SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-10746
JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-0935166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Rittenhouse Circle,
Bristol, Pennsylvania 19007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 785-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
- ----------------------------- -----------------------------
Common Stock, $0.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 23, 1998 was approximately $2,365,861,580.
As of March 23, 1998, there were 50,322,550 shares of the registrant's
Common Stock outstanding.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
------------------------------------ ----
Those portions of the registrant's III
proxy statement for the registrant's
1998 Annual Meeting (the "Proxy
Statement") that are specifically
identified herein as incorporated by
reference into this Form 10-K.
- 2 -
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
Jones Apparel Group, Inc. (the "Company") is a leading designer and
marketer of better priced women's sportswear, suits and dresses. The Company
has pursued a multi-brand strategy by marketing its products under several
nationally known brands, including Jones New York, Evan-Picone and
Rena Rowan, and the licensed brand Lauren by Ralph Lauren. Each label is
differentiated by its own distinctive styling and pricing strategy. The
Company primarily contracts for the manufacture of its products through a
worldwide network of quality manufacturers. The Company has capitalized on
its nationally known brand names by entering into 32 licenses for the Jones
New York brand name and 16 licenses for the Evan-Picone brand name with
select manufacturers of women's and men's apparel and accessories.
Products
The Company's brands cover the entire women's better apparel market. Within
those brands, various product classifications include career and casual
sportswear, dresses and suits, and a combination of all components termed
lifestyle collection. Career and casual sportswear are marketed as groups of
skirts, pants, jackets, blouses, sweaters and related accessories which,
while sold as separates, are coordinated as to styles, color schemes and
fabrics, and are designed to be worn together. For its sportswear and dress
collections, the Company will develop several groups in a selling season.
New sportswear and dress collections are introduced in four or five of the
principal selling seasons - Spring, Summer, Fall I, Fall II and Holiday/Resort,
while suit collections have traditionally been developed for the Fall and Spring
seasons. The introduction of different groups in each season is spaced to
ensure that retail customers frequently are introduced to new merchandise.
The Company's major product categories are summarized in the
following table:
Career Casual Lifestyle Suits, Dresses
Sportswear Sportswear Collection and Other
-------------- ------------- ------------- ----------------
Industry Better Better Better Better
Categories
Brand Labels Jones New York, Jones New York Lauren by Jones New York,
Jones Wear, Sport, Ralph Lauren, Evan-Picone,
Rena Rowan, Jones Wear, Jones New Saville
Evan-Picone, Jones Jeans, York Country
Jones & Co,
Jones Studio
Product Skirts, blouses Skirts, blouses, Skirts, Suits,
Offerings pants, jackets, pants, jackets, blouses, dresses
sweaters sweaters pants, jackets,
sweates, suits,
coats
-3-
<PAGE> 4
The Company's success is enhanced by its ability to maintain a name brand or
designer image while its products are generally sold in the women's better
market at the following retail price points:
Skirts Blouses Casual Tops Suits &
Jackets and Pants and Sweaters and Bottoms Coats Dresses
- --------- --------- ------------ ----------- --------- ---------
$150-$280 $70-$140 $70-$200 $25-$90 $200-$450 $125-$250
The following chart sets forth a breakdown of the Company's apparel sales by
dollar amount (in thousands and as a percentage of the Company's total sales)
during the past three fiscal years.
1997 1996 1995
------------ ------------ ------------
Career Sportswear $613,000 45% $529,000 52% $439,000 57%
Casual Sportswear $323,000 24% $292,000 29% $209,000 27%
Lifestyle Collection $293,000 21% $59,000 6% $2,000 0%
Suits, Dresses and Other $143,000 10% $141,000 13% $126,000 16%
Career Sportswear. The Company's flagship brand, Jones New York, offers
consumers an extensive range of better sportswear geared primarily for the
career woman's working needs. Jones New York products are sold in misses,
petites and women's sizes and are marketed under the Jones New York, Jones New
York Petite and Jones New York Woman labels.
Career sportswear under the Rena Rowan label is positioned at the opening
price point in better apparel and includes misses, petites and women's sizes.
The Company's Evan-Picone line of career sportswear is positioned at a price
point between the Jones New York and Rena Rowan brands and includes misses
and women's sizes.
A career sportswear line using the Jones Wear label is sold to selected retail
accounts that do not carry the Company's other lines of career sportswear.
Casual Sportswear. Jones New York Sport offers a collection of casual
sportswear which complements the Jones New York career line. These products
are designed to be worn for weekend and informal workday dressing. Jones New
York Sport is offered in misses, petite and women's sizes. The Company also
offers a business casual collection under the Jones & Co label designed to meet
the needs of the informal workplace and business "dress down" days.
Jones Studio, introduced for the Spring 1996 season, provides business casual
sportswear separates. In 1996, the Company introduced Jones Jeans, a denim and
cotton-based collection for the women's market. Petites and misses sizes
were added for Spring 1998.
Lifestyle Collection. Jones New York Country, introduced for the Fall 1995
season, is a collection of classic country-styled casualwear. Prior to 1997,
this label was exclusive to the Company's own retail outlets. The
distribution of Jones New York Country products has now been extended to several
specialty stores.
In October 1995, the Company acquired an exclusive license to manufacture
and market women's shirts, blouses, skirts, jackets, suits, sweaters, pants,
vests, coats, outerwear and hats under the Lauren by Ralph
-4-
<PAGE> 5
Lauren trademark in the United States, pursuant to license and design service
agreements with the licensor, which expire on December 31, 2001. Upon
expiration of the initial term, the Company has the right to renew the
license for an additional three-year period, provided that it meets certain
minimum sales level requirements. The agreements provide for the payment by the
Company of a percentage of net sales against guaranteed minimum royalty and
design service payments as set forth in the agreements. In July 1996, the
Company began shipping a collection of better career and casual sportswear under
this label for the Fall 1996 season. The Company introduced a collection of
Petite sportswear which began shipping in the Fall 1997 season. Coats and
suits were also introduced in the Fall 1997 season.
Suits. The Company produces suits under the brand names Jones New York and
Saville. Jones New York is a better priced brand. Saville is targeted to
sell at the opening price points of the better price category. Jones New
York currently offers products in misses and petite sizes and Saville offers
petite, misses and women's sizes. During 1997, the Company phased out its
licensed Christian Dior suit business.
Dresses. The Company ships collections of career dresses under the Jones New
York and Evan-Picone brand names, targeted to sell at better prices.
Other. The Company also produces sportswear for the private label market.
While there is significant additional demand in this market, the Company has
not actively pursued more private label business in order to concentrate on
the expansion of its name brand business.
The Company has introduced a collection of men's casual sportswear under the
Jones New York label for the Fall 1998 selling season.
Design
Each product line of the Company has its own design team which is
responsible for the creation, development and coordination of the product
group offerings within each line. The Company believes its design staff of
215 people is widely recognized for its distinctive styling of garments and
its ability to update fashion classics with contemporary trends. The Company's
designers travel throughout the world for fabrics and colors, and attempt to
stay continuously abreast of the latest fashion trends. In addition, the
Company actively monitors the retail sales of its products to determine changes
in consumer trends.
For most sportswear lines, the Company will develop several groups in a
season. A group typically consists of an assortment of skirts, pants,
jackets, blouses, sweaters and various accessories. The Company believes
that it is able to minimize design risks because the Company often will not have
started cutting fabrics until the first few weeks of a major selling season.
Since different styles within a group often use the same fabric, the Company
can redistribute styles and, in some cases, colors, to fit current market
demand.
In accordance with standard industry practices for licensed products, Polo
Ralph Lauren Corporation has the right to approve the Company's designs for
the Lauren by Ralph Lauren product line.
Manufacturing
Apparel sold by the Company is produced in accordance with its design,
specification and production schedules. The Company contracts for the
cutting and sewing of the majority of its garments with approximately 133
contractors located in the United States and 280 in overseas locations. The
Company also operates one manufacturing facility of its own. During 1997,
approximately 30% of the Company's products were manufactured in the United
States and Mexico, and 70% in other parts of the world, primarily Asia.
-5-
<PAGE> 6
The Company believes that outsourcing allows it to maximize production
flexibility while avoiding significant capital expenditures, work-in-process
inventory build-ups and costs of managing a larger production work force.
The Company's fashion designers, production staff and quality control personnel
closely supervise garments manufactured by contractors to ensure that they meet
the Company's high standards. See "Quality Control" below.
The Company's products are manufactured according to plans prepared each year
which reflect prior years' experience, current fashion trends, economic
conditions and management estimates of a line's performance. The Company
orders piece goods concurrently with concept board development. The purchase
of piece goods is controlled and coordinated on a divisional basis. The Company
limits its exposure to specific colors and fabrics by committing to purchase
a portion of total projected demand with options to purchase additional
volume if demand meets the plan. The Company believes that its policy of
limiting its commitments for purchases early in the season minimizes its
exposure to excess inventory and obsolescence.
The Company believes its extensive experience in logistics and production
management underlies its success in coordinating with contractors who
manufacture different garments included within the same product group. The
Company has had long-term mutually satisfactory business relationships with
many of its contractors, but does not have long-term written agreements with any
of them.
The Company has an active program in place to monitor compliance by its
contract manufacturers with applicable laws relating to the payment of wages
and working conditions. In 1996, the Company became a participant in the
United States Department of Labor's Apparel Manufacturers Compliance Program for
that purpose. Under that program, and through the Company's independent
agreements with each of its domestic and foreign manufacturers, the Company
regularly audits such compliance and requires corrective action when
appropriate.
Quality Control
The Company's comprehensive quality control program is designed to ensure that
purchased raw materials and finished goods meet the Company's exacting
standards. Substantially all of the fabric purchases for domestically
manufactured garments are inspected upon receipt in either the Company's
Pennsylvania and North Carolina warehouse facilities (where they are stored
prior to shipment for cutting) or at the contractor's warehouse. Fabrics for
foreign manufactured garments are inspected by the Company's contractors upon
receipt in their warehouses. The Company's quality control program includes
inspection of prototypes of each garment prior to cutting by the contractors
to ensure compliance with the Company's specifications.
Domestic contractors are supervised by the Company's quality control staff
based primarily in Pennsylvania, while foreign manufacturers' operations are
monitored by both Company personnel and buying agents located in other
countries. All finished goods are shipped to the Company's warehouses for
final inspection and distribution.
Supplies
The Company generally supplies the raw material to its domestic
manufacturers and occasionally to foreign manufacturers. Otherwise, the raw
materials are purchased directly by the manufacturer in accordance with the
Company's specifications. Raw materials, which are in most instances made
and/or colored especially for the Company, consist principally of piece goods
and yarn and are purchased by the Company from a number of domestic and
foreign textile mills and converters. The Company's foreign finished goods
purchases are generally purchased on a letter of credit basis, while its
domestic purchases are generally purchased on an open order basis.
The Company does not have long-term formal arrangements
-6-
<PAGE> 7
with any of its suppliers. However, the Company has experienced little
difficulty in satisfying its raw material requirements and considers its
sources of supply adequate.
Marketing
The Company distributes its products through approximately 1,225 customers,
including department stores, specialty retailer accounts and direct mail
catalog companies throughout the United States and Canada representing
approximately 6,800 locations. Department stores account for approximately
two-thirds of the Company's sales. The Company's ten largest customers
accounted for approximately 67% of sales in 1997. No single customer
accounted for more than 10% of net sales; however, certain of the Company's
customers are under common ownership. When considered together as a group
under common ownership, sales to seven department store customers currently
owned by Federated Department Stores, Inc. ("Federated") accounted for
approximately 20% of 1997 sales and sales to eight department store customers
currently owned by The May Department Stores Company ("May") accounted for
approximately 19% of 1997 sales. While the Company believes that purchasing
decisions are generally made independently by each department store customer
(including the stores in the Federated and May groups), in some cases the trend
may be toward more centralized purchasing decisions. The Company attempts to
minimize its credit risk from its concentration of customers by closely
monitoring accounts receivable balances and shipping levels and the ongoing
financial performance and credit status of its customers. Among the
Company's leading customers are May group members Lord & Taylor, Hecht's and
Foley's; Federated group members Macy's Department Stores, Lazarus and
Bloomingdale's; and independent stores Dillard's, Dayton Hudson and Nordstrom.
The Company has a direct sales force of 174 sales people (excluding
employees in the Company's factory outlet stores) which includes individuals
located in the Company's New York and Toronto showrooms as well as in
regional sales offices and showrooms that the Company leases in Atlanta, Dallas,
Los Angeles and Seattle. The Company also has a small number of independent
sales representatives. In addition, senior management is actively involved
in selling to major accounts. Products are marketed to department stores and
specialty retailing customers during "market weeks," which are generally four to
six months in advance of the five corresponding industry selling seasons.
While the Company typically will allocate a six week period to market a
line, most major orders are written within the first three weeks of any
market period. Since piece goods for a line usually are not cut until the
first few weeks of a marketing period, the Company is able to tailor production
schedules and styles to current market demands and minimize excess inventory.
As one of the primary apparel resources for many of its customers, the Company
is able to influence the mix, quantity and timing of orders placed by its
retail accounts enabling the Company to market complete lines of sportswear
and minimize excess inventory. The Company's close relationships with its
retail accounts allow it to efficiently monitor production schedules and
inventories.
The Company believes retail demand for its products is enhanced by the
Company's ability to provide its retail accounts and consumers with
knowledgeable sales support. In this regard, the Company has an established
program to place retail sales specialists in many major department stores.
These individuals have been trained by the Company to support the sale of its
products by educating other store personnel and consumers about the Company's
products and by coordinating the Company's marketing activities with those of
the stores. In addition, the retail sales specialists provide the Company with
firsthand information concerning consumer reactions to the Company's
products. In addition, the Company has a program of designated sales
personnel in which a store agrees to designate certain sales personnel who will
devote a substantial portion of their time to selling Jones products in return
for certain benefits.
-7-
<PAGE> 8
The Company employs a cooperative advertising program with its major retail
accounts, whereby it shares the cost of its retail accounts' advertising and
promotional expenses, up to a preset maximum percentage of the retail
accounts' purchases. An important part of the marketing program includes
prominent displays of the Company's products in retail accounts' sales
catalogs.
Factory Outlet Stores
At December 31, 1997, the Company operated a total of 214 factory outlet
stores and 5 full price stores. The Company operates six coffee bars in close
proximity to six of its factory outlet stores as a convenience to its
customers. Manufacturer's outlet malls are generally located either in high
traffic tourist areas or on major highways to vacation destinations and major
cities. The 214 factory outlet stores operated by the Company are located in
120 outlet malls throughout the United States. These locations are generally
situated in select geographic markets which are not in direct competition with
the Company's primary customers. The Company's outlet stores focus on breadth of
product line and customer service as well as value pricing. In addition to
its brand name merchandise, these stores also sell merchandise produced by
licensees of the Company. The Company's outlet store expansion strategy is
to continue to open multiple stores in select outlet malls for specific
product lines which target different customer segments.
The Company opened 45 and closed 26 stores in 1997 and opened 47 and closed 22
stores in 1996. The following table sets forth certain information regarding
the number and type of stores open and aggregate store sales for each of the
years in the three year period ended December 31, 1997.
Retail stores open at end of period:
Store Type Description 1997 1996 1995
- ---------------------- ---------------------------- ---- ---- ----
Jones New York Jones New York sportswear 85 82 78
Jones New York Full price retail showcase 2 2 2
for products
Executive Suite Jones New York and Executive 21 28 33
Suite men's and women's
suits and furnishings
Jones New York Sport Jones New York Sport and 31 22 2
Jones & Co casual sportswear
Evan-Picone Evan-Picone sportswear 15 17 23
Jones New York Country Jones New York Country 35 22 9
casual sportswear
Jones New York Country Full price retail showcase 3 2 -
for products
Factory Finale Close out merchandise 19 15 15
Other concepts Various 8 10 13
---- ---- ----
Total retail stores open at end of period 219 200 175
Aggregate net store sales (in thousands) $153,830 $129,767 $102,307
Square footage of gross store space at end of period 607,632 557,100 478,975
Nearly all stores are leased under long-term leases (typically five years).
The average store size is approximately 2,775 square feet, ranging from a
minimum of 1,386 square feet to a maximum of 6,600 square feet.
-8-
<PAGE> 9
Licensing of Company Brands
As of December 31, 1997, the Company had 32 license agreements under which
independent licensees sell products under the Company's Jones New York (and
related) trademarks in accordance with designs furnished or approved by the
Company in various territories in the United States and Canada. Current
licenses include men's tailored clothing and overcoats, women's intimate
apparel, women's rainwear, outerwear, leather outerwear and woolen coats,
footwear and handbags, belts, scarves, women's swimwear, umbrellas, eyewear,
fragrances, costume jewelry, hair accessories, and cosmetic travel accessories.
Each of the licenses provides for the payment to the Company of a percentage of
the licensee's net sales of the licensed products against guaranteed minimum
royalty payments which generally increase over the term of the agreement.
During 1997, the Company received $9,436,000 of Jones New York (and related
names) licensing income.
As of December 31, 1997, the Company had 16 license agreements under which
independent licensees sell products under the Company's Evan-Picone
trademarks in accordance with designs furnished or approved by the Company
in various territories in the United States and Canada. These licenses include
women's woolen coats, footwear, men's tailored clothing, mens' knit and woven
shirts and sweaters, men's neckwear, and men's and women's hosiery. Each of
the licenses provides for the payment to the Company of a percentage of the
licensee's net sales of the licensed products against guaranteed minimum
royalty payments which generally increase over the term of the agreement.
During 1997, the Company received $5,945,000 of Evan-Picone licensing income.
Trademarks
The Company utilizes a variety of trademarks which it owns, including Jones
New York, Jones New York Sport, Jones & Co, Jones*Wear, Jones Wear, JNY, Jones
New York Country, Jones Jeans, Saville, Rena Rowan, Ellen Kaye, Evan-Picone,
Picone Sport, Elements by Evan-Picone, Picone Studio, Evan-Picone Sport,
Executive Suite and Strictly Business. The Company has registered or applied
for registration for these and other trademarks for use on a variety of items of
apparel and apparel-related products in the United States and Canada. In
addition, the Company has registered certain of its trademarks in certain other
countries. The Company's material registered trademarks Jones New York,
Jones New York Sport, Rena Rowan and Evan-Picone, have their Federal
trademark registrations expire in 2006, 2004, 2002, and 2003, respectively, with
its other registered trademarks expiring at various dates through 2014, all of
which are subject to renewal. The Company carefully monitors trademark
expiration dates to ensure uninterrupted registration of its trademarks. The
Company also licenses the Lauren by Ralph Lauren label (see "Products" above).
The Company regards its trademarks and other proprietary rights as valuable
assets and believes that they have significant value in the marketing of its
products. The Company vigorously protects its trademarks against infringement.
Imports and Import Restrictions
The Company's transactions with its foreign manufacturers and suppliers are
subject to the risks of doing business abroad.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Hong Kong, Taiwan and Korea. These agreements impose
quotas on the amount and type of goods which can be imported into the United
States from these countries. Such agreements also allow the United States to
impose at any time restraints on the importation of categories of merchandise
that, under the terms of the agreements, are not subject to specified limits.
-9-
<PAGE> 10
The Company monitors duty, tariff and quota-related developments and
continually seeks to minimize its potential exposure to quota-related risks
through, among other measures, geographical diversification of its
manufacturing sources, the maintenance of overseas offices, allocation of
overseas production to merchandise categories where more quota is available
and shifts of production among countries and manufacturers.
The Company's imported products are also subject to United States customs
duties and, in the ordinary course of business, the Company is from time to time
subject to claims by the United States Customs Service for duties and other
charges.
The United States and the other countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty or
tariff levels, which could adversely affect the Company's operations and its
ability to continue to import products at current or increased levels. The
Company cannot predict the likelihood or frequency of any such events occurring.
Because the Company's foreign manufacturers are located at greater geographic
distances from the Company than its domestic manufacturers, the Company is
generally required to allow greater lead time for foreign orders, which
reduces the Company's manufacturing flexibility. Foreign imports are also
affected by the high cost of transportation into the United States.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by political instability resulting in
the disruption of trade from exporting countries, any significant fluctuation
in the value of the dollar against foreign currencies and restrictions on the
transfer of funds. However, the recent instability of Asian financial markets
is not expected to have a material impact on the Company's financial results.
Backlog
On December 31, 1997, the Company had unfilled customer orders of
approximately $557 million, compared to approximately $419 million of such
orders at December 31, 1996. These amounts include both confirmed orders and
unconfirmed orders which the Company believes, based on industry practice and
past experience, will be confirmed. The amount of unfilled orders at a
particular time is affected by a number of factors, including the timing of
the receipt and processing of customer orders and scheduling of the
manufacture and shipping of the product, which in some instances is dependent on
the desires of the customer. Accordingly, a comparison of unfilled orders from
period to period is not necessarily meaningful and may not be indicative of
eventual actual shipments.
Competition
There is intense competition in the sectors of the apparel industry in which
the Company participates. The Company competes with many other manufacturers,
some of which are larger and have greater resources than the Company.
The Company competes primarily on the basis of fashion, price and quality.
The Company believes its competitive advantages include its ability to
effectively anticipate and respond to changing consumer demands, its premier
brand names and range of products and its ability to operate within the
industry's production and delivery constraints. Furthermore, the Company's
established brand names and relationships with retailers have resulted in a
highly loyal following of customers.
The Company considers the risk of formidable new competitors to be minimal due
to barriers to entry such as significant startup costs and the long-term nature
of supplier and customer relations. It has been the
-10-
<PAGE> 11
Company's belief that during the past few years, major department stores and
specialty retailers have been increasingly unwilling to source garments from
suppliers who are not well capitalized or do not have established reputations
for delivering quality merchandise in a timely manner. However, there can be
no assurance that significant new competitors will not develop in the future.
Employees
At December 31, 1997, the Company had approximately 3,135 full-time employees.
This total includes 25 in executive or senior managerial positions,
approximately 1,870 in quality control, production, design and distribution
positions, approximately 380 in sales, clerical and office positions and
approximately 860 in the Company factory outlet and full-price retail stores.
The Company also employs approximately 790 part-time employees, of which
approximately 720 work in the Company factory outlet and full-price retail
stores.
Approximately 350 of the Company's employees are members of the Teamsters
Union, which has a four year labor agreement with the Company expiring in March
2002. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The general location, use and approximate size of the Company's principal
properties, all of which are leased, are set forth below:
Approximate Area
Location Use in Square Feet
- --------------------- ----------------------------- ----------------
Bristol, Pennsylvania Headquarters, warehouse 419,200
and distribution
Bristol, Pennsylvania Materials warehouse 102,400
Bristol, Pennsylvania Distribution warehouse 208,000
Bristol, Pennsylvania Computer and accounting 16,425
services
Bristol, Pennsylvania Administrative services 22,500
Ciudad Juarez, Mexico Production 66,850
Downsview, Canada Canadian headquarters, 114,300
warehouse and distribution
El Paso, Texas Administrative services 33,250
Lawrenceburg, Tennessee Distribution warehouses 1,205,100
New York, New York Executive and sales offices 156,700
Rural Hall, North Carolina Materials warehouse 232,200
The Company leases space for 214 outlet stores, five full-price retail stores
and six coffee bars (aggregating approximately 613,500 square feet) at
locations across the United States. The Company also leases regional sales
offices and showrooms in Atlanta, Dallas, Los Angeles and Seattle. The Company
believes that its existing facilities are well maintained, in good operating
condition and that its existing and planned facilities will be adequate for
its operations for the foreseeable future.
The Company occupies a warehouse and office facility which is leased from an
affiliated real estate partnership which is 50% owned by the Company's Chairman.
The lease runs until March 31, 1998. Minimum annual rent payments are
$1,000,000. The lease was capitalized at the fair market value of the
facility which approximated the present value of the minimum lease payments.
Upon the expiration of the lease, the Company has agreed to purchase the
property from the partnership for $10,500,000, which
-11-
<PAGE> 12
approximates fair market value, and enter into a sale and leaseback arrangement
with an unrelated third party. See "Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Price range of common stock:
1997
High $41 3/8 $49 1/8 $57 3/16 $57 5/16
Low $32 1/8 $36 1/8 $46 5/8 $40 7/16
1996
High $24 1/4 $27 3/4 $37 3/8 $37 3/8
Low $17 13/16 $23 1/4 $22 9/16 $29 5/8
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "JNY". The above figures set forth, for the periods indicated, the
high and low sale prices per share of the Company's Common Stock as reported
on the New York Stock Exchange Composite Tape. The last reported sale price
per share of the Company's Common Stock on March 17, 1998 was $55 11/16 and on
that date there were 154 holders of record of the Company's Common Stock.
To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company anticipates that all of its future earnings will be retained
for its financial requirements and does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. All stock prices have been
adjusted to reflect the 2-for-1 stock split effective October 2, 1996.
-12-
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following financial information is qualified by reference to, and should
be read in conjunction with, the Company's Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this report.
The selected consolidated financial information presented below is derived from
the Company's audited Consolidated Financial Statements for each of the five
years in the period ended December 31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995 1994 1993
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales $1,372,458 $1,021,042 $776,365 $633,257 $541,152
Licensing income <F1> 15,013 13,036 10,314 8,487 4,907
---------- ---------- -------- -------- --------
Total revenues 1,387,471 1,034,078 786,679 641,744 546,059
Cost of goods sold 940,149 717,250 546,413 438,575 363,742
---------- ---------- -------- -------- --------
Gross profit <F2> 447,322 316,828 240,266 203,169 182,317
Selling, general and
administrative expense 250,685 186,572 139,135 115,307 103,392
---------- ---------- -------- -------- --------
Operating income 196,637 130,256 101,131 87,862 78,925
Interest expense 3,584 3,040 1,908 1,212 716
Interest income (1,556) (547) (445) (695) (810)
---------- ---------- -------- -------- --------
Income before provision
for income taxes 194,609 127,763 99,668 87,345 79,019
Provision for 72,884 46,889 36,183 32,425 30,660
income taxes ---------- ---------- -------- -------- --------
Net income $121,725 $80,874 $63,485 $54,920 $48,359 <F3>
========== ========== ======== ======== ========
Per Share Data <F4><F5>
Net income per share
Basic $2.35 $1.55 $1.22 $1.06 $0.95 <F3>
Diluted $2.26 $1.51 $1.20 $1.04 $0.92 <F3>
Dividends paid per share - - - - -
Weighted average number
of common shares
outstanding
Basic 51,899 52,333 52,130 51,656 50,789
Diluted 53,905 53,651 53,024 52,889 52,286
<CAPTION>
December 31, 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $330,569 $293,970 $260,853 $204,221 $159,175
Total assets 580 767 488,109 400,959 318,286 266,594
Short-term debt,
including current
portion of capital
lease obligations 4,199 3,067 2,327 1,859 1,722
Long-term debt,
including capital
lease obligations 27,290 12,141 10,151 8,029 9,545
Stockholders' equity 435,632 376,729 314,975 248,678 189,120
</TABLE>
<F1> Represents license fees received by the Company (net of related expenses).
-13-
<PAGE> 14
<F2> Historically, the Company included licensing income as a separate line
item in operating income. In accordance with current industry practice,
the Company has included this amount in total revenues and gross profit.
All periods presented reflect this reclassification of licensing income.
<F3> Represents income before cumulative effect of change in accounting
principle for the year ended December 31, 1993. In 1993, the Company
recorded a cumulative effect of a change in accounting principle for
income taxes as a result of the adoption of SFAS No. 109 which increased
net income by $1,376,000. Basic and diluted income per share for the year
ended December 31, 1993, including this change in accounting principle, was
$0.98 and $0.95, respectively.
<F4> On July 30, 1996, the Company's Board of Directors approved a two-for-one
stock split of the Company's Common Stock in the form of a 100% stock
dividend for shareholders of record as of September 12, 1996.
Concurrently, the number of authorized shares of Common Stock was increased
to 100,000,000. On October 2, 1996, a total of 26,744,580 shares of Common
Stock were issued in connection with the split. The stated par value of
each share remained at $0.01. All share and per share amounts have been
restated to retroactively reflect the stock split.
<F5> During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted" earnings per
share. This Statement, effective for financial statements issued for
periods ending after December 15, 1997, requires restatement of all
prior-period EPS data presented. All periods have been restated to
comply with the provisions of SFAS No. 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STATEMENTS OF INCOME EXPRESSED AS A PERCENTAGE OF TOTAL REVENUES
Year Ended December 31, 1997 1996 1995
------ ------ ------
Net sales 98.9% 98.7% 98.7%
Licensing income 1.1% 1.3% 1.3%
------ ------ ------
Total revenues 100.0% 100.0% 100.0%
Cost of goods sold 67.8% 69.4% 69.5%
------ ------ ------
Gross profit 32.2% 30.6% 30.5%
Selling, general and
administrative expenses 18.1% 18.0% 17.7%
------ ------ ------
Operating income 14.2% 12.6% 12.9%
Interest expense 0.3% 0.3% 0.2%
Interest income (0.1%) (0.1%) (0.1%)
------ ------ ------
Income before provision
for income taxes 14.0% 12.4% 12.7%
Provision for income taxes 5.3% 4.5% 4.6%
------ ------ ------
Net income 8.8% 7.8% 8.1%
====== ====== ======
Totals may not agree due to rounding.
-14-
<PAGE> 15
GENERAL
The following discussion provides information and analysis of the Company's
results of operations from 1995 through 1997 and its liquidity and capital
resources. The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements included
elsewhere herein.
The Company has achieved compound annual growth rates of 32.8% for total
revenues and 39.4% for operating income from 1995 to 1997. Total revenues and
operating income in 1997 increased 34.2% and 51.0%, respectively, over 1996.
The Company believes that it has achieved this growth by enhancing the brand
equity of each of its labels and successfully adding new labels, such as Lauren
by Ralph Lauren, through its focus on exceptional design, quality and value.
The Company has leveraged the strength of its brands to increase both the
number of locations and amount of selling space in which its products are
offered, as well as to introduce new product extensions. The Company has
also benefitted from a trend among its major retail accounts to concentrate
their women's apparel buying among a narrowing group of apparel vendors.
RESULTS OF OPERATIONS
1997 Compared to 1996
Net Sales
Net sales in 1997 increased 34.4%, or $0.4 billion, to $1.4 billion compared
to $1.0 billion in 1996, due primarily to an increase in the number of units
shipped, and also, to a lesser extent, higher average selling prices per
unit. Career sportswear sales increased 15.9%, or $83.9 million, to $612.8
million in 1997 compared to $528.9 million in 1996. Casual sportswear sales
in 1997 increased 10.8%, or $31.5 million, to $323.4 million compared to
$291.9 million in 1996. Lifestyle collection sales in 1997 increased $234.1
million, to $292.9 million compared to $58.8 million in 1996, largely the
result of the rapid growth in sales of the Lauren by Ralph Lauren label.
Net sales for the Company's suit, dress and other category increased 1.4%, or
$2.0 million, to $143.4 million in 1997, compared to $141.4 million in 1996.
Licensing Income
Licensing income increased $2.0 million to $15.0 million in 1997, compared to
$13.0 million in 1996. Income from licenses under the Jones New York label
increased $1.8 million while income from licenses under the Evan-Picone label
rose $0.2 million. The increases were primarily due to higher sales volume by
licensees.
Gross Profit
The gross profit margin was 32.2% in 1997, compared to 30.6% in 1996. The
increase was attributable to the impact of stronger margins across major product
categories and the proportionately larger increase in sales of the Lauren by
Ralph Lauren label, which was introduced in Fall 1996 and carries higher margins
than the corporate average.
SG&A Expenses
Selling, general and administrative expenses ("SG&A" expenses) of $250.7
million in 1997 represented an increase of $64.1 million over $186.6 million
in 1996. As a percentage of total revenues, SG&A expenses increased to 18.1% in
1997 from 18.0% in 1996. Expenses associated with Lauren by Ralph Lauren
product advertising, royalties, store displays and associated operating costs,
as well as the Company's overall sales growth, added significant expenses during
1997. Retail store operating expenses increased $6.9 million, reflecting the
added cost of 19 new stores in operation at the end of 1997.
-15-
<PAGE> 16
Operating Income
The resulting 1997 operating income increased $66.3 million to $196.6 million,
compared to $130.3 million during 1996. The operating margin increased to 14.2%
in 1997 from 12.6% in 1996 as a result of the higher gross profit margins
during 1997.
Net Interest Expense
Net interest expense was $2.0 million in 1997 compared to $2.5 million in
1996. The primary reason for the change was an increase in interest income
of $1.0 million, which offset higher interest on capital leases for
additional warehouse facilities constructed during 1997.
Provision for Income Taxes
The effective income tax rate for 1997 was 37.5% compared to 36.7% in 1996.
The increase was primarily due to higher state income tax provisions for 1997.
Net Income
Net income increased 50.5% to $121.7 million in 1997, an increase of $40.8
million over the net income of $80.9 million earned in 1996. Net income as a
percentage of total revenues was 8.8% in 1997 compared to 7.8% in 1996.
1996 Compared to 1995
Net Sales
Net sales in 1996 increased 31.5%, or $244.6 million, to $1,021.0 million,
compared to $776.4 million in 1995, due primarily to an increase in the number
of units shipped. Career sportswear sales increased 20.5%, or $89.8 million,
to $528.9 million in 1996 compared to $439.1 million in 1995. Casual
sportswear sales in 1996 increased 39.7%, or $83.0 million, to $291.9 million
compared to $208.9 million in 1995. Lifestyle collection sales in 1996
increased $56.7 million to $58.8 million, compared to $2.1 million in 1995,
primarily due to the 1996 introduction of the Lauren by Ralph Lauren label.
Net sales for the Company's suit, dress and other category increased 12.0%,
or $15.1 million, to $141.4 million in 1996 compared to $126.3 million in 1995.
Licensing Income
Licensing income increased $2.7 million to $13.0 million in 1996 as compared
to $10.3 million in 1995. Income from licenses under the Jones New York label
increased $2.1 million, while income from licenses under the Evan-Picone
label rose $0.6 million.
Gross Profit
The gross profit margin was 30.6% in 1996 compared to 30.5% in 1995. The
increase was primarily attributable to the impact of higher gross profit margins
from the Company's major product lines, as well as the introduction of the
new Lauren by Ralph Lauren label, which carries higher margins than the
corporate average.
SG&A Expenses
SG&A expenses of $186.6 million in 1996 represented an increase of $47.5
million over $139.1 million in 1995. As a percentage of total revenues, SG&A
expenses increased to 18.0% in 1996 from 17.7% in 1995. Expenses associated
with the Lauren by Ralph Lauren product advertising and royalties and associated
operating costs, as well as the Company's overall sales growth, added
significant expenses during 1996. Retail store operating expenses increased
$10.2 million, reflecting the added cost of 25 new stores in operation at the
end of 1996.
-16-
<PAGE> 17
Operating Income
The resulting 1996 operating income of $130.3 million increased $29.2 million,
as compared to $101.1 million during 1995. The operating margin decreased to
12.6% in 1996 from 12.9% in 1995, largely as a result of the higher
percentage of SG&A expenses to sales during 1996.
Net Interest Expense
Net interest expense was $2.5 million in 1996 compared to $1.5 million in
1995. The primary reasons for the change were higher average overall
borrowings and interest on capital leases for additional warehouse facilities
during 1996.
Provision for Income Taxes
The effective income tax rate for 1996 was 36.7% as compared to 36.3% in 1995.
The increase was primarily due to higher state income tax provisions for 1996.
Net Income
Net income increased 27.4% to $80.9 million in 1996, an increase of $17.4
million over the net income of $63.5 million earned in 1995. Net income as a
percentage of total revenues was 7.8% in 1996, compared to 8.1% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and, beginning in 1995, to repurchase the Company's
Common Stock on the open market. The Company has historically relied primarily
on internally generated funds, trade credit and bank borrowings to finance
its operations and expansion. As of December 31, 1997, total cash and cash
equivalents were $40.1 million, a $10.0 million increase over the $30.1 million
reported as of December 31, 1996.
Net cash provided by operations was $110.6 million, $70.7 million and $8.9
million in 1997, 1996 and 1995, respectively. The $39.9 million improvement for
1997 was primarily due to a higher net income and a decrease in trade
receivables compared to an increase in the previous two years. While fourth
quarter 1997 sales increased 33.7% over 1996, accounts receivable at the end of
1997 decreased $18.9 million from 1996. This was due to the provision for
allowances that will be granted to customers and fourth quarter shipments
occurring earlier than in prior years, allowing cash collections on a greater
portion of the resulting receivables before the end of the year. Inventories
increased $41.0 million in 1997, $37.8 million in 1996 and $53.1 million in
1995, all of which reflected the inventory levels required to meet anticipated
wholesale shipments for the first quarter of the following year and the net
addition of 19 retail stores in 1997, 25 in 1996, and 42 in 1995.
Net cash used in investing activities increased to $43.3 million, an increase
of $8.0 million over 1996. Cash used in investing activities has been
primarily for the opening of additional warehouse facilities (including, in
1997, cash restricted for use in completing warehouse facilities under
construction at the end of the year), new retail stores and existing store
renovations, computer system hardware and software upgrades and a
$1.5 million payment made in 1996 to satisfy all future royalty obligations to
the former owner of the Evan-Picone trademark. In addition, to support
anticipated growth in the number of units shipped, the Company has committed
to the construction of additional warehouse facilities in 1998. These
facilities, including related equipment, are estimated to cost $28.0 million
and the Company plans to finance all or a portion of the construction through
capital lease financing and long-term debt.
Net cash provided by (used in) financing activities was $(57.2) million in
1997, $(22.2) million in 1996 and $2.4 million in 1995. The principal
reasons for the changes were: (i) $10.0 and $5.0 million in proceeds from
capital leases in 1997 and 1996, respectively, for construction of additional
warehouse facilities; (ii) issuance of $10.0 million in long-term debt in
1997 for construction of an additional warehouse facility; and (iii)
-17-
<PAGE> 18
transactions involving the Company's Common Stock. In 1997 and 1996, the
Company repurchased $85.8 million and $33.6 million, respectively, of its
Common Stock on the open market under two announced programs under which the
Company is authorized to acquire an aggregate of up to $200.0 million of such
shares. As of December 31, 1997, $100.0 million had been expended pursuant to
the first stock repurchase program (the maximum authorized) and an additional
$24.0 million had been expended under the second program. Proceeds from the
issuance of common stock to employees exercising stock options amounted to
$12.5 million, $9.1 million and $4.7 million in 1997, 1996 and 1995,
respectively.
As of December 31, 1997, the Company had credit arrangements with six United
States financial institutions which totaled $425.0 million (see Note 5 of
Notes to Consolidated Financial Statements). These lines, which may be used
for unsecured borrowings and letters of credit (issued primarily to finance
foreign inventory purchases), contain an aggregate sub-limit of $170.0
million for unsecured borrowings with rates depending on the borrowing
vehicle utilized. At December 31, 1997, $153.7 million was utilized for letters
of credit and there were no short-term borrowings outstanding. The Company also
has a line of credit with a Canadian institution for C$4.0 million to be used
for unsecured borrowings under which no amounts were outstanding at December
31, 1997.
The Company believes that funds generated by operations and the bank credit
arrangements will provide the financial resources sufficient to meet its
foreseeable working capital, letter of credit, capital expenditure and stock
repurchase requirements.
THE YEAR 2000
The Company is currently evaluating the impact of the Year 2000 on its
management and information systems. At this time, management believes that
the impact of the Year 2000 will have no material effect on its operations or
financial results.
INFLATION
The Company believes that the relatively moderate rates of inflation which
have been experienced in the United States and Canada, where it competes, have
not had a significant effect on its net sales or profitability.
SEASONALITY OF BUSINESS
Historically, the Company's sales and profit levels fluctuate by quarter.
As a result, the Company experiences seasonal increases and decreases in its
working capital requirements. These patterns result primarily from the
timing of shipments for each season; however, the timing of seasonal shipments
can vary from quarter to quarter. Fall merchandise is shipped principally in
the third quarter while Spring merchandise is shipped primarily in the first
quarter. Summer and Holiday/Resort goods, the smaller of the seasons, are
shipped primarily in the second and fourth quarters, respectively. For an
analysis of quarterly historical operating trends, see Note 14 of Notes to
Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued two new disclosure
standards.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," established standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments
-18-
<PAGE> 19
by owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise," establishes
standards for the way that public enterprises report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of and enterprise about which separate
financial information is available that is evaluated regularly by Management in
deciding how to allocate resources and in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. The adoption of these standards is not
expected to have a material effect on the Company's financial position or
results of operations. The Company is currently reviewing SFAS No. 131 and
has of yet been unable to fully evaluate the impact, if any, it may have on
future financial statement disclosures.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines, and
financial difficulties encountered by customers. All statements other than
statements of historical facts included in this Annual Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition," are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Report. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of Jones Apparel Group, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated financial
statements and other financial information presented in this report. The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and properly reflect the
effects of certain estimates and judgements made by management.
The Company's management maintains an effective system of internal control
that is designed to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded and executed in accordance with
management's authorization. The system is continuously monitored by direct
management
-19-
<PAGE> 20
review, the independent accountants and by internal auditors who conduct an
extensive program of audits throughout the Company.
The Company's consolidated financial statements have been audited by BDO
Seidman, LLP, independent accountants. Their audits were conducted in
accordance with generally accepted auditing standards, and included a review
of financial controls and tests of accounting records and procedures as they
considered necessary in the circumstances.
The Audit Committee of the Board of Directors, which consists of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to review accounting, reporting, auditing and
internal control matters. The committee has direct and private access to both
internal and external auditors.
/s/ Sidney Kimmel /s/ Wesley R. Card
Sidney Kimmel Wesley R. Card
Chairman Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Jones Apparel Group, Inc.
We have audited the accompanying consolidated balance sheets of Jones Apparel
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jones
Apparel Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 6, 1998
-20-
<PAGE> 21
Jones Apparel Group, Inc.
Consolidated Balance Sheets
(All amounts in thousands except per share data)
December 31, 1997 1996
------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $40,134 $30,085
Accounts receivable, net of allowance
of $2,767 and $2,263 for doubtful accounts 91,747 112,678
Inventories 255,055 214,437
Receivable from and advances to contractors 7,833 11,490
Prepaid and refundable income taxes 5,993 -
Deferred taxes 26,269 9,708
Prepaid expenses and other current assets 13,740 11,432
-------- --------
TOTAL CURRENT ASSETS 440,771 389,830
PROPERTY, PLANT AND EQUIPMENT, at cost,
less accumulated depreciation and amortization 81,934 61,696
CASH RESTRICTED FOR CAPITAL ADDITIONS 11,193 -
INTANGIBLES, at cost, less
accumulated amortization 30,604 26,288
OTHER ASSETS 16,265 10,295
-------- --------
$580,767 $488,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $4,199 $3,067
Accounts payable 90,429 72,569
Income taxes payable - 8,959
Accrued expenses and other current liabilities 15,574 11,265
-------- --------
TOTAL CURRENT LIABILITIES 110,202 95,860
-------- --------
NONCURRENT LIABILITIES:
Obligations under capital leases 18,457 12,134
Long-term debt 8,833 7
Other 6,107 -
-------- --------
TOTAL NONCURRENT LIABILITIES 33,397 12,141
-------- --------
TOTAL LIABILITIES 143,599 108,001
-------- --------
COMMITMENTS AND CONTINGENCIES - -
EXCESS OF NET ASSETS ACQUIRED OVER COST 1,536 3,379
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares
authorized 1,000; none issued - -
Common stock, $.01 par value - shares
authorized 100,000;issued 54,478 and 53,595 545 536
Additional paid-in capital 122,582 99,140
Retained earnings 438,917 317,192
Cumulative foreign currency
translation adjustment (1,524) (1,154)
-------- --------
560,520 415,714
Less treasury stock,
3,384 and 1,600 shares, at cost (124,888) (38,985)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 435,632 376,729
-------- --------
$580,767 $488,109
======== ========
See accompanying notes to consolidated financial statements
-21-
<PAGE> 22
Jones Apparel Group, Inc.
Consolidated Statements of Income
(All amounts in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
NET SALES $1,372,458 $1,021,042 $776,365
LICENSING INCOME 15,013 13,036 10,314
---------- ---------- --------
Total revenues 1,387,471 1,034,078 786,679
COST OF GOODS SOLD 940,149 717,250 546,413
---------- ---------- --------
Gross profit 447,322 316,828 240,266
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 250,685 186,572 139,135
---------- ---------- --------
Operating income 196,637 130,256 101,131
INTEREST EXPENSE 3,584 3,040 1,908
INTEREST INCOME (1,556) (547) (445)
---------- ---------- --------
Income before provision for
income taxes 194,609 127,763 99,668
PROVISION FOR INCOME TAXES 72,884 46,889 36,183
---------- ---------- --------
NET INCOME $121,725 $80,874 $63,485
========== ========== ========
EARNINGS PER SHARE
Basic $2.35 $1.55 $1.22
Diluted $2.26 $1.51 $1.20
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 51,899 52,333 52,130
Diluted 53,905 53,651 53,024
</TABLE>
See accompanying notes to consolidated financial statements
-22-
<PAGE> 23
Jones Apparel Group, Inc.
Consolidated Statements of Stockholders' Equity
(All amounts in thousands)
<TABLE>
CAPTION>
Cumulative
foreign Total
Additional currency Stock-
Common paid-in Retained translation Treasury holders'
stock capital earnings adjustments stock equity
---- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $259 $76,711 $172,916 $(1,208) $ - $248,678
YEAR ENDED DECEMBER 31, 1995:
Amortization of deferred
compensation in connection
with executive stock options - 232 - - - 232
Net income - - 63,485 - - 63,485
Exercise of stock options 4 4,730 (83) - 168 4,819
Tax benefit derived from
exercise of stock options - 2,499 - - - 2,499
Stock tendered as payment for
options exercised - - - - (168) (168)
Treasury stock acquired - - - - (4,638) (4,638)
Foreign currency translation
adjustments - - - 68 - 68
--- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 263 84,172 236,318 (1,140) (4,638) 314,975
YEAR ENDED DECEMBER 31, 1996:
Amortization of deferred
compensation in connection
with executive stock options - 290 - - - 290
Net income - - 80,874 - - 80,874
Exercise of stock options 6 9,825 - - - 9,831
Tax benefit derived from
exercise of stock options - 5,157 - - - 5,157
Stock tendered as payment
for options exercised - - - - (763) (763)
Treasury stock acquired - - - - (33,584) (33,584)
Effect of 2-for-1 stock split 267 (267) - - - -
Registration of 1996
Stock Option Plan - (37) - - - (37)
Foreign currency translation
adjustments - - - (14) - (14)
--- -------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1996 536 99,140 317,192 (1,154) (38,985) 376,729
YEAR ENDED DECEMBER 31, 1997:
Amortization of deferred
compensation in connection
with executive stock options
and related items - 2,778 - - - 2,778
Net income - - 121,725 - - 121,725
Exercise of stock options 9 12,597 - - - 12,606
Tax benefit derived from
exercise of stock options - 8,067 - - - 8,067
Stock tendered as payment
for options exercised - - - - (100) (100)
Treasury stock acquired - - - - (85,803) (85,803)
Foreign currency translation
adjustments - - - (370) - (370)
---- -------- -------- ------- --------- --------
BALANCE, DECEMBER 31, 1997 $545 $122,582 $438,917 $(1,524) $(124,888) $435,632
==== ======== ======== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
-23-
<PAGE> 24
Jones Apparel Group, Inc.
Consolidated Statements of Cash Flows
(All amounts in thousands)
Year Ended December 31, 1997 1996 1995
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $121,725 $80,874 $63,485
-------- ------- -------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 14,594 8,948 6,724
Provision for losses on
trade receivables 1,870 800 (464)
Deferred taxes (17,907) 7,233 7,622
Other 264 416 40
Decrease (increase) in:
Trade receivables 18,917 (21,349) (17,873)
Inventories (40,961) (37,814) (53,077)
Prepaid expenses and
other current assets 1,264 10,624 (10,746)
Other assets (6,273) (3,703) (5,027)
Increase (decrease) in:
Accounts payable 17,909 13,498 13,371
Taxes payable (5,253) 6,673 4,116
Accrued expenses and other
current liabilities 4,428 4,492 768
-------- ------- -------
Total adjustments (11,148) (10,182) (54,546)
-------- ------- -------
Net cash provided by
operating activities 110,577 70,692 8,939
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,149) (34,066) (16,013)
Proceeds from disposition of assets - 261 635
Increase in cash restricted
for capital additions (11,193) - -
Acquisition of trademarks and licenses - (1,492) (28)
-------- ------- -------
Net cash used in investing activities (43,342) (35,297) (15,406)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
debt and capital leases (3,939) (2,623) (2,606)
Purchases of treasury stock (85,803) (33,584) (4,638)
Proceeds from issuance of
long-term debt 10,000 - -
Proceeds from capital leases 10,000 5,000 5,000
Proceeds from exercise of stock options 12,507 9,068 4,651
Other - (37) -
Net cash provided by (used in) -------- ------- -------
financing activities (57,235) (22,176) 2,407
-------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH 49 2 (202)
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,049 13,221 (4,262)
CASH AND CASH EQUIVALENTS, BEGINNING 30,085 16,864 21,126
-------- ------- -------
CASH AND CASH EQUIVALENTS, ENDING $40,134 $30,085 $16,864
======== ======= =======
See accompanying notes to consolidated financial statements
-24-
<PAGE> 25
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.
The Company designs, contracts for the manufacture of, and markets a broad
range of women's career and casual sportswear, suits and dresses. The
Company sells its products to better specialty and department stores and also
operates its own network of factory outlet stores. In addition, the Company
licenses the use of several of its brand names to select manufacturers of
women's and men's apparel and accessories.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash, cash equivalents and
accounts receivable. The Company places its cash and cash equivalents in
investment-grade, short-term debt instruments with quality financial
institutions and the U.S. Government and, by policy, limits the amount of
credit exposure in any one financial vehicle. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The allowance for non-collection
of accounts receivable is based upon the expected collectibility of all
accounts receivable.
Financial Instruments
The fair value of cash and cash equivalents and receivables approximate their
carrying value due to their short-term maturities. The fair value of
long-term debt instruments, including the current portion, approximates the
carrying value and is estimated based on the current rates offered to the
Company for debt of similar maturities.
Inventories
Inventories are stated at the lower of cost or market. Wholesale inventories
are determined using the first-in, first-out method while retail inventories
are determined using the retail method.
Property, Plant, Equipment and Depreciation
Depreciation and amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from three to twenty years.
Leased Property Under Capital Leases
Property under capital leases is amortized over the lives of the respective
leases or the estimated useful lives of the assets.
Intangibles
Intangibles, which include trademarks and license agreements, are amortized on
a straight-line basis over the estimated useful lives of the assets.
-25-
<PAGE> 26
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Excess of Net Assets Acquired Over Cost
The excess of net assets acquired over cost of acquired businesses is
amortized using the straight-line method over a five year period.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translations." Balance sheet accounts are
translated at the current exchange rate and income statement items are
translated at the average exchange rate for the period. Gains and losses
resulting from translation are accumulated in a separate component of
stockholders' equity. Segment data is not provided as foreign operations are
not material.
Treasury Stock
Treasury stock is recorded at net acquisition cost. Gains and losses on
disposition are recorded as increases or decreases to additional paid-in
capital with losses in excess of previously recorded gains charged directly
to retained earnings.
Revenue Recognition
Sales are recognized upon shipment of products or, in the case of retail
sales, at the time of register receipt. Allowances for estimated returns are
provided when sales are recorded.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Current tax assets and liabilities are recognized for the estimated
Federal, foreign, state and local income taxes payable or refundable on the
tax returns for the current year. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary timing
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based
on the changes to the respective assets and liabilities from period to period.
Stock Options
The Company uses the intrinsic value method of accounting for employee stock
options as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount the employee
must pay to acquire the stock. The compensation cost is recognized over the
vesting period of the options.
Earnings per Share
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which provides
for the calculation of "basic" and "diluted" earnings per share. This
Statement, effective for financial statements issued for periods ending after
December 15, 1997, requires restatement of all prior-period EPS data
presented. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflect, in periods in which they have a dilutive effect, the effect of
common shares issuable upon exercise of stock options. All periods
presented have been restated to comply with the provisions of SFAS No. 128.
Cash Equivalents
The Company considers all highly liquid short-term investments to be cash
equivalents.
-26-
<PAGE> 27
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Long-Lived Assets
The Company reviews certain long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In that regard, the Company assesses
the recoverability of such assets based upon estimated non-discounted cash flow
forecasts.
Presentation of Prior Year Data
Certain reclassifications have been made to conform prior year data with the
current presentation.
New Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," established standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of and
enterprise about which separate financial information is available that is
evaluated regularly by Management in deciding how to allocate resources and in
assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. The adoption of these standards is not
expected to have a material effect on the Company's financial position or
results of operations. The Company is currently reviewing SFAS No. 131 and
has of yet been unable to fully evaluate the impact, if any, it may have on
future financial statement disclosures.
NOTE 2. INVENTORIES
Inventories are summarized as follows:
December 31, 1997 1996
(In thousands) -------- --------
Raw materials $27,045 $38,571
Work in process 41,294 37,682
Finished goods 186,716 138,184
-------- --------
$255,055 $214,437
======== ========
-27-
<PAGE> 28
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
December 31, 1997 1996
(In thousands) ------- -------
Land and buildings $37,893 $36,763
Leasehold improvements 29,230 24,712
Machinery and equipment 31,979 25,340
Furniture and fixtures 9,666 6,932
Construction in progress 17,355 1,076
------- -------
126,123 94,823
Less: accumulated depreciation and amortization 44,189 33,127
------- -------
$81,934 $61,696
======= =======
Included in property, plant and equipment are the following capitalized
leases:
December 31, 1997 1996
(In thousands) ------- -------
Buildings $32,137 $31,006
Machinery and equipment 3,759 3,538
Construction in progress 9,937 -
------- -------
45,833 34,544
Less: accumulated amortization 12,626 10,243
------- -------
$33,207 $24,301
======= =======
At December 31, 1997, the Company had commitments to construct additional
warehouse facilities. These facilities, which will be completed during 1998,
will cost an estimated $28,000,000 in the aggregate. As of December 31,
1997, a total of $9,937,000 had been expended on these projects and the Company
had $11,193,000 in cash on hand restricted for use in their completion.
-28-
<PAGE> 29
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following:
Useful
lives
December 31, 1997 1996 (years)
(In thousands) ------- ------- ----------
Trademarks $32,972 $26,865 15 to 20
License agreements 5,319 5,319 51/2 to 19
------- -------
38,291 32,184
Less: accumulated amortization 7,687 5,896
------- -------
$30,604 $26,288
======= =======
NOTE 5. SHORT-TERM BORROWINGS
At December 31, 1997, the Company had credit arrangements with six United
States financial institutions which totaled $425,000,000. These lines, which
may be used for unsecured borrowings and letters of credit (issued primarily
to finance foreign inventory purchases), contain an aggregate sub-limit of
$170,000,000 for unsecured borrowings with rates depending on the borrowing
vehicle utilized. At December 31, 1997, the estimated aggregate interest
rate on the lines was 7.1%. The Company was committed for unexpired bank
letters of credit at December 31, 1997 in the amount of $153,744,000 and there
were no short-term borrowings outstanding. The Company also has a line of
credit with a Canadian institution for C$4,000,000 to be used for unsecured
borrowings under which no amounts were outstanding at December 31, 1997.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, 1997 1996
(In thousands) ------ ------
7.125% Industrial revenue bonds, due 2007 $9,833 $ -
Other debt 10 48
------ ------
9,843 48
Less: current portion 1,010 41
------ ------
$8,833 $ 7
====== ======
During 1997, the Company issued $10.0 million of long-term debt to finance
construction of a new warehouse facility. The aggregate maturities for
long-term debt for the five years after December 31, 1997 are approximately
$1,000,000 per year.
-29-
<PAGE> 30
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 7. OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of the following:
December 31, 1997 1996
(In thousands) ------- -------
Warehouses, office facilities and equipment $21,646 $15,160
Less: current portion 3,189 3,026
------- -------
Obligations under capital leases - noncurrent $18,457 $12,134
======= =======
The Company occupies a warehouse and office facility which is leased from an
affiliated real estate partnership which is 50% owned by the Company's
Chairman. The lease runs until March 15, 1998. Minimum annual rent payments
are $1,000,000. The lease was capitalized at the fair market value of the
facility which approximated the present value of the minimum lease payments.
Upon the expiration of the lease, the Company has agreed to purchase the
property from the partnership for $10,500,000, which approximates fair market
value, and enter into a sale and leaseback arrangement with an unrelated third
party.
The Company occupies warehouse and office facilities leased from the City of
Lawrenceburg, Tennessee. Four ten-year net leases run until February 2004,
July 2005, May 2006 and April 2007, respectively, and require minimum annual
rent payments of $500,000, $500,000, $500,000, and $1,000,000, respectively,
plus accrued interest. In connection with these leases, the Company guaranteed
$25,000,000 of Industrial Development Bonds issued in order to construct the
facilities, $20,417,000 of which remained unpaid as of December 31, 1997.
The financing agreement with the issuing authority (i) requires the Company to
maintain stipulated levels of insurance and tangible net worth, (ii) requires
the Company to maintain minimum ratios of cash flow to debt service and
liabilities to tangible net worth and (iii) contains certain other restrictions.
The Company also leases various equipment under three to five year leases at
an aggregate annual rental of $767,000. The equipment has been capitalized
at its fair market value of $2,650,000, which approximates the present value
of the minimum lease payments.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1997:
Year Ending December 31,
(In thousands)
1998 $4,638
1999 4,254
2000 3,523
2001 3,345
2002 3,166
Later years 8,994
-------
Total minimum lease payments 27,920
Less: amount representing interest 6,274
-------
Present value of net minimum lease payments $21,646
=======
-30-
<PAGE> 31
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 8. SIGNIFICANT CUSTOMERS
A significant portion of the Company's sales are to retailers throughout the
United States and Canada. Sales to department stores owned by Federated
Department Stores, Inc. ("Federated") accounted for 20%, 20% and 21% for the
years ended December 31, 1997, 1996 and 1995, respectively. Sales to
department stores owned by The May Department Stores Company ("May")
accounted for 19%, 20% and 19% for the years ended December 31, 1997, 1996
and 1995, respectively. Federated and May accounted for approximately 43%
of accounts receivable at December 31, 1997.
NOTE 9. COMMITMENTS
(a) LEASES. Total rent expense charged to operations for the years ended
December 31, 1997, 1996 and 1995 was $22,159,000, 18,888,000 and $15,359,000,
respectively.
The following is a schedule by year of future minimum rental payments required
under operating leases for the next five years:
Year Ending December 31,
(In thousands)
1998 $18,059
1999 17,320
2000 15,124
2001 13,416
2002 8,506
Later years 17,617
-------
$90,042
=======
Certain of the leases provide for renewal options and the payment of real
estate taxes and other occupancy costs.
(b) CONTINGENT LIABILITIES. Various lawsuits and claims arising during the
normal course of business are pending against the Company and its
consolidated subsidiaries. In the opinion of management, the ultimate
liability, if any, resulting from these matters will have no significant effect
on the Company's consolidated financial position, results of operations or
liquidity.
(c) ROYALTIES. Under an exclusive license to manufacture certain items
under the Lauren by Ralph Lauren trademark pursuant to license and design
service agreements with Polo Ralph Lauren Corporation, the Company is
obligated to pay Polo Ralph Lauren Corporation a percentage of net sales of
Lauren by Ralph Lauren products. Under these agreements, minimum payments of
$7,000,000 are due for each of the years 2000 and 2001. The license and
design service agreements expire on December 31, 2001 and provide for certain
renewal options at that time.
-31-
<PAGE> 32
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 10. INCOME TAXES
The following summarizes the provision for income taxes:
Year ended December 31, 1997 1996 1995
(In thousands) ------- ------- -------
Current:
Federal $78,811 $34,522 $23,236
State and local 10,524 3,733 3,030
Foreign 1,456 1,401 2,295
------- ------- -------
90,791 39,656 28,561
------- ------- -------
Deferred:
Federal (15,359) 7,722 7,653
State and local (2,240) (489) (31)
Foreign (308) - -
------- ------- -------
(17,907) 7,233 7,622
------- ------- -------
Provision for income taxes $72,884 $46,889 $36,183
======= ======= =======
The foreign and domestic components of income before provision for income taxes
were as follows:
Year ended December 31, 1997 1996 1995
(In thousands) -------- -------- -------
United States $192,482 $125,650 $94,224
Canada 1,815 2,378 2,666
Other 312 (265) 2,778
-------- -------- -------
Income before provision
for income taxes $194,609 $127,763 $99,668
======== ======== =======
-32-
<PAGE> 33
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The provision for income taxes on adjusted historical income differs from the
amounts computed by applying the applicable Federal statutory rates due to
the following:
Year ended December 31, 1997 1996 1995
(In thousands) ------- -------- -------
Provision for Federal income
taxes at the statutory rate $68,113 $44,717 $34,884
State and local income taxes,
net of federal benefit 5,385 2,108 1,949
Amortization of excess of net
assets acquired over cost (645) (645) (645)
Other items, net 31 709 (5)
------- ------- -------
Provision for income taxes $72,884 $46,889 $36,183
======= ======= =======
The Company has not provided for U.S. Federal and foreign withholding taxes on
$2,727,000 of foreign subsidiaries' undistributed earnings as of December 31,
1997. Such earnings are intended to be reinvested indefinitely.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
December 31, 1997 1996
(In thousands) ------- -------
Deferred tax assets:
Nondeductible accruals and allowances $23,587 $ 8,009
Depreciation and amortization 561 1,118
Other (net) 2,286 1,042
------- -------
Net deferred tax asset $26,434 $10,169
======= =======
-33-
<PAGE> 34
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. COMMON STOCK
On July 30, 1996, the Company's Board of Directors approved a two-for-one
stock split of the Company's Common Stock in the form of a 100% stock
dividend for shareholders of record as of September 12, 1996. Concurrently,
the number of authorized shares of Common Stock was increased to 100,000,000.
On October 2, 1996, a total of 26,744,580 shares of Common Stock were issued
in connection with the split. The stated par value of each share remained at
$0.01. The issuance of authorized but unissued shares resulted in the transfer
of $267,000 from additional paid-in capital to common stock, representing the
par value of the shares issued. All share and per share amounts have been
restated to retroactively reflect the stock split.
In 1995, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's Common Stock in open market transactions over
a two-year period ending in December, 1997. The program expired on October
27, 1997, through which date 2,823,394 shares had been acquired at a cost of
$100,000,000.
In 1997, the Board of Directors authorized an additional program to
repurchase the Company's Common Stock from time to time in open market
transactions not to exceed $100,000,000 in aggregate price. This program was
to commence upon the earlier of December 15, 1997 or the full utilization of
the previous buy-back program and has no time limit. As of December 31,
1997, 530,106 shares had been acquired at a cost of $24,025,000, leaving
$75,975,000 available for future repurchases at that date.
NOTE 12. STATEMENT OF CASH FLOWS
Cash interest payments during the years ended December 31, 1997, 1996 and
1995 were $3,941,000, $3,207,000 and $2,118,000, respectively.
Cash income tax payments during the years ended December 31, 1997, 1996 and
1995 were $96,251,000, $32,110,000 and $23,068,000, respectively.
In connection with an agreement entered into for the formal acquisition of and
payment for a currently utilized trademark, the Company recorded a $6,107,000
intangible asset and an offsetting long-term liability.
Reductions in income tax payments resulting from the exercise of employee
stock options during the years ended December 31, 1997, 1996 and 1995 were
$8,067,000, $5,157,000 and $2,499,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the year ended December 31, 1997 exchanged
2,122 shares of the Company's Common Stock (valued at $100,000) for 8,163
newly issued shares, during the year ended December 31, 1996 exchanged 28,000
shares of the Company's Common Stock (valued at $763,000) for 67,430 newly
issued shares and during the year ended December 31, 1995 exchanged 11,536
shares of the Company's Common Stock (valued at $168,000) for 24,000 newly
issued shares.
-34-
<PAGE> 35
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 13. STOCK OPTIONS
At December 31, 1997, the Company has two stock option plans, which are
described below. The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for the
plans. Under APB Opinion 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation cost is recognized.
Under the Company's 1991 and 1996 Stock Option Plans, options to purchase an
aggregate of not more than 5,000,000 shares and 4,000,000 shares,
respectively, of common stock may be granted from time to time to key
employees, officers, directors, advisors and independent consultants to the
Company or to any of its subsidiaries. The Plans are administered by the
Board of Directors, which has empowered a committee of directors to
administer the Plans.
Under both plans, the per share exercise price for incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of
the common stock on the date the option is granted (110% of fair market value
on the date of grant of an ISO if the optionee owns more than 10% of the
Company). Under the 1991 Plan, the per share exercise price for non-
qualified stock options ("NQSOs") will not be less than 75% of the fair
market value on the date the option is granted. The 1996 Plan has no
restrictions on NQSO pricing. Under the 1991 Plan, options may be granted
for a term to be determined by the committee of not less than one or more
than ten years from the date of grant; under the 1996 Plan, options may be
granted for a term of not less than six months or more than ten years from
the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings
per share as if compensation cost for the Company's stock option plans had
been determined in accordance with the fair value-based method prescribed in
FASB Statement 123. The Company estimates the fair value of each stock option
at the grant date by using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997, 1996 and
1995, respectively: no dividends paid for all years; expected volatility of
34.7%, 38.9% and 40.7%; risk-free interest rates of 6.04%, 6.20% and 6.16%;
and expected lives of 3.4, 3.0 and 3.0 years.
Under the accounting provisions of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated in the following table.
December 31, 1997 1996 1995
-------- ------- -------
Net income (in thousands)
As reported $121,725 $80,874 $63,485
Pro forma 116,120 79,074 63,387
Basic earnings per share
As reported $2.35 $1.55 $1.22
Pro forma $2.24 $1.51 $1.22
Diluted earnings per share
As reported $2.26 $1.51 $1.20
Pro forma $2.15 $1.47 $1.20
-35-
<PAGE> 36
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table contains information on stock options for the three
year period ended December 31, 1997:
Exercise Weighted
Option price range average
shares per share price
--------- ------------------ ------
Outstanding, January 1, 1995 3,726,366 $0.40 to $16.125 $9.65
Granted 180,000 $12.00 to $17.75 $14.28
Exercised 777,766 $0.40 to $14.25 $6.20
Forfeited 78,000 $7.00 to $16.125 $13.63
--------- ------------------ ------
Outstanding, December 31, 1995 3,050,600 $0.40 to $17.75 $10.71
Granted 2,166,000 $14.715 to $34.375 $24.53
Exercised 1,031,230 $0.40 to $14.5625 $9.53
Forfeited 76,200 $7.00 to $24.00 $14.93
--------- ------------------ ------
Outstanding, December 31, 1996 4,109,170 $0.40 to $34.375 $18.17
Granted 1,717,000 $1.00 to $51.50 $47.04
Exercised 883,118 $7.00 to $36.625 $14.28
Forfeited 18,800 $12.375 to $24.75 $21.46
--------- ------------------ ------
Outstanding, December 31, 1997 4,924,252 $0.40 to $51.50 $28.88
========= ================== ======
Exercisable at year-end
1995 980,400 $0.40 to $15.0625 $8.93
1996 733,770 $0.40 to $17.50 $9.56
1997 894,854 $0.40 to $34.375 $13.90
1991 Plan 1996 Plan
--------- ---------
Available for future grants
1995 938,334 -
1996 49,534 2,799,000
1997 3,134 1,147,200
Exercise price Exercise price Total
less than market equal to market options
---------------- --------------- -------
Weighted-average
fair value of:
Options granted in 1995 - $4.74 $4.74
Options granted in 1996 $8.46 $8.00 $8.01
Options granted in 1997 $35.72 $14.90 $15.20
-36-
<PAGE> 37
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information about stock options outstanding at
December 31, 1997.
<TABLE>
<CAPTION>
Range of exercise prices: $0.40 $11.25 $21.125 $32.625 $44.00 $0.40
to to to to to to
$9.50 $19.625 $24.3125 $39.25 $51.50 $51.50
------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding Options
Number outstanding
at December 31, 1997 361,167 1,044,867 1,579,218 324,000 1,615,000 4,924,252
Weighted-average remaining
contractual life (years) 3.4 6.9 8.6 9.0 9.8 8.3
Weighted-average
exercise price $5.86 $13.55 $23.97 $34.53 $47.61 $28.88
Exercisable options
Number outstanding
at December 31, 1997 261,169 373,067 253,618 7,000 - 894,854
Weighted-average
exercise price $4.61 $13.16 $23.98 $34.38 - $13.90
</TABLE>
NOTE 14. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
Unaudited interim consolidated financial information for the two years ended
December 31, 1997 is summarized as follows:
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1997
Net sales $317,990 $262,988 $445,972 $345,508
Total revenues 321,455 266,289 450,508 349,219
Gross profit 106,571 87,747 147,201 105,803
Operating income 47,475 31,115 79,383 38,664
Net income 29,540 19,280 48,938 23,967
Diluted earnings per share $0.55 $0.36 $0.90 $0.45
1996
Net sales $260,350 $193,275 $309,019 $258,398
Total revenues 262,926 195,934 313,228 261,990
Gross profit 75,369 63,691 99,706 78,062
Operating income 32,652 21,534 49,788 26,282
Net income 20,339 13,338 30,878 16,319
Diluted earnings per share $0.38 $0.25 $0.58 $0.30
-37-
<PAGE> 38
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 15. EMPLOYEE BENEFIT PLAN
The Company maintains the Jones Apparel Group, Inc. Retirement Plan (the
"Plan") under Section 401(k) of the Internal Revenue Code. Full-time
employees not covered by a collective bargaining agreement and meeting
certain other requirements are eligible to participate in the Plan. Under the
Plan, employees may elect to have up to 10% of their salary deferred and
deposited with a qualified trustee, who in turn invests the money in a
variety of investment vehicles as selected by each employee.
From January 1, 1995 through March 31, 1996, the Company matched 30% of each
participant's contributions with the Company's contribution limited to a
maximum of 1.8% of the employee's total compensation for employees earnings
less than $150,000 per year. For employees earning over $150,000 per year,
the Company matched 25% of each participant's contributions with the Company's
contribution limited to a maximum of 1% of the employee's total compensation.
On April 1, 1996, the Company matching contribution rates were increased to
50% and 3.0% of total compensation, respectively, for employees earning up to
$150,000 per year and 35% and 2.1% of total compensation, respectively, for
employees earning over $150,000 per year.
Contributions and salary deferrals are subject to limitations imposed by the
Internal Revenue Code. The Company may, at its sole discretion, contribute
additional amounts to all employees on a pro rata basis. All employee
contributions into the Plan are 100% vested, while the Company's matching
contributions vest over a five-year period. The Company contributed
approximately $1,241,000, $801,000 and $369,000 to the Plan during the years
ended December 31, 1997, 1996 and 1995, respectively.
-38-
<PAGE> 39
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 16. EARNINGS PER SHARE
Basic and diluted earnings per share for each of the three years ended
December 31, 1997, 1996 and 1995 are calculated as follows (in thousands
except per share amounts):
Net Per-share
Income Shares Amount
-------- ------ ------
For the year ended December 31, 1997:
Basic earnings per share $121,725 51,899 $2.35
Effect of assumed conversion
of employee stock options - 2,006 $0.09
-------- ------ ------
Diluted earnings per share $121,725 53,905 $2.26
======== ====== ======
For the year ended December 31, 1996:
Basic earnings per share $80,874 52,333 $1.55
Effect of assumed conversion
of employee stock options - 1,318 $0.04
------- ------ ------
Diluted earnings per share $80,874 53,651 $1.51
======= ====== ======
For the year ended December 31, 1995:
Basic earnings per share $63,485 52,130 $1.22
Effect of assumed conversion
of employee stock options - 894 $0.02
------- ------ ------
Diluted earnings per share $63,485 53,024 $1.20
======= ====== ======
Options to purchase 1,590,000 shares of common stock at exercise prices
ranging from $45 5/16 to $51 1/2 per share were outstanding during a portion
of 1997 but were not included in the computation of diluted earnings per
share because the exercise prices of the options were greater than the average
market price of the common shares. These options, which expire between
July 22 and December 12, 2007, were all outstanding at the end of 1997.
-39-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Office
- --------------------- --- -----------------------------------
Sidney Kimmel 70 Chairman and Director
Herbert J. Goodfriend 71 Vice Chairman and Director
Jackwyn Nemerov 46 President
Irwin Samelman 67 Executive Vice President, Marketing
and Director
Wesley R. Card 50 Chief Financial Officer
Patrick M. Farrell 48 Vice President and
Corporate Controller
Geraldine Stutz 69 Director
Howard Gittis 64 Director
Each director who is not a full-time employee of the Company will receive an
annual grant of options to purchase 1,000 shares of the Company's common stock
at an exercise price of $1.00 per share. Each option will expire on the
tenth anniversary of its date of grant, and will be exercisable, in whole or in
part, commencing six months from the date of grant and thereafter during the
exercise period. Officers are appointed by the Board of Directors.
The Board of Directors has appointed an Audit Committee consisting of Ms.
Stutz and Mr. Gittis. The Audit Committee meets periodically to review and
make recommendations with respect to the Company's internal controls and
financial reports, and in connection with such reviews, has met with appropriate
Company financial personnel and the Company's independent certified public
accountants. The Board of Directors has also appointed a Stock Option
Committee consisting of Ms. Stutz and Mr. Gittis to administer the 1991 and
1996 Stock Option Plans and a Compensation Committee consisting of Ms. Stutz and
Mr. Gittis to determine cash and other incentive compensation to be paid to
the Company's executive officers.
Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970.
Mr. Kimmel has served as Chairman since 1975. Prior to 1975, Mr. Kimmel
occupied various executive offices including President
-40-
<PAGE> 41
of Jones New York and Vice President of John Meyer of Norwich. Prior to
founding Jones, Mr. Kimmel was employed by W.R. Grace & Co. and was President of
Villager, Inc., a sportswear company.
Mr. Goodfriend joined the Company in 1990 after serving as the Company's legal
counsel for the previous three years and has served as a director since July
1991. Before joining Jones, Mr. Goodfriend served as a director of Villager,
Inc. and Venice Industries, Inc. In addition, Mr. Goodfriend is engaged in the
practice of law and is of counsel to the firm of Phillips Nizer Benjamin Krim &
Ballon LLP, which performs legal services for the Company.
Ms. Nemerov was appointed President in January 1997. She joined the Company
in 1985 and served as President of the Company's casual sportswear divisions
and the Lauren by Ralph Lauren division. Prior to joining Jones, Ms. Nemerov
was President of the Gloria Vanderbilt division of Murjani, Inc. from 1980
through 1985.
Mr. Samelman has been Executive Vice President, Marketing of the Company since
1991 and has served as a director since July 1991. In addition, from 1987 to
1991, Mr. Samelman provided marketing consulting services to the Company
through Samelman Associates, Inc., a private consulting company controlled by
him. Prior thereto, Mr. Samelman was Regional Marketing Manager of Russ Togs,
Inc. and Vice President of Villager, Inc.
Mr. Card joined the Company in 1990. Prior to joining Jones, Mr. Card held
the positions of Executive Vice President and Chief Financial Officer of
Carolyne Roehm, Inc., and Corporate Vice President, Controller and Assistant
Secretary of Warnaco, Inc.
Mr. Farrell was appointed Vice President and Corporate Controller in November
1997. He joined the Company in 1994 as Director of Internal Audit and served
as Vice President, Finance and Administration of Retail Operations of the
Company since 1995. Prior to joining the Company, Mr. Farrell was Director of
Internal Audit for Crystal Brands, Inc.
Ms. Stutz has been a director of the Company since July 1991. Since 1993, Ms.
Stutz has been a principal partner of Panache Productions, a fashion and
marketing service. During the previous five years, she was Publisher of
Panache Press at Random House, a book publisher. From 1960 until 1986, Ms.
Stutz was President of Henri Bendel. Ms. Stutz serves on the Board of
Directors of Tiffany & Co., The Theatre Development Fund and The Actors' Fund.
Mr. Gittis has been a director of the Company since April 1992. During the
past five years, Mr. Gittis' principal occupation has been Director and Vice
Chairman of MacAndrews & Forbes Holdings Inc., a diversified holding company.
In addition, Mr. Gittis is a director of Andrews Group Incorporated,
California Federal Bank, a Federal Savings Bank, Consolidated Cigar
Corporation, Consolidated Cigar Holdings Inc., First Nationwide Holdings
Inc., First Nationwide (Parent) Holdings Inc., Loral Space and Communications
Ltd., Mafco Consolidated Group Inc., Pneumo Abex Corporation, Power Control
Technologies, Inc., Revlon, Inc., Revlon Consumer Products Corporation, Revlon
Worldwide Corporation and Rutherford-Moran Oil Corporation.
Key Employees
The following persons, although not executive officers of the Company, make
significant business contributions to the Company:
Rena Rowan was the original creator of the Jones New York line and served as
the division's Chief Designer from 1970 to 1982. She is currently
Vice President, Design of the Company. From 1991 to 1993, Ms.
-41-
<PAGE> 42
Rowan was an executive vice president of the Company. Prior to the inception of
Jones New York, Ms. Rowan was employed by Villager, Inc. and Rosenau, Inc.
Anita Britt, Director of Investor Relations and Financial Planning, joined the
Company in December 1993. Prior to joining the Company, Ms. Britt was
Director of Internal Audit of American Reliance Group, Inc.
Howard Buerkle has been President of Retail Operations for the Company since
1989. From 1986 through 1989, Mr. Buerkle was President of the retail
division of Inwear/Martinique.
Ellen Daniel, President of the Evan-Picone Collection division, joined Jones
in 1994. From 1982 through 1994, Ms. Daniel was employed by Liz Claiborne,
most recently as Senior Vice President - Corporate Design Director.
Ira Dansky joined the Company in 1996 as General Counsel. Prior to joining
the Company, Mr. Dansky was engaged in private law practice from 1987
through 1996, prior to which he served as Associate General Counsel of
Xerox Corporation.
Ronald Harrison, Vice President of Manufacturing, joined the Company in 1981.
Mr. Harrison had been Plant Manager for Chief Apparel, Inc. from 1965 through
1981.
Joseph Hiess was appointed President of the Jones New York Men's Sportswear
division in August 1997. Prior to his appointment, Mr. Hiess served as head
of Design and Marketing of JJ Farmer, a menswear company he founded in 1986
and subsequently sold to Salant Corporation in 1993.
Barbara Kennedy has been President of the Jones New York Dress Division since
August 1991. From 1983 through August 1991, Ms. Kennedy was employed by
Bloomingdale's in various capacities, most recently as Vice President,
Merchandise Manager.
Gary R. Klocek has been Controller of Jones Apparel Group, Inc. since
August 1987. Prior to joining Jones, Mr. Klocek held various positions with
Atlantic Richfield Company ("ARCO") from 1979 through 1987, his last position
being Manager of Cost and Inventory Control for one of ARCO's subsidiaries.
Jeffrey Levy, President of Rena Rowan, joined the Company in 1990. Prior to
joining Jones, Mr. Levy was Vice President of Sales and National Sales
Manager, of Russ Togs, Inc. from 1984 through 1990.
Benny Lin, Senior Vice President - Creative Director, joined Jones Apparel
Group in December 1995. Mr. Lin had been Fashion Director at Macy's East
prior to joining the Company.
Martin Marlowe joined Jones Apparel Group in 1992 as Vice President of Foreign
Manufacturing. Prior to joining Jones, Mr. Marlowe was President of Jodi
International, an apparel importer, from 1988 to 1992.
Helen Merril, President of the Evan-Picone Dress Divisions, joined Jones
Apparel Group in October 1993. Prior to joining the Company, Ms. Merril held
the positions of President of Scassi Dress of De Peche Corporation and
President of Nippon Boutique of Albert Nippon Inc.
Susan Metzger, Vice President of Sales for the Lauren by Ralph Lauren
division, joined the Company in May 1996. Prior to joining Jones Apparel
Group, Ms. Metzger held the positions of Vice President of Sales of Chaus,
Inc. and Sales Manager of JH Collectibles.
Heather Pech, President of the Jones New York Sport Collection division,
joined the Company in 1990. Ms. Pech had been Account Executive at
Calvin Klein, Inc. prior to joining Jones.
-42-
<PAGE> 43
Deanna Randall, who joined the Company in 1981, has held various sales and
marketing positions with the Company, and is currently President of the
Jones New York career division.
Susan Rieland, President of Casual Design, joined the Company in 1994. Ms.
Rieland had been Account Executive at Rafaella prior to joining Jones.
John Sammaritano, Vice President of Distribution, joined Jones in 1975.
Mr. Sammaritano had been Vice President of Distribution for Villager, Inc.
from 1964 through 1975.
Richard Shaw, President of Jones Apparel Group Canada, Inc., joined the
Company in May 1997. Prior to joining the Company, Mr. Shaw served as
President of Liz Claiborne Canada, which he helped launch in 1987.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions
"EXECUTIVE COMPENSATION" and "EMPLOYMENT AND COMPENSATION ARRANGEMENTS"
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the captions "CERTAIN
TRANSACTIONS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
are incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The schedule and report of independent certified public accountants
thereon, listed on the Index to Financial Statement Schedules
attached hereto.
2. The Exhibits, which are listed on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
-43-
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment to the Annual Report
on Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 26, 1998
JONES APPAREL GROUP, INC.
(Registrant)
By: /s/ Sidney Kimmel
Sidney Kimmel, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ----------------------------- --------------
/s/ Sidney Kimmel Chairman and Director March 26, 1998
- ----------------- (Chief Executive Officer)
(Sidney Kimmel)
/s/ Wesley R. Card Chief Financial Officer March 26, 1998
- ------------------ (Principal Financial Officer)
(Wesley R. Card)
/s/ Patrick M. Farrell Vice President and March 26, 1998
- ---------------------- Corporate Controller
(Patrick M. Farrell) (Principal Accounting Officer)
/s/ Herbert J. Goodfriend Vice Chairman and Director March 26, 1998
- -------------------------
(Herbert J. Goodfriend)
/s/ Irwin Samelman Executive Vice President, March 26, 1998
- ------------------ Marketing and Director
(Irwin Samelman)
/s/ Geraldine Stutz Director March 26, 1998
- -------------------
(Geraldine Stutz)
/s/ Howard Gittis Director March 26, 1998
- -----------------
(Howard Gittis)
-44-
<PAGE> 45
JONES APPAREL GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants on Schedule
Schedule II. Valuation and qualifying accounts
Schedules other than those listed above have been omitted since the information
is not applicable, not required or is included in the respective financial
statements or notes thereto.
EXHIBIT INDEX
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
(5) 3.1 3.1 Articles of Incorporation, as amended
(1) 3.3 3.3 By-Laws
(3) 3.4 3.4 Amendment to By-Laws
(1) 10.2 10.2 Lease Agreement between the Registrant and
Bristol Associates, L.P., re:
250 Rittenhouse Circle
(1) 10.5 10.5 Form of 1991 Stock Option Plan+
(1) 10.7 10.7 Employment and Stock Option
Agreements between the Registrant and
Herbert J. Goodfriend+
(2) 10.17 10.17 Note Agreement with The Industrial
Development Board of the City of
Lawrenceburg, Tennessee
(2) 10.18 10.18 Industrial Development Board of the City of
Lawrenceburg Taxable
Revenue Note, Series 1995
(2) 10.19 10.19 Lease agreement between the Registrant and
the Industrial
Development Board of the City of Lawrenceburg
(4) 10.26 10.26 Series 1996 Note Agreement with The
Industrial Development Board of the City of
Lawrenceburg, Tennessee
(4) 10.27 10.27 Industrial Development Board of the City of
Lawrenceburg Taxable
Revenue Note, Series 1996
(4) 10.28 10.28 First Amendment to Lease Agreement between
the Registrant and the Industrial
Development Board of the City of Lawrenceburg
(4) 10.29 10.29 Agreement between the Registrant and
Herbert J. Goodfriend with respect to
consulting services following termination
of employment
-45-
<PAGE> 46
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
(5) 10.30 10.30 Series 1996 Note Agreement with The
Industrial Development Board of the City of
Lawrenceburg, Tennessee
(5) 10.31 10.31 Industrial Development Board of the City of
Lawrenceburg Taxable
Revenue Note, Series 1996
(5) 10.32 10.32 Lease Agreement between the Registrant and
the Industrial Development Board of the
City of Lawrenceburg
(5) 10.33 10.33 Form of 1996 Stock Option Plan+
(5) 10.34 10.34 Letter Agreement between the Registrant and
CoreStates Bank
(5) 10.35 10.35 Master Short Term Borrowing Agreement
between the Registrant and CoreStates Bank
(5) 10.36 10.36 Letter Agreement between the Registrant and
First Union National Bank
(5) 10.37 10.37 Letter Agreement between the Registrant and
the Bank of New York
(5) 10.38 10.38 Letter Agreement between the Registrant and
Bank of Boston
(5) 10.39 10.39 Money Market Line Commercial Promissory
Note between the Registrant and Bank of Boston
(5) 10.40 10.40 License Agreement between the Registrant
and Polo Ralph Lauren, L.P., dated October
18, 1995#
(5) 10.41 10.41 Design Services Agreement between the
Registrant and Polo Ralph Lauren, L.P.,
dated October 18, 1995#
(5) 10.42 10.42 Lease Agreement between the Registrant and
The Shelton Companies
(5) 10.43 10.43 Letter Agreement between the Registrant and
Israel Discount Bank of New York
* 10.44 Series 1997 Note Agreement with The
Industrial Development Board of the City of
Lawrenceburg, Tennessee
* 10.45 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series
1997
* 10.46 Amendment to Lease Agreement between the
Registrant and the Industrial Development
Board of the City of Lawrenceburg
* 10.47 Letter Agreement between the Registrant
and First Union National Bank
-46-
<PAGE> 47
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
* 10.48 Letter Agreement between the Registrant and
CoreStates Bank
* 10.49 Letter Agreement between the Registrant and
BankBoston
* 10.50 Money Market Line Commercial Promissory
Note between the Registrant and BankBoston
* 10.51 Letter Agreement between the Registrant and
The Chase Manhattan Bank
* 10.52 Term Note and Unconditional Guaranty with
First Union National Bank
* 11 Computation of Earnings per Share
* 21 List of Subsidiaries
* 23 Consent of BDO Seidman, LLP
* 27 Financial Data Schedule (6)
* 27.1 Restated Financial Data Schedule for 1996
and 1995 (6)
* 27.2 Restated Financial Data Schedule for 1997
interim periods (6)
* 27.3 Restated Financial Data Schedule for 1996
interim periods (6)
____________________
* Filed herewith.
# Portions deleted pursuant to application for confidential treatment under
Rule 24B-2 of the Securities Exchange Act of 1934.
+ Management contract or compensatory plan or arrangement.
(1) Incorporated by Reference to the Company's Registration Statement on Form
S-1 (file No. 33-39742).
(2) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
(3) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(4) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(5) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(6) Exhibit 27 is submitted as an exhibit only in the electronic format of this
Annual Report on Form 10-K submitted to the Securities and Exchange
Commission.)
-47-
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jones Apparel Group, Inc.
New York, New York
The audits referred to in our dated February 6, 1998 relating to the
consolidated financial statements of Jones Apparel Group, Inc. and subsidiaries,
which is contained in Item 8 of Form 10-K, included the audits of the financial
statement schedule listed in the accompanying index for each of the three years
ended December 31, 1997. The financial statement schedule is the responsibility
of management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 6, 1998
-48-
<PAGE> 49
SCHEDULE II
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(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 Deductions at end of
Description of period expenses accounts <F1> period
- ------------ ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1995:
Allowance for doubtful accounts $2,560 $(464) $ - $(161) $2,257
For the year ended
December 31, 1996:
Allowance for doubtful accounts $2,257 $(800) $ - $(806) $2,263
For the year ended
December 31, 1997:
Allowance for doubtful accounts $2,263 $(1,870) $ - $2,374 $2,767
</TABLE>
<F1> Doubtful accounts written off (recovered) against accounts receivable.
-49-
SERIES 1997 NOTE AGREEMENT
SERIES 1997 NOTE AGREEMENT (this "Agreement"), dated as of April 1,
1997, among THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF LAWRENCEBURG, a
Tennessee public nonprofit corporation (the "Board"), NATIONSBANK OF TENNESSEE,
NATIONAL ASSOCIATION, a national banking association with its principal office
in Nashville, Tennessee (the "Purchaser"), and JONES APPAREL GROUP, INC., a
Pennsylvania corporation (the "Lessee").
PRELIMINARY STATEMENTS:
WHEREAS, the Board is a public nonprofit corporation and a public
instrumentality of the City of Lawrenceburg, Tennessee, and is authorized
under Sections 7-53101 to 7-53-311, inclusive, Tennessee Code Annotated, as
amended (hereinafter called the "Act"), to acquire, whether by purchase,
exchange, gift, lease, or otherwise, and to own, lease and dispose of
properties for the public purpose of promoting industry and developing trade
by inducing manufacturing, industrial, governmental, educational and commercial
enterprises to locate in or remain in the State of Tennessee; and
WHEREAS, the Lessee heretofore leased from the Board pursuant to the
Lease (as defined herein) certain distribution facilities located on land owned
by the Board and located in the City of Lawrenceburg, Tennessee, and in
connection therewith the Board issued its Taxable Revenue Note Series 1996
Jones Apparel Group Project, Inc.) (the "Series 1996 Note") to finance the
cost thereof; and
WHEREAS, Lessee has requested the Board to reimburse it for its costs
to be incurred by Lessee in connection with the Board's enhancement of such
facilities by issuing its note to the Purchaser and by using the proceeds from
the issuance of such note for the purpose of reimbursing the Lessee for the
cost of constructing and equipping a new 210,000 square foot distribution
facility to be located on the leased premises adjacent to the existing
distribution facility; and
WHEREAS, the Board proposes to issue and sell its 1997 note (the "Series
1997 Note") to the Purchaser pursuant to this Agreement and further proposes to
use the proceeds from the sale thereof to perform its obligations under such
Lease; and
WHEREAS, the Series 1996 Note and the Series 1997 Note proposed to be
issued under this Agreement will be secured by, among other security, the
amended and restated assignment of the rental payments under the Lease and the
amended and restated deed of trust from the Board with respect to the property
on which the distribution facilities are located.
-1-
<PAGE> 2
NOW, THEREFORE, in consideration of the premises, the Board, the
Purchaser and the Lessee hereby agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined in the preamble hereto, and elsewhere
herein, the following terms have the following respective meanings as used in
this Agreement unless the context otherwise requires:
"Act" means Sections 7-53-101 to 7-53-311, inclusive, of Tennessee Code
Annotated, as amended.
"Agreement" means this Series 1997 Note Agreement as it now exists and
as it may hereafter be amended.
"All Unpaid Installments" shall have the same meaning as in the Lease.
"Assignment" means the Amended and Restated Assignment Agreement dated
as of April 1, 1997 from the Board to the Purchaser.
"Authorized Lessee Representative" means the President or any Vice
President of the Lessee, except that the Lessee may, by written notice to the
Noteholder, designate additional Authorized Lessee Representatives or delete
Authorized Lessee Representatives.
"Basic Rent" means the Basic Rent payable pursuant to Section 4.01 of
the Lease.
"Building" shall have the same meaning as in the Lease.
"Business Day" means any day other than a Saturday, Sunday, or a public
holiday or the equivalent for banks generally under the laws of State of
Tennessee.
"Closing Date" means the date agreed to by the parties as the date to
close the sale of the Series 1997 Note but in no event later than April 18,
1997.
"Deed of Trust" means the Amended and Restated Construction Deed of
Trust and Security Agreement with respect to the Project dated as of April 1,
1997 from the Board for the benefit of the Purchaser as amended, restated and
supplemented.
"Default Rate" shall have the same meaning as in the Series 1996 Note.
"Documents" means the Lessee Documents and the Series 1997 Note
Documents.
-2-
<PAGE> 3
"Environmental Indemnity' means the Environmental Law Compliance and
indemnity Agreement dated -as of April 1, 1997 among the Lessee and the
Purchaser.
"Escrow and Security Agreement" means the Escrow and Security Agreement
dated as of April 1, 1997 by and among the Board, Lessee and NationsBank of
Tennessee, National Association, as Escrow Agent and Trustee.
"Event of Default" means an Event of Default as defined in Article VI
hereof.
"First Amendment to Lease" means the First Amendment to Lease dated as
of April 1, 1997 by and between the Board and Lessee.
"First Amendment to the Amended and Restated Deed of Trust And Security
Agreement" means the First Amendment to the Amended and Restated Deed of Trust
said Security Agreement dated as of April 1, 1997 entered into by the Board,
NationsBank of Tennessee, National Association and Lessee.
"Holder," whether or not capitalized, means the registered owner from
time to time of the Series 1997 Note.
"Land" means the real property described in Schedule A to the Lease.
"Lease" means the Lease dated as of May 1, 1996 between the Board, as
lessor, and the Lessee, as lessee, as amended by the First Amendment to Lease
and as such lease may hereafter be amended.
"Leased Property" means the Land, the Building and all other
improvements now or hereafter located on the Land.
"Lessee" means Jones Apparel Group, Inc., a Pennsylvania corporation.
"Lessee Documents" means this Agreement, the Lease, the Series 1997
Guaranty, the Escrow and Security Agreement and the Environmental Indemnity.
"Noteholder" or "Purchaser" means NationsBank of Tennessee, National
Association, a national banking association with its principal office in
Nashville, Tennessee, as the original purchaser and registered owner of the
Series 1997 Note, and any subsequent registered owner of the Series 1997 Note.
"Notes" mean collectively the Series 1996 Note and the Series 1997 Note.
"Prior Note Agreements" means collectively the Note Agreement, dated
November 23, 1993, the Series 1995 Note Agreement dated as of June 30, 1995,
the Note Agreement dated as of May 1, 1996, all by and among the Board, the
Lessee and the Purchaser.
-3-
<PAGE> 4
"Prime Rate" shall have the same meaning as in the Series 1997 Note.
"Project" means the Land, the Building and any personal property
located therein including any and all equipment used at or in connection with
the Project, but excluding any inventory owned by Lessee.
"Series 1996 Note" means the Taxable Revenue Note, Series 1996 (Jones
Apparel Group, Inc. Project) dated May 1, 1996 in the principal amount of
$5,000,000 issued by the Board.
"Series 1997 Guaranty" means that certain Series 1997 Guaranty Agreement
dated as of April 1, 1997 from Lessee.
"Series 1997 Note" means the Taxable Revenue Note, Series 1997 (Jones
Apparel Group, Inc. Project) dated the date hereof in the principal amount of
$10,000,000 issued by the Board.
"Series 1997 Note Documents" means this Agreement, the Lease, the Series
1997 Note, the Deed of Trust, the First Amendment to the Amended and Restated
Deed of Trust and Security Agreement, the Series 1997 Guaranty, the Escrow and
Security Agreement and the Assignment.
"Tangible Net Worth" means the excess of Lessee's Total Assets
(excluding receivables from Lessee's officers and intangible assets determined
in accordance with generally accepted accounting principles) over Total
Liabilities (exclusive of capital stock and surplus), all determined in
accordance with generally accepted accounting principles consistently applied.
"Total Assets" shall mean total assets determined in according with
generally accepted accounting principles consistently applied.
"Total Liabilities" shall mean total liabilities determined in
accordance with generally accepted accounting principles consistently applied.
ARTICLE II
AMOUNT AND TERMS OF THE SERIES 1997 NOTE
SECTION 2.01. The Series 1997 Note. The Purchaser agrees to purchase
and the Board agrees to sell, at par, on the terms and conditions hereinafter
set forth, the Taxable Revenue Note, Series 1997 (Jones Apparel Group, Inc.
Project) of the Board in the principal amount of Ten Million Dollars
($10,000,000). The Series 1997 Note shall contain the terms and conditions
and shall be substantially in the form of Exhibit A hereto.
SECTION 2.02. Purchasing the Series 1997 Note. The Series 1997 Note
shall be purchased on the Closing Date. Not later than 4:00 P.M. (Nashville
time) on the Closing
-4-
<PAGE> 5
Date, and upon fulfillment of the applicable conditions set forth in Article
III, the Purchaser will purchase the Series 1997 Note by application of
immediately available funds on behalf of the Board in the manner set forth
in Section 20.03 of the Lease.
SECTION 2.03. Application of Payments. Except as otherwise provided in
Article XX of the Lease, any payment or prepayment of Basic Rent under the Lease
shall be applied as a payment or prepayment first to accrued interest on the
Notes and the remainder, if any, to prepayment penalty, if any, and then to
principal installments on the Notes in the inverse order of maturity. Any
payment or prepayment on the Series 1996 Note or the Series 1997 Note shall be
applied as a payment or prepayment of Basic Rent under the Lease.
SECTION 2.04. Payments. Each payment on the Series 1997 Note shall be
made not later than 12:00 Noon (Nashville time) on the day when due at the place
designated in the Series 1997 Note in immediately available funds. Whenever any
payment to be made hereunder or under the Series 1997 Note shall be stated to be
due on a day other than a Business Day, such payment shall be extended to the
next succeeding Business Day and such extension of time shall in such case be
included in computing such interest.
SECTION 2.05. Use of Proceeds. All of the proceeds from the sale of
the Series 1997 Note will be used as provided in Section 20.03 of the Lease.
ARTICLE III
CONDITIONS OF PURCHASE
SECTION 3.01. Conditions Precedent to the Purchase of the Series 1997
Note. The obligation of the Purchaser to purchase the Series 1997 Note is
subject to the conditions precedent that the Purchaser shall have received
on or before the Closing Date the following, each in form and substance
satisfactory to the Purchaser:
(a) The Series 1997 Note duly executed by the Board.
(b) The Assignment duly executed by the Board.
(c) The First Amendment to Lease and the Escrow and Security
Agreement duly executed by the Board and the Lessee.
(d) The Deed of Trust duly executed by the Board.
(e) The First Amendment to the Amended and Restated Deed of Trust and
Security Agreement executed by the parties thereto.
(f) The Series 1997 Guaranty duly executed by the Lessee.
(g) The Environmental Indemnity duly executed by the Lessee.
-5-
<PAGE> 6
(h) Evidence of the completion of all recordings and filings as may be
necessary or, in the opinion of the Purchaser, desirable to perfect the liens,
assignments and security interests created by the Documents, and evidence that
all other actions necessary or, in the opinion of the Purchaser, desirable to
perfect and protect the priority lien, assignment and security interest created
by the Documents have been taken.
(i) Certified copies of the resolutions of the Board of Directors of
the Board approving each Series 1997 Note Document and of all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to each Series 1997 Note Document.
(j) A Certificate of the Secretary, or similar officer, of the Board
certifying the names and true signatures of the officers of the Board authorized
to sign each Series 1997 Note Document and the other documents to be delivered
by it hereunder.
(k) Certified copies of the Resolutions of the Board of Directors of
the Lessee approving each Lessee Document and of all documents evidencing other
necessary corporate action and governmental approval, if any, with respect to
each Lessee Document.
(l) A Certificate of the Secretary, or similar officer, of the Lessee
certifying the names and true signatures of the officers of the Lessee
authorized to sign each Lessee Document and the other documents to be
delivered by it hereunder.
(m) The opinion of Boston, Bates & Holt, counsel for the Lessee, dated
the date hereof, and in form acceptable to Purchaser.
(n) The opinion of White and Betz, counsel for the Board, dated the
date hereof, and in form acceptable to Purchaser.
(o) A paid title insurance policy, prepared upon an opinion of counsel
approved by the Purchaser, in form and content, and with a company, acceptable
to the Purchaser, in the amount of $15,000,000 insuring that the Deed of Trust
creates a valid first lien in and upon the Project, free and clear of all
defects and encumbrances except as set forth on Schedule B to the Lease and
containing full coverage against liens of mechanics, materialmen, laborers and
any other party who might claim statutory or common law liens.
(p) Evidence satisfactory to the Purchaser as to:
(i) Methods of access to and egress from the Project, and nearby
or adjoining public ways, meeting the reasonable requirements of
similar projects;
(ii) The availability of storm and sanitary sewer facilities
meeting the reasonable requirements of the Project;
-6-
<PAGE> 7
(iii) The availability of other required utilities, such as
electricity, water, etc., reasonably required to serve the
Project; and
(iv) The securing of all requisite governmental approvals of
sanitary facilities, and other matters that are subject to the
jurisdiction of any governmental authority.
(q) Suitable policies or evidence of insurance in accordance with the
terms of the Lease and this Agreement.
(r) A survey, certified by a surveyor registered as such in Tennessee,
to which is attached a certificate satisfactory to the Purchaser, which survey
shall disclose all improvements, easements and rights-of-way, and the Building.
(s) An environmental report, prepared by an environmental engineering
firm acceptable to the Purchaser, if requested by Purchaser, with respect to
the premises, in form, substance and detail satisfactory to the Purchaser.
(t) Such other items as the Purchaser may reasonably request.
ARTICLE IV
REPRESENTATIONS, COVENANTS AND WARRANTIES
OF THE BOARD
SECTION 4.01. Representations and Warranties of the Board. The Board
represents and warrants as follows:
(a) The Board is a duly established, organized and existing public
corporation under the laws of the State of Tennessee. Each of the
directors of the Board is a duly qualified elector of and taxpayer
in the City of Lawrenceburg, Tennessee, and no director is an officer
or employee of the City of Lawrenceburg, Tennessee. The composition
of the Board of Directors of the Board is in conformity with the
requirements of Section 7-53-301 of the Act.
(b) The Board has all requisite power, authority and legal right to
execute and deliver the Series 1997 Note Documents and all other
instruments and documents to be executed and delivered by the Board
pursuant hereto, to perform and observe the provisions thereof and to
carry out the transactions contemplated thereby. All corporate action
on the part of the Board which is required for the execution, delivery,
performance and observance by the Board of the Series 1997 Note
Documents has been duly authorized and effectively taken, and such
execution, delivery, performance and observation by the Board do not
contravene applicable law or any contractual restriction binding on
or affecting the Board.
-7-
<PAGE> 8
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required for the due execution and delivery by the Board of, and
performance by the Board of its obligations under, any Series 1997
Note Document except for the filing of a Report on Debt Obligation
with the Division of Local Finance, Comptroller's Office, as
required by Chapter 402, Public Acts of 1989.
(d) This Agreement is, and each other Series 1997 Note Document
when delivered hereunder will be, legal, valid and binding special
obligations of the Board enforceable against the Board in accordance
with their respective terms.
(e) There is no default of the Board in the payment of the principal
of or interest on any of its indebtedness for borrowed money or under
any instrument or instruments or agreements under and subject to which
any indebtedness for borrowed money has been incurred which does or
could affect the validity and enforceability of the Series 1997 Note
Documents or the ability of the Board to perform its obligations
thereunder, and no event has occurred and is continuing under the
provisions of any such instrument or agreement which constitutes or,
with the lapse of time or the giving of notice, or both, would
constitute such a default.
(f) There is not pending or, to the knowledge of the undersigned
officers of the Board, threatened any action or proceeding before any
court, governmental agency or arbitrator (i) to restrain or enjoin the
issuance or delivery of the Series 1997 Note or the collection of any
revenues pledged under the Assignment, (ii) in any way contesting or
affecting the authority for the issuance of the Series 1997 Note or
the validity of any of the Series 1997 Note Documents, or (iii) in
any way contesting the existence or powers of the Board.
(g) In connection with the authorization, issuance and sale of the
Series 1997 Note, the Board has complied with all provisions of the
Constitution and laws of the State of Tennessee, including the Act and
Sections 8-44-104, et seq., of Tennessee Code Annotated (the "Public
Meetings Act").
(h) The Board has not assigned or pledged and will not assign or
pledge its interest in the Lease for any purpose other than to secure
the Series 1996 Note and the Series 1997 Note under the Assignment.
The Series 1996 Note and the Series 1997 Note constitute the only notes
or other obligations of the Board in any manner payable from the
revenues to be derived from the Lease, and except for the Series 1996
Note and the Series 1997 Note, no notes or other obligations have been
or will be issued on the basis of the Lease.
(i) The Board is not in default under any provision of its
Certificate of Incorporation or By-Laws, and is not in default under
any of the provisions of
-8-
<PAGE> 9
the laws of the State of Tennessee which default would affect its
existence or its powers referred to in subsection (b) of this Section.
(j) No member, officer or other official of the Board has any
interest whatsoever in the Lessee or in the transactions contemplated
by the Lease.
(k) The Board will not enter into any agreement or instrument which
might in any way prevent or materially impair its ability to perform
its obligations under the Series 1997 Note Documents.
(l) The Board will not consent or agree to any modification of the
Lease or waive compliance with any of the terms thereof, unless any
such modification or waiver shall have been agreed to in writing by
the Noteholder.
(m) The Board will execute, acknowledge where appropriate, and
deliver from time to time promptly at the request of the Noteholder
all such instruments and documents as in the opinion of the Noteholder
are necessary or desirable to carry out the intent and purpose of any
of the Documents.
SECTION 4.02. Affirmative Covenants. So long as the Series 1997 Note
shall remain unpaid, the Board will, upon request of the Noteholder and provided
it shall be furnished with sufficient funds to pay all costs and expenses
(including attorney's fees) reasonably incurred by it as such costs and
expenses accrue:
(a) Take all action and do all things which it is authorized by law
to take and do in order to perform and observe all covenants and
agreements on its part to be performed and observed under the Series
1997 Note Documents.
(b) Execute, acknowledge where appropriate, and deliver from time to
time promptly at the request of the Noteholder all such instruments and
documents as in the opinion of the Noteholder are necessary or desirable
to carry out the intent and purpose of the Series 1997 Note Documents or
Lessee Documents (or any of them).
ARTICLE V
OTHER REPRESENTATIONS, COVENANTS AND WARRANTIES OF LESSEE
SECTION 5.01. Representations and Warranties. In order to induce the
Board to amend and modify the Lease and the Purchaser to purchase the Series
1997 Note, Lessee hereby represents and warrants to, and agrees with, the Board,
the Purchaser and any subsequent Noteholder as follows:
(a) Organization. The Lessee is a corporation duly organized, validly
existing and in good standing under the laws of the State of Pennsylvania and
has all requisite power and
-9-
<PAGE> 10
authority to own and operate its properties and to carry on its business as now
being conducted. Lessee shall remain a corporation duly organized and existing
and in good standing under the laws of the State of Pennsylvania, and is and
shall remain duly qualified to do business in Tennessee and each state other
than Tennessee in which qualification is necessary. Neither the execution,
the delivery, nor the performance of this Agreement and all related documents
by Lessee will constitute a default under or conflict with Lessee's charter or
bylaws or any agreement, contract, document, or instrument to which Lessee now
is a party. The execution of all necessary resolutions and other prerequisites
of corporate actions have been duly performed so that the individual executing
this Agreement and related documents on behalf of Lessee is duly authorized to
bind Lessee by his signature.
(b) Requisite Power and Authorization. This Agreement constitutes, and
upon execution and delivery thereof, the other Lessee Documents will constitute,
legal, valid and binding obligations of the Lessee enforceable against the
Lessee in accordance with their respective terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally. The Lessee has full power
and authority, corporate and otherwise, to execute and deliver, and to perform
all of its obligations under, each of the Lessee Documents. All corporate
action which is required for such execution, delivery and performance has been
validly taken.
(c) Approvals. No approval, consent or other authorization (corporate,
governmental or otherwise) of, or filing with, any court, agency, commission or
other authority or entity is required for the due execution, delivery,
performance or observance by the Lessee of this Agreement or for the payment
of any sums thereunder.
(d) Litigation. There is no litigation or proceeding pending against
Lessee or, to the knowledge of Lessee, threatened that, if decided adversely to
Lessee, would have a material effect upon its financial condition. Lessee is
not subject to any outstanding court or administrative order.
(e) Financial Statements. The financial statements of Lessee heretofore
delivered to the Purchaser fairly and accurately reflect the financial condition
and capital structure of Lessee as of the dates thereof. Since said date, no
material adverse change in either has occurred or, to the knowledge of Lessee,
is threatened. All financial statements delivered to Purchaser have been
prepared in accordance with generally accepted accounting principles,
consistently applied, and are true, accurate and complete in every material
respect. Without limiting the foregoing, Lessee warrants that such financial
statements disclose all known contingent liabilities as well as direct
liabilities. Lessee acknowledges that Purchaser agreed to purchase the Series
1997 Note in reliance upon such financial statements, and Lessee warrants that
no material adverse change has occurred in the financial condition of any
person or entity as set forth in such financial statements. Lessee warrants
that Lessee has good and marketable title to the assets disclosed on Lessee's
balance sheet disclosed to Purchaser, subject only to liens, security interests
and other encumbrances noted thereon.
-10-
<PAGE> 11
(f) Taxes. Lessee is not presently delinquent in the payment of any
taxes imposed by any governmental authority or in the filing of any tax return
and Lessee is not involved in a dispute with any taxing authority over tax
amounts due. Lessee covenants that all future taxes assessed against Lessee
shall be timely paid and that all tax returns required of Lessee shall be
timely filed.
SECTION 5.02. Lease. The Lessee shall punctually pay all Basic Rent
and other amounts due under the Lease and shall promptly perform all of its
other obligations under the Lease.
SECTION 5.03. Inspection. The Lessee and the Board shall permit the
Noteholder and any representative of the Noteholder to visit and inspect the
Leased Property at such time as either the Board or the Lessee has title to
any part thereof, to examine the books of account of the Lessee and to discuss
Lessee's affairs, finances and accounts with Lessee and independent certified
public accountants, all during business hours and as often as the Noteholder or
any such representatives may reasonably request. Any inspection or examination
pursuant to this paragraph shall be for the sole purpose of protecting the
security of the Noteholder and shall not be construed as a representation by
the Noteholder that there has been compliance with the plans and specifications
for the Project or that the Project will be or is free of faulty materials or
workmanship, or a waiver of any right the Noteholder may have against Lessee or
any other party.
SECTION 5.04. Expenses Paid by Lessee, indemnification.
(a) The Lessee will pay in full all reasonable out-of-pocket expenses
of the Board and the Purchaser incurred in connection with the preparation,
execution and delivery of this Agreement and the Lease and the consummation of
the transactions contemplated by such documents, including but not limited to
(i) the fees and disbursements of the Board's counsel, and Purchaser's counsel,
(ii) all taxes(other than income taxes) applicable to such transactions, (iii)
all present and future recording and filing fees and recording and filing taxes,
(iv) all expenses incident to the preparation of the Documents and any other
documents relating to the Lease or the Series 1997 Note, and (v) all survey
and title insurance premiums, fees and expenses.
(b) The Lessee shall pay to or reimburse in full the Board and
Noteholder for all costs and expenses incurred in the collection or enforcement
of (or in respect of any action taken to collector enforce) the Documents upon
any default thereunder, or in any investigation of any such default, including
reasonable attorneys' fees.
(c) The Lessee shall indemnify and hold harmless both the Board, the
Purchaser and any subsequent Noteholder (and all officers and directors of
both the Board, the Purchaser and any subsequent Noteholder) against all
liabilities, claims, costs and expenses imposed or asserted against either the
Board or the Purchaser for (i) any loss or damage to property or injury or
death of any person that may be occasioned by any cause whatsoever pertaining
to the renovation, maintenance, operation or use of the Leased Property, (ii)
any breach or default on the part of the Lessee in the performance of any
covenant or agreement
-11-
<PAGE> 12
under the Lessee Documents or arising from any act or failure to act by the
Lessee or any of his agents, contractors, servants, employees or licensees or
arising from any accident, injury or damage whatsoever caused to any person,
firm or corporation occurring in or about the Leased Property, or (iii) any
such claim or action or proceeding brought thereon.
(d) The obligations of the Lessee under this Section 5.04 shall survive
the payment in full of all amounts payable under the Series 1997 Note to the
extent set forth above.
SECTION 5.05. Performance of Lessee or Board Obligations by Series 1997
Noteholder. Without having any obligation to do so and only if an Event of
Default has occurred and is continuing, the Noteholder may perform or pay any
obligation which the Lessee is obligated to pay or perform under any of the
Lessee Documents or which the Board is obligated to pay or perform under any
of the Series 1997 Note Documents. All of the following shall bear interest
at the Default Rate and, together with such interest, be repaid by the Lessee
to the Noteholder on demand: (1) all sums advanced or paid by the Noteholder
under this Section, and (2) all costs reasonably incurred or paid by the
Noteholder in the exercise of its rights under this Section.
SECTION 5.06. Further Assurances. Lessee will execute such other
assignments, security agreements, financing statements, and other documents
that Purchaser may deem necessary to further evidence the obligations provided
for in the Lease or to perfect, extend, or clarify Purchaser's rights in any
property securing or intended to secure the Series 1997 Note. Any Vice
President of Purchaser is hereby appointed as Lessee's attorney-in-fact with
full power of substitution for the signing of financing statements and other
similar filings with government offices for perfecting security interests
granted hereby. Purchaser acknowledges that this power of attorney is coupled
with an interest and is irrevocable.
SECTION 5.07. Financial Statements. The Lessee will provide to the
Purchaser (i) within forty-five days in the case of the Lessee, after the end
of the Lessee's fiscal quarter, financial statements of the Lessee, in form and
content satisfactory to Purchaser including a complete balance sheet and profit
and loss statement for each quarter; (ii) within one hundred twenty days after
the close of Lessee's fiscal year, complete certified audited financial
statements of Lessee, prepared in accordance with generally accepted
accounting principles, consistently applied, prepared by a certified public
accountant acceptable to Purchaser; and (iii) a quarterly compliance
certificate from an officer of the Lessee acknowledging that the Lessee is not
in default in the performance of any provisions of the Lessee Documents and
that the Lessee is in compliance with all fiscal covenants contained in the
Lessee Documents.
SECTION 5.08. Cash Flow to Debt Service Ratio. Lessee shall at all
times maintain a ratio of Cash Flow to Debt Service of not less than 10.0 to
1.0 except as provided below. For the purposes of this covenant, "cash flow"
shall mean earnings of Lessee before interest, taxes, depreciation and
amortization and "debt service" shall mean the sum of the current portion of
long term debt and capitalized leases, dividends, and treasury stock
repurchases. In the event Lessee is engaged in an active stock repurchase
program, Lessee shall
-12-
<PAGE> 13
at all times maintain a ratio of Cash Flow to Debt Service of not less than 1.5
to 1.0. An active stock repurchase program shall mean that Lessor has purchased
during the immediately preceding thirty day period not less than $1,000,000 of
its own Common Stock.
SECTION 5.09. RESERVED
SECTION 5.10. Dividends and Loans or Advances. The Lessee will not
pay or make, directly or indirectly, to any related company, (i) dividends;
(ii) royalty fees or related company management or consulting fees; and (iii)
any loans or advances for the duration of this Agreement unless immediately
before and immediately after paying or making such dividend, royalty fee or
related company management or consulting fee or any loan or advance, the Lessee
was and remains in compliance with the other covenants contained herein.
SECTION 5.11. Liabilities to Tangible Net Worth. Lessee will not
permit its ratio of Total Liabilities to its Tangible Net Worth to exceed .75
to 1 at any time during the term of the Lease.
SECTION 5.12. Insurance. The Lessee will maintain public liability
insurance insuring against bodily injury and property damage with liability
limits of $500,000 for each occurrence and $10,000,000 aggregate liability and
fire and extended coverage insurance on all assets in such form and in such
amounts as are consistent with industry practices and with insurers satisfactory
to the Purchaser. The Lessee shall provide evidence of insurance (together with
written agreement by the insurer or insurers to give Purchaser 30 days' prior
written notice of cancellation) to the Purchaser and the Lessee shall name the
Purchaser as the loss payee on any and all such insurance policies relating
to the Leased Property.
SECTION 5.13. Use of Project. Lessee will keep the Project free from
any lien, security interest, or encumbrance other than that granted to Purchaser
by the Board pursuant to the Deed of Trust and in good order and repair and will
not waste or destroy the Project or any part thereof. Lessee will not use the
Project in violation of any statute or ordinance. Lessee's business activities
are conducted in accordance with all applicable laws and regulations, and Lessee
covenants that such activities shall continue to be so conducted. Purchaser may
examine and inspect the Project at any time.
SECTION 5.14. No Conflicting Agreements. Lessee is not a party to any
contract or agreement and is not subject to any contingent liability that does
or may impair Lessee's ability to perform under the terms of this Agreement.
The execution and performance of this Agreement will not cause a default under
any other contract or agreement to which Lessee or any property of Lessee is
subject, and will not result in the imposition of any charge, penalty, lien or
other encumbrance against any of Lessee's property except in favor of Purchaser.
SECTION 5.15. Notice to Purchaser of Certain Events. Lessee covenants
to give Purchaser prompt written notice of any litigation, arbitration,
administrative proceeding or
-13-
<PAGE> 14
investigation that may hereafter be instituted or threatened against Lessee in
which the potential liability of Lessee exceeds $250,000. Lessee covenants to
give Purchaser written notice within ten days of (i) the creation or discovery
of any material additional contingent liability or the occurrence of any other
material adverse change in the financial condition of Lessee, (ii) the
occurrence of any event, or presence of any condition, which constitutes an
Event of Default or which with the giving of notice, the passage of time, or
both, would constitute a default, and (iii) the change of the name of Lessee.
SECTION 5.16. Further Assurances. Lessee covenants that it will
execute, acknowledge where appropriate, and deliver from time to time promptly
at the request of the purchaser all such instruments and documents as in the
opinion of the Purchaser are necessary or desirable to carry out the intent
and purpose of the Series 1997 Note Documents or Lessee Documents (or any of
them).
SECTION 5.17. Merger, Sale of Assets, Certificates and-Loans. Lessee
will not, without the prior written consent of the Purchaser:
(a) enter into any merger or consolidation; provided, however, that
Lessee may, without the consent of Purchaser, merge or consolidate
with any other company as long as the Lessee shall be the
continuing or surviving corporation;
(b) sell, lease, convey or otherwise dispose of any of its property or
assets, except that Lessee may (i) grant liens or encumber any of
its property (other than its interest in the Lease) (ii) dispose of
property in the ordinary course of business and (iii) otherwise
dispose of its properties as long as the aggregate fair market
value of the property so disposed of in any fiscal year of the
Lessee also does not exceed $1,000,000; and
(c) submit to the Purchaser any certificate or other document that
contains any untrue statement of a material fact or omits to
state a material fact necessary to make it not misleading.
SECTION 5.18. Borrowing. Lessee will not create, incur, assume or
become liable in any manner for any indebtedness for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety or guarantor for
the debt of another, or otherwise plan to purchase, except for normal trade
debts incurred in the ordinary course of Lessee's business, and except for
existing indebtedness disclosed to Purchaser in writing and acknowledged by
Purchaser prior to the date of this Agreement.
-14-
<PAGE> 15
ARTICLE VI
EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an Event of Default hereunder:
(a) non-payment when due of any installment of interest on the Series
1996 Note or the Series 1997 Note; or
(b) non-payment when due of any installment of principal on the
Series 1996 Note or the Series 1997 Note whether at maturity, by
acceleration or mandatory prepayment; or
(c) non-payment when due of any other amount required to be paid by
the Lessee or the Board hereunder or under any other Document
(other than a default under subsections (a) or (b) above) continued
for ten (10) days after written notice thereof to the Lessee; or
(d) the occurrence of an "Event of Default" as defined in Article
14.01 of the Lease which continues beyond the applicable cure
period provided therein, if any; or
(e) indebtedness of the Lessee in excess of $50,000 shall be declared
to be due and payable, or required to be prepaid other than by
regularly scheduled or other mandatory required prepayment, prior
to the stated maturity thereof; or
(f) any representation or warranty made by Lessee herein or in the
Lease is untrue in any material respect when made;
(g) default by the Lessee in the due observance or performance of any
term, covenant, condition or agreement on its part to be performed
under any of the Documents (other than a default under
subsections (a), (b), (c), (d), (e) or (f) above) continued for
thirty (30) days after written notice specifying such default has
been given to the Lessee;
(h) default by the Lessee in the due observance or performance of any
term covenant, condition or agreement on its part to be performed
under the Prior Note Agreements, or any of them, except that no
default shall be deemed to exist under the Prior Note Agreements
by reason of a breach of the financial covenants contained in
Sections 5.07, 5.08 and 5.11 of the Prior Note Agreements unless
there is a breach of any of the financial covenants contained in
-15-
<PAGE> 16
Section 5.07 through 5.11 hereof, which the parties agree shall
supersede and replace Sections 5.07 through 5.11 of the Prior Note
Agreements. The parties further agree that the provisions of
Section 5.09 contained in the Prior Note Agreements are deleted
and are of no further force and effect. Except as modified hereby,
the terms of the Prior Note Agreements remain in full force and
effect; or
(i) default under any notes issued by the Board or Purchaser for the
benefit of Lessee or under any and all other documents,
instructions, deeds of trust, mortgages, security agreements,
guaranties, executed and/or delivered by Lessee or the Board in
connection therewith (the "Loan Documents"); it being agreed that
a default under any of such Loan Documents shall be a default
hereunder and vice versa.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy,
or telex communication) and mailed, telecopied, telexed, telegraphed or
delivered, if to the Board, at its address, c/o White & Betz, 22 Public
Square, Lawrenceburg, Tennessee 38464-0488, Attention: Alan C. Betz, Esq.;
if to the Purchaser, at its address at NationsBank of Tennessee, National
Association, 255 N. Military Avenue, Lawrenceburg, Tennessee 38464, Attention:
Mr. Timothy E. Pettus; if to any Noteholder other than the Purchaser, at the
address indicated on the note register maintained pursuant to Section 7.02
hereof; if to the Lessee, at its address at Jones Apparel Group, Inc., 250
Rittenhouse Circle, Bristol, Pennsylvania 19007, Attention: Chief Financial
Officer; or, as to each party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and
communications shall, when mailed or telegraphed; be effective three days
after deposit in the mails or delivery to the telegraph company, respectively,
addressed as aforesaid. All such notices and communications otherwise
transmitted shall be effective upon receipt by the addressee.
SECTION 7.02. Series 1997 Note Registration. The Series 1997 Note
shall be registered (as hereinafter provided) in the name of the owner on a
note register to be provided for that purpose by the Board in the office of
the Lessee, as note registrar. The note registrar and the note register shall
be subject to change upon written notice thereof from the Noteholder. No
transfer thereof shall be valid unless made at the written request of the
registered owner or his legal representative, on said note register and
evidence of transfer of the Series 1997 Note furnished to the note registrar.
Principal of, premium, if any, and interest on the Series 1997 Note will be
paid by check to the registered owner by mail at the address shown on the note
register or at such other place as may be directed by the Noteholder, which
directions shall be noted in the note register.
-16-
<PAGE> 17
The person in whose name the Series 1997 Note shall be registered shall
be deemed and regarded as the absolute owner thereof for all purposes, and
payment of or on account of the interest on or the principal of the Series
1997 Note shall be made only to or upon the order of the registered owner
thereof or his legal representative, but such registration may be changed as
hereinabove provided. All such payments shall be valid and effectual to
satisfy and discharge the liability upon the Series 1997 Note to the extent
of the sum or sums paid.
SECTION 7.03. No Waiver: Remedies. No failure on the part of the
Noteholder to exercise, and no delay in exercising, any right under any
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Document preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided
in the Documents are cumulative and not exclusive of any remedies provided
by law.
SECTION 7.04. Binding Effect, Governing Law. This Agreement shall be
binding upon and inure to the benefit of the Board, the Purchaser and the Lessee
and their respective successors and assigns, except that the Board shall not
have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Purchaser. This Agreement and the Series 1997
Note shall be governed by, and construed in accordance with, the laws of the
State of Tennessee except to the extent that applicable federal law may
permit any higher rate of interest.
SECTION 7.05. Acquisition of the Series 1997 Note For Account of the
Purchaser. The Purchaser represents and warrants that it will acquire the
Series 1997 Note and the other Series 1997 Note Documents to be acquired by
it for its own account and, except that the Purchaser may grant participation
interests therein to other financial institutions, not with a view to the
distribution or any disposition thereof, and that it has no present intention
of making any such distribution or disposition provided that the disposition
of the Purchaser's property shall at all times be and remain within its
control. In the event that the Purchaser or any subsequent Noteholder should
transfer the Series 1997 Note, the Purchaser or any subsequent Noteholder shall
give prompt written notice to the Board and the Lessee of the name and address
of the transferee. Until such time as the Board and the Lessee receive such
notice from the Purchaser and the name and address of the transferee have been
entered on the note register and noted on the Series 1997 Note, the Board and
the Lessee shall be entitled to assume that the Purchaser is the Noteholder and
that the Noteholder is as reflected in the most recent entry on the note
register and the most recent notation on the Series 1997 Note.
SECTION 7.06. Severability. In the event that any clause or provision
of any Series 1997 Note Document shall be held to be invalid by any court of
competent jurisdiction, the invalidity of such clause or provision shall not
affect any of the remaining provisions of such Series 1997 Note Document.
SECTION 7.07. Payment on Non-Business Days. Whenever any payment to be
made hereunder or under the Series 1997 Note shall be stated to be due on a day
which is not a Business Day, such payment may be made on the next succeeding
Business Day.
-17-
<PAGE> 18
SECTION 7.08. No Liability of Board's Officers, Etc. No recourse under
or upon any obligation, covenant or agreement contained in this Agreement or the
Assignment, or in the Series 1997 Note, or under any judgment obtained against
the Board, or by the enforcement of any assessment or by any legal or equitable
proceeding by virtue of any constitution or statute or otherwise or under any
circumstances, under or independent of this Agreement or the Assignment, shall
be had against any incorporator, member, director or officer, as such, past,
present or future, of the Board, either directly or through the Board, or
otherwise, for the payment for or to the Board or any receiver thereof, or
for or to the holder of the Series 1997 Note or otherwise, of any sum that
may be due and unpaid by the Board upon the Series 1997 Note. Any and all
personal liability of every nature, whether at common law or in equity, or by
statute or by constitution or otherwise, of any such incorporator, member,
director or officer, as such, to respond by reason of any act or omission on
his part or otherwise, for the payment for or to the Board or any receiver
thereof, or for or to the holder of the Series 1997 Note or otherwise, of any
sum that may remain due and unpaid upon the Series 1997 Note, is hereby
expressly waived and released as a condition of and consideration for the
execution of this Agreement and the issue of the Series 1997 Note.
SECTION 7.09. No Liability of the City of Lawrenceburg, Tennessee, The
City of Lawrenceburg, Tennessee shall not in any event be liable for the payment
of the principal of, premium, if any, or interest on the Series 1997 Note, or
for the performance of any pledge, mortgage, obligation or agreement of any
kind whatsoever herein or indebtedness by the Board, and neither the Series
1997 Note nor any of the agreements or obligations of the Board contained in
this Agreement or the Assignment or otherwise shall be construed to constitute
an indebtedness of the City of Lawrenceburg, Tennessee, within the meaning of
any constitutional or statutory provision whatsoever.
SECTION 7.10. Term of Agreement. This Agreement and all terms and
provisions hereof shall survive the closing of the purchase and delivery of
the Series 1997 Note and shall not be merged into the Series 1997 Note or any
other documents evidencing the Series 1997 Note or the purchase thereof. The
term of this Agreement shall be from the date hereof until the date of payment
in full of the Series 1997 Note and all other obligations of the Board or the
Lessee hereunder and under the other Documents.
SECTION 7.11. Arbitration. Any controversy or claim between or among
the parties hereto including but not limited to those arising out of or relating
to this Agreement, or any related notes or instruments, including any claim
based on or arising from an alleged tort, shall be determined by binding
arbitration in accordance with the Federal Arbitration Act (or if not
applicable, the applicable state law), the rules of practice and procedure for
the arbitration of commercial disputes of Judicial Arbitration and Mediation
Services, Inc. (J.A.M.S.) Endispute or any successors thereto as supplemented
by any special rules set forth in any of the Loan Documents including the
special rules set forth below. In the event of any inconsistency, the special
rules shall control. Judgment upon any arbitration award may be entered in any
court having jurisdiction. Lessee consents to the exclusive jurisdiction of
the courts of competent jurisdiction in Davidson County, Tennessee. Any
party to the Agreement may bring an action,
-18-
<PAGE> 19
withholding a summary of expeditional providing, to compel arbitration of any
controversy or claim to which this Agreement applies to any court having
jurisdiction over such action.
(A) Special Rules. The arbitration shall be conducted in Davidson
County, Tennessee and administered by J.A.M.S. who will appoint an arbitrator.
If J.A.M.S. is unable or legally precluded from administering the arbitration,
then the American Arbitration Association will serve. All arbitration hearings
will be commenced within 90 days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for an additional 60 days.
(B) Reservation of Rights. Nothing herein shall be deemed to (i) limit
the applicability of any otherwise applicable statutes of limitation or repose
and any waivers contained in this Agreement; or (ii) be a waiver by the
Purchaser of the protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right of the purchaser
(a) to exercise self help remedies such as (but not limited to) setoff, or (b)
to foreclosure against any real or personal property collateral, or (c) to
obtain from a court provisional or ancillary remedies such as (but not limited
to) injunctive relief, writ of possession or the appointment of a receiver.
The Purchaser may exercise such self help rights, foreclosure upon such
property, or obtain such provisional or ancillary remedies before, during or
after the pendency of any arbitration proceeding brought pursuant to this
Agreement. Neither the exercise or self help remedies nor the institution or
maintenance of an action for foreclosure or provisional or ancillary remedies
shall constitute a waiver of the right of any party, including the claimant in
such action, to arbitrate the merits of the controversy or claim occasioning
resort to such remedies.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF LAWRENCEBURG
By: /s/ Jerry Putman
Chairman
ATTEST:
Caralyne Thompson
Secretary
-19-
NATIONSBANK OF TENNESSEE, NATIONAL
ASSOCIATION
By: /s/ Tim Pettus
Title: Senior V. Pres.
JONES APPAREL GROUP, INC.
By: /s/ Gary R. Klocek
Title: Corp. Controller
-20-
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF LAWRENCEBURG
TAXABLE REVENUE NOTE, SERIES 1997
(JONES APPAREL GROUP, INC. PROJECT)
$10,000,000 April 17, 1997
FOR VALUE RECEIVED, the undersigned, THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF LAWRENCEBURG, a Tennessee public nonprofit corporation (the
"Maker"), promises to pay to the registered owner hereof (the "holder"), at
the main office of NationsBank of Tennessee, National Association, Lawrenceburg,
Tennessee, or at such other place as the holder may from time to time designate
in writing, the principal sum of TEN MILLION DOLLARS ($10,000,000), plus
interest at the rate of seven and thirty one hundredth percent (7.30%) on the
outstanding principal balance hereof from the date hereof.
Principal and interest hereunder shall be payable monthly on the fifth
day of each month, commencing on May 5, 1997. Unless the principal shall be
declared due earlier and except as hereinafter provided, the principal hereof
shall be payable in one hundred and twenty (120) equal monthly installments
commencing on May 5, 1997. Notwithstanding the above, the entire outstanding
principal balance, if any, together with all accrued and unpaid interest shall
be immediately due and payable in full on May 5, 2002.
Overdue installments of principal and, to the extent legally
enforceable, interest and other amounts payable under this Note shall bear
interest from their due date at the Default Rate (as hereinafter defined).
All calculations of interest hereunder shall be on the basis of actual
days elapsed in a 360-day year.
Anything herein to the contrary notwithstanding, at no time shall the
interest rate hereunder exceed the highest rate permitted from time to time by
applicable law.
As used herein, (a) "Prime Rate" means the rate of interest set by
NationsBank of Tennessee, National Association, as such bank's Prime Rate
from time to time, and (b) "Default Rate" means the lesser of the Prime Rate
plus 4%, or the maximum rate from time to time permitted under applicable law.
This Note is the Note referred to in, and is entitled to the benefits
of, the Series 1997 Note Agreement (the "Note Purchase Agreement") dated as of
April 1, 1997 among the Maker, NationsBank of Tennessee, National Association
and Jones Apparel Group, Inc., a Pennsylvania corporation (the "Lessee"),
and is secured by, among others, (i) an Amended and
-1-
<PAGE> 2
Restated Assignment Agreement, dated as of April 1, 1997, from the Maker to
NationsBank of Tennessee, National Association assigning to NationsBank of
Tennessee, National Association maker's interest in that certain' Lease from
Maker to Lessee dated as of May 1, 1996 herewith and of record in the
Register's Office for Lawrence County, Tennessee, as amended by the First
Amendatory Lease Agreement dated as of April 1, 1997 (the "Lease"), (ii)
an Amended and Restated Construction Deed of Trust and Security Agreement
from Maker for the benefit of NationsBank of Tennessee, National Association,
dated as of April 1, 1997, and of record in the Register's Office for Lawrence
County, Tennessee; (iii) an Escrow and Security Agreement dated as of April 1,
1997 by and among Maker, Lessee and NationsBank of Tennessee, N.A. as escrow
agent and trustee; and (iv) such other security as has heretofore or will be
hereafter provided as security for any loan made by NationsBank of Tennessee,
National Association, for the benefit of Lessee.
This Note shall be prepayable at the option of the Maker at any time
with the prepayment penalties set forth in the following schedule if this Note
is prepaid through refinancing of the indebtedness by any outside lender, other
than NationsBank of Tennessee, National Association, or its affiliates,
including any financial institution, credit union, trust fund or like source
of funds.
Prepayment Date Prepayment Penalty
Before May 1, 2000 2%
and thereafter 0%
Notwithstanding the foregoing paragraph, this Note shall be prepayable
by the Maker without penalty in the event the Note is prepaid through funds of
the Lessee generated solely from its operations.
All payments hereunder shall be payable in lawful money of the United
States of America representing legal tender in payment of all debts and dues,
public and private, at the time of payment.
Payment of each monthly installment as herein above provided, when
received by the holder shall be first applied to accrued interest at the rate
aforesaid on the then outstanding balance of principal and the remainder of
said installment shall be applied to reduction of principal.
Demand, notice, presentment and protest are waived.
This Note is issued in accordance with Sections 7-53-101 to 7-53-311
of Tennessee Code Annotated and constitutes a special obligation of the Maker,
the principal of, premium, if any, and interest on this Note, and all other
amounts payable by the Maker pursuant to the Note Purchase Agreement and this
Note, are payable pursuant to the Assignment referred to in the Note Purchase
Agreement; (ii) from revenues of the Maker derived and to be derived pursuant
-2-
<PAGE> 3
to the Lease. All payments made as provided above shall, to the extent of the
sum or sums so paid, satisfy and discharge the liability of the Maker under
the Note or the Note Purchase Agreement, as the case may be. Neither the faith
and credit nor any taxing power of the Maker, the State of Tennessee nor the
City of Lawrenceburg, Tennessee, is pledged to the payment of the principal or
premium, if any, or interest on this Note.
No recourse under or upon any obligation, covenant or agreement
contained in this Note, or under any judgment obtained against the Maker, or
by the enforcement of any assessment or by any legal or equitable proceeding
by virtue of any constitution or statute or otherwise or under any
circumstances, under or independent of this Note, shall be had against any
incorporator, member, director or officer, as such, past, present or future,
of the Maker, either directly or through the Maker, or otherwise, for the
payment for or to the Maker or any receiver thereof, or for or to the holder
of the Note or otherwise, of any sum that may be due and unpaid by the Maker
upon the Note. Any and all personal liability of every nature, whether at
common law or in equity, or by statute or by constitution or otherwise, of
any such incorporator, member, director or officer, as such, to respond by
reason of any act or omission on his part or otherwise, for the payment for
or to the Maker or any receiver thereof, or for or to the holder of the Note
or otherwise, of any sum that may remain due and unpaid upon the Note, is
hereby expressly waived and released as a condition of and consideration for
the issue of the Note.
Upon the occurrence of an Event of Default under the Note Purchase
Agreement, the Lease or the Deed of Trust, the balance of the principal sum
of the indebtedness evidenced hereby, with all arrearages of interest thereon,
and any other sums advanced hereunder or under any other document evidencing or
securing the indebtedness evidenced hereby, shall, at the option of the holder,
become and be due and payable immediately, without notice, anything contained
herein to the contrary notwithstanding, time being of the essence of this
contract. From and after the date of acceleration in accordance with this
paragraph, interest will accrue at the Default Rate.
In the event this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, the Maker shall
pay reasonable attorney's fees and all court and other costs upon demand.
The failure of the holder to exercise any option to accelerate the
indebtedness hereunder in the event of any default as above provided, or any
forbearance, indulgence, or other delay by such holder in the exercise of any
such option, shall not constitute a waiver of the right to exercise such option
prior to the curing of any such default or in the event of any subsequent
default, whether similar or dissimilar to any prior default.
The Maker consents to any extension of time of payment hereof, release
of all or any part of the security for the payment hereof, or release of any
party liable for this obligation. Any such extension or release may be made
without notice to said Maker and without discharging any of its liability
hereunder.
-3-
<PAGE> 4
No provision in this Note shall require the payment or permit the
collection of interest in excess of the maximum permitted by law. If any
excess of interest in such respect is herein provided for, or shall be
adjudicated to be so provided for herein, the provisions of this paragraph
shall govern, and the Maker shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the amount permitted by law.
In the event the holder shall collect monies which are deemed to constitute
interest which would otherwise increase the effective interest rate on this
Note to a rate in excess of that permitted to be charged by applicable law,
all such sums deemed to constitute interest in excess of the legal rate shall
be immediately returned to the payor thereof upon such determination.
This Note shall be construed according to the laws of the State of
Tennessee except to the extent-that applicable federal law may permit any
higher rate of interest.
Any notice to the Maker of this Note shall be effective when delivered
by personal service or when placed in the first-class United States mails,
postage prepaid, addressed to Maker, c/o Alan C. Betz, Esq., White & Betz,
22 Public Square, Lawrenceburg, Tennessee 38464-0488, or at such other
address as may be designated in writing to holder by Maker.
This Note may be transferred or assigned by the holder by giving notice
to the Lessee as note registrar at its main office, currently at 250 Rittenhouse
Circle, Bristol, Pennsylvania 19007. The principal hereof, premium, if any, and
interest hereon will be paid by check of the note registrar at the times
provided herein to the holder by mail to the address shown on the registration
books or at such other place as may be directed by the holder.
The law pursuant to which this Note is issued requires that the
following statement appear on the face hereof:
Neither the principal of or interest on this Note is taxable by the
State of Tennessee or by any county or municipality thereof.
However, such interest is subject to the Tennessee corporate excise
tax and the Tennessee privilege tax imposed on savings and loan
associations and the principal hereof may be subject to Tennessee
inheritance tax.
-4-
<PAGE> 5
IN WITNESS WHEREOF, THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
LAWRENCEBURG, has caused this Note to be duly executed by its Chairman and its
seal to be impressed hereon and attested by its Secretary as of the date first
above written.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF
LAWRENCEBURG
By: /s/ Jerry Putman
Chairman
(SEAL)
ATTEST:
Caralyn Thompson
Secretary
-5-
<PAGE> 6
Date Of Name and Address
Registration Registered Owner
April 17, 1997 NationsBank of Tennessee,
National Association
255 N. Military Avenue
Lawrenceburg, TN 38464
-6-
This instrument Prepared By
Alexander B. Buchanan, Esq.
Waller Lansden Dortch & Davis
511 Union Street, Suite 2100
Nashville, Tennessee 37219-1760
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (the "First Amendment") made and entered
into as of April 1, 1997, by and between THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF LAWRENCEBURG, a public non-profit corporation organized and
existing under the laws of the State of Tennessee (hereinafter called "Lessor")
and JONES APPAREL GROUP, INC., a Pennsylvania corporation (hereinafter called
"Lessee").
WITNESSETH
WHEREAS, Lessor and Lessee have heretofore entered into a Lease dated
as of May 1, 1996 (the "Lease") noted in Note Book 23, Page 175, registered in
Trust Book 400, Page 99-128, Register's Office of Lawrence County, Tennessee;
and
WHEREAS, Lessee has agreed to construct enhancements on the Leased
Premises (as defined in the Lease) consisting of a 210,000 square foot
distribution facility located adjacent to the existing facility and has
received the prior written consent of NationsBank of Tennessee, N.A. to the
enhancement as required by the Lease; and
WHEREAS, the parties wish to amend the Lease in order to set forth
more fully the understanding of the parties with respect to matters arising
by reason of the proposed enhancement; and
WHEREAS, to obtain funds for the enhancement, Lessor will issue and
sell its Taxable Revenue Note, Series 1997 (Jones Apparel Group, Inc. Project)
(herein sometimes referred to as the "Series 1997 Note") in the principal
amount of $10,000,000 under and pursuant to the Act (as defined in the Lease)
and the Series 1997 Note Purchase Agreement dated as of the date hereof (the
"Series 1997 Note Purchase Agreement") among Lessor, NationsBank of Tennessee,
National Association (the "Purchaser") and Lessee and proceeds from the sale
of the Series 1997 Note shall be disbursed in the manner and for the purposes
hereinafter set forth.
SECTION I
Section 1.01 of the Lease is amended in the following particulars:
a. The definition of "All Unpaid Installments" is deleted and the
following substituted in its stead:
-1-
<PAGE> 2
"All Unpaid Installments" means an amount equal to (i) the then
unpaid principal amount of the Notes, premium, if any, and all
interest accrued or to accrue on and prior to the next succeeding
date or dates on which the Lessor may prepay the Notes or on which
the Notes become due, whether by acceleration or otherwise, and
(ii) any additional rental due or to become due hereunder prior to
the time that the Notes are paid in full, including without
limitation any unpaid fees and expenses of Lessor which are then
due or will become due prior to the time that the Notes are paid
in full.
b. The definition of "Building" is deleted and the following is
substituted in its stead:
"Building" means the improvements constructed on the Land in
accordance with the Construction Contract. From and after the
issuance of the Series 1997 Note, "Building" shall also include
improvements constructed on the Land in accordance with the
Series 1997 Construction Contract.
c. The definition of "Deed of Trust" is deleted and the following
substituted in its stead:
"Deed of Trust" means the Deed of Trust dated as of May 1,
1996 from the Lessor for the benefit of the Purchaser with
respect to the Project, of record in Trust Book 400, Page
86-96 Register's Office for Lawrence County, Tennessee, as
amended, restated and supplemented.
d. The definition of "Lessee Documents" is deleted and the following
is substituted in its stead:
" Lessee Documents" means this Lease, the Note Purchase Agreement,
the Guaranty, the Environmental Indemnity, the Series 1997 Note
Purchase Agreement, the Series 1997 Guaranty, and the Series 1997
Environmental Indemnity.
e. The definition of "Note Documents" is deleted and the following is
substituted in its stead:
"Note Documents" means this Lease, the Note Purchase
Agreement, the Note, the Assignment, the Series 1997 Note Purchase
Agreement, the Series 1997 Note, the Series 1997 Assignment, the
First Amendment to the Amended and Restated Deed of Trust and
Security Agreement, and the Deed of Trust.
-2-
<PAGE> 3
f. The following new definitions shall be added to the Lease in
alphabetical order:
"Enhancement" means the 210,000 square foot distribution facility
to be located on the Leased Premises and constructed in accordance
with the terms of the Series 1997 Construction Contract.
"First Amendment to the Amended and Restated Deed of Trust and
Security Agreement" means the First Amendment to the Amended and
Restated Deed of Trust and Security Agreement dated as of April 1,
1997 by and among the Lessor, the Lessee and NationsBank of
Tennessee, National Association.
"First Amendment to Lease" means this First Amendment to Lease
dated as of June 1, 1997 by and between Lessor and Lessee.
"Notes" means, collectively, the Note and the Series 1997 Note.
"Note Purchase Agreements" means, collectively, the Note Purchase
Agreement and the Series 1997 Note Purchase Agreement.
"Series 1997 Assignment" means the Restated and Amended
Assignment Agreement dated as of April 1, 1996 from Lessor to the
Purchaser.
"Series 1997 Construction Contract" means the form of agreement
dated January 23, 1997 between Lessee and the Series 1997
Contractor.
"Series 1997 Contractor" means Evers Construction Company Inc.
"Series 1997 Environmental Indemnity" means the Environmental
Law and Compliance Certificate and Indemnity Agreement dated as
of April 1, 1997 between Lessee and Purchaser.
"Series 1997 Guaranty" means that certain Guaranty Agreement
dated as of April 1, 1997 from Lessee.
"Series 1997 Note" means the Taxable Revenue Note, Series 1997
(Jones Apparel Group, Inc. Project) in the principal amount of
$10,000,000 issued by the Lessor.
-3-
<PAGE> 4
"Series 1997 Noteholder" means NationsBank of Tennessee,
National Association, a national banking association with its
principal office in Nashville, Tennessee as the original
purchaser and registered owner of the Series 1997 Note and any
subsequent registered owner of the Series 1997 Note.
"Series 1997 Note Agreement" means the Series 1997 Note
Agreement dated as of April 1, 1997 among Lessor, Lessee and the
Series 1997 Noteholder.
SECTION II
Article III through Article XIX of the Lease are hereby amended in the
following particulars:
(a) all references to the "Note" appearing in such Articles
of the Lease shall be changed to the "Notes";
(b) all references to the "Note Purchase Agreement" shall be
changed to the "Note Purchase Agreements"; and
(c) all verbs modifying such terms shall be pluralized where
necessary to provide correct grammar.
SECTION III
The following new Article XX is added immediately following
Article XIX of the Lease:
ARTICLE XX
Construction and Equipping of Enhancement; Issuance of the
Series 1997 Note; Lessee's Acceptance;
Permitted Contests, Assignment of Lessor's Rights
Section 20.01. Construction and Equipping of the Enhancement.
Lessee agrees to complete the Enhancement in accordance with the Series
1997 Construction Contract by October 1, 1997 and to lease the Project,
including the Enhancement, from Lessor in accordance with the terms hereof.
Lessee agrees that any property acquired for use at the Project will be
acquired in the name of the Lessor and any property located on the Leased
Premises (other than Lessee's inventory) shall be deemed the property of
Lessor without any further act of the Lessee.
-4-
<PAGE> 5
Section 20.02 Agreement to Issue Series 1997 Note. In order to
provide funds for reimbursement of the Lessee for the costs of the
constructing and equipping the Enhancement as set forth in Section 20.01
hereof and certain costs incurred in connection with the issuance of the
Series 1997 Note, Lessor agrees that it will sell the Series 1997 Note as
provided in the Series 1997 Note Purchase Agreement.
Section 20.03 Use of Proceeds. The proceeds of the sale of the
Series 1997 Note shall be disbursed by the Purchaser as follows:
(a) $63,839 shall be paid to or at the direction of the Lessee
to pay it for certain costs in connection with the issuance of the
Series 1997 Note.
(b) $9,936,161 shall be paid to NationsBank of Tennessee, N.A.
as Escrow Agent and Trustee (the "Escrow Agent") and disbursed as
provided in that certain Escrow and Security Agreement dated as of
April 1, 1997 by and among Lessor, Lessee and Escrow Agent.
Section 20.04. Lessor to Pursue Remedies Against Contract
Subcontractors and Suppliers and Their Sureties. In the event of default
of the Series 1997 Contractor or any other contractor, subcontractor or
supplier under any contract made by it in connection with the Enhancement
or in the event of breach of warranty with respect to any material,
workmanship or performance guarantee, Lessor will at the request of Lessee
promptly proceed (subject to Lessee's advice to the contrary), either
separately or in conjunction with others, to exhaust the remedies of Lessor
against the contractor, subcontractor or supplier so in default and against
each surety for the performance of such contract. Lessee agrees to advise
Lessor of the steps it intends to take in connection with any such default.
If Lessee shall so notify Lessor, Lessee may, in its own name or in the name
of Lessor, prosecute or defend any action or proceeding or take any other
action involving any such contractor, subcontractor or surety which the
Lessee deems reasonably necessary, and in such event Lessor hereby agrees to
cooperate fully with Lessee and to take all action necessary to effect the
substitution of Lessee for Lessor in any such action or proceeding. Any
amounts recovered by way of damages, refunds, adjustments or otherwise in
connection with the foregoing shall be paid to Lessee.
Section 20.05. Use of Leased Property. Lessee is hereby granted and
shall have the right during the Term to occupy and use the Leased Property
as a facility for use as a clothing distribution center. Lessor agrees that
at Lessee's request and expense it will use all reasonable efforts to ensure
that such uses are and will continue to be lawful uses under all applicable
zoning laws and regulations.
Section 20.06. Lessee's Acceptance of Leased Property. With regard
to Lessor but subject to Section 20.04, Lessee agrees to accept the Leased
Property in its condition on the date that title thereto was transferred
to the Lessor and assumes all risks, if any, resulting from
-5-
<PAGE> 6
any present or future, latent or patent defects therein or from the failure
of the Project or the Enhancement to comply with all legal requirements
applicable thereto, reserving, however, any and all rights of Lessee
with respect to parties other than Lessor.
Section 20.07. Assignment of Lessor's Rights. Concurrently with the
execution of the First Amendment to Lease, Lessor will enter into the Series
1997 Assignment pursuant to which the Lessor will assign to the Purchaser
Lessor's rights under the Lease as security for, among other things, the
payment of the Notes and other amounts payable by Lessor or Lessee under
the Note Purchase Agreements. Lessee hereby consents to such assignment and
agrees to make all payments to Lessor required hereunder directly to the
Purchaser without defense or set-off by reason of any dispute between Lessee
and Lessor. Lessee further agrees that upon such assignment the Purchaser
shall be entitled to enforce the provisions of the Lease without regard to
whether the Lessor is then in default with respect to the Notes, or either
of them, or under the Note Purchase Agreements, or either of them.
Concurrently with the execution of the First Amendment to Lease, Lessor will
also amend and restate the Deed of Trust pursuant to which the Lessor will
make clear that the lien on the Project includes the Enhancement and serves
as security for the payment of both the Note and the Series 1997 Note and as
security for the obligations of Lessor and Lessee under the Note Purchase
Agreement, the Series 1997 Note Purchase Agreement and this Lease.
Section 20.08. Authorized Lessee Representative. Anything herein
contained to the contrary notwithstanding, any notice, request, direction
or similar communication of Lessee required or permitted under this Article
XX shall be executed by the Authorized Lessee Representative on behalf of the
Lessee, and the Purchaser shall not be obligated to accept or act upon any
such notice request direction or other communication unless it is made by an
Authorized Lessee Representative on behalf of the Lessee.
Section 20.09. Application of Moneys. All moneys received pursuant to
any right given or action taken under the Deed first shall be applied to
the payment of (i) the cost and expenses of the proceedings resulting in the
collection of such moneys and of the expenses, liabilities and advances incurred
or made by the Deed of Trust Trustee, including reasonable attorneys' fees, and
all other outstanding fees and expenses of the Deed of Trust Trustee, and (ii)
any sums due to the Lessor under the Lease, such moneys shall be applied in the
order set forth below:
(a) Unless the principal of all Notes shall have become or been
declared due and payable, all such moneys shall be applied:
First: To the payment of all installments of interest then due
on the Notes in order of priority first to installments past due for
the greatest period and, if the amount available shall not be
sufficient to pay in full any particular installment, then to the
ratable payment of the amounts due on such installment; and
-6-
<PAGE> 7
Second: To the payment of the unpaid principal of any of the
Notes which shall have become due and, if the amount available shall
not be sufficient to pay in full Notes due on any particular date,
together with such interest, then to the ratable payment of the
amounts due on such date.
(b) If the principal of all the Notes shall have become or been
declared due and payable, all such moneys shall be applied to the payment
of the principal, premium, if any, and interest then due and unpaid upon
the Notes, without preference or priority as between principal, premium,
interest, installments of interest or bonds, ratably according to the
amounts due respectively for principal, premium and interest to the persons
entitled thereto.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF LAWRENCEBURG
By: /s/ Jerry Putnam
Chairman
JONES APPAREL GROUP, INC.
By: /s/ Gary R. Klocek
Title: Corp. Controller
-7-
First Union Capital Markets Group
123 South Broad Street
Philadelphia, Pennsylvania 19109-1199
215 985-6000
Fax 215 985-8793
October 22, 1997
Mr. Gary R. Klocek
Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Dear Gary:
I am pleased to inform you that First Union National Bank (the "Bank") has
approved, on an uncommitted basis, a $90 million facility for the use of
Jones Apparel Group, Inc. The facility is subject to the following conditions:
Sublimit(s):
The facility is divided into two sublimits. One for $50 million, to be used
for the express purpose of issuing import letters of credit. Each letter of
credit will be risk participated with a bank of our mutual choice on a 50%
basis for a total letter of credit facility, including the risk participation
of $100 million. Initially the risk participant bank will be BankBoston.
The second sublimit will be for direct borrowings, not to exceed $40 million.
Advances under both sublimits will be at the Bank's sole discretion.
Letters of Credit:
Fees: As previously negotiated.
-1-
<PAGE> 2
October 22, 1997
Mr. Gary R. Klocek
Page Two
Terms of Advances:
The interest rates, amount, maturity date and other payment terms with
respect to any cash advance will be on an offering basis on terms mutually
agreed upon.
Guarantors:
MELRU Corp., Jones Investment Company, Inc., Jones International LTD,
and Jones Holdings Corp. will continue to guarantee the facility as reflected
in the Guaranty and Suretyship Agreements dated July 26, 1993.
All borrowings under the sublimit of $40 million for direct advances will be
subject to the terms outlined in a Money Market Master Note dated July 26, 1993.
Please feel free to call me if you have any questions on the aforementioned
matter.
Best regards,
/s/ Carl E. Goelz
Carl E. Goelz
Vice President
-2-
CoreStates Bank,
FC. 1-8-8-14
PO Box 7618
1345 Chestnut Street
Philadelphia PA 19101-7618
215 973 7397
Fax 215 973 7671
James P Richards
Vice President
Retailer and Apparel Group August 5, 1997
Gary R. Klocek
Controller
JONES APPAREL GROUP
250 Rittenhouse Circle
Bristol, PA 19007
Dear Gary:
I take great pleasure in advising you that we have approved in favor of Jones
Apparel Group, the following credit facilities:
A) A $150,000,000 discretionary fine of credit for the issuance of
documentary trade letters of credit, This amount is gross of any risk
participations. Chase Manhattan Bank has advised us they plan to
risk participate 30%, or $45,000,000, of this facility.
B) A $25,000,000 discretionary line of credit available for money
market loans and/or standby letters of credit. There is currently
outstanding a $100,000 standby LOC issued on behalf of Melru
Corporation.
C) We have also reapproved facilities for foreign exchange and other
types of transactional business.
I'm currently reviewing our documentation file to ensure that everything is
current and in good order. I will notify you should I find anything to the
contrary.
We are pleased to play an important role in Jones Apparel's growth and very
happy to have been favored with the opportunity to demonstrate our international
capabilities. I trust we have met--or exceeded--your expectations. We look
forward to further opportunities to demonstrate our confidence in the Jones
Apparel Group and its management.
Sincerely,
/s/ James P. Richards
cc: Wesley R. Card
BankBoston, N. A.
100 Federal Street
Boston, Massachusetts 02110
August 19, 1997
Mr. Gary Klocek
Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 10997
Dear Gary:
BankBoston, N.A. is pleased to confirm that we hold available for Jones Apparel
Group, Inc., a $55,000,000 364-day uncommitted letter of credit facility to
extend through July 5, 1998.
The availability of borrowings under this facility is subject to (i) our usual
reservation that we continue to be satisfied with the affairs of Jones Apparel
Group, Inc.; (ii) the execution of documentation for this facility that is
satisfactory to the Bank and (iii) any changes in government regulations or
monetary policy.
If the foregoing is satisfactory, please execute and return the enclosed copy
of this letter.
Very truly yours,
BankBoston, N.A.
By /s/ Nancy E. Fuller
Nancy E. Fuller, Director
/s/ Terese A. McLaughlin, Assistant Vice President
Accepted:
Jones Apparel Group, Inc.
By /s/ Gary R. Klocek
Date 9-10-97
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
July 7, 1997
Mr. Gary R. Klocek
Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Dear Gary;
We are pleased to inform you that the necessary internal approval has been
obtained for the establishment of an informal "money market" lending arrangement
with Jones Apparel Group. Loans under this arrangement will be at fixed rates
quoted by BankBoston, N.A. with maturities of up to ninety days. Prepayment of
loans will not be permitted and if any loans are paid on a date other than the
maturity date thereof (whether by acceleration or otherwise), you shall
compensate us for any funding losses and other costs (including lost profits)
incurred as a result of such payment. Each loan must be at least $750,000 and
aggregate loans under this arrangement may not exceed $20,000,000. This
arrangement is not a commitment to lend, and from time to time the Bank may not
quote rates on some or all maturities.
We agree that upon your advice by telephone from time to time to our Money
Market Desk at (617) 434-7725 that you wish to borrow money under this facility
and our agreement to lend, we will forthwith lend you such amount at the quoted
rate of interest by crediting such an amount to your demand deposit account with
us, or, upon your instructions, by wiring such amount to such other account as
you may direct. Borrowings shall be evidenced by a Promissory Note in the
form attached hereto. Each borrowing and the corresponding information (see
attached note schedule) will be recorded the day of the telephone call. Our
corresponding advices of credit and debit will be additional evidence of
borrowings. You authorize us to keep the official record of all borrowings
under this "money market" lending arrangement in the format described above,
and you agree that this record shall be prima facie evidence of the amount of
the borrowings under this facility.
This letter and the Promissory Note evidence your promise to pay all such
borrowings with interest on their respective maturity dates.
-1-
<PAGE> 2
This "money market" lending arrangement remains in force until July 7, 1998.
If the foregoing satisfactorily sets forth the terms and conditions of this
lending arrangement, please indicate your acceptance thereof by executing and
returning the attached copy of this letter and the attached Promissory Note.
Sincerely,
/s/ Linda H. Thomas
Linda H. Thomas, Managing Director
Accepted: Jones Apparel Group, Inc.
BY: /s/ Gary R. Klocek
TITLE Controller
DATE: 7-14-97
-2-
<PAGE> 3
MONEY MARKET LINE
COMMERCIAL PROMISSORY NOTE
Boston, Massachusetts
July 7, 1997
FOR VALUE RECEIVED, the undersigned (jointly and severally if more than
one) promise(s) to pay to the order of BANKBOSTON, N.A. (together with any
successors or assigns, the "Bank"), a national banking association with its
Head Office at 100 Federal Street, Boston, Massachusetts 02110, the aggregate
principal amount of all loans made by the Bank to the undersigned pursuant to
the letter agreement between the Bank and the undersigned dated July 7, 1997,
as shown in the schedule attached hereto (the "Note Schedule"), together with
interest on each loan from the date such loan is made until the maturity thereof
at the applicable rate set forth in the Note Schedule. The principal amount of
each loan shall be payable on the maturity date of such loan as indicated in the
Note Schedule. Interest on the principal amount of each loan shall be payable
in arrears on the same day as the principal amount is due. Interest shall be
calculated on the basis of a 360-day year for the actual number of days elapsed
including holidays and days on which the Bank is not open for the conduct of
banking business.
SECTION 1. PAYMENT TERMS.
1.1 PAYMENTS; PREPAYMENTS. All payments hereunder shall be made by
the undersigned to the Bank in United States currency at the Bank's address
specified above (or at such other address as the Bank may specify), in
immediately available funds, on or before 2:00 p.m. (Boston, Massachusetts time)
on the due date thereof Payments received by the Bank prior to the occurrence of
an Event of Default (as defined in Section 2) will be applied first to fees,
expenses and other amounts due hereunder (excluding principal and interest);
second, to accrued interest; and third to outstanding principal; after the
occurrence of an Event of Default, payments will be applied to the Obligations
under this Note as the Bank determines in its sole discretion. No prepayment of
any loan shall be permitted.
1.2 PREPAYMENT CHARGE. If any payment of principal is made for any
reason on any day other than the date scheduled therefor, whether as a result
of acceleration or otherwise, the undersigned shall reimburse the Bank for the
loss, if any, including any lost profits, resulting from such prepayment, as
reasonably determined by the Bank. The undersigned shall pay such loss upon
presentation by the Bank of a statement of the amount of such loss, setting
forth the Bank's calculation thereof, which notice and calculation (including
the method of calculation) shall be deemed true and correct absent manifest
error.
1.3 DEFAULT RATE. To the extent permitted by applicable law, upon and
after the occurrence of an Event of Default (whether or not the Bank has
accelerated payment of this Note), interest on principal and overdue interest
shall, at the option of the Bank, be payable on demand at a rate per annum equal
to 2% above the greater of the rate of interest otherwise payable hereunder or
the rate announced by the Bank from time to time as its Base Rate.
-3-
<PAGE> 4
SECTION 2. DEFAULTS AND REMEDIES.
2.1 DEFAULT. The occurrence of any of the following events or conditions
shall constitute an "Event of Default" hereunder:
(a) (i) default in the payment when due of the principal of or interest
on this Note or (ii) any other default in the payment or performance of
this Note or of any other Obligation or (iii) default in the payment or
performance of any obligation of any Obligor to others for borrowed money
or in respect of any extension of credit or accommodation or under any
lease;
(b) failure of any representation or warranty herein or in any agreement,
instrument, document or financial statement delivered to the Bank in
connection herewith to be true and correct in any material respect;
(c) failure to furnish the Bank promptly on request with financial
information about, or to permit inspection by the Bank of any books,
records and properties of, any Obligor;
(d) merger, consolidation, sale of all or substantially all of the assets
or change in control of any Obligor; or
(e) any Obligor generally not paying its debts as they become due; the
death, dissolution, termination of existence or insolvency of any Obligor;
the appointment of a trustee, receiver, custodian, liquidator or other
similar official for such Obligor or any substantial part of its property
or the assignment for the benefit of creditors by any Obligor; or the
commencement of any proceedings under any bankruptcy or insolvency laws by
or against any Obligor.
As used herein, "Obligation" means any obligation hereunder or otherwise of
any Obligor to the Bank or to any of its affiliates, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising;
and "Obligor" means the undersigned, any guarantor or any other person primarily
or secondarily liable hereunder or in respect hereof.
2.2 REMEDIES. Upon an Event of Default described in Section 2.1(e)
immediately and automatically, and upon or after the occurrence of any other
Event of Default at the option of the Bank, all Obligations of the undersigned
shall become immediately due and payable without notice or demand. All rights
and remedies of the Bank are cumulative and are exclusive of any rights or
remedies provided by law or in equity or any other agreement, and may be
exercised separately or concurrently.
SECTION 3. MISCELLANEOUS.
3.1 WAIVER; AMENDMENT. No delay or omission on the part of the Bank in
exercising any right hereunder shall operate as a waiver of such right or of
any other right under this Note. No waiver of any right or any amendment hereto
shall be effective unless in writing and signed by the Bank, nor shall a waiver
on one occasion bar or waive the exercise of any such right on any future
occasion. Without limiting the generality of the foregoing, the acceptance by
the Bank of any late payment shall not be deemed to be a waiver of the Event
of Default arising as a consequence thereof Each Obligor waives presentment,
demand, notice, protest, and an other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note and
assents to any extensions or postponements of the time of payment and to any
other
-4-
<PAGE> 5
indulgences under this Note, and to any additions or releases of any other
parties or persons primarily or secondarily liable hereunder, that from time
to time may be granted by the Bank in connection herewith.
3.2 SET-OFF. Regardless of the adequacy of any collateral or other means
of obtaining repayment of the Obligations, the Bank is hereby authorized at any
time and from time to time, without notice to the undersigned (any such notice
being expressly waived by the undersigned) and to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) and other sums credited by or due from the Bank
to the undersigned or subject to withdrawal by the undersigned against the
Obligations of the undersigned, although such Obligations may be contingent or
unmatured.
3.3 TAXES. The undersigned agrees to indemnify the Bank and hold it
harmless from and against any transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution,
delivery, and performance of this Note.
3.4 EXPENSES. The undersigned will pay on demand all expenses of the Bank
in connection with the preparation, administration, default, collection, waiver
or amendment of the Obligations or in connection with the Bank's exercise,
reservation or enforcement of any of its rights, remedies or options thereunder,
including, without limitation, fees of outside legal counsel or the allocation
costs of in-house legal counsel, accounting, consulting, brokerage or other
similar professional fees or expenses, and any fees or expenses associated with
any travel or other costs relating to any appraisals or examinations conducted
in connection with the Obligations or any collateral therefor, and the amount of
all such expenses shall, until paid, bear interest at the rate applicable to
principal hereunder (including any default rate) and be an Obligation secured
by any such collateral.
3.5 BANK RECORDS. The entries on the records of the Bank (including any
appearing on this Note) shall be prima facie evidence of the aggregate principal
amount outstanding under this Note and interest accrued thereon.
3.6 INFORMATION. The undersigned shall furnish the Bank from time to
time with such financial statements and other information relating to any
Obligor or any collateral securing, this Note as the Bank may require. All
such information shall be true and correct and fairly represent the financial
condition and the operating results of such Obligor as of the date and for the
periods for which the same are furnished. The undersigned shall permit
representatives of the Bank to inspect its properties and its books and records,
and to make copies or abstracts thereof Each Obligor authorizes the Bank to
release and disclose to its affiliates, agents and contractors any financial
statements and other information relating to said Obligor provided to or
prepared by or for the Bank in connection with any Obligation. The undersigned
will notify the Bank promptly of the existence or upon the occurrence of any
Event of Default or event which, with the giving of notice or the passage of
time or both, would become an Event of Default.
3.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of law rules. The undersigned agrees that any suit for the
enforcement of this Note may be brought in the courts of such state or any
Federal Court sitting in such state and consents to the non-exclusive
jurisdiction of each such court and to service of process in any such suit
being made upon the undersigned by mail at the address specified below. The
undersigned hereby waives any objection that it may now
-5-
<PAGE> 6
or hereafter have to the venue of any such suit or any such court or that such
suit was brought in an inconvenient court.
3.8 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If
any provision of this Note shall be invalid, illegal or unenforceable, such
provisions shall be severable from the remainder of this Note and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. The Bank is hereby authorized, without further
notice, to fill in any blank spaces on this Note, and to date this Note as of
the date funds are first advanced hereunder. Paragraph headings are for the
convenience of reference only and are not a part of this Note and shall not
affect its interpretation.
3.9 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL
(A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER
ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL
BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED
WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT
BE FULLY ENFORCED IN ALL INSTANCES.
By: /s/ Gary R. Klocek
Gary R. Klocek, Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
-6-
The Chase Manhattan Bank George Neuman
1411 Broadway, 5th Floor Vice President
New York, NY 10018 Seventh Avenue Region
Tel 212-391-4050
Fax 212-391-7118
August 14,1997
Mr. Gary Klocek
Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Dear Gary:
We are pleased to advise you that based on your annual financial statements
for the fiscal year 1996, The Chase Manhattan Bank (the "Bank") has approved
your request for a line of credit in the amount of $25,000,000. Our officers
may, at their discretion, make short term loans to Jones Apparel Group, Inc.
on such terms as are mutually agreed upon between us from time to time. We
also advise a $45,000,000 participation in the $150,000.000 line of credit for
commercial letters of credit extended by CoreStates Bank, N.A.
Borrowings under this line are intended to be used to meet your normal
short term working capital needs and will bear interest at such a rate as shall
be mutually agreed upon by each of us from time to time.
As this line is not a commitment, credit availability is, in addition,
subject to your execution and delivery of such documentation as the Bank deems
appropriate and the receipt and continuing satisfaction with current financial
information, which information will be furnished to the Bank as it may from
time to time reasonably request. This line expires on June 30, 1998.
We are pleased to be of service and trust you will call on us to assist in
any of your banking requirements.
Very truly yours,
/s/ George Neuman
TERM NOTE
Philadelphia, Pennsylvania
October 1, 1997
$10,000,000
FOR VALUE RECEIVED, and intending to be legally bound hereby, JONES
APPAREL GROUP, INC., a Pennsylvania corporation with offices at 250
Rittenhouse Circle, Bristol, PA 19007 (the "Borrower") unconditionally
promises to pay to the order of FIRST UNION NATIONAL BANK (the "Bank")
the principal sum of Ten Million Dollars ($10,000,000), with interest,
in accordance with the provisions hereinafter set forth.
A. Terms of Note.
1. Interest Rate. Interest will accrue on the outstanding
principal balance of this Note during each Interest
Period at a rate per annum (computed on the basis of a
360-day year and the actual number of days elapsed)
equal to the sum of the One Month LIBOR for such
Interest Period, plus 60 basis points (.6 of 1%). The
term "Interest Period" means the calendar month. The
term "One Month LIBOR" means the rate for U.S. dollar
deposits of one month maturity as reported on Telerate
page 3750 as of 11:00 a.m., London time, on the second
London business day before the relevant Interest Period
begins (or if not so reported, then as determined by
the Bank from another recognized source or interbank
quotation).
2. Payment of Principal and Interest. This Note shall be
Paid in one hundred nineteen (119) consecutive monthly
installments of principal and interest on the first day
Of each month (or, if not a business day, the next
succeeding business day) commencing on November 3,
1997, in an amount equal to the sum of (i) all accrued
and unpaid interest on the Note plus (ii) a principal
payment of $83,333.33, with a final installment of
principal and interest on the Maturity Date in an
amount equal to the sum of (i) all accrued and unpaid
interest on the Note plus (ii) a principal payment of
$83,333.73.
- 1 -
<PAGE> 2
3. Payment Terms. All payments made hereunder shall be
made on the due date thereof, in immediately available
funds and in lawful currency of the United States of
America. All payments made hereunder shall be made to
the Bank at its offices set forth in this Note or at
such other address as the Bank shall notify the
Borrower of in writing.
4. Late Charge. If any payment is not paid in full when
the same is due, the Borrower shall pay the Bank a fee
on such unpaid amount equal to five percent (5%) of
such amount.
5. Default Rate. At the Bank's option, interest will be
assessed on any principal which remains unpaid at the
maturity of this Note, whether by acceleration or
otherwise, at a rate which is two percent (2%) higher
than the rate otherwise charged hereunder (the "Default
Rate") provided that at no time shall the Default Rate
exceed the highest rate of interest allowed by law.
Such Default Rate of interest shall also be charged on
the amounts owed by the Borrower to the Bank pursuant
to any judgment entered in favor of Bank with respect
to this Note.
6. Prepayment. Borrower may, without penalty or premium,
on any date installments of principal are due, prepay
the principal amount of this Note in whole or in part,
any partial prepayment to be made in the sum of
$83,333.33 or an integral multiple thereof. All such
partial prepayments shall be applied against the
installments of principal due under Paragraph A.2 above
in the inverse order of maturity thereof.
7. Security for Note.
7.1. As security for the payment of all amounts owing
under this Note, the Borrower will execute and
deliver to the Bank the Deed of Trust (as
hereinafter defined) at the time of the
acquisition of the Project (as hereinafter
defined).
7.2 As security for the payment of all amounts owing
under this Note, the Borrower hereby assigns and
grants to the Bank a security interest in and to
the Project Account (as hereinafter defined)
pursuant to a separate Assignment of Interest in a
Custodian Account of even date herewith. Unless
there has occurred an Event of Default under this
Note, Borrower may withdraw from the Project
Account (i) all accrued earnings for any corporate
-2-
<PAGE> 3
purpose or use, and (ii) amounts in excess of the
accrued earnings so long as the funds withdrawn
are used for the acquisition or construction of
the Project or the purchase of equipment to be
installed on the Project; provided, however, that
until the Deed of Trust is recorded, aggregate
withdrawals from the Project Account (other than
withdrawals of accrued earnings) will not exceed
$500,000.00. At the time of any permitted
withdrawal from the Project Account (other than
withdrawals of accrued earnings), the Chief
Financial Officer of the Borrower (or his written
designee) will certify in writing to the Bank that
the funds withdrawn are for the uses herein
permitted.
B. Certain Definitions. As used herein, the following terms
shall have the following meanings (additional terms are defined
elsewhere in this Note):
1. Affiliate. The term "Affiliate" means First Union
Corporation and any of its direct and indirect
affiliates and subsidiaries.
2. Consolidated Net Income. The term "Consolidated Net
Income" means, for any period, the net income after
taxes of the Borrower and its subsidiaries for such
period, as shown by the consolidated income statement
of the Borrower and its subsidiaries, calculated in
accordance with GAAP.
3. Consolidated Tangible Net Worth. The term "Consolidated
Tangible Net Worth" means, at any time, the sum of
Stockholders' Equity plus the lesser of the cost of the
Borrower's treasury stock purchased after June 29,
1997, or Fifty Million Dollars ($50,000,000), less the
sum of:
(a) Any surplus resulting from any write-up of assets;
(b) Goodwill, including any amounts, however
designated on the consolidated balance sheet of
the Borrower and its subsidiaries, representing
the excess of the purchase price paid for assets
or stock acquired over the value assigned thereto
on the books of the Borrower and its subsidiaries;
(c) Patents, trademarks, trade names and copyrights;
(d) Any amount at which shares of capital stock of the
Borrower or any subsidiary appear as an asset on
the consolidated balance sheet of the Borrower and
its subsidiaries;
-3-
<PAGE> 4
(e) Loans and advances to stockholders, directors,
officers or employees or to any affiliate of the
Borrower or any subsidiary; and
(f) Deferred expenses
4. Funded Debt. The term "Funded Debt" means any and all
indebtedness, obligations or liabilities (whether
matured or unmatured, liquidated or unliquidated,
direct or indirect, absolute or contingent, or joint or
several) for or in respect of: W borrowed money, (ii)
amounts raised under or liabilities in respect of any
note purchase or acceptance credit facility,(iii)
reimbursement obligations under any letter of credit,
currency swap agreement, interest rate swap, cap,
collar or floor agreement or other interest rate
management device, (iv) any other transaction
(including without limitation forward sale or purchase
agreements, capitalized leases, synthetic leases and
conditional sales agreements) having the commercial
effect of a borrowing of money entered into to finance
its operations or capital requirements (but not
including trade payables and accrued expenses incurred
in the ordinary course of business which are not
represented by a promissory note or other evidence of
indebtedness), or (v) any guaranty of Funded Debt for
borrowed money.
5. GAAP. The term "GAAP" means generally accepted
accounting principles as in effect at the time of
application to the provisions hereof, consistently
applied.
6. Guarantors. The term "Guarantors" means, individually
and collectively, Melru Corp., Jones Investment Company
Inc., Jones International Ltd., and Jones Holding Corp.
7. Guaranties. The term "Guaranties" means those
agreements now or hereafter in effect, from the
Guarantors in favor of the Bank.
8. Liabilities. The term "Liabilities" means any and all
obligations and indebtedness of every kind and
description of the Borrower owing to the Bank or to any
Affiliate, whether under the Loan Documents or not and
whether such debts or obligations are primary or
secondary, direct or indirect, absolute or contingent,
sole, joint or several, secured or unsecured, due or to
become due, contractual or tortious, arising by
operation of law or otherwise, or now or hereafter
existing, including, without limitation, principal,
-4-
<PAGE> 5
interest, fees, late fees, expenses, attorneys' fees
and costs.
9. Loan Documents. The term "Loan Documents" means this
Note, the Deed of Trust, the Guaranties and any and all
credit accommodations, notes, mortgages, loan
agreements, other agreements and documents, now or
hereafter existing, creating, evidencing, guarantying,
securing or relating to any or all of the Liabilities,
together with all amendments, modifications, renewals,
or extensions thereof.
10. Deed of Trust. The term "Deed of Trust" means a Deed
of Trust and Security Agreement in form and substance
reasonably acceptable to the Borrower and the Bank to
be executed and delivered by the Borrower to the Bank
which, when recorded, will grant to the Bank a first
lien on and first priority security interest in the
Project and all equipment to be installed thereon.
11. Note. The term "Note" means this Term Note together
with all attachments hereto and all amendments and
modifications hereto in effect from time to time.
12. Obligor. The term "Obligor" means the Borrower and
each and every maker, endorser, guarantor or surety
including, without limitation, the Guarantors, of or
For the Liabilities or any part thereof.
13. Maturity Date. The term "Maturity Date" means
October 1, 2007.
14. Project. The term "Project" means approximately 47.3
acres of land in South Hill, Virginia, to be acquired
by the Borrower and all improvements, including the
warehouse and distribution center buildings, to be
constructed thereon.
15. Project Account. The term "Project Account" means the
Borrower's Money Management Custodian Account at the
Bank (No. 1556594048) into which the
loan proceeds of the Note have been deposited.
16. Stockholders' Equity. The term "Stockholders' Equity"
means, at any time, sum of the following accounts set
forth in a consolidated balance sheet of the Borrower
and its subsidiaries, prepared in accordance with GAAP:
(a) the par or stated value of all outstanding capital
stock; (b) capital surplus; and (c) retained earnings.
17. Total Capital. The term "Total Capital" means
Stockholders, Equity plus Funded Debt.
-5-
<PAGE> 6
C. Representations and Warranties. The Borrower represents and
warrants to the Bank that:
1. Use of Proceeds. The proceeds of the Note will be used
only for the acquisition or construction of the Project
or the purchase of equipment installed on the Project.
2. Financial Statements. All financial statements
heretofore delivered by the Borrower to the Bank are
true, correct, and complete in all material respects,
fairly represent the Borrower's and Guarantors'
financial condition as of the date hereof, and no
information has been omitted which would make the
information previously furnished misleading or
incorrect in any material respect. There have been no
material adverse changes in the Borrower's or
Guarantors' financial condition or business since the
date of such statements.
3. Suits and Defaults. There are no actions, suits,
proceedings, or claims pending or threatened against
the Borrower or Guarantors or any of their property,
and the Borrower and Guarantors are not in violation of
any applicable order, law, rule or regulation, which
would have material adverse effect on the Borrower's or
Guarantors' business. The Borrower and Guarantors are
not in default under any agreement to which the
Borrower or the Guarantors are a party or by which the
Borrower or the Guarantors or any of their property is
bound, or under any instrument evidencing any
indebtedness of the Borrower or Guarantors, and neither
the Borrower's nor Guarantors' execution of or
performance under the Loan Documents will create a
default or any lien or encumbrance under any such
agreement or instrument other than a lien or
encumbrance in favor of the Bank.
D. Affirmative Covenants. The Borrower covenants and agrees
that so long as there are any outstanding amounts due under this
Note, the Borrower shall:
1. Financial Reporting. Promptly deliver to the Bank (but
in no event later than thirty (30) days after they are
filed) all regular and periodic reports including, but
not limited to, Forms 10-K, 10-Q and 8-K filed by the
Borrower with the U.S. Securities and Exchange
Commission, or its successor. If the Borrower ceases to
be subject to the reporting requirements under the
Securities Exchange Act of 1934, the Borrower will
deliver to the Bank audited annual consolidated
financial statements within ninety (90) days of the end
of each year and unaudited quarterly consolidated
-6-
<PAGE> 7
financial statements within forty-five (45) days of the
end of each of the first three fiscal quarters
certified as accurate by the Borrower's Chief Financial
Officer, such financial statements to be prepared in
accordance with GAAP in form reasonably acceptable to
the Bank.
2. Project Account. Maintain and operate the Project
Account in accordance with Paragraph A.7.2 hereof.
3. Notice of Certain Events. Promptly give written notice
to the Bank of: (i) the occurrence of any event which
alone or with notice, the passage of time, or both,
would constitute an Event of Default; and (ii) the
commencement of any proceeding or litigation which, if
adversely determined, would materially and adversely
affect its financial condition or ability to conduct
its business.
4. Consolidated Tangible Net Worth. Maintain Consolidated
Tangible Net Worth, measured at the end of each fiscal
quarter, of Three Hundred Twenty-Five Million Dollars
($325,000,000) plus fifty percent (50%) of Consolidated
Net Income for each of the fiscal quarters after
December 31, 1996, with no deduction for any quarterly
losses.
5. Additional Affirmative Covenants. Shall perform any
other affirmative covenants set forth in the Loan
Documents to which the Borrower is a party.
6. Covenant Compliance Certificate. Within ninety (90)
days after the end each fiscal year, deliver to the
Bank a covenant compliance certificate in form
acceptable to the Bank indicating with specificity the
compliance or non-compliance with each of the
affirmative and negative covenants in the Loan
Documents.
E. Negative Covenants. So long as any amounts due under this
Note are outstanding, the Borrower shall not, without the
prior written consent of the Bank:
1. Funded Debt. Permit the ratio of its Funded Debt
divided by its Total Capital to exceed forty-five
percent (45%).
2. Additional Negative Covenants. Undertake any
activities prohibited by any negative covenant set
forth in the Loan Documents to which the Borrower is a
party.
-7-
<PAGE> 8
F. Event of Default. The occurrence of any one of the
following shall-constitute an Event of Default under this
Note:
1. Nonpayment. Failure to pay any principal or interest
payment when due under the Liabilities and such failure
shall continue for a period of three (3) days;
2. Breach. A breach by any obligor of any term,
obligation, provision, covenant, representation or
warranty, arising under (i) this Note, or any other
Loan Document; (ii) any present or future agreement
with or in favor of the Bank and/or any Affiliate,
including the failure to make any payment when due; or
(iii) any present or future agreement or instrument for
borrowed money or other financial accommodations with
any person or entity, which breach is not cured or
satisfied within ten (10)days;
3. Bankruptcy; Insolvency. (i) Any obligor commences any
bankruptcy, reorganization, debt arrangement, or other
case or proceeding under the United States Bankruptcy
Code or under any similar foreign, federal, state, or
local statute, or any dissolution or liquidation
proceeding, or makes a general assignment for the
benefit of creditors, or takes any action for the
purpose of effecting any of the foregoing; (ii) Any
bankruptcy, reorganization, debt arrangement, or other
case or proceeding under the United States Bankruptcy
Code or under any similar foreign, federal, state or
local statute, or any dissolution or liquidation
proceeding, is involuntarily commenced against or in
respect of any Obligor or an order for relief is
entered in any such proceeding; (iii) The appointment,
or the filing of a petition seeking the appointment, of
a custodian, receiver, trustee, or liquidator for any
Obligor or any of its property, or the taking of
possession of any part of the property of any Obligor
at the instance of any governmental authority; or (iv)
Any Obligor becomes insolvent (however defined), is
generally not paying its debts as they become due, or
has suspended transaction of its usual business;
4. Material Misstatement. Any statement, representation or
warranty made in or pursuant to this Note or any
other Loan Document or to induce the Bank to enter into
this Note shall prove to be untrue or misleading in any
material respect;
5. Transfer of Assets. Any Obligor transfers or sells all
or substantially all of its assets, without the prior
-8-
<PAGE> 9
written consent of the Bank, which consent shall not be
unreasonably withheld.
G. Remedies.
1. Acceleration of Liabilities; Rights of Bank. Upon the
occurrence of an Event of Default described in Section
F hereof (other than any Event of Default described in
Paragraph F.3), at the Bank's sole option, the Bank's
commitment, if any, to make any further advances or
loans to the Borrower under any Loan Document shall
terminate and the Loan and all other Liabilities shall
immediately become due and payable in full, all without
protest, presentment, demand or further notice of any
kind to the Borrower or any other Obligor, all of which
are expressly waived. Upon the occurrence of an Event
of Default described in Paragraph F.3 hereof,
immediately and automatically, the Bank's commitment,
if any, to make any further advances or loans to the
Borrower under any Loan Document, shall terminate, and
the Loan and all other Liabilities shall immediately
become due and payable in full, all without protest,
presentment, demand or further notice of any kind to
the Borrower or any other obligor, all of which are
expressly waived. Upon and following an Event of
Default, the Bank, at its option, may exercise any and
all rights and remedies it has under this Note, the
other Loan Documents and under applicable law,
including, without limitation, the right to charge and
collect interest on the principal portion of the
Liabilities at the Default Rate, which rate shall, at
the Bank's option, apply upon and after an Event of
Default, maturity, whether by acceleration or
otherwise, and the entry of judgment with respect to
any or all of the Liabilities. Upon and following an
Event of Default hereunder, the Bank may proceed to
protect and enforce the Bank's rights under any Loan
Document and/or under applicable law by action at law,
in equity, or other appropriate proceeding, including,
without limitation, an action for specific performance
to enforce or aid in the enforcement of any provision
contained herein or in any other Loan Document.
2. Right of Set-off. If any of the Liabilities shall be
due and payable and whether or not the Bank shall have
made any demand under this Note and regardless of the
adequacy of any collateral for the Liabilities or other
means of obtaining repayment of the Liabilities, the
Bank shall have the right, without notice to the
Borrower or to any other Obligor, and is specifically
authorized hereby to set-off against and apply to the
then unpaid balance of the Liabilities any items or
-9-
<PAGE> 10
funds of the Borrower and/or any Obligor held by the
Bank or any Affiliate, any and all deposits (whether
general or special, time or demand, matured or
unmatured) or any other property of the Borrower and/or
any Obligor, including, without limitation, securities
and/or certificates of deposit, now or hereafter
maintained by the Borrower and/or any Obligor for its
or their own account with the Bank or any Affiliate,
and any other indebtedness at any time held or owing by
the Bank or any Affiliate to or for the credit or the
account of the Borrower and/or any Obligor, even if
effecting such set-off results in a loss or reduction
of interest or the imposition of a penalty applicable
to the early withdrawal of time deposits. For such
purpose, the Bank shall have, and the Borrower hereby
grants to the Bank, a first lien on and security
interest in such deposits, property, funds and accounts
and the proceeds thereof. The Borrower further
authorizes any Affiliate, upon and following the
occurrence of an Event of Default, at the request of
the Bank, and without notice to the Borrower, to turn
over to the Bank any property of the Borrower,
including, without limitation, funds and securities
held by the Affiliate for the Borrower's account, and
to debit any deposit account maintained by the Borrower
with such Affiliate (even if such deposit account is
not then due or there results a loss or reduction of
interest or the imposition of a penalty in accordance
with law applicable to the early withdrawal of time
deposits), in the amount requested by the Bank up to
the amount of the Liabilities, and to pay or transfer
such amount or property to the Bank for application to
the Liabilities.
3. Remedies Cumulative; No Waiver. The rights, powers and
remedies hereunder and under the other Loan Documents
are cumulative and concurrent, and are not exclusive of
any other rights, powers or remedies available to the
Bank. No failure or delay on the part of the Bank in
the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or remedy preclude
any other or further exercise thereof, or the exercise
of any other right, power or remedy.
4. Continuing Enforcement of the Loan Documents. If,
after receipt of any payment of all or any part of the
Note or the Liabilities, the Bank is compelled or
agrees, for settlement purposes, to surrender such
payment to any person or entity for any reason, then
this Note and the other Loan Documents shall continue
in full force and effect or be reinstated, as the case
-10-
<PAGE> 11
may be. The provisions of this Paragraph shall survive
the termination of this Note and the other Loan
Documents and shall be and remain effective
notwithstanding the payment of the Liabilities, the
cancellation of the Note, the release of any security
interest, lien or encumbrance securing the Liabilities
or any other action which the Bank may have taken in
reliance upon its receipt of such payment.
H. Miscellaneous.
1. Waiver of Demand. The Borrower (i) waives presentment,
notice of dishonor and protest of this Note; (ii)
consents to any and all extensions of time, renewals,
waivers, or modifications that may be granted by the
Bank with respect to the payment or other provisions
of this Note; and (iii) agrees that makers, endorsers,
guarantors, including but not limited to the
Guarantors, and sureties for the indebtedness evidenced
hereby may be added or released without notice to the
Borrower and without affecting the Borrower's liability
hereunder. The liability of the Borrower hereunder
shall be absolute and unconditional.
2. Notices. Notices and communications under this Note
shall be in writing and shall be given by either (i)
hand-delivery, (ii) first class mail (postage prepaid),
or (iii) reliable overnight commercial courier (charges
prepaid) to the addresses listed in this Note. Notice
shall be deemed to have been given and received (a) if
by hand delivery, upon delivery, (b) if by mail, three
(3) calendar days after the date first deposited in the
United States mail, and (c) if by overnight courier, on
the date scheduled for delivery. A party may change
its address by giving written notice to the other party
as specified herein.
3. Costs and Expenses. The Borrower shall promptly pay
(or reimburse, as the Bank may elect) all costs and
expenses which the Bank may hereafter incur after the
occurrence of an Event of Default in connection with
the enforcement of this Note and the other Loan
Documents, the collection of all amounts due under this
Note and the other Loan Documents. The Borrower's
reimbursement obligations under this Paragraph shall
survive any termination of this Note or any other Loan
Document.
4. Payment Due on a Day Other than a Business Day. If any
payment due or action to be taken under this Note or
any other Loan Document falls due or is required to be
taken on a day that the Bank is not open for business,
-11-
<PAGE> 12
such payment or action shall be made or taken on the
next succeeding day when the Bank is open for business
and such extended time shall be included in the
computation of interest.
5. Governing Law. This Note shall be construed in
accordance with and governed by the substantive laws of
the Commonwealth of Pennsylvania without reference to
conflict of laws principles.
6. Integration; Amendment. This Note and the other Loan
Documents constitute the sole agreement of the parties
with respect to the subject matter hereof and thereof
and supersede all oral negotiations and prior writings
with respect to the subject matter hereof and thereof.
No amendment of this Note, and no waiver of any one or
more of the provisions hereof shall be effective unless
set forth in writing and signed by the parties hereto.
7. Successors and Assigns. This Note (i) shall be binding
upon the Borrower and the Bank and, where applicable,
their respective heirs, executors, administrators,
successors and permitted assigns, and (ii) shall inure
to the benefit of the Borrower and the Bank and, where
applicable, their respective heirs, executors,
administrators, successors and permitted assigns;
provided, however, that the Borrower may not assign its
rights or obligations hereunder or any interest herein
without the prior written consent of the Bank, and any
such assignment or attempted assignment by the Borrower
shall be void and of no effect with respect to the
Bank. The Bank may from time to time sell or assign,
in whole or in part, or grant participations in the
Loan and/or the Note and/or the obligations evidenced
thereby. The Borrower authorizes the Bank to provide
information concerning the Borrower to any prospective
purchaser, assignee or participant in compliance with
the banks internal confidentiality procedures.
8. Severability and Consistency. The illegality,
unenforceability or inconsistency of any provision of
this Note or any instrument or agreement required
hereunder shall not in any way affect or impair the
legality, enforceability or consistency of the
remaining provisions of this Note or any instrument or
agreement required hereunder. The Loan Documents are
intended to be consistent. However, in the event of
any inconsistencies among any of the Loan Documents,
such inconsistency shall not affect the validity or
enforceability of any Loan Document. The Borrower
agrees that in the event of any inconsistency or
ambiguity in any of the Loan Documents, the Loan
-12-
<PAGE> 13
Documents shall not be construed against any one party
but shall be interpreted consistent with the Bank's
policies and procedures
9. Consent to Jurisdiction and Service of Process. The
Borrower hereby consents and agrees that (i) any action
or proceeding against it may be commenced and
maintained in any court within the Commonwealth of
Pennsylvania or in the United States District Court for
any District of Pennsylvania by service of process on
it and (ii) the courts of the Commonwealth of
Pennsylvania and the United States District Court for
any District of Pennsylvania shall have Jurisdiction
with respect to the subject matter hereof and the
person of the Borrower and all collateral for the
Liabilities. The Borrower agrees that any action
brought by the Borrower shall be commenced and
maintained only in a court in the federal judicial
district or county in which the Bank has its principal
place of business in Pennsylvania.
10. Judicial Proceeding; Waivers.
THE BORROWER AND THE BANK ACKNOWLEDGE AND AGREE THAT
(i) ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR
COUNTERCLAIM, BROUGHT OR INSTITUTED BY THE BANK OR THE
BORROWER OR ANY SUCCESSOR OR ASSIGN OF THE BANK OR THE
BORROWER, ON OR WITH RESPECT TO THIS NOTE OR ANY OTHER
LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH
RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A
COURT AND NOT BY A JURY AND EACH PARTY WAIVES THE RIGHT
TO TRIAL BY JURY; (ii) EACH WAIVES ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; AND (iii) THIS SECTION IS
A SPECIFIC AND MATERIAL ASPECT OF THIS NOTE AND THAT
THE BANK WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE
WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF
THIS NOTE.
11. Arbitration. Upon demand of any party hereto, whether
made before or after institution of any judicial
proceeding, any dispute, claim or controversy arising
out of, connected with or relating to this Note and
other Loan Documents ("Disputes") between or among
parties to this Note shall be resolved by binding
arbitration as provided herein. Institution of a
judicial proceeding by a party does not waive the right
of that party to demand arbitration hereunder.
Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is
-13-
<PAGE> 14
subject to arbitration, claims brought as class
actions, claims arising from Loan Documents executed in
the future, or claims arising out of or connected with
the transaction reflected by this Note.
Arbitration shall be conducted under and governed
by the Commercial Financial Disputes Arbitration Rules
(the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code.
All arbitration hearings shall be conducted in the city
in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51
et seq. of the Arbitration Rules shall be applicable to
claims of less than $1,000,000. All applicable
statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court
having jurisdiction. The panel from which all
arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for
expedited procedure shall be a retired judge from the
highest court of general jurisdiction, state or
federal, of the state where the hearing will be
conducted or if such person is not available to serve,
the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related
to swap agreements.
Notwithstanding the preceding binding arbitration
provisions, the Bank and the Borrower agree to
preserve, without diminution, certain remedies that any
party hereto may employ or exercise freely,
independently or in connection with an arbitration
proceeding or after an arbitration action is brought.
The Bank and the Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-
help to exercise or prosecute the following remedies,
as applicable: (i) all rights to foreclose against any
real or personal property or other security by
exercising a power of sale granted under Loan Documents
or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii)
all rights of self-help including peaceful occupation
of real property and collection of rents, set-off, and
peaceful possession of personal property; (iii)
obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute.
-14-
<PAGE> 15
The Borrower and the Bank agree that they shall
not have a remedy of punitive or exemplary damages
against the other in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they
have now or which may arise in the future in connection
with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, the Borrower has executed and delivered
to the Bank this Note as of the day and year first above written.
ATTEST JONES APPAREL GROUP, INC.
BY: /s/ Gary R. Klocek
Name: Name: Gary R. Klocek
Title: Title: Corporate Controller
FIRST UNION NATIONAL BANK
Address: 123 South Broad Street
Philadelphia, PA 19109-1199
-15-
<PAGE> 16
FIRST UNION
UNCONDITIONAL GUARANTY
October 1, 1997
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
(individually and collectively "Borrower")
Melru Corp.; Jones Investment Company, Inc.; Jones International, Ltd.; and
Jones Holding Corp.
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
(Individually and collectively "Guarantor")
First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
(Hereinafter referred to as "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or other
financial accommodations to or for the benefit of Borrower, and in
consideration of loans, advances, credit, or other financial accommodations
made, extended or renewed to or for the benefit of Borrower, Guarantor hereby
absolutely, irrevocably and unconditionally guarantees to Bank and its
successors, assigns and affiliates the timely payment and performance of all
liabilities and obligations of Borrower to Bank and its affiliates, including,
but not limited to, all obligations under any notes, loan agreements, security
agreements, letters of credit, swap agreements (as defined in 11 U.S. Code
Sec. 101), instruments, accounts receivable, contracts, drafts, leases, chattel
paper, indemnities, acceptances, repurchase agreements, overdrafts, and the
Loan Documents defined below, however and whenever incurred or evidenced,
whether primary, secondary, direct, indirect, absolute, contingent, due or to
become due, now existing or hereafter contracted or acquired, and all
modifications, extensions or renewals thereof, including without limitation
all principal, interest, charges, and costs and expenses incurred thereunder
(including attorneys' fees and other costs of collection incurred, regardless
of whether suit is commenced) (collectively, the "Guaranteed Obligations").
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional
guaranty of payment and performance and not of collection. The parties to
this Guaranty are jointly and severally obligated hereunder. This Guaranty
does not impose any obligation on Bank to extend or continue to extend credit
or otherwise deal with Borrower at any subsequent time. This Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of the Guaranteed Obligations is rescinded, avoided or for any
other reason must be returned by Bank, and the returned payment shall remain
payable as part of the Guaranteed Obligations, all as though such payment had
not been made. Except to the extent the provisions of this Guaranty give the
Bank additional rights, this Guaranty shall not be deemed to supersede or
replace any other guaranties given to Bank by Guarantor; and the obligations
guaranteed hereby shall be in addition to any other obligations guaranteed by
Guarantor pursuant to any other agreement of guaranty given to Bank and other
guaranties of the Guaranteed Obligations.
-16-
<PAGE> 17
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written
notice, delivered personally to or received by certified or registered United
States Mail by an authorized officer of the Bank at the address for notices
provided herein. Such termination shall be effective with respect to
Guaranteed Obligations arising more than 15 days after the date such written
notice is received by said Bank officer. Guarantor may not terminate this
Guaranty as to Guaranteed Obligations (including any subsequent extensions,
modifications or compromises of the Guaranteed Obligations) then existing, or
to Guaranteed Obligations arising subsequent to receipt by Bank of said notice
if such Guaranteed Obligations are a result of Bank's obligation to make
advances pursuant to a commitment entered into prior to expiration of the 15
day notice period, or are a result of advances which are necessary for Bank to
protect its collateral or otherwise preserve its interests. Termination of this
Guaranty by any single Guarantor will not affect the existing and continuing
obligations of any other guarantor hereunder.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any source
by Bank for application toward payment of the Guaranteed Obligations may be
applied to such Guaranteed Obligations in any manner or order deemed
appropriate by Bank. Except as prohibited by law, Guarantor grants Bank a
security interest in all of Guarantor's accounts maintained with Bank and any
of its affiliates (collectively, the "Accounts"). If a Default occurs, Bank is
authorized to exercise its right of set-off or to foreclose its lien against any
obligation of Bank to Guarantor including, without limitation, all Accounts or
any other debt of any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor consents and agrees that Bank may from time
to time, in its sole discretion, without affecting, impairing, lessening or
releasing the obligations of the Guarantor hereunder: (a) extend or modify the
time, manner, place or terms of payment or performance and/or otherwise change
or modify the credit terms of the Guaranteed Obligations; (b) increase, renew,
or enter into a novation of the Guaranteed Obligations; (c) waive or consent to
the departure from terms of the Guaranteed Obligations; (d)permit any change in
the business or other dealings and relations of Borrower or any other guarantor
with Bank; (e) proceed against, exchange, release, realize upon, or otherwise
deal with in any manner any collateral that is or may be held by Bank in
connection with the Guaranteed Obligations or any liabilities or obligations
of Guarantor; and (f) proceed against, settle, release, or compromise with
Borrower, any insurance carrier, or any other person or entity liable as to
any part of the Guaranteed Obligations, and/or subordinate the payment of any
part of the Guaranteed Obligations to the payment of any other obligations,
which may at any time be due or owing to Bank; all in such manner and upon
such terms as Bank may deem appropriate, and without notice to or further
consent from Guarantor. No invalidity, irregularity, discharge or
unenforceability of, or action or omission by Bank relating to any part of,
the Guaranteed Obligations or any security therefor shall affect or impair this
Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Guarantor waives and releases the following
rights, demands, and defenses Guarantor may have with respect to Bank and
collection of the Guaranteed Obligations: (a) promptness and diligence in
collection of any of the Guaranteed Obligations from Borrower or any other
person liable thereon, and in foreclosure of any security interest and sale
of any property serving as collateral for the Guaranteed Obligations; (b) any
law or statute that requires that Bank make demand upon, assert claims against,
or collect from Borrower or other persons or entities, foreclose any security
interest, sell collateral, exhaust any remedies, or take any other action
against Borrower or other persons or entities prior to making demand upon,
collecting from or taking action against Guarantor with respect to the
Guaranteed Obligations, including any such rights Guarantor might otherwise
have had under Va. Code Sec. 49-25 and 49-26, et seq., N.C.G.S. Secs. 26-7, et
seq., Tenn. Code Ann. Sec. 47-12-101, O.C.G.A. 10-7-24 (and any successor
statute) and any other applicable law; (c) any law or statute that requires
that Borrower or any
-17-
<PAGE> 18
other person be joined in, notified of or made part of any action against
Guarantor; (d) that Bank preserve, insure or perfect any security interest
in collateral or sell or dispose of collateral in a particular manner or at
a particular time; (e) notice of extensions, modifications, renewals, or
novations of the Guaranteed Obligations, of any new transactions or other
relationships between Bank, Borrower and/or any guarantor, and of changes in
the financial condition of, ownership of, or business structure of Borrower
or any other guarantor; (f) presentment, protest, notice of dishonor, notice
of default, demand for payment, notice of intention to accelerate maturity,
notice of acceleration of maturity, notice of sale, and all other notices of
any kind whatsoever; (g) the right to assert against Bank any defense (legal or
equitable), set-off, counterclaim, or claim that Guarantor may have at any time
against Borrower or any other party liable to Bank; (h) all defenses relating
to invalidity, insufficiency, unenforceability, enforcement, release or
impairment of Bank's lien on any collateral, of the Loan Documents, or of
any other guaranties held by Bank; (i) any claim or defense that acceleration
of maturity of the Guaranteed Obligations is stayed against Guarantor because
of the stay of assertion or of acceleration of claims against any other
person or entity for any reason including the bankruptcy or insolvency of
that person or entity; and (j) the benefit of any exemption claimed by
Guarantor. Guarantor acknowledges and represents that it has relied upon
its own due diligence in making its own independent appraisal of Borrower,
Borrower's business affairs and financial condition, and any collateral;
Guarantor will continue to be responsible for making its own independent
appraisal of such matters; and Guarantor has not relied upon and will not
hereafter rely upon Bank for information regarding Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that
on and after the date hereof: (a) the fair saleable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting its current liabilities as they
mature, and Guarantor is and shall remain solvent; (b) all financial statements
of Guarantor furnished to Bank are correct and accurately reflect the financial
condition of Guarantor as of the respective dates thereof; (c) since the date of
such financial statements, there has not occurred a material adverse change in
the financial condition of Guarantor; (d) there are not now pending any court or
administrative proceedings or undischarged judgments against Guarantor, no
federal or state tax liens have been filed or threatened against Guarantor,
and Guarantor is not in default or claimed default under any agreement; and
(e) at such reasonable times as Bank requests, Guarantor will furnish Bank with
such other financial information as Bank may reasonably request.
INTEREST. Regardless of any other provision of this Guaranty or other Loan
Documents, if for any reason the effective interest on any of the Guaranteed
Obligations should exceed the maximum lawful interest, the effective interest
shall be deemed reduced to and shall be such maximum lawful interest, and any
sums of interest which have been collected in excess of such maximum lawful
interest shall be applied as a credit against the unpaid principal balance of
the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default") under
this Guaranty shall exist: (a) Failure of timely payment or performance of the
Guaranteed Obligations or a default under any Loan Document; (b) A breach of any
agreement or representation contained or referred to in the Guaranty, or any of
the Loan Documents, or contained in any other contract or agreement of
Guarantor with Bank or its affiliates, whether now existing or hereafter
arising; (c) The death of, appointment of a guardian for, dissolution of,
termination of existence of, loss of good standing status by, appointment of
a receiver for, assignment for the benefit of creditors of, or the commencement
of any insolvency or bankruptcy proceeding by or against, Guarantor or any
general partner of or the holder(s) of the majority ownership interests of
Guarantor; and/or (d) The entry of
-18-
<PAGE> 19
any monetary judgment or the assessment against, the filing of any tax lien
against, or the issuance of any writ of garnishment or attachment against any
property of or debts due Guarantor.
If a Default occurs, the Guaranteed Obligations shall be due immediately and
payable without notice. Guarantor shall pay interest on the Guaranteed
Obligations from such Default at the highest rate of interest charged on any
of the Guaranteed Obligations.
ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of
Bank's reasonable expenses incurred to enforce or collect any of the Guaranteed
Obligations, including, without limitation, reasonable arbitration, paralegals',
attorneys' and experts' fees and expenses, whether incurred without the
commencement of a suit, in any suit, arbitration, or administrative proceeding,
or in any appellate or bankruptcy proceeding.
SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the
obligations now or hereafter owed by Borrower to Guarantor ("Subordinated
Debt") to any and all obligations of Borrower to Bank now or hereafter existing
while this Guaranty is in effect, provided however that Guarantor may receive
regularly scheduled principal and interest payments on the Subordinated Debt
so long as (i) all sums due and payable by Borrower to Bank have been paid in
full on or prior to such date, and (ii) no event or condition which constitutes
or which with notice or the lapse or time would constitute an event of default
with respect to the Guaranteed Obligations, shall be continuing on or as of the
payment date; (b) Guarantor will place a legend indicating such subordination
on every note, ledger page or other document evidencing any part of the
Subordinated Debt; and (c) except as permitted by this paragraph, Guarantor
will not request or accept payment of or any security for any part of the
Subordinated Debt, and any proceeds of the Subordinated Debt paid to Guarantor,
through error or otherwise, shall immediately be forwarded to Bank by Guarantor,
properly endorsed to the order of Bank, to apply to the Guaranteed Obligations.
MISCELLANEOUS. (a) Assignment. This Guaranty and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Guaranty and other Loan Documents are freely assignable, in
whole or in part, by Bank. Any assignment shall not release Guarantor from the
Guaranteed Obligations. (b) Applicable Law; Conflict Between Documents. This
Guaranty and other Loan Documents shall be governed by and construed under the
laws of the state in which office of Bank first shown above is located without
regard to that state's conflict of laws principles. If the terms of this
Guaranty should conflict with the terms of any commitment letter that survives
closing, the terms of this Guaranty shall control. (c) Jurisdiction.
Guarantor irrevocably agrees to non-exclusive personal jurisdiction in the
state in which the office of Bank first shown above is located. (d)
Severability. If any provision of this Guaranty or of the other Loan
Documents shall be prohibited or invalid under applicable law, such
provision shall be ineffective but only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty or other document. (e) Notices. Any
notices to Guarantor shall be sufficiently given, if in writing and mailed or
delivered to the Guarantor's address shown above or such other address as
provided hereunder, and to Bank, if in writing and mailed or delivered to
Bank's office address shown above or such other address as Bank may specify
in writing from time to time. In the event that Guarantor changes Guarantor's
address at any time prior to the date the Guaranteed Obligations are paid in
full, Guarantor agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all charges prepaid.
(f) Plural; Captions. All references in the Loan Documents to borrower,
guarantor, person, document or other nouns of reference mean both the singular
and plural form, as the case may be, and the term "person" shall mean any
individual, person or entity.
-19-
<PAGE> 20
The captions contained in the Loan Documents are inserted for convenience only
and shall not affect the meaning or interpretation of the Loan Documents. (g)
Binding Contract. Guarantor by execution of and Bank by acceptance of this
Guaranty agree that each party is bound to all terms and provisions of this
Guaranty. (h) Amendments, Waivers an& Remedies. No waivers, amendments or
modifications of this Guaranty and other Loan Documents shall be valid unless
in writing and signed by an officer of Bank. No waiver by Bank of any Default
shall operate as a waiver of any other Default or the same Default on a future
occasion. Neither the failure nor any delay on the part of Bank in exercising
any right, power, or privilege granted pursuant to this Guaranty and other Loan
Documents shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise or the exercise of any
other right, power or privilege. All remedies available to Bank with respect
to this Guaranty and other Loan Documents and remedies available at law or in
equity shall be cumulative and may be pursued concurrently or successively.
(i) Partnerships. If Guarantor is a partnership, the obligations, liabilities
and agreements on the part of Guarantor shall remain in full force and effect
and fully applicable notwithstanding any changes in the individuals comprising
the partnership. The term "Guarantor" includes any altered or successive
partnerships, and predecessor partnership(s) and the partners shall not be
released from any obligations or liabilities hereunder. (j) Loan Documents.
The term "Loan Documents" refers to all documents executed in connection with
the Guaranteed Obligations and may include, without limitation, commitment
letters that survive closing, loan agreements, other guaranty agreements,
security agreements, instruments, financing statements, mortgages, deeds of
trust, deeds to secure debt, letters of credit and any amendments or
supplements (excluding swap agreements as defined in 11 U.S. Code Sec. 101).
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Guaranty and other Loan
Documents ("Disputes") between or among parties to this Guaranty shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Guaranty.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above
is located. The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00.
All applicable statutes of limitation shall apply to any Dispute. A judgment
upon the award may be entered in any court having jurisdiction. The panel
from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
-20-
<PAGE> 21
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Guarantor agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with an arbitration proceeding or
after an arbitration action is brought. Bank and Guarantor shall have the
right to proceed in any court of proper jurisdiction or by self-help to
exercise or prosecute the following remedies, as applicable: (i) all rights
to foreclose against any real or personal property or other security by
exercising a power of sale granted under Loan Documents or under applicable
law or by judicial foreclosure and sale, including a proceeding to confirm
the sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment, appointment of
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Preservation of these
remedies does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in a Dispute. Guarantor and Bank agree that
they shall not have a remedy of punitive or exemplary damages against the other
in any Dispute and hereby waive any right or claim to punitive or exemplary
damages they have now or which may arise in the future in connection with any
Dispute whether the Dispute is resolved by arbitration or judicially.
IN WITNESS WHEREOF, Guarantor, on the day and year first written above, has
caused this Unconditional Guaranty to be executed under seal.
Melru Corp.
Taxpayer Identification Number: 23-2256563
By: /s/ Patrick M. Farrell
Name: Patrick M. Farrell
Title: V.P., Finance and Administration
Jones Investment, Inc.
Taxpayer Identification Number: 51-0335604
By: /s/ Wesley R. Card
Name: Wesley R. Card
Title: President
Jones International, Ltd.
Taxpayer Identification Number: Not applicable
By: /s/ Wesley R. Card
Name: Weslev R. Card
Title: Director
Jones Holding Corporation
Taxpayer Identification Number: 51-0335605
By: /s/ Wesley R. Card
Name: Weslev R. Card
Title: Director
-21-
EXHIBIT 11
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
Computation of Basic and Diluted Earnings per Share
(In thousands except per share amounts)
For the Year Ended December 31,
-------------------------------
1997 1996 1995<F1>
------- ------- -------
Basic Earnings per Share:
- -------------------------
Net income........................... $121,725 $80,874 $63,485
======== ======= =======
Weighted average number of shares
outstanding.......................... 51,899 52,333 52,130
======== ======= =======
Basic earnings per share............. $2.35 $1.55 $1.22
======== ======= =======
Diluted Earnings per Share:
- ---------------------------
Net income........................... $121,725 $80,874 $63,485
======== ======= =======
Weighted average number of shares
outstanding.......................... 51,899 52,333 52,130
Assumed issuances under exercise
of stock options..................... 2,006 1,318 894
-------- ------- -------
53,905 53,651 53,024
======== ======= =======
Diluted earnings per share........... $2.26 $1.51 $1.20
======== ======= =======
<F1> Adjusted for 2-for-1 stock split effective October 2, 1996.
EXHIBIT 21
SUBSIDIARIES OF JONES APPAREL GROUP, INC.
State or County Percentage of Voting
Name of Incorporation Securities Owned *
- --------------- ---------------- --------------------
Melru Corporation New Jersey 100%
Jones Apparel Group Canada Inc. Canada 100%
Jones Investment Co., Inc. Delaware 100%
Jones Holding Corporation Delaware 100%
Jones International Limited Hong Kong 100%
Bongal Company Limited Hong Kong 100%
Jones Apparel Group (HK) Ltd. Hong Kong 100%
Jones Far East Ltd. Hong Kong 100%
Vestamex S.A. De C.V. Mexico 100%
Camisas de Juarez S.A. De C.V. Mexico 100%
* Directly or Indirectly
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jones Apparel Group, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-8 filed May 15,
1996 of our reports dated February 6, 1998, relating to the consolidated
financial statements and schedule of Jones Apparel Group, Inc. and
subsidiaries appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 40,134
<SECURITIES> 0
<RECEIVABLES> 94,514
<ALLOWANCES> 2,767
<INVENTORY> 255,055
<CURRENT-ASSETS> 440,771
<PP&E> 126,123
<DEPRECIATION> 44,189
<TOTAL-ASSETS> 580,767
<CURRENT-LIABILITIES> 110,202
<BONDS> 0
0
0
<COMMON> 545
<OTHER-SE> 435,087
<TOTAL-LIABILITY-AND-EQUITY> 580,767
<SALES> 1,372,458
<TOTAL-REVENUES> 1,387,471
<CGS> 940,149
<TOTAL-COSTS> 940,149
<OTHER-EXPENSES> 250,685
<LOSS-PROVISION> 1,870
<INTEREST-EXPENSE> 3,584
<INCOME-PRETAX> 194,609
<INCOME-TAX> 72,884
<INCOME-CONTINUING> 121,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,725
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.26
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 30,085 16,864
<SECURITIES> 0 0
<RECEIVABLES> 114,941 94,404
<ALLOWANCES> 2,263 2,257
<INVENTORY> 214,437 176,626
<CURRENT-ASSETS> 389,830 331,465
<PP&E> 94,823 62,042
<DEPRECIATION> 33,127 25,385
<TOTAL-ASSETS> 488,109 400,959
<CURRENT-LIABILITIES> 95,860 70,612
<BONDS> 0 0
0 0
0 0
<COMMON> 536 263
<OTHER-SE> 376,193 314,712
<TOTAL-LIABILITY-AND-EQUITY> 488,109 400,959
<SALES> 1,021,042 776,365
<TOTAL-REVENUES> 1,034,078 786,679
<CGS> 717,250 546,413
<TOTAL-COSTS> 717,250 546,413
<OTHER-EXPENSES> 186,572 139,135
<LOSS-PROVISION> 800 (464)
<INTEREST-EXPENSE> 3,040 1,908
<INCOME-PRETAX> 127,763 99,668
<INCOME-TAX> 46,889 36,183
<INCOME-CONTINUING> 80,874 63,485
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 80,874 63,485
<EPS-PRIMARY> 1.55 1.22
<EPS-DILUTED> 1.51 1.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-30-1997 JUN-29-1997 SEP-28-1997
<CASH> 20,529 30,010 12,315
<SECURITIES> 0 0 0
<RECEIVABLES> 189,986 108,116 214,827
<ALLOWANCES> 3,757 3,533 3,757
<INVENTORY> 221,032 274,067 277,003
<CURRENT-ASSETS> 462,817 452,848 543,386
<PP&E> 100,324 108,140 116,032
<DEPRECIATION> 35,740 38,567 41,379
<TOTAL-ASSETS> 563,946 568,693 665,729
<CURRENT-LIABILITIES> 140,119 124,619 181,273
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 538 541 543
<OTHER-SE> 408,685 421,149 462,658
<TOTAL-LIABILITY-AND-EQUITY> 563,946 568,693 665,729
<SALES> 317,990 580,978 1,026,950
<TOTAL-REVENUES> 321,455 587,744 1,038,252
<CGS> 214,884 393,426 696,733
<TOTAL-COSTS> 214,884 393,426 696,733
<OTHER-EXPENSES> 59,096 115,729 183,547
<LOSS-PROVISION> 1,556 1,783 2,009
<INTEREST-EXPENSE> 362 629 1,710
<INCOME-PRETAX> 47,113 77,960 156,262
<INCOME-TAX> 17,573 29,141 58,504
<INCOME-CONTINUING> 29,540 48,819 97,758
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 29,540 48,819 97,758
<EPS-PRIMARY> 0.57 0.94 1.88
<EPS-DILUTED> 0.55 0.90 1.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-29-1996
<CASH> 8,316 13,288 9,650
<SECURITIES> 0 0 0
<RECEIVABLES> 169,324 96,513 174,664
<ALLOWANCES> 2,472 2,503 2,425
<INVENTORY> 198,505 238,002 222,765
<CURRENT-ASSETS> 420,256 396,882 443,444
<PP&E> 65,908 72,051 81,812
<DEPRECIATION> 26,987 28,932 30,764
<TOTAL-ASSETS> 491,790 474,712 530,945
<CURRENT-LIABILITIES> 144,086 111,438 143,132
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 265 267 267
<OTHER-SE> 333,105 345,306 371,032
<TOTAL-LIABILITY-AND-EQUITY> 491,790 474,712 530,945
<SALES> 260,351 453,626 762,645
<TOTAL-REVENUES> 262,927 458,861 772,089
<CGS> 187,557 319,800 533,322
<TOTAL-COSTS> 187,557 319,800 533,322
<OTHER-EXPENSES> 42,718 84,874 134,792
<LOSS-PROVISION> 222 460 683
<INTEREST-EXPENSE> 521 984 1,991
<INCOME-PRETAX> 32,131 53,203 101,984
<INCOME-TAX> 11,792 19,526 37,428
<INCOME-CONTINUING> 20,339 33,677 64,556
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 20,339 33,677 64,556
<EPS-PRIMARY> 0.39 0.64 1.23
<EPS-DILUTED> 0.38 0.63 1.21
</TABLE>
