As filed with the Securities and Exchange Commission on February 15, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12 (B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
BARNEYS NEW YORK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-4040818
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
575 Fifth Avenue
New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 339-7300
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Warrants to Purchase Common Stock
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NY2:\871740\04\21645.0001
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TABLE OF CONTENTS
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ITEM 1. BUSINESS.................................................................................................1
ITEM 2 FINANCIAL INFORMATION....................................................................................7
ITEM 3. PROPERTIES..............................................................................................24
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................26
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS........................................................................29
ITEM 6. EXECUTIVE COMPENSATION..................................................................................33
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................36
ITEM 8. LEGAL PROCEEDINGS.......................................................................................37
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........37
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.................................................................38
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.................................................39
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................41
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................41
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................42
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.......................................................................42
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ITEM 1. BUSINESS.
GENERAL
Barneys New York, Inc., a Delaware corporation
("Holdings"), is the parent company of Barney's, Inc., a New York corporation
("Barneys"), which together with its subsidiaries (collectively, the "Company"),
is a leading upscale retailer of men's and women's apparel and accessories and
items for the home. The Company is engaged in three distribution channels which
encompass its various product offerings: the full price stores, the outlet
stores and the warehouse sale events. In addition, the Company is involved in
licensing arrangements pursuant to which the "Barneys New York" trade name is
licensed for use in Asia. See " -- Licensing Arrangements" below.
Barneys was founded by Barney Pressman in 1923 under the
name Barney's Clothes, Inc. Until its emergence from bankruptcy in January 1999,
Barneys was owned by the Pressman family, certain affiliates of the Pressman
family and certain trusts of which members of the Pressman family were the
beneficiaries. Pursuant to the Plan of Reorganization for Barneys and certain of
its affiliates as confirmed by the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court"), Holdings was formed and
all the equity interests in Barneys were transferred to Holdings, making Barneys
a wholly-owned subsidiary of Holdings. See " -- The Reorganization" below.
The Company operates seven full price stores (three of
which are flagship stores located in New York, Chicago and Beverly Hills and
four of which are regional stores) and nine outlet stores throughout the United
States (see "Properties" below) under the "BARNEYS NEW YORK" trade name. Barneys
merchandise is priced from the middle to the upper end of the market and appeals
to sophisticated customers whose income levels are above average. Its
merchandising philosophy stresses a variety of fashion viewpoints. It offers a
mix of merchandise including established designers, new designers, branded goods
and private label goods. The Company purchases merchandise from a broad range of
vendors, domestic and foreign, including designers, manufacturers of branded
goods and private label resources. Major designers include Giorgio Armani,
Prada, Jil Sander, Donna Karan, Comme des Garcons, Robert Clergerie and
Ermenegildo Zegna. Major branded goods include Oxxford and Hickey Freeman, and
major cosmetics lines including but not limited to Chanel, Francois Nars and
Kiehls. A significant portion of the merchandise is manufactured in Europe
(primarily Italy). The flagship stores in New York and Beverly Hills also
include restaurants managed by third party contractors.
In addition to its full-price retail business, the Company
has developed two operations which focus on outlet stores and warehouse sales.
The Company conducts semi-annual warehouse sales in New York and Santa Monica,
California. Warehouse sale events operate on an extremely low cost basis,
generating significant net profit, while flattening seasonal effects on the
Company's business.
RETAILING STRATEGY
During fiscal 1998, the Company's sales were derived as
follows: 82% from full-price stores (71% from three flagship stores, and 11%
from four regional stores), 10% from Outlet Stores and 8% from Warehouse Sale
Events.
FULL PRICE STORES
The Company operates seven full price stores: three large
flagship stores in prime retail locations in New York, Beverly Hills and
Chicago, and four small regional stores in Manhasset, NY, Seattle, WA, Chestnut
Hill, MA and World Financial Center, NY.
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The three large flagship stores establish and promote the
Barneys image as a pre-eminent retailer of men's and women's fashion. They
provide customers with a wide range of high quality products, including apparel,
accessories, cosmetics and items for the home. They cater to affluent,
fashion-conscious men and women. The four smaller regional stores aim to serve
similar customers in smaller urban markets. These stores provide a limited
selection of the assortment offered in the flagship stores.
Creative merchandising, store design and displays,
advertising campaigns and publicity events develop the image of Barneys as a
fashion leader. The flagship stores create aesthetic shopping environments to
showcase designer and private label merchandise with the Barneys point of view.
Customer relationships are developed with in-store service, marketing
communications and a customer loyalty awards program.
OUTLET STORES
The Company operates nine outlet stores across the country.
The outlet stores leverage the Barneys New York brand to reach a wider audience
by providing a lower priced version of the sophistication, style and quality of
the merchandise and retail experience provided in the full price stores. The
outlet stores also provide a clearance vehicle for full price stores' residual
merchandise. The stores operate with a low cost structure.
The outlet stores cater to budget-minded yet
fashion-conscious men and women, selling designer, branded and private label
apparel and accessories. They are located in high-end outlet centers and serve a
high number of destination shoppers and tourists.
WAREHOUSE SALE EVENTS
The Company operates four warehouse sale events, two each
season in New York and Santa Monica, California. The warehouse sale events
provide another vehicle for liquidation of end of season residual merchandise,
as well as a low cost extension of the Barneys New York brand to a wider
audience. The events attract a wide range of shoppers, mostly bargain hunters
who value quality and fashion.
THE REORGANIZATION
On January 10, 1996 (the "Filing Date"), Barneys and
certain of its subsidiaries commenced proceedings under Chapter 11 of title 11,
United States Code (the "Bankruptcy Code") by filing petitions in the Bankruptcy
Court. On January 28, 1999 (the "Effective Date"), the Company emerged from
reorganization proceedings (the "Reorganization") under the Bankruptcy Code
pursuant to a Second Amended Joint Plan of Reorganization, dated November 13,
1998, as supplemented and as confirmed on December 21, 1998 by the Bankruptcy
Court (the "Plan"). The following is a summary of the material provisions of the
Plan that became effective on the Effective Date.
OVERVIEW. Pursuant to the Plan, Holdings was formed and, on the
Effective Date, all of the outstanding capital stock of Barneys was transferred
to Holdings by the holders thereof. In addition, prior to the Effective Date,
Barneys formed three subsidiaries (two of which, Barneys (CA) Lease Corp. and
Barneys (NY) Lease Corp., are direct, wholly-owned subsidiaries of Barneys, and
one of which, Barneys America (Chicago) Lease Corp., is a direct, wholly-owned
subsidiary of Barneys America, Inc., which is a direct, wholly-owned subsidiary
of Barneys and which was in existence since before the Filing Date), each of
which acts as a lessee and sublessor for one of the flagship stores. See
"PROPERTIES." BNY Licensing Corp. ("BNY Licensing"), a wholly-owned subsidiary
of Barneys, is party to certain licensing arrangements.
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Barneys Asia Co. LLC is 70% owned by BNY Licensing and 30% owned by an affiliate
of Isetan Company Ltd. ("Isetan") and was formed prior to the Effective Date
pursuant to the Plan. See "-- Licensing." On the Effective Date, Bay Harbour
Management L.C. ("Bay Harbour") and Whippoorwill Associates, Inc.
("Whippoorwill," and, together with Bay Harbour, the "Plan Investors") on behalf
of their discretionary and/or managed accounts, became the two largest holders
of shares of common stock, $0.01 par value, of Holdings ("Holdings Common
Stock"). Each of the Plan Investors has appointed three designees to the Board
of Directors of each of Holdings and Barneys. On the Effective Date, Isetan
became the third largest holder of shares of Holdings Common Stock, a creditor
of Holdings pursuant to the Isetan Note referred to below and the lessor of the
Company's three flagship stores. See "PROPERTIES." In addition, Isetan is
entitled to appoint, pursuant to a contractual arrangement, and has appointed, a
designee on the Board of Directors of each of Holdings and Barneys. Isetan is
also a licensee of the Barneys name in Japan. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Certain Business Relationships."
EQUITY. Pursuant to the Plan, the following equity was issued:
Issued In Exchange for Claims. The equity in Barneys was
exchanged for shares of Holdings Common Stock, and certain allowed general
unsecured claims and claims held by Isetan against Barneys and certain of its
affiliates were exchanged for, among other things, shares of Holdings Common
Stock and warrants (as defined below).
Rights Offering. Rights to subscribe for shares of Holdings
Common Stock ("Subscription Rights") were issued in accordance with the Plan to
all holders of allowed general unsecured claims (other than members of the
Pressman family and Isetan, each of which were party to separate arrangements
described herein, and other than holders of general unsecured claims whose
claims were for less than $2,300 and holders of general unsecured claims of
greater than $2,300 who elected to receive cash in settlement of their claims).
Certain recipients of Subscription Rights exercised such rights prior to the
expiration thereof, which was prior to consummation of the Plan. The $62.5
million offering of Subscription Rights was guaranteed by Bay Harbour and
Whippoorwill on behalf of their discretionary and/or managed accounts to the
extent the other holders of allowed general unsecured claims did not elect to
participate in the offering. Bay Harbour and Whippoorwill agreed to guarantee
the offering of Subscription Rights pursuant to the Amended and Restated Stock
Purchase Agreement dated as of November 13, 1998 among Barneys, Bay Harbour,
Whippoorwill and the Official Committee of Unsecured Creditors of Barneys (the
"Stock Purchase Agreement"). In the offering, the Plan Investors purchased an
aggregate of 6,707,531 shares of Holdings Common Stock for an aggregate price of
approximately $58.2 million.
Option. Pursuant to the Stock Purchase Agreement, the Plan
Investors were granted an option to purchase, at an aggregate exercise price of
$5.0 million, a total of 576,122 shares of Holdings Common Stock. Pursuant to
the option, each of the Plan Investors has the right to purchase the greater of
(i) 288,061 shares of Holdings Common Stock, and (ii) 576,122 shares of Holdings
Common Stock, less the number of shares purchased by the other Plan Investor. On
November 12, 1999, each of Bay Harbour and Whippoorwill notified the Company of
its intention to exercise the option in full. The closing of the exercise
occurred on November 19, 1999.
Isetan Warrant. An affiliate of Isetan was issued a warrant
(the "Isetan Warrant") to purchase 287,724 share of Holdings Common Stock at an
exercise price of $14.68 per share. This warrant expires on January 29, 2002.
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Unsecured Creditors Warrants. All holders of allowed
general unsecured claims (other than members of the Pressman family and Isetan,
each of which were party to separate arrangements described herein, and other
than holders of general unsecured claims whose claims were for less than $2,300
and holders of general unsecured claims of greater than $2,300 who elected to
receive cash in settlement of their claims) were issued warrants (the "Unsecured
Creditors Warrants") to purchase an aggregate of up to 1,013,514 shares of
Holdings Common Stock at an exercise price of $8.68 per share. These warrants
expire on May 15, 2000.
Preferred Stock. Holdings issued 15,000 shares of Series A
Preferred Stock, par value $0.01 per share (the "Preferred Stock"), to the
Barneys Employees Stock Plan Trust, which was established for the benefit of
eligible employees of the Company. In addition, Holdings issued 5,000 shares of
Preferred Stock for an aggregate purchase price of $500,000 in government
securities to Bay Harbour, which it sold to a third party under a prearranged
agreement.
INDEBTEDNESS. Pursuant to the Plan, the following debt securities
were issued:
Isetan. Barneys issued a promissory note (the "Isetan
Note") in the principal amount of $22,500,000 to Isetan. The Isetan Note bears
interest at the rate of 10% per annum payable semi-annually, and matures on
January 29, 2004.
Equipment Lessors. On the Effective Date, certain lessors
of equipment to the Company transferred all right, title and interest in such
equipment to the Company. In exchange therefor, the Company issued promissory
notes (the "Equipment Lessors Notes") to such lessors in an aggregate principal
amount of $35,788,865. Such promissory notes bear interest at the rate of
11-1/2% per annum payable semi-annually, mature on January 29, 2004, and are
secured by a first priority lien on the equipment that was the subject of each
of the respective equipment leases.
OTHER. Barneys paid approximately (i) $23,300,000 in cash to Isetan
on account of its allowed claims, (ii) $50,000 to members of the Pressman family
in partial settlement of claims filed by them against the Company and in partial
exchange for equity interests in the Company and certain of its affiliates,
(iii) an aggregate of $19,700,000 to holders of allowed administrative and
priority claims, exclusive of professional fees paid, and (iv) an aggregate of
$450,000 to holders of general unsecured claims whose claims were for amounts
less than $2,300 and holders of general unsecured claims of greater than $2,300
who elected to receive cash in settlement of their claims, pursuant to the Plan.
In addition, Barneys entered into consulting agreements with certain members of
the Pressman family. Pursuant to these agreements, each of which terminates on
the first anniversary of the Effective Date, each of Phyllis Pressman, Robert
Pressman, Gene Pressman and Holly Pressman have agreed to make himself or
herself available to Barneys (up to 60% of full-time for Phyllis Pressman, and
80% of full time for each of Robert, Gene and Holly Pressman) to furnish
consulting services to Barneys, its subsidiaries and affiliates with respect to
their business and potential business opportunities. The aggregate compensation
payable under the consulting agreements ranges from $410,000 to $1,400,000,
payable in four equal semi-annual installments commencing on the Effective Date.
The Company was also required to pay Nanelle Associates, an entity controlled by
members of the Pressman family, in respect of its claims in the bankruptcy case,
$400,000, payable in four equal semi-annual installments commencing on the
Effective Date.
REAL ESTATE. Pursuant to the Plan, an affiliate of Isetan became the
sole owner of the properties on which the Company's three flagship stores are
located and Barneys entered into modifications of the long-term leases for such
stores. See "PROPERTIES" below.
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LICENSING. BNY Licensing entered into the licensing arrangements
described under "Licensing Arrangements" below.
LICENSING ARRANGEMENTS
BNY Licensing is party to licensing arrangements pursuant
to which (i) two retail stores are operated in Japan and a single in-store
department is operated in Singapore under the name "BARNEYS NEW YORK," each by
an affiliate of Isetan, and (ii) Barneys Asia Co. LLC, which is 70% owned by BNY
Licensing and 30% owned by an affiliate of Isetan (and which was formed in
connection with the Reorganization referred to above), has the exclusive right
to sublicense the BARNEYS NEW YORK trademark throughout Asia (excluding Japan).
Licensing agreements governing these arrangements were entered into in
connection with Barneys' emergence from bankruptcy. See " -- THE Reorganization"
above.
TRADEMARKS AND SERVICE MARKS
The Company owns its principal trademarks and service marks
worldwide, including the "Barneys New York" and "Barneys" marks. In addition to
these marks, the Company owns other important trademarks and service marks used
in its business. The Company's trademarks and service marks are registered in
the United States and internationally. The term of these registrations is
generally ten years, and they are renewable for additional ten-year periods
indefinitely, so long as the marks are still in use at the time of renewal. The
Company is not aware of any claims of infringement or other challenges to its
right to register or use its marks in the United States.
SEASONALITY
The specialty retail industry is seasonal in nature, with a
high proportion of sales and operating income generated in the November and
December holiday season. As a result, the Company's operating results are
significantly affected by the holiday selling season. Seasonality also affects
working capital requirements, cash flow and borrowings as inventories build in
September and peak in October in anticipation of the holiday selling season. The
Company's dependence on the holiday selling season for sales and income is less
than that of many retailers, because of the significant sales and income
generated by the warehouse sale events held in February and August.
COMPETITION
The retail industry, in general, and the specialty retail
store business, in particular, are intensely competitive. Generally, the
Company's stores are in competition with both specialty stores and department
stores in the geographic areas in which they operate. The Company's outlet
stores and warehouse sale events also compete with off-price and discount
stores. During the last few years, several of the Company's significant vendor
resources have entered or expanded their presence in the retail business with
their own dedicated stores, which compete directly with the Company's stores
(e.g., Giorgio Armani, Prada, Gucci and Helmut Lang). Several department store,
specialty store, and vendor store competitors also offer mail order catalog
shopping. The Internet is beginning to permit the development of sales venues
run by existing competitor stores or by new ventures that will also compete with
the Company. Some of the retailers with which the Company competes have
substantially greater financial resources than the Company and may have various
other competitive advantages over the Company.
The trend toward vertical integration of designer resources
poses additional competitive risk for the Company (e.g., Neiman Marcus' purchase
of an interest in the Kate Spade accessories business, LVMH's stable of designer
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vendors sold through its Duty Free Shops and Galleria stores as well as
individual designer boutiques). Competition is strong not only for retail
customers, but also for vendor resources. In the Company's luxury retail
business, exclusivity of merchandise brands is very valuable, and retail stores
compete for exclusive distribution arrangements with key designer vendors.
MERCHANDISING
In fiscal 1998, the Company's top 10 vendor brands
accounted for approximately 23% of total Company sales. The two top vendor
brands each accounted for approximately 5% of total Company sales. All of these
brands are also sold by competitor retailers in certain markets; nine of the ten
vendors also have their own dedicated retail stores. Exclusivity of distribution
of designer brands is a valuable resource in the luxury retail business. The
Company faces risk to its business if either designer vendors withdraw Barneys
from their distribution, or, conversely, if they provide distribution to
competitors. Management does not expect that the trend toward vertical
integration discussed above or the withdrawal from Barneys of the distribution
of certain designer vendors will have a material impact on the operations of the
Company. If certain vendors were to withdraw distribution from Barneys, the
Company might, in the short term, have difficulty identifying comparable sources
of supply. However, management believes that alternative supply sources do exist
to fulfill the Company's requirements in the event of such a disruption.
EMPLOYEES
At January 28, 2000, the Company employed approximately
1400 people. The Company's staffing requirements fluctuate during the year as a
result of the seasonality of the retail apparel industry, adding approximately
100 employees during the holiday selling season. Approximately 550 of the
Company's employees are represented by unions and the Company believes that
overall its relationship with its employees and the unions is good. During its
more than fifty-year relationship with unions representing its employees, the
Company has never been subjected to a strike.
CAPITAL EXPENDITURES
The Company's capital expenditure plan is designated to
allocate funds to projects that are necessary to support the Company's strategic
plan. Under the terms of its $120,000,000 revolving credit facility, capital
expenditures are limited to $7,250,000 in fiscal year 1999, $7,500,000 in fiscal
year 2000, and $7,750,000 in each of fiscal years 2001 and 2002. See "FINANCIAL
INFORMATION -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
CERTAIN TAX MATTERS
FEDERAL AND STATE INCOME TAXES
Pursuant to the Plan, Holdings acquired 100% of Barneys'
stock. Holdings will make a Section 338(g) election (the "Election") with
respect to the acquisition under applicable provisions of the Internal Revenue
Code ("IRC"). The tax effects of making the Election would result in Barneys and
each of its subsidiaries generally being treated, for federal income tax
purposes, as having sold its assets at the time the Plan was consummated and
thereafter, as a new corporation which purchased the same assets as of the
beginning of the following day. As a result, Barneys will incur a gain or loss
at the time of the deemed sale in an amount equal to the difference between the
fair market value of its assets and its collective tax basis of the assets at
the time of the sale.
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The Company may use existing net operating loss
carryforwards to reduce any gain incurred as a result of this sale.
Nevertheless, the Company will be subject to alternative minimum tax. As a
result of the Election, the Company has recorded an accrual for the alternative
minimum tax liability as a "fresh start" adjustment. Furthermore, immediately
after the sale, as a result of the IRC Section 338(g) election, Barneys will be
stripped of any remaining tax attributes, including any unutilized net operating
loss carryforwards and any unutilized tax credits. See Note 10 to Consolidated
Financial Statements.
OTHER TAXES For the years including 1996, 1997 and 1998 the
Company is subject to various tax audits of Barneys at the present time,
particularly by New York State. The Company believes that pending audit results,
in the aggregate, will not have a material effect on the Company's financial
position, results of operations or cash flows.
LIMITED POST - CHAPTER 11 CASE OPERATING HISTORY
The Company's emergence from Chapter 11 reorganization
occurred very recently, and consequently the Company's subsequent operating
history is limited. Financial statements for future periods will not be
comparable to the historical financial statements included herein, for the
reasons discussed under "Financial Information -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FORWARD LOOKING INFORMATION
This Registration Statement contains "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements are based on management's expectations,
estimates, projections and assumptions. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," and variations of such words and
similar expressions are intended to identify such forward looking statements
which include, but are not limited to, projections of revenues, earnings and
cash flows. These forward looking statements are subject to risks and
uncertainties which could cause the Company's actual results or performance to
differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: general
economic and business conditions, both nationally and in those areas in which
the Company operates; demographic changes; prospects for the retail industry;
competition; changes in business strategy or development plans; the loss of
management and key personnel; the availability of capital to fund the expansion
of the Company's business; changes in consumer preferences or fashion trends;
adverse weather conditions, particularly during peak selling seasons; failure of
the Company or third parties to be Year 2000 compliant; and changes in the
Company's relationships with designers, vendors and other suppliers.
ITEM 2. FINANCIAL INFORMATION.
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial
data as of and for each of the five fiscal years in the period ended August 1,
1998 and for the six months ended January 30, 1999. The selected historical data
should be read in conjunction with the financial statements and the related
notes and other information contained elsewhere in this Registration Statement,
including information set forth herein under " -- Management's Discussions and
Analysis of Financial Condition and Results of Operations."
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The historical financial data as of and for each of the
four fiscal years in the period ended August 1, 1998 and for the six months
ended January 30, 1999 are derived from financial statements audited by Ernst &
Young LLP, independent auditors. Information for the six months ended January
31, 1998 and for the fiscal year ended July 30, 1994 is derived from
management's internal financial statements.
In conjunction with its emergence from Chapter 11, the
Company changed its fiscal year end to the Saturday closest to January 31.
Previously, the fiscal year end fell on the Saturday closest to July 31. A
January fiscal year end is in line with retail industry practice as it coincides
with the end of the fall/holiday season. Unless otherwise specified, all
historical information prior to August 2, 1998 reflects the July fiscal year
end. The period between August 2, 1998 and January 30, 1999 (the "Fall 1998 Stub
Period") represents the six month transition period to the new fiscal year.
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PREDECESSOR COMPANY
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SIX MONTHS SIX MONTHS FISCAL YEARS ENDED (1)
ENDED ENDED
JANUARY 30, JANUARY 28, AUGUST 1, AUGUST 2, AUGUST 3, JULY 29, JULY 30,
1999 (2) 1998 1998 1997 1996 1995 1994
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INCOME STATEMENT DATA
Net sales $ 181,657 $ 183,760 $ 342,967 $ 361,496 $ 366,424 $ 338,673 $ 291,098
Operating Income (loss) 10,301 10,177 8,061 (15,030) (29,415) (106,841) (66,638)
Net income (loss) 293,662 (4,123) (19,953) (94,973) (71,869) (120,843) (78,144)
BALANCE SHEET DATA:
Working capital $ 41,064 $ (20,216) $ (32,249) $ (19,443) $ 19,596 $(218,912) $ 8,017
Total assets 343,954 212,637 217,043 216,246 264,828 247,788 289,957
Long-term debt 118,533 -- -- -- -- -- 183,696
SELECTED OPERATING DATA
Comparable store net sales
(decrease) increase 1.0% 1.0% 9.3% (1.0%) 4.5% 15.0% (26.3%)
Number of stores
Full price stores 7 7 7 10 13 14 15
Outlet stores 13 13 13 10 7 3 2
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Total stores 20 20 20 20 20 17 17
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(1) Effective January 1999, the Company changed its fiscal year to coincide with
the Saturday closest to the end of January.
(2) The income statement data presented above reflects the results of operations
for the Predecessor Company. The Plan became effective on January 28, 1999 and
the results of operations for the Successor Company for the two day period are
immaterial and are not shown separately. The balance sheet data presented as of
January 30, 1999 is that of the Successor Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a retailer of men's and women's apparel and
items for the home. In the late 1980's, the Company and certain of its
subsidiaries entered into various transactions and agreements with Isetan or
subsidiaries of Isetan, principally related to the building of the three
flagship stores and trademark licensing arrangements. Additionally, the Company
had entered into various transactions and agreements with affiliate companies
and other related parties, primarily engaged in the operation of real estate
properties and Barneys New York credit card operations.
The Company's financial results over the past three years
have been impacted as a result of its filing for reorganization under Chapter 11
of the Bankruptcy Code on January 10, 1996 (the "Filing Date") and subsequent
emergence from Chapter 11 reorganization on January 28, 1999 (the "Effective
Date").
The Company incurred reorganization costs of $13.8 million,
in the six months ended January 30, 1999, and $16.0 million, $72.2 million and
$29.4 million in fiscal years 1998, 1997 and 1996, respectively. These charges
included, over the three year period, approximately $58.9 million in relation to
the closing of under-performing stores, $34.9 million in professional fees, for
legal, accounting and business advisory services principally provided to the
Company and the unsecured creditors committee throughout the bankruptcy
proceedings, $18.0 million for payroll and related costs including termination
costs and a key employee retention program, and approximately $19.6 million of
other reorganization costs.
On the Effective Date, the Company restructured its
capitalization in accordance with the Plan. The application of "fresh start"
reporting provisions of the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7") as of the Effective Date included
adjustments to certain assets and liabilities, which resulted in a $0.3 million
one-time charge to earnings. Also on the Effective Date, the value of the cash
and securities distributed by the Company in settlement of the claims resulted
in an extraordinary gain of $302.3 million. Further, the Company recognized
reorganization value in excess of amounts allocable to identifiable assets
("Excess Reorganization Value") of $177.8 million. This excess reorganization
value will be amortized by the straight-line method over 20 years. For further
information concerning the key provisions of the Plan, see note 2 to the
Consolidated Financial Statements.
In January 1999, the Company entered into a $120,000,000
revolving credit facility (the "Credit Agreement") with Citicorp USA, Inc.,
General Electric Capital Corporation, BNY Financial Corporation, and National
City Commercial Finance, Inc. that matures on January 28, 2003. The proceeds
from this facility were used to repay borrowings under the debtor in possession
credit agreement with BankBoston N.A., to pay certain claims, to pay
professional fees and to provide working capital to the Company as it emerged
from its chapter 11 proceeding pursuant to the Plan.
"FRESH-START" REPORTING
The balance sheet information at January 30, 1999 included
under "Selected Historical Financial Information" reflects the Company's Chapter
11 plan of reorganization and the application of the principles of "fresh start"
reporting in accordance with the provisions of SOP 90-7. Accordingly, such
9
<PAGE>
financial information is not comparable to the Company's historical financial
information prior to the Effective Date.
The reorganization value used as a basis for the "fresh
start" reporting was determined to be $285 million. The equity value of the
Company as of January 28, 1999 was calculated to be approximately $154.3 million
based upon this reorganization value.
"Fresh start" accounting adjustments have been made to
reflect the estimated adjustments necessary to adopt "fresh start" reporting in
accordance with SOP 90-7. "Fresh start" reporting requires that the
reorganization value of the Company be allocated to its assets in conformity
with Accounting Principles Bulletin Opinion No. 16, "Business Combinations," for
transactions reported on the basis of the purchase method. Any reorganization
value greater than the fair value of specific tangible or identified intangible
assets is to be included on the balance sheet as reorganization value in excess
of amount allocable to identifiable assets and amortized over time.
OPERATING RESULTS
Since the Filing Date, the Company has devoted a
significant amount of time to analyzing its cost structure to develop
cost-reduction initiatives to improve the overall financial condition and
operating results of the Company. The Company's present operating results
reflect the continued progress made with the cost reduction initiatives
implemented since the Filing Date. In the six months ended January 30, 1999,
selling, general and administrative expenses declined as a percentage of sales
to 40.5% from 42.5% in the comparable period last year. In 1998, the most recent
full year of operations, selling, general and administrative expenses as a
percent of sales were 44.1%, significantly below the 1996 level of 54.9%. As of
January 30, 1999, the Company has closed seven full price stores, opened seven
new outlet stores and reduced the Company's headcount by more than 300 as
follows: 28 associates in the six months ended January 30, 1999; 137 associates
in 1998; 143 associates in 1997; and 37 associates in 1996. The majority of the
store closings occurred in July and August of 1997 when the Company closed its
full price stores in Texas, Michigan and the original Barneys New York store
located on 17th Street in New York.
10
<PAGE>
The table which follows includes a percentage
reconciliation of net sales to earnings before interest, taxes, depreciation and
amortization (excluding reorganization costs) ("EBITDA") and also includes net
income (loss) as a percentage of sales for the six months ended January 30, 1999
and January 31, 1998, fiscal 1998 (52 weeks), fiscal 1997 (52 weeks), and fiscal
1996 (53 weeks). The Company believes EBITDA is a useful statistic since it
eliminates both the cost of the capital structure and non-cash charges (which
can vary dramatically by company) from the operating results of the Company.
While the table below excludes a reconciliation of EBITDA to net income (loss),
the narratives that follow contain a discussion of interest expense,
depreciation and amortization, and reorganization costs for the periods
presented, as necessary.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SIX MONTHS ENDED FISCAL FISCAL FISCAL
1/30/99 1/31/98 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 52.3 51.1 52.1 53.2 52.8
--------------------------------------------------------------------------
Gross profit 47.7 48.9 47.9 46.8 47.2
Selling, general and administrative expenses
(including occupancy expenses) 40.5 42.5 44.1 48.0 54.9
Other (income) expense, net (1) (1.1) (1.8) (1.4) (0.6) (3.5)
--------------------------------------------------------------------------
Earnings before Interest, Taxes, Depreciation
and Amortization (EBITDA) 8.3% 8.2% 5.2% (0.6)% (4.2)%
==========================================================================
Net income (loss)(2) 161.7% (2.2)% (5.8)% (26.3)% (35.7)%
==========================================================================
</TABLE>
(1) Other income (expense) net includes Impairment and special charges (1996),
Royalty income (1998, 1997 and 1996), foreign exchange gains (1996) and other
income, net in each of the periods presented.
(2) Net income for the six months ended January 30, 1999 includes the effect of
an extraordinary gain on discharge of debt of $302.3 million.
SIX MONTHS ENDED JANUARY 30, 1999 COMPARED TO THE SIX MONTHS ENDED
JANUARY 31, 1998
The emergence from Chapter 11 proceedings effective January
28, 1999 as well the implementation of the store closing program announced in
1997 are the primary factors affecting comparability of operating results. The
store closings in 1998 were as follows: the 17th Street flagship store in
mid-August 1997; the Connecticut full-price store in January 1998; and the Costa
Mesa, California full-price store in July 1998. In the six months ended January
31, 1998, the Company opened new outlet stores in Hawaii, Massachusetts and
California.
In addition to the above, the six months ended January 30,
1999 represented an abbreviated reporting period of the Predecessor Company
whereas the six months ended January 31, 1998 coincided with the end of the
second quarter of the Predecessor Company. As a result, there are certain
"year-end" adjustments in the six months ended January 30, 1999, discussed
below, which affect the comparability of operating results with the same periods
in fiscal 1998.
11
<PAGE>
Until its emergence from bankruptcy in January 1999,
Barneys was owned by the Pressman family, certain affiliates of the Pressman
family and certain trusts of which members of the Pressman family were the
beneficiaries. In prior years, the Company had entered into various transactions
and agreements with Pressman-family controlled entities, including Preen Realty
Inc. ("Preen") and certain of its subsidiaries. Preen and certain of its
subsidiaries were shareholders of the Predecessor Company and were primarily
engaged in the operation of real estate properties, certain of which were leased
to the Company. The type of property leased included store, warehouse and office
space. Prior to the Filing Date through the Effective Date, the Company incurred
certain normal operating costs, principally personnel costs, on behalf of Preen.
This situation arose as both entities shared the same corporate office space and
certain employees (including officers) of the Company were providing services to
Preen. After the Filing Date, the Company also incurred and paid reorganization
costs, including legal, accounting and business advisory services, on behalf of
Preen which was also operating as a debtor in possession pursuant to the
Bankruptcy Code. While the Company routinely allocated to Preen a share of both
the normal operating costs and reorganization costs incurred on its behalf, it
was unclear (because of the bankruptcy) whether Preen would have the ability to
repay such amounts in the future. Accordingly, at the time of such charges
reserves were provided in the operating results of the Predecessor Company. In
December 1998, principally in connection with the approval of the Plan and the
settlements included therein, collectibility issues of certain amounts due from
Preen were resolved. Accordingly, the Company was able to reduce its affiliate
receivable reserve by approximately $1.9 million, principally representing cash
payments from Preen in satisfaction of a portion of the outstanding receivable
balance. This reserve reversal reduced selling, general and administrative
expenses and reorganization costs by approximately $0.5 million and $1.4
million, respectively, in the six months ended January 30, 1999.
Net Sales for the six months ended January 30, 1999 were
$181.7 million compared to $183.8 million a year ago, a decrease of 1.1%. This
decrease is primarily attributable to the three full price store closings since
July 1997. Included in net sales for the six months ended January 31, 1998 is
$5.8 million generated from stores closed under the Company's store closing
program, completed in July 1998. Comparable store sales increased approximately
1%, principally due to an increase at full-price stores offset by weakness in
both the outlet and warehouse sale locations.
Gross profit on sales decreased 3.7% to $86.6 million for
the six months ended January 30, 1999 from $89.9 million for the six months
ended January 31, 1998, primarily due to lower revenues as a result of the store
closings. As a percentage of net sales, gross profit was 47.7% for the six
months ended January 30, 1999 compared to 48.9% in the year ago period. The
decrease resulted primarily from increased promotional markdowns in the outlet
and warehouse sale locations and non-recurrence of favorable variances on
foreign currency denominated purchases in the year ago period.
Selling, general and administrative expenses, including
occupancy expenses, declined 5.7% in the six month period ended January 30, 1999
to $73.6 million from $78.1 million in the prior year. This decrease was due in
part to reductions in personnel and occupancy costs of $1.9 million related to
the store closings and corporate headcount reductions as well as continuing
improvements from the Company's cost-reduction initiatives.
In addition to the above, in the six months ended January
30, 1999 "year-end" adjustments were made to certain employee benefit costs. The
most significant items impacted were pension expense, which in the six months
ended January 30, 1999 was recorded at the actual amount of the contribution as
compared to an estimated contribution in the six months ended January 30, 1998
and medical costs. Medical costs were significantly below the prior year due
principally to savings from a carrier change and to an extent, positive trends
in this cost. Combined savings in these two areas alone exceeded $1.5 million.
12
<PAGE>
These savings were partially offset in the six months ended January 30, 1999 by
an approximate $.9 million charge to effectuate the withdrawal from one of the
union-sponsored multi-employer pension plans. There was no comparable charge in
the six months ended January 30, 1998.
There was no royalty income in the six months ended January
30, 1999, compared to $1.7 million in the prior year. The six months ended
January 31, 1998 includes $1.3 million received by the Company in consideration
for terminating a license agreement at the request of the third party licensee,
during the year.
Interest expense decreased 14.7% in the six months ended
January 30, 1999 to $4.8 million from $5.6 million a year ago. Higher interest
expense associated with the Company's short-term borrowings was offset by a
significant reduction in the portion of interest expense associated with the
amortization of related bank fees. The fee to extend the Revolving Credit and
Guaranty Agreement with BankBoston, N.A. and other lenders party thereto (the
"DIP Credit Agreement") to February 1, 1999 from August 1, 1998 was minimal in
relation to the original DIP Credit Agreement fees. Average borrowings for the
26 week periods ended January 30, 1999 and January 31, 1998 were $82.0 million
and $67.0 million, respectively, and the effective interest rate on the
Company's outstanding debt was 10.0% in the six months ended January 30, 1999
compared to 16.5% in the prior year.
Reorganization costs increased 59.3% to $13.8 million in
the six months ended January 30, 1999 from $8.7 million in the year ago period.
This increase is mainly attributable to costs triggered in connection with the
negotiation and consummation of the Plan as well as higher employee separation
costs. Included in these amounts for the respective periods are professional
fees of $3.6 million (including $2.4 million for professionals retained by the
Plan Investors) and $5.1 million, respectively. Professional fees include legal
fees which increased to $3.4 million in the current period from $3.3 million in
the year ago period; accounting and tax fees which declined to $(0.3) million in
the current period from $0.4 million in the year ago period; and investment
advisory fees which declined to $0.6 million in the current period from $1.3
million in the year ago period. In the current year, substantially all of the
professional fees discussed above were reduced by settlements reached with the
various professional services firms with respect to fees held back but not paid
throughout the bankruptcy case and, as discussed above, the cash payment from
Preen reimbursing certain reorganization costs. In the case of the accounting
and tax fees, the settlement and reimbursement reduced the expenses for the six
months ended January 30, 1999 below zero. Additionally, investment advisory fees
declined principally due to a reduction in fees negotiated with the firm
providing services to the debtors since the firm representing the official
committee of unsecured creditors was assuming a larger role in the bankruptcy
resolution process. In addition, Reorganization costs include provisions of $1.0
million and $1.3 million for a key employee retention program, other payroll and
related costs of $4.3 million and $1.0 million which include separation costs of
$3.0 million covering 11 individuals (inclusive of employees of Meridian
Ventures, Inc.) and $0.5 million covering 6 individuals, respectively and other
miscellaneous costs (including principally administrative costs of the
bankruptcy, public relations costs and costs attributed to closed stores) of
$4.9 million and $1.3 million. The increase in other miscellaneous costs is
principally attributed to the remaining fee due Dickson Concepts of $3.5 million
in connection with the termination of the Dickson Concepts proposed purchase
agreement.
In accordance with SOP 90-7, the effects of the fair market
value adjustments on the reported amounts of individual assets and liabilities
resulting from the adoption of fresh start reporting are to be reflected in the
Predecessor Company's final statement of operations. In connection therewith,
the Company recorded $0.3 million in "fresh-start" expense in relation to the
emergence from Chapter 11 reorganization in January 1999. The primary components
of this charge include individually immaterial adjustments of recorded amounts
to their fair market values and accruals recorded in accordance with both SOP
13
<PAGE>
90-7 and APB No. 16. The accruals, principally related to professional fees,
severance, taxes and registration fees aggregating $5,261,000, were offset by a
$5,894,000 write-down of Other long-term liabilities which pertained to both
contractual rent escalations and landlord contributions for store build-outs
recorded in accordance with FASB 13 "Accounting for Leases" ("FAS No. 13"). Such
amounts were reversed since, in accordance with APB No. 16, the existing leases
of the Predecessor Company are treated as new leases of the Successor Company
giving rise to new amortization periods over the remaining life of the lease.
Related "fresh-start" adjustments of $167.9 million were credited to retained
earnings in the six months ended January 30, 1999 principally to eliminate the
Company's cumulative deficit as of the Effective Date.
The Company recognized a gain of $302.3 million related to
debt discharged in the Company's emergence from Chapter 11 reorganization in
January 1999.
FISCAL 1998 COMPARED TO FISCAL 1997
During 1997, the Company decided to close certain stores
and reduce personnel (the "1997 Restructuring Program"). The implementation of
the 1997 Restructuring Program announced in 1997 is one of the primary factors
affecting comparability of operating results for 1998 and 1997. In July 1997,
the Company closed its full-price stores in Texas and Michigan. The store
closings in 1998 were as follows: the 17th Street flagship store in mid-August
1997; the Connecticut full-price store in January 1998; and the Costa Mesa,
California full-price store in July 1998. Additionally, in the second quarter of
1998, the Company opened new outlet stores in Hawaii, Massachusetts and
California.
Net sales for 1998 were $343.0 million compared to $361.5
million in the prior year, a decrease of 5.1%. This decrease is primarily
attributable to the store closings pursuant to the 1997 Restructuring Program.
Included in net sales for 1997 is $63.7 million generated from stores closed
under this program, completed in July 1998. Comparable store sales increased
9.3%, principally due to a double-digit increase at full-price stores, in part,
attributable to the Company's success in transitioning shoppers from the 17th
Street store to the Madison Avenue store. This increase was partially offset by
a double-digit decline at our outlet stores.
Gross profit on sales decreased 2.9% to $164.2 million in
1998 from $169.2 million in 1997, primarily due to lower revenues as a result of
the store closings. As a percentage of net sales, gross profit was 47.9% in 1998
compared to 46.8% in the prior year. The increase resulted primarily from
reductions in inventory shortages and favorable variances on foreign currency
denominated purchases.
Selling, general and administrative expenses, including
occupance expenses, declined 12.8% in 1998 to $151.2 million from $173.4 million
in the prior year. This decrease was primarily due to reductions in personnel
and occupancy costs, related to the store closings and corporate headcount
reductions as well as continuing improvements under the Company's cost-reduction
initiatives.
Royalty income increased to $1.7 million in 1998 from $0.4
million in 1997. 1998 includes $1.3 million received by the Company in
consideration for terminating a license agreement at the request of the third
party licensee, during the year.
Interest expense increased 55.9% in 1998 to $12.0 million
from $7.7 million in 1997. This increase resulted from a higher effective
interest rate under the Company's DIP Credit Agreement as well as higher average
borrowings throughout the year. The effective interest rate on the Company's
outstanding debt was 16.6% in 1998 compared to 14.3% in the prior year.
14
<PAGE>
Depreciation expense decreased 25.2% in 1998 to $9.6
million from $12.9 million in 1997. This decrease resulted from the store
closings pursuant to the 1997 Restructuring Program discussed above.
Reorganization costs declined 77.9% to $16.0 million in
1998 from $72.2 million in the prior year. This decrease is mainly attributable
to the non-recurring store closings costs of $50 million incurred in 1997.
Included in these amounts for the respective periods are professional fees of
$7.4 million and $13.9 million, respectively. Professional fees include legal
fees which declined to $4.4 million in the current fiscal year from $9.4 million
in the year ago period; accounting and tax fees which declined to $0.9 million
in the current fiscal year from $1.1 million in the year ago period; and
investment advisory fees which declined to $2.2 million in the current fiscal
year from $3.4 million in the year ago period. The decline in legal fees in the
current year is related to reduced litigation costs resulting from an attempt by
all parties involved to arrive at a consensual plan of reorganization.
Investment advisory fees in fiscal 1997 included $1.0 million (approved by the
Bankruptcy Court) paid to Dickson Concepts in connection with due diligence
procedures performed. In addition, Reorganization costs include provisions of
$1.9 million and $2.4 million for a key employee retention program, other
payroll and related costs of $2.7 million and $3.2 million, which include
separation costs of $1.9 million covering 13 individuals and $2.5 million
covering 300 individuals (both store and support), respectively, and other
miscellaneous costs (including principally administrative costs of the
bankruptcy, public relations costs and costs attributed to closed stores) of
$4.0 million and $2.8 million. Other miscellaneous costs in 1997 also include
$0.9 million of ancillary administrative costs associated with the litigation
referred to above for, among other things, photocopying and translation
services. The increase in other miscellaneous costs is principally attributed to
a $1.5 million fee payable to Dickson Concepts in connection with the
termination of the Dickson Concepts proposed purchase agreement.
FISCAL 1997 COMPARED TO FISCAL 1996
The Chapter 11 filing on January 10, 1996 is one of the key
factors affecting comparability of operating results between 1997 and 1996. As a
result of the Chapter 11 filing on January 10, 1996, not only did the Company
cease accruing interest on pre-petition debt, but the Company also ceased
accruing stated rent expense to Isetan and affiliated companies for the Madison
Avenue, Beverly Hills and Chicago stores and to substantially all of its
equipment lessors as a result of disputes on the characterization of these
obligations. However, in accordance with interim stipulations, Orders of the
Court and the DIP Credit Agreement, the Company made "on-account" cash payments
to Isetan and the equipment lessors at rates significantly below the contractual
obligations. Accordingly, selling, general and administrative expenses from
January 11, 1996 forward includes "rent" expense pursuant to the Isetan Payment
Agreements and the Equipment Lessor Agreements (collectively the "Payment
Agreements") discussed in Note 8 of the Notes to Consolidated Financial
Statements. Prior to such date, the Company recorded rent expense based on the
terms of the original obligations.
Additionally, in 1996 through the Filing Date, the Company
recognized royalty income of $1.4 million pursuant to the original terms of the
licensing agreement with Isetan and a $9.4 million translation gain on a foreign
currency denominated debt obligation to Isetan. These amounts were non-recurring
in future reporting periods.
Net sales for 1997 were $361.5 million compared to $366.4
million in 1996, a decrease of 1.3%. 1996 included 53 weeks; therefore, 1996 net
sales comparisons are presented on a 52-week basis for comparability. After
adjusting for the impact of the 53rd week in 1996, sales increased less than 1%
in 1997. The sales increase was primarily attributable to the three new outlet
stores opened in Connecticut, Arizona, and New York, as well as overall growth
15
<PAGE>
in the outlet stores opened in 1996. This increased revenue in the outlet stores
was offset by a comparable store sales decrease of 1%, spread principally
between the full-price stores and the warehouse sale events. Exclusive of the
restaurant operations in the full-price stores, net sales increased 0.3% or $1.0
million, however there was a significant shift in sales composition with net
sales declining $5.4 million at the 17th Street store offset by a $5.1 million
increase in net sales at the Madison Avenue store. The sales decrease at the
17th Street store was partially attributed to the migration of business to the
newer, larger flagship store on Madison Avenue and to the changing retail
landscape in the area surrounding the original flagship store.
Gross profit on sales decreased 2.1% to $169.2 million in
1997 from $172.8 million in 1996. As a percentage of net sales, gross profit was
46.8% in 1997 compared to 47.2% in 1996. These variances are principally
attributed to reduced volume of the restaurant operations, principally in the
higher margin businesses associated with the dinner volume and its related
alcohol sales. Exclusive of the restaurant operations, gross profit was 46.5% in
1997 compared to 46.6% in 1996.
Selling, general and administrative expenses, including
occupancy expenses, declined 13.8% to $173.4 million in 1997 from $201.2 million
in 1996. As a percentage of net sales, selling, general and administrative
expenses were 48.0% in 1997 and 54.9% in 1996. This decrease is attributed to
the Company's continuing efforts at reducing costs pursuant to its cost
reduction initiatives, notably a $6.6 million reduction in personnel costs, $1.2
million in packaging and supply costs, a $1.0 million reduction in advertising
and related expenses as well as a $2.0 million reduction in professional fees
related to its legal, accounting and financial advisory services. Prior to the
Filing Date, the Company incurred significant professional fees which were
included in selling, general and administrative expenses. Subsequent to the
Filing Date, such expenses are principally included in Reorganization costs. In
addition, "rent" expense associated with the Madison Avenue, Beverly Hills and
Chicago stores and certain Equipment Leases declined approximately $12.1 million
as a result of the Payment Agreements discussed above.
Interest expense decreased 39.0% to $7.7 million in 1997
from $12.6 million in 1996. At the Filing Date, the Company had $282.0 million
of outstanding debt. As a result of the Chapter 11 filings, the Company ceased
accruing interest on this pre-petition debt as of January 10, 1996. The
Company's average borrowings under the DIP Credit Agreement from the Filing Date
to the end of 1996 of approximately $28 million have been substantially below
historical borrowing levels translating into reduced interest expense.
While operating as a debtor in possession, the Company
incurred reorganization costs of approximately $72.2 million in 1997 and $29.4
million in 1996. 1997 includes 12 months of reorganization costs whereas 1996
includes such costs from January 11, 1996 through August 3, 1996, or
approximately 6.5 months. Included in these amounts for the respective periods
are asset write-offs of $38.8 million and $8.4 million, representing the net
book value of the leasehold interests and other fixed assets of the stores to be
closed at their respective closure dates, lease rejection costs of $15.0 million
and $0.6 million, straight-line rent reversal of $(3.8) million and $(0.1)
million, professional fees of $13.9 million and $10.0 million, provisions of
$2.4 million and $0.6 million for a key employee retention program, other
payroll and related costs of $3.2 million and $2.3 million, which include
separation costs of $2.5 million covering approximately 300 individuals (both
store and support) and $1.8 million covering 37 individuals (both store and
support), respectively, and other miscellaneous costs of $2.8 million and $7.7
million, respectively.
Professional fees referred to above include legal fees
which increased to $9.4 million in 1997 from $4.3 million in 1996; accounting
and tax fees which declined to $1.1 million in 1997 from $4.8 million in 1996;
16
<PAGE>
and investment advisory fees which increased to $3.4 million in 1997 from $.9
million in 1996. The increase in legal fees in the current year is related to a
full year of such costs as well as significant litigation costs arising from the
lawsuits filed between Barneys and Isetan. The significant decline in accounting
and tax fees is principally attributable to a significant reduction in the
number of special projects being performed by both the accountants to the
debtors and the creditors in 1997. Both firms incurred significant fees in the
first six months following the Filing Date assisting the debtors in certain
aspects of the business, gathering data and analyzing transactions on behalf of
both the Company and the official committee of unsecured creditors. Investment
advisory fees increased in 1997 from 1996 as they not only included a full year
of expense but also included the expenses of the investment advisory firm to the
official committee of unsecured creditors. In addition, 1997 also included
$1,000,000 (approved by the Bankruptcy Court) paid to Dickson Concepts, as
mentioned above.
Other miscellaneous costs, referred to above, in 1997 and
1996 included administrative costs of the bankruptcy, public relations costs and
costs attributed to closed stores (1997 only). Other miscellaneous costs in 1997
also include $0.9 million of ancillary administrative costs associated with the
litigation referred to above for, among other things, photocopying and
translation services. Other miscellaneous costs in 1996 include a $7.0 million
charge in connection with a purchase put agreement with a subsidiary of an
affiliated company.
The purchase put agreement was entered into in connection
with the mortgaging of real property then leased by the Company from Preen.
Pursuant to that agreement, the Company, at the election of Preen, could have
been required to purchase the real property subject to the mortgage for a
purchase price equal to the greater of $7.0 million and the fair market value of
the property. Preen's interest in the purchase put agreement was pledged to the
institutional mortgagee who subsequently foreclosed on the security interest. As
the fair market value of the property was less than $7.0 million, that amount
was an allowed general unsecured claim and was settled pursuant to the Plan.
LIQUIDITY AND CAPITAL
LIQUIDITY AND CAPITAL RESOURCES
Cash Used in Operations and Working Capital. The Company's
primary source of liquidity has been borrowings under various credit facilities
(see description of the various credit facilities in the following section).
For the reporting periods below, net cash used in operations was as
follows ($ in thousands):
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS FISCAL FISCAL FISCAL
ENDED ENDED YEAR YEAR YEAR
JAN. 30, 1999 JAN. 31, 1998 1998 1997 1996
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 293,662 $ (4,123) $ (19,953) $ (94,973) $ (71,869)
Depreciation and amortization 5,259 7,364 13,433 14,841 14,849
Other non-cash charges (306,854) (115) 1,329 51,977 6,554
Changes in current assets and liabilities (10,317) (5,135) (5,253) 6,897 10,908
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities (18,250) (2,009) (10,444) (21,258) (39,558)
=============== =============== =============== =============== ==============
</TABLE>
The Company's inability to generate cash from operations
and, accordingly, its need to provide liquidity through credit facility
borrowings were primarily due to: significant reorganization costs incurred
during the Chapter 11 case; the lack of full credit support from the vendor
community due to the Chapter 11 status, which necessitated significant
17
<PAGE>
prepayment of merchandise vendors; and the growth of the Company's private label
credit card portfolio, which was financed by the Company's credit facilities.
Due to the items described above, the Company had a working
capital deficiency after the first post Chapter 11 fiscal year end through the
emergence from Chapter 11 (January 28, 1999) as follows ($ in thousands):
<TABLE>
<CAPTION>
AT AT AT
AT AT AT AUGUST 1, AUGUST 2, AUGUST 3,
JAN. 30, 1999 JAN. 28, 1999 JAN. 31, 1998 1998 1997 1996
--------------- ---------------- --------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) $41,064 $(40,316) $(20,216) $(32,249) $(19,443) $19,596
=============== ================ =============== =============== ================ =============
</TABLE>
Working capital (deficiency) for all periods above are net
of the amount then outstanding on the credit facilities that existed at the
time, except for January 30, 1999, where the amount then outstanding on the
credit facility ($62,096,000) is classified as long term. The classifications
are based on the terms of the credit facilities that existed at the time.
For the reporting periods below, net cash provided by
financing activities was as follows ($ in thousands):
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS FISCAL FISCAL FISCAL
ENDED ENDED YEAR YEAR YEAR
JAN. 30, 1999 JAN. 31, 1998 1998 1997 1996
------------------ ----------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by financing activities $26,902 $2,175 $11,324 $23,113 $59,934
================== ================= =============== ================= ==============
</TABLE>
Net cash provided by financing activities for the six
months ended January 30, 1999 includes $62,500,000 of proceeds from the equity
rights offering pursuant to the Company's Chapter 11 plan of reorganization less
cash distributions related thereto.
Credit Facilities. On January 28, 1999, the Company entered
into a four year Credit Agreement with several financial institutions led by
Citicorp USA, Inc. The Credit Agreement provides a $120,000,000 revolving credit
facility with a $40,000,000 sublimit for the issuance of letters of credit. The
proceeds from this facility were used to refinance the debtor-in-possession
credit agreement with BankBoston N.A., to pay certain claims pursuant to the
Chapter 11 plan of reorganization, to pay professional fees, to fund working
capital in the ordinary course of business and for other general corporate
purposes not prohibited thereunder. Obligations under the Credit Agreement are
secured by a first priority and perfected lien on substantially all unencumbered
assets of the Company.
Revolving credit availability is calculated as a percentage
of eligible inventory (including undrawn letters of credit) and Barneys New York
credit card receivables plus $20,000,000 (such amount subject to a downward
adjustment as defined). Interest rates on the Credit Agreement are either the
Base Rate (as defined) plus 1.25% or LIBOR plus 2.25%, subject to adjustment
after the first year. The Credit Agreement also provides for a fee of 1.25% to
1.75% per annum on the daily average letter of credit amounts outstanding and a
commitment fee of 0.375% on the unused portion of the facility.
The Credit Agreement contains various financial covenants
principally relating to net worth, leverage, earnings and capital expenditures
as outlined below. With the exception of the capital expenditures covenant,
which is a covenant measured on an annual basis, the remaining covenants
discussed herein are required to be measured on a quarterly basis. During the
fiscal year ending January 29, 2000, the Credit Agreement covenants do not allow
for any material deviation from the Company's business plan for such year. As of
18
<PAGE>
January 1, 2000, the Company was in compliance with each of the covenants
contained in the Credit Agreement.
Minimum consolidated net worth. Shall not be less than
$140,000,000 through 2000 and $150,000,000 through 2002.
Leverage ratio. On a consolidated basis, as determined as
of the last day of each fiscal quarter for the twelve-month period ending on
such day, shall not be greater than 7.0 at January 29, 2000; 4.5 at the end of
2000; 3.5 at the end of 2001; and 3.0 at the end of 2002.
Minimum consolidated EBITDA. As of the last day of each
fiscal quarter for the trailing twelve-month period ending on such day, EBITDA
shall not be less than certain minimum amounts, subject to escalation during the
fiscal year. The minimum amount at the end of 1999 is $20,000,000; $25,000,000
at the close of 2000; $30,000,000 at the close of 2001; and $35,000,000 at the
close of 2002.
Capital expenditures. The Company's total capital
expenditures for 1999 are capped at $7,250,000 with gradual increases throughout
the term of the agreement, and are subject to upward adjustment and, if certain
conditions are met, may be eligible for carryover to a future period.
At January 1, 2000, the Company had approximately
$35,867,000 of availability under the Credit Agreement, after consideration of
$48,000,000 of revolving loans and $18,115,000 of letters of credit outstanding.
There can be no assurance that the Company can achieve its
financial forecasts in Fiscal Year 1999 or beyond. Any material deviations from
the Company's forecasts could require the Company to seek alternative sources of
financing or to reduce expenditures. There can also be no assurance that
alternative financing could be obtained, or if obtained, would be on terms
acceptable to the Company.
During fiscal year 1996 through January 28, 1999, the
Company's working capital was provided by various credit facilities in effect
during the period. Credit facilities that existed at the time of the Chapter 11
filing (January 10, 1996) were ultimately not repaid in full, but settled as
part of the Company's Chapter 11 plan of reorganization. During the Chapter 11
period, the Company entered into two debtor-in-possession credit facilities, the
first of which was repaid in full pursuant to a refinancing on July 16, 1997 and
the second which was repaid in full pursuant to the Credit Agreement dated
January 28, 1999.
Capital Expenditures. The Company incurred capital
expenditures (net of landlord contributions) of $22,777,000 during the three and
one-half year period ending January 30, 1999. $14,933,000 represented the cost
to refurbish existing stores, $2,065,000 was spent to open outlet stores,
administrative facility expenditures were $2,886,000 and $2,893,000 was incurred
on management information systems. Significant additional capital expenditures
will be required for the Company to upgrade its management information systems.
Pursuant to Credit Agreement covenants, the Company's total
capital expenditures for fiscal year 1999 are capped at $7,250,000. The Company
will fund these expenditures through borrowings under the Credit Agreement.
19
<PAGE>
SEASONALITY
The Company's business is seasonal, with higher sales and
earnings occurring in the quarters ending in October and January of each year.
These two quarters, which include the holiday selling season, coincide with the
Company's fall selling season. Additionally, net sales and cash flow are
favorably impacted, in the quarters ending in April and October by the seasonal
warehouse sale events in New York and Santa Monica.
The following table sets forth sales, EBITDA and net income
(loss) for the six months ended January 30, 1999 and for fiscal years 1998 and
1997. This quarterly financial data is unaudited but gives effect to all
adjustments necessary, in the opinion of management of the Company, to present
fairly this information.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 30, 1999
QUARTER ENDING 1998 - QUARTER ENDING 1997 - QUARTER ENDING
------------------- ---------------------------------------- ---------------------------------------
10/31/98 1/30/99 11/1/97 1/31/98 5/2/98 8/1/98 11/2/96 2/1/97 5/3/97 8/2/97
-------- ------- ------- ------- ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 91,641 $ 90,016 $ 95,890 $ 87,870 $ 87,309 $ 71,898 $ 96,721 $ 98,682 $ 87,716 $ 78,377
As % of period 50% 50% 28% 26% 25% 21% 27% 27% 24% 22%
EBITDA $ 7,380 $ 7,592 $ 7,813 $ 7,201 $ 3,463 $ (781) $ 2,781 $ 3,214 $ (2,952) $ (5,186)
Net income (loss) 94 293,568 (2,438) (1,685) (4,792) (11,038) (6,547) (10,396) (64,199) (13,831)
======== ======== ========= ========= ========= ========= ========= ======== ======== ========
</TABLE>
INFLATION
Inflation over the past few years has not had a significant
impact on the Company's sales or profitability.
ECONOMIC CLIMATE RISK
As a luxury goods retailer, the Company is subject to
economic risk conditioned upon the general health and stability of the United
States economy. A downturn in the stock market could cause the Company's
business to soften, especially in the New York area. During September 1998 when
the Dow dropped approximately 900 points, the Company's stores in the New York
area experienced a sales decrease of 10-26% versus the same period in the prior
year.
YEAR 2000
The Year 2000 ("Y2K") issue relates to the inability of
information systems to properly recognize and process date-sensitive information
beyond January 1, 2000. Many computer systems and software products may not be
able to interpret dates after December 31, 1999 because such systems and
products allow only two digits to indicate the year in a date. As a result,
these systems and products are unable to distinguish January 1, 2000 from
January 1, 1900, which could have adverse consequences on the operations of an
entity and the integrity of information processing.
The Company's management recognized the need to address the
Y2K issue in all internal systems and applications. A Y2K plan was developed in
April 1998 to define all applications requiring system upgrades.
20
<PAGE>
Letters were mailed to all system related vendors in March
through July of 1998. The letters instructed vendors to confirm status of their
systems and/or applications in connection with Y2K compliance needs. The Company
required modifications to software and hardware systems to make reasonably
certain these applications should perform properly after December 31, 1999.
System related vendors responded, providing schedules for upgrades on hardware
and software utilized by the Company.
The Company modified or replaced portions of its software
systems to attempt to make all applications Y2K compliant. The components
requiring upgrade included software related applications controlling
merchandising, credit, marketing, accounting, distribution, sales audit and
store security systems.
The Company utilized both internal and external resources
to reprogram, replace and test software for Y2K modifications. All computer
network servers utilizing Novell technology were upgraded with Y2K compliant
software versions. System related upgrades began in March 1998 when STS, the
retail system vendor, began installing Y2K compliant software on the Company's
main frame computer.
Additionally, the Company has established an ongoing
program to communicate with its significant suppliers and vendors to determine
the extent to which the Company's systems and operations are vulnerable to those
third parties' failure to rectify their own Y2K issues. The Company is not
presently aware of any significant exposure arising from potential third party
failures. However, there can be no assurance that the systems of other companies
on which the Company's systems or operations rely will be converted on a timely
basis or that any failure of such parties to achieve Y2K compliance would not
have any adverse effect on the Company's results of operations.
Based on the expenses incurred to date and management's
current estimates, the costs of Y2K remediation, including both system and
software application modifications, which have been and will be expensed as
incurred as appropriate, have not been and are not expected to be material to
the results of operations or the financial position of the Company. The Company
incurred approximately $300,000 of costs related to Y2K, of which approximately
$175,000 has been expensed with the remainder capitalized. The Company
anticipates that minimal additional Y2K-related expenses will be incurred during
the coming year.
The Company believes that it is difficult to identify its
most reasonable likely worst case Year 2000 scenario. However, a reasonable
worst case scenario could arise from a business interruption caused by, for
instance, governmental agencies, utility and telecommunication companies,
shipping companies or other merchandise and service providers outside the
Company's control. There can be no assurance that such providers will not suffer
business interruption caused by a Year 2000 matter. Such interruption could have
a material adverse effect on the Company's results of operations.
In addition to the steps outlined above, a Y2K disaster
recovery task force was created. The primary function of this task force was to
test all Y2K related functionality for applications that the Company currently
uses. This process enabled the task force to quickly identify any problem areas
and react to those problems in an efficient manner, thereby minimizing potential
disruption to the Company.
The Company's cost of the Y2K project are based on
management's best estimates. Currently no contingency plan exists in the event
that Y2K modifications are found to be incomplete or ineffective but management
will periodically evaluate the need for one and adapt accordingly. There is no
certainty or guarantee that these estimates will be achieved, and actual costs
could be materially greater than anticipated. Specific factors that might cause
such differences include, but are not limited to, the availability and cost of
21
<PAGE>
personnel trained in the Y2K area, the compliance by merchandise and other
suppliers and other third parties, and similar uncertainties.
No assurances can be given that the Company was able to
completely identify or address all Y2K compliance issues, or that third parties
with whom the Company does business will not experience system failures as a
result of the Y2K issues, nor can the Company fully predict the consequences of
noncompliance. However, as of February 9, 2000, the Company has not encountered
any significant disruptions in its computer applications as a result of the Y2K
issue.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK ASSESSMENT
Market risks relating to the Company's operations result
primarily from changes in interest rates and foreign exchange rates. To address
some of these risks the Company enters into various hedging transactions as
described below. The Company does not use financial instruments for trading
purposes and is not a party to any leveraged derivatives.
FOREIGN CURRENCY RISK
The Company periodically enters into foreign exchange
forward contracts and option contracts to hedge some of its foreign exchange
exposure. The Company's objective in managing the exposure to changes in foreign
currency exchange is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention of its
core business issues and challenges. The Company uses such contracts to hedge
exposure to changes in foreign currency exchange rates, primarily in Western
Europe, associated with purchases denominated in foreign currency. The principal
currencies hedged are the Italian lira, German mark, British pound, and the
French franc. A uniform 10% weakening as of August 1, 1998 in the value of the
dollar relative to the currencies in which the purchases are denominated would
have resulted in a $3.8 million decrease in gross profit for the twenty-six week
period ending January 30, 1999. Comparatively, the result of a uniform 10%
weakening as of July 30, 1997 in the value of the dollar relative to the
currencies in which the purchases are denominated would have resulted in a $7.2
million decrease in gross profit for the fiscal year ended July 31, 1998.
This calculation assumes that each exchange rate would
change in the same direction relative to the United States dollar. In addition
to the direct effects in exchange rates, which are a changed dollar value of the
resulting purchases, changes in exchange rates also affect the volume of
purchases or the foreign currency purchase price as competitors prices become
more or less attractive.
INTEREST RATE RISK
The Company's earnings are affected by changes in
short-term interest rates as a result of its revolving credit agreement. If
short-term interest rates averaged 2% more in the twenty-six week period ended
January 30, 1999 than they did in the preceding twenty-six week period, the
Company's interest expense would have increased, and income before taxes would
decrease by $0.8 million. Comparatively, if short-term interest rates averaged
2% more in fiscal year 1998 than they did in fiscal year 1997, the Company's
interest expense would have increased, and loss before taxes would have
increased by $2.0 million. In the event of a change of such magnitude,
management would likely take actions to mitigate its exposure to the change.
However, due to uncertainty of the specific actions that would be taken and
22
<PAGE>
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.
23
<PAGE>
ITEM 3. PROPERTIES.
The Company's principal facilities include corporate
offices, a central alterations facility, a distribution center and three
flagship stores. Prior to the Effective Date, Barneys formed three subsidiaries
(each, a "Lease Subsidiary"), each of which acts as lessee and sublessor for one
of the flagship stores. On the Effective Date, pursuant to the Plan, (i) the fee
interest in the properties on which the New York and the Chicago flagship stores
are located, and the leasehold interest in the property on which the Beverly
Hills flagship store is located, were transferred to an affiliate of Isetan,
(ii) such affiliate, as lessor, entered into amended and restated leases with
each of the tenants in each of the properties, and (iii) each of such tenants
assigned the leasehold interest in the related property to one of the Lease
Subsidiaries, which in turn entered into a sublease with Barneys, in the case of
the New York and Beverly Hills stores, and with Barneys America, Inc., a
subsidiary of Barneys, in the case of the Chicago store. The lease for the New
York store is for a term of twenty years, with four options to renew of ten
years each. The lease for the Chicago store is for a term of ten years, with
three options to renew of ten years each. The lease for the Beverly Hills store
is for a term of twenty years, with three options to renew of ten years each.
The leases for the flagship stores are all triple-net leases. In the case of the
Beverly Hills flagship store, Barneys is also responsible for the rent payable
pursuant to the existing ground lease.
The Company's corporate offices, central alterations
facility, distribution center, warehouse sale locations and its 16 stores are
located at the following locations:
<TABLE>
<CAPTION>
CORPORATE OFFICES REGIONAL STORES
----------------- ---------------
<S> <C>
New York, NY New York (World Financial Center)
Manhasset, NY
CENTRAL ALTERATIONS FACILITY Chestnut Hill, MA
----------------------------
Seattle, WA
New York, NY
DISTRIBUTION CENTER OUTLET STORES
------------------- -------------
Lyndhurst, NJ Harriman, NY
Worcester, MA*
FLAGSHIP STORES Potomac Mills, VA*
---------------
Cabazon, CA
New York, NY Sunrise, FL*
Beverly Hills, CA Camarillo, CA
Chicago, IL Dawsonville, GA*
Clinton, CT
WAREHOUSE SALE LOCATIONS New River, AZ
------------------------
Riverhead, NY
New York, NY Wrentham, MA
Waikele, HI
Carlsbad, CA
</TABLE>
- -------------------
* Closed subsequent to January 30, 1999.
24
<PAGE>
The Company also leases certain other facilities for its
semi-annual warehouse sales. The Company believes that all of its facilities are
suitable and adequate for the current and anticipated conduct of its operations.
At January 30, 1999, the Company established a financial reserve for the planned
closure of certain outlet stores.
25
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF EXISTING EQUITY SECURITIES
The following table sets forth information as of January
29, 2000 with respect to the beneficial ownership of shares of Holdings Common
Stock and Preferred Stock by (a) each person or group that is known to Holdings
to be the beneficial owner of more than 5% of the outstanding shares, (b) each
director and named executive officer of Holdings, and (c) all directors and
executive officers of Holdings as a group on such date.
<TABLE>
<CAPTION>
COMMON STOCK
------------
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES OF CLASS
------------------- --------- --------
<S> <C> <C>
Whippoorwill Associates, Inc., 5,238,185(1) 38.9%
on behalf of its Discretionary Accounts
11 Martine Avenue
White Plains, New York 10606
Bay Harbour Management L.C. 5,269,311(2) 39.1%
on behalf of its Managed Accounts
885 Third Avenue, 34th Floor
New York, New York 10022
Isetan Company Limited 1,200,785(3) 9.4%
14-1 Shinjuku 3-Chome
Shinjuku-ku, Tokyo
Japan 160-0022
Shelley F. Greenhaus 5,240,685(4) 38.9%
c/o Whippoorwill Associates, Inc.
11 Martine Avenue
White Plains, New York 10606
John Halpern 2,500(5,6) *
Yasuo Okamoto 2,500(5) *
Allen I. Questrom 200,616(7) 1.5%
Carl Spielvogel 2,500(5) *
David A. Strumwasser 5,240,685(4) 38.9%
c/o Whippoorwill Associates, Inc.
11 Martine Avenue
White Plains, New York 10606
Robert J. Tarr, Jr. 2,500(5) *
26
<PAGE>
COMMON STOCK
------------
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES OF CLASS
------------------- --------- --------
Douglas P. Teitelbaum 5,271,811(8) 39.1%
c/o Bay Harbour Management L.C.
885 Third Avenue, 34th Floor
New York, New York 10022
Steven A. Van Dyke 5,271,811(8) 39.1%
c/o Bay Harbour Management L.C.
777 South Harbour Island Blvd.
Tampa, Florida 33602
Shelby S. Werner 5,240,685(4) 38.9%
c/o Whippoorwill Associates, Inc.
11 Martine Avenue
White Plains, New York 10606
Judy Collinson - -
Tom Kalenderian - -
Michael Tymash (9) - -
Directors and Executive Officers 10,730,260 80.7%
as a Group
</TABLE>
- -------------------
* Less than 1%.
(1) All of such shares are owned by various limited partnerships, a limited
liability company, a trust and third party accounts for which Whippoorwill has
discretionary authority and acts as general partner or investment manager.
Includes an aggregate of 295,028 shares of Holdings Common Stock issuable to
Whippoorwill pursuant to its Unsecured Creditors Warrants. In addition, Bay
Harbour and Whippoorwill have entered into a stockholders' agreement (the
"Stockholders Agreement") with respect to their ownership in, and the voting of
the capital stock of, Holdings. The number of shares indicated as being
beneficially owned by Whippoorwill (x) does not include the shares of Holdings
Common Stock held by Bay Harbour which are the subject of the Stockholders
Agreement and with respect to which Whippoorwill disclaims beneficial ownership
and (y) includes 100,308 shares of Holdings Common Stock beneficially owned by
Allen I. Questrom ("Mr. Questrom") which are the subject of a stockholders
agreement dated as of February 1, 2000, pursuant to which Mr. Questrom agreed to
vote such shares at the direction of Whippoorwill.
(2) All of such shares are owned directly by (i) BHB LLC, of which Bay Harbour
is the manager, or (ii) certain of Bay Harbour's managed accounts. Includes an
aggregate of 290,690 shares of Holdings Common Stock issuable to Bay Harbour
pursuant to its Unsecured Creditors Warrants. In addition, Bay Harbour and
Whippoorwill have entered into a stockholders' agreement with respect to their
ownership in, and the voting of the capital stock of, Holdings. The number of
shares indicated as being beneficially owned by Bay Harbour (x) does not include
the shares of Holdings Common Stock held by Whippoorwill which are the subject
of the Stockholders Agreement and with respect to which Bay Harbour disclaims
beneficial ownership and (y) includes 100,308 shares of Holdings Common Stock
beneficially owned by Mr. Questrom which are the subject of a stockholders
agreement dated as of February 1, 2000, pursuant to which Mr. Questrom agreed to
vote such shares at the direction of Bay Harbour.
27
<PAGE>
(3) Includes 287,724 shares of Holdings Common Stock issuable to Isetan upon
exercise of the Isetan Warrant.
(4) Includes all shares of Holdings Common Stock beneficially owned by
Whippoorwill. The number of shares indicated as being beneficially owned by
Whippoorwill (x) does not include the shares of Holdings Common Stock held by
Bay Harbour which are the subject of the Stockholders Agreement and with respect
to which Whippoorwill disclaims beneficial ownership and (y) includes 100,308
shares of Holdings Common Stock beneficially owned by Mr. Questrom which are the
subject of a stockholders agreement dated as of February 1, 2000, pursuant to
which Mr. Questrom agreed to vote such shares at the direction of Whippoorwill.
Mr. Greenhaus is a principal, President and Managing Director, Mr. Strumwasser
is a principal, Managing Director and General Counsel, and Ms. Werner is a
principal, Vice President and Managing Director, of Whippoorwill. Also includes
2,500 shares of Holdings Common Stock issuable pursuant to options granted to
each of Messrs. Greenhaus and Strumwasser and Ms. Werner under the Company's
Stock Option Plan for Non-Employee Directors (the "Option Plan").
(5) Represents shares of Holdings Common Stock issuable upon exercise of an
option granted to non-employee directors under the Option Plan.
(6) Halpern, Denny & Company, of which John Halpern is a partner, is a member of
BHB LLC. Mr. Halpern disclaims beneficial ownership of any shares of Holdings
Common Stock owned by BHB LLC.
(7) Represents the vested portion of shares of Common Stock issuable upon
exercise of an option granted to Mr. Questrom pursuant to his employment
agreement.
(8) Includes all shares of Holdings Common Stock beneficially owned by Bay
Harbour. The number of shares indicated as being beneficially owned by Bay
Harbour (x) does not include the shares of Holdings Common Stock held by
Whippoorwill which are the subject of the Stockholders Agreement and with
respect to which Bay Harbour disclaims beneficial ownership and (y) includes
100,308 shares of Holdings Common Stock beneficially owned by Mr. Questrom which
are the subject of a stockholders agreement dated as of February 1, 2000,
pursuant to which Mr. Questrom agreed to vote such shares at the direction of
Bay Harbour. Messrs. Teitelbaum and Van Dyke are principals of Bay Harbour. Also
includes 2,500 shares of Holdings Common Stock issuable pursuant to options
granted to each of Messrs. Teitelbaum and Van Dyke under the Option Plan.
(9) Michael Tymash served as Executive Vice President - Stores and Operations
through January 18, 2000. He resigned from that position at that time.
In addition, there are 20,000 shares of Preferred Stock
outstanding, all of which were issued on the Effective Date. The shares of
Preferred Stock vote on all matters (other than the election of directors) with
the Holdings Common Stock, together as a single class. The Barneys Employees
Stock Plan Trust owns 15,000 shares of Preferred Stock, and Harry G. Wagner, an
individual, owns 5,000 shares of Preferred Stock.
28
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information with
respect to the persons who are members of the Board of Directors or executive
officers of Holdings. Except as noted below, each director will serve until the
next annual meeting of stockholders and until a successor is elected and
qualified or until his or her earlier resignation or removal. Except as noted
below, the term in office for all officers is one year and until their
respective successors have been elected and qualified, unless such officer is
removed by the Board of Directors. Except as indicated below, all directors and
executive officers have held their positions at Holdings since the Effective
Date or shortly thereafter.
<TABLE>
<CAPTION>
Name Age Position(s) Held
- ---- --- ----------------
<S> <C> <C>
Shelley F. Greenhaus 46 Director
John Halpern 52 Director
Yasuo Okamoto 51 Director
Allen I. Questrom(1) 59 Director, Chairman of the Board, President and Chief Executive
Officer
Carl Spielvogel 70 Director
David A. Strumwasser 48 Director
Robert J. Tarr, Jr. 56 Director, Vice Chairman of the Board
Douglas P. Teitelbaum 34 Director
Steven A. Van Dyke 40 Director
Shelby S. Werner 54 Director
Judy Collinson 48 Executive Vice President - Women's Merchandising
Tom Kalenderian 42 Executive Vice President - Men's Merchandising
Marc H. Perlowitz 45 Executive Vice President - General Counsel and Human Resources
and Secretary
Karl Hermanns(2) 35 Executive Vice President -Operations
Michael Celestino(2) 44 Executive Vice President - Stores and Operations
- --------------------------------
(1) Allen I. Questrom became Chairman of the Board, President and Chief
Executive Officer effective May 5, 1999.
(2) Karl Hermanns and Michael Celestino were appointed to their positions in
February 2000.
29
<PAGE>
Steven Feldman(3) 36 Senior Vice President and Chief Financial Officer
Vincent Phelan 34 Treasurer
</TABLE>
Set forth below are the names, positions and business
backgrounds of all of the directors and executive officers of Holdings.
Shelley F. Greenhaus is a principal of Whippoorwill
Associates, Inc., an investment management firm ("Whippoorwill"), and has served
as President and Managing Director of Whippoorwill since 1990. From January 1983
through August 1990, Mr. Greenhaus was a Vice President and Portfolio Manager
(Distressed Securities) at Oppenheimer & Co., Inc. Prior to that, from September
1981 to January 1983, Mr. Greenhaus was a Financial Analyst at W.R. Family
Associates and from July 1978 through September 1981, he was a Financial Analyst
at Loeb Rhodes, Hornblower & Co. (Risk Arbitrage and Distressed Securities). Mr.
Greenhaus is a director of Marvel Enterprises, Inc., an entertainment based
marketing and licensing company.
John Halpern is a partner of Halpern, Denny & Company, a
private equity investment firm. Prior to that, Mr. Halpern was a founder of Bain
& Company, the international consulting firm and served as its Vice Chairman
until 1990. Mr. Halpern serves on the Board of Directors of certain privately
held companies.
Yasuo Okamoto is a member of the law firm of Hughes,
Hubbard & Reed LLP. Prior to joining Hughes, Hubbard & Reed LLP, Mr. Okamoto was
a partner at Hill, Betts & Nash from 1980-1986. Mr. Okamoto is presently a
member of the Boards of Directors of Sanwa International plc and Nikon Americas,
Inc. From 1990 to 1997, Mr. Okamoto was a Lecturer at the Boston University
School of Law. Mr. Okamoto has been elected to the Board of Directors as a
designee of Isetan pursuant to an agreement among Isetan, Bay Harbour,
Whippoorwill and the Company. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Certain Business Relationships."
Allen I. Questrom was named Chairman, President and Chief
Executive Officer of Holdings on May 5, 1999, having served on the Board of
Directors since January 28, 1999. Mr. Questrom spent most of his 32 year career
in retail with Federated Department Stores, Inc. rising from management trainee
to become the corporation's youngest Chairman and Chief Executive Officer -
first in 1980 of the Rich's division based in Atlanta, in 1984 of the Bullock's
division based in Los Angeles and in 1990 of Federated Department Stores, Inc.,
a position which he held until May 1997. Mr. Questrom also served as President
and Chief Executive Officer of the Dallas-based Neiman-Marcus Department Store
Group from 1988 until 1990. He also serves as a member of the Board of each of
the Whitney Museum of Art in New York, the Interpublic Group of Companies, Inc.
and Polo-Ralph Lauren and is on the Board of Trustees of Boston University.
Carl Spielvogel is the Chairman and Chief Executive Officer
of Carl Spielvogel Associates Inc., an investment and international counseling
firm. He was the Chairman and Chief Executive Officer of United Auto Group from
1995 to 1998, and the Chairman and Chief Executive Officer of Backer Spielvogel
Bates Worldwide, Inc., an international advertising agency from 1979 to 1995.
Prior to his employment at Backer Spielvogel, Mr. Spielvogel was employed by the
advertising agency of McCann Erickson. Mr. Spielvogel serves on the Boards of
Directors of Radio Free America, Hasbro, Inc., and Data Broadcasting Inc.
- ------------------------------
(3) Steven Feldman became Chief Financial Officer as of May 28, 1999.
30
<PAGE>
David A. Strumwasser is a principal of Whippoorwill, and
has served as Managing Director and General Counsel of Whippoorwill since 1993.
From 1984 through 1993, Mr. Strumwasser was a partner and co-head of the
Bankruptcy and Reorganization Practice at Berlack, Israels & Liberman LLP. Prior
to that, he practiced bankruptcy law at Anderson, Kill & Olick from 1981 to
1984, and at Weil, Gotshal & Manges LLP from 1976 to 1979. From 1979 to 1981,
Mr. Strumwasser was an Assistant Vice President at Citicorp Industrial Credit,
Inc. He is a director of Metropolis Realty Trust, Inc., a real estate investment
trust.
Robert J. Tarr, Jr. is an independent investor and
consultant. He was the President, Chief Executive Officer and Chief Operating
Officer of each of Harcourt General Inc. and the Neiman Marcus Group Inc. from
November 1991 to January 1997. Prior to that he held a variety of positions with
General Cinema Corporation, the predecessor of Harcourt General Inc., including
President and Chief Operating Officer since 1984. Mr. Tarr presently serves on
the Boards of Directors of John Hancock Mutual Life Insurance Company, Hannaford
Bros., Inc., Houghton Mifflin & Co., Inc. and WESCO International Inc.
Douglas P. Teitelbaum joined Bay Harbour Management L.C.,
an investment management firm ("Bay Harbour") as a principal in April, 1996.
Prior to that time, Mr. Teitelbaum was first a managing director in the High
Yield and Distressed Securities Group at Bear Stearns, Inc. and previously a
partner at Dabney/Resnick, Inc., a Los Angeles based distressed securities
investment boutique. Mr. Teitelbaum serves on the Boards of Directors of EZ
Serve/Swifty-Mart Convenience Stores, Inc., EBC Holdings, Inc. and Tops
Appliance City, Inc.
Steven A. Van Dyke joined Bay Harbour (and its predecessor,
Tower Investment Group) as a principal in 1986. He is a chartered financial
analyst and is a member of both the Financial Analysts Society of Central
Florida and the Association for Investment Management and Research. Mr. Van Dyke
serves on the Boards of Directors of Buckhead America, EZ Serve/Swifty-Mart
Convenience Stores, Inc., EBC Holdings, Inc. and Tops Appliance City, Inc.
Shelby S. Werner is a principal of Whippoorwill, and has
served as a Vice President and Managing Director of Whippoorwill since 1991. Ms.
Werner joined Whippoorwill upon its formation after spending 2 years at
Progressive Partners, L.P. as a Senior Managing Director and Portfolio Manager.
Shelby Werner served on the Board of Directors of Texscan Corporation. She is a
Chartered Investment Counselor and a Chartered Financial Analyst.
Judy Collinson started with Barneys in 1989 as an
Accessories Buyer. Prior to her current position, she had been responsible for
Accessories and Private Label Collections. She was promoted to Executive Vice
President and General Merchandising Manager for all women's merchandising in May
1998. Ms. Collinson is also responsible for women's shoes and cosmetics.
Tom Kalenderian is head of men's merchandising. He has been
at Barneys for 20 years. His responsibilities have increased over time until he
was promoted to Executive Vice President/Menswear in July 1997. Mr. Kalenderian
is responsible for developing and implementing menswear strategy and manages
many of the key vendor relationships for the menswear business.
Marc H. Perlowitz joined Barneys in September 1985. He was
promoted to Executive Vice President, General Counsel and Human Resources of
Barneys in October 1997. Mr. Perlowitz' responsibilities include direct
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responsibility for all legal matters of Barneys and its affiliates. He is
responsible for Human Resources which includes compensation, benefits, labor
relations, training, recruiting, employee policies and procedures and Company
communications. He is also responsible for real estate, facilities and risk
management.
Karl Hermanns has been with Barneys for almost four years,
initially responsible for Financial and Strategic Planning. During his tenure,
he has assumed other responsibilities and is currently responsible for
Merchandise Planning, Marketing, Inventory Control, Distribution, Management
Information Systems, Imports and the Company's Central Alterations department.
Mr. Hermanns was promoted to Executive Vice President in February 2000. Prior to
joining Barneys, Mr. Hermanns spent 10 years with Ernst & Young LLP in their
audit and consulting practices.
Michael Celestino has been with Barneys for eight years and
has served in a number of store operations capacities during that period. Mr.
Celestino is currently responsible for all store operations including full price
stores, outlet stores and the Company's warehouse sales. He was promoted to
Executive Vice President in February 2000.
Steven M. Feldman has been with Barneys since May 1996 when
he joined as Controller. He was promoted to Vice President in December 1997 and
to Senior Vice President in May 1999. Additionally, in May 1999, Mr. Feldman was
appointed as Chief Financial Officer. Prior to joining Barneys, Mr. Feldman was
a Senior Manager at Ernst & Young LLP principally serving retail engagements.
Vincent Phelan has been with Barneys since August 1995 when
he joined as Director of Finance. Prior to joining Barneys, Mr. Phelan was the
Deputy Director of Finance at the United States Tennis Association, Inc. in
White Plains, NY from January 1993 to July 1995. Mr. Phelan is a certified
public accountant and was responsible for reconciling all claims filed in
connection with the Chapter 11 filing. Mr. Phelan was promoted to Vice President
- - Treasurer in January 1999 and is responsible for financial planning,
budgeting, cash management, banking relations, and taxes.
None of the directors or executive officers listed herein
is related to any other director or executive officer.
None of the directors is a director of any other company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or subject to the requirements of Section 15(d) of such Act
or any company registered as an investment company under the Investment Company
Act of 1940, except as set forth above.
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ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY OF COMPENSATION
The following summary compensation table sets forth information concerning
compensation during the 12 months ended January 30, 1999, January 30, 1998, and
January 30, 1997 for services in all capacities awarded to, earned by or paid to
the Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company during the 12 months ended January 30, 1999.
<TABLE>
<CAPTION>
NAME AND ANNUAL COMPENSATION OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) COMPENSATION (2)
- ------------------ ---- ------ ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Thomas C. Shull(3) 1999 $ 485,000 $ 115,000 $ 0 $ 0
President and Chief 1998 220,000 0 0 0
Executive Officer 1997 0 0 0 0
Robert Pressman(4) 1998 834,610 0 0 23,607
Co-Chief Executive Officer 1998 848,647 15,000 0 22,647
1997 752,678 0 0 21,108
Eugene Pressman(4) 1999 807,885 12,684 0 26,680
Co-Chief Executive Officer 1998 824,441 15,000 58,924(5) 25,863
1997 724,252 0 0 23,765
Shari Gregerman(6) 1999 484,866 114,113 0 13,670
1998 452,271 127,840 51,171(7) 13,620
1997 335,863 29,006 0 12,447
Michael Tymash(8) 1999 307,411 87,114 0 13,310
1998 264,057 73,258 0 12,448
1997 220,509 42,688 0 12,356
Thomas Kalenderian 1999 343,384 73,256 0 13,310
1998 295,547 72,373 0 13,260
1997 223,639 20,707 0 12,486
Judith Collinson 1999 306,612 72,863 0 12,530
1998 215,204 39,758 0 11,147
1997 152,224 13,558 0 9,572
John Dubel(9) 1999 518,135 129,488 0 8,510
1998 369,550 112,958 0 8,330
1997 233,514 0 0 0
</TABLE>
- -----------------
(1) Other Annual Compensation includes auto, auto insurance, parking and
clothing allowances.
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(2) All Other Compensation includes imputed life insurance, 401k match payments
made by the Company, and contributions by the Company to the Company's Money
Purchase Plan (a defined contribution plan).
(3) The services of Thomas C. Shull were provided pursuant to an agreement with
Meridian, and the amounts are based upon an allocation provided by Meridian to
the Company. See "Agreements with Executive Officers -- Meridian Agreement"
below. Mr. Shull resigned as director, President and Chief Executive Officer
effective May 5, 1999.
(4) Robert Pressman and Eugene Pressman each served as Co-Chief Executive
Officers of Barneys through May 1998. Both resigned from that position at that
time and were replaced by Thomas C. Shull.
(5) Other Annual Compensation for Eugene Pressman includes $15,563 for auto and
$36,563 for clothing allowances.
(6) Ms. Gregerman resigned as of February 5, 1999 and is currently receiving
severance in accordance with the Company severance plan. The Company has also
entered into an agreement with Ms. Gregerman pursuant to which she receives the
aggregate sum of $305,125 over a six month period.
(7) Other Annual Compensation for Shari Gregerman includes $23,850 for auto and
$20,152 for clothing allowances.
(8) Michael Tymash served as Executive Vice President - Stores and Operations
through January 18, 2000. He resigned from that position at that time.
(9) John Dubel left the Company on January 15, 1999 and his salary includes a
$180,000 severance payment made in January 1999 in accordance with the terms of
his contract. The Company was also obligated to pay Mr. Dubel additional
severance in the aggregate amount of $180,000 commencing in July 1999 subject to
mitigation. All amounts due pursuant to Mr. Dubel's contract have been paid.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company is paid
$15,000 annually for his or her services as a director, $5,000 annually for each
committee of the Board of Directors on which he or she serves, $1,000 for
attendance in person at each meeting of the Board of Directors or committee and
$500 for participation by telephone. Nonemployee directors also participate in
the Company's Stock Option Plan for Non-Employee Directors (the "Option Plan").
Pursuant to the Option Plan, each Eligible Director (as defined in the Option
Plan) is granted an option to purchase 5,000 shares of Holdings Common Stock
upon their initial appointment to the Board of Directors, exercisable at the
fair market value (as determined by the Board of Directors) of Holdings Common
Stock on the date of grant. The options granted under the Option Plan expire ten
years after the date of grant and become exercisable (i) as to one-half of the
total number of shares subject to the grant on the date of grant, and (ii) as to
the remaining shares subject to the grant on the first anniversary of the date
of grant. On the date of the annual stockholders' meeting which takes place
after the initial grant, each Eligible Director may, at the discretion of the
Board of Directors, be granted an option to purchase additional shares of
Holdings Common Stock, provided such grantee is an Eligible Director in office
immediately following such annual meeting. On March 11, 1999, each of the
non-employee directors was granted an option to purchase 5,000 shares of
Holdings Common Stock at an exercise price of $8.68 per share, one-half of which
vested on issuance, and one-half of which will vest on March 11, 2000.
AGREEMENTS WITH EXECUTIVE OFFICERS
Meridian Agreement. Pursuant to an agreement dated as of August 1,
1998, among the Company, Thomas C. Shull and Meridian Ventures, Inc., a venture
management firm ("Meridian"), as amended (the "Meridian Agreement"), Meridian
received payments from the Company for consulting services provided by Mr. Shull
and two additional consultants, Edward Lambert and Paul Jen. Pursuant to the
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Meridian Agreement, Mr. Shull served as President and Chief Executive Officer
until May 5, 1999, and Mr. Lambert served as Chief Financial Officer of Holdings
and its affiliates until May 28, 1999. In addition, Paul Jen served as Vice
President-Marketing until May 1999. The services provided under the Meridian
Agreement consisted of providing the services of these three individuals in such
capacities. In consideration of these services, Meridian received a base fee at
the rate of $95,000 per month, $9,500 per month to cover Meridian's overhead and
other expenses and reimbursement for reasonable out-of-pocket expenses of the
three individuals. In addition, Meridian received a $100,000 performance bonus
on February 1, 1999, and in consideration of Meridian's efforts during the
transition to Successor Company management, Meridian received payments totaling
$465,000 covering the period February 1999 through May 1999. Meridian advised
the Company that, for the twelve month period ending January 30, 1999, $600,000
of the annual payments made by the Company to Meridian represent the portion of
the payments payable under the Meridian Agreement allocated by Meridian to Mr.
Shull. The Meridian Agreement terminated on May 31, 1999. Mr. Shull resigned as
President and Chief Executive Officer on May 5, 1999, upon the appointment of
Allen I. Questrom to those positions. Mr. Lambert resigned as Chief Financial
Officer effective May 28, 1999.
Upon termination of the Meridian Agreement on May 31, 1999,
Meridian was entitled to a payment of (i) $104,500 per month for a period of
eight months, (ii) $104,500 per month for a period of four additional months,
commencing on the first day of the ninth month following termination, subject to
mitigation based on any other compensation received for the services of Mr.
Shull and the two other consultants during that period and (iii) payment of all
earned and accrued vacation pay, not to exceed $85,000. All amounts due to
Meridian pursuant to the terms of the Meridian Agreement have been paid by the
Company.
Agreement with Allen Questrom. Pursuant to an agreement
between Holdings and Allen I. Questrom effective as of May 5, 1999 and dated
February 1, 2000, Mr. Questrom serves as Chairman of the Board of Directors,
President and Chief Executive Officer of Holdings through January 31, 2003. Mr.
Questrom's base salary for the period May 5, 1999 through January 31, 2000 is
$150,000 per month, and for the period February 1, 2000 through January 31, 2003
is $100,000 per month. In addition, for the periods commencing February 1, 2000
Mr. Questrom is entitled to an annual performance bonus of up to 100% of his
base salary. Mr. Questrom was granted options to purchase up to 15% of the
outstanding shares of Holdings Common Stock, which will vest over the term of
his employment. One third of such options are exercisable at a price of $8.68
per share and the balance at $4.34 per share. A portion of the salary and bonus
payable to Mr. Questrom up to $3,232,662 will be retained by Holdings to pay for
the grant of a portion of such stock options. The stock options have an exercise
period of 8 years. Upon a termination of employment by the Company without cause
or by Mr. Questrom for good reason, or upon a change of control of Holdings, all
stock options which have not yet been granted will be granted and all stock
options will fully vest. In addition, a portion of the stock options will vest
upon Mr. Questrom's death or disability. Upon a termination of employment by the
Company without cause or by Mr. Questrom for good reason, Mr. Questrom will also
be entitled, for the remainder of the term of his employment, to a cash payment
equal to his base salary and target bonus, and to participate in Holdings'
benefit plans. If Mr. Questrom resigns prior to May 22, 2000, he will earn
additional compensation of $50,000 per month during the period February 1, 2000
until his date of termination, but he will not be entitled to any other deferred
compensation or to earn any bonus during that period, and he will forfeit his
stock options.
Holdings also granted Mr. Questrom certain registration
rights with respect to his shares of Holdings Common Stock. Bay Harbour,
Whippoorwill and Mr. Questrom have agreed to provide each other certain co-sale
rights in connection with any sales of their Holdings Common Stock. Mr. Questrom
also agreed to vote half of his shares as directed by Bay Harbour and half as
directed by Whippoorwill.
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Employee Severance Plan. The Company has implemented an
employee severance plan (a "ESP") which was adopted shortly after commencement
of the reorganization cases. The ESP covers all salaried employees. The
severance benefits under the ESP are triggered by either (a) an involuntary
termination of employment for any reason other than for cause or (b) a voluntary
termination as a result of either (i) a substantial diminution of the employee's
responsibilities and duties, or (ii) a substantial reduction in salary, in
either case within 12 months of certain events constituting a change in control
of Barneys. The amount of severance payable depends on a participant's position
and the number of years of service, ranging from one week to one month for each
year of service. The severance payments range from a minimum of a two weeks
salary to a maximum of 18 months salary. For some employees, severance is
subject to mitigation for amounts payable during the severance period from other
employment. For a period of two (2) years following the Effective Date, the
terms of Barneys' existing ESP will not be terminated or amended by the Company
in a manner that is adverse to the employees covered.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Registration Rights Agreement. On the Effective Date,
Holdings entered into a Registration Rights Agreement (the "Registration Rights
Agreement") with Bay Harbour, Whippoorwill and Isetan, pursuant to which each of
Bay Harbour and Whippoorwill are entitled to exercise up to two demand
registrations and unlimited short-form demand and piggyback registration rights.
In addition, Isetan was granted piggyback registration rights.
CERTAIN BUSINESS RELATIONSHIPS
Meridian Agreement. See "EXECUTIVE COMPENSATION--
Agreements with Executive Officers."
Stock Purchase Agreement. Pursuant to the Stock Purchase
Agreement, Bay Harbour and Whippoorwill received an option to purchase up to an
aggregate of 576,122 shares of Holdings Common Stock. On November 12, 1999, each
of Bay Harbour and Whippoorwill notified the Company of its intention to
exercise the option in full. The closing of the exercise occurred on November
19, 1999. In addition, Bay Harbour and Whippoorwill backstopped the offering of
Subscription Rights. See "BUSINESS -- the Reorganization." The Company also
agreed to reimburse Bay Harbour and Whippoorwill for reasonable out of pocket
expenses incurred by them in connection with the Stock Purchase Agreement and
the Plan.
Isetan. Pursuant to the Plan, the Company entered into
various agreements and arrangements with Isetan and certain of its affiliates.
See "BUSINESS -- the Reorganization" and "PROPERTIES." In connection with the
consummation of the Plan, (x) each of Whippoorwill and Bay Harbour have agreed,
for a period of five years from the Effective Date, to vote, or cause to be
voted, all shares of Holdings Common Stock held by it in favor of the election
of one director designated by Isetan to Holdings' Board of Directors, and (y)
Holdings has agreed to cause such designee to be elected to the Board of
Directors of Barneys. Yasuo Okamoto is the director designated by Isetan. In
addition, Holdings may designate one individual to attend all meetings of
Holdings' Board of Directors in a non-voting observer capacity.
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<PAGE>
Equipment Lessors. Whippoorwill owns a beneficial interest
of approximately 25% of a holder of one of the Equipment Lessors Notes, which
note is in an aggregate principal amount of $34,232,500. See "BUSINESS -- The
Reorganization."
ITEM 8. LEGAL PROCEEDINGS.
Barneys and certain of its subsidiaries commenced
proceedings under the Bankruptcy Code on January 10, 1996, and emerged therefrom
on January 28, 1999. See "BUSINESS -- The Reorganization." In addition, Holdings
and its subsidiaries are involved in various legal proceedings which are routine
and incidental to the conduct of their business. Management believes that none
of these proceedings, if determined adversely to Holdings or any of its
subsidiaries, would have a material adverse effect on the financial condition or
results of operations of such entities.
On or about August, 1996, Barneys commenced an action
against Circle Management Ltd. and Giuseppe Luongo for misappropriation of
monies, an accounting and avoidance of certain post-petition transfers. The
action is pending in the United States Bankruptcy Court for the Southern
District of New York. Barneys alleges that Circle Management and Mr. Luongo,
operators of the prior restaurant at the Company's Madison Avenue flagship store
known as Mad 61, have not paid over monies from the operation of the restaurant
which belong to Barneys. Barneys seeks unspecified money damages.
Defendants have answered the complaint and have asserted
counterclaims. The counterclaims allege breach of contract, breach of agency,
libel and the making of false and fraudulent statements about the defendants.
Defendants allege that Barneys did not reimburse them for the operating expenses
of the Mad 61 restaurant and that Barneys made libelous, false and fraudulent
statements about the financial condition of defendants. They seek money damages
of not less than $1,000,000. While it is not possible to predict with certainty
the outcome of this case, it is the opinion of management that this lawsuit will
not have a material adverse effect on the Company's operating results, liquidity
or consolidated financial statements.
ADMINISTRATIVE CLAIMS
As a result of the bankruptcy, the Company is subject to
various Administrative Claims filed by various claimants throughout the
bankruptcy case. In connection with the Plan, the Company was required to
establish a Disputed Administrative Claims Cash Reserve ("Cash Reserve") while
the Administrative Claims are negotiated and settled. The initial total amount
of the Cash Reserve was $4.6 million, of which approximately $2.4 million
remains as of January 29, 2000. The Company has reserved in its financial
statements the amount it deems will be necessary to settle these claims. There
can be no assurances that the results of the settlement of these Administrative
Claims will be on terms that will not exceed the amount reserved. For further
information, reference is made to the Plan, a copy of which is filed as an
exhibit to this Registration Statement.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
There is no current public trading market for Holdings
Common Stock or the Unsecured Creditors Warrants. An aggregate of 1,365,975
shares of Holdings Common Stock are issuable upon exercise of outstanding
options, and an aggregate of 1,301,238 shares of Holdings Common Stock are
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issuable upon exercise of outstanding warrants. In addition, the Preferred
Stock, under certain circumstances, is convertible into 162,500 shares of
Holdings Common Stock. The Company does not presently intend to apply to list
the Holdings Common Stock on any national securities exchange or The Nasdaq
Stock Market. The Company believes that all of the shares of Holdings Common
Stock held by Bay Harbour, Whippoorwill and Isetan could be sold pursuant to
Rule 144 of the Securities Act of 1933, as amended (the "Securities Act").
Resales under Rule 144 are subject to limitations relating to current public
information, volume and manner of sales. Pursuant to the Registration Rights
Agreement, Holdings has agreed to register under the Securities Act all shares
of Holdings Common Stock held by Bay Harbour, Whippoorwill and, pursuant to
piggyback registration rights, Isetan. See "Security Ownership of Certain
Beneficial Owners and Management," which sets forth the number of shares of
Holdings Common Stock owned by each of Bay Harbour, Whippoorwill and Isetan.
HOLDERS
The number of record holders of Holdings Common Stock as of
December 1, 1999 is 1067.
DIVIDENDS
Each share of Holdings Common Stock will be entitled to
participate equally in any dividend declared by the Board of Directors and paid
by Holdings. The guarantee by Holdings of the Company's new working capital
facility prohibits Holdings from declaring dividends on shares of its capital
stock, with the exception of dividends payable to the holders of the Preferred
Stock. See "DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED -- Preferred
Stock." The Company has no present intention to declare dividends on the
Holdings Common Stock.
SIGNIFICANT STOCKHOLDERS
Bay Harbour and Whippoorwill collectively beneficially own
approximately 79% of the outstanding shares of the Holdings Common Stock. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Accordingly,
they may be in a position to control the outcome of actions requiring
stockholder approval, including the election of directors. This concentration of
ownership could also facilitate or hinder a negotiated change of control of
Holdings and, consequently, have an impact upon the value of the Holdings Common
Stock. Further, the possibility that either Bay Harbour or Whippoorwill may
determine to sell all or a large portion of their shares of Holdings Common
Stock in a short period of time may adversely affect the market price of the
Holdings Common Stock. In addition, Bay Harbour and Whippoorwill have entered
into a stockholders' agreement with respect to their ownership in, and the
voting of the capital stock of, Holdings. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Other than the securities referred to below, Holdings did
not make any recent sales of unregistered securities.
Prior to the consummation of the Plan, Subscription Rights
were issued to all holders of allowed general unsecured claims (other than
members of the Pressman family and Isetan, each of which were party to separate
arrangements described herein, and other than holders of general unsecured
claims whose claims were for less than $2,300 and holders of general unsecured
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claims of greater than $2,300 who elected to receive cash in settlement of their
claims) based upon the exemptions provided by Section 1145 of the Bankruptcy
Code.
5,792,469 shares of Holdings Common Stock, the Isetan
Warrant, 1,013,514 Unsecured Creditors Warrants (and any exercise thereof) , the
Isetan Note and the Equipment Lessors Notes were issued on or about the
Effective Date pursuant to the Plan in satisfaction of certain allowed claims
against, or interests in, Barneys and its subsidiaries and pursuant to the
offering of Subscription Rights. Based upon the exemptions provided by Section
1145 of the Bankruptcy Code (other than as set forth below), Holdings believes
that none of such securities is required to be registered under the Securities
Act, in connection with their issuance and distribution pursuant to the Plan. In
addition, the 6,707,531 shares of Holdings Common Stock issued to Bay Harbour
and Whippoorwill on the Effective Date in respect of their backstop of the
offering of Subscription Rights, the option granted to them pursuant to the
Stock Purchase Agreement and the Preferred Stock were issued in a transaction
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act. The shares of Preferred Stock were issued on the Effective Date
to the Barneys Employees Stock Plan Trust and to an individual. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." On May 15, 1999, 22
shares of Holdings Common Stock were issued upon exercise of Unsecured Creditors
Warrants, pursuant to the exemption provided by Section 1145 of the Bankruptcy
Code. On November 12, 1999, each of Bay Harbour and Whippoorwill exercised in
full the option granted to them pursuant to the Stock Purchase Agreement in a
transaction pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
AUTHORIZED CAPITAL STOCK
Holdings' Certificate of Incorporation (the "Charter")
provides that the total number of all classes of stock which Holdings will have
authority to issue is 35,000,000 shares, of which 25,000,000 may be Holdings
Common Stock and 10,000,000 shares may be preferred stock, having a par value of
$0.01 per share. Of such shares, there were outstanding at January 29, 2000,
13,076,144 shares of Holdings Common Stock and 20,000 shares of Preferred Stock.
Holdings is prohibited by its Charter from issuing any class or series of
non-voting securities.
HOLDINGS COMMON STOCK
Each share of Holdings Common Stock entitles its holder to
one vote. The holders of record of Holdings Common Stock will be entitled to
participate equally in any dividend declared by the Board of Directors of
Holdings. Each share of Holdings Common Stock is entitled to share ratably in
the net worth of Holdings upon dissolution. So long as any shares of Preferred
Stock are outstanding, no dividends on Holdings Common Stock may be paid until
all accrued and unpaid dividends on the Preferred Stock have been paid.
UNSECURED CREDITORS WARRANTS
The Unsecured Creditors Warrants are exercisable for up to
an aggregate of 1,013,514 shares of Holdings Common Stock at an exercise price
of $8.68 per share. The Unsecured Creditors Warrants became exercisable on the
Effective Date and expire at 5:00 p.m., New York City time on May 15, 2000.
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The number of shares for which the Unsecured Creditors
Warrants are exercisable, and the exercise price of the Unsecured Creditors
Warrants, are subject to antidilution adjustment if the number of shares of
Holdings Common Stock is increased by a dividend or other share distribution, or
by a stock split or other reclassification of shares of Holdings Common Stock.
In addition, the exercise price of the Unsecured Creditors Warrants is subject
to decrease if Holdings distributes, to all holders of Holdings Common Stock,
evidences of its indebtedness, any of its assets (other than cash dividends), or
rights to subscribe for shares of Holdings Common Stock expiring more than 45
days after the issuance thereof.
In the event that Holdings merges or consolidates with
another person, the holders of the Unsecured Creditors Warrants will be entitled
to receive, in lieu of shares of Holdings Common Stock or other securities
issuable upon exercise of the Unsecured Creditors Warrants, the greatest amount
of securities, cash or other property to which such holder would have been
entitled as a holder of Holdings Common Stock or such other securities.
PREFERRED STOCK
20,000 shares of Series A Preferred Stock are outstanding.
The Preferred Stock has an aggregate liquidation preference of $2,000,000 (the
"Liquidation Preference"), plus any accrued and unpaid dividends thereon
(whether or not declared). Dividends on the Preferred Stock are cumulative
(compounding annually) from the Effective Date and are payable when and as
declared by the Board of Directors of Holdings, at the rate of 1% per annum on
the Liquidation Preference. No dividends shall be payable on any shares of
Holdings Common Stock until all accrued and unpaid dividends on the Preferred
Stock have been paid.
The shares of Preferred Stock are not redeemable prior to
the sixth anniversary of the Effective Date. On or after the sixth anniversary
of the Effective Date, the Preferred Stock is redeemable at the option of
Holdings for cash, in whole or in part, at an aggregate redemption price equal
to the Liquidation Preference, plus any accrued and unpaid dividends thereon. In
addition, Holdings is required to redeem the Preferred Stock in whole on the
tenth anniversary of the Effective Date at an aggregate redemption price equal
to the Liquidation Preference, plus any accrued and unpaid dividends thereon.
The shares of Preferred Stock are convertible, in whole or
in part, at the option of the holders thereof, any time on or after the earlier
of the fifth anniversary of the Effective Date and the consummation of a rights
offering by Holdings (which offering meets certain conditions), into 162,500
shares of Holdings Common Stock. Any accrued and unpaid dividends on the
Preferred Stock will be cancelled upon conversion. Conversion rights will be
adjusted to provide antidilution protection for stock splits, stock
combinations, mergers or other capital reorganization of Holdings. In addition,
upon a sale of Holdings, Holdings' right to redeem the Preferred Stock and the
holders' right to convert the Preferred Stock will be accelerated. The Preferred
Stock has one vote per share and votes together with the Holdings Common Stock
on all matters other than the election of directors.
CERTAIN CORPORATE GOVERNANCE MATTERS
Except as the Delaware General Corporation Law (the
"General Corporation Law"), the Charter or the By-Laws of Holdings (the
"By-Laws") may otherwise provide, the holders of a majority of the issued and
outstanding shares of the capital stock entitled to vote shall constitute a
quorum at a meeting of stockholders for the transaction of any business. The
holders of a majority of such shares present may adjourn the meeting until a
quorum has been obtained.
40
<PAGE>
Each stockholder entitled to vote in accordance with the
terms of the Charter and By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder. In the
election of directors, the vote need not be by written ballot, and a plurality
of the votes present at the meeting shall elect. Any other action shall be
authorized by a majority of the votes cast except as otherwise required by the
General Corporation Law. Except as otherwise required by law or the Charter,
action required or permitted to be taken at any meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, by written
consent of the holders of shares representing the votes that would be necessary
to authorize or take such action at a meeting.
The Board of Directors is expressly authorized to adopt,
amend or repeal the By-laws. The stockholders are expressly authorized to repeal
or change By-laws adopted by the Board of Directors, and to adopt new By-laws.
The stockholders may prescribe that any By-law made by them shall not be
altered, amended or repealed by the Board of Directors.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Charter provides for the indemnification, to the
fullest extent permitted by the General Corporation Law, of all persons who may
be indemnified by Holdings under the General Corporation Law, which would
include the directors, officers, employees and agents of Holdings. The
indemnification provided by the Charter does not limit or exclude any rights,
indemnities or limitations of liability to which any person may be entitled,
whether as a matter of law, under the By-Laws, by agreement, vote of the
stockholders or disinterested directors of Holdings or otherwise. The Charter
also does not absolve directors of liability for (1) any breach of the
directors' duty of loyalty to Holdings or its stockholders, (2) acts or
omissions which are not in good faith or which involve intentional misconduct or
a knowing violation of law, (3) any matter in respect of which such director
shall be liable under Section 174 of Title 8 of the General Corporation Law or
any amendment thereto or successor provision thereto, which makes directors
personally liable for unlawful dividends or unlawful stock repurchases or
redemptions in certain circumstance and expressly sets forth a negligence
standard with respect to such liability, or (4) any transaction from which the
director derived an improper personal benefit.
Under Delaware law, directors, officers, employees and
other individuals may be indemnified against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation (a
"derivative action")) if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of Holdings
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe their conduct was unlawful. A similar standard of care is applicable
in the case of a derivative action, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with defense or
settlement of such an action and Delaware law requires court approval before
there can be any indemnification of expenses where the person seeking
indemnification has been found liable to Holdings.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See "Item 15. Financial Statements and Exhibits" and the
Consolidated Financial Statements included herewith.
41
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
See Index to Consolidated Financial Statements and
Schedules included herewith.
(b) Exhibits
The exhibits listed on the Exhibit Index following the
Consolidated Financial Statements hereof are filed herewith in response to this
Item.
42
<PAGE>
Barneys New York, Inc. and Subsidiaries
Audited Consolidated Financial Statements
Six months ended January 30, 1999 and Fiscal Years
ended 1998, 1997 and 1996
INDEX
Report of Independent Auditors............................................ F-1
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of January 30, 1999, August 1, 1998
and August 2, 1997.................................................. F-2
Consolidated Statements of Operations for the six months ended
January 30, 1999, and fiscal years 1998, 1997 and 1996.............. F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the six months ended January 30, 1999, and fiscal years 1998,
1997 and 1996....................................................... F-4
Consolidated Statements of Cash Flows for the six months ended
January 30, 1999, and fiscal years 1998, 1997 and 1996.............. F-5
Notes to Consolidated Financial Statements................................ F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Barneys New York, Inc.
We have audited the accompanying consolidated balance sheet of Barneys New York,
Inc. and subsidiaries as of January 30, 1999 (Successor Company balance sheet)
and of Barney's, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997
(Predecessor Company balance sheets), and the related consolidated statements of
operations, cash flows and changes in stockholder's equity (deficit) for the six
months ended January 30, 1999 and each of the three fiscal years in the period
ended August 1, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurances about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in Note 2 to the consolidated financial statements,
effective January 28, 1999, the Company emerged from protection under Chapter 11
of the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was
confirmed by the Bankruptcy Court on December 21, 1998. Accordingly, the
accompanying January 30, 1999 balance sheet has been prepared in conformity with
AICPA Statement of Position 90-7 "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities and a capital structure having carrying values
not comparable with prior periods as described in Note 3.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Barneys
New York, Inc. and subsidiaries as of January 30, 1999, and of Barney's, Inc.
and subsidiaries as of August 1, 1998 and August 2, 1997, and the consolidated
results of their operations and their cash flows for the six months ended
January 30, 1999 and for each of the three fiscal years in the period ended
August 1, 1998 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
May 24, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SUCCESSOR |
COMPANY | PREDECESSOR COMPANY
JANUARY 30, | AUGUST 1, AUGUST 2,
1999 | 1998 1997
----------------------|----------------------------------------
<S> <C> | <C> <C>
ASSETS |
Current assets: |
Cash and cash equivalents $ 6,824 | $ 3,478 $ 5,442
Restricted cash 5,082 | - -
Receivables, less allowances of $4,356, $4,386 and $5,016 27,841 | 22,107 16,583
Inventories 65,551 | 68,983 61,234
Other current assets 6,347 | 6,502 11,973
----------------------|----------------------------------------
Total current assets 111,645 | 101,070 95,232
Fixed assets at cost, less accumulated depreciation |
and amortization of $0, $38,226 and $32,274 51,356 | 114,639 119,151
Excess reorganization value 177,767 | - -
Other assets 3,186 | 1,334 1,863
----------------------|----------------------------------------
|
Total assets $ 343,954 | $ 217,043 $ 216,246
======================|========================================
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |
Current liabilities: |
DIP credit agreement $ - | $ 75,437 $ 64,113
Accounts payable 15,996 | 17,324 8,460
Accrued expenses 54,585 | 40,558 42,102
----------------------|----------------------------------------
Total current liabilities 70,581 | 133,319 114,675
|
Long-term debt 118,533 | - -
Other long-term liabilities - | 4,640 3,603
Liabilities subject to compromise - | 372,272 371,203
|
Deferred credits - | 162,446 162,446
Minority interest - | 12,000 12,000
|
Commitments and contingencies |
|
Redeemable Preferred Stock -- Aggregate liquidation |
preference $2,000 500 | - -
|
Shareholders' equity (deficit): |
Preferred stock -- $100 par value; authorized |
400,000 shares-- issued 327,695 shares - | 32,770 32,770
Common stock-- $.01 par value; authorized |
25,000,000 shares-- issued 12,500,000 shares 125 | - -
Common stock-- $20 par value; authorized |
15,000 shares-- issued 8,560 shares - | 171 171
Additional paid-in capital 154,215 | 38,950 38,950
Retained deficit - | (539,525) (519,572)
----------------------|----------------------------------------
Total shareholders' equity (deficit) 154,340 | (467,634) (447,681)
----------------------|----------------------------------------
|
Total liabilities and shareholders' equity (deficit) $ 343,954 | $ 217,043 $ 216,246
======================|========================================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
</TABLE>
F-2
<PAGE>
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JANUARY 30, FOR THE FISCAL YEARS
1999 1998 1997 1996
---------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 181,657 $ 342,967 $ 361,496 $ 366,424
Cost of sales 95,084 178,755 192,302 193,610
---------------------------------------------
Gross profit 86,573 164,212 169,194 172,814
Expenses:
Selling, general and administrative (including occupancy
expense of $11,728, $25,453, $33,235 and $41,737) 73,634 151,191 173,392 201,184
Depreciation and amortization 4,671 9,635 12,886 13,814
Impairment and special charges -- -- 255 2,184
Royalty income and foreign exchange gains -- (1,653) (420) (11,292)
Other - net (2,033) (3,022) (1,889) (3,661)
---------------------------------------------
Income (loss) before interest and financing costs, reorganization costs,
"fresh-start" revaluation, income taxes and extraordinary item 10,301 8,061 (15,030) (29,415)
Interest and financing costs (excludes contractual interest of $11,012,
$22,024, $22,024 and $11,794) 4,758 11,967 7,674 12,575
---------------------------------------------
Income (loss) before reorganization costs, "fresh-start" revaluation,
income taxes and extraordinary item 5,543 (3,906) (22,704) (41,990)
Reorganization costs 13,834 15,970 72,207 29,407
Fresh-start revaluation 294 -- -- --
---------------------------------------------
Loss before income taxes and extraordinary item (8,585) (19,876) (94,911) (71,397)
Income taxes 38 77 62 472
---------------------------------------------
Loss before extraordinary item (8,623) (19,953) (94,973) (71,869)
Extraordinary item - gain on debt discharge 302,285 -- -- --
---------------------------------------------
Net income (loss) $ 293,662 $ (19,953) $ (94,973) $ (71,869)
=============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements
F-3
<PAGE>
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PREFERRED ADDITIONA RETAINED
STOCK ISSUED STOCK ISSUED PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balances at July 29, 1995 9 $ 171 328 $32,770 $ 38,950 $ (352,730) $(280,839)
Net Loss - - - (71,869) (71,869)
--------------------------------------------------------------------------------------
Balances at August 3, 1996 9 171 328 32,770 38,950 (424,599) (352,708)
Net Loss - - - (94,973) (94,973)
--------------------------------------------------------------------------------------
Balances at August 2, 1997 9 171 328 32,770 38,950 (519,572) (447,681)
Net Loss - - - (19,953) (19,953)
--------------------------------------------------------------------------------------
Balances at August 1, 1998 9 171 328 32,770 38,950 (539,525) (467,634)
Net income for the six months ended
January 30, 1999 - - - 293,662 293,662
Fresh-start and reorganization adjustments (9) (171) (328) (32,770) (38,950) 245,863 173,972
Issuance of Successor Company stock 12,500 125 - - 148,855 - 148,980
Issuance of Successor Company warrants - - 5,360 - 5,360
--------------------------------------------------------------------------------------
SUCCESSOR COMPANY
Balances at January 30, 1999 12,500 $ 125 - $ - $ 154,215 $ - $ 154,340
======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
F-4
<PAGE>
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JANUARY 30, FOR THE FISCAL YEARS
1999 1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 293,662 $ (19,953) $ (94,973) $ (71,869)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Reorganization items:
Extraordinary gain on debt discharge (302,285) - - -
Fresh-start revaluation 294 - - -
Real estate losses and asset write-offs, net - 29 49,991 12,357
Write-off of deferred financing costs - - - 2,897
Depreciation and amortization 4,671 9,635 12,886 13,814
Amortization of DIP financing costs 588 3,798 1,955 1,035
Deferred rent (252) (368) (39) 21
Receivables provision (1,888) 1,043 1,324 2,042
Real estate losses and asset write-offs, net - 4 600 1,037
Foreign exchange gains and net interest on Isetan Loan - - - (10,808)
Other - 92 - -
Decrease (increase) in:
Receivables (6,759) (5,316) (763) (15,769)
Inventories 2,032 (7,749) 338 (4,688)
Other current assets (622) 1,673 (3,140) (8,867)
Long-term assets (2,723) 529 101 (992)
Increase (decrease) in:
Accounts payable and accrued expenses (4,968) 6,139 10,462 40,232
--------------------------------------------------------------------
Net cash used in operating activities (18,250) (10,444) (21,258) (39,558)
--------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (2,112) (3,047) (5,799) (13,255)
Restricted cash (5,082) - - -
Contributions from landlords - 203 1,234 -
Net repayments from affiliates 1,888 - 143 (8,379)
--------------------------------------------------------------------
Net cash used in investing activities (5,306) (2,844) (4,422) (21,634)
--------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of debt 265,383 385,834 128,939 99,000
Repayments of debt (278,724) (374,510) (105,826) (39,066)
Proceeds from subscription rights offering 62,607 - - -
Cash distributions pursuant to the Plan (22,364) - - -
--------------------------------------------------------------------
Net cash provided by financing activities 26,902 11,324 23,113 59,934
--------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,346 (1,964) (2,567) (1,258)
Cash and cash equivalents - beginning of period 3,478 5,442 8,009 9,267
--------------------------------------------------------------------
Cash and cash equivalents - end of period $ 6,824 $ 3,478 $ 5,442 $8,009
====================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Barneys New York, Inc. ("Holdings") and Subsidiaries (collectively
the "Company") is a retailer of men's and women's apparel and accessories and
items for the home. The Company operates 20 stores throughout the United States,
including its three flagship stores in New York, Beverly Hills and Chicago which
are leased from an affiliate of Isetan Co. Ltd. ("Isetan"), a minority
stockholder of Holdings. The Company has also entered into licensing
arrangements, pursuant to which the Barneys New York trade name is licensed for
use in Asia.
The consolidated financial statements of the Company during the
bankruptcy proceedings (the "Predecessor Company financial statements") are
presented in accordance with American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). Pursuant to guidance provided by SOP
90-7, the Company adopted fresh start reporting as of January 28, 1999 upon its
emergence from bankruptcy.
Under fresh start reporting, a new reporting entity is deemed to be
created and the recorded amounts of assets and liabilities are adjusted to
reflect their estimated fair values at the Effective Date (as defined below). A
black line has been drawn to separate the Successor Company's consolidated
balance sheet from those of the Predecessor Company to signify that they are
different reporting entities and such balance sheets have not been prepared on
the same basis. The operating results of the Successor Company for the
intervening period from January 28, 1999 to January 30, 1999 were immaterial and
therefore included in the operations of the Predecessor Company.
The Company changed its fiscal year-end to the Saturday closest to
January 31 to coincide with its emergence from bankruptcy and to be more
comparable with industry practices. Accordingly, the financial statements for
the current period are as of and for the six months ended January 30, 1999.
References in these financial statements to "1998" and "1996" are for the 52
weeks ended August 1, 1998 and August 3, 1996, respectively. References to
"1997" are for the 53 weeks ended August 2, 1997. References in these financial
statements to "1999" are for the 52 weeks ending January 29, 2000.
As used herein, Successor Company refers to Barneys New York, Inc.
and subsidiaries from the Effective Date to January 30, 1999 and Predecessor
Company refers to Barney's, Inc. and subsidiaries prior to the Effective Date.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. REORGANIZATION CASE:
(A) PLAN OF REORGANIZATION -
On January 10, 1996 (the "Filing Date"), Barney's, Inc. ("Barneys")
and certain subsidiaries of Barneys (collectively the "Barneys Debtors") and an
affiliate, Preen Realty, Inc. ("Preen") and certain subsidiaries of Preen
(collectively the "Preen Debtors") (together the Barneys Debtors and Preen
Debtors referred to as the "Debtors") filed voluntary petitions under chapter 11
of the United States Bankruptcy Code (the "Bankruptcy Code"). Pursuant to an
order of the Court, the individual Chapter 11 cases of the Debtors were
consolidated for procedural purposes only and were jointly administered by the
United States Bankruptcy Court for the Southern District of New York (the
"Court"). Subsequent to the Filing Date, the Debtors operated their businesses
as debtors in possession subject to the jurisdiction and supervision of the
Court.
Prior to the Filing Date, and to a lesser extent thereafter, the
Predecessor Company engaged in numerous transactions with Preen and certain of
its subsidiaries. Many of the transactions with Preen are discussed in further
detail in Note 11(c). Preen is owned by various trusts established for the
benefit of certain Pressman family members and, prior to the Effective Date,
Preen also owned approximately 55% of the outstanding common stock of Barneys.
Preen was previously engaged in the ownership and operation of real estate
properties, including certain buildings used in connection with the Predecessor
Company's retail and back office operations. Additionally, Preen leased
commercial and retail space to third parties and operated a parking lot used by
Barneys employees.
In the Chapter 11 cases, substantially all liabilities as of the
Filing Date were subject to compromise under a plan of reorganization pursuant
to the provisions of the Bankruptcy Code. Under the Bankruptcy Code, the Barneys
Debtors assumed or rejected real estate leases, employment contracts, personal
property leases, service contracts and other unexpired executory pre-petition
contracts, subject to Court approval. Parties affected by the rejections filed
claims with the Court in accordance with the reorganization process.
Prior to the Filing Date, as discussed in Note 11(c), the Predecessor
Company entered into various agreements with Isetan to, among other things, (i)
exploit the "Barneys New York" trademark in the United States and Asia, (ii)
expand its United States business through the acquisition of real estate
properties and development of major stores in New York, Beverly Hills and
Chicago, (iii) establish Barneys America to develop a series of smaller, leased
stores in other cities across the United States, (iv) jointly design, develop
and produce product, (v) develop the Barneys New York brand and/or other
designer wholesale businesses, and (vi) open Barneys New York stores in Japan
and throughout the Pacific Rim area. Isetan agreed to contribute up to 95% of
the development costs of the three major stores in the United States and to
operate the stores in Asia, subject to the terms of various agreements. The
Company agreed to contribute (i) its knowledge and skills in the United States
specialty retailing business and the application of these skills and knowledge
to the acquisition of real estate properties and development of stores both
within and outside of the United States, (ii) certain use in Asia of the
"Barneys New York" trade name and associated goodwill value, and (iii) the
remaining 5% of the development costs of the three major stores. During the
Company's bankruptcy proceedings, the Company and certain of its affiliates and
Isetan and certain of its affiliates were engaged in litigation involving the
various aspects of the relationship outlined above. That litigation was settled
pursuant to the Plan.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As discussed in further detail below, pursuant to the plan of
reorganization, Isetan became a minority shareholder in Holdings and the lessor,
pursuant to modified leases, of the flagship stores in New York, Beverly Hills
and Chicago. In addition, new licensing agreements were entered into with Isetan
(see "--Licensing") and the Company issued a subordinated promissory note to
Isetan (see "Indebtedness").
On January 28, 1999 (the "Effective Date"), the Company emerged from
reorganization proceedings (the "Reorganization") under the Bankruptcy Code
pursuant to a Second Amended Joint Plan of Reorganization, dated November 13,
1998, as supplemented and as confirmed on December 21, 1998 by the Bankruptcy
Court (the "Plan"). Consequently, the Company has applied the reorganization and
fresh-start reporting adjustments to the consolidated balance sheet as of
January 30, 1999, the closest fiscal month end to the Effective Date.
The following is a summary of the material provisions of the Plan
that became effective on the Effective Date.
Pursuant to the Plan, Holdings was formed and, on the Effective Date,
all of the outstanding capital stock of Barneys was transferred to Holdings by
the holders thereof. In addition, prior to the Effective Date, Barneys formed
three subsidiaries (two of which, Barneys (CA) Lease Corp. and Barneys (NY)
Lease Corp., are direct, wholly-owned subsidiaries of Barneys, and one of which,
Barneys America (Chicago) Lease Corp., is a direct, wholly-owned subsidiary of
Barneys America, Inc., which is a direct, wholly-owned subsidiary of Barneys and
which was in existence since before the Filing Date), each of which acts as a
lessee and sublessor for one of the flagship stores. See "PROPERTIES." BNY
Licensing Corp. ("BNY Licensing"), a wholly-owned subsidiary of Barneys, is
party to certain licensing arrangements. Barneys Asia Co. LLC is 70% owned by
BNY Licensing and 30% owned by an affiliate of Isetan Company Ltd. ("Isetan"),
and was formed prior to the Effective Date pursuant to the Plan. This investment
is accounted for under the equity method. See "-- Licensing."
(B) EQUITY -
Pursuant to the Plan, the following equity was issued:
Common Stock Issued In Exchange for Claims. The equity in Barneys was
exchanged for shares of common stock in a new company created under the Plan,
Barneys New York, Inc. ("Holdings Common Stock"), and certain allowed general
unsecured claims and claims held by Isetan against Barneys and certain of its
affiliates exchanged for, among other things, shares of Holdings Common Stock
and warrants (as defined below).
Rights Offering. Shares of Holdings Common Stock were issued to
certain holders of allowed general unsecured claims pursuant to the exercise by
them of rights to subscribe for shares of Holdings Common Stock ("Subscription
Rights") which were issued in accordance with the Plan and exercised prior to
consummation of the Plan. The $62.5 million offering of Subscription Rights was
guaranteed by Bay Harbour Management L.C. ("Bay Harbour") and Whippoorwill
Associates, Inc. ("Whippoorwill", and, together with Bay Harbour, the "Plan
Investors") on behalf of their discretionary and/or managed accounts to the
extent the other holders of allowed general unsecured claims did not elect to
participate in the offering. Bay Harbour and Whippoorwill agreed to guarantee
the offering of Subscription Rights pursuant to the Amended and Restated Stock
Purchase Agreement dated as of November 13, 1998 among Barneys, Bay Harbour,
Whippoorwill and the Official Committee of Unsecured Creditors of Barneys (the
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
"Stock Purchase Agreement"). Prior to the Effective Date, the Plan Investors
were the two largest creditors of Barneys. On the Effective Date, pursuant to
the Plan, the Plan Investors became the two largest holders of Holdings Common
Stock. The offering of Subscription Rights was made to enable the Company to
emerge from bankruptcy with sufficient capital to support its new business plan
and provide the necessary liquidity for its future operations. Pursuant to the
offering, Subscription Rights to purchase an aggregate of 7,200,461 shares of
Holdings Common Stock at a purchase price of $8.68 per share were issued. In
order to ensure that the Company received the maximum amount of funds possible
pursuant to the offering, the offering was guaranteed by the Plan Investors. In
the offering, the Plan Investors purchased an aggregate of 6,707,531 shares of
Holdings Common Stock for an aggregate price of approximately $58.2 million and
holders of general unsecured claims purchased an aggregate of 492,930 shares of
Holdings Common stock for an aggregate price of approximately $4.3 million.
Option. Pursuant to the Stock Purchase Agreement, the Plan Investors
were granted an option to purchase, at an aggregate exercise price of $5.0
million, a total of 576,122 shares of Holdings Common Stock. Pursuant to the
option, each of the Plan Investors has the right to purchase the greater of (i)
288,061 shares of Holdings Common Stock, and (ii) 576,122 shares of Holdings
Common Stock, less the number of shares purchased by the other Plan Investor.
This option was exercised prior to its expiration date of November 15, 1999. No
claims were satisfied through the issuance of these options. These options were
issued to the Plan Investors in exchange for their guarantee of the offering of
Subscription Rights. The value of the options granted to the Plan Investors was
determined within the context of a derived reorganization value pursuant to a
valuation analysis prepared by an investment banking firm retained by the
creditors committee.
Isetan Warrant. Isetan was issued a warrant (the "Isetan Warrant") to
purchase 287,724 shares of Holdings Common Stock at an exercise price of $14.68
per share. This warrant expires on January 29, 2002. In preparing its analysis
of reorganization value, the investment banking firm retained by the creditors
committee did not consider the exercise of the Isetan Warrant based upon its
considerable exercise premium over the total reorganization value. Accordingly,
the Company did not assign a fair market value to this warrant. The Isetan
Warrant was issued as part of a settlement reached with Isetan in respect of all
of their claims against the Company.
Unsecured Creditors Warrants. Holders of certain allowed general
unsecured claims were issued warrants (the "Unsecured Creditors Warrants") to
purchase an aggregate of up to 1,013,514 shares of Holdings Common Stock at an
exercise price of $8.68 per share. These warrants expire on May 15, 2000. The
investment banking firm retained by the creditors committee computed the
theoretical value of the Unsecured Creditor Warrants using a variant of a
standard computation methodology for the valuation of warrants. The aggregate
value was determined to be in a range from $5,180,000 to $5,550,000 with a
midpoint of $5,360,000. The Company utilized the midpoint to value the Unsecured
Creditor Warrants. The warrants were issued to all general unsecured creditors
in settlement of their allowed claim amounts, other than holders of general
unsecured claims whose claims were for less than $2,300 and holders of general
unsecured claims of greater than $2,300 who elected to receive cash in
settlement of their claims.
Preferred Stock. Holdings issued 15,000 shares of Series A Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), to the Barneys
Employees Stock Plan Trust (the "Trust"), which was established for the benefit
of employees of the Company. The shares contributed to the Trust will be issued
to existing employees of Barneys as incentive compensation in connection with
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
future services to be rendered to the Company. As no consideration was exchanged
for these shares, there was no fair market value allocated to them in the
reorganization. In accordance with Staff Accounting Bulletin No. 64, Redeemable
Preferred Stock ("SAB No. 64"), the value of these 15,000 shares will be
accreted on a straight-line basis over 10 years to their mandatory redemption
value of $1,500,000. In addition, Holdings issued 5,000 shares of Preferred
Stock for an aggregate purchase price of $500,000 in government securities to
Bay Harbour, which it resold to a third party under a prearranged agreement.
In total, the Company settled general unsecured claims of
approximately $320,000,000 through the issuance of Holdings Common Stock,
warrants and the Subscription Rights. Exclusive of shares and warrants issued to
the Plan Investors and Isetan, the Company issued 4,198,916 shares and 1,013,514
warrants in satisfaction of allowed general unsecured claims.
(C) INDEBTEDNESS -
Pursuant to the Plan, the following debt securities were issued:
Isetan. Barneys issued a subordinated promissory note (the "Isetan
Note") in the principal amount of $22,500,000 to Isetan. The Isetan Note bears
interest at the rate of 10% per annum payable semi-annually, and matures on
January 29, 2004. The Isetan Note was issued as part of a settlement reached
with Isetan in respect of all of their claims against the Company.
Equipment Lessors. On the Effective Date, certain lessors of
equipment to the Company transferred all right, title and interest in such
equipment to the Company. At the Effective Date, these operating leases had
remaining payments due at the contractual rates specified in the agreements, of
approximately $2,800,000. In exchange therefor, the Company issued subordinated
promissory notes (the "Equipment Lessors Notes") to such lessors in an aggregate
principal amount of $35,788,865. Such promissory notes bear interest at the rate
of 11-1/2% per annum payable semi-annually, mature on January 29, 2004, and are
secured by a first priority lien on the equipment that was the subject of each
of the respective equipment leases.
(D) OTHER SETTLEMENTS -
Pursuant to the Plan, the following occurred:
Isetan. Barneys paid approximately $23.3 million in cash to Isetan on
account of its allowed claims, an affiliate of Isetan became the sole owner of
the properties in which the Company's three flagship stores are located and
Barneys entered into modifications of the long-term leases (the "New Isetan
Leases") for such stores. Additionally, Isetan received outright ownership of
the leasehold improvements in the three flagship stores at the Effective Date.
Accordingly, the net book value of those leasehold interests approximating $97
million at the Effective Date were eliminated from the Predecessor Company's
books.
Pressman Family. Prior to the Effective Date, Barneys was owned by
the Pressman family, certain affiliates of the Pressman family and certain
trusts of which members of the Pressman family were the beneficiaries. On the
Effective Date, the Pressman family was issued an aggregate of 1.5% of the
outstanding shares of Holdings Common Stock. An aggregate of $50,000 in cash was
paid to members of the Pressman family in partial settlement of claims filed by
them against the Company and in partial exchange for equity interests in the
Company and certain of its affiliates. In addition, on the Effective Date,
Barneys entered into consulting agreements with certain members of the Pressman
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
family. Pursuant to these agreements, each of which terminates on the first
anniversary of the Effective Date, each of Phyllis Pressman, Robert Pressman,
Gene Pressman and Holly Pressman have agreed to make himself or herself
available to Barneys (up to 60% of full-time for Phyllis Pressman, and 80% of
full time for each of Robert, Gene and Holly Pressman) to furnish consulting
services to Barneys, its subsidiaries and affiliates with respect to their
business and potential business opportunities. The aggregate compensation
payable under the consulting agreements ranges from $410,000 to $1,400,000,
payable in four equal semi-annual installments, commencing with the Effective
Date. The Company entered into these consulting agreements to ensure that each
of Phyllis Pressman, Robert Pressman, Gene Pressman and Holly Pressman, each of
whom had been part of senior management of Barneys until the Effective Date,
would be available to the Company on an as-needed basis from and after the
Effective Date. The Company was also required to pay Nanelle Associates, an
entity controlled by members of the Pressman family, in respect of its claims in
the bankruptcy case, $400,000, payable in four equal semi-annual installments
commencing on the Effective Date.
Licensing. BNY Licensing, a wholly-owned subsidiary of Barneys, is
party to licensing arrangements pursuant to which (i) two retail stores are
operated in Japan and a single in-store department is operated in Singapore
under the name "BARNEYS NEW YORK", each by an affiliate of Isetan, and (ii)
Barneys Asia Co. LLC, which is 70% owned by BNY Licensing and 30% owned by an
affiliate of Isetan (and which was formed in connection with the Reorganization
discussed above), has the exclusive right to sublicense the BARNEYS NEW YORK
trademark throughout Asia (excluding Japan). In satisfaction of amounts
outstanding pursuant to the BNY Licensing Yen loan payable to Isetan, valued at
$49,129,000 at the Filing Date, Isetan received an absolute assignment of 90% of
the annual minimum royalties pursuant to item (i) above.
Pursuant to the trademark license agreement between BNY Licensing and
Barneys Japan Company ("Barneys Japan") (an affiliate of Isetan), a
royalty-bearing, exclusive right and license has been granted to Barneys Japan
to operate retail store locations in Japan and a royalty-bearing, non-exclusive
right and license to operate a department within a retail store in Singapore,
under the trademark and trade names "BARNEYS NEW YORK" (the "Trademark License
Agreement"). In addition, Barneys Japan has been granted a license to make, sell
and distribute certain products bearing the trademark "BARNEYS NEW YORK" and to
use "BARNEYS NEW YORK" as part of its corporate name. The Trademark License
Agreement expires on December 31, 2015; however, Barneys Japan may renew the
agreement for up to three additional ten year terms provided certain conditions
are met. Under the terms of the agreement, Barneys Japan pays BNY Licensing or
its assignee a minimum royalty of 2.50% of a minimum net sales figure set forth
in the agreement (the "Minimum Royalty") and an additional royalty of 2.50% of
net sales in excess of the minimum net sales and sales generated from the
expansion of Barneys Japan store base (beyond three stores) and business
methods. Pursuant to the terms of the Trademark License Agreement, the Company
is entitled to receive a Minimum Royalty over the term of the Trademark License
Agreement ranging from 37,700,000 to 61,195,106 Japanese Yen ($325,140 to
$527,772 at the January 29, 1999 conversion rate of 115.95 Japanese yen to one
United States dollar) a year. The minimum royalty revenue will be recognized
monthly as the license fee accrues.
Pursuant to the license agreement between BNY Licensing and Barneys
Asia Co., BNY Licensing has granted to Barneys Asia, a royalty-free, exclusive
right and license to sublicense the right to operate retail store locations and
departments with retail stores in Taiwan, Korea, Singapore, Thailand, Malaysia,
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hong Kong, Indonesia, India, China and the Philippines, and a non-exclusive
right and license to sublicense the same activities in Singapore, under the
trademark and trade name "BARNEYS NEW YORK". In addition, Barneys Asia has been
granted a license to sublicense the right to make, sell and distribute certain
products bearing the trademark "BARNEYS NEW YORK". Further, Barneys Asia has
been granted a license to use "BARNEYS NEW YORK" as part of its corporate name.
All sublicenses granted by Barneys Asia under this agreement must be
royalty-bearing. The Barneys Asia License Agreement expires on December 31,
2015; however, Barneys Asia may renew the agreement for up to three additional
ten year terms.
Intercompany Claims. On the Effective Date, substantially all
intercompany claims against the Debtors were either released and cancelled by
means of contribution, distribution or otherwise, or were offset against any
mutual intercompany claims with any remaining amount released and discharged
with no further consideration.
Administrative Claims. As a result of the bankruptcy, the Company is
subject to various Administrative Claims filed by various claimants throughout
the bankruptcy case. In connection with the Plan, the Company was required to
establish a disputed Administrative Claims Cash Reserve while the Administrative
Claims are negotiated and settled. The total amount of the cash reserve was
$4,600,000 and is included in restricted cash at January 30, 1999. The Company
has reserved in its financial statements the amount it believes will be
necessary to settle these claims.
Guarantee of Obligations. Holdings guaranteed the obligations of
Barneys and its subsidiaries under the Isetan Note, the Equipment Lessors Notes,
the New Isetan Leases and the new Licensing Arrangements.
(E) EXTRAORDINARY GAIN ON DISCHARGE OF DEBT -
The value of cash and securities required to be distributed under the
Plan was less than the value of the allowed claims on and interests in the
Predecessor Company; accordingly, the Predecessor Company recorded an
extraordinary gain of $302,285,000 related to the discharge of prepetition
liabilities in the six months ended January 30, 1999. Payments, distributions
associated with the prepetition claims and obligations and provisions for
settlements are reflected in the January 30, 1999 balance sheet. The
consolidated financial statements at January 30, 1999 give effect to the
issuance of all common stock and notes in accordance with the Plan.
The extraordinary gain recorded by the Predecessor Company was
determined as follows:
<TABLE>
<S> <C>
(in thousands)
Liabilities subject to compromise at the effective date $ 369,747
Less:
Cash distributions pursuant to the Plan (1,156)
Assumption of prepetition liabilities* (9,119)
Value of new common stock ($51,827) and warrants ($5,360) issued to
prepetition creditors (57,187)
---------------------
Extraordinary gain on debt discharge $ 302,285
=====================
</TABLE>
*The prepetition liabilities assumed by the Successor Company related
principally to claims settled pursuant to the Plan and to a reserve for disputed
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
claims pending resolution; such amounts were to be paid (or resolved) after the
Effective Date. The nature of the claims included convenience class; vendor
reclamation; and priority tax as well as amounts due pursuant to the assumption
of executory contracts.
In the accompanying Predecessor Company consolidated balance sheets,
the principal categories of claims classified as Liabilities subject to
compromise are identified below.
<TABLE>
<CAPTION>
AUGUST 1, AUGUST 2,
1998 1997
------------------------ ------------------------
(in thousands)
<S> <C> <C>
Unsecured debt $ 233,060 $ 233,084
BNY Licensing Yen loan payable to Isetan 49,129 49,129
Pre-petition accrued interest 1,467 1,467
Trade and expense payables 58,124 58,055
Lease rejection claims 15,638 15,638
Other claims 14,854 13,830
------------------------ ------------------------
Total $ 372,272 $ 371,203
======================== ========================
</TABLE>
(F) RESTRUCTURING PROGRAMS -
As a result of continuing efforts to improve Predecessor Company
profitability, during the third quarter of 1997, management of the Predecessor
Company approved a plan to close six stores and reduce personnel (the "1997
Restructuring Program"). The store closings and personnel reductions were
expected to result in headcount reductions in excess of 300 employees. Sales and
operating results (without corporate overhead allocations) respectively relating
to the stores closed were $7,954,000 and $(527,000), $63,751,000 and
$(4,300,000), and $69,937,000 and $(3,165,000) for 1998, 1997 and 1996,
respectively. Included in these results are depreciation and amortization
charges of $425,000, $3,560,000 and $3,486,000 for 1998, 1997 and 1996,
respectively.
In 1997, the Predecessor Company recorded $52,510,000 of
reorganization costs resulting from the aforementioned decisions. $38,767,000 of
the costs represented the unamortized value of the leasehold improvements,
furniture, fixtures and equipment attributable to the stores at each of their
respective closing dates, net of management's immaterial estimates for proceeds
to be received on disposal of certain of these assets or the estimated value of
certain assets (notably fixtures) to be re-used in other stores. The Company
continued to depreciate the assets through the store-closing date, which
coincided with the last day of operations of each of the stores. A majority of
this charge related to the unamortized value of leasehold improvements which
were abandoned after the stores closed. $15,038,000 of the costs represented the
estimated cost of claims (the "lease rejection claims") which could have been
filed against the Predecessor Company by the landlords of the stores in
connection with rejection of the store leases and $2,519,000 related to employee
termination costs covering an estimated 300 employees in both the stores and
administrative offices. In accordance with SOP 90-7, prepetition liabilities,
including claims that become known after a petition is filed, should be reported
on the basis of the expected amount of the allowed claims. When a lease is
rejected pursuant to a bankruptcy proceeding, the calculation to determine the
value of the lessor's claim against the lessee is governed by, and was
calculated in accordance with, the Bankruptcy Code. Accordingly, at the time the
decision was made to close the stores, the Company was able to calculate the
Lease Rejection Claims, and it believed that an accrual was appropriate in
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
accordance with both FASB Statement No. 5, "Accounting for Contingencies" and
SOP 90-7 and included such amount in the charge. Offsetting these costs in 1997
was a $3,814,000 reversal of accrued rent previously recorded to straight-line
rent over the lease term. In 1998 and the six months ended January 30, 1999, the
Predecessor Company recorded additional employee termination costs of $1,881,000
and $3,139,000, respectively, either as a result of continuing efforts to
improve Predecessor Company profitability or to fulfill certain contractual
obligations pursuant to employee separations. The employee termination costs in
1998 and the six months ended January 30, 1999 covered 13 individuals and 11
individuals, respectively, all of whom were principally administrative
employees.
Pursuant to the 1997 Restructuring Program, the Predecessor Company
closed five regional mall stores, three in July 1997, and one each in January
1998 and July 1998 and the original flagship store on 17th Street in New York
City in August 1997. After the closings of the four stores between July and
August 1997, and the related charges against the reserve for the disposition of
fixed assets, the remaining reserve (exclusive of amounts provided for lease
rejection costs) was not significant to the total amount provided in fiscal
1997. With the exception of the amounts provided for the rejection of store
leases, the cash and non-cash reserves for the various reorganization efforts of
the Company, throughout the reorganization period, were substantially utilized
as intended at the initial amounts provided. The amounts provided for the
rejection of store leases were subject to resolution as an unsecured creditor
claim pursuant to the Plan.
In the six months ended January 30, 1999, and in each of fiscal 1998,
1997 and 1996, the Predecessor Company reduced its headcount as part of the
ongoing reorganization efforts, including the 1997 Restructuring Program, by 28
associates, 137 associates, 143 associates and 37 associates, respectively. As
of January 30, 1999, the severance related reserves provided in 1998 and 1997
have been utilized as intended. At January 30, 1999, the Successor Company has a
severance reserve of approximately $3.5 million related to future on-going
severance commitments for previously terminated employees, which will be
substantially utilized by January 29, 2000.
At January 30, 1999, the Company has recorded a fresh-start
adjustment for the closure of certain outlet stores. This adjustment is
reflected in the Successor Company balance sheet at January 30, 1999.
3. FRESH START REPORTING:
As indicated in Note 1, the Company adopted fresh-start reporting as
of January 28, 1999. The use of fresh start reporting is appropriate because
holders of the existing voting shares of the Predecessor Company received less
than 50% of the voting shares of the Successor Company and the reorganization
value of the assets of the emerging entity, immediately before the date of
confirmation of the Plan, was less than the total of all post-petition
liabilities and allowed claims. Prior to the Effective Date, the majority of
common shares of the Predecessor Company were owned by the Pressman family,
certain affiliates of the Pressman family and certain trusts of which members of
the Pressman family were the beneficiaries. On the Effective Date, the Pressman
family was issued an aggregate of 1.5% of the outstanding shares of Holdings
Common Stock. After the Effective Date, the majority of Common Shares of
Holdings were owned by the Plan Investors. In adopting fresh start reporting,
the Company was required to determine its enterprise value, which represents the
fair value of the entity before considering its liabilities.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The official committee of unsecured creditors retained and was
advised by Peter J. Solomon Company Ltd. ("PJSC") with respect to the value of
Holdings. PJSC undertook its valuation analysis for the purpose of determining
the value available to distribute to creditors pursuant to the Plan and to
analyze the relative recoveries to creditors thereunder. The analysis was based
on the financial projections provided by the Predecessor Company's management as
well as current market conditions and statistical data. The values were as of an
assumed Effective Date of January 30, 1999 and were based upon information
available to and analyses undertaken by PJSC in October 1998.
PJSC used discounted cash flow, comparable publicly traded company
multiple and comparable merger and acquisition transaction multiple analyses to
arrive at total reorganization value. These valuation techniques reflect the
levels at which comparable public companies trade and have been acquired as well
as the intrinsic value of future cash flow projections in the Company's business
plan. The valuation was also based on a number of additional assumptions,
including a successful reorganization of the business and finances in a timely
manner, the achievement of the forecasts reflected in the financial projections,
the amount of available cash at emergence, the availability of certain tax
attributes, the continuation of current market conditions through the Effective
Date and the Plan becoming effective.
Based upon the foregoing assumptions, the pro-forma organizational
structure, and advice from PJSC, the going concern value for Holdings
post-reorganization was determined to be $285,000,000 (the "Total Reorganization
Value") as of the Effective Date. Based on the established Total Reorganization
Value for Holdings, and assumed total debt of approximately $129,500,000 and
$2,000,000 in new preferred stock upon emergence, the Plan Investors and the
official committee of unsecured creditors employed an assumed common equity
value for Holdings of approximately $153,500,000 which was subject to adjustment
after giving effect to the exercise of warrants and options. The Total
Reorganization Value of the Debtors' business assumed a projected average exit
financing facility revolver balance for the 12 months subsequent to the
Effective Date equal to $71,200,000 and included cash of $3,500,000 upon
emergence.
The adjustments to reflect the provisions of the Plan and the
adoption of fresh start reporting, including the adjustments to record assets
and liabilities at their fair market values, have been reflected in the
following balance sheet reconciliation as of January 30, 1999 as fresh start
adjustments. In addition, the Successor Company's balance sheet was further
adjusted to eliminate existing equity and to reflect the aforementioned
$285,000,000 Total Reorganization Value, which includes the establishment of
$177,767,000 of reorganization value in excess of amounts allocable to net
identifiable assets ("Excess Reorganization Value"). In accordance with SOP
90-7, the Company allocated the $285,000,000 reorganization value (or
capitalization) as follows: first to the long-term debt issued (outstanding) as
discussed below; then to the pre-petition liabilities of the Predecessor Company
assumed by the Successor Company or paid on the Effective Date approximating
$10,275,000 and the remainder of $154,340,000 was attributed to the new equity
of Holdings issued in satisfaction of the remaining unsecured claims of the
Predecessor Company. The Excess Reorganization Value is being amortized using
the straight-line method over a 20-year useful life.
The Successor Company established a 20-year useful life after
considering the financial health of the emerging entity, the principal
investors, the luxury goods sector of the specialty retail industry, and the
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
strength of the Barneys New York trademark. Additionally, but to a lesser
extent, the Successor Company considered the terms of the renegotiated leases
with Isetan for the three flagship stores in New York, California and Chicago.
The base terms of two of the three leases, including the lease for the Madison
Avenue store, is 20 years. If the Successor Company exercises all renewal
options, the lease terms could range from a minimum of 40 years to a high of 60
years.
The reorganization value has been allocated on a preliminary basis to
the net assets of the Predecessor Company as part of fresh-start accounting. The
Reorganization column on the following page reflects the effects of transactions
or settlements arising pursuant to the Plan as Reorganization adjustments. The
Plan provided generally for the issuance of Holdings stock and cash in
settlement of Liabilities subject to compromise. This, in turn, gave rise to an
Extraordinary gain on discharge of debt. Also, pursuant to the Plan, settlements
(discussed in detail in Note 2) were reached with Isetan, Equipment Lessors and
the Pressman family members that, in certain instances, impacted historical
amounts recorded on the Predecessor Company's balance sheet. Examples of this
would be the Deferred credits and certain fixed assets as discussed in greater
detail below. The other significant reorganization adjustment was the repayment
of the debtor in possession credit agreement which funding was replaced, in
part, with new borrowings under the Credit Agreement.
In addition to the reorganization adjustments referred to above, the
Company also recorded fresh-start adjustments. In accordance with SOP 90-7, the
Company included in this column the adjustments required to eliminate the
Predecessor Company's equity; to record the reported assets and liabilities at
their fair market value; to establish certain liabilities pursuant to Accounting
Principles Bulletin Opinion 16, "Accounting for Business Combinations" ("APB No.
16"); and to reflect the $285,000,000 Total Reorganization Value. The effects of
the fair market value adjustments approximated $294,000 and are included in the
Statement of Operations of the Predecessor Company as fresh-start valuation.
Reconciliation of the Predecessor Company balance sheet as of January
30, 1999 to that of the Successor Company showing the adjustments thereto to
give effect to the discharge of prepetition debt and fresh-start reporting
appears on the following page.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
PREDECESSOR REORGANI- FRESH-START SUCCESSOR
COMPANY ZATION ADJUSTMENTS COMPANY
---------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 5,806 $ 1,018 $ - $ 6,824
Restricted cash 4,386 696 5,082
-
Receivables 28,866 (1,025) 27,841
-
Inventories 66,951 - (1,400) 65,551
Other current assets 6,180 500 (333) 6,347
---------------- ------------------ ----------------- ---------------
Total current assets 112,189 2,214 (2,758) 111,645
Fixed assets 112,080 (61,240) 516 51,356
Excess reorganization value 60,676 117,091 177,767
-
Other assets 2,357 829 3,186
-
---------------- ------------------ ----------------- ---------------
Total assets $226,626 $ 2,479 $ 114,849 $ 343,954
================ ================== ================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Debtor in possession credit agreement $ 83,389 $ (83,389) $ - $ -
Accounts payable 15,996 15,996
- -
Accrued expenses 48,734 591 5,260 54,585
Subscription Rights offering liability 4,386 (4,386)
- -
---------------- ------------------ ----------------- ---------------
Total current liabilities 152,505 (87,184) 5,260 70,581
Long-term debt 120,385 (1,852) 118,533
-
Other long-term liabilities 5,894 (5,894)
- -
Liabilities subject to compromise 369,747 (369,747)
- -
Deferred credits and minority interest 174,446 (174,446)
- -
Redeemable Preferred Stock - 500 - 500
Shareholders' equity (deficit)
Preferred stock 32,770 (32,770)
- -
Common stock 171 125 (171) 125
Additional paid-in capital 38,950 133,144 (17,879) 154,215
Accumulated deficit (547,857) 379,702 168,155
-
---------------- ------------------ ----------------- ---------------
Total shareholders' equity (deficit) (475,966) 512,971 117,335 154,340
---------------- ------------------ ----------------- ---------------
Total liabilities and shareholders' equity (deficit) $226,626 $ 2,479 $114,849 $ 343,954
================ ================== ================= ===============
</TABLE>
The balance sheet captions impacted and the nature of the more
significant reorganization adjustments are discussed in further detail below:
Cash and Restricted Cash ("Cash"). The proceeds from the Rights
Offering ($58,221,000) and borrowings pursuant to the Credit Agreement
(approximately $62,100,000) were used to: repay $83,389,000 outstanding under
the debtor in possession credit agreement; pay Isetan $23,275,000 (including a
$3,122,000 administrative claim payment for unpaid rent) on account of its
allowed claims (the "Isetan Payments"); pay $4,740,000 for professional fees and
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
allowed administrative claims; pay Dickson Concepts $3,500,000 in connection
with the termination of an asset purchase agreement (the "Dickson Payment"); pay
$1,700,000 in bank fees in connection with the Credit Agreement (the "Bank
Payment"); pay $1,156,000 to holders of certain general unsecured claims; and
pay $955,000 to members of the Pressman family in connection with their
consulting agreements.
Fixed Assets. Pursuant to the Isetan settlement, Isetan received
outright ownership of the leasehold improvements in the three flagship stores.
Accordingly, the Company reduced its fixed assets by $97,029,000 with a
corresponding write-off to Accumulated deficit (the "Fixed Asset write-off").
Pursuant to the Equipment Lessors settlement, certain lessors of equipment to
the Company transferred all right, title and interest in such equipment to the
Company. The Company issued the Equipment Lessors Notes in an aggregate
principal amount of $35,789,000 with a corresponding increase to fixed assets.
Excess Reorganization Value. The Company recorded settlements
pursuant to the Plan for Isetan, the Equipment Lessors and the Pressman family
as Reorganization adjustments. The primary components of such adjustments were
the issuance of the Isetan Note ($22,500,000); the Isetan Payments; the issuance
of equity to Isetan; and the entry into consulting agreements with, and the
issuance of equity to the Pressman family. In each instance, the payment of
cash, the establishment of a liability or the issuance of Holdings Common Stock
gave rise to a corresponding charge to Excess reorganization value.
Other Assets. Other assets increased as a result of the Bank Payment
discussed above offset by the write-off of $871,000 in long-term security
deposits compromised in connection with the Equipment Lessors settlement
pursuant to the Plan.
Accrued Expenses. Accrued expenses of the Predecessor Company were
reduced principally by the disbursement of cash for the professional fee and
administrative claim payments, and the Dickson Payment aggregating $11,362,000
offset by the assumption of pre-petition liabilities aggregating $9,119,000 to
be paid subsequent to the emergence from bankruptcy.
Subscription Rights Offering Liability. In December 1998, the
Predecessor Company received $4,386,000 in cash from certain general unsecured
creditors in connection with the Subscription Rights offering. The cash was
recorded as Restricted cash on the Balance sheet. On the Effective Date, the
cash proceeds were used to consummate the provisions of the Plan and the related
equity in Holdings was issued.
Long-term Debt. Long-term debt consists of $62,096,000 outstanding
pursuant to the Credit Facility, $35,789,000 outstanding pursuant to the
Equipment Lessor Notes, and $22,500,000 issued pursuant to the Isetan Note (see
Excess Reorganization Value discussed above).
Liabilities Subject to Compromise. Such amounts were settled pursuant
to the Plan. The Predecessor Company recognized an extraordinary gain on debt
discharge of $302,285,000. See Note 2 (b).
Deferred Credits and Minority Interest. In a prior year, the
Predecessor Company had recorded deferred credits of $162,446,000 relating to
the cash sale to an affiliate of participation rights in future payments to be
received pursuant to the License Agreement and Services Agreement (collectively
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the "Agreements") with Isetan discussed in Note 11 (c). Additionally, in a prior
year, Barneys America issued preferred stock to Isetan of America, Inc. for an
aggregate purchase price of $12,000,000. Such amount was recorded as minority
interest. Pursuant to the Isetan settlements in the Plan, the Agreements were
terminated and Isetan's investment in Barneys America was contributed to
Barneys. The elimination of these liabilities, aggregating $174,446,000 (the
"Eliminated Liabilities"), were accounted for as a direct reduction to the
Accumulated deficit of the Predecessor Company.
Redeemable Preferred Stock. 20,000 shares of New Preferred Stock,
with an aggregate liquidation preference of $2,000,000, were issued pursuant to
the Plan. Holdings issued 5,000 shares for an aggregate purchase price of
$500,000 in government securities to Bay Harbour, which it resold to a third
party, and 15,000 shares were issued to the Barneys Employees Stock Plan Trust
(the "Trust"). The shares contributed to the Trust will be issued to existing
employees of Barneys as incentive compensation in connection with future
services to be rendered to the Company. The Reorganization adjustment pertains
to the sale of 5,000 shares of stock to Bay Harbour at liquidation value. As no
consideration was exchanged for the remaining 15,000 shares contributed to the
Trust, there was no fair market value allocated to them in the reorganization.
In accordance with Staff Accounting Bulletin No. 64, Redeemable Preferred Stock
("SAB No. 64"), the value of these 15,000 shares will be accreted on a
straight-line basis over 10 years, to their mandatory redemption value of
$1,500,000.
Common Stock and Additional Paid in Capital. The adjustments reflect
the issuance of Holdings common stock pursuant to the Plan.
Accumulated Deficit. Accumulated deficit of the Predecessor Company
was reduced by both the extraordinary gain on discharge of prepetition debt and
the Eliminated Liabilities offset by the Fixed Asset Write-off, each of which is
discussed above.
The balance sheet captions impacted and the nature of the more
significant Fresh-start adjustments are discussed in further detail below:
Excess Reorganization Value and Shareholders' Equity (Deficit). The
adjustments reflect the elimination of the Predecessor Company's old stock,
accumulated deficit (after taking into account the impact of the Reorganization
adjustments discussed above and the fresh start revaluation), and the adjustment
to reflect the Successor Company's total reorganization value of $285,000,000.
Accrued Expenses. Includes individually immaterial accruals recorded
in accordance with both SOP 90-7 and APB No. 16, principally related to
professional fees, severance, taxes and registration fees. The corresponding
charge to establish such accruals, aggregating $5,260,000, is included in
Fresh-start revaluation in the Statement of Operations.
Other Long Term Liabilities. Other long-term liabilities of the
Predecessor Company represented amounts recorded in accordance with FASB 13
"Accounting for Leases" ("FAS No. 13") pertaining to both contractual rent
escalations and landlord contributions for build-outs. A fair market value was
not assigned to these liabilities since, in accordance with APB No. 16, the
existing leases are treated as new leases of the Successor Company. This
requires the Successor Company to amortize the remaining scheduled lease
commitments over the remaining lease periods on a straight-line basis beginning
with the Effective Date. The $5,894,000 write-down of the Other long-term
liabilities is included in Fresh-start revaluation in the Statement of
Operations.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements include the accounts of the
Predecessor or Successor Company and its wholly-owned and majority-owned
subsidiaries. Intercompany investments and transactions have been eliminated in
consolidation.
(B) CASH AND CASH EQUIVALENTS -
All highly liquid investments with a remaining maturity of three
months or less at the date of acquisition are classified as cash equivalents.
The carrying value approximates their fair value.
(C) ACCOUNTS RECEIVABLE AND FINANCE CHARGES -
The Company provides credit to its customers and performs on-going
credit reviews of its customers. Concentration of credit risk is limited because
of the large number of customers. Finance charge income recorded in the six
months ended January 30, 1999 approximated $1,978,000. Finance charge income
recorded in fiscal 1998, 1997 and 1996 approximated $3,280,000, $3,202,000 and
$1,315,000, respectively and is included in other-net in the statement of
operations.
(D) INVENTORIES -
Merchandise inventories are stated at the lower of FIFO (first-in,
first-out) cost or market, as determined by the retail inventory method.
Merchandise is purchased from many different vendors based throughout the world.
In certain instances, the Company has formal and informal arrangements with
vendors covering the supply of goods. While no vendor supplies the Company with
more than 10% of its inventory, if certain vendors were to suspend shipments,
the Company might, in the short term, have difficulty identifying comparable
sources of supply. However, management believes that alternative supply sources
do exist to fulfill the Company's requirements should a supply disruption occur
with any major vendor.
(E) FIXED ASSETS -
Fixed assets of the Predecessor Company are recorded at cost.
Depreciation is computed using the straight-line method. Fully depreciated
assets are written off against accumulated depreciation. Furniture, fixtures and
equipment are depreciated over their useful lives. Leasehold improvements are
amortized over the shorter of the useful life or the lease term.
Pursuant to SOP 90-7, property and equipment were restated at
approximate fair market value at January 30, 1999.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(F) EXCESS REORGANIZATION VALUE -
Excess reorganization value represents the adjustment of the
Company's balance sheet for reorganization value in excess of amounts allocable
to identifiable assets. Excess reorganization value is being amortized using the
straight-line method over 20 years.
(G) EARNINGS PER COMMON SHARE -
Earnings per common share is computed as net income (loss) divided by
the weighted average number of common shares outstanding. Earnings per common
share has not been included herein as the computation would not provide
meaningful results as the capital structure of the Successor Company is not
comparable to that of the Predecessor Company.
(H) IMPAIRMENT OF ASSETS -
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows of the
individual stores and consolidated undiscounted net cash flows for long-lived
assets, not identifiable to individual stores. An impairment loss recognized
will be measured as the amount by which the carrying amount of the asset exceeds
the fair value of the asset. If quoted market prices are not available, the
estimate of fair value will be based on the best information available under the
circumstances, such as prices for similar assets or the present value of
estimated expected future cash flows.
(I) FOREIGN EXCHANGE CONTRACTS -
The Company enters into certain foreign currency hedging instruments
(forward and option contracts), from time to time, to reduce the risk associated
with currency movement related to committed inventory purchases denominated in
foreign currency. Gains and losses that offset the movement in the underlying
transactions are recognized as part of such transactions.
As of January 30, 1999, the Company had outstanding forward contracts
for the Italian Lira, German Mark, French Franc and the Belgium Frank with a
notional value approximating $6,050,000 maturing in 1999. Utilizing applicable
forward rates at the end of the fiscal period and the rate spread at the time of
purchase, the Company estimated the fair value of these contracts to be
approximately $5,931,000 at January 30, 1999.
The notional and estimated fair value of the individual currencies is
detailed below:
<TABLE>
<S> <C> <C>
Foreign Currency Notional Amount Estimated Fair Vale
Italian Lira $ 4,151,000 $ 4,069,000
German Marc 973,000 954,000
Belgium Franc 564,000 553,000
French Franc 362,000 355,000
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(J) REVENUE RECOGNITION -
Sales, recognized at the point of sale, consist of sales of
merchandise, net of returns. Net sales in the Statement of Operations include an
estimate for merchandise returns, where a right of return exists, in accordance
with SFAS No. 48, "Revenue Recognition When Right of Return Exists." Bulk sales
of merchandise to jobbers are not included in Net sales, but rather the net
profit or loss on these sales is reflected as an adjustment to Cost of sales.
(K) ADVERTISING EXPENSES -
The Company expenses advertising costs upon first showing.
Advertising expenses were approximately $2,041,000 in the six months ended
January 30, 1999 and $3,324,000, $3,818,000 and $4,009,000 in fiscal 1998, 1997
and 1996, respectively.
(L) INCOME TAXES -
The Company records income tax expense using the liability method.
Under this method, deferred tax assets and liabilities are estimated for the
future tax effects attributable to temporary differences between the financial
statement and tax basis of assets and liabilities.
(M) ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
(N) RECLASSIFICATION -
Certain prior year amounts have been reclassified to conform to
current year presentation.
5. FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
SUCCESSOR | PREDECESSOR COMPANY COMPANY COMPANY
COMPANY | ESTIMATED ESTIMATED
JANUARY 30, | AUGUST 1, AUGUST 2, USEFUL LIFE USEFUL LIFE
1999 | 1998 1997 (IN YEARS) (IN YEARS)
----------- | --------- --------- ----------- -----------
|
<S> <C> | <C> <C> <C> <C>
Furniture, fixtures and equipment $ 46,145 | $ 13,859 $ 15,406 3 to 7 5 to 10
Leasehold improvements 5,211 | 139,006 136,019 2 to 14 2 to 40
----------- | --------- ---------
Total 51,356 | 152,865 151,425
Less: Accumulated depreciation and |
amortization - | (38,226) (32,274)
----------- | --------- ---------
Net fixed assets $ 51,356 | $ 114,639 $ 119,151
=========== | ========= =========
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. DEBT - SUCCESSOR COMPANY:
(A) REVOLVING CREDIT FACILITY -
In January 1999, the Company entered into a $120,000,000 revolving
credit facility with a $40,000,000 sublimit for the issuance of letters of
credit (the "Credit Agreement") with Citicorp USA, Inc., General Electric
Capital Corporation, BNY Financial Corporation, and National City Commercial
Finance, Inc. maturing on January 28, 2003. The proceeds from this Credit
Agreement were used to repay borrowings under the debtor in possession credit
agreement, to pay certain claims, to pay professional fees and to provide
working capital to the Company as it emerged from its Chapter 11 proceeding
pursuant to the Plan. At January 30, 1999, there were outstanding loans of
approximately $62,096,000 and $19,044,000 was committed under unexpired letters
of credit. Additionally, as collateral for performance on certain leases and as
credit guarantees, Barneys is contingently liable under standby letters of
credit in the amount of approximately $2,489,000 (See Note 8).
Revolving credit availability is calculated as a percentage of
eligible inventory (including undrawn documentary letters of credit) and a
percentage of the Barneys private label credit card receivables plus $20,000,000
(such amount subject to a downward adjustment as defined). Interest rates on the
Facility are the Base Rate (as defined), which approximates Prime, plus 1.25% or
LIBOR plus 2.25%, subject to adjustment after the first year. The interest rate
at January 30, 1999 was 9%.
The Credit Agreement contains various financial covenants principally
relating to net worth, leverage, earnings and capital expenditures. During the
fiscal year ending January 29, 2000, the Credit Agreement covenants do not allow
for any material deviation from the Company's business plan for such year.
Obligations under the Facility are secured by a first priority and
perfected lien on all unencumbered property of the Company. The Facility
provides for a fee of 1.25% to 1.75% per annum on the daily average letter of
credit amounts outstanding and a commitment fee of 0.375% on the unused portion
of the facility.
In connection with the Facility, the Company incurred fees of
$2,825,000 that will be amortized over the life of the facility as interest and
financing costs. These fees were principally paid in December 1998 and January
1999 and are included in Other assets at January 30, 1999.
(B) ISETAN NOTE -
Barneys issued the Isetan Note in the principal amount of
$22,500,000. The Isetan Note bears interest at the stated rate of 10% per annum
payable semi-annually, and matures on January 29, 2004. The first interest
payment due on August 15, 1999 is to be paid in cash unless a majority of
independent directors of the Company determine, with respect to the first four
interest payments due, that it is in the best interests of Barneys to defer
those payments and add them to the outstanding principal amount.
The fair value of the Isetan Note was estimated to be approximately
$20,648,000. This amount is not necessarily representative of the amount that
could be realized or settled. The difference between the face amount and the
fair market value has been recorded as a debt discount at January 30, 1999. The
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
fair market value was based upon a valuation from an investment banking firm
utilizing discounted cash flows and comparable company methodology.
(C) EQUIPMENT LESSORS NOTES -
The Company issued the Equipment Lessors Notes in an aggregate
principal amount of approximately $35,789,000. Such promissory notes bear
interest at the stated rate of 11-1/2% per annum payable semi-annually, mature
on January 29, 2004, and are secured by a first priority lien on the equipment
that was the subject of each of the respective equipment leases. The first
interest payments were made on February 15, 1999.
The estimated fair value of the Equipment Lessors Notes approximates
face value as estimated by an investment banking firm utilizing discounted cash
flows and comparable company methodology.
Whippoorwill, one of the Successor Company's principal shareholders
after the Effective Date, owns an approximate 25% beneficial interest in the
holder of one of the Equipment Lessor Notes with an aggregate principal amount
of $34.2 million.
7. DEBT - PREDECESSOR COMPANY:
(A) DEBTOR IN POSSESSION CREDIT AGREEMENT -
From January 11, 1996 through the Effective Date, Barneys had debtor
in possession revolving credit facilities (the "DIP Facility"). At August 1,
1998 and August 2, 1997 there were outstanding loans of approximately
$75,437,000 and $64,113,000, respectively. On January 28, 1999, all loans
outstanding pursuant to the Predecessor Company's debtor in possession credit
facility were repaid in full.
The DIP Facility outstanding just prior to the Effective Date, was
entered into with BankBoston, N.A., as Administrative Agent, and it was dated as
of July 15, 1997. The agreement provided for loans in two tranches, "Tranche A"
and "Tranche B". Credit extensions were limited to $85,000,000 under Tranche A
and $30,000,000 under Tranche B. Interest rates on Tranche A loans were either
prime plus 0.50% or LIBOR plus 2.25%. The interest rate on Tranche B loans was
LIBOR plus 4.50%. At August 1, 1998 and August 2, 1997, Tranche A borrowings
were $44,792,633 and $39,112,946, respectively, and Tranche B borrowings were
$30,000,000 and $25,000,000, respectively. Interest rates on the outstanding
borrowings were between 7.875% and 10.875% at August 1, 1998 and between 7.92%
and 10.25% at August 2, 1997.
Obligations under the DIP Facility were secured by (a) guarantees by
each of the Debtors; (b) a first priority lien on all unencumbered property of
each of the Debtors; and (c) a junior lien on certain property of the Debtors
subject to existing liens. The DIP Facility provided for a fee of 1.75% per
annum on the daily average letter of credit amounts outstanding and a commitment
fee of 0.375% on the unused portion of the facility.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(B) INTEREST PAID -
During the six months ended January 30, 1999 the Company paid
interest of $4,095,000. During fiscal 1998, 1997 and 1996 the Company paid
interest of $5,614,000, $5,467,000 and $11,698,000, respectively.
(C) OTHER OBLIGATIONS -
The table that follows and the descriptions of the financing
arrangements contained herein is based on the original contractual terms and
maturities of the related financial instrument. As a result of the Chapter 11
filings, the Company breached covenants in substantially all of its then
existing debt agreements. The amounts outstanding are classified as Liabilities
subject to compromise at both August 1, 1998 and August 2, 1997. It is not
practicable to estimate the fair value of the prepetition debt due to the
Chapter 11 filings.
Prepetition debt consists of the following:
<TABLE>
<S> <C>
(IN THOUSANDS)
Revolving credit facility, with Chemical Bank as Agent; interest rate of 8.5%(i)*
$ 72,911
Term loan facility, with Chemical Bank as Agent; interest rate of 7.1875% (i) *
35,000
Republic National Bank of New York note due on January 10, 1996 at 8% (ii)*
25,000
Senior notes due between 1998 and 2000 at 8.32%
issued April 1994 (iii)* 40,000
Senior notes due between 1998 and 2000 at 7.18%
issued June 1993 (iii)* 60,000
BNY Licensing Yen loan payable to Isetan 49,129
------------------------
Long-term debt $ 282,040
========================
</TABLE>
* In Default
(i) Financing Agreements -
In September 1995, the Company entered into a credit facility with a
group of lenders, with Chemical Bank as Agent, which permitted borrowings up to
$120,000,000 on an unsecured basis. Proceeds from this facility were used to
refinance various existing credit agreements and to pay off, pursuant to the
terms of such facility, the outstanding debt of certain affiliated entities,
which Barneys had guaranteed. The scheduled due date of this facility was
February 28, 1998. Interest was calculated at various interest rates, one of
which was the prime rate. The credit facility provided for revolving credit
loans, issuance of letters of credit and term loans. The term loan portion of
the facility was $35,000,000 with the following scheduled repayment terms:
$5,000,000 on October 1, 1997, $5,000,000 on January 1, 1998 and $25,000,000 on
February 28, 1998.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(ii) Republic National Bank Note -
The Republic National Bank Note was an unsecured note in the amount
of $25,000,000 with a scheduled maturity date of January 10, 1996.
(iii) Senior Notes -
Senior notes were unsecured, with scheduled interest payments due
semi-annually on June 15 and December 15. Principal on the aggregate $100
million senior notes was payable by its terms as follows: 1998 - $25,000,000,
1999 - $25,000,000, 2000 - $50,000,000.
8. COMMITMENTS AND CONTINGENCIES:
(A) LEASES -
The Company leases real property and equipment under agreements that
expire at various dates. Certain leases contain renewal provisions and generally
require the Company to pay utilities, insurance, taxes and other operating
expenses. In addition, certain real estate leases provide for escalation rentals
based upon increases in lessor's costs or provide for additional rent contingent
upon the Company increasing its sales.
At January 30, 1999, total minimum rentals at contractual rates are
as follows for the respective fiscal years:
<TABLE>
<CAPTION>
THIRD
PARTIES ISETAN TOTAL
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1999 $ 7,686 $ 12,222 $ 19,908
2000 7,465 12,480 19,945
2001 7,490 12,720 20,210
2002 7,155 12,942 20,097
2003 6,348 28,200 34,548
Thereafter 140,004 214,995 354,999
-----------------------------------------------------
Total minimum rentals $ 176,148 $ 293,559 $ 469,707
=====================================================
</TABLE>
Total rent expense for the six months ended January 30,1999 was
$14,632,000 including percentage rent of $57,000. Total rent expense in fiscal
1998, 1997 and 1996 was $31,696,000, $40,175,000 and $54,219,000, respectively
which included percentage rent of $319,000, $98,000 and $3,240,000 in each of
the respective years.
On January 10, 1996, the Company ceased accruing stated rent expense
(both base rent and percentage rent) to Isetan and its affiliated companies for
the Madison Avenue, Beverly Hills and Chicago stores and to substantially all of
its equipment lessors as a result of disputes on the characterization of these
obligations. These matters were resolved as part of the Plan.
During the bankruptcy, in accordance with interim stipulations,
orders of the Court and the debtor-in-possession credit agreements the Company
made "on account" cash payments to Isetan and the equipment lessors at rates
substantially below the contractual amounts. The amount of these payments,
F-26
<PAGE>
included in Selling, general and administrative expenses are detailed below
along with the corresponding contractual amount for each of the periods
reported.
<TABLE>
<CAPTION>
ISETAN OCCUPANCY COSTS EQUIPMENT LESSOR COSTS
---------------------- ----------------------
RECORDED CONTRACTUAL RECORDED CONTRACTUAL
-------- ----------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Six months ended
January 30, 1999 $ 4,611 $ 10,248 $ 2,687 $ 7,750
Fiscal 1998 9,223 22,510 5,642 15,500
Fiscal 1997 9,297 22,164 6,427 15,500
January 11, 1996 to
August 2, 1996 6,231 11,929 3,300 8,900
</TABLE>
The recorded equipment lessor costs in the six months ended January
30, 1999 and fiscal 1998 exclude amounts recorded as reorganization costs
related to closed stores.
(B) LEASE LETTERS OF CREDIT -
At January 30, 1999, Barneys had prepetition letters of credit
outstanding in the amount of $1,346,000 in connection with certain leases.
Subsequent to January 30, 1999, substantially all of these prepetition letters
of credit were cancelled.
(C) LITIGATION -
The Company is party to certain other litigation and asserted claims
and is aware of other potential claims. Management believes that pending
litigation in the aggregate will not have a material effect on the Company's
future financial position, cash flows or results of operations.
(D) CONSULTING AGREEMENT -
Meridian Agreement. Pursuant to an agreement dated as of August 1,
1998, among the Company, Thomas C. Shull and Meridian, as amended (the "Meridian
Agreement"), Meridian received payments from the Company for consulting services
provided by Mr. Shull and two additional consultants, Edward Lambert and Paul
Jen. Pursuant to the Meridian Agreement, Mr. Shull served as President and Chief
Executive Officer until May 5, 1999, and Mr. Lambert served as Chief Financial
Officer of Holdings and its affiliates until May 28, 1999. In addition, Paul Jen
served as Vice President-Marketing until May 1999. The services provided under
the Meridian Agreement consisted of providing the services of these three
individuals in such capacities. In consideration of these services, Meridian
received a base fee at the rate of $95,000 per month, $9,500 per month to cover
Meridian's overhead and other expenses and reimbursement for reasonable
out-of-pocket expenses of the three individuals. In addition, Meridian received
a $100,000 performance bonus on February 1, 1999. Additionally, in consideration
of Meridian's efforts during the transition to Successor Company management,
Meridian received payments totaling $465,000 covering the period February 1999
through May 1999. Meridian advised the Company that, for the twelve month period
ending January 30, 1999, $600,000 of the annual payments made by the Company to
Meridian represent the portion of the payments payable under the Meridian
Agreement allocated by Meridian to Mr. Shull. The Meridian Agreement terminated
on May 31, 1999. Mr. Shull resigned as President and Chief Executive Officer on
May 5, 1999, upon the appointment of Allen I. Questrom to those positions. Mr.
Lambert resigned as Chief Financial Officer effective May 28, 1999.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Upon termination of the Meridian Agreement on May 31, 1999, Meridian
was entitled to a payment of (i) $104,500 per month for a period of eight
months, (ii) $104,500 per month for a period of four additional months,
commencing on the first day of the ninth month following termination, subject to
mitigation based on any other compensation received for the services of Mr.
Shull and the two other consultants during that period and (iii) payment of all
earned and accrued vacation pay, not to exceed $85,000. All amounts due to
Meridian pursuant to the terms of the Meridian Agreement have been paid by the
Company.
9. REORGANIZATION COSTS:
The effects of transactions occurring as a result of the Barneys
Debtors' Chapter 11 filings and reorganization efforts have been segregated from
ordinary operations and are comprised of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR
JANUARY 30, 1999 1998 1997 1996
----------------- ------------------ ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Professional fees $ 3,637 $ 7,381 $ 13,869 $ 9,974
Asset write-offs, net - 29 38,767 8,382
Lease rejection costs - - 15,038 600
Straight line rent reversal - - (3,814) (95)
Payroll and related costs 5,274 4,565 5,574 2,938
Other 4,923 3,995 2,773 7,608
----------------- ------------------ ----------------- ------------------
Total reorganization costs $ 13,834 $ 15,970 $ 72,207 $ 29,407
================= ================== ================= ==================
</TABLE>
During the six months ended January 30, 1999, the Company paid
Reorganization costs of $12,511,000, net of amounts received from an affiliate
(see Note 11). During fiscal 1998, 1997 and 1996, the Company paid
Reorganization costs of $18,105,000, $14,512,000 and $5,859,000, respectively.
Professional fees -- principally relate to legal, accounting and
business advisory services provided to the Predecessor Company and the unsecured
creditors committee to the Predecessor Company from the Filing Date to the
Effective Date. Substantially all of these fees were expensed as incurred, in
accordance with the provisions of SOP 90-7.
Asset write-offs -- each of the stores closed by the Predecessor
Company was fully operational until the established closing date. As such, the
Predecessor Company continued to depreciate the related store assets up to such
date. Accordingly, the amount provided by the Predecessor Company for asset
write-offs, net included the unamortized value of the leasehold improvements,
furniture, fixtures and equipment attributable to the store at the respective
stores closing date, net of an estimated recovery for future use or disposition
of the related assets. A majority of the assets written off related to
unamortized leasehold improvements which were abandoned.
In addition to the above, asset write-offs in 1996 also includes
approximately $3.0 million related to the unamortized portion of the bank fees
associated with the Predecessor Company's bank financing arrangements entered
into prior to the Filing Date. At the Filing Date, the Company defaulted on such
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
financing arrangements, and the amounts outstanding pursuant to these agreements
became subject to compromise. At that time, the unamortized fees were deemed
worthless and written off as a reorganization expense.
Payroll and related costs -- principally represent costs associated
with the Bankruptcy Court approved key employee retention and bonus program,
severance costs attributable to either employee headcount reductions or
contractual obligations of the Predecessor Company, and certain other fees
earned by certain individuals retained by the Predecessor Company, for their
expertise in bankruptcy related matters. For the six months ended January 30,
1999 and for 1998, 1997 and 1996, the severance included in payroll related
costs was $3,139,000, $1,881,000, $2,519,000 and $1,785,000, respectively.
Other costs -- in the six months ended January 30, 1999 and fiscal
1998 includes $3,500,000 and $1,500,000, respectively, paid to Dickson Concepts
(International) Limited in connection with the termination of an asset purchase
agreement and the consummation of the Plan. Other miscellaneous costs in fiscal
1996 includes a $7.0 million charge in connection with a purchase put agreement
whereby Barneys agreed to purchase certain property leased by Barneys from an
affiliate and to assume obligations to the mortgagee thereof upon the exercise
of the rights granted pursuant thereto. The purchase put agreement was entered
into in connection with mortgaging of real property which was leased by the
Company from Preen. Pursuant to that agreement, the Company, at the election of
Preen, could have been required to purchase the real property for a purchase
price equal to the greater of $7.0 million and the fair market value of the
property. Preen's interest in the purchase put agreement was pledged to the
institutional mortgagee who subsequently foreclosed on the security interest. As
the fair market value of the property was less than $7.0 million, that amount
was an allowed general unsecured claim and was settled pursuant to the Plan.
In addition to the above, other costs includes costs incurred by the
Predecessor Company related to its reorganization, including but not limited to
ancillary costs associated with the decision to close certain stores,
administrative costs of the bankruptcy such as for trustee fees and public
relations costs.
Accrued expenses at January 30, 1999 and August 1, 1998 includes fees
payable to professionals pertaining to court approved "holdbacks" or fees not
awarded, during the bankruptcy of approximately $6,900,000 and $7,400,000,
respectively. Substantially all of these fees will be paid in 1999.
10. INCOME TAXES:
Pursuant to the Plan, Holdings acquired 100% of the Predecessor
Company's stock. Holdings will make a Section 338(g) election (the "Election")
with respect to the acquisition under applicable provisions of the Internal
Revenue Code ("IRC"). The tax effects of making the Election would result in
Barneys and each of its subsidiaries generally being treated, for federal income
tax purposes as having sold its assets to a new corporation which purchased the
same assets as of the beginning of the following day. As a result, the
Predecessor Company will incur a gain or loss at the time of the deemed sale in
an amount equal to the difference between the fair market value of its assets
and its collective tax basis of the assets at the time of the sale.
The Company may use existing net operating loss carryforwards to
reduce any gain incurred as a result of this sale. The Company will, however, be
subject to alternative minimum tax. As a result of the Election, the Company has
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
recorded a $1,000,000 alternative minimum tax liability as a "fresh start"
adjustment. Furthermore, immediately after the sale, as a result of the
Election, the Predecessor Company will be stripped of any remaining tax
attributes, including any unutilized net operating loss carryforwards and any
unutilized tax credits.
In the six months ended January 30, 1999 and fiscal 1998, 1997 and
1996, the Company recorded a provision for income taxes of approximately
$38,000, $77,000, $62,000 and $472,000, respectively, which principally relates
to state and local income and franchise taxes. In the comparable periods, the
Company paid capital, franchise and income taxes, net of refunds, of
approximately $19,000, $18,000, $35,000 and $63,000, respectively.
Deferred tax assets and liabilities of the Predecessor Company
reflected the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. On the Effective Date, the significant
differences related to deferred credits, net operating loss carryforwards of
approximately $230,804,000 and its reserve for affiliate receivables. The
Predecessor Company also had an investment tax credit carryover and a minimum
tax credit carryover of approximately $4,717,000 and $626,000, respectively, at
January 28, 1999.
The components of deferred taxes were as follows:
<TABLE>
<CAPTION>
JANUARY 28, AUGUST 1, AUGUST 2,
1999 1998 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current deferred tax assets $ 17,953 $ 8,507 $ 5,706
Noncurrent deferred tax assets 181,584 185,363 180,843
------------- ------------- -------------
Total deferred tax assets 199,537 193,870 186,549
Less: Valuation allowance (199,537) (193,870) (186,549)
------------- ------------- -------------
Net deferred tax asset $ - $ - $ -
============= ============= ============
</TABLE>
As of January 30, 1999 in conjunction with the Election, the
remaining tax attributes associated with the Predecessor Company's deferred tax
assets are no longer available.
For the period ended January 28, 1999 and fiscal 1998, 1997 and 1996,
income taxes reported differ from the amounts that would result from applying
statutory tax rates as net operating loss carryforwards which arose in such
periods provided no tax benefit since their future utilization was uncertain.
Accordingly, the Predecessor Company increased its valuation allowance by
approximately $5,667,000, $7,321,000, $50,477,000 and $22,294,000, in the
respective periods.
For the six months ended January 30, 1999, no income taxes were
reported in conjunction with the gain on discharge of debt as such amounts are
excluded from taxable income under IRC Section 108.
For the years including 1996, 1997 and 1998, the Company is subject
to various tax audits of the Predecessor Company's tax returns, particularly by
New York State. Most of these audits will result in minimal, if any, additional
tax liability. The Company believes that pending audit results, in the
aggregate, will not have a material effect on the Company's financial position,
results of operations or cash flows.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has been audited by the Internal Revenue Service through
the fiscal year ended June 1990. The results of such audits did not have a
material effect on the Company's financial position or results of operations.
11. RELATED PARTY TRANSACTIONS:
(A) FLAGSHIP STORE LEASES - ISETAN -
Subsidiaries of Holdings lease the Madison Avenue, Beverly Hills and
Chicago stores from Isetan. Pursuant to the terms of these leases, the Company
is required to pay base rent, as defined, and all operating expenses. Total rent
expense (excluding operating expenses) related to these leases was approximately
$4,611,000 in the six months ended January 30, 1999 and $9,223,000, $9,297,000
and $15,804,000, in fiscal 1998, 1997 and 1996, respectively.
(B) AFFILIATE COMPANIES AND OTHER RELATED PARTIES -
In addition, the Predecessor Company had previously entered into
various transactions and agreements with affiliate companies and other related
parties. The affiliates were or had been primarily engaged in the operation of
real estate properties, Barneys New York credit card operations, and certain
leased departments. The following information summarizes the activity between
the Predecessor Company and balances due to or from these related parties at
January 30, 1999, August 1, 1998 and August 2, 1997 and for the six months ended
January 30, 1999 and the fiscal years ended 1998, 1997 and 1996, respectively.
Unless otherwise indicated below, all revenues and expenses recognized by the
Predecessor Company pursuant to the arrangements discussed below are included in
selling, general and administrative expenses in the respective periods.
Substantially all of the agreements and transactions described below had either
ceased or been terminated prior to November 1997.
Prior to the Chapter 11 filing the Predecessor Company advanced
amounts to certain members of the Pressman family (the "Shareholders"). The
Predecessor Company assigned amounts due from these Shareholders to Preen during
the year the amounts were advanced. At August 1, 1998 and August 2, 1997 no
amounts were due from these Shareholders.
The Predecessor Company leased various retail, office and parking lot
properties principally from subsidiaries of Preen but also from companies owned
by certain members of the Pressman family. Included was (1) office and office
related premises; (2) properties used in connection with the operation of the
Predecessor Company's 17th Street store in New York City; and (3) parking lots
on 17th Street. Each of the above properties were vacated by the Predecessor
Company during the bankruptcy and each of the respective leases were rejected by
orders of the Court during 1997 or 1998. Under the terms of these leases, the
Predecessor Company was required to pay base rents plus operating expenses and
real estate taxes as defined. Total rent expense (including operating expenses)
relating to these leases was approximately $272,000, $6,195,000 and $7,758,000,
in fiscal 1998, 1997 and 1996, respectively.
The Predecessor Company triple net leased its Seventh Avenue office
space as well as other properties from Preen and certain of its wholly owned
subsidiaries. The lower level retail space in two of those properties was
subleased to two of those subsidiaries, 106 Seventh Avenue Property Corp.
("106") and Goderich Realty Corp. ("Goderich"). 106 and Goderich, in turn,
subleased this retail space to a third party retailer. Pursuant to the terms of
the subleases between 106 and Goderich and the Predecessor Company, Barneys was
paid rent equal to 90% of the rent charged to the third party retailer. The
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
remaining 10% of the rent was retained by 106 and Goderich. All of the triple
net leases between Preen and/or its subsidiaries and the Predecessor Company and
the sublease between Barneys and 106 and Goderich were rejected by the order of
the Bankruptcy Court. Rental income under the subleases for 1997 and 1996 was
approximately $195,000 and $370,000, respectively.
Barneys subleased retail and warehouse space from a third party that
leased said space from Fener Realty Co. ("Fener"). At the time, Fener was a
non-debtor entity owned by certain members of the Pressman family. Fener owned
the property at 249 West 17th Street and triple-net leased the property located
at 245 West 17th Street (collectively the "properties") from Renef Realty (also
owned by certain members of the Pressman family). Prior to January 1995, the
Predecessor Company leased approximately 10% of these properties directly from
Fener for use in connection with the semi-annual warehouse sales. Fener leased
the remaining 90% of the properties to a third party. In January 1995, Fener and
Renef refinanced their mortgages on the Properties. In connection therewith,
ownership of the Properties was transferred to two limited liability companies,
Pine Associates LLC ("Pine") and Spruce Associates LLC, which were indirectly
owned by Fener and Renef, respectively. As part of this transaction, the lease
between Fener and the third party was restructured as a triple-net lease between
Pine and the third party for the Properties in their entirety and the lease
between the Predecessor Company and Fener was restructured as a triple-net
sublease (the "Sublease") between the third party and the Predecessor Company
(collectively the "New Lease Arrangements"). Pursuant to the New Lease
Arrangements, the third party, in addition to its fixed rent, was responsible
for paying all operating expenses of the Properties, and the Predecessor Company
was responsible for fixed rent, all operating expenses and 90% of the taxes of
the Properties, except for amounts which were the third party's responsibility
pursuant to its prior lease. The sublease between the third party and the
Predecessor Company was rejected by order of the Court in December 1998. Total
rent expense (including operating expenses) related to this sublease was
approximately $374,000 in the six months ended January 30, 1999 and $2,055,000,
$2,265,000 and $2,765,000 in fiscal 1998, 1997 and 1996, respectively.
Pursuant to a purported lease between the Predecessor Company, a
subsidiary of Preen and Isetan, if the annual minimum rent to be received by a
joint venture between the affiliate and Isetan relating to certain office space
was less than $13,700,000 after January 1, 1996, the Predecessor Company was to
fund the short-fall. The Predecessor Company was disputing this purported lease
and had not made any payments related to the short-fall. In November 1996
pursuant to Court approval, the Predecessor Company rejected the purported
lease, if it was construed to be a lease, together with those provisions of
other agreements that pertain solely to the purported leasing of such office
space and any rent obligations relating thereto. No rent expense was recorded
related to this purported lease.
In prior years, the Company had entered into various transactions and
agreements with Preen. Prior to the Filing Date as well as through the Effective
Date, the Company incurred certain normal operating costs, principally personnel
costs, on behalf of Preen. This situation arose as both entities shared the same
corporate office space and certain employees (including officers) of the Company
were also providing services to Preen. After the Filing Date, the Company also
incurred and paid reorganization costs, including legal, accounting and business
advisory services, on behalf of Preen which was also operating as a debtor in
possession pursuant to the Bankruptcy Code. The Company routinely allocated to
Preen a share of both the normal operating costs and reorganization costs
incurred on their behalf, however, it was unclear (because of the bankruptcy)
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
whether Preen would have the ability to repay such amounts in the future.
Accordingly, at the time of the recording of such charges that reduced expenses
and generated receivables for the Predecessor Company, reserves were provided in
the operating results either as a selling, general and administrative expense or
a reorganization expense, depending on the nature of the charge. During the six
months ended January 30, 1999 and fiscal 1998, 1997 and 1996 the Predecessor
Company charged Preen approximately $1,000,000, $418,000, $583,000 and $466,000,
respectively, for various expenses. In December 1998, in connection with the
approval of the Plan and the settlements included therein, collectibility issues
of these receivables from affiliated entities were resolved. Accordingly, the
Predecessor Company was able to reduce its affiliate receivable reserve by
approximately $1,900,000, principally representing cash payments from an
affiliate in settlement of a portion of the outstanding receivable. This reserve
reversal reduced Selling, general and administrative expenses and reorganization
costs by approximately $500,000 and $1,400,000, respectively, in the six months
ended January 30, 1999.
Barneys licensed the right to sell certain branded merchandise from
Nanelle. Nanelle, owned by certain members of the Pressman family, held the
license to use the Kilgour, French and Stanbury trademarks (the "Mark"). Royalty
expense incurred related to this license was $86,322 in the six months ended
January 30, 1999 and $171,000, $127,000 and $115,000 in fiscal 1998, 1997, and
1996, respectively. This expense is included in cost of sales. Pursuant to the
Plan, Nanelle transferred its rights in this license to Barneys.
TF Salons Co. ("TF Salon") and Piccola Restaurant Services, Inc.
("Piccola") operated beauty salons and restaurants located in or near certain of
the Predecessor Company's retail stores. At the time TF Salon was 75% owned by
147 West 17th Street (a Company owned directly by certain members of the
Pressman family) and 25% owned by a third party. TF Salon operated the beauty
salons previously located in the Predecessor Company's 17th Street and Dallas
stores pursuant to license agreements with the Predecessor Company. At the time
Piccola was 50% owned, directly or indirectly, by certain members of the
Pressman family and 50% owned by a third party. Pursuant to license agreements,
Piccola operated restaurants in or near the Dallas, Houston and Costa Mesa
stores of the Predecessor Company. The daily operations of the restaurants were
managed by the third party. Pursuant to the license agreements, TF Salon and
Piccola were entitled to receive the sales proceeds less license costs and
certain other fees ("the net proceeds"). During 1997, the Predecessor Company
advanced approximately $211,000 less than the net proceeds. In addition,
pursuant to these agreements, the Predecessor Company earned license fee income
of approximately $121,000 and $794,000 in 1997 and 1996, respectively. The
Predecessor Company had fully reserved the receivables due from TF Salon and
Piccola; accordingly, no revenue was recognized in the Statement of Operations
pursuant to these agreements. During 1997, all beauty salon and restaurant
operating licenses were terminated.
As discussed above, to a large extent prior to the Filing Date, the
Predecessor Company (controlled by the Pressman family) engaged in numerous
transactions with affiliated companies owned or controlled by the Pressman
family. These transactions gave rise to numerous affiliate receivable balances.
Certain of the past transactions with the affiliates involved funding debt
service costs and operating expenses, advances to members of the Pressman family
and contractual payments. The Predecessor Company's ability to collect such
receivables was unclear; accordingly, in a prior year the Predecessor Company
provided a full reserve against the outstanding affiliate receivables at that
time. As many of these affiliates also filed for protection pursuant to the
Bankruptcy Code at the Filing Date, any receivables generated between the
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Predecessor Company and these affiliates after that date were also reserved
against, as discussed above. At August 1, 1998 and August 2, 1997, the
Predecessor Company was due approximately $28,730,000 and $28,575,000
respectively, from affiliates. The Predecessor Company had a full reserve
against these balances at the respective year-ends. In addition at August 1,
1998 and August 2, 1997, approximately $2,760,000 and $2,733,000 respectively,
was due to various other affiliates of the Predecessor Company and was
principally included in Liabilities subject to compromise.
(C) ISETAN RELATIONSHIP - PRIOR TO THE EFFECTIVE DATE -
In 1989, the Predecessor Company entered into agreements with Isetan
to, among other things, (i) exploit the "Barneys New York" trademark in the
United States and Asia, (ii) expand its United States business through the
acquisition of real estate properties and development of major stores in New
York, Beverly Hills and Chicago, (iii) establish Barneys America, Inc. to
develop a series of smaller, leased stores in other cities across the United
States, (iv) jointly design, develop and produce product, (v) develop the
Barneys New York brand and/or other designer wholesale businesses, and (vi) open
Barneys New York stores in Japan and throughout the Pacific Rim area. Isetan
agreed to contribute up to 95% of the development costs of the three major
stores in the United States and to operate the stores in Asia, subject to the
terms of various agreements. The Company agreed to contribute (i) its knowledge
and skills in the United States specialty retailing business and the application
of these skills and knowledge to the acquisition of real estate properties and
development of stores both within and outside of the United States, (ii) certain
use in Asia of the "Barneys New York" trade name and associated goodwill value,
and (iii) the remaining 5% of the development costs of the three major stores.
As part of the ongoing relationship between Isetan and the Company, Isetan
and/or their respective affiliates (i) established Barneys America, (ii)
established a Barneys New York retail business in Asia and in connection
therewith entered into license and technical assistance agreements providing for
payment of royalties and other fees and a loan agreement secured by the minimum
royalties and technical assistance payments, (iii) acquired and developed retail
properties in New York, Beverly Hills and Chicago, (iv) established Barneys New
York Credit Co., L.P. to operate the Barneys New York private label credit card,
and (v) trained Isetan employees in the operation of the specialty retail
business.
In 1989, BNY Licensing entered into an operating license agreement
with Isetan (the "License Agreement") to license the "Barneys New York" name in
Japan and certain other Asian countries in connection with the operation of
retail stores and the manufacturing and distributing of licensed products. The
License Agreement provided for royalties based upon a percentage of net sales.
The Predecessor Company was also entitled to receive future minimum royalties
over the remaining term of the License Agreement ranging from 265,650,000 to
663,933,000 Japanese yen ($2,291,000 to $5,726,000 at the January 29, 1999
conversion rate of 115.95 Japanese yen to one United States dollar) a year. In
June 1990, Isetan assigned its interest in the License Agreement and in the
Services Agreement to Barneys Japan, a majority owned subsidiary of Isetan.
After the filing date, the Predecessor Company ceased recognizing royalty income
and, accordingly, net royalty income recognized in the Statement of Operations
was $1,400,000 in 1996. The License Agreement was terminated as part of the
Plan.
Simultaneously with entering into the License Agreement, Barneys
entered into a technical assistance agreement with Isetan (the "Services
Agreement") in connection with the operation of retail stores and the
manufacturing and distributing of licensed products in Japan and other Asian
countries. The Services Agreement was coterminous with the License Agreement.
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Services Agreement provided for the payment of an annual fee based upon the
excess of a percentage of gross profit, if any, as defined in the Services
Agreement, plus other fees. The Services Agreement was terminated as part of the
Plan.
In December 1989, BNY Licensing borrowed four billion Japanese yen
from an affiliate of Isetan and executed a promissory note to evidence that
obligation (the "BNY Licensing Note"). BNY Licensing assigned as collateral its
rights to receive future royalties and Barneys assigned as collateral its rights
to Services Agreement fees, due from Isetan, to be used to pay interest and
principal due under the loan. The loan called for quarterly payments of
principal and interest at 7.48% a year (subject to adjustment in 1999) through
March 31, 2011. If calculated interest was greater than royalties and fees, the
shortfall would be added to principal and all unpaid principal will be deferred
until March 31, 2011. Gains and losses resulting from the translation of this
obligation to its United States dollar equivalent were recognized in current
operations prior to the Filing Date when the obligation became subject to
compromise. The Predecessor Company recognized a foreign exchange gain of
$9,440,000 in 1996, in connection therewith. Interest expense in 1996 includes
$1,700,000 in connection with this debt obligation. Such amount approximates one
half the annual interest charge. As a result of the Chapter 11 filings, the
Predecessor Company ceased accruing interest on this debt as of the Filing Date.
Pursuant to the Plan and in satisfaction of the BNY Licensing Note, BNY
Licensing assigned to Isetan 90% of the minimum royalty payable during the
initial term of the amended and restated license agreement that replaced the
License Agreement.
In a prior year, the Predecessor Company sold to Preen, for
$162,446,000 in cash, undivided interests in the future payments to become due
under the Services Agreement as well as royalty payments in excess of the future
minimum royalties due pursuant to the License Agreement, each of which is
discussed above. Preen had obtained the cash as a result of various loans made
by Isetan to Preen. The Predecessor Company would have recognized the Deferred
Credits as earned over the remaining terms of the respective agreements or in
accordance with the outcome of certain litigation commenced between Barneys and
Isetan. Pursuant to the Plan, both the License Agreement and the Services
Agreement were terminated. Accordingly, the outstanding balance of the Deferred
Credits was reversed against the Accumulated Deficit of the Predecessor Company
as a Reorganization Adjustment (See Note 3).
During the Company's bankruptcy proceedings involving the Company,
the Company and certain of its affiliates and Isetan and certain of its
affiliates were engaged in litigation involving the various aspects of the
relationship outlined above. That litigation was settled pursuant to the Plan.
12. STOCKHOLDERS' EQUITY:
Holdings' Certificate of Incorporation (the "Charter") provides that
the total number of all classes of stock which Holdings will have authority to
issue is 35,000,000 shares, of which 25,000,000 will be Holdings Common Stock,
and 10,000,000 shares will be preferred stock both having a par value of $0.01
per share. Of such shares, there were outstanding at January 30, 1999,
12,500,000 shares of Holdings Common Stock and 20,000 shares of Preferred Stock.
Holdings is prohibited by its Charter from issuing any class or series of
non-voting securities.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(A) HOLDINGS COMMON STOCK -
Each share of Holdings Common Stock entitles its holder to one vote.
The holders of record of Holdings Common Stock will be entitled to participate
equally in any dividend declared by the Board of Directors of Holdings. Each
share of Holdings Common Stock is entitled to share ratably in the net worth of
Holdings upon dissolution. So long as any shares of Preferred Stock are
outstanding, no dividends on Holdings Common Stock may be paid until all accrued
and unpaid dividends on the Preferred Stock have been paid.
(B) UNSECURED CREDITORS WARRANTS -
The Unsecured Creditors Warrants are exercisable for up to an
aggregate of 1,013,514 shares of Holdings Common Stock at an exercise price of
$8.68 per share. The Unsecured Creditors Warrants became exercisable on the
Effective Date and expire at 5:00 p.m., New York City time on May 15, 2000.
The number of shares for which the Unsecured Creditors Warrants are
exercisable, and the exercise price of the Unsecured Creditors Warrants, are
subject to antidilution adjustment if the number of shares of Holdings Common
Stock is increased by a dividend or other share distribution, or by a stock
split or other reclassification of shares of Holdings Common Stock. In addition,
the exercise price of the Unsecured Creditors Warrants is subject to decrease if
Holdings distributes, to all holders of Holdings Common Stock, evidences of its
indebtedness, any of its assets (other than cash dividends), or rights to
subscribe for shares of Holdings Common Stock expiring more than 45 days after
the issuance thereof.
In the event that Holdings merges or consolidates with another
person, the holders of the Unsecured Creditors Warrants will be entitled to
receive, in lieu of shares of Holdings Common Stock or other securities issuable
upon exercise of the Unsecured Creditors Warrants, the greatest amount of
securities, cash or other property to which such holder would have been entitled
as a holder of Holdings Common Stock or such other securities.
(C) PREFERRED STOCK -
20,000 shares of Series A Preferred Stock are outstanding. The
Preferred Stock has an aggregate liquidation preference of $2,000,000 (the
"Liquidation Preference"), plus any accrued and unpaid dividends thereon
(whether or not declared). Dividends on the Preferred Stock are cumulative
(compounding annually) from the Effective Date and are payable when and as
declared by the Board of Directors of Holdings, at the rate of 1% per annum on
the Liquidation Preference. No dividends shall be payable on any shares of
Holdings Common Stock until all accrued and unpaid dividends on the Preferred
Stock have been paid.
In accordance with SAB No. 64, Redeemable Preferred Stock, the
Company recorded the two separate issuances of redeemable preferred stock at
their respective fair values. The 5,000 shares originally issued to Bay Harbour
were valued at $500,000 and the remaining 15,000 shares issued to the Barneys
Employee Stock Plan Trust were valued at zero and will be accreted, on a
straight-line basis over 10 years, to their total mandatory redemption value of
$1,500,000.
The shares of Preferred Stock will not be redeemable prior to the
sixth anniversary of the Effective Date. On or after the sixth anniversary of
the Effective Date, the Preferred Stock will be redeemable at the option of
Holdings for cash, in whole or in part, at an aggregate redemption price equal
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
to the Liquidation Preference, plus any accrued and unpaid dividends thereon. In
addition, Holdings will be required to redeem the Preferred Stock in whole on
the tenth anniversary of the Effective Date at an aggregate redemption price
equal to the Liquidation Preference, plus any accrued and unpaid dividends
thereon.
The shares of Preferred Stock will be convertible, in whole or in
part, at the option of the holders thereof, any time on or after the earlier of
the fifth anniversary of the Effective Date and the consummation of a rights
offering by Holdings (which offering meets certain conditions), into 162,500
shares of Holdings Common Stock. Any accrued and unpaid dividends on the
Preferred Stock will be cancelled upon conversion. Conversion rights will be
adjusted to provide antidilution protection for stock splits, stock
combinations, mergers or other capital reorganization of Holdings. In addition,
upon a sale of Holdings, Holdings' right to redeem the Preferred Stock and the
holders' right to convert the Preferred Stock will be accelerated. The Preferred
Stock has one vote per share and votes together with the Holdings Common Stock
on all matters other than the election of directors.
(D) PREDECESSOR COMPANY -
(i) Series A-1 Convertible Preferred Stock
In a prior year, Barneys America authorized and issued 120,000 Series
A-1 Convertible Preferred Stock (Series A-1) to Isetan of America Inc. for an
aggregate purchase price of $12,000,000. Such amount was recorded by the Company
as Minority interest at August 1, 1998. Pursuant to the Plan, Isetan contributed
this investment to Barneys. In accordance with the Plan, a component of the
various settlements reached with Isetan included the contribution of this
investment to Barneys.
(ii) Other preferred stock
The Predecessor Company was authorized to issue 400,000 shares of
preferred stock with a par value of $100 per share. Each share of preferred
stock was entitled to one vote and dividends were non-cumulative. Each share
also had a liquidation preference of $100 plus declared dividends. There were
327,695 shares outstanding prior to the Effective Date and no dividends were in
arrears. This preferred stock was owned directly or indirectly by members of the
Pressman family. Pursuant to one of the settlements contained in the Plan, there
was a cash payment of $50,000 to certain members of the Pressman family on
account of the existing preferred (and common) stock held by such members of the
Pressman family.
13. EMPLOYEE BENEFIT PLANS:
(A) EMPLOYEES STOCK PLAN -
Pursuant to the Plan, Holdings established the Barneys Employees
Stock Plan effective January 28, 1999 for all eligible employees. The assets of
this plan consist of 15,000 shares of new Holdings Preferred Stock which were
contributed to the Barneys Employees Stock Plan Trust pursuant to the Plan. This
Preferred Stock will be issued to existing employees of Barneys as incentive
compensation in connection with future services to be rendered to the Company.
As no consideration was exchanged for the 15,000 shares contributed to the
Trust, there was no fair market value allocated to them in the reorganization.
In accordance with SAB No. 64, the value of these 15,000 shares will be accreted
on a straight-line basis over 10 years, to their mandatory redemption value of
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$1,500,000. This Plan is a profit sharing plan covering all eligible employees
other than those covered by a collective bargaining agreement. Contributions
under this plan are at the discretion of the Company.
(B) STOCK OPTION PLAN -
On March 11, 1999, the Company adopted a stock option plan that
provides for the granting of non-qualified stock options to non-employee members
of the Company's Board of Director's. Each Eligible Director (as defined in the
option plan) is granted an option to purchase 5,000 shares of Holdings Common
Stock upon their initial appointment to the Board of Directors, exercisable at
the fair market value of Holdings Common Stock at the date of grant. These
options expire ten years from the date of grant and vest 50% on the date of
grant with the remainder on the first anniversary therefrom. At the discretion
of the Board of Directors, additional options may be granted to Eligible
Directors on the date of the annual stockholders' meeting that takes place after
the initial grant. On March 11, 1999, each of the non-employee directors was
granted an option to purchase 5,000 shares of Holdings Common Stock at an
exercise price of $8.68 per share. As options to purchase an aggregate of 45,000
shares of Holding Common Stock were granted on March 11, 1999, subsequent to
these grants, there were 255,000 shares available for future grant under this
option plan.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related
Interpretations in accounting for its employee stock options. Under APB No. 25,
no compensation expense is recognized because the exercise price of the stock
options equals the assumed market price of the underlying stock on the date of
grant.
The weighted average fair value of these options, estimated at the
date of grant using the Black-Scholes option-pricing model, was $3.84. The fair
value was estimated at the date of grant using the following weighted-average
assumptions: risk-free interest rate of 5.84%; dividend yield of 0%; stock price
at date of grant of $8.68 and a weighted-average expected life of the option of
10 years. As the Company's stock is not actively traded, expected volatility was
considered not applicable for purposes of this calculation.
(C) UNION PLAN -
Pursuant to agreements with unions, the Company is required to make
periodic pension contributions to union-sponsored multiemployer plans which
provide for defined benefits for all union members employed by the Company.
Union pension expense aggregated $1,329,000 in the six months ended January 30,
1999 and $1,014,000, $1,137,000 and $1,171,000 in fiscal 1998, 1997 and 1996,
respectively.
With Court approval, the Predecessor Company elected to withdraw from
one of the union-sponsored multi-employer plans. Accordingly, Union pension
expense in the six months ended January 30, 1999 includes a charge of
approximately $862,000 to effectuate the withdrawal.
The value of the remaining plans unfunded vested liabilities
allocable to the Company, and for which it may be liable upon withdrawal is
estimated to be $1,365,000 at January 30, 1999. The Company, at present, has no
intentions of withdrawing from this plan.
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(D) MONEY PURCHASE PLAN -
The Company's Money Purchase Plan is a noncontributory defined
contribution plan covering substantially all nonunion employees fulfilling
minimum age and service requirements and provides for contributions of 5% of
compensation (as defined) not to exceed the maximum allowable as a deduction for
income tax purposes. The Predecessor Company recorded Money Purchase Plan
expense of $295,000, $1,023,000, $1,216,000 and $1,469,000 in the six months
ended January 30, 1999 and fiscal 1998, 1997 and 1996, respectively.
(E) 401(K) PLAN -
The Company has a 401(k) defined contribution plan for the benefit of
its eligible employees who elect to participate. Employer contributions are made
to the plan in amounts equal to 50% of employee contributions, less than or
equal to 6% of their salary, as defined. Plan expense aggregated $292,000,
$596,000, $630,000 and $706,000 in the six months ended January 30, 1999 and
fiscal 1998, 1997 and 1996, respectively.
14. OTHER
Allen Questrom, a member of the Board of Directors, became the
Chairman, President and Chief Executive Officer of the Company as of May 5, 1999
and is also a member of the board of Polo Ralph Lauren Corporation. During the
six months ended January 30, 1999 and fiscal 1998, 1997 and 1996, the
Predecessor Company purchased approximately $1,012,000, $1,814,000, $212,000,
and $140,000 respectively, of products from Polo Ralph Lauren Corporation.
Bay Harbour and Whippoorwill are parties to a Stockholders Agreement,
dated as of November 13, 1998 (the "Stockholders Agreement"), which sets forth
their agreement with respect to certain matters relating to the shares of
Holdings Common Stock held by them. Pursuant to the Stockholders Agreement, each
of Bay Harbour and Whippoorwill have agreed to (i) restrict the transferability
of such shares prior to January 28, 2000, (ii) grant rights of first offer as
well as tag along rights in the event of a transfer of shares, (iii) grant the
right to participate in an acquisition of additional shares of Holdings Common
Stock by one of them, and (iv) give the other a right of first refusal to
purchase shares of Holdings Common Stock which one of them has requested
Holdings to register pursuant to the Registration Rights Agreement entered into
on the Effective Date. In addition, Bay Harbour and Whippoorwill have agreed to
take all actions necessary to elect the three designees of each, one designee of
Isetan, the chief executive officer of Holdings, and three independent
directors, to the Board of Directors of Holdings. The Stockholders Agreement
also generally prohibits each of Bay Harbour and Whippoorwill from voting the
shares of Holdings Common Stock held by it in favor of amending Holdings'
Certificate of Incorporation or Bylaws or a sale of the Company without the
consent of the other.
On the Effective Date, pursuant to the Plan, Messrs. Greenhaus and
Strumwasser and Ms. Werner, who are principals and officers of Whippoorwill
(which is a stockholder of Holdings), and Messrs. Teitelbaum and Van Dyke, who
are principals of Bay Harbour (which is a stockholder of Holdings), became
members of the board of directors of Holdings.
Approximately 39% of the Company's employees are covered under
collective bargaining agreements. Approximately 9% of the Company's employees
are covered under collective bargaining agreements expiring in 1999 which have
not yet been renewed.
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 1996, the Predecessor Company recorded a gain of approximately
$5,700,000 representing the net proceeds received by the Company under life
insurance policies on an officer of the Company. This gain is included in
Expenses: Other - net.
Additionally, during 1996, the Predecessor Company recognized a
$9,440,000 translation gain on a foreign denominated debt obligation to Isetan.
This gain is included in Royalty income and foreign exchange gains.
F-40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this amendment to this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: February 15, 2000
BARNEYS NEW YORK, INC.
By: /s/ Steven Feldman
---------------------------------
Name: Steven Feldman
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
2.1 Second Amended Joint Plan of Reorganization for Barney's, Inc.
("Barneys") and certain of its affiliates proposed by Whippoorwill
Associates, Inc. ("Whippoorwill"), Bay Harbour Management L.C. ("Bay
Harbour") and the Official Committee of Unsecured Creditors dated
November 13, 1998 (the "Plan of Reorganization")*
2.2 Supplement to the Plan of Reorganization dated December 8, 1998*
2.3 Second Supplement to the Plan of Reorganization dated December 16,
1998*
3.1 Certificate of Incorporation of Barneys New York, Inc. ("Holdings"),
filed with the Secretary of State of the State of Delaware on
November 16, 1998*
3.2 Certificate of Designation for Series A Preferred Stock of Holdings
filed with the Secretary of State of the State of Delaware on
December 24, 1998.*
3.3 By-laws of Holdings*
4.1 Warrant Agreement between Holdings and American Stock Transfer &
Trust Company as Warrant Agent dated as of January 28, 1999*
4.2 Specimen of Holdings' Common Stock Certificate*
10.1 Credit Agreement, among Barneys, Barneys (CA) Lease Corp., Barneys
(NY) Lease Corp., Basco All-American Sportswear Corp., BNY Licensing
Corp. and Barneys America (Chicago) Lease Corp., as Borrowers, the
lenders party thereto, Citicorp USA, Inc. ("CUSA"), as Administrative
Agent for such lenders, and General Electric Capital Corporation, as
Documentation Agent (the "Credit Agreement"), dated as of January 28,
1999*
10.2 First Amendment to the Credit Agreement dated as of March 23, 1999*
10.3 Guarantee by Holdings in favor of CUSA as the Administrative Agent
dated as of January 28, 1999*
10.4 Security Agreement by Holdings in favor of CUSA as the Administrative
Agent dated as of January 28, 1999*
10.5 Pledge Agreement by Holdings in favor of CUSA as the Administrative
Agent dated as of January 28, 1999*
10.6 Pledge Agreement by Barneys in favor of CUSA as the Administrative
Agent dated as of January 28, 1999*
10.7 Security Agreement by Barneys in favor of CUSA as the Administrative
Agent dated as of January 28, 1999*
10.8 Trademark Security Agreement by Barneys and BNY Licensing Corp. in
favor of CUSA as the Administrative Agent dated as of January 28,
1999*
II-1
<PAGE>
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.9 Cash Collateral Pledge Agreement by Barneys in favor of CUSA as the
Administrative Agent dated as of January 28, 1999*
10.10 Pledge Agreement by Barneys America, Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999*
10.11 Security Agreement by Barneys America, Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999*
10.12 Security Agreement by PFP Fashions Inc. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999*
10.13 Security Agreement by Barneys (CA) Lease Corp. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999*
10.14 Security Agreement by Barneys (NY) Lease Corp. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999*
10.15 Security Agreement by Basco All-American Sportswear Corp. in favor of
CUSA as the Administrative Agent dated as of January 28, 1999*
10.16 Security Agreement by Barneys America (Chicago) Lease Corp. in favor
of CUSA as the Administrative Agent dated as of January 28, 1999*
10.17 Security Agreement by BNY Licensing Corp. in favor of CUSA as
Administrative Agent dated as of January 28, 1999*
10.18 Subordinated Note issued by Barneys and payable to Isetan of America,
Inc. ("Isetan") dated January 28, 1999 (the "Isetan Note")*
10.19 Guarantee by Holdings of the Isetan Note dated January 28, 1999*
10.20 Subordinated Note issued by Barneys and payable to Bi-Equipment
Lessors LLC, dated January 28, 1999 (the "Bi-Equipment Lessors
Note")*
10.21 Guarantee by Holdings of the Bi-Equipment Lessors Note dated as of
January 28, 1999*
10.22 Security Agreement by Barneys in favor of Bi-Equipment Lessors LLC
dated as of January 28, 1999*
10.23 License Agreement among Barneys, BNY Licensing Corp. and Barneys
Japan Co. Ltd. dated as of January 28, 1999*
10.24 Stock Option Plan for Non-Employee Directors effective as of March
11, 1999.*
10.25 Services Agreement, among Meridian Ventures, Inc., Thomas C. Shull
and Barneys dated as of August 1, 1998*
10.26 Services Agreement Amendment among Meridian Ventures, Inc., Thomas C.
Shull, Barneys and Holdings dated as of January 28, 1999*
II-2
<PAGE>
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
10.27 Registration Rights Agreement by and among Holdings and the Holders
party thereto dated as of January 28, 1999*
10.28 Letter Agreement, dated January 28, 1999, among Bay Harbour,
Whippoorwill, Isetan and Holdings*
10.29 Employment Agreement between Holdings and Allen I. Questrom effective
as of May 5, 1999
10.30 Registration Rights Agreement between Holdings and Allen I. Questrom
dated as of February 1, 2000
10.31 Amendment No. 1, dated as of February 1, 2000, to Registration Rights
Agreement, dated as of January 28, 1999 by and among Holdings and the
Holders party thereto
10.32 Third Amendment, dated as of November 30, 1999, among Holdings, the
Borrowers party thereto, the lenders party thereto and the
Administrative Agent party thereto
11 Statement re: computation of per share earnings*
21 Subsidiaries of the registrant*
27 Financial Data Schedule*
* Filed Previously
II-3
<PAGE>
Schedule II
Barneys New York, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------- -------------- ------------------------------- ------------------ -----------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
Beginning Costs and Other at End
Description of Period Expenses (a) Accounts (b) Deductions (c) of Period
- ----------------------------------------------- -------------- --------------- --------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
YEAR ENDED AUGUST 3, 1996
- -----------------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ -
============== =============== =============== ================== ===========
YEAR ENDED AUGUST 2, 1997
- -----------------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 3,538 $ 2,335 $ - $ 1,416 $ 4,457
============== =============== =============== ================== ===========
YEAR ENDED AUGUST 1, 1998
- -----------------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 4,457 $ 2,131 $ - $ 2,202 $ 4,386
============== =============== =============== ================== ===========
SIX MONTHS ENDED JANUARY 30, 1999
- -----------------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 4,386 $ 1,759 $ 1,789 $ 4,356
============== =============== =============== ================== ===========
</TABLE>
- -----------------------------------------------
(a) Primarily provisions for doubtful accounts.
(b) Recoveries of doubtful accounts.
(c) Primarily uncollectible accounts charged against the allowance provided
therefor.
Exhibit 10.29
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of May 5, 1999 ("Agreement
Date"), is made between Barneys New York, Inc., a Delaware corporation having
its principal place of business at 575 Fifth Avenue, New York, New York 10017
("Company"), and Allen I. Questrom ("Executive"), residing at 200 East 69th
Street, Apartment 43A, New York, New York 10021.
ARTICLE I
PURPOSES
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and its stockholders
to obtain the services of the Executive on the terms and conditions set forth
herein.
ARTICLE II
CERTAIN DEFINITIONS
In addition to the terms specifically defined elsewhere in
this Agreement, the following terms shall have the respective meanings indicated
(unless the context indicates otherwise):
2.1 "Article" means an article of this Agreement.
2.2 "Cause" means any of the following:
(a) Executive's final conviction of a felony or plea of
nolo contendere to a felony charge, which conviction is non-appealable or for
which the period for filing an appeal has expired;
(b) Executive's material willful breach of his duties under
this Agreement which is not cured by the Executive within ten (10) days of
receipt of written notice thereof from the Board to the Executive; provided,
that the following acts or omissions are not curable: (i) repeated instances of
such breach; (ii) any material willful breach by the Executive of the covenants
set forth in ARTICLE X; (iii) any knowing and intentional or willful material
misrepresentation or omission by the Executive to the Board, Executive Committee
or Principal Stockholders in the performance of his duties under this Agreement
regarding the financial condition of the Company or any other material aspect of
the Company's business; (iv) any act or omission by the Executive taken with the
intent of the Executive to gain, directly or indirectly, a profit to which the
Executive was not legally entitled; (v) willful theft of material property; (vi)
willful physical assault
NY2:\853160\03\$@@W03!.DOC\21645.0001
<PAGE>
(excluding incidental, accidental or inconsequential contact) of any other
individual on the premises of the Company or in the course of performing
services for the Company; and (vii) material fraud perpetrated on the Company;
or
(c) Executive's habitual neglect of his duties which is not
cured within ten (10) days of receipt of written notice thereof from the Board
to the Executive.
Cause shall not include any one or more of the following:
(i) negligence of the Executive (other than his habitual neglect of duty); (ii)
any act or omission believed by the Executive in good faith to have been in and
not opposed to the interests of the Company and its Subsidiaries (without intent
of the Executive to gain, directly or indirectly, a profit to which the
Executive was not legally entitled) and reasonably believed by the Executive not
to have been improper or unlawful; (iii) an error in judgment made by the
Executive in good faith and not constituting a willful neglect or disregard of
his duties hereunder; or (iv) any act or omission with respect to which Notice
of Termination of employment of the Executive is given more than twelve (12)
months after the earliest date on which any non-employee director of the
Company, who was not a party to the act or omission, knew of such act or
omission.
2.3 "Change of Control" of the Company means the occurrence
of any of the following:
(a) (x) any person or other entity (other than any of the
Company's Subsidiaries, the Principal Stockholders, the Executive and their
affiliates), including any person as defined in Section 13(d)(3) of the 1934
Act, becomes the beneficial owner, as defined in Rule 13d-3 of the 1934 Act,
directly or indirectly, of more than (i) fifty percent (50%) of the Voting Stock
of the Company or (ii) the Voting Stock of the Company beneficially owned,
directly or indirectly, by the Principal Stockholders, the Executive and their
respective affiliates ("Principal Stockholders Group"), and (y) in the case of
clause (ii) only, the Principal Stockholders Group own, in the aggregate, less
than forty percent (40%) of the Voting Stock of the Company;
(b) the Board approves the sale of all or substantially all
of the property or assets of the Company and such sale is consummated;
(c) the Board approves a consolidation or merger of the
Company with another corporation (other than with any of the Company's
Subsidiaries) and such consolidation or merger is consummated, unless such
consummation would result in the stockholders of the Company immediately before
the occurrence of such consolidation or merger owning, in the aggregate, (i) at
least sixty-five percent (65%) of the Voting Stock of the surviving entity, or
(ii) more than fifty percent (50%) of the Voting Stock of the surviving entity,
and the Principal Stockholders Group own, in the aggregate, at least thirty-five
percent (35%) of the Voting Stock of the surviving entity; or
2
<PAGE>
(d) a change in the Board occurs with the result that the
members of the Board on the Agreement Date ("Incumbent Directors") no longer
constitute a majority of such Board; provided, that any person becoming a
director whose election or nomination for election was supported by a majority
of the Incumbent Directors shall be considered an Incumbent Director for
purposes hereof; and provided, further, that any director whose appointment or
nomination occurs and is required and made by any person other than the Company
and its affiliates (including the Principal Stockholders) in connection with an
acquisition of Voting Stock of the Company pursuant to a merger, consolidation,
purchase of shares or similar transaction involving the Company shall not be
treated as an Incumbent Director.
2.4 "Code" means the Internal Revenue Code of 1986, as
amended.
2.5 "Disability" means any medically determinable physical
or mental impairment that has lasted for a period of at least six (6) months,
can be expected to be permanent or of indefinite duration, and renders the
Executive unable to perform the duties required under this Agreement, as
certified by a physician jointly selected by the Company or its insurers and the
Executive or the Executive's legal representative.
2.6 "EBITDA" means, with respect to each fiscal year of the
Company, the Company's consolidated earnings before interest, income taxes,
depreciation, amortization and extraordinary items for such fiscal year, as
determined in accordance with generally accepted accounting principles and
certified to by the Company's outside independent auditors.
2.7 "Executive Committee" means the Executive Committee of
the Board as appointed from time to time.
2.8 "Good Reason" means any of the following:
(a) the assignment to the Executive of any duties
materially inconsistent with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 3.1, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an action not taken in
bad faith and which is remedied by the Company within ten (10) days after
receipt of written notice thereof given by the Executive, provided that repeated
instances of such action shall be evidence of the bad faith of the Company;
(b) any material failure by the Company to comply with any
provision of this Agreement, other than a failure not occurring in bad faith and
which is remedied by the Company within ten (10) days after receipt of written
notice thereof given by the Executive, provided that repeated failures shall be
evidence of the bad faith of the Company;
3
<PAGE>
(c) failure of the Executive to be elected or reelected
Chairman of the Board and Chief Executive Officer of the Company or to be
elected or reelected to membership on the Board;
(d) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
(e) the delivery to Executive of a Notice of Consideration
pursuant to Section 4.3(b) if, within a period of 90 days thereafter, the Board
fails for any reason to terminate Executive for Cause in compliance with all of
the substantive and procedural requirements of Section 4.3; or
(f) a termination of employment by the Executive for any
reason or no reason during the three-month period commencing on the date of a
Change of Control that has not been agreed to in writing by the Executive.
2.9 "IRS" means the Internal Revenue Service.
2.10 "1934 Act" means the Securities Exchange Act of 1934,
as amended.
2.11 "Notice of Termination" means a written notice given
in accordance with Section 12.8 and which sets forth (a) the specific
termination provision in this Agreement relied upon by the party giving such
notice, (b) in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under such termination
provision, and (c) if the Termination Date is other than the date of receipt of
such Notice of Termination, the Termination Date.
2.12 "Principal Stockholders" means Bay Harbour Management
L.C., Whippoorwill Associates, Inc and their respective affiliates (other than
the Company and its Subsidiaries).
2.13 "Stock Options" means "Initial Options" (as defined in
Section 3.5(a)), additional options issued pursuant to Section 3.5(h) and
"Additional Options" (as defined in Section 3.6).
2.14 "Subsidiary" means a corporation as defined in Section
424(f) of the Code with the Company being treated as the employer corporation
for purposes of this definition.
2.15 "Termination Date" means the date of receipt of the
Notice of Termination or any later date specified in such notice, which date
shall be not more than fifteen (15) days after the giving of such notice;
provided, however, that (a) if the Executive's employment is terminated by
reason of death, then the Termination Date shall be the date of Executive's
death and (b) if the Executive's employment is terminated by reason of
Disability, then the Termination Date shall be the date on which such Disability
is certified to by a jointly selected physician in accordance with Section 2.5.
4
<PAGE>
2.16 "Voting Stock" of a corporation means all classes of
capital stock of such corporation normally entitled to vote for the election of
directors of such corporation.
ARTICLE III
POSITION, DUTIES, COMPENSATION AND BENEFITS
3.1 Position and Duties.
(a) During the Agreement Term, the Executive shall be
employed as the Chairman of the Board, President and Chief Executive Officer of
the Company with duties, responsibilities, powers and authorities commensurate
with such positions. The Executive shall have broad discretion and authority to
manage and direct the day-to-day affairs of the Company. Neither the Board nor
the Executive Committee shall manage and direct the day-to-day affairs of the
Company, except to the extent affected by the exercise by the Board or Executive
Committee of its corporate governance duties and responsibilities, including,
but not limited to, issuance of shares of common or preferred stock of the
Company; material financing transactions; approval, adoption and amendment of
employee compensation and benefit plans, programs or policies; administration of
executive incentive compensation plans, programs or policies; and approval of
any annual business plan and capital expenditure plan. The Executive shall meet
with the Board on a periodic basis and shall meet with the Executive Committee
on a monthly basis (if requested by the Co-Chairs of the Executive Committee)
regarding the Company's performance sufficient to enable the Board and the
Executive Committee to fulfill their corporate governance responsibilities. The
Executive promptly shall disclose to the Executive Committee and other members
of the Board any indication of interest by any person (as defined in Section
13(d)(3) of the 1934 Act) to purchase shares of the Company's common stock or
any other transaction which could result in a Change of Control of the Company.
Executive's services shall be performed principally at the Company's corporate
offices in New York City, New York.
(b) During the Agreement Term (other than any periods of
vacation, sick leave or Disability to which the Executive is entitled), the
Executive shall devote substantially all of the Executive's attention and time
to the business and affairs of the Company to discharge the duties assigned to
the Executive in accordance with this Agreement, and to use the Executive's best
efforts to perform faithfully and efficiently such duties. During the Agreement
Term, the Executive may (1) serve on corporate, civic or charitable boards or
committees, (2) deliver lectures, fulfill speaking engagements or teach at
educational institutions, (3) provide consulting services to other business
entities, including those in the retail clothing industry, and (4) manage
personal investments, so long as such activities, either individually or in the
aggregate, do not materially interfere or conflict with the performance of the
Executive's duties under this Agreement and subject to the covenants set forth
in ARTICLE X.
5
<PAGE>
3.2 Agreement Term. The term of this Agreement means the
period commencing on the Agreement Date and ending on January 31, 2003
("Agreement Term").
3.3 Salary and Bonus.
(a) Upon signing this Agreement, the Executive shall be
paid by the Company as soon as practicable thereafter a cash lump sum equal to
$64,500.
(b) During the Agreement Term, the Executive shall earn a
salary ("Salary") at the rate of $100,000 per month, which amount shall be
retained by the Company as described in Section 3.5(i).
(c) During the Agreement Term constituting the period
commencing on May 5, 1999 and ending on January 31, 2000, the Executive shall
earn additional compensation ("Additional Compensation") of $50,000 per month,
which amount shall be retained by the Company as described in Section 3.5(i).
(d) During the Agreement Term constituting the period
commencing on February 1, 2000 and ending on January 31, 2003, the Executive
shall also earn an annual bonus for each fiscal year of the Company ("Bonus")
equal to the following amount: (1) if the Company achieves 100% of business plan
target EBITDA for such fiscal year, 50% of annual Salary ("Target Bonus"); (2)
if the Company achieves 125% or more of business plan target EBITDA for such
fiscal year, 100% of annual Salary; and (3) if the Company achieves between 100%
and 125% of business plan target EBITDA for such fiscal year, the sum of (i)
Target Bonus and (ii) for each 1% above 100% of business plan target EBITDA, an
additional 2% of annual Salary. The Bonus for each fiscal year shall be paid to
Executive by the Company in cash not later than the March 31 next following the
end of such fiscal year or, if later, the fifth (5th) business day after the
Company's receipt of its audited financial statements for such fiscal year,
unless such Bonus is retained by the Company as described in Section 3.5(i).
3.4 Other Benefits.
(a) Specified Benefits. During the Agreement Term, the
Executive shall be entitled to receive the following benefits from the Company:
(1) Air Travel. First class airfare (i) for all business-related travel
of the Executive and (ii) for the Executive's spouse for all
business-related travel of the Executive with respect to which the
Executive, in his sole and absolute discretion, elects to be
accompanied by his spouse.
(2) Automobile. On-call, 24-hour limousine services.
6
<PAGE>
(3) Executive Secretary. A full-time executive secretary reasonably
selected by the Executive.
(4) Employee Discount. An employee discount on all purchases from the
Company equivalent to the employee discount provided from time to time
to members of the Board, without any limitation on the total amount of
purchases subject to such discount.
(b) Savings and Retirement Plans. During the Agreement
Term, the Executive shall be entitled to participate in all savings and
retirement plans (other than the Barneys Employees Stock Plan) provided by the
Company from time to time applicable to senior executives of the Company
generally.
(c) Welfare Benefit Plans. During the Agreement Term, the
Executive and the Executive's spouse and children shall be eligible to
participate in, and receive, without duplication, all benefits under, welfare
benefit plans provided from time to time by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
individual life, group life, dependent life, accidental death and travel
accident insurance plans) applicable to senior executives of the Company and
their spouses and children generally and in accordance with the terms of such
plans; provided, however, that the Executive shall not be entitled to
participate in any severance pay plan of the Company except to the extent the
amount of severance pay under any such plan exceeds the amount payable under
Article V.
(d) Other Fringe Benefits. During the Agreement Term, the
Executive shall be entitled to fringe benefits (in addition to the specified
benefits described in Section 3.4(a)) provided by the Company from time to time
in accordance with the most favorable fringe benefit plans applicable to senior
executives of the Company generally.
(e) Expenses. During the Agreement Term, the Executive
shall be entitled to reimbursement of all reasonable business-related expenses
incurred by the Executive upon the Company's receipt of accountings in
accordance with the terms of the most favorable policies applicable to senior
executives of the Company generally.
(f) Office and Support Staff. During the Agreement Term,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments and to secretarial and other assistance,
provided by the Company from time to time, in each case in accordance with the
most favorable policies applicable to senior executives of the Company
generally.
(g) Vacation. During the Agreement Term, the Executive
shall be entitled to paid vacation provided by the Company from time to time in
7
<PAGE>
accordance with the most favorable policies applicable to senior executives of
the Company generally, but in no event less than five weeks per year.
3.5 Initial Options.
(a) Grant of Initial Options. The Company shall grant to
the Executive nonqualified options to purchase 2,234,559 shares of the Company's
common stock ("Initial Options"). The Initial Options constituting Full Price
Options (as defined below) shall be granted as of May 5, 1999. The Initial
Options constituting Discounted Options (as defined below) shall be granted as
of January 21, 2000 (or earlier as provided in Section (f)) unless the Executive
provides a Notice of Termination before such date.
(b) Exercise Price of Initial Options. The exercise price
of the Initial Options covering 744,853 shares of the Company's common stock
shall be $8.68 per share ("Full Price Options"). The exercise price of the
remaining Initial Options covering 1,489,706 shares of the Company's common
stock shall be $4.34 per share ("Discounted Options").
(c) Vesting of Initial Options.
(1) Twenty-five percent (25%) of the Full Price Options shall be fully
vested and immediately exercisable, in whole or in part, on May 5,
1999, and an additional twenty-five (25%) of the Full Price Options
shall become fully vested and immediately exercisable, in whole or in
part, as of May 5 of each of 2000, 2001 and 2002; provided, that the
Executive remains employed by the Company on such dates.
(2) Fifty percent (50%) of the Discounted Options shall vest at the
same rate that compensation is earned by the Executive and retained by
the Company in accordance with Section 3.5(i) ("Earned Discounted
Options"); provided, that no vesting shall occur prior to May 22, 2000
but shall occur on May 22, 2000 and thereafter; and provided, further,
that the Executive remains employed by the Company on such dates. The
remaining fifty percent (50%) of the Discounted Options shall vest on
January 31, 2003 ("Matching Discounted Options"); provided, that the
Executive remains employed by the Company on such date.
(d) Exercise Period of Initial Options. Subject to the
other provisions of this Section 3.5, each Initial Option shall, upon becoming
vested and exercisable, remain exercisable through and including May 5, 2007.
(e) Death or Disability.
(1) In the event of the Executive's termination of employment on
account of the Executive's death or Disability during the Agreement
Term, in each case solely as a result of an injury
8
<PAGE>
sustained in an accident occurring while the Executive was performing
work for the Company (including business travel), 100% of the unvested
Full Price Options and 100% of a number of the Matching Discounted
Options equal to the number of vested Earned Discounted Options
immediately prior to the date of such death or Disability, as the case
may be, shall become fully vested and immediately exercisable, in whole
or in part, upon the date of such death or Disability, as the case may
be.
(2) In the event of the Executive's termination of employment on
account of the Executive's death or Disability as a result of any other
reason, fifty percent (50%) of the unvested Full Price Options and
fifty percent (50%) of a number of the Matching Discounted Options
equal to the number of vested Earned Discounted Options immediately
prior to the date of such death or Disability, as the case may be,
shall become fully vested and immediately exercisable, in whole or in
part, upon the date of such death or Disability, as the case may be.
(3) None of the unvested Earned Discounted Options or Matching
Discounted Options equal to the number of such unvested Earned
Discounted Options immediately prior to the date of the Executive's
death or Disability shall vest on account of the Executive's death or
Disability as a result of any reason. However, in the event that the
Executive, his legal representative or his estate elects within 180
days after the date of such death or Disability, as the case may be, to
pay $4.34 (exclusive of the exercise price) for up to fifty percent
(50%) of the unvested Earned Discounted Options, the number of such
unvested Earned Discounted Options so elected, plus an equal number of
Matching Discounted Options, shall become fully vested and immediately
exercisable, in whole or in part, upon such payment.
(f) Termination by Company without Cause or by Executive
for Good Reason; Change of Control. All Initial Options to be granted shall be
granted and all Initial Options shall become fully vested and immediately
exercisable, in whole or in part, upon (1) Executive's termination of employment
by the Company without Cause (other than as a result of Executive's death or
Disability), (2) Executive's termination of employment for Good Reason, or (3) a
Change of Control of the Company.
(g) Termination by Company for Cause or by Executive
without Good Reason. Notwithstanding any other provision of this Section 3.5 and
subject to Section 5.6, in the event that the Executive's employment is
terminated by the Company for Cause or by the Executive without Good Reason
(other than as a result of Executive's death or Disability) prior to the end of
the Agreement Term, (1) the vested portion of the Initial Options may be
exercised until the earlier of (A) the last day of the 24-month period
commencing on the date of such termination of
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employment or (B) the expiration of the term of the Initial Options; (2)
Executive shall forfeit vested Full Price Options with respect to a number of
shares that exceeds the number of shares that would have vested if such Full
Price Options vested ratably on a monthly basis over the Agreement Term; and (3)
Executive shall forfeit unvested Earned Discounted Options and all Matching
Discounted Options.
(h) Anti-Dilution Adjustment of Initial Options. If at any
time on or before May 16, 2000, the Company issues, or the Board commits to be
issued, additional equity of the Company (including upon exercise or conversion
of options and warrants outstanding as of the Agreement Date and including upon
conversion of any convertible stock issued after the Agreement Date, but
excluding conversion of any convertible preferred stock outstanding as of the
Agreement Date) in the aggregate up to twenty million dollars ($20,000,000) to
the Principal Stockholders or any other person (excluding employees, officers
and directors of the Company), the Company shall, as of the date the additional
equity actually is issued, grant to the Executive nonqualified options equal to
fifteen percent (15%) of such additional equity at the same purchase or exercise
price and with the same vesting schedules as are applicable to the Initial
Options constituting Full Price Options and Matching Discounted Options (i.e.,
two-thirds vest when the Full Price Options vest and one-third vests on January
31, 2003, provided, that the Executive remains employed by the Company on such
dates; all such additional options shall become fully vested and immediately
exercisable, in whole or in part, upon (1) Executive's termination of employment
by the Company without Cause (other than as a result of Executive's death or
Disability), (2) Executive's termination of employment for Good Reason, (3) a
Change of Control of the Company or (4) Executive's termination of employment on
account of the Executive's death or Disability, in each case solely as a result
of an injury sustained in an accident occurring while the Executive was
performing work for the Company (including business travel); and one-half of
such additional options that are then unvested shall become fully vested and
immediately exercisable, in whole or in part, upon Executive's termination of
employment on account of Executive's death or Disability as a result of any
other reason) and shall remain exercisable for the same period as the Initial
Options described in this Section 3.5. Any additional options granted pursuant
to this Section 3.5(h) shall be rounded to the nearest whole share. There shall
be no other adjustment to the Initial Options on account of the presently
outstanding options, warrants and convertible securities of the Company.
(i) Deferral of Compensation. The Executive shall defer,
and the Company shall retain, on a pre-tax basis the Executive's Salary and
Bonus earned under this Agreement (including amounts payable under Article V in
lieu thereof) to pay for the grant of the Discounted Options: (1) the
Executive's Salary and Additional Compensation for
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each month during the period May 5, 1999 through January 31, 2000, totaling
$1,350,000, (2) the Executive's Salary for each month during the period February
1, 2000 through January 31, 2001, totaling $1,200,000, (3) the Executive's Bonus
with respect to the Company's fiscal year ending on January 31, 2001, up to
$682,662, to provide a total aggregate amount equal to $3,232,662, and (4) if
the Executive's Bonus with respect to the Company's fiscal year ending on
January 31, 2001 is less than $682,662, such amount of the Executive's Salary
for each month or portion thereof after January 31, 2001 as necessary to provide
a total aggregate amount equal to $3,232,662.
3.6 Additional Options:
(a) Grant of Additional Stock Options. If at any time prior
to January 3, 2001, the Company issues in the aggregate up to five percent (5%)
of the currently outstanding number of shares of common stock (whether as stock
or stock options) to existing executive vice presidents or other senior
executives ("Additional Equity"), the Company shall, as of the date the
Additional Equity actually is issued, grant to the Executive nonqualified
options equal to fifteen percent (15%) of such Additional Equity ("Additional
Options"). Any Additional Options granted pursuant to this Section 3.6(a) shall
be rounded to the nearest whole share.
(b) Exercise Price of Additional Options. The per share
exercise price of each Additional Option shall be equal to the same purchase or
exercise price as the Additional Equity, as evidenced by the purchase price or
other consideration given for the Additional Equity.
(c) Vesting and Exercise Period of Additional Options.
Additional Options shall vest and become exercisable in accordance with the same
vesting schedules as are applicable to the Initial Options constituting Full
Price Options and Matching Discounted Options (i.e., two-third vest when the
Full Price Options vest and one-third vests on January 31, 2003, provided, that
the Executive remains employed by the Company on such dates; all such Additional
Options shall become fully vested and immediately exercisable, in whole or in
part, upon (1) Executive's termination of employment by the Company without
Cause (other than as a result of Executive's death or Disability), (2)
Executive's termination of employment for Good Reason, (3) a Change of Control
of the Company or (4) Executive's termination of employment on account of the
Executive's death or Disability, in each case solely as a result of an injury
sustained in an accident occurring while the Executive was performing work for
the Company (including business travel); and one-half of such Additional Options
that are then unvested shall become fully vested and immediately exercisable, in
whole or in part, upon Executive's termination of employment on account of
Executive's death or Disability as a result of any other reason) and shall
remain exercisable for the same period as the Initial Options described in
Section 3.5.
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ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Disability. The Executive's employment shall terminate
automatically upon the Executive's Disability during the Agreement Term.
4.2 Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Agreement Term.
4.3 Cause.
(a) Subject to the provisions of Section 4.3(b), during the
Agreement Term, the Company may terminate the Executive's employment for Cause.
(b) The Company may not terminate the Executive's
employment for Cause unless:
(1) no fewer than forty-five (45) days prior to the Termination Date,
the Company provides Executive with written notice (the "Notice of
Consideration") of its intent to consider termination of Executive's
employment for Cause, including a detailed description of the specific
reasons which form the basis for such consideration;
(2) for a period of not less than thirty (30) days after the date
Notice of Consideration is provided, Executive shall have the
opportunity to appear before the Board, with or without legal
representation, at Executive's election, to present arguments and
evidence on his own behalf; and (3) following the presentation to the
Board as provided in clause (2) above or following Executive's failure
to appear before the Board at a date and time specified in the Notice
of Consideration (which date shall not be less than thirty (30) days
after the date the Notice of Consideration is provided), the Executive
may be terminated for Cause if (A) the Board, by a more than
seventy-five percent (75%) vote of its members (excluding Executive if
he is a member of the Board and any other member of the Board
reasonably believed by the Board to be involved in the events leading
the Board to terminate Executive for Cause), determines that the
actions or inactions of the Executive specified in the Notice of
Consideration occurred, that such actions or inactions constitute
Cause, and that Executive's employment should accordingly be terminated
for Cause; and (B) the Board provides Executive with Notice of
Termination.
(c) A passage of time of less than twelve (12) months prior
to delivery of Notice of Termination or a failure by the Company to include in
the Notice of Termination any fact or circumstance which contributes to a
showing of Cause shall not waive any right of the Company under this Agreement
or preclude the Company from asserting such fact or circumstance in enforcing
rights under this Agreement, provided that such fact or circumstance is a basis
to support Executive's termination of employment for Cause as specified in both
the Notice of Consideration and Notice of Termination.
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(d) The Board, by unanimous vote of its members (excluding
Executive if he is a member of the Board and any other member of the Board
reasonably believed by the Board to be involved in the events leading the Board
to terminate Executive for Cause), may relieve the Executive of his duties,
without such act constituting Good Reason, during the consideration of his
termination for Cause following a Notice of Consideration. The Executive shall
be restored to his duties if the Board fails to issue a Notice of Termination
within thirty (30) days following the Executive's appearance before the Board
or, if Executive does not request or fails to make an appearance before the
Board.
4.4 Good Reason.
(a) During the Agreement Term, the Executive may terminate
his employment for Good Reason provided that the Executive has (i) provided at
least ten (10) days prior written notice to the Board of his intent to resign
for Good Reason, including a detailed description of the specific reasons which
form the basis for Good Reason and (ii) if requested by any member of the Board,
attend a meeting of the Board or the Executive Committee to be held within
fifteen (15) days following such notice to discuss his resignation for Good
Reason.
(b) Any termination of employment by the Executive for Good
Reason shall be communicated to the Company by Notice of Termination. A passage
of time of less than twelve (12) months prior to delivery of Notice of
Termination or a failure by the Executive to include in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive under this Agreement or
preclude the Executive from asserting such fact or circumstance in enforcing
rights under this Agreement.
4.5 Other Resignation. During the period after January 31,
2000 and before the twenty-first (21st) day after the Company's audited
financial statements for the year ending January 31, 2000 have been delivered to
the Company (but not later than May 21, 2000), the Executive may terminate his
employment for any reason or no reason by delivery of a Notice of Termination to
the Board.
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ARTICLE V
OBLIGATIONS OF THE COMPANY UPON TERMINATION OF EMPLOYMENT
5.1 If by the Executive for Good Reason or by the Company
Other Than for Cause or Disability or Death. If, during the Agreement Term, the
Company shall terminate Executive's employment other than for Cause, Disability
or death, or if the Executive shall terminate employment for Good Reason, the
Company's obligations to the Executive shall be as follows:
(a) The Company shall immediately pay the Executive, in
addition to all vested rights arising from the Executive's employment as
specified in Article III, a cash amount equal to the sum of the following
amounts:
(1) all amounts of Salary, Additional Compensation and Bonus previously
accrued to the benefit of the Executive and not retained by the Company
pursuant to Section 3.5(i) ("Accrued Obligations"); and
(2) an amount equal to the product of (A) the number of years
(including a fraction of a year determined by dividing the number of
days in a partial year by 365) remaining in the Agreement Term as of
the Termination Date, multiplied by (B) the sum of (i) annual Salary
and (ii) Target Bonus, and subject to retention by the Company pursuant
to Section 3.5(i).
(b) On the Termination Date, the Executive shall become
fully vested in, and may thereupon exercise, in whole or in part, any and all
Stock Options granted to the Executive subject to the other provisions of the
Agreement.
(c) Until the last day of the Agreement Term, the Company
shall continue to provide to the Executive and the Executive's spouse and
children medical, prescription, dental, individual life and group life insurance
plans and programs, in accordance with the most favorable plans provided from
time to time by the Company applicable to senior executives and their spouses
and children generally. The Executive's rights under this Section 5.1(c) shall
be in addition to, and not in lieu of, any post-termination continuation
coverage or conversion rights the Executive may have pursuant to applicable law,
including without limitation, continuation coverage required by 4980 of the
Code.
5.2 If by the Company for Cause. If, during the term of the
Agreement Term, the Company shall terminate the Executive's employment for
Cause, this Agreement (other than Articles X and XI) shall terminate without
further obligation by the Company to the Executive, other than (a) the
obligation immediately to pay Executive in cash all Accrued Obligations and (b)
the obligations of the Company under all Stock Options granted to the Executive
that have vested as of the Termination Date, subject to Article III.
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5.3 If by the Executive Other Than for Good Reason. If,
during the term of the Agreement Term, the Executive shall terminate employment
during the Agreement Term other than for Good Reason, Disability or death, this
Agreement (other than Articles X and XI) shall terminate without further
obligation by the Company, other than (a) the obligation immediately to pay the
Executive in cash all Accrued Obligations and (b) the obligations of the Company
under all Stock Options granted to the Executive that have vested as of the
Termination Date, subject to Article III.
5.4 If upon Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the Agreement Term,
this Agreement (other than Articles X and XI) shall terminate without further
obligation to the Executive, other than (a) the obligation immediately to pay
the Executive or his legal representative in cash all Accrued Obligations, (b)
the Executive's right after the date of Executive's Disability to receive
disability and other benefits in accordance with the disability and other
applicable benefit plans in effect on the date of Executive's Disability and (c)
the obligations of the Company under all Stock Options granted to the Executive
pursuant to Article III.
5.5 If upon Death. If the Executive's employment is
terminated by reason of the Executive's death during the Agreement Term, this
Agreement shall terminate without further obligation to the Executive's legal
representatives under this Agreement, other than (a) the obligation immediately
to pay the Executive's estate or beneficiary in cash all Accrued Obligations,
(b) the right of the Executive's family to receive benefits in accordance with
the applicable benefit plans in effect on the date of Executive's death, and (c)
the obligations of the Company under all Stock Options granted to the Executive
pursuant to Article III.
5.6 Other Resignation. If the Executive shall terminate
employment pursuant to 4.5 (other than for Good Reason pursuant to 4.4), (a)
Executive shall immediately receive the compensation deferred in accordance with
3.5(i), (b) Executive shall not be entitled to earn any Bonus in accordance with
3.3(d), (c) Executive shall forfeit his rights to all Stock Options, and (d) the
Executive shall be subject to the covenants set forth in s 10.1 and 10.2. In the
event of such termination, Executive shall earn additional compensation of
$50,000 per month during the period commencing on February 1, 2000 and ending on
the Termination Date. The Executive agrees to continue employment with the
Company and use the Executive's best efforts to ensure a smooth transition
through the earliest of (a) the date that a new Chief Executive Officer has been
employed by the Company, (b) a period of four (4) months has elapsed since the
date of the Executive's Notice of Termination, or (c) such date as the Company
elects after receipt of the Executive's Notice of Termination.
In the event that the Executive's employment is terminated during the Agreement
Term for any reason, Executive shall resign as Chairman of the Board and as a
member of the Board, and all other positions with the Company and its
subsidiaries, unless otherwise mutually agreed in writing by the Company and the
Executive.
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ARTICLE VI
EQUITY OWNERSHIP PROVISIONS
6.1 Tag-Along Rights. The Executive shall have tag-along
rights as set forth in that certain Stockholders Agreement, dated as of the date
hereof, among Bay Harbour Management L.C. for its managed accounts, Whippoorwill
Associates, Inc. as agent and/or general partner for its discretionary accounts
and as investment advisor to Whippoorwill/Barney's Obligations Trust - 1996, and
the Executive ("Stockholders Agreement").
6.2 Drag-Along Rights. The Executive shall be subject to
certain drag-along rights as set forth in the Stockholders Agreement.
6.3 Voting of Shares. The Executive agrees to vote the
shares of the Company's common stock hold by him from time to time as set forth
in the Stockholders Agreement.
6.4 Registration. The Executive shall have certain rights
to request registration of his shares of Company common stock under the
Securities Act of 1933, as amended, as set forth in that certain Registration
Rights Agreement, dated as of the date hereof, between the Company and the
Executive.
ARTICLE VII
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
7.1 Gross-up for Certain Taxes. If it is determined (by the
reasonable computation of the Company's independent auditors, which
determination shall be certified to by such auditors and set forth in a written
certificate and may set forth assumptions upon which such determination is based
("Certificate") delivered to the Executive and the Company) that any benefit
received or deemed received by the Executive from the Company pursuant to this
Agreement or otherwise (collectively, "Payments") is or will become subject to
any excise tax under 4999 of the Code or any similar tax payable under any
United States federal, state, local or other law (such excise tax and all such
similar taxes collectively, "Excise Taxes"), then the Company shall, as soon as
practicable after receipt of such Certificate, pay the Executive an amount
("Gross-up Payment") equal to the product of :
(a) the amount of such Excise Taxes
multiplied by
(b) the Gross-up Multiple (as defined in 7.4).
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The Gross-up Payment is intended to compensate the Executive for the Excise
Taxes and any federal, state, local or other income or excise taxes or other
taxes payable by the Executive with respect to the Gross-up Payment.
The Executive or the Company may at any time request the
preparation and delivery to the Executive and the Company of a Certificate. The
Company shall, in addition to complying with 7.2, cause all determinations and
certifications under this Article VII to be made as soon as reasonably possible
and in adequate time to permit the Executive to prepare and file the Executive's
individual tax returns on a timely basis (including any extension thereof).
7.2 Determination by the Executive.
(a) If the Company shall fail to deliver a Certificate to
the Executive and to pay to the Executive the amount of the Gross-up Payment, if
any, within thirty (30) days after receipt from the Executive of a written
request for a Certificate, or if at any time following receipt of a Certificate
the Executive disputes the amount of the Gross-up Payment set forth therein, the
Executive may elect to demand the payment of the amount which the Executive, in
accordance with an opinion of counsel to the Executive ("Executive Counsel
Opinion"), determines to be the Gross-up Payment. Any such demand by the
Executive shall be made by delivery to the Company of a written notice which
specifies the Gross-up Payment determined by the Executive and an Executive
Counsel Opinion (including applicable worksheets) regarding such Gross-up
Payment (such written notice and opinion collectively, "Executive's
Determination"). Within thirty (30) days after delivery of the Executive's
Determination to the Company, the Company shall either (1) pay the Executive the
Gross-up Payment set forth in the Executive's Determination (less the portion of
such amount, if any, previously paid to the Executive by the Company) or (2)
deliver to the Executive a Certificate specifying the Gross-up Payment
determined by the Company's independent auditors, together with an opinion of
the Company's counsel ("Company Counsel Opinion"), and pay the Executive the
Gross-up Payment specified in such Certificate.
(b) If the Executive does not make a request for, and the
Company does not deliver to the Executive, a Certificate, the Company shall, for
purposes of 7.3, be deemed to have determined that no Gross-up Payment is due.
7.3 Additional Gross-up Amounts. If, despite the initial
conclusion of the Company and/or the Executive that certain Payments are neither
subject to Excise Taxes nor to be counted in determining whether other Payments
are subject to Excise Taxes (any such item, a "Non-Parachute Item"), it is later
determined (pursuant to the subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, final judgment of a court of
competent jurisdiction or the Company's independent auditors) that any of the
Non-Parachute Items are subject to Excise Taxes, or are to be counted in
determining whether any Payments are subject to Excise Taxes, with the result
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that the amount of Excise Taxes payable by the Executive is greater than the
amount determined by the Company or the Executive pursuant to 7.1 or 7.2, as
applicable, then the Company shall pay the Executive an amount (which shall also
be deemed a Gross-up Payment) equal to the product of
(a) the sum of (1) such additional Excise Taxes and (2) any
interest, fines, penalties, or expenses incurred by the Executive as a result of
having taken a position in accordance with a determination made pursuant to 7.1
or 7.2, as applicable,
multiplied by
(b) the Gross-up Multiple.
7.4 Gross-up Multiple. The Gross-up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of which is
one (1.0) minus the sum, expressed as a decimal fraction, of the effective rates
of all federal, state, local and other income and other taxes and any Excise
Taxes applicable to the Gross-up Payment. (If different rates of tax are
applicable to various portions of a Gross-up Payment, the weighted average of
such rates shall be used.)
7.5 Opinion of Counsel. "Executive Counsel Opinion" means a
legal opinion of nationally recognized employee benefits tax counsel that there
is a reasonable basis to support a conclusion that the Gross-up Payment
determined by the Executive has been calculated in accordance with this Article
VII and applicable law. "Company Counsel Opinion" means a legal opinion of
nationally recognized employee benefits tax counsel that there is a reasonable
basis and substantial authority (within the meaning of Internal Revenue Code
6662(d)) to support a conclusion that the Gross-up Payment set forth in the
Certificate of the Company's independent auditors has been calculated in accord
with this Article VII and applicable law.
7.6 Amount Increased or Contested. The Executive shall
notify the Company in writing of any claim by the IRS or other taxing authority
that, if successful, would require the payment by the Company of a Gross-up
Payment. Such notice shall include the nature of such claim and the date on
which such claim is due to be paid. The Executive shall give such notice as soon
as practicable, but no later than ten (10) business days after the Executive
first obtains actual knowledge of such claims; provided, however, that any
failure to give or delay in giving such notice shall affect the Company's
obligations under this Article VII only if and to the extent that such failure
results in actual prejudice to the Company. The Executive shall not pay such
claim less than thirty (30) days after the Executive gives such notice to the
Company (or, if sooner, the date on which payment of such claim is due). If the
Company notifies the Executive in writing before the expiration of such period
that it desires to contest such claim, the Executive shall:
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(a) give the Company any information that it reasonably
requests relating to such claim,
(b) take such action in connection with contesting such
claim as the Company reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(c) cooperate with the Company in good faith to contest
such claim, and
(d) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including related interest
and penalties, imposed as a result of such representation and payment of
reasonable costs and expenses. Without limiting the foregoing, the Company shall
control all proceedings in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner. The Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify the Executive, on an after-tax basis, for any Excise Tax or income
tax, including related interest or penalties, imposed with respect to such
advance; and provided, further, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. The Company's control of the contest shall be limited to
issues with respect to which a Gross-up Payment would be payable. The Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the IRS or other taxing authority.
7.7 Refunds. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to 7.6, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall promptly
pay the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to 7.6, a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such determination before the expiration of thirty (30) days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
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thereof, the amount of Gross-up Payment required to be paid. Any contest of a
denial of refund shall be controlled by Section 7.6.
ARTICLE VIII
EXPENSES AND INTEREST
8.1 Legal Fees and Other Expenses.
(a) If the Executive incurs reasonable legal fees in an
effort to secure, establish entitlement to, or obtain benefits under this
Agreement (including, without limitation, the fees and other expenses of the
Executive's legal counsel in connection with the delivery of the Executive
Counsel Opinion referred to in Section 7.5 or in connection with enforcing the
Executive's rights to indemnification in Article XI) and the Executive prevails,
the Company shall reimburse the Executive for such fees and expenses.
(b) The Company will pay the Executive (i) for the
Executive's reasonable legal fees and expenses in negotiating this Agreement and
(ii) as may be necessary or appropriate, the Executive's reasonable legal fees
and expenses up to $25,000 annually for Executive to consult with counsel
regarding the Executive's compliance with the terms of this Agreement.
8.2 Interest. If the Company does not pay any amount due to
the Executive under this Agreement within three (3) days after such amount
became due and owing, interest shall accrue on such amount from the date it
became due and owing until the date of payment at an annual rate equal to two
percent (2.0%) above the base commercial lending rate announced by The Chase
Manhattan Bank in effect from time to time during the period of such nonpayment.
ARTICLE IX
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to receive
when due the payments and other benefits provided for under and in accordance
with the terms of this Agreement is absolute, unconditional and subject to no
set-off, counterclaim or legal or equitable defense. Any claim which the Company
may have against the Executive, whether for a breach of this Agreement or
otherwise, shall be brought in a separate action or proceeding and not as part
of any action or proceeding brought by the Executive to enforce any rights
against the Company under this Agreement.
9.2 No Mitigation. The Executive shall not have any duty to
mitigate the amounts payable by the Company under this Agreement upon any
termination of employment by seeking new employment following termination.
Except as specifically otherwise provided in this Agreement, all amounts payable
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pursuant to this Agreement shall be paid without reduction regardless of any
amounts of salary, compensation or other amounts which may be paid or payable to
the Executive as the result of the Executive's employment by another employer;
provided, however, that after a termination of employment by the Executive for
Good Reason as defined in Section 2.8(f), any amounts payable under ARTICLE V to
the Executive shall be subject to mitigation to the extent of compensation
arising from or attributable to services performed, directly or indirectly, by
the Executive as a consultant, employee, officer or director for the Company or
any of its affiliates or successors, if the Executive's principal duties and
responsibilities with respect to such services pertain to or include the
Company's business.
ARTICLE X
CONFIDENTIALITY AND NONCOMPETITION
10.1 Confidentiality. Executive acknowledges that it is the
policy of the Company and its Subsidiaries to maintain as secret and
confidential all valuable and unique information and techniques acquired,
developed or used by the Company and its Subsidiaries relating to their
business, operations, employees and customers, which gives the Company and its
Subsidiaries a competitive advantage in the retail clothing industry and other
businesses in which the Company and its Subsidiaries are engaged, including
trade secrets ("Confidential Information"). Executive recognizes that all such
Confidential Information is the sole and exclusive property of the Company and
its Subsidiaries, and that disclosure of Confidential Information would cause
damage to the Company and its Subsidiaries. Executive agrees that, except as
required by the duties of his employment with the Company and/or its
Subsidiaries and except in connection with enforcing the Executive's rights
under this Agreement or if compelled by a court or governmental agency, in each
case provided that prior written notice is given to the Company, he will not,
without the consent of the Company, disseminate or otherwise disclose any
Confidential Information obtained during his employment with the Company and/or
its Subsidiaries for so long as such information is valuable and unique.
10.2 Nonsolicitation. During the Agreement Term and, if
Executive's employment is terminated for any reason, thereafter for a period of
one (1) year, Executive shall not (a) employ any employee of the Company and/or
its Subsidiaries or (b) interfere with the Company's or any of its Subsidiaries'
relationship with, or endeavor to entice away from the Company and/or its
Subsidiaries any person, firm, corporation, or other business organization who
or which at any time (whether before or after the date of Executive's
termination of employment), was an employee, customer, vendor or supplier of, or
maintained a business relationship with, any business of the Company and/or its
Subsidiaries which was conducted at any time during the period commencing one
(1) year prior to the termination of employment.
10.3 Noncompetition. During the Agreement Term prior to
Executive's termination of employment, and if the Executive is terminated for
Cause or resigns without Good Reason, thereafter for a period of one (1) year,
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Executive shall not engage in any Competitive Activity (as defined below)
without the prior approval of the Board. "Competitive Activity" means, directly
or indirectly, to carry on, be engaged in or have any financial interest, either
as principal, manager, agent, consultant, officer, stockholder, partner,
investor, lender or employee or in any other capacity, in any of the following
corporations or their respective Subsidiaries: Saks Fifth Avenue, Neiman Marcus
Corporation, Bergdorf Goodman or Nordstrom. After Executive's termination of
employment, unless Executive is terminated for Cause or resigns without Good
Reason (other than pursuant to Section 4.5), Executive shall not be implicitly
or explicitly restricted from engaging in Competitive Activity subject to his
satisfaction of his obligations under Sections 10.1 and 10.2.
10.4 Remedy. Executive and the Company specifically agree
that, in the event that Executive shall breach his obligations under this
Article X, the Company and its Subsidiaries will suffer irreparable injury and
shall be entitled to injunctive relief therefor, and shall not be precluded from
pursuing any and all remedies it may have at law or in equity for breach of such
obligations; provided, however, that such breach shall not in any manner or
degree whatsoever limit, reduce or otherwise affect the obligations of the
Company under this Agreement, and in no event shall an asserted breach of the
Executive's obligations under this Article X constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement;
and provided, further, that any breach of Section 10.3 shall not include a claim
for injunctive relief against the Executive.
10.5 This Article X shall survive any termination of this
Agreement.
ARTICLE XI
INDEMNIFICATION; NON-EXCLUSIVITY OF RIGHTS
11.1 Indemnification. The Executive shall be indemnified
and held harmless by the Company to the greatest extent permitted under
applicable Delaware law as the same now exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification than was permitted prior
to such amendment) if Executive was, is, or is threatened to be made, a party to
any pending, completed or threatened action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, and whether
formal or informal, by reason of the fact that Executive is or was, or had
agreed to become, a director, officer, employee, agent, or fiduciary of the
Company or any other entity which Executive is or was serving at the request of
the Company ("Proceeding"), against all expenses (including without limitation,
all reasonable attorneys' fees, retainers, court costs, transcripts, fees of
experts, witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, and all other
reasonable disbursements or expenses customarily required in connection with
asserting or defending claims) ("Expenses") and all claims, damages, liabilities
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and losses (including, without limitation, judgments; fines; liabilities under
the Code or the Employee Retirement Income Security Act of 1974, as amended, for
damages, excise taxes or penalties; damages, fines or penalties arising out of
violation of any law related to the protection of the public health, welfare or
the environment; and amounts paid or to be paid in settlement) incurred or
suffered by the Executive or to which the Executive may become subject for any
reason. A Proceeding shall not include any proceeding to the extent it concerns
or relates to a matter described in Section 8.1(a).
11.2 Advancement of Expenses and Costs. All Expenses
incurred by or on behalf of the Executive in defending or otherwise being
involved in a Proceeding shall be paid by the Company in advance of the final
disposition of a Proceeding, including any appeal therefrom, within thirty (30)
days after the receipt by the Company of a statement or statements from the
Executive requesting such advance or advances from time to time. Such statement
or statements shall evidence the Expenses incurred by the Executive in
connection therewith, together with supporting invoices, receipts and other
documentation.
11.3 Effect of Certain Proceedings. The termination of any
Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, except, in each case, to the extent that the terms
thereof expressly so provide, shall not, of itself (a) adversely affect the
rights of the Executive to indemnification, or (b) create a presumption that the
Executive did not meet any particular standard of conduct or have any particular
belief or that a court has determined that indemnification or contribution is
not permitted by applicable law.
11.4 Other Rights to Indemnification. The Executive's
rights of indemnification and advancement of Expenses provided by this Article
XI shall not be deemed exclusive of any other rights to which the Executive may
now or in the future be entitled under applicable law, the certificate of
incorporation, by-laws, agreement, vote of stockholders, or resolution of the
Board of the Company, or other provisions of this Agreement or any other
agreement, or otherwise.
11.5 Representations. The Company represents and warrants
that this Article XI does not conflict with or violate its certificate of
incorporation or by-laws, and agrees that it will not amend its certificate of
incorporation or by-laws in a manner that would limit the rights of the
Executive hereunder. The Company represents that the execution, delivery and
performance of this Agreement by the Company has been duly and validly
authorized by its Board.
11.6 Survival of Indemnity. This Article XI shall survive
any termination of the relationship of the Executive with the Company, and shall
be binding on, and inure to the benefit of the successors and assigns of the
Company and the successors, assigns, heirs and personal representatives of the
Executive.
11.7 Non-Exclusivity of Rights. This Agreement shall not
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plans provided by the Company or any of its
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Subsidiaries and for which the Executive may qualify, nor shall this Agreement
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its Subsidiaries. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan
of the Company or any of its Subsidiaries and any other payment or benefit
required by law at or after the Termination Date shall be payable in accordance
with such plan or applicable law except as expressly modified by this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 Representations; Nondisclosure. The Executive will not
disclose to the Company or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others. The
Executive represents and warrants that he is not a party to any agreement,
contract or understanding, employment or otherwise, which would restrict or
prohibit him in any way from undertaking or performing employment in accordance
with the terms and conditions of this Agreement.
12.2 No Assignability. This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
12.3 Successors. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns. The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Any successor to the business
and/or assets of the Company which assumes or agrees to perform this Agreement
by operation of law, contract, or otherwise shall be jointly and severally
liable with the Company under this Agreement as if such successor were the
Company.
12.4 Payments to Beneficiary. If the Executive dies before
receiving amounts to which the Executive is entitled under this Agreement, such
amounts shall be paid in a lump sum to the beneficiary designated in writing by
the Executive, or if none is so designated, to the Executive's estate.
12.5 Non-alienation of Benefits. Benefits payable under
this Agreement shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution
or levy of any kind, either voluntary or involuntary, before actually being
received by the Executive, and any such attempt to dispose of any right to
benefits payable under this Agreement shall be void.
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12.6 Severability. If any one or more articles, sections or other portions of
this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.
12.7 Amendments. This Agreement shall not be altered,
amended or modified except by written instrument executed by the Company and
Executive.
12.8 Notices. All notices and other communications under
this Agreement shall be in writing and delivered by hand or by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Allen I. Questrom
200 East 69th Street
Apartment 43A
New York, New York 10021
with a copy to:
Sonnenschein, Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Roger C. Siske, Esq.
If to the Company:
Barneys New York, Inc.
575 Fifth Avenue
New York, New York 10017
Attention: Marc H. Perlowitz, Esq.
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
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12.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
12.10 Governing Law. This Agreement shall be interpreted
and construed in accordance with the laws of the State of New York, without
regard to its conflict of laws principles.
12.11 Captions. The captions of this Agreement are not a
part of the provisions hereof and shall have no force or effect.
12.12 Tax Withholding. The Company may withhold from any
amounts payable under this Agreement any federal, state or local taxes
that are required to be withheld pursuant to any applicable law or regulation.
12.13 No Waiver. The Executive's failure to insist upon
strict compliance with any provision of this Agreement shall not be deemed a
waiver of such provision or any other provision of this Agreement. A waiver of
any provision of this Agreement shall not be deemed a waiver of any other
provision, and any waiver of any default in any such provision shall not be
deemed a waiver of any later default thereof or of any other provision.
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12.14 Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to its subject
matter.
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement effective as of the date first
above written, executed February 1, 2000.
BARNEYS NEW YORK, INC.
By: /s/ Marc H. Perlowitz
---------------------------------
Title: Executive Vice President
/s/ Allen I. Questrom
-------------------------------------
ALLEN I. QUESTROM
27
Exhibit 10.30
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Registration Rights Agreement, dated as of February 1, 2000, by and
between Barneys New York, Inc., a Delaware corporation ("Company"), and Allen
Questrom (collectively with his heirs and testamentary assigns, "Executive").
W I T N E S S E T H :
WHEREAS, pursuant to an employment agreement of even date herewith
between Company and Executive (the "Employment Agreement"), Executive has been
granted options to purchase shares of common stock, $.01 par value of Company;
and
WHEREAS, in partial consideration for Executive entering into the
Employment Agreement, Company has agreed to grant certain rights to Executive as
set forth herein;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
1. Definitions. The following shall have (unless otherwise provided
elsewhere in this Agreement) the following respective meanings (such meanings
being equally applicable to both the singular and plural form of the terms
defined):
"Action" shall have the meaning set forth in Section 6(e).
"Affiliate", with respect to a Person, means any other Person which
directly or indirectly, through one or more intermediaries controls, is
controlled by, or is under common control with, such Person.
"Agreement" shall mean this Registration Rights Agreement, including
all amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.
"Business Day" shall mean any day that is not a Saturday, a Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Demanding Security Holders" shall have the meaning set forth in
Section 3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
NY2:\458256\04\21645.0001
<PAGE>
"Indemnified Party" shall have the meaning set forth in Section 6(e).
"Indemnifying Party" shall have the meaning set forth in Section
6(e).
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Person" shall mean any individual, partnership (general, limited or
limited liability), corporation, limited liability company, trust,
unincorporated organization or other legal entity, and a government or agency or
political subdivision thereof.
"Registrable Securities" shall mean Shares beneficially owned by
Executive at any time after the date hereof, including without limitation,
Shares resulting from the exercise of any options held by Executive. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a Registration Statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such Registration
Statement, (ii) such securities shall have been sold pursuant to Rule 144 under
the Securities Act, or (iii) such securities shall have ceased to be
outstanding. For purposes of this Agreement, references to "beneficially owned"
or "beneficial ownership" mean such ownership within the meaning of Rule 13d-3
under the Exchange Act.
"Registration Statement" shall mean a registration statement of
Company as it may be amended or supplemented from time to time, including
without limitation, all exhibits, financial statements, schedules and
attachments thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Shares" shall mean the common stock, $.01 par value, of Company and
any capital stock of Company or any successor corporation into which such common
stock may hereafter be changed.
2. Required Registration. After receipt of a written request from
Executive requesting that Company effect the registration under the Securities
Act of Registrable Securities representing at least an aggregate of 10% of the
total of all Registrable Securities then beneficially owned (determined in
accordance with Rule 13d-3 promulgated under the Exchange Act) by Executive,
specifying the intended method or methods of disposition thereof, Company shall,
as expeditiously as is possible, use its best efforts to effect the registration
under the Securities Act of all Registrable Securities which Company has been so
requested to register by Executive for sale, all to the extent required to
permit the disposition (in accordance with the intended method or methods
thereof, as aforesaid) of the Registrable Securities so registered; provided,
however, that (x) Company shall not be required to effect more than two (2)
registrations of any Registrable Securities which shall have been declared
effective by the
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Commission pursuant to this Section 2, and (y) Company shall only be required to
effect a registration of Registrable Securities pursuant to this Section 2 after
the later of (i) six months after it has consummated an initial public offering
of Shares under the Securities Act, and (ii) 12 months after a registration
statement filed under the Exchange Act in respect of the Shares shall have been
declared effective. Executive acknowledges and agrees that if any Person shall
request, pursuant to a contractual right of such Person, that Shares held by
such Person be included in any registration statement filed pursuant to this
Section 2, then the Shares to be registered on behalf of such Person and
Executive shall be subject to reduction as set forth in the third sentence of
the second paragraph of Section 3.
3. Incidental Registration. If Company at any time proposes to file
on its behalf and/or on behalf of any of its security holders (collectively, the
"Demanding Security Holders") a Registration Statement under the Securities Act
on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Company
pursuant to any employee benefit plan, respectively) for the general
registration of Shares or other equity securities of Company, or securities
convertible into or exchangeable or exercisable for Shares or such other equity
securities, it will give written notice of such proposed filing to Executive
(unless Executive is a Demanding Security Holder) at least thirty (30) days
before the initial filing with the Commission of such Registration Statement,
which notice shall set forth the number and type of securities proposed to be
offered and a description of the intended method of disposition of such
securities. The notice shall offer to include in such filing such number of
Registrable Securities as Executive may request.
In the event that Executive desires to have Registrable Securities
registered under this Section 3, he shall advise Company in writing within
twenty (20) days after the date of receipt of such offer from Company, setting
forth the amount of such Registrable Securities for which registration is
requested. Company shall thereupon include in such filing the number of shares
of Registrable Securities for which registration is so requested, subject to the
next sentence, and shall use its best efforts to effect registration under the
Securities Act of such Registrable Securities. If the managing underwriter of a
proposed public offering shall advise Company in writing that, in its opinion,
the distribution of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by Company or
such Demanding Security Holder would materially and adversely affect the
distribution of such securities by Company or such Demanding Security Holder,
then Executive shall reduce the amount of securities he intended to distribute
through such offering, pro rata with the other Demanding Security Holders and
other selling security holders on the basis of the number of shares of
Registrable Securities to be offered for the account of Executive and such other
selling security holders. Except as otherwise provided in Section 5, all
expenses of such registration shall be borne by Company. No registration of
Registrable Securities under this Section 3 shall relieve Company of its
obligation to effect registrations under Section 2, or shall constitute a
request for registration by Executive under Section 2.
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4. Registration Procedures. If Company is required by the provisions
of Section 2 or 3 to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act, Company will, as expeditiously
as possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by Executive thereof, but not to
exceed two hundred seventy (270) days;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of two hundred seventy (270) days;
(c) furnish to Executive and any underwriters such number of
copies of the Registration Statement as initially filed with the Commission and
of each pre-effective and post-effective amendment or supplement thereto (in
each case including at least one copy of all exhibits thereto and all documents
incorporated by reference therein) and of the prospectus included therein,
including the preliminary prospectus and any summary prospectus, and any other
prospectus filed under Rule 424 under the Securities Act in connection with the
disposition of any Registrable Securities covered by such Registration
Statement, and such other documents as Executive or any underwriter may
reasonably request;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto Rico as
Executive shall request (provided, however, that Company shall not be obligated
to qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified or to file any general consent to
service of process to effect such registration), and do such other reasonable
acts and things as may be required of it to enable Executive to consummate the
disposition in such jurisdiction of the Registrable Securities covered by such
Registration Statement;
(e) furnish, at the request of Executive, if he has requested
registration of Registrable Securities pursuant to Section 2, on the date that
such shares of Registrable Securities are delivered to the underwriters for sale
pursuant to such registration or, if such Registrable Securities are not being
sold through underwriters, on the date that the Registration Statement with
respect to such Registrable Securities becomes effective, (1) an opinion, dated
such date, of the independent counsel representing Company for the purposes of
such registration, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to
Executive, in customary form and covering matters of the type
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<PAGE>
customarily covered in such legal opinions; and (2) a comfort letter dated such
date, from the independent certified public accountants who have issued an audit
report on Company's financial statements included or incorporated by reference
in the Registration Statement, addressed to the underwriters, if any, and if
such Registrable Securities are not being sold through underwriters, then to
Executive, and, if such accountants refuse to deliver such letter to Executive,
then to Company in a customary form and covering matters of the type customarily
covered by such comfort letters and as the underwriters or Executive shall
reasonably request. The opinion of counsel shall additionally cover such other
legal matters with respect to the registration in respect of which such opinion
is being given as Executive or any underwriter may reasonably request. Such
letter from the independent certified public accountants shall additionally
cover such other financial matters (including information as to the period
ending not more than five (5) Business Days prior to the date of such letter)
with respect to the registration in respect of which such letter is being given
as Executive or any underwriter may reasonably request;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(g) use its commercially reasonable efforts to cause its senior
management to attend and make presentations regarding Company at all meetings
with prospective purchasers of Registrable Securities that are arranged by any
underwriter (provided that senior management has been given two (2) weeks
advance notice of the first of such meetings) in connection with any widely
distributed, underwritten offering of such Registrable Securities;
(h) use its best efforts to cause the Registrable Securities
covered by a Registration Statement to be listed on each national securities
exchange, the NASDAQ National Market or the NASDAQ Small Cap Market, as
applicable, on which Company's equity securities are then listed at the time of
the sale of such Registrable Securities pursuant to such Registration Statement;
(i) notify Executive and each underwriter, at any time when a
prospectus is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, such prospectus
(as then in effect) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and as promptly as
practicable prepare and furnish to Executive and each underwriter such number of
copies of a supplement to or an amendment of such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(j) make available for inspection by Executive, any underwriter
and any attorney, accountant or other agent retained by Executive or any
underwriter, all financial and other records, pertinent corporate documents and
properties
5
<PAGE>
of Company, and cause Company's officers, directors and employees to supply all
information reasonably requested by Executive, any underwriter or any such
attorney, accountant or agent in connection with such Registration Statement;
(k) before filing any Registration Statement or amendment or
supplement thereto or to the prospectus used therewith, furnish to Executive,
any underwriters and their respective counsel drafts and/or copies of all
documents proposed to be filed with the Commission and an opportunity to comment
thereon; and
(l) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, but not later than eighteen (18)
months after the effective date of the Registration Statement, an earnings
statement covering the period of at least twelve (12) months beginning with the
first full month after the effective date of such Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
It shall be a condition precedent to the obligation of Company to
take any action pursuant to this Agreement in respect of the Registrable
Securities which are to be registered at the request of Executive that Executive
shall furnish to Company such information regarding the Registrable Securities
held by Executive and the intended method of disposition thereof as Company
shall reasonably request and as shall be required in connection with the action
taken by Company ("Executive Information").
5. Expenses. All expenses incurred in complying with this Agreement,
including, without limitation, all Commission or stock exchange registration and
filing fees (including all expenses incident to filing with the NASD), stock
exchange listing fees, printing expenses, fees and disbursements of counsel for
Company, expenses of complying with the securities or blue sky laws of any
jurisdiction pursuant to Section 4(d) hereof, underwriting expenses other than
underwriting discounts and commissions, the reasonable fees and expenses of one
counsel for Executive, fees of the Company's independent public accountants and
the expenses of any special audits incident to or required by any such
registration, and the expenses of complying with the securities or blue sky laws
of any jurisdiction pursuant to Section 4(d), shall be paid by Company, except
that:
(a) all such expenses in connection with any amendment or
supplement to the Registration Statement or prospectus filed more than two
hundred seventy (270) days after the effective date of such Registration
Statement because Executive has not effected the disposition of the securities
requested to be registered shall be paid by Executive; and
(b) Company shall not be liable for any underwriting discounts or
commissions in respect of the Registrable Securities sold by Executive.
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6. Indemnification and Contribution.
(a) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, Company shall
indemnify and hold harmless Executive, Executive's agents, and each other Person
(including each underwriter) who participated in the offering of such
Registrable Securities against any losses, claims, damages or liabilities, joint
or several, to which Executive or any such agent or Person may become subject
under the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any Registration
Statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any alleged
violation by Company of the Securities Act, the Exchange Act or any state
securities laws in connection with the offering covered by such Registration
Statement, and shall reimburse Executive or such agent or Person for any legal
or any other expenses reasonably incurred by Executive or such agent or Person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any actual or alleged untrue statement or actual or
alleged omission made in such Registration Statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
Executive Information furnished in writing to Company by Executive specifically
for use therein or (in the case of any registration pursuant to Section 2) so
furnished for such purposes by any underwriter. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
Executive or such agent or Person and shall survive the transfer of such
Registrable Securities by Executive.
(b) Executive, by acceptance hereof, agrees to indemnify and hold
harmless Company, its directors and officers and each other person, if any, who
controls Company within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which Company or any such
director or officer or any such person may become subject under the Securities
Act or any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which Registrable Securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto or (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, if in any such case such statement or alleged
statement or omission or alleged omission was made in reliance on and in
conformity with Executive Information provided in writing to Company by
Executive specifically for use in such Registration Statement, preliminary
prospectus or final prospectus or any amendment or supplement thereto.
7
<PAGE>
Notwithstanding the provisions of this paragraph (b) or paragraph (c) below,
Executive shall not be required to indemnify any person pursuant to this Section
6 or to contribute pursuant to paragraph (c) below in an amount in excess of the
amount of the aggregate net proceeds received by Executive in connection with
any such registration under the Securities Act.
(c) If the indemnification provided for in this Section 6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that notwithstanding the foregoing, no fault shall be attributed to
Executive as to any matters other than his provision of Executive Information in
writing to Company specifically for use in a Registration Statement, preliminary
prospectus or final prospectus or any amendment or supplement thereto. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 6, the
indemnifying party shall indemnify the indemnified party to the full extent
provided in Section 6(a) or 6(b) hereof, as applicable, without regard to the
relative fault of the indemnifying party or the indemnified party or any other
equitable consideration provided for in this Section 6(c).
(d) The indemnification and contribution required by this Section
6 shall be made by periodic payment of the amount thereof during the course of
the investigation or defense, as and when bills are received or expenses are
incurred.
8
<PAGE>
(e) The party seeking indemnification pursuant to this Section 6
is referred to as the "Indemnified Party" and the party from whom
indemnification is sought under this Section 6 is referred to as the
"Indemnifying Party." The Indemnified Party shall give prompt written notice to
the Indemnifying Party of the commencement of any action or proceeding involving
a matter referred to in Section 6(a) or 6(b) (an "Action"), if an
indemnification claim in respect thereof is to be made against the Indemnifying
Party; provided, however, that the failure to give such prompt notice shall not
relieve the Indemnifying Party of its indemnity obligations hereunder with
respect to such Action, except to the extent that the Indemnifying Party is
materially prejudiced by such failure. The Indemnifying Party shall be entitled
to participate in and to assume the defense of such Action, with counsel
selected by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party; provided, however, that (i) the Indemnifying Party, within a
reasonable period of time after the giving of notice of such indemnification
claim by the Indemnified Party, (x) notifies the Indemnified Party of its
intention to assume such defense and (y) appoints such counsel, and (ii) the
Indemnifying Party may not, without the consent of the Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
Action. If the Indemnifying Party so assumes the defense of any such Action, (A)
the Indemnifying Party shall pay all costs associated with, any damages awarded
in, and all expenses arising from the defense or settlement of such Action, and
(B) the Indemnified Party shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise or settlement of such
Action, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless (x) the Indemnifying Party has agreed to pay such fees
and expenses, (y) the Indemnified Party has been advised by its counsel that
there are likely to be one or more defenses available to it which are different
from or additional to those available to the Indemnifying Party, and in any such
case that portion of the reasonable fees and expenses of such separate counsel
that are reasonably related to matters covered by the indemnity provided in this
Section 6 shall be paid by the Indemnifying Party, or (z) such counsel has been
selected by the Indemnified Party solely due to a conflict of interest which
exists between counsel selected by the Indemnifying Party and the Indemnified
Party. If the Indemnifying Party does not so assume the defense of such Action,
the Indemnified Party shall be entitled to exercise control of the defense,
compromise or settlement of such Action. No Indemnified Party shall settle or
compromise any Action for which it is entitled to indemnification under this
Agreement without the prior written consent of the Indemnifying Party (which
consent may not be unreasonably withheld or delayed). The other party shall
cooperate with the party assuming the defense, compromise or settlement of any
Action in accordance with this Agreement in any manner that such party
reasonably may request and the party assuming the defense, compromise or
settlement of any Action shall keep the other party fully informed in the
defense of such Action.
9
<PAGE>
7. Certain Limitations on Registration Rights. Notwithstanding the
other provisions of this Agreement:
(a) Company shall not be obligated to register the Registrable
Securities of Executive if, in the opinion of counsel to Company reasonably
satisfactory to Executive and its counsel (or, if Executive has engaged an
investment banking firm, to such investment banking firm and its counsel), the
sale or other disposition of Executive's Registrable Securities, in the manner
proposed by Executive (or by such investment banking firm), may be effected
without registering such Registrable Securities under the Securities Act and
without any additional restrictions pursuant to any applicable exemptions from
the registration requirements under the Securities Act and the purchaser of such
Registrable Securities will take such Registrable Securities free from any
restrictions on transfer pursuant to the Securities Act and any applicable state
securities laws;
(b) Company shall not be obligated to register the Registrable
Securities of Executive pursuant to Section 2 if Company has had a Registration
Statement, under which Executive had a right to have its Registrable Securities
included pursuant to Section 2 or 3, declared effective within six months prior
to the date of the request pursuant to Section 2; and
(c) Company shall have the right to delay the filing or
effectiveness of a Registration Statement required pursuant to Section 2 hereof
during one or more periods aggregating not more than sixty (60) days in any
twelve-month period in the event that (i) Company would, in accordance with the
advice of its counsel, be required to disclose in the prospectus information not
otherwise then required by law to be publicly disclosed and (ii) in the judgment
of Company's Board of Directors, there is a reasonable likelihood that such
disclosure, or any other action to be taken in connection with the prospectus,
would materially and adversely affect any existing or prospective material
business situation, transaction or negotiation or otherwise materially and
adversely affect Company.
8. Underwriters. (a) The managing underwriter or underwriters for any
offering of Registrable Securities to be registered pursuant to Section 2 shall
be selected by Executive and shall be reasonably acceptable to Company.
(b) If requested by the underwriters for any underwritten
registration pursuant to Section 2, Company shall enter into an underwriting
agreement with such underwriters for such offering, such agreement to be
reasonably satisfactory in form and substance to Company, Executive and the
underwriters and to contain such representations and warranties by Company and
such other terms as are customarily contained in agreements of that type,
including without limitation, covenants to keep the Registration Statement
current, indemnities and contribution and the provision of opinions of counsel
and accountants' letters to the effect and to the extent provided in Section
4(e) hereof. Executive shall cooperate with Company in the negotiation of the
underwriting agreement and shall be party to such underwriting agreement.
10
<PAGE>
9. Restrictions on Sale After Public Offering. Except for transfers
made in transactions exempt from the registration requirements under the
Securities Act (other than Rule 144 thereunder), Company and Executive hereby
agree not to offer, sell, contract to sell or otherwise dispose of any Shares or
other equity securities of Company, or securities convertible into or
exchangeable or exercisable for Shares or such other equity securities,
including without limitation, any sale pursuant to a brokerage transaction under
Rule 144 under the Securities Act, within a period of up to one hundred eighty
(180) days after the date of any final prospectus relating to the public
offering of Shares, if underwritten, whether by Company or by Executive, except
pursuant to such prospectus or with the written consent of the managing
underwriter or underwriters for such offering; provided, however, the
restriction period applicable to Executive pursuant hereto in connection with
any underwritten public offering shall not be longer than (x) the period
required by the underwriter pursuant to its underwriting agreement in connection
with such offering and (y) the period during which similar restrictions are
applicable to any holder of 10% of Company's outstanding Common Stock in
connection with such public offering.
10. Rule 144. So long as Company has securities registered under the
Exchange Act, it shall take all actions reasonably necessary to enable Executive
to sell Registrable Securities without registration under the Securities Act
within the limitations of the exemptions provided by (i) Rule 144 under the
Securities Act or (ii) any similar rule or regulation hereafter adopted by the
Commission, including, without limiting the generality of the foregoing, filing
on a timely basis all reports required to be filed by the Exchange Act. Upon
request of Executive, Company shall deliver to Executive a written statement as
to whether it has complied with such requirements.
11. Miscellaneous.
(a) No Inconsistent Agreements. Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to Executive in this Agreement. Except for the Registration
Rights Agreement, dated as of January 28, 1999, by and among Barneys New York,
Inc. and the holders party thereto, Company has not previously entered into any
agreement with respect to any of its securities granting any registration rights
to any person. So long as any Registrable Securities are outstanding, Company
shall not grant to any holder of its securities rights to include such
securities in any Registration Statement filed pursuant to Section 2 hereof
which are senior to the rights of Executive to include shares in any such
Registration Statement, unless Executive has consented thereto in writing. It is
understood that the allocation provision in the third sentence of the second
paragraph of Section 3 hereof shall be deemed to be pari passu rights and not
senior rights.
(b) Remedies. Executive, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. In any action or
11
<PAGE>
proceeding brought to enforce any provision of this Agreement or where any
provision hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(c) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departure from the provisions hereof may not be given
unless Company has obtained the written consent of Executive. To the extent
permitted by law, no failure to exercise, and no delay on the part of Executive
in exercising, any power or right in connection with this Agreement, or
available at law or in equity, shall operate as a waiver thereof, and no single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, shall preclude any other
or further exercise thereof or the exercise of any other rights or powers. No
course of dealing among Executive, Company or any other Person shall operate as
a waiver of any right of Executive. Any written modification or waiver of any
provision of this Agreement shall be effective only in the specific instance and
for the purpose for which it is given.
(d) Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be deemed served and
received: (i) when delivered by hand to the recipient named below (or when
delivery is refused); (ii) on the date of delivery (or when delivery is refused)
as confirmed by the agency or firm making delivery (or attempting to make
delivery when delivery is refused) when the notice is delivered by private
overnight courier service, such as Federal Express; (iii) on the date delivered
(or the date delivery is refused) if sent via the United States Postal Service
when sent by either registered or certified mail, postage and postal charges
prepaid, return receipt requested; or (iv) if on a business day, on the date
sent via telecopy, provided such delivery is confirmed (via a fax confirmation
report). Notices shall be addressed by name and address to the recipient, as
follows:
(i) If to Executive, at
Allen Questrom
200 East 69th Street
Apartment 43A
New York, New York 10021
Telecopier: 212-582-8364
with a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Roger C. Siske, Esq.
Telecopier: 312-876-7934
12
<PAGE>
(ii) If to Company at
Barneys New York, Inc.
575 Fifth Avenue
New York, New York 10017
Attention: Marc H. Perlowitz, Esq.
Telecopier: 212-450-8480
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopier: 212-310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or five (5) Business Days after the same shall have been deposited in
the United States mail.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto including any Person to whom Registrable Securities are transferred.
(f) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law; Jurisdiction; Jury Waiver. This Agreement
shall be governed by, construed and enforced in accordance with the laws of the
State of New York without giving effect to the conflict of laws provisions
thereof. Each of the parties hereby submits to personal jurisdiction and waives
any objection as to venue in the County of New York, State of New York. Service
of process on the parties in any action arising out of or relating to this
Agreement shall be effective if mailed to the parties in accordance with Section
11(d) hereof. The parties hereto waive all right to trial by jury in any action
or proceeding to enforce or defend any rights hereunder.
(h) Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
13
<PAGE>
(i) Entire Agreement. This Agreement represents the complete
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
14
<PAGE>
IN WITNESS WHEREOF, Company and Executive have executed this
Agreement as of the date first above written.
BARNEYS NEW YORK, INC.
By: /s/ Marc H. Perlowitz
-----------------------------------------
Name: Marc H. Perlowitz
Title: Executive Vice President
EXECUTIVE:
/s/ Allen Questrom
--------------------------------------------
ALLEN QUESTROM
15
Exhibit 10.31
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
------------------------------------------------
Amendment No. 1, dated as of February 1, 2000 (this "Amendment"), to
that certain Registration Rights Agreement, dated as of January 28, 1999 (the
"Agreement") by and among Barneys New York, Inc., a Delaware corporation
("Company"), and the holders listed on the signature pages thereof
(collectively, the "Holders").
W I T N E S S E T H :
---------------------
WHEREAS, Company and the Series 1 Holders desire to amend the
Agreement, as it relates to the Series 1 Holders, as set forth below;
NOW, THEREFORE, in consideration of the premises and agreements
hereinafter contained, it is agreed as follows:
1. Defined Terms. All capitalized terms used and not otherwise
defined in this Amendment shall have the meanings ascribed thereto in the
Agreement.
2. Amendment of Section 2. Section 2 of the Agreement is hereby
amended to add the following sentence to the end thereof:
Each Series 1 Holder acknowledges and agrees that if any Person shall
request, pursuant to a contractual right of such Person, that Shares
held by such Person be included in any registration statement filed
pursuant to this Section 2, then the Shares to be registered on
behalf of such Person and such Series 1 Holder shall be subject to
reduction as set forth in the third sentence of the second paragraph
of Section 3.
3. Effect of Amendment. Except as amended hereby, the Agreement shall
remain and continue in full force and effect.
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, Company and the Series 1 Holders have executed
this Agreement as of the date first above written.
BARNEYS NEW YORK, INC.
By: /s/ Marc H. Perlowitz
--------------------------------------
Name: Marc H. Perlowitz
Title: Executive Vice President
BAY HARBOUR MANAGEMENT L.C.,
for its Managed Accounts
By: /s/ Douglas P. Teitelbaum
--------------------------------------
Name: Douglas P. Teitelbaum
Title: Principal and Portfolio
Manager
WHIPPOORWILL ASSOCIATES, INC.,
as agent and/or general partner for its
discretionary accounts and as investment
advisor to Whippoorwill/Barney's
Obligations Trust - 1996
By: /s/ David Strumwasser
--------------------------------------
Name: David Strumwasser
Title: Managing Director
2
Exhibit 10.32
EXECUTION COPY
THIRD AMENDMENT
Dated as of November 30, 1999
This THIRD AMENDMENT is among Barney's, Inc., a New York
corporation ("Barneys"), Barneys America, Inc., a Delaware corporation ("BAI"),
PFP Fashions Inc., a New York corporation ("PFP"), Barneys (CA) Lease Corp., a
Delaware corporation ("CA Lease"), Barneys (NY) Lease Corp., a Delaware
corporation ("NY Lease"), Basco All-American Sportswear Corp., a New York
corporation ("Basco"), BNY Licensing Corp., a Delaware corporation ("BNY"), and
Barneys America (Chicago) Lease Corp., a Delaware corporation ("Chicago Lease;"
and together with Barney's, BAI, PFP, CA Lease, NY Lease, Basco and BNY
collectively the "Borrowers"), Barneys New York, Inc. ("Holdings"), the Lenders
(as defined below) and the Administrative Agent (as defined below). This Third
Amendment amends (i) the Credit Agreement dated as of January 28, 1999 (as
amended hereby and as the same may be further amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") entered into among the
Borrowers, the financial institutions from time to time parties thereto (the
"Lenders"), the issuing banks from time to time parties thereto (the "Issuing
Banks"), and Citicorp USA, Inc., in its capacity as agent for the Lenders and
the Issuing Banks (the "Administrative Agent") and General Electric Capital
Corporation, in its capacity as documentation agent, and (ii) the Guaranty dated
as of January 28, 1999 (as amended hereby and as the same may be further
amended, supplemented or otherwise modified from time to time, the "Guaranty")
made by Holdings in favor of the Administrative Agent for the benefit of the
Lenders. Unless otherwise defined herein, the terms defined in the Credit
Agreement shall be used herein as therein defined.
PRELIMINARY STATEMENTS:
(1) The Borrowers and the Requisite Lenders have agreed to
amend the Credit Agreement and the Guaranty as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof, hereby amended as
follows:
(a) The definition of "Consolidated EBITDA" in Section 1.01
of the Credit Agreement is hereby amended by deleting in its entirety such
definition and substituting therefor the following:
"`Consolidated EBITDA' means, for any twelve-month period on a
consolidated basis for any Person and its Subsidiaries, (i) the sum of
(A) Consolidated Net Income, (B) depreciation and amortization expense,
(C) Consolidated Interest Expense, (D) federal, state, local and
foreign income taxes, (E) other non-cash charges and (F) up to
$3,000,000 of any cash equity contributed to the Borrowers during
Fiscal Year 1999 to the extent not used for Capital Expenditures
<PAGE>
pursuant to clause (i) of the first proviso in Section 10.04, minus
(ii) extraordinary gains not already excluded from the determination of
Consolidated Net Income."
(b) The first proviso of Section 10.04 of the Credit
Agreement is hereby amended by deleting in its entirety such proviso and
substituting therefor the following:
" provided, however, the foregoing maximum amounts may be increased
(i) by the amount (on a dollar for dollar basis) of any cash equity
contribution made by Holdings to Barneys but only to the extent not
required in the calculation of "Consolidated EBITDA" in order for the
Borrowers to meet the financial covenants set forth in Sections 10.02
and 10.03, (ii) with respect to Fiscal Year 1999, by the amount, if
any, by which the Consolidated EBITDA for the Barneys Group,
calculated as of the last day of the immediately preceding fiscal
quarter for the twelve month period ending on such day, exceeds
$20,000,000 (without giving effect to the addition of any cash equity
contributed by Holdings to the Borrowers), on a dollar for dollar
basis, up to $4,000,000 in the aggregate provided that the amount of
such increase reduces the maximum amount of Capital Expenditures (on
a dollar for dollar basis) in a subsequent Fiscal Year ending prior
to February 7, 2003, and (iii) with respect to Fiscal Year 2000 and
each Fiscal Year thereafter, an amount of up to $4,000,000 for such
Fiscal Year if the Fixed Charge Coverage Ratio of the Barneys Group
on a consolidated basis, as determined as of the last day of the
immediately preceding fiscal quarter for the twelve month period
ending on such day (after giving effect to such increased amount of
Capital Expenditures), is more than 1.25 to 1.0 provided that the
amount of such increase reduces the maximum amount of Capital
Expenditures (on a dollar for dollar basis) in a subsequent Fiscal
Year selected by the Borrowers and ending prior to February 7, 2003;"
SECTION 2. Amendment to Guaranty. Section 7(d) of the
Guaranty is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3 hereof, hereby amended by
deleting in its entirety such Section and substituting therefor the following:
"(d) Investments. Directly or indirectly make or own any
Investments other than (i) Investments in a Borrower, (ii)
Investments in Cash Equivalents, (iii) Investments otherwise
permitted under the Credit Agreement, and (iv) Treasury Notes
required pursuant to the Plan of Reorganization."
SECTION 3. Conditions Precedent to Effectiveness. This
Third Amendment shall become effective as of the date hereof on the date (the
"Amendment Effective Date") when the Administrative Agent shall have received
this Third Amendment executed by the Borrowers, Holdings and the Requisite
Lenders.
<PAGE>
SECTION 4. Representations and Warranties. Each Borrower
represents and warrants as follows:
(a) After giving effect to this Third Amendment, all of the
representations and warranties contained in Section 6.01 of the Credit Agreement
and in the other Loan Documents shall be true, correct and complete in all
material respects.
(b) After giving effect to this Third Amendment, no Default
or Event of Default shall have occurred and be continuing.
(c) As of the date hereof, no material adverse change shall
have occurred in the condition (financial or otherwise), performance,
properties, operations or prospects of the Barneys Group since August 1, 1998
except as publicly disclosed prior to the date hereof.
SECTION 5. Reference to and Effect on the Loan Documents.
Upon the effectiveness of this Third Amendment, on and after the date hereof
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit
Agreement and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Loan Documents and all of the
Collateral described therein do and shall continue to secure the payment of all
obligations of the Borrowers under the Credit Agreement, the Notes and the other
Loan Documents, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Third
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Execution in Counterparts. This Third Amendment
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 7. Governing Law. This Third Amendment shall be
governed by, and construed in accordance with, the laws of the State of New
York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Third Amendment to be executed as of the date first
above written.
BARNEY'S, INC.
BARNEYS AMERICA, INC.
PFP FASHIONS INC.
BARNEYS (CA) LEASE CORP.
BARNEYS (NY) LEASE CORP.
BASCO ALL-AMERICAN SPORTSWEAR CORP.
BNY LICENSING CORP.
BARNEYS AMERICA (CHICAGO) LEASE CORP.
By: /s/ Steve Feldman
----------------------------------------
Title: Senior Vice President and
Chief Financial Officer
BARNEYS NEW YORK, INC.
By: /s/ Steve Feldman
----------------------------------------
Title: Senior Vice President and
Chief Financial Officer
CITICORP USA, INC., as Administrative Agent and
Lender
By: /s/ Brenda Cotsen
----------------------------------------
Vice President
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION, as Lender
By: /s/ Charles Chiodo
----------------------------------------
Title: Duly Authorized Signatory
GMAC COMMERCIAL CREDIT LLC
By: /s/ Samuel Cirelli
----------------------------------------
Title: Senior Vice President
NATIONAL CITY COMMERCIAL FINANCE, INC., as Lender
By: /s/ Katheryn Ellero
----------------------------------------
Title: Assistant Vice President
