<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1999
REGISTRATION NO. 1-14987
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
TOO, INC.
(Exact Name of Registrant as Specified in Its Charter)
------------------------
<TABLE>
<S> <C>
DELAWARE 31-1333930
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3885 MORSE ROAD
COLUMBUS, OHIO 43219
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(614) 479-3500
(Registrant's telephone number, including area code)
------------------------
Securities to be registered
pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE THE NEW YORK STOCK EXCHANGE, INC.
Securities to be registered
pursuant to Section 12(g) of the Act:
- --------------------------------------------------------------------------------------------
NONE
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION STATEMENT
Too, Inc. Logo
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
At this time, Too, Inc., the successor company to Limited Too, Inc., is
wholly owned by The Limited, Inc. In this spin-off, The Limited will distribute
100% of the shares of our common stock to its shareholders. Each of you, as a
holder of The Limited's common stock, will receive one share of our common stock
for every seven shares of The Limited that you hold at the close of business on
August 11, 1999, the record date for the spin-off.
We are sending you this information statement to describe the spin-off. We
expect the spin-off to occur on August 23, 1999. Effective as of this date, our
distribution agent for the spin-off, EquiServe, First Chicago Division, will
distribute shares of our common stock to each eligible holder of The Limited's
common stock by crediting book-entry accounts with that holder's proportionate
number of whole shares of our common stock. You will receive a check for the
cash value of any fractional interest in our common stock.
Immediately after the spin-off is completed, The Limited will not own any
shares of our common stock, and we will be an independent public company. We
refer to ourselves in this information statement as "Limited Too" or "Too, Inc."
No shareholder action is necessary to receive the shares of our common
stock to which you are entitled in the spin-off. This means that:
- you do not need to pay any consideration to The Limited or to Too, Inc.
- you do not need to surrender any shares of The Limited's common stock to
receive your shares of our common stock
In addition, a shareholder vote is not required for the spin-off to occur. The
Limited is not asking you for a proxy, and The Limited requests that you do not
send a proxy.
There has been no trading market for our common stock. However, we expect
that a limited market for shares of our common stock will develop on or shortly
before the record date for the spin-off, commonly known as a "when issued"
trading market. We have been approved to list our common stock on the New York
Stock Exchange under the ticker symbol "TOO".
AS YOU REVIEW THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 13.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
J.P. MORGAN & CO.
FINANCIAL ADVISER
The date of this information statement is August 18, 1999.
<PAGE> 3
[SUNGLASSES PICTURE]
[BOOTS PICTURE]
[PAJAMAS PICTURE]
[SHIRT PICTURE]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction................................................ 3
Summary..................................................... 5
Risk Factors................................................ 13
The Spin-Off................................................ 24
Relationship Between Too, Inc. and The Limited.............. 29
Trading Market.............................................. 39
Dividends................................................... 40
Unaudited Pro Forma Consolidated Financial Statements....... 41
Capitalization.............................................. 47
Selected Consolidated Financial and Operating Data.......... 48
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 50
Business.................................................... 59
Management.................................................. 74
Executive Compensation...................................... 77
Security Ownership of The Limited and Too, Inc.............. 86
Description of Capital Stock................................ 88
Statutory, Charter and Bylaw Provisions..................... 90
Independent Accountants..................................... 93
Where You Can Find More Information......................... 93
Index to the Consolidated Financial Statements of Limited
Too, Inc.................................................. F-1
</TABLE>
<PAGE> 5
THE LIMITED, INC.
August 18, 1999
Dear Limited Shareholder:
Over the last several years, The Limited, Inc. has increased its strategic
focus in order to unlock and create greater value for shareholders. The strategy
and the actions that have resulted from this focus during the last several years
are described in the accompanying information statement.
As part of these actions, The Limited, Inc. has announced a plan to
establish its Limited Too business as a fully independent public company under
the name Too, Inc. In order to implement this plan and distribute its Too, Inc.
shares, the Board of Directors of The Limited has approved a spin-off to our
shareholders of all the outstanding shares of common stock of Too, Inc. to
holders of record of The Limited's common stock on August 11, 1999. In the
spin-off, you will receive one share of Too, Inc.'s common stock for every seven
shares of The Limited's common stock that you hold at the close of business on
August 11, 1999. Your current shares of our common stock will be unchanged and
will continue to represent your ownership position in The Limited, Inc.
Your Board of Directors has concluded that the spin-off is in the best
interests of The Limited, the Limited Too business and The Limited's
shareholders, because it believes that:
- having two separate public companies will enable the financial markets to
evaluate each company more effectively, thereby maximizing shareholder
value over the long term for both The Limited and Too, Inc.
- separate management and ownership structures for Too, Inc. will provide
incentives to Too, Inc.'s management and direct accountability to public
investors
- the spin-off will provide Too, Inc.'s management with increased strategic
flexibility and decision-making power to realize the significant growth
opportunities that it has identified
Shares of Too, Inc.'s common stock are expected to trade on the New York
Stock Exchange under the ticker symbol "TOO".
The enclosed information statement explains the proposed spin-off in detail
and provides important information regarding Too, Inc. We urge you to read it
carefully. Please note that a shareholder vote is not required in connection
with this matter, and holders of The Limited's common stock are not required to
take any action to participate in the spin-off. Thus, we are not asking you for
a proxy.
Very truly yours,
/s/ Leslie H. Wexner
Leslie H. Wexner
Chairman and Chief Executive Officer
The Limited, Inc.
<PAGE> 6
TOO, INC.
August 18, 1999
Dear Too, Inc. Shareholder:
We welcome you as a "founding" shareholder of Too, Inc., the successor
company to Limited Too, Inc. that will be publicly traded for the first time on
August 24, 1999. You will become an owner of one share of Too, Inc.'s common
stock for every seven shares of common stock of The Limited, Inc. that you own
at the close of business on August 11, 1999. We expect that shares of our common
stock will trade on the New York Stock Exchange under the ticker symbol "TOO".
As you know, Limited Too is the leading specialty retailer specifically
targeted to fashion-aware, trend-setting young girls. Our stores sell apparel,
underwear, sleepwear, swimwear, lifestyle and personal care products for girls
aged 7 to 14 years in a fun shopping environment. In fiscal 1998, we had sales
of $377 million, and we currently have approximately 6,000 sales associates in
332 stores nationwide.
This is a very exciting time, and we are enthusiastic about what the future
holds. We believe that our Company has a great opportunity to grow, and as a new
Too, Inc. shareholder, like our customers, you have an opportunity to grow with
us.
Congratulations on becoming one of the "founding" shareholders of Too,
Inc.!
Very truly yours,
/s/ Michael W. Rayden
Michael W. Rayden
Chairperson of the Board, President
and Chief Executive Officer
Too, Inc.
<PAGE> 7
(This page intentionally left blank)
<PAGE> 8
INTRODUCTION
Over the past several years, The Limited's board of directors and senior
management have embarked upon a comprehensive review of The Limited's
organization structure and operations, with the primary goals of generating
maximum value for The Limited's shareholders and focusing its resources on its
key strategic business.
After much consideration, The Limited determined that a complete spin-off
of Too, Inc., the successor company to Limited Too, Inc., from The Limited is
consistent with these objectives and would be in the best interests of The
Limited, the Limited Too business and The Limited's shareholders. We at Limited
Too have demonstrated that we have a unique customer base, focused brand image
and a profitable growth strategy, and The Limited intends for the spin-off to
allow us greater flexibility to grow as an independent company. At the same
time, the spin-off allows The Limited to focus its resources on its other brands
where it can add more value. The Limited believes that:
- having two separate public companies will enable the financial markets to
evaluate each company more effectively, thereby maximizing shareholder
value over the long term for both The Limited and Too, Inc.
- separate management and ownership structures for Too, Inc. will provide
incentives to Too, Inc.'s management and direct accountability to public
investors
- the spin-off will provide Too, Inc.'s management with increased strategic
flexibility and decision-making power to realize the significant growth
opportunities that it has identified
In deciding to pursue the spin-off, The Limited considered several things,
including the financial advice of J.P. Morgan Securities Inc. and the legal
advice of Davis Polk & Wardwell. To review the reasons for the spin-off in
greater detail, see "The Spin-Off -- Background to and Reasons for the
Spin-Off."
The Limited has declared a dividend payable to holders of record of The
Limited's common stock at the close of business on August 11, 1999, of one share
of our common stock for every seven shares of The Limited's common stock owned
of record on this day. We expect the spin-off to occur on August 23, 1999.
Effective as of this date, our distribution agent for the spin-off, EquiServe,
First Chicago Division, will distribute shares of our common stock to each
eligible holder of The Limited's common stock by crediting book-entry accounts
with that holder's proportionate number of whole shares of our common stock. You
will receive a check for the cash value of any fractional interest in our common
stock.
In the spin-off, The Limited will distribute 100% of the outstanding shares
of our common stock to its shareholders. Immediately after the spin-off is
completed, The Limited will not own any shares of our common stock, and we will
be an independent public company. We have been approved to list our common stock
on the New York Stock Exchange under the ticker symbol "TOO".
If you have any questions relating to the spin-off, you should contact
EquiServe, First Chicago Division, which is serving as the distribution agent
for the spin-off. The contact information for EquiServe is:
EquiServe
First Chicago Division
525 Washington Boulevard
Suite 4690
Jersey City, NJ 07310
(800) 317-4445
3
<PAGE> 9
You can also contact The Limited with any questions. The Limited's contact
information is:
The Limited, Inc.
Three Limited Parkway
P.O. Box 16000
Columbus, OH 43216
(614) 415-7076
Attention: Thomas J. Katzenmeyer, Vice President of Investor Relations
After the spin-off, if you are a shareholder of Too, Inc. and have
questions relating to the spin-off, you can contact us directly. Our contact
information is:
Too, Inc.
3885 Morse Road
Columbus, OH 43219
(614) 479-3610
Attention: Kent A. Kleeberger, Vice President and Chief Financial Officer
No action is necessary to receive the shares of our common stock to which
you are entitled in the spin-off. You do not need to pay any consideration to
The Limited or to us, and you do not need to surrender any shares of The
Limited's common stock to receive your shares of our common stock.
4
<PAGE> 10
SUMMARY
This summary highlights information contained in this information
statement. You should read the entire information statement, including our
historical and pro forma consolidated financial statements and the notes to
those financial statements.
LIMITED TOO
We are a rapidly growing specialty retailer that sells apparel, underwear,
sleepwear, swimwear, lifestyle and personal care products for fashion-aware,
trend-setting young girls. As of May 1, 1999, we had 321 stores in 43 states. We
design, source and market our products under our proprietary "Limited Too" brand
name.
In 1987, The Limited established "Limited Too" brand stores adjacent to or
as departments within The Limited stores to provide similar apparel to young
girls, and apparel for infants. From 1987 to the end of fiscal 1995, we expanded
our locations from two stores to 288 stores. In 1996, a new management team
recognized that its core customer had her own emerging sense of style and
revised our strategy to focus on girls approximately 7 to 14 years of age as our
target customer group.
In the period from fiscal 1996 to fiscal 1998, this focused strategy
enabled us to:
- increase net sales to $376.9 million from $258.8 million
- improve our pretax operating income to $28.5 million from a loss of
$(8.9) million
- improve our operating income rate as a percentage of sales to 7.6% from a
loss of (3.4)%
- improve sales per average square foot to $300 from $214
We plan to continue our new store expansion program by opening
approximately 40 new stores per year in 1999 and 2000 and remodeling or
expanding approximately 20 existing stores in 1999.
BUSINESS STRENGTHS
We believe that our six core business strengths developed over the last
three years have contributed to our success and will enable us to continue
growing profitably.
- TARGET CUSTOMER GROUP. We have identified our target customer group to
be girls approximately 7 to 14 years of age who are active, creative and
image-conscious, enjoy shopping and want to describe themselves as "fun"
and "cool". We believe our target customers want a broad assortment of
merchandise for their range of dressing occasions, including school,
leisure activities and parties. To attract our target customer, we
continually update our merchandise assortment, which includes non-
apparel merchandise, such as cosmetics and lifestyle furnishings for her
room. We also create an in-store atmosphere that is visually appealing
and provides an enjoyable, safe and exciting shopping experience. We
believe that girls interested in the latest fashions are attracted to our
image and are made to feel secure in their fashion choices when they
purchase our brand. At the same time, we believe that parents defer to
many choices that their daughters make in our stores because they find
our products to be appropriate for their daughters' age.
- FOCUSED AND DIFFERENTIATED BRAND. We have created a focused and
differentiated brand image for fashion-aware girls aged 7 to 14 who
follow the latest trends. We believe that the brand's appeal has been
augmented by, and should continue to benefit from, trends that emphasize
the latest fashions and the aspirational lifestyle of today's younger
girls who want to look and dress like older girls consistent with the
latest trends in junior fashions. We communicate our brand image through
all aspects of our business, including merchandise assortment and our
exciting, colorful in-store presentation. We believe that the strength of
our brand provides opportunities for increased penetration of current
merchandise categories and entry into newer product categories such as
our "GirlCare" line of toiletries and cosmetics introduced in 1996.
5
<PAGE> 11
- ENTERTAINING STORE ENVIRONMENT. A major element of our recent success is
the consistent store-level execution of our brand strategy. We design our
stores to provide a "theme park" destination in the mall and to encourage
our customers to touch and sample our products. All of our stores contain
a wide variety of merchandise for a "one-stop shopping" experience, which
has been specifically designed to embody "a store for her" theme. Our
stores feature colorful window displays; photographic sticker booths; ear
piercing stations; gumball machines; and eye-catching photographs. Our
newer store formats may also have our daisy logo on our front signage; a
personal care sampling table in the front of the store at which our
customers can experiment with our "GirlCare" products and consult their
friends and our sales associates; light shows; and mock pay telephones
from which our customers can listen to music or call their friends within
the store. We tightly control our in-store presentation by basing it on
detailed and comprehensive store plans. These plans use visual displays
and fixtures designed to brand our stores in a manner tailored to appeal
to our target customer group.
- PROPRIETARY DESIGN AND MERCHANDISING CAPABILITIES. A cornerstone of our
business is our ability to design products which embody our brand image.
We develop substantially all of our merchandise assortment through our
own design group, which allows us to create exclusive merchandise under
our proprietary brand, develop complementary fashionable outfits, offer a
vast array of merchandise within a fashion season, introduce new
non-apparel items and bring our products to market faster. In addition,
because our merchandise is sold exclusively in our own stores, we are
able to control the presentation and pricing of our merchandise and
provide a higher level of customer service. Our merchandising strategy of
offering a broad assortment allows us to constantly introduce elements of
the latest fashion trends. We believe that these capabilities provide us
with competitive advantages over other brand manufacturers that market
their goods through department and other specialty apparel stores.
- PROVEN MANAGEMENT TEAM. Since early 1996, when some of the senior
members of our current management team assumed responsibility, we have
increased the level of brand awareness and consistently reported improved
financial results. We believe that our management has a distinct
understanding of our customers and is able to execute design, sourcing
and marketing strategies to penetrate our target customer group. With
over 125 years of collective experience in the retail industry, they have
demonstrated a track record of highly profitable growth which strongly
positions us for the future.
- ATTENTIVE CUSTOMER SERVICE. Our sales associates convey and reinforce
our brand image through their attitude, enthusiasm and awareness of
current fashion trends. We train them to greet each customer, to inform
the customer about new fashion trends, to guide her through the store and
to suggest merchandise to suit the customer's wardrobe and lifestyle
needs. We strive to give each of our young customers the same level of
respect and attention that adult customers expect in a retail shopping
experience.
GROWTH STRATEGY
We have implemented a growth strategy to capitalize on our business
strengths. Our growth strategy focuses on four goals: (1) opening approximately
40 new stores per year in 1999 and 2000, (2) remodeling and expanding
approximately 20 existing stores in 1999, (3) increasing comparable store sales
through product extensions and our continued execution of merchandise and other
initiatives to satisfy our target customers' needs and (4) increasing our
distribution channels to include direct marketing through catalog and website
initiatives.
To achieve these goals, we plan to do the following:
- STORE OPENINGS, REMODELINGS AND EXPANSIONS. Given the strength of our
brand and our customer demographics, our management believes that there
will be approximately 100 to 150 mall sites available for new stores,
with an additional 100 to 150 sites available in smaller markets,
specialty centers and major urban locations. We plan to open
approximately 40 new stores per year in 1999 and 2000. We also plan to
remodel or expand approximately 20 of our existing stores in 1999 and
continue our remodeling and expansion program for the next several years.
6
<PAGE> 12
- MERCHANDISE INITIATIVES AND PRODUCT EXTENSIONS. We plan to continue to
increase the variety of sizes offered in many of our tops and bottoms
categories and to continue to develop the new product lines we recently
introduced such as underwear, sleepwear and swimwear; personal care
products under our "GirlCare" line, such as glitter make-up and nail
polish; and lifestyle products and other accessories for our target
customer's room, such as inflatable furniture and glitter telephones.
- INCREASE CONSUMER FEEDBACK AND AWARENESS. An important source of
customer feedback has been our focus groups and other formats for
customer communication, which we intend to continue. We expect to enhance
our customer relationships and increase our brand awareness through our
frequent buyer program and our catalog and website initiatives. We use
our frequent buyer program to obtain customer information, and our
customers will also be asked to provide information when they register on
our website. Additionally, our frequent buyer program rewards our
customers with incentives based on the frequency of their purchases and
incorporates in-store events such as "Too Punch Toosday". As of May 1,
1999, our frequent buyer database contained approximately 900,000 names.
In late April 1999, we executed our first direct mail campaign that
targeted not only customers in our frequent buyer database but
prospective customers as well.
- EXPAND DISTRIBUTION CHANNELS. We plan to expand our marketing efforts by
launching our first catalog targeted for the 1999 holiday season with a
planned October mailing. We are also developing an informational website
with an expected launch in the fall of 1999. We intend to further develop
our website to allow our customers to order our products on-line during
the year 2000.
RISK FACTORS
Our business may be adversely affected by the following risks:
- we will no longer benefit from our business relationship with The Limited
and may incur costs or be forced to relocate stores adjacent to or
departments within The Limited stores
- we may not be able to obtain suitable real estate
- we may not be able to effectively manage our growth
- we may not be able to offer products that are accepted by our customers
- we may not be able to obtain sufficient quantities of merchandise on a
cost-effective basis
- we may not be able to effectively address Year 2000 issues
In addition, our industry is highly competitive. These and other risks are
addressed in the section entitled "Risk Factors" beginning on page 13 of this
information statement.
* * *
We were incorporated in Delaware on August 21, 1991. Our principal office
is located at 3885 Morse Road, Columbus, Ohio 43219, and our telephone number is
(614) 479-3500.
7
<PAGE> 13
THE SPIN-OFF
The following is a brief summary of the terms of the spin-off.
DISTRIBUTING COMPANY.......... The Limited, Inc. After the spin-off, The
Limited will not own any shares of our common
stock.
SPUN-OFF COMPANY.............. Too, Inc. After the spin-off, Too, Inc. will be
an independent public company.
PRIMARY PURPOSES OF THE
SPIN-OFF...................... The Limited has determined that the spin-off is
in the best interests of The Limited, the
Limited Too business and The Limited's
shareholders. In reaching this conclusion, The
Limited considered several issues, including:
(1) having two separate public companies will
enable the financial markets to evaluate
each company more effectively, thereby
maximizing shareholder value over the long
term for both The Limited and Too, Inc.
(2) having separate management and ownership
structures for Too, Inc. will provide
incentives to Too, Inc.'s management and
direct accountability to public investors
(3) the spin-off will provide our management
with increased strategic flexibility and
decision-making power to realize the
significant growth opportunities that it
has identified
See "The Spin-Off -- Background to and Reasons
for the Spin-Off."
SECURITIES TO BE
DISTRIBUTED................... All of the outstanding shares of our common
stock. Based on the number of shares of The
Limited's common stock outstanding as of June
7, 1999, we estimate that we will distribute
approximately 30 million shares of our common
stock to The Limited's shareholders.
Immediately after the spin-off, we estimate
that approximately 50,000 shareholders of
record will hold shares of our common stock,
although some of the shares may be registered
in the name of a single shareholder who
represents a number of shareholders.
DISTRIBUTION RATIO............ One share of our common stock for every seven
shares of The Limited's common stock that you
hold at the close of business on August 11,
1999, the record date for the spin-off.
RECORD DATE................... August 11, 1999 (close of business).
SPIN-OFF DATE................. August 23, 1999.
DISTRIBUTION AGENT............ EquiServe, First Chicago Division.
TRADING MARKET AND SYMBOL..... There has been no trading market for our common
stock. However, we expect that a limited market
for shares of our common stock will develop on
or shortly before the record date for the
spin-off, commonly known as a "when issued"
trading market. We have been approved to list
our common stock on the New York Stock Exchange
under the ticker symbol "TOO".
8
<PAGE> 14
TAX CONSEQUENCES.............. Before the spin-off, The Limited will receive
an opinion of counsel that the spin-off should
qualify as tax-free to The Limited and its
shareholders for United States federal income
tax purposes. An opinion of counsel is not
binding on the IRS or the courts. Whether a
spin-off qualifies as tax-free depends in part
upon the reasons for the spin-off and
satisfaction of numerous other fact-based
requirements. In rendering its opinion, counsel
has relied in part upon The Limited's
representations as to these matters. It is
possible that the IRS could view the facts
differently and assert that the spin-off does
not qualify as tax-free. It is counsel's
opinion that, if the IRS were to contest the
tax-free treatment of the spin-off, The Limited
should prevail. See "The Spin-Off -- Material
Federal Income Tax Consequences of the
Spin-Off" for a more detailed description of
the federal income tax consequences of the
spin-off.
RISK FACTORS.................. You should carefully consider the matters
described in the section entitled "Risk
Factors" beginning on page 13 in this
information statement.
BOOK-ENTRY SHAREHOLDING....... Effective as of the date of the spin-off,
EquiServe, First Chicago Division, will
distribute shares of our common stock to each
eligible holder of The Limited's common stock
by crediting book-entry accounts with that
holder's proportionate number of whole shares
of our common stock.
NO FRACTIONAL SHARES.......... We will not distribute any fractional shares of
our common stock. EquiServe will aggregate all
fractional interests, sell them on behalf of
shareholders and distribute the cash proceeds
to the shareholders who are entitled to a
fractional interest in our common stock. See
"The Spin-Off -- Description of the Spin-Off."
RELATIONSHIP BETWEEN TOO, INC.
AND THE LIMITED AFTER THE
SPIN-OFF.................... We and The Limited will enter into a
distribution agreement and other agreements
described in the section entitled "Relationship
Between Too, Inc. and The Limited." We believe
that the terms of these agreements will be
similar to terms achievable through arm's
length negotiations. We and The Limited may
enter into additional or modified agreements,
arrangements and transactions after the
spin-off, which will be negotiated at arm's
length. In connection with the spin-off, we may
hire personnel or contract with third parties
for financial, treasury, real estate, employee
benefit, tax, consulting and other services.
OUR MANAGEMENT AND MANAGEMENT
COMPENSATION AFTER THE
SPIN-OFF.................... The compensation, awards and other benefits
payable to selected members of management after
the spin-off are described in "Management" and
"Executive Compensation."
DIVIDEND POLICY............... We anticipate that future earnings will be used
principally to support operations and finance
the growth of our business. Thus, we do not
intend to pay cash dividends on our common
stock in the foreseeable future.
9
<PAGE> 15
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents summary historical and pro forma financial as
well as operating data of Too, Inc. for the last five fiscal years and for the
thirteen weeks ended May 1, 1999 and May 2, 1998. The information for the fiscal
years ended February 3, 1996 and January 28, 1995 is derived from our unaudited
consolidated financial statements. The information for the thirteen weeks ended
May 1, 1999 and May 2, 1998 is derived from the unaudited consolidated financial
statements included in this information statement which, in the opinion of
management, reflect all adjustments, which are of a recurring nature, necessary
to present fairly the financial position and results of operations and cash
flows for the interim periods. Results for the thirteen weeks ended May 1, 1999
are not necessarily indicative of the results of operations to be expected for
the full fiscal year.
Before the spin-off, we operated as part of The Limited. Because the data
reflects periods during which we did not operate as an independent company, the
data may not reflect the results of operations or the financial condition which
would have resulted if we had operated as a separate, independent company during
the periods shown. In addition, the data may not necessarily be indicative of
our future results of operations or financial condition.
The data presented in the table below is derived from "Selected
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our historical
and pro forma consolidated financial statements and the notes to those financial
statements included in this information statement. You should read these
sections for a further explanation of the data summarized here.
Earnings per share data is presented elsewhere in this information
statement on a pro forma basis only. See "Unaudited Pro Forma Consolidated
Financial Statements."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
------------------------------------------------------------------- -------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, MAY 1, MAY 2,
1999 1998 1997 1996(1) 1995 1999 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SALES PER AVERAGE SQUARE FOOT)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $376,943 $322,150 $258,818 $214,302 $173,787 $95,048 $82,257
Gross income(2).............. 125,214 95,247 60,844 38,237 47,928 31,724 24,888
General, administrative and
store operating
expenses(3)................ 96,758 82,950 69,698 57,481 44,817 30,412 24,599
Operating income (loss)...... 28,456 12,297 (8,854) (19,244) 3,111 1,312 289
Net income (loss)............ 17,056 7,397 (5,354) (11,544) 1,911 812 189
Pro forma net income
(loss)(4).................. 14,686 219 (404)
Pro forma weighted average
number of shares(5)........ 34,415 32,533 39,120
Pro forma net income (loss)
per share(5)............... 0.43 0.01 (0.01)
BALANCE SHEET DATA:
Inventories.................. $ 27,565 $ 18,661 $ 20,437 $ 16,046 $ 15,156 $23,584 $17,167
Total assets................. 89,969 72,974 74,793 72,972 57,828 89,938 71,043
Pro forma long-term debt..... 50,000
Pro forma shareholders'
equity..................... 9,236
</TABLE>
10
<PAGE> 16
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
------------------------------------------------------------------- -------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, MAY 1, MAY 2,
1999 1998 1997 1996(1) 1995 1999 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SALES PER AVERAGE SQUARE FOOT)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Comparable store sales
increase (decrease)(6)..... 15% 20% 8% (4)% 13% 10% 23%
Total net sales growth....... 17.0% 24.5% 20.8% 23.3% 18.4% 15.6% 25.3%
Gross income rate(7)......... 33.2% 29.6% 23.5% 17.8% 27.6% 33.4% 30.3%
Operating income (loss)
rate(7).................... 7.6% 3.8% (3.4)% (9.0)% 1.8% 1.4% 0.4%
Total number of stores open
at period end.............. 319 312 308 288 212 321 313
Total square feet at period
end (thousands)............ 1,281 1,244 1,224 1,143 838 1,296 1,248
Annual sales per average
square foot(8)............. $ 300 $ 259 $ 214 $ 207 $ 226 NM NM
</TABLE>
- ---------------
NM = not meaningful
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less costs of goods sold, occupancy and buying
costs, including charges and allocations made by The Limited to us.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to us.
(4) Pro forma net income (loss) includes interest expense and financing fees,
net of the related tax benefit, on approximately $52 million of indebtedness
we expect to incur under our credit facility shortly before the date of the
spin-off. Proceeds from the debt incurred will be used to pay a $50 million
dividend to The Limited and $1.75 million of financing fees to the lenders
under our credit facility. Pro forma net income (loss) does not reflect any
interest expense related to working capital advances that are likely to be
made in 1999 as the amounts and timing of such advances are not certain.
(5) Pro forma net income (loss) per share is based on pro forma net income
(loss) and an assumed number of shares outstanding as a result of the
spin-off. The number of shares outstanding is based on The Limited's
weighted average number of basic shares outstanding of 240.9 million, 227.7
million and 273.8 million for fiscal year 1998, thirteen weeks ended May 1,
1999 and thirteen weeks ended May 2, 1998, at the spin-off ratio of one
share of our common stock for every seven shares of The Limited's common
stock. The dilutive effect of our options and restricted stock that will be
granted under the Too, Inc. 1999 Stock Option and Performance Incentive Plan
and the Too, Inc. 1999 Stock Plan for Non-Associate Directors has not been
considered in the computation of pro forma net income (loss) per share.
(6) A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that are expanded or
downsized more than 20% in square feet are treated as new stores for
purposes of this calculation.
(7) Calculated as a percentage of net sales.
(8) Annual sales per average square foot is the result of dividing net sales for
the fiscal year by average gross square foot, which reflects the impact of
opening and closing stores throughout the year.
11
<PAGE> 17
RECENT DEVELOPMENTS
Net sales for the thirteen weeks ended July 31, 1999 increased 16% to $86.9
million from $74.7 million for the thirteen weeks ended August 1, 1998.
Comparable store sales increased 8% during the second quarter of 1999. A
store is included in our comparable store sales calculation once it has
completed 52 weeks of operation.
Operating income in the second quarter of 1999 increased $1.4 million to
$1.7 million, compared to $0.3 million for the comparable period last year. Net
income increased $0.8 million to $1.0 million during the second quarter of 1999.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------------------
JULY 31, AUGUST 1,
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 86,864 $ 74,746
Gross income(1)........................................ 28,606 24,016
General, administrative and store operating
expenses(2)........................................... 26,902 23,676
Operating income....................................... 1,704 340
Net income............................................. 1,004 240
SELECTED OPERATING DATA:
Total number of stores open at period end.............. 332 311
Total square feet at period end (thousands)............ 1,357 1,244
</TABLE>
- ---------------
(1) Gross income equals net sales less costs of goods sold, occupancy and buying
costs, including charges and allocations made by The Limited to us.
(2) General, administrative and store operating expenses include charges and
allocations made by The Limited to us.
12
<PAGE> 18
RISK FACTORS
You should carefully consider each of the following risks, which we believe
are the principal risks that we face, and all of the other information in this
information statement. Some of the following risks relate principally to our
spin-off from The Limited. Other risks relate principally to our business in
general and the industry in which we operate. Finally, other risks relate
principally to our corporate documents, such as our certificate of incorporation
and bylaws, as well as the legal environment and how these affect the ownership
of our stock and our ability to declare dividends. Our business may also be
adversely affected by risks and uncertainties not presently known to us or that
we currently believe to be immaterial.
If any of the following risks and uncertainties develop into actual events,
our business, financial condition or results of operations could be materially
adversely affected. If this occurs, the trading price of our common stock could
decline, and you may lose all or part of your investment.
RISK FACTORS RELATING TO SEPARATING OUR COMPANY FROM THE LIMITED
We face the following risks in connection with our spin-off from The Limited.
WE WILL NO LONGER BENEFIT FROM THE BUSINESS RELATIONSHIPS THAT THE LIMITED
EXTENDS TO US OR THE SERVICES THAT THE LIMITED PROVIDES TO US
As one of The Limited's subsidiaries, we are able to benefit from The
Limited's financial strengths and extensive network of business relationships.
After the spin-off, we will be a stand-alone company and will no longer be able
to benefit from The Limited's relationships or use The Limited's services on a
long-term basis. Although we will enter into agreements with The Limited so that
it will continue to provide services to us, these agreements will be of short
duration -- generally up to 12 months. We cannot assure you that after the
expiration of these various arrangements, we will be able to replace these
services in a timely manner and on terms and conditions, including cost, as
favorable as those we received from The Limited.
WE MAY INCUR COSTS OR BE FORCED TO RELOCATE STORES WHICH ARE ADJACENT TO OR
DEPARTMENTS
WITHIN THE LIMITED STORES
As of May 1, 1999, 131 of our stores were adjacent to or not fully
separated from The Limited stores, including six stores which were departments
within The Limited stores. 127 of our stores occupy space that The Limited, or
an affiliate of The Limited, other than us, has leased from landlords, and we
have no direct lease arrangements with the landlords of these stores. The
Limited may decide to close any or all of these 131 stores without consulting
with us, and The Limited is not obligated to consider the profitability of our
adjacent stores or departments before making its decision.
If The Limited closes one or more of these 131 stores, several things may
happen, including:
- we may, if available and on acceptable terms, lease the entire retail
space that includes our own space and The Limited's store space directly
from the landlord or from The Limited, which may involve remodeling costs
for which we are responsible, less any cash payments and loans received
from The Limited
- we may, if available and on acceptable terms, lease our own store space
directly from the landlord which may involve costs to physically separate
our stores from space occupied by The Limited stores so that our store
space is free-standing. This separation may involve building walls in the
cross-over space between the two stores, creating separate back rooms and
utilities and in some instances, creating separate access to corridors
- we may be forced to close our existing location and incur costs to
relocate to an alternative location in the same mall
- we may not be able to obtain alternative space in the same mall on
acceptable terms and may be forced to relocate to another mall, in which
case we would not receive any compensation from The Limited, as described
below
13
<PAGE> 19
- we may incur incremental rent expenses whether we remain in our current
store or relocate to a new store
- we may lose sales during any period that we are remodeling an existing
store or constructing a relocated store
Under an agreement that we will enter into with The Limited in connection
with the spin-off, The Limited would compensate us with a combination of cash
payments and loans if The Limited decides to close any of those 131 stores and
we remain in the same mall. The compensation is described under "Relationship
Between Too, Inc. and The Limited -- Transitional Services and Separation
Agreements -- Store Leases Agreement -- Adjacent Stores and Departments." We
could lose our rights to all of the compensation if we breach our obligations
under that agreement in connection with two or more of our stores.
We estimate that the costs of separation for those stores that are
currently adjacent to The Limited stores would range from $50,000 to $350,000
per store, and would be, on average, approximately $170,000 per store. The
actual costs of separation would depend on the nature of the shared space
involved. For our six stores which are departments within The Limited stores, we
may need to relocate if The Limited closes its stores, which may cost up to
$500,000 in each instance.
We cannot assure you that the amounts that we would receive from The
Limited would be sufficient to cover the costs of separating, relocating or
reimbursing us for incremental rent increases for each store, or that the
estimated costs of separation and relocation accurately reflect what the actual
costs may be. We also cannot assure you that we will be able to enter into new
leases for alternative mall locations on agreeable terms or at all.
WE MAY NOT BE ABLE TO OBTAIN SUITABLE REAL ESTATE TO IMPLEMENT OUR GROWTH
STRATEGY
The Limited's expertise in real estate matters and The Limited's size and
reputation as one of the largest specialty retailers in the United States may
have enabled us to obtain lease terms and store sites that were more favorable
than those that we would have been able to obtain on our own. We cannot assure
you that we will be able to achieve the same economies of scale and bargaining
leverage.
110 of the existing 194 direct leases into which we have entered have been
guaranteed by The Limited. In addition, 127 of our stores occupy space that The
Limited, or an affiliate of The Limited, other than us, has leased from
landlords. Under an agreement that we will enter into with The Limited in
connection with the spin-off, as described in "Relationship Between Too, Inc.
and The Limited -- Transitional Services and Separation Agreements -- Store
Leases Agreement," the lease guarantees that The Limited provides which are in
effect on the date of the spin-off will remain in effect for the remaining
initial term of the lease unless we negotiate the elimination of these
guarantees with the landlord on acceptable terms or if we amend, extend or renew
the existing lease after the spin-off. The Limited will not guarantee any of our
new leases that we enter into after the spin-off. In addition, The Limited's
guarantee of any existing lease will expire upon the amendment, renewal or
extension of any such lease or upon any waiver by a landlord of any provision of
the lease.
Some of our stores are governed by leases that require us to notify the
landlord or obtain the landlord's consent for a change of control of the lessee.
We cannot assure you that the landlord will consent to the change of control
caused by the spin-off. Our failure to renew existing leases on historical terms
or to obtain suitable store sites on attractive terms may hinder our store
expansion plans.
WE WILL LICENSE THE "LIMITED TOO" BRAND NAME FROM THE LIMITED, WHICH MAY
RESTRICT OUR BUSINESS
In connection with the spin-off, we and The Limited intend to cause our
wholly owned subsidiaries to enter into an exclusive trademark and service mark
licensing agreement that will allow us to operate under the "Limited Too" brand
name. The agreement will be for an initial term of five years after the
spin-off, renewable annually at our option. In return, we will be required to
provide The Limited with the right to
14
<PAGE> 20
inspect our stores and distribution facilities and an ability to review and
approve our advertising. The Limited's wholly owned subsidiary will have the
right to terminate the agreement if:
- we breach any of our obligations under the agreement and do not cure the
breach within 60 days after receiving notice of the breach
- we become bankrupt or insolvent
- we experience a change of control
The agreement will also restrict the way in which we use the licensed brand
in our business. We will only be able to use the brand name "Limited Too" in
connection with any business in which we sell to our current target customer
group or to infants and toddlers.
If in the future we are unable to continue using the brand "Limited Too",
we may be forced to change our brand name. Because all of our merchandise is
currently sold under the "Limited Too" label and in stores called "Limited Too",
a name change might cause confusion for our customers and adversely affect our
brand recognition, which is a significant part of our business strategy. We may
need to expend substantial resources, which we cannot estimate at this time, to
establish brand recognition if we are required to change our name.
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS
AS A SEPARATE COMPANY
The historical financial information we have included in this information
statement may not reflect what our results of operations, financial position and
cash flows would have been had we been a separate, stand-alone company during
the periods presented or what our results of operations, financial position and
cash flows will be in the future. This is because:
- various adjustments and allocations were made to the historical financial
statements in this information statement because The Limited did not
account for us as a single stand-alone business for all periods presented
- the historical information does not reflect many significant changes that
will occur in our financial condition, capital structure and operations
as a result of our separation from The Limited
- the historical information does not reflect the indebtedness under our
credit facility and the costs associated with borrowing under the
facility
We cannot assure you that the adjustments and allocations we have made in
preparing our historical and pro forma consolidated financial statements
appropriately reflect our operations during the periods presented as if we had
operated as a stand-alone company, nor can we predict what the actual effect of
our separation from The Limited will be.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE SPIN-OFF, AND YOU COULD
LOSE ALL OR PART
OF YOUR INVESTMENT AS A RESULT
Before the spin-off, there will have been no public market for our common
stock. We have been approved to list our common stock on the New York Stock
Exchange.
Once issued, we do not know how our common stock will trade in the future.
The market price of our common stock may fluctuate significantly due to a number
of factors, some of which may be beyond our control, including:
- our business profile may not fit the investment objectives of The
Limited's shareholders, causing them to sell our shares after the
spin-off
- actual or anticipated fluctuations in our operating results
- absence of securities analysts covering our company and distributing
research and investment recommendations about our company
15
<PAGE> 21
- changes in earnings estimated by securities analysts or our ability to
meet those estimates
- the operating and stock price performance of other comparable companies
- overall stock market fluctuations
- the retail environment
- economic conditions
In particular, the realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on the market price of our
common stock. In addition, the stock market in general has experienced extreme
volatility that has often been unrelated or disproportionate to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the trading price of our common stock, regardless of our actual
operating performance. Additionally, if our quarterly results of operations
fluctuate significantly as a result of the seasonality of the retail industry,
the timing and costs of new store openings and remodelings or expansions of
existing stores, the performance of new and existing stores, merchandise mix and
fashion trends, the market price of our common stock may be affected.
THE IRS COULD CHALLENGE THE TAX-FREE NATURE OF THE SPIN-OFF
Before the spin-off, The Limited will receive an opinion of Davis Polk &
Wardwell stating that the spin-off should qualify as tax-free to The Limited and
its shareholders under Section 355 of the Internal Revenue Code. Opinions of
counsel are not binding on the IRS or the courts. Whether a spin-off qualifies
as tax-free depends in part upon the reasons for the spin-off and satisfaction
of numerous other fact-based requirements. In rendering its opinion, Davis Polk
& Wardwell has relied in part upon The Limited's representations as to these
matters. It is possible that the IRS could view the facts differently and assert
that the spin-off does not qualify as tax-free. Davis Polk & Wardwell, however,
is of the opinion that if the IRS were to assert that the spin-off did not
qualify as tax-free, the IRS should not prevail in a judicial proceeding in
which the issues and the facts were properly presented. For a further
description of the tax consequences of the spin-off, see "The
Spin-Off -- Material Federal Income Tax Consequences of the Spin-Off."
RISK FACTORS RELATING TO OUR BUSINESS
Our business faces the following risks, which include risks relating to the
industry in which we operate. The Limited also faces a number of these same
risks.
WE MAY NOT BE ABLE TO SUSTAIN A GROWTH RATE SUFFICIENT TO IMPLEMENT OUR
EXPANSION STRATEGY
We have grown rapidly over the past few years. We may not be able to
continue to grow profitably or at rates consistent with our recent past. Our
future growth prospects are dependent upon a number of factors, including:
- the availability of suitable markets and sites for our stores and our
ability to negotiate leases on acceptable terms for those stores
- our ability to fulfill our plans to open new stores and remodel or expand
existing stores
- our ability to enter new distribution channels, including the launch of
our catalog and the creation of our website
- our ability to attract and retain talented personnel and to expand our
infrastructure to accommodate our growth, including our ability to
maintain high levels of customer service by hiring and training qualified
sales associates
- the capacity to expand or add distribution facilities, the effective
management of our inventory and timely delivery of our merchandise
- our ability to keep up with constantly shifting fashion trends and
develop new and appealing merchandise
16
<PAGE> 22
We will require substantial capital expenditures to implement our business
strategy, in particular our opening of new stores and our remodeling or
expansion of our existing stores, which we estimate will require capital
expenditures of approximately $25 to $29 million in fiscal 1999. If we do not
generate sufficient cash flow from operations or if we are unable to obtain
sufficient financing under our credit facility or on other acceptable terms, we
may be required to reduce our planned capital expenditures, which could have a
material adverse effect on our growth prospects and the market price of our
common stock. In the past, our capital needs, including those for working
capital, have been provided by The Limited as part of its overall capital
expenditure and treasury management strategy. After our spin-off from The
Limited, The Limited will no longer provide financing for our operations.
Further, we may not be able to obtain financing at interest rates or on terms
that are as favorable as those enjoyed historically by The Limited.
WE MAY NOT BE ABLE TO MAINTAIN OUR COMPARABLE STORE SALES GROWTH
Our comparable store sales have fluctuated significantly in the past.
Comparable store sales will continue to fluctuate and may be affected by many
factors, including:
- competition
- economic conditions
- keeping up with fashion trends
- weather conditions
- new store openings in existing markets
- procurement and management of merchandise inventory
- customer response to new and existing styles
- store remodelings and expansions
We may not maintain comparable store sales growth at our current levels.
Our stock price may be materially adversely affected by declines and
fluctuations in our comparable store sales.
OUR NET SALES, NET INCOME AND INVENTORY LEVELS FLUCTUATE ON A SEASONAL BASIS
We experience seasonal fluctuations in our net sales and net income, with a
disproportionate amount of our net sales and a majority of our net income
typically realized during our fourth quarter due to sales from the holiday
season. We also generate significant net sales during the "back to school"
period in the third quarter. Any decrease in sales or margins during those
periods could have material adverse results on our financial condition and
results of operations.
Seasonal fluctuations also affect our inventory levels, since we usually
order merchandise in advance of peak selling periods and sometimes before new
fashion trends are confirmed by customer purchases. We must carry a significant
amount of inventory, especially before the holiday season and "back to school"
selling periods.
WE MAY BE UNABLE TO COMPETE FAVORABLY IN OUR HIGHLY COMPETITIVE SEGMENT OF THE
RETAIL INDUSTRY
The girls' retail apparel and accessories industry is highly competitive.
We expect competition in this market to increase, because there are few barriers
to entry in this market and our success may attract additional competitors.
Increased competition could result in pricing pressures, increased marketing
expenditures and loss of our market share, all of which could have a material
adverse effect on our financial condition and results of operations.
We compete for sales primarily with specialty apparel and accessory
retailers, such as GapKids and Claire's, department stores and discount
retailers. Other specialty retailers, such as Abercrombie & Fitch, have recently
begun to enter into the market for pre-teen apparel. In addition to the
traditional store-based retailers, we also compete with direct marketers who
target customers through catalogs and Internet shopping.
17
<PAGE> 23
Direct marketers also include traditional store-based retailers like us who are
expanding into catalogs and the Internet as additional distribution channels.
Some of our competitors may have greater financial, marketing and other
resources available to them. In many cases, our primary competitors are located
in the same shopping malls as our stores, and in addition to competing for
sales, we compete for favorable site locations and lease terms in shopping
malls.
WE MAY LOSE KEY PERSONNEL
We believe that we have benefitted substantially from Leslie H. Wexner's
leadership. Mr. Wexner is the chairman, president and chief executive officer of
The Limited. Mr. Wexner's services with us will terminate after the spin-off. We
have also benefitted significantly from Michael Rayden's leadership. Mr. Rayden
is our chairperson of the board, president and chief executive officer, and the
loss of his services could have a material adverse effect on our business and
prospects. We expect to enter into an employment agreement with Mr. Rayden
shortly after the spin-off. See "Management -- Employment Agreements with
Executive Officers."
WE MAY NOT BE ABLE TO KEEP UP WITH FASHION TRENDS
Our success depends in part on our management's ability to anticipate the
fashion tastes of our young customers and to offer merchandise which appeals to
them on a timely and affordable basis. We expect our customers' fashion tastes
to change frequently. If we are unable to successfully anticipate, identify or
react to changing styles or trends, our sales will be lower and we may have
excess inventories. In response, we may be forced to increase our marketing
promotions or price markdowns, which could have a material adverse effect on our
business. Our brand image may also suffer if our young customers believe that
our merchandise misjudgments indicate that we are no longer able to offer them
the latest fashions.
OUR BUSINESS IS SENSITIVE TO ECONOMIC CONDITIONS AND CONSUMER SPENDING
Our business is sensitive to changes in the overall economic conditions and
consumer spending patterns. Our growth, sales and profitability may be adversely
affected by unfavorable local, regional or national economic conditions. In
addition, shifts in consumer discretionary spending among our customers for
other goods including music, entertainment and electronic products could also
adversely affect our business.
WE DEPEND ON A HIGH VOLUME OF MALL TRAFFIC AND THE AVAILABILITY OF SUITABLE
LEASE SPACE
Substantially all of our stores are located in regional shopping malls. Our
sales are derived, in part, from the high volume of traffic in those malls. We
benefit from the ability of the mall's "anchor" tenants, generally large
department stores, and other area attractions to generate consumer traffic in
our stores' vicinity and the continuing popularity of malls as shopping
destinations. Sales volume and mall traffic may be adversely affected by
economic downturns in a particular area, competition from non-mall retailers and
other malls where we do not have stores and the closing of anchor department
stores. In addition, a decline in the desirability of the shopping environment
in a particular mall, or a decline in the popularity of mall shopping among our
target consumers, could affect our business.
Since we are primarily a mall-based chain, our future growth is
significantly dependent on our ability to open new stores in desirable mall
locations. We cannot assure you as to when or whether such desirable locations
will become available.
OUR INABILITY TO EFFECTIVELY ADDRESS THE YEAR 2000 ISSUE MAY DISRUPT OUR
BUSINESS
The Year 2000 issue arises primarily from computer programs, commercial
systems and embedded chips that will be unable to properly interpret dates
beyond 1999. This could result in system failure or miscalculations. We have
been part of the package migration group of The Limited, which involves the
migration of software to be Year 2000 ready. We have installed those systems.
Recently, we have decided to explore redeploying our inventory planning legacy
system which is not part of the overall Year 2000 readiness efforts undertaken
by The Limited. The Limited has not committed resources to assist us in our
remediation
18
<PAGE> 24
efforts on the inventory planning legacy system. We have assumed full
responsibility to make our legacy system Year 2000 ready and to identify and
respond to any Year 2000 issues associated with the interaction between our
legacy system, our other systems and new systems installed as part of The
Limited's overall efforts. We believe we will incur an additional $100,000 of
programming costs in order to make the legacy system Year 2000 ready and
integrate this system with the other newly installed systems. If we are
unsuccessful in our efforts to remediate the inventory planning legacy system,
we will continue with the planning system The Limited has already provided us as
part of The Limited's Year 2000 readiness efforts.
In addition to the inventory planning legacy system, not all of our
information systems are Year 2000 ready, and not all of the third parties with
whom we conduct our business have indicated that their information systems are
Year 2000 ready.
We cannot assure you that:
- our inventory planning legacy system will be Year 2000 ready
- remediating and integrating our inventory planning legacy system will not
negatively impact our other systems, including systems we currently
believe to be Year 2000 ready
- we will not incur additional costs beyond our current estimates
The Year 2000 issue may result in our inability to engage in normal
business activities resulting from one or more of the following:
- the loss of communications links with store locations
- disruptions in the movement of inventory to and from our vendors and
distribution center and between store locations
- the failure of our inventory management systems
- the inability to process transactions with customers or to execute
purchase orders with suppliers
- the failure of basic services, such as utilities
Except for the inventory planning legacy system, we are currently part of
the Year 2000 readiness efforts undertaken by The Limited, which will continue
after the spin-off under a services agreement with The Limited. Working with our
management team, The Limited has made changes to, or replaced, our other
information systems to make them Year 2000 ready, including installing new
software and hardware to support our inventory planning, merchandising and
finance functions. Various third parties with whom we conduct business have
notified The Limited that they are in the process of becoming Year 2000 ready.
However, if The Limited and these third parties do not complete this work
effectively or on time, we may be materially adversely affected.
We discuss The Limited's Year 2000 effort, the potential impact of the Year
2000 on our business, our expected costs to address our Year 2000 issues and our
contingency plans under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Readiness." In connection with
the spin-off, we will indemnify The Limited against any liabilities caused by or
arising from The Limited's Year 2000 readiness assistance and in connection with
the failure of any of our systems to be Year 2000 ready. We have also agreed not
to make any claims against The Limited caused by or arising from The Limited's
Year 2000 readiness assistance.
OUR EXPANSION INTO CATALOG AND INTERNET DISTRIBUTION CHANNELS MAY NOT BE
SUCCESSFUL
Our business strategy includes exploring new channels of distribution, such
as a catalog which we plan to mail in October 1999 for the holiday season and an
informational website which we plan to launch in the fall of 1999. We have no
operating history in these new channels of distribution. We intend to establish
adequate infrastructures to allow these new distribution channels to become
self-sustaining, which includes a plan to hire additional qualified personnel.
The timing of the launch of our website and catalog may be significantly
affected by our ability to develop such infrastructure. In addition, our efforts
to enter into these
19
<PAGE> 25
new channels may place a strain on our managerial, operational and financial
resources. We cannot assure you that:
- we will be able to manage effectively our expansion into these new
channels
- we will be able to establish systems, procedures and controls adequate to
support these channels
- our management will be able to achieve the rapid execution necessary to
fully exploit new market opportunities
We also face competition from established retailers in these new areas.
Our website will initially be informational, although we intend to permit
our customers to order our merchandise on-line in the future, and we intend to
link our on-line business to our catalog business. Our success will depend on
our ability to attract customers and provide them with a superior shopping
experience. In addition, we will need to coordinate the fulfillment and service
of customer orders, for which we have not established an infrastructure.
Currently, few laws or regulations directly apply to access to or commerce
on the Internet. As Internet commerce evolves, federal or state governments may
adopt regulations covering issues such as user privacy, pricing, content and
quality of products and services. If enacted, such laws or regulations, in
particular laws regulating the solicitation, collection or processing of
personal consumer information, could limit the potential for this distribution
channel.
We intend to mail our catalogs to names in our frequent buyer database, and
we may obtain additional names by purchasing or renting qualified names from
other third parties' mailing lists. There has been increasing public concern
regarding the compilation, use and distribution of information about teens and
children. The U.S. Federal Trade Commission recently proposed regulations to
implement the Children's Online Privacy Protection Act of 1998, which places
restrictions on persons, principally list brokers, that sell, purchase or
otherwise use for commercial purposes personal information about teens (under
the age of 16) and children. These and future regulations may limit our ability
to obtain lists of potential customers.
WE HAVE INCURRED A SIGNIFICANT AMOUNT OF DEBT WHICH WE MAY NOT BE ABLE TO
SERVICE
We have incurred a significant amount of indebtedness in connection with
the spin-off. On a pro forma basis, as of May 1, 1999, we had: (a) total
consolidated indebtedness of approximately $52 million; and (b) $48 million of
borrowings available under our credit facility, subject to customary conditions.
We have borrowed $64 million under our credit facility to pay a $50 million
dividend to The Limited, to repay a portion of the working capital advances made
by The Limited to us in 1999 before the spin-off and to pay fees and expenses in
connection with the closing of the credit facility.
Our credit facility, which is secured, precludes us from incurring or
securing additional indebtedness over stipulated amounts. In addition, as
previously described under "-- We May Incur Costs or Be Forced to Relocate
Stores Which Are Adjacent To or Departments Within The Limited Stores," we may
also borrow money, which may be secured, from The Limited in connection with the
closing of our stores adjacent to or departments within The Limited.
The level of our indebtedness could have important consequences, including:
- limiting cash flow available for general corporate purposes because a
portion of our cash flow from operations must be dedicated to servicing
our debt
- limiting our ability to obtain additional financing in the future for
working capital or capital expenditures
- limiting our flexibility to react to competitive and other changes in our
industry and economic conditions generally
20
<PAGE> 26
Our ability to pay or to refinance our indebtedness will depend upon our
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond our control.
We anticipate that our operating cash flow, together with money we can
borrow under our credit facility, will be sufficient to meet anticipated future
operating expenses, to fund capital expenditures and to service our debt as it
becomes due. If we were still unable to meet our debt service obligations, we
may attempt to restructure or refinance our indebtedness or seek additional
equity capital. We cannot assure you that we will be able to accomplish that on
satisfactory terms, if at all.
THE PLANNED UPGRADES OF THE MANAGEMENT INFORMATION SYSTEMS THAT WE USE MAY NOT
BE SUCCESSFUL
We rely on management information systems that we own or that The Limited
provides to us for all major aspects of our business. After our management
information systems become Year 2000 ready, we expect to upgrade many of these
systems. We will be materially adversely affected if these systems are not
improved, upgraded or expanded on an effective basis or if our systems are
disrupted. Current hardware and network infrastructure is being upgraded
through:
- the creation of store, marketing and customer databases to improve
controls and enhance sales and operational capabilities
- the implementation of a new warehouse management system
- the upgrading of distribution facilities to expand capacity
We may not be able to process our transactions at alternative sites and
platforms after our services agreement with The Limited expires. We cannot
assure you that we will complete our planned upgrades on a timely basis or in a
successful manner.
WE WILL NEED TO COMPLY WITH EXISTING AND NEW REGULATIONS THAT GOVERN US
Currently, much of our personal care and lifestyle merchandise are subject
to various regulations stipulated by the U.S. Food and Drug Administration,
Federal Trade Commission and the U.S. Consumer Product Safety Commission. As we
expand our merchandise assortment and increase the number of our suppliers to
accommodate our growth, we may be governed by new regulations that may be more
difficult to comply with.
For example, we are required to meet federal flammability standards for
children's sleepwear. These standards require sleepwear to be flame-resistant,
and if the fabric ignites, for the flame to self-extinguish. Failure to meet the
flammability standards presents a risk of serious burn injuries to children. We
require our suppliers to ensure that these standards are met; however, they may
source products from other suppliers, in particular foreign suppliers, who,
despite our best efforts, may not adhere to these standards. We may be forced to
voluntarily recall the merchandise in question and give full refunds to our
customers.
In September 1998, in cooperation with the U.S. Consumer Product Safety
Commission, we voluntarily recalled approximately 390,000 children's satin
pajama sets. In January 1999, we voluntarily recalled approximately 17,600
girls' fleece robes. Our supplier incurred all of the costs, not including a
major portion of our lost profits, related to the recalls. These kinds of
recalls may occur in the future and may have adverse effects on sales,
performance, operating results, business opportunities and our reputation. While
we continuously update our standards for our vendor partners to ensure
compliance, we cannot assure you that these standards will be met.
WE RELY SIGNIFICANTLY ON FOREIGN SOURCES OF PRODUCTION
In 1998, we sourced over 60% of our merchandise from foreign factories
located primarily in East and Southeast Asia. We do not have any long-term
merchandise supply contracts, and many of our imports are subject to existing or
potential duties, tariffs or quotas that may limit the quantity of goods which
may be
21
<PAGE> 27
imported into the United States from countries in that region. We compete with
other companies, including The Limited and The Limited's other subsidiaries, for
production facilities and import quota capacity.
Our business also faces a variety of other risks generally associated with
doing business in foreign markets and importing merchandise from abroad, such
as:
- political instability
- currency and exchange risks
- local business practice and political issues, including issues relating
to compliance with domestic or international labor standards
Our future performance will depend upon these factors, which are beyond our
control. These factors may have a material adverse effect on our business.
RISK FACTORS RELATING TO OUR CORPORATE DOCUMENTS AND THE LEGAL ENVIRONMENT
In connection with the ownership of our stock, you should consider the
following risks relating to our corporate documents and the legal environment.
These risks may affect our ability to execute business combinations and change
of control transactions and to declare dividends.
PROVISIONS IN OUR CORPORATE DOCUMENTS COULD DELAY OR PREVENT A CHANGE IN
CONTROL OF OUR COMPANY, WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK TO
DECLINE
Our certificate of incorporation and bylaws contain a number of provisions
that could impede a merger, consolidation, takeover or other business
combination involving us or discourage a potential acquiror from making a tender
offer or otherwise attempting to obtain control of us. Those provisions include:
- a requirement that the holders of at least 75% of our outstanding common
stock must approve:
-- a merger or consolidation with persons or entities that beneficially
own at least 5% of our common stock
-- a sale of all or substantially all of our assets to those persons or
entities
-- other control transactions
unless, in each case, the proposed transaction is approved by a majority of the
directors who were in office immediately before the time when such ownership was
acquired, or by their approved successors
- a classified board of directors in which the board members are divided
into three classes, each of which serves a staggered three-year term
- a requirement that only the holders of at least 75% of our outstanding
common stock may approve any amendment or repeal of our bylaws and
specified provisions of our certificate of incorporation
- an authorization to adopt a rights plan that may be redeemed only by a
majority of the directors who were in office when the rights plan was
adopted, or by their approved successors
After the spin-off, we expect that Mr. Wexner and his related interests
will own approximately 21.9% of the shares of our common stock, based on their
shareholdings of The Limited's common stock as of August 9, 1999. This may
impede a change in control of our company without his support.
In connection with the spin-off, we will enter into a distribution
agreement which will provide that no person or group may acquire beneficial
ownership of more than 35% of our common stock unless, before the acquisition
takes place, the acquiror has provided to The Limited a guarantee of our
indemnity and other obligations under the distribution agreement and other
agreements. In addition, if any person or group acquires such beneficial
ownership of us, The Limited may immediately stop providing transitional
services.
22
<PAGE> 28
WE WILL NOT BE ABLE TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE
We anticipate that future earnings will be used principally to support
operations and finance the growth of our business. Thus, we do not intend to pay
cash dividends on our common stock in the foreseeable future. Payment of
dividends will also be restricted by provisions in our credit facility. If our
lenders permit us to declare dividends, the dividend amounts, if any, will be
determined by our board. Our board will consider a number of factors, including
our financial condition, capital requirements, funds generated from operations,
future business prospects, applicable contractual restrictions and any other
factors our board may deem relevant.
23
<PAGE> 29
THE SPIN-OFF
BACKGROUND TO AND REASONS FOR THE SPIN-OFF
Over the past several years, The Limited's board of directors and senior
management have embarked upon a comprehensive review of The Limited's
organization structure and operations, with the primary goals of generating
maximum value for The Limited's shareholders and focusing its resources on its
key strategic business. To date, The Limited has taken a number of actions in
furtherance of these goals:
- the 1995 initial public offering of common stock of Intimate Brands,
Inc., which consisted of The Limited's Victoria's Secret Stores,
Victoria's Secret Catalogue, Bath & Body Works, Cacique, Penhaligon's and
Gryphon businesses. The offering resulted in a gain of approximately $649
million. After this offering, The Limited retained approximately 83% of
the economic interests in, and approximately 94% of the total voting
power of, Intimate Brands
- the sale of our interest in approximately $1.3 billion of credit card
accounts receivable owned by World Financial Network National Bank, The
Limited's credit card bank. This transaction was completed in 1995 and
resulted in net cash proceeds of approximately $1.2 billion
- the 1995 sale of a 60% interest in World Financial Network National Bank
to an affiliate of Welsh, Carson, Anderson and Stowe VII, L.P. for
approximately $135 million in cash
- a distribution of $1.6 billion of the cash received from the foregoing
three transactions to The Limited's shareholders through an issuer self
tender in March 1996
- the 1996 initial public offering of the Class A common stock of
Abercrombie & Fitch Co. The offering resulted in a gain of approximately
$118 million. After this offering, The Limited retained approximately 84%
of the economic interest in, and approximately 94% of the total voting
power of, Abercrombie & Fitch
- the 1997 public offering of a significant portion of The Limited's
interest in Brylane, Inc., consisting principally of the Lerner and Lane
Bryant catalog businesses. In 1998, The Limited sold its remaining
interest in Brylane for approximately $131 million in cash. These actions
followed the 1993 sale by The Limited of 60% of its interest in Brylane
to an affiliate of Freeman, Spogli & Co.
- the 1997 sales of The Limited's interests in:
-- the Newport Office Tower in Jersey City, New Jersey to TrizecHahn
Office Properties for approximately $159 million in cash
-- The Mall at Tuttle Crossing in Columbus, Ohio to a unit of Taubman
Centers Inc. for approximately $76 million in cash
- the 1997 sale of Intimate Brands' Penhaligon's business
- the 1997 closure of Intimate Brands' Cacique business
- the 1997 decision to streamline The Limited's Henri Bendel business. In
1998, The Limited closed all of its Henri Bendel locations other than its
flagship store in New York City
- the complete separation of Abercrombie & Fitch from The Limited in 1998
through an exchange of shares of The Limited's common stock for shares of
the Class A common stock of Abercrombie & Fitch owned by The Limited
which resulted in the acquisition of 47.1 million shares of The Limited's
common stock from The Limited's shareholders
- the closure of 750 underperforming stores between 1995 and 1998,
primarily in women's apparel, excluding the closure of Cacique stores
- the signing of an agreement with an affiliate of Freeman, Spogli & Co.
under which The Limited has agreed to sell a 60% interest in Galyan's
Trading Co. to the Freeman, Spogli affiliate
24
<PAGE> 30
In early 1998, the chairman of The Limited informed shareholders that as
part of its ongoing consideration of strategic alternatives, The Limited intends
to streamline operations and focus on core brands. During this time, The Limited
began to explore various transaction structures to continue to implement these
goals with respect to The Limited's interest in our business. In late 1998, The
Limited acknowledged that Limited Too had become an established business with a
unique customer base, a focused brand image and a profitable growth strategy.
The Limited began to conduct discussions with various financial institutions,
and retained J.P. Morgan Securities Inc., as financial adviser, and Davis Polk &
Wardwell, as legal counsel, to begin an analysis of various alternatives,
including the possibility of designing, formulating and implementing a plan to
separate us from The Limited.
The Limited decided to proceed with exploring the separation of its Limited
Too business based on the following material factors:
- Separation of the Limited Too business is consistent with The Limited's
strategy of focusing on fewer businesses
- The Limited believed that having two separate public companies would
enable the financial markets to evaluate each company more effectively,
thereby maximizing shareholder value over the long term for both The
Limited and Too, Inc.
- The Limited concluded that separate management and ownership structures
for Too, Inc. would provide incentives to Too, Inc.'s management and
direct accountability to public investors
- The Limited recognized that being a separate company would provide our
management with increased strategic flexibility and decision-making power
to realize the significant growth opportunities that it has identified
- The Limited determined that the complete separation of us from The
Limited would be in the best interests of The Limited, the Limited Too
business and The Limited's shareholders
The Limited reviewed a number of issues in determining the best structure
for separating the Limited Too business. The Limited considered a separation by
means of a 100% spin-off, a sale of our company through a negotiated transaction
and an initial public offering followed by a subsequent spin-off. In this
strategic review, The Limited worked with its financial adviser and legal
counsel to analyze and evaluate issues related to the three alternative
transactions and structures.
J.P. Morgan made a presentation to the management of The Limited discussing
its analysis. The Limited's management subsequently made a presentation to its
board of directors using information from J.P. Morgan's presentation,
management's preliminary discussions with other investment banks and internal
research and analysis. Both J.P. Morgan's and management's presentations
included a discussion of the following issues:
- the strategic direction of The Limited and Limited Too businesses
- the financial impact on The Limited and Too, Inc.
- the market risk and timing involved in each of the three alternative
transactions
- the tax implications for shareholders and The Limited of each of the
three alternative transactions
- the post-spin-off market values of Limited Too and The Limited
Both J.P. Morgan's presentation and management's presentation to The
Limited's board of directors recommended pursuing actions toward separating the
Limited Too business from The Limited by means of a 100% spin-off. J.P. Morgan
and The Limited determined that a 100% spin-off had the following advantages
relative to the alternatives they considered:
- The tax-free nature of the spin-off may benefit The Limited and its
shareholders, whereas a negotiated sale or an initial public offering
followed by a subsequent spin-off may have adverse tax consequences
25
<PAGE> 31
- A spin-off may involve a lower level of market and execution risk,
particularly due to the timing involved. For example, based on its past
experience, The Limited was concerned that an initial public offering
followed by a spin-off might take up to two years to complete, during
which time The Limited and Too, Inc. would be faced with additional
risks, such as potential fluctuations in the stock market and operating
results
After considering the alternative transactions and structures outlined in
the presentations, The Limited's board gave the approval to proceed with actions
toward separating our business from The Limited by means of a 100% spin-off.
J.P. Morgan provided advice regarding the amount of the dividend that Too, Inc.
could pay to The Limited in connection with the spin-off, which was closely
reviewed with the management of The Limited and Too, Inc. This analysis and
recommendation was later summarized and reviewed with the board of directors of
The Limited by J.P. Morgan. The recommendation was based principally on a review
of Too Inc.'s projected balance sheet and cash flow ratios after the payment of
a $50 million dividend to The Limited and the establishment of Too, Inc.'s
credit facility, and included various comparisons to similar speciality
retailers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Liquidity and Capital Resources"
and "Unaudited Pro Forma Consolidated Financial Statements."
The spin-off is intended to allow us to grow as an independent company,
since we have demonstrated that we have a unique customer base, a focused brand
image and a profitable growth strategy. At the same time, our separation allows
The Limited to focus its resources on its other brands where it can add more
value.
DESCRIPTION OF THE SPIN-OFF
The distribution agreement between The Limited and us provides the general
terms and conditions relating to the spin-off. See "Relationship Between Too,
Inc. and The Limited -- Distribution Agreement."
The Limited will effect the spin-off on or about August 23, 1999 by
providing for the distribution of the shares of our common stock to EquiServe,
First Chicago Division. EquiServe will distribute these shares to each holder of
record of The Limited's common stock at the close of business on August 11,
1999, the record date for the spin-off. The shares of our common stock will be
validly granted, fully paid and nonassessable, and the holders of these shares
will not be entitled to preemptive rights. See "Description of Capital Stock."
In the spin-off, The Limited will distribute 100% of the outstanding shares
of our common stock to The Limited's shareholders. Each eligible recipient of
our shares will receive one share of our common stock for every seven shares of
The Limited's common stock that the recipient holds at the close of business on
the record date for the spin-off. The actual total number of shares of our
common stock to be distributed will depend on the number of shares of The
Limited's common stock that are outstanding on the record date. Based on the
number of shares of The Limited's common stock outstanding as of June 7, 1999,
we estimate that we will distribute approximately 30 million shares of our
common stock to The Limited's shareholders. Immediately after the spin-off, we
estimate that approximately 50,000 shareholders of record will hold shares of
our common stock, although some of the shares may be registered in the name of a
single shareholder who represents a number of shareholders.
As part of the spin-off, we will be adopting a book-entry share transfer
and registration system for our common stock. For registered holders of The
Limited's common stock, instead of sending physical share certificates,
EquiServe will credit the shares of our common stock distributed on the date of
the spin-off to book-entry accounts established for all registered holders of
our common stock. EquiServe will then mail an account statement to each of those
registered holders stating the maximum number of whole shares of our common
stock to which that holder is entitled in connection with the spin-off. After
the spin-off, registered holders of our common stock may request:
- a transfer of all or a portion of their shares to a brokerage or other
account
- receipt of one or more physical share certificates representing their
shareholding
26
<PAGE> 32
For those holders of The Limited's common stock who hold their shares
through a broker, bank or other nominee, EquiServe will transfer the shares of
our common stock to the registered holders of record who will make arrangements
to credit their customers' accounts with our common stock. We and The Limited
anticipate that brokers, banks and other nominees will generally credit their
customers' accounts with our common stock on or about August 25, 1999.
We will not issue any certificates representing fractional shares of our
common stock as part of the spin-off. EquiServe will aggregate all fractional
interests into whole shares and sell them in the open market at then prevailing
prices on behalf of holders who would be entitled to receive a fractional
interest in our common stock. These holders will receive cash payments in the
amount of their proportionate share of the total sale proceeds from the sale of
the aggregated fractional interests. EquiServe will pay the proceeds from these
sales based upon the average gross selling price per share of our common stock.
See "-- Material Federal Income Tax Consequences of the Spin-Off." The Limited
will bear the cost of commissions incurred in connection with these sales. We
anticipate that these sales will occur as soon after the date of the spin-off as
practicable.
The Limited, Too, Inc. or EquiServe will not guarantee any minimum sale
price for the fractional shares of our common stock. Neither we nor The Limited
will pay any interest on the proceeds from the sale of fractional shares.
If you become a registered holder of our common stock in connection with
the spin-off and you prefer to receive one or more physical share certificates
representing your shareholding of our common stock, you will receive one or more
certificates for all whole shares of our common stock and, if applicable, cash
for any fractional interest. EquiServe will mail you certificates representing
your proportionate number of whole shares of our common stock as soon after the
date of request as practicable.
We anticipate that in connection with the spin-off, options related to The
Limited's common stock and restricted shares of its common stock held by
employees of The Limited and vested options on The Limited's common stock held
by Too, Inc. employees will be equitably adjusted to reflect the spin-off. We
further anticipate that, generally, unvested options on The Limited's common
stock and restricted shares of its common stock held by Too, Inc. employees will
be equitably converted into options and restricted shares of Too, Inc.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
Before the spin-off, The Limited will receive an opinion of Davis Polk &
Wardwell stating that the spin-off should qualify as tax-free to The Limited and
its shareholders under Section 355 of the Internal Revenue Code. The Limited
will not seek a private letter ruling relating to the spin-off from the IRS.
The material federal income tax consequences of a tax-free spin-off are:
- Except as described below with respect to fractional shares, shareholders
of The Limited will not recognize gain or loss as a result of the
spin-off.
- Cash received instead of a fractional share will be treated as received
in exchange for the fractional share. Gain or loss will be recognized to
a recipient shareholder to the extent of the difference between the
shareholder's basis in the fractional share and the amount received for
the fractional share. If the fractional share interest is held as a
capital asset by the recipient shareholder, the gain or loss will be a
capital gain or loss.
- You, as a shareholder of The Limited, will apportion your tax basis in
The Limited's common stock between The Limited's common stock and our
common stock received in the spin-off, including fractional shares for
which you receive cash, in proportion to the relative fair market values
of The Limited's common stock and our common stock on the date of the
spin-off.
- If you hold The Limited's common stock as a capital asset as of the date
of the spin-off, your holding period for our common stock received in the
spin-off will include the period during which you held the common stock
which enabled you to receive our common stock in the spin-off.
27
<PAGE> 33
- The Limited generally will not recognize any gain or loss as a result of
the spin-off.
Opinions of counsel are not binding on the IRS or the courts. Whether a
spin-off qualifies as tax-free depends in part upon the reasons for the spin-off
and satisfaction of numerous other fact-based requirements. In rendering its
opinion, Davis Polk & Wardwell has relied in part upon The Limited's
representations as to these matters. It is possible that the IRS could view the
facts differently and assert that the spin-off does not qualify as tax-free.
Davis Polk & Wardwell, however, is of the opinion that if the IRS were to assert
that the spin-off did not qualify as tax-free, the IRS should not prevail in a
judicial proceeding in which the issues and facts were properly presented.
If the spin-off does not qualify as tax-free, the fair market value of the
shares of our common stock received by The Limited's shareholders would be
taxable as a dividend to the extent of current-year and accumulated earnings and
profits. As a result, your tax basis in the shares of The Limited's common stock
would not change, and your tax basis in the shares of our common stock would be
their fair market value on the date of the spin-off. In addition, The Limited
would recognize a capital gain equal to the excess of the fair market value of
the shares of our common stock over its basis in these shares.
Current Treasury regulations require each shareholder of The Limited who
receives our common stock in the spin-off to attach a descriptive statement
concerning the spin-off to the shareholder's federal income tax return for the
year in which the spin-off occurs. The Limited, or Too, Inc. on behalf of The
Limited, will make available the required information to each shareholder of
record of The Limited as of the record date for the spin-off.
YOU SHOULD CONSULT YOUR TAX ADVISER REGARDING THE PARTICULAR FEDERAL,
FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE SPIN-OFF TO YOU.
For a description of the agreements under which we and The Limited have
provided for tax sharing and other tax matters, see "Relationship Between Too,
Inc. and The Limited -- Transitional Services and Separation Agreements -- Tax
Separation Agreement."
28
<PAGE> 34
RELATIONSHIP BETWEEN TOO, INC. AND THE LIMITED
This section of the information statement summarizes material agreements
between The Limited and us that will govern the ongoing relationships between
the two companies after the spin-off and will provide for an orderly transition
to our status as a separate, independent company. You should also read the
agreements, which we have filed as exhibits to the Form 10 of which this
information statement forms a part.
We believe that the terms of these agreements will be similar to terms
achievable through arm's length negotiations with third parties. Additional or
modified agreements, arrangements and transactions may be entered into between
The Limited and us after the spin-off, which we will attempt to negotiate at
arm's length as well.
DISTRIBUTION AGREEMENT
We and The Limited will enter into a distribution agreement in connection
with the spin-off. This agreement will:
- provide for the principal corporate transactions and procedures for
effecting the spin-off
- provide for the allocation of assets and liabilities between The Limited
and us on the date of the spin-off
CROSS INDEMNIFICATION
We and The Limited have agreed to indemnify one another against specified
liabilities. We have agreed to indemnify The Limited and its subsidiaries (The
Limited and its subsidiaries being "The Limited Group") and their directors,
officers and affiliates (collectively, "The Limited Indemnitees") from and
against any and all damage, loss, liability and expense incurred by any of The
Limited Indemnitees arising out of or due to our failure to discharge any
obligations or liabilities of us and our subsidiaries (the "Too, Inc. Group")
under the distribution agreement, as well as all liabilities, whenever arising,
of the Too, Inc. Group, liabilities arising from or in connection with our
conduct of our business or our ownership or use of assets in connection with our
business and liabilities relating to our individual account plan.
The Limited has agreed to indemnify the Too, Inc. Group and our directors,
officers and affiliates (collectively, "Too, Inc. Indemnitees") from and against
any and all damage, loss, liability and expense incurred by any of Too, Inc.
Indemnitees arising out of or due to The Limited's failure to discharge any
obligations or liabilities of The Limited Group under the distribution
agreement, as well as all liabilities, whenever arising, of The Limited Group,
liabilities arising from or in connection with the conduct of The Limited
Group's businesses, other than our business, or The Limited Group's ownership or
use of assets in connection with their businesses and liabilities relating to
the Limited Group's savings and retirement plan.
In addition, we and The Limited have generally agreed to indemnify each
other and the other's affiliates and controlling persons from specified
liabilities under the securities laws relating to the Form 10 and this
information statement or to contribute under specified circumstances to the
amount paid or payable by the other in respect of the liabilities.
None of these indemnities applies to indemnification for tax liabilities,
which are addressed in the tax separation agreement described below under
"-- Transitional Services and Separation Agreements -- Tax Separation
Agreement." We do not believe that any of these indemnities will have a material
adverse effect on our business, financial condition or results of operations.
The distribution agreement also includes procedures for notice and payment
of indemnification claims and generally provides that the indemnifying party may
assume the defense of a claim or suit brought by a third party. Any
indemnification amount paid under the indemnities will be paid net of the amount
of any insurance or other amounts that would be payable by any third party to
the indemnified party in the absence of the indemnity and net of any tax benefit
to the indemnified party that is attributable to the relevant payment or
liability. The indemnification amount will be increased so that the indemnified
party receives 100% of the after-tax amount of any payment or liability.
29
<PAGE> 35
CONDITIONS TO THE SPIN-OFF
The distribution agreement provides that the following conditions must be
satisfied or waived before or as of the date of the spin-off for the spin-off to
occur:
- the SEC must have declared effective the Form 10 filed with it under the
Securities Exchange Act of 1934
- the New York Stock Exchange must have approved the listing of our common
stock, subject to official notice of issuance
- The Limited's board must be satisfied that the spin-off will be paid out
of The Limited's surplus in accordance with Section 170 of the Delaware
General Corporation Law
- The Limited's board must have approved the spin-off and must not have
abandoned, deferred or modified the spin-off at any time before the
spin-off occurs
- The Limited, as our sole shareholder, must have elected our board
- our certificate of incorporation and bylaws must be in effect
- The Limited and we must have entered into the tax separation agreement
and other transitional services and separation agreements
- The Limited must have received an opinion of Davis Polk & Wardwell
relating to the tax-free nature of the spin-off
- our lenders must have made available a credit facility in an amount and
on terms satisfactory to The Limited and to us
TRANSFER OF ASSETS
Assuming that either The Limited or we can obtain the necessary consents of
third parties or governmental or regulatory bodies:
- The Limited Group will use its best efforts to transfer to the Too, Inc.
Group all assets that relate solely to the business of the Too, Inc.
Group and that are not already owned by the Too, Inc. Group. We will
assume any liabilities associated with these assets.
- The Too, Inc. Group will use its best efforts to transfer to The Limited
Group all assets that relate solely to the business of The Limited Group
and that are not already owned by The Limited Group. The Limited will
assume any liabilities associated with these assets.
- The Limited will have exclusive authority to negotiate and prosecute any
rights, claims or refunds relating to real estate that The Limited Group
or the Too, Inc. Group currently leases or subleases, or has previously
leased or subleased.
- We will assume our proportionate share of any judgment or settlement that
is ultimately reached in connection with claims against us or the Too,
Inc. Group or claims for which The Limited or The Limited Group can be
found jointly and severally liable with us or the Too, Inc. Group.
- The Limited will transfer to us or to the Too, Inc. Group all of the
outstanding stock in American Factoring, Inc., currently a wholly owned
subsidiary of The Limited.
EMPLOYEE BENEFITS
The distribution agreement provides that The Limited will generally cease
to have any liability under its employee benefit plans with respect to employees
of the Too, Inc. Group after the spin-off. However, the full account balances of
current employees of the Too, Inc. Group in The Limited's qualified and
non-qualified plans will be transferred to similar successor plans of Too, Inc.
30
<PAGE> 36
RESTRICTION ON SOLICITATION OR EMPLOYMENT OF EMPLOYEES
For a period of three years beginning on the date of the spin-off, we and
The Limited agree not to, and to cause our subsidiaries not to:
- solicit or otherwise attempt to induce or influence any associate of the
other party or a subsidiary to leave employment with his or her
then-current employer, without the consent of the other party
- employ any exempt or salaried associate of the other party or a
subsidiary, except for any associate who was assigned solely to a single
store location, without the consent of the other party
NET INVESTMENT BY THE LIMITED ACCOUNT
The distribution agreement eliminates all investment accounts and loan
balances between The Limited and its subsidiaries, on the one hand, and us and
our subsidiaries, on the other, outstanding as of the spin-off. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition -- Liquidity and Capital
Resources," "Unaudited Pro Forma Consolidated Financial Statements" and
"Capitalization."
RIGHTS OF THE LIMITED IF A THIRD PARTY TRIES TO ACQUIRE US
The distribution agreement generally provides that no person or group may
acquire beneficial ownership of more than 35% of our common stock unless, before
the acquisition takes place, the acquiror has provided to The Limited a
guarantee of our indemnity and other obligations under the distribution
agreement and other agreements. In addition, if any person or group acquires
such beneficial ownership of us, The Limited may immediately stop providing
transitional services.
ACCESS TO INFORMATION; PROVISION OF WITNESSES; CONFIDENTIALITY
Under the distribution agreement, we and The Limited will, for a reasonable
period of time and with specified exceptions, allow the other party and their
specified representatives reasonable access to all records in our or its
possession relating to the business and affairs of the other party as reasonably
required. Access will be allowed for such purposes as auditing, accounting,
litigation, disclosure, reporting and regulatory compliance. Each party will
also use reasonable efforts to make available to the other its officers,
directors, employees and representatives as witnesses and will otherwise
cooperate with the other party in connection with any proceeding arising out of
its or the other party's business before the spin-off.
Except as otherwise provided in the distribution agreement, we, The Limited
and our respective officers, directors, employees, agents and representatives
will hold all information in our, its or their possession concerning the other
party in strict confidence.
TRANSACTION EXPENSES
The Limited will generally be responsible for all transaction expenses
relating to the spin-off that The Limited Group or the Too, Inc. Group incurs.
However, we will be responsible for all fees and expenses incurred in connection
with our credit facility, which is described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Description of Credit Facility."
TERMINATION
Neither party will be able to terminate the distribution agreement for a
period of three years after the date of the spin-off, except upon mutual consent
by us and The Limited. After that, either party will be able to terminate the
distribution agreement with six months' prior written notice.
31
<PAGE> 37
TRANSITIONAL SERVICES AND SEPARATION AGREEMENTS
Our relationship with The Limited will also be governed by agreements that
we will enter into in connection with the spin-off, including:
- a store leases agreement
- a trademark and service mark licensing agreement
- a services agreement
- a tax separation agreement
- an amendment to an existing building lease agreement
The material terms of these agreements are described below.
STORE LEASES AGREEMENT
We and The Limited or its affiliates intend to enter into a store leases
agreement effective before or as of the date of the spin-off. Under this
agreement, we will:
- formalize our sublease arrangements regarding 127 of our stores where we
occupy space that The Limited or an affiliate of The Limited, other than
us, has leased from landlords (the "Direct Limited Leases")
- receive compensation from The Limited in the form of cash payments and
loans if The Limited decides to close any of its 131 stores to which we
are adjacent and we remain in the same mall
- compensate The Limited for providing guarantees under our direct leases
for 110 stores (the "Direct Too, Inc. Leases") if we exceed specified
threshold sales levels
Direct Limited Leases. We currently operate 127 stores under the Direct
Limited Leases. Under the store leases agreement, which formalizes our interest
in those spaces, we will sublet the space which our stores currently occupy, and
assume responsibility for our proportionate share, based on the size of our
respective selling space areas, of all costs and expenses (principally rent,
maintenance and utilities) under the Direct Limited Leases. This method of
allocating costs and expenses is consistent in all material respects with the
allocation of similar costs and expenses contained in our historical
consolidated financial statements. See our historical consolidated financial
statements and the notes to those financial statements included in this
information statement. Management's estimate of the store lease and other
occupancy costs charge that we would have paid in fiscal 1998 if this agreement
had been in effect during that period is approximately $10.4 million.
Effective as of the date of the spin-off, if our store sales in those
stores governed by the Direct Limited Leases exceed specified threshold sales
levels, we will be required to make additional payments to The Limited in
connection with our interests. The threshold sales level for each store will be
determined in the store leases agreement, and we will pay The Limited a portion
of the sales amount that exceeds the threshold sales level for each store for
the remaining term of the relevant lease. Management's estimate of the amount
that we would have paid in fiscal 1998 if this agreement had been in effect
during that period is approximately $484,000. If our sales increase in these
stores, the amount of our cash payments would also increase. Assuming a 5.0%
comparable store sales growth for each of our stores operating under the Direct
Limited Leases, we estimate that the amount that we would be required to pay to
The Limited in fiscal 1999 is approximately $591,000.
Under the store leases agreement, we are committed to pay rent and related
costs through the expiration of the associated Direct Limited Leases.
Approximately 100 of the Direct Limited Leases of which we are a part are
scheduled to expire during 2005 or later. We may not assign or sublet our
interest in those premises, except to an affiliate, without The Limited's
consent, which The Limited may withhold in its sole discretion. If The Limited
intends to sublet or assign its portion of the leased premises under any of the
Direct Limited
32
<PAGE> 38
Leases to any non-affiliate, it will be required to give us 60 days' notice, and
we will be allowed to terminate our interest on that basis.
All termination rights and other remedies under the Direct Limited Leases
will remain with The Limited. If The Limited decides to extend the Direct
Limited Leases, it will not be required to allow us to continue to sublet. If we
both decide to extend, we will pay our proportionate share of any costs of
separation. If The Limited decides to terminate any of the Direct Limited Leases
early, The Limited must offer to assign such lease to us. If, as a result of
such early termination by The Limited, we are forced to close our store or
relocate, The Limited will pay us compensation, as outlined below.
Under the store leases agreement, we and The Limited have agreed to
indemnify one another against specified liabilities arising in connection with
any accident or occurrence, or in connection with any construction, repair or
other act or omission, in our respective premises. Furthermore, we will
indemnify The Limited against any damages of any kind arising from a breach or
default on our part that would result in The Limited being found in default or
having to pay any charges or damages under a Direct Limited Lease.
Adjacent Stores and Departments. As of May 1, 1999, 131 of our stores were
adjacent to The Limited stores, including six stores which were departments
within The Limited stores. As described above, 127 of these stores are leased to
The Limited or an affiliate of The Limited, other than us, and we have no direct
lease arrangements with the landlords of these stores. The Limited may decide to
close any or all of these 131 stores without consulting with us, and The Limited
is not obligated to consider the profitability of our adjacent stores or
departments before making its decision.
If The Limited closes one or more of these 131 stores, several things may
happen, including:
- we may, if available and on acceptable terms, lease the entire retail
space that includes our own space and The Limited's store space directly
from the landlord or from The Limited, which may involve remodeling costs
for which we would be responsible, less any cash payments and loans
received from The Limited
- we may, if available and on acceptable terms, lease our own store space
directly from the landlord which may involve costs to physically separate
our stores from space occupied by The Limited stores so that our store
space is free-standing. This separation may involve building walls in the
cross-over space between the two stores, creating separate back rooms and
utilities and in some instances, creating separate access to corridors
- we may be forced to close our existing location and incur costs to
relocate to an alternative location in the same mall
- we may not be able to obtain alternative space in the same mall on
acceptable terms and may be forced to relocate to another mall, in which
case we would not receive any compensation from The Limited, as described
below
- we may incur incremental rent expenses whether we remain in our current
store or relocate to a new store
- we may lose sales during any period that we are remodeling an existing
store or constructing a relocated store
Under the store leases agreement, The Limited would compensate us with a
combination of cash payments and loans if The Limited decides to close any of
those 131 stores and we remain in the same mall. The cash payment and loans will
be payable in respect of any such store that The Limited closes, and will vary,
depending on the remaining term of the affected store lease at the time the
Limited closes its adjacent store, as follows:
33
<PAGE> 39
<TABLE>
<CAPTION>
CASH LOAN
REMAINING LEASE TERM PAYMENT AMOUNT
- -------------------- -------- --------
<S> <C> <C>
Less than one year.......................................... -- $100,000
One to two years............................................ $ 50,000 100,000
Three to four years......................................... 100,000 100,000
Greater than four years..................................... 100,000 150,000
</TABLE>
As of May 1, 1999, approximately 100 of our stores adjacent to or
departments within The Limited stores are under the Direct Limited Leases with
remaining terms greater than four years. In addition, if The Limited closes in
the aggregate 98 (75% of the 131 stores) of its stores to which we are adjacent
or within which we have departments and we remain in the same mall (the "Closure
Threshold"), we will receive, within 90 days of any additional closure by The
Limited of an adjacent store, an additional cash payment of $50,000 in respect
of such closure if our adjacent affected store has a remaining lease term
greater than four years at the time The Limited closes its store. The loans
would have a five-year term, would bear interest at The Limited's five-year
borrowing rate, would be repayable at our option at any time, would be senior to
any other indebtedness incurred by us after the spin-off (except under our
credit facility and any refinancings of the facility) and would otherwise have
customary terms and conditions. Our right to the cash payments and loans
described above will terminate if we breach our obligations under the store
leases agreement in connection with two or more of our stores.
We estimate that the costs of separation for those stores that are
currently adjacent to The Limited stores would range from $50,000 to $350,000
per store, and would be, on average, approximately $170,000 per store. The
actual costs of separation would depend on the nature of the shared space
involved. For our six stores which are departments within The Limited stores, we
may need to relocate if The Limited closes its stores, which may cost up to
$500,000 in each instance.
We cannot assure you that the amounts that we would receive from The
Limited would be sufficient to cover the costs of separating, relocating or
reimbursing us for incremental rent increases for each store, or that the
estimated costs of separation and relocation accurately reflect what the actual
costs may be. We also cannot assure you that we will be able to enter into new
leases for alternative mall locations on agreeable terms or at all. See "Risk
Factors -- Risk Factors Relating to Separating Our Company from The Limited --
We May Incur Costs or Be Forced to Relocate Stores Which Are Adjacent to or
Departments Within The Limited Stores." By agreeing to the above-described
compensation payments, we will waive our ability to make any claims against The
Limited regarding any other actual claims, losses or costs attributable to the
closing of The Limited stores.
In addition, the agreement will contain other provisions including:
- the party seeking to exercise a renewal option of a lease will pay the
costs of separating the adjacent stores. If both parties seek to renew
the lease, then we will divide the costs of separation equally
- if a party seeks to undertake a remodeling project which costs $160,000
or more, then that party will pay for the costs of separating the
adjacent stores
Lease Guarantees. Approximately 110 of the existing 194 Direct Too, Inc.
Leases into which we have entered have been guaranteed by The Limited. Under the
store leases agreement, the lease guarantees that The Limited provides which are
in effect on the date of the spin-off will remain in effect for the remaining
initial term of the lease, unless we negotiate the elimination of these
guarantees with the landlord on acceptable terms or if we amend, extend or renew
the existing lease after the spin-off. The Limited will not guarantee any of our
new leases that we enter into after the spin-off. In addition, The Limited's
guarantee of any existing lease will expire upon the amendment, renewal or
extension of any such lease or upon any waiver by a landlord of any provision of
the lease.
Some of our stores are governed by leases that require us to notify the
landlord or obtain the landlord's consent for a change of control of the lessee.
We cannot assure you that the landlord will consent to the change of control
caused by the spin-off. See "Risk Factors -- Risk Factors Relating to Separating
Our
34
<PAGE> 40
Company from The Limited -- We May Not Be Able to Obtain Suitable Real Estate to
Implement Our Growth Strategy."
Effective as of the date of the spin-off, if our store sales in those
stores governed by our Direct Too, Inc. Leases exceed specified threshold sales
levels, we will be required to make additional payments to The Limited as
consideration for the guarantees that The Limited provides under such leases.
The threshold sales level for each store will be determined in the store leases
agreement, and we will pay The Limited a portion of the sales amount that exceed
the threshold sales level for each store, less any performance rents we are
required to pay to our third-party landlord, for the remaining term of the
relevant lease. Management's estimate of the amount that we would have paid in
fiscal 1998 if this agreement had been in effect during that period is
approximately $134,000. If our sales increase in these stores, the amount of our
cash payments would also increase. Assuming a 5.0% comparable store sales growth
for each of our stores operating under the Direct Too, Inc. Leases, we estimate
that the amount that we would be required to pay to The Limited in fiscal 1999
is approximately $201,000.
TRADEMARK AND SERVICE MARK LICENSING AGREEMENT
We and The Limited intend to cause our wholly owned subsidiaries to enter
into an exclusive trademark and service mark licensing agreement effective as of
the date of the spin-off that will allow us to operate under the "Limited Too"
brand name. The agreement will have an initial term of five years after the
spin-off, renewable annually at our option. All licenses granted under the
agreement will be granted free of charge. In return, we will be required to
provide The Limited with the right to inspect our stores and distribution
facilities and an ability to review and approve our advertising.
The trademark and service mark licensing agreement gives The Limited's
wholly owned subsidiary the right to terminate the agreement if:
- we breach any of our obligations under the agreement and do not cure the
breach within 60 days after receiving notice of the breach
- we become bankrupt or insolvent
- we experience a change of control
The trademark and service mark licensing agreement also provides that our
subsidiary cannot sublicense the "Limited Too" brand name to anyone without the
written consent of The Limited's subsidiary.
Under the trademark and service mark licensing agreement, we will only be
able to use the brand name "Limited Too" in connection with any business in
which we sell to our current target customer group or to infants and toddlers.
In addition, we may not expand our business to include merchandise currently
offered by The Limited or its subsidiaries, unless it is for our current target
customer group. See "Risk Factors -- Risk Factors Relating to Separating Our
Company from The Limited -- We Will License the "Limited Too" Brand Name from
The Limited, Which May Restrict Our Business." The Limited is not permitted to
use the "Limited Too" brand name during the term of the trademark and service
mark licensing agreement.
SERVICES AGREEMENT
We and The Limited intend to enter into a services agreement effective as
of the date of the spin-off. The agreement will relate to transitional services
that The Limited or its subsidiaries or affiliates will provide to us. The
purpose of the services agreement will be to ensure that The Limited continues
to provide the administrative, financial, management and other services that we
require for a limited time. Under this agreement, The Limited Group will provide
services in exchange for fees which we believe are similar in material respects
to what a third-party provider would charge, and will be based on several
billing methodologies. Under one of these billing methodologies, which is the
most prevalent, The Limited will provide us with services at costs comparable to
those charged to other businesses operated by The Limited from time to time. We
will generally be obligated to purchase those services at fees equal to The
Limited's costs of providing the services plus 5% of these costs.
35
<PAGE> 41
Management's estimate of the net charge that we would have paid in fiscal
1998 if the services agreement had been in effect during that period is
approximately $9.0 million. This is approximately the amount included in our
historical consolidated financial statements for fiscal 1998. These fees will be
paid monthly in arrears.
The services that The Limited will initially provide to us include:
- compensation and benefit plan administration
- Year 2000 readiness assistance, except for services related to our
inventory planning legacy system
- management information systems, including telecommunications services
- store design services
- merchandise distribution, engineering, customs and freight services
- completion of transactions pending before the spin-off related to
identifying store sites and negotiating store leases, for up to a year
after the spin-off
- administration of the construction and design of any of our stores that
begins before December 31, 1999, for up to one year after the spin-off
- tax return preparation services
- treasury services until the earlier of when we establish our own cash
management system or a year after the spin-off
In addition to the identified services, The Limited will agree that any
insurance applicable to our assets, liabilities, business or employees will be
for our benefit as well as theirs. The Limited will agree to use reasonable
efforts to cause us to become a direct beneficiary of all applicable policies or
to arrange for us to be entitled to the benefit of those policies.
The agreement also provides that:
- we will indemnify The Limited from and against all damages arising out of
the services rendered by it or its directors, officers, agents or
employees under the services agreement, except for damages caused by The
Limited's gross negligence or willful misconduct
- we will indemnify The Limited against any liabilities caused by or
arising from The Limited's providing Year 2000 readiness assistance to us
and in connection with the failure of any of our systems to be Year 2000
ready (see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Readiness -- Reasonably Likely
Worst Case Scenario and Contingency Plans")
- we will not make any claims against The Limited caused by or arising from
The Limited's providing Year 2000 readiness assistance to us and in
connection with the failure of any of our systems to be Year 2000 ready
- we will reimburse The Limited for any amounts paid by The Limited under
any guarantees (other than guarantees under our stores leases which are
separately discussed) or other arrangements supporting our obligations
- we will not take actions that could materially and adversely affect our
ability to pay any obligations guaranteed or otherwise supported by The
Limited unless appropriate provision is made such that, in the reasonable
judgment of The Limited, The Limited's exposure under any such guarantee
or support arrangement is not materially increased
36
<PAGE> 42
The Limited will provide the services covered under the services agreement,
which will generally be for one year after the spin-off, except for:
- compensation and benefit plan administration, which will have a term of
nine months after the spin-off
- telecommunications services, which may be extended for up to three years
from the date of the spin-off if our principal place of business is
located in office space that is leased to us by any affiliate of The
Limited
- merchandise distribution and freight services, which will have a term of
three years after the spin-off
- engineering services, which will be provided until the earlier of:
-- the completion of the analysis and design of the new distribution
facility or
-- the first anniversary of the spin-off
- customs services, which will continue until the earlier of:
-- the completion of training of one or more managers in customs
compliance regulations or
-- the first anniversary of the spin-off
- tax return preparation services, which will continue until the completion
of income tax filings for fiscal 1999
- benefits audit report preparation services, which will continue until the
completion of reports for 1999
- treasury services, which will be provided until we develop our own cash
management system which we believe will occur within six months after the
date of the spin-off
TAX SEPARATION AGREEMENT
After the spin-off, we will no longer be included in The Limited's
consolidated group for United States federal income tax purposes. We and The
Limited will enter into a tax separation agreement to reflect our separation
from The Limited with respect to tax matters. The primary purpose of the
agreement is to reflect each party's rights and obligations relating to payments
and refunds of taxes that are attributable to periods beginning before and
including the date of the spin-off and any taxes resulting from transactions
effected in connection with the spin-off. With respect to any period before the
spin-off, The Limited will:
- continue to be the sole and exclusive agent for us in all matters
relating to the income, franchise, property, sales and use tax
liabilities of the Too, Inc. Group
- bear any costs relating to tax audits, including tax assessments and any
related interest and penalties and any legal, litigation, accounting or
consulting expenses
- continue to have the sole and exclusive responsibility for the
preparation and filing of consolidated federal and consolidated or
combined state income tax returns
- generally have the powers, in The Limited's sole discretion, to contest
or compromise any claim or refund on our behalf
The tax separation agreement will provide for payments between the two
companies to reflect tax liabilities which may arise before and after the
spin-off. It will also cover the handling of audits, settlements, elections,
accounting methods and return filing in cases where both companies have an
interest in the results of these activities.
After the spin-off, if one or more persons were to acquire a 50% or greater
interest in either The Limited or us as part of a plan that included the
spin-off, The Limited would recognize gain on the shares of our common stock
that it distributes in the spin-off. Other transactions could also jeopardize
the tax-free
37
<PAGE> 43
nature of the spin-off. To minimize these risks, we will agree to refrain from
engaging in specified transactions for two years after the spin-off without
first:
- obtaining a ruling from the IRS to the effect that the proposed
transactions will not result in the spin-off being taxable to The Limited
or its shareholders, or
- obtaining an opinion of counsel recognized as an expert in federal income
tax matters and acceptable to The Limited to the same effect
Transactions that may be affected by these restrictions relating to an
acquisition of a 50% or greater interest and other restrictions include:
- a liquidation
- a merger or consolidation with, or acquisition by, another company
- issuances and redemptions of shares of our common stock
- the granting of stock options
- the sale, distribution or other disposition of assets in a manner that
would adversely affect the tax consequences of the spin-off
- the discontinuation of material businesses
AMENDMENT TO BUILDING LEASE AGREEMENT
We currently lease office and warehouse space located at 3885 Morse Road in
Columbus, Ohio from Distribution Land Corp., a wholly owned subsidiary of The
Limited, under a building lease agreement which is scheduled to expire on June
30, 2000. We intend, on or before the spin-off, to amend that agreement to
extend the term of the lease until two years after the date of the spin-off,
with an additional year available at our option.
Under the amendment, we will lease office space at an annual base rental
rate of $11 per square foot and warehouse space at an annual base rental rate of
$2.85 per square foot. Management believes that these rates are commensurate
with market rates, although we did not seek bids from third parties. In 1998, we
paid approximately $0.6 million under our lease. We will also remain responsible
for the payment of all taxes, insurance and operating expenses in connection
with our leased premises.
Under the amendment, Distribution Land Corp. will have the right to
relocate us under specified circumstances. If we are required to relocate,
Distribution Land Corp. will provide alternative space that is comparable in
quality at the same rent. However, we will be required to bear the costs
associated with the relocation, which may be significant. Distribution Land
Corp. intends to use reasonable efforts to prevent any such relocation from
having to take place before June 30, 2001. However, we cannot assure you that
Distribution Land Corp. will permit us to maintain our current space or that our
current space, or any alternative space that Distribution Land Corp. may offer,
will be sufficient if our needs should increase.
38
<PAGE> 44
TRADING MARKET
There has been no public market for our common stock. An active trading
market may not develop or be sustained in the future. However, we expect that a
limited market for shares of our common stock will develop on or shortly before
the record date for the spin-off, commonly known as a "when issued" trading
market. We have been approved to list our common stock on the New York Stock
Exchange under the ticker symbol "TOO".
We cannot predict the prices at which our common stock may trade before the
spin-off on a "when issued" basis or after the spin-off. These prices will be
determined by the marketplace and may be significantly below the book value per
share of our common stock. Prices at which trading in shares of our common stock
occurs may fluctuate significantly. These prices may be influenced by many
factors, including quarter to quarter variations in our actual or anticipated
financial results or those of other companies in the retail industry or the
markets that we serve. In addition, the stock market in general has experienced
extreme price and volume fluctuations that have affected the market price of
many retail stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies. These are just
some factors that may adversely affect the market price of our common stock. See
"Risk Factors -- Risk Factors Relating to Separating Our Company from The
Limited -- Our Stock Price May Fluctuate Significantly After the Spin-Off, and
You Could Lose All or Part of Your Investment as a Result."
Shares of our common stock that you will receive in the spin-off will be
freely transferable, except if you are considered an "affiliate" of us under
Rule 144 under the Securities Act of 1933. Persons who can be considered our
affiliates after the spin-off generally include individuals or entities that
directly, or indirectly through one or more intermediaries, control, are
controlled by, or are under common control with, us. Our affiliates may only
sell common stock received in the spin-off:
- under a registration statement that the SEC has declared effective under
the Securities Act of 1933
- under an exemption from registration under the Securities Act of 1933,
such as the exemption afforded by Rule 144
The number of options to purchase shares of our common stock that will be
outstanding immediately after the spin-off cannot be determined until after the
spin-off. These options will be granted under the Too, Inc. 1999 Stock Option
and Performance Incentive Plan and the Too, Inc. 1999 Stock Plan for
Non-Associate Directors. See "Executive Compensation -- Too, Inc. 1999 Stock
Option and Performance Incentive Plan" and "Executive Compensation -- Too, Inc.
1999 Stock Plan for Non-Associate Directors." Shares of our common stock issued
upon exercise of these options will be registered on Form S-8 under the
Securities Act of 1933 and will, therefore, be freely transferable under the
securities laws, except by affiliates as described above.
Except for the shares of our common stock distributed in the spin-off and
the options described above, none of our securities will be outstanding on or
immediately after the spin-off. We have not entered into any agreement or
otherwise committed to register any shares of our common stock under the
Securities Act of 1933 for sale by security holders. None of our common equity
is being, or has been publicly proposed to be, publicly registered or offered by
us, except for:
- the shares registered in connection with the spin-off on the Form 10 of
which this information statement forms a part
- common equity offered under employee benefit plans
39
<PAGE> 45
DIVIDENDS
We anticipate that future earnings will be used principally to support
operations and finance the growth of our business. Thus, we do not intend to pay
cash dividends on our common stock in the foreseeable future. Payment of cash
dividends will also be restricted by provisions in our credit facility. If our
lenders permit us to declare dividends, the dividend amounts, if any, will be
determined by our board. Our board will consider a number of factors, including
our financial condition, capital requirements, funds generated from operations,
future business prospects, applicable contractual restrictions and any other
factors our board may deem relevant.
40
<PAGE> 46
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Before the spin-off, we operated as part of The Limited. The following
unaudited pro forma consolidated financial statements provide the historical
consolidated financial statements for us, as adjusted for the spin-off and the
related transactions and events described in the notes to the unaudited pro
forma consolidated financial statements. You should read the unaudited pro forma
consolidated financial statements together with our historical consolidated
financial statements and the notes to those consolidated financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this information statement.
The assumptions and other matters that we note in the above paragraph and
in the notes to the unaudited pro forma consolidated financial statements
include the following:
- the spin-off as described elsewhere in this document
- the unaudited pro forma consolidated statements of operations give effect
to the spin-off as if it had occurred on February 1, 1998 and the
unaudited pro forma consolidated balance sheet gives effect to the
spin-off as if it had occurred on May 1, 1999
- long-term financing proceeds of $50 million which will be used to pay a
$50 million dividend to The Limited
- short-term financing proceeds of $1.75 million which will be used to pay
$1.75 million of financing fees to the lenders under our credit facility
Management believes that the assumptions that we have used provide a
reasonable basis on which to present the unaudited pro forma consolidated
financial statements.
WE ARE PROVIDING UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR
INFORMATIONAL PURPOSES ONLY. YOU SHOULD NOT CONSTRUE THEM TO BE INDICATIVE OF
OUR RESULTS OF OPERATIONS OR FINANCIAL CONDITION HAD THE SPIN-OFF AND THE
RELATED TRANSACTIONS AND EVENTS BEEN COMPLETED ON THE DATES ASSUMED. THEY MAY
NOT REFLECT THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION WHICH WOULD HAVE
RESULTED HAD WE BEEN OPERATED AS A SEPARATE, INDEPENDENT COMPANY DURING SUCH
PERIODS. FINALLY, THEY ARE NOT NECESSARILY INDICATIVE OF OUR FUTURE RESULTS OF
OPERATIONS OR FINANCIAL CONDITION.
41
<PAGE> 47
TOO, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 30, 1999
--------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales............................................. $376,943 $376,943
Costs of goods sold, occupancy and buying costs..... 251,729 251,729
-------- --------
Gross income.......................................... 125,214 125,214
General, administrative and store operating
expenses......................................... 96,758 96,758
-------- --------
Operating income...................................... 28,456 28,456
Interest expense.................................... -- $ 3,9702(a) 3,970
-------- --------
Income (loss) before income taxes..................... 28,456 24,486
Provision for (benefit from) income taxes........... 11,400 (1,600)2(b) 9,800
-------- ------- --------
Net income (loss)..................................... $ 17,056 $(2,370) $ 14,686
======== ======= ========
Pro forma net income per share........................ $ 0.43
========
Assumed weighted average number of shares............. 34,4152(c)
========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
42
<PAGE> 48
TOO, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED MAY 1, 1999 THIRTEEN WEEKS ENDED MAY 2, 1998
---------------------------------------- ----------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $95,048 $95,048 $82,257 $82,257
Costs of goods sold,
occupancy and
buying costs....... 63,324 63,324 57,369 57,369
------- ------- ------- -------
Gross income............ 31,724 31,724 24,888 24,888
General,
administrative and
store operating
expenses........... 30,412 30,412 24,599 24,599
------- ------- ------- -------
Operating income........ 1,312 1,312 289 289
Interest expense...... -- $ 9932(a) 993 -- $ 9932(a) 993
------- ----- ------- ------- ----- -------
Income (loss) before
income taxes.......... 1,312 319 289 (704)
Provision for (benefit
from) income
taxes.............. 500 (400) 2(b) 100 100 (400) 2(b) (300)
------- ----- ------- ------- ----- -------
Net income (loss)..... $ 812 $(593) $ 219 $ 189 $(593) $ (404)
======= ===== ======= ======= ===== =======
Pro forma net income
(loss) per share...... $ 0.01 $ (0.01)
======= =======
Assumed weighted average
number of shares...... 32,5332(c) 39,1202(c)
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
43
<PAGE> 49
TOO, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MAY 1, 1999
---------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 558 $ 50,000(3a) $ 558
(50,000)(3c)
1,750(3b)
(1,750)(3b)
Receivables........................................ 1,750 1,750
Inventories........................................ 23,584 23,584
Store supplies..................................... 5,433 5,433
Deferred income taxes.............................. 2,951 2,951
Other.............................................. 404 404
------- -------
Total current assets....................... 34,680 34,680
Property and equipment, net........................ 48,945 48,945
Deferred income taxes.............................. 6,313 6,313
Other assets....................................... -- 1,750(3b) 1,750
------- -------
Total assets....................................... $89,938 $91,688
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 4,382 $ 4,382
Accrued expenses................................... 24,206 24,206
Income taxes payable............................... 383 383
Borrowings under revolving credit agreement........ -- 1,750(3b)(3e) 1,750
------- -------
Total current liabilities.................. 28,971 30,721
Long-term debt..................................... -- 50,000(3a) 50,000
Other long-term liabilities........................ 1,731 1,731
Shareholders' equity:
Net investment by The Limited...................... 59,236 (50,000)(3c)
(9,236)(3d)
Common stock....................................... -- 327(3d) 327
Paid in capital.................................... -- 8,909(3d) 8,909
------- -------
Total shareholders' equity................. 59,236 9,236
------- -------
Total liabilities and shareholders'
equity................................... $89,938 $91,688
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
44
<PAGE> 50
TOO, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The following summary of pro forma adjustments is based on available
information and various estimates and assumptions. We and The Limited believe
that these assumptions provide a reasonable basis for presenting all of the
significant effects of the spin-off and the related transactions and events and
that the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the unaudited pro forma consolidated financial
statements.
Historical amounts for us were derived from our historical consolidated
financial statements included in this information statement, which are adjusted
as described below.
2. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) To record interest expense on approximately $52 million of indebtedness
that we expect to incur under our credit facility shortly before the date of the
spin-off plus a charge for the financing fees paid in connection with the
indebtedness. The financing fee is assumed at 175 basis points, amortized
straight-line over an expected term of five years. Interest expense was
calculated using a weighted average expected borrowing rate of approximately
7.0%, based on the London Interbank Offered Rate plus a spread. A 1/2 percentage
point change in the borrowing rate would change interest expense by $260,000.
Subsequent to May 1, 1999, we have borrowed $64 million under our credit
facility to pay a $50 million dividend to The Limited, to repay a portion of the
working capital advances made by The Limited to us in 1999 before the spin-off
and to pay fees and expenses in connection with the closing of the credit
facility.
(b) To record the tax effect of the pro forma interest expense adjustment
at an estimated effective tax rate of 40.0%.
(c) To reflect an assumed number of our common stock outstanding as a
result of the spin-off. This is based on The Limited's weighted average number
of basic shares outstanding of 240.9 million, 227.7 million and 273.8 million
for fiscal year 1998, thirteen weeks ended May 1, 1999 and thirteen weeks ended
May 2, 1998, at the spin-off ratio of one share of our common stock for every
seven shares of The Limited's common stock.
We estimate that approximately 214 million shares of The Limited's common
stock will be outstanding at the date of the spin-off. Using the spin-off ratio
of one share of our common stock for every seven shares of The Limited's common
stock, approximately 30 million shares of our common stock would be issued and
outstanding on that date. Using 30 million shares, pro forma net income (loss)
per share for fiscal year 1998, thirteen weeks ended May 1, 1999 and thirteen
weeks ended May 2, 1998 would be $0.48, $0.01 and $(0.01).
The dilutive effect of our options and restricted stock that will be
granted under the Too, Inc. 1999 Stock Option and Performance Incentive Plan and
the Too, Inc. 1999 Stock Plan for Non-Associate Directors has not been
considered in the computation of pro forma net income (loss) per share.
In connection with the spin-off, unvested grants of stock options on and
restricted stock of The Limited's common stock held by Too, Inc. employees will
be replaced with awards of stock options and restricted stock of Too, Inc.'s
common stock (collectively, the "awards"). The awards will have the same ratio
of the exercise price per option to the market value per share and the same
vesting provisions, option periods and other terms as The Limited's awards that
they replace. The aggregate difference between market value and the exercise
price of the awards will not exceed the aggregate difference between market
value and the exercise price of The Limited's awards. Vested stock options on
The Limited's common stock held by Too, Inc. employees will expire 90 days after
the date of the spin-off. Additional Too, Inc. options to be granted on the date
of the spin-off to employees and independent directors will have an exercise
price equal to the market value of Too, Inc. stock on the date of the spin-off.
In addition, some Too, Inc. restricted stock awards to be granted in connection
with the spin-off may contain performance requirements.
45
<PAGE> 51
3. PRO FORMA CONSOLIDATED BALANCE SHEET
(a) To reflect approximately $52 million of indebtedness that we expect to
incur under our credit facility shortly before the date of the spin-off.
Proceeds will be used to pay a $50 million dividend to The Limited, to repay a
portion of the working capital advances made to us by The Limited in 1999 before
the spin-off and to pay fees and expenses in connection with the closing of the
credit facility.
Subsequent to May 1, 1999, we have borrowed $64 million under our credit
facility to pay a $50 million dividend to The Limited, to repay a portion of the
working capital advances made by The Limited to us in 1999 before the spin-off
and to pay fees and expenses in connection with the closing of the credit
facility.
(b) To reflect borrowings under our revolving credit agreement, proceeds of
which will be used to pay financing fees to the lenders under our credit
facility.
(c) To reflect payment of a $50 million dividend to The Limited.
(d) To reflect the issuance of an estimated 32.7 million shares of common
stock, par value $.01 per share, as of May 1, 1999. This is based on shares of
The Limited's common stock outstanding of 228.7 million at May 1, 1999, at the
spin-off ratio of one share of our common stock for every seven shares of The
Limited's common stock. Paid in capital represents the excess historical
carrying values of our net assets at the date of the spin-off over the amount
reflected as common stock.
(e) The pro forma financial statements do not reflect borrowings under our
credit facility for our working capital needs. The Limited advanced amounts to
us for working capital in 1999. We anticipate that we will repay a portion of
these working capital advances made by The Limited before the spin-off through
proceeds from our credit facility and that our future working capital needs will
be funded by our credit facility and other sources of cash.
Management estimates that our total shareholder's equity at the time of the
spin-off will exceed the pro forma amount of $9.2 million as of May 1, 1999. We
expect this net increase in shareholder's equity to result from investments made
by The Limited in 1999 for property, plant and equipment, the estimated changes
in working capital described above and the net impact of our earnings. However,
we cannot assure you that the actual amount of total shareholder's equity at the
time of the spin-off will exceed the pro forma amount.
46
<PAGE> 52
CAPITALIZATION
The following table presents our consolidated capitalization as of May 1,
1999 and is adjusted to give effect to the spin-off and the related transactions
and events described in the notes to our unaudited pro forma consolidated
balance sheet under "Unaudited Pro Forma Consolidated Financial Statements" as
if the spin-off and the related transactions and events had been consummated on
May 1, 1999.
Management believes that the assumptions used provide a reasonable basis on
which to present our consolidated capitalization. You should read the
capitalization table below together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our historical consolidated
financial statements and the "Unaudited Pro Forma Consolidated Financial
Statements" and the notes to those consolidated financial statements included in
this information statement.
We are providing the capitalization table below for informational purposes
only. You should not construe them to be indicative of our capitalization or
financial condition had the spin-off and the related transactions and events
been completed on the date assumed. The capitalization table below may not
reflect the capitalization or financial condition which would have resulted had
we been operated as a separate, independent company during such period and is
not necessarily indicative of our future capitalization or financial condition.
<TABLE>
<CAPTION>
MAY 1, 1999
--------------------------
HISTORICAL PRO FORMA
----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. -- $ 1,750
Long-term debt.............................................. -- 50,000
------- -------
Total indebtedness................................ -- $51,750
======= =======
Shareholders' equity:
Net investment by The Limited............................. $59,236 --
Common stock, par value $.01 per share; 100 million shares
authorized; estimated 32.7 million shares issued and
outstanding(1)......................................... -- $ 327
Paid in capital........................................... -- 8,909
------- -------
Total shareholders' equity........................ 59,236 9,236
------- -------
Total capitalization.............................. $59,236 $60,986
======= =======
Debt to total capitalization(2)............................. -- 0.85
</TABLE>
- ---------------
(1) The number of shares of our common stock outstanding reflects (a) the
spin-off ratio times (b) the number of shares of The Limited's common stock
outstanding as of May 1, 1999.
(2) Debt-to-total capitalization has been computed by dividing total
indebtedness by total capitalization.
47
<PAGE> 53
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical and pro forma financial as
well as operating data of Too, Inc. for the last five fiscal years and for the
thirteen weeks ended May 1, 1999 and May 2, 1998. The information for the fiscal
years ended February 3, 1996 and January 28, 1995 is derived from our unaudited
consolidated financial statements. The information for the thirteen weeks ended
May 1, 1999 and May 2, 1998 is derived from the unaudited consolidated financial
statements included in this information statement which, in the opinion of
management, reflect all adjustments, which are of a recurring nature, necessary
to present fairly the financial position and results of operations and cash
flows for the interim periods. Results for the thirteen weeks ended May 1, 1999
are not necessarily indicative of the results of operations to be expected for
the full fiscal year.
Before the spin-off, we operated as part of The Limited. Because the data
reflects periods during which we did not operate as an independent company, the
data may not reflect the results of operations or the financial condition which
would have resulted if we had operated as a separate, independent company during
the periods shown. In addition, the data may not necessarily be indicative of
our future results of operations or financial condition.
The data presented in the table below is derived from "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical and pro forma consolidated financial statements and the notes to
those consolidated financial statements included in this information statement.
You should read these sections for a further explanation of the data summarized
here.
Earnings per share data is presented elsewhere in this information
statement on a pro forma basis only. See "Unaudited Pro Forma Consolidated
Financial Statements."
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEARS ENDED ENDED
------------------------------------------------------------------- -----------------
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, MAY 1, MAY 2,
1999 1998 1997 1996(1) 1995 1999 1998
----------- ----------- ----------- ----------- ----------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SALES PER AVERAGE SQUARE FOOT)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $376,943 $322,150 $258,818 $214,302 $173,787 $95,048 $82,257
Gross income(2).................. 125,214 95,247 60,844 38,237 47,928 31,724 24,888
General, administrative and store
operating expenses(3).......... 96,758 82,950 69,698 57,481 44,817 30,412 24,599
Operating income (loss).......... 28,456 12,297 (8,854) (19,244) 3,111 1,312 289
Net income (loss)................ 17,056 7,397 (5,354) (11,544) 1,911 812 189
Pro forma net income (loss)(4)... 14,686 219 (404)
Pro forma weighted average number
of shares(5)................... 34,415 32,533 39,120
Pro forma net income (loss) per
share(5)....................... 0.43 0.01 (0.01)
BALANCE SHEET DATA:
Inventories...................... $ 27,565 $ 18,661 $ 20,437 $ 16,046 $ 15,156 $23,584 $17,167
Total assets..................... 89,969 72,974 74,793 72,972 57,828 89,938 71,043
Pro forma long-term debt......... 50,000
Pro forma shareholders' equity... 9,236
</TABLE>
48
<PAGE> 54
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEARS ENDED ENDED
------------------------------------------------------------------- -----------------
JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, MAY 1, MAY 2,
1999 1998 1997 1996(1) 1995 1999 1998
----------- ----------- ----------- ----------- ----------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SALES PER AVERAGE SQUARE FOOT)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Comparable store sales increase
(decrease)(6).................. 15% 20% 8% (4)% 13% 10% 23%
Total net sales growth........... 17.0% 24.5% 20.8% 23.3% 18.4% 15.6% 25.3%
Gross income rate(7)............. 33.2% 29.6% 23.5% 17.8% 27.6% 33.4% 30.3%
Operating income (loss)
rate(7)........................ 7.6% 3.8% (3.4)% (9.0)% 1.8% 1.4% 0.4%
Total number of stores open at
period end..................... 319 312 308 288 212 321 313
Total square feet at period end
(thousands).................... 1,281 1,244 1,224 1,143 838 1,296 1,248
Annual sales per average square
foot(8)........................ $ 300 $ 259 $ 214 $ 207 $ 226 NM NM
</TABLE>
- ---------------
NM = not meaningful
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less costs of goods sold, occupancy and buying
costs, including charges and allocations made by The Limited to us.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to us.
(4) Pro forma net income (loss) includes interest expense and financing fees,
net of the related tax benefit, on approximately $52 million of indebtedness
we expect to incur under our credit facility shortly before the date of the
spin-off. Proceeds from the debt incurred will be used to pay a $50 million
dividend to The Limited and $1.75 million of financing fees to the lenders
under our credit facility. Pro forma net income (loss) does not reflect any
interest expense related to working capital advances that are likely to be
made in 1999 as the amounts and timing of such advances are not certain.
(5) Pro forma net income (loss) per share is based on pro forma net income
(loss) and an assumed number of shares outstanding as a result of the
spin-off. The number of shares outstanding is based on The Limited's
weighted average number of basic shares outstanding of 240.9 million, 227.7
million and 273.8 million for fiscal year 1998, thirteen weeks ended May 1,
1999 and thirteen weeks ended May 2, 1998, at the spin-off ratio of one
share of our common stock for every seven shares of The Limited's common
stock. The dilutive effect of our options and restricted stock that will be
granted under the Too, Inc. 1999 Stock Option and Performance Incentive Plan
and the Too, Inc. 1999 Stock Plan for Non-Associate Directors has not been
considered in the computation of pro forma net income (loss) per share.
(6) A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that are expanded or
downsized more than 20% in square feet are treated as new stores for
purposes of this calculation.
(7) Calculated as a percentage of net sales.
(8) Annual sales per average square foot is the result of dividing net sales for
the fiscal year by average gross square foot, which reflects the impact of
opening and closing stores throughout the year.
49
<PAGE> 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our historical
consolidated financial statements and the notes to those consolidated financial
statements included in this information statement and "Unaudited Pro Forma
Consolidated Financial Statements." For the purposes of the following
discussion, unless the context otherwise requires, "Too, Inc.", "Limited Too",
"we", "our" and "us" refer to Too, Inc. and our subsidiaries.
GENERAL
In 1987, The Limited established "Limited Too" brand stores adjacent to or
as departments within The Limited stores to provide similar apparel to young
girls, and also apparel for infants. Our initial target consumer was the mother
who shopped at The Limited and wanted to purchase similar apparel for her
daughter. From 1987 to the end of fiscal 1995, we expanded our locations from
two stores to 288 stores. After several years of inconsistent performance, as
indicated by a $(19.2) million operating loss in 1995, The Limited brought in
some new members of our current management team in 1996. Our current management
team recognized that its core customer had her own emerging sense of style and
revised our strategy to focus on girls approximately 7 to 14 years of age as our
target customer group. Since then, we have consistently improved our financial
performance.
In the period from fiscal 1996 to fiscal 1998, we:
- increased net sales to $376.9 million from $258.8 million
- improved our pretax operating income to $28.5 million from a loss of
$(8.9) million
- improved our operating income rate as a percentage of sales to 7.6% from
a loss of (3.4)% by increasing sales volume, improving gross income and
slowing the growth in general, administrative and store operating
expenses
- improved sales per average square foot to $300 from $214
The strong growth and improved profitability during this period resulted from an
increase in comparable store sales and gross income as we improved our
merchandise assortment and merchandise margins and strengthened our brand
awareness.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
----------------------------------------- ----------------
JANUARY 30, JANUARY 31, FEBRUARY 1, MAY 1, MAY 2,
1999 1998 1997 1999 1998
----------- ----------- ----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold, occupancy and
buying costs......................... 66.8 70.4 76.5 66.6 69.7
----- ----- ----- ----- -----
Gross income........................... 33.2 29.6 23.5 33.4 30.3
General, administrative and store
operating expenses................... 25.7 25.8 26.9 32.0 29.9
----- ----- ----- ----- -----
Operating income (loss)................ 7.5 3.8 (3.4) 1.4 0.4
Provision for (benefit from) income
taxes................................ 3.0 1.5 (1.3) 0.5 0.1
----- ----- ----- ----- -----
Net income (loss)...................... 4.5% 2.3% (2.1)% 0.9% 0.3%
===== ===== ===== ===== =====
</TABLE>
50
<PAGE> 56
FINANCIAL SUMMARY
Below, you will find summarized annual financial data for the fiscal
periods shown:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED % CHANGE
----------------------------------------- --------------
JANUARY 30, JANUARY 31, FEBRUARY 1, 1997- 1996-
1999 1998 1997 1998 1997
----------- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales (millions)...................... $376.9 $322.2 $258.8 17% 24%
Comparable store sales increase(1)........ 15% 20% 8%
Annual sales per average square foot(2)... $ 300 $ 259 $ 214 16% 21%
Sales per average store (thousands)....... $1,204 $1,039 $ 849 16% 22%
Average store size at fiscal year end
(square feet)........................... 4,015 3,987 3,974
Total square feet at fiscal year end
(thousands)............................. 1,281 1,244 1,224
Number of stores:
Beginning of year....................... 312 308 288
Opened.................................. 10 7 27
Closed.................................. (3) (3) (7)
------ ------ ------
End of period........................... 319 312 308
====== ====== ======
</TABLE>
- ---------------
(1) A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that are expanded or
downsized more than 20% in square feet are treated as new stores for
purposes of this calculation.
(2) Annual sales per average square foot is the result of dividing net sales for
the fiscal year by average gross square foot, which reflects the impact of
opening and closing stores throughout the year.
THIRTEEN WEEKS ENDED MAY 1, 1999 COMPARED TO THIRTEEN WEEKS ENDED MAY 2, 1998
Net Sales. Net sales for the thirteen weeks ended May 1, 1999 increased
16% to $95.0 million from $82.3 million for the thirteen weeks ended May 2,
1998. The increase was primarily a result of a 10% increase in comparable store
sales, with the balance attributable to new stores. Within the merchandise
categories, knit tops increased significantly, led by cut-and-sewn tops, graphic
T-shirts and active T-shirts. The add-on (principally underwear, sleepwear and
swimwear) and accessories categories also increased significantly.
Gross Income. The gross income rate for the first quarter of 1999,
expressed as a percentage of net sales, increased to 33.4% from 30.3% for the
first quarter of 1998. The increase in rate was primarily attributable to higher
initial mark-ups on merchandise and a decrease in buying and occupancy costs,
expressed as a percentage of net sales, due to the leverage achieved through
higher comparable store sales.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses for the first quarter of 1999,
expressed as a percentage of net sales, increased to 32.0% from 29.9% for the
first quarter 1998. This increase was attributable to increased allocations for
services provided by The Limited, including distribution and information
technology, which included costs associated with becoming year 2000 ready. In
addition, these expenses included web site development and catalog start-up
costs, as well as costs for a direct mail campaign during the first quarter of
1999. Finally, the balance of the increase was attributable to store and home
office payroll costs, principally relating to management and incentive
compensation programs.
Operating Income. Operating income, expressed as a percentage of net
sales, increased to 1.4% for the first quarter of 1999 from 0.4% for the same
period in 1998. Operating income increased to $1.3 million for the first quarter
of 1999 from $289,000 for the same period in 1998. The increase was attributable
to higher merchandise margins and the favorable leveraging of buying and
occupancy costs, partially offset by higher general, administrative and store
operating expenses.
51
<PAGE> 57
FISCAL YEAR ENDED JANUARY 30, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1998
Net Sales. Net sales for 1998 increased 17% to $376.9 million from $322.2
million in 1997. The increase was primarily attributable to a 15% increase in
comparable store sales and the net addition of seven stores. During the third
quarter of fiscal 1997, we exited the infant merchandise category because it was
inconsistent with a store environment that appeals to our target customer.
Therefore, excluding infant sales in 1997, we experienced a 24% increase in
comparable store sales over the prior year. While sales increased across
virtually all merchandise categories, add-on, lifestyles, personal care products
under our "GirlCare" product line and tops experienced significant increases.
Net sales productivity increased 16% to $300 per average square foot.
Gross Income. The gross income rate, expressed as a percentage of net
sales, increased to 33.2% in 1998 from 29.6% in 1997. The increase in rate was
attributable to an increase in initial markup on merchandise and a decrease in
buying and occupancy costs, expressed as a percentage of net sales, due to the
leverage achieved through higher comparable store sales. The improvement in
these margin components was slightly offset by an increase in markdowns
experienced during the fall season as a result of underperformance in the
ready-to-wear category and overassortment in the bottoms category.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses, expressed as a percentage of net
sales, improved slightly to 25.7% in 1998 from 25.8% in 1997. The favorable
leveraging of these expenses associated with improved sales productivity was
partially offset by an increase in overhead allocations from The Limited. The
increase in the allocated expenses included information technology costs,
including Year 2000 costs and central distribution center costs, driven by unit
growth of lower price accessories and "GirlCare" products, which also have
higher handling costs.
Operating Income. Operating income, expressed as a percentage of net
sales, was 7.5% and 3.8% in fiscal 1998 and 1997, respectively. The improvement
in 1998 over 1997 was due principally to the improvement in merchandise margins
and the positive leveraging of buying and occupancy expenses arising from
increases in comparable store sales.
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED FEBRUARY 1,
1997
Net Sales. Net sales for 1997 increased 24% to $322.2 million from $258.8
million in 1996. The increase was primarily attributable to a 20% increase in
comparable store sales with the balance arising from the net addition of four
stores. While sales increased in most merchandise categories, the increase of
personal care products, add-on and lifestyles in the overall mix accounted for
nearly half of the sales increase over the prior year. Net sales per average
square foot increased 21% to $259 per square foot.
Gross Income. For fiscal 1997, the gross income rate improved to 29.6%
from 23.5% in 1996. The increase in rate was attributable to improved
merchandise margins as higher initial markups on merchandise were partially
offset by higher markdowns and a decline in the rate for buying and occupancy
costs as a result of an increase in comparable store sales.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses, expressed as a percentage of net
sales, improved to 25.8% in 1997 from 26.9% in 1996, due to the favorable
leveraging of expenses associated with improved per store productivity.
Operating Income (Loss). The operating income (loss) rate, expressed as a
percentage of net sales, was 3.8% and (3.4%) in fiscal 1997 and 1996,
respectively. As with the improvement in 1998 over 1997, the improvement in 1997
over 1996 was due principally to the improvement in merchandise margins and the
positive leveraging of buying and occupancy expenses arising from increases in
comparable store sales. Also, 1997 showed further improvement over 1996 due to
the favorable leveraging of general, administrative and store operating expenses
associated with the increase in comparable store sales.
52
<PAGE> 58
SEASONALITY AND QUARTERLY FLUCTUATIONS
As illustrated in the table below, our business is highly seasonal, with
significantly higher sales, gross income and net income realized during the
fourth quarter, which includes the holiday selling season. See "Risk
Factors -- Risk Factors Relating to Our Business -- Our Net Sales, Net Income
and Inventory Levels Fluctuate on a Seasonal Basis."
<TABLE>
<CAPTION>
1998 QUARTERS FIRST SECOND THIRD FOURTH
- ------------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.......................................... $82,257 $74,746 $96,720 $123,220
% of full year................................... 21.8% 19.8% 25.7% 32.7%
Gross income....................................... $24,888 $24,016 $29,870 $ 46,440
% of full year................................... 19.9% 19.2% 23.8% 37.1%
Net income......................................... $ 189 $ 240 $ 4,248 $ 12,379
% of full year................................... 1.1% 1.4% 24.9% 72.6%
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS FIRST SECOND THIRD FOURTH
- ------------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.......................................... $65,646 $61,263 $86,430 $108,811
% of full year................................... 20.4% 19.0% 26.8% 33.8%
Gross income....................................... $15,590 $15,170 $23,988 $ 40,499
% of full year................................... 16.4% 15.9% 25.2% 42.5%
Net income (loss).................................. $(1,686) $(1,619) $ 2,018 $ 8,684
% of full year................................... (22.8)% (21.9)% 27.3% 117.4%
</TABLE>
FINANCIAL CONDITION
Our recent improvement in operating income over the last two years provides
evidence of increased financial strength and flexibility. A more detailed
discussion of liquidity, capital resources and capital requirements follows.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities and cash funding from The Limited's
centralized cash management system have historically provided the resources to
support operations, including seasonal requirements and capital expenditures.
See "Relationship Between Too, Inc. and The Limited." Cash requirements for
operating purposes during the year and for capital expenditures were met from
this source. We will continue to utilize the centralized cash management system
after the spin-off under a services agreement until the earlier of when we
establish our own system or a year after the spin-off. See "Relationship Between
Too, Inc. and The Limited -- Transitional Services and Separation
Agreements -- Services Agreement."
Below, you will find a summary of our working capital position and
capitalization.
53
<PAGE> 59
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
----------------------------------------- --------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, MAY 1, MAY 2,
1999 1998 1997 1999 1998
----------- ----------- ----------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for)
operating activities.............. $17,361 $30,294 $13,764 $ (486) $(1,724)
Working capital (deficit)........... 1,394 (8,137) 5,018 5,709 (2,217)
Capitalization
Net investment by The Limited..... 51,100 37,773 54,400 59,236 41,881
Cash flow to capital investment (net
cash provided by operating
activities divided by capital
expenditures)..................... $ 1.21 $ 6.34 $ 1.62 NM NM
</TABLE>
- ---------------
NM = not meaningful
Net cash used for operating activities approximated $500,000 for the first
quarter of 1999, down from $1.7 million used by such activities for the same
period in 1998. The $1.2 million improvement for the first quarter of 1999
principally resulted from the increase in net income after the impact of
depreciation and amortization and a larger decline in inventory levels from the
end of the previous fiscal year.
Net cash provided by operating activities totaled $17.4 million, $30.3
million and $13.8 million for 1998, 1997 and 1996, respectively. Net income
before depreciation and amortization increased $9.6 million from 1997. However,
the increase in inventories in 1998 coupled with an increase in income tax
payments more than offset the $9.6 million increase from operations. The $16.5
million improvement in cash provided by operating activities in 1997 over 1996
was due primarily to the increase in net income from operations.
Investing activities were for capital expenditures, which were primarily
for new and remodeled stores.
Historically, financing activities consisted primarily of activity through
The Limited's centralized cash management system. See Note 7 to the Consolidated
Financial Statements included in this information statement.
CAPITAL EXPENDITURES
Capital expenditures, primarily for new and remodeled stores, approximated
$7.3 million for the first quarter of 1999, a $6.3 million increase from the
same period in 1998. Capital expenditures, primarily for new and remodeled
stores, totaled $14.3 million, $4.8 million and $8.5 million for 1998, 1997 and
1996, respectively.
We anticipate spending between $32 to $37 million in 1999 for capital
expenditures, of which $25 to $29 million will be for new stores, remodeling or
expansion of existing stores and related improvements. We intend to add
approximately 145,000 square feet in 1999, which will represent an 11% increase
over year end 1998. We anticipate that the increase will result from the opening
of approximately 40 new stores and the remodeling or expansion of 20 stores. We
estimate that the average cost for leasehold improvements, furniture and
fixtures for stores to be opened in 1999 will be approximately $405,000 per
store, after giving effect to landlord allowances. Average pre-opening costs per
store, which will be expensed as incurred, are expected to be less than $20,000.
In addition, inventory purchases are expected to average approximately $100,000
per store.
We expect that substantially all future capital expenditures will be funded
by net cash provided by operating activities.
IMPACT OF TRANSITIONAL SERVICES AND SEPARATION AGREEMENTS
Excluding the store leases agreement, amounts to be charged under the new
transitional services and separation agreements are not expected to be
materially different than amounts charged by The Limited prior to the date of
the spin-off. Since amounts to be charged under the store leases agreement will
be contingently
54
<PAGE> 60
payable based upon positive comparable store sales performance, it is
anticipated that any amounts due will not have a material adverse impact on
liquidity, financial condition or results of operation.
For a further discussion of the transitional services and separation
agreements, see "Relationship Between Too, Inc. and The Limited -- Transitional
Services and Separation Agreements."
DESCRIPTION OF CREDIT FACILITY
We have a collateralized credit facility for $100 million against which $64
million has been drawn to pay a $50 million dividend to The Limited, to repay a
portion of the working capital advances made by The Limited to us in 1999 before
the spin-off and to pay fees and expenses in connection with the closing of the
credit facility. The remainder of the credit facility is available to fund
working capital requirements and for general corporate purposes. The credit
facility:
- consists of a $50 million amortizing term loan which will begin
amortizing at the end of the third year and a $50 million five-year
revolving credit facility
- contains customary representations and warranties and affirmative,
negative and financial covenants
- has interest rates that are based on the London Interbank Offered Rate
plus a spread or the administrative agent bank's base rate plus a spread
- is guaranteed by our present and future domestic subsidiaries
IMPACT OF INFLATION
Our 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, we believe that
the effects of inflation, if any, on our results of operations and financial
condition have been minor.
YEAR 2000 READINESS
The Year 2000 issue arises primarily from computer programs, commercial
systems and embedded chips that will be unable to properly interpret dates
beyond the year 1999. We are currently part of the Year 2000 readiness efforts
undertaken by The Limited, which will continue after the spin-off under a
services agreement with The Limited. We use a variety of proprietary and
third-party computer technologies -- both hardware and software -- directly in
our business. We also rely on numerous third parties and their systems' ability
to address the Year 2000 issue. Our critical information technology functions
include point-of-sale equipment, merchandise distribution, merchandise and
non-merchandise procurement, credit card and banking services, transportation
and business and accounting management systems.
READINESS
We are participating in The Limited's Year 2000 readiness efforts. We have
been part of the package migration group of The Limited, which involves the
migration of software to be Year 2000 ready. We have installed those systems.
Recently, we have decided to explore redeploying our inventory planning legacy
system which is not part of the overall Year 2000 readiness efforts undertaken
by The Limited. The Limited has not committed resources to assist us in our
remediation efforts on the inventory planning legacy system. We have assumed
full responsibility to make our legacy system Year 2000 ready and to identify
and respond to any Year 2000 issues associated with the interaction between our
legacy system, our other systems and new systems installed as part of The
Limited's overall efforts. We believe we will incur an additional $100,000 of
programming costs in order to make the legacy system Year 2000 ready and
integrate this system with the other newly installed systems. If we are
unsuccessful in our efforts to remediate the inventory planning legacy system,
we will continue with the planning system The Limited has already provided us as
part of The Limited's Year 2000 readiness efforts.
55
<PAGE> 61
The Limited established a program management office to oversee, monitor and
coordinate the company-wide Year 2000 effort. This office has developed and is
implementing a Year 2000 plan. The implementation includes five stages:
- awareness, which includes identifying risks and conducting an education
program regarding Year 2000 issues
- assessment, which primarily includes establishing project resources,
developing a Year 2000 renovation strategy, completing a company-wide
inventory of information technology and determining the necessary
training and testing facility requirements
- renovation/development, which includes the analysis of existing
information systems, the design of remediation activities and the coding
of necessary remedies
- validation, which primarily includes system testing
- implementation, which includes the placement of renovated systems "in
production" and training end users
There are two areas of focus:
- ASSESSMENT OF YEAR 2000 READINESS AT KEY VENDORS AND SUPPLIERS. A vast
network of vendors, suppliers and service providers located both within
and outside the United States provides us with merchandise for resale,
supplies for operational purposes and services. We have identified key
vendors, suppliers and service providers, and The Limited is making
efforts to determine their Year 2000 status. As a result, The Limited
obtained completed Year 2000 surveys from approximately 40 of our most
critical third-party vendors, representing over half of our total 1998
purchases, to determine an estimated compliance date. Of the 40 critical
third-party vendors surveyed, approximately half have indicated that they
are Year 2000 compliant. The remaining vendors have indicated estimated
compliance dates through the third quarter of 1999. Based upon the
results of the surveys, we selected three of our more significant vendors
(American Electric Power Company, Inc., BB Dakota and National Processing
Company) for on-site visits to further assess the vendors' progress and
estimated compliance dates. The Limited will continue to monitor the
status of the vendors' estimated compliance dates in order to identify
potential delays.
- EVALUATING FACILITIES AND DISTRIBUTION EQUIPMENT WITH EMBEDDED COMPUTER
TECHNOLOGY. We use various facilities and distribution equipment with
embedded computer technology, such as conveyors, elevators, security
systems, fire protection systems and energy management systems. The
Limited's assessment of these systems is complete, and all stages of its
efforts are expected to be complete in the second quarter of 1999.
In addition, The Limited also focused on:
- RENOVATION OF LEGACY SYSTEMS. The Limited's twelve operating businesses
have completed all five stages of Year 2000 implementation for renovation
of legacy systems.
- INSTALLATION OF NEW SOFTWARE PACKAGES TO REPLACE SELECTED LEGACY SYSTEMS
AT FIVE OF THE LIMITED'S TWELVE OPERATING BUSINESSES. Replacement of
their significant legacy systems with new software packages is complete.
COST TO ADDRESS THE YEAR 2000 ISSUE
Our total expenditures incurred through 1998 related to remediation,
testing, conversion, replacement and upgrading system applications were
approximately $8.1 million, of which approximately $6.0 million represents
capital assets which will be amortized principally over a period of five years
beginning in May 1999. In addition, we have incurred internal payroll costs (not
separately identified) relating to the Year 2000 initiatives.
Additional expenditures are expected to range from $3.5 million to $3.8
million through July 1999, of which approximately $2.4 million of new software
purchases will be capitalized. Total incremental expenses, primarily
depreciation and amortization of new package systems, are not expected to have a
material impact
56
<PAGE> 62
on our financial condition during 1999 and 2000. Included in the above costs are
expenditures associated with the development of an internal testing center,
which has enabled us to perform comprehensive testing of newly renovated systems
by processing transactions as if they had occurred in the Year 2000. This
internal testing process was used to develop the risk and cost estimates
described in this section of the information statement. Efforts by approximately
500 employees of The Limited's information technology division represent
approximately three-fourths of the total information technology budgeted hours
for the Year 2000 project. The Limited engaged external consultants, primarily
from PricewaterhouseCoopers LLP and Compuware, to assist us with program
management and new software package implementation, which represent the
remaining hours. We have allocated approximately 35% of our information
technology budget for the period from fall 1997 through fall 1999 toward Year
2000 remediation efforts.
REASONABLY LIKELY WORST CASE SCENARIO AND CONTINGENCY PLANS
We believe that the reasonably likely worst case scenario would involve
short-term disruptions of systems affecting its supply and distribution
channels. The Limited is in the early stages of developing contingency plans,
such as alternative sourcing, and identifying the necessary actions that it
would need to take if critical systems or service providers were not Year 2000
ready. The Limited expects to finalize these contingency plans in the second
half of 1999.
At the present time, we and The Limited are not aware of any Year 2000
issues that are expected to materially affect our products, services,
competitive position or financial performance. Additionally, we have not
postponed any significant information technology projects due to the Year 2000
project. Thus, we do not believe that the delay of any projects has had a
material impact on our financial condition and results of operations. However,
despite The Limited's significant efforts to make our systems, facilities and
equipment Year 2000 ready, and our efforts to make our inventory planning legacy
system Year 2000 ready, the readiness of third-party service providers and
vendors (including, for instance, governmental entities and utility companies)
is beyond our control. Thus, we cannot assure you that the failure of systems of
other companies on which The Limited's or our systems rely, or the failure of
key suppliers or other third parties to comply with Year 2000 requirements, will
not have a material adverse effect on us.
In connection with the spin-off, we will indemnify The Limited against any
liabilities caused by or arising from The Limited's Year 2000 readiness
assistance. We have also agreed not to make any claims against The Limited
caused by or arising from The Limited's Year 2000 readiness assistance and in
connection with the failure of any of our systems to be Year 2000 ready. See
"Relationship Between Too, Inc. and The Limited -- Transitional Services and
Separation Agreements -- Services Agreement."
ADOPTION OF NEW ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Statement of Position 98-1 requires that certain external costs
and internal payroll and payroll related costs be capitalized during the
application development and implementation stages of a software development
project and amortized over the software's useful life. Statement of Position
98-1 became effective in the first quarter of 1999 and did not have a material
adverse effect on our results of operations.
Additionally, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities," in April
1998. Statement of Position 98-5 requires that entities expense start-up costs
and organization costs as they are incurred. Statement of Position 98-5 became
effective in the first quarter of 1999 and did not have a material adverse
effect on our results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Any forward-looking statements contained in this information statement or
made by our management involve risks and uncertainties and may change based on
various important factors, many of which may be beyond our control. Thus, our
future performance and financial results may differ materially from those
expressed or implied in any such forward-looking statements. Forward-looking
statements are indicated by
57
<PAGE> 63
words such as "anticipate," "estimate," "expect," "intend," "risk," "could,"
"may," "will," "pro forma," "likely," "possible," "potential" and similar words
and phrases and the negative forms and variations of these words and phrases.
See, for example, "Summary," "Risk Factors," "Relationship Between Too, Inc. and
The Limited," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
The following factors, among others, in some cases have affected and in the
future could affect our financial performance and actual results and could cause
actual results for 1999 and beyond to differ materially from those expressed or
implied in any such forward-looking statements:
- changes in consumer spending patterns
- consumer preferences and overall economic conditions
- the impact of competition and pricing
- changes in weather patterns
- political stability, currency and exchange risks and changes in existing
or potential duties, tariffs or quotas
- the availability of suitable store locations at appropriate terms
- the ability to develop new merchandise
- the ability to hire and train personnel, including sales associates
Any forward-looking statements as to costs and dates relating to the Year
2000 effort are forward-looking and are based on our current best estimates that
may be proven incorrect as additional information becomes available. Our Year
2000-related forward-looking statements are also based on assumptions about many
important factors, including the technical skills of employees and independent
contractors, the representations and preparedness of third parties, the ability
of vendors to deliver merchandise or perform services required by us and the
collateral effects of the Year 2000 issues on our business partners and
customers. While we believe that our assumptions are reasonable, we caution that
it is impossible to predict factors that could cause actual costs or timetables
to differ materially from the expected results.
58
<PAGE> 64
BUSINESS
Limited Too is a rapidly growing specialty retailer that sells apparel,
underwear, sleepwear, swimwear, lifestyle and personal care products for
fashion-aware, trend-setting young girls. As of May 1, 1999, we had 321 stores
in 43 states. We design, source and market our products under our proprietary
"Limited Too" brand name. In fiscal 1998, we opened 10 new stores and remodeled
or expanded 15 existing stores.
In 1987, The Limited established "Limited Too" brand stores adjacent to or
as departments within The Limited stores to provide similar apparel to young
girls, and also apparel for infants. From 1987 to the end of fiscal 1995, we
expanded our locations from two stores to 288 stores. In 1996, a new management
team recognized that its core customer had her own emerging sense of style and
revised our strategy to focus on girls approximately 7 to 14 years of age as our
target customer group.
Our merchandise includes:
- casual clothing, such as jeans and other jeanswear and bottoms, knit tops
and T-shirts containing our brand name or other graphics, dresses and
outerwear
- accessories, such as costume jewelry, hair ornaments, slippers, key
chains, wallets, backpacks, purses and watches
- lifestyle products, such as inflatable furniture, lamps, writing
instruments, folders and posters
- personal care products under our "GirlCare" line, such as glitter
cosmetics, body splash and anti-bacterial hand gel
- add-on, such as underwear, sleepwear and swimwear
BUSINESS STRENGTHS
We believe that our six core business strengths developed over the last
three years have contributed to our success and will enable us to continue
growing profitably.
TARGET CUSTOMER GROUP. We have identified our target customer group to be
girls approximately 7 to 14 years of age who are active, creative and
image-conscious, enjoy shopping and want to describe themselves as "fun" and
"cool". We believe our target customers want a broad assortment of merchandise
for their range of dressing occasions, including school, leisure activities and
parties. To attract our target customer, we continually update our merchandise
assortment, which includes non-apparel merchandise, such as cosmetics and
lifestyle furnishings for her room. We also create an in-store atmosphere that
is visually appealing and provides an enjoyable, safe and exciting shopping
experience. We believe that girls interested in the latest fashions are
attracted to our image and are made to feel secure in their fashion choices when
they purchase our brand. At the same time, we believe that parents defer to many
choices that their daughters make in our stores because they find our products
to be appropriate for their daughters' age.
FOCUSED AND DIFFERENTIATED BRAND. We have created a focused and
differentiated brand image for fashion-aware girls aged 7 to 14 who follow the
latest trends. We believe that the brand's appeal has been augmented by, and
should continue to benefit from, trends that emphasize the latest fashions and
the aspirational lifestyle of today's younger girls who want to look and dress
like older girls consistent with the latest trends in junior fashions. We
communicate our brand image through all aspects of our business, including
merchandise assortment and our exciting, colorful in-store presentation. We
believe that the strength of our brand provides opportunities for increased
penetration of current merchandise categories and entry into newer product
categories such as our "GirlCare" line of toiletries and cosmetics introduced in
1996.
ENTERTAINING STORE ENVIRONMENT. A major element of our recent success is
the consistent store-level execution of our brand strategy. We design our stores
to provide a "theme park" destination in the mall and to encourage our customers
to touch and sample our products. All of our stores contain a wide variety of
merchandise for a "one-stop shopping" experience, which has been specifically
designed to embody "a store
59
<PAGE> 65
for her" theme. Our stores feature colorful window displays; photographic
sticker booths; ear piercing stations; gumball machines; and eye-catching
photographs. Our newer store formats may also have:
- our daisy logo on our front signage
- a personal care sampling table in the front of the store at which our
customers can experiment with our "GirlCare" products and consult their
friends and our sales associates
- light shows
- mock pay telephones from which our customers can listen to music or call
their friends within the store
We tightly control our in-store presentation by basing it on detailed and
comprehensive store plans. These plans use visual displays and fixtures designed
to brand our stores in a manner tailored to appeal to our target customer group.
PROPRIETARY DESIGN AND MERCHANDISING CAPABILITIES. A cornerstone of our
business is our ability to design products which embody our brand image. We
develop substantially all of our merchandise assortment through our own design
group, which allows us to:
- create exclusive merchandise under our proprietary brand
- develop complementary fashionable outfits
- offer a vast array of merchandise within a fashion season
- introduce new non-apparel items
- bring our products to market faster
In addition, because our merchandise is sold exclusively in our own stores,
we are able to control the presentation and pricing of our merchandise and
provide a higher level of customer service. Our merchandising strategy of
offering a broad assortment allows us to constantly introduce elements of the
latest fashion trends. We believe that these capabilities provide us with
competitive advantages over other brand manufacturers that market their goods
through department and other specialty apparel stores.
PROVEN MANAGEMENT TEAM. Since early 1996, when some of the senior members
of our current management team assumed responsibility, we have increased the
level of brand awareness and consistently reported improved financial results.
We believe that our management has a distinct understanding of our customers and
is able to execute design, sourcing and marketing strategies to penetrate our
target customer group. With over 125 years of collective experience in the
retail industry, they have demonstrated a track record of highly profitable
growth which strongly positions us for the future.
ATTENTIVE CUSTOMER SERVICE. Our sales associates convey and reinforce our
brand image through their attitude, enthusiasm and awareness of current fashion
trends. We train them to greet each customer, to inform the customer about new
fashion trends, to guide her through the store and to suggest merchandise to
suit the customer's wardrobe and lifestyle needs. We strive to give each of our
young customers the same level of respect and attention that adult customers
expect in a retail shopping experience.
GROWTH STRATEGY
We have implemented a growth strategy to capitalize on our business
strengths. Our growth strategy focuses on four goals:
- opening approximately 40 new stores per year in 1999 and 2000
- remodeling or expanding approximately 20 existing stores in 1999
- increasing comparable store sales through product extensions and our
continued execution of merchandise and other initiatives to satisfy our
target customers' needs
60
<PAGE> 66
- increasing our distribution channels to include direct marketing through
catalog and website initiatives
Below, we summarize the principal ways by which we plan to achieve these
goals:
STORE OPENINGS, REMODELINGS AND EXPANSIONS. We began our new store
expansion program in 1997, with the opening of seven new stores (four of which
were in our newest "GirlPower" format) and the opening of ten new stores in
1998. Given the strength of our brand and our customer demographics, our
management believes that there will be approximately 100 to 150 mall sites
available for new stores, with an additional 100 to 150 sites available in
smaller markets, specialty centers and major urban locations. We intend to
continue our store expansion program by opening approximately 40 new stores per
year in 1999 and 2000. Substantially all of the stores to be opened in 1999 will
be in regional shopping malls, as we believe that malls provide a heavy and
steady flow of our target customers. We intend to open new stores in non-major
cities as well as part of our expansion into smaller markets, which has proved
to be successful.
We also plan to remodel or expand approximately 20 of our existing stores
in 1999 into our "GirlPower" store format and continue our remodeling and
expansion program for the next several years.
MERCHANDISE INITIATIVES AND PRODUCT EXTENSIONS. We plan to continue to
increase the variety of sizes offered in many of our tops and bottoms categories
and to continue to develop the new product lines we recently introduced,
including add-on, such as underwear, sleepwear and swimwear; personal care
products under our "GirlCare" line, such as glitter make-up and nail polish; and
lifestyle products and other accessories for our target customer's room, such as
inflatable furniture and glitter telephones.
We believe that our ability to design and market new merchandise quickly
and effectively has been a key element of our success. In recent years, we have
significantly broadened our assortment in existing categories to increase volume
and productivity. In 1999, we will continue to expand key categories. We also
plan to continue to increase the variety of sizes offered. These changes in our
product mix allow us to offer a broader assortment of merchandise to our
customers.
INCREASE CONSUMER FEEDBACK AND AWARENESS. An important source of customer
feedback has been our focus groups and other formats for customer communication,
which we intend to continue. We expect to enhance our customer relationships and
increase our brand awareness through our frequent buyer program and our catalog
and website initiatives. We use our frequent buyer program to obtain customer
information, and our customers will also be asked to provide information when
they register on our website. Additionally, our frequent buyer program rewards
our customers with incentives based on the frequency of their purchases and
incorporates in-store events such as "Too Punch Toosday". As of May 1, 1999, our
frequent buyer database contained approximately 900,000 names. We plan to
increase this database by having our sales associates continue to encourage
customers to complete customer profile cards when they obtain frequent buyer
cards, allowing Internet browsers to provide their profile information on-line
and obtaining names from Visa and MasterCard, since over 600,000 of our
customers use these two credit cards. To further develop our marketing efforts,
we are working to improve the effectiveness of our frequent buyer database. In
late April 1999, we executed our first direct mail campaign that targeted not
only customers in our frequent buyer database but prospective customers as well.
EXPAND DISTRIBUTION CHANNELS. We are committed to enhancing our brand
recognition and plan to expand our marketing efforts in the following areas.
- CATALOG. We are currently working with a number of third parties
regarding the establishment of fulfillment infrastructures, catalog
production and circulation plans in order to launch a catalog for the
1999 holiday season with a planned October mailing. We will use our
frequent buyer database as the primary source for our catalog mailing
lists. In addition, we may purchase or rent qualified names from other
third parties' mailing lists to increase our circulation quantities.
- WEBSITE. We plan to create a fun, informational website with an expected
launch in the fall of 1999. Because more customers, especially customers
within our target demographic group, are turning to the Internet to
access consumer information and make retail purchases, we believe that an
attractive
61
<PAGE> 67
website will be critical to our brand-recognition efforts and, in turn,
our sales growth. We intend to further develop our website to allow our
customers to order our products on-line during the year 2000.
THE INDUSTRY
We believe that our target customer group is under-served in the specialty
apparel retailer market since no other retailer focuses exclusively on a single
gender in the 7 to 14 age group. Industry sources estimate that the amount spent
on apparel in our target customer group grew from $6.9 billion in fiscal 1995 to
$8.2 billion in fiscal 1998, or at a compound annual growth rate of
approximately 6.3%. Our 20.7% compound annual growth rate in net sales, which
includes non-apparel merchandise during this period, has outpaced that of the
industry. Industry sources also estimate that no single retailer has more than
9% of the market share for our target customer group. We believe that the size
and changing dynamics of our market, coupled with our business strengths and
growth strategies, should provide significant opportunities for growth and
increased market share in the future.
OUR STORES
EXISTING STORE ENVIRONMENTS
Our stores and point-of-sale marketing are designed to convey the principal
elements and personality of our brand -- creativity, fashion awareness and
excitement for increasingly independent girls. We thoughtfully plan and
coordinate our store design, furniture, fixtures and music to create a shopping
experience that is consistent with the fashionable and energetic lifestyle of
our target customer group. We believe that our customers experience our stores
as entertaining and multisensory destinations, in which they feel welcomed and
pampered.
As of the end of fiscal 1998, we had four store formats:
- 139 of our stores, or 44%, were modeled to be consistent with The Limited
store design using the same black marble and black woodgrain cabinets
- 121 of our stores, or 38%, were substantially similar to The Limited
store design with a front signage that includes a red script "Too"
- 30 of our stores, or 9%, also had a front signage that includes a red
script "Too" but with blond wood and light-colored fixtures
- 29 of our stores, or 9%, were developed in our newest format, or what we
refer to as "GirlPower"
In fiscal 1998, the average sales per store were substantially higher for
stores with the "GirlPower" format compared to stores with the other three
formats.
We vary the extent of the presentation detail of our stores depending on
the customer demographic or the traffic volume of a particular mall. This
enables us to be cost-effective in recognizing each store's ability to support
additional features while maintaining a uniformly positive shopping experience
for our customers.
For each store format, we maintain a uniform appearance consistent with
that particular store format throughout our 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 and the portrayal of our brand
in a manner designed to appeal to our target customer group. Standardization of
store design and merchandise presentation also creates cost savings in store
furnishings, maximizes usage and productivity of selling space and allows us to
efficiently open new stores.
Each year, we have four major floor sets with matching window displays to
correspond with our spring, summer, "back to school" and December holiday
periods. Every two to three weeks, our management coordinates and directs our
stores to modify these floor sets, and usually the window displays at the same
time, by highlighting different merchandise and moving displays to different
areas within the store. These
62
<PAGE> 68
frequent changes enable us to profile new merchandise while fostering our brand
image as featuring the "hottest" fashions.
Our sales associates are a central element in creating our stores'
distinctive atmosphere. In addition to providing a high level of customer
service, our sales associates reinforce the fashion-awareness of our brand and
cater to the energetic lifestyle of today's girls. In conjunction with other
components of the store environment, we believe that our sales associates
significantly contribute to a store atmosphere that is consistent with making it
a "store for her" -- our target customer.
STORE REMODELING AND EXPANSION PROGRAM
Our stores are located principally in regional shopping malls, as we
believe that malls provide a heavy and steady flow of our target customers. At
May 1, 1999, we operated 321 stores nationwide, averaging over 4,000 gross
square feet, with approximately 3,200 selling square feet. For the number of
store locations in each state, see "-- Properties." The table below highlights
the store expansion strategy that we have pursued:
<TABLE>
<CAPTION>
THIRTEEN WEEKS FISCAL YEAR ENDED
ENDED -------------------------------------------------------------------
MAY 1, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1999 1999 1998 1997 1996 1995
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of stores:
Beginning of year........... 319 312 308 288 212 184
Opened...................... 9 10 7 27 78 31
Closed...................... 7 3 3 7 2 3
Remodeled................... 6 15 -- -- -- --
Total square feet at period
end (thousands)............. 1,296 1,281 1,244 1,224 1,143 838
Average store size at period
end (square feet)........... 4,034 4,015 3,987 3,974 3,969 3,953
Annual sales per average
square foot(1).............. NM $ 300 $ 259 $ 214 $ 207 $ 226
</TABLE>
- ---------------
NM = not meaningful
(1) Annual sales per average square foot is the result of dividing net sales for
the fiscal year by average gross square foot, which reflects the impact of
opening and closing stores throughout the year.
In addition to opening new stores, we are in the process of remodeling or
expanding some of our stores into our new "GirlPower" store format. The
remodeling process for our stores that are adjacent to or departments within The
Limited stores may involve building walls in the cross-over space between the
two stores, creating separate back rooms and utilities and in some instances,
creating separate access to corridors to make them into free-standing stores
completely separate from The Limited. Management believes that remodeling or
expansion has a positive impact on our sales and intends to leverage our unique
opportunity to increase profitability through remodeling or expanding existing
stores.
We plan to open approximately 40 new stores per year in 1999 and 2000, of
which nine have been opened as of May 1, 1999, and we have also signed leases
for an additional ten stores. We have identified all of the 21 stores remaining
to be opened in 1999 and expect all of them to be in operation before the
holiday season. We also plan to remodel or expand approximately 20 of our
existing stores in 1999.
In evaluating real estate locations we consider a variety of criteria.
Regional malls are measured based on:
- location of the mall and proposed stores within the mall
- strength of anchor stores
- the fashion and quality mix of other specialty tenants
63
<PAGE> 69
- population and income characteristics of the surrounding area
In addition to regional stores, we intend to expand our stores in smaller
markets where we believe the potential return on sales in these locations will
be high. We may also consider specialty centers and upscale strip malls, major
urban centers for non-mall locations and retail outlets for additional store
sites.
A key element of our new store strategy is to open new stores with trained
managers in place. The vast majority of managers of new stores have prior
experience in our existing stores in either the manager or assistant manager
position.
STORE ECONOMICS
Our average costs for remodeling or expanding existing stores were $470,000
per store in fiscal 1998. We estimate that the average cost for leasehold
improvements, furniture and fixtures for stores to be opened in 1999 will be
approximately $405,000 per store, after adjusting for landlord allowances.
Average pre-opening costs per store, which will be expensed as incurred, are
expected to be less than $20,000. In addition, inventory purchases are expected
to average approximately $100,000 per store.
New stores opened in fiscal 1998 have typically exceeded management's store
operating profitability and return on asset targets to date. In addition, 12 out
of 15 remodeled stores have exceeded their targets, with 10 of those stores
increasing their volume an aggregate of 33% over the previous year since the
reopening date without materially changing their gross square footage.
NEW DISTRIBUTION CHANNELS
As part of our growth strategy, we intend to launch a catalog and a website
as new distribution channels for our products:
- CATALOG. We intend to launch our first catalog for the holiday season of
1999 with an October mailing of 1.5 million copies of our premiere issue.
We have hired a vice president of catalog operations to head this effort
and are in the process of hiring additional personnel. In addition, we
have engaged third parties to assist us with print production and other
creative services, circulation and third-party fulfillment. Our catalog
format will consist primarily of merchandise content with some space
devoted to articles and other editorial content. We will use our frequent
buyer database as the primary source for our catalog mailing lists. In
addition, we may purchase or rent qualified names from other third
parties' mailing lists to increase our circulation quantities. We
executed a direct-mail campaign in late April 1999 to test our
circulation quantities and our database. During the year 2000, we intend
to publish up to six catalogs.
- WEBSITE. Because more customers, especially customers within our target
demographic group, are turning to the Internet to access consumer
information and make retail purchases, we believe that an attractive
website will be critical to our brand and, in turn, our sales growth. We
are working to launch an informational website by the fall of 1999.
During the year 2000, we intend for our customers to be able to order our
products on-line. We also intend to use our website as an additional
method of increasing our customer database because we will allow Internet
browsers to register with us at their option by providing their customer
profile information on-line.
See "Risk Factors -- Risk Factors Relating to Our Business -- Our Expansion
into Catalog and Internet Distribution Channels May Not Be Successful" for a
description of the risks that we face in launching these new distribution
channels.
MERCHANDISING
PRODUCT MIX
We design and sell all of our apparel under our proprietary "Limited Too"
brand. Our merchandise assortment covers a broad array of classifications in
girls' apparel, including jeans and other jeanswear and bottoms, knit tops,
T-shirts, shorts, skirts, dresses and outerwear. For many of these products, we
have a basic
64
<PAGE> 70
item that we sell at a low price point and more elaborate versions that we sell
at higher price points. To make our customers feel more secure in their fashion
choices, we generally display our merchandise as complete outfits (for example,
tops and bottoms displayed together), instead of displaying garments together
with type (for example, sweaters with other sweaters). Our outfits are
complemented by matching accessories and other related items which we believe
helps promote higher sales volume through multiple unit sales.
In addition to apparel and add-on, our other product categories are:
- related accessories including costume jewelry, hair ornaments, slippers,
key chains, wallets, backpacks, purses and watches
- our "GirlCare" line including toiletries, such as shower gel and body
splash; accessories, such as hairbrushes and manicure sets; and
cosmetics, such as glitter nail polish and lip gloss. These "GirlCare"
products are generally displayed prominently in our stores on personal
care sampling tables in the front of the stores so that our customers can
experiment with our products and consult their friends and our sales
associates. A substantial portion of this merchandise category is under
$10 so that our target customer can spend her own money
- our lifestyle products including products for her room such as inflatable
furniture, candles, lamps and posters, as well as small toys, candy,
stickers and stationery
The following table summarizes our merchandise mix by major category as a
percentage of net sales for the years 1996 to 1998:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Apparel..................................................... 72.1% 71.0% 75.0%
Add-on (e.g., underwear, sleepwear and swimwear),
accessories and lifestyle products........................ 21.6 17.7 14.7
"GirlCare" products......................................... 6.3 5.8 2.3
Infant...................................................... -- 5.5 8.0
----- ----- -----
Total............................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
We believe that there are significant opportunities to increase volume
through both increased penetration of existing classifications and addition of
new merchandise classifications. Management believes that our ability to design
and market new merchandise quickly and effectively has been a key element of our
success. In recent years, we have broadened our assortment in existing
categories to increase volume and productivity. In 1999, we will continue to
expand key categories. An example is an increased number of sizes offered to the
7 to 14 age group. Starting in late spring of 1998, we have added "3", "5" and
"7" junior sizes, slim sizes in bottoms and "XXL" and "XXXL" sizes for tops.
Our point-of-sale information system allows management to track the
performance of merchandise items on a stock-keeping units basis. Reorder
"triggers" are used to replenish inventory of strong selling items. In addition,
performance by store at a stock-keeping units level is tracked to allow
inventory to be replenished based on differences in selling trends by store.
PRODUCT DESIGN
A cornerstone of our business is our ability to design products which
embody our brand image. Since 1996, one of our major strategies has been to
develop an internal design group. Between 1996 and 1998, the design group has
grown from a staff of two to more than 18.
The product development process begins as senior management in the
merchandising and design areas develop seasonal merchandise themes and concepts.
These concepts are used to create line lists of items that are then developed by
the designers. Designs cover not only fabric content, specifications and colors,
but also labels, hang tags and other descriptive marketing. In developing
concepts and designs, our executives identify
65
<PAGE> 71
trends through domestic and foreign travel, retail shopping and awareness of
activities favored by our target customer group.
We develop substantially all of our merchandise assortment through our own
design group, which allows us to create exclusive merchandise and offer a vast
array of merchandise within a fashion season. In addition, because our
merchandise is sold exclusively in our own stores, we are able to control the
presentation and pricing of our merchandise, provide a higher level of customer
service and closely monitor retail sell-through, which provides competitive
advantages over other brand manufacturers that market their goods through
department and other specialty apparel stores.
PRODUCT TIMELINESS
Since the inception of the "Limited Too" brand, we have catered to the
fashion-aware customer by providing the latest fashions featured in movies,
television and publications aimed at our target customer group. At the same
time, we believe that we can reach a broader market by appealing to mainstream
consumers who seek to feel secure in their fashion choices, rather than
experimenting with uncertain styles. We believe that this strategy is consistent
with our philosophy of responding to and respecting our customers' fashion
preferences as opposed to attempting to establish new fashion trends.
As part our strategy to deliver our merchandise in a timely manner, we
strive to stock our inventory with new merchandise reflecting the latest fashion
or trends on a continual basis.
MARKETING AND PROMOTION
Our marketing and promotional strategies are consistent with our focused
and differentiated brand. To appeal to the fun-loving nature of our target
customer group, we have created several promotional programs:
COLORFUL WINDOW DISPLAYS. We concentrate our advertising efforts on our
colorful window displays. We place bright, cheerful graphics or photographs in
at least one of our display windows, the size of which span almost the entire
window. We change our displays frequently and often pursue holiday themes. We
believe our window displays attract customer attention in a busy mall
environment and immediately allow shoppers to recognize our store as a place for
young girls. Our in-store displays include a series of distinctive color
photographs that are enlarged and prominently displayed throughout the stores.
These photographs contain images of young girls engaged in popular social
activities which we believe reinforce the peer-acceptance quality of our brand.
FREQUENT BUYER PROGRAM. Our ongoing frequent buyer program uses a
wallet-sized punch card (the "Frequent Buyer Card") that can be punched up to
ten times for every purchase over $20 made in our stores. On the first Tuesday
of every month, through our "Too Punch Toosday" program, customers receive two
punches on their Frequent Buyer Card for purchases made. For every ten punches,
a customer will receive a coupon for $20 off her next purchase. Through April
1999, approximately 2.0 million Frequent Buyer Cards have been fully punched and
redeemed since the program began in September 1996. In fiscal 1998,
approximately 27% of all transactions used a Frequent Buyer Card in the
purchase, and approximately 10% of all transactions used a Frequent Buyer Card
that was redeemed, an increase from 7.2% in fiscal 1997. In order to receive a
Frequent Buyer Card, our customers are asked to fill out an information sheet
containing their name, address, birthday and their sister's name. We use such
information to establish our frequent buyer database, which as of May 1, 1999
contained approximately 900,000 names.
"TOO BUCKS" PROGRAM. Our event-oriented frequent buyer program occurs
three times a year around Easter, the fall "back to school" period and
Christmas. The program provides customers who purchase $50 or more in our stores
with $25 off coupons which can be used toward purchases over $50 made during the
two or three weeks after distribution. Aggregating the three campaigns, the
coupons are distributed for approximately 15 weeks and redeemed for seven weeks;
therefore, the campaign is part of our promotion strategy for 22 weeks of the
year. For fiscal 1998, approximately 45% of the coupons were redeemed.
66
<PAGE> 72
SALES ASSOCIATES
Customer service is a defining feature of our corporate culture and one of
our core business strengths. We believe that knowledgeable and enthusiastic
sales associates have a direct impact on our customers' perception of the brand.
Thus, we focus significant resources on the selection and training of sales
associates. Our sales associates are expected to convey and reinforce our brand
image through their attitude, enthusiasm and awareness of current fashion
trends.
Our sales associates are required to be familiar with the full range of our
merchandise. They are trained to be particularly sensitive to the needs of our
target customer and the concerns of her parents. Our sales associates provide a
high level of customer service by talking with our customers, assisting them in
putting together fashionable outfits and related accessories and helping them
experiment with our "GirlCare" products. We encourage our sales associates to
focus primarily on being friendly and helpful rather than aggressively pursuing
a sale. We minimize sales associates' time spent on administrative functions by
centrally determining merchandise display and replenishment, markdowns and labor
scheduling. By emphasizing friendliness, product knowledge and personal
attention, management believes that we have established a reputation for a high
level of customer service.
The typical management of one of our stores consists of one store manager
and two to three assistant managers. We compensate our district and store
managers with a base salary plus a performance bonus based primarily on store
sales. Our store, district and regional managers spend a majority of their work
week on our selling floors, providing leadership through coaching the staff and
assisting customers.
At January 30, 1999, we had approximately 6,200 sales associates, of whom
approximately 800 were full-time salaried sales associates and approximately 300
were full-time hourly sales associates. A significant number of sales associates
are hired on a seasonal basis to meet demand during holiday gift-buying seasons.
The balance were part-time hourly associates. None of our sales associates is
represented by a labor union. We believe that our relationship with our sales
associates is good.
SOURCING
We use a variety of sourcing arrangements. Historically, our largest
apparel supplier has been Mast Industries, Inc., a wholly owned subsidiary of
The Limited. Mast Industries supplied approximately 29% of the apparel that we
purchased in 1998 and will supply approximately 30% of our 1999 business. We
believe that all transactions that we have entered into with Mast Industries
have been on terms that would have been obtained on an arm's length basis since
we treat them as if they were a third party. We were not, and will not be,
obligated to source products through Mast Industries.
In 1998, we sourced over 60% of our merchandise from foreign factories
located primarily in East and Southeast Asia. We do not have any long-term
merchandise supply contracts, and many of our imports are subject to existing or
potential duties, tariffs or quotas that may limit the quantity of goods which
may be imported into the United States from countries in that region. We compete
with other companies, including The Limited and The Limited's other
subsidiaries, for production facilities and import quota capacity. In addition,
although the General Agreement on Tariffs and Trade adopted on December 8, 1994
requires the elimination of duties, tariffs and quotas on apparel and textile
products by January 1, 2005, the GATT treaty is not expected to have any
meaningful effect on the import of merchandise used in our business for several
years. We attempt to monitor manufacturing to ensure that no one company or
country is responsible for a disproportionate amount of our merchandise.
We typically transact business on an order-by-order basis and do not
maintain any long-term or exclusive commitments or arrangements to purchase from
any vendor. We believe that we have good relationships with our vendors and
that, as the number of our stores increases, there will be adequate sources to
produce a sufficient supply of quality goods in a timely manner and on
satisfactory economic terms. See "Risk Factors -- Risk Factors Relating to Our
Business -- We Rely Significantly on Foreign Sources of Production."
67
<PAGE> 73
CENTRAL STORE PLANNING
Our store design and construction operations are handled centrally by
Limited Store Planning, the store planning division of The Limited. Limited
Store Planning is organized into teams comprised of designers, construction
managers, architects, purchasing agents and financial personnel who are
responsible for all phases of store design and construction. Teams are assigned
to work with the senior management of a specific retail business of The Limited,
including us, and to develop and implement store designs that are consistent
with and promote the image of a given retail business. We intend to enter into
an agreement under which The Limited will continue to provide such services to
us on a basis consistent with past practices for a year following the spin-off.
The Limited will charge us fees based on its costs of providing such services
plus 5% of these costs. See "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Services
Agreement." We intend to add in-house staff and contract for outside services
before the services agreement expires.
CENTRAL REAL ESTATE MANAGEMENT
The Limited's real estate division centrally handles our real estate
operations, including all aspects of lease negotiations. We intend to enter into
an agreement under which The Limited will continue to provide such services to
us on a basis consistent with past practices for a year following the spin-off.
The Limited will charge us fees based on its costs of providing such services
plus 5% of these costs. See "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Services
Agreement." We intend to add in-house staff and contract for outside services
before the services agreement expires.
Potential new stores, locations, expansions and relocations are identified
by us and by The Limited's real estate division. In choosing new sites for
retail stores, The Limited's real estate division provides us with financial
details regarding the proposed lease arrangement. We then evaluate the net
required investment and potential rates of return relative to our expected store
sales and profits, before we sign the lease and approve the store for
construction. The actual construction of the store is managed by Limited Store
Planning. Although the real estate division retains control over the allocation
of space within a given mall among the various retail businesses of The Limited,
including us, each individual business is entitled to reject any transaction
negotiated by the real estate division of The Limited. Real estate decisions are
based on a number of factors, including:
- location of the mall and proposed store location within the mall
- consistency with our target customer group and market
- sales and profit potential
- the overall economic condition, demographic characteristics of the market
and shopping patterns of the market
- the identity of the other tenants in close proximity
- the availability of acceptable lease terms
We also consider a variety of other criteria related to the malls in which
we locate our stores. Although our arrangement with The Limited may raise the
potential for conflicts of interest, management believes that the arrangement
has provided us with a significant competitive strength. Given The Limited's
substantial size, our management believes that The Limited has been able to
obtain lease terms and store sites on our behalf that were more favorable than
those that we would have been able to obtain on our own. At the same time,
management has been able to draw from The Limited's experience. While we believe
that the transitional period will give us ample time to develop our own
resources in these areas, we cannot assure you we will be able to achieve the
same economies of scale and bargaining leverage as does The Limited. In
addition, some of our direct leases which are guaranteed by The Limited may be
affected. See "Risk Factors -- Risk Factors Relating to Separating Our Company
from The Limited -- We May Not Be Able to Obtain Suitable Real Estate to
Implement Our Growth Strategy."
68
<PAGE> 74
MERCHANDISE DISTRIBUTION
Our distribution operations are managed in a warehouse leased from
Distribution Land Corp., a wholly owned subsidiary of The Limited. See
"Relationship Between Too, Inc. and The Limited -- Transitional Services and
Separation Agreements -- Amendment to Building Lease Agreement." The warehouse
is located in Columbus, Ohio. Once the warehouse receives any merchandise, the
merchandise is inspected, packed for delivery to the stores and forwarded to a
central shipping facility operated by Limited Distribution Services Inc., a
wholly owned subsidiary of The Limited, which also provides engineering services
to the warehouse.
Limited Distribution Services also maintains a worldwide logistics network
of agents and space availability arrangements to support the in-bound movement
of merchandise into the warehouse. The outbound shipping system consists of
common carrier line routes connecting the distribution complex to a network of
delivery agents. Each store receives several deliveries each week and receives
daily deliveries during the peak holiday shopping season. We believe that this
delivery schedule ensures more frequent deliveries than those of our smaller
competitors. Limited Distribution Services does not own or operate trucks or
trucking facilities.
We intend to enter into an agreement under which Limited Distribution
Services will continue to provide such services to us on a basis consistent with
past practices for three years. The Limited will charge us fees based on its
costs of providing such services plus 5% of these costs. See "Relationship
Between Too, Inc. and The Limited -- Transitional Services and Separation
Agreements -- Services Agreement."
MANAGEMENT INFORMATION SYSTEMS
Our management information systems and electronic data processing systems
consist of a full range of retail, financial and merchandising systems,
including:
- credit
- inventory distribution and control
- sales reporting
- accounts payable
- merchandise reporting
- distribution
- financial reporting
Our information system is uniquely structured to address the needs of our
business. The Limited owns some of the equipment used in the management
information systems. We intend to enter into an agreement under which The
Limited will continue to provide these information technology services to us on
a basis consistent with past practices for a year following the spin-off. The
Limited will charge us fees based on its costs of providing such services plus
5% of these costs. See "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Services
Agreement."
Our merchandise reporting system updates sales information on a daily basis
by polling the information from each store's point-of-sale, or POS, terminals.
Our POS system consists of registers providing price look-up, scanning of
bar-coded tickets and credit authorization. Through daily two-way electronic
communication with each store:
- sales information, payroll hours, store-initiated inventory transfers and
details of physical inventory counts are uploaded to the host system
- price changes are downloaded to in-store POS devices
- we are able to send electronic mail
69
<PAGE> 75
We evaluate information obtained through daily reporting to implement
merchandising decisions regarding markdowns and allocation of merchandise.
Current hardware and network infrastructure in being upgraded through:
- the creation of store, marketing and customer databases to improve
controls and enhance sales and operational capabilities
- the implementation of a new warehouse management system
- the upgrading of distribution facilities to expand capacity
We may not be able to complete our planned upgrades on a timely basis or in
a successful manner. See "Risk Factors -- Risk Factors Relating to Our
Business -- The Planned Upgrades of the Management Information Systems That We
Use May Not Be Successful."
TRADEMARKS AND SERVICE MARKS
Limco, Inc., a wholly owned subsidiary of The Limited owns the brand name
"Limited Too", which is registered in the United States and in numerous foreign
countries. Limco, Inc. licenses the brand name to LimToo, Inc., our wholly owned
subsidiary. We and The Limited intend to cause Limco, Inc. and LimToo, Inc. to
enter into a trademark and service mark licensing agreement that will allow us
to operate under the "Limited Too" brand name in connection with our business.
The agreement will be for an initial term of five years after the spin-off,
renewable annually at our option. See "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Trademark and
Service Mark Licensing Agreement."
We are the owner in the United States of trademarks and service marks used
to identify our merchandise and services, other than our brand name. Many of
these merchandise marks are registered in the United States Patent and Trademark
Office. These merchandise marks are important to us, and we intend to, directly
or indirectly, maintain these marks and their registrations. However, we may
choose not to renew a registration of one or more of our merchandise marks if we
determine that the mark is no longer important to our business. We do not
believe that any material claims of infringement or other challenges to our
right to register or use our merchandise marks in the United States in a manner
consistent with our current practices are pending.
We also conduct business in foreign countries, principally because a
substantial portion of our merchandise is manufactured outside the United
States. We own registrations of our merchandise marks in foreign countries to
the degree necessary to protect these marks, although there may be restrictions
on the use of our marks in a limited number of foreign jurisdictions.
We have not licensed any of our trademarks or service marks to any other
entity.
COMPETITION
Although no other specialty apparel retailer focuses exclusively on our
target customers, all aspects of our business are highly competitive since other
retailers offer merchandise designed for our customers.
Our primary competitors target the same customer group and include:
- other specialty apparel and accessory retailers, such as GapKids,
abercrombie and Claire's
- department stores, such as J.C. Penney's
- discount retailers, such as Target and Kohl's
Newly emerging store-based retailers may provide additional competition to
the existing competitive market.
70
<PAGE> 76
In addition to the traditional store-based retailers, we also compete with
direct marketers who target customers through catalogs and Internet shopping.
Direct marketers also include traditional store-based retailers like us who are
expanding into catalogs and the Internet as additional distribution channels.
We believe that the principal bases upon which we compete are design,
price, service, selection, quality and distribution channels:
- DESIGN. We believe that we have a significant advantage over our
competitors in this area because substantially all of our merchandise is
designed internally and sold exclusively through our stores. See
"-- Merchandising -- Product Design."
- PRICE. We determine appropriate initial markups for all items and
determine when prices should be lowered so that older inventory can make
way for new inventory.
- SERVICE. Our sales associates are expected to personify our brand image
through their attitude, enthusiasm and awareness of current fashion
trends. See "-- Sales Associates."
- SELECTION. We offer a wide range of apparel for our target customer
group, as well as a broad assortment of non-apparel items, including
related accessories, personal care products under our "GirlCare" line and
lifestyle products, such as furnishings for our target customer's room.
See "-- Merchandising -- Product Mix."
- QUALITY. Because we target fashion-aware customers, quality is important
to us. Currently, we believe that we source our merchandise from reliable
suppliers and we require our suppliers to test our products to ensure
that they comply with federal and state standards and regulations.
- DISTRIBUTION CHANNELS. Our exciting stores located throughout the United
States are our premiere distribution channel for our merchandise. See
"-- Our Stores -- Existing Store Environment" and "-- Properties." As
part of our growth strategy, we intend to launch a catalog and a website
as new distribution channels for our products. See "-- Our Stores -- New
Distribution Channels."
We believe that we have significant competitive advantages because of high
consumer recognition, acceptance of our brand name, our strong presence in the
major shopping malls in the United States, our history with The Limited and the
experience of our management team and sales associates. Most of our competitors
provide clothing to both boys and girls. We believe that among single-gender
retailers, we are the only specialty retailer to specifically target girls
approximately 7 to 14 years of age. This unique aspect of our retail strategy
contributes to our "just for her" brand image. However, some of our competitors
have greater financial, marketing and other resources available to them. We
cannot assure you that we will be able to compete successfully with them in the
future, particularly in distribution channels in which we have less experience,
such as catalogs and the Internet. See "Risk Factors -- Relating to Our
Business -- Our Expansion into Catalog and Internet Distribution Channels May
Not Be Successful."
PROPERTIES
Our main offices are located in Columbus, Ohio. These headquarters are
owned by Distribution Land Corp., a wholly owned subsidiary of The Limited, and
leased to us. See "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Amendment to
Building Lease Agreement." We believe that our facilities are well maintained,
in good operating condition and adequate for our current needs.
As of May 1, 1999, we operated 321 stores, which are located primarily in
shopping malls throughout the United States. Of these stores, 194 were leased
directly from third parties -- principally shopping mall developers -- and 127
are governed by leases where the tenant is The Limited or an affiliate of The
Limited, other than us. See "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Store Leases
Agreement." We believe that as approximately 98% of our stores are located in
shopping malls, there are growth opportunities for expansion to free-standing
locations.
71
<PAGE> 77
Leases with third parties are typically between 10 and 15 years in
duration. In most cases, the business unit pays an annual base rent plus a
contingent rent based on the store's annual sales in excess of pre-established
performance milestones. Leases with The Limited or an affiliate of The Limited,
other than us, are on terms that represent the proportionate share of the base
rent payable in accordance with the underlying lease plus the portion of any
contingent rent payable in accordance with the underlying lease attributable to
our performance.
Some of the leases that we enter into are guaranteed by The Limited. See
"Risk Factors -- We May Not Be Able to Obtain Suitable Real Estate to Implement
Our Growth Strategy" and "Relationship Between Too, Inc. and The
Limited -- Transitional Services and Separation Agreements -- Store Leases
Agreement."
The map below provides the number of stores by state that we operate in the
continental United States as of May 1, 1999:
[Number of Stores Per State/U.S. Map Graphic]
ENVIRONMENTAL MATTERS
Various federal, state and local environmental protection and health and
safety laws and regulations govern our activities, including the manufacture and
transportation of our products and the disposal of waste. We also could be held
responsible as owners or operators of real property for all of the costs
relating to any contamination at our past or present facilities. These laws
often impose liability even if the owner or operator did not know of, or was not
responsible for, the contamination.
Based on our present knowledge and current laws and regulations, we do not
believe that environmental matters are likely to have a material adverse effect
on our business, assets or financial condition. However, if we become aware of
additional facts or if the laws change, environmental matters could become
material to us.
72
<PAGE> 78
LITIGATION
We are a defendant in lawsuits arising in the ordinary course of business.
On November 13, 1997, the United States District Court for the Southern
District of Ohio, Eastern Division, dismissed with prejudice an amended
complaint that had been filed against The Limited and some of its subsidiaries,
including us, by the American Textile Manufacturers Institute ("ATMI"), a
textile industry trade association. The amended complaint alleged that the
defendants violated the federal False Claims Act by submitting false country of
origin records to the U.S. Customs Service. On November 26, 1997, ATMI served a
motion to alter or amend judgment and a motion to disqualify the presiding judge
and to vacate the order of dismissal. The motion to disqualify was denied on
December 22, 1997, but as a matter of his personal discretion, the presiding
judge elected to recuse himself from further proceedings and this matter was
transferred to a judge of the United States District Court for the Southern
District of Ohio, Western Division. On May 21, 1998, this judge denied all
pending motions seeking to alter, amend or vacate the judgment that had been
entered in favor of The Limited. On June 5, 1998, ATMI appealed to the United
States Court of Appeals for the Sixth Circuit (the "Sixth Circuit"). On August
12, 1999, the Sixth Circuit heard arguments from both sides, and the matter
remains pending.
Although it is not possible to predict with certainty the eventual outcome
of any litigation, in the opinion of management, the foregoing proceeding is not
expected to have a material adverse effect on our financial position or results
of operations.
EMPLOYEES
As of May 1, 1999, we had approximately 5,900 employees, of whom
approximately 1,350 were employed full-time and 4,550 were part-time employees.
We also hire temporary employees during the peak "back to school" and holiday
seasons. We believe that we have good relationships with our employees.
73
<PAGE> 79
MANAGEMENT
The following table provides material information concerning our board of
directors and our executive officers who will be serving or in office as of the
date of the spin-off.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael W. Rayden.................... 50 Chairperson of the Board of Directors, President and
Chief Executive Officer and Director
Sally A. Boyer....................... 38 Vice President -- Merchandising Operations
Kent A. Kleeberger................... 47 Vice President and Chief Financial Officer
Kathleen C. Maurer................... 39 Vice President -- Human Resources
James C. Petty....................... 40 Vice President -- Stores
Nancy Jean Kramer.................... 43 Director
David A. Krinsky..................... 51 Director
James U. McNeal...................... 67 Director
Kenneth James Strottman.............. 50 Director
</TABLE>
Michael W. Rayden. Mr. Rayden has served as our President and Chief
Executive Officer since March 1996. For the past 28 years, Mr. Rayden's career
has been focused on the retail industry. Before joining us, he served as the
President, Chief Executive Officer and Chairman of the Board of Pacific Sunwear
of California, Inc. from 1990 to 1996, the President and Chief Executive Officer
of The Stride Rite Corporation from 1987 to 1989 and the President and Chief
Executive Officer of Eddie Bauer Inc. from 1984 to 1987. In connection with the
spin-off, Mr. Rayden will be elected the chairperson of our board.
Sally A. Boyer. Ms. Boyer has served as our Vice
President -- Merchandising Operations since May 1998. Ms. Boyer previously held
various positions with us and The Limited, including as our Vice
President -- Planning and Distribution from 1995 to 1998. Before joining The
Limited in 1991, she served as a Financial Consultant for Andersen Consulting
from 1990 to 1991, a Merchandise Planner for The Limited from 1989 to 1990 and
Merchandise Controller of Youthland, Inc. from 1984 to 1989.
Kent A. Kleeberger. Mr. Kleeberger joined us as Vice President and Chief
Financial Officer in March 1998 after a 10-year career with The Limited,
including Victoria's Secret Catalogue. From 1995 to 1998, Mr. Kleeberger served
as Corporate Controller of The Limited. Before that, he was Vice President and
Controller of Victoria's Secret Catalogue after having worked there for
approximately four years. Before joining The Limited in 1988, he held various
positions, including Senior Manager, Audit, with Peat Marwick during his 13-year
tenure.
Kathleen C. Maurer. Ms. Maurer has served as our Vice President -- Human
Resources since April 1996 after serving 13 years in the human resources sector
of the retail apparel industry. Before her current position with us, Ms. Maurer
was the Vice President -- Human Resources of Structure from 1991 to 1996, a
Director of Human Resources of Express from 1985 to 1991 and a Personnel
Administrator of The Limited from 1984 to 1985.
James C. Petty. Mr. Petty has served as our Vice President -- Stores since
June 1997. Mr. Petty previously held various positions involving store
management and operations with Old Navy Inc., Banana Republic, Inc. and The Gap,
Inc. during his 13-year tenure with The Gap and its subsidiaries, including Vice
President -- Store Operations of Old Navy from 1994 to 1997 and Vice
President -- Store Operations of Banana Republic from 1991 to 1994.
Nancy Jean Kramer. Ms. Kramer has been the President and Chief Executive
Officer of Resource Marketing, Inc. since 1981. Resource Marketing, Inc. was
founded by Ms. Kramer and specializes in integrated marketing solutions for high
technology clients.
David A. Krinsky. Mr. Krinsky is a member of the firm of O'Melveny & Myers
LLP in Newport Beach, California. Before joining that firm as a partner in 1994,
he was a partner at the law firm of Pettis, Tester, Kruse & Krinsky. He
practices as a business and securities lawyer.
74
<PAGE> 80
James U. McNeal. Dr. McNeal has been Professor of Marketing at Texas A&M
University since 1967. Dr. McNeal established the Department of Marketing and
was head of this department from 1967 to 1975. Dr. McNeal is a frequent
consultant to public companies and the federal government. Since 1976, he has
been a marketing consultant specializing in marketing to children as consumers.
Kenneth James Strottman. Mr. Strottman is the founder, President and Chief
Executive Officer of Strottman International, Inc., a marketing agency
specializing in developing promotional programs targeting children and families.
Before founding his firm in 1983, Mr. Strottmann served as Vice President,
Marketing, at Mattel, Inc.
Before the spin-off, we will amend our certificate of incorporation to
provide for a classified board consisting of a total of five directors. Members
of our board will be divided into three classes and will serve staggered
three-year terms. The term of office of our first class of directors will expire
at the 2000 annual meeting of shareholders (expected to occur in the second
quarter of 2000). The term of office of our second class of directors will
expire at the 2001 annual meeting of shareholders. The term of office of our
third class of directors will expire at the 2002 annual meeting of shareholders.
Our board will have an audit committee, consisting entirely of independent
directors, which will review the results and scope of the audit and other
services provided by our independent accountants. In addition, our board will
have a compensation committee, comprised of two or more members of our board who
qualify as "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code and "non-employee directors" within the meaning of Rule
16b-3(b)(3)(i) under the Securities Exchange Act of 1934. The compensation
committee will determine the compensation, including salaries, bonuses,
restricted stock and option grants, for our executive officers.
COMPENSATION OF DIRECTORS
Directors who are not associates of Too, Inc. will receive an annual
retainer of $10,000 per year (increased by $1,500 for each committee chair
held), plus a fee of $1,000 for each board meeting attended ($400 for a
telephonic meeting). As committee members, they will also receive $600 per
committee meeting attended ($200 for a telephonic meeting). Each action in
writing that our board or any committee of our board takes entitles each
director on the board or the committee to be paid $200. Associates and officers
who are directors receive no additional compensation for services rendered as
directors. Under the Too, Inc. 1999 Non-Associate Director Stock Plan, each
director who is not an associate of Too, Inc. will:
- receive an initial grant to purchase of 5,000 shares of our common stock
- receive annual grants of options to purchase 1,000 shares of our common
stock at a price equal to the fair market value of the shares at the
grant date
- be paid 50% of the annual retainer in shares of Too, Inc.'s common stock
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
We expect to enter into an employment agreement with Mr. Rayden shortly
after the spin-off. We anticipate that Mr. Rayden's agreement will have an
initial multi-year term and will be renewable automatically for one year every
year after the initial term, unless either party gives written notice to the
contrary. We also anticipate that Mr. Rayden's agreement will provide for:
- an initial base salary comparable to his current salary
- a grant of an option to purchase shares of our common stock
- a grant of performance-based awards of restricted shares of our common
stock
- participation in our Incentive Compensation Performance Plan and our
Stock Option and Performance Incentive Plan, as determined by our board
(for a discussion of these plans, see "Executive Compensation")
75
<PAGE> 81
- additional life insurance coverage
- additional disability benefits
- severance benefits under specified circumstances
- non-solicitation and non-competition covenants
We also anticipate that after the spin-off, we will enter into employment
agreements, which could include non-compete covenants, with some of our other
named executive officers.
TRANSACTIONS WITH MANAGEMENT
During its fiscal year ended June 30, 1998, a division of Strottman
International, Inc. purchased approximately $456,000 of lifestyle products from
us in an arm's length transaction. The president and chief executive officer of
Strottman International is Kenneth James Strottman. Mr. Strottman will be
serving as one of our directors as of the date of the spin-off.
SHARES ELIGIBLE FOR FUTURE SALE
Shares of our common stock that you will receive in the spin-off will be
freely transferable, except if you can be considered an "affiliate" of us under
Rule 144 under the Securities Act of 1933. Persons who can be considered our
affiliates after the spin-off generally include individuals or entities that
directly, or indirectly through one or more intermediaries, control, are
controlled by, or are under common control with, us. Our affiliates may only
sell common stock received in the spin-off pursuant to an effective registration
statement under the Securities Act of 1933 or pursuant to an exemption from
registration under the Securities Act of 1933, such as the exemption afforded by
Rule 144.
76
<PAGE> 82
EXECUTIVE COMPENSATION
SUMMARY
The following table presents specific information regarding the
compensation that The Limited has paid for the period indicated to:
- Michael W. Rayden, our Chairperson of the Board of Directors, President
and Chief Executive Officer
- Sally A. Boyer, our Vice President -- Merchandising Operations
- Kent A. Kleeberger, our Vice President and Chief Financial Officer
- Kathleen C. Maurer, our Vice President -- Human Resources
- James C. Petty, our Vice President -- Stores
who have become our executive officers. Before the named individuals became our
executive officers, they were associates of The Limited. The named executive
officers will not continue their employment with The Limited after the spin-off.
After the spin-off, we anticipate that we will make future awards of options to
purchase our common stock and restricted shares of our common stock to a number
of our executive officers, including the named executive officers under the Too,
Inc. 1999 Stock Option and Performance Incentive Plan described below. The
Limited paid the compensation stated below to these individuals because of their
employment with The Limited.
The principal components of each named executive officer's cash
compensation from The Limited have been:
- the annual base salary
- a bonus
as shown in the "Summary Compensation Table." The bonus amounts represent
amounts that the compensation committee of The Limited's board approved for each
named individual based on the performance of The Limited and us during 1998. The
long-term compensation shown in the "Summary Compensation Table" was provided
under The Limited, Inc. 1993 Stock Option and Performance Incentive Plan (as
amended and restated from time to time, "The Limited's Stock Plan"), which
provides for various types of awards such as options to acquire common stock of
The Limited and restricted common stock of The Limited. The Limited will be
responsible for payments relating to equity-based awards relating to The
Limited's common stock that it granted before the spin-off. We will pay all of
the other compensation to be paid to our named executive officers after the
spin-off.
Immediately after the spin-off, the annual base salaries and annual bonus
opportunities of the named executive officers will be at the levels as was
determined by The Limited's compensation committee. Subsequently, the annual
base salary and the annual bonus opportunity of the named executive officers
will be determined by our compensation committee. We anticipate that the base
salary that we pay to the named executive officers and to all other executive
officers will initially be generally comparable to present levels of base salary
received from The Limited, subject to such adjustments as may be determined in
the normal course of business.
In addition, in connection with the spin-off, we anticipate that we will
adopt a number of compensation plans. Under the Too, Inc. 1999 Non-Associate
Director Stock Plan described below, on the date of initial election to our
board, we will grant each of our non-associate directors an option to purchase
5,000 shares of our common stock. On the day of each annual meeting of
shareholders beginning after the spin-off, we will also grant each of our
non-associate directors an option to purchase 1,000 shares of our common stock.
Under the Too, Inc. 1999 Incentive Compensation Performance Plan described
below, our named executive officers and other eligible associates will be
eligible to receive cash bonuses based on attainment by us of specified
performance goals.
77
<PAGE> 83
All of the named executive officers will be eligible to participate in our
Stock Option and Performance Incentive Plan and our Incentive Compensation
Performance Plan, under which we anticipate granting incentive compensation
awards after the spin-off.
We also expect that in connection with the spin-off, options related to The
Limited's common stock and restricted shares of its common stock held by
employees of The Limited and vested options on The Limited's common stock held
by Too, Inc. employees will be equitably adjusted to reflect the spin-off. These
equitable adjustments may involve:
- adjustments of the exercise price and number of shares subject to the
options, or
- conversion into options to purchase our common stock, or
- a combination of both
We further anticipate that, generally, unvested options on The Limited's
common stock and restricted shares of The Limited held by Too, Inc. employees
will be equitably converted into options and restricted shares of Too, Inc.
The following table presents specific information regarding the
compensation that The Limited has paid for the period indicated to all of the
persons listed below who have become our executive officers.
LONG-TERM INCENTIVE PLANS -- AWARDS IN FISCAL 1998
No awards were granted in respect of fiscal 1998 to the named executive
officers, other than the restricted stock performance awards granted in shares
of The Limited's common stock to our named executive officers, as disclosed in
the "Summary Compensation Table."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------------------------- ---------------------------------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING OTHER
NAME AND PRINCIPAL FISCAL YEAR BONUS COMPENSATION AWARDS OPTIONS AWARDED COMPENSATION
POSITION (1) SALARY ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
- ------------------ ----------- -------- ---------- ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael W. Rayden
Chairperson of the
Board of Directors,
President and Chief
Executive
Officer............ 1998 $669,231 $1,188,250 $12,383 $141,311 101,770 $189,819
Sally A. Boyer
Vice President --
Merchandising
Operations......... 1998 216,538 157,520 -- 122,615 5,088 43,993
Kent A. Kleeberger
Vice President and
Chief Financial
Officer............ 1998 237,308 171,840 -- 183,923 10,177 42,982
Kathleen C. Maurer
Vice President --
Human Resources.... 1998 193,846 139,620 -- 122,615 5,089 44,271
James C. Petty
Vice President --
Stores............. 1998 238,846 171,840 -- 183,923 5,089 14,940
</TABLE>
- ---------------
(1) Under rules promulgated by the SEC, since we were not a reporting company
during the three immediately preceding fiscal years, only the information
with respect to the most recent completed fiscal year is noted in the
"Summary Compensation Table."
(2) Represents for fiscal 1998 the aggregate of the performance-based incentive
compensation for the spring and fall selling seasons.
78
<PAGE> 84
(3) Represents reimbursement of taxes on term life insurance premiums paid on
behalf of Mr. Rayden.
(4) Represents for each executive officer the restricted stock awards for fiscal
1998 under The Limited's Stock Plan. The information in the table is based
on the closing price of The Limited's common stock on the date that the
awards were made.
On June 1, 1998, 4,266 restricted shares of The Limited's Common Stock were
granted to Mr. Rayden. The per share value of The Limited's common stock on
this date was $33.125. This award was granted in connection with the May 1998
split-off of Abercrombie & Fitch. The vesting of this award is the same as
the vesting of the previously granted restricted stock awards to which this
adjustment grant relates.
On February 1, 1999, 3,580, 5,370, 3,580 and 5,370 restricted shares of The
Limited's common stock were granted to Ms. Boyer, Mr. Kleeberger, Ms. Maurer
and Mr. Petty, respectively, based on business performance for fiscal 1998.
The per share value of The Limited's common stock on this date was $34.25.
These awards vest 10% on the grant date and 20%, 30% and 40% on the first
through third anniversaries of the grant date, in each case, subject to
continued employment with The Limited.
Dividends will not be paid or accrue with respect to shares of restricted
stock until such shares vest.
As of January 30, 1999, the aggregate restricted stock holdings and the value
of such holdings for each of the named executive officers were: Mr. Rayden,
245,286 shares, $8,370,385; Ms. Boyer, 9,017 shares, $307,705; Mr.
Kleeberger, 7,826 shares, $267,062; Ms. Maurer, 9,017 shares, $307,705; and
Mr. Petty,10,770 shares, $367,526 (based on the $34.125 fair market value of
a share of The Limited's common stock as of Friday, January 29, 1999).
(5) Options have been adjusted to reflect the May 1998 split-off of Abercrombie
& Fitch.
(6) Includes employer matching and supplemental contributions allocated to each
executive officer's account under qualified and non-qualified defined
contribution plans maintained by The Limited during the 1998 calendar year
in the amount of $176,294, $40,840, $41,558 and $41,118 and $11,808, for Mr.
Rayden, Ms. Boyer, Mr. Kleeberger, Ms. Maurer and Mr. Petty, respectively.
We anticipate that after the spin-off, the named executive officers will
continue to participate in similar plans that we will adopt.
Includes term life insurance premiums in the amount of $13,525 paid on behalf
of Mr. Rayden.
Includes one-time cash payments related to the May 1998 split-off of
Abercrombie & Fitch. The payments are in the amount of $3,153, $1,424, $3,153
and $3,132 to Ms. Boyer, Mr. Kleeberger, Ms. Maurer and Mr. Petty,
respectively.
79
<PAGE> 85
STOCK OPTIONS
The following table provides material information regarding options to
acquire The Limited's common stock that The Limited granted to the named
executive officers during The Limited's 1998 fiscal year.
OPTION GRANTS IN 1998 FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------------ STOCK PRICE
SECURITIES PERCENTAGE OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TO TERM(3)
OPTIONS ASSOCIATES IN EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(2) FISCAL YEAR PER SHARE($) DATE 5%($) 10%($)
- ---- ------------- ------------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rayden............ 101,770 2.41% $26.6532 02/02/08 $1,784,086 $4,447,559
Sally A. Boyer............... 5,088 0.12% 26.6532 02/02/08 89,196 222,356
Kent A. Kleeberger........... 7,633 0.18% 26.6532 02/02/08 133,811 333,578
2,544 0.06% 27.9429 03/23/08 46,756 116,558
Kathleen C. Maurer........... 5,089 0.12% 26.6532 02/02/08 89,213 222,400
James C. Petty............... 5,089 0.12% 26.6532 02/02/08 89,213 222,400
</TABLE>
- ---------------
(1) All options granted relate to shares of The Limited's common stock.
(2) On February 2, 1998, options were granted to Mr. Rayden, Ms. Boyer, Mr.
Kleeberger, Ms. Maurer and Mr. Petty pursuant to The Limited's Stock Plan.
The options granted to Mr. Rayden vest 10%, 10%, 10%, 15%, 20% and 35% on
the first through sixth anniversaries of the grant date, respectively,
subject to continued employment with The Limited. The options granted to Ms.
Boyer, Mr. Kleeberger, Ms. Maurer and Mr. Petty become exercisable in four
equal annual installments commencing on the first anniversary of the grant
date, in each case, subject to the holder's continued employment with The
Limited.
On March 23, 1998, options were granted to Mr. Kleeberger pursuant to The
Limited's Stock Plan. These options become exercisable in four equal annual
installments commencing on the first anniversary of the grant date, subject
to continued employment with The Limited.
Options have been adjusted to reflect the May 1998 split-off of Abercrombie &
Fitch.
(3) The assumed rates of growth were selected by the SEC for illustrative
purposes only and are not intended to predict or forecast future stock
prices.
The following table provides information relating to the number and value
of shares of The Limited's common stock subject to options held by the named
executive officers as of January 30, 1999.
80
<PAGE> 86
AGGREGATED OPTION EXERCISES IN 1998 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE REALIZED ---------------------------- ----------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rayden..... -- -- 36,636 382,656 $552,725 $4,968,111
Sally A. Boyer........ -- -- 13,484 12,977 226,774 175,198
Kent A. Kleeberger.... 18,000 $152,426 13,610 20,482 218,089 247,061
Kathleen C. Maurer.... -- -- 17,809 12,214 260,845 162,490
James C. Petty........ -- -- 2,544 12,722 36,194 146,620
</TABLE>
- ---------------
(1) Calculated on the basis of the number of shares exercised, multiplied by the
excess of the fair market value of a share of The Limited's common stock on
the date of exercise over the exercise price of such option.
(2) Value is calculated on the basis of the number of shares of The Limited's
common stock subject to each such option multiplied by the excess of the
$34.125 fair market value of a share of The Limited's common stock at fiscal
year-end over the exercise price of such option.
Options have been adjusted to reflect the split-off of Abercrombie & Fitch
in May 1998.
TOO, INC. 1999 INCENTIVE COMPENSATION PERFORMANCE PLAN
We anticipate that before the spin-off occurs, our board will adopt, and
The Limited, as our sole shareholder, will approve, effective on the completion
of the spin-off, the Too, Inc. 1999 Incentive Compensation Performance Plan.
This section of the information statement summarizes the material provisions of
the plan. You should also read the Incentive Compensation Performance Plan,
which we have filed as an exhibit to the Form 10 of which this information
statement forms a part.
This plan is intended to satisfy the applicable provisions of Section
162(m) of the Internal Revenue Code. Our compensation committee will select
those key executives of our company with significant operating and financial
responsibility and who are likely to be "covered employees" within the meaning
of Section 162(m) for the relevant fiscal year to be eligible to receive
seasonal or annual incentive compensation payments under the plan.
Before the beginning of each spring and fall selling season, our
compensation committee may establish our performance goals. The performance
goals that our compensation committee selects will be based on one or more of
the following:
- price of our common stock or the stock of any affiliate
- shareholder return
- return on equity
- return on investment
- sales productivity
- comparable store sales growth
- economic profit
- net income growth
- market share
81
<PAGE> 87
These factors will have a minimum performance standard below which, and a
maximum performance standard above which, no payments will be made. Our
compensation committee may base our performance goals on an analysis of
historical performance and growth expectations for the business, financial
results of other comparable businesses and progress towards achieving the
long-range strategic plan for our business. These objectives and determination
of results are based entirely on financial measures, and discretion may not be
used to modify award results. Our compensation committee may not use any
discretion to modify results except as permitted under Section 162(m) of the
Internal Revenue Code.
Annual incentive compensation targets established for eligible executives
will range from 10% to 150% of base salary. Incentive compensation targets would
equal a percentage of an eligible executive's total compensation as established
by the pay guidelines. Executives earn their target incentive compensation if
the business achieves the established performance goals. The target incentive
compensation percentage for each executive is based on the following:
- the level of the officer's position
- the functional responsibility of the officer's position
- competitive practices
in that order of priority. For the named executive officers, annual incentive
compensation targets can range from 30% to 150% of base salary. Incentive
compensation paid to executives can range from zero to double their targets,
based upon the extent to which performance goals are achieved. Except as
permitted by Section 162(m) of the Internal Revenue Code, the minimum level at
which an executive would earn any incentive payment, and the level at which an
executive would earn the maximum incentive payment of double the target, are
established by our compensation committee before the commencement of each bonus
period. Actual payouts must be based on a preestablished interpolation based on
these minimum and maximum levels and the performance goals.
The maximum dollar amount to be paid for any year under our Incentive
Compensation Performance Plan to each participant may not exceed $3,000,000.
TOO, INC. 1999 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
We anticipate that before the spin-off occurs, our board will adopt, and
The Limited, as our sole shareholder, will approve, effective on the completion
of the spin-off, the Too, Inc. 1999 Stock Option and Performance Incentive Plan.
This section of the information statement summarizes the material provisions of
the plan. You should also read our Stock Option and Performance Incentive Plan,
which we have filed as an exhibit to the Form 10 of which this information
statement forms a part.
PURPOSE OF PLAN
The purpose of our Stock Option and Performance Incentive Plan is to
attract and retain the best available executive and key management associates
for us and our subsidiaries and to encourage the highest level of performance by
those associates, thereby enhancing our value for the benefit of our
shareholders. The plan is also intended to motivate executive and key management
associates to contribute to our future growth and profitability and to reward
their performance in a manner that provides them with a means to increase their
holdings of our common stock and aligns their interests with the interests of
our shareholders.
ADMINISTRATION OF PLAN
Our Stock Option and Performance Incentive Plan will be administered by our
compensation committee. Our compensation committee will have the power, in its
discretion, to grant awards under the plan, to determine the terms of these
awards, to interpret the provisions of the plan and to take any action that it
deems necessary or advisable for the administration of the plan.
82
<PAGE> 88
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in our Stock Option and Performance Incentive
Plan is limited to our executive and key management associates and those of our
subsidiaries. Participation in the plan is at the discretion of our compensation
committee and will be based upon the associate's present and potential
contributions to our success and such other factors as our compensation
committee deems relevant. No associate may be granted in any calendar year
awards covering more than 1,100,000 shares of our common stock.
TYPE OF AWARDS UNDER OUR STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
The Stock Option and Performance Incentive Plan provides that our
compensation committee may grant awards to eligible associates in any of the
following forms, subject to such terms, conditions and provisions as our
compensation committee may determine to be necessary or desirable:
- incentive stock options
- nonstatutory stock options
- stock appreciation rights
- restricted shares of our common stock
- performance shares
- performance units
- unrestricted shares of our common stock
- tax reimbursement payments
NUMBER OF AUTHORIZED SHARES
We have authorized a maximum of shares of our common stock for
our associates and those of our subsidiaries under the Stock Option and
Performance Incentive Plan during the term of the plan. Corresponding tax
reimbursement payments also may be awarded at the discretion of our compensation
committee. Our compensation committee may adjust the number and class of shares
available under the plan and/or subject to outstanding awards to prevent
dilution or enlargement of rights in the event of various changes in our
capitalization.
TERM OF OUR STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
Unless earlier terminated by our board, our Stock Option and Performance
Incentive Plan will terminate on the tenth anniversary of the earlier of the
adoption of the plan by our board or the date of the spin-off.
AMENDMENT AND TERMINATION
Our board may suspend, terminate, modify or amend our Stock Option and
Performance Incentive Plan at any time. Any material increase in the maximum
number of shares that may be issued under the plan or any repricing of
outstanding options, other than antidilution or equitable adjustments, must be
approved by our shareholders.
TOO, INC. 1999 STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
We anticipate that, before the spin-off occurs, our board will adopt and
The Limited, as our sole shareholder, will approve, effective on the completion
of the spin-off, the Too, Inc. 1999 Stock Plan for Non-Associate Directors. This
section of the information statement summarizes the material provisions of the
plan. You should also read the Non-Associate Director Stock Plan, which we have
filed as an exhibit to the Form 10 of which this information statement forms a
part.
83
<PAGE> 89
PURPOSE OF PLAN AND ADMINISTRATION
The purpose of the Non-Associate Director Stock Plan is to promote our
interests and those of our shareholders by increasing the proprietary interest
of non-associate directors in our growth and performance.
Our board will administer the Non-Associate Director Stock Plan. Subject to
the provisions of the plan, our board will be authorized to interpret the plan,
to establish, amend and rescind any rules and regulations relating to it and to
make all other determinations necessary or advisable for its administration.
However, our board will have no discretion with respect to the selection of
directors to receive options, the number of shares of our common stock subject
to any such options, the purchase price of these options or the timing or term
of grants of options. The determinations of our board in the administration of
the plan will be final and conclusive.
ELIGIBILITY
The Non-Associate Director Stock Plan provides for awards of nonqualified
options to our directors who are not associates of us or our affiliates
("Eligible Directors").
TYPES OF AWARDS
Under the Non-Associate Director Stock Plan, on the date of initial
election to our board, each Eligible Director will be granted an option to
purchase 5,000 shares of our common stock with a fair market value exercise
price. Subsequently, on the day of each annual meeting of our shareholders
beginning after the spin-off, each Eligible Director will be granted an option
to purchase 1,000 shares of our common stock as of the day of the annual meeting
at a per share exercise price equal to the fair market value of a share of our
common stock on that date. Each option will:
- vest in annual 25% increments beginning on the first anniversary of the
grant date
- expire on the earlier of the tenth anniversary of the grant date or one
year from the date on which the optionee ceases to be an Eligible
Director
The exercise price of options must be satisfied in cash.
In addition, the Non-Associate Director Stock Plan provides that each
Eligible Director may receive 50% of his or her annual retainer in unrestricted
shares of our common stock in quarterly installments, valued as of the last
business day of each fiscal quarter beginning after the date of the spin-off.
NUMBER OF AUTHORIZED SHARES
We have authorized a maximum of 50,000 shares of our common stock to grant
options and to award shares of our common stock instead of giving an Eligible
Director 50% of his or her annual retainer under the Non-Associate Director
Stock Plan. Shares of our common stock subject to options that are forfeited,
terminated or canceled will again be available for awards. The shares of our
common stock to be delivered under the plan will be made available from the
authorized but unissued shares of our common stock or from treasury shares. The
number and class of shares available under the plan and/or subject to
outstanding options may be adjusted by our board to prevent dilution or
enlargement of rights in the event of various changes in our capitalization.
TRANSFERABILITY
The options granted under the Non-Associate Director Stock Plan may not be
assigned or transferred, except by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order.
Shares issued in payment of the annual retainer are transferable.
84
<PAGE> 90
TERM OF PLAN
Our board may not grant any shares under the Non-Associate Director Stock
Plan after the tenth annual meeting of our shareholders after the date of the
spin-off.
AMENDMENTS
Our board may amend the Non-Associate Director Stock Plan as it deems
advisable or to conform to any change in any law or regulation applicable to the
plan subject, to the extent deemed necessary or desirable to comply with
applicable law, to the approval of our shareholders.
85
<PAGE> 91
SECURITY OWNERSHIP OF THE LIMITED AND TOO, INC.
The Limited beneficially and of record holds, and will hold before the
spin-off, all of the outstanding shares of our common stock. Below, you will
find a table with information as of February 28, 1999 providing the number of
shares of The Limited's common stock beneficially owned by:
- each of our directors and nominees as directors
- each of our named executive officers
- all of our directors and named executive officers as a group
To our knowledge, other than as disclosed below, there are no persons or
entities that own more than 5% of the outstanding common stock of The Limited.
The table also provides the number of shares of our common stock, rounded
to the nearest whole share, that each such person or entity would own
immediately after the spin-off on a pro forma basis. To our knowledge, unless we
state otherwise, each person or entity has sole voting and investment power with
respect to the shares set forth opposite the person's name.
<TABLE>
<CAPTION>
THE LIMITED TOO, INC. PRO FORMA
------------------------------- ---------------------------
NUMBER OF NUMBER OF
SHARES PERCENT OF SHARES PERCENT OF
BENEFICIALLY OUTSTANDING BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED(1) SHARES OWNED SHARES
---------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
The Limited's Directors and Named Executive
Officers(2)
Leslie H. Wexner............................. 58,625,235(3)(4)(5) 25.8% 8,375,033 25.8%
Kenneth B. Gilman............................ 449,302(3)(6) * 64,186 *
Martin Trust................................. 2,505,229(3)(6) * 357,889 *
Arnold F. Kanarick........................... 166,594(3) * 23,799 *
V. Ann Hailey................................ 34,914 * 4,987 *
Eugene M. Freedman........................... 6,430 * 918 *
E. Gordon Gee................................ 3,492 * 498 *
David T. Kollat.............................. 202,492 * 28,927 *
Claudine B. Malone........................... 4,517 * 645 *
Leonard A. Schlesinger....................... 3,492 * 498 *
Donald B. Shackelford........................ 72,430(6) * 10,347 *
Allan R. Tessler............................. 22,694(6) * 3,242 *
Abigail S. Wexner............................ 1,009 * 144 *
Raymond Zimmerman............................ 8,692(7) * 1,241 *
All Directors and Named Executive Officers of
The Limited as a Group (14 persons).......... 62,106,522(3)(8) 27.2 8,872,354 27.2
Too, Inc.'s Directors and Named Executive
Officers(9)
Michael W. Rayden............................ 70,995 * 10,142 *
Kent A. Kleeberger........................... 18,890 * 2,698 *
Sally A. Boyer............................... 22,136 * 3,162 *
Kathleen C. Maurer........................... 36,934(10) * 5,276 *
James C. Petty............................... 4,816 * 688 *
Nancy Jean Kramer............................ 310 * 44 *
David A. Krinsky............................. -- -- -- --
James U. McNeal.............................. -- -- -- --
Kenneth James Strottman...................... -- -- -- --
All Directors and Officers of Too, Inc. as a
Group (9 persons)............................ 154,081 * 22,010 *
</TABLE>
- ---------------
(*) Less than 1%.
(1) Of the shares of stock shown as beneficially owned, the following shares
are not currently owned but are subject to options which were outstanding
on February 28, 1999 and were exercisable within 60 days after that: Mr.
Wexner, 437,610; Mr. Gilman, 253,981; Mr. Trust, 165,884; Mr. Kanarick,
86
<PAGE> 92
127,210; Ms. Hailey, 26,714; Mr. Freedman, 1,271; Dr. Gee, 1,272; Mr.
Kollat, 1,272; Ms. Malone, 1,272; Dr. Schlesinger, 1,272; Mr. Shackelford,
1,272; Mr. Tessler, 1,272; Ms. Wexner, 254; Mr. Zimmerman, 1,272; Mr.
Rayden, 49,866; Ms. Boyer, 19,081; Mr. Kleeberger, 17,378; Ms. Maurer,
22,516; and Mr. Petty, 3,816. The foregoing information does not reflect
any adjustments to the options to be made as a result of the spin-off.
(2) The address of each director and named executive officer of The Limited is
c/o The Limited, Inc., Three Limited Parkway, Columbus, Ohio 43230.
(3) Includes the following number of shares held as of February 28, 1999 in an
employee benefit plan under which the participant has the power to dispose
or withdraw shares: Mr. Wexner, 539,436; Mr. Gilman, 34,270; Mr. Kanarick,
422; Mr. Trust, 29,077; and all directors and named executive officers of
The Limited as a group, 603,205. Also includes the following number of
shares held as of February 28, 1999 in an employment benefit plan under
which the participant has the power to dispose or withdraw shares: Mr.
Kleeberger, 282; Ms. Maurer, 2,708; and all directors and named executive
officers of Too, Inc. as a group, 3,090.
(4) Includes 350,000 shares held by Health and Science Interests II, 883,317
shares held by the Wexner Foundation, 81,081 shares held by the Harry,
Hannah & David Wexner Trust, 5,000,000 shares held by the Harry, Hannah,
David & Sarah Wexner Trust and 18,750,000 shares held by The Wexner
Children's Trust. Mr. Wexner disclaims beneficial ownership of the shares
held by Health and Science Interests II and the Wexner Foundation. Mr.
Wexner shares investment and voting power with others with respect to
shares held by the Wexner Foundation.
(5) On June 10, 1999, The Limited announced the final results of its modified
"Dutch Auction" tender offer. The Limited accepted for purchase 15 million
shares of its outstanding common stock. After this purchase, approximately
214 million shares of The Limited's common stock were outstanding. In
addition, subsequent to the completion of the "Dutch Tender" auction,
between June 23, 1999 and August 9, 1999, related interests of Mr. Wexner
sold 11,600,000 shares of The Limited's common stock on the New York Stock
Exchange and in a private transaction. After giving effect to these
subsequent sales, as of August 9, 1999, Mr. Wexner and his related
interests owned approximately 21.9% of The Limited's outstanding common
stock, based on the approximately 214 million shares of The Limited's
common stock outstanding upon the completion of the "Dutch Tender" auction.
(6) Includes the following number of shares owned by family members, as to
which beneficial ownership is disclaimed: Mr. Gilman, 1,117; Mr.
Shackelford, 18,955; Mr. Tessler, 202; and Mr. Trust, 207,890.
(7) Includes 1,200 shares, which are Mr. Zimmerman's proportionate share of
3,600 shares owned by a corporation of which Mr. Zimmerman is president and
a 33% shareholder plus 2,000 shares held by a partnership which is 45%
owned by Mr. Zimmerman and 45% owned by his wife.
(8) Includes 1,461,481 shares, as to which beneficial ownership is disclaimed.
(9) The address of each director and named executive officer of Too, Inc. is
c/o Too, Inc., 3885 Morse Road, Columbus, Ohio 43219.
(10) Includes the following number of shares owned by family members, as to
which beneficial ownership is disclaimed: Ms. Maurer, 6,476.23.
87
<PAGE> 93
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock will consist of:
- 100 million shares of our common stock, par value $.01 per share
- 50 million shares of our preferred stock, of which no shares are
outstanding as of the date of this information statement
Below, you will find a summary of the material provisions of our certificate of
incorporation affecting the relative rights of our common and preferred stock.
You should also read our certificate of incorporation, which we have filed as an
exhibit to the Form 10 of which this information statement forms a part.
COMMON STOCK
VOTING RIGHTS
The holders of our common stock will be entitled to one vote per share on
all matters to be voted on by shareholders. Holders of our common stock will not
be entitled to cumulate their votes in the election of directors. Generally, all
matters on which shareholders will vote must be approved by a majority of the
votes entitled to be cast by all shares of common stock present in person or
represented by proxy, subject to any voting rights granted to holders of any
preferred stock. However, our certificate of incorporation includes some
supermajority requirements, including:
- a requirement that the holders of at least 75% of our outstanding common
stock must approve:
-- a merger or consolidation with persons or entities that beneficially
own at least 5% of our common stock
-- a sale of all or substantially all of our assets to those persons or
entities
-- other control transactions
unless, in each case, the proposed transaction is approved by a majority of the
directors who were in office immediately before the time when such ownership was
acquired, or by their approved successors
- a requirement that the vote of 75% of our outstanding voting shares is
required to remove a director for cause
- a requirement that only the holders of at least 75% of our outstanding
common stock may approve any amendment or repeal of our bylaws and
specified provisions of our certificate of incorporation
DIVIDENDS
We anticipate that future earnings will be used principally to support
operations and finance the growth of our business. Thus, we do not intend to pay
cash dividends on our common stock in the foreseeable future. Payment of
dividends will also be restricted by provisions in our credit facility. If our
lenders permit us to declare dividends, the dividend amounts, if any, will be
determined by our board. Our board will consider a number of factors, including
our financial condition, capital requirements, funds generated from operations,
future business prospects, applicable contractual restrictions and any other
factors our board may deem relevant.
OTHER RIGHTS
If we are liquidated, dissolved or wound up, we will pay the full amounts
required to be paid to holders of shares of any outstanding preferred stock
before we make any payments to holders of shares of our common stock. All
holders of shares of our common stock are entitled to share ratably in any
assets available for distribution to these holders, after all of our other
creditors have been satisfied.
No shares of our common stock may be redeemed. Holders of shares of our
common stock do not have any preemptive rights to purchase additional shares of
our common stock.
88
<PAGE> 94
Immediately after the spin-off, all of the outstanding shares of our common
stock will be validly issued, fully paid and nonassessable.
PREFERRED STOCK
We may issue preferred stock from time to time in one or more series and
with the terms of each series stated in our board's resolutions providing for
the designation and issue of that series. Our certificate of incorporation
authorizes our board to determine the dividend, voting, conversion, redemption
and liquidation preferences, rights, privileges and limitations pertaining to
each series of preferred stock that we issue. Without seeking any shareholder
approval, our board may issue preferred stock with voting and other rights that
could adversely affect the voting power of the holders of our common stock and
could have anti-takeover effects. Specifically, our certificate of incorporation
authorizes our board to adopt a rights plan with continuing director provisions,
which means that the rights plan may be redeemed only by:
- a majority of directors who were in office when the rights plan was
adopted
- their successors whose nomination is recommended or approved by a
majority of those directors
The ability of our board to adopt a rights plan to issue preferred stock without
shareholder approval could delay, defer or prevent a change in control of us or
the removal of existing management.
We do not have any shares of preferred stock outstanding as of the date of
this information statement.
TRANSFER AGENT
The transfer agent and registrar for our common stock is First Chicago
Trust Company of New York. The contact information for First Chicago is:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 317-4445
89
<PAGE> 95
STATUTORY, CHARTER AND BYLAW PROVISIONS
Below, you will find a summary of the provisions of our certificate of
incorporation and bylaws that may have anti-takeover effects and may delay,
defer or prevent a tender offer or takeover attempt that a shareholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by shareholders. You should
also read our certificate of incorporation and bylaws, which we have filed as
exhibits to the Form 10 of which this information statement forms a part.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation provides for our board to be divided into
three classes of directors. The term of office of the first class expires at the
2000 annual meeting, the term of office of the second class expires at the 2001
annual meeting and the term of office of the third class expires at the 2002
annual meeting. At each annual meeting held after 2002, a class of directors
will be elected to replace the class whose term has then expired. As a result,
approximately one-third of the members of our board will be elected each year
and, except as described above, each of the directors will serve a staggered
three-year term. See "Management." Moreover, our certificate of incorporation
provides that directors may be removed only for cause, upon the vote of 75% of
our outstanding voting shares, as permitted by the Delaware General Corporation
Law only in the case of a corporation having a classified board.
These provisions could prevent a shareholder (or group of shareholders)
having majority voting power from obtaining control of our board until the
second annual shareholders' meeting following the date that the shareholder, or
group of shareholders, obtains majority voting power. Thus, these provisions may
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us.
SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation provides that no action may be taken by
the shareholders except at an annual or special meeting of shareholders. As a
result, our shareholders may not take any action by written consent instead of a
meeting. Our bylaws provide that special meetings of our shareholders may only
be called by our board or the chairperson of our board, or his or her designee.
These provisions may make it more difficult for shareholders to take an action
that our board opposes.
ADVANCE NOTICE PROVISIONS
Our bylaws establish an advance written notice procedure for shareholders
seeking:
- to nominate candidates for election as directors at any annual meeting of
shareholders
- to bring business before an annual meeting of our shareholders
Our bylaws provide that only persons who are nominated by our board, or by
a shareholder who has given timely written notice to our secretary before the
meeting to elect directors, will be eligible for election as our directors. Our
bylaws also provide that the business to be conducted at any meeting of
shareholders must be brought either by our board or by a shareholder in
compliance with the written notice procedures. In the case of an annual meeting
of shareholders, a shareholder must give timely written notice to our secretary
of its intention to bring business before the meeting, which is then considered
by our board.
Under our bylaws, for any shareholder notice to be timely, we must receive
the notice between 120 days to 150 days before the first anniversary of our last
proxy statement. Under our bylaws, a shareholder's notice must also contain the
information specified in the bylaws. These provisions may preclude or deter some
shareholders from bringing matters before a shareholders' meeting or from making
nominations for directors at an annual meeting.
PREFERRED STOCK
Under our certificate of incorporation, our board will have the authority,
without further shareholder approval:
- to create one or more series of preferred stock
90
<PAGE> 96
- to issue shares of preferred stock in a series up to the maximum number
of shares of preferred stock authorized
- to determine the preferences, rights, privileges, qualifications,
limitations and restrictions of any series, including the dividend
rights, voting rights, conversion privileges, rights and terms of
redemption, liquidation preferences, the number of shares constituting
any series and the designation of any series
With this authority, our board could create and issue a series of preferred
stock with such rights, privileges or restrictions as it may decide upon and
could adopt a rights plan. Our board is also authorized to adopt a rights plan
that may be redeemed only by a majority of the directors who were in office when
the plan was adopted (or by their successors whose nomination is recommended or
approved by a majority of those directors). These actions could have the effect
of discriminating against an existing or prospective shareholder who
beneficially owns, or tenders for, a substantial amount of shares of our
outstanding common stock. One possible effect of authorized, but unissued and
unreserved, shares of capital stock could be to ensure the continuity of
management by rendering it more difficult for a potential acquiror to obtain
control of us. If we issue shares of our capital stock, we may be able to delay
or prevent a change in control of us without any further action by our
shareholders.
AMENDMENT OF CHARTER AND BYLAW PROVISIONS
Our certificate of incorporation provides that our board may adopt, repeal,
alter, amend or rescind any provision of our bylaws. Our certificate of
incorporation also provides that only the holders of at least 75% of the total
number of votes entitled to vote generally in the election of directors may
adopt, repeal, alter, amend or rescind bylaw provisions.
The affirmative vote of holders of at least 75% of the total number of
votes entitled to vote generally in the election of directors is also required
for any amendment, modification or repeal of the provisions of our certificate
of incorporation or bylaws relating to:
- the amendment of our certificate of incorporation
- classified board provisions
- the prohibition on action by written consent
- the limitation of liability
- the election and removal of directors
- a vote required to effect specified business combinations
- the authorization of a rights plan that may be redeemed only by a
majority of the directors who were in office when the plan was adopted or
by their approved successors
- the right to call special meetings
- indemnification of officers and directors
In all other cases, our charter may be amended by the affirmative vote of 50% of
the number of votes entitled to vote generally in the election of directors.
DELAWARE GENERAL CORPORATION LAW
Because we are a Delaware corporation, Section 203 of the Delaware General
Corporation Law applies to us. Section 203 provides that, except for
transactions specified in Section 203, a corporation will not engage in any
"business combination" with any "interested shareholder" for a three-year period
after the date that the shareholder became an interested shareholder unless:
- before the date that the shareholder became an interested shareholder,
the board approved either the business combination or the transaction
which resulted in the shareholder becoming an interested shareholder
- upon completion of the transaction which resulted in the shareholder
becoming an interested shareholder, the interested shareholder owned at
least 85% of the voting stock of the corporation
91
<PAGE> 97
outstanding at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding, shares owned by:
-- persons who are both directors and officers
-- employee stock plans in some circumstances
- on or after the date that the shareholder became an interested
shareholder, the business combination is approved by the board of the
corporation and authorized at an annual or special meeting of
shareholders by the affirmative vote of at least 66% of the outstanding
voting stock which is not owned by the interested shareholder
A "business combination" includes a merger, consolidation, asset sale or
other transaction resulting in a financial benefit to an interested shareholder.
An "interested shareholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
outstanding voting stock.
Section 203 makes it more difficult under some circumstances for an
interested shareholder to effect a business combination with us for a three-year
period, although our shareholders may elect to exclude us from the restrictions
imposed under Section 203.
The restrictions imposed by Section 203 will not apply to a corporation in
some circumstances, including if:
- the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203
- twelve months have passed after the corporation, by action of its
shareholders holding a majority of the shares entitled to vote, amends
its certificate of incorporation expressly electing not to be governed by
Section 203
We have not elected to opt out of Section 203. Thus, the restrictions imposed by
Section 203 will apply to us.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, our certificate of incorporation and our
bylaws contain provisions relating to the limitation of liability and
indemnification of our directors and officers. We describe these provisions
below.
Our certificate of incorporation provides that our directors are not
personally liable to us or our shareholders for monetary damages for breach of
their fiduciary duties as directors to the fullest extent permitted by Delaware
law. Existing Delaware law permits the elimination or limitation of directors'
personal liability to us or our shareholders for monetary damages for breach of
their fiduciary duties as directors, except liability for:
- any breach of a director's duty of loyalty to us or our shareholders
- acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law
- any transaction from which a director derived improper personal benefit
- the unlawful payment of dividends
- unlawful stock repurchases or redemptions
Because of these exculpation provisions, shareholders may be unable to
recover monetary damages against directors for actions taken by them that
constitute negligence or that otherwise violate their fiduciary duties as
directors, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. If equitable remedies are not available to
shareholders, shareholders may not have an effective remedy against a director
in connection with the director's conduct.
92
<PAGE> 98
Our bylaws also provide that we will indemnify and hold harmless any person
who was or is a party or is threatened to be made a party to, or is involved in,
any threatened, pending or completed civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that the person:
- is or was one of our directors or officers
- is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body
to the fullest extent permitted by Delaware law. We will also pay the expenses
incurred in connection with any such proceeding in advance of its final
disposition to the fullest extent authorized by Delaware law. This right to
indemnification will be a contract right. We may, by action of our board,
provide indemnification to our employees and agents to the extent and to the
effect that our board determines to be appropriate and authorized by Delaware
law.
We intend to purchase and maintain insurance on behalf of any person who:
- is or was one of our directors, officers, employees or agents
- is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise
against any liability asserted against and incurred by the person in any such
capacity, or arising out of the person's status as such, whether or not we would
have the power or obligation to indemnify the person against such liability
under our bylaws.
INDEPENDENT ACCOUNTANTS
The Limited has appointed PricewaterhouseCoopers LLP as our independent
accountants to audit our historical consolidated financial statements included
in this information statement for fiscal years 1998, 1997 and 1996.
PricewaterhouseCoopers LLP has served as The Limited's independent accountants
throughout the periods covered by the consolidated financial statements included
in this information statement.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC the Form 10 with respect to the shares of our
common stock that The Limited's shareholders will receive in the spin-off. This
information statement does not contain all of the information contained in the
Form 10 and the exhibits and schedules to the Form 10. Some items are omitted in
accordance with the rules and regulations of the SEC. For additional information
relating to us and the spin-off, reference is made to the Form 10 and the
exhibits to the Form 10, which are on file at the offices of the SEC. Statements
contained in this information statement as to the contents of any contract or
other document referred to are not necessarily complete and in each instance, if
the contract or document is filed as an exhibit, reference is made to the copy
of the contract or other document filed as an exhibit to the Form 10. Each
statement is qualified in all respects by the relevant reference.
You may inspect and copy the Form 10 and the exhibits to the Form 10 that
we have filed with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, DC 20549, as well as at the Regional Offices of the
SEC at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Please call the SEC at 1-800-SEC-0330 for further information on the Public
Reference Room. In addition, the SEC maintains an Internet site at
http://www.sec.gov, from which you can electronically access the Form 10,
including the exhibits and schedules to the Form 10.
Because of the spin-off, we will be required to comply with the full
informational requirements of the Securities Exchange Act of 1934. We will
fulfill our obligations with respect to these requirements by filing periodic
reports and other information with the SEC.
93
<PAGE> 99
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF LIMITED TOO, INC.
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Limited Too, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and cash flows present fairly, in
all material respects, the consolidated financial position of Limited Too, Inc.
and its subsidiaries at January 30, 1999 and January 31, 1998, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 30, 1999 in conformity with
generally accepted accounting principles. 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 of these consolidated statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
April 22, 1999
F-2
<PAGE> 101
LIMITED TOO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
---------------------------------------------- --------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, MAY 1, MAY 2,
1999 1998 1997 1999 1998
----------- ----------- ---------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $376,943 $322,150 $258,818 $95,048 $82,257
Costs of goods sold, occupancy
and buying costs........... 251,729 226,903 197,974 63,324 57,369
-------- -------- -------- ------- -------
Gross income.................... 125,214 95,247 60,844 31,724 24,888
General, administrative and
store operating expenses... 96,758 82,950 69,698 30,412 24,599
-------- -------- -------- ------- -------
Operating income (loss)......... 28,456 12,297 (8,854) 1,312 289
-------- -------- -------- ------- -------
Provision for (benefit from)
income taxes.................. 11,400 4,900 (3,500) 500 100
-------- -------- -------- ------- -------
Net income (loss)............... $ 17,056 $ 7,397 $ (5,354) $ 812 $ 189
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 102
LIMITED TOO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN
-------------------------- WEEKS
JANUARY 30, JANUARY 31, ENDED
1999 1998 MAY 1, 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ 987 $ 1,649 $ 558
Receivables............................................ 1,440 1,090 1,750
Inventories............................................ 27,565 18,661 23,584
Store supplies......................................... 5,237 3,701 5,433
Deferred income taxes.................................. 2,951 776 2,951
Other.................................................. 582 183 404
------- ------- -------
Total current assets..................................... 38,762 26,060 34,680
Property, plant and equipment, net....................... 44,894 42,871 48,945
Deferred income taxes.................................... 6,313 4,043 6,313
------- ------- -------
Total assets............................................. $89,969 $72,974 $89,938
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 3,108 $ 2,454 $ 4,382
Accrued expenses....................................... 22,377 21,391 24,206
Income taxes payable................................... 11,883 10,352 383
------- ------- -------
Total current liabilities................................ 37,368 34,197 28,971
Other long-term liabilities.............................. 1,501 1,004 1,731
Commitments and contingencies
Net investment by The Limited............................ 51,100 37,773 59,236
------- ------- -------
Total liabilities and shareholder's equity............... $89,969 $72,974 $89,938
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 103
LIMITED TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
--------------------------------------- ---------------------
JANUARY 30, JANUARY 31, FEBRUARY 1, MAY 1, MAY 2,
1999 1998 1997 1999 1998
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................... $ 17,056 $ 7,397 $(5,354) $ 812 $ 189
IMPACT OF OTHER OPERATING ACTIVITIES ON
CASH FLOWS
Depreciation and amortization........ 10,563 10,626 9,959 3,216 2,589
CHANGE IN ASSETS AND LIABILITIES
Inventories....................... (8,904) 1,776 (4,391) 3,981 1,494
Accounts payable and accrued
expenses........................ 1,640 235 8,441 3,103 4,125
Income taxes...................... (2,914) 9,448 4,468 (11,500) (10,394)
Other assets and liabilities...... (80) 812 641 (98) 273
-------- -------- ------- -------- --------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.............. 17,361 30,294 13,764 (486) (1,724)
-------- -------- ------- -------- --------
INVESTING ACTIVITIES
Capital expenditures................. (14,294) (4,780) (8,504) (7,267) (1,005)
-------- -------- ------- -------- --------
CASH USED FOR INVESTING
ACTIVITIES...................... (14,294) (4,780) (8,504) (7,267) (1,005)
FINANCING ACTIVITIES
Increase (decrease) in net investment
by The Limited.................... (3,729) (24,024) (5,213) 7,324 3,919
-------- -------- ------- -------- --------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES............ (3,729) (24,024) (5,213) 7,324 3,919
NET INCREASE (DECREASE) IN CASH........ (662) 1,490 47 (429) 1,190
Cash, beginning of period............ 1,649 159 112 987 1,649
-------- -------- ------- -------- --------
Cash, end of period.................. $ 987 $ 1,649 $ 159 $ 558 $ 2,839
======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 104
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements include the accounts of Limited Too,
Inc. and its subsidiaries ("Limited Too" or the "Company") and reflect the
Company's assets, liabilities, results of operations and cash flows on a
historical cost basis. The Company was established in 1987 and is a wholly-owned
subsidiary of The Limited, Inc.
The accompanying interim consolidated financial statements as of and for
the thirteen week periods ended May 1, 1999 and May 2, 1998 are unaudited and
are presented to comply with the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying interim
consolidated financial statements reflect all adjustments (which are of a normal
recurring nature) necessary to present fairly the financial position and results
of operations and cash flows for the interim period, but are not necessarily
indicative of the results of operations for a full fiscal year.
Limited Too is a specialty retailer that sells apparel, underwear,
sleepwear, swimwear, lifestyle and personal care products for girls aged seven
to fourteen years and has stores in over 40 states. The Company has one
reportable segment which includes all of its products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Limited Too
and all significant subsidiaries which are more than 50% owned and controlled.
All significant intercompany balances and transactions have been eliminated in
consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are designated in the financial statements and notes by the
calendar year in which the fiscal year commences. The results for the first
quarter of 1999 and 1998 represent the thirteen week periods ended May 1, 1999
and May 2, 1998. The results for fiscal years 1998, 1997 and 1996 represent the
52-week periods ended January 30, 1999, January 31, 1998 and February 1, 1997.
INVENTORIES
Inventories are principally valued at the lower of average cost or market,
on a first-in first-out basis, utilizing the retail method.
STORE SUPPLIES
The initial inventory of supplies for new stores including, but not limited
to, hangers, signage, security tags, packaging and point-of-sale supplies is
capitalized at the store opening date. In lieu of amortizing the initial
balance, subsequent shipments are expensed, except for new merchandise
presentation programs, which are capitalized. Store supplies are periodically
inventoried and adjusted as appropriate for changes in supply levels or costs.
ADVERTISING
Advertising costs consist of in-store photographs and promotions in
selected national publications and are expensed at the time the promotion first
appears in media or in the store. Advertising costs amounted to $227,000 and
$199,000 in the first quarters of 1999 and 1998, and $567,000, $755,000 and
$615,000 for the fiscal years 1998, 1997 and 1996.
F-6
<PAGE> 105
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 7 to 10 years for building improvements and 3 to 10
years for other property and equipment. The cost of assets sold or retired and
the related accumulated depreciation or amortization are removed from the
accounts, with any resulting gain or loss included in net income. Maintenance
and repairs are charged to expense as incurred. Major renewals and betterments
that extend service lives are capitalized. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that full
recoverability is questionable. The store assets are reviewed by district, in
accordance with the method by which management reviews store performance.
Factors used in the valuation include, but are not limited to, management's
plans for future operations, recent operating results and projected cash flows.
No impairment charges have been taken based on management's review.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method. Under this method, deferred tax
assets and liabilities are recognized based on the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect in the years in which those temporary
differences are expected to reverse. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company is included in The Limited's consolidated federal and certain
state income tax groups for income tax reporting purposes and is responsible for
its proportionate share of income taxes calculated upon its federal taxable
income at a current estimate of the annual effective tax rate.
REVENUE RECOGNITION
Sales are recorded when the customer takes possession of
merchandise -- that is, the point of sale. Markdowns associated with the
Frequent Buyer and "Too Bucks" Programs are recognized upon redemption in
conjunction with a qualifying purchase.
STORE PRE-OPENING EXPENSES
Pre-opening expenses related to new store openings are charged to
operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded values of financial instruments, including cash, accounts
receivable and accounts payable, approximate fair value due to their short
maturity.
EARNINGS PER SHARE
Historical earnings per share data is omitted from the consolidated
statements of operations as it is not meaningful.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the
F-7
<PAGE> 106
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting period. Since actual results may differ from those estimates, the
Company revises its estimates and assumptions as new information becomes
available.
ADOPTION OF NEW ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP requires that certain external costs and internal payroll
and payroll related costs be capitalized during the application development and
implementation stages of a software development project and amortized over the
software's useful life. The SOP was effective in the first quarter of 1999 and
its adoption did not have a material adverse effect on the Company's results of
operations.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
was issued in April 1998. The SOP requires that entities expense start-up costs
and organization costs as they are incurred. The SOP was effective in the first
quarter of 1999 and its adoption did not have a material adverse effect on the
Company's results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (in thousands):
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, MAY 1,
1999 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and equipment................ $69,523 $62,581 $74,058
Leaseholds and improvements...................... 28,950 28,186 31,929
------- ------- -------
Total............................................ 98,473 90,767 105,987
Less: accumulated depreciation and
amortization................................... 53,579 47,896 57,042
------- ------- -------
Property and equipment, net...................... $44,894 $42,871 $48,945
======= ======= =======
</TABLE>
4. LEASED FACILITIES AND COMMITMENTS
Annual store rent is comprised of a fixed minimum amount, plus contingent
rent based on a percentage of sales exceeding a stipulated amount. Store lease
terms generally require additional payments covering taxes, common area costs
and certain other expenses.
A summary of rent expense for the thirteen weeks ended May 1, 1999 and May
2, 1998 and the years 1998, 1997 and 1996 follows (in thousands):
<TABLE>
<CAPTION>
YEAR THIRTEEN THIRTEEN
--------------------------- WEEKS ENDED WEEKS ENDED
1998 1997 1996 MAY 1, 1999 MAY 2, 1998
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fixed minimum...................... $28,916 $28,198 $27,400 $7,509 $7,149
Contingent......................... 375 296 435 51 86
------- ------- ------- ------ ------
Total store rent................... 29,291 28,494 27,835 7,560 7,235
Equipment and other................ 880 879 925 293 203
------- ------- ------- ------ ------
Total rent expense................. $30,171 $29,373 $28,760 $7,853 $7,438
======= ======= ======= ====== ======
</TABLE>
Rent expense includes charges from The Limited and its subsidiaries for
store, office and warehouse space. Limited Too is committed to noncancellable
leases with remaining terms of one to fourteen years.
F-8
<PAGE> 107
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These commitments primarily include store leases with an initial term of ten to
fifteen years. Certain store leases have been guaranteed by The Limited. A
summary of minimum rent commitments under noncancellable leases as of January
30, 1999 follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $29,247
2000........................................................ 28,909
2001........................................................ 28,457
2002........................................................ 27,479
2003........................................................ 26,578
Thereafter.................................................. 69,585
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consisted of (in thousands):
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, MAY 1,
1999 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation, payroll taxes and benefits......... $ 5,907 $ 6,133 $ 6,373
Rent............................................. 7,187 5,922 7,469
Taxes, other than income......................... 2,252 1,310 2,346
Other............................................ 7,031 8,026 8,018
------- ------- -------
Total............................................ $22,377 $21,391 $24,206
======= ======= =======
</TABLE>
6. INCOME TAXES
Limited Too consolidated financial statements reflect a charge (benefit)
for federal and state income taxes as if Limited Too had been subject to tax on
a separate company basis during the periods presented.
This provision for (benefit from) income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
YEAR THIRTEEN WEEKS ENDED
---------------------------- --------------------------
1998 1997 1996 MAY 1, 1999 MAY 2, 1998
------- ------ ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable
Current:
Federal.................. $12,326 $7,804 $(3,045) $441 $ 87
State.................... 2,832 1,790 (762) 59 13
------- ------ ------- ---- ----
15,158 9,594 (3,807) 500 100
Deferred:
Federal.................. (2,893) (3,800) 230 -- --
State.................... (865) (894) 77 -- --
------- ------ ------- ---- ----
(3,758) (4,694) 307 -- --
------- ------ ------- ---- ----
Total provision (benefit)..... $11,400 $4,900 $(3,500) $500 $100
======= ====== ======= ==== ====
</TABLE>
F-9
<PAGE> 108
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the statutory federal income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
YEAR THIRTEEN WEEKS ENDED
-------------------- --------------------------
1998 1997 1996 MAY 1, 1999 MAY 2, 1998
---- ---- ---- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax rate............... 35.0% 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax effect................... 4.5 4.5 4.5 4.5 3.5
Other items, net...................... 0.5 0.3 -- (1.4) (3.9)
---- ---- ---- ---- ----
Total................................. 40.0% 39.8% 39.5% 38.1% 34.6%
==== ==== ==== ==== ====
</TABLE>
Income tax obligations (benefits) are treated as having been settled
through the net investment by The Limited account as if the Company were filing
its income tax returns on a separate company basis. Such amounts were
approximately $12,000 and $10,500 for the thirteen weeks ended May 1, 1999 and
May 2, 1998 and $14,300, $(4,500) and $(8,000) for the years 1998, 1997 and
1996.
The effect of temporary differences which give rise to deferred income tax
balances was as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
ASSETS ASSETS
----------- -----------
<S> <C> <C>
Tax under book depreciation................................. $3,204 $1,865
Rent........................................................ 2,476 1,737
Inventory................................................... 881 160
Other....................................................... 2,732 1,081
------ ------
Total deferred income taxes................................. $9,293 $4,843
====== ======
</TABLE>
No valuation allowance has been provided for deferred tax assets because
management believes that it is more likely than not that the full amount of the
net deferred tax assets will be realized in the future.
7. RELATED PARTY AND EQUITY TRANSACTIONS
Transactions between Limited Too and The Limited and its wholly owned
subsidiaries have primarily consisted of the following:
Merchandise purchases
Capital expenditures
Inbound and outbound shipping
Store leasing, construction and management
Distribution center, MIS and home office expenses
Corporate services and centrally managed benefits
Information with regard to these transactions is as follows:
Significant purchases are made from Mast, a wholly-owned subsidiary of The
Limited. Purchases are also made from Gryphon, an indirect subsidiary of The
Limited. Mast is a contract manufacturer and apparel importer while Gryphon is a
developer of fragrance and personal care products and also a contract
manufacturer. Prices are negotiated on a competitive basis by merchants of
Limited Too with Mast, Gryphon and manufacturers.
Limited Too's inbound and outbound transportation expenses are managed
centrally by Limited Distribution Services, a wholly owned subsidiary of The
Limited. Inbound freight is charged to Limited Too
F-10
<PAGE> 109
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on actual receipts and related charges, while outbound freight is charged
based on a percentage of cartons shipped.
Limited Too's real estate operations, including all aspects of lease
negotiations and ongoing dealings with landlords and developers, are handled
centrally by the real estate division of The Limited ("Real Estate Division").
Real Estate Division expenses are allocated to Limited Too based on a
combination of Limited Too's pro rata share of new and remodeled store
construction projects and open selling square feet. Additionally, Limited Too is
charged rent expense, common area maintenance charges and utilities for stores
shared with other consolidated subsidiaries of The Limited. The charges are
based on square footage and represent the proportionate share of the underlying
leases with third parties.
Limited Too is charged for usage of certain of The Limited's MIS
facilities. Limited Too is also charged rent expense and utilities for certain
distribution and home office space occupied.
Limited Too's store design and construction operations are coordinated
centrally by the store planning division of The Limited ("Store Planning
Division"). The Store Planning Division facilitates the design and construction
of the stores and upon completion transfers the stores to Limited Too at actual
cost net of construction allowances, if any. Store Planning Division expenses
are charged to Limited Too based on a combination of Limited Too's pro rata
share of new and remodeled store construction projects and open selling square
feet.
The Limited provides certain services to Limited Too including, among other
things, certain tax, treasury, legal, corporate secretary, accounting, auditing,
corporate development, risk management, associate benefit plan administration,
human resource and compensation, government affairs and public relations
services. Identifiable costs are charged directly to Limited Too. All other
services-related costs not specifically attributable to an operating business
have been allocated to Limited Too based upon a percentage of sales.
Limited Too has participated in The Limited's centralized cash management
system. Under this system, cash received from Limited Too operations was
transferred to The Limited's centralized cash accounts and cash disbursements
were funded from the centralized cash accounts on a daily basis. No interest has
been charged or earned on the cash management account.
Management believes the charges and allocations described above are fair
and reasonable. However, these charges and allocations are not necessarily
indicative of the amounts that would have been or that will be recorded by
Limited Too on a stand-alone basis.
The following table summarizes the related party transactions between
Limited Too and The Limited and its other wholly owned subsidiaries, for the
periods indicated (in thousands):
<TABLE>
<CAPTION>
YEAR
------------------------------ THIRTEEN WEEKS
1998 1997 1996 ENDED MAY 1, 1999
-------- ------- ------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Merchandise purchases............... $ 58,456 $42,255 $39,171 $ 3,737
Capital expenditures................ 11,818 2,359 7,964 5,890
Inbound and outbound shipping....... 6,023 5,702 4,290 1,110
Store leasing, construction and
management........................ 50,044 23,044 21,856 13,985
Distribution center, MIS and home
office expenses................... 9,140 6,675 5,948 2,656
Corporate services and centrally
managed benefits.................. 13,920 9,153 8,792 4,904
-------- ------- ------- -------
$149,401 $89,188 $88,021 $32,282
======== ======= ======= =======
</TABLE>
F-11
<PAGE> 110
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the activity in the net investment by The
Limited account (in thousands):
<TABLE>
<CAPTION>
YEAR
---------------------------------- THIRTEEN WEEKS
1998 1997 1996 ENDED MAY 1, 1999
--------- --------- -------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance................ $ 37,773 $ 54,400 $ 64,967 $ 51,100
Transactions with related
parties........................ 149,401 89,188 88,021 32,282
Centralized cash management...... (167,444) (108,664) (85,266) (36,958)
Settlement of income taxes....... 14,314 (4,548) (7,968) 12,000
Net income (loss)................ 17,056 7,397 (5,354) 812
--------- --------- -------- --------
Ending balance................... $ 51,100 $ 37,773 $ 54,400 $ 59,236
========= ========= ======== ========
</TABLE>
The Company has no arrangements with The Limited which result in the
Company's guarantee, pledge of assets or stock to provide security for The
Limited's debt obligations.
8. RETIREMENT BENEFITS
The Company participates in a qualified defined contribution retirement
plan and a nonqualified supplemental retirement plan sponsored by The Limited.
Participation in the qualified plan is available to all associates who have
completed 1,000 or more hours of service with the Company during certain
12-month periods and attained the age of 21. Participation in the nonqualified
plan is subject to service and compensation requirements. The Company's
contributions to these plans are based on a percentage of the associates'
eligible annual compensation. The cost of these plans was $1.2 million, $1.9
million and $1.6 million in years 1998, 1997 and 1996.
9. EMPLOYEE BENEFITS
Officers and key employees were granted options to participate in The
Limited stock option and restricted stock plans. The market value of The
Limited's restricted stock granted to the Company's employees is being amortized
ratably as compensation expense over the vesting period. Compensation expense
for The Limited's restricted stock granted to the Company's employees amounted
to $1.2 million and $1.0 million in 1998 and 1997.
Limited Too adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," effective with the 1996 financial
statements, but elected to continue to measure compensation expense in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense for The Limited stock options has been
recognized. If compensation had been determined based on the estimated fair
value of The Limited options granted since 1995, consistent with the methodology
in SFAS No. 123, the pro forma effects on net income would have been a reduction
of approximately $375,000 in 1998, $225,000 in 1997 and $45,000 in 1996.
The weighted average per share fair value of The Limited options granted
($6.61, $5.22 and $4.83 during 1998, 1997 and 1996) was used to calculate the
pro forma compensation expense. The fair value was estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1998, 1997 and 1996: dividend yields of 2.2%, 3.1% and 2.8%;
volatility of 29%, 27% and 31%; risk-free interest rates of 5%, 6% and 5.25%;
assumed forfeiture rates of 20%, 15% and 20% and expected lives of 6.0 years,
7.0 years and 5.0 years. The pro forma effect on net income for 1997 and 1996 is
not representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made before 1995.
F-12
<PAGE> 111
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about The Limited stock options held by the Company's employees
and related activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$15-$19................... 435,000 7.5 $19 88,000 $18
$20-$24................... 37,000 6.0 21 24,000 21
$25-$29................... 191,000 8.3 27 10,000 27
$30-$34................... 12,000 8.9 33 -- --
------- --- --- ------- ---
$15-$34................... 675,000 7.7 $21 122,000 $19
======= === === ======= ===
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION NUMBER OPTION NUMBER OPTION
NUMBER OF PRICE PER OF PRICE PER OF PRICE PER
STOCK OPTION ACTIVITY SHARES SHARE SHARES SHARE SHARES SHARE
- --------------------- --------- ---------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 534,000 $19 180,000 $19 176,000 $19
Granted.................. 191,000 27 378,000 19 49,000 16
Exercised................ (47,000) 19 (23,000) 19 (7,000) 17
Canceled................. (3,000) 17 (1,000) 17 (38,000) 19
------- --- ------- --- ------- ---
Outstanding at end of
year................... 675,000 $21 534,000 $19 180,000 $19
======= === ======= === ======= ===
Options exercisable at
end of year............ 122,000 $19 97,000 $20 84,000 $20
======= === ======= === ======= ===
</TABLE>
The pro forma amounts above are not necessarily representative of the
effects of stock-based awards on future pro forma net earnings, because (1)
future grants of employee stock options by the Company may not be comparable to
awards made to employees while the Company was a part of The Limited and (2) the
assumptions used to compute the fair value of any future stock option awards
will be specific to the Company and therefore may not be comparable to the
assumptions used.
In connection with the spin-off, unvested grants of The Limited stock
options and restricted stock held by Company employees will be replaced with
awards of the Company's stock options and restricted stock (collectively, the
"awards"). The awards will have the same ratio of the exercise price per option
to the market value per share and the same vesting provisions, option periods
and other terms as The Limited's awards that they replace. The aggregate
difference between market value and the exercise price of the awards will not
exceed the aggregate difference between market value and the exercise price of
The Limited's awards. The Limited stock options that have vested and are held by
Company employees will expire 90 days after the date of the spin-off. Additional
options on the Company's common stock to be granted on the date of the spin-off
to employees and independent directors will have an exercise price equal to the
market value of the Company's common stock on the date of the spin-off. In
addition, some Company restricted stock awards to be granted in connection with
the spin-off may contain performance requirements.
F-13
<PAGE> 112
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LEGAL MATTERS
There are various claims, lawsuits and pending actions against Limited Too
incident to the operations of its business. It is the opinion of management that
the ultimate resolution of these matters will not have a material effect on
Limited Too's results of operations, cash flows or financial position.
11. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- --------
<S> <C> <C> <C> <C>
1998 QUARTER
Net sales.......................................... $82,257 $74,746 $96,720 $123,220
Gross income....................................... 24,888 24,016 29,870 46,440
Net income......................................... 189 240 4,248 12,379
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- --------
<S> <C> <C> <C> <C>
1997 QUARTER
Net sales.......................................... $65,646 $61,263 $86,430 $108,811
Gross income....................................... 15,590 15,170 23,988 40,499
Net income (loss).................................. (1,686) (1,619) 2,018 8,684
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
On May 3, 1999, the Company announced its plans to establish its Limited
Too business as a fully independent public company under the name Too, Inc. The
business will be separated via a 100% spin-off which is expected to occur on
August 23, 1999.
Based on the number of shares of The Limited's common stock outstanding as
of June 7, 1999, The Limited estimates that approximately 30 million shares of
common stock in Too, Inc. will be distributed to The Limited's shareholders. The
Limited intends to distribute one share of Too, Inc. common stock for every
seven shares of The Limited's common stock held at the close of business on
August 11, 1999, the record date for the spin-off.
CREDIT FACILITY
The Company has a collateralized $100 million credit facility against which
$64 million has been drawn to pay a $50 million dividend to The Limited, to
repay a portion of the working capital advances made by The Limited to us in
1999 before the spin-off and to pay fees and expenses in connection with the
closing of the credit facility.
The credit facility:
- consists of a $50 million amortizing term loan which will begin
amortizing at the end of the third year and a $50 million five-year
revolving credit facility
- contains customary representations and warranties and affirmative,
negative and financial covenants
- has interest rates that are based on the London Interbank Offered Rate
plus a spread or the administrative agent bank's base rate plus a spread
- is guaranteed by the Company's present and future domestic subsidiaries
F-14
<PAGE> 113
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PLANS
Before the spin-off, the Company's board of directors will adopt, and The
Limited, as the sole shareholder of the Company, will approve, effective on the
completion of the spin-off:
- the Too, Inc. 1999 Incentive Compensation Performance Plan (the
"Incentive Compensation Performance Plan")
- the Too, Inc. 1999 Stock Option and Performance Incentive Plan (the
"Stock Option and Performance Incentive Plan")
- the Too, Inc. 1999 Stock Plan for Non-Associate Directors (the
"Non-Associate Director Stock Plan")
The Incentive Compensation Performance Plan is intended to satisfy the
applicable provisions of Section 162(m) of the Internal Revenue Code. Awards
will be based on the satisfaction of performance goals, and annual incentive
compensation targets established for eligible executives will range from 10% to
150% of base salary.
Under the Stock Option and Performance Incentive Plan and the Non-Associate
Director Stock Plan, eligible directors and executive and key management
associates may be granted stock options and other incentive awards to purchase
shares of the Company's common stock. Each option will vest over four to six
years and will have a maximum term of ten years from the grant date.
DISTRIBUTION AGREEMENT AND OTHER AGREEMENTS
In connection with the spin-off, the Company, The Limited and/or their
respective subsidiaries will enter into a distribution agreement and various
transitional services and separation agreements, including a store leases
agreement, trademark and service mark licensing agreement, a services agreement,
a tax separation agreement and an amendment to an existing building lease
agreement.
Excluding the store leases agreement, amounts to be charged under the new
transitional services and separation agreements are not expected to be
materially different than amounts charged by The Limited prior to the date of
the spin-off. Since amounts to be charged under the stores leases agreement will
be contingently payable based upon positive comparable store sales performance,
it is anticipated that any amounts due will not have a material adverse impact
on liquidity, financial condition or results of operations.
F-15
<PAGE> 114
Too, Inc. Logo
If you have any questions relating to the spin-off, you should contact
EquiServe, First Chicago Division, which is serving as the distribution agent
for the spin-off. The contact information for EquiServe is:
EquiServe
First Chicago Division
525 Washington Boulevard
Suite 4690
Jersey City, NJ 07310
(800) 317-4445
You can also contact The Limited with any questions. The Limited's contact
information is:
The Limited, Inc.
Three Limited Parkway
P.O. Box 16000
Columbus, OH 43216
(614) 415-7076
Attention: Thomas J. Katzenmeyer, Vice President of Investor Relations
After the spin-off, if you are a shareholder of Too, Inc. and have
questions relating to the spin-off, you can contact us directly. Our contact
information is:
Too, Inc.
3885 Morse Road
Columbus, OH 43219
(614) 479-3610
Attention: Kent A. Kleeberger, Vice President and Chief Financial Officer
No action is necessary to receive the shares of our common stock to which
you are entitled in the spin-off. You do not need to pay any consideration to
The Limited or to us, and you do not need to surrender any shares of The
Limited's common stock to receive your shares of our common stock.
<PAGE> 115
TOO, INC.
ITEM 15. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Form of Distribution Agreement between The Limited, Inc. and
Too, Inc.*
3.1 Form of Amended and Restated Certificate of Incorporation of
Too, Inc.*
3.2 Form of amended and restated Bylaws of Too, Inc.*
4.1 Specimen Certificate of Common Stock of Too, Inc.**
10.1 Credit Agreement among Too, Inc., various lending
institutions, Citicorp USA, Inc., as Syndication Agent and
Morgan Guaranty Trust Company of New York, as Administrative
Agent.
10.2 Form of Store Leases Agreement by and among The Limited
Stores, Inc., Victoria's Secret Stores, Inc., Lerner New
York, Inc., Express, LLC, Structure, Inc., The Limited, Inc.
and Too, Inc.*
10.3 Form of Trademark and Service Mark Licensing Agreement
between Limco, Inc. and LimToo, Inc.*
10.4 Form of Services Agreement by and between The Limited, Inc.
and Too, Inc.
10.5 Form of Tax Separation Agreement between The Limited, Inc.,
on behalf of itself and the members of The Limited Group,
and Too, Inc., on behalf of itself and the members of the
Too Group.*
10.6 Building Lease Agreement dated July 1, 1995 by and between
Distribution Land Corp. and Limited Too, Inc., the
predecessor company of Too, Inc.*
10.7 Form of Amendment to Building Lease Agreement between
Distribution Land Corp. and Too, Inc.**
10.8 Form of Too, Inc. 1999 Incentive Compensation Performance
Plan.*
10.9 Form of Too, Inc. 1999 Stock Option and Performance
Incentive Plan.*
10.10 Form of Too, Inc. 1999 Stock Plan for Non-Associate
Directors.*
21.1 Subsidiaries of Too, Inc.*
</TABLE>
- ---------------
* Filed previously.
** To be filed subsequently.
<PAGE> 116
TOO, INC.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
TOO, INC.
By: /s/ KENT A. KLEEBERGER
------------------------------------
Name: Kent A. Kleeberger
Title: Vice President and Chief
Financial Officer
Date: August 18, 1999
<PAGE> 1
Exhibit 10.1
CREDIT AGREEMENT
among
TOO, INC.,
VARIOUS LENDING INSTITUTIONS,
CITICORP USA, INC.,
as Syndication Agent
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative Agent
-------------------------------
Dated as of August 13, 1999
$100,000,000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit........................................................................ 1
1.01 The Commitments................................................................................... 1
1.02 Minimum Amount of Each Borrowing.................................................................. 3
1.03 Notice of Borrowing............................................................................... 4
1.04 Disbursement of Funds............................................................................. 4
1.05 Notes............................................................................................. 5
1.06 Conversions....................................................................................... 6
1.07 Pro Rata Borrowings............................................................................... 7
1.08 Interest.......................................................................................... 7
1.09 Interest Periods.................................................................................. 8
1.10 Increased Costs, Illegality, etc.................................................................. 9
1.11 Breakage.......................................................................................... 11
1.12 Change of Lending Office.......................................................................... 11
1.13 Replacement of Lenders............................................................................ 12
SECTION 2. Letters of Credit................................................................................. 13
2.01 Letters of Credit................................................................................. 13
2.02 Maximum Letter of Credit Outstandings; Final Maturities........................................... 15
2.03 Letter of Credit Requests......................................................................... 15
2.04 Letter of Credit Participations................................................................... 15
2.05 Agreement to Repay Letter of Credit Drawings...................................................... 17
2.06 Increased Costs................................................................................... 18
SECTION 3. Commitment Commission; Fees; Reductions of Commitment............................................. 19
3.01 Fees.............................................................................................. 19
3.02 Voluntary Termination of Unutilized Commitments................................................... 20
3.03 Mandatory Reduction of Commitments................................................................ 20
SECTION 4. Prepayments;Payments; Taxes....................................................................... 21
4.01 Voluntary Prepayments............................................................................. 21
4.02 Mandatory Repayments and Commitment Reductions.................................................... 22
4.03 Method and Place of Payment....................................................................... 26
4.04 Net Payments...................................................................................... 27
SECTION 5. Conditions Precedent.............................................................................. 29
5.01 Execution of Agreement; Notes..................................................................... 29
5.02 Officer's Certificate............................................................................. 29
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.03 Opinions of Counsel............................................................................... 29
5.04 Corporate Documents; Proceedings; etc............................................................. 30
5.05 Employee Benefit Plans; Shareholders' Agreements; Management Agreements; Collective Bargaining
Agreements; Existing Indebtedness Agreements; Tax Sharing Agreements; Employment Agreements.... 30
5.06 Consummation of the Transaction................................................................... 31
5.07 Adverse Change, etc............................................................................... 32
5.08 Litigation........................................................................................ 32
5.09 Pledge Agreement.................................................................................. 32
5.10 Security Agreement................................................................................ 32
5.11 Subsidiaries Guaranty............................................................................. 33
5.12 Mortgages; Title Insurance; Survey; etc........................................................... 33
5.13 Loan Purchase Agreement........................................................................... 34
5.14 Projections; Pro Forma Balance Sheet.............................................................. 34
5.15 Solvency Certificate; Insurance Certificates...................................................... 34
5.16 Fees, etc......................................................................................... 34
SECTION 6. Conditions Precedent to All Credit Events......................................................... 34
6.01 No Default; Representations and Warranties........................................................ 35
6.02 Notice of Borrowing; Letter of Credit Request..................................................... 35
6.03 Special Conditions Regarding Clean-Down Periods................................................... 35
SECTION 7. Representations and Warranties.................................................................... 35
7.01 Corporate and Other Status........................................................................ 36
7.02 Corporate and Other Power and Authority........................................................... 36
7.03 No Violation...................................................................................... 36
7.04 Governmental Approvals............................................................................ 36
7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc.............. 37
7.06 Litigation........................................................................................ 38
7.07 True and Complete Disclosure...................................................................... 38
7.08 Use of Proceeds; Margin Regulations............................................................... 38
7.09 Tax Returns and Payments.......................................................................... 39
7.10 Compliance with ERISA............................................................................. 39
7.11 The Security Documents............................................................................ 41
7.12 Properties........................................................................................ 42
7.13 Capitalization.................................................................................... 42
7.14 Subsidiaries...................................................................................... 42
7.15 Compliance with Statutes, etc..................................................................... 42
7.16 Investment Company Act............................................................................ 43
7.17 Public Utility Holding Company Act................................................................ 43
7.18 Environmental Matters............................................................................. 43
7.19 Labor Relations................................................................................... 44
7.20 Patents, Licenses, Franchises and Formulas........................................................ 44
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.21 Indebtedness...................................................................................... 44
7.22 Transaction....................................................................................... 44
7.23 Insurance......................................................................................... 45
7.24 Year 2000 Compliance.............................................................................. 45
7.25 Special Purpose Corporation....................................................................... 45
SECTION 8. Affirmative Covenants............................................................................. 45
8.01 Information Covenants............................................................................. 46
8.02 Books, Records and Inspections.................................................................... 48
8.03 Maintenance of Property; Insurance................................................................ 48
8.04 Corporate Franchises.............................................................................. 49
8.05 Compliance with Statutes, etc..................................................................... 49
8.06 Compliance with Environmental Laws................................................................ 49
8.07 ERISA............................................................................................. 50
8.08 End of Fiscal Years; Fiscal Quarters.............................................................. 52
8.09 Performance of Obligations........................................................................ 52
8.10 Payment of Taxes.................................................................................. 52
8.11 Consummation of The Spin-Off ..................................................................... 52
8.12 Additional Security; Further Assurances........................................................... 52
8.13 Foreign Subsidiaries Security..................................................................... 53
8.14 Year 2000 Compliance.............................................................................. 54
SECTION 9. Negative Covenants................................................................................ 54
9.01 Liens............................................................................................. 54
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc............................................ 56
9.03 Dividends......................................................................................... 61
9.04 Indebtedness...................................................................................... 62
9.05 Advances, Investments and Loans................................................................... 63
9.06 Transactions with Affiliates...................................................................... 65
9.07 Capital Expenditures.............................................................................. 65
9.08 Minimum Consolidated Coverage Ratio............................................................... 66
9.09 Minimum Consolidated Fixed Charge Coverage Ratio.................................................. 67
9.10 Maximum Leverage Ratio............................................................................ 67
9.11 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of
Certificate of Incorporation and Certain Other Agreements; etc................................. 68
9.12 Limitation on Certain Restrictions on Subsidiaries................................................ 68
9.13 Limitation on Issuance of Capital Stock........................................................... 68
9.14 Business; Trade Names............................................................................. 69
9.15 Limitation on Creation of Subsidiaries............................................................ 69
SECTION 10. Events of Default................................................................................. 69
10.01 Payments.......................................................................................... 69
10.02 Representations, etc.............................................................................. 70
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.03 Covenants......................................................................................... 70
10.04 Default Under Other Agreements.................................................................... 70
10.05 Bankruptcy, etc................................................................................... 70
10.06 ERISA............................................................................................. 71
10.07 Security Documents................................................................................ 71
10.08 Spin-Off Documents................................................................................ 71
10.09 Subsidiaries Guaranty; Loan Purchase Agreement.................................................... 72
10.10 Judgments......................................................................................... 72
10.11 Change of Control................................................................................. 72
10.12 Clean-Down Periods................................................................................ 72
SECTION 11. Definitions and Accounting Terms.................................................................. 73
11.01 Defined Terms..................................................................................... 73
SECTION 12. The Administrative Agent.......................................................................... 98
12.01 Appointment....................................................................................... 98
12.02 Nature of Duties.................................................................................. 98
12.03 Lack of Reliance on the Agents.................................................................... 98
12.04 Certain Rights of the Agents...................................................................... 99
12.05 Reliance.......................................................................................... 99
12.06 Indemnification................................................................................... 99
12.07 Each Agent in its Individual Capacity............................................................. 99
12.08 Holders........................................................................................... 100
12.09 Resignation by the Agents......................................................................... 100
SECTION 13. Miscellaneous..................................................................................... 100
13.01 Payment of Expenses, etc.......................................................................... 100
13.02 Right of Setoff................................................................................... 102
13.03 Notices........................................................................................... 102
13.04 Benefit of Agreement; Assignments; Participations................................................. 102
13.05 No Waiver; Remedies Cumulative.................................................................... 104
13.06 Payments Pro Rata................................................................................. 105
13.07 Calculations; Computations; Accounting Terms...................................................... 105
13.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial............................ 106
13.09 Counterparts...................................................................................... 107
13.10 Effectiveness..................................................................................... 107
13.11 Headings Descriptive.............................................................................. 107
13.12 Amendment or Waiver; etc.......................................................................... 107
13.13 Survival.......................................................................................... 109
13.14 Domicile of Loans................................................................................. 109
13.15 Register.......................................................................................... 109
13.16 Confidentiality................................................................................... 110
13.17 Limitation on Increased Costs..................................................................... 111
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C>
SCHEDULE I Commitments
SCHEDULE II Lender Addresses
SCHEDULE 2.01 Existing Letters of Credit
SCHEDULE 7.09 Tax Matters
SCHEDULE 7.10 ERISA Plans
SCHEDULE 7.11 Real Property
SCHEDULE 7.14 Subsidiaries
SCHEDULE 7.21 Existing Indebtedness
SCHEDULE 7.23 Insurance
SCHEDULE 9.01 Existing Liens
SCHEDULE 9.05 Existing Investments
EXHIBIT A Notice of Borrowing
EXHIBIT B-1 Term Note
EXHIBIT B-2 Revolving Note
EXHIBIT B-3 Swingline Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Opinion of Davis Polk & Wardwell, counsel to the Credit Parties
EXHIBIT F Officers' Certificate
EXHIBIT G Pledge Agreement
EXHIBIT H Security Agreement
EXHIBIT I Subsidiaries Guaranty
EXHIBIT J Loan Purchase Agreement
EXHIBIT K Solvency Certificate
EXHIBIT L Assignment and Assumption Agreement
EXHIBIT M Intercompany Note
</TABLE>
<PAGE> 7
CREDIT AGREEMENT, dated as of August 13, 1999, among TOO,
INC., a Delaware corporation (the "Borrower"), the lenders from time to time
party hereto (each, a "Lender" and, collectively, the "Lenders"), CITICORP USA,
INC., as Syndication Agent (in such capacity, the "Syndication Agent") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (in such
capacity, the "Administrative Agent"). Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 11 are used herein as so
defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set
forth herein, the Lenders are willing to make available to the Borrower the
respective credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 The Commitments. (a) Subject to and upon the terms and
conditions set forth herein, each Lender with a Term Loan Commitment severally
agrees to make, on the Initial Borrowing Date, a term loan or term loans (each a
"Term Loan" and, collectively, the "Term Loans") to the Borrower, which Term
Loans (i) shall be initially incurred and maintained as a single Borrowing of
Base Rate Loans or Eurodollar Loans (subject to the option to convert such Term
Loans pursuant to Section 1.06), provided that (x) except as otherwise
specifically provided in Section 1.10(b), all Term Loans comprising the same
Borrowing shall at all times be of the same Type and (y) prior to the date which
is one week from the Initial Borrowing Date (the "Syndication Date"), Term Loans
may only be incurred and maintained as Eurodollar Loans if the respective
Interest Period applicable thereto is a one week Interest Period which begins on
the Initial Borrowing Date and ends on the Syndication Date and (ii) shall not
exceed for any Lender that amount which equals the Term Loan Commitment of such
Lender on the Initial Borrowing Date (before giving effect to any reduction
thereto on such date pursuant to Section 3.03(b)(i) but after giving effect to
any reductions thereto on or prior to such date pursuant to Section
3.03(b)(ii)). Once repaid, Term Loans incurred hereunder may not be reborrowed.
(b) Subject to and upon the terms and conditions set forth
herein, each Lender with a Revolving Loan Commitment severally agrees, at any
time and from time to time on and after the Initial Borrowing Date and prior to
the Revolving Loan Maturity Date, to make a revolving loan or revolving loans
(each a "Revolving Loan" and, collectively, the "Revolving Loans") to the
Borrower, which Revolving Loans (i) shall, at the option of the Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, provided that (A) except as otherwise specifically provided in Section
1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be
of the same Type and (B) prior to the Syndication Date, Revolving Loans may only
be incurred as Eurodollar Loans if borrowed on the
<PAGE> 8
Initial Borrowing Date and the respective Interest Period applicable thereto is
a one week Interest Period which begins and ends on the same dates as the
Interest Period applicable to Term Loans borrowed on the Initial Borrowing Date
and maintained as Eurodollar Loans, (ii) may be repaid and reborrowed in
accordance with the provisions hereof, (iii) shall not exceed for any such
Lender at any time outstanding that aggregate principal amount which, when added
to the sum of such Lender's RL Percentage of (x) all Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds
of, and simultaneously with the incurrence of, the respective incurrence of
Revolving Loans) at such time and (y) the aggregate principal amount of all
Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds
of, and simultaneously with the incurrence of, the respective incurrence of
Revolving Loans) then outstanding, equals the Revolving Loan Commitment of such
Lender at such time, (iv) shall not exceed for all Lenders at any time
outstanding that aggregate principal amount which, when added to (x) the amount
of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans) at such time and (y) the aggregate
principal amount of all Swingline Loans (exclusive of Swingline Loans which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans) then outstanding, equals the Total
Revolving Loan Commitment at such time and (v) shall not exceed in aggregate
principal amount $15,000,000 on the Initial Borrowing Date.
(c) Subject to and upon the terms and conditions set forth
herein, the Swingline Lender agrees to make, at any time and from time to time
on and after the Initial Borrowing Date and prior to the Swingline Expiry Date,
a revolving loan or revolving loans (each a "Swingline Loan" and, collectively,
the "Swingline Loans") to the Borrower, which Swingline Loans (i) shall be made
and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in
accordance with the provisions hereof, (iii) shall not exceed in aggregate
principal amount at any time outstanding, when combined with the aggregate
principal amount of all Revolving Loans then outstanding and the Letter of
Credit Outstandings at such time, an amount equal to the Total Revolving Loan
Commitment at such time (after giving effect to any reductions to the Total
Revolving Loan Commitment on such date), and (iv) shall not exceed in aggregate
principal amount at any time outstanding the Maximum Swingline Amount.
Notwithstanding anything to the contrary contained in this Section 1.01(c), the
Swingline Lender shall not make any Swingline Loan after it has received written
notice from the Borrower or the Required Lenders stating that a Default or an
Event of Default exists and is continuing until such time as the Swingline
Lender shall have received written notice (i) of rescission of all such notices
from the party or parties originally delivering such notice, (ii) of the waiver
of such Default or Event of Default by the Required Lenders or (iii) that the
Administrative Agent in good faith believes that such Default or Event of
Default no longer exists. Notwithstanding anything to the contrary contained
above, the Swingline Lender shall not be required to make any Swingline Loans at
any time (x) when a Lender Default is in existence, unless the Swingline Lender
has entered into arrangements satisfactory to it and the Borrower to eliminate
the Swingline Lender's risk with respect to the Defaulting Lender's (or
Defaulting Lenders') share of Mandatory Borrowings which would be required to be
made if said Swingline Loans were to be funded with one or more Borrowings of
Revolving Loans pursuant to Section 1.01(d), including by cash collateralizing
such Defaulting Lender's (or Defaulting Lenders') RL Percentage (or RL
Percentages) of such
2
<PAGE> 9
Swingline Loan or Swingline Loans or (y) after any obligation of The Limited to
purchase the outstanding Obligations pursuant to the Loan Purchase Agreement has
arisen, either by action of the Required Lenders or otherwise.
(d) On any Business Day, the Swingline Lender may, in its sole
discretion, give notice to the Lenders and the Borrower that its outstanding
Swingline Loans shall be funded with one or more Borrowings of Revolving Loans
(provided that such notice shall be deemed to have been automatically given upon
the occurrence of a Default or an Event of Default under Section 10.05 or upon
the exercise of any of the remedies provided in the last paragraph of Section
10), in which case one or more Borrowings of Revolving Loans constituting Base
Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the
immediately succeeding Business Day by all Lenders with a Revolving Loan
Commitment (without giving effect to any reductions thereto pursuant to the last
paragraph of Section 10) pro rata based on each such Lender's RL Percentage
(determined before giving effect to any termination of the Revolving Loan
Commitments pursuant to the last paragraph of Section 10) and the proceeds
thereof shall be applied directly by the Swingline Lender to repay the Swingline
Lender for such outstanding Swingline Loans. Each such Lender hereby irrevocably
agrees to make Revolving Loans upon one Business Day's notice pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline Lender
notwithstanding (i) that the amount of the Mandatory Borrowing may not comply
with the Minimum Borrowing Amount otherwise required hereunder, (ii) any failure
to satisfy any conditions specified in Section 6, (iii) any Default or Event of
Default existing on such date, (iv) the date of such Mandatory Borrowing and (v)
the amount of the Total Revolving Loan Commitment at such time. In the event
that any Mandatory Borrowing cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the commencement
of a proceeding under the Bankruptcy Code with respect to the Borrower), then
each Lender hereby agrees that it shall forthwith purchase (as of the date the
Mandatory Borrowing would otherwise have occurred, but adjusted for any payments
received by the Swingline Lender from the Borrower on or after such date and
prior to such purchase) from the Swingline Lender such participations in the
outstanding Swingline Loans as shall be necessary to cause such Lenders to share
in such Swingline Loans ratably based upon their respective RL Percentages
(determined before giving effect to any termination of the Revolving Loan
Commitments pursuant to the last paragraph of Section 10), provided that (x) all
interest payable on the Swingline Loans shall be for the account of the
Swingline Lender until the date as of which the respective participation is
required to be purchased and, to the extent attributable to the purchased
participation, shall be payable to the participant from and after such date and
(y) at the time any purchase of participations pursuant to this sentence is
actually made, the purchasing Lender shall be required to pay the Swingline
Lender interest on the principal amount of the participation purchased for each
day from and including the day upon which the Mandatory Borrowing would
otherwise have occurred to but excluding the date of payment for such
participation, at the overnight Federal Funds Rate for the first three days and
at the rate otherwise applicable to Revolving Loans maintained as Base Rate
Loans hereunder for each day thereafter.
1.02 Minimum Amount of Each Borrowing. The aggregate principal
amount of each Borrowing of Loans under a respective Tranche shall not be less
than the Minimum
3
<PAGE> 10
Borrowing Amount for such Tranche. More than one Borrowing may occur on the same
date, but at no time shall there be outstanding more than 12 Borrowings of
Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
incur Loans hereunder (excluding Swingline Loans and Revolving Loans incurred
pursuant to a Mandatory Borrowing), the Borrower shall give the Administrative
Agent at its Notice Office at least one Business Day's prior notice of each Base
Rate Loan and at least three Business Days' prior notice of each Eurodollar Loan
to be incurred hereunder, provided that any such notice shall be deemed to have
been given on a certain day only if given before 12:00 Noon (New York time) on
such day. Each such notice (each a "Notice of Borrowing"), except as otherwise
expressly provided in Section 1.10, shall be irrevocable and shall be given by
the Borrower in writing, or by telephone promptly confirmed in writing, in the
form of Exhibit A, appropriately completed to specify the aggregate principal
amount of the Loans to be incurred pursuant to such Borrowing, the date of such
Borrowing (which shall be a Business Day), whether the Loans being incurred
pursuant to such Borrowing shall constitute Term Loans or Revolving Loans and
whether the Loans being incurred pursuant to such Borrowing are to be initially
maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the
initial Interest Period to be applicable thereto. The Administrative Agent shall
promptly give each Lender which is required to make Loans of the Tranche
specified in the respective Notice of Borrowing, notice of such proposed
Borrowing, of such Lender's proportionate share thereof and of the other matters
required by the immediately preceding sentence to be specified in the Notice of
Borrowing.
(b)(i) Whenever the Borrower desires to incur Swingline Loans
hereunder, the Borrower shall give the Swingline Lender no later than 1:00 P.M.
(New York time) on the date that a Swingline Loan is to be incurred, written
notice or telephonic notice promptly confirmed in writing of each Swingline Loan
to be incurred hereunder. Each such notice shall be irrevocable and specify in
each case (A) the date of Borrowing (which shall be a Business Day) and (B) the
aggregate principal amount of the Swingline Loans to be incurred pursuant to
such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice
specified in Section 1.01(d), with the Borrower irrevocably agreeing, by its
incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as
set forth in Section 1.01(d).
(c) Without in any way limiting the obligation of the Borrower
to confirm in writing any telephonic notice of any Borrowing or prepayment of
Loans, the Administrative Agent or the Swingline Lender, as the case may be, may
act without liability upon the basis of telephonic notice of such Borrowing or
prepayment, believed by the Administrative Agent or the Swingline Lender, as the
case may be, in good faith to be from the Chief Executive Officer or the Chief
Financial Officer of the Borrower, or from any other authorized person of the
Borrower designated in writing by the Borrower to the Administrative Agent as
being authorized to give such notices, prior to receipt of written confirmation.
In each such case, the Borrower hereby waives the right, absent manifest error,
to dispute the Administrative Agent's or the Swingline Lender's record of the
terms of such telephonic notice of such Borrowing or prepayment of Loans.
4
<PAGE> 11
1.04 Disbursement of Funds. No later than 12:00 Noon (New York
time) on the date specified in each Notice of Borrowing (or (x) in the case of
Swingline Loans, no later than 2:00 P.M. (New York time) on the date specified
pursuant to Section 1.03(b)(i), or (y) in the case of Mandatory Borrowings, no
later than 12:00 Noon (New York time) on the date specified in Section 1.01(d)),
each Lender with a Commitment of the respective Tranche will make available its
pro rata portion (determined in accordance with Section 1.07) of each such
Borrowing requested to be made on such date (or, in the case of Swingline Loans,
the Swingline Lender will make available the full amount thereof). All such
amounts will be made available in Dollars and in immediately available funds at
the Payment Office of the Administrative Agent, and the Administrative Agent
will make available to the Borrower at the Payment Office, in the account
specified in the applicable Notice of Borrowing, the aggregate of the amounts so
made available by the Lenders (other than in respect of Mandatory Borrowings).
Unless the Administrative Agent shall have been notified by any Lender prior to
the date of Borrowing that such Lender does not intend to make available to the
Administrative Agent such Lender's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Lender has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may (but shall not be obligated to), in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Lender, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative Agent shall promptly notify the Borrower and the
Borrower shall immediately pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover on demand from
such Lender or the Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower until the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (i) if recovered from such Lender, the Federal Funds Rate for
each day during the period consisting of the first three Business Days following
such date of availability and thereafter at the Base Rate as in effect from time
to time and (ii) if recovered from the Borrower, the rate of interest applicable
to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in
this Section 1.04 shall be deemed to relieve any Lender from its obligation to
make Loans hereunder or to prejudice any rights which the Borrower may have
against any Lender as a result of any failure by such Lender to make Loans
hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal
of, and interest on, the Loans made by each Lender shall, if requested by such
Lender, be evidenced (i) if Term Loans, by promissory notes duly executed and
delivered by the Borrower substantially in the form of Exhibit B-1 (each a "Term
Note" and, collectively, the "Term Notes"), in each case with blanks
appropriately completed in conformity herewith, (ii) if Revolving Loans, by
promissory notes duly executed and delivered by the Borrower substantially in
the form of Exhibit B-2, with blanks appropriately completed in conformity
herewith (each a "Revolving Note" and, collectively, the "Revolving Notes") and
(iii) if Swingline Loans, by a promissory note duly executed and delivered by
the Borrower substantially in the form of Exhibit B-3, with blanks appropriately
completed in conformity herewith (the "Swingline Note").
5
<PAGE> 12
(b) Each Term Note shall (i) be executed by the Borrower, (ii)
be payable to such Lender or its registered assigns and be dated the Initial
Borrowing Date (or, if issued after the Initial Borrowing Date, be dated the
date of the issuance thereof), (iii) be in a stated principal amount equal to
the Term Loan Commitment of such Lender on the Initial Borrowing Date (before
giving effect to the making of any Term Loans on such date by such Lender) (or,
if issued after the Initial Borrowing Date, be in a stated principal amount
equal to the outstanding principal amount of any Term Loans of such Lender at
such time) and be payable in the outstanding principal amount of Term Loans
evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest
as provided in the appropriate clause of Section 1.08 in respect of the Base
Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 4.01, and mandatory
repayment as provided in Section 4.02 and (vii) be entitled to the benefits of
this Agreement and the other Credit Documents.
(c) Each Revolving Note shall (i) be executed by the Borrower,
(ii) be payable to such Lender or its registered assigns and be dated the
Initial Borrowing Date (or, if issued after the Initial Borrowing Date, be dated
the date of the issuance thereof), (iii) be in a stated principal amount equal
to the Revolving Loan Commitment of such Lender (or, if issued after the
termination thereof, be in a stated principal amount equal to the outstanding
Revolving Loans of such Lender at such time) and be payable in the outstanding
principal amount of the Revolving Loans evidenced thereby, (iv) mature on the
Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment
as provided in Section 4.01, and mandatory repayment as provided in Section 4.02
and (vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
(d) The Swingline Note shall (i) be executed by the Borrower,
(ii) be payable to the Swingline Lender or its registered assigns and be dated
the Initial Borrowing Date, (iii) be in a stated principal amount equal to the
Maximum Swingline Amount and be payable in the outstanding principal amount of
the Swingline Loans evidenced thereby from time to time, (iv) mature on the
Swingline Expiry Date, (v) bear interest as provided in the appropriate clause
of Section 1.08 in respect of the Base Rate Loans evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 4.01, and mandatory
repayment as provided in Section 4.02 and (vii) be entitled to the benefits of
this Agreement and the other Credit Documents.
(e) Each Lender will note on its internal records the amount
of each Loan made by it and each payment in respect thereof and will prior to
any transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation or any error in such notation shall not affect the Borrower's
obligations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to
convert, on any Business Day, all or a portion equal to at least the Minimum
Borrowing Amount of the outstanding principal amount of Loans (other than
Swingline Loans, which may not be converted pursuant to this Section 1.06) made
pursuant to one or more Borrowings (so long as of the same
6
<PAGE> 13
Tranche) of one or more Types of Loans into a Borrowing (of the same Tranche) of
another Type of Loan, provided that, (i) except as otherwise provided in Section
1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last
day of an Interest Period applicable to the Loans being converted and no such
partial conversion of Eurodollar Loans shall reduce the outstanding principal
amount of such Eurodollar Loans made pursuant to a single Borrowing to less than
the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may only
be converted into Eurodollar Loans if no Default or Event of Default is in
existence on the date of the conversion, and (iii) no Base Rate Loans may be
converted into Eurodollar Loans prior to the Syndication Date. Each such
conversion shall be effected by the Borrower by giving the Administrative Agent
at its Notice Office prior to 12:00 Noon (New York time) at least three Business
Days' prior written notice (each a "Notice of Conversion") specifying the Loans
to be so converted, the Borrowing or Borrowings pursuant to which such Loans
were made and, if to be converted into Eurodollar Loans, the Interest Period to
be initially applicable thereto. The Administrative Agent shall give each Lender
prompt notice of any such proposed conversion affecting any of its Loans. Upon
any such conversion the proceeds thereof will be deemed to be applied directly
on the day of such conversion to prepay the outstanding principal amount of the
Loans being converted.
1.07 Pro Rata Borrowings. All Borrowings of Term Loans and
Revolving Loans under this Agreement shall be incurred from the Lenders pro rata
on the basis of their Term Loan Commitments or Revolving Loan Commitments, as
the case may be. No Lender shall be responsible for any default by any other
Lender of its obligation to make Loans hereunder, and each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of
the failure of any other Lender to make its Loans hereunder.
1.08 Interest. (a) The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Base Rate Loan from the date the
proceeds thereof are made available to the Borrower until the earlier of (i) the
maturity thereof (whether by acceleration or otherwise) and (ii) the conversion
of such Base Rate Loan into a Eurodollar Loan pursuant to Section 1.06, at a
rate per annum which shall be equal to the sum of the Applicable Base Rate
Margin plus the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the
unpaid principal amount of each Eurodollar Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
thereof (whether by acceleration or otherwise) and (ii) the conversion of such
Eurodollar Loan into a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10, as
applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of the Applicable Eurodollar Margin plus
the Eurodollar Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to 2% per
annum in excess of the rate otherwise applicable to Base Rate Loans of the
respective Tranche of Loans from time to time, provided that at no time shall
any Loan bear interest after maturity at a rate per annum which is less than 2%
in excess of
7
<PAGE> 14
the rate applicable thereto at maturity without the application of the preceding
provisions of this Section 1.08(c), with such interest to be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly
Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each
Interest Period applicable thereto and, in the case of an Interest Period in
excess of three months, on each date occurring at three month intervals after
the first day of such Interest Period, (iii) in respect of each Loan (other than
Revolving Loans maintained as Base Rate Loans which are repaid prior to the
termination of the Total Revolving Loan Commitment), on any repayment or
prepayment (on the amount repaid or prepaid) and (iv) in respect of each Loan,
at maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
(e) Upon each Interest Determination Date, the Administrative
Agent shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrower and the Lenders thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
1.09 Interest Periods. At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to such Eurodollar Loan (in the case of any subsequent
Interest Period), the Borrower shall have the right to elect, by giving the
Administrative Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two, three or six-month period; provided that,
if Loans borrowed on the Initial Borrowing Date are to be maintained as
Eurodollar Loans, such Loans shall initially be subject to a one week Interest
Period, whereafter the Borrower may elect to continue such Loans as Eurodollar
Loans with Interest Periods of one, two, three or six-month Interest Periods,
provided further that:
(i) all Eurodollar Loans comprising a Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including
the date of any conversion thereto from a Loan of a different Type) and
each Interest Period occurring thereafter in respect of such Eurodollar
Loan shall commence on the day on which the immediately preceding
Interest Period applicable thereto expires;
(iii) if any Interest Period for a Eurodollar Loan begins on
the last day of a calendar month or a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business
Day of such calendar month;
(iv) if any Interest Period for a Eurodollar Loan would
otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding
8
<PAGE> 15
Business Day; provided that if any Interest Period for a Eurodollar
Loan would otherwise expire on a day which is not a Business Day but is
a day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(v) no Interest Period may be selected at any time when a
Default or an Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing of any
Tranche of Loans shall be selected which extends beyond the respective
Maturity Date for such Tranche of Loans;
(vii) no Interest Period in respect of any Borrowing of Term
Loans shall be selected which extends beyond any date upon which a
mandatory repayment of such Term Loans will be required to be made
under Section 4.02(b), if the aggregate principal amount of Term Loans
which have Interest Periods which will expire after such date will be
in excess of the aggregate principal amount of Term Loans then
outstanding less the aggregate amount of such required repayment; and
(viii) the selection of Interest Periods shall be subject to
the provisions of Section 1.02.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect a new Interest
Period to be applicable to such Eurodollar Loans as provided above, the Borrower
shall be deemed to have elected to continue such Loans as Eurodollar Loans with
a one month Interest Period; provided that, if the Borrower is not permitted to
elect a new Interest Period as a result of clauses (v) through (viii),
inclusive, of this Section 1.09, the Borrower shall be deemed to have elected to
convert such Eurodollar Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that
any Lender shall have determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties hereto but, with
respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loan because of (x) any change since the date
of this Agreement in any applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the
force of law) or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for
9
<PAGE> 16
example, but not limited to: (A) a change in the basis of taxation of
payment to any Lender of the principal of or interest on the Loans or
any other amounts payable hereunder (except for (i) changes in the rate
of tax on, or determined by reference to, the net income or profits of
such Lender or any change in a tax imposed solely on deposits or net
assets of a Lender, in each case pursuant to the laws of the
jurisdiction in which it is organized or in which its principal office
or applicable lending office is located or any subdivision thereof or
therein and (ii) Excluded Taxes under Section 4.04(a)) or (B) a change
in official reserve requirements, but, in all events, excluding
reserves required under Regulation D to the extent included in the
computation of the Eurodollar Rate and/or (y) other circumstances
arising after the date of this Agreement affecting the interbank
Eurodollar market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental
rule, regulation or order, (y) impossible by compliance by any Lender
in good faith with any governmental request (whether or not having
force of law) or (z) impracticable as a result of a contingency
occurring after the date of this Agreement which materially and
adversely affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the Administrative Agent, in the
case of clause (i) above) shall promptly give notice (by telephone promptly
confirmed in writing) to the Borrower and, except in the case of clause (i)
above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Lenders).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer
be available until such time as the Administrative Agent notifies the Borrower
and the Lenders that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred (including by way of conversion) shall be deemed to be a
Notice of Borrowing or Notice of Conversion requesting the incurrence of (or
conversion into or continuance of, as the case may be) Base Rate Loans unless
rescinded by the Borrower prior to the date of incurrence or conversion, as the
case may be, (y) in the case of clause (ii) above, the Borrower shall, subject
to the provisions of this Section 1.10(a) and Section 13.17 (to the extent
applicable), pay to such Lender, within ten Business Days after such Lender's
written request therefor and the delivery to the Borrower of the written notice
described below in this clause (y), such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its sole discretion shall determine (but without duplication
of any amounts that may be payable to such Lender under Section 1.10(c) or
2.06)) as shall be required to compensate such Lender for such increased costs
or reductions in amounts received or receivable hereunder reasonably determined
by such Lender in good faith (a written notice as to the additional amounts owed
to such Lender, showing in reasonable detail the basis for the calculation
thereof, submitted to the Borrower by such Lender shall, absent manifest error,
be final and conclusive and binding on all the parties hereto) and (z) in the
case of clause (iii) above, the Borrower shall take one of the actions specified
in Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.
10
<PAGE> 17
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Administrative
Agent telephonic notice (confirmed in writing) as promptly as practicable and in
any event within one Business Day after the date that the Borrower was notified
by the affected Lender or the Administrative Agent pursuant to Section
1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then outstanding,
upon at least three Business Days' written notice to the Administrative Agent,
require the affected Lender to convert such Eurodollar Loan into a Base Rate
Loan, provided that, if more than one Lender is affected at any time, then all
affected Lenders must be treated the same pursuant to this Section 1.10(b).
(c) If at any time after the date of this Agreement any Lender
determines that the introduction of or any change (which introduction or change
shall have occurred after the date of this Agreement) in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank, the NAIC or comparable agency, will have the effect of increasing the
amount of capital required or expected to be maintained by such Lender or any
corporation controlling such Lender based on the existence of such Lender's
Commitments hereunder or its obligations hereunder, then the Borrower shall,
subject to the provisions of this Section 1.10(c) and Section 13.17 (to the
extent applicable), pay to such Lender, within ten Business Days after its
written demand therefor, such additional amounts as shall be required to
compensate such Lender or such other corporation for the increased cost to such
Lender or such other corporation or the reduction in the rate of return to such
Lender or such other corporation as a result of such increase of capital (but
without duplication of any amounts that may be payable to such Lender under
Section 1.10(a) or 2.06). In determining such additional amounts, each Lender
will act reasonably and in good faith and will use averaging and attribution
methods which are reasonable, provided that such Lender's determination of
compensation owing under this Section 1.10(c) shall, absent manifest error, be
final and conclusive and binding on all the parties hereto. Each Lender, upon
determining that any additional amounts will be payable pursuant to this Section
1.10(c), will give prompt written notice thereof to the Borrower, which notice
shall describe in reasonable detail the basis for and calculation of such
additional amounts.
1.11 Breakage. The Borrower shall compensate each Lender,
within ten Business Days after its written request (which request shall set
forth in reasonable detail the basis for requesting such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund its Eurodollar Loans
but excluding loss of anticipated profits) which such Lender may sustain: (i) if
for any reason (other than a default by such Lender or the Administrative Agent)
a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a
date specified therefor in a Notice of Borrowing (including any Notice of
Borrowing given in expectation of the Initial Borrowing Date) or Notice of
Conversion (whether or not withdrawn by the Borrower or deemed withdrawn
pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment
made pursuant to
11
<PAGE> 18
Section 4.01, 4.02 or as a result of an acceleration of the Loans pursuant to
Section 10) or conversion of any of its Eurodollar Loans occurs on a date which
is not the last day of an Interest Period with respect thereto; (iii) if any
prepayment of any of its Eurodollar Loans is not made on any date specified in a
notice of prepayment given by the Borrower; and (iv) as a consequence of (x) any
other default by the Borrower to repay its Loans when required by the terms of
this Agreement or any Note held by such Lender or (y) any election made pursuant
to Section 1.10(b).
1.12 Change of Lending Office. Each Lender agrees that on the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to such
Lender, it will (subject to overall policy considerations of such Lender), if
requested by the Borrower, designate another Lending Office for any Loans or
Letters of Credit affected by such event, provided that such designation is made
on such terms that such Lender and its Lending Office suffer no economic, legal
or regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of such Section. Nothing in this Section 1.12
shall affect or postpone any of the obligations of the Borrower or the right of
any Lender provided in Sections 1.10, 2.06 and 4.04.
1.13 Replacement of Lenders. (a) If any Lender becomes a
Defaulting Lender or otherwise defaults in its obligations to make Loans or fund
Unpaid Drawings, (b) upon the occurrence of an event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or
Section 4.04 with respect to any Lender which results in such Lender charging to
the Borrower increased costs materially in excess of those being generally
charged by the other Lenders or (c) in the case of a refusal by a Lender to
consent to one or more proposed changes, waivers, discharges or terminations
with respect to this Agreement which have been approved by the Required Lenders
as (and to the extent) provided in Section 13.12(b), the Borrower shall have the
right to either (i) replace such Lender (the "Replaced Lender") with one or more
other Eligible Transferees (it being acknowledged that the Replaced Lender shall
be under no obligation to identify or secure the commitment of such Eligible
Transferee or assist in identifying or securing the commitment of such Eligible
Transferee), none of whom shall constitute a Defaulting Lender at the time of
such replacement and each of whom shall be reasonably acceptable to the
Administrative Agent (collectively, the "Replacement Lender") or (ii) at the
option of the Borrower, replace only (x) the Revolving Loan Commitment (and
outstandings pursuant thereto) of the Replaced Lender with an identical
Revolving Loan Commitment provided by the Replacement Lender or (y) in the case
of a replacement as provided in Section 13.12(b) where the consent of the
respective Lender is required with respect to less than all Tranches of its
Loans or Commitments, the Commitments and/or outstanding Term Loans of such
Lender in respect of each Tranche where the consent of such Lender would
otherwise be individually required, with identical Commitments and/or Term Loans
of the respective Tranche provided by the Replacement Lender, provided that (1)
at the time of any replacement pursuant to this Section 1.13, the Replacement
Lender shall enter into one or more Assignment and Assumption Agreements
pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section
13.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement
Lender shall acquire all of the Commitments and outstanding Loans of, and
participations in Letters of Credit by, the Replaced Lender (or, in the case of
the replacement of
12
<PAGE> 19
only (I) the Revolving Loan Commitment, the Revolving Loan Commitment and
outstanding Revolving Loans and participations in outstanding Letters of Credit
and/or (II) the outstanding Term Loans, the Term Loans, of the Replaced Lender)
and, in connection therewith, shall pay to (a) the Replaced Lender in respect
thereof an amount equal to the sum of (i) an amount equal to the principal of,
and all accrued interest on, all outstanding Loans (or of the Loans of the
respective Tranche being replaced) of the Replaced Lender, (ii) an amount equal
to all Unpaid Drawings that have been funded by (and not reimbursed to) such
Replaced Lender (unless the replacement relates to Term Loans only), together
with all then unpaid interest with respect thereto at such time and (iii) an
amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced
Lender (but only with respect to the relevant Tranche, in the case of the
replacement of less than all Tranches of Loans then held by the respective
Replaced Lender) pursuant to Section 3.01, (b) except in the case of the
replacement of only the outstanding Term Loans of a Replaced Lender, each
Issuing Bank an amount equal to such Replaced Lender's RL Percentage (for this
purpose, determined as if the adjustment described in clause (i) of the
immediately succeeding sentence had been made with respect to such Replaced
Lender) of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to
the extent such amount was not theretofore funded by such Replaced Lender to
such Issuing Bank and (c) except in the case of the replacement of only the
outstanding Term Loans of a Replaced Lender, the Swingline Lender an amount
equal to such Replaced Lender's RL Percentage of any Mandatory Borrowing to the
extent such amount was not theretofore funded by such Replaced Lender, and (2)
all obligations of the Borrower due and owing to the Replaced Lender at such
time (other than those specifically described in clause (1) above in respect of
which the assignment purchase price has been, or is concurrently being, paid)
shall be paid in full to such Replaced Lender concurrently with such
replacement. Upon the execution of the respective Assignment and Assumption
Agreement, the payment of amounts referred to in clauses (1) and (2) above and,
if so requested by the Replacement Lender, delivery to the Replacement Lender of
the appropriate Note or Notes executed by the Borrower, the Replacement Lender
shall become a Lender hereunder and, unless the respective Replaced Lender
continues to have outstanding Term Loans or a Commitment hereunder, the Replaced
Lender shall cease to constitute a Lender hereunder, except with respect to
indemnification provisions under this Agreement (including, without limitation,
Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01), which shall survive as to
such Replaced Lender with respect to matters that arose prior to the time it
ceased to be a Lender. Replacements pursuant to this Section 1.13 shall only be
effected by assignments which otherwise meet the applicable requirements of
Section 13.04(b).
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions set forth herein, the Borrower may request that any Issuing Bank
issue, at any time and from time to time on and after the Initial Borrowing Date
and prior to the 30th day prior to the Revolving Loan Maturity Date, (x) for the
account of the Borrower (or a Subsidiary of the Borrower, provided that,
notwithstanding the name of the account party set forth on any Letter of Credit
issued hereunder, the Borrower shall be deemed to be (and hereby agrees to be)
the primary obligor with respect to all Unpaid Drawings and any other amounts
payable hereunder to the Issuing Bank or any other Lender with respect to all
such Letters of Credit, and the Borrower agrees that
13
<PAGE> 20
all such amounts shall be Obligations of the Borrower for all purposes of this
Agreement and the other Credit Documents) and for the benefit of any holder (or
any trustee, agent or other similar representative for any such holders) of L/C
Supportable Obligations of the Borrower or any of its Subsidiaries, an
irrevocable sight standby letter of credit, in a form customarily used by such
Issuing Bank or in such other form as has been approved by such Issuing Bank
(each such standby letter of credit, a "Standby Letter of Credit") in support of
such L/C Supportable Obligations and (y) for the account of the Borrower (or,
subject to the proviso above in this Section 2.01, a Subsidiary of the Borrower)
and for the benefit of sellers of goods or materials to the Borrower or any of
its Subsidiaries, an irrevocable sight commercial letter of credit in a form
customarily used by such Issuing Bank or in such other form as has been approved
by such Issuing Bank (each such commercial letter of credit, a "Trade Letter of
Credit", and each such Trade Letter of Credit and each Standby Letter of Credit,
a "Letter of Credit") in support of commercial transactions of the Borrower and
its Subsidiaries. All Letters of Credit shall be denominated in Dollars.
(b) Subject to and upon the terms and conditions set forth
herein, each Issuing Bank hereby agrees that it will, at any time and from time
to time on and after the Initial Borrowing Date and prior to the 30th day prior
to the Revolving Loan Maturity Date, following its receipt of the respective
Letter of Credit Request, issue for the account of the Borrower (or, subject to
the proviso in Section 2.01(a) above, any Subsidiary of the Borrower), one or
more Letters of Credit (x) in the case of Standby Letters of Credit, in support
of such L/C Supportable Obligations of the Borrower or any of its Subsidiaries
as are permitted to remain outstanding without giving rise to a Default or an
Event of Default and (y) in the case of Trade Letters of Credit, in support of
obligations of the Borrower (or in the case of Letters of Credit issued for the
account of any Subsidiary of the Borrower, such Subsidiary) to sellers of goods
or materials as referenced in Section 2.01(a), provided that the respective
Issuing Bank shall be under no obligation to issue any Letter of Credit of the
types described above if at the time of such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Issuing Bank from issuing such Letter of Credit or any
requirement of law applicable to such Issuing Bank or any request or
directive (whether or not having the force of law) from any
governmental authority with jurisdiction over such Issuing Bank shall
prohibit, or request that such Issuing Bank refrain from, the issuance
of letters of credit generally or such Letter of Credit in particular
or shall impose upon such Issuing Bank with respect to such Letter of
Credit any restriction not in effect on the date hereof and which such
Issuing Bank reasonably deems material to it; or
(ii) such Issuing Bank shall have received notice from the
Required Lenders prior to the issuance of such Letter of Credit of the
type described in the second sentence of Section 2.03(b) and the
matters identified in such notice have not previously been waived or
cured; or
14
<PAGE> 21
(iii) a Lender Default exists, unless the applicable Issuing
Bank has entered into arrangements satisfactory to such Issuing Bank
and the Borrower to eliminate such Issuing Bank's risk with respect to
the participation in Letters of Credit of any Defaulting Lender(s),
including by cash collateralizing any such Defaulting Lender's (or
Defaulting Lenders') RL Percentage (or RL Percentages) of the Letter of
Credit Outstandings; or
(iv) any obligation of The Limited to purchase the outstanding
Obligations pursuant to the Loan Purchase Agreement has arisen, either
by action of the Required Lenders or otherwise.
(c) Notwithstanding the foregoing provisions of this Section
2.01, on the Initial Borrowing Date, the letters of credit described on Schedule
2.01 shall be assumed as Letters of Credit hereunder and shall constitute Letter
of Credit Outstandings in accordance with the provisions hereof, and such
Letters of Credit shall be subject to the following provisions of this Section 2
(other than Section 2.03(a)) and the other provisions of this Agreement to the
same extent as if such letters of credit had originally been issued hereunder.
2.02 Maximum Letter of Credit Outstandings; Final Maturities.
Notwithstanding anything to the contrary contained in this Agreement, (i) no
Letter of Credit shall be issued the Stated Amount of which, when added to the
Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on
the date of, and prior to the issuance of, the respective Letter of Credit) at
such time would exceed either (x) $35,000,000 or (y) when added to the aggregate
principal amount of all Revolving Loans then outstanding and the aggregate
principal amount of all Swingline Loans then outstanding, an amount equal to the
Total Revolving Loan Commitment at such time and (ii) each Letter of Credit
shall by its terms terminate (x) in the case of Standby Letters of Credit, on or
before the earlier of (A) the date which occurs one year after the date of the
issuance thereof (although any such Letter of Credit may be extendible for
successive periods of up to one year, but not beyond the tenth Business Day
prior to the Revolving Loan Maturity Date, on terms acceptable to the Issuing
Bank thereof) and (B) the tenth Business Day prior to the Revolving Loan
Maturity Date and (y) in the case of Trade Letters of Credit, on or before the
earlier of (A) the date which occurs 180 days after the date of issuance thereof
and (B) the date which is 30 days prior to the Revolving Loan Maturity Date.
2.03 Letter of Credit Requests. (a) Whenever the Borrower
desires that a Letter of Credit be issued for its account or the account of any
of its Subsidiaries, the Borrower shall give the Administrative Agent and the
respective Issuing Bank at least two Business Days' (or such shorter period as
is acceptable to the respective Issuing Bank) written notice thereof. Each
notice shall be in the form of Exhibit C (each a "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Borrower that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of, Section 2.02. Unless the respective Issuing Bank has received notice from
the Required Lenders before it issues a Letter of Credit that one or more of the
conditions specified in Section 5 are not satisfied on the Initial Borrowing
Date or Section 6 are not then satisfied, or that the issuance of such Letter of
Credit would
15
<PAGE> 22
violate Section 2.02, then, subject to the terms and conditions of this
Agreement, such Issuing Bank shall issue the requested Letter of Credit for the
account of the Borrower in accordance with such Issuing Bank's usual and
customary practices. Upon the issuance of or amendment or modification to any
Standby Letter of Credit, the respective Issuing Bank shall promptly notify the
Borrower and the Administrative Agent of such issuance, amendment or
modification and such notification shall be accompanied by a copy of the issued
Standby Letter of Credit or amendment or modification. In the case of Trade
Letters of Credit, the Issuing Bank will send to the Administrative Agent by
facsimile transmission, promptly on the first Business Day of each week, the
daily aggregate Stated Amount of Trade Letters of Credit issued by such Issuing
Bank and outstanding during the preceding week. The Administrative Agent shall
deliver to each Lender, after each calendar month end and upon each payment of
the Letter of Credit Fee, a report setting forth for the relevant period the
daily aggregate Stated Amount of all outstanding Trade Letters of Credit during
such period.
2.04 Letter of Credit Participations. (a) Immediately upon the
issuance by the respective Issuing Bank of any Letter of Credit, such Issuing
Bank shall be deemed to have sold and transferred to each Lender with a
Revolving Loan Commitment, other than such Issuing Bank (each such Lender, in
its capacity under this Section 2.04, a "Participant"), and each such
Participant shall be deemed irrevocably and unconditionally to have purchased
and received from such Issuing Bank, without recourse or warranty, an undivided
interest and participation, to the extent of such Participant's RL Percentage,
in such Letter of Credit, each drawing or payment made thereunder and the
obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto. Upon any change in the
Revolving Loan Commitments or RL Percentages of the Lenders pursuant to Section
1.13 or 13.04, it is hereby agreed that, with respect to all outstanding Letters
of Credit and Unpaid Drawings, there shall be an automatic adjustment to the
participations pursuant to this Section 2.04 to reflect the new RL Percentages
of the assignor and assignee Lender, as the case may be.
(b) In determining whether to pay under any Letter of Credit,
the respective Issuing Bank shall have no obligation relative to the other
Lenders other than to confirm that any documents required to be delivered under
such Letter of Credit have been delivered and that they substantially comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by any Issuing Bank under or in connection with any Letter
of Credit if taken or omitted in the absence of gross negligence or willful
misconduct, as determined by a court competent jurisdiction, shall not create
for such Issuing Bank any resulting liability to the Borrower, any other Credit
Party, any Lender or any other Person.
(c) In the event that any Issuing Bank makes any payment under
any Letter of Credit and the Borrower shall not have reimbursed such amount in
full to such Issuing Bank pursuant to Section 2.05(a), such Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant of such failure, and each Participant shall promptly and
unconditionally pay to such Issuing Bank the amount of such Participant's RL
Percentage of such unreimbursed payment in Dollars and in same day funds. If the
Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any
Business Day, any Participant required to fund a payment under a Letter of
Credit, such Participant shall make available to such Issuing
16
<PAGE> 23
Bank in Dollars such Participant's RL Percentage of the amount of such payment
on such Business Day in same day funds. If and to the extent such Participant
shall not have so made its RL Percentage of the amount of such payment available
to such Issuing Bank, such Participant agrees to pay to such Issuing Bank,
forthwith on demand, such amount, together with interest thereon, for each day
from such date until the date such amount is paid to such Issuing Bank at the
overnight Federal Funds Rate for the first three days and at the interest rate
applicable to Revolving Loans maintained as Base Rate Loans for each day
thereafter. The failure of any Participant to make available to such Issuing
Bank its RL Percentage of any payment under any Letter of Credit shall not
relieve any other Participant of its obligation hereunder to make available to
such Issuing Bank its RL Percentage of any Letter of Credit on the date
required, as specified above, but no Participant shall be responsible for the
failure of any other Participant to make available to such Issuing Bank such
other Participant's RL Percentage of any such payment.
(d) Whenever any Issuing Bank receives a payment of a
reimbursement obligation as to which it has received any payments from the
Participants pursuant to clause (c) above, such Issuing Bank shall pay to each
Participant which has paid its RL Percentage thereof, in Dollars and in same day
funds, an amount equal to such Participant's share (based upon the proportionate
aggregate amount originally funded by such Participant to the aggregate amount
funded by all Participants) of the principal amount of such reimbursement
obligation and interest thereon accruing after the purchase of the respective
participations.
(e) Upon the request of any Participant, each Issuing Bank
shall furnish to such Participant copies of any Letter of Credit issued by it
and such other documentation as may reasonably be requested by such Participant.
(f) The obligations of the Participants to make payments to
each Issuing Bank with respect to Letters of Credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever (except
as otherwise expressly provided in the last sentence of Section 2.04(b)) and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other
right which the Borrower or any of its Subsidiaries may have at any
time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, any Participant, or any other
Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower
or any Subsidiary of the Borrower and the beneficiary named in any such
Letter of Credit);
17
<PAGE> 24
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.05 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the respective Issuing Bank, by making
payment to the Administrative Agent in immediately available funds at the
Payment Office, for any payment or disbursement made by such Issuing Bank under
any Letter of Credit issued by it (each such amount, so paid until reimbursed,
an "Unpaid Drawing"), on the date upon which it shall receive notice of such
payment or disbursement (if such notice shall be received by the Borrower prior
to 10:00 A.M. (New York time) on a Business Day) or on the first Business Day
following the date upon which it shall receive such notice (if such notice shall
be otherwise received); provided that if a Default or Event of Default of the
type described in Section 10.05 then exists, no such notice shall be required
and the Borrower's obligation to reimburse such Issuing Bank shall mature
immediately upon such payment or disbursement by such Issuing Bank. The Borrower
shall in each case make such payment, together with interest on the amount so
paid or disbursed by such Issuing Bank, to the extent not reimbursed prior to
2:00 P.M. (New York time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but excluding the date such Issuing Bank
was reimbursed by the Borrower therefor at a rate per annum which shall be the
Base Rate in effect from time to time plus the Applicable Base Rate Margin;
provided that to the extent such amounts are not reimbursed prior to 12:00 Noon
(New York time) on the third Business Day following the receipt by the Borrower
of notice of such payment or disbursement or following the occurrence of a
Default or an Event of Default under Section 10.05, interest shall thereafter
accrue on the amounts so paid or disbursed by such Issuing Bank (and until
reimbursed by the Borrower) at a rate per annum which shall be the Base Rate in
effect from time to time plus the Applicable Base Rate Margin plus 2%, in each
such case, with interest to be payable on demand. The respective Issuing Bank
shall give the Borrower prompt written notice of each Drawing under any Letter
of Credit, provided that the failure to give any such notice shall in no way
affect, impair or diminish the Borrower's obligations hereunder.
(b) The obligations of the Borrower under this Section 2.05 to
reimburse the respective Issuing Bank with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Lender
(including in its capacity as issuer of the Letter of Credit or as Participant),
including, without limitation, any defense based upon the failure of any drawing
under a Letter of Credit (each a "Drawing") to conform to the terms of the
Letter of Credit or any nonapplication or misapplication by the beneficiary of
the proceeds of such Drawing, the respective Issuing Bank's only obligation to
the Borrower being to confirm that any documents required to be delivered under
such Letter of Credit appear to have been delivered and that they
18
<PAGE> 25
appear to comply on their face with the requirements of such Letter of Credit.
Subject to the provisions of the immediately preceding sentence, any action
taken or omitted to be taken by any Issuing Bank under or in connection with any
Letter of Credit if taken or omitted in the absence of gross negligence or
willful misconduct, as determined by a court of competent jurisdiction, shall
not create for such Issuing Bank any resulting liability to the Borrower or any
other Credit Party.
2.06 Increased Costs. If at any time after the date of this
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Issuing Bank or
any Participant with any request or directive by any such authority (including,
without limitation, the NAIC) (whether or not having the force of law) issued
after the date of this Agreement, shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
letters of credit issued by any Issuing Bank or participated in by any
Participant, or (ii) impose on any Issuing Bank or any Participant any other
conditions relating, directly or indirectly, to this Agreement; and the result
of any of the foregoing is to increase the cost to any Issuing Bank or any
Participant of issuing, maintaining or participating in any Letter of Credit, or
reduce the amount of any sum received or receivable by any Issuing Bank or any
Participant hereunder or reduce the rate of return on its capital with respect
to Letters of Credit (except for (i) changes in the rate of tax on, or
determined by reference to, the net income or profits of such Issuing Bank or
such Participant or any change in a tax imposed solely on deposits or net assets
of the Issuing Bank or such Participant, in each case pursuant to the laws of
the jurisdiction in which it is organized or in which its principal office or
applicable lending office is located or any subdivision thereof or therein and
(ii) Excluded Taxes under Section 4.04(a)), then, within ten Business Days of
the delivery of the certificate referred to below to the Borrower by such
Issuing Bank or Participant (a copy of which certificate shall be sent by such
Issuing Bank or such Participant to the Administrative Agent), the Borrower
shall, subject to the provisions of this Section 2.06 and Section 13.17 (to the
extent applicable), pay to such Issuing Bank or Participant such additional
amount or amounts as will compensate such Issuing Bank or Participant for such
increased cost or reduction in the amount receivable or reduction on the rate of
return on its capital. Any Issuing Bank or any Participant, upon determining
that any additional amounts will be payable pursuant to this Section 2.06, will
give prompt written notice thereof to the Borrower, which notice shall include a
certificate submitted to the Borrower by such Issuing Bank or such Participant
(a copy of which certificate shall be sent by such Issuing Bank or such
Participant to the Administrative Agent), setting forth in reasonable detail the
basis for and the calculation of such additional amount or amounts necessary to
compensate such Issuing Bank or such Participant. The certificate required to be
delivered pursuant to this Section 2.06 shall, if delivered in good faith and
absent manifest error, be final and conclusive and binding on the Borrower.
SECTION 3. Commitment Commission; Fees; Reductions of
Commitment.
3.01 Fees. (a) The Borrower agrees to pay to the
Administrative Agent for distribution to each Non-Defaulting Lender with a
Revolving Loan Commitment a commitment
19
<PAGE> 26
commission (the "Commitment Commission") for the period from and including the
Effective Date to but excluding the Revolving Loan Maturity Date (or such
earlier date as the Total Revolving Loan Commitment shall have been terminated),
computed at a rate per annum for each day equal to the Applicable Commitment
Commission Percentage on the Unutilized Revolving Loan Commitment of such
Non-Defaulting Lender on such day. Accrued and unpaid Commitment Commission
shall be due and payable quarterly in arrears on each Quarterly Payment Date and
on the Revolving Loan Maturity Date or such earlier date upon which the Total
Revolving Loan Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent
for distribution to each Lender with a Revolving Loan Commitment (based on each
such Lender's respective RL Percentage) a fee in respect of each Letter of
Credit issued hereunder (the "Letter of Credit Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
date of termination or expiration of such Letter of Credit, computed at a rate
per annum for each day equal to (i) in the case of Standby Letters of Credit,
the Applicable Eurodollar Margin and (ii) in the case of Trade Letters of
Credit, 1.25%, in each case on the Stated Amount of such Letter of Credit on
such day. Accrued Letter of Credit Fees shall be due and payable quarterly in
arrears on each Quarterly Payment Date and on the first day after the
termination of the Total Revolving Loan Commitment upon which no Letters of
Credit remain outstanding.
(c) The Borrower agrees to pay to each Issuing Bank, for its
own account, a facing fee in respect of each Letter of Credit issued by such
Issuing Bank (the "Facing Fee"), for the period from and including the date of
issuance of such Letter of Credit to and including the date of the termination
of such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the
daily Stated Amount of such Letter of Credit, provided that in no event shall
the Facing Fee for any Standby Letter of Credit be less than $500 per annum.
Accrued Facing Fees shall be due and payable quarterly in arrears on each
Quarterly Payment Date and on the first day after the termination of the Total
Revolving Loan Commitment upon which no Letters of Credit remain outstanding.
(d) The Borrower agrees to pay, upon each drawing under,
issuance of, or amendment to, any Letter of Credit, such amount as shall at the
time of such event be the customary administrative charge which the applicable
Issuing Bank is generally imposing in connection with such occurrence with
respect to letters of credit.
(e) The Borrower agrees to pay to the Administrative Agent,
for its own account, such other fees as have been agreed to in writing by the
Borrower and the Administrative Agent.
3.02 Voluntary Termination of Unutilized Commitments. (a) Upon
at least one Business Day's prior written notice to the Administrative Agent at
its Notice Office (which notice the Administrative Agent shall promptly transmit
to each of the Lenders), the Borrower shall have the right, at any time or from
time to time, without premium or penalty, to terminate the Total Unutilized
Revolving Loan Commitment, in whole or in part, in integral multiples of
$1,000,000 in the case of partial reductions to the Total Unutilized Revolving
Loan
20
<PAGE> 27
Commitment, provided that each such reduction shall apply proportionately to
permanently reduce the Revolving Loan Commitment of each Lender with such a
Commitment.
(b) In the event of a refusal by a Lender to consent to one or
more proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Lenders as (and to the
extent) provided in Section 13.12(b), the Borrower may, subject to its
compliance with the requirements of Section 13.12(b), upon five Business Days'
prior written notice to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders)
terminate all of the Revolving Loan Commitment of such Lender and, so long as
all Loans, together with accrued and unpaid interest, Fees and all other
amounts, owing to such Lender (other than amounts owing in respect of any
Tranche of Loans maintained by such Lender which are not being repaid pursuant
to Section 13.12(b)) are repaid concurrently with the effectiveness of such
termination pursuant to Section 4.01(b) (at which time Schedule I shall be
deemed modified to reflect such changed amounts), and at such time, unless the
respective Lender continues to have outstanding Loans of one or more Tranches
hereunder, such Lender shall no longer constitute a "Lender" for purposes of
this Agreement, except with respect to indemnification provisions under this
Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.06
and 13.01), which shall survive as to such repaid Lender.
3.03 Mandatory Reduction of Commitments. (a) The Total
Commitments (and the Term Loan Commitment and the Revolving Loan Commitment of
each Lender) shall terminate in their entirety on September 15, 1999 unless the
Initial Borrowing Date has occurred on or before such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Term Loan Commitment (and the Term Loan
Commitment of each Lender) shall (i) terminate in its entirety on the Initial
Borrowing Date (immediately after giving effect to the making of the Term Loans
on such date) and (ii) prior to the termination of the Total Term Loan
Commitment, be reduced from time to time to the extent required by Section 4.02.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Lender) shall terminate in its entirety on the
Revolving Loan Maturity Date.
(d) Each reduction to the Total Term Loan Commitment and the
Total Revolving Loan Commitment pursuant to this Section 3.03 (or pursuant to
Section 4.02) shall be applied proportionately to permanently reduce the Term
Loan Commitment or the Revolving Loan Commitment, as the case may be, of each
Lender with such a Commitment.
SECTION 4. Prepayments; Payments; Taxes.
4.01 Voluntary Prepayments. (a) The Borrower shall have the
right to prepay the Loans, without premium or penalty, in whole or in part at
any time and from time to time on the following terms and conditions:
21
<PAGE> 28
(i) the Borrower shall give the Administrative Agent at its
Notice Office prior to 12:00 Noon (New York time) (or, in the case of
clause (z) below, prior to 1:00 P.M. (New York time)) (x) at least one
Business Day's prior written notice (or telephonic notice promptly
confirmed in writing) of its intent to prepay Base Rate Loans (other
than Swingline Loans), (y) at least three Business Days' prior written
notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay Eurodollar Loans and (z) on the same day, prior
written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay Swingline Loans, whether Term Loans, Revolving
Loans or Swingline Loans shall be prepaid, the amount of such
prepayment and the Types of Loans to be prepaid and, in the case of
Eurodollar Loans, the specific Borrowing or Borrowings pursuant to
which made, which notice the Administrative Agent shall promptly
transmit to each of the Lenders;
(ii) each prepayment shall be in an aggregate principal amount
of at least (x) $500,000 in the case of Term Loans or Revolving Loans
or (y) $100,000 in the case of Swingline Loans, provided that if any
partial prepayment of Eurodollar Loans made pursuant to any Borrowing
shall reduce the outstanding principal amount of Eurodollar Loans made
pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount applicable thereto, then such Borrowing may not be continued as
a Borrowing of Eurodollar Loans and any election of an Interest Period
with respect thereto given by the Borrower shall have no force or
effect;
(iii) prepayments of Eurodollar Loans made pursuant to this
Section 4.01(a) may only be made on the last day of an Interest Period
applicable thereto unless such prepayment is accompanied by any
breakage costs and any other amounts due to the respective Lenders in
accordance with Section 1.11 of which the Borrower has theretofore been
notified by the respective Lenders (although such payment shall not
affect the Borrowers' obligation to pay any amounts owing to any Lender
pursuant to Section 1.11 which is subsequently notified to the Borrower
by any Lender);
(iv) each prepayment in respect of any Loans made pursuant to
a Borrowing shall be applied pro rata among such Loans, provided that,
at the Borrower's election, in connection with any prepayment of
Revolving Loans pursuant to this Section 4.01(a), such prepayment shall
not be applied to any Revolving Loans of a Defaulting Lender; and
(v) each voluntary prepayment of Term Loans pursuant to this
Section 4.01(a) shall be applied to reduce the then remaining Scheduled
Repayments pro rata based upon the then remaining amount of each
Scheduled Repayment after giving effect to all prior reductions
thereto; provided that, notwithstanding the foregoing, so long as no
Default or Event of Default exists or is continuing, if the Borrower
makes a voluntary prepayment of Term Loans pursuant to this Section
4.01(a) on a date which is not more than 90 days prior to a Scheduled
Repayment Date, such prepayment may be applied first to reduce the
amount of such Scheduled Repayment due on such next Scheduled Repayment
Date, with any amount of such voluntary prepayment in excess thereof to
be applied to reduce
22
<PAGE> 29
succeeding Scheduled Repayments pro rata based upon the then remaining
amount of each Scheduled Repayment after giving effect to all prior
reductions thereto.
(b) In the event of a refusal by a Lender to consent to one or
more proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Lenders as (and to the
extent) provided in Section 13.12(b), the Borrower may, upon five Business Days'
prior written notice to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders)
repay all Loans, together with accrued and unpaid interest, Fees, and other
amounts owing to such Lender (or owing to such Lender with respect to each
Tranche which gave rise to the need to obtain such Lender's individual consent)
in accordance with, and subject to the requirements of, said Section 13.12(b) so
long as (i) in the case of the repayment of Revolving Loans of any Lender
pursuant to this clause (b) the Revolving Loan Commitment of such Lender is
terminated concurrently with such repayment pursuant to Section 3.02(b) (at
which time Schedule I shall be deemed modified to reflect the changed Revolving
Loan Commitments), and (ii) the consents, if any, required by Section 13.12(b)
in connection with the repayment pursuant to this clause (b) have been obtained.
4.02 Mandatory Repayments and Commitment Reductions. (a) On
any day on which the sum of the aggregate outstanding principal amount of the
Revolving Loans and Swingline Loans and the Letter of Credit Outstandings
exceeds the Total Revolving Loan Commitment as then in effect, the Borrower
shall prepay on such day principal of Swingline Loans in an amount up to the
amount of such excess and, after all Swingline Loans have been repaid in full,
Revolving Loans in an amount equal to such excess minus the principal amount of
Swingline Loans so prepaid. If, after giving effect to the prepayment of all
outstanding Swingline Loans and Revolving Loans, the aggregate amount of the
Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as
then in effect, the Borrower shall pay to the Administrative Agent at the
Payment Office on such day an amount of cash or Cash Equivalents equal to the
amount of such excess (up to a maximum amount equal to the Letter of Credit
Outstandings at such time), such cash or Cash Equivalents to be held as security
for all obligations of the Borrower to the Issuing Banks and the Lenders
hereunder in a cash collateral account to be established by the Administrative
Agent.
(b) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date set forth
below, the Borrower shall be required to repay that principal amount of Term
Loans, to the extent then outstanding, as is set forth opposite such date (each
such repayment, as the same may be reduced as provided in Sections 4.01(a) and
4.02(i), a "Scheduled Repayment," and each such date, a "Scheduled Repayment
Date"):
<TABLE>
<CAPTION>
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
July 31, 2002 $10,000,000
October 31, 2002 $ 3,750,000
January 31, 2003 $ 3,750,000
</TABLE>
23
<PAGE> 30
<TABLE>
<S> <C>
April 30, 2003 $ 3,750,000
July 31, 2003 $ 3,750,000
October 31, 2003 $ 6,250,000
January 31, 2004 $ 6,250,000
April 30, 2004 $ 6,250,000
Term Loan Maturity Date $ 6,250,000
</TABLE>
(c) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date on or after
the Effective Date upon which the Borrower or any of its Subsidiaries receives
any cash proceeds from any incurrence by the Borrower or any of its Subsidiaries
of Indebtedness for borrowed money (other than Indebtedness for borrowed money
permitted to be incurred pursuant to Section 9.04 as such Section is in effect
on the Effective Date), an amount equal to 100% of the Net Debt Proceeds of such
Indebtedness shall be applied as a mandatory repayment of principal of
outstanding Term Loans (and/or, if the Total Term Loan Commitment has not yet
been terminated, as a mandatory reduction to the Total Term Loan Commitment) in
accordance with the requirements of Sections 4.02(h) and (i).
(d) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date on or after
the Effective Date on which the Borrower or any of its Subsidiaries receives any
cash proceeds from any sale or issuance of its preferred or common equity, other
than (i) equity contributions to any Subsidiary of the Borrower made by the
Borrower or any other Subsidiary of the Borrower and (ii) sales or issuances to
employees, officers or directors of the Borrower or its Subsidiaries to the
extent such sales or issuances constitute compensation to such individuals, an
amount equal to 100% of such cash proceeds (net of all underwriting discounts,
fees and commissions and other costs and expenses associated therewith) of the
respective equity issuance or capital contribution shall be applied as a
mandatory repayment of outstanding Term Loans (and/or, if the Total Term Loan
Commitment has not yet been terminated, as a mandatory reduction to the Total
Term Loan Commitment) in accordance with the requirements of Sections 4.02(h)
and (i).
(e) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on or before the fifth
Business Day after each date on or after the Effective Date upon which the
Borrower or any of its Subsidiaries receives cash proceeds from any Asset Sale
(other than an Asset Sale permitted by Section 9.02(iii)), an amount equal to
100% of the Net Sale Proceeds from such Asset Sale shall be applied as a
mandatory repayment of principal of outstanding Term Loans (and/or, if the Total
Term Loan Commitment has not yet been terminated, as a mandatory reduction to
the Total Term Loan Commitment) in accordance with the requirements of Sections
4.02(h) and (i), provided that, so long as no Default or Event of Default then
exists, up to $3,000,000 in the aggregate in any fiscal year of the Borrower of
Net Sale Proceeds from Asset Sales may be used or contractually committed to be
used to purchase assets to be used in the Permitted Businesses pursuant to
Section 9.07(b) or to make acquisitions permitted under Section 9.02(ix) within
180 days following the date of such Asset Sale (and the Net Sale Proceeds
therefrom shall not be required to be applied on or before the fifth Business
24
<PAGE> 31
Day after the date of receipt of such Net Sale Proceeds pursuant to this Section
4.02(e)) so long as the Borrower delivers a certificate to the Administrative
Agent on or prior to such date stating that such Net Sale Proceeds shall be used
or contractually committed to be used to purchase like assets within 180-days
following the date of such Asset Sale (which certificate shall set forth the
estimates of the proceeds to be so expended) and provided further, that (1) if
all or any portion of such Net Sale Proceeds are not used within such 180 day
period or contractually committed to be so used within such 180-day period, 100%
of such remaining portion shall be applied on the last day of such 180-day
period as a mandatory repayment of principal of outstanding Term Loans as
provided above in this Section 4.02(e) without regard to the immediately
preceding proviso and (2) if all or any portion of such Net Sale Proceeds are
not required to be applied on the 180th day referred to in clause (1) above
because such amount is contractually committed to be used and subsequent to such
date such contract is terminated or expires without such portion being so used,
then such remaining portion shall be applied on the date of such termination or
expiration as a mandatory repayment of principal of outstanding Term Loans as
provided in this Section 4.02(e) without regard to the immediately preceding
proviso.
(f) In addition to any other mandatory repayments pursuant to
this Section 4.02, on each Excess Cash Payment Date, an amount equal to 75% of
the Excess Cash Flow of the Borrower for the relevant Excess Cash Payment Period
shall be applied as a mandatory repayment of principal of outstanding Term Loans
in accordance with the requirements of Sections 4.02(h) and (i).
(g) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, within five Business Days
following each date on or after the Effective Date upon which the Borrower or
any of its Wholly-Owned Subsidiaries receives cash proceeds from any Recovery
Event which, when added to all other cash proceeds from Recovery Events received
by the Borrower and its Subsidiaries during such fiscal year, exceed $500,000 in
the aggregate for such fiscal year of the Borrower, an amount equal to 100% of
the Net Insurance Proceeds of such Recovery Event shall be applied as a
mandatory repayment of principal of outstanding Term Loans (and/or, if the Total
Term Loan Commitment has not yet been terminated, as a mandatory reduction to
the Total Term Loan Commitment) in accordance with the requirements of Sections
4.02(h) and (i), provided that, so long as no Default or Event of Default then
exists, up to $5,000,000 in the aggregate in any fiscal year of the Borrower of
such proceeds shall not be required to be so applied on such date to the extent
that the Borrower has delivered a certificate to the Administrative Agent on or
prior to such date stating that such proceeds shall be used or shall be
contractually committed to be used to replace or restore any properties or
assets in respect of which such proceeds were paid (provided that, in the case
of a casualty event involving any store location, the Borrower shall have the
option to use such proceeds to replace or restore such store location or to
invest such proceeds in another store location) within 180 days following the
date of the receipt of such proceeds (which certificate shall set forth the
estimates of the proceeds to be so expended), and provided further, that (1) if
all or any portion of such proceeds not required to be applied to the repayment
of outstanding Term Loans (and/or as a reduction to the Total Term Loan
Commitment) are not so used or contractually committed to be used within 180
days after the date of the receipt of such proceeds, then such remaining portion
not used or contractually committed to be used shall be applied on
25
<PAGE> 32
the last day of such 180-day period as a mandatory repayment of principal of
outstanding Term Loans as provided above in this Section 4.02(g) without regard
to the immediately preceding proviso and (2) if all or any portion of such
proceeds are not required to be applied on the 180th day referred to in clause
(1) above because such amount is contractually committed to be used and
subsequent to such date such contract is terminated or expires without such
portion being so used, then such remaining portion shall be applied on the date
of such termination or expiration as a mandatory repayment of principal of
outstanding Term Loans as provided in this Section 4.02(g) without regard to the
immediately preceding proviso.
(h) With respect to each repayment of Loans required by this
Section 4.02, the Borrower may designate the Types of Loans of the respective
Tranche which are to be repaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings of the respective Tranche pursuant to which
made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section
4.02 may only be made on the last day of an Interest Period applicable thereto
unless all Eurodollar Loans of the respective Tranche with Interest Periods
ending on such date of required repayment and all Base Rate Loans of the
respective Tranche have been paid in full; (ii) if any repayment of Eurodollar
Loans made pursuant to a single Borrowing shall reduce the outstanding
Eurodollar Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount applicable thereto, such Borrowing shall be converted
at the end of the then current Interest Period into a Borrowing of Base Rate
Loans; and (iii) each repayment of any Loans made pursuant to a Borrowing shall
be applied pro rata among such Loans. In the absence of a designation by the
Borrower as described in the preceding sentence, the Administrative Agent shall,
subject to the above, make such designation in its sole discretion.
Notwithstanding the foregoing provisions of this Section 4.02(h), if at any time
a mandatory repayment of Loans pursuant to this Section 4.02(h) would result,
after giving effect to the procedures set forth above in this Section 4.02(h),
in the Borrower incurring breakage costs under Section 1.11 as a result of
Eurodollar Loans being prepaid other than on the last day of an Interest Period
applicable thereto (the "Affected Eurodollar Loans"), then the Borrower may in
its sole discretion, and upon notice to the Administrative Agent, initially
deposit a portion (up to 100%) of the amount that otherwise would have been paid
in respect of the Affected Eurodollar Loans with the Administrative Agent (which
deposit must be equal in amount to the amount of the Affected Eurodollar Loans
not immediately repaid) to be held as security for the Obligations of the
Borrower pursuant to a cash collateral arrangement satisfactory to the
Administrative Agent and the Borrower which shall permit investments in Cash
Equivalents reasonably satisfactory to the Administrative Agent, with such cash
collateral to be directly applied upon the earlier of (x) the first occurrence
(or occurrences) thereafter of the last day of an Interest Period applicable to
the relevant Affected Eurodollar Loans of the respective Tranche or Tranches
that were initially required to be repaid (or such earlier date or dates as
shall be requested by the Borrower) and (y) the date which is six months after
such initial deposit, to repay an aggregate principal amount of such Loans equal
to the Affected Eurodollar Loans not initially repaid pursuant to this sentence.
Notwithstanding anything to the contrary contained in the immediately preceding
sentence, all amounts deposited as cash collateral pursuant to the immediately
preceding sentence shall be held first for the sole benefit of the Lenders whose
Loans would otherwise have been immediately repaid with the amounts deposited
and upon the taking of any action by the Administrative Agent or the Lenders
pursuant to the remedial provisions of Section
26
<PAGE> 33
10, any amounts held as cash collateral pursuant to this Section 4.02(h) shall
first be immediately applied to such Loans and thereafter to the other
Obligations of the Borrower.
(i) The amount of each principal repayment of Term Loans (and
the amount of each reduction to the Term Loan Commitments) made as required by
said Sections 4.02(c) through (g), inclusive, shall be applied to reduce the
then remaining Scheduled Repayments pro rata based upon the then remaining
amount of each Scheduled Repayment after giving effect to all prior reductions
thereto.
(j) Notwithstanding anything to the contrary contained in this
Agreement or in any other Credit Document, the Borrower shall repay the
principal amount of Revolving Loans and Swingline Loans in such amounts and for
such time sufficient to cause a Clean-Down Period to occur during each
Applicable Clean Down Period occurring after the Initial Borrowing Date. Without
limiting the foregoing requirements, if, on the 30th day before the last day of
any Applicable Clean-Down Period, a Clean-Down Period has not theretofore
occurred (and been completed) during said Applicable Clean-Down Period, on such
date such repayments of principal of outstanding Revolving Loans and Swingline
Loans shall be made so that, if no further Revolving Loans or Swingline Loans
are incurred, a Clean-Down Period will occur on or prior to the last day of such
Applicable Clean-Down Period.
(k) Notwithstanding anything to the contrary contained in this
Agreement or in any other Credit Document, all then outstanding Loans of any
Tranche shall be repaid in full on the respective Maturity Date for such Tranche
of Loans.
4.03 Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement or under any
Note shall be made to the Administrative Agent for the account of the Lender or
Lenders entitled thereto on the date when due and shall be made in Dollars in
immediately available funds at the Payment Office of the Administrative Agent
and the Borrower agrees to instruct its bank which will be transmitting such
funds with respect to such payments not later than 10:00 A.M. (New York time) on
the date when due to effect such transmittal. Whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable during such extension at the applicable rate immediately prior to such
extension; provided that, in the case of payments of principal or interest on
any Eurodollar Loans, if such next succeeding Business Day is in a later
calendar month, such due date shall be the next preceding Business Day.
4.04 Net Payments. (a) All payments made by any Credit Party
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 4.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net
27
<PAGE> 34
income or net profits of a Lender pursuant to the laws of the jurisdiction in
which it is organized or the jurisdiction in which the principal office or
applicable lending office of such Lender is located or any subdivision thereof
or therein, such excluded taxes being herein referred to as "Excluded Taxes")
and all interest, penalties or similar liabilities with respect to such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
(all such non-excluded taxes, levies, imposts, duties, fees, assessments or
other charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and
such additional amounts as may be necessary so that every payment of all amounts
due under this Agreement or under any Note, after withholding or deduction for
or on account of any Taxes, will not be less than the amount provided for herein
or in such Note. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Lender, upon the
written request of such Lender, for taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or applicable
lending office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Lender is
organized or in which the principal office or applicable lending office of such
Lender is located and for any withholding of taxes as such Lender shall
reasonably determine are payable by, or withheld from, such Lender, in respect
of such amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. The Borrower will furnish to the Administrative Agent
within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts or other documentation
reasonably acceptable to the Administrative Agent evidencing such payment by the
Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and
reimburse such Lender upon its written request, for the amount of any Taxes so
levied or imposed and paid by such Lender. This indemnification shall be paid
within 30 days after such Lender makes demand therefor. After a Lender learns of
the imposition of Taxes, such Lender will act in good faith to promptly notify
the Borrower of its obligations hereunder.
(b) Each Lender that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrower and the Administrative Agent on or
prior to the Effective Date, or in the case of a Lender that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04
(unless the respective Lender was already a Lender hereunder immediately prior
to such assignment or transfer), on the date of such assignment or transfer to
such Lender, (i) two accurate and complete original signed copies of Internal
Revenue Service Form W-8ECI or W-8BEN (with respect to complete exemption under
an income tax treaty) (or successor forms) certifying to such Lender's
entitlement as of such date to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note, or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form W-8ECI or W-8BEN (with respect to complete exemption under an
income tax treaty) pursuant to clause (i) above, (x) a certificate substantially
in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii)
Certificate") and (y) two accurate and complete original signed copies of
Internal Revenue Service Form W-8BEN (with respect to the portfolio interest
exemption) (or successor form) certifying to such
28
<PAGE> 35
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments of interest to be made under this Agreement and under
any Note. In addition, each Lender agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Borrower and the Administrative Agent two new accurate and
complete original signed copies of Internal Revenue Service Form W-8ECI or Form
W-8BEN (with respect to the benefits of any income tax treaty), Form W8-BEN
(with respect to the portfolio interest exemption) and a Section 4.04(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower and the Agent of its inability to deliver any such Form or Certificate,
in which case such Lender shall not be required to deliver any such Form or
Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the
contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the
immediately succeeding sentence, (x) the Borrower shall be entitled, to the
extent required to do so by law, to deduct or withhold income or similar taxes
imposed by the United States (or any political subdivision or taxing authority
thereof or therein) from interest, Fees or other amounts payable hereunder for
the account of any Lender which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes
to the extent that such Lender has not provided to the Borrower U.S. Internal
Revenue Service Forms that establish a complete exemption from such deduction or
withholding and (y) the Borrower shall not be obligated pursuant to Section
4.04(a) hereof to gross-up payments to be made to a Lender in respect of income,
withholding or similar taxes imposed by the United States if (I) such Lender has
not provided to the Borrower the Internal Revenue Service Forms required to be
provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case of
a payment, other than interest, to a Lender described in clause (ii) above, to
the extent that such Forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 4.04 and except as set forth
in Section 13.04(b), the Borrower agrees to pay any additional amounts and to
indemnify each Lender in the manner set forth in Section 4.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the immediately
preceding sentence as a result of any changes that are effective after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of such Taxes.
(c) If the Borrower pays any additional amount under this
Section 4.04 to a Lender and such Lender determines in its reasonable discretion
that it has actually received or realized in connection therewith any refund or
any reduction of, or credit against, its tax liabilities in or with respect to
the taxable year in which the additional amount is paid (a "Tax Benefit"), such
Lender shall pay to the Borrower an amount that the Lender shall, in its
reasonable discretion, determine is equal to the net benefit, after tax, which
was obtained by the Lender in such year as a consequence of such Tax Benefit,
with the allocation of any such credits or deductions to be made in a manner
which provides the Borrower its equitable share thereof relative to other
borrowers to which such benefits may be allocable; provided, however, that (i)
29
<PAGE> 36
any Lender may determine, in its sole discretion consistent with the policies of
such Bank, whether to seek a Tax Benefit; (ii) any Taxes that are imposed on a
Lender as a result of a disallowance or reduction (including through the
expiration of any tax credit carryover or carryback of such Lender that
otherwise would not have expired) of any Tax Benefit with respect to which such
Lender has made a payment to the Borrower pursuant to this Section 4.04(c) shall
be treated as a Tax for which the Borrower is obligated to indemnify such Lender
pursuant to this Section 4.04 without any exclusions or defenses; and (iii)
nothing in this Section 4.04(c) shall require the Lender to disclose any
confidential information to the Borrower (including, without limitation, its tax
returns).
SECTION 5. Conditions Precedent. The obligation of each Lender
to make Loans, and the obligation of any Issuing Bank to issue Letters of
Credit, on the Initial Borrowing Date, is subject at the time of the making of
such Loans or the issuance of such Letters of Credit to the satisfaction of the
following conditions:
5.01 Execution of Agreement; Notes. On or prior to the Initial
Borrowing Date, (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each of the
Lenders that shall have requested Notes the appropriate Term Note and/or
Revolving Note executed by the Borrower and to the Swingline Lender, the
Swingline Note executed by the Borrower, in each case as provided herein.
5.02 Officer's Certificate. On the Initial Borrowing Date, the
Administrative Agent shall have received a certificate, dated the Initial
Borrowing Date and signed on behalf of the Borrower by the Chief Executive
Officer or Chief Financial Officer of the Borrower, stating that all of the
conditions in Sections 5.07, 5.08 and 6.01 have been satisfied on such date.
5.03 Opinions of Counsel. On the Initial Borrowing Date, the
Administrative Agent shall have received from (i) Davis Polk & Wardwell, counsel
to the Credit Parties and The Limited, an opinion addressed to the
Administrative Agent and each of the Lenders and dated the Initial Borrowing
Date, covering the matters set forth in Exhibit E and such other matters
incident to the transactions contemplated herein as the Administrative Agent may
reasonably request and (ii) local counsel (reasonably satisfactory to the
Administrative Agent), opinions each of which shall (x) be addressed to the
Administrative Agent and each of the Lenders and dated the Initial Borrowing
Date, (y) be in form and substance reasonably satisfactory to the Administrative
Agent and (z) cover the perfection of the security interests granted pursuant to
the Security Documents and such other matters incident to the transactions
contemplated herein as the Administrative Agent may reasonably request.
5.04 Corporate Documents; Proceedings; etc. (a) On the Initial
Borrowing Date, the Administrative Agent shall have received a certificate from
each Credit Party, dated the Initial Borrowing Date, signed by the President or
any Vice President of such Credit Party, and attested to by the Secretary or any
Assistant Secretary of such Credit Party, in the form of Exhibit F with
appropriate insertions, together with copies of the certificate of incorporation
(or equivalent organizational document) and by-laws of such Credit Party and the
resolutions of such
30
<PAGE> 37
Credit Party referred to in such certificate, and all such certificates of
incorporation, by-laws and resolutions shall be in form and substance reasonably
acceptable to the Administrative Agent.
(b) All corporate and legal proceedings and all instruments
and agreements in connection with the Transaction and the other transactions
contemplated by this Agreement and the other Documents (including, without
limitation, all SEC filings relating to the Spin-Off) shall be reasonably
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of all
documents and papers, including records of corporate proceedings, SEC filings,
governmental approvals, good standing certificates and bring-down telegrams or
facsimiles, if any, which the Administrative Agent may have reasonably requested
in connection therewith, such documents and papers where appropriate to be
certified by proper corporate or governmental authorities.
5.05 Employee Benefit Plans; Shareholders' Agreements;
Management Agreements; Collective Bargaining Agreements; Existing Indebtedness
Agreements; Tax Sharing Agreements; Employment Agreements. On or prior to the
Initial Borrowing Date, there shall have been made available for review by the
Administrative Agent true and correct copies of the following documents:
(i) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of
the most recent such report (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information), and
for each Plan that is a "single-employer plan," as defined in Section
4001(a)(15) of ERISA, the most recently prepared actuarial valuation
therefor (if any)) and any other "employee benefit plans", as defined
in Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees of
the Borrower or any of its Subsidiaries or any ERISA Affiliate
(collectively, the "Employee Benefit Plans");
(ii) all material agreements entered into by the Borrower or
any of its Subsidiaries governing the terms and relative rights of its
capital stock and any agreements entered into by shareholders relating
to any such entity with respect to its capital stock (collectively, the
"Shareholders' Agreements");
(iii) all material agreements (other than Employment
Agreements) with respect to the management of the Borrower or any of
its Subsidiaries (collectively, the "Management Agreements");
(iv) all collective bargaining agreements applying or relating
to any employee of the Borrower or any of its Subsidiaries
(collectively, the "Collective Bargaining Agreements");
(v) all agreements evidencing or relating to Indebtedness of
the Borrower or any of its Subsidiaries which is to remain outstanding
after giving effect to the incurrence of Loans on the Initial Borrowing
Date to the extent such Indebtedness exceeds (or upon
31
<PAGE> 38
the utilization of any unused commitments may exceed) $250,000
(collectively, the "Existing Indebtedness Agreements");
(vi) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower or any of its Subsidiaries
(collectively, the "Tax Sharing Agreements"); and
(vii) all employment agreements entered into by the Borrower
or any of its Subsidiaries with the top five most highly compensated
employees of the Borrower and/or its Subsidiaries and any other key
executives of the Borrower and/or its Subsidiaries (collectively, the
"Employment Agreements").
5.06 Consummation of the Transaction. (a) On the Initial
Borrowing Date and concurrently with the initial borrowing of Loans hereunder,
the Borrower shall have paid to The Limited a cash dividend not to exceed
$50,000,000 and repaid working capital advances theretofore made to the Borrower
by the Limited in an aggregate amount not to exceed $12,000,000 (with such
amount of reimbursed working capital advances to be subject to post-closing
adjustments as provided in the respective Spin-Off Documents pursuant to Section
8.11), and the Agents shall be satisfied with the terms of the Spin-Off and the
form, scope and substance of the Spin-Off Documents. Without limiting the
foregoing, the Agents shall be satisfied with the assets and liabilities and the
corporate and capital structure of the Borrower (including pro forma
stockholder's equity of the Borrower as of the Initial Borrowing Date of at
least $19,000,000), in each case after giving effect to the Spin-Off.
(b) On the Initial Borrowing Date, all Indebtedness of the
Borrower and its Subsidiaries which is not permitted to remain outstanding
pursuant to Section 9.04 shall have been (or shall be simultaneously with the
initial borrowing of Term Loans hereunder) repaid in full and all commitments in
respect thereof shall have been (or shall be simultaneously with the initial
borrowing of Term Loans hereunder) terminated and all Liens and guaranties in
connection therewith shall have been (or shall be simultaneously with the
initial borrowing of Term Loans hereunder) terminated (and all appropriate
releases, termination statements or other instruments of assignment with respect
thereto shall have been obtained, or arrangements satisfactory to the Agents for
such terminations shall have been made) to the reasonable satisfaction of the
Administrative Agent, and the Administrative Agent shall have received
satisfactory evidence thereof (including satisfactory pay-off letters and UCC-3
Termination Statements). After giving effect to the consummation of the
Transaction, the Borrower and its Subsidiaries shall have no outstanding
Indebtedness except (i) the Obligations and (ii) such other indebtedness
permitted to remain outstanding pursuant to Section 9.04.
5.07 Adverse Change, etc. (a) On or prior to the Initial
Borrowing Date, nothing shall have occurred (and the Agents shall have become
aware of no facts or conditions not previously known) which is reasonably likely
to have a material adverse effect on the rights or remedies of the Lenders or
the Administrative Agent, or on the ability of the Borrower or its Subsidiaries
to perform their obligations to the Lenders or which has had a materially
adverse effect on the business, property, assets, liabilities, financial
condition or prospects of the
32
<PAGE> 39
Borrower or the Borrower and its Subsidiaries taken as a whole, in each case
after giving effect to the consummation of the Transaction.
(b) All necessary material governmental approvals and/or
consents, all necessary material shareholder and board of director approvals
and/or consents, in each case in connection with the Transaction and the other
transactions contemplated by the Documents and otherwise referred to herein or
therein, shall have been obtained and remain in effect, and all applicable
waiting periods with respect thereto shall have expired without any action being
taken by any competent authority which restrains, prevents or imposes materially
adverse conditions upon, the consummation of the Transaction or the other
transactions contemplated by the Credit Documents or otherwise referred to
herein or therein. Additionally, there shall not exist any judgment, order,
injunction or other restraint issued or filed or a hearing seeking injunctive
relief or other restraint pending or notified by any governmental authority or
instrumentality prohibiting or imposing materially adverse conditions upon the
Transaction or the other transactions contemplated by the Credit Documents.
5.08 Litigation. On the Initial Borrowing Date, (i) no
litigation by any entity (private or governmental) shall be pending or
threatened which is reasonably likely to have a material adverse effect on the
rights or remedies of the Lenders or the Administrative Agent, or on the ability
of the Borrower or its Subsidiaries to perform their respective obligations to
the Lenders or which is reasonably likely to have a materially adverse effect on
the business, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole and (ii) no
litigation by any governmental authority or instrumentality shall be pending or
threatened with respect to the Transaction or any Document, in each case after
giving effect to the consummation of the Transaction.
5.09 Pledge Agreement. On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered the Pledge
Agreement in the form of Exhibit G (as amended, modified or supplemented from
time to time, the "Pledge Agreement") and shall have delivered to the Collateral
Agent, as Pledgee thereunder, all of the Pledged Securities, if any, referred to
therein then owned by such Credit Party, which Pledged Securities shall be (x)
endorsed in blank or accompanied by instruments of transfer executed in blank,
in the case of promissory notes constituting Pledged Securities, and (y)
accompanied by executed and undated stock powers, in the case of capital stock
constituting Pledged Securities.
5.10 Security Agreement. On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered the Security
Agreement in the form of Exhibit H (as modified, supplemented or amended from
time to time, the "Security Agreement") covering all of such Credit Party's
present and future Security Agreement Collateral, together with:
(i) proper Financing Statements (Form UCC-1 or the equivalent)
fully executed for filing under the UCC or other appropriate filing
offices of each jurisdiction as may be necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect the security
interests purported to be created by the Security Agreement;
33
<PAGE> 40
(ii) copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, listing all effective financing
statements that name any Credit Party as debtor and that are filed in
the jurisdictions referred to in clause (i) above, together with copies
of such other financing statements that name any Credit Party as debtor
(none of which shall cover the Collateral except to the extent
evidencing Permitted Liens or in respect of which the Collateral Agent
shall have received termination statements (Form UCC-3) or such other
termination statements as shall be required by local law fully executed
for filing); and
(iii) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security
Agreement (other than security interests in motor vehicles) have been
(or within 10 days following the Initial Borrowing Date will be) taken.
5.11 Subsidiaries Guaranty. On the Initial Borrowing Date,
each Subsidiary Guarantor shall have duly authorized, executed and delivered the
Subsidiaries Guaranty in the form of Exhibit I (as amended, modified or
supplemented from time to time, the "Subsidiaries Guaranty").
5.12 Mortgages; Title Insurance; Survey; etc. On the Initial
Borrowing Date, the Collateral Agent shall have received:
(i) fully executed counterparts of Mortgages, in form and
substance reasonably satisfactory to the Agents, which Mortgages shall
cover the Mortgaged Properties (if any) owned in fee by the Credit
Parties on the Initial Borrowing Date as designated on Schedule III,
together with evidence that counterparts of such Mortgages have been
delivered to the title insurance company insuring the Lien of such
Mortgages for recording in all places to the extent necessary or, in
the reasonable opinion of the Collateral Agent, desirable, to
effectively create a valid and enforceable first priority mortgage lien
on each such Mortgaged Property in favor of the Collateral Agent (or
such other trustee as may be required or desired under local law) for
the benefit of the Secured Creditors;
(ii) to the extent requested by the Agents, a mortgagee title
insurance policy on each such Mortgaged Property issued by a title
insurer reasonably satisfactory to the Agents (the "Mortgage Policies")
in amounts satisfactory to the Agents assuring the Collateral Agent
that the Mortgages on such Mortgaged Properties are valid and
enforceable mortgage liens on the respective Mortgaged Properties, free
and clear of all defects and encumbrances except Permitted Encumbrances
and such Mortgage Policies shall otherwise be in form and substance
reasonably satisfactory to the Agents and shall include, as appropriate
and to the extent available on a commercially reasonable basis, an
endorsement for future advances under this Agreement and the Notes and
for any other matter that the Agents in their reasonable discretion may
reasonably request, shall not include (to the extent permissible under
applicable state law and to the extent available on a commercially
reasonable basis) an exception for mechanics' liens, and shall provide
for
34
<PAGE> 41
affirmative insurance and such reinsurance as the Agents in their
discretion may reasonably request;
(iii) to the extent requested by the Agents, a survey, in form
and substance reasonably satisfactory to the Agents, of each such
Mortgaged Property, certified by a licensed professional surveyor
reasonably satisfactory to the Agents; and
(iv) such landlord waivers and/or estoppel certificates as the
Agents may have reasonably required, which landlord waivers and/or
estoppel certificates shall be in form and substance reasonably
satisfactory to the Agents.
5.13 Loan Purchase Agreement. On the Initial Borrowing Date,
The Limited shall have duly authorized executed and delivered the Loan Purchase
Agreement in the form of Exhibit J (as amended, modified or supplemented from
time to time, the "Loan Purchase Agreement").
5.14 Projections; Pro Forma Balance Sheet. On or prior to the
Initial Borrowing Date, the Agents shall have received copies of the financial
statements (including the pro forma financial statements) and Projections
referred to in Sections 7.05(a) and (d).
5.15 Solvency Certificate; Insurance Certificates. On the
Initial Borrowing Date, the Borrower shall have delivered to the Administrative
Agent:
(i) a solvency certificate from the Chief Financial Officer of
the Borrower in the form of Exhibit K; and
(ii) certificates of insurance complying with the requirements
of Section 8.03 for the business and properties of the Borrower and its
Subsidiaries, in form and substance satisfactory to the Agents and
naming the Collateral Agent as an additional insured and as loss payee,
with respect to property damage coverage, and stating that such
insurance shall not be canceled without at least 30 days prior written
notice by the insurer to the Collateral Agent (or such shorter period
of time as a particular insurance company generally provides).
5.16 Fees, etc. On the Initial Borrowing Date, the Borrower
shall have paid to the Agents and the Lenders all costs, fees and expenses
(including, without limitation, legal fees and expenses) payable to the Agents
and the Lenders to the extent then due.
SECTION 6. Conditions Precedent to All Credit Events. The
obligation of each Lender to make Loans (including Loans made on the Initial
Borrowing Date), and the obligation of any Issuing Bank to issue any Letter of
Credit (including Letters of Credit issued on the Initial Borrowing Date), is
subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time
of each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of
35
<PAGE> 42
Default and (ii) all representations and warranties contained herein or in the
other Credit Documents shall be true and correct in all material respects with
the same effect as though such representations and warranties had been made on
the date of such Credit Event (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of
such specified date).
6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior
to the making of each Loan (other than a Swingline Loan or a Revolving Loan made
pursuant to a Mandatory Borrowing), the Administrative Agent shall have received
a Notice of Borrowing meeting the requirements of Section 1.03(a). Prior to the
making of each Swingline Loan, the Swingline Lender shall have received the
notice referred to in Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the
Administrative Agent and the respective Issuing Bank shall have received a
Letter of Credit Request meeting the requirements of Section 2.03.
6.03 Special Conditions Regarding Clean-Down Periods. During
the last 30 days in each Applicable Clean-Down Period (x) no Revolving Loan or
Swingline Loan may be incurred unless a Clean-Down Period has already occurred
(and been completed) during such Applicable Clean-Down Period and (y) no Letter
of Credit may be issued unless a Clean-Down Period (i) has already occurred and
been completed in such Applicable Clean-Down Period or (ii) has commenced on or
prior to the 29th day prior to the last day of such Applicable Clean-Down Period
and is continuing without interruption.
The acceptance of the proceeds of each Loan and the making of
each Letter of Credit Request shall constitute a representation and warranty by
the Borrower to the Administrative Agent and each of the Lenders that all the
conditions specified in Section 5 (with respect to Credit Events on the Initial
Borrowing Date) and in this Section 6 (with respect to Credit Events on and
after the Initial Borrowing Date) and applicable to such Credit Event exist as
of that time. All of the Notes (if any), certificates, legal opinions and other
documents and papers referred to in Section 5 and in this Section 6, unless
otherwise specified, shall be delivered to the Administrative Agent at the
Notice Office for the account of each of the Lenders and, except for the Notes
(if any) and the documents referred to in Section 5.05, in sufficient
counterparts or copies for each of the Lenders and shall be in form and
substance reasonably satisfactory to the Administrative Agent and the Required
Lenders.
SECTION 7. Representations and Warranties. In order to induce
the Lenders to enter into this Agreement and to make the Loans, and issue (or
participate in) the Letters of Credit as provided herein, the Borrower makes the
following representations, warranties and agreements, in each case after giving
effect to the Transaction, all of which shall survive the execution and delivery
of this Agreement and the Notes (if any) and the making of the Loans and
issuance of the Letters of Credit, with the occurrence of each Credit Event on
or after the Initial Borrowing Date being deemed to constitute a representation
and warranty that the matters specified in this Section 7 are true and correct
in all material respects on and as of the date of
36
<PAGE> 43
each such Credit Event (it being understood and agreed that any representation
or warranty which by its terms is made as of a specified date shall be required
to be true and correct only as of such specified date).
7.01 Corporate and Other Status. Each Credit Party and each of
its Subsidiaries (i) is a duly organized and validly existing corporation, in
good standing under the laws of the jurisdiction of its organization, (ii) has
the corporate power and authority to own its property and assets and to transact
the business in which it is engaged and presently proposes to engage and (iii)
is duly qualified and is authorized to do business and is in good standing in
each jurisdiction where the ownership, leasing or operation of its property or
the conduct of its business requires such qualifications, except, in each case,
for failures which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, financial condition or prospects of the Borrower
or the Borrower and its Subsidiaries taken as a whole.
7.02 Corporate and Other Power and Authority. Each Credit
Party has the corporate power and authority to execute, deliver and perform the
terms and provisions of each of the Documents to which it is party and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of each of such Documents. Each Credit Party has duly executed
and delivered each of the Documents to which it is party, and each of such
Documents constitutes its legal, valid and binding obligation enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and to general equitable principles (regardless of whether enforcement
is sought in equity or at law).
7.03 No Violation. Neither the execution, delivery or
performance by any Credit Party of the Documents to which it is a party, nor
compliance by it with the terms and provisions thereof, (i) will contravene any
material provision of any law, statute, rule or regulation or any order, writ,
injunction or decree of any court or governmental instrumentality, (ii) will
conflict with or result in any breach of any of the terms, covenants, conditions
or provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien (except pursuant
to the Security Documents) upon any of the property or assets of the Borrower or
any of its Subsidiaries pursuant to the terms of any material indenture,
mortgage, deed of trust, credit agreement or loan agreement, or any other
material agreement, contract or instrument, to which the Borrower or any of its
Subsidiaries is a party or by which it or any of its property or assets is bound
or to which it may be subject or (iii) will violate any material provision of
the certificate of incorporation, by-laws, limited liability company agreement
or partnership agreement (or equivalent organizational documents) of the
Borrower or any of its Subsidiaries.
7.04 Governmental Approvals. No material order, consent,
approval, license, authorization or validation of, or filing, recording or
registration with (except for those that have otherwise been obtained or made on
or prior to the Initial Borrowing Date and which remain in full force and effect
on the Initial Borrowing Date and, in the case of UCC Financing Statements, as
will be made within 10 days of the Initial Borrowing Date), or exemption by, any
37
<PAGE> 44
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Document or (ii) the legality, validity, binding
effect or enforceability of any such Document.
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) The consolidated balance sheets of the
Borrower and its Subsidiaries at January 31, 1998 and January 30, 1999 and May
2, 1998 and May 1, 1999, and the consolidated statements of operations and cash
flows of the Borrower and its Subsidiaries for the fiscal years ended February
1, 1997, January 31, 1998 and January 30, 1999 and fiscal quarters ended May 2,
1998 and May 1, 1999, copies of which have been furnished to the Lenders prior
to the Initial Borrowing Date, present fairly the consolidated financial
position of the Borrower and its Subsidiaries at the date of such balance sheets
and the consolidated results of the operations of the Borrower and its
Subsidiaries for the periods covered thereby. After giving effect to the
Transaction, there has been no material adverse change in the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole since January
30, 1999.
(b) The pro forma consolidated balance sheet of the Borrower
and its Subsidiaries as of May 1, 1999, after giving effect to the Transaction,
and the pro forma consolidated statements of operations of the Borrower and its
subsidiaries for the fiscal year ended January 30, 1999 and the fiscal quarter
ended May 1, 1999, giving effect to the Transaction as if the same had been
consummated on such date (in the case of such balance sheets) or the first day
of such period (in the case of such statements of operations), copies of which
have been furnished to the Lenders prior to the Effective Date, present fairly
in all material respects the pro forma consolidated financial position of the
Borrower and its Subsidiaries as of May 1, 1999 and the pro forma consolidated
results of operations of the Borrower and its Subsidiaries for the periods
covered thereby.
(c) (i) On and as of the Initial Borrowing Date and after
giving effect to the Transaction and to all Indebtedness (including the Loans)
being incurred or assumed and Liens created by the Credit Parties in connection
therewith, (a) the sum of the assets, at a fair valuation, of each of the
Borrower on a stand alone basis and of the Borrower and its Subsidiaries taken
as a whole will exceed its debts; (b) each of the Borrower on a stand alone
basis and the Borrower and its Subsidiaries taken as a whole has not incurred
and does not intend to incur debts beyond their ability to pay such debts as
such debts mature; and (c) each of the Borrower on a stand alone basis and the
Borrower and its Subsidiaries taken as a whole will have sufficient capital with
which to conduct its business. For purposes of this Section 7.05(b), "debt"
means any liability on a claim, and "claim" means (i) right to payment, whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
38
<PAGE> 45
(d) Except as fully disclosed in the financial statements
delivered pursuant to Section 7.05(a) there were as of the Initial Borrowing
Date no liabilities or obligations with respect to the Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in aggregate,
could reasonably be expected to have a material and adverse effect on the
business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
As of the Initial Borrowing Date, the Borrower does not know of any basis for
the assertion against it or any of its Subsidiaries of any liability or
obligation of any nature whatsoever that is not fully disclosed in the financial
statements delivered pursuant to Section 7.05(a) which, either individually or
in the aggregate, could reasonably be expected to have a material adverse effect
on the business, operations, property, assets, liabilities, financial condition
or prospects of the Borrower or the Borrower and its Subsidiaries taken as a
whole.
(e) On and as of the Initial Borrowing Date, the Projections
delivered to the Administrative Agent and the Lenders prior to the Initial
Borrowing Date have been prepared in good faith and are based on reasonable
assumptions. On the Initial Borrowing Date, the Borrower believes that the
Projections are reasonable and attainable, it being understood that the
Projections include assumptions as to future events that are not to be viewed as
facts and that actual results may differ from the projected results and such
differences may be material.
7.06 Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrower, threatened (i) by any entity
(private or governmental) that could reasonably be expected to materially and
adversely affect the legality or enforceability of this Agreement or materially
and adversely affect the business, operations, property, assets, liabilities,
financial condition or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole or the ability of the Borrower and/or its
Subsidiaries to perform their respective obligations under the Credit Documents
or (ii) by any governmental authority or instrumentality with respect to the
Transaction or any Document.
7.07 True and Complete Disclosure. All factual information
furnished by any Credit Party in writing to the Administrative Agent or any
Lender (including, without limitation, all information contained in the
Documents) for purposes of or in connection with this Agreement, the other
Credit Documents or any transaction contemplated herein or therein taken as a
whole is, and all other such factual information hereafter furnished by or on
behalf of any Credit Party in writing to the Administrative Agent or any Lender
taken as a whole will be, to the best of its knowledge, true and accurate in all
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any fact necessary to make such
information not misleading in any material respect at such time in light of the
circumstances under which such information was provided.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of
the Term Loans will be used by the Borrower to finance the Transaction and to
pay fees and expenses related to the Transaction.
39
<PAGE> 46
(b) The proceeds of all Revolving Loans and all Swingline
Loans will be used for the Borrower's and its Subsidiaries' general corporate
and working capital purposes, including, without limitation, the repayment of
working capital advances previously made to the Borrower by The Limited in
connection with the Transaction, provided that not more than $20,000,000 in the
aggregate of Revolving Loans may be used on the Initial Borrowing Date to fund
the Transaction.
(c) No part of any Credit Event (or the proceeds thereof) will
be used to purchase or carry any Margin Stock or to extend credit for the
purpose of purchasing or carrying any Margin Stock. Neither the making of any
Loan nor the use of the proceeds thereof nor the occurrence of any other Credit
Event will violate or be inconsistent with the provisions of Regulation U or X
of the Board of Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. (a) Each of the Borrower and
each of its Subsidiaries has filed all federal income tax returns and all other
material tax returns, domestic and foreign, required to be filed by it and has
paid all material taxes and assessments payable by it which have become due,
except for those contested in good faith and for which the Borrower has
established adequate reserves in accordance with GAAP. There is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of the Borrower or any of its Subsidiaries, threatened by any
authority regarding any taxes relating to the Borrower or any of its
Subsidiaries that could reasonably be expected to materially and adversely
affect the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole. Neither the Borrower nor any of its Subsidiaries
has entered into a written agreement or waiver or been requested to enter into a
written agreement or waiver extending any statute of limitations relating to the
payment or collection of taxes of the Borrower or any of its Subsidiaries.
Neither the Borrower nor any of its Subsidiaries has incurred, or will incur,
any material tax liability in connection with the Transaction.
(b) Based on the Borrower's knowledge and belief as of the
Initial borrowing Date, as result of or in connection with the Spin-Off, there
shall not be triggered any (i) gain with respect to intercompany transactions
within the meaning of Treasury Regulation Section 1.1502-13, (ii) gain with
respect to any excess loss account within the meaning of Treasury Regulation
Section 1.1502-19 or (iii) gain or income with respect to any "similar items" as
such term is used in the defined term "Too, Inc. Federal Tax Liability" in the
Tax Separation Agreement.
(c) Except as set forth on Schedule 7.09 neither the Borrower
nor any of its Subsidiaries shall have any material liability to indemnify The
Limited or any of its Subsidiaries pursuant to Section 5(a)(iii) of the Tax
Separation Agreement except to the extent such liability is also triggered by
Sections 5(a)(i) or 5(a)(ii) thereof.
7.10 Compliance with ERISA. (i) Schedule 7.10 sets forth, as
of the Initial Borrowing Date, each Plan. Except to the extent that the same,
taken individually and in the aggregate, could not reasonably be expected to
have a material adverse effect on the business, operations, property, assets,
liabilities, financial condition or prospects of the Borrower or the
40
<PAGE> 47
Borrower and its Subsidiaries taken as a whole: each Plan (and each related
trust, insurance contract or fund) is in substantial compliance with its terms
and with all applicable laws, including without limitation ERISA and the Code;
each Plan (and each related trust, if any) which is intended to be qualified
under Section 401(a) of the Code has received, or will in the ordinary course
apply and take such action as is reasonably required to obtain, a determination
letter from the Internal Revenue Service to the effect that it meets the
requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has
occurred; no Plan which is a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of any such accumulated funding deficiency or an extension of any amortization
period in respect thereof, within the meaning of Section 412 of the Code or
Section 303 or 304 of ERISA; all contributions required to be made with respect
to a Plan have been or will be timely made; neither the Borrower nor any of its
Subsidiaries nor any ERISA Affiliate has incurred any material liability
(including any indirect, contingent or secondary liability) to or on account of
a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or
reasonably expects to incur any such liability under any of the foregoing
sections with respect to any Plan; no condition exists which presents a material
risk to the Borrower or any of its Subsidiaries or any ERISA Affiliate of
incurring a liability to or on account of a Plan pursuant to the foregoing
provisions of ERISA and the Code; no proceedings have been instituted to
terminate or appoint a trustee to administer any Plan which is subject to Title
IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with
respect to the administration, operation or the investment of assets of any Plan
(other than routine claims for benefits) is pending, or, to the best knowledge
of the Borrower or any of its Subsidiaries, expected or threatened; using
actuarial assumptions and computation methods consistent with Part 1 of subtitle
E of Title IV of ERISA, the Borrower and its Subsidiaries and ERISA Affiliates
would have no liabilities to any Plans which are multiemployer plans (as defined
in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom;
each group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) which covers or has covered employees or former
employees of the Borrower, any of its Subsidiaries, or any ERISA Affiliate has
at all times been operated in compliance with the provisions of Part 6 of
subtitle B of Title I of ERISA and Section 4980B of the Code; and no lien
imposed under the Code or ERISA on the assets of the Borrower or any of its
Subsidiaries or any ERISA Affiliate exists or is likely to arise on account of
any Plan. The Borrower and its Subsidiaries do not maintain or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) which
provides benefits to retired employees or other former employees (other than as
required by part 6 of subtitle B of Title I of ERISA or Section 4980B of the
Code) or any Plan not intended to be qualified under Section 401(a) of the Code
the obligations with respect to which could reasonably be expected to have a
material adverse effect on the ability of the Borrower to perform its
obligations under this Agreement.
(ii) Except to the extent that any of the circumstances
described in the following clauses (x), (y) and (z), taken individually or in
the aggregate, could not reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities, financial
41
<PAGE> 48
condition or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole, (x) each Foreign Pension Plan has been maintained in
compliance with its terms and with the requirements of any and all applicable
laws, statutes, rules, regulations and orders and has been maintained, where
required, in good standing with applicable regulatory authorities, (y) all
contributions required to be made with respect to a Foreign Pension Plan have
been timely made and (z) neither the Borrower nor any of its Subsidiaries has
incurred any obligation in connection with the termination of or withdrawal from
any Foreign Pension Plan. The Borrower and its Subsidiaries do not maintain or
contribute to any Foreign Pension Plan the obligations with respect to which
could reasonably be expected to materially and adversely affect the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole.
7.11 The Security Documents. (a) The provisions of the
Security Agreement are effective to create in favor of the Collateral Agent for
the benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the Credit Parties in the Security
Agreement Collateral described therein, and upon the filing of Form UCC-1
financing statements or the appropriate equivalent (which filings, if this
representation is being made more than 10 days after the Initial Borrowing Date,
have been made), such security interests (other than security interests in motor
vehicles) shall be perfected, subject to no other Liens other than Permitted
Liens, to the extent a security interest in such collateral can be perfected by
the filing of a financing statement. The recordation of the Assignment of
Security Interest in U.S. Patents and Trademarks in the form attached to the
Security Agreement in the United States Patent and Trademark Office together
with filings on Form UCC-1 made pursuant to the Security Agreement will be
effective when recorded or filed (which recordings or filings, if this
representation is being made more than 10 days after the Initial Borrowing Date,
have been made), under applicable law, to perfect the security interest granted
to the Collateral Agent in the trademarks and patents covered by the Security
Agreement and the recordation of the Assignment of Security Interest in U.S.
Copyrights in the form attached to the Security Agreement with the United States
Copyright Office together with filings on Form UCC-1 made pursuant to the
Security Agreement will be effective when recorded or filed (which recordings or
filings, if this representation is being made more than 10 days after the
Initial Borrowing Date, have been made) under federal law to perfect the
security interest granted to the Collateral Agent in the copyrights covered by
the Security Agreement.
(b) So long as the Collateral Agent retains possession of the
certificates evidencing such Pledged Securities in the State of New York (to the
extent such Pledged Securities are certificated), the security interests created
in favor of the Collateral Agent, as Pledgee, for the benefit of the Secured
Creditors, under the Pledge Agreement constitute perfected security interests in
the Pledged Securities described in the Pledge Agreement, subject to no security
interests of any other Person other than Permitted Liens under clauses (i), (ii)
and (x) of Section 9.01. No filings or recordings are required in order to
perfect (or maintain the perfection or priority of) the security interests
created in the Pledged Securities under the Pledge Agreement.
42
<PAGE> 49
(c) The Mortgages (if any) create upon recording, for the
obligations purported to be secured thereby, a valid and enforceable perfected
security interest in and mortgage lien on all of the Mortgaged Properties in
favor of the Collateral Agent (or such other trustee as may be required or
desired under local law) for the benefit of the Secured Creditors, superior to
and prior to the rights of all third persons (except that the security interest
and mortgage lien created in the Mortgaged Properties may be subject to the
Permitted Encumbrances related thereto) and subject to no other Liens (other
than Liens permitted under Section 9.01). Schedule 7.11 contains a true and
complete list of each parcel of Real Property owned or leased by the Borrower
and its Subsidiaries on the Initial Borrowing Date, and the type of interest
therein held by the Borrower or such Subsidiary. Except to the extent the
failure to do so could, individually or in the aggregate with all other such
failures, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole,
the Borrower and each of its Subsidiaries have (i) good and marketable title to
all fee-owned Real Property free and clear of all Liens except those described
in the first sentence of this subsection (c) and (ii) valid leasehold title to
all Leaseholds.
7.12 Properties. Except to the extent the failure to do so
could, individually or in the aggregate with all or other such failures,
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole, the Borrower
and each of its Subsidiaries have good and marketable title to all material
properties owned by them, including all material property reflected in the
balance sheets referred to in Section 7.05(a), free and clear of all Liens,
other than Liens permitted by Section 9.01.
7.13 Capitalization. After giving effect to the Transaction,
(i) the authorized capital stock of the Borrower shall consist of 100,000,000
shares of common stock, $[.01] par value per share, of which approximately
30,000,000 shares are issued and outstanding, (ii) all outstanding shares of
capital stock of the Borrower have been duly and validly issued, are fully paid
and nonassessable and (iii) except for options or warrants to purchase shares of
common stock of the Borrower held by officers, directors and employees of the
Borrower or any of its Subsidiaries, the Borrower does not have outstanding any
securities convertible into or exchangeable for its capital stock or any rights
to subscribe for or to purchase, or any options for the purchase of, or any
agreement providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its capital stock.
7.14 Subsidiaries. As of the Initial Borrowing Date, the
Borrower has no Subsidiaries other than those Subsidiaries listed on Schedule
7.14. Schedule 7.14 correctly sets forth, as of the Initial Borrowing Date, the
percentage ownership (direct or indirect) of the Borrower in each class of
capital stock or other equity of each of its Subsidiaries and also identifies
the direct owner thereof.
7.15 Compliance with Statutes, etc. Each of the Borrower and
its Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct
43
<PAGE> 50
of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls), except such noncompliances as could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
7.16 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.17 Public Utility Holding Company Act. Neither the Borrower
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
7.18 Environmental Matters. (a) The Borrower and each of its
Subsidiaries have complied with, and on the date of each Credit Event are in
compliance with, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws. There are no pending or, to the
knowledge of the Borrower, past or threatened Environmental Claims against the
Borrower or any of its Subsidiaries (including any such claim arising out of the
ownership or operation by the Borrower or any of its Subsidiaries of any Real
Property no longer owned or operated by the Borrower or any of its Subsidiaries)
or any Real Property owned or operated by the Borrower or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences with
respect to any Real Property owned or operated by the Borrower or any of its
Subsidiaries (including any Real Property formerly owned or operated by the
Borrower or any of its Subsidiaries but no longer owned or operated by the
Borrower or any of its Subsidiaries) that could reasonably be expected (i) to
form the basis of an Environmental Claim against the Borrower or any of its
Subsidiaries or any Real Property owned or operated by the Borrower or any of
its Subsidiaries, or (ii) to cause any Real Property owned or operated by the
Borrower or any of its Subsidiaries to be subject to any restrictions on the
ownership, occupancy or transferability of such Real Property by the Borrower or
any of its Subsidiaries under any applicable Environmental Law.
(b) To the knowledge of the Borrower, Hazardous Materials have
not at any time been generated, used, treated or stored on, or transported to or
from, any Real Property owned or operated by the Borrower or any of its
Subsidiaries where such generation, use, treatment or storage has violated or
could reasonably be expected to violate any Environmental Law. Hazardous
Materials have not at any time been Released on or from any Real Property owned
or operated by the Borrower or any of its Subsidiaries where such Release has
violated or could reasonably be expected to violate any applicable Environmental
Law.
(c) Notwithstanding anything to the contrary in this Section
7.18, the representations made in this Section 7.18 shall not be untrue unless
the aggregate effect of all violations, claims, restrictions, failures and
noncompliances of the types described above could reasonably be expected to have
a material adverse effect on the business, operations, property,
44
<PAGE> 51
assets, liabilities, financial condition or prospects of the Borrower or the
Borrower and its Subsidiaries taken as a whole.
7.19 Labor Relations. Neither the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, financial condition or prospects of the Borrower
or the Borrower and its Subsidiaries taken as a whole. There is (i) no unfair
labor practice complaint pending against the Borrower or any of its Subsidiaries
or, to the best knowledge of the Borrower or any of its Subsidiaries, threatened
against any of them, before the National Labor Relations Board, and no grievance
or arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Borrower or any of its Subsidiaries or, to
the best knowledge of the Borrower, threatened against any of them, (ii) no
strike, labor dispute, slowdown or stoppage pending against the Borrower or any
of its Subsidiaries or, to the best knowledge of the Borrower or any of its
Subsidiaries, threatened against the Borrower or any of its Subsidiaries and
(iii) no union representation question exists with respect to the employees of
the Borrower or any of its Subsidiaries, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as could not reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities, financial
condition or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole.
7.20 Patents, Licenses, Franchises and Formulas. Each of the
Borrower and each of its Subsidiaries owns all the patents, trademarks, permits,
service marks, trade names, copyrights, licenses, franchises, proprietary
information (including but not limited to rights in computer programs and
databases) and formulas, or rights with respect to the foregoing, and has
obtained assignments of all leases and other rights of whatever nature,
necessary for the present conduct of its business, without any known conflict
with the rights of others which, or the failure to obtain which, as the case may
be, could reasonably be expected to result in a material adverse effect on the
business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
7.21 Indebtedness. Schedule 7.21 sets forth a true and
complete list of all Indebtedness (including Contingent Obligations) of the
Borrower and its Subsidiaries as of the Initial Borrowing Date and which is to
remain outstanding after giving effect to the Transaction (excluding the Loans,
the Letters of Credit, the "Existing Indebtedness"), in each case showing the
aggregate principal amount thereof and the name of the respective obligor and
any Credit Party or any of its Subsidiaries which directly or indirectly
guaranteed such Indebtedness.
7.22 Transaction. At the time of consummation thereof, each
element of the Transaction (each of which, if this representation is being made
on or after September 15, 1999, shall have been completed) shall have been
consummated in all material respects in accordance with the terms of the
respective Documents and all applicable laws. At the time of consummation
thereof, all material consents and approvals of, and filings and registrations
with, and all other material actions in respect of, all governmental agencies,
authorities or instrumentalities required in order to make or consummate the
Transaction to the extent then
45
<PAGE> 52
required shall have been obtained, given, filed or taken and are or will be in
full force and effect (or effective judicial relief with respect thereto has
been obtained). All applicable waiting periods with respect thereto shall have
expired without, in all such cases, any action being taken by any competent
authority which materially restrains, prevents, or imposes material adverse
conditions upon the Transaction. There does not exist any judgment, order or
injunction prohibiting or imposing material adverse conditions upon the
Transaction, or the occurrence of any Credit Event or the performance by any
Credit Party of its obligations under the Documents to which it is party. At the
time of consummation of each element of the Transaction (each of which, if this
representation is being made on or after September 15, 1999, shall have been
completed), all actions taken by each Credit Party pursuant to or in furtherance
of the Transaction shall have been taken in compliance in all material respects
with the respective Documents and all applicable laws and all representations
and warranties set forth in the other Documents were or will be true and correct
in all material respects at the time as of which such representations and
warranties were or are made (or deemed made).
7.23 Insurance. Schedule 7.23 sets forth a true and complete
listing of all insurance maintained by the Borrower and its Subsidiaries as of
the Initial Borrowing Date, and with the amounts insured (and any deductibles)
set forth therein.
7.24 Year 2000 Compliance. All Information Systems and
Equipment are either Year 2000 Compliant, or any reprogramming, remediation, or
any other corrective action, including the internal testing of all such
Information Systems and Equipment, will be completed by September 30, 1999,
except where the failure to be Year 2000 Compliant or to complete such
corrective actions could not reasonably be expected to result in a material
adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries taken as a whole. To the extent that such
reprogramming/remediation and testing action is required, the cost thereof, as
well as the cost of the reasonably foreseeable consequences of failure to become
Year 2000 Compliant, to the Borrower and its Subsidiaries (including, without
limitation, reprogramming errors and the failure of other systems or equipment)
could not reasonably be expected to (x) result in a Default or an Event of
Default or (y) have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Borrower or the Borrower and its Subsidiaries taken as a whole.
7.25 Special Purpose Corporation. LimToo has no material
assets other than its rights and obligations under the Trademark and Service
Mark Licensing Agreement, those incident to its license of such rights to the
Borrower and any other Subsidiaries of the Borrower (including the receipt by
LimToo of royalties in connection therewith) and Intercompany Loans made by
LimToo to the Borrower and any other Subsidiaries of the Borrower and has no
material liabilities except (i) those liabilities which are incident to the
Trademark and Service Mark Licensing Agreement and any licensing agreements with
the Borrower and any other Subsidiaries of the Borrower and (ii) its obligations
with respect to the Credit Documents to which it is a party. LimToo engages and
will engage in no direct business activities, other than (x) the performance of
its obligations under and with respect to the Trademark and Service Mark
Licensing Agreement and licensing agreements with the Borrower and any other
Subsidiaries of
46
<PAGE> 53
the Borrower and (y) the making of Intercompany Loans to the Borrower or any
other Subsidiaries of the Borrower.
SECTION 8. Affirmative Covenants. The Borrower hereby
covenants and agrees that on and after the Effective Date and until the Total
Commitments and all Letters of Credit have terminated and the Loans, Notes (if
any) and Unpaid Drawings, together with interest, Fees and all other Obligations
incurred hereunder and thereunder, are paid in full:
8.01 Information Covenants. The Borrower will furnish to each
Lender:
(a) Quarterly Financial Statements. Within 50 days after the
close of the first three quarterly accounting periods in each fiscal year of the
Borrower, (i) the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly accounting period and the related
consolidated statements of operations and cash flows for such quarterly
accounting period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly accounting period and the related statement of cash
flows for the elapsed portion of the fiscal year ended with the last day of such
quarterly accounting period, in each case setting forth comparative figures for
the related periods in the prior fiscal year, all of which shall be certified by
the Chief Financial Officer of the Borrower or another senior financial officer
of the Borrower, subject to lack of footnotes and normal year-end audit
adjustments and (ii) management's discussion of the significant operational and
financial developments occurring during such fiscal quarter and year-to-date
periods.
(b) Annual Financial Statements. Within 95 days after the
close of each fiscal year of the Borrower, (i) the consolidated balance sheet of
the Borrower and its Subsidiaries as at the end of such fiscal year and the
related consolidated statements of operations and of cash flows for such fiscal
year setting forth comparative figures for the preceding fiscal year and
certified by PricewaterhouseCoopers LLP, or other independent certified public
accountants of recognized national standing, in each case to the effect that
such statements fairly present in all material respects the consolidated
financial condition of the Borrower and its Subsidiaries as of the dates
indicated and the results of their operations and cash flows for the periods
indicated in conformity with GAAP, together with a report of such accounting
firm stating that in the course of its regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted in accordance with
generally accepted auditing standards, no Default or Event of Default which has
occurred and is continuing has come to their attention or, if such a Default or
an Event of Default has come to their attention a statement as to the nature
thereof and (ii) management's discussion of the significant operational and
financial developments occurring during such fiscal year.
(c) Management Letters. Promptly upon the request of the
Administrative Agent or any Lender, a copy of any "management letter" received
by the Borrower or any of its Subsidiaries from its certified public accountants
and management's responses thereto.
(d) Budgets. Within 10 days following the approval by the
Board of Directors of the Borrower of a budget for each fiscal year of the
Borrower, a copy of such budget in the form
47
<PAGE> 54
so approved by the Board of Directors of the Borrower for such fiscal year,
including the principal assumptions upon which such budget is based, as
presented to the Board of Directors.
(e) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 8.01(a) and (b), a certificate of
the Chief Executive Officer or Chief Financial Officer of the Borrower to the
effect that, to the best of such officer's knowledge, no Default or Event of
Default has occurred and is continuing or, if any Default or Event of Default
has occurred and is continuing, specifying the nature and extent thereof, which
certificate shall (x) set forth in reasonable detail the calculations required
to establish whether the Borrower and its Subsidiaries were in compliance with
the provisions of Sections 9.08 through 9.10, inclusive, at the end of such
fiscal quarter or year, as the case may be and (y) if delivered with the
financial statements required by Section 8.01(b), set forth in reasonable detail
the calculations required to establish whether the Borrower and its Subsidiaries
were in compliance with the provisions of Sections 4.02(f) and 9.07 as at the
end of such fiscal year and the amount of (and the calculations required to
establish the amount of) Excess Cash Flow for the respective Excess Cash Payment
Period.
(f) Notice of Default or Litigation. Promptly, and in any
event within five Business Days, after the President, Chief Financial Officer,
Chief Operating Officer, General Counsel or any financial officer of the
Borrower obtains knowledge thereof, notice of (i) the occurrence of any event
which constitutes a Default or an Event of Default which shall have occurred and
is then continuing, (ii) any litigation or governmental investigation or
proceeding pending against the Borrower or any of its Subsidiaries which could
reasonably be expected to materially and adversely affect the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole and (iii) any
governmental investigation or proceeding pending with respect to the Transaction
or any Document.
(g) Other Reports and Filings. Promptly after the filing or
delivery thereof, copies of all financial information, proxy materials and
reports (other than the exhibits to any of the foregoing or any registration
statement on Form S-8 or any successor form thereto) which the Borrower or any
of its Subsidiaries shall publicly file with the Securities and Exchange
Commission or any successor thereto (the "SEC") or deliver to holders of its
Indebtedness (other than in the ordinary course in the case of its non-public
Indebtedness) pursuant to the terms of the documentation governing such
Indebtedness (or any trustee, agent or other representative therefor).
(h) Environmental Matters. Promptly, and in any event within
five Business Days, after an officer of the Borrower obtains knowledge thereof,
notice of one or more of the following environmental matters, unless such
environmental matters could not, individually or when aggregated with all other
such environmental matters, reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities, financial
condition or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole:
48
<PAGE> 55
(i) any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Property owned or operated
by the Borrower or any of its Subsidiaries;
(ii) any condition or occurrence on or arising from any Real
Property owned or operated by the Borrower or any of its Subsidiaries that
results in material noncompliance by the Borrower or any of its
Subsidiaries with any applicable Environmental Law;
(iii) any environmental condition or occurrence on any Real Property
owned or operated by the Borrower or any of its Subsidiaries that could
reasonably be expected to cause such Real Property to be subject to any
material restrictions on the ownership, occupancy, use or transferability
by the Borrower or any of its Subsidiaries of such Real Property under any
Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real Property
owned or operated by the Borrower or any of its Subsidiaries as required
by any Environmental Law or any governmental or other administrative
agency; provided, that in any event the Borrower shall deliver to each
Lender all material notices received by the Borrower or any of its
Subsidiaries from any government or governmental agency under, or pursuant
to, CERCLA.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and the
Borrower's or such Subsidiary's response thereto.
(i) Other Information. From time to time, such other information or
documents (financial or otherwise) with respect to the Borrower or any of its
Subsidiaries as the Administrative Agent or any Lender may reasonably request.
8.02 Books, Records and Inspections. The Borrower will, and will
cause each of its Subsidiaries to, keep proper books of record and accounts in
which true and correct entries in conformity with GAAP and all requirements of
law in all material respects shall be made of all dealings and transactions in
relation to its business and activities. Upon reasonable notice to the Borrower,
the Borrower will, and will cause each of its Subsidiaries to, at the expense of
the Lenders if no Event of Default shall then be in existence or at the expense
of the Borrower if an Event of Default is then in existence, permit officers and
designated representatives of the Administrative Agent or any Lender to visit
and inspect, under guidance of officers of the Borrower or such Subsidiary, any
of the properties owned or leased by the Borrower or such Subsidiary, and to
examine the books of account of the Borrower or such Subsidiary and discuss the
affairs, finances and accounts of the Borrower or such Subsidiary with, and be
advised as to the same by, its and their officers and (if a Default or Event of
Default shall have occurred and be continuing and subject to reasonable notice
and an opportunity of one or more senior officers of the Borrower to be present)
independent accountants, all at such reasonable times and intervals (not to be
more frequent than once in any fiscal year of the Borrower for a given Lender or
the
49
<PAGE> 56
Administrative Agent unless an Event of Default shall have occurred and be
continuing) and to such reasonable extent as the Administrative Agent or such
Lender may request. The Administrative Agent and the Lenders will make
reasonable attempts to coordinate such inspections with one another.
8.03 Maintenance of Property; Insurance. (a) The Borrower will, and
will cause each of its Subsidiaries to, (i) keep all property owned or leased by
the Borrower and its Subsidiaries necessary to the business of the Borrower and
its Subsidiaries in reasonably good working order and condition, ordinary wear
and tear excepted, (ii) maintain, with financially sound and reputable insurers,
insurance on all such property (including, without limitation, flood insurance
to the extent applicable) in at least such amounts and against at least such
risks as is consistent and in accordance with industry practice for companies
similarly situated owning similar properties in the same general areas in which
the Borrower or any of its Subsidiaries operates, (iii) maintain, with
financially sound and reputable insurers, liability insurance in such amounts,
covering such risks and liabilities and with such deductibles as are in
accordance with normal industry practice for similarly situated insureds and
(iv) furnish to the Administrative Agent or any Lender, upon written request,
full information as to the insurance carried.
(b) All policies or certificates (or certified copies thereof) with
respect to the insurance required to be maintained by the Borrower and its
Subsidiaries pursuant to Section 8.03(a) and all Mortgage Policies at any time
in effect (and any other insurance maintained by the Borrower and/or such other
Credit Parties) shall (i) name the Collateral Agent as loss payee and/or
additional insured and (ii) state that such insurance policies shall not be
canceled without at least 30 days' prior written notice thereof by the
respective insurer to the Collateral Agent (or such shorter period of time as a
particular insurance company policy generally provides).
(c) If the Borrower or any of its Subsidiaries shall fail to insure
its property in accordance with this Section 8.03, or if the Borrower or any of
its Subsidiaries shall fail to so name the Collateral Agent as a loss payee or
additional insured with respect thereto, the Collateral Agent shall have the
right (but shall be under no obligation), after giving the Borrower prior
written notice, to procure such insurance and the Borrower agrees to reimburse
the Collateral Agent for all costs and expenses of procuring such insurance or
naming the Collateral Agent as a loss payee or additional insured with respect
thereto.
8.04 Corporate Franchises. The Borrower will, and will cause each of
its Subsidiaries to, do or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its material rights,
franchises, licenses and patents; provided, however, that nothing in this
Section 8.04 shall prevent (i) sales of assets, mergers and other transactions
by the Borrower or any of its Subsidiaries in accordance with Section 9.02 or
(ii) the withdrawal by the Borrower or any of its Subsidiaries of its
qualification as a foreign corporation in any jurisdiction where such withdrawal
could not reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
50
<PAGE> 57
8.05 Compliance with Statutes, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
8.06 Compliance with Environmental Laws. (a) The Borrower will
comply, and will cause each of its Subsidiaries to comply, with all
Environmental Laws applicable to the ownership or use of its Real Property now
or hereafter owned or operated by the Borrower or any of its Subsidiaries
(except such noncompliances as could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole), will
promptly pay or cause to be paid all costs and expenses incurred in connection
with such compliance. Neither the Borrower nor any of its Subsidiaries will
generate, use, treat, store, release or dispose of, or permit the generation,
use, treatment, storage, release or disposal of Hazardous Materials on any Real
Property now or hereafter owned or operated by the Borrower or any of its
Subsidiaries, or transport or permit the transportation of Hazardous Materials
to or from any such Real Property, except to the extent that any such
generation, use, treatment, storage, release or disposal could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the business, operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.
(b) Upon reasonable belief that there has been a materially adverse
development, act or omission of an environmental nature with respect to any Real
Property owned or leased by the Borrower or any of its Subsidiaries, which could
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole, at the
written request of the Administrative Agent or the Required Lenders, which
request shall specify in reasonable detail the basis therefor, at any time and
from time to time, the Borrower will, to the extent permitted to do so under any
applicable Leasehold, provide, at the sole expense of the Borrower, an
environmental site assessment report concerning such Real Property, prepared by
an environmental consulting firm reasonably acceptable to the Administrative
Agent, indicating the presence or absence of Hazardous Materials and the
potential cost of any removal or remedial action in connection with such
Hazardous Materials on such Real Property. If the Borrower fails to provide the
same within 90 days after such request was made, the Administrative Agent may,
except to the extent informed by the Borrower that the applicable Leasehold of
the Borrower or any of its Subsidiaries (if any) does not so permit, order the
same, the cost of which shall be borne by the Borrower, and the Borrower shall
grant and hereby grants to the Administrative Agent and the Lenders and their
agents, except to the extent that the applicable Leasehold of the Borrower or
any of its Subsidiaries (if any) does not so permit, access to such Real
Property and specifically grants the Administrative Agent and the Lenders an
irrevocable non-exclusive
51
<PAGE> 58
license, subject to the rights of tenants and applicable restrictions in any
Leasehold (if any) of the Borrower or any of its Subsidiaries, to undertake such
an assessment at any reasonable time upon reasonable notice to the Borrower, all
at the sole expense of the Borrower.
8.07 ERISA. As soon as reasonably possible and, in any event, within
10 Business Days after the Borrower or any of its Subsidiaries or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the Borrower will deliver to each of the Lenders a certificate of a financial
officer of the Borrower setting forth the full details as to such occurrence and
the action, if any, that the Borrower, such Subsidiary or such ERISA Affiliate
is required or proposes to take, together with any notices required or proposed
to be given to or filed with or by the Borrower, such Subsidiary, the ERISA
Affiliate, the PBGC, a Plan participant or the Plan administrator with respect
thereto: that a Reportable Event has occurred (except to the extent that the
Borrower has previously delivered to the Lenders a certificate and notices (if
any) concerning such event pursuant to the next clause hereof); that a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA is subject to the advance reporting requirement of
PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof),
and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC
Regulation Section 4043 is reasonably expected to occur with respect to such
Plan within the following 30 days; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code or Section 302 of ERISA, has been
incurred or an application may be or has been made for a waiver or modification
of the minimum funding standard (including any required installment payments) or
an extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; that any contribution required to be
made with respect to a Plan or Foreign Pension Plan has not been timely made and
such failure could result in a material liability for the Borrower or any of its
Subsidiaries; that a Plan has been or may be reasonably expected to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability which, when added to the
aggregate amount of Unfunded Current Liabilities with respect to all other
Plans, exceeds the aggregate amount of such Unfunded Current Liabilities that
existed on the Initial Borrowing Date by $3,000,000; that proceedings may be
reasonably expected to be or have been instituted to terminate or appoint a
trustee to administer a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that the Borrower, any of its Subsidiaries or
any ERISA Affiliate will or may reasonably expect to incur any material
liability (including any material indirect, contingent, or secondary liability)
to or on account of the termination of or withdrawal from a Plan under Section
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan
under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or
502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B
of the Code; or that the Borrower, or any of its Subsidiaries may incur any
material liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan
not intended to be qualified under Section 401(a) of the Code or any Foreign
Pension Plan in addition to any liability that existed on the Initial Borrowing
Date pursuant to any such plan or plans. Upon request, the Borrower will deliver
to any of the Lenders (i) a complete copy of the
52
<PAGE> 59
annual report (on Internal Revenue Service Form 5500-series) of each Plan
(including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
Service and (ii) copies of any records, documents or other information that must
be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA. In addition to any certificates or notices delivered to the Lenders
pursuant to the first sentence hereof, copies of any records, documents or other
information required to be furnished to the PBGC, and any material notices
received by the Borrower, any of its Subsidiaries or any ERISA Affiliate with
respect to any Plan or Foreign Pension Plan shall be delivered to the Lenders no
later than 10 days after the date such records, documents and/or information has
been furnished to the PBGC or such notice has been received by the Borrower,
such Subsidiary or such ERISA Affiliate, as applicable.
8.08 End of Fiscal Years; Fiscal Quarters. The Borrower will cause
(i) each of its, and each of its Subsidiaries', fiscal years to end on the
Saturday closest to January 31, and (ii) each of its, and each of its
Subsidiaries', fiscal quarters to end on the Saturday closest to April 30, July
31 and October 31.
8.09 Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement, loan agreement or credit agreement
and each other material agreement, contract or instrument by which it is bound,
except such non-performances as could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole.
8.10 Payment of Taxes. The Borrower will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for sums that have become
due and payable which, if unpaid, might become a Lien not otherwise permitted
under Section 9.01(i); provided that neither the Borrower nor any of its
Subsidiaries shall be required to pay any such material tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if it has maintained adequate reserves with respect thereto in accordance with
GAAP.
8.11 Consummation of The Spin-Off. On or prior to September 15,
1999, the Spin-Off and all other elements of the Transaction not theretofore
required to have been completed shall have been consummated in accordance with
the provisions of the Spin-Off Documents (which Spin-Off Documents shall be in
the form delivered to the Administrative Agent prior to the Initial Borrowing
Date, without giving effect to any waivers thereof or amendments thereto except
to the extent such waivers and/or amendments are permitted under Section 9.11).
53
<PAGE> 60
8.12 Additional Security; Further Assurances. (a) The Borrower will,
and will cause each of the Subsidiary Guarantors to, grant to the Collateral
Agent security interests and mortgages in such assets and properties (including
Real Property) of the Borrower and such Subsidiary Guarantors which are of the
type required to be pledged or assigned pursuant to the original Security
Documents and as are not covered by such original Security Documents, and as may
be requested from time to time by the Administrative Agent or the Required
Lenders, except, in the case of Leaseholds, to the extent such security interest
or mortgage is not permitted pursuant to the terms of such Leasehold
(collectively, the "Additional Security Documents"). All such security interests
and mortgages shall be granted pursuant to documentation reasonably satisfactory
in form and substance to the Administrative Agent and shall constitute valid and
enforceable perfected security interests and mortgages subject to no other Liens
except for Permitted Liens. The Additional Security Documents or instruments
related thereto shall be duly recorded or filed in such manner and in such
places as are required by law to establish, perfect, preserve and protect the
Liens (other than Liens on motor vehicles) in favor of the Collateral Agent
required to be granted pursuant to the Additional Security Documents and all
taxes, fees and other charges payable in connection therewith shall have been
paid in full.
(b) The Borrower will, and will cause each of the Subsidiary
Guarantors to, at the expense of the Borrower, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require. Furthermore, the
Borrower will cause to be delivered to the Collateral Agent such opinions of
counsel, title insurance and other related documents as may be reasonably
requested by the Administrative Agent to assure itself that this Section 8.12
has been complied with.
(c) Upon the reasonable request of the Required Lenders, the
Borrower agrees to provide to the Administrative Agent an opinion of counsel
reasonably satisfactory to the Administrative Agent and in form and substance
reasonably satisfactory to the Administrative Agent with respect to American
Factoring, Inc., which opinion shall contain the opinions and set forth the
conclusions (or such analogous opinions and conclusions as may be appropriate
under Nevada law) set forth in the opinion of Samuel Fried, General Counsel for
The Limited, delivered on the Initial Borrowing Date, to the extent such
opinions delivered to the Administrative Agent on the Initial Borrowing Date do
not include American Factoring, Inc.
(d) The Borrower agrees that each action required above by this
Section 8.12 shall be completed within 60 days after such action is either
requested to be taken by the Administrative Agent or the Required Lenders or
required to be taken by the Borrower and the Subsidiary Guarantors pursuant to
the terms of this Section 8.12.
8.13 Foreign Subsidiaries Security. If following a change in the
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
Borrower reasonably acceptable to the Administrative
54
<PAGE> 61
Agent does not within 60 days after a request from the Administrative Agent or
the Required Lenders deliver evidence, in form and substance mutually
satisfactory to the Administrative Agent and the Borrower, with respect to any
Foreign Subsidiary of the Borrower which has not already had all of its stock
pledged pursuant to the Pledge Agreement that (i) a pledge of 66-2/3% or more of
the total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary
of a security agreement in substantially the form of the Security Agreement and
(iii) the entering into by such Foreign Subsidiary of a guaranty in
substantially the form of the Subsidiaries Guaranty, in any such case would
cause the undistributed earnings of such Foreign Subsidiary as determined for
Federal income tax purposes to be treated as a deemed dividend to such Foreign
Subsidiary's United States parent for Federal income tax purposes, then in the
case of a failure to deliver the evidence described in clause (i) above, that
portion of such Foreign Subsidiary's outstanding capital stock not theretofore
pledged pursuant to the Pledge Agreement shall be pledged to the Collateral
Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement
(or another pledge agreement in substantially similar form, if needed), and in
the case of a failure to deliver the evidence described in clause (ii) above,
such Foreign Subsidiary (to the extent that same is a Wholly-Owned Foreign
Subsidiary and would otherwise constitute a Subsidiary Guarantor) will execute
and deliver the Security Agreement (or another security agreement in
substantially similar form, if needed), granting the Collateral Agent for the
benefit of the Secured Creditors a security interest in all of such Foreign
Subsidiary's assets and securing the Obligations of the Borrower under the
Credit Documents and under any Interest Rate Protection Agreement or Other
Hedging Agreement and, in the event the Subsidiaries Guaranty shall have been
executed by such Foreign Subsidiary, the obligations of such Foreign Subsidiary
thereunder, and in the case of a failure to deliver the evidence described in
clause (iii) above, such Foreign Subsidiary (to the extent that same is a
Wholly-Owned Foreign Subsidiary and would otherwise constitute a Subsidiary
Guarantor) will execute and deliver the Subsidiaries Guaranty (or another
guaranty in substantially similar form, if needed), guaranteeing the Obligations
of the Borrower under the Credit Documents and under any Interest Rate
Protection Agreement or Other Hedging Agreement, in each case to the extent that
entering into such Security Agreement or Subsidiaries Guaranty is permitted by
the laws of the respective foreign jurisdiction (and, in the case of the
granting of collateral security in the assets of such Foreign Subsidiary, to the
extent such security interest may be obtained on a commercially reasonable
basis) and with all documents delivered pursuant to this Section 8.13 to be in
form and substance reasonably satisfactory to the Administrative Agent.
8.14 Year 2000 Compliance. The Borrower will ensure that all
Information Systems and Equipment are at all times after September 30, 1999 Year
2000 Compliant, except insofar as the failure to do so could not reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, financial condition or prospects of the Borrower
or the Borrower and its Subsidiaries taken as a whole, and shall notify the
Administrative Agent and each Lender promptly upon detecting any material
failure of the Information Systems and Equipment to be Year 2000 Compliant. In
addition, the Borrower shall provide the Administrative Agent and each Lender
with such information about the year 2000 computer readiness (including, without
limitation, information as to contingency plans, budgets
55
<PAGE> 62
and testing results) of the Borrower and its Subsidiaries as the Administrative
Agent or such Lender shall from time to time reasonably request.
SECTION 9. Negative Covenants. The Borrower hereby covenants and
agrees that on and after the Effective Date and until the Total Commitments and
all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings,
together with interest, Fees and all other Obligations incurred hereunder and
thereunder, are paid in full:
9.01 Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real (including Leaseholds) or personal,
tangible or intangible) of the Borrower or any of its Subsidiaries, whether now
owned or hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to the Borrower
or any of its Subsidiaries), or assign any right to receive income or consent to
the filing of any financing statement under the UCC or any other similar notice
of Lien under any similar recording or notice statute; provided that the
provisions of this Section 9.01 shall not prevent the creation, incurrence,
assumption or existence of the following (Liens described below are herein
referred to as "Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due or Liens for taxes, assessments or governmental charges
or levies being contested in good faith and by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP;
(ii) Liens in respect of property or assets of the Borrower or any
of its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money, such
as carriers', warehousemen's, materialmen's and mechanics' liens, liens of
sellers of goods arising under Article 2 of the UCC (covering only the
goods sold and securing only the unpaid purchase price for such goods) and
other similar Liens arising in the ordinary course of business, and which
(x) do not in the aggregate materially detract from the value of the
Borrower's or such Subsidiary's property or assets or materially impair
the use thereof in the operation of the business of the Borrower or such
Subsidiary or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to any such Lien;
(iii) Liens in existence on the Initial Borrowing Date which are
listed, and the property subject thereto described, in Schedule 9.01,
without giving effect to any extensions or renewals thereof;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to this Agreement and the Security
Documents;
56
<PAGE> 63
(vi) Liens upon assets of the Borrower or any of its Subsidiaries
subject to Capitalized Lease Obligations to the extent such Capitalized
Lease Obligations are permitted by Section 9.04(iii), provided that (x)
such Liens only serve to secure the payment of Indebtedness arising under
such Capitalized Lease Obligation and (y) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any
other asset of the Borrower or any Subsidiary of the Borrower other than
proceeds of such asset;
(vii) Liens placed upon property used in the ordinary course of
business (and, in the case of inventory, consistent with industry practice
for similarly situated companies) of the Borrower or any of its
Subsidiaries at the time of acquisition thereof by the Borrower or any
such Subsidiary to secure Indebtedness incurred to pay all or a portion of
the purchase price thereof or, in the case of construction or remodeling
of fixtures or Leasehold improvements, the price of constructing or
remodeling such asset; provided that (x) the aggregate outstanding
principal amount of all Indebtedness secured by Liens permitted by this
clause (vii) shall not exceed the amount permitted to be outstanding under
clause 9.04(iv) (or in the case of inventory or raw materials securing
letters of credit, Section 9.04(viii)) and (y) the Lien encumbering the
property so acquired, constructed or remodeled may not encumber any other
asset (other than proceeds thereof) of the Borrower or such Subsidiary;
(viii) easements, rights-of-way, restrictions, encroachments and
other similar charges or encumbrances, and minor title deficiencies, in
each case not securing Indebtedness and not materially interfering with
the conduct of the business of the Borrower or any of its Subsidiaries;
(ix) Liens arising from precautionary UCC financing statement
filings regarding operating leases entered into in the ordinary course of
business;
(x) Liens arising out of judgments, decrees or attachments not
constituting an Event of Default under Section 10.09 which the Borrower
and/or its Subsidiaries shall in good faith be prosecuting an appeal or
proceedings for review, provided that no cash or other property shall be
pledged by the Borrower or any Subsidiary as security therefor;
(xi) statutory and common law landlords' liens under leases to which
the Borrower or any of its Subsidiaries is a party;
(xii) Liens incurred in the ordinary course of business in
connection with workers compensation claims, unemployment insurance and
social security benefits and Liens securing the performance of bids,
tenders, leases and contracts in the ordinary course of business,
statutory obligations, surety bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed money),
provided that the aggregate value of all cash and property encumbered
pursuant to this clause (xii) shall not at any time exceed $500,000;
57
<PAGE> 64
(xiii) Liens on property or assets acquired pursuant to a Permitted
Acquisition, or on property or assets of a Subsidiary of the Borrower in
existence at the time such Subsidiary is acquired pursuant to a Permitted
Acquisition, provided that (x) any Indebtedness that is secured by such
Liens is permitted to exist under Section 9.04(vi) and (y) such Liens are
not incurred in connection with, or in contemplation or anticipation of,
such Permitted Acquisition and do not attach to any other asset of the
Borrower or any of its Subsidiaries; and
(xiv) Other Liens not permitted under the foregoing clauses (i)
through (xiii) securing Indebtedness or other obligations of the Borrower
and/or its Subsidiaries not to exceed $500,000 in aggregate amount
outstanding at any time.
In connection with the granting of Liens of the type described above in this
Section 9.01 by the Borrower or any of its Subsidiaries, the Administrative
Agent and the Collateral Agent shall be authorized to take any actions deemed
appropriate by it in connection therewith (including, without limitation, by
executing appropriate lien releases or lien subordination agreements in favor of
the holder or holders of such Liens, in either case solely with respect to the
item or items of equipment or other assets subject to such Liens).
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
its property or assets, or enter into any sale-leaseback transactions, or
purchase or otherwise acquire (in one or a series of related transactions) any
part of the property or assets (other than purchases or other acquisitions of
inventory, materials and equipment in the ordinary course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:
(i) Capital Expenditures by the Borrower and its Subsidiaries shall
be permitted to the extent permitted by Section 9.07;
(ii) each of the Borrower and its Subsidiaries may in the ordinary
course of business sell, lease or otherwise dispose of any equipment or
materials which, in the reasonable judgment of such Person, are obsolete,
unusable, excess or worn out;
(iii) each of the Borrower and its Subsidiaries may sell assets
(other than the capital stock of any Subsidiary Guarantor), so long as (w)
no Default or Event of Default then exists or would result therefrom, (x)
each such sale is in an arms-length transaction and the Borrower or the
respective Subsidiary receives at least fair market value (as determined
in good faith by the Borrower or such Subsidiary, as the case may be), (y)
at least 80% of the total consideration received by the Borrower or such
Subsidiary is cash and paid at the time of the closing of such sale and
(z) the aggregate amount of the proceeds received from all assets sold
pursuant to this clause (iii) shall not exceed $500,000 in any fiscal year
of the Borrower;
58
<PAGE> 65
(iv) each of the Borrower and its Subsidiaries may sell assets
(other than the capital stock of any Subsidiary Guarantor), so long as (v)
no Default or Event of Default then exists or would result therefrom, (w)
each such sale is in an arm's-length transaction and the Borrower or the
respective Subsidiary receives at least fair market value (as determined
in good faith by the Borrower or such Subsidiary, as the case may be), (x)
at least 80% of the total consideration received by the Borrower or such
Subsidiary is cash and is paid at the time of the closing of such sale,
(y) the Net Sale Proceeds therefrom are applied as (and to the extent)
required by Section 4.02(e) and (z) the aggregate amount of the proceeds
received from all assets sold pursuant to this clause (iv) shall not
exceed $3,000,000 in any fiscal year of the Borrower;
(v) Investments may be made to the extent permitted by Section 9.05;
(vi) each of the Borrower and its Subsidiaries may lease (as lessee)
real or personal property in the ordinary course of business (so long as
any such lease does not create a Capitalized Lease Obligation except to
the extent permitted by Section 9.04(iii));
(vii) each of the Borrower and its Subsidiaries may make sales of
inventory in the ordinary course of business;
(viii) the Transaction shall be permitted;
(ix) the Borrower may acquire 100% of the capital stock (or other
limited liability company or partnership equity interests) of any entity
or all or substantially all of the assets of any entity (or all or
substantially all of the assets of a product line or division of any such
entity or a regional segment of any such entity or of a product line or
division of any such entity) so long as (in each case except to the extent
the Required Lenders otherwise specifically agree in writing in the case
of a specific Permitted Acquisition):
(a) the Borrower shall have delivered to the Administrative
Agent and the Lenders a copy of any letter of intent executed in
connection with any such proposed acquisition at least 15 days prior
to any such proposed acquisition;
(b) such entity or acquired business shall be engaged in a
similar or related business as the Borrower and its Subsidiaries and
the principal place of business of, and at least 80% of the assets
of, each such entity or acquired business shall be located in the
United States;
(c) in the case of the acquisition of 100% of the capital
stock or other equity interests of any Person, such Person (the
"Acquired Person") shall own no capital stock or other equity
interests of any other Person unless either (x) the Acquired Person
owns 100% of the capital stock or other equity interests of such
other Person or (y) if the Acquired Person owns capital stock or
equity interests in any other Person which is not a Wholly-Owned
Subsidiary of the Acquired Person (a "Non-Wholly Owned Entity"), (i)
the Acquired Person shall not have been created or established in
contemplation of, or for purposes of, the respective
59
<PAGE> 66
acquisition or, if so created or established, such Acquired Person
shall not own a lower percentage interest in any Non-Wholly Owned
Entity of the Acquired Person than was owned by the seller of such
common stock or equity interests prior to (and without regard to any
transactions entered into in contemplation of) the acquisition, (ii)
any Non-Wholly Owned Entity of the Acquired Person shall have been
non-wholly-owned prior to the date of the respective acquisition and
not created or established in contemplation thereof, and (iii) (x)
such Acquired Person and/or its Wholly-Owned Subsidiaries own at
least 80% of the consolidated assets of such Acquired Person and its
Subsidiaries and Non-Wholly Owned Entities and joint ventures or (y)
such Acquired Person's equity interest in the fair market value of
the assets of all Non-Wholly Owned Entities owned, directly or
indirectly, by such Acquired Person does not exceed 20% of the fair
market value of all assets of such Acquired Person;
(d) no Default or Event of Default shall be in existence at
the time of the consummation of the proposed acquisition or
immediately after giving effect thereto;
(e) (i) the Borrower would have been in compliance with the
financial covenants set forth in Sections 9.08 through 9.10,
inclusive, for the Calculation Period most recently ended prior to
the date of such acquisition, on a Pro Forma Basis as if the
respective acquisition (as well as all other acquisitions previously
consummated after the first day of such Calculation Period) had
occurred on the first day of such Calculation Period, and such
recalculations shall show that such financial covenants would have
been complied with if such acquisition had occurred on the first day
of such Calculation Period for such Test Period, (ii) based on good
faith projections prepared by the Borrower for the period from the
date of the consummation of the Permitted Acquisition to the date
which is one year thereafter, the level of financial performance
measured by the covenants set forth in Sections 9.08 through 9.10,
inclusive, shall be better than or equal to such level as would be
required to avoid an Event of Default under the financial covenants
contained in said Sections 9.08 through 9.10, inclusive, of this
Agreement throughout the period ending one year from the date of the
consummation of the proposed acquisition and (iii) such proposed
acquisition shall provide a minimum of $1 of Consolidated EBITDAR on
a Pro Forma Basis;
(f) all of the representations and warranties contained in
Section 7 and in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date
of such acquisition (both before and after giving effect thereto),
unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all
material respects as of such earlier date;
60
<PAGE> 67
(g) the Borrower shall have provided to the Administrative
Agent and the Lenders as soon as available but not later than five
Business Days after the execution thereof, a copy of any executed
purchase agreement or similar agreement with respect to such
acquisition along with all related agreements and instruments and
all opinions, certificates, lien search results and other documents
reasonably requested by the Administrative Agent;
(h) the Lenders shall have received (i) year-end financial
statements for at least the previous two fiscal years and interim
financial statements for the then current fiscal year of the entity
or entities being acquired pursuant to such acquisition, which
financial statements shall be audited, in each case to the extent
such audit has been completed and (ii) a pro forma consolidated
balance sheet as of the closing date of such acquisition and pro
forma consolidated statements of income of the Borrower and the
entity or entities being acquired pursuant to such acquisition for
the most recently ended period of four fiscal quarters, in each case
after giving effect to such acquisition;
(i) the total consideration (including, without limitation,
cash, stock and assumed and/or refinanced debt) for any such
acquisition shall not exceed $20,000,000, provided that not more
than $10,000,000 of such amount may be consideration other than
common stock of the Borrower;
(j) after giving effect to such acquisition and the payment of
all post-closing purchase price adjustments required or which will
be required (in the good faith determination of the Borrower) in
connection with such acquisition (and all other acquisitions for
which such purchase price adjustments may be required to be made)
and all Capital Expenditures (and the financing thereof) reasonably
anticipated by the Borrower to be made in the business acquired
pursuant to such acquisition within the 90-day period (such period
for any acquisition, a "Post-Closing Period") following such
acquisition (and in the businesses acquired pursuant to all other
acquisitions with Post-Closing Periods ended during the Post-Closing
Period of such acquisition), the Total Unutilized Revolving Loan
Commitment shall equal or exceed $10,000,000;
(k) the Borrower shall have provided to the Administrative
Agent such environmental reports, opinions of counsel and
indemnities obtained in connection with such acquisition which
collectively shall support the Borrower's good faith belief that the
proposed acquisition will not result in a material increase in tax,
ERISA, environmental or other contingent liabilities with respect to
the Borrower or any of its Subsidiaries which could reasonably be
expected to (i) materially and adversely affect the business,
operations, property, assets, liabilities, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken
as a whole or (ii) result in the breach of the representations set
forth in Section 7.24; and
61
<PAGE> 68
(l) the Borrower shall have delivered to the Administrative
Agent and the Lenders a certificate from a senior financial officer
setting forth the conclusion that all of the conditions required
above in this Section 9.02(ix) have been satisfied and setting forth
the calculations necessary to determine compliance with clause (e)
of this Section 9.02(ix) (any such acquisition meeting the criteria
set forth above in clauses (a) through (l) of this Section 9.02(ix)
being herein referred to as a "Permitted Acquisition").
Upon the consummation of any Permitted Acquisition, the Borrower shall
comply with all of the applicable requirements of Section 8.12;
(x) the Borrower may transfer any assets to a Subsidiary Guarantor,
and any Subsidiary of the Borrower may merge or consolidate with and into,
or be liquidated into, or transfer any of its assets to, the Borrower or
any Subsidiary Guarantor, in each case, so long as (i) the Borrower or the
respective Subsidiary Guarantor is the surviving corporation of any such
transaction, (ii) in the case of any such transaction involving a
non-Wholly-Owned Subsidiary, the only consideration paid to third parties
in connection therewith is (A) shares of common stock of the Borrower or
(B) in the case of a liquidation of a non-Wholly-Owned Subsidiary, the
same as the consideration paid to the Borrower and its Subsidiaries and is
paid in proportion to the ownership of the Borrower, its Subsidiaries and
such third parties of the capital stock of such non-Wholly-Owned
Subsidiary and (iii) in the case of any transaction between or among the
Borrower and the Subsidiary Guarantors, all Liens granted pursuant to the
Security Documents on any property or assets involved shall remain in full
force and effect (with at least the same priority as such Lien would have
had if such transfer pursuant to this clause (x) had not occurred);
(xi) any Foreign Subsidiary of the Borrower may merge or consolidate
with and into, or be liquidated into, or transfer any of its assets to,
the Borrower or any Subsidiary Guarantor so long as in the case of any
such merger or consolidation, the Borrower or any such Subsidiary
Guarantor is the surviving corporation of such transaction;
(xii) any Foreign Subsidiary of the Borrower may merge or
consolidate with or into, or be liquidated into, or transfer any of its
assets to, any other Foreign Subsidiary of the Borrower; provided that, if
any of the capital stock of either of such Foreign Subsidiaries has been
pledged to the Collateral Agent pursuant to the Pledge Agreement, the
Collateral Agent shall continue to have a security interest in the same
percentage of the capital stock of the survivor of such merger,
consolidation, liquidation or transfer as it held prior to such
transaction;
(xiii) Dividends may be paid to the extent permitted under
Section 9.03; and
(xiv) each of the Borrower and its Subsidiaries may sell Cash
Equivalents permitted to be held by them pursuant to Section 9.05(ii) so
long as each such sale is for cash or Cash Equivalents permitted to be
held by them pursuant to Section 9.05(ii) and at
62
<PAGE> 69
fair market value (as determined in good faith by the Borrower or such
Subsidiary, as the case may be).
To the extent the Required Lenders waive the provisions of this Section 9.02
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 9.02 (other than to the Borrower or a Subsidiary
Guarantor), such Collateral shall be sold free and clear of the Liens created by
the Security Documents, and the Administrative Agent shall be authorized to take
any actions deemed appropriate in order to effect the foregoing.
9.03 Dividends. The Borrower will not, and will not permit any of
its Subsidiaries to, authorize, declare or pay any Dividends with respect to the
Borrower or any of its Subsidiaries, except that:
(i) any Subsidiary of the Borrower may pay Dividends to the Borrower
or any Subsidiary of the Borrower which directly owns equity interests
therein, provided that if equity interests are owned by one or more Credit
Parties and one or more Subsidiaries of the Borrower which are not Credit
Parties, such Credit Parties must receive at least their proportionate
share of such Dividends;
(ii) so long as there shall exist no Default or Event of Default
(both before and after giving effect to the payment thereof), the Borrower
may repurchase outstanding shares of its common stock (or options to
purchase such common stock) following the death, disability or termination
of employment of employees of the Borrower or any of its Subsidiaries,
provided that the aggregate amount of Dividends paid by the Borrower
pursuant to this clause (ii) shall not exceed $1,000,000 in any fiscal
year of the Borrower;
(iii) any Subsidiary of the Borrower (other than a Subsidiary
Guarantor) may pay cash Dividends to its shareholders in proportion to
their holdings of the capital stock of such Subsidiary;
(iv) beginning with the Borrower's fiscal year ended closest to
January 31, 2002, so long as no Default or Event of Default then exists or
would result therefrom, the Borrower may pay cash Dividends to its
shareholders in an amount not to exceed, in any fiscal year of the
Borrower, 25% of the Borrower's Excess Cash Flow for the immediately
preceding fiscal year; provided that no such Dividends shall be paid prior
to the making of any mandatory prepayments pursuant to Section 4.02(f) in
respect of the Excess Cash Flow of the Borrower for such preceding fiscal
year; and
(v) the Transaction shall be permitted.
9.04 Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
63
<PAGE> 70
(ii) Existing Indebtedness outstanding on the Initial Borrowing Date
and listed on Schedule 7.21, without giving effect to any subsequent
extension, renewal or refinancing thereof;
(iii) Indebtedness of the Borrower and its Subsidiaries evidenced by
Capitalized Lease Obligations to the extent permitted pursuant to Section
9.07, provided that in no event shall the aggregate principal amount of
Capitalized Lease Obligations permitted by this clause (iii), when added
to Indebtedness permitted by Section 9.04(iv) below, exceed $3,000,000 at
any time outstanding;
(iv) purchase money Indebtedness (including Indebtedness incurred or
assumed in connection with the construction or remodeling of fixtures and
Leasehold improvements) which may be subject to Liens permitted under
Section 9.01(vii), provided that in no event shall the aggregate principal
amount of Indebtedness permitted by this clause (iv), when added to
Capitalized Lease Obligations outstanding pursuant to Section 9.04(iii)
above, exceed $3,000,000 at any time outstanding;
(v) intercompany Indebtedness to the extent permitted by Sections
9.05;
(vi) Indebtedness assumed by the Borrower or any Subsidiary in
connection with a Permitted Acquisition, provided that (x) such
Indebtedness was not incurred in connection with or in contemplation of
such Permitted Acquisition and (y) such Indebtedness does not exceed 20%
of the aggregate consideration paid (including Indebtedness assumed) by
the Borrower and/or its Subsidiaries in connection with such Permitted
Acquisition;
(vii) Indebtedness under Interest Rate Protection Agreements and
Other Hedging Agreements which are non-speculative in nature and are
entered into to protect the Borrower and/or its Subsidiaries against
fluctuations in interest rates, currency exchange rates or commodity
prices;
(viii) letters of credit issued in the ordinary course of business
in connection with the purchase by the Borrower or any of its Subsidiaries
of inventory or raw materials not to exceed $5,000,000 in aggregate face
amount at any time outstanding;
(ix) Indebtedness owing to The Limited and its Subsidiaries incurred
to finance store renovations and improvements in connection with the
closing of "adjacent" stores of The Limited and its Subsidiaries; provided
that any such Indebtedness is subordinated in right of payment to the
Indebtedness under this Agreement and the other Credit Documents and the
aggregate amount thereof shall not exceed $18,000,000 at any time
outstanding;
(x) Indebtedness to The Limited and its Subsidiaries for working
capital advances made by The Limited and such Subsidiaries to the Borrower
on or prior to July 30, 1999 to the extent such amounts actually exceeded
the $12,000,000 paid in respect thereof on the Initial Borrowing Date or
were made by The Limited or such Subsidiaries
64
<PAGE> 71
after July 30, 1999 and on or prior to the second Saturday following the
Initial Borrowing Date, provided that such Indebtedness permitted by this
clause (x) shall not exceed $5,000,000 in the aggregate at any time
outstanding and; provided further that no Indebtedness described in this
clause (x) may remain outstanding after August 31, 1999; and
(xi) additional Indebtedness of the Borrower and its Subsidiaries
(other than Indebtedness for borrowed money) not to exceed $500,000 in
aggregate principal amount at any time outstanding.
9.05 Advances, Investments and Loans. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, lend money
or credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and hold accounts
receivable owing to any of them in the ordinary course of business and
payable or dischargeable in accordance with customary terms, and the
Borrower and its Subsidiaries may own Investments received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(ii) the Borrower and its Subsidiaries may acquire and hold or
invest in cash and Cash Equivalents;
(iii) the Borrower and its Subsidiaries may hold the Investments
held by them on the Initial Borrowing Date and described on Schedule 9.05,
provided that any additional Investments made with respect thereto shall
be permitted only if independently permitted under the other provisions of
this Section 9.05;
(iv) provided no Default or Event of Default exists or would result
therefrom, the Borrower and its Subsidiaries may make loans and advances
in the ordinary course of business to their respective employees so long
as the aggregate principal amount thereof at any time outstanding
(determined without regard to any write-downs or write-offs of such loans
and advances and excluding loans and advances made in connection with the
relocation of such employees) shall not exceed $250,000;
(v) the Borrower may enter into Interest Rate Protection Agreements
and Other Hedging Agreements to the extent permitted by Section 9.04(vii);
(vi) the Borrower and the Subsidiary Guarantors may make
intercompany loans and advances between or among one another
(collectively, "Intercompany Loans"),
65
<PAGE> 72
so long as each Intercompany Loan shall be evidenced by an Intercompany
Note that is pledged to the Collateral Agent pursuant to the Pledge
Agreement;
(vii) the Borrower and its Subsidiaries may make Permitted
Acquisitions effected in accordance with the requirements of Section
9.02(ix);
(viii) the Borrower and its Subsidiaries may sell or transfer assets
to the extent permitted by Section 9.02;
(ix) the Borrower and its Subsidiaries may make Investments in
Foreign Subsidiaries (including entities that became Subsidiaries pursuant
to such Investment) and joint ventures; provided that the aggregate amount
of such Investments (together with Investments in Foreign Subsidiaries
made pursuant to Section 9.05(xi)) made by the Borrower and the Subsidiary
Guarantors shall not exceed $2,000,000 at any time outstanding (determined
without regard to any write-downs or write-offs thereof);
(x) the Borrower and its Subsidiaries may make Investments
consisting of non-cash consideration received by the Borrower or any of
its Subsidiaries in connection with any asset sale to the extent permitted
by clauses (ii), (iii) and (iv) of Section 9.02;
(xi) the Borrower and its Subsidiaries may establish Subsidiaries to
the extent permitted by Section 9.15; provided that the aggregate amount
of Investments made by the Borrower and the Subsidiary Guarantors in
Foreign Subsidiaries under this clause (xi), together with the aggregate
amount of Investments made by the Borrower and the Subsidiary Guarantors
under section 9.05(ix), shall not exceed $2,000,000 at any time
outstanding (determined without regard to any write-downs or write-offs
thereof); and
(xii) the Borrower and its Subsidiaries may make other Investments
not permitted under clauses (i) through (xi) above in an aggregate amount
not to exceed $500,000 (determined without regard to any write-downs or
write-offs thereof).
9.06 Transactions with Affiliates. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower or any of its Subsidiaries, other than on terms
and conditions substantially as favorable to the Borrower or such Subsidiary as
would reasonably be obtained by the Borrower or such Subsidiary at that time in
a comparable arm's-length transaction with a Person other than an Affiliate,
except that the following in any event shall be permitted: (i) Dividends may be
paid to the extent provided in Section 9.03, (ii) transactions may be entered
into by the Borrower and its Subsidiaries to the extent permitted by Sections
9.02(x), (xi) and (xii), 9.04(v) and 9.05(iv), (vi) and (ix), (iii) customary
fees may be paid to non-officer directors of the Borrower, (iv) the Borrower and
its Subsidiaries may pay compensation to their officers and employees and
management, advisory, consulting and similar fees to the Borrower and any
Wholly-Owned Subsidiary of the Borrower, (v) the Borrower and the Subsidiary
Guarantors may enter into, and perform their obligations under, transactions
among themselves, (vi) any Foreign Subsidiary of the Borrower may enter into,
and perform its obligations under, any transaction with any other Foreign
Subsidiary of the Borrower, (vii) the
66
<PAGE> 73
Borrower and its Subsidiaries may enter into, and perform their obligations
under, the Spin-off Documents and the other agreements and arrangements
specifically described under the heading "Relationship Between Too, Inc. and The
Limited" in the Information Memorandum, and (viii) the Transactions shall be
permitted.
9.07 Capital Expenditures. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditures, except that
during any fiscal year or fiscal quarter of the Borrower, as the case may be,
beginning on or after February 1, 1999 (taken as one accounting period), the
Borrower and its Subsidiaries may make Capital Expenditures so long as the
aggregate amount of such Capital Expenditures do not exceed the amount set forth
below opposite such fiscal year, provided that the amount set forth in the table
below opposite any fiscal year may, to the extent not utilized to make Capital
Expenditures in such fiscal year, be carried forward into the immediately
succeeding fiscal year (and will be deemed to be the first amounts used in
making Capital Expenditures in such succeeding fiscal year), provided further
that in no event shall the amount carried forward into any fiscal year listed
below exceed 33-1/3% of the amount listed opposite the immediately preceding
fiscal year in the table below:
<TABLE>
<CAPTION>
Fiscal Year Ended January of Amount
---------------------------- ------
<S> <C>
2000 $45,000,000
2001 $50,000,000
2002 $55,000,000
2003 $60,000,000
2004 $60,000,000
</TABLE>
(b) Notwithstanding the foregoing, the Borrower and its Subsidiaries
may make additional Capital Expenditures (which Capital Expenditures will not be
included in any determination under Section 9.07(a)) with the Net Sale Proceeds
of Asset Sales to the extent such proceeds are not required to be applied to
repay Term Loans pursuant to Section 4.02(e) and such proceeds are reinvested as
required by Section 4.02(e).
(c) Notwithstanding the foregoing, the Borrower and its Subsidiaries
may make additional Capital Expenditures (which Capital Expenditures will not be
included in any determination under Section 9.07(a)) with the insurance proceeds
received by the Borrower or any of its Subsidiaries from any Recovery Event to
the extent such insurance proceeds are not required to be applied to repay Term
Loans pursuant to Section 4.02(g).
(d) Notwithstanding the foregoing, the Borrower and its Subsidiaries
may make additional Capital Expenditures (which Capital Expenditures will not be
included in any determination under Section 9.07(a)) constituting Permitted
Acquisitions effected in accordance with the requirements of Section 9.02(ix).
(e) Notwithstanding the foregoing, so long as no Default or Event of
Default exists and is continuing, the Borrower and its Subsidiaries may make
additional Capital Expenditures (which Capital Expenditures will not be included
in any determination under Section 9.07(a)) with the proceeds of grants and
loans received from The Limited or any of its
67
<PAGE> 74
subsidiaries in respect of closings of "adjacent" stores pursuant to Section 18
of the Store Leases Agreement; provided that the proceeds of such grants and
loans shall be used by the Borrower and/or its Subsidiaries to make such Capital
Expenditures within 180 days of receipt thereof.
9.08 Minimum Consolidated Coverage Ratio. The Borrower will not
permit the Consolidated Coverage Ratio for any Test Period ending on the last
day of a fiscal quarter described below to be less than the amount set forth
opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Ratio
------------------------------- -----
<S> <C>
October 31, 1999 2.00:1.00
January 31, 2000 2.00:1.00
April 30, 2000 2.00:1.00
July 31, 2000 2.00:1.00
October 31, 2000 2.00:1.00
January 31, 2001 2.00:1.00
April 30, 2001 2.00:1.00
July 31, 2001 2.00:1.00
October 31, 2001 2.00:1.00
January 31, 2002 2.00:1.00
April 30, 2002 2.25:1.00
July 31, 2002 2.25:1.00
October 31, 2002 2.25:1.00
January 31, 2003 2.25:1.00
April 30, 2003 2.25:1.00
July 31, 2003 2.25:1.00
October 31, 2003 2.25:1.00
January 31, 2004 2.25:1.00
April 30, 2004 2.25:1.00
July 31, 2004 2.25:1.00
</TABLE>
9.09 Minimum Consolidated Fixed Charge Coverage Ratio. The Borrower
will not permit the Consolidated Fixed Charge Coverage Ratio for any Test Period
ending on the last day of a fiscal quarter described below to be less than the
amount set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Ratio
------------------------------- -----
<S> <C>
October 31, 1999 1.05:1.00
January 31, 2000 1.05:1.00
April 30, 2000 1.05:1.00
July 31, 2000 1.05:1.00
October 31, 2000 1.05:1.00
January 31, 2001 1.05:1.00
April 30, 2001 1.05:1.00
July 31, 2001 1.05:1.00
October 31, 2001 1.05:1.00
</TABLE>
68
<PAGE> 75
<TABLE>
<S> <C>
January 31, 2002 1.25:1.00
April 30, 2002 1.25:1.00
July 31, 2002 1.25:1.00
October 31, 2002 1.25:1.00
January 31, 2003 1.25:1.00
April 30, 2003 1.25:1.00
July 31, 2003 1.25:1.00
October 31, 2003 1.25:1.00
January 31, 2004 1.25:1.00
April 30, 2004 1.25:1.00
July 31, 2004 1.25:1.00
</TABLE>
9.10 Maximum Leverage Ratio. The Borrower will not permit the
Leverage Ratio at any time during a fiscal quarter described below to be greater
than the ratio set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Ratio
------------------------------- -----
<S> <C>
October 31, 1999 4.875:1.00
January 31, 2000 4.875:1.00
April 30, 2000 4.75:1.00
July 31, 2000 4.50:1.00
October 31, 2000 4.50:1.00
January 31, 2001 4.50:1.00
April 30, 2001 4.25:1.00
July 31, 2001 4.00:1.00
October 31, 2001 4.00:1.00
January 31, 2002 4.00:1.00
April 30, 2002 3.75:1.00
July 31, 2002 3.75:1.00
October 31, 2002 3.75:1.00
January 31, 2003 3.75:1.00
April 30, 2003 3.50:1.00
July 31, 2003 3.50:1.00
October 31, 2003 3.50:1.00
January 31, 2004 3.50:1.00
April 30, 2004 3.50:1.00
July 31, 2004 3.50:1.00
</TABLE>
9.11 Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of Incorporation and Certain Other
Agreements; etc. The Borrower will not, and will not permit any of its
Subsidiaries to, (i) make (or give any notice in respect of) any voluntary or
optional payment or prepayment on or redemption or acquisition for value of, or
make any prepayment or redemption as a result of any asset sale, change of
control or similar event of (including, in each case, without limitation, by way
of depositing with the trustee with respect thereto or any other Person, money
or securities before due for the purpose of paying
69
<PAGE> 76
when due) any Indebtedness owing to The Limited pursuant to Section 18 of the
Store Leases Agreement, (ii) amend or modify, or permit the amendment or
modification of, any provision of the Spin-Off Documents (other than the SEC
Registration Documents) or waive any provision thereof or consent to the
termination thereof, or amend, modify or change its certificate of incorporation
(including, without limitation, by the filing or modification of any certificate
of designation) (or the equivalent organizational documents), unless such
amendment, modification, change, waiver, consent or other action contemplated by
this clause (ii) could not reasonably be expected to be adverse to the interests
of the Lenders in any material respect, or (iii) amend, modify or change any
provision of any Tax Sharing Agreement or enter into any new tax sharing
agreement, tax allocation agreement or similar agreement, unless such amendment,
modification, change or other action contemplated by this clause (iii) cannot
reasonably be expected to be adverse to the interests of the Lenders in any
material respect.
9.12 Limitation on Certain Restrictions on Subsidiaries. The
Borrower will not, and will not permit any of its 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 such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by the Borrower or any Subsidiary
the Borrower, or pay any Indebtedness owed to the Borrower or any Subsidiary of
the Borrower, (b) make loans or advances to the Borrower or any Subsidiary of
the Borrower or (c) transfer any of its properties or assets to the Borrower or
any Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) this Agreement and the
other Credit Documents and (iii) restrictions on the transfer of any asset
subject to a Lien permitted by this Agreement.
9.13 Limitation on Issuance of Capital Stock. (a) (i) The Borrower
will not issue any preferred stock other than Qualified Preferred Stock or any
common stock redeemable at the option of the holder thereof prior to the date
which is one year after the Term Loan Maturity Date and (ii) the Borrower will
not permit any of its Subsidiaries to issue any preferred stock or any common
stock redeemable at the option of the holder thereof.
(b) The Borrower will not permit any of its Subsidiaries to issue
any capital stock (including by way of sales of treasury stock) or any options
or warrants to purchase, or securities convertible into, capital stock, except
(i) for transfers and replacements of then outstanding shares of capital stock,
(ii) for stock splits, stock dividends and issuances which do not decrease the
percentage ownership of the Borrower or any of its Subsidiaries in any class of
the capital stock of such Subsidiary, (iii) to qualify directors to the extent
required by applicable law and (iv) for issuances by newly created or acquired
Subsidiaries in accordance with the terms of this Agreement.
9.14 Business; Trade Names. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, engage (directly or indirectly) in any
business other than the businesses in which the Borrower and its Subsidiaries
are engaged on the Initial Borrowing Date and those reasonably related thereto
(collectively, the "Permitted Businesses").
70
<PAGE> 77
(b) The Borrower will not, and will not permit its Subsidiaries, to
operate more than 25% of the aggregate store locations operated by the Borrower
and its Subsidiaries at any given time under a name other than "Limited Too."
9.15 Limitation on Creation of Subsidiaries. Notwithstanding
anything to the contrary contained in this Agreement, the Borrower will not, and
will not permit any of its Subsidiaries to, establish, create or acquire after
the Effective Date any Subsidiary; provided that, the (A) Borrower and its
Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned
Subsidiaries so long as, in each case, (i) at least 15 days' prior written
notice thereof is given to the Administrative Agent (or such shorter period of
time as is acceptable to the Administrative Agent), (ii) all of the capital
stock of such new Subsidiary (or all non-voting stock (if any) and at least 65%
of the outstanding voting stock of a Foreign Subsidiary) is promptly pledged
pursuant to, and to the extent required by, this Agreement and the Pledge
Agreement and the certificates, if any, representing such stock, together with
stock powers duly executed in blank, are delivered to the Collateral Agent and
(iii) such new Subsidiary (other than a Foreign Subsidiary except to the extent
otherwise required pursuant to Section 8.13) promptly executes a counterpart of
the Subsidiaries Guaranty, the Pledge Agreement and the Security Agreement and
takes all actions required pursuant to Section 8.12 and (B) Subsidiaries may be
acquired pursuant to Permitted Acquisitions so long as, in each such case the
actions specified in preceding clause (A) shall be taken. In addition, each new
Subsidiary that is required to execute any Credit Document shall execute and
deliver, or cause to be executed and delivered, all other relevant documentation
of the type described in Section 5 as such new Subsidiary would have had to
deliver if such new Subsidiary were a Credit Party on the Initial Borrowing
Date.
SECTION 10. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the payment when
due of any principal of any Loan, or (ii) default, and such default shall
continue for more than three Business Days, in the payment when due of any
interest on any Loan, any Unpaid Drawing or any Fees or any other amounts owing
hereunder or thereunder; or
10.02 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any certificate delivered to the Administrative Agent or any Lender pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
10.03 Covenants. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(f)(i), 8.08, 8.11 or Section 9 or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement or any other Credit Document (other than those set
forth in Sections 10.01 and 10.02 and clause (i) of this Section 10.03) and such
default shall continue unremedied for a period of 30 days after written notice
thereof to the defaulting party by the Administrative Agent or the Required
Lenders; or
71
<PAGE> 78
10.04 Default Under Other Agreements. (i) The Borrower or any of its
Subsidiaries shall (x) default in any payment of any Indebtedness (other than
Indebtedness under the Credit Documents) beyond the period of grace or cure, if
any, provided in the instrument or agreement under which such Indebtedness was
created or (y) default in the observance or performance of any agreement or
condition relating to any Indebtedness (other than Indebtedness under the Credit
Documents) or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause (determined without regard to whether any notice is
required, but beyond the period of grace or cure, if any, provided in the
instrument or agreement under which such Indebtedness was created), any such
Indebtedness to become due prior to its stated maturity, or (ii) any
Indebtedness (other than Indebtedness under the Credit Documents) of the
Borrower or any of its Subsidiaries shall be declared to be (or shall become)
due and payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof, provided that it
shall not be a Default or an Event of Default under this Section 10.04 unless
the aggregate principal amount of all Indebtedness described in preceding
clauses (i) and (ii) is at least $3,000,000; or
10.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower or any of its Subsidiaries, and the petition is not dismissed within 60
days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of the Borrower or any of its Subsidiaries, or the Borrower or
any of its Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Borrower or any of its Subsidiaries, or there is
commenced against the Borrower or any of its Subsidiaries any such proceeding
which remains undismissed for a period of 60 days, or the Borrower or any of its
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or the Borrower or
any of its Subsidiaries suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 60 days; or the Borrower or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or any corporate action is
taken by the Borrower or any of its Subsidiaries for the purpose of effecting
any of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred with respect
to a Plan subject to Title IV of ERISA, a contributing sponsor (as defined in
Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be
subject to the advance reporting requirement of PBGC Regulation Section 4043.61
(without regard to subparagraph (b)(1) thereof) and an event described in
subsection .62, .63, .64, .65, .66, .67 or
72
<PAGE> 79
.68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with
respect to such Plan within the following 30 days, any Plan which is subject to
Title IV of ERISA shall have had or is reasonably likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is reasonably likely to be terminated or to be the
subject of termination proceedings under ERISA, any Plan shall have an Unfunded
Current Liability, a contribution required to be made with respect to a Plan or
a Foreign Pension Plan is not timely made, the Borrower or any of its
Subsidiaries or any ERISA Affiliate has incurred or is reasonably likely to
incur any liability to or on account of a Plan under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section
401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as
defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code, or the Borrower or any of its Subsidiaries, has
incurred or is reasonably likely to incur liabilities pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or Plans or Foreign Pension Plans; (b) there
shall result from any such event or events the imposition of a lien, the
granting of a security interest, or a liability or a material risk of incurring
a liability; and (c) such lien, security interest or liability, individually,
and/or in the aggregate, in the opinion of the Required Lenders, has had, or
could reasonably be expected to have, a material adverse effect on the business,
operations, property, assets, liabilities, financial condition or prospects of
the Borrower or the Borrower and its Subsidiaries taken as a whole; or
10.07 Security Documents. At any time after the execution and
delivery thereof, except in accordance with the terms hereof and thereof, any of
the Security Documents shall cease in any material respect to be in full force
and effect, or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby in any material respect (including, without limitation, a
perfected security interest in, and Lien on, all of the Collateral (other than
motor vehicles), in favor of the Collateral Agent, superior to and prior to the
rights of all third Persons (except as permitted by Section 9.01), and subject
to no other Liens (except as permitted by Section 9.01); or
10.08 Spin-Off Documents. At any time after the execution and
delivery thereof, any of the Trademark and Service Mark Licensing Agreement,
Store Leases Agreement, Building Lease Agreement or Services Agreement shall
cease in any material respect to be in full force and effect except to the
extent any termination thereof is mutually consented to by the parties thereto
in accordance with Section 9.11, or the Borrower or any of its Subsidiaries
shall have defaulted in the due performance of any material provision of any of
such documents and such default shall (i) continue unremedied for a period of 30
days and (ii) give rise to the right of any party (other than the Borrower and
its Subsidiaries) to terminate any such agreement or materially curtail the
rights of the Borrower and/or its Subsidiaries thereunder; or
10.09 Subsidiaries Guaranty; Loan Purchase Agreement. At any time
after the execution and delivery thereof, except in accordance with the terms
hereof and thereof, (i) the Subsidiaries Guaranty or any provision thereof shall
cease in any material respect to be in full force and effect as to any
Subsidiary Guarantor, or any Subsidiary Guarantor or any Person acting by or on
behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary
73
<PAGE> 80
Guarantor's obligations under the Subsidiaries Guaranty or any Subsidiary
Guarantor shall default in any material respect in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the Subsidiaries Guaranty (after giving effect to any cure
rights) or (ii) the Loan Purchase Agreement or any provision thereof shall cease
in any material respect to be in full force and effect as to The Limited (other
than in accordance with the terms hereof or thereof) , or The Limited or any
Person acting by or on behalf of The Limited shall deny or disaffirm The
Limited's obligations under the Loan Purchase Agreement or The Limited shall
default in any material respect in the due performance or observance of any
term, covenant or agreement on its part to be performed or observed pursuant to
the Loan Purchase Agreement (after giving effect to any cure rights); or
10.10 Judgments. One or more judgments or decrees shall be entered
against the Borrower or any Subsidiary of the Borrower involving in the
aggregate for the Borrower and its Subsidiaries a liability (not paid or fully
covered by a reputable and solvent insurance company) and such judgments and
decrees either shall be final and non-appealable or shall not be vacated,
discharged or stayed or bonded pending appeal for any period of 30 consecutive
days, and the aggregate amount of all such judgments exceeds $3,000,000; or
10.11 Change of Control. A Change of Control shall occur; or
10.12 Clean-Down Periods. Any Applicable Clean-Down Period shall end
without a Clean-Down Period occurring during such Applicable Clean-Down Period
in accordance with the requirements of Sections 4.02(j) and the definition of
Clean-Down Period contained herein;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Lenders, shall by written notice to the Borrower, take any or all
of the following actions, without prejudice to the rights of the Administrative
Agent or any Lender to enforce its claims against any Credit Party (provided
that, if an Event of Default specified in Section 10.05 shall occur with respect
to the Borrower, the result which would occur upon the giving of written notice
by the Administrative Agent as specified in clauses (i) and (ii) below shall
occur automatically without the giving of any such notice): (i) declare the
Total Commitments terminated, whereupon all Commitments of each Lender shall
forthwith terminate immediately and any Commitment Commission shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans and all
Obligations owing hereunder to be, whereupon the same shall become, forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by each Credit Party; (iii) terminate any
Letter of Credit which may be terminated in accordance with its terms; (iv)
direct the Borrower to pay (and the Borrower agrees that upon receipt of such
notice, or upon the occurrence of an Event of Default specified in Section 10.05
with respect to the Borrower, it will pay) to the Collateral Agent at the
Payment Office such additional amount of cash, to be held as security by the
Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of
Credit issued for the account of the Borrower and then outstanding; (v) enforce,
as Collateral Agent, all of the Liens and security interests created pursuant to
the Security Documents; and (vi)
74
<PAGE> 81
apply any cash collateral held by the Administrative Agent pursuant to Section
4.02 to the repayment of the Obligations.
SECTION 11. Definitions and Accounting Terms.
11.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acquired Person" shall have the meaning provided in Section
9.02(ix).
"Additional Security Documents" shall have the meaning provided
in Section 8.12.
"Adjusted Consolidated Indebtedness" shall mean, at any time,
Consolidated Indebtedness at such time plus eight times Consolidated Rent
Expense for the then most recently ended Test Period.
"Adjusted Consolidated Net Income" shall mean, for any period,
Consolidated Net Income for such period plus, without duplication, the sum of
the amount of all net non-cash charges (including, without limitation,
depreciation, amortization, deferred tax expense, non-cash interest expense),
net non-cash losses which were included in arriving at Consolidated Net Income
for such period and all losses from Asset Sales which were included in arriving
at Consolidated Net Income for such period less the sum of the amount of all net
non-cash gains which were included in arriving at Consolidated Net Income for
such period and all gains in respect of Asset Sales which were included in
arriving at Consolidated Net Income for such period.
"Adjusted Consolidated Working Capital" at any time shall mean
Consolidated Current Assets (but excluding therefrom all cash and Cash
Equivalents) less Consolidated Current Liabilities at such time.
"Adjusted Total Revolving Loan Commitment" shall mean at any time
the Total Revolving Loan Commitment less the aggregate Revolving Loan
Commitments of all Defaulting Lenders.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 12.09.
"Affected Eurodollar Loans" shall have the meaning provided in
Section 4.02(h).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control another
Person if such Person possesses, directly or
75
<PAGE> 82
indirectly, the power to direct or cause the direction of the management and
policies of such other Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agents" shall mean, collectively, the Administrative Agent and
the Syndication Agent.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated (including any amendment and restatement
hereof), extended, renewed, refinanced or replaced from time to time.
"Applicable Base Rate Margin" (i) for any calculation of interest
payable in respect of the period from and including the Initial Borrowing Date
to but excluding the first Start Date (as defined below) to occur after the
Initial Borrowing Date, shall mean 1.75%, and (ii) from and after the first day
of any Applicable Pricing Period (the "Start Date") (commencing with the first
Start Date to occur after the Initial Borrowing Date) to and including the last
day of such Applicable Pricing Period (the "End Date"), shall mean the
respective percentage per annum set forth in clause (A), (B), (C), (D) or (E)
below if, but only if, as of the last day of the most recent fiscal quarter of
the Borrower ended immediately prior to such Start Date (the "Test Date") the
condition in clause (A), (B), (C), (D) or (E) below is met:
(A) 2.25% if, as of the Test Date for such Start Date, the Leverage
Ratio for the Test Period ended on such Test Date shall be greater than or
equal to 4.5:1.0; or
(B) 1.75% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 4.5:1.0 but greater than or equal to 4.0:1.0; or
(C) 1.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 4.0:1.0 but greater than or equal to 3.5:1.0; or
(D) 0.75% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 3.5:1.0 but greater than or equal to 3.0:1.0; or
(E) 0.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 3.0:1.0.
Notwithstanding anything to the contrary contained above in this definition, the
Applicable Base Rate Margin shall be 2.25% at all times when (i) a payment
Default under Section 10.01 shall exist or any Event of Default shall exist
and/or (ii) financial statements have not been delivered when required pursuant
to Section 8.01(a) or (b), as the case may be.
"Applicable Clean-Down Period" shall mean each period beginning with
the first day of the fourth fiscal quarter of any fiscal year of the Borrower
and ending on the day which is two weeks after the last day of such fiscal year
of the Borrower.
76
<PAGE> 83
"Applicable Commitment Commission Percentage" (i) for any
calculation of the Commitment Fees payable in respect of the period from and
including the Effective Date to the day prior to the first Start Date to occur
after the Effective Date, shall mean 0.50% per annum, and (ii) after any Start
Date (commencing with the first Start Date to occur after the Effective Date) to
and including the corresponding End Date, shall mean the respective percentage
per annum set forth in clause (A), (B) or (C) below if, but only if, as of the
Test Date for such Start Date the condition set forth in clause (A), (B) or (C)
below is met:
(A) 0.50% if, as of the Test Date for such Start Date, the Leverage
Ratio for the Test Period ended on such Test Date shall be equal to or
greater than 4.0:1:0; or
(B) 0.375% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 4.0:1.00 but equal to or greater than 3.5:1.0; or
(C) 0.25% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 3.5:1.0.
Notwithstanding anything to the contrary contained above in this definition, the
Applicable Commitment Percentage shall be 0.50% per annum at all times when (i)
a payment Default under Section 10.01 shall exist or any Event of Default shall
exist and/or (ii) financial statements have not been delivered when required
pursuant to Section 8.01(a) or (b), as the case may be.
"Applicable Eurodollar Margin" (i) for any calculation of interest
payable in respect of the period from and including the Initial Borrowing Date
to but excluding the first Start Date to occur after the Initial Borrowing Date,
shall mean 2.75%, and (ii) from and after any Start Date (commencing with the
first Start Date to occur after the Initial Borrowing Date) to and including the
corresponding End Date, shall mean the respective percentage per annum set forth
in clause (A), (B), (C), (D) or (E) below if, but only if, as of the Test Date
for such Start Date the condition in clause (A), (B), (C), (D) or (E) below is
met:
(A) 3.25% if, as of the Test Date for such Start Date, the Leverage
Ratio for the Test Period ended on such Test Date shall be greater than or
equal to 4.5:1.0; or
(B) 2.75% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 4.5:1.0 but greater than or equal to 4.0:1.0; or
(C) 2.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 4.0:1.0 but greater than or equal to 3.5:1.0; or
(D) 1.75% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 3.5:1.0 but greater than or equal to 3.0:1.0; or
77
<PAGE> 84
(E) 1.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than 3.0:1.0.
Notwithstanding anything to the contrary contained above in this definition the
Applicable Eurodollar Margin shall be 3.25% at all times when (i) a payment
Default under Section 10.01 shall exist or any Event of Default shall exist
and/or (ii) financial statements have not been delivered when required pursuant
to Section 8.01(a) or (b), as the case may be.
"Applicable Pricing Period" shall mean each period which shall
commence on the date one Business Days after the date on which the financial
statements are delivered pursuant to Section 8.01(a) or (b) (or the same day
provided such financial statements are delivered on a Business Day prior to
11:00 A.M. (New York time) and which shall end on the earlier of (i) the date
one Business Day after the date of actual delivery of the next financial
statements pursuant to Section 8.01(a) or (b) (or the same day provided such
financial statements are delivered on a Business Day prior to 11:00 A.M. (New
York time) and (ii) the latest date on which the next financial statements are
required to be delivered pursuant to Section 8.01(a) or (b) if such financial
statements have not been delivered on or prior to such date.
"Asset Sale" shall mean any sale, transfer or other disposition by
the Borrower or any of its Subsidiaries to any Person (including by way of
redemption by such Person) other than to the Borrower or a Subsidiary of the
Borrower of any asset (including, without limitation, any capital stock or other
securities of, or equity interests in, another Person) of the Borrower or any of
its Subsidiaries, provided that Asset Sales shall not include (i) any sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection thereof, (ii) any sale or exchange of specific items of equipment, so
long as the purpose of each such sale or exchange is to acquire (and results
within 90 days of such sale or exchange in the acquisition of) replacement items
of equipment which are the functional equivalent of the item of equipment so
sold or exchanged, (iii) the leasing (pursuant to leases in the ordinary course
of business) or licensing of real or personal property, including intellectual
property, or (iv) disposals of obsolete, negligible or worn out property in the
ordinary course of business.
"Assignment and Assumption Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit L (appropriately
completed).
"Authorized Officer" shall mean the President or any Vice President
of the Borrower or any other officer of the Borrower designated as such in
writing to the Administrative Agent by the President or any Vice President of
the Borrower.
"Bankruptcy Code" shall have the meaning provided in Section
10.05.
"Base Rate" shall mean for any day, a rate of interest per annum
equal to the higher of (i) the Prime Lending Rate for such day and (ii) the sum
of the Federal Funds Rate for such day plus 1/2 of 1% per annum.
78
<PAGE> 85
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each
other Loan designated or deemed designated as such by the Borrower at the time
of the incurrence thereof or conversion thereto.
"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Lenders having Commitments of the respective Tranche (or
from the Swingline Lender in the case of Swingline Loans) on a given date (or
resulting from a conversion or conversions on such date) having in the case of
Eurodollar Loans the same Interest Period, provided that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of the related
Borrowing of Eurodollar Loans.
"Building Lease Agreement" means the Building Lease Agreement
between Distribution Land Corp. and the Borrower, as amended, in the form
last delivered to the Administrative Agent on or before the Initial Borrowing
Date.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City, New York, a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) above and which is also a day for
trading by and between banks in the interbank Eurodollar market.
"Calculation Period" shall mean the period of four consecutive
fiscal quarters of the Borrower last ended before the date of the respective
Permitted Acquisition which requires calculations to be made on a Pro Forma
Basis.
"Capital Expenditures" shall mean, with respect to any Person, the
additions to property, plant and equipment and other capital expenditures of
such Person, as the same are or would be set forth in a statement of cash flows
of such Person in accordance with GAAP, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with GAAP)
and the amount of Capitalized Lease Obligations incurred by such Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under GAAP, are or will be required to be capitalized on the
books of such Person, in each case taken at the amount thereof accounted for as
indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) time deposits and
79
<PAGE> 86
certificates of deposit of any commercial bank having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof or the District of Columbia having capital,
surplus and undivided profits aggregating in excess of $200,000,000, with
maturities of not more than one year from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than 90 days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any Person incorporated in the United States rated at
least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or at
least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing not more than one year after the date of acquisition by such
Person, and (v) investments in money market funds substantially all of whose
assets are comprised of securities of the types described in clauses (i) through
(iv) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. Section 9601 et seq.
"Change of Control" shall mean (i) any Person (other than, prior to
the consummation of the Spin-Off, The Limited) or "group" (within the meaning of
Rule 13d-3 or 13d-5 under the Securities Exchange Act (as in effect on the
Effective Date)) shall have (A) acquired beneficial ownership of 30% or more on
a fully diluted basis of the voting and/or economic interest in the Borrower's
capital stock or (B) obtained the power (whether or not exercised) to elect a
majority of the Borrower's directors or (ii) the Board of Directors of the
Borrower shall cease to consist of a majority of Continuing Directors.
"Clean-Down Period" shall mean a 30 consecutive day period occurring
during each Applicable Clean-Down Period, at all times during which (i) the sum
of the Total Unutilized Revolving Loan Commitment as then in effect plus the
lesser of (x) the Letter of Credit Outstandings and (y) $25,000,000, equals or
exceeds the Total Revolving Loan Commitment at all times during such period and
(ii) the Borrower maintains customary trade terms with its trade creditors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, the Mortgaged
Properties, and all cash and Cash Equivalents delivered as
collateral pursuant to Section 4.02.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors pursuant to the Security Documents.
80
<PAGE> 87
"Collective Bargaining Agreements" shall have the meaning
provided in Section 5.05.
"Commitment" shall mean any of the commitments of any Lender, i.e.,
whether the Term Loan Commitment or the Revolving Loan Commitment of such
Lender.
"Commitment Commission" shall have the meaning provided in
Section 3.01(a).
"Consolidated Capital Expenditures" shall mean, for any period, the
amount of Capital Expenditures made by the Borrower and its Subsidiaries on a
consolidated basis during such period (other than Capital Expenditures permitted
under Section 9.07(b), (c), (d) and (e)).
"Consolidated Coverage Ratio" shall mean, for any period, the ratio
of (x) Consolidated EBITDAR for such period to (y) Consolidated Interest Expense
plus Consolidated Rent Expense for such period.
"Consolidated Current Assets" shall mean, at any time, the
consolidated current assets of the Borrower and its Subsidiaries at such time.
"Consolidated Current Liabilities" shall mean, at any time, the
consolidated current liabilities of the Borrower and its Subsidiaries at such
time, but excluding (i) the current portion of any Indebtedness under this
Agreement and any other long-term Indebtedness which would otherwise be included
therein, (ii) accrued but unpaid interest with respect to the Indebtedness
described in clause (i), and (iii) the current portion of Indebtedness
constituting Capitalized Lease Obligations.
"Consolidated EBIT" shall mean, for any period, Consolidated Net
Income before interest expense and before provision for taxes for such period
and without giving effect (w) to any extraordinary gains or losses, (x) to any
gains or losses from sales of assets other than from sales of inventory sold in
the ordinary course of business and (y) to any expenses related to or incurred
by the Borrower in connection with the Transaction or any Permitted Acquisition,
provided, however, that with respect to any Permitted Acquisition which is
accounted for as a "purchase," for the Calculation Period following such
acquisition Consolidated EBIT shall include results of operations of the company
or assets so acquired, which amounts shall be determined on a Pro Forma Basis.
"Consolidated EBITDAR" shall mean, for any period, Consolidated EBIT
for such period, adjusted by adding thereto consolidated rent expense that was
deducted in arriving at Consolidated EBIT for such period and the amount of all
amortization and depreciation expense of the Borrower and its Subsidiaries that
was deducted in arriving at Consolidated EBIT for such period.
"Consolidated Fixed Charge Coverage Ratio" for any period shall mean
the ratio of (i) Consolidated EBITDAR less Consolidated Capital Expenditures for
such period to (ii) Consolidated Fixed Charges for such period.
81
<PAGE> 88
"Consolidated Fixed Charges" for any period shall mean the sum,
without duplication, of (i) Consolidated Interest Expense for such period and
(ii) Consolidated Rent Expense for such period.
"Consolidated Indebtedness" shall mean, as at any date of
determination, the aggregate stated balance sheet amount of all Indebtedness
(including in any event the then outstanding principal amount of all Loans and
all Capitalized Lease Obligations) of the Borrower and its Subsidiaries on a
consolidated basis as determined in accordance with GAAP; provided that
Indebtedness outstanding pursuant to trade payables, accrued expenses incurred
in the ordinary course of business, the undrawn face amount of Letters of Credit
and other letters of credit permitted to be outstanding hereunder, and
obligations pursuant to Interest Rate Protection Agreements and Other Hedging
Agreements permitted to be outstanding hereunder (and guaranty obligations
related to the items described in this proviso and otherwise permitted
hereunder) shall be excluded in determining Consolidated Indebtedness.
"Consolidated Interest Expense" shall mean, for any period, the
total consolidated interest expense of the Borrower and its Subsidiaries for
such period (calculated without regard to any limitations on the payment
thereof) plus, without duplication, that portion of Capitalized Lease
Obligations of the Borrower and its Subsidiaries representing the interest
factor for such period; provided that the amortization of fees and expenses paid
on the Initial Borrowing Date in respect of this Agreement shall be excluded
from Consolidated Interest Expense to the extent the same would otherwise have
been included therein.
"Consolidated Net Income" shall mean, for any Person and period, the
net income (or loss) of such Person and its Subsidiaries for such period,
determined on a consolidated basis (after deduction for minority interests) in
accordance with GAAP, provided that (i) in determining Consolidated Net Income
of the Borrower, the net income (or loss) of any other Person which is not a
Subsidiary of the Borrower or is accounted for by the Borrower by the equity
method of accounting shall be included only to the extent of the payment of
dividends or distributions by such other Person to the Borrower or a Subsidiary
thereof during such period, (ii) the net income of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends and
distributions by that Subsidiary of net income is not at the date of
determination permitted without any prior government 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 Subsidiary or its stockholders and
(iii) the net income (or loss) of any other Person acquired by such specified
Person or a Subsidiary of such Person in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded.
"Consolidated Rent Expense" shall mean, for any period, the
aggregate total amount of rent and lease expense (excluding common area
maintenance, utilities, taxes and contingent rent) for real property and retail
store space paid by the Borrower and its Subsidiaries during such period which
would be reported in accordance with GAAP and which was deducted in arriving at
Consolidated EBIT for such period.
82
<PAGE> 89
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness ("primary
obligations") of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the holder of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent Obligation shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent Obligation shall,
subject to any express limitation contained therein, be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by such Person in good
faith.
"Continuing Directors" shall mean the directors of the Borrower
immediately after giving effect to the Spin-Off and each other director, if such
other director's nomination for election to the Board of Directors of the
Borrower is recommended by a majority of the then Continuing Directors or is
recommended by a committee of the Board of Directors a majority of which is
composed of the then Continuing Directors.
"Credit Documents" shall mean this Agreement and, after the
execution and delivery thereof pursuant to the terms of this Agreement, each
Note (if any), the Subsidiaries Guaranty, the Loan Purchase Agreement and each
Security Document.
"Credit Event" shall mean the making of any Loan or the issuance
of any Letter of Credit.
"Credit Party" shall mean the Borrower and each Subsidiary
Guarantor.
"Default" shall mean any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Determination Date" shall have the meaning provided in the
definition of "Pro Forma Basis."
"Distribution Agreement" shall mean the Distribution Agreement
between The Limited and the Borrower in the form last delivered to the
Administrative Agent on or before the Initial Borrowing Date.
83
<PAGE> 90
"Dividend" with respect to any Person shall mean that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders or partners or authorized or made any other distribution, payment
or delivery of property (other than common stock of such Person) or cash to its
stockholders or partners as such, or redeemed, retired, purchased or otherwise
acquired, directly or indirectly, for a consideration any shares of any class of
its capital stock or any partnership interests outstanding on or after the
Initial Borrowing Date (or any options or warrants issued by such Person with
respect to its capital stock), or set aside any funds for any of the foregoing
purposes, or shall have permitted any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock or any partnership interests of such Person outstanding on or after the
Initial Borrowing Date (or any options or warrants issued by such Person with
respect to its capital stock). Without limiting the foregoing, "Dividends" with
respect to any Person shall also include all payments made or required to be
made by such Person with respect to any stock appreciation rights, plans, equity
incentive or achievement plans or any similar plans or setting aside of any
funds for the foregoing purposes, except to the extent such payment(s) reduce
Consolidated EBITDAR for the period in which they are made.
"Documents" shall mean, collectively, each Credit Document, each
Spin-Off Document and each other document or agreement executed in connection
with the Transaction or the other transactions contemplated hereby.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower
incorporated or organized in the United States or any State or territory
thereof.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Effective Date" shall have the meaning provided in Section 13.10.
"Eligible Transferee" shall mean and include a commercial bank,
insurance company, financial institution, fund or other Person which regularly
purchases interests in loans or extensions of credit of the types made pursuant
to this Agreement, any other Person which would constitute a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act as
in effect on the Effective Date or other "accredited investor" (as defined in
Regulation D of the Securities Act).
"Employee Benefit Plans" shall have the meaning provided in
Section 5.05.
"Employment Agreements" shall have the meaning provided in
Section 5.05.
"End Date" shall have the meaning provided in the definition of
Applicable Base Rate Margin.
84
<PAGE> 91
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued,
or any approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief in connection
with alleged injury or threat of injury to health, safety or the environment due
to the presence of Hazardous Materials.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, guideline, written policy and
rule of common law now or hereafter in effect and in each case as amended, and
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment or
Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803
et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C.
Section 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C.
Section 1801 et seq.; and (with respect to the exposure of employees to
Hazardous Materials) the Occupational Safety and Health Act, 29 U.S.C. Section
651 et seq.; and any state and local or foreign counterparts or equivalents, in
each case as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would
be deemed to be a "single employer" within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
"Eurodollar Loan" shall mean each Loan designated as such by the
Borrower at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean (a) the London Interbank Offered Rate
for borrowings (rounded upward to the nearest 1/100 of one percent) for deposits
of Dollars in minimum amounts of at least the Minimum Borrowing Amount
applicable to such Eurodollar Loan for a period equivalent to such period at or
about 11:00 A.M. (London time) on the second Business Day before the first day
of such period as is displayed on Telerate page 3750 (British Bankers'
Association Interest Settlement Rates) (or such other page as may replace such
page 3750 on such system, provided that if on such date no such rate is so
displayed, the Eurodollar
85
<PAGE> 92
Rate for such period shall be the rate determined by the Administrative Agent to
be the arithmetic average (rounded upward, if necessary, to the nearest 1/16 of
one percent) of the rate per annum at which deposits of Dollars in an amount
approximately equal to the amount in relation to which the Eurodollar Rate is to
be determined for a period equivalent to such period are being offered by first
class banks in the London Interbank Market at or about 11:00 A.M. (London time)
on the second Business Day before the first day of such period, divided (and
rounded upward to the nearest 1/100 of 1%) by (b) a percentage equal to 100%
minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves required by applicable law) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of (i)
the sum of (a) Adjusted Consolidated Net Income for such period, (b) the
decrease, if any, in Adjusted Consolidated Working Capital from the first day of
such period to the last day of such period and (c) the amount of all
carry-forwards of permitted Capital Expenditures from prior periods pursuant to
Section 9.07(a) which lapsed at the end of such period without having been used
to make Capital Expenditures during such period, minus (ii) the sum of (a) the
amount of all Capital Expenditures (excluding Capital Expenditures financed with
proceeds of Indebtedness or pursuant to Capitalized Lease Obligations and
excluding Capital Expenditures which, pursuant to the first proviso to Section
9.07(a) are deemed to constitute a utilization of amounts carried forward from
prior periods pursuant to Section 9.07(a)) made by the Borrower and its
Subsidiaries pursuant to Section 9.07(a) during such period, (b) the amount of
Capital Expenditures permitted to be made pursuant to Section 9.07(a) which were
not so used during such period and which are permitted to be carried forward to
be used during a subsequent period pursuant to Section 9.07(a), (c) the
aggregate principal amount of permanent principal payments of Indebtedness for
borrowed money of the Borrower and its Subsidiaries (other than repayments being
financed with proceeds of Indebtedness, equity issuances, asset sales or
insurance proceeds, and repayments of Loans, provided that repayments of Loans
shall be deducted in determining Excess Cash Flow if such repayments were (x)
required as a result of a Scheduled Repayment under Section 4.02(b) or (y) made
as a voluntary prepayment (but in the case of a voluntary prepayment of
Revolving Loans or Swingline Loans, only to the extent accompanied by a
voluntary reduction to the Total Revolving Loan Commitment)) during such period
and (c) the increase, if any, in Adjusted Consolidated Working Capital from the
first day of such period to the last day of such period. Notwithstanding the
foregoing provisions of this definition, to the extent Excess Cash Flow for any
given Excess Cash Payment Period is less than zero, Excess Cash Flow for the
immediately succeeding Excess Cash Payment Period shall be reduced by the lesser
of (A) the amount of permitted Capital Expenditures deducted pursuant to clause
(ii)(b) above for such preceding Excess Cash Payment Period and (B) the amount
(expressed as a positive number) by which Excess Cash Flow for such preceding
Excess Cash Payment Period was less than zero.
86
<PAGE> 93
"Excess Cash Payment Date" shall mean the date occurring 120 days
after the last day of each fiscal year of the Borrower (beginning with its
fiscal year ending closest to January 31, 2001).
"Excess Cash Payment Period" shall mean, with respect to the
repayment required on each Excess Cash Payment Date, the immediately preceding
fiscal year of the Borrower.
"Excluded Taxes" shall have the meaning provided in Section
4.04(a).
"Existing Indebtedness" shall have the meaning provided in
Section 7.21.
"Existing Indebtedness Agreements" shall have the meaning
provided in Section 5.05.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 11 A.M. (New York
time) on such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
"Fees" shall mean all amounts payable pursuant to or referred to
in Section 3.01.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the Borrower or any one or
more of its Subsidiaries primarily for the benefit of employees of the Borrower
or such Subsidiaries residing outside the United States of America, which plan,
fund or other similar program provides, or results in, retirement income, a
deferral of income in contemplation of retirement or payments to be made upon
termination of employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean each Subsidiary of the Borrower
other than a Domestic Subsidiary.
"GAAP" shall have the meaning provided in Section 13.07.
"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radiologically contaminated materials, asbestos in any form that is
friable, urea formaldehyde foam insulation, dielectric fluid containing levels
of polychlorinated biphenyls; (b) any chemicals, materials or substances defined
as or included in the definition of "hazardous substances," "hazardous waste,"
"hazardous materials," "extremely hazardous substances," "restricted hazardous
waste," "toxic substances," "toxic pollutants," "contaminants," or
87
<PAGE> 94
"pollutants," or words of similar import, under any applicable Environmental
Law; and (c) any other chemical, material or substance, the Release of which is
prohibited, limited or regulated by any governmental authority pursuant to any
Environmental Law.
"Indebtedness" shall mean, as to any Person, without duplication,
(i) all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than deferred obligations relating to employee benefits, (ii) the
maximum amount available to be drawn under all letters of credit issued for the
account of such Person and all unpaid drawings in respect of such letters of
credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv),
(v), (vi) or (vii) of this definition secured by any Lien on any property owned
by such Person, whether or not such Indebtedness has been assumed by such Person
(provided that, if the Person has not assumed or otherwise become liable in
respect of such Indebtedness, such Indebtedness shall be deemed to be in an
amount equal to the lesser of the amount of such Indebtedness and the fair
market value of the property to which such Lien relates as determined in good
faith by such Person), (iv) the aggregate amount required to be capitalized
under leases under which such Person is the lessee, (v) all obligations of such
person to pay a specified purchase price for goods or services, whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all
Contingent Obligations of such Person and (vii) all obligations under any
Interest Rate Protection Agreement or any Other Hedging Agreement.
Notwithstanding the foregoing, Indebtedness shall not include trade payables and
accrued expenses incurred by any Person in accordance with customary practices
and in the ordinary course of business of such Person.
"Information Memorandum" shall mean the Information Statement,
contained in the Registration Statement on Form 10 filed with the SEC on June
28, 1999.
"Information Systems and Equipment" shall mean all computer
hardware, firmware and software, as well as other information processing
systems, or any equipment containing embedded microchips, whether directly
owned, licensed, leased, operated or otherwise controlled by the Borrower or any
of its Subsidiaries, including through third-party service providers, and which,
in whole or in part, are used, operated, relied upon, or integral to the conduct
of the business of the Borrower or any of its Subsidiaries.
"Initial Borrowing Date" shall mean the date occurring on or after
the Effective Date on which the initial Borrowing of Loans or issuance of a
Letter of Credit occurs.
"Intercompany Loan" shall have the meaning provided in Section
9.05(vi).
"Intercompany Note" shall mean a promissory note, in the form of
Exhibit M, evidencing Intercompany Loans.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
88
<PAGE> 95
"Interest Rate Protection Agreement" shall mean any interest rate
swap agreement, interest rate cap agreement, interest collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"Investments" shall have the meaning provided in Section 9.05.
"Issuing Bank" shall mean Citibank, N.A. on behalf of Citicorp USA,
Inc. and any other Lender which at the request of the Borrower and with the
consent of the Administrative Agent (which consent shall not be unreasonably
withheld) agrees, in such Lender's sole discretion, to become an Issuing Bank
for the purpose of issuing Letters of Credit pursuant to Section 2. The only
Issuing Bank on the Initial Borrowing Date is Citibank, N.A. on behalf of
Citicorp USA, Inc.
"L/C Supportable Obligations" shall mean (i) obligations of the
Borrower or any of its Subsidiaries with respect to workers compensation, surety
bonds and other similar statutory obligations and (ii) such other obligations of
the Borrower or any of its Subsidiaries as are otherwise permitted to exist
pursuant to (or otherwise not restricted by) the terms of this Agreement, other
than any Indebtedness for borrowed money unless consented to by the
Administrative Agent and the Issuing Bank.
"Leaseholds" of any Person shall mean all the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Lender" shall mean each Person listed on Schedule I, as well as any
Person which becomes a "Lender" hereunder pursuant to Section 1.13 or 13.04(b).
"Lender Default" shall mean (i) the refusal (which has not been
retracted) or the failure of a Lender to make available its portion of any
Borrowing (including any Mandatory Borrowing) or to fund its portion of any
unreimbursed payment under Section 2.04(c) or (ii) a Lender having notified in
writing the Borrower and/or the Administrative Agent that such Lender does not
intend to comply with its obligations under Section 1.01(a), 1.01(b), 1.01(c),
1.04 or 2.
"Lending Office" shall mean, with respect to any Lender, any office,
branch, subsidiary or affiliate of such Lender.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
89
<PAGE> 96
"Leverage Ratio" shall mean, at any time, the ratio of (x) Adjusted
Consolidated Indebtedness at such time to (y) Consolidated EBITDAR for the then
most recently ended Test Period; provided that for purposes of this definition,
Consolidated EBITDAR shall be calculated on a Pro Forma Basis to the extent set
forth in Section 13.07.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"LimToo" shall mean LimToo, Inc., a Delaware corporation.
"Loan" shall mean each Term Loan, each Revolving Loan and each
Swingline Loan.
"Loan Purchase Agreement" shall have the meaning provided in
Section 5.13.
"Majority Lenders" of any Tranche shall mean those Non-Defaulting
Lenders which would constitute the Required Lenders under, and as defined in,
this Agreement if all outstanding Obligations of the other Tranches under this
Agreement were repaid in full and all Commitments with respect thereto were
terminated.
"Management Agreements" shall have the meaning provided in
Section 5.05.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(d).
"Margin Stock" shall have the meaning provided in Regulation U.
"Maturity Date" shall mean, with respect to any Tranche of Loans,
the Term Loan Maturity Date, the Revolving Loan Maturity Date or the
Swingline Expiry Date, as the case may be.
"Maximum Swingline Amount" shall mean $5,000,000.
"Minimum Borrowing Amount" shall mean (i) for Term Loans,
$5,000,000, (ii) for Revolving Loans, $1,000,000 and (iii) for Swingline Loans,
$100,000.
"Mortgage" shall mean each mortgage, deed to secure debt or deed of
trust pursuant to which any Credit Party shall have granted to the Collateral
Agent a mortgage lien on such Credit Party's Mortgaged Property.
"Mortgage Policy" shall have the meaning provided in Section 5.12.
"Mortgaged Property" shall mean (i) each Real Property owned by any
Credit Party and designated as a Mortgaged Property on Schedule 7.11 and (ii)
each Real Property
90
<PAGE> 97
owned or leased by any Credit Party and designated as a Mortgaged Property
pursuant to Section 8.12.
"Multiemployer Plan" shall mean a plan as defined in Section
4001(a)(3) of ERISA with respect to which the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate has an obligation to contribute to or any
liability.
"NAIC" shall mean the National Association of Insurance
Commissioners.
"Net Debt Proceeds" shall mean, with respect to any incurrence of
Indebtedness for borrowed money, the cash proceeds (net of underwriting
discounts and commissions, commitment and other financing fees and other costs
associated therewith) received by the respective Person from the respective
incurrence of such Indebtedness for borrowed money.
"Net Insurance Proceeds" shall mean, with respect to any Recovery
Event, the cash proceeds (net of costs and taxes incurred in connection with
such Recovery Event) received by the respective Person in connection with the
respective Recovery Event.
"Net Sale Proceeds" shall mean, for any Asset Sale, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale of assets, net of the costs of such sale (including fees
and commissions, payments of unassumed liabilities relating to the assets sold
and required payments of any Indebtedness (other than Indebtedness secured
pursuant to the Security Documents or any Indebtedness owed to the Borrower or a
Subsidiary thereof) which is secured by the respective assets which were sold),
and the taxes paid or payable as a result of such Asset Sale.
"Non-Defaulting Lender" shall mean and include each Lender other
than a Defaulting Lender.
"Non-Wholly Owned Entity" shall have the meaning provided in
Section 9.02(ix).
"Note" shall mean each Term Note, each Revolving Note and the
Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at 500 Stanton Christiania Road, Newark, DE 19713, or such other office
as the Administrative Agent may hereafter designate in writing as such to the
other parties hereto.
"Obligations" shall mean all amounts owing to the Administrative
Agent, the Collateral Agent or any Lender pursuant to the terms of this
Agreement or any other Credit Document.
91
<PAGE> 98
"Other Hedging Agreement" shall mean any foreign exchange contracts,
currency swap agreements, currency exchange rate cap agreements, currency
exchange rate collar agreements, currency exchange rate hedging agreements,
commodity agreements or other similar agreements or arrangements designed to
protect against the fluctuations in currency exchange rates or commodity prices.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Administrative Agent
located at 60 Wall Street, New York, New York 10260, or such other office as the
Administrative Agent may hereafter designate in writing as such to the other
parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning provided in
Section 9.02(ix).
"Permitted Businesses" shall have the meaning provided in Section
9.14.
"Permitted Encumbrance" shall mean, with respect to any Mortgaged
Property, such exceptions to title as are set forth in the title insurance
policy or title commitment delivered with respect thereto and accepted by the
Administrative Agent.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, limited liability company, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.09.
"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the Pledge Agreement.
"Pledged Notes" shall have the meaning provided in the Pledge
Agreement.
"Pledged Securities" shall mean all "Pledged Securities" as
defined in the Pledge Agreement.
"Post-Closing Period" shall have the meaning provided in Section
9.02(ix).
92
<PAGE> 99
"Prime Lending Rate" shall mean the rate which the Administrative
Agent announces from time to time as its prime lending rate, the Prime Lending
Rate to change when and as such prime lending rate changes. The Prime Lending
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. The Administrative Agent may make
commercial loans or other loans at rates of interest at, above or below the
Prime Lending Rate.
"Pro Forma Basis" shall mean, with respect to any Permitted
Acquisition or Asset Sale, the calculation of the consolidated results of the
Borrower and its Subsidiaries otherwise determined in accordance with this
Agreement as if the respective Permitted Acquisition or Asset Sale (and all
Indebtedness incurred to finance such Permitted Acquisition, and all other
Permitted Acquisitions and Asset Sales, effected during the respective
Calculation Period or thereafter and on or prior to the date of determination)
(each such date, a "Determination Date") had been effected on the first day of
the respective Calculation Period; provided that all such calculations shall be
made on a basis consistent with the requirements of Regulation S-X under the
Securities Act and shall take into account the following assumptions:
(i) interest expense attributable to interest on any Indebtedness
(whether existing or being incurred) bearing a floating interest rate
shall be computed as if the rate in effect on the date of computation
(taking into account any Interest Rate Protection Agreement applicable to
such Indebtedness if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months) had been the applicable rate for
the entire period; and
(ii) pro forma effect shall be given to all Asset Sales and
Permitted Acquisitions (by excluding or including, as the case may be, the
historical financial results for the respective properties) that occur
during such Calculation Period or thereafter and on or prior to the
Determination Date (including any Indebtedness assumed or acquired in
connection therewith) as if they had occurred on the first day of such
Calculation Period.
"Projections" shall mean the pro forma financial projections of the
Borrower and its Subsidiaries, in form satisfactory to the Administrative Agent,
meeting the requirements of Section 7.05(d) and covering each of the fiscal
periods of the Borrower ending after the Effective Date and prior to the Term
Loan Maturity Date.
"Qualified Preferred Stock" shall mean any preferred stock of the
Borrower so long as the terms of any such preferred stock (i) do not contain any
mandatory put, redemption, repayment, sinking fund, offer to purchase or other
similar provision (including any required put, redemption, repayment, sinking
fund, offer to purchase or similar provision which is contingent on or triggered
by, a change of control, asset sale or any other event or occurrence) prior to
the date which is one year after the Term Loan Maturity Date, (ii) do not
require the cash payment of dividends, (iii) do not contain any covenants and
(iv) do not grant the holders thereof any voting rights except for (x) voting
rights required to be granted to such holders under applicable law and (y)
limited customary voting rights on fundamental matters such as mergers,
consolidations,
93
<PAGE> 100
sales of all or substantially all of the assets of the Borrower. or liquidations
involving the Borrower.
"Quarterly Payment Date" shall mean each January 31, April 30, July
31 and October 31 occurring after the Initial Borrowing Date.
"RCRA" shall mean the Resource Conservation and Recovery Act, as
the same may be amended from time to time, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by the Borrower or any of
its Subsidiaries of any cash insurance proceeds or condemnation awards payable
(i) by reason of theft, loss, physical destruction, damage, taking or any other
similar event with respect to any property or assets of the Borrower or any of
its Subsidiaries and (ii) under any policy of insurance required to be
maintained under Section 8.03.
"Register" shall have the meaning provided in Section 13.15.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Release" shall mean the disposing, discharging, injecting,
spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying,
pouring or migrating, into or upon any land or water or air, or otherwise
entering into the environment.
"Replaced Lender" shall have the meaning provided in Section 1.13.
"Replacement Lender" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section 4043(c)
of ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders the sum of
whose outstanding Term Loans (and, if prior to the termination thereof, Term
Loan Commitments), and Revolving Loan Commitments (or after the termination
thereof, outstanding Revolving Loans and RL Percentage of Swingline Loans and
Letter of Credit Outstandings) represent an amount
94
<PAGE> 101
greater than 50% of the sum of all outstanding Term Loans (and, if prior to the
termination thereof, the Term Loan Commitments) of Non-Defaulting Lenders, and
the Adjusted Total Revolving Loan Commitment (or after the termination thereof,
the sum of the then total outstanding Revolving Loans of Non-Defaulting Lenders,
and the aggregate RL Percentages of all Non-Defaulting Lenders of the total
outstanding Swingline Loans and Letter of Credit Outstandings at such time).
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Commitment" shall mean, for each Lender, the amount
set forth opposite such Lender's name in Schedule I directly below the column
entitled "Revolving Loan Commitment," as same may be (x) reduced from time to
time pursuant to Sections 3.02, 3.03 and/or 10 or (y) adjusted from time to time
as a result of assignments to or from such Lender pursuant to Section 1.13 or
13.04(b).
"Revolving Loan Maturity Date" shall mean the fifth anniversary of
the Initial Borrowing Date.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"RL Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Lender at such time and the denominator of which is the Total
Revolving Loan Commitment at such time, provided that if the RL Percentage of
any Lender is to be determined after the Total Revolving Loan Commitment has
been terminated, then the RL Percentages of the Lenders shall be determined
immediately prior (and without giving effect) to such termination.
"Scheduled Repayment Date" shall have the meaning provided in
Section 4.02(b).
"Scheduled Repayments" shall have the meaning provided in Section
4.02(b).
"SEC" shall have the meaning provided in Section 8.01(h).
"SEC Registration Documents" shall mean the Borrower's Form 10,
filed with the SEC on June 28, 1999.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided
in Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning assigned that term in the
respective Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
95
<PAGE> 102
"Security Agreement" shall have the meaning provided in Section
5.10.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement, except that, for purposes of this Agreement,
Security Agreement Collateral shall not include Real Property (as defined in the
Security Agreement).
"Security Document" shall mean and include each of the Security
Agreement, the Pledge Agreement, each Mortgage and, after the execution and
delivery thereof, each Additional Security Document.
"Services Agreement" shall mean Services Agreement between the
Borrower and The Limited in the form last delivered to the Administrative agent
on or before the Initial Borrowing Date.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.05.
"Spin-Off" shall mean the spin-off of the Borrower to the
shareholders of The Limited pursuant to and in accordance with the Spin-Off
Documents.
"Spin-Off Documents" shall mean, collectively, the SEC Registration
Documents, the Distribution Agreement, the Services Agreement, the Trademark and
Service Mark Licensing Agreement, the Building Lease Agreement, the Store Leases
Agreement, the Tax Separation Agreement and all other intercompany agreements
between the Borrower and The Limited after giving effect to the Spin-Off.
"Standby Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Start Date" shall have the meaning provided in the definition of
Applicable Base Rate Margin.
"Stated Amount" of each Letter of Credit shall, at any time, mean
the maximum amount available to be drawn thereunder (in each case determined
without regard to whether any conditions to drawing could then be met).
"Store Leases Agreement" shall mean the Store Leases Agreement among
The Limited Stores, Inc., Victoria's Secret Stores, Inc., Lerner New York, Inc.,
Express, LLC, Structure, Inc., The Limited and the Borrower in the form last
delivered to the Administrative Agent on or before the Initial Borrowing Date.
"Subsidiaries Guaranty" shall have the meaning provided in
Section 5.11.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in
96
<PAGE> 103
which such Person and/or one or more Subsidiaries of such Person has more than a
50% equity interest at the time.
"Subsidiary Guarantor" shall mean each Wholly-Owned Domestic
Subsidiary of the Borrower and, to the extent required by Section 8.13, each
Wholly-Owned Foreign Subsidiary of the Borrower.
"Supermajority Lenders" of any Tranche shall mean those
Non-Defaulting Lenders which would constitute the Required Lenders under, and as
defined in, this Agreement if (x) all outstanding Obligations of the other
Tranches under this Agreement were repaid in full and all Commitments with
respect thereto were terminated and (y) the percentage "50%" contained therein
were changed to "66-2/3%."
"Swingline Expiry Date" shall mean the date which is five Business
Days prior to the Revolving Loan Maturity Date.
"Swingline Lender" shall mean Morgan Guaranty Trust Company of
New York.
"Swingline Loan" shall have the meaning provided in Section
1.01(c).
"Swingline Note" shall have the meaning provided in Section
1.05(a).
"Syndication Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Syndication Date" shall have the meaning provided in Section
1.01(b).
"Tax Separation Agreement" shall mean the Tax Separation Agreement
between The Limited and the Borrower in the form last delivered to the
Administrative Agent on or before the Initial Borrowing Date.
"Tax Sharing Agreements" shall have the meaning provided in
Section 5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall have the meaning provided in Section 1.01(a).
"Term Loan Commitment" shall mean, for each Lender, the amount set
forth opposite such Lender's name in Schedule I directly below the column
entitled "Term Loan Commitment," as the same may be (x) reduced from time to
time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time
to time as a result of assignments to or from such Lender pursuant to Section
1.13 or 13.04(b).
"Term Loan Maturity Date" shall mean the fifth anniversary of the
Initial Borrowing Date.
"Term Note" shall have the meaning provided in Section 1.05(a).
97
<PAGE> 104
"Test Date" shall have the meaning provided in the definition of
"Applicable Base Rate Margin."
"Test Period" shall mean the period of four consecutive fiscal
quarters of the Borrower then last ended (in each case taken as one accounting
period). Notwithstanding the foregoing, or anything to the contrary required by
GAAP, in the case of any Test Period ending prior to July 31, 2000, calculations
of Consolidated Rent Expense and Consolidated Interest Expense shall be made for
the respective Test Period in accordance with the following sentence. To the
extent the respective Test Period (i) includes the fourth fiscal quarter of the
fiscal year ended closest to January 31, 1999, Consolidated Rent Expense for
such fiscal quarter shall be deemed to be $7,498,000 and Consolidated EBITDAR
for such fiscal quarter shall be deemed to be $31,013,000, (ii) includes the
first fiscal quarter of the fiscal year ended closest to January 31, 2000,
Consolidated Rent Expense for such fiscal quarter shall be deemed to be
$7,623,000 and Consolidated EBITDAR for such fiscal quarter shall be deemed to
be $12,151,000, and (iii) includes the second fiscal quarter of the fiscal year
ended closest to January 31, 2000, Consolidated Rent Expense for such fiscal
quarter shall be deemed to be $7,790,000 and Consolidated EBITDAR for such
fiscal quarter shall be deemed to be $14,697,000.
"The Limited" shall mean The Limited, Inc., a Delaware
corporation.
"Total Commitments" shall mean, at any time, the sum of the
Commitments of each of the Lenders.
"Total Revolving Loan Commitment" shall mean, at any time, the sum
of the Revolving Loan Commitments of each of the Lenders.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitments of each of the Lenders.
"Total Unutilized Revolving Loan Commitment" shall mean, at any
time, an amount equal to the remainder of (x) the Total Revolving Loan
Commitment then in effect, less (y) the sum of the aggregate principal amount of
Revolving Loans and Swingline Loans then outstanding plus the then aggregate
amount of Letter of Credit Outstandings.
"Trade Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Trademark and Service Mark Licensing Agreement" shall mean the
Trademark and Service Mark Licensing Agreement, between Limco, Inc., a Delaware
corporation and LimToo in the form last delivered to the Administrative Agent on
or before the Initial Borrowing Date.
"Tranche" shall mean the respective facility and commitments
utilized in making Loans hereunder, with there being three separate Tranches,
i.e., Term Loans, Revolving Loans and Swingline Loans.
98
<PAGE> 105
"Transaction" shall mean, collectively, (i) the incurrence of the
Loans on the Initial Borrowing Date, (ii) the repayment of any Indebtedness to
be refinanced and the release of Liens in connection therewith, (iii) the
consummation of the Spin-Off (including the payments to be made by the Borrower
to The Limited in connection therewith) and (iv) the payment of fees and
expenses owing in connection with the foregoing.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan, determined on a plan termination basis in accordance with actuarial
assumptions at such time consistent with those prescribed by the PBGC for
purposes of Section 4044 of ERISA exceeds the fair market value of all plan
assets allocable to such liabilities under Title IV of ERISA (excluding any
accrued but unpaid contributions).
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.05(a).
"Unutilized Revolving Loan Commitment" with respect to any Lender,
at any time, shall mean such Lender's Revolving Loan Commitment at such time
less the sum of (i) the aggregate outstanding principal amount of Revolving
Loans made by such Lender and (ii) such Lender's RL Percentage of the Letter of
Credit Outstandings.
"Wholly-Owned Domestic Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary.
"Wholly-Owned Foreign Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Foreign Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
"Year 2000 Compliant" shall mean that all Information Systems and
Equipment accurately process date data (including, but not limited to,
calculating, comparing and sequencing), before, during and after the year 2000,
as well as same and multi-century dates, or between the years 1999 and 2000,
taking into account all leap years, including the fact that the year 2000 is a
leap year, and further, that when used in combination with, or interfacing with,
other Information Systems and Equipment, shall accurately accept, release and
exchange date
99
<PAGE> 106
data, and shall in all material respects continue to function in the same manner
as it performs today and shall not otherwise impair the accuracy or
functionality of Information Systems and Equipment.
SECTION 12. The Administrative Agent.
12.01 Appointment. The Lenders hereby designate Morgan Guaranty
Trust Company of New York as Administrative Agent (for purposes of this Section
12, the term "Administrative Agent" shall include Morgan Guaranty Trust Company
of New York (and/or any of its affiliates) in its capacity as Collateral Agent
pursuant to the Security Documents) to act as specified herein and in the other
Credit Documents. The Lenders hereby designate Citicorp USA, Inc., as
Syndication Agent to act as specified herein and in the other Credit Documents.
Each Lender hereby irrevocably authorizes the Agents to take such action on its
behalf under the provisions of this Agreement, the other Credit Documents and
any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agents by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. Each of the
Agents may perform any of its duties hereunder by or through its respective
officers, directors, agents, employees or affiliates.
12.02 Nature of Duties. No Agent shall have any duties or
responsibilities except those expressly set forth in this Agreement and the
Security Documents. Neither any Agent nor any of their respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its or their gross negligence
or willful misconduct. The duties of each Agent shall be mechanical and
administrative in nature; no Agent shall have by reason of this Agreement or any
other Credit Document a fiduciary relationship in respect of any Lender or the
holder of any Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
any Agent any obligations in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein.
12.03 Lack of Reliance on the Agents. Independently and without
reliance upon the Agents, each Lender and the holder of each Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Borrower
and its Subsidiaries in connection with the making and the continuance of the
Loans and the taking or not taking of any action in connection herewith and (ii)
its own appraisal of the creditworthiness of the Borrower and its Subsidiaries
and, except as expressly provided in this Agreement, no Agent shall have any
duty or responsibility, either initially or on a continuing basis, to provide
any Lender or the holder of any Note with any credit or other information with
respect thereto, whether coming into its possession before the making of the
Loans or at any time or times thereafter. No Agent shall be responsible to any
Lender or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority
100
<PAGE> 107
or sufficiency of this Agreement or any other Credit Document or the financial
condition of the Borrower and its Subsidiaries or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any other Credit Document, or the
financial condition of the Borrower and its Subsidiaries or the existence or
possible existence of any Default or Event of Default.
12.04 Certain Rights of the Agents. If any Agent shall request
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Lenders; and such Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender or the holder
of any Note shall have any right of action whatsoever against any Agent as a
result of such Agent acting or refraining from acting hereunder or under any
other Credit Document in accordance with the instructions of the Required
Lenders.
12.05 Reliance. Each Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent.
12.06 Indemnification. (a) To the extent any Agent is not reimbursed
and indemnified by the Borrower, the Lenders will reimburse and indemnify such
Agent, in proportion to their respective "percentages" as used in determining
the Required Lenders (but in any event calculated as if there were no Defaulting
Lenders), for and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, costs, expenses or disbursements of
whatsoever kind or nature which may be imposed on, asserted against or incurred
by such Agent in performing its respective duties hereunder or under any other
Credit Document, in any way relating to or arising out of this Agreement or any
other Credit Document; provided that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct.
(b) Any Agent shall be fully justified in failing or refusing to
take any action hereunder and under any other Credit Document (except actions
expressly required to be taken by it hereunder or under the Credit Documents)
unless it shall first be indemnified to its satisfaction by the Lenders pro rata
against any and all liability, cost and expense that it may incur by reason of
taking or continuing to take any such action.
12.07 Each Agent in its Individual Capacity. With respect to its
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any
101
<PAGE> 108
similar terms shall, unless the context clearly otherwise indicates, include
each Agent in its individual capacity. Each Agent may accept deposits from, lend
money to, and generally engage in any kind of banking, trust or other business
with any Credit Party or any Affiliate of any Credit Party as if they were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrower or any other Credit Party for services in
connection with this Agreement and otherwise without having to account for the
same to the Lenders.
12.08 Holders. The Administrative Agent shall deem and treat the
holder of any Note as set forth in the Register as the owner thereof for all
purposes hereof unless and until a written notice of the assignment, transfer or
endorsement thereof, as the case may be, shall have been filed with the
Administrative Agent pursuant to Section 13.04(b). Any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee, assignee or endorsee, as the case may be,
of such Note or of any Note or Notes issued in exchange therefor.
12.09 Resignation by the Agents. (a) The Administrative Agent and/or
the Collateral Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
15 Business Days' prior written notice to the Borrower and the Lenders. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent and/or Collateral Agent, as the case may be, pursuant to clauses (b) and
(c) below or, in the case of the Administrative Agent, as otherwise provided
below. The Syndication Agent may resign from the performance of all of its
functions and duties hereunder and/or under the other Credit Documents at any
time after the earlier of (i) the 90th day after the Initial Borrowing Date and
(ii) the Syndication Date, by giving notice to the Borrower, the Administrative
Agent and the Lenders. Such resignation shall take effect upon delivery of such
notice.
(b) Upon any such notice of resignation by the Administrative Agent
and/or Collateral Agent, as the case may be, the Required Lenders shall appoint
a successor Administrative Agent or Collateral Agent, as the case may be,
hereunder or thereunder who shall be a commercial bank or trust company
reasonably acceptable to the Borrower.
(c) If a successor Administrative Agent and/or Collateral Agent, as
the case may be, shall not have been so appointed within such 15 Business Day
period, the Administrative Agent and/or Collateral Agent, as the case may be,
with the consent of the Borrower (which shall not be unreasonably withheld or
delayed), shall then appoint a commercial bank or trust company with capital and
surplus of not less than $500,000,000 as successor Administrative Agent and/or
Collateral Agent, as the case may be, who shall serve as Administrative Agent
and/or Collateral Agent, as the case may be, hereunder or thereunder until such
time, if any, as the Required Lenders appoint a successor Administrative Agent
and/or Collateral Agent, as the case may be, as provided above.
(d) Upon a resignation of any Agent pursuant to this Section 12.09,
such Agent shall remain indemnified to the extent provided in this Agreement and
the other Credit
102
<PAGE> 109
Documents and the provisions of this Section 12 shall continue in effect for the
benefit of such Agent for all of its actions and inactions while serving as such
Agent.
SECTION 13. Miscellaneous.
13.01 Payment of Expenses, etc. The Borrower shall: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses (w) of the Administrative Agent and the
Collateral Agent (including, without limitation, the reasonable fees and
disbursements of White & Case LLP and of the Administrative Agent's local
counsel and consultants) in connection with the preparation, execution and
delivery of this Agreement and the other Credit Documents and the documents and
instruments referred to herein and therein, (x) of the Administrative Agent and
the Collateral Agent (including, without limitation, the reasonable fees and
expenses of White & Case LLP) with respect to any amendment, waiver or consent
relating to this Agreement and/or the other Credit Documents, (y) of the Agents
in connection with their syndication efforts with respect to this Agreement and
(z) of the Administrative Agent and the Collateral Agent and, after the
occurrence of an Event of Default, each of the Lenders in connection with the
enforcement of this Agreement and the other Credit Documents and the documents
and instruments referred to herein and therein (including, without limitation,
the reasonable fees and disbursements of counsel for the Administrative Agent
and, after the occurrence of an Event of Default, for each of the Lenders); (ii)
pay and hold each of the Lenders harmless from and against any and all present
and future stamp, excise and other similar documentary taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Agent and each Lender and their respective Affiliates, and each
of their respective officers, directors, employees, representatives and agents
from and hold each of them harmless against any and all liabilities, obligations
(including removal or remedial actions), losses, damages, penalties, claims,
actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not any Agent or any Lender is a party thereto)
related to the entering into and/or performance of this Agreement or any other
Credit Document or the use of any Letter of Credit or the proceeds of any Loans
hereunder or the consummation of the Transaction or any other transactions
contemplated herein or in any other Credit Document or the exercise of any of
their rights or remedies provided herein or in the other Credit Documents, or
(b) the actual or alleged presence of Hazardous Materials in the air, surface
water or groundwater or on the surface or subsurface of any Real Property owned
or at any time operated by the Borrower or any of its Subsidiaries, the
generation, storage, transportation, handling or disposal of Hazardous Materials
at any location, whether or not owned or operated by the Borrower or any of its
Subsidiaries (provided that in the case of a location not owned or operated by
the Borrower or any of its Subsidiaries, such generation, storage,
transportation, handling or disposal shall have been effected by the Borrower or
any of its Subsidiaries), the non-compliance of any Real Property with foreign,
federal, state and local laws, regulations, and ordinances (including applicable
permits thereunder) applicable to any Real Property, or any Environmental Claim
103
<PAGE> 110
asserted against the Borrower, any of its Subsidiaries or any Real Property
owned or at any time operated by the Borrower or any of its Subsidiaries,
including, in each case, without limitation, the reasonable fees and
disbursements of counsel and other consultants incurred in connection with any
such investigation, litigation or other proceeding (but excluding any losses,
liabilities, claims, damages, obligations, penalties, actions, judgments, suits,
costs, expenses or disbursements to the extent incurred by reason of the gross
negligence, bad faith or willful misconduct of the Person to be indemnified). To
the extent that the undertaking to indemnify, pay or hold harmless the
Administrative Agent or any Lender set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, the Borrower shall
make the maximum contribution to the payment and satisfaction of each of the
indemnified liabilities which is permissible under applicable law.
13.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Lender is hereby
authorized (to the extent not prohibited by applicable law) at any time or from
time to time, without presentment, demand, protest or other notice of any kind
to the Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by such Lender
(including, without limitation, by branches and agencies of such Lender wherever
located) to or for the credit or the account of any Credit Party against and on
account of the Obligations and liabilities of the Credit Parties to such Lender
under this Agreement or under any of the other Credit Documents, including,
without limitation, to the extent permitted under applicable law, all interests
in Obligations purchased by such Lender pursuant to Section 13.06(b), and all
other claims of any nature or description arising out of or connected with this
Agreement or any other Credit Document, irrespective of whether or not such
Lender shall have made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
Notwithstanding anything to the contrary contained in this Section 13.02, no
Lender shall exercise any such right of set-off without the prior consent of the
Administrative Agent or the Required Lenders so long as the Obligations shall be
secured by any Real Property located in the State of California, it being
understood and agreed, however, that this sentence is for the sole benefit of
the Lenders and (notwithstanding anything to the contrary contained in Section
13.12) may be amended, modified or waived in any respect by the Required Lenders
without the requirement of prior notice to or consent by any Credit Party and
does not constitute a waiver of any right against any Credit Party or against
any Collateral.
13.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telecopied or delivered: if to the Administrative Agent or any Credit Party, at
the address specified opposite its signature below or in the other relevant
Credit Documents; if to any Lender, at its address specified on Schedule II; or,
as to any Credit Party or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties
hereto and, as to each Lender, at such other address as shall be designated by
such Lender in a written notice to the Borrower and the Administrative Agent.
All such notices and communications shall, when mailed, telecopied or sent by
overnight
104
<PAGE> 111
courier, be effective three days after having been deposited in the mails, the
Business Day after having been delivered to the overnight courier, or the day
sent by telecopier, except that notices and communications to the Administrative
Agent or any Credit Party shall not be effective until received by the
Administrative Agent or such Credit Party.
13.04 Benefit of Agreement; Assignments; Participations. (a) This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto; provided,
however, the Borrower may not assign or transfer any of its rights, obligations
or interest hereunder without the prior written consent of the Lenders and,
provided further, that, although any Lender may grant participations in its
rights hereunder, such Lender shall remain a "Lender" for all purposes hereunder
(and may not transfer or assign all or any portion of its Commitments hereunder
except as provided in Sections 1.13 and 13.04(b)) and the transferee, assignee
or participant, as the case may be, shall not constitute a "Lender" hereunder
and, provided further, that no Lender shall transfer or grant any participation
under which the participant shall have rights to approve any amendment to or
waiver of this Agreement or any other Credit Document except to the extent such
amendment or waiver would (i) extend the final scheduled maturity of any Loan,
Note or Letter of Credit (unless such Letter of Credit is not extended beyond
the Revolving Loan Maturity Date) in which such participant is participating, or
reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default or Event of Default or
of a mandatory reduction in the Total Commitment, shall not constitute a change
in the terms of such participation, and that an increase in any Commitment or
Loan shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof), (ii) consent
to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement or (iii) release all or substantially all of
the Collateral under all of the Security Documents (except as expressly provided
in the Credit Documents) supporting the Loans hereunder in which such
participant is participating. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Lender in respect of
such participation to be those set forth in the agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder shall be determined as if such Lender had not sold such
participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender
together with one or more other Lenders) may (A) assign all or a portion of its
Commitments and related outstanding Obligations hereunder to (i) its parent
company and/or any affiliate of such Lender which is at least 50% owned by such
Lender or its parent company, (ii) to one or more Lenders or (iii) in the case
of a Lender that is a fund that invests in bank loans, any other fund that
invests in bank loans and is managed or advised by the same investment advisor
of such Lender or by an Affiliate of such investment advisor or (B) assign all,
or if less than all, a portion equal to at least $1,000,000 in the aggregate for
the assigning Lender or assigning Lenders, of such Commitments and related
outstanding Obligations hereunder to one or more Eligible Transferees, each of
which assignees shall become a party to this Agreement as a Lender by
105
<PAGE> 112
execution of an Assignment and Assumption Agreement, provided that (i) at such
time Schedule I shall be deemed modified to reflect the Commitments (or
outstanding Term Loans, as the case may be) of such new Lender and of the
existing Lenders, (ii) upon the surrender of the relevant Notes (if any) by the
assigning Lender (or, upon such assigning Lender's indemnifying the Borrower for
any lost Note pursuant to a customary indemnification agreement) new Notes will
be issued, at the Borrower's expense, to such new Lender and to the assigning
Lender upon the request of such new Lender or assigning Lender, such new Notes
to be in conformity with the requirements of Section 1.05 (with appropriate
modifications) to the extent needed to reflect the revised Commitments (or
outstanding Term Loans, as the case may be), (iii) the consent of the
Administrative Agent shall be required in connection with any assignment to an
Eligible Transferee pursuant to clause (B) above (which consent shall not be
unreasonably withheld or delayed), (iv) so long as no Default or Event of
Default exists, the consent of the Borrower shall be required in connection with
any assignment to an Eligible Transferee pursuant to clause (B) above (which
consent shall not be unreasonably withheld or delayed), (v) the consent of the
Swingline Lender and each Issuing Bank shall be required in connection with any
assignment of all or any portion of any Revolving Loan Commitment pursuant to
clause (A) or (B) above (which consents shall not be unreasonably withheld or
delayed), (vi) the Administrative Agent shall receive at the time of each such
assignment, from the assigning or assignee Lender, the payment of a
non-refundable assignment fee of $3,500, which fee shall not be subject to
reimbursement from the Borrower and (vii) no such transfer or assignment will be
effective until recorded by the Administrative Agent on the Register pursuant to
Section 13.15. To the extent of any assignment pursuant to this Section
13.04(b), the assigning Lender shall be relieved of its obligations hereunder
with respect to its assigned Commitments. At the time of each assignment
pursuant to this Section 13.04(b) to a Person which is not already a Lender
hereunder and which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Lender shall, to the extent legally entitled to do so, provide to the
Borrower the appropriate Internal Revenue Service Forms (and, if applicable, a
Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent
that an assignment of all or any portion of a Lender's Commitments and related
outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would,
at the time of such assignment, result in increased costs under Section 1.10,
2.06 or 4.04 from those being charged by the respective assigning Lender prior
to such assignment, then the Borrower shall not be obligated to pay such
increased costs (although the Borrower, in accordance with and pursuant to the
other provisions of this Agreement, shall be obligated to pay any other
increased costs of the type described above resulting from changes after the
date of the respective assignment). Notwithstanding anything to the contrary
above in this Section 13.04(b), the Lenders may sell to The Limited, and The
Limited may purchase from the Lenders, any of the Borrower's Obligations
hereunder in accordance with the terms and provisions of the Loan Purchase
Agreement without reference to the provisions of this Section 13.04(b).
(c) Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loans and Notes (if any) hereunder to a Federal Reserve Bank
in support of borrowings made by such Lender from such Federal Reserve Bank.
106
<PAGE> 113
13.05 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between the Borrower or any other Credit Party and the Administrative Agent or
any Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the
Administrative Agent or any Lender would otherwise have. No notice to or demand
on any Credit Party in any case shall entitle any Credit Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or any Lender to any other or
further action in any circumstances without notice or demand.
13.06 Payments Pro Rata. (a) Except as otherwise provided in this
Agreement, the Administrative Agent agrees that promptly after its receipt of
each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Lenders (other than any
Lender that has consented in writing to waive its pro rata share of any such
payment) pro rata based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees,
of a sum which with respect to the related sum or sums received by other Lenders
is in a greater proportion than the total of such Obligation then owed and due
to such Lender bears to the total of such Obligation then owed and due to all of
the Lenders immediately prior to such receipt, then such Lender receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Lenders an interest in the Obligations of the respective Credit Party to
such Lenders in such amount as shall result in a proportional participation by
all the Lenders in such amount; provided that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 13.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
13.07 Calculations; Computations; Accounting Terms. (a) The
financial statements to be furnished to the Lenders pursuant hereto shall be
made and prepared in accordance with generally accepted accounting principles in
the United States consistently applied throughout the periods involved (except
as set forth in the notes thereto or as otherwise
107
<PAGE> 114
disclosed in writing by the Borrower to the Lenders); provided that, except as
otherwise specifically provided herein, all computations of Excess Cash Flow and
all computations determining Applicable Margins and compliance with Sections
9.08 through 9.10, inclusive, shall utilize accounting principles and policies
in conformity with those used to prepare the historical financial statements
delivered to the Lenders pursuant to Section 7.05(a) (with the foregoing
generally accepted accounting principles, subject to the preceding proviso,
herein called "GAAP"). Calculations of Excess Cash Flow and all computations
determining Applicable Base Rate Margins, Applicable Commitment Commission
Percentages and Applicable Eurodollar Margins and compliance with Sections 9.08
through 9.10, inclusive, shall not be made on a Pro Forma Basis, except that (x)
in calculating the Leverage Ratio for purposes of determining the Applicable
Base Rate Margins, Applicable Commitment Commission Percentages and Applicable
Eurodollar Margins, all determinations of Consolidated EBITDAR shall be made on
a Pro Forma Basis for all Asset Sales and Permitted Acquisitions effected during
the relevant Test Period and, to the extent expressly provided in the
definitions of Applicable Base Rate Margin, Applicable Commitment Commission
Percentage and Applicable Eurodollar Margin, for Asset Sales and Permitted
Acquisitions consummated thereafter, (y) all calculations of compliance with
Section 9.10 shall calculate Consolidated EBITDAR and Consolidated Rent Expense
on a Pro Forma Basis for all Asset Sales and Permitted Acquisitions effected
during the relevant Test Period (but not thereafter) and (z) all calculations
determining compliance with Section 9.02(ix) shall be made on a Pro Forma Basis
to the extent provided therein.
(b) All computations of interest, Commitment Commission and other
Fees hereunder, shall be made on the basis of a year of 360 days for the actual
number of days elapsed.
13.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of
Jury Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE
PROVIDED IN THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT, THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK LOCATED WITHIN THE CITY OF NEW YORK OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK. THE BORROWER HEREBY
FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL
JURISDICTION OVER THE BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENTS BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK
PERSONAL JURISDICTION OVER THE BORROWER. THE BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
108
<PAGE> 115
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS
ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE
30 DAYS AFTER SUCH MAILING. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION
TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY
OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY BANK OR THE
HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION.
(b) THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
THAT IT MAY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY
FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrower, the Administrative Agent and
each of the Lenders shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered the same to the Administrative
Agent at its Notice Office or, in the case of the Lenders, shall have given to
the Administrative Agent telephonic (confirmed in writing), written or telex
notice (actually received) at such office that the same has been signed and
mailed to it. The Administrative Agent will give the Borrower and each Lender
prompt written notice of the occurrence of the Effective Date.
109
<PAGE> 116
13.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Lenders, provided that no such change, waiver, discharge or termination
shall, without the consent of each Lender (other than a Defaulting Lender) (with
Obligations being directly affected in the case of following clause (i)), (i)
extend the final scheduled maturity of any Loan or Note or extend the stated
expiration date of any Letter of Credit beyond the Revolving Loan Maturity Date,
or reduce the rate of interest or Fees or extend the time of payment of interest
or Fees, or reduce the principal amount thereof (except to the extent repaid in
cash) (it being understood that any amendment or modification to the financial
definitions in this Agreement or to Section 13.07(a) shall not constitute a
reduction in the rate of interest or any Fees for purposes of this clause (i)),
(ii) release all or substantially all of the Collateral (except as expressly
provided in the Credit Documents) under all the Security Documents, (iii)
release a Subsidiary Guarantor from the Subsidiaries Guaranty (except as
expressly provided in the Subsidiaries Guaranty or in connection with the sale
of such Subsidiary Guarantor in accordance with the terms of this Agreement),
(iv) amend, modify or waive any provision of this Section 13.12, (v) reduce the
percentage specified in the definition of Required Lenders (it being understood
that, with the consent of the Required Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the Required
Lenders on substantially the same basis as the extensions of Term Loans and
Revolving Loan Commitments are included on the Effective Date) or (vi) consent
to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement; provided further, that no such change, waiver,
discharge or termination shall (u) increase the Commitments of any Lender over
the amount thereof then in effect without the consent of such Lender (it being
understood that waivers or modifications of conditions precedent, covenants,
Defaults or Events of Default or of a mandatory reduction in the Total
Commitments shall not constitute an increase of the Commitment of any Lender,
and that an increase in the available portion of any Commitment of any Lender
shall not constitute an increase of the Commitment of such Lender), (v) without
the consent of each Issuing Bank, amend, modify or waive any provision of
Section 2 or alter its rights or obligations with respect to Letters of Credit,
(w) without the consent of the Administrative Agent, amend, modify or waive any
provision of Section 12 or any other provision as same relates to the rights or
obligations of the Administrative Agent, (x) without the consent of the
Collateral Agent, amend, modify or waive any provision relating to the rights or
obligations of the Collateral Agent, (y) without the consent of the Majority
Lenders of each Tranche which is being allocated a lesser prepayment, repayment
or commitment reduction as a result of the actions described below (or without
the consent of the Majority Lenders of each Tranche in the case of an amendment
to the definition of Majority Lenders), amend the definition of Majority Lenders
(it being understood that, with the consent of the Required Lenders, additional
extensions of credit pursuant to this Agreement may be included in the
determination of the Majority Lenders on substantially the same basis as the
extensions of Term Loans and Revolving Loan Commitments are included on the
Effective Date)
110
<PAGE> 117
or alter the required application of any prepayments or repayments (or
commitment reductions), as between the various Tranches, pursuant to Section
4.01(a) or 4.02 (excluding Section 4.02(b)) (although the Required Lenders may
(i) waive, in whole or in part, any such prepayment, repayment or commitment
reduction, so long as the application, as amongst the various Tranches, of any
such prepayment, repayment or commitment reduction which is still required to be
made is not altered or (ii) agree to modify said Sections 4.01(a) and/or 4.02
(excluding Section 4.02(b)) to provide that any additional extensions of credit
pursuant to this Agreement receive their proportionate share of any prepayments
or repayments pursuant to said Sections) or (z) without the consent of the
Supermajority Lenders of the respective Tranche, reduce the amount of, or extend
the date of, any Scheduled Repayment or without the consent of the Supermajority
Lenders of each Tranche, amend the definition of Supermajority Lenders (it being
understood that, with the consent of the Required Lenders, additional extensions
of credit pursuant to this Agreement may be included in the determination of the
Supermajority Lenders on substantially the same basis as the extensions of Term
Loans and Revolving Loan Commitments are included on the Effective Date).
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
clauses (i) through (vi), inclusive, of the first proviso to Section 13.12(a),
the consent of the Required Lenders is obtained but the consent of one or more
of such other Lenders whose consent is required is not obtained, then the
Borrower shall have the right, so long as all non-consenting Lenders whose
individual consent is required are treated as described in either clauses (A) or
(B) below, to either (A) replace each such non-consenting Lender or Lenders (or,
at the option of the Borrower if the respective Lender's consent is required
with respect to less than all Tranches of Loans (or related Commitments), to
replace only the respective Tranche or Tranches of Commitments and/or Loans of
the respective non-consenting Lender which gave rise to the need to obtain such
Lender's individual consent) with one or more Replacement Lenders pursuant to
Section 1.13 so long as at the time of such replacement, each such Replacement
Lender consents to the proposed change, waiver, discharge or termination or (B)
terminate such non-consenting Lender's Commitments (if such Lender's consent is
required as a result of its Commitments) and/or repay outstanding Term Loans of
such Lender which gave rise to the need to obtain such Lender's consent, in
accordance with Sections 3.02(b) and/or 4.01(b), provided that, unless the
Commitments that are terminated, and Loans repaid, pursuant to preceding clause
(B) are immediately replaced in full at such time through the addition of new
Lenders or the increase of the Commitments and/or outstanding Loans of existing
Lenders (who in each case must specifically consent thereto), then in the case
of any action pursuant to preceding clause (B) the Required Lenders (determined
after giving effect to the proposed action) shall specifically consent thereto,
provided further, that in any event the Borrower shall not have the right to
replace a Lender, terminate its Commitments or repay its Loans solely as a
result of the exercise of such Lender's rights (and the withholding of any
required consent by such Lender) pursuant to the second proviso to Section
13.12(a).
13.13 Survival. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall survive
the execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Obligations.
111
<PAGE> 118
13.14 Domicile of Loans. Each Lender may transfer and carry its
Loans at, to or for the account of any of its Lending Offices. Notwithstanding
anything to the contrary contained herein, to the extent that a transfer of
Loans pursuant to this Section 13.14 would, at the time of such transfer, result
in increased costs under Section 1.10, 1.11, 2.06 or 4.04 from those being
charged by the respective Lender prior to such transfer, then the Borrower shall
not be obligated to pay such increased costs (although the Borrower shall be
obligated to pay any other increased costs of the type described above resulting
from changes after the date of the respective transfer).
13.15 Register. The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for purposes of this Section
13.15, to maintain a register (the "Register") on which it will record the name
and address of each Lender, the Commitments from time to time of each of the
Lenders, the Loans made by each of the Lenders and each repayment in respect of
the principal amount of the Loans of each Lender. Failure to make any such
recordation, or any error in such recordation shall not affect the Borrower's
obligations in respect of such Loans. With respect to any Lender, the transfer
of the Commitments of such Lender and the rights to the principal of, and
interest on, any Loan made pursuant to such Commitments shall not be effective
until such transfer is recorded on the Register maintained by the Administrative
Agent with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such Commitments
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment and
Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery
of such an Assignment and Assumption Agreement to the Administrative Agent for
acceptance and registration of assignment or transfer of all or part of a Loan,
or as soon thereafter as practicable, the assigning or transferor Lender shall
surrender the Note (if any) evidencing such Loan, and thereupon, if requested by
the assigning or transferor Lender and/or the new Lender, one or more new Notes
in the same aggregate principal amount shall be issued to the assigning or
transferor Lender and/or the new Lender. The Borrower agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this Section
13.15, except those losses, claims, damages and liabilities resulting from the
Administrative Agent's gross negligence or willful misconduct.
13.16 Confidentiality. (a) Subject to the provisions of clause (b)
of this Section 13.16, each Lender agrees that it will not disclose without the
prior consent of the Borrower (other than to its employees, auditors, advisors
or counsel or to another Lender if the Lender or such Lender's holding or parent
company in its sole discretion determines that any such party should have access
to such information, provided such Persons shall be subject to the provisions of
this Section 13.16 to the same extent as such Lender) any information with
respect to the Borrower or any of its Subsidiaries which is now or in the future
furnished pursuant to this Agreement or any other Credit Document and which is
not publicly filed, provided that any Lender may disclose any such information
(a) as has become generally available to the public other than by virtue of a
breach of this Section 13.16(a), (b) as may be required or reasonably
112
<PAGE> 119
appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
such Lender or to the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the NAIC or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or reasonably appropriate
in respect to any summons or subpoena or in connection with any litigation, (d)
in order to comply with any law, order, regulation or ruling applicable to such
Lender, (e) to the Administrative Agent and (f) to any prospective or actual
transferee or participant in connection with any contemplated transfer or
participation of any of the Loans or Commitments or any interest therein by such
Lender and to any direct or indirect contractual counterparties in Interest Rate
Protection Agreements or Other Hedging Agreements entered into by any Lender,
provided that such prospective transferee and each such contractual counterparty
agrees to be bound by the confidentiality provisions contained in this Section
13.16.
(b) The Borrower hereby acknowledges and agrees that each Lender may
share with any of its affiliates any information related to the Borrower or any
of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of the Borrower and its Subsidiaries,
provided such Persons shall be subject to the provisions of this Section 13.16
to the same extent as such Lender).
13.17 Limitation on Increased Costs. Notwithstanding anything to the
contrary contained in Section 1.10, 1.11, 2.06 or 4.04, unless a Lender gives
notice to the Borrower that it is obligated to pay an amount under any such
Section within 180 days after the later of (x) the date such Lender incurs the
respective increased costs, Taxes, loss, expense or liability, or reduction in
amounts received or receivable or reduction in return on capital or (y) the date
such Lender has actual knowledge of its incurrence of the respective increased
costs, Taxes, loss, expense or liability, or reductions in amounts received or
receivable or reduction in return on capital, then such Lender shall only be
entitled to be compensated for such amount by the Borrower pursuant to said
Section 1.10, 1.11, 2.06 or 4.04, as the case may be, to the extent the costs,
Taxes, loss, expense or liability, or reduction in amounts received or
receivable or reduction in return on capital are incurred or suffered on or
after the date which occurs 180 days prior to such Lender giving notice to the
Borrower that it is obligated to pay the respective amounts pursuant to said
Section 1.10, 1.11, 2.06 or 4.04, as the case may be. This Section 13.17 shall
have no applicability to any Section of this Agreement or any other Credit
Document other than said Sections 1.10, 1.11, 2.06 and 4.04.
113
<PAGE> 120
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
TOO, INC.
Address:
3885 Morse Road
Columbus, OH 43219
Attention: Kent A. Kleeberger, CFO By: /s/ Kent A. Kleeberger
Telephone: (614) 479-3610 -------------------------------
Telecopier: (614) 479-3720 Title: Vice President &
Telecopier: (614) 479-3720 Chief Financial Officer
<PAGE> 121
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
Individually and as Administrative Agent
By: /s/ Dorothy Kim Lee
-------------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.4
FORM OF
SERVICES AGREEMENT
dated as of ____________, 1999
between
TOO, INC.
and
THE LIMITED, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.................................................... 1
SECTION 1.02. Internal References............................................ 4
ARTICLE 2
PURCHASE AND SALE OF SERVICES
SECTION 2.01. Purchase and Sale of Services.................................. 4
SECTION 2.02. Additional Services............................................ 4
ARTICLE 3
SERVICE COSTS; OTHER CHARGES
SECTION 3.01. Service Costs Generally........................................ 5
SECTION 3.02. Customary Billing.............................................. 5
SECTION 3.03. Pass-Through Billing........................................... 5
SECTION 3.04. Certain Benefits Matters....................................... 6
SECTION 3.05. Cost-per-Square-Foot Billing................................... 6
SECTION 3.06. Invoicing and Settlement of Costs.............................. 6
ARTICLE 4
THE SERVICES
SECTION 4.01. General Standard of Service.................................... 7
SECTION 4.02. Delegation............................ ........................ 7
SECTION 4.03. Limitation of Liability........................................ 8
SECTION 4.04. Indemnification of The Limited by Too, Inc..................... 9
SECTION 4.05. Indemnification of Too, Inc. by The Limited.................... 9
SECTION 4.06. Year 2000 Exculpation and Indemnification...................... 9
SECTION 4.07. Further Indemnification........................................ 10
SECTION 4.08. Notice of Certain Matters...................................... 10
ARTICLE 5
TERM AND TERMINATION
SECTION 5.01. Term........................................................... 11
SECTION 5.02. Termination.................................................... 11
SECTION 5.03. Effect of Termination.......................................... 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. Confidential Information....................................... 12
SECTION 6.02. Financial Support Arrangements................................. 13
SECTION 6.03. Insurance Matters.............................................. 14
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Prior Agreements............................................... 15
SECTION 7.02. Other Agreements............................................... 15
SECTION 7.03. Future Litigation and Other Proceedings........................ 15
SECTION 7.04. No Agency...................................................... 16
SECTION 7.05. Subcontractors................................................. 16
SECTION 7.06. Force Majeure.................................................. 16
SECTION 7.07. Entire Agreement............................................... 17
SECTION 7.08. Information.................................................... 17
SECTION 7.09. Notices........................................................ 17
SECTION 7.10. Governing Law.................................................. 18
SECTION 7.11. Dispute Resolution............................................. 18
SECTION 7.12. WAIVER OF JURY TRIAL........................................... 18
SECTION 7.13. Severability................................................... 18
SECTION 7.14. Amendment...................................................... 19
SECTION 7.15. Counterparts................................................... 19
</TABLE>
<PAGE> 4
PAGE
----
Schedule I -- Human Resources and Benefits Services
Schedule II -- Information Technology Services
Schedule III -- Distribution Center Services, Transportation, Engineering and
Related Services
Schedule IV -- Store Planning Services
Schedule V -- Real Estate Services
Schedule VI -- Tax Services
Schedule VII -- Treasury Services
iii
<PAGE> 5
FORM OF SERVICES AGREEMENT
This Services Agreement (this "AGREEMENT") is entered into as
of____________, 1999 by and between Too, Inc., a Delaware corporation ("TOO,
INC.") and The Limited, Inc. a Delaware corporation ("THE LIMITED").
RECITALS
WHEREAS, The Limited owned 100% of the outstanding common stock
of Too, Inc. prior to the consummation of the Spin-Off (as defined below);
WHEREAS, The Limited will no longer own any of the outstanding
common stock of Too, Inc. after the consummation of the Spin-Off; and
WHEREAS, The Limited has heretofore directly or indirectly provided
certain administrative, financial, management and other services to the Too,
Inc. Entities (as defined below).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, The Limited and Too, Inc., for
themselves, their successors and assigns, hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used in this Agreement, the
following terms shall have the following meanings, applicable both to the
singular and the plural forms of the terms described:
"AGREEMENT" has the meaning ascribed thereto in the preamble hereto, as
such agreement may be amended and supplemented from time to time in accordance
with its terms.
"BUILDING LEASE AGREEMENT" means the Building Lease Agreement dated as
of July 1, 1995 between Distribution Land Corp. and Too, Inc., as amended by the
Amendment to the Building Lease Agreement dated as of the date hereof.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York or Columbus, Ohio are authorized
or required by law to close.
<PAGE> 6
"CHANGE OF CONTROL" means (i) the direct or indirect acquisition (by
merger, consolidation, business combination or otherwise) by any Person or group
or Persons of beneficial ownership (as defined in Rule 13d-1 and Rule 13d-5
under the Securities Exchange Act of 1934) of 35% or more of the Total Voting
Power of Too, Inc., (ii) any merger, consolidation or other business combination
of Too, Inc. or a Subsidiary of Too, Inc. with any Person after giving effect to
which (x) the shareholders of Too, Inc. immediately prior to such transaction do
not own at least 65% of the Total Voting Power of the ultimate parent entity of
the parties to such transaction or (y) individuals who were directors of Too,
Inc. immediately prior to such transaction (or their designees) do not
constitute a majority of the board of directors of such ultimate parent entity
and (iii) the direct or indirect acquisition by any Person or group of Persons
of all or substantially all of the assets of Too, Inc.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of
Too, Inc.
"DISTRIBUTION AGREEMENT" means the Distribution Agreement dated as of
the date hereof between The Limited and Too, Inc.
"DISTRIBUTION DATE" has the meaning assigned thereto in the
Distribution Agreement.
"LIMITED ENTITIES" means The Limited and its Subsidiaries, and "LIMITED
ENTITY" shall mean any of the Limited Entities.
"PERSON" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government
(including any department or agency thereof) or other entity.
"SCHEDULES" means Schedules I, II, III, IV, V, VI and VII hereto.
"SERVICES" means the various services described in the Schedules.
"SPIN-OFF" has the meaning assigned thereto in the Distribution
Agreement.
"STORE LEASES AGREEMENT" means the Store Leases Agreement dated as of
the date hereof among The Limited Stores, Inc., Victoria's Secret Stores, Inc.,
Lerner New York, Inc., Express, LLC, The Limited and Too, Inc.
"SUBSIDIARY" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled
2
<PAGE> 7
directly or indirectly by such Person or by one or more of the Subsidiaries of
such Person or by a combination thereof.
"TOO, INC. ENTITIES" means Too, Inc. and its Subsidiaries, and "TOO,
INC. ENTITY" shall mean any of the Too, Inc. Entities.
"TOTAL VOTING POWER" with respect to any Person means the total
combined voting power of all securities of such Person entitled to vote
generally in the election of directors of such Person.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Actions 4.04
Applicable Insurance 6.03
Benefits Services 3.04
Confidential Information 6.01
Cost-per-Square Foot Billing 3.05
Customary Billing 3.01
Employee Welfare Plans 4.02
Financial Support Arrangements 6.02(a)
force majeure 7.06
Limited Indemnified Person 4.03
Non-Compliance Notice 4.08
Pass-Through Billing 3.03
Payment Date 3.06
Prior Agreements 7.01
Service Costs 3.01
The Limited Preamble
The Limited Plans 3.04
Too, Inc. Preamble
Too, Inc. Indemnified Person 4.05
Year 2000 Ready 4.06
</TABLE>
SECTION 1.02. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
3
<PAGE> 8
ARTICLE 2
PURCHASE AND SALE OF SERVICES
SECTION 2.01. Purchase and Sale of Services. (a) On the terms and
subject to the conditions of this Agreement and in consideration of the Service
Costs described below, The Limited agrees to provide to Too, Inc., or procure
the provision to Too, Inc. of, and Too, Inc. agrees to purchase from The
Limited, the Services. Unless otherwise specifically agreed by The Limited and
Too, Inc., the Services to be provided or procured by The Limited hereunder
shall be substantially similar in scope, quality, and nature to those
customarily provided to, or procured on behalf of, the Too, Inc. Entities prior
to the Distribution Date.
(b) It is understood that (i) Services to be provided to Too, Inc.
under this Agreement shall, at Too, Inc.'s request, be provided to Subsidiaries
of Too, Inc. and (ii) The Limited may satisfy its obligation to provide or
procure Services hereunder by causing one or more of its Subsidiaries to provide
or procure such Services. With respect to Services provided to, or procured on
behalf of, any Subsidiary of Too, Inc., Too, Inc. agrees to pay on behalf of
such Subsidiary all amounts payable by or in respect of such Services pursuant
to this Agreement.
SECTION 2.02. Additional Services. In addition to the Services to be
provided or procured by The Limited in accordance with Section 2.01, if
requested by Too, Inc., and to the extent that The Limited and Too, Inc. may
mutually agree, The Limited shall provide additional services (including
services not provided by The Limited to the Too, Inc. Entities prior to the
Distribution Date) to Too, Inc. The scope of any such services, as well as the
term, costs, and other terms and conditions applicable to such services, shall
be as mutually agreed by The Limited and Too, Inc.
ARTICLE 3
SERVICE COSTS; OTHER CHARGES
SECTION 3.01. Service Costs Generally. The Schedules hereto indicate,
with respect to the Services listed therein, whether the costs to be charged to
Too, Inc. for such Service are to be determined by (i) the customary billing
method described in Section 3.02 ("CUSTOMARY BILLING"), (ii) the pass-through
billing method described in Section 3.03 ("PASS-THROUGH BILLING"), or (iii) the
cost-per- square-foot billing method described in Section 3.05 ("COST-PER-SQUARE
FOOT BILLING"). The Customary Billing, Pass-Through Billing and Cost-per-Square
Foot Billing methods applicable to Services provided to Too, Inc. are
collectively
4
<PAGE> 9
referred to herein as the "SERVICE COSTS". Too, Inc. agrees to pay to The
Limited in the manner set forth in Section 3.06 the Service Costs applicable to
each of the Services provided or procured by The Limited.
SECTION 3.02. Customary Billing. The costs of Services as to which the
Customary Billing method applies shall be equal to (i) the costs charged to Too,
Inc. by The Limited for such Services immediately prior to the Distribution Date
(it being understood that from and after the Distribution Date such costs may be
increased by The Limited in a manner consistent with the manner in which such
costs were increased from time to time prior to the Distribution Date) plus (ii)
5 percent. Notwithstanding the foregoing, any third-party expenses as well as
out-of-pocket expenses incurred by The Limited in connection with the provision
of any Services as to which the Customary Billing method applies shall be passed
through to Too, Inc. without the 5 percent mark-up.
SECTION 3.03. Pass-Through Billing. The costs of Services as to which
the Pass-Through Billing method applies shall be equal to the aggregate amount
of third-party, out-of-pocket costs and expenses incurred by any Limited Entity
on behalf of any Too, Inc. Entity (which costs shall include but not be limited
to the costs incurred in connection with obtaining the consent of any party to a
contract or agreement to which any Limited Entity is a party where such consent
is related to and reasonably required for the provision of any Service). If a
Limited Entity incurs any such costs or expenses on behalf of any Too, Inc.
Entity as well as businesses operated by The Limited, The Limited shall allocate
any such costs or expenses in good faith between the various businesses on
behalf of which such costs or expenses were incurred as The Limited shall
determine in the exercise of The Limited's reasonable judgment. The Limited
shall apply usual and accepted accounting conventions in making such
allocations, and The Limited or its agents shall keep and maintain such books
and records as may be reasonably necessary to make such allocations. The Limited
shall make copies of such books and records available to Too, Inc. upon request
and with reasonable notice.
SECTION 3.04. Certain Benefits Matters. (a) Prior to the
Distribution Date, certain associates of Too, Inc. participated in certain
benefit plans sponsored by The Limited ("THE LIMITED PLANS").
(b) The costs payable by Too, Inc. for Services relating to employee
plans and benefit arrangements ("BENEFITS SERVICES") shall be determined and, to
the extent specified in Schedule I, billed as set forth on Schedule I. It is the
express intent of the parties that Service Costs relating to the administration
of Too, Inc. employee plans and the performance of related Services shall not
exceed reasonable compensation for such Services as defined in 29 CFR
Section 2550.408c-2.
5
<PAGE> 10
(c) The Limited and Too, Inc. agree to cooperate fully with each other
in the administration and coordination of regulatory and administrative
requirements associated with The Limited Plans.
SECTION 3.05. Cost-per-Square-Foot Billing. The costs of Services as
to which the Cost-per-Square-Foot Billing method applies shall be equal to (a)
with respect to stores the construction of which has commenced prior to or on
December 31, 1999, the total number of square feet under development for the
benefit of Too, Inc. times $5.51 per square foot; and (b) with respect to stores
the construction of which has not commenced but all design work has been
completed, the total number of square feet under development for the benefit of
Too, Inc. times $2.76 per square foot.
SECTION 3.06. Invoicing and Settlement of Costs. (a) The Limited shall
invoice or notify the Chief Executive Officer or Chief Financial Officer of Too,
Inc. on a monthly basis (not later than the tenth day of each month), in a
manner substantially consistent with the billing practices used in connection
with services provided to the Too, Inc. Entities prior to the Distribution Date
(except as otherwise agreed), of the Service Costs. In connection with the
invoicing described in this Section 3.06(a), The Limited shall provide to Too,
Inc. the same billing data and level of detail as it customarily provided to the
Too, Inc. Entities prior to the Distribution Date and such other data as may be
reasonably requested by Too, Inc.
(b) Too, Inc. agrees to pay on or before 30 days after the date on
which The Limited invoices or notifies Too, Inc. of the Service Costs (or the
next Business Day, if such day is not a Business Day) (each, a "PAYMENT DATE")
by wire transfer of immediately available funds payable to the order of The
Limited all amounts invoiced by The Limited pursuant to Section 3.06(a) during
the preceding calendar month. If Too, Inc. fails to pay any monthly payment
within 30 days of the relevant Payment Date, Too, Inc. shall be obligated to
pay, in addition to the amount due on such Payment Date, interest on such amount
at the prime, or best, rate announced by [Banc One Corp.] compounded monthly
from the relevant Payment Date through the date of payment.
ARTICLE 4
THE SERVICES
SECTION 4.01. General Standard of Service. Except as otherwise agreed
with Too, Inc. or described in this Agreement, and provided that The Limited is
not restricted by contract with third parties or by applicable law, The Limited
6
<PAGE> 11
agrees that the nature, quality, and standard of care applicable to the delivery
of the Services hereunder shall be substantially the same as that of the
Services which The Limited provides from time to time throughout its businesses.
The Limited shall use its reasonable efforts to ensure that the nature and
quality of Services provided to Too, Inc. associates either by The Limited
directly or through administrators under contract shall be undifferentiated as
compared with the same services provided to or on behalf of The Limited
associates under The Limited Plans. Subject to The Limited's express obligations
under this Agreement, the management of and control over the provision of the
Services shall reside solely with The Limited. Without limiting the generality
of the foregoing, all labor matters relating to associates of The Limited and
its Subsidiaries (including, without limitation, associates involved in the
provision of Services to Too, Inc.) shall be within the exclusive control of The
Limited, and no Too, Inc. Entity shall take any action affecting such matters.
SECTION 4.02. Delegation. Subject to Section 4.01 above, Too, Inc.
hereby delegates to The Limited final, binding, and exclusive authority,
responsibility, and discretion to interpret and construe the provisions of
employee welfare benefit plans in which Too, Inc. has elected to participate and
which are administered by The Limited under this Agreement (collectively,
"EMPLOYEE WELFARE PLANS"). The Limited may further delegate such authority to
plan administrators to:
(i) provide administrative and other services;
(ii) reach factually supported conclusions consistent with the
terms of the Employee Welfare Plans;
(iii) make a full and fair review of each claim denial and
decision related to the provision of benefits provided or arranged for
under the Employee Welfare Plans, pursuant to the requirements of
ERISA, if within 60 days after receipt of the notice of denial, a
claimant requests in writing a review for reconsideration of such
decisions. The plan administrator shall notify the claimant in writing
of its decision on review. Such notice shall satisfy all ERISA
requirements relating thereto; and
(iv) notify the claimant in writing of its decision on review.
SECTION 4.03. Limitation of Liability. (a) Too, Inc. agrees that none
of the Limited Entities and their respective directors, officers, agents, and
employees (each, a "LIMITED INDEMNIFIED PERSON") shall have any liability,
whether direct or indirect, in contract or tort or otherwise, to any Too, Inc.
Entity or any other Person for or in connection with the Services rendered or to
be rendered by any Limited Indemnified Person pursuant to this Agreement, the
transactions contemplated hereby or any Limited Indemnified Person's actions or
inactions in
7
<PAGE> 12
connection with any such Services or transactions, except for damages which have
resulted from such Limited Indemnified Person's gross negligence or willful
misconduct in connection with any such Services, actions or inactions.
(b) Notwithstanding the provisions of Section 4.03(a), none of the
Limited Entities shall be liable for any special, indirect, incidental, or
consequential damages of any kind whatsoever (including, without limitation,
attorneys' fees) in any way due to, resulting from or arising in connection with
any of the Services or the performance of or failure to perform The Limited's
obligations under this Agreement. This disclaimer applies without limitation (i)
to claims arising from the provision of the Services or any failure or delay in
connection therewith; (ii) to any claims by any person relating to Too, Inc.'s
failure to render its information technology systems fully Year 2000 Ready (as
defined in Section 4.06 of this Agreement); (iii) to claims for lost profits;
(iv) regardless of the form of action, whether in contract, tort (including
negligence), strict liability, or otherwise; and (v) regardless of whether such
damages are foreseeable or whether The Limited has been advised of the
possibility of such damages.
(c) None of the Limited Entities shall have any liability to any Too,
Inc. Entity or any other Person for failure to perform The Limited's obligations
under this Agreement or otherwise, where (i) such failure to perform is not
caused by the gross negligence or wilful misconduct of the Limited Entity
providing such Services and (ii) such failure to perform similarly affects the
Limited Entities receiving such Services and does not have a disproportionately
adverse effect on the Too, Inc. Entities, taken as a whole.
(d) In addition to the foregoing, Too, Inc. agrees that it shall, in
all circumstances, use commercially reasonable efforts to mitigate and otherwise
minimize its damages and those of the other Too, Inc. Entities, whether direct
or indirect, due to, resulting from or arising in connection with any failure by
The Limited to comply fully with its obligations under this Agreement.
(e) Notwithstanding the foregoing provisions of this Section 4.03, in
the event of a substantial and continuing failure on the part of The Limited to
provide or procure any material Services, where such failure is reasonably
expected to have a material adverse effect on Too, Inc. and its Subsidiaries,
considered as a whole, Too, Inc. shall be entitled to seek specific performance
to cause The Limited to provide or procure such Services.
SECTION 4.04. Indemnification of The Limited by Too, Inc. Too, Inc.
agrees to indemnify and hold harmless each Limited Indemnified Person from and
against any damages, and to reimburse each Limited Indemnified Person for all
reasonable expenses as they are incurred in investigating, preparing, pursuing,
or
8
<PAGE> 13
defending any claim, action, proceeding, or investigation, whether or not in
connection with pending or threatened litigation and whether or not any Limited
Indemnified Person is a party (collectively, "ACTIONS"), arising out of or in
connection with Services rendered or to be rendered by any Limited Indemnified
Person pursuant to this Agreement, the transactions contemplated hereby or any
Limited Indemnified Person's actions or inactions in connection with any such
Services or transactions; provided that Too, Inc. shall not be responsible for
any damages of any Limited Indemnified Person that have resulted from such
Limited Indemnified Person's gross negligence or willful misconduct in
connection with any of the advice, actions, inactions, or Services referred to
above (it being understood and agreed that the provision by any Limited Entity
of any of the Services contemplated by Schedule II hereof without obtaining the
consent of any party to any contract or agreement to which any Limited Entity is
a party as of the date hereof shall not constitute gross negligence or wilful
misconduct by any Limited Entity; provided that the relevant Limited Entity has
used commercially reasonable efforts to obtain the relevant consent).
SECTION 4.05. Indemnification of Too, Inc. by The Limited. Except as
set forth in Section 4.06, The Limited agrees to indemnify and hold harmless the
Too, Inc. Entities and their respective directors, officers, agents, and
employees (each, a "TOO, INC. INDEMNIFIED PERSON") from and against any damages,
and shall reimburse each Too, Inc. Indemnified Person for all reasonable
expenses as they are incurred in investigating, preparing, or defending any
Action, arising out of the gross negligence or willful misconduct of any Limited
Indemnified Person in connection with the Services rendered or to be rendered
pursuant to this Agreement.
SECTION 4.06. Year 2000 Exculpation and Indemnification. The Too, Inc.
Entities release and agree to defend, indemnify and hold harmless the Limited
Entities from and against any claim, demand, action, fine, loss or damage caused
by or arising (i) from the Limited Entities' providing any products or services
to Too, Inc. to assist Too, Inc. in making its information technology systems
Year 2000 Ready and (ii) in any respect in connection with the failure of any
information technology system employed by a Too, Inc. Entity to be fully Year
2000 Ready. "YEAR 2000 READY" means that the information technology systems are
able accurately to process (including without limitation calculate, compare and
sequence) date and time data from, into and between the years 1999 and 2000 and
any other years in the 20th and 21st centuries.
SECTION 4.07. Further Indemnification. To the extent that any other
Person has agreed to indemnify any Limited Indemnified Person or to hold a
Limited Indemnified Person harmless and such Person provides services to The
Limited or any affiliate of The Limited relating directly or indirectly to any
employee plan or benefit arrangement for which Benefit Services are provided
9
<PAGE> 14
under this Agreement, The Limited shall exercise reasonable efforts (a) to make
such agreement applicable to any Too, Inc. Indemnified Person so that each Too,
Inc. Indemnified Person is held harmless or indemnified to the same extent as
any Limited Indemnified Person or (b) otherwise make available to each Too, Inc.
Indemnified Person the benefits of such agreement.
SECTION 4.08. Notice of Certain Matters. If Too, Inc. at any time
believes that The Limited is not in full compliance with its obligations under
Section 4.01 of this Agreement, Too, Inc. shall so notify The Limited in writing
promptly (but not later than 30 days) after becoming aware of such possible
non-compliance by The Limited. Such notice (a "NON-COMPLIANCE NOTICE") shall set
forth in reasonable detail the basis for Too, Inc.'s belief as well as Too,
Inc.'s view as to the steps to be taken by The Limited to address the possible
non-compliance. For the 30 days after receipt of such a notice, appropriate
representatives of The Limited and Too, Inc. shall work in good faith to develop
a plan to resolve the matters referred to in the Non-Compliance Notice. In the
event such matters are not resolved through such discussions, Too, Inc. may
elect to terminate The Limited's obligation to provide or procure, and its
obligation to purchase, the Service or Services referred to in its
Non-Compliance Notice in accordance with Section 5.02. In the event such matters
are resolved through such discussions and Too, Inc. does not elect to terminate
such Service or Services within 60 days of the end of the 30-day period referred
to in the third sentence of this Section 4.08, Too, Inc. shall not be entitled
to deliver another Non-Compliance Notice or pursue other remedies with respect
to same or any substantially similar matter so long as The Limited complies in
all material respects with the terms of such resolution. In no event shall any
termination of this Agreement pursuant to this Section 4.08 limit or affect Too,
Inc.'s right to seek remedies in accordance with Section 7.11 in respect of any
breach by The Limited of any of its obligations under this Agreement prior to
such termination.
ARTICLE 5
TERM AND TERMINATION
SECTION 5.01. Term. Except as otherwise provided in this Article 5, in
Section 7.06 or as otherwise agreed in writing by the parties, (a) this
Agreement shall have a term of one year from the Distribution Date and (b) The
Limited's obligation to provide or procure, and Too, Inc.'s obligation to
purchase, a Service shall cease as of the applicable date set forth in the
applicable Schedules or such earlier date determined in accordance with Section
5.02.
10
<PAGE> 15
SECTION 5.02. Termination. (a) Except as otherwise provided in any
Schedule hereto, Too, Inc. may (i) from time to time terminate this Agreement
with respect to one or more of the Services, in whole or in part, upon giving at
least 30 days' prior notice to The Limited or (ii) terminate this Agreement at
any time upon 30 days' written notice.
(b) The Limited may terminate any Service at any time if Too, Inc.
shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, The Limited has notified Too, Inc. in
writing of such failure and such failure shall have continued for a period of 30
days after receipt of Too, Inc. of written notice of such failure.
(c) Too, Inc. may terminate any Service at any time if The Limited
shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, Too, Inc. has notified The Limited in
writing of such failure, and such failure shall have continued for a period of
30 days after receipt by The Limited of written notice of such failure.
SECTION 5.03. Effect of Termination. (a) Other than as required by
law, upon termination of any Service pursuant to Section 5.02, or upon
termination of this Agreement in accordance with its terms, The Limited shall
have no further obligation to provide the terminated Service (or any Service, in
the case of termination of this Agreement) and Too, Inc. shall have no
obligation to pay any fees relating to such Services or make any other payments
hereunder; provided that notwithstanding such termination, (i) Too, Inc. shall
remain liable to The Limited for fees owed and payable in respect of Services
provided prior to the effective date of the termination; (ii) The Limited shall
continue to charge Too, Inc. for administrative and program costs relating to
benefits paid after but incurred prior to the termination of any Service and
other services required to be provided after the termination of such Service and
Too, Inc. shall be obligated to pay such expenses in accordance with the terms
of this Agreement; and (iii) the provisions of Articles 4, 5, 6 and 7 shall
survive any such termination indefinitely. All program and administrative costs
attributable to associates of any of the Too, Inc. Entities for The Limited
Plans that relate to any period after the effective date of any such termination
shall be for the account of Too, Inc.
(b) Following termination of this Agreement with respect to any
Service, The Limited and Too, Inc. agree to cooperate in providing for an
orderly transition of such Service to Too, Inc. or to a successor service
provider. Without limiting the foregoing, The Limited agrees to (i) provide,
within 30 days of the termination, copies in a usable format designated by The
Limited, of all records relating directly or indirectly to benefit
determinations of Too, Inc. associates, including but not limited to
compensation and service records, correspondence, plan interpretive policies,
plan procedures, administration guidelines, minutes, or
11
<PAGE> 16
any data or records required to be maintained by law and (ii) work with Too,
Inc. in developing a transition schedule.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. Confidential Information. (a) Too, Inc. and The Limited
hereby covenant and agree to hold in trust and maintain confidential all
Confidential Information relating to the other party or any of such other
party's Subsidiaries. Without limiting the generality of the foregoing,
Confidential Information relating to a party or any of its Subsidiaries shall be
disclosed only to those associates of the other party who need to know such
information in connection with their ordinary course employment activities and
in no event shall any such Confidential Information be disclosed to any other
Person. "CONFIDENTIAL INFORMATION" shall mean all information, materials and
processes relating to a party or any Subsidiary of such party obtained by the
other party or any Subsidiary of such other party at any time (whether prior to
or after the date hereof and whether in connection with this Agreement or
otherwise) in any format whatsoever (whether orally, visually, in writing,
electronically or in any other form) and shall include, but not be limited to,
economic and business information or data, business plans, computer software and
information relating to associates, vendors, customers, products, fashion,
design, stores, financial performance and projections, processes, strategies,
systems and real estate, but shall not include (i) information which becomes
generally available other than by release in violation of the provisions of this
Section 6.01, (ii) information which becomes available on a non-confidential
basis to a party from a source other than the other party to this Agreement,
provided the party in question reasonably believes that such source is not or
was not bound to hold such information confidential and (iii) information
acquired or developed independently by a party without violating this Section
6.01 or any other confidentiality agreement with the other party.
Notwithstanding any provision of this Section 6.01 to the contrary, a party may
disclose such portion of the Confidential Information relating to the other
party to the extent, but only to the extent, the disclosing party reasonably
believes that such disclosure is required under law or the rules of a securities
exchange; provided that the disclosing party first notifies the other party
hereto of such requirement and allows such party a reasonable opportunity to
seek a protective order or other appropriate remedy to prevent such disclosure.
The parties acknowledge that money damages would not be a sufficient remedy for
any breach of the provisions of this Section 6.01 and that the non-breaching
party shall be entitled to equitable relief in a court of law in the event of,
or to prevent, a breach or threatened breach of this Section 6.01.
12
<PAGE> 17
(b) Notwithstanding the provisions of Section 6.01(a), upon a Change
of Control, Too, Inc. shall (i) promptly (but in no event later than 30 days
after the occurrence of such Change of Control) return to The Limited or destroy
all Confidential Information in its possession (or that of any of its
Subsidiaries) relating to The Limited or any of its Subsidiaries, (ii) no longer
be permitted to use such Confidential Information in its business or operations
(or the business or operations of any of its Subsidiaries) and (iii) promptly
(but in no event later than 30 days after the occurrence of such Change of
Control) deliver a written certificate to The Limited executed by Too, Inc.'s
Chief Executive Officer expressly acknowledging the obligations set forth in
clauses (i) and (ii) of this sentence and certifying that Too, Inc. has and
shall continue to adhere to such requirements.
SECTION 6.02. Financial Support Arrangements. (a) Too, Inc. agrees to
cooperate reasonably with any efforts undertaken by The Limited or any of its
Subsidiaries intended to release The Limited and its Subsidiaries from their
obligations under any guarantees (including, without limitation, guarantees of
lease obligations), letters of credit, surety bonds and other financial support
arrangements (collectively, the "FINANCIAL SUPPORT ARRANGEMENTS") (other than
Guaranteed Leases, as defined in the Store Leases Agreement) maintained as of
the date hereof by The Limited or any of its Subsidiaries in connection with the
business or operations of Too, Inc. or any of its Subsidiaries.
(b) If, after the date hereof, (i) any amounts are drawn on or paid
under any Financial Support Arrangement by The Limited or any of its
Subsidiaries or (ii) The Limited or any of its Subsidiaries pays any fees, costs
or expenses relating to any Financial Support Arrangement, then, except as
otherwise specifically provided in the Stores Leases Agreement or the Building
Lease Agreement, Too, Inc. shall reimburse The Limited for such amounts promptly
after receipt from The Limited of notice thereof accompanied by written evidence
of the underlying payment obligation.
(c) Too, Inc. shall not, and shall not permit any of its Subsidiaries
to, take any action (including, without limitation, entering into any agreement
that could result in a Change of Control) that could materially and adversely
affect the ability of Too, Inc. to satisfy its obligations under any material
contract, agreement or arrangement in respect of which a Financial Support
Arrangement is in place unless, prior to the taking of such action, appropriate
provision is made such that, in the reasonable judgment of The Limited, The
Limited's exposure under any Financial Support Arrangement is not materially
increased as a result of the taking of any such action.
SECTION 6.03. Insurance Matters. (a) From and after the date of this
Agreement, The Limited shall not, and shall cause each of its Subsidiaries not
to,
13
<PAGE> 18
take or fail to take any action if such action or inaction, as the case may
be, would adversely affect the applicability of any insurance in effect on the
date of this Agreement that covers all or any part of the assets, liabilities,
business or employees of any Too, Inc. Entity with respect to events occurring
prior to the Distribution Date ("APPLICABLE INSURANCE"), it being understood
that in no event shall any Limited Entity be obligated to pay premiums with
respect to periods after the Distribution Date in respect of Applicable
Insurance.
(b) The Limited agrees that, from and after the Distribution Date, all
Applicable Insurance directly or indirectly applicable to any assets,
liabilities, business or employees of any Too, Inc. entity shall be for the
benefit of the Too, Inc. Entity, it being understood that such Applicable
Insurance shall also be for the benefit of the Limited Entities to the extent
directly or indirectly applicable to any assets, liabilities, business or
employees of the Limited Entities. Without limiting the generality of the
foregoing, from and for one year after the Distribution Date and upon Too,
Inc.'s reasonable request, The Limited shall use its reasonable efforts to
modify, amend or assign all Applicable Insurance policies and arrangements so
that Too, Inc. is the direct beneficiary of such Applicable Insurance with all
rights to enforce, obtain the benefit of and take all other action in respect of
such Applicable Insurance; provided that, if the modifications, amendments or
assignments contemplated by this Section 6.03(b) are not permissible, The
Limited shall, and shall cause each of its Subsidiaries to, use its reasonable
efforts to enter into such other arrangements as Too, Inc. may reasonably
request to ensure that Too, Inc. and the Subsidiaries of Too, Inc. are entitled
to the benefit (to the fullest extent set forth in the relevant policies and
arrangements) of any Applicable Insurance.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Prior Agreements. In the event there is any conflict
between the provisions of this Agreement, on the one hand, and provisions of
prior services agreements among any Limited Entity and any Too, Inc. Entity (the
"PRIOR AGREEMENTS"), on the other hand, the provisions of this Agreement shall
govern and such provisions in the Prior Agreements are deemed to be amended so
as to conform with this Agreement.
SECTION 7.02. Other Agreements. In the event there is any
inconsistency between the provisions of this Agreement, on the one hand, and the
provisions of the Distribution Agreement, the Store Leases Agreement or the
Building Lease Agreement, on the other hand, the provisions of the Distribution
Agreement, the
14
<PAGE> 19
Store Leases Agreement or the Building Lease Agreement, as the case may be,
shall govern.
SECTION 7.03. Future Litigation and Other Proceedings. In the event
that Too, Inc. (or any of its Subsidiaries or any of its or their officers or
directors) or The Limited (or any of its Subsidiaries or any of its or their
officers or directors) at any time after the date hereof initiates or becomes
subject to any litigation or other proceedings before any governmental authority
or arbitration panel with respect to which the parties have no prior agreements
(as to indemnification or otherwise), the party (and its Subsidiaries and its
and their officers and directors) that has not initiated and is not subject to
such litigation or other proceedings shall comply, at the other party's expense,
with any reasonable requests by the other party for assistance in connection
with such litigation or other proceedings (including by way of provision of
information and making available of employees as witnesses). In the event that
Too, Inc. (or any of its Subsidiaries or any of its or their officers or
directors) and The Limited (or any of its Subsidiaries or any of its or their
officers or directors) at any time after the date hereof initiate or become
subject to any litigation or other proceedings before any governmental authority
or arbitration panel with respect to which the parties have no prior agreements
(as to indemnification or otherwise), each party (and its officers and
directors) shall, at their own expense, coordinate their strategies and actions
with respect to such litigation or other proceedings to the extent such
coordination would not be detrimental to their respective interests and shall
comply, at the expense of the requesting party, with any reasonable requests of
the other party for assistance in connection therewith (including by way of
provision of information and making available of employees as witnesses).
SECTION 7.04. No Agency. Nothing in this Agreement shall constitute or
be deemed to constitute a partnership or joint venture between the parties
hereto or, except to the extent provided in Section 4.02, constitute or be
deemed to constitute any party the agent or employee of the other party for any
purpose whatsoever and neither party shall have authority or power to bind the
other or to contract in the name of, or create a liability against, the other in
any way or for any purpose.
SECTION 7.05. Subcontractors. The Limited may hire or engage one or
more subcontractors to perform all or any of its obligations under this
Agreement; provided that, subject to Section 4.03, The Limited shall in all
cases remain primarily responsible for all obligations undertaken by it in this
Agreement with respect to the scope, quality and nature of the Services provided
to Too, Inc.
SECTION 7.06. Force Majeure. (a) For purposes of this Section, "FORCE
MAJEURE" means an event beyond the control of either party, which by its nature
could not have been foreseen by such party, or, if it could have been foreseen,
was
15
<PAGE> 20
unavoidable, and includes without limitation, acts of God, storms, floods,
riots, fires, sabotage, civil commotion or civil unrest, interference by civil
or military authorities, acts of war (declared or undeclared) and failure of
energy sources.
(b) Without limiting the generality of Section 4.03(a), neither party
shall be under any liability for failure to fulfill any obligation under this
Agreement, so long as and to the extent to which the fulfillment of such
obligation is prevented, frustrated, hindered, or delayed as a consequence of
circumstances of force majeure; provided that such party shall have exercised
all due diligence to minimize to the greatest extent possible the effect of
force majeure on its obligations hereunder.
(c) Promptly on becoming aware of force majeure causing a delay in
performance or preventing performance of any obligations imposed by this
Agreement (and termination of such delay), the party affected shall give written
notice to the other party giving details of the same, including particulars of
the actual and, if applicable, estimated continuing effects of such force
majeure on the obligations of the party whose performance is prevented or
delayed. If such notice shall have been duly given, and actual delay resulting
from such force majeure shall be deemed not to be a breach of this Agreement,
and the period for performance of the obligation to which it relates shall be
extended accordingly; provided that if force majeure results in the performance
of a party being delayed by more than 60 days, the other party shall have the
right to terminate this Agreement with respect to any Service affected by such
delay forthwith by written notice.
SECTION 7.07. Entire Agreement. This Agreement (including the Schedules
constituting a part of this Agreement) and any other writing signed by the
parties that specifically references this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
SECTION 7.08. Information. Subject to applicable law and privileges,
each party hereto covenants and agrees to provide the other party with all
information regarding itself and transactions under this Agreement that the
other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
16
<PAGE> 21
SECTION 7.09. Notices. Any notice, instruction, direction or demand
under the terms of this Agreement required to be in writing shall be duly given
upon delivery, if delivered by hand, facsimile transmission, or mail, to the
following addresses:
(a) If to Too, Inc., to:
Too, Inc.
3885 Morse Road
Columbus, OH 43219
Attention: Kent A. Kleeberger
Fax: 614-479-3720
(b) If to The Limited, to:
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
Attention: Samuel P. Fried
Fax: 614-415-7199
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Dennis S. Hersch
Fax: 212-450-4800
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
SECTION 7.10. Governing Law. This Agreement shall be construed in
accordance with and governed by the substantive internal laws of the State of
New York, except that the laws thereof relating to discovery shall not apply in
the event of a proceeding pursuant to Section 7.11 hereof.
SECTION 7.11. Dispute Resolution. Subject to Sections 4.03(e) and 6.01,
the parties hereto agree that any dispute arising out of or in connection with
this Agreement or the transactions contemplated hereby shall be submitted to
arbitration. The parties shall negotiate in good faith and use all reasonable
efforts to agree upon a resolution of any dispute after receipt of written
notice of such dispute from a party. If the parties cannot agree on an amicable
settlement within 30 days from written submission of the matter by the party to
the other party, the
17
<PAGE> 22
matter shall be submitted to arbitration. Each party shall select one
arbitrator, and the two arbitrators so appointed shall select a third
arbitrator. In the event such arbitrators cannot agree upon a third arbitrator,
a third arbitrator shall be selected in accordance with the rules as then in
effect of the American Arbitration Association. The decision of two of the three
arbitrators so appointed shall be conclusive and binding upon the parties to
this Agreement. Any such arbitration shall be held in Columbus, Ohio under the
rules to be mutually agreed upon by the arbitrators selected by the parties or,
if no such agreement can be reached, under the rules as then in effect of the
American Arbitration Association. Each party to any such arbitration shall pay
its own expenses; provided that the fees, costs and expenses of the third
arbitrator shall be borne equally by the parties.
SECTION 7.12. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 7.13. Severability. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
SECTION 7.14. Amendment. This Agreement may only be amended by a
written agreement executed by both parties hereto.
SECTION 7.15. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one agreement.
18
<PAGE> 23
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives.
TOO, INC.
By:_____________________________
Name:
Title:
THE LIMITED, INC.
By:_____________________________
Name:
Title:
