As filed with the Securities and Exchange Commission
on February 6, 1998
Registration No. 333-42423
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
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: |_|
------------------
===========================================================================
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 February 6, 1998
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 __________, 1998, 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") other than Receivables Sub (as defined herein) 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 _________, 1998
(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 _________, 1998
<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.
-----------------------------
The Guarantors (which term does not include Receivables
Sub) 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."
5
<PAGE>
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
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
6
<PAGE>
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
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."
7
<PAGE>
Expiration Date.............. 5:00 p.m., New York City time, on
_________, 1998 (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
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."
8
<PAGE>
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."
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.
11
<PAGE>
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."
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
Ratio of earnings to fixed
charges................... 1.2x - - 1.1x
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
12
<PAGE>
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
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.
(7) For purposes of computing the pro forma ratios of earnings to
fixed charges, pro forma earnings include income before
income taxes (adjusted for pro forma interest expense),
extraordinary items, cumulative effect of accounting changes
and non-recurring expenses incurred in connection with the
Recapitalization of $19.9 million in the periods ended November 7,
1997, plus pro forma fixed charges. Pro forma fixed charges
consist of pro forma interest expense and one-third of rental
expense (deemed by management to be representative of the interest
factor on rental payments). Pro forma earnings were
inadequate to cover pro forma fixed charges by $16,752 and
$11,818 during the forty weeks ended November 7, 1997 and
November 8, 1996, respectively.
13
<PAGE>
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)
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 ................... $34,780 $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
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, the
debt service obligations of which could, under certain
circumstances, have material consequences to security holders of
the Issuer, including holders of New Notes. The Issuer had $267.0
million of indebtedness and its stockholders' equity was $4.5
million as of November 7, 1997, as compared to indebtedness of
$142.2 million and stockholders' equity of $89.1 million as of
November 8, 1996. 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." On a pro forma basis for the forty week
period ended November 7, 1997, the Issuer has estimated the
increase in cash interest expense from borrowings used to finance
the Recapitalization to be $7.0 million and the increase in
non-cash interest expense from the amortization of debt issuance
costs relating to such borrowings to be $1.1 million. See
"Unaudited Pro Forma Consolidated Financial Data." 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.
16
<PAGE>
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
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
17
<PAGE>
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."
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
18
<PAGE>
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 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
19
<PAGE>
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
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
20
<PAGE>
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 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
21
<PAGE>
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."
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."
24
<PAGE>
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.
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."
26
<PAGE>
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
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.
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<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
29
<PAGE>
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. 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, as of and for the forty
weeks ended November 8, 1996, for the thirty seven weeks ended
October 17, 1997, and as of and for each of the fiscal years in
the five-year period ended January 31, 1997. The following table
also sets forth selected consolidated historical financial,
operating, other and balance sheet data of the Issuer and its
subsidiaries as of November 7, 1997 and for the three weeks ended
November 7, 1997. The selected financial and balance sheet data
for each of the fiscal years in the five-year period 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 the Issuer and its
subsidiaries, 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
======= ======= ======= ======= ======= ======= =======
31
<PAGE>
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
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 - -
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). Earnings were inadequate to cover fixed
charges by $8,734 and $1,023 during the forty weeks ended
November 7, 1997 and November 8, 1996, respectively.
(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.
34
<PAGE>
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
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.
35
<PAGE>
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 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
36
<PAGE>
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.
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
37
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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.
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%.
38
<PAGE>
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 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.
39
<PAGE>
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.
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
40
<PAGE>
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 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.
41
<PAGE>
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 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 PCP Receivables
Corp. ("Receivables Sub"),
42
<PAGE>
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."
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."
Recapitalization Expenses
The recapitalization expenses of $19.9 million consisted of
management bonuses of $12.1 million, TPG financial advisory fee
of $5.6 million, legal and accounting fees of $1.0 million,
consulting fee of $1.0 million and other expenses of $0.2
million. The Company's results of operations were negatively
impacted by these recapitalization expenses. The loss before
income taxes and extraordinary item of $28.6 million for the forty
week period ended November 7, 1997 includes the $19.9 million
of non-recurring recapitalization expenses, all of which were paid
before January 31, 1998.
The Year 2000 Issue
The effect of Year 2000 issues on the Company's operations
are being addressed by the Company's Information Technology
Department. A plan has been developed which identifies the systems
and related programs which must be upgraded and a timetable has
been established for the completion of these upgrades.
This plan contemplates the use of internal programming
resources, outside consulting services, system upgrades from
existing vendors and the replacement of existing packages with
packages that are Year 2000
43
<PAGE>
compliant. The designed plan estimates that the Company will be in
compliance with Year 2000 issues by the Fall of 1999.
The estimated cost of the Year 2000 upgrade is
not expected to be material to the Company's results of
operations.
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.
44
<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.
45
<PAGE>
- 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 Durables
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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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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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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
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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 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
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<PAGE>
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.
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 provides for continuation of salary and medical
benefits for period of one year if Mr. Demattei's employment is
terminated without cause (as defined in the agreement) and
otherwise provides that Mr. DeMattei's relationship with the
Issuer and Holdings is one of employment at will.
Holdings has adopted 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 a 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.
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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 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.
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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.
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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 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, and to
make payments in circumstances where the Company has breached its
representations or covenants with respect to the Receivables
Facility. 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.
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<PAGE>
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."
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
_______ __, 1998. 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
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<PAGE>
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 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
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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 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 _________, 1998 (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
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<PAGE>
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 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,
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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 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
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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.
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
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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
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
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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 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.
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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"):
(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;
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(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;
(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.
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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 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
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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) 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.
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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
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
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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 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
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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.
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'
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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.
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
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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.
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.
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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
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
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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."
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
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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 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
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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 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
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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.
"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
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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.
"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
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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 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
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constitute Disqualified Stock solely because it may be required
to be repurchased by the Issuer in order to satisfy applicable
statutory or regulatory obligations.
"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
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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 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
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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."
"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
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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 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
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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 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.
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"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
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.
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"Restricted Subsidiary" means any Subsidiary of the Issuer
other than an Unrestricted Subsidiary.
"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
108
<PAGE>
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 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."
109
<PAGE>
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 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
110
<PAGE>
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 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.
111
<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 and the related financial
statement schedules included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent
auditors as stated in their reports appearing herein and
elsewhere in the Registration Statement, and have been so
included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
112
<PAGE>
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 February
6, 1998 is filed as Exhibit 16.1 to this Registration Statement.
113
<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 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
F-7
<PAGE>
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 relating to foreign licensing revenues. The
fair value of these contracts approximated carrying value due to
their short-term maturities.
F-8
<PAGE>
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
=========== ===========
(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.
F-9
<PAGE>
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 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.
F-10
<PAGE>
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 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.
F-11
<PAGE>
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
=========== ========== ==========
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)
============ ============
F-12
<PAGE>
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-15
<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 ..................... (19,826) (37,010)
Proceeds from construction allowances .... 4,879 8,745
------- -------
Net cash used in investing activities .... (14,947) (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
Consolidated Financial Statements of Holdings 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
Holdings, its shareholders (the "Shareholders") and TPG
Partners II, L.P. ("TPG") 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 Holdings (the "Recapitalization"). Pursuant
to the terms of the Recapitalization Agreement, Holdings
purchased from the Shareholders for an aggregate purchase price
of approximately $316,688,000 all of the outstanding shares of
Holdings' capital stock, other than a certain number of shares of
Holdings' common stock held by existing shareholders which
represented 14.8% of the outstanding shares of Holdings' common
stock immediately following consummation of the Recapitalization.
The purchase of such outstanding shares of capital stock was
financed by, among other things, (a) issuing to TPG, its
affiliates and other investors shares of common stock of Holdings
for approximately $63,891,000 and shares of preferred stock of
Holdings for $125,000,000 and (b) consummating the transactions
described below in Notes 4 and 5.
The Recapitalization Agreement was accounted for as a
recapitalization transaction for accounting purposes.
The following costs incurred in connection with the
Recapitalization have been expensed in the forty week period
ended November 7, 1997:
Management bonuses $ 12,084,000
TPG financial advisory fee 5,550,000
Legal and accounting fees 1,028,000
Consulting 1,000,000
Other 189,000
Total $ 19,851,000
=============
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 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 Agreement. 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."
F-18
<PAGE>
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 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.
6. STOCKHOLDERS' EQUITY
Stockholders' equity decreased by $97,539,000 from
$102,006,000 at January 31, 1997 to $4,467,000 at November 7,
1997. A reconciliation of this decrease is as follows:
Balance as of January 31, 1997 102,006,000
Net loss for the forty
weeks ended November 7, 1997 (28,235,000)
Dividend to parent
company (69,304,000)
-----------
Balance as of November 7, 1997 4,467,000
===========
* * * * * *
F-19
<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
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....................................................45
Management..................................................59
Certain Relationships and Related Transactions..............64
Description of Holdings Indebtedness........................65
Capital Stock of Holdings and the Issuer....................66
Description of Other Issuer Indebtedness....................68
The Exchange Offer..........................................70
Description of the New Notes................................78
Certain U.S. Federal Tax Considerations....................110
Plan of Distribution.......................................112
Legal Matters..............................................112
Experts....................................................112
Change in Accountants......................................113
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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.
II-7
<PAGE>
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, other than
Schedule II set forth below, 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.
II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
J. Crew Group, Inc.
We have audited the consolidated financial statements of J. Crew
Group, Inc. as of February 2, 1996 and January 31, 1997, and for
each of the three fiscal years in the period ended January 31,
1997, and have issued our report thereon dated March 31, 1997
(included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 21
of this Registration Statement. These financial statement
schedules are the responsibility of the Corporation's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1997
II-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Schedule II - Valuation and Qualifying Accounts
additions
-------------------------
charged to charged to
beginning cost and other ending
Description balance expenses accounts deductions balance
- ----------- ------- -------- -------- ---------- -------
Allowance for
doubtful accounts
- -----------------
(deducted from
accounts receivable)
fiscal year ended:
January 31, 1997 $4,824 $6,945 $___ $(7,412)(a) $4,357
February 2, 1996 6,518 7,277 ___ (8,971)(a) 4,824
February 3, 1995 4,681 7,956 ___ (6,119)(a) 6,518
Inventory impairment
reserve
- --------------------
(deducted from
inventories)
fiscal year ended:
January 31, 1997 $5,226 $(1,937)(b) $___ $___ $3,289
February 2, 1996 9,074 (3,848)(b) ___ ___ 5,226
February 3, 1995 9,146 (72)(b) ___ ___ 9,074
Allowance for
sales returns
- -------------
(included in other
current liabilities)
fiscal year ended:
January 31, 1997 $2,384 $22(b) $___ $___ $2,406
February 2, 1996 1,935 449(b) ___ ___ 2,384
February 3, 1995 2,365 (430)(b) ___ ___ 1,935
(a) Accounts deemed to be uncollectible.
(b) The inventory impairment reserve and allowance for sales
returns are evaluated at the end of each fiscal quarter and
adjusted (plus or minus) based on the quarterly evaluation.
During each period inventory writedowns and sales returns
are charged to the statement of operations as incurred.
</TABLE>
II-10
<PAGE>
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.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in
the information set forth in the registration
statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
II-11
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
each registrant has duly caused this Amendment No. 1 to the
registration statement to be signed on its behalf, thereunto duly
authorized, in the City of New York, State of New York, on
February 6, 1998.
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
*By: /s/ Michael P. McHugh
-----------------------------
Michael P. McHugh
Vice President Finance
S-1
<PAGE>
H.F.D. NO. 55, INC.
By: /s/ David M. DeMattei
-----------------------------
Name: David M. DeMattei*
Title: President
By: /s/ Michael P. McHugh
-----------------------------
Name: Michael P. McHugh
Title: Vice President Finance
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
- ------------
* By: /s/ Michael P. McHugh
----------------------------
Name: Michael P. McHugh
Title: Vice President Finance
S-2
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to the registration statement has been
signed by the following persons in the capacities indicated, on
February 6, 1998.
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 and Chief Executive
Officer--J. Crew Inc.
/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.
- ------------
* By: /s/ Michael P. McHugh
----------------------------
Name: Michael P. McHugh
Title: Vice President Finance
[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 and Chief Executive
Officer--J. Crew International,
Inc.; J. Crew Services, Inc.
Chief Financial Officer--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.
/s/ Nicholas Lamberti Vice President and Chief Accounting
- ----------------------- Officer--J. Crew Operating Corp.
Nicholas Lamberti* Chief Accounting Officer--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.
/s/ Matthew E. Rubel President and Chief Executive Officer
- ----------------------- --Popular Club Plan, Inc.
Matthew E. Rubel*
/s/ Trudy F. Sullivan President and Chief Executive Officer
- ----------------------- --Clifford & Wills, Inc.; C&W Outlet, Inc.
Trudy F. Sullivan*
/s/ David M. DeMattei President and Chief Executive Officer
- ----------------------- --Grace Holmes, Inc.; H.F.D. No. 55, Inc.
David M. DeMattei*
- ------------
* By: /s/ Michael P. McHugh
----------------------------
Name: Michael P. McHugh
Title: Vice President Finance
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.
- --------
+ previously filed
X-1
<PAGE>
Exhibit
No. Description
- ------- -----------
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.
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
- --------
+ previously filed
X-2
<PAGE>
Exhibit
No. Description
- ------- -----------
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
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.
- --------
+ previously filed
X-3
<PAGE>
Exhibit
No. Description
- ------- -----------
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
+ previously filed
X-4
CONFORMED COPY
====================================================================
CREDIT AGREEMENT
dated as of
October 17, 1997
among
J. CREW OPERATING CORP., as Borrower,
J. CREW GROUP, INC.,
The Lenders Party Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Syndication Agent
====================================================================
<PAGE>
[6700-529]
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Defined Terms...............................1
SECTION 1.02. Classification of Loans and Borrowings.....25
SECTION 1.03. Terms Generally............................25
SECTION 1.04. Accounting Terms; GAAP.....................25
SECTION 1.05. Interim Financial Calculations.............26
ARTICLE II
The Credits
SECTION 2.01. Commitments................................27
SECTION 2.02. Loans and Borrowings.......................27
SECTION 2.03. Requests for Borrowings....................27
SECTION 2.04. Acceptances................................28
SECTION 2.05. Letters of Credit..........................31
SECTION 2.06. Funding of Borrowings......................37
SECTION 2.07. Interest Elections.........................37
SECTION 2.08. Termination and Reduction of Commitments...39
SECTION 2.09. Repayment of Loans; Evidence of Debt.......40
SECTION 2.10. Amortization of Term Loans.................40
SECTION 2.11. Prepayment of Loans........................41
SECTION 2.12. Fees.......................................43
SECTION 2.13. Interest...................................44
SECTION 2.14. Alternate Rate of Interest.................45
SECTION 2.15. Increased Costs............................45
SECTION 2.16. Break Funding Payments.....................47
SECTION 2.17. Taxes......................................47
SECTION 2.18. Payments Generally; Pro Rata
Treatment; Sharing of Set-offs.............48
SECTION 2.19. Mitigation Obligations; Replacement
of Lenders.................................50
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers.......................51
SECTION 3.02. Authorization; Enforceability..............51
SECTION 3.03. Governmental Approvals; No Conflicts.......51
SECTION 3.04. Financial Condition; No Material
Adverse Change.............................52
i
<PAGE>
SECTION 3.05. Properties.................................52
SECTION 3.06. Litigation and Environmental Matters.......53
SECTION 3.07. Compliance with Laws and Agreements........53
SECTION 3.08. Investment and Holding Company Status......54
SECTION 3.09. Taxes......................................54
SECTION 3.10. ERISA......................................54
SECTION 3.11. Disclosure.................................54
SECTION 3.12. Subsidiaries...............................54
SECTION 3.13. Insurance..................................55
SECTION 3.14. Labor Matters..............................55
SECTION 3.15. Solvency...................................55
SECTION 3.16. Senior Indebtedness........................55
SECTION 3.17. Security Documents.........................55
SECTION 3.18. Federal Reserve Regulations................56
ARTICLE IV
Conditions
SECTION 4.01. Effective Date.............................56
SECTION 4.02. Each Credit Event..........................61
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other
Information................................61
SECTION 5.02. Notices of Material Events.................63
SECTION 5.03. Information Regarding Collateral...........64
SECTION 5.04. Existence; Conduct of Business.............64
SECTION 5.05. Payment of Obligations.....................65
SECTION 5.06. Maintenance of Properties..................65
SECTION 5.07. Insurance..................................65
SECTION 5.08. Casualty and Condemnation..................66
SECTION 5.09. Books and Records; Inspection and
Audit Rights...............................67
SECTION 5.10. Compliance with Laws.......................67
SECTION 5.11. Use of Proceeds and Letters of Credit
and Acceptances............................67
SECTION 5.12. Additional Subsidiaries....................68
SECTION 5.13. Further Assurances.........................68
SECTION 5.14. Interest Rate Protection...................68
SECTION 5.15. Change of Fiscal Year......................69
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities....69
ii
<PAGE>
SECTION 6.02. Liens......................................71
SECTION 6.03. Fundamental Changes........................72
SECTION 6.04. Investments, Loans, Advances,
Guarantees and Acquisitions................72
SECTION 6.05. Asset Sales................................74
SECTION 6.06. Hedging Agreements.........................75
SECTION 6.07. Restricted Payments; Certain
Payments of Indebtedness...................75
SECTION 6.08. Transactions with Affiliates...............77
SECTION 6.09. Restrictive Agreements.....................77
SECTION 6.10. Amendment of Material Documents............78
SECTION 6.11. Sale and Lease-Back Transactions...........78
SECTION 6.12. Capital Expenditures.......................78
SECTION 6.13. Leverage Ratio.............................79
SECTION 6.14. Interest Coverage Ratio....................79
SECTION 6.15. Net Worth..................................80
SECTION 6.16. Inventory Coverage Ratio...................80
ARTICLE VII
Events of Default
SECTION 7.01. Events of Default..........................80
SECTION 7.02. Exclusion of Immaterial Subsidiaries.......83
ARTICLE VIII
The Administrative Agent..................................83
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices....................................85
SECTION 9.02. Waivers; Amendments........................86
SECTION 9.03. Expenses; Indemnity; Damage Waiver.........87
SECTION 9.04. Successors and Assigns.....................89
SECTION 9.05. Survival...................................91
SECTION 9.06. Counterparts; Integration; Effectiveness...91
SECTION 9.07. Severability...............................92
SECTION 9.08. Right of Setoff............................92
SECTION 9.09. Governing Law; Jurisdiction; Consent
to Service of Process......................92
SECTION 9.10. WAIVER OF JURY TRIAL.......................93
SECTION 9.11. Headings...................................93
SECTION 9.12. Confidentiality............................93
SECTION 9.13. Interest Rate Limitation...................94
iii
<PAGE>
SCHEDULES:
- ----------
Schedule 1.01(a) -- Mortgaged Property
Schedule 2.01 -- Commitments
Schedule 3.05 -- Real Property
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 3.17 -- Mortgage Filing Office
Schedule 6.02 -- Existing Liens
Schedule 6.04 -- Investments
Schedule 6.09 -- Existing Restrictions
EXHIBITS:
- ---------
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Forms of Opinions of Borrower's Counsel
Exhibit C -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit D -- Form of Guarantee Agreement
Exhibit E -- Form of Pledge Agreement
Exhibit F -- Form of Security Agreement
Exhibit G -- Form of Intercreditor Agreement
iv
<PAGE>
CREDIT AGREEMENT dated as of October 17,
1997, among J. CREW OPERATING CORP., J. CREW
GROUP, INC., the LENDERS party hereto, DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, as
Syndication Agent and THE CHASE MANHATTAN BANK,
as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement,
the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising
such Borrowing, are bearing interest at a rate determined by
reference to the Alternate Base Rate.
"Acceptance" means a signed promise of the Issuing
Bank to honor an Acceptance Draft presented by the Borrower for
signature and acceptance by the Issuing Bank for subsequent
payment by the Issuing Bank in accordance with the terms of this
Agreement.
"Acceptance Disbursement" means a payment made by the
Issuing Bank pursuant to an Acceptance Draft.
"Acceptance Draft" means a draft for the payment of
money accepted or to be accepted by the Issuing Bank in
accordance with Section 2.04.
"Acceptance Obligation" means the obligation of the
Borrower to pay the face amount of any Acceptance issued by the
Issuing Bank in accordance with the terms of this Agreement on or
before the maturity date of such Acceptance.
"Acceptance Rate" means, at any time with respect to
any Acceptance Draft, the discount rate for bankers' acceptances
in a comparable amount and of comparable maturity generally
available from the Issuing Bank at such time, as determined by
the Issuing Bank in its sole discretion.
"Adjusted LIBO Rate" means, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate
per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to (a) the LIBO Rate for such Interest Period multiplied by
(b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank,
in its capacity as administrative agent for the Lenders
hereunder.
<PAGE>
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common
Control with the Person specified. Notwithstanding the foregoing,
no individual shall be deemed to be an Affiliate of a Person
solely by reason of his or her being an officer or director of
such Person.
"Alternate Base Rate" means, for any day, a rate per
annum equal to the greatest of (a) the Prime Rate in effect on
such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate shall be effective from and including the
effective date of such change in the Prime Rate, the Base CD Rate
or the Federal Funds Effective Rate, respectively.
"Alternative Currency" means any currency other than
dollars which is freely transferable and convertible into
dollars.
"Applicable Percentage" means, with respect to any
Revolving Lender, the percentage of the total Revolving
Commitments represented by such Lender's Revolving Commitment. If
the Revolving Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the
Revolving Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day with respect to
any ABR Loan, Eurodollar Loan or Acceptance, the applicable rate
per annum set forth below under the caption "ABR Spread",
"Eurodollar Spread" or "Acceptance Spread", as the case may be,
based upon the Leverage Ratio as of the most recent determination
date; provided that until the delivery of the Borrower's
financial statements pursuant to Section 5.01 for the first full
fiscal quarter commencing after the date that is six months after
the Effective Date the "Applicable Rate" shall be the applicable
rate per annum set forth below in Category 1:
======================================================================
ABR Eurodollar Acceptance
Leverage Ratio: Spread Spread Spread
- ----------------------------------------------------------------------
Category 1
----------
greater than 4.50 to 1.00 1.25% 2.25% 2.25%
- ----------------------------------------------------------------------
Category 2
----------
greater than 4.00 to 1.00 and 1.00% 2.00% 2.00%
less than or equal to 4.50 to
1.00
- ----------------------------------------------------------------------
Category 3
----------
greater than 3.50 to 1.00 and 0 .75% 1.75% 1.75%
less than or equal to 4.00 to
1.00
- ----------------------------------------------------------------------
Category 4
----------
less than or equal to 3.50 to 1.50% 1.50% 1.50%
1.00
======================================================================
For purposes of the foregoing, (i) the Leverage Ratio
shall be determined as of the end of each fiscal quarter of the
Borrower's fiscal year based upon the Borrower's consolidated
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<PAGE>
financial statements delivered pursuant to Section 5.01(a) or (b)
and (ii) each change in the Applicable Rate resulting from a
change in the Leverage Ratio shall be effective during the period
commencing on and including the date of delivery to the
Administrative Agent of such consolidated financial statements
indicating such change and ending on the date immediately
preceding the effective date of the next such change; provided
that the Leverage Ratio shall be deemed to be in Category 1 (A)
at any time that an Event of Default has occurred and is
continuing or (B) if the Borrower fails to deliver the
consolidated financial statements required to be delivered by it
pursuant to Section 5.01(a) or (b), during the period from the
expiration of the time for delivery thereof until such
consolidated financial statements are delivered.
"Assessment Rate" means, for any day, the annual
assessment rate in effect on such day that is payable by a member
of the Bank Insurance Fund classified as "well-capitalized" and
within supervisory subgroup "B" (or a comparable successor risk
classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in
dollars at the offices of such member in the United States;
provided that if, as a result of any change in any law, rule or
regulation, it is no longer possible to determine the Assessment
Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and
acceptance entered into by a Lender and an assignee (with the
consent of any party whose consent is required by Section 9.04),
and accepted by the Administrative Agent, in the form of Exhibit
A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month
Secondary CD Rate multiplied by the Statutory Reserve Rate plus
(b) the Assessment Rate.
"Board" means the Board of Governors of the Federal
Reserve System of the United States of America.
"Borrower" means J. Crew Operating Corp., a Delaware
corporation.
"Borrowing" means Loans of the same Class and Type,
made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in
effect.
"Borrowing Request" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday,
Sunday or other day on which commercial banks in New York City
are authorized or required by law to remain closed; provided that
(a) when used in connection with a Eurodollar Loan, the term
"Business Day" shall also exclude any day on which banks are not
open for dealings in dollar deposits in the London interbank
market and (b) when used in connection with any Letter of Credit
that provides for the payment of any drawing thereunder in an
Alternative Currency, or the determination of any Dollar Amount
or Equivalent Amount, the term "Business Day" means any Business
Day on
3
<PAGE>
which commercial banks are open for international business
(including dealings in dollar deposits) in London, and, where
funds are to be paid or made available in an Alternative
Currency, on which commercial banks are open for domestic and
international business (including dealings in deposits in such
Alternative Currency) in both London and the place where such
funds are paid or made available.
"C&W" means Clifford & Wills, Inc., a New Jersey
corporation.
"Capital Expenditures" means, for any period, (a) the
additions to property, plant and equipment and other capital
expenditures of the Borrower and its consolidated Subsidiaries
that are (or would be) set forth in a consolidated statement of
cash flows of the Borrower for such period prepared in accordance
with GAAP and (b) Capital Lease Obligations incurred by the
Borrower and its consolidated Subsidiaries during such period;
provided that the term "Capital Expenditures" (i) shall be net of
landlord construction allowances, (ii) shall not include
expenditures made in connection with the repair or restoration of
assets with insurance or condemnation proceeds and (iii) shall
not include the purchase price of equipment to the extent
consideration therefor consists of used or surplus equipment
being traded in at such time or the proceeds of a concurrent sale
of such used or surplus equipment, in each case in the ordinary
course of business.
"Capital Lease" means any lease (or other arrangement
conveying the right to use) real or personal property, or a
combination thereof, which lease is required to be classified and
accounted for as a capital lease on a balance sheet of such
Person under GAAP.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any
Capital Lease and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Cash Dividend" means any dividend paid in cash on any
shares of stock of any class of the Borrower or any payment made
in cash (whether or not pursuant to a prior commitment which when
made was permitted by the terms of this Agreement) on account of,
or any commitment to make any payment on account of, the
purchase, redemption or other retirement of any shares of stock
of any class of the Borrower or any other distribution made in
cash in respect thereof, either directly or indirectly. For
purposes of this definition, "stock" shall include any and all
shares, interests, participations or other equivalents (however
designated) of corporate stock.
"Cash Interest Expense" means, for any period,
Consolidated Interest Expense for such period, excluding deferred
financing costs and net of cash interest income for such period,
determined on a consolidated basis in accordance with GAAP.
"Change in Control" means, at any time, (a) the
acquisition of ownership, directly or indirectly, beneficially
and of record, by any Person other than Holdings of any shares of
capital stock of the Borrower; (b) (i) TPG Partners shall cease
to own in the aggregate, directly or indirectly, beneficially and
of record, shares representing at least 40% of the aggregate
ordinary voting power represented by the issued and outstanding
capital stock of Holdings and/or (ii) any Person or group (within
the meaning of Rule 13d-5 under the United States Securities and
4
<PAGE>
Exchange Act of 1934 as in effect on the date hereof), other than
TPG Partners, shall beneficially own, directly or indirectly,
shares of capital stock of Holdings representing more than the
percentage of the aggregate ordinary voting power represented by
the shares beneficially owned, directly or indirectly, by TPG
Partners at such time, unless, in the case of either clause (i)
or (ii), TPG Partners shall directly or indirectly, whether
through the ownership of voting securities, by contract or
otherwise, have the ability to elect a majority of the board of
directors of Holdings; (c) occupation of a majority of the seats
(other than vacant seats) on the board of directors of Holdings
by Persons who were neither (i) nominated by members of TPG
Partners or the board of directors of Holdings nor (ii) appointed
by directors so nominated; or (d) while any of the Subordinated
Debt is outstanding, a "Change of Control" (as defined in the
Subordinated Debt Documents) shall have occurred.
"Change in Law" means (a) the adoption of any law,
rule or regulation after the date of this Agreement, (b) any
change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date
of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15(b), by any lending office
of such Lender or by such Lender's or the Issuing Bank's holding
company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
"Class", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising
such Borrowing, are Revolving Loans or Term Loans and, when used
in reference to any Commitment, refers to whether such Commitment
is a Revolving Commitment or Term Commitment.
"Clean-Down Period" means the "Clean-Down Period" as
defined in Section 2.11(e).
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" means any and all "Collateral", as
defined in any applicable Security Document.
"Collateral Agent" means the "Collateral Agent", as
defined in any applicable Security Document.
"Commitment" means a Revolving Commitment or Term
Commitment, or any combination thereof (as the context requires).
"Consolidated EBITDA" means, for any period,
Consolidated Net Income for such period (adjusted to exclude
gains and losses on non-ordinary course asset sales), plus,
without duplication and to the extent deducted from revenues in
determining Consolidated Net Income, the sum of (a) the aggregate
amount of Consolidated Interest Expense for such period, (b) the
aggregate amount of letter of credit fees accrued during such
period, (c) the aggregate amount of income tax expense for such
period, (d) all amounts attributable to depreciation and
amortization for such period, (e) all extraordinary charges
during such period, (f) non cash expenses resulting from the
grant of stock options to management personnel of the Borrower or
5
<PAGE>
the Subsidiaries pursuant to a written plan or agreement, (g) the
aggregate amount of deferred financing expenses for such period,
(h) expenses related to the Transactions, (i) other non-cash
charges deducted in computing Consolidated Net Income for such
period and (j) Excluded Charges paid for such period, and minus,
without duplication and to the extent added to revenues in
determining Consolidated Net Income for such period, all
extraordinary gains during such period, all as determined on a
consolidated basis with respect to the Borrower and the
Subsidiaries in accordance with GAAP.
"Consolidated EBITDAR" means, for any period,
Consolidated EBITDA for such period, plus, without duplication,
rental expenses deducted in determining Consolidated Net Income
for such period.
"Consolidated Interest Expense" means, for any period,
the interest expense deducted in calculating Consolidated Net
Income for such period, including deferred financing costs,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, net
income or loss of the Borrower and the Subsidiaries for such
period determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Worth" means, as at any date of
determination, the consolidated stockholders' equity of the
Borrower and the Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise. "Controlling"
and "Controlled" have meanings correlative thereto.
"Control Group" means (a) Emily Woods, her spouse,
direct descendants, and their spouses, trusts solely for the
benefit of any of the foregoing individuals and any corporations
or partnerships owned solely by any of the foregoing individuals
and (b) TPG Partners.
"Default" means any event or condition which
constitutes an Event of Default or which upon notice, lapse of
time or both would, unless cured or waived, become an Event of
Default.
"Disclosed Matters" means the actions, suits and
proceedings and the environmental matters disclosed in Schedule
3.06.
"Dollar Amount" means in relation to any Letter of
Credit that provides for payment of any drawing thereunder in an
Alternative Currency, the amount determined as provided in
Section 2.05(k).
"dollars" or "$" refers to lawful money of the United
States of America.
6
<PAGE>
"Effective Date" means the date on which the
conditions specified in Section 4.01 are satisfied (or waived in
accordance with Section 9.02).
"Effective Date Dividend" means a dividend by the
Borrower to Holdings on the Effective Date in an aggregate amount
of $68,429,749.
"Eligibility Certificate" means any legend stamped on
an Acceptance Draft by the Issuing Bank that sets forth the
character of the transaction giving rise to such Acceptance
Draft, and, in so doing, establishes that the related Acceptance
is eligible for discount by a Federal Reserve Bank pursuant to
Regulation A.
"Environmental Laws" means all laws, rules,
regulations, codes, ordinances, orders, decrees, judgments,
injunctions, notices or binding agreements issued, promulgated or
entered into by or with any Governmental Authority, relating in
any way to the environment, preservation or reclamation of
natural resources, or to worker health and safety matters.
"Environmental Liability" means any liability,
contingent or otherwise (including any liability for damages,
costs of environmental remediation, fines, penalties or
indemnities and reasonable attorneys' fees and costs), of
Holdings, the Borrower or any Subsidiary directly or indirectly
resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to
any Hazardous Materials, (d) the release or threatened release of
any Hazardous Materials into the environment or (e) any contract,
agreement or other consensual arrangement pursuant to which
liability is assumed or imposed with respect to any of the
foregoing.
"Equity Financing" means the contribution by the
Initial Investors to Holdings of an aggregate amount of not less
than $66,000,000 in exchange for the issuance by Holdings to the
Initial Investors of shares of common stock of Holdings.
"Equivalent Amount" means in connection with the
determination of the amount of a LC Disbursement to be made in an
Alternative Currency in relation to the Dollar Amount of such LC
Disbursement, the amount of such Alternative Currency converted
from such Dollar Amount at the spot buying rate of the Issuing
Bank (based on the London interbank market rate then prevailing)
for dollars against such Alternative Currency as of approximately
9:00 a.m. (New York City time) three Business Days before such
date.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether
or not incorporated) that, together with the Borrower, is treated
as a single employer under Section 414(b) or (c) of the Code or,
solely for purposes of Section 302 of ERISA and Section 412 of
the Code, is treated as a single employer under Section 414 of
the Code.
"ERISA Event" means (a) any "reportable event", as
defined in Section 4043 of ERISA or the regulations issued
thereunder with respect to a Plan (other than an event for which
7
<PAGE>
the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a
waiver of the minimum funding standard with respect to any Plan;
(d) the incurrence by the Borrower or any of its ERISA Affiliates
of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any
ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or
to appoint a trustee to administer any Plan under Section 4042 of
ERISA; (f) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability with respect to the withdrawal or
partial withdrawal from any Plan or Multiemployer Plan; or (g)
the receipt by the Borrower or any ERISA Affiliate of any notice,
or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within
the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising
such Borrowing, are bearing interest at a rate determined by
reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such
term in Article VII.
"Excess Cash Flow" means, for any period, the sum
(without duplication) of:
(a) the Consolidated Net Income of the Borrower and
its consolidated Subsidiaries for such period, adjusted to
exclude any gains or losses attributable to Prepayment
Events; plus
(b) depreciation, amortization and other non-cash
charges or losses deducted in determining such Consolidated
Net Income for such period; plus
(c) the sum of (i) the amount, if any, by which Net
Working Capital decreased during such period plus (ii) the
amount, if any, by which the consolidated deferred revenues
of the Borrower and its consolidated Subsidiaries increased
during such period plus (iii) the aggregate principal
amount of Capital Lease Obligations and other Indebtedness
incurred during such period to finance Capital
Expenditures, to the extent that mandatory principal
payments in respect of such Indebtedness would not be
excluded from clause (f) below when made, plus (iv) the
amount of the excess, if any, of tax expense deducted in
determining Consolidated Net Income for such period over
cash taxes paid for such period; minus
(d) the sum of (i) any noncash gains included in
determining such Consolidated Net Income for such period
plus (ii) the amount, if any, by which Net Working Capital
increased during such period plus (iii) the amount, if any,
by which the consolidated deferred revenues of the Borrower
and its consolidated Subsidiaries decreased during such
period plus (iv) the amount of excess, if any, of cash
taxes paid for such period over tax expense deducted in
determining Consolidated Net Income for such period; minus
8
<PAGE>
(e) Capital Expenditures for such period; minus
(f) the aggregate principal amount of Indebtedness
repaid or prepaid by the Borrower and its consolidated
Subsidiaries during such period, excluding (i) Indebtedness
in respect of Revolving Loans and Letters of Credit and
Acceptances, (ii) Term Loans prepaid pursuant to Section
2.11(b) or (d), (iii) repayments or prepayments of
Indebtedness financed by incurring other Indebtedness, to
the extent that mandatory principal payments in respect of
such other Indebtedness would not be excluded from this
clause (f) when made and (iv) Indebtedness referred to in
clauses (iv), (viii) and (ix) of Section 6.01(a); minus
(g) the aggregate amount of all prepayments of
Revolving Loans made during such period to the extent
accompanying reductions of the total Revolving Commitments;
minus
(h) payments by the Borrower and the Subsidiaries
during such period in respect of long-term liabilities of
the Borrower and the Subsidiaries other than (i)
Indebtedness and (ii) liabilities representing amounts
deducted in determining Consolidated Net Income for any
period subsequent to the Effective Date; minus
(i) the amount of dividends paid by the Borrower
during such period pursuant to Section 6.07.
"Excluded Charges" means non-recurring charges not
exceeding $8,000,000 in the aggregate for severance payments,
professional advisory fees, management bonuses for 1997, and
one-time payments in respect of the employment arrangements of
Emily Woods and David DeMattei.
"Excluded Taxes" means, with respect to the
Administrative Agent, any Lender, the Issuing Bank or any other
recipient of any payment to be made by or on account of any
obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United
States of America, or by the jurisdiction under the laws of which
such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable
lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any
other jurisdiction in which the Borrower is located and (c) in
the case of a Foreign Lender, any withholding tax that is imposed
on amounts payable to such Foreign Lender (other than an assignee
pursuant to a request by the Borrower under Section 2.19(b)) at
the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.17(e), except
to the extent that such Foreign Lender (or its assignor, if any)
was entitled, at the time of designation of a new lending office
(or assignment), to receive additional amounts from the Borrower
with respect to such withholding tax pursuant to Section 2.17.
"Existing Credit Agreement" means the $200,000,000
Credit Agreement dated as of April 18, 1997, as amended and in
effect on the Effective Date, among Holdings, the several
9
<PAGE>
banks and financial institutions from time to time party thereto
and Morgan Guaranty Trust Company, as Agent.
"Existing Letters of Credit" means all letters of
credit issued by The Chase Manhattan Bank under the Existing
Credit Agreement that are outstanding as of the Effective Date.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next
1/100 of 1%) of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day
by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the
quotations for such day for such transactions received by the
Administrative Agent from three Federal funds brokers of
recognized standing selected by it.
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the
Borrower.
"Financing Transactions" means (a) the execution,
delivery and performance by each Loan Party of the Loan Documents
to which it is to be a party, the borrowing of Loans, the use of
the proceeds thereof and the issuance of Letters of Credit and
Acceptances hereunder, (b) the execution, delivery and
performance by each Loan Party of the Subordinated Debt Documents
to which it is to be a party, the issuance of the Subordinated
Debt and the use of the proceeds thereof, (c) the Equity
Financing, (d) the issuance of the Holdings Senior Discount
Debentures, (e) the issuance of the Holdings Preferred Stock and
(f) the Qualified Receivables Transaction.
"Foreign Lender" means any Lender that is organized
under the laws of a jurisdiction other than that in which the
Borrower is located. For purposes of this definition, the United
States of America, each State thereof and the District of
Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is
organized under the laws of a jurisdiction other than the United
States of America or any State thereof or the District of
Columbia.
"Funded Debt" means, as of any date, the sum of (a)
the aggregate principal amount of all indebtedness (other than
Revolving Loans) outstanding as of such date that would appear as
indebtedness on a consolidated balance sheet of the Borrower
prepared as of such date in accordance with GAAP, plus (b) the
aggregate principal amount of all indebtedness outstanding as of
such date of Persons other than the Borrower and its consolidated
Subsidiaries that would appear as indebtedness on a consolidated
balance sheet of such Persons prepared as of such date in
accordance with GAAP, to the extent Guaranteed by any of the
Borrower and its Subsidiaries, plus (c) the average daily
outstanding principal amount of Revolving Loans during the period
of four consecutive fiscal quarters of the Borrower most recently
ended as of such date, minus (d) the average daily amount of the
Borrower's cash balances during such period.
10
<PAGE>
"GAAP" means generally accepted accounting principles
in the United States of America.
"Governmental Authority" means the government of the
United States of America, any other nation or any political
subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor")
means any obligation, contingent or otherwise, of the guarantor
guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
and including any obligation of the guarantor, direct or
indirect, (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation
or to purchase (or to advance or supply funds for the purchase
of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of
assuring the owner of such Indebtedness or other obligation of
the payment thereof, (c) to maintain working capital, equity
capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay
such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued
to support such Indebtedness or obligation; provided, that the
term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement,
substantially in the form of Exhibit D, made by Holdings and the
Subsidiary Loan Parties in favor of the Administrative Agent for
the benefit of the Secured Parties.
"Hazardous Materials" means all explosive or
radioactive substances or wastes, all hazardous or toxic
substances, wastes, pollutants or contaminants, including
petroleum or petroleum distillates, asbestos or
asbestos-containing materials, polychlorinated biphenyls ("PCBs")
and PCB-containing materials, radon gas, infectious or medical
wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price
protection agreement or other interest or currency exchange rate
or commodity price hedging arrangement.
"Holdings" means J. Crew Group, Inc., a New York
corporation.
"Holdings Preferred Stock" means (a) Holdings' 14.50%
Series A Preferred Stock and (b) Holdings' 14.50% payment-in-kind
Series B Redeemable Cumulative Preferred Stock.
"Holdings Senior Discount Debentures" means (i) up to
$142,000,000 principal amount at final maturity of 13 % Senior
Discount Debentures due 2008 of Holdings issued pursuant to the
Holdings Senior Discount Debt Documents and (ii) debentures
issued in exchange for such Holdings Senior Discount Debentures
in an equivalent aggregate principal
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amount and having terms and conditions substantially identical to
those of such Holdings Senior Discount Debentures, pursuant to a
registered exchange offer.
"Holdings Senior Discount Debt Documents" means the
indenture under which the Holdings Senior Discount Debentures are
issued and all other instruments, agreements and other documents
evidencing or governing the Holdings Senior Discount Debentures
or providing for any Guarantee or other right in respect thereof.
"Inactive Subsidiary" means any subsidiary, direct or
indirect, that (a) has total assets not in excess of $50,000, (b)
conducts no business and (c) has no Indebtedness; provided that
if more than one subsidiary is deemed an Inactive Subsidiary
pursuant to this definition, all Inactive Subsidiaries shall be
considered to be a single consolidated subsidiary for purposes of
determining whether the conditions specified above are satisfied.
"Indebtedness" of any Person means, without
duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d)
all obligations of such Person under conditional sale or other
title retention agreements relating to property acquired by such
Person, (e) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding
current accounts payable incurred in the ordinary course of
business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such
Person of Indebtedness of others, (h) all Capital Lease
Obligations of such Person, (i) all obligations, contingent or
otherwise, of such Person as an account party in respect of
letters of credit and letters of guaranty and (j) all
obligations, contingent or otherwise, of such Person in respect
of bankers' acceptances. The Indebtedness of any Person shall
include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness
provide that such Person is not liable therefor. Indebtedness
shall not include agreements providing for indemnification,
purchase price adjustments or similar obligations incurred or
assumed in connection with the acquisition or disposition of
assets or stock.
"Indemnified Taxes" means Taxes other than Excluded
Taxes.
"Indemnity, Subrogation and Contribution Agreement"
means the Indemnity, Subrogation and Contribution Agreement,
substantially in the form of Exhibit C, among the Borrower,
Holdings, the Subsidiary Loan Parties and the Administrative
Agent.
"Information Memorandum" means the Confidential
Information Memorandum dated September 17, 1997, relating to
Holdings, the Borrower and the Transactions, as the same has been
supplemented from time to time.
"Initial Investors" means TPG Partners and certain
investors arranged by TPG Partners.
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"Intercreditor Agreement" means the Intercreditor
Agreement, substantially in the form of Exhibit G, among the
Receivables Trustee and the Collateral Agent.
"Interest Election Request" means a request by the
Borrower to convert or continue a Revolving Borrowing or Term
Borrowing in accordance with Section 2.07.
"Interest Payment Date" means (a) with respect to any
ABR Loan, the last day of each January, April, July and October
and (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is
a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such
Interest Period.
"Interest Period" means, with respect to any
Eurodollar Borrowing, the period commencing on the date of such
Borrowing and ending on the numerically corresponding day in the
calendar month that is one, two, three or six months thereafter,
as the Borrower may elect; provided, that (a) if any Interest
Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business
Day unless such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end
on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in
the last calendar month of such Interest Period) shall end on the
last Business Day of the last calendar month of such Interest
Period. For purposes hereof, the date of a Borrowing initially
shall be the date on which such Borrowing is made and thereafter
shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Inventory" means all goods owned by the Borrower and
its Subsidiaries and held for sale or as raw materials, work in
process (wherever located, including items in transit or in the
possession of third parties).
"Issuing Bank" means (a) The Chase Manhattan Bank, in
its capacity as the issuer of Letters of Credit and Acceptances
hereunder, and its successors in such capacity as provided in
Section 2.05(i) and (b) any other Lender approved by the
Administrative Agent and the Borrower; provided that, at any
time, there shall only be two Issuing Banks. The Issuing Bank
may, in its discretion, arrange for one or more Letters of Credit
or Acceptances to be issued by Affiliates of the Issuing Bank, in
which case the term "Issuing Bank" shall include any such
Affiliate with respect to Letters of Credit and Acceptances
issued by such Affiliate.
"LC Disbursement" means a payment made by the Issuing
Bank pursuant to a Letter of Credit.
"LC and Acceptance Exposure" means, at any time, the
sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit and the aggregate face amount of all
outstanding Acceptance Drafts at such time plus (b) the aggregate
amount of all LC Disbursements and Acceptance Disbursements that
have not yet been reimbursed by or on behalf of the Borrower at
such time. The LC and Acceptance Exposure shall be expressed in
dollars, determined as provided in Section 2.05(k) in the case of
any amount thereof denominated in an
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Alternate Currency. The LC and Acceptance Exposure of any
Revolving Lender at any time shall be its Applicable Percentage
of the total LC and Acceptance Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01
and any other Person that shall have become a party hereto
pursuant to an Assignment and Acceptance, other than any such
Person that ceases to be a party hereto pursuant to an Assignment
and Acceptance.
"Letter of Credit" means any letter of credit
(including, without limitation, any Standby LC) issued pursuant
to this Agreement. Each Existing Letter of Credit will be deemed
to constitute a Letter of Credit for all purposes under the Loan
documents as though each Existing Letter of Credit had been
issued hereunder on the Effective Date.
"Leverage Ratio" means, on any date and subject to
Section 1.05, the ratio of (a) Funded Debt as of such date to (b)
Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Borrower most recently ended as of such date (or,
if such date is not the last day of a fiscal quarter, then most
recently ended prior to such date), all determined on a
consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, the rate appearing on Page
3750 of the Telerate Service (or on any successor or substitute
page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently
provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing
quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity
comparable to such Interest Period. In the event that such rate
is not available at such time for any reason, then the "LIBO
Rate" with respect to such Eurodollar Borrowing for such Interest
Period shall be the rate at which dollar deposits of $5,000,000
and for a maturity comparable to such Interest Period are offered
by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to
the commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any
mortgage, deed of trust, lien, pledge, hypothecation,
encumbrance, charge or security interest in, on or of such asset,
(b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the
case of securities, any purchase option, call or similar right of
a third party with respect to such securities.
"Loan Documents" means this Agreement, the promissory
notes, if any, executed and delivered pursuant to Section
2.09(e), the Guarantee Agreement, the Indemnity, Subrogation and
Contribution Agreement and the Security Documents.
"Loan Parties" means Holdings, the Borrower and the
Subsidiary Loan Parties.
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"Loans" means the loans made by the Lenders to the
Borrower pursuant to this Agreement.
"Margin Stock" shall have the meaning assigned to such
term under Regulation U.
"Material Adverse Effect" means a material adverse
effect on (a) the business, assets, operations, prospects or
condition, financial or otherwise, of Holdings, the Borrower and
the Subsidiaries taken as a whole, (b) the ability of the Loan
Parties to perform their obligations under the Loan Documents or
(c) any material rights of or benefits available to the Lenders
under the Loan Documents.
"Material Indebtedness" means Indebtedness (other than
the Loans, Letters of Credit and Acceptances), or obligations in
respect of one or more Hedging Agreements, of any one or more of
Holdings, the Borrower and its Subsidiaries in an aggregate
principal amount exceeding $5,000,000. For purposes of
determining Material Indebtedness, the "principal amount" of the
obligations of Holdings, the Borrower or any Subsidiary in
respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that
Holdings, the Borrower or such Subsidiary would be required to
pay if such Hedging Agreement were terminated at such time.
"Maturity Date" means October 17, 2003.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment
of leases and rents, leasehold mortgage or other security
document granting a Lien on any Mortgaged Property to secure the
Obligations. Each Mortgage shall be satisfactory in form and
substance to the Collateral Agent.
"Mortgaged Property" means, initially, each parcel of
real property and the improvements thereto owned by a Loan Party
and identified on Schedule 1.01(a), and includes each other
parcel of real property and improvements thereto with respect to
which a Mortgage is granted pursuant to Section 5.12 or 5.13.
"Multiemployer Plan" means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event (a)
the gross cash proceeds received in respect of such event
including (i) any cash received in respect of any noncash
proceeds, but only as and when received, (ii) in the case of a
casualty, insurance proceeds in excess of $250,000, and (iii) in
the case of a condemnation or similar event, condemnation awards
and similar payments, net of (b) the sum of (i) all reasonable
fees and out-of-pocket expenses (including underwriting discounts
and commissions and collection expenses) paid or payable by
Holdings, the Borrower and the Subsidiaries to third parties
(other than Affiliates) in connection with such event, (ii) in
the case of a sale, transfer or other disposition of an asset
(including pursuant to a sale and leaseback transaction or a
casualty or condemnation or similar
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<PAGE>
proceeding), the amount of all payments required to be made by
Holdings, the Borrower and the Subsidiaries as a result of such
event to repay Indebtedness (other than Loans) secured by such
asset or otherwise subject to mandatory prepayment as a result of
such event, and (iii) the amount of all taxes paid or payable) by
Holdings, the Borrower and the Subsidiaries, and the amount of
any reserves established by Holdings, the Borrower and the
Subsidiaries to fund contingent liabilities reasonably estimated
to be payable, in each case during the year that such event
occurred or the next succeeding year and that are directly
attributable to such event (as determined reasonably and in good
faith by the chief financial officer of the Borrower).
"Net Working Capital" means, at any date, (a) the
consolidated current assets of the Borrower and its consolidated
Subsidiaries as of such date (excluding cash and Permitted
Investments) minus (b) the consolidated current liabilities of
the Borrower and its consolidated Subsidiaries as of such date
(excluding Indebtedness). Net Working Capital at any date may be
a positive or negative number. Net Working Capital increases when
it becomes more positive or less negative and decreases when it
becomes less positive or more negative.
"Obligations" has the meaning assigned to such term in
the Security Agreement.
"Operating Lease" means any lease (including leases
that may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) that is not a Capital Lease.
"Other Taxes" means any and all current or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made under any
Loan Document or from the execution, delivery or enforcement of,
or otherwise with respect to, any Loan Document.
"Outstanding Senior Notes" means the $85,000,000 of
8.1% Senior Notes of Holdings due December 15, 2004.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA and any successor entity
performing similar functions.
"Perfection Certificate" means a certificate in the
form of Annex 1 to the Security Agreement or any other form
approved by the Collateral Agent.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes, assessments and
governmental charges or claims that are not yet due or are
being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics',
materialmen's, repairmen's and other like Liens imposed by
law, arising in the ordinary course of business and
securing obligations that are not overdue by more than 30
days or are being contested in compliance with Section
5.05;
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(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation,
unemployment insurance and other social security laws or
regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal
bonds, customs bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary
course of business;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, rights-of-way and
similar encumbrances on real property imposed by law or
arising in the ordinary course of business, and minor
defects or irregularities in title that do not secure any
monetary obligations and do not materially detract from the
value of the affected property or interfere in any material
respect with the ordinary conduct of business of the
Borrower or any Subsidiary;
(g) ground leases in respect of real property on which
facilities owned or leased by the Borrower or any of its
Subsidiaries are located;
(h) any interest or title of a lessor under any lease
permitted by this Agreement;
(i) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; and
(j) leases or subleases granted to others not interfering
in any material respect with the business of the Borrower and
its Subsidiaries, taken as a whole;
provided that the term "Permitted Encumbrances" shall not include
any Lien securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the
principal of and interest on which are unconditionally
guaranteed by, the United States of America (or by any
agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America),
in each case maturing within one year from the date of
acquisition thereof;
(b) investments in commercial paper maturing within
one year from the date of acquisition thereof and having,
at such date of acquisition, one of the two highest credit
ratings obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within one year from
the date of acquisition thereof issued or guaranteed by or
placed with, and money market deposit accounts issued or
offered by, any Lender or any other bank organized under
the laws of the United States of America
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or any State thereof which has a combined capital and
surplus and undivided profits of not less than $250,000,000
or any domestic office of a foreign bank which has a
combined capital and surplus and undivided profits of not
less than $250,000,000; and
(d) fully collateralized repurchase agreements with a
term of not more than 30 days for securities described in
clauses (a) and (b) above and entered into with a financial
institution satisfying the criteria described in clause (c)
above;
(e) securities issued by any state of the United
States of America or any political subdivision of any such
state or any public instrumentality thereof or any
political subdivision of any such state or any public
instrumentality thereof having maturities of not more than
one year from the date of acquisition thereof and, at the
time of acquisition, having an investment grade rating
generally obtainable from either S&P or Moody's (or, if at
any time neither S&P nor Moody's shall be rating such
obligations, then from another nationally recognized rating
service); and
(f) shares of investment companies that are registered
under the Investment Company Act of 1940 and invest solely
in one or more of the types of securities described in
clauses (a) through (e) above.
"Person" means any natural person, corporation,
limited liability company, trust, joint venture, association,
company, partnership, Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV
of ERISA or Section 412 of the Code or Section 302 of ERISA, and
in respect of which the Borrower or any ERISA Affiliate is (or,
if such plan were terminated, would under Section 4069 of ERISA
be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" means the Pledge Agreement,
substantially in the form of Exhibit E, among the Loan Parties
and the Collateral Agent for the benefit of the Secured Parties.
"Popular Club" means Popular Club Plan, Inc., a New
Jersey corporation and wholly owned subsidiary of the Borrower.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including
pursuant to a sale and leaseback transaction) of any
property or asset of Holdings, the Borrower or any
Subsidiary in excess of $100,000, other than dispositions
described in clauses (a), (b) and (e) of Section 6.05; or
(b) any casualty or other insured damage to, or any
taking under power of eminent domain or by condemnation or
similar proceeding of, any property or asset of Holdings,
the Borrower or any Subsidiary, but only to the extent that
the Net Proceeds therefrom have not been applied to repair,
restore or replace such property or asset within 180 days
after such event; or
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(c) the issuance by Holdings, the Borrower or any
Subsidiary of any equity securities, or the receipt by
Holdings, the Borrower or any Subsidiary of any capital
contribution, other than any such issuance of equity
securities to, or receipt of any such capital contribution
from, Holdings, the Borrower or a Subsidiary; or
(d) the incurrence by Holdings, the Borrower or any
Subsidiary of any Indebtedness, other than Indebtedness
permitted under Section 6.01;
provided that, (i) with respect to any event described in clause
(a) above, if Holdings shall deliver a certificate of a Financial
Officer to the Administrative Agent at the time of such event
setting forth the Borrower's or a Subsidiary's intent to use the
Net Proceeds of such event to acquire other assets to be used in
the same line of business within 180 days of receipt of such Net
Proceeds and certifying that no Default has occurred and is
continuing, such event shall not constitute a Prepayment Event
except to the extent the Net Proceeds therefrom are not so used
at the end of such 180-day period, at which time such event shall
be deemed a Prepayment Event with Net Proceeds equal to the Net
Proceeds so remaining unused, (ii) with respect to clause (c)
above and the issuances of new preferred stock of Holdings or the
issuances of common stock of Holdings in a Rule 144A or other
private placement, if Holdings shall deliver a certificate of a
Financial Officer to the Administrative Agent at the time of such
issuance setting forth Holdings intent to use the Net Proceeds of
such issuance to redeem outstanding Holdings Preferred Stock
within 90 days of receipt of such Net Proceeds and certifying
that (A) no Default has occurred and is continuing and (B) the
terms of the new preferred stock are no less favorable to the
Lenders than the outstanding Holdings Preferred Stock, the Net
Proceeds from such event shall not be deemed Net Proceeds of a
Prepayment Event except to the extent such Net Proceeds therefrom
are not so used at the end of such 90-day period, at which time
such unused Net Proceeds shall be deemed Net Proceeds of a
Prepayment Event equal to the Net Proceeds so remaining unused
and (iii) with respect to clause (c) above and the issuance of
equity to a member of the Control Group, if Holdings shall
deliver a certificate of a Financial Officer to the
Administrative Agent at the time of such issuance setting forth
Holdings' intent to use up to $20,000,000 of the Net Proceeds of
such equity for investments permitted by Section 6.04(c) within
90 days of receipt of such Net Proceeds and certifying that no
Default has occurred and is continuing, the Net Proceeds from
such event shall not be deemed Net Proceeds of a Prepayment Event
except to the extent such Net Proceeds therefrom are not so used
at the end of such 90-day period, at which time such unused Net
Proceeds shall be deemed Net Proceeds of a Prepayment Event.
"Prime Rate" means the rate of interest per annum
publicly announced from time to time by The Chase Manhattan Bank
as its prime rate in effect at its principal office in New York
City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being
effective.
"Purchase Money Note" means a promissory note
evidencing a line of credit, or evidencing other Indebtedness
owed to the Borrower or any 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 the
Receivables Transaction Documents, amounts paid to investors in
respect of interest, principal
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and other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"Qualified Receivables Transaction" means any
transaction or series of transactions that may be entered into by
the Borrower or any Subsidiary pursuant to which the Borrower or
any Subsidiary may sell, convey or otherwise transfer to (i) a
Receivables Subsidiary (in the case of a transfer by the Borrower
or any Subsidiary) and (ii) 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 Borrower or any 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.
"Recapitalization" means the recapitalization of
Holdings pursuant to, and in accordance with the terms of, the
Recapitalization Documents, including (a) the transfer by
Holdings of all its assets to the Borrower, (b) the assumption by
the Borrower of all liabilities of Holdings and (c) the issuance
by the Borrower of all its common stock to Holdings.
"Recapitalization Agreement" means the
Recapitalization Agreement dated as of July 22, 1997, between
Holdings and TPG Partners, as amended.
"Recapitalization Documents" means the
Recapitalization Agreement and all other agreements and documents
relating to the transactions contemplated thereby.
"Receivables Pooling Agreement" means the Pooling
Agreement relating to a Qualified Receivables Transaction, among
the Receivables Subsidiary and the Receivables Trustee.
"Receivables Subsidiary" means a wholly owned
Subsidiary 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 Borrower (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 Borrower or any other
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 Borrower or any other Subsidiary in any way other than
pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Borrower or any other
Subsidiary, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings, (b) with which neither the Borrower
nor any other 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 Borrower or such other
Subsidiary than those that might be obtained at the time from
persons that are not Affiliates of the Borrower, other than fees
payable in the ordinary course of business in connection with
servicing accounts receivable, and (c) to which neither the
Borrower nor any other Subsidiary has any obligation to maintain
or preserve such entity's financial condition or
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cause such entity to achieve certain levels of operating results.
Any such designation by the board of directors of the Borrower
shall be evidenced by filing with the Receivables Trustee a
certified copy of the resolution of the board of directors of the
Borrower 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 Documents" means the
documents executed in connection with a Qualified Receivables
Transaction, including the Receivables Pooling Agreement.
"Receivables Trustee" means the trustee on behalf of
the holders of interests in the receivables and related assets
sold pursuant to a Qualified Receivables Transaction.
"Register" has the meaning set forth in Section 9.04.
"Regulation A" means Regulation A of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation G" means Regulation G of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as from
time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Related Parties" means, with respect to any specified
Person, such Person's Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such
Person's Affiliates.
"Release" means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, disposing, depositing, emanating or migrating
of any Hazardous Material in, into, onto or through the
environment.
"Required Lenders" means, at any time, Lenders having
Revolving Exposures, Term Loans and unused Commitments
representing more than 50% of the sum of the total Revolving
Exposures, outstanding Term Loans and unused Commitments at such
time.
"Restricted Payment" means any dividend or other
distribution (whether in cash, securities or other property) with
respect to any shares of any class of capital stock of Holdings,
the Borrower or any Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any such
shares of capital stock of Holdings, the Borrower or any
Subsidiary or any option, warrant or other right to acquire any
such shares of capital stock of Holdings, the Borrower or any
Subsidiary.
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"Revolving Availability Period" means the period from
and including the Effective Date to but excluding the earlier of
the Maturity Date and the date of termination of the Revolving
Commitments.
"Revolving Commitment" means, with respect to each
Lender, the commitment, if any, of such Lender to make Revolving
Loans and to acquire participations in Letters of Credit and
Acceptances hereunder, expressed as an amount representing the
maximum aggregate amount of such Lender's Revolving Exposure
hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.08 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04. The initial amount of each Lender's
Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall
have assumed its Revolving Commitment, as applicable. The initial
aggregate amount of the Lenders' Revolving Commitments is
$200,000,000.
"Revolving Exposure" means, with respect to any Lender
at any time, the sum of (a) the outstanding principal amount of
such Lender's Revolving Loans and (b) its LC and Acceptance
Exposure at such time.
"Revolving Lender" means a Lender with a Revolving
Commitment or, if the Revolving Commitments have terminated or
expired, a Lender with Revolving Exposure.
"Revolving Loan" means a Loan made pursuant to clause
(b) of Section 2.01.
"S&P" means Standard & Poor's.
"Secured Parties" has the meaning assigned to such
term in the Security Agreement.
"Security Agreement" means the Security Agreement,
substantially in the form of Exhibit F, among the Borrower, the
Subsidiary Loan Parties and the Collateral Agent for the benefit
of the Secured Parties.
"Security Documents" means the Security Agreement, the
Pledge Agreement, the Intercreditor Agreement, the Mortgages and
each other security agreement or other instrument or document
executed and delivered pursuant to Section 5.12 or 5.13 to secure
any of the Obligations.
"Senior Debt" means, with respect to the Borrower and
the Subsidiaries on a consolidated basis at any time, all
Indebtedness of the Borrower and the Subsidiaries (other than the
Subordinated Debt) which at such time would be required to be
reflected as a liability for borrowed money on a consolidated
balance sheet of the Borrower and its consolidated Subsidiaries
prepared in accordance with GAAP.
"Standby LC(s)" means any irrevocable standby letter
of credit in support of certain obligations of the Borrower
available against sight drafts and payable at sight, issued by
the Issuing Bank for the account of the Borrower pursuant to
Section 2.05 hereof.
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"Standby LC Disbursement" means a payment made by the
Issuing Bank pursuant to a Standby LC.
"Standby LC Exposure" means, at any time, the sum of
(a) the aggregate undrawn and unexpired amount of all outstanding
Standby LCs at such time plus (b) the aggregate amount of all
Standby LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time.
"Statutory Reserve Rate" means a fraction (expressed
as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable
nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to and (b) with respect to the
Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as "Eurocurrency Liabilities" in Regulation D of the Board).
Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to
any Lender under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage.
"Standard Securitization Undertakings" means
representations, warranties, covenants and indemnities entered
into by the Borrower or any Subsidiary which are reasonably
customary in an accounts receivable transaction.
"Subordinated Debt" means (i) the Senior Subordinated
Notes to be issued by the Borrower on or prior to the Effective
Date in the aggregate principal amount of $150,000,000, (ii)
notes issued in exchange for such Senior Subordinated Notes in an
aggregate principal amount not to exceed $150,000,000 and having
terms and conditions substantially identical to those of such
Senior Subordinated Notes, pursuant to a registered exchange
offer and (iii) the Indebtedness represented thereby and the
Guarantees made by any Subsidiary Loan Party in connection
therewith.
"Subordinated Debt Documents" means the indenture
under which the Subordinated Debt is issued and all other
instruments, agreements and other documents evidencing or
governing the Subordinated Debt or providing for any Guarantee or
other right in respect thereof.
"subsidiary" means, with respect to any Person (the
"parent") at any date, any corporation, limited liability
company, partnership, association or other entity the accounts of
which would be consolidated with those of the parent in the
parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date,
as well as any other corporation, limited liability company,
partnership, association or other entity of which securities or
other ownership interests representing more than 50% of the
equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of
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the general partnership interests are, as of such date, owned,
controlled or held by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" means any subsidiary of Holdings or the
Borrower, as the context requires, other than any Inactive
Subsidiary.
"Subsidiary Loan Party" means any Subsidiary of the
Borrower other than (a) any Foreign Subsidiary that, if it were
to Guarantee the Obligations, would result in adverse tax
consequences to Holdings or the Borrower and (b) the Receivables
Subsidiary.
"Tax Sharing Agreement" means the tax sharing
agreement between the Borrower and Holdings.
"Taxes" means any and all present or future taxes,
levies, imposts, duties, deductions, charges or withholdings
imposed by any Governmental Authority.
"Term Commitment" means, with respect to each Lender,
the commitment, if any, of such Lender to make a Term Loan
hereunder on the Effective Date, expressed as an amount
representing the maximum principal amount of the Term Loan to be
made by such Lender hereunder, as such commitment may be (a)
reduced from time to time pursuant to Section 2.08 and (b)
reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 9.04. The initial amount of
each Lender's Term Commitment is set forth on Schedule 2.01, or
in the Assignment and Acceptance pursuant to which such Lender
shall have assumed its Term Commitment, as applicable. The
initial aggregate amount of the Lenders' Term Commitments is
$70,000,000.
"Term Lender" means a Lender with a Term Commitment or
an outstanding Term Loan.
"Term Loan" means a Loan made pursuant to clause (a)
of Section 2.01.
"Three-Month Secondary CD Rate" means, for any day,
the secondary market rate, expressed as a per annum rate, for
three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next
preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board,
be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so
reported on such day or such next preceding Business Day, the
average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York
City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next
preceding Business Day) by the Administrative Agent from three
negotiable certificate of deposit dealers of recognized standing
selected by it.
"TPG Partners" means (a) TPG Partners II, L.P., (b)
the principals who Control TPG Partners II, L.P. as of the date
of this Agreement, and (c) any other investment funds Controlled
by such principals.
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"Transactions" means the Recapitalization and the
Financing Transactions.
"Type", when used in reference to any Loan or
Borrowing, refers to whether the rate of interest on such Loan,
or on the Loans comprising such Borrowing, is determined by
reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"Withdrawal Liability" means liability to a
Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings.
For purposes of this Agreement, Loans may be classified and
referred to by Class (e.g., a "Revolving Loan") or by Type (e.g.,
a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar
Revolving Loan"). Borrowings also may be classified and referred
to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of
terms herein shall apply equally to the singular and plural forms
of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without
limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context
requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed
as referring to such agreement, instrument or other document as
from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or
modifications set forth herein), (b) any reference herein to any
Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and
words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision
hereof, (d) all references herein to Articles, Sections, Exhibits
and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and
(e) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible
and intangible assets and properties, including cash, securities,
accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as
otherwise expressly provided herein, all terms of an accounting
or financial nature shall be construed in accordance with GAAP,
as in effect from time to time; provided that, if the Borrower
notifies the Administrative Agent that the Borrower requests an
amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the
application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required
Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before
or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of GAAP as in
effect and applied immediately before such change shall have
become effective until such notice shall
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have been withdrawn or such provision amended in accordance
herewith. References to fiscal years and fiscal quarters shall
be to such fiscal periods of the Borrower.
SECTION 1.05. Interim Financial Calculations. For
purposes of determining the Leverage Ratio and determining
compliance with Sections 6.13 and 6.14:
(a) for determinations made prior to the end of the
fiscal quarter ending August 1, 1998, Consolidated EBITDA
shall not be determined for periods of four fiscal quarters
but instead shall be determined (i) as of January 31, 1998,
for the period beginning August 16, 1997, and ended January
31, 1998, and (ii) as of May 2, 1998, for the period
beginning August 16, 1997, and ended May 2, 1998;
(b) the average daily outstanding principal amount of
Revolving Loans (referred to in clause (c) of the
definition "Funded Debt") shall be deemed to be equal to
$1,700,000 for each fiscal quarter ending prior to January
31, 1998;
(c) for determinations made prior to the end of the
fiscal quarter ending October 31, 1998, rental expense to
be added to Consolidated EBITDA for purposes of determining
Consolidated EBITDAR and for purposes of clause (b)(ii) of
Section 6.14 shall, in each case, be equal to (i) for
purposes of determining compliance with Section 6.14 as of
the end of the fiscal quarter ending January 31, 1998, an
amount equal to (A) rental expense deducted in determining
Consolidated Net Income for the fiscal quarter then ended
multiplied by (B) four, (ii) for purposes of determining
compliance with Section 6.14 as of the end of the fiscal
quarter ending May 2, 1998, an amount equal to (A) rental
expense deducted in determining Consolidated Net Income for
the two consecutive fiscal quarters then ended multiplied
by (B) two and (iii) for purposes of determining compliance
with Section 6.14 as of the end of the fiscal quarter
ending August 1, 1998, an amount equal to (A) rental
expense deducted in determining Consolidated Net Income for
the three consecutive fiscal quarters then ended multiplied
by (B) four-thirds; and
(d) for determinations made prior to the end of the
fiscal quarter ending October 31, 1998, Cash Interest
Expense for purposes of clause (b)(i) of Section 6.14 shall
be equal to (i) for purposes of determining compliance with
Section 6.14 as of the end of the fiscal quarter ending
January 31, 1998, an amount equal to (A) Cash Interest
Expense for the fiscal quarter then ended multiplied by (B)
four, (ii) for purposes of determining compliance with
Section 6.14 as of the end of the fiscal quarter ending May
2, 1998, an amount equal to (A) Cash Interest Expense for
the two consecutive fiscal quarters then ended multiplied
by (B) two and (iii) for purposes of determining compliance
with Section 6.14 as of the end of the fiscal quarter
ending August 1, 1998, an amount equal to (A) Cash Interest
Expense for the three consecutive fiscal quarters then
ended multiplied by (B) four-thirds.
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ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and
conditions set forth herein, each Lender agrees (a) to make a
Term Loan to the Borrower on the Effective Date in a principal
amount not exceeding its Term Commitment and (b) to make
Revolving Loans to the Borrower from time to time during the
Revolving Availability Period in an aggregate principal amount
that will not result in such Lender's Revolving Exposure
exceeding such Lender's Revolving Commitment. Within the
foregoing limits and subject to the terms and conditions set
forth herein, the Borrower may borrow, prepay and reborrow
Revolving Loans. Amounts repaid in respect of Term Loans may not
be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan
shall be made as part of a Borrowing consisting of Loans of the
same Class and Type made by the Lenders ratably in accordance
with their respective Commitments of the applicable Class. The
failure of any Lender to make any Loan required to be made by it
shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing
and Term Borrowing shall be comprised entirely of ABR Loans or
Eurodollar Loans as the Borrower may request in accordance
herewith. Notwithstanding anything to the contrary contained
herein, all Borrowings made on the Effective Date shall be ABR
Borrowings. Each Lender at its option may make any Eurodollar
Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for
any Eurodollar Borrowing, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less
than $5,000,000. At the time that each ABR Revolving Borrowing is
made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $500,000 and not less than $1,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total
Revolving Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section
2.05(e). Borrowings of more than one Type and Class may be
outstanding at the same time; provided that there shall not at
any time be more than a total of 20 Eurodollar Borrowings
outstanding.
(d) Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to
elect to convert or continue, any Borrowing if the Interest
Period requested with respect thereto would end after the
Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a
Revolving Borrowing or Term Borrowing, the Borrower shall notify
the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of the
proposed Borrowing, or (b) in the case of an ABR Borrowing, not
later than 11:00 a.m., New York City time, on the date of the
proposed Borrowing; provided that any such notice of an ABR
Revolving Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.05(e) may be given not
later than 11:00 a.m., New York City time, on the date of the
proposed
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Borrowing. Each such telephonic Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery
or telecopy to the Administrative Agent of a written Borrowing
Request in a form approved by the Administrative Agent and signed
by the Borrower. Each such telephonic and written Borrowing
Request shall specify the following information in compliance
with Section 2.02:
(i) whether the requested Borrowing is to be a
Revolving Borrowing or Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a
Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a
period contemplated by the definition of the term "Interest
Period"; and
(vi) the location and number of the Borrower's account
to which funds are to be disbursed, which shall comply with
the requirements of Section 2.06.
If no election as to the Type of Borrowing is specified, then the
requested Borrowing shall be an ABR Borrowing. If no Interest
Period is specified with respect to any requested Eurodollar
Borrowing, then the Borrower shall be deemed to have selected an
Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section,
the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as
part of the requested Borrowing.
SECTION 2.04. Acceptances. (a) General.
(i) Upon the terms and subject to the conditions of
this Agreement, the Issuing Bank, upon request by the
Borrower, will issue one or more Acceptances denominated in
dollars for the account of the Borrower.
(ii) The Issuing Bank will not be required to issue
any Acceptance to the extent that such issuance would cause
the total Revolving Exposures to exceed the total Revolving
Commitments. Without limiting the provisions of the
immediately preceding sentence, the Issuing Bank will not
issue any Acceptance to the extent that the amount to be
paid under such Acceptance would exceed the Issuing Bank's
legal limit for the issuance of acceptances or if the
related Acceptance Draft does not have a fixed maturity
date occurring on a Business Day that is 30, 60, 90 or 180
days after the date of issuance
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of such Acceptance Draft and in any event not later than the
date 30 days prior to the Maturity Date.
(iii) The Borrower (A) agrees that the Issuing Bank
may cause the Borrower to be joined as a party to any legal
proceeding brought against the Issuing Bank with respect to
any Acceptance, provided that such proceeding arises out of
an action taken by or an omission of the Issuing Bank at
the request of the Borrower or pursuant to court order, (B)
generally and unconditionally accepts the jurisdiction of
any court in which such legal proceeding is maintained and
(C) irrevocably consents to the service of process out of
any such court by the mailing of copies thereof by
registered or certified first class mail, postage prepaid,
to the Borrower, such service to become effective thirty
days after such mailing.
(b) Issuance. Each Acceptance shall be issued in accordance
with the following procedure:
(i) the Borrower shall submit a request for the
Acceptance and the terms of the related Acceptance Draft to
the Issuing Bank;
(ii) each request for such Acceptance shall relate to
an Acceptance Draft in an aggregate amount that is an
integral multiple of $500,000 and not less than $1,000,000;
(iii) within three Business Days of its receipt of a
request for Acceptance and presentation of the related
Acceptance Draft, the Issuing Bank shall issue such
Acceptance or shall indicate to the Borrower any additional
information necessary for review or corrections to be made
in the request for Acceptance, or shall issue to the
Borrower a rejection of the request for Acceptance and its
reasons for rejection; and
(iv) in the case of each Acceptance to be issued by
the Issuing Bank, not later than 12:00 (noon), New York
City time, on the date of issuance, the Issuing Bank will
complete the date, amount and maturity date of such
Acceptance, stamp and complete the Eligibility Certificate
on the related Acceptance Draft, and execute and accept
such Acceptance Draft.
(c) Discount; Payments. (i) On the date of issuance of
an Acceptance, the Issuing Bank shall discount the related
Acceptance Draft by deducting from the face amount thereof a
discount equal to the sum of (A) the Acceptance Rate determined
by the Issuing Bank with respect to such Acceptance Draft, and
(B) an origination fee in an amount equal to 1/4 of 1% per annum
on the face amount of such Acceptance Draft for the period from
and including such date of issuance to but excluding the
scheduled maturity date of such Acceptance Draft (computed on the
basis of a year of 360 days for the actual number of days
elapsed), and shall make the net amount available to the Borrower
in the same manner as Loans are to be made available to the
Borrower as provided herein; provided that the Issuing Bank may,
in its discretion, deduct from the net amount to be made
available to the Borrower the amount of acceptance fees payable
pursuant to Section 2.12(d), in which case the amount of such
fees so deducted shall be made available by the Issuing Bank to
the Administrative Agent for
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distribution to the Revolving Lenders. The Issuing Bank shall
retain for its own account the amounts so deducted, except as
expressly provided above with respect to acceptance fees.
(ii) The Issuing Bank may, in its sole discretion,
either retain for its own account or re-discount to third
parties any Acceptance Draft. If the Issuing Bank
re-discounts an Acceptance Draft, the Issuing Bank shall
retain the proceeds thereof for its own account.
(iii) The Borrower shall be obligated, and hereby
agrees, to pay to the Administrative Agent, for the account
of the Issuing Bank, the face amount of each Acceptance
Draft not later than 2:00 p.m., New York City time, on the
stated maturity date thereof. If the Borrower fails to make
such payment when due, the Administrative Agent shall
notify each Revolving Lender of such failure, the payment
then due from the Borrower and such Lender's Applicable
Percentage thereof. Promptly following receipt of such
notice, each Revolving Lender shall pay to the
Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as
provided in Section 2.06 with respect to Loans made by such
Lender (and Section 2.06 shall apply, mutatis mutandis, to
the payment obligations of the Revolving Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank
the amount so received by it from the Revolving Lenders.
Promptly following receipt by the Administrative Agent of
any payment from the Borrower pursuant to this paragraph,
the Administrative Agent shall distribute such payment to
the Issuing Bank or, to the extent that Revolving Lenders
have made payments pursuant to this paragraph, then to such
Lenders and the Issuing Bank as their interest may appear.
Any payment made by a Revolving Lender pursuant to this
paragraph shall not constitute a Loan and shall not relieve
the Borrower of its obligations in respect of the
applicable Acceptance Drafts.
(iv) The Borrower's obligations to make payments
pursuant to paragraph (iii) above shall be absolute,
unconditional and irrevocable, to the same extent as the
Borrower's reimbursement obligations in respect of LC
Disbursements (and Section 2.05(e) shall apply, mutatis
mutandis, to such obligations).
(v) The provisions of paragraphs (iii) and (iv) above
also shall apply to Acceptance Disbursements, which the
Borrower shall reimburse as provided in paragraphs (iii)
and (iv) above, without duplication.
(vi) If the Borrower fails to make any payment
required to be made by it pursuant to this Section, the
unpaid amount shall bear interest as provided in Section
2.13(c). Interest accrued pursuant to this paragraph shall
be for the account of the Issuing Bank, except that
interest accrued on and after the date of payment by any
Revolving Lender pursuant to paragraph (iii) of this
Section 2.04(c) shall be for the account of such Lender, to
the extent of such payment.
(d) Participations. By the issuance of an Acceptance
and without any further action on the part of the Issuing Bank or
the Lenders, the Issuing Bank hereby grants to each Revolving
Lender, and each Revolving Lender hereby acquires from the
Issuing Bank, a participation in such Acceptance equal to such
Lender's Applicable Percentage of the face amount of the related
Acceptance Draft. In consideration and in furtherance of the foregoing,
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each Revolving Lender hereby absolutely and unconditionally
agrees to pay to the Administrative Agent for the account of the
Issuing Bank, such Lender's Applicable Percentage of each payment
that the Borrower is required to make pursuant to Section
2.04(c)(iii) above and fails to pay when due, as provided in such
Section. Each Revolving Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph
is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance
of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
(e) Reporting. If the bank serving as Issuing Bank is
not the same as the bank serving as Administrative Agent, the
Issuing Bank shall notify the Administrative Agent of each
Acceptance and the amount and maturity date thereof.
(f) Additional Costs. If an Acceptance issued under
the provisions of this Agreement is not an acceptance eligible
for discount by a Federal Reserve Bank for a reason beyond the
control of the Issuing Bank, the Borrower shall pay to the
Issuing Bank upon demand such additional amounts as are necessary
to indemnify the Issuing Bank and the Revolving Lenders against
any additional costs incurred due to the lack of eligibility or
noncompliance, including reserve requirements, premium liability
to the Federal Deposit Insurance Corporation, and higher discount
rates. The obligations of the Borrower under this paragraph (f)
shall survive the termination of this Agreement and the other
Loan Documents and payment of the Loans.
(g) Fees. The Borrower shall pay to the Issuing Bank,
at the time of the issuance of each Acceptance, a processing or
minimum fee computed in accordance with the Issuing Bank's fee
schedule then in effect, as it may be amended from time to time.
SECTION 2.05. Letters of Credit. (a) General. Subject
to the terms and conditions set forth herein, the Borrower may
request the issuance of Letters of Credit for its own account, in
a form reasonably acceptable to the Administrative Agent and the
Issuing Bank, at any time and from time to time during the
Revolving Availability Period. In the event of any inconsistency
between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or
other agreement submitted by the Borrower to, or entered into by
the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit
(or the amendment, renewal or extension of an outstanding Letter
of Credit), the Borrower shall hand deliver or telecopy (or
transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to the Issuing Bank
and the Administrative Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or
extended, and specifying the date of issuance, amendment, renewal
or extension (which shall be a Business Day), the date on which such
Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and
address of the beneficiary thereof
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and such other information as shall be necessary to prepare,
amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit
application on the Issuing Bank's standard form in connection
with any request for a Letter of Credit. A Letter of Credit
(including, without limitation, any Standby LC) shall be issued,
amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), after
giving effect to such issuance, amendment, renewal or extension,
the total Revolving Exposures shall not exceed the total
Revolving Commitments. A Standby LC shall be issued, amended,
renewed or extended only if (and upon issuance, amendment,
renewal or extension of such Standby LC the Borrower shall be
deemed to represent and warrant that), after giving effect to
such issuance, amendment, renewal or extension, the Standby LC
Exposure shall not exceed $5,000,000.
(c) Expiration Date. Each Letter of Credit shall
expire at or prior to the close of business on the earlier of (i)
the date one year after the date of the issuance of such Letter
of Credit (or, in the case of any renewal or extension thereof,
one year after such renewal or extension) and (ii) the date that
is five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of
Credit (or an amendment to a Letter of Credit increasing the
amount thereof) and without any further action on the part of the
Issuing Bank or the Lenders, the Issuing Bank hereby grants to
each Revolving Lender, and each Revolving Lender hereby acquires
from the Issuing Bank, a participation in such Letter of Credit
equal to such Lender's Applicable Percentage of the aggregate
amount available to be drawn under such Letter of Credit. In
consideration and in furtherance of the foregoing, each Revolving
Lender hereby absolutely and unconditionally agrees to pay to the
Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by
the Issuing Bank and not reimbursed by the Borrower on the date
due as provided in paragraph (e) of this Section, or of any
reimbursement payment required to be refunded to the Borrower for
any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph
in respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including
any amendment, renewal or extension of any Letter of Credit or
the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction
whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any
LC Disbursement in respect of a Letter of Credit, the Borrower
shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not
later than 2:00 p.m., New York City time, on the date that such
LC Disbursement is made, if the Borrower shall have received
notice of such LC Disbursement prior to 10:00 a.m., New York City
time, on such date, or, if such notice has not been received by
the Borrower prior to such time on such date, then not later than
2:00 p.m., New York City time, on (i) the Business Day that the
Borrower receives such notice, if such notice is received prior
to 10:00 a.m., New York City time, on the day of receipt, or (ii)
the Business Day immediately following the day that the Borrower
receives such notice, if such notice is not received prior to
such time on the day of receipt; provided that, except in the case
of an LC Disbursement made in an Alternative Currency, the Borrower
may, in lieu of making such payment directly, request in accordance
with Section 2.03 that such
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<PAGE>
payment be financed with an ABR Revolving Borrowing in an
equivalent amount and each Revolving Lender shall be obligated to
fund its ratable share of such Borrowing regardless of whether
the conditions set forth in Section 4.02 are satisfied. If the
Borrower fails to make such payment when due, the Administrative
Agent shall notify each Revolving Lender of the applicable LC
Disbursement, the payment then due from the Borrower in respect
thereof and such Lender's Applicable Percentage thereof (and, if
the unreimbursed LC Disbursement was made in an Alternative
Currency, the Dollar Amount thereof). Promptly following receipt
of such notice, each Revolving Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment
then due from the Borrower (in dollars, in the amount determined
as provided in Section 2.05(k), if such LC Disbursement was made
in an Alternative Currency), in the same manner as provided in
Section 2.06 with respect to Loans made by such Lender (and
Section 2.06 shall apply, mutatis mutandis, to the payment
obligations of the Revolving Lenders), and the Administrative
Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Revolving Lenders. Promptly following
receipt by the Administrative Agent of any payment from the
Borrower pursuant to this paragraph, the Administrative Agent
shall distribute such payment to the Issuing Bank or, to the
extent that Revolving Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and
the Issuing Bank as their interests may appear. Any payment made
by a Revolving Lender pursuant to this paragraph to reimburse the
Issuing Bank for any LC Disbursement (other than the funding of
ABR Revolving Loans as contemplated above) shall not constitute a
Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this
Section shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this
Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision
therein, (ii) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in
any respect or any statement therein being untrue or inaccurate
in any respect, (iii) payment by the Issuing Bank under a Letter
of Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit, or (iv)
any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the
provisions of this Section, constitute a legal or equitable
discharge of, or provide a right of setoff against, the
Borrower's obligations hereunder. Neither the Administrative
Agent, the Lenders nor the Issuing Bank, nor any of their Related
Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of
Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss
or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence
arising from causes beyond the control of the Issuing Bank;
provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any
direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent
permitted by applicable law) suffered by the Borrower that are caused
by the Issuing Bank's failure to exercise care when determining whether
drafts and other documents presented under a Letter of Credit comply
with the terms
33
<PAGE>
thereof. The parties hereto expressly agree that, in the absence of
gross negligence or wilful misconduct on the part of the Issuing Bank
(as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such
determination. In furtherance of the foregoing and without
limiting the generality thereof, the parties agree that, with
respect to documents presented which appear on their face to be
in substantial compliance with the terms of a Letter of Credit,
the Issuing Bank may, in its sole discretion, either accept and
make payment upon such documents without responsibility for
further investigation, regardless of any notice or information to
the contrary unless any beneficiary (or a successor beneficiary
to whom such Letter of Credit has been transferred in accordance
with its terms) and the Borrower shall have notified the Issuing
Bank to not comply with the terms and conditions of such Letter
of Credit, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall,
promptly following its receipt thereof, examine all documents
purporting to represent a demand for payment under a Letter of
Credit. The Issuing Bank shall promptly notify the Administrative
Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any
failure to give or delay in giving such notice shall not relieve
the Borrower of its obligation to reimburse the Issuing Bank and
the Revolving Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make
any LC Disbursement, then, unless the Borrower shall reimburse
such LC Disbursement in full on the date such LC Disbursement is
made, the unpaid amount thereof shall bear interest, for each day
from and including the date such LC Disbursement is made to but
excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR
Revolving Loans; provided that, if the Borrower fails to
reimburse such LC Disbursement when due pursuant to paragraph (e)
of this Section, then Section 2.13(c) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of
the Issuing Bank, except that interest accrued on and after the
date of payment by any Revolving Lender pursuant to paragraph (e)
of this Section to reimburse the Issuing Bank shall be for the
account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank
may be replaced at any time by written agreement among the
Borrower, the Administrative Agent, the replaced Issuing Bank and
the successor Issuing Bank. The Administrative Agent shall notify
the Lenders of any such replacement of the Issuing Bank. At the
time any such replacement shall become effective, the Borrower
shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.12(b). From and after the
effective date of any such replacement, (i) the successor Issuing
Bank shall have all the rights and obligations of the Issuing
Bank under this Agreement with respect to Letters of Credit and
Acceptances to be issued thereafter and (ii) references herein to
the term "Issuing Bank" shall be deemed to refer to such
successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require.
After the replacement of an Issuing Bank hereunder, the replaced
Issuing Bank shall remain a party hereto and shall continue to
have all the rights and obligations of an Issuing
34
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Bank under this Agreement with respect to Letters of Credit
and Acceptances issued by it prior to such replacement,
but shall not be required to issue additional Letters of Credit
or Acceptances.
(j) Cash Collateralization. If any Event of Default
shall occur and be continuing, on the Business Day that the
Borrower receives notice from the Administrative Agent or the
Required Lenders (or, if the maturity of the Loans has been
accelerated, Revolving Lenders with LC and Acceptance Exposure
representing greater than 50% of the total LC and Acceptance
Exposure) demanding the deposit of cash collateral pursuant to
this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and
for the benefit of the Lenders, an amount in cash equal to the LC
and Acceptance Exposure as of such date plus any accrued and
unpaid interest thereon; provided that the obligation to deposit
such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand
or other notice of any kind, upon the occurrence of any Event of
Default with respect to the Borrower described in clause (h) or
(i) of Article VII. Each such deposit shall be held by the
Administrative Agent as collateral for the payment and
performance of the obligations of the Borrower under this
Agreement. The Administrative Agent shall have exclusive dominion
and control, including the exclusive right of withdrawal, over
such account. Other than any interest earned on the investment of
such deposits, which investments shall be made at the option and
sole discretion of the Administrative Agent and at the Borrower's
risk and expense, such deposits shall not bear interest. Interest
or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the
Administrative Agent to reimburse the Issuing Bank for LC
Disbursements and Acceptance Disbursements for which it has not
been reimbursed and, to the extent not so applied, shall be held
for the satisfaction of the reimbursement obligations of the
Borrower for the LC and Acceptance Exposure at such time or, if
the maturity of the Loans has been accelerated (but subject to
the consent of Revolving Lenders with LC and Acceptance Exposure
representing greater than 50% of the total LC and Acceptance
Exposure), be applied to satisfy other obligations of the
Borrower under this Agreement. If the Borrower is required to
provide an amount of cash collateral hereunder as a result of the
occurrence of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured
or waived.
(k) The Borrower may request the issuance of a Letter
of Credit providing for the payment of drawings in an Alternative
Currency subject to the terms and conditions of this subsection
(k), in addition to the other conditions applicable to the
issuance of Letters of Credit hereunder; provided that the Dollar
Amount of the total LC and Acceptance Exposure in respect of all
such Letters of Credit shall not at any time exceed $15,000,000.
The issuance of any such Letter of Credit shall be subject to the
approval of the Issuing Bank. If any such Letter of Credit is
issued, the following provisions shall apply:
(i) For purposes of determining the LC and Acceptance
Exposure and for purposes of calculating fees payable under
Section 2.12(b), the amount of such Letter of Credit and of
any unreimbursed LC Disbursements in respect thereof shall
be deemed to be, as of any date of determination, the
Dollar Amount thereof at such date. The initial Dollar
Amount of any such Letter of Credit shall be determined by
the Issuing Bank on the date of issuance thereof and
adjusted from time to time thereafter as provided below.
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<PAGE>
The Dollar Amount of each such Letter of Credit outstanding
shall be adjusted by the Issuing Bank on the 15th day and
the last day of each calendar month (or, if any such day is
not a Business Day, on the next succeeding day that is a
Business Day). If a LC Disbursement is made under any such
Letter of Credit, the Dollar Amount of such LC Disbursement
shall be determined by the Issuing Bank on the date that
such LC Disbursement is made. The Issuing Bank shall make
each such determination to be made by it by calculating the
amount in Dollars that would be required in order for the
Issuing Bank to purchase an amount of the applicable
Alternative Currency equal to the amount of the relevant
Letter of Credit or unreimbursed LC Disbursement, as the
case may be, on the date of determination at the Issuing
Bank's spot buying rate for Dollars against such
Alternative Currency as of approximately 9:00 a.m. (New
York City time) on such date of determination. The Issuing
Bank shall notify the Borrower promptly of each such Dollar
Amount determined by it, on the date that such
determination is required to be made.
(ii) Subject to paragraph (iv) below, the obligation
of the Borrower to reimburse the Issuing Bank for any LC
Disbursement under any such Letter of Credit, and to pay
interest thereon, shall be payable only in the Alternative
Currency in which such LC Disbursement is made, and shall
not be discharged by paying an amount in dollars or any
other currency; provided that the Issuing Bank may agree,
in its sole discretion, to accept reimbursement in another
currency, but any such agreement shall not affect the
obligations of the Lenders or the Borrower under paragraphs
(iii) and (iv) below if such reimbursement is not actually
made to the Issuing Bank when due.
(iii) The obligations of each Lender under Sections
2.05(d) and 2.05(e) to pay its Applicable Percentage of any
unreimbursed LC Disbursement under any such Letter of
Credit shall be payable only in dollars and shall be in an
amount equal to such Applicable Percentage of the Dollar
Amount of such unreimbursed LC Disbursement determined as
provided in clause (i) above. Under no circumstances shall
the provisions hereof permitting the issuance of Letters of
Credit in an Alternative Currency be construed, by
implication or otherwise, as imposing any obligation upon
any Lender to make any Loan or other payment under any Loan
Document, or to accept any payment from the Borrower in
respect of any Obligations, in any currency other than
dollars, it being understood that the parties intend all
Obligations to be denominated and payable only in dollars
except as expressly provided in paragraph (ii) above.
(iv) If and to the extent that any Lender pays its
Applicable Percentage of any unreimbursed LC Disbursement
under any such Letter of Credit, then, notwithstanding
paragraph (ii) above, the obligation of the Borrower to
reimburse the portion of such LC Disbursement funded by
such Lender shall be converted to, and shall be payable
only in, dollars (in an amount equal to the dollar amount
funded by such Lender as provided above) and shall not be
discharged by paying an amount in any other currency.
Interest accrued on such unreimbursed LC Disbursement to
and excluding the date of such payment by such Lender shall
be for the account of the Issuing Bank and be payable in
the applicable Alternative Currency, but interest
thereafter shall accrue on the dollar amount owed to such
Lender and shall be payable in dollars.
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<PAGE>
(v) All payments to be made by the Borrower hereunder
in an Alternative Currency pursuant to this Section 2.05(k)
shall be made in such Alternative Currency in such funds as
may then be customary for the settlement of international
transactions in such Alternative Currency for the account
of the Issuing Bank at such time and at such place as shall
have been notified by the Issuing Bank to the Borrower by
not less than four Business Days' notice.
SECTION 2.06. Funding of Borrowings. (a) Each Lender
shall make each Loan to be made by it hereunder on the proposed
date thereof by wire transfer of immediately available funds by
2:00 p.m., New York City time, to the account of the
Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will
make such Loans available to the Borrower by promptly crediting
the amounts so received, in like funds, to an account of the
Borrower maintained with the Administrative Agent in New York
City and designated by the Borrower in the applicable Borrowing
Request; provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section
2.05(e) shall be remitted by the Administrative Agent to the
Issuing Bank.
(b) Unless the Administrative Agent shall have
received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the
Administrative Agent such Lender's share of such Borrowing, the
Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of
this Section and may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. In such event,
if a Lender has not in fact made its share of the applicable
Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the
date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at (i)
in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank
compensation or (ii) in the case of the Borrower, the interest
rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
(c) Nothing in this Section 2.06 shall be deemed to
relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that the Borrower may have
against any Lender as a result of any default by any such Lender
hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to fulfill its
Commitments hereunder).
SECTION 2.07. Interest Elections. (a) Each Revolving
Borrowing and Term Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of
a Eurodollar Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower may
elect to convert such Borrowing to a different Type or to
continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided
in this Section. The Borrower may elect different options with
respect to different portions of the affected Borrowing, in which
case each such
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<PAGE>
portion shall be allocated ratably among the Lenders holding the
Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election
by telephone by the time that a Borrowing Request would be
required under Section 2.03 if the Borrower were requesting a
Revolving Borrowing of the Type resulting from such election to
be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election
Request shall specify the following information in compliance
with Section 2.02 and paragraph (f) of this Section:
(i) the Borrowing to which such Interest Election
Request applies and, if different options are being elected
with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in
which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant
to such Interest Election Request, which shall be a
Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto
after giving effect to such election, which shall be a
period contemplated by the definition of the term "Interest
Period".
If any such Interest Election Request requests a Eurodollar
Borrowing but does not specify an Interest Period, then the
Borrower shall be deemed to have selected an Interest Period of
one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the
details thereof and of such Lender's portion of each resulting
Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to
the end of the Interest Period applicable thereto, then, unless
such Borrowing is repaid as provided herein, at the end of such
Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an
Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so
notifies the Borrower, then, so long as an Event of Default is
continuing (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar
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Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall
be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
(f) A Borrowing of any Class may not be converted to
or continued as a Eurodollar Borrowing if after giving effect
thereto (i) the Interest Period therefor would commence before
and end after a date on which any principal of the Loans of such
Class is scheduled to be repaid and (ii) the sum of the aggregate
principal amount of outstanding Eurodollar Borrowings of such
Class with Interest Periods ending on or prior to such scheduled
repayment date plus the aggregate principal amount of outstanding
ABR Borrowings of such Class would be less than the aggregate
principal amount of Loans of such Class required to be repaid on
such scheduled repayment date.
SECTION 2.08. Termination and Reduction of
Commitments. (a) Unless previously terminated, (i) the Term
Commitments shall terminate at 5:00 p.m., New York City time, on
the Effective Date and (ii) the Revolving Commitments shall
terminate on the Maturity Date.
(b) The Borrower may at any time, without premium or
penalty, terminate, or from time to time reduce, the Commitments
of either Class; provided that (i) each reduction of the
Commitments of either Class shall be in an amount that is an
integral multiple of $1,000,000 and not less than $5,000,000 and
(ii) the Borrower shall not terminate or reduce the Revolving
Commitments if, after giving effect to any concurrent prepayment
of the Revolving Loans in accordance with Section 2.11, the sum
of the Revolving Exposures would exceed the total Revolving
Commitments.
(c) In the event that, on the date on which any
prepayment would be required pursuant to Section 2.11(b) or
2.11(d), no Term Borrowings remain outstanding or the amount of
the prepayment required by Section 2.11(b) or 2.11(d), as the
case may be, exceeds the aggregate principal amount of Term
Borrowings then outstanding, the Revolving Commitments shall be
reduced by an amount equal to the excess of the required
prepayment over the principal amount, if any, of Term Borrowings
actually prepaid.
(d) The Borrower shall notify the Administrative Agent
of any election to terminate or reduce the Commitments under
paragraph (b) of this Section, or any required reduction of the
Revolving Commitments under paragraph (c) of this Section, at
least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the
effective date thereof. Promptly following receipt of any notice,
the Administrative Agent shall advise the Lenders of the contents
thereof. Each notice delivered by the Borrower pursuant to this
Section shall be irrevocable; provided that a notice of
termination of the Revolving Commitments delivered by the
Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such
notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date)
if such condition is not satisfied. Any termination or reduction
of the Commitments of either Class shall be permanent. Each
reduction of the Commitments of either Class shall be made
ratably among the Lenders in accordance with their respective
Commitments of such Class.
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SECTION 2.09. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay (i) to
the Administrative Agent for the account of each Lender the then
unpaid principal amount of each Revolving Loan of such Lender on
the Maturity Date and (ii) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each
Term Loan of such Lender as provided in Section 2.10.
(b) Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness
of the Borrower to such Lender resulting from each Loan made by
such Lender, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts
in which it shall record (i) the amount of each Loan made
hereunder, the Class and Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to
each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders
and each Lender's share thereof, which accounts the
Administration agent will make available to the Borrower upon
request.
(d) The entries made in the accounts maintained
pursuant to paragraph (b) or (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations
recorded therein; provided that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the
Borrower to repay the Loans in accordance with the terms of this
Agreement.
(e) Any Lender may request that Loans of any Class
made by it be evidenced by a promissory note. In such event, the
Borrower shall prepare, execute and deliver to such Lender a
promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and
interest thereon shall at all times (including after assignment
pursuant to Section 9.04) be represented by one or more
promissory notes in such form payable to the order of the payee
named therein (or, if such promissory note is a registered note,
to such payee and its registered assigns).
SECTION 2.10. Amortization of Term Loans. (a) Subject
to adjustment pursuant to paragraph (d) of this Section, the
Borrower shall repay Term Borrowings on each date set forth below
in the aggregate principal amount set forth opposite such date:
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- --------------------------------------------------------------
Date Amount
---- ------
- --------------------------------------------------------------
February 3, 2001 $4,000,000
- --------------------------------------------------------------
May 5, 2001 4,000,000
- --------------------------------------------------------------
August 4, 2001 4,000,000
- --------------------------------------------------------------
November 3, 2001 4,000,000
- --------------------------------------------------------------
February 2, 2002 6,750,000
- --------------------------------------------------------------
May 4, 2002 6,750,000
- --------------------------------------------------------------
August 3, 2002 6,750,000
- --------------------------------------------------------------
November 2, 2002 6,750,000
- --------------------------------------------------------------
February 1, 2003 6,750,000
- --------------------------------------------------------------
May 5, 2003 6,750,000
- --------------------------------------------------------------
August 2, 2003 6,750,000
- --------------------------------------------------------------
October 10, 2003 6,750,000
- --------------------------------------------------------------
(b) To the extent not previously paid, all Term Loans
shall be due and payable on the Maturity Date.
(c) If the initial aggregate amount of the Lenders'
Term Commitments exceeds the aggregate principal amount of Term
Loans that are made on the Effective Date, then the scheduled
repayments of Term Borrowings to be made pursuant to this Section
shall be reduced ratably by an aggregate amount equal to such
excess. Any prepayment of a Term Borrowing shall be applied to
reduce the subsequent scheduled repayments of the Term Borrowings
to be made pursuant to this Section ratably; provided that any
prepayment made pursuant to Section 2.11(a) shall be applied,
first, to reduce the next scheduled repayment of the Term
Borrowings to be made pursuant to this Section unless and until
such next scheduled repayment has been eliminated as a result of
reductions hereunder and, second, ratably as provided above.
(d) Prior to any repayment of any Term Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings
to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later
than 11:00 a.m., New York City time, three Business Days before
the scheduled date of such repayment. Each repayment of a
Borrowing shall be applied ratably to the Loans included in the
repaid Borrowing. Repayments of Term Borrowings shall be
accompanied by accrued and unpaid interest on the amount repaid.
SECTION 2.11. Prepayment of Loans. (a) The Borrower
shall have the right at any time and from time to time to prepay
any Borrowing in whole or in part, without premium or penalty but
subject to Section 2.16, subject to the requirements of this
Section.
(b) In the event and on each occasion that any Net
Proceeds are received by or on behalf of Holdings, the Borrower
or any Subsidiary in respect of any Prepayment Event, the
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Borrower shall, within five Business Days after such Net Proceeds
are received, prepay Term Borrowings in an aggregate amount equal
to such Net Proceeds; provided that (i) with respect to the sale
of Popular Club or C&W, the Borrower shall only be required to
prepay Term Borrowings with respect to 80% of the Net Proceeds
from such sale and (ii) with respect to issuances of equity
securities of Holdings, the Borrower shall only be required to
prepay Term Borrowings with respect to 50% of the Net Proceeds
from such issuances. If instructed by the Borrower by written
notice, the Administration Agent, if the Administration Agent is
in possession of Net Proceeds pursuant to any Security Document,
shall apply such Net Proceeds toward any prepayment required
hereunder.
(c) In the event of any reduction of the Revolving
Commitments, if the Revolving Exposure would exceed the Revolving
Commitments after giving effect to such reduction, then the
Borrower shall, on the date of such reduction, repay or prepay
Revolving Borrowings in an amount sufficient to eliminate such
excess.
(d) Following the end of each fiscal year of the
Borrower, commencing with the fiscal year ending January 30,
1999, the Borrower shall prepay Term Borrowings in an aggregate
amount equal to 50% of Excess Cash Flow for such fiscal year.
Each prepayment pursuant to this paragraph shall be made on or
before the date on which financial statements are delivered
pursuant to Section 5.01 with respect to the fiscal year for
which Excess Cash Flow is being calculated (and in any event
within 90 days after the end of such fiscal year).
(e) The Borrower shall repay or prepay Revolving
Borrowings and shall refrain from making additional Revolving
Borrowings to the extent necessary in order that there shall be a
period of at least 30 consecutive days in each fiscal year during
which the Revolving Exposure shall not exceed the amount set
forth below opposite such fiscal year (each such 30-day period, a
"Clean-Down Period"):
Revolving Exposure
Fiscal Year as Reduced
----------- ------------------
1998 $25,000,000
1999 20,000,000
2000 15,000,000
2001 10,000,000
2002 and thereafter 0
(f) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the Borrower shall select the Borrowing or
Borrowings to be prepaid and shall specify such selection in the
notice of such prepayment pursuant to paragraph (g) of this
Section.
(g) The Borrower shall notify the Administrative Agent
by telephone (confirmed by telecopy) of any prepayment hereunder
(i) in the case of prepayment of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days
before the date of prepayment or (ii) in the case of prepayment
of an ABR Borrowing, not later than 11:00 a.m.,
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New York City time, on the date of prepayment. Each such notice
shall be irrevocable and shall specify the prepayment date, the
principal amount of each Borrowing or portion thereof to be
prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment; provided
that, if a notice of optional prepayment is given in connection
with a conditional notice of termination of the Revolving
Commitments as contemplated by Section 2.08, then such notice of
prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following
receipt of any such notice, the Administrative Agent shall advise
the Lenders of the contents thereof. Each partial prepayment of
any Borrowing shall be in an amount that would be permitted in
the case of an advance of a Borrowing of the same Type as
provided in Section 2.02, except as necessary to apply fully the
required amount of a mandatory prepayment. Each prepayment of a
Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.13.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to
the Administrative Agent for the account of each Revolving Lender
a commitment fee, which shall accrue at the rate of 1/2 of 1% per
annum on the average daily unused amount of each Revolving
Commitment of such Lender during the period from and including
the Effective Date to but excluding the date on which such
Revolving Commitment terminates. Accrued commitment fees shall be
payable in arrears on the 2nd day of February, May, August, and
November of each year and on the date on which the Revolving
Commitments terminate, commencing on the first such date to occur
after the Effective Date. All commitment fees shall be computed
on the basis of a year of 360 days and shall be payable for the
actual number of days elapsed (including the first day but
excluding the last day). For purposes of computing commitment
fees with respect to Revolving Commitments, a Revolving
Commitment of a Lender shall be deemed to be used to the extent
of the outstanding Revolving Loans and LC and Acceptance Exposure
of such Lender.
(b) The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Revolving Lender a
participation fee with respect to its participations in Letters
of Credit, which shall accrue at the same Applicable Rate as
interest on Eurodollar Revolving Loans on the average daily
amount of such Lender's LC and Acceptance Exposure attributable
to Letters of Credit (excluding any portion thereof attributable
to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the
date on which such Lender's Revolving Commitment terminates and
the date on which such Lender ceases to have any LC and
Acceptance Exposure attributable to Letters of Credit, and (ii)
to the Issuing Bank a fronting fee, which shall accrue at the
rate of 1/4 of 1% per annum on the average daily amount of the LC
and Acceptance Exposure attributable to Letters of Credit
(excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective
Date to but excluding the later of the date of termination of the
Revolving Commitments and the date on which there ceases to be
any LC and Acceptance Exposure attributable to Letters of Credit,
as well as the Issuing Bank's standard fees with respect to the
issuance, amendment, renewal or extension of any Letter of Credit
or processing of drawings thereunder. Participation fees and
fronting fees accrued through and including the last day of
January, April, July and October of each year shall be payable on
the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that
all such fees shall be payable on the date on which the Revolving
Commitments
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terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any
other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation
fees and fronting fees shall be computed on the basis of a year
of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the
Administrative Agent.
(d) Upon the issuance of an Acceptance, the Borrower
agrees to pay to the Administrative Agent for the account of each
Revolving Lender an acceptance fee with respect to such
Acceptance in an amount equal to the Applicable Rate at the time
on the face amount of the related Acceptance Draft for the period
from and including such date of issuance to but excluding the
scheduled maturity date of such Acceptance Draft (computed on the
basis of a year of 360 days for the actual number of days
elapsed).
(e) All fees payable hereunder shall be paid on the
dates due, in immediately available funds, to the Administrative
Agent (or to the Issuing Bank, in the case of fees payable to it)
for distribution, in the case of commitment fees, acceptance
fees, and participation fees, to the Lenders entitled thereto.
Fees paid shall not be refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each
ABR Borrowing shall bear interest at the Alternate Base Rate plus
the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing
shall bear interest at the Adjusted LIBO Rate for the Interest
Period in effect for such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of
or interest on any Loan or any fee or other amount payable by the
Borrower hereunder is not paid when due, whether at stated
maturity, upon acceleration or otherwise, such overdue amount
shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any
Loan, 2% plus the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section or (ii) in
the case of any other amount, 2% plus the rate applicable to ABR
Revolving Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and, in the
case of Revolving Loans, upon termination of the
Revolving Commitments; provided that (i) interest accrued
pursuant to paragraph (c) of this Section shall be payable on
demand, (ii) in the event of any repayment or prepayment of any
Loan (other than a prepayment of an ABR Revolving Loan prior to
the end of the Revolving Availability Period), accrued interest
on the principal amount repaid or prepaid shall be payable
on the date of such repayment or prepayment and (iii) in the
event of any conversion of any Eurodollar Loan prior to the end
of the current Interest Period therefor, accrued interest on such
Loan shall be payable on the effective date of such conversion.
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(e) All interest hereunder shall be computed on the
basis of a year of 360 days, except that interest computed by
reference to the Alternate Base Rate at times when the Alternate
Base Rate is based on the Prime Rate shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The
applicable Alternate Base Rate or Adjusted LIBO Rate shall be
determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error.
SECTION 2.14. Alternate Rate of Interest. If prior to
the commencement of any Interest Period for a Eurodollar
Borrowing:
(a) the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that
adequate and reasonable means do not exist for ascertaining the
Adjusted LIBO Rate for such Interest Period;
(b) the Administrative Agent is advised by the
Required Lenders that the Adjusted LIBO Rate for such Interest
Period will not adequately and fairly reflect the cost to such
Lenders (or Lender) of making or maintaining their Loans (or its
Loan) included in such Borrowing for such Interest Period; or
(c) any Lender shall have reasonably determined (which
determination shall, absent clearly demonstrable error, be final
and conclusive and binding upon all parties hereto) at any time,
that the making or continuance of any Eurodollar Loan has become
unlawful by compliance by such Lender in good faith with any law,
governmental rule, regulation, guideline or order (or would
conflict with any such governmental rule, regulation, guideline
or order not having the force of law even though the failure to
comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the
date hereof that materially and adversely affects the interbank
Eurodollar market;
then the Administrative Agent shall give notice thereof to the
Borrower and the Lenders by telephone or telecopy as promptly as
practicable thereafter and, until the Administrative Agent
notifies the Borrower and the Lenders that the circumstances
giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing
to, or continuation of any Borrowing as, a Eurodollar Borrowing
shall be ineffective and (ii) if any Borrowing Request requests a
Eurodollar Borrowing, such Borrowing shall be made as an ABR
Borrowing.
SECTION 2.15. Increased Costs. (a) If any Change in
Law (except with respect to Taxes, which shall be governed by
Section 2.17) shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by,
any Lender (except any such reserve requirement reflected
in the Adjusted LIBO Rate) or the Issuing Bank; or
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(ii)] impose on any Lender or the Issuing Bank or the
London interbank market any other condition affecting this
Agreement or Eurodollar Loans made by such Lender or any
Letter of Credit or Acceptance or participation therein;
and the result of any of the foregoing shall be to increase the
cost to such Lender of making or maintaining any Eurodollar Loan
(or of maintaining its obligation to make any such Loan) or to
increase the cost to such Lender or the Issuing Bank of
participating in, issuing or maintaining any Letter of Credit or
Acceptance or to reduce the amount of any sum received or
receivable by such Lender or the Issuing Bank hereunder (whether
of principal, interest or otherwise), then the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or
the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that
any Change in Law regarding capital requirements has or would
have the effect of reducing the rate of return on such Lender's
or the Issuing Bank's capital or on the capital of such Lender's
or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in
Letters of Credit or Acceptances held by, such Lender, or the
Letters of Credit or Acceptances issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have
achieved but for such Change in Law (taking into consideration
such Lender's or the Issuing Bank's policies and the policies of
such Lender's or the Issuing Bank's holding company with respect
to capital adequacy), then from time to time the Borrower will
pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or
the Issuing Bank or such Lender's or the Issuing Bank's holding
company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank
setting forth the amount or amounts necessary to compensate such
Lender or the Issuing Bank or its holding company, as the case
may be, as specified in paragraph (a) or (b) of this Section
shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing
Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the
Issuing Bank to demand compensation pursuant to this Section
shall not constitute a waiver of such Lender's or the Issuing
Bank's right to demand such compensation; provided that the
Borrower shall not be required to compensate a Lender or the
Issuing Bank pursuant to this Section for any increased costs or
reductions incurred more than 270 days prior to the date that
such Lender or the Issuing Bank, as the case may be, notifies the
Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that,
if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the 270-day period referred to
above shall be extended to include the period of retroactive
effect thereof.
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SECTION 2.16. Break Funding Payments. In the event of
(a) the payment of any principal of any Eurodollar Loan other
than on the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (b) the
conversion of any Eurodollar Loan other than on the last day of
the Interest Period applicable thereto, (c) the failure to
borrow, convert, continue or prepay any Revolving Loan or Term
Loan on the date specified in any notice delivered pursuant
hereto (regardless of whether such notice may be revoked under
Section 2.11(g) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.19, then, in any
such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event. In the case of
a Eurodollar Loan, such loss, cost or expense to any Lender shall
be deemed to include an amount determined by such Lender to be
the excess, if any, of (i) the amount of interest which would
have accrued on the principal amount of such Loan had such event
not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such
event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert or
continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest
rate which such Lender would bid were it to bid, at the
commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the Eurodollar market. A
certificate of any Lender setting forth any amount or amounts
that such Lender is entitled to receive pursuant to this Section
shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt
thereof.
SECTION 2.17. Taxes. (a) Any and all payments by or on
account of any obligation of the Borrower hereunder or under any
other Loan Document shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that
if the Borrower shall be required to deduct any Indemnified Taxes
or Other Taxes from such payments, then (i) the sum payable shall
be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower
shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with
applicable law.
(c) The Borrower shall indemnify the Administrative
Agent, each Lender and the Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes paid by the Administrative Agent, such
Lender or the Issuing Bank, as the case may be, on or with
respect to any payment by or on account of any obligation of the
Borrower hereunder or under any other Loan Document (including
Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by
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the relevant Governmental Authority. A certificate as to the
amount of such payment or liability delivered to the Borrower by
a Lender or the Issuing Bank, or by the Administrative Agent on
its own behalf or on behalf of a Lender or the Issuing Bank,
shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower to a
Governmental Authority, the Borrower shall deliver to the
Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the
Administrative Agent.
(e) Any Foreign Lender that is entitled to an
exemption from or reduction of withholding tax under the law of
the jurisdiction in which the Borrower is located, or any treaty
to which such jurisdiction is a party, with respect to payments
under this Agreement shall deliver to the Borrower (with a copy
to the Administrative Agent), at the time or times prescribed by
applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made
without withholding or at a reduced rate.
(f) If the Administrative Agent, Issuing Bank or a
Lender (or Transferee) receives a refund solely in respect of
Taxes or Other Taxes, it shall pay over such refund to the
Borrower to the extent that it has already received indemnity
payments or additional amounts pursuant to this Section 2.17 with
respect to such Taxes or Other Taxes giving rise to the refund,
net of all out-of-pocket expenses and without interest (other
than interest paid by the relevant Governmental Authority with
respect to such refund); provided, however, that the Borrower
shall, upon request of the Administrative Agent or Lender (or
Transferee), repay such refund (plus interest imposed by the
relevant Governmental Authority) to the Administrative Agent or
Lender (or Transferee) if the Administrative Agent or Lender (or
Transferee) is required to repay such refund to such Governmental
Authority. Nothing contained herein shall require the
Administrative Agent or Lender (or Transferee) to make its tax
returns (or any other information relating to its taxes which it
deems confidential) available to the Borrower or any other
person.
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs. (a) The Borrower shall make each payment
required to be made by it hereunder or under any other Loan
Document (whether of principal, interest, fees or reimbursement
of LC Disbursements or Acceptance Disbursements, or of amounts
payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to
2:00 p.m., New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to
the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the
Issuing Bank as expressly provided herein and except that
payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be
made directly to the Persons entitled thereto and payments
pursuant to other Loan Documents shall be made to the Persons
specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person
to the appropriate recipient promptly
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following receipt thereof. If any payment under any Loan Document
shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day,
and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. Except
as expressly provided in Section 2.05(k), all payments under each
Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by
and available to the Administrative Agent to pay fully all
amounts of principal, unreimbursed LC Disbursements and
Acceptance Disbursements, interest and fees then due hereunder,
such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of interest and
fees then due to such parties, and (ii) second, towards payment
of principal and unreimbursed LC Disbursements and Acceptance
Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements and Acceptance Disbursements then
due to such parties.
(c) If any Lender shall, by exercising any right of
set-off or counterclaim or otherwise, obtain payment in respect
of any principal of or interest on any of its Revolving Loans,
Term Loans or participations in LC Disbursements or Acceptance
Disbursements resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Revolving
Loans, Term Loans and participations in LC Disbursements and
Acceptance Disbursements and accrued interest thereon than the
proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans, Term Loans and
participations in LC Disbursements and Acceptance Disbursements
of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued
interest on their respective Revolving Loans, Term Loans and
participations in LC Disbursements and Acceptance Disbursements;
provided that (i) if any such participations are purchased and
all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without
interest, and (ii) the provisions of this paragraph shall not be
construed to apply to any payment made by the Borrower pursuant
to and in accordance with the express terms of this Agreement or
any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements or Acceptance Disbursements to
any assignee or participant, other than to the Borrower or any
Subsidiary or Affiliate thereof (as to which the provisions of
this paragraph shall apply). The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation
pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor
of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have
received notice from the Borrower prior to the date on which any
payment is due to the Administrative Agent for the account of the
Lenders or the Issuing Bank hereunder that the Borrower will not
make such payment, the Administrative Agent may assume that the
Borrower has made such payment on
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such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders or the Issuing Bank, as the
case may be, the amount due. In such event, if the Borrower has
not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to
the Administrative Agent forthwith on demand the amount so
distributed to such Lender or Issuing Bank with interest thereon,
for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank
compensation.
(e) If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.04(c), 2.05(d) or
(e), 2.06(b), 2.18(d) or 9.03(c), then the Administrative Agent
may, in its discretion (notwithstanding any contrary provision
hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy
such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION 2.19. Mitigation Obligations; Replacement of
Lenders. (a) If any Lender requests compensation under Section
2.15, or if the Borrower is required to pay any additional amount
to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 2.17, then such Lender shall use
reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights
and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation
or assignment (i) would eliminate or reduce amounts payable
pursuant to Section 2.15 or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to
such Lender. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with any
such designation or assignment.
(b) If any Lender requests compensation under Section
2.15, or if the Borrower is required to pay any additional amount
to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 2.17, or if any Lender defaults in
its obligation to fund Loans hereunder, then the Borrower may, at
its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate,
without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests,
rights and obligations under this Agreement to an assignee that
shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i)
the Borrower shall have received the prior written consent of the
Administrative Agent (and, if a Revolving Commitment is being
assigned, the Issuing Bank), which consent shall not unreasonably
be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans and
participations in LC Disbursements and Acceptance Disbursements,
accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the
Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation
under Section 2.15 or payments required to be made pursuant to
Section 2.17, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make
any such assignment and
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delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Borrower to
require such assignment and delegation cease to apply.
ARTICLE III
Representations and Warranties
------------------------------
Each of Holdings and the Borrower represents and
warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of Holdings,
the Borrower and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its organization, has all requisite corporate power and
authority to carry on its business as now conducted and, except
where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing
in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The
Transactions to be entered into by each Loan Party are within
such Loan Party's corporate powers and have been duly authorized
by all necessary corporate and, if required, stockholder action.
This Agreement has been duly executed and delivered by each of
Holdings and the Borrower and constitutes, and each other Loan
Document to which any Loan Party is to be a party, when executed
and delivered by such Loan Party, will constitute, a legal, valid
and binding obligation of Holdings, the Borrower or such Loan
Party (as the case may be), enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at
law.
SECTION 3.03. Governmental Approvals; No Conflicts.
The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any
Governmental Authority, except (i) such as have been obtained or
made and are in full force and effect, (ii) except filings
necessary to perfect Liens created under the Loan Documents and
the Receivables Transaction Documents and (iii) except where the
failure to obtain such consent or approval or make such
registration or filing, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse
Effect, (b) will not violate any applicable law or regulation or
the charter, by-laws or other organizational documents of
Holdings, the Borrower or any of its Subsidiaries or any order of
any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument
binding upon Holdings, the Borrower or any of its Subsidiaries or
its assets, or give rise to a right thereunder to require any
payment to be made by Holdings, the Borrower or any of its
Subsidiaries, except for violations under retail store leases
that in the aggregate could not reasonably be expected to result
in a Material Adverse Effect, and (d) will not result in the
creation or imposition of any Lien on any asset of Holdings, the
Borrower or any of its Subsidiaries, except Liens created under
the Loan Documents and the Receivables Transaction Documents.
SECTION 3.04. Financial Condition; No Material Adverse
Change. (a) Holdings has heretofore furnished to the Lenders its
consolidated balance sheet and
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statements of income, stockholders equity and cash flows (i) as
of and for the fiscal year ended February 2, 1997, reported on by
Deloitte & Touche LLP, independent public accountants, and (ii)
as of and for the fiscal quarter and the portion of the fiscal
year ended July 18, 1997, certified by its chief financial
officer. Such financial statements present fairly, in all
material respects, the financial position and results of
operations and cash flows of Holdings and its consolidated
Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause
(ii) above.
(b) Holdings has heretofore furnished to the Lenders
its pro forma consolidated balance sheet as of July 18, 1997,
prepared giving effect to the Transactions as if the Transactions
had occurred on such date. Such pro forma consolidated balance
sheet (i) has been prepared in good faith based on the same
assumptions used to prepare the pro forma financial statements
included in the Information Memorandum (which assumptions are
believed by Holdings and the Borrower to be reasonable), (ii) is
based on the best information available to Holdings and the
Borrower after due inquiry, (iii) accurately reflects in all
material respects all adjustments necessary to give effect to the
Transactions and (iv) presents fairly, in all material respects,
the pro forma financial position of Holdings and its consolidated
Subsidiaries as of July 18, 1997 as if the Transactions had
occurred on such date.
(c) Except as disclosed in the financial statements
referred to in paragraphs (a) and (b) above or the notes thereto
or in the Information Memorandum and except for the Disclosed
Matters, after giving effect to the Transactions, none of
Holdings, the Borrower or its Subsidiaries has, as of the
Effective Date, any material contingent liabilities, unusual
long-term commitments or unrealized losses.
(d) Since February 2, 1997, there has been no material
adverse change in the business, assets, operations, prospects or
condition, financial or otherwise, of Holdings, the Borrower and
its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of Holdings, the
Borrower and its Subsidiaries has good title to, or valid
leasehold interests in, all its real and personal property
material to its business (including its Mortgaged Properties),
except for minor defects in title that do not interfere
materially with its ability to conduct its business as currently
conducted or to utilize such properties for their intended
purposes.
(b) Each of Holdings, the Borrower and its
Subsidiaries owns, or is licensed to use, all trademarks,
tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by Holdings, the
Borrower and its Subsidiaries does not infringe upon the rights
of any other Person, except for any such infringements that,
individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
(c) Schedule 3.05 sets forth the address of each real
property that is owned or leased by the Borrower or any of its
Subsidiaries as of the Effective Date after giving effect to the
Transactions.
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(d) As of the Effective Date, neither Holdings, the
Borrower nor any of its Subsidiaries has received notice of, or
has knowledge of, any pending or contemplated condemnation
proceeding affecting any Mortgaged Property or any sale or
disposition thereof in lieu of condemnation. Neither any
Mortgaged Property nor any interest therein is subject to any
right of first refusal, option or other contractual right to
purchase such Mortgaged Property or interest therein.
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the
knowledge of Holdings or the Borrower, threatened against or
affecting Holdings, the Borrower or any of its Subsidiaries (i)
as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably
be expected, individually or in the aggregate, to result in a
Material Adverse Effect (other than the Disclosed Matters) or
(ii) that involve any of the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters and except with
respect to any other matters that, individually or in the
aggregate, could not reasonably be expected to result in a
Material Adverse Effect, neither Holdings, the Borrower nor any
of its Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to
any Environmental Liability or has reason to believe that any
such notice will be received or is being threatened, (iv)
currently owns or operates property which contains Hazardous
Materials, property from which Hazardous Materials were
transported, or property at, on or under which Hazardous
Materials were Released, generated treated, stored or disposed
of, or (v) otherwise knows of, or has reason to believe that
there is, any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been
no change in the status of the Disclosed Matters that,
individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.
SECTION 3.07. Compliance with Laws and Agreements.
Each of Holdings, the Borrower and its Subsidiaries is in
compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or
in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status.
Neither Holdings, the Borrower nor any of its Subsidiaries is (a)
an "investment company" as defined in, or subject to regulation
under, the Investment Company Act of 1940 or (b) a "holding
company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of Holdings, the Borrower
and its Subsidiaries has timely filed or caused to be filed all
Tax returns and reports required to have been filed and has paid
or caused to be paid all Taxes required to have been paid by it,
except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which Holdings, the Borrower
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or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all
other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to result in a
Material Adverse Effect. The present value of all accumulated
benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed the
fair market value of the assets of all such underfunded Plans by
an amount which, if it were required to be fully paid, would
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.11. Disclosure. Holdings and the Borrower
have disclosed to the Lenders all agreements, instruments and
corporate or other restrictions to which Holdings, the Borrower
or any of its Subsidiaries is subject, and all other matters
known to any of them, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse
Effect. Neither the Information Memorandum nor any of the other
reports, financial statements, certificates or other information
furnished by or on behalf of any Loan Party to the Administrative
Agent or any Lender in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or
thereunder (as modified or supplemented by other information so
furnished), when made or delivered, contained any material
misstatement of fact or omitted to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided that, with respect to projected financial information,
Holdings and the Borrower represent only that such information
was prepared in good faith based upon assumptions believed to be
reasonable at the time.
SECTION 3.12. Subsidiaries. After giving effect to the
consummation of the Recapitalization on the Effective Date,
Holdings does not have any Subsidiaries other than the Borrower
and the Borrower's Subsidiaries. Schedule 3.12 sets forth the
name of, and the ownership interest of the Borrower in, each
Subsidiary of the Borrower and identifies each Subsidiary that is
a Subsidiary Loan Party, in each case as of the Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a
description of all insurance maintained by or on behalf of the
Borrower and its Subsidiaries as of the Effective Date. As of the
Effective Date, all premiums in respect of such insurance have
been paid.
SECTION 3.14. Labor Matters. As of the Effective Date,
there are no strikes, lockouts or slowdowns against Holdings, the
Borrower or any Subsidiary pending or, to the knowledge of
Holdings or the Borrower, threatened. The hours worked by and
payments made to employees of Holdings, the Borrower and the
Subsidiaries have not been in material violation of the Fair
Labor Standards Act or any other applicable Federal, state, local
or foreign law dealing with such matters. The consummation of the
Transactions will not give rise to any right of termination or
right of renegotiation on the part of any union under any
collective bargaining agreement to which Holdings, the Borrower
or any Subsidiary is bound.
SECTION 3.15. Solvency. Immediately after the
consummation of the Transactions to occur on the Effective Date
and immediately following the making of each Loan
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made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of
the assets of each Loan Party, at a fair valuation, will exceed
its debts and liabilities, subordinated, contingent or otherwise;
(b) the present fair saleable value of the property of each Loan
Party will be greater than the amount that will be required to
pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (c) each Loan Party will
be able to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) each Loan Party will not have
unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is
proposed to be conducted following the Effective Date.
SECTION 3.16. Senior Indebtedness. The Obligations
constitute "Senior Debt" under and as defined in the Subordinated
Debt Documents.
SECTION 3.17. Security Documents. (a) The Pledge
Agreement is effective to create in favor of the Collateral
Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and, when such Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall
constitute a fully perfected first priority Lien on, and security
interest in, all right, title and interest of each pledgor
thereunder in such Collateral, in each case prior and superior in
right to any other Person.
(b) The Security Agreement is effective to create in
favor of the Collateral Agent, for the ratable benefit of the
Secured Parties, a legal, valid and enforceable security interest
in the Collateral (as defined in the Security Agreement) and,
when financing statements in appropriate form are filed in the
offices specified on Schedule 5 to the Perfection Certificate,
the Security Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of
the grantors thereunder in such Collateral (other than the
Intellectual Property (as defined in the Security Agreement)), in
each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United
States Patent and Trademark Office and the United States
Copyright Office, the Security Agreement shall constitute a fully
perfected Lien on, and security interest in, all right, title and
interest of the Loan Parties in the Intellectual Property (as
defined in the Security Agreement) in which a security interest
may be perfected by filing, recording or registering a security
agreement, financing statement or analogous document in the
United States Patent and Trademark Office or the United States
Copyright Office, as applicable, in each case prior and superior
in right to any other Person other than Liens expressly permitted
by Section 6.02 (it being understood that subsequent recordings
in the United States Patent and Trademark Office and the United
States Copyright Office may be necessary to perfect a Lien on
registered trademarks, trademark applications and copyrights
acquired by the Loan Parties after the date hereof).
(d) The Mortgages are effective to create, subject to
the exceptions listed in each title insurance policy covering
such Mortgage, in favor of the Collateral Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable
Lien on all of the Loan Parties' right, title and interest in and
to the Mortgaged Properties thereunder and the proceeds thereof,
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and when the Mortgages are filed in the offices specified on
Schedule 3.17(d), the Mortgages shall constitute a Lien on, and
security interest in, all right, title and interest of the Loan
Parties in such Mortgaged Properties and the proceeds thereof, in
each case prior and superior in right to any other Person, other
than with respect to the rights of Persons pursuant to Liens
expressly permitted by Section 6.02.
SECTION 3.18. Federal Reserve Regulations. (a) Neither
Holdings, the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the
business of extending credit for the purpose of buying or
carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter
of Credit or any Acceptance will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately,
for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the Regulations of the
Board, including Regulation G, U or X.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of
Credit and Acceptances hereunder shall not become effective until
the date on which each of the following conditions is satisfied
(or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of
this Agreement signed on behalf of such party or (ii)
written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed
signature page of this Agreement) that such party has
signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a
favorable written opinion (addressed to the Administrative
Agent and the Lenders and dated the Effective Date) of each
of (i) Cleary, Gottlieb, Steen & Hamilton, counsel for the
Borrower, substantially in the form of Exhibit B-1 and (ii)
Herzfeld & Rubin, counsel for the Borrower, substantially
in the form of Exhibit B-2, and, in the case of each such
opinion required by this paragraph, covering such other
matters relating to the Loan Parties, the Loan Documents or
the Transactions as the Required Lenders shall reasonably
request. The Borrower hereby requests such counsel to
deliver such opinions.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or
its counsel may reasonably request relating to the
organization, existence and good standing of each Loan
Party, the authorization of the Transactions and any other
legal matters relating to the Loan Parties, the Loan
Documents or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
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(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the
President, a Vice President or a Financial Officer of each
of Holdings and the Borrower, confirming compliance with
the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(e) The Administrative Agent shall have received all
fees and other amounts due and payable on or prior to the
Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by any Loan Party
hereunder or under any other Loan Document.
(f) The Administrative Agent shall have received
counterparts of the Pledge Agreement signed on behalf of
Holdings, the Borrower and each Subsidiary Loan Party,
together with stock certificates representing all the
outstanding shares of capital stock of the Borrower and
each Subsidiary owned by or on behalf of any Loan Party as
of the Effective Date after giving effect to the
Transactions (except that stock certificates representing
shares of common stock of a Foreign Subsidiary that is not
a Subsidiary Loan Party may be limited to 65% of the
outstanding shares of common stock of such Foreign
Subsidiary), promissory notes evidencing all intercompany
Indebtedness (other than the Purchase Money Note) owed to
any Loan Party by Holdings, the Borrower or any Subsidiary
as of the Effective Date after giving effect to the
Transactions and stock powers and instruments of transfer,
endorsed in blank, with respect to such stock certificates
and promissory notes.
(g) The Administrative Agent shall have received
counterparts of the Security Agreement signed on behalf of
Holdings, the Borrower and each Subsidiary Loan Party,
together with the following:
(i) all documents and instruments, including
Uniform Commercial Code financing statements, required
by law or reasonably requested by the Administrative
Agent to be filed, registered or recorded to create or
perfect the Liens intended to be created under the
Security Agreement; and
(ii) a completed Perfection Certificate dated the
Effective Date and signed by an executive officer or
Financial Officer of the Borrower, together with all
attachments contemplated thereby, including the
results of a search of the Uniform Commercial Code (or
equivalent) filings made with respect to the Loan
Parties in the jurisdictions contemplated by the
Perfection Certificate and copies of the financing
statements (or similar documents) disclosed by such
search and evidence reasonably satisfactory to the
Administrative Agent that the Liens indicated by such
financing statements (or similar documents) are
permitted by Section 6.02 or have been released.
(h) The Administrative Agent shall have received (i)
counterparts of the Guarantee Agreement signed on behalf of
Holdings and each Subsidiary Loan Party, and (ii)
counterparts of the Indemnity, Subrogation and Contribution
Agreement signed on behalf of each Loan Party.
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(i) The Administrative Agent shall have received (i)
counterparts of a Mortgage with respect to each Mortgaged
Property signed on behalf of the record owner of such
Mortgaged Property, (ii) a policy or policies of title
insurance issued by a nationally recognized title insurance
company, insuring the Lien of each such Mortgage as a valid
first Lien on the Mortgaged Property described therein,
free of any other Liens except as permitted by Section
6.02, in form and substance reasonably acceptable to the
Collateral Agent, together with such endorsements,
coinsurance and reinsurance as the Collateral Agent or the
Required Lenders may reasonably request and (iii) such
surveys, abstracts and appraisals as may be required
pursuant to such Mortgages or as the Administrative Agent
or the Required Lenders may reasonably request.
(j) The Administrative Agent shall have received
evidence satisfactory to it that the insurance required by
Section 5.07 is in effect.
(k) The Lenders shall be reasonably satisfied as to
the amount and nature of any environmental and employee
health and safety exposures to which Holdings and its
subsidiaries may be subject after giving effect to the
Transactions, and with the plans of Holdings and the
Borrower with respect thereto, and the Lenders shall have
received environmental assessments satisfactory to the
Administrative Agent from an environmental consulting firm
satisfactory to the Administrative Agent.
(l) Holdings shall have received gross cash proceeds of
not less than $66,000,000 from the Equity Financing and the
Initial Investors shall have received not less than 75% of
the outstanding common stock of Holdings.
(m) The Borrower shall have received gross cash
proceeds of not less than $150,000,000 from the issuance of
the Subordinated Debt. The terms and conditions of the
Subordinated Debt (including but not limited to terms and
conditions relating to the interest rate, fees,
amortization, maturity, subordination, covenants, events of
defaults and remedies) and the provisions of the
Subordinated Debt Documents shall be satisfactory to the
Lenders. The Administrative Agent shall have received
copies of the Subordinated Debt Documents, certified by a
Financial Officer as complete and correct.
(n) All material consents and approvals required to be
obtained from any Governmental Authority or other Person in
connection with the Recapitalization shall have been
obtained, and all applicable waiting periods and appeal
periods shall have expired, in each case without the
imposition of any burdensome conditions. The
Recapitalization shall have been, or substantially
simultaneously with the initial funding of Loans on the
Effective Date shall be, consummated in accordance with the
Recapitalization Documents and applicable law, without any
amendment to or waiver of any material terms or conditions
of the Recapitalization Documents not approved by the
Required Lenders. The Administrative Agent shall have
received copies of the Recapitalization Documents and all
certificates, opinions and other documents delivered
thereunder, certified by a Financial Officer as complete
and correct. The Lenders shall (i) be satisfied with the
Recapitalization Agreement and such related documentation
and
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(ii) be satisfied with the capitalization, structure
and equity ownership of Holdings after giving effect to the
Transactions.
(o) The Lenders shall have received (i) audited
consolidated balance sheets and related statements of
income, stockholders' equity and cash flows of Holdings for
the five fiscal years ended prior to the Effective Date and
(ii) unaudited consolidated balance sheets and related
statements of income, stockholders' equity and cash flows
of Holdings for the 1997 fiscal quarters preceding the
Effective Date (and, to the extent available, for each
month preceding the Effective Date since the last such
quarter), which audited and unaudited financial statements
shall not be materially inconsistent with the financial
statements or forecasts previously provided to the Lenders.
(p) The Lenders shall have received a pro forma
consolidated balance sheet of Holdings as of July 18, 1997,
reflecting all pro forma adjustments as if the Transactions
had been consummated on such date, and such pro forma
consolidated balance sheet shall be consistent in all
material respects with the forecasts and other information
previously provided to the Lenders. After giving effect to
the Transactions, neither Holdings, the Borrower nor any of
its Subsidiaries shall have outstanding any shares of
preferred stock or any Indebtedness, other than (i)
Indebtedness incurred under the Loan Documents, (ii) the
Subordinated Debt, (iii) Holdings Senior Discount
Debentures, (iv) Holdings Preferred Stock, (v) Indebtedness
and Obligations incurred in connection with the Qualified
Receivables Transaction and (vi) other Indebtedness
permitted under Section 6.01. The aggregate amount of fees
and expenses (including underwriting discounts and
commissions) payable or otherwise borne by Holdings, the
Borrower and its Subsidiaries in connection with the
Transactions shall not exceed $48,590,957.
(q) The Administrative Agent shall have received a
solvency letter, in form and substance reasonably
satisfactory to the Lenders, from Valuation Research
Corporation, with respect to the solvency of the Loan
Parties after giving effect to the Transactions.
(r) The initial closing under the Receivables Sale
Agreement and the Receivables Pooling Agreement shall have
been consummated and Popular Club Plan shall have received
not less than $39,000,000 as consideration for the initial
sale of receivables thereunder.
(s) Holdings shall have received not less than
$75,257,000 in gross cash proceeds from the issuance of the
Holdings Senior Discount Debentures in a public offering or
in a Rule 144A or other private placement to one or more
holders satisfactory to the Administrative Agent. The terms
and conditions of the Holdings Senior Discount Debentures
(including but not limited to terms and conditions relating
to the warrants, interest rate, fees, amortization,
maturity, subordination, covenants, collateral, events of
defaults and remedies) and the provisions of the Holdings
Senior Discount Debt Documents shall be satisfactory in all
respects to the Lenders.
(t) Holdings shall have received not less than
$125,000,000 in gross cash proceeds from the issuance of
the Holdings Preferred Stock in a public offering or in a
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Rule 144A or other private placement to one or more holders
satisfactory to the Administrative Agents. The terms and
conditions of the Holdings Preferred Stock (including but
not limited to terms and conditions relating to the
dividend rate and redemption), shall be satisfactory in all
respects to the Lenders.
(u) The Administrative Agent shall be reasonably
satisfied with the results of an examination of the
receivables and inventory of Holdings and its Subsidiaries
after giving effect to the Transactions and the
consummation of the other transactions contemplated hereby.
(v) The Lenders shall be reasonably satisfied in all
respects with the tax position and the contingent tax and
other liabilities of, and with any tax sharing agreements
(including the Tax Sharing Agreement) among, Holdings and
its subsidiaries after giving effect to the Transactions
and the other transactions contemplated hereby, and with
the plans of Holdings with respect thereto.
(w) The Administrative Agent shall be reasonably
satisfied with the sufficiency of amounts available under
the Revolving Commitments to meet the ongoing working
capital requirements of the Borrower and its Subsidiaries
following the consummation of the Transactions and the
other transactions contemplated hereby.
(x) The Administrative Agent shall have received
counterparts of the Intercreditor Agreement signed by the
Receivables Trustee.
The Administrative Agent shall notify the Borrower and the
Lenders of the Effective Date, and such notice shall be
conclusive and binding. Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit and Acceptances hereunder shall not
become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to
3:00 p.m., New York City time, on October 31, 1997 (and, in the
event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of
each Lender to make a Loan on the occasion of any Borrowing, and
of the Issuing Bank to issue, amend, renew or extend any Letter
of Credit or any Acceptance, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan
Party set forth in the Loan Documents shall be true and
correct in all material respects on and as of the date of
such Borrowing or the date of issuance, amendment, renewal
or extension of such Letter of Credit or such Acceptance,
as applicable, except to the extent such representations
and warranties expressly relate to an earlier date (in
which case such representations and warranties shall be
true and correct in all material respects as to such
earlier date).
(b) At the time of and immediately after giving effect
to such Borrowing or the issuance, amendment, renewal or
extension of such Letter of Credit or such Acceptance, as
applicable, no Default shall have occurred and be
continuing.
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Each Borrowing and each issuance, amendment, renewal or extension
of a Letter of Credit or Acceptance shall be deemed to constitute
a representation and warranty by Holdings and the Borrower on the
date thereof as to the matters specified in paragraphs (a) and
(b) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated
and the principal of and interest on each Loan and all fees
payable hereunder shall have been paid in full and all Letters of
Credit and Acceptances shall have expired or terminated and all
LC Disbursements and Acceptance Disbursements shall have been
reimbursed, each of Holdings and the Borrower covenants and
agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other
Information. Holdings and the Borrower will furnish to the
Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of
Holdings, (i) Holdings' audited consolidated balance sheet
and related statements of operations, stockholders' equity
and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the
previous fiscal year, all reported on by KPMG Peat Marwick
or other independent public accountants of recognized
national standing (without a "going concern" or like
qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in
all material respects the financial condition and results
of operations of Holdings and its consolidated Subsidiaries
on a consolidated basis in accordance with GAAP
consistently applied and (ii) Holdings' unaudited
consolidated and consolidating balance sheet and related
statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal year, setting
forth in each case in comparative form the figures for the
previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the
financial condition and results of operations of Holdings
and its consolidated Subsidiaries on a consolidated and
consolidating basis in accordance with GAAP consistently
applied;
(b) within 45 days after the end of each of the first
three fiscal quarters of each fiscal year of Holdings,
Holdings' unaudited consolidated and consolidating balance
sheet and related statements of operations, stockholders'
equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures
for the corresponding period or periods of (or, in the case
of the balance sheet, as of the end of) the previous fiscal
year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial
condition and results of operations of Holdings and its
consolidated Subsidiaries on a consolidated and
consolidating basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and
the absence of footnotes;
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(c) within 30 days after the end of each of the first
two fiscal months of each fiscal quarter of Holdings, (i)
Holdings' unaudited consolidated balance sheet and related
statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal month and the
then elapsed portion of the fiscal year, all certified by
one of its Financial Officers as presenting in all material
respects the financial condition and results of operations
of Holdings and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and
the absence of footnotes, (ii) unaudited financial
information with respect to sales, margin and EBITDA
information for each of the Borrower's divisions, (iii)
unaudited financial information with respect to same store
retail sales information and (iv) monthly adjusted seasonal
mail order sales/inventory coverage reports; provided that
(A) with respect clause (ii), the Borrower will also
provide a monthly comparison of such information to
budgeted levels prepared on a quarterly basis for each of
the Borrower's divisions and (B) with respect to clause
(iii), the Borrower will also provide a monthly comparison
of such information to budgeted levels prepared on a
quarterly basis;
(d) concurrently with any delivery of financial
statements under clause (a) or (b) above, a certificate of
a Financial Officer of Holdings (i) certifying as to
whether a Default has occurred and, if a Default has occurred,
specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting
forth reasonably detailed calculations demonstrating
compliance with Sections 6.12, 6.13, 6.14, 6.15 and 6.16
and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of
Holdings' audited financial statements referred to in
Section 3.04 and, if any such change has occurred,
specifying the effect of such change on the financial
statements accompanying such certificate;
(e) concurrently with any delivery of financial
statements under clause (a) above, a certificate of the
accounting firm that reported on such financial statements
stating whether they obtained knowledge during the course
of their examination of such financial statements of any
Default (which certificate may be limited to the extent
required by accounting rules or guidelines);
(f) at least 30 days prior to the commencement of each
fiscal year of Holdings, a detailed consolidated budget for
such fiscal year (including a projected consolidated
balance sheet and related statements of projected
operations and cash flow as of the end of and for such
fiscal year) and, promptly when available, any significant
revisions of such budget;
(g) promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements
and other materials filed by Holdings, the Borrower or any
Subsidiary with the Securities and Exchange Commission, or
any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national
securities exchange, or, in the event Holdings becomes a
publicly registered company, distributed by Holdings to its
shareholders generally, as the case may be; and
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(h) promptly following any request therefor, such
other information regarding the operations, business
affairs and financial condition of Holdings, the Borrower
or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may
reasonably request.
SECTION 5.02. Notices of Material Events. Holdings and
the Borrower will furnish to the Administrative Agent and each
Lender, promptly upon Holdings or the Borrower's knowledge
thereof, written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental
Authority against or affecting Holdings, the Borrower or
any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse
Effect;
(c) the occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred,
could reasonably be expected to result in liability of
Holdings, the Borrower and its Subsidiaries in an aggregate
amount exceeding $10,000,000; and
(d) any other development that results in, or could
reasonably be expected to result in, a Material Adverse
Effect.
Each notice delivered under this Section shall be accompanied by
a statement of a Financial Officer or other executive officer of
the Borrower setting forth the details of the event or
development requiring such notice and any action taken or
proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a)
The Borrower will furnish to the Administrative Agent prompt
written notice of any change (i) in any Loan Party's corporate
name or in any trade name used to identify it (x) in the conduct
of its business or (y) in the ownership of its properties, (ii)
in the location of any Loan Party's chief executive office, its
principal place of business, any office in which it maintains
books or records relating to Collateral owned by it or any office
or facility at which Collateral owned by it is located (including
the establishment of any such new office or facility), (iii) in
any Loan Party's identity or corporate structure or (iv) in any
Loan Party's Federal Taxpayer Identification Number. The Borrower
agrees not to effect or permit any change referred to in the
preceding sentence unless all filings have been made, or will
have been made within any applicable statutory period, under the
Uniform Commercial Code or otherwise that are required in order
for the Administrative Agent to continue at all times following
such change to have a valid, legal and perfected security
interest in all the Collateral. The Borrower also agrees promptly
to notify the Administrative Agent if any material portion of the
Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual
financial statements with respect to the preceding fiscal year
pursuant to clause (a) of Section 5.01, the Borrower shall
deliver to the Administrative Agent a certificate of a Financial
Officer of the Borrower (i) setting forth the
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information required pursuant to Section 2 of the Perfection
Certificate or confirming that there has been no change in such
information since the date of the Perfection Certificate
delivered on the Effective Date or the date of the most recent
certificate delivered pursuant to this Section and (ii)
certifying that all Uniform Commercial Code financing statements
(including fixture filings, as applicable) or other appropriate
filings, recordings or registrations, including all refilings,
rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental,
municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above to the extent necessary
to protect and perfect the security interests under the Security
Agreement for a period of not less than 18 months after the date
of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period).
SECTION 5.04. Existence; Conduct of Business. Each of
Holdings and the Borrower will, and will cause each of its
Subsidiaries to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges,
franchises, patents, copyrights, trademarks and trade names
material to the conduct of the business of the Borrower and its
Subsidiaries, taken as a whole; provided that the foregoing shall
not prohibit any merger, consolidation, liquidation or
dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each of Holdings
and the Borrower will, and will cause each of its Subsidiaries
to, pay its Indebtedness and other obligations, including Tax
liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being
contested in good faith by appropriate proceedings, (b) Holdings,
the Borrower or such Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP,
(c) such contest effectively suspends collection of the contested
obligation and the enforcement of any Lien securing such
obligation and (d) the failure to make payment pending such
contest could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.06. Maintenance of Properties. Each of
Holdings and the Borrower will, and will cause each of its
Subsidiaries to, keep and maintain all property material to the
conduct of its business in good working order and condition,
ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Each of Holdings and the
Borrower will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurance
companies:
(i) fire and extended coverage insurance, on a
replacement cost basis, with respect to all personal
property and improvements to real property, in such amounts
as are customarily maintained by companies in the same or
similar business operating in the same or similar
locations;
(ii) commercial general liability insurance against
claims for bodily injury, death or property damage
occurring upon, about or in connection with the use of any
properties owned, occupied or controlled by it, providing
coverage on an occurrence basis
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with a combined single limit of not less than $1,000,000
and including the broad form CGL endorsement;
(iii) business interruption insurance, insuring
against loss of gross earnings for a period of not less
than 12 months arising from any risks or occurrences
required to be covered by insurance pursuant to clause (i)
above; and
(iv) such other insurance of the type and in the
amount described in Schedule 3.13 or as may be required by
law.
Deductibles or self-insured retention shall not exceed $25,000
for fire and extended coverage policies, $25,000 for commercial
general liability policies or 24 hours for business interruption
policies.
(b) Fire and extended coverage policies (and any
policies required to be maintained pursuant to paragraph (c)
below) maintained with respect to any Collateral shall be
endorsed or otherwise amended to include (i) a non-contributing
mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in
each case in favor of the Administrative Agent and providing for
losses thereunder to be payable to the Administrative Agent or
its designee, (ii) a provision to the effect that neither the
Borrower, the Administrative Agent nor any other party shall be a
coinsurer and (iii) such other provisions as the Administrative
Agent may reasonably require from time to time to protect the
interests of the Lenders. Commercial general liability policies
shall be endorsed to name the Administrative Agent as an
additional insured. Business interruption policies shall name the
Administrative Agent as loss payee. Each such policy referred to
in this paragraph also shall provide that it shall not be
canceled, modified or not renewed (i) by reason of nonpayment of
premium except upon not less than 10 days' prior written notice
thereof by the insurer to the Administrative Agent (giving the
Administrative Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than
30 days' prior written notice thereof by the insurer to the
Administrative Agent. The Borrower shall deliver to the
Administrative Agent, prior to the cancellation, modification or
nonrenewal of any such policy of insurance, a copy of a renewal
or replacement policy (or other evidence of renewal of a policy
previously delivered to the Administrative Agent) together with
evidence satisfactory to the Administrative Agent of payment of
the premium therefor.
(c) If at any time the area in which any Mortgaged
Property is located is designated (i) a "flood hazard area" in
any Flood Insurance Rate Map published by the Federal Emergency
Management Agency (or any successor agency), the Borrower shall
obtain flood insurance in such total amount as the Administrative
Agent or the Required Lenders may from time to time require, and
otherwise comply with the National Flood Insurance Program as set
forth in the Flood Disaster Protection Act of 1973, as amended
from time to time, or (ii) a "Zone 1" area, the Borrower shall
obtain earthquake insurance in such total amount as the
Administrative Agent or the Required Lenders may from time to
time require.
SECTION 5.08. Casualty and Condemnation. (a) The
Borrower will furnish to the Administrative Agent and the Lenders
prompt written notice of any casualty or other insured damage to
any portion of any Collateral or the commencement of any action
or proceeding for
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the taking of any Collateral or any part thereof or interest
therein under power of eminent domain or by condemnation or
similar proceeding.
(b) If any event described in paragraph (a) of this
Section results in Net Proceeds (whether in the form of insurance
proceeds, condemnation award or otherwise), the Administrative
Agent is authorized to collect such Net Proceeds and, if received
by Holdings, the Borrower or any Subsidiary, such Net Proceeds
shall be paid over to the Administrative Agent; provided that (i)
if the aggregate Net Proceeds in respect of such event (other
than proceeds of business interruption insurance) are less than
$100,000, such Net Proceeds shall be paid over to the Borrower
unless a Default has occurred and is continuing, and (ii) all
proceeds of business income insurance shall be paid over to the
Borrower unless a Default has occurred and is continuing. All
such Net Proceeds retained by or paid over to the Administrative
Agent shall be held by the Administrative Agent and released from
time to time to pay the costs of repairing, restoring or
replacing the affected property in accordance with the terms of
the applicable Security Document, subject to the provisions of
the applicable Security Document regarding application of such
Net Proceeds during a Default. If requested by the Borrower, the
Administrative Agent shall apply any such Net Proceeds being held
by the Administrative Agent to prepay Term Borrowings.
(c) If any Net Proceeds retained by or paid over to
the Administrative Agent as provided above continue to be held by
the Administrative Agent on the date that is 180 days after the
occurrence of the event resulting in such Net Proceeds, then such
Net Proceeds shall be applied to prepay Term Borrowings as
provided in Section 2.11(b).
SECTION 5.09. Books and Records; Inspection and Audit
Rights. Each of Holdings and the Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and
activities. Each of Holdings and the Borrower will, and will
cause each of its Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender, upon
reasonable prior notice and at its own expense, to visit and
inspect its properties, to examine and make extracts from its
books and records, and to discuss its affairs, finances and
condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.
SECTION 5.10. Compliance with Laws. Each of Holdings
and the Borrower will, and will cause each of its Subsidiaries
to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, except
where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit
and Acceptances. The proceeds of the Term Loans, together with
the proceeds of Revolving Loans not exceeding $37,000,000 to be
drawn on the Effective Date, the net proceeds of the Subordinated
Debt and the proceeds from the initial sale of receivables under
the Qualified Receivables Transaction, will be used (a) for the
payment of the Effective Date Dividend, (b) to pay the fees and
expenses in connection with the Transactions and (c) to refinance
existing Indebtedness of Holdings
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(including the redemption of the Outstanding Senior Notes) and
its Subsidiaries in an amount not to exceed $195,074,875. The
proceeds of the Effective Date Dividend will be used by Holdings,
together with the net proceeds of the Holdings Senior Discount
Debentures, the net proceeds of the Holdings Preferred Stock and
the Equity Financing, for the payment of the cash consideration
to be paid in connection with the Recapitalization. The proceeds
of the Revolving Loans (other than the Loans used for the
purposes specified in the immediately preceding sentence) and
Acceptances will be used for general corporate purposes. No part
of the proceeds of any Loan will be used, whether directly or
indirectly, for any purpose that entails a violation of any
applicable Regulation of the Board, including Regulations G, U
and X. Letters of Credit will be issued to support obligations of
the Borrower and its Subsidiaries incurred in connection with
general corporate purposes.
SECTION 5.12. Additional Subsidiaries. If any
additional Subsidiary is formed or acquired after the Effective
Date or if any subsidiary ceases to be an Inactive Subsidiary,
Holdings and the Borrower will notify the Administrative Agent
and the Lenders thereof and (a) if such Subsidiary is a
Subsidiary Loan Party, Holdings and the Borrower will cause such
Subsidiary to become a party to the Guarantee Agreement, the
Indemnity, Subrogation and Contribution Agreement and each
applicable Security Document in the manner provided therein
within three Business Days after such Subsidiary is formed or
acquired and promptly take such actions to create and perfect
Liens on such Subsidiary's assets to secure the Obligations as
the Administrative Agent or the Required Lenders shall reasonably
request and (b) if any shares of capital stock or Indebtedness of
such Subsidiary are owned by or on behalf of any Loan Party,
Holdings and the Borrower will cause such shares and promissory
notes evidencing such Indebtedness (other than the Purchase Money
Note) to be pledged pursuant to the Pledge Agreement within three
Business Days after such Subsidiary is formed or acquired (except
that, if such Subsidiary is a Foreign Subsidiary and is not a
Subsidiary Loan Party, shares of common stock of such Subsidiary
to be pledged pursuant to the Pledge Agreement may be limited to
65% of the outstanding shares of common stock of such
Subsidiary).
SECTION 5.13. Further Assurances. (a) Each of Holdings
and the Borrower will, and will cause each Subsidiary Loan Party
to, execute any and all further documents, financing statements,
agreements and instruments, and take all such further actions
(including the filing and recording of financing statements,
fixture filings, mortgages, deeds of trust and other documents),
which may be required under any applicable law, or that the
Administrative Agent or the Required Lenders may reasonably
request, to effectuate the transactions contemplated by the Loan
Documents or to grant, preserve, protect or perfect the Liens
created or intended to be created by the Security Documents or
the validity or priority of any such Lien, all at the expense of
the Loan Parties. Holdings and the Borrower also agree to provide
to the Administrative Agent, from time to time upon request,
evidence reasonably satisfactory to the Administrative Agent as
to the perfection and priority of the Liens created or intended
to be created by the Security Documents.
(b) If any material assets (including any real
property or improvements thereto or any interest therein) are
acquired by the Borrower or any Subsidiary Loan Party after the
Effective Date (other than assets constituting Collateral under
the Security Agreement that become subject to the Lien of the
Security Agreement upon acquisition thereof), the Borrower
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will notify the Administrative Agent and the Lenders thereof, and,
if requested by the Administrative Agent or the Required Lenders,
the Borrower will cause such assets to be subjected to a Lien
securing the Obligations and will take, and cause the Subsidiary
Loan Parties to take, such actions as shall be necessary or
reasonably requested by the Administrative Agent to grant and
perfect such Liens, including actions described in paragraph (a)
of this Section, all at the expense of the Loan Parties.
SECTION 5.14. Interest Rate Protection. As promptly as
practicable, and in any event within 90 days after the Effective
Date, the Borrower will enter into, and thereafter for a period
of not less than three years will maintain in effect, one or more
interest rate protection agreements on such terms and with such
parties as shall be reasonably satisfactory to the Administrative
Agent, the effect of which shall be to fix or limit the interest
cost to the Borrower with respect to at least 50% of the
outstanding Term Loans.
SECTION 5.15. Change of Fiscal Year. Before January
31, 1998, each of Holdings, the Borrower and its Subsidiaries
will change the ends of its fiscal periods so that its fiscal
quarters and fiscal years will end on the dates contemplated by
Sections 6.12, 6.13, 6.14, 6.15 and 6.16; provided that if any of
Holdings, the Borrower or any Subsidiary shall fail to make such
change, the Borrower and the Administrative Agent shall negotiate
in good faith in order to adjust the timing of such entities'
financial reporting for purposes of determining compliance with
Sections 6.12, 6.13, 6.14, 6.15 and 6.16 and any other applicable
provisions of this Agreement and, pending such adjustment, such
compliance shall be determined as though the changes in such
entity's fiscal periods had been made in accordance with this
Section 5.15.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and
the principal of and interest on each Loan and all fees payable
hereunder have been paid in full and all Letters of Credit and
Acceptances have expired or terminated and all LC Disbursements
and Acceptance Disbursements shall have been reimbursed, each of
Holdings and the Borrower covenants and agrees with the Lenders
that:
SECTION 6.01. Indebtedness; Certain Equity Securities.
(a) The Borrower will not, and will not permit any Subsidiary to,
create, incur, assume or permit to exist any Indebtedness,
except:
(i) Indebtedness created under the Loan Documents;
(ii) the Subordinated Debt;
(iii) Indebtedness that will be fully repaid on the
Effective Date;
(iv) Indebtedness of the Borrower to any Subsidiary
and of any Subsidiary to the Borrower or any other
Subsidiary; provided that Indebtedness of any Subsidiary
that
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is not a Loan Party to the Borrower or any Subsidiary
Loan Party shall be subject to Section 6.04;
(v) Guarantees by the Borrower of Indebtedness of any
Subsidiary and by any Subsidiary of Indebtedness of the
Borrower or any other Subsidiary; provided that Guarantees
by the Borrower or any Subsidiary Loan Party of
Indebtedness of any Subsidiary that is not a Loan Party
shall be subject to Section 6.04;
(vi) Indebtedness of the Borrower or any Subsidiary
incurred to finance the acquisition, construction or
improvement of any fixed or capital assets, including
Capital Lease Obligations and any Indebtedness assumed in
connection with the acquisition of any such assets or
secured by a Lien on any such assets prior to the
acquisition thereof, and extensions, renewals and
replacements of any such Indebtedness that do not increase
the outstanding principal amount thereof; provided that (A)
such Indebtedness is incurred prior to or within 90 days
after such acquisition or the completion of such
construction or improvement and (B) the aggregate principal
amount of Indebtedness permitted by this clause (vi) shall
not exceed $15,000,000 at any time outstanding;
(vii) Indebtedness of any Person that becomes a
Subsidiary after the date hereof; provided that (A) such
Indebtedness exists at the time such Person becomes a
Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary and (B)
the aggregate principal amount of Indebtedness permitted by
this clause (vii) shall not exceed $5,000,000 at any time
outstanding;
(viii) other unsecured Indebtedness in an aggregate
principal amount not exceeding $5,000,000 at any time
outstanding; and
(ix) Indebtedness incurred pursuant to any Qualified
Receivables Transaction.
(b) Holdings will not create, incur, assume or permit
to exist any Indebtedness except (i) Indebtedness created or
permitted under the Loan Documents and (ii) the Holdings Senior
Discount Debentures; provided that Holdings may issue additional
debt securities having terms and provisions which are, in the
reasonable determination of the Required Lenders (which shall be
obtained in the manner set forth in Section 9.02(b) and not
unreasonably withheld), no less favorable to the Lenders than the
terms and provisions of the Holdings Senior Discount Debentures.
(c) Neither Holdings nor the Borrower will, nor will
they permit any Subsidiary to, issue any preferred stock or be or
become liable in respect of any obligation (contingent or
otherwise) to purchase, redeem, retire, acquire or make any other
payment in respect of any shares of capital stock of Holdings,
the Borrower or any Subsidiary or any option, warrant or other
right to acquire any such shares of capital stock, except
Holdings (i) may issue the Holdings Preferred Stock and (ii) may
issue additional preferred stock that does not require mandatory
cash dividends or redemptions and does not provide for any right
on the part of the holder to require redemption or repayment
thereof (other than such dividends, redemptions or rights which
are expressly subject to compliance with this Agreement), in each
case prior to one year after the Maturity Date and (iii) may
repurchase stock issued to employee benefit plans to
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the extent required by law in order to maintain statutory
qualifications and as permitted under Section 6.07(a).
(d) The Borrower will not, and will not permit any of
its Subsidiaries to, incur any Indebtedness (other than
Indebtedness created under the Loan Documents), whether or not
such Indebtedness is permitted under this Section 6.01, in
reliance upon such Indebtedness constituting "Credit Facilities"
(as defined in the Subordinated Debt Documents). In addition, the
Borrower will not, and will not permit any of its Subsidiaries
to, designate any Indebtedness (other than Indebtedness created
under the Loan Documents) as "Designated Senior Debt" (as defined
in the Subordinated Debt Documents).
SECTION 6.02. Liens. (a) The Borrower will not, and
will not permit any Subsidiary to, create, incur, assume or
permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of
any thereof, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of the
Borrower or any Subsidiary existing on the date hereof and
set forth in Schedule 6.02; provided that (i) such Lien
shall not apply to any other property or asset of the
Borrower or any Subsidiary and (ii) such Lien shall secure
only those obligations which it secures on the date hereof
and extensions, renewals and replacements thereof that do
not increase the outstanding principal amount thereof;
(iv) any Lien existing on any property or asset prior
to the acquisition thereof by the Borrower or any
Subsidiary or existing on any property or asset of any
Person that becomes a Subsidiary after the date hereof
prior to the time such Person becomes a Subsidiary;
provided that (A) such Lien is not created in contemplation
of or in connection with such acquisition or such Person
becoming a Subsidiary, as the case may be, (B) such Lien
shall not apply to any other property or assets of the
Borrower or any Subsidiary and (C) such Lien shall secure
only those obligations which it secures on the date of such
acquisition or the date such Person becomes a Subsidiary,
as the case may be and extensions, renewals and
replacements thereof that do not increase the outstanding
principal amount thereof;
(v) Liens on fixed or capital assets acquired,
constructed or improved by the Borrower or any Subsidiary;
provided that (A) such Liens secure Indebtedness permitted
by clause (vi) of Section 6.01(a), (B) such Liens and the
Indebtedness secured thereby are incurred prior to or
within 90 days after such acquisition or the completion of
such construction or improvement, (C) the Indebtedness
secured thereby does not exceed 90% of the cost of
acquiring, constructing or improving such fixed or capital
assets and (D) such security interests shall not apply to
any other property or assets of the Borrower or any
Subsidiary;
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(vi) Liens on accounts receivables and related assets
of Popular Club or the Receivables Subsidiary in connection
with any Qualified Receivables Transaction;
(vii) Liens on goods the purchase price of which is
financed by a letter of credit issued for the account of
the Borrower or any of its Subsidiaries, provided that any
such Lien secures only the obligations of the Borrower or
such Subsidiaries in respect of such letter of credit to
the extent permitted under Section 6.01;
(viii) Liens, defects and other matters specifically
disclosed on title insurance policies delivered to and
accepted by the Administrative Agent on the Effective Date;
(ix) Liens arising solely by virtue of any statutory
or common law provision relating to banker's liens, rights
of setoff or similar rights; and
(x) Liens in favor of a landlord on leasehold
improvements in leased premises.
(b) Holdings will not create, incur, assume or permit
to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues
(including accounts receivable) or rights in respect thereof,
except Liens created under the Pledge Agreement and Permitted
Encumbrances.
SECTION 6.03. Fundamental Changes. (a) Neither
Holdings nor the Borrower will, nor will they permit any
Subsidiary to, merge into or consolidate with any other Person,
or permit any other Person to merge into or consolidate with it,
or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the surviving
corporation, (ii) any Subsidiary may merge into any Subsidiary
Loan Party in a transaction in which the surviving entity is a
Subsidiary Loan Party and (iii) any Subsidiary may liquidate or
dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders;
provided that any such merger involving a Person that is not a
wholly owned Subsidiary immediately prior to such merger shall
not be permitted unless also permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of
its Subsidiaries (other than the Receivables Subsidiary) to,
engage to any material extent in any business other than 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.
(c) Holdings will not engage in any business or
activity other than the ownership of all the outstanding shares
of capital stock of the Borrower and activities incidental
thereto. Holdings will not own or acquire any assets (other than
shares of capital stock of the Borrower, cash and Permitted
Investments) or incur any liabilities (other than liabilities
under the Loan Documents, the Holdings Senior Discount
Debentures, any additional debt securities permitted under the
proviso in Section 6.01(b), Guarantees by Holdings of obligations
of the Borrower and its Subsidiaries under leases of real
property, obligations under any stock option plans or other
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benefit plans for management or employees of Holdings and its
Subsidiaries, liabilities imposed by law, including tax
liabilities, and other liabilities incidental to its existence
and permitted business and activities).
(d) The Receivables Subsidiary will not engage in any
business or activity other than the purchase and sale and
servicing of receivables (or interests therein) in connection
with any Qualified Receivables Transaction, together with
activities related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees
and Acquisitions. The Borrower will not, and will not permit any
of the Subsidiaries to, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly
owned Subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee
any obligations of, or make or permit to exist any investment or
any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any
assets of any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments existing on the date hereof and set
forth on Schedule 6.04, to the extent such investments
would not be permitted under any other clause of this
Section;
(c) investments by the Borrower and its Subsidiaries
in the capital stock of their Subsidiaries (other than the
Receivables Subsidiary); provided that (i) any such shares
of capital stock held by a Loan Party shall be pledged
pursuant to the Collateral Agreement (subject to the
limitations applicable to common stock of a Foreign
Subsidiary referred to in Section 5.12) and (ii) the
aggregate amount of investments by Loan Parties in, and
loans and advances by Loan Parties to, and Guarantees by
Loan Parties of Indebtedness of, Subsidiaries that are not
Loan Parties and all investments in joint ventures
permitted by clause (k) below, shall not exceed $10,000,000
in the aggregate at any time outstanding; provided further
that the Borrower will be permitted to invest, loan or
advance to Subsidiaries that are not Loan Parties up to
$20,000,000 in excess of the limitation imposed by the
foregoing clause (ii) to the extent such investments, loans
and advances are funded with proceeds from issuance by
Holdings of equity to a member of the Control Group;
(d) loans or advances made by the Borrower to any
Subsidiary (other than the Receivables Subsidiary) and made
by any Subsidiary to the Borrower or any other Subsidiary
(other than the Receivables Subsidiary); provided that (i)
any such loans and advances made by a Loan Party shall be
evidenced by a promissory note pledged pursuant to the
Pledge Agreement and (ii) the amount of all such loans and
advances by Loan Parties to Subsidiaries that are not Loan
Parties shall be subject to the limitation set forth in
clause (c)(ii) above;
(e) Guarantees constituting Indebtedness permitted by
Section 6.01; provided that (i) neither the Borrower nor
any Subsidiary shall Guarantee any Indebtedness of
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Holdings, other than the Obligations, (ii) the aggregate
principal amount of Indebtedness of Subsidiaries that are
not Loan Parties Guaranteed by any Loan Party shall be
subject to the limitation set forth in clause (c)(ii) above
and (iii) the Subordinated Debt shall not be Guaranteed by
any Subsidiary that is not a party to the Guarantee
Agreement;
(f) investments received in connection with the
bankruptcy or reorganization of, or settlement of
delinquent accounts and disputes with, customers and
suppliers, in each case in the ordinary course of business;
(g) (i) investments by the Borrower or any Subsidiary
in (A) the capital stock of the Receivables Subsidiary and
(B) other interests in the Receivables Subsidiary, in each
case to the extent necessary in connection with or required
by the terms of the Qualified Receivables Transaction and
(ii) loans or advances made by the Borrower or any
Subsidiary to the Receivables Subsidiary; provided that (i)
any such loans and advances made by a Loan Party shall be
evidenced by the Purchase Money Note and (ii) the amount of
all such loans and advances by Loan Parties to the
Receivables Subsidiary shall not exceed $70,000,000 in the
aggregate at any time outstanding;
(h) Guarantees by the Borrower and its Subsidiaries of
leases entered into by any Subsidiary as lessee;
(i) extensions of credit in the nature of accounts
receivable or notes receivable in the ordinary course of
business;
(j) loans and advances to employees in the ordinary
course of business; provided that the aggregate amount of
all loans and advances permitted by this clause (j) shall
not exceed $1,000,000 at any time outstanding;
(k) investments in joint ventures; provided that the
amount of all such investments shall be subject to the
limitation set forth in clause (c)(ii) above;
(l) investments constituting obligations under Hedging
Agreements;
(m) other investments in an aggregate amount not
exceeding $1,000,000 at any time outstanding; and
(n) intercompany loans made by the Receivables
Subsidiary to the Borrower or any other Subsidiary as
permitted by the Receivables Transaction Documents.
SECTION 6.05. Asset Sales. The Borrower will not, and
will not permit any of its Subsidiaries to, sell, transfer, lease
or otherwise dispose of any asset, including any capital stock,
nor will the Borrower permit any of its Subsidiaries to issue any
additional shares of its capital stock or other ownership
interest in such Subsidiary, except:
(a) sales of inventory, vehicles, used or surplus
equipment and Permitted Investments in the ordinary course
of business;
(b) sales, transfers and dispositions to the Borrower
or a Subsidiary; provided
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that any such sales, transfers or dispositions
involving a Subsidiary that is not a Loan Party shall be
made in compliance with Section 6.08;
(c) sales, transfers or dispositions of all or
substantially all of the assets or capital stock of Popular
Club or C&W.
(d) sales, transfers and dispositions of assets (other
than capital stock of a Subsidiary) that are not permitted
by any other clause of this Section; provided that the
aggregate fair market value of all assets sold, transferred
or otherwise disposed of in reliance upon this clause (d)
shall not exceed $1,000,000 during any fiscal year of the
Borrower; and
(e) Popular Club may sell or otherwise convey accounts
receivable and related assets to the Receivables Subsidiary
pursuant to any Qualified Receivables Transaction; provided
that the aggregate principal amount of Indebtedness
incurred in connection with such sale or conveyance does
not to exceed $70,000,000 at any time outstanding;
provided that all sales, transfers, leases and other dispositions
permitted hereby (other than those permitted by clause (b) above)
shall be made for fair value and solely for cash consideration.
SECTION 6.06. Hedging Agreements. The Borrower will
not, and will not permit any of its Subsidiaries to, enter into
any Hedging Agreement, other than (a) Hedging Agreements required
by Section 5.14 and (b) Hedging Agreements entered into in the
ordinary course of business to hedge or mitigate risks to which
the Borrower or any Subsidiary is exposed in the conduct of its
business or the management of its liabilities.
SECTION 6.07. Restricted Payments; Certain Payments of
Indebtedness. (a) Neither Holdings nor the Borrower will, nor
will they permit any Subsidiary to, declare or make, or agree to
pay or make, directly or indirectly, any Restricted Payment,
except:
(i) Holdings may make Restricted Payments with respect
to its capital stock payable solely in additional shares of
its common stock;
(ii) Holdings may make Restricted Payments with
respect to the Holdings Preferred Stock payable solely in
additional shares of the Holdings Preferred Stock;
(iii) Subsidiaries of the Borrower may make Restricted
Payments to the Borrower and to wholly owned Subsidiaries
and may declare and pay dividends ratably with respect to
their common stock;
(iv) Holdings may make Restricted Payments, not
exceeding $2,000,000 during any fiscal year, pursuant to
and in accordance with stock option plans or other benefit
plans for management or employees of Holdings and its
Subsidiaries, including the redemption or purchase of
shares of common stock of Holdings held by former employees
of Holdings or any Subsidiary following the termination of
their employment; provided, however, that the amount of
Restricted Payments permitted under this clause (iv) in any
fiscal year shall be increased (but not by more than
$10,000,000) on a
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cumulative basis by an amount equal to the total unused
amount of permitted Restricted Payments under this clause
(iv) for the preceding year;
(v) following the fifth anniversary of the Effective
Date, if at the time thereof and after giving effect
thereto no Default has occurred and is continuing, the
Borrower may pay interest to Holdings at such times and in
such amounts, not exceeding $18,637,500 during any fiscal
year, as shall be necessary to permit Holdings to pay, as
and when due, interest on the Holdings Senior Discount
Debentures accrued subsequent to the fifth anniversary of
the Effective Date;
(vi) if at the time thereof and after giving effect
thereto no Default has occurred and is continuing, Holdings
may redeem, purchase, retire or otherwise acquire
outstanding shares of Holdings Preferred Stock with the Net
Proceeds from the issuance after the Effective Date of new
preferred stock of Holdings or the issuance after the
Effective Date of common stock of Holdings issued in a Rule
144A or other private placement;
(vii) if at the time thereof and after giving effect
thereto no Default has occurred and is continuing, the
Borrower may pay cash dividends to Holdings, in an
aggregate amount not exceeding $1,500,000 during any fiscal
year, at such times and in such amounts as shall be
necessary to permit Holdings to (A) pay taxes imposed upon
it and liabilities incidental to its existence when due and
(B) pay directors' fees and management compensation to its
directors when due; provided that any dividends permitted
to be paid to Holdings shall not be paid prior to the date
that Holdings will apply the proceeds of such dividends to
the purposes for which such dividends are permitted;
(viii) the Borrower may pay a one time management fee
to TPG Partners in amount not exceeding $5,500,000;
(ix) the Borrower may make payments to Holdings
pursuant to and in accordance with the Tax Sharing
Agreement;
(x) the Borrower may pay cash dividends to Holdings in
such amounts and at such times as Holdings makes Restricted
Payments permitted by clause (iv) above and clause (xi)
below; and
(xi) at any time after May 1, 1999 if at the time
thereof no Default has occurred and is continuing and if
the Leverage Ratio of the Borrower is less than 4.00 to
1.00 for the two immediately preceding consecutive fiscal
quarters, Holdings may redeem, purchase, retire or
otherwise acquire outstanding shares of Holdings Preferred
Stock in an aggregate amount not exceeding 50% of the Net
Proceeds from the issuance of equity securities of
Holdings.
(b) Neither Holdings nor the Borrower will, nor will
they permit any Subsidiary to, make or agree to pay or make,
directly or indirectly, any payment or other distribution
(whether in cash securities or other property) of or in respect
of principal of or interest on any
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Indebtedness, or any payment or other distribution (whether in
cash, securities or other property), including any sinking fund
or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any
Indebtedness, except:
(i) payment of Indebtedness created under the Loan
Documents;
(ii) payment of regularly scheduled interest and
principal payments as and when due in respect of any
Indebtedness, other than payments in respect of the
Subordinated Debt prohibited by the subordination
provisions thereof;
(iii) refinancing of Indebtedness to the extent
permitted by Section 6.01;
(iv) payment of secured Indebtedness that becomes due
as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(v) payment of interest on the Holdings Senior
Discount Debentures payable solely by the issuance of
additional Holdings Senior Discount Debentures, provided
that after the fifth anniversary of the Effective Date,
Holdings will be permitted to pay interest in cash on (A)
the Holdings Senior Discount Debentures as and when due and
(B) any additional debt securities permitted under the
proviso in Section 6.01(b);
(vi) repayment of the Indebtedness under Existing
Credit Agreement on the Effective Date;
(vii) payment of unsecured Indebtedness permitted
under clause (viii) of Section 6.01(a);
(viii) if at the time thereof and after giving effect
thereto no Default has occurred and is continuing and if
Popular Club or C & W shall have been sold, Holdings may
redeem, purchase, retire or otherwise acquire outstanding
Holdings Senior Discount Debentures in an aggregate amount
not exceeding the lesser of 20% of the Net Proceeds from
such sales or $25,000,000; and
(ix) payment of Obligations required under the
Qualified Transaction Documents.
SECTION 6.08. Transactions with Affiliates. Neither
Holdings nor the Borrower will, nor will they permit any
Subsidiary to, sell, lease or otherwise transfer any property or
assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions
with, any of its Affiliates, except (a) transactions in the
ordinary course of business that do not involve Holdings and are
at prices and on terms and conditions not less favorable to the
Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties, (b) transactions
between or among the Borrower and the Subsidiary Loan Parties not
involving any other Affiliate, (c) any Restricted Payment
permitted by Section 6.07 and (d) any Qualified Receivables
Transactions of Popular Club or the Receivables Subsidiary.
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SECTION 6.09. Restrictive Agreements. Neither Holdings
nor the Borrower will, nor will they permit any Subsidiary to,
directly or indirectly, enter into, incur or permit to exist any
agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of Holdings, the
Borrower or any Subsidiary to create, incur or permit to exist
any Lien upon any of its property or assets, or (b) the ability
of any Subsidiary to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay
loans or advances to the Borrower or any other Subsidiary or to
Guarantee Indebtedness of the Borrower or any other Subsidiary;
provided that (i) the foregoing shall not apply to restrictions
and conditions imposed by law or by any Loan Document or
Subordinated Debt Document or Holdings Senior Discount Debt
Document, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule
6.09 (but shall apply to any extension or renewal of, or any
amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements
relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary
that is to be sold and such sale is permitted hereunder, (iv)
clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such
Indebtedness, (v) clause (a) of the foregoing shall not apply to
customary provisions in leases restricting the assignment thereof
and (vi) the foregoing shall not apply to restrictions and
conditions imposed by any Qualified Receivables Transaction.
SECTION 6.10. Amendment of Material Documents. Neither
Holdings nor the Borrower will, nor will they permit any
Subsidiary to, amend or modify, or waive any of its material
rights under, (a) any Subordinated Debt Document, (b) any
Holdings Senior Discount Debt Document, (c) its certificate of
incorporation, by-laws or other organizational documents or (d)
the Tax Sharing Agreement.
SECTION 6.11. Sale and Lease-Back Transactions. The
Borrower will not, and will not permit any of its Subsidiaries
to, enter into any arrangement, directly or indirectly, with any
Person whereby it shall sell or transfer any property, real or
personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
SECTION 6.12. Capital Expenditures. The Borrower will
not permit the aggregate amount of Capital Expenditures made by
the Borrower and the Subsidiaries in any fiscal year (commencing
with the fiscal year beginning February 1, 1998) to exceed the
amount set forth below opposite such year; provided, however,
that the amount of permitted Capital Expenditures in any fiscal
year may be increased by an amount equal to (a) the lesser of (i)
50% of the total amount of Capital Expenditures permitted
hereunder for the immediately preceding year (disregarding
amounts permitted by reason of this proviso) and (ii) the excess,
if any, of the total amount of Capital Expenditures permitted
hereunder for the immediately preceding fiscal year (disregarding
amounts permitted by reason of this proviso) over the amount of
Capital Expenditures made during such preceding year, and (b) the
total amount of Capital Expenditures permitted hereunder for the
year immediately subsequent to such fiscal year; provided further
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that any Capital Expenditures made in reliance upon clause (b) of
the foregoing proviso will be deducted from the amount of Capital
Expenditures permitted hereunder for such subsequent year:
Fiscal Year
Ending Amounts
---------- -------
January 30, 1999 $43,000,000
January 29, 2000 35,000,000
February 3, 2001 31,000,000
February 2, 2002 31,000,000
February 1, 2003 31,000,000
SECTION 6.13. Leverage Ratio. Subject to Section 1.05,
the Borrower will not permit the Leverage Ratio as of the last
day of any fiscal quarter during any period set forth below to be
in excess of the ratio set forth opposite such period:
Quarter Ending
During the Period Ratio
----------------- -----
January 30, 1998 through
October 31, 1998 6.00 to 1.00
January 30, 1999 5.50 to 1.00
May 1, 1999 through
October 30, 1999 5.75 to 1.00
January 29, 2000 through
October 28, 2000 4.75 to 1.00
February 3, 2001 through
November 3, 2001 4.25 to 1.00
February 2, 2002 and
thereafter 3.50 to 1.00
SECTION 6.14. Interest Coverage Ratio. Subject to
Section 1.05, the Borrower will not permit the ratio of (a)
Consolidated EBITDAR of the Borrower to (b) the sum of (i) Cash
Interest Expense plus (ii) rental expense deducted in determining
Consolidated Net Income plus (iii) cash interest expense on the
Holdings Senior Discount Debentures, in each case for any period
of four consecutive fiscal quarters of the Borrower ending during
any period set forth below, to be less than the ratio set forth
below opposite such period:
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Four-Quarter
Period Ending Ratio
------------- -----
January 30, 1998 through
October 31, 1998 1.20 to 1.00
January 30, 1999 through
October 30, 1999 1.35 to 1.00
January 29, 2000 through
October 28, 2000 1.40 to 1.00
February 3, 2001 and
thereafter 1.50 to 1.00
SECTION 6.15. Net Worth. The Borrower will not permit
Consolidated Net Worth at any date to be less than the sum of (a)
($17,000,000), plus (b) 50% of the cumulative amount of positive
Consolidated Net Income for each fiscal year ending on or after
January 30, 1999 and on or prior to the date of determination
that has positive Consolidated Net Income, plus (c) 100% of all
increases in Consolidated Net Worth attributable to the issuance
of equity by or capital contributions to the Borrower after the
Effective Date.
SECTION 6.16. Inventory Coverage Ratio. The Borrower
will not permit the ratio of (a) the sum of (i) Inventory plus
(ii) Letters of Credit to (b) the sum of Revolving Exposure, in
each case as of the end of any fiscal month, to be less than 1.75
to 1.00.
ARTICLE VII
Events of Default
SECTION 7.01. Events of Default. If any of the
following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of
any Loan when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any
Loan, any reimbursement obligation in respect of any LC
Disbursement and Acceptance Disbursement or any fee or any
other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement or any
other Loan Document, when and as the same shall become due
and payable, and such failure shall continue unremedied for
a period of five days;
(c) any representation or warranty made or deemed made
by or on behalf of Holdings, the Borrower or any Subsidiary
in or in connection with any Loan Document or any amendment
or modification thereof or waiver thereunder, or any
certificate, or other document furnished pursuant to or in
connection with any Loan Document or any
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amendment or modification thereof or waiver thereunder,
shall prove to have been incorrect in any material respect
when made or deemed made;
(d) Holdings or the Borrower shall fail to observe or
perform any covenant, condition or agreement contained in
Section 5.02, 5.04 (with respect to the existence of
Holdings or the Borrower) or 5.11 or in Article VI;
(e) any Loan Party shall fail to observe or perform
any covenant, condition or agreement contained in any Loan
Document (other than those specified in clause (a), (b)
or (d) of this Article), and such failure shall continue
unremedied for a period of 30 days after written notice
thereof from the Administrative Agent to the Borrower
(which notice will be given at the request of any Lender);
(f) Holdings, the Borrower or any Subsidiary shall
fail to make any payment (whether of principal or interest
and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and
payable after giving effect to any applicable grace period
with respect thereto (without giving effect to any waiver,
consent or amendment for which Holdings, the Borrower or
any Subsidiary gave any consideration or benefit of any
kind (including any increased compensation, prepayment,
shortening of maturities, security or other credit support)
during the continuation of such failure to make payment);
(g) any event or condition occurs that results in any
Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (or would permit, but
for a waiver to or consent or amendment of such event or
condition for which Holdings, the Borrower or any
Subsidiary gave any consideration or benefit of any kind
(including any increased compensation, prepayment,
shortening of maturities, security or other credit support)
during the continuation of such failure) the holder or
holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its
scheduled maturity; provided that this clause (g) shall not
apply to Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i)
liquidation, reorganization or other relief in respect of
Holdings, the Borrower or, subject to Section 7.02, any
Subsidiary or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official
for Holdings, the Borrower or, subject to Section 7.02, any
Subsidiary or for a substantial part of its assets, and, in
any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(i) Holdings, the Borrower or, subject to Section
7.02, any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency,
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receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or
consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official
for Holdings, the Borrower or, subject to Section 7.02, any
Subsidiary or for a substantial part of its assets, (iv)
file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make
a general assignment for the benefit of creditors or (vi)
take any action for the purpose of effecting any of the
foregoing;
(j) Holdings, the Borrower or, subject to Section
7.02, any Subsidiary shall become unable, admit in writing
its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in
an aggregate amount in excess of $10,000,000 (net of
amounts covered by insurance as to which the insurer has
not denied liability) shall be rendered against Holdings,
the Borrower, any Subsidiary or any combination thereof and
the same shall remain undischarged for a period of 30
consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by
a judgment creditor to attach or levy upon any assets of
Holdings, the Borrower or any Subsidiary to enforce any
such judgment;
(l) an ERISA Event shall have occurred that, in the
opinion of the Required Lenders, when taken together with
all other ERISA Events that have occurred, could reasonably
be expected to result in a Material Adverse Effect;
(m) any Lien purported to be created under any
Security Document shall cease to be, or shall be asserted
by any Loan Party not to be, a valid and perfected Lien on
any material portion of the Collateral, with the priority
required by the applicable Security Document, except (i) as
a result of the sale or other disposition of the applicable
Collateral in a transaction permitted under the Loan
Documents, (ii) any action taken by the Collateral Agent to
release any such Lien or (iii) as a result of the
Collateral Agent's failure to maintain possession of any
stock certificates, promissory notes or other instruments
delivered to it under the Pledge Agreement; or
(n) a Change in Control shall occur; or
(o) any event or condition occurs that results in any
"Early Amortization Event" (as defined in the Receivables
Pooling Agreement) with respect to the securities or other
instruments issued in connection with a Qualified
Receivables Transaction and such securities or other
instruments becoming due prior to their scheduled maturity
or that enables or permits (or would permit, but for a
waiver to or consent or amendment of such event or
condition for which Holdings, the Borrower or any
Subsidiary gave any consideration or benefit of any kind
(including any increased compensation, prepayment,
shortening of maturities, security or other credit support)
during the continuation of such failure) the holder or
holders of such securities or other instruments or any
trustee or agent on its or their behalf to cause any such
securities or other instruments to become
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due, or to require the prepayment, repurchase, redemption
or defeasance thereof, prior to their scheduled maturity;
then, and in every such event (other than an event with respect
to the Borrower described in clause (h) or (i) of this Article),
and at any time thereafter during the continuance of such event,
the Administrative Agent may, and at the request of the Required
Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i)
terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then
outstanding to be due and payable in whole (or in part, in which
case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable,
together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the
Borrower; and in case of any event with respect to the Borrower
described in clause (h) or (i) of this Article, the Commitments
shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees
and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
SECTION 7.02. Exclusion of Immaterial Subsidiaries.
Solely for purposes of determining whether a Default has occurred
under clause (h), (i) or (j) of Section 7.01, any reference in
any such clause to any "Subsidiary" shall be deemed not to
include any Subsidiary affected by any event or circumstance
referred to in any such clause that did not, as of the last day
of the fiscal quarter of the Borrower most recently ended have
assets with a value in excess of 2.5% of the total consolidated
assets of the Borrower and its Subsidiaries as of such date;
provided that if it is necessary to exclude more than one
Subsidiary from clause (h), (i) or (j) of Section 7.01 pursuant
to this Section in order to avoid a Default thereunder, all
excluded Subsidiaries shall be considered to be a single
consolidated Subsidiary for purposes of determining whether the
condition specified above is satisfied.
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby
irrevocably appoints the Administrative Agent (which term for
purposes of this Article shall be deemed to refer to the
Administrative Agent and the Collateral Agent) as its agent and
authorizes the Administrative Agent to take such actions on its
behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms of the Loan Documents, together
with such actions and powers as are reasonably incidental
thereto. The Administrative Agent is hereby expressly authorized
by the Lenders, without hereby limiting any implied authority, to
enter into the Intercreditor Agreement in substantially the form
as set forth in Exhibit G and each Lender agrees to be bound by
the terms thereof.
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The bank serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender
as any other Lender and may exercise the same as though it were
not the Administrative Agent, and such bank and its Affiliates
may accept deposits from, lend money to and generally engage in
any kind of business with Holdings, the Borrower or any
Subsidiary or other Affiliate thereof as if it were not the
Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth in the Loan
Documents. Without limiting the generality of the foregoing, (a)
the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall
not have any duty to take any discretionary action or exercise
any discretionary powers, except discretionary rights and powers
expressly contemplated by the Loan Documents that the
Administrative Agent is required to exercise in writing by the
Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided
in Section 9.02), and (c) except as expressly set forth in the
Loan Documents, the Administrative Agent shall not have any duty
to disclose, and shall not be liable for the failure to disclose,
any information relating to Holdings, the Borrower or any of its
Subsidiaries that is communicated to or obtained by the bank
serving as Administrative Agent or any of its Affiliates in any
capacity. The Administrative Agent shall not be liable for any
action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of
its own gross negligence or wilful misconduct. The Administrative
Agent shall not be deemed not to have knowledge of any Default
unless and until written notice thereof is given to the
Administrative Agent by Holdings, the Borrower or a Lender, and
the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with any Loan Document,
(ii) the contents of any certificate, report or other document
delivered thereunder or in connection therewith, (iii) the
performance or observance of any of the covenants, agreements or
other terms or conditions set forth in any Loan Document, (iv)
the validity, enforceability, effectiveness or genuineness of any
Loan Document or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Article IV or
elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative
Agent.
The Administrative Agent shall be entitled to rely
upon, and shall not incur any liability for relying upon, any
notice, request, certificate, consent, statement, instrument,
document or other writing reasonably believed by it to be genuine
and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it
orally or by telephone and reasonably believed by it to be made
by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal
counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one
or more sub-agents appointed by the Administrative
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Agent. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory
provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of each Administrative Agent
and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit
facilities provided for herein as well as activities as
Administrative Agent.
Subject to the appointment and acceptance of a
successor the Administrative Agent as provided in this paragraph,
the Administrative Agent may resign at any time by notifying the
Lenders, the Issuing Bank and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation,
then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative
Agent which shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall
be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall
be the same as those payable to its predecessor unless otherwise
agreed in writing between the Borrower and such successor. After
the Administrative Agent's resignation hereunder, the provisions
of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and
their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as
Administrative Agent.
Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative
Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or
related agreement or any document furnished hereunder or
thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices
and other communications expressly permitted to be given by
telephone, all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail
or sent by telecopy, as follows:
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(a) if to Holdings or the Borrower, to it at J. Crew
Group, Inc., 22 Lincoln Place, Garfield, NJ 07026,
Attention of Michael P. McHugh (Telecopy No. (201)
773-7957);
(b) if to the Administrative Agent or the Collateral
Agent, to The Chase Manhattan Bank, Loan and Agency
Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, New York 10081, Attention of Anne Hickey (Telecopy
No. (212) 552-5658), with a copy to The Chase Manhattan
Bank, 270 Park Avenue, 48th Floor, New York, New York
10017, Attention of Meredith Vanden Handel and Ellen
Gertzog (Telecopy No. (212) 270-1474);
(c) if to the Issuing Bank, to it at One Chase
Manhattan Plaza, 8th Floor, New York, New York 10081,
Attention of Anne Hickey (Telecopy No. (212) 552-5658); and
(d) if to any other Lender, to it at its address (or
telecopy number) set forth in its Administrative
Questionnaire.
Any party hereto may change its address or telecopy number for
notices and other communications hereunder by notice to the other
parties hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or
delay by the Administrative Agent, the Collateral Agent, the
Issuing Bank or any Lender in exercising any right or power
hereunder or under any other Loan Document 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 Administrative Agent, the
Collateral Agent, the Issuing Bank and the Lenders hereunder and
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 any Loan Document or consent
to any departure by any Loan Party therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b)
of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for
which given. Without limiting the generality of the foregoing,
the making of a Loan or issuance of a Letter of Credit shall not
be construed as a waiver of any Default, regardless of whether
the Administrative Agent, the Collateral Agent, any Lender or the
Issuing Bank may have had notice or knowledge of such Default at
the time.
(b) Neither this Agreement nor any other Loan Document
nor any provision hereof or thereof may be waived, amended or
modified except, in the case of this Agreement, pursuant to an
agreement or agreements in writing entered into by Holdings, the
Borrower and the Required Lenders or, in the case of any other
Loan Document, pursuant to an agreement or agreements in writing
entered into by the Administrative Agent or the Collateral Agent,
as applicable, and the Loan Party or Loan Parties that are
parties thereto, in each case with the consent of the Required
Lenders; provided that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal
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amount of any Loan or LC Disbursement or Acceptance Disbursement
or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender
affected thereby, (iii) postpone the scheduled date of payment of
the principal amount of any Loan or LC Disbursement or Acceptance
Disbursement, or any interest thereon, or any fees payable
hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected
thereby, (iv) change Section 2.18(b) or (c) in a manner that
would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) change any of the
provisions of this Section or the definition of "Required
Lenders" or any other provision of any Loan Document specifying
the number or percentage of Lenders (or Lenders of any Class)
required to waive, amend or modify any rights thereunder or make
any determination or grant any consent thereunder, without the
written consent of each Lender (or each Lender of such Class, as
the case may be), (vi) release Holdings or any Subsidiary Loan
Party from its Guarantee under the Guarantee Agreement (except as
expressly provided in the Guarantee Agreement), or limit its
liability in respect of such Guarantee, without the written
consent of each Lender, (vii) except in strict accordance with
the express provisions of the Security Documents and the
Intercreditor Agreement, release all or any substantial part of
the Collateral from the Liens of the Security Documents, without
the written consent of each Lender or (viii) change any
provisions of any Loan Document in a manner that by its terms
adversely affects the rights in respect of payments due to
Lenders holding Loans of any Class differently than those holding
Loans of any other Class, without the written consent of Lenders
holding a majority in interest of the outstanding Loans and
unused Commitments of each affected Class; provided further that
(A) no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent, the Collateral
Agent or the Issuing Bank without the prior written consent of
the Administrative Agent, the Collateral Agent or the Issuing
Bank, as the case may be, and (B) any waiver, amendment or
modification of this Agreement that by its terms affects the
rights or duties under this Agreement of the Revolving Lenders
(but not the Term Lenders), the Term Lenders (but not the
Revolving Lenders) may be effected by an agreement or agreements
in writing entered into by Holdings, the Borrower and requisite
percentage in interest of the affected Class of Lenders that
would be required to consent thereto under this Section if such
Class of Lenders were the only Class of Lenders hereunder at the
time.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a)
The Borrower shall pay (i) all reasonable out-of-pocket expenses
incurred by the Administrative Agent, the Collateral Agent and
their Affiliates, including the reasonable fees, charges and
disbursements of counsel for the Administrative Agent and the
Collateral Agent, in connection with the syndication of the
credit facilities provided for herein, the preparation and
administration of the Loan Documents or any amendments,
modifications or waivers of the provisions thereof (whether or
not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred
by the Issuing Bank in connection with the issuance, amendment,
renewal or extension of any Letter of Credit or Acceptance or any
demand for payment thereunder and (iii) all out-of-pocket
expenses incurred by the Administrative Agent, the Collateral
Agent, the Issuing Bank or any Lender, including the reasonable
fees, charges and disbursements of any counsel for the
Administrative Agent, the Collateral Agent, the Issuing Bank or
any Lender, in connection with the enforcement or protection of
its rights in connection with the Loan Documents, including its
rights under this Section, or in connection with the
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Loans made or Letters of Credit or Acceptances issued hereunder,
including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans
or Letters of Credit or Acceptances.
(b) The Borrower shall indemnify the Administrative
Agent, the Collateral Agent, the Issuing Bank and each Lender,
and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery
of any Loan Document or any other agreement or instrument
contemplated hereby, the performance by the parties to the Loan
Documents of their respective obligations thereunder or the
consummation of the Transactions or any other transactions
contemplated hereby, (ii) any Loan or Letter of Credit or
Acceptance or the use of the proceeds therefrom (including any
refusal by the Issuing Bank to honor a demand for payment under a
Letter of Credit or Acceptance if the documents presented in
connection with such demand do not strictly comply with the terms
of such Letter of Credit or Acceptance), (iii) any actual or
alleged presence or release of Hazardous Materials on or from any
Mortgaged Property or any other property currently or formerly
owned or operated by the Borrower or any of its Subsidiaries, or
any Environmental Liability related in any way to the Borrower or
any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory
and regardless of whether 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) To the extent that the Borrower fails to pay any
amount required to be paid by it to the Administrative Agent, the
Collateral Agent or the Issuing Bank under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the
Administrative Agent, the Collateral Agent or the Issuing Bank,
as the case may be, such Lender's pro rata share (determined as
of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent, the Collateral
Agent or the Issuing Bank in its capacity as such. For purposes
hereof, a Lender's "pro rata share" shall be determined based
upon its share of the sum of the total Revolving Exposures,
outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, neither
Holdings nor the Borrower shall assert, and each hereby waives,
any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with,
or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan or Letter of
Credit or Acceptance or the use of the proceeds thereof.
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(e) All amounts due under this Section shall be
payable promptly after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The
provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and assigns permitted hereby (including any Affiliate of the
Issuing Bank that issues any Letter of Credit or any Acceptance),
except that the Borrower may not assign or otherwise transfer any
of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer
by the Borrower without such consent shall be null and void).
Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby
(including any Affiliate of the Issuing Bank that issues any
Letter of Credit or any Acceptance) and, to the extent expressly
contemplated hereby, the Related Parties of each of the
Administrative Agent, the Collateral Agent, the Issuing Bank and
the Lenders) any legal or equitable right, remedy or claim under
or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all
or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at
the time owing to it); provided that (i) except in the case of an
assignment to a Lender or an Affiliate of a Lender, each of the
Borrower and the Administrative Agent (and, in the case of an
assignment of all or a portion of a Revolving Commitment or any
Lender's obligations in respect of its LC and Acceptance Exposure
and the Issuing Bank) must give their prior written consent to
such assignment (which consent shall not be unreasonably
withheld), (ii) except in the case of an assignment to a Lender
or an Affiliate of a Lender or an assignment of the entire
remaining amount of the assigning Lender's Commitment or Loans,
the amount of the Commitment or Loans of the assigning Lender
subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than
$5,000,000 unless each of the Borrower and the Administrative
Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement,
except that this clause (iii) shall not be construed to prohibit
the assignment of a proportionate part of all the assigning
Lender's rights and obligations in respect of one Class of
Commitments or Loans, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of
$3,500, and (v) the assignee, if it shall not be a Lender, shall
deliver to the Administrative Agent an Administrative
Questionnaire; and provided further that any consent of the
Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of
Article VII has occurred and is continuing. Subject to acceptance
and recording thereof pursuant to paragraph (d) of this Section,
from and after the effective date specified in each Assignment
and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under
this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of
the assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto but shall continue to
be entitled to the benefits of Sections 2.15, 2.16, 2.17 and
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9.03). Any assignment or transfer by a Lender of rights
or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as
a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose
as an agent of the Borrower, shall maintain at one of its offices
in The City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names
and addresses of the Lenders, and the Commitment of, and
principal amount of the Loans and LC Disbursements and Acceptance
Disbursements owing to, each Lender pursuant to the terms hereof
from time to time (the "Register"). The entries in the Register
shall be conclusive, and Holdings, the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register
shall be available for inspection by the Borrower, the Issuing
Bank and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment
and Acceptance executed by an assigning Lender and an assignee,
the assignee's completed Administrative Questionnaire (unless the
assignee shall already be a Lender hereunder), the processing and
recordation fee referred to in paragraph (b) of this Section and
any written consent to such assignment required by paragraph (b)
of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained
therein in the Register. No assignment shall be effective for
purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(e) Any Lender may, without the consent of the
Borrower, the Administrative Agent or the Issuing Bank, sell
participations to one or more banks or other entities (a
"Participant") in all or a portion of such Lender's rights and
obligations under this Agreement (including all or a portion of
its Commitment and the Loans owing to it); provided that (i) such
Lender's obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii)
Holdings, the Borrower, the Administrative Agent, the Collateral
Agent, the Issuing Bank and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the
sole right to enforce the Loan Documents and to approve any
amendment, modification or waiver of any provision of the Loan
Documents; provided that such agreement or instrument may provide
that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects
such Participant. Subject to paragraph (f) of this Section, the
Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if
it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.18(c) as
though it were a Lender.
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(f) A Participant shall not be entitled to receive any
greater payment under Section 2.15 or 2.17 than the applicable
Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits
of Section 2.17 unless the Borrower is notified of the
participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section
2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any
pledge or assignment to secure obligations to a Federal Reserve
Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from
any of its obligations hereunder or substitute any such pledgee
or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Loan Parties in the
Loan Documents and in the certificates or other instruments
delivered in connection with or pursuant to this Agreement or any
other Loan Document shall be considered to have been relied upon
by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and
issuance of any Letters of Credit and any Acceptances, regardless
of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, the
Issuing Bank or any Lender may have had notice or knowledge of
any Default or incorrect representation or warranty at the time
any credit is extended hereunder, and shall continue in full
force and effect as long as the principal of or any accrued
interest on any Loan or any fee or any other amount payable under
this Agreement is outstanding and unpaid or any Letter of Credit
or Acceptance is outstanding and so long as the Commitments have
not expired or terminated. The provisions of Sections 2.15, 2.16,
2.17 and 9.03 and Article VIII shall survive and remain in full
force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the
expiration or termination of the Letters of Credit or Acceptances
and the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 9.06. Counterparts; Integration;
Effectiveness. 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, the other Loan Document and any separate letter
agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed
by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.
90
<PAGE>
SECTION 9.07. Severability. Any provision of this
Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a
particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default
shall have occurred and be continuing, each Lender and each of
its Affiliates 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 obligations at
any time owing by such Lender or Affiliate to or for the credit
or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not
such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may
have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process. (a) This Agreement shall be construed in
accordance with and governed by the law of the State of New York.
(b) Each of Holdings and the Borrower hereby
irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to any Loan Document, 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 or any other Loan
Document shall affect any right that the Administrative Agent,
the Issuing Bank or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan
Document against Holdings, the Borrower or its properties in the
courts of any jurisdiction.
(c) Each of Holdings and the Borrower 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 any
other Loan Document in any court referred to in paragraph (b) of
this Section. 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.
(d) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 9.01. Nothing in this Agreement or any other Loan
91
<PAGE>
Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
SECTION 9.10. 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 ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). 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 BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings
and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in
interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the
Administrative Agent, the Issuing Bank and the Lenders agrees to
maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and
its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will
be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent
required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or
any suit, action or proceeding relating to this Agreement or any
other Loan Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee
of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this
Agreement, (g) with the consent of the Borrower or (h) to the
extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available
to the Administrative Agent, the Issuing Bank or any Lender on a
nonconfidential basis from a source other than Holdings or the
Borrower. For the purposes of this Section, "Information" means
all information received from Holdings or the Borrower relating
to Holdings or the Borrower or its business, other than any such
information that is available to the Administrative Agent, the
Issuing Bank or any Lender on a nonconfidential basis prior to
disclosure by Holdings or the Borrower; provided that, in the
case of information received from Holdings or the Borrower after
the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain
the confidentiality of Information as provided in this Section
shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
92
<PAGE>
confidentiality of such Information as such Person would accord
to its own confidential information.
SECTION 9.13. Interest Rate Limitation.
Notwithstanding anything herein to the contrary, if at any time
the interest rate applicable to any Loan, together with all fees,
charges and other amounts which are treated as interest on such
Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be
contracted for, charged, taken, received or reserved by the
Lender holding such Loan in accordance with applicable law, the
rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of
such Loan but were not payable as a result of the operation of
this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall
be increased (but not above the Maximum Rate therefor) until such
cumulated amount, together with interest thereon at the Federal
Funds Effective Rate to the date of repayment, shall have been
received by such Lender.
93
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
J. CREW GROUP, INC.,
by
/s/ Michael P. McHugh
--------------------------
Name: Michael P. McHugh
Title: Chief Financial
Officer
J. CREW OPERATING CORP.,
by
/s/ Michael P. McHugh
--------------------------
Name: Michael P. McHugh
Title: Chief Financial
Officer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
/s/ Bruce Borden
--------------------------
Name: Bruce Borden
Title: Vice President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Syndication Agent,
by
/s/ Eric Swanson
--------------------------
Name: Eric Swanson
Title: Managing Director
94
<PAGE>
BANKBOSTON, N.A.,
by
/s/ Diane J. Exter
--------------------------
Name: Diane J. Exter
Title: Managing Director
BANK LEUMI TRUST COMPANY OF
NEW YORK,
by
/s/ John Koenigsberg
--------------------------
Name: John Koenigsberg
Title: Vice President
by
/s/ Phyllis Rosenfeld
--------------------------
Name: Phyllis Rosenfeld
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by
/s/ Paul P. Malecki
--------------------------
Name: Paul P. Malecki
Title: Vice President
DLJ CAPITAL FUNDING, INC.
by
/s/ Eric Swanson
--------------------------
Name: Eric Swanson
Title: Managing Director
FIRST UNION NATIONAL BANK,
by
/s/ Edward H. Ross
--------------------------
Name: Edward H. Ross
Title: Vice President
95
<PAGE>
GENERAL ELECTRIC CAPITAL
CORP.,
by
/s/ Eileen T. McColgan
--------------------------
Name: Eileen T. McColgan
Title: Duly Authorized
Signatory
NATIONAL WESTMINSTER BANK PLC,
by
/s/ Andrew S. Weinberg
--------------------------
Name: Andrew S. Weinberg
Title: Vice President
STANDARD CHARTERED BANK,
by
/s/ John Biscette
--------------------------
Name: John Biscette
Title: Assistant Vice
President
by
/s/ Kristina McDavid
--------------------------
Name: Kristina McDavid
Title: Vice President
SUMMIT BANK,
by
/s/ Wayne R. Trotman
--------------------------
Name: Wayne R. Trotman
Title: Vice President &
Regional Manager
96
<PAGE>
WELLS FARGO BANK, NATIONAL
ASSOCIATION,
by
/s/ Michael Real
--------------------------
Name: Michael Real
Title: Assistant Vice
President
BANK OF AMERICA NT&SA
by
/s/ Jonathan M. Kitel
--------------------------
Name: Jonathan M. Kitel
Title: Attorney-in-Fact
97
Exhibit 10.12
Conformed Copy
December 16, 1997
Mr. David DeMattei
31 North Moore Street
New York, NY 10003
Dear Dave,
This letter will supersede your current employment
agreement dated December 6, 1996 (countersigned by you on May 27,
1997) and your Stock Option Plan dated February 5, 1997 as
amended on February 10, 1997 ("prior DeMattei Stock Option
Agreement") and all of their provisions, as well as any other
arrangements of any kind pertaining to your employment,
compensation, equity or other incentive programs or transaction
bonuses or other perquisites and whether in writing or orally
understood. Any and all such employment arrangements shall
hereafter be governed solely by this letter agreement and any
amendments to this letter signed by an authorized officer of J.
Crew Group, Inc. and by you. You will continue to be employed as
President, J. Crew Retail (consisting primarily of Grace Holmes,
Inc. and H. F. D. No. 55, Inc.).
You are to continue to devote your full time and best
efforts, attention, and energy to the performance of your duties
as one of the top executives of J. Crew Group and its
subsidiaries and affiliates (the "Company"). You will be paid
bi-weekly for the annualized base salary as set forth below,
commencing:
December 12, 1997 - June 1, 1998 $525,000.
June 1, 1998 - May 31, 1999 $550,000
June 1, 1999 $575,000
In addition, you will continue to be eligible for an
annual bonus in fiscal year 1997 which will be determined in
accord with the provisions of Appendix A hereto. The Company will
present to you in 1998 a bonus schedule for fiscal year 1998. It
is Company policy to make bonus payments in mid-April after the
close of our fiscal year, and only to individuals actively
employed on the date of disbursement. Of course this policy shall
apply to all bonuses payable hereunder.
As consideration for the cancellation of the Prior
DeMattei Stock Option Agreement and in lieu of any common stock
or the proceeds thereof that might otherwise have
been or may hereafter be due thereunder, the Company agrees to
pay you $369,063.73, within five business days of your
countersignature of this letter agreement. In addition, you will
be eligible for a new stock option grant under a new Stock Option
Plan which is in process of being finalized. Your option grant
will be the subject of a separate letter agreement proposal that
will be sent to you as and when the new Stock Option Plan is
finalized.
During your employment hereunder, the Company will
provide you with a car allowance of $600 per period (13
periods/year).
<PAGE>
The Company's benefit package currently includes 3
weeks vacation, 3 personal days, holidays, life insurance,
medical insurance, long term disability, 401(k) tax deferred
savings plan, a health flexible spending account, and the
employee discount. The Company reserves the right to change these
benefits at any time at its sole discretion.
If the Company terminates your employment for any
reason whatsoever other than death, disability, or cause (cause
shall include breach of this agreement, dishonesty, theft,
embezzlement, material dereliction in the performance of your
duties, insobriety or drug use while performing duties and
conviction of a crime other than traffic violations or minor
misdemeanors), the Company will continue your base pay and
medical benefits for a period of twelve months; provided that you
execute a general release and waiver, waiving all claims you may
have against the Company. During such period, salary continuation
and medical benefits will be paid provided that you exercise good
faith efforts to promptly obtain comparable employment. The
Company shall have the right to terminate medical continuation
benefits when you obtain new employment and to offset your base
pay continuation by the amount of compensation that you earn
during such twelve-month period from such new employment. If,
however, you resign, become disabled, die, or are terminated for
cause, no salary and benefit continuation will be paid. Your
relationship with the Company is one of employment at will and
the payments described in this paragraph are the only payments to
which you will be entitled as a result of the termination of your
employment.
As additional consideration for the Company entering
into this agreement and agreeing to make the salary continuation
payments described above, you agree that during your employment
by the Company and for a period of twelve (12) months after the
later of the date on which any employment or consulting
relationship is terminated or the date on which the last salary,
salary continuation, bonus, or other payment is made, you shall
not directly or indirectly solicit, hire, or seek to influence on
behalf of any person or entity any employee of the Company.
You agree that, while employed and thereafter, you
will hold in strict confidence any proprietary or confidential
information or material related to the Company and its
affiliates. This includes but is not limited to customer lists,
trade practices, marketing techniques, pricing structures and
practices, research, trade secrets, processes, systems, programs,
methods, software, merchandising, planning, inventory and
financial control, store design, staffing, etc. You also agree
that breach of the confidentiality or non-pirating provisions
previously noted would cause the Company to suffer irreparable
harm for which money damages would not be an adequate remedy and
we would be entitled to temporary and permanent injunctive relief
in any Court of competent jurisdiction (without the need to post
any bond).
This Agreement shall inure to the benefit of and be an
obligation of the Company's assigns and successors; however you
may not assign your duties and obligations hereunder to any other
party.
You agree not to disclose any information regarding
the existence or substance of this agreement, except to an
attorney with whom you choose to consult regarding your
consideration of this agreement or to your spouse or tax advisor;
provided that you notify such
<PAGE>
individuals that they are strictly bound by the non-disclosure
restrictions. Further, you agree not to directly or indirectly
disparage or defame J. Crew.
This Agreement and all amendments thereof shall, in
all respects, be governed by and construed and enforced in
accordance with the internal laws (without regard to principles
of conflicts of law) of the State of New York. Each party hereto
hereby agrees to and accepts the exclusive jurisdiction of any
court in New York County or the U.S. District Court for the
Southern District of New York in that County in respect of any
action or proceeding relating to the subject matter hereof,
expressly waiving any defense relating to jurisdiction or forum
non conveniens, and consents to service of process by U.S.
certified or registered mail in any action or proceeding with
respect to this Agreement.
If the terms of this letter agreement meet with your
approval, please sign and return one copy to me.
We are very pleased that you will be continuing as a
key executive of the Company.
Sincerely,
/s/ Emily Woods
-------------------
Emily Woods
Chairman
Agreed to and Accepted:
/s/ David DeMattei 12/22/97
David DeMattei Date
Exhibit 16.1
Conformed Copy
Securities and Exchange Commission
Mail Stop 3-4
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
We have read and agree with the comments pertaining to our firm
contained under the heading "Change in Accountants" in
Registration Statement No. 333-42423 on Form S-4 of J. Crew
Operating Corp. filed with the Securities and Exchange Commission.
Yours Truly,
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 6, 1998
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.
PCP Receivables Corp. Delaware PCP Receivables Corp.
Exhibit 23.1
Conformed Copy
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration
Statement No. 33-42423 of J. Crew Operating Corp. on Form S-4 of
our report dated March 31, 1997, appearing in the Prospectus, which
is a part of such Registration Statement, and of our report dated
March 31, 1997 relating to the financial statement schedules appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 6, 1998
