prohibited from making any payment
in respect of the New Notes, the Issuer also shall be prohibited
from making, directly or indirectly, any payment of any kind on
account of the purchase or other acquisition of the New Notes. If
any holder receives any payment or distribution that such holder
is not entitled to receive with respect to the New Notes, such
holder shall be required to pay the same over to the holders of
Senior Debt.
The Indenture further requires that the Issuer promptly
notify holders of Senior Debt if payment of the New Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described
above, in the event of a liquidation or insolvency, holders of
New Notes may recover less ratably than creditors of the Issuer
who are holders of Senior Debt. As of November 7, 1997, the
Issuer $117.0 million in aggregate principal amount of Senior
Debt.
Optional Redemption
Except as described below, the New Notes are not redeemable
at the Issuer's option prior to October 15, 2002. Thereafter, the
New Notes will be subject to redemption at any time at the option
of the Issuer, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages thereon to the applicable
redemption date, if redeemed during the twelve-month period
beginning on October 15 of the years indicated below:
Year Percentage
2002............. 105.188%
2003............. 103.458%
2004............. 101.729%
2005 and thereafter 100.000%
Notwithstanding the foregoing, at any time on or prior to
October 15, 2000, the Issuer may (but shall not have the
obligation to) redeem, on one or more occasions, up to an
aggregate of 35% of the principal amount of New Notes originally
issued at a redemption price equal to 110.375% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net
cash proceeds of one or more Equity Offerings; provided that at
least 65% in aggregate principal amount of the New Notes
originally issued remain outstanding immediately after the
occurrence of such redemption; and provided further, that such
redemption shall occur within 90 days of the date of the closing
of such Equity Offering.
Mandatory Redemption
Except as set forth under "--Repurchase at the Option of
Holders," the Issuer is not required to make mandatory redemption
or sinking fund payments with respect to the New Notes.
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Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of
New Notes will have the right to require the Issuer to repurchase
all or any part (equal to $1,000 or an integral multiple thereof)
of such holder's New Notes pursuant to the offer described below
(the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within 30
days following any Change of Control, the Issuer will mail a
notice to each holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase
New Notes on the date specified in such notice, which date shall
be no earlier than 30 days (or such shorter time period as may be
permitted under applicable law, rules and regulations) and no
later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The
Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the New Notes as a result of
a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of
the Indenture relating to such Change of Control Offer, the
Issuer will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to
the extent lawful, (1) accept for payment all New Notes or
portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the office or agency where the
New Notes may be presented for payment (the "Paying Agent") an
amount equal to the Change of Control Payment in respect of all
New Notes or portions thereof so tendered and (3) deliver or
cause to be delivered to the Trustee the New Notes so accepted
together with an officers' certificate stating the aggregate
principal amount of New Notes or portions thereof being purchased
by the Issuer. The Paying Agent will promptly mail to each holder
of New Notes so tendered the Change of Control Payment for such
New Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each holder a new
New Note equal in principal amount to any unpurchased portion of
the New Notes surrendered, if any; provided that each such new
New Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Indenture provides that, prior to complying
with the provisions of this covenant, but in any event within 90
days following a Change of Control, the Issuer will either repay
all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to
permit the repurchase of New Notes required by this covenant. The
Issuer will not be required to purchase any New Notes until it
has complied with the preceding sentence, but failure to comply
with the preceding sentence shall constitute an Event of Default.
The Issuer will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be
applicable whether or not any other provisions of the Indenture
are applicable. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions that
permit the holders of the New Notes to require that the Issuer
repurchase or redeem the New Notes in the event of a takeover,
recapitalization or similar transaction.
The New Credit Facility will prohibit the Issuer from
purchasing any New Notes and provides that certain change of
control events with respect to the Issuer would constitute a
default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Issuer becomes a
party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Issuer is
prohibited from purchasing New Notes, the Issuer could seek the
consent of its lenders to the purchase of New Notes or could
attempt to refinance the borrowings that contain such
prohibition. If the Issuer does not obtain such a consent or
repay such borrowings, the Issuer will remain prohibited from
purchasing New Notes. In such case, the Issuer's failure to
purchase tendered New Notes would constitute an Event of Default
under the Indenture which would, in turn, constitute a default
under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict
payments to the holders of New Notes. In addition, the exercise
by the holders of New Notes of their right to require the Issuer
to repurchase the New Notes could cause a default under such Senior
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Debt, even if the Change of Control itself does not, due to the
financial effect of such repurchases on the Issuer. Finally the
Issuer's ability to pay cash to the holders of New Notes upon a
repurchase may be limited by the Issuer's then existing financial
resources.
The Issuer will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Issuer and
purchases all New Notes validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other
disposition of "all or substantially all" of the assets of the
Issuer and its Subsidiaries taken as a whole. Although there is a
developing body of case law interpreting the phrase
"substantially all," there is no precise established definition
of the phrase under applicable law. Accordingly, the ability of a
holder of New Notes to require the Issuer to repurchase such New
Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of the Issuer and its
Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, consummate an
Asset Sale unless (i) the Issuer (or the Restricted Subsidiary,
as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by
a resolution of the Board of Directors set forth in an officers'
certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Issuer or
such Restricted Subsidiary is in the form of (A) cash or Cash
Equivalents or (B) Qualified Proceeds; provided that the
aggregate fair market value of Qualified Proceeds (other than
cash or Cash Equivalents), which may be received in consideration
for asset sales pursuant to this clause (ii) (B) shall not exceed
$7.5 million since the Issue Date; provided further that the
amount of (x) any liabilities (as shown on the Issuer's or such
Restricted Subsidiary's most recent balance sheet), of the Issuer
or any Restricted Subsidiary (other than contingent liabilities
and liabilities that are by their terms subordinated to the New
Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation
agreement that releases the Issuer or such Restricted Subsidiary
from further liability and (y) any securities, notes or other
obligations received by the Issuer or any such Restricted
Subsidiary from such transferee that are converted by the Issuer
or such Restricted Subsidiary into cash (to extent of the cash
received) within 180 days following the closing of such Asset
Sale, shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from
an Asset Sale, the Issuer or its Restricted Subsidiaries may
apply such Net Proceeds, at its option, (a) to repay Senior Debt
or Guarantor Senior Debt, or (b) to the investment in, or the
making of a capital expenditure or the acquisition of other
property or assets in each case used or useable in a Permitted
Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if, as a result of the acquisition by the
Issuer or any Restricted Subsidiary thereof, such Person becomes
a Restricted Subsidiary, or (c) a combination of the uses
described in clauses (a) and (b). Pending the final application
of any such Net Proceeds, the Issuer or its Restricted
Subsidiaries may temporarily reduce Senior Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by
the Indenture. Any Net Proceeds from Asset Sales, other than 20%
of the net proceeds from any sale of all or substantially all of
the Capital Stock or assets of the Issuer's Popular Club Plan
business or Clifford & Wills business (as each such business is
constituted on the Issue Date) which are utilized to repay,
redeem, repurchase or otherwise retire outstanding Holdings
Senior Discount Debentures, that are not applied or invested as
provided in the first sentence of this paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Issuer will be
required to make an offer to all holders of New Notes and, to the
extent required by the terms of any Pari Passu Indebtedness to
all holders of such Pari Passu Indebtedness (an "Asset Sale
Offer") to purchase the maximum principal amount of New Notes and
any such Pari Passu Indebtedness that may be purchased out of the
Excess
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Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture or such
Pari Passu Indebtedness, as applicable. To the extent that the
aggregate principal amount of New Notes and any such Pari Passu
Indebtedness tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Issuer or its Restricted
Subsidiaries may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of New
Notes and any such Pari Passu Indebtedness surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the New Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Selection and Notice
If less than all of the New Notes are to be redeemed or
repurchased in an offer to purchase at any time, selection of New
Notes for redemption or repurchase will be made by the Trustee in
compliance with the requirements of the principal national
securities exchange, if any, on which the New Notes are listed,
or, if the New Notes are not so listed, on a pro rata basis, by
lot or by such other method as the Trustee deems fair and
appropriate; provided that New Notes to be redeemed with the
proceeds of an Equity Offering shall be selected on a pro rata
basis; provided further that no New Notes of $1,000 or less shall
be redeemed or repurchased in part. Notices of redemption may not
be conditional. Notices of redemption or repurchase shall be
mailed by first class mail at least 30 but not more than 60 days
before the redemption date or repurchase date to each holder of
New Notes to be redeemed or repurchased at its registered
address. If any New Note is to be redeemed or repurchased in part
only, the notice of redemption or repurchase that relates to such
New Note shall state the portion of the principal amount thereof
to be redeemed or repurchased. A new New Note in principal amount
equal to the unredeemed or unrepurchased portion thereof will be
issued in the name of the holder thereof upon cancellation of the
original New Note. On and after the redemption or repurchase
date, interest and Liquidated Damages will cease to accrue on New
Notes or portions of them called for redemption or repurchase.
Certain Covenants
Restricted Payments
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Issuer's or any of its
Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made
as a payment in connection with any merger or consolidation
involving the Issuer), other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of
the Issuer or dividends or distributions payable to the Issuer or
any Wholly Owned Subsidiary of the Issuer; (ii) purchase, redeem
or otherwise acquire or retire for value (including, without
limitation, any such purchase, redemption, or other acquisition
or retirement for value made as a payment in connection with any
merger or consolidation involving the Issuer) any Equity
Interests of the Issuer or any Restricted Subsidiary (other than
any such Equity Interests owned by the Issuer or any Restricted
Subsidiary of the Issuer); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the
Notes, except a payment of interest or a payment of principal at
Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"),
unless, at the time of and immediately after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing; and
(b) the Issuer would, at the time of such Restricted
Payment and after giving pro forma effect thereto, have
been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed
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Charge Coverage Ratio test set forth in the first paragraph
of the covenant described below under caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Issuer
and its Restricted Subsidiaries after the date of the
Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (vi), (vii), (viii), (x) and
(xi) of the next succeeding paragraph), is less than the
sum (without duplication) of (i) 50% of the Consolidated
Net Income of the Issuer for the period (taken as one
accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the
end of the Issuer's most recently ended fiscal quarter for
which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate Qualified
Proceeds received by the Issuer from contributions to the
Issuer's capital or the issue or sale subsequent to the
date of the Indenture of Equity Interests of the Issuer
(other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Issuer that have been converted into
such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to
a Subsidiary of the Issuer and other than Disqualified
Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the
extent that any Restricted Investment that was made after
the date of the Indenture is sold for Qualified Proceeds or
otherwise liquidated or repaid (including, without
limitation, by way of a dividend or other distribution, a
repayment of a loan or advance or other transfer of assets)
for in whole or in part, the lesser of (A) the Qualified
Proceeds with respect to such Restricted Investment, (less
the cost of disposition, if any) and (B) the initial amount
of such Restricted Investment, plus (iv) upon the
redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the lesser of (x) the fair market value of such
Subsidiary or (y) the aggregate amount of all Investments
made in such Subsidiary subsequent to the Issue Date by the
Issuer and its Restricted Subsidiaries, plus (v) $15.0
million.
The foregoing provisions will not prohibit (i) the payment
of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests
of the Issuer or any Guarantor in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to
a Restricted Subsidiary of the Issuer) of, other Equity Interests
of the Issuer (other than any Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption,
repurchase, retirement or other acquisition of subordinated
Indebtedness in exchange for, or with the net cash proceeds from,
an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend (or the making of a similar distribution
or redemption) by a Restricted Subsidiary of the Issuer to the
holders of its common Equity Interests on a pro rata basis; (v)
so long as no Default or Event of Default shall have occurred and
is continuing, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Issuer,
Holdings or any Restricted Subsidiary of the Issuer, held by any
member of the Issuer's (or any of its Subsidiaries') management,
employees or consultants pursuant to any management, employee or
consultant equity subscription agreement or stock option
agreement in effect as of the date of the Indenture; provided
that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed the sum of
(A) $10.0 million and (B) the aggregate cash proceeds received by
the Issuer from any reissuance of Equity Interests by Holdings or
the Issuer to members of management of the Issuer and its
Restricted Subsidiaries (provided that the cash proceeds referred
to in this clause (B) shall be excluded from clause (c)(ii) of
the preceding paragraph); (vi) payments required to be made under
the Tax Sharing Agreement; (vii) distributions made by the Issuer
on the date of the Indenture, the proceeds of which are utilized
solely to consummate the Recapitalization; (viii) the payment of
dividends or the making of loans or advances by the Issuer to
Holdings not to exceed $1.5 million in any fiscal year for costs
and expenses incurred by Holdings in its capacity as a holding
Issuer or for services rendered by Holdings on behalf of the
Issuer; (ix) so long as no Default or Event of Default has
occurred and is continuing, the declaration and payment of
dividends to holders of any class or series of Disqualified Stock
of the Issuer or any Guarantor issued after the date of the
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Indenture in accordance with the covenant described below under
the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (x) so long as (A) no Default or Event of
Default has occurred and is continuing and (B) immediately before
and immediately after giving effect thereto, the Issuer would
have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph described under the caption
"--Incurrence of Indebtedness and Preferred Stock", from and
after October 15, 2002, payments of cash dividends to Holdings in
an amount sufficient to enable Holdings to make payments of
interest required to be made in respect of the Holdings Senior
Discount Debentures in accordance with the terms thereof in
effect on the date of the Indenture, provided such interest
payments are made with the proceeds of such dividends; and (xi)
the payment of dividends by the Issuer to Holdings of not more
than 20% of the net proceeds from any sale of all or
substantially all of the Capital Stock or assets of the Issuer's
Popular Club Plan business or Clifford & Wills business (as each
such business is constituted on the Issue Date) provided that
such dividends shall only be permitted to the extent that
Holdings immediately utilizes the proceeds thereof to repay,
redeem, repurchase or otherwise retire outstanding Holdings
Senior Discount Debentures.
The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default or an Event of Default. For purposes of
making such determination, all outstanding Investments by the
Issuer and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will
reduce the amount available for Restricted Payments under the
first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such
Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of (i) all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred
or issued by the Issuer or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market
value on the date of receipt thereof by the Issuer of such
Qualified Proceeds. The fair market value of any non-cash
Restricted Payment and Qualified Proceeds shall be determined by
the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based
upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of national standing if such fair
market value exceeds $10.0 million. Not later than the date of
making any Restricted Payment, the Issuer shall deliver to the
Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "--Restricted Payments"
were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) and that the Issuer will not issue any
Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided,
however, that the Issuer or any of its Restricted Subsidiaries
may incur Indebtedness (including Acquired Debt) or issue shares
of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Issuer's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or
such Disqualified Stock is issued would have been at least 2.0 to
1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant do
not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Debt"):
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(i) the incurrence by the Issuer (and the guarantee
thereof by the Guarantors) of Indebtedness under
Credit Facilities; provided that the aggregate
principal amount of all Indebtedness (with letters
of credit being deemed to have a principal amount
equal to the maximum potential liability of the
Issuer and the Guarantors thereunder) outstanding
under all Credit Facilities after giving effect to
such incurrence, including all Indebtedness
incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (i),
does not exceed an amount equal to $270.0 million
less the aggregate principal of all principal
payments thereunder constituting permanent
reductions of such Indebtedness pursuant to and in
accordance with the covenant described under
"--Repurchase at the Option of Holders--Asset
Sales;"
(ii) the incurrence by the Issuer and the Guarantors of
Indebtedness represented by the Notes and the Subsidiary
Guarantees;
(iii) the incurrence by the Issuer or any of its
Restricted Subsidiaries of Indebtedness represented
by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case
incurred for the purpose of financing all or any
part of the purchase price or cost of construction
or improvements of property used in the business of
the Issuer or such Restricted Subsidiary, in an
aggregate principal amount not to exceed $25.0
million at any time outstanding;
(iv) other Indebtedness of the Issuer and its Restricted
Subsidiaries outstanding on the Issue Date;
(v) the incurrence by the Issuer or any of its
Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness)
that was permitted by the Indenture to exist or be
incurred;
(vi) the incurrence of intercompany Indebtedness (A)
between or among the Issuer and any Wholly Owned
Restricted Subsidiaries of the Issuer or (B) by a
Restricted Subsidiary that is not a Wholly Owned
Restricted Subsidiary of the Issuer or a Wholly
Owned Subsidiary; provided, however, that (i) if
the Issuer is the obligor on such Indebtedness,
such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations
with respect to the New Notes and (ii)(A) any
subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness
being held by a Person other than the Issuer or a
Wholly Owned Restricted Subsidiary of the Issuer
and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the
Issuer or a Wholly Owned Restricted Subsidiary of
the Issuer shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by
the Issuer or such Subsidiary, as the case may be;
(vii) the incurrence by the Issuer or any of the
Guarantors of Hedging Obligations that are incurred
for the purpose of fixing or hedging (i) interest
rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this
Indenture to be outstanding or (ii) the value of
foreign currencies purchased or received by the
Issuer in the ordinary course of business;
(viii) Indebtedness incurred in respect of workers'
compensation claims, self-insurance obligations,
performance, surety and similar bonds and
completion guarantees provided by the Issuer or a
Guarantor in the ordinary course of business;
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(ix) Indebtedness arising from guarantees of
Indebtedness of the Issuer or any Subsidiary or the
agreements of the Issuer or a Restricted Subsidiary
providing for indemnification, adjustment of
purchase price or similar obligations, in each
case, incurred or assumed in connection with the
disposition of any business, assets or Capital
Stock of Restricted Subsidiary, or other guarantees
of Indebtedness incurred by any person acquiring
all or any portion of such business, assets or
Capital Stock of a Restricted Subsidiary for the
purpose of financing such acquisition, provided
that the maximum aggregate liability in respect of
all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Issuer and
its Restricted Subsidiaries in connection with such
disposition;
(x) Indebtedness of a Receivables Subsidiary that is
not recourse to the Issuer or any other Restricted
Subsidiary of the Issuer (other than Standard
Securitization Undertakings) incurred in connection
with a Qualified Receivables Transaction;
(xi) the guarantee by the Issuer or any of the
Guarantors of Indebtedness of the Issuer or a
Guarantor that was permitted to be incurred by
another provision of this covenant;
(xii) the incurrence by the Issuer or any of its
Restricted Subsidiaries of Acquired Debt in an
aggregate principal amount at any time outstanding
not to exceed $20.0 million;
(xiii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or
similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of
business provided, however, that such Indebtedness
is extinguished within five business days of
incurrence; and
(xiv) the incurrence by the Issuer or any Restricted
Subsidiary of additional Indebtedness in an
aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all
Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this
clause (xiv), not to exceed $10.0 million.
For purposes of determining compliance with this covenant,
in the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Debt described in
clauses (i) through (xiv) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Issuer
shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness
will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Liens
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign
or convey any right to receive income therefrom for purposes of
security, except Permitted Liens, unless (i) in the case of Liens
securing Indebtedness that is expressly subordinate or junior in
right of payment to the New Notes, the New Notes are secured by a
Lien on such property, assets or proceeds that is senior in
priority to such Liens, (with the same relative priority as such
subordinate or junior Indebtedness shall have with respect to the
Notes and Subsidiary Guarantees) and (ii) in all other cases, the
New Notes are secured by such Lien on an equal and ratable basis.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction
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on the ability of any Restricted Subsidiary to (i)(A) pay
dividends or make any other distributions to the Issuer or any of
its Restricted Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured
by, its profits, or (B) pay any Indebtedness owed to the Issuer
or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Issuer or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Issuer or
any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (A) the New Credit
Facility as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in
the New Credit Facility as in effect on the date of the
Indenture, (B) the Indenture and the New Notes, (C) applicable
law or any applicable rule, regulation or order, (D) any
agreement or instrument governing Indebtedness or Capital Stock
of a Person acquired by the Issuer or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except
to the extent such agreement or instrument was created or entered
into in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, (E) by
reason of customary non-assignment provisions in leases,
licenses, encumbrances, contracts or similar assets entered into
or acquired in the ordinary course of business and consistent
with past practices, (F) purchase money obligations for property
acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the
property so acquired, (G) any Purchase Money Note, or other
Indebtedness or contractual requirements incurred with respect to
a Qualified Receivables Transaction relating to a Receivables
Subsidiary, (H) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness
being refinanced and (I) contracts for the sale of assets
containing customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for the sale
or disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Issuer may not consolidate
or merge with or into (whether or not the Issuer is the surviving
corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another Person
unless (i) the Issuer is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other
than the Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a
corporation or limited liability company organized or existing
under the laws of the United States, any state thereof or the
District of Columbia; (ii) the Person formed by or surviving any
such consolidation or merger (if other than the Issuer) or the
Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all
the obligations of the Issuer under the New Notes and the
Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after
such transaction no Default or Event of Default exists; and (iv)
except in the case of a merger of the Issuer with or into a
Wholly Owned Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary), the Issuer or the entity or Person
formed by or surviving any such consolidation or merger (if other
than the Issuer), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made at
the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock." For purposes of
this covenant, the sale, lease, conveyance, assignment, transfer,
or other disposition of all or substantially all of the
properties and assets of one or more Subsidiaries of the Issuer,
which properties and assets, if held by the Issuer instead of
such Subsidiaries, would constitute all or substantially all of
the properties and assets of the Issuer on a consolidated basis,
shall be deemed to be the transfer of all or substantially all of
the properties and assets of the Issuer. The foregoing clause
(iv) will not prohibit (A) a merger between the Issuer and a
Wholly Owned Subsidiary of Holdings created for the purpose of
holding the Capital Stock of the Issuer, (B) a merger between the
Issuer and a Wholly Owned Restricted Subsidiary of the Issuer or (C)
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a merger between the Issuer and an Affiliate incorporated solely
for the purpose of reincorporating the Issuer in another State of
the United States so long as, in the case of each of clause (A),
(B) and (C), the amount of Indebtedness of the Issuer and its
Restricted Subsidiaries is not increased thereby.
Transactions with Affiliates
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, make any
payment to or Investment in, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate
(each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable
to the Issuer or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person and
(ii) the Issuer delivers to the Trustee (A) with respect to any
Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an officers'
certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the
Board of Directors and (B) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as
to the fairness to the holders of such Affiliate Transaction from
a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v)
transactions with suppliers or other purchasers or sales of goods
or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture
agreements) and otherwise in accordance with the terms of the
Indenture which are fair to the Issuer, in the good faith
determination of the Board of Directors of the Issuer or the
senior management of the Issuer and are on terms at least as
favorable as might reasonably have been obtained at such time
from an unaffiliated party, (w) any employment agreements, stock
option or other compensation agreements or plans (and the payment
of amounts or the issuance of securities thereunder) and other
reasonable fees, compensation, benefits and indemnities paid or
entered into by the Issuer or any of its Restricted Subsidiaries
in the ordinary course of business of the Issuer or such
Restricted Subsidiary to or with the officers, directors or
employees of the Issuer or its Restricted Subsidiaries, (x)
transactions between or among the Issuer and/or its Restricted
Subsidiaries, (y) sales or other transfers or dispositions of
accounts receivable and other related assets customarily
transferred in an asset securitization transaction involving
accounts receivable to a Receivables Subsidiary in a Qualified
Receivables Transaction, and acquisitions of Permitted
Investments in connection with a Qualified Receivables
Transaction and (z) Restricted Payments (other than Restricted
Investments) that are permitted by the provisions of the
Indenture described above under the caption "--Restricted
Payments," in each case, shall not be deemed Affiliate
Transactions.
Senior Subordinated Debt
The Indenture provides that (i) the Issuer will not incur,
create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of
payment to the New Notes, and (ii) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of
payment to Senior Debt of such Guarantor and senior in any
respect in right of payment to such Guarantor's Subsidiary
Guarantees.
Business Activities
The Issuer will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted
Businesses.
Subsidiary Guarantees
The Indenture provides that the Issuer will not permit any
Restricted Subsidiary to guarantee the payment of any
Indebtedness of the Issuer or any Indebtedness of any other
Restricted Subsidiary (in each case, the "Guaranteed Debt"),
unless (i) if such Restricted Subsidiary is not a Guarantor, such
Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Subsidiary
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Guarantee of payment of the New Notes by such Restricted
Subsidiary, (ii) if the New Notes or the Subsidiary Guarantee (if
any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under
the supplemental indenture shall be subordinated to such
Restricted Subsidiary's guarantee with respect to the Guaranteed
Debt substantially to the same extent as the New Notes or the
Subsidiary Guarantee are subordinated to the Guaranteed Debt
under the Indenture, (iii) if the Guaranteed Debt is by its
express terms subordinated in right of payment to the New Notes
or the Subsidiary Guarantee (if any) of such Restricted
Subsidiary, any such guarantee of such Restricted Subsidiary with
respect to the Guaranteed Debt shall be subordinated in right of
payment to such Restricted Subsidiary's Subsidiary Guarantee with
respect to the Notes substantially to the same extent as the
Guaranteed Debt is subordinated to the New Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, (iv)
such Restricted Subsidiary subordinates rights of reimbursement,
indemnity or subrogation or any other rights against the Issuer
or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee to its
obligation under its Subsidiary Guarantee, and (v) such
Restricted Subsidiary shall deliver to the Trustee an opinion of
counsel to the effect that (A) such Subsidiary Guarantee of the
New Notes has been duly authorized, executed and delivered, and
(B) such Subsidiary Guarantee of the New Notes constitutes a
valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited
by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except
insofar as enforcement thereof is subject to general principles
of equity.
Reports
The Indenture provides that, whether or not required by the
rules and regulations of the Commission, so long as any New Notes
are outstanding, the Issuer will furnish to the holders of New
Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission
on Forms 10-Q and 10-K if the Issuer were required to file such
Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Issuer and
its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Issuer's certified
independent accountants and (ii) all current reports that would
be required to be filed with the Commission on Form 8-K if the
Issuer were required to file such reports, in each case within
the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules
and regulations of the Commission, at any time after the
consummation of the Exchange Offer contemplated by the
Registration Rights Agreement, the Issuer will file a copy of all
such information and reports with the Commission for public
availability within the time periods set forth in the
Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In
addition, at all times that the Commission does not accept the
filings provided for in the preceding sentence, the Issuer and
the Guarantors have agreed that, for so long as any New Notes
remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following
constitutes an Event of Default (each, an "Event of Default"):
(i) default for 30 days in the payment when due of interest on,
or Liquidated Damages with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture);
(ii) default in payment when due of the principal of or premium,
if any, on the New Notes (whether or not prohibited by the
subordination provisions of the Indenture); (iii) failure by the
Issuer or any of its Restricted Subsidiaries for 30 days after
notice by the Trustee or by the holders of at least 25% in
principal amount of New Notes then outstanding to comply with the
provisions described under the captions "--Repurchase at the
Option of holders--Change of Control" or "--Asset Sales," and
"--Certain Covenants--Restricted Payments" or "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" (iv) failure by
the Issuer or any of its Restricted Subsidiaries for 60 days
after notice by the Trustee or by the holders of at least 25% in
principal amount of New Notes then outstanding to comply with any
of its other agreements in the Indenture or the New Notes; (v)
default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money
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borrowed by the Issuer or any of its Restricted Subsidiaries (or
the payment of which is guaranteed by the Issuer or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of such
Indebtedness after giving effect to any grace period provided in
such Indebtedness (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its stated maturity
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $20 million or more;
(vi) failure by the Issuer or any of its Restricted Subsidiaries
to pay final judgments aggregating in excess of $20 million (net
of any amounts with respect to which a reputable and creditworthy
insurance company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations
under its Subsidiary Guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Issuer or any of its
Significant Subsidiaries.
If any Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in principal amount of the
then outstanding New Notes may declare all the New Notes to be
due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuer, all
outstanding New Notes will become due and payable without further
action or notice. holders of the New Notes may not enforce the
Indenture or the New Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in
principal amount of the then outstanding New Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the New Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. In the
event of a declaration of acceleration of the New Notes because
an Event of Default has occurred and is continuing as a result of
the acceleration of any Indebtedness described in clause (v) of
the preceding paragraph, the declaration of acceleration of the
New Notes shall be automatically annulled if the holders of any
Indebtedness described in clause (v) of the preceding paragraph
have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and
if (a) the annulment of the acceleration of New Notes would not
conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except
nonpayment of principal or interest on the New Notes that became
due solely because of the acceleration of the New Notes, have
been cured or waived.
The holders of a majority in aggregate principal amount of
the New Notes then outstanding by notice to the Trustee may on
behalf of the holders of all of the New Notes waive any existing
Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the New Notes.
The Issuer is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Issuer
is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
No Personal Liability of Directors, Officers, Employees
and Stockholders
No director, officer, employee, incorporator or stockholder
of the Issuer, as such, shall have any liability for any
obligations of the Issuer under the New Notes, the Indenture or
the Subsidiary Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each
holder of New Notes by accepting a New Note waives and releases
all such liability. The waiver and release are part of the
consideration for issuance of the New Notes. Such waiver may not
be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is
against public policy.
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Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to
have all of its obligations and the obligations of the Guarantors
discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding
New Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such New
Notes when such payments are due from the trust referred to
below, (ii) the Issuer's obligations with respect to the New
Notes concerning issuing temporary New Notes, registration of New
Notes, mutilated, destroyed, lost or stolen New Notes and the
maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Issuer's
obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Issuer may, at its
option and at any time, elect to have the obligations of the
Issuer released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter
any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the New Notes. In
the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with
respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance, (i) the Issuer must irrevocably deposit with the
Trustee, in trust, for the benefit of the holders of the New
Notes, cash in U.S. dollars, non-callable government securities,
or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and
interest and Liquidated Damages on the outstanding New Notes on
the stated maturity or on the applicable redemption date, as the
case may be, and the Issuer must specify whether the New Notes
are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A)
the Issuer has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, subject to
customary assumptions and exclusions, the holders of the
outstanding New Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Issuer shall have delivered to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the holders of the outstanding New
Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from
the financing of amounts to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day
after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument
(other than the Indenture) to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound; (vi) the Issuer must have delivered to the
Trustee an opinion of counsel to the effect that, subject to
customary assumptions and exclusions (which assumptions and
exclusion shall not relate to the operation of Section 547 of the
United States Bankruptcy Code or any analogous New York State law
provision), after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Issuer must deliver to the
Trustee an Officers' Certificate stating that the deposit was not
made by the Issuer with the intent of preferring the holders of
New Notes over the other creditors of the Issuer with the intent
of defeating, hindering, delaying or defrauding creditors of the
Issuer or others; and (viii) the Issuer must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been
complied with.
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Transfer and Exchange
A holder may transfer or exchange New Notes in accordance
with the Indenture. The Registrar and the Trustee may require a
holder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuer may require a holder to pay
any taxes and fees required by law or permitted by the Indenture.
The Issuer is not required to transfer or exchange any New Note
selected for redemption. Also, the Issuer is not required to
transfer or exchange any New Note for a period of 15 days before
a selection of New Notes to be redeemed.
The registered holder of a New Note will be treated as the
owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs,
the Indenture, the Subsidiary Guarantees or the New Notes may be
amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer
for, Notes), and any existing default or compliance with any
provision of the Indenture, the Subsidiary Guarantees or the New
Notes may be waived with the consent of the holders of a majority
in principal amount of the then outstanding Notes (including
consents obtained in connection with a purchase of, or tender
offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment
or waiver may not (with respect to any New Notes held by a
non-consenting holder): (i) reduce the principal amount of New
Notes whose holders must consent to an amendment, supplement or
waiver, (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the
redemption of the New Notes (other than provisions relating to
the covenants described above under the caption "--Repurchase at
the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any New Note, (iv) waive a
Default or Event of Default in the payment of principal of or
premium, if any, or interest on the New Notes (except a
rescission of acceleration of the New Notes by the holders of at
least a majority in aggregate principal amount of the New Notes
and a waiver of the payment default that resulted from such
acceleration), (v) make any New Note payable in money other than
that stated in the New Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes,
(vii) waive a redemption payment with respect to any New Note
(other than a payment required by one of the covenants described
above under the caption "--Repurchase at the Option of Holders"),
(viii) except as otherwise permitted by the Indenture release any
Guarantor from any of its obligations under its Subsidiary
Guarantee or the Indenture, or amend the provisions of the
Indenture relating to the release of Guarantors, or (ix) make any
change in the foregoing amendment and waiver provisions. In
addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) or the related
definitions will require the consent of the holders of at least
75% in aggregate principal amount of the Notes then outstanding
if such amendment would adversely affect the rights of holders of
New Notes.
Notwithstanding the foregoing, without the consent of any
holder of New Notes, the Issuer and the Trustee may amend or
supplement the Indenture, the Subsidiary Guarantees or the New
Notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated New Notes in addition to or in place of
certificated New Notes, to provide for the assumption of the
Issuer's or a Guarantor's obligations to holders of New Notes in
the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the holders of
New Notes or that does not adversely affect the legal rights
under the Indenture of any such holder, to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or
to allow any Guarantor to guarantee the New Notes.
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Concerning the Trustee
The Indenture contains certain limitations on the rights of
the Trustee, should it become a creditor of the Issuer, to obtain
payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
The holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The
Indenture provides that in case an Event of Default shall occur
(which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man
in the conduct of his own affairs. Subject to such provisions,
the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any holder
of New Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Book-Entry, Delivery and Form
The Old Notes were offered and sold to qualified
institutional buyers in reliance on Rule 144A. New Notes will be
issued in registered, global form in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof. The
Global Notes will be deposited upon issuance with the Trustee as
custodian for DTC, in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account
of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be
transferred, in whole and not in part, only to another nominee of
DTC or to a successor of DTC or its nominee. Beneficial interests
in the Global Notes may not be exchanged for New Notes in
certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated
Notes." In addition, transfer of beneficial interests in the
Global Notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear and CEDEL), which
may change from time to time.
Initially, the Trustee will act as Paying Agent and
Registrar. The New Notes may be presented for registration of
transfer and exchange at the offices of the Registrar.
Depository Procedures
DTC has advised the Issuer that DTC is a limited-purpose
trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those
securities between Participants through electronic book-entry
changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf
of DTC only through the Participants or the Indirect
Participants. The ownership interests and transfer of ownership
interests of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Issuer that, pursuant to
procedures established by it, (i) upon deposit of the Global
Notes, DTC will credit the accounts of Participants tendering Old
Notes with portions of the principal amount of the Global Notes
and (ii) ownership of such interests in the Global Notes will be
shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the
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Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interest
in the Global Notes).
Investors in the Global Notes may hold their interests
therein directly through DTC, if they are participants in such
system, or indirectly through organizations (including Euroclear
and CEDEL) which are participants in such system. Euroclear and
CEDEL would hold interests in the Global Notes on behalf of their
participants through customers' securities accounts in their
respective names on the books of their respective depositaries,
which are Morgan Guaranty Trust Company of New York, Brussels
office, as operator of Euroclear, and Citibank, N.A., as operator
of CEDEL. The depositaries, in turn, would hold such interests in
the Global Notes in customers' securities accounts in the
depositaries' names on the books of DTC. All interests in a
Global Note, including those held through Euroclear or CEDEL, may
be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or CEDEL may also be subject to
the procedures and requirements of such systems. The laws of some
states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such
persons will be limited to that extent. Because DTC can act only
on behalf of Participants, which in turn act on behalf of
Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Note to pledge such
interests to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the
transferability of the New Notes, see "--Exchange of Book-Entry
Notes for Certificated Notes" and "--Exchange of Certificated
Notes for Book-Entry Notes."
Except as described below, owners of interests in the
Global Notes will not have New Notes registered in their names,
will not receive physical delivery of New Notes in certificated
form and will not be considered the registered owners or holders
thereof under the Indenture for any purpose.
Payments in respect of the principal of and premium and
Liquidated Damages, if any, and interest on a Global Note
registered in the name of DTC or its nominee will be payable by
the Trustee to DTC in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Issuer and
the Trustee will treat the persons in whose names the New Notes,
including the Global Notes, are registered as the owners thereof
for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Issuer, the
Trustee nor any agent of the Issuer or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's
records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership
interest in the Global Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership
interests in the Global Notes or (ii) any other matter relating
to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the Issuer that its
current practice, upon receipt of any payment in respect of
securities such as the Notes (including principal and interest),
is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial
interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be
governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the
Trustee or the Issuer. Neither the Issuer nor the Trustee will be
liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the New Notes, and the
Issuer and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for
all purposes.
Except for trades involving only Euroclear and CEDEL
participants, interest in the Global Notes are expected to be
eligible to trade in DTC's Same-Day Funds Settlement System and
secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
See "--Same-Day Settlement and Payment."
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Transfers between Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day
funds, and transfers between participants in Euroclear and CEDEL
will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on
the one hand, and Euroclear or CEDEL participants, on the other
hand, will be effected through DTC in accordance with DTC's rules
on behalf of Euroclear or CEDEL, as the case may be, by its
respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or CEDEL, as
the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as
the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary
to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in
DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC.
Euroclear participants and CEDEL participants may not deliver
instructions directly to the depositaries for Euroclear or CEDEL.
Because of time zone differences, the securities account of
a Euroclear or CEDEL participant purchasing an interest in a
Global Note from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
CEDEL participant, during the securities settlement processing
day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. DTC has advised
the Issuer that cash received in Euroclear or CEDEL as a result
of sales of interests in a Global Note by or through a Euroclear
or CEDEL participant to a Participant in DTC will be received
with value on the settlement date of DTC but will be available in
the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following DTC's settlement
date.
DTC has advised the Issuer that it will take any action
permitted to be taken by a holder of New Notes only at the
direction of one or more Participants to whose account with DTC
interests in the Global Notes are credited and only in respect of
such portion of the aggregate principal amount of the New Notes
as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under
the New Notes, DTC reserves the right to exchange the Global
Notes for legended New Notes in certificated form, and to
distribute such New Notes to its Participants.
The information in this section concerning DTC, Euroclear
and CEDEL and their book-entry systems has been obtained from
sources that the Issuer believes to be reliable, but the Issuer
takes no responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Notes among Participants in DTC, Euroclear and CEDEL, they
are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time.
Neither the Issuer nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their
respective participants or indirect participants of their
respective obligations under the rules and procedures governing
their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive New Notes in
registered certificated form if (i) DTC (x) notifies the Issuer
that it is unwilling or unable to continue as depositary for the
Global Notes and the Issuer thereupon fails to appoint a
successor depositary or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Issuer, at its
option, notifies the Trustee in writing that it elects to cause
the issuance of the New Notes in certificated form or (iii) there
shall have occurred and be continuing an Event of Default or any
event which after notice or lapse of time or both would be an
Event of Default with respect to the New Notes. In addition,
beneficial interests in a Global Note may be exchanged for
certificated New Notes upon request but only upon at
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least 20 days prior written notice given to the Trustee by or on
behalf of DTC in accordance with its customary procedures. In all
cases, certificated New Notes delivered in exchange for any
Global Note or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by
or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend
referred to in "Notice to Investors," unless the Issuer
determines otherwise in compliance with applicable law.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the New
Notes represented by the Global Notes (including principal,
premium, if any, and interest and Liquidated Damages, if any) be
made by wire transfer of immediately available funds to the
accounts specified by the Global Note holder. With respect to New
Notes in certificated form, the Issuer will make all payments of
principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no such account
is specified, by mailing a check to each such holder's registered
address. The New Notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to
trade in the Depositary's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such New Notes
will, therefore, be required by the Depositary to be settled in
immediately available funds. The Issuer expects that secondary
trading in any certificated New Notes will also be settled in
immediately available funds.
Because of time zone differences, the securities account of
a Euroclear or CEDEL participant purchasing an interest in a
Global Note from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
CEDEL participant, during the securities settlement processing
day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. DTC has advised
the Issuer that cash received in Euroclear or CEDEL as a result
of sales of interests in a Global Note by or through a Euroclear
or CEDEL participant to a Participant in DTC will be received
with value on the settlement date of DTC but will be available in
the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following DTC's settlement
date.
Registration Rights; Liquidated Damages
Pursuant to the Registration Rights Agreement, the Issuer
agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the
Securities Act with respect to the New Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the
Issuer will offer to the holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their
Transfer Restricted Securities for New Notes. If (i) the Issuer
is not required to file the Exchange Offer Registration Statement
or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any holder of Transfer Restricted Securities
notifies the Issuer within the specified time period that (A) it
is prohibited by law or Commission policy from participating in
the Exchange Offer (other than due solely to the status of such
holder as an affiliate of the Issuer within the meaning of the
Securities Act) or (B) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or
available for such resales or (C) that it is a broker-dealer and
owns Notes acquired directly from the Issuer or an affiliate of
the Issuer, the Issuer will file with the Commission a Shelf
Registration Statement to cover resales of the Transfer
Restricted Securities by the holders thereof who satisfy certain
conditions relating to the provision of information in connection
with the Shelf Registration Statement. The Issuer will use its
best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For
purposes of the foregoing, "Transfer Restricted Securities" means
each Note until (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for a New Note
in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for a New Note, the
date on which such New Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has
been
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effectively registered under the Securities Act and disposed of
in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to
Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the
Issuer will file an Exchange Offer Registration Statement with
the Commission on or prior to 60 days after the Closing Date,
(ii) the Issuer will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission
on or prior to 135 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuer will commence the Exchange Offer
and use its best efforts to issue within 180 days after the Issue
Date New Notes in exchange for all Old Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Issuer will use its best
efforts to file the Shelf Registration Statement with the
Commission on or prior to 60 days after such filing obligation
arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 135 days after such
obligation arises. If (a) the Issuer fails to file any of the
Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b)
any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the
Issuer fails to consummate the Exchange Offer within 180 days
after the Issue Date, or (d) the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration
Default"), then the Issuer will pay liquidated damages
("Liquidated Damages") as follows: to each holder of Transfer
Restricted Securities, with respect to such 90-day period
immediately following the occurrence of the first Registration
Default in an amount equal to $0.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such holder. The
amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $0.25 per week per $1,000 principal
amount of Transfer Restricted Securities. All accrued Liquidated
Damages will be paid by the Issuer to the Global Note holder by
wire transfer of immediately available funds or by federal funds
check and to holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required
to make certain representations to the Issuer (as described in
the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be
used in connection with the Shelf Registration Statement and to
provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in
order to have their Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated
Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the
Indenture. Reference is made to the Indenture for a full
disclosure of all such terms, as well as any other capitalized
terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary
of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or
assumed in connection with the acquisition of any asset used or
useful in a Permitted Business acquired by such specified Person;
provided that such Indebtedness was not incurred in connection
with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, or such
acquisition, as the case may be.
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"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means (i) the sale, lease (other than an
operating lease), conveyance or other disposition of any assets
or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business
consistent with past practices (provided that the sale, lease
(other than an operating lease), conveyance or other disposition
of all or substantially all of the assets of the Issuer and its
Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption
"--Repurchase at Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the sale by
the Issuer and the issue or sale by any of the Restricted
Subsidiaries of the Issuer of Equity Interests of any of the
Issuer's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related
transactions that have a fair market value (as determined in good
faith by the Board of Directors) in excess of $1.0 million or for
net cash proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Issuer to a Wholly
Owned Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary) or by a Wholly Owned Restricted
Subsidiary of the Issuer (other than a Receivables Subsidiary) to
the Issuer or to a Wholly Owned Restricted Subsidiary of the
Issuer (other than a Receivables Subsidiary), (ii) an issuance of
Equity Interests by a Restricted Subsidiary of the Issuer to the
Issuer or to a Wholly Owned Restricted Subsidiary of the Issuer
(other than a Receivables Subsidiary), (iii) a Restricted Payment
that is permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments," (iv) the sale
and leaseback of any assets within 90 days of the acquisition of
such assets, (v) foreclosures on assets, (vi) the clearance of
inventory and (vii) the sale, conveyance or other disposition of
accounts receivables and related assets customarily transferred
in an asset securitization transaction involving accounts
receivable to a Receivables Subsidiary or by a Receivables
Subsidiary, in connection with a Qualified Receivables
Transaction, in each case, will not be deemed to be Asset Sales.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease that would at such time be required
to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participation, rights or
other equivalents (however designated) of corporate stock, (iii)
in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited)
and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) securities issued or
unconditionally and fully guaranteed or insured by the full faith
and credit of the United States government or any agency or
instrumentality thereof having maturities of not more than one
year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or
any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time
deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any
lender party to the New Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $250.0
million, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (i) and (iii), above entered into with any financial
institution
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meeting the qualifications specified in clause (iii) above, (v)
commercial paper having one of the two of the highest ratings
obtainable from either Moody's or S&P and in each case maturing
within one year after the date of acquisition and (vi)
investments in funds investing exclusively in investments of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the assets of the Issuer and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), other than the Principals and their Related
Parties (ii) the adoption of a plan relating to the liquidation
or dissolution of the Issuer, (iii) the consummation of any
transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as
defined above), other than the Principal and their Related
Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of 40% or more of the Voting Stock of the Issuer
(measured by voting power rather than number of shares) and (B)
the Principals and their Related Parties beneficially own,
directly or indirectly, in the aggregate a lesser percentage of
the Voting Stock of the Issuer than such other "person", (iv) the
first day on which a majority of the members of the Board of
Directors of the Issuer are not Continuing Directors or (v) the
Issuer consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the Issuer,
in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Issuer is converted into or
exchanged for cash, securities or other property, other than any
such transaction where (A) the Voting Stock of the Issuer
outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person and (B) either (1)
the "beneficial owners" (as defined above) of the Voting Stock of
the Issuer immediately prior to such transaction own, directly or
indirectly through one or more subsidiaries, not less than a
majority of the total Voting Stock of the surviving or transferee
corporation immediately after such transaction or (2) if,
immediately prior to such transaction the Issuer is a direct or
indirect subsidiary of any other Person (such other Person, the
"Holding Company"), then the "beneficial owners" (as defined
above) of the Voting Stock of such Holding Company immediately
prior to such transaction own, directly or indirectly through one
or more subsidiaries, not less than a majority of the Voting
Stock of the surviving or transferee corporation immediately
after such transaction.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for
such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to
the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted
Subsidiaries), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included
in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization
of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income,
plus (iv) depreciation and amortization (including amortization
of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other
non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash
charge that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) any
interest expense on Indebtedness of another Person that is
Guaranteed by such Person or a Restricted Subsidiary of such
Person or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries to the extent that such interest
expense was deducted in computing such Consolidated Net Income,
minus (vi) non-cash items increasing such Consolidated Net Income
for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income
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or profits of, and the depreciation and amortization and other
non-cash charges of, a Restricted Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating
the Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person
and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP, provided that (i) the Net
Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or
a Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders, (iii) the Net Income of any Person acquired
in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be
excluded.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Issuer
or any Holding Company of the Issuer who (i) was a member of such
Board of Directors on the date of the Indenture immediately after
consummation of the Recapitalization or (ii) was nominated for
election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were either members
of such Board at the time of such nomination or election or are
successor Continuing Directors appointed by such Continuing
Directors (or their successors).
"Credit Facilities" means, with respect to the Issuer, one
or more debt facilities (including, without limitation, the New
Credit Facility) or commercial paper facilities with banks or
other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to
time. Indebtedness under Credit Facilities outstanding on the
Issue Date shall be deemed to have been incurred on such date in
reliance on the exceptions provided by clauses (i) and (ii) of
the definition of Permitted Debt.
"Default" means any event that is or with the passage of
time or the giving of notice or both would be an Event of
Default.
"Designated Senior Debt" means (i) any Senior Debt
outstanding under the New Credit Facility and (ii) any other
Senior Debt permitted under the Indenture the principal amount of
which is $50 million or more and that has been designated by the
Issuer as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the Notes
mature; provided, however, that a class of Capital Stock shall
not be Disqualified Stock hereunder solely as the result of any
maturity or redemption that is conditioned upon, and subject to,
compliance with the covenant described above under the caption
"--Certain Covenants--Restricted Payments;" and provided further,
that Capital Stock issued to any plan for the benefit of
employees of the Issuer or its subsidiaries or by any such plan
to such employees shall not constitute Disqualified Stock solely
because it may be required to be repurchased by the Issuer in
order to satisfy applicable statutory or regulatory obligations.
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"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding
any debt security that is convertible into, or exchangeable for,
Capital Stock).
"Equity Offering" means an offering of common stock (other
than Disqualified Stock) of the Issuer or Holdings, pursuant to
an effective registration statement filed with the Commission in
accordance with the Securities Act, other than an offering
pursuant to Form S-8 (or any successor thereto) provided, that in
the case of an Equity Offering by Holdings, Holdings contributes
to the common equity of the Issuer the portion of the net cash
proceeds thereof necessary to pay the aggregate redemption price
of the Notes to be redeemed in connection therewith.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated
interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging
Obligations; provided, however, that in no event shall any
amortization of deferred financing costs incurred in connection
with the Recapitalization be included in Fixed Charges) and (ii)
the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or
Lien is called upon) and (iv) the product of (a) (without
duplication) (1) all dividends paid or accrued in respect of
Disqualified Stock which are not treated as interest for tax
purposes for such period and (2) all cash dividend payments on
any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests (other than
Disqualified Stock) of the Issuer, times (b) a fraction, the
numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of
such Person and its Restricted Subsidiaries for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Issuer or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays or
redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, repayment or redemption
of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i)
acquisitions that have been made by the Issuer or any of its
Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be
deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow and Fixed Charges for
such reference period shall be calculated without giving effect
to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income and shall reflect any pro forma expense
and cost reductions attributable to such acquisitions (to the
extent such expense and cost reduction would be permitted by the
Commission to be reflected in pro forma financial statements
included in a registration statement filed with the Commission),
and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and Consolidated
Cash Flow shall reflect any pro forma expense or cost reductions
relating to such discontinuance or disposition (to the extent
such expense or cost reductions would be permitted by the
Commission to be reflected in pro forma financial statements
included in a registration statement filed with the Commission),
and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
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businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise
to such Fixed Charges will not be obligations of the referent
Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which are in effect on the date of the
Indenture provided, however, that all reports and other financial
information provided by the Issuer to the holders, the Trustee
and/or the Commission shall be prepared in accordance with GAAP,
as in effect on the date of such report or other financial
information.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Guarantors" means, initially, each Subsidiary of the
Issuer on the Issue Date (other than a Receivables Subsidiary)
and thereafter each of the Subsidiaries of the Issuer that
executes a Subsidiary Guarantee in accordance with the provisions
of the Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person,
the obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or the
value of foreign currencies.
"Holdings" means J. Crew Group, Inc., a New York
corporation, the corporate parent of the Issuer, or its
successors.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the
balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters
of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of
any date shall be (i) the accreted value thereof, in the case of
any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including
Affiliates) in the forms of direct or indirect loans (including
guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with
all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. If the Issuer or
any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Issuer such that, after giving
effect to any such sale or disposition, such Person is no longer
a Restricted Subsidiary of the Issuer, the Issuer shall be deemed
to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain
Covenants--Restricted Payments."
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"Issue Date" means the date on which notes are first issued
and authenticated under the Indenture.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or
give a security interest therein).
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with
any related provision for taxes on such gain (but not loss),
realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Proceeds" means the aggregate cash proceeds received
by the Issuer or any of its Restricted Subsidiaries in respect of
any Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of
Indebtedness (other than Indebtedness under the Credit
Facilities) secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Credit Facility" means that certain credit facility,
dated as of October 17, 1997, by and among the Issuer, Holdings,
Chase, DLJ and DLJ Capital Funding, as agents and lenders,
providing for up to $70.0 million of term borrowings and $200.0
million of revolving credit borrowings, including any related
notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as
amended, extended, modified, renewed, refunded, replaced or
refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Issuer nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), or
(b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or
assets of the Issuer or any of its Restricted Subsidiaries,
including the stock of such Unrestricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, any
principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Permitted Business" means the design, manufacture,
importing, exporting, distribution, marketing, licensing and
wholesale and retail sale of apparel, housewares, home
furnishings and related items, and businesses reasonably related
thereto.
"Permitted Investments" means (a) any Investment in the
Issuer or in a Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary) (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Issuer or any Restricted
Subsidiary in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Issuer (other
than a Receivables Subsidiary) or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Issuer or a Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary); (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset
Sale that was made pursuant to and in compliance
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with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales" or any transaction not
constituting an Asset Sale by reason of the $1.0 million
threshold contained in the definition thereof; (e) any
acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Issuer;
(f) Hedging Obligations entered into in the ordinary course of
the Issuer's or its Restricted Subsidiaries' Businesses and
otherwise in compliance with the Indenture; (g) loans and
advances to employees and officers of the Issuer and its
Restricted Subsidiaries in the ordinary course of business for
bona fide business purposes not in excess of $5 million at any
one time outstanding; (h) additional Investments not to exceed
$25 million at any one time outstanding; (i) Investments in
securities of trade creditors or customers received in settlement
of obligations or pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; and (j) Investments by the Issuer
or a Restricted Subsidiary in a Receivables Subsidiary or any
Investment by a Receivables Subsidiary in any other Person, in
each case, in connection with a Qualified Receivables
Transaction, provided, that any Investment in any such Person is
in the form of a Purchase Money Note, any equity interest or
interests in accounts receivable and related assets generated by
the Issuer or a Restricted Subsidiary and transferred to any
Person in connection with a Qualified Receivables Transaction or
any such Person owning such accounts receivable.
"Permitted Junior Securities" means Equity Interests in the
Issuer or debt securities that are subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt)
to substantially the same extent as, or to a greater extent than,
the Notes are subordinated to Senior Debt pursuant to Article 10
of the Indenture.
"Permitted Liens" means (i) Liens existing as of the Issue
Date to the extent and in the manner such Liens are in effect on
the Issue Date; (ii) Liens securing Senior Debt and Liens on
assets of Restricted Subsidiaries securing Guarantees of Senior
Debt permitted to be incurred under the Indenture; (iii) Liens
securing the Notes and the Subsidiary Guarantees; (iv) Liens of
the Issuer or a Wholly Owned Restricted Subsidiary on assets of
any Restricted Subsidiary of the Issuer; (v) Liens securing
Permitted Refinancing Indebtedness which is incurred to refinance
any Indebtedness which has been secured by a Lien permitted under
the Indenture and which has been incurred in accordance with the
provisions of the Indenture, provided, however, that such Liens
(A) are not materially less favorable to the holders and are not
materially more favorable to the lienholders with respect to such
Liens than the Liens in respect of the Indebtedness being
refinanced and (B) do not extend to or cover any property or
assets of the Issuer or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced; (vi) Liens for taxes,
assessments or governmental charges or claims either (A) not
delinquent or (B) contested in good faith by appropriate
proceedings and as to which the Issuer or its Restricted
Subsidiaries shall have set aside on its books such reserves as
may be required pursuant to GAAP; (vii) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics,
supplies, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet
delinquent for a period of more than 60 days or being contested
in good faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made in respect
thereof; (viii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance an other types of social security or
similar obligations, including any Lien securing letters of
credit issued in the ordinary course of business consistent with
past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money); (ix) judgment
Liens not giving rise to an Event of Default so long as such Lien
is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment
shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired; (x)
easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of
the business of the Issuer or any of its Restricted Subsidiaries;
(xi) any interest or title of a lessor under any lease, whether
or not characterized as capital or operating; provided that such
Liens do not extend to any property or assets which is not leased
property subject to such lease; (xii) Liens securing Capital
Lease Obligations and purchase money Indebtedness incurred in
accordance with the covenant described under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock;" provided, however, that (A) the Indebtedness shall not
exceed the cost of such property or assets being acquired or
constructed and shall not be secured by any property or assets of
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the Issuer or any Restricted Subsidiary of the Issuer other than
the property or assets of the Issuer or any Restricted Subsidiary
of the Issuer other than the property and assets being acquired
or constructed and (B) the Lien securing such Indebtedness shall
be created within 90 days of such acquisition or construction;
(xiii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account
of such Person to facilitate the purchase, shipment or storage of
such inventory or other goods; (xiv) Liens securing reimbursement
obligations with respect to letters of credit which encumber
documents and other property relating to such letters of credit
and products and proceeds thereof; (xv) Liens encumbering
deposits made to secure obligations arising from statutory,
regulatory, contractual, or warranty requirements of the Issuer
or any of its Restricted Subsidiaries, including rights of offset
an set-off; (xvi) Liens securing Hedging Obligations which
Hedging Obligations relate to Indebtedness that is otherwise
permitted under the Indenture; (xvii) Liens securing Acquired
Debt incurred in accordance with the covenant described under
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock;" provided that (A) such Liens secured such
Acquired Debt at the time of and prior to the incurrence of such
Acquired Debt by the Issuer or a Restricted Subsidiary of the
Issuer and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Debt by the
Issuer or a Restricted Subsidiary of the Issuer and (B) such
Liens do not extend to or cover any property or assets of the
Issuer or any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Debt prior to the
time such Indebtedness became Acquired Debt of the Issuer or a
Restricted Subsidiary of the Issuer and are not more favorable to
the lienholders than those securing the Acquired Debt prior to
the incurrence of such Acquired Debt by the Issuer or a
Restricted Subsidiary of the Issuer; (xviii) leases or subleases
granted to others not interfering in any material respect with
the business of the Issuer or its Restricted Subsidiaries; (xix)
Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Issuer or any Restricted
Subsidiary in the ordinary course of business; and (xx) Liens or
assets of a Receivables Subsidiary arising in connection with a
Qualified Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Issuer or any of its Subsidiaries issued in exchange for,
or the net proceeds of which are used to extend, refinance,
prepay, retire, renew, replace, defease or refund Indebtedness of
the Issuer or any of its Subsidiaries (other than such
Indebtedness described in clauses (i), (vi), (vii), (viii), (ix),
(x), (xi), (xiii) and (xiv) of the covenant described above under
the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock"); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, prepaid, retired,
replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith including premiums
paid, if any, to the holders thereof); (ii) such Permitted
Refinancing Indebtedness has a final maturity date at or later
than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced,
renewed, prepaid, retired, replaced, defeased or refunded; (iii)
if the Indebtedness being extended, refinanced, renewed, prepaid,
retired, replaced, defeased or refunded is subordinated in right
of payment to the Notes, such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at
least as favorable to the holders of Notes as those contained in
the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv)
such Indebtedness is incurred either by the Issuer or by the
Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
"Principals" means TPG Partners II, L.P., a Delaware limited
partnership.
"Purchase Money Note" means a promissory note evidencing a
line of credit, or evidencing other Indebtedness owed to the
Issuer or any Restricted Subsidiary in connection with a
Qualified Receivables Transaction, which note shall be repaid
from cash available to the maker of such note, other than amounts
required to be established as reserves pursuant to agreement,
amounts paid to investors in respect of interest, principal and
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other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"Qualified Proceeds" means any of the following or any
combination of the following: (i) cash, (ii) Cash Equivalents,
(iii) long-term assets that are used or useful in a Permitted
Business and (iv) the Capital Stock of any Person engaged
primarily in a Permitted Business if, in connection with the
receipt by the Issuer or any Restricted Subsidiary of the Issuer
of such Capital Stock, (a) such Person becomes a Wholly-Owned
Restricted Subsidiary and a Guarantor or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated
into, the Issuer or any Wholly-Owned Restricted Subsidiary of the
Issuer that is a Guarantor.
"Qualified Receivables Transaction" means any transaction
or series of transactions that may be entered into by the Issuer
or any Restricted Subsidiary pursuant to which the Issuer or any
Restricted Subsidiary may sell, convey or otherwise transfer to
(a) a Receivables Subsidiary (in the case of a transfer by the
Issuer or any Restricted Subsidiary) and (b) any other Person (in
the case of a transfer by a Receivables Subsidiary), or may grant
a security interest in, any accounts receivable (whether now
existing or arising in the future) of the Issuer or any
Restricted Subsidiary and any asset related thereto including,
without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred, or
in respect of which security interests are customarily granted,
in connection with asset securitization transactions involving
accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted
Subsidiary (other than a Guarantor) which engages in no
activities other than in connection with the financing of
accounts receivables and which is designated by the Board of
Directors of the Issuer (as provided below) as a Receivables
Subsidiary (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (i) is guaranteed
by the Issuer or any other Restricted Subsidiary (excluding
guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates the Issuer or any
other Restricted Subsidiary in any way other than pursuant to
Standard Securitization Undertakings or (iii) subjects any
property or asset of the Issuer or any other Restricted
Subsidiary, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings, (b) with which neither the Issuer
nor any other Restricted Subsidiary has any material contract,
agreement, arrangement or understanding (except in connection
with a Purchase Money Note or Qualified Receivables Transaction)
other than on terms no less favorable to the Issuer or such other
Restricted Subsidiary than those that might be obtained at the
time from persons that are not Affiliates of the Issuer, other
than fees payable in the ordinary course of business in
connection with servicing accounts receivable, and (c) to which
neither the Issuer nor any other Restricted Subsidiary has any
obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of
operating results. Any such designation by the Board of Directors
of the Issuer shall be evidenced by the Trustee by filing with
the Trustee a certified copy of the resolution of the Board of
Directors of the Issuer giving effect to such designation and an
Officers' Certificate certifying, to the best of such officer's
knowledge and belief after consulting with counsel, that such
designation complied with the foregoing conditions.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or a majority of (or more) owned
Subsidiary of such Principal or, in the case of an individual,
any spouse or immediate family member of such Principal, or (B)
any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding a majority (or more) controlling interest of
which consist of such Principal and/or such other Persons
referred to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Issuer
other than an Unrestricted Subsidiary.
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"Senior Debt" means (i) all Indebtedness of the Issuer or
any Guarantor outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, (ii) other Indebtedness of the
Issuer or any of its Guarantor permitted to be incurred under the
terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes and
(iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local
or other taxes owed or owing by the Issuer, (x) any Indebtedness
of the Issuer to any of its Subsidiaries or other Affiliates, (y)
any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such
Regulation is in effect on the date hereof of the Indenture.
"Standard Securitization Undertakings" means
representations, warranties, covenants and indemnities entered
into by the Issuer or any Restricted Subsidiary which are
reasonably customary in an accounts receivable transaction.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on
which such payment of interest or principal was scheduled to be
paid in the original documentation governing such Indebtedness,
and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total Voting Stock thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Tax Sharing Agreement" means, the tax sharing agreement
among Holdings, the Issuer and any one or more of Holdings'
subsidiaries, as amended from time to time, so long as the method
of calculating the amount of the Issuer's (or any Restricted
Subsidiary's) payments, if any, to be made thereunder is not less
favorable to the Issuer than as provided in such agreement as in
effect on the Issue Date, as determined in good faith by the
Board of Directors of the Issuer.
"Unrestricted Subsidiary" means any Subsidiary of the
Issuer that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Subsidiary: (a) is not party to any
agreement, contract, arrangement or understanding with the Issuer
or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to the Issuer or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not
Affiliates of the Issuer; (b) is a Person with respect to which
neither the Issuer nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional
Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any
specified levels of operating results; and (c) has not guaranteed
or otherwise directly or indirectly provided credit support for
any Indebtedness of the Issuer or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with a Trustee a
certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed
to be incurred by a Restricted Subsidiary of the Issuer as of
such date. The Board of Directors of the Issuer may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation
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shall be deemed to be an incurrence of Indebtedness and issuance
of preferred stock by a Restricted Subsidiary of the Issuer of
any outstanding Indebtedness or outstanding issue of preferred
stock of such Unrestricted Subsidiary and such designation shall
only be permitted if (i) such Indebtedness and preferred stock is
permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," (ii) such Subsidiary becomes a Subsidiary
Guarantor, and (iii) no Default or Event of Default would exist
following such designation.
"Voting Stock" of any Person as of any date means the
Capital Stock of such Person that is at the time entitled to vote
in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a)
the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more "Wholly Owned
Subsidiaries of such Person."
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
Exchange of Old Notes for New Notes
The following summary describes the principal U.S. federal
income tax consequences of the exchange of the Old Notes for New
Notes (the "Exchange") that may be relevant to a beneficial owner
of Notes that will hold the New Notes as capital assets and that
is a citizen or resident of the United States, or that is a
corporation, partnership or other entity created or organized in
or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to
U.S. federal income taxation regardless of its source or a trust
if (i) a U.S. court is able to exercise primary supervision over
the trust's administration and (ii) one or more U.S. fiduciaries
have the authority to control all of the trust's substantial
decisions.
The Exchange pursuant to the Exchange Offer will not be a
taxable event for U.S. federal income tax purposes. As a result,
a holder of an Old Note whose Old Note is accepted in an Exchange
Offer will not recognize gain on the Exchange. A tendering
holder's tax basis in the New Notes will be the same as such
holder's tax basis in its Old Notes. A tendering holder's holding
period for the New Notes received pursuant to the Exchange Offer
will include its holding period for the Old Notes surrendered
therefor.
ALL HOLDERS OF OLD NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND OF
THE OWNERSHIP AND DISPOSITION OF NEW NOTES RECEIVED IN THE
EXCHANGE OFFER IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
Tax Considerations for Non-United States Holders
The following is a general discussion of certain United
States federal income and estate tax consequences of the
acquisition, ownership and disposition of Notes by an initial
beneficial owner of Notes that, for United States federal income
tax purposes, is not a "United States person" (a "Non-United
States Holder"), but does not purport to be a comprehensive
description of all the tax considerations that may be relevant to
a decision to purchase the
107
<PAGE>
Notes. This discussion is based upon the United States federal
tax law now in effect, which is subject to change, possibly
retroactively, which could affect the continued validity of this
summary. For purposes of this discussion, a "United States
person" means a holder of a Note who is a citizen or resident of
the United States, a corporation, partnership or other entity
created or organized in the United States or under the laws of
the United States or of any political subdivision thereof, an
estate whose income is includable in gross income for United
States federal income tax purposes regardless of its source or a
trust, if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the
trust. The tax treatment of the holders of the Notes may vary
depending upon their particular situations. U.S. persons
acquiring the Notes are subject to different rules than those
discussed below. In addition, certain other holders (including
insurance companies, tax exempt organizations, financial
institutions, subsequent purchasers of Notes and broker-dealers)
may be subject to special rules not discussed below. In addition,
this summary does not describe any tax consequences arising under
the laws of any state, locality or taxing jurisdiction other than
the United States federal government. In general, the summary
assumes that a Non-U.S. Holder acquires a Note at original
issuance and holds such Note as a capital asset and not as part
of a "hedge," "straddle," "conversion transaction," "synthetic
security" or other integrated investment. Prospective investors
are urged to consult their tax advisors regarding the United
States federal tax consequences of acquiring, holding and
disposing of Notes, as well as any tax consequences that may
arise under the laws of any foreign, state, local or other taxing
jurisdiction.
Interest
Interest paid by the Issuer to a Non-United States Holder
will not be subject to United States federal income or
withholding tax if such interest is not effectively connected
with the conduct of a trade or business within the United States
by such Non-United States Holder and Non-United States Holder (i)
does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Issuer; (ii)
is not a controlled foreign corporation with respect to which the
Issuer is a "related person" within the meaning of the United
States Internal Revenue Code of 1986 (the "Code") and (iii)
certifies, under penalties of perjury, that such holder is not a
United States person and provides such holder's name and address.
Gain on Disposition
A Non-United States Holder will generally not be subject to
United States federal income tax on gain recognized on a sale,
redemption or other disposition of a Note unless (i) the gain is
effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder or (ii)
in the case of a NonUnited States Holder who is a nonresident
alien individual and holds the Note as a capital asset, such
holder is present in the United States for 183 or more days in
the taxable year and certain other requirements are met.
Federal Estate Taxes
If interest on the Notes is exempt from withholding of
United States federal income tax under the rules described above,
the Notes will not be included in the estate of a deceased
Non-United States Holder for United States federal estate tax
purposes.
Information Reporting and Backup Withholding
The Issuer will, where required, report to the holders of
Notes and the Internal Revenue Service the amount of any interest
paid on the Notes in each calendar year and the amounts of tax
withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States
Holders, temporary Treasury regulations provide that the 31%
backup withholding tax and certain information reporting will not
apply to such payments with respect to which either the requisite
certification, as described above, has been received or an
exemption has otherwise been established; provided that neither
the Issuer nor its payment agent has actual knowledge that the
holder is a United States person or that the conditions of any
other exemption are not in fact satisfied. Under temporary
Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross
proceeds paid to a Non-United States Holder on the disposition of
the Notes by or through a United States office of
108
<PAGE>
a United States or foreign broker, unless the holder certifies to
the broker under penalties of perjury as to its name, address and
status as a foreign person or the holder otherwise establishes an
exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a
disposition of the Notes by or through a foreign office of a
United States broker or foreign brokers with certain types of
relationships to the United States unless such broker has
documentary evidence in its file that the holder of the Notes is
not a United States person, and such broker has no actual
knowledge to the contrary, or the holder establishes an
exception. Neither information reporting nor backup withholding
generally will apply to payment of the proceeds of a disposition
of the Notes by or through a foreign office of a foreign broker
not subject to the preceding sentence.
On October 14, 1997, the Treasury Department published
final regulations regarding the withholding and information
reporting rules discussed above. In general, the final
regulations do not alter the substantive withholding and
information reporting requirements but unify current
certification procedures and forms and clarify reliance
standards. The final regulations will generally be effective for
payments made after December 31, 1998 subject to certain
transition rules.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be refunded or
credited against the Non-United States Holder's United States
federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
109
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes.
This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making
activities or other trading activities. The Issuer and the
Guarantors have agreed that they will make this Prospectus
available to any Participating Broker-Dealer for a period of time
not to exceed one year after the date on which the Exchange Offer
is consummated for use in connection with any such resale. In
addition, until such date, all broker-dealers effecting
transactions in the New Notes may be required to deliver a
prospectus.
Neither the Issuer nor the Guarantors will receive any
proceeds from any sale of New Notes by broker-dealers. New Notes
received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or
a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions
or concessions from any such broker-dealer and/or the purchasers
of any such New Notes. Any broker-dealer that resells New Notes
that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act.
Starting on the Expiration Date, the Issuer and the
Guarantors will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of
Transmittal. The Issuer has agreed to pay all expenses incident
to the Exchange Offer (including the expenses of one counsel for
the holders of the Old Notes) other than commissions or
concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the New Notes have been passed upon for the
Issuer by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
Certain legal matters relating to the New Notes have been passed
upon for the Initial Purchasers by Latham & Watkins, New York,
New York.
EXPERTS
The consolidated financial statements of J. Crew Group, Inc.
and subsidiaries, as predecessor to J. Crew Operating Corp., as
of January 31, 1997 and February 2, 1996, and for the fiscal
years ended February 3, 1995, February 2, 1996 and January 31,
1997, appearing in this Prospectus have been audited by Deloitte
& Touche LLP, independent auditors as stated in their report
appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
110
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CHANGE IN ACCOUNTANTS
At a meeting held on October 9, 1997, the Board of
Directors of the Company approved the engagement of KPMG Peat
Marwick LLP as its independent auditors for the fiscal year
ending January 1998 to replace the firm of Deloitte & Touche LLP,
effective October 9, 1997.
The reports of Deloitte & Touche LLP on the financial
statements of J. Crew Group, Inc. for the past two fiscal years
did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the financial statements of
J. Crew Group, Inc. for each of the two fiscal years ended
January 31, 1997 and in the subsequent interim period, there were
no disagreements with Deloitte & Touche LLP on any matters of
accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Deloitte & Touche LLP would have
caused Deloitte & Touche LLP to make reference to the matter in
their report.
The Issuer has requested Deloitte & Touche LLP to furnish it
a letter addressed to the Commission stating whether it agrees
with the above statements. A copy of that letter, dated December
15, 1997 is filed as Exhibit 16.1 to this Registration Statement.
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT.................................. F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF FEBRUARY 2, 1996 AND
JANUARY 31,1997 AND FOR EACH OF THE THREE FISCAL YEARS IN THE
PERIOD ENDED JANUARY 31, 1997:
Consolidated Balance Sheets as of February 2, 1996
and January 31, 1997........................................ F-3
Consolidated Statements of Income for the Fiscal Years
Ended February 3, 1995, February 2, 1996 and
January 31, 1997............................................ F-4
Consolidated Statements of Cash Flows for the Fiscal
Years Ended February 3, 1995, February 2, 1996
and January 31, 1997......................................... F-5
Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended February 3, 1995, February 2, 1996
and January 31, 1997......................................... F-6
Notes to Consolidated Financial Statements................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
J. CREW OPERATING CORP. AND ITS SUBSIDIARIES AS OF
NOVEMBER 7,1997 AND FOR THE FORTY WEEK PERIODS ENDED
NOVEMBER 8, 1996 AND NOVEMBER 7, 1997:
Condensed Consolidated Balance Sheets as of January 31,
1997 and November 7, 1997................................... F-14
Condensed Consolidated Statements of Operations for the
Forty Week Periods Ended November 8, 1996 and November 7,
1997........................................................ F-15
Condensed Consolidated Statements of Cash Flows for the
Forty Week Periods Ended November 8, 1996 and November 7,
1997........................................................ F-16
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
J. Crew Group, Inc.
We have audited the accompanying consolidated balance
sheets of J. Crew Group, Inc. and subsidiaries as of February 2,
1996 and January 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three fiscal years in the period ended January 31,
1997. These financial statements are the responsibility of the
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 generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of J. Crew Group, Inc. and subsidiaries as of February 2, 1996
and January 31, 1997, and the results of their operations and
their cash flows for each of the three fiscal years in the period
ended January 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 12 to the consolidated financial
statements, in 1995, the Company changed its method of accounting
for catalog costs to conform with the provisions of Statement of
Position 93-7, "Reporting on Advertising Costs," and changed its
method of accounting for merchandise inventories.
Deloitte & Touche LLP
New York, New York
March 31, 1997
F-2
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 2, January 31,
1996 1997
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 13,529 $ 7,132
Accounts receivable (net of allowance for
doubtful accounts of $4,824 and $4,357,
respectively)................................... 58,280 58,079
Merchandise inventories........................... 148,055 197,657
Prepaid expenses and other current assets.......... 54,311 58,318
Refundable income taxes............................ 4,900 --
------- -------
Total current assets.............................. 279,075 321,186
------- -------
PROPERTY AND EQUIPMENT--at cost:
Land . 1,405 1,405
Buildings and improvements......................... 11,360 11,167
Furniture, fixtures and equipment.................. 38,703 43,537
Leasehold improvements............................. 60,218 75,378
Construction in progress........................... 2,128 4,063
------- -------
113,814 135,550
Less accumulated depreciation and amortization.... 41,005 49,121
------- -------
72,809 86,429
------- -------
OTHER ASSETS......................................... 3,365 3,206
------- -------
TOTAL ASSETS......................................... $355,249 $410,821
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 71,415 $103,279
Other current liabilities.......................... 59,243 62,938
Deferred income taxes.............................. 13,739 12,555
Federal and state income taxes payable............. 2,185 9,955
Current portion of long-term debt.................. 237 237
------- -------
Total current liabilities......................... 146,819 188,964
------- -------
LONG-TERM DEBT....................................... 87,092 86,855
------- -------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES..... 31,705 32,996
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
6% noncumulative preferred stock................... 1,579 1,579
8% cumulative preferred stock...................... 500 500
Common stock....................................... 263 263
Additional paid-in capital......................... 3,710 3,710
Retained earnings.................................. 89,477 101,850
Treasury stock, at cost............................ (5,896) (5,896)
------- -------
Total stockholders' equity........................ 89,633 102,006
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $355,249 $410,821
======== ========
See notes to consolidated financial statements.
F-3
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
---------------------------------------
February 3, February 2, January 31,
1995 1996 1997
---- ----- ----
(In thousands)
Net sales....................... $724,756 $732,580 $795,931
Other revenues.................. 12,969 13,329 12,912
------- ------- -------
Revenues.................... 737,725 745,909 808,843
Cost of goods sold,
including buying and
occupancy costs................. 394,073 399,668 428,719
------- ------- -------
Gross profit................ 343,652 346,241 380,124
Selling, general and
administrative expenses......... 311,468 327,672 348,305
------- ------- -------
Income from operations...... 32,184 18,569 31,819
Interest expense--net........... 6,965 9,350 10,470
------- ------- -------
Income before
provision for
income taxes,
extraordinary item
and cumulative
effect of accounting
changes.................... 25,219 9,219 21,349
Provision for
income taxes.................... 10,300 3,700 8,800
------- ------- -------
Income before
extraordinary item
and cumulative
effect of
accounting changes.......... 14,919 5,519 12,549
Extraordinary item--loss
on early retirement
of debt (net of income
tax benefit of $1,200).......... -- (1,679) --
Cumulative effect
of accounting changes
(net of income
taxes of $1,800)................ -- 2,610 --
------- ------- -------
Net income.................. $14,919 $6,450 $12,549
======= ======= =======
See notes to consolidated financial statements.
F-4
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
---------------------------------------
February 3, February 2, January 31,
1995 1996 1997
---- ----- ----
(In thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.................. $14,919 $6,450 $12,549
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization............. 8,110 10,272 10,541
Amortization of
deferred financing
costs.................... 249 1,186 401
Deferred incomes
taxes.................... (987) 10,131 (1,184)
Provision for losses
on accounts receivable... 7,956 7,277 6,945
Noncash compensation
expense.................. 1,901 1,142 --
Changes in operating assets
and liabilities:
Accounts receivable...... (7,041) (7,708) (6,744)
Merchandise
inventories.............. (35,409) (10,417) (49,602)
Prepaid expenses
and other current
assets................... (4,349) (12,444) (4,007)
Other assets............. (1,244) (2,031) (375)
Accounts payable......... 7,876 6,318 31,864
Other liabilities........ 2,504 (5,351) 3,439
Federal and state
income taxes payable..... 7,289 (12,674) 12,670
------- ------- -------
Net cash provided
by (used in)
operating activities... 1,774 (7,849) 16,497
------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures........ (14,595) (18,466) (27,462)
Proceeds from
construction allowances..... 1,128 3,826 4,981
------- ------- -------
Net cash used in
investing activities... (13,467) (14,640) (22,481)
------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of
long-term debt.............. 15,000 85,000 --
Repayment of
long-term debt.............. (7,237) (67,237) (237)
Dividends paid.............. (1,000) -- (176)
------- ------- -------
Net cash provided
by (used in)
financing
activities............ 6,763 17,763 (413)
------- ------- -------
DECREASE IN CASH
AND CASH EQUIVALENTS............ (4,930) (4,726) (6,397)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR..................... 23,185 18,255 13,529
------- ------- -------
CASH AND CASH
EQUIVALENTS, END
OF YEAR..................... $18,255 $13,529 $7,132
======= ======= =======
SUPPLEMENTARY CASH
FLOW INFORMATION:
Income taxes paid
(refunded).................. $4,063 $7,000 $(3,600)
======= ======= =======
Interest paid............... $6,520 $9,601 $9,880
======= ======= =======
See notes to consolidated financial statements.
F-5
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
6% 8% Total
Noncumulative Cumulative Additional Stock-
Preferred Stock Preferred Stock Common Stock Paid-in Retained Treasury holders'
Issued Issued Issued Capital Earnings Stock Equity
Shares Amount Shares Amount Shares Amount
(In thousands, except shares)
BALANCE,
JANUARY 28, 1994..........15,794 $1,579 5,000 $500 262,912 $263 $1,827 $69,108 $(7,056) $66,221
Net income.............. -- -- -- -- -- -- -- 14,919 -- 14,919
Issuance of 5,033
shares of common
stock from treasury
under stock bonus
agreement............... -- -- -- -- -- -- 1,166 -- 735 1,901
Dividends............... -- -- -- -- -- -- -- (1,000) -- (1,000)
------- ------ ----- ---- ------- ---- ------ -------- ------- --------
BALANCE,
FEBRUARY 3, 1995..........15,794 1,579 5,000 500 262,912 263 2,993 83,027 (6,321) 82,041
Net income.............. -- -- -- -- -- -- -- 6,450 -- 6,450
Issuance of 2,898
shares of common
stock from treasury
under stock bonus
agreement............... -- -- -- -- -- -- 717 -- 425 1,142
------- ------ ----- ---- ------- ---- ------ -------- ------- --------
BALANCE,
FEBRUARY 2, 1996..........15,794 1,579 5,000 500 262,912 263 3,710 89,477 (5,896) 89,633
Net income.............. -- -- -- -- -- -- -- 12,549 -- 12,549
Dividends............... -- -- -- -- -- -- -- (176) -- (176)
------- ------ ----- ---- ------- ---- ------ -------- ------- --------
BALANCE,
JANUARY 31, 1997..........15,794 $1,579 5,000 $500 262,912 $263 $3,710 $101,850 $(5,896) $102,006
======= ====== ===== ==== ======= ==== ====== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED FEBRUARY 3, 1995, FEBRUARY 2, 1996 AND JANUARY 31, 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation--The accompanying
consolidated financial statements include the accounts of J. Crew
Group, Inc. and its wholly-owned subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation.
b. Business--The Company, which operates in one business
segment, designs, contracts for the manufacture of, markets and
distributes men's, women's and children's apparel, accessories
and home furnishings. The Company's products are marketed through
catalogs and retail stores primarily in the United States. The
Company is also party to a licensing agreement which grant the
licensees exclusive rights to use the Company's trademarks in
connection with the manufacture and sale of products in Japan.
The license agreement provides for payments based on specified
percentages of net sales.
The Company is subject to seasonal fluctuations in its
merchandise sales and results of operations. The Company expects
its sales and operating results generally to be lower in the
first, and second quarters than in the third and fourth quarters
(which include the back-to-school and holiday season) of each
fiscal year.
A significant amount of the Company's products are produced
in the Far East through arrangements with independent
contractors. As a result, the Company's operations could be
adversely affected by political instability resulting in the
disruption of trade from the countries in which these contractors
are located or by the imposition of additional duties or
regulations relating to imports or by the contractor's inability
to meet the Company's production requirements.
c. Fiscal Year--The Company's fiscal year ends on the
Friday closest to January 31. The fiscal years 1994, 1995 and
1996 ended on February 3, 1995 (53 weeks), February 2, 1996 (52
weeks) and January 31, 1997 (52 weeks).
d. Cash Equivalents--For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid
debt instruments, with maturities of 90 days or less when
purchased, to be cash equivalents. Cash equivalents, which were
$9,700,000 and $1,968,000 at February 2, 1996 and January 31,
1997, are stated at cost, which approximates market value.
e. Accounts Receivable--Accounts receivable consists of
installment receivables resulting from the sale of merchandise of
Popular Club Plan, Inc. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large
number of customers comprising the accounts receivable base.
Finance charge income, which is included in other revenues, for
the fiscal years 1994, 1995 and 1996 was $9,700,000, $9,354,000
and $9,095,000.
f. Merchandise Inventories--Merchandise inventories are
stated at the lower of cost (determined on a first- in, first-out
basis) or market. The Company capitalizes certain design,
purchasing and warehousing costs into inventory. (See Note 12.)
g. Catalog Costs--Catalog costs, which primarily consist of
catalog production and mailing costs, are capitalized and
amortized over the expected future revenue stream, which is
principally from three to five months from the date catalogs are
mailed. The Company accounts for catalog costs in accordance with
the AICPA
F-7
<PAGE>
Statement of Position ("SOP") 93-7, "Reporting on Advertising
Costs." SOP 93-7 requires that the amortization of capitalized
advertising costs should be the amount computed using the ratio
that current period revenues for the catalog cost pool bear to
the total of current and estimated future period revenues for
that catalog cost pool. Deferred catalog costs, included in
prepaid expenses and other current assets, as of February 2, 1996
and January 31, 1997 were $40,743,000 and $41,191,000. Catalog
costs, which are reflected in selling and administrative
expenses, for the fiscal years 1994, 1995 and 1996 were
$112,979,000, $132,566,000, and $135,633,000. (See Note 12).
h. Property and Equipment--Property and equipment are
stated at cost. Buildings and improvements are depreciated by the
straight-line method over the estimated useful lives of the
respective assets of twenty years. Furniture, fixtures and
equipment are depreciated by the straight-line method over the
estimated useful lives of the respective assets, ranging from
three to ten years. Leasehold improvements are amortized over the
shorter of their useful lives or related lease terms.
The Company receives construction allowances upon entering
into certain store leases. These construction allowances are
recorded as deferred credits and are amortized over the term of
the related lease.
i. Other Assets--Other assets consist primarily of debt
issuance costs which are amortized over the term of the related
debt agreements.
j. Income Taxes--The provision for income taxes includes
taxes currently payable and deferred taxes resulting from the tax
effects of temporary differences between the financial statement
and tax bases of assets and liabilities, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
k. Revenue Recognition--Revenue is recognized when
merchandise is shipped to customers. The Company accrues a sales
return allowance in accordance with its return policy for
estimated returns of merchandise subsequent to the balance sheet
date that relate to sales prior to the balance sheet date.
l. Store Preopening Costs--Costs associated with the opening
of new retail and outlet stores are expensed as incurred.
m. Financial Instruments--The following disclosure about
the fair value of financial instruments is made in accordance
with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." The fair value of the Company's
long-term debt, including current portion, is estimated to be
approximately $93,500,000 and $89,100,000 at February 2, 1996 and
January 31, 1997, and is based on management's estimate of the
present value of future cash flows discounted at the current
market rate for financial instruments with similar
characteristics and maturity. The carrying amounts of long-term
debt are $87,329,000 and $87,092,000 at February 2, 1996 and
January 31, 1997. The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value
because of the short-term maturity of those financial
instruments. The estimates presented herein are not necessarily
indicative of amounts the Company could realize in a current
market exchange.
The Company from time to time enters into forward foreign
exchange contracts as hedges relating to identifiable currency
positions to reduce the risk from exchange rate fluctuations.
Gains and losses on these contracts are deferred and recognized
as adjustments to the bases of those assets. Such gains and
losses were not material.
At February 2, 1996, the Company had a forward foreign
exchange contract outstanding with J. P. Morgan to deliver 230
million yen on March 29, 1996. At January 31, 1997, the Company
had a forward foreign exchange contract outstanding with J. P.
Morgan to deliver 235 million yen on March 31, 1997. These
contracts are hedges
F-8
<PAGE>
relating to foreign licensing revenues. The fair value of these
contracts approximated carrying value due to their short-term
maturities.
The Company is exposed to credit losses in the event of
nonperformance by the counterparties to the forward foreign
exchange contract, but it does not expect any counterparties to
fail to meet their obligation given their high-credit rating.
n. Use of Estimates in the Preparation of Financial
Statements--The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
o. Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of--In March 1995, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, and is effective for fiscal years beginning
after December 15, 1995. The adoption of SFAS No. 121 did not
have an effect on the Company's financial position or results of
operations.
p. Reclassifications--Certain items in prior years in
specific captions of the consolidated financial statements and
notes to financial statements have been reclassed for comparative
purposes.
2. OTHER CURRENT LIABILITIES
Other current liabilities consist of:
February 2, January 31,
1996 1997
Customer liabilities....... $18,827,000 $22,968,000
Accrued catalog and
marketing costs............ 9,191,000 10,734,000
Taxes, other than
income taxes............... 7,235,000 9,093,000
Other...................... 23,990,000 20,143,000
---------- ----------
Total................... $59,243,000 $62,938,000
=========== ===========
3. LONG-TERM DEBT
February 2, January 31,
1996 1997
Senior Notes(a).............................. $85,000,000 $85,000,000
Industrial Development Revenue Bond,
bearing interest at 73.33% of
prime rate (8.25% at January 31,
1997); due in monthly principal
payments of $19,737 from January 1,
1987 through December 1, 2005(b)......... 2,329,000 2,092,000
----------- -----------
87,329,000 87,092,000
Less payments due within one year............ (237,000) (237,000)
----------- -----------
Total.................................. $87,092,000 $86,855,000
=========== ===========
F-9
<PAGE>
(a) In June 1995, the Company issued privately to institutional
investors $85,000,000 of 8.1% Senior Notes (the "Senior
Notes") due December 15, 2004. Interest on the Senior Notes
is payable semiannually on June 15 and December 15. The
Senior Notes are payable in annual installments of
$4,000,000 in December 1998 and $13,500,000 from December
1999 through December 2004. The proceeds of this private
placement were used to prepay $58,000,000 principal amount
of senior notes then outstanding and for general corporate
purposes.
The provisions of the note agreement and the credit
agreement (see Note 4) include (i) requirements that the
Company maintain minimum levels of tangible net worth, fixed
charges coverage, current ratio and funded debt as a
percentage of tangible net worth; and (ii) limitations on
liens, sale and leaseback transactions, funded debt, payment
of dividends and repurchases of capital stock, acquisitions,
investments and sales of assets, among others.
(b) Property with a net carrying value of approximately
$3,400,000 is encumbered as collateral under the Industrial
Development Revenue Bond as of January 31, 1997 and February
2, 1996.
The maturities of long-term debt required during the next five
fiscal years are:
Fiscal Year Amount
1997................ $ 237,000
1998................ 4,237,000
1999................ 13,737,000
2000................ 13,737,000
2001................ 13,737,000
4. LINES OF CREDIT
In March 1995, the Company entered into a $125 million
syndicated revolving credit agreement (the "Credit Agreement")
with a group of seven banks with J. P. Morgan as agent. The
Credit Agreement provides for commitments for direct borrowings
of up to $75 million and letters of credit of up to $125 million.
Borrowings under the Credit Agreement are unsecured and bear
interest, at the Company's option, at the base rate (defined as
the higher of the bank's prime rate or the Federal funds rate
plus .5%) or the London Interbank Offering Rate plus .5%. The
Credit Agreement expires on March 31, 1998.
During fiscal 1994, 1995 and 1996, maximum borrowings under
revolving credit agreements were $25,900,000, $49,000,000 and
$55,000,000, and average borrowings were $6,600,000, $25,500,000
and $31,200,000. There were no borrowings outstanding under the
Credit Agreement at February 2, 1996 or January 31, 1997.
Outstanding letters of credit issued to facilitate
international merchandise purchases at February 2, 1996 and
January 31, 1997 amounted to $25,850,000 and $37,800,000.
5. STOCKHOLDERS' EQUITY
The Company has authorized 1,000,000 shares of common
stock, $1 par value; 20,000 shares of 6% noncumulative preferred
stock, $100 par value; and 10,000 shares of 8% cumulative
preferred stock, $100 par value. The common and preferred stock
have the right to vote, with each share entitled to one vote.
The holders of the 8% cumulative preferred stock shall be
entitled to receive cash dividends when, as and if declared by
the Board of Directors, at the rate of 8% per annum on its par
value in priority to the payment of any
F-10
<PAGE>
dividends for other classes of stock during any year. Such
dividends shall be cumulative from the date of issue, so that if
applicable dividends for any past dividend period shall not have
been paid thereon or declared and a sum sufficient for payment
not set apart, the deficiency shall be fully paid or set apart,
without interest, before any dividend shall be paid or set apart
for any other class of stock.
The Company has agreements with its stockholders requiring
the stockholders to offer preferred or common shares to the
Company at prices computed in accordance with the agreements
before disposing of these shares to others. The Company may, at
its option, redeem shares of preferred stock at a price equal to
the par value of the preferred stock.
At January 31, 1997, the Company had 34,925 shares of
common stock, 6,455 shares of 6% noncumulative preferred stock
and 2,495 shares of 8% cumulative preferred stock held in
treasury.
6. COMMITMENTS AND CONTINGENCIES
a. Operating Leases--As of January 31, 1997, the Company
was obligated under various long-term operating leases for retail
and outlet stores, warehouses and office space and equipment
requiring minimum annual rentals. These operating leases expire
on varying dates to 2012. At January 31, 1997 aggregate minimum
rentals in future periods are as follows:
Fiscal Year Amount
----------- -------
1997.............. $27,949,000
1998.............. 28,766,000
1999.............. 26,591,000
2000.............. 24,000,000
2001.............. 22,003,000
Thereafter........ 116,438,000
Certain of these leases include renewal options and provide
for contingent rentals based upon sales and require the lessee to
pay taxes, insurance and other occupancy costs.
Rent expense for fiscal 1994, 1995 and 1996 was
$25,902,000, $27,366,000 and $29,852,000, including percentage
rent of $2,470,000, $2,197,000 and $2,850,000.
b. Employment Agreements--The Company is party to
employment agreements with certain executives which provide for
compensation and certain other benefits. The agreements also
provide for severance payments under certain circumstances.
In connection with an employment agreement, the Company was
obligated to pay to an employee a bonus based upon a
predetermined formula, payable in shares of common stock at fair
value and cash. In connection with the agreement, the Company
issued 5,033 and 2,898 treasury shares during fiscal 1994 and
1995.
c. Litigation--The Company is involved in various legal
proceedings, both as plaintiff and as defendant, which are
routine litigations incidental to the conduct of its business.
The Company believes that the ultimate resolution of these
matters will not have a material effect on its financial position
or results of operations.
7. EMPLOYEE BENEFIT PLAN
The Company has a thrift/savings plan pursuant to Section
401 of the Internal Revenue Code whereby all eligible employees
may contribute up to 15% of their annual base salaries subject to
certain limitations. The
F-11
<PAGE>
Company's contribution is based on a percentage formula set forth
in the plan agreement. Company contributions to the
thrift/savings plan for fiscal 1994, 1995 and 1996 were
$1,325,000, $1,478,000 and $1,680,000.
8. LICENSE AGREEMENTS
The Company has a licensing agreement through January 1998
with Itochu, a Japanese trading company. The agreement permits
Itochu to distribute J. Crew merchandise in Japan. The Company
earns royalty payments under the agreement based on the sales of
its merchandise. Royalty income, which is included in other
revenues, for fiscal 1994, 1995 and 1996 was $3,269,000,
$3,975,000 and $3,817,000.
9. INTEREST EXPENSE--NET
Interest expense, net consists of the following:
Fiscal Fiscal Fiscal
1994 1995 1996
------- ------- ----
Interest expense........ $7,145,000 $9,548,000 $10,613,000
Interest income......... (180,000) (198,000) (143,000)
---------- ---------- -----------
Interest expense-net.... $6,965,000 $9,350,000 $10,470,000
========== ========== ===========
10. INCOME TAXES
The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes". This statement
requires the use of the liability method of accounting for income
taxes. Under the liability method, deferred taxes are determined
based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse.
Deferred tax expense represents the change in the deferred tax
asset/liability balance.
The provision for income taxes consists of:
Fiscal Fiscal Fiscal
1994 1995 1996
------- ------- ----
Current:
Federal ................... $9,100,000 $(5,131,0000) $9,384,000
State and local ........... 2,187,000 500,000 600,000
----------- ---------- ----------
11,287,000 (4,631,000) 9,984,000
Deferred ..................... (987,000) 8,331,000 (1,184,000)
----------- ---------- ----------
Income taxes before tax
effect of extraordinary
item and cumulative effect
of accounting changes ..... 10,300,000 3,700,000 8,800,000
Extraordinary item--current -- (1,200,000) --
Cumulative effect of
accounting changes-deferred .. -- 1,800,000 --
----------- ---------- ----------
Total provision for income
taxes ........................ $10,300,000 $4,300,000 $8,800,000
=========== ========== ==========
F-12
<PAGE>
The difference between the provision for income taxes based
on the U.S. Federal statutory rate and the Company's effective
rate is due primarily to state income taxes.
Fiscal Fiscal Fiscal
1994 1995 1996
------ ------ ----
Federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of Federal benefit 5.8 5.1 6.2
---- ---- ----
Effective tax rate 40.8% 40.1% 41.2%
==== ==== ====
The tax effect of temporary differences which give rise to
deferred tax assets and liabilities are:
February 2 January 31,
1996 1997
Deferred tax assets:
Allowance for doubtful accounts... $1,979,000 $1,769,000
State net operating loss
carryforwards .................... 1,100,000 1,300,000
Other 1,177,000 3,155,000
--------- ---------
4,256,000 6,224,000
Deferred tax liabilities:
Prepaid catalog costs
and other prepaid costs (17,995,000) (18,779,000)
----------- -----------
Net deferred income taxes $(13,739,000) $(12,555,000)
============ ============
11. EXTRAORDINARY ITEM
In June 1995, the Company prepaid $58 million principal
amount of senior notes and recorded an extraordinary loss of
$1,679,000 (net of an income tax benefit of $1,200,000),
consisting of the write-off of deferred financing costs and
redemption premiums related to the early retirement of debt.
12. ACCOUNTING CHANGES
Effective February 4, 1995, the Company changed its method
of accounting for catalog costs to conform with the provisions of
the SOP 93-7. SOP 93-7 requires that the amortization of
capitalized advertising costs should be the amount computed using
the ratio that current period revenues for the catalog cost pool
bear to the total of current and estimated future period revenues
for that catalog cost pool. Prior to fiscal 1995, such costs were
amortized on a straight-line basis over the estimated productive
life of the catalog. The cumulative effect of applying this
change in accounting on prior periods was a decrease in net
income of $1,600,000 (net of an income tax benefit of
$1,000,000).
Effective February 4, 1995, the Company modified its
inventory accounting practices to include the capitalization of
certain design, purchasing and warehousing costs. Prior to this
change, these costs were charged to expense in the period
incurred rather than in the period in which the inventories were
sold. The Company believes this change is preferable because it
provides a better matching of revenues and costs and improves the
comparability of operating results and financial position with
those of other companies. The cumulative effect of applying this
change in accounting on prior periods was an increase in net
income of $4,210,000 (net of income taxes of $2,800,000).
The effect of these changes on fiscal 1995's results,
excluding the cumulative effect, was to increase net income by
$1,000,000. The pro forma effect of these changes on net income
in fiscal 1994 would not have been material.
F-13
<PAGE>
J. CREW OPERATING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, November 7, 1997
1997 (unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents............. $7,132 $12,992
Accounts receivable (net of allowance
for doubtful accounts of $4,357 and
$4,670, respectively 58,079 17,493
Merchandise inventories............... 197,657 260,506
Prepaid expenses and other current
assets ............................ 58,318 69,467
Refundable income taxes............... -- 4,281
-------- --------
Total current assets................. 321,186 364,739
Property and equipment--at cost: 135,550 171,976
Less accumulated depreciation
and amortization...................... (49,121) (61,485)
-------- --------
86,429 110,491
-------- --------
Other assets............................ 3,206 15,528
-------- --------
Total assets............................ $410,821 $490,758
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--bank.................... $ -- $47,000
Accounts payable...................... 103,279 115,648
Other current liabilities............. 62,938 48,848
Federal and state income taxes payable 9,955 --
Deferred income taxes................. 12,555 12,555
Current portion of long-term debt..... 237 --
-------- --------
Total current liabilities............ 188,964 224,051
Long-term debt.......................... 86,855 220,000
Deferred credits and other long-term
liabilities............................. 32,996 42,240
Stockholders' equity.................... 102,006 4,467
-------- --------
Total liabilities and stockholders'
equity.................................. $410,821 $490,758
======== ========
See notes to unaudited condensed consolidated financial
statements.
F-14
<PAGE>
J. CREW OPERATING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Forty Weeks Ended
November 8, November 7,
1996 1997
(Unaudited) (Unaudited)
(In thousands)
Net sales............................ $528,351 $556,993
Other revenues....................... 10,430 9,603
-------- -------
Revenues........................... 538,781 566,596
Cost of goods sold, including
buying and occupancy costs 292,056 310,865
Gross profit...................... 246,725 255,731
Selling, general and administrative
expenses............................ 240,197 253,159
-------- -------
Income from operations............ 6,528 2,572
Interest expense--net................ 7,551 11,306
Expenses incurred in connection
with recapitalization -- 19,851
Loss before income taxes and
extraordinary item (1,023) (28,585)
Income tax benefit................... 450 4,850
-------- -------
Net loss before extraordinary item $ (573) $(23,735)
Extraordinary item--loss on
refinancing of debt ($7,627 net of
income tax benefit of $3,127)...... (4,500)
-------- -------
Net loss........................... $ (573) $(28,235)
======== ========
See notes to unaudited condensed consolidated financial
statements.
F-16
<PAGE>
J. CREW OPERATING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Forty Weeks Ended
November 8, November 7,
1996 1997
(Unaudited) (Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(573) $(28,235)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operations:
Depreciation and amortization ............ 7,625 10,191
Amortization of deferred financing
costs .................................... 311 2,255
Provision for losses on accounts
receivable .............................. 4,921 4,946
Changes in assets and liabilities
providing/(using) cash:
Accounts receivable ...................... (3,204) 35,640
Merchandise inventories .................. (79,203) (62,849)
Prepaid expenses and other current
assets ................................... (18,927) (11,149)
Other assets ............................. (590) (464)
Accounts payable ......................... 55,853 12,369
Other liabilities ........................ (11,134) (10,573)
Income taxes payable ..................... 2,155 (14,236)
------- -------
Net cash used in operating activities .... (42,766) (62,105)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................... (14,947) (37,010)
Proceeds from construction allowances .... 4,879 8,745
------- -------
Net cash used in investing activities .... (13,042) (28,265)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit
agreement ................................ 55,000 47,000
Issuance of long-term debt ............... -- 220,000
Costs incurred in connection with
issuance of debt ......................... -- (14,374)
Repayment of long-term debt .............. (178) (87,092)
Dividend to parent company ............... -- (69,304)
------- -------
Net cash provided by financing
activities ............................... 54,822 96,230
------- -------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .............................. (2,891) 5,860
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ..................................... 13,529 7,132
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...... $10,638 $12,992
======= =======
See notes to unaudited condensed consolidated financial
statements.
F-16
<PAGE>
J. CREW OPERATING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FORTY WEEK PERIODS ENDED NOVEMBER 8, 1996 AND NOVEMBER 7, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements include the accounts of J. Crew Operating Corp. and
its wholly-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Prior to the Recapitalization, J. Crew Group, Inc.
("Holdings") owned all of the stock, directly or indirectly, of
its various operating subsidiaries. In connection with the
Recapitalization, Holdings formed J. Crew Operating Corp. and
immediately prior to the consummation of the Recapitalization,
Holdings transferred substantially all of its assets and
liabilities to J. Crew Operating Corp.
The consolidated balance sheet as of November 7, 1997 and
the consolidated statements of operations and cash flows for the
forty week periods ended November 8, 1996 and November 7, 1997
have been prepared by the Company and have not been audited. In
the opinion of management, all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation
of the financial position of the Company, the results of its
operations and cash flows have been made.
Certain information and footnote disclosure normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's Consolidated Financial Statements for the fiscal year
ended January 31, 1997.
The results of operations for the forty week period ended
November 7, 1997 are not necessarily indicative of the operating
results for the full fiscal year.
2. RECAPITALIZATION TRANSACTION
The Company, its shareholders (the "Shareholders") and TPG
Partners II, L.P. are parties to a Recapitalization Agreement
dated July 22, 1997 as amended as of October 17, 1997 (the
"Recapitalization Agreement") which provided for the
recapitalization of the Company (the "Recapitalization").
Pursuant to the Recapitalization Agreement, the Company purchased
from the Shareholders all outstanding shares of the Company's
capital stock, other than shares of the Company's Common Stock
held by existing shareholders and which represented 14.8% of the
outstanding shares of the Company's Common Stock immediately
following the transaction. In connection with the
Recapitalization, the Company repaid substantially all of its
preexisting debt obligations immediately before the consummation
of the Recapitalization.
The Recapitalization Agreement was accounted for as a
recapitalization transaction for accounting purposes.
3. LINES OF CREDIT
On October 17, 1997, in connection with the
Recapitalization (as defined below), the Company entered into a
syndicated revolving credit agreement of up to $200.0 million
(the "Revolving Credit Agreement") with a group of banks with The
Chase Manhattan Bank, as administrative and collateral agent (the
"Administrative Agent"), and Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent. Borrowings under
the Revolving Credit Agreement will be utilized to fund the
working capital requirements of the Company's subsidiaries,
including issuance of stand-by and trade letters of credit and
bankers' acceptances. Borrowings are
F-17
<PAGE>
secured by a perfected first priority security interest in all
assets (except for the accounts receivable of Popular Club Plan,
Inc.) of the Company's direct and indirect domestic, and to the
extent no adverse tax consequences would result, foreign
subsidiaries and bear interest, at the Company's option at a base
rate equal to the Administrative Agent's Eurodollar rate plus an
applicable margin or an alternate base rate equal to the highest
of the Administrative Agent's prime rate, a certificate of
deposit rate plus 1% or the Federal Funds effective rate plus
one-half of 1% plus, in each case, an applicable margin. The
Revolving Credit Agreement matures on October 17, 2003. The
Revolving Credit Agreement replaced the Company's previous
revolving credit agreement which provided for commitments in an
aggregate amount of up to $200.0 million, of which up to $120.0
million was available for direct borrowings.
During the forty week periods ended November 8, 1996 and
November 7, 1997, maximum borrowings under the revolving credit
agreements were $55,000,000 and $104,000,000, and average
borrowings were $34,500,000 and $66,700,000. Borrowings
outstanding under the Revolving Credit Agreement were $47,000,000
at November 7, 1997.
Outstanding letters of credit issued to facilitate
international merchandise purchases at November 7, 1997 amounted
to $37,400,000.
4. LONG TERM DEBT
The $70.0 million term loan is subject to the same interest
rates and security terms as the revolving credit facility. The
term loan is repayable in quarterly installments of $4.0 million
from February 2001 through November 2001 and $6.75 million from
February 2002 through November 2003. See Note 3, "Lines of
Credit."
The $150.0 million Senior Subordinated Notes are unsecured
general obligations of J. Crew Operating Corp. and are
subordinated in right of payment to all senior debt. Interest on
the notes will accrue at the rate of 10- 3/8% per annum and will
be payable semi-annually in arrears on April 15 and October 15.
The notes will mature on October 15, 2007 and may be redeemed at
the option of the issuer subsequent to October 15, 2002 at prices
ranging from 105.188% in 2002 to 100% in 2005 and thereafter.
5. SECURITIZATION
In connection with the Recapitalization, a facility was
entered into to securitize certain consumer loan installment
receivables of Popular Club Plan, Inc. on a revolving basis. This
securitization involved the transfer of receivables with limited
recourse through a special purpose bankruptcy remote subsidiary
to a trust in exchange for cash and subordinated certificates
representing undivided interests in the pool of receivables and
the subsequent sale by the trust of certificates of beneficial
interest to third party investors. The Company has no obligation
to reimburse the trust or the purchasers of beneficial interests
for credit losses. This transaction has been accounted for as a
sale in accordance with the provisions of Statement of Financial
Accounting Standards No. 125 and accordingly the accounts
receivable and the corresponding obligations are not reflected in
the consolidated financial statements as of November 7, 1997. At
November 7, 1997, $42.0 million of proceeds were received from
the sale of accounts receivable and a loss on sale of $400,000
has been recognized in the statement of operations.
* * * * * *
F-18
<PAGE>
=================================================================
No person has been authorized to give any information or to make
any representations other than those contained or incorporated by
reference in this Prospectus and the accompanying Letter of
Transmittal and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or the Exchange Agent. Neither this Prospectus nor
the accompanying Letter of Transmittal, or both together,
constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery
of this Prospectus, nor the accompanying Letter of Transmittal,
or both together, nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or
thereof or that the information contained herein is correct at
any time subsequent to the date hereof or thereof. Until , 1998
(90 days after the date of this Prospectus), all dealers
effecting transactions in the New Debentures, whether or not
participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of the dealers
to deliver a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
Page
Available Information........................................i
Incorporation of Certain Documents by Reference..............i
Prospectus Summary...........................................1
Risk Factors................................................16
The Recapitalization........................................23
Texas Pacific Group.........................................25
Use of Proceeds.............................................25
Capitalization..............................................25
Unaudited Pro Forma Consolidated Financial Data.............26
Selected Consolidated Financial Data........................31
Management's Discussion and Analysis of
Financial Condition and Results of Operations..........33
Business....................................................44
Management..................................................58
Certain Relationships and Related Transactions..............63
Description of Holdings Indebtedness........................64
Capital Stock of Holdings and the Issuer....................65
Description of Other Issuer Indebtedness....................67
The Exchange Offer..........................................69
Description of the New Notes................................77
Certain U.S. Federal Tax Considerations....................109
Plan of Distribution.......................................111
Legal Matters..............................................111
Experts....................................................111
Change in Accountants......................................112
Consolidated Financial Statements..........................F-1
=================================================================
=================================================================
J. Crew Operating Corp.
Offer to Exchange
Series B 10-3/8% Senior Subordinated Notes due 2007,
which have been registered under the
Securities Act of 1933, as amended,
for any and all outstanding
10-3/8% Senior Subordinated Notes due 2007
PROSPECTUS
_________ __, 1998
=================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Registrants Incorporated Under the Laws of the State of Delaware
The Issuer's Certificate of Incorporation provides that
each person who is or was or had agreed to become a director or
officer of the Issuer, or each such person who is or was serving
or who had agreed to serve at the request of the Board or an
officer of the Issuer as an employee or agent of the Issuer or as
a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other entity (including the
heirs, executors, administrators, or estate of such person) will
be indemnified by the Issuer to the full extent permitted by the
Delaware General Corporation Law (the "DGCL").
The Certificate of Incorporation of each of H.F.D. No. 55,
Inc., J. Crew International, Inc. and J. Crew Services, Inc.
provides for the indemnification of their officers and directors
to the full extent permitted by the DCGL.
The By-laws of Grace Holmes, Inc. ("Grace Holmes") provide
that each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he or she is or was a
director, officer or employee of Grace Holmes or is or was
serving at the request of Grace Holmes as a director, officer,
employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise including service with
respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by Grace Holmes to the full extent
permitted by the DGCL.
Section 145 of the DGCL provides:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with
the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best
interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter
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as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court of
Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a present or former director or
officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this section, or in defense of
any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the present or former
director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard
of conduct set forth in subsections (a) and (b) of this section.
Such determination shall be made, with respect to a person who is
a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or
(2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be
paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in
this section. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against such person in any such capacity or arising out of
such person's status as such whether or not the corporation
would have the power to indemnify such person against such
liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the
resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a
director, officer,
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employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent
with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under
any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses
(including attorneys' fees).
Registrants Incorporated Under the Laws of the State of New Jersey
The Certificate of Incorporation of J. Crew Inc. provides
that the company shall to the fullest extent permitted by Section
14A:3-5 of the New Jersey Business Corporation Act ("NJBCA")
indemnify any and all corporate agents whom it shall have power
to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or
covered by said section, and the indemnification provided for
shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, vote of
shareholders, or otherwise, and shall continue as to a person who
has ceased to be a corporate agent and shall inure to the benefit
of the heirs, executors, administrators and personal
representatives of such corporate agent.
The By-laws of J. Crew, Inc, PCP and C&W provide that except
to the extent expressly prohibited by the NJBCA, each of these
corporations shall indemnify each person made or threatened to be
made a party to or called as a witness in or asked to provide
information in connection with any pending or threatened action,
proceeding, hearing or investigation, whether civil or criminal,
and whether judicial, quasi-judicial, administrative, or
legislative, and whether or not for or in the right of such
corporation or any other enterprise, by reason of the fact that
such person or such person's testator or intestate is or was a
director or officer of such corporation, or is or was a director
or officer of such corporation who also serves or served at the
request of such corporation any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
in any capacity, against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses, including attorneys'
fees, incurred in connection with such action or proceeding, or
any appeal therein, provided that no such indemnification shall
be made if a judgment or other final adjudication adverse to such
person establishes that his or her acts or omissions were in
breach of his or her duty of loyalty to the corporation or its
shareholders, were not in good faith or involved a knowing
violation of law, or resulted in receipt by such person of an
improper personal benefit, and provided further that no such
indemnification shall be required with respect to any settlement
or other nonadjudicated disposition of any threatened or pending
action or proceeding unless such corporation has given its prior
consent to such settlement or other disposition.
Section 14A:3-5 of the NJBCA provides:
(1) As used in this section,
(a) "Corporate agent" means any person who is or was a
director, officer, employee or agent of the indemnifying
corporation or of any constituent corporation absorbed by
the indemnifying corporation in a consolidation or merger
and any person who is or was a director, officer, trustee,
employee or agent of any other enterprise, serving as such
at the request of the indemnifying corporation, or of any
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such constituent corporation, or the legal representative
of any such director, officer, trustee, employee or agent;
(b) "Other enterprise" means any domestic or foreign
corporation, other than the indemnifying corporation, and
any partnership, joint venture, sole proprietorship, trust
or other enterprise, whether or not for profit, served by
a corporate agent;
(c) "Expenses" means reasonable costs, disbursements
and counsel fees;
(d) "Liabilities" means amounts paid or incurred in
satisfaction of settlements, judgments, fines and penalties;
(e) "Proceeding" means any pending, threatened or
completed civil, criminal, administrative or arbitrative
action, suit or proceeding, and any appeal therein and any
inquiry or investigation which could lead to such action,
suit or proceeding; and
(f) References to "other enterprises" include employee
benefit plans; references to "fines" include any excise
taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of
the indemnifying corporation" include any service as a
corporate agent which imposes duties on, or involves
services by, the corporate agent with respect to an
employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner the
person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in
this section.
(2) Any corporation organized for any purpose under any
general or special law of this State shall have the power to
indemnify a corporate agent against his expenses and liabilities
in connection with any proceeding involving the corporate agent
by reason of his being or having been such a corporate agent,
other than a proceeding by or in the right of the corporation, if
(a) such corporate agent acted in good faith and in
a manner he reasonably believed to be in or not opposed to
the best interests of the corporation; and
(b) with respect to any criminal proceeding, such
corporate agent had no reasonable cause to believe his
conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent, shall not of itself
create a presumption that such corporate agent did not meet
the applicable standards of conduct set forth in paragraphs
14A:3-5(2)(a) and 14A:3-5(2)(b).
(3) Any corporation organized for any purpose under any
general or special law of this State shall have the power to
indemnify a corporate agent against his expenses in connection
with any proceeding by or in the right of the corporation to
procure a judgment in its favor which involves the corporate
agent by reason of his being or having been such corporate agent,
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation.
However, in such proceeding no indemnification shall be provided
in respect of any claim, issue or matter as to which such
corporate agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the Superior
Court or the court in which such proceeding was brought shall
determine upon application that despite the adjudication of
liability, but in view of all circumstances of the case, such
corporate agent is fairly and reasonably entitled to indemnity
for such expenses as the Superior Court or such other court shall
deem proper.
(4) Any corporation organized for any purpose under any
general or special law of this State shall indemnify a corporate
agent against expenses to the extent that such corporate agent
has been successful on the merits or otherwise in any proceeding
referred to in subsections 14A:3-5(2) and 14A:3-5(3) or in
defense of any claim, issue or matter therein.
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(5) Any indemnification under subsection 14A:3-5(2) and,
unless ordered by a court, under subsection 14A:3-5(3) may be
made by the corporation only as authorized in a specific case
upon a determination that indemnification is proper in the
circumstances because the corporate agent met the applicable
standard of conduct set forth in subsection 14A:3-5(2) or
subsection 14A:3-5(3). Unless otherwise provided in the
certificate of incorporation or bylaws, such determination shall
be made
(a) by the board of directors or a committee thereof,
acting by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in
the proceeding; or
(b) if such a quorum is not obtainable, or, even if
obtainable and such quorum of the board of directors or
committee by a majority vote of the disinterested directors
so directs, by independent legal counsel, in a written
opinion, such counsel to be designated by the board of
directors; or
(c) by the shareholders if the certificate of
incorporation or bylaws or a resolution of the
board of directors or of the shareholders so directs.
(6) Expenses incurred by a corporate agent in connection
with a proceeding may be paid by the corporation in advance of
the final disposition of the proceeding as authorized by the
board of directors upon receipt of an undertaking by or on behalf
of the corporate agent to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified as provided in this section.
(7) (a) If a corporation upon application of a corporate
agent has failed or refused to provide indemnification as
required under subsection 14A:3-5(4) or permitted under
subsections 14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a
corporate agent may apply to a court for an award of
indemnification by the corporation, and such court
(i) may award indemnification to the extent
authorized under subsections 14A:3- 5(2) and
14A:3-5(3) and shall award indemnification to the
extent required under subsection 14A:3-5(4),
notwithstanding any contrary determination which may
have been made under subsection 14A:3-5(5); and
(ii) may allow reasonable expenses to the extent
authorized by, and subject to the provisions of,
subsection 14A:3-5(6), if the court shall find that
the corporate agent has by his pleadings or during the
course of the proceeding raised genuine issues of fact
or law.
(b) Application for such indemnification may be made
(i) in the civil action in which the expenses were
or are to be incurred or other amounts were or are
to be paid; or
(ii) to the Superior Court in a separate proceeding.
If the application is for indemnification arising out
of a civil action, it shall set forth reasonable cause
for the failure to make application for such relief in
the action or proceeding in which the expenses were or
are to be incurred or other amounts were or are to be
paid.
The application shall set forth the disposition of any
previous application for indemnification and shall be made
in such manner and form as may be required by the
applicable rules of court or, in the absence thereof, by
direction of the court to which it is made. Such
application shall be upon notice to the corporation. The
court may also direct that notice shall be given at the
expense of the corporation to the shareholders and such
other persons as it may designate in such manner as it may
require.
(8) The indemnification and advancement of expenses
provided by or granted pursuant to the other subsections of this
section shall not exclude any other rights, including the right
to be indemnified against liabilities
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and expenses incurred in proceedings by or in the right of the
corporation, to which a corporate agent may be entitled under a
certificate of incorporation, bylaw, agreement, vote of
shareholders, or otherwise; provided that no indemnification
shall be made to or on behalf of a corporate agent if a judgment
or other final adjudication adverse to the corporate agent
establishes that his acts or omissions (a) were in breach of his
duty of loyalty to the corporation or its shareholders, as
defined in subsection (3) of N.J.S. 14A:2-7, (b) were not in good
faith or involved a knowing violation of law or (c) resulted in
receipt by the corporate agent of an improper personal benefit.
(9) Any corporation organized for any purpose under any
general or special law of this State shall have the power to
purchase and maintain insurance on behalf of any corporate agent
against any expenses incurred in any proceeding and any
liabilities asserted against him by reason of his being or having
been a corporate agent, whether or not the corporation would have
the power to indemnify him against such expenses and liabilities
under the provisions of this section. The corporation may
purchase such insurance from, or such insurance may be reinsured
in whole or in part by, an insurer owned by or otherwise
affiliated with the corporation, whether or not such insurer does
business with other insureds.
(10) The powers granted by this section may be exercised by
the corporation, notwithstanding the absence of any provision in
its certificate of incorporation or bylaws authorizing the
exercise of such powers.
(11) Except as required by subsection 14A:3-5(4), no
indemnification shall be made or expenses advanced by a
corporation under this section, and none shall be ordered by a
court, if such action would be inconsistent with a provision of
the certificate of incorporation, a bylaw, a resolution of the
board of directors or of the shareholders, an agreement or other
proper corporate action, in effect at the time of the accrual of
the alleged cause of action asserted in the proceeding, which
prohibits, limits or otherwise conditions the exercise of
indemnification powers by the corporation or the rights of
indemnification to which a corporate agent may be entitled.
(12) This section does not limit a corporation's power to
pay or reimburse expenses incurred by a corporate agent in
connection with the corporate agent's appearance as a witness in
a proceeding at a time when the corporate agent has not been made
a party to the proceeding.
Registrant Incorporated Under the Laws of the State of New York
The By-laws of C&W Outlet, Inc. provide that except to the
extent expressly prohibited by the New York Business Corporation
Law ("NYBCL"), the corporation shall indemnify each person made
or threatened to be made a party to or called as a witness in or
asked to provide information in connection with any pending or
threatened action, proceeding, hearing or investigation, whether
civil or criminal, and whether judicial, quasi-judicial,
administrative, or legislative, and whether or not for or in the
right of the corporation or any other enterprise, by reason of
the fact that such person or such person's testator or intestate
is or was a director or officer of the corporation, or is or was
a director or officer of the corporation who also serves or
served at the request of the corporation any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including
attorneys' fees, incurred in connection with such action or
proceeding, or any appeal therein, provided that no such
indemnification shall be made if a judgment or other final
adjudication adverse to such person establishes that his or her
acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not
legally entitled, and provided further that no such
indemnification shall be required with respect to any settlement
or other nonadjudicated disposition of any threatened or pending
action or proceeding unless the corporation has given its prior
consent to such settlement or other disposition.
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Section 772 of the NYBCL provides:
Authorization for indemnification of directors and officers
(a) A corporation may indemnify any person made,
or threatened to be made, a party to an action or
proceeding (other than one by or in the right of the
corporation to procure a judgment in its favor), whether
civil or criminal, including an action by or in the right
of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which
any director or officer of the corporation served in any
capacity at the request of the corporation, by reason of
the fact that he, his testator or intestate, was a director
or officer of the corporation, or served such other
corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees actually and
necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or
officer acted, in good faith, for a purpose which he
resonably believed to be in, or, in the case of service for
any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not
opposed to, the best interests of the corporation and, in
criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal
action or proceedings by judgment, settlement, conviction
or upon a plea of nolo contendere, or its equivalent, shall
not in itself create a presumption that any such director
or officer did not act, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service
for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or
that he had reasonable cause to believe that his conduct
was unlawful.
(c) A corporation may indemnify any person made,
or threatened to be made, a party to an action by or in the
right of the corporation to procure a judgment in its favor
by reason of the fact that he, his testator or intestate,
is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a
director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint
venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or
settlement of such actions, or in connection with an appeal
therein, if such director or officer acted, in good faith,
for a purpose which he reasonably believed to be in, or, in
the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the
corporation, except that no indemnification under this
paragraph shall be made in respect of (1) a threatened
action, or a pending action which is settled or otherwise
disposed of, or (2) any claim, issue or matter as to which
such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court
in which the action was brought, or, if no action was
brought, any court of competent jurisdiction,
determines upon application that, in view of all the
circumstances of the case, the person is fairly and
reasonably entitled to indemnify for such portion of the
settlement amount and expenses as the court deems proper.
(d) For the purposes of this section, a corporation
shall be deemed to have requested a person to serve an
employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be considered fines;
and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's
duties for a purpose reasonably believed by such person to
be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
The Registrants maintain directors' and officers' liability
insurance.
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Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. A list of exhibits included as part of this
Registration Statement is set forth in the Exhibit Index which
immediately precedes such exhibits and is hereby incorporated by
reference herein.
(b) Financial Statement Schedules. Schedules have been
omitted since the required information is not present, or not
present in amounts sufficient to require submission of the
schedule, or because the information is included in the financial
statements or notes thereto.
Item 22. Undertakings.
The undersigned registrants hereby undertake that, for
purposes of determining any liability under the Securities Act of
1933, each filing of any registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plans
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant, pursuant to the
foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of any of the registrants in the successful
defense of any action, suit or proceeding) is asserted by any
such director, officer or controlling person in connection with
the securities being registered, such registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether or not such indemnification
is against public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such
issue.
The undersigned registrants hereby undertake to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration
statement through the date of responding to the request.
The undersigned registrants hereby undertake to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
each registrant has duly caused this registration statement to be
signed on its behalf, thereunto duly authorized, in the City of
New York, State of New York, on December 15, 1997.
J. CREW OPERATING CORP.
By: /s/ Emily Woods
-----------------------------
Name: Emily Woods
Title: Chief Executive Officer
J. CREW INC.
By: /s/ Emily Woods
-----------------------------
Name: Emily Woods
Title: President
POPULAR CLUB PLAN, INC.
By: /s/ Matthew E. Rubel
-----------------------------
Name: Matthew E. Rubel
Title: President
CLIFFORD & WILLS, INC.
By: /s/ Trudy F. Sullivan
-----------------------------
Name: Trudy F. Sullivan
Title: President
GRACE HOLMES, INC.
By: /s/ David M. DeMattei
-----------------------------
Name: David M. DeMattei
Title: President
H.F.D. NO. 55, INC.
By: /s/ David M. DeMattei
-----------------------------
Name: David M. DeMattei
Title: President
S-1
<PAGE>
C&W OUTLET, INC.
By: /s/ Trudy F. Sullivan
-----------------------------
Name: Trudy F. Sullivan
Title: President
J. CREW INTERNATIONAL, INC.
By: /s/ Michael P. McHugh
-----------------------------
Name: Michael P. McHugh
Title: President
J. CREW SERVICES, INC.
By: /s/ Michael P. McHugh
-----------------------------
Name: Michael P. McHugh
Title: President
POWER OF ATTORNEY
Each person whose signature appears below on this
Registration Statement hereby constitutes and appoints Emily
Woods, Michael P. McHugh and Nicholas Lamberti, and each of them,
with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities (unless revoked in writing) to sign any and
all amendments (including post-effective amendments thereto) to
this Registration Statement to which this power of attorney is
attached, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as full to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons in the capacities indicated, on December 15, 1997.
Signature Title
/s/ Emily Woods Director--J. Crew Operating Corp.;
- ----------------------- C&W Outlet, Inc.; Clifford
Emily Woods & Wills, Inc.; Grace Holmes, Inc.;
H.F.D. No. 55, Inc.; J. Crew
Inc.; J. Crew International, Inc.;
J. Crew Services, Inc.; Popular
Club Plan, Inc.
Chief Executive Officer--J. Crew
Operating Corp.
President--J. Crew Inc.
S-2
<PAGE>
Signature Title
/s/ David Bonderman Director - J. Crew Operating Corp.
- -----------------------
David Bonderman
/s/ James G. Coulter Director - J. Crew Operating Corp.
- -----------------------
James G. Coulter
/s/ Richard W. Boyce Director - J. Crew Operating Corp.;
- ----------------------- C&W Outlet, Inc.; Clifford
Richard W. Boyce & Wills, Inc.; Grace Holmes, Inc.;
H.F.D. No. 55, Inc.; J. Crew
Inc.; J. Crew International, Inc.;
J. Crew Services, Inc.; Popular
Club Plan, Inc.
/s/ Jonathan Coslet Director - J. Crew Operating Corp.;
- ----------------------- C&W Outlet, Inc.; Clifford
Jonathan Coslet & Wills, Inc.; Grace Holmes, Inc.;
H.F.D. No. 55, Inc.; J. Crew
Inc.; J. Crew International, Inc.;
J. Crew Services, Inc.; Popular
Club Plan, Inc.
[remainder of page intentionally left blank]
S-3
<PAGE>
Signature Title
/s/ Michael P. McHugh Vice President Finance and
- ----------------------- Chief Financial Officer--J. Crew
Michael P. McHugh Operating Corp.
President--J. Crew International,
Inc.; J. Crew Services, Inc.
/s/ Nicholas Lamberti Vice President--J. Crew Operating Corp.
- -----------------------
Nicholas Lamberti
/s/ Matthew E. Rubel President--Popular Club Plan, Inc.
- -----------------------
Matthew E. Rubel
/s/ Trudy F. Sullivan President--Clifford & Wills, Inc.;
- ----------------------- C&W Outlet, Inc.
Trudy F. Sullivan
/s/ David M. DeMattei President--Grace Holmes, Inc.;
- ----------------------- H.F.D. No. 55, Inc.
David M. DeMattei
S-4
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Recapitalization Agreement, dated as of July 22, 1997
between TPG Partners II, L.P. and J. Crew Group, Inc. (the
"Recapitalization Agreement")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrants hereby undertake to
furnish to the Commission upon request copies of any
schedule to the Recapitalization Agreement.
2.2 Amendment to Recapitalization Agreement, dated as of October
17, 1997 between TPG Partners II, L.P. and J. Crew Group,
Inc. (the "Amendment")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrants hereby undertake to
furnish to the Commission upon request copies of any
schedule to the Amendment.
3.1 Certificate of Incorporation of J. Crew Corp.
3.2 Certificate of Amendment of Certificate of Incorporation
Before Payment of Capital of J. Crew Corp.
3.3 Certificate of Incorporation of Popular Club Plan, Inc.
3.4 Certificate of Incorporation of Clifford & Wills, Inc.
3.5 Certificate of Incorporation of Grace Holmes, Inc.
3.6 Certificate of Incorporation of H.F.D. No. 55, Inc.
3.7 Certificate of Incorporation of C&W Outlet, Inc.
3.8 Certificate of Incorporation of J. Crew Outfitters, Inc.
3.9 Certificate of Amendment of Certificate of Incorporation of
J. Crew Outfitters, Inc.
3.10 Amended and Restated Certificate of Incorporation of J. Crew
International, Inc.
3.11 Certificate of Change of Location of Registered Office and
of Registered Agent of J. Crew International, Inc.
3.12 Certificate of Incorporation of J. Crew Services, Inc.
3.13 Certificate of Correction Filed to Correct a Certain Error
Contained in the Certificate of Incorporation of J. Crew
Services, Inc.
3.14 By-laws of J. Crew Operating Corp.
X-1
<PAGE>
Exhibit
No. Description
- ------- -----------
3.15 By-laws of Popular Club Plan, Inc.
3.16 By-laws of Clifford & Wills, Inc.
3.17 By-laws of Grace Holmes, Inc.
3.18 By-laws of H.F.D. No. 55, Inc.
3.19 By-laws of C&W Outlet, Inc.
3.20 By-laws of J. Crew Inc.
3.21 By-laws of J. Crew International, Inc.
3.22 By-laws of J. Crew Services, Inc.
4.1 Indenture, dated as of October 17, 1997, among J. Crew
Operating Corp., the subsidiary guarantors of J. Crew
Operating Corp. that are signatories thereto and State
Street Bank and Trust Company, as trustee, relating to the
Notes (the "Indenture")
4.2 Form of Series B 10-3/8% Senior Subordinated Note due 2007
of J. Crew Operating Corp. (the "New Notes") (included as
Exhibit B of the Indenture filed as Exhibit 4.2)
4.3 Credit Agreement, dated as of October 17, 1997, among J.
Crew Group, Inc., J. Crew Operating Corp., the Lenders Party
thereto, the Chase Manhattan Bank, as Administrative Agent,
and Donaldson, Lufkin & Jenrette Securities Corporation, as
Syndication Agent*
4.4 Guarantee Agreement dated as of October 17, among J. Crew
Group, Inc., the subsidiary guarantors of J. Crew Operating
Corp. that are signatories thereto and The Chase Manhattan
Bank
4.5 Indemnity, Subrogation and Contribution Agreement dated as
of October 17, 1997, among J. Crew Operating Corp., the
subsidiary guarantors of J. Crew Operating Corp. that are
signatories thereto and The Chase Manhattan Bank
4.6 Pledge Agreement, dated as of October 17, among J. Crew
Operating Corp., J. Crew Group, Inc., the subsidiary
guarantors of J. Crew Operating Corp. that are signatories
thereto and The Chase Manhattan Bank
4.7 Security Agreement, dated as of October 17, among J. Crew
Operating Corp., J. Crew Group, Inc., the subsidiary
guarantors of J. Crew Operating Corp. that are signatories
thereto and The Chase Manhattan Bank
- --------
* to be filed by amendment
X-2
<PAGE>
Exhibit
No. Description
- ------- -----------
4.8 Registration Rights Agreement, dated as of October 17, 1997
by and among J. Crew Operating Corp., the subsidiary
guarantors of J. Crew Operating Corp. that are signatories
thereto, Donaldson, Lufkin & Jenrette Securities Corporation
and Chase Securities Inc.
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its parent or subsidiaries,
none of which instruments govern indebtedness exceeding 10
percent of the total assets of the Company and its parent or
subsidiaries on a consolidated basis.
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton regarding
legality of the New Notes and the guarantees of the New
Notes
10.1 Employment Agreement, dated October 17, 1997, among J. Crew
Group, Inc., J. Crew Operating Corp., TPG Partners II, L.P.
(only with respect to Section 2(c) therein) and Emily Woods (the
"Woods Employment Agreement")
10.2 J. Crew Operating Corp. Senior Executive Bonus Plan (included as
Exhibit A to the Woods Employment Agreement filed as Exhibit 10.1)
10.3 Stock Option Grant Agreement, made as of October 17, 1997
between J. Crew Group, Inc. and Emily Woods (time based)
10.4 Stock Option Grant Agreement, made as of October 17, 1997
between J. Crew Group, Inc. and Emily Woods (performance
based)
10.5 Contract Carrier Agreement, between J. Crew Group, Inc. and
United Parcel Service, Inc.
10.6 Custom Pricing Agreement, made November 15, 1996 between
Federal Express Corporation and J Crew Group, Inc.
10.7 Lease dated as of October 21, 1981 between Vornado, Inc. and
Popular Services, Inc.
10.8 Agreement of Sublease dated November 4, 1993 between Revlon
Holdings Inc., as Sublessor, and Popular Club Plan, Inc., as
Sublessee
10.9 Letter Agreement dated July 29, 1996 between World Color and
Clifford & Wills, Inc.
10.10 Agreement dated August 14, 1997 between R.R. Donnelley &
Sons Company and J. Crew Inc.
10.11 Letter Agreement between Matthew Rubel and J. Crew Group,
Inc. *
10.12 Letter Agreement betwjheen David DeMattei and J. Crew
Group, Inc. *
10.13 J.Crew Group, Inc. 1997 Stock Option Plan
16.1 Letter re Change in Certifying Accountant
21.1 Subsidiaries of the Registrants
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
25.1 Form T-1 with respect to the eligibility of State Street
Bank and Trust Company with respect to the Indenture
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4 Form of Letter to Clients
- ---------------
* to be filed by amendment
X-4
EXECUTION COPY
--------------
RECAPITALIZATION AGREEMENT
by and among
THE SHAREHOLDERS LISTED ON SCHEDULE A HERETO,
as Sellers
J. CREW GROUP, INC.
and
TPG PARTNERS II, L.P.
as Buyer
July 22, 1997
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS...........................................1
SECTION 2. PURCHASE AND REDEMPTION OF SHARES.....................8
2.1. Purchase and Redemption of Shares...................8
2.2. Closing.............................................8
2.3. Deliveries and Actions at the Closing...............9
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING
SELLERS AND THE COMPANY.............................10
3.1. Organization and Good Standing of the
Company..........................................10
3.2. Subsidiaries.......................................11
3.3. Capitalization; Title to Shares....................12
3.4. Authority, Approvals and Consents..................12
3.5. Financial Statements...............................13
3.6. Absence of Material Adverse Change;
Conduct of Business..............................14
3.7. Taxes..............................................14
3.8. Legal Matters......................................15
3.9. Real Property......................................15
3.10. Contracts..........................................17
3.11. Employee Benefit Plans.............................17
3.12. Intellectual Property..............................18
3.13. Brokers............................................18
3.14. Environmental Matters..............................19
3.15. Transactions with Insiders.........................19
3.16. Insurance..........................................20
3.17. Certain Additional Items...........................20
3.18. No Other Representations or Warranties.............21
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING
BUYER...............................................21
4.1. Organization of Buyer..............................21
4.2. Power; Authorization; Consents.....................22
4.3. Brokers............................................22
4.4. Investment Intent of Buyer.........................23
4.5. Financial Matters..................................23
4.6. No Reliance........................................23
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<PAGE>
SECTION 5. COVENANTS............................................24
5.1. Access; Confidentiality............................24
5.2. Announcements......................................24
5.3. New Financing......................................25
5.4. Recapitalization...................................25
5.5. Consents; Cooperation..............................26
5.6. Additional Agreement...............................26
5.7. Notification of Certain Matters....................27
5.8. Hart-Scott-Rodino..................................27
5.9. Further Assurances.................................27
5.10. Retention of Books and Records.....................27
5.11. Personnel..........................................28
5.12. Conduct of Business Prior to the Closing...........28
5.13. Sellers' Rights with Respect to Resales............30
5.14. Transfer Taxes.....................................32
5.15. Landlord Consents..................................32
5.16. Retention of Shares................................32
5.17. Termination of Existing Shareholder
Agreement........................................32
5.18. Indemnification....................................33
SECTION 6. CONDITIONS TO THE OBLIGATIONS OF BUYER...............33
6.1. Representations and Warranties;
Covenants........................................33
6.2. Hart-Scott-Rodino..................................34
6.3. Opinion of Sellers' Counsel........................34
6.4. Absence of Injunction..............................34
6.5. Directors..........................................34
6.6. Certificates.......................................34
6.7. Shareholder Approval...............................35
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF SELLERS.............35
7.1. Representations and Warranties;
Covenants........................................35
7.2. Hart-Scott-Rodino..................................35
7.3. Opinion of Buyer's Counsel.........................35
7.4. Absence of Injunction..............................36
7.5. Certificates.......................................36
7.6. Employment/Consulting Agreement....................36
SECTION 8. TERMINATION..........................................36
8.1. Termination........................................36
8.2. Effect of Termination..............................37
SECTION 9. SURVIVAL AND INDEMNIFICATION.........................37
9.1. Survival...........................................37
-ii-
<PAGE>
9.2. Sellers' Indemnification...........................37
9.3. Buyer's Indemnification............................40
9.4. Claims by Third Parties............................41
9.5. Tax Claims of the Buyer............................43
SECTION 10. MISCELLANEOUS........................................44
10.1. Headings...........................................44
10.2. Notices............................................44
10.3. Assignment.........................................45
10.4. Entire Agreement...................................46
10.5. Amendment; Waiver..................................46
10.6. Counterparts.......................................46
10.7. Governing Law......................................46
10.8. Severability.......................................46
10.9. Consent to Jurisdiction............................47
10.10. Third Person Beneficiaries.........................47
10.11. Representations and Warranties;
Disclosure Schedule..............................47
10.12. United States Dollars..............................48
10.13. Expenses...........................................48
10.14. Liquidated Damages.................................48
Schedule A Shareholders
- ----------
Schedule B Seller Addresses
- ----------
Exhibit A Fees, Costs and Expenses
- ----------
Exhibit B Sellers Retained Shares
- ----------
Exhibit C Employment/Consulting Agreement
- ----------
-iii-
<PAGE>
RECAPITALIZATION AGREEMENT
--------------------------
THIS AGREEMENT dated as of this 22nd day of July,
1997, by and among J. Crew Group, Inc., a New York corporation
(the "Company"), the holders of shares of Common Stock listed on
Schedule A hereto (each a "Seller," and collectively, the
"Sellers"), and TPG Partners II, L.P., a Delaware limited
partnership ("Buyer").
The parties hereto desire to effect a series of
transactions pursuant to which, among other things, the Buyer
will acquire from the Company equity securities of the Company,
which securities will represent all of the economic value and
voting power of the Company other than the Retained Shares (as
defined below), and Sellers will sell to the Company all of their
current equity ownership of the Company other than the Retained
Shares.
Accordingly, in consideration of the premises and of
the respective covenants and agreements contained herein, the
parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
-----------
In this Agreement (including the recitals), except as
expressly provided or as the context otherwise requires:
"Affiliate" means with respect to any Person, any
other Person directly or indirectly controlling, controlled by,
or under direct or indirect common control with, such Person. A
Person will be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such corporation,
whether through the ownership of voting securities, by contract
or otherwise.
"Agreement" means this agreement including all
recitals, exhibits and the Disclosure Schedule relating hereto.
"Amended Charter" shall have the meaning given such
term in Section 5.4 hereof.
"Business Day" means any day which is not a Saturday,
Sunday or any other day on which banks in the State of New York
are authorized or required by law to close.
<PAGE>
"Closing" means the closing of the purchase and sale of the
Recapitalization Shares and the Redeemed Shares pursuant to this
Agreement.
"Closing Date" means the date on which the Closing
occurs as determined by Section 2.2 of this Agreement.
"Closing Deadline" shall have the meaning given such
term in Section 2.2 hereof.
"Closing Deliveries" means the deliveries specified by
Section 2.3 of this Agreement.
"Closing Payments" means (a) the aggregate principal
amount of indebtedness outstanding under the Senior Notes, the
IRB Debt and the Revolving Facility on the Closing Date, (b) the
aggregate amount of accrued and unpaid interest and any premium
due on such indebtedness as of the Closing, (c) any unpaid fees
or expenses due on such indebtedness as of the Closing, (d) the
redemption price for all of the Preferred Shares as specified in
the Company's Certificate of Incorporation as in effect on the
date hereof, and, without duplication, (e) the aggregate amount
of fees, costs and expenses set forth on Exhibit A hereto.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Common Shares" means all shares of Common Stock
issued and outstanding on the date hereof.
"Common Stock" means the common stock, par value $1.00
per share, of the Company.
"Company Agreement" means any mortgage, indenture,
note, agreement, contract, lease, license, franchise, obligation,
instrument or other commitment, arrangement or understanding of
any kind, to which the Company or a Subsidiary is a party or by
which the Company or a Subsidiary or any of their respective
property may be bound or affected.
"Confidentiality Agreement" means the Confidentiality
Agreement between Buyer and the Company dated April 26, 1996.
"Debt" shall mean any liability in respect of (i)
borrowed money, (ii) capitalized lease obligations, (iii)
obligations under interest rate agreements and currency
-2-
<PAGE>
agreements and (iv) guarantees of any of the foregoing, provided
that Debt shall not include any New Financing.
"Disclosure Schedule" means the disclosure schedule
relating to this Agreement.
"8% Preferred Shares" means all issued and outstanding
shares of 8% Cumulative Preferred Stock, par value $100 per
share, of the Company.
"Employee Benefit Plan" shall have the meaning given
such term in Section 3.11 hereof.
"Employment/Consulting Agreement" shall have the
meaning given such term in Section 7.6 hereof.
"Environmental Law" means any and all federal, state
or local laws, ordinances or regulations relating to pollution,
the protection of the environment and the discharge or release of
materials into the environment.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Financial Statements" means the audited consolidated
balance sheets of the Company for the years ended February 3,
1995, February 2, 1996 and January 31, 1997, and the related
statements of income, stockholders equity and cash flow for the
periods then ended and the notes thereto accompanied by the
report thereon of Deloitte & Touche LLP.
"GAAP" shall mean United States generally accepted
accounting principles.
"Hazardous Material" shall mean any substance,
chemical, compound, product, solid, gas, liquid, waste or
byproduct which is classified or regulated as "hazardous" or
"toxic" pursuant to any Environmental Law and includes, without
limitation, asbestos, PCBs and petroleum (including crude oil or
any fraction thereof).
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
-3-
<PAGE>
"Indemnitee" shall mean the Buyer, Sellers or Company upon
receipt by the Buyer, Sellers or Company of a Third Party Claim.
"Indemnitor" shall mean any of the Buyer, Sellers or
Company upon receipt by the Buyer, Sellers or Company of a claim
for indemnification from the Indemnitee pursuant to a Third Party
Claim.
"Insider" shall have the meaning given such term in
Section 3.15 hereof.
"Intellectual Property" means all of the following:
(i) trademarks and service marks (registered or unregistered) and
trade names, and all goodwill associated therewith; (ii) patents,
patentable inventions, discoveries, improvements, ideas, know-how
and processes; (iii) trade secrets and the right to limit the use
or disclosure thereof; (iv) copyrights in all works; and (v)
domain names.
"IRB Debt" means the aggregate principal amount
outstanding under the Deed of Assumption, dated as of December 1,
1985, between the Industrial Development Authority of the City of
Lynchburg, Virginia and the Company.
"Knowledge of Sellers", or words of similar import,
means the actual knowledge of Arthur Cinader, Emily Woods and/or
Michael McHugh.
"Leased Property" shall have the meaning given such
term in Section 3.9 hereof.
"Legal Requirements" means all statutes, ordinances,
codes, rules, regulations, standards, judgments, decrees, writs,
rulings, injunctions, orders and other requirements of
governmental, administrative or judicial entities that are
material and applicable to the Company and any of its property.
"Lien" means any encumbrance, mortgage, charge, right
or other security interest.
"Losses" means, in respect of Buyer or Sellers, any
and all losses, liabilities, claims and reasonable expenses of
defense thereof (including, without limitation, fees and
disbursements of counsel, but excluding compensation paid to
employees of Buyer or Sellers or their respective Affiliates, as
-4-
<PAGE>
the case may be, in connection with such defense), Liens or other
obligations of any nature whatsoever.
"Material Adverse Effect" means any material adverse
effect on the business, operations, assets, financial condition,
properties or results of operations of the Company and its
Subsidiaries, taken as a whole.
"Material Agreement" means each Company Agreement that
is material to the business, operations, assets, financial
condition or properties of the Company and its Subsidiaries,
taken as a whole, including, without regard to materiality, each
of the following Company Agreements:
(a) any mortgage, indenture, note, installment
obligation or other instrument, agreement or arrangement
for or relating to borrowing of money by the Company or a
Subsidiary in excess of $100,000;
(b) any guaranty, direct or indirect, by the Company
or a Subsidiary of any obligation for borrowed money,
excluding endorsements made for collection in the ordinary
course of business in excess of $100,000;
(c) any obligation to sell or to register the sale of
any of the Common Shares or Preferred Shares or other
securities of the Company or a Subsidiary;
(d) any obligation to make payments, contingent or
otherwise, arising out of the prior acquisition of the
business of other persons;
(e) any collective bargaining agreement with any labor
union;
(f) any lease or similar arrangement for the use of
personal property involving payments by the Company or a
Subsidiary in excess of $100,000 per annum;
(g) any Company Agreement to which any Insider is a
party;
(h) any Company Agreement providing for aggregate
payments in excess of $100,000 per annum after the Closing
that is not terminable by the Company or a Subsidiary on
less than 180 days' notice without penalty;
-5-
<PAGE>
(i) any Company Agreement containing non-competition
covenants binding on the Company or a Subsidiary;
(j) any partnership, joint venture or similar
agreement to which the Company or a Subsidiary is a party;
and
(k) any employment contracts, arrangements,
commitments or understandings of any kind with any officer,
director, employee or consultant of the Company or a
Subsidiary which may not be terminated by the Company or a
Subsidiary without penalty upon not more than 90 days'
notice, pursuant to which payments may be required to be
made following the Closing.
"New Financing" shall have the meaning given such term
in Section 5.3 hereof.
"Owned Property" shall have the meaning given such
term in Section 3.9 hereof.
"Person" means and includes an individual,
corporation, partnership (limited or general), joint venture,
association, trust, limited liability company, any other
unincorporated organization or entity and a governmental entity
or any department or agency thereto.
"Preferred Shares" means the 6% Preferred Shares and
the 8% Preferred Shares.
"Property Leases" shall have the meaning given such
term in Section 3.9 hereof.
"Real Property" shall mean the Owned Property and the
Leased Property.
"Recapitalization Purchase Price" shall have the
meaning given such term in Section 2.1 hereof.
"Recapitalization Shares" shall have the meaning given
such term in Section 2.1 hereof.
"Redeemed Shares" shall mean all of the Common Shares
except the Retained Shares.
-6-
<PAGE>
"Release" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing into the outdoor environment.
"Retained Shares" shall mean the Common Shares
retained by the Sellers pursuant to Section 5.16 hereof.
"Revolving Facility" means the $200,000,000 Credit
Agreement, dated as of April 18, 1997, among the Company, as
borrower, the Banks listed therein, the Issuing Banks listed
therein, and Morgan Guaranty Trust Company of New York, as agent.
"Sellers Redemption Price" shall mean $347,770,000
less the sum of (i) the value of the Retained Shares as set forth
in Section 5.16 of this Agreement and (ii) $1,184,400,
representing the amount necessary to redeem the Preferred Shares
pursuant to Section 2.3(a).
"Senior Notes" means the Company's 8.10% Senior Notes
due 2004.
"6% Preferred Shares" means all issued and outstanding
shares of 6% Noncumulative Preferred Stock, par value $100 per
share, of the Company.
"Subsidiaries" or "Subsidiary" shall mean any
corporation of which the Company, directly or indirectly, owns a
majority of the common stock or has the power to vote or direct
the voting of sufficient securities to elect a majority of the
board of directors of such corporation, including, but not
limited to, those corporations listed in Section 3.2 of the
Disclosure Schedule.
"Tax" or "Taxes" means all taxes, charges, fees,
levies or other assessments, and all estimated payments thereof,
including but not limited to income, excise, property, sales,
use, value added, environmental, franchise, payroll, transfer,
gross receipts, withholding, social security, and unemployment
taxes, imposed by any federal, state, county or local government,
or any subdivision or agency thereof, and any interest, penalties
and expenses relating to such taxes, charges, fees, levies or
other assessments.
"Tax Returns" means all federal, state and local Tax
returns, reports and declarations which are due and required to
be filed by any applicable Tax law.
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"Third Party Claim" shall have the meaning given such
term in Section 9.4.
SECTION 2. PURCHASE AND REDEMPTION OF SHARES
---------------------------------
2.1. Purchase and Redemption of Shares. Upon and subject
to the terms and conditions of this Agreement, Buyer agrees to
purchase from the Company, and the Company agrees to sell to the
Buyer 48,400 shares of Common Stock, which immediately following
the Closing will constitute eighty-eight percent (88%) of all of
the outstanding common equity securities of the Company and all
of the then outstanding common equity securities of the Company
other than the Retained Shares (the "Recapitalization Shares").
The aggregate purchase price payable for the Recapitalization
Shares by the Buyer (the "Recapitalization Purchase Price") shall
be the amount equal to $549,600,000, less (i) the amount of
proceeds from the New Financing which the Company actually
receives and (ii) the value of the Retained Shares as set forth
in Section 5.16 of this Agreement. Buyer shall provide, or shall
cause one or more other Persons to provide, to the Company the
New Financing. Under no circumstances shall the failure of the
Company or the Buyer to obtain the New Financing relieve the
Buyer of its obligation to purchase the Recapitalization Shares
for the Recapitalization Purchase Price at the Closing. The Buyer
shall pay the Recapitalization Purchase Price in cash, by wire
transfer of immediately available funds to the account of the
Company as designated by the Company. Simultaneously with the
purchase of the Recapitalization Shares by the Buyer, the Company
shall redeem from the Sellers all of the Redeemed Shares for the
Sellers Redemption Price. The Sellers Redemption Price shall be
allocated among the Redeemed Shares in the manner set forth on
Schedule A hereto.
2.2. Closing.
(a) Subject to the satisfaction or waiver of
the conditions set forth in Sections 6 and 7 of this Agreement
(other than those requiring Closing Deliveries), the Closing will
take place at the offices of Willkie Farr & Gallagher, at 10:00
A.M. on a date to be mutually agreed upon by the Sellers and
Buyer (the "Closing Date"), which date shall not be more than 90
days from and after the date hereof (the "Closing Deadline"), or
at such other time and place as the parties may agree. Buyer
shall
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use its best efforts to cause the Closing Date to occur not more
than 60 days from and after of the date hereof.
(b) If the Closing occurs at or before 12:00
noon New York time on the Closing Date, the Closing will be
effective as of the start of business on the Closing Date;
otherwise, the Closing will be effective as of the start of
business on the day following the Closing Date.
(c) Two business days prior to the Closing
Date, the Company shall deliver to Buyer a certificate of the
Chief Financial Officer of the Company, reflecting the best
available estimates of the Company of the amounts, as of the date
thereof, of the fees, costs and expenses set forth on Exhibit A
of this Agreement. To the extent that the amounts set forth in
such certificate, in the aggregate, exceed the aggregate of the
corresponding amounts set forth on Exhibit A of this Agreement by
at least $100,000, the Sellers Redemption Price payable to the
Sellers at the Closing shall be reduced by the amount by which
such excess exceeds $100,000 (which reduction shall be allocated
to the Sellers in proportion to the amounts set forth opposite
their names on Schedule A hereto).
2.3. Deliveries and Actions at the Closing.
Subject to the satisfaction or waiver of the conditions set forth
in Sections 6 and 7 hereof, at and in connection with the
Closing:
(a) the Company shall redeem the
Preferred Shares at the per share redemption price set
forth in the Company's Certificate of Incorporation as in
effect on the date hereof;
(b) the Company shall file the Amended Charter as
provided in Section 5.4 hereof;
(c) the Company shall borrow funds under the New
Financing;
(d) the Company shall deliver to the
Buyer:
(i) certificates representing the
Recapitalization Shares; and
(ii) all opinions, certificates and
other instruments or documents contemplated under
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Section 6 to be delivered by the Company at or prior to
the Closing;
(e) the Sellers shall deliver to the
Company or the Buyer, as the case may be, all opinions,
certificates and other instruments or documents
contemplated under Section 6 to be delivered by the Sellers
at or prior to the Closing;
(f) the Sellers shall deliver to the
Company certificates representing the Redeemed Shares duly
endorsed for transfer;
(g) the Buyer shall deliver to the
Company the Recapitalization Purchase Price in immediately
available federal funds by wire transfer to the bank
account or accounts designated by the Company prior to the
Closing;
(h) the Company shall (i) deliver to the
Sellers the Sellers Redemption Price in immediately
available federal funds by wire transfer to the bank
account or accounts designated by the Sellers prior to the
Closing and (ii) pay, or make arrangements to pay, the
Closing Payments; and
(i) the Buyer shall deliver to the
Company and the Sellers all opinions, certificates and
other instruments and documents contemplated under Section
7 to be delivered by the Buyer at or prior to the Closing.
SECTION 3.1. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS AND
THE COMPANY
-----------
Except as disclosed in this Agreement, Sellers hereby
represent and warrant to Buyer as follows:
3.1. Organization and Good Standing of the
Company. The Company is duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
New York, and has the corporate power and authority to own, lease
and operate the property used in its business and to carry on its
business as now being conducted. The Company is registered to do
business and is in good standing in all jurisdictions in which
the character of the properties owned or held under lease by it
makes qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse
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Effect. Sellers have made available to Buyer true and complete
copies of the Certificate of Incorporation and all amendments
thereto of the Company and each Subsidiary to the date hereof and
the By-Laws of the Company and each Subsidiary as in effect on
the date hereof. The minute and stock transfer books of the
Company have been made available to Buyer and the originals
thereof will be delivered to Buyer at Closing.
3.2. Subsidiaries. Except as set forth in
Section 3.2 of the Disclosure Schedule, the Company does not own,
directly or indirectly, any debt, shares or other equity interest
or securities in any corporation, partnership, joint venture or
other Person, and has no agreement or commitment to purchase any
such interest. Except as set forth in Section 3.2 of the
Disclosure Schedule, each Subsidiary is duly incorporated,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate the property used
in its business and to carry on its business as now being
conducted, except where the failure to be in good standing would
not have a Material Adverse Effect. Except as set forth in
Section 3.2 of the Disclosure Schedule, each Subsidiary is
registered to do business and is in good standing in all
jurisdictions in which the character of the properties owned or
held under lease by such Subsidiary makes qualification
necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. Except as set
forth in Section 3.2 of the Disclosure Schedule, all of the
outstanding shares of capital stock of each Subsidiary of the
Company are validly issued, fully paid and non-assessable and
none of the Subsidiaries owns or controls, directly or
indirectly, any other equity interest in any corporation,
partnership, joint venture, limited liability company, trust,
firm or other entity. Except as set forth in Section 3.2 of the
Disclosure Schedule, the Company owns, directly or through a
Subsidiary, 100% of the outstanding capital stock of each
Subsidiary and there is no security, option, warrant, right,
call, subscription agreement, commitment or understanding of any
nature whatsoever to which the Company or the Sellers is a party,
that directly or indirectly (i) calls for the issuance, sale,
pledge or other disposition of any shares of capital stock of the
Subsidiaries or any securities convertible into, or other rights
to acquire, any shares of capital stock of the Subsidiaries, (ii)
obligates the Company or the Sellers to grant, offer or enter
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into any of the foregoing or (iii) relates to the voting or
control of such capital stock, securities or rights.
3.3. Capitalization; Title to Shares. The
authorized capital stock of the Company consists of (i) 1,000,000
shares of Common Stock of which 227,988 shares are issued and
outstanding, (ii) 20,000 shares of 6% Preferred Shares of which
9,339 shares are issued and outstanding and (iii) 10,000 shares
of 8% Preferred Shares of which 2,505 shares are issued and
outstanding. All of the Common Shares have been validly
authorized and issued, and are fully paid and nonassessable.
Section 3.3 of the Disclosure Schedule sets forth the record and
beneficial owners of all of the Common Shares and Preferred
Shares. Except as contemplated by this Agreement, or as set forth
in Section 3.3 of the Disclosure Schedule, there is no security,
option, warrant, right, call, subscription agreement, commitment
or understanding of any nature whatsoever to which any of the
Sellers or the Company is a party, that directly or indirectly
(i) calls for the issuance, sale, pledge or other disposition of
any shares of capital stock of the Company or any securities
convertible into, or other rights to acquire, any shares of
capital stock of the Company, (ii) obligates Sellers or the
Company to grant, offer or enter into any of the foregoing or
(iii) relates to the voting or control of such capital stock,
securities or rights. Except as set forth in Section 3.3 of the
Disclosure Schedule, Sellers have good and marketable title to
the Common Shares, free and clear of any Liens.
3.4. Authority, Approvals and Consents. The
Company has the corporate power and authority to execute, deliver
and perform this Agreement and, subject to the requisite approval
of the filing of the Amended Charter by the shareholders of the
Company, to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized and approved by the board of directors of the
Company and, except for the requisite approval of the filing of
the Amended Charter by the shareholders of the Company, no other
proceedings on the part of the Company are necessary to authorize
and approve this Agreement or any of the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding
bligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
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<PAGE>
moratorium, or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable
remedies. This Agreement has been duly executed and delivered by
the Sellers and constitutes a valid and binding obligation of
each Seller, enforceable against such Seller in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies. Except as
otherwise set forth in Section 3.4 of the Disclosure Schedule,
the execution, delivery and performance of this Agreement by the
Company and the Sellers and the consummation of the transactions
contemplated hereby do not and will not:
(a) contravene any provisions of the Certificate of
Incorporation or By-Laws of the Company;
(b) (after notice or lapse of time or both)
conflict with, result in a breach of any provision of,
constitute a default under, result in the modification or
cancellation of, or give rise to any right of prepayment
under or termination in respect of, any contract,
agreement, commitment, understanding or arrangement of any
kind to which Sellers or the Company is a party or to which
Sellers or any of Company's or any Subsidiary's property is
subject which is likely to have a Material Adverse Effect;
(c) violate or conflict with any Legal
Requirements applicable to Sellers, the Company or any
Subsidiary, except where such violation or conflict would
not have a Material Adverse Effect; or
(d) except for filings under the HSR Act,
require any authorization, consent, order, permit or
approval of, or notice to, or filing, registration or
qualification with, any governmental, administrative or
judicial authority which if not obtained or made is likely
to have a Material Adverse Effect.
3.5. Financial Statements. The Financial
Statements attached hereto as Section 3.5 of the Disclosure
Schedule have been prepared in accordance with the books and
records of the Company and its Subsidiaries and fairly present in
all material respects the financial position of the Company and
its Subsidiaries as of the dates indicated and the results of
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operations of the business of the Company and its Subsidiaries
for the periods indicated, in conformity with GAAP applied on a
consistent basis.
3.6. Absence of Material Adverse Change;
Conduct of Business. Except as set forth in Section 3.6 of the
Disclosure Schedule or reflected in the most recent Financial
Statements of the Company, since the date of the most recent
Financial Statements, the business of the Company and its
Subsidiaries has been conducted in the ordinary course of
business and the Company and its Subsidiaries have not: (i)
experienced or suffered any change, occurrence or event that has
had a Material Adverse Effect; (ii) sold or otherwise disposed of
any assets or properties material to the Company and its
Subsidiaries, taken as a whole, other than sales of inventory in
the ordinary course of business; (iii) waived, released or
canceled any rights or indebtedness owing to the Company or any
Subsidiary that are material to the Company and its Subsidiaries,
taken as a whole, or prepaid any interest on any Debt; (iv) made
any material changes in its accounting systems, policies,
principles or practices; (v) acquired or leased any assets
material to the Company and its Subsidiaries, taken as a whole,
other than in the ordinary course of business; or (vi) taken any
of the actions addressed by Section 5.12(h) of this Agreement.
3.7. Taxes. Except as set forth in Section 3.7
of the Disclosure Schedule, each of the Company and its
Subsidiaries has filed all Tax Returns required to be filed by
any of them, and has paid (or the Company has paid on its
behalf), or has set up an adequate reserve for the payment of,
all material Taxes required to be paid in respect of the periods
covered by such Tax Returns. The information contained in such
Tax Returns is true, complete and accurate, except where a
failure to be so would not have a Material Adverse Effect. Except
as set forth in Section 3.7 of the Disclosure Schedule: (A) the
income Tax Returns have been examined by the Internal Revenue
Service or the appropriate state, local or foreign taxing
authority or the period of assessment of the Taxes in respect of
which such returns were required to be filed has expired; (B)
neither the Company nor any Subsidiary of the Company is
delinquent in the payment of any material Tax, assessment or
governmental charge; (C) no material deficiencies for any Tax
have been proposed, asserted or assessed against the Company or
any of its Subsidiaries that have not been finally settled or
paid in full, or for which adequate reserves have not been set
aside for the payment thereof; and (D) no
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<PAGE>
requests for waivers of the time to assess any such Tax
are pending.
3.8. Legal Matters. Except as set forth in
Section 3.8 of the Disclosure Schedule, (i) there is no claim,
action, suit, litigation, formal investigation or proceeding
pending against, or, to the Knowledge of Sellers, threatened in
writing against, the Company or any Subsidiary before or by any
court, arbitrator, panel, agency or other governmental,
administrative or judicial entity which is likely to have a
Material Adverse Effect and (ii) neither the Company nor any
Subsidiary is subject to any judgment, decree, writ, injunction
or order of any governmental, administrative or judicial
authority which is likely to have a Material Adverse Effect. The
business of the Company is being conducted in compliance with all
Legal Requirements, except where the failure to comply would not
have a Material Adverse Effect. Except as set forth in Section
3.8 of the Disclosure Schedule, as of the date of this Agreement,
the Company has not received any written notice asserting any
noncompliance with any Legal Requirement, except for such
failures as would not have a Material Adverse Effect.
3.9. Real Property.
(a) Set forth in Section 3.9 of the Disclosure
Schedule are (i) a complete list of all real property (the
"Owned Property") owned by the Company or a Subsidiary of
the Company that is material to the Company and its
Subsidiaries considered as a whole; (ii) a complete list of
all real property (the "Leased Property") with respect to
which the Company or any Subsidiaries are parties to a
lease, sublease, license or other occupancy agreement,
together with a list of each lease, sublease, license or
other agreement or understanding pursuant to which any
party other than the Company or a Subsidiary occupies such
Leased Property; and (iii) a complete list of each lease,
sublease, license or other agreement or understanding, oral
or written, pursuant to which any party other than the
Company or a Subsidiary occupies all or any part of the
Owned Property or the Leased Property. (The Owned Property and
the Leased Property are sometimes collectively referred to
as the "Real Property.") True and complete copies of all
leases, subleases, licenses and other documents,
instruments, agreements and understandings to which the
Company or a Subsidiary is a party, whether as lessee,
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<PAGE>
lessor, sublessee, sublessor, licensee or licensor,
pertaining to the current or future occupancy of any Real
Property or any current or future right to occupy any Real
Property, together with all material amendments,
modifications and supplements thereto (collectively, the
"Property Leases") have been made available to the Buyer.
(b) With respect to the Property Leases, no
breach or event of default on the part of any party thereto
and no event that, with the giving of notice or lapse of
time or both, would constitute such breach or event of
default, has occurred and is continuing, except where such
breach or event of default would not have a Material
Adverse Effect. All of the Property Leases are in full
force and effect and are valid and enforceable against the
parties thereto in accordance with their terms. All rental
and other payments due under each of the Property Leases
have been duly paid in accordance with the terms of such
Property Lease, except where a failure to make such
payments would not have a Material Adverse Effect. Except
as set forth in Section 3.9 of the Disclosure Schedule, the
transactions contemplated by this Agreement do not require
the consent of any party to, and will not constitute an
event of default under or permit any party to terminate or
change the existing terms of, any Property Lease except
where the failure to obtain such consent or where such
default, termination or change would not have a Material
Adverse Effect.
(c) The Company and, as applicable, each
Subsidiary, has good and marketable title in fee simple to
the Owned Property, good and marketable leasehold title to
the Leased Property, and good and marketable title to all
plants, buildings, fixtures and improvements located on the
Real Property, in each case free and clear of any
mortgages, deeds of trust, liens, security interests,
judgments, options, rights, claims, charges, encroachments,
easements, rights-of-way, squatters' rights, encumbrances,
covenants, conditions, restrictions and other imperfections
of title (collectively, "Impairments"), except for those
Impairment that are set forth in Section 3.9 of the
Disclosure Schedule, or except where such Impairments would not
have a Material Adverse Effect.
(d) To the Knowledge of the Sellers, there is
no Impairment encumbering the title of the lessor to any
Leased
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<PAGE>
Property or the plants, buildings, fixtures and
improvements thereon, except for those Impairments that are
set forth in Section 3.9 of the Disclosure Schedule, or
except where such Impairments would not have a Material
Adverse Effect.
3.10. Contracts. Sellers have made available to
Buyer for inspection true and complete copies of all Material
Agreements. Except as set forth in Section 3.10 of the Disclosure
Schedule, neither the Company nor, to the Knowledge of Sellers,
any other party to any of the Material Agreements, is in breach
of or default under any Material Agreement, except for breaches
or defaults which are not likely to have a Material Adverse
Effect.
3.11. Employee Benefit Plans. Section 3.11 of
the Disclosure Schedule sets forth all pension plans,
profit-sharing plans or other employee pension benefit plans and
all bonus, severance, incentive, savings, insurance, welfare or
other employee benefit plans (including without limitation any
such plan within the meaning of Section 3(2) or 3(3) of ERISA)
maintained by the Company or a Subsidiary, in which any employee
of the Company or a Subsidiary participates ("Employee Benefit
Plans"). Except as set forth in Section 3.11 of the Disclosure
Schedule:
(a) Neither the Company nor any Subsidiary is
required to make contributions to any multi-employer plan (within
the meaning of Section 3(37) of ERISA), and no employee of the
Company or a Subsidiary participates in any multi-employer plan;
(b) With respect to each Employee Benefit Plan
and any other similar arrangement or plan either currently or
previously terminated, maintained, or contributed to by any
entity which either is currently or was previously under common
control with the Company as determined under Code Section 414, no
event has occurred during the period when such entity was under
common control with the Company and no condition exists that
after the Closing could reasonably be expected to subject the
Company or any Subsidiary, directly or indirectly, to any
liability including liability under any indemnification agreement)
under Section 412, 413, 4971, 4975, or 4980B of the Code or Section
302, 502, 515, 601, 606, or Title IV of ERISA that is likely to
have a Material Adverse Effect;
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(c) All benefits due under each Employee
Benefit Plan have been paid and there is no lawsuit or claim that
is likely to have a Material Adverse Effect, other than routine
claims for benefits, pending, or to the Knowledge of Sellers
threatened, against any Employee Benefit Plan or the fiduciaries
of any such plan or otherwise involving or pertaining to any such
plan;
(d) No audit or investigation by any
governmental authority is pending, or to the Knowledge of Sellers
threatened, regarding any Employee Benefit Plan, and, to the
Knowledge of Sellers, no party dealing with any Employee Benefit
Plan has engaged in any prohibited transactions (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) or
any breach of fiduciary duty that is likely to have a Material
Adverse Effect; and
(e) The Company is not obligated to make any payments
in connection with the transactions contemplated by this
Agreement pursuant to any severance, change of control or "golden
parachute" arrangements with any Insider or employee of the
Company.
3.12. Intellectual Property. Except as set forth in
Section 3.12 of the Disclosure Schedule:
(a) The Company either owns, or has by license
or otherwise the right to use, all Intellectual Property
owned by the Company or used in the business of the
Company; and
(b) To the Knowledge of Sellers, the conduct
by the Company or any Subsidiary of its business does not
infringe in any material respect on any valid Intellectual
Property rights of any other Person.
3.13. Brokers. Except for fees and expenses
payable by the Company to Goldman, Sachs & Co. listed on Exhibit
A hereto, which is acting for the Company, none of the Sellers
nor the Company has incurred or will incur any broker's, finder's
or similar fee, commission or expense, in each case in connection
with the transactions contemplated by this Agreement.
3.14. Environmental Matters. Except as set forth
in Section 3.14 to the Disclosure Schedule or otherwise disclosed
in environmental reports provided to or prepared by or on behalf
of Buyer, to the Knowledge of Sellers:
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(a) the Company's and its Subsidiaries' real
property complies with applicable Environmental Laws,
except for failures to comply that in the aggregate have
not had and would not be expected to have a Material
Adverse Effect;
(b) the Company and the Subsidiaries have
obtained all environmental consents, approvals, licenses
and permits required for its operations by any applicable
Environmental Law except for failures to obtain that in the
aggregate have not had and would not be expected to have a
Material Adverse Effect; and
(c) except as is not likely to have a Material
Adverse Effect, neither Sellers nor any other Person
(including the Company or any Subsidiary) has caused any
Release, threatened Release or disposal of any Hazardous
Material at or from the Company's or any Subsidiary's real
property and none of such real property is adversely
affected by any Release, threatened Release or disposal of
a Hazardous Material originating or emanating from any
adjoining property.
3.15. Transactions with Insiders. Set forth in
Section 3.15 to the Disclosure Schedule is a true and complete
list of the following agreements and transactions: (i) all
Company Agreements to which any Insider or, to the Knowledge of
Sellers, any Affiliate of the Company is a party and (ii) a true
and complete description of all transactions between the Company,
a Subsidiary or any Employee Benefit Plan, on the one hand, and
any Insider or, to the Knowledge of Sellers, any Affiliate of the
Company, on the other hand, other than benefits provided under
any Employee Benefit Plan in the ordinary course of business. For
purposes of this Agreement the term "Insider" means any
shareholder, director or officer of the Company or a Subsidiary.
3.16. Set forth in Section 3.16 of the
Disclosure Schedule is a complete and correct schedule of all
currently effective material insurance policies or binders of
insurance or programs of self-insurance which relate to the
business of the Company and its Subsidiaries. The coverage under
each such policy and binder is in full force and effect, and no
notice of cancellation or nonrenewal with respect to, or
disallowance of any claim under, or material increase of premium
for, any such policy or binder has been received by the Company
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or any Subsidiary, except such notices, disallowances or
increases which are not likely to have a Material Adverse Effect.
3.17. Certain Additional Items . The aggregate
principal amount outstanding under the Senior Notes is
$85,000,000 and the aggregate amount of accrued but unpaid
interest and prepayment premium on the Senior Notes is
$5,490,500, in each case as of the date hereof. The aggregate
principal amount outstanding under the IRB Debt is $1,974,000 and
the aggregate amount of accrued but unpaid interest on the IRB
Debt is $6,000, in each case as of the date hereof. The aggregate
principal amount outstanding under the Revolving Facility is
$81,500,000 and the aggregate amount of accrued but unpaid
interest on the Revolving Facility is $342,000, in each case as
of the date hereof. As of the date hereof, there are no unpaid
fees or expenses due in respect of the Senior Notes, the IRB Debt
or the Revolving Facility. Neither the Company nor any Subsidiary
has any capitalized lease obligations on the date hereof. The
number of Preferred Shares is as set forth in Section 3.3, the
redemption price per Preferred Share is $100.00 and no dividends
on the Preferred Shares have been paid since January 31, 1997 nor
declared which have not been paid as of the date hereof. Exhibit
A hereto sets forth all fees, costs, expenses and payments to be
incurred by the Company specifically in connection with this
Agreement and the consummation of the transactions contemplated
hereby (except for the other Closing Payments, any fees, costs,
expenses and payments incurred or accrued in connection with
Section 5.14 and obtaining any consents under the leases or other
agreements relating to Leased Properties identified in Section
3.4 of the Disclosure Schedule, and any fees, costs, expenses and
payments to be incurred by Buyer in connection with its
obligations hereunder, in each case other than the fees and
expenses of legal counsel to the Company). It is understood and
agreed that, notwithstanding anything contained in this Agreement
to the contrary, (i) all fees, costs, expenses and payments
referred to in the preceding sentence, (ii) any prepayment
premium payable on the Senior Notes in excess of $4,000,000, and
(iii) solely for purposes of this Agreement, any amounts payable
to Matt Rubel pursuant to the letter agreement, dated January 29,
1997, by and between the Company and Mr. Rubel in excess of
$300,000, shall not be the responsibility and obligation of the
Sellers.
3.18. No Other Representations or Warranties.
Except for the representations and warranties contained in this
Section
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3, Sellers make no representation or warranty, express or
implied, written or oral, and Sellers hereby disclaim any such
representation or warranty (including without limitation any
warranty of merchantability or of fitness for a particular
purpose), whether by Sellers or the Company or any of their
officers, directors, employees, agents or representatives or any
other Person, with respect to the Company or the execution and
delivery of this Agreement or the transactions contemplated
hereby, notwithstanding the delivery or disclosure to Buyer, any
Affiliate of Buyer or any of its officers, directors, employees,
agents or representatives or any other Person of any
documentation or other information by Sellers or the Company or
any of their Affiliates, officers, directors, employees, agents
or representatives or any other Person with respect to any one or
more of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING BUYER
----------------------------------------------
Except as disclosed in this Agreement, Buyer
represents and warrants to the Sellers as follows:
4.1. Organization of Buyer. Buyer is duly
organized and is validly existing as a limited partnership in
good standing under the laws of Delaware, and has the requisite
power and authority to own, lease and operate the property used
in its business and to carry on its business as now being
conducted. Buyer is registered to do business in all
jurisdictions where it is required to be qualified as a foreign
entity except where the failure to be so qualified would not
impair Buyer's ability to execute, deliver and perform this
Agreement and consummate the transactions contemplated hereby or
have a Material Adverse Effect.
4.2. Power; Authorization; Consents. Buyer has the
requisite power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the general
partner of the Buyer, and no other proceedings on the part of
Buyer are necessary to authorize and approve this Agreement or
any of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Buyer and constitutes and
will constitute a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms,
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except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar
laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies. Except as
disclosed in Section 4.2 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by Buyer
and the consummation of the transactions contemplated hereby do
not and will not:
(a) contravene any provisions of the Certificate of
Limited Partnership or the Agreement of Limited Partnership
of Buyer;
(b) (after notice or lapse of time or both)
conflict with, result in a breach of any provision of,
constitute a default under, result in the modification or
cancellation of, or give rise to any right of termination
in respect of, any material contract, agreement,
commitment, understanding or arrangement of any kind to
which Buyer is a party;
(c) violate or conflict with any material Legal
Requirement applicable to Buyer or any of its business or
property; or
(d) except for filings under the HSR Act,
require any material authorization, consent, order, permit
or approval of, or notice to, or filing, registration or
qualification with, any governmental, administrative or
judicial authority.
4.3. Brokers. Except as disclosed in Section
4.3 of the Disclosure Schedule, Buyer has not employed any broker
or finder or has incurred or will incur any broker's, finder's or
similar fees, commissions or expenses, in each case in connection
with the transactions contemplated by this Agreement except for
such fees, commissions or expenses which will be borne by the
Buyer.
4.4. Investment Intent of Buyer. Buyer is
receiving the Recapitalization Shares delivered pursuant to this
Agreement for investment purposes for its own account, and not
with the view to or in connection with any distribution thereof.
Buyer understands that the Recapitalization Shares may not be
sold, assigned, offered for sale, pledged or otherwise
transferred unless such transaction is registered under the
Securities Act of 1933, as amended, and applicable state
securities laws, or
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exemptions from such registration requirements are
available or such requirements are not applicable.
4.5. Financial Matters. Buyer has sufficient
funds available to it to meet its obligations to pay the
Recapitalization Purchase Price on Closing and all of the fees,
costs and expenses related thereto.
4.6. No Reliance. Buyer has conducted its own
investigation and examination of the Company and its assets,
liabilities (actual, accrued and contingent), condition
(financial and otherwise), businesses, operations, affairs and
prospects based primarily upon its own knowledge and experience
and upon information and data provided by management of the
Company, and Buyer has such knowledge and experience, and has
consulted with such legal, financial and other professional
advisers to review such information and data, in order to enable
Buyer, based upon such information and data and upon Buyer's own
knowledge and experience and such professional advice, as has
been necessary to evaluate the merits and risks associated with
the purchase of the Recapitalization Shares and the completion of
the transactions contemplated hereby. Buyer and its respective
officers, employees and representatives have been given such
access to the offices, properties, personnel, businesses,
contracts, books and records of the Company, and have been
furnished with all such information and data, as they have
considered sufficient to enable Buyer pursuant to this Agreement,
to purchase the Recapitalization Shares pursuant to this
Agreement and to complete the transactions contemplated hereby
without relying in any respect upon any representation or
warranty, whether written or oral, express or implied, of the
Sellers, the Company or any Affiliate thereof or any of their
respective directors, officers, employees, representatives and
controlling persons (except only for the representations and
warranties of the Sellers contained in Section 3 of this
Agreement).
SECTION 5. COVENANTS
---------
5.1. Access; Confidentiality. Between the date
hereof and the Closing, Sellers will cause the Company and its
Subsidiaries, during normal business hours and upon reasonable
notice to the Company, to (i) provide to Buyer and its
representatives full access to the premises, property, files,
books, records, documents, and other information of or concerning
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the Company and its Subsidiaries; (ii) furnish to Buyer and its
representatives financial, technical and operating data and other
information pertaining to the business and property of the
Company and its Subsidiaries; (iii) make available for inspection
and copying by Buyer and its representatives copies of any
documents relating to the foregoing; (iv) permit Buyer and its
representatives to conduct reasonable interviews of the
employees, sales representatives and auditors of the Company and
its Subsidiaries; and (v) make the officers of the Company and
the Subsidiaries reasonably available to cooperate with the Buyer
in obtaining financing for the transactions contemplated hereby;
provided, however, that (x) any such investigation will be
conducted in such a manner so (A) as to preserve the
confidentiality of the transactions contemplated hereby and (B)
as not to interfere unreasonably with the operation of the
business of the Company and its Subsidiaries and (y) Sellers may
limit such access described in clauses (i) through (v) above to
the extent such access could in the opinion of Sellers' counsel,
violate or give rise to liability under applicable law. During
the period from the date hereof to the Closing, all information
provided to Buyer or its representatives by or on behalf of
Sellers or the Company, or their representatives (whether
pursuant to this Section 5.1 or otherwise) will be governed and
protected by the Confidentiality Agreement.
5.2. Announcements. Prior to the Closing, no
party hereto will issue any press release or otherwise directly
or indirectly make any public statement or furnish any statement
or make any announcement to its customers with respect to the
transactions contemplated hereby without the prior consent of the
other, except as may be required by law.
5.3. New Financing. Buyer shall provide, or
shall cause one or more Persons to provide, to the Company
financing arrangements (the "New Financing") in an amount not
less than $474,600,000, the proceeds of which shall be used,
inter alia, to discharge Debt, to redeem the Preferred Shares, to
pay costs and expenses incurred by Buyer and the Company in
connection with the transactions contemplated hereby and the
other Closing Payments, to provide working capital to the Company
and the Subsidiaries, and to fund a portion of the Sellers
Redemption Price. To the extent Buyer is unable to obtain from
third parties the full amount of the New Financing, Buyer shall
provide the balance of the New Financing. Any amounts provided by
Buyer pursuant to the preceding sentence shall constitute New
Financing for purposes of
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this Agreement. The failure of the Company to obtain
the New Financing shall not relieve Buyer of its obligations to
purchase the Recapitalization Shares for the Recapitalization
Purchase Price at the Closing. Neither the Company nor the
Sellers shall be required to pay any fees or other costs with
respect to the New Financing under any circumstances and any
agreements or understandings which the Company may make prior to
the Closing relating to the New Financing shall be conditioned
upon the occurrence of the Closing; provided, that the Company
may pay any fees or other costs with respect to the New Financing
following the Closing. The Company shall use all reasonable
efforts to assist Buyer in obtaining the New Financing, including
without limitation, by making available its senior officers to
participate in investor presentations and similar functions.
5.4. Recapitalization. The Recapitalization
Shares to be acquired by Buyer at the Closing shall consist of
48,400 shares of Common Stock, which immediately following the
Closing will constitute eighty-eight percent (88%) of all of the
outstanding equity securities of the Company and all of the then
outstanding equity securities of the Company other than the
Retained Shares. The Company and the Sellers agree to take or
cause to be taken all action necessary to effect the filing of an
Amended and Restated Certificate of Incorporation, in form and
substance reasonably satisfactory to Buyer and the Sellers (the
"Amended Charter"), immediately prior to the Closing as herein
contemplated.
5.5. Consents; Cooperation. Subject to the terms and
conditions hereof, Sellers, the Company and Buyer will use their
reasonable efforts:
(a) to obtain prior to the earlier of the date
required (if so required) or the Closing Date, all
authorizations, consents, orders, permits or approvals of,
or notices to, or filings, registrations or qualifications
with, any governmental, administrative or judicial
authority or any other Person that are required on their
respective parts, for the consummation of the transactions
contemplated by this Agreement;
(b) to defend, consistent with applicable
principles and requirements of law, any lawsuit or other
legal proceeding, whether judicial or administrative,
whether brought derivatively or on behalf of third persons
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(including governmental authorities) challenging this
Agreement or the transactions contemplated hereby;
(c) to furnish to each other such information
and assistance as may reasonably be requested in connection
with the foregoing; and
(d) to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the
transactions contemplated by this Agreement.
5.6. Additional Agreement. Notwithstanding the
provisions of Section 5.5(a) hereof, Buyer will use reasonable
efforts to eliminate any concern on the part of any court or
government authority regarding the legality of the proposed
transactions contemplated hereby and take or cause to be taken
all such action as may reasonably be required in order to
consummate the transactions contemplated hereby under applicable
antitrust and other laws and regulations regarding competition,
including, without limitation, promptly (i) taking all steps
reasonably necessary to secure government antitrust clearance,
(ii) taking all reasonable steps to make arrangements for or to
effect the sale or other disposition of assets, voting securities
or business of Buyer, any of its subsidiaries or the Company, the
ownership of which causes any governmental authority to withhold
such clearance, and (iii) entering into a hold-separate agreement
with government authorities pending such sale or other
disposition of assets, voting securities or business of Buyer,
any of its subsidiaries, the Company, including without
limitation pursuant to a trust or other arrangement that
restricts, limits or prohibits access by Buyer to any business or
subsidiary of Buyer to the Company or to the voting shares or
capital stock thereof.
5.7. Notification of Certain Matters. Between
the date hereof and the Closing, Sellers, the Company and Buyer
will give prompt notice in writing to the other of: (i) any
information known to Sellers, the Company or Buyer that indicates
that any representation or warranty of the Sellers, the Company
or Buyer, as the case may be, contained herein will not be true
and correct in any material respect as of the Closing and (ii)
the occurrence of any event known to Sellers, the Company or
Buyer which will result, or has a reasonable prospect of
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resulting, in the failure to satisfy a condition specified in
Section 6 or 7 hereof.
5.8. Hart-Scott-Rodino. As soon as practicable
(but in no event later than 10 days) after the date hereof, Buyer
and the Company will prepare and file all documents with the
Federal Trade Commission and the United States Department of
Justice that are required to comply with the HSR Act. The Company
and Buyer will promptly respond to any "second request" made in
connection with such filings and will promptly furnish all
materials requested by any of the regulatory agencies having
jurisdiction over such filings.
5.9. Further Assurances. Any time after the
Closing, Sellers and Buyer will, and Buyer will cause the Company
to, promptly execute, acknowledge and deliver any other
assurances or documents reasonably requested by Buyer or Sellers,
as the case may be, to satisfy or in connection with its
obligations hereunder.
5.10. Retention of Books and Records. For a
period of six years after the Closing Date (or in the case of
books, records and other documents relating to Taxes until the
expiration of the applicable statute of limitations), Buyer will
cause the Company to retain all books, records and other
documents pertaining to the Company in existence on the Closing
Date and to make the same available after the Closing Date for
examination and copying by Sellers or their representatives, at
such Sellers' expense, upon reasonable notice. No such books,
records or documents will be destroyed by Buyer or the Company
without first advising Sellers in writing and providing Sellers a
reasonable opportunity to obtain possession or make copies
thereof at such Seller's expense.
5.11. Personnel. For one year after the Closing,
Buyer shall cause the Company to continue in effect its Employee
Benefit Plans as are in effect on the date hereof; provided,
however, that the Company may replace or amend any such Employee
Benefit Plan if the benefits thereafter provided are at least
comparable to those provided prior to the Closing and the costs
to the employees therefor are not appreciably increased.
5.12. Conduct of Business Prior to the Closing.
From the date hereof to the Closing, Sellers shall cause the
business of the Company and each of its Subsidiaries to be
conducted in
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the ordinary course and shall cause the Company and
each of its Subsidiaries to use their commercially reasonable
efforts to preserve the current business organization and
existing business relationships. In addition, Sellers shall not
cause or permit the Company or any of its Subsidiaries to do any
of the following without the prior written consent of Buyer:
(a) except as contemplated by this Agreement, amend
its Certificate of Incorporation or By-Laws;
(b) except as set forth in Section 5.12 of the
Disclosure Schedule, make or grant any increase in
compensation or employee benefits or in severance or
termination pay to, any officer, executive officer,
employee, director, agent or consultant, or enter into any
employment agreement with any executive officer or other
individual, except as may be required under employment,
collective bargaining or termination agreements in effect
on the date hereof or, solely with respect to employees
other than officers, executive officers and directors, in
the ordinary course of business;
(c) except as set forth in Section 5.12 of the
Disclosure Schedule, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or
other business organization or division thereof or
otherwise acquire or agree to acquire, other than in the
ordinary course of business, any assets which are material,
individually or in the aggregate, to the Company;
(d) except as set forth in Section 5.12 of the
Disclosure Schedule, sell, pledge, mortgage, assign, lease,
give a security interest in or otherwise encumber or
dispose of, or agree to do any of the foregoing with
respect to, any of its assets, except in the ordinary
course of business;
(e) except in the ordinary course of business,
enter into or amend any other commitment, contractual
obligation or transaction which calls for aggregate
payments in excess of $100,000 and which does not expire or
is not terminable without cost or penalty at the Company's
option within a 180 day period;
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(f) except in the ordinary course of business,
accelerate the receipt of amounts due with respect to the
Company's trade accounts receivable or any other accounts
receivable;
(g) except in the ordinary course of business,
lengthen the period for payment of the Company's accounts
payable;
(h) (i) declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash,
stock or property) with respect to, or, except as
contemplated by this Agreement, purchase or redeem, any
shares of capital stock, or (ii) make any other payments or
benefits to Insiders, other than payments contemplated by
this Agreement or under any employment arrangement in
existence on the date hereof;
(i) except as set forth in Section 5.12 of the
Disclosure Schedule, (i) incur any Debt (excluding for this
purpose any interest, fees or premiums accruing on Debt
outstanding on the date hereof and borrowings in the
ordinary course of business for seasonal working capital
needs under the Revolving Facility and any interest, fees
and premiums thereon), (ii) prepay any interest on any
Debt, (iii) except in the ordinary course of business, make
any loans, advances or capital contributions to, or
investments in, any other person, other than the Company or
any direct or indirect wholly owned Subsidiary of the
Company or (iv) issue any shares of capital stock of the
Company;
(j) except as set forth in Section 5.12 of the
Disclosure Schedule, make or agree to make any new capital
expenditure or capital expenditures in excess of $100,000
in the aggregate, except in the ordinary course of
business; or
(k) except as set forth in Section 5.12 of the
Disclosure Schedule, except in the ordinary course of
business or except as is not likely to have a Material
Adverse Effect, modify, amend or terminate any Material
Agreement.
5.13. Sellers' Rights with Respect to Resales. In the
event that a Transfer (as defined below) occurs at any time
during the period commencing on the Closing Date and ending on
the date which is eighteen months from the Closing Date (the
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"Resale Period"), the Buyer agrees to pay or cause to be paid to
the Sellers an aggregate amount equal to (i) if such Transfer
occurs on or prior to the first anniversary of the Closing Date
(the "First Period"), 75% of the Resale Profit (as defined below)
on such Transfer, or (ii) in all other cases, 50% of the Resale
Profit on such Transfer, such amount to be paid in the same form
as the Transfer Consideration upon consummation of any such
Transfer such that the Sellers shall receive such percentage of
the Resale Profit in the kind and amount of cash, securities and
other property that they would have been entitled to receive had
they been holders of shares of capital stock of the Company
immediately prior to consummation of such Transfer. Buyer will
not, by amendment of the Company's charter or through a
reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Section
5.13, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the
Sellers to receive any Resale Profit. A Transfer consummated
after the expiration of the Resale Period or the First Period
shall be deemed to have occurred during the Resale Period or the
First Period, as the case may be, and Resale Profit shall be
payable to the Sellers in respect of such a Transfer, if such
Transfer was effected pursuant to an agreement, arrangement or
understanding entered into prior to the expiration of the Resale
Period or the First Period, as the case may be.
For purposes of this Section 5.13, the following terms
have the meanings set forth below:
"Resale Profit" means, with respect to any Transfer,
an amount equal to the excess, if any, of (I) the sum of (a) the
aggregate value of the Transfer Consideration received by,
payable to or inuring to the benefit of, the Buyer and its
Affiliates, directly or indirectly, as a result of such Transfer,
plus (b) the value of any dividends or distributions of any kind
paid, at any time following the Closing, in respect of the
Recapitalization Shares or any other equity interests in the
Company held by the Buyer or its Affiliates or upon any
redemption or repurchase of such shares or equity interests, over
(II) the sum of (x) $75,000,000 less the value of the Retained
Shares, plus (y) the fees and expenses incurred by Buyer in
connection with such Transfer, plus (z) any additional equity
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capital contributed to the Company or its Subsidiaries by the
Buyer or its Affiliates following the Closing.
"Transfer" means any sale, conveyance, assignment,
disposition or other transfer, other than to an Affiliate of any
of the Buyer who agrees in writing to be bound by the provisions
of this Section 5.13, in one or a series of related transactions,
of (i) all or substantially all of the assets or stock of the
Company and its Subsidiaries, taken as a whole (whether by sale
of stock or assets, merger, consolidation or otherwise), (ii) the
consummation of any transaction (other than the sale of shares of
capital stock of the Company or any Affiliate of the Company in
an underwritten public offering but including, without
limitation, any merger or consolidation) the result of which is
that the Buyer ceases to be the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 12d-5 under the Securities
Exchange Act of 1934) of a majority of the voting capital stock
of the Company. Notwithstanding the foregoing, a pledge or
assignment of interests or assets of Buyer or the Company to a
lender in the ordinary course of business (and the subsequent
exercise of remedies by such lender) shall not constitute a
Transfer for purposes of this Section 5.13.
"Transfer Consideration" means the value of all cash,
securities and other property paid, or to be paid, directly or
indirectly, by an acquiror to the Buyer, its Affiliates or the
Company in connection with the Transfer. The value of any
non-cash consideration shall be the fair market value of such
consideration, as determined in good faith by the Board of
Directors of the Company. Transfer Consideration shall also
include the aggregate amount of any liabilities assumed or paid,
directly or indirectly, by the acquiror.
5.14. Transfer Taxes. The Company shall properly
prepare and file on a timely basis any transfer Tax Returns
required in connection with the transactions described in this
Agreement, including, without limitation, any real property,
personal property or gains Tax Returns, and shall pay any Taxes
shown as due thereon.
5.15. Landlord Consents. Sellers shall use
commercially reasonable efforts to obtain the landlord lease
consents set forth on Section 5.15 of the Disclosure Schedule, in
a form reasonably acceptable to Buyer; provided, however, that
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the receipt of any or all of such landlord lease consents shall
not be a condition to the Closing under this Agreement.
5.16. Retention of Shares. At the Closing, the
Sellers shall retain such number of Common Shares as is set forth
opposite their respective names on Exhibit B hereto, which
immediately following the Closing will constitute twelve percent
(12%) of all of the outstanding common equity securities of the
Company and all of the outstanding common equity securities of
the Company other than the Recapitalization Shares. In the
aggregate, the Retained Shares shall represent 12% of the voting
power in the Company upon the Closing. For purposes of this
Agreement, the value of Retained Shares shall be $9,000,000.
5.17. Termination of Existing Shareholder Agreement.
Each of the Sellers and the Company hereby agree to terminate the
Agreement, dated as of April 18, 1997, by and among the Company
and the stockholders of the Company listed on the signature pages
thereof, and if requested by Buyer, any agreement between any
Seller or any entity controlled by a Seller, on the one hand, and
the Company or any Subsidiary, on the other hand, effective as
of, and conditioned upon, the Closing.
5.18. Indemnification. From and after the
Closing Date, the Company shall indemnify each present and former
director and officer of the Company and its Subsidiaries from any
and all claims arising out of or in connection with activities in
such capacity to the fullest extent provided under New York law,
and in addition, to the fullest extend provided in their
respective articles of incorporation, charters or by-laws, as
applicable, which obligations shall survive the Closing and shall
continue in full force and effect for a period of not less than
six years from the Closing Date; provided, however, that if any
claim or claims are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such
claims. Without limiting the foregoing, after the Closing Date,
the Company shall advance expenses (including reasonable
attorneys' fees and expenses) incurred with respect to the
foregoing, as they are incurred, to the fullest extent permitted
under applicable law, provided that the person on whose behalf
the expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not
entitled to indemnification.
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SECTION 6. CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
The obligations of Buyer required to be performed by
it at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions, each of which
may be waived by Buyer:
6.1. Representations and Warranties; Covenants. The
representations and warranties of the Sellers contained in
Section 3 of this Agreement will be true and correct as of the
Closing (except for those that are made as of a certain time,
which shall be true and correct as of such time and provided
that, for this purpose only, no effect shall be given to any
materiality qualifiers contained in such representations and
warranties), except for changes contemplated by this Agreement
and failures to be true and correct that do not, in the
aggregate, result in a Material Adverse Effect. Each obligation
of Sellers required by this Agreement to be performed by them at
or prior to the Closing will have been duly performed and
complied with in all material respects at the Closing provided
that the covenants contained in Section 2.3(d)(i) will have been
complied with in all respects. At the Closing, Buyer will have
received certificates, dated the Closing Date and duly executed
by or on behalf of each of the Sellers, to the effect that the
conditions set forth in the preceding sentences have been
satisfied.
6.2. Hart-Scott-Rodino. Any applicable waiting
period under the HSR Act and the rules and regulations
promulgated thereunder will have expired or been terminated.
6.3. Opinion of Sellers' Counsel. Buyer will
have been furnished with the opinion of Willkie Farr & Gallagher,
dated the Closing Date, addressed to Buyer, in form and substance
reasonably satisfactory to Buyer with respect to (i) the first
sentence of Section 3.1, (ii) the first two sentences of Section
3.3 and (iii) the first four sentences of Section 3.4. In
rendering such opinion, such counsel may rely as to factual
matters upon certificates or other documents furnished by Sellers
and officers of the Company and by government officials and upon
such other documents and data, including opinions of local
counsel, as such counsel deem appropriate as a basis for such
opinion.
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6.4. Absence of Injunction. No order, stay,
judgment or decree will have been issued by any court and be in
effect restraining or prohibiting the consummation of the
transactions contemplated hereby.
6.5. Directors. Buyer will have received the
written resignation of any director of the Company or any
Subsidiary of the Company (or such directors will have otherwise
been removed) whose resignation it has requested.
6.6. Certificates. Sellers and the Company will
have furnished Buyer with such certificates of their respective
officers and others as Buyer may reasonably request to evidence
satisfaction of the conditions set forth in this Section 6, such
certificates to be made without personal liability of such
officer or other person signing such certificate.
6.7. Shareholder Approval. The shareholders of
the Company shall have approved in form and substance reasonably
satisfactory to Buyer and to the Company, in order to take
advantage of the exemption provided in Section 280G(b)(5) of the
Code, all payments and benefits that may be deemed to constitute
parachute payments under Section 280G of the Code, in connection
with the transactions contemplated hereby.
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF SELLERS
----------------------------------------
The obligations of the Sellers to be performed by them
at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions, each of which
may be waived by the Sellers:
7.1. Representations and Warranties; Covenants.
The representations and warranties of Buyer contained in this
Agreement will be true and correct as of the Closing (except for
those made as of a certain date, which shall be true and correct
as of such date), except for changes contemplated by this
Agreement and failures to be true and correct that do not result
in a material adverse effect on Buyer. Each obligation of Buyer
required by this Agreement to be performed by it at or prior to
the Closing will have been duly performed in all material
respects at or prior to the Closing except that the obligations
of Buyer pursuant to Section 2.3(g) shall be performed in all
respects. At the Closing, Sellers will have received a
certificate, dated the Closing Date and duly executed by an
executive officer of Buyer (without personal liability to such
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officer) to the effect that the conditions set forth in the
preceding sentences have been satisfied.
7.2. Hart-Scott-Rodino. Any applicable waiting
period under the HSR Act and the rules and regulations
promulgated thereunder will have expired or been terminated.
7.3. Opinion of Buyer's Counsel. Sellers will
have been furnished with the opinion of Cleary, Gottlieb, Steen &
Hamilton, counsel to Buyer, dated the Closing Date, addressed to
Sellers, in form and substance reasonably satisfactory to Sellers
with respect to (i) the first sentence of Section 4.1 and (ii)
the first three sentences of Section 4.2. In rendering their
opinion, such counsel may rely as to factual matters upon
certificates or other documents furnished by officers and
directors of Buyer and by government officials, and upon such
other documents and data, including opinions of local counsel, as
such counsel deem appropriate as a basis for their opinion.
7.4. Absence of Injunction. No order, stay,
judgment or decree will have been issued by any court and be in
effect restraining or prohibiting the consummation of the
transactions contemplated hereby.
7.5. Certificates. Buyer will have furnished
Sellers with such certificates of its officers and others as
Sellers may reasonably request to evidence satisfaction of the
conditions set forth in this Section 7, such certificates to be
made without personal liability of such officer or other person
signing such certificate.
7.6. Employment/Consulting Agreement. The
Company shall have executed and delivered the
Employment/Consulting and Non-Compete Agreement with Arthur
Cinader in substantially the form of Exhibit C hereto (the
"Employment/Consulting Agreement").
SECTION 8. TERMINATION
-----------
8.1. Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual consent of Buyer and Sellers;
(b) by Buyer, on or after the date 100 days
from the date hereof, if any condition contained in Section
6 (other than those requiring a Closing Delivery), has not
been
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satisfied or waived; by Sellers, on or after the date
100 days from the date hereof, if any condition contained
in Section 7 (other than those requiring a Closing
Delivery), has not been satisfied or waived; or
(c) by Buyer or Sellers, if any court of competent
jurisdiction or other governmental body has issued an order,
decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree,
ruling or other action has become final and non-appealable.
If Buyer or Sellers terminate this Agreement pursuant
to the provisions hereof, such termination will be effected by
written notice to the other party specifying the provision hereof
pursuant to which such termination is made.
8.2. Effect of Termination.
(a) Upon termination of this Agreement
pursuant to Section 8.1 hereof, except as provided in
clause (b) below:
(i) this Agreement will forthwith become null
and void;
(ii) such termination will be the sole
remedy with respect to any breach of any
representation or warranty contained in or
made pursuant to this Agreement, and
(iii) no party hereto or any of their
respective officers, directors, employees,
agents, consultants, stockholders or
principals will have any liability or
obligation hereunder or with respect
hereto.
(b) The provisions of clause (a) above
notwithstanding, no party will be relieved of liability for
any willful breach of this Agreement.
SECTION 9. SURVIVAL AND INDEMNIFICATION
----------------------------
9.1. Survival. Notwithstanding any otherwise
applicable statute of limitations, no claim, lawsuit, or other
proceeding arising out of or related to the breach of any
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representation or warranty of the parties contained herein may be
made more than one year after the Closing Date.
9.2. Sellers' Indemnification.
(a) Sellers, severally but not jointly, subject to
the limitations set forth in this Section 9, will indemnify
Buyer against and in respect of any and all Losses, other
than Losses to the extent recoverable by Buyer or the
Company under any applicable insurance policy and net of
the present value of any tax benefit to Buyer or the
Company as a result of such Losses, which are incurred by
Buyer by reason of (i) the breach of any representation or
warranty made by Sellers in Section 3 of this Agreement or
(ii) of any breach of a covenant made by Sellers in this
Agreement.
(b) Notwithstanding anything to the contrary
in this Agreement (but subject to the last sentence of this
Section 9.2(b)), (i) the aggregate liability of Sellers
pursuant to Section 9.2(a) will not exceed ten percent of
the Sellers Redemption Price; (ii) Sellers will have no
liability or obligation to Buyer pursuant to this Section
9.2 or otherwise for any Losses arising out of any breach
of any representation or warranty made in this Agreement if
(x) disclosed in this Agreement or the Disclosure Schedule
hereto or (y) Buyer had knowledge of such breach as a
result of the disclosures made in this Agreement or in the
Disclosure Schedule hereto and (iii) Buyer will not be
entitled to recover consequential damages pursuant to this
Section 9.2. Notwithstanding the above, the limitations of
this Section 9.2(b) shall not apply to a breach of Sellers'
representations and warranties contained in the last
sentence of Section 3.3, clause (vi) of Section 3.6 or in
Section 3.17, in which event, the aggregate liability of
Sellers under this Section 9.2 shall in no event exceed the
Sellers Redemption Price.
(c) Buyer may make no claim for indemnification
pursuant to Section 9.2(a), (i) unless notice of such claim
(describing the basic facts or events, the existence or
occurrence of which constitute or have resulted in the alleged
breach of a representation or warranty made in this Agreement)
has been given to Sellers during the survival period set forth in
Section 9.1; and (ii) until such claims for which Losses are
otherwise recoverable hereunder by
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Buyer are in excess of (x) in the case of Losses
incurred by reason of a breach of Section 3.17 hereof, the
excess, if any, of (i) $100,000 over (ii) the amount by which the
aggregate of the amounts set forth on the officer's certificate
delivered pursuant to Section 2.2(c) exceeds the
aggregate of the amounts set forth on Exhibit A or (y) in
all other cases, the aggregate of 2% of the Sellers
Redemption Price (other than Losses to the extent
recoverable by Buyer or the Company under any applicable
insurance policy and net of the present value of any tax
benefit to Buyer or the Company as a result of such Losses)
and all reserves and accruals reflected on the Financial
Statements, after which Buyer will be entitled to make any
such claim for amounts in excess of such threshold, and
(iii) unless the amount of such claim as finally determined
exceeds $10,000; provided, however, that the limitations
set forth in this clause (c) shall not apply to Losses
incurred by reason of a breach of the representations and
warranties contained in the last sentence of Section 3.3,
clause (vi) of Section 3.6 or in Section 3.17 (except that
in the case of a breach of Section 3.17 the limitations set
forth in clauses (c)(i) and (c)(ii)(x) shall apply).
Nothing in this clause (c) shall affect the adjustment
provision relating to the Sellers Redemption Price under
clause (c) of Section 2.2 hereof.
(d) Any payment pursuant to this Section 9,
made by Sellers to Buyer, will be deemed an adjustment to
the Sellers Redemption Price.
(e) The rights of the Buyer under Section 8.1
and this Section 9.2 shall be the exclusive remedy of Buyer
with respect to breaches by Sellers of the representations
and warranties or covenants contained in this Agreement.
Buyer, on behalf of itself and its Affiliates (and its
partners, officers, directors and employees), hereby (i)
waives and releases each of the Sellers and their
respective Affiliates (and their shareholders, officers,
directors and employees) from any statutory or other rights
of contribution or indemnity (except as set forth in this
Section 9.2) with respect to Sellers' ownership of the
Common Shares and the Preferred Shares or operation of, or
otherwise relating to, the Company and (ii) waives and
releases all rights of subrogation with respect to claims
relating thereto.
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(f) In the event that any of the Sellers is
obligated to indemnify Buyer pursuant to this Section 9,
such Seller will, upon payment of such indemnity, be
subrogated to all rights of Buyer with respect to claims to
which such indemnification relates.
9.3. Buyer's Indemnification.
(a) Buyer, subject to the limitations set
forth in this Section, will indemnify the Sellers against
and in respect of any and all Losses, other than Losses to
the extent recoverable by Sellers under any applicable
insurance policy and net of the present value of any tax
benefit to Sellers as a result of such Losses, which may be
incurred by reason of (i) the breach of any representation
or warranty made by Buyer in Section 4 hereof or (ii) any
breach of any covenant made by Buyer in this Agreement.
Buyer will so indemnify the Sellers as a result of Losses
which may be incurred by such Sellers arising out of the
operations of the Company after the Closing Date.
(b) Notwithstanding anything to the contrary
in this Agreement (but subject to the last sentence of this
Section 9.3(b)), (i) the aggregate liability of Buyer
pursuant to Section 9.3(a) will not exceed ten percent of
the Sellers Redemption Price; (ii) Buyer will have no
liability or obligation to Sellers pursuant to Section
9.3(a) or otherwise for any Losses arising out of any
breach by Buyer of any representation or warranty made in
this Agreement if (x) disclosed in this Agreement or the
Disclosure Schedule hereto or (y) Sellers had Knowledge of
such breach as a result of the disclosures made in this
Agreement or in the Disclosure Schedule hereto and (iii)
Sellers will be entitled to recover no consequential
damages pursuant to this Section 9.3. Notwithstanding the
above, the limitations of this Section 9.3(b) shall not
apply to a breach of Buyer covenants contained in Section
2.1 or 2.3(g).
(c) No claim for indemnification may be made
by Sellers pursuant to Section 9.3(a)(i), (i) unless notice
of such claim (describing the basic facts or events, the
existence or occurrence of which constitute or have
resulted in the alleged breach of a representation or
warranty made in this Agreement) has been given to Buyer
during the
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survival period set forth in Section 9.1, and (ii)
until such claims for which Losses are otherwise recoverable
hereunder by Sellers are in excess of the aggregate of 2% of the
Sellers Redemption Price (other than Losses to the extent
recoverable by Sellers under any applicable insurance policy and
net of the present value of any tax benefit to Sellers as a
result of such Losses) after which such Sellers will be entitled
to make any such claim for amounts in excess of such threshold,
and (iii) unless the amount of such claim as finally determined
exceeds $10,000.
(d) Any payment pursuant to this Section 9,
made by Buyer to Sellers will be deemed an adjustment to
the Sellers Redemption Price.
(e) The rights of Sellers under this Section
9.3 will be the exclusive remedy of such Sellers with
respect to breaches by Buyer of representations and
warranties or covenants contained in or made pursuant to
this Agreement.
(f) In the event that Buyer is obligated to
indemnify Sellers pursuant to this Section 9, Buyer will,
upon payment of such indemnity, be subrogated to all rights
of Sellers with respect to claims to which such
indemnification relates.
9.4. Claims by Third Parties. Other than in the
case of any Tax Claim, which shall be governed by Section 9.5 of
this Agreement, if a party to this Agreement seeks indemnity
hereunder with respect to a claim by a third party:
(a) For the purposes of this Section 9.4,
"Third Party Claim" means any demand which has been made
on, or communicated to Buyer, Sellers or the Company by or
on behalf of any Person other than the entities
aforementioned in this Subsection 9.4(a) and which, if
maintained or enforced, might result in a claim for
indemnification in the nature described in Section 9.2 or
9.3 of this Agreement being made.
(b) Promptly upon receipt by Indemnitee of
notice of any Third Party Claim in respect of which the
Indemnitee proposes to demand indemnification from the
Indemnitor, the Indemnitee shall forthwith give notice to
that effect to the Indemnitor.
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(c) The Indemnitor shall have the right, exercisable by
giving notice to the Indemnitee not later than 30 days after
receipt of the notice described in Subsection 9.2 (c) or 9.3(c),
as the case may be, to assume the control of the defense,
compromise or settlement of the Third Party Claim.
(d) Upon the assumption of control by the
Indemnitor as aforesaid, the Indemnitor shall, at its
expense, diligently proceed with the defense, compromise or
settlement of the Third Party Claim at the Indemnitor's
sole expense, including employment of counsel reasonably
satisfactory to the Indemnitee, and in connection
therewith, the Indemnitee shall cooperate fully, but at the
expense of the Indemnitor, to make available to the
Indemnitor all pertinent information and witnesses under
Indemnitee's control and to make such assignments and take
such other steps as in the opinion of counsel for the
Indemnitor are necessary to enable the Indemnitor to
conduct such defense, provided always that the Indemnitee
shall be entitled to reasonable security from the
Indemnitor for any expense, costs or other liabilities to
which it may be or may become exposed by reason of such
cooperation.
(e) The final determination of any such Third
Party Claim, including all related costs and expenses, will
be binding and conclusive upon the parties hereto as to the
validity or invalidity, as the case may be, of such Third
Party Claim against the Indemnitor hereunder.
(f) Should the Indemnitor fail to give notice
to the Indemnitee as provided in clause (c) hereof or in
the event the Indemnitor declines to undertake the defense
of any Third Party Claim, action or proceeding when first
notified thereof, the Indemnitee shall keep the Indemnitor
advised as to the current status and progress thereof. The
Indemnitee agrees not to make any offer of settlement
without first having provided five (5) days advance written
notice thereof to the Indemnitor.
(g) In the event the Indemnitor undertakes the
defense of any such claim, action or proceeding, the
Indemnitee shall nevertheless be entitled to participate in
(but not direct) the defense thereof with counsel of its
own choice and at its own expense, and the parties agree to
cooperate fully with one another in connection with the
defense and/or
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<PAGE>
settlement thereof; provided, however, that
any decision to settle any such claim, action or proceeding
shall be at the Indemnitor's sole discretion. From and
after delivery of the notice referred to in Section 9.4(c) above,
the Indemnitor shall be relieved of the obligation to reimburse
the Indemnitee for any other legal, accounting or other
out-of-pocket costs and expenses thereafter incurred by the
Indemnitee with respect to the defense of such claim,
action or proceeding notwithstanding any participation by
the Indemnitee therein.
(h) If the Indemnitee subsequently recovers
all or part of the Third Party Claim from any other person
legally obligated to pay the claim, the Indemnitee shall
forthwith repay to the Indemnitor the amounts recovered up
to an amount not exceeding the payment made by the
Indemnitor to the Indemnitee by way of indemnity.
9.5. Tax Claims of the Buyer. If a claim is made by any
Tax authority which, if successful, would result in a breach of a
representation or warranty contained in Section 3.7 hereof and is
likely to result in an indemnity payment to Buyer pursuant to
Section 9.2 of this Agreement, Buyer shall notify Sellers of such
claim (a "Tax Claim"), stating the nature and basis of such claim
and the amount thereof, to the extent known. Sellers will have
the right, at their option, upon timely notice to Buyer, to
assume control of any defense of any Tax Claim (other than a Tax
Claim relating solely to Taxes of the Company for a taxable
period that begins before but ends after the Closing Date (a
"Straddle Period")) with its own counsel, provided, however, such
counsel is reasonably satisfactory to Buyer. Sellers' right to
control a Tax Claim will be limited to amounts in dispute for
which Sellers would be liable pursuant to Section 9.2 of this
Agreement. Costs of such Tax Claims are to be borne by Sellers
unless the Tax Claim relates to taxable periods ending after the
Closing Date, in which event such costs will be fairly
apportioned. Buyer and the Company shall cooperate with Sellers
in contesting any Tax Claim, which cooperation shall include the
retention and, upon Sellers' request, the provision of records
and information which are reasonably relevant to such Tax Claim
and making employees available on a mutually convenient basis to
provide additional information or explanation of any material
provided hereunder. Notwithstanding the foregoing, Sellers shall
neither consent nor agree (nor cause the Company to consent or
agree) to the settlement of any Tax Claim with respect to any
liability for
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Taxes that is likely to affect the liability for
any state or federal income tax of the Company or any affiliated
group (as defined in Section 1504(a) of the Code) of which the
Company is a member for any taxable period ending subsequent to
the Closing Date without the prior written consent of Buyer,
which consent shall not be unreasonably withheld. Buyer and
Seller shall jointly control all proceedings taken in connection
with any claims for Taxes relating solely to a Straddle Period of
the Company.
SECTION 10. MISCELLANEOUS
10.1 Headings. The section headings herein are
for convenience of reference only, do not constitute part of this
Agreement and will not be deemed to limit or otherwise affect any
of the provisions hereof. References to Sections, unless
otherwise indicated, are references to Sections of this
Agreement.
10.2. Notices. All notices to be given pursuant
to this Agreement to any party must be in writing and will be
deemed to have been validly given:
(a) if delivered by hand to an officer or agent of
such party at its address given below; or
(b) if delivered by facsimile transmission, to
such party at its address given below.
The address of each party for the purposes of this
Agreement is as follows:
If to Sellers, to the addresses specified on Schedule B
hereto;
With a copy to:
Willkie Farr and Gallagher
153 East 53rd Street
New York, New York 10022
Fax No. (212) 821-8111
Attention: Jack H. Nusbaum, Esq.
Daniel D. Rubino, Esq.
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<PAGE>
If to Buyer:
TPG Partners II, L.P.
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Fax No. (817) 871-4010
Attention: Richard Ekleberry, Esq.
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Fax No. (212) 225-3999
Attention: Paul J. Shim, Esq.
Either party may by notice to the other change its
address for notice and will so change its address for notice
whenever its existing address for notice ceases to be adequate
for delivery both by hand and by facsimile.
Notices so given will be deemed to be given and
received:
(c) on the date of delivery, if delivered by hand; and
(d) 24 hours from the time of the transmission
if sent by facsimile.
10.3. Assignment. This Agreement and all
provisions hereof will be binding upon and inure to the benefit
of the parties hereto and their respective successors and
permitted assigns; provided, however, that neither this Agreement
nor any right, interest, or obligation hereunder may be assigned
by any party hereto without the prior written consent of the
other party; and, provided further, that no party hereto or
successor or assignee has the ability to subrogate any other
person to any right or obligation under this Agreement.
10.4. Entire Agreement. This Agreement (including
the Disclosure Schedule, Schedules and Exhibits hereto and
thereto)
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embody the entire agreement and understanding of the
parties with respect to the transactions contemplated hereby and
thereby and supersede all prior written or oral commitments,
arrangements or understandings with respect thereto (other than
the Confidentiality Agreement, which will terminate at the
Closing). There is no restriction, agreement, promise, warranty,
covenant or undertaking with respect to the transactions
contemplated hereby and thereby other than those expressly set
forth herein or therein.
10.5. Amendment; Waiver.
(a) This Agreement may only be amended or
modified in writing signed on behalf of each of the parties
hereto.
(b) Any party hereto may, by an instrument in
writing, waive compliance with any term or provision of
this Agreement on the part of such other party or parties
hereto. The waiver by any party hereto of a breach of any
term or provision of this Agreement will not be construed
as a waiver of any subsequent breach.
10.6. Counterparts. This Agreement may be
executed in two or more counterparts, all of which will be
considered one and the same agreement and each of which will be
deemed an original.
10.7. Governing Law. This agreement will be
governed by the laws of the State of New York (regardless of the
laws that might be applicable under principles of conflicts of
law) as to all matters, including but not limited to matters of
validity, construction, effect and performance.
10.8. Severability. If any one or more of the
provisions of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the
remaining provisions of this Agreement will not be affected
thereby, and Sellers and Buyer will use their reasonable efforts
to substitute one or more valid, legal and enforceable provisions
which insofar as practicable implement the purposes and intent
hereof. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
10.9. Consent to Jurisdiction. Buyer and Sellers
hereby submit to the exclusive jurisdiction of the courts of the
State of New York or the courts of the United States located in
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the State of New York in respect of the interpretation and
enforcement of the provisions of this Agreement and any related
agreement and hereby waive, and agree not to assert, as a defense
in any action, suit or proceeding for the interpretation or
enforcement of this Agreement and any related agreement, that
they are not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in such
courts or that this Agreement may not be enforced in or by such
courts or that their property is exempt or immune from execution,
that the suit, action or proceeding is brought in an inconvenient
forum, or that the venue of the suit, action or proceeding is
improper. Service of process with respect thereto may be made
upon Buyer or Sellers by mailing a copy thereof by registered or
certified mail, postage prepaid, to such party at its address as
provided in Section 10.2 hereof.
10.10. Third Person Beneficiaries. This Agreement
is not intended to confer upon any other Person other than the
parties hereto, any rights or remedies hereunder.
10.11. Representations and Warranties; Disclosure
Schedule. Neither the specification of any dollar amount in the
representations and warranties set forth in Section 3 nor the
indemnification provisions of Section 9 nor the inclusion of any
items in the Disclosure Schedule to this Agreement will be deemed
to constitute an admission by Sellers or Buyer, or otherwise
imply, that any such amounts or the items so included are
material for the purposes of this Agreement. All documents or
information disclosed in any section of the Disclosure Schedule
to this Agreement are intended to be disclosed for all purposes
under this Agreement and will also be deemed to be incorporated
by reference in each of the other sections of the Disclosure
Schedule to this Agreement to which they may be relevant. For
purposes of this Agreement, the determination as to whether any
item, event, circumstance or amount is "material" shall be made
with reference to the Company and its Subsidiaries, taken as a
whole, and references to "Material Adverse Effect" shall be
deemed to be qualified by "individually or in the aggregate."
10.12. United States Dollars. All dollar amounts
referred to herein will be in lawful currency of the United
States of America.
10.13. Expenses. Except as otherwise provided
herein, each of the parties hereto shall bear its own costs and
expenses
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(including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated
hereby.
10.14. Liquidated Damages. Notwithstanding
anything to the contrary contained in this Agreement, in the
event that the Buyer shall fail to consummate the transactions
contemplated by this Agreement on or before the Closing Deadline
for any reason whatsoever, other than the Sellers' failure to
deliver the Redeemed Shares, the Buyer shall pay to the Company
$10,000,000 in cash. Such amount is in the nature of liquidated
damages and does not constitute a penalty. The parties agree that
the amount provided for in this Section 10.14 is reasonably
intended to compensate the Company for its expenses incurred in
connection with the negotiation of this Agreement and any lost
opportunity resulting from the Buyer's failure to consummate the
transactions contemplated hereby and, upon payment of such amount
by the Buyer, the Company and the Sellers waive any and all
rights to any payments, damages, amounts, costs, fees or other
expenses, and agree that they shall not bring any action, suit or
proceeding of any kind to recover any amounts in connection with
any breach by Buyer of this Agreement, other than such
$10,000,000.
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IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the day and year first
above written.
J. CREW GROUP, INC.
By:________________________ ___________________________
Name: Arthur Cinader
Title:
- --------------------------- ---------------------------
Emily Woods Abigail Cinader
- --------------------------- ---------------------------
Arthur Cinader, Jr. Maud Bryt
- --------------------------- ---------------------------
Saul Charles Edna Charles
- --------------------------- ---------------------------
Linda Charles Fishman Amy Charles
___________________________ TRUST U/A DATED DECEMBER 29, 1992,
Robert Charles F/B/O ARTHUR CINADER FAMILY,
BETWEEN ARTHUR CINADER, AS GRANTOR
AND MICHAEL S. INSEL, AS TRUSTEE
By:________________________
Michael S. Insel, Trustee
<PAGE>
TRUST U/A DATED DECEMBER 30, 1959 TRUST U/A DATED JUNE 14, 1955,
F/B/O JOHN MITCHELL CINADER, F/B/O OYER FAMILY, BETWEEN MITCHELL
BETWEEN ARTHUR CINADER, AS GRANTOR CINADER, AS GRANTOR AND ALICE OYER,
AND ALICE OYER, CALVIN OYER AND ARTHUR CINADER AND SADIE
SADIE CINADER, AS TRUSTEES CINADER, AS TRUSTEES
By:________________________ By:________________________
Alice Oyer, Trustee Arthur Cinader, Trustee
By:________________________ By:________________________
Calvin Oyer, Trustee Alice Oyer, Trustee
ARTHUR CINADER CHARITABLE REMAINDER
UNITRUST U/A DATED APRIL 25, 1997,
BETWEEN ARTHUR CINADER, AS GRANTOR
AND JOHANNA CINADER AND JOSH S.
WESTON, AS TRUSTEES
By:________________________
Johanna Cinader, Trustee
By:________________________
Josh S. Weston, Trustee
TPG PARTNERS II, L.P.
By: TPG Genpar II, L.P.
By: TPG Advisors II, Inc.
By:________________________
Name:
Title:
AMENDMENT TO RECAPITALIZATION AGREEMENT
Amendment, dated as of October 17, 1997 (this
"Amendment"), to that certain Recapitalization Agreement, dated
as of July 22, 1997 (the "Recapitalization Agreement"), by and
among J. Crew Group, Inc., a New York corporation (the
"Company"), the holders of shares of Common Stock of the Company
listed on the signature pages hereto (each a "Seller," and
collectively the "Sellers"), and TPG Partners II, L.P., a
Delaware limited partnership (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Recapitalization Agreement contemplates a
recapitalization of the Company which provides for, among other
things, the purchase by the Buyer from the Company of certain
shares of Common Stock;
WHEREAS, the parties desire to amend the
Recapitalization Agreement to, among other things, allow TPG
Investors II, L.P., a Delaware limited partnership ("TPG
Investors"), TPG Parallel II, L.P., a Delaware limited
partnership ("TPG Parallel" and, together with TPG Investors, the
"TPG Affiliates"), and certain other designees of the Buyer
(collectively with the TPG Affiliates, the "TPG Designees") as
set forth herein to purchase Recapitalization Shares directly
from the Company upon the terms and subject to the conditions set
forth herein and in the Recapitalization Agreement;
NOW, THEREFORE, in consideration of the foregoing
premises, and for other good and valuable consideration, the
parties hereby agree as follows:
SECTION 1. AMENDMENTS TO THE RECAPITALIZATION AGREEMENT
1.1. Addition of TPG Designees. Upon the terms and
subject to the conditions set forth herein, in the
Recapitalization Agreement and in the Participation Agreements to
be entered into on the date hereof by and between the Buyer and
each TPG Designee other than the TPG Affiliates, on the Closing
Date, the Buyer and the TPG Designees shall purchase from the
Company, and the Company shall sell to the Buyer and the TPG
Designees, the number of Recapitalization Shares set forth
opposite the Buyer's and such TPG Designees' names on Schedule I
<PAGE>
hereto, and each such TPG Designee shall be entitled to receive
all of the benefits and to exercise all of the rights of the
Buyer under the Recapitalization Agreement with respect to those
Recapitalization Shares purchased by such TPG Designee; provided,
however, that nothing contained herein shall in any way amend or
modify the Buyer's obligations under the Recapitalization
Agreement, including without limitation the Buyer's obligation to
deliver the Recapitalization Purchase Price pursuant to Section
2.1 of the Recapitalization Agreement, to the extent they are not
satisfied by the TPG Designees.
1.2. Adjustment of Retained Shares. The
Recapitalization Agreement is hereby amended by (i) deleting
Exhibit B to the Recapitalization Agreement in its entirety and
inserting in its place Exhibit B to this Amendment and (ii)
amending Section 5.16 of the Recapitalization Agreement by (A)
deleting each of the references to "twelve percent (12%)"
contained therein and replacing them with "14.8127%" and (B)
deleting the number "$9,000,000" and replacing it with
"$11,109,514".
1.3. Adjustment of Sellers Redemption Price;
Allocation of Payment Thereof. The Recapitalization Agreement is
hereby amended as follows:
(a) by amending the definition of Sellers Redemption
Price by deleting the number "$347,770,000" and replacing it with
"$327,797,224"; and
(b) by modifying the allocation of the Sellers
Redemption Price among the Redeemed Shares by deleting Schedule A
to the Recapitalization Agreement in its entirety and inserting
in its place Schedule A to this Amendment.
1.4. Adjustment of Recapitalization Shares; Adjustment
of Recapitalization Purchase Price. Section 2.1 of the
Recapitalization Agreement is hereby amended by (i) deleting the
number "48,400" and replacing such number with the number
"46,853.023", (ii) deleting the reference therein to
"eighty-eight percent (88%)" therein and replacing such reference
with "85.1873%" and (iii) deleting the number "549,600,000" and
replacing such number with the number "$554,463,863".
SECTION 2. MISCELLANEOUS
<PAGE>
2.1. Governing Law. This Amendment will be governed by
the laws of the State of New York (regardless of the laws that might
be applicable under principles of conflicts of law) as to all
matters, including but not limited to matters of validity,
construction, effect and performance.
2.2. Defined Terms; Effect of Amendment
(a) Capitalized terms used but not defined in this
Amendment shall have the respective meanings ascribed to them in
the Recapitalization Agreement.
(b) Except as expressly amended by this Amendment, the
Recapitalization Agreement shall remain in full force and effect
as the same was in effect immediately prior to the effectiveness
of this Amendment. All references in the Recapitalization
Agreement to "this Agreement" shall be deemed to refer to the
Recapitalization Agreement as amended by this Amendment.
2.3. Counterparts. This Amendment may be executed in
one or more counterparts, each of which shall be deemed an
original and all of which together shall be considered one and the
same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the day and year first
above written.
J. CREW GROUP, INC.
By: /s/ Michael McHugh /s/ A. Cinader
------------------------ ---------------------------
Name: Michael McHugh Arthur Cinader
Title: V.P. Finance CFO
/s/ Emily Woods /s/ A. Cinader
- --------------------------- ---------------------------
Emily Woods Abigail Cinader*
/s/ A. Cinader /s/ A. Cinader
- --------------------------- ---------------------------
Arthur Cinader, Jr.* Maud Bryt*
/s/ Saul Charles /s/ Saul Charles
- --------------------------- ---------------------------
Saul Charles Edna Charles**
/s/ Saul Charles /s/ Saul Charles
- --------------------------- ---------------------------
Linda Charles Fishman** Amy Charles**
/s/ Saul Charles TRUST U/A DATED DECEMBER 29, 1992,
- --------------------------- F/B/O ARTHUR CINADER FAMILY,
Robert Charles** BETWEEN ARTHUR CINADER, AS GRANTOR
AND MICHAEL S. INSEL, AS TRUSTEE
By: /s/ Michael S. Insel
---------------------------
Michael S. Insel, Trustee*
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
<PAGE>
TRUST U/A DATED DECEMBER 30, 1959 TRUST U/A DATED JUNE 14, 1955,
F/B/O JOHN MITCHELL CINADER, F/B/O OYER FAMILY, BETWEEN MITCHELL
BETWEEN ARTHUR CINADER, AS GRANTOR CINADER, AS GRANTOR AND ALICE OYER,
AND ALICE OYER, CALVIN OYER AND ARTHUR CINADER AND CALVIN OYER, AS
SADIE CINADER, AS TRUSTEES TRUSTEES
By: /s/ A. Cinader By: /s/ Saul Charles
------------------------ -------------------------
Alice Oyer, Trustee* Arthur Cinader, Trustee**
By: /s/ A. Cinader By: /s/ Saul Charles
------------------------ -------------------------
Calvin Oyer, Trustee* Alice Oyer, Trustee**
By: /s/ Saul Charles
-------------------------
Calvin Oyer, Trustee**
ARTHUR CINADER CHARITABLE REMAINDER
UNITRUST U/A DATED APRIL 25, 1997,
BETWEEN ARTHUR CINADER, AS GRANTOR
AND JOHANNA CINADER AND JOSH S.
WESTON, AS TRUSTEES
By: /s/ Saul Charles
-------------------------
Johanna Cinader, Trustee**
By: /s/ Saul Charles
-------------------------
Josh S. Weston, Trustee**
TPG INVESTORS II, L.P. TPG PARTNERS II, L.P.
By: TPG GenPar II, L.P. By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc. By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet By: /s/ Jonathan J. Coslet
------------------------ -------------------------
Name: Jonathan J. Coslet Name: Jonathan J. Coslet
Title: Principal Title: Principal
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
<PAGE>
TPG PARALLEL II, L.P.
By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet
------------------------
Name: Jonathan J. Coslet
Title: Principal
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
<PAGE>
SCHEDULE I
Stockholder Recapitalization
Shares
TPG Parallel II, L.P. 2,154.198
TPG Investors II, L.P. 3,292.740
BancBoston Investments, Inc. 2,062.500
General Electric Capital Corporation 1,948.090
TCW/Crescent Mezzanine Partners, L.P. 2,323.141
TCW/Crescent Mezzanine Trust 707.128
TCW/Crescent Mezzanine Investment Partners, L.P. 63.481
Crescent/Mach I Partners, L.P. 171.875
TCW Shared Opportunity Fund II, L.P. 171.875
DLJ Fund Investment Partners II, L.P. 527.745
Ken Moelis 25.943
Mark Lanigan 25.943
Pauline Boghosian 25.943
Stephen Paul 13.342
Scott Honour 4.447
Bennett Goodman 20.013
Steve Rattner 20.013
Doug Ostrover 20.013
Rob Grien 19.272
Christine Fasano 13.342
Eric Swanson 10.377
Kevin Smith 2.965
Steve Hickey 10.377
DLJ Capital Corporation 1.482
Farallon Capital Partners, L.P. 742.500
Farallon Capital Institutional Partners, L.P. 577.500
Farallon Capital Institutional Partners II, L.P. 198.000
Farallon Capital Institutional Partners III, L.P. 66.000
RR Capital Partners, L.P. 66.000
<PAGE>
SCHEDULE A TO AMENDMENT TO RECAPITALIZATION AGREEMENT
Number of Common Shares Allocation of Sellers
Seller Owned of Record Redemption Price
Arthur Cinader 104,836 $168,369,548 1
Emily Woods 18,110 2 $12,336,837 2
Arthur Cinader
Charitable Remainder 11,399 $14,647,063
Unitrust, dated April
25, 1997
Trust u/a dated December
29, 1992, f/b/o Arthur 5,217 $6,703,547
Cinader Family
Abigail Cinader 137 $176,037
Arthur Cinader, Jr. 137 $176,037
Maud Bryt 137 2 $0 2
Trust u/a dated December
30, 1959, f/b/o John 10,000 $12,849,428
Mitchell Cinader
Trust u/a dated June 14,
1955, f/b/o Oyer Family 24,164 $31,049,358
Edna Charles 20,000 $25,698,856
Saul Charles 19,861 $25,520,249
Linda Charles Fishman 3,330 $4,278,860
- --------
1 Amount includes an additional approximately $321 per share
as consideration for the sale of Mr. Cinader's controlling
interest in the Company.
2 Ms. Woods will retain a portion of her existing shares of
Common Stock (having an aggregate value of $10,933,477)
representing approximately 14.58% of the common equity of
the post-Closing Company. The value of such shares owned by
Ms. Woods, together with the cash to be received by her as
her pro rata share of the Sellers Redemption Price, equal,
in the aggregate, $23,270,314. Ms. Bryt will retain 129.094
of her existing shares of Common Stock (having an aggregate
value of $176,037) representing approximately .002347% of
the common equity of the post-Closing Company and will
surrender her remaining shares of Common Stock to the
Company for no additional consideration.
<PAGE>
Amy Charles 5,330 $6,848,745
Robert Charles 5,330 $6,848,745
TOTAL 227,988 $315,503,310 2
<PAGE>
EXHIBIT B TO AMENDMENT TO RECAPITALIZATION AGREEMENT
Emily Woods 8,017.883 Retained Shares
Maud Bryt 129.094 Retained Shares 1
- --------
1 Ms. Bryt will retain 129.094 of her existing shares of
Common Stock (having an aggregate value of $176,037)
representing approximately .002347% of the common equity of
the post-Closing Company and will surrender her remaining
shares of Common Stock to the Company for no additional
consideration.
CERTIFICATE OF INCORPORATION
OF
J. CREW CORP.
I, THE UNDERSIGNED, in order to form a corporation for
the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), do hereby certify as follows:
FIRST: The name of the corporation is J. CREW CORP.
(hereinafter referred to as the "Corporation").
SECOND: The registered office of the Corporation is to
be located at 1209 Orange Street, in the City of Wilmington, in
the County of New Castle, in the State of Delaware. The name of
its registered agent at that address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the
Corporation is authorized to issue is one thousand (1,000) shares
of Common Stock and one thousand (1,000) shares of Preferred
Stock, and the par value of each of such shares is $0.01.
FIFTH: The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby
authorized to provide for the issuance of shares of Preferred
Stock in series and, by filing a
<PAGE>
certificate pursuant to the DGCL (hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to
fix the designation, powers, privileges, preferences and rights
of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not
be limited to, determination of the following:
(1) the designation of the series, which may be by
distinguishing number, letter or title;
(2) the number of shares of the series, which number
the Board of Directors may thereafter (except where otherwise
provided in the Preferred Stock Designation) increase or decrease
(but not below the number of shares thereof then outstanding);
(3) whether dividends, if any, shall be cumulative or
noncumulative, and, in the case of shares of any series having
cumulative dividend rights, the date or dates or method of
determining the date or dates from which dividends on the shares
of such series shall be cumulative;
(4) the rate of any dividends (or method of
determining such dividends) payable to the holders of the shares
of such series, any conditions upon which such dividends shall be
paid and the date or dates or the method for determining the date
or dates upon which such dividends shall be payable;
(5) the price or prices (or method of determining such
price or prices) at which, the form of payment of such price or
prices (which may be cash, property or rights, including
securities of the same or another corporation or other entity)
for which, the period or periods within which and the terms and
conditions upon which the shares of such series may be redeemed,
in whole or in part, at the option of the Corporation or at the
option of the
2
<PAGE>
holder or holders thereof or upon the happening of a specified
event or events, if any;
(6) the obligation, if any, of the Corporation to
purchase or redeem shares of such series pursuant to a sinking
fund or otherwise and the price or prices at which, the form of
payment of such price or prices (which may be cash, property or
rights, including securities of the same or another corporation
or other entity) for which, the period or periods within which
and the terms and conditions upon which the shares of such series
shall be redeemed or purchased, in whole or in part, pursuant to
such obligation;
(7) the amount payable out of the assets of the
Corporation to the holders of shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation;
(8) provisions, if any, for the conversion or exchange
of the shares of such series, at any time or times at the option
of the holder or holders thereof or at the option of the
Corporation or upon the happening of a specified event or events,
into shares of any other class or classes or any other series of
the same or any other class or classes of stock, or any other
security, of the Corporation, or any other corporation or other
entity, and the price or prices or rate or rates of conversion or
exchange and any adjustments applicable thereto, and all other
terms and conditions upon which such conversion or exchange may
be made;
(9) restrictions on the issuance of shares of the same
series or of any other class or series, if any; and
(10) the voting rights, if any, of the holders of shares
of the series.
3
<PAGE>
SIXTH: The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. The holders
of shares of Common Stock shall be entitled to one vote for each
such share upon all proposals presented to the stockholders on
which the holders of Common Stock are entitled to vote. Except as
otherwise provided by law or by any Preferred Stock Designation,
the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of
Preferred Stock shall not be entitled to receive notice of any
meeting of stockholders at which they are not entitled to vote.
The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders
of a majority of the outstanding Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof,
unless a vote of any such holders is required pursuant to any
Preferred Stock Designation.
The Corporation shall be entitled to treat the person
in whose name any share of its stock is registered as the owner
thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, such share on the
part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable
law.
SEVENTH: The name and address of the incorporator is as
follows:
NAME ADDRESS
---- -------
Michelle T. Lin Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
4
<PAGE>
EIGHTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of
the Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and of its directors
and stockholders:
(1) The number of directors of the Corporation
shall be such as from time to time shall be fixed by, or in the
manner provided in, the By-Laws. Election of directors need not be
by ballot unless the By-Laws so provide.
(2) The Board of Directors shall have powers without
the assent or vote of the stockholders to make, alter, amend,
change, add to or repeal the By-Laws of the Corporation; to fix
and vary the amount to be reserved for any proper purpose; to
authorize and cause to be executed mortgages and liens upon all
or any part of the property of the Corporation; to determine the
use and disposition of any surplus or net profits; and to fix the
times for the declaration and payment of dividends.
(3) The directors in their discretion may submit any
contract or act for approval or ratification at any annual
meeting of the stockholders or at any meeting of the stockholders
called for the purpose of considering any such act or contract,
and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such
meeting and entitled to vote thereat (provided that a lawful
quorum of stockholders be there represented in person or by
proxy) shall be as valid and as binding upon the Corporation and
upon all the stockholders as though it had been approved or
ratified by every stockholder of the Corporation, whether or not
the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
5
<PAGE>
(4) In addition to the powers and authorities
hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this Certificate, and to any By-Laws
from time to time made by the stockholders; provided, however,
that no By-Laws so made shall invalidate any prior act of the
directors which would have been valid if such By-Law had not been
made.
NINTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except, if required by the DGCL, as amended from time to time,
for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. Neither the amendment nor
repeal of this Article Ninth shall eliminate or reduce the effect
of this Article Ninth in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article Ninth
would accrue or arise, prior to such amendment or repeal.
TENTH: Each person who is or was or had agreed to
become a director or officer of the Corporation, or each such
person who is or was serving or who had agreed to serve at the
request of the Board or an officer of the Corporation as an
employee or agent of the Corporation or as a director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust, or other entity (including the heirs, executors,
administrators, or estate of such person) will be indemnified by
the
6
<PAGE>
Corporation to the full extent permitted by the DGCL or any other
applicable law as currently or hereafter in effect. The
Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and
rights to have the Corporation pay the expenses incurred in
defending any proceeding in advance of its final disposition, to
any employee or agent of the Corporation to the fullest extent of
the provisions of this Article Tenth with respect to the
indemnification and advancement of expenses of directors and
officers of the Corporation. The right of indemnification
provided in this Article Tenth will not be exclusive of any other
rights to which any person seeking indemnification may otherwise
be entitled, and will be applicable to matters otherwise within
its scope whether or not such matters arose or arise before or
after the adoption of this Article Tenth. Without limiting the
generality or the effect of the foregoing, the Corporation may
adopt By-Laws, or enter into one or more agreements with any
person, which provide for indemnification greater or different
than that provided in this Article Tenth. Any amendment, or
repeal of, or adoption of any provision inconsistent with, this
Article Tenth will not adversely affect any right or protection
existing hereunder immediately prior to such amendment, repeal,
or adoption.
ELEVENTH: Whenever a compromise or arrangement is
proposed between the Corporation and its creditors or any class
of them and/or between the Corporation and its stockholders or
any class of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the
Corporation under the provisions of Section 291 of the DGCL or on
the application of trustees in dissolution or of any receiver or
receivers appointed for the
7
<PAGE>
Corporation under the provisions of Section 279 of the DGCL,
order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as
the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders
or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
TWELFTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter
prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, I have hereunto set my hand this
12th day of September, 1997.
/s/ Michelle T. Lin
--------------------------
Michelle T. Lin
Sole Incorporator
8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
J. CREW CORP.
I, the undersigned, being the incorporator of J. Crew
Corp., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DO HEREBY CERTIFY:
FIRST: That the First Article of the Certificate of
Incorporation be and it hereby is amended to read as follows:
The name of the corporation is J. Crew Operating Corp.
(hereinafter referred to as the "Corporation").
SECOND: That the corporation has not received any
payment for any of its stock.
THIRD: That the amendment was duly adopted in
accordance with the provisions of section 241 of the General
Corporation Law of the State of Delaware.
-1-
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate this 29th day
of September, 1997.
/s/ Michelle T. Lin
_______________________
Michelle T. Lin
-2-
CERTIFICATE OF INCORPORATION
----------------------------
OF
POPULAR CLUB PLAN, INC.
-----------------------
---------
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of the New Jersey Business
Corporation Act, the undersigned, being a natural person of at
least 18 years of age and as the incorporator of the corporation
hereby being organized thereunder, certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is POPULAR CLUB PLAN, INC.
SECOND: The Corporation is organized to engage in any
activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act, and, in
addition and without limiting the generality of the foregoing,
for the following purpose or purposes:
To carry on a mail order apparel and general merchandise
business in all its branches; to design, style, manufacture,
process, merchandise, buy, sell, distribute, export and import,
at wholesale, retail, and as jobber, and otherwise generally and
in all ways handle, trade and deal with and in any and all
articles and items of men's, women's and
<PAGE>
children's wearing apparel, accessories, novelties and
specialties, of every kind, nature and description, and for
whatever use or purpose.
To carry on a general mercantile, investing, and trading
business; to devise, invent, manufacture, fabricate, assemble,
install, service, maintain, alter, buy, sell, import, export,
license as licensor or licensee, lease as lessor or lessee,
distribute, job, enter into, negotiate, execute, acquire, and
assign contracts in respect of, acquire, receive, grant and
assign licensing arrangements, options, franchises, and other
rights in respect of, and generally deal in and with, at
wholesale and retail, as principal, and as sales, business,
special, or general agent, representative, broker, factor,
merchant, distributor, jobber, advisor, and in any other lawful
capacity, goods, wares, and merchandise, commodities, and
unimproved, improved, finished, processed, and other real,
personal, and mixed property of any and all kinds, together with
the components, resultants, and by-products thereof; to acquire
by purchase or otherwise own, hold, lease, mortgage, sell or
otherwise dispose of, erect, construct, make, alter, enlarge,
improve, and to aid or subscribe toward the construction,
acquisition or improvement of any factories, shops, storehouses,
buildings, and commercial and retail
-2-
<PAGE>
establishments of every character, including all
equipment, fixtures, machinery, implements and supplies
necessary, or incidental to, or connected with, any of the
purposes or business of the corporation; and generally to perform
any and all acts connected therewith or arising therefrom or
incidental thereto, and all acts proper or necessary for the
purpose of the business.
To apply for, register, obtain, purchase, lease, take
licenses in respect of or otherwise acquire, and to hold, own,
use, operate, develop, enjoy, turn to account, grant licenses and
immunities in respect of, manufacture under and to introduce,
sell, assign, mortgage, pledge or otherwise dispose of, and, in
any manner deal with and contract with reference to copyrights,
designs, and similar rights, trade-marks, trade symbols and other
indications of origin and ownership granted by or recognized
under the laws of the United States of America or of any state or
subdivision thereof, or of any foreign country or subdivision
thereof, and all rights connected therewith or appertaining
thereunto.
To have all of the powers conferred upon corporations
organized under the New Jersey Business Corporation Act.
-3-
<PAGE>
THIRD: The aggregate number of shares which the Corporation
shall have authority to issue is Two Hundred Fifty (250), all of
which are without par value, and all of which are of the same
class.
FOURTH: The address of the initial registered office of the
Corporation within the State of New Jersey is 22 Lincoln Place,
Garfield, New Jersey 07026; and the name of the initial
registered agent at such address is Mr. Saul Charles, Secretary.
FIFTH: The number of directors constituting the first Board
of Directors of the Corporation is two (2); and the name and
address of the persons who are to serve as the first directors of
the Corporation are as follows:
NAME ADDRESS
---- -------
Arthur Cinader 22 Lincoln Place, Garfield, N.J. 07026
Saul Charles 22 Lincoln Place, Garfield, N.J. 07026
SIXTH: The name and the address of the incorporator is as
follows:
NAME ADDRESS
---- -------
Leonard M. Polisar, Herzfeld & Rubin, P.C.
40 Wall Street, New York, N.Y. 10005
SEVENTH: For the management of the business and for the
-4-
<PAGE>
conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the
Corporation and of its directors and of its shareholders or any
class thereof, as the case may be, it is further provided:
1. A majority of the entire Board of directors of the
Corporation shall constitute a quorum for the transaction of
business except that the By-Laws may prescribe a lesser
proportion, consistent with the provisions of the New Jersey
Business Corporation Act, in the event of a vacancy or vacancies
in the entire Board.
2. One or more or all the directors of the Corporation may
be removed for cause by the shareholders by the affirmative vote
of the majority of the votes cast by the holders of shares
entitled to vote for the election of directors; and one or more
or all the directors may be removed without cause by like vote of
said shareholders. The Board of Directors shall have the power
to remove directors for cause and to suspend directors pending a
final determination that cause exists for removal.
3. In the interim between annual meetings of the
shareholders or of special meetings of shareholders called for
the election of directors, newly created directorships may be
filled by the Board of Directors.
-5-
<PAGE>
4. The Corporation is hereby authorized to lend money to,
or guarantee any obligation of, or otherwise assist, any officer
or other employee of the Corporation or of any subsidiary,
whether or not such officer or employee is a director thereof,
whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the
Corporation.
5. No corporate agent shall be personally liable to the
corporation or any of its shareholders for monetary damages for
breach of duty as a corporate agent, except for liability if a
judgment or other final adjudication adverse to the corporate
agent establishes that his acts or omissions (a) were in breach
of his duty of loyalty to the corporation or its shareholders,
(b) were not in good faith or involved a knowing violation of
law, or (c) resulted in receipt by the corporate agent of an
improper personal benefit. Any repeal or modification of this
Article SEVENTH, paragraph 5 by the shareholders of the
Corporation shall not adversely affect any right or protection of
a corporate agent existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to
such repeal or modification. The term "corporate agent" as used
herein shall have the meaning attributed to it by Sections 14A:3-
5 and 14A:5-21 of the New
-6-
<PAGE>
Jersey Business Corporation Act and by any other applicable provision of law.
EIGHTH: The duration of the Corporation is to be perpetual.
Signed on June 24, 1988
/s/ Leonard M. Polisar
-----------------------
Leonard M. Polisar,
Incorporator
-7-
CERTIFICATE OF INCORPORATION
OF
CLIFFORD & WILLS, INC.
---
TO: The Secretary of State
State of New Jersey
Pursuant to the provisions of the New Jersey Business
Corporation Act, the undersigned, being a natural person of at
least 18 years of age and acting as the incorporator of the
corporation hereby being organized thereunder, certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is CLIFFORD & WILLS, INC.
SECOND: The Corporation is organized to engage in any
activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act, and, in
addition and without limiting the generality of the foregoing,
for the following purpose of purposes:
To carry on a mail order apparel and general merchandise
business in all its branches; to design, style, manufacture,
process, merchandise, buy, sell, distribute, export and import,
at wholesale, retail, and as jobber, and otherwise generally and
in all ways handle, trade and deal with and in any and all
articles and items of men's, women's and
<PAGE>
children's wearing apparel, accessories, novelties and
specialties, of every kind, nature and description, and for
whatever use or purpose.
To carry on a general mercantile, investing, and trading
business; to devise, invent, manufacture, fabricate, assemble,
install, service, maintain, alter, buy, sell, import, export,
license as licensor or licensee, lease as lessor or lessee,
distribute, job, enter into, negotiate, execute, acquire, and
assign contracts in respect of, acquire, receive, grant and
assign licensing arrangements, options, franchises, and other
rights in respect of, and generally deal in and with, at
wholesale and retail, as principal, and as sales, business,
special, or general agent, representative, broker, factor,
merchant, distributor, jobber, advisor, and in any other lawful
capacity, goods, wares, and merchandise, commodities, and
unimproved, improved, finished, processed, and other real,
personal, and mixed property of any and all kinds, together with
the components, resultants, and by-products thereof; to acquire
by purchase or otherwise own, hold, lease, mortgage, sell or
otherwise dispose of, erect, construct, make, alter, enlarge,
improve, and to aid or subscribe toward the construction,
acquisition or improvement of any factories, shops, storehouses,
buildings, and commercial and retail
-2-
<PAGE>
establishments of every character, including all equipment,
fixtures, machinery, implements and supplies necessary, or
incidental to, or connected with, any of the purposes or business
of the corporation; and generally to perform any and all acts
connected therewith or arising therefrom or incidental thereto,
and all acts proper or necessary for the purpose of the business.
To apply for, register, obtain, purchase, lease, take
licenses in respect of or otherwise acquire, and to hold, own,
use, operate, develop, enjoy, turn to account, grant licenses and
immunities in respect of, manufacture under and to introduce,
sell, assign, mortgage, pledge or otherwise dispose of, and, in
any manner deal with and contract with reference to copyrights,
designs, and similar rights, trade-marks, trade symbols and other
indications of origin and ownership granted by or recognized
under the laws of the United States of America or of any state or
subdivision thereof, or of any foreign country or subdivision
thereof, and all rights connected therewith or appertaining
thereunto.
To have all of the powers conferred upon corporations
organized under the New Jersey Business Corporation Act.
-3-
<PAGE>
THIRD: The aggregate number of shares which the Corporation
shall have authority to issue is Two Hundred Fifty (250), all of
which are without par value, and all of which are of the same
class.
FOURTH: The address of the initial registered office of the
Corporation within the State of New Jersey is 22 Lincoln Place,
Garfield, New Jersey 07026; and the name of the initial
registered agent at such address is Mr. Saul Charles, Secretary.
FIFTH: The number of directors constituting the first Board
of Directors of the Corporation is two (2); and the name and
address of the persons who are to serve as the first directors of
the Corporation are as follows:
NAME ADDRESS
Arthur Cinader 22 Lincoln Place, Garfield, N.J. 07026
Saul Charles 22 Lincoln Place, Garfield, N.J. 07026
SIXTH: The name and the address of the incorporator is as
follows:
NAME ADDRESS
Kenneth M. Greenfield Herzfeld & Rubin, P.C.
40 Wall Street, New York, N.Y. 10005
SEVENTH: For the management of the business and for the
-4-
<PAGE>
conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the
Corporation and of its directors and of its shareholders or any
class thereof, as the case may be, it is further provided:
1. A majority of the entire Board of directors of the
Corporation shall constitute a quorum for the transaction of
business except that the By-Laws may prescribe a lesser
proportion, consistent with the provisions of the New Jersey
Business Corporation Act, in the event of a vacancy or vacancies
in the entire Board.
2. One or more or all the directors of the Corporation may
be removed for cause by the shareholders by the affirmative vote
of the majority of the votes cast by the holders of shares
entitled to vote for the election of directors; and one or more
or all the directors may be removed without cause by like vote of
said shareholders. The Board of Directors shall have the power to
remove directors for cause and to suspend directors pending a
final determination that cause exists for removal.
3. In the interim between annual meetings of the
shareholders or of special meetings of shareholders called for
the election of directors, newly created directorships may be
filled by the Board of Directors.
-5-
<PAGE>
4. The Corporation is hereby authorized to lend money to, or
guarantee any obligation of, or otherwise assist, any officer or
other employee of the Corporation or of any subsidiary, whether
or not such officer or employee is a director thereof, whenever,
in the judgment of the Board of Directors, such loan, guarantee
or assistance may reasonably be expected to benefit the
Corporation.
5. No corporate agent shall be personally liable to the
corporation or any of its shareholders for monetary damages for
breach of duty as a corporate agent, except for liability if a
judgment or other final adjudication adverse to the corporate
agent establishes that his acts or omissions (a) were in breach
of his duty of loyalty to the corporation or its shareholders,
(b) were not in good faith or involved a knowing violation of
law, or (c) resulted in receipt by the corporate agent of an
improper personal benefit. Any repeal or modification of this
Article SEVENTH, paragraph 5 by the shareholders of the
Corporation shall not adversely affect any right or protection of
a corporate agent existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to
such repeal or modification. The term "corporate agent" as used
herein shall have the meaning attributed to it by Sections
14A:3-5 and 14A:5-21 of the New
-6-
<PAGE>
Jersey Business Corporation Act and by any other applicable
provision of law.
EIGHTH: The duration of the Corporation is to be perpetual.
Signed on March 28, 1988
/s/ Kenneth M. Greenfield
---------------------------
Kenneth M. Greenfield,
Incorporator
-7-
CERTIFICATE OF INCORPORATION
-of-
GRACE HOLMES, INC.
- - - - - -
WE, THE UNDERSIGNED, in order to form a corporation
for the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of
Delaware, do hereby certify as follows:
FIRST: The name of the corporation is
GRACE HOLMES, INC.
SECOND: The principal office of the corporation is to be
located in the City of Dover, in the County of Kent, in the State
of Delaware. The name of its resident agent is the UNITED STATES
CORPORATION COMPANY, whose address is No. 129 South State Street
in said city.
THIRD: The nature of the business of the corporation and
the objects or purposes proposed to be transacted, promoted or
carried on by it are:
To engage in the mail order business and in any
and all other forms of retail selling and merchandising,
and in that connection to acquire, produce, assemble, buy,
lease, manufacture or otherwise acquire, hold, own,
install, equip, replace, maintain, service, import, export,
sell, lease or otherwise dispose of, through the use of
mail order catalogs or otherwise, and generally deal in and
with, as principal, agent, commission merchant, broker,
factor or any combination of the foregoing, any and all
kinds of goods, wares, merchandise and tangible property
used or capable of being used for any purpose whatever and,
in connection therewith, to buy, sell, lease, hold and own
any and all types of real and personal property that may be
necessary or useful to accomplish the foregoing.
<PAGE>
To manufacture, buy, sell, deal in, and to engage
in, conduct and carry on the business of manufacturing,
buying, selling and dealing in goods, wares and merchandise
of every class and description necessary or useful for the
operations of this corporation.
To improve, manage, develop, sell, assign,
transfer, lease, mortgage, pledge, or otherwise dispose of
or turn to account or deal with all or any part of the
property of the corporation and from time to time to vary
any investment or employment of capital of the corporation.
To borrow money, and to make and issue notes, bonds,
debentures, obligations and evidences of indebtedness of all
kinds, whether secured by mortgage, pledge or otherwise, without
limit as to amount, and to secure the same by mortgage, pledge or
otherwise; and generally to make and perform agreements and
contracts of every kind and description.
To the same extent as natural persons might or
could do, to purchase or otherwise acquire, and to hold,
own, maintain, work, develop, sell, lease, exchange, hire,
convey, mortgage or otherwise dispose of and deal in, lands
and leaseholds, and any interest, estate and rights in real
property, and any personal or mixed property, and any
franchises, rights, licenses or privileges necessary,
convenient or appropriate for any of the purposes herein
expressed.
To apply for, obtain, register, purchase, lease
or otherwise to acquire and to hold, own, use, develop,
operate and introduce, and to sell, assign, grant licenses
or territorial rights in respect to, or otherwise to turn
to account or dispose of, any copyrights, trade marks,
trade names, brands, labels, patent rights, letters patent
of the United States or of any other country or government,
inventions, improvements and processes, whether used in
connection with or secured under letters patent or
otherwise.
To do all and everything necessary, suitable and
proper for the accomplishment of any of the purposes or the
attainment of any of the objects or the furtherance of any
of the powers hereinbefore set forth, either alone or in
association with other corporations, firms or individuals,
and to do every
<PAGE>
other act or acts, thing or things incidental or appurtenant
to or growing out of or connected with the aforesaid
business or powers or any part or parts thereof, provided
the same be not inconsistent with the laws under which this
corporation is organized.
To acquire by purchase, subscription or
otherwise, and to hold for investment or otherwise and to
use, sell, assign, transfer, mortgage, pledge or otherwise
deal with or dispose of stocks, bonds or any other
obligations or securities of any corporation or
corporations; to merge or consolidate with any corporation
in such manner as may be permitted by law; to aid in any
manner any corporation whose stocks, bonds or other
obligations are held or in any manner guaranteed by this
corporation, or in which this corporation is in any way
interested; and to do any other acts or things for the
preservation, protection, improvement or enhancement of the
value of any such stock, bonds or other obligations; and
while owner of any such stock, bonds or other obligations
to exercise all the rights, powers and privileges of
ownership thereof, and to exercise any and all voting
powers thereon; to guarantee the payment of dividends upon
any stock, or the principal or interest or both, of any
bonds or other obligations, and the performance of any
contracts.
The business or purpose of the corporation is
from time to time to do any one or more of the acts and
things hereinabove set forth, and it shall have power to
conduct and carry on its said business, or any part
thereof, and to have one or more offices, and to exercise
any or all of its corporate powers and rights, in the State
of Delaware, and in the various other states, territories,
colonies and dependencies of the United States, in the
District of Columbia, and in all or any foreign countries.
The enumeration herein of the objects and
purposes of this corporation shall be construed as powers
as well as objects and purposes and shall not be deemed to
exclude by inference any powers, objects or purposes which
this corporation is empowered to exercise, whether
expressly by force of the laws of the State of Delaware now
or hereafter in effect or impliedly by the reasonable
construction of the said laws.
<PAGE>
FOURTH: The total number of shares of stock which the
corporation is authorized to issue is two hundred fifty (250),
all of which are without par value.
FIFTH: The minimum amount of capital with which the
corporation will commence business is one thousand dollars
($1,000.00).
SIXTH: The name and place of residence of each of the
incorporators is as follows:
NAME RESIDENCE
Thomas A. McCarthy 50 Broad Street, New York 4, N.Y.
John E. Quinn 50 Broad Street, New York 4, N.Y.
John Kirchner 50 Broad Street, New York 4, N.Y.
SEVENTH: The corporation is to have perpetual existence.
EIGHTH: The private property of the stockholders shall
not be subject to the payment of corporate debts to any extent
whatever.
NINTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of
this corporation, and for further definition, limitation and
regulation of the powers of this corporation and of its directors
and stockholders:
(1) The number of directors of the corporation shall
be such as from time to time shall be fixed by, or in the manner
provided in the by-laws, but shall not be less than three.
Election of directors need not be by ballot unless the by-laws so
provide.
<PAGE>
(2) The Board of Directors shall have power
(a) Without the assent or vote of the
stockholders, to make, alter, amend, change, add to, or
repeal the By-Laws of this corporation; to fix and vary the
amount to be reserved for any proper purpose; to authorize
and cause to be executed mortgages and liens upon any part
of the property of the corporation provided it be less than
substantially all; to determine the use and disposition of
any surplus or net profits and to fix the times for the
declaration and payment of dividends.
(b) To determine from time to time whether, and
to what extent, and at what times and places, and under
what conditions and regulations, the accounts and
books of the corporation (other than the stock ledger) or
any of them, shall be open to the inspection of the
stockholders.
(3) The directors in their discretion may submit any
contract or act for approval or ratification at any annual
meeting of the stockholders or at any meeting of the stockholders
called for the purpose of considering any such act or contract,
and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the
corporation which is represented in person or by proxy at such
meeting and entitled to vote thereat (provided that a lawful
quorum of stockholders be there represented in person or by
proxy) shall be as valid and binding upon the corporation and
upon all the stockholders as though it had been approved or
ratified by every stockholder of the corporation, whether or not
the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities herein-
before or by statute expressly conferred upon them, the directors
are hereby empowered to exercise all such powers and do all
<PAGE>
such acts and things as may be exercised or done by the
corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws
from time to time made by the stockholders; provided, however,
that no by-law so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not been
made.
TENTH: No contract or other transaction between the
corporation and any other corporation shall be affected or
invalidated by the fact that any one or more of the directors of
this corporation is or are interested in, or is a director or
officer, or are directors or officers of such other corporation,
and any director or directors, individually or jointly may be a
party or parties to or may be interested in any contract or
transaction of this corporation or in which this corporation is
interested; and no contract, act or transaction of this
corporation with any person or persons, firm or association,
shall be affected or invalidated by the fact that any director or
directors of this corporation is a party, or are parties to, or
interested in, such contract, act or transaction, or in any way
connected with such person or persons, firm or association, and
each and every person who may become a director of this
corporation is hereby relieved from any liability that might
otherwise exist from contracting with the corporation for the
benefit of himself or any firm or corporation in which he may be
in any wise interested.
<PAGE>
ELEVENTH: Any person made a party to any action, suit
or proceeding by reason of the fact that he, his testator or
intestate, is or was a director, officer or employee of this
corporation or of any corporation which he served as such at the
request of this corporation, shall be indemnified by the
corporation against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred by him in connection with
the defense of such action, suit or proceeding, or in connection
with any appeal therein, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding
that such officer, director or employee is liable for negligence
or misconduct in the performance of his duties. Such right of
indemnification shall not be deemed exclusive of any other rights
to which such director, officer or employee may be entitled by
law.
TWELFTH: The corporation reserves the right to amend,
alter, change or repeal any provision contained in this
certificate of incorporation in the manner now or hereafter
prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, we have hereunto set our hands and
seals, the 4th day of January, 1962.
In presence of:
/s/ Edith Singer /s/ Thomas McCarthy (L.S.)
- ------------------------ ---------------------------
/s/ John E. Quinn (L.S.)
---------------------------
/s/ John Kirchner (L.S.)
---------------------------
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BE IT RECORDED that on this 4th day of January, A.D.,
1962, personally came before me, Edith Singer, a Notary Public in
and for the County and State aforesaid, Thomas A. McCarthy, John
E. Quinn and John Kirchner, parties to the foregoing Certificate
of Incorporation, known to me personally to be such, and
severally acknowledged the said Certificate to be the act and
deed of the signers respectively, and that the facts therein
stated are truly set forth.
GIVEN under my hand and seal of office the day and
year aforesaid.
/s/ Edith Singer
-----------------------
[seal]
CERTIFICATE OF INCORPORATION
- of -
H.F.D. NO. 55, INC.
- - - - - -
WE, THE UNDERSIGNED, in order to form a corporation
for the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of
Delaware, do hereby certify as follows:
FIRST: The name of the corporation is
H.F.D. NO. 55, INC.
SECOND: The registered office of the corporation is to
be located at 306 South State Street, in the City of Dover, in
the County of Kent, in the State of Delaware. The name of its
registered agent at that address is the United States Corporation
Company.
THIRD: The purpose of the corporation is to engage in
any lawful act or activity for which a corporation may be organized
under the General Corporation Law of Delaware.
Without limiting in any manner the scope and
generality of the foregoing, it is hereby provided that the
corporation shall have the following purposes, objects and
powers:
To carry on the business of purchasing,
selling, importing, exporting and otherwise dealing in
and distributing (at wholesale or retail, or both,
directly or indirectly, and as principal or agent, or
both) goods, wares and merchandise of every type, kind
and description; to distribute and otherwise deal in
such goods, by means of, or through operating
department or other mercantile stores, or departments
therein.
<PAGE>
To purchase, manufacture, produce, assemble,
receive, lease or in any manner acquire, hold, own,
use, operate, install, maintain, service, repair, process,
alter, improve, import, export, sell, lease, assign,
transfer and generally to trade and deal in and with raw
materials, natural or manufactured articles or
products, machinery, equipment, devices, systems,
parts, supplies, apparatus, goods, wares, merchandise
and personal property of every kind, nature and
description, tangible or intangible, used or capable
of being used for any purpose whatsoever; and to
engage and participate in any mercantile,
manufacturing or trading business of any kind or
character.
To improve, manage, develop, sell, assign,
transfer, lease, mortgage, pledge or otherwise dispose
of or turn to account or deal with all or any part of
the property of the corporation and from time to time
to vary any investment or employment of capital of the
corporation.
To borrow money, and to make and issue
notes, bonds, debentures, obligations and evidences of
indebtedness of all kinds, whether secured by
mortgage, pledge or otherwise, without limit as to
amount, and to secure the same by mortgage, pledge or
otherwise; and generally to make and perform
agreements and contracts of every kind and
description, including contracts of guaranty and
suretyship.
To lend money for its corporate purposes,
invest and reinvest its funds, and take, hold and deal
with real and personal property as security for the
payment of funds so loaned or invested.
To the same extent as natural persons might
or could do, to purchase or otherwise acquire, and to
hold, own, maintain, work, develop, sell, lease,
exchange, hire, convey, mortgage or otherwise dispose
of and deal in lands and leaseholds, and any interest,
estate and rights in real property, and any personal
or mixed property, and any franchises, rights,
licenses or privileges necessary, convenient or
appropriate for any of the purposes herein expressed.
To apply for, obtain, register, purchase, lease
or otherwise to acquire and to hold, own, use, develop,
operate and introduce and to sell, assign, grant
licenses or territorial rights in respect to, or
otherwise to turn to account or dispose of, any
<PAGE>
copyrights, trade marks, trade names, brands, labels,
patent rights, letters patent of the United States or
of any other country or government, inventions,
improvements and processes, whether used in connection
with or secured under letters patent or otherwise.
To participate with others in any
corporation, partnership, limited partnership, joint
venture, or other association of any kind, or in any
transaction, undertaking or arrangement which the
participating corporation would have power to conduct
by itself, whether or not such participation involves
sharing or delegation of control with or to others; and
to be an incorporator, promoter or manager of other
corporations of any type or kind.
To pay pensions and establish and carry out
pension, profit sharing, stock option, stock purchase,
stock bonus, retirement, benefit, incentive and
commission plans, trusts and provisions for any or all
of its directors, officers and employees, and for any
or all of the directors, officers and employees of its
subsidiaries; and to provide insurance for its benefit
on the life of any of its directors, officers or
employees, or on the life of any stockholder for the
purpose of acquiring at his death shares of its stock
owned by such stockholders.
To acquire by purchase, subscription or
otherwise, and to hold for investment or otherwise and
to use, sell, assign, transfer, mortgage, pledge or
otherwise deal with or dispose of stocks, bonds or any
other obligations or securities of any corporation or
corporations; to merge or consolidate with any
corporation in such manner as may be permitted by law;
to aid in any manner as may be permitted by law; to
aid in any manner any corporation whose stocks, bonds
or other obligations are held or in any manner
guaranteed by this corporation, or in which this
corporation is in any way interested; and to do any
other acts or things for the preservation, protection,
improvement or enhancement of the value of any such
stock, bonds or other obligations; and while owner of
any such stock, bonds or other obligations to exercise
all the rights, powers and privileges of ownership
thereof, and to exercise any and all voting powers
thereon; and to guarantee the payment of dividends
upon any stock, the principal or interest or both, of
any bonds or other obligations, and the performance of
any contracts.
<PAGE>
To do all and everything necessary, suitable
and proper for the accomplishment of any of the purposes
or the attainment of any of the objects or the
furtherance of any of the powers hereinbefore set
forth, either alone or in association with other
corporations, firms or individuals, and to do every
other act or acts, thing or things incidental or
appurtenant to or growing out of or connected with the
aforesaid business or powers or any part or parts
thereof, provided the same be not inconsistent with
the laws under which this corporation is organized.
The business or purpose of the corporation
is from time to time to do any one or more of the acts
and things hereinabove set forth, and it shall have
power to conduct and carry on its said business, or
any part thereof, and to have one or more offices, and
to exercise any or all of its corporate powers and
rights, in the State of Delaware, and in the various
other states, territories, colonies and dependencies
of the United States, in the District of Columbia, and
in all or any foreign countries.
The enumeration herein of the objects and
purposes of the corporation shall be construed as
powers as well as objects and purposes and shall not
be deemed to exclude by inference any powers, objects
or purposes which the corporation is empowered to
exercise, whether expressly by force of the laws of
the State of Delaware now or hereafter in effect, or
impliedly by the reasonable construction of the said
laws.
FOURTH: The total number of shares of stock which the
corporation is authorized to issue is two hundred and fifty all
of which are without par value.
FIFTH: The name and address of each of the incorporators
are as follows:
NAME ADDRESS
---- -------
Raymond F. Condon 60 Wall Street, New York, N.Y. 10005
Thomas A. Elia 60 Wall Street, New York, N.Y. 10005
Paul Allersmeyer 60 Wall Street, New York, N.Y. 10005
<PAGE>
SIXTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of
the corporation, and for further definition, limitation and
regulation of the powers of the corporation and of its directors
and stockholders:
(1) The number of directors of the corporation shall
be such as from time to time shall be fixed by, or in the manner
provided in the by-laws. Election of directors need not be by
ballot unless the by-laws so provide.
(2) The Board of Directors shall have the power without
the assent or vote of the stockholders
(a) To make, alter, amend, change, add to or
repeal the By-Laws of the corporation; to fix and vary
the amount to be reserved for any proper purpose; to
authorize and cause to be executed mortgages and liens
upon all or any part of the property of the
corporation; to determine the use and disposition of
any surplus or net profits; and to fix the times for
the declaration and payment of dividends.
(b) To determine from time to time whether, and
to what extent, and at what times and places, and
under what conditions and regulations, the accounts
and books of the corporation (other than the stock
ledger) or any of them, shall be open to the inspection
of the stockholders.
(3) The directors in their discretion may submit any
contract or act for approval or ratification at any annual
meeting of the stockholders or at any meeting of the stockholders
called for the purpose of considering any such act or contract,
and any contract or act that shall be approved or be ratified by
the vote of the holders (a majority of the stock of the
corporation which is represented in person or by proxy at such meeting
<PAGE>
and entitled to vote thereat (provided that a lawful quorum of
stockholders be there represented in person or by proxy) shall be
as valid and as binding upon the corporation and upon all the
stockholders as though it had been approved or ratified by every
stockholder of the corporation, whether or not the contract or
act would otherwise be open to legal attack because of directors'
interest, or for any other reason.
(4) In addition to the powers and authorities
hereinbefore or by statute expressly conferred upon them, the
directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the
corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws
from time to time made by the stockholders; provided, however,
that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not been
made.
SEVENTH: The corporation shall, to the full extent
permitted by Section 145 of the Delaware General Corporation Law,
as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them
and/or between this corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or
<PAGE>
on the application of any receiver or receivers appointed for
this corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of
creditors; and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors,
and/or on all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this corporation.
NINTH: The corporation reserves the right to amend,
alter, change or repeal any provision contained in this
certificate of incorporation in the manner now or hereafter
prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved
power.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and
seals, the 11th day of July, 1969.
In the presence of:
- --------------------------
/s/ Paul Allersmeyer
--------------------------
/s/ Raymond F. Condon
--------------------------
/s/ Thomas A. Elia
--------------------------
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTYOF NEW YORK )
BE IT REMEMBERED that on this 11th day of July, 1969,
personally came before me, Thomas A. McCarthy, a Notary Public in
and for the County and State aforesaid, Raymond F. Condon, Thomas
A. Elia and Paul Allersmeyer parties to the foregoing Certificate
of Incorporation, known to me personally to be such, and
severally acknowledged the said Certificate to be the act and
deed of the signers respectively, and that the facts therein
stated are true.
GIVEN under my hand and seal of office the day and
year aforesaid.
/s/ Thomas A McCarthy
----------------------------
THOMAS A. McCARTHY
NOTARY PUBLIC
STATE OF NEW YORK
[seal]
CERTIFICATE OF INCORPORAITON
OF
C & W OUTLET, INC.
____________
Under Section 402 of the Business Corporation Law
____________
The undersigned, being a natural person of at least 18
years of age and acting as the incorporator of the corporation
hereby being formed under the Business Corporation Law, certifies
that:
FIRST: The name of the corporation is
C & W OUTLET, INC.
SECOND: The corporation is formed for the following
purpose or purposes:
To engage in any lawful act or activity for which
corporations may be organized under the Business
Corporation Law, provided that the corporation is not
formed to engage in any act or activity requiring the
consent or approval of any state official, department,
board, agency or other body without such consent or
approval first being obtained.
THIRD: The office of the corporation is to be located in
the County of New York, State of New York.
FOURTH: The aggregate number of shares which the corporation
shall have authority to issue is two hundred (200) shares without
par value.
FIFTH: The Secretary of State is designated as the agent
of the corporation upon whom process against the corporation may be
served. The post office address within the State of New York to
which the Secretary of State shall mail a copy of any process
against the corporation served upon him is: care of Herzfeld &
Rubin, P.C., 40 Wall Street, New York, New York 10005, Attn:
Leonard M. Polisar, Esq.
SIXTH: The duration of the corporation is to be perpetual.
<PAGE>
IN WITNESS WHEREOF, I have subscribed this document on
the date set forth below and do hereby affirm, under the penalties of
perjury, that the statements contained herein have been examined
by me and are true and correct.
Dated: September 12, 1989
/s/ William H. Cox
----------------------------
William H. Cox, Incorporator
40 Wall Street
New York, New York 10005
CERTIFICATE OF INCORPORATION
OF
J. CREW OUTFITTERS, INC.
-------------
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of the New Jersey Business
Corporation Act, the undersigned, being a natural person of at
least 18 years of age and acting as the incorporator of the
corporation hereby being organized thereunder, certifies that:
FIRST: The name of the corporation (hereinafter called
the "Corporation") is J. CREW OUTFITTERS, INC.
SECOND: The Corporation is organized to engage in any
activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act, and, in
addition and without limiting the generality of the foregoing,
for the following purpose or purposes:
To carry on a mail order apparel and general
merchandise business in all its branches; to design, style,
manufacture, process, merchandise, buy, sell, distribute, export
and import, at wholesale, retail, and as jobber, and otherwise
generally and in all ways handle, trade and deal with and in any
and all articles and items of men's, women's and children's
wearing apparel, accessories, novelties and specialties, of every
kind, nature and description, and for whatever use or purpose.
To carry on a general mercantile, investing, and
trading business; to devise, invent, manufacture, fabricate,
assemble, install, service, maintain, alter, buy, sell, import,
export, license as licensor or licensee, lease as lessor or
lessee, distribute, job, enter into, negotiate, execute, acquire,
and assign contracts in respect of, acquire, receive, grant and
assign licensing arrangements, options, franchises, and other
rights in respect of, and generally deal in and with, at
wholesale and retail, as principal, and as sales, business,
special, or general agent, representative, broker, factor,
merchant, distributor, jobber, advisor, and in any other lawful
capacity, goods, wares, and merchandise, commodities, and
<PAGE>
unimproved, improved, finished, processed, and other real,
personal, and mixed property of any and all kinds, together with
the components, resultants, and by-products thereof; to acquire
by purchase or otherwise own, hold, lease, mortgage, sell or
otherwise dispose of, erect, construct, make, alter, enlarge,
improve, and to aid or subscribe toward the construction,
acquisition or improvement of any factories, shops, storehouses,
buildings, and commercial and retail establishments of every
character, including all equipment, fixtures, machinery,
implements and supplies necessary, or incidental to, or connected
with, any of the purposes or business of the corporation; and
generally to perform any and all acts connected therewith or
arising therefrom or incidental thereto, and all acts proper or
necessary for the purpose of the business.
To apply for, register, obtain, purchase, lease, take
licenses in respect of or otherwise acquire, and to hold, own,
use, operate, develop, enjoy, turn to account, grant licenses and
immunities in respect of, manufacture under and to introduce,
sell, assign, mortgage, pledge or otherwise dispose of, and, in
any manner deal with and contract with reference to copyrights,
designs, and similar rights, trade-marks, trade symbols and other
indications of origin and ownership granted by or recognized
under the laws of the United States of America or of any state or
subdivision thereof, or of any foreign country or subdivision
thereof, and all rights connected therewith or appertaining
thereunto.
To have all of the powers conferred upon corporations
organized under the New Jersey Business Corporation Act.
THIRD: The aggregate number of shares which the
Corporation shall have authority to issue is Two Hundred Fifty
(250), all of which are without par value, and all of which are
of the same class.
FOURTH: The address of the initial registered office of
the Corporation within the State of New Jersey is 22 Lincoln Place,
Garfield, New Jersey 07026; and the name of the initial
registered agent at such address is Mr. Saul Charles, Secretary.
-2-
<PAGE>
FIFTH: The number of directors constituting the first
Board of Directors of the Corporation is two (2); and the name
and address of the persons who are to serve as the first
directors of the Corporation are as follows:
NAME ADDRESS
---- -------
Arthur Cinader 22 Lincoln Place, Garfield, N.J. 07026
Saul Charles 22 Lincoln Place, Garfield, N.J. 07026
SIXTH: The name and address of the incorporator is as
follows:
NAME ADDRESS
---- -------
Kenneth M. Greenfield Herzfeld & Rubin, P.C.
40 Wall Street, New York, N.Y. 10005
SEVENTH: For the management of the business and for
the conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the
Corporation and of its directors and of its shareholders or any
class thereof, as the case may be, it is further provided:
1. A majority of the entire Board of directors of the
Corporation shall constitute a quorum for the transaction of
business except that the By-Laws may prescribe a lesser
proportion, consistent with the provisions of the New Jersey
Business Corporation Act, in the event of a vacancy or vacancies
in the entire Board.
2. One or more or all the directors of the Corporation
may be removed for cause by the shareholders by the affirmative
vote of the majority of the votes cast by the holders of shares
entitled to vote for the election of directors; and one or more
or all the directors may be removed without cause by like vote of
said shareholders. The Board of Directors shall have the power to
remove directors for cause and to suspend directors pending a
final determination that cause exists for removal.
-3-
<PAGE>
3. In the interim between annual meetings of the
shareholders or of special meetings of shareholders called for
the election of directors, newly created directorships may be
filled by the Board of Directors.
4. The Corporation is hereby authorized to lend money
to, or guarantee any obligation of, or otherwise assist, any
officer or other employee of the Corporation or of any
subsidiary, whether or not such officer or employee is a director
thereof, whenever, in the judgment of the Board of Directors,
such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation.
5. The Corporation shall, to the fullest extent
permitted by Section 14A:3-5 of the New Jersey Business
Corporation Act, as the same may be amended and supplemented,
indemnify any and all corporate agents whom it shall have power
to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or
covered by said section, and the indemnification provided for
herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any By-Law, agreement,
vote of shareholders, or otherwise, and shall continue as to a
person who has ceased to be a corporate agent and shall inure to
the benefit of the heirs, executors, administrators and personal
representatives of such corporate agent. The Term "corporate
agent" as used herein shall have the meaning attributed to it by
Sections 14A:3-5 and 14A:5-21 of the New Jersey Business
Corporation Act and by any other applicable provision of law.
EIGHTH: The duration of the Corporation is to be
perpetual.
Signed on March 12, 1984.
/s/ Kenneth M. Greenfield
----------------------------
Kenneth M. Greenfield,
Incorporator
-4-
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
J. CREW OUTFITTERS, INC.
-----------------------
(Exact corporate name)
The undersigned corporation, for the purpose of amending its
Certificate of Incorporation and pursuant to the provisions of
Section 14A: 9-4(3) of the New Jersey Business Corporation Act,
hereby executes the following Certificate of Amendment:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is J. CREW OUTFITTERS, INC.
SECOND: The following amendment was adopted by the sole
shareholder of the Corporation on September 8. 1996, in the
manner prescribed by the New Jersey Business Corporation
Act: Article FIRST of the Certificate of Incorporation is
hereby amended to read as follows:
"The name of the Corporation is J. CREW INC."
THIRD: The number of shares of the Corporation entitled to
vote at the time of the adoption of said amendment was One
Hundred (100) Shares.
FOURTH: The adoption of said amendment was by the written
consent of the holder of the One Hundred (100) outstanding
shares of the Corporation in lieu of a meeting of
shareholders.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be executed on its behalf by its duly authorized
Vice President as of the 15th day of September 1986.
By /s/ Arthur Cinader
---------------------------
Arthur Cinader, President
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
J. CREW INTERNATIONAL, INC.
Pursuant to Sections 242 and 245 of
the General Corporation Law of
the State of Delaware
J. Crew International, Inc. (the "Corporation"), a
corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "GCL"), in
order to amend and restate its Certificate of Incorporation
pursuant to Sections 242 and 245 of the GCL, certifies as
follows:
1. The name of the Corporation is J. Crew International,
Inc. The Corporation was originally incorporated under the same
name (as corrected). The original Certificate of Incorporation
was dated May 15, 1992 (as corrected by a Certificate of
Correction dated January 22, 1993) and was filed with the
Delaware Secretary of State on May 15, 1992 (and the Certificate
of Correction was filed with the same office on January 25,
1993).
2. The Board of Directors of the Corporation, at a special
meeting held on April 5, 1995, duly adopted a resolution
1
<PAGE>
declaring advisable and proposing to the sole stockholder the
adoption of the Amended and Restated Certificate of Incorporation
of the Corporation in the form hereinafter set forth in Item 7.
3. The sole stockholder of the Corporation, at a special
meeting held on April 5, 1995, duly adopted a resolution
approving the Amended and Restated Certificate of Incorporation
in the form hereinafter set forth in item 7.
4. The authorized capital stock of the Corporation shall
not be increased or reduced under or by reason of the amendment
and restatement of the Certificate of Incorporation.
5. This Amended and Restated Certificate of Incorporation,
except as amended herein, restates the provisions of the
Certificate of Incorporation as originally filed, as heretofore
amended.
6. This Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the applicable provisions of
Section 242 and 245 of the GCL.
7. The text of the amendment and restatement of the
Certificate of Incorporation, as originally filed, as heretofore
amended, is hereby amended and restated so as to read in its
entirety as follows:
2
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
J. CREW INTERNATIONAL, INC.
FIRST: The name of the corporation is J. Crew
International, Inc.
SECOND: The registered office of the corporation in the
State of Delaware is located at 1201 Market Street, Suite 1700,
Wilmington, County of New Castle, Delaware 19801. The registered
agent of the corporation at that address is Delaware
Incorporators & Registration Service, Inc.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware;
provided that the corporation's activities shall be confined to
the maintenance and management of its intangible investments and
the collection and distribution of the income from such
investments or from tangible property physically located outside
Delaware, all as defined in, and in such manner to qualify for
exemption from income taxation under, Section 1902(b)(8) of
Title 30 of the Delaware Code, or under the corresponding
provision of any subsequent law. Nothing in the previous sentence
shall prohibit the corporation from entering into financial
guaranties
1
<PAGE>
and other credit agreements with unrelated entities on
behalf of the corporation's affiliates.
FOURTH: The corporation shall have authority to issue Three
Thousand (3,000) shares of common stock, having a par value of
One Cent ($0.01) per share.
FIFTH: The corporation shall indemnify directors and
officers of the corporation to the fullest extent permitted by
law.
SIXTH: The directors of the corporation shall incur no
personal liability to the corporation or its stockholders for
monetary damages for any breach of fiduciary duty as a director;
provided, however, that the directors of the corporation shall
continue to be subject to liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the directors derived an improper
personal benefit. In discharging the duties of their respective
positions, the board of directors, committees of the board,
individual directors and individual officers may, in considering
the best interest of the corporation, consider the effects of any
action upon employees, suppliers and customers of the
2
<PAGE>
corporation, communities in which officers or other
establishments of the corporation are located, and all other
pertinent factors. In addition, the personal liability of
directors shall further be limited or eliminated to the fullest
extent permitted by any future amendments to Delaware law.
SEVENTH: The business and affairs of the corporation shall
be managed by or under the direction of the board of directors,
the number of members of which shall be set forth in the bylaws
of the corporation. The directors need not be elected by ballot
unless required by the bylaws.
EIGHTH: Meetings of the stockholders will be held within
the State of Delaware. The books of the corporation will be kept
in the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the
bylaws of the corporation.
NINTH: In the furtherance and not in limitation of the
object, purposes and powers prescribed herein and conferred by
the laws of the State of Delaware, the board of directors is
expressly authorized to make, amend and repeal the bylaws.
TENTH: The corporation reserves the right to amend or
repeal any provision contained in this Certificate of
Incorporation in the manner now or hereinafter prescribed by the
3
<PAGE>
TENTH: The corporation reserves the right to amend or
repeal any provision contained in this Certificate of
Incorporation in the manner now or hereinafter prescribed by the
laws of the State of Delaware. All rights herein conferred are
granted subject to this reservation.
ELEVENTH: The corporation shall have no power and may not
be authorized by its stockholders or directors (i) to perform or
omit to do any act that would prevent, inhibit, or cause the
corporation to lose its status as a corporation exempt from the
Delaware Corporation Income Tax under Section 1902(b)(8) of
Title 30 of the Delaware Code, or under the corresponding
provision of any subsequent law, or (ii) to conduct any
activities in any state other than Delaware which could result in
the corporation being subject to the taxing jurisdiction of any
state other than Delaware.
J. Crew International, Inc. has caused this Amended and
Restated Certificate of Incorporation to be duly executed in the
corporation name this 7th day of April, 1995.
J. Crew International, Inc.
By:/s/ Gordon W. Stewart [SEAL]
-------------------------
Name: Gordon W. Stewart
Title: Asst. Secretary
4
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
OF J. CREW INTERNATIONAL, INC.
PURSUANT TO SECTION 133 OF TITLE 8 OF THE DELAWARE CODE
The Board of Directors of J. Crew International, Inc.,
a corporation organized under the General Corporation Law of the
State of Delaware, effective as of this 3rd day of January, 1996,
do hereby resolve and order that:
1. the location of the Registered Office of this Corporation
within this State be, and the same hereby is 1201 Market Street,
Suite 1700, City of Wilmington, County of New Castle, 19801; and
2. the name of the Registered Agent therein and in charge
thereof upon whom process against this Corporation may be served,
be, and hereby is, Delaware Incorporators & Registration
Service, Inc.; and
3. the Assistant Secretary of the company be and
hereby is, authorized to execute and file a Certificate of Change
of Location of Registered Office and of Registered Agent of the
Company with the Delaware Secretary of State, and to take all
necessary and appropriate actions in accordance with the intent
of this resolution.
J. Crew International, Inc. does hereby certify that
the foregoing is a true copy of a resolution adopted by the Board
of Directors at a meeting held as herein stated.
Said Corporation has caused this certificate to be
signed by an authorized officer of the Corporation, the 3d day of
January, 1996.
BY:/s/ Gordon W. Stewart
___________________________
Name: Gordon W. Stewart
Title: Assistant Secretary
CERTIFICATE OF INCORPORATION
OF
J. CREW SERVICES, INC.
FIRST: The name of the corporation is J. CREW
Services, Inc.
SECOND: The registered office of the corporation in
the State of Delaware is located at 902 N. Market Street, Suite
102, Wilmington, Delaware, County of New Castle (19801). The
registered agent of the corporation at that address is the
corporation itself.
THIRD: The purpose of the corporation is to engage in
any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of
Delaware.
FOURTH: The corporation shall have authority to issue
Three Thousand (3,000) shares of common stock, having a par value
of One Cent ($0.01) per share.
FIFTH: The corporation shall indemnify directors and
officers of the corporation to the fullest extent permitted by
law.
SIXTH: The directors of the corporation shall incur no
personal liability to the corporation or its stockholders for
monetary damages for any breach of fiduciary duty as a director;
provided, however, that the directors of the corporation shall
continue to be subject to liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv)
-1-
<PAGE>
for any transaction from which the directors derived an improper
personal benefit. In discharging the duties of their respective
positions, the board of directors, committees of the board,
individual directors and individual officers may, in considering
the best interest of the corporation, consider the effects of any
action upon employees, suppliers and customers of the
corporation, communities in which officers or other
establishments of the corporation are located, and all other
pertinent factors. In addition, the personal liability of
directors shall further be limited or eliminated to the fullest
extent permitted by any future amendments to Delaware law.
SEVENTH: The business and affairs of the corporation
shall be managed by or under the direction of the board of
directors, the number of members of which shall be set forth in
the bylaws of the corporation. The directors need not be elected
by ballot unless required by the bylaws of the corporation.
EIGHTH: Meetings of the stockholders will be held within
the State of Delaware. The books of the corporation will be kept
(subject to the provisions contained in the General Corporation
Law) in the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the
bylaws of the corporation.
NINTH: In the furtherance and not in limitation of the
object, purposes and powers prescribed herein and conferred by the
-2-
<PAGE>
laws of the State of Delaware, the board of directors is
expressly authorized to make, amend and repeal the bylaws.
TENTH: The corporation reserves the right to amend or
repeal any provision contained in this Certificate of
Incorporation in the manner now or hereinafter prescribed by the
laws of the State of Delaware. All rights herein conferred are
granted subject to this reservation.
ELEVENTH: The name and mailing address of the
incorporator is Mary Catherine Biondi, 1201 Market Street, Suite
1500, Wilmington, Delaware 19801.
TWELFTH: The powers of the incorporator shall
terminate upon the election of directors.
I, THE UNDERSIGNED, being the incorporator, for the
purpose of forming a corporation under the laws of the State of
Delaware do make, file and record this Certificate of
Incorporation, and, accordingly, have hereunto set my hand and
seal this 16th day of November, 1992.
/s/ Mary Catherine Biondi (SEAL)
---------------------------
Mary Catherine Biondi
Incorporator
-3-
CERTIFICATE OF CORRECTION FILED
TO CORRECT A CERTAIN ERROR IN
THE CERTIFICATE OF INCORPORATION OF
J. CREW SERVICES, INC.
FILED IN THE OFFICE OF THE SECRETARY
OF THE STATE OF DELAWARE ON
NOVEMBER 16, 1992
J. CREW Services, Inc. , a corporation organized
and existing under and by virtue of the General Corporation Law
of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is J. CREW Services, Inc.
2. A Certificate of Incorporation was filed on
November 16, 1992 and said Certificate requires
correction as permitted by subsection (f) of
Section 103 of the General Corporation Law of
Delaware.
3. The inaccuracy or defect of said Certificate to
be corrected is as follows: the word "CREW" which
is set forth as part of the name of the
corporation in the first line of the first
Section of the Certificate should be spelled
"Crew", with only the "C" capitalized.
4. The First Section of the Certificate is corrected to
read as follows:
"The name of the corporation is J. Crew Services, Inc."
IN WITNESS WHEREOF, the undersigned Incorporator has
hereunto set her hand this 22nd day of January, 1993.
BY: /s/ Mary Catherine Biondi
-----------------------------
Mary Catherine Biondi
Incorporator
BY-LAWS
OF
J. CREW OPERATING CORP.
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office
shall be established and maintained at the office of The
Corporation Trust Company, in the City of Wilmington, in the
County of New Castle, in the State of Delaware, and said
corporation shall be the registered agent of this corporation in
charge thereof.
SECTION 2. OTHER OFFICES. The corporation may have
other offices, either within or without the State of Delaware, at
such place or places as the Board of Directors may from time to
time appoint or the business of the corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of
stockholders for the election of directors and for such other
business as may be stated in the notice of the meeting, shall be
held at such place, either within or without the State of
Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the
meeting.
If the date of the annual meeting shall fall upon a
legal holiday, the meeting shall be held on the next business
day. At each annual meeting, the stockholders entitled to vote
shall elect a Board of Directors and they may transact such other
corporate business as shall be stated in the notice of the
meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders
for any purpose other than the election of directors may be held
at such time and place, within or without the State of Delaware,
as shall be stated in the notice of meeting.
SECTION 3. VOTING. Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation and in
<PAGE>
2
accordance with the provisions of these By-Laws shall be entitled
to one vote, in person or by proxy, for each share of stock
entitled to vote held by such stockholder, but no proxy shall be
voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote
for directors and the vote upon any question before the meeting,
shall be by ballot. All elections for directors shall be decided
by plurality vote; all questions shall be decided by majority
vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote
at the ensuing election, arranged in alphabetical order, with the
address of each, and the number of shares held by each, shall be
open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the meeting and place of
the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
SECTION 4. QUORUM. Except as otherwise required by
Law, by the Certificate of Incorporation or by these By-Laws, the
presence, in person or by proxy, of stockholders holding a
majority of the stock of the corporation entitled to vote shall
constitute a quorum at all meetings of the stockholders. In case
a quorum shall not be present at any meeting, a majority in
interest of the stockholders entitled to vote thereat, present in
person or by proxy, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the
requisite amount of stock entitled to vote shall be represented,
any business may be transacted which might have been transacted
at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the
stockholders for any purpose or purposes may be called by the
President or Secretary, or by resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. Written notice,
stating the place, date and time of the meeting, and the general
nature of the business to be considered, shall be given to each
stockholder entitled to vote thereat at his address as it appears
on the records of the corporation, not less than ten nor more
than sixty days before the date of the meeting. No business other
than that stated in the notice shall be transacted at any meeting
without the unanimous consent of all the stockholders entitled to
vote thereat.
2
<PAGE>
3
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise
provided by the Certificate of Incorporation, any action required
to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting,
may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders
who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors
shall be as designated by the Board of Directors from time to
time. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until
his successor shall be elected and shall qualify. Directors need
not be stockholders.
SECTION 2. RESIGNATIONS. Any director, member of a
committee or other officer may resign at any time. Such
resignation shall be made in writing, and shall take effect at
the time specified therein, and if no time be specified, at the
time of its receipt by the President or Secretary. The acceptance
of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director,
member of a committee or other officer becomes vacant, the
remaining directors in office, though less than a quorum, by a
majority vote, may appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until
his successor shall be duly chosen.
SECTION 4. REMOVAL. Except as hereinafter provided,
any director or directors may be removed either for or without
cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to
vote, at a special meeting of the stockholders called for the
purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote
of a majority in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise
provides, stockholders may effect removal of a director who is a
member of a classified Board of Directors only for cause. If the
Certificate of
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Incorporation provides for cumulative voting and if less than the
entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the
entire Board of Directors, or if there be classes of directors,
at an election of the class of directors of which he is a part.
If the holders of any class of series are entitled to
elect one or more directors by the provisions of the Certificate
of Incorporation, these provisions shall apply, in respect to the
removal without cause of a director or directors so elected, to
the vote of the holders of the outstanding shares of that class
or series and not to the vote of the outstanding shares as a
whole.
SECTION 5. INCREASE OF NUMBER. The number of
directors may be increased by amendment of these By-Laws by the
affirmative vote of a majority of the directors, though less than
a quorum, or, by the affirmative vote of a majority interest of
the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional
directors may be chosen at such meeting to hold office until the
next annual election and until their successors are elected and
qualify.
SECTION 6. POWERS. The Board of Directors shall
exercise all of the powers of the corporation except such as are
by law, or by the Certificate of Incorporation of the corporation
or by these By-Laws conferred upon or reserved to the
stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole
board, designate one or more committees, each committee to
consist of two or more directors of the corporation. The board
may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification
of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or
disqualified member.
Any such committee, to the extent provided in the
resolution of the Board of Directors, or in these By-Laws, shall
have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's
property and assets,
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5
recommending to the stockholders a dissolution of the corporation
or a revocation of a dissolution, or amending the By-Laws of the
corporation; and, unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend
or to authorize the issuance of stock.
SECTION 8. MEETINGS. The newly elected directors may
hold their first meeting for the purpose of organization and the
transaction of business, if a quorum be present, immediately
after the annual meeting of the stockholders; or the time and
place of such meeting may be fixed by consent in writing of all
the directors.
Regular meetings of the directors may be held without
notice at such places and times as shall be determined from time
to time by resolution of the directors.
Special meetings of the board may be called by the
President or by the Secretary on the written request of any two
directors on at least two day's notice to each director and shall
be held at such place or places as may be determined by the
directors, or shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of
Incorporation or by these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors,
may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at
the meeting.
SECTION 9. QUORUM. A majority of the directors shall
constitute a quorum for the transaction of business. If at any
meeting of the board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to
time until a quorum is obtained, and no further notice thereof
need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 10. COMPENSATION. Directors shall not receive
any stated salary for their services as directors or as members
of committees, but by resolution of the board a fixed fee and
expenses of attendance may be allowed for attendance at each
meeting. Nothing herein contained shall be construed to preclude
any director from serving the corporation in any other capacity
as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action
required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a
meeting, if prior to such action a written consent thereto is
signed by all members of the board, or of such
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6
committee as the case may be, and such written consent is filed
with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation
shall be a President, a Treasurer, and a Secretary, all of whom
shall be elected by the Board of Directors and who shall hold
office until their successors are elected and qualified. In
addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents and such Assistant Secretaries and Assistant
Treasurers as they may deem proper. None of the officers of the
corporation need be directors. The officers shall be elected at
the first meeting of the Board of Directors after each annual
meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of
Directors may appoint such other officers and agents as it may
deem advisable, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of
Directors, if one be elected, shall preside at all meetings of
the Board of Directors and he shall have and perform such other
duties as from time to time may be assigned to him by the Board
of Directors.
SECTION 4. PRESIDENT. The President shall be the
chief executive officer of the corporation and shall have the
general powers and duties of supervision and management usually
vested in the office of President of a corporation. He shall
preside at all meetings of the stockholders if present thereat,
and in the absence or nonelection of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall
have general supervision, direction and control of the business
of the corporation. Except as the Board of Directors shall
authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any
instrument requiring it and when so affixed the seal shall be
attested by the signature of the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT. Each Vice-President shall
have such powers and shall perform such duties as shall be
assigned to him by the directors.
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SECTION 6. TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full
and accurate account of receipts and disbursements in books
belonging to the corporation. He shall deposit all moneys and
other valuables in the name and to the credit of the corporation
in such depositaries as may be designated by the Board of
Directors.
The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, or the
President, taking proper vouchers for such disbursements. He
shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may
request it, an account of all his transactions as Treasurer and
of the financial condition of the corporation. If required by the
Board of Directors, he shall give the corporation a bond for the
faithful discharge of his duties in such amount and with such
surety as the board shall prescribe.
SECTION 7. SECRETARY. The Secretary shall give, or
cause to be given, notice of all meetings of stockholders and
directors, and all other notices required by law or by these
By-Laws, and in case of his absence or refusal or neglect so to
do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these
By-Laws. He shall record all the proceedings of the meetings of
the corporation and of the directors in a book to be kept for
that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have
the custody of the seal of the corporation and shall affix the
same to all instruments requiring it, when authorized by the
directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES. Assistant Treasurers and Assistant Secretaries, if
any, shall be elected and shall have such powers and shall
perform such duties as shall be assigned to them, respectively,
by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate of
stock, signed by the Chairman or Vice Chairman of the Board of
Directors, if they be elected, President or Vice-President, and
the Treasurer or an Assistant Treasurer, or Secretary or an
Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation.
Any of or all the signatures may be facsimiles.
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SECTION 2. LOST CERTIFICATES. A new certificate of
stock may be issued in the place of any certificate theretofore
issued by the corporation, alleged to have been lost or
destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to
indemnify the corporation against any claim that may be made
against it on account of the alleged loss of any such
certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of
the corporation shall be transferable only upon its books by the
holders thereof in person or by their duly authorized attorneys
or legal representatives, and upon such transfer the old
certificates shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and
transfer books and ledgers, or to such other person as the
directors may designate, by whom they shall be cancelled, and new
certificates shall thereupon be issued. A record shall be made of
each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed
in the entry of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that
the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of
the Certificate of Incorporation, the Board of Directors may, out
of funds legally available therefor at any regular or special
meeting, declare dividends upon the capital stock of the
corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the
directors from time to time in their discretion deem proper for
working capital or as a reserve fund to meet contingencies or for
equalizing dividends or for such other purposes as the directors
shall deem conducive to the interests of the company.
SECTION 6. SEAL. The corporate seal shall be circular in
form and shall contain the name of the corporation, the year of its
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9
creation and the words "CORPORATE SEAL DELAWARE". Said seal may
be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
SECTION 8. CHECKS. All checks, drafts or other orders
for the payment of money, notes or other evidences of
indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time
to time by resolutions of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any
notice is required by these By-Laws to be given, personal notice
is not meant unless expressly so stated, and any notice so
required shall be deemed to be sufficient if given by depositing
the same in the United States mail, postage prepaid, addressed to
the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to
have been given on the day of such mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise provided by Statute.
Whenever any notice whatever is required to be given
under the provisions of any law, or under the provisions of the
Certificate of Incorporation of the corporation or these By-Laws,
a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws
may be made at any annual meeting of the stockholders or at any
special meeting thereof if notice of the proposed alteration or
repeal or By-Law or By-Laws to be made be contained in the notice
of such special meeting, by the affirmative vote of a majority of
the stock issued and outstanding and entitled to vote thereat ,
or by the affirmative vote of a majority of the Board of
Directors, at any regular meeting of the Board of Directors, or
at any special meeting of the Board of Directors, if notice of
the proposed alteration or repeal, or By-Law or By-Laws to be
made, be contained in the notice of such special meeting.
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POPULAR CLUB PLAN, INC.
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BY-LAWS
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ARTICLE I
The Corporation
---------------
Section 1.01. Name. The legal name of this corporation
(hereinafter called the "Corporation") is Popular Club Plan, Inc.
Section 1.02. Offices. The Corporation shall have its
principal office in the City of Garfield, County of Bergen, State
of New Jersey. The Corporation may also have offices at such
other places within and without the State of New Jersey as the
Board of Directors may from time to time appoint or as the
business of the Corporation may require.
Section 1.03. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, New Jersey." One or
more duplicate dies for impressing such seal may be kept and
used.
ARTICLE II
Meetings of Shareholders
------------------------
Section 2.01. Place of Meetings. All meetings of the
shareholders shall be held at the principal office of the
Corporation in the State of New Jersey, or at such other place,
within or without the State of New Jersey, as may be fixed in the
notice of the meeting.
Section 2.02. Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and
the transaction of such other business as may properly come
before the meeting shall be held on the second Tuesday in May in
each year if not a legal holiday, and if a legal holiday, then on
the next business day following, at such time as may be fixed in
the notice of the meeting. If for any reason any annual meeting
shall not be held at the time herein specified, the same may be
held at any time thereafter upon notice, as herein provided, or
the business thereof may be transacted at any special meeting
called for the purpose.
<PAGE>
Section 2.03. Special Meetings. Special meetings of
shareholders may be called by the President whenever he deems it
necessary or advisable, and shall be called by the President or
the Secretary upon the written request of a majority of the
entire Board of Directors or of the holders of one-third of the
number of shares of the Corporation entitled to vote at such
meeting.
Section 2.04. Notice of Meetings. Written notice of
all meetings stating the place, date and hour of the meeting
shall be given to each shareholder entitled to vote at such
meeting personally or by mail, not less than ten nor more than
sixty days before the date of the meeting. Notice of each special
meeting shall state the purpose or purposes for which the meeting
is called and shall indicate that it is being called by or at the
direction of the person or persons calling the meeting. If, at
any meeting, action is proposed to be taken which would, if
taken, entitle shareholders fulfilling the requirements of
Section 14A:ll-2 of the New Jersey Business Corporation Act to
receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If
mailed, a notice of meeting shall be deemed given when deposited
in the United States mail, with postage prepaid, directed to the
shareholder at his address as it appears on the record of
shareholders, or at such other address for mailing of notices as
any shareholder may in writing file with the Secretary of the
Corporation. Notice of a meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of
a shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by
him.
Section 2.05. Record Date for Shareholders. For the
purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of
any rights or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If
no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of
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business on the day next preceding the day on which notice is
given, or, if no notice is given, the day next preceding the day
on which the meeting is held; the record date for determining
shareholders entitled to express consent to or dissent from any
proposal without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which the first
written consent or dissent, as the case may be, is expressed; and
the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or
to vote at any meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 2.06. Proxy Representation. Every shareholder
may authorize another person or persons to act for him by proxy
in all matters in which a shareholder is entitled to participate,
whether by waiving notice of any meeting, voting or participating
at a meeting, or expressing consent without a meeting. Every
proxy must be signed by the shareholder or by his agent, except
that a proxy may be given by a shareholder or his agent by
telegram or cable or its equivalent. No proxy shall be valid for
more than eleven months, unless a longer time is expressly
provided therein, but in no event shall a proxy be valid after
three years from the date of execution. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except
as may be otherwise provided by law.
Section 2.07. Voting at Shareholders' Meetings. Each
outstanding share of stock having voting power shall be entitled
to one vote on each matter submitted to a vote at a meeting of
shareholders. Directors shall be elected by the vote of the
holders of a plurality of the shares present at a meeting and
entitled to vote in the election. Unless otherwise provided by
statute, any other corporate action shall be authorized by the
vote of the holders of a majority of the shares present at a
meeting of shareholders and entitled to vote thereon. Voting need
not be by ballot.
Section 2.08. Quorum and Adjournment. Unless otherwise
provided by statute, the holders of a majority of the shares of
the Corporation shall constitute a quorum for the transaction of
any business. When a quorum is once present to organize a
meeting, it shall not be broken by the subsequent
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withdrawal of any shareholders. If a quorum is not present or
represented at any meeting of the shareholders, the shareholders
present in person or represented by proxy shall have power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 2.09. List of Shareholders. The officer who
has charge of the record of shareholders of the Corporation shall
prepare, make and certify, at least ten days before every meeting
of shareholders, a complete list of the shareholders, as of the
record date fixed for such meeting, arranged in alphabetical
order within each class, series, or group of shareholders, and
showing the address of each shareholder and the number of shares
registered in each shareholder's name. Such list shall be
produced at the time and place of the meeting for the inspection
of any shareholder during the time of the meeting and shall be
prima facie evidence as to who are the shareholders entitled to
examine such list or to vote at any meeting.
Section 2.10. Action of the Shareholders Without a
Meeting. Whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by the
holders of all of the outstanding shares entitled to vote
thereon.
ARTICLE III
Directors
---------
Section 3.01. Number of Directors. The Board of
Directors shall consist of one or more members. The number of
directors may be fixed from time to time by action of a majority
of the entire Board of Directors or of the shareholders at an
annual or special meeting, or, if the number of directors is not
so fixed, the number shall be one. No decrease in the number of
directors shall shorten the term of any incumbent director.
Section 3.02. Election and Term. The initial Board of
Directors shall be elected by the incorporator and the initial
directors so elected shall hold office until the first annual
meeting of shareholders and until their successors have
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been elected and qualified. Thereafter, each director who is
elected at an annual meeting of shareholders, and each director
who is elected in the interim to fill a vacancy or a newly
created directorship, shall hold office until the next annual
meeting of shareholders and until his successor has been elected
and qualified.
Section 3.03. Filling Vacancies, Resignation and
Removal. Any director may be removed, with or without cause, by
vote of the shareholders. In the interim between annual meetings
of shareholders or special meetings of shareholders called for
the election or removal of one or more directors, newly created
directorships and any vacancies in the Board of Directors,
including vacancies resulting from the resignation or removal of
directors, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum,
or by the sole remaining director.
Section 3.04. Qualifications and Powers. Each director
shall be at least eighteen years of age. A director need not be a
shareholder, a citizen of the United States or a resident of the
State of New Jersey. The business of the Corporation shall be
managed by the Board of Directors, subject to the provisions of
the certificate of incorporation. In addition to the powers and
authorities expressly conferred upon it by these bylaws, the
Board may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the
certificate of incorporation or by these bylaws directed or
required to be exercised or done exclusively by the shareholders.
Section 3.05. Regular and Special Meetings of the
Board. The Board of Directors may hold its meetings, regular or
special, within or without the State of New Jersey. The annual
meeting of the Board of Directors shall be held immediately
after, and at the same place as, the annual meeting of
shareholders. No notice shall be required for regular meetings of
the Board of Directors for which the time and place have been
fixed. Special meetings of the Board may be called by or at the
direction of the President, any Vice President, the Secretary or
a majority of the directors in office, upon three days notice to
each director, delivered personally, sent by telegraph or mailed
to each director at his residence or usual place of business.
Meetings of the Board, regular or special, may be held at any
time and place, and for any purpose, without notice, when all the
directors are present or when all directors not present, before
or after such meeting,
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in writing waive notice of the holding of such meeting. Any
requirement of furnishing a notice shall be waived by any
director who attends any meeting of the Board without protesting,
prior thereto or at its commencement, the lack of notice to him.
Section 3.06. Quorum and Action. A majority of the
directors shall constitute a quorum of the Board of Directors,
except that when the entire Board consists of two directors or
less, one director shall constitute a quorum, and except that
when a vacancy or vacancies prevents such a majority, a majority
of the directors in office shall constitute a quorum, provided,
that such majority shall constitute at least one-third of the
entire Board. Except as otherwise provided by these By-laws or by
the New Jersey Business Corporation Act, the vote of the majority
of the directors present at a meeting at which a quorum is
present shall be the act of the Board.
Section 3.07. Telephonic Meetings. Any member or
members of the Board of Directors, or of any committee designated
by the Board, may participate in a meeting of the Board, or any
such committee, as the case may be, by means of conference
telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the
same time, and participation in a meeting by such means shall
constitute presence in person at such meeting.
Section 3.08. Action Without a Meeting. Any action
required or permitted to be taken by the Board of Directors, or
any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent in
writing to the adoption of a resolution authorizing the action.
The resolution and the written consents thereto by the members of
the Board or committee shall be filed with the minutes of
proceedings of the Board or committee.
Section 3.09. Compensation of Directors. By
resolution of the Board of Directors, the directors may be paid
their expenses, if any, for attendance at each regular or special
meeting of the Board or of any committee designated by the Board
and may be paid a fixed sum for attendance at such meeting, or a
stated salary as director, or both. Nothing herein contained
shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor; provided, however, that directors who are also salaried
officers shall not receive fees or salaries as directors.
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ARTICLE IV
Committees
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Section 4.01. In General. The Board of Directors may,
by resolution or resolutions passed by the affirmative vote of a
majority of the entire Board, designate an Executive Committee
and such other committees as the Board may from time to time
determine, each to consist of one or more directors, and each of
which, to the extent provided in the resolution or in the
certificate of incorporation or in the bylaws, shall have all the
powers of the Board, except that no such committee shall have
power to elect or appoint any director, remove any officer or
director, or to change the membership of or to fill vacancies in
any committee, or to make, amend, repeal or adopt By-laws of the
Corporation, or to submit to the shareholders any action that
requires shareholder approval under these By-laws or the New
Jersey Business Corporation Act, or to amend or repeal any
resolution of the Board which by its terms is amendable or
repealable only by the Board. Each committee shall serve at the
pleasure of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
such absent or disqualified member.
ARTICLE V
Officers
--------
Section 5.01. Designation, Term and Vacancies. The
officers of the Corporation shall be a President, one or more
Vice Presidents, a Secretary, a Treasurer, and such other
officers as the Board of Directors may from time to time deem
necessary. Such officers may have and perform the powers and
duties usually pertaining to their respective offices, the powers
and duties respectively prescribed by law and by these By-laws,
and such additional powers and duties as may from time to time be
prescribed by the Board. The same person may hold any two or more
offices, except that no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such
instrument is required by law or by these By-laws to be executed,
acknowledged or verified by two or more officers.
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<PAGE>
The initial officers of the Corporation shall be
appointed by the initial Board of Directors. Thereafter, the
officers of the Corporation shall be appointed by the Board as
soon as practicable after the election of the Board at the annual
meeting of shareholders, and shall hold office until the regular
annual meeting of the Board of Directors following their
appointment and until their successors have been appointed and
qualified; provided, however, that the Board of Directors may
remove any officer at any time, with or without cause. Vacancies
occurring among the officers of the Corporation shall be filled
by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 5.02. President. The President shall preside
at all meetings of the shareholders and at all meetings of the
Board of Directors at which he may be present. Subject to the
direction of the Board of Directors, he shall be the chief
executive officer of the Corporation, and shall have general
charge of the entire business of the Corporation. He may sign
certificates of stock and sign and seal bonds, debentures,
contracts or other obligations authorized by the Board, and may,
without previous authority of the Board, make such contracts as
the ordinary conduct of the Corporation's business requires. He
shall have the usual powers and duties vested in the president of
a corporation. He shall have power to select, appoint and remove
all necessary officers and employees of the Corporation, except
those selected by the Board of Directors, and make new
appointments to fill vacancies. He may delegate any of his powers
to a Vice President of the Corporation.
Section 5.03. Vice President. The Vice President or,
if there be more than one, each Vice President, shall have such
of the President's powers and duties as the President may from
time to time delegate to him, and shall have such other powers
and perform such other duties as may be assigned to him by the
Board of Directors. During the absence or incapacity of the
President, the Vice President, or, if there be more than one, the
Vice President designated by the Board of Directors, shall
perform the duties of the President, and when so acting shall
have all the powers and be subject to all the responsibilities of
the office of President.
Section 5.04. Treasurer. The Treasurer shall have
custody of such funds and securities of the Corporation as may
come to his hands or be committed to his care by the Board of
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<PAGE>
Directors. Whenever necessary or proper, he shall endorse on
behalf of the Corporation, for collection, checks, notes, or
other obligations, and shall deposit the same to the credit of
the Corporation in such bank or banks or depositaries, approved
by the Board of Directors, as the Board of Directors or President
may designate. He may sign receipts or vouchers for payments made
to the Corporation, and the Board of Directors may require that
such receipts or vouchers shall also be signed by some other
officer to be designated by them. Whenever required by the Board
of Directors, he shall render a statement of his cash accounts
and such other statements respecting the affairs of the
Corporation as may be required. He shall keep proper and accurate
books of account. He shall perform all acts incident to the
office of Treasurer, subject to the control of the Board.
Section 5.05. Assistant Treasurer. Whenever requested
by or in the absence or disability of the Treasurer, the
Assistant Treasurer designated by the Treasurer (or in the
absence of such designation, the Assistant-Treasurer designated
by the Board of Directors) shall perform all the duties of the
treasurer, and when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the Treasurer.
Section 5.06. Secretary. The Secretary shall have
custody of the seal of the Corporation and when required by the
Board of Directors, or when any instrument shall have been signed
by the President or by any other officer duly authorized to sign
the same, or when necessary to attest any proceedings of the
shareholders or directors, shall affix it to any instrument
requiring the same and shall attest the same with his signature,
provided that the seal may be affixed by the President or any
Vice President or other officer of the Corporation to any
document executed by either of them respectively on behalf of the
Corporation which does not require the attestation of the
Secretary. He shall attend to the giving and serving of notices
of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care
by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of
Directors.
Section 5.07. Assistant Secretaries. Whenever
requested by or in the absence or disability of the Secretary,
the Assistant Secretary designated by the Secretary (or in the
absence of such designation, the Assistant-Secretary designated
by the Board of Directors) shall perform all the duties of the
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<PAGE>
Secretary and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Secretary.
Section 5.08. Subordinate Officers and Agents. The
Board of Directors may from to time appoint such other officers
and agents as it may deem necessary or advisable, to hold office
for such period, have such authority and perform such duties as
the Board of Directors may from time to time determine. The Board
of Directors may delegate to any officer or agent the power to
appoint any such subordinate officers or agents and to prescribe
their respective terms of office, authorities and duties.
Section 5.09. Delegation. In case of the absence of
any officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board may temporarily
delegate the powers or duties, or any of them, of such officer to
any other officer or to any director.
ARTICLE VI
Shares
------
Section 6.01. Certificates Representing Shares. All
certificates representing shares of the Corporation shall be
signed by the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, shall bear the seal of the Corporation and shall not
be valid unless so signed and sealed. Certificates countersigned
by a duly appointed transfer agent or registered by a duly
appointed registrar shall be deemed to be so signed and sealed
whether the signatures be manual or facsimile signatures and
whether the seal be a facsimile seal or any other form of seal.
All certificates shall be consecutively numbered and the name of
the person owning the shares represented thereby, his residence,
with the number of such shares and the date of issue, shall be
entered on the Corporation's books. All certificates surrendered
shall be canceled and no new certificates issued until the former
certificates for the same number of shares shall have been
surrendered and canceled, except as provided for herein.
In case any officer who signed or whose facsimile
signature was affixed to any certificate shall have ceased to be
such officer before such certificate is issued, it nevertheless
may be issued by the Corporation as if he were such officer at
the date of its issuance.
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<PAGE>
When the Corporation is authorized to issue shares of
more than one class there shall be set forth upon the face or
back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the
shares of each class authorized to be issued and, if the
Corporation is authorized to issue any class of preferred shares
in series, the designation, relative rights, preferences and
limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other
series.
Any restrictions on the transfer or registration of
transfer of any shares of any class or series shall be noted
conspicuously on the certificate representing such shares.
Section 6.02. Addresses of Shareholders. Every
shareholder shall furnish the Corporation with an address to
which notices of meetings and all other notices may be served
upon or mailed to him, and in default thereof notices may be
addressed to him at his last known post office address.
Section 6.03. Stolen, Lost or Destroyed Certificates.
The Board of Directors may in its sole discretion direct that a
new certificate for shares be issued in place of any certificate
for shares issued by the Corporation alleged to have been stolen,
lost or destroyed. When authorizing such issuance of a new
certificate, the Board of Directors may, in its discretion, and
as a condition precedent thereto, require the owner of such
stolen, lost or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum as the
Corporation may direct not exceeding double the value of the
shares represented by the certificate alleged to have been
stolen, lost or destroyed.
Section 6.04. Transfers of Shares. Upon compliance
with all provisions restricting the transferability of shares, if
any, transfers of shares shall be made only upon the books of the
Corporation by the holder in person or by his attorney thereunto
authorized by power of attorney duly filed with the Secretary of
the Corporation or with a transfer agent or registrar, if any,
and upon the surrender and cancellation of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes due thereon. The Board of Directors may appoint one or
more suitable banks or trust
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<PAGE>
companies as transfer agents or registrars of transfers, for
facilitating transfers of any class or series of shares of the
Corporation by the holders thereof under such regulations as the
Board of Directors may from time to time prescribe. Upon such
appointment being made, all certificates of shares of such class
or series thereafter issued shall be countersigned by one of such
transfer agents or one of such registrars of transfers, and shall
not be valid unless so countersigned.
ARTICLE VII
Dividends and Finance
---------------------
Section 7.01. Dividends. The Board of Directors shall
have power to fix and determine and to vary, from time to time,
the amount of the working capital of the Corporation before
declaring any dividends among its shareholders, to determine the
date or dates for the declaration and payment of dividends and
the amount of any dividend, and the amount of any reserves
necessary in their judgment before declaring any dividends among
its shareholders, and to determine the amount of surplus of the
Corporation from time to time available for dividends.
Section 7.02. Fiscal Year. The fiscal year of the
Corporation shall end on the last Friday of January in each year
and shall begin on the next succeeding day, or shall be for such
other period as the Board of Directors may from time to time
designate.
ARTICLE VIII
Indemnification
---------------
Section 8.01. Except to the extent expressly
prohibited by the New Jersey Business Corporation Act, the
Corporation shall indemnify each person made or threatened to be
made a party to or called as a witness in or asked to provide
information in connection with any pending or threatened action,
proceeding, hearing or investigation, whether civil or criminal,
and whether judicial, quasi-judicial, administrative, or
legislative, and whether or not for or in the right of the
Corporation or any other enterprise, by reason of the fact that
such person or such person's testator or intestate is or was a
director or officer of the Corporation, or is or was a director
or officer of the Corporation who also serves or served at the
request of the Corporation any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
in any
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<PAGE>
capacity, against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses, including attorneys'
fees, incurred in connection with such action or proceeding, or
any appeal therein, provided that no such indemnification shall
be made if a judgment or other final adjudication adverse to such
person establishes that his or her acts or omissions were in
breach of his or her duty of loyalty to the corporation or its
shareholders, were not in good faith or involved a knowing
violation of law, or resulted in receipt by such person of an
improper personal benefit, and provided further that no such
indemnification shall be required with respect to any settlement
or other nonadjudicated disposition of any threatened or pending
action or proceeding unless the Corporation has given its prior
consent to such settlement or other disposition.
The Corporation shall advance or promptly reimburse,
upon request of any person entitled to indemnification hereunder,
all expenses, including attorneys' fees, reasonably incurred in
defending any action or proceeding in advance of the final
disposition thereof upon receipt of a written undertaking by or
on behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so
advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in
good faith with any request by the Corporation that common
counsel be utilized by the parties to an action or proceeding who
are similarly situated unless to do so would be inappropriate due
to actual or potential differing interests between or among such
parties.
Nothing herein shall limit or affect any right of any
person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract
or otherwise.
No elimination of this By-law, and no amendment of
this By-law adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be
effective until the 60th day following notice to such person of
such action, and no elimination of or amendment to this By-law
shall deprive any person of his or her rights hereunder arising
out of alleged or actual occurrences, acts or failures to act
prior to such 60th day. The provisions of this paragraph shall
supersede anything to the contrary in these By-laws.
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<PAGE>
The Corporation shall not, except by elimination or
amendment of this By-law in a manner consistent with the
preceding paragraph, take any corporate action or enter into any
agreement which prohibits, or otherwise limits the rights of any
person to, indemnification in accordance with the provisions of
this By-law. The indemnification of any person provided by this
By-law shall continue after such person has ceased to be a
director or officer of the Corporation and shall inure to the
benefit of such person's heirs, executors, administrators and
legal representatives.
The Corporation is authorized to enter into agreements
with any of its directors, officers or employees extending rights
to indemnification and advancement of expenses to such person to
the fullest extent permitted by applicable law, but the failure
to enter into any such agreement shall not affect or limit the
rights of such person pursuant to this By-law. It is hereby
expressly recognized that all directors and officers of the
Corporation, by serving as such after the adoption hereof, are
acting in reliance hereon and that the Corporation is estopped to
contend otherwise. Additionally, it is hereby expressly
recognized that all persons who serve or served as directors,
officers or employees of corporations which are subsidiaries or
affiliates of the Corporation (or other entities controlled by
the Corporation) and are directors or officers of the Corporation
are conclusively presumed to serve or have served as such at the
request of the Corporation and, to the extent permitted by law,
are entitled to indemnification hereunder, but that no such
person shall have any rights hereunder or in connection herewith,
except to the extent that indemnification hereunder is permitted
by law.
In case any provision in this By-law shall be
determined at any time to be unenforceable in any respect, the
other provisions shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest
possible enforcement in the circumstances, it being the intention
of the Corporation to afford indemnification and advancement of
expenses to its directors and officers, acting in such capacities
or in the other capacities mentioned herein, to the fullest
extent permitted by law.
For purposes of this By-law, the Corporation shall be
deemed to have requested a director or officer of the Corporation
to serve an employee benefit plan where the performance by such
person of his or her duties to the Corporation also imposes
duties on, or otherwise involves
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<PAGE>
services by, such person to the plan or participants or
beneficiaries of the plan, and excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable
law shall be considered indemnifiable expenses. For purposes of
this By-law, the term "Corporation" shall include any legal
successor to the Corporation, including any corporation which
acquires all or substantially all of the assets of the
Corporation in one or more transactions.
A person who has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or
proceeding of the character described in the first paragraph of
this By-law shall be entitled to indemnification as authorized in
such paragraph. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under this By-law
shall be made by the Corporation if, and only if, authorized in
the specific case:
(1) By the Board of Directors or a committee thereof,
acting by a majority vote of a quorum consisting of
directors who are not parties to such action or proceeding
upon a finding that the director or officer has met the
standard of conduct set forth in the first paragraph of
this By-law, or,
(2) If such a quorum is not obtainable, or, even if
obtainable and such quorum of the Board of Directors or
committee by a majority vote of the disinterested directors
so directs:
(a) By the Board of Directors upon the opinion in
writing of independent legal counsel that
indemnification is proper in the circumstances because
the standard of conduct set forth in the first
paragraph of this By-law has been met by such director
or officer, or
(b) By the shareholders upon a finding that the
director or officer has met the applicable standard of
conduct set forth in such paragraph.
ARTICLE IX
Miscellaneous Provisions
------------------------
Section 9.01. Books and Records. Subject to the New
Jersey Business Act Law, the Corporation may keep its books and
accounts outside the State of New Jersey.
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<PAGE>
Section 9.02. Notices. Whenever any notice is required
by these By-laws to be given, personal notice is required only if
it is expressly so stated, and any notice so required shall be
deemed to be sufficient if given by depositing the same in a post
office box in a sealed post-paid wrapper, addressed to the person
entitled thereto at his last known post office address, and such
notice shall be deemed to have been given on the day of such
mailing.
Any person may waive the right to receive any notice
by signing a written waiver thereof.
Section 9.03. Amendments. Except as otherwise
provided herein, these By-laws may be altered, amended, or
repealed and By-laws may be adopted by the shareholders or by the
Board of Directors.
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CLIFFORD & WILLS, INC.
----------------------
BY- LAWS
----------------------
ARTICLE I
The Corporation
---------------
Section 1.01. Name. The legal name of this corporation
(hereinafter called the "Corporation") is Clifford & Wills, Inc.
Section 1.02. Offices. The Corporation shall have its
principal office in the City of Garfield, County of Bergen, State
of New Jersey. The Corporation may also have offices at such
other places within and without the State of New Jersey as the
Board of Directors may from time to time appoint or as the
business of the Corporation may require.
Section 1.03. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, New Jersey." One or
more duplicate dies for impressing such seal may be kept and
used.
ARTICLE II
Meetings of Shareholders
------------------------
Section 2.01. Place of Meetings. All meetings of the
shareholders shall be held at the principal office of the
Corporation in the State of New Jersey, or at such other place,
within or without the State of New Jersey, as may be fixed in the
notice of the meeting.
Section 2.02. Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and
the transaction of such other business as may properly come
before the meeting shall be held on the second Tuesday in May in
each year if not a legal holiday, and if a legal holiday, then on
the next business day following, at such time as may be fixed in
the notice of the meeting. If for any reason any annual meeting
shall not be held at the time herein specified, the same may be
held at any time thereafter upon notice, as herein provided, or
the business thereof may be transacted at any special meeting
called for the purpose.
<PAGE>
Section 2.03. Special Meetings. Special meetings of
shareholders may be called by the President whenever he deems it
necessary or advisable, and shall be called by the President or
the Secretary upon the written request of a majority of the
entire Board of Directors or of the holders of one-third of the
number of shares of the Corporation entitled to vote at such
meeting.
Section 2.04. Notice of Meetings. Written notice of all
meetings stating the place, date and hour of the meeting shall be
given to each shareholder entitled to vote at such
meeting personally or by mail, not less than ten nor more than
sixty days before the date of the meeting. Notice of each special
meeting shall state the purpose or purposes for which the meeting
is called and shall indicate that it is being called by or at the
direction of the person or persons calling the meeting. If, at
any meeting, action is proposed to be taken which would, if
taken, entitle shareholders fulfilling the requirements of
Section 14A:11-2 of the New Jersey Business Corporation Act to
receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If
mailed, a notice of meeting shall be deemed given when deposited
in the United States mail, with postage prepaid, directed to the
shareholder at his address as it appears on the record of
shareholders, or at such other address for mailing of notices as
any shareholder may in writing file with the Secretary of the
Corporation. Notice of a meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of
a shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by
him.
Section 2.05. Record Date for Shareholders. For the
purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of
any rights or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If
no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of
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<PAGE>
business on the day next preceding the day on which
notice is given, or, if no notice is given, the day next
preceding the day on which the meeting is held; the record date
for determining shareholders entitled to express consent to or
dissent from any proposal without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which
the first written consent or dissent, as the case may be, is
expressed; and the record date for determining shareholders for
any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto. A determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders shall apply
to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned
meeting.
Section 2.06. Proxy Representation. Every shareholder
may authorize another person or persons to act for him by proxy
in all matters in which a shareholder is entitled to participate,
whether by waiving notice of any meeting, voting or participating
at a meeting, or expressing consent without a meeting. Every
proxy must be signed by the shareholder or by his agent, except
that a proxy may be given by a shareholder or his agent by
telegram or cable or its equivalent. No proxy shall be valid for
more than eleven months, unless a longer time is expressly
provided therein, but in no event shall a proxy be valid after
three years from the date of execution. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except
as may be otherwise provided by law.
Section 2.07. Voting at Shareholders' Meetings. Each
outstanding share of stock having voting power shall be entitled
to one vote on each matter submitted to a vote at a meeting of
shareholders. Directors shall be elected by the vote of the
holders of a plurality of the shares present at a meeting and
entitled to vote in the election. Unless otherwise provided by
statute, any other corporate action shall be authorized by the
vote of the holders of a majority of the shares present at a
meeting of shareholders and entitled to vote thereon. Voting need
not be by ballot.
Section 2.08. Quorum and Adjournment. Unless otherwise
provided by statute, the holders of a majority of the shares of
the Corporation shall constitute a quorum for the transaction of
any business. When a quorum is once present to organize a
meeting, it shall not be broken by the subsequent
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<PAGE>
withdrawal of any shareholders. If a quorum is not
present or represented at any meeting of the shareholders, the
shareholders present in person or represented by proxy shall have
power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as
originally notified.
Section 2.09. List of Shareholders. The officer who
has charge of the record of shareholders of the Corporation shall
prepare, make and certify, at least ten days before every meeting
of shareholders, a complete list of the shareholders, as of the
record date fixed for such meeting, arranged in alphabetical
order within each class, series, or group of shareholders, and
showing the address of each shareholder and the number of shares
registered in each shareholder's name. Such list shall be
produced at the time and place of the meeting for the inspection
of any shareholder during the time of the meeting and shall be
prima facie evidence as to who are the shareholders entitled to
examine such list or to vote at any meeting.
Section 2.10. Action of the Shareholders Without a
Meeting. Whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by the
holders of all of the outstanding shares entitled to vote
thereon.
ARTICLE III
Directors
---------
Section 3.01. Number of Directors. The Board of
Directors shall consist of one or more members. The number of
directors may be fixed from time to time by action of a majority
of the entire Board of Directors or of the shareholders at an
annual or special meeting, or, if the number of directors is not
so fixed, the number shall be one. No decrease in the number of
directors shall shorten the term of any incumbent director.
Section 3.02. Election and Term. The initial Board of
Directors shall be elected by the incorporator and the initial
directors so elected shall hold office until the first annual
meeting of shareholders and until their successors have
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<PAGE>
been elected and qualified. Thereafter, each director
who is elected at an annual meeting of shareholders, and each
director who is elected in the interim to fill a vacancy or a
newly created directorship, shall hold office until the next
annual meeting of shareholders and until his successor has been
elected and qualified.
Section 3.03. Filling Vacancies, Resignation and
Removal. Any director may be removed, with or without cause, by
vote of the shareholders. In the interim between annual meetings
of shareholders or special meetings of shareholders called for
the election or removal of one or more directors, newly created
directorships and any vacancies in the Board of Directors,
including vacancies resulting from the resignation or removal of
directors, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum,
or by the sole remaining director.
Section 3.04. Qualifications and Powers. Each director
shall be at least eighteen years of age. A director need not be a
shareholder, a citizen of the United States or a resident of the
State of New Jersey. The business of the Corporation shall be
managed by the Board of Directors, subject to the provisions of
the certificate of incorporation. In addition to the powers and
authorities expressly conferred upon it by these bylaws, the
Board may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the
certificate of incorporation or by these bylaws directed or
required to be exercised or done exclusively by the shareholders.
Section 3.05. Regular and Special Meetings of the
Board. The Board of Directors may hold its meetings, regular or
special, within or without the State of New Jersey. The annual
meeting of the Board of Directors shall be held immediately
after, and at the same place as, the annual meeting of
shareholders. No notice shall be required for regular meetings of
the Board of Directors for which the time and place have been
fixed. Special meetings of the Board may be called by or at the
direction of the President, any Vice President, the Secretary or
a majority of the directors in office, upon three days notice to
each director, delivered personally, sent by telegraph or mailed
to each director at his residence or usual place of business.
Meetings of the Board, regular or special, may be held at any
time and place, and for any purpose, without notice, when all the
directors are present or when all directors not present, before
or after such meeting,
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<PAGE>
in writing waive notice of the holding of such meeting. Any
requirement of furnishing a notice shall be waived by any
director who attends any meeting of the Board without protesting,
prior thereto or at its commencement, the lack of notice to him.
Section 3.06. Quorum and Action. A majority of the
directors shall constitute a quorum of the Board of Directors,
except that when the entire Board consists of two directors or
less, one director shall constitute a quorum, and except that
when a vacancy or vacancies prevents such a majority, a majority
of the directors in office shall constitute a quorum, provided,
that such majority shall constitute at least one-third of the
entire Board. Except as otherwise provided by these By-laws or by
the New Jersey Business Corporation Act, the vote of the majority
of the directors present at a meeting at which a quorum is
present shall be the act of the Board.
Section 3.07. Telephonic Meetings. Any member or
members of the Board of Directors, or of any committee designated
by the Board, may participate in a meeting of the Board, or any
such committee, as the case may be, by means of conference
telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the
same time, and participation in a meeting by such means shall
constitute presence in person at such meeting.
Section 3.08. Action Without a Meeting. Any action
required or permitted to be taken by the Board of Directors, or
any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent in
writing to the adoption of a resolution authorizing the action.
The resolution and the written consents thereto by the members of
the Board or committee shall be filed with the minutes of
proceedings of the Board or committee.
Section 3.09. Compensation of Directors. By resolution
of the Board of Directors, the directors may be paid their
expenses, if any, for attendance at each regular or special
meeting of the Board or of any committee designated by the Board
and may be paid a fixed sum for attendance at such meeting, or a
stated salary as director, or both. Nothing herein contained
shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor; provided, however, that directors who are also salaried
officers shall not receive fees or salaries as directors.
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ARTICLE IV
Committees
----------
Section 4.01. In General. The Board of Directors may,
by resolution or resolutions passed by the affirmative vote of a
majority of the entire Board, designate an Executive Committee
and such other committees as the Board may from time to time
determine, each to consist of one or more directors, and each of
which, to the extent provided in the resolution or in the
certificate of incorporation or in the bylaws, shall have all the
powers of the Board, except that no such committee shall have
power to elect or appoint any director, remove any officer or
director, or to change the membership of or to fill vacancies in
any committee, or to make, amend, repeal or adopt By-laws of the
Corporation, or to submit to the shareholders any action that
requires shareholder approval under these By-laws or the New
Jersey Business Corporation Act, or to amend or repeal any
resolution of the Board which by its terms is amendable or
repealable only by the Board. Each committee shall serve at the
pleasure of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
such absent or disqualified member.
ARTICLE V
Officers
--------
Section 5.01. Designation, Term and Vacancies. The
officers of the Corporation shall be a President, one or more
Vice Presidents, a Secretary, a Treasurer, and such other
officers as the Board of Directors may from time to time deem
necessary. Such officers may have and perform the powers and
duties usually pertaining to their respective offices, the powers
and duties respectively prescribed by law and by these By-laws,
and such additional powers and duties as may from time to time be
prescribed by the Board. The same person may hold any two or more
offices, except that no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such
instrument is required by law or by these By-laws to be executed,
acknowledged or verified by two or more officers.
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<PAGE>
The initial officers of the Corporation shall be
appointed by the initial Board of Directors. Thereafter, the
officers of the Corporation shall be appointed by the Board as
soon as practicable after the election of the Board at the annual
meeting of shareholders, and shall hold office until the regular
annual meeting of the Board of Directors following their
appointment and until their successors have been appointed and
qualified; provided, however, that the Board of Directors may
remove any officer at any time, with or without cause. Vacancies
occurring among the officers of the Corporation shall be filled
by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 5.02. President. The President shall preside
at all meetings of the shareholders and at all meetings of the
Board of Directors at which he may be present. Subject to the
direction of the Board of Directors, he shall be the chief
executive officer of the Corporation, and shall have general
charge of the entire business of the Corporation. He may sign
certificates of stock and sign and seal bonds, debentures,
contracts or other obligations authorized by the Board, and may,
without previous authority of the Board, make such contracts as
the ordinary conduct of the Corporation's business requires. He
shall have the usual powers and duties vested in the president of
a corporation. He shall have power to select, appoint and remove
all necessary officers and employees of the Corporation, except
those selected by the Board of Directors, and make new
appointments to fill vacancies. He may delegate any of his powers
to a Vice President of the Corporation.
Section 5.03. Vice President. The Vice President or,
if there be more than one, each Vice President, shall have such
of the President's powers and duties as the President may from
time to time delegate to him, and shall have such other powers
and perform such other duties as may be assigned to him by the
Board of Directors. During the absence or incapacity of the
President, the Vice President, or, if there be more than one, the
Vice President designated by the Board of Directors, shall
perform the duties of the President, and when so acting shall
have all the powers and be subject to all the responsibilities of
the office of President.
Section 5.04. Treasurer. The Treasurer shall have
custody of such funds and securities of the Corporation as may
come to his hands or be committed to his care by the Board of
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<PAGE>
Directors. Whenever necessary or proper, he shall endorse
on behalf of the Corporation, for collection, checks,
notes, or other obligations, and shall deposit the same to the
credit of the Corporation in such bank or banks or depositaries,
approved by the Board of Directors, as the Board of Directors or
President may designate. He may sign receipts or vouchers for
payments made to the Corporation, and the Board of Directors may
require that such receipts or vouchers shall also be signed by
some other officer to be designated by them. Whenever required by
the Board of Directors, he shall render a statement of his cash
accounts and such other statements respecting the affairs of the
Corporation as may be required. He shall keep proper and accurate
books of account. He shall perform all acts incident to the
office of Treasurer, subject to the control of the Board.
Section 5.05. Assistant Treasurer. Whenever requested
by or in the absence or disability of the Treasurer, the
Assistant Treasurer designated by the Treasurer (or in the
absence of such designation, the Assistant-Treasurer designated
by the Board of Directors) shall perform all the duties of the
treasurer, and when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the Treasurer.
Section 5.06. Secretary. The Secretary shall have
custody of the seal of the Corporation and when required by the
Board of Directors, or when any instrument shall have been signed
by the President or by any other officer duly authorized to sign
the same, or when necessary to attest any proceedings of the
shareholders or directors, shall affix it to any instrument
requiring the same and shall attest the same with his signature,
provided that the seal may be affixed by the President or any
Vice President or other officer of the Corporation to any
document executed by either of them respectively on behalf of the
Corporation which does not require the attestation of the
Secretary. He shall attend to the giving and serving of notices
of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care
by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of
Directors.
Section 5.07. Assistant Secretaries. Whenever
requested by or in the absence or disability of the Secretary,
the Assistant Secretary designated by the Secretary (or in the
absence of such designation, the Assistant-Secretary designated
by the Board of Directors) shall perform all the duties of the
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<PAGE>
Secretary and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Secretary.
Section 5.08. Subordinate Officers and Agents. The
Board of Directors may from to time appoint such other officers
and agents as it may deem necessary or advisable, to hold office
for such period, have such authority and perform such duties as
the Board of Directors may from time to time determine. The Board
of Directors may delegate to any officer or agent the power to
appoint any such subordinate officers or agents and to prescribe
their respective terms of office, authorities and duties.
Section 5.09. Delegation. In case of the absence of
any officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board may temporarily
delegate the powers or duties, or any of them, of such officer to
any other officer or to any director.
ARTICLE VI
Shares
------
Section 6.01. Certificates Representing Shares. All
certificates representing shares of the Corporation shall be
signed by the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, shall bear the seal of the Corporation and shall not
be valid unless so signed and sealed. Certificates countersigned
by a duly appointed transfer agent or registered by a duly
appointed registrar shall be deemed to be so signed and sealed
whether the signatures be manual or facsimile signatures and
whether the seal be a facsimile seal or any other form of seal.
All certificates shall be consecutively numbered and the name of
the person owning the shares represented thereby, his residence,
with the number of such shares and the date of issue, shall be
entered on the Corporation's books. All certificates surrendered
shall be cancelled and no new certificates issued until the
former certificates for the same number of shares shall have been
surrendered and cancelled, except as provided for herein.
In case any officer who signed or whose facsimile
signature was affixed to any certificate shall have ceased to be
such officer before such certificate is issued, it nevertheless
may be issued by the Corporation as if he were such officer at
the date of its issuance.
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<PAGE>
When the Corporation is authorized to issue shares of
more than one class there shall be set forth upon the face or
back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the
shares of each class authorized to be issued and, if the
Corporation is authorized to issue any class of preferred shares
in series, the designation, relative rights, preferences and
limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other
series.
Any restrictions on the transfer or registration of
transfer of any shares of any class or series shall be noted
conspicuously on the certificate representing such shares.
Section 6.02. Addresses of Shareholders. Every
shareholder shall furnish the Corporation with an address to
which notices of meetings and all other notices may be served
upon or mailed to him, and in default thereof notices may be
addressed to him at his last known post office address.
Section 6.03. Stolen, Lost or Destroyed Certificates.
The Board of Directors may in its sole discretion direct that a
new certificate for shares be issued in place of any certificate
for shares issued by the Corporation alleged to have been stolen,
lost or destroyed. When authorizing such issuance of a new
certificate, the Board of Directors may, in its discretion, and
as a condition precedent thereto, require the owner of such
stolen, lost or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum as the
Corporation may direct not exceeding double the value of the
shares represented by the certificate alleged to have been
stolen, lost or destroyed.
Section 6.04. Transfers of Shares. Upon compliance
with all provisions restricting the transferability of shares, if
any, transfers of shares shall be made only upon the books of the
Corporation by the holder in person or by his attorney thereunto
authorized by power of attorney duly filed with the Secretary of
the Corporation or with a transfer agent or registrar, if any,
and upon the surrender and cancellation of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes due thereon. The Board of Directors may appoint one or
more suitable banks or trust
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<PAGE>
companies as transfer agents or registrars of
transfers, for facilitating transfers of any class or series of
shares of the Corporation by the holders thereof under such
regulations as the Board of Directors may from time to time
prescribe. Upon such appointment being made, all certificates of
shares of such class or series thereafter issued shall be
countersigned by one of such transfer agents or one of such
registrars of transfers, and shall not be valid unless so
countersigned.
ARTICLE VII
Dividends and Finance
---------------------
Section 7.01. Dividends. The Board of Directors shall
have power to fix and determine and to vary, from time to time,
the amount of the working capital of the Corporation before
declaring any dividends among its shareholders, to determine the
date or dates for the declaration and payment of dividends and
the amount of any dividend, and the amount of any reserves
necessary in their judgment before declaring any dividends among
its shareholders, and to determine the amount of surplus of the
Corporation from time to time available for dividends.
Section 7.02. Fiscal Year. The fiscal year of the
Corporation shall end on the last Friday of January in each year
and shall begin on the next succeeding day, or shall be for such
other period as the Board of Directors may from time to time
designate.
ARTICLE VIII
Indemnification
---------------
Section 8.01. Except to the extent expressly
prohibited by the New Jersey Business Corporation Act, the
Corporation shall indemnify each person made or threatened to be
made a party to or called as a witness in or asked to provide
information in connection with any pending or threatened action,
proceeding, hearing or investigation, whether civil or criminal,
and whether judicial, quasi-judicial, administrative, or
legislative, and whether or not for or in the right of the
Corporation or any other enterprise, by reason of the fact that
such person or such person's testator or intestate is or was a
director or officer of the Corporation, or is or was a director
or officer of the Corporation who also serves or served at the
request of the Corporation any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
in any
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<PAGE>
capacity, against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses, including attorneys'
fees, incurred in connection with such action or proceeding, or
any appeal therein, provided that no such indemnification shall
be made if a judgment or other final adjudication adverse to such
person establishes that his or her acts or omissions were in
breach of his or her duty of loyalty to the corporation or its
shareholders, were not in good faith or involved a knowing
violation of law, or resulted in receipt by such person of an
improper personal benefit, and provided further that no such
indemnification shall be required with respect to any settlement
or other nonadjudicated disposition of any threatened or pending
action or proceeding unless the Corporation has given its prior
consent to such settlement or other disposition.
The Corporation shall advance or promptly reimburse,
upon request of any person entitled to indemnification hereunder,
all expenses, including attorneys' fees, reasonably incurred in
defending any action or proceeding in advance of the final
disposition thereof upon receipt of a written undertaking by or
on behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so
advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in
good faith with any request by the Corporation that common
counsel be utilized by the parties to an action or proceeding who
are similarly situated unless to do so would be inappropriate due
to actual or potential differing interests between or among such
parties.
Nothing herein shall limit or affect any right of any
person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract
or otherwise.
No elimination of this By-law, and no amendment of
this By-law adversely affecting the right of any person to
indemnification of advance of expenses hereunder shall be
effective until the 60th day following notice to such person of
such action, and no elimination of or amendment to this By-law
shall deprive any person of his or her rights hereunder arising
out of alleged or actual occurrences, acts or failures to act
prior to such 60th day. The provisions of this paragraph shall
supersede anything to the contrary in these By-laws.
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<PAGE>
The Corporation shall not, except by elimination or
amendment of this By-law in a manner consistent with the
preceding paragraph, take any corporate action or enter into any
agreement which prohibits, or otherwise limits the rights of any
person to, indemnification in accordance with the provisions of
this By-law. The indemnification of any person provided by this
By-law shall continue after such person has ceased to be a
director or officer of the Corporation and shall inure to the
benefit of such person's heirs, executors, administrators and
legal representatives.
The Corporation is authorized to enter into agreements
with any of its directors, officers or employees extending rights
to indemnification and advancement of expenses to such person to
the fullest extent permitted by applicable law, but the failure
to enter into any such agreement shall not affect or limit the
rights of such person pursuant to this By-law. It is hereby
expressly recognized that all directors and officers of the
Corporation, by serving as such after the adoption hereof, are
acting in reliance hereon and that the Corporation is estopped to
contend otherwise. Additionally, it is hereby expressly
recognized that all persons who serve or served as directors,
officers or employees of corporations which are subsidiaries or
affiliates of the Corporation (or other entities controlled by
the Corporation) and are directors or officers of the Corporation
are conclusively presumed to serve or have served as such at the
request of the Corporation and, to the extent permitted by law,
are entitled to indemnification hereunder, but that no such
person shall have any rights hereunder or in connection herewith,
except to the extent that indemnification hereunder is permitted
by law.
In case any provision in this By-law shall be
determined at any time to be unenforceable in any respect, the
other provisions shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest
possible enforcement in the circumstances, it being the intention
of the Corporation to afford indemnification and advancement of
expenses to its directors and officers, acting in such capacities
or in the other capacities mentioned herein, to the fullest
extent permitted by law.
For purposes of this By-law, the Corporation shall be
deemed to have requested a director or officer of the Corporation
to serve an employee benefit plan where the performance by such
person of his or her duties to the Corporation also imposes
duties on, or otherwise involves
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<PAGE>
services by, such person to the plan or participants or
beneficiaries of the plan, and excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable
law shall be considered indemnifiable expenses. For purposes of
this By-law, the term "Corporation" shall include any legal
successor to the Corporation, including any corporation which
acquires all or substantially all of the assets of the
Corporation in one or more transactions.
A person who has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or
proceeding of the character described in the first paragraph of
this By-law shall be entitled to indemnification as authorized in
such paragraph. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under this By-law
shall be made by the Corporation if, and only if, authorized in
the specific case:
(1) By the Board of Directors or a committee thereof,
acting by a majority vote of a quorum consisting of
directors who are not parties to such action or proceeding
upon a finding that the director or officer has met the
standard of conduct set forth in the first paragraph of
this By-law, or,
(2) If such a quorum is not obtainable, or, even if
obtainable and such quorum of the Board of Directors or
committee by a majority vote of the disinterested directors
so directs:
(a) By the Board of Directors upon the opinion in
writing of independent legal counsel that
indemnification is proper in the circumstances because
the standard of conduct set forth in the first
paragraph of this By-law has been met by such director
or officer, or
(b) By the shareholders upon a finding that the
director or officer has met the applicable standard of
conduct set forth in such paragraph.
ARTICLE IX
Miscellaneous Provisions
------------------------
Section 9.01. Books and Records. Subject to the New
Jersey Business Act Law, the Corporation may keep its books and
accounts outside the State of New Jersey.
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<PAGE>
Section 9.02. Notices. Whenever any notice is required
by these By-laws to be given, personal notice is required only if
it is expressly so stated, and any notice so required shall be
deemed to be sufficient if given by depositing the same in a post
office box in a sealed post-paid wrapper, addressed to the person
entitled thereto at his last known post office address, and such
notice shall be deemed to have been given on the day of such
mailing.
Any person may waive the right to receive any notice
by signing a written waiver thereof.
Section 9.03. Amendments. Except as otherwise provided
herein, these By-laws may be altered, amended, or repealed and
By-laws may be adopted by the shareholders or by the Board of
Directors.
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BY-LAWS
OF
GRACE HOLMES, INC.
ARTICLE I.
NAME
The name of the Corporation is Grace Holmes, Inc.
ARTICLE II.
OFFICES
Section 1. Registered Office. The registered office
of the Corporation within the State of Delaware shall be located
at the principal place of business in said state of the
corporation or individual acting as the Corporation's registered
agent in Delaware.
Section 2. Other Offices. The Corporation may also
have such offices at such other places within and without the
State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE III.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the
stockholders shall be held at such place either within or without
the State of Delaware as shall be designated from time to time by
the Board of Directors and specified in the notice of the meeting
or in a duly executed waiver of notice thereof.
<PAGE>
Section 2. Annual Meeting. The annual meeting of
stockholders shall be held during the month of May of each year,
or at such other date as shall be designated by the Board of
Directors and specified in the notice of the meeting. At the
annual meeting, the stockholders shall elect a Board of Directors
and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice
of the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before
the date of the meeting.
Section 4. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may
be called by the President, by a majority of the Board of
Directors or at the request in writing of stockholders owning a
majority in amount of the shares issued and outstanding. Such
request shall state the purpose or purposes of the proposed
meeting. Upon receipt of any such request, it shall be the duty
of the Secretary to call a special meeting of the stockholders
to be held at such time, not more than sixty days thereafter, as
the Secretary may fix. If the Secretary shall neglect to issue
such call, the person or persons making the request may issue the
call.
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<PAGE>
Section 5. Notice of Special Meeting. Written notice
of a special meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is
called shall be given not less than ten nor more than sixty days
before the date of the meeting, unless a greater period of notice
is required by express provision of the laws of the State of
Delaware, to each stockholder entitled to vote at such meeting.
Section 6. Fixing Record Date. For the purpose of
determining the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting,
or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board
of Directors shall fix, in advance, a date as the record date for
any such determination of stockholders. Such date shall not be
more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If
no record date is fixed it shall be determined in accordance with
the provisions of law.
Section 7. Organization of Stockholders Meetings. At
each meeting of the stockholders the President, or, in the
absence of the President, a chairman chosen by a majority vote of
the stockholders present in person or by proxy and entitled to
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<PAGE>
vote thereat, shall act as chairman; and the Secretary, or, in
his absence, an Assistant Secretary, or, in the absence of the
Secretary and all Assistant Secretaries, a person whom the
chairman of such meeting shall appoint, shall act as secretary of
such meeting and keep the minutes thereof.
Section 8. Quorum. The presence, in person or
represented by proxy, of stockholders entitled to cast at least a
majority of the votes which all stockholders are entitled to cast
on the particular matter shall constitute a quorum for the
purpose of considering such matter at a meeting of the
stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation and in this Section 8. If, however,
a meeting of stockholders cannot be organized because a quorum
has not attended, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting at which the adjournment is taken of
the time and place of the adjourned meeting, until a quorum shall
be present or represented. In case of a meeting for the election
of directors, such meeting may be adjourned only from day to day
or for such longer periods, not exceeding fifteen days each,
until such directors have been elected. At such adjourned meeting
at which a quorum shall be present or represented, any business
may be transacted which might have been transacted at the meeting
as originally specified in the notice thereof; provided, however,
that in the case of a meeting for the election
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of directors, those who are present or represented at the second
of such adjourned meetings, although less than the number specified
in this Section 8, shall constitute a quorum for the purpose of
electing directors. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting.
Section 9. Vote Required. When a quorum is present at
any meeting, the vote of stockholders present, in person or by
proxy, entitled to cast at least a majority of the votes which
all stockholders present are entitled to cast on the particular
matter shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of
the laws of the State of Delaware or of the Certificate of
Incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such
question.
Section 10. Voting; Proxies; Ballots . Unless
otherwise provided by express provision of the laws of the State
of Delaware or of the Certificate of Incorporation, at every
meeting of the stockholders, each stockholder of record shall be
entitled to one vote for each share of the capital stock having
voting rights registered in his name on the books of the
Corporation on the date fixed pursuant to Section 6 of Article II
of these By-Laws as the record date for the determination of
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<PAGE>
stockholders entitled to vote at the meeting. Shares of its own
stock belonging to the Corporation shall not be voted upon
directly or indirectly. The vote of any stockholder entitled
thereto may be cast in person or by proxy appointed by an
instrument in writing, executed by such stockholder or by his
attorney-in-fact, filed with the Secretary; but no proxy shall be
valid after the expiration of three years from the date thereof
unless otherwise provided in the proxy. A proxy, except to the
extent otherwise provided by the laws of the State of Delaware,
shall be revocable at will, notwithstanding any other agreement
or any provision in the proxy to the contrary, but the revocation
of a proxy shall not be effective until notice thereof has been
given to the Secretary. A proxy shall not be revoked by the death
or incapacity of the maker, unless, before the vote is counted or
the authority is exercised, written notice of such death or
incapacity is given to the Secretary.
Section 11. Action by Written Consent. To the extent
permitted by the laws of the State of Delaware, whenever the vote
of stockholders at a meeting thereof is required or permitted to
be taken for or in connection with any corporate action by any
provision of the statutes, the Certificate of Incorporation or
these By-Laws, the meeting and vote of stockholders may be
dispensed with if all the stockholders who would have been
entitled to vote upon the action if such meeting were held, or
such lesser number of stockholders as may be provided for in the
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<PAGE>
Certificate of Incorporation, shall sign a consent or consents in
writing, setting forth such corporate action being taken.
ARTICLE IV.
DIRECTORS
Section 1. Number of Directors. The number of
directors which shall constitute the whole board shall be as
determined from time to time by resolution of the stockholders or
the Board of Directors. Directors shall be elected at the annual
meeting of the stockholders and each director elected shall hold
office until his successor is duly elected and shall qualify or
until his death, resignation or removal. Directors need not be
stockholders.
Section 2. Vacancies; New Directorships. Vacancies
and newly created directorships resulting from any increase in
the authorized number of directors may be filled (subject to the
provisions of Article IV, Section 13, of these By-Laws in the
case of removal) by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and
each director so chosen shall hold office until the next annual
election and until his successor is duly elected and shall
qualify or until his death, resignation or removal. If there are
no directors in office, then an election of directors may be held
in the manner provided by statute. When one or more directors
shall resign from the Board of Directors effective at a future
date, a majority of the directors then in office, including those
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who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective; and each such director so
chosen shall hold office as provided in this Section 2 in the
filling of other vacancies.
Section 3. Management of Corporation. The business
and affairs of the Corporation shall be managed by its Board of
Directors which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 4. Place of Meetings of the Board of Directors.
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or without the State of
Delaware.
Section 5. Annual Meeting of Board of Directors. After
each annual election of directors and on the same day, the Board
of Directors shall meet for the election of officers and the
transaction of other business, at the place where such annual
election is held. Notice of such meeting need not be given. Such
meetings may be called and held at any other time and place which
shall be specified in a notice of the meeting or in a duly
executed waiver of notice thereof as in the case of a special
meeting of the Board of Directors.
Section 6. Special Meetings of the Board of Directors.
Special meetings of the Board of Directors may be called by the
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Chairman of the Board, or by the President or by a majority of
the Board of Directors on two days notice to each director,
either personally or by mail, telegram, cable or radiogram.
Special meetings shall be called by the President or by the
Secretary in like manner and on like notice on the written
request of a majority of directors and the place and time of such
special meeting shall be as designated in the notices of such
meetings or in duly executed waivers thereof.
Section 7. Quorum. At all meetings of the Board of
Directors a majority of the directors in office shall constitute
a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by express provision of
the laws of the State of Delaware or of the Certificate of
Incorporation or these By-Laws. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present.
Section 8. Organization of Meetings of Board of Directors.
At each meeting of the Board of Directors the Chairman of the
Board, or in his absence, the President or, in his absence, a
director chosen by a majority of the directors present, shall act
as chairman. The Secretary or, in his absence, an Assistant
Secretary or, in the absence of the
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Secretary and all Assistant Secretaries, a person whom the chairman
of such meeting shall appoint, shall act as secretary of such meeting
and keep the minutes thereof.
Section 9. Telephonic Meetings. Any member or members
of the Board of Directors, or of any committee designated by the
Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone
or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time,
and participation in a meeting by such means shall constitute
presence in person at such meeting.
Section 10. Action by Written Consent. Unless
otherwise restricted by the Certificate of Incorporation or these
By-Laws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if all members of the Board or
committee, as the case may be, sign a consent or consents in
writing setting forth the action so taken, and the writing or
writings are filed with the Secretary and the minutes of
proceedings of the Board or committee.
Section 11. Committees of Directors. The Board of
Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to
consist of two or more directors of the Corporation, and to have
such power and authority, and to perform such duties, as the
resolution designating the committee shall prescribe. Such
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committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board
of Directors.
Section 12. Minutes of Committee Meetings. Each
committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 13. Removal of Directors. Any director or
directors may be removed, either with or without cause, at any
time, by the affirmative vote of the stockholders entitled to
cast at least a majority of the votes which all stockholders
would be entitled to cast at any annual election of directors of
the Corporation or at a special meeting of the stockholders
called and held for that purpose; and the vacancy in the Board of
Directors caused by any such removal may be filled by such
stockholders at such meeting or, if the stockholders shall fail
to fill such vacancy, as provided in these By-Laws.
Section 14. Compensation of Directors. Directors, as
such, shall not receive any stated salary for their services but,
by resolution of the Board of Directors, a fixed sum, and
expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board or at any meetings
of any committee of the Board; provided that nothing herein
contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor. Members of any committee of the Board may
be allowed like compensation and reimbursement for expenses for
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serving members of such committee and for attending committee
meetings.
Section 15. Resignation. Any director of the
Corporation may resign at any time by giving written notice of
his resignation to the President or to the Secretary. Such
resignation shall take effect at the date of receipt of such
notice by the President or the Secretary, or at any later time
specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
ARTICLE V.
NOTICES
Section 1. Method of Giving Notice. Whenever, under
the provisions of the laws of the State of Delaware or of the
Certificate of Incorporation or of these By-Laws, notice is
required to be given to any director or stockholder, it shall not
be construed to mean personal notice exclusively, but such notice
may be given in writing, by mail, or by telegram, cable or
radiogram, charges prepaid, addressed to such director or
stockholder, to his address as it appears on the books of the
Corporation or supplied by him to the Corporation for the purpose
of notice, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail
or with a telegraph office for transmission to such person.
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Section 2. Waiver of Notice. Whenever any notice is
required to be given under the provisions of the laws of the
State of Delaware or of the Certificate of Incorporation or of
these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether given before or after
the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting of stockholders, in person or
by proxy, or at a meeting of the Board of Directors shall
constitute a waiver of notice of such meeting, except when a
person attends such meeting for the express purpose of objecting
to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting need be specified
in any written waiver of notice unless so required by the
Certificate of Incorporation or these By-Laws.
ARTICLE VI.
OFFICERS
Section 1. Election. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall consist of a
Chairman of the Board, a President, one or more Vice Presidents,
a Treasurer and a Secretary, unless an express provision of the
laws of the State of Delaware or the Certificate of Incorporation
otherwise provides. The Board of Directors may also choose one or
more Vice Presidents and one or more Assistant Secretaries and
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Assistant Treasurers. Unless the Certificate of Incorporation or
these By-Laws otherwise provide, any number of offices may be
held by the same person.
Section 2. Term of Office; Removal; Vacancies. The
officers of the Corporation shall hold office until their
successors are chosen and qualify or until their death,
resignation or removal. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the Corporation shall be filled by the
Board of Directors.
Section 3. Chairman of the Board. The Chairman of the
Board shall preside at the meetings of the Board of Directors and
shall have and perform such other duties as from time to time may
be assigned to him by the Board of Directors.
Section 4. President. The President shall preside at
all meetings of the stockholders, shall cause all orders and
resolutions of the Board of Directors to be carried into effect
and shall have and perform such other duties as from time to time
may be assigned to him by the Board of Directors.
Section 5. Vice Presidents. During the absence or
disability of the President, the Vice President, or if there are
more than one, the Vice Presidents in the order designated by the
Board of Directors, shall have and perform all the powers and
functions of the President. Each Vice President shall also have
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and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 6. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of
the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the
standing committees of the Board of Directors, when required. He
shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and
shall have and perform such other duties as from time to time may
be assigned to him by the Board of Directors or by the President.
He shall have custody of the corporate seal of the Corporation
and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it and, when so affixed, it
may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature. The
Secretary shall also have such other powers and perform such
other duties as from time to time may be assigned to him by the
President.
Section 7. Treasurer. The Treasurer shall have the
custody of the corporate funds and securities end shall keep full
and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and
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other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall
give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in
his possession or under his control belonging to the Corporation.
Section 8. Subordinate Officers. In addition to the
officers enumerated in this Article VI, the Corporation may have
such other officers, agents and employees as the Board of
Directors may determine, each of whom shall hold office for such
period, have such authority and perform such duties as the Board
of Directors may from time to time determine.
Section 9. Removal. Any officer may be removed, either
with or without cause, by the vote of a majority of the directors
then in office at a meeting called for the purpose.
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Section 10. Resignation. Any officer may resign at
any time by giving written notice to the Board of Directors or to
the President or the Secretary of the Corporation. Such
resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 11. Vacancies. A vacancy in any office
because of death, resignation, removal, disqualification or any
other cause shall be filled for the unexpired portion of the term
in the manner prescribed in these By-Laws for regular election or
appointment to such office.
Section 12. Officers' Salaries. The salaries of the
officers shall be fixed from time to time by the Board of
Directors, and no officer shall be prevented from receiving a
salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE VII.
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Authority of Officers. The Board of
Directors, except as otherwise provided in these By-Laws, may
authorize any officer or officers, agent or agents or employee or
employees of the Corporation to enter into any contract or
execute and deliver any instrument in the name and on behalf of
the Corporation, and such authority may be general or confined to
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specific instances; and, unless so authorized by the Board of
Directors, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement
or to pledge its credit or to render it liable pecuniarily for
any purpose or to any amount.
Section 2. Endorsement of Checks, etc. All checks,
drafts, bills of exchange or other orders for the payment of
money, obligations, notes or other evidences of indebtedness,
bills of lading, warehouse receipts and insurance certificates of
the Corporation shall be signed or endorsed by such officer or
officers, agent or agents, attorney or attorneys or employee or
employees of the Corporation as shall from time to time be
determined by resolution of the Board of Directors. Each of such
officers and employees shall give such bond, if any, as the Board
of Directors may require.
Section 3. Deposit of Funds. Any funds of the
Corporation not otherwise employed shall be deposited from time
to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board of Directors may
from time to time designate, or as may be designated by any
officer or officers, agent or agents, attorney or attorneys or
employee or employees of the Corporation to whom such power may
be delegated by the Board of Directors.
Section 4. Bank Accounts. The Board of Directors may
from time to time authorize the opening and keeping of general
and special bank accounts with such banks, trust companies or
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other depositories as it may designate or as may be designated by
any officer or officers, agent or agents, attorney or attorneys
or employee or employees of the Corporation to whom power in that
respect shall have been delegated by the Board of Directors. The
Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these
By-Laws, as it may deem expedient.
ARTICLE VIII.
CERTIFICATES FOR SHARES OF STOCK
Section 1. Stockholders Entitled to Certificates.
Every holder of shares of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the
Corporation by, the President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation. Each such certificate
shall be sealed with the corporate seal, which may be facsimile,
engraved or printed.
Section 2. Lost Certificates. The Board of Directors
may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person
claiming the certificate for shares of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate
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or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same
in such manner as it shall require and to give the Corporation a
bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Shares. Upon surrender to the
Corporation or the transfer agent or agents of the Corporation of
a certificate for shares of stock duly endorsed or accompanied by
proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Every such
transfer shall be entered on the transfer book of the Corporation
which shall be kept at its principal office. No transfer shall be
made within ten days next preceding the annual meeting of
stockholders.
ARTICLE IX.
GENERAL PROVISIONS
Section 1. Indemnification (a) Each person who was or
is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter, a
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"proceeding"), by reason of the fact that he or she is or was a
director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise including service with
respect to employee benefit plans (hereinafter, an "indemnitee"),
whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act excise
taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith
and such indemnification shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in
paragraph (b) hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any
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such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to
be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition (hereinafter,
an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made
only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this
Section or otherwise (hereinafter, an "undertaking").
(b) If a claim under paragraph (a) of this Section is
not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the
case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in
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any such suit or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce
a right to an advancement of expenses) it shall be a defense
that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking
the Corporation shall be entitled to recover such expense upon a
final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee
is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or
its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a
right hereunder, or by the Corporation to recover an advancement
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of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified
or to such advancement of expenses under this Section or
otherwise shall be on the Corporation.
(c) The rights to indemnification and to the
advancement of expenses conferred in this Section shall not be
exclusive of any other right which any person may have or
hereafter acquire under any statute, this Certificate of
Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee,
or agent of the Corporation or another corporation, partnership,
joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
(e) The Corporation may, to the extent authorized from
time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses, to any agent
of the Corporation to the fullest extent of the provisions of
this Section with respect to the indemnification and advancement
of expenses of directors, officers and employees of the
Corporation.
Section 2. Dividends. Dividends upon the capital
stock of the Corporation, subject to the provisions, if any, of
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the Certificate of Incorporation, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the
capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 3. Reserves. Before payment of any dividend,
there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in
which it was created.
Section 4. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 5. Seal. The corporate seal shall be circular
in form and mounted on a metal die, suitable for impressing the
same on paper, and shall bear the name of the Corporation and the
state and year of its incorporation.
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ARTICLE X.
AMENDMENTS
These By-Laws may be altered, amended or repealed and
new by-laws may be adopted by the vote of stockholders entitled
to cast at least a majority of the votes which all stockholders
are entitled to cast thereon or by the majority vote of the
members of the Board of Directors at any regular or special
meeting of the stockholders or the Board of Directors duly
convened after notice to the stockholders or directors of that
purpose, subject always to the power of the stockholders to
change such action by the Board of Directors. The stockholders
may prescribe that any by-law made by them shall not be altered,
amended or repealed by the Board of Directors or affected by any
by-law adopted by the Board of Directors.
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BY-LAWS
OF
H. F. D. NO. 55, INC.
ARTICLE I.
NAME
The name of the Corporation is H. F. D. No. 55, Inc.
ARTICLE II.
OFFICES
Section 1. Registered Office. The registered office of
the Corporation within the State of Delaware shall be located at
the principal place of business in said state of the corporation
or individual acting as the Corporation's registered agent in
Delaware.
Section 2. Other Offices. The Corporation may also have
such offices at such other places within and without the State of
Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE III.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the
stockholders shall be held at such place either within or without
the State of Delaware as shall be designated from time to time by
the Board of Directors and specified in the notice of the meeting
or in a duly executed waiver of notice thereof.
<PAGE>
Section 2. Annual Meeting. The annual meeting of
stockholders shall be held during the month of May of each year,
or at such other date as shall be designated by the Board of
Directors and specified in the notice of the meeting. At the
annual meeting, the stockholders shall elect a Board of Directors
and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice of
the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before
the date of the meeting.
Section 4. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise
prescribed by statute or by the Certificate of Incorporation, may
be called by the President, by a majority of the Board of
Directors or at the request in writing of stockholders owning a
majority in amount of the shares issued and outstanding. Such
request shall state the purpose or purposes of the proposed
meeting. Upon receipt of any such request, it shall be the duty
of the Secretary to call a special meeting of the stockholders to
be held at such time, not more than sixty days thereafter, as the
Secretary may fix. If the Secretary shall neglect to issue such
call, the person or persons making the request may issue the
call.
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Section 5. Notice of Special Meeting. Written notice of
a special meeting stating the place, date and hour of the meeting
and the purpose or purposes for which the meeting is called shall
be given not less than ten nor more than sixty days before the
date of the meeting, unless a greater period of notice is
required by express provision of the laws of the State of
Delaware, to each stockholder entitled to vote at such meeting.
Section 6. Fixing Record Date. For the purpose of
determining the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting,
or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board
of Directors shall fix, in advance, a date as the record date for
any such determination of stockholders. Such date shall not be
more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If
no record date is fixed it shall be determined in accordance with
the provisions of law.
Section 7. Organization of Stockholders Meetings. At
each meeting of the stockholders the President, or, in the
absence of the President, a chairman chosen by a majority vote of
the stockholders present in person or by proxy and entitled to
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vote thereat, shall act as chairman; and the Secretary, or, in
his absence, an Assistant Secretary, or, in the absence of the
Secretary and all Assistant Secretaries, a person whom the
chairman of such meeting shall appoint, shall act as secretary of
such meeting and keep the minutes thereof.
Section 8. Quorum. The presence, in person or
represented by proxy, of stockholders entitled to cast at least a
majority of the votes which all stockholders are entitled to cast
on the particular matter shall constitute a quorum for the
purpose of considering such matter at a meeting of the
stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation and in this Section 8. If, however,
a meeting of stockholders cannot be organized because a quorum
has not attended, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting at which the adjournment is taken of
the time and place of the adjourned meeting, until a quorum shall
be present or represented. In case of a meeting for the election
of directors, such meeting may be adjourned only from day to day
or for such longer periods, not exceeding fifteen days each,
until such directors have been elected. At such adjourned meeting
at which a quorum shall be present or represented, any business
may be transacted which might have been transacted at the meeting
as originally specified in the notice thereof; provided, however,
that in the case of a meeting for the election
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of directors, those who are present or represented at the second of
such adjourned meetings, although less than the number specified in
this Section 8, shall constitute a quorum for the purpose of
electing directors. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting.
Section 9. Vote Required. When a quorum is present at
any meeting, the vote of stockholders present, in person or by
proxy, entitled to cast at least a majority of the votes which
all stockholders present are entitled to cast on the particular
matter shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of
the laws of the State of Delaware or of the Certificate of
Incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such
question.
Section 10. Voting; Proxies; Ballots. Unless otherwise
provided by express provision of the laws of the State of
Delaware or of the Certificate of Incorporation, at every meeting
of the stockholders, each stockholder of record shall be entitled
to one vote for each share of the capital stock having voting
rights registered in his name on the books of the Corporation on
the date fixed pursuant to Section 6 of Article II of these
By-Laws as the record date for the determination of
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stockholders entitled to vote at the meeting. Shares of its own
stock belonging to the Corporation shall not be voted upon
directly or indirectly. The vote of any stockholder entitled
thereto may be cast in person or by proxy appointed by an
instrument in writing, executed by such stockholder or by his
attorney-in-fact, filed with the Secretary; but no proxy shall be
valid after the expiration of three years from the date thereof
unless otherwise provided in the proxy. A proxy, except to the
extent otherwise provided by the laws of the State of Delaware,
shall be revocable at will, notwithstanding any other agreement
or any provision in the proxy to the contrary, but the revocation
of a proxy shall not be effective until notice thereof has been
given to the Secretary. A proxy shall not be revoked by the death
or incapacity of the maker, unless, before the vote is counted or
the authority is exercised, written notice of such death or
incapacity is given to the Secretary.
Section 11. Action by Written Consent. To the extent
permitted by the laws of the State of Delaware, whenever the vote
of stockholders at a meeting thereof is required or permitted to
be taken for or in connection with any corporate action by any
provision of the statutes, the Certificate of Incorporation or
these By-Laws, the meeting and vote of stockholders may be
dispensed with if all the stockholders who would have been
entitled to vote upon the action if such meeting were held, or
such lesser number of stockholders as may be provided for in the
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Certificate of Incorporation, shall sign a consent or consents in
writing, setting forth such corporate action being taken.
ARTICLE IV.
DIRECTORS
Section 1. Number of Directors. The number of directors
which shall constitute the whole board shall be as determined
from time to time by resolution of the stockholders or the Board
of Directors. Directors shall be elected at the annual meeting of
the stockholders and each director elected shall hold office
until his successor is duly elected and shall qualify or until
his death, resignation or removal. Directors need not be
stockholders.
Section 2. Vacancies: New Directorships. Vacancies and
newly created directorships resulting from any increase in the
authorized number of directors may be filled (subject to the
provisions of Article IV, Section 13, of these By-Laws in the
case of removal) by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and
each director so chosen shall hold office until the next annual
election and until his successor is duly elected and shall
qualify or until his death, resignation or removal. If there are
no directors in office, then an election of directors may be held
in the manner provided by statute. When one or more directors
shall resign from the Board of Directors effective at a future
date, a majority of the directors then in office, including those
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who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective; and each such director so
chosen shall hold office as provided in this Section 2 in the
filling of other vacancies.
Section 3. Management of Corporation. The business and
affairs of the Corporation shall be managed by its Board of
Directors which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 4. Place of Meetings of the Board of Directors.
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting of Board of Directors. After
each annual election of directors and on the same day, the Board
of Directors shall meet for the election of officers and the
transaction of other business, at the place where such annual
election is held. Notice of such meeting need not be given. Such
meetings may be called and held at any other time and place which
shall be specified in a notice of the meeting or in a duly
executed waiver of notice thereof as in the case of a special
meeting of the Board of Directors.
Section 6. Special Meetings of the Board of Directors.
Special meetings of the Board of Directors may be called by the
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Chairman of the Board, or by the President or by a majority of
the Board of Directors on two days notice to each director,
either personally or by mail, telegram, cable or radiogram.
Special meetings shall be called by the President or by the
Secretary in like manner and on like notice on the written
request of a majority of directors and the place and time of such
special meeting shall be as designated in the notices of such
meetings or in duly executed waivers thereof.
Section 7. Quorum. At all meetings of the Board of
Directors a majority of the directors in office shall constitute
a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by express provision of
the laws of the State of Delaware or of the Certificate of
Incorporation or these By-Laws. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present.
Section 8. Organization of Meetings of Board of
Directors. At each meeting of the Board of Directors the Chairman
of the Board, or in his absence, the President or, in his
absence, a director chosen by a majority of the directors
present, shall act as chairman. The Secretary or, in his absence,
an Assistant Secretary or, in the absence of the
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Secretary and all Assistant Secretaries, a person whom the chairman
of such meeting shall appoint, shall act as secretary of such meeting
and keep the minutes thereof.
Section 9. Telephonic Meetings. Any member or members
of the Board of Directors, or of any committee designated by the
Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone
or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time,
and participation in a meeting by such means shall constitute
presence in person at such meeting.
Section 10. Action by Written Consent. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws,
any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as
the case may be, sign a consent or consents in writing setting
forth the action so taken, and the writing or writings are filed
with the Secretary and the minutes of proceedings of the Board or
committee.
Section 11. Committees of Directors. The Board of
Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to
consist of two or more directors of the Corporation, and to have
such power and authority, and to perform such duties, as the
resolution designating the committee shall prescribe. Such
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committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board
of Directors.
Section 12. Minutes of Committee Meetings. Each
committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 13. Removal of Directors. Any director or
directors may be removed, either with or without cause, at any
time, by the affirmative vote of the stockholders entitled to
cast at least a majority of the votes which all stockholders
would be entitled to cast at any annual election of directors of
the Corporation or at a special meeting of the stockholders
called and held for that purpose; and the vacancy in the Board of
Directors caused by any such removal may be filled by such
stockholders at such meeting or, if the stockholders shall fail
to fill such vacancy, as provided in these By-Laws.
Section 14. Compensation of Directors. Directors, as
such, shall not receive any stated salary for their services but,
by resolution of the Board of Directors, a fixed sum, and
expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board or at any meetings
of any committee of the Board; provided that nothing herein
contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor. Members of any committee of the Board may
be allowed like compensation and reimbursement for expenses for
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serving members of such committee and for attending committee
meetings.
Section 15. Resignation. Any director of the
Corporation may resign at any time by giving written notice of
his resignation to the President or to the Secretary. Such
resignation shall take effect at the date of receipt of such
notice by the President or the Secretary, or at any later time
specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
ARTICLE V.
NOTICES
Section 1. Method of Giving Notice. Whenever, under the
provisions of the laws of the State of Delaware or of the
Certificate of Incorporation or of these By-Laws, notice is
required to be given to any director or stockholder, it shall not
be construed to mean personal notice exclusively, but such notice
may be given in writing, by mail, or by telegram, cable or
radiogram, charges prepaid, addressed to such director or
stockholder, to his address as it appears on the books of the
Corporation or supplied by him to the Corporation for the purpose
of notice, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail
or with a telegraph office for transmission to such person.
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Section 2. Waiver of Notice. Whenever any notice is
required to be given under the provisions of the laws of the
State of Delaware or of the Certificate of Incorporation or of
these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether given before or after
the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting of stockholders, in person or
by proxy, or at a meeting of the Board of Directors shall
constitute a waiver of notice of such meeting, except when a
person attends such meeting for the express purpose of objecting
to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting need be specified
in any written waiver of notice unless so required by the
Certificate of Incorporation or these By-Laws.
ARTICLE VI.
OFFICERS
Section 1. Election. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall consist of a
Chairman of the Board, a President, one or more Vice Presidents,
a Treasurer and a Secretary, unless an express provision of the
laws of the State of Delaware or the Certificate of Incorporation
otherwise provides. The Board of Directors may also choose one or
more Vice Presidents and one or more Assistant Secretaries and
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Assistant Treasurers. Unless the Certificate of Incorporation or
these By-Laws otherwise provide, any number of offices may be
held by the same person.
Section 2. Term of Office; Removal; Vacancies. The
officers of the Corporation shall hold office until their
successors are chosen and qualify or until their death,
resignation or removal. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the Corporation shall be filled by the
Board of Directors.
Section 3. Chairman of the Board. The Chairman of the
Board shall preside at the meetings of the Board of Directors and
shall have and perform such other duties as from time to time may
be assigned to him by the Board of Directors.
Section 4. President. The President shall preside at
all meetings of the stockholders, shall cause all orders and
resolutions of the Board of Directors to be carried into effect
and shall have and perform such other duties as from time to time
may be assigned to him by the Board of Directors.
Section 5. Vice Presidents. During the absence or
disability of the President, the Vice President, or if there are
more than one, the Vice Presidents in the order designated by the
Board of Directors, shall have and perform all the powers and
functions of the President. Each Vice President shall also have
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and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Section 6. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of
the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the
standing committees of the Board of Directors, when required. He
shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and
shall have and perform such other duties as from time to time may
be assigned to him by the Board of Directors or by the President.
He shall have custody of the corporate seal of the Corporation
and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it and, when so affixed, it
may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature. The
Secretary shall also have such other powers and perform such
other duties as from time to time may be assigned to him by the
President.
Section 7. Treasurer. The Treasurer shall have the
custody of the corporate funds and securities end shall keep full
and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and
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other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give
the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in
his possession or under his control belonging to the Corporation.
Section 8. Subordinate Officers. In addition to the
officers enumerated in this Article VI, the Corporation may have
such other officers, agents and employees as the Board of
Directors may determine, each of whom shall hold office for such
period, have such authority and perform such duties as the Board
of Directors may from time to time determine.
Section 9. Removal. Any officer may be removed, either
with or without cause, by the vote of a majority of the directors
then in office at a meeting called for the purpose.
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Section 10. Resignation. Any officer may resign at any
time by giving written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation
shall take effect at the date of receipt of such notice or at any
later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 11. Vacancies. A vacancy in any office because
of death, resignation, removal, disqualification or any other
cause shall be filled for the unexpired portion of the term in
the manner prescribed in these By-Laws for regular election or
appointment to such office.
Section 12. Officers' Salaries. The salaries of the
officers shall be fixed from time to time by the Board of
Directors, and no officer shall be prevented from receiving a
salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE VII.
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Authority of Officers. The Board of
Directors, except as otherwise provided in these By-Laws, may
authorize any officer or officers, agent or agents or employee or
employees of the Corporation to enter into any contract or
execute and deliver any instrument in the name and on behalf of
the Corporation, and such authority may be general or confined to
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specific instances; and, unless so authorized by the Board of
Directors, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement
or to pledge its credit or to render it liable pecuniarily for
any purpose or to any amount.
Section 2. Endorsement of Checks, etc. All checks,
drafts, bills of exchange or other orders for the payment of
money, obligations, notes or other evidences of indebtedness,
bills of lading, warehouse receipts and insurance certificates of
the Corporation shall be signed or endorsed by such officer or
officers, agent or agents, attorney or attorneys or employee or
employees of the Corporation as shall from time to time be
determined by resolution of the Board of Directors. Each of such
officers and employees shall give such bond, if any, as the Board
of Directors may require.
Section 3. Deposit of Funds. Any funds of the
Corporation not otherwise employed shall be deposited from time
to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board of Directors may
from time to time designate, or as may be designated by any
officer or officers, agent or agents, attorney or attorneys or
employee or employees of the Corporation to whom such power may
be delegated by the Board of Directors.
Section 4. Bank Accounts. The Board of Directors may
from time to time authorize the opening and keeping of general
and special bank accounts with' such banks, trust companies or
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other depositories as it may designate or as may be designated by
any officer or officers, agent or agents, attorney or attorneys
or employee or employees of the Corporation to whom power in that
respect shall have been delegated by the Board of Directors. The
Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these
By-Laws, as it may deem expedient.
ARTICLE VIII.
CERTIFICATES FOR SHARES OF STOCK
Section 1. Stockholders Entitled to Certificates. Every
holder of shares of stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of the Corporation
by, the President or a Vice President and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by him
in the Corporation. Each such certificate shall be sealed with
the corporate seal, which may be facsimile, engraved or printed.
Section 2. Lost Certificates. The Board of Directors
may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person
claiming the certificate for shares of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate
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or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same
in such manner as it shall require and to give the Corporation a
bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Shares. Upon surrender to the
Corporation or the transfer agent or agents of the Corporation
of a certificate for shares of stock duly endorsed or accompanied
by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Every such
transfer shall be entered on the transfer book of the Corporation
which shall be kept at its principal office. No transfer shall be
made within ten days next preceding the annual meeting of
stockholders.
ARTICLE IX.
GENERAL PROVISIONS
Section 1. Indemnification. (a) Each person who was or
is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter, a
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"proceeding"), by reason of the fact that he or she is or was a
director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise including service with
respect to employee benefit plans (hereinafter, an "indemnitee"),
whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act excise
taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith
and such indemnification shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in
paragraph (b) hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any
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such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to
be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition (hereinafter,
an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made
only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this
Section or otherwise (hereinafter, an "undertaking").
(b) If a claim under paragraph (a) of this Section is
not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the
case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in
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any such suit or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce
a right to an advancement of expenses) it shall be a defense
that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking
the Corporation shall be entitled to recover such expense upon a
final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee
is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or
its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a
right hereunder, or by the Corporation to recover an advancement
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of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified
or to such advancement of expenses under this Section or
otherwise shall be on the Corporation.
(c) The rights to indemnification and to the
advancement of expenses conferred in this Section shall not be
exclusive of any other right which any person may have or
hereafter acquire under any statute, this Certificate of
Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee,
or agent of the Corporation or another corporation, partnership,
joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
(e) The Corporation may, to the extent authorized from
time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses, to any agent
of the Corporation to the fullest extent of the provisions of
this Section with respect to the indemnification and advancement
of expenses of directors, officers and employees of the
Corporation.
Section 2. Dividends. Dividends upon the capital stock
of the Corporation, subject to the provisions, if any, of
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the Certificate of Incorporation, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the
capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 3. Reserves. Before payment of any dividend,
there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies or for equalizing
dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in
which it was created.
Section 4. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 5. Seal. The corporate seal shall be circular
in form and mounted on a metal die, suitable for impressing the
same on paper, and shall bear the name of the Corporation and the
state and year of its incorporation.
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ARTICLE X.
AMENDMENTS
These By-Laws may be altered, amended or repealed and
new by-laws may be adopted by the vote of stockholders entitled
to cast at least a majority of the votes which all stockholders
are entitled to cast thereon or by the majority vote of the
members of the Board of Directors at any regular or special
meeting of the stockholders or the Board of Directors duly
convened after notice to the stockholders or directors of that
purpose, subject always to the power of the stockholders to
change such action by the Board of Directors. The stockholders
may prescribe that any by-law made by them shall not be altered,
amended or repealed by the Board of Directors or affected by any
by-law adopted by the Board of Directors.
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C & W OUTLET, INC.
----------------------
BY-LAWS
----------------------
ARTICLE 1
The Corporation
Section 1.1 Name. The legal name of this corporation
(hereinafter called the "Corporation") is C & W Outlet, Inc.
Section 1.2 Offices. The Corporation shall have its
principal office in the City of New York, County of New York,
State of New York. The Corporation may also have offices at such
other places within and without the State of New York as the
Board of Directors may from time to time appoint or as the
business of the corporation may require.
Section 1.3 Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, New York." One or
more duplicate dies for impressing such seal may be kept and
used.
ARTICLE 2
Meetings of Shareholders
Section 2.1 Place of Meetings. All meetings of the
shareholders shall be held at the principal office of the
Corporation in the State of New York, or at such other place,
within or without the State of New York, as may be fixed in the
notice of the meeting.
Section 2.2 Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and
the transaction of such other business as may properly come
before the meeting shall be held on the second Tuesday in May in
each year if not a legal holiday, and if a legal holiday, then on
the next business day following, at such time as may be fixed in
the notice of the meeting. If for any reason any annual meeting
shall not be held at the time herein specified, the same may be
held at any time thereafter upon notice, as herein provided, or
the business thereof may be transacted at any special meeting
called for the purpose.
Section 2.3 Special Meetings. Special meetings of
shareholders may be called by the Chairman of the Board or the
President whenever he deems it necessary or advisable, and shall
be called by the Chairman of the Board or the President or the
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Secretary upon the written request of a majority of the entire
Board of Directors or of the holders of one-third of the number
of shares of the Corporation entitled to vote at such meeting.
Section 2.4 Notice of Meetings. Written notice of all
meetings stating the place, date and hour of the meeting shall be
given to each shareholder entitled to vote at such meeting
personally or by first class mail, not fewer than ten nor more
than fifty days before the date of the meeting. Notice of each
special meeting shall state the purpose or purposes for which the
meeting is called and shall indicate that it is being called by
or at the direction of the person or persons calling the meeting.
If, at any meeting, action is proposed to be taken which would,
if taken, entitle shareholders fulfilling the requirements of
Section 623 of the New York Business Corporation Law to receive
payment for their shares, the notice of such meeting shall
include a statement of that purpose and to that effect and shall
be accompanied by a copy of Section 623 or an outline of its
material terms. If mailed, a notice of meeting shall be deemed
given when deposited in the United States mail, with postage
prepaid, directed to the shareholder at his address as it appears
on the record of shareholders, or at such other address for
mailing of notices as any shareholder may in writing file with
the Secretary of the Corporation. Notice of a meeting need not be
given to any shareholder who submits a signed waiver of notice,
in person or by proxy, whether before or after the meeting. The
attendance of a shareholder at a meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the
lack of notice of such meeting, shall constitute a waiver of
notice by him.
Section 2.5 Record Date for Shareholders. For the
purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of
any rights or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than fifty nor less than ten days before the date of such
meeting, nor more than fifty days prior to any other action. If
no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if no notice is
given, the day on which the meeting is held; the record date for
determining shareholders for any other purpose shall be at the
close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at any
meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
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Section 2.6 Proxy Representation. Every shareholder may
authorize another person or persons to act for him by proxy in
all matters in which a shareholder is entitled to participate,
whether by waiving notice of any meeting, voting or participating
at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the shareholder or by his attorney--
in--fact. No proxy shall be valid after the expiration of eleven
months from the date thereof unless otherwise provided in such
proxy. Every proxy shall be revocable at the pleasure of the
shareholder executing it, except as may be otherwise provided by
law.
Section 2.7 Voting at Shareholders' Meetings. Except as
otherwise provided by statute or by the Certificate of
Incorporation, each outstanding share of stock having voting
power shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. Directors shall be elected by
the vote of the holders of a plurality of the shares present at a
meeting and entitled to vote in the election. Unless otherwise
provided by statute, any other corporate action shall be
authorized by the vote of the holders of a majority of the shares
present at a meeting of shareholders and entitled to vote
thereon. Voting need not be by ballot.
Section 2.8 Quorum and Adjournment. Except as otherwise
provided by statute or by the Certificate of Incorporation, the
holders of a majority of the shares of the Corporation shall
constitute a quorum for the transaction of any business. When a
quorum is once present to organize a meeting, it shall not be
broken by the subsequent withdrawal of any shareholders. If a
quorum is not present or represented at any meeting of the
shareholders, the shareholders present in person or represented
by proxy shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at
the meeting as originally notified.
Section 2.9 List of Shareholders. The officer who has
charge of the record of shareholders of the Corporation shall
prepare, make and certify, and shall produce at any meeting of
shareholders upon the request thereat or prior thereto of any
shareholder, a complete list of the shareholders, as of the
record date fixed for such meeting, arranged in alphabetical
order, and showing the address of each shareholder and the number
of shares registered in each shareholder's name. If the right of
any shareholder to vote at any meeting is challenged, the inspectors
of election, if any, or the person presiding, shall require such
list of shareholders to be produced as evidence of the right of the
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persons challenged to vote, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such
meeting.
Section 2.10 Action of the Shareholders Without a
Meeting. Whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by the
holders of all of the outstanding shares entitled to vote
thereon.
ARTICLE 3
Directors
Section 3.1 Number of Directors. The number of
directors which shall constitute the entire Board of Directors
shall not be less than three, except where all shares are owned
beneficially and of record by less than three shareholders, the
number of directors may be less than three but not less than the
number of shareholders. Subject to the foregoing limitation, the
number of directors may be fixed from time to time by action of a
majority of the entire Board of Directors or of the shareholders
at an annual or special meeting.
Section 3.2 Election and Term. The initial Board of
Directors shall be elected by the incorporator and the initial
directors so elected shall hold office until the first annual
meeting of shareholders and until their successors have been
elected and qualified. Thereafter, each director who is elected
at an annual meeting of shareholders, and each director who is
elected in the interim to fill a vacancy or a newly created
directorship, shall hold office until the next annual meeting of
shareholders and until his successor has been elected and
qualified.
Section 3.3 Filling Vacancies Resignation and Removal.
Any director may be removed, with or without cause, by vote of
the shareholders. In the interim between annual meetings of
shareholders or special meetings of shareholders called for the
election or removal of one or more directors, newly created
directorships and any vacancies in the Board of Directors,
including vacancies resulting from the resignation or removal of
directors, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum,
or by the sole remaining director.
Section 3.4 Qualifications and Powers. Each director
shall be at least eighteen years of age. A director need not be a
shareholder, a citizen of the United States or a resident of the
State of New York. The business of the Corporation shall be
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managed under the direction of the Board of Directors, subject to
the provisions of the certificate of incorporation. In addition
to the powers and authorities expressly conferred upon it by
these by-laws, the Board may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done exclusively
by the shareholders.
Section 3.5 Regular and Special Meetings of the Board.
The Board of Directors may hold its meetings, regular or special,
within or without the State of New York. The annual meeting of
the Board of Directors shall be held immediately after, and at
the same place as, the annual meeting of shareholders. No notice
shall be required for regular meetings of the Board of Directors
for which the time and place have been fixed. Special meetings of
the Board may be called by or at the direction of the Chairman of
the Board, the President, any Vice President, the Secretary or a
majority of the directors in office, upon three days notice to
each director, delivered personally, sent by telegraph or mailed
to each director at his residence or usual place of business.
Meetings of the Board, regular or special, may be held at any
time and place, and for any purpose, without notice, when all the
directors are present or when all directors not present, before
or after such meeting, in writing waive notice of the holding of
such meeting. Any requirement of furnishing a notice shall be
waived by any director who attends any meeting of the Board
without protesting, prior thereto or at its commencement, the
lack of notice to him.
Section 3.6 Chairman. At the Annual Meeting of
Directors, the Board shall elect from its members a Chairman of
the Board who shall hold office until the Annual Meeting of
Directors next succeeding his election. At all other meetings of
the Board of Directors, the Chairman of the Board, or in his
absence the President, shall preside. At all meetings of the
stockholders the Chairman of the Board, or in his absence the
President, shall preside.
Section 3.7 Quorum and Action. A majority of the
directors shall constitute a quorum of the Board of Directors.
Except as otherwise provided by the New York Business Corporation
Law, the vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the
Board. A majority of the directors present at the time and place
of any regular or special meeting, although less than a quorum,
may adjourn the same from time to time without further notice,
until a quorum shall be present.
Section 3.8 Telephonic Meetings. Any member or members
of the Board of Directors, or of any committee designated by the
Board of Directors, or of any committee designated by the Board,
may participate in a meeting of the Board, or any such committee,
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as the case may be, by means of conference telephone or similar
communications equipment allowing all persons participating in
the meeting to hear each other at the same time, and
participation in a meeting by such means shall constitute
presence in person at such meeting.
Section 3.9 Action Without a Meeting. Any action
required or permitted to be taken by the Board of Directors, or
any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent in
writing to the adoption of a resolution authorizing the action.
The resolution and the written consents thereto by the members of
the Board or committee shall be filed with the minutes of
proceedings of the Board or committee.
Section 3.10 Compensation of Directors. By resolution
of the Board of Directors, the directors may be paid their
expenses, if any, for attendance at each regular or special
meeting of the Board or of any committee designated by the Board
and may be paid a fixed sum for attendance at such meeting, or a
stated salary as director, or both. Nothing herein contained
shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor; provided, however, that directors who are also salaried
officers shall not receive fees or salaries as directors.
ARTICLE 4
Committees
Section 4.1 In General. The Board of Directors may, by
resolution or resolutions passed by the affirmative vote of a
majority of the entire Board, designate an Executive Committee
and such other committees as the Board may from time to time
determine, each to consist of one or more directors, and each of
which, to the extent provided in the resolution or in the
certificate of incorporation or in the bylaws, shall have all the
powers of the Board, except that no such committee shall have
power to fill vacancies in the Board, or to change the membership
of or to fill vacancies in any committee, or to make, amend,
repeal or adopt By-laws of the Corporation, or to submit to the
shareholders any action that needs shareholder approval under
these By-laws or the New York Business Corporation Law, or to fix
the compensation of the directors for serving on the Board or any
committee thereof, or to amend or repeal any resolution of the
Board which by its terms shall not be so amendable or repealable.
Each committee shall serve at the pleasure of the Board. The
Board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or
disqualification of a member of a
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committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
such absent or disqualified member.
ARTICLE 5
Officers
Section 5.1 Designation, Term and Vacancies. The
officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents (one or more of whom may
be designated as Executive Vice President), a Secretary, a
Treasurer, and such other officers as the Board of Directors may
from time to time deem necessary. Such officers may have and
perform the powers and duties usually pertaining to their
respective offices, the powers and duties respectively prescribed
by law and by these bylaws, and such additional powers and duties
as may from time to time be prescribed by the Board. The same
person may hold any two or more offices, except that the offices
of President and Secretary may not be held by the same person
unless all the issued and outstanding stock of the Corporation is
owned by one person, in which instance such person may hold all
or any combination of offices.
The initial officers of the Corporation shall be
appointed by the initial Board of Directors. Thereafter, the
officers of the Corporation shall be appointed by the Board as
soon as practicable after the election of the Board at the annual
meeting of shareholders, and shall hold office until the regular
annual meeting of the Board of Directors following their
appointment and until their successors have been appointed and
qualified; provided, however, that the Board of Directors may
remove any officer at any time, with or without cause. Vacancies
occurring among the officers of the Corporation shall be filled
by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 5.2 Chairman. The Chairman of the Board shall
direct the policy and management of the Company on behalf of the
Board and shall have general charge of the business, affairs and
property of the Corporation, and general supervision over its
officers and agents.
Section 5.3 President. The President of the Corporation
shall be the administrative officer of the Corporation and, as
such, shall manage its operations, perform all the duties incident
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to his office, and shall see that all orders and resolutions of
the Board of Directors are carried into effect. In the event of
the absence or the disability of the Chairman of the Board, he
shall act in his place and assume his duties.
Section 5.4 Vice-Presidents. During the absence or
disability of the President, the Vice-President or, if there be
more than one, a Vice-President or Executive Vice-President
designated by the Board of Directors, shall exercise all the
functions of the President and, when so acting, shall have all
the powers of and be subject to all restrictions upon the
President. Each Vice-President shall have such powers and
discharge such duties as may be assigned to him from time to time
by the Board of Directors.
Section 5.5 Secretary. The Secretary shall have custody
of the seal of the Corporation and when required by the Board of
Directors, or when any instrument shall have been signed by the
President or by any other officer duly authorized to sign the
same, or when necessary to attest any proceedings of the
shareholders or directors, shall affix it to any instrument
requiring the same and shall attest the same with his signature,
provided that the seal may be affixed by the President or any
Vice President or other officer of the Corporation to any
document executed by either of them respectively on behalf of the
Corporation which does not require the attestation of the
Secretary. He shall attend to the giving and serving of notices
of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care
by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of
Directors.
Section 5.6 Assistant Secretaries. Whenever requested
by or in the absence or disability of the Secretary, the
Assistant Secretary designated by the Secretary (or in the
absence of such designation, the Assistant-Secretary designated
by the Board of Directors) shall perform all the duties of the
Secretary and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Secretary.
Section 5.7 Treasurer. The Treasurer shall render to
the President or the Board of Directors whenever requested a
statement of the financial condition of the Corporation and of
all his transactions as Treasurer, and render a full financial
report at the annual meeting of the stockholders if called upon
to do so and perform such duties as are given to him by these
By-laws or as from time to time may be assigned to him by the
Board of Directors or the President.
Section 5.8 Assistant Treasurer. Whenever
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requested by or in the absence or disability of the Treasurer,
the Assistant Treasurer designated by the Treasurer (or in the
absence of such designation, the Assistant-Treasurer designated
by the Board of Directors) shall perform all the duties of the
treasurer, and when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the Treasurer.
Section. 5.9 Subordinate Officers and Agents. The Board
of Directors may from to time appoint such other officers and
agents as it may deem necessary or advisable, to hold office for
such period, have such authority and perform such duties as the
Board of Directors may from time to time determine. The Board of
Directors may delegate to any officer or agent the power to
appoint any such subordinate officers or agents and to prescribe
their respective terms of office, authorities and duties.
Section 5.10 Delegation. In case of the absence of any
officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board may temporarily
delegate the powers or duties, or any of them, of such officer to
any other officer or to any director.
Section 5.11 Compensation. The salaries or other
compensation of the officers shall be fixed from time to time by
the Board of Directors and no officer shall be prevented from
receiving such salary or any compensation by reason of the fact
that he is also a director of the Corporation. The Board of
Directors may delegate to any officer or agent the power to fix
from time to time the salaries or other compensation of officers
or agents.
ARTICLE 6
Shares
Section 6.1 Certificates Representing Shares. All
certificates representing shares of the Corporation shall be
signed by the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, shall bear the seal of the
Corporation and shall not be valid unless so signed and sealed.
Certificates countersigned by a duly appointed transfer agent or
registered by a duly appointed registrar shall be deemed to be so
signed and sealed whether the signatures be manual or facsimile
signatures and whether the seal be a facsimile seal or any other
form of seal. All certificates shall be consecutively numbered
and the name of the person owning the shares represented thereby,
his residence, with the number of such shares and the date of
issue, shall be entered on the Corporation's books. All
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certificates surrendered shall be cancelled and no new
certificates issued until the former certificates for the same
number of shares shall have been surrendered and cancelled,
except as provided for herein.
In case any officer who signed or whose facsimile
signature was affixed to any certificate shall have ceased to be
such officer before such certificate is issued, it nevertheless
may be issued by the Corporation as if he were such officer at
the date of its issuance.
When the Corporation is authorized to issue shares of
more than one class there shall be set forth upon the face or
back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the
shares of each class authorized to be issued and, if the
Corporation is authorized to issue any class of preferred shares
in series, the designation, relative rights, preferences and
limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other
series.
Any restrictions on the transfer or registration of
transfer of any shares of any class or series shall be noted
conspicuously on the certificate representing such shares.
Section 6.2 Addresses of Shareholders. Every
shareholder shall furnish the Corporation with an address to
which notices of meetings and all other notices may be served
upon or mailed to him, and in default thereof notices may be
addressed to him at his last known post office address.
Section 6.3 Stolen, Lost or Destroyed Certificates. The
Board of Directors may in its sole discretion direct that a new
certificate for shares be issued in place of any certificate for
shares issued by the Corporation alleged to have been stolen,
lost or destroyed. When authorizing such issuance of a new
certificate, the Board of Directors may, in its discretion, and
as a condition precedent thereto, require the owner of such
stolen, lost or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum as the
Corporation may direct not exceeding double the value of the
shares represented by the certificate alleged to have been
stolen, lost or destroyed.
Section 6.4 Transfers of Shares. Upon compliance with
all provisions restricting the transferability of shares, if any,
transfers of shares shall be made only upon the books of the
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Corporation by the holder in person or by his attorney thereunto
authorized by power of attorney duly filed with the Secretary of
the Corporation or with a transfer agent or registrar, if any,
and upon the surrender and cancellation of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes due thereon. The Board of Directors may appoint one or
more suitable banks or trust companies as transfer agents or
registrars of transfers, for facilitating transfers of any class
or series of shares of the Corporation by the holders thereof
under such regulations as the Board of Directors may from time to
time prescribe. Upon such appointment being made, all
certificates of shares of such class or series thereafter issued
shall be countersigned by one of such transfer agents or one of
such registrars of transfers, and shall not be valid unless so
countersigned.
ARTICLE 7
Dividends and Finance
Section 7.1 Dividends. Subject to the conditions and
limitations set forth in the Certificate of Incorporation, the
Board of Directors shall have power to fix and determine and to
vary, from time to time, the amount of the working capital of the
Corporation before declaring any dividends among its
shareholders, to determine the date or dates for the declaration
and payment of dividends and the amount of any dividend, and the
amount of any reserves necessary in their judgment before
declaring any dividends among its shareholders, and to determine
the amount of surplus of the Corporation from time to time
available for dividends.
Section 7.2 Fiscal Year. The fiscal year of the
Corporation shall end on the Friday which is closest to January
31 and shall begin on the next succeeding day, or shall be for
such other period as the Board of Directors may from time to time
designate.
ARTICLE 8
Indemnification
Section 8.1 Except to the extent expressly prohibited
by the New York Business Corporation Law, the Corporation shall
indemnify each person made or threatened to be made a party to or
called as a witness in or asked to provide information in
connection with any pending or threatened action, proceeding,
hearing or investigation, whether civil or criminal, and whether
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judicial, quasi-judicial, administrative, or legislative, and
whether or not for or in the right of the Corporation or any
other enterprise, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of
the Corporation, or is or was a director or officer of the
Corporation who also serves or served at the request of the
Corporation any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment
or other final adjudication adverse to such person establishes
that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to
the cause of action so adjudicated, or that he or she personally
gained in fact a financial profit or other advantage to which he
or she was not legally entitled, and provided further that no
such indemnification shall be required with respect to any
settlement or other nonadjudicated disposition of any threatened
or pending action or proceeding unless the Corporation has given
its prior consent to such settlement or other disposition.
The Corporation shall advance or promptly reimburse,
upon request of any person entitled to indemnification hereunder,
all expenses, including attorneys' fees, reasonably incurred in
defending any action or proceeding in advance of the final
disposition thereof upon receipt of a written undertaking by or
on behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so
advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in
good faith with any request by the Corporation that common
counsel be utilized by the parties to an action or proceeding who
are similarly situated unless to do so would be inappropriate due
to actual or potential differing interests between or among such
parties.
Nothing herein shall limit or affect any right of any
person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract
or otherwise.
No elimination of this by-law, and no amendment of
this by-law adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be
effective until the 60th day following notice to such person of
such action, and no elimination of or amendment to this by-law
shall deprive any person of his or her rights hereunder arising
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out of alleged or actual occurrences, acts or failures to act
prior to such 60th day. The provisions of this paragraph shall
supersede anything to the contrary in these by-laws.
The Corporation shall not, except by elimination or
amendment of this by-law in a manner consistent with the
preceding paragraph, take any corporate action or enter into any
agreement which prohibits, or otherwise limits the rights of any
person to, indemnification in accordance with the provisions of
this by-law. The indemnification of any person provided by this
by-law shall continue after such person has ceased to be a
director or officer of the Corporation and shall inure to the
benefit of such person's heirs, executors, administrators and
legal representatives.
The Corporation is authorized to enter into agreements
with any of its directors, officers or employees extending rights
to indemnification and advancement of expenses to such person to
the fullest extent permitted by applicable law, but the failure
to enter into any such agreement shall not affect or limit the
rights of such person pursuant to this by-law. It is hereby
expressly recognized that all directors and officers of the
Corporation, by serving as such after the adoption hereof, are
acting in reliance hereon and that the Corporation is estopped to
contend otherwise. Additionally, it is hereby expressly
recognized that all persons who serve or served as directors,
officers or employees of corporations which are subsidiaries or
affiliates of the Corporation (or other entities controlled by
the Corporation) and are directors or officers of the Corporation
are conclusively presumed to serve or have served as such at the
request of the Corporation and, to the extent permitted by law,
are entitled to indemnification hereunder, but that no such
person shall have any rights hereunder or in connection herewith,
except to the extent that indemnification hereunder is permitted
by law.
In case any provision in this by-law shall be
determined at any time to be unenforceable in any respect, the
other provisions shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest
possible enforcement in the circumstances, it being the intention
of the Corporation to afford indemnification and advancement of
expenses to its directors and officers, acting in such capacities
or in the other capacities mentioned herein, to the fullest
extent permitted by law.
For purposes of this by-law, the Corporation shall be
deemed to have requested a director or officer of the Corporation
to serve an employee benefit plan where the performance by such
person of his or her duties to the Corporation also imposes
duties on, or otherwise involves services by, such person to the
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plan or participants or beneficiaries of the plan, and excise
taxes assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be considered indemnifiable
expenses. For purposes of this by-law, the term 'Corporation'
shall include any legal successor to the Corporation, including
any corporation which acquires all or substantially all of the
assets of the Corporation in one or more transactions.
A person who has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or
proceeding of the character described in the first paragraph of
this by-law shall be entitled to indemnification as authorized in
such paragraph. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under this by-law
shall be made by the Corporation if, and only if, authorized in
the specific case:
(1) By the Board of Directors acting by a quorum
consisting of directors who are not parties to such action
or proceeding upon a finding that the director or officer
has met the standard of conduct set forth in the first
paragraph of this by-law, or,
(2) If such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(a) By the Board of Directors upon the
opinion in writing of independent legal counsel
that indemnification is proper in the
circumstances because the standard of conduct set
forth in the first paragraph of this by-law has
been met by such director or officer, or
(b) By the shareholders upon a finding that
the director or officer has met the applicable
standard of conduct set forth in such paragraph.
If any action with respect to indemnification of
directors and officers is taken by way of amendment of these
by-laws, resolution of directors, or by agreement, the
Corporation shall, not later than the next annual meeting of
shareholders, unless such meeting is held within three months
from the date of such action and, in any event, within fifteen
months from the date of such action, mail to its shareholders of
record at the time entitled to vote for the election of directors
a statement specifying the action taken.
ARTICLE 9
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<PAGE>
Miscellaneous Provisions
Section 9.1 Books and Records. Subject to the New York
Business Corporation Law, the Corporation may keep its books and
accounts outside the State of New York.
Section 9.2 Notices. Whenever any notice is required by
these by-laws to be given, personal notice is required only if it
is expressly so stated, and any notice so required shall be
deemed to be sufficient if given by depositing the same in a post
office box in a sealed post-paid wrapper, addressed to the person
entitled thereto at his last known post office address, and such
notice shall be deemed to have been given on the day of such
mailing.
Any person may waive the right to receive any notice
by signing a written waiver thereof.
Section 9.3 Amendments. Except as otherwise provided
herein, these by-laws may be altered, amended, or repealed and
by-laws may be adopted by the shareholders or by the Board of
Directors.
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1
J. CREW INC.
-----------------------
BY-LAWS
-----------------------
ARTICLE I
The Corporation
---------------
Section 1.01. Name. The legal name of this
corporation (hereinafter called the "Corporation") is J. Crew
Inc.
Section 1.02. Offices. The Corporation shall have its
registered office in the City of Garfield, County of Bergen,
State of New Jersey and its principal office in the City of New
York, County of New York, State of New York. The Corporation may
also have offices at such other places within and without the
State of New Jersey as the Board of Directors may from time to
time appoint or as the business of the Corporation may require.
Section l.03. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, New Jersey." One or
more duplicate dies for Impressing such seal may be kept and
used.
ARTICLE II
Meetings of Shareholders
------------------------
Section 2.01. Place of Meetings. All meetings of the
shareholders shall be held at the principal office of the
Corporation in the State of New Jersey, or at such other place,
within or without the State of New Jersey, as may be fixed in the
notice of the meeting.
Section 2.02. Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and
the transaction of such other business as may properly come
before the meeting shall be held on the second Tuesday in May in
each year if not a legal holiday, and if a legal holiday, then on
the next business day following, at such time as may be fixed in
the notice of the meeting. If for any reason any annual meeting
shall not be held at the time herein
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1 Formerly J. Crew Outfitters, Inc.
<PAGE>
specified, the same may be held at any time thereafter
upon notice, as herein provided, or the business thereof may be
transacted at any special meeting called for the purpose.
Section 2.03. Special Meetings. Special meetings of
shareholders may be called by the President whenever he deems it
necessary or advisable, and shall be called by the President or
the Secretary upon the written request of a majority of the
entire Board of Directors or of the holders of one-third of the
number of shares of the Corporation entitled to vote at such
meeting.
Section 2.04. Notice of Meetings. Written notice of all
meetings stating the place, date and hour of the meeting shall be
given to each shareholder entitled to vote at such meeting
personally or by mail, not less than ten nor more than sixty days
before the date of the meeting. Notice of each special meeting
shall state the purpose or purposes for which the meeting is
called and shall indicate that it is being called by or at the
direction of the person or persons calling the meeting. If, at
any meeting, action is proposed to be taken which would, if
taken, entitle shareholders fulfilling the requirements of
Section 14A:ll-2 of the New Jersey Business Corporation Act to
receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If
mailed, a notice of meeting shall be deemed given when deposited
in the United States mail, with postage prepaid, directed to the
shareholder at his address as it appears on the record of
shareholders, or at such other address for mailing of notices as
any shareholder may in writing file with the Secretary of the
Corporation. Notice of a meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of
a shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by
him.
Section 2.05. Record Date for Shareholders. For the
purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of
any rights or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days
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<PAGE>
before the date of such meeting, nor more than sixty
days prior to any other action. If no record date is fixed, the
record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is
given, or if no notice is given, the day next preceding the day
on which the meeting is held; the record date for determining
shareholders entitled to express consent to or dissent from any
proposal without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which the first
written consent or dissent, as the case may be, is expressed; and
the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or
to vote at any meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 2.06. Proxy Representation. Every shareholder
may authorize another person or persons to act for him by proxy
in all matters in which a shareholder is entitled to participate,
whether by waiving notice of any meeting, voting or participating
at a meeting, or expressing consent without a meeting. Every
proxy must be signed by the shareholder or by his agent, except
that a proxy may be given by a shareholder or his agent by
telegram or cable or its equivalent. No proxy shall be valid for
more than eleven months, unless a longer time is expressly
provided therein, but in no event shall a proxy be valid after
three years from the date of execution. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except
as may be otherwise provided by law.
Section 2.07. Voting at Shareholders' Meetings. Each
outstanding share of stock having voting power shall be entitled
to one vote on each matter submitted to a vote at a meeting of
shareholders. Directors shall be elected by the vote of the
holders of a plurality of the shares present at a meeting and
entitled to vote in the election. Unless otherwise provided by
statute, any other corporate action shall be authorized by the
vote of the holders of a majority of the shares present at a
meeting of shareholders and entitled to vote thereon. Voting
need not be by ballot.
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<PAGE>
Section 2.08. Quorum and Adjournment. Unless otherwise
provided by statute, the holders of a majority of the shares of
the Corporation shall constitute a quorum for the transaction of
any business. When a quorum is once present to organize a
meeting, it shall not be broken by the subsequent withdrawal of
any shareholders. If a quorum is not present or represented at
any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have power to adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2.09. List of Shareholders. The officer who
has charge of the record of shareholders of the Corporation shall
prepare, make and certify, at least ten days before every meeting
of shareholders, a complete list of the shareholders, as of the
record date fixed for such meeting, arranged in alphabetical
order within each class, series, or group of shareholders, and
showing the address of each shareholder and the number of shares
registered in each shareholder's name. Such list shall be
produced at the time and place of the meeting for the inspection
of any shareholder during the time of the meeting and shall be
prima facie evidence as to who are the shareholders entitled to
examine such list or to vote at any meeting.
Section 2.10. Action of the Shareholders Without a
Meeting. Whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by the
holders of all of the outstanding shares entitled to vote
thereon.
ARTICLE III
Directors
---------
Section 3.01. Number of Directors. The Board of
Directors shall consist of one or more members. The number of
directors may be fixed from time to time by action of a majority
of the entire Board of Directors or of the shareholders at an
annual or special meeting, or, if the number of directors is not
so fixed, the number shall be one. No decrease in the number of
directors shall shorten the term of any incumbent director.
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<PAGE>
Section 3.02. Election and Term. The initial Board of
Directors shall be elected by the incorporator and the initial
directors so elected shall hold office until the first annual
meeting of shareholders and until their successors have been
elected and qualified. Thereafter, each director who is elected
at an annual meeting of shareholders, and each director who is
elected in the interim to fill a vacancy or a newly created
directorship, shall hold office until the next annual meeting of
shareholders and until his successor has been elected and
qualified.
Section 3.03. Filling Vacancies, Resignation and
Removal. Any director may be removed, with or without cause, by
vote of the shareholders. In the interim between annual meetings
of shareholders or special meetings of shareholders called for
the election or removal of one or more directors, newly created
directorships and any vacancies in the Board of Directors,
including vacancies resulting from the resignation or removal of
directors, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum,
or by the sole remaining director.
Section 3.04. Qualifications and Powers. Each director
shall be at least eighteen years of age. A director need not be a
shareholder, a citizen of the United States or a resident of the
State of New Jersey. The business of the Corporation shall be
managed by the Board of Directors, subject to the provisions of
the certificate of incorporation. In addition to the powers and
authorities expressly conferred upon it by these bylaws, the
Board may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the
certificate of incorporation or by these bylaws directed or
required to be exercised or done exclusively by the shareholders.
Section 3.05. Regular and Special Meetings of the
Board. The Board of Directors may hold its meetings, regular or
special, within or without the State of New Jersey. The annual
meeting of the Board of Directors shall be held immediately
after, and at the same place as, the annual meeting of
shareholders. No notice shall be required for regular meetings of
the Board of Directors for which the time and place have been
fixed. Special meetings of the Board may be called by or at the
direction of the President, any Vice President, the Secretary or
a majority of the directors in office, upon three days notice to
each director, delivered personally, sent by telegraph or mailed
to each director at his residence or
-5-
<PAGE>
usual place of business. Meetings of the Board, regular
or special, may be held at any time and place, and for any
purpose, without notice, when all the directors are present or
when all directors not present, before or after such meeting, in
writing waive notice of the holding of such meeting. Any
requirement of furnishing a notice shall be waived by any
director who attends any meeting of the Board without protesting,
prior thereto or at its commencement, the lack of notice to him.
Section 3.06. Quorum and Action. A majority of the
directors shall constitute a quorum of the Board of Directors,
except that when the entire Board consists of two directors or
less, one director shall constitute a quorum and except that
when a vacancy or vacancies prevents such a majority, a majority
of the directors in office shall constitute a quorum, provided,
that such majority shall constitute at least one-third of the
entire Board. Except as otherwise provided by these By-laws or by
the New Jersey Business Corporation Act, the vote of the majority
of the directors present at a meeting at which a quorum is
present shall be the act of the Board.
Section 3.07. Telephonic Meetings. Any member or
members of the Board of Directors, or of any committee designated
by the Board, may participate in a meeting of the Board, or any
such committee, as the case may be, by means of conference
telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the
same time, and participation in a meeting by such means shall
constitute presence in person at such meeting.
Section 3.08. Action Without a Meeting. Any action
required or permitted to be taken by the Board of Directors, or
any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent in
writing to the adoption of a resolution authorizing the action.
The resolution and the written consents thereto by the members of
the Board or committee shall be filed with the minutes of
proceedings of the Board or committee.
Section 3.09. Compensation of Directors. By resolution
of the Board of Directors, the directors may be paid their
expenses, if any, for attendance at each regular or special
meeting of the Board or of any committee designated by the Board
and may be paid a fixed sum for attendance at such meeting, or a
stated salary as director, or both. Nothing herein contained
shall be construed to preclude any director
-6-
<PAGE>
from serving the Corporation in any other capacity and
receiving compensation therefor; provided, however, that
directors who are also salaried officers shall not receive fees
or salaries as directors.
ARTICLE IV
Committees
----------
Section 4.01. In General. The Board of Directors may,
by resolution or resolutions passed by the affirmative vote of a
majority of the entire Board, designate an Executive Committee
and such other committees as the Board may from time to time
determine, each to consist of one or more directors, and each of
which, to the extent provided in the resolution or in the
certificate of incorporation or in the bylaws, shall have all the
powers of the Board, except that no such committee shall have
power to elect or appoint any director, remove any officer or
director, or to change the membership of or to fill vacancies in
any committee, or to make, amend, repeal or adopt By-laws of the
Corporation, or to submit to the shareholders any action that
requires shareholder approval under these By-laws or the New
Jersey Business Corporation Act, or to amend or repeal any
resolution of the Board which by its terms is amendable or
repealable only by the Board. Each committee shall serve at the
pleasure of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent
or disqualified member.
ARTICLE V
Officers
--------
Section 5.01. Designation, Term and Vacancies. The
officers of the Corporation shall be a President, one or more
Vice Presidents, a Secretary, a Treasurer, and such other
officers as the Board of Directors may from time to time deem
necessary. Such officers may have and perform the powers and
duties usually pertaining to their respective offices, the powers
and duties respectively prescribed by law and by these By-laws,
and such additional powers and duties as may from time to time be
prescribed by the Board. The same person may hold
-7-
<PAGE>
any two or more offices, except that no officer shall
execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law or by these
By-laws to be executed, acknowledged or verified by two or more
officers.
The initial officers of the Corporation shall be
appointed by the initial Board of Directors. Thereafter, the
officers of the Corporation shall be appointed by the Board as
soon as practicable after the election of the Board at the annual
meeting of shareholders, and shall hold office until the regular
annual meeting of the Board of Directors following their
appointment and until their successors have been appointed and
qualified; provided, however, that the Board of Directors may
remove any officer at any time, with or without cause. Vacancies
occurring among the officers of the Corporation shall be filled
by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 5.02. President. The President shall preside
at all meetings of the shareholders and at all meetings of the
Board of Directors at which he may be present. Subject to the
direction of the Board of Directors, he shall be the chief
executive officer of the Corporation, and shall have general
charge of the entire business of the Corporation. He may sign
certificates of stock and sign and seal bonds, debentures,
contracts or other obligations authorized by the Board, and may,
without previous authority of the Board, make such contracts as
the ordinary conduct of the Corporation's business requires. He
shall have the usual powers and duties vested in the president of
a corporation. He shall have power to select, appoint and remove
all necessary officers and employees of the Corporation, except
those selected by the Board of Directors, and make new
appointments to fill vacancies. He may delegate any of his powers
to a Vice President of the Corporation.
Section 5.03. Vice President. The Vice President or,
if there be more than one, each Vice President, shall have such
of the President's powers and duties as the President may from
time to time delegate to him, and shall have such other powers
and perform such other duties as may be assigned to him by the
Board of Directors. During the absence or incapacity of the
President, the Vice President, or, if there be more than one, the
Vice President designated by the Board of Directors, shall
perform the duties of the President, and when so acting shall
have all the powers and be subject to all the responsibilities of
the office of President.
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<PAGE>
Section 5.04. Treasurer. The Treasurer shall have
custody of such funds and securities of the Corporation as may
come to his hands or be committed to his care by the Board of
Directors. Whenever necessary or proper, he shall endorse on
behalf of the Corporation, for collection, checks, notes, or
other obligations, and shall deposit the same to the credit of
the Corporation in such bank or banks or depositaries, approved
by the Board of Directors, as the Board of Directors or President
may designate. He may sign receipts or vouchers for payments made
to the Corporation, and the Board of Directors may require that such
receipts or vouchers shall also be signed by some other officer
to be designated by them. Whenever required by the Board of
Directors, he shall render a statement of his cash accounts and
such other statements respecting the affairs of the Corporation
as may be required. He shall keep proper and accurate books of
account. He shall perform all acts incident to the office of
Treasurer, subject to the control of the Board.
Section 5.05. Assistant Treasurer. Whenever requested
by or in the absence or disability of the Treasurer, the
Assistant Treasurer designated by the Treasurer (or in the
absence of such designation, the Assistant-Treasurer designated
by the Board of Directors) shall perform all the duties of the
treasurer, and when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the Treasurer.
Section 5.06. Secretary. The Secretary shall have
custody of the seal of the Corporation and when required by the
Board of Directors, or when any instrument shall have been signed
by the President or by any other officer duly authorized to sign
the same, or when necessary to attest any proceedings of the
shareholders or directors, shall affix it to any instrument
requiring the same and shall attest the same with his signature,
provided that the seal may be affixed by the President or any
Vice President or other officer of the Corporation to any
document executed by either of them respectively on behalf of the
Corporation which does not require the attestation of the
Secretary. He shall attend to the giving and serving of notices
of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care
by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of
Directors.
Section 5.07. Assistant Secretaries. Whenever requested by
or in the absence or disability of the Secretary,
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<PAGE>
the Assistant Secretary designated by the Secretary (or
in the absence of such designation, the Assistant-Secretary
designated by the Board of Directors) shall perform all the
duties of the Secretary and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the
Secretary.
Section 5.08. Subordinate Officers and Agents. The
Board of Directors may from to time appoint such other officers
and agents as it may deem necessary or advisable, to hold office
for such period, have such authority and perform such duties as
the Board of Directors may from time to time determine. The Board
of Directors may delegate to any officer or agent the power to
appoint any such subordinate officers or agents and to prescribe
their respective terms of office, authorities and duties.
Section 5.09. Delegation. In case of the absence of
any officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board may temporarily
delegate the powers or duties, or any of them, of such officer to
any other officer or to any director.
ARTICLE VI
Shares
------
Section 6.01. Certificates Representing Shares. All
certificates representing shares of the Corporation shall be
signed by the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, shall bear the seal of the Corporation and shall not
be valid unless so signed and sealed. Certificates countersigned
by a duly appointed transfer agent or registered by a duly
appointed registrar shall be deemed to be so signed and sealed
whether the signatures be manual or facsimile signatures and
whether the seal be a facsimile seal or any other form of seal.
All certificates shall be consecutively numbered and the name of
the person owning the shares represented thereby, his residence,
with the number of such shares and the date of issue, shall be
entered on the Corporation's books. All certificates surrendered
shall be cancelled and no new certificates issued until the
former certificates for the same number of shares shall have been
surrendered and cancelled, except as provided for herein.
In case any officer who signed or whose facsimile
signature was affixed to any certificate shall have ceased to be
such officer before such certificate is issued, it
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<PAGE>
nevertheless may be issued by the Corporation as if he
were such officer at the date of its issuance.
When the Corporation is authorized to issue shares of
more than one class there shall be set forth upon the face or
back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the
shares of each class authorized to be issued and, if the
Corporation is authorized to issue any class of preferred shares
in series, the designation, relative rights, preferences and
limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other
series.
Any restrictions on the transfer or registration of
transfer of any shares of any class or series shall be noted
conspicuously on the certificate representing such shares.
Section 6.02. Addresses of Shareholders. Every
shareholder shall furnish the Corporation with an address to
which notices of meetings and all other notices may be served
upon or mailed to him, and in default thereof notices may be
addressed to him at his last known post office address.
Section 6.03. Stolen, Lost or Destroyed Certificates.
The Board of Directors may in its sole discretion direct that a
new certificate for shares be issued in place of any certificate
for shares issued by the Corporation alleged to have been stolen,
lost or destroyed. When authorizing such issuance of a new
certificate, the Board of Directors may, in its discretion, and
as a condition precedent thereto, require the owner of such
stolen, lost or destroyed certificate or his legal
representatives to give the Corporation a bond in such sum as the
Corporation may direct not exceeding double the value of the
shares represented by the certificate alleged to have been
stolen, lost or destroyed.
Section 6.04. Transfers of Shares. Upon compliance
with all provisions restricting the transferability of shares, if
any, transfers of shares shall be made only upon the books of the
Corporation by the holder in person or by his attorney thereunto
authorized by power of attorney duly filed with the Secretary of
the Corporation or with a transfer agent or registrar, if any,
and upon the surrender and cancellation of
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<PAGE>
the certificate or certificates for such shares
properly endorsed and the payment of all taxes due thereon. The
Board of Directors may appoint one or more suitable banks or
trust companies as transfer agents or registrars of transfers,
for facilitating transfers of any class or series of shares of
the Corporation by the holders thereof under such regulations as
the Board of Directors may from time to time prescribe. Upon such
appointment being made, all certificates of shares of such class
or series thereafter issued shall be countersigned by one of such
transfer agents or one of such registrars of transfers, and shall
not be valid unless so countersigned.
ARTICLE VII
Dividends and Finance
---------------------
Section 7.01. Dividends. The Board of Directors shall
have power to fix and determine and to vary, from time to time,
the amount of the working capital of the Corporation before
declaring any dividends among its shareholders, to determine the
date or dates for the declaration and payment of dividends and
the amount of any dividend, and the amount of any reserves
necessary in their judgment before declaring any dividends among
its shareholders, and to determine the amount of surplus of the
Corporation from time to time available for dividends.
Section 7.02. Fiscal Year. The fiscal year of the
Corporation shall end on the last Friday of January in each year
and shall begin on the next succeeding day, or shall be for such
other period as the Board of Directors may from time to time
designate.
ARTICLE VIII
Indemnification
---------------
Section 8.01. Except to the extent expressly prohibited by
the New Jersey Business Corporation Act, the Corporation shall
indemnify each person made or threatened to be made a party to or
called as a witness in or asked to provide information in
connection with any pending or threatened action, proceeding,
hearing or investigation, whether civil or criminal, and whether
judicial, quasi-judicial, administrative, or legislative, and
whether or not for or in the right of the Corporation or any
other enterprise, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of
the Corporation, or is or was a director or officer of the
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<PAGE>
Corporation who also serves or served at the request of the
Corporation any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment
or other final adjudication adverse to such person establishes
that his or her acts or omissions were in breach of his or her
duty of loyalty to the corporation or its shareholders, were not
in good faith or involved a knowing violation of law, or resulted
in receipt by such person of an improper personal benefit, and
provided further that no such indemnification shall be required
with respect to any settlement or other nonadjudicated
disposition of any threatened or pending action or proceeding
unless the Corporation has given its prior consent to such
settlement or other disposition.
The Corporation shall advance or promptly reimburse,
upon request of any person entitled to indemnification hereunder,
all expenses, including attorneys' fees, reasonably incurred in
defending any action or proceeding in advance of the final
disposition thereof upon receipt of a written undertaking by or
on behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so
advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in
good faith with any request by the Corporation that common
counsel be utilized by the parties to an action or proceeding who
are similarly situated unless to do so would be inappropriate due to
actual or potential differing interests between or among such
parties.
Nothing herein shall limit or affect any right of any
person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract
or otherwise.
No elimination of this By-law, and no amendment of
this By-law adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be
effective until the 60th day following notice to such person of
such action, and no elimination of or amendment to this By-law
shall deprive any person of his or her rights hereunder arising
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<PAGE>
out of alleged or actual occurrences, acts or failures to act
prior to such 60th day. The provisions of this paragraph shall
supersede anything to the contrary in these By-laws.
The Corporation shall not, except by elimination or
amendment of this By-law in a manner consistent with the
preceding paragraph, take any corporate action or enter into any
agreement which prohibits, or otherwise limits the rights of
any person to, indemnification in accordance with the provisions
of this By-law. The indemnification of any person provided by
this By-law shall continue after such person has ceased to be a
director or officer of the Corporation and shall inure to the
benefit of such person's heirs, executors, administrators and
legal representatives.
The Corporation is authorized to enter into agreements
with any of its directors, officers or employees extending rights
to indemnification and advancement of expenses to such person to
the fullest extent permitted by applicable law, but the failure
to enter into any such agreement shall not affect or limit the
rights of such person pursuant to this By-law. It is hereby
expressly recognized that all directors and officers of the
Corporation, by serving as such after the adoption hereof, are
acting in reliance hereon and that the Corporation is estopped to
contend otherwise. Additionally, it is hereby expressly
recognized that all persons who serve or served as directors,
officers or employees of corporations which are subsidiaries or
affiliates of the Corporation (or other entities controlled by
the Corporation) and are directors or officers of the Corporation
are conclusively presumed to serve or have served as such at the
request of the Corporation and, to the extent permitted by law,
are entitled to indemnification hereunder, but that no such
person shall have any rights hereunder or in connection herewith,
except to the extent that indemnification hereunder is permitted
by law.
In case any provision in this By-law shall be
determined at any time to be unenforceable in any respect, the
other provisions shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest
possible enforcement in the circumstances, it being the intention
of the Corporation to afford indemnification and advancement of
expenses to its directors and officers, acting in such capacities
or in the other capacities mentioned herein, to the fullest
extent permitted by law.
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<PAGE>
For purposes of this By-law, the Corporation shall be
deemed to have requested a director or officer of the Corporation
to serve an employee benefit plan where the performance by such
person of his or her duties to the Corporation also imposes
duties on, or otherwise involves services by, such person to the
plan or participants or beneficiaries of the plan, and excise
taxes assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be considered indemnifiable
expenses. For purposes of this By-law, the term "Corporation"
shall include any legal successor to the Corporation, including
any corporation which acquires all or substantially all of the
assets of the Corporation in one or more transactions.
A person who has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or
proceeding of the character described in the first paragraph of
this By-law shall be entitled to indemnification as authorized in
such paragraph. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under this By-law
shall be made by the Corporation if, and only if, authorized in
the specific case:
(1) By the Board of Directors or a committee thereof,
acting by a majority vote of a quorum consisting of
directors who are not parties to such action or proceeding
upon a finding that the director or officer has met the
standard of conduct set forth in the first paragraph of
this By-law, or,
(2) If such a quorum is not obtainable, or, even if
obtainable and such quorum of the Board of Directors or
committee by a majority vote of the disinterested directors
so directs:
(a) By the Board of Directors upon the
opinion in writing of independent legal counsel that
indemnification is proper in the circumstances because the
standard of conduct set forth in the first paragraph of
this By-law has been met by such director or officer, or
(b) By the shareholders upon a finding that
the director or officer has met the applicable standard of
conduct set forth in such paragraph.
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<PAGE>
ARTICLE IX
Miscellaneous Provisions
------------------------
Section 9.01. Books and Records. Subject to the New
Jersey Business Act Law, the Corporation may keep its books and
accounts outside the State of New Jersey.
Section 9.02. Notices. Whenever any notice is required
by these By-laws to be given, personal notice is required only if
it is expressly so stated, and any notice so required shall be
deemed to be sufficient if given by depositing the same in a post
office box in a sealed post-paid wrapper, addressed to the person
entitled thereto at his last known post office address, and such
notice shall be deemed to have been given on the day of such
mailing.
Any person may waive the right to receive any notice
by signing a written waiver thereof.
Section 9.03. Amendments. Except as otherwise
provided herein, these By-laws may be altered, amended, or
repealed and By-laws may be adopted by the shareholders or by the
Board of Directors.
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J. CREW INTERNATIONAL, INC.
BYLAWS
Adopted January 19, 1993
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------------
An annual meeting of the stockholders, for the election
of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before
the meeting, shall be held at such place within Delaware, on such
date, and at such time as the Board of Directors shall each year
fix, which date shall be within thirteen months subsequent to the
later of the date of incorporation or the last annual meeting of
stockholders.
Section 2. Special Meetings.
----------------
Special meetings of the stockholders, for any purpose
or purposes prescribed in the notice of the meeting, may be
called by the Board of Directors, the Chairman or the President
or as otherwise provided by law or the Certificate of
Incorporation and shall be held at such place within Delaware, on
such date, and at such time as they or he shall fix, and a
majority of the stockholders may call a special meeting in
accordance with Section 4 of Article II of these bylaws.
Section 3. Notice of Meetings.
------------------
Written notice of the place, date and time of all
meetings of the stockholders shall be given, not less than ten
nor more than sixty days before the date on which the meeting is
to be
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<PAGE>
held, to each stockholder entitled to vote at such meeting,
except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the
Delaware General Corporation Law or the Certificate of
Incorporation of the corporation).
When a meeting is adjourned to another place, date or
time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are announced at the meeting
at which the adjournment is taken; provided, however, that if the
date of any adjourned meeting is more than thirty days after the
date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given
in conformity herewith. At any adjourned meeting, any business
may be transacted which might have been transacted at the
original meeting.
Section 4. Quorum.
------
At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at
the meeting, present in person or by proxy, shall constitute a
quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the
Chairman of the meeting or the holders of a majority of the
shares of the stock entitled to vote who are present, in person
or by proxy, may adjourn the meeting to another place within
Delaware, date, or time.
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<PAGE>
If a notice of any adjourned special meeting of
stockholders is sent to all stockholders entitled to vote
thereat, stating that it will be held with those present
constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a
quorum, and all matters shall be determined by a majority of the
votes cast at such meeting.
Section 5. Organization.
------------
Such person as the Board of Directors may have
designated or, in the absence of such a person, the President of
the corporation or, in his absence, such person as may be chosen
by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as Chairman of the meeting.
In the absence of the Secretary of the corporation, the Secretary
of the meeting shall be such person as the Chairman appoints.
Section 6. Conduct of Business.
-------------------
The Chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct
of discussion as seem to him in order.
Section 7. Proxies and Voting.
------------------
At any meeting of the stockholders, every stockholder
entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure
established for the meeting.
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<PAGE>
Each stockholder shall have one vote for every share of
stock entitled to vote which is registered in his name on the
record date for the meeting, except as otherwise provided herein
or required by law.
All voting, including on the election of directors, but
excepting where otherwise required by law, may be by a voice
vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such
other information as may be required under the procedure
established for the meeting. Every vote taken by ballots shall be
counted by an inspector or inspectors appointed by the Chairman
of the meeting.
All elections shall be determined by a plurality of the
votes cast, and except as otherwise required by law, all other
matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
----------
A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder
and the number of shares registered in his name, shall be open to
the examination of any such stockholder, for any purpose germane
to the meeting, during ordinary business hours for a period of at
least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held.
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<PAGE>
The stock list shall also be kept at the place of the
meeting during the whole time thereof and shall be open to the
examination of any such stockholder who is present. This list
shall presumptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of
Meeting.
----------------------------------
Any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of the
stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present and voted.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number and Term of Office.
-------------------------
The number of directors who shall constitute the whole
board shall be such number as the Board of Directors shall at the
time have designated, except that in the absence of any such
designation, such number shall be four (4). Each director shall
be elected for a term of one year and until his successor is
elected and qualified, except as otherwise provided herein or
required by law.
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<PAGE>
Whenever the authorized number of directors is
increased between annual meetings of the stockholders, a majority
of the directors then in office shall have the power to elect
such new directors for the balance of a term and until their
successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until
the expiration of the term of the directors then in office
unless, at the time of such decrease, there shall be vacancies on
the board which are being eliminated by the decrease.
Section 2. Vacancies.
---------
If the office of any director becomes vacant by reason
of death, resignation, disqualification, removal or other cause,
a majority of the directors remaining in office, although less
than a quorum, may elect a successor for the unexpired term and
until his successor is elected and qualified; provided, however,
that a majority of the stockholders must ratify such election at
the next meeting of stockholders, and the Chairman shall call a
special meeting in accordance with these bylaws for such purpose
if the shareholders have not otherwise provided such
ratification.
Section 3. Regular Meetings.
----------------
Regular meetings of the Board of Directors shall be
held at such place or places within Delaware, on such date or
dates, and at such time or times as shall have been established
by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
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<PAGE>
Section 4. Special Meetings.
----------------
Special meetings of the Board of Directors may be
called by the Chairman or a majority of the stockholders or a
majority of directors and shall be held at such place within
Delaware, on such date, and at such time as fixed in the notice.
Notice of the place, date, and time of each such special meeting
shall be given each director by whom it is not waived by mailing
written notice not less than twenty-four hours before the meeting
or by telegraphing or telecopying the same not less than
twenty-four hours before the meeting. Unless otherwise indicated
in the notice thereof, any and all business may be transacted at
a special meeting.
Section 5. Quorum.
------
At any meeting of the Board of Directors, 50% of the
total number of the whole board (rounded up) shall constitute a
quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to
any place within Delaware, date, or time, without further notice
or waiver thereof.
Section 6. Participation in Meetings by Conference
Telephone.
---------------------------------------
Notwithstanding any provision of these bylaws to the
contrary, members of the Board of Directors, or of any committee
thereof, may participate in a meeting of such board or committee
by means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other and such participation shall
constitute presence in
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<PAGE>
person at such meeting; provided that a quorum is physically
present in Delaware.
Section 7. Chairman of the Board.
---------------------
The Board of Directors shall elect, at its original
meeting and each annual meeting, a Chairman of the Board (the
"Chairman") who shall be a director and who shall hold office
until the next annual meeting of the Board and until his
successor is elected and qualified or until his earlier
resignation or removal by act of the Board. The Chairman shall
preside at meetings of the stockholders and of the Board. In the
absence of the Chairman, the President shall preside at meetings
of the stockholders and the Board.
Section 8. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business
shall be transacted in such order and manner as the board may
from time to time determine, and all matters shall be determined
by the vote of a majority of the directors present, except as
otherwise provided herein or required by law. Action may be taken
by the Board of Directors without a meeting if all members
thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of
Directors.
Section 9. Compensation of Directors.
-------------------------
Directors, as such, may receive, pursuant to resolution
of the Board of Directors, fixed fees, expenses and other
compensation for attendance at regular and special meetings and
their services as directors, including, without limitation, their
services as members of committees of the Board of Directors.
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<PAGE>
Nothing contained herein shall be construed to preclude any
director from serving the Company in any other capacity and
receiving compensation therefor.
Section 10. Fiduciary Duties of Directors.
-----------------------------
A director of the Company shall stand in a fiduciary
relation to the Company and shall perform his duties as a
director, including his duties as a member of any committee of
the Board of Directors upon which he may serve, in good faith, in
a manner he reasonably believes to be in the best interest of the
Company, and with such care, including reasonable inquiry, skill
and diligence, as a person of ordinary prudence would use under
similar circumstances.
Absent breach of fiduciary duty, lack of good faith or
self-dealing, any action taken as a director or any failure to
take any action as a director shall be presumed to be in the best
interests of the Company.
Section 11. Removal of Directors.
--------------------
Any director of the corporation may be removed at any
time, with or without cause, by a majority vote of the
stockholders.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
------------------------------------
The Board of Directors, by a vote of the majority of
the whole board, may from time to time designate committees of
the board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the board and shall,
for those
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<PAGE>
committees and any others provided for herein, elect a
director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members
who may replace any absent or disqualified member at any meeting
of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a
dividend or to authorize the issuance of stock if the resolution
which designates the committee or a supplemental resolution of
the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate
member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may by unanimous vote
appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member. The
Board of Directors may, from time to time, suspend, alter,
continue or terminate any committee or the powers and functions
thereof.
Section 2. Officers' Committees.
--------------------
Subject to the approval of the Board, the Chairman may
appoint, or may provide for the appointment of, committees
consisting of officers or other persons, with chairmanships, vice
chairmanships and secretaryships and such duties and powers as
the Chairman may, from time to time, designate and prescribe. The
Board or the Chairman may, from time to time, suspend, alter,
continue or terminate any of such committees or the powers and
functions thereof.
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<PAGE>
Section 3. Conduct of Business.
-------------------
Each committee may determine the procedural rules for
meeting and conducting its business and shall act in accordance
therewith, except as otherwise provided herein or required by
law. Adequate provision shall be made for notice to members of
all meetings; one-third of the members shall constitute a quorum
unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters
shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all
members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of such
committee.
ARTICLE IV - OFFICERS
Section 1. Generally.
---------
The officers of the corporation shall consist of a
President, one or more Vice Presidents, a Secretary, a Treasurer
and such other officers as may from time to time be appointed by
the Board of Directors. Officers shall be elected by the Board of
Directors which shall consider that subject at its first meeting
after every annual meeting of stockholders. Each officer shall
hold office until his successor is elected and qualified or until
his earlier resignation or removal. Any number of offices may be
held by the same person.
One person may hold more than one of the offices
specified in this section and may have such other titles as the
Board of Directors may determine.
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<PAGE>
Section 2. President.
---------
The President shall be the chief executive officer of
the corporation. Subject to the provisions of these bylaws and to
the direction of the Board of directors, he shall have the
responsibility for the general management and control of the
business and affairs of the corporation and shall perform all
duties and have all powers which are commonly incident to the
office of chief executive or which are delegated to him by the
Board of Directors. He shall have power to sign all stock
certificates, contracts and other instruments of the corporation
which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of
the corporation.
Section 3. Vice President.
--------------
There may be such number of Vice Presidents as the
Board of Directors shall appoint. Any such Vice President shall
have such powers and duties as may be delegated to him by the
Board of Directors. A Vice President may be designated by the
Board of Directors to perform the duties and exercise the powers
of the President in the event of the President's absence or
disability. In the absence of the Chairman and the President, one
Vice President so designated by the Board of Directors shall
preside at meetings of the stockholders and the Board of
Directors.
Section 4. Treasurer/Assistant Treasurer.
-----------------------------
The Treasurer shall have the responsibility for
maintaining the financial records of the corporation and shall
have custody of all monies and securities of the corporation. He
shall make such disbursements of the funds of the corporation as
are
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<PAGE>
authorized and shall render from time to time an account of
all such transactions and of the financial condition of the
corporation. The Treasurer shall also perform such other duties
as the Board of Directors may from time to time prescribe.
Without limiting the provisions of Section 1 or 6 of this Article
IV, the Board of Directors may also elect an Assistant Treasurer,
if deemed necessary or appropriate, who shall have such powers
and duties of the Treasurer, as determined by the Board of
Directors.
Section 5. Secretary/Assistant Secretary.
-----------------------------
The Secretary shall issue all authorized notices for,
and shall keep minutes of, all meetings of the stockholders and
the Board of Directors. He shall have charge of the corporate
books and shall perform such other duties as the Board of
Directors may from time to time prescribe. Without limiting the
provisions of Section 1 or 6 of this Article IV, the Board of
Directors may also elect an Assistant Secretary, if deemed
necessary or appropriate, who shall have such powers and duties
of the Secretary, as determined by the Board of Directors.
Section 6. Delegation of Authority.
-----------------------
The Board of Directors may from time to time delegate
the powers or duties of any officer to any other officers or
agents, notwithstanding any provision thereof.
Section 7. Removal.
-------
Any officer of the corporation may be removed at any
time, with or without cause, by the Board of Directors.
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<PAGE>
Section 8. Action with Respect to Securities of
Other Corporations.
------------------------------------
The Board shall designate the officers as it deems
appropriate who shall have power to vote and otherwise act on
behalf of the corporation, in person or by proxy, at any meeting
of stockholders of or with respect to any action of stockholders
of any other corporation in which this corporation may hold
securities and otherwise to exercise any and all rights and
powers which this corporation may possess by reason of its
ownership of securities in such other corporation.
ARTICLE V - INDEMNIFICATION OF OFFICERS, DIRECTORS
EMPLOYEES AND AGENTS
Section 1. Availability of Indemnification. The
corporation shall indemnify any director, officer, other employee
or agent, who was or is a party to, or is threatened to be made a
party to or who is called as a witness in connection with any
threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative,
including an action by or in the right of the corporation by
reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit
or proceeding unless the act or the failure to act giving rise to
the claim for indemnification
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<PAGE>
is determined by a court to have constituted willful misconduct
or recklessness.
Section 2. Extent of Indemnification. The
indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall not be deemed exclusive
of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw,
agreement, contract, vote of shareholders or disinterested
directors or pursuant to the direction, howsoever embodied, of
any court of competent jurisdiction or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office. It is the policy of the
corporation that indemnification of, and advancement of expenses
to, directors, officers, employees, and other agents of the
corporation shall be made to the fullest extent permitted by law.
To this end, the provisions of this Article V shall be deemed to
have been amended for the benefit of directors, officers,
employees, and other agents of the corporation effective
immediately upon any modification of the General Corporation Law
of the State of Delaware (the "GCL") which expands or enlarges
the power or obligation of corporations organized under the GCL
to indemnify, or advance expenses to, directors, officers,
employees, and other agents of the corporation.
Section 3. Promise to Repay Corporation. The
corporation shall pay expenses incurred by an officer, director,
or other employee or agent, in defending a civil or criminal
action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of
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<PAGE>
such person to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
corporation.
Section 4. Duration of Right to Indemnification.
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such person.
Section 5. Indemnification Fund. The corporation
shall have the authority to create a fund of any nature, which
may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner, its indemnification
obligations, whether arising under these bylaws or otherwise. The
authority granted by this Section 5 shall be exercised by the
Board of Directors of the corporation.
Section 6. Contract for Indemnification. A
contract shall be deemed to exist between the corporation and
each director and officer of the corporation with respect to
indemnification and advancement of expenses as provided by this
Article V and as otherwise provided by applicable law.
Section 7. In General. The provisions of this Article
V shall not be deemed to preclude the indemnification of, or
advancement of expenses to, any person who is not specified in
Section 1 of this Article V but whom the corporation has the
power or obligation to indemnify, or to advance expenses for,
under the provisions of the GCL or otherwise.
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<PAGE>
ARTICLE VI - STOCK
Section 1. Certificates of Stock.
---------------------
Each stockholder shall be entitled to a certificate
signed by, or in the name of the corporation by, the President
and the Secretary, certifying the number of shares owned by him.
Section 2. Transfers of Stock.
------------------
Transfers of stock shall be made only upon the transfer
books of the corporation kept at an office of the corporation or
by transfer agents designated to transfer shares of the stock of
the corporation. Except where a certificate is issued in
accordance with Section 4 of Article VI of these bylaws, an
outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is
issued therefor.
Section 3. Record Date.
-----------
The Board of Directors may fix a record date, which
shall not be more than sixty nor less than ten days before the
date of any meeting of stockholders, nor more than sixty days
prior to the time for the other action hereinafter described, as
of which there shall be determined the stockholders who are
entitled: to notice of or to vote at any meeting of stockholders
or any adjournment thereof; to express consent to corporate
action in writing without a meeting; to receive payment of any
dividend or other distribution or allotment of any rights; or to
exercise any rights with respect to any change, conversion or
exchange of stock or with respect to any other lawful action.
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<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
--------------------------------------
In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant
to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
-----------
The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VII - PURPOSES AND POWERS
Section 1. Purposes and Powers.
-------------------
The corporation is formed so as to qualify for exemption
from Delaware income taxation under Section 1902(b)(8) of Title
30 of the Delaware Code (or corresponding provision of any future
law), and as such its activities shall be confined to the
maintenance and management of its intangible investments. For
purposes of this Section "intangible investments" shall include
without limitation investments in stocks, bonds, notes and other
debt obligations (including debt obligations of affiliated
corporations), patents, patent applications, trademarks, trade
names and similar types of intangible assets.
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<PAGE>
ARTICLE VIII - NOTICES
Section 1. Notices.
-------
Except as otherwise specifically provided herein or
required by law, all notices required to be given to any
stockholder, director, officer, employee or agent, shall be in
writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, by sending such notice by Federal
Express or similar overnight courier, by sending such notice by
prepaid telegram or mailgram or by sending such notice by
telecopy or similar facsimile transmission. Any such notice shall
be addressed to such stockholder, director, officer, employee, or
agent at his or her last known address as the same appears on the
books of the corporation. The time when such notice is received,
if hand delivered, or dispatched, if delivered through the mails,
by overnight courier, by telegram or mailgram, or by telecopy or
similar facsimile shall be the time of the giving of the notice.
Section 2. Waivers.
-------
A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before
or after the time of the event for which notice is to be given,
shall be deemed equivalent to the notice required to be given to
such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in
such a waiver.
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<PAGE>
ARTICLE IX - MISCELLANEOUS
Section 1. Corporate Seal.
--------------
The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board
of Directors or a committee thereof, duplicates of the seal may
be kept and used by the Treasurer or Secretary or by an Assistant
Secretary or Assistant Treasurer.
Section 2. Reliance upon Books, Reports and
Records.
--------------------------------
Each director, each member of any committee designated
by the Board of Directors, and each officer of the corporation
shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account, information,
statements or other records of the corporation, including reports
made to the corporation by any of its directors, officers,
employees or counsel, by an independent certified public
accountant, or by an appraiser selected with reasonable care. An
action shall not be considered taken in good faith if the
director, committee member or officer has knowledge concerning
the matter in question that would cause his reliance to be
unwarranted.
Section 3. Fiscal Year.
-----------
The fiscal year of the corporation shall be as fixed by
the Board of Directors.
Section 4. Time Periods.
------------
In applying any provision of these bylaws which require
that an act be done or not done a specified number of days prior
to
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<PAGE>
an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used,
the day of the doing of the act shall be excluded, and the day of
the event shall be included.
ARTICLE X - AMENDMENTS
Section 1. Amendments.
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These bylaws may be amended, suspended or repealed in a
manner consistent with law at any regular or special meeting of
the Board of Directors by vote of a majority of the entire board
or at any stockholders meeting called and maintained in
accordance with Article I of these bylaws. Such amendment,
suspension or repeal may be evidenced by resolution or otherwise
as the Board may deem appropriate.
The undersigned, Secretary of J. Crew International,
Inc., does hereby certify that the foregoing is a true copy of
the bylaws of J. Crew International, Inc. and that the same are
in full force and effect at this date.
Dated: January 19, 1993 /s/ Nicholas Lamberti
-----------------------------------
Secretary
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J. CREW SERVICES, INC.
BY-LAWS
Adopted January 19, 1993
ARTICLE I
STOCKHOLDERS
Section 1. All meetings of the stockholders of J. Crew
Services, Inc. (the "Corporation") shall be held at such place,
either within or without the State of Delaware, and at such date
and time as may be designated by the Board of Directors and as
shall be specified in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. An annual meeting of the stockholders, for
the election of directors and for the transaction of such other
business as may properly be brought before the meeting, shall be
held at such place, date and time as the Board of Directors may
designate and as shall be specified in the notice of the meeting
or in a duly executed waiver of notice thereof; provided,
however, that the date for such meeting as may be designated by
the Board of Directors must be within 13 months from the later of
the date on which the Corporation has been organized or the date
on which the last annual meeting of stockholders was held.
Section 3. Special meetings of the stockholders, for
any purpose or purposes, may be called by the President or the
Chairman of the Board or at the request in writing of a majority of
<PAGE>
the members of the Board of Directors then in office. Such
request shall state the purpose or purposes of the proposed
meeting. Business transacted at all special meetings shall be
confined to the objects stated in the notice thereof.
Section 4. Written notice of any annual or special
meeting of stockholders shall be mailed to each stockholder
entitled to vote thereat at his address as it appears on the
records of the Corporation, not less than 10 nor more than 60
days before the date of such meeting. Such notice shall be deemed
to be given when deposited in the United States mail, postage
prepaid, directed to each stockholder at his address as it last
appears on the records of the Corporation. Such notice shall
state the place, date and hour of the meeting, and, in the
case of a special meeting, shall state the purpose or purposes
for which the meeting is called.
Section 5. At any meeting of the stockholders, the
holders of a majority of all of the issued and outstanding shares
of stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, except to the
extent that the presence of a larger number of stockholders may
be required by law (meaning here and hereinafter, as required
from time to time by the Delaware General Corporation Law or by
the Certificate of Incorporation of the Corporation or by these
By-laws). The chairman of the meeting or the holders of a
majority of the shares of the stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to
another place, date or time. When a meeting is so adjourned,
written notice need not be
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given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the date of any adjourned
meeting is more than 30 days after the date for which the meeting
was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date, and time of
the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting.
Section 6. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing executed by such
stockholder and submitted to the Secretary at or before such
meeting, but no proxy shall be voted or acted upon after 3 years
from its date, unless the proxy provides for a longer period.
Each stockholder shall have 1 vote for each share of stock
entitled to vote which is registered in his name on the record
date for the meeting, except as otherwise provided herein or
required by law. All elections of directors by the stockholders
shall be by written ballot, and shall be determined by a
plurality of the votes cast. All other voting need not be by
written ballot, except upon demand therefor by the Board of
Directors or the officer of the Corporation presiding at the
meeting of stockholders where the vote is to be taken.
When a quorum exists at any meeting, the vote of a
majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such
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<PAGE>
meeting, unless the question is one for which, by express
provision of law a different vote is required.
Section 7. At least 10 days before every meeting of
stockholders, the officer who has charge of the stock ledger of
the Corporation shall prepare a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any
purpose reasonably related to such stockholder's interest as a
stockholder and germane to the meeting (herein a "Proper
Purpose"), during ordinary business hours for a period of at
least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder
of the Corporation who is present and demonstrates a Proper
Purpose for such inspection. The stock ledger of the Corporation
shall be the only evidence as to the identities of the
stockholders entitled to examine the list of stockholders
required by this Section 7 or to vote in person or by proxy at
any meeting of stockholders.
Section 8. The Board of Directors may appoint either
one or three Judges of Election to act at any meeting of the
stockholders or any adjournment thereof. Judges of Election need
not be stockholders, and no person who is a candidate for corporate
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<PAGE>
office shall act as a Judge of Election. If three Judges of
Election are appointed, such Judges of Election shall act by
majority vote. Judges of Election shall do all acts as are
necessary and proper to conduct the election or vote and all such
other acts as may be prescribed by law with fairness to all
stockholders. If requested to do so by the Board of Directors or
the chairman of the meeting at which Judges of Election act, such
Judges of Election shall make a written report of any matter
determined by them and shall execute a certificate as to any fact
found by them.
Section 9. The chairman of any meeting of the stockholders
shall determine the order of business and the procedure to be
followed at such meeting, including such regulation of the manner
of voting and the conduct of discussion as he shall deem to be
fair and equitable.
Section 10. Unless otherwise required by the
Certificate of Incorporation of the Corporation, any action
required or permitted to be taken at any meeting of the
stockholders may be taken without a meeting, without prior notice
and without a vote, if a written consent setting forth the action
so taken shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted, and
such notice shall be delivered to the Corporation's registered
agent, its principal place of business or an officer or agent of
the Corporation having custody of the book in which proceedings
of meetings of stockholders are recorded. Prompt notice of the
taking of any corporate action
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<PAGE>
without a meeting by less than unanimous written consent shall be
given in conformity herewith to those stockholders who have not
consented thereto in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 1. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of
Directors. In addition to the powers expressly conferred upon the
Board of Directors by these By-laws, the Board of Directors may
exercise all powers of the Corporation and perform all lawful
acts as are not required to be exercised or performed by the
stockholders pursuant to law.
Section 2. Directors shall be natural persons who need
not be stockholders of the Corporation. The specific number of
directors shall be designated from time to time by resolution of
the Board of Directors or these By-Laws. In the absence of any
such designation, the Board of Directors shall be composed of
four (4) directors. Each director shall be elected for a term of
one year and until his successor is elected and qualified,
subject, however, to such director's prior death, resignation,
retirement, disqualification or removal from office. Whenever the
authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in
office shall have the power to elect such new directors until the
next annual meeting of stockholders and until their successors
are elected and qualified. Any decrease in the authorized number
of directors shall not become
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effective until the expiration of the term of the directors then
in office unless, at the time of such decrease, there shall be
vacancies on the Board of Directors which are being eliminated by
such decrease.
Section 3. Any vacancy in the Board of Directors by
reason of death, resignation, disqualification, removal or other
cause may be filled by a majority of the directors then in
office, although less than a quorum, and each director elected to
fill a vacancy shall serve for the unexpired term of his
predecessor and until his successor is elected and qualified.
Section 4. The organizational meeting of each newly
elected Board of Directors may be held immediately following the
stockholders, meeting at which such directors were elected
without the necessity of notice to such directors or at such time
and place as may be fixed by notice or a duly executed waiver of
notice thereof.
Section 5. Regular meetings of the Board of Directors
shall be held without call or notice at such time and place as
shall from time to time be fixed by the Board of Directors.
Section 6. Special meetings of the Board of Directors
may be called by the Chairman of the Board or a majority of
stockholders or a majority of directors and shall be held at such
place, on such date and at such time as they or he shall
designate. Notice of the place, time and date of each such
special meeting shall be given to each director by whom it is not
waived by mailing written notice by certified or registered mail
to each director not less than 5 days before the meeting or by
telegram or telephone not
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<PAGE>
less than 48 hours before the meeting. Notice of special meetings
of the Board of Directors need not state the purpose thereof,
except as otherwise expressly provided by law. Any and all
business may be transacted at a special meeting, unless otherwise
indicated in the notice thereof or provided by law.
Section 7. At any meeting of the Board of Directors,
the presence of at least 50% of the total number of directors
shall constitute a quorum for the transaction of business, and
the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of
Directors, unless otherwise provided by law. At any meeting of
the Board of Directors, a majority of the directors present may
adjourn the meeting to any place, date or time, without notice
other than announcement at the meeting.
Section 8. Notwithstanding any provision of these
bylaws to the contrary, members of the Board of Directors, or of
any committee thereof, may participate in a meeting of such board
or committee by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other and such
participation shall constitute presence in person at such
meeting; provided that a quorum is physically present in
Delaware.
Section 9. Unless otherwise provided by law, any
action required or permitted to be taken at any meeting at the
Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing and
such consent is
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<PAGE>
filed with the minutes of proceedings of the Board of Directors
or committee thereof.
Section 10. The Board of Directors shall elect, at its
original meeting and each annual meeting, a Chairman of the Board
(the "Chairman") who shall be a director and who shall hold
office until the next annual meeting of the Board and until his
successor is elected and qualified or until his earlier
resignation or removal by act of the Board. The Chairman shall
preside at meetings of the stockholders and of the Board. In the
absence of the Chairman, the President shall preside at meetings
of the stockholders and the Board.
Section 11. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the
board may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action
may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board
of Directors.
Section 12. Directors, in addition to expenses of
attendance, shall be allowed such compensation for their services
as directors, including, without limitation, their services as
members of committees of the Board of Directors, as may be fixed
from time to time by the Board of Directors; provided, that
nothing contained in these By-laws shall be construed to preclude
any director from serving the Corporation in any other capacity
and receiving compensation therefor.
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<PAGE>
Section 13. A member of the Board of Directors or of
any committee thereof shall, in the performance of his duties, be
fully protected in relying in good faith upon the records of the
Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers,
or employees, or committees of the Board of Directors, or by any
other person as to matters the member reasonably believes are
within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the
Corporation.
ARTICLE III
COMMITTEES
Section 1. The Board of Directors, by a vote of a
majority of the whole Board, may from time to time designate
committees of the Board of Directors, with such lawfully
delegable powers and duties as it thereby confers, to serve at
the pleasure of the Board of Directors and shall, for those
committees and any others provided for herein, elect a director
or directors to serve as a member or members and designate, if it
desires, one or more directors as alternate members who may
replace any absent or disqualified member at any meeting of the
committee. Any committee so designated may exercise the power and
authority of the Board of Directors to declare a dividend or to
authorize the issuance of stock if the resolution which
designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate
member in his place, the member or members of the
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<PAGE>
committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or
disqualified member. The Board of Directors may, from time to
time, suspend, alter, continue or terminate any committee or the
powers and functions thereof.
Section 2. Subject to the approval of the Board of
Directors, the Chairman of the Board may appoint, or may provide
for the appointment of, committees consisting of officers or
other persons, with chairmanships, vice-chairmanships and
secretaryships and such duties and powers as the Chairman of the
Board may, from time to time, designate and prescribe. The Board
of Directors or the Chairman of the Board may, from time to time,
suspend, alter, continue or terminate any of such committees or
the powers and functions thereof.
Section 3. One-third of the members of any committee
shall constitute a quorum unless the committee shall consist of
one or two members, in which case one member shall constitute a
quorum. All matters properly brought before the committee shall
be determined by a majority vote of the members present.
Section 4. Any action that may be taken by a committee
at a meeting may be taken without a meeting if all members
thereof consent thereto in writing, and such writing is filed
with the minutes of the proceedings of such committee.
Section 5. Each committee may determine the procedural
rules for meeting and conducting its business and shall act in
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accordance therewith, except as otherwise provided by law.
Adequate provision shall be made for notice to all members of any
committee of all meetings of that committee.
ARTICLE IV
OFFICERS
Section 1. The officers of the Corporation shall
consist of a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers. Officers shall be
elected by the Board of Directors at its first meeting after
every annual meeting of stockholders. No officer except the
Chairman of the Board need be a member of the Board of Directors.
Any number of offices may be held by the same person.
Section 2. The Board of Directors may appoint such
other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time
by the Board of Directors.
Section 3. Each officer shall hold office until his
successor is elected and qualified or until his earlier death,
resignation, retirement or removal. Any officer elected or
appointed by the Board of Directors may be removed at any time,
with or without cause, by the Board of Directors without
prejudice to his contract rights. If the office of any officer
becomes vacant for any reason, such vacancy shall be filled by
the Board of Directors. An officer elected to fill such a vacancy
shall hold
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<PAGE>
office for the unexpired term of his predecessor and until his
successor is elected and qualified or until his earlier death,
resignation, retirement or removal.
Section 4. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision of these
Bylaws.
Section 5. The Chairman of the Board shall be a
director of the Corporation. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of
Directors. The Chairman of the Board shall be the chief executive
officer of the Corporation and, subject to the provisions of
these By-laws and to the direction of the Board of Directors, he
shall have responsibility for the general management and control
of the business and affairs of the Corporation.
Unless otherwise directed by the Board of Directors,
the Chairman of the Board shall have the power to vote and
otherwise act on behalf of the Corporation, in person or by
proxy, at any meeting of stockholders of or with respect to any
action of stockholders of any other corporation in which the
Corporation may hold securities and otherwise to exercise any and
all rights and powers which the Corporation may possess by reason
of its ownership of securities in such other corporation.
Section 6. The President shall perform such duties and
have such powers as may from time to time be assigned to him by
the Board of Directors or the Chairman of the Board. In addition,
he shall have the power to sign all contracts and other
instruments of the Corporation which are authorized, and shall
have general
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supervision and direction of all of the other officers, employees
and agents of the Corporation. If the President is a member of
the Board of Directors, he shall perform the duties and exercise
the powers of the Chairman of the Board in the absence or
disability of the Chairman.
Section 7. Each Vice-President shall have such powers
and perform such duties as may be delegated to him by the Board
of Directors or by the Chairman of the Board. One Vice-President
shall be designated by the Board of Directors to perform the
duties and exercise the powers of the President in the absence or
disability of the President. In the absence or disability of the
Chairman of the Board and the President, any Vice-President who
is also a director of the Corporation may preside at meetings of
the stockholders and the Board of Directors to the extent and in
the manner authorized by a resolution of the Board of Directors.
Section 8. The Secretary shall attend all meetings of
the Board of Directors and of the stockholders and shall record
all votes and the minutes of all proceedings at such meetings in
a book to be kept for that purpose, and shall perform such other
duties as the Board of Directors may from time to time prescribe.
The Secretary shall perform the preceding duties for any
committee of the Board of Directors when required. The Secretary
shall give or cause to be given notice of all meetings of the
stockholders and the Board of Directors. The Secretary shall have
charge of the seal of the Corporation, and, where required, shall
have the authority to affix such seal to any instrument. In the
absence or
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disability of the Secretary, the Assistant Secretaries shall
perform the duties and exercise the powers of the Secretary.
Section 9. The Treasurer shall have the custody of the
Corporation's funds and securities and shall deposit all monies
and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the
Board of Directors. The Treasurer shall make such disbursements
of the Corporation's funds as are authorized by the Board of
Directors or by the Chairman of the Board, taking proper vouchers
for such disbursements, and shall render to the Board of
Directors an account of all such transactions and of the
financial condition of the Corporation, at such times as the
Board of Directors may require. The Treasurer shall also perform
such other duties as the Board of Directors may from time to time
prescribe. In the absence or disability of the Treasurer, the
Assistant Treasurers shall perform the duties and exercise the
powers of the Treasurer.
Section 10. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision thereof.
Section 11. Any officer of the corporation may be
removed at any time, with or without cause, by the Board of
Directors.
Section 12. The Board shall designate the officers as
it deems appropriate who shall have power to vote and otherwise
act on behalf of the corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this corporation
may hold securities
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and otherwise to exercise any and all rights and powers which
this corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE V
INDEMNIFICATION
Section 1. Subject to Section 3 hereof, the Corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys, fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to,
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the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
Section 2. Subject to Section 3 hereof, the
Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Any indemnification under this Article V
(unless ordered by a court) shall be made by the Corporation only
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as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 1 or Section 2 of this
Article V, as the case may be. Such determination shall be made
(i) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to such action, suit
or proceeding, (ii) if such a quorum is not attainable, or, even
if attainable, if a majority vote of a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion or (iii) by the stockholders. Notwithstanding the
foregoing, if the Corporation has not declined indemnification
within ninety days after service upon the President of the
Corporation of a notice of demand for indemnification following
the settlement or conclusion of litigation, such inaction shall
conclusively constitute a determination that indemnification is
proper, and the Corporation shall indemnify such person. To the
extent, however, that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise,
including the dismissal of an action without prejudice or the
settlement of an action without admission of liability, in
defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys, fees) actually
and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.
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Section 4. For purposes of any determination under
Section 3 of this Article V, a person shall be deemed to have
acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had no
reasonable cause to believe his conduct was unlawful, if his
action is based on the records or books of account of the
Corporation or another enterprise (provided that such records or
books of account have in each case been prepared by persons whom
the person relying thereon reasonably believes to be
professionally or expertly competent to prepare such records or
books of account), or on such information, opinions, reports or
statements supplied to him by the officers or other employees of
the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section
4 shall mean any other corporation or any partnership, joint
venture, trust or other entity of which such person is or was
serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circumstances
in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or 2 of this Article
V, as the case may be.
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Section 5. Notwithstanding any contrary determination
in the specific case under Section 3 of this Article V, and
notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of
competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article V. The basis of such
indemnification by a court shall be a determination by such court
that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable
standards of conduct set forth in Section 1 or 2 of this Article
V, as the case may be. In any such proceeding, a party in good
faith seeking indemnification shall be entitled to reimbursement
of his expenses (including reasonable attorneys, fees, regardless
of whether or not such person is ultimately entitled to
indemnification. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application.
Section 6. Expenses incurred in defending or
investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by
the Board of Directors upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such
amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in
this Article V.
Section 7. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other sections of
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this Article V shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, contract,
vote of stockholders or disinterested directors or pursuant to
the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that
indemnification of, and advancement of expenses to, the persons
specified in Sections 1 and 2 of this Article V shall be made to
the fullest extent permitted by law. To this end, the provisions
of this Article V shall be deemed to have been amended for the
benefit of such persons effective immediately upon any
modification of the General Corporation Law of the State of
Delaware which expands or enlarges the power or obligation of
corporations organized under such law to indemnify, or advance
expenses to, such persons. The provisions of this Article V
shall not be deemed to preclude the indemnification of, or
advancement of expenses to, any person who is not specified in
Section 1 or 2 of this Article V but whom the Corporation has the
power or obligation to indemnify, or to advance expenses for,
under the provisions of the General Corporation Law of the State
of Delaware or otherwise. No amendment to the Certificate of
Incorporation or By-laws shall operate retroactively to eliminate
or otherwise diminish any right to indemnification or advancement
of expenses which existed at the time of the occurrence of any
conduct subject to a threatened or pending action. The
indemnification and advancement of expenses provided by, or
granted pursuant to, this
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<PAGE>
Article V shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such
person.
Section 8. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would
have the power or the obligation to indemnify him against such
liability under the provisions of this Article V.
Section 9. For purposes of this Article V, references
to the "Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had the power and authority to indemnify its directors, officers,
employees and agents, so that any person who is or was a
director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the
provisions of this Article V with respect to the resulting or
surviving corporation as he would have
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<PAGE>
with respect to such constituent corporation if its separate
existence had continued.
Section 10. If this Article V or any portion thereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify
each director, officer, employee or agent of the Corporation as
to expenses (including attorneys, fees), judgments, fines and
amounts paid in settlement with respect to any action, suit,
proceeding or investigation, whether civil, criminal or
administrative, and whether internal or external, including a
grand jury proceeding and an action or suit brought by or in the
right of the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been
validated, or by any other applicable law.
ARTICLE VI
STOCK
Section 1. The certificates of stock of the
Corporation shall be numbered and shall be entered in the books
of the Corporation as they are issued. Each stockholder shall be
entitled to a certificate exhibiting such stockholder's name and
the number of shares held by such stockholder, which certificate
shall be signed by the Chairman of the Board or the President or
a Vice President, and by the Treasurer or the Secretary or an
Assistant Secretary. Any or all of the signatures on such
certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such
officer, transfer agent or
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<PAGE>
registrar before such certificate is issued, such certificate may
be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 2. Transfers of stock shall be made only upon
the transfer books of the Corporation maintained in an office of
the Corporation or by transfer agents designated to transfer
shares of the stock of the Corporation, and only by the person
named in the certificate or by his attorney, lawfully constituted
in writing, and upon surrender of the certificate therefor.
Section 3. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of
such meeting. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned
meeting.
Section 4. In order that the Corporation may determine
the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten
days after the
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<PAGE>
date upon which the resolution fixing the record date is adopted
by the Board of Directors.
Section 5. In order that the Corporation may determine
the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record
date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 6. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly
provided by the laws of the State of Delaware.
Section 7. The Board of Directors may authorize the
issuance of a new certificate of stock in place of any
certificate previously issued by the Corporation and alleged to
have been lost, stolen or destroyed, pursuant to such regulations
as the Board of Directors may establish concerning proof or
advertisement of such alleged loss, theft or destruction and
concerning the giving of a
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<PAGE>
satisfactory bond or bonds sufficient to indemnify the
Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such
certificate.
Section 8. The issue, transfer, conversion and
registration of certificates of stock of the Corporation shall be
governed by such other regulations as the Board of Directors may
from time to time establish.
ARTICLE VII
NOTICES
Section 1. Whenever pursuant to law, notice is
required to be given to any director, committee member, officer,
stockholder, employee or agent, unless otherwise indicated it
shall not be construed to mean personal notice, but such notice
may be given, in the case of stockholders, in writing, by
depositing the same in the mail, postage prepaid, addressed to
such stockholder at his last known address as the same appears on
the books of the Corporation, and, in the case of directors,
committee members, officers, employees and agents, by hand, by
telephone, or by mail, postage prepaid, or by prepaid telegram at
his last known address as the same appears on the books of the
Corporation. All notices shall be deemed to be given when
delivered, mailed, telegraphed or telephoned, as the case may be.
Section 2. Whenever pursuant to law, notice is
required to be given to any stockholder, director, committee
member, officer, employee or agent, a written waiver thereof,
signed by the person entitled to notice, whether before or after
the time stated
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<PAGE>
therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such
meeting, except as otherwise provided by law. Neither the
business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or
by these By-laws.
ARTICLE VIII
DIVIDENDS
Section 1. Dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property or in shares of the capital stock.
Section 2. Before payment of any dividend, the Board
of Directors may set aside, out of any funds of the Corporation
available for dividends, such sums as the Board of Directors may
deem proper as a reserve fund to meet contingencies, to equalize
dividends, to repair or maintain any property of the Corporation,
or for such other purposes as the directors may deem to be in the
best interests of the Corporation, and the Board of Directors may
reduce or abolish any such reserve in the manner in which it was
created.
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<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 1. The Board of Directors may provide a
suitable corporate seal, containing the name of the corporation,
which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, the
Secretary may have duplicates of such seal made and deposited for
use with other officers of the Corporation. It shall not be
necessary to the validity of any instrument executed by any
authorized officer or officers of the Corporation that the
execution of such instrument be evidenced by the corporate seal.
Section 2. Each director, each member of any committee
designated by the Board of Directors, and each officer of the
corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account,
information, statements or other records of the corporation,
including reports made to the corporation by any of its
directors, officers, employees or counsel, by an independent
certified public accountant, or by an appraiser selected with
reasonable care. An action shall not be considered taken in good
faith if the director, committee member or officer has knowledge
concerning the matter in question that would cause his reliance
to be unwarranted.
Section 3. The fiscal year of the Corporation shall be
as determined by the Board of Directors.
Section 4. In applying any provision of these bylaws
which require that an act be done or not done a specified number of
days prior to an event or that an act be done during a period of a
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<PAGE>
specified number of days prior to an event, calendar days shall
be used, the day of the doing of the act shall be excluded, and
the day of the event shall be included.
Section 5. At each annual meeting of the stockholders
of the Corporation, the Board of Directors shall present a full
and clear statement of the business and affairs of the
Corporation for the preceding year.
Section 6. Facsimile signatures of any officer of the
Corporation may be used at such time and in such manner as
authorized by the Board of Directors or a committee thereof.
ARTICLE X
AMENDMENT
Section 1. These By-laws may be amended, suspended or
repealed and new By-laws may be adopted in a manner consistent
with law: (a) if authorized by the Certificate of Incorporation,
by the affirmative vote of a majority of the Board of Directors
then in office, at any meeting of the Board of Directors, or by
the unanimous written consent of the Board of Directors in lieu
of a meeting, or (b) by the affirmative vote of the stockholders
at any stockholders, meeting called and maintained in accordance
with Article I of these By-laws or by written consent in
accordance with such Article I; provided, however, that a brief
description of such proposed amendment or appeal and adoption of
new By-laws is contained in the notice of such meeting of the
Board of Directors or of such annual or special stockholders,
meeting.
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The undersigned, Secretary of J. Crew Services, Inc.,
does hereby certify that the foregoing is a true copy of the
Bylaws of J. Services, Inc. and that the same are in full
force and effect at this date.
Dated: January 19, 1993 /s/ Nicholas Lamberti
---------------------------
, Secretary
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EXECUTION COPY
J. Crew Operating Corp.
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10 3/8 SENIOR SUBORDINATED NOTES DUE 2007
----------------------------------------
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INDENTURE
DATED AS OF OCTOBER 17, 1997
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STATE STREET BANK AND TRUST COMPANY
TRUSTEE
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<PAGE>
Indenture, dated as of October 17, 1997 among J. Crew
Operating Corp., a Delaware corporation (the "Company"), as
issuer, each of C&W Outlet, Inc., a New York corporation, Grace
Holmes Inc., a Delaware corporation, Clifford & Wills, Inc., a
New Jersey corporation, H.F.D. No. 55, Inc., a Delaware
corporation, J. Crew, Inc., a New Jersey corporation, J. Crew
International, Inc., a Delaware corporation, J. Crew Services,
Inc., a New York corporation, and Popular Club Plan, Inc., a New
Jersey corporation, as guarantors (each a "Guarantor") and
together with any subsidiary that executes a Subsidiary Guarantee
substantially in the form of Exhibit D attached hereto, (the
"Guarantors") and State Street Bank and Trust Company, as trustee
(the "Trustee").
The Company, the Guarantors and the Trustee agree as
follows for the benefit of each other and for the equal and
ratable benefit of the holders of the Company's 10 3/8% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes") and
the exchange 10 3/8% Senior Subordinated Notes due 2007 (the
"Exchange Senior Subordinated Notes" and, together with the
Senior Subordinated Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary
of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or
assumed in connection with the acquisition of any asset used or
useful in a Permitted Business acquired by such specified Person;
provided that such Indebtedness was not incurred in connection
with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, or such
acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer
or exchange of beneficial interests in a Global Note, the rules
and procedures of the Depositary that apply to such transfer and
exchange.
"Asset Sale" means (i) the sale, lease (other than an
operating lease), conveyance or other disposition of any assets
or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business
consistent with past practices (provided that the sale, lease
(other than an operating lease), conveyance or other disposition
of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the
provisions of this Indenture described in Sections 4.13 and 5.01
and not by the provisions of Section 4.10 hereof, and (ii) the
sale by the Company and the issue or sale by any of the
Restricted Subsidiaries of the Company
<PAGE>
of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions that have a fair
market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million or for net cash proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary of the Company (other than a Receivables Subsidiary)
or by a Wholly Owned Restricted Subsidiary of the Company (other
than a Receivables Subsidiary) to the Company or to a Wholly
Owned Restricted Subsidiary of the Company (other than a
Receivables Subsidiary), (ii) an issuance of Equity Interests by
a Restricted Subsidiary of the Company to the Company or to a
Wholly Owned Restricted Subsidiary of the Company (other than a
Receivables Subsidiary), (iii) a Restricted Payment that is
permitted by Section 4.07 hereof, (iv) the sale and leaseback of
any assets within 90 days of the acquisition of such assets, (v)
foreclosures on assets, (vi) the clearance of inventory and (vii)
the sale, conveyance or other disposition of accounts receivables
and related assets customarily transferred in an asset
securitization transaction involving accounts receivable to a
Receivables Subsidiary or by a Receivables Subsidiary, in
connection with a Qualified Receivables Transaction, in each
case, will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present
value (discounted at the rate of interest implicit in such
transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback
transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the
Company or any authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease that would at such time be required
to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participation, rights or
other equivalents (however designated) of corporate stock, (iii)
in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited)
and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) securities issued or
unconditionally and fully guaranteed or insured by the full faith
and credit of the United States government or any agency or
instrumentality thereof having maturities of not more than one
year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or
any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time
deposits with maturities of one year or less from the date of
acquisition, bankers'
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<PAGE>
acceptances with maturities not exceeding one year and overnight
bank deposits, in each case with any lender party to the New
Credit Facility or with any domestic commercial bank having
capital and surplus in excess of $250.0 million, (iv) repurchase
obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i) and
(iii), above entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v)
commercial paper having one of the two of the highest ratings
obtainable from either Moody's or S&P and in each case maturing
within one year after the date of acquisition and (vi)
investments in funds investing exclusively in investments of the
types described in clauses (i) through (v) above.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), other than the Principals and their Related
Parties, (ii) the adoption of a plan relating to the liquidation
or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as
defined above), other than the Principal and their Related
Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of 40% or more of the Voting Stock of the Company
(measured by voting power rather than number of shares) and (B)
the Principals and their Related Parties beneficially own,
directly or indirectly, in the aggregate a lesser percentage of
the Voting Stock of the Company than such other "person", (iv)
the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors or (v) the
Company consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any
of the outstanding Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than
any such transaction where (A) the Voting Stock of the Company
outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person and (B) either (1)
the "beneficial owners" (as defined above) of the Voting Stock of
the Company immediately prior to such transaction own, directly
or indirectly through one or more subsidiaries, not less than a
majority of the total Voting Stock of the surviving or transferee
corporation immediately after such transaction or (2) if,
immediately prior to such transaction the Company is a direct or
indirect subsidiary of any other Person (such other Person, the
"Holding Company"), then the "beneficial owners" (as defined
above) of the Voting Stock of such Holding Company immediately
prior to such transaction own, directly or indirectly through one
or more subsidiaries, not less than a majority of the total
Voting Stock of the surviving or transferee corporation
immediately after such transaction.
"Chase" means Chase Securities Inc.
"Commission" means the Securities and Exchange Commission.
"Company" means J. Crew Operating Corp., a Delaware
corporation, and its permitted successors.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for
such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to
the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted
Subsidiaries), plus (ii) provision for taxes
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<PAGE>
based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision
for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated
Net Income, plus (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a
prepaid cash charge that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that
such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) any
interest expense on Indebtedness of another Person that is
Guaranteed by such Person or a Restricted Subsidiary of such
Person or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries, to the extent that such interest
expense was deducted in computing such Consolidated Net Income,
minus (vi) non-cash items increasing such Consolidated Net Income
for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits
of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person
and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP, provided that (i) the Net
Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or
a Restricted Subsidiary thereof, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders, (iii) the Net Income of any Person acquired
in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be
excluded.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the
Company or any Holding Company of the Company who (i) was a
member of such Board of Directors on the date hereof immediately
after consummation of the Recapitalization or (ii) was nominated
for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were
either members of such Board at the time of such nomination or
election or are successor Continuing Directors appointed by such
Continuing Directors (or their successors).
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 13.02 hereof or such
other address as to which the Trustee may give notice to the
Company.
4
<PAGE>
"Credit Agent" means The Chase Manhattan Bank in its
capacity as Administrative Agent for the lenders party to the New
Credit Facility or any successor thereto or any person otherwise
appointed.
"Credit Facilities" means, with respect to the Company, one
or more debt facilities (including, without limitation, the New
Credit Facility) or commercial paper facilities with banks or
other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to
time. Indebtedness under Credit Facilities outstanding on the
Issue Date shall be deemed to have been incurred on such date in
reliance on the exceptions provided by clauses (i) and (ii) of
the definition of Permitted Debt.
"Default" means any event that is or with the passage of
time or the giving of notice or both would be an Event of
Default.
"Definitive Notes" means Notes that are in the form of
EXHIBIT A-1 attached hereto (but without including the text
referred to in footnotes 1 and 3 thereto).
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified
in Section 2.03 hereof as the Depositary with respect to the
Notes, until a successor shall have been appointed and become
such pursuant to Section 2.06 of this Indenture, and, thereafter,
"Depositary" shall mean or include such successor.
"Designated Senior Debt" means (i) any Senior Debt
outstanding under the New Credit Facility and (ii) any other
Senior Debt permitted under this Indenture the principal amount
of which is $50 million or more and that has been designated by
the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date on which the Notes
mature; provided, however, that a class of Capital Stock shall
not be Disqualified Stock hereunder solely as the result of any
maturity or redemption that is conditioned upon, and subject to,
compliance with Section 4.07 hereof; and provided, further, that
Capital Stock issued to any plan for the benefit of employees of
the Company or its subsidiaries or by any such plan to such
employees shall not constitute Disqualified Stock solely because
it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding
any debt security that is convertible into, or exchangeable for,
Capital Stock).
"Equity Offering" means an offering of common stock (other
than Disqualified Stock) of the Company or Holdings, pursuant to
an effective registration statement filed with the Commission in
accordance with the Securities Act, other than an offering
pursuant to Form S-8 (or any successor thereto) provided, that in
the case of an Equity Offering by Holdings, Holdings contributes
to the common equity of the Company the portion of the net cash
proceeds thereof necessary to pay the aggregate redemption price
of the Notes to be redeemed in connection therewith.
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<PAGE>
"Euroclear" means Morgan Guaranty Trust Company of New
York, the Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Exchange Offer" means the offer by the Company to Holders
to exchange Senior Subordinated Notes for Exchange Senior
Subordinated Notes.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Exchange Senior Subordinated Notes" means the Company's
10 3/8% Senior Subordinated Notes due 2007, which will be issued
in exchange for the Company's Senior Subordinated Notes.
"Existing Indebtedness" means Indebtedness of the Company
and its Subsidiaries (other than Indebtedness under the New
Credit Facility) in existence on the date of this Indenture,
until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated
interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging
Obligations; provided, however, that in no event shall any
amortization of deferred financing costs incurred in connection
with the Recapitalization be included in Fixed Charges), and (ii)
the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or
Lien is called upon), and (iv) the product of (a) (without
duplication) (1) all dividends paid or accrued in respect of
Disqualified Stock which are not treated as interest for tax
purposes for such period and (2) all cash dividend payments on
any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests (other than
Disqualified Stock) of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of
such Person and its Restricted Subsidiaries for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays or
redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, repayment or redemption
of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the
applicable
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four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the
four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow and Fixed Charges for such
reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of
Consolidated Net Income and shall reflect any pro forma expense
and cost reductions attributable to such acquisitions (to the
extent such expense and cost reduction would be permitted by the
Commission to be reflected in pro forma financial statements
included in a registration statement filed with the Commission),
and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and Consolidated
Cash Flow shall reflect any pro forma expense or cost reductions
relating to such discontinuance or disposition (to the extent
such expense or cost reductions would be permitted by the
Commission to be reflected in pro forma financial statements
included in a registration statement filed with the Commission),
and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise
to such Fixed Charges will not be obligations of the referent
Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which are in effect on the date
hereof; provided, however, that all reports and other financial
information provided by the Company to the Holders, the Trustee
and/or the Commission shall be prepared in accordance with GAAP,
as in effect on the date of such report or other financial
information.
"Global Notes" means the Rule 144A Global Notes, the
Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes and any Notes exchanged for any of the
foregoing in the Exchange Offer.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the
payment of which guarantee or obligations the full faith and
credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Guarantors" means, all Subsidiaries of the Company that
execute a Subsidiary Guarantee substantially in the form of
Exhibit D attached hereto.
"Hedging Obligations" means, with respect to any Person,
the obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or the
value of foreign currencies.
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<PAGE>
"Holder" means a Person in whose name a Note is registered.
"Holdings" means J. Crew Group, Inc., a New York
corporation, the corporate parent of the Company, or its
successors.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the
balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters
of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of
any date shall be (i) the accreted value thereof, in the case of
any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including
Affiliates) in the forms of direct or indirect loans (including
guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with
all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. If the Company or
any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, such Person is no longer
a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of
Section 4.07 hereof.
"Indenture" means this Indenture, as amended or
supplemented from time to time.
"Indirect Participant" means a Person who holds an interest
through a Participant.
"Initial Purchasers" means DLJ and Chase.
"Insolvency or Liquidation Proceedings" means (i) any
insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding,
relative to the Company or to the creditors of the Company, as
such, or to the assets of the Company or (ii) any liquidation,
dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary and involving insolvency or bankruptcy,
or (iii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
"Institutional Accredited Investor" means an "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
8
<PAGE>
"Issue Date" means the date on which notes are first issued
and authenticated under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on
which banking institutions in the City of New York, the city in
which the principal Corporate Trust Office of the Trustee is
located or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date
is a Legal Holiday at a place of payment, payment shall be made
at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or
give a security interest therein).
"Liquidated Damages" means all liquidated damages then
owing pursuant to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with
any related provision for taxes on such gain (but not loss),
realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Proceeds" means the aggregate cash proceeds received
by the Company or any of its Restricted Subsidiaries in respect
of any Asset Sale (including, without limitation, any cash
received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the
repayment of Indebtedness (other than Indebtedness under the
Credit Facilities) secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"New Credit Facility" means that certain credit facility,
dated as of October 17, 1997, by and among the Company, Holdings,
Chase and DLJ, as agents and lenders, providing for up to $70.0
million of term borrowings and $200.0 million of revolving credit
borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection
therewith, and in each case as amended, extended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Company nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), or
(b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries,
including the stock of such Unrestricted Subsidiary.
9
<PAGE>
"Note Custodian" means the Trustee when serving as
custodian for the Depositary with respect to the Notes in global
form, or any successor entity thereto.
"Obligations" means, with respect to any Indebtedness, any
principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offering" means the offer and sale of the Notes of the
Company.
"Offerings" means the Offering and the concurrent offering
of the 13 1/8% Senior Discount Debentures due 2008 by Holdings
pursuant to an offering memorandum dated as of October 14, 1997.
"Officer" means, with respect to any Person, the Chairman
of the Board, the Chief Executive Officer, the President, the
Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, the Controller, the Secretary
or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on
behalf of the Company by two Officers of the Company, one of whom
must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of the
Company, that meets the requirements of Section 13.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel
who is reasonably acceptable to the Trustee, that meets the
requirements of Section 13.05 hereof. The counsel may be an
employee of or counsel to the Company, any Subsidiary of the
Company or the Trustee.
"Participant" means, with respect to DTC, Euroclear or
Cedel, a Person who has an account with DTC, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear
and Cedel).
"Permitted Business" means the design, manufacture,
importing, exporting, distribution, marketing, licensing and
wholesale and retail sale of apparel, housewares, home
furnishings and related items, and businesses reasonably related
thereto.
"Permitted Investments" means (a) any Investment in the
Company or in a Restricted Subsidiary of the Company (other than
a Receivables Subsidiary); (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted
Subsidiary in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Company (other
than a Receivables Subsidiary) or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary of the Company (other than a
Receivables Subsidiary); (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset
Sale that was made pursuant to and in compliance with Section
4.10 hereof or any transaction not constituting an Asset Sale by
reason of the $1.0 million threshold contained in the definition
thereof; (e) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) Hedging Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries'
Businesses and otherwise in compliance with this Indenture; (g)
loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business
for bona fide business purposes not in excess of $5 million at
any one time outstanding; (h) additional Investments not to
exceed $25 million at any one time outstanding; (i) Investments
in securities of trade creditors or customers received in
settlement of obligations or pursuant to any plan of
reorganization or similar arrangement
10
<PAGE>
upon the bankruptcy or insolvency of such trade creditors or
customers; and (j) Investments by the Company or a Restricted
Subsidiary in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other Person, in each case, in
connection with a Qualified Receivables Transaction, provided,
that any Investment in any such Person is in the form of a
Purchase Money Note, any equity interest or interests in accounts
receivable and related assets generated by the Company or a
Restricted Subsidiary and transferred to any Person in connection
with a Qualified Receivables Transaction or any such Person
owning such accounts receivable.
"Permitted Junior Securities" means Equity Interests in the
Company or debt securities that are subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt)
to substantially the same extent as, or to a greater extent than,
the Notes are subordinated to Senior Debt pursuant to Article 10
of the Indenture.
"Permitted Liens" means (i) Liens existing as of the Issue
Date to the extent and in the manner such Liens are in effect on
the Issue Date; (ii) Liens securing Senior Debt and Liens on
assets of Restricted Subsidiaries securing Guarantees of Senior
Debt permitted to be incurred under this Indenture; (iii) Liens
securing the Notes and the Subsidiary Guarantees; (iv) Liens of
the Company or a Wholly Owned Restricted Subsidiary on assets of
any Restricted Subsidiary of the Company; (v) Liens securing
Permitted Refinancing Indebtedness which is incurred to refinance
any Indebtedness which has been secured by a Lien permitted under
this Indenture and which has been incurred in accordance with the
provisions hereof; provided, however, that such Liens (A) are not
materially less favorable to the Holders and are not materially
more favorable to the lienholders with respect to such Liens than
the Liens in respect of the Indebtedness being refinanced and (B)
do not extend to or cover any property or assets of the Company
or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced; (vi) Liens for taxes, assessments or
governmental charges or claims either (A) not delinquent or (B)
contested in good faith by appropriate proceedings and as to
which the Company or its Restricted Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to
GAAP; (vii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, supplies, materialmen, repairmen and
other Liens imposed by law incurred in the ordinary course of
business for sums not yet delinquent for a period of more than 60
days or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof; (viii) Liens incurred or
deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other
types of social security or similar obligations, including any
Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money); (ix) judgment Liens not giving rise to an Event of
Default so long as such Lien is adequately bonded and any
appropriate legal proceedings which may have been duly initiated
for the review of such judgement shall not have been finally
terminated or the period within which such proceedings may be
initiated shall not have expired; (x) easements, rights-of-way,
zoning restrictions and other similar charges or encumbrances in
respect of real property not interfering in any material respect
with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries; (xi) any interest or title of a
lessor under any lease, whether or not characterized as capital
or operating; provided that such Liens do not extend to any
property or assets which is not leased property subject to such
lease; (xii) Liens securing Capital Lease Obligations and
purchase money Indebtedness incurred in accordance with Section
4.09 hereof; provided, however, that (A) the Indebtedness shall
not exceed the cost of such property or assets being acquired or
constructed and shall not be secured by any property or assets of
the Company or any Restricted Subsidiary of the Company other
than the property or assets of the Company or any Restricted
Subsidiary
11
<PAGE>
of the Company other than the property and assets being acquired
or constructed and (B) the Lien securing such Indebtedness shall
be created within 90 days of such acquisition or construction;
(xiii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account
of such Person to facilitate the purchase, shipment or storage of
such inventory or other goods; (xiv) Liens securing reimbursement
obligations with respect to letters of credit which encumber
documents and other property relating to such letters of credit
and products and proceeds thereof; (xv) Liens encumbering
deposits made to secure obligations arising from statutory,
regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset
and set-off; (xvi) Liens securing Hedging Obligations which
Hedging Obligations relate to Indebtedness that is otherwise
permitted under this Indenture; (xvii) Liens securing Acquired
Debt incurred in accordance with Section 4.09 hereof; provided
that (A) such Liens secured such Acquired Debt at the time of and
prior to the incurrence of such Acquired Debt by the Company or a
Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such
Acquired Debt by the Company or a Restricted Subsidiary of the
Company and (B) such Liens do not extend to or cover any property
or assets of the Company or any of its Restricted Subsidiaries
other than the property or assets that secured the Acquired Debt
prior to the time such Indebtedness became Acquired Debt of the
Company or a Restricted Subsidiary of the Company and are not
more favorable to the lienholders than those securing the
Acquired Debt prior to the incurrence of such Acquired Debt by
the Company or a Restricted Subsidiary of the Company; (xviii)
leases or subleases granted to others not interfering in any
material respect with the business of the Company or its
Restricted Subsidiaries; (xix) Liens arising out of consignment
or similar arrangements for the sale of goods entered into by the
Company or any Restricted Subsidiary in the ordinary course of
business; and (xx) Liens or assets of a Receivables Subsidiary
arising in connection with a Qualified Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Company or any of its Subsidiaries issued in exchange for,
or the net proceeds of which are used to extend, refinance,
prepay, retire, renew, replace, defease or refund Indebtedness of
the Company or any of its Subsidiaries (other than such
Indebtedness described in clauses (i), (vi), (vii), (viii), (ix),
(x), (xi), (xiii) and (xiv) of Section 4.09 hereof); provided
that: (i) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced,
renewed, prepaid, retired, replaced, defeased or refunded (plus
the amount of reasonable expenses incurred in connection
therewith including premiums paid, if any, to the holders
thereof); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at or later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, prepaid, retired, replaced,
defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, prepaid, retired, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to
the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is
incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
"Principals" means TPG Partners II, L.P., a Delaware
limited partnership.
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"Private Placement Legend" means the legend initially set
forth on the Senior Discount Notes in the form set forth in
Section 2.06(g) hereof.
"Purchase Money Note" means a promissory note evidencing a
line of credit, or evidencing other Indebtedness owed to the
Company or any Restricted Subsidiary in connection with a
Qualified Receivables Transaction, which note shall be repaid
from cash available to the maker of such note, other than amounts
required to be established as reserves pursuant to agreement,
amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act.
"Qualified Proceeds" means any of the following or any
combination of the following: (i) cash, (ii) Cash Equivalents,
(iii) long-term assets that are used or useful in a Permitted
Business and (iv) the Capital Stock of any Person engaged
primarily in a Permitted Business if, in connection with the
receipt by the Company or any Restricted Subsidiary of the
Company of such Capital Stock, (a) such Person becomes a
Wholly-Owned Restricted Subsidiary and a Guarantor or (b) such
Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Wholly-Owned Restricted
Subsidiary of the Company that is a Guarantor.
"Qualified Receivables Transaction" means any transaction
or series of transactions that may be entered into by the Company
or any Restricted Subsidiary pursuant to which the Company or any
Restricted Subsidiary may sell, convey or otherwise transfer to
(a) a Receivables Subsidiary (in the case of a transfer by the
Company or any Restricted Subsidiary) and (b) any other Person
(in the case of a transfer by a Receivables Subsidiary), or may
grant a security interest in, any accounts receivable (whether
now existing or arising in the future) of the Company or any
Restricted Subsidiary and any asset related thereto including,
without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred, or
in respect of which security interests are customarily granted,
in connection with asset securitization transactions involving
accounts receivable.
"Receivables" means, with respect to any Person or entity,
all of the following property and interests in property of such
Person or entity, whether now existing or existing in the future
or hereafter acquired or arising: (i) accounts, (ii) accounts
receivable incurred in the ordinary course of business, including
without limitation, all rights to payment created by or arising
from sales of goods, leases of goods or the rendition of services
no matter how evidenced, whether or not earned by performance,
(iii) all rights to any goods or merchandise represented by any
of the foregoing after creation of the foregoing, including,
without limitation, returned or repossessed goods, (iv) all
reserves and credit balances with respect to any such accounts
receivable or account debtors, (v) all letters of credit,
security, or guarantees for any of the foregoing, (vi) all
insurance policies or reports relating to any of the foregoing,
(vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all
books and records relating to any of the foregoing.
"Receivables Subsidiary" means a Wholly Owned Restricted
Subsidiary (other than a Guarantor) which engages in no
activities other than in connection with the financing of
accounts receivables and which is designated by the Board of
Directors of the Company (as provided below) as a Receivables
Subsidiary (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (i) is guaranteed
by the Company or any other Restricted Subsidiary (excluding
guarantees of obligations
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(other than the principal of, and interest on, Indebtedness)
pursuant to Standard Securitization Undertakings), (ii) is
recourse to or obligates the Company or any other Restricted
Subsidiary in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or
asset of the Company or any other Restricted Subsidiary, directly
or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any other
Restricted Subsidiary has any material contract, agreement,
arrangement or understanding (except in connection with a
Purchase Money Note or Qualified Receivables Transaction) other
than on terms no less favorable to the Company or such other
Restricted Subsidiary than those that might be obtained at the
time from persons that are not Affiliates of the Company, other
than fees payable in the ordinary course of business in
connection with servicing accounts receivable, and (c) to which
neither the Company nor any other Restricted Subsidiary has any
obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of
operating results. Any such designation by the Board of Directors
of the Company shall be evidenced to the Trustee by filing with
the Trustee a certified copy of the resolution of the Board of
Directors of the Company giving effect to such designation and an
Officers' Certificate certifying, to the best of such officer's
knowledge and belief after consulting with counsel, that such
designation complied with the foregoing conditions.
"Receivables Transaction" means (i) the sale or other
disposition to a third party of Receivables or an interest
therein, or (ii) the sale or other disposition of Receivables or
an interest therein to a Receivables Subsidiary followed by a
financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is
effected by such Receivables Subsidiary or by a third party to
whom such Receivables Subsidiary sells such Receivables or
interests therein); provided that in each of the foregoing, the
Company or its Subsidiaries receive at least 80% of the aggregate
principal amount of any Receivables financed in such transaction.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the date hereof, among the Company,
the Guarantors and the Initial Purchasers.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Notes" means the Regulation S
Temporary Global Notes or the Regulation S Permanent Global Notes
as applicable.
"Regulation S Permanent Global Notes" means the permanent
global notes that do not contain the paragraphs referred to in
footnote 1 to the form of Note attached hereto as EXHIBIT A-2 and
that are deposited with and registered in the name of the
Depositary or its nominee, representing a series of Notes sold in
reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary
global notes that contain the paragraphs referred to in footnote
1 to the form of Note attached hereto as EXHIBIT A-2 and that are
deposited with and registered in the name of the Depositary or
its nominee, representing a series of Notes sold in reliance on
Regulation S.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or a majority of (or more) owned
Subsidiary of such Principal or, in the case of an individual,
any spouse or immediate family member of such Principal, or (B)
any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding a majority (or more) controlling interest of
which consist of such Principal and/or such other Persons
referred to in the immediately preceding clause (A).
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"Responsible Officer" when used with respect to the
Trustee, means any officer within the Corporate Trust
Administration of the Trustee (or any successor group of the
Trustee) or any other officer of the trustee customarily
performing functions similar to those performed by any of the
above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity
with the particular subject.
"Restricted Beneficial Interest" means any beneficial
interest of a Participant or Indirect Participant in the Rule
144A Global Note or the Regulation S Global Note.
"Restricted Broker Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Global Notes" means the Rule 144A Global Notes
and the Regulation S Global Notes, all of which shall bear the
Private Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means the permanent global notes
that contain the paragraph referred to in footnote 1 and the
additional schedule referred to in footnote 3 to the form of the
Note attached hereto as EXHIBIT A-1, and that is deposited with
and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Rule 144A.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness of the Company or
any Guarantor outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, (ii) other Indebtedness of the
Company or any of its Guarantor permitted to be incurred under
the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes and
(iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local
or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates,
(y) any trade payables or (z) any Indebtedness that is incurred
in violation of the Indenture.
"Senior Discount Debentures" means Holdings' 13 1/8% Senior
Discount Debentures due 2008.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such
Regulation is in effect on the date hereof.
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"Standard Securitization Undertakings" means
representations, warranties, covenants and indemnities entered
into by the Company or any Restricted Subsidiary which are
reasonably customary in an accounts receivable transaction.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on
which such payment of interest or principal was scheduled to be
paid in the original documentation governing such Indebtedness,
and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total Voting Stock thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Tax Sharing Agreement" means, the tax sharing agreement
among Holdings, the Company and any one or more of the Company's
subsidiaries, as amended from time to time, so long as the method
of calculating the amount of the Company's (or any Restricted
Subsidiary's) payments, if any, to be made thereunder is not less
favorable to the Company than as provided in such agreement as in
effect on the Issue Date, as determined in good faith by the
Board of Directors of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb), as amended, as in effect on the date
hereof.
"Transfer Restricted Securities" means Notes or beneficial
interests therein that bear or are required to bear the Private
Placement Legend.
"Trustee" means State Street Bank and Trust Company until a
successor replaces it in accordance with the applicable
provisions of this Indenture, and thereafter means the successor.
"Unrestricted Global Notes" means one or more Global Notes
that do not and are not required to bear the Private Placement
Legend.
"Unrestricted Subsidiary" means any Subsidiary of the
Company that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Subsidiary: (a) is not party to any
agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not
Affiliates of the Company; (b) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (x) to subscribe for additional
Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any
specified levels of operating results; and (c) has not guaranteed
or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with a Trustee a
certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was
permitted by Section 4.07 hereof. If, at any time, any
Unrestricted
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Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by
a Restricted Subsidiary of the Company as of such date. The Board
of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of
Indebtedness and issuance of preferred stock by a Restricted
Subsidiary of the Company of any outstanding Indebtedness or
outstanding issue of preferred stock of such Unrestricted
Subsidiary and such designation shall only be permitted if (i)
such Indebtedness and preferred stock is permitted to be incurred
under Section 4.09 hereof, (ii) such Subsidiary becomes a
Subsidiary Guarantor and (iii) no Default or Event of Default
would exist following such designation.
"Voting Stock" of any Person as of any date means the
Capital Stock of such Person that is at the time entitled to vote
in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a)
the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more "Wholly Owned
Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"..................................4.11
"Asset Sale Offer".......................................4.10
"Change of Control Offer"................................4.13
"Change of Control Payment"..............................4.13
"Change of Control Payment Date".........................4.13
"Covenant Defeasance"....................................8.03
"Custodian"..............................................6.01
"DTC"....................................................2.03
"Electronic Message".....................................2.02
"Event of Default".......................................6.01
"Excess Proceeds"........................................4.10
"Guaranteed Debt"........................................4.17
"incur"..................................................4.09
"Legal Defeasance".......................................8.02
"Offer Amount"...........................................3.09
"Offer Period"...........................................3.09
"Pari Passu Indebtedness"................................4.10
"Paying Agent"...........................................2.03
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"Payment Default"........................................6.01
"Permitted Debt".........................................4.09
"Purchase Date"..........................................3.09
"Registrar"..............................................2.03
"Repurchase Offer".......................................3.09
"Restricted Payments"....................................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA,
the provision is incorporated by reference in, and made a part
of, this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, each
Guarantor and any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined
by the Commission rule under the TIA have the meanings so
assigned to them therein.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in
the plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute,
replacement or successor sections or rules adopted by
the Commission from time to time.
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ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of EXHIBIT A-1 or EXHIBIT A-2
attached hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each
Note shall be dated the date of its authentication. The Notes
initially shall be issued in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this
Indenture and the Company, the Guarantors and the Trustee, by
their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
(a) Global Notes. Notes offered and sold to QIBs in
reliance on Rule 144A shall be issued initially in the form of
Rule 144A Global Notes, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with a custodian of
the Depositary, and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Rule 144A Global Notes may from
time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee as
hereinafter provided.
Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of the Regulation S Temporary Global
Note, which shall be deposited on behalf of the purchasers of the
Notes represented thereby with the Trustee, as custodian for the
Depositary, and registered in the name of the Depositary or the
nominee of the Depositary for the accounts of designated agents
holding on behalf of Euroclear or Cedel, duly executed by the
Company and authenticated by the Trustee as hereinafter provided.
The "40-day restricted period" (as defined in Regulation S) shall
be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary, together with copies of
certificates from Euroclear and Cedel certifying that they have
received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S
Temporary Global Notes (except to the extent of any beneficial
owners thereof who acquired an interest therein pursuant to
another exemption from registration under the Securities Act and
who will take delivery of a beneficial ownership interest in a
Rule 144A Global Note, all as contemplated by Section 2.06(a)(ii)
hereof), and (ii) an Officers' Certificate from the Company
certifying as to the same matters covered in clause (i) above.
Following the termination of the 40-day restricted period,
beneficial interests in the Regulation S Temporary Global Note
shall be exchanged for beneficial interests in Regulation S
Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent
Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Notes. The aggregate principal amount of the Regulation S
Temporary Global Notes and the Regulation S Permanent Global
Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers
of interest as hereinafter provided.
Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Notes from
time to time endorsed thereon and that the aggregate amount of
outstanding Notes represented thereby may from time to time be
reduced or increased, as appropriate, to reflect exchanges,
redemptions and transfers of interests. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in
the
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amount of outstanding Notes represented thereby shall be made by
the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the
Euroclear System" and "Terms and Conditions Governing Use of
Euroclear" and the "Management Regulations" and "Instructions to
Participants" of Cedel shall be applicable to interests in the
Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes that are held by Participants through
Euroclear or Cedel. The Trustee shall have no obligation to
notify Holders of any such procedures or to monitor or enforce
compliance with the same.
Except as set forth in Section 2.06 hereof, the Global
Notes may be transferred, in whole and not in part, only to
another nominee of the Depositary or to a successor of the
Depositary or its nominee.
(b) Book-Entry Provisions. This Section 2.01(b) shall
apply only to Rule 144A Global Notes and Regulation S Permanent
Global Notes deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in
accordance with this Section 2.01(b) and Section 2.02,
authenticate and deliver the Global Notes that (i) shall be
registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instructions or held
by the Trustee as custodian for the Depositary.
Participants shall have no rights either under this
Indenture with respect to any Global Note held on their behalf by
the Depositary or by the Note Custodian as custodian for the
Depositary or under such Global Note, and the Depositary may be
treated by the Company, the Trustee and any agent of the Company
or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its
Participants, the operation of customary practices of such
Depositary governing the exercise of the rights of an owner of a
beneficial interest in any Global Note.
(c) Definitive Notes. Notes issued in certificated
form shall be substantially in the form of EXHIBIT A-1 attached
hereto (but without including the text referred to in footnotes 1
and 3 thereto).
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the
Company by manual or facsimile signature. The Company's seal
shall be reproduced on the Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Note
no longer holds that office at the time the Note is
authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Note has been authenticated under
this Indenture. The form of Trustee's certificate of
authentication to be borne by the Notes shall be substantially as
set forth in EXHIBIT A-1 OR EXHIBIT A-2 hereto.
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The Trustee shall, upon a written order of the Company
signed by an Officer of the Company, authenticate Notes for
original issue up to an aggregate principal amount at maturity of
Notes stated in the Notes. The aggregate principal amount at
maturity of Notes outstanding at any time shall not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Notes. Unless limited by the terms
of such appointment, an authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate
of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where
Notes may be presented for registration of transfer or for
exchange ("Registrar") and (ii) an office or agency where Notes
may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more additional paying
agents. The term "Paying Agent" includes any additional paying
agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any of its Subsidiaries may act
as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with
respect to the Global Notes. The Company initially appoints the
Trustee to act as the Registrar and Paying Agent with respect to
the Definitive Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent shall hold in
trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal, premium or
Liquidated Damages, if any, or interest on the Notes, and shall
notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the
Trustee. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate
and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon the occurrence of
events specified in Section 6.01(vii) or (viii) hereof, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of
the names and addresses of all Holders and shall otherwise comply
with TIA ss. 312(a). If the Trustee is not the Registrar, the
Company and the Guarantors shall furnish to the Trustee at least
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seven (7) Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders of Notes and
the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. The transfer and
exchange of Global Notes or beneficial interests therein shall be
effected through the Depositary, in accordance with this
Indenture and the procedures of the Depositary therefor, which
shall include restrictions on transfer comparable to those set
forth herein to the extent required by the Securities Act.
Beneficial interests in a Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial
interest in the same Global Note in accordance with the transfer
restrictions set forth in the legend in subsection (g) of this
Section 2.06. Transfers of beneficial interests in the Global
Notes to Persons required to take delivery thereof in the form of
an interest in another Global Note shall be permitted as follows:
(i) Rule 144A Global Note to Regulation S Global Note.
If, at any time, an owner of a beneficial interest
in a Rule 144A Global Note deposited with the
Depositary (or the Trustee as custodian for the
Depositary) wishes to transfer its beneficial
interest in such Rule 144A Global Note to a Person
who is required or permitted to take delivery
thereof in the form of an interest in a Regulation
S Global Note, such owner shall, subject to the
Applicable Procedures, exchange or cause the
exchange of such interest for an equivalent
beneficial interest in a Regulation S Global Note
as provided in this Section 2.06(a)(i). Upon
receipt by the Trustee of (1) instructions given
in accordance with the Applicable Procedures from
a Participant directing the Trustee to credit or
cause to be credited a beneficial interest in the
Regulation S Global Note in an amount equal to the
beneficial interest in the Rule 144A Global Note
to be exchanged, (2) a written order given in
accordance with the Applicable Procedures
containing information regarding the Participant
account of the Depositary and the Euroclear or
Cedel account to be credited with such increase,
and (3) a certificate in the form of EXHIBIT B-1
hereto given by the owner of such beneficial
interest stating that the transfer of such
interest has been made in compliance with the
transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with Rule
903 or Rule 904 of Regulation S, then the Trustee,
as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate
principal amount at maturity of the applicable
Rule 144A Global Note and to increase or cause to
be increased the aggregate principal amount at
maturity of the applicable Regulation S Global
Note by the principal amount at maturity of the
beneficial interest in the Rule 144A Global Note
to be exchanged or transferred, to credit or cause
to be credited to the account of the Person
specified in such instructions, a beneficial
interest in the Regulation S Global Note equal to
the reduction in the aggregate principal amount at
maturity of the Rule 144A Global Note, and to
debit, or cause to be debited, from the account of
the Person making such exchange or transfer the
beneficial interest in the Rule 144A Global Note
that is being exchanged or transferred.
(ii) Regulation S Global Note to Rule 144A Global Note. If,
at any time, after the expiration of the 40-day restricted
period, an owner of a beneficial interest in a
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Regulation S Global Note deposited with the
Depositary or with the Trustee as custodian for
the Depositary wishes to transfer its beneficial
interest in such Regulation S Global Note to a
Person who is required or permitted to take
delivery thereof in the form of an interest in a
Rule 144A Global Note, such owner shall, subject
to the Applicable Procedures, exchange or cause
the exchange of such interest for an equivalent
beneficial interest in a Rule 144A Global Note as
provided in this Section 2.06(a)(ii). Upon
receipt by the Trustee of (1) instructions from
Euroclear or Cedel, if applicable, and the
Depositary, directing the Trustee, as Registrar,
to credit or cause to be credited a beneficial
interest in the Rule 144A Global Note equal to
the beneficial interest in the Regulation S
Global Note to be exchanged, such instructions to
contain information regarding the Participant
account with the Depositary to be credited with
such increase, (2) a written order given in
accordance with the Applicable Procedures
containing information regarding the participant
account of the Depositary and (3) a certificate
in the form of EXHIBIT B-2 attached hereto given
by the owner of such beneficial interest stating
(A) if the transfer is pursuant to Rule 144A,
that the Person transferring such interest in a
Regulation S Global Note reasonably believes that
the Person acquiring such interest in a Rule 144A
Global Note is a QIB and is obtaining such
beneficial interest in a transaction meeting the
requirements of Rule 144A and any applicable blue
sky or securities laws of any state of the United
States, (B) that the transfer complies with the
requirements of Rule 144 under the Securities
Act, (C) if the transfer is to an Institutional
Accredited Investor that such transfer is in
compliance with the Securities Act and a
certificate in the form of EXHIBIT C attached
hereto and, if such transfer is in respect of an
aggregate principal amount of less than $250,000,
an Opinion of Counsel acceptable to the Company
that such transfer is in compliance with the
Securities Act or (D) if the transfer is pursuant
to any other exemption from the registration
requirements of the Securities Act, that the
transfer of such interest has been made in
compliance with the transfer restrictions
applicable to the Global Notes and pursuant to
and in accordance with the requirements of the
exemption claimed, such statement to be supported
by an Opinion of Counsel from the transferee or
the transferor in form reasonably acceptable to
the Company and to the Registrar and in each
case, in accordance with any applicable
securities laws of any state of the United States
or any other applicable jurisdiction, then the
Trustee, as Registrar, shall instruct the
Depositary to reduce or cause to be reduced the
aggregate principal amount at maturity of such
Regulation S Global Note and to increase or cause
to be increased the aggregate principal amount at
maturity of the applicable Rule 144A Global Note
by the principal amount at maturity of the
beneficial interest in the Regulation S Global
Note to be exchanged or transferred, and the
Trustee, as Registrar, shall instruct the
Depositary, concurrently with such reduction, to
credit or cause to be credited to the account of
the Person specified in such instructions a
beneficial interest in the applicable Rule 144A
Global Note equal to the reduction in the
aggregate principal amount at maturity of such
Regulation S Global Note and to debit or cause to
be debited from the account of the Person making
such transfer the beneficial interest in the
Regulation S Global Note that is being exchanged
or transferred.
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(b) Transfer and Exchange of Definitive Notes. When
Definitive Notes are presented by a Holder to the Registrar with
a request to register the transfer of the Definitive Notes or to
exchange such Definitive Notes for an equal principal amount of
Definitive Notes of other authorized denominations, the Registrar
shall register the transfer or make the exchange as requested
only if the Definitive Notes are presented or surrendered for
registration of transfer or exchange, are endorsed and contain a
signature guarantee or accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney and contains a signature
guarantee, duly authorized in writing and the Registrar received
the following documentation (all of which may be submitted by
facsimile):
(i) in the case of Definitive Notes that are Transfer
Restricted Securities, such request shall be
accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder
for registration in the name of such Holder,
without transfer, or such Transfer
Restricted Security is being transferred to
the Company or any of its Subsidiaries, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto); or
(B) if such Transfer Restricted Security is
being transferred to a QIB in accordance
with Rule 144A under the Securities Act or
pursuant to an exemption from registration
in accordance with Rule 144 under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification to that effect from
such Holder (in substantially the form of
EXHIBIT B-3 hereto); or
(C) if such Transfer Restricted Security is
being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule
904 under the Securities Act, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto);
(D) if such Transfer Restricted Security is being
transferred to an Institutional Accredited Investor
in reliance on an exemption from the registration
requirements of the Securities Act other than those
listed in subparagraphs (B) and (C) above,
a certification to that effect from such Holder
(in substantially the form of EXHIBIT B-3 hereto),
a certification substantially in the form of
EXHIBIT C hereto, and, if such transfer is in
respect of an aggregate principal amount of Notes
of less than $250,000, an Opinion of Counsel acceptable
to the Company that such transfer is in compliance with
the Securities Act; or
(E) if such Transfer Restricted Security is
being transferred in reliance on any other
exemption from the registration requirements
of the Securities Act, a certification to
that effect from such Holder (in
substantially the form of EXHIBIT B-3
hereto) and an Opinion of Counsel from such
Holder or the transferee reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer
is in compliance with the Securities Act.
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(c) Transfer of a Beneficial Interest in a Rule 144A
Global Note or Regulation S Permanent Global Note for a
Definitive Note.
(i) Any Person having a beneficial interest in a Rule
144A Global Note or Regulation S Permanent Global Note may upon
request, subject to the Applicable Procedures, exchange such
beneficial interest for a Definitive Note. Upon receipt by the
Trustee of written instructions or such other form of
instructions as is customary for the Depositary (or Euroclear
or Cedel, if applicable), from the Depositary or its nominee on
behalf of any Person having a beneficial interest in a Rule
144A Global Note or Regulation S Permanent Global Note,
and, in the case of a Transfer Restricted Security,
the following additional information and documents
(all of which may be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certification to that effect from such
Person (in substantially the form of EXHIBIT
B-4 hereto);
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule
144A under the Securities Act or pursuant to
an exemption from registration in accordance
with Rule 144 under the Securities Act or
pursuant to an effective registration
statement under the Securities Act, a
certification to that effect from the
transferor (in substantially the form of
EXHIBIT B-4 hereto);
(C) if such beneficial interest is being
transferred to an Institutional Accredited
Investor, pursuant to a private placement
exemption from the registration requirements
of the Securities Act (and based on an
opinion of counsel if the Company so
requests), a certification to that effect
from such Holder (in substantially the form
of EXHIBIT B-4 hereto) and a certificate
from the applicable transferee (in
substantially the form of EXHIBIT C hereto);
or
(D) if such beneficial interest is being transferred
in reliance on any other exemption from the registration
requirements of the Securities Act, a certification to
that effect from the transferor (in substantially the form
of EXHIBIT B-4 hereto) and an Opinion of Counsel from
the transferee or the transferor reasonably acceptable
to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act,
in which case the Trustee or the Note Custodian, at the
direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between
the Depositary and the Note Custodian, cause the aggregate
principal amount of Rule 144A Global Notes or Regulation
S Permanent Global Notes, as applicable, to be
reduced accordingly and, following such reduction,
the Company shall execute and, the Trustee shall
authenticate and deliver to the transferee a Definitive
Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Rule 144A Global Note or Regulation S
Permanent Global Note, as applicable, pursuant to
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this Section 2.06(c) shall be registered in such
names and in such authorized denominations as the
Depositary, pursuant to instructions from its
direct or Indirect Participants or otherwise,
shall instruct the Trustee. The Trustee shall
deliver such Definitive Notes to the Persons in
whose names such Notes are so registered.
Following any such issuance of Definitive Notes,
the Trustee, as Registrar, shall instruct the
Depositary to reduce or cause to be reduced the
aggregate principal amount at maturity of the
applicable Global Note to reflect the transfer.
(d) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than
the provisions set forth in subsection (g) of this Section 2.06),
a Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary.
(e) Transfer and Exchange of a Definitive Note for a
Beneficial Interest in a Global Note. A Definitive Note may not
be transferred or exchanged for a beneficial interest in a Global
Note.
(f) Authentication of Definitive Notes in Absence of Depositary.
If at any time:
(i) the Depositary for the Notes notifies the Company
that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes and a
successor Depositary for the Global Notes is not
appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the
issuance of Definitive Notes under this
Indenture,
then the Company shall execute, and the Trustee shall, upon
receipt of an authentication order in accordance with Section
2.02 hereof, authenticate and deliver, Definitive Notes in an
aggregate principal amount equal to the principal amount of the
Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs
(ii), (iii) and (iv), each Note certificate
evidencing Global Notes and Definitive Notes (and
all Notes issued in exchange therefor or
substitution thereof) shall bear the legend (the
"Private Placement Legend") in substantially the
following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE
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HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE
THE UNITED STATES TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b)
IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF THE SECURITIES
ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), THAT PRIOR TO SUCH TRANSFER,
FURNISHED THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS (THE FORM OF WHICH CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, OR (e) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND, IN
THE CASE OF CLAUSE (b), (c), (d) OR (e),
BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer
Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement
under the Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
Transfer Restricted Security upon receipt of
a certification from the transferring holder
substantially in the form of EXHIBIT B-4
hereto; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such
Transfer Restricted Security shall not be
required to bear the legend set forth in (i)
above, but shall continue to be subject to
the provisions of Section 2.06(a) and (b)
hereof; provided, however, that with respect
to any request for an exchange of a Transfer
Restricted Security that is represented by a
Global Note for a Definitive Note that does
not bear the legend set forth in (i) above,
which request is made in
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reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar
that such request is being made pursuant to
Rule 144 (such certification to be
substantially in the form of EXHIBIT B-4
hereto).
(iii) Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer
Restricted Security represented by a Global Note)
in reliance on any exemption from the
registration requirements of the Securities Act
(other than exemptions pursuant to Rule 144A or
Rule 144 under the Securities Act) in which the
Holder or the transferee provides an Opinion of
Counsel to the Company and the Registrar in form
and substance reasonably acceptable to the
Company and the Registrar (which Opinion of
Counsel shall also state that the transfer
restrictions contained in the legend are no
longer applicable):
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such
Transfer Restricted Security shall not be
required to bear the legend set forth in (i)
above, but shall continue to be subject to
the provisions of Section 2.06(a) and (b)
hereof.
(iv) Notwithstanding the foregoing, upon the consummation
of the Exchange Offer in accordance with the Registration
Rights Agreement, the Company shall issue and, upon
receipt of an authentication order in accordance with Section
2.02 hereof, the Trustee shall authenticate (i) one or more
Unrestricted Global Notes in aggregate principal amount equal
to the principal amount of the Restricted Beneficial Interests
tendered for acceptance by persons that are not (x) broker-
dealers, (y) Persons participating in the distribution of the
Notes or (z) Persons who are affiliates (as defined in
Rule 144) of the Company and accepted for exchange in the
Exchange Offer and (ii) Definitive Notes that do not bear
the Private Placement Legend in an aggregate principal
amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer.
The Trustee shall be entitled to rely upon the authentication
order when authenticating the Notes without any obligation
to verify that the restrictions in the preceding sentence have
been complied with. Concurrently with the issuance of such
Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced
accordingly and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the
appropriate principal amount.
(h) Cancellation and/or Adjustment of Global Notes. At such
time as all beneficial interests in Global Notes have been
exchanged for Definitive Notes, redeemed, repurchased or
cancelled, all Global Notes shall be returned to or retained and
cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or cancelled, the principal amount of Notes
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<PAGE>
represented by such Global Note shall be reduced accordingly and
an endorsement may be made on such Global Note, by the Trustee or
the Notes Custodian, at the direction of the Trustee, to reflect
such reduction but any failure to make such an endorsement shall
not affect the reductions.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the
Trustee shall authenticate Global Notes and
Definitive Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for
any registration of transfer or exchange, but the
Company may require payment of a sum sufficient
to cover any stamp or transfer tax or similar
governmental charge payable in connection
therewith (other than any such stamp or transfer
taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10,
3.06, 4.10, 4.13 and 9.05 hereto).
(iii) All Global Notes and Definitive Notes issued upon
any registration of transfer or exchange of
Global Notes or Definitive Notes shall be the
valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits
under this Indenture, as the Global Notes or
Definitive Notes surrendered upon such
registration of transfer or exchange.
(iv) The Registrar shall not be required: (A) to
issue, to register the transfer of or to
exchange Notes during a period beginning at the
opening of fifteen (15) Business Days before
the day of any selection of Notes for redemption
under Section 3.02 hereof and ending at
the close of business on the day of
selection, (B) to register the transfer
of or to exchange any Note so selected
for redemption in whole or in part,
except the unredeemed portion of any
Note being redeemed in part, or (C) to
register the transfer of or to exchange a Note
between a record date and the next succeeding
interest payment date.
(v) Prior to due presentment for the
registration of a transfer of any Note, the
Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note
is registered as the absolute owner of such
Note for the purpose of receiving payment of
principal of and interest on such Notes and
for all other purposes, and neither the
Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes
and Definitive Notes in accordance with the
provisions of Section 2.02 hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receives evidence to their satisfaction
of the destruction, loss or theft of any Note, the Company shall
issue and the Trustee, upon the written order of the Company
signed by an Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the
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Trustee and the Company to protect the Company, the Trustee, any
Agent and any authenticating agent from any loss that any of them
may suffer if a Note is replaced. The Company and the Trustee may
charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Notes duly
issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it,
those delivered to it for cancellation, those reductions in the
interest in a Global Note effected by the Trustee in accordance
with the provisions hereof, and those described in this Section
2.08 as not outstanding. Except as set forth in Section 2.09
hereof, a Note does not cease to be outstanding because the
Company or an Affiliate of the Company or any Guarantor holds the
Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Note is held by a bona fide
purchaser.
If the principal amount of any Note is considered paid
under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary
or an Affiliate of any thereof) holds, on a redemption date or
maturity date, money sufficient to pay Notes payable on that
date, then on and after that date such Notes shall be deemed to
be no longer outstanding and shall cease to accrue interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required
principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company or any Guarantor, or by
any Affiliate of the Company or any Guarantor shall be considered
as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Notes shown on the
Trustee's register as being owned shall be so disregarded.
Notwithstanding the foregoing, Notes that are to be acquired by
the Company or any Guarantor or an Affiliate of the Company or
any Guarantor pursuant to an exchange offer, tender offer or
other agreement shall not be deemed to be owned by such entity
until legal title to such Notes passes to such entity.
SECTION 2.10. TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes
upon a written order of the Company signed by an Officer of the
Company. Temporary Notes shall be substantially in the form of
Definitive Notes but may have variations that the Company
considers appropriate for temporary Notes. Without unreasonable
delay, the Company shall prepare and the Trustee shall upon
receipt of a written order of the Company signed by an Officer
authenticate Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
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SECTION 2.11. CANCELLATION.
The Company at any time may deliver to the Trustee for
cancellation any Notes previously authenticated and delivered
hereunder or which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. All Notes surrendered for registration
of transfer, exchange or payment, if surrendered to any Person
other than the Trustee, shall be delivered to the Trustee. The
Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or
cancellation. Subject to Section 2.07 hereof, the Company may not
issue new Notes to replace Notes that it has redeemed or paid or
that have been delivered to the Trustee for cancellation. All
cancelled Notes held by the Trustee shall be destroyed and
certification of their destruction delivered to the Company,
unless by a written order, signed by an Officer of the Company,
the Company shall direct that cancelled Notes be returned to it.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special
record date, which date shall be at the earliest practicable date
but in all events at least five (5) Business Days prior to the
payment date, in each case at the rate provided in the Notes and
in Section 4.01 hereof. The Company shall fix or cause to be
fixed each such special record date and payment date, and shall
promptly thereafter, notify the Trustee of any such date. At
least fifteen (15) days before the special record date, the
Company (or the Trustee, in the name and at the expense of the
Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and
the amount of such interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of
Holders of the Notes entitled to vote or consent to any action by
vote or consent authorized or permitted under this Indenture
shall be determined as provided for in TIA Section 316 (c).
SECTION 2.14. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
SECTION 2.15. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number,
and if it does so, the Trustee shall use the CUSIP number in
notices of redemption or exchange as a convenience to Holders;
provided that any such notice may state that no representation is
made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be
placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee of any
change in the CUSIP number.
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ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall
furnish to the Trustee, at least 45 days but not more than 60
days before a redemption date (unless a shorter period is
acceptable to the Trustee) an Officers' Certificate setting forth
(i) the Section of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Notes to be redeemed and (iv) the redemption
price.
If the Company is required to make an offer to purchase
Notes pursuant to Section 4.10 or 4.13 hereof, it shall furnish
to the Trustee, at least 45 days before the scheduled purchase
date, an Officers' Certificate setting forth (i) the section of
this Indenture pursuant to which the offer to purchase shall
occur, (ii) the terms of the offer, (iii) the principal amount of
Notes to be purchased, (iv) the purchase price, (v) the purchase
date and (vi) and further setting forth a statement to the effect
that (a) the Company or one its Subsidiaries has affected an
Asset Sale and there are Excess Proceeds aggregating more than
$10.0 million or (b) a Change of Control has occurred, as
applicable.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED OR PURCHASED.
If less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the
original Note. Notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest
and Liquidated Damages ceases to accrue on Notes or portions of
them called for redemption unless the Company defaults in making
the redemption payment.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a
redemption date, the Company shall mail or cause to be mailed by
first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price for the Notes and accrued interest,
and Liquidated Damages, if any;
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(3) if any Note is being redeemed in part, the
portion of the principal amount of such Notes to
be redeemed and that, after the redemption date,
upon surrender of such Note, a new Note or Notes
in principal amount equal to the unredeemed
portion shall be issued upon surrender of the
original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such
redemption payment, interest and Liquidated
Damages, if any, on Notes called for redemption
ceases to accrue on and after the redemption
date;
(7) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for
redemption are being redeemed; and
(8) that no representation is made as to the
correctness or accuracy of the CUSIP number, if
any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at the Company's expense;
provided, however, that the Company shall have delivered to the
Trustee, at least 45 days prior to the redemption date (or such
shorter period as shall be acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in the
notice as provided in the preceding paragraph. The notice mailed
in the manner herein provided shall be conclusively presumed to
have been duly given whether or not the Holder receives such
notice. In any case, failure to give such notice by mail or any
defect in the notice to the Holder of any Note shall not affect
the validity of the proceeding for the redemption of any other
Note.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Notes called for redemption become
irrevocably due and payable on the redemption date at the
redemption price plus accrued and unpaid interest and Liquidated
Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 10:00 a.m. (New York City time) on each
redemption date or the date on which Notes must be accepted for
purchase pursuant to Section 4.10 or 4.13, the Company shall
deposit with the Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued and unpaid
interest and Liquidated Damages, if any, on all Notes to be
redeemed or purchased on that date. The Trustee or the Paying
Agent shall promptly return to the Company upon its written
request any money deposited with the Trustee or the Paying Agent
by the Company in excess of the amounts necessary to pay the
redemption price of (including any applicable premium), accrued
interest and Liquidated Damages, if any, on all Notes to be
redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale
Offer or Change of Control Offer are paid or if the Company has
deposited with the Trustee or Paying Agent money sufficient to
pay the
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redemption or purchase price of, unpaid and accrued interest and
Liquidated Damages, if any, on all Notes to be redeemed or
purchased, on and after the redemption or purchase date interest
and Liquidated Damages, if any, shall cease to accrue on the
Notes or the portions of Notes called for redemption or tendered
and not withdrawn in an Asset Sale Offer or Change of Control
Offer (regardless of whether certificates for such securities are
actually surrendered). If a Note is redeemed or purchased on or
after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose
name such Note was registered at the close of business on such
record date. If any Note called for redemption shall not be so
paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal and Liquidated Damages, if any, from
the redemption or purchase date until such principal and
Liquidated Dames, if any, is paid, and to the extent lawful on
any interest not paid on such unpaid principal, in each case, at
the rate provided in the Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the
Company shall issue and, upon the Company's written request, the
Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in the next paragraph, the Notes
will not be redeemable at the Company's option prior to October
15, 2002. Thereafter, the Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages
thereon, to the applicable redemption date, if redeemed during
the twelve-month period beginning on October 15 of the years
indicated below:
Year Percentage
2002 .................................... 105.188%
2003 .................................... 103.458%
2004 .................................... 101.729%
2005 and thereafter...................... 100.000%
(b) Notwithstanding the foregoing, at any time on or prior
to October 15, 2000, the Company may (but shall not have the
obligation to) redeem, on one or more occasions, up to an
aggregate of 35% of the principal amount of Notes originally
issued at a redemption price equal to 110.375% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net
cash proceeds of one or more Equity Offerings; provided that at
least 65% in aggregate principal amount of the Notes originally
issued remain outstanding immediately after the occurrence of
such redemption; and provided further, that such redemption shall
occur within 90 days of the date of the closing of such Equity
Offering.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09, 4.10 and 4.13
hereof, the Company shall not be required to make mandatory
redemption or sinking fund payments with respect to the Notes.
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SECTION 3.09. REPURCHASE OFFERS.
In the event that the Company shall be required to commence
an offer to all Holders to repurchase Notes (a "Repurchase
Offer") pursuant to Section 4.10 hereof, an "Asset Sale," or
pursuant to Section 4.13 hereof, a "Change of Control Offer," the
Company shall follow the procedures specified below.
A Repurchase Offer shall commence no earlier than 30 days
and no later than 60 days after a Change of Control (unless the
Company is not required to make such offer pursuant to Section
4.13(c) hereof) or an Asset Sale Offer Triggering Event (as
defined below) (an "Asset Sale Offer Triggering Event"), as the
case may be, and remain open for a period of twenty (20) Business
Days following its commencement and no longer, except to the
extent that a longer period is required by applicable law (the
"Offer Period"). No later than five (5) Business Days after the
termination of the Offer Period (the "Purchase Date"), the
Company shall purchase the principal amount of Notes required to
be purchased pursuant to Section 4.10 hereof, in the case of an
Asset Sale Offer, or 4.13 hereof, in the case of a Change of
Control Offer (the "Offer Amount") or, if less than the Offer
Amount has been tendered, all Notes tendered in response to the
Repurchase Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued
and unpaid interest and Liquidated Damages, if any, shall be paid
to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest or
Liquidated Damages, if any, shall be payable to Holders who
tender Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company
shall send, by first class mail, a notice to the Trustee and each
of the Holders, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to such Repurchase Offer. The
Repurchase Offer shall be made to all Holders. The notice, which
shall govern the terms of the Repurchase Offer, shall describe
the transaction or transactions that constitute the Change of
Control or Asset Sale Offer Triggering Event as the case may be
and shall state:
(a) that the Repurchase Offer is being made pursuant to
this Section 3.09 and Section 4.10 or 4.13 hereof, as the
case may be, and the length of time the Repurchase Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such
payment, any Note accepted for payment pursuant to the
Repurchase Offer shall cease to accrue interest and
Liquidated Damages, if any, after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant
to a Repurchase Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note, duly completed, or
transfer by book-entry transfer, to the Company, the
Depositary, or the Paying Agent at the address specified in
the notice not later than the close of business on the last
day of the Offer Period;
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(f) that Holders shall be entitled to withdraw their
election if the Company, the Depositary or the Paying
Agent, as the case may be, receives, not later than the
expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the
Company shall select the Notes to be purchased on a pro
rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(h) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or
transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each
Purchase Date, the Company shall irrevocably deposit with the
Trustee or Paying Agent in immediately available funds the
aggregate purchase price with respect to a principal amount of
Notes equal to the Offer Amount, together with accrued and unpaid
interest and Liquidated Damages, if any, thereon, to be held for
payment in accordance with the terms of this Section 3.09. On the
Purchase Date, the Company shall, to the extent lawful, (i)
accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant
to the Repurchase Offer, or if less than the Offer Amount has
been tendered, all Notes tendered, (ii) deliver or cause the
Paying Agent or depository, as the case may be, to deliver to the
Trustee Notes so accepted and (iii) deliver to the Trustee an
Officers' Certificate stating that such Notes or portions thereof
were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the
Paying Agent, as the case may be, shall promptly (but in any case
not later than three (3) Business Days after the Purchase Date)
mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted
by the Company for purchase, plus any accrued and unpaid interest
and Liquidated Damages, if any, thereon to the Purchase Date, and
the Company shall promptly issue a new Note, and the Trustee,
shall authenticate and mail or deliver such new Note, to such
Holder, equal in principal amount to any unpurchased portion of
such Holder's Notes surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce in a newspaper of
general circulation or in a press release provided to a
nationally recognized financial wire service the results of the
Repurchase Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09,
any purchase pursuant to this Section 3.09 shall be made pursuant
to the provisions of Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in
the manner provided in the Notes. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and
in the amounts set forth in the Registration Rights Agreement.
Principal, premium and Liquidated Damages, if any, and interest,
shall be considered paid
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for all purposes hereunder on the date the Paying Agent if other
than the Company or a Subsidiary thereof holds, as of 10:00 a.m.
(New York City time) money deposited by the Company in
immediately available funds and designated for and sufficient to
pay all such principal, premium and Liquidated Damages, if any,
and interest, then due.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent lawful; it
shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable
grace period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York an office or agency (which may be an office of
the Trustee or an affiliate of the Trustee or Registrar) where
Notes may be surrendered for registration of transfer or for
exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or
more other offices or agencies where the Notes may be presented
or surrendered for any or all such purposes and may from time to
time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough
of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of
any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in
accordance with Section 2.03 hereof.
SECTION 4.03. COMMISSION REPORTS.
From and after the earlier of the effective date of the
Exchange Offer Registration Statement or the effective date of
the Shelf Registration Statement, whether or not required by the
rules and regulations of the Commission, so long as any Notes are
outstanding, the Company shall furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its
consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would
be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports, in each case within
the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules
and regulations of the Commission at any time after the
consummation of the Exchange Offer contemplated by the
Registration Right Agreement, the Company shall file a copy of
all such information and reports with the Commission for public
availability within the time periods set forth in the
Commission's rules and regulations, (unless the Commission will
not accept such a filing) and make such
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information available to securities analysts and prospective
investors upon request. In addition, at all times that the
Commission does not accept the filings provided for in the
preceding sentence, the Company and the Guarantors have agreed
that, for so long as any Notes remain outstanding, they shall
furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The financial information to be distributed to Holders of
Notes shall be filed with the Trustee and mailed to the Holders
at their addresses appearing in the register of Notes maintained
by the Registrar, within 90 days after the end of the Company's
fiscal years and within 45 days after the end of each of the
first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient
number of copies of all reports and other documents and
information and, if requested by the Company and at the Company's
expense, the Trustee will deliver such reports to the Holders
under this Section 4.03.
SECTION 4.04. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under
the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and
fulfilled its obligations under this Indenture (including, with
respect to any Restricted Payments made during such year, the
basis upon which the calculations required by Section 4.07 hereof
were computed, which calculations may be based on the Company's
latest available financial statements), and further stating, as
to each such Officer signing such certificate, that, to the best
of his or her knowledge, each entity has kept, observed,
performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance
of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that, to the best of
his or her knowledge, no event has occurred and remains in
existence by reason of which payments on account of the principal
of, premium or Liquidated Damages, if any, or interest on the
Notes is prohibited or if such event has occurred, a description
of the event and what action the Company is taking or proposes to
take with respect thereto.
So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, in
connection with the year-end financial statements delivered
pursuant to Section 4.03 hereof, the Company shall use its best
efforts to deliver a written statement of the Company's
independent public accountants (who shall be a firm of
established national reputation) that in making the examination
necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that
the Company has violated any provisions of Article Four or
Section 5.01 hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of
any such violation. In the event that such written statement of
the Company's independent public accountants cannot be obtained,
the Company shall deliver an Officers' Certificate certifying
that it has used its best efforts to obtain such statements and
was unable to do so.
The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default, an Officers'
Certificate specifying
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such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency all material taxes,
assessments and governmental levies, except such as are contested
in good faith and by appropriate proceedings and with respect to
which appropriate reserves have been taken in accordance with
GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each Guarantor covenants (to the extent
that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and
the Company and each Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it shall not, by resort to
any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been
enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
From and after the date hereof the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly
or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made
as a payment in connection with any merger or consolidation
involving the Company), other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of
the Company or dividends or distributions payable to the Company
or any Wholly Owned Subsidiary of the Company; (ii) purchase,
redeem or otherwise acquire or retire for value (including,
without limitation, any such purchase, redemption or other
acquisition or retirement for value made as a payment in
connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any Restricted
Subsidiary (other than any such Equity Interests owned by the
Company or any Restricted Subsidiary of the Company); (iii) make
any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except a payment of interest or a
payment of principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and
immediately after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing; and
(b) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto, have
been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09
hereof; and
(c) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by
the Company and its Restricted Subsidiaries after the date
hereof
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(excluding Restricted Payments permitted by clauses (ii),
(iii), (iv), (vi), (vii), (viii), (x) and (xi) of the next
succeeding paragraph), is less than the sum (without
duplication) of (i) 50% of the Consolidated Net Income of
the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing
after the date hereof to the end of the Company's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate Qualified Proceeds received by the
Company from contributions to the Company's capital or the
issue or sale subsequent to the date hereof of Equity
Interests of the Company (other than Disqualified Stock) or
of Disqualified Stock or debt securities of the Company
that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified
Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date hereof is sold for
Qualified Proceeds or otherwise liquidated or repaid
(including, without limitation, by way of a dividend or
other distribution, a repayment of a loan or advance or
other transfer of assets) for in whole or in part, the
lesser of (A) the Qualified Proceeds with respect to such
Restricted Investment, (less the cost of disposition, if
any) and (B) the initial amount of such Restricted
Investment, plus (iv) upon the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the
lesser of (x) the fair market value of such Subsidiary or
(y) the aggregate amount of all Investments made in such
Subsidiary subsequent to the Issue Date by the Company and
its Restricted Subsidiaries, plus (v) $15.0 million.
The foregoing provisions will not prohibit (i) the payment
of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests
of the Company or any Guarantor in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase, retirement or other acquisition of
subordinated Indebtedness in exchange for, or with the net cash
proceeds from, an incurrence of Permitted Refinancing
Indebtedness; (iv) the payment of any dividend (or the making of
a similar distribution or redemption) by a Restricted Subsidiary
of the Company to the holders of its common Equity Interests on a
pro rata basis; (v) so long as no Default or Event of Default
shall have occurred and is continuing, the repurchase, redemption
or other acquisition or retirement for value of any Equity
Interests of the Company, Holdings or any Restricted Subsidiary
of the Company, held by any member of the Company's (or any of
its Subsidiaries') management, employees or consultants pursuant
to any management, employee or consultant equity subscription
agreement or stock option agreement in effect as of the date of
the Indenture; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed the sum of (A) $10.0 million and (B) the
aggregate cash proceeds received by the Company from any
reissuance of Equity Interests by Holdings or the Company to
members of management of the Company and its Restricted
Subsidiaries (provided that the cash proceeds referred to in this
clause (B) shall be excluded from clause (c)(ii), of the
preceding paragraph); (vi) payments required to be made under the
Tax Sharing Agreement; (vii) distributions made by the Company on
the date hereof, the proceeds of which are utilized solely to
consummate the Recapitalization; (viii) the payment of dividends
or the making of loans or advances by the Company to Holdings not
to exceed $1.5 million in any fiscal year for costs and expenses
incurred by Holdings in its
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capacity as a holding company or for services rendered by
Holdings on behalf of the Company; (ix) so long as no Default or
Event of Default has occurred and is continuing, the declaration
and payment of dividends to holders of any class or series of
Disqualified Stock of the Company or any Guarantor issued after
the date hereof in accordance with Section 4.09; (x) so long as
(A) no Default or Event of Default has occurred and is continuing
and (B) immediately before and immediately after giving effect
thereto, the Company would have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph described
under Section 4.09, from and after October 15, 2002, payments of
cash dividends to Holdings in an amount sufficient to enable
Holdings to make payments of interest required to be made in
respect of the Senior Discount Debentures in accordance with the
terms thereof in effect on the date of the Indenture, provided
such interest payments are made with the proceeds of such
dividends; and (xi) the payment of dividends by the Company to
Holdings of not more than 20% of the net proceeds from any sale
of all or substantially all of the Capital Stock or assets of the
Company's Popular Club Plan business or Clifford & Wills business
(as each such business is constituted on the Issue Date),
provided that such dividends shall only be permitted to the
extent that Holdings immediately utilizes the proceeds thereof to
repay, redeem, repurchase or otherwise retire outstanding Senior
Discount Debentures.
The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default or an Event of Default. For purposes of
making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will
reduce the amount available for Restricted Payments under the
first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such
Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred
or issued by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market
value on the date of receipt thereof by the Company of such
Qualified Proceeds. The fair market value of any non-cash
Restricted Payment and Qualified Proceeds shall be determined by
the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based
upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of national standing if such fair
market value exceeds $10.0 million. Not later than the date of
making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the
calculations required by Section 4.07 were computed, together with
a copy of any fairness opinion or appraisal required by this Indenture.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted
Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits,
or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the
Company or any of its Restricted
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Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for
such encumbrances or restrictions existing under or by reason of
(a) the New Credit Facility, as in effect as of the date hereof,
and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect
to such dividend and other payment restrictions than those
contained in the New Credit Facility, as in effect on the date
hereof, (b) the Indenture and the Notes, (c) applicable law or
any applicable rule, regulation or order, (d) any agreement or
instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent
such agreement or instrument was created or entered into in
connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, (e) by reason
of customary non-assignment provisions in leases, licenses,
encumbrances, contracts or similar assets entered into or
acquired in the ordinary course of business and consistent with
past practices, (f) purchase money obligations for property
acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the
property so acquired, (g) any Purchase Money Note, or other
Indebtedness or contractual requirements incurred with respect to
a Qualified Receivables Transaction relating to a Receivables
Subsidiary, (h) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness
being refinanced and (i) contracts for the sale of assets
containing customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for the sale
or disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue
any shares of preferred stock; provided, however, that the
Company or any of its Restricted Subsidiaries may incur
Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or
such Disqualified Stock is issued would have been at least 2.0 to
1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will
not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company (and the guarantee
thereof by the Guarantors) of Indebtedness under Credit
Facilities; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the
Company and the Guarantors thereunder) outstanding under all
Credit Facilities after giving effect to such incurrence,
including all Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (i),
does not exceed an amount equal to $270.0 million less the
aggregate
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principal of all principal payments thereunder constituting
permanent reductions of such Indebtedness pursuant to and in
accordance with Section 4.10;
(ii) the incurrence by the Company and the Guarantors of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(iii) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or
improvements of property used in the business of the Company or
such Restricted Subsidiary, in an aggregate principal amount not
to exceed $25.0 million at any time outstanding;
(iv) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness (other than intercompany Indebtedness)
that is permitted by this Indenture to exist or be incurred;
(vi) the incurrence of intercompany Indebtedness (A)
between or among the Company and any Wholly Owned Restricted
Subsidiaries of the Company or (B) by a Restricted Subsidiary
that is not a Wholly Owned Restricted Subsidiary to the Company
or a Wholly Owned Subsidiary; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company
and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned
Restricted Subsidiary of the Company shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of the
Guarantors of Hedging Obligations that are incurred for the
purpose of fixing or hedging (i) interest rate risk with respect
to any floating rate Indebtedness that is permitted by the terms
of this Indenture to be outstanding or (ii) the value of foreign
currencies purchased or received by the Company in the ordinary
course of business;
(viii) Indebtedness incurred in respect of workers'
compensation claims, self-insurance obligations, performance,
surety and similar bonds and completion guarantees provided by
the Company or a Guarantor in the ordinary course of business;
(ix) Indebtedness arising from guarantees of Indebtedness
of the Company or any Subsidiary or the agreements of the Company
or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of
any business, assets or Capital Stock of a Restricted Subsidiary,
or other guarantees of Indebtedness incurred by any person
acquiring all or any portion of such business, assets or Capital
Stock of a Restricted Subsidiary for the purpose of financing
such acquisition, provided that the maximum aggregate liability
in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
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(x) Indebtedness of a Receivables Subsidiary that is not
recourse to the Company or any other Restricted Subsidiary of the
Company (other than Standard Securitization Undertakings)
incurred in connection with a Qualified Receivables Transaction;
(xi) the guarantee by the Company or any of the Guarantors
of Indebtedness of the Company or a Guarantor that was permitted
to be incurred by another provision of this covenant;
(xii) the incurrence by the Company or any of its
Restricted Subsidiaries of Acquired Debt in an aggregate
principal amount at any time outstanding not to exceed $20.0
million;
(xiii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence; and
(xiv) the incurrence by the Company or any Restricted
Subsidiary of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time
outstanding, including all Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this
clause (xiv), not to exceed $10.0 million.
For purposes of determining compliance with this covenant,
in the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Debt described in
clauses (i) through (xiv) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness
will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i)
the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests
issued or sold or otherwise disposed of and (ii) at least 75% of
the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of (A) cash or Cash
Equivalents or (B) Qualified Proceeds; provided that the
aggregate fair market value of Qualified Proceeds (other than
cash or Cash Equivalents), which may be received in consideration
for asset sales pursuant to this clause (ii)(B) shall not exceed
$7.5 million since the Issue Date; provided, further, that the
amount of (x) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated
to the Notes or any Guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary
from further liability and (y) any securities, notes or other
obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company
or such Restricted Subsidiary into cash (to extent of the cash
received) within 180 days following the closing of such Asset
Sale, shall be deemed to be cash for purposes of this provision.
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Within 360 days after the receipt of any Net Proceeds from
an Asset Sale, the Company or its Restricted Subsidiaries may
apply such Net Proceeds, at its option, (a) to repay Senior Debt
or Guarantor Senior Debt, or (b) to the investment in, or the
making of a capital expenditure or the acquisition of other
property or assets in each case used or useable in a Permitted
Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if, as a result of the acquisition by the
Company or any Restricted Subsidiary thereof, such Person becomes
a Restricted Subsidiary, or (c) a combination of the uses
described in clauses (a) and (b). Pending the final application
of any such Net Proceeds, the Company or its Restricted
Subsidiaries may temporarily reduce Senior Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by
this Indenture. Any Net Proceeds from Asset Sales, other than 20%
of the net proceeds from any sale of all or substantially all of
the Capital Stock or assets of the Company's Popular Club Plan
business or Clifford & Wills business (as each such business is
constituted on the Issue Date) which are utilized to repay,
redeem, repurchase or otherwise retire outstanding Senior
Discount Debentures, that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $10.0 million (an "Asset Sale Offer Triggering
Event"), the Company will be required to make an offer to all
Holders of Notes and, to the extent required by the terms of any
Pari Passu Indebtedness ranking pari passu with the Notes ("Pari
Passu Indebtedness") to all holders of such Pari Passu
Indebtedness (an "Asset Sale Offer"), to purchase the maximum
principal amount of Notes and any such Pari Passu Indebtedness
that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase, in accordance with the
procedures set forth in Section 3.09 hereof or such Pari Passu
Indebtedness, as applicable. To the extent that the aggregate
principal amount of Notes and any such Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or its Restricted Subsidiaries may use any
remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes and any such Pari Passu
Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to or Investment in,
or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from,
or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction
is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution
of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v)
transactions with suppliers or other purchasers or sales of goods
or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture
agreements) and otherwise in accordance with the terms of this
Indenture which are fair to the Company, in the good faith
determination of the
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Board of Directors of the Company or the senior management of the
Company and are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated
party, (w) any employment agreements, stock option or other
compensation agreements or plans (and the payment of amounts or
the issuance of securities thereunder) and other reasonable fees,
compensation, benefits and indemnities paid or entered into by
the Company or any of its Restricted Subsidiaries in the ordinary
course of business of the Company or such Restricted Subsidiary
to or with the officers, directors or employees of the Company or
its Restricted Subsidiaries, (x) transactions between or among
the Company and/or its Restricted Subsidiaries, (y) sales or
other transfers or dispositions of accounts receivable and other
related assets customarily transferred in an asset securitization
transaction involving accounts receivable to a Receivables
Subsidiary in a Qualified Receivables Transaction, and
acquisitions of Permitted Investments in connection with a
Qualified Receivables Transaction and (z) Restricted Payments
(other than Restricted Investments) that are permitted by Section
4.07 hereof, in each case, shall not be deemed Affiliate
Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness
or trade payables on any asset now owned or hereafter acquired,
or any income or profits therefrom or assign or convey any right
to receive income therefrom for purposes of security, except
Permitted Liens, unless (x) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of
payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such
Liens, (with the same relative priority as such subordinate or
junior Indebtedness shall have with respect to the Notes and
Subsidiary Guarantees) and (y) in all other cases, the Notes are
secured by such Lien on an equal and ratable basis.
SECTION 4.13. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of
Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to
101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (the "Change of Control Payment"). Within 30
days following any Change of Control, the Company shall mail a
notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be
no earlier than 30 days (or such shorter time period as may be
permitted under applicable law, rules and regulations) and no
later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures
required by Section 3.09 hereof and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions
hereof relating to such Change of Control Offer, the Company will
comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described
hereof by virtue thereof.
On the Change of Control Payment Date, the Company shall,
to the extent lawful, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all
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Notes or portions thereof so tendered and (3) deliver or cause to
be delivered to the Trustee the Notes so accepted together with
an Officers' Certificate stating the aggregate principal amount
of Notes or portions thereof being purchased by the Company. The
Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in
a principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of
Control Payment Date in accordance with Section 3.09 hereof.
The Change of Control provisions described above will be
applicable whether or not any other provisions of this Indenture
are applicable. Except as described above with respect to a
Change of Control, this Indenture does not contain provisions
that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
Prior to complying with the provisions of the preceding
paragraphs, but in any event within 90 days following a Change of
Control, the Company shall either repay all outstanding
Indebtedness of its Subsidiaries or obtain the requisite
consents, if any, under the New Credit Facility and the Senior
Subordinated Notes to permit the repurchase of the Notes required
by this section. The Company will not be required to purchase any
Debentures until it has complied with the preceding sentence, but
the Company's failure to make a Change of Control Offer when
required or to purchase tendered Notes when tendered would
constitute an Event of Default under this Indenture.
The Company shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise
in compliance with the requirements set forth herein applicable
to a Change of Control Offer made by the Company and purchases
all Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Section 4.13 and Article 5 hereof, as the case
may be, the Company and each Guarantor shall do or cause to be
done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or
other existence of each of its Subsidiaries in accordance with
the respective organizational documents (as the same may be
amended from time to time) of the Company or any such Subsidiary
and the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided that the Company
shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of
any of its Subsidiaries, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.15. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to engage in any business other than a Permitted
Businesses.
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SECTION 4.16. SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i)
the Company shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes, and (ii) no
Guarantor shall incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to Senior Debt of such Guarantor
and senior in any respect in right of payment to such Guarantor's
Subsidiary Guarantees.
SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company shall not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary, (in each case,
the "Guaranteed Debt"), unless (i) if such Restricted Subsidiary
is not a Guarantor, such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the indenture
providing for a Subsidiary Guarantee of payment of the Notes by
such Restricted Subsidiary, (ii) if the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary are subordinated
in right of payment to the Guaranteed Debt, the Subsidiary
Guarantee under the supplemental indenture shall be subordinated
to such Restricted Subsidiary's guarantee with respect to the
Guaranteed Debt substantially to the same extent as the Notes or
the Subsidiary Guarantee are subordinated to the Guaranteed Debt
under the Indenture, (iii) if the Guaranteed Debt is by its
express terms subordinated in right of payment to the Notes or
the Subsidiary Guarantee (if any) of such Restricted Subsidiary,
any such guarantee of such Restricted Subsidiary with respect to
the Guaranteed Debt shall be subordinated in right of payment to
such Restricted Subsidiary's Subsidiary Guarantee with respect to
the Notes substantially to the same extent as the Guaranteed Debt
is subordinated to the Notes or the Subsidiary Guarantee (if any)
of such Restricted Subsidiary, (iv) such Restricted Subsidiary
subordinates rights of reimbursement, indemnity or subrogation or
any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee to its obligation under
its Subsidiary Guarantee, and (v) such Restricted Subsidiary
shall deliver to the Trustee an opinion of counsel to the effect
that (A) such Subsidiary Guarantee of the Notes has been duly
authorized, executed and delivered, and (B) such Subsidiary
Guarantee of the Notes constitutes a valid, binding and
enforceable obligation of such Restricted Subsidiary, except
insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitations, all
laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OF SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets in one or more
related transactions, to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving
any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation or
limited liability company organized or existing under the laws of
the United States, any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all
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the obligations of the Company under the Notes and this Indenture
pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv)
except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company (other than a
Receivables Subsidiary), the Company or the entity or Person
formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made at
the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof.
For purposes of this Section 5.01, the sale, lease,
conveyance, assignment, transfer, or other disposition of all or
substantially all of the properties and assets of one or more
Subsidiaries of the Company, which properties and assets, if held
by the Company instead of such Subsidiaries, would constitute all
or substantially all of the properties and assets of the Company
on a consolidated basis, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the
Company. Clause (iv) of the foregoing paragraph will not prohibit
(a) a merger between the Company and a Wholly Owned Subsidiary of
Holdings created for the purpose of holding the Capital Stock of
the Company, (b) a merger between the Company and a Wholly Owned
Restricted Subsidiary of the Company or (c) a merger between the
Company and an Affiliate incorporated solely for the purpose of
reincorporating the Company in another State of the United States
so long as, in the case of each of clause (a), (b) and (c), the
amount of Indebtedness of the Company and its Restricted
Subsidiaries is not increased thereby.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with
Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so
that from and after the date of such consolidation, merger, sale,
lease, conveyance or other disposition, the provisions of this
Indenture referring to the "Company" shall refer instead to the
successor corporation and not to the Company), and shall exercise
every right and power of the Company under this Indenture with
the same effect as if such successor Person had been named as the
Company herein; provided, that, (i) solely for the purposes of
computing Consolidated Net Income for purposes of clause (b) of
the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any person other than the Company and its Subsidiaries
shall be included only for periods subsequent to the effective
time of such merger, consolidation, combination or transfer of
assets; and (ii) in the case of any sale, assignment, transfer,
lease, conveyance, or other disposition of less than all of the
assets of the predecessor Company, the predecessor Company shall
not be released or discharged from the obligation to pay the
principal of or interest and Liquidated Damages, if any, on the
Notes.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to,
the Notes (whether or not prohibited by the Article 10
hereof);
(ii) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by Article 10
hereof);
(iii) failure by the Company or any of its Restricted
Subsidiaries for 30 days after notice by the Trustee
or by the Holders of at least 25% in principal amount
of Notes then outstanding to comply with the
provisions described under Sections 4.07, 4.09, 4.10
or 4.13;
(iv) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice by the
Trustee or by the Holders of at least 25% in
principal amount of Notes then outstanding to
comply with any of its other agreements in this
Indenture or the Notes;
(v) default under any mortgage, indenture or instrument
under which there may be issued or by
which there may be secured or evidenced
Subsidiaries any Indebtedness for money borrowed
by the Company or any of its Restricted
(or the payment of which is guaranteed
by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the
date hereof, which default (a) is caused by
a failure to pay principal of such Indebtedness
after giving effect to any grace period provided
in such Indebtedness (a "Payment Default")
or (b) results in the acceleration of such
Indebtedness prior to its stated maturity and,
in each case, the principal amount of any such
Indebtedness, together with the principal
amount of any other such Indebtedness
under which there has been a Payment Default
or the maturity of which has been so accelerated,
aggregates $20.0 million or more;
(vi) failure by the Company or any of its Subsidiaries
to pay final judgments aggregating in excess of
$20.0 million (net of any amounts with respect to
which a reputable and credit worthy insurance
company has acknowledged liability in writing),
which judgments are not paid, discharged or
stayed for a period of 60 days;
(vii) the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that,
taken as a whole would constitute a Significant
Subsidiary, pursuant to or within the meaning of
any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian
of it or for all or substantially all of
its property,
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(d) makes a general assignment for the benefit of
its creditors, or
(e) generally is not paying its debts as they become
due; or
(viii) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:
(a) is for relief against the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an
involuntary case;
(b) appoints a Custodian of the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or
substantially all of the property of the Company
or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary; or
(c) orders the liquidation of the Company or any of
its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect
for 60 consecutive days.
(ix) except as permitted herein, any Subsidiary Guarantee
shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary
Guarantee;
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes may declare all the Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default as described in clause (vii) or (viii) of
Section 6.01 hereof, all outstanding Notes will become due and
payable without further action or notice. Upon such declaration,
all principal of and accrued interest and Liquidated Damages, if
any, on the Notes shall be due and payable immediately. Holders
of the Notes may not enforce this Indenture or the Notes except
as provided in this Indenture. In the event of a declaration of
acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (v) of Section 6.01 hereof, the
declaration of acceleration of the Notes shall be automatically
annulled if the holders of any Indebtedness described in clause
(v) of Section 6.01 hereof have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of
the date of such declaration and if (y) the annulment of the
acceleration of the Notes would not conflict with any judgment or
decree of a court of competent jurisdiction and (z) all existing
Events of Default, except nonpayment of principal or interest on
the Notes that became due solely because of the acceleration of
the Notes, have been cured or waived.
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy to collect the payment of
principal, premium, if any, interest and Liquidated Damages, if
any, on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a
Note in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
The Company is required to deliver to the Trustee annually
a statement regarding compliance with this Indenture, and the
Company is required upon becoming aware of any Default or Event
of Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf
of the Holders of all of the Notes waive any existing Default or
Event of Default and its consequences under this Indenture
(including any acceleration (other than an automatic acceleration
resulting from an Event of Default under clause (vii) or (viii)
of Section 6.01 hereof) except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the
Notes (other than as a result of an acceleration), which shall
require the consent of all of the Holders of the Notes then
outstanding.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of
conducting any proceeding for exercising any remedy available to
the Trustee or exercising any trust power conferred on it.
However, (i) the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes
or that may involve the Trustee in personal liability, and (ii)
the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction. In case an
Event of Default shall occur (which shall not be cured), the
Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own
affairs. Notwithstanding any provision to the contrary in this
Indenture, the Trustee is under no obligation to exercise any of
its rights or powers under this Indenture at the request of any
Holder of Notes, unless such Holder shall offer to the Trustee
security and indemnity satisfactory to it against any loss,
liability or expense.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture, the Subsidiary Guarantees or the Notes only if:
(a) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default or the Trustee
receives such notice from the Company;
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(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the
Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and,
if requested, provide to the Trustee indemnity
satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and,
if requested, the provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not
give the Trustee a direction inconsistent with the
request.
A Holder of a Note may not use this Indenture to prejudice
the rights of another Holder of a Note or to obtain a preference
or priority over another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal,
premium, if any, interest, and Liquidated Damages, if any, on the
Note, on or after the respective due dates expressed in such Note
(including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(i) or (ii)
hereof occurs and is continuing, the Trustee is authorized to
recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal of,
premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders of the
Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive
and distribute any money or other securities or property payable
or deliverable upon the conversion or exchange of the Notes or on
any such claims and any Custodian in any such judicial proceeding
is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section
7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the same
shall be secured by a Lien on, and shall be paid out of, any and
all distributions, dividends, money, securities and other
properties that the
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Holders may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of
any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article
6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for
amounts due under Section 7.07 hereof, including payment of all
compensation, expense and liabilities incurred, and all advances
made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid
on the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, ratably, without preference or
priority of any kind, according to the amounts due and payable on
the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, respectively;
Third: without duplication, to the Holders for any other
Obligations owing to the Holders under this Indenture and the Notes;
and
Fourth: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in the
suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing
of which a Responsible Officer of the Trustee has
knowledge, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise,
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as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this
Indenture or the TIA and the Trustee need perform
only those duties that are specifically set forth
in this Indenture or the TIA and no others, and
no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of
the statements and the correctness of the
opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However,
the Trustee shall examine the certificates and
opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for
its own negligent action, its own negligent failure to
act, or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible
Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good
faith in accordance with a direction received by
it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c)
of this Section 7.01.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any
liability. The Trustee shall be under no obligation to
exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such
Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree
in writing with the Company. Money held in trust by
the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on the truth of the
statements and correctness of the opinions contained
in, and shall be protected from acting or refraining
from acting upon, any document believed by it to be
genuine and to have been signed or presented by the
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proper Person. The Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. Prior to taking, suffering or
admitting any action, the Trustee may consult with counsel of the
Trustee's own choosing and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes
to be authorized or within the rights or powers
conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice
from the Company or any Guarantor shall be sufficient
if signed by an Officer of the Company or Guarantor,
as applicable.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this
Indenture at the request or direction of any of the
Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity satisfactory
to the Trustee against the costs, expenses and
liabilities that might be incurred by it in compliance
with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner of Notes and may otherwise deal with the
Company, the Guarantors or any Affiliate of the Company or any
Guarantor with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any
conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as
Trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture,
the Subsidiary Guarantees or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes
or any money paid to the Company or upon the Company's direction
under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by
any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement
in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its
certificate of authentication.
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SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing
and if it is known to a Responsible Officer of the Trustee, the
Trustee shall mail to Holders of Notes a notice of the Default or
Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment on any Note
pursuant to Section 6.01(i) or (ii) hereof, the Trustee may
withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes
remain outstanding, the Trustee shall mail to the Holders of the
Notes a brief report dated as of such reporting date that
complies with TIA ss. 313(a) (but if no event described in TIA
ss. 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b). The Trustee shall also transmit
by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with
the Commission and each stock exchange on which the Company has
informed the Trustee in writing the Notes are listed in
accordance with TIA Section 313(d). The Company shall promptly
notify the Trustee when the Notes are listed on any stock exchange
and of any delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company and the Guarantors shall pay to the Trustee
from time to time reasonable compensation for its acceptance of
this Indenture and services hereunder. To the extent permitted by
law, the Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Company and
the Guarantors shall reimburse the Trustee promptly upon request
for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services.
Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company and the Guarantors shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by
it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the
Company and the Guarantors (including this Section 7.07) and
defending itself against any claim (whether asserted by the
Company and the Guarantors or any Holder or any other person) or
liability in connection with the exercise or performance of any
of its powers or duties hereunder except to the extent any such
loss, liability or expense may be attributable to its negligence
or bad faith. The Trustee shall notify the Company and the
Guarantors promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company and the
Guarantors shall not relieve the Company of its obligations
hereunder. The Company and the Guarantors shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may
have separate counsel and the Company and the Guarantors shall
pay the reasonable fees and expenses of such counsel. The Company
and the Guarantors need not pay for any settlement made without
its consent, which consent shall not be unreasonably withheld.
The obligations of the Company and the Guarantors under
this Section 7.07 shall survive the satisfaction and discharge of
this Indenture.
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To secure the Company's and the Guarantors payment
obligations in this Section 7.07, the Trustee shall have a Lien
prior to the Notes on all money or property held or collected by
the Trustee, except that held in trust to pay principal, interest
and Liquidated Damages, if any, on particular Notes. Such Lien
shall survive the satisfaction and discharge of this Indenture
and the resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.01 (vii) or (viii)
hereof occurs, the expenses and the compensation for the services
(including the fees and expenses of its agents and counsel) are
intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of
a successor Trustee shall become effective only upon the
successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the
Company. The Holders of a majority in principal amount of the
then outstanding Notes may remove the Trustee by so notifying the
Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee
under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall
promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring
Trustee, the Company, or the Holders of at least 10% in principal
amount of the then outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee, after written request by any Holder of a
Note who has been a Holder of a Note for at least six months,
fails to comply with Section 7.10 hereof, such Holder of a Note
may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Company.
Thereupon, the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all
the rights, powers and the duties of the Trustee under
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this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders of the Notes. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the
successor Trustee, provided that all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in
Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under
Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or
converts into, or transfers all or substantially all of its
corporate trust business to, another corporation, the successor
corporation without any further act shall be the successor
Trustee or any Agent, as applicable.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the
United States of America or of any state thereof that is
authorized under such laws to exercise corporate trustee power,
that is subject to supervision or examination by federal or state
authorities. The Trustee and its direct parent shall at all times
have a combined capital surplus of at least $50.0 million as set
forth in its most recent annual report of condition.
This Indenture shall always have a Trustee who satisfies
the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee
is subject to TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to
the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate,
at any time, elect to have either Section 8.02 or Section 8.03
hereof be applied to all Notes and Subsidiary Guarantees then
outstanding upon compliance with the conditions set forth below
in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.02, the Company and each
Guarantor shall, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, be deemed to have been
discharged from their respective obligations with respect to all
Notes and Subsidiary Guarantees then outstanding on the date the
conditions set forth below are satisfied ("Legal Defeasance").
For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness
represented by the Notes outstanding, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05
and the other
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Sections of this Indenture referred to in (a) and (b) below, and
to have satisfied all their respective other obligations under
such Notes and Subsidiary Guarantees and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall
execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive payments in respect of the principal
amount, premium, if any, and interest and Liquidated Damages on
such Notes when such payments are due from the trust referred to
in Section 8.04(a); (b) the Company's obligations with respect to
such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10,
4.02 and 4.03 hereof; (c) the rights, powers, trusts, duties and
immunities of the Trustee and the Company's obligations in con-
nection therewith; and (d) the provisions of this Section 8.02.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03, the Company and each
Guarantor shall, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Article 5 and in
Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15,
4.16, 4.17, 5.01 and 11.01 hereof with respect to the outstanding
Notes and Subsidiary Guarantees on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes and Subsidiary Guarantees shall
thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all
other purposes hereunder (it being understood that such Notes
shall not be deemed outstanding for accounting purposes). For
this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes and Subsidiary Guarantees, the Company or any
of its Subsidiaries may omit to comply with and shall have no
liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the
remainder of this Indenture and such Notes and Subsidiary
Guarantees shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, subject to the satisfaction of
the conditions set forth in Section 8.04 hereof, Sections 6.01(iii)
through 6.01(v) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or Section 8.03 hereof to the outstanding
Notes and Subsidiary Guarantees:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders
of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof,
in such amounts as shall be sufficient, in the
opinion of a nationally recognized firm of
independent public accountants, to pay the
principal amount, premium, if any, and interest
and Liquidated Damages, if any, on the outstanding
Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the
Company must specify whether the Notes are being
defeased to maturity or to a particular redemption
date;
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(b) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of
counsel in the United States reason- ably
acceptable to the Trustee confirming that (A) the
Company has received from, or there has been
published by, the Internal Revenue Service a
ruling or (B) since the date hereof, there has
been a change in the applicable federal income tax
law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm
that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes
shall not recognize income, gain or loss for
federal income tax purposes as a result of such
Legal Defeasance and shall be subject to federal
income tax on the same amounts, in the same manner
and at the same times as would have been the case
if such Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in
the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes shall
not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance
and shall be subject to federal income tax on the same
amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance
had not occurred;
(d) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than
a Default or Event of Default resulting from the
financing of amounts to be applied to such deposit) or
insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the
period ending on the 91st day after the date of
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a
default under any material agreement or instrument
(other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that, subject to
customary assumptions and exclusions (which
assumptions and exclusions shall not relate to the
operation of Section 547 of the United States
Bankruptcy Code or any analogous New York State law
provision), after the 91st day following the deposit,
the trust funds shall not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not
made by the Company with the intent of preferring the
Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or
others; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND U.S. GOVERNMENT SECURITIES TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
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Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 8.05, the "Trustee") pursuant to Section
8.04 hereof in respect of the then outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the
Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash
or non-callable Government Securities deposited pursuant to
Section 8.04 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge
which by law is for the account of the Holders of the outstanding
Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time
at the Company's written request and be relieved of all liability
with respect to any money or non-callable Government Securities
held by it as provided in Section 8.04 hereof which, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered
under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO THE COMPANY.
Any money deposited with the Trustee or any Paying Agent,
or then held by the Company, in trust for the payment of the
principal of, premium, if any, interest or Liquidated Damages, if
any, on any Note and remaining unclaimed for one year after such
principal, and premium, if any, or interest, if any, or
Liquidated Damages, if any, have become due and payable shall be
paid to the Company on its written request or (if then held by
the Company) shall be discharged from such trust; and the Holder
of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in
the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30
days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to
the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any
United States dollars or non-callable Government Securities in
accordance with Section 8.02 hereof or Section 8.03 hereof, as
the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company
and the Guarantors under this Indenture, and the Notes and the
Subsidiary Guarantees shall be revived and reinstated as though
no deposit had occurred pursuant to Section 8.02 hereof or
Section 8.03 hereof, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 hereof or Section 8.03 hereof, as
the case may be; provided, however, that, if the Company makes
any payment of principal of, premium, if any, interest or
Liquidated Damages, if any, on any Note
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following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF THE NOTES.
Notwithstanding Section 9.02 of this Indenture, without the
consent of any Holder of Notes the Company and the Trustee may
amend or supplement this Indenture, the Notes or the Subsidiary
Guarantees:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to
or in place of certificated Notes;
(c) to provide for the assumption of the Company's or a
Guarantor's obligations to the Holders of the Notes in
the case of a merger, or consolidation pursuant to
Article 5 or Article 11 hereof, as applicable;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights hereunder
of any Holder of the Notes; or
(e) to comply with requirements of the Commission in order
to effect or maintain the qualification of this
Indenture under the TIA.
(f) to allow any Subsidiary to Guarantee the Notes.
Upon the written request of the Company accompanied by a
resolution of its Board of Directors of the Company authorizing
the execution of any such amended or supplemental indenture, and
upon receipt by the Trustee of the documents described in Section
9.06 hereof, the Trustee shall join with the Company or the
Guarantors in the execution of any amended or supplemental
indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture
that affects its own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02 or as
provided in Section 10.13 or Section 12.13 of this Indenture,
this Indenture, the Notes and the Subsidiary Guarantees may be
amended or supplemented with the consent of the Holders of at
least a majority in principal amount at maturity of the Notes
then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or a tender offer or
exchange offer for Notes), and any existing default or compliance
with any provision of this Indenture, the Notes or the Subsidiary
Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection
with a purchase of or a tender offer or exchange offer for the
Notes).
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Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such
amended or supplemental indenture, and upon the filing with the
Trustee of evidence satisfactory to the Trustee of the consent of
the Holders of Notes as aforesaid, and upon receipt by the
Trustee of an Officers' Certificate and an Opinion of Counsel,
the Trustee shall join with the Company and the Guarantors in the
execution of such amended or supplemental indenture unless such
amended or supplemental indenture affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may, but shall not be obligated to,
enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of
any proposed amendment or waiver, but it shall be sufficient if
such consent approves the substance thereof. After an amendment,
supplement or waiver under this Section 9.02 becomes effective,
the Company shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect
the validity of any such amended or supplemental indenture or
waiver.
Subject to Sections 6.04, 6.07, 10.13 and 12.13 hereof, the
Holders of a majority in aggregate principal amount of the Notes
then outstanding may amend or waive compliance in a particular
instance by the Company or the Guarantors with any provision of
this Indenture or the Notes or the Subsidiary Guarantees.
However, without the consent of each Holder affected, an
amendment, or waiver may not (with respect to any Note held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity
of any Notes or alter the provisions with respect to
the redemption of the Notes (other than provisions
relating to Sections 3.09, 4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in
aggregate principal amount at maturity of the Notes
and a waiver of the payment default that resulted from
such acceleration);
(e) make any Note payable in money other than that stated
in the Notes;
(f) make any change in Section 6.04 or 6.07 hereof;
(g) waive a redemption payment with respect to any Note
(other than a payment described in Section 4.10 or
4.13 hereof); or
(h) except as otherwise permitted herein, release any
Guarantor from any of its obligations under its
Subsidiary Guarantee or this Indenture, or amend the
provisions herein relating to the release of
Guarantors; or
(i) make any change in the amendment and waiver provisions
of this Article 9.
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SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the
Subsidiary Guarantees or the Notes shall be set forth in an
amended or supplemental indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective,
a consent to it by a Holder of a Note is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's
Note, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or
amendment becomes effective. When an amendment, supplement or
waiver becomes effective in accordance with its terms, it
thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue
and the Trustee shall authenticate new Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental
indenture authorized pursuant to this Article 9 if the amendment
or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Company and the
Guarantors may not sign an amendment or supplemental indenture
until their respective Boards of Directors approve it. In signing
or refusing to sign any amended or supplemental indenture the
Trustee shall be entitled to receive and (subject to Section 7.01
hereof) shall be fully protected in relying upon an Officers'
Certificate and an Opinion of Counsel stating that the execution
of such amended or supplemental indenture is authorized or
permitted by this Indenture, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company
and the Guarantors in accordance with its terms.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder of Notes by accepting a
Note agrees, that the Indebtedness evidenced by the Note is
subordinated in right of payment, to the extent and in the manner
provided in this Article, to the prior payment in full of all
Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
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SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of the
Company of any kind, whether in cash, property or securities in a
liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, an assignment for the
benefit of creditors or any marshalling of the Company's assets
and liabilities, whether voluntary or involuntary, the holders of
Senior Debt of the Company will be entitled to receive payment in
full in cash of all Obligations due in respect of such Senior
Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt)
before the Holders of Notes will be entitled to receive any
payment or distribution of any kind with respect to the Notes,
and until all Obligations with respect to Senior Debt are paid in
full, any payment or distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt
(except that Holders of Notes may receive and retain Permitted
Junior Securities and payments made from the trust described
under Section 8.02 and 8.03).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company also shall not make any payment upon or in
respect of the Notes (except in Permitted Junior securities or
from the trust described under Section 8.02 and 8.03) if (i) a
default in the payment of the principal of premium, if any, or
interest on Designated Senior Debt occurs and is continuing or
(ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its
maturity, and in the case of this clause (ii) only, and the
Trustee receives a notice of such default invoking the provisions
described in this paragraph (a "Payment Blockage Notice") from
the holders of any Designated Senior Debt or any agent or trustee
therefor. Payments on the Notes may and shall be resumed (a) in
the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default
is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless a payment
default has occurred and is continuing (as a result of the
maturity of any Designated Senior Debt having been accelerated).
No new period of payment blockage (other than for a payment
default) may be commenced unless and until (i) 360 days have
elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due
have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90
days.
Whenever the Company is prohibited from making any payment
in respect of the Notes, the Company also shall be prohibited
from making, directly or indirectly, any payment of any kind on
account of the purchase or other acquisition of the Notes. If any
Holder receives any payment or distribution that such Holder is
not entitled to receive with respect to the Notes, such Holder
shall be required to pay the same over to the holders of Senior
Debt.
SECTION 10.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event
of Default, the Company shall promptly notify holders of Senior
Debt of the acceleration.
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SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of a Note
receives any payment of any Obligations with respect to the Notes
at a time when such payment is prohibited by Section 10.03
hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt
as their interests may appear or their Representative under the
indenture or other agreement (if any) pursuant to which Senior
Debt may have been issued (the "Representative"), as their
respective interests may appear, for application to the payment
of all Obligations with respect to Senior Debt remaining unpaid
to the extent necessary to pay such Obligations in full in
accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of
Senior Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the
Trustee as are specifically set forth in this Article 10, and no
implied covenants or obligations with respect to the holders of
Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary
duty to the holders of Senior Debt, and shall not be liable to
any such holders if the Trustee shall pay over or distribute to
or on behalf of Holders of the Notes or the Company or any other
Person money or assets to which any holders of Senior Debt shall
be entitled by virtue of this Article 10, except if such payment
is made as a result of the willful misconduct or gross negligence
of the Trustee.
SECTION 10.06. NOTICE BY THE COMPANY.
The Company shall promptly notify the Trustee and the
Paying Agent of any facts known to the Company that would cause a
payment of any Obligations with respect to the Notes to violate
this Article, which notice shall specifically refer to this
Article 10, but failure to give such notice shall not affect the
subordination of the Notes to the Senior Debt as provided in this
Article.
SECTION 10.07. SUBROGATION.
After all Senior Debt is paid in full and until the Notes
are paid in full, Holders of the Notes shall be subrogated
(equally and ratably with all other pari passu indebtedness) to
the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders of the Notes have been applied
to the payment of Senior Debt. A distribution made under this
Article to holders of Senior Debt that otherwise would have been
made to Holders of the Notes is not, as between the Company and
Holders of the Notes, a payment by the Company on the Notes.
SECTION 10.08. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the
Notes and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Company and Holders of the
Notes, the obligations of the Company, which are absolute
and unconditional, to pay principal of and interest on the
Notes in accordance with their terms;
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(2) affect the relative rights of Holders of the Notes
and creditors of the Company other than their rights in
relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder of the Notes
from exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and
owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of the Notes.
If the Company fails because of this Article to pay
principal of or interest on a Note on the due date, the failure
is still a Default or Event of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY.
No right of any holder of Senior Debt to enforce the
subordination of the Indebtedness evidenced by the Notes shall be
impaired by any act or failure to act by the Company or any
Holder or by the failure of the Company or any Holder to comply
with this Indenture.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt, or any of them, may, at
any time and from time to time, without the consent of or notice
to the Holders of the Notes, without incurring any liabilities to
any Holder of any Notes and without impairing or releasing the
subordination and other benefits provided in this Indenture or
the obligations of the Holders of the Notes to the holders of the
Senior Debt, even if any right of reimbursement or subrogation or
other right or remedy of any Holder of Notes is affected,
impaired or extinguished thereby, do any one or more of the
following:
(1) change the manner, place or terms of payment or
change or extend the time of payment of, or renew,
exchange, amend, increase or alter, the terms of any Senior
Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor)
to such holder, or any liability incurred directly or
indirectly in respect thereof or otherwise amend, renew,
exchange, extend, modify, increase or supplement in any
manner any Senior Debt or any instrument evidencing or
guaranteeing or securing the same or any agreement under
which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon,
enforce or otherwise deal with in any manner and in any
order any property pledged, mortgaged or otherwise securing
Senior Debt or any liability of any obligor thereon, to
such holder, or any liability incurred directly or
indirectly in respect thereof;
(3) settle or compromise any Senior Debt or any other
liability of any obligor of the Senior Debt to such holder
or any security therefor or any liability incurred directly
or indirectly in respect thereof and apply any sums by
whomsoever paid and however realized to any liability
(including, without limitation, Senior Debt) in any manner
or order; and
(4) fail to take or to record or to otherwise perfect,
for any reason or for no reason, any lien or security
interest securing Senior Debt by whomsoever granted,
exercise or delay in or refrain from exercising any right
or remedy against any obligor or any guarantor or any other
person, elect any remedy and otherwise deal freely with any
obligor and any security for the Senior Debt or any
liability of any obligor to such holder or any liability
incurred directly or indirectly in respect thereof.
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SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the
notice given to their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders of
the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction or upon any certificate of
such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the
Holders of the Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any
other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would
prohibit the making of any payment or distribution by the
Trustee, and the Trustee and the Paying Agent may continue to
make payments on the Notes, unless the Trustee shall have
received at its Corporate Trust Office at least three Business
Days prior to the date of such payment written notice of facts
that would cause the payment of any Obligations with respect to
the Notes to violate this Article, which notice shall
specifically refer to this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may
hold Senior Debt with the same rights it would have if it were
not Trustee. Any Agent may do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take
such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 10, and appoints the
Trustee to act as the Holder's attorney-in-fact for any and all
such purposes, including without limitation the timely filing of
a claim for the unpaid balance of the Notes held by such Holder
in the form required in any Insolvency or Liquidation Proceeding
and causing such claim to be approved. If the Trustee does not
file a proper proof of claim or proof of debt in the form
required in any proceeding referred to in Section 6.09 hereof at
least 30 days before the expiration of the time of such claim,
the Representatives of the Designated Senior Debt, including the
Credit Agent, are hereby authorized to file an appropriate claim
for and on behalf of the Holders of the Notes.
SECTION 10.13. AMENDMENTS.
Any amendment to the provisions of this Article 10 shall
require the consent of the Holders of at least 75% in aggregate
amount of Notes then outstanding if such amendment would
adversely affect the rights of the Holders of Notes.
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ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.01. NOTE GUARANTEE.
Subject to Section 11.06 hereof, each of the Guarantors
hereby, jointly and severally, unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Notes and
the Obligations of the Company hereunder and thereunder, that:
(a) the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be promptly paid in full when
due, subject to any applicable grace period, whether at maturity,
by acceleration, redemption or otherwise, and interest on the
overdue principal, premium, if any, (to the extent permitted by
law) interest on any interest, if any, and Liquidated Damages, if
any, on the Notes, and all other payment Obligations of the
Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full and performed, all in accordance
with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the
extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration, redemption or
otherwise. Failing payment when so due of any amount so
guaranteed for whatever reason the Guarantors will be jointly and
severally obligated to pay the same immediately. An Event of
Default under this Indenture or the Notes shall constitute an
event of default under the Subsidiary Guarantees, and shall
entitle the Holders to accelerate the Obligations of the
Guarantors hereunder in the same manner and to the same extent as
the Obligations of the Company. The Guarantors hereby agree that
their Obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or
this Indenture, the absence of any action to enforce the same,
any waiver or consent by any Holder with respect to any
provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor. Each Guarantor
hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against
the Company, protest, notice and all demands whatsoever and
covenants that this Note Guarantee will not be discharged except
by complete performance of the Obligations contained in the Notes
and this Indenture. If any Holder or the Trustee is required by
any court or otherwise to return to the Company, the Guarantors,
or any Note Custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or the
Guarantors, any amount paid by either to the Trustee or such
Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each
Guarantor agrees that it shall not be entitled to, and hereby
waives, any right of subrogation in relation to the Holders in
respect of any Obligations guaranteed hereby. Each Guarantor
further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the
maturity of the Obligations guaranteed hereby may be accelerated
as provided in Article 6 for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article 6 hereof,
such Obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantors for the purpose of this
Note Guarantee. The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the
exercise of such right does not impair the rights of the Holders
under the Subsidiary Guarantees.
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SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section
11.01, each Guarantor hereby agrees that a notation of such
Subsidiary Guarantee substantially in the form of EXHIBIT D shall
be endorsed by an Officer of such Guarantor on each Note
authenticated and delivered by the Trustee and that this
Indenture shall be executed on behalf of such Guarantor, by
manual or facsimile signature, by an Officer of such Guarantor.
Each Guarantor hereby agrees that its Subsidiary Guarantee
set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of
such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on
the Subsidiary Guarantee no longer holds that office at the time
the Trustee authenticates the Note on which a Subsidiary
Guarantee is endorsed, the Subsidiary Guarantee shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery
of the Subsidiary Guarantee set forth in this Indenture on behalf
of the Guarantors.
SECTION 11.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS
(a) Except as set forth in Articles 4 and 5 hereof, nothing
contained in this Indenture shall prohibit a merger between a
Guarantor and another Guarantor or a merger between a Guarantor
and the Company.
(b) Subject to Section 11.04 hereof, no Guarantor may
consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another corporation, Person
or entity whether or not affiliated with such Guarantor unless,
subject to the provisions of the following paragraph, (i) the
Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of
such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under this
Indenture and the Subsidiary Guarantees; and (ii) immediately
after giving effect to such transaction, no Default or Event of
Default exists.
(c) In the case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor Person, by
supplemental indenture, executed and delivered to the Trustee and
substantially in the form of EXHIBIT E hereto, of the Subsidiary
Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this
Indenture to be performed by the Guarantor, such successor Person
shall succeed to and be substituted for the Guarantor with the
same effect as if it had been named herein as a Guarantor;
provided that, solely for purposes of computing Consolidated Net
Income for purposes of clause (b) of the first paragraph of
Section 4.07 hereof, the Consolidated Net Income of any Person
other than the Company and its Restricted Subsidiaries shall only
be included for periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets. Such
successor Person thereupon may cause to be signed any or all of
the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee. All of the
Subsidiary Guarantees so issued shall in all respects have the
same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such
Subsidiary Guarantees had been issued at the date of the
execution hereof.
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SECTION 11.04. RELEASES FOLLOWING SALE OF ASSETS, MERGER, SALE
OF CAPITAL STOCK ETC..
In the event (a) of a sale or other disposition of all of
the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital
stock of any Guarantor, or (b) that the Company designates a
Guarantor to be an Unrestricted Subsidiary, or such Guarantor
ceases to be a Subsidiary of the Company, then such Guarantor (in
the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the capital stock
of such Guarantor or any such designation) or the entity
acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) shall be
released and relieved of any obligations under its Subsidiary
Guarantee. In the case of a sale, assignment, lease, transfer,
conveyance or other disposition of all or substantially all of
the assets of a Guarantor, upon the assumption provided for in
clause (i) of the Section 11.03(b) hereof, such Guarantor shall
be discharged from all further liability and obligation under
this Indenture. Upon delivery by the Company to the Trustee of an
Officers' Certificate to the effect of the foregoing, the Trustee
shall execute any documents reasonably required in order to
evidence the release of any Guarantor from its Obligation under
its Subsidiary Guarantee. Any Guarantor not released from its
Obligations under its Subsidiary Guarantee shall remain liable
for the full amount of principal of, premium, if any, interest
and Liquidated Damages, if any, on the Notes and for the other
Obligations of such Guarantor under the Indenture as provided in
this Article 11.
SECTION 11.05. ADDITIONAL GUARANTORS.
Any Person that was not a Guarantor on the date of this
Indenture may become a Guarantor by executing and delivering to
the Trustee (a) a supplemental indenture in substantially the
form of EXHIBIT E, and (b) an Opinion of Counsel to the effect
that such supplemental indenture has been duly authorized and
executed by such Person and constitutes the legal, valid, binding
and enforceable obligation of such Person (subject to such
customary exceptions concerning creditors rights', fraudulent
transfers, public policy and equitable principles as may be
acceptable to the Trustee in its discretion).
SECTION 11.06. LIMITATION ON GUARANTOR LIABILITY.
For purposes hereof, each Guarantor's liability shall be
limited to the lesser of (i) the aggregate amount of the
Obligations of the Company under the Notes and this Indenture and
(ii) the amount, if any, which would not have (A) rendered such
Guarantor "insolvent" (as such term is defined in the United
States Bankruptcy Code and in the Debtor and Creditor Law of the
State of New York) or (B) left such Guarantor with unreasonably
small capital at the time its Subsidiary Guarantee of the Notes
was entered into; provided that, it will be a presumption in any
lawsuit or other proceeding in which a Guarantor is a party that
the amount guaranteed pursuant to the Subsidiary Guarantee is the
amount set forth in clause (i) above unless any creditor, or
representative of creditors of such Guarantor, or debtor in
possession or trustee in bankruptcy of the Guarantor, otherwise
proves in such a lawsuit that the aggregate liability of the
Guarantor is the amount set forth in clause (ii) above. In making
any determination as to solvency or sufficiency of capital of a
Guarantor in accordance with the previous sentence, the right of
such Guarantor to contribution from other Guarantors, and any
other rights such Guarantor may have, contractual or otherwise,
shall be taken into account.
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting
hereunder, the term "Trustee" as used in this Article 11 shall in
each case (unless the context shall otherwise require) be
construed as extending to and including such Paying Agent
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within its meaning as fully and for all intents and purposes as
if such Paying Agent were named in this Article 11 in place of
the Trustee.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE.
The Guarantors agree, and each Holder of Notes by accepting
a Note agrees, that the Indebtedness evidenced by the Note is
subordinated in right of payment, to the extent and in the manner
provided in this Article, to the prior payment in full of all
Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of the
Guarantors of any kind, whether in cash, property or securities
in a liquidation or dissolution of the Guarantors or in a
bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to any Guarantor or its property, an
assignment for the benefit of creditors or any marshalling of
such Guarantor's assets and liabilities, whether voluntary or
involuntary, the holders of Senior Debt will be entitled to
receive payment in full in cash of all Obligations due in respect
of such Senior Debt (including interest after the commencement of
any such proceeding at the rate specified in the applicable
Senior Debt) before the Holders of Notes will be entitled to
receive any payment or distribution of any kind with respect to
the Notes, and until all Obligations with respect to Senior Debt
are paid in full, any payment or distribution to which the
Holders of Notes would be entitled shall be made to the holders
of Senior Debt (except that Holders of Notes may receive and
retain Permitted Junior Securities and payments made from the
trust described under Section 8.02 and 8.03).
SECTION 12.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Guarantors also shall not make any payment upon or in
respect of the Notes (except in Permitted Junior securities or
from the trust described under Section 8.02 and 8.03) if (i) a
default in the payment of the principal of premium, if any, or
interest on Designated Senior Debt occurs and is continuing or
(ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its
maturity, and in the case of this clause (ii) only, and the
Trustee receives a notice of such default invoking the provisions
described in this paragraph (a "Payment Blockage Notice") from
the holders of any Designated Senior Debt or any agent or trustee
therefor. Payments on the Notes may and shall be resumed (a) in
the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default
is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless a payment
default has occurred and is continuing (as a result of the
maturity of any Designated Senior Debt having been accelerated).
No new period of payment blockage (other than for a payment
default) may be commenced unless and until (i) 360 days have
elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due
have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made,
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the basis for a subsequent Payment Blockage Notice unless such
default shall have been cured or waived for a period of not less
than 90 days.
Whenever a Guarantor is prohibited from making any payment
in respect of the Notes, the Guarantor also shall be prohibited
from making, directly or indirectly, any payment of any kind on
account of the purchase or other acquisition of the Notes. If any
Holder receives any payment or distribution that such Holder is
not entitled to receive with respect to the Notes, such Holder
shall be required to pay the same over to the holders of Senior
Debt.
SECTION 12.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event
of Default, the Guarantors shall promptly notify holders of
Senior Debt of the acceleration.
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of a Note
receives any payment of any Obligations with respect to the Notes
at a time when such payment is prohibited by Section 12.03
hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt
as their interests may appear or their Representative under the
indenture or other agreement (if any) pursuant to which Senior
Debt may have been issued, as their respective interests may
appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms,
after giving effect to any concurrent payment or distribution to
or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the
Trustee as are specifically set forth in this Article 12, and no
implied covenants or obligations with respect to the holders of
Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary
duty to the holders of Senior Debt, and shall not be liable to
any such holders if the Trustee shall pay over or distribute to
or on behalf of Holders of the Notes or the Guarantors or any
other Person money or assets to which any holders of Senior Debt
shall be entitled by virtue of this Article 12, except if such
payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
SECTION 12.06. NOTICE BY GUARANTOR
The Guarantors shall promptly notify the Trustee and the
Paying Agent of any facts known to the Guarantors that would
cause a payment of any Obligations with respect to the Notes to
violate this Article, which notice shall specifically refer to
this Article 12, but failure to give such notice shall not affect
the subordination of the Notes to the Senior Debt as provided in
this Article.
SECTION 12.07. SUBROGATION.
After all Senior Debt is paid in full and until the Notes
are paid in full, Holders of the Notes shall be subrogated
(equally and ratably with all other pari passu indebtedness) to
the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders of the Notes have been applied
to the payment of Senior Debt. A distribution made under this
Article to holders of Senior Debt that otherwise would have been
made to Holders of
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the Notes is not, as between the Guarantor and Holders
of the Notes, a payment by the Guarantors on the Notes.
SECTION 12.08. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the
Notes and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Guarantors and Holders of
the Notes, the obligations of the Guarantors, which are
absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of the Notes
and creditors of the Guarantors other than their rights in
relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder of the Notes
from exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and
owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of the Notes.
If the Guarantors fail because of this Article to pay
principal of or interest on a Note on the due date, the failure
is still a Default or Event of Default.
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY THE GUARANTORS.
No right of any holder of Senior Debt to enforce the
subordination of the Indebtedness evidenced by the Notes shall be
impaired by any act or failure to act by any Guarantor or any
Holder or by the failure of any Guarantor or any Holder to comply
with this Indenture.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt, or any of them, may, at
any time and from time to time, without the consent of or notice
to the Holders of the Notes, without incurring any liabilities to
any Holder of any Notes and without impairing or releasing the
subordination and other benefits provided in this Indenture or
the obligations of the Holders of the Notes to the holders of the
Senior Debt, even if any right of reimbursement or subrogation or
other right or remedy of any Holder of Notes is affected,
impaired or extinguished thereby, do any one or more of the
following:
(1) change the manner, place or terms of payment or
change or extend the time of payment of, or renew,
exchange, amend, increase or alter, the terms of any Senior
Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor)
to such holder, or any liability incurred directly or
indirectly in respect thereof or otherwise amend, renew,
exchange, extend, modify, increase or supplement in any
manner any Senior Debt or any instrument evidencing or
guaranteeing or securing the same or any agreement under
which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon,
enforce or otherwise deal with in any manner and in any
order any property pledged, mortgaged or otherwise securing
Senior Debt or any liability of any obligor thereon, to
such holder, or any liability incurred directly or
indirectly in respect thereof;
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(3) settle or compromise any Senior Debt or any other
liability of any obligor of the Senior Debt to such holder
or any security therefor or any liability incurred directly
or indirectly in respect thereof and apply any sums by
whomsoever paid and however realized to any liability
(including, without limitation, Senior Debt) in any manner
or order; and
(4) fail to take or to record or to otherwise perfect,
for any reason or for no reason, any lien or security
interest securing Senior Debt by whomsoever granted,
exercise or delay in or refrain from exercising any right
or remedy against any obligor or any guarantor or any other
person, elect any remedy and otherwise deal freely with any
obligor and any security for the Senior Debt or any
liability of any obligor to such holder or any liability
incurred directly or indirectly in respect thereof.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the
notice given to their Representative.
Upon any payment or distribution of assets of any Guarantor
referred to in this Article 12, the Trustee and the Holders of
the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction or upon any certificate of
such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the
Holders of the Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article 12.
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 12 or any
other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would
prohibit the making of any payment or distribution by the
Trustee, and the Trustee and the Paying Agent may continue to
make payments on the Notes, unless the Trustee shall have
received at its Corporate Trust Office at least three Business
Days prior to the date of such payment written notice of facts
that would cause the payment of any Obligations with respect to
the Notes to violate this Article, which notice shall
specifically refer to this Article 12. Only a Guarantor or a
Representative may give the notice. Nothing in this Article 12
shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may
hold Senior Debt with the same rights it would have if it were
not Trustee. Any Agent may do the same with like rights.
SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take
such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 12, and appoints the
Trustee to act as the Holder's attorney-in-fact for any and all
such purposes, including without limitation the timely filing of
a claim for the unpaid balance of the Notes held by such Holder
in the form required in any Insolvency or Liquidation Proceeding
and causing such claim to be approved. If the Trustee does not
file a proper proof of claim or proof of debt in the form
required in any proceeding referred to in Section 6.09 hereof at
least 30 days before the expiration
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of the time of such claim, the Representatives of the Designated
Senior Debt, including the Credit Agent, are hereby authorized to
file an appropriate claim for and on behalf of the Holders of the
Notes.
SECTION 12.13. AMENDMENTS.
Any amendment to the provisions of this Article 12 shall
require the consent of the Holders of at least 75% in aggregate
amount of Notes then outstanding if such amendment would
adversely affect the rights of the Holders of Notes.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss.318(c), the imposed
duties shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Company, the Guarantors
or the Trustee to the others is duly given if in writing and
delivered in Person or mailed by first class mail (registered or
certified, return receipt requested), telecopier or overnight air
courier guaranteeing next day delivery, to the others' address:
If to the Company:
J. Crew Operating Corp.
770 Broadway
New York, New York 10003
Telecopier No.: (212) 209-2666
Attention: Chief Financial Officer
With a copy to:
Cleary Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telecopier No.: (212) 225-3999
Attention: Paul Shim, Esq.
If to the Trustee:
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Telecopier No.: (860) 986-7920
Attention: Corporate Trust Department
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The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent
notices or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and the next Business
Day after timely delivery to the courier, if sent by overnight
air courier promising next Business Day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail or by overnight air courier promising next
Business Day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to
a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner
provided above within the time prescribed, it is duly given,
whether or not the addressee receives it.
If the Company mails a notice or communication to Holders,
it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER
HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture
or the Notes. The Company, the Trustee, the Registrar and anyone
else shall have the protection of TIA Section 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or the
Guarantors to the Trustee to take any action under this Indenture
(other than the initial issuance of the Notes), the Company or
Guarantor shall furnish to the Trustee upon request:
(a) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include
the statements set forth in Section 13.05 hereof) stating
that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been
satisfied; and
(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include
the statements set forth in Section 13.05 hereof) stating
that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture (other
than a certificate provided pursuant to TIA ss. 314(a)(4)) shall
comply with the provisions of TIA ss. 314(e) and shall include:
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(a) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(c) a statement that, in the opinion of such Person,
he or she has made such examination or investigation as is
necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion
of such Person, such condition or covenant has been
satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make
reasonable rules and set reasonable requirements for its
functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder
of the Company or the Guarantors, as such, shall have any
liability for any obligations of the Company or any Guarantor
under the Notes, this Indenture, the Subsidiary Guarantees or for
any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes.
SECTION 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND
BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY
GUARANTEES.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its
Subsidiaries or of any other Person. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company and the Guarantors in this
Indenture, the Notes and the Subsidiary Guarantees shall bind
their respective successors and assigns. All agreements of the
Trustee in this Indenture shall bind its successors and assigns.
SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
79
<PAGE>
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings
of the Articles and Sections of this Indenture have been inserted
for convenience of reference only, are not to be considered a
part of this Indenture and shall in no way modify or restrict any
of the terms or provisions hereof.
[Signatures on following page]
80
<PAGE>
SIGNATURES
Dated as of October 17, 1997
J. CREW OPERATING CORP.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
C&W OUTLET, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
CLIFFORD & WILLS, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
GRACE HOLMES, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
H.F.D. NO. 55, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
<PAGE>
J. CREW, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
J. CREW INTERNATIONAL, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
J. CREW SERVICES, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
POPULAR CLUB PLAN, INC.
By: /s/ Michael P. McHugh
--------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
as Trustee
By: /s/ Philip G. Kane, Jr.
--------------------------------
Name: Philip G. Kane
Title: Vice President
82
<PAGE>
EXHIBIT A-1
-----------
(Face of Note)
10 3/8% Senior Subordinated Notes due 2007
No. ___ $_______________
CUSIP NO. [ ]
J. CREW OPERATING CORP.
promises to pay to _________________ or registered assigns, the
principal sum of ___________ Dollars ($___________) on October
15, 2007.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
J. CREW OPERATING CORP.
By:____________________________
Name:
Title:
This is one of the 10 3/8% Senior Subordinated Notes referred to
in the within-mentioned Indenture:
Dated: ____________________
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:__________________________________
A-1-1
<PAGE>
(Back of Note)
10 3/8% Senior Subordinated
Notes due 2007
[Unless and until it is exchanged in whole or in part
for Notes in definitive form, this Note may not be transferred
except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such
successor Depositary. Unless this certificate is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or
such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or
such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much
as the registered owner hereof, Cede & Co., has an interest
herein.]1
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), THAT PRIOR TO SUCH TRANSFER, FURNISHED THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c),
(d) OR (e), BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
- --------
1. This paragraph should be included only if the Note is issued in
global form.
A-1-2
<PAGE>
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE.]2
- --------
2. This paragraph should be removed upon the exchange of
Senior Subordinated Notes for New Senior Subordinated Notes
in the Exchange Offer or upon the registration of the
Senior Subordinated Notes pursuant to the terms of the
Registration Rights Agreement.
A-1-3
<PAGE>
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless
otherwise indicated.
1. INTEREST. J. Crew Operating Corp., a Delaware
corporation, or its successor (the "Company"), promises to pay
interest on the principal amount of this Note at the rate of
10 3/8% per annum and shall pay the Liquidated Damages, if any,
payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and
Liquidated Damages, if any, in United States dollars (except as
otherwise provided herein) semi-annually in arrears on April 15
and October 15, commencing on April 15, 1998, or if any such day
is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes shall accrue
from the most recent date to which interest has been paid or, if
no interest has been paid, from October 17, 1997; provided that
if there is no existing Default or Event of Default in the
payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date, except in the case of the
original issuance of Notes, in which case interest shall accrue
from October 17, 1997. The Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy
Law) on overdue principal at the rate equal to 1% per annum in
excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard
to any applicable grace period) at the same rate to the extent
lawful. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on
the Notes (except defaulted interest) and Liquidated Damages, if
any, on the applicable Interest Payment Date to the Persons who
are registered Holders of Notes at the close of business on the
April 1 or October 1 next preceding the Interest Payment Date,
even if such Notes are cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The
Notes shall be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the
Company maintained for such purpose within or without the City
and State of New York, or, at the option of the Company, payment
of interest and Liquidated Damages, if any, may be made by check
mailed to the Holders at their addresses set forth in the
register of Holders; provided that payment by wire transfer of
immediately available funds shall be required with respect to
principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes. Such payment shall be in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street
Bank and Trust Company, the Trustee under the Indenture, shall
act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an
Indenture dated as of October 17, 1997 ("Indenture") among the
Company, the Guarantors and the Trustee. The terms of the Notes
include those stated in the Indenture and those made a part of
the Indenture by
A-1-4
<PAGE>
reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for
a statement of such terms. The Notes are general
unsecured Obligations of the Company limited to $150.0
million in aggregate principal amount, plus amounts,
if any, sufficient to pay premium or Liquidated
Damages, if any, and interest on outstanding Notes as
set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the
Notes shall not be redeemable at the Company's option
prior to October 15, 2002. Thereafter, the Notes shall
be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set
forth below together with accrued and unpaid interest
and any Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the
years indicated below:
Year Percentage
2002............................................105.188%
2003............................................103.458%
2004............................................101.729%
2005 and thereafter.............................100.000%
Notwithstanding the foregoing, at any time prior
to October 15, 2000, the Company may (but shall not
have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal
amount of the Notes originally issued at a redemption
price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption
date, with the net proceeds of one or more Equity
Offerings; provided that at least 65% of the aggregate
principal amount of the Notes originally issued remain
outstanding immediately after the occurrence of such
redemption; and provided, further, that such
redemption shall occur within 90 days of the date of
the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the
Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the date of
purchase. Within 65 days following any Change of
Control, the Company will mail a notice to each Holder
describing the transaction or transactions
A-1-5
<PAGE>
that constitute the Change of Control setting forth
the procedures governing the Change of Control Offer
required by the Indenture.
(b) When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to
make an offer to all Holders of Notes and, to the
extent required by the terms of any Pari Passu
Indebtedness to all holders of such Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and any such Pari
Passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the
Indenture or such Pari Passu Indebtedness. To the
extent that the aggregate principal amount at maturity
of (or Accreted Value, as the case may be) and any
such Pari Passu Indebtedness tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal
amount of Notes and any Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to
be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
(c) Holders of the Notes that are the subject of an
offer to purchase will receive a Change of Control
Offer or Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such
Notes purchased by completing the form titled "Option
of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be
mailed at least 30 days but not more than 60 days
before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000, unless all
of the Notes held by a Holder are to be redeemed. On
and after the redemption date, interest and Liquidated
Damages, if any, ceases to accrue on the Notes or
portions thereof called for redemption unless the
Company defaults in making the redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in initial denominations of
$1,000 and integral multiples of $1,000. The transfer of the
Notes may be registered and the Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by
the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not exchange or register the
transfer of any Notes for a period of 15 days before a selection
of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a
Note may be treated as its owner for all purposes.
A-1-6
<PAGE>
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the
following paragraphs and the provisions of the Indenture, the
Indenture, the Notes and the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection
with a purchase of or, tender offer or exchange offer for Notes),
and any existing Default or Event of Default or compliance with
any provision of the Indenture, the Notes and the Subsidiary
Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or
exchange offer for Notes).
Without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the
Indenture, the Notes or the Subsidiary Guarantees to
cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in
place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to
make any change that would provide any additional
rights or benefits to the Holders of Notes or that
does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with
requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the
Trust Indenture Act or to allow any Subsidiary to
guarantee the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include:
(i) default for 30 days in the payment when due of interest on or
Liquidated Damages, if any, with respect to the Notes; (ii)
default in payment when due of the principal of or premium, if
any, on the Notes; (iii) failure by the Company or any Restricted
Subsidiary for 30 days after notice from the Trustee or at least
25% in principal amount of the Notes to comply with the
provisions described in Sections 4.07, 4.09, 4.10 and 4.13 of the
Indenture; (iv) failure by the Company or any Subsidiary for 60
days after notice from the Trustee or the Holders of at least 25%
in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (a) is caused by a failure
to pay principal of such Indebtedness after giving effect to any
grace period provided in such Indebtedness (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to
its stated maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $20.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $20.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company
has acknowledged liability in writing), which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) except
as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary
A-1-7
<PAGE>
Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company or any of its
Significant Subsidiaries
If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may
declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain
events of bankruptcy or insolvency, with respect to
the Company, all outstanding Notes will become due and
payable without further action or notice. Upon any
acceleration of maturity of the Notes, all principal
of and accrued interest and Liquidated Damages, if
any, on the Notes shall be due and payable
immediately. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders
of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default
relating to the payment of principal or interest) if
it determines that withholding notice is in their
interest. In the event of a declaration of
acceleration of the Notes because an Event of Default
has occurred and is continuing as a result of the
acceleration of any Indebtedness described in clause
(v) of the preceding paragraph, the declaration of
acceleration of the Notes shall be automatically
annulled if the holders of any Indebtedness described
in clause (v) of the preceding paragraph have
rescinded the declaration of acceleration in respect
of such Indebtedness within 30 days of the date of
such declaration and if (a) the annulment of the
acceleration of Notes would not conflict with any
judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default,
except nonpayment of principal or interest on the
Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to,
accept deposits from, and perform services for the
Company, the Guarantors or their respective
Affiliates, and may otherwise deal with the Company,
the Guarantors or their respective Affiliates, as if
it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder, of the Company
or any Guarantor, as such, shall have any liability
for any obligations of the Company or any Guarantor
under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such
liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid
until authenticated by the manual signature
of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES.
In addition to the rights provided to Holders of the Notes under
the Indenture, Holders of Transfer
A-1-8
<PAGE>
Restricted Securities (as defined in the Registration
Rights Agreement) shall have all the rights set forth
in the Registration Rights Agreement, dated as of the
date hereof, among the Company, the Guarantors and the
Initial Purchasers (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the
Trustee may use CUSIP numbers in notices of redemption
as a convenience to the Holders. No representation is
made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-1-9
<PAGE>
The Company shall furnish to any Holder upon written
request and without charge a copy of the Indenture and/or the
Registration Rights Agreement. Requests may be made to:
J. Crew Operating Corp.
770 Broadway
New York, New York 10003
Telecopy: (212) 209-2666
Attention: Chief Financial Officer
A-1-10
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we)
assign and transfer this Note to
- -----------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint------------------------------------------
to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
- -----------------------------------------------------------------
Date:-----------------
Your Signature:----------------
(Sign exactly as your name
appears on the face of this Note)
Signature Guarantee:
A-1-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by
the Company pursuant to Section 4.10 or 4.13 of the Indenture,
check the box below:
|__| Section 4.10 |__| Section 4.13
If you want to elect to have only part of the Note
purchased by the Company pursuant to Section 4.10 or Section 4.13
of the Indenture, state the amount you elect to have purchased:
$-----------
Date:----------------- Your Signature:---------------------
(Sign exactly as your name
appears on the Note)
Tax Identification No.:--------
Signature Guarantee.
A-1-12
<PAGE>
3
SCHEDULE OF EXCHANGES OF NOTES
The following exchanges of a part of this Global Note for other
Notes have been made:
- ------------------------------------------------------------------------------
Signature
of
Principal Amount authorized
of this Global officer of
Amount of decrease Amount of increase Note following Trustee of
Date of in Principal Amount in Principal Amount such decrease Note
Exchange of this Global Note of this Global Note (or increase) Custodian
- ------------------------------------------------------------------------------
- -------------------------
3. This should be included only if the Note is issued in global form.
A-1-13
<PAGE>
EXHIBIT A-2
-----------
(Face of Regulation S Temporary Global Note)
10 3/8% Senior Subordinated Notes due 2007
No. $_______________
CUSIP NO.
J. CREW OPERATING CORP.
promises to pay to _________________ or registered assigns, the
principal sum of ___________ Dollars ($___________) on October
15, 2007.
Interest Payment Dates: October 15 and April 15
Record Dates: October 1 and April 1
J. CREW OPERATING CORP.
By:______________________________
Name:
Title:
This is one of the 10 3/8% Senior
Subordinated Notes referred to
in the within-mentioned Indenture:
Dated: ____________________
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:__________________________________
A-2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
10 3/8% Senior Subordinated Notes due 2008
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY
GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS
EXCHANGE FOR DEFINITIVE SENIOR SUBORDINATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
PAYMENT OF INTEREST HEREON PRIOR TO THE EXCHANGE OF THIS SENIOR
DISCOUNT NOTE FOR A REGULATION S TEMPORARY GLOBAL NOTE AS
CONTEMPLATED BY THE INDENTURE.]1
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55
WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.2
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d) TO AN
- --------
1 These paragraphs should be removed upon the exchange of
Regulation S Temporary Global Notes for Regulation S Permanent
Global Notes pursuant to the terms of the Indenture.
2 This paragraph should be included only if the Note is issued in
global form.
A-2-2
<PAGE>
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF THE SECURITIES ACT (AN
"INSTITUTIONAL ACCREDITED INVESTOR"), THAT PRIOR TO SUCH
TRANSFER, FURNISHED THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH
CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES
LESS THAN $250,000, AN OPINION OF COUNSEL THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, OR (e)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND, IN THE CASE OF
CLAUSE (b), (c), (d) OR (e), BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM
IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.]3
Until this Regulation S Temporary Global Note is exchanged
for Regulation S Permanent Global Notes, the Holder hereof shall
not be entitled to receive payments of interest or Liquidated
Damages, if any, hereon although interest and Liquidated Damages,
if any, will continue to accrue; until so exchanged in full, this
Regulation S Temporary Global Note shall in all other respects be
entitled to the same benefits as other Senior Subordinated Notes
under the Indenture.
This Regulation S Temporary Global Note is exchangeable in
whole or in part for one or more Regulation S Permanent Global
Notes or Rule 144A Global Notes only (i) on or after the
termination of the 40-day restricted period (as defined in
Regulation S) and (ii) upon presentation of certificates
(accompanied by an Opinion of Counsel, if applicable) required by
Article 2 of the Indenture. Upon exchange of this Regulation S
Temporary Global Note for one or more Regulation S Permanent
Global Notes or Rule 144A Global Notes, the Trustee shall cancel
this Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become
valid or obligatory until the certificate of authentication
hereon shall have been duly manually signed by the Trustee in
accordance with the Indenture. This Regulation S Temporary Global
Note shall be governed by and construed in accordance with the
laws of the State of the New York. All references to "$,"
"Dollars," "dollars" or "U.S. $" are to such coin or currency of
the United States of America as at the time shall be legal tender
for the payment of public and private debts therein.
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless
otherwise indicated.
1. INTEREST. J. Crew Operating Corp., a Delaware
corporation, or its successor (the "Company"),
promises to pay interest on the principal amount of
this Note at the rate of 10 3/8% per annum and shall
pay the Liquidated Damages, if any, payable pursuant
to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and
Liquidated Damages, if any, in United States dollars
(except as otherwise provided herein) semi-annually in
arrears on April 15 and October 15, commencing on
- --------
3 This paragraph should be removed upon the exchange of
Notes for Exchange Senior Discount Notes in the Exchange
Offer or upon the registration of the Notes pursuant to the
terms of the Registration Rights Agreement.
A-2-3
<PAGE>
April 15, 1998, or if any such day is not a Business
Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes shall
accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from
October 17, 1997; provided that if there is no
existing Default or Event of Default in the payment of
interest, and if this Note is authenticated between a
record date referred to on the face hereof and the
next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of
Notes, in which case interest shall accrue from
October 17, 1997. The Company shall pay interest
(including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent
lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated
Damages (without regard to any applicable grace
period) at the same rate to the extent lawful.
Interest shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on
the Notes (except defaulted interest) and Liquidated Damages, if
any, on the applicable Interest Payment Date to the Persons who
are registered Holders of Notes at the close of business on the
April 1 or October 1 next preceding the Interest Payment Date,
even if such Notes are cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The
Notes shall be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the
Company maintained for such purpose within or without the City
and State of New York, or, at the option of the Company, payment
of interest and Liquidated Damages, if any, may be made by check
mailed to the Holders at their addresses set forth in the
register of Holders; provided that payment by wire transfer of
immediately available funds shall be required with respect to
principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes. Such payment shall be in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street
Bank and Trust Company, the Trustee under the Indenture, shall
act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an
Indenture dated as of October 17, 1997 ("Indenture") among the
Company, the Guarantors and the Trustee. The terms of the Notes
include those stated in the Indenture and those made a part of
the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes
are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. The Notes
are general unsecured Obligations of the Company limited to
$150.0 million in aggregate principal amount, plus amounts, if
any, sufficient to pay premium or Liquidated Damages, if any, and
interest on outstanding Notes as set forth in Paragraph 2 hereof.
A-2-4
<PAGE>
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the
Notes shall not be redeemable at the Company's option
prior to October 15, 2002. Thereafter, the Notes shall
be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set
forth below together with accrued and unpaid interest
and any Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the
years indicated below:
Year Percentage
2002............................................105.188%
2003............................................103.458%
2004............................................101.729%
2005 and thereafter.............................100.000%
Notwithstanding the foregoing, at any time prior
to October 15, 2000, the Company may (but shall not
have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal
amount of the Notes originally issued at a redemption
price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption
date, with the net proceeds of one or more Equity
Offerings; provided that at least 65% of the aggregate
principal amount of the Notes originally issued remain
outstanding immediately after the occurrence of such
redemption; and provided, further, that such
redemption shall occur within 90 days of the date of
the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the
Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the date of
purchase. Within 65 days following any Change of
Control, the Company will mail a notice to each Holder
describing the transaction or transactions that
constitute the Change of Control setting forth the
procedures governing the Change of Control Offer
required by the Indenture.
(b) When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to
make an offer to all Holders of Notes and, to the
extent required by the terms of any Pari Passu
Indebtedness to all holders of such Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and any such Pari
Passu Indebtedness that may be purchased out of the
Excess
A-2-5
<PAGE>
Proceeds, at an offer price in cash in an amount equal
to 100% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase, in accordance with the
procedures set forth in the Indenture or such Pari
Passu Indebtedness. To the extent that the aggregate
principal amount at maturity of (or Accreted Value, as
the case may be) and any such Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes and any Pari Passu
Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis.
Upon completion of such offer to purchase, the amount
of Excess Proceeds shall be reset at zero.
(c) Holders of the Notes that are the subject of an
offer to purchase will receive a Change of Control
Offer or Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such
Notes purchased by completing the form titled "Option
of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be
mailed at least 30 days but not more than 60 days
before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000, unless all
of the Notes held by a Holder are to be redeemed. On
and after the redemption date, interest and Liquidated
Damages, if any, ceases to accrue on the Notes or
portions thereof called for redemption unless the
Company defaults in making the redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in initial denominations of
$1,000 and integral multiples of $1,000. The transfer of the
Notes may be registered and the Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by
the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not exchange or register the
transfer of any Notes for a period of 15 days before a selection
of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a
Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the
following paragraphs and to the provisions of the Indenture, the
Indenture, the Notes and the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection
with a purchase of or, tender offer or exchange offer for Notes),
and any existing Default or Event of Default or compliance with
any provision of the Indenture, the Notes and the Subsidiary
Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or
exchange offer for Notes).
A-2-6
<PAGE>
Without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the
Indenture, the Notes or the Subsidiary Guarantees to
cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in
place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to
make any change that would provide any additional
rights or benefits to the Holders of Notes or that
does not adversely affect the legal rights under the
Indenture of any such Holder, to comply with
requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the
Trust Indenture Act or to allow any Subsidiary to
guarantee the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include:
(i) default for 30 days in the payment when due of interest on or
Liquidated Damages, if any, with respect to the Notes; (ii)
default in payment when due of the principal of or premium, if
any, on the Notes; (iii) failure by the Company or any Restricted
Subsidiary for 30 days after notice from the Trustee or at least
25% in principal amount of the Notes to comply with the
provisions described in Sections 4.07, 4.09, 4.10 and 4.13 of the
Indenture; (iv) failure by the Company or any Subsidiary for 60
days after notice from the Trustee or the Holders of at least 25%
in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (a) is caused by a failure
to pay principal of such Indebtedness after giving effect to any
grace period provided in such Indebtedness (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to
its stated maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $20.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $20.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company
has acknowledged liability in writing), which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) except
as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee;
and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries
If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may
declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain
events of bankruptcy or insolvency, with respect to
the Company, all outstanding Notes will become due and
payable without further action or notice. Upon any
acceleration of maturity of the Notes, all principal
of and accrued interest and Liquidated Damages, if
any, on the Notes shall be due and payable
immediately. Holders of the Notes may not enforce the
Indenture or the Notes except as
A-2-7
<PAGE>
provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount
of the then outstanding Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of
principal or interest) if it determines that
withholding notice is in their interest. In the event
of a declaration of acceleration of the Notes because
an Event of Default has occurred and is continuing as
a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph,
the declaration of acceleration of the Notes shall be
automatically annulled if the holders of any
Indebtedness described in clause (v) of the preceding
paragraph have rescinded the declaration of
acceleration in respect of such Indebtedness within 30
days of the date of such declaration and if (a) the
annulment of the acceleration of Notes would not
conflict with any judgment or decree of a court of
competent jurisdiction and (b) all existing Events of
Default, except nonpayment of principal or interest on
the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to,
accept deposits from, and perform services for the
Company, the Guarantors or their respective
Affiliates, and may otherwise deal with the Company,
the Guarantors or their respective Affiliates, as if
it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder, of the Company
or any Guarantor, as such, shall have any liability
for any obligations of the Company or any Guarantor
under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such
liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an
authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to
Holders of the Notes under the Indenture, Holders of
Transfer Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the
rights set forth in the Registration Rights Agreement,
dated as of the date hereof, among the Company, the
Guarantors and the Initial Purchasers (the
"Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the
Trustee may use CUSIP numbers in notices of redemption
as a convenience to the Holders. No representation is
made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of
A-2-8
<PAGE>
redemption and reliance may be placed only on the other
identification numbers placed thereon.
A-2-9
<PAGE>
Exhibit B-1
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(1) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 10 3/8% Senior Subordinated Notes due 2007 of
J. Crew Operating Corp.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Operating
Corp. a Delaware corporation (the "Company") and State Street
Bank and Trust Company as trustee (the "Trustee"). Capitalized
terms used but not defined herein shall have the meanings given
to them in the Indenture.
This letter relates to $ _______________ principal amount
of Notes which are evidenced by one or more Rule 144A Global
Notes and held with the Depositary in the name of
________________ (the "Transferor"). The Transferor has requested
a transfer of such beneficial interest in the Notes to a Person
who will take delivery thereof in the form of an equal principal
amount of Notes evidenced by one or more Regulation S Global
Notes, which amount, immediately after such transfer, is to be
held with the Depositary through Euroclear or Cedel or both.
In connection with such request and in respect of such
Notes, the Transferor hereby certifies that such transfer has
been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance
with Rule 903 or Rule 904 under the United States Securities Act
of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:
(1) The offer of the Notes was not made to a person in the United States;
(2) either:
(a) at the time the buy order was originated, the
transferee was outside the United States or the
Transferor and any person acting on its behalf
reasonably believed and believes that the transferee
was outside the United States; or
(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market
and neither the Transferor nor any person acting on
its behalf knows that the transaction was prearranged
with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 904(b) of Regulation S;
B-1-1
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the
registration provisions of the Securities Act; and
(5) upon completion of the transaction, the beneficial
interest being transferred as described above is to be
held with the Depositary through Euroclear or Cedel or
both.
Upon giving effect to this request to exchange a beneficial
interest in a Rule 144A Global Note for a beneficial interest in
a Regulation S Global Note, the resulting beneficial interest
shall be subject to the restrictions on transfer applicable to
Regulation S Global Notes pursuant to the Indenture and the
Securities Act and, if such transfer occurs prior to the end of
the 40-day restricted period associated with the initial offering
of Notes, the additional restrictions applicable to transfers of
interest in the Regulation S Temporary Global Note.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and Donaldson,
Lufkin & Jenrette Securities Corporation and Chase Securities
Inc., the initial purchasers of such Notes being transferred.
Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the
Securities Act.
[Insert Name of Transferor]
By:________________________
Name:
Title:
Dated:
cc: J. Crew Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-1-2
<PAGE>
EXHIBIT B-2
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 10 3/8% Senior Subordinated Notes due 2007 of
J. Crew Operating Corp.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Operating
Corp., a Delaware corporation (the "Company") and State Street
Bank and Trust Company as trustee (the "Trustee"). Capitalized
terms used but not defined herein shall have the meanings given
to them in the Indenture.
This letter relates to $_________ principal amount at
maturity of Notes which are evidenced by one or more Regulation S
Global Notes and held with the Depositary through Euroclear or
Cedel in the name of ______________ (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest
in the Notes to a Person who will take delivery thereof in the
form of an equal principal amount of the Notes evidenced by one
or more Rule 144A Global Notes, to be held with the Depositary.
In connection with such request and in respect of such
Notes, the Transferor hereby certifies that:
[CHECK ONE]
|_| such transfer is being effected pursuant to and in
accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further
certifies that the Notes are being transferred to a
Person that the Transferor reasonably believes is
purchasing the Notes for its own account, or for one
or more accounts with respect to which such Person
exercises sole investment discretion, and such Person
and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
or
|_| such transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
|_| such transfer is being effected pursuant to an
exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further
certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in
Global Notes and Definitive Notes
B-2-1
<PAGE>
bearing the Private Placement Legend and the
requirements of the exemption claimed, which
certification is supported by (x) if such transfer is
in respect of a principal amount of Notes at the time
of Transfer of $250,000 or more, a certificate
executed by the Transferee in the form of EXHIBIT C to
the Indenture, or (y) if such Transfer is in respect
of a principal amount of Notes at the time of transfer
of less than $250,000, (1) a certificate executed in
the form of EXHIBIT C to the Indenture and (2) an
Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has
attached to this certification), to the effect that
(1) such Transfer is in compliance with the Securities
Act and (2) such Transfer complies with any applicable
blue sky securities laws of any state of the United
States;
or
|_| such transfer is being effected pursuant to an effective
registration statement under the Securities Act;
or
|_| such transfer is being effected pursuant to an exemption
from the registration requirements of the
Securities Act other than Rule 144A or Rule 144,
and the Transferor hereby further certifies that
the Notes are being transferred in compliance with
the transfer restrictions applicable to the
Global Notes and in accordance with the requirements
of the exemption claimed, which
certification is supported by an Opinion of Counsel,
provided by the transferor or the transferee
(a copy of which the Transferor has attached to
this certification) in form reasonably acceptable
to the Company and to the Registrar, to
the effect that such transfer is in compliance with the
Securities Act;
and such Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United
States.
Upon giving effect to this request to exchange a beneficial
interest in Regulation S Global Notes for a beneficial interest
in 144A Global Notes, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Rule 144A
Global Notes pursuant to the Indenture and the Securities Act.
B-2-2
<PAGE>
This certificate and the statements contained herein are
made for your benefit and the benefit of the Company and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc., collectively the initial purchasers of such
Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:___________________________
Name:
Title:
Dated:
cc: J. Crew Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-2-3
<PAGE>
EXHIBIT B-3
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE Senior Subordinated Notes
(Pursuant to Section 2.06(b) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 10 3/8% Senior Subordinated Notes due 2007
J. Crew Operating Corp.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Operating
Corp., a Delaware corporation (the "Company") and State Street
Bank and Trust Company, as trustee (the "Trustee"). Capitalized
terms used but not defined herein shall have the meanings given
to them in the Indenture.
This relates to $____ principal amount of Notes which are
evidenced by one or more Definitive Senior Subordinated Notes in
the name of _____ (the "Transferor"). The Transferor has requested
an exchange or transfer of such Definitive Senior Subordinated
Note(s) in the form of an equal principal amount of Senior
Subordinated Notes evidenced by one or more Definitive Senior
Subordinated Notes, to be delivered to the Transferor or, in the
case of a transfer of such Senior Subordinated Notes, to such
Person as the Transferor instructs the Trustee.
In connection with such request and in respect of the
Senior Subordinated Notes surrendered to the Trustee herewith for
exchange (the "Surrendered Senior Subordinated Notes"), the
Holder of such Surrendered Senior Subordinated Notes hereby
certifies that:
[CHECK ONE]
|_| the Surrendered Senior Subordinated Notes are being
acquired for the Transferor's own account, without transfer;
or
|_| the Surrendered Senior Subordinated Notes are being
transferred to the Company;
or
|_| the Surrendered Senior Subordinated Notes are being
transferred pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being
transferred to a Person that the Transferor reasonably
believes is purchasing the Surrendered Senior
Subordinated Notes for its own account, or for one or
more accounts with respect to which such Person
exercises sole investment discretion, and such Person
B-3-1
<PAGE>
and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case
in a transaction meeting the requirements of Rule
144A;
or
|_| the Surrendered Senior Subordinated Notes are being
transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
|_| the Surrendered Senior Subordinated Notes are
being transferred pursuant to an exemption under
the Securities Act other than Rule 144A, Rule
144 or Rule 904 and the Transferor further
certifies that the Transfer complies with the
transfer restrictions applicable to beneficial interests
in Global Notes and Definitive Senior Subordinated
Notes bearing the Private Placement Legend
and the requirements of the exemption claimed,
which certification is supported by (x) if such
transfer is in respect of a principal amount
of Senior Subordinated Notes at the time of Transfer
of $100,000 or more, a certificate executed
by the Transferee in the form of EXHIBIT C to the
Indenture, or (y) if such Transfer is in respect
of a principal amount of Senior Subordinated
Notes at the time of transfer of less than $100,000,
(1) a certificate executed in the form of
EXHIBIT C to the Indenture and (2) an Opinion of
Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has
attached to this certification), to the effect that
(1) such Transfer is in compliance with the
Securities Act and (2) such Transfer complies with
any applicable blue sky securities laws of any
state of the United States;
or
|_| the Surrendered Senior Subordinated Notes are
being transferred pursuant to an effective
registration statement under the Securities Act;
or
|_| such transfer is being effected pursuant to
an exemption from the registration requirements of the
Securities Act other than Rule 144A or Rule
144, and the Transferor hereby further certifies that
the Senior Subordinated Notes are being
transferred in compliance with the transfer restrictions
applicable to the Global Notes and in
accordance with the requirements of the exemption claimed,
which certification is supported by an
Opinion of Counsel, provided by the transferor or the
transferee (a copy of which the Transferor
has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar,
to the effect that such transfer is in compliance
with the Securities Act;
and the Surrendered Senior Subordinated Notes are being
transferred in compliance with any applicable blue sky securities
laws of any state of the United States.
B-3-2
<PAGE>
This certificate and the statements contained herein are
made for your benefit and the benefit of the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, the initial
purchaser of such Senior Subordinated Notes being transferred.
Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the
Securities Act.
[Insert Name of Transferor]
By:_____________________
Name:
Title:
Dated:
cc: J. Crew Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-3-3
<PAGE>
EXHIBIT B-4
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE
TO DEFINITIVE SENIOR SUBORDINATED NOTE
(Pursuant to Section 2.06(c) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 10 3/8% Senior Subordinated Notes due 2007
J. Crew Operating Corp.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Operating
Corp., a Delaware corporation (the "Company") and State Street
Bank and Trust Company, as trustee (the "Trustee"). Capitalized
terms used but not defined herein shall have the meanings given
to them in the Indenture.
This letter relates to $__________ principal amount of
Senior Subordinated Notes which are evidenced by a beneficial
interest in one or more Rule 144A Global Notes or Regulation S
Permanent Global Notes in the name of _______ (the "Transferor").
The Transferor has requested an exchange or transfer of such
beneficial interest in the form of an equal principal amount of
Senior Subordinated Notes evidenced by one or more Definitive
Senior Subordinated Notes, to be delivered to the Transferor or,
in the case of a transfer of such Senior Subordinated Notes, to
such Person as the Transferor instructs the Trustee.
In connection with such request and in respect of the
Senior Subordinated Notes surrendered to the Trustee herewith for
exchange (the "Surrendered Senior Subordinated Notes"), the
Holder of such Surrendered Senior Subordinated Notes hereby
certifies that:
[CHECK ONE]
|_| the Surrendered Senior Subordinated Notes are being
transferred to the beneficial owner of such
Senior Subordinated Notes;
or
|_| the Surrendered Senior Subordinated Notes are being
transferred pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being
transferred to a Person that the Transferor reasonably
believes is purchasing the Surrendered Senior
Subordinated Notes for its own account, or for one or
more accounts with respect to which such Person
exercises sole investment discretion, and such Person
B-4-1
<PAGE>
and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case
in a transaction meeting they requirements of Rule
144A;
or
|_| the Surrendered Senior Subordinated Notes are
being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
|_| the Surrendered Senior Subordinated Notes are
being transferred pursuant to an effective
registration statement under the Securities Act;
or
|_| the Surrendered Senior Subordinated Notes are
being transferred pursuant to an exemption under
the Securities Act other than Rule 144A,
Rule 144 or Rule 904 and the Transferor further
certifies that the Transfer complies with
the transfer restrictions applicable to beneficial interests
in Global Notes and Definitive Senior Subordinated
Notes bearing the Private Placement Legend
and the requirements of the exemption claimed,
which certification is supported by (x) if such
transfer is in respect of a principal amount of
Senior Subordinated Notes at the time of Transfer
of $250,000 or more, a certificate executed by
the Transferee in the form of EXHIBIT C to the
Indenture, or (y) if such Transfer is in respect
of a principal amount of Senior Subordinated
Notes at the time of transfer of less than $250,000,
(1) a certificate executed in the form of
EXHIBIT C to the Indenture and (2) an Opinion of
Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has
attached to this certification), to the effect that
(1) such Transfer is in compliance with the
Securities Act and (2) such Transfer complies with
any applicable blue sky securities laws
of any state of the United States;
or
|_| such transfer is being effected pursuant to an
exemption from the registration requirements of the
Securities Act other than Rule 144A or Rule 144,
and the Transferor hereby further certifies that
the Senior Subordinated Notes are being
transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance
with the requirements of the exemption claimed,
which certification is supported by an Opinion
of Counsel, provided by the transferor or the
transferee (a copy of which the Transferor has
attached to this certification) in form reasonably
acceptable to the Company and to the Registrar,
to the effect that such transfer is in compliance
with the Securities Act;
and the Surrendered Senior Subordinated Notes are being
transferred in compliance with any applicable blue sky securities
laws of any state of the United States.
B-4-2
<PAGE>
This certificate and the statements contained herein are
made for your benefit and the benefit of the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, the initial
purchaser of such Senior Subordinated Notes being transferred.
Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the
Securities Act.
[Insert Name of Transferor]
By:
Name:
Title:
Dated:
cc: J. Crew Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-4-3
<PAGE>
EXHIBIT C
---------
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 10 3/8% Senior Subordinated Notes due 2007
of J. Crew Operating Corp.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Operating
Corp., a Delaware corporation (the "Company") and State Street
Bank and Trust Company, as trustee (the "Trustee"). Capitalized
terms used but not defined herein shall have the meanings given
to them in the Indenture.
In connection with our proposed purchase of
$__________ aggregate principal amount of:
(a) |_| Beneficial interests, or
(b) |_| Definitive Notes,
we confirm that:
1. We understand that any subsequent transfer of the
Senior Subordinated Notes of any interest therein is subject to
certain restrictions and conditions set forth in the Indenture
and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein
except in compliance with, such restrictions and conditions and
the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the
Notes and any interest therein may not be offered or sold except
as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell the Notes or any
interest therein, (A) we will do so only (1)(a) to a person who
the Seller reasonably believes is a qualified institutional buyer
(as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of 144A, (b) in a
transaction meeting the requirements of Rule 144 under the
Securities Act, (c) outside the United States to a foreign person
in a transaction meeting the requirements of Rule 904 of the
Securities Act, or (d) in accordance with another exemption from
the registration requirements of the Securities Act (and based
upon an opinion of counsel), (2) to the Company or any of its
subsidiaries or (3) pursuant to an effective registration
statement and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other
applicable jurisdiction and (B) we will, and each subsequent
holder will
C-1
<PAGE>
be required to, notify any purchaser from it of the
security evidenced hereby of the resale restrictions set
forth in (A) above."
3. We understand that, on any proposed resale of the
Notes or beneficial interests, we will be required to furnish to
you and the Company such certifications, legal opinions and other
information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by
us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Notes, and we and any
accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interests
therein purchased by us for our own account or for one or more
accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment
discretion.
6. We are not acquiring the Notes with a view to any
distribution thereof that would violate the Securities Act or the
securities laws of any State of the United States.
C-2
<PAGE>
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters
covered hereby.
------------------------------
[Insert Name of Accredited
Investor]
By:___________________________
Name:
Title:
Dated: ______________, ____
C-3
<PAGE>
EXHIBIT D
---------
Note Guarantee
Subject to Section 11.06 of the Indenture, each Guarantor
hereby, jointly and severally, unconditionally guarantees to each
Holder of a Senior Subordinated Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of the Indenture,
the Senior Subordinated Notes and the Obligations of the Company
under the Senior Subordinated Notes or under the Indenture, that:
(a) the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Senior Subordinated Notes will be
promptly paid in full when due, subject to any applicable grace
period, whether at maturity, by acceleration, redemption or
otherwise, and interest on overdue principal, premium, if any,
(to the extent permitted by law) interest on any interest, if
any, and Liquidated Damages, if any, on the Senior Subordinated
Notes and all other payment Obligations of the Company to the
Holders or the Trustee under the Indenture or under the Senior
Subordinated Notes will be promptly paid in full and performed,
all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Senior
Subordinated Notes or any of such other payment Obligations, the
same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to
any applicable grace period, whether at stated maturity, by
acceleration, redemption or otherwise. Failing payment when so
due of any amount so guaranteed or any performance so guaranteed
for whatever reason, the Guarantors will be jointly and severally
obligated to pay the same immediately.
The obligations of the Guarantor to the Holders and to the
Trustee pursuant to this Note Guarantee and the Indenture are
expressly set forth in Article 11 of the Indenture, and reference
is hereby made to such Indenture for the precise terms of this
Note Guarantee. The terms of Article 11 of the Indenture are
incorporated herein by reference. This Note Guarantee is subject
to release as and to the extent provided in Section 11.04 of the
Indenture.
This is a continuing Guarantee and shall remain in full
force and effect and shall be binding upon each Guarantor and its
respective successors and assigns to the extent set forth in the
Indenture until full and final payment of all of the Company's
Obligations under the Senior Subordinated Notes and the Indenture
and shall inure to the benefit of the successors and assigns of
the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Note
Guarantee of payment and not a guarantee of collection.
This Note Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Senior
Subordinated Note to which this Note Guarantee relates shall have
been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
For purposes hereof, each Guarantor's liability shall be
limited to the lesser of (i) the aggregate amount of the
Obligations of the Company under the Senior
<PAGE>
Subordinated Notes and the Indenture and (ii) the amount, if any,
which would not have (A) rendered such Guarantor "insolvent" (as
such term is defined in the Bankruptcy Law and in the Debtor and
Creditor Law of the State of New York) or (B) left such Guarantor
with unreasonably small capital at the time its Note Guarantee of
the Senior Subordinated Notes was entered into; provided that, it
will be a presumption in any lawsuit or other proceeding in which
a Guarantor is a party that the amount guaranteed pursuant to the
Note Guarantee is the amount set forth in clause (i) above unless
any creditor, or representative of creditors of such Guarantor,
or debtor in possession or trustee in bankruptcy of such
Guarantor, otherwise proves in such a lawsuit that the aggregate
liability of the Guarantor is limited to the amount set forth in
clause (ii) above. The Indenture provides that, in making any
determination as to the solvency or sufficiency of capital of a
Guarantor in accordance with the previous sentence, the right of
such Guarantors to contribution from other Guarantors and any
other rights such Guarantors may have, contractual or otherwise,
shall be taken into account.
Capitalized terms used herein have the same meanings given
in the Indenture unless otherwise indicated.
Dated as of ___________, 1997 C&W OUTLET, INC.
By:_________________________
Name:
Title:
Dated as of ___________, 1997 CLIFFORD & WILLS, INC.
By:_________________________
Name:
Title:
Dated as of ___________, 1997 GRACE HOLMES, INC.
By:_________________________
Name:
Title:
Dated as of ___________, 1997 H.F.D. NO. 55, INC.
By:_________________________
Name:
Title:
Dated as of ___________, 1997 J. CREW, INC.
By:_________________________
<PAGE>
Name:
Title:
Dated as of ___________, 1997 J. CREW INTERNATIONAL, INC.
By:_________________________
Name:
Title:
Dated as of ___________, 1997 J. CREW SERVICES, INC.
By:_________________________
Name:
Title:
Dated as of ___________, 1997 POPULAR CLUB PLAN, INC.
By:_________________________
Name:
Title:
<PAGE>
Exhibit E
---------
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"),
dated as of ___________, between Guarantor (the "New Guarantor"),
a subsidiary of J. Crew Operating Corp., a Delaware corporation
(the "Company"), and State Street Bank and Trust Company, as
trustee under the indenture referred to below (the "Trustee").
Capitalized terms used herein and not defined herein shall have
the meaning ascribed to them in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered
to the Trustee an indenture (the "Indenture"), dated as of
October 17, 1997, providing for the issuance of an aggregate
principal amount of $150,000,000 of 10 3/8% Senior Subordinated
Notes due 2007 (the "Senior Subordinated Notes");
WHEREAS, Section 11.05 of the Indenture provides that under
certain circumstances the Company may cause, and Section 11.03 of
the Indenture provides that under certain circumstances the
Company must cause, certain of its subsidiaries to execute and
deliver to the Trustee a supplemental indenture pursuant to which
such subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes
pursuant to a Note Guarantee on the terms and conditions set
forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental
Indenture.
NOW THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the New Guarantor and the Trustee mutually
covenant and agree for the equal and ratable benefit of the
Holders of the Senior Subordinated Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO NOTE GUARANTEE. The New Guarantor hereby
agrees, jointly and severally with all other Guarantors, to
guarantee the Company's Obligations under the Senior Subordinated
Notes and the Indenture on the terms and subject to the
conditions set forth in Article 11 of the Indenture and to be
bound by all other applicable provisions of the Indenture.
E-1
<PAGE>
3. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator, shareholder or agent
of any Guarantor, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Senior
Subordinated Notes, any Subsidiary Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each
Holder by accepting a Senior Subordinated Note waives and
releases all such liability. The waiver and release are part of
the consideration for issuance of the Senior Subordinated Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New
York shall govern and be used to construe this Supplemental Indenture.
5. COUNTERPARTS The parties may sign any number of copies
of this Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of
this Supplemental Indenture or for or in respect of the correctness
of the recitals of fact contained herein, all of which recitals are made
solely by the New Guarantor.
E-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as
of the date first above written.
Dated: ________________ [NAME OF NEW GUARANTOR]
By: ____________________________
Name:
Title:
Dated: ________________
as Trustee,
By: ____________________________
Name:
Title:
E-3
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1) ................................... 7.10
(a)(2) ................................... 7.10
(a)(3) ................................... N.A.
(a)(4) ................................... N.A.
(a)(5) ................................... 7.10
(b) ...................................... 7.03; 7.10
(c) ...................................... N.A.
311 (a) ...................................... 7.11
(b) ...................................... 7.11
(c) ...................................... N.A.
312 (a) ...................................... 2.05
(b) ...................................... 10.03
(c) ...................................... 10.03
313 (a) ...................................... 7.06
(b)(1) ................................... 7.06
(b)(2) ................................... 7.06; 7.07
(c) ...................................... 7.06;10.02
(d) ...................................... 7.06
314 (a) ...................................... 4.03;10.05
(b) ...................................... N.A.
(c)(1) ................................... 10.04
(c)(2) ................................... 10.04
(c)(3) ................................... N.A.
(d) ...................................... N.A.
(e) ...................................... 10.05
(f) ...................................... N.A.
315 (a) ...................................... 7.01
(b) ...................................... 7.05,10.02
(c) ...................................... 7.01
(d) ...................................... 7.01
(e) ...................................... 6.11
316 (a)(last sentence) ....................... 2.09
(a)(1)(A) ................................ 6.05
(a)(1)(B) ................................ 6.04
(a)(2) ................................... 2.13
(b) ...................................... 6.07
(c) ...................................... N.A.
317 (a)(1) ................................... 6.08
(a)(2) ................................... 6.09
(b) ...................................... 2.04
318 (a) ...................................... 10.01
(b) ...................................... N.A.
(c) ...................................... 10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions............................ 1
Section 1.02. Other Definitions...................... 17
Section 1.03 Incorporation by Reference
of Trust Indenture Act ................ 18
Section 1.04. Rules of Construction.................. 18
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating........................ 18
Section 2.02. Execution and Authentication........... 20
Section 2.03 Registrar and Paying Agent............. 21
Section 2.04. Paying Agent to Hold Money in Trust.... 21
Section 2.05. Holder Lists........................... 21
Section 2.06. Transfer and Exchange.................. 22
Section 2.07. Replacement Notes...................... 29
Section 2.08. Outstanding Notes...................... 30
Section 2.09 Treasury Notes......................... 30
Section 2.10. Temporary Notes........................ 30
Section 2.11. Cancellation........................... 30
Section 2.12. Defaulted Interest..................... 31
Section 2.13 Record Date............................ 31
Section 2.14. Computation of Interest................ 31
Section 2.15. CUSIP Number........................... 31
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee..................... 31
Section 3.02 Selection of Notes to be
Redeemed or Purchased.................. 32
Section 3.03 Notice of Redemption................... 32
Section 3.04 Effect of Notice of Redemption......... 33
Section 3.05 Deposit of Redemption or
Purchase Price ........................ 33
Section 3.06 Notes Redeemed in Part................. 34
Section 3.07 Optional Redemption.................... 34
Section 3.08 Mandatory Redemption................... 34
Section 3.09 Repurchase Offers...................... 34
<PAGE>
Page
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes....................... 36
Section 4.02. Maintenance of Office or Agency........ 37
Section 4.03 Commission Reports..................... 37
Section 4.04. Compliance Certificate................. 38
Section 4.05. Taxes.................................. 38
Section 4.06. Stay, Extension and Usury Laws......... 39
Section 4.07. Restricted Payments.................... 39
Section 4.08. Dividends and Other Payment
Restrictions Affecting Restricted
Subsidiaries........................... 41
Section 4.09 Incurrence of Indebtedness and
Issuance of Preferred Stock ........... 42
Section 4.10. Assets Sales........................... 44
Section 4.11. Transactions With Affiliates........... 45
Section 4.12. Liens.................................. 46
Section 4.13 Offer to Purchase Upon Change of
Control ............................... 46
Section 4.14. Corporate Existence.................... 47
Section 4.15. Business Activities.................... 48
Section 4.16 Senior Subordinated Debt............... 48
Section 4.17 Limitations on Issuances of
Guarantees of Indebtedness ............ 48
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation of Sale
of Assets.............................. 48
Section 5.02. Successor Corporation Substituted...... 48
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default...................... 49
Section 6.02. Acceleration........................... 50
Section 6.03 Other Remedies......................... 51
Section 6.04. Waiver of Past Defaults................ 51
Section 6.05. Control by Majority.................... 51
Section 6.06. Limitation on Suits.................... 52
Section 6.07. Rights of Holders of Notes to
Receive Payment ....................... 52
Section 6.08. Collection Suit by Trustee............. 52
Section 6.09 Trustee May File Proofs of Claim....... 52
Section 6.10. Priorities............................. 53
Section 6.11. Undertaking for Costs.................. 53
ARTICLE 7
TRUSTEE
<PAGE>
Page
----
Section 7.01. Duties of Trustee...................... 54
Section 7.02. Rights of Trustee...................... 55
Section 7.03 Individual Rights of Trustee........... 55
Section 7.04. Trustee's Disclaimer................... 55
Section 7.05. Notice of Defaults..................... 56
Section 7.06. Reports by Trustee to Holders
of the Notes .......................... 56
Section 7.07. Compensation and Indemnity............. 56
Section 7.08. Replacement of Trustee................. 57
Section 7.09 Successor Trustee by Merger, etc....... 58
Section 7.10. Eligibility; Disqualification.......... 58
Section 7.11. Preferential Collection of
Claims Against the Company ............ 58
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or
Covenant Defeasance ................... 58
Section 8.02. Legal Defeasance and Discharge......... 59
Section 8.03 Covenant Defeasance.................... 59
Section 8.04. Conditions to Legal or Covenant
Defeasance ............................ 59
Section 8.05. Deposited Money and U.S. Government
Securities to be Held in Trust;
Other Miscellaneous Provisions ....... 61
Section 8.06. Repayment to the Company............... 61
Section 8.07. Reinstatement.......................... 62
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of the
Notes.................................. 62
Section 9.02 With Consent of Holders of Notes....... 63
Section 9.03 Compliance with Trust Indenture Act.... 64
Section 9.04 Revocation and Effect of Consents...... 64
Section 9.05 Notation on or Exchange of Notes....... 64
Section 9.06 Trustee to Sign Amendments, etc........ 64
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate............... 65
Section 10.02. Liquidation; Dissolution; Bankruptcy... 65
Section 10.03. Default on Designated Senior Debt...... 65
Section 10.04. Acceleration of Notes.................. 66
Section 10.05. When Distribution Must Be Paid Over.... 66
Section 10.06. Notice by the Company.................. 66
Section 10.07. Subrogation............................ 66
Section 10.08. Relative Rights........................ 67
Section 10.09. Subordination May Not Be Impaired by
the Company ........................... 67
Section 10.10. Distribution or Notice to
Representative ........................ 68
Section 10.11. Rights of Trustee and Paying Agent..... 68
Section 10.12. Authorization to Effect Subordination.. 68
<PAGE>
Page
Section 10.13. Amendments............................. 69
Section 11.01. Note Guarantee......................... 69
Section 11.02. Execution and Delivery of Note
Guarantee ............................. 70
Section 11.03. Guarantors May Consolidate, etc., on
Certain Terms ........................ 70
Section 11.04. Releases Following Sale of Assets,
Merger, Sale of Capital Stock
Etc.................................... 71
Section 11.05. Additional Guarantors.................. 71
Section 11.06. Limitation on Guarantor Liability...... 71
Section 11.07. "Trustee" to Include Paying Agent...... 72
ARTICLE 12
SUBORDINATION OF NOTE GUARANTEE
Section 12.01. Agreement to Subordinate............... 72
Section 12.02. Liquidation; Dissolution; Bankruptcy... 72
Section 12.03. Default on Designated Guarantor
Senior Debt ........................... 72
Section 12.04. Acceleration of Subsidiary Guarantees.. 73
Section 12.05. When Distribution Must Be Paid Over.... 73
Section 12.06. Notice by Guarantor.................... 74
Section 12.07. Subrogation............................ 74
Section 12.08. Relative Rights........................ 74
Section 12.09. Subordination May Not Be Impaired
by Guarantor ......................... 75
Section 12.10. Distribution or Notice to
Representative ....................... 75
Section 12.11. Rights of Trustee and Paying Agent..... 76
Section 12.12. Authorization to Effect Subordination.. 76
Section 12.13. Amendments............................. 76
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls........... 76
Section 13.02. Notices................................ 77
Section 13.03. Communication by Holders of Notes with
Other Holders of Notes ................ 78
Section 13.04. Certificate and Opinion as to
Conditions Precedent .................. 78
Section 13.05. Statements Required in Certificate
or Opinion ............................ 78
Section 13.06. Rules by Trustee and Agents............ 78
Section 13.07. No Personal Liability of Directors,
Officers, Employees and
Stockholders........................... 79
Section 13.08. Governing Law.......................... 79
Section 13.09. No Adverse Interpretation of
Other Agreements ...................... 79
Section 13.10. Successors............................. 79
Section 13.11. Severability........................... 79
Section 13.12. Counterpart Originals.................. 79
Section 13.13. Table of Contents, Headings, etc....... 79
<PAGE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFEROR
Exhibit C FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit D NOTE GUARANTEE
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
EXECUTION COPY
GUARANTEE AGREEMENT dated as of October 17, among
each of the subsidiaries listed on Schedule I hereto
(each such subsidiary individually, a "Subsidiary
Guarantor" and collectively, the "Subsidiary
Guarantors") of J. CREW OPERATING CORP., a Delaware
corporation (the "Borrower"), J. CREW GROUP, INC., a
New York corporation ("Holdings" and, together with
the Subsidiary Guarantors, the "Guarantors"), and THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as
defined in the Security Agreement, Exhibit G to the
Credit Agreement referred to below).
Reference is made to the Credit Agreement dated as of
October 17, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among Holdings, the
Borrower, the lenders from time to time party thereto (the
"Lenders"), Donaldson, Lufkin & Jenrette Securities Corporation
as syndication agent, and Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral
Agent and, with respect to Letters of Credit and Acceptances
issued under the Credit Agreement, as issuing bank (in such
capacity, the "Issuing Bank"). Capitalized terms used herein and
not defined herein shall have the meanings assigned to such terms
in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower,
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. In connection therewith, each Guarantor has
agreed to guarantee the Obligations (as defined below) by
entering into this Agreement. Each of the Subsidiary Guarantors
is a directly or indirectly wholly owned Subsidiary of the
Borrower, and each of the Subsidiary Guarantors and Holdings
acknowledges that it will derive substantial benefit from the
making of the Loans by the Lenders, and the issuance of the
Letters of Credit and Acceptances by the Issuing Bank. The
obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit and Acceptances are conditioned on,
among other things, the execution and delivery by the Guarantors
of a Guarantee Agreement in the form hereof. As consideration
therefor and in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit and Acceptances, the
Guarantors are willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally
guarantees, jointly with the other Guarantors and severally, as a
primary obligor and not merely as a surety, (a) the due and
punctual payment of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration,
upon one or more dates set for prepayment or otherwise, (ii) each
payment required to be made by the Borrower under the
<PAGE>
Credit Agreement in respect of any Letter of Credit or any
Acceptance, when and as due, including payments in respect of
reimbursement of disbursements made by the Issuing Bank with
respect thereto, interest thereon and obligations to provide,
under certain circumstances, cash collateral in connection
therewith and (iii) all other monetary obligations, including
fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding),
of the Loan Parties to the Secured Parties under the Credit
Agreement and the other Loan Documents, (b) the due and punctual
performance of all covenants, agreements, obligations and
liabilities of the Loan Parties under or pursuant to the Credit
Agreement, this Agreement and the other Loan Documents and (c)
unless otherwise agreed to in writing by the applicable Lender
party thereto, the due and punctual payment and performance of
all obligations of the Borrower under each Hedging Agreement
entered into with any counterparty that was a Lender at the time
such Hedging Agreement was entered into (all the monetary and
other obligations described in the preceding clauses (a) through
(c) being collectively called the "Obligations"). Each Guarantor
further agrees that the Obligations may be extended or renewed,
in whole or in part, without notice to or further assent from it.
SECTION 2. Obligations Not Waived. To the fullest
extent permitted by applicable law, each Guarantor waives
presentment to, demand of payment from and protest to the
Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment.
To the fullest extent permitted by applicable law, the
obligations of each Guarantor hereunder shall not be affected by
(a) the failure of the Collateral Agent or any other Secured
Party to assert any claim or demand or to enforce or exercise any
right or remedy against the Borrower or any other Guarantor under
the provisions of the Credit Agreement, any other Loan Document
or otherwise, (b) any rescission, waiver (except the effect of
any waiver obtained pursuant to Section 12(b)), amendment or
modification of, or any release from any of the terms or
provisions of this Agreement, any other Loan Document, any
Guarantee or any other agreement, including with respect to any
other Guarantor under this Agreement or (c) the failure to
perfect any security interest in, or the release of, any of the
security held by or on behalf of the Collateral Agent or any
other Secured Party.
SECTION 3. Security. Each of the Guarantors authorizes
the Collateral Agent and each of the other Secured Parties, to
(a) take and hold security for the payment of this Guarantee and
the Obligations and exchange, enforce, waive and release any such
security, (b) apply such security and direct the order or manner
of sale thereof as they in their sole discretion may determine
and (c) release or substitute any one or more endorsees, other
Guarantors of other obligors.
SECTION 4. Guarantee of Payment. Each Guarantor
further agrees that its guarantee constitutes a guarantee of
payment when due and not of collection, and waives any right to
require that any resort be had by the Collateral Agent or any
other Secured Party to any of the security held for payment of
the Obligations or to any balance of any deposit account or
credit on the books of the Collateral Agent or any other Secured
Party in favor of the Borrower or any other person.
2
<PAGE>
SECTION 5. No Discharge or Diminishment of Guarantee.
The obligations of each Guarantor hereunder shall not be subject
to any reduction, limitation, impairment or termination for any
reason (other than the indefeasible payment in full in cash of
the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations,
and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations
of each Guarantor hereunder shall not be discharged or impaired
or otherwise affected by the failure of the Collateral Agent or
any other Secured Party to assert any claim or demand or to
enforce any remedy under the Credit Agreement, any other Loan
Document or any other agreement, by any waiver or modification of
any provision of any thereof, by any default, failure or delay,
wilful or otherwise, in the performance of the Obligations, or by
any other act or omission that may or might in any manner or to
any extent vary the risk of any Guarantor or that would otherwise
operate as a discharge of each Guarantor as a matter of law or
equity (other than the indefeasible payment in full in cash of
all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest
extent permitted by applicable law, each of the Guarantors waives
any defense based on or arising out of any defense of the
Borrower or the unenforceability of the Obligations or any part
thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than the final and indefeasible
payment in full in cash of the Obligations. The Collateral Agent
and the other Secured Parties may, at their election, foreclose
on any security held by one or more of them by one or more
judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of
the Obligations, make any other accommodation with the Borrower
or any other guarantor or exercise any other right or remedy
available to them against the Borrower or any other guarantor,
without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to
applicable law, each of the Guarantors waives any defense arising
out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right
of reimbursement or subrogation or other right or remedy of such
Guarantor against the Borrower or any other Guarantor or
guarantor, as the case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In
furtherance of the foregoing and not in limitation of any other
right that the Collateral Agent or any other Secured Party has at
law or in equity against any Guarantor by virtue hereof, upon the
failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at
maturity, by acceleration, after notice of prepayment or
otherwise, each Guarantor hereby promises to and will forthwith
pay, or cause to be paid, to the Collateral Agent or such other
Secured Party as designated thereby in cash the amount of such
unpaid Obligations. Upon payment by any Guarantor of any sums to
the Collateral Agent or any Secured Party as provided above, all
rights of such Guarantor against the Borrower arising as a result
thereof by way of right of subrogation, contribution,
reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible
payment in full in cash of all the Obligations. If any amount shall
erroneously be paid to any Guarantor on account of such
3
<PAGE>
subrogation, contribution, reimbursement, indemnity or similar
right, such amount shall be held in trust for the benefit of the
Secured Parties and shall forthwith be paid to the Collateral
Agent to be credited against the payment of the Obligations,
whether matured or unmatured, in accordance with the terms of the
Loan Documents.
SECTION 8. Information. Each of the Guarantors assumes
all responsibility for being and keeping itself informed of the
Borrower's financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks that
such Guarantor assumes and incurs hereunder, and agrees that none
of the Collateral Agent or the other Secured Parties will have
any duty to advise any of the Guarantors of information known to
it or any of them regarding such circumstances or risks.
SECTION 9. Representations and Warranties. Each of the
Subsidiary Guarantors represents and warrants as to itself that
all representations and warranties relating to it contained in
the Credit Agreement are true and correct in all material
respects.
SECTION 10. Termination. The Guarantees made hereunder
(a) shall terminate when all the Obligations have been indefeasibly
paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the LC and Acceptance Exposure has
been reduced to zero and the Issuing Bank has no further
obligation to issue Letters of Credit or Acceptances under the
Credit Agreement and (b) shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any
part thereof, of any Obligation is rescinded or must otherwise be
restored by any Secured Party or any Guarantor upon the
bankruptcy or reorganization of the Borrower, any Guarantor or
otherwise.
SECTION 11. Binding Effect; Several Agreement;
Assignments. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Guarantors that are
contained in this Agreement shall bind and inure to the benefit
of the Secured Parties and their respective successors and
assigns. This Agreement shall become effective as to any
Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and
a counterpart hereof shall have been executed on behalf of the
Collateral Agent, and thereafter shall be binding upon such
Guarantor and the Collateral Agent and their respective
successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties,
and their respective successors and assigns, except that no
Guarantor shall have the right to assign its rights or
obligations hereunder or any interest herein (and any such
attempted assignment shall be void), except as expressly
contemplated by this Agreement or the other Loan Documents. If
all of the capital stock of a Subsidiary Guarantor is sold,
transferred or otherwise disposed of pursuant to a transaction
permitted by Section 6.05 of the Credit Agreement, such
Subsidiary Guarantor shall be released from its obligations under
this Agreement without further action. This Agreement shall be
construed as a separate agreement with respect to each Guarantor
and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other
Guarantor and without affecting the obligations of any other
Guarantor hereunder.
4
<PAGE>
SECTION 12. Waivers; Amendment. (a) No failure or delay
of the Collateral Agent in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of
any other right or power. The rights and remedies of the
Collateral Agent hereunder and of the other Secured Parties under
the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by
any Guarantor therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such
waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand
on any Guarantor in any case shall entitle such Guarantor to any
other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof
may be waived, amended or modified except pursuant to a written
agreement entered into between the Guarantors with respect to
which such waiver, amendment or modification relates and the
Collateral Agent, with the prior written consent of the Required
Lenders (except as otherwise provided in the Credit Agreement).
SECTION 13. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 14. Notices. All communications and notices
hereunder shall be in writing and given as provided in Section
9.01 of the Credit Agreement. All communications and notices
hereunder to each Subsidiary Guarantor shall be given to it at
its address set forth in Schedule I.
SECTION 15. Survival of Agreement; Severability. (a)
All covenants, agreements, representations and warranties made by
the Guarantors herein shall be considered to have been relied
upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit and Acceptances by the Issuing
Bank regardless of any investigation made by the Secured Parties
or on their behalf, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan
or any other fee or amount payable under this Agreement or any
other Loan Document is outstanding and unpaid or the LC and
Acceptance Exposure does not equal zero and as long as the
Commitments and the Revolving Commitment have not been
terminated.
(b) In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal
5
<PAGE>
or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.
SECTION 16. Counterparts. This Agreement may be
executed in counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute a
single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of
interpretation specified in Section 1.03 of the Credit Agreement
shall be applicable to this Agreement.
SECTION 18. Jurisdiction; Consent to Service of
Process. (a) Each Guarantor hereby irrevocably and
unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal
court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the
other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect
any right that the Collateral Agent or any other Secured Party
may otherwise have to bring any action or proceeding relating to
this Agreement or the other Loan Documents against any Guarantor
or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 14. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner
permitted by law.
SECTION 19. Waiver of Jury Trial. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
6
<PAGE>
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND
THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 19.
SECTION 20. Additional Subsidiary Guarantors. Pursuant
to Section 5.12 of the Credit Agreement, each Subsidiary of the
Borrower which is also a Subsidiary Loan Party that was not in
existence on the date of the Credit Agreement or was an Inactive
Subsidiary is required to enter into this Agreement as a
Subsidiary Guarantor (or upon ceasing to be an Inactive
Subsidiary) upon becoming such a Subsidiary. Upon execution and
delivery after the date hereof by the Collateral Agent and such a
Subsidiary of an instrument in the form of Annex 1 hereto, such
Subsidiary shall become a Subsidiary Guarantor hereunder with
effect from and after the date of such execution and delivery.
The execution and delivery of any such instrument shall not
require the consent of any other Guarantor hereunder. The rights
and obligations of each Guarantor hereunder shall remain in full
force and effect notwithstanding the addition of any new
Subsidiary Guarantor as a party to this Agreement.
SECTION 21. Right of Setoff. If an Event of Default
shall have occurred and be continuing, each Secured Party is
hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or
final) at any time held and other Indebtedness at any time owing
by such Secured Party to or for the credit or the account of any
Guarantor against any or all the obligations of such Guarantor
now or hereafter existing under this Agreement and the other Loan
Documents held by such Secured Party, irrespective of whether or
not such Secured Party shall have made any demand under this
Agreement or any other Loan Document and although such
obligations may be unmatured. The rights of each Secured Party
under this Section 21 are in addition to other rights and
remedies (including other rights of setoff) which such Secured
Party may have.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
by /s/ Michael P. McHugh
--------------------------
Name:
Title: Authorized Officer
J. CREW GROUP, INC.,
as a Guarantor
by /s/ Michael P. McHugh
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Bruce S. Borden
--------------------------
Name:
Title:
8
<PAGE>
SCHEDULE I TO THE
GUARANTEE AGREEMENT
Guarantor [Address]
<PAGE>
Annex 1 to the
Guarantee Agreement
SUPPLEMENT NO. dated as of , to the Guarantee
Agreement dated as of October 17, 1997, among each of
the subsidiaries listed on Schedule I thereto (each
such subsidiary individually, a "Subsidiar Guarantor"
and collectively, the "Subsidiary Guarantors") of J.
CREW OPERATING CORP., a Delaware corporation (the
"Borrower"), J. CREW GROUP, INC. a New York
corporation ("Holdings" and, together with the
Subsidiary Guarantors, the "Guarantors"), and THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (the "Collateral
Agent") for the Secured Parties (as defined in the
Security Agreement, Exhibit G to the Credit Agreement
referred to below).
A. Reference is made to the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among
Holdings, the Borrower, the lenders from time to time party
thereto (the "Lenders"), Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and Chase, as administrative
agent (in such capacity the "Administrative Agent") and, with
respect to Letters of Credit and Acceptances issued under the
Credit Agreement as issuing bank (in such capacity, the "Issuing
Bank"). Capitalized terms used herein and not defined herein
shall have the meanings assigned to such terms in the Credit
Agreement.
B. The Guarantors have entered into the Guarantee
Agreement in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit and Acceptances. Pursuant
to Section 5.12 of the Credit Agreement, each Subsidiary of the
Borrower who is also a Subsidiary Loan Party that was not in
existence or not such a Subsidiary on the date of the Credit
Agreement or was an Inactive Subsidiary is required to enter into
the Guarantee Agreement as a Subsidiary Guarantor upon becoming
such a Subsidiary (or upon ceasing to be an Inactive Subsidiary).
Section 20 of the Guarantee Agreement provides that such
additional Subsidiaries of the Borrower may become Subsidiary
Guarantors under the Guarantee Agreement by execution and
delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary of the Borrower (the "New Subsidiary
Guarantor") is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Subsidiary
Guarantor under the Guarantee Agreement in order to induce the
Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and Acceptances and as consideration
for Loans previously made and Letters of Credit and Acceptances
previously issued.
Accordingly, the Collateral Agent and the New
Subsidiary Guarantor agree as follows:
SECTION 1. In accordance with Section 20 of the
Guarantee Agreement, the New Subsidiary Guarantor by its
signature below becomes a Subsidiary Guarantor under the
Guarantee Agreement with effect from and after the date of
execution and delivery of this
<PAGE>
Agreement in accordance with Section 3 hereof and the New
Subsidiary Guarantor hereby (a) agrees to all the terms and
provisions of the Guarantee Agreement applicable to it as a
Subsidiary Guarantor thereunder and (b) represents and warrants
that the representations and warranties made by it as a
Subsidiary Guarantor thereunder are true and correct on and as of
the date hereof. Each reference to a "Subsidiary Guarantor" in
the Guarantee Agreement shall be deemed to include the New
Subsidiary Guarantor. The Guarantee Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Subsidiary Guarantor represents and
warrants to the Collateral Agent and the other Secured Parties
that this Supplement has been duly authorized, executed and
delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Collateral Agent
shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Subsidiary
Guarantor and the Collateral Agent. Delivery of an executed
signature page to this Supplement by facsimile transmission shall
be as effective as delivery of a manually executed counterpart of
this Supplement.
SECTION 4. Except as expressly supplemented hereby,
the Guarantee Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 6. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and
in the Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a
particular provision hereof in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any
other jurisdiction). The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder
shall be in writing and given as provided in Section 14 of the
Guarantee Agreement. All communications and notices hereunder to
the New Subsidiary Guarantor shall be given to it at the address
set forth under its signature below, with a copy to the Borrower.
SECTION 8. The New Subsidiary Guarantor agrees to
reimburse the Collateral Agent for its reasonable out-of-pocket
expenses in connection with this Supplement, including the fees,
disbursements and other charges of counsel for the Collateral
Agent.
2
<PAGE>
IN WITNESS WHEREOF, the New Subsidiary Guarantor and
the Collateral Agent have duly executed this Supplement to the
Guarantee Agreement as of the day and year first above written.
[Name of New Subsidiary Guarantor],
by
--------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by
--------------------------
Name:
Title:
3
EXECUTION COPY
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT
dated as of October 17, 1997, among J. CREW OPERATING
CORP., a Delaware corporation (the "Borrower") and a
wholly-owned subsidiary of J. CREW GROUP, INC., a New
York corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (the
"Guarantors") and THE CHASE MANHATTAN BANK, a New York
banking corporation ("Chase"), as collateral agent (in
such capacity, the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred
to below).
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and Chase, as administrative
agent for the Lenders (in such capacity, the "Administrative
Agent"), Collateral Agent and, with respect to Letters of Credit
and Acceptances issued under the Credit Agreement, as issuing
bank (in such capacity, the "Issuing Bank"), and (b) the
Guarantee Agreement dated as of October 17, 1997, among the
Guarantors, Holdings and the Collateral Agent (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement"). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in
the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower,
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. The Guarantors have agreed to guarantee such
Loans and the other Obligations (as defined in the Guarantee
Agreement) of the Borrower under the Credit Agreement pursuant to
the Guarantee Agreement; certain Guarantors have also granted
Liens on and security interests in certain of their assets to
secure such guarantees pursuant to (a) the Pledge Agreement dated
as of October 17, 1997, among Holdings, the Borrower, the
Guarantors and the Collateral Agent and (b) the Security
Agreement dated as of October 17, 1997, among Holdings, the
Borrower, the Guarantors and the Collateral Agent. The
obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit and Acceptances are conditioned on,
among other things, the execution and delivery by the Borrower
and the Guarantors of an agreement in the form hereof.
Accordingly, the Borrower, each Guarantor and the
Collateral Agent agree as follows:
SECTION 1. Indemnity and Subrogation. In addition to
all such rights of indemnity and subrogation as the Guarantors
may have under applicable law (but subject to Section 3), the
Borrower agrees that (a) in the event a payment shall be made by
any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and
such Guarantor shall be subrogated to the rights of the person to
1
<PAGE>
whom such payment shall have been made to the extent of such
payment and (b) in the event any assets of any Guarantor shall be
sold pursuant to any Security Document to satisfy a claim of any
Secured Party, the Borrower shall emnify such Guarantor in an
amount equal to the greater of the book value or the fair market
value of the assets so sold.
SECTION 2. Contribution and Subrogation. Each
Guarantor (a "Contributing Guarantor") agrees (subject to Section
3) that, in the event a payment shall be made by any other
Guarantor under the Guarantee Agreement or assets of any other
Guarantor shall be sold pursuant to any Security Document to
satisfy a claim of any Secured Party and such other Guarantor
(the "Claiming Guarantor") shall not have been fully indemnified
by the Borrower as provided in Section 1, the Contributing
Guarantor shall indemnify the Claiming Guarantor in an amount
equal to the amount of such payment or the greater of the book
value or the fair market value of such assets, as the case may
be, in each case multiplied by a fraction of which the numerator
shall be the net worth of the Contributing Guarantor on the date
hereof and the denominator shall be the aggregate net worth of
all the Guarantors on the date hereof (or, in the case of any
Guarantor becoming a party hereto pursuant to Section 12, the
date of the Supplement hereto executed and delivered by such
Guarantor). Any Contributing Guarantor making any payment to a
Claiming Guarantor pursuant to this Section 2 shall be subrogated
to the rights of such Claiming Guarantor under Section 1 to the
extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision
of this Agreement to the contrary, all rights of the Guarantors
under Sections 1 and 2 and all other rights of indemnity,
contribution or subrogation under applicable law or otherwise
shall be fully subordinated to the indefeasible payment in full
in cash of the Obligations. No failure on the part of the
Borrower or any Guarantor to make the payments required by
Sections 1 and 2 (or any other payments required under applicable
law or otherwise) shall in any respect limit the obligations and
liabilities of any Guarantor with respect to its obligations
hereunder, and each Guarantor shall remain liable for the full
amount of the obligations of such Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive
and be in full force and effect so long as any Obligation is
outstanding and has not been indefeasible paid in full in cash,
and so long as the LC and Acceptance Exposure has not been
reduced to zero or any of the Commitments under the Credit
Agreement have not been terminated, and shall continue to be
effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Guaranteed Obligation is
rescinded or must otherwise be restored by any Secured Creditor
or any Guarantor upon the bankruptcy or reorganization of the
Borrower, any Guarantor or otherwise.
SECTION 5. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the
part of the Collateral Agent or any Guarantor to exercise, and no
delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy by the Collateral
Agent or any Guarantor preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any
other remedies provided by law. None of the Collateral
2
<PAGE>
Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and
signed by such parties.
(b) Neither this Agreement nor any provision hereof
may be waived, amended or modified except pursuant to a written
agreement entered into between the Borrower, the Guarantors and
the Collateral Agent, with the prior written consent of the
Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 7. Notices. All communications and notices
hereunder shall be in writing and given as provided in the Guarantee
Agreement and addressed as specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns
of such party; and all covenants, promises and agreements by or
on behalf of the parties that are contained in this Agreement
shall bind and inure to the benefit of their respective
successors and assigns. Neither the Borrower nor any Guarantor
may assign or transfer any of its rights or obligations hereunder
(and any such attempted assignment or transfer shall be void)
without the prior written consent of the Required Lenders.
Notwithstanding the foregoing, at the time any Guarantor is
released from its obligations under the Guarantee Agreement in
accordance with such Guarantee Agreement and the Credit
Agreement, such Guarantor will cease to have any rights or
obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a)
All covenants and agreements made by the Borrower and each
Guarantor herein shall be considered to have been relied upon by
the Collateral Agent, the other Secured Parties and each
Guarantor and shall survive the making by the Lenders of the
Loans and the issuance of the Letters of Credit and Acceptance by
the Issuing Bank, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loans or
any other fee or amount payable under the Credit Agreement or
this Agreement or under any of the other Loan Documents is
outstanding and unpaid or the LC and Acceptance Exposure does not
equal zero and as long as the Commitments have not been
terminated.
(b) In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, no party hereto shall be required
to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 10. Counterparts. This Agreement may be
executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a
single contract. This Agreement shall be effective with respect
to any Guarantor when a counterpart bearing the signature of such
Guarantor shall have been delivered to the Collateral Agent.
Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a
manually signed counterpart of this Agreement.
3
<PAGE>
SECTION 11. Additional Guarantors. Pursuant to Section
5.12 of the Credit Agreement, each Subsidiary of the Borrower which
is also a Subsidiary Loan Party that was not in existence or not
such a Subsidiary on the date of the Credit Agreement or was an
Inactive Subsidiary is required to enter into the Guarantee
Agreement as a Guarantor upon becoming such a Subsidiary (or upon
ceasing to be an Inactive Subsidiary). Upon execution and
delivery after the date hereof by the Collateral Agent and such
Subsidiary of an instrument in the form of Annex 1 hereto, such
Subsidiary shall become a Guarantor hereunder with effect from
and after the date of such execution and delivery. The execution
and delivery of any such instrument shall not require the consent
of any other Guarantor hereunder. The rights and obligations of
each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to
this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of
the date first appearing above.
J. CREW OPERATING CORP.,
by
----------------------------
Name:
Title:
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
as a Guarantor,
by
----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
----------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
to the Indemnity Subrogation
and Contribution Agreement
Guarantors
Name
Address
<PAGE>
Annex 1 to
the Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. dated as of [ ], to the Indemnity,
Subrogation and Contribution Agreement dated as of
October 17, 1997, (as the same may be amended,
supplemented or otherwise modified from time to time,
the "Indemnity, Subrogation and Contribution
Agreement"), among J. CREW OPERATING CORP., a Delaware
corporation (the "Borrower") and wholly-owned
subsidiary of J. CREW GROUP, INC., a New York
corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I thereto (the
"Guarantors"), and THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), as collateral
agent (the "Collateral Agent"), for the Secured
Parties (as defined in the Credit Agreement referred
to below).
A. Reference is made to (a) the Credit Agreement dated
as of October 17, 1997, (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and Chase, as administrative
agent for the Lenders (in such capacity, the "Administrative
Agent"), Collateral Agent and, with respect to Letters of Credit
and Acceptances issued under the Credit Agreement, as issuing
bank (in such capacity, the "Issuing Bank"), and (b) the
Guarantee Agreement dated as of October 17, 1997, among the
Guarantors, Holdings and the Collateral Agent (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement").
B. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in
the Indemnity, Subrogation and Contribution Agreement and the
Credit Agreement.
C. The Borrower and the Guarantors have entered into
the Indemnity, Subrogation and Contribution Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue
Letters of Credit and Acceptances. Pursuant to Section 5.12 of
the Credit Agreement, each Subsidiary of the Borrower which is
also a Subsidiary Loan Party that was not in existence or not
such a Subsidiary on the date of the Credit Agreement or was an
Inactive Subsidiary is required to enter into the Guarantee
Agreement as a Guarantor upon becoming such a Subsidiary (or upon
ceasing to be an Inactive Subsidiary). Section 11 of the
Indemnity, Subrogation and Contribution Agreement provides that
such additional Subsidiaries of the Borrower may become
Guarantors under the Indemnity, Subrogation and Contribution
Agreement by execution and delivery of an instrument in the form
of this Supplement. The undersigned Subsidiary of the Borrower
(the "New Guarantor") is executing this Supplement in accordance
with the requirements of the Credit Agreement to become a
Guarantor under the Indemnity, Subrogation and Contribution
Agreement in order to induce the Lenders to make additional Loans
and the Issuing Bank to issue additional Letters of Credit and
Acceptances and
<PAGE>
as consideration for Loans previously made and Letters of Credit
and Acceptances previously issued.
Accordingly, the Collateral Agent and the New
Guarantor agree as follows:
SECTION 1. In accordance with Section 11 of the
Indemnity, Subrogation and Contribution Agreement, the New
Guarantor by its signature below becomes a Guarantor under the
Indemnity, Subrogation and Contribution Agreement with effect
from and after the date of execution and delivery of this
Agreement in accordance with Section 3 hereof and the New
Guarantor hereby agrees to all the terms and provisions of the
Indemnity, Subrogation and Contribution Agreement applicable to
it as a Guarantor thereunder. Each reference to a "Guarantor" in
the Indemnity, Subrogation and Contribution Agreement shall be
deemed to include the New Guarantor. The Indemnity, Subrogation
and Contribution Agreement is hereby incorporated herein by
reference.
SECTION 2. The New Guarantor represents and warrants
to the Collateral Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but
all of which when taken together shall constitute a single
contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the
New Guarantor and the Collateral Agent. Delivery of an executed
signature page to this Supplement by facsimile transmission shall
be as effective as delivery of a manually signed counterpart of
this Supplement.
SECTION 4. Except as expressly supplemented hereby,
the Indemnity, Subrogation and Contribution Agreement shall
remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 6. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, neither party hereto shall be
required to comply with such provision for so long as such
provision is held to be invalid, illegal or unenforceable, but
the validity, legality and enforceability of the remaining
provisions contained herein and in the Indemnity, Subrogation and
Contribution Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
2
<PAGE>
SECTION 7. All communications and notices hereunder shall
be in writing and given as provided in Section 7 of the Indemnity,
Subrogation and Contribution Agreement. All communications and
notices hereunder to the New Guarantor shall be given to it at
the address set forth under its signature.
SECTION 8. The New Guarantor agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral
Agent.
IN WITNESS WHEREOF, the New Guarantor and the
Collateral Agent have duly executed this Supplement to the
Indemnity, Subrogation and Contribution Agreement as of the day
and year first above written.
[Name Of New Guarantor],
by
----------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Collateral
Agent,
by
----------------------------
Name:
Title:
3
EXECUTION COPY
PLEDGE AGREEMENT dated as of October 17, 1997, among
J. CREW OPERATING CORP., a Delaware corporation (the
"Borrower"), J. CREW GROUP, INC., a New York
corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (each such
subsidiary individually a "Subsidiary Pledgor" and,
collectively, the "Subsidiary Pledgors"; the Borrower,
Holdings and the Subsidiary Pledgors are referred to
collectively herein as the "Pledgors") and THE CHASE
MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent"), for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral
Agent and, with respect to Letters of Credit and Acceptances
issued under the Credit Agreement, as issuing bank (in such
capacity, the "Issuing Bank"), and Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent, and (b) the
Guarantee Agreement dated as of October 17, 1997 (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement"), among the Subsidiary Pledgors, Holdings
and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. Holdings and the Subsidiary Pledgors have
agreed to guarantee, among other things, all the obligations of
the Borrower under the Credit Agreement. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of
Credit and Acceptances are conditioned upon, among other things,
the execution and delivery by the Pledgors of a Pledge Agreement
in the form hereof to secure (a) the due and punctual payment of
(i) the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in
respect of any Letter of Credit or any Acceptance, when and as
due, including payments in respect of reimbursement of
disbursements made by the Issuing Bank with respect thereto,
interest thereon and obligations to provide, under certain
circumstances, cash collateral in connection therewith and (iii)
all other monetary obligations, including fees, costs, expenses
and indemnities, whether primary, secondary, direct, contingent,
fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Loan Parties to the Secured
Parties under the Credit Agreement and the other Loan Documents,
(b) the due and punctual performance of all covenants,
agreements, obligations
1
<PAGE>
and liabilities of the Loan Parties under or pursuant to the
Credit Agreement, this Agreement and the other Loan Documents and
(c) unless otherwise agreed to in writing by the applicable
Lender party thereto, the due and punctual payment and
performance of all obligations of the Borrower under each Hedging
Agreement entered into with any counterparty that was a Lender at
the time such Hedging Agreement was entered into (all the
monetary and other obligations described in the preceding clauses
(a) through (c) being collectively called the "Obligations").
Capitalized terms used herein and not defined herein shall have
meanings assigned to such terms in the Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on
behalf of itself and each Secured Party (and each of their
respective successors or assigns), hereby agree as follows:
SECTION 1. Pledge. As security for the payment and
performance, as the case may be, in full of the Obligations, each
Pledgor hereby pledges and grants to the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured
Parties, a security interest in all of such Pledgor's right,
title and interest in, to and under (a) the shares of capital
stock owned by it and listed on Schedule II hereto and any shares
of capital stock of the Borrower or any Subsidiary obtained in
the future by such Pledgor and the certificates representing all
such shares (the "Pledged Stock"); provided that the Pledged
Stock shall not include (i) more than 65% of the issued and
outstanding shares of stock of any Foreign Subsidiary or (ii) to
the extent that applicable law requires that a Subsidiary of such
Pledgor issue directors' qualifying shares, such qualifying
shares; (b)(i) the debt securities listed opposite the name of
such Pledgor on Schedule II hereto, (ii) any debt securities in
the future issued to such Pledgor and (iii) the promissory notes
and any other instruments evidencing such debt securities (the
"Pledged Debt Securities"); (c) all other property that may be
delivered to and held by the Collateral Agent pursuant to the
terms hereof; (d) subject to Section 5, all payments of principal
or interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed, in
respect of, in exchange for or upon the conversion of the
securities referred to in clauses (a) and (b) above; (e) subject
to Section 5, all rights and privileges of the Pledgor with
respect to the securities and other property referred to in
clauses (a), (b), (c) and (d) above; and (f) all proceeds of any
of the foregoing (the items referred to in clauses (a) through
(f) above being collectively referred to as the "Collateral").
Upon delivery to the Collateral Agent, (a) any Pledged Stock,
Pledged Debt Securities or other securities now or hereafter
included in the Collateral (the "Pledged Securities") shall be
accompanied by stock powers duly executed in blank or other
instruments of transfer satisfactory to the Collateral Agent and
by such other instruments and documents as the Collateral Agent
may reasonably request and (b) all other property comprising part
of the Collateral shall be accompanied by proper instruments of
assignment duly executed by the applicable Pledgor and such other
instruments or documents as the Collateral Agent may reasonably
request. Each delivery of Pledged Securities shall be accompanied
by a schedule describing the securities theretofore and then
being pledged hereunder, which schedule shall be attached hereto
as Schedule II and made a part hereof. Each schedule so delivered
shall supersede any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all
right, title, interest, powers, privileges and preferences
pertaining or incidental thereto, unto the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured
Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
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SECTION 2. Delivery of the Collateral. (a) Each
Pledgor agrees promptly to deliver or cause to be delivered to
the Collateral Agent any and all Pledged Securities, and any and
all certificates or other instruments or documents representing
the Collateral.
(b) Each Pledgor will cause any indebtedness for
borrowed money (other than indebtedness evidenced by a Purchase
Money Note) owed to such Pledgor by any Person to be evidenced by
a duly executed promissory note that is pledged and delivered to
the Collateral Agent pursuant to the terms hereof.
SECTION 3. Representations, Warranties and Covenants.
Each Pledgor hereby represents, warrants and covenants, as to
itself and the Collateral pledged by it hereunder, to and with
the Collateral Agent that:
(a) the Pledged Stock represents that percentage
as set forth on Schedule II of the issued and outstanding
shares of each class of the capital stock of the issuer
with respect thereto;
(b) except for the security interest granted
hereunder, the Pledgor (i) is and will at all times
continue to be the direct owner, beneficially and of
record, of the Pledged Securities indicated on Schedule II,
(ii) holds the same free and clear of all Liens, (iii) will
make no assignment, pledge, hypothecation or transfer of,
or create or permit to exist any security interest in or
other Lien on, the Collateral, other than pursuant hereto,
and (iv) subject to Section 5, will cause any and all
Collateral, whether for value paid by the Pledgor or
otherwise, to be forthwith deposited with the Collateral
Agent and pledged or assigned hereunder;
(c) the Pledgor (i) has the power and authority
to pledge the Collateral in the manner hereby done or
contemplated and (ii) will defend its title or interest
thereto or therein against any and all Liens (other than
the Lien created by this Agreement), however arising, of
all persons whomsoever;
(d) no consent of any other person (including
stockholders or creditors of any Pledgor) and no consent or
approval of any Governmental Authority or any securities
exchange was or is necessary to the validity of the pledge
effected hereby;
(e) by virtue of the execution and delivery by
the Pledgors of this Agreement, when the Pledged
Securities, certificates or other documents representing or
evidencing the Collateral are delivered to the Collateral
Agent in accordance with this Agreement, the Collateral
Agent will obtain a valid and perfected first lien upon and
security interest in such Pledged Securities as security
for the payment and performance of the Obligations;
(f) the pledge effected hereby is effective to
vest in the Collateral Agent, on behalf of the Secured
Parties, the rights of the Collateral Agent in the
Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized
and validly issued and is fully paid and nonassessable;
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(h) all information set forth herein relating to the
Pledged Stock is accurate and complete in all material respects
as of the date hereof; and
(i) the pledge of the Pledged Stock pursuant to
this Agreement does not violate Regulation G, T, U or X of
the Federal Reserve Board or any successor thereto as of
the date hereof.
SECTION 4. Registration in Nominee Name;
Denominations. The Collateral Agent, on behalf of the Secured
Parties, shall have the right (in its sole and absolute
discretion) to hold the Pledged Securities in its own name as
pledgee, the name of its nominee (as pledgee or as sub-agent) or
the name of the Pledgors, endorsed or assigned in blank or in
favor of the Collateral Agent. Each Pledgor will promptly give to
the Collateral Agent copies of any notices or other
communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent
shall at all times have the right to exchange the certificates
representing Pledged Securities for certificates of smaller or
larger denominations for any purpose consistent with this
Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc.
(a) Unless and until an Event of Default shall have occurred and
be continuing:
(i) Each Pledgor shall be entitled to exercise
any and all voting and/or other consensual rights and
powers inuring to an owner of Pledged Securities or any
part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan
Documents; provided, however, that such Pledgor will not be
entitled to exercise any such right if the result thereof
could reasonably be expected to materially and adversely
affect the rights inuring to a holder of the Pledged
Securities or the rights and remedies of any of the Secured
Parties under this Agreement or the Credit Agreement or any
other Loan Document or the ability of the Secured Parties
to exercise the same.
(ii) The Collateral Agent shall execute and
deliver to each Pledgor, or cause to be executed and
delivered to each Pledgor, all such proxies, powers of
attorney and other instruments as such Pledgor may
reasonably request for the purpose of enabling such Pledgor
to exercise the voting and/or consensual rights and powers
it is entitled to exercise pursuant to subparagraph (i)
above and to receive the cash dividends it is entitled to
receive pursuant to subparagraph (iii) below.
(iii) Each Pledgor shall be entitled to receive and
retain any and all cash dividends, interest and principal
paid on the Pledged Securities to the extent and only to
the extent that such cash dividends, interest and principal
are permitted by, and otherwise paid in accordance with,
the terms and conditions of the Credit Agreement, the other
Loan Documents and applicable laws. All noncash dividends,
interest and principal, and all dividends, interest and
principal paid or payable in cash or otherwise in
connection with a partial or total liquidation or
dissolution, return of capital, capital surplus or paid-in
surplus, and all other distributions (other than
distributions referred to in the preceding sentence) made
on or in respect of the Pledged Securities, whether paid or
payable in cash or otherwise, whether resulting from a
subdivision, combination or reclassification of the
outstanding capital stock of the issuer of any Pledged
Securities or received in exchange for Pledged Securities
or any part thereof, or in redemption thereof, or as a
result of any
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merger, consolidation, acquisition or other exchange of
assets to which such issuer may be a party or otherwise,
shall be and become part of the Collateral, and, if
received by any Pledgor, shall not be commingled by such
Pledgor with any of its other funds or property but shall
be held separate and apart therefrom, shall be held in
trust for the benefit of the Collateral Agent and shall be
forthwith delivered to the Collateral Agent in the same
form as so received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of
an Event of Default, all rights of any Pledgor to dividends,
interest or principal that such Pledgor is authorized to receive
pursuant to paragraph (a)(iii) above shall cease, and all such
rights shall thereupon become vested in the Collateral Agent,
which shall subject to the provisions of this paragraph (b) have
the sole and exclusive right and authority to receive and retain
such dividends, interest or principal. All dividends, interest or
principal received by the Pledgor contrary to the provisions of
this Section 5 shall be held in trust for the benefit of the
Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the
Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other
property paid over to or received by the Collateral Agent
pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in an account to be established
by the Collateral Agent upon receipt of such money or other
property and shall be applied in accordance with the provisions
of Section 7. After all Events of Default have been cured or
waived, the Collateral Agent shall promptly repay to each Pledgor
all cash dividends, interest or principal (without interest),
that such Pledgor would otherwise be permitted to retain pursuant
to the terms of paragraph (a)(iii) above and which remain in such
account.
(c) Upon the occurrence and during the continuance of
an Event of Default, all rights of any Pledgor to exercise the
voting and consensual rights and powers it is entitled to
exercise pursuant to paragraph (a)(i) of this Section 5, and the
obligations of the Collateral Agent under paragraph (a)(ii) of
this Section 5, shall cease, and all such rights shall thereupon
become vested in the Collateral Agent, which shall have the sole
and exclusive right and authority to exercise such voting and
consensual rights and powers, provided that, unless otherwise
directed by the Required Lenders, the Collateral Agent shall have
the right from time to time following and during the continuance
of an Event of Default to permit the Pledgors to exercise such
rights. After all Events of Default have been cured or waived,
such Pledgor will have the right to exercise the voting and
consensual rights and powers that it would otherwise be entitled
to exercise pursuant to the terms of paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence
and during the continuance of an Event of Default, subject to
applicable regulatory and legal requirements, the Collateral
Agent may sell the Collateral, or any part thereof, at public or
private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent
shall be authorized at any such sale (if it deems it advisable to
do so) to restrict the prospective bidders or purchasers to
persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation
of any such sale the Collateral Agent shall have the right to
assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such
sale shall hold the property sold absolutely free from any claim
or right on the part of any Pledgor, and, to the extent permitted
by applicable law, the Pledgors hereby waive all rights of
redemption, stay,
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valuation and appraisal any Pledgor now has or may at any time in
the future have under any rule of law or statute now existing or
hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days'
prior written notice (which each Pledgor agrees is reasonable
notice within the meaning of Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's
intention to make any sale of such Pledgor's Collateral. Such
notice, in the case of a public sale, shall state the time and
place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which
the Collateral, or portion thereof, will first be offered for
sale at such board or exchange. Any such public sale shall be
held at such time or times within ordinary business hours and at
such place or places as the Collateral Agent may fix and state in
the notice of such sale. At any such sale, the Collateral, or
portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Collateral Agent may (in its sole
and absolute discretion) determine. The Collateral Agent shall
not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of
sale of such Collateral shall have been given. The Collateral
Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid in full by the
purchaser or purchasers thereof, but the Collateral Agent shall
not incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon
like notice. At any public (or, to the extent permitted by
applicable law, private) sale made pursuant to this Section 6,
any Secured Party may bid for or purchase, free from any right of
redemption, stay or appraisal on the part of any Pledgor (all
said rights being also hereby waived and released), the
Collateral or any part thereof offered for sale and may make
payment on account thereof by using any claim then due and
payable to it from such Pledgor as a credit against the purchase
price, and it may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a)
a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof, (b) the Collateral
Agent shall be free to carry out such sale pursuant to such
agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Collateral Agent shall
have entered into such an agreement all Events of Default shall
have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by a suit or suits at law or
in equity to foreclose upon the Collateral and to sell the
Collateral or any portion thereof pursuant to a judgment or
decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver.
SECTION 7. Application of Proceeds of Sale. The
proceeds of any sale of Collateral pursuant to Section 6, as well
as any Collateral consisting of cash, shall be applied by the
Collateral Agent as follows:
FIRST, to the payment of all costs and expenses
incurred by the Collateral Agent in connection with such
sale or otherwise in connection with this Agreement, any
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other Loan Document or any of the Obligations, including
all court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all advances
made by the Collateral Agent hereunder or under any other
Loan Document on behalf of any Pledgor and any other costs
or expenses incurred in connection with the exercise of any
right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations
(the amounts so applied to be distributed among the Secured
Parties pro rata in accordance with the amounts of the
Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or
assigns, or as a court of competent jurisdiction may
otherwise direct.
The Collateral Agent shall have absolute discretion as
to the time of application of any such proceeds, moneys or
balances in accordance with this Agreement. Upon any sale of the
Collateral by the Collateral Agent (including pursuant to a power
of sale granted by statute or under a judicial proceeding), the
receipt of the purchase money by the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for
the misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each
Pledgor agrees to pay upon demand to the Collateral Agent the
amount of any and all reasonable expenses, including the
reasonable fees, other charges and disbursements of its counsel
and of any experts or agents, that the Collateral Agent may incur
in connection with (i) the administration of this Agreement, (ii)
the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral in accordance
with the terms hereof, (iii) the exercise or enforcement of any
of the rights of the Collateral Agent hereunder or (iv) the
failure by such Pledgor to perform or observe any of the
provisions hereof applicable to it.
(b) Without limitation of its indemnification
obligations under the other Loan Documents, each Pledgor agrees
to indemnify the Indemnitees (as defined in Section 9.03 of the
Credit Agreement) against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a
result of (i) the execution or delivery of this Agreement or any
other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their
respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or
(ii) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any Indemnitee is a party
thereto, provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security
Documents. The provisions of this Section 8 shall remain
operative and in full force and effect regardless of the
termination of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the
Obligations,
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the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation
made by or on behalf of the Collateral Agent or any other Secured
Party. All amounts due under this Section 8 shall be payable on
written demand therefor and shall bear interest at the rate
specified in Section 2.13(a) of the Credit Agreement.
SECTION 9. Collateral Agent Appointed
Attorney-in-Fact. Each Pledgor hereby appoints the Collateral
Agent the attorney-in-fact of such Pledgor for the purpose of
carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may
in its reasonable judgment deem necessary or advisable to
accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of
the foregoing, the Collateral Agent shall have the right, upon
the occurrence and during the continuance of an Event of Default,
with full power of substitution either in the Collateral Agent's
name or in the name of such Pledgor, to ask for, demand, sue for,
collect, receive and give acquittance for any and all moneys due
or to become due under and by virtue of any Collateral, to
endorse checks, drafts, orders and other instruments for the
payment of money payable to the Pledgor representing any interest
or dividend or other distribution payable in respect of the
Collateral or any part thereof or on account thereof and to give
full discharge for the same, to settle, compromise, prosecute or
defend any action, claim or proceeding with respect thereto, and
to sell, assign, endorse, pledge, transfer and to make any
agreement respecting, or otherwise deal with, the same; provided,
however, that nothing herein contained shall be construed as
requiring or obligating the Collateral Agent to make any
commitment or to make any inquiry as to the nature or sufficiency
of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become
due in respect thereof or any property covered thereby. The
Collateral Agent and the other Secured Parties shall be
accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be
responsible to any Pledgor for any act or failure to act
hereunder, except for their own gross negligence or wilful
misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or
delay of the Collateral Agent in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of
the Collateral Agent hereunder and of the other Secured Parties
under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise
have. No waiver of any provisions of this Agreement or consent to
any departure by any Pledgor therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No
notice or demand on any Pledgor in any case shall entitle such
Pledgor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof
may be waived, amended or modified except pursuant to a written
agreement entered into between the Collateral Agent and
the respective Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, subject to any
consent required in accordance with Section 9.02 of the Credit
Agreement.
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SECTION 11. Securities Act, etc. In view of the
position of the Pledgors in relation to the Pledged Securities,
or because of other current or future circumstances, a question
may arise under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities
Act") with respect to any disposition of the Pledged Securities
permitted hereunder. Each Pledgor understands that compliance
with the Securities Act might very strictly limit the course of
conduct of the Collateral Agent if the Collateral Agent were to
attempt to dispose of all or any part of the Pledged Securities,
and might also limit the extent to which or the manner in which
any subsequent transferee of any Pledged Securities could dispose
of the same. Similarly, there may be other legal restrictions or
limitations affecting the Collateral Agent in any attempt to
dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws. Each Pledgor recognizes
that in light of such restrictions and limitations the Collateral
Agent may, with respect to any sale of the Pledged Securities,
limit the purchasers to those who will agree, among other things,
to acquire such Pledged Securities for their own account, for
investment, and not with a view to the distribution or resale
thereof. Each Pledgor acknowledges and agrees that in light of
such restrictions and limitations, the Collateral Agent, in its
sole and absolute discretion, (a) may proceed to make such a sale
whether or not a registration statement for the purpose of
registering such Pledged Securities or part thereof shall have
been filed under the Securities Act and (b) may approach and
negotiate with a single potential purchaser to effect such sale,
in either case in accordance with a valid exemption from
registration under the Securities Act. Each Pledgor acknowledges
and agrees that any such sale might result in prices and other
terms less favorable to the seller than if such sale were a
public sale without such restrictions. In the event of any such
sale, the Collateral Agent shall incur no responsibility or
liability for selling all or any part of the Pledged Securities
at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the
circumstances, notwithstanding the possibility that a
substantially higher price might have been realized if the sale
were deferred until after registration as aforesaid or if more
than a single purchaser were approached. The provisions of this
Section 11 will apply notwithstanding the existence of a public
or private market upon which the quotations or sales prices may
exceed substantially the price at which the Collateral Agent
sells.
SECTION 12. Registration, etc. Each Pledgor agrees
that, upon the occurrence and during the continuance of an Event
of Default hereunder, if for any reason the Collateral Agent
desires to sell any of the Pledged Securities of the Borrower at
a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its reasonable
best efforts to take or to cause the issuer of such Pledged
Securities to take such action and prepare, distribute and/or
file such documents, as are required or advisable in the
reasonable opinion of counsel for the Collateral Agent to permit
the public sale of such Pledged Securities. Each Pledgor further
agrees to indemnify, defend and hold harmless the Collateral
Agent, each other Secured Party, any underwriter and their
respective officers, directors, affiliates and controlling
persons from and against all loss, liability, expenses, costs of
counsel (including, without limitation, reasonable fees and
expenses to the Collateral Agent of legal counsel), and claims
(including the costs of investigation) that they may incur
insofar as such loss, liability, expense or claim arises out of
or is based upon any alleged untrue statement of a material fact
contained in any prospectus (or any amendment or supplement
thereto) or in any notification or offering circular, or arises
out of or is based upon any alleged omission to state a material
fact required to be stated therein or necessary to make the
statements in any thereof not misleading, except insofar as the
same may have been caused by any untrue statement or omission
based
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upon information furnished in writing to such Pledgor or the
issuer of such Pledged Securities by the Collateral Agent or any
other Secured Party expressly for use therein. Each Pledgor
further agrees, upon such written request referred to above, to
use its reasonable best efforts to qualify, file or register, or
cause the issuer of such Pledged Securities to qualify, file or
register, any of the Pledged Securities under the Blue Sky or
other securities laws of such states as may be requested by the
Collateral Agent and keep effective, or cause to be kept
effective, all such qualifications, filings or registrations.
Each Pledgor will bear all costs and expenses of carrying out its
obligations under this Section 12. Each Pledgor acknowledges that
there is no adequate remedy at law for failure by it to comply
with the provisions of this Section 12 and that such failure
would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 12 may be
specifically enforced.
SECTION 13. Security Interest Absolute. All rights of
the Collateral Agent hereunder, the grant of a security interest
in the Collateral and all obligations of each Pledgor hereunder,
shall be absolute and unconditional irrespective of (a) any lack
of validity or enforceability of the Credit Agreement, any other
Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any
of the foregoing, (b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent
to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of
the foregoing, (c) any exchange, release or nonperfection of any
other collateral, or any release or amendment or waiver of or
consent to or departure from any guaranty, for all or any of the
Obligations or (d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Pledgor
in respect of the Obligations or in respect of this Agreement
(other than the indefeasible payment in full of all the
Obligations).
SECTION 14. Termination or Release. (a) This Agreement
and the security interests granted hereby shall terminate when
all the Obligations have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit
Agreement, the LC and Acceptance Exposure has been reduced to
zero and the Issuing Bank has no further obligation to issue
Letters of Credit or Acceptances under the Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of
any Collateral that is permitted under the Credit Agreement to
any person that is not a Pledgor, or, upon the effectiveness of
any written consent to the release of the security interest
granted hereby in any Collateral pursuant to Section 9.02(b) of
the Credit Agreement, the security interest in such Collateral
shall be automatically released.
(c) In connection with any termination or release
pursuant to paragraph (a) or (b), the Collateral Agent shall
execute and deliver to any Pledgor, at such Pledgor's expense,
all documents that such Pledgor shall reasonably request to
evidence such termination or release. Any execution and delivery
of documents pursuant to this Section 14 shall be without
recourse to or warranty by the Collateral Agent.
SECTION 15. Notices. All communications and notices
hereunder shall be in writing and given as provided in Section
9.01 of the Credit Agreement. All communications and notices
hereunder to any Subsidiary Pledgor shall be given to it at the
address for notices set forth on Schedule I.
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SECTION 16. Further Assurances. Each Pledgor agrees to
do such further acts and things, and to execute and deliver such
additional conveyances, assignments, agreements and instruments,
as the Collateral Agent may at any time reasonably request in
connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof
or in order better to assure and confirm unto the Collateral
Agent its rights and remedies hereunder.
SECTION 17. Binding Effect; Several Agreement;
Assignments. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of any Pledgor that are contained
in this Agreement shall bind and inure to the benefit of its
successors and assigns. This Agreement shall become effective as
to any Pledgor when a counterpart hereof executed on behalf of
such Pledgor shall have been delivered to the Collateral Agent
and a counterpart hereof shall have been executed on behalf of
the Collateral Agent, and thereafter shall be binding upon such
Pledgor and the Collateral Agent and their respective successors
and assigns, and shall inure to the benefit of such Pledgor, the
Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Pledgor shall
have the right to assign its rights or obligations hereunder or
any interest herein or in the Collateral (and any such attempted
assignment shall be void), except as expressly contemplated by
this Agreement or the other Loan Documents. If all of the capital
stock of a Pledgor is sold, transferred or otherwise disposed of
to a person that is not an Affiliate of the Borrower pursuant to
a transaction permitted by Section 6.05 of the Credit Agreement,
such Pledgor shall be released from its obligations under this
Agreement without further action. This Agreement shall be
construed as a separate agreement with respect to each Pledgor
and may be amended, modified, supplemented, waived or released
with respect to any Pledgor without the approval of any other
Pledgor and without affecting the obligations of any other
Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a)
All covenants, agreements, representations and warranties made by
each Pledgor herein and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have
been relied upon by the Collateral Agent and the other Secured
Parties and shall survive the making by the Lenders of the Loans
and the issuance of the Letters of Credit and Acceptances by the
Issuing Bank, regardless of any investigation made by the Secured
Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any
Loan or any other fee or amount payable under this Agreement or
any other Loan Document is outstanding and unpaid or the LC and
Acceptance Exposure does not equal zero and as long as the
Commitments and the Revolving Commitments have not been
terminated.
(b) In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
11
<PAGE>
SECTION 19. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together,
shall constitute a single contract, and shall become effective as
provided in Section 17. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile transmission shall
be as effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 21. Rules of Interpretation. The rules of
interpretation specified in Section 1.03 of the Credit Agreement
shall be applicable to this Agreement. Section headings used
herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
SECTION 22. Jurisdiction; Consent to Service of
Process. (a) Each Pledgor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally
agrees that, to the extent permitted by applicable law, all
claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted
by law, in such Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Nothing in
this Agreement shall affect any right that the Collateral Agent
or any other Secured Party may otherwise have to bring any action
or proceeding relating to this Agreement or the other Loan
Documents against any Pledgor or its properties in the courts of
any jurisdiction.
(b) Each Pledgor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 15. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner
permitted by law.
SECTION 23. Waiver Of Jury Trial. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
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<PAGE>
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section
5.12 of the Credit Agreement, each Subsidiary of the Borrower
that was not in existence or not a Subsidiary on the date of the
Credit Agreement or was an Inactive Subsidiary is required to
enter in this Agreement as a Subsidiary Pledgor upon becoming a
Subsidiary (or upon ceasing to be an Inactive Subsidiary) if such
Subsidiary is a Subsidiary Loan Party and owns or possesses
property of a type that would be considered Collateral hereunder.
Upon execution and delivery by the Collateral Agent and any such
Subsidiary of an instrument in the form of Annex 1, such
Subsidiary shall become a Subsidiary Pledgor hereunder with
effect from and after the date of such execution and delivery.
The execution and delivery of such instrument shall not require
the consent of any other Pledgor hereunder. The rights and
obligations of each Pledgor hereunder shall remain in full force
and effect notwithstanding the addition of any new Subsidiary
Pledgor as a party to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above
written.
J CREW OPERATING CORP.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
J CREW GROUP, INC.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
THE SUBSIDIARY PLEDGORS LISTED ON
SCHEDULE I HERETO,
by /s/ Michael P. McHugh
----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Bruce S. Borden
----------------------------
Name:
Title:
14
<PAGE>
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Name Address
- ---- -------
<PAGE>
Schedule II to the
Pledge Agreement
CAPITAL STOCK
Number of Registered Number and Percentage
Issuer Certificate Owner Class of Shares of Shares
------ ----------- ---------- --------------- ----------
DEBT SECURITIES
Issuer Principal Amount Date of Note Maturity Date
------ ---------------- ------------ -------------
<PAGE>
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the PLEDGE AGREEMENT
dated as of October 17, 1997, among J. CREW OPERATING
CORP., a Delaware corporation (the "Borrower"), J.
CREW GROUP, INC., a New York corporation ("Holdings"),
and each subsidiary of the Borrower listed on Schedule
I thereto (each such subsidiary individually a
"Subsidiary Pledgor" and, collectively, the
"Subsidiary Pledgors"; the Borrower, Holdings and
Subsidiary Pledgors are referred to collectively
herein as the "Pledgors") and THE CHASE MANHATTAN
BANK, a New York banking corporation ("Chase"), as
collateral agent, (in such capacity, the "Collateral
Agent"), for the Secured Parties (as defined in the
Credit Agreement referred to below)
A. Reference is made to (a) the Credit Agreement dated
as of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral
Agent and, with respect to Letters of Credit and Acceptances
issued under the Credit Agreement as issuing bank (in such
capacity, the "Issuing Bank"), Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent, and (b) the
Guarantee Agreement dated as of October 17, 1997 (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement"), among the Subsidiary Pledgors, Holdings
and the Collateral Agent.
B. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in
the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement
in order to induce the Lenders to make Loans and the Issuing Bank
to issue Letters of Credit and Acceptances. Pursuant to Section
5.12 of the Credit Agreement, each Subsidiary of the Borrower
that was not in existence or not a Subsidiary on the date of the
Credit Agreement or was an Inactive Subsidiary is required to
enter into the Pledge Agreement as a Subsidiary Pledgor upon
becoming a Subsidiary (or upon ceasing to be an Inactive
Subsidiary) if such Subsidiary is also a Subsidiary Loan Party
and owns or possesses property of a type that would be considered
Collateral under the Pledge Agreement. Section 24 of the Pledge
Agreement provides that such Subsidiaries may become Subsidiary
Pledgors under the Pledge Agreement by execution and delivery of
an instrument in the form of this Supplement. The undersigned
Subsidiary (the "New Pledgor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to
become a Subsidiary Pledgor under the Pledge Agreement in order
to induce the Lenders to make additional Loans and the Issuing
Bank to issue additional Letters of Credit and Acceptances and as
consideration for Loans previously made and Letters of Credit and
Acceptances previously issued.
<PAGE>
Accordingly, the Collateral Agent and the New Pledgor
agree as
follows:
SECTION 1. In accordance with Section 24 of the Pledge
Agreement, the New Pledgor by its signature below becomes a
Pledgor under the Pledge Agreement with effect from and after the
date of execution and delivery of this Agreement in accordance
with Section 3 hereof and the New Pledgor hereby agrees (a) to
all the terms and provisions of the Pledge Agreement applicable
to it as a Pledgor thereunder and (b) represents and warrants
that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Pledgor, as security for
the payment and performance in full of the Obligations (as
defined in the Pledge Agreement), does hereby create and grant to
the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their successors and assigns, a security
interest in and lien on all of the New Pledgor's right, title and
interest in and to the Collateral (as defined in the Pledge
Agreement) of the New Pledgor. Each reference to a "Subsidiary
Pledgor" or a "Pledgor" in the Pledge Agreement shall be deemed
to include the New Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Pledgor represents and warrants to
the Collateral Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Collateral Agent
shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the
Collateral Agent. Delivery of an executed signature
page to this Supplement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this
Supplement.
SECTION 4. The New Pledgor hereby represents and
warrants that set forth on Schedule I attached hereto is a true
and correct schedule of all its Pledged Securities.
SECTION 5. Except as expressly supplemented hereby,
the Pledge Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 7. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, neither party hereto shall be
required to comply with such provision for so long as such
provision is held to be invalid, illegal or unenforceable, but
the validity, legality and enforceability of the remaining
provisions contained herein and in the Pledge Agreement shall not
in any
2
<PAGE>
way be affected or impaired. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder
shall be in writing and given as provided in Section 15 of the
Pledge Agreement. All communications and notices hereunder to the
New Pledgor shall be given to it at the address set forth under
its signature hereto.
SECTION 9. The New Pledgor agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral
Agent.
IN WITNESS WHEREOF, the New Pledgor and the Collateral
Agent have duly executed this Supplement to the Pledge Agreement
as of the day and year first above written.
[Name of New Pledgor],
by ____________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by ____________________________
Name:
Title:
3
<PAGE>
Schedule I to
Supplement No.
to the Pledge Agreement
Pledged Securities of the New Pledgor
-------------------------------------
CAPITAL STOCK
Number of Registered Number and Percentage
Issuer Certificate Owner Class of Shares of Shares
------ ----------- ---------- --------------- ----------
DEBT SECURITIES
Issuer Principal Amount Date of Note Maturity Date
------ ---------------- ------------ -------------
EXECUTION COPY
SECURITY AGREEMENT dated as of October
17, 1997, among J. CREW OPERATING CORP., a
Delaware corporation (the "Borrower"), J.
CREW GROUP, INC., a New York corporation
("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (each
such subsidiary individually a "Subsidiary
Guarantor" and collectively, the "Subsidiary
Guarantors"; the Subsidiary Guarantors,
Holdings and the Borrower are referred to
collectively herein as the "Grantors") and
THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as collateral agent
(in such capacity, the "Collateral Agent")
for the Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), Collateral Agent
and, with respect to Letters of Credit and Acceptances issued
under the Credit Agreement, as issuing bank (in such capacity,
the "Issuing Bank"), and Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent and (b) the Guarantee Agreement
dated as of October 17, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Guarantee Agreement"),
among the Subsidiary Guarantors, Holdings and the Collateral
Agent.
The Lenders have agreed to make Loans to the Borrower,
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of Holdings and the Subsidiary Guarantors
has agreed to guarantee, among other things, all the obligations
of the Borrower under the Credit Agreement. The obligations of
the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the
execution and delivery by the Grantors of a Security Agreement in
the form hereof to secure (a) the due and punctual payment of (i)
the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in
respect of any Letter of Credit or any acceptance, when and as
due, including payments in respect of reimbursement of
disbursements made by the Issuing Bank with respect thereto,
interest thereon and obligations to provide, under certain
circumstances, cash collateral in connection therewith and (iii)
all other monetary obligations, including fees, costs, expenses
and indemnities, whether primary, secondary, direct, contingent,
fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or
allowable in such
<PAGE>
proceeding), of the Loan Parties to the Secured Parties
under the Credit Agreement and the other Loan Documents, (b) the
due and punctual performance of all covenants, agreements,
obligations and liabilities of the Loan Parties under or pursuant
to the Credit Agreement, this Agreement and the other Loan
Documents and (c) unless otherwise agreed to in writing by the
applicable Lender party thereto, the due and punctual payment and
performance of all obligations of the Borrower under each Hedging
Agreement entered into with any counterparty that was a Lender at
the time such Hedging Agreement was entered into (all the
monetary and other obligations described in the preceding clauses
(a) through (c) being collectively called the "Obligations").
Accordingly, the Grantors and the Collateral Agent, on
behalf of itself and each Secured Party (and each of their
respective successors or assigns), hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless
the context otherwise requires, all capitalized terms used but
not defined herein shall have the meanings set forth in the
Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein.
As used herein, the following terms shall have the following
meanings:
"Account Debtor" shall mean any person who is or who
may become obligated to any Grantor under, with respect to or on
account of an Account.
"Accounts" shall mean all "accounts" (as defined in the
Uniform Commercial Code as in effect in the state of New York
("UCC")) of any Grantor and shall include, without limitation,
any and all right, title and interest of any Grantor to payment
for goods sold or leased or services rendered, including any such
right evidenced by chattel paper, whether due or to become due,
whether or not it has been earned by performance, and whether now
or hereafter acquired or arising in the future, including
accounts receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all Accounts and all
right, title and interest in any returned goods, together with
all rights, titles, securities and guarantees with respect
thereto, including any rights to stoppage in transit, replevin,
reclamation and resales, and all related security interests,
liens and pledges, whether voluntary or involuntary, in each case
whether now existing or owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable,
(b) Documents, (c) Equipment, (d) General Intangibles, (e)
Inventory, (f) cash and cash accounts and (g) Proceeds.
"Copyright License" shall mean any written agreement,
now or hereafter in effect, granting any right to any third party
under any Copyright now or hereafter owned by any Grantor
or which such Grantor otherwise has the right to license, or
granting any right to such Grantor
2
<PAGE>
under any Copyright now or hereafter owned by any third
party, and all rights of such Grantor under any such agreement.
"Copyrights" shall mean all of the following now owned
or hereafter acquired by any Grantor: (a) all copyright rights in
any work subject to the copyright laws of the United States or
any other country, whether as author, assignee, transferee or
otherwise, and (b) all registrations and applications for
registration of any such copyright in the United States or any
other country, including registrations, recordings, supplemental
registrations and pending applications for registration in the
United States Copyright Office, including those listed on
Schedule II.
"Credit Agreement" shall have the meaning assigned to
such term in the preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records,
ledger sheets and other documents covering or relating to any of
the Collateral.
"Equipment" shall mean all "equipment" (as defined in
the UCC) of any Grantor and shall include, without limitation,
equipment, furniture and furnishings, and all tangible personal
property similar to any of the foregoing, including tools, parts
and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter
owned by any Grantor. The term Equipment shall include Fixtures.
"Fixtures" shall mean all items of Equipment, whether
now owned or hereafter acquired, of any Grantor that become so
related to particular real estate that an interest in them arises
under any real estate law applicable thereto.
"General Intangibles" shall mean all "general
intangibles" (as defined in the UCC) of any Grantor and shall
include, without limitation, choses in action and causes of
action and all other assignable intangible personal property of
any Grantor of every kind and nature (other than Accounts
Receivable) now owned or hereafter acquired by any Grantor,
including corporate or other business records, indemnification
claims, contract rights (including rights under leases, whether
entered into as lessor or lessee, Hedging Agreements and other
agreements), Intellectual Property, goodwill, registrations,
franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or
granted to any Grantor to secure payment by an Account Debtor of
any of the Accounts Receivable.
"Intellectual Property" shall mean all intellectual and
similar property of any Grantor of every kind and nature now
owned or hereafter acquired by any Grantor, including inventions,
designs, Patents, Copyrights, Licenses, Trademarks, trade
secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information,
software and databases and all embodiments or fixations thereof
and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records
describing or used in connection with, any of the foregoing.
3
<PAGE>
"Inventory" shall mean all "inventory" (as defined in
the UCC) of any Grantor and shall include, without limitation,
goods of any Grantor, whether now owned or hereafter acquired,
held for sale or lease, or furnished or to be furnished by any
Grantor under contracts of service, or consumed in any Grantor's
business, including raw materials, intermediates, work in
process, packaging materials, finished goods, semi-finished
inventory, scrap inventory, manufacturing supplies and spare
parts, and all such goods that have been returned to or
repossessed by or on behalf of any Grantor.
"License" shall mean any Patent License, Trademark
License, Copyright License or other license or sublicense to
which any Grantor is a party, including those listed on Schedule
III (other than those license agreements in existence on the date
hereof and listed on Schedule III and those license agreements
entered into after the date hereof, which by their terms prohibit
assignment or a grant of a security interest by such Grantor as
licensee thereunder).
"Obligations" shall have the meaning assigned to such
term in the preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now
or hereafter in effect, granting to any third party any right to
make, use or sell any invention on which a Patent, now or
hereafter owned by any Grantor or which any Grantor otherwise has
the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent,
now or hereafter owned by any third party, is in existence, and
all rights of any Grantor under any such agreement.
"Patents" shall mean all of the following now owned or
hereafter acquired by any Grantor: (a) all letters patent of the
United States or any other country, all registrations and
recordings thereof, and all applications for letters patent of
the United States or any other country, including registrations,
recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country,
including those listed on Schedule IV, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed
therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate
substantially in the form of Annex 1 hereto, completed and
supplemented with the schedules and attachments contemplated
thereby, and duly executed by a Financial Officer.
"Proceeds" shall mean "proceeds" (as defined in the
UCC) of any Grantor and shall include, without limitation, any
consideration received from the sale, exchange, license, lease or
other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession
of any Collateral and any payment received from any insurer or
other person or entity as a result of the destruction, loss,
theft, damage or other involuntary conversion of whatever nature
of any asset or property which constitutes Collateral, and shall
include (a) any claim of any Grantor against any third party for
(and the right to sue and recover for and the rights to damages
or profits due or accrued arising out of or in connection with)
(i) past, present or future infringement of any Patent now or
hereafter owned by any Grantor, or
4
<PAGE>
licensed under a Patent License, (ii) past, present or future
infringement or dilution of any Trademark now or hereafter owned
by any Grantor or licensed under a Trademark License or injury to
the goodwill associated with or symbolized by any Trademark now
or hereafter owned by any Grantor, (iii) past, present or future
breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any
Grantor or licensed under a Copyright License and (b) any and all
other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Receivables Transaction Assets" means all assets
described in the Receivables Transaction Documents as being sold,
contributed, assigned, transferred or conveyed to the Receivables
Subsidiary by Popular Club, or described in the Receivables
Transaction Documents as being sold, contributed, assigned,
transferred or conveyed by the Receivables Subsidiary to any
other Person; provided, however, that any amendment or
modification to the description of such assets in such documents
made after the date hereof shall not be effective for purposes of
this Agreement unless the Collateral Agent shall have consented
in writing to such amendment.
"Secured Parties" shall mean (a) the Lenders, (b) the
Administrative Agent, (c) the Collateral Agent, (d) the Issuing
Bank, (e) each counterparty to a Hedging Agreement entered into
with the Borrower if such counterparty was a Lender at the time
the Hedging Agreement was entered into, (f) the beneficiaries of
each indemnification obligation undertaken by any Grantor under
any Loan Document and (g) the successors and assigns of each of
the foregoing.
"Security Interest" shall have the meaning assigned to
such term in Section 2.01.
"Trademark License" shall mean any written agreement,
now or hereafter in effect, granting to any third party any right
to use any Trademark now or hereafter owned by any Grantor or
which any Grantor otherwise has the right to license, or granting
to any Grantor any right to use any Trademark now or hereafter
owned by any third party, and all rights of any Grantor under any
such agreement.
"Trademarks" shall mean all of the following now owned
or hereafter acquired by any Grantor: (a) all trademarks, service
marks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, trade dress,
logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
registration and recording applications filed in connection
therewith, including registrations and registration applications
in the United States Patent and Trademark Office, any State of
the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals
thereof, including those listed on Schedule V, (b) all goodwill
associated therewith or symbolized thereby and (c) all other
assets, rights and interests that uniquely reflect or embody such
goodwill.
SECTION 1.03. Rules of Interpretation. The rules of
interpretation specified in Section 1.02 of the Credit Agreement
shall be applicable to this Agreement.
5
<PAGE>
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the
payment or performance, as the case may be, in full of the
Obligations, each Grantor hereby assigns and grants to the
Collateral Agent, its successors and assigns, for the ratable
benefit of the Secured Parties, a security interest in, all of
such Grantor's right, title and interest in, to and under the
Collateral (the "Security Interest"). Without limiting the
foregoing, the Collateral Agent is hereby authorized to file one
or more financing statements (including fixture filings),
continuation statements, filings with the United States Patent
and Trademark Office or United States Copyright Office (or any
successor office or any similar office in any other country) or
other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted
by each Grantor, without the signature of any Grantor, and naming
any Grantor or the Grantors as debtors and the Collateral Agent
as secured party.
SECTION 2.02. No Assumption of Liability. The Security
Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way
alter or modify, any obligation or liability of any Grantor with
respect to or arising out of the Collateral.
SECTION 2.03 Release of Receivable Transaction Assets.
Notwithstanding anything herein to the contrary, the Collateral
shall not include any Receivable Transaction Assets, and the
Collateral Agent hereby releases, without recourse or warranty,
any security or other interest which it may have in the
Receivable Transaction Assets. The parties to the Receivables
Transaction Documents shall be entitled to rely on this Section
2.03, and this Section 2.03 shall not be amended without the
prior written consent of the trustee appointed under the terms of
the Receivables Transaction Documents. To further evidence such
release and to give effect to certain other agreements between
the Collateral Agent and such trustee, the Collateral Agent shall
(and is hereby authorized to) enter into intercreditor agreements
with such trustee in such form as the Collateral Agent deems
appropriate. By accepting the benefits of this Agreement, each
holder of an Obligation authorizes the Collateral Agent to enter
into such intercreditor agreements, and agrees to be bound by the
terms thereof. The failure of the Collateral Agent to execute any
such intercreditor agreement shall not, however, impair or
otherwise affect the release provided for in this Section 2.03 or
any other provision of this Section.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and
warrant to the Collateral Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has
good and valid rights in and title to the Collateral with respect
to which it has purported to grant a Security Interest
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hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral
pursuant hereto and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement,
without the consent or approval of any other person other than
any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate
has been duly prepared, completed and executed and the
information set forth therein is correct and complete in all
material respects. Fully executed Uniform Commercial Code
financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations
containing a description of the Collateral have been delivered to
the Collateral Agent for filing in each governmental, municipal
or other office specified in Schedule 6 to the Perfection
Certificate, which are all the filings, recordings and
registrations (other than filings required to be made in the
United States Patent and Trademark Office and the United States
Copyright Office in order to perfect the Security Interest in
Collateral consisting of United States Patents, Trademarks and
Copyrights) that are necessary to publish notice of and protect
the validity of and to establish a legal, valid and perfected
security interest in favor of the Collateral Agent (for the
ratable benefit of the Secured Parties) in respect of all
Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation
statements.
(b) Each Grantor shall ensure that fully executed
security agreements in the form hereof (or short-form supplements
to this Agreement in form and substance satisfactory to the
Collateral Agent) and containing a description of all Collateral
consisting of Intellectual Property shall have been received and
recorded within three months after the execution of this
Agreement with respect to United States Patents and United States
registered Trademarks (and Trademarks for which United States
registration applications are pending) and within one month after
the execution of this Agreement with respect to United Sates
registered Copyrights have been delivered to the Collateral Agent
for recording by the United States Patent and Trademark Office
and the United States Copyright Office pursuant to 35 U.S.C. ss.
261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the regulations
thereunder, as applicable, and otherwise as may be required
pursuant to the laws of any other necessary jurisdiction in the
United States (or any political subdivision thereof) and its
territories and possessions, to protect the validity of and to
establish a legal, valid and perfected security interest in favor
of the Collateral Agent (for the ratable benefit of the Secured
Parties) in respect of all Collateral consisting of Patents,
Trademarks and Copyrights in which a security interest may be
perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories
and possessions, or in any other necessary jurisdiction, and no
further or subsequent filing, refiling, recording, rerecording,
registration or reregistration is necessary (other than such
actions as are necessary to perfect the Security Interest with
respect to any Collateral consisting of Patents, Trademarks and
Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).
SECTION 3.03. Validity of Security Interest. The
Security Interest constitutes (a) a legal and valid security
interest in all the Collateral securing the payment and
performance
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of the Obligations, (b) subject to the filings described in
Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by
filing, recording or registering a financing statement or
analogous document in the United States (or any political
subdivision thereof) and its territories and possessions pursuant
to the UCC or other analogous applicable law in such
jurisdictions and (c) a security interest that shall be perfected
in all Collateral in which a security interest may be perfected
upon the receipt and recording of this Agreement with the United
States Patent and Trademark Office and the United States
Copyright Office, as applicable, within the three month period
(commencing as of the date hereof) pursuant to 35 U.S.C. ss. 261
or 15 U.S.C. ss. 1060 or the one month period (commencing as of
the date hereof) pursuant to 17 U.S.C. ss. 205 and otherwise as
may be required pursuant to the laws of any other necessary
jurisdiction in the United States (or any political subdivision
thereof) and its territories and possessions. The Security
Interest is and shall be prior to any other Lien on any of the
Collateral, other than Liens expressly permitted to be prior to
the Security Interest pursuant to Section 6.02 of the Credit
Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is
owned by the Grantors free and clear of any Lien, except for
Liens expressly permitted pursuant to Section 6.02 of the Credit
Agreement. The Grantor has not filed or consented to the filing
of (a) any financing statement or analogous document under the
UCC or any other applicable laws covering any Collateral, (b) any
assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral
with the United States Patent and Trademark Office or the United
States Copyright Office or (c) any assignment in which any
Grantor assigns any Collateral or any security agreement or
similar instrument covering any Collateral with any foreign
governmental, municipal or other office, which financing
statement or analogous document, assignment, security agreement
or similar instrument is still in effect, except, in each case,
for Liens expressly permitted pursuant to Section 6.02 of the
Credit Agreement.
ARTICLE IV
Covenants
SECTION 4.01. Records. Each Grantor agrees to maintain,
at its own cost and expense, such complete and accurate records
with respect to the Collateral owned by it as is consistent with
its current practices but in any event to include complete
accounting records indicating all payments and proceeds received
with respect to any part of the Collateral, and, at such time or
times as the Collateral Agent may reasonably request, promptly to
prepare and deliver to the Collateral Agent an updated Perfection
Certificate, noting all material changes, if any, since the date
of the most recent Perfection Certificate.
SECTION 4.02. [Intentionally Omitted]
SECTION 4.03. Protection of Security. Each Grantor
shall, at its own cost and expense, take any and all reasonable
actions necessary to defend title to the Collateral against all
persons and to defend the Security Interest of the Collateral
Agent in the Collateral and the
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priority thereof against any Lien not expressly permitted
pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees,
at its own expense, to execute, acknowledge, deliver and cause to
be duly filed all such further instruments and documents and take
all such actions as the Collateral Agent may from time to time
reasonably request to better assure, preserve, protect and
perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing
statements (including fixture filings) or other documents in
connection herewith or therewith. If any amount payable under or
in connection with any of the Collateral shall be or become
evidenced by any promissory note or similar instrument, such note
or instrument shall be immediately pledged and delivered to the
Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent.
SECTION 4.05. Inspection and Verification. The
Collateral Agent and such persons as the Collateral Agent may
reasonably designate shall have the right to inspect the
Collateral, all records related thereto (and to make extracts and
copies from such records) and the premises upon which any of the
Collateral is located, at reasonable times and intervals during
normal business hours upon reasonable advance notice to the
respective Grantor, to verify under reasonable procedures the
validity, amount, quality, quantity, value, condition and status
of the Collateral. The Collateral Agent shall have the right to
share any information it gains from such inspection or
verification with any Secured Party in accordance with and
subject to the provisions set forth in Section 9.12 of the Credit
Agreement; provided that any information shared with a Secured
Party pursuant to this Section 4.05 shall be deemed "Information"
which has been "clearly identified at the time of delivery as
confidential" under Section 9.12 of the Credit Agreemnent.
SECTION 4.06. Taxes; Encumbrances. At its option, the
Collateral Agent may discharge past due taxes, assessments,
charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted
pursuant to Section 6.02 of the Credit Agreement, and may pay for
the maintenance and preservation of the Collateral to the extent
any Grantor fails to do so as required by the Credit Agreement or
this Agreement, and each Grantor jointly and severally agrees to
reimburse the Collateral Agent on demand for any payment made or
any expense incurred by the Collateral Agent pursuant to the
foregoing authorization; provided, however, that nothing in this
Section 4.06 shall be interpreted as excusing any Grantor from
the performance of, or imposing any obligation on the Collateral
Agent or any Secured Party to cure or perform, any covenants or
other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances
and maintenance as set forth herein or in the other Loan
Documents.
SECTION 4.07. Assignment of Security Interest. If at
any time any Grantor shall take a security interest in any
property of an Account Debtor or any other person to secure
payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent to
the extent permitted by any contracts or arrangements to which
such property is subject. Such assignment need not be filed of
public record unless necessary to
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continue the perfected status of the security interest against
creditors of and transferees from the Account Debtor or other
person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors.
Each Grantor shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it
under each contract, agreement or instrument relating to the
Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to
indemnify and hold harmless the Collateral Agent and the Secured
Parties from and against any and all liability for such
performance.
SECTION 4.09. Use and Disposition of Collateral. None
of the Grantors shall make or permit to be made an assignment,
pledge or hypothecation of the Collateral or shall grant any
other Lien in respect of the Collateral, except as expressly
permitted by Section 6.02 of the Credit Agreement. None of the
Grantors shall make or permit to be made any transfer of the
Collateral and each Grantor shall remain at all times in
possession of the Collateral owned by it, except that (a)
Inventory may be sold and Accounts Receivable may be collected in
the ordinary course of business and (b) unless and until the
Collateral Agent shall notify the Grantors that an Event of
Default shall have occurred and be continuing and that during the
continuance thereof the Grantors shall not sell, convey, lease,
assign, transfer or otherwise dispose of any Collateral (which
notice may be given by telephone if promptly confirmed in
writing), the Grantors may use and dispose of the Collateral in
any lawful manner not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document.
Without limiting the generality of the foregoing, each Grantor
agrees that it shall not permit any material Inventory to be in
the possession or control of any warehouseman, bailee, agent or
processor at any time unless such warehouseman, bailee, agent or
processor shall have been notified of the Security Interest and
shall have agreed in writing to hold the Inventory subject to the
Security Interest and the instructions of the Collateral Agent
and to waive and release any Lien held by it with respect to such
Inventory, whether arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts.
None of the Grantors will, without the Collateral Agent's prior
written consent, grant any extension of the time of payment of
any of the Accounts Receivable, compromise, compound or settle
the same for less than the full amount thereof, release, wholly
or partly, any person liable for the payment thereof or allow any
credit or discount whatsoever thereon, other than extensions,
credits, discounts, compromises or settlements granted or made in
the ordinary course of business and consistent with its current
practices.
SECTION 4.11. Insurance. The Grantors, at their own
expense, shall maintain or cause to be maintained insurance
covering physical loss or damage to the Inventory and Equipment
in accordance with Section 5.07 of the Credit Agreement. Each
Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents
designated by the Collateral Agent) as such Grantor's true and
lawful agent (and attorney-in-fact) for the purpose, during the
continuance of an Event of Default, of making, settling and
adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of
such policies of insurance and for making all determinations and
decisions with respect thereto. In the event that
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any Grantor at any time or times shall fail to obtain or maintain
any of the policies of insurance required hereby or to pay any
premium in whole or part relating thereto, the Collateral Agent
may, without waiving or releasing any obligation or liability of
the Grantors hereunder or any Event of Default, in its sole
discretion, obtain and maintain such policies of insurance and
pay such premium and take any other actions with respect thereto
as the Collateral Agent deems advisable. All sums disbursed by
the Collateral Agent in connection with this Section 4.11,
including reasonable attorneys' fees, court costs, expenses and
other charges relating thereto, shall be payable, upon demand, by
the Grantors to the Collateral Agent and shall be additional
Obligations secured hereby.
SECTION 4.12. [Intentionally Omitted]
SECTION 4.13. Covenants Regarding Patent, Trademark and
Copyright Collateral. (a) Each Grantor agrees that it will not,
nor will it permit any of its licensees to, do any act, or omit
to do any act, whereby any Patent which is material to the
conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to
mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its
rights under the laws pursuant to which each such Patent is
issued.
(b) Each Grantor (either itself or through its
licensees or its sublicensees) will, for each Trademark material
to the conduct of such Grantor's business, (i) maintain such
Trademark in full force free from any circumstance that would
lead to a finding of abandonment or invalidity for non-use, (ii)
maintain the quality of products and services offered under such
Trademark sufficient to preclude any findings of abandonment,
(iii) display such Trademark with notice of Federal or foreign
registration to the extent necessary and sufficient to establish
and preserve its rights under the laws pursuant to which each
such Trademark is issued and (iv) not knowingly use or knowingly
permit the use of such Trademark in violation of any third party
rights.
(c) Each Grantor (either itself or through licensees)
will, for each work covered by a material Copyright, continue to
publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as necessary and sufficient to
establish and preserve its rights under the laws pursuant to
which each such copyright is issued.
(d) Each Grantor shall notify the Collateral Agent
immediately if it knows or has reason to know that any Patent,
Trademark or Copyright material to the conduct of its business
may become abandoned, lost or dedicated to the public, or of any
adverse determination or development (including the institution
of, or any such determination or development in, any proceeding
in the United States Patent and Trademark Office, United States
Copyright Office or any court or similar office of any country)
regarding such Grantor's ownership of any Patent, Trademark or
Copyright, its right to register the same, or to keep and
maintain the same.
(e) In no event shall any Grantor, either itself or
through any agent, employee, licensee or designee, file an
application for any Patent, Trademark or Copyright (or for the
registration of any Trademark or Copyright) with the United
States Patent and Trademark Office, United States Copyright
Office or any office or agency in any political subdivision of
the United
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States or in any other country or any political subdivision
thereof, unless it promptly informs the Collateral Agent, and,
upon request of the Collateral Agent, executes and delivers any
and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's
security interest in such Patent, Trademark or Copyright. Each
Grantor hereby appoints the Collateral Agent as its
attorney-in-fact to execute and file such writings evidencing the
Collateral Agent's security interest in such Patent, Trademark or
Copyright, all acts of such attorney being hereby ratified and
confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all reasonably necessary
steps that are consistent with the practice in any proceeding
before the United States Patent and Trademark Office, United
States Copyright Office or any similar office or agency in any
political subdivision of the United States or in any other
country or any political subdivision thereof, to maintain and
pursue each material application relating to the Patents,
Trademarks and/or Copyrights (and to obtain the relevant grant or
registration) and to maintain each issued Patent and each
registration of the Trademarks and Copyrights that is material to
the conduct of any Grantor's business, including timely filings
of applications for renewal, affidavits of use, affidavits of
incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition,
interference and cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe
that any Collateral consisting of a Patent, Trademark or
Copyright material to the conduct of any Grantor's business has
been or is about to be infringed, misappropriated or diluted by a
third party, such Grantor promptly shall notify the Collateral
Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and
to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are
appropriate under the circumstances to protect such Collateral.
(h) Upon and during the continuance of an Event of
Default, each Grantor shall use its best efforts to obtain all
requisite consents or approvals by the third party licensor of
each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title and
interest thereunder to the Collateral Agent or its designee.
ARTICLE V
Collections
SECTION 5.01. Power of Attorney. Each Grantor
irrevocably makes, constitutes and appoints the Collateral Agent
(and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent and
attorney-in-fact, and in such capacity the Collateral Agent shall
have the right, with power of substitution for each Grantor and
in each Grantor's name or otherwise, for the use and benefit of
the Collateral Agent and the Secured Parties, upon the occurrence
and during the continuance of an Event of Default (a) to receive,
endorse, assign and/or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof; (b) to demand,
collect, receive payment of, give receipt for and give discharges
and releases of all or any of the
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Collateral; (c) to sign the name of any Grantor on any invoice or
bill of lading relating to any of the Collateral; (d) to send
verifications of Accounts Receivable to any Account Debtor; (e)
to commence and prosecute any and all suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the
Collateral or to enforce any rights in respect of any Collateral;
(f) to settle, compromise, compound, adjust or defend any
actions, suits or proceedings relating to all or any of the
Collateral; (g) to notify, or to require any Grantor to notify,
Account Debtors to make payment directly to the Collateral Agent;
and (h) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things reasonably
necessary to carry out the purposes of this Agreement, as fully
and completely as though the Collateral Agent were the absolute
owner of the Collateral for all purposes; provided, however, that
nothing herein contained shall be construed as requiring or
obligating the Collateral Agent or any Secured Party to make any
commitment or to make any inquiry as to the nature or sufficiency
of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any
action with respect to the Collateral or any part thereof or the
moneys due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted to be taken by
the Collateral Agent or any Secured Party with respect to the
Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of any Grantor or to any claim or
action against the Collateral Agent or any Secured Party. It is
understood and agreed that the appointment of the Collateral
Agent as the agent and attorney-in-fact of the Grantors for the
purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event
relieve any Grantor of any of its obligations hereunder or under
any other Loan Document with respect to the Collateral or any
part thereof or impose any obligation on the Collateral Agent or
any Secured Party to proceed in any particular manner with
respect to the Collateral or any part thereof, or in any way
limit the exercise by the Collateral Agent or any Secured Party
of any other or further right which it may have on the date of
this Agreement or hereafter, whether hereunder, under any other
Loan Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the
occurrence and during the continuance of an Event of Default,
each Grantor agrees to deliver each item of Collateral to the
Collateral Agent on demand, and it is agreed that the Collateral
Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any
Collateral consisting of Intellectual Property, on demand, to
cause the Security Interest to become an assignment, transfer and
conveyance of any of or all such Collateral by the applicable
Grantors to the Collateral Agent (except to the extent
assignment, transfer or conveyance thereof would result in a loss
of said Intellectual Property), or to license or sublicense,
whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any such Collateral throughout
the world on such terms and conditions and in such manner as the
Collateral Agent shall determine (other than in violation of any
then-existing licensing arrangements to the extent that waivers
cannot be obtained), and (b) with or without legal process and
with or without prior notice or demand for performance, to take
possession of the Collateral and without liability for
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trespass to enter any premises where the Collateral may
be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights
afforded to a secured party under the UCC or other applicable
law. Without limiting the generality of the foregoing, each
Grantor agrees that the Collateral Agent shall have the right,
subject to the mandatory requirements of applicable law, to sell
or otherwise dispose of all or any part of the Collateral, at
public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery
as the Collateral Agent shall deem appropriate. The Collateral
Agent shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment
and not with a view to the distribution or sale thereof, and upon
consummation of any such sale the Collateral Agent shall have the
right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor
hereby waives (to the extent permitted by law) all rights of
redemption, stay and appraisal which such Grantor now has or may
at any time in the future have under any rule of law or statute
now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days'
prior written notice (which each Grantor agrees is reasonable
notice within the meaning of Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's
intention to make any sale of Collateral. Such notice, in the
case of a public sale, shall state the time and place for such
sale and, in the case of a sale at a broker's board or on a
securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or
portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places
as the Collateral Agent may fix and state in the notice (if any)
of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in
separate parcels, as the Collateral Agent may (in its sole and
absolute discretion) determine. The Collateral Agent shall not be
obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of
sale of such Collateral shall have been given. The Collateral
Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Collateral Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to
take up and pay for the Collateral so sold and, in case of any
such failure, such Collateral may be sold again upon like notice.
At any public (or, to the extent permitted by law, private) sale
made pursuant to this Section, any Secured Party may bid for or
purchase, free (to the extent permitted by law) from any right of
redemption, stay, valuation or appraisal on the part of any
Grantor (all said rights being also hereby waived and released to
the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account
thereof by using any claim then due and payable to such Secured
Party from any Grantor as a credit
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against the purchase price, and such Secured Party may,
upon compliance with the terms of sale, hold, retain and dispose
of such property without further accountability to any Grantor
therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale
thereof; the Collateral Agent shall be free to carry out such
sale pursuant to such agreement and no Grantor shall be entitled
to the return of the Collateral or any portion thereof subject
thereto, notwithstanding the fact that after the Collateral Agent
shall have entered into such an agreement all Events of Default
shall have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by a suit or suits at law or
in equity to foreclose this Agreement and to sell the Collateral
or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral
Agent shall apply the proceeds of any collection or sale of the
Collateral, as well as any Collateral consisting of cash, as
follows:
FIRST, to the payment of all costs and expenses
incurred by the Administrative Agent or the Collateral
Agent (in its capacity as such hereunder or under any other
Loan Document) in connection with such collection or sale
or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and
expenses of its agents and legal counsel, the repayment of
all advances made by the Collateral Agent hereunder or
under any other Loan Document on behalf of any Grantor and
any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any
other Loan Document;
SECOND, to the payment in full of the Obligations (the
amounts so applied to be distributed among the Secured
Parties pro rata in accordance with the amounts of the
Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns,
or as a court of competent jurisdiction may otherwise
direct.
The Collateral Agent shall have absolute discretion as
to the time of application of any such proceeds, moneys or
balances in accordance with this Agreement. Upon any sale of the
Collateral by the Collateral Agent (including pursuant to a power
of sale granted by statute or under a judicial proceeding), the
receipt of the Collateral Agent or of the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of
the Collateral so sold and such purchaser or purchasers shall not
be obligated to see to the application of any part of the
purchase money paid over to the Collateral Agent or such officer
or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual
Property. For the purpose of enabling the Collateral Agent to
exercise rights and remedies under this Article at such time as
the Collateral Agent shall be lawfully entitled to exercise such
rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use,
license or sub-license any of
15
<PAGE>
the Collateral consisting of Intellectual Property now
owned or hereafter acquired by such Grantor, and wherever the
same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used
for the compilation or printout thereof. The use of such license
by the Collateral Agent shall be exercised, at the option of the
Collateral Agent, upon the occurrence and during the continuation
of an Event of Default; provided that any license, sub-license or
other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices
hereunder shall (except as otherwise expressly permitted herein)
be in writing and given as provided in Section 9.01 of the Credit
Agreement. All communications and notices hereunder to any
Subsidiary Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I, with a copy to the
Borrower.
SECTION 7.02. Security Interest Absolute. All rights of
the Collateral Agent hereunder, the Security Interest and all
obligations of the Grantors hereunder shall be absolute and
unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document,
any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any
change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement
or instrument, (c) any exchange, release or non- perfection of
any Lien on other collateral, or any release or amendment or
waiver of or consent under or departure from any guarantee,
securing or guaranteeing all or any of the Obligations, or (d)
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement (other than the indefeasible
payment in full of all the Obligations).
SECTION 7.03. Survival of Agreement. All covenants,
agreements, representations and warranties made by any Grantor
herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement shall
be considered to have been relied upon by the Secured Parties and
shall survive the making by the Lenders of the Loans, and the
execution and delivery to the Lenders of any notes evidencing
such Loans, regardless of any investigation made by the Lenders
or on their behalf, and shall continue in full force and effect
until this Agreement shall terminate as provided in Section 7.14.
SECTION 7.04. Binding Effect; Several Agreement. This
Agreement shall become effective as to any Grantor when a
counterpart hereof executed on behalf of such Grantor shall have
been delivered to the Collateral Agent and a counterpart hereof
shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Grantor and the Collateral
Agent and their respective successors and assigns, and shall
inure to the benefit of
16
<PAGE>
such Grantor, the Collateral Agent and the other Secured
Parties and their respective successors and assigns, except that
no Grantor shall have the right to assign or transfer its rights
or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void)
except as expressly contemplated by this Agreement or the Credit
Agreement. This Agreement shall be construed as a separate
agreement with respect to each Grantor and may be amended,
modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this
Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns
of such party; and all covenants, promises and agreements by or
on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses;
Indemnification. (a) Each Grantor jointly and severally agrees to
pay upon demand to the Collateral Agent the amount of any and all
reasonable expenses, including the reasonable fees, disbursements
and other charges of its counsel and of any experts or agents,
which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from or other
realization upon any of the Collateral in accordance with the
terms hereof, (iii) the exercise, enforcement or protection of
any of the rights of the Collateral Agent hereunder or (iv) the
failure of any Grantor to perform or observe any of the
provisions hereof applicable to it.
(b) Without limitation of its indemnification
obligations under the other Loan Documents, each Grantor jointly
and severally agrees to indemnify the Collateral Agent and the
other Indemnitees against, and hold each of them harmless from,
any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other
charges of counsel, incurred by or asserted against any of them
arising out of, in any way connected with, or as a result of, the
execution, delivery or performance of this Agreement or any
claim, litigation, investigation or proceeding relating hereto or
to the Collateral, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses resulted from the gross
negligence or willful misconduct of such Indemnitee.
(c) Any such amounts payable as provided hereunder
shall be additional Obligations secured hereby and by the other
Security Documents. The provisions of this Section 7.06 shall
remain operative and in full force and effect regardless of the
termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability
of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the
Collateral Agent or any Lender. All amounts due under this
Section 7.06 shall be payable on written demand therefor.
17
<PAGE>
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or
delay of the Collateral Agent in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of
the Collateral Agent hereunder and of the Collateral Agent, the
Issuing Bank, the Administrative Agent and the Lenders under the
other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of
any provisions of this Agreement or any other Loan Document or
consent to any departure by any Grantor therefrom shall in any
event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for
which given. No notice to or demand on any Grantor in any case
shall entitle such Grantor or any other Grantor to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Collateral Agent and
the respective Grantor or Grantors with respect to which such
waiver, amendment or modification is to apply, subject to any
consent required in accordance with Section 9.02 of the Credit
Agreement. In addition, any waiver, amendment or modification of
Section 2.03 shall be subject to the prior written consent of the
trustee acting for the benefit of investors under the Receivables
Transaction Documents.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 7.09.
SECTION 7.10. Severability. In the event any one or
more of the provisions contained in this Agreement should be held
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it
being understood that the invalidity of a particular provision in
a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
18
<PAGE>
SECTION 7.11 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together shall
constitute but one contract (subject to Section 7.04), and shall
become effective as provided in Section 7.04. Delivery of an
executed signature page to this Agreement by facsimile
transmission shall be effective as delivery of a manually
executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings
used herein are for the purpose of reference only, are not part
of this Agreement and are not to affect the construction of, or
to be taken into consideration in interpreting, this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of
Process. (a) Each Grantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect
any right that the Collateral Agent, the Administrative Agent,
the Issuing Bank or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan
Documents against any Grantor or its properties in the courts of
any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 7.01. Nothing in this Agreement will affected the right
of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 7.14. Termination. This Agreement and the
Security Interest shall terminate when all the Obligations have
been indefeasibly paid in full, the Lenders have no further
commitment to lend under the Credit Agreement, the LC and
Acceptance Exposure has been reduced to zero and the Issuing Bank
has no further commitment to issue Letters of Credit and
Acceptances under the Credit Agreement, at which time the
Collateral Agent shall execute and deliver to the Grantors, at
the Grantors' expense, all Uniform Commercial Code termination
statements and similar documents which the Grantors shall
reasonably request to evidence such termination. Any execution
and delivery of termination statements or documents pursuant to
this Section 7.14 shall be without recourse to or warranty by the
Collateral Agent. A Subsidiary Guarantor shall automatically be
released from its obligations hereunder and the Security Interest
19
<PAGE>
in the Collateral of such Subsidiary Guarantor shall be
automatically released in the event that all the capital stock of
such Subsidiary Guarantor shall be sold, transferred or otherwise
disposed of to a person that is not an Affiliate of the Borrower
in accordance with the terms of the Credit Agreement; provided
that the Required Lenders shall have consented to such sale,
transfer or other disposition (to the extent required by the
Credit Agreement) and the terms of such consent did not provide
otherwise.
SECTION 7.15. Additional Grantors. Upon execution and
delivery by the Collateral Agent and a Subsidiary Loan Party that
was not in existence on the date of the Credit Agreement or was
an Inactive Subsidiary that ceased to be an Inactive Subsidiary
of an instrument in the form of Annex 2 hereto, such Subsidiary
shall become a Grantor hereunder with effect from and after the
date of such execution and delivery. The execution and delivery
of any such instrument shall not require the consent of any other
Grantor hereunder. The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
J. CREW OPERATING CORP.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
J. CREW GROUP, INC.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
EACH OF THE SUBSIDIARY
GUARANTORS LISTED ON
SCHEDULE I HERETO,
by /s/ Michael P. McHugh
----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by /s/ Bruce S. Borden
----------------------------
Name:
Title: Authorized Officer
22
<PAGE>
SCHEDULE I
SUBSIDIARY GUARANTORS
<PAGE>
SCHEDULE II
COPYRIGHTS
<PAGE>
SCHEDULE III
LICENSES
<PAGE>
SCHEDULE IV
PATENTS
<PAGE>
SCHEDULE V
TRADEMARKS
<PAGE>
Annex 1 to the
Security Agreement
[Form Of]
PERFECTION' CERTIFICATE
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"),
among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), The Chase Manhattan Bank, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), Collateral Agent and, with respect to
Letters of Credit and Acceptances issued under the Credit
Agreement, as issuing bank (in such capacity, the "Issuing Bank")
and Donaldson, Lufkin & Jenrette Securities Corporation, as
syndication agent, and (b) the Guarantee Agreement dated as of
October 17, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Guarantee Agreement"), among the
Subsidiary Guarantors, Holdings and the Collateral Agent.
Capitalized terms used herein and not defined herein shall have
the meaning assigned to such terms in the Guarantee Agreement and
the Credit Agreement.
The undersigned, a Financial Officer, hereby certifies
to the Collateral Agent and each other Secured Party as follows:
1. Names. (a) The exact corporate name of each Grantor,
as such name appears in its respective certificate of
incorporation, is as follows:
(b) Set forth below is each other corporate name each
Grantor has had in the past five years, together with the date of
the relevant change:
(c) Except as set forth in Schedule 1 hereto, no
Grantor has changed its identity or corporate structure in any
way within the past five years. Changes in identity or corporate
structure would include mergers, consolidations and acquisitions,
as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include
in Schedule 1 the information required by Sections 1 and 2 of
this certificate as to each acquiree or constituent party to a
merger or consolidation.
(d) The following is a list of all other names
(including trade names or similar appellations) used by each
Grantor or any of its divisions or other business units in
connection with the conduct of its business or the ownership of
its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer
Identification Number of each Grantor:
<PAGE>
2. Current Locations. (a) The chief executive office of
each Grantor is located at the address set forth opposite its
name below:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(b) Set forth below opposite the name of each Grantor
are the locations where such Grantor maintains any books or
records relating to any Accounts Receivable (with each location
at which chattel paper, if any, is kept being indicated by an
"*"):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(c) Set forth below opposite the name of each Grantor
are all the places of business of such Grantor not identified in
paragraph (a) or (b) above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(d) Set forth below opposite the name of each Grantor
are all the locations where such Grantor maintains any Collateral
not identified above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(e) Set forth below opposite the name of each Grantor
are the names and addresses of all persons other than such
Grantor that have possession of any of the Collateral of such
Grantor:
Grantor Mailing Address County State
- ------- --------------- ------ -----
2
<PAGE>
3. Unusual Transactions. All Accounts Receivable have
been originated by the Grantors and all Inventory has been
acquired by the Grantors in the ordinary course of business.
4. UCC Filings. Duly signed financing statements on
Form UCC-1 in substantially the form of Schedule 5 hereto have
been prepared for filing in the Uniform Commercial Code filing
office in each jurisdiction where a Grantor has Collateral as
identified in Section 2 hereof.
5. Schedule of Filings. Attached hereto as Schedule 5
is a schedule setting forth, with respect to the filings
described in Section 5 above, each filing and the filing office
in which such filing is to be made.
6. Stock Ownership. Attached hereto as Schedule 6 is a
true and correct list of all the duly authorized, issued and
outstanding stock of each Subsidiary and the record and
beneficial owners of such stock.
7. Notes. Attached hereto as Schedule 7 is a true and
correct list of all notes held by Holdings and each Subsidiary
and all intercompany notes (other than a Purchase Money Note)
between Holdings and each Subsidiary of Holdings and between each
Subsidiary of Holdings and each other such Subsidiary.
8. Advances. Attached hereto as Schedule 8 is (a) a
true and correct list of all advances made by (i) Holdings to the
Borrower or any Subsidiary Loan Party, (ii) the Borrower to
Holdings or any Subsidiary Loan Party and (iii) any Subsidiary
Loan Party to Holdings, the Borrower or any other Subsidiary Loan
Party, which advances will be on and after the date hereof
evidenced by one or more intercompany notes pledged to the
Collateral Agent under the Pledge Agreement, and (b) a true and
correct list of all unpaid intercompany transfers of goods sold
and delivered by or to Holdings or any Subsidiary of Holdings.
9. Mortgage Filings. Attached hereto as Schedule 9 is a
schedule setting forth, with respect to each Mortgaged Property,
(i) the exact corporate name of the corporation that owns such
property as such name appears in its certificate of
incorporation, (ii) if different from the name identified
pursuant to clause (i), the exact name of the current record
owner of such property reflected in the records of the filing
office for such property identified pursuant to the following
clause and (iii) the filing office in which a Mortgage with
3
<PAGE>
respect to such property must be filed or recorded in order for
the Collateral Agent to obtain a perfected security interest
therein.
IN WITNESS WHEREOF, the undersigned have duly executed
this certificate on this [ ] day of [ ].
J. CREW OPERATING CORP.
by_______________________________
Name:
Title: [Financial Officer]
by_______________________________
Name:
Title: [Legal Officer]
5
<PAGE>
Annex 2 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to the
Security Agreement dated as of October 17, 1997,
among J. CREW OPERATING CORP., a Delaware
corporation (the "Borrower"), J. CREW GROUP, INC.,
a New York corporation ("Holdings"), each
subsidiary of the Borrower listed on Schedule I
thereto (each such subsidiary individually a
"Subsidiary Guarantor" and collectively, the
"Subsidiary Guarantors"; the Subsidiary Guarantors,
Holdings and the Borrower are referred to
collectively herein as the "Grantors") and THE
CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as collateral agent (in such
capacity, the "Collateral Agent") for the Secured
Parties (as defined herein).
A. Reference is made to (a) the Credit Agreement dated
as of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), Collateral Agent
and, with respect to Letters of Credit and Acceptances issued
under the Credit Agreement, as issuing bank (in such capacity,
the "Issuing Bank"), and Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and (b) the Guarantee
Agreement dated as of October 17, 1997 (as amended, supplemented
or otherwise modified from time to time, the "Guarantee
Agreement"), among the Subsidiary Guarantors, Holdings and the
Collateral Agent.
B. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in
the Security Agreement and the Credit Agreement.
C. The Grantors have entered into the Security
Agreement in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit and Acceptances. Section
7.15 of Security Agreement provides that additional Subsidiary
Loan Party that was not in existence on the date of the Credit
Agreement or was an Inactive Subsidiary that ceased to be an
Inactive Subsidiary may become Grantors under the Security
Agreement by execution and delivery of an instrument in the form
of this Supplement. The undersigned Subsidiary (the "New
Grantor") is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Grantor under
the Security Agreement in order to induce the Lenders to make
additional Loans and the Issuing Bank to issue additional Letters
of Credit and Acceptances and as consideration for Loans
previously made and Letters of Credit and Acceptances previously
issued.
Accordingly, the Collateral Agent and the New Grantor
agree as follows:
SECTION 1. In accordance with Section 7.15 of the
Security Agreement, the New Grantor by its signature below
becomes a Grantor under the Security Agreement with effect from
and after the date of execution and delivery of this Supplement
in accordance with Section 3 hereof and the New Grantor hereby
(a) agrees to all the terms and provisions of the Security
Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties
made by it as a Grantor thereunder are true and correct on and
<PAGE>
as of the date hereof. In furtherance of the foregoing,
the New Grantor, as security for the payment and performance in
full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Collateral Agent, its
successors and assigns, for the benefit of the Secured Parties,
their successors and assigns, a security interest in and lien on
all of the New Grantor's right, title and interest in and to the
Collateral (as defined in the Security Agreement) of the New
Grantor. Each reference to a "Grantor" in the Security Agreement
shall be deemed to include the New Grantor. The Security
Agreement is hereby incorporated herein by reference.
SECTION 2. The New Grantor represents and warrants to
the Collateral Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but
all of which when taken together shall constitute a single
contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the
New Grantor and the Collateral Agent. Delivery of an executed
signature page to this Supplement by facsimile transmission shall
be as effective as delivery of a manually signed counterpart of
this Supplement.
SECTION 4. The New Grantor hereby represents and
warrants that (a) set forth on Schedule I attached hereto is a
true and correct schedule of the location of any and all
Collateral of the New Grantor and (b) set forth under its
signature hereto, is the true and correct location of the chief
executive office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the
Security Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 7. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and
in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other
jurisdiction). The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder
shall be in writing and given as provided in Section 7.01 of the
Security Agreement. All communications and notices
2
<PAGE>
hereunder to the New Grantor shall be given to it at the address
set forth under its signature below.
SECTION 9. The New Grantor agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral
Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral
Agent have duly executed this Supplement to the Security
Agreement as of the day and year first above written.
[Name Of New Grantor],
by_____________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by_____________________________
Name:
Title:
3
<PAGE>
SCHEDULE I
to Supplement No.___ to the
Security Agreement
LOCATION OF COLLATERAL
----------------------
Description Location
- ----------- --------
===================================================================
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Dated as of October 17, 1997
by and among
J. Crew Operating Corp.
C & W Outlet, Inc.
Clifford & Wills, Inc.
Grace Holmes, Inc.
H.F.D. No. 55, Inc.
J. Crew, Inc.
J. Crew International, Inc.
J. Crew Services, Inc.
Popular Club Plan, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
===================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement")
is made and entered into as of October 17, 1997 by and among
J. Crew Operating Corp., a Delaware corporation (the "Company"), the
Company's subsidiaries, (each a "Guarantor" and collectively, the
"Guarantors"), Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc. (each an "Initial
Purchaser" and, collectively, the "Initial Purchasers"), each of
whom has agreed to purchase the Company's 10 3/8% Series A Senior
Subordinated Notes due 2007 (the "Series A Senior Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase
Agreement, dated October 14, 1997 (the "Purchase Agreement"), by
and among the Company, the Guarantors and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase
the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the obligations
of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized
terms shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Business Day: Any day except a Saturday, Sunday or
other day in the City of New York, or in the city of the
corporate trust office of the Trustee, on which banks are
authorized to close.
Broker-Dealer: Any broker or dealer registered under
the Exchange Act.
Broker-Dealer Transfer Restricted Securities: Series B
Notes that are acquired by a Broker-Dealer in the Exchange Offer
in exchange for Series A Notes that such Broker-Dealer acquired
for its own account as a result of market making activities or
other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of
(a) the filing and effectiveness under the Act of the Exchange Offer
Registration Statement relating to the Series B Notes to be
issued in the Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of
the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof and (c) the
delivery by the Company to the Registrar under the Indenture of
Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders
thereof pursuant to the Exchange Offer.
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Damages Payment Date: With respect to the Series A
Notes, each Interest Payment Date.
Exchange Act: The Securities Exchange Act of 1934,
as amended.
Exchange Offer: The registration by the Company under
the Act of the Series B Notes pursuant to the Exchange Offer
Registration Statement pursuant to which the Company shall offer
the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Notes in an aggregate principal amount
equal to the aggregate principal amount of the Transfer
Restricted Securities tendered in such exchange offer by such
Holders.
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the related
Prospectus.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Series A Notes to certain
"qualified institutional buyers," as such term is defined in Rule
144A under the Act, and outside the United States pursuant to
Regulation S under the Act.
Global Noteholder: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date, among
the Company, the Guarantors and State Street Bank and Trust
Company, as trustee (the "Trustee"), pursuant to which the Notes
are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and
the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement at the time such Registration Statement is declared
effective, as amended or supplemented by any prospectus
supplement and by all other amendments thereto, including
post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date,
each Person who is a Holder of Notes on the record date with respect
to the Interest Payment Date on which such Damages Payment Date
shall occur.
Registration Default: As defined in Section 5 hereof.
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Registration Statement: Any registration statement of
the Company and the Guarantors relating to (a) an offering of
Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i)
which is filed pursuant to the provisions of this Agreement and
(ii) including the Prospectus included therein, all amendments
and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds
Broker-Dealer Transfer Restricted Securities.
Series B Notes: The Company's 10 3/8% Series B Senior
Subordinated Notes due 2007 to be issued pursuant to the
Indenture (i) in the Exchange Offer or (ii) upon the request of
any Holder of Series A Notes covered by a Shelf Registration
Statement, in exchange for such Series A Notes.
Shelf Registration Statement: As defined in Section 4
hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the
earliest to occur of (a) the date on which such Note is exchanged
in the Exchange Offer and entitled to be resold to the public by
the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Note has been
disposed of in accordance with a Shelf Registration Statement,
(c) the date on which such Note is disposed of by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the
Prospectus contained therein) or (d) the date on which such Note
is distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer
Restricted Securities (each, a "Holder") whenever such Person
owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted
by applicable federal law (after the procedures set forth in
Section 6(a)(i) below have been complied with), the Company and
the Guarantors shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later
than 60 days after the Closing Date, the Exchange Offer
Registration Statement, (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective at the
earliest possible time, but in no event later than 135 days after
the Closing Date, (iii) in connection with the foregoing, (A)
file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause such
Exchange Offer Registration Statement to become effective, (B)
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file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with
the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv)
upon the effectiveness of such Exchange Offer Registration
Statement, commence and Consummate the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting
registration of the Series B Notes to be offered in exchange for
the Series A Notes that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their
respective best efforts to cause the Exchange Offer Registration
Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in
no event shall such period be less than 20 Business Days. The
Company and the Guarantors shall cause the Exchange Offer to
comply with all applicable federal and state securities laws. No
securities other than the Notes shall be included in the Exchange
Offer Registration Statement. The Company and the Guarantors
shall use their respective best efforts to cause the Exchange
Offer to be Consummated on the earliest practicable date after
the Exchange Offer Registration Statement has become effective,
but in no event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution"
section in the Prospectus contained in the Exchange Offer
Registration Statement and indicate therein that any Restricted
Broker-Dealer who holds Series A Notes that are Transfer
Restricted Securities and that were acquired for the account of
such Broker-Dealer as a result of market-making activities or
other trading activities, may exchange such Series A Notes (other
than Transfer Restricted Securities acquired directly from the
Company or any Affiliate of the Company) pursuant to the Exchange
Offer; however, such Broker-Dealer may be deemed to be an
"underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in
connection with its initial sale of each Series B Note received
by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall
also contain all other information with respect to such sales
of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers that the Commission may require in order to permit
such sales pursuant thereto, but such "Plan of Distribution"
shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer, except to the extent
required by the Commission as a result of a change in policy
after the date of this Agreement.
The Company and the Guarantors shall use their
respective best efforts to keep the Exchange Offer Registration
Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for sales of
Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers, and to ensure that such Registration Statement
conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced
from time to time, for a period of one year from the date on
which the Exchange Offer is Consummated.
The Company and the Guarantors shall promptly provide
sufficient copies of the latest version of such Prospectus to
such Restricted Broker-Dealers promptly upon request, and in no
event later than one day after such request, at any time during
such one-year period in order to facilitate such sales.
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SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not
required to file an Exchange Offer Registration Statement with respect
to the Series B Notes because the Exchange Offer is not permitted by
applicable law (after the procedures set forth in Section 6(a)(i)
below have been complied with) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business
Days following the Consummation of the Exchange Offer that (A)
such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not
resell the Series B Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired
directly from the Company or one of its affiliates, then the
Company and the Guarantors shall (x) cause to be filed on or
prior to 30 days after the date on which the Company determines
that it is not required to file the Exchange Offer Registration
Statement pursuant to clause (i) above or 60 days after the date
on which the Company receives the notice specified in clause (ii)
above a shelf registration statement pursuant to Rule 415 under
the Act (which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement")), relating to all Transfer Restricted Securities the
Holders of which shall have provided the information required
pursuant to Section 4(b) hereof, and shall (y) use their
respective best efforts to cause such Shelf Registration
Statement to become effective on or prior to 135 days after the
date on which the Company becomes obligated to file such Shelf
Registration Statement. If, after the Company has filed an
Exchange Offer Registration Statement which satisfies the
requirements of Section 3(a) above, the Company is required to
file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the
requirements of clause (x) above. Such an event shall have no
effect on the requirements of clause (y) above. The Company and
the Guarantors shall use their respective best efforts to keep
the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by
and subject to the provisions of Sections 6(b) and (c) hereof to
the extent necessary to ensure that it is available for sales of
Transfer Restricted Securities by the Holders thereof entitled to
the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced
from time to time, for a period of at least two years (as
extended pursuant to Section 6(c)(i)) following the date on which
such Shelf Registration Statement first becomes effective under
the Act.
(b) Provision by Holders of Certain Information in
Connection with the Shelf Registration Statement. No Holder of
Transfer Restricted Securities may include any of its Transfer
Restricted Securities in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes
to the Company in writing, within 20 days after receipt of a
request therefor, such information specified in item 507 of
Regulation S-K under the Act for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities
shall be entitled to Liquidated Damages pursuant to Section 5
hereof unless and until such Holder shall have used its best
efforts to provide all such information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
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SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this
Agreement is not filed with the Commission on or prior to the date
specified for such filing in this Agreement, (ii) any such
Registration Statement has not been declared effective by the
Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not
been Consummated within 180 days after the Closing Date or (iv)
any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective
or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself
declared effective immediately (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the
Company and the Guarantors hereby jointly and severally agree to
pay liquidated damages to each Holder of Transfer Restricted
Securities with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an
amount equal to $.05 per week per $1,000 principal amount of
Transfer Restricted Securities held by such Holder for each week
or portion thereof that the Registration Default continues. The
amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a
maximum amount of liquidated damages of $.25 per week per $1,000
principal amount of Transfer Restricted Securities.
Notwithstanding anything to the contrary set forth herein, (1)
upon filing of the Exchange Offer Registration Statement (and/or,
if applicable, the Shelf Registration Statement), in the case of
(i) above, (2) upon the effectiveness of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon
Consummation of the Exchange Offer, in the case of (iii) above,
or (4) upon the filing of a post-effective amendment to the
Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer
Restricted Securities as a result of such clause (i), (ii), (iii)
or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the
Global Note Holder by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated
Securities by mailing checks to their registered addresses on
each Damages Payment Date. All obligations of the Company and the
Guarantors set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at
the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations
with respect to such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In
connection with the Exchange Offer, the Company and the
Guarantors shall comply with all applicable provisions of Section
6(c) below, shall use their respective best efforts to effect
such exchange and to permit the sale of Broker-Dealer Transfer
Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof, and shall comply with
all of the following provisions:
(i) If, following the date hereof there has been
published a change in Commission policy with respect to
exchange offers such as the Exchange Offer, such that in
the reasonable opinion of counsel to the Company there is a
substantial question as to whether the Exchange Offer is
permitted
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by applicable federal law, the Company and the Guarantors
hereby agree to seek a no-action letter or other favorable
decision from the Commission allowing the Company and
the Guarantors to Consummate an Exchange Offer for such
Series A Notes. The Company and the Guarantors hereby agree
to pursue the issuance of such a decision to the Commission
staff level. In connection with the foregoing, the Company
and the Guarantors hereby agree to take all such other
actions as are requested by the Commission or otherwise
required in connection with the issuance of such decision,
including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering
to the Commission staff an analysis prepared by counsel to
the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange
Offer should be permitted and (C) diligently pursuing a
resolution (which need not be favorable) by the Commission
staff of such submission.
(ii) As a condition to its participation in the
Exchange Offer pursuant to the terms of this Agreement,
each Holder of Transfer Restricted Securities shall furnish,
upon the request of the Company, prior to the Consummation of
the Exchange Offer, a written representation to the Company
and the Guarantors (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an affiliate of
the Company, (B) it is not engaged in, and does not intend
to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Series
B Notes to be issued in the Exchange Offer and (C) it is
acquiring the Series B Notes in its ordinary course of
business. Each Holder hereby acknowledges and agrees that
any Broker-Dealer and any such Holder using the Exchange
Offer to participate in a distribution of the securities to
be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated
in Morgan Stanley and Co., Inc. (available June 5, 1991)
and Exxon Capital Holdings Corporation (available May 13,
1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar
no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale
transaction must be covered by an effective registration
statement containing the selling security holder
information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes
acquired by such Holder directly from the Company or an
affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors
shall provide a supplemental letter to the Commission (A)
stating that the Company and the Guarantors are registering
the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including
a representation that neither the Company nor any Guarantor
has entered into any arrangement or understanding with any
Person to distribute the Series B Notes to be received in
the Exchange Offer and that, to the best of the Company's
and each Guarantor's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series
B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate
in the distribution of the Series B Notes received in the
Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in
any no-action letter obtained pursuant to clause (i) above.
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(b) Shelf Registration Statement. In connection with
the Shelf Registration Statement, the Company and the Guarantors
shall comply with all the provisions of Section 6(c) below and
shall use their respective best efforts to effect such
registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company and the Guarantors will prepare and
file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any
Registration Statement and any related Prospectus required by
this Agreement to permit the sale or resale of Transfer
Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus,
to the extent that the same are required to be available to
permit sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers), the Company and the Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide
all requisite financial statements for the period specified
in Section 3 or 4 of this Agreement, as applicable. Upon
the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein
(A) to contain a material misstatement or omission or (B)
not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this
Agreement, the Company and the Guarantors shall file
promptly an appropriate amendment to such Registration
Statement, (1) in the case of clause (A), correcting any
such misstatement or omission, and (2) in the case of
clauses (A) and (B), use their respective best efforts to
cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become
usable for their intended purpose(s) as soon as practicable
thereafter. Notwithstanding anything to the contrary set
forth in this Agreement, the Company's and the Guarantor's
obligations to use their respective best efforts to keep
the Shelf Registration Statement continuously effective,
supplemented and amended shall be suspended in the event
continued effectiveness of the Shelf Registration Statement
would, in the opinion of counsel to the Company, require
the Company to disclose a material financing, acquisition
or other corporate transaction, and the Board of Directors
shall have determined in good faith that such disclosure is
not in the best interests of the Company, but in no event
will any such suspension, individually or in the aggregate,
exceed ninety (90) days since the Closing Date.
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the
Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period
set forth in Section 3 or 4 hereof, or such shorter period
as will terminate upon the earlier of the following (A)
when all Transfer Restricted Securities covered by such
Registration Statement have been sold and (B) when, in the
written opinion of counsel to the Company, all outstanding
Transfer Restricted Securities held by persons that are not
affiliates of the Company may be resold without
registration under the Act pursuant to Rule 144(k) under
the Act or any successor provision thereto; cause the
Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act, and to comply fully with Rules 424,
430A and 462, as applicable, under the Act in a timely
manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by
such Registration
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Statement during the applicable period in accordance
with the intended method or methods of distribution by
the sellers thereof set forth in such Registration Statement
or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, confirm
such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or
any post-effective amendment thereto, when the same has
become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding for
any of the preceding purposes, (D) of the existence of any
fact or the happening of any event that makes any statement
of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any
document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement in order to make the statements
therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time
the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption
from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company and
the Guarantors shall use their respective best efforts to
obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) furnish to the Initial Purchaser(s), each selling
Holder named in any Registration Statement or Prospectus
and each of the underwriter(s) in connection with such
sale, if any, before filing with the Commission, copies of
any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all
documents incorporated by reference after the initial
filing of such Registration Statement), which documents
will be subject to the review and comment of such Holders
and underwriter(s) in connection with such sale, if any,
for a period of at least five Business Days, and the
Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such
documents incorporated by reference) to which the selling
Holders of the Transfer Restricted Securities covered by
such Registration Statement or the underwriter(s) in
connection with such sale, if any, shall reasonably object
within five Business Days after the receipt thereof. A
selling Holder or underwriter, if any, shall be deemed to
have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission or fails to
comply with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is
to be incorporated by reference into a Registration Statement
or Prospectus, provide copies of such document to the
selling Holders and to the underwriter(s) in connection
with such sale, if any, make the Company's and the
Guarantors' representatives available for discussion of
such document and other customary due
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diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders
or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection
by the selling Holders, any managing underwriter
participating in any disposition pursuant to such
Registration Statement and any attorney or accountant
retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent
corporate documents and properties of the Company and the
Guarantors and cause the Company's and the Guarantors'
officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any,
promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonably request
to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the
Transfer Restricted Securities, information with respect to
the principal amount of Transfer Restricted Securities
being sold to such underwriter(s), the purchase price being
paid therefor and any other terms of the offering of the
Transfer Restricted Securities to be sold in such offering;
and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after
the Company is notified of the matters to be included in
such Prospectus supplement or post-effective amendment;
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any,
without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of
the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Guarantors
hereby consent to the use (in accordance with law) of the
Prospectus and any amendment or supplement thereto by each
of the selling Holders and each of the underwriter(s), if
any, in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto;
(x) enter into such agreements (including an underwriting
agreement) and make such representations and warranties and
take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to any Registration
Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted
Securities or underwriter in connection with any sale or
resale pursuant to any Registration Statement contemplated
by this Agreement, and in such connection, whether or not
an underwriting agreement is entered into and whether or
not the registration is an Underwritten Registration, the
Company and the Guarantors shall:
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(A) furnish (or in the case of paragraphs (2) and
(3), use its best efforts to furnish) to each selling
Holder and each underwriter, if any, upon the
effectiveness of the Shelf Registration Statement and
to each Restricted Broker-Dealer upon Consummation of
the Exchange Offer:
(1) a certificate, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration
Statement, as the case may be, signed on behalf
of the Company and each Guarantor by (x) the
President or any Vice President and (y) a
principal financial or accounting officer of the
Company and such Guarantor, confirming, as of the
date thereof, the matters set forth in paragraphs
(a) through (d) of Section 9 of the Purchase
Agreement and such other similar matters as the
Holders, underwriter(s) and/or Restricted Broker
Dealers may reasonably request;
(2) an opinion, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the
Company and the Guarantors covering matters
similar to those set forth in paragraph (e) of
Section 9 of the Purchase Agreement and such
other matter as the Holders, underwriters and/or
Restricted Broker Dealers may reasonably request,
and in any event including a statement to the
effect that such counsel has participated in
conferences with officers and other
representatives of the Company and the
Guarantors, representatives of the independent
public accountants for the Company and the
Guarantors and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
independently verified the accuracy, completeness
or fairness of such statements; and that such
counsel advises that, on the basis of the
foregoing (relying as to materiality to a large
extent upon facts provided to such counsel by
officers and other representatives of the Company
and the Guarantors and without independent check
or verification), no facts came to such counsel's
attention that caused such counsel to believe
that the applicable Registration Statement, at
the time such Registration Statement or any
post-effective amendment thereto became
effective and, in the case of the Exchange
Offer Registration Statement, as of the
date of Consummation of the Exchange Offer,
contained an untrue statement of a material fact
or omitted to state a material fact required to
be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus contained in such Registration
Statement as of its date and, in the case of the
opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation,
contained an untrue statement of a material fact
or omitted to state a material fact necessary in
order to make the statements therein, in the
light of the circumstances under which they were
made, not misleading. Without limiting the
foregoing, such counsel may state further that
such counsel assumes no responsibility for, and
has not independently verified, the accuracy,
completeness or fairness of the financial
statements, notes and schedules and other
financial and statistical data included in any
Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Shelf
Registration Statement or the date of
Consummation of the Exchange Offer, as the case
may be, from the Company's independent
accountants, in the customary form and covering
matters of the type customarily covered in
comfort letters to underwriters in connection
with primary underwritten offerings, and
affirming the matters set forth in the comfort
letters delivered pursuant to Section 9 of the
Purchase Agreement, without exception;
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<PAGE>
(B) set forth in full or incorporate by reference
in the underwriting agreement, if any, in connection
with any sale or resale pursuant to any Shelf
Registration Statement the indemnification provisions
and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section;
and
(C) deliver such other documents and certificates
as may be reasonably requested by the selling Holders,
the underwriter(s), if any, and Restricted Broker
Dealers, if any, to evidence compliance with clause
(A) above and with any customary conditions contained
in the underwriting agreement or other agreement
entered into by the Company and the Guarantors
pursuant to this clause (x).
The above shall be done at each closing under such
underwriting or similar agreement, as and to the extent required
thereunder, and if at any time the representations and warranties
of the Company and the Guarantors contemplated in (A)(1) above
cease to be true and correct, the Company and the Guarantors
shall so advise the underwriter(s), if any, the selling Holders
and each Restricted Broker-Dealer promptly and if requested by
such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders,
the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue
Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all
other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable
Registration Statement; provided, however, that neither the
Company nor any Guarantor shall be required to register or
qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to
the service of process in suits or to taxation, other than
as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so
subject;
(xii) issue, upon the request of any Holder of Series
A Notes covered by any Shelf Registration Statement
contemplated by this Agreement, Series B Notes having an
aggregate principal amount equal to the aggregate principal
amount of Series A Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder;
such Series B Notes to be registered in the name of such
Holder or in the name of the purchaser(s) of such Notes,
as the case may be; in return, the Series A Notes held by
such Holder shall be surrendered to the Company for cancellation;
(xiii) in connection with any sale of Transfer
Restricted Securities that will result in such securities
no longer being Transfer Restricted Securities, cooperate
with the selling Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such
denominations and such names as the Holders or the
underwriter(s), if any, may request at least two Business
Days prior to such sale of Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered
by the Registration Statement to be registered with or
approved by such other
12
<PAGE>
governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in
clause (xi) above;
(xv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or
have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related
Prospectus or any document incorporated therein by
reference or file any other required document so that, as
thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in
the light of the circumstances under which they were made,
not misleading;
(xvi) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of
a Registration Statement covering such Transfer Restricted
Securities and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Securities
which are in a form eligible for deposit with the
Depository Trust Company;
(xvii) cooperate and assist in any filings required to
be made with the NASD and in the performance of any due
diligence investigation by any underwriter (including any
"qualified independent underwriter") that is required to be
retained in accordance with the rules and regulations of
the NASD, and use their respective best efforts to cause
such Registration Statement to become effective and
approved by such governmental agencies or authorities as
may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such
Transfer Restricted Securities;
(xviii) otherwise use their respective best efforts to
comply with all applicable rules and regulations of the
Commission, and make generally available to its security
holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need
not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as
such term is defined in paragraph (c) of Rule 158 under the
Act);
(xix) cause the Indenture to be qualified under the
TIA not later than the effective date of the first
Registration Statement required by this Agreement and, in
connection therewith, cooperate with the Trustee and the
Holders of Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use
its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and
all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a
timely manner; and
(xx) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange
Act.
(d) Restrictions on Holders. Each Holder agrees by
acquisition of a Transfer Restricted Security that, upon receipt
of the notice referred to in Section 6(c)(i) or any notice from
the Company of the existence of any fact of the kind described in
Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof, or
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<PAGE>
until it is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by
reference in the Prospectus (the "Advice"). If so directed by the
Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such
Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall
give any such notice, the time period regarding the effectiveness
of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days
during the period from and including the date of the giving of
such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D)
hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by
Section 6(c)(xv) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the
Guarantors' performance of or compliance with this Agreement will
be borne by the Company, regardless of whether a Registration
Statement becomes effective, including without limitation: (i)
all registration and filing fees and expenses (including filings
made by any Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent
underwriter") and its counsel that may be required by the rules
and regulations of the NASD); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including
printing certificates for the Series B Notes to be issued in the
Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company, the Guarantors and the Holders of
Transfer Restricted Securities; and (v) all fees and
disbursements of independent certified public accountants of the
Company and the Guarantors (including the expenses of any special
audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its and the
Guarantors' internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and
the fees and expenses of any Person, including special experts,
retained by the Company or the Guarantors.
(b) In connection with any Registration Statement
required by this Agreement (including, without limitation, the
Exchange Offer Registration Statement and the Shelf Registration
Statement), the Company and the Guarantors will reimburse the
Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange
Offer Registration Statement or registered pursuant to the Shelf
Registration Statement, as applicable, for the reasonable fees
and disbursements of not more than one counsel, who shall be
chosen by the Holders of a majority in principal amount of the
Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
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<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally,
agree to indemnify and hold harmless (i) each Holder and (ii)
each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) any Holder (any
of the persons referred to in this clause (ii) being hereinafter
referred to as a "controlling person") and (iii) the respective
officers, directors, partners, employees, representatives and
agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an "Indemnified Holder"), to the fullest extent
lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without
limitation and as incurred, reimbursement of all reasonable costs
of investigating, preparing, pursuing or defending any claim or
action, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Holder) directly
or indirectly caused by, related to, based upon, arising out of
or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment
or supplement thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses
are caused by an untrue statement or omission or alleged untrue
statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders
expressly for use therein; provided, however, that the foregoing
indemnification with respect to any untrue statement or alleged
untrue statement or omission or alleged omission in any
preliminary prospectus or Prospectus, shall not inure to the
benefit of any Indemnified Holder from whom the person asserting
such loss, claim, damage, liability or expense purchased any of
the Notes if a copy of the Prospectus (or any amendment or
supplement thereto) was not sent or given on behalf of such
Indemnified Holder to such person at or prior to the written
confirmation of the sale of such Notes to such person and if the
Prospectus (or the Prospectus, as so amended or supplemented)
would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be
brought or asserted against any of the Indemnified Holders with
respect to which indemnity may be sought against the Company or
the Guarantors, such Indemnified Holder (or the Indemnified
Holder controlled by such controlling person) shall promptly
notify the Company and the Guarantors in writing (provided, that
the failure to give such notice shall not relieve the Company or
the Guarantors of their obligations pursuant to this Agreement).
Such Indemnified Holder shall have the right to employ its own
counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Company and the
Guarantors (regardless of whether it is ultimately determined
that an Indemnified Holder is not entitled to indemnification
hereunder). The Company and the Guarantors shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any
local counsel) at any time for such Indemnified Holders, which
firm shall be designated by the Holders. The Company and the
Guarantors shall be liable for any settlement of any such action
or proceeding effected with the Company's prior written consent,
which consent shall not be withheld unreasonably, and the Company
and the Guarantors agree to indemnify and hold harmless each
Indemnified Holder from and against any loss, claim, damage,
liability or expense by reason of any settlement of any action
effected with the written consent of the Company. Neither the
Company nor any
15
<PAGE>
Guarantor shall, without the prior written consent of each
Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of
which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Holder is a party thereto),
unless such settlement, compromise, consent or termination
includes an unconditional release of each Indemnified Holder from
all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Transfer Restricted Securities
agrees, severally and not jointly, to indemnify and hold harmless
the Company and the Guarantors, and their respective directors,
officers, and any person controlling (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the
Company, and the respective officers, directors, partners,
employees, representatives and agents of each such person, to the
same extent as the foregoing indemnity from the Company and the
Guarantors to each of the Indemnified Holders, but only with
respect to claims and actions based on information relating to
such Holder furnished in writing by such Holder expressly for use
in any Registration Statement. In case any action or proceeding
shall be brought against the Company, any Guarantor or its
directors or officers or any such controlling person in respect
of which indemnity may be sought against a Holder of Transfer
Restricted Securities, such Holder shall have the rights and
duties given the Company and the Guarantors, and the Company,
such Guarantor, such directors or officers or such controlling
person shall have the rights and duties given to each Holder by
the preceding paragraph. In no event shall any Holder be liable
or responsible for any amount in excess of the amount by which
the total received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages
which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission.
(c) If the indemnification provided for in this
Section 8 is unavailable to an indemnified party under
Section 8(a) or Section 8(b) hereof (other than by reason of
exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on
the other hand, from the issuance and sale of the Notes by the
Company or if such allocation is not permitted by applicable law,
the relative fault of the Company and the Guarantors, on the one
hand, and of the Indemnified Holder, on the other hand, in
connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault
of the Company and the Guarantors, on the one hand, and of the
Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the Company or such Guarantor or by the Indemnified Holder and
the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in the
second paragraph of Section 8(a), any legal or other fees or expenses
reasonably incurred by such party in connection with investigating
or defending any action or claim.
16
<PAGE>
The Company, the Guarantors and each Holder of
Transfer Restricted Securities agree that it would not be just
and equitable if contribution pursuant to this Section 8(c) were
determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or expenses
referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
Section 8, no Holder or its related Indemnified Holders shall be
required to contribute, in the aggregate, any amount in excess of
the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the
amount paid by such Holder for such Transfer Restricted
Securities plus (B) the amount of any damages which such Holder
has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the
respective principal amount of Series A Notes held by each of the
Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and each Guarantor hereby agrees with each
Holder, for so long as any Transfer Restricted Securities remain
outstanding and during any period in which the Company or such
Guarantor is not subject to Section 13 or 15(d) of the Securities
Exchange Act, to make available, upon request of any Holder of
Transfer Restricted Securities, to any Holder or beneficial owner
of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to
Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten
Registration hereunder unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in
customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required
under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker
or investment bankers and manager or managers for any
Underwritten Offering that will administer such offering will be
selected by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities included in such
offering. Such investment bankers and managers are referred to
herein as the "underwriters."
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<PAGE>
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being
entitled to exercise all rights provided herein, in the
Indenture, the Purchase Agreement or granted by law, including
recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The
Company and the Guarantors agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a
breach by them of the provisions of this Agreement and hereby
agree to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company
nor any Guarantor will, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to
the holders of the Company's and the Guarantors' securities under
any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the
Company nor any Guarantor will take any action, or voluntarily
permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to or departures from the provisions hereof
may not be given unless (i) in the case of Section 5 hereof and
this Section 12(d)(i), the Company has obtained the written
consent of Holders of all outstanding Transfer Restricted
Securities and (ii) in the case of all other provisions hereof,
the Company has obtained the written consent of Holders of a
majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates
exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer and that does not affect
directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(e) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand-delivery, first-class mail (registered or certified, return
receipt requested), telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
J. Crew Operating Corp.
770 Broadway
New York, New York 10003
Telecopier No.: (212) 209-2666
Attention: Chief Financial Officer
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<PAGE>
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telecopier No.: (212) 225-3999
Attention: Paul J. Shim, Esq.
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when receipt acknowledged,
if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other
communications shall be concurrently delivered by the Person
giving the same to the Trustee at the address specified in the
Indenture.
(f) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns
of each of the parties, including without limitation and without
the need for an express assignment, subsequent Holders of
Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such
successor or assign acquired Transfer Restricted Securities
directly from such Holder.
(g) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute
one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in
any circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or
referred to herein with respect to the registration rights
granted with respect to the Transfer Restricted Securities. This
Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
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IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
J. Crew Operating Corp.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
C&W Outlet, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
Clifford & Wills, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
Grace Holmes, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
H.F.D. NO. 55, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
J. Crew, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
20
<PAGE>
J. Crew International, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
J. Crew Services, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
Popular Club Plan, Inc.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
21
<PAGE>
Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ Pauline Boghosian
-----------------------------
Name: Pauline Boghosian
Title: Vice President
Chase Securities Inc.
By: /s/ Christopher M. Linneman
-----------------------------
Name: Christopher M. Linneman
Title: Managing Director
22
Exhibit 5.1
Conformed Copy
Writer's Direct Dial: (212) 225-2930
December 16, 1997
J. Crew Operating Corp.
770 Broadway
New York, New York 10003
Ladies and Gentlemen:
We have acted as your counsel in connection with a
Registration Statement on Form S-4 (the "Registration Statement")
filed today with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Act"), in respect
of the Series B 10-3/8% Senior Subordinated Notes due 2007 (the
"New Notes") of J. Crew Operating Corp., a Delaware corporation
(the "Issuer"), to be offered in exchange for all outstanding
Series A 10-3/8% Senior Subordinated Notes due 2007 (the "Old
Notes") of the Issuer. The New Notes will be issued pursuant to
an indenture (the "Indenture"), dated as of October 17, 1997,
among C&W Outlet, Inc., a New York corporation, Grace Holmes,
Inc., a Delaware corporation, Clifford & Wills, Inc., a New
Jersey corporation, J. Crew International, Inc., a New Jersey
corporation, H.F.D. No. 55, Inc., a Delaware corporation, J. Crew
Services, Inc., a New York corporation, J. Crew, Inc., a New
Jersey corporation, and Popular Club Plan, Inc., a New Jersey
corporation, as guarantors (collectively, the "Guarantors"), the
Issuer and State Street Bank and Trust Company, as trustee (the
"Trustee"). The obligations of the Issuer pursuant to the New
Notes, including the repurchase obligation resulting from a
Change in Control (as defined in the Indenture), will be
unconditionally guaranteed on a senior subordinated basis by the
Guarantors (the "Guarantees").
We have participated in the preparation of the
Registration Statement and have reviewed originals or copies,
certified or otherwise identified to our satisfaction, of such
<PAGE>
J. Crew Operating Corp., p. 2
documents and records of the Issuer and each of the Guarantors
and such other instruments and other certificates of public
officials, officers and representatives of the Issuer and each of
the Guarantors and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis
for the opinions expressed below.
In rendering the opinions expressed below, we have
assumed the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents
submitted to us as copies. In addition, we have assumed and have
not verified (i) the accuracy as to factual matters of each
document we have reviewed and (ii) that the Old Notes and the New
Notes conform or will conform to the forms thereof that we have
reviewed and have been or will be duly authenticated in
accordance with their terms and the terms of the Indenture.
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is our opinion
that:
1. When the New Notes have been duly executed and
authenticated in accordance with their terms and the terms of the
Indenture, and duly issued and delivered by the Issuer in
exchange for an equal principal amount of Old Notes pursuant to
the terms of the Registration Rights Agreement (in the form filed
as an exhibit to the Registration Statement), the New Notes will
constitute the valid, binding and enforceable obligation of the
Issuer, entitled to the benefits of the Indenture.
2. The Indenture (including, without limitation, the
Guarantees included therein) has been duly executed and delivered
by the Issuer and the Guarantors under the law of the State of
New York, and upon the exchange of New Notes for an equal
principal amount of Old Notes pursuant to the Registration Rights
Agreement (in the form filed as an exhibit to the Registration
Statement), the Guarantees will constitute the valid, binding and
enforceable obligation of the respective Guarantors.
Insofar as the foregoing opinions relate to the
validity, binding effect or enforceability of any agreement or
obligation of the Issuer or any of the Guarantors, (a) we have
assumed that the Issuer, each of the Guarantors and each other
party to such agreement or obligation has satisfied those legal
requirements that are applicable to it to the extent necessary to
make such agreement or obligation enforceable against it (except
that no such assumption is made as to the Issuer or any of the
Guarantors regarding matters of the law of the State of New
York); (b) such opinions are subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally and to general principles of equity;
and (c) we express no opinion as to sections of the Indenture
which pertain to severability of illegal provisions or waiver of
protection under stay, extension or usury laws.
The foregoing opinion is limited to the law of the
State of New York.
<PAGE>
J. Crew Operating Corp., p. 3
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to
this firm under the heading "Legal Matters" in the Prospectus
included in the Registration Statement. In giving such consent,
we do not thereby admit that we are "experts" within the meaning
of the Act or the rules and regulations of the Securities and
Exchange Commission issued thereunder with respect to any part of
the Registration Statement, including this exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ Paul J. Shim
------------------------------
Paul J. Shim, a Partner
EMPLOYMENT AGREEMENT
AGREEMENT, dated this 17th day of October, 1997 (the
"Agreement"), among J. Crew Group, Inc., a New York Corporation
(the "Parent") and its operating subsidiary J. Crew Operating
Corp. (the "Subsidiary" and collectively with the Parent, the
"Employer"), with offices at 625 Sixth Avenue, New York, New
York, TPG Partners II, L.P. ("TPG II") (only with respect to
Section 2(c) herein) and Emily Woods (the "Employee").
1. Employment, Duties and Agreements.
(a) The Employer hereby agrees to cause the Employee to
be elected as Chairman of the Board of Directors of the Parent and
to employ the Employee as Chief Executive Officer of the Parent
and the Subsidiary and the Employee hereby accepts such positions
and agrees to serve the Parent and the Subsidiary in such
capacities during the employment period fixed by Section 3 hereof
(the "Employment Period"). The Employee acknowledges that the
title of Chief Executive Officer of the Parent and the Subsidiary
may be given to another officer assuming a business/operations
role if the Board of Directors of the Parent (the "Board")
determines in its sole discretion that such action is necessary
to recruit such other officer; provided that such other officer,
as Chief Executive Officer, shall report to a committee of the
Board consisting of no more than three members of which the
Employee is the chairman, and the Employee and the Board shall
from time to time mutually agree on the reporting relationships
of any other senior officer of the Employer or any of its
subsidiaries. The Employee shall report solely and directly to
the Board. The Employee's duties and responsibilities shall be
such duties and responsibilities as the Board may reasonably
determine from time to time that are consistent with the above
job titles. During the Employment Period, the Employee shall be
subject to, and shall act in accordance with, all reasonable
instructions and directions of the Board and all applicable
policies and rules thereof as are consistent with the above job
titles.
(b) During the Employment Period and as long as the
Employer shall not be in default of a material obligation
hereunder, excluding any periods of vacation and sick leave to
which the Employee is entitled, the Employee shall devote
substantially all of her working time, energy and attention to
the performance of her duties and responsibilities hereunder and
shall faithfully and diligently endeavor to promote the business
and best interests of the Employer.
(c) During the Employment Period and so long as the
Employer shall not be in default of a material obligation
hereunder, the Employee may not, without the prior written
consent of the Employer, operate, participate in the management,
operations or control of, or act as an employee, officer,
consultant, agent or representative of, any type of business or
service (other than as an employee of the Employer), provided
that it shall not be a violation of the foregoing for the
Employee to (i) act or serve as a director, trustee, committee
member or principal of any type of business or civic or
charitable organization (including, without limitation, acting as
a producer or executive producer of motion picture productions)
and (ii) manage her personal, financial and legal affairs, so
long as such activities (described in clauses
<PAGE>
(i) and (ii)) do not interfere with the performance of her duties
and responsibilities to the Employer as provided hereunder.
2. Compensation.
(a) As compensation for the agreements made by the
Employee herein and the performance by the Employee of her
obligations hereunder, during the Employment Period, the Employer
shall pay the Employee, not less than once a month pursuant to
the Employer's normal and customary payroll procedures, a base
salary at the rate of $1,000,000 per annum (the "Base Salary").
The amount of the Base Salary shall be increased on each
anniversary of the Effective Date during the Employment Period,
to reflect the year-to-year increase, if any, as of the July 1
immediately preceding such Effective Date in the U.S. Consumer
Price Index for All Urban Consumers, U.S. City Average, All
Items, Unadjusted, as published by the U.S. Department of Labor,
or in the absence of that index, the most comparable index then
published and may be increased further in the absolute discretion
of the Compensation Committee of the Board.
(b) In addition to the Base Salary, during the Employment
Period the Employee shall have an opportunity to earn an annual
bonus (the "Bonus") in accordance with the terms of the J. Crew
Operating Corp. Senior Executive Bonus Plan attached hereto as
Exhibit A.
(c) As of the Effective Date (as defined in Section 3
below), TPG II hereby grants to the Employee the option to
purchase from TPG II shares of common stock of J. Crew Group,
Inc. (the "Common Stock") equal to ten percent (10%) (the "10%
Option") of the total outstanding shares of Common Stock
determined immediately after the closing (the "Closing") of the
transactions contemplated by the Recapitalization Agreement,
dated July 22, 1997, among TPG II, J. Crew Group, Inc. and
certain other persons (the "Recapitalization") at the same price
per share of Common Stock as TPG II paid per share of Common
Stock pursuant to the Recapitalization (the "TPG II Price"). Upon
the exercise by the Employee of the 10% Option, the Employee
shall be required to purchase from TPG II an amount of preferred
stock of the Parent, at the same price and on the same terms as
TPG II's purchase of preferred stock, the aggregate purchase
price for which bears the same ratio to the aggregate purchase
price paid by the Employee for Common Stock pursuant to the
exercise of the 10% Option as the ratio of the aggregate purchase
price paid by TPG II for the purchase of preferred stock bears to
the aggregate purchase price paid by TPG II for the Common Stock
in connection with the Recapitalization. The 10% Option provided
in this Section 3(c) shall expire at the close of business on the
thirtieth day after the Closing.
(d) On January 1, 1998, the Employer shall grant the
Employee 2915 restricted shares of Common Stock (the "Restricted
Shares") and 393 shares of Common Stock (the "Additional
Shares"). Such Additional Shares shall not be subject to the
restrictions provided in this Section 2(d). The Restricted Shares
shall vest as follows: 972 Restricted Shares on each of the third
and fourth anniversaries of the Closing and 971 on the fifth
anniversary of the Closing, provided that the Employee is still
employed by the Employer on such date. Notwithstanding the
2
<PAGE>
foregoing, to the extent not yet granted, the Employer shall
immediately grant the Restricted Shares and the Additional
Shares, and all or any portion of the Restricted Shares not
previously forfeited shall vest immediately upon the occurrence
of a Change in Control (as defined in the J. Crew Group, Inc.
1997 Stock Option Plan) or the termination of the Employment
Period by the Employer without Cause, by the Employee for Good
Reason, or by reason of the Employee's death or Disability. If
the Employment Period terminates for any other reason, the
Restricted Shares which have not vested on such date of
termination shall be forfeited by the Employee and returned to
the Employer. Notwithstanding anything to the contrary in the
Stockholders' Agreement, the certificates representing the
Restricted Shares shall be held in custody by the Employer until
the vesting thereof and shall not be transferred until such
shares become vested as provided herein. All cash, securities and
other property paid or otherwise distributed with respect to the
Restricted Shares which have not vested shall be held in custody
by the Employer and shall be subject to the same vesting,
forfeiture and distribution rules described above with respect to
the Restricted Shares related thereto. In addition, the Employee
shall be entitled to direct the Employer as to the manner in
which the Restricted Shares held in custody by the Employer shall
be voted.
(e) In connection with the grant of the Restricted
Shares, the Employee shall make an election prior to January 30,
1998 to include in gross income on the date of the grant the
value of the Restricted Shares on such date pursuant to Section
83(b) (the "Section 83(b) Election") of the Internal Revenue Code
of 1986, as amended. Upon notification from the Employee that the
Section 83(b) Election has been made, the Employer shall pay the
appropriate depository an amount equal to the Employee's federal,
state and local income and payroll tax withholding obligations
with respect to (i) the value of the Restricted Shares (the
"Restricted Share Value"), which value shall be equal to the TPG
II Price unless otherwise mutually agreed by the parties, (ii)
the value of the Additional Shares (the "Additional Share
Value"), which value shall be equal to the TPG II Price unless
otherwise mutually agreed by the parties and (iii) the income
required to be recognized by the Employee as a result of the
payment by the Employer of such withholding obligations, in each
case based on withholding rates determined by the Employer in its
discretion and in compliance with applicable law (such sum paid
by the Employer hereinafter referred to as the "Withholding
Amount"). At least thirty days before the Employee's due date for
1998 Federal income taxes, the Employee shall provide a
certificate to the Employer in which the Employee shall represent
to the Employer the Employee's highest marginal income tax rate
applicable to her actual income with respect to each of her
federal, state and local income taxes for 1998. The "Stock
Gross-Up Payment" shall be determined by an accounting firm
mutually agreed upon by the parties (whose expenses will be paid
by the Employer) and shall equal an amount such that, after
payment of all federal, state and local income and payroll taxes
("Taxes") on the Stock Gross-Up Payment, the Employee will retain
an amount sufficient to pay all Taxes that she is required to pay
as a result of the grant of the Restricted Shares, the Section
83(b) Election and the grant of Additional Shares. The
calculation of the amount of the Stock Gross-Up Payment shall (i)
take into account any marginal deduction with respect to the
Employee's Federal income tax liability for state and local
income taxes paid with respect to the grant of Restricted Shares,
Additional Shares and the Stock Gross-Up
3
<PAGE>
Payment to which the Employee will be entitled, and (ii)
notwithstanding the time of year in which any payments are made
hereunder by the Employer, be based on payroll taxes on income in
excess of $100,000. The determination of the accounting firm
shall be final and binding upon the Employee and the Employer.
After the accounting firm notifies the Employer of the amount of
the Stock Gross-Up Payment and no later than fifteen days prior
to the Employee's due date for her 1998 Federal income taxes, the
Employer shall pay the Employee the excess, if any, of the Stock
Gross-Up Payment over the Withholding Amount or the Employee
shall pay the Employer the excess, if any, of the Withholding
Amount over the Stock Gross-Up Payment, as applicable. The
Withholding Amount and the Stock Gross-Up Payment, if any, shall
be paid by the Employer notwithstanding any termination of the
Employee's employment hereunder.
(f) All shares of Common Stock and preferred stock of
J. Crew Group, Inc. and all other securities issued in connection
with the Recapitalization and acquired by the Employee under this
Agreement or otherwise shall be subject to the Stockholders'
Agreement attached hereto as Exhibit B.
(g) During the Employment Period, the Employee shall
be entitled to the following expense reimbursement and additional
benefits and perquisites:
(i) reimbursement of travel expenses (with regard
to air travel, on the Concorde where available or otherwise in
first class), including with spouse where appropriate and as
reasonably agreed between the Employer and the Employee;
(ii) cellular and home business telephone lines;
(iii) a leased car, including a driver as needed
by the Employee;
(iv) reimbursement of reasonable tax, investment
management and legal services fees;
(v) reimbursement of entertainment expenses which
are reasonably expected to benefit the Employer;
(vi) the provision of J. Crew Brand clothing
(including for the Employee's spouse); and
(vii) an additional payment (a "Reimbursement
Gross-Up Payment") relating to the federal, state and local
income and payroll taxes incurred by the Employee with respect to
amounts required to be recognized as income for Federal income
tax purposes by the Employee as a result of reimbursements
provided in clauses (i) through (vi) of this Section 2(g) (the
"Gross-Up Expenses"). The amount of Gross-Up Expenses shall be
determined by an accounting firm mutually agreed upon by the
Employee and the Employer (and whose expenses will be paid by the
Employer) and shall reflect that firm's determination of the
amount that should be includible in income by the Employee with
respect to clauses (i) through (vi) of this
4
<PAGE>
Section 2(g). At least thirty days before the Employee's due date
for her Federal income taxes with respect to each calendar year,
the Employee shall provide a certificate to the Employer in which
the Employee shall represent to the Employer the highest marginal
income tax rate applicable to her actual income with respect to
each of her federal, state and local income taxes for such year.
The "Reimbursement Gross-Up Payment" for each calendar year shall
be determined by an accounting firm mutually agreed upon by the
parties (whose expenses will be paid by the Employer) and shall
equal an amount such that, after payment of all Taxes on the
Reimbursement Gross-Up Payment, the Employee will retain an
amount sufficient to pay all Taxes that she is required to pay as
a result of the reimbursement of the Gross-Up Expenses. The
calculation of the amount of the Reimbursement Gross-Up Payment
shall (i) take into account any marginal deduction with respect
to the Employee's Federal income tax liability for state and
local income taxes paid with respect to the Gross-Up Expenses to
which the Employee will be entitled, and (ii) notwithstanding the
time of year in which any payments are made hereunder by the
Employer, be based on payroll taxes on income in excess of
$100,000. The determination of the accounting firm shall be final
and binding upon the Employee and the Employer. After the
accounting firm notifies the Employer of the amount of the
Reimbursement Gross-Up Payment and no later than fifteen days
prior to the Employee's due date for paying her Federal income
taxes for such year, the Employer shall pay the Employee the
Reimbursement Gross-Up Payment. The Reimbursement Gross-Up
Payment shall be paid by the Employer notwithstanding any
termination of the Employee's employment hereunder.
(h) During the Employment Period: (i) the Employee
shall be entitled to participate in all savings and retirement
plans, practices, policies and programs of the Employer and its
affiliated companies which are made available generally to other
executive officers of the Employer and its affiliated companies
(for the avoidance of doubt, such savings and retirement plans,
practices, policies and programs shall exclude any incentive
compensation plan, practice, policy or program, including without
limitation equity-based compensation and cash bonus plans); and
(ii) the Employee and/or the Employee's family, as the case may
be, shall be eligible for participation in, and shall receive all
benefits under, all welfare benefit plans, practices, policies
and programs provided by the Employer and its affiliated
companies (including, without limitation, medical, prescription,
dental, disability, the Employee life insurance, group life
insurance, accidental death and travel accident insurance plans
and programs) which are made available generally to other
executive officers of the Employer and its affiliated companies
(for the avoidance of doubt, such plans, practices, policies or
programs shall not include any plan, practice, policy or program
which provides benefits in the nature of severance or
continuation pay). Without limiting the generality of the
foregoing, the Employer shall review its executive disability
insurance program with the Employee, with the goal of providing
the Employee with a long-term disability benefit equal to
two-thirds of the Employee's base salary in the event of
permanent disability to the extent such insurance is reasonably
available in the market (it being understood that the Employer
will use its reasonable efforts to purchase such a disability
policy). The term "affiliated companies" means all companies
controlled by, controlling or under common control with the
Employer.
5
<PAGE>
(i) During the Employment Period, the Employee shall
be entitled to paid vacation of at least five weeks per year. The
ability to carry forward vacation time shall be subject to the
Employer's vacation policy applicable generally to executive
officers of the Employer as in effect from time to time.
(j) The Employer shall promptly reimburse the Employee
for all reasonable business expenses upon the presentation of
statements of such expenses in accordance with the Employer's
policies and procedures now in force or as such policies and
procedures may be modified with respect to all senior executive
officers of the Employer.
(k) During the Employment Period, the Employer shall
furnish the Employee with office space, stenographic and
secretarial assistance and such other incidental facilities and
services as provided to the Employee immediately prior to the
date hereof, provided that such services are substantially
related to the Employee's employment hereunder.
3. Employment Period.
The Employment Period shall commence on the date of
the Closing (the "Effective Date") and shall terminate on the day
preceding the fifth anniversary of the Effective Date (the
"Scheduled Termination Date"); provided, however, that the
Employee's employment hereunder may be terminated during the
Employment Period prior to the Scheduled Termination Date upon
the earliest to occur of the following events (at which time the
Employment Period shall be terminated):
(a) Death. The Employee's employment hereunder shall
terminate upon her death.
(b) Disability. The Employer shall be entitled to
terminate the Employee's employment hereunder for "Disability"
if, as a result of the Employee's incapacity due to physical or
mental illness, the Employee shall have been unable to perform
her duties hereunder for a period of six (6) consecutive months
or for 180 days within any 365-day period, and within 30 days
after written Notice of Termination for Disability is given
following such 6-month or 180-day period, as the case may be, the
Employee shall not have returned to the performance of her duties
on a full-time basis.
(c) Cause. The Employer may terminate the Employee's
employment hereunder for Cause. For purposes of this Agreement,
the term "Cause" shall mean: (1) the willful and continued
failure of the Employee substantially to perform the Employee's
duties under this Agreement (other than as a result of physical
or mental illness or injury), after the Board delivers to the
Employee a written demand for substantial performance that
specifically identifies the manner in which the Board believes
that the Employee has not substantially performed the Employee's
duties; and (2) the willful engaging by the Employee in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Employer. Any act or failure to act that is
based upon authority given pursuant to a resolution duly adopted
by the Board, or
6
<PAGE>
the advice of counsel for the Employer, shall not constitute
Cause. Cause shall not exist unless and until the Employer has
delivered to the Employee a copy of a resolution duly adopted by
a majority of the Board at a meeting of the Board called and held
for such purpose (after reasonable but in no event less than
thirty (30) days' notice to the Employee and an opportunity for
the Employee, together with her counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Employee was guilty of the conduct set forth above and specifying
the particulars thereof in detail. This Section 3(c) shall not
prevent the Employee from challenging in any court of competent
jurisdiction the Board's determination that Cause exists or that
the Employee has failed to cure any act (or failure to act) that
purportedly formed the basis for the Board's determination.
(d) Good Reason. The Employee may terminate her
employment hereunder for "Good Reason," for any of the following
reasons enumerated in this Section 3(d) (and such termination
shall be treated as if it were a termination by the Employer
without Cause, and not a voluntary termination by the Employee):
(1) the assignment to the Employee of any duties inconsistent
with paragraph (a) of Section 1 of this Agreement, or any other
action by the Employer that results in a diminution in the
Employee's position, authority, duties or responsibilities; (2)
any purported termination of the Employee's employment by the
Employer for a reason or in a manner not expressly permitted by
this Agreement; or (3) any failure by the Employer to comply with
Sections 2(a) through 2(e) and Section 12(d)(ii) of this
Agreement, or any other material breach of this Agreement.
Termination by the Employee pursuant to this Section 3(d) shall
not be effective until the Employee delivers to the Board a
written notice specifically identifying the conduct of the
Employer which the Employee believes constitutes a reason
enumerated in this Section 3(d) and the Employee provides the
Board at least thirty (30) days to remedy such conduct.
(e) Without Cause. The Employer may terminate the
Employee's employment hereunder without Cause.
(f) Without Good Reason. The Employee may terminate
her employment hereunder without Good Reason, provided that the
Employee provides the Employer with notice of her intent to
terminate without Good Reason at least three months in advance of
the Date of Termination (as defined in Section 4 below). The
Employee and the Employer shall mutually agree on the time,
method and content of any public announcement regarding the
Employee's termination of employment hereunder and neither the
Employee nor the Employer shall make any public statements which
are inconsistent with the information mutually agreed upon by the
Employer and the Employee and the parties hereto shall cooperate
with each other in refuting any public statements made by other
persons, which are inconsistent with the information mutually
agreed upon between the Employee and Employer as described above.
7
<PAGE>
4. Termination Procedure.
(a) Notice of Termination. Any termination of the
Employee's employment by the Employer or by the Employee during
the Employment Period (other than termination pursuant to Section
3(a)) shall be communicated by written "Notice of Termination" to
the other party hereto in accordance with Section 12(a). For
purposes of this Agreement, a Notice of Termination shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so
indicated and shall attach any prior notices required under
Section 3.
(b) Date of Termination. "Date of Termination" shall
mean (i) if the Employee's employment is terminated by her death,
the date of her death, (ii) if the Employee's employment is
terminated pursuant to Section 3(b), thirty (30) days after
Notice of Termination (provided that the Employee shall not have
returned to the substantial performance of her duties on a
full-time basis during such thirty (30) day period), (iii) if the
Employee's employment is terminated pursuant to Section 3(f), a
date specified in the Notice of Termination which is at least
three months from the date of such notice as specified in such
Section 3(f); and if the Employee's employment is terminated for
any other reason, the date on which a Notice of Termination is
given or any later date (within thirty (30) days (or any
alternative time period agreed upon by the parties) after the
giving of such notice) set forth in such Notice of Termination.
5. Termination Payments.
(a) Without Cause or for Good Reason. In the event of
the termination of the Employee's employment during the
Employment Period, by the Employer without Cause or by the
Employee for Good Reason, the Employee shall be entitled to a
payment, within ten (10) days following the Date of Termination,
of the Employee's Base Salary through the Date of Termination (to
the extent not theretofore paid), any accrued vacation pay, and
any unreimbursed expenses under Section 2(h) (the "Accrued
Obligations"), and to the continued payment of the Employee's
Base Salary through the Scheduled Termination Date. The Employee
shall also be entitled to payment of any earned but unpaid Bonus
in respect of a Bonus Period ending prior to or coincident with
the Date of Termination and a pro-rata Bonus determined pursuant
to Section 3 of the Senior Executive Bonus Plan attached hereto
as Exhibit A, and paid in accordance with such Bonus Plan. In
addition, the Employee (and her spouse and dependents) shall be
entitled to continued health and welfare insurance coverage at
the levels provided in Section 2(h)(ii) until the earlier to
occur of (i) the Scheduled Termination Date or (ii) the date the
Employee becomes eligible for substantially similar benefits from
a subsequent employer. The Employer shall have no additional
obligations under this Agreement (other than as may be provided
under Sections 9 or 10 hereof).
(b) Cause, Death, Disability or Without Good Reason.
If the Employee's employment is terminated during the Employment
Period by the Employer for Cause, by the
8
<PAGE>
Employee without Good Reason, or as a result of the Employee's
death or Disability, the Employer shall pay the Accrued
Obligations to the Employee or the Employee's estate or legal
representative in the event of her death within thirty (30) days
following the Date of Termination. The Employee shall also be
entitled to any earned but unpaid Bonus in respect of a Bonus
Period ending prior to or coincident with the Date of Termination
determined pursuant to section 3 of the Senior Executive Bonus
Plan attached hereto as Exhibit A, and paid in accordance with
such Bonus Plan. The Employer shall have no additional
obligations under this Agreement (other than as may be provided
under Sections 9 or 10 hereof).
6. Non-exclusivity of Rights.
Any vested benefits and other amounts that the
Employee is otherwise entitled to receive under any employee
benefit plan, policy, practice or program of the Employer or any
of its affiliated companies shall be payable in accordance with
such employee benefit plan, policy, practice or program as the
case may be, except as explicitly modified by this Agreement.
7. Full Settlement; No Duty to Mitigate.
The Employer's obligation to make the payments
provided for in, and otherwise to perform its obligations under,
this Agreement shall not be affected by any set off,
counterclaim, recoupment, defense or other claim, right or action
that the Employer may have against the Employee or others;
provided that this provision shall not apply with respect to any
debt owed by the Employee to the Employer or any of its
affiliates and shall not apply in the event the Employee's
employment is terminated by the Employer for Cause under
circumstances which may reasonably be expected to result in an
economic loss to the Employer.
In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of
the amounts payable to the Employee under any of the provisions
of this Agreement, and such amounts shall not be reduced,
regardless of whether the Employee obtains other employment,
except as provided in Section 5(a) herein.
8. Transactions with Affiliates.
During the Employment Period, the Employer shall not
engage in any transaction with an affiliate of TPG II without the
consent of the Employee. The Employee's consent shall not be
unreasonably withheld with respect to any proposed transaction
which is on a commercially reasonable arm's length basis.
9. Legal Fees.
(a) The Employer shall reimburse the Employee for
reasonable attorneys' fees and expenses and other reasonable fees
incurred in connection with the preparation of this Agreement not
to exceed $200,000.
9
<PAGE>
(b) In the event of any contest or dispute between the
Employer and the Employee with respect to this Agreement or the
Employee's employment hereunder, each of the parties shall be
responsible for their respective legal fees and expenses.
10. Indemnification.
(a) General. The Employer agrees that if the Employee
is made a party or threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), other than any Proceeding related
to any contest or dispute between the Employee and the Employer
or any of its affiliates with respect to this Agreement or the
Employee's employment hereunder, by reason of the fact that the
Employee is or was a director or officer of the Employer, or any
subsidiary of the Employer or is or was serving at the request of
the Employer, as a director, officer, member, employee or agent
of another corporation or a partnership, joint venture, trust or
other enterprise, the Employee shall be indemnified and held
harmless by the Employer to the fullest extent authorized by New
York law. This Section 10(a) shall survive the termination of the
Employment Period.
(b) Expenses. As used in this Section 10 the term
"Expenses" shall include, without limitation, damages, losses,
judgments, liabilities, fines, penalties, excise taxes,
settlements, and costs, attorneys' fees, accountant's fees, and
disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to
indemnification under this Agreement.
11. Non-Solicitation.
(a) So long as the Employer is not in default of a
material obligation hereunder, the Employee agrees not to offer
employment to any employee of the Employer or any of its
affiliates or attempt to induce any such employee to leave the
employ of the Employer or any subsidiaries of the Employer prior
to the second anniversary of the Date of Termination.
(b) The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to
the Employer by reason of a failure by the Employee to perform
any of her obligations under this Section 11. Accordingly, if the
Employer institutes any action or proceeding to enforce the
provisions hereof, to the extent permitted by applicable law, the
Employee hereby waives the claim or defense that the Employer has
an adequate remedy at law, and the Employee shall not urge in any
such action or proceeding the defense that any such remedy exists
at law. This Section 11 shall survive the termination of the
Employment Period.
10
<PAGE>
12. Miscellaneous.
(a) Any notice or other communication required or
permitted under this Agreement shall be effective only if it is
in writing and delivered personally or sent by registered or
certified mail, postage prepaid, addressed as follows (or if it
is sent through any other method agreed upon by the parties):
If to the Employer:
J. Crew Group, Inc.
625 Sixth Avenue
Third Floor
New York, NY 10011
Attention: Board of Directors and Secretary
with a copy to:
Paul Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
If to the Employee:
Ms. Emily Woods
227 West 17th Street
8th Floor
New York, NY 10013
with a copy to:
Adam O. Emmerich, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd St.
New York, NY 10019
or to such other address as any party hereto may designate by
notice to the others, and shall be deemed to have been given upon
receipt.
(b) This Agreement, along with the Stock Option Grant
Agreements dated as of October 17, 1997 by and between the
Employee and the Parent and the Stockholders' Agreement dated as
of October 17, 1997 by and between the Employee and the Parent,
constitute the entire agreement among the parties hereto with
respect to the Employee's Employment, and supersedes
11
<PAGE>
and is in full substitution for any and all prior understandings
or agreements with respect to the Employee's Employment.
(c) This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in writing
signed by the party or parties against whom or which enforcement
of such waiver is sought. The failure of any party hereto at any
time to require the performance by any other party hereto of any
provision hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the waiver by
any party hereto of a breach of any provision hereof be taken or
held to be a waiver of any succeeding breach of such provision or
a waiver of the provision itself or a waiver of any other
provision of this Agreement.
(d) (i) This Agreement is binding on and is for the
benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may
be assigned by the Employer or by the Employee.
(ii) The Employer shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Employer expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the
Employer would have been required to perform it if no such
succession had taken place. As used in the Agreement, "the
Employer" shall mean both the Employer as defined above and any
such successor that assumes and agrees to perform this Agreement,
by operation of law or otherwise.
(e) If any provision of this Agreement or portion
thereof is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
(f) The Employer may withhold from any amounts payable
to the Employee hereunder all federal, state, city or other taxes
that the Employer may reasonably determine are required to be
withheld pursuant to any applicable law or regulation.
(g) This Agreement shall be governed by and construed
in accordance with the laws of the State of NEW YORK, without
reference to its principles of conflicts of law.
(h) This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
(i) The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or
control or affect the meaning of any provision hereof.
(j) Exhibit A hereto shall be subject to the provision
of paragraphs (a), (c), (d), (f), (g) and (i) of this Section 12.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement, except that TPG II is only a party to this Agreement
with respect to its obligations under Section 2(c) hereof, as of
the date first written above.
J. CREW GROUP, INC.
-------------------------------
Name:
Title:
J. CREW OPERATING CORP.
-------------------------------
Name:
Title:
TPG Partners II, L.P.
-------------------------------
Name:
Title:
-------------------------------
Emily Woods
13
<PAGE>
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 17th day of October,
1997 between J. CREW GROUP INC. (the "Company") and Emily Woods (the
"Participant").
WHEREAS, the Company has adopted and maintains the J.
Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company;
WHEREAS, the Plan provides for the grant to
Participants in the Plan of Non-qualified Stock Options to
purchase the Securities (as such term is hereinafter defined).
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows.
1. Grant of Options. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to the Securities.
2. Grant Date. The Grant Date of the Option hereby
granted is October 17, 1997.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein, except as specifically stated herein
and except that references to the interpretation and findings of
the Committee being final and binding, including such reference
in Section 3.2 of the Plan, shall not apply to this Stock Option
Grant Agreement. If there is any conflict between the terms and
conditions of the Plan or this Agreement, the terms and
conditions of this Agreement shall govern except as specifically
provided herein. All capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in
the Plan unless it is specified that such term shall have the
meaning given such term in the Employment Agreement between the
Participant, J. Crew Group Inc. and J. Crew Operating Corp.,
dated October 17, 1997. Sections 3.4, 4.12(a) and 4.13 of the
Plan shall not apply to the Option granted hereunder.
4. Exercise Price and Vesting Date. The Option shall be
divided into five equal tranches, each of which shall relate to a
pro rata portion of each separately identifiable security
constituting the Securities, as set forth in the table below. The
exercise of any portion of the Option shall require the purchase
of a pro rata portion of each separately identifiable security
constituting the Securities subject to the Option.
<PAGE>
Tranche Date First
Number % of Grant Exercisable Exercise Price
- ------ ---------- ----------- --------------
1 20% of Securities October 17, 1998 125% of TPG II's Price
subject to the Option
2 20% of Securities October 17, 1999 156.25% of TPG II's Price
subject to the Option
3 20% of Securities October 17, 2000 195.31% of TPG II's Price
subject to the Option
4 20% of Securities October 17, 2001 244.14% of TPG II's Price
subject to the Option
5 20% of Securities October 17, 2002 305.18% of TPG II's Price
subject to the Option
Notwithstanding the foregoing, the Option shall become
immediately exercisable upon the occurrence of any of the
following: (i) the Participant's employment is terminated by the
Company without Cause or by the Participant for Good Reason, (ii)
the Participant's employment is terminated by reason of death or
Disability, or (iii) a Change in Control of the Company. The
terms "Cause," "Good Reason," and "Disability" shall have the
meaning set forth in the Employment Agreement.
5. Definition of Securities. For purposes of this Stock
Option Grant Agreement, the term "Securities" shall mean (i) 820
shares of Common Stock and (ii) a number of shares of preferred
stock ("Preferred Stock") of the Company the purchase price for
which (at TPG II's Price) bears the same ratio to the aggregate
purchase price for such number of shares of Common Stock (at TPG
II's Price) as the ratio of the aggregate purchase price paid by
TPG II for the purchase of Preferred Stock at the Closing bears
to the aggregate purchase price paid by TPG II for Common Stock
at the Closing. If, subsequent to the Closing, TPG II sells all
or any portion of the Preferred Stock acquired by it at the
Closing, the amount of Preferred Stock included in the definition
of Securities shall thereafter be reduced by replacing in clause
(ii) above, (I) the aggregate purchase price paid by TPG II for
the purchase of the Preferred Stock at the Closing with (II) the
aggregate purchase price paid by TPG II for the purchase of such
reduced amount of Preferred Stock as is held by TPG II after such
sale; provided, that no such sale shall have any retroactive
effect with respect to or related to any portion of the Option
exercised by the Participant prior to such sale. For purposes of
this Stock Option Grant Agreement, "TPG II's Price" shall mean
the per share price paid for the Securities at the Closing
multiplied by the number of shares or units of the applicable
Security and the term "Closing" shall have the meaning set forth
in the Employment Agreement.
6. Exercise of the Option. The Participant may exercise
the Option, or any portion thereof, to the extent exercisable
pursuant to Section 4 herein, by complying with the method of
exercise procedures described in Section 4.10 of the Plan;
provided, that prior to the existence of a Public Market, the
term "Fair Market Value" under the Plan shall be replaced with
the term "Appraised Value" within the meaning of, and as
determined pursuant to, the Stockholders' Agreement; and provided,
further that, if at the time of exercise the Participant
2
<PAGE>
also exercises her put right pursuant to Section 3(b) of the
Stockholders' Agreement between the Company, the Participant and
TPG Partners II, L.P. ("TPG II"), dated October 17, 1997 (the
"Stockholders' Agreement"), the Participant may make such
exercise contingent upon the Appraised Value (as determined under
the Stockholders' Agreement) for each share of Common Stock being
greater than the per share Exercise Price provided herein. Upon
the Participant's request, the Company shall withhold a portion
of the shares of Common Stock underlying the Option that would
otherwise be distributed to the Participant to satisfy the
applicable federal, state and local withholding taxes incurred by
the Participant as a result of the exercise of the Option.
7. Option Expiration Date. Subject to the provisions of
the Plan, the Option shall expire and be canceled on the tenth
anniversary of the Grant Date; provided, that the Option shall
expire prior to the tenth anniversary of the Grant Date as
follows: (i) to the extent the Option is not exercisable on the
date the Participant's Employment terminates for any reason
(taking into account any acceleration event occurring on such
date of termination), such Option shall expire and be canceled on
the date the Employment terminates; and (ii) to the extent the
Option is exercisable on the date the Participant's Employment
terminates, the Option shall expire and be canceled (A) two years
after termination of the Participant's Employment by reason of
death or Disability (but not later than the tenth anniversary of
the Grant Date), (B) on the commencement of business on the date
the Participant's Employment is, or is deemed to have been,
terminated by the Company for Cause or by the Participant without
Good Reason, or (C) the end of the full ten-year term upon any
other termination of Employment. The terms "Cause", "Good Reason"
and "Disability" shall have the meaning set forth in the
Employment Agreement. If, within one year after the date of the
Participant's termination of Employment, it is discovered that
the Participant's Employment could have been terminated for
Cause, the Participant's Employment shall, at the election of the
Committee, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause
occurred.
8. Adjustment to Option. In the event of a merger,
consolidation, liquidation, stock split, reverse stock split,
stock dividend or distribution, spin-off, recapitalization, share
exchange, reorganization, extraordinary dividend, non-arm's
length transaction with TPG II or its affiliates other than
customary management and advisory fees or any other similar
corporate transaction, the Company shall adjust the number of
shares of Common Stock and/or kind of securities subject to the
Option, the Exercise Price per share of Common Stock or the terms
of the Option to prevent the enlargement or dilution of the
value, rights and benefits of the Option and it shall be a
condition to any such transaction that adequate provision shall
have been so made.
9. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or
3
<PAGE>
default under this Agreement, or any waiver on the part of any
party or any provisions or conditions of this Agreement, shall be
in writing and shall be effective only to the extent specifically
set forth in such writing.
10. Limitation on Transfer. During the lifetime of
the Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
assign her rights with respect to the Option granted herein to a
trust, partnership, LLC or custodianship the beneficiaries,
partners or members of which may include only the Participant,
the Participant's spouse, or the Participant's lineal descendants
(by blood or adoption). In the event of any such assignment, such
trust or custodianship shall be subject to all the restrictions,
obligations and responsibilities as apply to the Participant
under the Plan and this Stock Option Grant Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
Securities obtained pursuant to the Option granted herein shall
be subject to any limitations on transfer provided in the
Stockholders' Agreement.
11. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
12. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
13. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without regard to the provisions governing
conflict of laws.
14. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement
to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on her own behalf,
thereby representing that she has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By:
------------------------------
------------------------------
Emily Woods
5
Performance Based Grant
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 17th day of October,
1997 between J. CREW GROUP INC. (the "Company") and Emily Woods
(the "Participant").
WHEREAS, the Company has adopted and maintains the J.
Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company;
WHEREAS, the Plan provides for the grant to
Participants in the Plan of Non-qualified Stock Options to
purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows.
1. Grant of Options. Pursuant to, and subject to,
the terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to 1641 shares of Common Stock
of the Company.
2. Grant Date. The Grant Date of the Option hereby granted
is October 17, 1997.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein, except as specifically stated herein
and except that references to the interpretation and findings of
the Committee being final and binding, including such reference
in Section 3.2 of the Plan, shall not apply to this Stock Option
Grant Agreement. If there is any conflict between the terms and
conditions of the Plan or this Agreement, the terms and
conditions of this Agreement shall govern except as specifically
provided herein. All capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in
the Plan unless it is specified that such term shall have the
meaning given such term in the Employment Agreement between the
Participant, J. Crew Group Inc. and J. Crew Operating Corp.,
dated October 17, 1997. Sections 3.4, 4.12(a) and 4.13 of the
Plan shall not apply to the Option granted hereunder.
4. Exercise Price. The exercise price of each share
underlying the Option hereby granted is the TPG II Price as
defined in Section 2(c) of the Employment Agreement.
5. Vesting Date. On the last day of each of fiscal years
1998 through 2002, (each an "Anniversary Date"), the Option will
become exercisable with respect to up to twenty percent of the
shares of Common Stock underlying the (the "Eligible Portion") in
accordance with the following: (i) if less than 90% of the Annual
EBITDA Target is achieved in the fiscal year ending on the
respective Anniversary Date, 0% of the Eligible Portion shall become
<PAGE>
exercisable; (ii) if 90% of the Annual EBITDA Target is achieved
in the fiscal year ending on the respective Anniversary Date, 50%
of the Eligible Portion will become exercisable; (iii) if 95% of
the Annual EBITDA Target is achieved in the fiscal year ending on
the respective Anniversary Date, 100% of the Eligible Portion
shall become exercisable, and (iv) if between 90% and 95% of the
Annual EBITDA Target is achieved in the fiscal year ending on the
respective Anniversary Date, the percentage of the Eligible
Portion which shall become exercisable shall be determined on the
basis of straight line interpolation based on the amounts set
forth in (ii) and (iii) above. Notwithstanding the foregoing, the
Option shall become immediately exercisable upon the occurrence
of any of the following: (i) the Participant's employment is
terminated by the Company without Cause or by the Participant for
Good Reason, (ii) the Participant's employment is terminated by
reason of death or Disability, or (iii) a Change in Control of
the Company. In addition, the Option shall become exercisable
with respect to all shares of Common Stock subject thereto on the
seventh anniversary of the Grant Date. The terms "Cause," "Good
Reason" and "Disability" shall have the meaning set forth in the
Employment Agreement.
6. EBITDA Target. Annual EBITDA Targets for each applicable
fiscal year are as follows:
Fiscal Year Annual EBITDA Target
----------- --------------------
1998 $ 69,500,000
1999 $ 86,300,000
2000 $102,500,000
2001 $117,600,000
2002 $130,600,000
7. Exercise of the Option. The Participant may exercise
the Option, or any portion thereof, to the extent exercisable
pursuant to Section 5 herein, by complying with the method of
exercise procedures described in Section 4.10 of the Plan;
provided, that prior to the existence of a Public Market, the
term "Fair Market Value" under the Plan shall be replaced with
the term "Appraised Value" within the meaning of, and as
determined pursuant to, the Stockholders' Agreement; and
provided, further that, if at the time of exercise the
Participant also exercises her put right pursuant to Section 3(b)
of the Stockholders' Agreement between the Company, the
Participant and TPG Partners II, L.P. ("TPG II"), dated October
17, 1997 (the "Stockholders' Agreement"), the Participant may
make such exercise contingent upon the Appraised Value (as
determined under the Stockholders' Agreement) for each share of
Common Stock being greater than the per share Exercise Price
provided herein. Upon the Participant's request, the Company
shall withhold a portion of the shares of Common Stock underlying
the Option that would otherwise be distributed to the
2
<PAGE>
Participant to satisfy the applicable federal, state and local
withholding taxes incurred by the Participant as a result of the
exercise of the Option.
8. Option Expiration Date. Subject to the provisions
of the Plan, the Option shall expire and be canceled on the tenth
anniversary of the Grant Date; provided, that the Option shall
expire prior to the tenth anniversary of the Grant Date as
follows: (i) to the extent the Option is not exercisable on the
date the Participant's Employment terminates for any reason
(taking into account any acceleration event occurring on such
date of termination), such Option shall expire and be canceled on
the date the Employment terminates; and (ii) to the extent the
Option is exercisable on the date the Participant's Employment
terminates, the Option shall expire and be canceled (A) two years
after termination of the Participant's Employment by reason of
death or Disability (but not later than the tenth anniversary of
the Grant Date), (B) on the commencement of business on the date
the Participant's Employment is, or is deemed to have been,
terminated by the Company for Cause or by the Participant without
Good Reason, or (C) the end of the full ten-year term upon any
other termination of Employment. The terms "Cause", "Good Reason"
and "Disability" shall have the meaning set forth in the
Employment Agreement. If, within one year after the date of the
Participant's termination of Employment, it is discovered that
the Participant's Employment could have been terminated for
Cause, the Participant's Employment shall, at the election of the
Committee, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause
occurred.
9. Adjustment to Option. In the event of a merger,
consolidation, liquidation, stock split, reverse stock split,
stock dividend or distribution, spin-off, recapitalization, share
exchange, reorganization, extraordinary dividend, non-arm's
length transaction with TPG II or its affiliates other than
customary management and advisory fees, or other similar
corporate transaction, the Company shall adjust the number of
shares of Common Stock and/or kind of securities subject to the
Option, the Exercise Price per share of Common Stock or the terms
of the Option to prevent the enlargement or dilution of the
value, rights and benefits of the Option and it shall be a
condition to any such transaction that adequate provision shall
have been so made.
10. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party or any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
11. Limitation on Transfer. During the lifetime of
the Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
3
<PAGE>
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
assign her rights with respect to the Option granted herein to a
trust, partnership, LLC or custodianship the beneficiaries,
partners or members of which may include only the Participant,
the Participant's spouse, or the Participant's lineal descendants
(by blood or adoption). In the event of any such assignment, such
trust or custodianship shall be subject to all the restrictions,
obligations and responsibilities as apply to the Participant
under the Plan and this Stock Option Grant Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
shares of Common Stock obtained pursuant to the Option granted
herein shall be subject to any limitations on transfer provided
in the Stockholders' Agreement.
12. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
13. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without regard to the provisions governing
conflict of laws.
15. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement
to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on her own behalf,
thereby representing that she has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By:
-------------------------
-------------------------
Emily Woods
5
J. CREW
UPS INCENTIVE PROGRAM
CONTRACT CARRIER AGREEMENT
J. Crew, including all of its subsidiaries, (Customer) and United
Parcel Service, Inc. (UPS) have entered into the following
Agreement.
UPS is authorized to provide contract carrier service between all
points in the 48 contiguous United States. The terms of this
Agreement are based on the distinct needs of the Customer and are
not to be disclosed to any third party. Customer agrees that the
terms of this Agreement are that UPS will be the Customer's
preferred carrier of choice. Accordingly:
1) UPS agrees to transport packages tendered by the Customer
at all shipping locations, as listed on Attachment A to
destination ZIP Codes listed in the Ground ZIP Codes Served
Chart, and to provide such transportation and additional
services as described in the currently effective tariffs of
UPS. Any additions or deletions of shipper numbers will be
by mutual consent of both parties.
2) Customer agrees to use a UPS Pickup Record book or, as
applicable, either (a) to use a register for registering
gross charges associated with ground packages shipped, or
(b) to provide UPS daily with a separate computer-generated
manifest detail summary showing gross charges for ground
packages.
3) Customer agrees to place an address label on each package
tendered to UPS.
4) UPS agrees to grant the Customer a discount as listed in
the tiers listed below from the published UPS Ground
Service Rate Chart in effect at the time of shipping for
commercial and residential ground packages tendered to UPS.
Customer further agrees that no discount applies to
additional or other charges.
September 1, 1995 27 cents off Commercial
to February 4, 1996 and Residential Rates
February 5, 1996 31 cents off Commercial
to February 2, 1997 and Residential Rates
February 3, 1997 35 cents off Commercial
to January 30, 1998 and Residential Rates
If no shipping activity is recorded by the Customer during a
given week, a minimum charge of fifty (50) dollars will apply to
the Customer.
5) UPS will calculate the discount for all locations once per
week and will bill the Customer net after discount. The
discount applied each week will be calculated using the
average weekly ground volume from all previous weeks (up to
52 weeks) as they are accumulated.
6) UPS agrees to transport such shipments as Customer may
tender to UPS and to provide Customer such transportation
and additional services in accordance with the rules of UPS
Hundredweight Service in effect at the time of shipping.
(Attachment 8 signed 8/28/95)
<PAGE>
UPS agrees to grant the Customer the following discounts
from the published UPS Hundredweight service rates in
effect at the time of shipping: Tier 06 less thirteen
percent (13%) for shipments weighing 500 pounds or less and
Tier 06 less thirteen percent (13%) for shipments weighing
greater than 500 pounds. Customer further agrees that no
discount applies to additional or other charges.
A minimum charge for a ground UPS Hundredweight Service
shipment will be based on an average weight of 15 pounds
per package or $40 per shipment, whichever is greater.
A package measuring over 84 inches in length and girth
combined and weighing less than 30 pounds will be
considered a 30 pound package in calculating the billed
aggregate weight used to determine total charges.
7) UPS will provide the following rate adjustment for the
duration of the Agreement:
February 5, 1996 until February 2, 1997, rates will
increase with a maximum cap of 6% from the previous year or
the UPS rate increase whichever is less.
February 3, 1997 until January 30, 1998, rates will
increase with a maximum cap of 6% from the previous year or
the UPS rate increase whichever is less.
8) UPS will provide the following services to Customer during
the life of this Agreement:
- Dedicated Customer Service telephone contact
- EDI capability for tracing and tracking
- Dedicated National Accounts Manager
- Dedicated Delivery Information personnel
for tracing and claims
9) With the exception of UPS's right to assign some or all of
this Agreement to its affiliate or subsidiary, this
Agreement and the Customer's rights and obligations
hereunder are not assignable or transferable. Any
assignment or attempt to assign, transfer or subcontract
hereof without the prior written consent of UPS shall be
void and without force or effect.
10) This Agreement will remain in effect from September 1, 1995
until January 30, 1998, unless terminated at any time by
either party by written notice to the other given at least
thirty (30) days prior to any termination date.
11) This contract cancels all previous Contract Carrier Ground
(excluding Contract Carrier Call Tag Agreement dated June ,
1991). Agreements between UPS and the Customer and the
Customer's affiliates and subsidiaries.
12) J. Crew agrees to promote UPS as its "Carrier of Choice" in
all catalogs, flyers, magazines and on incoming customer
order calls.
2
<PAGE>
13) If not accepted by September 29, 1995, this proposal is
withdrawn as of that date.
(Customer) J. CREW
By: /s/
------------------------------
(An Authorized Representative)
Title: ______________________________
Date Signed: ______________________________
Address: ______________________________
______________________________
(Carrier) UNITED PARCEL SERVICE, INC.
By: /s/
------------------------------
(An Authorized Representative)
Title: ______________________________
Date Signed: ______________________________
Address: ______________________________
______________________________
Effective Date:______________________________
3
<PAGE>
J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
1 $2.94 $3.13 $3.37 $3.45 $3.52 $3.62 $3.66
2 $3.00 $3.19 $3.62 $3.74 $3.94 $4.05 $4.26
3 $3.08 $3.34 $3.82 $3.98 $4.25 $4.39 $4.72
4 $3.19 $3.47 $3.98 $4.17 $4.48 $4.67 $5.06
5 $3.33 $3.61 $4.08 $4.29 $4.65 $4.87 $5.31
6 $3.45 $3.69 $4.13 $4.36 $4.78 $5.05 $5.53
7 $3.57 $3.76 $4.19 $4.43 $4.94 $5.26 $5.79
8 $3.68 $3.83 $4.24 $4.49 $5.08 $5.51 $6.11
9 $3.81 $3.91 $4.32 $4.59 $5.26 $5.82 $6.53
10 $3.93 $4.02 $4.40 $4.71 $5.45 $6.18 $7.00
11 $4.05 $4.13 $4.50 $4.90 $5.71 $6.55 $7.48
12 $4.14 $4.25 $4.60 $5.11 $6.00 $6.95 $7.98
13 $4.22 $4.38 $4.73 $5.36 $6.32 $7.37 $8.48
14 $4.29 $4.54 $4.88 $5.63 $6.66 $7.80 $8.99
15 $4.37 $4.70 $5.06 $5.90 $7.01 $8.25 $9.51
16 $4.46 $4.88 $5.27 $6.17 $7.38 $8.70 $10.05
17 $4.54 $5.06 $5.49 $6.45 $7.75 $9.16 $10.57
18 $4.64 $5.22 $5.68 $6.70 $8.12 $9.61 $11.09
19 $4.74 $5.37 $5.88 $6.95 $8.46 $10.02 $11.59
20 $4.85 $5.53 $6.06 $7.18 $8.81 $10.43 $12.08
21 $4.96 $5.66 $6.23 $7.41 $9.11 $10.80 $12.56
22 $5.08 $5.82 $6.41 $7.65 $9.44 $11.20 $13.04
23 $5.21 $5.97 $6.60 $7.88 $9.76 $11.59 $13.53
24 $5.35 $6.14 $6.81 $8.15 $10.11 $12.02 $14.04
25 $5.49 $6.30 $7.01 $8.40 $10.44 $12.44 $14.55
26 $5.61 $6.48 $7.21 $8.67 $10.78 $12.85 $15.05
27 $5.74 $6.64 $7.41 $8.93 $11.11 $13.28 $15.56
28 $5.85 $6.81 $7.63 $9.19 $11.46 $13.70 $16.07
29 $5.95 $6.96 $7.84 $9.46 $11.81 $14.13 $16.60
30 $6.05 $7.12 $8.07 $9.74 $12.17 $14.55 $17.12
31 $6.15 $7.27 $8.29 $10.02 $12.55 $14.99 $17.66
32 $6.27 $7.42 $8.51 $10.31 $12.91 $15.43 $18.19
33 $6.38 $7.58 $8.73 $10.58 $13.27 $15.89 $18.73
34 $6.48 $7.75 $8.95 $10.86 $13.60 $16.33 $19.27
35 $6.59 $7.93 $9.18 $11.13 $13.94 $16.78 $19.79
36 $6.68 $8.12 $9.38 $11.39 $14.28 $17.21 $20.32
37 $6.77 $8.30 $9.59 $11.66 $14.62 $17.64 $20.83
38 $6.87 $8.46 $9.79 $11.92 $14.96 $18.08 $21.34
39 $6.96 $8.61 $9.99 $12.18 $15.31 $18.49 $21.85
40 $7.06 $8.77 $10.21 $12.45 $15.65 $18.93 $22.36
41 $7.15 $8.92 $10.42 $12.71 $15.99 $19.36 $22.88
42 $7.26 $9.08 $10.63 $12.98 $16.33 $19.79 $23.40
43 $7.36 $9.24 $10.84 $13.24 $16.69 $20.22 $23.91
Page 1
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J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
44 $7.46 $9.42 $11.05 $13.51 $17.04 $20.65 $24.44
45 $7.57 $9.58 $11.26 $13.77 $17.38 $21.09 $24.95
46 $7.67 $9.74 $11.48 $14.04 $17.72 $21.50 $25.46
47 $7.76 $9.88 $11.69 $14.31 $18.03 $21.91 $25.95
48 $7.83 $10.01 $11.89 $14.56 $18.32 $22.29 $26.42
49 $7.91 $10.11 $12.09 $14.81 $18.63 $22.67 $26.90
50 $7.97 $10.22 $12.27 $15.02 $18.91 $23.02 $27.33
51 $8.05 $10.34 $12.43 $15.25 $19.22 $23.40 $27.79
52 $8.12 $10.44 $12.56 $15.40 $19.45 $23.67 $28.11
53 $8.18 $10.52 $12.65 $15.52 $19.64 $23.90 $28.37
54 $8.22 $10.56 $12.71 $15.58 $19.71 $24.01 $28.49
55 $8.27 $10.61 $12.77 $15.66 $19.80 $24.12 $28.63
56 $8.33 $10.66 $12.83 $15.73 $19.89 $24.23 $28.76
57 $8.39 $10.73 $12.88 $15.81 $19.98 $24.34 $28.89
58 $8.45 $10.79 $12.94 $15.88 $20.06 $24.46 $29.02
59 $8.51 $10.85 $12.99 $15.96 $20.15 $24.56 $29.15
60 $8.58 $10.91 $13.05 $16.03 $20.23 $24.68 $29.28
61 $8.63 $10.97 $13.11 $16.11 $20.32 $24.78 $29.41
62 $8.68 $11.02 $13.16 $16.19 $20.40 $24.89 $29.55
63 $8.75 $11.08 $13.22 $16.26 $20.50 $24.99 $29.69
64 $8.80 $11.13 $13.28 $16.34 $20.59 $25.10 $29.83
65 $8.86 $11.20 $13.33 $16.42 $20.69 $25.21 $29.98
66 $8.91 $11.26 $13.39 $16.48 $20.78 $25.35 $30.11
67 $8.96 $11.32 $13.44 $16.55 $20.87 $25.45 $30.25
68 $9.02 $11.38 $13.49 $16.61 $20.97 $25.58 $30.38
69 $9.09 $11.47 $13.59 $16.72 $21.12 $25.78 $30.55
70 $9.15 $11.52 $13.65 $16.76 $21.20 $25.94 $30.72
71 $13.79 $15.51 $17.31 $19.26 $23.08 $27.15 $31.26
72 $17.60 $18.57 $20.21 $21.69 $24.99 $28.51 $31.93
73 $20.42 $21.91 $23.42 $24.33 $27.11 $29.95 $32.79
74 $22.50 $24.19 $25.56 $26.59 $29.01 $31.37 $33.65
75 $24.00 $25.56 $26.93 $27.86 $30.15 $32.07 $34.28
76 $24.66 $26.27 $27.82 $28.79 $30.94 $32.58 $34.70
77 $25.13 $26.72 $28.27 $29.15 $31.28 $32.75 $34.90
78 $25.59 $27.20 $28.75 $29.65 $31.72 $33.14 $35.17
79 $26.03 $27.65 $29.18 $30.06 $32.13 $33.57 $35.41
80 $26.44 $28.09 $29.60 $30.48 $32.54 $33.99 $35.75
81 $26.82 $28.48 $30.01 $30.87 $32.93 $34.39 $36.13
82 $27.17 $28.84 $30.38 $31.25 $33.32 $34.79 $36.56
83 $27.48 $29.18 $30.73 $31.61 $33.69 $35.17 $36.96
84 $27.80 $29.51 $31.08 $31.96 $34.07 $35.56 $37.37
85 $28.11 $29.84 $31.42 $32.32 $34.44 $35.94 $37.77
86 $28.43 $30.17 $31.76 $32.67 $34.81 $36.34 $38.17
Page 3
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J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
87 $28.74 $30.49 $32.11 $33.02 $35.18 $36.72 $38.57
88 $29.05 $30.82 $32.45 $33.38 $35.55 $37.11 $38.97
89 $29.36 $31.14 $32.79 $33.73 $35.92 $37.49 $39.38
90 $29.67 $31.48 $33.14 $34.08 $36.29 $37.88 $39.78
91 $29.99 $31.80 $33.48 $34.44 $36.66 $38.26 $40.18
92 $30.31 $32.13 $33.83 $34.79 $37.03 $38.65 $40.58
93 $30.62 $32.45 $34.17 $35.14 $37.40 $39.02 $40.98
94 $30.92 $32.79 $34.50 $35.50 $37.76 $39.39 $41.38
95 $31.24 $33.12 $34.83 $35.85 $38.12 $39.76 $41.79
96 $31.55 $33.45 $35.14 $36.20 $38.45 $40.14 $42.19
97 $31.87 $33.77 $35.47 $36.56 $38.81 $40.53 $42.60
98 $32.18 $34.10 $35.79 $36.91 $39.16 $40.91 $43.00
99 $32.50 $34.42 $36.15 $37.26 $39.54 $41.29 $43.40
100 $32.81 $34.76 $36.49 $37.62 $39.91 $41.66 $43.79
101 $33.12 $35.09 $36.84 $37.97 $40.28 $42.04 $44.19
102 $33.43 $35.41 $37.18 $38.32 $40.66 $42.41 $44.58
103 $33.74 $35.75 $37.52 $38.68 $41.02 $42.79 $44.97
104 $34.06 $36.06 $37.87 $39.03 $41.39 $43.16 $45.36
105 $34.38 $36.41 $38.21 $39.39 $41.75 $43.55 $45.75
106 $34.69 $36.72 $38.56 $39.74 $42.13 $43.93 $46.13
107 $35.00 $37.06 $38.90 $40.10 $42.49 $44.30 $46.53
108 $35.32 $37.39 $39.24 $40.46 $42.86 $44.68 $46.90
109 $35.62 $37.71 $39.58 $40.81 $43.22 $45.05 $47.31
110 $35.94 $38.04 $39.93 $41.16 $43.59 $45.43 $47.68
111 $36.25 $38.36 $40.27 $41.52 $43.96 $45.80 $48.09
112 $36.57 $38.70 $40.61 $41.87 $44.34 $46.18 $48.46
113 $36.88 $39.01 $40.96 $42.22 $44.70 $46.56 $48.87
114 $37.20 $39.36 $41.30 $42.58 $45.07 $46.93 $49.24
115 $37.51 $39.67 $41.65 $42.93 $45.43 $47.31 $49.64
116 $37.82 $40.01 $41.99 $43.28 $45.80 $47.68 $50.03
117 $38.13 $40.34 $42.34 $43.64 $46.17 $48.06 $50.42
118 $38.44 $40.66 $42.68 $43.99 $46.53 $48.44 $50.81
119 $38.76 $40.99 $43.02 $44.34 $46.91 $48.81 $51.20
120 $39.07 $41.31 $43.36 $44.70 $47.28 $49.20 $51.59
121 $39.39 $41.65 $43.71 $45.05 $47.65 $49.58 $51.98
122 $39.69 $41.98 $44.05 $45.40 $48.02 $49.95 $52.37
123 $40.01 $42.31 $44.40 $45.76 $48.38 $50.33 $52.76
124 $40.32 $42.63 $44.74 $46.11 $48.75 $50.70 $53.15
125 $40.64 $42.96 $45.09 $46.46 $49.11 $51.08 $53.54
126 $40.95 $43.28 $45.43 $46.82 $49.48 $51.45 $53.93
127 $41.27 $43.61 $45.77 $47.17 $49.85 $51.84 $54.32
128 $41.58 $43.93 $46.12 $47.52 $50.21 $52.21 $54.71
129 $41.89 $44.27 $46.46 $47.88 $50.59 $52.59 $55.10
Page 3
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J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
130 $42.20 $44.60 $46.80 $48.23 $50.96 $52.96 $55.48
131 $42.51 $44.93 $47.15 $48.58 $51.33 $53.34 $55.87
132 $42.83 $45.26 $47.49 $48.94 $51.69 $53.71 $56.25
133 $43.14 $45.59 $47.83 $49.29 $52.06 $54.10 $56.65
134 $43.46 $45.91 $48.17 $49.65 $52.42 $54.47 $57.04
135 $43.77 $46.24 $48.51 $50.00 $52.79 $54.85 $57.43
136 $44.08 $46.56 $48.86 $50.36 $53.16 $55.22 $57.82
137 $44.39 $46.90 $49.21 $50.72 $53.52 $55.60 $58.21
138 $44.71 $47.23 $49.55 $51.07 $53.90 $55.97 $58.60
139 $45.02 $47.56 $49.89 $51.42 $54.26 $56.36 $58.98
140 $45.34 $47.88 $50.23 $51.78 $54.64 $56.74 $59.38
141 $45.65 $48.21 $50.57 $52.13 $55.01 $57.11 $59.76
142 $45.96 $48.53 $50.91 $52.48 $55.37 $57.49 $60.16
143 $46.27 $48.87 $51.25 $52.84 $55.74 $57.86 $60.55
144 $46.58 $49.19 $51.59 $53.19 $56.10 $58.24 $60.93
145 $46.90 $49.52 $51.93 $53.54 $56.47 $58.61 $61.32
146 $47.21 $49.84 $52.27 $53.89 $56.84 $58.97 $61.69
147 $47.53 $50.17 $52.61 $54.22 $57.20 $59.33 $62.05
148 $47.83 $50.50 $52.94 $54.56 $57.55 $59.69 $62.42
149 $48.14 $50.81 $53.28 $54.89 $57.91 $60.05 $62.77
150 $48.42 $51.13 $53.61 $55.23 $58.26 $60.42 $63.13
Page 4
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J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
1 $2.21 $2.39 $2.63 $2.72 $2.79 $2.88 $2.93
2 $2.26 $2.45 $2.89 $3.01 $3.20 $3.31 $3.52
3 $2.34 $2.60 $3.09 $3.24 $3.51 $3.65 $3.97
4 $2.45 $2.73 $3.25 $3.43 $3.74 $3.92 $4.32
5 $2.59 $2.88 $3.34 $3.55 $3.91 $4.13 $4.56
6 $2.72 $2.97 $3.41 $3.63 $4.04 $4.30 $4.78
7 $2.83 $3.04 $3.46 $3.70 $4.20 $4.51 $5.04
8 $2.95 $3.11 $3.52 $3.76 $4.34 $4.77 $5.37
9 $3.07 $3.19 $3.59 $3.85 $4.52 $5.06 $5.77
10 $3.19 $3.30 $3.68 $3.98 $4.71 $5.43 $6.24
11 $3.30 $3.41 $3.77 $4.16 $4.97 $5.80 $6.72
12 $3.39 $3.53 $3.88 $4.37 $5.25 $6.20 $7.20
13 $3.47 $3.66 $4.00 $4.63 $5.57 $6.62 $7.71
14 $3.55 $3.81 $4.15 $4.88 $5.91 $7.04 $8.22
15 $3.63 $3.97 $4.34 $5.15 $6.25 $7.48 $8.74
16 $3.71 $4.15 $4.53 $5.42 $6.62 $7.93 $9.26
17 $3.80 $4.33 $4.75 $5.68 $6.98 $8.38 $9.78
18 $3.89 $4.49 $4.94 $5.94 $7.34 $8.82 $10.29
19 $3.99 $4.65 $5.14 $6.18 $7.68 $9.23 $10.79
20 $4.12 $4.80 $5.33 $6.43 $8.03 $9.63 $11.28
21 $4.25 $4.97 $5.52 $6.67 $8.36 $10.04 $11.78
22 $4.38 $5.13 $5.72 $6.93 $8.69 $10.44 $12.27
23 $4.52 $5.29 $5.91 $7.18 $9.02 $10.85 $12.77
24 $4.66 $5.45 $6.11 $7.43 $9.36 $11.26 $13.26
25 $4.79 $5.61 $6.32 $7.69 $9.70 $11.68 $13.77
26 $4.91 $5.79 $6.51 $7.94 $10.03 $12.09 $14.27
27 $5.04 $5.95 $6.72 $8.20 $10.36 $12.52 $14.77
28 $5.15 $6.12 $6.92 $8.47 $10.70 $12.93 $15.28
29 $5.25 $6.27 $7.14 $8.72 $11.05 $13.36 $15.79
30 $5.35 $6.42 $7.36 $9.00 $11.41 $13.78 $16.32
31 $5.45 $6.57 $7.58 $9.29 $11.78 $14.21 $16.85
32 $5.56 $6.72 $7.81 $9.57 $12.14 $14.65 $17.38
33 $5.66 $6.89 $8.03 $9.84 $12.49 $15.09 $17.92
34 $5.77 $7.05 $8.24 $10.12 $12.83 $15.54 $18.44
35 $5.88 $7.23 $8.46 $10.38 $13.16 $15.97 $18.97
36 $5.97 $7.42 $8.67 $10.64 $13.50 $16.41 $19.48
37 $6.07 $7.59 $8.87 $10.91 $13.84 $16.83 $19.99
38 $6.16 $7.76 $9.08 $11.17 $14.18 $17.26 $20.49
39 $6.25 $7.91 $9.28 $11.43 $14.53 $17.68 $21.00
40 $6.35 $8.06 $9.48 $11.69 $14.86 $18.11 $21.51
41 $6.44 $8.21 $9.70 $11.95 $15.19 $18.53 $22.02
42 $6.55 $8.36 $9.91 $12.22 $15.54 $18.96 $22.54
43 $6.65 $8.53 $10.12 $12.48 $15.88 $19.38 $23.05
Page 1
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J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
44 $6.75 $8.69 $10.33 $12.74 $16.23 $19.82 $23.56
45 $6.86 $8.87 $10.54 $13.00 $16.58 $20.24 $24.07
46 $6.95 $9.02 $10.75 $13.27 $16.90 $20.66 $24.57
47 $7.05 $9.17 $10.96 $13.52 $17.22 $21.05 $25.05
48 $7.12 $9.29 $11.16 $13.78 $17.51 $21.43 $25.53
49 $7.19 $9.40 $11.36 $14.01 $17.79 $21.80 $25.97
50 $7.24 $9.49 $11.51 $14.22 $18.06 $22.12 $26.39
51 $7.32 $9.60 $11.67 $14.39 $18.31 $22.43 $26.75
52 $7.37 $9.68 $11.77 $14.51 $18.51 $22.66 $27.03
53 $7.43 $9.75 $11.86 $14.60 $18.65 $22.84 $27.24
54 $7.47 $9.79 $11.91 $14.68 $18.74 $22.96 $27.37
55 $7.52 $9.84 $11.98 $14.75 $18.83 $23.08 $27.52
56 $7.58 $9.90 $12.04 $14.82 $18.91 $23.19 $27.64
57 $7.63 $9.95 $12.09 $14.90 $18.99 $23.30 $27.76
58 $7.70 $10.02 $12.15 $14.97 $19.08 $23.40 $27.89
59 $7.76 $10.08 $12.20 $15:04 $19.17 $23.51 $28.01
60 $7.82 $10.14 $12.25 $15.12 $19.25 $23.61 $28.15
61 $7.88 $10.20 $12.32 $15.20 $19.34 $23.72 $28.28
62 $7.94 $10.25 $12.37 $15.27 $19.42 $23.83 $28.42
63 $7.99 $10.31 $12.43 $15.35 $19.52 $23.93 $28.55
64 $8.05 $10.36 $12.48 $15.42 $19.61 $24.04 $28.70
65 $8.10 $10.42 $12.53 $15.50 $19.70 $24.15 $28.84
66 $8.15 $10.47 $12.59 $15.56 $19.79 $24.28 $28.97
67 $8.21 $10.54 $12.65 $15.63 $19.88 $24.40 $29.11
68 $8.26 $10.60 $12.70 $15.68 $19.97 $24.52 $29.23
69 $8.35 $10.70 $12.81 $15.90 $20.26 $24.77 $29.43
70 $8.40 $10.75 $12.86 $15.95 $20.34 $25.04 $29.68
71 $13.11 $14.78 $16.57 $18.38 $22.16 $26.16 $30.23
72 $16.78 $18.21 $19.73 $20.80 $24.08 $27.55 $30.93
73 $19.59 $21.10 $22.78 $23.44 $26.20 $29.02 $31.82
74 $21.65 $23.24 $24.81 $25.68 $28.07 $30.39 $32.67
75 $23.17 $24.80 $26.13 $26.92 $29.19 $31.10 $33.27
76 $23.77 $25.36 $26.86 $27.85 $29.98 $31.59 $33.69
77 $24.24 $25.85 $27.37 $28.19 $30.31 $31.76 $33.89
78 $24.69 $26.33 $27.85 $28.68 $30.73 $32.14 $34.14
79 $25.14 $26.80 $28.31 $29.08 $31.13 $32.57 $34.40
80 $25.54 $27.23 $28.73 $29.50 $31.54 $32.98 $34.72
81 $25.91 $27.61 $29.13 $29.89 $31.93 $33.37 $35.10
82 $26.25 $27.97 $29.50 $30.27 $32.32 $33.77 $35.51
83 $26.56 $28.30 $29.84 $30.63 $32.69 $34.15 $35.92
84 $26.88 $28.62 $30.18 $30.98 $33.05 $34.54 $36.32
85 $27.19 $28.95 $30.52 $31.33 $33.41 $34.92 $36.72
86 $27.50 $29.28 $30.87 $31.68 $33.79 $35.30 $37.12
Page 2
<PAGE>
J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
87 $27.81 $29.60 $31.21 $32.03 $34.16 $35.69 $37.51
88 $28.11 $29.92 $31.55 $32.38 $34.52 $36.07 $37.91
89 $28.42 $30.25 $31.88 $32.73 $34.89 $36.45 $38.30
90 $28.74 $30.57 $32.22 $33.07 $35.25 $36.83 $38.70
91 $29.05 $30.90 $32.57 $33.42 $35.62 $37.21 $39.10
92 $29.36 $31.23 $32.91 $33.76 $35.98 $37.58 $39.49
93 $29.67 $31.55 $33.23 $34.12 $36.35 $37.96 $39.90
94 $29.97 $31.88 $33.57 $34.47 $36.71 $38.32 $40.30
95 $30.28 $32.21 $33.91 $34.82 $37.06 $38.69 $40.70
96 $30.60 $32.53 $34.19 $35.17 $37.40 $39.06 $41.10
97 $30.91 $32.86 $34.51 $35.52 $37.74 $39.44 $41.49
98 $31.22 $33.18 $34.88 $35.87 $38.09 $39.82 $41.89
99 $31.53 $33.50 $35.22 $36.22 $38.46 $40.19 $42.28
100 $31.84 $33.83 $35.55 $36.57 $38.84 $40.57 $42.68
101 $32.14 $34.16 $35.89 $36.92 $39.21 $40.94 $43.06
102 $32.45 $34.48 $36.24 $37.27 $39.58 $41.31 $43.45
103 $32.77 $34.81 $36.58 $37.62 $39.94 $41.68 $43.83
104 $33.08 $35.14 $36.92 $37.97 $40.31 $42.06 $44.22
105 $33.39 $35.46 $37.27 $38.32 $40.67 $42.43 $44.60
106 $33.70 $35.79 $37.61 $38.67 $41.03 $42.81 $45.00
107 $34.01 $36.11 $37.94 $39.03 $41.40 $43.18 $45.38
108 $34.32 $36.44 $38.28 $39.38 $41.76 $43.56 $45.77
109 $34.63 $36.77 $38.63 $39.73 $42.12 $43.93 $46.15
110 $34.93 $37.09 $38.97 $40.08 $42.48 $44.30 $46.54
111 $35.25 $37.41 $39.30 $40.43 $42.86 $44.68 $46.92
112 $35.56 $37.74 $39.64 $40.78 $43.22 $45.05 $47.31
113 $35.87 $38.07 $39.99 $41.13 $43.59 $45.42 $47.69
114 $36.19 $38.39 $40.33 $41.48 $43.95 $45.79 $48.08
115 $36.49 $38.72 $40.67 $41.83 $44.31 $46.16 $48.46
116 $36.80 $39.04 $41.02 $42.18 $44.67 $46.53 $48.84
117 $37.11 $39.37 $41.36 $42.53 $45.03 $46.91 $49.23
118 $37.42 $39.70 $41.69 $42.88 $45.40 $47.28 $49.61
119 $37.73 $40.02 $42.03 $43.23 $45.76 $47.65 $50.00
120 $38.04 $40.34 $42.38 $43.58 $46.12 $48.02 $50.39
121 $38.35 $40.67 $42.72 $43.93 $46.50 $48.40 $50.77
122 $38.66 $41.00 $43.06 $44.28 $46.86 $48.77 $51.16
123 $38.97 $41.32 $43.40 $44.62 $47.23 $49.15 $51.55
124 $39.28 $41.65 $43.74 $44.97 $47.59 $49.52 $51.93
125 $39.59 $41.97 $44.08 $45.31 $47.95 $49.89 $52.32
126 $39.90 $42.29 $44.42 $45.67 $48.31 $50.26 $52.70
127 $40.22 $42.62 $44.77 $46.02 $48.67 $50.63 $53.09
128 $40.53 $42.95 $45.11 $46.37 $49.04 $51.01 $53.47
129 $40.84 $43.27 $45.45 $46.72 $49.40 $51.38 $53.85
Page 3
<PAGE>
J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
130 $41.14 $43.60 $45.79 $47.07 $49.76 $51.75 $54.24
131 $41.45 $43.93 $46.12 $47.42 $50.13 $52.12 $54.63
132 $41.76 $44.25 $46.47 $47.77 $50.50 $52.50 $55.01
133 $42.08 $44.58 $46.80 $48.12 $50.86 $52.87 $55.39
134 $42.39 $44.90 $47.14 $48.47 $51.22 $53.24 $55.78
135 $42.70 $45.23 $47.49 $48.83 $51.59 $53.61 $56.17
136 $43.00 $45.56 $47.83 $49.18 $51.95 $53.99 $56.55
137 $43.31 $45.88 $48.17 $49.53 $52.31 $54.36 $56.94
138 $43.62 $46.20 $48.51 $49.88 $52.67 $54.74 $57.33
139 $43.94 $46.53 $48.84 $50.23 $53.03 $55.11 $57.71
140 $44.25 $46.86 $49.18 $50.58 $53.41 $55.49 $58.09
141 $44.56 $47.18 $49.52 $50.93 $53.77 $55.86 $58.48
142 $44.87 $47.51 $49.86 $51.28 $54.14 $56.23 $58.86
143 $45.17 $47.83 $50.19 $51.63 $54.50 $56.61 $59.25
144 $45.48 $48.16 $50.53 $51.98 $54.86 $56.97 $59.64
145 $45.80 $48.49 $50.87 $52.32 $55.23 $57.34 $60.01
146 $46.11 $48.81 $51.21 $52.67 $55.58 $57.69 $60.39
147 $46.42 $49.13 $51.54 $53.00 $55.94 $58.05 $60.75
148 $46.72 $49.46 $51.88 $53.34 $56.29 $58.41 $61.10
149 $47.02 $49.75 $52.22 $53.67 $56.65 $58.77 $61.45
150 $47.30 $50.06 $52.55 $54.00 $57.00 $59.13 $61.80
Page 4
Custom Pricing Agreement
J CREW
1 Ivy Cresent
Lynchburg, VA 24502
Attention: Andrew Boguszewski
This Custom Pricing Agreement ("Agreement") is made the 15 day of
November, 1996 between Federal Express Corporation ("FedEx") and
J CREW ("Company").
1. In this Agreement, "FedEx" refers to Federal Express
Corporation, its employees and agents. "Company" refers to J
CREW and any divisions, subsidiaries and affiliates, a
majority of whose voting stock (defined as 51%) is directly or
indirectly owned by Company.
"Program" refers to the Custom Pricing Program.
2. The prices and other terms and conditions provided to Company
are for Company's exclusive use and benefit. Such prices and
terms (or any portion thereof) may not be extended to any
other party without FedEx's consent. Under this Agreement, you
will receive discounts as shown on rate sheets provided by
FedEx which are incorporated herein by reference.
3. Your participation in the Program will supersede all other
Pricing agreement between FedEx and Company.
4. Each shipment made under this Agreement is subject to the
terms and conditions of the FedEx Service Guide in effect at
the time of shipment, which terms are incorporated into this
agreement by reference. FedEx reserves the right to modify the
FedEx Service Guide at anytime without notice. In the event
such a modification results in a rate increase, you will
receive thirty (30) days prior written notice.
5. Discounts are based upon Company's committed activity level
during the period of the Program. In order to remain eligible
for continued participation in the Program, Company commits to
and shall maintain the Shipping Objectives provided on
Attachment A within 90 days of the effective date of this
Agreement.
Company's deviation from the Shipping Objectives listed on
Attachment A may result in a rate change. In such event, FedEx
may provide Company with rates which more accurately reflect
its actual shipping patterns. FedEx will provide thirty (30)
days written notice of any such rate change. Audits of
Company's activity level may be performed at FedEx's
discretion.
As long as Shipping Objectives are met, the Program will be
effective for 12 months, unless earlier terminated as provided
herein.
1
<PAGE>
6. All locations and account numbers to be included in the
Program shall be designated by Company and FedEx's National
Account Master report will verify ALL locations and account
numbers. To add a location to the Program, Company shall
notify FedEx's Sales Executive in writing at least seven (7)
working days in advance. Only the billed account number will
receive the applicable discounts and revenue credit.
7. Payment on all accounts is due fifteen (15) days from the
invoice date. Company agrees that remaining current on all
payables is a condition to the extension of credit and
discounts under this Agreement. When you use a freight payment
firm, the same payment terms apply.
8. Either party may terminate this Agreement for the other
party's noncompliance with the terms of this Agreement.
Notwithstanding, FedEx and Company agree that either party may
terminate this Agreement at anytime upon thirty (30) days
written notice to the other.
9. Company agrees to use automated shipping devices provided by
FedEx at each U.S. location shipping three (3) or more
packages per day OR, one (1) FedEx International Priority
package per day. A Federal Express POWERSHIP Placement
Agreement for the placement of any such shipping device shall
be signed prior to placement.
10.The terms of this Agreement shall be held in strict confidence
and the contents of this Agreement may not be disclosed to
anyone other than those Company employees who have a need to
know, provided, however, that nothing herein shall restrict
you from disclosing any portion of such information on a
restricted basis pursuant to a judicial or other lawful
governmental order, but only to the extent of such order and
only after you provide us with immediate notice of such order
so that we may contest the order or obtain a protective order,
if we deem necessary.
11.For all shipments made under the Program, Company waives any
right to receive adjustments, refunds or credits under the
Money Back Guarantee Policy as defined in the FedEx Service
Guide in effect at the time of shipment.
12.Company agrees to ship all packages with Signature Release
Authorization.
13.The Services provided by FedEx in accordance with this
Agreement are designed to meet the distinct needs of Company.
Return of this Agreement with Company's signature will
constitute Company's endorsement of FedEx as its primary
carrier.
J CREW FEDERAL EXPRESS CORPORATION
By: ________________________ By: __________________________
Title: _____________________ Title: _______________________
Date: ______________________ Date: ________________________
2
<PAGE>
This offer will expire if not accepted by Company within thirty
(30) days of the date of this offer. This Agreement shall become
effective when executed by FedEx and Company.
3
<PAGE>
ATTACHMENT A
The term "Average Daily Net Revenue" and "Average Revenue Per
Package" shall be collectively referred to as the "Shipping
Objectives". Pursuant to the terms of the Agreement between
Company and FedEx, Company agrees to maintain the Shipping
Objectives which are defined and listed below.
1) "Average Daily Net Revenue" refers to the total revenue
since the effective date of the Agreement ("Effective
Date") divided by the total number of business days since
the Effective Date [FedEx has twenty-two (22) business days
per month].
2) "Average Revenue Per Package" ("Yield") refers to Average
Daily Net Revenue divided by the average number of packages
shipped per business days since the Effective Date.
1) $15,000___ Average Daily Net Revenue
2) $11.11____ Average Revenue Per Package
4
<PAGE>
AMENDMENT TO CUSTOM PRICING PROGRAM
This Amendment ("Amendment"), effective the 16th day of December,
1996 is entered into by J CREW ("Company") and Federal Express
Corporation ("Federal") (the "Parties") and modifies the Custom
Pricing Agreement ("Agreement") between the Parties dated
November 15, 1996.
RECITALS
FOR AND IN CONSIDERATION of the mutual covenants contained in
the Amendment, the Parties agree as follows:
1. The term of the Agreement shall be extended to expire
on January 31, 1999.
2. A 5% rate increase will be implemented on January 1,
1998.
3. Saturday Delivery Charge shall be $5.00.
4. DIM factor shall be 250.
5. Notwithstanding any other provision of this Amendment,
this Program may be terminated at any time by either
party on thirty (30) days' written notice to the
other.
6. Except as otherwise provided in this Amendment, all
terms and conditions of the Agreement shall remain in
full force and effect, and are hereby ratified and
confirmed.
7. The services provided by Federal pursuant to this
Amendment are designed to meet the distinct needs of J
CREW.
J CREW FEDERAL EXPRESS CORPORATION
BY: ______________________ BY: __________________________
TITLE: ___________________ TITLE: _______________________
DATE: ____________________ DATE: ________________________
("Company") ("Federal")
5
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
17-1675-4
J. CREW GROUP INC
1 IVY CRESCENT
LYNCHBURG VA 24502
INDEX LETTER RATES FEDEX PAK RATES
Priority Overnight $ 6.00 1 LB $ 7.00
Standard Overnight $ 5.50 2 LB $ 7.50
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVER- OVER- TWO-DAYS LBS. OVER- OVER- TWO-DAY
NIGHT NIGHT NIGHT NIGHT
1 $ 7.00 $ 6.75 $ 5.00 39 $ 44.27 $ 40.65 $ 38.00
2 7.50 7.25 5.00 40 45.10 41.55 38.00
3 9.50 9.25 5.25 41 45.92 42.45 39.60
4 11.50 10.50 5.75 42 46.75 43.35 40.40
5 13.50 12.00 6.50 43 47.57 44.25 41.20
6 14.85 13.05 7.50 44 48.40 45.15 42.00
7 15.95 14.10 8.60 45 49.22 46.05 42.80
8 17.05 15.15 9.60 46 50.05 46.95 43.60
9 18.15 16.20 10.60 47 50.87 47.85 44.40
10 19.25 17.25 11.60 48 51.70 48.75 45.20
11 19.94 18.00 12.40 49 52.52 49.65 46.00
12 20.62 18.75 13.40 50 53.35 50.55 46.80
13 21.31 19.35 14.40 51 54.17 51.45 47.60
14 22.00 19.95 15.40 52 55.00 52.35 48.40
15 22.69 20.55 16.20 53 55.82 53.25 49.20
16 23.37 21.15 17.20 54 56.65 54.15 50.00
17 24.06 21.75 18.20 55 57.47 55.05 50.60
18 24.75 22.35 19.00 56 58.30 55.95 51.20
19 25.44 22.95 20.00 57 59.12 56.85 51.80
20 26.12 23.55 21.00 58 60.22 57.75 52.40
21 27.22 24.45 21.80 59 61.32 58.65 53.00
22 28.32 25.35 22.80 60 62.42 59.55 53.60
23 29.42 26.25 23.80 61 63.52 60.45 54.20
24 30.52 27.15 24.60 62 64.62 61.35 54.80
25 31.62 28.05 25.40 63 65.72 62.25 55.40
26 32.72 28.95 26.20 64 66.82 63.15 56.00
27 33.82 29.85 27.00 65 67.92 64.05 56.60
28 34.92 30.75 27.80 66 69.02 64.95 57.20
29 36.02 31.65 28.60 67 70.12 65.85 57.80
30 36.85 32.55 29.60 68 71.22 66.75 58.40
31 37.67 33.45 30.60 69 72.32 67.65 59.00
6
<PAGE>
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVER- OVER- TWO-DAYS LBS. OVER- OVER- TWO-DAY
NIGHT NIGHT NIGHT NIGHT
32 38.50 34.35 31.60 70 73.42 68.55 59.60
33 39.32 35.25 32.60 71 74.52 69.45 60.20
34 40.15 36.15 33.60 72 75.62 70.35 61.00
35 40.97 37.05 34.60 73 76.72 71.25 61.80
36 41.80 37.95 35.60 74 77.82 72.15 62.60
37 42.62 38.85 36.40 75 78.92 73.05 63.40
38 43.45 39.75 37.20 76 80.02 73.95 64.20
7
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
17-1675-4
CREW GROUP INC
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVERNIGHT OVERNIGHT TWO-DAYS LBS. OVERNIGHT OVERNIGHT TWO-DAY
77 $ 81.12 $ 74.85 $ 65.00 114 $108.30 $102.60 $ 96.28
78 82.22 75.75 65.80 115 109.25 103.50 97.20
79 83.32 76.65 66.60 116 110.20 104.40 98.12
80 84.42 77.55 67.40 117 111.15 105.30 99.04
81 85.52 78.45 68.20 118 112.10 106.20 99.96
82 86.62 79.35 69.00 119 113.05 107.10 100.88
83 87.72 80.25 69.80 120 114.00 108.00 101.80
84 88.82 81.15 70.60 121 114.95 108.90 102.72
85 89.92 82.05 71.40 122 115.90 109.80 103.64
86 91.02 82.95 72.20 123 116.85 110.70 104.56
87 92.12 83.85 73.00 124 117.80 111.60 105.48
88 93.22 84.75 73.80 125 118.75 112.50 106.40
89 94.32 85.65 74.60 126 119.70 113.40 107.32
90 95.00 86.55 75.40 127 120.65 114.30 108.24
91 95.00 87.45 76.20 128 121.60 115.20 109.16
92 95.00 88.35 77.00 129 122.55 116.10 110.08
93 95.00 89.25 77.80 130 123.50 117.00 111.00
94 95.00 90.00 78.60 131 124.45 117.90 111.92
95 95.00 90.00 79.40 132 125.40 118.80 112.84
96 95.00 90.00 80.2 133 126.35 119.70 113.76
97 95.00 90.00 81.00 134 127.30 120.60 114.68
98 95.00 90.00 81.80 135 128.25 121.50 115.60
99 95.00 90.00 82.60 136 129.20 122.40 116.52
100 95.00 90.00 83.40 137 130.15 123.30 117.44
101 95.95 90.90 84.32 138 131.10 124.20 118.36
102 96.90 91.80 85.24 139 132.05 125.10 119.28
103 97.85 92.70 86.16 140 133.00 126.00 120.20
104 98.80 93.60 87.08 141 133.95 126.90 121.12
105 99.75 94.50 88.00 142 134.90 127.80 122.04
106 100.70 95.40 88.92 143 135.85 128.70 122.96
107 101.65 96.30 89.84 144 136.80 129.60 123.88
108 102.60 97.20 90.76 145 137.75 130.50 124.80
109 103.55 98.10 91.68 146 138.70 131.40 125.72
110 104.50 99.00 92.60 147 139.65 132.30 126.64
111 105.45 99.90 93.52 148 140.60 133.20 127.56
112 106.40 100.80 94.44 149 141.55 134.10 128.48
113 107.35 101.70 95.36 150 142.50 135.00 129.40
8
<PAGE>
`FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
1817-1675-4
J CREW GROUP INC
SPECIAL HANDLING FEES
ADDITIONAL PER-PACKAGE CHARGE*
COLLECT ON DELIVERY (C.O.D.)........... $ 5.00 PER PACKAGE
SATURDAY PICK-UP SERVICE............... $10.00
SATURDAY DELIVERY SERVICE.............. $10.00
DECLARED VALUE - FOR SHIPMENTS EXCEEDING
$100.00 IN VALUE+ ($50,000 MAXIMUM PER
PACKAGE)............................. $ .50 PER $100.00
$2.50 MINIMUM CHARGE UP TO $500
DANGEROUS GOODS SERVICE................ $10.00
ACCESSIBLE DANGEROUS GOODS SERVICE..... $35.00
INTL. DANGEROUS GOODS.................. $40.00
ADDRESS CORRECTION..................... $10.00
PAYOR REBILL........................... $10.00
NON-ACCOUNT............................ $10.00
INVALID ACCOUNT........................ $10.00
FEDEX INTL. MAIL SERVICE............... $ .25 PER ITEM
THE GREATER OF PER SHPMNT/PER LB APPLIES
ALASKA HAWAII ALASKA HAWAII
(PER SHIPMENT) (PER LB.) (PER LB.)
METRO RURAL METRO RURAL
PRIORITY OVERNIGHT/
STANDARD OVERNIGHT SERVICE-
FEDEX LETTER ............... 5.00 5.00
PRIORITY OVERNIGHT SERVICE
FEDEX PAK (1 AND 2 LBS.) ... 5.00 5.00
FEDEX PAK (3 + LBS.),
FEDEX BOX AND FEDEX TUBE ... 10.00 10.00 .50 .75 .50 .75
PRIORITY OVERNIGHT SERVICE . 10.00 10.00 .50 .75 .50 .75
ECONOMY TWO-DAY SERVICE .... 10.00 10.00 .50 .75 .50 .75
* WHEN HUNDREDWEIGHT RATES APPLY, THE SPECIAL HANDLING FEES
ABOVE WILL BE ASSESSED ONE TIME PER SHIPMENT.
+ MAXIMUM DECLARED VALUE FOR ANY FEDEX LETTER OR FEDEX PAK IN
A SHIPMENT IS $500.00
9
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
17-1675-4
J. CREW GROUP INC
FREIGHT SPECIAL HANDLING FEES
RESIDENTIAL PICKUP SERVICE..... $ 33.50 PER SHIPMENT
RESIDENTIAL DELIVERY SERVICE... $ 33.50 PER SHIPMENT
H3 PICKUP SERVICE.............. $ 50.00 PER SHIPMENT
H3 DELIVERY SERVICE............ $ 50.00 PER SHIPMENT
EXTRA LABOR CHARGE SERVICE..... $ 49.00 PER HOUR (OR ANY FRACTION
THEREOF/1 HR MIN)
THE GREATER OF THESE APPLIES
(MINIMUM ) (PER LB)
INSIDER PICKUP SERVICE.......... 52.00 .0412
INSIDE DELIVERY SERVICE......... 52.00 .0412
DELIVERY REATTEMPT CHARGE....... 25.00 .0333
10
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
1817-1675-4
J. CREW GROUP INC
DISCOUNTS **
REVENUE BAND ---> 14954 ---DOLLAR--- --PERCENT--
RATE SCALE P/A DISC REBATE DISC REBATE
FEDEX LTR 1 A 9.50
FEDEX Pak 307 A 11.50
Prty Ovnt 307 A 11.50 45.00
Stnd Ovnt 380 A 8.00 40.00
SOS LTR 1 A 8.00
Economy 434 A 2.00
Ovnt Frgt 184 A 11.50 45.00
2Day Frgt 285 A 2.00
REVENUE BAND ---> 14954 -HW/FREIGHT- ADDITIONAL
RATE SCALE P/A DISC REBATE DISC REB MIN
FEDEX LTR 1 A
FEDEX Pak 307 A 7.00
Prty Ovnt 307 A 50.00 7.00
Stnd Ovnt 380 A 6.00
SOS LTR 1 A
Economy 434 A 20.00 5.00
Ovnt Frgt 184 A
2Day Frgt 285 A
11/18/96 14:47:04 0000072778 MARIA RIVERA
YOU ARE RESPONSIBLE FOR VERIFYING THAT THIS RATE SHEET IS
RATIONAL AND THAT THE RATES ARE BILLABLE BEFORE GIVING TO A
CUSTOMER.
11
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
1808-7918-8
J. CREW/C & W STORES
1 CLIFFORD WAY
ASHEVILLE NC 28810
FEDEX LETTER RATES FEDEX PAK RATES
Priority Overnight $ 8.00 1 LB $10.75
Standard Overnight $ 7.75 2 LB $12.50
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVERNIGHT OVERNIGHT TWO-DAY LBS. OVERNIGHT OVERNIGHT TWO-DAY
1 $10.75 $10.50 $5.95 39 $47.85 $47.60 $29.40
2 12.50 11.60 6.00 40 52.75 49.00 30.00
3 14.00 12.50 6.25 41 53.50 49.90 30.60
4 15.20 13.40 7.00 42 54.25 50.80 31.20
5 16.60 14.45 8.00 43 55.00 51.70 31.80
6 18.20 15.65 9.00 44 55.80 52.60 32.40
7 19.80 16.85 10.00 45 56.55 53.50 33.00
8 21.20 17.90 11.00 46 57.30 54.40 33.60
9 22.80 19.10 12.00 47 58.05 55.30 34.35
10 24.20 20.15 12.75 48 58.85 56.20 35.10
11 24.70 20.90 12.95 49 59.60 56.90 35.85
12 25.70 21.65 13.00 50 60.35 57.60 36.60
13 26.65 22.40 13.10 51 61.30 58.50 37.35
14 27.45 23.00 13.15 52 62.20 59.40 37.95
15 28.20 23.60 13.20 53 63.10 60.30 38.55
16 29.00 25.80 14.10 54 64.00 61.20 39.15
17 29.80 28.30 14.85 55 64.95 62.10 39.60
18 30.60 29.00 15.45 56 65.85 63.00 40.05
19 31.35 29.70 16.35 57 66.75 63.90 40.50
20 32.15 30.40 17.10 58 67.70 64.80 40.95
21 32.95 31.10 17.70 59 68.60 65.70 41.40
22 33.70 31.80 18.30 60 69.50 66.80 41.85
23 34.50 32.50 18.90 61 70.70 67.90 42.30
24 35.30 33.20 19.50 62 71.90 69.00 42.75
25 36.25 34.10 20.10 63 73.10 70.10 43.20
26 37.25 34.95 20.70 64 74.30 71.20 43.65
27 38.20 35.85 21.30 65 75.50 72.30 44.10
28 39.20 36.70 21.90 66 76.70 73.40 44.55
29 40.20 37.60 22.50 67 77.90 74.50 45.00
30 41.30 38.45 23.10 68 79.10 75.60 45.45
31 42.05 39.50 23.85 69 80.30 76.70 45.90
12
<PAGE>
32 42.75 40.35 24.60 70 81.50 78.00 46.35
33 43.50 41.25 25.35 71 82.70 80.50 46.80
34 44.20 43.30 26.10 72 83.90 81.65 47.70
35 44.95 44.20 26.85 73 85.10 82.80 48.30
36 45.65 45.10 27.45 74 86.30 83.95 49.75
37 46.40 46.00 28.20 75 87.50 85.10 49.20
38 47.10 46.85 28.80 76 88.70 86.25 49.80
13
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
1808-7918-8
J. CREW/C & W STORES
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVERNIGHT OVERNIGHT TWO-DAY LBS. OVERNIGHT OVERNIGHT TWO-DAY
77 $89.90 $87.40 $50.40 114 $133.38 $126.54 $74.10
78 91.10 88.55 51.00 115 134.55 127.65 74.75
79 92.30 89.70 51.60 116 135.72 128.76 75.40
80 93.50 90.95 52.20 117 136.89 129.87 76.05
81 94.70 91.85 52.80 118 138.06 130.98 76.70
82 95.90 93.30 53.40 119 139.23 132.09 77.35
83 97.10 94.45 54.15 120 140.40 133.20 78.00
84 98.30 95.50 54.75 121 141.57 134.31 78.65
85 99.50 96.80 55.35 122 142.74 135.42 79.30
86 100.70 97.90 55.95 123 143.91 136.53 79.95
87 101.90 99.15 56.55 124 145.08 137.64 80.60
88 103.10 100.10 57.15 125 146.25 138.75 81.25
89 104.30 101.55 57.75 126 147.42 139.86 81.90
90 105.50 102.25 58.35 127 148.59 140.97 82.55
91 106.70 103.75 58.95 128 149.76 142.08 83.20
92 107.90 104.45 59.55 129 150.93 143.19 83.85
93 109.10 105.90 60.15 130 152.10 144.30 84.50
94 110.30 106.45 60.75 131 153.27 145.41 85.15
95 111.50 107.20 61.35 132 154.44 146.52 85.80
96 112.70 107.95 61.95 133 155.61 147.63 86.45
97 113.90 108.65 62.55 134 156.78 148.74 87.10
98 115.10 109.40 63.30 135 157.95 149.85 87.75
99 116.30 110.10 63.90 136 159.12 150.96 88.40
100 117.00 111.00 65.00 137 160.29 152.07 89.05
101 118.17 112.11 65.65 138 161.46 153.18 89.70
102 119.34 113.22 66.30 139 162.63 154.29 90.35
103 120.51 114.33 66.95 140 163.80 155.40 91.00
104 121.68 115.44 67.60 141 164.97 156.51 91.65
105 122.85 116.55 68.25 142 166.14 157.62 92.30
106 124.02 117.66 68.90 143 167.31 158.73 92.95
107 125.19 118.77 69.55 144 168.48 159.84 93.60
108 126.36 119.88 70.20 145 169.65 160.95 94.25
109 127.53 120.99 70.85 146 170.82 162.06 94.90
110 128.70 122.10 71.50 147 171.99 163.17 95.55
111 129.87 123.21 72.15 148 173.16 164.28 96.20
112 131.04 124.32 72.80 149 174.33 165.39 96.85
113 132.21 125.43 73.45 150 175.50 166.50 97.50
14
<PAGE>
- -------------------HUNDREDWEIGHT/FREIGHT PER POUND RATES*----------------
PRIORITY STANDARD ECONOMY OVERNIGHT TWO-DAY
OVERNIGHT OVERNIGHT TWO-DAY FREIGHT FREIGHT
100 - 150 LBS $1.17 $1.11 $.65 $1.17 $ .65
151 - 299 LBS 1.17 1.11 .65 1.35 1.10
300 - 499 LBS 1.17 1.11 .65 1.35 1.10
500 - 999 LBS 1.13 1.07 .64 1.35 1.10
- 1000+ LBS 1.10 1.03 .63 1.35 1.10
* SUBJECT TO 5LB MIN WHEN CUT PRICING APPLIES
15
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
1808-7918-8
J. CREW/C & W STORES
SPECIAL HANDLING FEES
ADDITIONAL PER-PACKAGE CHARGE*
COLLECT ON DELIVERY (C.O.D.)........... $ 5.00 PER PACKAGE
SATURDAY PICK-UP SERVICE............... $10.00
SATURDAY DELIVERY SERVICE.............. $10.00
DECLARED VALUE - FOR SHIPMENTS EXCEEDING
$100,00 IN VALUE+ ($50,000 MAXIMUM PER
PACKAGE)............................. $ .50 PER $100.00
($2.50 MINIMUM CHARGE UP TO $500
DANGEROUS GOODS SERVICE................ $10.00
ACCESSIBLE DANGEROUS GOODS SERVICE..... $35.00
INTL. DANGEROUS GOODS.................. $40.00
ADDRESS CORRECTION..................... $10.00
PAYOR REBILL........................... $10.00
NON-ACCOUNT............................ $10.00
INVALID ACCOUNT........................ $10.00
FEDEX INTL. MAIL SERVICE............... $ .25 PER ITEM
THE GREATER OF PER SHPMNT/PER LB APPLIES
ALASKA HAWAII ALASKA HAWAII
(PER SHIPMENT) (PER LB.) (PER LB.)
METRO RURAL METRO RURAL
PRIORITY OVERNIGHT/
STANDARD OVERNIGHT SERVICE-
FEDEX LETTER............... 5.00 5.00
PRIORITY OVERNIGHT SERVICE
FEDEX PAK (1 AND 2 LBS.)... 5.00 5.00
FEDEX PAK (3 + LBS.),
FEDEX BOX AND FEDEX TUBE... 10.00 10.00 .50 .75 .50 .75
PRIORITY OVERNIGHT SERVICE. 10.00 10.00 .50 .75 .50 .75
ECONOMY TWO-DAY SERVICE.... 10.00 10.00 .50 .75 .50 .75
* WHEN HUNDREDWEIGHT RATES APPLY, THE SPECIAL HANDLING FEES
ABOVE WILL BE ASSESSED ONE TIME PER SHIPMENT.
* MAXIMUM DECLARED VALUE FOR ANY FEDEX LETTER OR FEDEX PAK IN
A SHIPMENT IS $500.00
16
<PAGE>
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
108-7918-8
CREW/C & W STORES
FREIGHT SPECIAL HANDLING FEES
RESIDENTIAL PICKUP SERVICE..... $ 33.50 PER SHIPMENT
RESIDENTIAL DELIVERY SERVICE... $ 33.50 PER SHIPMENT
H3 PICKUP SERVICE.............. $ 50.00 PER SHIPMENT
H3 DELIVERY SERVICE............ $ 50.00 PER SHIPMENT
EXTRA LABOR CHARGE SERVICE..... $ 49.00 PER HOUR (OR ANY FRACTION
THEREOF/1 HR MIN)
THE GREATER OF THESE APPLIES
(MINIMUM ) (PER LB)
INSIDE PICKUP SERVICE........... 52.00 .0412
INSIDE DELIVERY SERVICE......... 52.00 .0412
DELIVERY REATTEMPT CHARGE....... 25.00 .0333
17
10/17/81 G
LEASE dated as of October 21, 1981 between Vornado,
Inc., as Landlord, and Popular Services, Inc., as Tenant.
Landlord hereby leases to Tenant premises situated in
Garfield, New Jersey.
The parties agree with each other as follows:
ARTICLE I
THE PARTIES, THE PREMISES, DEFINED TERMS
Section 1.01. The Parties.
(a) Vornado, Inc. is a Delaware corporation. Its address is
174 Passaic Street, Garfield, New Jersey 07026. It is referred to
as "Landlord".
(b) Popular Services, Inc., is a New York corporation.
It has an address at 128 Dayton Avenue, Passaic, New Jersey 07055.
It is referred to as "Tenant".
Section 1.02. The Premises and Other Defined Terms.
(a) The Premises consists of a parcel of land and
building and other site improvements located upon that land. The
Premises are shown on Exhibit A. The building is referred to in
this Lease as the "Building". The portion of the Premises not
occupied by the Building is designated on Exhibit A and is
referred to in this Lease as the "Building Lot".
(b) Capitalized words and various phrases used in this
Lease which are capitalized may be defined terms. These terms are
defined in the body of the Lease.
(c) The following capitalized terms are defined in
various Sections and subsections of this Lease as set forth in
the following table:
Additional Rent................................4.03
Award..........................................5.14
Basic Rent.....................................4.01
Building.......................................1.02(a)
Building Lot...................................1.02
Cancellation Date..............................3.06
Claims.........................................5.02(b)
Commencement Date..............................3.02(a)
Delivery of Possession.........................2.05
Expiration Date................................3.02(b)
Impositions....................................4.02(c)
Insurance......................................5.11
Insurance Contributions........................5.11
Insurance Requirements.........................5.10
Lease Year.....................................3.02(c)
Lien...........................................5.03(b)
Master Lease...................................8.03(b)
Master Lessor..................................8.03(b)
Mortgage.......................................8.03(b)
Mortgagee......................................8.03(b)
Premises.......................................1.02(a)
Rent...........................................4.03
Supplementary Parking Area.....................7.01
<PAGE>
Supplementary Parking Area Contributions.......7.03
Taking.........................................5.14
Taking Date....................................5.14
Tax Contributions..............................4.02
Tenant's Agents................................5.02
Tenant's Equipment.............................5.09
Tenant's Work..................................2.03
ARTICLE II
MAKING THE PREMISES READY FOR OCCUPANCY
Section 2.01. Condition of Premises.
The Premises shall be delivered in broom clean
condition. At the time of delivery of possession, the roof shall
be free of leaks and the plumbing, electrical, heating,
ventilation and air-conditioning (if any) systems shall be in
good working order. Landlord shall also remove all signs from the
Premises and shall repair the canopy over the front door of the
Building.
Section 2.02. Approvals.
(a) Promptly after the execution of this Lease,
Landlord and Tenant shall apply for any zoning variance or change
which may be required for the change of use of the Building to a
general office building with an auxiliary retail store of no more
than 15,000 square feet, for Tenant's occupancy. If required,
Landlord and Tenant shall join in the application. Landlord and
Tenant shall cooperate with each other in prosecuting the
application. The cost of the application, including any
attorneys' fees, shall be paid by Tenant. Any attorney selected
shall be subject to the reasonable approval of both parties.
(b) (i) If the variance or change has not been granted
within sixty (60) days following the date the initial application
for it is submitted, then, subject to subsection 2.02(c), either
party shall have the right to cancel this Lease by giving notice
to the other within ten (10) days following the expiration of
that sixty (60) day period.
(ii) If as a condition to the granting of the
variance or change Tenant shall be required to perform additional
alterations not otherwise required by other applicable legal
requirements or contemplated by Tenant as part of Tenant's Work
and the cost of the additional alterations shall exceed
$200,000.00, Tenant may cancel this Lease by giving notice to
Landlord within thirty days after the need for any such
alterations is imposed. Within thirty days after receipt of
Tenant's notice, Landlord may nullify the cancellation by
notifying Tenant that Landlord shall bear the cost of such
additional alterations in excess of $200,000.00.
(iii) If a variance or change is granted which
shall permit the Building to be used as an office building but
such variance or approval shall impose limitations upon the use
of the Building for office purposes which shall materially
adversely impair the use of the Building for Tenant's corporate
headquarters (as presently constituted), Tenant may cancel this
lease by giving Landlord notice within 30 days after the variance
is granted.
(c) If a party shall elect to cancel this Lease in
accordance with subsection 2.02(b), part (i) the other may
nullify that cancellation if at the time the cancellation notice
is given
-2-
<PAGE>
an application for the zoning variance or change is pending. The
right to nullify the cancellation shall be exercisable by giving
notice to the other party within ten (10) days after receipt of
the cancellation notice. If neither party elects to cancel this
Lease in accordance with subsection 2.02(b), part (i) or if a
cancellation notice is nullified in accordance with this
subsection (c) but the variance or change has not been granted
within one hundred and twenty (120) days following the date the
initial application is submitted, then either party may elect to
cancel this Lease by giving notice within ten (10) days following
the expiration of that one hundred and twenty (120) day period.
(d) Upon a cancellation of this Lease in accordance
with this Section 2.02, both parties shall be relieved of all
further obligations under this Lease.
Section 2.03. Tenant's Work.
(a) The alterations and improvements described in
Exhibit B are referred to in this Lease as "Tenant's Work". Within a
reasonable time after the date of this Lease Tenant shall submit
plans and specifications for Tenant's Work to Landlord for
Landlord's approval. Landlord shall not unreasonably withhold or
delay its approval.
(b) Promptly after the zoning variance or change referred
to in section 2.02 is approved, or, if none is required, promptly
after the date of this Lease, Tenant shall apply for all other
permits and approvals which shall be necessary with respect to
Tenant's Work and Tenant's occupancy of the Premises for office
purposes and incidental retail use. Promptly after the necessary
permits and approvals are issued, Tenant shall commence and
diligently prosecute such portions of Tenant's Work as shall be
necessary for the issuance of a certificate of occupancy for the
Premises. Tenant agrees to deliver all required copies of
permits, certificates and approvals to Landlord.
(c) Tenant's Work shall be performed in accordance
with all applicable legal requirements, the approved plans and
specifications, any building permit, all insurance requirements
and in a good and workmanlike manner.
Section 2.04. Insurance Covering Tenant's Work.
Tenant shall not commence to perform Tenant's Work,
repairs, or any alterations unless prior to the commencement of
the work, Tenant shall obtain and, during the performance of the
work, keep in force public liability and workmens' compensation
insurance to cover every contractor to be employed. The policies
shall be non-cancellable without ten days notice to Landlord and
shall be in amounts and by companies reasonably satisfactory to
Landlord. Prior to the commencement of Tenant's Work, Tenant
shall deliver duplicate originals or certificates of insurance
policies to Landlord.
Section 2.05. Delivery of Possession.
Delivery of Possession shall occur upon the later to
occur of (i) the date Landlord tenders possession of the Premises
to Tenant, or (ii) the date the variance or change referred to in
Section 2.02 shall have been granted. If the event referred to in
part (ii) shall occur on or before February 1, 1982, Landlord
agrees to tender possession of the Premises to Tenant on or
before February 1, 1982. If the event referred to in part (ii)
shall occur after February 1, 1982, Landlord agrees to tender
possession of the Premises to Tenant no later than the occurrence
of that event.
-3-
<PAGE>
ARTICLE III
TERM
Section 3.01. The Term Defined.
(a) The Term shall commence on the Commencement Date
and shall expire on the Expiration Date, as defined in Section
3.02.
(b) At any time after the Commencement Date, at the
request of either party, the other party shall execute a
certificate in recordable form setting forth the exact
Commencement Date and the originally fixed Expiration Date.
Section 3.02. Commencement Date and Expiration Date.
(a) The Commencement Date shall be the later to occur
of (i) Delivery of Possession or (ii) February 1, 1982.
(b) The Expiration Date shall be the tenth anniversary
of the last day of the first Lease Year. If this Lease is
cancelled or terminated prior to the fixed Expiration Date, the
Expiration Date shall be the date on which this Lease is
cancelled or terminated.
(c) The first Lease Year shall commence on the
Commencement Date and shall continue for four months. Each
subsequent Lease Year shall commence on the day following the end
of the preceding Lease Year and shall continue for one full year.
The last Lease Year shall end on the Expiration Date.
Section 3.03. Holdover.
If Tenant shall continue its occupancy of the Premises
after the Expiration Date, the occupancy shall not be deemed to
extend or renew the Term and the tenancy shall constitute a
tenancy from month to month on all of the terms of the Lease but
at the Rent in effect at the expiration of the Term.
Section 3.04. Short form Lease.
At any time during or prior to the Term, at the
request of either party, the other party shall execute a short
form lease or memorandum of lease in proper form for recording as
may be required by law, excluding any portion of Article IV.
Section 3.05. Right of First Refusal.
(a) If Landlord shall desire to lease the Premises for
a term which shall commence after the originally fixed Expiration
Date, provided that Tenant shall not be in Default under this
Lease and this Lease is in full force and effect, Landlord may
notify Tenant of the terms and conditions which shall be
satisfactory to Landlord and Tenant shall have fifteen days after
Landlord's notice to accept the terms and conditions submitted by
Landlord. If Tenant shall fail to do so within that fifteen day
period, Landlord shall have the right to enter into a lease with
any other party for the same or greater annual rate of rental
than the rental set forth in Landlord's notice and Tenant's
rights under this section shall not apply to that new lease.
-4-
<PAGE>
(b) Subject to the conditions of subsection (a), if on
or before the originally fixed Expiration Date Landlord shall have
received a bona fide offer to Lease the Premises from an
unaffiliated third party and that offer is acceptable to Landlord
(the "Offer"), provided that Tenant shall not be in Default under
this Lease and that this Lease is in full force and effect,
Tenant shall have the right to accept a lease for that Premises.
The terms of that lease shall be the same terms and conditions as
the Offer except as provided in this subsection. Landlord's
notice shall be accompanied by the proposed lease (the "New
Lease"). Tenant's right shall be only exercisable by Tenant by
giving notice to Landlord within fifteen days after Landlord's
notice that Tenant accepts the Offer accompanied by counterparts
of the New Lease executed by Tenant. The form of the New Lease
shall be substantially similar to the form of this lease, to the
extent practicable, and must otherwise be satisfactory to
Landlord. The term of the New Lease shall commence on the date
succeeding the Expiration Date and shall, at Landlord's election,
continue for the term provided for in the Offer or five years.
(c) Tenant's rights under this Section shall expire if
the lease shall be assigned by Tenant to any other party. The
expiration shall be effective whether or not Landlord had
previously consented to the assignment. If Tenant shall fail to
exercise its rights under this section within any applicable
fifteen day period, Tenant's rights under this section shall
expire. Time shall be of the essence with respect to Tenant's
exercise of its rights under this section.
Section 3.06. Tenant's Right of Cancellation.
(a) At any time following the third anniversary of the
Commencement Date, provided that Tenant shall not be in Default
of a material obligation under this Lease, Tenant shall have the
right to cancel this Lease by notifying Landlord of Tenant's
election. If Tenant shall elect to cancel this Lease, this Lease
shall be cancelled on the "Cancellation Date". The "Cancellation
Date" shall be the later to occur of (i) the first anniversary of
Tenant's notice of cancellation or (ii) the date of cancellation
set forth in Tenant's notice. In consideration for the right to
cancel this Lease, at the time Tenant shall exercise its right,
Tenant shall pay to Landlord an amount equal to the Rent which
would otherwise be payable during the full year following the
Cancellation Date.
(b) If this Lease is validly cancelled in accordance
with the provisions of subsection 3.06(a), except for liabilities
which have accrued prior to the Cancellation Date: Landlord shall
be relieved of all further obligations under the Lease; and upon
surrender of the Premises on or before the Cancellation Date in
accordance with Section 5.07, Tenant shall be relieved of all
further obligations under this Lease.
<PAGE>
ARTICLE IV
RENT AND SECURITY
Section 4.01. Basic Rent.
(a) From and after the Commencement Date, Tenant shall
pay Basic Rent to Landlord at the annual rates set forth in the
following table:
Annual Rate
Applicable Period of Basic Rent
First Lease Year $ 102,009.38
Second and Third Lease Years $ 272,025.00
Fourth and Fifth Lease Years $ 321,408.00
Sixth and Seventh Lease Years $ 371,628.00
Eighth and Ninth Lease Years $ 421,848.00
Tenth and Eleventh Lease Years $ 472,068.00
(b) Basic Rent shall be payable in equal monthly
installments. Each installment shall be due in advance on the
first day of each month. If the Commencement Date occurs on a day
other than the first day of any month, Basic Rent for the period
which commences on the Commencement Date and ends on the last day
of the month in which the Commencement Date occurs shall be paid
on the Commencement Date and shall be apportioned equitably.
Section 4.02. Tax Contributions.
Tenant shall pay Tax Contributions to Landlord in
accordance with the following:
(a) Tax Contributions shall be payable from and after
the Commencement Date within thirty (30) days after Landlord
renders a bill to Tenant. Landlord shall not render bills more
than four times each calendar year. Landlord's failure to render
a bill shall not be construed as a waiver by Landlord of any
amount due. Tenant shall not be obligated to pay a quarterly
installment more than 45 days in advance of the date the
applicable installment of Impositions shall be due and payable to
the taxing authority.
(b) Tax Contributions means all Impositions if the
Premises is assessed as a separate, single tax lot. If the
Premises is not assessed as a separate tax lot, Tax Contributions
shall be calculated in accordance with subsection 4.02(e).
(c) (i) "Impositions" means all taxes, assessments,
and governmental charges which shall be assessed, levied, or
imposed against the Premises, the Building, the land underlying
the Premises, all improvements located upon the Premises and the
use of the Premises, Building and Building Lot, for each tax
fiscal year occurring during the Term. "Impositions" includes
taxes, assessments and other governmental charges which are
special, extraordinary and unforeseen and assessments for public
improvements to the extent provided in part (iii). "Impositions"
also includes all substitutes for the taxes and charges referred
to in this part (i) including a tax on rent. However, a
substitute tax shall be an Imposition only to the extent that the
tax would be payable under the assumption that the Premises were
the sole asset of the Landlord and the income from the Premises
were the sole revenue of the Landlord.
<PAGE>
(ii) Assessments shall be included or excluded from
Impositions as follows:
(x) The word "Impositions" excludes any
assessment for public improvements which is a Lien
against the Premises as of the date of this Lease.
(y) If an assessment for public improvements
not excluded by clause (x) is payable in installments
and Landlord elects the installment method of payment,
only the installments which come due during the Term
shall be included in Impositions. If an assessment not
excluded by clause (x) is payable in installments, and
Landlord does not elect the installment method of payment,
then Impositions shall include only the installments
which would have come due during the Term had Landlord
elected the installment method of payment.
(iii) Impositions for any tax fiscal year
occurring partially within the term shall be equitably pro-rated
so that Tenant shall bear only such portion of Impositions
attributable to periods occurring within the Term.
(iv) Provided that Tenant shall pay all
Impositions when due, Landlord shall pay all Impositions to the
taxing authorities on or before the date the Impositions are
payable without accruing penalties or interest.
(d) If the Premises is not assessed as a separate,
single tax lot, the tax lot of which the Premises is a part is
referred to in this Lease as the "Entire Tax Lot". The parties
agree to cooperate with each other to cause the appropriate
taxing authority to assess the Premises as a single tax lot
separate from the balance of the Entire Tax Lot.
(e) If the Premises is not assessed as a separate,
single tax lot, the amount of Impositions with respect to the
Premises shall be determined in accordance with the following:
(i) Tax Contributions shall be equal to a
fraction of all taxes, assessments and governmental charges
(including any governmental charges levied in whole or in part in
lieu of real estate taxes) which shall be assessed, levied or
imposed against the Entire Tax Lot, including all improvements
upon the Entire Tax Lot, for each tax fiscal year occurring
during the Term. The numerator of the fraction shall be the fair
market value of the Premises, including the Building, as of the
tax assessment date. The denominator of the fraction shall be the
fair market value of the Entire Tax Lot, including all
improvements located upon the Entire Tax Lot, as of the tax
assessment date.
(ii) If the parties are unable to agree upon the
fair market value of the Premises and the Entire Tax Lot
respectively, the fair market values shall be determined by an
appraiser who is a member of the American Institute of Real
Estate Appraisers. If the parties are unable to agree upon the
appointment of an appraiser, then Landlord shall select an
appraiser and Tenant shall select an appraiser. The two
appraisers shall select a third appraiser. The fair market values
shall be determined by the third appraiser.
(iii) If the two appraisers selected by Landlord
and Tenant can not agree upon a third appraiser to be selected,
than either party may apply to a court of competent jurisdiction
to have the third appraiser selected.
(iv) The determination of the third appraiser
shall be conclusive evidence of the respective fair market values
of the Premises and the Entire Premises.
<PAGE>
(v) In determining the respective fair market
values of the Premises, the existence of this Lease may not be
taken into consideration by the appraiser.
(vi) Until the appraisal process is completed,
Tenant shall make payments on account of Impositions in amounts
reasonably estimated by Landlord.
(f) Tenant shall have the right to conduct a tax
appeal with respect to the premises. Prior to commencing an
appeal, Tenant shall notify Landlord of Tenant's intention.
Within ten days after receipt of Tenant's notice, Landlord shall
have the right to conduct the appeal. Both parties shall
cooperate with each other with respect to a tax appeal conducted
by either party. If an appeal shall be conducted, after deducting
the cost of the attorney's and appraisal fees any remaining
refund shall be paid as follows:
(i) entirely to Tenant if Premises is assessed
as a separate, single tax lot; or
(ii) to be divided equitably between Landlord and
Tenant in the proportion that the refunded imposition was borne
by the parties, if the Premises is not assessed as part of a
separate, single tax lot.
Section 4.03. Payments of Rent.
(a) "Additional Rent" means Tax Contributions, and any
other charges Tenant is required to pay to Landlord, other than
Basic Rent.
(b) "Rent" means Basic Rent, Additional Rent and any
other charges Tenant is required to pay to Landlord.
(c) Except as otherwise provided, Rent shall be paid by
good check made to the order of Landlord. Except as otherwise
provided, Rent payments shall be placed in the United States mail
addressed to Landlord at the place where notices to Landlord may
be given. Rent shall be paid without setoff or deduction.
ARTICLE V
THE PREMISES
Section 5.01. Use of the Premises.
(a) The Premises shall be used for general and
executive offices purposes, including all uses incidental to
those purposes, and for no other purpose. Landlord agrees that
Tenant may use up to 15,000 square feet of the floor area of the
Building for the conduct of retail sales.
(b) The Premises shall be used solely in accordance
with all applicable legal requirements.
Section 5.02. Indemnification.
(a) Tenant hereby indemnifies Landlord against all
liability arising from any and all Claims which:
(i) arise from or are in connection with possession,
use, occupation, management, repair, maintenance or control of
the Premises;
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(ii) arise from or are in connection with the
negligence or omission of Tenant or Tenant's agents in or about
the Premises, Building Lot, or elsewhere;
(iii) result from any Default, breach, violation or
non-performance of a provision of this lease; or
(iv) result in injury to person or property or
loss of life sustained in or about the Premises.
(b) "Claims" means any claims, suits, proceedings,
actions, causes of action, responsibility, liability, demands,
judgments and executions.
(c) "Tenant's Agents" includes Tenant's employees,
servants, licensees, tenants, subtenants, assignees, contractors
and invitees.
Section 5.03. Liens.
(a) If any Lien encumbers Landlord's interest in the
Premises as a result of work done or authorized by Tenant or any
other act or omission by Tenant, Tenant shall discharge the Lien,
by bonding it or otherwise, within forty-five (45) days after the
creation of the Lien.
(b) "Lien" means: any interest, lien, charge, claim or
encumbrance against the Premises, Tenant's leasehold interest in
the Premises, the Building, or the Building Lot.
Section 5.04. Repairs and Compliance with Laws.
(a) Upon reasonable notice from Tenant, Landlord shall
make necessary structural repairs to the foundation and exterior
walls of the Building, excluding all windows, plate glass, doors
and any fixtures and appurtenances composed of glass and any
damage caused by any act, omission or negligence of Tenant, or
Tenant's Agents, employees, invitees and contractors. Until the
first anniversary of the Commencement Date, Landlord shall
maintain and repair the roof of the Building.
(b) Except for the repairs Landlord is required to make in
accordance with subsection 5.04(a), Tenant shall make all repairs
necessary to maintain the Building and Building Lot in good order
and repair and in a safe and dry condition. Tenant's obligation
to perform repairs includes repairs to any heating or air
conditioning equipment located within or servicing the Building
exclusively; any sign installed by Tenant; the floor; to windows,
plate glass and any other fixtures composed of glass; and to the
Premises when the repairs are necessitated by any act or omission
of Tenant or Tenant's Agents. From and after the first
anniversary of the Commencement Date, Tenant shall maintain and
repair the roof of the Building. Tenant's repairs shall comply
with the following:
(i) all applicable legal requirements which
accrue from the date of this Lease and which are applicable to
the performance of Tenant's Work; and
(ii) all Insurance Requirements with respect to
the Premises.
(c) Tenant shall be solely responsible for cleaning
the Premises.
<PAGE>
Section 5.05. Compliance.
Tenant shall observe and comply promptly with all
present and future legal requirements and Insurance Requirements
relating to or affecting the Premises or Tenant's use and
occupancy of it. If any legal requirement or Insurance
Requirement requires a repair, addition or alteration, Tenant's
obligation shall be limited to those portions of the Premises
which Tenant is required to repair in accordance with Section
5.04.
Section 5.06. Emergency Repairs.
If, in an emergency, it shall become necessary to make
promptly any repairs or replacements to the Premises, Landlord
may re-enter the Premises and proceed to perform repairs. If
repairs performed by Landlord were required to be made by Tenant,
within thirty (30) days after Landlord renders a bill therefor,
Tenant shall reimburse Landlord for the reasonable cost of making
those repairs.
Section 5.07. Surrender of Premises.
On the Expiration Date, Tenant shall quit and
surrender the Premises broom clean, and in the state of repair in
existence after the performance of Tenant's Work, reasonable wear
and tear excepted, together with all alterations, installations,
additions and improvements which may have been made in or
attached on or to the Premises. Upon surrender, Tenant shall
remove its personal property from the Premises, and Landlord may
require Tenant to remove any installation or alteration made by
Tenant, and restore the affected portion of the Premises to the
condition delivered. Tenant shall not be required to remove
partitioning, paneling, wall coverings or floor coverings.
Section 5.08. Alterations.
(a) Except as provided for in subsection 5.08(b), Tenant
may not make any alterations to the Premises without the prior
written consent of Landlord. If Landlord grants its consent to
any alterations, the alterations shall be performed in a good and
workmanlike manner. Landlord hereby agrees not to unreasonably
withhold its consent to interior non-structural alterations
proposed to be made to the Building. All alterations made by
Tenant shall comply with all applicable legal requirements and
all Insurance Requirements. Upon completion of any alteration,
Tenant shall deliver a set of as-built plans for that alteration
to Landlord.
(b) Provided that the alterations do not reduce the
value of the Premises, Landlord's consent shall not be required
for any set or combination of interior non-structural alterations
to the Building costing less than Twenty-Five Thousand
($25,000.00) Dollars. Tenant shall advise Landlord prior to
commencing any such alterations. Notwithstanding the foregoing,
if the consent of any Mortgagee is required for any alteration
proposed by Tenant, Tenant shall not commence that alteration
until the Mortgagee consents. Landlord shall cooperate with
Tenant in seeking any such consent.
(c) Alterations shall be considered part of the
Premises.
<PAGE>
Section 5.09. Tenant's Equipment.
(a) "Tenant's Equipment" means: racks and other movable
trade fixtures, equipment, furniture and decorations installed in
the Building by Tenant. However, heating, ventilating, air
conditioning, plumbing, electrical, fire prevention, smoke and
fire detection, burglar alarm and illumination equipment,
installed by Tenant shall not be considered to be a part of
Tenant's Equipment and shall be considered part of the Premises.
(b) Tenant shall be entitled to affix Tenant's
Equipment to, to install Tenant's Equipment in, and to remove
Tenant's Equipment from, the Premises. Tenant's Equipment shall
be the property of Tenant and shall not be deemed to be part of
the Premises or subject to this Lease.
(c) Upon the Expiration Date, Tenant shall remove
Tenant's Equipment. Upon removal of Tenant's Equipment, Tenant
shall repair any damage to the Premises which shall have resulted
from affixing, installing, or removing Tenant's Equipment.
Section 5.10. Insurance.
(a) Tenant shall maintain comprehensive general
liability insurance with respect to the Premises in amounts not
less than Three Million ($3,000,000.00) Dollars for each
occurrence or person as to personal injury and One Million
($1,000,000.00) Dollars for each occurrence as to property
damage.
(b) Tenant's insurance policy shall be issued by an
insurer of recognized responsibility and shall be reasonably
satisfactory to Landlord in form and substance. Landlord, and
upon request of Landlord, any Mortgagee, Master Lessor or other
designee of Landlord shall be named as additional insureds.
(c) Upon the execution of this Lease by Tenant,
Tenant's insurance policy shall be delivered to Landlord.
(d) Tenant's insurance policy shall provide, in
effect, that the policy may not be cancelled, reduced in amount,
or modified by the insurer until at least twenty days after the
insurer shall have notified Landlord and Tenant in writing.
(e) Tenant may carry this insurance under a blanket
insurance policy. If Tenant elects to do so, in lieu of the
delivery of a copy of the actual insurance policy, Tenant may
deliver a certificate of the insurance company evidencing the
policy and required endorsements, and, upon the request of
Landlord, a copy of a specimen policy which sets forth the terms
and conditions of the coverage of the blanket policy.
(f) "Insurance Requirements" means the applicable
provisions of the insurance policy carried by Landlord covering
the Premises; all requirements of the insurer of any such policy;
and all orders, rules, regulations and other requirements of any
insurance service office which serves the community in which the
Premises are situated.
Section 5.11. Insurance Contributions.
Tenant shall pay Insurance Contributions to Landlord
in accordance with the following:
(a) "Insurance Contributions" means Tenant's Pro Rata
Share of the cost of insurance maintained by Landlord with
respect to the Building and Building Lot. Insurance Contributions
shall be payable from and after the Commencement Date.
<PAGE>
(b) (i) "Insurance" includes fire insurance with
extended coverage, rental insurance, and public liability
insurance.
(ii) Tenant shall pay monthly installments on
account of Insurance Contributions to Landlord. Until changed
in accordance with part (iii), the installments shall be
an amount reasonably estimated by Landlord. Installments shall be
due in advance. If the Commencement Date is not the first day of
a month, Tenant shall pay a partial installment to Landlord on
the Commencement Date. The partial installment shall be an
equitable share of a full month's installment. If the
Commencement Date is the first day of a month, a full installment
shall be paid on the Commencement Date. Each subsequent
installment shall be due on the first day of each succeeding
month.
(iii) For each Lease Year after the first Lease
Year, monthly installments payable on account of Insurance
Contributions for a Lease Year shall be the Insurance
Contributions for the preceding Lease Year divided by the number
of months in the preceding Lease Year.
(iv) If the monthly payments made by Tenant on
account of the Insurance Contributions for any Lease Year are not
sufficient to fully pay the Insurance Contributions for that
Lease Year, Tenant shall pay the deficiency to Landlord. Tenant
shall pay the deficiency within ten days after the Landlord
renders its bill for the deficiency. If monthly payments on
account of Insurance Contributions are in excess of Insurance
Contributions for that Lease Year, Landlord shall reimburse Tenant
for the excess payments at the end of that Lease Year.
Section 5.12. Destruction.
(a) If the whole or any portion of the Building is
damaged by fire or insurable casualty and this Lease is not
terminated pursuant to subsection 5.12(b), rent shall abate from
the date of such occurrence in the proportion that the portion of
the Building rendered unusable bears to the entire floor area
contained within the Building until the Building, or damaged
portion of it, shall be rebuilt or repaired as provided in this
Section. If Landlord shall carry full rental insurance for a
period of at least one year, the extent to which rent shall abate
shall be equal to the amount of rental insurance proceeds
actually paid to Landlord.
(b) If the Building shall be damaged by fire or other
insurable casualty this Lease shall not be terminated except as
set forth in this subsection. If the damage is not substantially
repaired by Landlord in accordance with subsection 5.12(c) within
one year after its occurrence, the rental abatement shall continue
and Tenant may cancel this Lease by giving notice to Landlord
within thirty days after the end of that year. If the Building
shall be damaged by fire or other casualty to the extent of
thirty percent or more of its replacement value during the last
two years of the Term, either party shall have the right to
cancel this Lease by giving notice to the other within ninety
days following the casualty. Tenant hereby waives all other
rights to terminate this Lease it may have by reason of damage to
the Building or other portions of the Premises as a result of fire
or other casualty pursuant to any presently existing or hereafter
enacted statute or other law.
<PAGE>
(c) If all or any portion of the Building is damaged
by fire or other casualty insurable under a standard fire
insurance policy with standard extended coverage endorsements and
this Lease is not terminated, Landlord shall, within a reasonable
time after the occurrence, repair or rebuild the Building or the
damaged portion to its condition immediately prior to the
occurrence, except for leasehold improvements and alterations
made by Tenant. Tenant shall be required to repair any damage to
leasehold improvements and alterations made by Tenant.
(d) If this Lease is cancelled in accordance with this
section, Rent shall be equitably pro-rated as of the date of
cancellation.
Section 5.13. Subrogation.
(a) Landlord and Tenant hereby release each other and
each other's officers, directors, employees and agents from
liability or responsibility for any loss or damage to
property covered by valid and collectable fire insurance with
standard extended coverage endorsement.
(b) This release shall apply not only to liability and
responsibility of the parties to each other but shall also extend
to liability and responsibility for anyone claiming through or
under the parties by way of subrogation or otherwise. This
release shall apply even if the fire or other casualty shall have
been caused by the fault or negligence of a party or anyone for
whom a party may be responsible.
(c) This release shall not apply to loss or damage of
property of a party unless the loss or damage occurs when the
fire or extended coverage insurance policies of the party contain
a clause or endorsement to the effect that any release shall not
adversely affect or impair the policies or prejudice the right of
the party to recover under it. Landlord and Tenant each agree that
fire and extended coverage insurance policies covering the
Building, Premises or their contents shall include this clause or
endorsement as long as it shall be obtainable without extra cost,
or, if extra cost shall be charged, so long as the other party
pays the extra cost. If extra cost shall be chargeable, the
party whose policy is subject to the extra cost shall advise the
other, and of the amount of the extra cost.
Section 5.14. Taking of the Premises.
(a) (i) "Taking" means: The Taking of, or damage to,
all or part of the Premises as a result of the exercise of any
power of eminent domain or purchase under threat thereof.
(ii) "Taking Date" means: the date on which the
condemning authority shall have the right to possession of all or
part of the Premises.
(iii) "Award" means the Award for, or proceeds
of, any Taking less the expenses of collecting the Award,
including fees of attorneys and appraisers.
(b) (i) Landlord shall be entitled to the entire Award
for any Taking of all or any part of the Premises. Tenant hereby
assigns to Landlord any share of such Award which may be awarded
to it. However, Tenant shall have a right to prosecute Tenant's
separate claim for loss of its personal property, if any,
relocation and moving expenses, and the unamortized value of the
initial Tenant's leasehold improvements made by Tenant.
<PAGE>
(ii) For the purposes of this subsection (b), the
unamortized value of Tenant's leasehold improvements shall be
equal to the lesser of $500,000.00 or the cost of the initial
leasehold improvements included as part of Tenant's Work,
amortized on a straight line basis over ten years commencing on
the Commencement Date.
(iii) Tenant hereby waives and assigns to
Landlord any right to any portion of the Award for the loss of
its leasehold interest in the Premises.
(c) (i) If there is a permanent Taking of more than
twenty-five percent of the Building, either party shall have the
option to cancel this Lease by giving notice to the other within
ninety days after the Taking Date.
(ii) If there is a permanent Taking of more than
twenty-five percent of the parking spaces located within the
Building Lot and Landlord does not agree to provide up to
seventy-five percent of the previously available parking spaces
in a location or locations reasonably satisfactory to Tenant,
Tenant may cancel this Lease by giving Landlord notice within
ninety days after the Taking. Landlord shall make all reasonable
efforts to replace all Taken parking spaces with an equal number
of ground level parking spaces in an area which shall be in
compliance with applicable zoning laws, if any.
(d) If this Lease is not cancelled, the following shall
apply:
(i) Landlord shall restore the Premises to the
extent practical to render them reasonably suitable for the use
as set forth in Section 5.01.
(ii) The annual rate of Basic Rent shall be
reduced in accordance with the following:
(x) The applicable per square foot annual
rate or rates of Basic Rent shall be reduced by an
amount. The amount by which Basic Rent shall be
reduced shall be the product of the applicable per
square foot annual rate or rates of Basic Rent
multiplied by the number of square feet of the
Building Taken; and
(y) Any reduction in the annual rate of
Basic Rent shall be effective as of the Taking Date.
(iii) For the purposes of this subsection (d),
the floor area of the Building shall be deemed to be 83,764
square feet.
(e) If this Lease is cancelled in accordance with this
section, Rent shall be equitably pro-rated as of the date of
cancellation.
Section 5.15. Insurance Requirements.
Tenant agrees to comply with all of Insurance
Requirements relating to or affecting the Premises. If, as a
result of Tenant's failure to do so or as a result of or in
connection with the use to which the Premises is put by Tenant,
the insurance rates applicable to the Premises shall be
increased, Tenant shall pay to Landlord, on demand, the portion
of the premiums for all insurance policies that shall be
attributable to the increase caused by Tenant. If any such
requirement requires a repair, addition or alteration to the
Premises, Tenant's obligations shall be limited to those portions
of the Premises which Tenant is required to repair in accordance
with Section 5.04.
<PAGE>
Section 5.16. Access to Premises, Easement for Pipes.
(a) Landlord and any Mortgagee of the Premises shall each be
entitled to:
(i) inspect the Premises at reasonable times and
upon reasonable notice; and
(ii) access to the Premises for the purpose of
exercising Landlord's rights under this Lease.
(b) Landlord hereby reserves the following rights and
privileges:
(i) an easement for all existing wires, pipes,
lines, conduits and related installations now running in, on,
under or over the Premises to remain in the locations in which
they are situated;
(ii) an easement to install new wires and new
pipes, wires, conduits and related installations in, on, over,
and under the Premises, as long as such new installations do not
unreasonably interfere with Tenant's use of the Premises,
Landlord shall repair any damage caused by the Premises by any
such action. The work shall be performed at reasonable times and
upon reasonable advance notice; and
(iii) a non-exclusive easement for persons and
vehicles to pass over the existing roadways at the Building Lot
to and from the entrance and exitways at the Premises and the
other premises presently owned by Landlord which is adjacent to
the Premises, including but not limited to the right to use all
existing driveways.
(c) Tenant shall not erect any barriers or other
installations which shall interfere with Landlord's rights under
this Section.
(d) In exercising Landlord's rights of entry under
this Section, Landlord shall give Tenant such oral or written
notice as shall be reasonable under the circumstances.
Section 5.17. Signs on the Premises.
Tenant may install signs at the Premises. Tenant's
signs must comply with all applicable legal requirements. Tenant
shall apply for and pay the cost of all permits and approvals
required in connection with Tenant's signs. Landlord shall join
in those applications, if necessary.
ARTICLE VI
UTILITIES
Section 6.01. Electricity.
Landlord is presently supplying electricity service to
the Premises. That service is measured by an existing check meter
or meters. Tenant shall maintain those meters and shall pay to
Landlord the cost of electricity service measured by those
meters. The payment shall be due within ten days after Landlord
renders its bill. The amount of the payment shall be equal to the
amount of consumption during the period in question as measured
by the meter(s) multiplied by a rate which shall not exceed the rate,
<PAGE>
including any surcharge or fuel adjustment, which Tenant would
otherwise be obligated to pay to the utility company if
electricity were supplied to the Premises directly by the utility
company. Upon sufficient advance notice, Landlord may elect to
discontinue supplying electricity service to the Premises. If
Landlord does so, Tenant shall be obligated to arrange with the
utility company servicing the Premises for electricity service on
Tenant's account.
Section 6.02. Gas.
Tenant shall arrange with the utility company
servicing the Premises for gas service (if applicable), on
Tenant's account, to be provided to the Premises. If necessary,
Tenant shall install a gas meter or meters. Tenant shall maintain
any meter. Tenant shall pay for all gas service used at the
Premises.
Section 6.03. Water.
Tenant shall arrange with utility company servicing
the Premises for water, on Tenant's account, to be provided to
the Premises. If necessary, Tenant shall install a water meter or
meters. Tenant shall maintain any meter. Tenant shall pay for all
water used at the Premises.
Section 6.04. Frontage of Other Charges.
If any sewer rent, frontage charge or any similar
charge is imposed in connection with Tenant's consumption of
water or usage of the water system or sewerage system servicing
the Premises, Tenant shall promptly pay those charges directly to
the governmental authority or utility company imposing those
charges.
Section 6.05. Heat, Air Conditioning and Hot Water.
(a) Tenant shall pay for its own for heat, air conditioning,
if any, and hot water at the Building.
(b) Tenant agrees to maintain heat at the Building at
all times at a level reasonably estimated by Landlord to keep
waterpipes and sprinklers, if any, in the Building from freezing
and to otherwise prevent damage to the Building.
(c) Tenant shall be permitted to use all existing
utility lines and conduits located within the Premises and
servicing the Building.
ARTICLE VII.
PARKING AREAS AND BUILDING LOT
Section 7.01. Supplementary Parking Area.
The Supplementary Parking Area is a portion of a
parking area located within the premises adjacent to the
Premises. The Supplementary Parking Area is located as shown on
Exhibit A. Landlord shall have the right to relocate the
Supplementary Parking Area from time to time to other locations
within that adjacent Premises. Tenant shall have the right to use
up to 209 exclusive parking places with respect to the Premises.
If the Premises does not contain 209 spaces, then Tenant shall
have the exclusive use of a number of parking places located
within the
<PAGE>
Supplementary Parking Area equal to the difference between 209
and the number of parking place located upon the Premises. Tenant
shall also have the right to use 141 non-exclusive parking places
within the Supplementary Parking Area. Tenant shall have 24 hour
access to the Supplemental Parking Area.
Section 7.02. Maintenance of Building Lot.
Tenant shall maintain, repair and clean the Building
Lot in order to keep the Building Lot in good order and repair
throughout the Term.
Section 7.03. Supplementary Parking Area Contributions.
(a) Tenant shall pay to Landlord within 30 days after
Landlord renders a bill therefor, Tenant's share of the
reasonable costs incurred by Landlord in operating, repairing and
maintaining the Supplementary Parking Area, including the cost of
cleaning, real estate taxes, patching, striping, lighting, and
snow removal. Except for repaving, Tenant shall not be obligated
to contribute towards the cost of improvements of a capital
nature. Tenant's share of the cost shall be in proportion to a
fraction. The numerator of the fraction shall be the number of
spaces, exclusive and non-exclusive, which Tenant has the right
to use at the Supplementary Parking Area. The denominator of the
fraction shall be the number of parking places located within the
Supplementary Parking Area which Tenant and other tenants at the
premises adjacent to the Premises have the right to use. Landlord
shall render no more than 12 bills each year.
(b) Landlord shall maintain records of the expenses
incurred by Landlord with respect to the Supplementary Parking
Area. The records shall be kept at Landlord's principal office.
Upon reasonable notice, from time to time, Tenant shall have the
right to inspect and audit those records. The records shall be
maintained until the first anniversary of the date Landlord
renders a bill with respect to those expenses.
(c) Landlord's failure to render a bill for any period
occurring during the Term shall not be construed as a waiver of
Landlord's right to any payment due under this Section.
(d) Tenant shall only be required to bear its share of
those expenses incurred during the Term. This provision and
Tenant's liability under this Section shall survive the
expiration or termination of this Lease.
(e) Landlord agrees to repair and maintain the
Supplementary Parking Area in a reasonable manner and to commence
to remove snow from it within a reasonable time after the end of
a snow fall.
ARTICLE VIII
INTERESTS IN THE PREMISES
AND TRANSFER OF INTEREST
Section 8.01. Assignment of Tenant's Interest.
(a) Tenant shall not assign its leasehold interest
under this Lease or sublet all or any part of the Premises
without Landlord's prior written consent. Subject to Landlord's
rights under subsection 8.01(b), Landlord's consent to an
assignment of this Lease or a subletting of the entire Premises
shall not be unreasonably withheld. No assignment or subletting
shall relieve Tenant of any obligations under this Lease. A
transfer of a controlling interest in Tenant's stock shall be
regarded as an assignment in the context of this Section 8.01.
-17-
<PAGE>
(b) (i) Prior to listing the Premises with a broker,
offering the Premises to others, or advertising the availability
of the Premises, Tenant agrees to notify Landlord if Tenant
desires to assign this Lease or sublet the entire Premises to any
party other than a party referred to in subsection 8.01(e).
(ii) If Tenant shall seek to assign this Lease or
sublet the whole of the Premises to an unaffiliated party, Tenant
shall notify Landlord of the identity of the proposed assignee or
sublessee and deliver to Landlord an executed counterpart of the
assignment agreement or sublease. Upon receipt by Landlord of
Tenant's notice given in accordance with this part (ii), Landlord
shall have the option to terminate this Lease. Landlord may
exercise its option to terminate this Lease by giving Tenant
written notice not later than sixty days after receipt of that
notice. If Landlord shall exercise its option to terminate this
Lease, the Lease shall terminate on the date rent under the
proposed sublease shall be scheduled to commence or the
effective date of the assignment. Any sublease or assignment
shall be entered into expressly subject to Landlord's rights
under this part (ii).
(iii) Upon termination, Landlord shall be
relieved of all obligations or liabilities set forth in this
Lease, except for accrued liabilities and except for those
liabilities which specifically are to survive a termination or
cancellation of this Lease. Upon termination and surrender of
possession of the Premises in accordance with Section 5.07,
Tenant shall be relieved of all obligations or liabilities set
forth in this Lease, except for accrued liabilities and except
for those liabilities which specifically are to survive a
termination or cancellation of this Lease.
(c) An assignment of Tenant's leasehold interest shall
not be effective unless and until assignor shall give notice of
the assignment to Landlord and the assignee assumes all of
Tenant's obligations under this Lease. A sublease shall not be
effective unless and until Tenant shall deliver to Landlord an
originally executed counterpart of the sublease agreement.
(d) The provisions of this Section shall apply to
Tenant, its sublessees, successors or assigns.
(e) Landlord hereby consents that Tenant may assign
this Lease or sublet the entire Premises to Tenant's parent, any
subsidiary or affiliate of Tenant, to any corporation which
merges with Tenant or to any party which purchases all or a
substantial portion of the assets or stock of Tenant. The
provisions of subsection 8.01(b) shall not apply to any such
assignment or subletting.
Section 8.02. Estoppel Certificates.
(a) Within ten days after request therefor, either
party shall deliver an Estoppel Certificate to the other party.
(b) An Estoppel Certificate shall set forth the
following statements to the best of the knowledge of the party
certifying:
(i) that this Lease has not been supplemented or
amended; or if it is alleged that this Lease shall have been
supplemented or amended, the manner in which it has been
supplemented or amended shall be specified;
<PAGE>
(ii) that this Lease is not in full force and
effect, or if it is alleged that this Lease is not in full force
and effect, the reasons for the allegations shall be specified;
(iii) the date to which Basic Rent and Additional
Rent have been paid; and
(iv) that there exists no condition which
constitutes an Event of Default; or if it is alleged that such
condition exists, the nature of the condition shall be specified.
(c) An Estoppel Certificate may be relied upon by the
party requesting it or any other person to whom the Estoppel
Certificate may be exhibited or delivered. The contents of each
Estoppel Certificate shall be binding on the party which executed
it.
Section 8.03. Subordination.
(a) Tenant shall subordinate the lien of this Lease to
each Mortgage or Master Lease which may encumber the Premises
from time to time, and Tenant hereby agrees to attorn to any
Mortgagee or Master Lessor upon the request of either.
(b) (i) "Mortgage" means: any mortgage, deed of
trust or deed to secure debt which encumbers all or part of the
Premises, any modification, consolidation or extension of any
of the foregoing instruments; and any spreading agreements.
(ii) "Mortgagee" means: the holder of a Mortgage.
(iii) "Master Lease" means a lease of the
Premises or a lease of the ground underlying the Premises between
the owner thereof, as lessor, and Landlord, as lessee, giving
rise to Landlord's rights and privileges in the Premises or the
underlying land as the case may be.
(iv) "Master Lessor" means: the owner from time to
time of the lessor's interest under a Master Lease.
(c) Notwithstanding the provisions of subsection
8.03.(a), this Lease shall not be subordinate to any Master Lease
or Mortgage, unless the Master Lessor or Mortgagee shall agree in
writing to the effect that this Lease and Tenant's rights under
it in the event of a termination of the Master Lease or a
foreclosure of the Mortgage, respectively shall not be
terminated.
(d) If the agreements referred to in subsection
8.03(c) are not executed by the existing Mortgagee and Master
Lessor within 60 days after fully executed counterparts of this
Lease are exchanged by Landlord and Tenant then, Tenant shall
have the right to cancel this Lease by notifying Landlord within
ten days following that 60 day period. Tenant's sole remedy for
the failure of a Mortgagee of Master Lessor to execute such an
agreement shall be the right to cancel this Lease. If Tenant
elects to cancel this Lease, both parties shall be relieved of
all further liability under it.
Section 8.04. Transfer of Landlord's Interest.
(a) The following shall apply if Landlord's interest in
the Premises is a leasehold interest: "Landlord" means: the
owner of the Premises or the Mortgagee in possession of the
Premises for the time being. Each time the Premises is sold, the
Seller shall be entirely relieved of all obligations and
<PAGE>
liability as Landlord under this Lease, accruing after the date
of the transfer. If a person who owns the Premises leases its
reversionary interest in the Premises to another person subject
to the lien of this Lease, the lessor shall be relieved of all of
its liability as Landlord under this Lease, accruing after the
date of the transfer.
(b) The following shall apply if the Landlord's interest in
the Premises is a leasehold interest: "Landlord" means: only the
owner of the leasehold estate in the Premises under a lease of
the reversionary interest in the Premises. Each time that
leasehold interest is assigned, the assignor shall be entirely
relieved of any obligations or liability under this Lease,
accruing after the date of the transfer. If the owner of the
leasehold estate also becomes the owner of the fee interest,
subsection (a) of this Section 8.04 shall apply instead of this
subsection.
Section 8.05. Brokerage.
Tenant represents that there was no broker or other
party, instrumental in consummating this Lease and no
conversations or prior negotiations were had with any broker or
other party concerning the renting of the Premises. Tenant agrees
to hold Landlord harmless against any claims for brokerage
commission or compensation arising out of any conversation or
negotiation had by Tenant with any broker or other party.
Section 8.06. Financial Statements.
On or before June 1st of each year, Tenant shall
deliver a complete financial statement of Tenant for Tenant's
fiscal year ending immediately prior to that June 1st. The
statement shall be certified as correct by an independent
certified public accountant.
Section 8.07. Landlord's Representation.
Landlord hereby represents as follows:
(i) Landlord is the holder of a leasehold estate
in the Premises and premises adjacent to the Premises.
(ii) Landlord's leasehold estate extends beyond
the Expiration Date of this Lease.
(iii) The Premises is encumbered by a Mortgage
granted to John Hancock Life Insurance Company to insure a debt
having an initial principal amount of $5,500,000.00.
(iv) No other Mortgage encumbers the Premises.
(v) Annexed as Exhibit C is a photocopy of a
title policy issued as of August 15, 1973.
(vi) The unrecorded sidetrack agreement referred
to in the deed recorded in Book 4036, Page 580 does not
materially adversely offset Tenant's use of the Premises and
shall not require Tenant to pay for the use of it (unless
Landlord shall hereafter permit Tenant to use it).
(vii) There have been no changes in the state of
title to the Premises or state of facts shown on the survey dated
March 5, 1973 by John A. Doolittle & Co. since August 15, 1973 which
would materially adversely affect Tenant's use of the Premises.
<PAGE>
Tenant agrees to order a title report for the Premises
If the title report shall reveal any condition or title defect
which renders Landlord's representation set forth in part (vi)
incorrect, Tenant's sole remedy shall be to cancel this Lease by
giving notice to Landlord within 45 days after the date of this
Lease. Tenant's notice must set forth the contended defect.
ARTICLE IX
DEFAULTS, DISPUTES AND REMEDIES
Section 9.01 Events of Default of Tenant.
(a) Each of the following events shall constitute an
"Event of Default" by Tenant under this Lease:
(i) If Tenant fails to pay any Rent when due, and
Tenant does not cure the failure within ten days after Landlord
shall have given notice to Tenant of such failure.
(ii) If Tenant fails to comply with any of its
other obligations of this Lease, and Tenant does not cure the
failure within twenty days after Landlord shall have given notice
to Tenant of such failure. However, if the obligations is of such
a nature that it can not be performed within that twenty day
period, Tenant shall not be deemed to be in default if Tenant
commences to perform the obligations within that twenty day
period and diligently prosecutes the performance to completion.
Section 9.02. Rights and Remedies Upon Default.
If an Event of Default occurs with respect to Tenant,
Landlord shall be entitled to take any action it deems advisable,
from time to time, under any one or more of the provision of this
Section 9.02 or Section 9.03.
(a) Landlord may proceed as it deems advisable, at law
or in equity, to enforce the provisions of this Lease.
(b) Landlord may notify Tenant that this Lease shall
terminate on a date specified in the notice, and this Lease shall
terminate on the date so specified. Notwithstanding such
termination, Tenant's liability under this Lease shall survive.
(c) Landlord may reenter the Premises and may
repossess the Premises by summary proceedings, ejectment or
otherwise. Landlord may dispossess Tenant and may remove Tenant
from the Premises without further notice to Tenant.
Notwithstanding any such repossession, re-entry or ejectment,
Tenant's liability under this Lease shall survive.
(d) Landlord may relet the Premises as a whole or in
part and for such term and extensions as Landlord determines. The
term and extensions may be greater or less than the period which
would have constituted the balance of the Term if this Lease had
not been terminated.
(d) Tenant shall pay the following amounts to
Landlord, as liquidated and agreed current damages, on each date
when an installment of Rent would have been payable if this Lease
had not been terminated:
(i) The installment of Rent which would have been
payable on that date, minus the rent (if any) received by
Landlord with respect to the reletting of the Premises during the
period with respect to which such installment of Rent would have
been payable, plus
<PAGE>
(ii) All amounts paid by Landlord during such
period representing (x) other charges that would have been
payable by Tenant if this Lease had not been terminated; and (y)
Landlord's out-of-pocket expenses of reentering, repossessing and
reletting the Premises including attorneys' reasonable fees and
disbursements, commissions of brokers, fees of architects and
engineers in connection with any renovation or alteration, and
the cost of painting, altering or dividing the Premises.
(f) (i) At Landlord's option, Tenant shall pay
liquidated and agreed final damages to Landlord in the amounts
set forth as follows: liquidated and agreed final damages shall
be all Basic Rent and a reasonable estimate of Additional Rent
payable by Tenant under this Lease, for the balance of what would
have been the Term had Landlord not exercised its option under
subsection (b), discounted at present worth at the annual rate
of ten percent minus the fair rental value of the Premises for
the same period discounted to present worth at the same rate.
(ii) If Landlord exercises its option under part
(i) and Tenant pays the amount required to be paid under part
(i), Tenant shall be discharged from all obligations under this
Lease except for any obligations which shall have accrued prior
to the date of the termination under subsection (b).
(g) If this Lease is cancelled pursuant to this Article
IX, or if the Premises is repossessed pursuant to this Article
IX, Tenant waives any right of redemption, reentry or
repossession and any right to a trial by jury in the event of
summary proceedings.
Section 9.03. Landlord's Right to Cure Potential Defaults.
If Tenant shall fail to perform any of its obligations
under this Lease, after notice which is reasonable under the
circumstances is given to Tenant, Landlord shall have the right
to perform the obligation for the account and at the expense of
Tenant whether or not an Event of Default shall have occurred. In
connection therewith, Landlord may pay any reasonable expenses
necessary for such performance. If Tenant fails or refuses to
reimburse Landlord for the expenses, any fees of attorneys or
other professionals incurred in connection with such performance,
and interest at the highest rate legally allowable under the
circumstances, that amount shall be added to the next
installment of Basic Rent.
Section 9.04. Exculpation.
Landlord shall have absolutely no personal liability
with respect to any provision, of this Lease. In case Landlord
shall be a joint venture, partnership, tenancy in common,
association or other type of joint ownership, the members of the
venture, partnership, association or other form of joint
ownership shall have absolutely no personal liability with
respect to any provision of this Lease. If Tenant shall contend
that Landlord shall have any liability to Tenant, Tenant shall
look solely to the equity of the owner of the Premises at the
time the liability arose for the satisfaction of any remedies of
Tenant. If Landlord's interest is a leasehold interest, Tenant
shall look solely to the leasehold interest for the satisfaction
of any remedies. This exculpation of liability shall be absolute
and without exception.
<PAGE>
Section 9.05. Waiver of Right of Redemption.
Tenant hereby expressly waives (to the extent legally
permissible), for itself and for all persons claiming by,
through, or under it, any right of redemption or for the
restoration of the operation of this Lease under any present or
future law in case Tenant shall be dispossessed for any cause, or
in case Landlord shall obtain possession of the Premises as
provided for in this Lease.
Section 9.06. Waiver of Trial By Jury.
Tenant hereby waive all right to trial by jury in any
claim, action, proceeding or counterclaim by Landlord against
Tenant on any matters arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant, or Tenant's
use or occupancy of the Premises.
ARTICLE X
INTERPRETATION AND NOTICE
Section 10.01. Interpretation.
Captions and headings used in this Lease are for
reference only. They shall not affect the interpretation of any
portion of this Lease. The use of the word "it" or "its" in
reference to a party shall be a proper reference even if that
party is a partnership, an individual or two or more individuals.
A provision that requires a party to perform an action shall be
construed as requiring the party to perform the action or to
cause the action to be performed, at that party's sole cost and
expense except when expressly provided to the contrary. A
provision that prohibits a party from performing an action shall
be construed as prohibiting such party from performing the action
and requiring the party to take all practical and legal steps to
prevent others from performing the action. "Including" means:
"including but not limited to". "Repair" includes the words
"replacement and restoration", "replacement or restoration",
"replace and restore", "replace or restore", as the case may be.
The singular includes the plural; the plural includes the
singular. "Any" means: "any and all". The term "reentry" shall
not be restricted to its technical legal meaning. If any
provision of this Lease shall be held to be invalid or
unenforceable to any extent, the remainder of this Lease shall
not be affected, and each provision of this Lease shall be valid
and shall be enforced to the fullest extent permitted by Law.
Section 10.02. Communications.
(a) Notices, requests, consents, approvals and other
communications under this Lease shall be effective only if in
writing, if mailed by registered or certified mail, return
receipt requested, postage prepaid, and if properly addressed.
(b) Communications shall be properly addressed only
if addressed as follows:
<PAGE>
(i) if intended for Landlord, the communication
shall be addressed as set forth on page 1, Attention: Real Estate
Department, or such other address as Landlord designates by
giving notice thereof to Tenant, with a copy thereof to Zissu
Berman Halper Barron & Gumbinger, 450 Park Avenue, New York, New
York 10022.
(ii) if intended for Tenant, the communication
shall be addressed as set forth on page 1, Attention: Vice
President, Finance or to such other address as Tenant designates
by giving notice thereto to Landlord with a copy thereof to
Rosenman Colin Freund Lewis & Cohen, 575 Madison Avenue, New
York, New York 10022.
(c) All notices shall be effective when received.
Section 10.03. Covenant of Quiet Enjoyment.
Landlord covenants that if Tenant pays the rent and
all other charges provided for in this Lease, performs all of its
other obligations, and observes all of the other provisions of
this Lease, Tenant shall at all times during the Term peaceably
and quietly have, hold and enjoy the Premises, without any
interruption or disturbance from Landlord, subject to the terms
of this Lease.
Section 10.04. Heirs, Successors and Assigns. This
Lease may not be changed or cancelled orally. This Lease shall be
binding upon the heirs, executors, administrators, personal
representatives, assigns and successors of the parties hereto.
Section 10.05. Counterparts and Exhibits. All exhibits
attached to this Lease are intended to be part of this Lease.
More than one counterpart of this Lease has been executed, but
each such counterpart shall constitute but one and the same
instrument.
Section 10.06. Execution. Notwithstanding anything to
the contrary, this Lease shall not be in force and effect and
shall not be binding upon any party unless and until actual and
complete counterparts of this Lease are properly executed by
Landlord and Tenant or by their respective duly authorized
officers, and such fully executed counterparts are exchanged by,
or delivered to each party.
Section 10.07. Com????????.
(a) Notices, requests, consents, approvals and other
communications ??? this Lease shall be effective only if in
writing, if mailed by registered or certified mail, return
receipt requested, postage prepaid, and if properly addressed.
(b) ??????? shall be ???????? addressed only if
???????? ?????? ?????????.
To signify its agreement to this instrument, Landlord
and Tenant have each caused this instrument to be executed and
attested to by their respective duly authorized officers.
ATTEST: LANDLORD:
VORNADO, INC.
/s/ Thomas Seiler By: /s/ Frederick Zissu
- ---------------------------- -------------------------
THOMAS SEILER FREDERICK ZISSU
SECRETARY CHAIRMAN OF THE BOARD
ATTEST: TENANT:
POPULAR SERVICES, INC.
By: /s/ James D. Rose
- ---------------------------- -------------------------
Assistant Secretary Vice President
AGREEMENT OF SUBLEASE
between
REVLON HOLDINGS INC. a Delaware Corporation, as Sublessor
and
POPULAR CLUB PLAN, INC. a New Jersey Corporation, as Sublessee
Dated: November 4, 1993
GREENBAUM, ROWE, SMITH, RAVIN & DAVIS
Metro Corporate Campus One
P.O. Box 5600
Woodbridge, New Jersey 07095-0988
<PAGE>
TABLE OF CONTENTS
ARTICLE I....................................................... 1
Demise, Premises and Terms of Prime Lease................. 1
Section 1.1 Demise and Premises....................... 1
Section 1.2. The Prime Lease........................... 1
ARTICLE II...................................................... 3
Term, Commencement, Right of Renewal...................... 3
Section 2.1 Term and Commencement for IDP............. 3
Section 2.2 Occupancy Prior to Commencement........... 4
Section 2.3 Pro-Rata Rent During Pre-Commencement
Occupancy................................. 4
Section 2.4 Right of Renewal.......................... 4
Section 2.5 Certain Provisions Applicable to
All Extensions of the Sublease............ 5
ARTICLE III..................................................... 5
Expansion Options of Sublessee............................ 5
Section 3.1 Expansion #1 Option....................... 5
Section 3.2 Expansion #2 Option....................... 6
Section 3.3 Sublessor Cooperation..................... 7
Section 3.4 When Construction Funded and Performed
By Sublessee.............................. 7
Section 3.5 Funding of Construction
Costs by Sublessor-Procedure.............. 7
Section 3.6 Covenants of General
Application for Expansions................13
ARTICLE IV......................................................13
Covenants.................................................13
Section 4.1 Covenants Regarding
Condition of Demised Premises
and other Matters.........................14
ARTICLE V.......................................................14
Rent and Payment..........................................14
Section 5.1 Basic Rent During the Period
February 1, 1994 to
January 31, 1999..........................14
Section 5.2 Basic Rent For The IDP
During the Period February 1,
1999 to April 30, 2004....................14
Section 5.3 Basic Rent Concession.....................14
Section 5.4 Payment of Rent...........................15
Section 5.5 Additional Rent...........................15
Section 5.6 Basic Rent For the Balance of the Term....15
Section 5.7 Rent for Expansion #1 Space...............15
Section 5.8 Determination of the
Notice Date Interest Rate.................16
Section 5.9 Determination of the Completion Date
Interest Rate.............................16
Section 5.10 Rental for Expansion #1 Space
Following the Ten Year Expansion #1
Rent Period...............................16
Section 5.11 Rental for Expansion Space if
Sublessee Pays Construction Costs.........16
Section 5.12 Timing of Completion of Expansion
#1 Space..................................16
Section 5.13 Calculation of Aggregate Construction
Cost of Expansion #1......................17
Section 5.14 Sublessee to Complete Construction
Work and Use of CBA.......................17
Section 5.15 Overcharge or Deficiency in Completion
Budget Amount.............................17
<PAGE>
ARTICLE VI......................................................17
Construction Or Other Work................................17
Section 6.1 Conditions As To Construction Work,
Expansion Space, and as to Repairs,
Alterations, Replacements or Other Work...17
ARTICLE VII.....................................................19
Mechanic's Liens..........................................19
Section 7.1 Mechanic's Liens Prohibited...............19
Section 7.2 Sublessor's Remedy for Sublessee's
Breach....................................19
Section 7.3 Non-Consent of Sublessor to Filing
of Liens..................................19
ARTICLE VIII....................................................19
Notices...................................................19
Section 8.1 Notices...................................19
ARTICLE IX......................................................20
Memorandum of Sublease....................................20
Section 9.1 Memorandum of Sublease....................20
ARTICLE X.......................................................20
Use.......................................................20
Section 10.1 Use.......................................20
ARTICLE XI......................................................20
Defaults and Remedies.....................................20
Section 11.1 Sublessee's Defaults......................20
Section 11.2 Sublessor's Remedies......................21
Section 11.3 Sublessor's Damages.......................22
Section 11.4 Waiver of Redemption......................22
Section 11.5 Provisions of Prime Lease as to
Defaults and Remedies Cumulative
with the Provisions of Sublease...........22
ARTICLE XII.....................................................22
General Provisions........................................22
Section 12.1 No Waste..................................22
Section 12.2 Limitation of Sublessor's Liability.......22
Section 12.3 Partial Invalidity........................23
Section 12.4 No Waiver.................................23
Section 12.5 Number and Gender.........................23
Section 12.6 Successors and Assigns....................23
Section 12.7 Article and Marginal Headings.............23
Section 12.8 Entire Agreement..........................23
Section 12.9 Obligations also Covenants................23
Section 12.10 Cost of Performing Obligations............23
Section 12.11 Remedies Cumulative.......................23
Section 12.12 Holding Over..............................23
Section 12.13 Signs.....................................24
Section 12.14 Property Insurance-Special Provision......24
Section 12.15 Brokerage.................................24
Section 12.16 Notice by Sublessee to Mortgagee..........24
Section 12.17 Sublessee Electric........................24
Section 12.18 Conduct of Sublessee's Work...............24
Section 12.19 Interest and Late Payment
Service Charge............................25
Section 12.20 Definitions...............................25
Section 12.21 Governing Law.............................28
ARTICLE XIII....................................................28
Assignment, Subletting, Etc...............................28
Section 13.1 Assignment, Subletting, Etc...............28
ii
<PAGE>
ARTICLE XIV.....................................................29
Compliance with Laws, Rules and Regulations...............29
Section 14.1 Environmental Compliance..................29
EXHIBITS
Site Plan..................................................A
Legal Description..........................................B
Prime Lease................................................C
Schedule of Basic Rent.....................................D
Preliminary Expansion #1 Plans.............................E
Construction Criteria for Expansion #1 and Expansion #2....F
Sublessee Demolition Plan..................................G
iii
<PAGE>
THIS Sublease, dated the 4th day of November, 1993,
between REVLON HOLDINGS INC. (formerly known as Revlon, Inc.), a
corporation of the State of Delaware, having an office at 625
Madison Avenue, New York, New York 10022 (hereinafter designated
as "Sublessor"), and POPULAR CLUB PLAN, INC., a corporation of
the State of New Jersey, having an office at 22 Lincoln Place,
Garfield, New Jersey 07026 ("Sublessee").
W I T N E S S E T H:
ARTICLE I
Demise, Premises and Terms of Prime Lease
Section 1.1 Demise and Premises. Sublessor does hereby
demise and lease to Sublessee and Sublessee does hereby take and
hire from Sublessor all that certain tract or parcel of land,
including the building and improvements erected thereon,
consisting of 369,313 gross rentable square feet (hereinafter
designated as the "Building") as provided herein, situate, lying
and being in the Township of Edison, Middlesex County, New
Jersey, commonly known as 1 Truman Drive, Edison, New Jersey and
shown on the plot plan designated Exhibit A, annexed hereto and
made a part hereof. The lands aforesaid being more particularly
described in Exhibit B annexed hereto and made a part hereof,
together with the rights and privileges, fixtures and equipment
therein and the easements, improvements, tenements, hereditaments
and appurtenances now or hereafter belonging or pertaining
thereto (all referred to hereinafter as the "Demised Premises" or
the "Premises"). The land and improvements demised hereunder
exclusive of any expansion are herein referred to as the Initial
Demised Premises (the "IDP"). If the Sublessor Funded Expansion
#1 Term, Sublessee Funded Expansion #1 Term, and/or Expansion #2
Term, as hereinafter defined, commences, then "Demised Premises"
or "Premises" shall thereafter be deemed to refer to the IDP as
well as the Expansion #1 Space and/or Expansion #2 Space, as
hereinafter defined in Article III. The Sublessee shall have
possession of the Premises for the term and at the rents as
herein provided, subject to the terms, covenants and conditions
herein contained which each of the parties hereto expressly
covenants and agrees to keep, perform and observe.
Section 1.2 The Prime Lease
(a) Except as otherwise expressly provided herein or
in a certain TriParty Agreement among the parties hereto and the
Prime Landlord ("Tri-Party Agreement") incorporated herein by
reference, all of the terms of that certain Lease Agreement dated
as of June 21, 1989 (the "Prime Lease") between SJDH Truman Drive
Trust (the "Prime Landlord") and Revlon, Inc. (the "Prime
Tenant") as they pertain to the Premises are hereby incorporated
into and made a part of this Sublease as if stated at length
herein, and Sublessee accepts this Sublease subject to, and
hereby agrees to be bound by all of the terms, covenants.
conditions and agreements contained in the Prime Lease to be
performed by Sublessor thereunder with respect to the Premises.
The Sublessor is the Prime Tenant under the Prime Lease. The
Sublessor's interest in the Prime Lease was assigned by Sublessor
to Revlon Consumer Products Corporation ("RCPC") by instrument of
assignment dated June 24, 1992 pursuant to which assignment
Sublessor remained primarily and directly liable under the Prime
Lease; the name of Revlon, Inc. was changed by a Certificate of
Amendment to the Certificate of Incorporation dated June 24, 1992
to Revlon Holdings Inc. By Reassignment and Release Agreement of
even date herewith, RCPC has reassigned to Sublessor all of the
tenant's right, title and interest and obligations under the
Prime Lease and RCPC is released from all obligations and
liabilities under the Prime Lease.
(b) Sublessor has heretofore provided Sublessee with a
true and accurate copy of the Prime Lease, a copy of which is
attached hereto as Exhibit C, which Prime Lease, as provided to
Sublessee, has not since been modified or amended, except as
provided in the Tri-
<PAGE>
Party Agreement, and there is no other agreement or
understanding, other than the Tri-Party Agreement, to which
either Sublessor or Prime Landlord is a party varying the
provisions of the Prime Lease or otherwise affecting Sublessee's
rights or obligations under this Sublease. Sublessor further
represents that, as of the date of execution hereof, Sublessor
knows of no default and has not given notice to Prime Landlord of
any default and has not received any written notice of default
under the Prime Lease and the Prime Lease is in full force and
effect.
(c) Sublessee acknowledges that it has read and
examined the Prime Lease and is fully familiar with all of the
provisions thereof on the Prime Tenant's part to be performed,
and, subject to the express provisions of this Sublease, those
provisions applying to the Prime Landlord therein shall apply to
Sublessor and those applying to Prime Tenant therein shall apply
to Sublessee except that the following articles, portions and
provisions of the Prime Lease shall not be deemed a part of this
Sublease: the preface and paragraphs 2, 3, 5, 13 and 42. The
parties intend and agree that the payment of Basic Rent and
Additional Rent shall be absolutely net to the Sublessor and that
the Sublessee shall assume responsibility for any charge, cost or
expense relative to the Demised Premises during the Term, as the
same may be extended or renewed. Sublessee's obligation shall
include responsibility for all obligations for which Sublessor
may be liable under the Prime Lease except as may be expressly
provided in this Sublease.
(d) The parties hereto agree that subject to the
provisions of this Sublease, wherever the words "Demised
Premises" or words of similar import appear in the Prime Lease,
the same shall be deemed to mean the Premises subject to this
Sublease and wherever the words "Landlord" and "Tenant" appear in
the Prime Lease, the words shall be deemed to refer to Sublessor
and Sublessee respectively, so that, subject to the provisions of
this Sublease and the Tri-Party Agreement, Sublessor shall have
the rights and powers of Prime Landlord under the Prime Lease,
and Sublessee shall have and does hereby agree to be bound by and
accepts all the rights, powers, duties and obligations of the
Prime Tenant under the Prime Lease provided, however, that
notwithstanding the foregoing, Sublessor shall have no obligation
to perform or furnish any of the work, services, repairs or
maintenance undertaken to be made by Prime Landlord under the
Prime Lease, or any other term, covenant or condition required to
be performed by Prime Landlord under the Prime Lease. As provided
in Article 6 of the Prime Lease, Sublessee expressly assumes the
entire responsibility for maintenance and repair of the Demised
Premises.
(e) To the extent applicable to the Premises,
Sublessee shall have the benefit of each and every covenant and
agreement made by Prime Landlord to Sublessor under the Prime
Lease. In the event that Prime Landlord shall fail or refuse to
comply with any of the respective provisions of the Prime Lease,
Sublessor shall have no liability on account of any such failure
or refusal, provided that the Sublessee shall have the right to
exercise in the name of the Sublessor all the rights to enforce
compliance on the part of Prime Landlord as are available to the
Sublessor with respect to the Premises. Sublessor hereby agrees
to cooperate with and execute, all instruments and supply
information reasonably required by Sublessee in order to enforce
such compliance. Sublessee hereby agrees to indemnify and hold
Sublessor harmless of and from any and all damages, liabilities,
obligations, costs, losses, demands, expenses and injuries,
including reasonable attorneys' fees and expenses which may be
incurred by Sublessor in or as a result of such cooperation and
execution.
(f) In the event Sublessee shall default in the full
performance of any of the terms, covenants and conditions on its
part to be performed under this Sublease, then Sublessor shall
have, without limitation, all of those rights and remedies as
against the Sublessee as are held by the Prime Landlord under the
Prime Lease with respect to defaults by the Prime Tenant.
Notwithstanding the foregoing, this Sublease is separate from and
subordinate to the Prime Lease.
(g) If Sublessor shall default in the payment of any
rent due under the Prime Lease, Prime Landlord is hereby
authorized to collect any rents due or accruing under the
Sublease directly from the Sublessee and to apply the net amounts
so collected to the fixed annual rent and additional rent
reserved under the Prime Lease, and Sublessee shall be entitled
to apply the net amount so paid to the Prime Landlord to the
Basic Rent and/or the Expansion Rent as the case may be and
Additional Rent as such term is hereinafter defined which may be
due
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hereunder. The receipt by Prime Landlord of any amounts from
Sublessee shall not be deemed or construed as releasing Sublessor
from its obligations under the Prime Lease or the acceptance of
Sublessee as a direct tenant.
(h) Sublessee shall not do or suffer or permit
anything to be done which would cause the Prime Lease to be
terminated or forfeited by virtue of any rights of termination or
forfeiture reserved or vested in Prime Landlord. If Sublessee
shall default in the performance of any of its obligations under
this Sublease or under the Prime Lease as incorporated by
reference pursuant to Section 1.2(a), after notice and the
opportunity to cure, Sublessor, without being under any
obligation to do so and without thereby waiving such default, may
remedy such default for the account and at the expense of
Sublessee. If Sublessor makes any expenditures or incurs any
obligation for the payment of money in connection therewith, such
sums paid or obligations incurred shall be deemed to be
Additional Rent hereunder and shall be paid to Sublessor by
Sublessee on demand together with interest at the Sublease
Interest Rate as such term is defined in Paragraph 12.20(av),
from the period that the funds are due until received by
Sublessor.
(i) Sublessor agrees that it shall not through action
or inaction cause a termination of the Prime Lease.
ARTICLE II
Term, Commencement, Right of Renewal
Section 2.1 Term and Commencement for IDP.
(a) Term. The term of this Sublease for the IDP is ten
(10) years and three (3) months plus the fractional month, if
any, referred to herein (the "Initial Term"). The Initial Term
shall commence on February 1, 1994 (the "Commencement Date"), and
shall terminate at 5:00 p.m. on the 30th day of April, 2004.
Notwithstanding the intention that the Commencement Date shall be
February 1, 1994, if due to circumstances not foreseen at the
time of execution hereof the Commencement Date is not the first
day of a calendar month (the period between the Commencement Date
and the end of the month in which it falls being herein called
"Fractional Month"), this Sublease shall terminate on the last
day of the third month after the tenth anniversary of the
Commencement Date.
(b) Modification of the Initial Term Upon Expansion.
Following exercise by Sublessee of the Expansion #1 Option,
and/or Expansion #2 Option, as such term(s) are hereinafter
defined and more particularly set forth in Article III below, (i)
in the event Sublessor pays Construction Costs for the Expansion
#1 Space, as such term is hereinafter defined, then on the date
of the earlier of (a) the issuance of a temporary or permanent
certificate of occupancy for the Expansion #1 Space, or (b) one
year from the date notice is received by Sublessor that Sublessee
has exercised its Expansion #1 Option, such earlier date being
defined herein as ("the #1 Measuring Date"), the Initial Term
shall thereupon be modified, and shall provide by virtue hereof a
ten year combined term from the said #1 Measuring Date for the
combined Demised Premises of the IDP and the Expansion #1 Space,
which combined term shall expire on the tenth anniversary of the
#1 Measuring Date, the said ten year term is hereinafter referred
to as the "Sublessor Funded Expansion #1 Term"; (ii) in the event
Sublessee elects to pay the Construction Costs for the Expansion
#1 Space, the Initial Term shall be modified and shall provide by
virtue hereof for a 17-year combined term from said #1 Measuring
Date for the combined Demised Premises of the IDP and the
Expansion #1 Space subject to a limit of duration upon such
tenancy as will not extend beyond April 30, 2019 (the "Sublessee
Funded Expansion #1 Term"); (iii) on the date of the earlier of
(a) the issuance of a temporary or permanent certificate of
occupancy for the Expansion #2 Space, or (b) one year from the
date notice is received by Sublessor that Sublessee has exercised
its option to construct Expansion #2, such earlier date being
defined herein as (the "#2 Measuring Date"); the Initial Term or
the Sublessor Funded Expansion #1 Term or the Sublessee Funded
Expansion #1 Term, as the case may be, shall be deemed modified
and shall provide by virtue hereof a 15-year combined Term from
said #2 Measuring Date for the combined Demised Premises of the
IDP, the Expansion #1 Space and the Expansion #2 Space, as the
case may be. which combined term shall expire on the
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15th anniversary of the #2 Measuring Date subject to a limit as
to duration thereof which shall not extend beyond April 30, 2019.
The said term is hereinafter referred to as the "Expansion #2
Term".
(c) Term After Expansion(s). Upon modification of the
Initial Term as provided in subsection (b) immediately above,
reference to term shall relate to the combined Demised Premises
and shall mean the modified combined term commencing on the #1
Measuring Date or #2 Measuring Date, and thereafter the Demised
Premises consisting of the IDP and the Expansion #1 Space and/or
the Expansion #2 Space, as the case may be, shall be inseparable,
and as combined, shall become the Demised Premises, although the
aggregate rental shall then have two components, Basic Rent and
Expansion Rent provided that Expansion Rent shall only be paid if
the Sublessor funds the Construction Work of Expansion Space #1.
In the event Sublessee funds the Construction Work of Expansion
Space #1, no Expansion Rent shall be paid by the Sublessee for
Expansion #1 Space during the Sublessee Funded Expansion #1 Term.
Basic Rent for the IDP shall either be at a fixed rate per square
foot or shall be established by determination of Fair Market
Rent, hereinafter defined, determined as more particularly
provided in Exhibit D and described in Article V hereof and keyed
to fixed calendar dates set forth on such Exhibit D regardless of
the date of the commencement of the modified terms.
Section 2.2 Occupancy Prior to Commencement. Subject
to all provisions of this Sublease relating to occupancy prior to
the Commencement Date, Sublessee shall have the right to occupy
and use the IDP prior to the commencement of the Initial Term,
but not prior to November 1, 1993 (the "Initial Occupancy Date"),
provided that the Demised Premises can then, under applicable
law, be legally occupied and used for the uses described in
Article X below.
Section 2.3 Pro-Rata Rent During Pre-Commencement
Occupancy. If Sublessee occupies the Demised Premises, as
aforesaid, (i) it shall commence to pay utilities and all other
charges payable under the Sublease, except Basic Rent, from and
after the Initial Occupancy Date, (ii) all of the other
provisions of this Sublease shall become operative with respect
to the Premises as if the Commencement Date had occurred. During
the pre-Commencement occupancy Sublessee shall at its cost and
expense as a condition precedent to such occupancy, obtain and
keep in force during such occupancy, insurance coverage in
amounts as required in the Prime Lease with respect to the entire
Demised Premises.
Section 2.4 Right of Renewal. Provided that the
Sublessee is not in material default of any of the provisions
hereof (including any event which with notice or passage of time
or both would be a material default) at the time of the exercise
of any renewal option or at the commencement of the then
applicable renewal term and subject to the terms of the Prime
Lease and the Tri-Party Agreement, Sublessor grants to Sublessee
rights of renewal as follows:
At the option of the Sublessee, the Term may be
extended for two (2) renewal periods of five years each by
written notice to the Sublessor at least three hundred and sixty
five (365) days prior to the expiration of the Initial Term or
the Sublessor Funded Expansion #1 Term, the Sublessee Funded
Expansion #1 Term or Expansion #2 Term, as the case may be, or
the first renewal term thereof, as the case may be. Upon valid
exercise of any of such right(s) of renewal, the term of this
Sublease shall remain in full force and effect except that the
rent both Basic Rent and Expansion Rent, shall be directly
related to the occurrence of the calendar periods shown on
Exhibit D and as stipulated in Article V hereof. Notwithstanding
rights granted to the Sublessee pursuant to this Article II
relating to the Sublessor Funded Expansion (#1) Term, the
Sublessee Funded Expansion #1 Term or the Expansion #2 Term and
the Expansion (#1 or #2) Space or any renewal rights granted
herein, the Sublessee's right to occupy the Premises shall not
extend beyond April 30, 2019. If Sublessee shall have exercised
the expansion option(s) and is not otherwise in material default
(including any event which with notice or passage of time or both
would be a material default) after notice and failure to cure as
contemplated in Section 11.1 below, of its obligations under this
Sublease, then any option to renew the Initial Term as set forth
herein shall be deemed to commence upon the expiration of the
applicable expansion term. However, regardless of the exercise of
any Expansion #1 Option or Expansion #2 Option, the Term and
right of possession of the Sublessee hereunder shall expire (if
not sooner terminated pursuant hereto) not later than April 30,
2019.
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Section 2.5 Certain Provisions Applicable to All
Extensions of the Sublease. It is agreed by the parties hereto
that in the event the Sublessee shall become entitled to extend
the Term pursuant to the provisions hereof, such that the Term of
this Sublease would extend beyond the then pending term of the
Prime Lease, then and in such event, the Sublessor shall promptly
request the Prime Landlord to enter into an extension of the term
of the Prime Lease with the Sublessor. Pursuant to the provisions
of the Tri-Party Agreement among Sublessor, Sublessee and the
Prime Landlord, Prime Landlord shall have the option to either
extend the term of the Prime Lease to be co-terminous with the
Term of the Sublease, as extended in any instance, or to permit
Sublessee to remain in possession of the Demised Premises after
the expiration of the term of the Prime Lease pursuant to Section
3 of the Tri-Party Agreement. If the Prime Landlord elects not to
extend the term of the Prime Lease, Sublessor shall, upon
expiration of the Prime Lease, be thereupon released by Sublessee
from all obligations and liability under the Sublease (other than
with respect to any breach or non-performance occurring by the
Sublessor prior to the expiration or termination of the Term of
the Sublease).
ARTICLE III
Expansion Options of Sublessee
Section 3.1 Expansion #1 Option.
(a) Subject to all provisions hereof, and provided the
Sublessee is not in material default, including any event which
with notice or passage of time or both would be a material
default, the Sublessee is granted an option ("Expansion #1
Option") to be exercised as hereafter provided, to expand the
Premises by approximately fifty-eight thousand (58,000) gross
rentable square feet of building area as more particularly
described in subparagraph (b) below. Sublessee's right to
exercise the Expansion #1 Option will then be subject to the
obligation of Sublessee to demonstrate to Sublessor's reasonable
satisfaction, acting in good faith, that there shall not have
occurred any material adverse change to the Sublessee's financial
condition or to the financial condition of the Guarantor of this
Sublease, J. Crew Group Inc., a New York corporation
("Guarantor"), between the date of the execution of this Sublease
and Guaranty and the date upon which Sublessee exercises the
Expansion Option #1 aforesaid. The said Building addition is
hereafter referred to as (the "Expansion #1 Space").
At the time that Sublessee notifies Sublessor that
Sublessee is exercising its Expansion #1 Option, Sublessee shall
elect either to require the Expansion #1 Construction Costs to be
funded by the Sublessor or by the Sublessee. The right of the
Sublessee to require Sublessor to fund the Construction Costs
shall expire if notice of Sublessee's election as to funding of
Construction Costs by the Sublessor shall not have been received
by the Sublessor on or before January 1, 1996, time being of the
essence. Sublessor's obligation to fund the Expansion #1
Construction Costs is limited to Two Million ($2,000,000.00)
Dollars and any Construction Costs in excess of Two Million
($2,000,000.00) Dollars shall be paid solely by Sublessee. If
Sublessee fails to notify Sublessor on or before January 1, 1996
of Sublessee's exercise of its Expansion #1 Option and election
to require Sublessor to fund the Construction Costs for the
Expansion #1 Space, then Sublessor shall thereupon and thereby be
released from any obligation to fund the said Expansion;
nevertheless, Sublessee may exercise its Expansion #1 Option
after January 1, 1996 provided, however, that Sublessee is not
then in material default (including any event which with notice
or passage of time or both would be a material default) and that
Sublessee shall be responsible to fund the entire Expansion #1
Construction Costs. Regardless of whether Sublessee requires
Sublessor to fund the Expansion #1 Construction Costs, Sublessor
shall have the right to engage a certifying architect to inspect
the construction of the Expansion and to monitor the Construction
Work in order to certify the completion of Construction Work
during the course thereof in accordance with the plans and
specifications. The said certifying architect shall hereafter be
referred to as "Sublessor's Architect." The costs, fees and
expenses of the Sublessor's Architect shall be included in the
Expansion #1 Construction Costs. The Sublessor's Architect shall
be licensed and qualified in the State of New Jersey, said
Sublessor's Architect shall have access to the Demised Premises
as he deems necessary to inspect the Construction Work for the
purpose of certifying completion of the Construction Work and
compliance with the plans and specifications for the Expansion.
Sublessee shall provide at its own cost to the Sublessor's
Architect a complete set of plans and
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specifications for the Construction Work together with any
addenda or change orders with respect thereto as they are issued.
(b) Preliminary and Final Plans. The parties hereto
have approved for purposes of identification general plans
locating and generally describing the Expansion #1 Space
identified as Expansion A on the Concept Sketch dated August 23,
1993 and attached hereto as Exhibit E along with certain
construction criteria as outlined in Exhibit F and taken together
with Exhibit E hereinafter called "Preliminary Expansion #1
Plans". In conjunction with Sublessee's exercise of the Expansion
#1 Option, Sublessee shall, either prior to or subsequent to the
formal exercise of the option, cause an architect, which
architect shall be selected by Sublessee, subject to the approval
of Sublessor which approval shall not be unreasonably withheld
(hereinafter designated as "Architect"), to prepare final plans
and specifications (herein designated as "Final Plans") which
shall be consistent with and shall substantially develop and
carry out the concept of the Preliminary Plans for the
Construction Work and which Final Plans shall comply with the
then existing requirements of the Edison Township Zoning
Ordinance without the need to obtain any variances or exceptions.
The Final Plans shall be subject to the Sublessor's approval,
which approval shall be forthcoming and shall not be unreasonably
withheld or delayed or conditioned, if they are consistent with
and substantially develop the Preliminary Expansion #1 Plans and
otherwise comply with all applicable zoning and building
ordinances, statutes and regulations. If not approved within
thirty (30) days after the receipt by Sublessor, Sublessor shall
notify Sublessee of the specific reasons for disapproval and
Sublessee shall be allowed a 30-day period for response to
Sublessor's disapproval objections and upon receipt of such
response, Sublessor- shall have an additional 30 days to review
the response.
Section 3.2 Expansion #2 Option.
Subject to all provisions hereof, including but not
limited to Sublessor's consent which shall not be unreasonably
withheld, delayed or conditioned, if the Sublessee provides to
the Sublessor the covenants, representations and assurances
described below, and provided further that the Sublessee is not
in material default, including any event which with notice or
passage of time or both would be a material default, Sublessee is
hereby granted the option ("Expansion #2 Option") to construct an
addition to the Building not to exceed two hundred thousand
(200,000) gross rentable square feet of building area that will
be designed to be consistent and compatible with the Building and
with the zoning classification then applicable, said addition to
be erected at Sublessee's own cost and expense for all items of
Construction Costs within the scope of Construction Work for such
addition ("Expansion #2 Space"). The notice of Sublessee's
exercise of the Expansion #2 Option shall be delivered to the
Sublessor with covenants, representations and assurances for the
consideration of the Sublessor in the exercise of its reasonable
and good faith judgment as to whether or not to give its consent
for the construction of the Expansion #2 Space. The covenants,
representations and assurances to be relied upon by Sublessor
shall consist of: (i) general plans prepared by a New Jersey
licensed architect, reasonably satisfactory to Sublessor,
locating and describing the addition desired and the general
specifications thereof which are consistent with the general plan
of Expansion #2 Space identified as B and C on Exhibit E and the
construction criteria outlined in Exhibit F; (ii) a satisfactory
commitment from a surety reasonably acceptable to the Sublessor
confirming its agreement to issue its indemnity, performance and
completion bond to the Sublessor which will assure proper
completion of the project in a good and workmanlike manner and
payment for all work, labor and materials furnished to the
project; (iii) satisfactory reasonable evidence of Sublessee's
financial capacity to complete the project and that there has not
occurred any material adverse change in the financial condition
of the Sublessee or the Guarantor since the date of the execution
of this Sublease and the Guaranty; (iv) agreement by the
Sublessee to pay to Sublessor such Construction Costs in the
nature of application fees or fees for permits and costs and
expenses of approvals as may be incurred by the Sublessor in
conjunction with Sublessee's performance of Construction Work;
(v) the proposed improvements to comprise Expansion #2 Space
shall be in full compliance with all statutes, ordinances and
regulations governing land use and construction without the
necessity for any variances or exceptions. Sublessee agrees that
in conjunction with the planning and construction of Expansion #2
Space, any existing parking spaces which are removed shall be
replaced on-site at a ratio of two (2) new spaces for every three
(3) spaces removed in locations as shown on Exhibit E. If (a)
within the period May 1, 2004 to April 30, 2010 the applicable
zoning and land use statutes and/or
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ordinances are amended after the date hereof in a manner which
does not permit the construction or use of the Expansion #2 Space
for light industrial use, as at present, as a permitted use
("Zoning Change"), and (b) Sublessee in good faith desires to
construct the Expansion #2 Space but is unable to commence
construction because of the Zoning Change, then Sublessee shall
notify Sublessor of its inability to commence construction due to
the Zoning Change. Sublessee shall then proceed promptly at its
own cost, diligently and in good faith to seek a use variance
under applicable law to permit the expansion. Sublessor agrees to
cooperate with Sublessee, provided Sublessee shall pay reasonable
expenses incurred by Sublessor in providing such cooperation. If
the variance sought by Sublessee is not obtained within six (6)
months of the filing of the variance application, then the
Sublessee shall have the right to terminate this Sublease by
written notice of such termination to Sublessor, which
termination shall be effective as of eighteen (18) months after
Sublessor's receipt of Sublessee's notice of its inability to
commence said construction due to the Zoning Change. The parties
expressly acknowledge their mutual intention and agreement that
Sublessor shall have no obligation or responsibility whatsoever
with respect to costs or charges for Expansion #2 excepting such
costs and expenses as Sublessor may incur in its review of
Sublessee's covenants, representations and assurances. Upon
exercise of the Expansion #2 Option and upon Sublessee's
compliance with the conditions for the implementation thereof as
provided in this Sublease, Sublessee shall have the right at its
own cost, to perform Construction Work to erect an addition to
the Building for use in Sublessee's business which addition shall
become incorporated in and a part of the Demised Premises.
Section 3.3 Sublessor Cooperation. Sublessor agrees to
cooperate with Sublessee in connection with Sublessee's exercise
of Expansion #1 and #2 Options and to promptly review preliminary
plans and sign permit applications of approved plans, if
required, at the request of Sublessee in order to facilitate
exercise of Expansion #1 and Expansion #2 Options. Sublessee
shall pay all Sublessor's costs and expenses incurred in
connection with such cooperation.
Section 3.4 When Construction Funded and Performed By
Sublessee.
(a) This Lease provides in Article III, Sections 3.1
and 3.2 for the Sublessee to perform the Construction Work in
conjunction with the implementation of the Expansion #1 Option
and/or the Expansion #2 Option at Sublessee's own cost and
expense.
(b) Upon the exercise of (i) the Expansion #1 Option
where Sublessee does not require Sublessor to fund the Expansion
#1 Construction Costs, and after Sublessor's consent to the
implementation of Expansion #1 as provided herein; or (ii) upon
the exercise of the Expansion #2 Option and after Sublessor's
consent to the implementation of Expansion #2 as provided herein,
Sublessee shall thereby assume the obligation to pay all
Construction Costs for the Construction Work and to engage a
Qualified Contractor, defined in Section 12.20(as), as a general
contractor for the Construction Work. Sublessor shall have the
right to engage Sublessor's Architect.
(c) As a condition precedent to commencement of the
Construction Work by Sublessee, upon implementation of either
expansion option, Sublessee shall post an indemnity, performance
and completion bond issued by a surety acceptable to Sublessor
with Sublessor as joint obligee to guarantee the completion of
and payment for the Construction Work in an amount at least equal
to the Sublessee's Construction Costs as estimated by Sublessor's
Architect.
Section 3.5 Funding of Construction Costs by Sublessor
- -Procedure. Upon the Sublessee's exercise of the Expansion #1
Option with an election to require Sublessor to fund Construction
Costs as more particularly provided in this Article III, Section
3.1 above, to a limit of Two Million ($2,000,000.00) Dollars
("Funding Limit"), the respective rights and obligations of the
parties and the procedure for such funding shall be as follows:
(a) Sublessor shall not be obligated to make the first
(1st) disbursement of the funding provided herein until Sublessor
shall have received, in each case, in form, manner and substance
reasonably satisfactory to Sublessor and its counsel:
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(i) evidence that the past and current taxes and
assessments which are paid or payable by the Sublessor
in accordance with the Sublease applicable to the
Premises to be paid by Sublessee have been paid in
full;
(ii) a detailed budget of the overall cost of the
Expansion, including construction cost of the
Expansion, building equipment, on-site improvements,
the cost of fixtures and equipment, "soft" costs
directly attributable to the Expansion, including
financing costs, engineering, architectural and legal
expenses;
(iii) a proposed construction progress and draw
schedule and schedule of payments to tradesmen
prepared by the General Contractor and subject to work
orders;
(iv) a leasehold title insurance policy or binder
expressly issued to cover the prospect of $2,000,000
in funding to be advanced by the Sublessor issued by a
company reasonably satisfactory to the Sublessor,
insuring or committing to insure the fee simple
interest of the Prime Landlord and the leasehold
interest of the Sublessor in the Expansion, free and
clear of all defects and encumbrances except as
described in Section 4.1 (iii), which policy or binder
shall include a UCC search, shall set forth a revised
description of the Demised Premises, shall have
attached thereto clear copies of all instruments which
will appear as exceptions in the policy, shall provide
full coverage against all mechanics' and materialmen's
liens, shall have read into it the survey of the
Demised Premises, and shall contain such reasonable
endorsements as may be reasonably requested by the
Sublessor;
(v) Foundations and Completion surveys of the Demised
Premises prepared and certified by a professional land
surveyor of the State of New Jersey, certified to
Sublessor and the title company, on which survey there
shall be indicated all buildings, structures and
improvements located on or over the Demised Premises,
all roadways, paths, and driveways running across the
Demised Premises, and all easements affecting or
appurtenant to the Demised Premises with deed book and
page references;
(vi) a certification from the Sublessor Architect that
upon completion of the Expansion in accordance with
the Plans and Specifications, the same will comply
with all applicable zoning, environmental protection,
land use, and building laws, ordinances and
regulations, and that the Plans and Specifications, in
his opinion, provide a functional layout and a
completed Expansion which, in the Sublessor's
Architect's opinion, at the time of such
certification, can be constructed within the amount of
the construction budget;
(vii) agreements of the Qualified Contractor and
Architect that they will perform their respective
contracts for the account of the Sublessor in the
event of a default by Sublessee hereunder or
thereunder and permitting the Sublessor to use the
Plans and Specifications without any cost or expense;
(viii) the policies (or certificates relating thereto)
of insurance required by this Sublease, accompanied by
evidence of the payment of the premiums therefor;
(ix) all applicable authorizations, consents,
licenses, approvals, and permits of governmental
authorities for the construction of the Expansion;
(x) if requested by the Sublessor within a reasonable
time prior to the first disbursement, a soils and
geological report issued by a professional engineer
satisfactory to the Sublessor, certifying as to the
adequacy of the subsoils and the foundations of the
Expansion as designed;
(xi) all required payment and performance bonds naming
the Sublessor as a joint obligee;
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(xii) such other documents, agreements,
certifications, affidavits, reports, and other
instruments as shall be required by this Sublease.
(b) Sublessor's obligation to make any disbursement
after the first disbursement shall be subject to the continuing
satisfaction of the conditions referred to in the immediately
preceding subsection 3.5(a) and its subparagraphs, as well as
satisfaction of the following conditions, all in form, manner and
substance reasonably satisfactory to Sublessor and its counsel:
(i) there shall be no Default under this Sublease,
provided, however, Sublessor may in its sole
discretion make disbursements notwithstanding the
existence of such a Default, and any disbursement so
made shall be deemed to have been made pursuant to
this Sublease;
(ii) all materials, equipment and fixtures
incorporated in the construction of the Expansion
shall have been purchased or will thereafter be
purchased so that the absolute ownership thereof shall
have vested or will vest in Sublessee immediately upon
payment of advances disbursed by the Sublessor or upon
Sublessor's receipt of a waiver of lien for the amount
disbursed upon delivery of said materials, equipment
and fixtures to the Premises, and Sublessee shall have
produced and furnished, if required by the Sublessor,
the contracts, bills of sale or other agreements under
which title thereto has vested;
(iii) the Sublessor shall be furnished with affidavits
from the Sublessee and the Qualified Contractor that,
except as otherwise indicated, all money previously
disbursed has been applied to the satisfaction of
Construction Costs for the Expansion, and that there
are presently no amounts owing to subcontractors,
materialmen or laborers, other than the holdbacks or
retainages provided for under existing contractual
arrangements between the various parties;
(iv) Sublessor shall have been furnished with a
certificate of in place value certified by Sublessor's
Architect and the Qualified Contractor drawn in
accordance with the budget furnished, and indicating
the amount of work completed by trade and the
percentage thereof, and also indicating that, to the
date of the certification, the Expansion has been
completed in accordance with the plans and
specifications;
(v) Sublessor shall have been furnished with copies of
all reports of any architects, engineers, managers or
any other person or entity consulted by Sublessee in
connection with the Expansion;
(vi) Sublessor shall have been furnished with a
written estimate by Sublessee of the cost of
completing the construction of the Expansion;
(vii) Sublessor shall have been furnished with a
notice of title continuation or an endorsement to the
title insurance policy, indicating that since the last
preceding disbursement, there has been no change in
the state of title;
(viii) Sublessor shall have been furnished with an
application for disbursement accompanied by a
certificate signed by the Sublessee certifying that
the work for which payment is sought has been
completed and has been fully paid for or will be fully
paid for with the proceeds of the disbursement. Each
application for a disbursement shall constitute an
affirmation by Sublessee that all of the
representations and warranties set forth in this
Sublease remain true and correct as of the date
thereof and, unless the Sublessor is notified to the
contrary prior to the disbursement of the requested
disbursement, will be true and correct on the date
thereof.
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(c) Applications for disbursements shall be made by
Sublessee to the Sublessor on or about the first day of
each month, after commencement of construction of the
Expansion, for work done and materials and labor supplied
during the preceding month or a part thereof with
disbursements to be made by Sublessor on or about the
twentieth day of each month, except that the Sublessor may,
at its option, upon request therefor by the Sublessee, make
advances at more frequent intervals. All applications for
disbursements shall be made in accordance with the American
Institute of Architects Form G #702 and #703, or in such
other form acceptable to Sublessor. Each such application
shall certify in detail acceptable to Sublessor the
expenditures made or expenses incurred by or for Sublessee
as to which the disbursement is requested, and shall be
accompanied with such supporting data, vouchers, invoices
and requisitions as Sublessor may reasonably require. With
each application for disbursement, the Sublessee shall
certify that the amount requested represents sums actually
spent or indebtedness actually incurred. The proceeds of
each disbursement shall be used by Sublessee solely to pay
or as reimbursement for the obligations for which the
disbursement is sought.
(d) Disbursements during construction shall be
limited to ninety percent (90%) of the value of work in
place and acceptably completed, all as determined by
Sublessor's Architect. At no time shall the aggregate
disbursements by the Sublessor pursuant hereto exceed the
Funding Limit. If the Sublessor shall, at any time,
determine that the Funding Limit proceeds remaining to be
disbursed are insufficient to pay the cost of completing
the Expansion, Sublessor and Sublessor's architect shall
have the right to require Sublessee to furnish sufficient
additional funds from some other source to cover the
resulting deficit before advancing any additional
disbursements. Limitations on the amounts advanced shall,
in the discretion of the Sublessor, be made to conform with
any restrictions or requirements of the Bank of New York,
first mortgagee. The Sublessor shall have no obligation to
make disbursement for the cost of materials not in place,
whether stored on- or off-site.
(e) All disbursements shall be subject to prior
inspection and approval of the construction by Sublessor,
which approval shall not be unreasonably withheld,
conditioned or delayed. All such inspections and approvals
shall be solely for Sublessor's benefit and no person or
party shall be entitled to rely thereon or to draw any
inference or conclusion therefrom. Sublessee acknowledges
that:
(i) Sublessor shall have the right to designate
a substitute Sublessor Architect to inspect the
Expansion, upon notice to Sublessee; and
(ii) the duties of the Sublessor's Architect run
solely to Sublessor and that the Sublessor's
representative shall have no obligations or
responsibilities to Sublessee or any of
Sublessee's agents, employees or contractors.
(f) The Sublessor shall not be required to make any
disbursement hereunder if at the time of the requested
disbursement:
(i) a Default, including any event which with notice
or passage of time or both would be a Default exists
hereunder; or
(ii) the amount of the requested advance is
inconsistent in any material respect with the budget
and the breakdown by trades provided to Sublessor by
Sublessee except when Construction Work is ahead of
plans and schedule; or
(iii) the Sublessor shall have determined in its
reasonable judgment that the Expansion cannot or will
not be constructed in accordance with the Plans and
Specifications; or
(iv) the Building and/or the Expansion has been
materially damaged or destroyed by fire or any other
casualty; or
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(v) any insolvency or bankruptcy proceedings shall be
instituted with respect to the Qualified Contractor,
Sublessee or Guarantor; or
(vi) any legal action is pending which may have a
material adverse affect upon the ability of Sublessee,
the Guarantor, the Qualified Contractor, or the
Sublessor's Architect to complete their respective
undertakings in connection with (i) the Expansion (ii)
the Demised Premises, or (iii) the transactions
contemplated by or in this Sublease; or
(vii) the Sublessor shall have determined, in its
reasonable judgment, there has been a material
deviation from the Plans and Specifications or that
there are material defects in workmanship or
materials.
(g) Sublessee shall commence construction of the
Expansion not later than four (4) months after the date Sublessor
receives notice from Sublessee that Sublessee is exercising the
Expansion #1 Option. Sublessee shall complete the Construction
Work and the fitting out and equipping of the Expansion Space
with due diligence on or before one (1) year from the date
Sublessor receives notice that Sublessee is exercising the
Expansion #1 Option, Construction Work shall be performed in a
good and workmanlike manner, in strict accordance with the Plans
and Specifications and this Sublease. A master set of Plans and
Specifications, together with all amendments thereto, shall be
deposited and held by the Sublessor, and when so filed shall
govern on all matters that may arise with respect thereto. If
construction of the expansion is not commenced within the four
month period aforesaid, Sublessor shall be thereupon
automatically released from any obligation to fund the
Construction Costs for Expansion #1.
(h) The Expansion shall be constructed and equipped
strictly in accordance with all applicable ordinances and
statutes and in accordance and compliance with the requirements
of all governmental authorities having jurisdiction and in
conformity with the requirements of the Board of Fire
Underwriters or similar body. The Expansion shall be constructed
entirely on the Demised Premises and shall not encroach upon or
overhang any easement or right of way nor upon the land of
others, and the buildings when erected shall be wholly within the
building restriction lines, however established, and shall not
violate applicable use or other restrictions contained in prior
conveyances, zoning ordinances or regulations; and Sublessee will
furnish, from time to time, satisfactory evidence with respect
thereto, together with a survey certified by a licensed surveyor
of the State of New Jersey showing the Expansion to be entirely
on the Demised Premises and free from such violations as
aforesaid.
(i) Sublessee shall, upon demand of the Sublessor,
correct any structural defect in the Expansion or any departure
from the Plans and Specifications not approved by the Sublessor
but that was required to have been approved by the Sublessor, and
the disbursement of any advances shall not constitute a waiver of
the right of the Sublessor to require compliance with this
covenant with respect to any defects or departures from the Plans
and Specifications not theretofore discovered by or called to the
attention of the Sublessor.
(j) Sublessee shall notify Sublessor of any cessation,
stoppage or delay in the construction of the Expansion. Except
for delays and cessations caused by factors that are beyond the
control of Sublessee, the Sublessee shall not permit cessation of
the work of construction for a period in excess of ten (10) days
without the prior written consent of Sublessor. Sublessee shall
not permit construction to fall behind schedule to the extent
that the Expansion cannot reasonably be expected to be completed
on or within one (1) year from the date Sublessor receives notice
from Sublessee that Sublessee is exercising the Expansion #1
Option. Sublessee shall promptly notify Sublessor of any event
which it has reasonable basis to believe may cause construction
to be delayed or to fall behind schedule and any cost overrun
which will or may cause the total cost of construction to exceed
the amount set forth in the budget.
(k) Sublessee shall promptly advise Sublessor in
writing of (i) all litigation, regardless of amount, affecting
any part of the Premises and of all material litigation affecting
Sublessee, and (ii) all complaints and charges made by any
governmental authority affecting the Premises or affecting
Sublessee or its business which may delay or require changes in
the
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construction of the Expansion or impair the fee simple title of
the Prime Landlord or the leasehold interest of the Sublessor.
(l) Aside from any brokerage commissions due or to
become due based upon the Expansion Rent, there is no brokerage
or other fee, commission or compensation which is to be paid by
the Sublessor, and Sublessee agrees to indemnify Sublessor
against any claims for brokerage fees or commissions and to pay
all expenses incurred by the Sublessor (including reasonable
attorneys' fees) in connection with the defense of any action or
proceeding brought to collect any such brokerage fees or
commissions.
(m) Sublessee will pay all expenses as set forth
herein incurred with respect to any and all transactions
contemplated herein and the preparation of any document
reasonably required hereunder and the prosecution or defense of
any action or proceeding or other litigation affecting Sublessor
or the Demised Premises related to or arising out of the
Construction Work, including (without limiting the generality of
the foregoing) all title insurance company premiums and charges,
taxes, insurance premiums, brokerage commissions, finders' fees,
placement fees, court costs, surveyors', photographers',
appraisers', architects', and engineers' fees, accountants' fees,
and attorneys' fees, and will reimburse to the Sublessor all
expenses paid to third parties of the nature described in this
paragraph which have been or may be incurred by the Sublessor
with respect to the Construction Work contemplated herein. The
Sublessor may, upon notice, pay or deduct from the disbursements
by Sublessor any of such expenses and any such funding so applied
shall be deemed to be disbursements under this Sublease.
(n) Sublessee agrees that it will receive all
disbursements hereunder as a trust fund to be applied solely for
the purpose of paying for the costs of the Expansion.
(o) Sublessee shall provide and maintain, or cause to
be provided and maintained, at all times insurance in such forms
and covering such risks and hazards and in such amounts and with
companies as are reasonably satisfactory to the Sublessor. While
the Expansion is under construction, said insurance shall
include, but not be limited to, workers' compensation insurance,
public liability insurance, and hazard insurance policies
including fire insurance with extended coverage on the standard
Builders Risk Completed Value form (non-reporting frill coverage)
with "all risk" insurance including collapse. Losses payable
thereunder shall be payable in accordance with the provisions
contained in such policies shall contain endorsement providing to
owner the protections of a standard mortgagee clause endorsement.
All such policies shall provide for at least thirty (30) days'
notice of cancellation or amendment to the Sublessor.
(p) The Sublessor shall, at all times until the
Sublessor's Architect has certified completion of the Expansion
in accordance with the plans and specifications, have the right
of entry and free access to the Demised Premises and the right to
inspect all work done, labor performed and materials furnished in
or about the Expansion and to inspect subcontracts and all books
and records of the Sublessee regarding the construction of the
Expansion.
(q) Sublessee shall protect and preserve the Demised
Premises, and all equipment and materials stored thereon or
incorporated into the Expansion, from loss, theft,
vandalism, removal, destruction and damage, will maintain the
same in good order and repair, and will not do or suffer to be
done any act whereby the value of any part of the Demised
Premises will or may be reduced or impaired.
(r) Sublessee agrees that no changes, modifications of
or amendments to the Plans and Specifications shall be made
without first obtaining the written approval of the Sublessor and
all governmental authorities with jurisdiction.
(s) Sublessee shall not create, assume, or suffer to
exist any mortgage, pledge, encumbrance, lien or security
interest, whether superior or subordinate to the Prime Landlord's
fee simple interest and the Sublessor's leasehold interest in the
Demised Premises or any part thereof.
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(t) No acceptance or approval (if any) of the Plans
and Specifications or any changes thereto by the Sublessor or
Sublessor's Architect nor any acknowledgment by the Sublessor or
Sublessor's Architect that the Expansion has been constructed in
accordance with the Plans and Specifications shall in any way be
deemed an express or implied warranty or representation or
approval by Sublessor or Sublessor's Architect that such
improvements: (a) are or will be structurally sound, (b) are in
good or workmanlike condition, repair or state of maintenance,
(c) have any particular use or purpose, or (d) have any
particular value.
(u) The rights and remedies herein expressed to be
vested in or conferred upon the Sublessor shall be cumulative and
shall be in addition to and not in substitution for or in
derogation of the rights and remedies conferred by any applicable
law or elsewhere in this Sublease.
(v) Nothing herein contained shall impose upon the
Sublessor any obligation to enforce any terms, covenants or
conditions contained herein. Failure of the Sublessor, in any one
or more instances, to insist upon strict performance by the
Sublessee of any terms, covenants or conditions of this Sublease
shall not be deemed to be a waiver or relinquishment of any such
terms, covenants and conditions.
(w) All conditions of the obligation of the Sublessor
to make advances hereunder are imposed solely and exclusively for
the benefit of the Sublessor and its assigns and no other person
or persons shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to
assume that Sublessor will refuse to make advances in the absence
of strict compliance with any or all thereof and no other person
or persons shall, under any circumstances, be deemed to be a
beneficiary or beneficiaries of such conditions, any and all of
which may be waived in whole or in part by the Sublessor if in
its sole discretion it deems advisable to do so.
Section 3.6 Covenants of General Application for Expansions
If Sublessee timely and properly exercises its option
for the Expansion #1 Space without requiring funding by Sublessor
of the Construction Costs for the Expansion #1 space or, in any
event, if Sublessee timely and properly exercises its option for
the Expansion #2 Space, the Sublessee shall, nevertheless, in the
performance of Construction Work for Expansion #1 Space or
Expansion #2 Space, comply with the procedures and requirements
of Article III, Section 3.5, specifically, the following sections
which are acknowledged by the parties to be of general
application to the Expansion(s) whether or not the Construction
Costs are funded by the Sublessor or Sublessee: Article II,
Section 3.5(a)v, vi, ix, x; (h); (i); (j); (k); (1); (m); (o);
(p); (q); (r); (s); (t); (u).
ARTICLE IV
Covenants
Section 4.1 Covenants Regarding Condition of Demised
Premises and Other Matters. The parties agree that:
(i) Sublessee accepts the Demised Premises in their
"as is" and "where is" condition and assumes tenant's
responsibility for all maintenance and repair thereof
as is more particularly provided in the Prime Lease in
Article 6 thereof.
(ii) Sublessor represents:
(a) The intended use of the Demised Premises as
set forth in Article X below is a permitted use
under the zoning classification and laws and
ordinances applicable to the Demised Premises.
(b) All utilities serving the Demised Premises
will have been installed and paid for.
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(c) The Premises are in compliance with all
applicable laws with regard to buildings or
improvements of the same type and character.
(d) Sublessor has paid all real estate taxes
required to be paid to date with respect to the
Demised Premises.
(iii) The Sublessee's interest in the Demised Premises
is subordinate to and only subordinate to the
following liens:
(a) the effect of any restrictions and easements
recorded in the public records of Middlesex
County;
(b) the Prime Lease;
(c) the Mortgage held by The Bank of New York,
recorded in Mortgage Book 3841 at Page 451 in the
Middlesex County Clerk's Office;
(d) Collateral Assignment of Lease recorded in
Mortgage Book 3841, Page 501; and
(e) Rent Security Agreement of even date herewith.
ARTICLE V
Rent and Payment
Section 5.1 Basic Rent During the Period February 1,
1994 to January 31, 1999. Sublessor reserves and Sublessee
covenants to pay to Sublessor as and for rental of the IDP, aside
from Expansion Rent, during the Initial Term or any expansion
term, as the case may be, without demand or notice, and without
any setoff or deduction, a net basic rental herein called Basic
Rent in addition to Expansion Rent, if any, in the amount of Nine
Hundred Sixty Thousand Two Hundred Thirteen and 80/100
($960,213.80) DOLLARS per annum, in sixty (60) equal monthly
installments of Eighty Thousand and Seventeen and 82/100
($80,017.82) DOLLARS each, in advance, on the first day of each
and every month beginning on February 1, 1994, subject to the
Basic Rent Concession set forth in Section 5.3 and monthly
thereafter through January 31 1999. The Basic Rent for the
Fractional Month, if any, shall be prorated and due and payable
by Sublessee on the Commencement Date.
Section 5.2 Basic Rent For The IDP During the Period
February 1, 1999 to April 30, 2004. Sublessor reserves and
Sublessee covenants to pay to Sublessor as and for Basic Rent for
the IDP during the period February 1, 1999 through April 30,
2004, aside from Expansion Rent during the Initial Term or any
expansion term, as the case may be, without demand or notice, and
without any setoff or deduction in the amount of One Million, One
Hundred Forty-Four Thousand Eight Hundred Seventy and 30/100
($1,144,870.30) DOLLARS per annum, in 63 (sixty-three) equal
monthly installments of Ninety-Five Thousand Four Hundred and
Five and 86/100 ($95,405.86) DOLLARS each, in advance, on the
first day of each and every month beginning on February 1, 1999
and monthly thereafter through April 30, 2004.
Section 5.3 Basic Rent Concession. Notwithstanding the
foregoing and provided that Sublessee is not then in breach or
default under any of the provisions of this Sublease, Sublessor
grants to Sublessee a rent concession applicable solely to the
IDP in Basic Rent equal to Two Hundred Forty Thousand and Fifty
Three and 46/100 ($240,053.46) DOLLARS for the three (3) month
period beginning on February 1,1994 and ending April 30, 1994.
Sublessee shall thereafter pay the Basic Rent set forth in
Section 5.1 hereof and any and all other charges due hereunder.
In the event Sublessee is in breach or default under any of the
terms, covenants and conditions in this Sublease at any time
during this Sublease, the rent concession shall be deemed to be
void ab initio and Sublessee shall be responsible to pay all of
the Basic Rent reserved hereunder. Nothing herein shall affect
Sublessee's liability for the payment of any Additional Rent
payable under this Sublease for the period of the rent
concession.
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Section 5.4 Payment of Rent. The Basic Rent, Expansion
Rent and the Additional Rent as such term is defined in Section
5.5 payable to the Sublessor under this Sublease shall be paid at
the above address of Sublessor or at such other address as may be
specified by Sublessor from time to time by notice given to
Sublessee.
Section 5.5 Additional Rent. All charges and costs
which Sublessee is required to pay pursuant to this Sublease,
including but not limited to Real Estate Taxes and Expansion
Rent, shall be deemed to be "Additional Rent" and in the event of
non-payment by Sublessee, the Sublessor shall have all the rights
and remedies with respect thereto as Sublessor has for the
non-payment of the Basic Rent.
Section 5.6 Basic Rent For the Balance of the Term.
(a) The Basic Rent for the IDP during the period May
1, 2004 to April 30, 2009 shall be equal to the Fair Market
Rental as herein defined for the Premises based on the Middlesex
County market area as of May 1, 2004, but in any event not
greater than $1,569,580.20 per annum based upon a rental of $4.25
per square foot and shall not be less than $1,144,870.30 per
annum based upon a rental of $3.10 per square foot. "Fair Market
Rental" shall be determined as follows: In the event Sublessee
has extended the Term pursuant to this Sublease, the Sublessor
shall on or about January 1, 2004 deliver to Sublessee a notice
in writing stating the Fair Market Rental for the Demised
Premises during the period May 1, 2004 through April 30, 2009. In
the event that the Sublessee shall object to the Fair Market
Rental quoted by Sublessor, the Fair Market Rental shall be
negotiated between Sublessor and Sublessee. If the parties are
unable to come to agreement on the issue of Fair Market Rental
within thirty (30) days after the Sublessor's notice to Sublessee
of the then Fair Market Rental, the parties agree jointly appoint
as arbitrator, a member of the American Institute of Real Estate
Appraisers who has no less than ten (10) years experience leasing
and/or appraising industrial and warehouse space in the Middlesex
County area rental market to determine Fair Market Rental. The
appointment of the arbitrator and determination of Fair Market
Rental shall be made within forty-five (45) days after
Sublessor's notice. The cost of the arbitrator shall be shared
equally by Sublessor and Sublessee. In the event the parties
cannot agree on the appointment of such arbitrator, they shall
request the President of the State Chapter of the American
Institute of Real Estate Appraisers to designate a member of the
Appraisal Institute (M.A.I.) who has been so designated for not
less than ten (10) years with the substantial experience in
industrial real estate in Middlesex County, New Jersey, as the
arbitrator. If the question of Fair Market Rental shall have been
submitted to arbitration according to the provisions of this
Section 5.6 paragraph (a), then the arbitrator's determinations
as to procedure and Fair Market Rental shall be final, binding
and conclusive upon the parties. The question of Fair Market
Rental shall be the sole substantive issue over which the
designated arbitrator shall have jurisdiction. The cost of the
arbitration shall be shared equally by Sublessor and Sublessee.
The parties agree that the decision of the arbitrator shall be
subject to entry as a final judgment upon application of either
party in the Superior Court of New Jersey. The parties jointly
confer jurisdiction on such court for such purpose.
(b) The Basic Rent for the period May 1, 2009 through
April 30, 2014 for the IDP shall be equal to the Fair Market
Rental for the Premises based on the Middlesex County market area
as of May 1, 2009, but in no event less than the Basic Rent for
the period of May 1, 2004 through April 30, 2009. Fair Market
Rental for the period May 1, 2009 through April 30, 2014 shall be
determined in the same manner as described in subparagraph (a)
above. However, Sublessor shall provide written notice of Fair
Market Rental on or about January 1, 2009.
(c) The Basic Rent for the period May 1, 2014 to April
30, 2019 for the IDP shall be equal to the Fair Market Rental for
the Premises based on the Middlesex County market area as of May
1, 2014 but in no event less the Basic Rent for the period May 1,
2009 to April 30, 2014. Fair Market Rental for the period May 1,
2014 through April 30, 2019 shall be determined in the same
manner as described in subparagraph (a) above. However, Sublessor
shall provide written notice of Fair Market Rental on or about
January 1, 2014.
Section 5.7 Rent for Expansion #1 Space. In addition
to the payment of Basic Rent for the IDP, if Sublessee in the
exercise of the Expansion #1 Option requires Sublessor to fund
the Expansion #1 Construction Costs, Sublessee shall pay to
Sublessor, as rent for the
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Expansion Space ("Expansion Rent") in equal monthly installments
during the Sublessor Funded Expansion #1 Term, an amount
calculated as sufficient to fully amortize the Construction
Costs, defined in Section l2.20(j) below, over a ten (10) year
term with interest on the unpaid balance of such Construction
Costs at a fixed rate (the "Fixed Rate") as hereinafter defined.
The Fixed Rate shall be the average of the Notice Date Interest
Rate (as defined below) and the Completion Date Interest Rate (as
defined below). Interest at the Fixed Rate shall be calculated on
the basis of a 360-day year, 30-day month.
Section 5.8 Determination of the Notice Date Interest
Rate. On the date Sublessor receives notice that Sublessee is
exercising the Expansion #1 Option and requires Sublessor to fund
the Expansion #1 Construction Costs, the Notice Date Interest
Rate shall be determined as the higher of (i) the sum of the
Prime Spread (as defined below) plus the Prime Index (as defined
below); or (ii) the sum of the Treasury Spread (as defined below)
plus the Treasury Index (as defined below). The Prime Spread
shall be equal to five percent (5 %) per annum. The Prime Index
shall be "the base rate" or "prime rate" announced by Chemical
Bank (the "Prime Rate") on the first business day prior to
Sublessor's receipt of the Expansion #1 Notice from Sublessee,
whether or not such rate has actually been charged by such bank
provided, if Chemical Bank discontinues the practice of
announcing a "prime rate" or "base rate, " the Prime Index shall
mean the prime rate (or base rate) reported in the money column
or section of The Wall Street Journal as being the base rate on
corporate loans at large U.S. Money Center Banks (whether or not
such rate has actually been charged by any such bank) on the
first business day prior to Sublessor's receipt of the Expansion
#1 Notice from Sublessee. The Treasury Spread shall be five and
thirty-six one hundredths percent (5.36%) per annum. The Treasury
Index shall be the interest rate on the current coupon ten year
U.S. Government Treasury Note as published by The Wall Street
Journal (or such similar financial publication reporting such
data) on the first business day prior to Sublessor's receipt of
the Expansion #1 Option from data provided by the Federal Reserve
Bank of New York.
Section 5.9 Determination of the Completion Date
Interest Rate. On the earlier of: (i) the issuance of a temporary
or permanent certificate of occupancy for the Expansion #1 Space;
or (ii) one (1) year from the date notice is received by
Sublessor that Subtenant has exercised the Expansion #1 Option
and has required Sublessor to fund Expansion #1 Construction
Costs, the Notice Date Interest Rate shall be adjusted upwards or
downwards to reflect any change in the Prime Index or the
Treasury Index, as the case may be. The adjusted Notice Date
Interest Rate shall be referred to herein as the "Completion Date
Interest Rate".
Section 5.10 Rental for Expansion #1 Space Following
the Ten Year Expansion #1 Rent Period. The Expansion Rent for the
first ten (10) years for the Expansion #1 Space is a function
solely of the amortization of Construction Costs, plus applicable
interest on the outstanding balance. The per square foot rent for
the Expansion #1 Space after the first ten (10) years of the
Sublessor Funded Expansion #1 Term will be identical to the per
square foot rent for the IDP applicable for the same time periods
as outlined in Exhibit D and Section 5.6 (a), (b) and (c).
Section 5.11 Rental for Expansion Space if Sublessee
Pays Construction Costs. (a) If Sublessee exercises its option to
construct Expansion #1 Space and Sublessee funds the Construction
Work with respect to the said Expansion #1 Space, Sublessee shall
not be obligated to pay Expansion Rent with respect to Expansion
#1 Space during the Sublessee Funded Expansion #1 Term.
(b) If Sublessee exercises its option to construction
Expansion #2 Space in accordance with the provisions of this
Sublease, Sublessee will not be obligated to pay Expansion Rent
for the Expansion #2 Space during the Expansion #2 Term.
Notwithstanding anything herein, all of Sublessee's right to
possession of any and all portions of the Demised Premises shall
expire and terminate not later than April 30, 2019.
Section 5.12 Timing of Completion of Expansion #1
Space. If the Expansion #1 Space Construction Work is not
certified by the Sublessor's Architect to be completed, less
punchlist items, within one year from Sublessor's receipt of
notice of Sublessee's exercise of the Expansion #1 Option, then
the Expansion Rent shall be determined as provided in Section
5.13
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below, and the Sublessee shall commence payment of Expansion Rent
along with the installment of Basic Rent which is due and payable
on the first day of the twelfth month after the month in which
Sublessor received notice of Sublessee's exercise of the
Expansion #1 Option.
Section 5.13 Calculation of Aggregate Construction
Cost of Expansion #1. During the 11th month following the month
in which Sublessee provided notice of its exercise of the
Expansion #1 Option, Sublessor's Architect, in consultation with
the Architect, shall make a determination of the aggregate
Construction Costs for the Expansion #1 Space by calculating the
sum of: (i) advances disbursed by Sublessor pursuant to the
provisions of Section 3.5 hereof against certified value of work
in place; and (ii) the aggregate retainage withheld by the
Sublessor; and (iii) interest on the aggregate advances made by
the Sublessor pursuant to Section 3.5, said interest being
calculated at the Notice Date Interest Rate; and (iv) the amount
estimated by the Sublessor's Architect, in consultation with the
Architect, which is required to be expended for Construction
Costs to complete the Expansion #1 Space ("Completion Budget
Amount") or ("CBA"). The amount of the CBA is limited by
Sublessor's maximum obligation to fund no more than $2,000,000 of
the Expansion #1 Construction Costs. The CBA shall be used for
determination of Expansion Rent pursuant to Section 5.7.
Section 5.14 Sublessee to Complete Construction Work
and Use of CBA. The Sublessor shall deposit the CBA in a
Federally regulated banking institution money fund (the
"Completion Account") and the interest earned and paid thereon
shall be credited to such account. Sublessee shall cause the
Construction Work to proceed to completion and shall be entitled
to draw advances monthly for completed work in place from the CBA
pursuant to the procedures and requirements of Article II.
Section 5.15 Overcharge or Deficiency in Completion
Budget Amount. If the Construction Work is completed before
depletion of the CBA, the Sublessor shall cause any balance of
the CBA to be paid over to the Sublessee. If the CBA is depleted
prior to completion of the Construction Work, then Sublessee
shall replenish the CBA, which amount shall be deposited into the
Completion Account to the extent necessary to fund in full the
final completion of the Construction Work. Completion of
Construction Work under Sections 5.12, 5.13, 5.14 and 5.15 shall
be evidenced by the issuance of a Permanent Certificate of
Occupancy by municipal authorities of the Township of Edison and
the Sublessor's Architect's certification of completion.
ARTICLE VI
Construction Or Other Work
Section 6.1 Conditions As To Construction Work,
Expansion Space, and as to Repairs, Alterations, Replacements or
Other Work. Whenever any Construction Work, repairs, alterations,
replacements or other work in, on, to or about the Premises shall
be made by the Sublessee as provided in this Sublease:
(i) The work shall be done in a good and workmanlike
manner and in compliance with all applicable laws,
ordinances and codes, and all applicable governmental
rules, regulations and requirements, and in accordance
with the standards, if any, of the Board of Fire
Underwriters, or other organizations exercising the
functions of a board of fire underwriters whose
jurisdiction includes the Demised Premises.
(ii) All materials and workmanship shall be of good
quality, and in case of repairs, restoration, changes,
additions, alterations, replacements or improvements,
shall be at least equal to the original;
(iii) All said work shall be paid for as promptly as
is practicable and consistent with good business
practices under the then existing circumstances;
(iv) Such work shall be done as promptly as is
possible and practicable under the existing
circumstances;
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(v) Sublessee shall provide and maintain, or cause to
be provided and maintained, at all times, insurance in
such forms and covering such risks and hazards and in
such amounts and with companies as are reasonably
satisfactory to the Sublessor. While the Expansion is
under construction said insurance shall include. but
not be limited to, workers' compensation insurance,
public liability insurance, and hazard insurance
policies including fire insurance with extended
coverage on the standard Builders Risk Completed Value
form (non-reporting frill coverage) with "all risk
insurance including collapse." Losses payable
thereunder shall be payable in accordance with the
provisions contained in such policies shall contain
endorsement providing to owner the protections of a
standard mortgagee clause endorsement. All such
policies shall provide for at least thirty (30) days'
notice of cancellation or amendment to the Sublessor.
The comprehensive general liability insurance provided
by Sublessor, as Tenant under the Prime Lease in
Section 9.3 thereof shall be provided by Sublessee.
Sublessee agrees to provide insurance coverage for
hazards and with limits in compliance with Section 9
of the Prime Lease to apply to any Construction Work,
and evidence thereof shall be delivered to the
Sublessor prior to commencement of such work;
(vi) The Sublessee shall carry or cause its
contractors, if any, to carry worker's compensation
insurance as required by law in connection with such
work, and evidence thereof shall be delivered to the
Sublessor prior to commencement of such work;
(vii) Title to all buildings, building mixtures and
improvements erected and installed by Sublessee (but
not Sublessee's racking system, conveyor belts,
sorting system or other trade fixtures, however the
same may be attached to the realty) shall become the
property of Sublessor upon the expiration or earlier
termination of this Sublease;
(viii) The Sublessee shall procure a certificate of
occupancy or amended certificate of occupancy upon
completion of the work in each instance if under local
practice such certificates of occupancy are issued or
required in connection with such work. The Sublessee
shall also obtain the certificate from the Board of
Fire Underwriters, or other organization exercising
the same functions, whose jurisdiction includes the
Demised Premises, in each instance, certifying that
the electrical work has been properly completed
whenever the work done involves any electrical work
for which such a certificate is issued under local
practice. If, under local practice, official
certificates of occupancy are not issued or required
by a governmental officer or department, or if the
Board of Fire Underwriters, or other such organization
does not issue certificates on proper completion of
electrical work, this covenant shall be satisfied upon
issuance of such certifications by an architect or
engineer selected by Sublessee with approval of the
Sublessor. Upon the acceptance of the Certificates of
Occupancy or the alternative certifications from the
Architect or engineer as described and provided above,
the Sublessee will provide to the Sublessor the total
value of the new construction, and the Sublessor will
include this additional value in the Building
Insurance as provided in Article XII, Section 12.14;
(ix) Sublessee and/or Sublessor agree to join in the
applications for all permits and authorizations
whenever necessary;
(x) Construction Work on Expansion #1 and Expansion #2
shall also conform to the criteria stipulated in
Exhibit F.
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ARTICLE VII
Mechanic's Liens
Section 7.1 Mechanic's Liens Prohibited. Sublessee
shall not suffer any mechanics's lien or construction contract to
be filed against the Demised Premises by reason of work, labor,
services or materials performed or furnished to Sublessee or to
anyone holding the Demised Premises, or any part thereof, through
or under Sublessee. If any construction contract, mechanics's
lien or any notice of intention to file a mechanic's lien shall
at any time be filed against the Demised Premises, (unless the
labor or materials were actually performed for or furnished to
Sublessor in connection with its obligations under this Sublease)
Sublessee shall at Sublessee's cost, within thirty (30) days
after knowledge or notice of the filing of any mechanic's lien
cause the same to be removed or discharged of record by payment,
bond, order of a court of competent jurisdiction, or otherwise.
Section 7.2 Sublessor's Remedy for Sublessee's Breach.
If Sublessee shall fail to remove or discharge any construction
contract or mechanic's lien or any notice of intention to file a
mechanic's lien within the prescribed time, then in addition to
any other right or remedy of Sublessor, Sublessor may, at its
option, procure the removal or discharge of the same by payment
or bond or otherwise. Any amount paid by Sublessor for such
purpose, together with all reasonable legal and other expenses of
Sublessor in procuring the removal or discharge of such
construction contract, lien or notice of intention and together
with interest thereon at the Sublease Interest Rate (as
hereinafter defined), shall be and become due and payable by
Sublessee to Sublessor as Additional Rent, and in the event of
Sublessee's failure to pay therefor within fifteen (15) days
after demand. the same shall be added to and be due and payable
with the next month's rent as Additional Rent.
Section 7.3 Non-Consent of Sublessor to Filing of
Liens. Nothing contained in this Sublease shall be construed as a
consent on the part of Sublessor to subject Sublessor's estate in
the Demised Premises to any lien or liability arising out of
Sublessee's use or occupancy of the Premises.
ARTICLE VIII
Notices
Section 8.1 Notices. Every notice required or
permitted under this Sublease shall, unless otherwise
specifically provided herein, be given in writing and shall be
sent by United States certified mail, return receipt requested,
or by a recognized overnight carrier which provides proof of
delivery, addressed by the party giving, making or sending the
same to the other at the other's address first above given, or to
such other address as either party may designate from time to
time by a notice given to the other party. Copies of all notices
sent hereunder shall be sent by facsimile. As to the Sublessor,
any notices shall be sent to the attention of Harry K. Rosenblum,
Senior Vice President, Real Estate, with a copy to Senior Vice
President/General Counsel at the address first above given, the
Fax number at the date of execution hereof, for Mr. Harry
Rosenblum being 212-527-4455 and for the Office of the Second
Vice President and General Counsel being 212-527-5693. As to the
Sublessee, any notices shall be sent to the attention of
President, Popular Club Plan, Inc., 22 Lincoln Place, Garfield,
New Jersey 07026, the Fax Number at the time of execution hereof
being (201) 773-7957, with copies to President, J. Crew Group,
Inc., 625 Sixth Avenue, New York, New York 10011, the Fax number
at the time of execution hereof being (212) 472-9688, and
Herzfeld & Rubin, Esqs., 40 Wall Street, New York, New York
10005, Attention: Leonard P. Polisar, Esq., the Fax number on the
date hereof is 212-344-3433. During any postal strike or similar
interruption with the mails, personal delivery shall be
substituted for certified mail. Notice shall be deemed to be
given upon receipt, provided, however that in the event a party
shall refuse to accept delivery of said certified mail, the
notice shall nevertheless be deemed to be given upon the date of
refusal to accept delivery and further provided that if the
postal service is unable to deliver said certified mail, the
notice shall nevertheless be deemed to be given as of the date of
the Postal Service's second notice of attempted delivery. The
telephone facsimile numbers incorporated above are
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stated for convenience only. The facsimile shall be used by the
parties as an ancillary method of, but shall not take the place
of, the formal notice communication by certified mail return
receipt requested or overnight carrier required herein.
ARTICLE IX
Memorandum of Sublease
Section 9.1 Memorandum of Sublease. Sublessee shall
not record this Sublease, but if either party should desire to
record a short form Memorandum of Sublease setting forth only the
parties, the Demised Premises and the Initial Term, expansion
term(s) and the renewal term(s), such Memorandum of Sublease
shall be executed, acknowledged and delivered by both parties
upon notice from either party.
ARTICLE X
Use
Section 10.1 Use. The Demised Premises shall be used
and occupied by Sublessee as executive offices and warehouse for
light assembly, packaging, marketing and distribution and for no
other purposes. Sublessee shall not use the Premises for
manufacturing or the handling of Hazardous Substances as defined
in Article XIV.
ARTICLE XI
Defaults and Remedies
Section 11.1 Sublessee's Defaults. "Default" shall
mean occurrence of any of the following: (a) failure to pay Basic
Rent, Expansion Rent or any Additional Rent or any other amounts
required to be paid by it hereunder and fails to cure the default
within five (5) days after receipt of notice specifying the
default, or (b) failure to comply with or failure to perform any
of the other covenants or conditions of this Sublease, and falls
to cure the same within thirty (30) days after the receipt of
notice specifying the default, or provided Sublessee proceeds
diligently if the default cannot be cured within thirty (30)
days, within such additional period of time beyond said thirty
(30) days as shall be required by reason of strikes, lockouts.
acts of God, governmental restrictions or prohibitions. or other
causes beyond Sublessee's control, whether similar or dissimilar
to the foregoing (each of which notices specifying a default is
referred to in this Sublease as "First Notice"), then at the
expiration of said five (5) days in the case of a default
described in (a), or at the expiration of said thirty (30) days
(or longer period as aforesaid) in the case of a default
described in (b), Sublessor may (1) cancel and terminate this
Sublease on not less than five (5) days' notice (hereinafter
called "Second Notice") to Sublessee, and on the date specified
in the Second Notice, the Initial Term, the Expansion Term or the
renewal term(s), as applicable, of this Sublease shall terminate
and expire, and Sublessee shall then quit and surrender the
Premises to Sublessor, but Sublessee shall remain liable as
hereinafter provided and or (2) Sublessor may at any time
thereafter re-enter and resume possession of the Premises by
summary proceedings, an action in ejectment or otherwise and
dispossess or remove Sublessee and other occupants and their
effects and hold the Premises as if this Sublease had not been
made; and Sublessee waives the service of any additional notice
of intention to re-enter or to institute legal proceedings to
that end.
Section 11.2 Sublessor's Remedies. If this Sublease
shall be terminated or if Sublessor shall be entitled to re-enter
the Demised Premises and dispossess or remove Sublessee under the
provisions of Article XI, the Sublessor, or Sublessor's agents or
servants, may immediately or at any time thereafter re-enter the
Demised Premises and remove therefrom the Sublessee, its agents,
employees, servants, licensees, and any subtenants and other
persons, firms or corporations, and all or any of its or their
property therefrom, either by summary dispossess proceedings or
by any suitable action or proceeding at law or otherwise, without
being liable to
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indictment, prosecution or damages therefor, and repossess and
enjoy said premises together with all additions, alterations and
improvements thereto.
Section 11.3 Sublessor's Damages. In case of any
Default and termination, re-entry, or dispossess or removal by
summary proceedings or otherwise, the annual rent and all other
charges required to be paid by the Sublessee hereunder shall
thereupon become due and be paid up to the time of such
termination, re-entry, or dispossess or removal, and the
Sublessee shall also pay to the Sublessor all reasonable expenses
which the Sublessor may then or thereafter incur for necessary
legal expenses, attorneys' fees, brokerage commissions, and all
other necessary costs paid or incurred by the Sublessor for
restoring the Demised Premises to good order and condition and
for altering and otherwise preparing the same for re-letting. The
Sublessor may, at any time and from time to time, re-let the
Demised Premises, in whole or in part, either in its own name or
as agent of the Sublessee, for a term or terms which, at the
Sublessor's option, may be for the remainder of the then current
Initial Term, expansion term or renewal term(s), as the case may
be, of this Sublease, or for any longer or shorter period, and
(unless the statute or rule of law which governs the proceeding
in which such damages are to be proved, limits or shall limit the
amount of such claim capable of being so proved and allowed, in
which case the Sublessor shall be entitled to prove as and for
liquidated damages and have allowed an amount equal to the
maximum allowed by or under any such statute or rule of law) the
Sublessee shall be obligated to, and shall pay to the Sublessor
as damages, upon demand, and the Sublessor shall be entitled to
recover of and from the Sublessee, at the election of the
Sublessor, either:
(a) liquidated damages, in an amount which, at the
time of such termination, re-entry or dispossess or removal by
the Sublessor, as the case may be, is equal to the excess, if
any, of the then present value of the installments of Basic Rent,
Expansion Rent and Additional Rent reserved hereunder, for the
period which would otherwise have constituted the unexpired
portion of the then current applicable term of this Sublease,
over the then present value of the rental value of the Demised
Premises for such unexpired portion of the then current Term of
this Sublease, discounted at the rate of five (5 %) percent per
annum; or
(b) damages (payable in monthly installments, in
advance, on the first day of each calendar month following such
termination, re-entry or dispossess, and continuing until the
date originally fixed herein for the expiration of the then
current Term of this Sublease) in any amount or amounts equal to
the excess, if any, of (x) over (y) with (x) being the sums of
the aggregate expenses paid by the Sublessor during the month
immediately preceding such calendar month for all such items as,
by the terms of this Sublease, are required to be paid by the
Sublessee, plus an amount equal to the amount of Basic Rent,
Expansion Rent and Additional Rent which would have been payable
by the Sublessee hereunder in respect to such calendar month, had
this Sublease and the applicable term of this Sublease not been
so terminated, and had the Sublessor not so re-entered, plus the
amount of the rental value of any portion of the Demised Premises
occupied by the Sublessee or any agent of the Sublessee and (y)
being the sum of rents, if any, collected by or accruing to the
Sublessor in respect to such calendar month pursuant to such
re-letting or any holding over by any subtenants of the
Sublessee. Any suit for any month shall not prejudice in any way
the rights of the Sublessor to collect the deficiency for any
subsequent month by a similar proceeding. The Sublessor, at its
option and at its expense, may make such alterations, repairs
and/or decorations in the Demised Premises as in its reasonable
judgment the Sublessor considers advisable and necessary, and the
making of such alterations, repairs and/or decorations shall not
operate or be construed to release the Sublessee from liability
hereunder. Sublessor shall use reasonable efforts to mitigate
damages, but otherwise Sublessor shall in no event be liable in
any way whatsoever for failure to re-let the Demised Premises, or
in the event that the Demised Premises are re-let, for failure to
collect rent thereof under such re-letting; and in no event shall
the Sublessee be entitled to receive any excess of such rents
over the sums payable by the Sublessee to the Sublessor hereunder
but such excess shall be credited to the unpaid rentals due
thereunder, and to the expenses of re-letting and preparing for
re-letting as provided in subparagraph (a) hereof. Suit or suits
for the recovery of such damages, or any installments thereof,
may be brought by the Sublessor from time to time at its
election, and nothing herein contained shall be deemed to require
the Sublessor to postpone suit until the date when the Term of
this Sublease would have expired if it has not been terminated
under the
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provisions of this Sublease, or under any provision of law, or
had the Sublessor not re-entered into or upon the Demised
Premises.
Section 11.4 Waiver of Redemption. Sublessee hereby
waives all rights of redemption to which Sublessee or any person
claiming under Sublessee might be entitled, after an abandonment
of the Premises, or after a surrender and acceptance of the
Premises and the Sublessee's subleasehold estate, or after a
dispossession of Sublessee from the Demised Premises, or after a
termination of this Sublease, or after a judgment against
Sublessee in an action in ejectment, or after the issuance of a
final order or warrant of dispossess in a summary proceeding, or
any other proceeding or action authorized by any rule of law or
statute now or hereafter in force or effect.
Section 11.5 Provisions of Prime Lease as to Defaults
and Remedies Cumulative with the Provisions of Sublease.
Notwithstanding anything herein, the provisions of Article XVII
of the Prime Lease provides cumulative rights and remedies for
the Sublessor supplementing the provisions of this Sublease. It
is intended that the Sublessor shall have the benefit of the
provisions of the Sublease and the Prime Lease with respect to
defaults and remedies which provide the greatest rights and
remedies, to Sublessor. The Sublessor may elect the applicable
clause stipulating defaults and remedies, but failure to make
such election shall not abrogate the cumulative benefit to the
Sublessor intended by this provision.
ARTICLE XII
General Provisions
Section 12.1 No Waste. The Sublessee covenants not to
do or suffer any waste or damage or injury to any building or
improvement now or hereafter on the Demised Premises, or the
fixtures and equipment thereof, or permit or suffer any
overloading of the floors thereon.
Section 12.2 Limitation of Sublessor's Liability. If
Sublessor shall breach any of the provisions hereof, Sublessor
shall only be liable to Sublessee for actual monetary damages and
not for consequential damages and Sublessor's liability shall in
no event exceed the Sublessor's interest in the Demised Premises
as of the date of Sublessor's breach except for (a) liabilities
relating to representations, covenants and warranties made by
Sublessor herein in Section 4. l(iii) concerning liens prior to
the lien of this Sublease or (b) representations, covenants and
warranties made by Sublessor as to the environmental matters and
compliance with applicable laws as set forth in Article XIV. In
any instance where Sublessor's disapproval or withholding of
consent is challenged under the provisions of this Sublease, the
sole remedy available to Sublessee shall be an order directing
that such consent or approval be given, without assessment of any
damages as a consequence of the withholding of such consent or
approval. Sublessee expressly agrees that any judgment which it
may obtain against Sublessor shall be recoverable and satisfied
solely out of the right, title and interest of Sublessor in the
Demised Premises and there shall be no liability beyond such
interest in the Demised Premises except for (a) liabilities
relating to representations, covenants and warranties made by
Sublessor herein in Section 4.1 (iii) concerning liens prior to
the lien of this Sublease or (b) representations, covenants and
warranties made by Sublessor as to the environmental matters and
compliance with applicable laws as set forth in Article XIV.
Sublessee shall not hold any shareholder, officer or director of
the Sublessor personally liable for any breach of representations
or warranties or any other default under any circumstances.
Sublessee shall have no rights of lien or levy against any other
property of Sublessor, nor shall any other property or assets of
the Sublessor be subject to levy, execution or other enforcement
proceedings for the collection of any such sums or satisfaction
of any such judgment or award and Sublessee expressly agrees that
any judgment which it may obtain against Sublessor shall be
recoverable and satisfied solely out of the right, title and
interest of Sublessor in the Demised Premises except for (a)
liabilities relating to representations, covenants and warranties
made by Sublessor herein in Section 4.1 (iii) concerning liens
prior to the lien of this Sublease or (b) representations,
covenants and warranties made by Sublessor as to the
environmental matters and compliance with applicable laws as set
forth in Article XIV.
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Section 12.3 Partial Invalidity. If any term or
provision of this Sublease or the application thereof to any
party or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Sublease or the application
of such term or provision to parties or circumstances other than
those to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Sublease
shall be valid and enforced to the fullest extent permitted by
law.
Section 12.4 No Waiver. One or more waivers by either
party of the obligation of the other to perform any covenant or
condition shall not be construed as a waiver of a subsequent
breach of the same or any other covenant or condition.
The receipt of rent by the Sublessor, with knowledge
of any breach of this Sublease by the Sublessee or of any default
on the part of the Sublessee in the observance or performance of
any of the conditions or covenants of this Sublease, shall not be
deemed to be a waiver of any provision of this Sublease. Neither
the acceptance of the keys nor any other act or thing done by the
Sublessor or any agent or employee during the Term herein demised
shall be deemed to be an acceptance of a surrender of said
Premises, excepting only an agreement, in writing, signed by the
Sublessor accepting or agreeing to accept such a surrender.
Section 12.5 Number and Gender. Wherever herein the
singular number is used, the same shall include the plural and
the masculine gender shall include the feminine and neuter
genders.
Section 12.6 Successors and Assigns. Subject to the
provisions of Article XIII, the terms, covenants and conditions
herein contained shall be binding upon and inure to the benefit
of the respective parties and their successors and assigns.
Section 12.7 Article and Marginal Headings. The
article and marginal headings herein are intended for convenience
in finding the subject matters, and are not to be used in
determining the intent of the parties to this Sublease.
Section 12.8 Entire Agreement. This instrument, the
Tri-Party Agreement and the Subordination, Non-Disturbance and
Attornment Agreement among the Prime Landlord, Sublessor,
Sublessee, Guarantor and The Bank of New York, all of even date,
contain the entire and only agreement among the parties, and no
oral statements or representations or prior written matter not
contained in this instrument shall have any force or effect. This
Sublease shall not be modified in any way or terminated except by
a writing executed by Sublessor and Sublessee.
Section 12.9 Obligations also Covenants. Whenever in
this Sublease any words of obligation or duty are used, such
words or expressions shall have the same force and effect as
though made in the form of covenants.
Section 12.10 Cost of Performing Obligations. The
respective obligations of the parties to keep, perform and
observe any terms, covenants or conditions of this Sublease shall
be at the sole cost and expense of the party so obligated.
Section 12.11 Remedies Cumulative. The specified
remedies to which the Sublessor may resort under the terms of
this Sublease are cumulative and are not intended to be exclusive
of any other remedies or means of redress to which the Sublessor
or Sublessee may be lawfully entitled in case of any breach or
threatened breach of any provision of this Sublease.
Section 12.12 Holding Over. If Sublessee holds over
after the expiration or earlier termination of this Sublease
("Holdover"), and if Sublessee is not otherwise in default
hereunder such holding over shall not be deemed to create an
extension of the term, but such occupancy shall be deemed to
create a month-to-month tenancy at the rate of one hundred
twenty-five (125 %) percent of the then current Basic Rent,
Additional Rent and the Expansion Rent for the first sixty (60)
days of the Holdover; and one hundred fifty (150%) percent of the
then current Basic Rent, Additional Rent and the Expansion Rent
for the next thirty (30) days or a portion thereof; and two
hundred (200%) percent of the then current Basic Rent, Additional
Rent and the Expansion Rent as the case may be thereafter during
such Holdover and on the
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same terms and conditions (except as the same may be then
inapplicable in the then context of circumstances) as are in
effect on the date of said expiration or earlier termination.
Section 12.13 Signs.
(a) Sublessee shall have the right and privilege of
erecting signs for advertising purposes in connection with its
business at the Demised Premises as long as such signs meet with
the prior written approval of Sublessor and Prime Landlord, which
approval shall not be unreasonably withheld. Sublessee expressly
agrees that the privilege to erect signs is not intended and
shall not be applicable to any installation on the roof of the
Building.
(b) Sublessee shall be responsible for any damage
caused by said signs and any damage so caused shall be repaired
forthwith at Sublessee's sole cost and expense. In the event any
sign erected by Sublessee is removed during the Term of this
Sublease or at the expiration or earlier termination thereof,
Sublessee shall repair any damage whatsoever caused by the
removal at Sublessee's sole cost and expense.
Section 12.14 Property Insurance-Special Provision.
Sublessor will provide "all risk" property insurance for the full
replacement cost of the Building and all improvements and
betterments, except Sublessee's racking system, conveyor belts,
sorting systems or other trade fixtures as referred to in Article
VI, Section 6. 1(vii). The cost of this insurance will be
reimbursed to Sublessor by the Sublessee as Additional Rent in an
amount equal to the annual premium of the policy or the premium
developed by the Sublessee's insurance Company, whichever is
less.
Sublessee and Sublessor will mutually cause their
respective insurance companies to waive any rights of subrogation
under such property insurance against the Sublessor or Sublessee,
respectively.
Section 12.15 Brokerage. Sublessor and Sublessee
mutually represent and covenant to each other that neither party
dealt with a real estate broker or salesperson other than
Aramanda Realty Corp. and Cushman & Wakefield of N.J. Sublessor
shall be responsible to pay to Aramanda Realty Corp. and to
Cushman & Wakefield of N.J. any commission due.
The parties hereto agree to indemnify each other and
hold each other harmless against any and all claims, liabilities,
losses, judgments and expenses including legal fees which one
party suffers if the representation of the other party set forth
herein proves to be untrue.
Section 12.16 Notice by Sublessee to Mortgagee. If
required by the holder of a mortgage lien to which this Sublease
is subordinate (provided Sublessee is furnished with written
notice of such requirement), Sublessee agrees (a) to notify such
mortgagee of any alleged default by Sublessor in any of the
provisions of this Sublease: and (b) to allow to the said
mortgagee a reasonable period time to cure such alleged default.
Section 12.17 Sublessee Electric. Sublessee's use of
electric energy in the Demised Premises shall not at any time
exceed the capacity of any of the electrical conductors and
equipment in or serving the Demised Premises.
Section 12.18 Conduct of Sublessee's Work.
(a) The parties mutually acknowledge that Sublessee
may determine to effect installation on the Premises which are
the subject of this Sublease certain subleasehold improvements
("Sublessee's Work") in the nature of fixtures, equipment and
personalty. Such Sublessee's Work is contemplated to be effected
subsequent to the execution hereof and prior to the Commencement
Date as herein defined. Sublessee agrees to permit Sublessor and
its agents and contractors to enter upon the Premises for such
purposes with the understanding by the parties that it is of the
essence that the progress of the Construction Work shall not be
delayed, interrupted, or impeded; nor shall the Construction Work
be affected in any manner whatsoever which will result in an
increase in the Sublessor's cost in completion of the
Construction Work prior to the Commencement Date.
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(b) Labor used in the performance of Sublessee's Work
("Sublessee's Labor") shall be such as is compatible with the
labor used in the performance of the Construction Work; and use
of Sublessee's Labor shall not result in any stoppage, delay or
interruption whatsoever in the Construction Work.
(c) In the event of any stoppage, delay or
interruption in the Construction Work while Sublessee's Labor is
engaged on the premises, Sublessee shall forthwith cease and
desist use of Sublessee's Labor on the premises upon receipt of
written notice from Sublessor demanding cessation of Sublessor's
Work. Thereafter, Sublessee shall not engage Sublessee's Labor on
the premises until Sublessor shall have given written approval
therefor.
(d) Sublessee shall have the right to perform
Construction Work in order to demolish, at its sole cost and
expense and risk, certain existing improvements hereby referred
to as the Cafeteria Improvements and Locker Room Areas together
with the adjacent restroom facilities shown on Exhibit G.
Sublessee shall indemnify Sublessor and the first mortgagee of
the Demised Premises for any losses, damages, liabilities,
claims, costs, expenses (including reasonable fees and expenses
of counsel) for personal injury or property damage which results
from or arises out of the performance of such Demolition provided
that Sublessee will be under no obligation to replace these
improvements at the termination of this Sublease or anytime
during the Term of this Sublease or extensions thereof.
Section 12.19 Interest and Late Payment Service
Charge. Sublessee covenants and agrees to pay to Sublessor
interest at the Sublease Interest Rate and a late payment service
charge equal to five (5 %) percent of any Basic Rent, Additional
Rent and Expansion Rent payment or any other payment prescribed
herein which has not been paid in accordance with the provisions
of this Sublease Agreement, provided, however, that such interest
and late payment service charges shall not commence to accrue
until a delinquency by Sublessee exceeds five (5) business days.
Said interest and late payment service charge shall be both paid
by Sublessee to Sublessor promptly upon proper notice and demand
therefor.
Section 12.20 Definitions.
(a) "Additional Rent" shall have the meaning provided
in Article V, Section 5.5.
(b) "Architect" shall have the meaning provided in
Article III, Section 3.1(b).
(c) "Assignment" shall have the meaning provided in
Article XIII, Section 13.1.
(d) "Basic Rent" shall have the meaning provided in
Article V.
(e) "Building" shall have the meaning provided in
Article I, Section 1.1.
(f) "Commencement Date" shall mean February 1, 1994.
(g) "Completion Account" shall have the meaning
provided in Article V, Section 5.14.
(h) "Completion Budget Amount" or "CBA" shall have the
meaning described in Section 5.13.
(i) "Completion Date Interest Rate" shall have the
meaning provided in Article V, Section 5.9.
(j) Construction Costs. Construction Costs shall mean,
in each instance whether or not involving an expansion as herein
contemplated, the aggregate direct and indirect costs for
Construction Work including, but not limited to, the actual cost
of work, labor, materials and equipment, financing, brokers fees
or commissions for financing, brokerage fees or
25
<PAGE>
commissions for Expansion Rent, if any, and any and all
reasonable professional fees for accountants, architects,
engineers, planners, attorneys and other consultants. including
the cost of the Sublessor's Architect retained by the Sublessor
to insure that the Construction Work of the Qualified Contractor
and others engaged by the Sublessee is in accord with the
provisions of this Sublease and to certify the value of work in
place in accordance with the plans and specifications for the
purpose of progress payments with respect to Expansion #1 and
interest at the Sublessee Interest Rate on Sublessor's advances
up to the Funding Limits of the Construction Costs for the
Expansion #1 Space. Such interest shall compound monthly and be
calculated on a 30 day month and a 360 day year. Construction
Costs do not include any costs incurred by Sublessor or Sublessee
in negotiating this Sublease, the Tri-Party Agreement of even
date or any other document in conjunction therewith. Sublessor
and Sublessee shall each bear their respective costs incurred in
the negotiation of this Sublease and all other collateral
agreements executed in conjunction herewith.
(k) "Construction Work". The term "Construction Work"
is a collective term meaning the totality of all services, work,
labor, materials and equipment necessary, in each instance, in
the performance by Sublessee of the repairs, alterations and
other work contemplated herein, whether or not involving
Expansion #1 or Expansion #2, including, but not limited to, the
design of the improvements to be erected, site preparation and
sub-soil footings and foundations, grading, surfacing of parking
area, paths and ways, installation of all utilities; and the
cleanup and removal of debris, the work of accountants,
architects, engineers, planners, attorneys, surveyors and other
consultants performing services in conjunction with the foregoing
or any permitting or approval process required under applicable
law. It is intended that Construction Work when complete shall
place the completed Building, as expanded, in full availability
for the conduct of the business activity at the site permitted
under applicable land use regulations.
(l) "Default" shall have the meaning provided in
Article XI, Section 11.1.
(m) "Demised Premises" shall have the meanings
described in Article I.
(n) "EPA" shall mean the United States Environmental
Protection Agency.
(o) "Expansion" shall mean Expansion #1 Space and/or
Expansion #2 Space.
(p) "Expansion #1 shall mean Expansion #1 Space.
(q) "Expansion #2" shall mean Expansion #2 Space.
(r) "Expansion #1 Option" shall mean the rights of the
Sublessee described in Article III, Section 3.1.
(s) "Expansion #2 Option" shall mean the rights of the
Sublessee described in Article II, Section 3.2.
(t) "Expansion #1 Space" shall have the meaning
described in Article III, Section 3.1 and identified as A on
Exhibit E.
(u) "Expansion #2 Space" shall have the meaning
described in Article III, Section 3.2 and identified as B and C
on Exhibit E.
(v) "Expansion #2 Term" shall have the meaning
provided in Article 2, Section 2.1(b).
(w) "Fair Market Rental" shall have the meaning
provided in Article V, Section 5.6.
(x) "Fax" shall have the meaning provided in Article
VIII, Section 8.1.
(y) "Fixed Rate" shall have the meaning provided in
Article V, Section 5.7.
26
<PAGE>
(z) "Fractional Month" shall have-the meaning provided
in Article II, Section 2.1(a).
(aa) "Funding Limit" shall have the meaning provided
in Section 3.5
(ab) "Guarantor" shall mean the J. Crew Group, Inc.
(ac) "Guaranty" shall mean the Guaranty dated the date
hereof between J. Crew Group, Inc. and Revlon Holdings Inc.
(ad) "Hazardous Substances" shall have the meaning
defined in Article XIV, Section 14.1.
(ae) "IDP" shall have the meaning described in Article
I, Section 1.1.
(af) "Initial Occupancy Date" shall mean November 1,
1993 as provided in Article II, Section 2.2.
(ag) "Initial Term" shall have the meaning provided in
Article II, Section 2.1(a).
(ah) "ISRA" shall mean N.J.S.A. 13:lK--6 et seq.,
Industrial Site Recovery Act.
(ai) "NJDEPE" shall mean the New Jersey Department of
Environmental Protection and Energy.
(aj) "Notice Date Interest Rate" shall have the
meaning provided in Article V, Section 5.8.
(ak) "Preliminary Expansion #1 Plans" shall have the
meaning provided in Article III, Section 3.1(b).
(al) "Premises" shall have the meaning provided in
Article I, Section 1.1.
(am) "Prime Index" shall have the meaning provided in
Article V, Section 5.8.
(an) "Prime Landlord" shall have the meaning described
in Article I, Section 1.2(a).
(ao) "Prime Lease" shall have the meaning provided in
Article I, Section 1.2(a).
(ap) "Prime Rate" shall be the "base rate" or "prime
rate" announced by Chemical Bank, whether or not such rate has
actually been charged by such bank provided, if Chemical Bank
discontinues the practice of announcing a "prime rate" or "base
rate", the Prime Rate shall mean the "prime rate" or "base rate"
reported in the money column or section of the Wall Street
Journal as being the base rate on corporate loans at large U.S.
Money Center Banks (whether or not such rate has actually been
charged by any such bank).
(aq) "Prime Spread" shall have the meaning provided in
Article V, Section 5.8.
(ar) "Prime Tenant" shall have-the meaning described
in Article I, Section 1.2(a).
(as) Qualified Contractor. The term "Qualified
Contractor" means an organization with at least ten years
experience in the construction of industrial/commercial
structures which has been selected by the Sublessee to perform
the Construction Work after the Sublessee has requested at least
two bids for the completion of the Construction Work, provided
the contractor selected from the bids received by the Sublessor
has demonstrated to the Sublessor's satisfaction that the
contractor possesses the requisite experience and financial
resources to complete the Construction Work.
27
<PAGE>
(at) "RCPC" shall have the meaning provided in Article
I, Section 1.2(a).
(au) "Re-enter and Re-entry". The terms "re-enter" and
"re-entry" as used in this Sublease are not restricted to their
technical legal meaning.
(av) "Sublease Interest Rate." The term "Sublease
Interest Rate," as used in this Lease, shall mean interest at the
rate which is three (3 %) percent in excess of the Prime Rate.
(aw) "Sublessee Funded Expansion #1 Term" shall have
the meaning provided in Article 2, Section 2.l(b).
(ax) "Sublessor." The term "Sublessor" as used in this
Sublease means only the holder, for the time being, of
Sublessor's interest under this Sublease so that in the event of
any transfer of title to the Demised Premises Sublessor shall be
and hereby is entirely freed and relieved of all obligations of
Sublessor hereunder accruing after such transfer, and it shall be
deemed without further agreement between the parties that such
grantee, transferee or assignee has assumed and agreed to observe
and perform all obligations of Sublessor hereunder arising during
the period it is the holder of Sublessor's interest hereunder.
(ay) "Sublessor Funded Expansion #1 Term" shall have
the meaning described in Article I, Section 1.1 and Article II,
Section 2.1(b).
(az) "Sublessor's Architect" shall have the meaning
provided in Article III, Section 3.1(a).
(ba) "Treasury Index" shall have the meaning provided
in Article V, Section 5.8.
(bb) "Treasury Spread" shall have the meaning provided
in Article V, Section 5.8.
(bc) "Tri-Party Agreement" shall have the meaning
provided in Article I, Section 1.2(a).
(bd) "#1 Measuring Date" shall have the meaning
provided in Article II, Section 2.1(b).
(be) "#2 Measuring Date" shall have the meaning
provided in Article II, Section 2.1(b).
(bf) "Zoning Change"' shall have the meaning provided
in Article III Section 3.2.
Section 12.21 Governing Law. The interpretation and
validity of this Sublease shall be governed by the laws of the
State of New Jersey applicable to contracts negotiated, executed
and to be performed in the State of New Jersey. Any controversy
arising out of the terms of this Sublease shall be resolved by
appropriate proceedings in either the United States District
Court for New Jersey or the Superior Court of New Jersey either
or which shall have sole and exclusive jurisdiction thereof.
ARTICLE XIII
Assignment, Subletting, Etc.
Section 13.1 Assignment. Subletting. Etc. Sublessee
shall not sell, assign, mortgage, pledge, or, in any manner,
transfer or encumber this Sublease or any estate or interest
hereunder, or sublet the Demised Premises or any part thereof
(any of the foregoing shall be referred to herein as
"Assignment") without the previous written consent of the
Sublessor which consent shall not be unreasonably withheld
provided that (i) Sublessee is not in material default
28
<PAGE>
hereunder and no event has occurred which with notice or passage
of time, or both, would constitute a material default hereunder
(without regard to whether a notice of default has been served
pursuant to Article XI); (ii) Sublessee shall provide Sublessor
with access to the Demised Premises for inspection and testing
thereof; (iii) the use by the proposed assignee or sublessee does
not, in Sublessor's reasonable judgment, (a) adversely affect the
Demised Premises by virtue of environmentally related factors or
(b) lessen the value of the Premises; or (c) increase risk or
endanger the Building or the occupants thereof; and (iv)
Sublessee shall provide Sublessor with financial statements and
information demonstrating to Sublessor's reasonable satisfaction
that the prospective assignee or sublessee has the financial
capacity to perform the obligations of the Sublessee hereunder.
Any sale of stock or assets of the Sublessee or any merger,
consolidation or liquidation of the Sublessee shall be deemed to
be an Assignment for purposes of this Section 13.1 (other than an
initial public offering of not more than 19 % of the outstanding
common stock of Sublessee in an underwritten public offering
under the Securities Act of l933). Notwithstanding the foregoing,
in the case of any Assignment to a wholly owned subsidiary or
affiliate of Sublessee or J. Crew Group, Inc. (so long as
Sublessee or J. Crew Group, Inc. retains the controlling interest
in such affiliate) or to Sublessee's parent, such previous
written consent by Sublessor shall not be necessary, provided
that Sublessee shall provide thirty (30) days advance written
notice of any such Assignment to such a subsidiary or affiliate
and will provide Sublessor with any information reasonably
requested regarding the Assignee. In any of the events aforesaid
whether or not consent is required, Sublessee, nevertheless,
shall remain directly and primarily liable for the payment of the
Basic Rent, Additional Rent and Expansion Rent, and the
performance of Sublessee's other covenants and obligations
hereunder. Any amount received by Sublessee in connection with an
Assignment or to the extent such amount exceeds the amount
required to be paid by Sublessee to Sublessor under this Lease
(net of Sublessee's brokers fees, reasonable legal fees for
preparation of Assignment documents and reasonable cost of
alterations for the prospective assignee or sublessee) shall
belong to and be promptly remitted by Sublessee to Sublessor. No
consent to any Assignment of this Sublease shall be deemed or
construed to be a consent by Sublessor to any further or
additional Assignment. In the event of an Assignment , the
assignee or sublessee, as the case may be, shall (as condition to
Sublessor's consent thereto where consent is required, and in the
case of any assignment in which consent is not required) assume,
by written recordable instrument reasonably satisfactory to
Sublessor, the due performance of all of Sublessee's obligations
under this Lease. No Assignment shall be valid or effective in
the absence of such assumption. In connection with any
Assignment, the prospective Assignee shall not more than thirty
(30) days prior to the effective date of such Assignment, furnish
to the Sublessor in each case, its then current consolidated and
consolidating balance sheets as of the end of its most recent
fiscal year and the related statements of income, shareholders'
equity and changes in cash flow for such fiscal year, setting
forth in each, in comparative form the figures for the previous
fiscal year. All such consolidated statements reported on, shall
be without qualification, and by independent certified public
accountants satisfactory to the Sublessor. Each year thereafter,
within ninety (90) days of the end of each fiscal year, the
Assignee shall provide their respective financial statements in
the aforementioned form with the aforementioned required
certification of the respective independent certified public
accountants, to the Sublessor. A true copy of such Assignment and
the original assumption agreement or the sublease, as the case
may be, shall be delivered to Sublessor within ten (10) days of
the effective date thereof. Notwithstanding anything to the
contrary, Sublessor shall have the right, but not the obligation,
to notify Sublessee within thirty (30) days of receipt of
Sublessee's request for consent to an Assignment or subletting
that Sublessor has elected to terminate the Sublease which
termination shall become effective ninety (90) days after the
date Sublessee receives said notice of election from Sublessor.
ARTICLE XIV
Compliance with Laws, Rules and Regulations
Section 14.1 Environmental Compliance.
(a) The Sublessee shall at all times comply with
applicable municipal, state and federal laws, ordinances and
regulations relating to hazardous substances as defined in the
Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA")
and/or Spill Compensation and Control Act, N.J.S.A. 58:10-23.11,
et seq., or any other environmental law (the "Hazardous
29
<PAGE>
Substances") from and after the signing of this Sublease. The
Sublessee shall at its own expense maintain in effect any
permits, licenses or other governmental approvals, if any,
required for the Sublessee's use of the Demised Premises. The
Sublessee shall make all disclosures required of the Sublessee by
any such laws, ordinances and regulations, and shall comply with
all orders, with respect to the Sublessee's use of the Demised
Premises, issued by any governmental authority having
jurisdiction over the Demised Premises, and take all action
required of such governmental authorities to bring the
Sublessee's activities on the Demised Premises into compliance
with all laws, rules, regulations and ordinances relating to
Hazardous Substances and affecting the Demised Premises except
arising from any compliance attributable to Sublessor or any
party in privity with Sublessor which responsibility for
compliance shall belong to Sublessor or any party in privity with
Sublessor.
(b) Sublessor shall, prior to the Initial Occupancy
Date, comply with Sublessor's obligations pursuant to ISRA and
any other environmental law, statute or ordinance, and such
compliance shall be a condition precedent to Sublessee's entry
and occupancy of the Premises.
(c) If at any time the Sublessee or Sublessor shall
become aware, or have reasonable cause to believe, that any
Hazardous Substance has been released or has otherwise come to be
located on or beneath the Premises, such party shall, immediately
upon discovering the release or the presence or suspected
presence of the Hazardous Substance, give written notice of that
condition to the other party. In addition, the party first
learning of the release or presence of a Hazardous Substance on
or beneath the Premises, shall immediately notify the other party
in writing of (i) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed, or
threatened pursuant to any Hazardous Substance laws, (ii) any
claim made or threatened by any person against Sublessor, the
Sublessee or the Premises arising out of or resulting from any
Hazardous Substances, and (iii) any reports made to any
municipal, state, or federal environmental agency arising out of
or in connection with any Hazardous Substance.
(d) Sublessee shall indemnify, defend (by counsel
acceptable to the Sublessor), protect, and hold harmless the
Sublessor and each of the Sublessor's partners, directors,
officers, employees, agents, attorneys, successors, and assigns,
from and against any and all claims, liabilities, penalties,
fines, judgments, forfeitures, losses, costs, or expenses
(including attorney's fees, consultants' fees, and expert fees)
for the death of or injury to any person or damage to any
property whatsoever, arising from or caused in whole or in part,
directly or indirectly, by (i) the presence in, or, under, or
about the Premises, or any discharge or release in or from the
Premises of any Hazardous Substance, which is caused by Sublessee
or anyone in privity with Sublessee, or (ii) Sublessee's failure
or the failure of anyone in privity with Sublessee to comply with
any Hazardous Substance law.
(e) Sublessor shall indemnify, defend (by counsel
acceptable to the Sublessee), protect, and hold harmless the
Sublessee and each of the Sublessee's partners, directors,
officers, employees, agents, attorneys, successors, and assigns
from and against any and all claims, liabilities, penalties,
fines, judgments, forfeitures, losses, costs or expenses
(including attorney's fees, consultants' fees, and experts' fees)
for the death of or injury to any person or damage to any
property whatsoever, arising from or caused in whole or in part,
directly or indirectly, by (i) the presence in, or, under, or
about the Premises, or any discharge or release in or from the
Premises of any Hazardous Substance, which is caused by the
Sublessor or any one in privity with Sublessor or (ii)
Sublessor's failure or the failure of anyone in privity with
Sublessor to comply with any Hazardous Substance law.
(f) The indemnity obligations created hereunder shall
include, without limitation, and whether foreseeable or
unforeseeable, any and all costs incurred in connection with any
site investigation of the Premises, and any and all costs for
repair, cleanup, detoxification or decontamination, or other
remedial action of the Premises. The obligations of the Sublessee
and Sublessor hereunder shall survive the expiration or earlier
termination of this Sublease, and any extensions thereof.
(g) Sublessee shall not engage in operations at the
Premises which involve the generation, manufacture, refining,
transportation, treatment, storage, handling or disposal of
30
<PAGE>
"hazardous substance" or "hazardous wastes", as such terms are
defined under ISRA except these ordinarily used for general
office purposes or ordinarily used for warehousing, light
assembly, packaging, marketing and distribution operations in
accordance with Article X use. Sublessee further covenants that
it will not cause or permit to exist as a result of an
intentional or unintentional action or omission on its part, the
releasing, spilling, leaking, pumping, pouring, emitting,
emptying or dumping from, on or about the Premises or the land on
which it is located of any hazardous substances (as such term is
defined under N.J.S.A. 58:l0-12.ll(b)(d) and N.J.A.C. 7:1-3.3).
(h) If ISRA is triggered by Sublessee's actions or any
party in privity with Sublessee, Sublessee shall, at Sublessee's
own expense, comply with ISRA and the regulations promulgated
thereunder to the extent ISRA is applicable to Sublessee. If ISRA
is triggered by Sublessor's actions or the actions of any party
in privity with the Sublessor. Sublessor shall, at Sublessor's
own expense, comply with ISRA and the regulations promulgated
thereunder to the extent ISRA is applicable to the Sublessor.
Sublessee shall, at Sublessee's own expense, make all submissions
to provide all information to, and comply with all requirements
of the Bureau of Industrial Site Evaluation ("the Bureau") of the
New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Should the Bureau or any other division of NJDEPE
determine that a cleanup plan be prepared and that a cleanup be
undertaken because of any spills or discharges of hazardous
substances or wastes at the Premises which occur during the Term
of this Sublease, if caused by the Sublessee, then Sublessee
shall, at Sublessee's own expense, prepare and submit the
required plans and financial assurances, and carry out the
approved plans. If caused by Sublessor, then Sublessor shall, at
Sublessor's own expense, prepare and submit the required plans
and financial assurances, and carry out the approved plans.
Sublessee's obligations under this paragraph shall arise if there
is any closing, terminating or transferring of operations of an
industrial establishment at the Premises which triggers ISRA.
Upon Sublessee's request, Sublessor shall provide reasonable
cooperation at no expense to Sublessee unless ISRA is triggered
by Sublessee or someone in privity with Sublessee, in connection
with Sublessee's obligation to comply with ISRA. At no expense to
Sublessor, Sublessor shall promptly provide all information
reasonably required by Sublessee for preparation of
non-applicability affidavits and shall promptly review, revise as
necessary and sign such affidavits when requested by Sublessee.
Sublessee shall indemnify, defend and save harmless Sublessor
from all fines, suits, procedures, claims and actions of any kind
arising out of or in anyway connected with any spills or
discharges of hazardous substances or wastes at the Demised
Premises which occur during the Term of this Sublease and are
caused by Sublessee or any party in privity with the Sublessee;
and from all fines, suits, procedures, claims and actions of any
kind arising out of Sublessee's failure to provide all
information, make all submissions and take all actions required
by ISRA, the Bureau or any other division of NJDEPE. Sublessor
shall indemnify, defend and save harmless Sublessee from all
fines, suits, procedures, claims and actions of any kind arising
out of or in any way connected with any spills or discharges of
Hazardous Substances at the Demised Premises which occur prior to
the Term of this Sublease and are caused by Sublessor or any
party in privity with Sublessor; and from all fines, suits,
procedures, claims and actions of any kind arising out of
Sublessor's failure to provide all information, make all
submissions and take all actions required by ISRA, the Bureau or
any other division of NJDEPE. The obligations and liabilities
under this paragraph shall continue so long as Sublessee or
Sublessor remain responsible for any spills or discharges of
Hazardous Substances at the Premises . Sublessee's failure to
abide by the terms of this paragraph shall entitle Sublessor to
appropriate equitable relief.
(i) With respect to Sublessee's occupancy of the
Demised Premises, Sublessee shall promptly provide Sublessor with
any notices, correspondence and submissions made by Sublessee to
or to Sublessee from NJDEPE, the United States Environmental
Protection Agency (EPA), or any other local, state or federal
authority which requires submission (with respect to Sublessee's
occupancy of the Demised Premises) of any information concerning
environmental matters or Hazardous Substances. Similarly during
Sublessee's occupancy of the Demised Premises, Sublessor shall
promptly provide to Sublessee any notices, correspondence and
submissions made by Sublessor to or from NJDEPE, the United
States Environmental Protection Agency (EPA), or any of the
local, state or federal authority which requires submission (with
respect to the Demised Premises) of any information concerning
environmental matters or Hazardous Substances.
31
<PAGE>
(j) Sublessee represents and warrants that its SIC
Number is 5961. Sublessee hereby agrees that it shall promptly
inform Sublessor of any change in the business to be conducted in
the Demised Premises, but the Demised Premises shall be used only
for the purposes described in Article X.
(k) In the event of Sublessee's failure to comply in
full with this paragraph, Sublessor may, at its option, perform
any and all of Sublessee's obligations as aforesaid and all costs
and expenses reasonably incurred by Sublessor in the exercise of
this right shall be added to the next month's rent and be due and
payable as such, or the Sublessor may deduct the same from the
balance of any sum remaining in the Sublessor's hands.
(1) Sublessee's obligations under this paragraph shall
survive the expiration or earlier termination of this Sublease.
IN WITNESS WHEREOF, Sublessor and Sublessee have
executed this Sublease as of the day and year first above
written.
Attest: SUBLESSOR:
REVLON HOLDINGS INC. a Delaware
____________________________ Corporation
By:____________________________________
Attest: SUBLESSEE:
POPULAR CLUB PLAN, INC. a New Jersey
____________________________ Corporation, a Division of J. CREW GROUP, INC.
By:____________________________________
32
WORLD COLOR Letterhead Thomas L. Groenings, Sr.
Vice President
Catalog Division
July 29, 1996
Ms. Trudy Sullivan
President
CLIFFORD & WILLS
11 East 19th Street
Sixth Floor
New York, NY 10011
Dear Ms. Sullivan:
In order to secure a contract extension of three years beyond the
current contract expiration of May 1997, World Color offers the
following:
1. World Color will grant a 7% price reduction beginning
with June 1996 production. The enclosed price schedule
reflects this same reduction on the new trim size
beginning Spring 1997. Those invoices from June until
the end of 1996 will show the 7% reduction in
manufacturing as a separate line item.
2. World Color will waive the 1997 labor increase. The
enclosed price schedule remains in effect until
January 1, 1998.
All other terms and conditions of the original contract dated
March 1991, will remain unchanged.
Best Regards,
/s/ Thomas L. Groenings
cc: Sam Kaplan
Approved: Acknowledged and Accepted:
/s/ /s/
- ------------------------- ----------------------------
Thomas L. Groenings Trudy Sullivan
Vice President, Eastern President
Catalog Sales
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page One
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8 X 10" Trim Size - Rotogravure
- -----------------------------------
Cylinder and 1 Proofing
8- page form .......................... $9,315.59
12- page form .......................... 9,603.56
16- page form .......................... 9,891.55
20- page form .......................... 10,178.59
24- page form .......................... 10,466.58
28- page form .......................... 10,753.62
32- page form .......................... 11,040.66
36- page form .......................... 14,444.54
40- page form .......................... 11,615.68
48- page form .......................... 12,189.76
56- page form .......................... 12,764.79
60- page form .......................... 16,240.43
64- page form .......................... 13,339.82
72- page form .......................... 17,137.44
Additional for a second proofing,
per form .................................. 2,894.95
Additional for double cutting key cylinders,
per form .................................. 1,699.58
Production Makeready
8- page form .......................... $2,368.08
12- page form .......................... 2,368.08
16- page form .......................... 2,368.08
20- page form .......................... 2,202.84
24- page form .......................... 2,202.84
28- page form .......................... 2,202.84
32- page form .......................... 2,202.84
36- page form .......................... 3,476.58
40- page form .......................... 2,202.84
48- page form .......................... 2,202.84
56- page form .......................... 2,202.84
60- page form .......................... 3,476.58
64- page form .......................... 2,202.84
72- page form .......................... 3,476.58
Roll change from one grade of
paper to another (same roll size),
per form .................................... 117.27
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Two
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Rotogravure 32" or 33" 48"
- ------------------------------------ ---------- ---
Changeovers, per cylinder
Cylinders and 1 proofing....... $1,111.26 $1,506.95
Production press makeready............ 212.91 336.39
Furnished positives, per page,
per color............................. 17.99 17.99
Premium for runs under
1,000,000 impressions, per form....... 1,696.53 1,696.53
Press Running - Per Thousand Copies
- -----------------------------------
8- page form ....................................... $5.48
12- page form ....................................... 4.77
16- page form ....................................... 6.11
20- page form ....................................... 8.34
24- page form ....................................... 8.37
28- page form ....................................... 8.40
32- page form ....................................... 10.31
36- page form ....................................... 13.09
40- page form ....................................... 15.75
48- page form ....................................... 15.80
56- page form ....................................... 15.87
60- page form ....................................... 25.60
64- page form ....................................... 20.63
72- page form ....................................... 25.72
Slitting up to 1-7/8" of excess
width from furnished roll stock...................... 2.24
Ink (4-color page)
Per thousand copies..................................... 0.411
Ink is firm based on the coverage
in the "Clifford & Wills" 1991
Catalogs and current market prices.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Three
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Web Offset
- -----------------------------------
Printing Plates
4-page form........................ $575.97
6-page gatefold form............... 575.97
8-page form........................ 1,151.94
16-page form....................... 1,336.06
Production Press Makeready
4-page form........................ 1,681.64
6-page gatefold form............... 1,681.64
8-page form........................ 2,518.21
16-page form....................... 2,362.41
Changeovers
1 color change per
side of web (1 plate).............. 175.62
4 color change, per
side of web (4 plates)............. 702.49
Roll change from one grade of
paper to another (same roll size),
per form........................... 109.54
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Four
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Web Offset
- -----------------------------------
Press running - Per Thousand copies
4-page form........................ $4.79
6-page gatefold form............... 11.16
8-page form........................ 4.99
16-page form....................... 8.43
Pre-trim folded signatures at the
head to 0-14" head-to-foot
4- page................... 0.86
6- page................... 1.29
8- page................... 1.29
16- page................... 1.72
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Five
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Offset Prices
- --------------------------------------
U.V. Coat Cover (4-Page Press Form Only)
Per thousand copies................. $7.73
Ink (4-color page)
Per thousand copies................. 0.378
Special 5th Color On Cover
Plate, makeready and wash-up........ 733.66
Plate and makeready for overall
press varnish (metallic gold only).. 172.79
Ink, per page, per color,
per thousand copies (based on
5-3/4" x 3/4" of coverage........... 0.352
Varnish ink, per page, per
thousand copies (100% coverage)
Full page....................... 0.250
Gatefold........................ 0.120
Varnish ink, per page, per
thousand copies (spot.coverage)..... 0.091
Ink is firm based on the coverage
in the "Clifford & Wills" 1991
Catalogs and current market prices.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Five-A
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Rotogravure or Web Offset
- --------------------------------------------------
Paper Storage, per cwt.
1st month (includes in/out) ........ $0.238
Each additional month .............. 0.119
Per the contract, Clifford & Wills may
inventory without charge up to two (2)
months' consumption required to produce
catalogs or two (2) million pounds, which-
ever is less. Should this non-chargeable
contract allowance be exceeded, paper
storage will be invoiced as required.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Six
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Saddle Stitch Binding,
loose our floor,
per thousand copies:
Basic, No Units $11.52
4- page (cover or body).......................... 1.50
6- page (gatefold) ............................ 1.79
8- page ....................................... 1.65
12- page ....................................... 1.68
16- page ....................................... 1.79
20- page ....................................... 1.93
24- page ....................................... 2.06
28- page ....................................... 2.18
32- page ....................................... 2.28
36- page ....................................... 2.41
40- page ....................................... 2.55
48- page ....................................... 3.67
56- page ....................................... 3.92
64- page ....................................... 4.40
72- page ....................................... 4.67
Furnished 4-page order form ...................... 1.66
Card insert ....................................... 1.66
Furnished 12-page catalog, approximate
size 6-1/8" low folio x 5-3/4" high folio
x 7-1/8" head-to-foot on Basis 25 x 38 -
45# Machine Coated including 1/8" foot
trim and 3/8" low folio binding lap.................. 1.95
Furnished 12-page catalog, approximate size
6" x 7-18" head-to-foot, folded corner-to-
corner with closed foot for suction feeding
on the binder, on Basis 25 x 38 - 50#
Machine Coated including 1/8" foot trim.............. 2.73
Reverse cam set-up, per box, per machine............. 100.37
Inserts are to be furnished f.o.b. our
designated plant, ready for 1-up binding per
our specifications, including a 3.0% binding
waste allowance.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Seven
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Ink jet mail using magnetic tapes furnished
to our specifications, per thousand....................... $7.33
Ink for messages, per message,
per thousand.............................................. 0.75
Binder/mailer changes
First unit changed.................................. 56.37
Each unit changed at same time...................... 38.33
Binder/mailer run cost for postnet barcoding,
per thousand copies................................. 1.42
Selective Binding - maximum 16 boxes
Makeready
1-3 variable boxes............................. 399.40
4 or more variable boxes, per box.............. 39.79
Per thousand copies
1-2 variable boxes............................. 2.99
3-6 variable boxes............................. 4.89
7 or more variable boxes....................... 6.23
All furnished inserts for selective binding must
be the same size or smaller than body units and
must be approved by our manufacturing
department.
Pack in convenient size cartons not to
exceed 40# each, per carton............................... 1.33
Pack in convenient size bundles not to exceed
40# each, plastic tie 2 ways, per bundle.................. 0.54
Packing on disposable pallets, per pallet................. 25.35
Preparation for any special packing of pallets,
bundles or cartons, addressing of labels,
preparing for various shipments or other
miscellaneous traffic services will be invoiced
additional.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Eight
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Cheshire Mail Off-Line (7 digit carrier route
or 5 digit presort) using paper labels furnished
to our specifications,
Makeready, per machine.............................. $264.38
Running, per thousand copies........................ 16.49
Cheshire labels and bag tags are to
be furnished in accordance with our
specifications and postal regulations
regarding code separations.
Polybag paper labeled copies using
1.5 mil clear film, subject to
availability of equipment.
Makeready, per machine.............................. 168.07
Running, per thousand copies........................ 20.26
Poly film is subject to adjustment based
on actual usage and invoice cost plus ten
(10%) percent handling charge.
Additional for a furnished insert with
polybag (maximum 3), per thousand copies.................. 2.36
Dot whacking using labels furnished
to our specifications,
Makeready, per machine.............................. 144.46
per thousand........................................ 3.87
Labels are to be furnished in rolls
from a minimum of 1" x 1" square
or 1" diameter round to a maximum
of 2-1/2" x 2-1/2" square or 2-12"
diameter round.
Traffic services, per hour................................ 37.40
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Nine
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Polybag Japanese mail copies using
1.5 mil clear film, subject to
availability of equipment.
Makeready, per machine............................ $128.32
Running, per thousand copies...................... 123.58
Postal drop shipping administrative fee,
per drop
Stand alone....................................... 25.40
Merged............................................ 35.54
Mailing list preparatory,
per thousand records processed:
Copy and reformat list............................ 0.44
Apply carrier route codes......................... 1.47
Qualify for mail discount......................... 1.39
Ink Jet........................................... 1.09
Selective binding................................. 1.09
Mail tracking..................................... 1.18
Paper label....................................... 1.59
Additional pass to qualify for
bar coding........................................ 0.85
Ink Jet Message set-up, each...................... 102.37
Mailing list preparatory prices are based
on you furnishing names and addresses in
zip code sequence on magnetic nine
track 6250 or 1600 B.P.I. tape or 18 track
cartridge tape. We will qualify mailing
lists to maximize postal discounts for
mailing as well as direct entry discount
where applicable.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Ten
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Canadian Mail
- --------------------------------------
Saddle Stitch Binding,
loose our floor,
per thousand copies:
Basic, No Units $23.70
4- page (cover) ............................ 1.95
6- page (gatefold) ............................ 2.34
8- page ....................................... 2.14
12- page ....................................... 2.18
16- page ....................................... 2.32
20- page ....................................... 2.52
24- page ....................................... 2.66
28- page ....................................... 2.82
32- page ....................................... 2.98
36- page ....................................... 3.13
40- page ....................................... 3.31
48- page ....................................... 4.78
56- page ....................................... 5.11
64- page ....................................... 5.71
72- page ....................................... 6.07
Furnished 4-page order form......................... 2.17
Card insert ........................................ 2.17
Furnished 12-page catalog,
approximate size 6-1/8" low
folio x 5-3/4" high folio
x 7-1/8" head-to-foot on
Basis 25 x 38 - 45# Machine
Coated including 1/8" foot
trim and 3/8" low folio
binding lap......................................... 2.56
Furnished 12-page catalog,
approximate size 6" x 7-1/8"
head-to-foot, folded corner-
to-corner with closed foot
for suction feeding on the
binder, on Basis 25 x 38 -
50# Machine Coated
including 1/8" foot trim............................ 3.55
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Eleven
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Canadian Mail
- --------------------------------------
Binder/mailer changeover
to Canadian format........................................ $436.24
Canadian mail broker charges.............................. 279.00
Selective Binding - maximum 16 boxes
Makeready
1-3 variable boxes............................. 519.41
4 or more variable boxes....................... 51.76
Per thousand copies
1-2 variable boxes............................. 3.89
3-6 variable boxes............................. 6.35
7 or more variable boxes....................... 8.10
Mailing list preparatory,
per thousand records processed:
Pre-sort less than 50,000........................... 10.38
Pre-sort over 50,000................................ 9.85
Pre-sort with postal code
correction less than 50,000......................... 15.10
Pre-sort with postal code
correction over 50,000.............................. 14.55
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Twelve
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Additional Prices
- ------------------------------------------
Time Work Rates, per
hour
Pre-press handwork.......................... $63.14
Helio....................................... 205.86
Proof press................................. 218.95
Bindery Handwork............................ 21.23
Rotogravure press
standing time, per hour........................... 510.94
Web offset press standing
time, per hour.................................... 453.08
Binder/mailer standing 551.62
time, per hour....................................
Overtime Rates Time and Double
One-Half Time
-------- -----
Pre-Press
Film Prep....................... 13.11 26.22
Helio........................... 14.28 28.56
Cylinder Making................. 14.28 28.56
Proof Press..................... 36.54 73.08
Rotogravure Presswork 70.89 141.78
Web Offset Presswork 62.03 124.06
Binder/Mailer........................ 72.34 144.68
Shipping............................. 19.60 39.20
Mail List Preparatory................ 15.04 30.08
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Thirteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
One
Proofing Running Cylinder
and Second Per M Change,
Makeready Proofing Copies Per Cylinder
--------- -------- ------ ------------
Rotogravure Paper Requirements
Basis 25 x 38 - 40#
8 page in 41" rolls............ 3,095# 774# 30.53# 317#
12 page in 61-1/2" rolls........ 4,643# 1,163# 45.79 480#
16 page in 61-1/2" rolls........ 4,643# 1,163# 61.06 480#
20 page in 51-1/4" rolls........ 3,870# 969# 76.33# 399#
24 page in 61-1/2" rolls........ 4,643# 1,163# 91.58# 480#
28 page in 71-3/4" rolls........ 5,417# 1,353# 106.85# 562#
32 page in 82" rolls............ 6,384# 1,596# 124.80# 664#
36 page in 61-1/2" rolls........ 6,960# 1,742# 137.38# 725#
40 page in 51-1/4" rolls........ 3,870# 969# 151.27# 399#
48 page in 61-1/2" rolls........ 4,643# 1,163# 181.52# 480#
56 page in 71-3/4" rolls........ 5,417# 1,353# 211.78# 562#
60 page in 51-1/4" rolls........ 5,749# 1,437# 226.90# 603#
64 page in 82" rolls............ 6,384# 1,596# 249.59# 664#
72 page in 61-1/2" rolls........ 6,960# 1,742# 272.27# 725#
All roll stock is to be suitable for printing on our rotogravure
presses and should be approved by us for printing and binding at
our normal production rates.
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 80#
- -------------------
4 pages in 31-5/8" rolls.................. 968# 34.84#
1 color plate change, per side of web..... 243#
4 color plate change, per side of web..... 486#
Basis 25 x 38 - 80#
- -------------------
6 pages in 20-5/8" rolls.................. 697# 46.9#
5th color on page one..................... 233#
1-color plate change, per side of web..... 159#
4-color plate change, per side of web..... 318#
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Fourteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 100#
- --------------------
4 pages in 31-5/8" rolls.......... 1,211# 43.55#
1-color plate change,
per side of web................... 304#
4-color plate change,
per side of web................... 608#
Basis 25 x 38 - 40#
4 pages in 31-5/8" rolls.. 485# 17.42#
8 pages in 31-5/8" rolls.. 968# 34.84#
16 pages in 31-5/8" rolls. 968# 69.68#
1-color plate change,
per side of web........... 121#
4-color plate change,
per side of web........... 242#
All roll stock is to be suitable for printing on our offset
presses and should be approved by us for printing and binding at
our normal production rates.
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Fifteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
One
Proofing Running Cylinder
and Second Per M Change,
Makeready Proofing Copies Per Cylinder
--------- -------- ------- ------------
Rotogravure Paper Requirements
- ------------------------------
Basis 25 x 38 - 38#
- -------------------
8 page in 41" rolls............ 2,940# 735# 29.00# 301#
12 page in 61-1/2" rolls........ 4,411# 1,105# 43.50# 456#
16 page in 61-1/2" rolls........ 4,411# 1,105# 58.01# 456#
20 page in 51-1/4" rolls........ 3,677# 921# 72.51# 379#
24 page in 61-1/2" rolls........ 4,411# 1,105# 87.00# 456#
28 page in 71-3/4" rolls........ 5,146# 1,285# 101.51# 534#
32 page in 82" rolls............ 6,065# 1,516# 118.56# 631#
36 page in 61-1/2" rolls........ 6,612# 1,655# 130.51# 689#
40 page in 51-1/4" rolls........ 3,677# 921# 143.71# 379#
48 page in 61-1/2" rolls........ 4,411# 1,105# 172.44# 456#
56 page in 71-3/4" rolls........ 5,146# 1,285# 201.19# 534#
60 page in 51-1/4" rolls........ 5,462# 1,365# 215.61# 573#
64 page in 82" rolls............ 6,065# 1,516# 237.11# 631#
72 page in 61-1/2" rolls........ 6,612# 1,655# 258.66# 689#
All roll stock is to be suitable for printing on our rotogravure
presses and should be approved by us for printing and binding at
our normal production rates.
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 70#
- -------------------
4 pages in 31-5/8" rolls................ 847# 30.48#
1-color plate change, per side of web... 212#
4-color plate change, per side of web... 448#
Basis 25 x 38 - 70#
- -------------------
6 pages in 20-5/8" rolls................ 610# 41.04#
5th color on page one................... 204#
1-color plate change, per side of web... 139#
4-color plate change, per side of web... 278#
<PAGE>
Clifford & Wills January 1, 1996
New York, NY 10003 Page Sixteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 38#
- -------------------
4 pages in 31-5/8" rolls.. 461# 16.55#
8 pages in 31-5/8" rolls.. 922# 33.10#
16 pages in 31-5/8" rolls. 922# 66.20#
1-color plate change,
per side of web........... 115#
4-color plate change,
per side of web........... 230#
All roll stock is to be suitable for printing on our offset
presses and should be approved by us for printing and binding at
our normal production rates.
J. Crew, Inc.
770 Broadway
New York, New York 10003
CATALOG August 14, 1997
DESCRIPTION
This proposal covers the production of your Fall/Winter and
Spring/Summer Catalogs as described in the clause entitled
QUANTITY AND NUMBER OF PAGES, for a period of 4 years commencing
with production of your 1997 Fall/Winter Edition 1 Catalog and
continuing through completion of your 2001 Spring Final Edition
Printed by 6/30/01.
Subject to the provisions set forth herein, you engage us, and we
shall be obligated and entitled to do or arrange for all cylinder
making and/or plate making, printing, binding, loading and
mailing, required for the production of the catalogs and all
preliminary work as set forth in the PRELIMINARY MANUFACTURING
PROCESS clause. We agree to perform the work as provided herein
and to furnish all necessary materials and supplies therefor
except such as you, pursuant to the terms hereof, agree to
furnish. We will give you prior notice if we subcontract any of
your work and furnish you with the name and location of the
subcontractor at the time we give you prior notice.
In consideration for your awarding us a four year agreement, we
agree to issue a credit equal to $500,000 on an invoice issued
within thirty (30) days of your written request, but in no event
earlier than the date of signing and no later than December 31,
1997. In consideration for giving you this credit, you agree to
repay us $250,000 one hundred and eighty (180) days after we
issue our credit, and a second repayment of $250,000 three
hundred and sixty (360) days after we issue our credit.
QUANTITY AND NUMBER OF PAGES
1997 Fall/Winter Scheduled
--------------------------
Quantity
Body Cover (To Nearest
Event Pages Pages Size 1,000)
----- ----- ----- ---- -----------
Fall/Winter Season
- ------------------
Edition 1 132 4 8-1/4" x 10-3/4" 2,122,000
Prospect 1 80 4 8-1/4" x 10-3/4" 1,567,000
Edition 2 144 4 8-1/4" x 10-3/4" 2,928,051
Prospect 2 80 4 8-1/4" x 10-3/4" 2,456,845
Edition 3 160 4 8-1/4" x 10-3/4" 2,573,000
Prospect 3 96 4 8-1/4" x 10-3/4" 2,665,000
Edition 4 208 4 8-1/4" x 10-3/4" 2,408,000
<PAGE>
J. Crew, Inc. Page 2
August 14, 1997
Prospect 4 152 4 8-1/4" x 10-3/4" 2,626,000
Edition 5 216 4 8-1/4" x 10-3/4" 3,448,000
Prospect 5 152 4 8-1/4" x 10-3/4" 4,095,000
Edition 6 192 4 8-1/4" x 10-3/4" 3,315,000
Edition 7 184 4 8-1/4" x 10-3/4" 3,394,000
Edition 8 120 4 8-1/4" x 10-3/4" 2,314,000
Prospect 8 80 4 8-1/4" x 10-3/4" 761,000
Women's Catalog
- ---------------
Women's 2 80 4 7-5/8" x 10" 1,717,652
Women's 3 80 4 7-5/8" x 10" 1,456,651
Women's 4 88 4 7-5/8" x 10" 1,700,000
College Catalogs
- ----------------
Catalog 1 64 4 9-3/8" x 11-3/8" 1,950,000
1998 Forecasted (continued)
---------------
Quantity
Body Cover (To Nearest
Event Pages Pages Size 1,000)
----- ----- ----- ---- -----------
Spring/Summer Season
- --------------------
Edition 1 96 4 8-1/4" x 10-3/4" 2,400,000
Prospect 1 72 4 8-1/4" x 10-3/4" 2,000,000
Edition 2 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 2 72 4 8-1/4" x 10-3/4" 1,000,000
Edition 3 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 3 72 4 8-1/4" x 10-3/4" 1,000,000
Edition 4 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 4 72 4 8-1/4" x 10-3/4" 1,450,000
Edition 5 96 4 8-1/4" x 10-3/4" 2,600,000
Prospect 5 72 4 8-1/4" x 10-3/4" 500,000
Women's Catalog
- ---------------
Women's 1 96 4 7-5/8" x 10" 1,300,000
Women's 2 96 4 7-5/8" x 10" 1,500,000
Women's 3 96 4 7-5/8" x 10" 1,600,000
Women's 4 72 4 7-5/8" x 10" 1,600,000
Swimwear Catalog
- ----------------
Swimwear 1 48 4 8-1/4" x 10-3/4" 2,950,000
Swimwear 2 48 4 8-1/4" x 10-3/4" 3,050,000
College Catalogs
- ----------------
Catalog 1 64 4 9-1/8" x 11-3/8" 1,600,000
Catalog 2 64 4 9-1/8" x 11-3/8" 1,600,000
<PAGE>
J. Crew, Inc. Page 3
August 14, 1997
1998 Forecasted (continued
---------------
Quantity
Body Cover (To Nearest
Event Pages Pages Size 1,000)
----- ----- ----- ---- -----------
Catalog 3 64 4 9-1/8" x 11-3/8" 1,600,000
Catalog 4 64 4 9-1/8" x 11-3/8" 1,700,000
Fall/Winter Season
- ------------------
Edition 1 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 1 72 4 8-1/4" x 10-3/4" 1,000,000
Edition 2 144 4 8-1/4" x 10-3/4" 2,600,000
Prospect 2 72 4 8-1/4" x 10-3/4" 1,500,000
Edition 3 144 4 8-1/4" x 10-3/4" 2,700,000
Prospect 3 72 4 8-1/4" x 10-3/4" 2,500,000
Edition 4 208 4 8-1/4" x 10-3/4" 3,300,000
Prospect 4 144 4 8-1/4" x 10-3/4" 3,000,000
Edition 5 216 4 8-1/4" x 10-3/4" 3,300,000
Prospect 5 144 4 8-1/4" x 10-3/4" 3,500,000
Edition 6 192 4 8-1/4" x 10-3/4" 3,400,000
Edition 7 184 4 8-1/4" x 10-3/4" 3,300,000
Women's Catalog
- ---------------
Women's 1 96 4 7-5/8" x 10" 1,400,000
Women's 2 96 4 7-5/8" x 10" 1,400,000
Women's 3 96 4 7-5/8" x 10" 1,400,000
Women's 4 72 4 7-5/8" x 10" 1,500,000
College Catalogs
- ----------------
Catalog 1 64 4 9-1/8" x 11-3/8" 1,600,000
Catalog 2 64 4 9-1/8" x 11-3/8" 1,700,000
Catalog 3 64 4 9-1/8" x 11-3/8" 2,100,000
1998 Total Pages (Pages times Quantity and then totaled) = 9,198,200,000
- ------------------------------------------------------------------------
The above specifications summarize the projected 1998 catalog
program. For 1999, 2000 and 2001 the schedule is to be calendar
adjusted, taking into account refinements that occur in response
to changes in market conditions and your budgetary process. These
refinements could consist of changes to quantity, page counts,
versions and possibly cancellations. It is understood that the
volume in 1999, 2000 and 2001 will be at a minimum equivalent to
that projected for 1998 as set out above. Volume is described as
the printed pages multiplied by the total count as described
above.
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J. Crew, Inc. Page 4
August 14, 1997
The parties agree to an 8% (eight percent) discount on work
scheduled to start binding between January 1 and June 30 of any
year under this Agreement. This first half discount will be
applied to the Base Makeready and Run per M prices, and will not
be applied to preliminary, freight of all kinds, or bind, mail or
cylinder additionals, and will appear as an invoice credit on
each of the applicable events.
As an incentive for J. Crew Inc. to add additional work with R.R.
Donnelley & Sons Company, commencing in 1998, the parties agree
to an 8% (eight percent) volume discount structure based on an
increase in any calendar year on the projected 1998 level (pages
times quantity) set out above. This volume discount will be
applied to the Base Makeready and Run per M prices, and will not
be applied to preliminary, freight of all kinds, or bind, mail or
cylinder additionals. This volume discount will apply to all
incremental work and assumes a similar number of total square
inches of printed product.
Volume shall consist of the total number of printed pages times
total count calculated at the end of the calendar year. For the
incremental volume, a credit memo will be issued within 30 days
after each calendar year, if a growth volume incentive has been
earned. The volume discount is subject to prompt payment of all
invoices. If J. Crew pays any invoice late, RRD may elect to
reduce any growth volume incentive by the cost of money based on
the prime rate as published in Wall Street Journal plus two
percent (Prime +2%), as well as any other costs incurred to
collect late or outstanding debts.
If a volume incentive is earned at the end of the contract (or
earlier termination), a cash payment will be made 30 days after
the end of contract (or earlier termination). In determining the
amount of such payment, the value of payments due us will be
credited against the value of the volume incentive.
FORECAST
To assist us in providing for your requirements, you shall submit
a forecast by July l of each year showing your total requirements
for the subsequent calendar year for work hereunder, during the
term of this Agreement, including the count, number of pages,
colors, copies to be bound and delivery dates for each issue. We
shall, within 30 days of receipt of such forecasts, develop
manufacturing schedules for the production of the work based on
the forecasts you furnish which we shall present for your review
and approval, such approval not to be unreasonably withheld. You
shall notify us as promptly as practicable of any significant
change in the forecasted requirements. We will produce up to a
twenty-five percent (25%) annual increase (quantity multiplied by
pages and then totaled) over the preceding year for 1999, ten
percent (10%) over the preceding year for 2000, and a mutually
agreed percentage (to be determined at a later date) over the
preceding year for 2001, in accordance with the terms herein and
pursuant to a mutually agreeable production schedule and the
availability of materials. We currently have all work for your
1997 gravure body pages scheduled for production in our
Spartanburg, South Carolina Manufacturing Division, and we will
use all reasonable efforts to schedule all future gravure body
production, as described herein, in our Spartanburg plant. If in
order to meet your forecast
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J. Crew, Inc. Page 5
August 14, 1997
requirements, it is necessary to produce some, or all, of your
work elsewhere, it will be produced in a Gravure Manufacturing
Division or Divisions, and any additional production costs or
freight associated with such transfer from the Spartanburg, South
Carolina Division, will not be charged to you.
TECHNOLOGICAL IMPROVEMENTS
We will keep abreast of changes in the graphic arts industry and
will review with you developments which may be beneficial for
your titles. We will also be receptive to any suggestions you may
have for beneficial changes. If you approve of implementing such
changes, the parties will negotiate appropriate prices and
schedules to incorporate such changes into the production of your
work and to allow us to amortize our capital investment, if any.
During the term of this Agreement, we will meet with you once
every six months to discuss technological developments which have
occurred and have become commercially available for application
to the work performed by us for you, and the conditions under
which such developments would be incorporated. Any pricing
adjustments due to technological advancements and efficiencies
will also be discussed prior to the implementation of such
developments.
PRELIMINARY MANUFACTURING PROCESS
This contract is based on a common document workflow. R.R.
Donnelley will function as a client of J. Crew's QPS server and
as such will have access to shared volumes on that server. At the
proper times in the production cycle, we will "check out" the
Quark document, modify it per descriptions below, and check it
back in to the server. During the course of the contract it is
expected that the nature and timing of some operations may
change. The intent of this description is to set forth the major
responsibilities of each party that have been assumed in building
the prices.
Your file shall include all mechanical page elements such as
tints, colored or reverse type and rules. Silhouetting of
photographs and creation of key-only shadows will be performed by
us and will be charged additionally as set forth in Exhibit A.
IMAL CYCLE
----------
When you have completed the rough layout process for a
spread and it is ready for us to begin processing, you will
so indicate by changing the status to "color out". At that
point you will also furnish us with original transparencies.
Each will be accompanied by a thermal proof indicating size
and orientation, as well as instructions for silhouetting,
shadows and creation of composite images due to overlapping
silhouettes. We will produce hi-res separation to the
specifications that you direct. If you so direct, we will
separate, process and archive to a higher dpi (not to exceed
the industry standard) than was the practice in our previous
agreement at no increase in price.
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J. Crew, Inc. Page 6
August 14, 1997
We will run a preflight check and take any appropriate
corrective action to your Quark document. For each new
transparency that you furnish, we will generate a lo-res
file and place it into the appropriate Quark document,
thereby replacing any temporary lo-res image that you had
created for rough layout purposes.
For color proofing purposes, we will create and RIP a
temporary file in which, for new subjects only, the hi-res
images are substituted, and submit to you a contract
quality proof (Kodak Approval or equivalent) for your color
comments using industry standard markup language. For
pickup subjects, it is our recommendation that neither the
hi-res nor the lo- res substitute be included in the color
proof at this stage. If you so direct, we will retrieve the
hi-res pickup from archive and incorporate it into the
document. If that is the case it must be understood that
the picked up image, if it is concurrently being worked for
another edition, may not yet have been archived with OK'd
color. Also, any additional color markup resulting from
that circumstance, giving you an earlier opportunity to
view the hi-res pickup on the color proof will be charged
as a "color alteration to retrieved image" per the contract
price schedule.
PAGE CYCLE
----------
When the document has been updated to J. Crew's
satisfaction, you will so indicate by changing the status
to "type out" and furnish us with a thermal proof that will
serve as the OK for type and margins. We will color correct
to the marked-up IMAL proof, run a preflight check and take
any appropriate corrective action to the Quark document.
For each composite image, we will supply a lo-res of the
composite to be substituted for the original lo-res files
in the document.
For color proofing purposes, we will create and RIP a
temporary file in which all hi-res images are substituted,
and submit to you a contract quality proof for color OKs
and two color photocopies of each color proof for your use.
These copies will not be stamped as authorized proofs, nor
will we do any proofreading at this stage. There will be a
sign off on each proof which will indicate J. Crew's
acceptance of this page.
DATA CYCLE
----------
When the document has been updated to J Crew's
satisfaction, you will so indicate by changing the status
to "spread proof revise" and furnish us with a thermal
proof that will serve as the OK for type and margins. We
will color correct to the marked-up page proof, run a
preflight check and take any appropriate corrective action,
including trapping fixes and the spreading of knockout type
whenever needed.
We will RIP the document file, substituting all the hi-res
images, and produce a contract proof for press guidance. We
will make a color photocopy of each color proof to serve as
OK's for type and mechanical elements and margins.
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J. Crew, Inc. Page 7
August 14, 1997
Any additional proofing to that which is described above
will be charged as an extra.
Not withstanding the above, if J. Crew, the Lancaster
Preliminary Center, and Spartanburg agree that it would be
mutually beneficial to provide additional preliminary
proofing to that which is described above, we will do so at
no charge to J. Crew.
ALTERATIONS
-----------
Any re-processing of a file that requires changes that
include (but are not limited to) building composite images
and recreating shadows due to position and size changes
will be considered to be alterations and will be charge
additional.
'MAXIMUM CHARGE' AND PAGE DESIGN
--------------------------------
The "Maximum charge" four-color page price is included in
this Agreement with the expectation that the average
difficulty of a J. CREW page (as compared to the
Fall/Winter 1996 and Spring/Summer 1997 catalog seasons)
will not increase during the term of this agreement. If at
any time the design for a particular event causes a
significant increase in the number of pages that qualify
for the "maximum charge" we will honor the price for that
event but we reserve the right to request a review of
future design plans to determine if the design for the
event in question will be carried forward to future events.
If a new, more complex design does become permanent, we
mutually agree to re-negotiate the "maximum charge" price
or to establish a limitation on how frequently this price
may be utilized.
SCHEDULE
--------
Our schedules have four flow cutoff dates. If these four
flow cutoff dates are not maintained, we will do our best
to maintain the schedule but upon prior notification to J.
Crew, we reserve the right to limit the color proofing on
some pages to one cycle if that is necessary to maintain
your mailing date.
Likewise, if we receive any pages more than four days after
any of the four scheduled cutoff dates, upon prior
notification to J. Crew, we reserve the right to modify
proofout dates and to charge additional for overtime costs
if those costs must be incurred in order to maintain the
mailing date. Overtime for lateness will not be charged on
the cover forms provided that presswork schedule
adjustments can be made at the cover plant of manufacture.
ARCHIVING
---------
We will store both random images and final page files in
separate archives.
We will maintain a library of random images, which you will
OK for color after viewing on an IMAL proof. We will, as a
rule of thumb, archive an area up to one inch beyond
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J. Crew, Inc. Page 8
August 14, 1997
the cropping point set up in the document during the IMAL
cycle. When one of these images is retrieved for a
subsequent catalog, any color adjustment that is requested
will be charged additionally as a "color alteration to
retrieved image".
If an archived image has not been retrieved for a period of
thirteen months it will be deleted from the archive.
We will store final page files for a minimum of three
months, or as long after that as we believe is necessary
for internal backup purposes. In the event that we are
unable to reproduce a page which we were obligated to
retain in storage, we will pay the cost of transporting
duplicate material to us as well as the cost of reproducing
the page including the cost of duplicating the
transparencies and similar out-of-pocket costs. We will not
be liable for the cost of creating the page such as
re-shooting any photographs.
TELECOMMUNICATIONS
------------------
J. Crew and R.R. Donnelley agree to provide mutually
satisfactory data transmission capability at all times.
Specifically, each party agrees to provide and maintain the
means by which the other may access required data without
unreasonable delays in throughput. If at some time it is
agreed that the transmission capability must be increased,
both companies acknowledge that a corresponding increase
must be made at each company's end of the network
connection, and that each company will be responsible for
any additional expense incurred thereby.
ADS AND OTHER MISCELLANEOUS PROJECTS
------------------------------------
We agree, subject to mutually agreeable scheduling, to
perform separation work for J. Crew work other than the
principal catalog events, and we will maintain the image
archives in such a manner as to allow us to do so as
economically as possible. We have included prices for
this work to the extent that we are familiar with in but
will quote additional prices as other projects develop.
The prices in the "ad pages" section are based on
continuing the traditional workflow. It is, however, more
economical for us to operate within the new QPS-based
workflow that prevails for the catalog work. If and when
the ad work moves to the new workflow, the "ad pages", the
catalog price schedule will apply in place of the "ad
pages" price schedule.
CANCELLATION
------------
Both parties agree that it is the full intent of each that
we shall continue to provide the majority of preliminary
services for your catalogs. We shall be obligated and
entitled to produce a minimum of 80% of your total catalog
pages as described in this agreement for your 1998
Spring/Summer and Fall/Winter Catalog Program and a minimum
of 67% of
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J. Crew, Inc. Page 9
August 14, 1997
you total catalog pages for your 1999 and 2000
Spring/Summer and Fall/Winter Catalog programs and 2001
Spring/Summer program.
You will notify us in writing on or before July 1 of 1998,
1999 and 2000 with your forecast of preliminary pages to be
produced by us for the following years Spring/Summer and
Fall/Winter catalog program. This forecast will be at least
67% of your total catalog pages and can be as high as 100%
of total pages for your 1999, 2000 and 2001 program. We
shall within 30 days of receipt of your preliminary
services forecast, develop manufacturing schedules which we
shall present for your review and approval. Our
obligation to produce work for your 1999, 2000 and 2001
programs will be based on the percentage indicated in your
July 1 written notification. Any increases requested after
July 1 of each year will be made on a best effort basis.
Both parties agree to an ongoing review of our joint
experience with the preliminary operation of your work and
as a result of such review, either party may elect to have
you (J. Crew) furnish all preliminary, film or digital
data, for all remaining catalogs under this agreement.
Notification by either party must be received in writing by
either party 12 months prior to the first art in date of
any season.
PRESSWORK
The body to be carefully made ready and printed by the gravure
process in our standard four- color process inks. The cover is to
be carefully made ready and printed by the web offset or gravure
process in our standard four-color process inks. The run per M
prices quoted in Exhibit A are based on the ink coverage
demonstrated by your 1996 catalog program. There shall be no
change in the charges for ink due to changes in coverage unless
such change in either offset or gravure coverage persists over a
year's experience and can be objectively and reasonably
demonstrated to be different from the coverage used to determine
pricing.
CUSTOMER FURNISHED PAPER
You shall furnish f.o.b. our plant of manufacture all paper
required for the printing of your program in the weights, kinds
and sizes set forth herein or as we shall otherwise mutually
agree upon in accordance with a mutually agreeable delivery
schedule and in sufficient time to meet the production schedule.
Paper shall be delivered to us in rolls with steel or fiber
cores, unless otherwise mutually agreed upon, to the
specifications listed on Exhibit C, properly wrapped and wound
with pasters plainly flagged. Returnable cores shall remain your
property and shall be returned by us in accordance with your
directions at your expense (currently upon completed load of rail
car). We shall reimburse you for the cost of any returnable cores
received by us for the work and not returned by us to the mills
from which such cores were shipped.
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J. Crew, Inc. Page 10
August 14, 1997
All paper furnished by you shall be of good printing quality and
shall conform to a standard of mechanical quality, as agreed to
by you, us and the paper supplier, suitable for efficient
performance of the work. If at your request we use paper not
acceptable to us and our cost is increased due to the use of such
paper, we shall notify you, and follow up with written
documentation, and we shall make an additional charge to fairly
compensate us for such increased costs.
Paper not conforming to specifications, concealed damage and
defective paper shall be rejected by us, reported promptly to
you, and held for your instructions as to the disposition
thereof. Should you require us to use defective paper or paper
not conforming to specifications and should we incur additional
costs as a result of the use of such paper, we shall charge you
an amount fairly reflecting such additional costs directly caused
by use of such paper including, without limitation,
overconsumption of paper. Without limiting the foregoing, it is
agreed that paper causing significant press slowdowns, or causing
more than a ratio of three (3) proven paper caused web breaks per
one-hundred (100) rolls of each type of paper and basis weight
furnished by you within a series identified as a month's
production of the mill shall not be considered of suitable
mechanical quality and that to the extent the paper falls below
this standard we shall be entitled to make an additional charge
as aforesaid. Such charge will include additional paper
requirements and press down time as described in Exhibit A.
Should you furnish or request we use paper which is designed for
use in another printing process than that set forth in this
Agreement, we will make every reasonable effort to utilize such
paper, it being understood that any additional costs directly
resulting from the use of such paper in producing an acceptable
product will be your responsibility, including, without
limitation, overconsumption of paper.
We shall further submit to you written reports regarding any
defective paper or paper received in a damaged condition as soon
as reasonable practicable after the damage shall have been
discovered. In the case of any paper received in a damaged
condition, we shall prepare affidavits describing such damage for
you. We shall give you all such assistance as you may reasonably
request to assist you in recovering for such damage or defect.
If upon termination of this Agreement we have any of your unused
paper on hand, it is understood and agreed that you will accept
billing for all charges reasonably incurred by us, involved for
disposition of such paper, in accordance with your instructions,
including handling and storage charges as set forth in Exhibit A.
We will make a seasonal accounting and reconciliation, and a per
issue report of all paper furnished by you under this contract
upon completion of each season. Such accounting will show the
paper received, paper consumed and paper requirements based on
the contract allowances specified herein, as adjusted for light
and/or heavy paper, wrapper, header, fiber cores, and damaged
(claimed or concealed) or other defective paper.
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J. Crew, Inc. Page 11
August 14, 1997
Should the total paper consumption in any accounting period, as
defined above, exceed the contract allowances specified herein,
adjusted as described above, we will pay for such excess at the
average cost of each kind of paper for such accounting period.
Should the total paper consumption during any such period be less
than the paper requirements adjusted as described above, you
shall pay us an a mount equal to one-half the cost of said paper
so saved. In determining the amount of such payment, the value of
underconsumption, if any, on one kind of paper will be credited
against overconsumption, if any, on other kinds of paper used in
the same accounting period (except the cover paper and body paper
will be handled separately). The average cost of the body paper
shall be calculated based on a 12 month average of 40#
Publication Coated Grade #5 paper, or the applicable paper if
different as indicated in the "Price Watch" report in Miller
Freeman Publication, Inc.'s Pulp and Paper Weekly Magazine.
Any paper saved due to underconsumption, and damaged or other
unusable paper, will remain your property. We will charge for
storage on all such paper, in excess of the storage allowances
described below, until used or disposed of, and will make an
additional charge to fairly compensate us for disposition of such
paper if not used.
All manufacturing waste, or other waste will become our property.
We will store your body paper requirements for each event up to
thirty (30) days prior to the "to press date" at no additional
charge. Should you exceed these limits, we will charge you for
paper storage at the rate set forth in Exhibit A, or at the
prevailing rates at another location including applicable
handling and freight, for the amount of paper which exceeds the
limits.
We will store your cover paper requirements for each event up to
twenty one (21) days prior to the "to press date" at no
additional charge. Should you exceed these limits, we will charge
you for paper storage at the rate set forth in Exhibit A, or at
the prevailing rates at another location including applicable
handling and freight, for the amount of paper which exceeds the
limits.
If R.R. Donnelley recognizes that storage outside the division
will be required, R.R. Donnelley will use best efforts to notify
J. Crew in a timely manner to avoid double handling and
additional freight.
BINDING
We will gather press delivered signatures, along with your
furnished inserts, saddlewire stitch and trim flush three sides
for delivery upon completion f.o.b. our plant of manufacture.
You are to furnish inserts f.o.b. our plant of manufacture in
accordance with the production schedule and to our specifications
ready for binding. We require an additional allowance for binding
and we shall submit such waste percentage (which shall be
consistent with the representative chart below) sufficiently in
advance of the binding date.
Should you furnish us and require us to use furnished inserts
which do not conform to our specifications as set forth in
Exhibit C, we will make every reasonable effort to utilize such
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J. Crew, Inc. Page 12
August 14, 1997
inserts. Should we incur additional costs as a result of the use
of such inserts, we will charge you an amount fairly reflecting
such additional costs.
On Line Selectronically(R)
25,000 or Less: Double the Quantity
25,001 to 50,000 25% Extra
50,001 to 100,000 15% Extra
100,001 to 250,000 10% Extra
Over 250,000 3.5% Extra
Non Selectronic(R)
20,000 or Less: 20% or at least 1,000 extra
20,001 to 50,000 10% Extra
50,001 to 100,000 5% Extra
Over 100,000 3.5% Extra
DISPOSITION
We will address your catalog (and order blank) using our
SELECTRONIC(R) addressing service (with one address up to 8
lines) to our specifications which we will submit, bag copies and
mail.
You are to furnish ink-jet formatted magnetic tapes that are
compatible with our equipment, in PASS sequence and in accordance
with specifications we will furnish. We will process the tape to
do 3-tier sortation and to add the necessary ink-jet codes, make
sack tags, generate instructions to the bindery and print a
summary for postal charges at the rates set forth in Exhibit A.
Any reformatting, coding, combining of lists or other required
work necessary for our use of your furnished tapes, will be
charged additional after your agreement has been obtained for
such work. Any double stroking (two hits of ink) to create bold
face type will be additional.
Our price is based on mailing from lists of 150,000 names or
more. Additional charges will be applied for lists of less than
these minimums.
Any requested bar-coding of mail catalogs to obtain postal
discounts will be charged additional at our prices set forth in
Exhibit A.
The mailing prices set forth herein are based upon postal
regulations and procedures in effect as of the date hereof which
require mandatory Zip-code sortation. If postal regulations or
procedures change so as to affect our cost for mailing the
catalogs, the prices herein shall be revised to fairly reflect
any increase or decrease in such costs.
Nothing contained herein shall require us to do anything in
violation of United States Postal laws, regulations or
procedures.
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J. Crew, Inc. Page 13
August 14, 1997
Any other required labels shall be furnished by you to our
specifications.
Any requested shipping of mail catalogs to various postal
facilities to obtain postal discounts will be charged additional
at our prices set forth in Exhibit A. These prices will include,
but not be limited to, freight and administration charges.
In the event we move production of any J. Crew work from our
Spartanburg Manufacturing Division, we will pay the additional
costs of distributing your product, caused by such move, if any,
net of freight savings caused by the change in manufacturing
location.
All copies are for delivery upon completion f.o.b. our plant of
manufacture.
PRICES
You shall pay us for the work at the applicable prices set forth
in Exhibit A, which is attached hereto and made a part hereof.
FREIGHT
Unless you request otherwise, we will arrange for shipment of
your finished materials from our plant of manufacture. In such
event, you shall pay all distribution charges, and we shall be
entitled to retain any brokerage commissions or other service
charges earned by us or our wholly-owned subsidiaries.
DISCONTINUANCE OF PUBLICATION
Should you decide to discontinue the publication of Catalog
program in any medium without publishing a successor, whether
titled the same or not, you shall use your best efforts to give
us 90 days advance written notice of such decision. Without
limiting the foregoing, you shall be obligated to pay for work
done or in process. In addition, you shall reimburse us for costs
which we cannot avoid through reasonable effort, which we will
document to your satisfaction. No equipment holding time will be
charged if you give us 90 days notice of discontinuance.
CHANGE IN MEDIUM
In the event that you replace the medium used for your products,
we shall have the first right of negotiation to produce the work
for you in the new medium during the remaining term of this
Agreement provided that our prices are competitive with the
market for the new medium at the time you make such change.
SALE OF CATALOG
We recognize that you may want to sell the catalog under
circumstances and on a time schedule which cannot be predicted
and we will use our best efforts to help you with such a sale. If
circumstances permit you to inform us of the identity of your
prospective purchaser as soon as
<PAGE>
J. Crew, Inc. Page 14
August 14, 1997
practicable before you agree to sell the catalog, we will keep
such information strictly confidential and will conduct our
investigation on such purchaser as quickly and confidentially as
possible to determine whether we wish to print for such
prospective purchaser. We will not unreasonably withhold our
consent. If circumstances do not permit you to inform us of the
identity of your prospective purchaser before you agree to sell
the catalog, you agree to bring this paragraph to the attention
of the purchaser and to require the purchaser to assume your
obligations under this agreement if we wish to print for your
purchaser. We will conduct our investigation of the purchaser as
quickly as possible to inform you whether we wish to print for
such purchaser and we will not withhold our consent unreasonably.
If any issue of the catalog needs to be produced between the
effective date of such sale and the time we notify you whether we
will print for your customer, the parties agree to use their best
efforts to resolve any credit or content issued which arise
during such interim period. In the event we are unwilling to
print for such purchaser for financial reasons, the parties agree
to use their best efforts to find another supplier or to come to
interim terms for us to continue to produce the catalog with
financial assurances from you until another supplier can assume
production. You recognize that we consider both reputation and
credit standing in choosing our customers.
OWNERSHIP OF FILM, COPY, PLATES, CYLINDERS, ETC.
Copy and any film furnished by you and electronic data files
derived therefrom will be used solely for your work and will
remain your property. Film, prints, plates and cylinders that we
make will be used solely for your work but will remain our
property. We will only use your text and images for your work.
Upon termination of this agreement you may choose to assume
possession of those files which we have in storage. In that
event, you will provide us with equivalent replacements for the
optical disks (or other storage medium, or a mutually agreed upon
dollar equivalent) on which the data is stored.
SPECIFICATIONS AND PRODUCTION SCHEDULE
All work to be performed hereunder shall be in accordance with
the specifications set forth herein, and completed in accordance
with a production schedule which shall be submitted for your
approval.
If at any time you desire to make changes in the specifications
(including pages and count) set forth herein or in the production
schedule, we will cooperate with you in putting such changes into
effect within a reasonable period of time, provided such changes
do not have a materially adverse effect on our operations.
In the event any such change results in an increase or decrease
in the cost of performing the work, the prices for the work shall
be adjusted to fairly reflect such increase or decrease which
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J. Crew, Inc. Page 15
August 14, 1997
we will present for your approval, not to be unreasonably withheld.
In addition, should such change result in our inability to use
any materials on hand or ordered for you in the production of
your work, you will pay us reasonable costs associated with such
materials and their disposition.
PASSING OF TITLE
Title shall pass to you on the date of shipping of completed
production. Possession shall pass to you upon delivery f.o.b. our
plant of final manufacture.
LIEN ON PROPERTY
In the event that any sums due to us by you became past due
during the term of this agreement, we will have the right, if
necessary, to retain possession of and will have a lien on all
property owed by you and in our possession, except for your
customer mailing lists, and all work in process and undelivered
work. In the event we wish to assert our lien on your property in
our possession and you dispute whether, the sum is due, an
officer of our company shall meet in person with an officer of
your company who shall use their best efforts to resolve the
dispute within 15 days. If the dispute continues after such
meeting, you may provide us with alternative security of equal
value and we will release our lien on the original property we
had in our possession.
WORK STOPPAGES
Neither party shall be liable for delays or non-performance of
this Agreement occasioned by strikes, fires, accidents or by
causes beyond their control including, but not limited to the
unavailability of materials, utilities or fuel, however, you
shall retain your obligation to make payments in a timely manner.
In the event of material shortages, we shall use our reasonable
best efforts to assist you to find workable alternatives and
substitute materials. In the event you place all or any part of
the work elsewhere pursuant to this paragraph, you will not make
commitments for a period longer than reasonably necessary to
allow you to purchase the production of catalogs at prices equal
to or less than those set forth herein and will return such work
to us as promptly as practicable.
RESPONSIBILITY FOR SUBJECT MATTER
In furnishing us matter to reproduce or to have incorporated in
the completed product, you represent and warrant that none of
such matter (either as furnished to us by you or as altered by us
at your direction) infringes any copyright, is libelous, or
otherwise violates the rights of or will cause damage or injury
to other persons, and you agree to indemnify and save us harmless
from all losses, damages and expenses, including reasonable
attorneys' fees, which we may suffer as the result of any claim
of such violation, damage or injury.
<PAGE>
J. Crew, Inc. Page 16
August 14, 1997
QUALITY, GUARANTEE AND LIMITATION OF LIABILITY
We will perform the work in a good and workmanlike manner and in
accordance with the specifications and production schedule. The
quality of work produced under the terms of this Agreement shall
be generally equal to or better than the average work produced
for comparable work under previous agreements we have had to
produce your catalog consistent with the paper, film, art work or
other materials used in the production of the work. In the event
the work is defective or delayed due to our fault (including
negligence), we shall be liable for direct damages but we shall
not be liable for special or consequential damages, including,
but not limited to, lost profits or business as defined in the
Uniform Commercial Code engaged in the State of New York and
without regard to whether the work performed under this Agreement
would be a sale of goods or a sale of serviced under New York
law. We will use our best efforts to mitigate your damages
including reprinting or repairing any defective work as promptly
as practicable. Further, we shall not be liable for any damages,
whether direct, indirect, special or consequential, associated
with our shipment of any of your work on contract or common
carriers. Notwithstanding the preceding sentence, we will require
all contract or common carriers engaged by us to transport your
work to carry one hundred thousand dollars ($100,000.00) of cargo
insurance and will cooperate with you in filing claims if your
property is damaged in transit.
MATERIALS AND PURCHASED SERVICES
Unless otherwise provided, we will supply the materials (ink,
binding materials, etc.) or purchased services specified herein
or their equivalents. It is understood and agreed that should we
be unable to obtain such materials or services or their
equivalents in necessary quantities, the parties shall select
mutually agreeable substitute materials or services which we
shall present for your approval, not to be unreasonably withheld.
Should the use of such substitute materials or services increase
or decrease the cost of performing the work, the prices will be
adjusted to fairly reflect any such increase or decrease in cost.
The unavailability of materials or services will not be
considered a breach of this Agreement as long as we have used our
best efforts to obtain and use materials, consistent with our
obligations to other customers. Should any volume or trade
discounts be earned on materials or services, they will be
retained by us. All scrap and by-products will become our
property.
STORAGE
We will store final reproduction medium (film or electronic data
files) made by us and used in the production of your work for one
year, after which film will be destroyed and data files erased
unless otherwise agreed to and at prices to be separately quoted.
Plates and cylinders will not be held after completion of
printing of the next catalog unless confirmed by letter form us.
Storage of cylinders beyond that date is not included in the base
prices and will be charged additional as incurred at the then
current price quoted in Exhibit A. The storage will be incurred
at the start of in-home span of the following event. For example,
<PAGE>
J. Crew, Inc. Page 17
August 14, 1997
Spring Edition 1 cylinders will be stored at no charge until the
first in-home date of the Spring Edition 2.
Unless otherwise specified, the prices in this Agreement contain
no storage of paper, other materials, work in process or finished
goods beyond the production schedule span. If you delay
completion of the work or postpone delivery of finished goods
beyond the date specified in the production schedule, or if your
furnished materials arrive prior to the dates specified in the
production schedule, storage will be charged at the rates set
forth in Exhibit A for each month up to twelve months the
finished goods, work in process or furnished materials remain in
our possession.
Such rate will be doubled for each month after the first twelve
months of storage. If, following the eighteenth month of storage
we receive no direction from you as to the disposition of the
stored items, such items will be destroyed. No storage charges
will be made for delays which are largely caused by us.
PRICE ADJUSTMENTS FOR CHANGES IN EMPLOYEE COMPENSATION, COSTS
OF MATERIALS, UTILITIES, FUEL AND TAXES
The prices stated in this Agreement are based upon the cost of
direct materials and any purchased services as of June 1, 1997
and labor, utilities, fuel and indirect materials as of the date
hereof. If before completion of the work hereunder the cost of
performance is increased or decreased as the result of changes in
the rates of employee compensation, cost of employee benefits,
payroll taxes, or other working conditions or terms of
employment, or as the result of changes in the cost of materials.
purchased services, utilities or fuel (except electricity, which
will not be adjusted), the prices stated herein shall be
increased or decreased in proportion to such increase or decrease
in cost of performance. If any changes become effective after
part of the work hereunder has been done or part of the material,
utilities or fuel or services has been purchased, such adjustment
of prices shall apply only to the work done or purchases made
after such change. If we are required to pay any new or increased
excise, privilege, processing, gross receipts, or similar tax not
now imposed on account of any act required for the performance of
this Agreement, or if we are required to pay any new payroll tax
or similar charge, the cost of such new or increased tax shall be
added as an extra charge.
If any changes in the non-labor components of our prices
(excluding ink) result in an increase or decrease in our prices,
such increase or decrease will not be effective until the start
of the next Fall/Winter or Spring/Summer Season.
The prices herein shall be adjusted on the basis of changes in
labor, indirect materials, fuel and utility costs occurring at
our Lancaster Service Center for preliminary work. Lancaster West
Manufacturing Division for the body presswork and Spartanburg
Manufacturing Division for the body presswork, binding and all
remaining prices, regardless of where the work is actually
performed. and if such adjustment shall occur at the above
divisions at a time other than the
<PAGE>
J. Crew, Inc. Page 18
August 14, 1997
regularly scheduled adjustment for that decision(s), we shall not
apply that percentage increase until the next regularly scheduled
adjustment for the corresponding division(s).
Notwithstanding the foregoing, the increases in manufacturing
prices for both preliminary and printing will not exceed in the
Consumer Price Index (1982-4 = 100), all Urban Wage Earners and
Clerical Workers, U.S. City Average, published by the Bureau of
Labor Statistics, U.S. Department of Labor for the same period.
If the Consumer Price Index is revised or discontinued, this
calculation will be made using the Successor Price Index
designated by the Bureau of Labor and Statistics.
SALES AND USE TAXES
Any sales, retailer's occupation, service occupation, value
added, or use tax imposed on account of this transaction
will he added as an extra charge.
OVERTIME
If overtime is required to meet your delivery or quantity
requirements, we will use our best efforts to make any necessary
overtime available and will charge for such overtime at our then
current rates. If overtime is worked due to our internal
scheduling problems or other problems within our control arising
after a production schedule is agreed upon, and not caused by
your failure to comply with the production schedule, overtime
charges will not be made. No chargeable overtime will be worked
without your prior approval, and in the absence of such approval,
delivery of the work will be made as promptly as practicable
consistent with our then available capacity.
POSTAGE
The cost of postage and permits will be paid by you and you shall
be responsible, if necessary, for establishing an account at the
U.S. Post Office with sufficient funds to cover mailing.
ASSIGNMENT
Neither party to this Agreement shall assign any right or rights
hereunder without the prior written consent of the other party,
except that we may assign payments due us to our wholly-owned
subsidiaries without consent. You may assign this Agreement to
any wholly owned subsidiary of J. Crew Group, Inc. as long as we
receive a guarantee from J. Crew Group, Inc. Subject to this
consent, this Agreement shall inure to the benefit of and shall
bind the successors and assigns of the parties hereto.
BANKRUPTCY
If either party shall be adjudicated a bankrupt, institute
voluntary proceedings for bankruptcy or reorganization, make an
assignment for the benefit of its creditors, apply for or consent
to the appointment of a receiver for it or its property, or admit
in writing its inability to pay its debts as
<PAGE>
J. Crew, Inc. Page 19
August 14, 1997
they become due, the other party may terminate this Agreement by
written notice. Any such termination shall not relieve either
party from any accrued obligations hereunder.
EDITING OF COPY
The price quoted does not, unless otherwise stated, include the
editing of copy.
INSURANCE
We will carry at our expense fire, sprinkler leakage and extended
coverage insurance, subject to the usual exclusions, limitations
and conditions of such policies, on the actual cash value of all
our materials, work in process, and all production completed and
not shipped, and on the actual cash value of all positives, copy,
artwork, paper and other materials furnished by you, while in our
care, custody and control. Such insurance shall cover loss of,
damage to or destruction of such property caused by the perils of
fire, lighting, windstorm, hail, explosion, riot, riot attending
a strike, civil commotion, aircraft, vehicles, smoke, vandalism,
malicious mischief and sprinkler leakage, subject to the usual
exclusions of fire and extended coverage policies. If your
property is damaged as a result of an insured peril under the
applicable insurance policy, then, at our option, we will either
replace your damaged property or reimburse you for the actual
cash value of the damaged property. If we elect to reimburse you
for the damaged property's actual cash value, the amount payable
to you shall be limited to the proceeds of such policy plus any
related deductible, if any, applied to the claim for damage to
your property. For positives and other media our insurance
coverage and other liability shall be limited to the cost of
blank film or other media and the cost of duplication from an
original or other copy.
We will advise you of any material changes in our insurance
coverage. We will provide you a certificate of insurance in
force.
If the damaged property is catalogs, they will be replaced by
similar catalogs.
GOVERNING LAW
This Agreement shall be governed by the laws of the State of New
York.
OVERRUNS AND UNDERRUNS
Variations in quantity of zero percent (0%) more or less than
quantities ordered will constitute acceptable delivery, and the
price will be adjusted at the over/under delivery per thousand
copy price. If the work involves more than one version, the
over/under percent for each version shall depend upon ordered
quantity of that version, as separately quoted.
TERMS OF PAYMENT
Net cash sixty-five (65) days from the date of invoice. An
invoice for all materials, preliminary, presswork and initial
binding charges will be issued on completion of the first binding
lot.
<PAGE>
J. Crew, Inc. Page 20
August 14, 1997
Charges for any subsequent binding lots will be invoiced
upon completion. All payments must be received at our lock box no
later than the sixty-fifth (65th) day from date of invoice. We
will charge interest at the rate of 1-1/2% per month on any
unpaid invoices after sixty-five (65) days. Our obligation to
perform work hereunder is subject to the validity and continued
effectiveness of guaranty of Popular Services, now known as J.
Crew Group, Inc. dated December 5, 1988.
INTEREST AND COLLECTION COSTS
Our obligation to perform work hereunder is subject to prompt
payment of all invoices pursuant to the terms of this and other
agreements we may have with you. Should any invoice issued
hereunder become past due, you agree to pay interest at the rate
equal to the prime rate announced by Citibank for three month
loans to its most credit-worthy customers (the "Prime Rate") plus
three percent (3%) per year, or the lawful limit if less, on all
amounts past due. Progress billing of interest due or failure to
bill for interest due shall not constitute a waiver of our right
to charge interest on all amounts past due to the date payment is
received.
If you fail to pay our invoice in accord with these terms, you
agree to pay all costs of collection, including but not limited
to, reasonable attorneys' fees (if the full amount of the invoice
is ultimately determined or admitted to be due or a pro rated
amount of such costs of collection if less than the full amount
is ultimately determined to be due by you to us).
Should any portion of any invoice become disputed, you agree to
pay the undisputed portion according to its terms and you will
notify us promptly of the dispute. Both parties agree to use
their best efforts to resolve the disputed portion of such
invoice within thirty (30) days of learning of the dispute.
Interest shall accrue on disputed amounts at a rate equal to the
"Prime Rate" described above if such amounts are ultimately
determined or admitted to be due.
CREDIT REVIEW
If you delay completion of manufacture beyond the period
contemplated by the production schedule or if partial payment is
made prior to the completion of the entire quantity, interim
billing may be made. The above provisions may be reviewed by us
and should there be a substantial adverse change in your credit
standing or in the event that you do not comply with the terms of
these provisions, we will have the right to change the terms of
payment. and our obligation to perform further work will be
subject to reaching mutual agreement on revised terms.
WAIVER
No waiver by either party hereto of any default by the other in
the strict and literal performance of or compliance with any
provision, condition, or requirement herein shall be deemed to be
a waiver of, or in any manner release such other party from,
strict compliance with any provision, condition or requirement in
the future; nor shall any delay or omission of either party to
exercise any right of termination or the right hereunder in any
manner impair the exercise of any such
<PAGE>
J. Crew, Inc. Page 21
August 14, 1997
right accruing to it thereafter. Except when otherwise expressly
stated, no remedy expressly granted herein to either party in the
event of a default by the other shall be deemed to exclude any
other remedy which would otherwise be available.
NO JOINT VENTURE
Nothing herein contained shall in any way constitute a
partnership between, or joint venture by, the parties hereto or
be construed to evidence the intention of the parties to
constitute such. Neither of the parties shall hold itself out
contrary to the terms of this paragraph by advertising or
otherwise, and neither party shall be or become liable or hound
by any representation, act or omission whatsoever of the other
party contrary to the provisions of this paragraph.
EXHIBITS
This Agreement includes the following Exhibits which are attached
hereto and made a part hereof:
EXHIBIT A - PRICE SCHEDULE
EXHIBIT B - PAPER SPECIFICATIONS
EXHIBIT C - OUTSIDE SUPPLIED PARTS REQUIREMENTS
IN WITNESS WHEREOF, the parties have caused their authorized
officers to sign this agreement as of the date written above. If
this Agreement is signed by both parties on or before August 18,
1997, it shall take effect with all work produced as of the 1997
Fall/Winter Edition 1 Catalog.
RR DONNELLEY & SONS COMPANY
By:_________________________________________
Joe Lawyer
Merchandise Media business Unit President
J. CREW Inc.
By:_____________________________
Authorized Officer
Date:_____________________, 1997
<PAGE>
J. Crew, Inc. Page 1
Exhibit A - Price Schedule 8/14/97
PART I - PRESSWORK PRICING
- --------------------------
Presswork Prices (Presswork, Binding, Disposition and Ink). These
prices include 1 (one) base version. No storage (other than set
forth in the clauses entitled "Customer Furnished Paper"
"Storage") is included. Interplant freight to ship covers from
Lancaster to Spartanburg is included in our prices.
A. 8-1/4" x 10-3/4" OFFSET COVER OPTIONS Makeready Run/M
-------------------------------------
4-page offset cover..................... $ 2,067.00 $ 5.13
8-page offset cover .................... 2,067.00 9.60
B. 8-1/4" x 10-3/4" GRAVURE BODY OPTIONS
45-page gravure body.................... $ 13,800.00 $ 57.70
56-page gravure body.................... 23,795.00 66.75
64-page gravure body.................... 23,795.00 70.79
72-page gravure body.................... 13,800.00 85.34
80-page gravure body.................... 27,600.00 83.88
84-page gravure body.................... 13,800.00 90.65
88-page gravure body.................... 23,795.00 93.42
92-page gravure body.................... 33,790.00 95.20
96-page gravure body.................... 13,800.00 93.97
100-page gravure body................... 33,790.00 103.24
104-page gravure body................... 23,795.00 103.01
108-page gravure body................... 23,795.00 103.78
112-page gravure body................... 23,795.00 107.06
116-page gravure body................... 23,795.00 111.83
120-page gravure body................... 23,795.00 113.60
124-page gravure body................... 33,790.00 116.87
128-page gravure body................... 27,600.00 120.14
132-page gravure body................... 33,790.00 123.42
136-page gravure body................... 23,795.00 129.69
140-page gravure body................... 33,790.00 131.46
144-page gravure body................... 27,600.00 130.23
148-page gravure body................... 33,790.00 139.50
152-page gravure body................... 37,595.00 139.25
156-page gravure body................... 37,595.00 140.05
160-page gravure body................... 37,595.00 143.32
164-page gravure body................... 37,595.00 148.09
168-page gravure body................... 37,595.00 149.86
172-page gravure body................... 47,590.00 153.74
176-page gravure body................... 41,400.00 156.41
180-page gravure body................... 47,590.00 162.78
184-page gravure body................... 37,595.00 168.45
<PAGE>
J. Crew, Inc. Page 2
Exhibit A - Price Schedule 8/14/97
PART 1- Presswork Pricing (continued)
-------------------------
B. 8-1/4" x 10-3/4" GRAVURE BODY OPTIONS (continued)
-------------------------------------
188-page gravure body................... 47,590.00 170.82
192-page gravure body................... 27,600.00 169.60
196-page gravure body................... 47,590.00 178.87
200-page gravure body................... 37,595.00 178.64
204-page gravure body................... 37,595.00 181.41
208-page gravure body................... 37,595.00 184.68
212-page gravure body................... 37,595.00 189.46
216-page gravure body................... 37,595.00 191.23
220-page gravure body................... 47,590.00 194.60
224-page gravure body................... 41,400.00 198.77
228-page gravure body................... 47,590.00 202.14
232-page gravure body................... 37,595.00 208.32
236-page gravure body................... 47,590.00 210.19
240-page gravure body................... 41,400.00 208.86
Paper Handling (all formats) per cwt.... - -
Excess Paper Storage (all formats):
First applicable month or fraction thereof
per cwt................................ - 0.40
Each additional month or fraction thereof
per cwt................................ - 0.13
Press down time, per hour, (all formats) - 547
C. FURNISHED PAPER REQUIREMENTS: 8-1/4" x 10-3/4"
----------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. per 1,000
25 x 38-60# --------- ---------
4-page offset cover..................... 1,190 27.17
8-page offset cover..................... 1,190 54.34
Cover Versioning (Based on 4 or 8 page cover)
Black plate change, one side of web 560
Black plate change, both sides of web 642
Four-color change, one side of web 824
Four-color change, both sides of web 1,190
<PAGE>
J. Crew, Inc. Page 3
Exhibit A - Price Schedule 8/14/97
Cover Options
-------------
25 x 38-70#
4-page offset cover..................... 1,388 31.69
8-page offset cover..................... 1,388 63.39
Cover Versioning (Based on 4 or 8 page cover)
Black plate change, one side of web 653
Black plate change, both sides of web 750
Four-color change, one side of web 961
Four-color change, both sides of web 1,388
Body Options Makeready Run Lbs.
------------ Lbs. per 1,000
25 x 38 - 38# -------------------------
48-page gravure body.................... 10,201 194.91
56-page gravure body.................... 15,301 228.31
64-page gravure body.................... 15,301 259.88
72-page gravure body.................... 7,650 292.37
80-page gravure body.................... 20,402 324.85
84-page gravure body.................... 8,926 341.09
88-page gravure body.................... 14,451 357.34
92-page gravure body.................... 19,552 373.58
96-page gravure body.................... 10,201 359.82
100-page gravure body................... 19,552 406.07
104-page gravure body................... 15,301 423.22
108-page gravure body................... 15,301 438.55
112-page gravure body................... 15,301 454.79
116-page gravure body................... 14,451 471.04
120-page gravure body................... 15,301 487.28
124-page gravure body................... 20,402 503.52
128-page gravure body................... 20,402 519.76
132-page gravure body................... 20,402 536.01
136-page gravure body................... 14,451 552.25
140-page gravure body................... 19,552 568.49
144-page gravure body................... 20,402 584.73
148-page gravure body................... 19,552 600.98
152-page gravure body................... 25,502 618.13
156-page gravure body................... 25,502 633.46
160-page gravure body................... 25,502 649.70
164-page gravure body................... 24,652 665.95
<PAGE>
J. Crew, Inc. Page 4
Exhibit A - Price Schedule 8/14/97
C. FURNISHED PAPER REQUIREMENTS:
8-1/4" x 10-314" (Continued)
168-page gravure body................... 17,852 682.19
172-page gravure body................... 30,603 698.43
176-page gravure body................... 30,603 714.67
180-page gravure body................... 30,603 730.92
184-page gravure body................... 24,652 747.16
188-page gravure body................... 29,753 763.40
192-page gravure body................... 20,402 779.64
196-page gravure body................... 29,753 795.89
200-page gravure body................... 25,502 813.04
204-page gravure body................... 25,502 828.37
208-page gravure body................... 25,502 844.62
212-page gravure body................... 24,652 860.86
216-page gravure body................... 25,502 877.10
220-page gravure body................... 30,603 893.34
224-page gravure body................... 30,603 909.59
228-page gravure body................... 30,603 925.83
232-page gravure body................... 24,652 942.07
236-page gravure body................... 29,753 958.31
240-page gravure body................... 30,603 974.56
Gravure Body Versions (Per press form):
Narrow Web
One-color cylinder change,
one side of web................... 547
One-color cylinder change,
both sides of web................. 911
Four-color cylinder change,
one side of web................... 1,640
Four-color cylinder change,
both sides of web................. 5,100
Gravure Body Versions (Per press form):
Wide Web
One-color cylinder change,
one side of web................... 1,094
One-color cylinder change,
both sides of web................. 1,822
Four-color cylinder change,
one side of web................... 3,280
Four-color cylinder change,
both sides of web................. 10,200
D. 7-5/8" x 10" OFFSET COVER OPTIONS Makeready Run/M
---------------------------------
4-page offset cover............... $ 2,067.00 $ 5.13
8-page offset cover............... 2,067.00 9.60
E. 7-5/8" x 10" GRAVURE BODY OPTIONS
---------------------------------
48-page gravure body.............. $13,800.00 $ 56.15
<PAGE>
J. Crew, Inc. Page 5
Exhibit A - Price Schedule 8/14/97
52-page gravure body.............. 19,990.00 65.63
56-page gravure body.............. 19,990.00 68.61
60-page gravure body.............. 23,795.00 65.59
64-page gravure body.............. 23,795.00 68.57
68-page gravure body.............. 23,795.00 73.05
72-page gravure body.............. 23,795.00 74.53
76-page gravure body.............. 33,790.00 78.01
80-page gravure body.............. 27,600.00 80.49
84-page gravure body.............. 33,790.00 83.97
88-page gravure body.............. 23,795.00 89.45
92-page gravure body.............. 33,790.00 91.43
96-page gravure body.............. 13,800.00 89.41
F. FURNISHED PAPER REQUIREMENTS: 7-5/8" x 10"
------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. : per 1,000
25 x 38-60# ----------------------
4-page offset cover..................... 1,190 25.43
8-page offset cover..................... 1,190 50.86
Cover Versioning (Based on 4 or
8 page cover)
Black plate change, one side of web 560
Black plate change, both sides of web 642
Four-color change, one side of web 824
Four-color change, both sides of web 1,190
Cover Options
-------------
25 x 38-70#
4-page offset cover............... 1,388 29.67
8-page offset cover............... 1,388 59.34
Cover Versioning
(Based on 4 or 8 page cover)
Black plate change,
one side of web 653
Black plate change,
both sides of web 750
Four-color change,
one side of web 961
Four-color change,
both sides of web 1,388
<PAGE>
J. Crew, Inc. Page 6
Exhibit A - Price Schedule 8/14/97
Body Options Makeready Run Lbs.
------------ Lbs. per 1,000
25 x 38 - 38# ------------------------
48-page gravure body.................... 5,033 173.73
52-page gravure body.................... 9,227 188.20
56-page gravure body.................... 9,227 202.68
60-page gravure body.................... 10,066 217.16
64-page gravure body.................... 10,066 231.63
68-page gravure body.................... 9,227 246.11
72-page gravure body.................... 10,066 260.59
76-page gravure body.................... 15,099 275.06
80-page gravure body.................... 8,389 289.54
84-page gravure body.................... 15,099 304.02
88-page gravure body.................... 9,227 318.50
92-page gravure body.................... 14,261 332.97
96-page gravure body.................... 10,066 347.45
G. 9-1/8" x 11-3/8" GRAVURE COVER OPTIONS Makeready Run/M
--------------------------------------
4-page gravure cover.................... $ 9,995.00 $ 8.50
H. 9-1/8" x 11-3/8" GRAVURE BODY OPTIONS
-------------------------------------
48-page gravure body.................... $ 9,995.00 $ 65.84
52-page gravure body.................... 19,990.00 72.54
56-page gravure body.................... 19,990.00 75.74
60-page gravure body.................... 19,990.00 78.44
64-page gravure body.................... 19,990.00 80.64
68-page gravure body.................... 19,990.00 85.84
72-page gravure body.................... 19,990.00 88.04
76-page gravure body.................... 29,985.00 91.74
80-page gravure body.................... 19,990.00 101.44
84-page gravure body.................... 29,985.00 99.14
88-page gravure body.................... 19,990.00 105.84
92-page gravure body.................... 29,985.00 108.04
96-page gravure body.................... 19,990.00 110.24
I. FURNISHED PAPER REQUIREMENTS: 9-1/8"x 11-3/8"
----------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. per 1,000
25 x 38-60# ----------------------
4-page gravure cover.................... 3,125 31.70
<PAGE>
J. Crew, Inc. Page 7
Exhibit A - Price Schedule 8/14/97
Body Options Makeready Run Lbs.
------------ Lbs. per 1,000
25 x 38- 38# ----------------------
48-page gravure body.................... 5,937 226.88
52-page gravure body.................... 10,885 245.79
56-page gravure body.................... 11,874 265.05
60-page gravure body.................... 11,874 283.60
64-page gravure body.................... 11,874 302.51
68-page gravure body.................... 10,885 321.42
72-page gravure body.................... 11,874 340.32
76-page gravure body.................... 17,811 359.23
80-page gravure body.................... 9,895 378.14
84-page gravure body.................... 17,811 397.04
88-page gravure body.................... 10,885 415.95
92-page gravure body.................... 16,822 434.86
96-page gravure body.................... 11,874 453.77
J. 8-1/4" x 8-1/4" OFFSET COVER OPTIONS Makeready Run/M
------------------------------------
4-page offset cover..................... $ 2,067.00 $ 9.39
8-page offset cover..................... 2,067.00 12.78
K. 8-1/4" x 8-1/4" GRAVURE BODY OPTIONS
------------------------------------
64-page gravure body.................... $ 9,995.00 $ 61.68
80-page gravure body.................... 19,990.00 71.69
96-page gravure body.................... 19,990.00 81.70
100-page gravure body................... 29,985.00 87.65
112-page gravure body................... 19,990.00 96.31
128-page gravure body................... 19,990.00 101.73
144-page gravure body................... 29,985.00 112.35
152-page gravure body................... 29,985.00 119.65
160-page gravure body................... 29,985.00 122.36
168-page gravure body................... 29,985.00 136.75
176-page gravure body................... 29,985.00 139.46
192-page gravure body................... 29,985.00 144.89
Paper Handling (all formats) per cwt.... - -
<PAGE>
J. Crew, Inc. Page 8
Exhibit A - Price Schedule 8/14/97
L. FURNISHED PAPER REQUIREMENTS: 8-1/4" x 8-1/4"
----------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. per 1,000
25 x 38-60# ----------------------
4-page offset cover..................... 1,190 27.42
8-page offset cover..................... 1,190 54.83
Cover Versioning (Based on 4 or 8
page cover)
Black plate change, one side
of web 560
Black plate change, both sides
of web 642
Four-color change, one side
of web 824
Four-color change, both sides
of web 1,190
Cover Options
-------------
25 x 38-70#
4-page offset cover 1,388 31.98
5-page offset cover 1,388 63.96
Cover Versioning (Based on 4 or
8 page cover)
Black plate change, one side
of web 653
Black plate change, both
sides of web 750
Four-color change, one side
of web 961
Four-color change, both sides
of web 1,388
Body Options Makeready Run Lbs.
25 x 38 - 38# Lbs. per 1,000
----------------------
64-page gravure body.................... 5,255 200.82
80-page gravure body.................... 10,510 251.49
96-page gravure body.................... 10,510 301.23
100-page gravure body................... 13,138 314.13
112-page gravure body................... 9,196 351.43
128-page gravure body................... 10,510 401.64
144-page gravure body................... 15,765 452.31
152-page gravure body................... 14,451 476.94
160-page gravure body................... 15,765 502.04
168-page gravure body................... 13,794 527.15
176-page gravure body................... 14,451 552.25
192-page gravure body................... 15,765 602.45
<PAGE>
J. Crew, Inc. Page 9
Exhibit A - Price Schedule 8/14/97
Gravure Body Versions (Per press form):
One-color cylinder change, one side
of web............................ 564
One-color cylinder change,
both sides of web................. 940
Four-color cylinder change,
one side of web................... 1,692
Four-color cylinder change,
both sides of web................. 5,265
PART II - Additionals
- ---------------------
Presswork Additionals:
Cover Versioning (based on 4-page cover with customer-
supplied paper):
Black plate change, one side
of web............................ $252.00
Black plate change, both sides
of web............................ 370.00
Four-color change, one side
of web............................ 611.00
Four-color change, both sides
of web 1,417.00
Gravure Body Versioning (Per press form
with customer-supplied paper):
Narrow Web
One-color (Black) cylinder change,
one side of web................... 1,374.00
One-color (Black) cylinder change,
both sides of web................. 2,559.00
Four-color cylinder change,
one side of web................... 4,356.00
Four-color cylinder change, both
sides of web...................... 9,995.00
Wide Web
One-color (Black) cylinder change,
one side of web................... 1,897.00
One-color (Black) cylinder change,
both sides of web................. 3,533.00
Four-color cylinder change,
one side of web................... 6,014.00
Four-color cylinder change,
both sides of web................. 13,800.00
Press Stop, each.................. 300.00
Cylinder storage, per cylinder,
first month....................... 56.00
Cylinder storage, per cylinder,
each subsequent month............. 70.00
Pick-up cylinders, makeready press,
per press form.................... 4,512.00
Bindery Additionals:
Bindery Stop...................... 175.00
Bind Makeready
(includes Ink Jet makeready)...... 697.00
<PAGE>
J. Crew, Inc. Page 10
Exhibit A - Price Schedule 8/14/97
Additional for Dot whacking (does not
include cost of the label):
With guarantee of 97%
affixation, per 1,000............. 3.76
100% affixation, per 1,000........ 4.38
Product storage beyond normal
production period, per M
8 pages
First month, per 1,000 8's
stored............................ 0.67
Each additional month,
per 1,000 8's stored.............. 0.16
Short Run Mail: MR per
list under 150,000................ 175.00
Short Run Mail: List less
than 25,000 copies - per M........ 5.64
Short Run Mail: 25,000
to 49,999, per M.................. 3.07
Short Run Mail: 50,000 to
99,999, per M..................... 1.70
Short Run Mail: 100,000 to
149,999, per M.................... 0.95
Drop ship admin, per cwt.......... 0.15
<PAGE>
J. Crew, Inc. Page 11
Exhibit A - Price Schedule 8/14/97
PART II - Additionals (Continued)
- ---------------------
Bindery Additionals (Continued): -
Additional Ink Jet preparation prices:
Tape Processing, per 1,000............... $0.80
Additional for messages, per 1,000....... 0.56
Zip corrections, each.................... 0.03
Split/rekey, per 1,000................... 0.12
Tape Handling, each...................... 6.62
Bar Codes (Tape Processing),
per 1,000 copies......................... 0.53
Additional to Ink Jet personalized message
on either the cover or the order blank:
Full message of up to 6 lines
of up to 50 characters per line,
per 1,000 copies......................... 0.77
Only a few words or numbers,
per 1,000 copies......................... 0.39
Bar Coding (Ink Jet Operation),
per 1,000 copies......................... 1.58
SELECTRONIC(R) gathering:
Tape Processing
Additional processing
for SELECTRONIC(R) gathering of multi-weight
pieces. Provided the furnished magnetic tape
contains clearly defined codes that can
be used to "trigger" the feeding patter,
machine instructions will be added,
per 1,000...................................... 0.94
Bindery
Basic makeready, each selectronic
run (up to 5 boxes)...................... 678.00
Makeready each additional
selectronically(R) controlled box........ 56.65
Selectronic(R) Running:(charged to
entire run count, not just
Selectronically fired sigs)
Up to 3 boxes, per M.................. 2.25
4 to 6 boxes, per M................... 3.50
7to 10 boxes, per M................... 4.50
Additional for any box with insertion
5% or less, per box per M................ 0.30
Additional for any box with insertion
5% to 10%, per box per M................. 0.20
SELECTRONIC(R) Feeding Cards:
Makeready 246.00
Run, per 1,000 copies 0.17
SELECTRONIC(R) Blow in Cards:
Run, per machine, per 1,000 copies 0.32
<PAGE>
J. Crew, Inc. Page 12
Exhibit A - Price Schedule 8/14/97
SELECTRONIC(R)Dot-Whacking:
Run, per machine, per 1,000 copies 0.28
(Cannot guarantee 100% affixation)
Cartoning, per carton 2.70
Powerpacks, per skid 27.97
<PAGE>
Lancaster Preliminary Center 8/14/97
J. Crew Contract Renewal Pricing Page 1
4/c Document Handling, per page.................... $275.00
Includes QPS check and generation of
related internal proof, replacement of
lo-res image with archived hi-res,
re-sizing and rotating, creation of
composite images, Postscript & RIP,
spreading of knockout type as required,
contract color proofs for page and data
cycles as required. Two color copies
will be pulled of each color proof but only
the final set produced from the press
guidance will be handled as an authorized
proof. Monthly maintenance costs for a
TI telecommunications line are included in
this figure.
New transparency for archive....................... $305.00
Includes the cost of IMAL proofing,
generation of the lo-res, archiving in a
random image database, swatch matching within
the same color family, and fleshtone work.
Cloning, color creation, background work
and other local corrections are additional.
When schedule permits, a second IMAL proofing
cycle will be offered at no additional cost.
4/C Page (inclusive); Maximum charge............... $1,848.00
This price represents a "cap" on the
incremental billing for any page. We will
maintain a spreadsheet that will accumulate
the dollar total for each individual page.
When the normal incremental billing would
otherwise exceed $1848, this price will be
substituted. Color deviations and mechanical
alterations, however, will be charged on the
same basis as for any other page.
Type version page.................................. $76.50
Includes PostScript & RIP, writing a
duplicate 4/c file for NKI transmission or
film output as well as color mechanical
proof - color proof not included
Silhouette mask, per new subject................... $40.50
Shadow, per subject................................ $22.50
Receive and archive image file..................... $14.00
This is to cover the basic handling costs
to accept and maintain an industry standard
hi-res file from an outside source. Any
extraordinary conversion costs will be
charged as additional, as will a silhouette
and/or shadow if the proper accompanying
file or clipping path is not furnished.
<PAGE>
Lancaster Preliminary Center Page 2
J. Crew Contract Renewal Pricing 8/14/97
Mechanical Alterations And Additional Proofs
--------------------------------------------
Rescan transparency for size changes............... $230.00
4/c mechanical change (as marked on
position proof).................................... $67.00
This applies when we are asked to open
the Quark File and make a change to
page mechanics.
Rebuild composite image............................ $41.00
This applies if manual intervention
is required for this function when we
process a document in which images
involving overlapping silhouettes
have shifted.
Color alteration to retrieved image................ $85.00
This charge applies to a color correction
of an archived subject which is then
permanently placed in the archive; the
preceding image is deleted.
Additional color proof............................. $37.80
Late correction premium, per page.................. $117.50
Color Deviations
- ----------------
Cloning, per item.................................. $97.25
Color creation, per item........................... $139.00
Background work, per background.................... $69.50
System hour rate for specialty work not
included above..................................... $130.00
Ad pages
- --------
4/c Base page...................................... $360.00
Includes the basic mechanical construction
of the page but does not include
processing of transparencies, silhouettes
or shadows. Includes a final form color
proof.
New transparency................................... $247.30
Includes the cost of IMAL proofing , image
archiving, swatch matching within the same
color family, and fleshtone work.
Cloning, color creation, background work
and other local corrections are additional.
Pickup image, each................................. $28.91
Additional to resize pickup image.................. $26.28
<PAGE>
Lancaster Preliminary Center Page 3
J. Crew Contract Renewal Pricing 8/14/97
Additional for color alteration to retrieved image. $141.20
Replacement type file.............................. $108.70
Bind-ins
- --------
4/c Base page...................................... $360.00
Revise color cycle................................. $190.00
New scan (no archiving) or re-scan for
different GCR level................................ $190.00
4/c mechanical tint page........................... $109.84
Other
- -----
Postcard: 4/c Base page............................ $180.44
Billboard file, pick-up or new, one cycle.......... $500.00
Billboard file, pickup or new, each add'l cycle.... $150.00
EXHIBIT A
J. CREW GROUP, INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the J. Crew Group, Inc. 1997 Stock Option
Plan (the "Plan") is to promote the interests of the Company and
its stockholders by providing the Company's key employees and
consultants with an appropriate incentive to encourage them to
continue in the employ of the Company and to improve the growth
and profitability of the Company.
2. Definitions
As used in this Plan, the following capitalized terms shall
have the following meanings:
(a) "Affiliate" shall mean the Company and any of its direct
or indirect subsidiaries.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Cause" shall mean, when used in connection with the
termination of a Participant's Employment, unless otherwise
provided in the Participant's Stock Option Grant Agreement, the
termination of the Participant's Employment by the Company or an
Affiliate on account of (i) the willful violation by the
Participant of any federal or state law or any rule of the
Company or any Affiliate, (ii) a breach by a Participant of the
Participant's duty of loyalty to the Company and its Affiliates
in contemplation of the Participant's termination of Employment,
such as the Participant's pre-termination of Employment
solicitation of customers or employees of the Company or an
Affiliate, (iii) the Participant's unauthorized removal from the
premises of the Company or Affiliate of any document (in any
medium or form) relating to the Company or an Affiliate or the
customers of the Company or an Affiliate, or (iv) any gross
negligence in connection with the performance of the
Participant's duties as an Employee. Any rights the Company or an
Affiliate may have hereunder in respect of the events giving rise
to Cause shall
<PAGE>
be in addition to the rights the Company or Affiliate may have
under any other agreement with the Employee or at law or in
equity. If, subsequent to a Participant's termination of
Employment, it is discovered that such Participant's Employment
could have been terminated for Cause, the Participant's
Employment shall, at the election of the Committee, in its sole
discretion, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause
occurred.
(d) "Change in Control" shall mean the occurrence of any of
the following events: (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of the Company or JCC
to any Person or group of related persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any
affiliates thereof other than to TPG Partnership II, L.P. or any
of its affiliates (hereinafter "TPG II"); (ii) the approval by
the holders of capital stock of the Company or JCC of any plan or
proposal for the liquidation or dissolution of the Company or
JCC, as the case may be; (iii) (A) any Person or Group (other
than TPG II) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 40%
of the aggregate voting power of the issued and outstanding stock
entitled to vote in the election of directors, managers or
trustees (the "Voting Stock") of the Company or JCC and (B) TPG
II beneficially owns, directly or indirectly, in the aggregate a
lesser percentage of the Voting Stock of the Company than such
other Person or Group; (iv) the replacement of a majority of the
Board of Directors of the Company or JCC over a two-year period
from the directors who constituted the Board of Directors of the
Company or JCC, as the case may be, at the beginning of such
period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors of the
Company or JCC, as the case may be, then still in office who
either were
2
<PAGE>
members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors
was previously so approved or who were nominated by, or designees
of, TPG II; (v) any Person or Group other than TPG II shall have
acquired the power to elect a majority of the members of the
Board of Directors of the Company; or (vi) a merger or
consolidation of the Company with another entity in which holders
of the Common Stock of the Company immediately prior to the
consummation of the transaction hold, directly or indirectly,
immediately following the consummation of the transaction, 50% or
less of the common equity interest in the surviving corporation
in such transaction.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(g) "Committee" shall mean the Committee appointed by the
Board pursuant to Section 3 of the Plan.
(h) "Common Stock" shall mean the common stock of the
Company.
(i) "Company" shall mean J. Crew Group, Inc.
(j) "Disability" shall mean a permanent disability as
defined in the Company's or an Affiliate's disability plans, or
as defined from time to time by the Company, in its discretion,
or as specified in the Participant's Stock Option Grant
Agreement.
(k) "EBITDA" shall mean, for any period, the consolidated
earnings (losses) of the Company and its affiliates before
extraordinary items and the cumulative effect of accounting
changes, as determined by the Company in accordance with U.S.
generally accepted accounting principles, and before interest
(expense or income), taxes, depreciation, amortization, non-cash
gains and losses from sales of assets other than in the ordinary
course of business, Transaction Costs and Valuation Adjustments.
For purposes of clarification, in determining EBITDA,
3
<PAGE>
consolidated earnings shall be reduced (or, with respect to
losses, increased), but only once, by compensation expenses
attributable to this Plan and any other compensation plan,
program or arrangement of the Company or any of its affiliates,
to the extent such expenses are recorded in accordance with U.S.
generally accepted accounting principles. In the event of the
occurrence of any business combination transaction affecting the
earnings or indebtedness of the Company, including (without
limitation) any transaction accounted for as a pooling or as a
recapitalization, the Committee shall adjust EBITDA as the
Committee shall in good faith consider necessary or appropriate,
including (without limitation) to reflect transaction-related
costs attributable to such accounting method ("Transaction
Costs").
(l) "Eligible Employee" shall mean (i) any Employee who is a
key executive of the Company or an Affiliate, or (ii) certain
other Employees or consultants who, in the judgment of the
Committee, should be eligible to participate in the Plan due to
the services they perform on behalf of the Company or an
Affiliate.
(m) "Employment" shall mean employment with the Company or
any Affiliate and shall include the provision of services as a
consultant for the Company or any Affiliate. "Employee" and
"Employed" shall have correlative meanings.
(n) "Exercise Date" shall have the meaning set forth in
Section 4.10 herein.
(o) "Exercise Notice" shall have the meaning set forth in
Section 4.10 herein.
(p) "Exercise Price" shall mean the price that the
Participant must pay under the Option for each share of Common
Stock as determined by the Committee for each Grant and specified
in the Stock Option Grant Agreements.
(q) "Fair Market Value" shall mean, as of any date:
4
<PAGE>
(1) prior to the existence of a Public Market for the
Common Stock, the quotient obtained by dividing (i) the excess of
(x) the product of (A) 10 (as such number may be changed as provided
below, the "Multiple") and (B) EBITDA for the twelve month period
ending on the fiscal quarter-end immediately preceding such date
over (y) the sum of (I) the weighted arithmetic average
indebtedness (net of all cash and cash equivalents) during such
period of the Company and its consolidated direct and indirect
wholly-owned subsidiaries and (II) for each less than
wholly-owned direct or indirect subsidiary of the Company the
earnings of which are either consolidated with those of the
Company or accounted for on an equity basis, the weighted
arithmetic average indebtedness (net of all cash and cash
equivalents) during such period of such subsidiary multiplied by
the proportion of the total earnings (determined on the same
basis as, and excluding the same items as in the determination
of, EBITDA) of such subsidiary included in EBITDA (excluding
earnings attributable to dividends received from such
subsidiary), by (ii) the total number of shares of Common Stock
on the last day of such period, determined on a fully diluted
basis. For purposes of determining the indebtedness of an entity,
all preferred stock of the entity, other than preferred stock
convertible into Common Stock, shall be considered indebtedness
in the amount of the liquidation value thereof plus accumulated
but unpaid dividends thereon. Notwithstanding the foregoing
provisions of this paragraph (1), for the ten (10) day period
immediately following the occurrence of a Change of Control, Fair
Market Value shall not be less than the price per share, if any,
paid to any member of the Initial Ownership Group or the public
tender offer price paid in connection with such Change of
Control. The Committee shall review the Multiple then in effect
following the audit of the Company's financial statements each
fiscal year, and shall make such increases or decreases in the
Multiple
5
<PAGE>
as shall be determined by the Committee in good faith to reflect
market conditions and Company performance.
(2) on which a Public Market for the Common Stock
exists, (i) the average of the high and low sales prices on such
day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then
listed or admitted to trading or (ii) if not so reported, the
average of the closing bid and ask prices on such day as reported
on the National Association of Securities Dealers Automated
Quotation System or (iii) if not so reported, as furnished by any
member of the National Association of Securities Dealers, Inc.
selected by the Committee. The Fair Market Value of a share of
Common Stock as of any such date on which the applicable exchange
or inter-dealer quotation system through which trading in the
Common Stock regularly occurs is closed shall be the Fair Market
Value determined pursuant to the preceding sentence as of the
immediately preceding date on which the Common Stock is traded, a
bid and ask price is reported or a trading price is reported by
any member of NASD selected by the Committee. In the event that
the price of a share of Common Stock shall not be so reported or
furnished, the Fair Market Value shall be determined by the
Committee in good faith to reflect the fair market value of a
share of Common Stock.
(r) "Grant" shall mean a grant of an Option under the Plan
evidenced by a Stock Option Grant Agreement.
(s) "Grant Date" shall mean the Grant Date as defined in
Section 4.3 herein.
(t) "Initial Ownership Group" shall mean TPG Partners II,
L.P., each beneficial owner of Common Stock immediately after
October 17, 1997 and each person or entity directly or indirectly
controlling, controlled by or under common control with TPG
Partners II, L.P., or any such beneficial owner.
6
<PAGE>
(u) "JCC" shall mean J. Crew Operating Corp., a wholly owned
subsidiary of the Company.
(v) "Non-Qualified Stock Option" shall mean an Option that
is not an 'incentive stock option" within the meaning of Section
422 of the Code.
(w) "Option" shall mean the option to purchase Common Stock
granted to any Participant under the Plan. Each Option granted
hereunder shall be a Non-Qualified Stock Option and shall be
identified as such in the Stock Option Grant Agreement by which
it is evidenced.
(x) "Option Spread" shall mean, with respect to an Option,
the excess, if any, of the Fair Market Value of a share of Common
Stock as of the applicable Valuation Date over the Exercise
Price.
(y) "Participant" shall mean an Eligible Employee to whom a
Grant of an Option under the Plan has been made, and, where
applicable, shall include Permitted Transferees.
(z) "Permitted Transferee" shall have the meaning set forth
in Section 4.6.
(aa) "Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
(bb) A "Public Market" for the Common Stock shall be deemed
to exist for purposes of the Plan if the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act and
trading regularly occurs in such Common Stock in, on or through
the facilities of securities exchanges and/or inter-dealer
quotation systems in the United States (within the meaning of
Section 902(n) of the Securities Act) or any designated offshore
securities market (within the meaning of Rule 902(a) of the
Securities Act).
7
<PAGE>
(cc) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(dd) "Stock Option Grant Agreement" shall mean an agreement
entered into by each Participant and the Company evidencing the
Grant of each Option pursuant to the Plan (a sample of which is
attached hereto as Exhibit A).
(ee) "Stockholders' Agreement" shall mean the Stockholders'
Agreement, attached hereto as Exhibit B or such other
stockholders' agreement as may be entered into between the
Company and any Participant.
(ff) "Transfer" shall mean any transfer, sale, assignment,
gift, testamentary transfer, pledge, hypothecation or other
disposition of any interest. "Transferee" and "Transferor" shall
have correlative meanings.
(gg) "Valuation Adjustments" shall mean that amount of
non-cash expense charged against earnings for any period
resulting from the application of accounting for business
combinations in accordance with Accounting Principles Board
Opinion #16. These charges may include, but are not limited to,
amounts such as inventory revaluations, property, plant and
equipment revaluations, goodwill amortization and finance fee
amortization.
(hh) "Valuation Date" shall mean (i) prior to the existence
of a Public Market for the Common Stock, the last day of each
calendar quarter, or (ii) on or after the existence of a Public
Market for the Common Stock, the trading date immediately
preceding the date of the relevant transaction.
(ii) "Vesting Date" shall mean the date an Option becomes
exercisable as defined in Section 4.4 herein.
(jj) "Withholding Request" shall have the meaning set forth
in Section 4.10 herein.
8
<PAGE>
3. Administration of the Plan
The Committee shall be appointed by the Board and shall
administer the Plan. No member of the Committee shall participate
in any decision that specifically affects such member's interest
in the Plan.
3.1 Powers of the Committee. In addition to the other powers
granted to the Committee under the Plan, the Committee shall have
the power: (a) to determine to which of the Eligible Employees
Grants shall be made; (b) to determine the time or times when
Grants shall be made and to determine the number of shares of
Common Stock subject to each such Grant; (c) to prescribe the
form of any instrument evidencing a Grant; (d) to adopt, amend
and rescind such rules and regulations as, in its opinion, may be
advisable for the administration of the Plan; (e) to construe and
interpret the Plan, such rules and regulations and the
instruments evidencing Grants; and (f) to make all other
determinations necessary or advisable for the administration of
the Plan.
3.2 Determinations of the Committee. Any Grant,
determination, prescription or other act of the Committee shall
be final and conclusively binding upon all persons.
3.3 Indemnification of the Committee. No member of the
Committee or the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any
Grant. To the full extent permitted by law, the Company shall
indemnify and hold harmless each person made or threatened to be
made a party to any civil or criminal action or proceeding by
reason of the fact that such person, or such person's testator or
intestate, is or was a member of the Committee.
3.4 Compliance with Applicable Law. Notwithstanding
anything herein to the contrary, the Company shall not be
required to issue or deliver any certificates evidencing shares
of Common Stock pursuant to the exercise of any Options, unless
and until the Committee has
9
<PAGE>
determined, with advice of counsel, that the issuance and
delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if
applicable, the requirements of any exchange on which the shares
of Common Stock are listed or traded. The Company shall use its
reasonable efforts to register such shares of Common Stock or to
take any other action in order to comply with any such law,
regulation or requirement with respect to the issuance and
delivery of such certificates. In addition to the terms and
conditions provided herein, the Committee may require that a
Participant make such reasonable covenants, agreements and
representations as the Committee, in its sole discretion, deems
advisable in order to comply with any such laws, regulations or
requirements.
3.5 Inconsistent Terms. In the event of a conflict between
the terms of the Plan and the terms of any Stock Option Grant
Agreement, the terms of the Stock Option Grant Agreement shall
govern.
4. Options
Subject to adjustment as provided in Section 4.13 hereof,
the Committee may grant to Participants Options to purchase
shares of Common Stock of the Company which, in the aggregate, do
not exceed 7388 shares of Common Stock. To the extent that any
Option granted under the Plan terminates, expires or is canceled
without having been exercised, the shares covered by such Option
shall again be available for Grant under the Plan.
4.1 Identification of Options. The Options granted under the
Plan shall be clearly identified in the Stock Option Grant
Agreement as Non-Qualified Stock Options.
4.2 Exercise Price. The Exercise Price of any Option granted
under the Plan shall be such price as the Committee shall
determine (which may be equal to, less than or greater than the
Fair Market Value of a share of Common Stock on the Grant Date
for such Options) and which
10
<PAGE>
shall be specified in the Stock Option Grant Agreement; provided
that such price may not be less than the minimum price required
by law.
4.3 Grant Date. The Grant Date of the Options shall be the
date designated by the Committee and specified in the Stock
Option Grant Agreement as the date the Option is granted.
4.4 Vesting Date of Options. Each Stock Option Grant
Agreement shall indicate the date or conditions under which such
Option shall become exercisable; provided, however, that, upon a
Change in Control, all outstanding Options shall immediately
become vested.
4.5 Expiration of Options. With respect to each Participant,
such Participant's Option(s), or portion thereof, which have not
become exercisable shall expire on the date such Participant's
Employment is terminated for any reason unless otherwise
specified in the Stock Option Grant Agreement. With respect to
each Participant, each Participant's Option(s), or any portion
thereof, which have become exercisable on the date such
Participant's Employment is terminated shall expire on the
earlier of (i) the commencement of business on the date the
Participant's Employment is terminated for Cause; (ii) 90 days
after the date the Participant's Employment is terminated for any
reason other than Cause, death or Disability; (iii) one year
after the date the Participant's Employment is terminated by
reason of death or Disability; or (iv) the 10th anniversary of
the Grant Date for such Option(s). Notwithstanding the foregoing,
the Committee may specify in the Stock Option Grant Agreement a
different expiration date or period for any Option Granted
hereunder, and such expiration date or period shall supersede the
foregoing expiration period.
4.6 Limitation on Transfer. During the lifetime of a
Participant, each Option shall be exercisable only by such
Participant unless the Participant obtains written consent from
the
11
<PAGE>
Company to Transfer such Option to a specified Transferee (a
"Permitted Transferee") or the Participant's Stock Option Grant
Agreement provides otherwise.
4.7 Condition Precedent to Transfer of Any Option. It shall
be a condition precedent to any Transfer of any Option by any
Participant that the Transferee, if not already a Participant in
the Plan, shall agree prior to the Transfer in writing with the
Company to be bound by the terms of the Plan and the Stock Option
Grant Agreement as if he had been an original signatory thereto.
4.8 Effect of Void Transfers. In the event of any purported
Transfer of any Options in violation of the provisions of the
Plan, such purported Transfer shall, to the extent permitted by
applicable law, be void and of no effect.
4.9 Exercise of Options. A Participant may exercise any or
all of his vested Options by serving an Exercise Notice on the
Company as provided in Section 4.10 hereto.
4.10 Method of Exercise. The Option shall be exercised by
delivery of written notice to the Company's principal office (the
"Exercise Notice"), to the attention of its Secretary, no less
than five business days in advance of the effective date of the
proposed exercise (the "Exercise Date"). Such notice shall (a)
specify the number of shares of Common Stock with respect to
which the Option is being exercised, the Grant Date of such
Option and the Exercise Date, (b) be signed by the Participant,
and (c) prior to the existence of a Public Market for the Common
Stock, indicate in writing that the Participant agrees to be
bound by the Stockholders' Agreement, and (d) if the Option is
being exercised by the Participant's Permitted Transferee(s),
such Permitted Transferee(s) shall indicate in writing that they
agree to and shall be bound by the Plan and Stock Option Grant
Agreement as if they had been original signatories thereto. The
Exercise Notice shall include (i) payment in cash for an amount
equal to the Exercise Price
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<PAGE>
multiplied by the number of shares of Common Stock specified in
such Exercise Notice, (ii) a certificate representing the number
of shares of Common Stock with a Fair Market Value equal to the
Exercise Price (provided the Participant has owned such shares at
least six months prior to the Exercise Date) multiplied by the
number of shares of Common Stock specified in such Exercise
Notice, or (iii) a combination of (i) and (ii) or any method
otherwise approved by the Committee. In addition, the Exercise
Notice shall include payment either in cash or previously-owned
shares of Common Stock in an amount equal to the applicable
withholding taxes based on the Option Spread for each share of
Common Stock specified in the Exercise Notice as of the most
recent Valuation Date unless the Participant requests, in
writing, that the Company withhold a portion of the shares that
are to be distributed to the Participant to satisfy the
applicable federal, state and local withholding taxes incurred in
connection with the exercise of the Option (the "Withholding
Request"). The Committee, in its sole discretion, will either
grant or deny the Withholding Request and shall notify the
Participant of its determination prior to the Exercise Date. If
the Withholding Request is denied, the Participant shall pay an
amount equal to the applicable withholding taxes based on the
Option Spread for each share of Common Stock specified in the
Exercise Notice as of the most recent Valuation Date on or before
such Exercise Date. The partial exercise of the Option, alone,
shall not cause the expiration, termination or cancellation of
the remaining Options.
4.11 Certificates of Shares. Upon the exercise of the
Options in accordance with Section 4.10 and, prior to the
existence of a Public Market for the Common Stock, execution of
the Stockholders' Agreement, certificates of shares of Common
Stock shall be issued in the name of the Participant and
delivered to such Participant as soon as practicable following
the Exercise Date. Prior to the existence of a Public Market, no
shares of Common Stock shall be issued to
13
<PAGE>
any Participant until such Participant agrees to be bound by and
executes the Stockholders' Agreement.
4.12 Administration of Options.
(a) Termination of the Options. The Committee may, at any
time, in its absolute discretion, without amendment to the Plan
or any relevant Stock Option Grant Agreement, terminate the
Options then outstanding, whether or not exercisable, provided,
however, that the Company, in full consideration of such
termination, shall pay (a) with respect to any Option, or portion
thereof, then outstanding, an amount equal to the Option Spread
determined as of the Valuation Date coincident with or next
succeeding the date of termination. Such payment shall be made as
soon as practicable after the payment amounts are determined,
provided, however, that the Company shall have the option to make
payments to the Participants by issuing a note to the Participant
bearing a reasonable rate of interest as determined by the
Committee in its absolute discretion.
(b) Amendment of Terms of Options. The Committee may, in its
absolute discretion, amend the Plan or terms of any Option,
provided, however, that any such amendment shall not impair or
adversely affect the Participants' rights under the Plan or such
Option without such Participant's written consent.
4.13 Adjustment Upon Changes in Company Stock.
(a) Increase or Decrease in Issued Shares Without
Consideration. Subject to any required action by the stockholders
of the Company, in the event of any increase or decrease in the
number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common
Stock), or any other increase or decrease in the number of such
shares effected without receipt of
14
<PAGE>
consideration by the Company, the Committee shall, make such
adjustments with respect to the number of shares of Common Stock
subject to the Options, the exercise price per share of Common
Stock and the Option Value of each such Option, as the Committee
may consider appropriate to prevent the enlargement or dilution
of rights.
(b) Certain Mergers. Subject to any required action by the
stockholders of the Company, in the event that the Company shall
be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the
holders of shares of Common Stock receive securities of another
corporation), the Options outstanding on the date of such merger
or consolidation shall pertain to and apply to the securities
which a holder of the number of shares of Common Stock subject to
any such Option would have received in such merger or
consolidation (it being understood that if, in connection with
such transaction, the stockholders of the Company retain their
shares of Common Stock and are not entitled to any additional or
other consideration, the Options shall not be affected by such
transaction).
(c) Certain Other Transactions. In the event of (i) a
dissolution or liquidation of the Company, (ii) a sale of all or
substantially all of the Company's assets, (iii) a merger or
consolidation involving the Company in which the Company is not
the surviving corporation or (iv) a merger or consolidation
involving the Company in which the Company is the surviving
corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property,
including cash, the Committee shall, in its absolute discretion,
have the power to provide for the exchange of each Option
outstanding immediately prior to such event (whether or not then
exercisable) for an option on or stock appreciation right with
respect to, as appropriate, some or all of the property for which
the stock underlying such Options are exchanged and, incident
thereto, make an equitable adjustment, as determined by the
Committee
15
<PAGE>
in the exercise price of the options or stock appreciation
rights, or the number of shares or amount of property subject to
the options or stock appreciation rights or, if appropriate,
provide for a cash payment to the Participants in partial
consideration for the exchange of the Options as the Committee
may consider appropriate to prevent dilution or enlargement of
rights.
(d) Other Changes. In the event of any change in the
capitalization of the Company or a corporate change other than
those specifically referred to in Sections 4.13(a), (b) or (c)
hereof, the Committee shall, make such adjustments in the number
and class of shares subject to Options outstanding on the date on
which such change occurs and in the per-share exercise price of
each such Option as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
(e) No Other Rights. Except as expressly provided in the
Plan or the Stock Option Grant Agreements evidencing the Options,
the Participants shall not have any rights by reason of any
subdivision or consolidation of shares of Common Stock or shares
of stock of any class, the payment of any dividend, any increase
or decrease in the number of shares of Common Stock or shares of
stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as
expressly provided in the Plan or the Stock Option Grant
Agreements evidencing the Options, no issuance by the Company of
shares of Common Stock or shares of stock of any class, or
securities convertible into shares of Common Stock or shares of
stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of
Common Stock subject to the Options or the exercise price of such
Options.
16
<PAGE>
5. Miscellaneous
5.1 Rights as Stockholders. The Participants shall not have
any rights as stockholders with respect to any shares of Common
Stock covered by or relating to the Options granted pursuant to
the Plan until the date the Participants become the registered
owners of such shares. Except as otherwise expressly provided in
Sections 4.12 and 4.13 hereof, no adjustment to the Options shall
be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
5.2 No Special Employment Rights. Nothing contained in the
Plan shall confer upon the Participants any right with respect to
the continuation of their Employment or interfere in any way with
the right of the Company or an Affiliate, subject to the terms of
any separate Employment agreements to the contrary, at any time
to terminate such Employment or to increase or decrease the
compensation of the Participants from the rate in existence at
the time of the grant of any Option.
5.3 No Obligation to Exercise. The Grant to the Participants
of the Options shall impose no obligation upon the Participants
to exercise such Options.
5.4 Restrictions on Common Stock. The rights and obligations
of the Participants with respect to Common Stock obtained through
the exercise of any Option provided in the Plan shall be governed
by the terms and conditions of the Stockholders' Agreement.
5.5 Notices. All notices and other communications hereunder
shall be in writing and shall be given and shall be deemed to
have been duly given if delivered in person, by cable, telegram,
telex or facsimile transmission, to the parties as follows:
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<PAGE>
If to the Participant:
To the address shown on the Stock Option Grant
Agreement.
If to the Company:
J. Crew Group Inc.
625 Sixth Avenue
Third Floor
New York, NY 10011
Attention: Chief Financial Officer
or to such other address as any party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
5.6 Descriptive Headings. The headings in the Plan are for
convenience of reference only and shall not limit or otherwise
affect the meaning of the terms contained herein.
5.7 Severability. In the event that any one or more of the
provisions, subdivisions, words, clauses, phrases or sentences
contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability
of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions,
subdivisions, words, clauses, phrases or sentences hereof shall
not in any way be impaired, it being intended that all rights,
powers and privileges of the Company and Participants shall be
enforceable to the fullest extent permitted by law.
5.8 Governing Law. The Plan shall be governed by and
construed and enforced in accordance with the laws of the State
of New York, without regard to the provisions governing conflict
of laws.
October 17, 1997
18
<PAGE>
EXHIBIT A-1 Time Based Vesting
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this ___ day of _________,
199_ between J. CREW GROUP INC. (the "Company") and ____________
(the "Participant").
WHEREAS, the Company has adopted and maintains the
J. Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to
Participants in the Plan of Non-Qualified Stock Options to
purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to _____ shares of Common
Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby
granted is __________.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein. If there is any conflict between the
terms and conditions of the Plan and this Agreement, the terms
and conditions of this Agreement, as interpreted by the
Committee, shall govern. All capitalized terms used herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share
underlying the Option hereby granted is ___________.
5. Vesting Date. The Option shall become exercisable as
follows: (i) [___ (10%)] of the shares of Common Stock underlying
the Option immediately upon Grant; (ii) [___ 10%)] of the shares
of Common Stock underlying the Option on the first anniversary of
the Grant Date; and (iii) [___ 20%)] of the shares of Common
Stock underlying the Option on each of the second through the
fifth anniversaries of the Grant Date. Notwithstanding the
foregoing, in the event of a Change in Control, all shares of
Common Stock underlying the Option shall become immediately
exercisable.
<PAGE>
6. Expiration Date. Subject to the provisions of the Plan,
with respect to the Option or any portion thereof which has not
become exercisable, the Option shall expire on the date the
Participant's Employment is terminated for any reason, and with
respect to any Option or any portion thereof which has become
exercisable, the Option shall expire on the earlier of: (i) 90
days after the Participant's termination of Employment other than
for Cause, death or Disability; (ii) one year after termination
of the Participant's Employment by reason of death or Disability;
(iii) the commencement of business on the date the Participant's
Employment is, or is deemed to have been, terminated for Cause;
or (iv) the tenth anniversary of the Grant Date.
7. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party or any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
8. Limitation on Transfer. During the lifetime of the
Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
request authorization from the Committee to assign his rights
with respect to the Option granted herein to a trust or
custodianship, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal
descendants (by blood or adoption), and, if the Committee grants
such authorization, the Participant may assign his rights
accordingly. In the event of any such assignment, such trust or
custodianship shall be subject to all the restrictions,
obligations, and responsibilities as apply to the Participant
under the Plan and this Stock Option Grant Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
shares of Common Stock obtained pursuant to the Option granted
herein shall not be transferred except as provided in the Plan
and, where applicable, the Stockholders' Agreement.
9. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
2
<PAGE>
10. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
11. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of NEW YORK, without regard to the provisions governing
conflict of laws.
12. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan. The Participant
hereby acknowledges that all decisions, determinations and
interpretations of the Committee in respect of the Plan, this
Agreement and the Option shall be final and conclusive.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
Agreement to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on his own behalf,
thereby representing that he has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By: __________________________
______________________________
[Name of Participant]
[Address]
4
<PAGE>
EXHIBIT A-2 Performance Based Vesting
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this ___ day of _________, 199_
between J. CREW GROUP INC. (the "Company") and ____________ (the
"Participant").
WHEREAS, the Company has adopted and maintains the
J. Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company.
WHEREAS, the Plan provides for the grant to
Participants in the Plan of Non-Qualified Stock Options to
purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to _____ shares of Common
Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby
granted is ______________.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein. If there is any conflict between the
terms and conditions of the Plan and this Agreement, the terms
and conditions of this Agreement, as interpreted by the
Committee, shall govern. All capitalized terms used herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share
underlying the Option hereby granted is ___________.
5. Vesting Date. On the last day of each of the fiscal
years [______] through [________], (each an "Anniversary Date"),
the Option will become exercisable with respect to up to twenty
percent of the shares of Common Stock underlying the Option (the
"Eligible Portion") in accordance with the following: (i) if less
than 90% of the Annual EBITDA Target is achieved in the fiscal
year ending on the respective Anniversary Date, 0% of the
Eligible Portion will become exercisable; (ii) if 90% of the
Annual EBITDA Target is achieved in the fiscal year ending on the
respective Anniversary Date, 50% of the Eligible Portion will
<PAGE>
become exercisable; (iii) if 95% of the Annual EBITDA Target is
achieved in the fiscal year ending on the respective Anniversary
Date, 100% of the Eligible Portion will become exercisable, and
(iv) if between 90% and 95% of the Annual EBITDA Target is
achieved in the fiscal year ending on the respective Anniversary
Date, the percentage of the Eligible Portion which will become
exercisable shall be determined on the basis of straight line
interpolation based on the amounts set forth in (ii) and (iii)
above. Notwithstanding the foregoing, the Option shall become
immediately exercisable upon the occurrence of any of the
following: (i) the Participant's employment is terminated by the
Company without Cause, (ii) the Participant's employment is
terminated by reason of death or Disability, or (iii) upon a
Change in Control of the Company. In addition, the Option shall
become exercisable on the seventh anniversary of the Grant Date.
For purposes of this Stock Option Grant Agreement, the "Annual
EBITDA Target" for each fiscal year shall be determined by the
Committee, in its absolute discretion.
6. Expiration Date. Subject to the provisions of the
Plan, the Option shall expire and be canceled on the tenth
anniversary of the Grant Date; provided that the Option shall
expire prior to the tenth anniversary of the Grant Date as
follows: (i) to the extent the Option is not exercisable on the
date the Participant's Employment terminates for any reason, such
Option shall expire and be canceled on the date the Employment
terminates; and (ii) to the extent the Option is exercisable on
the date the Participant's Employment terminates, the Option
shall expire and be canceled (A) 90 days after the Participant's
termination of Employment other than for Cause, death or
Disability (but not later than the tenth anniversary of the Grant
Date); (B) one year after termination of the Participant's
Employment by reason of death or Disability (but not later than
the tenth anniversary of the Grant Date); or (C) the commencement
of business on the date the Participant's Employment is, or is
deemed to have been, terminated for Cause.
7. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party or any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
8. Limitation on Transfer. During the lifetime of the
Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
request authorization from the Committee to assign his rights
with respect to the Option granted herein to a trust or
custodianship, the beneficiaries of which may include only the
Participant, the Participant's spouse, or the Participant's
lineal descendants (by blood or adoption), and, if the Committee
grants such authorization, the Participant may assign his rights
accordingly. In the event of any such assignment, such trust or
custodianship shall be subject to all the restrictions,
obligations and responsibilities as apply
2
<PAGE>
to the Participant under the Plan and this Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
shares of Common Stock obtained pursuant to the Option Granted
herein shall not be transferred except as provided in the Plan
and, where applicable, the Stockholders' Agreement.
9. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
10. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
11. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of NEW YORK, without regard to the provisions governing
conflict of laws.
12. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan. The Participant
hereby acknowledges that all decisions, determinations and
interpretations of the Committee in respect of the Plan, this
Agreement and the Option shall be final and conclusive.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
Agreement to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on his own behalf,
thereby representing that he has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By: __________________________
_______________________________
[Name of Participant]
[Address]
4
<PAGE>
Exhibit B
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of
________, 199__, between J. Crew Group, Inc. (the "Company"), TPG
Partners II, L.P. ("TPG") and ___________________ (the
"Stockholder").
WHEREAS, the Stockholder is an employee of the Company
and in such capacity was granted an option (the "Option") to
purchase shares of common stock of the Company, $.01 par value
per share ("Common Stock"), pursuant to the Company's 1997 Stock
Option Plan (the "Option Plan");
WHEREAS, as a condition to the issuance of shares of
Common Stock pursuant to the exercise of an Option, the
Stockholder is required under the Option Plan to execute this
Agreement;
WHEREAS, the Stockholder desires to exercise the Option to
purchase __________ shares of Common Stock; and
WHEREAS, the Stockholder and the Company desire to
enter this Agreement and to have this Agreement apply to the
shares to be purchased pursuant to the Option Plan and to any
shares of Common Stock acquired after the date hereof by the
Stockholder from whatever source, subject to any future agreement
between the Company and the Stockholder to the contrary (in the
aggregate, the "Shares").
NOW THEREFORE, in consideration of the premises
hereinafter set forth, and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto
agree as follows.
1. Investment. The Stockholder represents that the Shares
are being acquired for investment and not with a view toward the
distribution thereof.
2. Issuance of Shares. The Stockholder acknowledges
and agrees that the certificate for the Shares shall bear the
following legends (except that the second paragraph of this
legend shall not be required after the Shares have been
registered and except that the first paragraph of this legend
shall not be required after the termination of this Agreement):
The shares represented by this certificate are subject to
the terms and conditions of a Stockholders' Agreement dated
as of ______________, 19__ and may not be sold,
transferred, hypothecated, assigned or encumbered, except
as may be permitted by the aforesaid Agreement. A copy of
the Stockholders' Agreement may be obtained from the
Secretary of the Company.
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares
have been acquired for investment and may
<PAGE>
not be sold, transferred, pledged or hypothecated in the
absence of an effective registration statement for the
shares under the Securities Act of 1933 or an opinion of
counsel for the Company that registration is not required
under said Act.
Upon the termination of this Agreement, or upon
registration of the Shares under the Securities Act of 1933 (the
"Securities Act"), the Stockholder shall have the right to
exchange any Shares containing the above legend (i) in the case
of the registration of the Shares, for Shares legended only with
the first paragraph described above and (ii) in the case of the
termination of this Agreement, for Shares legended only with the
second paragraph described above.
3. Transfer of Shares; Call Rights.
(a) The Stockholder agrees that he will not cause or
permit the Shares or his interest in the Shares to be sold,
transferred, hypothecated, assigned or encumbered except as
expressly permitted by this Section 3; provided, however, that
the Shares or any such interest may be transferred (i) on the
Stockholder's death by bequest or inheritance to the
Stockholder's executors, administrators, testamentary trustees,
legatees or beneficiaries, (ii) to a trust or custodianship the
beneficiaries of which may include only the Stockholder, the
Stockholder's spouse, or the Stockholder's lineal descendants (by
blood or adoption), (iii) in accordance with Section 4 of this
Agreement, and (iv) to the Company pursuant to Section 4.10 of
the Option Plan, subject in any such case to the agreement by
each transferee (other than the Company) in writing to be bound
by the terms of this Agreement and provided in any such case that
no such transfer that would cause the Company to be required to
register the Common Stock under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), shall be
permitted.
(b) The Company (or its designated assignee) shall
have the right, during the one-hundred-twenty-day period (x)
beginning on the one-year anniversary of the termination of the
Stockholder's employment as a result of death or Disability or
(y) immediately following the termination of the employment of
the Stockholder with the Company for any other reason at any
time, to purchase from the Stockholder, and upon the exercise of
such right the Stockholder shall sell to the Company (or its
designated assignee), all or any portion of the Shares held by
the Stockholder as of the date as of which such right, is
exercised at a per Share price equal to the Fair Market Value (as
defined in the Option Plan) of a share of Common Stock determined
as of the date as of which such right is exercised. The Company
(or its designated assignee) shall exercise such right by
delivering to the Stockholder a written notice specifying its
intent to purchase Shares held by the Stockholder, the date as of
which such right is to be exercised and the number of Shares to
be purchased. Such purchase and sale shall occur on such date as
the Company (or its designated assignee) shall specify which date
shall not be later than ninety (90) days after the fiscal
quarter-end immediately following the date as of which the
Company's right is exercised.
2
<PAGE>
4. Certain Rights.
(a) Drag Along Rights. If TPG desires to sell all or
substantially all of its shares of Common Stock to a good faith
independent purchaser (a "Purchaser") (other than any other
investment partnership, limited liability company or other entity
established for investment purposes and controlled by the
principals of TPG or any of its affiliates and other than any
employees of TPG, hereinafter referred to as a "Permitted
Transferee") and said Purchaser desires to acquire all or
substantially all of the issued and outstanding shares of Common
Stock (or all or substantially all of the assets of the Company)
upon such terms and conditions as agreed to with TPG, the
Stockholder agrees to sell all of his Shares to said Purchaser
(or to vote all of his Shares in favor of any merger or other
transaction which would effect a sale of such shares of Common
Stock or assets of the Company) at the same price per share of
Common Stock and pursuant to the same terms and conditions with
respect to payment for the shares of Common Stock as agreed to by
TPG. In such case, TPG shall give written notice of such sale to
the Stockholder at least 30 days prior to the consummation of
such sale, setting forth (i) the consideration to be received by
the holders of shares of Common Stock, (ii) the identity of the
Purchaser, (iii) any other material items and conditions of the
proposed transfer and (iv) the date of the proposed transfer.
(b) Tag Along Rights. (i) Subject to paragraph (iv)
of this Section 4(b), if TPG or its affiliates proposes to
transfer any of its shares of Common Stock to a Purchaser (other
than a Permitted Transferee), then TPG or such Permitted
Transferee (hereinafter referred to as a "Selling Stockholder")
shall give written notice of such proposed transfer to the
Stockholder (the "Selling Stockholder's Notice") at least 30 days
prior to the consummation of such proposed transfer, and shall
provide notice to all other stockholders of the Company to whom
TPG has granted similar "tag-along" rights (such stockholders
together with the Stockholder, referred to herein as the "Other
Stockholders") setting forth (A) the number of shares of Common
Stock offered, (B) the consideration to be received by such
Selling Stockholder, (C) the identity of the Purchaser, (D) any
other material items and conditions of the proposed transfer and
(E) the date of the proposed transfer.
(ii) Upon delivery of the Selling Stockholder's
Notice, the Stockholder may elect to sell up to the sum of (A)
the Pro Rata Portion (as hereinafter defined) and (B) the Excess
Pro Rata Portion (as hereinafter defined) of his Shares, at the
same price per share of Common Stock and pursuant to the same
terms and conditions with respect to payment for the shares of
Common Stock as agreed to by the Selling Stockholder, by sending
written notice to the Selling Stockholder within 15 days of the
date of the Selling Stockholder's Notice, indicating his election
to sell up to the sum of the Pro Rata Portion plus the Excess Pro
Rata Portion of his Shares in the same transaction. Following
such 15 day period, the Selling Stockholder and each Other
Stockholder shall be permitted to sell to the Purchaser on the
terms and conditions set forth in the Selling Stockholder's
Notice the sum of (X) the Pro Rata Portion and (Y) the Excess Pro
Rata Portion of its Shares.
(iii) For purposes of Section 4(b) and 4(c) hereof,
"Pro Rata Portion" shall mean, with respect to shares of Common
Stock held by the Stockholder or Selling Stockholder,
3
<PAGE>
as the case may be, a number equal to the product of (x) the
total number of such shares then owned by the Stockholder or the
Selling Stockholder, as the case may be, and (y) a fraction, the
numerator of which shall be the total number of such shares
proposed to be sold to the Purchaser as set forth in the Selling
Stockholder's Notice or initially proposed to be registered by
the Selling Stockholder, as the case may be, and the denominator
of which shall be the total number of such shares then
outstanding (including such shares proposed to be sold or
registered by the Selling Stockholder); provided, however, that
any fraction of a share resulting from such calculation shall be
disregarded for purposes of determining the Pro Rata Portion. For
purposes of Sections 4(b) and 4(c), "Excess Pro Rata Portion"
shall mean, with respect to shares of Common Stock held by the
Stockholder or the Selling Stockholder, as the case may be, a
number equal to the product of (x) the number of Non-Elected
Shares (as defined below) and (y) a fraction, the numerator of
which shall be such Stockholder's Pro Rata Portion with respect
to such shares, and the denominator of which shall be the sum of
(1) the aggregate Pro Rata Portions with respect to the shares of
Common Stock of all of the Other Stockholders that have elected
to exercise in full their rights to sell their Pro Rata Portion
of shares of Common Stock, and (2) the Selling Stockholder's Pro
Rata Portion of shares of Common Stock (the aggregate amount of
such denominator is hereinafter referred to as the "Elected
Shares"). For purposes of this Agreement, "Non-Elected Shares"
shall mean the excess, if any, of the total number of shares of
Common Stock, proposed to be sold to a Purchaser as set forth in
a Selling Stockholder's Notice or initially proposed to be
registered by the Selling Stockholder, as the case may be, less
the amount of Elected Shares.
(iv) Notwithstanding anything to the contrary
contained herein, the provisions of this Section 4(b) shall not
apply to any sale or transfer by TPG of shares of Common Stock
unless and until TPG, after giving effect to the proposed sale or
transfer, shall have sold or transferred in the aggregate (other
than to Permitted Transferees) shares of Common Stock,
representing 7.5% of shares of Common Stock owned by TPG on the
date hereof.
(c) Piggyback Registration Rights.
(i) Notice to Stockholder. If the Company determines
that it will file a registration statement under the Securities
Act, other than a registration statement on Form S-4 or Form S-8
or any successor form, for an offering which includes shares of
Common Stock held by TPG or its affiliates (hereinafter in this
paragraph (c) of Section 4 referred to as a "Selling
Stockholder"), then the Company shall give prompt written notice
to the Stockholder that such filing is expected to be made (but
in no event less than 30 days nor more than 60 days in advance of
filing such registration statement), the jurisdiction or
jurisdictions in which such offering is expected to be made, and
the underwriter or underwriters (if any) that the Company (or the
person requesting such registration) intends to designate for
such offering. If the Company, within 15 days after giving such
notice, receives a written request for registration of any Shares
from the Stockholder, then the Company shall include in the same
registration statement the number of Shares to be sold by the
Stockholder as shall have been specified in his request, except
that the Stockholder shall not be permitted to register more than
the Pro Rata Portion plus the Excess Pro Rata portion of his
Shares. The Company shall bear all costs of preparing and filing
the registration statement, and shall indemnify and hold
harmless, to the extent customary and
4
<PAGE>
reasonable, pursuant to indemnification and contribution
provisions to be entered into by the Company at the time of
filing of the registration statement, the seller of any shares of
Common Stock covered by such registration statement.
Notwithstanding anything herein to the contrary, the
Company, on prior notice to the participating Stockholder, may
abandon its intention to file a registration statement under this
Section 4(c) at any time prior to such filing.
(ii) Allocation. If the managing underwriter shall
inform the Company in writing that the number of shares of Common
Stock requested to be included in such registration exceeds the
number which can be sold in (or during the time of) such offering
within a price range acceptable to TPG, then the Company shall
include in such registration such number of shares of Common
Stock which the Company is so advised can be sold in (or during
the time of) such offering. All holders of shares of Common Stock
proposing to sell shares of Common Stock shall share pro rata in
the number of shares of Common Stock to be excluded from such
offering, such sharing to be based on the respective numbers of
shares of Common Stock as to which registration has been
requested by such holders.
(iii) Permitted Transfer. Notwithstanding anything to
the contrary contained herein, sales of Shares pursuant to a
registration statement filed by the Company may be made without
compliance with any other provision of this Agreement.
5. Termination. This Agreement shall terminate
immediately following the existence of a Public Market for the
Common Stock except that (i) the requirements contained in
Section 2 hereof shall survive the termination of this Agreement
and (ii) the provisions contained in Section 3 hereof shall
continue with respect to each Share during such period of time,
if any, as the Stockholder is precluded from selling such Shares
pursuant to Rule 144 of the Securities Act. For this purpose, a
"Public Market" for the Common Stock shall be deemed to exist if
the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act and trading regularly occurs in such Common
Stock in, on or through the facilities of securities exchanges
and/or inter-dealer quotation systems in the United States
(within the meaning of Section 902(n) of the Securities Act) or
any designated offshore securities market (within the meaning of
Rule 902(a) of the Securities Act).
6. Distributions With Respect To Shares. As used herein,
the term "Shares" includes securities of any kind whatsoever
distributed with respect to the Common Stock acquired by the
Stockholder pursuant to the Option Plan or any such securities
resulting from a stock split or consolidation involving such
Common Stock.
7. Amendment; Assignment. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by
authorized representatives of the parties or, in the case of a
waiver, by an authorized representative of the party waiving
compliance. No such written instrument shall be effective unless
it expressly recites that it is intended to amend, supersede,
cancel, renew or extend this Agreement or to waive compliance
with one or more of the terms hereof, as the case may be. Except
for the Stockholder's right to assign his or her rights under
Section 3(a) or the
5
<PAGE>
Company's right to assign its rights under Section 3(b), no party
to this Agreement may assign any of its rights or obligations
under this Agreement without the prior written consent of the
other parties hereto.
8. Notices. All notices and other communications
hereunder shall be in writing, shall be deemed to have been given
if delivered in person or by certified mail, return receipt
requested, and shall be deemed to have been given when personally
delivered or three (3) days after mailing to the following
address:
If to the Stockholder:
If to the Company:
If to TPG:
or to such other address as any party may have
furnished to the others in writing in accordance herewith, except
that notices of change of address shall only be effective upon
receipt.
9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an
original, but each of which together shall constitute one and the
same document.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of NEW YORK,
without reference to its principles of conflicts of law.
11. Binding Effect. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the heirs,
personal representatives, successors and permitted assigns of the
parties hereto. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person
other than the parties to this Agreement, or their respective
heirs, personal representatives, successors or assigns, any legal
or equitable rights, remedy or claim under or in respect of this
Agreement or any provision contained herein.
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject
matter hereof.
13. Severability. If any term, provision, covenant or
restriction of this Agreement, is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
6
<PAGE>
14. Miscellaneous. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
* * * * * *
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the day and year first
above written.
_____________________________
[Stockholder]
J. CREW GROUP, INC.
_____________________________
By:
Title:
TPG PARTNERS II, L.P.
_____________________________
By:
Title:
8
Exhibit 16.1
Conformed Copy
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
We have read and agree with the comments under the heading
"Change in Accountants" in Item 19 of the Registration Statement
on Form S-4 of J. Crew Operating Corp. to be filed with the
Securities and Exchange Commission. on December 16, 1997.
Yours Truly,
/s/ DELOITTE & TOUCHE LLP
New York, New York
December 15, 1997
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
J. CREW OPERATING CORP.
State of Name Under Which
Name of Subsidiary Incorporation Subsidiary Does Business
- ------------------ ------------- ------------------------
J. Crew Inc. New Jersey J. Crew Inc.
Popular Club Plan, Inc. New Jersey Popular Club Plan, Inc.
Clifford & Wills, Inc. New Jersey Clifford & Wills, Inc.
Grace Holmes, Inc. Delaware (J. Crew Retail Stores?)
H.F.D. No. 55, Inc. Delaware (J. Crew Factory Outlet
Stores?)
C & W Outlet, Inc. New York C & W Outlet, Inc.
J. Crew International, Inc. Delaware J. Crew International, Inc.
J. Crew Services, Inc. Delaware J. Crew Services, Inc.
Exhibit 23.1
Conformed Copy
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of J. Crew
Operating Corp. on Form S-4 of our report on J. Crew Group, Inc.
dated March 31, 1997, appearing in the Prospectus, which is a
part of this Registration Statement, and to the reference to us
under the headings "Selected Financial Data" and "Experts" in
such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
December 15, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)__
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in this charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R.Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
-----------
J. Crew Operating Corp.
(Exact name of obligor as specified in its charter)
Delaware 22-3540930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(770 Broadway)
(New York, NY) (10003)
(10 3/8% Senior Subordinated Notes Due 2007)
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
Department of Banking and Insurance of The
Commonwealth of Massachusetts, 100 Cambridge
Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe
each such affiliation.
The obligor is not an affiliate of the trustee or
of its parent, State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement
of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee,
as now in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of
Banks of Massachusetts that no certificate of
authority for the trustee to commence business
was necessary or issued is on file with the
Securities and Exchange
2
<PAGE>
Commission as Exhibit 2 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise
corporate trusts powers, if such authorization is not
contained in the documents specified in paragraph (1) or
(2), above.
A copy of the authorization of the trustee to
exercise corporate trust powers is on file with
the Securities and Exchange Commission as Exhibit
3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of
Morse Shoe, Inc. (File No. 22-17940) and is
incorporated hereby by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in
effect, is on file with the Securities and
Exchange Commission as Exhibit 4 to the Statement
of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of
Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
5. A copy of each indenture referred to in Item 4, if the obligor
is in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section
321(b) of the Act is annexed hereto as Exhibit 6
and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and is made a part hereof.
NOTES
In answering any item of this Statement of Eligibility
which relates to matters peculiarly within the knowledge of the
obligor or any underwriter for the obligor, the trustee has
relied upon information furnished to it by the obligor and the
underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
3
<PAGE>
The answer is furnished to Item 2 of this statement
will be amended, if necessary, to reflect any facts which differ
from those stated and which would have been required to be stated
if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act
of 1939, as amended, the trustee, State Street Bank and Trust
Company, a corporation organized and existing under the laws of
The Commonwealth of Massachusetts, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 15th day of December, 1997.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Steven Cimalore
NAME: Steven Cimalore
TITLE: Vice President
4
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the
Trust Indenture Act of 1939, as amended, in connection with the
proposed issuance by J. Crew Operating Corp. of its 10 3/8%
Senior Subordinated Notes due 2007, we hereby consent that
reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Steven Cimalore
NAME: Steven Cimalore
TITLE: Vice President
Dated:
5
<PAGE>
EXHIBIT 7
Consolidated Reports of Condition of State Street Bank and Trust
Company, Massachusetts and foreign and domestic subsidiaries, a
state banking institution organized and operating under the
banking laws of this commonwealth and a member of the Federal
Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve
Bank of this District pursuant to the provisions of the Federal
Reserve Act and in accordance with a call made by the
Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
Thousands of
ASSETS Dollars
Cash and balances due from depository
institutions:
Noninterestng-bearing balances
and currency and coin .............................. 1,665,142
Interest-bearing balances .......................... 8,193,292
Securities .............................................. 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............... 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income .... 4,936,454
Allowance for loan and lease losses ......... 70,037
Allocated transfer risk reserve ............. 0
Loans and leases, net of unearned
income and allowances ............................. 4,866,147
Assets held in trading accounts ................... 957,478
Premises and fixed assets ......................... 380,117
Other real estate owned ........................... 884
Investments in unconsolidated subsidiaries......... 25,835
Customers' liability to this bank on
acceptances outstanding ........................... 45,548
Intangible assets ................................. 158,080
Other assets ...................................... 1,066,957
---------
Total assets ...................................... 33,450,737
==========
6
<PAGE>
LIABILITIES
Deposits:
In domestic offices............................. 8,270,845
Noninterest-bearing............ 6,318,360
Interest-bearing............... 1,952,485
In foreign offices and Edge subsidiary ......... 12,760,086
Noninterest-bearing............ 53,052
Interest-bearing............... 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............ 8,216,641
Demand notes issued to the U.S. Treasury and
Trading Liabilities .................................. 926,821
Other borrowed money ................................. 671,164
Subordinated notes and debentures .................... 0
Bank's liability on acceptances
executed and outstanding ............................. 46,137
Other liabilities .................................... 745,529
Total liabilities .................................... 31,637,223
----------
EQUITY CAPITAL
Perpetual preferred stock and
related surplus ...................................... 0
Common stock ......................................... 29,931
Surplus .............................................. 360,717
Undivided profits and capital reserves/Net
unrealized holding gains (losses) .................... 1,426,881
Cumulative foreign currency
translation adjustments .............................. (4,015)
Total equity capital ................................. 1,813,514
----------
Total liabilities and equity capital .............. 33,450,737
==========
7
<PAGE>
I, Rex S. Schulette, Senior Vice President and Comptroller of the
above named bank do hereby declare that this Report of Condition
has been prepared in conformance with the instructions issued by
the Board of Governors of the Federal Reserve System and is true
to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us
and to the best of our knowledge and belief has been prepared in
conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true and correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AT JANUARY 31, 1997 OF J.
CREW GROUP, INC., AS PREDECESSOR TO THE ISSUER, AND ITS
SUBSIDIARIES AT NOVEMBER 7, 1997 AND THE CONSOLIDATED STATEMENTS
OF OPERATONS FOR THE YEAR ENDED JANUARY 31, 1997 AND THE NINE
MONTH PERIOD ENDED NOVEMBER 7, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1997
<PERIOD-END> JAN-31-1997 NOV-7-1997
<CASH> 7 13
<SECURITIES> 0 0
<RECEIVABLES> 62 22
<ALLOWANCES> 4 5
<INVENTORY> 198 261
<CURRENT-ASSETS> 321 365
<PP&E> 136 172
<DEPRECIATION> 49 61
<TOTAL-ASSETS> 411 491
<CURRENT-LIABILITIES> 189 224
<BONDS> 95 220
0 0
2 0
<COMMON> 0 0
<OTHER-SE> 100 4
<TOTAL-LIABILITY-AND-EQUITY> 411 491
<SALES> 796 557
<TOTAL-REVENUES> 809 567
<CGS> 429 311
<TOTAL-COSTS> 777 564
<OTHER-EXPENSES> 0 20
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10 11
<INCOME-PRETAX> 21 (29)
<INCOME-TAX> 9 (5)
<INCOME-CONTINUING> 13 (24)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (5)
<CHANGES> 0 0
<NET-INCOME> 13 (28)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
Exhibit 99.1
------------
FORM OF LETTER OF TRANSMITTAL
J. CREW OPERATING CORP.
Offer to Exchange
Series B 10-3/8% Senior Subordinated Notes due 2007,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 10-3/8% Senior Subordinated Notes due 2007
Pursuant to the Prospectus, dated _______ __, 1998.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON ___________ __, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON __________ __, 1998.
Delivery to: State Street Bank and Trust Company, Exchange Agent
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporate Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, NY 10006
For information call:
(617) 664-5587
Delivery of this instrument to an address other than
as set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the
Prospectus, dated _______ __, 1998 (the "Prospectus"), of J. Crew
Operating Corp., a Delaware corporation (the "Issuer"), and this
Letter of Transmittal (this "Letter"), which together constitute
the offer (the "Exchange Offer") to exchange an aggregate
principal amount of up to $150,000,000 of Series B 10-3/8% Senior
Subordinated Notes due 2007 (the "New Notes") for an equal
principal amount of the outstanding Series A 10-3/8% Senior
Subordinated Notes due 2007 (the "Old Notes"). State Street Bank
and Trust Company is the exchange agent for the Exchange Offer
(the "Exchange Agent").
<PAGE>
For each Old Note accepted for exchange, the holder of
such Old Note will receive a New Note having a principal amount
at maturity equal to that of the surrendered Old Note. The New
Notes will accrue interest at 10-3/8% per annum. Interest on the New
Notes is payable on April 15 and October 15 of each year
commencing April 15, 1998.
Notwithstanding the foregoing, liquidated damages
("Liquidated Damages") shall become payable in respect of the Old
Notes as follows:
If (a) the Issuer fails to file a registration
statement with respect to the New Notes (the "Exchange Offer
Registration Statement") or a shelf registration statement
covering resales of the Old Notes (the "Shelf Registration
Statement", and, collectively, the "Registration Statements") as
required by the Registration Rights Agreement on or before the
date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Issuer fails to consummate
the Exchange Offer within 180 days after the date at which the
Old Notes were issued (the "Issue Date") as required by the
Regulation Rights Agreement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted
Securities (as defined in "The Exchange Offer -- Terms of the
Exchange Offer" section of the Prospectus) during the periods
specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration
Default"), then the Issuer will pay Liquidated Damages as
follows: to each holder of Transfer Restricted Securities, with
respect to such 90-day period immediately following the
occurrence of the first Registration Default in an amount equal
to $0.05 per week per $1,000 principal amount of Transfer
Restricted Securities held by such holder. The amount of the
Liquidated Damages will increase by an additional $0.05 per week
per $1,000 principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.25 per week per $1,000 principal amount
of Transfer Restricted Securities. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will
cease.
The Issuer and the the Issuer's subsidiaries which are
guaranteeing the Notes (the "Guarantor") reserve the right (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer
or to terminate the Exchange Offer and not permit acceptance of
Old Notes not previously accepted if any of the conditions set
forth in "The Exchange Offer-- Conditions" section of the
Prospectus shall have occurred and shall not have been waived by
the Issuer and the Guarantors, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent, or
(ii) to amend the terms of the Exchange Offer in any manner
deemed by it to be advantageous to the holders of the Old Notes.
Any such delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by oral or written
notice thereof to the Exchange Agent. If the Exchange Offer is
amended in a manner determined by the Issuer to constitute a
material change, the Issuer will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of the
Old Notes of such amendment.
This Letter is to be completed by a holder of Old
Notes either if Old Notes are to be forwarded herewith or if a
tender of Old Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The
Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer"
section of the Prospectus. Holders of Old Notes whose
certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry
tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation")
and all other documents required by this Letter to the Exchange
Agent
2
<PAGE>
on or prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the
Exchange Agent.
The undersigned has completed the appropriate boxes
below and signed this Letter to indicate the action the
undersigned desires to take with respect to the Exchange Offer.
3
<PAGE>
List below the Old Notes to which this Letter relates.
If the space provided below is inadequate, the certificate
numbers and principal amount of Old Notes should be listed on a
separate signed schedule affixed hereto.
- -------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- -------------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) of Certificate Principal Amount Principal Amount
Registered Holder(s) Number(s)* of Old Note(s) Tendered**
(Please fill in, if blank)
- -------------------------------------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Total
- -------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed
to have tendered ALL of the Old Notes represented by the Old Notes
indicated in column 2. See Instruction 2. Old Notes tendered hereby must
be in denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
- -------------------------------------------------------------------
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number Transaction Code Number
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)___________________________________
Window Ticket Number (if any)_____________________________________
Date of Execution of Notice of Guaranteed Delivery________________
Name of Institution which guaranteed delivery_____________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number________________ Transaction Code Number_________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_____________________________________________________________
Address:__________________________________________________________
__________________________________________________________________
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the
Exchange Offer, the undersigned hereby tenders to the Issuer the
aggregate principal amount of Old Notes indicated above. Subject
to, and effective upon, the acceptance for exchange of the Old
Notes tendered hereby, the undersigned hereby sells, assigns and
transfers to, or upon the order of, the Issuer all right, title
and interest in and to such Old Notes as are being tendered
hereby.
The undersigned hereby represents and warrants that
the undersigned has full power and authority to tender, sell,
assign and transfer the Old Notes tendered hereby and that the
Issuer will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by
the Issuer. The undersigned hereby further represents that any
New Notes acquired in exchange for Old Notes tendered hereby will
have been acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor
any such other person is engaged in, or intends to engage in a
distribution of such New Notes, or has an arrangement or
understanding with any person to participate in the distribution
of such New Notes, and that neither the holder of such Old Notes
nor any such other person is an "affiliate," as defined in Rule
405 under the Securities Act of 1933, as amended (the "Securities
Act"), of the Issuer.
The undersigned also acknowledges that this Exchange
Offer is being made based upon the Issuer's and the Guarantors'
understanding of an interpretation by the staff of the Securities
and Exchange Commission (the "Commission") as set forth in
no-action letters issued to third parties, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available May
13, 1988), Morgan Stanley & Co. Incorporated, SEC No-Action
Letter (available June 5, 1991) and Shearman & Sterling, SEC
No-Action Letter (available July 2, 1993), that the New Notes
issued in exchange for the Old Notes pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred
by each holder thereof (other than a broker-dealer who acquires
such New Notes directly from the Issuer for resale pursuant to
Rule 144A under the Securities Act or any other available
exemption under the Securities Act or any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no
arrangement with any person to participate in the distribution of
such New Notes. If a holder of Old Notes is engaged in or intends
to engage in a distribution of the New Notes or has any
arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such
holder may not rely on the applicable interpretations of the
staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. If the
undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes, it represents that the
Old Notes to be exchanged for the New Notes were acquired by it
as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuer to be
necessary or desirable to complete the sale, assignment and
transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every
obligation of the
5
<PAGE>
undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the
undersigned. This tender may be withdrawn only in accordance with
the procedures set forth in "The Exchange Offer--Withdrawal of
Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" below, please deliver the New
Notes (and, if applicable, substitute certificates representing
Old Notes for any Old Notes not exchanged) in the name of the
undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions"
below, please send the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the
box entitled "Description of Old Notes".
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF
OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
6
<PAGE>
- ------------------------------------ -------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
To be completed ONLY if certificates To be completed ONLY if certificates
Notes not exchanged and/or New Notes for Old Notes not exchanged and/or New
are to be issued in the name of and Notes are to be sent to someone other
sent to someone other than the than the person(s) whose signature(s)
person(s) whose signature(s) appear(s) on this Letter above or to
appear(s) on this Letter above, such person(s) at an address other than
or if Old Notes delivered by shown in the box entitled "Description
book-entry transfer which are not of Old Notes" on this letter above.
accepted for exchange are to be
returned by credit to an account
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Issue New Notes and/or Old Notes to: Mail New Notes and/or Old Notes to:
Name(s):........................... Name(s):...........................
(Please Type or Print) (Please Type or Print)
................................... ...................................
(Please Type or Print) (Please Type or Print)
Address:........................... Address:...........................
................................... ...................................
(Including Zip Code) (Including Zip Code)
(Complete accompanying Substitute
Form W-9) Credit unexchanged Old
Notes delivered by book-entry transfer
to the Book-Entry Transfer Facility
account set forth below.
- ------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
- ------------------------------------ -------------------------------------
IMPORTANT: THIS LETTER (TOGETHER WITH THE CERTIFICATES FOR OLD
NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
7
<PAGE>
- ----------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
Dated:.................................................................., 1998
- ---------------------------------------------------------------------------x
- ---------------------------------------------------------------------------x
(Signature(s) of Owner) (Date)
Area Code and Telephone Number:........................................
If a holder is tendering any Old Notes, this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on
the certificate(s) for the Old Notes or by any person(s)
authorized to become registered holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person
acting in a fiduciary or representative capacity, please set
forth full title. See Instruction 3.
Name(s):..................................................
..........................................................
(Please Type or Print)
Capacity:.................................................
Address:..................................................
..........................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:..................................
(Authorized Signature)
..........................................................
(Title)
..........................................................
(Name and Firm)
Dated:........................................................, 1998
8
<PAGE>
INSTRUCTIONS
J. Crew Operating Corp.
Forming Part of the Terms and Conditions of the Offer to
Exchange Series B 10-3/8% Senior Subordinated Notes due 2007,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 10-3/8% Senior Subordinated Notes due 2007.
1. Delivery of this Letter and Old Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by holders of Old Notes
either if certificates are to be forwarded herewith or if tenders
are to be made pursuant to the procedures for delivery by
book-entry transfer set forth in "The Exchange Offer --
Book-Entry Transfer" section of the Prospectus. Certificates for
all physically tendered Old Notes, or Book-Entry Confirmation, as
the case may be, as well as a properly completed and duly
executed Letter of Transmittal and any other documents required
by this Letter, must be received by the Exchange Agent at the
address set forth herein on or prior to the Expiration Date, or
the tendering holder must comply with the guaranteed delivery
procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any
integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes
are not immediately available or who cannot deliver their
certificates and all other required documents to the Exchange
Agent on or prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. Pursuant to such
procedures, (i) such tender must be made through an Eligible
Institution (as defined below), (ii) prior to the Expiration
Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Letter of
Transmittal and Notice of Guaranteed Delivery, substantially in
the form provided by the Issuer (by mail or hand delivery),
setting forth the name and address of the holder of Old Notes and
the amount of Old Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York
Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, or a Book-Entry Confirmation, as
the case may be, and any other documents required by this Letter
will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or Book-Entry Confirmation,
as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within three NYSE
trading days after the date of execution of the Notice of
Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes
and all other required documents is at the election and risk of
the tendering holders, but the delivery will be deemed made only
when actually received or confirmed by the Exchange Agent. If Old
Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery
to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to holders of Old
Notes who tender by book-entry transfer).
If less than all of the Old Notes evidenced by a
submitted certificate are to be tendered, the tendering holder(s)
should fill in the aggregate principal amount of Old Notes to be
tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate
representing the
9
<PAGE>
balance of nontendered Old Notes will be sent to such tendering
holder, unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. All of the Old Notes
delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
3. Signatures of this Letter; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter is signed by the registered holder of
the Old Notes tendered hereby, the signature must correspond
exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Old Notes are owned of record by two
or more joint owners, all such owners must sign this Letter.
If any tendered Old Notes are registered in different
names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter as there
are different registrations of certificates.
When this Letter is signed by the registered holder of
the Old Notes specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are
required. If, however, the New Notes are to be issued, or any
untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required.
Signatures on such certificates must be guaranteed by an Eligible
Institution.
If this Letter is signed by a person other than the
registered holder of any certificates specified herein, such
certificates must be endorsed or accompanied by appropriate bond
powers, in either case signed exactly as the name of the
registered holder appears on the certificates and the signatures
on such certificates must be guaranteed by an Eligible
Institution.
If this Letter or any certificates or bond powers are
signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Issuer, proper
evidence satisfactory to the Issuer of their authority to so act
must be submitted.
Endorsements on certificates for Old Notes or
signatures on bond powers required by this Instruction 3 must be
guaranteed by a firm which is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an
"eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by
a registered holder of Old Notes (which term, for purposes of the
Exchange Offer, includes any participant in the Book-Entry
Transfer Facility system whose name appears on a security
position listing as the holder of such Old Notes) tendered who
has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on this Letter,
or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the
applicable box the name and address to which New Notes issued
pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes
10
<PAGE>
not exchanged are to be issued or sent, if different from the
name or address of the person signing this Letter. In the case of
issuance in a different name, the employer identification or
social security number of the person named must also be
indicated. A holder of Old Notes tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer
Facility as such holder of Old Notes may designate hereon. If no
such instructions are given, such Old Notes not exchanged will be
returned to the name or address of the person signing this
Letter.
5. Tax Identification Number.
Federal income tax law generally requires that a
tendering holder whose Old Notes are accepted for exchange must
provide the Issuer (as payor) with such Holder's correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9 below,
which, in the case of a tendering holder who is an individual, is
his or her social security number. If the Issuer is not provided
with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, delivery of New Notes to
such tendering holder may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the
exchange. If withholding results in an overpayment of taxes, a
refund may be obtained.
Exempt holders of Old Notes (including, among others,
all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the
enclosed Guidelines of Certification of Taxpayer Identification
Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder
of Old Notes must provide its correct TIN by completing the
"Substitute Form W-9" set forth below, certifying that the TIN
provided is correct (or that such holder is awaiting a TIN) and
that (i) the holder is exempt from backup withholding, (ii) the
holder has not been notified by the Internal Revenue Service that
such holder is subject to a backup withholding as a result of a
failure to report all interest or dividends or (iii) the Internal
Revenue Service has notified the holder that such holder is no
longer subject to backup withholding. If the tendering holder of
Old Notes is a nonresident alien or foreign entity not subject to
backup withholding, such holder must give the Issuer a completed
Form W-8, Certificate of Foreign Status. These forms may be
obtained from the Exchange Agent. If the Old Notes are in more
than one name or are not in the name of the actual owner, such
holder should consult the W-9 Guidelines for information on which
TIN to report. If such holder does not have a TIN, such holder
should consult the W-9 Guidelines for instructions on applying
for a TIN, check the box in Part 2 of the Substitute Form W-9 and
write "applied for" in lieu of its TIN. Note: checking this box
and writing "applied for" on the form means that such holder has
already applied for a TIN or that such holder intends to apply
for one in the near future. If such holder does not provide its
TIN to the Issuer within 60 days, backup withholding will begin
and continue until such holder furnishes its TIN to the Issuer.
6. Transfer Taxes.
The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order
pursuant to the Exchange Offer. If, however, New Notes and/or
substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than
the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other
than the person signing this Letter, or if a transfer tax is
imposed for any reason other than the transfer of Old Notes to
the Issuer or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such
tendering holder.
11
<PAGE>
Except as provided in this Instruction 6, it is not necessary for
transfer tax stamps to be affixed to the Old Notes specified in
this Letter.
7. Waiver of Conditions.
The Issuer and the Guarantors reserve the absolute
right to waive satisfaction of any or all conditions enumerated
in the Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent
tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice
of the acceptance of their Old Notes for exchange.
Neither the Issuer, the Guarantors, the Exchange Agent
nor any other person is obligated to give notice of any defect or
irregularity with respect to any tender of Old Notes nor shall
any of them incur any liability for failure to give any such
notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the
address indicated above for further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as
well as requests for additional copies of the Prospectus and this
Letter, may be directed to the Exchange Agent, at the address and
telephone number indicated above.
12
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: J. CREW OPERATING CORP.
- ---------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR
Form W-9 TIN IN THE BOX AT RIGHT AND TIN:________________________
CERTIFY BY SIGNING AND DATING (Social Security Number or
BELOW. Employer Identification Number)
--------------------------------------------------------
Department of Part 2 -- TIN Applied For |_|
the Treasury
--------------------------------------------------------
Internal Revenue CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I
Service CERTIFY THAT:
(1) the number shown on this form is my correct
Taxpayer Identification Number (or I am
waiting for a number to be issued to me).
Payor's Request
for Taxpayer (2) I am not subject to backup withholding either
Identification because: (a) I am exempt from backup withholding,
Number ("TIN") or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject
to back up withholding as a result of a failure
to report all interest or and Certification
dividends, or (c) the IRS has notified me that I
am no longer subject to backup withholding
(3) any other information provided on this form is true
and correct.
SIGNATURE........................ DATE.................................
- -------------------------------------------------------------------------
You must cross out item (2) of the above certification if you
have been notified by the IRS that you are subject to
backup withholding because of underreporting of interest or
dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
- -----------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- -----------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either (a) I
have mailed or delivered an application to receive a taxpayer
identification number to the appropriate Internal Revenue Service
Center or Social Security Administration Office or (b) I intend
to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification
number by the time of the exchange, 31 percent of all reportable
payments made to me thereafter will be withheld until I provide a
number.
- ------------------------------------------------------------------------------
Signature Date
- -------------------------------------------------------------------------
13
Exhibit 99.2
------------
FORM OF NOTICE OF GUARANTEED DELIVERY FOR
J. CREW OPERATING CORP.
This form or one substantially equivalent hereto must
be used to accept the Exchange Offer of J. Crew Operating Corp.
(the "Issuer") made pursuant to the Prospectus, dated ________
__, 1997 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal") if certificates for Old
Notes are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time
will not permit all required documents to reach the Issuer prior
to 5:00 P.M., New York City time, on the Expiration Date of the
Exchange Offer. Such form may be delivered or transmitted by
facsimile transmission, mail or hand delivery to State Street
Bank and Trust Company (the "Exchange Agent") as set forth below.
In addition, in order to utilize the guaranteed delivery
procedure to tender Old Notes pursuant to the Exchange Offer, a
completed, signed and dated Letter of Transmittal (or facsimile
thereof) must also be received by the Exchange Agent prior to
5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the
Prospectus.
Delivery to: State Street Bank and Trust Company, Exchange Agent
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporate Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, NY 10006
For information call:
(617) 664-5587
Delivery of this instrument to an address other than
as set forth above, or transmission of instructions via facsimile
other than as set forth above, will not constitute a valid
delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the
Prospectus and the accompanying Letter of Transmittal, the
undersigned hereby tenders to the Issuer the principal amount of
Old Notes set forth below, pursuant to the guaranteed delivery
procedure described in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus.
<PAGE>
Principal Amount of Old Notes Tendered: Name(s) of Record Holders(s):
$______________________________________
___________________________________
Certificate Nos. (if available):
___________________________________
Address(es):
__________________________________
__________________________________
___________________________________
___________________________________
If Old Notes will be delivered by Area Code and Telephone Number(s):
book-entry transfer to The
Depositary Trust Company, provide
account number.
___________________________________
Signature(s):
Account Number_________________________
___________________________________
___________________________________
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED.
2
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm that is a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company
having an office correspondent in the United States or any
"eligible guarantor" institution within the meaning of Rule
17Ad-15 of the Securities Exchange Act of 1934, as amended,
hereby (a) guarantees to deliver to the Exchange Agent, at one
its address set forth above, the certificates representing all
tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and any other documents required
by the Letter of Transmittal within three New York Stock Exchange
trading days after the date of execution of this Notice of
Guaranteed Delivery.
Name of Firm: ____________________________ ______________________________
(Authorized Signature)
Address:__________________________________
__________________________________________
Area Code and
Telephone Number:_________________________
Title:__________________________
Name:___________________________
Date:___________________________
Exhibit 99.3
------------
FORM OF LETTER
J. CREW OPERATING CORP.
Offer to Exchange
Series B 10 3/8% Senior Subordinated Notes due 2007,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 10 3/8% Senior Subordinated Notes due 2007
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Upon and subject to the terms and conditions set forth in
the Prospectus, dated ______ __, 1998 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal"), an
offer to exchange (the "Exchange Offer") the registered Series B
10 3/8% Senior Subordinated Notes due 2007 (the "New Notes") for
any and all outstanding Series A 10 3/8% Senior Subordinated
Notes due 2007 (the "Old Notes") (CUSIP No. _____________) is
being made pursuant to such Prospectus. The Exchange Offer is
being made in order to satisfy certain obligations of J. Crew
Operating Corp. (the "Issuer") and the Issuer's non-receivables
financing subsidiaries (each a "Guarantor" and collectively, the
"Guarantors") contained in the Registration Rights Agreement,
dated as of October 17, 1997, between the Issuer, the Guarantors,
and Donaldson, Lufkin and Jenrette Securities Corporation and
Chase Securities Inc. (the "Initial Purchasers").
We are requesting that you contact your clients for
whom you hold Old Notes regarding the Exchange Offer. For your
information and for forwarding to your clients for whom you hold
Old Notes registered in your name or in the name of your nominee,
or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated _________ __, 1998;
2. The Letter of Transmittal for your use and for the
information of your clients;
3. A Notice of Guaranteed Delivery to be used to accept
the Exchange Offer if certificates for Old Notes are not
immediately available or time will not permit all required
documents to reach the Exchange Agent prior to the Expiration
Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis; and
4. A form of letter which may be sent to your clients for
whose account you hold Old Notes registered in your name or the
name of your nominee, with space provided for obtaining such
clients' instructions with regard to the Exchange Offer.
Your prompt action is requested. The Exchange Offer
will expire at 5:00 p.m., New York City time, on _____________
__, 1998 (the "Expiration Date") (30 calendar days following the
commencement of the Exchange Offer), unless extended by the
Issuer. Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
<PAGE>
To participate in the Exchange Offer, a duly executed
and properly completed Letter of Transmittal, with any required
signature guarantees and any other required documents, should be
sent to the Exchange Agent and certificates representing the Old
Notes should be delivered to the Exchange Agent, all in
accordance with the instructions set forth in the Letter of
Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is
impracticable for them to forward their certificates for Old
Notes prior to the expiration of the Exchange Offer or to comply
with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer
- - Guaranteed Delivery Procedures."
Additional copies of the enclosed material may be
obtained from the Exchange Agent, State Street Bank and Trust
Company, 61 Broadway, 15th Floor, Corporate Trust Window, New
York, NY 10006, telephone: (617) 664-5587.
J. CREW OPERATING CORP.
-------------------------
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Exhibit 99.4
------------
FORM OF LETTER
J. CREW OPERATING CORP.
Offer to Exchange
Series B 10 3/8% Senior Subordinated Notes due 2007,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 10 3/8% Senior Subordinated Notes due 2007
To Our Clients:
Enclosed for your consideration is a Prospectus of
J. Crew Operating Corp., a Delaware corporation (the "Issuer"),
dated ______ __, 1998 (the "Prospectus"), and the enclosed Letter
of Transmittal (the "Letter of Transmittal") relating to the offer
to exchange (the "Exchange Offer") of registered Series B 10 3/8%
Senior Subordinated Notes due 2007 (the "New Notes") for any and
all outstanding Series A 10 3/8% Senior Subordinated Notes due
2007 (the "Old Notes") (CUSIP No. _________), upon the terms and
subject to the conditions described in the Prospectus. The
Exchange Offer is being made in order to satisfy certain
obligations of the Issuer and the Issuer's non-receivables
financing subsidiaries (each a "Guarantor" and collectively, the
"Guarantors") contained in the Registration Rights Agreement,
dated as of October 17, 1997, between the Issuer, the Guarantors
and Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. (the "Initial Purchasers").
This material is being forwarded to you as the
beneficial owner of the Old Notes carried by us in your account
but not registered in your name. A tender of such Old Notes may
only be made by us as the holder of record and pursuant to your
instructions.
Accordingly, we request instructions as to whether you
wish us to tender on your behalf the Old Notes held by us for
your account, pursuant to the terms and conditions set forth in
the enclosed Prospectus and Letter of Transmittal. We also
request that you confirm that we may, on your behalf, make the
representations and warranties contained in the Letter of
Transmittal.
Your instructions should be forwarded to us as
promptly as possible in order to permit us to tender the Old
Notes on your behalf in accordance with the provisions of the
Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New
York City time, on ____________ __, 1998 (the "Expiration Date")
(30 calendar days following the commencement of the Exchange
Offer), unless extended by the Issuer. Any Old Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time
before 5:00 p.m., New York City time on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions
set forth in the Prospectus in the section captioned "The
Exchange Offer -- Conditions."
3. Any transfer taxes incident to the transfer of Old
Notes from the holder to the Issuer will be paid by the Issuer,
except as otherwise provided in the Instructions in the Letter of
Transmittal.
<PAGE>
4. The Exchange Offer expires at 5:00 p.m., New York
City time, on the Expiration Date unless extended by the Issuer.
If you wish to have us tender your Old Notes, please so instruct
us by completing, executing and returning to us the instruction
form set forth below. The Letter of Transmittal is furnished to
you for information only and may not be used directly by you to
tender Old Notes.
Instructions with Respect to the Exchange Offer
The undersigned acknowledge(s) receipt of your letter
enclosing the Prospectus, dated ______ __, 1998, of J. Crew
Operating Corp., a Delaware corporation, and the related specimen
Letter of Transmittal.
___________________________________________________________________________
This will instruct you to tender the number of Old Notes
indicated below held by you for the account of the undersigned,
pursuant to the terms and conditions set forth in the Prospectus
and the related Letter of Transmittal. (Check one).
__
Box 1 __ Please tender my Old Notes held by you for my
account. If I do not wish to tender all of the Old
Notes held by you for my account, I have identified on
a signed schedule attached hereto the number of Old
Notes that I do not wish tendered.
__
Box 2 __ Please do not tender any Old Notes held by you for my account.
___________________________________________________________________________
Date___________________, 1998 ___________________________________________
Signature(s)
___________________________________________
___________________________________________
Please print name(s) here
___________________________________________
Area Code and Telephone No.
Unless a specific contrary instruction is given in the
space provided, your signature(s) hereon shall constitute an
instruction to us to tender all Old Notes.
2
