AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1994
REGISTRATION NO. 33-52941
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
ANNTAYLOR STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3499319
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
142 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 541-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOCELYN F.L. BARANDIARAN, ESQ.
ANNTAYLOR STORES CORPORATION
142 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 541-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ROBERT B. PINCUS, ESQ. FAITH D. GROSSNICKLE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SHEARMAN & STERLING
ONE RODNEY SQUARE 599 LEXINGTON AVENUE
WILMINGTON, DELAWARE 19801 NEW YORK, NEW YORK 10022
(302) 651-3000 (212) 848-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 4,000,000 shares of common stock, par value $.0068 per share (the "Common
Stock"), of AnnTaylor Stores Corporation, together with separate Prospectus
pages relating to a concurrent offering outside the United States and Canada of
an aggregate of 1,000,000 shares of Common Stock (the "International Offering").
The complete Prospectus for the U.S. Offering follows immediately. After such
Prospectus are the following alternate pages for the International Offering: a
front cover page, an "Underwriting" section and a back cover page. All other
pages of the Prospectus for the U.S. Offering are to be used for both the U.S.
Offering and the International Offering. A copy of the complete Prospectus for
each of the U.S. and International Offerings, in the exact forms in which they
are to be used after effectiveness, will be filed with the Securities and
Exchange Commission pursuant to Rule 424(b).
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1994
PROSPECTUS
5,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
Of the 5,000,000 shares of Common Stock offered, 1,000,000 shares are being
sold by AnnTaylor Stores Corporation and 4,000,000 shares are being sold by
certain stockholders of the Company. See "Selling Stockholders". The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
Of the 5,000,000 shares of Common Stock offered, 4,000,000 shares are being
offered hereby in the United States and Canada by the U.S. Underwriters and
1,000,000 shares are being offered in a concurrent offering outside the United
States and Canada by the International Underwriters. The initial offering price
and the aggregate underwriting discount per share are identical for both
Offerings. See "Underwriting".
The Common Stock is listed on the New York Stock Exchange under the symbol
"ANN". On April 19, 1994, the last sale price of the Common Stock as reported on
the New York Stock Exchange was $32 1/4 per share.
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE><CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share......................... $ $ $
Total(3).......................... $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses estimated at $ payable by the Company and
$ payable by the Selling Stockholders.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 750,000 shares solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Selling Stockholders will be $ ,
$ and $ , respectively. See "Underwriting".
------------------------
The shares are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, and subject to the approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of shares will be made in New York, New York on or about
, 1994.
------------------------
MERRILL LYNCH & CO.
WILLIAM BLAIR & COMPANY
MORGAN STANLEY & CO.
INCORPORATED
ROBERTSON, STEPHENS & COMPANY
------------------------
The date of this Prospectus is , 1994.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall encompass any
amendments thereto) on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), for the registration of the Common Stock (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed or incorporated by
reference as a part thereof. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto filed by the Company with the Commission may be inspected at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such materials can
also be inspected at the offices of the New York Stock Exchange (the "NYSE"), 20
Broad Street, New York, New York 10005.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports and other information with
the Commission. Such reports and other information filed with the Commission may
be inspected and copied at the locations described above. The Company will
furnish all reports and other information required by the periodic reporting and
informational requirements of the Exchange Act to the Commission and will
furnish copies of such reports and other information to the holders of the
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended January
29, 1994, as heretofore filed by the Company under the Exchange Act (File No.
33-28522) with the Commission, is incorporated herein by reference and is
attached as Annex I to this Prospectus. In addition, all documents filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Common Stock shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom this
Prospectus has been delivered, a copy of any or all of the documents referred to
above which have been or may be incorporated by reference herein, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference therein). Requests for such copies should be directed to AnnTaylor
Stores Corporation, 142 West 57th Street, New York, New York 10019, Attention:
Jocelyn F.L. Barandiaran, Corporate Secretary, (212) 541-3300.
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
THE COMPANY
AnnTaylor Stores Corporation ( the "Company"), through its wholly owned
subsidiary AnnTaylor, Inc. ("Ann Taylor"), is a leading national specialty
retailer of better quality women's apparel, shoes and accessories sold primarily
under the Ann Taylor brand name. The Company's merchandising strategy focuses on
achieving the "Ann Taylor look", which emphasizes classic styles, updated to
reflect current fashion trends. The Company considers the Ann Taylor name a
fashion brand, defining a distinctive collection of career and casual separates,
weekend wear, dresses, tops, accessories and shoes, coordinated as part of a
total wardrobing strategy. This total wardrobing strategy is reinforced by an
emphasis on customer service. Ann Taylor sales associates assist customers in
merchandise selection and wardrobe coordination, helping them achieve the Ann
Taylor look while reflecting the customers' personal styles.
As of January 29, 1994, Ann Taylor operated 231 stores in 38 states and the
District of Columbia. Approximately two-thirds of the stores are located in
regional malls and upscale specialty retail centers, with the balance in
downtown and village locations. Nine of the Company's stores are Ann Taylor
Factory Stores, located in factory outlet malls. The Company believes that its
customer base consists primarily of relatively affluent, fashion-conscious women
from the ages of 20 to 50, and that the majority of its customers are working
women with limited time to shop who are attracted to Ann Taylor by its focused
merchandising and total wardrobing strategies, personalized customer service,
efficient store layouts and continual flow of new merchandise.
The Company has grown significantly over the last five years, with net
sales increasing from $353.9 million in fiscal 1989 to $501.6 million in fiscal
1993. During this period, the number of stores increased from 119 to 231, and
total store square footage increased from 409,000 to 929,000 square feet. The
Company recently increased its estimate of new store square footage for 1994 and
currently expects to increase store square footage by at least 230,000 square
feet, or approximately 25%, in fiscal 1994. Management anticipates that
approximately 70% of this new square footage will consist of new stores, of
which about half will be Ann Taylor stores and about half will be Ann Taylor
Factory Stores. The balance of the 1994 square footage increase will result from
store expansions . The Company intends to increase store square footage by in
excess of 200,000 square feet in each of fiscal 1995 and fiscal 1996, subject to
general economic conditions, the availability of desirable locations and the
negotiations of acceptable lease terms.
Since becoming Chairman and Chief Executive Officer in February 1992, Sally
Frame Kasaks has redirected the Company's merchandising and marketing efforts to
enhance the position of Ann Taylor as a fashion brand. The Company's strategy
has been broadened to include not only the opening of new stores in new and
existing markets, but also the expansion of existing stores and the introduction
of product line extensions and additional channels of distribution. The
principal elements of the Company's strategy include:
. Emphasis on product design and development to reinforce the exclusivity
of Ann Taylor merchandise, by expanding the Company's fabric and
merchandise design team.
. Renewed focus on consistent quality and fit, by strengthening the
production management team responsible for technical design and factory
and merchandise quality assurance.
. Development of global and direct sourcing capabilities to reduce costs
and shorten lead times. The Company increased its merchandise purchases
through its direct sourcing joint venture, which acts as an agent
exclusively for Ann Taylor, from 7.3% of merchandise purchased in fiscal
1992 to 23.5% in fiscal 1993.
. Development of a merchandise pricing structure that emphasizes consistent
everyday value rather than promotions, adding to the credibility of the
Ann Taylor brand.
. Introduction of product line extensions building on the strength of the
Ann Taylor brand name. In fall 1992, the Company increased its presence
in casual wear by introducing ATdenim, which is now sold in all Ann
Taylor stores. In fall 1993, Ann Taylor petites were tested in the career
3
<PAGE>
separates and dress categories in 25 stores. By fall 1994, a broader range
of Ann Taylor petites will be carried in approximately 100 Ann Taylor
stores. In fiscal 1994, the Company plans to test an Ann Taylor signature
fragrance and related products.
. Introduction of two larger store prototypes. Most new and expanded stores
will be approximately 5,500 square feet, and, in certain premier markets,
new and expanded stores will be approximately 10,000-12,000 square feet.
These new store prototypes are designed to reinforce the Ann Taylor total
wardrobing concept, allow the proper presentation of Ann Taylor product
extensions, and improve customer service and ease of shopping.
. Introduction of additional channels of distribution. In fiscal 1993, the
Company introduced Ann Taylor Factory Stores which sell Ann Taylor
merchandise designed or produced specifically for the factory stores, in
addition to serving as a clearance vehicle for merchandise from Ann
Taylor stores. In fiscal 1994, the Company intends to test free standing
Ann Taylor shoe stores as an additional channel of distribution for Ann
Taylor brand footwear. The Company also views its fashion catalog, which
presently is used principally as an advertising vehicle, as a potential
future channel of distribution.
. Increased investment in more sophisticated point-of-sale and inventory
management systems, including the integration of the Company's
merchandise planning, store assortment planning, and merchandise
allocation and replenishment systems. These enhancements are designed to
enable the Company to manage its business more effectively and cost
efficiently by improving customer service and providing the ability to
better manage inventory levels.
. Construction of a 250,000 square foot national distribution center in
Louisville, Kentucky to replace, in early 1995, the Company's existing
90,000 square foot distribution facilities in Connecticut.
Outlet shopping is one of the fastest growing segments of the retail
apparel industry, appealing to consumers' increasing orientation to value and to
manufacturers' and retailers' desire for additional channels of distribution and
control over liquidation of their product. In 1993, the Company began testing
Ann Taylor Factory Stores in outlet malls as an additional channel of
distribution, by converting its four then existing clearance centers to the
factory store format and opening five new factory stores in outlet malls. Ann
Taylor Factory Stores sell Ann Taylor merchandise designed or produced
specifically for the factory stores, having an average initial price lower than
that of merchandise carried in Ann Taylor stores, and also serve as a clearance
vehicle for merchandise from Ann Taylor stores. In fiscal 1993, approximately
36% of the merchandise sold in Ann Taylor Factory Stores was produced
specifically for these stores.
The Company was formed at the direction of Merrill Lynch Capital Partners,
Inc. ("ML Capital Partners"), a wholly owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML&Co."), for the purpose of acquiring Ann Taylor in a leveraged buy-out
transaction (the "Acquisition") in 1989. Certain limited partnerships controlled
directly or indirectly by ML Capital Partners, together with certain other
affiliates of ML&Co. (collectively, the "ML Entities"), own approximately 52.3%
of the outstanding Common Stock and are offering for sale 4,000,000 shares of
Common Stock in the Offerings (as defined below). After the Offerings, the ML
Entities will continue to own approximately 32.6% of the outstanding Common
Stock (29.3% if the Underwriters' over-allotment option is exercised in full).
The ML Entities have two designees on the Company's Board of Directors and,
following the Offerings, will continue to be in a position to influence the
management of the Company.
The Company is a holding company that was incorporated under the laws of
the State of Delaware in 1988 under the name AnnTaylor Holdings, Inc. The
Company changed its name to AnnTaylor Stores Corporation in April 1991. The
principal executive offices of the Company are located at 142 West 57th Street,
New York, New York 10019, and the telephone number is (212) 541-3300.
4
<PAGE>
RECENT RESULTS
The Company's net sales for the five weeks ended April 2, 1994 totaled
$56,397,000, an increase of 26.8% from $44,472,000 in the five weeks ended April
3, 1993. Comparable store sales increased 13.6%, compared to the same five-week
period last year. March sales were affected positively by the one-week shift in
the Easter holiday from April in 1993 to March in 1994. For the fiscal
year-to-date period ended April 2, 1994, the Company's net sales totaled
$93,807,000, an increase of 25.7% from $74,640,000 for the same period in 1993.
The Company's comparable store sales increased 13.0% in the fiscal year to date
period compared to the same period in 1993. Historically, changes in the
Company's comparable store sales have varied from month to month and season to
season. As a result, the Company believes that the increases in comparable store
sales for the periods referred to above are not necessarily indicative of
comparable store sales to be achieved for the entire fiscal year.
THE OFFERINGS
Of the 5,000,000 shares of Common Stock offered, 4,000,000 shares are being
offered in the United States and Canada by the U.S. Underwriters, and 1,000,000
shares are being offered concurrently outside the United States and Canada by
the International Underwriters (together, the "Offerings").
Common Stock Offered By:
The Company............................. 1,000,000 shares
Selling Stockholders.................... 4,000,000 shares
Common Stock Outstanding after the
Offerings(1).............................. 22,952,339 shares
Use of Proceeds........................... The net proceeds to the Company will
be used to reduce bank indebtedness.
See "Use of Proceeds".
NYSE Symbol............................... ANN
- ---------------
(1) Based upon shares outstanding as of March 15, 1994 and (i) includes 61,209
shares of Common Stock issuable upon exercise of the Company's outstanding
warrants, which are exercisable for Common Stock at no exercise price (the
"Warrants") and (ii) excludes 1,522,236 shares of Common Stock issuable upon
exercise of outstanding employee stock options, of which 482,913 are
presently exercisable at an average price of $16.45 per share.
5
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective purchasers should consider carefully all of the information set
forth in this Prospectus and, in particular, the following investment
considerations relating to an investment in the Common Stock.
INDEBTEDNESS
The Company incurred substantial indebtedness in connection with financing
the Acquisition. Over the last five years, the Company has repaid a significant
amount of this indebtedness and has engaged in refinancing transactions that
have lowered its cost of funds. As of January 29, 1994, after giving effect to
the sale by the Company of 1,000,000 shares in the Offerings and the application
of the estimated net proceeds therefrom to reduce outstanding indebtedness, the
Company's total debt would have been $158,400,000 and its ratio of total debt
to total capitalization would have been .36 to one. See "Use of Proceeds" and
"Capitalization". Ann Taylor's bank credit agreement (the "Bank Credit
Agreement") contains numerous financial and operating covenants and requires Ann
Taylor to make scheduled semi-annual principal payments totalling $3,795,000 in
each of fiscal 1994 and 1995, $5,055,000 in each of fiscal 1996 and 1997 and
$5,700,000 in fiscal 1998, after giving effect to the application of the
estimated net proceeds to the Company of the Offerings. The Company's ability to
make scheduled payments or to refinance its obligations with respect to its
indebtedness depends on its financial and operating performance, which, in turn,
is subject to prevailing economic conditions and to financial, business and
other factors beyond its control. In addition, after giving effect to the
Company's interest rate swap agreement, all of the Company's indebtedness bears
interest at floating rates causing the Company to be sensitive to changes in
prevailing interest rates.
COMPETITION AND OTHER BUSINESS FACTORS
The women's retail apparel industry is highly competitive. Ann Taylor
competes primarily with better department stores, specialty retailers and
boutiques engaged in the retail sale of better quality women's apparel, many of
which are larger and have greater resources than the Company. Sales and earnings
of the Company depend to a significant extent upon its ability to respond to
changes in fashion trends. The Company's future performance will be subject to a
number of factors beyond its control, including economic downturns, cyclical
variations in the retail market for better quality women's apparel and rapid
changes in fashion preferences. In addition, in order to increase store square
footage at anticipated rates, the Company will have to continue to expand
through both new store openings and expansion of square footage of existing
stores. Such growth will be dependent upon general economic and business
conditions affecting consumer confidence and spending, the availability of
desirable locations and the negotiation of acceptable lease terms. In December
1993, the Company announced that it will be relocating its 12,500 square foot
flagship store on East 57th Street in New York City, which represented
approximately 2.9% of net sales in fiscal 1993, upon the expiration of that
store's lease in February 1995. The Company is exploring several alternatives,
but has not yet entered into a lease for a new location.
CONTROL OF THE COMPANY
After completion of the Offerings, the ML Entities will own approximately
32.6% of the outstanding Common Stock (approximately 29.3% if the Underwriters'
over-allotment option is exercised in full). Consequently, the ML Entities,
which will continue to have two designees on the Company's Board of Directors,
will continue to be in a position to influence the management of the Company.
See "Selling Stockholders".
6
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information for the five years ended
January 29, 1994 is derived from the audited consolidated financial statements
of the Company. References herein to years are to the Company's 52-or 53-week
fiscal year, which ends on the Saturday nearest January 31 in the following
calendar year. All fiscal years for which financial information is included in
this Prospectus had 52 weeks, except fiscal 1989, which had 53 weeks. This
summary data is qualified in its entirety by the detailed information and
consolidated financial statements, including notes thereto, and management's
discussion and analysis included or incorporated by reference herein. See
"Documents Incorporated by Reference" and Annex I hereto.
<TABLE><CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------
JAN. 29, JAN. 30, FEB. 1, FEB. 2, FEB. 3,
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SQUARE FOOT
AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT INFORMATION:
Net sales, including leased shoe departments (a)........ $ 501,649 $ 468,381 $ 437,711 $ 410,782 $ 353,912
Cost of sales........................................... 271,749 264,301 234,136 217,414 189,293
--------- --------- --------- --------- ---------
Gross profit........................................ 229,900 204,080 203,575 193,368 164,619
Selling, general and administrative expenses............ 169,371 152,072 150,842 125,872 109,598
Distribution center restructuring charge (b)............ 2,000 -- -- -- --
Amortization of goodwill (c)............................ 9,508 9,504 9,506 9,484 9,711
--------- --------- --------- --------- ---------
Operating income.................................... 49,021 42,504 43,227 58,012 45,310
Interest expense (d).................................... 17,696 21,273 33,958 50,081 55,858
Stockholder litigation settlement (e)................... -- 3,905 -- -- --
Other (income) expense, net............................. (194) 259 542 168 29
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary loss.................................... 31,519 17,067 8,727 7,763 (10,577)
Income tax provision.................................... 17,189 11,150 7,703 6,657 600
--------- --------- --------- --------- ---------
Income (loss) before extraordinary loss................. 14,330 5,917 1,024 1,106 (11,177)
Extraordinary loss (f).................................. 11,121 -- 16,835 -- --
--------- --------- --------- --------- ---------
Net income (loss)................................... 3,209 5,917 (15,811) 1,106 (11,177)
Preferred stock dividend................................ -- -- -- -- (1,000)
--------- --------- --------- --------- ---------
Net income (loss) applicable to Common Stock............ $ 3,209 $ 5,917 $ (15,811) $ 1,106 $ (12,177)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per share before extraordinary loss....... $ .66 $ .28 $ .05 $ .08 $ (.91)
Extraordinary loss per share (f)........................ .51 -- .87 -- --
--------- --------- --------- --------- ---------
Net income (loss) per share............................. $ .15 $ .28 $ (.82) $ .08 $ (.91)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding (in thousands)...... 21,929 21,196 19,326 14,160 13,312
OPERATING INFORMATION:
Percentage increase (decrease) in total
comparable store sales (g)(h)......................... 2.3% (1.0)% (5.6)% 2.3% 14.3%
Percentage increase (decrease) in owned
comparable store sales (g)(h)(i)...................... 4.0% 0.8% (0.9)% 5.1% 16.5%
Average net sales per gross square foot (g)(j).......... $ 576 $ 600 $ 642 $ 740 $ 771
Number of stores:
Open at beginning of the period..................... 219 200 170 139 119
Opened during the period............................ 13 20 33 32 21
Expanded during the period.......................... 12 5 3 3 2
Closed during the period............................ 1 1 3 1 1
Open at end of the period........................... 231 219 200 170 139
Total square footage at end of the period............... 929,000 814,000 746,000 616,000 492,000
BALANCE SHEET INFORMATION (AT END OF PERIOD):
Working capital......................................... $ 53,283 $ 29,539 $ 26,224 $ 42,234 $ 23,705
Goodwill, net (c)....................................... 332,537 342,045 351,549 361,055 370,539
Total assets............................................ 513,399 487,592 491,747 510,724 493,160
Total debt.............................................. 189,000 195,474 211,917 380,362 365,787
Stockholders' equity.................................... 259,271 245,298 229,464 47,483 57,532
</TABLE>
(Footnotes on following page)
7
<PAGE>
(Footnotes for preceding page)
<TABLE>
<S> <C>
(a) Prior to 1990, all shoes sold in Ann Taylor stores were sold in leased shoe departments. The Company
introduced Ann Taylor brand shoes in 1990 and phased out the leased shoe departments over a two and a half
year period ended February 1, 1993.
(b) Relates to the relocation of the Company's distribution center, expected to be completed in early 1995, and
represents a charge of $1,100,000 principally for severance and job training benefits and $900,000 for the
write-off of the net book value of certain assets that are not expected to be used in the new facility. This
charge reduced 1993 net earnings by $.05 per share.
(c) As a result of the Acquisition, which was effective as of January 29, 1989, the excess of the allocated
purchase price over the fair value of the Company's net assets of $380,250,000 was recorded as goodwill and
is being amortized on a straight-line basis over 40 years.
(d) Includes non-cash interest expense of $4,199,000, $8,581,000, $12,243,000, $18,294,000 and $13,819,000 in
fiscal 1993, 1992, 1991, 1990 and 1989, respectively, from accretion of original issue discount and the
amortization of deferred financing costs and, in 1992, 1991 and 1990, issuance of additional 10% junior
subordinated exchange notes due 2004.
(e) Relates to the settlement in January 1993 of a stockholder class action lawsuit that was filed against the
Company and certain other defendants in October 1991.
(f) In fiscal 1993, Ann Taylor incurred an extraordinary loss of $17,244,000 ($11,121,000, or $.51 per share, net
of income tax benefit) in connection with the refinancing of its long-term debt. In fiscal 1991, Ann Taylor
incurred an extraordinary loss of $25,900,000 ($16,835,000, or $.87 per share, net of income tax benefit) in
connection with the repurchase of outstanding debt securities with the proceeds from the initial public
offering of the Company's Common Stock.
(g) Percentage changes in comparable store sales and average net sales per gross square foot have been adjusted
so that all figures relate to a 52-week year.
(h) Comparable store sales are calculated by excluding the net sales of a store for any month of one period if
the store was not open during the same month of the prior period. A store opened within the first two weeks
of a month is deemed to have been opened on the first day of that month and a store opened thereafter in a
month is deemed to have been opened on the first day of the next month. For example, if a store were opened
on June 8, 1992, its sales from June 8, 1992 through year-end 1992 and its sales from June 1, 1993 through
year-end 1993 would be included in determining comparable store sales for 1993 compared to 1992. In addition,
in a year with 53 weeks (such as 1989) the extra week is not included in determining comparable store sales.
For the periods previous to 1993, when a store's square footage has been increased as a result of expansion
or relocation in the same mall or specialty center, the store continues to be treated as a comparable store.
Commencing with stores expanded in fiscal 1993, any store the square footage of which is expanded by more
than 15% is treated as a new store upon the reopening of the expanded store.
(i) Excludes sales from leased shoe departments.
(j) Average net sales per gross square foot is determined by dividing net sales by the average of the gross
square feet at the beginning and end of each period. Unless otherwise indicated, references herein to square
feet are to gross square feet, rather than net selling space.
</TABLE>
8
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the New York Stock Exchange under the symbol
"ANN". The following table sets forth, for the periods indicated, the high and
low closing sale prices of the Common Stock as reported on the New York Stock
Exchange Composite Tape.
<TABLE><CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1992
First Quarter............................................. $ 23 1/8 $ 16 1/2
Second Quarter............................................ 24 5/8 18 3/4
Third Quarter............................................. 24 1/4 16 3/4
Fourth Quarter............................................ 24 3/8 19 1/4
Fiscal 1993
First Quarter............................................. $ 23 1/4 $ 17 7/8
Second Quarter............................................ 27 7/8 20
Third Quarter............................................. 29 5/8 22 7/8
Fourth Quarter............................................ 28 1/4 20 7/8
Fiscal 1994
First Quarter (through April 19, 1994).................... $ 36 $ 20 7/8
</TABLE>
On April 19, 1994, the last reported sale price of Common Stock on the New
York Stock Exchange Composite Tape was $32 1/4.
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and does not
intend to pay dividends for the foreseeable future. As a holding company, the
ability of the Company to pay dividends is dependent upon the receipt of
dividends or other payments from Ann Taylor. The payment of dividends by Ann
Taylor to the Company is subject to certain restrictions under the Bank Credit
Agreement and the indenture relating to Ann Taylor's 8 3/4% Subordinated Notes
due 2000. The payment of cash dividends on the Common Stock is also subject to
certain restrictions contained in the Company's guarantee of Ann Taylor's
obligations under the Bank Credit Agreement. Any determination to pay cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at that time by the Company's Board of Directors.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 shares of Common
Stock by the Company in the Offerings are estimated to be approximately
$30,600,000 (net of underwriting discounts and estimated expenses payable by
the Company). The Company intends to use such net proceeds to pay down amounts
outstanding under the term loan (the "Term Loan") under the Bank Credit
Agreement in accordance with the terms of such agreement. The Term Loan, which
was used in part to discharge Ann Taylor's then outstanding subordinated notes,
had an aggregate amount outstanding of $54,000,000 at January 29, 1994. The Term
Loan has a maturity date of January 15, 1999 and, on January 29, 1994, the
weighted average interest rate on borrowings under the Term Loan was 5.13%. The
Company will not receive any of the proceeds of the sale of shares by the
Selling Stockholders. The Company and the Selling Stockholders have agreed
to share expenses incurred in connection with the Offerings proportionately
based upon the number of shares sold by each of them.
9
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at January 29, 1994, and as adjusted to give effect to the sale of
1,000,000 shares of Common Stock by the Company in the Offerings and the
application of an estimated $30,600,000 of net proceeds therefrom, based on an
assumed offering price of $32 1/4 per share, to repay outstanding indebtedness
as described in "Use of Proceeds".
<TABLE><CAPTION>
JANUARY 29, 1994
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt................................. $ 8,757 $ 3,795
----------- -----------
----------- -----------
Long-term debt:
Term loan....................................................... $ 45,243 $ 19,605
Revolving credit loan........................................... 2,000 2,000
Receivables facility............................................ 33,000 33,000
Subordinated notes.............................................. 100,000 100,000
----------- -----------
Total long-term debt......................................... 180,243 154,605
----------- -----------
Stockholders' equity:
Common stock.................................................... 149 156
Additional paid-in capital...................................... 271,810 302,403
Warrants........................................................ 7,378 7,378
Accumulated deficit............................................. (16,756) (16,756)
Deferred compensation........................................... (119) (119)
Less: treasury stock............................................ (3,191) (3,191)
----------- -----------
Total stockholders' equity................................... 259,271 289,871
----------- -----------
Total capitalization....................................... $ 439,514 $ 444,476
----------- -----------
----------- -----------
</TABLE>
10
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by each Selling Stockholder as of March 15,
1994 and as adjusted to reflect the sale in the Offerings of the 4,000,000
shares of Common Stock offered by the Selling Stockholders. Except as otherwise
noted, the following information assumes no exercise of the over-allotment
option granted to the Underwriters by the Selling Stockholders.
<TABLE><CAPTION>
OWNERSHIP PRIOR OWNERSHIP
TO THE OFFERINGS AFTER THE OFFERINGS
----------------------------- -----------------------------
NO. OF
NO. OF SHARES NO. OF
SHARES OF PERCENT OF BEING SHARES OF PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK OFFERED COMMON STOCK COMMON STOCK
- ------------------------------------------- -------------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Capital Partners (a) (b)..... 8,933,013 40.7% 3,114,366 5,818,647 25.4%
ML IBK Positions, Inc. (a) (c)............. 1,583,867 7.2% 552,192 1,031,675 4.5
Merchant Banking L.P. No. III (a) (c)...... 631,480 2.9% 220,156 411,324 1.8
KECALP Inc. (a) (c) (d).................... 324,941 1.5% 113,286 211,655 0.9
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Each of the ML Entities is an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), one of the U.S. Underwriters, and Merrill Lynch International Limited, one of the International
Underwriters. The ML Entities beneficially own an aggregate of 11,473,301 shares, approximately 52.3%, of the
outstanding Common Stock and, after the Offerings, will continue to own approximately 32.6% of the
outstanding Common Stock (29.3% if the Underwriters' over-allotment option is exercised in full). The ML
Entities have two designees on the Company's Board of Directors and, following the Offerings, will continue
to be in a position to influence the management of the Company. The ML Entities shown are deemed to have
shared voting and investment power with other Merrill Lynch affiliates with respect to the shares of Common
Stock shown to be beneficially owned by them.
(b) Shares of Common Stock beneficially owned by ML Capital Partners are owned of record as follows: 5,598,309 by
Merrill Lynch Capital Appreciation Partnership No. B-II, L.P., 3,279,220 by ML Offshore LBO Partnership No.
B-II, and 55,484 by MLCP Associates L.P. No. I. ML Capital Partners is the indirect managing general partner
of Merrill Lynch Capital Appreciation Partnership No. B-II, L.P., the indirect investment general partner of
ML Offshore LBO Partnership No. B-II, and the general partner of MLCP Associates L.P. No. I. The address for
ML Capital Partners and each of the aforementioned recordholders is 767 Fifth Avenue, New York, New York
10153.
(c) The address of ML IBK Positions, Inc., Merchant Banking L.P. No. III, KECALP Inc., Merrill Lynch KECALP L.P.
1987 and Merrill Lynch KECALP L.P. 1989 is North Tower, World Financial Center, New York, New York 10281.
(d) Shares of Common Stock beneficially owned by KECALP Inc. are owned of record as follows: 310,235 by Merrill
Lynch KECALP L.P. 1989 and 14,706 by Merrill Lynch KECALP L.P. 1987. KECALP Inc. is the general partner of
each of these two entities.
</TABLE>
11
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.0068 per share, and 2,000,000 shares of preferred
stock, par value $.01 per share. Ann Taylor's authorized capital stock consists
of 1,000 shares of common stock, par value $1.00 per share, of which one share
is issued and outstanding and is owned by the Company.
COMMON STOCK
All outstanding shares of Common Stock are fully paid and nonassessable and
holders thereof have no redemption, preemptive or subscription rights.
Subject to the rights of any holders of preferred stock, the holders of
shares of Common Stock are entitled to share ratably in such dividends as may be
declared by the Board of Directors and paid by the Company out of funds legally
available therefor and, upon dissolution and liquidation, to share ratably in
the net assets available for distribution to stockholders. Holders of shares of
Common Stock are entitled to one vote per share for the election of directors
and on all matters to be submitted to a vote of the Company's stockholders.
The Company has never paid dividends on the Common Stock and does not
intend to pay dividends for the foreseeable future. The payment of cash
dividends on the Common Stock is restricted by the terms of the agreements
governing Ann Taylor's long-term debt. See "Price Range of Common Stock" and
"Dividend Policy".
The Common Stock is listed on the New York Stock Exchange.
PREFERRED STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
Board of Directors (without stockholder approval) to, among other things, issue
shares of preferred stock from time to time in one or more series, each series
to have such powers, designations, preferences and rights, and qualifications,
limitations or restrictions thereof, as may be determined by the Board of
Directors. The Company currently has no shares of preferred stock outstanding.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors of the Company is divided into three classes serving staggered
three-year terms. Directors can be removed from office only for cause and only
by the affirmative vote of the holders of a majority of the then-outstanding
shares of capital stock entitled to vote generally in an election of directors.
Vacancies on the Board of Directors may be filled only by the remaining
directors and not by the stockholders.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company may be effected only at
an annual or special meeting of stockholders, and prohibits stockholder action
by written consent in lieu of a meeting. The Company's By-laws provide that
special meetings of stockholders may be called only by the chairman, the
president or the secretary of the Company and must be called by any such officer
at the request in writing of the Board of Directors. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting of stockholders.
The By-laws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise business at such meetings must be received by the
Company not less than
12
<PAGE>
60 nor more than 90 days prior to the anniversary of the previous year's annual
meeting, and must contain certain specified information concerning the person to
be nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.
The foregoing summary is qualified in its entirety by the provisions of the
Company's Certificate of Incorporation and By-laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
After completion of the Offerings, the ML Entities will continue to own
approximately 32.6% of the outstanding Common Stock (approximately 29.3% if the
Underwriters' over-allotment option is exercised in full). The ML Entities have
two designees on the Company's Board of Directors and, following the Offerings,
will continue to be in a position to influence the management of the Company.
See "Selling Stockholders".
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above. These provisions will not limit the liability
of directors under federal securities laws.
13
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. STOCKHOLDERS
The following is a general discussion of certain of the United States
federal tax consequences of the acquisition, ownership and disposition of shares
of Common Stock by non-U.S. holders. For purposes of this discussion, a
"non-U.S. holder" is any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in the United States or under the laws of the United States or of any
State, or (iii) an estate or trust whose income is includible in gross income
for United States federal income tax purposes regardless of its source. This
discussion does not consider any specific facts or circumstances that may apply
to a particular non-U.S. holder. Furthermore, the following discussion is based
on current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and administrative and judicial interpretations as of the date hereof,
all of which are subject to change. Each prospective non-U.S. holder is urged to
consult its own tax adviser with respect to the United States federal income and
estate tax consequences of acquiring, owning and disposing of shares of Common
Stock, as well as any tax consequences arising under the laws of any state,
local or other taxing jurisdiction.
DIVIDENDS
In general, dividends paid to a non-U.S. holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the non-U.S. holder within the United
States, or (ii) if a tax treaty applies, attributable to a United States
permanent establishment maintained by the non-U.S. holder. Dividends effectively
connected with such trade or business or attributable to such permanent
establishment will generally be subject to United States federal income tax at
regular rates and, in the case of a corporation, may be subject to the branch
profits tax. To determine the applicability of a tax treaty providing for a
lower rate of withholding, dividends paid to an address in a foreign country are
presumed under current Treasury regulations to be paid to a resident of that
country. However, if Treasury regulations proposed in 1984 are finally adopted,
non-U.S. holders will be required to file certain forms to obtain the benefit of
any applicable tax treaty providing for a lower rate of withholding tax on
dividends.
GAIN ON DISPOSITION
A non-U.S. holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) the Company is or has been a "U.S. real property holding corporation"
for United States federal income tax purposes (which the Company does not
believe that it is or likely to become) and the non-U.S. holder disposing of the
share owned, directly or constructively, at any time during the five-year period
preceding the disposition, more than five percent of the Common Stock; (ii) the
gain is effectively connected with the conduct of a trade or business within the
United States or the non-U.S. holder or, if a tax treaty applies, attributable
to a permanent establishment maintained within the United States by a non-U.S.
holder; (iii) in the case of a non-U.S. holder who is an individual, holds the
share as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition, either (a) such non-U.S. holder has
a "tax home", for U.S. federal income tax purposes, in the United States, and
the gain from the disposition is not attributable to an office or other fixed
place of business maintained by such non-U.S. holder in a foreign country, or
(b) the gain from the disposition is attributable to an office or fixed place of
business maintained by such non-U.S. holder in the United States; or (iv) the
non-U.S. holder is subject to tax pursuant to provisions of the Code applicable
to certain United States expatriates.
14
<PAGE>
FEDERAL ESTATE TAX
Shares of Common Stock owned or treated as owned by an individual non-U.S.
holder at the time of death will be includible in the individual's gross estate
for United States federal estate tax purposes unless an applicable estate tax
treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS
The Company must report annually to the Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable tax
treaty. Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the non-U.S. holder resides. United States backup withholding
tax (which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons who fail to furnish the information required under the
United States information reporting requirements) will generally not apply to
dividends paid on Common Stock to a non-U.S. holder at an address outside the
United States.
The payment of the proceeds of the disposition of Common Stock by a
non-U.S. holder to or through the United States office of a broker will be
subject to information reporting and backup withholding at a rate of 31 percent
unless the owner certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the disposition by a non-U.S. holder of Common Stock to or through a non-U.S.
office of a broker will generally not be subject to backup withholding and
information reporting. However, in the case of proceeds from the disposition of
Common Stock paid to or through a non-U.S. office of a broker that is a United
States person, a United States "controlled foreign corporation" for U.S. federal
income tax purposes or any other person 50 percent or more of whose gross income
from all sources for a certain three-year period was effectively connected with
a United States trade or business, information reporting will apply unless the
broker has documentary evidence in its files of the owner's status as a non-U.S.
holder.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded (or credited against the non-U.S. holder's
United States federal income tax liability, if any) provided that the required
information is furnished to the Internal Revenue Service.
The backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to the Common Stock is
subject to change.
15
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. Purchase
Agreement (the "U.S. Purchase Agreement") among the Company, the Selling
Stockholders and each of the Underwriters named below (the "U.S. Underwriters"),
and concurrently with the sale of 1,000,000 shares of Common Stock to the
International Underwriters (as defined below), the Company and the Selling
Stockholders severally have agreed to sell to each of the U.S. Underwriters, and
each of the U.S. Underwriters severally has agreed to purchase, the aggregate
number of shares of Common Stock set forth opposite its name below.
<TABLE><CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- -------------------------------------------------------------------------------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................................
William Blair & Company.........................................................
Morgan Stanley & Co. Incorporated...............................................
Robertson, Stephens & Company, L.P..............................................
-----------
Total........................................................................... 4,000,000
-----------
-----------
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated, William Blair &
Company, Morgan Stanley & Co. Incorporated and Robertson, Stephens & Company,
L.P. are acting as representatives (the "U.S. Representatives") of the U.S.
Underwriters.
The Company and the Selling Stockholders have also entered into an
International Purchase Agreement (the "International Purchase Agreement") with
certain underwriters outside the United States and Canada (the "International
Underwriters") for whom Merrill Lynch International Limited, William Blair &
Company, Morgan Stanley & Co. International Limited and Robertson, Stephens &
Company, L.P. are acting as Co-Lead Managers (the "Co-Lead Managers"). Subject
to the terms and conditions set forth in the International Purchase Agreement,
and concurrently with the sale of 4,000,000 shares of Common Stock to the U.S.
Underwriters, the Company and the Selling Stockholders severally have agreed to
sell to the International Underwriters, and the International Underwriters
severally have agreed to purchase, an aggregate of 1,000,000 shares of Common
Stock. The offering price per share and the total underwriting discount per
share are identical under the U.S. Purchase Agreement and the International
Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Agreement if any of the shares of Common Stock being sold pursuant to
each such Agreement are purchased. Under certain circumstances, the commitments
of non-defaulting U.S. Underwriters or International Underwriters may be
increased. The purchases of Common Stock by the U.S. Underwriters and the
International Underwriters are conditioned upon one another.
The U.S. Underwriters propose initially to offer the shares to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain selected dealers (who may include U.S. Underwriters) at such price
less a concession not in excess of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
to certain other dealers. After the public offering, the public offering price,
concession and discount may be changed.
The Selling Stockholders have granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date hereof, to purchase up to an
aggregate of 600,000 additional shares of Common Stock at the public offering
price set forth on the cover page hereof, less the underwriting discount. The
U.S. Underwriters may exercise this option only to cover over-allotments, if
any, made on the sale of shares of Common Stock offered hereby. To the extent
that the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase
16
<PAGE>
approximately the number of additional shares of Common Stock proportionate to
such U.S. Underwriter's initial amount reflected in the foregoing table. The
Selling Stockholders have also granted an option to the International
Underwriters, exercisable during the 30-day period after the date hereof, to
purchase up to an aggregate of 150,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
The U.S. Underwriters and the International Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the U.S. Underwriters and the International
Underwriters of such number of shares of Common Stock as may be mutually agreed.
The prices of any shares of Common Stock so sold shall be the public offering
price, less an amount not greater than the selling concession.
For information regarding the ownership by affiliates of Merrill Lynch of
Common Stock and the representation of affiliates of Merrill Lynch on the Board
of Directors of the Company, see "Selling Stockholders".
Because the Company is an affiliate of Merrill Lynch, one of the U.S.
Underwriters, the U.S. Offering is being conducted in accordance with the
applicable provisions of Schedule E of the By-Laws ("Schedule E") of the
National Association of Securities Dealers, Inc. ("NASD"). In accordance with
Schedule E, no NASD member participating in the distribution will be permitted
to confirm sales to accounts over which it exercises discretionary authority
without the prior specific written consent of the customer. In addition, under
the rules of the NYSE, Merrill Lynch is precluded from issuing research reports
that make recommendations with respect to the Common Stock for so long as the
Company is an affiliate of Merrill Lynch.
Each of the Company, the Selling Stockholders and certain officers of the
Company will agree, for a period of 120 days after the effective date of the
Registration Statement of which this Prospectus is a part, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, or
any rights or warrants to acquire Common Stock, without the prior written
consent of Merrill Lynch.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Underwriters against certain liabilities,
including liabilities under the Securities Act.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to persons who are non-United States or Canadian
persons or to persons they believe intend to resell to persons who are
non-United States or Canadian persons, and the International Underwriters and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to United States or Canadian persons or to persons
they believe intend to resell to United States or Canadian persons, except, in
each case, for transactions pursuant to the Intersyndicate Agreement.
17
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed
upon for the Company by Jocelyn F.L. Barandiaran, Esq., Vice President, General
Counsel and Corporate Secretary of the Company, and by Skadden, Arps, Slate,
Meagher & Flom, Wilmington, Delaware, and for the Underwriters by Shearman &
Sterling, New York, New York. Skadden, Arps, Slate, Meagher & Flom occasionally
acts as counsel to certain of the Underwriters. Shearman & Sterling occasionally
acts as counsel to ML Capital Partners and the ML Entities. Ms. Barandiaran has
been granted options to purchase 40,000 shares of Common Stock.
EXPERTS
The financial statements as of January 29, 1994 and January 30, 1993 and
for each of the three years in the period ended January 29, 1994 included and
incorporated by reference in this prospectus from the Company's Annual Report on
Form 10-K for the fiscal year ended January 29, 1994 have been audited by
Deloitte & Touche, independent auditors, as stated in their report, which is
included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
18
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
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 (FEE REQUIRED).
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
COMMISSION FILE NO. 33-28522
ANNTAYLOR STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3499319
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
142 WEST 57TH STREET, NEW YORK, NY 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 541-3300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, THE NEW YORK STOCK EXCHANGE
$.0068 PAR VALUE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE.
Indicate by check mark whether 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. Yes X 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. Yes X No __.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 15, 1994 was $342,335,184.
The number of shares of the registrant's Common Stock outstanding as of
March 15, 1994 was 21,891,130.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
AnnTaylor Stores Corporation (the "Company"), through its wholly owned
subsidiary, AnnTaylor, Inc. ("Ann Taylor"), is a leading national specialty
retailer of better quality women's apparel, shoes and accessories sold primarily
under the Ann Taylor brand name. As of January 29, 1994, the Company operated
231 stores in 38 states and the District of Columbia.
The Company is a holding company that was incorporated under the laws of
the state of Delaware in 1988 under the name AnnTaylor Holdings, Inc. The
Company changed its name to AnnTaylor Stores Corporation in April 1991. Unless
the context indicates otherwise, all references herein to the Company include
the Company and its wholly owned subsidiary Ann Taylor.
The first Ann Taylor store was opened in New Haven, Connecticut in 1954.
Over the years, the number of stores gradually expanded and by 1981 there were
36 stores. Allied Stores Corporation ("Allied Stores") acquired the then parent
of Ann Taylor in 1981 and began a rapid expansion program for the Ann Taylor
stores, which continued after Allied Stores was acquired by the Campeau
Corporation in 1986. Ann Taylor grew significantly after 1981, with the number
of stores increasing to 119 by the end of 1988, at which time Ann Taylor was
acquired by the Company (the "Acquisition"). Since the Acquisition, the number
of stores has increased to 231.
In May 1991, the Company completed an initial public offering (the "IPO")
in which it issued and sold 6,882,395 shares of its common stock, par value
$.0068 per share (the "Common Stock"), at a price of $26.00 per share, resulting
in aggregate net proceeds of approximately $166,541,000 (after payment of
expenses of the offering by the Company). The net proceeds from the IPO were
used to repurchase certain debt securities issued by Ann Taylor in connection
with financing the Acquisition.
The Company's merchandising strategy focuses on achieving the "Ann Taylor
look," which emphasizes classic styles, updated to reflect current fashion
trends. The Company considers the Ann Taylor name a fashion brand, defining a
distinctive collection of career and casual separates, weekend wear, dresses,
tops, accessories and shoes, coordinated as part of a total wardrobing strategy.
The Company's total wardrobing strategy is reinforced by an emphasis on
customer service. Ann Taylor sales associates assist customers in merchandise
selection and wardrobe coordination, helping them achieve the Ann Taylor look
while reflecting the customers' personal styles. The Company believes that its
customer base consists primarily of relatively affluent, fashion-conscious women
from the ages of 20 to 50, and that the majority of its customers are working
women with limited time to shop who are attracted to Ann Taylor by its focused
merchandising and total wardrobing strategies, personalized customer service,
efficient store layouts and continual flow of new merchandise.
Since becoming Chairman and Chief Executive Officer in February 1992, Sally
Frame Kasaks has redirected the Company's merchandising and marketing efforts to
enhance the position of Ann Taylor as a fashion brand. The Company's strategy
has been broadened to include not only the opening of new stores in new and
existing markets, but also the expansion of existing stores and the introduction
of product line extensions and additional channels of distribution. The
principal elements of the Company's strategy include:
. Emphasis on product design and development to reinforce the exclusivity
of Ann Taylor merchandise, by expanding the Company's fabric and
merchandise design team.
. Renewed focus on consistent quality and fit, by strengthening the
production management team responsible for technical design and factory
and merchandise quality assurance.
. Development of the Company's global and direct sourcing capabilities, to
reduce costs and shorten lead times. The Company increased its
merchandise purchases through its direct sourcing joint venture, which
acts as an agent exclusively for Ann Taylor, placing orders directly with
manufacturers, from 7.3% of merchandise purchased in fiscal 1992 to 23.5%
in fiscal 1993.
<PAGE>
. Development of a merchandise pricing structure that emphasizes consistent
everyday value rather than promotions, adding to the credibility of the
Ann Taylor brand.
. Introduction of product line extensions building on the strength of the
Ann Taylor brand name. In fall 1992, the Company increased its presence
in casual wear by introducing its own line of denim known as ATdenim,
that is now sold in all Ann Taylor stores. In fall 1993, Ann Taylor
petites were tested in the career separates and dress categories in 25
stores. By fall 1994, a broader range of Ann Taylor petites will be
carried in approximately 100 Ann Taylor stores. In fiscal 1994, the
Company plans to test an Ann Taylor signature fragrance and related
products.
. Introduction of two larger store prototypes. Most new and expanded stores
will be approximately 5,500 square feet, and, in certain premier markets,
new and expanded stores will be approximately 10,000 to 12,000 square
feet. These new store prototypes are designed to reinforce the Ann Taylor
total wardrobing concept, allow the proper presentation of Ann Taylor
product extensions, and improve customer service and ease of shopping.
. Introduction of additional channels of distribution. In fiscal 1993, the
Company introduced Ann Taylor Factory Stores which sell Ann Taylor
merchandise designed or produced specifically for the factory stores, in
addition to serving as a clearance vehicle for merchandise from Ann
Taylor stores. In fiscal 1994, the Company intends to test free standing
Ann Taylor shoe stores as an additional channel of distribution for Ann
Taylor brand footwear. The Company also views its fashion catalog, which
presently is used principally as an advertising vehicle, as a potential
future channel of distribution.
. Increased investment in more sophisticated point-of-sale and inventory
management systems, including the integration of the Company's
merchandise planning, store assortment planning, and merchandise
allocation and replenishment systems. These enhancements are designed to
enable the Company to manage its business more effectively and cost
efficiently by improving customer service and providing the ability to
better manage inventory levels.
. Construction of a 250,000 square foot national distribution center in
Louisville, Kentucky to replace, in early 1995, the Company's existing
90,000 square foot distribution facilities in Connecticut.
MERCHANDISING
Ann Taylor stores offer a distinctive collection of career and casual
separates, dresses, tops, weekend wear, shoes and accessories, consisting
primarily of exclusive Ann Taylor brand name fashions. The Company's
merchandising strategy focuses on achieving the "Ann Taylor look" which
emphasizes classic styles, updated to reflect current fashion trends. Ann Taylor
stores offer a variety of coordinated apparel and an assortment of shoes and
accessories, to enable customers to assemble complete outfits. Sales associates
are trained to assist customers in merchandise selection and wardrobe
coordination, helping them achieve the Ann Taylor look while reflecting the
customers' personal styles. The Company encourages sales associates to become
familiar with regular customers to assist these customers in finding merchandise
suited to their tastes and wardrobe needs. The Company has a liberal return
policy, which it believes is comparable to those offered by better department
stores and other specialty retail stores.
2
<PAGE>
The following table sets forth the approximate percentage of net sales
attributable to each merchandise group for the past three years:
<TABLE><CAPTION>
PERCENTAGE OF NET SALES
-------------------------------
MERCHANDISE GROUP 1993 1992 1991
- --------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Separates...................................................... 31.6% 31.0% 32.2%
Dresses........................................................ 17.3 20.7 19.1
Tops........................................................... 27.4 22.2 20.2
Weekend wear................................................... 11.7 11.1 9.7
Shoes (a)...................................................... 6.0 7.2 8.6
Accessories.................................................... 6.0 7.8 10.2
--------- --------- ---------
Total 100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(a) Includes net sales from Ann Taylor brand footwear in 1993, 1992 and 1991
(representing 6.0%, 5.5% and 4.9% of net sales, respectively) and net sales
through leased shoe departments located in Ann Taylor stores in 1992 and
1991. Leased shoe departments were phased out of Ann Taylor stores in stages
from August 1990 through February 1, 1993. As of February 1, 1993, there
were no leased shoe departments remaining at any Ann Taylor stores. See
"Shoes" below.
A principal element of the Company's business strategy is the introduction
of product line extensions. For example, Ann Taylor shoes, which were sold in 99
Ann Taylor stores in 1992, were expanded to 126 stores in fiscal 1993 and are
expected to be in over 155 stores by fall 1994. In fall 1992, the Company
increased its presence in casual wear by introducing its own line of denim known
as ATdenim, that is now sold in all Ann Taylor stores. In fall 1993, Ann Taylor
petites were tested in the career separates and dress categories in 25 stores.
By fall 1994, a broader range of Ann Taylor petites will be carried in
approximately 100 Ann Taylor stores. In fiscal 1994, the Company also plans to
test an Ann Taylor signature fragrance and related products.
MERCHANDISE DESIGN AND PRODUCTION
Ann Taylor merchandise is developed based upon current fashion trends and
analysis of prior year sales. The Company's merchandising and product
development groups determine needs for the upcoming season, design styles to
fill those needs and arrange for the production of merchandise either through
vendors who are private label specialists or directly with a factory.
The Company is continuing to develop its capability to source its
merchandise directly with manufacturers and decrease its dependence on vendors
who are not themselves manufacturers. The Company believes that direct sourcing
improves its competitive position by reducing costs and shortening lead times.
To this end, in May 1992, the Company commenced a joint venture known as CAT
U.S., Inc. ("CAT") with Cygne Designs, Inc., which was formed for the purpose of
sourcing Ann Taylor merchandise directly with manufacturers. The Company
currently owns a 40% interest in CAT. Merchandise purchased by Ann Taylor
through CAT represented 23.5% and 7.3% of all merchandise purchased by the
Company in 1993 and 1992, respectively. The Company expects its purchases
through CAT to increase to approximately 30% of all merchandise purchased in
1994.
In 1993, the Company purchased merchandise from approximately 285 vendors,
including five vendors who each accounted for 4% or more of the Company's
merchandise purchases: CAT (23.5%), Cygne Designs, Inc. (20.0%), Parigi (5.0%),
Depeche (4.6%) and Andrea Behar (4.3%). In 1993, over 95% of the Company's
merchandise was purchased from domestic vendors. The Company's domestic
suppliers include vendors who either manufacture merchandise or supply
merchandise manufactured by others, as well as vendors that are both
manufacturers and suppliers. Consistent with the retail apparel industry as a
whole, most of the Company's domestic vendors import a large portion of their
merchandise from abroad.
The Company does not maintain any long-term or exclusive commitments or
arrangements to purchase from any supplier, although it does have an equity
investment in CAT. The Company believes
3
<PAGE>
it has a good relationship with its suppliers and that, as the number of stores
increases and existing stores are expanded, there will continue to be adequate
sources that will be able to produce a sufficient supply of quality goods in a
timely manner and on satisfactory economic terms.
The Company's production management department establishes the technical
specifications for all Ann Taylor merchandise, inspects and certifies factories
in which Ann Taylor merchandise is produced, conducts periodic inspections of
factories while goods are in production to identify potential problems prior to
shipment by vendors of merchandise, and upon receipt, inspects merchandise on a
test basis for uniformity of sizes and colors, as well as for overall quality of
manufacturing. In addition to Company personnel, CAT also performs in-factory
quality control inspections on behalf of the Company with respect to all
merchandise orders CAT places.
INVENTORY CONTROL AND MERCHANDISE ALLOCATION
The Company's merchandise planning and allocation department analyzes each
store's size, location, demographics, sales and inventory history to determine
the quantity of merchandise to be purchased and the allocation of merchandise to
the Company's stores. Upon receipt, merchandise is allocated in order to achieve
an emphasis that is suited to each store's customer base. Each Ann Taylor store
carries merchandise in all merchandise groups and sizes (except shoes and
petites).
Merchandise typically is sold at its original marked price for several
weeks, with the length of time varying by item. The Company reviews its
inventory levels in order to identify slow-moving merchandise and broken
assortments (items no longer in stock in a sufficient range of sizes) and uses
markdowns to clear merchandise. Markdowns may be used if inventory exceeds
customer demand for reasons of style, seasonal adaptation, changes in customer
preference or if it is determined that the inventory in stock will not sell at
its currently marked price. Marked down items that are not sold after several
more weeks are generally moved to the Company's factory stores where additional
markdowns may be taken. Generally, inventory turns over approximately five times
annually.
The Company uses a centralized distribution system, under which all
merchandise is received, processed and shipped to the stores through the
Company's New Haven, Connecticut distribution facility virtually every business
day. The Company is constructing a 250,000 square foot distribution facility in
Louisville, Kentucky that will replace the Company's existing facilities by
early 1995. See "Properties" and "Management's Discussion and Analysis".
STORES
As of January 29, 1994, the Company operated 231 stores in 38 states and
the District of Columbia. The following table sets forth by state the stores
that were open as of January 29, 1994:
LOCATIONS BY STATE
NUMBER
OF
STATE STORES
- --------------------------- -------------
Alabama.................... 2
Arizona.................... 3
Arkansas................... 1
California................. 38
Colorado................... 3
Connecticut................ 10
District of Columbia....... 4
Florida.................... 17
Georgia.................... 4
Hawaii..................... 1
Illinois................... 11
Indiana.................... 2
Kentucky................... 2
Louisiana.................. 4
Maryland................... 5
Massachusetts.............. 12
Michigan................... 7
Minnesota.................. 4
Mississippi................ 1
Missouri................... 5
Nebraska................... 1
Nevada..................... 1
New Hampshire.............. 2
New Jersey................. 11
New Mexico................. 1
New York................... 22
North Carolina............. 3
Ohio....................... 9
Oklahoma................... 2
Oregon..................... 1
Pennsylvania............... 12
Rhode Island............... 1
South Carolina............. 1
Tennessee.................. 5
Texas...................... 12
Utah....................... 1
Virginia................... 7
Washington................. 2
Wisconsin.................. 1
4
<PAGE>
As of January 29, 1994, 111 stores were in regional malls, 54 stores were
in upscale specialty centers, 34 stores were in village locations, 23 stores
were in downtown locations and 9 stores were factory stores located in factory
outlet centers.
The Company selects store locations that it believes are convenient for its
customers and consistent with its upscale image. Store locations are determined
on the basis of various factors, including geographic location, demographic
studies, anchor tenants in a mall location, other specialty stores in a mall or
specialty center location or in the vicinity of a village location, and the
proximity to professional offices in a downtown or village location.
Ann Taylor stores opened prior to January 30, 1993 averaged 3,300 square
feet in size, with the exception of three stores that ranged between 10,300
square feet and 12,500 square feet. During 1992, the Company designed two new
store prototypes. The first is a store model of approximately 5,500 square feet,
on which most new and expanded stores opened in 1993 and in the future will be
based. The Company also designed a new larger store prototype of approximately
10,000 to 12,000 square feet, which is reserved for certain premier markets that
management believes can support such a store. Both new store prototypes
incorporate modified display features, fixtures and fitting rooms. The Company
believes that its new store prototypes enhance the Company's ability to
merchandise its customer offerings and reinforce its total wardrobing concept,
provide area necessary for the proper presentation of Ann Taylor shoes and other
product line extensions, and increase customer service and ease of shopping. The
typical Ann Taylor store has approximately 17% of its total square footage
allocated to stockroom and other non-selling space.
Outlet shopping is one of the fastest growing segments of the retail
apparel industry, appealing to consumers' increasing orientation to value and to
manufacturers' and retailers' desire for additional channels of distribution and
control over liquidation of their product. In 1993, the Company began testing
factory stores as an additional channel of distribution, by converting its four
then existing clearance centers to the factory store format and opening five new
factory stores in outlet malls. Ann Taylor Factory Stores sell Ann Taylor
merchandise manufactured specifically for the factory stores and having an
average initial price generally lower than the average initial price of
merchandise carried in Ann Taylor stores, as well as serve as a clearance
vehicle for merchandise from Ann Taylor stores. In 1993, approximately 36% of
all merchandise sold in Ann Taylor Factory Stores was manufactured specifically
for these stores.
EXPANSION
Ann Taylor has grown significantly since the Acquisition, with the number
of stores increasing from 119 at the beginning of 1989 to 231 at the end of
1993, and with net sales increasing from approximately $353,900,000 in 1989, to
approximately $501,600,000 in 1993. The following table sets forth certain
information regarding store openings, expansions and closings for Ann Taylor
stores ("ATS") and Ann Taylor Factory Stores ("ATO"), since the consummation of
the Acquisition in the beginning of the 1989 fiscal year:
<TABLE><CAPTION>
NUMBER OF STORES
--------------------------------------------------------------------------------------
ATS ATS OPEN AT
OPEN AT OPENED EXPANDED CLOSED END
FISCAL BEGINNING OF DURING DURING DURING OF FISCAL
YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR YEAR
- ---------------------------------------- --------------- ------------- --------------- --------------- ---------
ATS ATO ATS
----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1989.................................... 119(a) 20 1(b) 2 1 138
1990.................................... 139 29 3(b) 3 1 166
1991.................................... 170 33 0 3 3 196
1992.................................... 200 20 0 5 1 215
1993.................................... 219 8 5 12 1 222
<CAPTION>
FISCAL
YEAR
- ----------------------------------------
ATO
-----------
1989.................................... 1
1990.................................... 4
1991.................................... 4
1992.................................... 4
1993.................................... 9
</TABLE>
- ---------------
(a) Prior to 1989, the Company did not operate any factory stores or clearance
centers.
(b) Prior to 1993, ATO stores served only as clearance centers.
5
<PAGE>
An important aspect of the Company's business strategy is a real estate
expansion program that is designed to reach new customers through the opening of
new stores (including factory stores) and the expansion of existing stores. As
market conditions warrant and as sites become available, the Company adds
additional Ann Taylor stores or expands the size of existing stores, in major
cities and their affluent suburbs where Ann Taylor already has a presence. The
Company also opens new Ann Taylor stores in additional cities that it believes
have a sufficient concentration of its target customers. Ann Taylor Factory
Stores typically are located outside the shopping radius of Ann Taylor stores,
in outlet malls that feature factory outlet stores of other upscale brands.
Prior to 1993, the real estate expansion program focused primarily on adding new
Ann Taylor stores. The Company now views the expansion of existing stores and
the opening of factory stores as an integral part of the Company's expansion
strategy.
Once an appropriate site has been selected and a lease signed, the Company
generally requires a relatively short lead time to open a new store, with store
construction typically taking approximately three months.
In 1993, the Company opened 13 new stores (including 5 factory stores),
expanded 12 existing stores and closed one store, resulting in an increase in
the Company's total store square footage from approximately 814,000 square feet
to approximately 929,000 square feet, a net increase of approximately 115,000
square feet. Approximately 80% of this additional square footage was opened
during the second half of 1993. The Company expects to increase store square
footage by at least 200,000 square feet, or 21.5%, in 1994. The Company believes
that approximately 70% of this new square footage will be represented by new
stores, of which about half will be Ann Taylor stores and about half will be Ann
Taylor Factory Stores. The balance of the 1994 square footage increase will
result from store expansions. The Company intends to increase square footage by
approximately 200,000 square feet in each of fiscal 1995 and fiscal 1996. The
Company's ability to continue to increase store square footage will be dependent
upon general economic and business conditions affecting consumer confidence and
spending, the availability of desirable locations and the negotiation of
acceptable lease terms. See "Management's Discussion and Analysis--Liquidity and
Capital Resources" for a discussion of the restrictions on capital expenditures
in the Ann Taylor Bank Credit Agreement.
The average net construction cost to the Company of opening a new store,
after giving effect to landlord allowances, was approximately $197,000 (or $38
per square foot) in 1993, compared to $52,000 (or $18 per square foot) in 1992
and $114,000 (or $32 per square foot) in 1991. In most cases, the Company
receives allowances from landlords for the construction of new stores which
reduce the Company's construction costs. The higher per store net construction
costs in 1993 reflect the larger average store sizes, increased costs associated
with the new store prototypes and lower average landlord construction
allowances.
In 1993, 12 stores were expanded at an aggregate net construction cost to
the Company of $7,490,000, or $624,000 per store, after giving effect to
landlord allowances. Three of the 12 stores expanded in 1993 were expanded from
an average original size of approximately 3,000 square feet to the larger
"premier market" prototype. Accordingly, these stores cost more to expand than a
typical store expansion. The average gross construction cost per square foot to
expand a store is generally comparable to the gross cost per square foot of a
new store. Landlord allowances, however, are typically less for an expansion
than for a new store.
SHOES
As of January 29, 1994, Ann Taylor shoes were sold in 126 of the Company's
231 stores. The Company intends to include an Ann Taylor shoe department in each
new or expanded store, and, in 1994, plans to add shoes to approximately 20
other existing Ann Taylor stores. In addition, in 1994 the Company intends to
test free standing Ann Taylor shoe stores as an additional channel of
distribution for Ann Taylor brand footwear.
Prior to 1990, all shoes sold in Ann Taylor stores were sold in leased shoe
departments by Joan & David Helpern, Inc. ("Joan & David") pursuant to a license
agreement. In 1990, the Company
6
<PAGE>
introduced a line of Ann Taylor brand name shoes. Beginning in August 1990, Joan
& David began a scheduled withdrawal of its leased shoe departments, vacating
additional departments every six months through the end of fiscal 1992. As of
February 1, 1993, Joan & David no longer operated leased shoe departments in any
Ann Taylor stores.
Sales through leased shoe departments totaled $8,207,000, or 1.7% of net
sales, in 1992, and $16,056,000, or 3.7% of net sales, in 1991. There were no
leased shoe department sales during fiscal 1993. Net sales in 1993, 1992 and
1991 included $29,922,000, $25,638,000, and $21,527,000, respectively, in net
sales from the Ann Taylor brand name shoe line.
Under the terms of an amended license agreement, entered into in 1990, the
Company was entitled to a fee from Joan & David equal to 14.5% of Joan & David's
annual net sales through Ann Taylor stores, which, after employee discounts,
resulted in the Company retaining an amount equal to approximately 14.4% of such
sales. Joan & David was responsible for the costs associated with operating its
shoe departments. Persons who worked in the leased shoe departments were
employees of Joan & David and received all salary, bonus and commission payments
and benefits from Joan & David.
INFORMATION SYSTEMS
The Company is increasing its investment in computer hardware, systems
applications and networks to speed customer service, to support the purchase and
allocation of merchandise and to improve operating efficiencies.
In fall 1993, the Company began the roll out of a new point of sale system
to all Ann Taylor stores. The roll out will be completed by the summer of 1994.
Upon completion, the system will allow the introduction of a number of features
that will enable the Company to manage its business more effectively and cost
efficiently. These features include on-line receipts and transfers of inventory,
which will reduce paperwork and result in more timely inventory information; the
ability to take credit card applications and account look-up in the stores,
which will both improve customer service and reduce expense; and the ability to
send advance ship notices to stores prior to their receipt of merchandise,
allowing better labor scheduling in the stores and reducing expense. The new
system will permit automated promotional tracking, providing better information
to the stores on current promotions and providing the results of these
promotions to the Company's headquarters on a more timely basis, allowing the
Company to respond more quickly and accurately to customer preferences.
During 1994, the Company will upgrade the inventory management system. This
upgrade, along with the new point of sale system, will allow full price look-up
in the stores and provide for more timely information on inventory levels and
better analysis of sales trends. The enhanced information will also allow the
Company to more fully integrate its planning and allocation system. By the end
of 1995, the Company expects to have its merchandise planning system, store
assortment planning system, merchandise allocation system and merchandise
replenishment system completely integrated, allowing the Company to respond more
quickly to individual store trends and allocate merchandise more closely aligned
with an individual store's customer base. The Company is also initiating systems
integration with its suppliers. In spring 1994, the Company's first electronic
data interchange relationship will be implemented with a hosiery supplier,
allowing quicker response to sales and maintenance of inventory levels in line
with model stock levels.
CUSTOMER CREDIT
Customers may pay for merchandise with the Ann Taylor credit card, American
Express, Visa, MasterCard, cash or check. Credit card sales were 77.9% of net
sales in 1993, 77.6% in 1992, and 79.1% in 1991. In 1993, 31.5% of net sales
were made with the Ann Taylor credit card and 46.4% were made with third-party
credit cards. Accounts written off in 1993 were $1,390,000, or 0.3% of net
sales.
Ann Taylor has offered customers its proprietary credit card since 1976.
The Company believes that the Ann Taylor credit card enhances customer loyalty
while providing the customer with additional
7
<PAGE>
credit. At January 29, 1994, the Company had over 520,000 credit accounts that
had been used during the past 18 months.
ADVERTISING AND PROMOTION
The Company's principal advertising vehicle is its fashion catalog, which
it publishes four times per year and mails primarily to Ann Taylor credit card
holders. In 1993, the Company ran advertisements in the following national
women's fashion magazines: Elle, Vogue and Harpers Bazaar. The Company spent
$6,388,000 (1.3% of net sales) on advertising in 1993, compared to $5,509,000
(1.2% of net sales) in 1992 and $8,645,000 (2.0% of net sales) in 1991.
TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademark and service
mark "AnnTaylor". This mark is protected by several federal registrations in the
United States Patent and Trademark Office, covering clothing, shoes, jewelry and
certain other accessories, and clothing store services. The terms of these
registrations vary from ten to twenty years (expiring in 2003 and 2007), and
each is renewable indefinitely if the mark is still in use at the time of
renewal. The Company's rights in the "AnnTaylor" mark are a significant part of
the Company's business, as this mark is well-known in the women's retail apparel
industry. Accordingly, the Company intends to maintain its mark and the related
registrations. The Company is not aware of any claims of infringement or other
challenges to the Company's right to use its mark in the United States.
The Company owns registrations for the "AnnTaylor" mark for clothing in
Japan, Canada and Taiwan, and owns or has applied for registration for the
"AnnTaylor" mark for clothing and other goods in Japan and other countries as
well.
COMPETITION
The women's retail apparel industry is highly competitive. The Company
believes that the principal bases upon which it competes are fashion, quality,
value and service. The Company competes with certain departments in better
national department stores such as Neiman Marcus, Saks Fifth Avenue, Lord &
Taylor, Nordstrom and Bloomingdale's, as well as certain departments in regional
department stores, such as Macy's, Marshall Fields and Dillard's. The Company
believes that it competes with these department stores by offering a focused
merchandise selection, personalized service and convenience, as well as
exclusive Ann Taylor fashions, which distinguish its goods from the goods
carried by these department stores. Certain of the Company's product lines also
compete with other specialty retailers such as Talbots, Ralph Lauren, The
Limited, The Gap and Banana Republic. The Company believes that its focused
merchandise selection and exclusive Ann Taylor brand name fashions distinguish
it from other specialty retailers. Many of the Company's competitors are
considerably larger and have substantially greater financial, marketing and
other resources than the Company, and there is no assurance that the Company
will be able to compete successfully with them in the future.
EMPLOYEES
Store management receives compensation in the form of salaries and
performance-based bonuses. Sales associates are paid on an hourly basis plus
performance incentives. A number of programs exist that offer incentives to both
management and sales associates to increase sales and support the Company's
total wardrobing strategy. For example, certain incentive programs offer
individual associates cash awards for selling multiple wardrobe items and for
achieving individual sales goals. Other programs provide bonuses or cash awards
to all associates in a store that has achieved, for example, the highest
percentage increase in sales for a given period.
As of January 29, 1994, the Company had 3,741 employees, of whom 880 were
full-time salaried employees, 1,628 were full-time hourly employees and 1,233
were part-time hourly employees. None of the Company's employees are represented
by a labor union. The Company believes that its relationship with its employees
is good. As of January 29, 1994, approximately 90% of the Company's employees
were eligible to participate in the Company's health care benefits program.
8
<PAGE>
ITEM 2. PROPERTIES
As of January 29, 1994, the Company had 231 stores, all of which were
leased. The leases typically provide for an initial five-to ten-year term and
grant the Company the right to extend the term for one or two additional
five-year periods. In most cases, the Company pays a minimum rent plus a
contingent rent based on the store's net sales in excess of a specified
threshold. The contingent rental payment is typically 5% of net sales in excess
of the applicable threshold. Substantially all of the leases require the Company
to pay insurance, utilities and repair and maintenance expenses and contain tax
escalation clauses. The current terms of the Company's leases, including renewal
options, expire as follows:
YEARS LEASE NUMBER OF
TERMS EXPIRE STORES
---------------- -------------
1994-1996................................. 50
1997-1999................................. 20
2000-2002................................. 20
2003 and later............................ 141
Ann Taylor leases corporate offices at 142 West 57th Street, New York,
containing approximately 71,000 square feet. The lease for these premises
expires in 2006. Ann Taylor also leases office space in New Haven, which
contains approximately 31,000 square feet. The lease for these offices expires
in 1996.
Ann Taylor leases its New Haven distribution center, which contains 78,790
square feet. The lease for this facility expires on March 31, 1995, with an
option to extend this lease for an additional three months. In early 1994, the
Company announced that it will be purchasing property in Louisville, Kentucky on
which it will construct a 250,000 square foot facility that will replace the
Company's existing distribution center facilities in Connecticut in early 1995.
See "Management's Discussion and Analysis".
ITEM 3. LEGAL PROCEEDINGS
Ann Taylor has been named as a defendant in several legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to these actions cannot be accurately predicted, in the
opinion of the Company, any such liability will not have a material adverse
effect on the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed and traded on the New York Stock Exchange under
the symbol ANN. The number of holders of record of Common Stock at March 15,
1994 was 440. The following table sets forth the high and low closing sales
prices for the Common Stock on the New York Stock Exchange during fiscal 1993
and fiscal 1992.
<TABLE><CAPTION>
MARKET PRICE
--------------------
FISCAL YEAR 1992 HIGH LOW
--------- ---------
<S> <C> <C>
First quarter....................................................... $ 23 1/8 $ 16 1/2
Second quarter...................................................... 24 5/8 18 3/4
Third quarter....................................................... 24 1/4 16 3/4
Fourth quarter...................................................... 24 3/8 19 1/4
FISCAL YEAR 1993
First quarter....................................................... $ 23 1/4 $ 17 7/8
Second quarter...................................................... 27 7/8 20
Third quarter....................................................... 29 5/8 22 7/8
Fourth quarter...................................................... 28 1/4 20 7/8
</TABLE>
The Company has never paid dividends on the Common Stock and does not
intend to pay dividends in the foreseeable future. As a holding company, the
ability of the Company to pay dividends is dependent upon the receipt of
dividends or other payments from Ann Taylor. The payment of dividends by Ann
Taylor to the Company is subject to certain restrictions under Ann Taylor's bank
credit agreement (the "Bank Credit Agreement") and the indenture relating to the
$110,000,000 principal amount AnnTaylor, Inc. 8 3/4% Subordinated Notes due 2000
(the "8 3/4% Notes"). The payment of cash dividends on the Common Stock by the
Company is also subject to certain restrictions contained in the Company's
guarantee of Ann Taylor's obligations under the Bank Credit Agreement. Any
determination to pay cash dividends in the future will be at the discretion of
the Company's Board of Directors and will be dependent upon the Company's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant at that time by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information for the periods
indicated has been derived from the audited consolidated financial statements of
the Company. Such financial statements audited by Deloitte & Touche, independent
auditors, for the fiscal years 1993, 1992 and 1991 appear elsewhere in this
report. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis" and the consolidated financial statements
and notes thereto of the Company included elsewhere in this report. All
references to years are to the fiscal year of the Company, which ends on the
Saturday nearest January 31 in the following calendar year. All fiscal years for
which financial information is set forth below had 52 weeks, except 1989, which
had 53 weeks.
10
<PAGE>
<TABLE><CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------
JAN. 29, JAN. 30, FEB. 1, FEB. 2, FEB. 3,
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SQUARE FOOT DATA AND PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT INFORMATION:
Net sales, including leased shoe departments (a).... $ 501,649 $ 468,381 $ 437,711 $ 410,782 $ 353,912
Cost of sales....................................... 271,749 264,301 234,136 217,414 189,293
---------- ---------- ---------- ---------- ----------
Gross profit................................... 229,900 204,080 203,575 193,368 164,619
Selling, general and administrative expenses........ 169,371 152,072 150,842 125,872 109,598
Distribution center restructuring charge (b)........ 2,000 -- -- -- --
Amortization of goodwill (c)........................ 9,508 9,504 9,506 9,484 9,711
---------- ---------- ---------- ---------- ----------
Operating income............................... 49,021 42,504 43,227 58,012 45,310
Interest expense (d)................................ 17,696 21,273 33,958 50,081 55,858
Stockholder litigation settlement (e)............... -- 3,905 -- -- --
Other (income) expense, net......................... (194) 259 542 168 29
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary
loss................................................ 31,519 17,067 8,727 7,763 (10,577)
Income tax provision................................ 17,189 11,150 7,703 6,657 600
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary loss............. 14,330 5,917 1,024 1,106 (11,177)
Extraordinary loss (f).............................. 11,121 -- 16,835 -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. 3,209 5,917 (15,811) 1,106 (11,177)
Preferred stock dividend............................ -- -- -- -- 1,000
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common stock... $ 3,209 $ 5,917 $ (15,811) $ 1,106 $ (12,177)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income (loss) per share before extraordinary loss... $ .66 $ .28 $ .05 $ .08 $ (.91)
Extraordinary loss per share (f).................... (.51) -- (.87) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) per share......................... $ .15 $ .28 $ (.82) $ .08 $ (.91)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding
(in thousands).................................... 21,929 21,196 19,326 14,160 13,312
OPERATING INFORMATION:
Percentage increase (decrease) in total comparable
store sales (g)(h).................................. 2.3% (1.0)% (5.6)% 2.3% 14.3%
Percentage increase (decrease) in owned comparable
store sales (g)(h)(i)............................... 4.0% 0.8% (0.9)% 5.1% 16.5%
Average net sales per gross square foot (g)(j)...... $ 576 $ 600 $ 642 $ 740 $ 771
Number of stores:
Open at beginning of the period................ 219 200 170 139 119
Opened during the period....................... 13 20 33 32 21
Expanded during the period..................... 12 5 3 3 2
Closed during the period....................... 1 1 3 1 1
Open at the end of the period.................. 231 219 200 170 139
Capital expenditures................................ $ 25,062 $ 4,303 $ 10,004 $ 11,783 $ 6,146
Depreciation and amortization, including goodwill
(c)................................................. $ 18,013 $ 16,990 $ 15,709 $ 14,177 $ 14,662
Working capital turnover (k)........................ 12.1x 16.8x 12.8x 12.4x 13.0x
Inventory turnover (l).............................. 4.9x 5.3x 4.6x 4.6x 7.0x
BALANCE SHEET INFORMATION (AT END OF PERIOD):
Working capital..................................... $ 53,283 $ 29,539 $ 26,224 $ 42,234 $ 23,705
Goodwill, net (c)................................... 332,537 342,045 351,549 361,055 370,539
Total assets........................................ 513,399 487,592 491,747 510,724 493,160
Total debt.......................................... 189,000 195,474 211,917 380,362 365,787
Stockholders' equity................................ 259,271 245,298 229,464 47,483 57,532
</TABLE>
(Footnotes on following page)
11
<PAGE>
(Footnotes for preceding page)
<TABLE>
<S> <C>
(a) The phase out of leased shoe departments was completed by February 1, 1993.
(b) Relates to the relocation of the Company's distribution center, expected to be completed in early 1995, and
represents a charge of $1,100,000 principally for severance and job training benefits and $900,000 for the
write-off of the net book value of certain assets that are not expected to be used in the new facility. This
charge reduced 1993 net earnings by $.05 per share.
(c) As a result of the Acquisition, which was effective as of January 29, 1989, $380,250,000, representing the
excess of the allocated purchase price over the fair value of the Company's net assets, was recorded as
goodwill and is being amortized on a straight-line basis over 40 years.
(d) Includes non-cash interest expense of $4,199,000, $8,581,000, $12,243,000, $18,294,000 and $13,819,000 in the
fiscal years 1993, 1992, 1991, 1990 and 1989, respectively, from accretion of original issue discount,
amortization of deferred financing costs and, in 1992, 1991 and 1990, issuance of additional 10% junior
subordinated exchange notes due 2004.
(e) Relates to the settlement in January 1993 of a stockholder class action lawsuit that was filed against the
Company and certain other defendants in October 1991.
(f) In fiscal 1993, Ann Taylor incurred an extraordinary loss of $17,244,000 ($11,121,000, or $.51 per share, net
of income tax benefit) due to debt refinancing activities. In fiscal 1991, Ann Taylor incurred an
extraordinary loss of $25,900,000 ($16,835,000, or $.87 per share, net of income tax benefit), in connection
with the repurchase of a portion of its then outstanding debt securities with proceeds from the IPO.
(g) Percentage changes in comparable store sales and average net sales per gross square foot are adjusted so that
all figures relate to a 52-week year.
(h) Comparable store sales are calculated by excluding the net sales of a store for any month of one period if
the store was not open during the same month of the prior period. A store opened within the first two weeks
of a month is deemed to have been opened on the first day of that month and a store opened thereafter in a
month is deemed to have been opened on the first day of the next month. For example, if a store were opened
on June 8, 1992, its sales from June 8, 1992 through year-end 1992 and its sales from June 1, 1993 through
year-end 1993 would be included in determining comparable store sales for 1993, compared to 1992. In
addition, in a year with 53 weeks (such as 1989), the extra week is not included in determining comparable
store sales. For the periods previous to 1993, when a store's square footage has been increased as a result
of expansion or relocation in the same mall or specialty center, the store continues to be treated as a
comparable store. Commencing with stores expanded in fiscal 1993, any store the square footage of which is
expanded by more than 15% is treated as a new store, upon the opening of the expanded store.
(i) Excludes sales from leased shoe departments.
(j) Average net sales per gross square foot is determined by dividing net sales for the period by the average of
the gross square feet at the beginning and end of each period. Unless otherwise indicated, references herein
to square feet are to gross square feet, rather than net selling space.
(k) Working capital turnover is determined by dividing net sales by the average of the amount of working capital
at the beginning and end of the period.
(l) Inventory turnover is determined by dividing net cost of goods sold (excluding costs of leased shoe
departments) by the average of the cost of inventory at the beginning and end of the period.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS GENERAL
Ann Taylor has grown significantly since the Acquisition, with the number
of stores increasing from 119 at the beginning of 1989 to 231 at the end of
1993. During fiscal 1993, the Company expanded 12 stores, added 13 new stores
and closed one store, resulting in a net increase in the Company's square
footage of approximately 115,000 square feet. The Company expects to increase
square footage by at least 200,000 square feet, or 21.5%, in fiscal 1994.
Management anticipates that approximately 70% of this new square footage will be
represented by new stores, of which about half will be Ann Taylor stores and
about half will be Ann Taylor Factory Stores. The balance of the 1994 square
footage increase will result from store expansions. The Company intends to
increase square footage by approximately 200,000 square feet in each of fiscal
1995 and fiscal 1996. The Company's ability to continue to expand will be
dependent upon general economic and business conditions affecting consumer
spending, the
12
<PAGE>
availability of desirable locations and the negotiation of acceptable lease
terms for new locations. See "Business--Expansion".
The Company's net sales do not show significant seasonal variation,
although net sales in the third and fourth quarters have traditionally been
higher than in the first and second quarters. The Company believes that its
merchandise is purchased primarily by women who are buying for their own
wardrobes rather than as gifts, and the Company typically experiences only
moderate increases in net sales during the Christmas season. As a result of
these factors, the Company has not had significant overhead and other costs
generally associated with large seasonal variations.
The following table shows the percentages of the Company's net sales and
operating income (loss) per quarter for 1993, 1992 and 1991:
<TABLE><CAPTION>
FISCAL 1993 FISCAL 1992 FISCAL 1991
------------------------ ------------------------ ----------------------------
OPERATING OPERATING OPERATING
NET SALES INCOME(A) NET SALES INCOME NET SALES INCOME (LOSS)
----------- ----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter........................... 24.0% 24.3% 24.5% 26.6% 25.4% 39.7%
Second Quarter.......................... 24.9 25.3 24.0 19.5 23.1 26.6
Third Quarter........................... 24.3 25.2 24.6 34.6 26.0 33.8
Fourth Quarter.......................... 26.8 25.2 26.9 19.3 25.5 (0.1)
----------- ----------- ----------- ----------- ----------- ------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ----------- ------
</TABLE>
- ---------------
(a) Excludes the $2,000,000 charge to earnings relating to the Company's
announced relocation of its distribution center.
COMPARABLE STORE SALES
The following table sets forth for the years 1993, 1992 and 1991 certain
information regarding the percentage increase (decrease) over the prior year's
sales in (i) total comparable store sales and (ii) owned comparable sales
(consisting of total comparable store sales less leased shoe department
comparable sales, which were phased out by February 1, 1993):
<TABLE><CAPTION>
FISCAL 1993 FISCAL 1992 FISCAL 1991
--------------- ------------- -------------
<S> <C> <C> <C>
Comparable store sales:
Owned sales.......................................... 4.0% 0.8% (0.9)%
Total................................................ 2.3 (1.0) (5.6)
</TABLE>
The Company believes that the increase in owned comparable store sales in
1993 and 1992 was primarily due to improved customer acceptance of merchandise
offerings and, in 1992, to a higher degree of promotional activities than in
1993.
RESULTS OF OPERATIONS
The following table sets forth operating statement data expressed as a
percentage of net sales for the historical periods indicated:
<TABLE><CAPTION>
FISCAL FISCAL FISCAL
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Net sales, including leased shoe departments.............................. 100.0% 100.0% 100.0%
Cost of sales............................................................. 54.2 56.4 53.5
--------- --------- ---------
Gross profit (a)...................................................... 45.8 43.6 46.5
Selling, general and administrative expenses.............................. 33.8 32.5 34.5
Distribution center restructuring charge.................................. 0.4 -- --
Amortization of goodwill.................................................. 1.8 2.0 2.2
--------- --------- ---------
Operating income...................................................... 9.8 9.1 9.8
Interest expense.......................................................... 3.5 4.6 7.7
Stockholder litigation settlement......................................... -- 0.8 --
Other (income) expense, net............................................... -- -- 0.1
--------- --------- ---------
Income before income taxes and extraordinary loss......................... 6.3 3.7 2.0
Income tax provision...................................................... 3.4 2.4 1.8
--------- --------- ---------
Income before extraordinary loss.......................................... 2.9 1.3 0.2
Extraordinary loss........................................................ 2.3 -- 3.8
--------- --------- ---------
Net income (loss)..................................................... 0.6% 1.3% (3.6)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(a) Gross profit margin on net sales, excluding leased shoe departments, was
44.1% in 1992 and 47.8% in 1991. Gross profit margin on leased shoe
department net sales was 14.4% in 1992 and 1991.
13
<PAGE>
FISCAL 1993 COMPARED TO FISCAL 1992
The Company's net sales increased to $501,649,000 in 1993 from $468,381,000
in 1992, an increase of $33,268,000, or 7.1%. The increase in net sales was
attributable to the inclusion of a full year of operating results for the 20
stores opened during 1992, the opening of 13 new stores and expansion of 12
stores in 1993 and the increase in comparable store sales. The 2.3% increase in
total comparable stores sales was due primarily to customer acceptance of the
Company's merchandise offerings in 1993. The increase was partially offset by
the closing of one store in 1993. Net sales included $29,922,000 and $25,638,000
from Ann Taylor brand shoes in 1993 and 1992, respectively.
Gross profit as a percentage of net sales increased to 45.8% in 1993 from
43.6% in 1992. This increase was attributable to reduced cost of goods sold
resulting from lower markdowns associated with reduced promotional activities,
higher initial markups and the elimination of the leased shoe department which
had a substantially lower gross margin.
Selling, general and administrative expenses as a percentage of net sales
increased to 33.8% in 1993 from 32.5% in 1992. The increase was primarily
attributable to additional store tenancy and selling expenses, severance costs,
agency fees and relocation expenses, and the Company's continuing investment in
such areas as design and manufacturing, marketing and information systems.
Operating income increased to $49,021,000, or 9.8% of net sales, in 1993,
from $42,504,000, or 9.1% of net sales, in 1992. As described below, 1993
operating income was reduced by a $2,000,000, or 0.4% of net sales, charge to
earnings relating to the Company's announced relocation of its distribution
center facility from New Haven, Connecticut to Louisville, Kentucky.
Amortization of goodwill from the Acquisition was $9,508,000 in 1993 and
$9,504,000 in 1992. Operating income without giving effect to such amortization
was $58,529,000, or 11.6% of net sales, in 1993, and $52,008,000, or 11.1% of
net sales, in 1992.
In early 1994, the Company announced that it will be relocating its
distribution center from New Haven, Connecticut to Louisville, Kentucky in early
1995. The Company will construct a 250,000 square foot distribution center at a
cost of approximately $14,000,000. The relocation of the distribution center
will affect approximately 105 employees. The Company recorded a $2,000,000
pre-tax restructuring charge ($1,140,000 net of income tax benefit, or $.05 per
share) representing approximately $1,100,000 principally for severance and job
training benefits, and approximately $900,000 for the write-off of the net book
value of certain assets that are not expected to be utilized in the new
facility. The Company selected Louisville, Kentucky as the site for its new
distribution center facility because of Louisville's central location relative
to the Company's stores, which is expected to result in reduced merchandise
delivery times, the lower cost of construction in Louisville as compared to the
Northeast, and economic incentives offered by the state of Kentucky.
Interest expense was $17,696,000, including $4,199,000 of non-cash interest
expense in 1993 and $21,273,000, including $8,581,000 of non-cash interest
expense in 1992. The decrease is mostly attributable to lower interest rates
resulting principally from refinancing transactions entered into in 1993. As a
result of these refinancing transactions, the weighted average interest rate on
the Company's outstanding indebtedness at January 29, 1994 was 6.22% compared to
9.50% at January 30, 1993. After taking into account the Company's interest rate
swap agreement, all of the Company's debt obligations bear interest at variable
rates. Therefore, the Company's interest expense for fiscal 1993 is not
necessarily indicative of interest expense for future periods. See "Liquidity
and Capital Resources".
The income tax provision was $17,189,000, or 54.5% of income before income
taxes and extraordinary loss in the 1993 period compared to $11,150,000, or
65.3% of income before income taxes in 1992. The effective tax rates for both
periods were higher than the statutory rates, primarily because of non-
deductible goodwill. During fiscal 1993, the Company adopted the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Adoption of SFAS 109 did not have a material effect on the results of
operations.
14
<PAGE>
The refinancing transactions referred to above resulted in an extraordinary
loss of $17,244,000 ($11,121,000 net of income tax benefit), attributable to
premiums paid to purchase or discharge Ann Taylor's notes, and to the write-off
of deferred financing costs associated with the early retirement of
indebtedness. See "Liquidity and Capital Resources".
As a result of the foregoing factors, the Company had net income of
$3,209,000, or 0.6% of net sales, for 1993 compared to a net income of
$5,917,000, or 1.3% of net sales for 1992.
FISCAL 1992 COMPARED TO FISCAL 1991
The Company's net sales increased to $468,381,000 in 1992 from $437,711,000
in 1991, an increase of $30,670,000, or 7.0%. The increase in net sales was
primarily attributable to the inclusion of a full year of operating results for
stores opened during 1991 and the opening of 20 new stores in 1992. The Company
operated 219 stores at the end of 1992 compared to 200 stores at the end of
1991. The increase was partially offset by the closing of one store in 1992. The
decrease of 1.0% in comparable store sales was due to the phaseout of the leased
shoe departments offset by the increase of 0.8% in owned comparable store sales
(excluding leased shoe departments). The Company believes the increase in owned
comparable store sales was primarily attributable to customer acceptance of the
Company's fall 1992 merchandise offerings and promotional activities. As a
result of the phaseout of the Joan & David leased shoe departments, aggregate
net sales contributed by Joan & David declined to $8,207,000 in 1992 from
$16,056,000 in 1991, a decrease of 48.9%. Net sales included $25,638,000 and
$21,527,000 in net sales from the Ann Taylor brand shoe line in 1992 and 1991,
respectively.
Gross profit as a percentage of net sales decreased to 43.6% in 1992 from
46.5% in 1991. This decrease was attributable primarily to increased cost of
goods sold resulting from lower initial mark ups and higher markdowns on goods
taken in response to the competitive retail environment and, in the first
quarter of 1992, poor customer acceptance of the Company's merchandise
offerings.
Selling, general and administrative expenses as a percentage of net sales
decreased to 32.5% in 1992 from 34.5% in 1991. The decrease was due to the
leveraging of central overhead expenses over a larger sales base, lower
severance payments and cost savings in other areas, offset in part by higher
tenancy and selling costs in new stores.
Operating income decreased to $42,504,000, or 9.1% of net sales, in 1992
from $43,227,000, or 9.8% of net sales, in 1991. Amortization of goodwill from
the Acquisition was $9,504,000 in 1992 and $9,506,000 in 1991. Operating income
without giving effect to such amortization was $52,008,000, or 11.1% of net
sales, in 1992 and $52,733,000, or 12.0% of net sales, in 1991.
Interest expense was $21,273,000, including $8,581,000 of non-cash interest
expense in 1992 and $33,958,000, including $12,243,000 of non-cash interest
expense in 1991. The decrease in interest expense in 1992 was attributable
primarily to lower outstanding indebtedness as a result of the repurchase of the
debt securities of Ann Taylor with the proceeds of the IPO in 1991, and was also
attributable to lower interest rates in the 1992 period.
During 1992, the Company recorded an expense of $3,905,000 to provide for
the settlement of a class action lawsuit that was filed in October 1991.
The income tax provision was $11,150,000, or 65.3% of income before income
taxes in the 1992 period compared to $7,703,000, or 88.3% of income before
income taxes and extraordinary loss in 1991. The effective rates for both
periods were higher than the statutory rate, primarily because of non-deductible
goodwill.
As a result of the foregoing factors, the Company had net income of
$5,917,000, or 1.3% of net sales, for 1992 compared to a net income before
extraordinary loss of $1,024,000 or 0.2% of net sales for 1991.
15
<PAGE>
CHANGES IN RECEIVABLES AND INVENTORIES
Accounts receivable increased to $49,279,000 at the end of 1993 from
$43,003,000 at the end of 1992, an increase of $6,276,000, or 14.6%. This
increase was partially attributable to Ann Taylor credit card receivables, which
increased $2,285,000 to $41,176,661 in 1993, to third-party credit card
receivables (American Express, Mastercard and Visa), which increased $1,124,000
due to the timing of payments by the third-party credit card issuers and to
construction allowance receivables, which increased $1,814,000 to $3,901,000 in
1993. Ann Taylor credit card sales were 5.4% higher in the last thirteen weeks
of 1993 compared to the last thirteen weeks of 1992.
Merchandise inventories increased to $60,890,000 at the end of 1993 from
$50,307,000 at the end of 1992, an increase of $10,583,000, or 21.0%. The higher
inventory level at the end of 1993 was attributable to the purchase of inventory
for new stores that were opened in 1993, the planned square footage increases in
spring 1994, planned comparable store sales growth and the earlier receipt of
spring goods.
Accounts payable increased to $37,564,000 at the end of 1993 from
$23,779,000 at the end of 1992, an increase of $13,785,000, or 57.9%. The
increase in accounts payable is primarily due to the increase in inventory at
the end of fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flow from
operations and borrowings under a $55 million revolving credit facility (the
"Revolving Credit Facility") under the Bank Credit Agreement. The following sets
forth material measures of the Company's liquidity:
<TABLE><CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash provided by operating activities..................... $ 47,322 $ 23,579 $ 40,142
Working capital........................................... $ 53,283 $ 29,539 $ 26,224
Current ratio............................................. 1.78:1 1.38:1 1.36:1
Debt to equity ratio...................................... .73:1 .80:1 .92:1
</TABLE>
Cash provided by operating activities increased in 1993 principally as a
result of an increase in income before extraordinary loss and a decrease in
refundable income taxes. The increase in working capital in 1993 results from
the decrease in the current portion of long-term debt from $37,000,000 in 1992
to $8,757,000 in 1993, as a result of the refinancing transactions entered into
in 1993.
At January 29, 1994, the Company had $54,000,000 outstanding under the term
loan facility under the Bank Credit Agreement (the "Term Loan"). The Bank Credit
Agreement requires the Company to make scheduled semi-annual principal payments
on the Term Loan, which commenced on January 15, 1994. The Company made the
semi-annual payment of $6,000,000 in January, 1994 and an additional payment of
$20,000,000 in January 1994. The remaining scheduled payments on the Term Loan
are $8,757,000 in fiscal years 1994 and 1995, $11,676,000 in fiscal years 1996
and 1997, and $13,134,000 in fiscal year 1998. During 1992, the principal
payments made under the Company's then existing bank credit agreement totaled
$26,000,000. The Bank Credit Agreement also requires the Company to make
prepayments on the Term Loan if the Company sells certain assets or issues debt
or equity securities. Amounts borrowed under the Revolving Credit Facility
mature on January 15, 1999; however, the Company is required to reduce the
outstanding balance of the Revolving Credit Facility to $20,000,000 or less for
a 30-day period in fiscal 1994 and to $15,000,000 or less for a 30-day period
each year thereafter.
16
<PAGE>
During 1993, the Company and Ann Taylor entered into a series of
refinancing transactions that lowered the Company's average cost of capital. The
following table summarizes these transactions.
<TABLE><CAPTION>
BALANCE AT BALANCE AT
JANUARY 30, JANUARY 29,
1993 ADDITIONS REDUCTIONS 1994
----------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Previous term loan......................................... $ 96,969 -- $ (96,969) --
14 3/8% discount notes..................................... 44,069 -- (44,069) --
13 3/4% subordinated notes................................. 34,295 -- (34,295) --
10% exchange notes......................................... 14,641 -- (14,641) --
8 3/4% notes............................................... -- $ 110,000 (10,000) $ 100,000
Term loan.................................................. -- 80,000 (26,000) 54,000
Receivables facility....................................... -- 33,000 -- 33,000
Revolving credit loan...................................... 5,500 -- (3,500) 2,000
----------- ----------- ------------ -----------
$ 195,474 $ 223,000 $ (229,474) $ 189,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
In July 1993, Ann Taylor entered into a $110,000,000 (notional amount)
interest rate swap agreement. Under the agreement the Company receives a fixed
rate of 4.75% and pays a floating rate based on LIBOR, as determined in six
month intervals. This agreement lowered the effective interest rate on the 8
3/4% Notes by 125 basis points for the first semi-annual period ended January
1994. The swap agreement matures in July 1996.
During the fourth quarter of fiscal 1993, Ann Taylor entered into a
receivables financing agreement secured by Ann Taylor credit card receivables.
Initial borrowings under the receivables facility (the "Receivables Facility")
were $33,000,000.
The Company's capital expenditures totaled $25,062,000, $4,303,000, and
$10,004,000 in 1993, 1992 and 1991, respectively. Capital expenditures in 1992
were lower than in 1991 and 1993, in part because the Company slowed its new
store expansion program while it developed the new store prototypes. In
addition, the average construction allowance per store received in 1992 was
higher than amounts received in 1991 and 1993. Capital expenditures in 1993
reflect increased average net construction costs for the opening of new stores,
costs associated with the expansion of a greater number of existing stores,
lower average landlord construction allowances and costs associated with new
management information systems. The Company expects its capital expenditure
requirements to be approximately $31,000,000 in 1994, plus $14,000,000 for the
new distribution center and material handling equipment.
The Bank Credit Agreement imposes limits on the Company's ability to make
capital expenditures and, for 1994, the limit is $31,000,000, exclusive of
amounts spent for the distribution center. The actual amount of the Company's
capital expenditures will depend in part on the number of stores opened,
refurbished, and expanded and on the amount of construction allowances the
Company receives from the landlords of its new or expanded stores. See
"Business--Expansion".
Dividends and distributions from Ann Taylor to the Company are restricted
by both the Bank Credit Agreement and the indenture for the 8 3/4% Notes. The
payment by the Company of cash dividends on its Common Stock is also restricted
by the Company's guarantee of obligations under the Bank Credit Agreement. See
"Market for Registrant's Common Equity and Related Stockholder Matters".
In order to finance its operations and capital requirements, including its
debt service payments, the Company expects to use internally generated funds and
funds available to it under the Revolving Credit Facility and may seek project
financing for the distribution center construction and material handling
equipment costs. The Company believes that cash flow from operations and funds
available under the
17
<PAGE>
Revolving Credit Facility will be sufficient to enable it to meet its ongoing
cash needs for the foreseeable future.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company for the
years ended January 29, 1994, January 30, 1993 and February 1, 1992 are included
as a part of this Report (See Item 14):
Consolidated Statements of Operations for the fiscal years ended January
29, 1994, January 30, 1993 and February 1, 1992.
Consolidated Balance Sheets as of January 29, 1994 and January 30, 1993.
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 29, 1994, January 30, 1993 and February 1, 1992.
Consolidated Statements of Cash Flows for the fiscal years ended January
29, 1994, January 30, 1993 and February 1, 1992.
Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company as of January 29, 1994:
<TABLE><CAPTION>
NAME AGE POSITION AND OFFICES
- ----------------------------------- ----------- ----------------------------------------------------------------------
<S> <C> <C>
Sally Frame Kasaks................. 49 Chairman, Chief Executive Officer and Director of the Company and Ann
Taylor
Paul E. Francis.................... 39 Executive Vice President--Finance and Administration and Director of
the Company and Ann Taylor
Bert A. Tieben (1)................. 42 Senior Vice President--Finance and Treasurer of the Company and Ann
Taylor
Joseph R. Gromek................... 47 Senior Vice President--General Merchandise Manager of the Company and
Ann Taylor
Andrea M. Weiss.................... 38 Senior Vice President, Director of Stores of the Company and Ann
Taylor
Jocelyn F.L. Barandiaran........... 33 Vice President, General Counsel and Corporate Secretary of the Company
and Ann Taylor
Gerald S. Armstrong................ 50 Director of the Company and Ann Taylor
James J. Burke, Jr................. 42 Director of the Company and Ann Taylor
Robert C. Grayson.................. 49 Director of the Company and Ann Taylor
Rochelle B. Lazarus................ 46 Director of the Company and Ann Taylor
Hanne M. Merriman.................. 52 Director of the Company and Ann Taylor
</TABLE>
- ---------------
(1) Mr. Tieben resigned from this position effective February 4, 1994.
Each member of the Board of Directors of the Company and Ann Taylor holds
office for a three-year term and until his or her successor is elected and
qualified. Mr. Grayson and Ms. Lazarus serve as members of the audit committee
and Mr. Burke, Mr. Armstrong, Ms. Lazarus and Ms. Merriman serve as members of
the compensation committee. Directors who are employees of the Company or
Merrill Lynch Capital Partners, Inc. (the "ML Capital Partners") do not receive
any compensation for serving on either Board of Directors. Directors who are not
affiliates of ML Capital Partners or employees of the Company receive $20,000 in
compensation plus $750 for each meeting attended. Messrs. Burke and Armstrong
are employees of ML Capital Partners, a wholly owned subsidiary of Merrill Lynch
& Co., Inc. ("ML&Co."), and serve on the Board of Directors of the Company and
Ann Taylor as representatives of two indirect wholly owned subsidiaries of
ML&Co. and certain limited partnerships controlled directly or indirectly by ML
Capital Partners or ML&Co. and certain affiliates of ML&Co. (the "ML Entities").
SALLY FRAME KASAKS. Ms. Kasaks has been Chairman, Chief Executive Officer
and a Director of the Company and Ann Taylor since February 1992. From February
1989 to January 1992, she was president and chief executive officer of
Abercrombie & Fitch, a specialty retailer and a division of The Limited, Inc., a
specialty retailer. From 1985 to 1988, she was president of Talbots, a specialty
women's apparel retailer. For the six years prior to 1985, Ms. Kasaks served in
various capacities at Ann Taylor, the last two of those years as president.
PAUL E. FRANCIS. Mr. Francis has been Executive Vice President--Finance and
Administration of the Company and Ann Taylor since April 1993, and has been a
Director of the Company and Ann Taylor since consummation of the Acquisition in
February 1989. He was a vice president of ML Capital Partners from July 1987 to
April 1993 and a managing director of the Investment Banking Division of ML&Co.
from January 1993 to April 1993. From January 1990 to January 1993, he was a
director of the Investment Banking Division of ML&Co.
BERT A. TIEBEN. Mr. Tieben was Senior Vice President--Finance of the
Company and Ann Taylor from April 1993 through February 4, 1994 and had been
Treasurer of the Company and Ann Taylor
19
<PAGE>
since February 1989. Mr. Tieben was Executive Vice President and Chief Financial
Officer of Ann Taylor from April 1988 to April 1993, and of the Company from
February 1989 to April 1993.
JOSEPH R. GROMEK. Mr. Gromek has been Senior Vice President--General
Merchandise Manager of the Company and Ann Taylor since April 1993. From January
1991 to April 1993, Mr. Gromek was vice president--ready to wear at The Limited
stores, a specialty women's apparel retailer and a division of The Limited,
Inc., a specialty retailer. From September 1987 to December 1990, he was senior
vice president/general merchandise manager--men's and shoes for Saks Fifth
Avenue, a department store.
ANDREA M. WEISS. Ms. Weiss has been Senior Vice President, Director of
Stores of the Company and Ann Taylor since July 1992. From April 1990 to July
1992, she was director of retail operations for the Walt Disney World Resort, a
division of the Walt Disney Company. From November 1987 to April 1990, she was
senior vice president--operations for the Naragansett Clothing Company, a
specialty women's apparel retailer.
JOCELYN F.L. BARANDIARAN. Ms. Barandiaran has been Vice President, General
Counsel and Corporate Secretary of the Company and Ann Taylor since May 1992.
From June 1985 to April 1992, she was a corporate mergers and acquisitions
associate with the law firm of Skadden, Arps, Slate, Meagher & Flom.
GERALD S. ARMSTRONG. Mr. Armstrong has been a Director of the Company and
Ann Taylor since consummation of the Acquisition in February 1989. He joined ML
Capital Partners as an executive vice president in November 1988. He has been a
partner in ML Capital Partners since May 1993 and a managing director of the
Investment Banking Division of ML&Co. since November 1988. Mr. Armstrong is also
a director of First USA, Inc., London Fog Corporation, Simmons Company, Beatrice
Foods Inc., Blue Bird Corporation, World Color Press, Inc. and Wherehouse
Entertainment, Inc.
JAMES J. BURKE, JR. Mr. Burke has been a Director of the Company and Ann
Taylor since the Acquisition. He joined ML Capital Partners as president and
chief executive officer in January 1987. He has been managing partner of ML
Capital Partners since May 1993, a first vice president of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") since July 1988, and a
managing director of the Investment Banking Division of ML&Co. since April 1985.
Mr. Burke is also a director of Amstar Corporation, Borg-Warner Security
Corporation, London Fog Corporation, Supermarkets General Holdings Corporation,
Pathmark Stores, Inc., United Artists Theater Circuit, Inc., Wherehouse
Entertainment, Inc. and World Color Press, Inc.
ROBERT C. GRAYSON. Mr. Grayson has been a Director of the Company and Ann
Taylor since April 1992. Mr. Grayson has been president of Robert C. Grayson &
Associates, Inc., a retail marketing consulting firm, since February 1992. From
June 1985 to February 1992, Mr. Grayson was the president and chief executive
officer of Lerner New York, a specialty women's apparel retailer and a division
of The Limited, Inc., a specialty retailer.
ROCHELLE B. LAZARUS. Ms. Lazarus has been a Director of the Company and Ann
Taylor since April 1992. She has been President of Ogilvy & Mather New York
since June 1991. She was employed by Ogilvy & Mather Direct from 1987 to 1991,
serving as President for the last two of those years.
HANNE M. MERRIMAN. Ms. Merriman has been a Director of the Company and Ann
Taylor since December 1993. She has been the Principal in Hanne Merriman
Associates, retail business consultants, since January 1992, and from February
1990 to December 1990. From January 1991 to June 1992, Ms. Merriman was
president and chief operating officer of Nan Duskin, Inc., a specialty women's
apparel retailer, and from December 1988 to January 1990 was president and chief
executive officer of Honeybee, Inc. a women's apparel retail catalog business
and a division of Spiegel, Inc. Previously, Ms. Merriman served in various
capacities at Garfinckel's, a department store chain and a division of Allied
Stores Corporation, including as president of Garfinckel's from June 1981 to
August 1987. Ms. Merriman was a member of the board of directors of the Federal
Reserve Bank of Richmond, Virginia from 1984 to 1990, and served as its chairman
from December 1989 to December 1990. Ms. Merriman is also a director of USAir
Group, Inc., CIPSCO, Inc., Central Illinois Public Service Company, State Farm
Mutual Automobile Insurance Company and The Rouse Company. She is a member of
the National Women's Forum and a trustee of the American-Scandinavian
Foundation.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information regarding
the annual and long-term compensation awarded or paid for each of the last three
fiscal years to these persons who were, at January 29, 1994, the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company and Ann Taylor and to one former executive officer who separated from
the Company during fiscal year 1993 (collectively, the "named executives").
Neither Ms. Kasaks nor Ms. Weiss was employed by the Company in fiscal year
1991, and neither Mr. Francis nor Mr. Gromek was employed by the Company in
fiscal years 1991 or 1992; accordingly, no information is set forth in the table
with respect to these officers for those years.
TABLE I
SUMMARY OF COMPENSATION TO CERTAIN EXECUTIVE OFFICERS
<TABLE><CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------------------------
-------------------------------------- AWARDS OF AWARDS OF
NAME AND BONUS($) OTHER ANNUAL RESTRICTED STOCK ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY($) (A) COMPENSATION($) STOCK($) OPTIONS COMPENSATION($) (B)
- -------------------------- ----------- --------- ----------- -------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sally Frame Kasaks,....... 1993 $ 650,000 $ 243,750 -- -- 30,000 $ 7,755
Chairman & Chief Executive 1992 $ 600,000 $ 150,000 -- $ 1,327,500(c) 200,000 $ 3,077
Officer 1991 -- -- -- -- -- --
Paul E. Francis,.......... 1993 $ 262,292 $ 80,167 -- -- 70,000 --
Executive Vice 1992 -- -- -- -- -- --
President--Finance & 1991 -- -- -- -- -- --
Administration
Joseph J. Gromek,......... 1993 $ 282,468 $ 64,750 $ 1,826(d) -- 30,000 $ 1,188
Senior Vice President, 1992 -- -- -- -- -- --
General Merchandise 1991 -- -- -- -- -- --
Manager
Andrea M. Weiss,.......... 1993 $ 234,600 $ 50,625 -- -- 15,000 $ 1,318
Senior Vice President, 1992 $ 120,569 $ 35,000 $ 15,576(e) -- 25,000 $ 180
Director of Stores 1991 -- -- -- -- -- --
Bert A. Tieben,........... 1993 $ 279,000 $ 52,313 $ 873,000(g) -- 10,000 $ 4,293
Senior Vice 1992 $ 279,000 -- -- -- 15,000 $ 2,486
President--Finance (f) 1991 $ 274,000 -- -- -- -- $ 2,408
Joseph J. Schumm,......... 1993 $ 309,000 $ 61,800 $ 39,375(g) -- 15,000 $ 966
President (h) 1992 $ 309,000 $ 75,000 -- -- 25,000 $ 3,499
1991 $ 209,000 -- -- -- 1,470 $ 2,599
</TABLE>
- ---------------
(a) Bonus awards indicated for 1993 were paid pursuant to the Company's
Management Performance Compensation Plan. Bonus amounts indicated for 1992
were guaranteed bonus amounts paid to Ms. Kasaks pursuant to her Employment
Agreement (see "Employment Agreements" below); to Ms. Weiss in accordance
with the terms of her compensation arrangement upon hire by the Company, and
to Mr. Schumm at the discretion of the Board of Directors.
(b) Represents the amount of contributions made by the Company to its 401(k)
Savings Plan (for Ms. Kasaks, $4,350 in 1993; for Ms. Weiss, $875 in 1993;
for Mr. Schumm, $966 in 1993, $1,817 in 1992 and $1,490 in 1991; and for Mr.
Tieben, $3,538 in 1993, $1,732 in 1992 and $1,667 in 1991) and the cost of
group term life insurance paid by the Company on behalf of qualifying
executive officers during the years shown.
(c) Pursuant to the terms of her Employment Agreement, Ms. Kasaks was awarded
60,000 shares of restricted stock, of which 15,000 vested upon hiring,
15,000 shares vested at the end of each of fiscal years 1992 and 1993, and
15,000 shares vest at the end of fiscal year 1994, provided that Ms. Kasaks
continues in the employ of the Company, and provided further that if the
Company is sold, all restricted shares will become vested. For purposes of
the above table, the 60,000 restricted shares have been valued at $22.125
per share, which was the closing market price of the Company's Common Stock
on the New York Stock Exchange on the effective date of the grant. Ms.
Kasaks would be entitled to receive dividends on these shares
proportionately with the other holders of the Company's Common Stock, if
dividends are paid. Ms. Kasaks has received no other awards of restricted
stock from the Company.
(d) Represents reimbursement of moving expenses.
(e) Represents $11,627 for living expenses and $3,949 reimbursement for the
payment of taxes.
(f) Mr. Tieben resigned from this position effective February 4, 1994 and is
presently serving as a consultant to the Company (see "Employment
Agreements" below).
(g) Represents compensation deemed to have been received upon the exercise of
in-the-money stock options in 1993.
(h) Mr. Schumm resigned from this position effective April 6, 1993 and is
presently serving as a consultant to the Company (see "Employment
Agreements" below). Mr. Schumm served as President and Chief Operating
Officer of the Company and Ann Taylor from February 1992 to April 1993.
During fiscal year 1991, Mr. Schumm served as Executive Vice
President-Administration, General Counsel and Secretary of the Company and
Ann Taylor.
21
<PAGE>
The following table sets forth certain information with respect to stock
options awarded during fiscal year 1993 to the executive officers named in Table
I above. These grants are also reflected in Table I. In accordance with
Securities and Exchange Commission (the "Commission") rules, the hypothetical
realizable values for each option grant are shown based on compound annual rates
of stock price appreciation of 5% and 10% from the grant date to the expiration
date. The assumed rates of appreciation are prescribed by the Commission and are
for illustration purposes only; they are not intended to predict future stock
prices, which will depend upon market conditions and the Company's future
performance and prospects.
TABLE II
STOCK OPTIONS GRANTED IN FISCAL YEAR 1993
<TABLE><CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
% OF TOTAL # OF STOCK PRICE
OF OPTIONS APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM (B)
OPTIONS (A) EMPLOYEES IN PRICE EXPIRATION ------------------------
GRANTED FISCAL 1993 ($/SHARE) DATE 5% ($) 10% ($)
----------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sally Frame Kasaks............. 30,000 10.75% $ 20.00 2/26/03 $ 377,400 $ 956,100
Paul E. Francis................ 30,000 10.75% $ 18.125 4/06/03 $ 341,850 $ 866,550
40,000 14.34% $ 26.00 4/06/03 $ 140,800 $ 840,400
Joseph R. Gromek............... 30,000 10.75% $ 18.125 4/06/03 $ 341,850 $ 866,550
Andrea M. Weiss................ 15,000 5.38% $ 20.00 2/26/03 $ 188,700 $ 478,050
Bert A. Tieben................. 10,000 3.58% $ 20.00 2/26/03(c) $ 125,800 $ 318,700
Joseph J. Schumm............... 15,000 5.38% $ 20.00 2/26/03(c) $ 188,700 $ 478,050
</TABLE>
- ---------------
(a) Options vest and are exercisable 20% upon grant and 20% on each anniversary
of the grant, provided that the executive continues in the employ of the
Company, and provided further that in the event of the occurrence of certain
change in control "Acceleration Events" (as defined under the Company's 1992
Stock Option Plan), all such options will become vested. Pursuant to the
respective agreement entered into in connection with the resignation of each
of Mr. Tieben and Mr. Schumm from the Company, Mr. Tieben's options became
100% vested on February 4, 1994 and Mr. Schumm's options became 100% vested
on April 6, 1993. See "Employment Agreements" below.
(b) These columns show the hypothetical realizable value of the options granted
for the ten-year term of the options, assuming that the market price of the
Common Stock subject to the options appreciates in value at the annual rate
indicated in the table, from the date of grant to the end of the option
term.
(c) Expiration date shown is the original expiration date of these options. As a
result of Mr. Tieben's and Mr. Schumm's resignations from the Company on
February 4, 1994 and April 6, 1993, respectively, the options shown for Mr.
Tieben will expire on May 4, 1994 and the options shown for Mr. Schumm
expired on July 6, 1993.
In February 1994, the Compensation Committee of the Board of Directors made
additional stock option grants to certain executives of the Company, including
certain executive officers named in Table I. The total number of options granted
to executives on such date was 677,500. These option grants were made subject to
stockholder approval of an increase in the maximum number of shares available
for grant under the Company's 1992 Stock Option Plan.
Two-thirds of the options granted to each executive are
"performance-vesting" options, and one-third of the options granted to each
executive are "time-vesting" options. The performance-vesting options become
fully exercisable upon the earliest to occur of: (i) the ninth anniversary of
the date of grant, (ii) the date on which the trading price of the Common Stock
is at least $50.75 (representing a doubling of the stock price on the date of
the grant) for the immediately preceding ten consecutive trading days, provided
that this occurs before the fifth anniversary of the grant, and (iii) the date
on which the Company's aggregate consolidated net income before extraordinary
items for four consecutive quarters after fiscal 1993 equals at least $2.13 per
share (representing a tripling of fiscal year 1993
22
<PAGE>
net income before extraordinary items), provided that this occurs before the
fifth anniversary of the grant. If the Company achieves 80% of either of the
performance measures described in (ii) or (iii) above by the fifth anniversary
of the grant, then a portion of the options becomes exercisable, equal to 25% of
the grant plus 3 3/4% for every percentage point by which performance exceeds
80% of the measure. The time-vesting options become exercisable 25% per year on
each of the first through fourth anniversaries of the date of grant.
The following table shows the number and value of stock options exercised
by each of the executive officers named in Table I during fiscal year 1993, the
number of all vested (exercisable) and unvested (not yet exercisable) stock
options held by each such officer at the end of fiscal year 1993, and the value
of all such options that were "in the money" (i.e., the market price of the
Common Stock was greater than the exercise price of the options) at the end of
fiscal year 1993.
TABLE III
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1993 AND FISCAL YEAR END OPTION VALUES
<TABLE><CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
# OF OPTIONS OPTIONS
SHARES $ AT END OF FISCAL AT END OF FISCAL
ACQUIRED VALUE 1993 EXERCISABLE/ 1993 EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(A)
----------- ----------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Sally Frame Kasaks................. -- -- 156,000/74,000 $ 11,250/$45,000
Paul E. Francis.................... -- -- 14,000/56,000 $ 22,500/$90,000
Joseph R. Gromek................... -- -- 6,000/24,000 $ 22,500/$90,000
Andrea M. Weiss.................... -- -- 13,000/27,000 $ 5,625/$22,500
Bert A. Tieben..................... 40,000 $ 873,000 19,469/17,000 $ 176,645/$15,000
Joseph J. Schumm................... 15,000 $ 39,375 70,586/ -- $1,041,939/ --
</TABLE>
- ---------------
(a) Calculated based on the closing market price of the Common Stock of $21.875
on January 28, 1994, the last trading day in fiscal year 1993, less the
amount required to be paid upon exercise of the option.
1989 PENSION PLAN. Ann Taylor adopted, as of July 1, 1989, a defined
benefit retirement plan for the benefit of the employees of Ann Taylor (the
"Pension Plan"). The Pension Plan is a "cash balance pension plan" intended to
qualify under Section 401(a) of the Code. An account balance is established for
each participant which is credited with a benefit equal to 3% of compensation
during each of the participant's first ten years of service, 4% of compensation
during each of the participant's next five years of service and 5% of
compensation during each of the participant's years of service in excess of
fifteen. The Code limits the compensation that may be taken into account under
the Pension Plan for any participant. Participants' accounts are credited with
interest quarterly at a rate equal to the average one-year Treasury bill rate.
Retirement benefits are determined by dividing the amount of a participant's
account by a specified actuarial factor, subject, however, to the limitation
imposed by the Code. Participants are fully vested in their accounts after
completion of five years of service. Participants receive credit for service
with Ann Taylor prior to July 11, 1989 (including service with Allied Stores
Corporation prior to the closing date of the Acquisition of Ann Taylor by the
Company) for purposes of vesting and determining the percentage of compensation
that will be credited to their accounts.
As of January 29, 1994, the credited years of service under the Pension
Plan for Ms. Kasaks was .75 years, Ms. Weiss was .25 years, Mr. Tieben was 4.5
years and Mr. Schumm (as of the date of his resignation) was 3.0 years. Neither
Mr. Francis nor Mr. Gromek were plan participants during fiscal year 1993. The
estimated monthly retirement benefit, payable as a single life annuity, that
would be payable to each of the executives named in Table I above who were
participants in the plan during fiscal year 1993, assuming retirement as of
December 31, 1993, the commencement of payments at age 65 and annual interest at
the rate of 7.0%, is as follows: Ms. Kasaks, $70; Ms. Weiss, $52; and Mr.
Tieben,
23
<PAGE>
$1,565. These benefits would not be subject to any deduction for social security
benefits or other offset amounts. As Mr. Schumm was not vested as of his
separation date, he is not entitled to retirement benefits under the Pension
Plan.
EMPLOYMENT AGREEMENTS. Effective February 3, 1992, the Company and Ms.
Sally Frame Kasaks entered into an employment agreement (the "Employment
Agreement"), providing for Ms. Kasaks' employment as the Chairman of the Board
and Chief Executive Officer of the Company for a term of three years. Under the
terms of the Employment Agreement, Ms. Kasaks receives an annual base salary of
$600,000 as well as certain other benefits. The Employment Agreement provides
for an annual bonus of up to 50% of her annual salary based upon performance
awards to be established annually, with a minimum bonus of $150,000 in 1992 and
$75,000 in 1993. Pursuant to the Employment Agreement, on February 3, 1992, the
Company issued to Ms. Kasaks 60,000 shares of restricted common stock, of which
15,000 shares vested upon grant, 15,000 shares vested at the end of each of
fiscal 1992 and 1993, and 15,000 shares vest at the end of fiscal 1994. The
Employment Agreement also provides for the issuance to Ms. Kasaks of options to
purchase 100,000 shares of Common Stock at an exercise price per share of
$22.125 (the fair market value as of the effective date of the Employment
Agreement) and options to purchase 100,000 shares of Common Stock at an exercise
price per share of $26. One-quarter of each set of options vested at issuance,
an additional 25% vested at the end of each of fiscal 1992 and 1993, and an
additional 25% vest at the end of fiscal 1994.
The Employment Agreement provides that if the Company is sold, Ms. Kasaks
will be entitled to severance benefits of a lump sum payment equal to 24 months
salary. In addition, if the Company is sold, all of the shares of restricted
Common Stock and options to purchase Common Stock granted under the Employment
Agreement will become vested. If Ms. Kasaks is terminated without cause, she
will be entitled to severance benefits of a lump sum payment equal to the lesser
of 24 months salary or the salary payable for the remaining term of the
Employment Agreement.
In connection with Mr. Joseph J. Schumm's resignation on April 6, 1993, the
Company, Ann Taylor and Mr. Schumm entered into a Consulting and Severance
Agreement, pursuant to which Mr. Schumm is serving as a consultant to the
Company and Ann Taylor for one year. Pursuant to the agreement, Mr. Schumm
received one year of severance compensation, at his base salary in effect at the
time of resignation, plus the amount he would have been entitled to under the
Company's Management Performance Compensation Plan for the spring 1993 season as
if he had continued as an executive officer of the Company. In addition, all
stock options held by Mr. Schumm under the Company's 1989 and 1992 Stock Option
Plans became fully vested, and the expiration of all options held by him under
the Company's 1989 Stock Option Plan was extended to the tenth anniversary of
the respective date of grant of those options, in accordance with the original
term of those options.
In connection with Mr. Bert A. Tieben's resignation on February 4, 1994,
the Company and Mr. Tieben entered into a Consulting and Severance Agreement,
pursuant to which Mr. Tieben is serving as a consultant to the Company and Ann
Taylor for up to one year. Pursuant to the agreement, Mr. Tieben will receive up
to one year of severance compensation, at his base salary in effect at the time
of resignation, plus the amount he would have been entitled to under the
Company's Management Performance Compensation Plan for the fall 1993 season as
if he had continued as an executive officer of the Company. In addition, all
stock options held by Mr. Tieben under the Company's 1989 and 1992 Stock Option
Plans became fully vested on February 4, 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of March 15, 1994, the ML Entities and certain affiliates held
approximately 52.3% of the outstanding Common Stock and as a result, have the
voting power to determine the composition of the Boards of Directors of Ann
Taylor and the Company and otherwise control the business and affairs of the
Company. Messrs. Armstrong and Burke, who are members of the Board of Directors
of the Company and Ann Taylor, are employees of ML Capital Partners and serve as
representatives of the ML Entities and such affiliates. Mr. Francis, who became
an executive officer of the Company and Ann
24
<PAGE>
Taylor in April 1993 and who is a Director of the Company and Ann Taylor, was an
employee of ML Capital Partners and served as a representative of the ML
Entities and affiliates until April 1993. Messrs. Armstrong and Burke are also
members of the Compensation Committee of the Board of Directors of the Company
and Ann Taylor. The Company intends to file a registration statement on or about
March 31, 1994 relating to the proposed sale in a public offering, by the
Company of 1,000,000 shares Common Stock, and by certain ML Entities and their
affiliates of up to 4,000,000 shares of Common Stock. If the proposed public
offering is consummated, the ML Entities and their affiliates would continue to
control approximately 32.6% of the Common Stock (approximately 29.3% of the
over-allotment option granted to the underwriters of such offering is exercised
in full) and will continue to be in a position to influence the management of
the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
As of March 15, 1994, the Common Stock was held of record by 440
stockholders. The following table sets forth certain information concerning the
beneficial ownership of Common Stock by each stockholder who is known by the
Company to own beneficially in excess of 5% of the outstanding Common Stock, by
each director, by the executive officers named in Table I above, and by all
executive officers and directors as a group, as of March 15, 1994. Except as
otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock (including shares
issuable upon the exercise of Warrants), except to the extent that authority is
shared by spouses under applicable law, and (ii) record and beneficial ownership
with respect to their shares of Common Stock.
<TABLE><CAPTION>
NUMBER OF PERCENT OF
SHARES OF COMMON
NAME OF BENEFICIAL OWNER COMMON STOCK STOCK
- --------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
Merrill Lynch Capital Partners (a)(b)...................................... 8,933,013 40.7%
ML IBK Positions, Inc. (a)(c).............................................. 1,583,867 7.2%
Merchant Banking L.P. No. III (a)(c)....................................... 631,480 2.9%
KECALP Inc. (a)(d)......................................................... 324,941 1.5%
Neuberger & Berman (e)..................................................... 1,287,352 5.9%
James J. Burke, Jr. (f).................................................... 35,000 *
Gerald S. Armstrong (f)(g)................................................. 3,000 *
Rochelle B. Lazarus (h).................................................... 300 *
Robert C. Grayson.......................................................... 15,000 *
Hanne M. Merriman.......................................................... 200 *
Sally Frame Kasaks (i)..................................................... 222,000 1.0%
Paul E. Francis (f)(i)..................................................... 36,405 *
Joseph R. Gromek........................................................... 12,000 *
Andrea M. Weiss (i)........................................................ 16,129 *
Joseph J. Schumm (i)(j).................................................... 73,644 *
Bert A. Tieben (i)(j)...................................................... -- *
All executive officers and directors as a group (12 persons) (h)........... 425,678 1.9%
</TABLE>
- ---------------
* Less than 1%
<TABLE>
<S> <C>
(a) Each of the ML Entities is an affiliate of Merrill Lynch. The ML Entities beneficially own an aggregate of
11,473,301 shares of Common Stock or approximately 52.3% of the outstanding Common Stock. The ML Entities
shown are deemed to have shared voting and investment power with other ML&Co. affiliates with respect to the
shares of Common Stock shown to be beneficially owned by them.
</TABLE>
(Footnotes continued on following page)
25
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<S> <C>
(b) Shares of Common Stock beneficially owned by ML Capital Partners are owned of record as follows: 5,598,309 by
Merrill Lynch Capital Appreciation Partnership No. B-II, L.P., 3,279,220 by ML Offshore LBO Partnership No.
B-II, and 55,484 by MLCP Associates L.P. No. I. ML Capital Partners is the indirect managing general partner
of Merrill Lynch Capital Appreciation Partnership No. B-II, L.P., is the indirect investment general partner
of ML Offshore LBO Partnership No. B-II, and is the general partner of MLCP Associates L.P. No. I. The
address for ML Capital Partners and each of the aforementioned recordholders is 767 Fifth Avenue, New York,
New York 10153.
(c) The address for each of ML IBK Positions, Inc., and Merchant Banking L.P. No. III is 250 Vesey Street,World
Financial Center, North Tower, New York, New York 10281.
(d) Shares of Common Stock beneficially owned by KECALP Inc. are owned of record as follows: 310,235 by Merrill
Lynch KECALP L.P. 1989, and 14,706 by Merrill Lynch KECALP L.P. 1987. KECALP Inc. is the general partner of
each of these two entities. The address for KECALP Inc. and each of the aforementioned recordholders is 250
Vesey Street, World Financial Center, North Tower, New York, New York 10281.
(e) Pursuant to a Schedule 13-G dated January 31, 1994 and filed with the Commission by Neuberger & Berman,
Neuberger & Berman has sole voting power with respect to 601,880 shares, shared voting power with respect to
525,000 shares, and shared dispositive power with respect to 1,287,352 shares. Partners of Neuberger & Berman
own 1,500 shares in their personal accounts and Neuberger & Berman disclaims beneficial ownership of those
shares. The address for Neuberger & Berman is 605 Third Avenue, New York, New York 10158.
(f) James J. Burke, Jr., Gerald S. Armstrong and Paul E. Francis are directors of the Company and Ann Taylor.
Messrs. Burke and Armstrong are officers, and until April 1993 Mr. Francis was an officer, of ML Capital
Partners and ML&Co. Messrs. Burke, Armstrong and Francis each disclaims beneficial ownership of shares
beneficially owned by the ML Entities.
(g) Shares are held by Mr. Armstrong's wife, as custodian for their children. Mr. Armstrong disclaims beneficial
ownership of these shares.
(h) Shares are held in a pension fund of which Ms. Lazarus' husband is the sole beneficiary. Ms. Lazarus has no
voting or investment power with respect to these shares.
(i) The shares listed include shares subject to options exercisable within 60 days as follows: Ms. Kasaks,
162,000 shares; Mr. Francis, 28,000 shares; Mr. Gromek, 12,000 shares; Ms. Weiss, 16,000 shares; and Mr.
Schumm, 70,586 shares; and all executive officers and directors as a group (12 persons), 303,644 shares.
(j) Mr. Schumm and Mr. Tieben resigned from their positions with the Company effective April 6, 1993 and February
4, 1994, respectively.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
TRANSACTIONS WITH ML ENTITIES
The Company paid an underwriting commission to Merrill Lynch in connection
with the IPO in fiscal 1991 and in connection with the Company's issuance and
sale of the 8 3/4% Notes in 1993. The Company also paid commissions to Merrill
Lynch in 1991 and 1993 in connection with the repurchase of indebtedness of Ann
Taylor. The Company agreed to indemnify Merrill Lynch, as underwriter, against
certain liabilities, including certain liabilities under the federal securities
laws, in connection with the IPO and the note issuance.
In January 1993, in connection with the settlement, for $4.8 million, of
the class action lawsuit known as In Re AnnTaylor Stores Securities Litigation
(No. 91 Civ. 7145 (CBM)), and consistent with the Company's indemnification
obligations referred to above, the Company, Merrill Lynch and ML&Co., among
others, entered into an agreement pursuant to which, after contribution to the
settlement by ML&Co. and the application of insurance proceeds, the Company paid
to or for the benefit of the plaintiffs $2.8 million of the above referenced
settlement amount on behalf of itself and certain other defendants, including
Merrill Lynch. The settlement was approved by the Court on May
26
<PAGE>
25, 1993. The Company also reimbursed Merrill Lynch $128,281 for certain costs
incurred by it in connection with the class action in fiscal 1992, pursuant to
the Company's indemnification obligations.
TRANSACTION WITH DIRECTOR
Robert C. Grayson & Associates, Inc. ("RCG Associates"), a company
wholly-owned by Mr. Grayson, has been engaged as a consultant to Ann Taylor with
respect to certain real estate and other matters since August 1992. The term of
the engagement runs through July 1994 and requires payment by Ann Taylor to RCG
Associates of $8,000 per month through January 1994, and $4,000 per month for
the period February 1994 to July 1994. For fiscal 1993, RCG Associates received
aggregate fees of $96,000 pursuant to this engagement.
TAX SHARING AGREEMENT
Pursuant to a tax sharing agreement, the Company and Ann Taylor have agreed
to elect to file consolidated income tax returns for federal income tax purposes
and may elect to file such returns in states and other relevant jurisdictions
that permit such an election for income tax purposes. With respect to such
consolidated income tax returns, the tax sharing agreement generally requires
Ann Taylor to pay to the Company the entire tax shown to be due on such
consolidated returns, provided that the amount paid by Ann Taylor may not exceed
the amount of taxes that would have been owed by Ann Taylor on a stand-alone
basis.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Annual Report:
The following consolidated financial statements of the Company and the
independent auditors' report are included on pages 33 through 49 and are
filed as part of this Annual Report:
Consolidated Statements of Operations for the fiscal years ended January
29, 1994, January 30, 1993 and February 1, 1992; Consolidated Balance
Sheets as of January 29, 1994 and January 30, 1993; Consolidated
Statements of Stockholders' Equity for the fiscal years ended January
29, 1994, January 30, 1993 and February 1, 1992; Consolidated Statements
of Cash Flows for the fiscal years ended January 29, 1994, January 30,
1993 and February 1, 1992; Notes to Consolidated Financial Statements;
Independent Auditors' Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed in the following exhibit index are filed as a part
of this Annual Report.
<TABLE><CAPTION>
EXHIBIT NUMBER
- ---------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended. Incorporated by reference to Exhibit No.
3.1 to Post-Effective Amendment No. 4 to the Registration Statement on Form S-1 of AnnTaylor,
Inc. filed on May 29, 1991 (Registration No. 33-28522).
3.1.1 Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit No.
4.1 to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange
Commission (the "Commission") on August 10, 1992 (Registration No. 33-50688).
3.2 By-Laws of the Company. Incorporated by reference to Exhibit No. 3.2 to the Quarterly Report on
Form 10-Q of the Company filed on December 17, 1991 (Registration No. 33-28522).
4.1 Indenture, dated as of June 15, 1993, between Ann Taylor and Fleet Bank, N.A., as Trustee,
including the form of Subordinated Note due 2000. Incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K of Ann Taylor filed on July 7, 1993.
4.2 Irrevocable Trust Agreement dated as of July 29, 1993, between Ann Taylor and State Street Bank
and Trust Company, as trustee under Indenture dated as of July 15, 1989, with respect to the
Discount Notes. Incorporated by reference to Exhibit 4.2 to the Quarterly Report of Ann Taylor
on Form 10-Q for the Quarter Ended July 31, 1993 filed on September 2, 1993.
4.3 Irrevocable Trust Agreement dated as of July 29, 1993 between Ann Taylor and United States Trust
Company of New York, as trustee under Indenture dated as of July 15, 1989 with respect to the
Notes. Incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q of Ann
Taylor for the Quarter Ended July 31, 1993 filed on September 2, 1993.
10.1 Form of U.S. Purchase Agreement among Merrill Lynch, Robertson, Stephens & Company, the other
U.S. Underwriters, the Selling Warrantholders and the Company, including the form of Price
Determination Agreement. Incorporated by reference to Exhibit No. 1.1 to the Registration
Statement of the Company filed on April 11, 1991 (Registration No. 33-39905).
</TABLE>
28
<PAGE>
<TABLE><CAPTION>
EXHIBIT NUMBER
- ---------------
<S> <C>
10.2 Form of International Purchase Agreement among Merrill Lynch International Limited, Robertson,
Stephens & Company, the other International Underwriters and the Company, including the form of
Price Determination Agreement. Incorporated by reference to Exhibit No. 1.2 to the Registration
Statement of the Company filed on April 11, 1991 (Registration No. 33-39905).
10.3 Form of Indenture entered into between Ann Taylor and United States Trust Company of New York, as
Trustee, including the form of Subordinated Note due 1999. Incorporated by reference to Exhibit
No. 4.1 to Amendment No. 1 to the Registration Statement of the Company and AnnTaylor filed on
June 21, 1989 (Registration No. 33-28522).
10.4 Form of Indenture entered into between Ann Taylor and State Street Bank and Trust Company of
Connecticut, as successor trustee to The Connecticut Bank and Trust Company, National
Association, as Trustee, including the form of Senior Subordinated Discount Note due 1999.
Incorporated by reference to Exhibit No. 4.2 to Amendment No. 1 to the Registration Statement
of the Company and Ann Taylor filed on June 21, 1989 (Registration No. 33-28522).
10.5 Form of Warrant Agreement entered into between Ann Taylor and The Connecticut Bank and Trust
Company, National Association, including the form of Warrant. Incorporated by reference to
Exhibit No. 4.3 to Amendment No. 1 to the Registration Statement of the Company and Ann Taylor
filed on June 21, 1989 (Registration No. 33-28522).
10.6 Credit Agreement, dated as of June 28, 1993, between Ann Taylor, Bank of America National Trust
and Savings Association ("Bank of America"), Bank of Montreal, the financial institutions party
thereto, and Bank of America, as Agent. Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Ann Taylor filed on July 7, 1993.
10.6.1 Amendment No. 1 to Credit Agreement, dated as of August 10, 1993, between Ann Taylor, Bank of
America National Trust and Savings Association ("Bank of America"), Bank of Montreal, the
financial institutions party thereto, and Bank of America, as Agent. Incorporated by reference
to Exhibit 10.9 to the Quarterly Report on Form 10-Q of Ann Taylor for the Quarter ended
October 30, 1993 filed on November 26, 1993.
10.6.2 Amendment No. 2 to Credit Agreement dated as of October 6, 1993, between Ann Taylor, Bank of
America National Trust and Savings Association ("Bank of America"), Bank of Montreal, the
financial institutions party thereto, and Bank of America, as Agent. Incorporated by reference
to Exhibit 10.10 to the Quarterly Report on Form 10-Q of AnnTaylor, Inc. for the Quarter ended
October 30, 1993 filed on November 26, 1993.
10.6.3 Amendment No. 3 to Credit Agreement dated as of December 23, 1993, between Ann Taylor, Bank of
America National Trust and Savings Association ("Bank of America"), Bank of Montreal, the
financial institutions party thereto, and Bank of America, as Agent.
10.6.4 Amendment No. 4 to Credit Agreement dated as of January 24, 1994, between Ann Taylor, Bank of
America National Trust and Savings Association ("Bank of America"), Bank of Montreal, the
financial institutions party thereto, and Bank of America, as Agent.
10.7 Guaranty, dated as of June 28, 1993, made by the Company in favor of Bank of America, as Agent.
Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of Ann Taylor filed
on July 7, 1993.
10.8 Security and Pledge Agreement, dated as of June 28, 1993, made by the Company in favor of Bank of
America, as Agent. Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K
of Ann Taylor filed on July 7, 1993.
10.9 License Agreement, dated as of April 30, 1984, between Ann Taylor and Joan & David. Incorporated
by reference to Exhibit No. 10.14 to the Registration Statement of the Company and Ann Taylor
filed on May 3, 1989 (Registration No. 33-28522).
</TABLE>
29
<PAGE>
<TABLE><CAPTION>
EXHIBIT NUMBER
- ---------------
<S> <C>
10.10 Agreement, dated March 22, 1990, between Ann Taylor and Chapel Street Shoes, Inc. Incorporated by
reference to Exhibit 10.12 to the Annual Report on Form 10-K of the Company filed on April 30,
1990.
10.11 Form of Investor Stock Subscription Agreement, dated February 8, 1989, between the Company and
each of the ML Entities. Incorporated by reference to Exhibit No. 10.15 to the Registration
Statement of the Company and Ann Taylor filed on May 3, 1989 (Registration No. 33-28522).
10.12 1989 Stock Option Plan. Incorporated by reference to Exhibit No. 10.18 to the Registration
Statement of the Company and Ann Taylor filed on May 3, 1989 (Registration No. 33-28522).
10.12.1 Amendment to 1989 Stock Option Plan. Incorporated by reference to Exhibit 10.15.1 to the Annual
Report on Form 10-K of the Company filed on April 30, 1993.
10.13 Lease, dated as of March 17, 1989, between Carven Associates and Ann Taylor concerning the West
57th Street headquarters. Incorporated by reference to Exhibit No. 10.21 to the Registration
Statement of the Company and Ann Taylor filed on May 3, 1989 (Registration No. 33-28522).
10.13.1 First Amendment to Lease, dated as of November 14, 1990, between Carven Associates and Ann
Taylor. Incorporated by reference to Exhibit No. 10.17.1 to the Registration Statement of the
Company filed on April 11, 1991 (Registration No. 33-39905).
10.13.2 Second Amendment to Lease, dated as of February 28, 1993, between Carven Associates and Ann
Taylor. Incorporated by reference to Exhibit 10.17.2 to the Annual Report on Form 10-K of the
Company filed on April 29, 1993.
10.13.3 Extension and Amendment to Lease dated as of October 1, 1993, between Carven Associates and Ann
Taylor Incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q of Ann
Taylor for the Quarter ended October 30, 1993 filed on November 26, 1993.
10.14 Lease, dated December 1, 1985, between Hamilton Realty Co. and Ann Taylor concerning the New
Haven distribution center. Incorporated by reference to Exhibit No. 10.22 to the Registration
Statement of the Company and Ann Taylor filed on May 3, 1989 (Registration No. 33-28522).
10.14.1 Agreement, dated March 22, 1993, between Hamilton Realty Co. and Ann Taylor amending the New
Haven distribution center lease. Incorporated by reference to Exhibit No. 10.14.1 to the Annual
Report on Form 10-K of Ann Taylor filed on April 30, 1993.
10.15 Lease, dated October 1, 1988, between Dixson Associates and Ann Taylor concerning Ann Taylor's 3
East 57th Street offices and store, as amended. Incorporated by reference to Exhibit No. 10.23
to the Registration Statement of the Company and Ann Taylor dated May 3, 1989 (Registration No.
33-28522).
10.15.1 Agreement, dated April 12, 1993, between Dixson Associates and Ann Taylor amending the 3 East
57th Street lease. Incorporated by reference to Exhibit No. 10.15.1 to the Annual Report on
Form 10-K of Ann Taylor filed on April 30, 1993.
10.16 Tax Sharing Agreement, dated as of July 13, 1989, between the Company and Ann Taylor.
Incorporated by reference to Exhibit No. 10.24 to Amendment No. 2 to the Registration Statement
of the Company and Ann Taylor filed on July 13, 1989 (Registration No. 33-28522).
10.17 Employment Agreement, effective as of February 3, 1992, between the Company and Sally Frame
Kasaks. Incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K of the
Company filed on April 28, 1992.
10.18 The AnnTaylor Stores Corporation 1992 Stock Option Plan. Incorporated by reference to Exhibit No.
4.3 to the Company's Registration Statement on Form S-8 filed with the Commission on August 10,
1992 (Registration No. 33-50688).
</TABLE>
30
<PAGE>
<TABLE><CAPTION>
EXHIBIT NUMBER
- ---------------
<S> <C>
10.19 Management Performance Compensation Plan. Incorporated by reference to Exhibit 10.30 to the
Quarterly Report on Form 10-Q filed on December 15, 1992.
10.20 Associate Stock Purchase Plan. Incorporated by reference to Exhibit 10.31 to the Quarterly Report
on Form 10-Q filed on December 15, 1992.
10.21 Stipulation of Settlement dated February 16, 1993 providing for the settlement of Consolidated
Action. Incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K
filed on April 30, 1993.
10.22 Agreement among Defendants to the Stipulation of Settlement dated February 16, 1993 providing for
the settlement of Consolidated Action. Incorporated by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K filed on April 30, 1993.
10.23 Opinion Re Settlement Plan of Allocation and Application for Attorney's Fees and Expenses dated
May 25, 1993, In Re AnnTaylor Stores Securities Litigation. Incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended May 1, 1993
filed on May 28, 1993.
10.24 Consulting and Severance Agreement dated April 6, 1993 between the Company and Joseph J. Schumm.
Incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K filed on
April 30, 1993.
10.25 Interest Rate Swap Agreement dated as of July 22, 1993, between AnnTaylor, Inc. and Fleet Bank of
Massachusetts, N.A. Incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form
10-Q of Ann Taylor for the Quarter ended July 31, 1993 filed on September 2, 1993.
10.26 Stock Purchase Agreement, dated as of July 13, 1993, between AnnTaylor, Inc. and Cleveland
Investment, Ltd. Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q
of Ann Taylor for the Quarter ended July 31, 1993 filed on September 2, 1993.
10.27 Agreement, dated July 13, 1993, among Cygne Designs, Inc., Cygne Designs F.E. Limited, CAT US,
Inc., C.A.T. Far East Limited and AnnTaylor, Inc. Incorporated by reference to Exhibit 10.8 on
Form 10-Q of Ann Taylor for the Quarter ended July 31, 1993 filed on September 2, 1993.
(Confidential treatment has been granted with respect to certain portions of this Exhibit.)
10.28 Receivables Financing Agreement dated January 27, 1994, among AnnTaylor Funding, Inc., Ann
Taylor, Clipper Receivables Corporation, State Street Boston Capital Corporation and PNC Bank
National Association.
10.29 Purchase and Sale Agreement dated as of January 27, 1994 between AnnTaylor, Inc. and AnnTaylor
Funding, Inc.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche.
</TABLE>
31
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ANNTAYLOR STORES CORPORATION
By: /s/ PAUL E. FRANCIS
..................................
Paul E. Francis
Executive Vice President--
Finance and Administration--
Chief Financial Officer
By: /s/ WALTER J. PARKS
..................................
Walter J. Parks
Vice President Financial Reporting--
Principal Accounting Officer
Date: March 31, 1994
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.
<TABLE><CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ SALLY FRAME KASAKS Chairman, Chief Executive Officer and March 31, 1994
..................................................... Director
Sally Frame Kasaks
/s/ PAUL E. FRANCIS Executive Vice President-- Finance and March 31, 1994
..................................................... Administration and Director
Paul E. Francis
/s/ JAMES J. BURKE, JR. Director March 31, 1994
.....................................................
James J. Burke, Jr.
/s/ GERALD S. ARMSTRONG Director March 31, 1994
.....................................................
Gerald S. Armstrong
/s/ ROCHELLE B. LAZARUS Director March 31, 1994
.....................................................
Rochelle B. Lazarus
/s/ ROBERT C. GRAYSON Director March 31, 1994
.....................................................
Robert C. Grayson
/s/ HANNE M. MERRIMAN Director March 31, 1994
.....................................................
Hanne M. Merriman
</TABLE>
32
<PAGE>
ANNTAYLOR STORES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report........................................................................... 34
Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal years ended January 29, 1994,
January 30, 1993 and February 1, 1992............................................................. 35
Consolidated Balance Sheets as of January 29, 1994 and January 30, 1993............................. 36
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 29, 1994, January 30, 1993 and February 1,1992............................................ 37
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 1994,
January 30, 1993 and February 1, 1992............................................................. 38
Notes to Consolidated Financial Statements.......................................................... 39
</TABLE>
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
ANNTAYLOR STORES CORPORATION:
We have audited the accompanying consolidated financial statements of
AnnTaylor Stores Corporation and its subsidiary, listed in the accompanying
index. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its subsidiary
at January 29, 1994 and January 30, 1993, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
January 29, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
New Haven, Connecticut
March 25, 1994
34
<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1,
1992
<TABLE><CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ------------------ ----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales, including leased shoe departments............ $ 501,649 $ 468,381 $ 437,711
Cost of sales........................................... 271,749 264,301 234,136
---------------- ------------------ ----------------
Gross profit............................................ 229,900 204,080 203,575
Selling, general and administrative expenses............ 169,371 152,072 150,842
Distribution center restructuring charge................ 2,000 -- --
Amortization of goodwill................................ 9,508 9,504 9,506
---------------- ------------------ ----------------
Operating income........................................ 49,021 42,504 43,227
Interest expense........................................ 17,696 21,273 33,958
Stockholder litigation settlement....................... -- 3,905 --
Other (income) expense, net............................. (194) 259 542
---------------- ------------------ ----------------
Income before income taxes and extraordinary loss....... 31,519 17,067 8,727
Income tax provision.................................... 17,189 11,150 7,703
---------------- ------------------ ----------------
Income before extraordinary loss........................ 14,330 5,917 1,024
Extraordinary loss (net of income tax benefit of
$6,123,000 and $9,065,000, respectively)................ 11,121 -- 16,835
---------------- ------------------ ----------------
Net income (loss)............................. $ 3,209 $ 5,917 $ (15,811)
---------------- ------------------ ----------------
---------------- ------------------ ----------------
Net income (loss) per share of common stock:
Income per share before extraordinary loss.............. $ .66 $ .28 $ .05
Extraordinary loss per share............................ (.51) -- (.87)
---------------- ------------------ ----------------
Net income (loss) per share................... $ .15 $ .28 $ (.82)
---------------- ------------------ ----------------
---------------- ------------------ ----------------
Weighted average shares and share equivalents
outstanding............................................. 21,929 21,196 19,326
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 29, 1994 AND JANUARY 30, 1993
<TABLE><CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets
Cash................................................................................. $ 292 $ 226
Accounts receivable, net of allowances of $787,000 and $1,006,000, respectively...... 49,279 43,003
Merchandise inventories.............................................................. 60,890 50,307
Prepaid expenses and other current assets............................................ 7,184 5,904
Refundable income taxes.............................................................. -- 5,097
Deferred income taxes................................................................ 3,750 3,500
----------- -----------
Total current assets......................................................... 121,395 108,037
Property and equipment
Leasehold improvements............................................................... 30,539 25,070
Furniture and fixtures............................................................... 37,596 28,508
Improvements in progress............................................................. 8,621 624
----------- -----------
76,756 54,202
Less accumulated depreciation and amortization....................................... 28,703 22,394
----------- -----------
Net property and equipment................................................... 48,053 31,808
Deferred financing costs, net of accumulated amortization of $643,000 and $11,917,000,
respectively........................................................................... 4,990 3,969
Goodwill, net of accumulated amortization of $47,713,000 and $38,205,000,
respectively........................................................................... 332,537 342,045
Deferred income taxes.................................................................. 1,500 --
Investment in CAT...................................................................... 2,245 88
Other assets........................................................................... 2,679 1,645
----------- -----------
Total assets................................................................. $ 513,399 $ 487,592
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable..................................................................... $ 37,564 $ 23,779
Accrued expenses..................................................................... 21,791 17,719
Current portion of long-term debt.................................................... 8,757 37,000
----------- -----------
Total current liabilities.................................................... 68,112 78,498
Long-term debt......................................................................... 180,243 158,474
Other liabilities...................................................................... 5,773 5,322
Commitments and contingencies
Stockholders' equity
Common stock, $.0068 par value; 40,000,000 shares authorized; 21,902,811 and
21,158,468 shares issued, respectively................................................. 149 144
Additional paid-in capital........................................................... 271,810 261,820
Warrants to acquire 446,249 and 511,922 shares of common stock, respectively......... 7,378 8,341
Accumulated deficit.................................................................. (16,756) (19,965)
Note due from stockholder............................................................ -- (999)
Deferred compensation on restricted stock............................................ (119) (398)
----------- -----------
262,462 248,943
Less: Treasury stock, 450,817 and 522,521 shares, respectively,
at cost...................................................................... (3,191) (3,645)
----------- -----------
Total stockholders' equity................................................... 259,271 245,298
----------- -----------
Total liabilities and stockholders' equity................................... $ 513,399 $ 487,592
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1,
1992
(IN THOUSANDS)
<TABLE><CAPTION>
TREASURY
ADDITIONAL NOTE RESTRICTED STOCK
COMMON STOCK PAID-IN WARRANTS ACCUMULATED DUE FROM STOCK -------
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT STOCKHOLDER AWARD SHARES
--------- ----------- --------- --------- --------- ----------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 2,
1991................... 13,093 $ 89 $ 71,391 -- -- $ (10,071) -- -- 1,996
Net loss............... -- -- -- -- -- (15,811) -- -- --
Adjustment to carrying
value of warrants...... -- -- (2,700) -- -- -- -- -- --
Adjustment to carrying
value of common stock
held by management
investors.............. -- -- (98) -- -- -- -- -- --
Public stock
offering............... 6,883 47 166,494 -- -- -- -- -- --
Exercise of stock
options................ 41 -- 280 -- -- -- -- -- --
Reclassification of
warrants............... -- -- -- 1,985 $ 32,350 -- -- -- --
Reclassification of
common stock held by
management investors... 289 2 2,416 -- -- -- $ (999) -- --
Exercise of warrants... -- -- 11,839 (1,270) (20,702) -- -- -- (1,270)
-------- ----- --------- --------- --------- ----------- ------ ----------- -------
Balance at February 1,
1992................... 20,306 138 249,622 715 11,648 (25,882) (999) -- 726
Net income............. -- -- -- -- -- 5,917 -- -- --
Exercise of stock
options................ 792 6 5,436 -- -- -- -- -- --
Tax benefits related to
stock options.......... -- -- 3,536 -- -- -- -- -- --
Exercise of warrants... -- -- 1,892 (203) (3,307) -- -- -- (203)
Common stock issued as
restricted stock
award.................. 60 -- 1,327 -- -- -- -- $ (1,327) --
Amortization of
restricted stock
award.................. -- -- -- -- -- -- -- 929 --
Common stock issued as
employee stock award... -- -- 7 -- -- -- -- -- --
-------- ----- --------- --------- --------- ----------- ------ ----------- -------
Balance at January 30,
1993................... 21,158 144 261,820 512 8,341 (19,965) (999) (398) 523
Net income............. -- -- -- -- -- 3,209 -- -- --
Exercise of stock
options................ 745 5 6,121 -- -- -- -- -- --
Exercise of warrants... -- -- 550 (66) (963) -- -- -- (66)
Tax benefits related to
stock options.......... -- -- 3,240 -- -- -- -- -- --
Common stock issued as
employee stock award... -- -- 79 -- -- -- -- -- (6)
Amortization of
restricted stock
award.................. -- -- -- -- -- -- -- 279 --
Repayment of note due
from stockholder....... -- -- -- -- -- -- 999 -- --
-------- ----- --------- --------- --------- ----------- ------ ----------- -------
Balance at January 29,
1994................... 21,903 $ 149 $ 271,810 446 $ 7,378 $ (16,756) $ 0 $ (119) 451
-------- ----- --------- --------- --------- ----------- ------ ----------- -------
-------- ----- --------- --------- --------- ----------- ------ ----------- -------
<CAPTION>
STOCKHOLDERS'
AMOUNT EQUITY
-----------
Balance at February 2,
1991................... $ (13,926) $ 47,483
Net loss............... -- (15,811)
Adjustment to carrying
value of warrants...... -- (2,700)
Adjustment to carrying
value of common stock
held by management
investors.............. -- (98)
Public stock
offering............... -- 166,541
Exercise of stock
options................ -- 280
Reclassification of
warrants............... -- 32,350
Reclassification of
common stock held by
management investors... -- 1,419
Exercise of warrants... 8,863 --
--------- -----------
Balance at February 1,
1992................... (5,063) 229,464
Net income............. -- 5,917
Exercise of stock
options................ -- 5,442
Tax benefits related to
stock options.......... -- 3,536
Exercise of warrants... 1,415 --
Common stock issued as
restricted stock
award.................. -- --
Amortization of
restricted stock
award.................. -- 929
Common stock issued as
employee stock award... 3 10
--------- -----------
Balance at January 30,
1993................... (3,645) 245,298
Net income............. -- 3,209
Exercise of stock
options................ -- 6,126
Exercise of warrants... 413 --
Tax benefits related to
stock options.......... -- 3,240
Common stock issued as
employee stock award... 41 120
Amortization of
restricted stock
award.................. -- 279
Repayment of note due
from stockholder....... -- 999
--------- -----------
Balance at January 29,
1994................... $ (3,191) $ 259,271
--------- -----------
--------- -----------
<CAPTION>
TOTAL
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1,
1992
<TABLE><CAPTION>
FISCAL YEARS ENDED
-------------------------------------
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................................... $ 3,209 $ 5,917 $ (15,811)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Extraordinary loss..................................................... 17,244 -- 25,900
Distribution center restructuring charge............................... 2,000 -- --
Equity earnings in CAT................................................. (517) -- --
Provision for loss on accounts receivable.............................. 1,171 1,240 1,211
Depreciation and amortization.......................................... 8,505 7,486 6,203
Amortization of goodwill............................................... 9,508 9,504 9,506
Accretion of original issue discount................................... 2,864 5,726 8,893
Amortization of deferred financing costs............................... 1,335 1,524 2,140
Amortization of deferred compensation.................................. 279 929 --
Deferred income taxes.................................................. (1,750) (1,500) (1,000)
Issuance of Exchange Notes............................................. -- 1,331 1,210
Loss on disposal of property and equipment............................. 312 72 338
Decrease (increase) in receivables..................................... (7,447) (2,539) 6,606
Decrease (increase) in merchandise inventories......................... (10,583) (4,325) 3,433
Increase in prepaid expenses and other current assets.................. (1,280) (187) (1,633)
Decrease (increase) in refundable income taxes......................... 5,097 (2,078) (3,019)
Increase (decrease) in accounts payable and accrued liabilities........ 18,218 (250) (4,799)
Decrease (increase) in other non-current assets and liabilities, net... (843) 729 964
----------- ----------- -----------
Net cash provided by operating activities................................... 47,322 23,579 40,142
Investing activities:
Purchases of property and equipment......................................... (25,062) (4,303) (10,004)
Investment in CAT........................................................... (1,640) (88) --
----------- ----------- -----------
Net cash used by investing activities....................................... (26,702) (4,391) (10,004)
Financing activities:
Borrowings (repayments) under line of credit agreement...................... (3,500) 2,500 (19,000)
Increase (decrease) in bank overdrafts...................................... (2,361) (4,660) 2,267
Payments of long-term debt.................................................. (96,969) (26,000) (13,000)
Purchase of Subordinated Debt Securities.................................... (93,689) -- (166,938)
Proceeds from issuance of common stock...................................... -- -- 166,541
Net proceeds from 8 3/4% Notes.............................................. 107,387 -- --
Proceeds from Term Loan..................................................... 80,000 -- --
Proceeds from note due from Stockholder..................................... 999 -- --
Payment of 10% Junior Subordinated Notes.................................... (14,641) -- --
Payment of Term Loan........................................................ (26,000) -- --
Proceeds from Receivables Facility.......................................... 33,000 -- --
Purchase of 8 3/4% Notes.................................................... (10,225) -- --
Proceeds from exercise of stock options..................................... 9,486 8,988 280
Payment of financing costs.................................................. (4,041) -- (232)
----------- ----------- -----------
Net cash used by financing activities....................................... (20,554) (19,172) (30,082)
----------- ----------- -----------
Net increase in cash.......................................................... 66 16 56
Cash, beginning of year....................................................... 226 210 154
----------- ----------- -----------
Cash, end of year............................................................. $ 292 $ 226 $ 210
----------- ----------- -----------
----------- ----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest...................................... $ 12,664 $ 13,917 $ 22,611
----------- ----------- -----------
----------- ----------- -----------
Cash paid during the year for income taxes.................................. $ 5,114 $ 11,192 $ 4,501
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ann Taylor is a leading national specialty retailer of better quality
women's apparel, shoes and accessories sold principally under the Ann Taylor
brand name.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of AnnTaylor
Stores Corporation (the "Company") and AnnTaylor, Inc. ("Ann Taylor"). The
Company has no material assets other than the common stock of Ann Taylor and
conducts no business other than the management of Ann Taylor. All intercompany
accounts have been eliminated in consolidation.
Certain fiscal 1992 and 1991 amounts have been reclassified to conform to
the fiscal 1993 presentation.
FISCAL YEAR
The Company follows the standard fiscal year of the retail industry, which
is a 52-or 53-week period ending on the Saturday closest to January 31 of the
following calendar year.
FINANCE SERVICE CHARGE INCOME
Income from finance service charges relating to customer receivables, which
is deducted from selling, general and administrative expenses, amounted to
$6,166,000 for fiscal 1993, $5,608,000 for fiscal 1992 and $5,850,000 for fiscal
1991.
MERCHANDISE INVENTORIES
Merchandise inventories are accounted for by the retail inventory method
and are stated at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets (3 to 15 years) or, in the case of leasehold improvements, over the lives
of the respective leases, if shorter.
PRE-OPENING EXPENSES
Pre-opening store expenses are charged to selling, general and
administrative expenses in the period incurred.
LEASED SHOE DEPARTMENT SALES
Net sales include leased shoe department sales of $8,207,000 for fiscal
1992 and $16,056,000 for fiscal 1991. Leased shoe departments were phased out
beginning August 1, 1990, and the phaseout was completed by February 1, 1993.
Accordingly, there were no leased shoe department sales during fiscal 1993. The
gross profit margin on leased shoe department sales was approximately 14.4%.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized using the interest method over
the terms of the related debt.
GOODWILL
Goodwill is being amortized on a straight-line basis over 40 years.
39
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
Income tax expense is based on reported results of operations before income
taxes. During the first quarter of 1993, the Company adopted the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Adoption of SFAS 109 did not have a material effect on the results of
operations.
ADVERTISING EXPENSES
Advertising expense was $6,388,000 for fiscal 1993, $5,509,000 for fiscal
1992 and $8,645,000 for fiscal 1991.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of common shares and common share equivalents
outstanding during the period and assumes the exercise of the warrants and the
dilutive effect of the stock options.
2. RESTRUCTURING
The Company recorded a $2,000,000 pre-tax restructuring charge in the
fourth quarter of 1993 in connection with the announced relocation of its
distribution center from New Haven, Connecticut to Louisville, Kentucky. The
primary components of the restructuring charge are approximately $1,100,000 for
employee related costs, principally for severance and job training benefits, and
approximately $900,000 for the write-off of the estimated net book value of
fixed assets at the time of relocation.
3. EXTRAORDINARY ITEMS
In 1993, the Company entered into a series of debt refinancing transactions
that resulted in an extraordinary loss of $17,244,000 ($11,121,000 net of income
tax benefit). The loss was attributable to the premiums paid in connection with
the purchase or discharge of Ann Taylor's 14 3/8% Senior Subordinated Discount
Notes due 1999 ("Discount Notes") and its 13 3/4% Subordinated Notes due 1999
("Notes") and the purchase of $10,000,000 principal amount of Ann Taylor's 8
3/4% Subordinated Notes due 2000 ("8 3/4% Notes"), and the write-off of deferred
financing costs.
During May 1991, the Company completed an initial public offering of its
common stock (the "IPO"). The net proceeds of the IPO were used to repurchase
outstanding Discount Notes and Notes. The repurchase and write-off of related
deferred financing costs resulted in an extraordinary loss of $25,900,000
($16,835,000 net of income tax benefit) in the second quarter of 1991.
40
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
<TABLE><CAPTION>
The following summarizes long-term debt outstanding at January 29, 1994 and January 30, 1993:
JANUARY 29, 1994 JANUARY 30, 1993
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Senior Debt:
Term loan................................................... $ 54,000 $ 54,000 $ 96,969 $ 96,969
Revolving credit loan....................................... 2,000 2,000 5,500 5,500
14 3/8% Discount Notes, net of unamortized discount of
$6,261,000.................................................... -- -- 44,069 46,800
13 3/4% Notes, net of unamortized discount of $287,000........ -- -- 34,295 37,350
10% exchange notes............................................ -- -- 14,641 17,300
8 3/4% Notes.................................................. 100,000 102,750 -- --
Receivables facility.......................................... 33,000 33,000 -- --
----------- ----------- ----------- -----------
189,000 191,750 195,474 203,919
Less current portion.......................................... 8,757 8,757 37,000 37,000
----------- ----------- ----------- -----------
Total.................................................. $ 180,243 $ 182,993 $ 158,474 $ 166,919
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The bank credit agreement entered into on June 28, 1993 between Ann Taylor
and Bank of America, as agent for a syndicate of banks (the "Bank Credit
Agreement") provides for an $80,000,000 term loan ("Term Loan") and a
$55,000,000 revolving credit facility ("Revolving Credit Facility")
(collectively, the "Bank Loans").
The Term Loan is subject to regularly scheduled semi-annual repayments of
principal, which commenced on January 15, 1994. The Company made the semi-annual
payment of $6,000,000 in January 1994, and an additional payment of $20,000,000
which reduced the originally scheduled payments to $8,757,000 in fiscal years
1994 and 1995, $11,676,000 in fiscal years 1996 and 1997, and $13,134,000 in
fiscal year 1998.
Amounts borrowed under the Revolving Credit Facility may be repaid at any
time and are not subject to scheduled repayment prior to January 1999. The
maximum amount that may be borrowed under this facility is reduced by the amount
of commercial and standby letters of credit outstanding under the Bank Credit
Agreement. Amounts borrowed under the Revolving Credit Facility mature on
January 15, 1999; however, the Company is required to reduce the outstanding
balance of the Revolving Credit Facility to $20,000,000 or less for a 30-day
period in fiscal 1994 and to $15,000,000 or less for a 30-day period each year
thereafter. At January 29, 1994 and January 30, 1993, the amount available under
the Revolving Credit Facility was $46,150,000 and $35,320,000, respectively.
The Term Loan and the Revolving Credit Facility bear interest at a rate per
annum equal to, at the Company's option, Bank of America's (1) Base Rate plus
.875%, or (2) Eurodollar rate plus 1.875%. In addition, Ann Taylor is required
to pay Bank of America a quarterly commitment fee of .375% per annum of the
unused revolving loan commitment. At January 29, 1994, the $54,000,000
outstanding under the Term Loan bore interest at a weighted average rate of
5.13% per annum and the $2,000,000 outstanding under the Revolving Credit
Facility bore interest at the rate of 6.875% per annum.
Under the terms of the Bank Credit Agreement, Bank of America obtained a
pledge of Ann Taylor's common stock and a security interest in certain assets.
The Bank Credit Agreement requires,
41
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT--(CONTINUED)
with certain exceptions, that any net proceeds from the sale of assets and debt
or equity securities be applied to repay borrowings. In addition, the Bank
Credit Agreement contains financial and other covenants, including limitations
on indebtedness, liens, investments and capital expenditures, restrictions on
dividends or other distributions to stockholders, and maintaining certain
financial ratios and specified levels of net worth.
In the fourth quarter of 1993, Ann Taylor sold its proprietary credit card
accounts receivable to AnnTaylor Funding, Inc., a wholly owned subsidiary, which
used the receivables to secure borrowings under a new receivables financing
facility due 1996 (the "Receivables Facility"). As of January 29, 1994,
$33,000,000 was outstanding under the Receivables Facility. AnnTaylor Funding,
Inc. can borrow up to $40,000,000 under the Receivables Facility based on its
accounts receivable balance. The interest rate as of January 29, 1994 was 3.67%.
At January 29, 1994, AnnTaylor Funding, Inc. had total assets of approximately
$41,000,000 all of which are subject to the security interest of the lender
under the Receivables Facility.
On June 28, 1993, Ann Taylor issued $110,000,000 principal amount of its 8
3/4% Notes, the net proceeds of $107,387,000 of which were used in part to repay
the outstanding indebtedness under Ann Taylor's then existing bank credit
agreement. The outstanding principal amount of these notes as of January 29,
1994 was $100,000,000.
Ann Taylor's obligations with respect to the Discount Notes and Notes were
discharged on July 29, 1993 when Ann Taylor deposited with the trustees for the
Discount Notes and Notes an aggregate of $50,734,000 in irrevocable trusts. The
Discount Notes and the Notes will be redeemed with the proceeds of the trusts on
or about July 15, 1994. The aggregate carrying value of the Discount Notes and
Notes as of January 29, 1994 would have been $45,004,000.
In July 1993, Ann Taylor entered into a $110,000,000 (notional amount)
interest rate swap agreement. Under the agreement, the Company receives a fixed
rate of 4.75% and pays a floating rate based on LIBOR, as determined in six
month intervals. This agreement lowered the effective interest rate on the 8
3/4% Notes by 125 basis points for the first semi-annual period ended January
1994. The swap agreement matures in July 1996. The Company is exposed to credit
loss in the event of non-performance by the other party to the swap agreement;
however, the Company does not anticipate non-performance by the other party,
which is a major financial institution. As of January 29, 1994, the fair market
value of the swap agreement was approximately $780,000.
The aggregate principal payments of all long-term obligations for the next
five fiscal years are as follows:
<TABLE><CAPTION>
(IN
FISCAL YEAR THOUSANDS)
- ------------------------------------------------------------------------------
<S> <C>
1994........................................................................ $ 8,757
1995........................................................................ 8,757
1996........................................................................ 44,676
1997........................................................................ 11,676
1998........................................................................ 15,134
</TABLE>
At January 29, 1994, January 30, 1993 and February 1, 1992, Ann Taylor had
outstanding commercial and standby letters of credit with Bank of America
totaling $6,850,000, $9,180,000 and $3,280,000, respectively.
42
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT--(CONTINUED)
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments", the
Company determined the estimated fair value of its debt instruments using quoted
market information, as available, or interest rates which are available to the
Company. As judgment is involved, the estimates are not necessarily indicative
of the amounts the Company could realize in a current market exchange.
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of activity in the allowance for doubtful accounts for the fiscal
years ended January 29, 1994, January 30, 1993 and February 1, 1992 is as
follows:
<TABLE><CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year......... $ 1,006 $ 899 $ 1,000
Provision for loss on accounts
receivable........................... 1,171 1,240 1,211
Accounts written off................. (1,390) (1,133) (1,312)
---------------- ---------------- ----------------
Balance at end of year............... $ 787 $ 1,006 $ 899
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Ann Taylor occupies its retail stores, distribution center and
administrative facilities under operating leases, most of which are
non-cancellable. Some leases contain renewal options for periods ranging from
one to ten years under substantially the same terms and conditions as the
original leases. Most of the leases require Ann Taylor to pay taxes, insurance
and certain common area and maintenance costs in addition to the future minimum
lease payments shown below. Most of the store leases require Ann Taylor to pay a
specified minimum rent, plus a contingent rent based on a percentage of the
store's net sales in excess of a certain threshold.
Future minimum lease payments under non-cancellable operating leases at
January 29, 1994 are as follows:
<TABLE><CAPTION>
(IN
FISCAL YEAR THOUSANDS)
- ------------------------------------------------------------------------------
<S> <C>
1994........................................................................ $ 30,504
1995........................................................................ 27,620
1996........................................................................ 26,054
1997........................................................................ 23,416
1998........................................................................ 21,613
1999 and thereafter......................................................... 82,242
-------------
Total.................................................................... $ 211,449
-------------
-------------
</TABLE>
43
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Rent expense for the fiscal years ended January 29, 1994, January 30, 1993
and February 1, 1992 was as follows:
<TABLE><CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rent.............................................. $ 28,076 $ 24,933 $ 22,135
Percentage rent........................................... 3,343 4,217 4,423
---------------- ---------------- ----------------
Total................................................ $ 31,419 $ 29,150 $ 26,558
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
In January 1993, the Company and the other defendants agreed to settle the
stockholder class action lawsuit filed against them in October 1991. As a result
of the settlement, the Company was required to pay to or for the benefit of the
plaintiff class $2,800,000 (after application of the insurance proceeds). To
provide for the settlement, the Company recorded an expense of $3,905,000 ($.11
per share, net of income tax benefit), which includes certain of the legal
defense costs and other expenses associated with the suit, in its fiscal 1992
financial statements.
Ann Taylor has been named as a defendant in several legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to these actions cannot be accurately predicted, in the
opinion of the Company, any such liability will not have a material adverse
effect on the financial position or results of operations of the Company.
7. COMMON STOCK WARRANTS
In conjunction with the sale by Ann Taylor of the Discount Notes and Notes
on July 20, 1989, the Company sold warrants to acquire, in the aggregate,
1,985,294 shares of the common stock of the Company (the "Warrants"). The
Warrants, when exercised, entitle the holders thereof to acquire such shares,
subject to adjustment, at no additional cost. The Warrants expire on July 15,
1999 and became exercisable as a result of the IPO. During the fiscal year ended
February 1, 1992, the Company charged $2,700,000 to additional paid-in capital
with a corresponding increase to the carrying value of the Warrants.
8. PREFERRED STOCK
At January 29, 1994, January 30, 1993 and February 1, 1992, there were
2,000,000 shares of preferred stock, par value $.01, authorized and unissued.
9. STOCK OPTION PLANS
In 1989 and 1992, the Company established stock option plans. Under the
terms of both plans, the exercise price of any option may not be less than 100%
of the fair value of the common stock on the date of grant. 248,185 shares of
common stock have been reserved for issuance under the 1989 plan and 974,000
shares of common stock have been reserved for issuance under the 1992 plan. At
January 29, 1994, there were 14,373 shares under the 1989 plan and 498,500
shares under the 1992 plan available for future grant. Generally, options
granted under the plans expire ten years from the date of the grant.
44
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCK OPTION PLANS--(CONTINUED)
Pursuant to an employment agreement with the Company, as of February 3,
1992, the Chairman of the Board and Chief Executive Officer of the Company was
granted 100,000 stock options at $22.125 per share and 100,000 stock options at
$26.00 per share.
The following summarizes stock option transactions for the fiscal years
ended January 29, 1994, January 30, 1993 and February 1, 1992:
<TABLE><CAPTION>
OPTION PRICES NUMBER OF SHARES
------------------ -----------------
<S> <C> <C>
Outstanding Options February 2, 1991....................................... $6.80-$13.60 1,775,555
Granted.................................................................. $22.10 33,675
Exercised................................................................ $6.80 (41,112)
Cancelled................................................................ $6.80 (14,151)
-----------------
Outstanding Options February 1, 1992....................................... $6.80-$22.10 1,753,967
Granted.................................................................. $18.625-$26.00 517,500
Exercised................................................................ $6.80-$22.10 (792,210)
Cancelled................................................................ $6.80-$22.25 (17,173)
-----------------
Outstanding Options January 30, 1993....................................... $6.80-$26.00 1,462,084
Granted.................................................................. $18.125-$26.00 279,000
Exercised................................................................ $6.80-$22.25 (745,346)
Cancelled................................................................ $6.80-$22.25 (86,426)
-----------------
Outstanding Options January 29, 1994....................................... $6.80-$26.00 909,312
-----------------
-----------------
</TABLE>
At January 29, 1994, January 30, 1993 and February 1, 1992 there were
exercisable 516,889 options, 995,407 options and 1,496,953 options,
respectively.
10. RESTRICTED STOCK AWARD
Pursuant to an employment agreement with the Company, as of February 3,
1992, the Chairman of the Board and Chief Executive Officer of the Company was
entitled to receive 60,000 shares of restricted common stock. The resulting
unearned compensation expense of $1,327,500, based on the market value on the
date of the grant, was charged to stockholders' equity and is being amortized
over the restricted period applicable to these shares.
45
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
The provision for income taxes for the fiscal years ended January 29, 1994,
January 30, 1993 and February 1, 1992 consists of the following:
<TABLE><CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------
JANUARY 29, 1994 JANUARY 30, 1993 FEBRUARY 1, 1992
---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................ $ 14,339 $ 9,300 $ 6,203
Deferred........................... (1,750) (1,500) (1,000)
State and Local...................... 4,600 3,350 2,500
---------------- ---------------- ----------------
Total.............................. $ 17,189 $ 11,150 $ 7,703
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The reconciliation between the provision for income taxes and the provision
for income taxes at the federal statutory rate for the fiscal years ended
January 29, 1994, January 30, 1993 and February 1, 1992 is as follows:
<TABLE><CAPTION>
FISCAL YEARS ENDED
-------------------------------------
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes and extraordinary loss........................ $ 31,519 $ 17,067 $ 8,727
----------- ----------- -----------
----------- ----------- -----------
Federal statutory rate................................................... 35% 34% 34%
----------- ----------- -----------
----------- ----------- -----------
Provision for income taxes at federal statutory rate..................... $ 11,032 $ 5,803 $ 2,967
State and local income taxes, net of federal income tax benefit.......... 2,990 2,211 1,650
Non-deductible amortization of goodwill.................................. 3,328 3,232 3,232
Other.................................................................... (161) (96) (146)
----------- ----------- -----------
Provision for income taxes.......................................... $ 17,189 $ 11,150 $ 7,703
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The tax effects of significant items comprising the Company's deferred tax
asset as of January 29, 1994 are as follows:
<TABLE><CAPTION>
(IN
DEFERRED TAX ASSETS: THOUSANDS)
<S> <C>
Current:
Inventory........................................................................ $ 981
Accrued expenses................................................................. 1,288
Restructuring.................................................................... 700
Other............................................................................ 781
-------------
Total current...................................................................... $ 3,750
-------------
-------------
Noncurrent:
Depreciation..................................................................... $ 125
Rent expense..................................................................... 1,375
-------------
Total noncurrent................................................................... $ 1,500
-------------
-------------
</TABLE>
For 1992 deferred income tax benefits have been provided for temporary
differences which result from recording certain transactions in different years
for income tax purposes than for financial
46
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES--(CONTINUED)
reporting purposes. Such transactions principally relate to merchandise
inventories, accounts receivable, fixed assets and accrued expenses.
12. RETIREMENT PLANS
SAVINGS PLAN. During 1989, Ann Taylor adopted a defined contribution 401(k)
savings plan for substantially all employees. Participants may contribute to the
plan an aggregate of up to 10% of their annual earnings. Ann Taylor makes a
matching contribution of 50%, with respect to the first 3% of each participant's
annual earnings contributed to the plan. Ann Taylor's contributions to the plan
for fiscal 1993, fiscal 1992 and fiscal 1991 were $199,000, $111,000 and
$111,000, respectively.
PENSION PLAN. Substantially all employees of Ann Taylor are covered under a
noncontributory defined benefit pension plan established during 1989. The
pension plan is a "cash balance pension plan". An account balance is established
for each participant which is credited with a benefit based on compensation and
years of service with Ann Taylor. Ann Taylor's funding policy for the plan is to
contribute annually the amount necessary to provide for benefits based on
accrued service and projected pay increases. Plan assets consist primarily of
cash, equity and fixed income securities.
The following table sets forth the funded status of the Pension Plan at
January 29, 1994, January 30, 1993 and February 1, 1992, in accordance with
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions":
<TABLE><CAPTION>
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefits obligation:
Accumulated benefit obligation, including vested benefits of $1,056,000,
$702,000 and $411,000, respectively..................................... $ 2,401 $ 1,832 $ 997
------------ ------------ ------------
------------ ------------ ------------
Projected benefit obligation for service rendered to date............... $ 2,401 $ 1,832 $ 997
Plan assets at fair value............................................... 2,344 1,847 855
------------ ------------ ------------
Plan assets in excess of projected benefit obligation (projected benefit
obligation in excess of plan assets).................................... (57) 15 (142)
Unrecognized net gain................................................... (58) -- --
------------ ------------ ------------
Prepaid (accrued) pension cost.......................................... $ (115) $ 15 $ (142)
------------ ------------ ------------
------------ ------------ ------------
Net periodic pension cost for fiscal 1993, 1992 and 1991 included the
following components:
Service cost/benefits earned during the year............................ $ 680 $ 521 $ 372
Interest cost on projected benefit obligation........................... 117 100 61
Actual return on plan assets............................................ (124) (100) (76)
Net amortization and deferral........................................... (36) 9 30
------------ ------------ ------------
Net periodic pension cost............................................... $ 637 $ 530 $ 387
------------ ------------ ------------
------------ ------------ ------------
Assumptions used in the development of pension cost and accrual were:
Discount rate...................................................... 7.0% 7.0% 9.0%
Rate of increase in compensation level............................. 4.0% 4.0% 6.0%
Expected long-term rate of return on assets........................ 8.0% 9.0% 10.0%
</TABLE>
47
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY FINANCIAL DATA--(UNAUDITED)
<TABLE><CAPTION>
QUARTER
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1993
Net sales..................................................... $ 120,175 $ 124,837 $ 122,025 $ 134,612
Operating income.............................................. 12,410 12,929 12,850 10,832
Income before extraordinary loss.............................. 3,290 3,630 4,321 3,089
Extraordinary loss............................................ -- (10,496) -- (625)
Net income (loss)............................................. 3,290 (6,866) 4,321 2,464
Income per share before extraordinary loss.................... $ .15 $ .16 $ .20 $ .14
Extraordinary loss per share.................................. -- (.47) -- (.03)
Net income (loss) per share................................... $ .15 $ (.31) $ .20 $ .11
FISCAL 1992
Net sales..................................................... $ 114,739 $ 112,492 $ 115,274 $ 125,876
Operating income.............................................. 11,304 8,301 14,718 8,181
Net income (loss)............................................. 2,138 624 4,265 (1,110)
Net income (loss) per share................................... $ .10 $ .03 $ .20 $ (.05)
</TABLE>
The sum of the quarterly per share data may not equal the annual amounts
due to changes in the weighted average shares and share equivalents outstanding.
The early retirement of indebtedness in the fourth quarter of 1993 led to
an extraordinary pre-tax charge to earnings of $1,096,000 ($625,000 net of
income tax benefit). The Company also recorded a $2,000,000 pre-tax
restructuring charge in the fourth quarter of 1993 for the relocation of its
distribution center from New Haven, Connecticut to Louisville, Kentucky in early
1995.
The net loss in the fourth quarter of 1992 was primarily due to the
stockholder litigation settlement of $3,386,000.
14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MERRILL LYNCH AND ITS AFFILIATES
At January 29, 1994, certain affiliates of Merrill Lynch & Co., Inc.
("ML&Co.") held approximately 52% of the outstanding common stock and, as a
result, have the voting power to determine the composition of the Board of
Directors of the Company and otherwise control the business and affairs of Ann
Taylor and the Company. Two of the members of the Boards of Directors of the
Company and Ann Taylor are officers of Merrill Lynch Capital Partners, Inc. ("ML
Capital Partners") and serve as representatives of certain limited partnerships
controlled directly or indirectly by ML Capital Partners, together with certain
other affiliates of ML&Co. See Note 15.
The Company paid an underwriting commission of approximately $3,357,000 to
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") in
connection with the IPO. In addition, the Company paid a commission of
approximately $599,000 to Merrill Lynch in connection with the repurchase of the
subordinated debt securities with the proceeds from the IPO.
In January 1993, in connection with the settlement of the class action
lawsuit, the Company, Merrill Lynch and ML&Co., among others, entered into an
agreement pursuant to which ML&Co.
48
<PAGE>
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--(CONTINUED)
paid $750,000 and the Company paid the balance of the settlement to or for the
benefit of the plaintiffs. The Company also reimbursed Merrill Lynch $128,000
for certain costs incurred by it in connection with the class action in fiscal
1992, pursuant to the Company's indemnification obligations.
The Company paid commissions aggregating approximately $2,692,000 to
Merrill Lynch in connection with the issuance of the 8 3/4% Notes, and
repurchases of Discount Notes, Notes and 8 3/4% Notes.
TRANSACTIONS WITH CAT
The Company commenced a joint venture known as CAT U.S., Inc. ("CAT") with
Cygne Designs, Inc., which was formed for the purpose of sourcing Ann Taylor
merchandise directly with manufacturers. As of January 29, 1994, the Company
owned a 40% interest in CAT which is being accounted for under the equity method
of accounting, an increase of 20% from January 30, 1993. CAT places orders
directly with manufacturers exclusively as agent for Ann Taylor. Merchandise
purchased by Ann Taylor through CAT was $67,202,000 or 23.5%, and $19,091,000,
or 7.3%, of all merchandise purchased by the Company in 1993 and 1992,
respectively. Accounts payable to CAT in the ordinary course of business was
approximately $3,100,000 as of January 29, 1994.
15. SUBSEQUENT EVENTS
The Company intends to file a registration statement for a sale of its
common stock in the first quarter of 1994. 1,000,000 shares will be sold by the
Company and 4,000,000 shares are expected to be sold by certain stockholders of
the Company affiliated with ML&Co.
49
<PAGE>
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING 5,000,000 SHARES
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS [LOGO]
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
COMMON STOCK
------------------------
TABLE OF CONTENTS
PAGE
---------
Available Information.................... 2
Documents Incorporated by Reference...... 2
The Company.............................. 3 -----------------
Recent Results........................... 5 PROSPECTUS
The Offerings............................ 5 -----------------
Investment Considerations................ 6
Selected Financial Information........... 7
Price Range of Common Stock.............. 9
Dividend Policy.......................... 9
Use of Proceeds.......................... 9 MERRILL LYNCH & CO.
Capitalization........................... 10 WILLIAM BLAIR & COMPANY
MORGAN STANLEY & CO.
Selling Stockholders..................... 11 INCORPORATED
Description of Capital Stock............. 12 ROBERTSON, STEPHENS & COMPANY
Certain United States Federal Tax
Consequences to Non-U.S. Stockholders.. 14
Underwriting............................. 16
Legal Matters............................ 18
Experts.................................. 18
Annual Report on Form 10-K For the Fiscal
Year Ended January 29, 1994............ Annex I ,1994
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
<PAGE>
[ALTERNATE FOR INT'L]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1994
PROSPECTUS
5,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
Of the 5,000,000 shares of Common Stock offered, 1,000,000 shares are being
sold by AnnTaylor Stores Corporation and 4,000,000 shares are being sold by
certain stockholders of the Company. See "Selling Stockholders". The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
Of the 5,000,000 shares of Common Stock offered, 1,000,000 shares are being
offered hereby outside the United States and Canada by the International
Underwriters and 4,000,000 shares are being offered in a concurrent offering in
the United States and Canada by the U.S. Underwriters. The initial offering
price and the aggregate underwriting discount per share are identical for both
Offerings. See "Underwriting".
The Common Stock is listed on the New York Stock Exchange under the symbol
"ANN". On April 19, 1994, the last sale price of the Common Stock as reported on
the New York Stock Exchange was $32 1/4 per share.
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE><CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share............................... $ $ $ $
Total(3)................................ $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses estimated at $ payable by the Company and
$ payable by the Selling Stockholders.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 750,000 shares solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting".
------------------------
The Shares are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, and subject to the approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of shares will be made in New York, New York on or about , 1994.
------------------------
MERRILL LYNCH INTERNATIONAL LIMITED
WILLIAM BLAIR & COMPANY
MORGAN STANLEY & CO.
INTERNATIONAL
ROBERTSON, STEPHENS & COMPANY
------------------------
The date of this Prospectus is , 1994.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE FOR INT'L]
UNDERWRITING
Subject to the terms and conditions set forth in the International Purchase
Agreement (the "International Purchase Agreement") among the Company, the
Selling Stockholders and each of the Underwriters named below (the
"International Underwriters"), and concurrently with the sale of 4,000,000
shares of Common Stock to the U.S. Underwriters (as defined below), the Company
and the Selling Stockholders severally have agreed to sell to each of the
International Underwriters, and each of the International Underwriters severally
has agreed to purchase, the aggregate number of shares of Common Stock set forth
opposite its name below.
<TABLE><CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITER SHARES
- ----------------------------------------------------------------------------- -----------
<S> <C>
Merrill Lynch International Limited..........................................
William Blair & Company......................................................
Morgan Stanley & Co. International Limited...................................
Robertson, Stephens & Company, L.P...........................................
-----------
Total................................................................... 1,000,000
-----------
-----------
</TABLE>
Merrill Lynch International Limited, William Blair & Company, Morgan
Stanley & Co. International Limited and Robertson, Stephens & Company, L.P.
are acting as Co-Lead Managers (the "Co-Lead Managers") of the International
Underwriters.
The Company and the Selling Stockholders have also entered into a U.S.
Purchase Agreement (the "U.S. Purchase Agreement") and certain underwriters in
the United States (the "U.S. Underwriters") for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, William Blair & Company, Morgan Stanley & Co.
Incorporated, and Robertson, Stephens & Company, L.P. are acting as
representatives (the "U.S. Representatives"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of 1,000,000 shares of Common Stock to the International Underwriters, the
Company and the Selling Stockholders severally have agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase, an
aggregate of 4,000,000 shares of Common Stock. The public offering price per
share and the total underwriting discount per share are identical under the
International Purchase Agreement and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Underwriters and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Agreement if any of the shares of Common Stock being sold pursuant to
each such Agreement are purchased. Under certain circumstances, the commitments
of non-defaulting International Underwriters or U.S. Underwriters may be
increased. The Closings with respect to the sale of Common Stock to be purchased
by the International Underwriters and the U.S. Underwriters are conditioned upon
one another.
The International Underwriters propose initially to offer the shares to the
public at the public offering price, set forth on the cover page of this
Prospectus and to certain banks, brokers and dealers (the "Selling Group") at
such price less a concession not in excess of per share, and the
International Underwriters may allow, and the members of the Selling Group may
reallow, with the consent of Merrill Lynch International Limited, a discount not
in excess of per share to other International Underwriters or to other
members of the Selling Group. After the public offering, the public offering
price concession and discount may be changed.
The Selling Stockholders have granted an option to the International
Underwriters, exercisable during the 30-day period after the date hereof, to
purchase up to an aggregate of 150,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less the underwriting
discount. The International Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of shares of Common Stock offered
hereby. To the extent that the
16
<PAGE>
[ALTERNATE FOR INT'L]
International Underwriters exercise this option, each International Underwriter
will be obligated, subject to certain conditions, to purchase approximately the
number of additional shares of Common Stock proportionate to such International
Underwriter's initial amount reflected in the foregoing table. The Selling
Stockholders have also granted an option to the U.S. Underwriters, exercisable
during the 30-day period after the date hereof, to purchase up to an aggregate
of 600,000 additional shares of Common Stock to cover over-allotments, if any,
on terms similar to those granted to the International Underwriters.
The International Underwriters and the U.S. Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the International Underwriters and the U.S.
Underwriters of such number of shares of Common Stock as may be mutually agreed.
The prices of any shares of Common Stock so sold shall be the public offering
price, less an amount not greater than the selling concession.
For information regarding the ownership by affiliates of Merrill Lynch of
Common Stock and the representation of affiliates of Merrill Lynch on the Board
of Directors of the Company, see "Selling Stockholders".
Because the Company is an affiliate of Merrill Lynch, one of the U.S.
Underwriters, the U.S. Offering is being conducted in accordance with the
applicable provisions of Schedule E of the By-Laws ("Schedule E") of the
National Association of Securities Dealers, Inc. ("NASD"). In accordance with
Schedule E, no NASD member participating in the distribution will be permitted
to confirm sales to accounts over which it exercises discretionary authority
without the prior specific written consent of the customer. In addition, under
the rules of the NYSE, Merrill Lynch is precluded from issuing research reports
that make recommendations with respect to the Common Stock for so long as the
Company is an affiliate of Merrill Lynch.
Each of the Company, the Selling Stockholders and certain officers of the
Company will agree, for a period of 120 days after the effective date of the
Registration Statement of which this Prospectus is a part, subject to certain
exceptions not to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, or
any rights or warrants to acquire Common Stock, without the prior written
consent of Merrill Lynch International Limited.
The Company and the Selling Stockholders have agreed to indemnify the
International Underwriters and the U.S. Underwriters against certain
liabilities, including liabilities under the Securities Act.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to persons who are non-United States or Canadian
persons or to persons they believe intend to resell to persons who are
non-United States or Canadian persons, and the International Underwriters and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to United States or Canadian persons or to persons
they believe intend to resell to United States or or Canadian persons, except,
in each case, for transactions pursuant to the Intersyndicate Agreement.
Each International Underwriter has agreed that (i) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock offered hereby in the United Kingdom by means of any document except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 (the "Financial
Services Act") with respect to anything done by it in relation to the Common
Stock in, from, or otherwise involving the United Kingdom, and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issuance of Common
Stock if that person is of a kind who falls within Article 9(3) of the Financial
Services Act 1986 (Investment Advertisements)(Exemptions) Order 1988.
17
<PAGE>
(ALTERNATE BACK COVER FOR INTERNATIONAL PROSPECTUS)
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE 5,000,000 SHARES
AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, [LOGO]
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE
OF THE COMMON STOCK OFFERED HEREBY IN THE UNITED COMMON STOCK
KINGDOM. ALL APPLICABLE PROVISIONS OF THE
FINANCIAL SERVICES ACT 1986 AND THE COMPANIES ACT
1985 WITH RESPECT TO ANYTHING DONE BY ANY PERSON
IN RELATION TO THE COMMON STOCK IN, FROM OR
OTHERWISE INVOLVING THE UNITED KINGDOM MUST BE
COMPLIED WITH. SEE "UNDERWRITING".
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" ------------------------
AND "$" ARE TO UNITED STATES DOLLARS UNLESS PROSPECTUS
STATED OTHERWISE. ------------------------
------------------------
TABLE OF CONTENTS
PAGE
---------
Available Information.................... 2
Documents Incorporated by Reference...... 2
The Company.............................. 3
Recent Results........................... 5
The Offerings............................ 5
Investment Considerations................ 6
Selected Financial Information........... 7 MERRILL LYNCH
Price Range of Common Stock.............. 9 INTERNATIONAL LIMITED
Dividend Policy.......................... 9 WILLIAM BLAIR & COMPANY
MORGAN STANLEY & CO.
Use of Proceeds.......................... 9 INTERNATIONAL
Capitalization........................... 10 ROBERTSON, STEPHENS & COMPANY
Selling Stockholders..................... 11
Description of Capital Stock............. 12
Certain United States Federal Tax
Consequences to Non-U.S. Stockholders.. 14
Underwriting............................. 16
Legal Matters............................ 18
Experts.................................. 18
Annual Report on Form 10-K For the Fiscal
Year Ended January 29, 1994.............. Annex I , 1994
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses (other than the SEC and NASD filing fees) are
estimated. Such expenses will be shared proportionately by the Company and the
Selling Stockholders based upon the number of shares sold by each of them in the
Offerings.
<TABLE>
<S> <C>
SEC registration fee............................................................ $ 63,330
NASD filing fee................................................................. 18,866
Printing and engraving expenses................................................. 200,000
Legal fees and expenses......................................................... 175,000
Blue Sky fees and expenses (including legal fees and expenses).................. 17,500
Accounting fees and expenses.................................................... 100,000
Miscellaneous................................................................... 25,304
-----------
Total................................................................. $ 600,000
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of the State of
Delaware (the "Delaware Corporation Law"), each director and officer of the
Company may be indemnified by the Company against expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceedings in which he is involved by reason of the fact
that he is or was a director or officer of the Company if he acted in good faith
and in a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe that his conduct was
unlawful. If the legal proceeding, however, is by or in the right of the
Company, the director or officer may not be indemnified in respect of any claim,
issue or matter as to which he shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Company unless a
court determines otherwise. The designees of the ML Entities who serve on the
Company's board of directors also have certain rights to indemnification by
ML&Co. and the ML Entities for liabilities incurred in connection with actions
taken by them in their capacity as directors of the Company.
Article Seven of the Certificate of Incorporation of the Company provides
that, to the fullest extent permitted by law, directors of the Company will not
be liable for monetary damages to the Company or its stockholders for breaches
of their fiduciary duties.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
The Exhibits listed in the following Exhibit Index are filed as part of the
Registration Statement:
<TABLE><CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- ---------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of U.S. Purchase Agreement among Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated, Robertson, Stephens & Company, L.P., William Blair &
Company, the other U.S. Underwriters, the Selling Stockholders and the Company, including the
form of Price Determination Agreement.
</TABLE>
II-1
<PAGE>
<TABLE><CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- ---------------------------------------------------------------------------------------------
<S> <C>
1.2 Form of International Purchase Agreement among Merrill Lynch International Limited, Morgan
Stanley & Co. International Limited, Robertson, Stephens & Company, L.P., William Blair &
Company, the other International Underwriters, the Selling Stockholders and the Company,
including the form of Price Determination Agreement.
5 Opinion of Jocelyn F.L. Barandiaran, Esq. regarding the validity of the Securities.
23.1 Consent of Jocelyn F.L. Barandiaran, Esq. (to be included in Exhibit 5).
23.2 Consent of Deloitte & Touche.
25* Power of Attorney (set forth on signature page of the Registration Statement).
</TABLE>
- ---------------
* Previously filed.
B. FINANCIAL STATEMENTS AND SCHEDULES
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission either are not required under the related
instructions or the information required to be included therein has been
included in the financial statements of the Company.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and, therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(3) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON APRIL 20, 1994.
ANNTAYLOR STORES CORPORATION
By /s/ JOCELYN F.L. BARANDIARAN
...................................
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE><CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- -------------------------------------- --------------------
<S> <C> <C>
* Chairman of the Board, Chief Executive April 20, 1994
................................................... Officer and Director
Sally Frame Kasaks
* Executive Vice President-- Finance and April 20, 1994
................................................... Administration and Director
Paul E. Francis
* Vice President Financial Reporting April 20, 1994
...................................................
Walter J. Parks
* Director April 20, 1994
...................................................
James J. Burke, Jr.
* Director April 20, 1994
...................................................
Gerald S. Armstrong
* Director April 20, 1994
...................................................
Rochelle B. Lazarus
* Director April 20, 1994
...................................................
Robert C. Grayson
* Director April 20, 1994
...................................................
Hanne M. Merriman
*By /s/ JOCELYN F.L. BARANDIARAN April 20, 1994
..............................................
Jocelyn F.L. Barandiaran
(Attorney in Fact)
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE><CAPTION>
EXHIBITS
- ----------
<S> <C>
1.1 Form of U.S. Purchase Agreement among Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, Robertson, Stephens & Company, L.P., William Blair & Company, the other
U.S. Underwriters, the Selling Stockholders and the Company, including the form of Price
Determination Agreement.
1.2 Form of International Purchase Agreement among Merrill Lynch International Limited, Morgan Stanley &
Co. International Limited, Robertson, Stephens & Company, L.P., William Blair & Company, the other
International Underwriters, the Selling Stockholders and the Company, including the form of Price
Determination Agreement.
5 Opinion of Jocelyn F.L. Barandiaran, Esq. regarding the validity of the Securities.
23.1 Consent of Jocelyn F.L. Barandiaran, Esq. (to be included in Exhibit 5).
23.2 Consent of Deloitte & Touche.
25* Power of Attorney (set forth on signature page of the Registration Statement).
</TABLE>
- ---------------
* Previously filed.
_________________________________________________________________
_________________________________________________________________
ANNTAYLOR STORES CORPORATION
(a Delaware corporation)
4,000,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
-----------------------
Dated: May , 1994
---
_________________________________________________________________
_________________________________________________________________
<PAGE>
ANNTAYLOR STORES CORPORATION
(a Delaware corporation)
4,000,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
-----------------------
May , 1994
--
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
As U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
AnnTaylor Stores Corporation, a Delaware corporation
(the "Company"), proposes to issue and sell to the underwriters
named in Schedule A (collectively, the "U.S. Underwriters"), for
whom you are acting as representatives (the "U.S.
Representatives"), 800,000 authorized but unissued shares of the
Company's Common Stock, par value $.0068 per share (shares of
which class of stock of the Company are hereinafter referred to
as "Common Stock"), and the stockholders named in Schedule B
(collectively, the "Selling Stockholders") propose to sell
severally an aggregate of 3,200,000 outstanding shares of Common
Stock, as set forth on Schedule B, to the U.S. Underwriters.
Such shares of Common Stock, aggregating 4,000,000 shares, are to
be sold to each U.S. Underwriter, acting severally and not
jointly, in such amounts as are set forth in Schedule A opposite
the name of such U.S. Underwriter. The Selling Stockholders also
grant to the U.S. Underwriters, severally and not jointly, the
option described in Section 2 to purchase all or any part of
600,000 additional shares of Common Stock to cover over-
allotments. The aforesaid 4,000,000 shares of Common Stock (the
"Initial U.S. Shares"), together with all or any part of the
600,000 additional shares of Common Stock subject to the option
described in Section 2 (the "U.S. Option Shares"), are
collectively herein called the "U.S. Shares". The U.S. Shares
are more fully described in the U.S. Prospectus referred to below.
<PAGE>
2
It is understood that the Company and the Selling
Stockholders are concurrently entering into an agreement, dated
the date hereof (the "International Purchase Agreement"),
providing for the issuance and sale by the Company and the sale
by the Selling Stockholders of an aggregate of 1,000,000 shares
of Common Stock (the "Initial International Shares") through
arrangements with certain underwriters outside the United States
and Canada (the "International Underwriters"), for whom Merrill
Lynch International Limited, Morgan Stanley & Co. International
Limited, Robertson, Stephens & Company, L.P. and William Blair &
Company are acting as Co-Lead Managers (the "Co-Lead Managers").
It is further understood that the Selling Stockholders are also
granting the International Underwriters an option to purchase all
or any part of 150,000 additional shares of Common Stock (the
"International Option Shares") to cover over-allotments. The
Initial International Shares and the International Option Shares
are hereinafter collectively referred to as the "International
Shares". The U.S. Shares and the International Shares are
hereinafter collectively referred to as the "Shares".
The Company and the Selling Stockholders understand
that the U.S. Underwriters will simultaneously enter into an
agreement with the International Underwriters dated the date
hereof (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the U.S. Underwriters
and the International Underwriters under the direction of Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
You have advised us that you and the other U.S.
Underwriters, acting severally and not jointly, desire to
purchase the U.S. Shares and that you have been authorized by the
other U.S. Underwriters to execute this Agreement and the U.S.
Price Determination Agreement referred to below on their behalf.
The initial public offering price per share for the
U.S. Shares and the purchase price per share for the U.S. Shares
shall be agreed upon by the Company, the Selling Stockholders and
the U.S. Representatives, acting on behalf of the several U.S.
Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto
(the "U.S. Price Determination Agreement"). The U.S. Price
Determination Agreement may take the form of an exchange of any
standard form of written telecommunication among the Company, the
Selling Stockholders and the U.S. Representatives and shall
specify such applicable information as is indicated in Exhibit A
hereto. The offering of the U.S. Shares will be governed by this
Agreement, as supplemented by the U.S. Price Determination
Agreement. From and after the date of the execution and delivery
of the U.S. Price Determination Agreement, this Agreement shall
be deemed to incorporate, and all references herein to "this
<PAGE>
3
Agreement" shall be deemed to include, the U.S. Price
Determination Agreement.
The Company has prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration
statement on Form S-3 (Registration No. 33-52941) covering the
registration of the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary
prospectus, or prospectuses, and either (A) has prepared and
proposes to file, prior to the effective date of such
registration statement, an amendment to such registration
statement, including a final prospectus or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file a prospectus, in accordance
with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)")
of the 1933 Act Regulations, promptly after execution and
delivery of the U.S. Price Determination Agreement. Two forms of
prospectus are to be used in connection with the offering and
sale of the Shares: one relating to the U.S. Shares (the "Form
of U.S. Prospectus") and one relating to the International Shares
(the "Form of International Prospectus"). The Form of
International Prospectus is identical to the Form of U.S.
Prospectus, except for the front cover page, the information
contained under the caption "Underwriting" and the back cover
page. The information, if any, included in such prospectus that
was omitted from the prospectus included in such registration
statement at the time it becomes effective but that is deemed,
pursuant to paragraph (b) of Rule 430A, to be part of such
registration statement at the time it becomes effective is
referred to herein as the "Rule 430A Information". Each Form of
U.S. Prospectus and Form of International Prospectus used before
the time such registration statement becomes effective, and any
Form of U.S. Prospectus and Form of International Prospectus that
omits the Rule 430A Information that is used after such
effectiveness and prior to the execution and delivery of the U.S.
Price Determination Agreement or the International Price
Determination Agreement, is herein called a "preliminary
prospectus". Such registration statement, including the exhibits
thereto and the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, as amended at
the time it becomes effective and also including, if applicable,
the Rule 430A Information, is herein called the "Registration
Statement", and the Form of U.S. Prospectus and Form of
International Prospectus, including the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, included in the Registration Statement at the time it
becomes effective is herein called the "U.S. Prospectus" and the
"International Prospectus", respectively, and collectively, the
"Prospectuses", and individually, a "Prospectus", except that, if
<PAGE>
4
the final U.S. Prospectus or International Prospectus first
furnished to the U.S. Underwriters or International Underwriters,
respectively, after the execution of the U.S. Price Determination
Agreement or the International Price Determination Agreement, as
the case may be, for use in connection with the offering of the
Shares differs from the prospectuses included in the Registration
Statement at the time it becomes effective (whether or not such
prospectuses are required to be filed pursuant to Rule 424(b)),
the terms "U.S. Prospectus", "International Prospectus",
"Prospectuses" and "Prospectus" shall refer to the final U.S.
Prospectus or International Prospectus, as the case may be, first
furnished to the U.S. Underwriters or the International
Underwriters, as the case may be, for such use.
All references in this Agreement to financial
statements and schedules and other information that is
"contained", "included" or "stated" in the Registration Statement
or the Prospectuses (and all other references of like import)
shall be deemed to mean and include all such financial statements
and schedules and other information that is or is deemed to be
incorporated by reference in the Registration Statement or the
Prospectuses, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration
Statement or the Prospectuses shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of
1934, as amended (the "1934 Act"), that is or is deemed to be
incorporated by reference in the Registration Statement or the
Prospectuses, as the case may be.
The Company and the Selling Stockholders understand
that the U.S. Underwriters propose to make a public offering of
the U.S. Shares as soon as you deem advisable after the
Registration Statement becomes effective and the U.S. Price
Determination Agreement has been executed and delivered.
Section 1. Representations and Warranties. (a) The
------------------------------
Company represents and warrants to and agrees with the U.S.
Underwriters that:
(i) The Company meets the requirements for use of Form
S-3 under the 1933 Act and when the Registration Statement
on such form shall become effective, on the date hereof,
and on the effective date of any amendment or supplement to
the Registration Statement, (A) the Registration Statement
and any amendments and supplements thereto will comply in
all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations; (B) neither the Registration
Statement nor any amendment or supplement thereto will
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
<PAGE>
5
necessary to make the statements therein not misleading; and
(C) neither of the Prospectuses nor any amendment or
supplement thereto will include an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
except that this representation and warranty does not apply
to statements or omissions made in reliance upon and in
conformity with information furnished in writing or
confirmed in writing to the Company by or on behalf of any
Underwriter through you expressly for use in the
Registration Statement or the Prospectuses.
(ii) The documents incorporated by reference in the
Prospectuses pursuant to Item 12 of Form S-3 under the 1933
Act, at the time they were filed with the Commission,
complied in all material respects with the requirements of
the 1934 Act, and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and,
when read together with the other information in the
Prospectuses, at the time the Registration Statement becomes
effective, on the date hereof, and on the effective date of
any amendment or supplement to the Registration Statement,
will not contain an an untrue statement of a material fact
or omit to state a material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(iii) Deloitte & Touche, who are reporting upon the
audited financial statements and schedules included or
incorporated by reference in the Registration Statement, are
independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) This Agreement has been duly authorized, executed
and delivered by the Company.
(v) The consolidated financial statements included or
incorporated by reference in the Registration Statement
present fairly the consolidated financial position of the
Company and the Subsidiary (as hereinafter defined) as of
the dates indicated and the consolidated results of
operations and the consolidated cash flows of the Company
and the Subsidiary for the periods specified. Such
financial statements have been prepared in conformity with
generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The
financial statement schedules, if any, included in the
Registration Statement present fairly the information
<PAGE>
6
required to be stated therein. The selected financial data
included or incorporated by reference in each Prospectus
present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited
financial statements included or incorporated by reference
in the Registration Statement.
(vi) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and
conduct its business as described in each Prospectus; and
the Company is duly qualified to transact business as a
foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have
a material adverse effect on the Company and the Subsidiary,
considered as one enterprise. The Company is not engaged in
any business other than acting as a holding company for the
capital stock of AnnTaylor, Inc., a Delaware corporation
(the "Subsidiary").
(vii) The Company's only subsidiaries are the
Subsidiary, AnnTaylor Travel, Inc., a Delaware corporation
and a wholly owned subsidiary of the Subsidiary, and
AnnTaylor Funding, Inc., a Delaware corporation and a wholly
owned subsidiary of the Subsidiary, and the Company has a
minority ownership interest in each of CAT U.S., Inc. and
C.A.T. (Far East), Ltd. The Subsidiary is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Delaware with corporate power under
such laws to own, lease and operate its properties and
conduct its business; and the Subsidiary is duly qualified
to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or
leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except
to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the
Company and the Subsidiary, considered as one enterprise.
All of the outstanding shares of capital stock of the
Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable and are owned, directly or
indirectly, by the Company free and clear of any pledge,
lien, security interest, charge, claim, equity or
encumbrance of any kind, except as provided in or pursuant
to the Bank Credit Agreement dated as of June 28, 1993, as
<PAGE>
7
amended (the "Bank Credit Agreement"), among the Subsidiary
and the lenders named therein.
(viii) The Company had at the date indicated a duly
authorized, issued and outstanding capitalization as set
forth in each Prospectus in the column entitled "Actual"
under the caption "Capitalization" and the Shares conform to
the description thereof under the caption "Description of
Capital Stock" contained in each Prospectus.
(ix) The Shares to be sold by the Company pursuant to
this Agreement and the International Purchase Agreement have
been duly authorized and, when issued and paid for in
accordance with this Agreement and the International
Purchase Agreement, will be validly issued, fully paid and
non-assessable; no holder thereof will be subject to
personal liability by reason of being such a holder; and
such Shares are not subject to the preemptive or other
similar rights of any stockholder of the Company.
(x) The Shares to be sold by the Selling Stockholders
have been duly authorized and validly issued and are fully
paid and non-assessable; and no holder thereof is or will be
subject to personal liability by reason of being such a
holder.
(xi) All of the other outstanding shares of capital
stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; no holder
thereof is or will be subject to personal liability by
reason of being such a holder; and none of the outstanding
shares of capital stock of the Company was issued in
violation of the preemptive rights of any stockholder of the
Company.
(xii) Since the respective dates as of which
information is given in the Registration Statement and each
Prospectus, except as otherwise stated therein or
contemplated thereby, there has not been (A) any material
adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the
Company and the Subsidiary, considered as one enterprise,
whether or not arising in the ordinary course of business,
or (B) any dividend or distribution of any kind declared,
paid or made by the Company on its capital stock.
(xiii) Neither the Company nor the Subsidiary is in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
<PAGE>
8
agreement or instrument to which it is a party or by which
it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a
material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects
of the Company and the Subsidiary. The execution and
delivery of this Agreement and the International Purchase
Agreement by the Company, the issuance and delivery of the
Shares, the consummation by the Company of the transactions
contemplated in this Agreement and the International
Purchase Agreement and in the Registration Statement and
compliance by the Company with the terms of this Agreement
have been duly authorized by all necessary corporate action
on the part of the Company and do not and will not result in
any violation of the charter or by-laws of the Company or
the Subsidiary and do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or the Subsidiary under
(A) any contract, indenture, mortgage, loan agreement,
note,lease or other agreement or instrument to which the
Company or the Subsidiary is a party or by which either of
them may be bound or to which any of their properties may be
subject (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a
material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects
of the Company or the Subsidiary, considered as one
enterprise) or (B) any existing applicable law, rule,
regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company or the Subsidiary or
any of their respective properties.
(xiv) No authorization, approval, consent or
license of any government, governmental instrumentality or
court, domestic or foreign (other than under the 1933 Act,
the 1933 Act Regulations, the securities or blue sky laws of
the various states and the securities laws of any
jurisdiction outside the United States in which
International Shares are offered or sold by the
International Underwriters), is legally required for the
valid authorization, issuance, sale and delivery of the
Shares as contemplated by this Agreement and the
International Purchase Agreement.
(xv) Except as disclosed in the Prospectuses, there is
no action, suit or proceeding before or by any government,
governmental instrumentality or court, domestic or foreign,
<PAGE>
9
now pending or, to the knowledge of the Company, threatened
against the Company or the Subsidiary that is required to be
disclosed in the Prospectuses or that is reasonably expected
by the Company to result in any material adverse change in
the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the
Subsidiary, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect
the consummation of the transactions contemplated by this
Agreement, the International Purchase Agreement or the
Registration Statement. The aggregate of all pending legal
or governmental proceedings to which the Company or the
Subsidiary is a party that are not described in the
Prospectuses, including ordinary routine litigation
incidental to the business of the Company or the Subsidiary,
as the case may be, is not reasonably expected by the
Company to have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary,
considered as one enterprise.
(xvi) There are no contracts or documents of a
character required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits to
the Registration Statement that are not described and filed
as required.
(xvii) The Company and the Subsidiary each owns,
possesses or has obtained all material governmental
licenses, permits, certificates, consents, orders, approvals
and other authorizations necessary to own or lease, as the
case may be, and to operate its properties and to carry on
its business as presently conducted, except where the
failure to possess such licenses, permits, certificates,
consents, orders, approvals or other authorizations would
not have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary,
considered as one enterprise, and neither the Company nor
the Subsidiary has received any notice of proceedings
relating to revocation or modification of any such licenses,
permits, certificates, consents, orders, approvals or
authorizations, which, in the reasonable judgment of the
Company, if the subject of an unfavorable decision, ruling
or finding, would have a material adverse effect on the
condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the
Subsidiary, considered as one enterprise.
<PAGE>
10
(xviii) The Company and the Subsidiary each owns or
possesses, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and
trade names necessary to carry on its business as presently
conducted, and neither the Company nor the Subsidiary has
received any notice of infringement of or conflict with
asserted rights of others with respect to any patents,
patent licenses, trademarks, service marks or trade names
that in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could materially adversely
affect the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and
the Subsidiary, considered as one enterprise.
(xix) The Company has not taken and will not take,
directly or indirectly, any action designed to, or that the
Company reasonably believes would cause or result in
stabilization or manipulation of the price of the Common
Stock; and the Company has not distributed and will not
distribute any prospectus (as such term is defined in the
1933 Act and the 1933 Act Regulations) in connection with
the offering and sale of the Shares other than any
preliminary prospectus filed with the Commission or the
Prospectuses or other material permitted by the 1933 Act or
the 1933 Act Regulations.
(xx) The Company has obtained the written agreement of
certain officers of the Company who beneficially own an
aggregate of at least [100,000] shares of Common Stock or
securities convertible into or exchangeable or exercisable
for Common Stock ("convertible securities") that, for a
period of 120 days from the date hereof, such persons will
not, without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which
consent will not be unreasonably withheld, directly or
indirectly, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of any shares of Common Stock
or convertible securities; provided, however, that during
such 120 day period, (i) such shares of Common Stock or
convertible securities may be transferred by will or the
laws of descent and distribution and (ii) such persons may
make gifts of shares of Common Stock or convertible
securities or transfer such shares of Common Stock or
convertible securities to family trusts, so long as the
donee agrees to be bound by the foregoing restriction in the
same manner as it applies to such persons.
(xxi) Except as disclosed in the Registration
Statement and except as would not individually or in the
aggregate have a material adverse effect on the condition
<PAGE>
11
(financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary,
considered as one enterprise, (A) the Company and the
Subsidiary are in compliance with all applicable
Environmental Laws, (B) the Company and the Subsidiary have
all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or
threatened Environmental Claims against the Company or the
Subsidiary, and (D) there are no circumstances with respect
to any property or operations of the Company or the
Subsidiary that could reasonably be anticipated to form the
basis of an Environmental Claim against the Company or the
Subsidiary.
For purposes of this Agreement, the following terms
shall have the following meanings: "Environmental Law"
means any United States (or other applicable jurisdiction's)
federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law
and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent
decree or judgment, relating to the environment, health,
safety or any chemical, material or substance, exposure to
which is prohibited, limited or regulated by any
governmental authority. "Environmental Claims" means any
and all administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
(xxii) There are no persons, corporations,
partnerships or other entities with registration or other
similar rights to have any securities registered pursuant to
the Registration Statement.
(b) Each of the Selling Stockholders severally and not
jointly represents and warrants to, and agrees with, the U.S.
Underwriters as follows:
(i) When the Registration Statement shall become
effective, on the date hereof, and on the effective date of
any amendment or supplement to the Registration Statement,
(A) such parts of the Registration Statement and any
amendments and supplements thereto as specifically refer to
such Selling Stockholder will not contain an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading and (B) such parts of each
Prospectus as specifically refer to such Selling Stockholder
<PAGE>
12
will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(ii) All authorizations and consents necessary for the
execution and delivery by or on behalf of such Selling
Stockholder of this Agreement and the sale and delivery
pursuant to this Agreement of the Shares to be sold by such
Selling Stockholder have been given and are in full force
and effect on the date hereof and will be in full force and
effect at the Closing Time and, if any U.S. Option Shares
are purchased, on the Date of Delivery.
(iii) The execution and delivery of this Agreement
and the consummation by any Selling Stockholder of the
transactions contemplated in this Agreement and the
International Purchase Agreement will not result in a breach
by such Selling Stockholder of, or constitute a default by
such Selling Stockholder under, any material agreement,
instrument, decree, judgment or order to which such Selling
Stockholder is a party or by which such Selling Stockholder
may be bound.
(iv) Such Selling Stockholder will, at the Closing Time
and, if any U.S. Option Shares are purchased, on the Date of
Delivery, be the sole registered holder of the U.S. Shares
to be sold by such Selling Stockholder pursuant to this
Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind,
other than pursuant to this Agreement; such Selling
Stockholder has full right, power and authority to sell,
transfer and deliver such U.S. Shares pursuant to this
Agreement; and, upon delivery of such U.S. Shares and
payment of the purchase price therefor as contemplated in
this Agreement, each of the U.S. Underwriters will receive
all of such Selling Stockholder's interest in its ratable
share of the U.S. Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind.
(v) For a period of 120 days from the date hereof,
such Selling Stockholder will not, without the prior written
consent of Merrill Lynch, directly or indirectly, sell,
offer to sell, grant any option for the sale of, or
otherwise dispose of, any shares of Common Stock or other
securities convertible into Common Stock, other than to the
U.S. Underwriters pursuant to this Agreement or to the
International Underwriters pursuant to the International
Purchase Agreement; provided that during such period such
<PAGE>
13
Selling Stockholder may make gifts of shares of Common Stock
or other securities convertible into Common Stock upon the
condition that the donees agree to be bound by the foregoing
restriction in the same manner as it applies to such Selling
Stockholder.
(vi) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to, or
that such Selling Stockholder reasonably believes would,
cause or result in stabilization or manipulation of the
price of the Common Stock; and such Selling Stockholder has
not distributed and will not distribute any prospectus (as
such term is defined in the 1933 Act and the 1933 Act
Regulations) in connection with the offering and sale of the
Shares other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted
by the 1933 Act or the 1933 Act Regulations.
(c) Any certificate signed by any officer of the
Company or the Subsidiary and delivered to you or to counsel
for the U.S. Underwriters shall be deemed a representation
and warranty by the Company to each U.S. Underwriter as to
the matters covered thereby; and any certificate signed by
or on behalf of the Selling Stockholders as such and
delivered to you or to counsel for the U.S. Underwriters
shall be deemed a representation and warranty by the Selling
Stockholders to each U.S. Underwriter as to the matters
covered thereby.
Section 2. Sale and Delivery to the U.S. Underwriters;
-------------------------------------------
Closing. (a) On the basis of the representations and warranties
-------
herein contained, and subject to the terms and conditions herein
set forth, the Company and the Selling Stockholders agree,
severally and not jointly, to sell to each U.S. Underwriter, and
each U.S. Underwriter agrees, severally and not jointly, to
purchase from the Company and the Selling Stockholders, at the
purchase price per share for the Initial U.S. Shares to be agreed
upon by the U.S. Representatives, the Company and the Selling
Stockholders in accordance with Section 2(b) or 2(c), and set
forth in the U.S. Price Determination Agreement, the number of
Initial U.S. Shares set forth opposite the name of such U.S.
Underwriter in Schedule A, plus such additional number of Initial
U.S. Shares which such Underwriter may become obligated to
purchase pursuant to Section 11 hereof. If the Company elects to
rely on Rule 430A, Schedules A and B may be attached to the U.S.
Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule
430A, the initial public offering price per share for the Initial
U.S. Shares and the purchase price per share for the Initial U.S.
<PAGE>
14
Shares to be paid by the several U.S. Underwriters shall be
agreed upon and set forth in the U.S. Price Determination
Agreement, dated the date hereof, and an amendment to the
Registration Statement containing such per share price
information will be filed before the Registration Statement
becomes effective.
(c) If the Company has elected to rely upon Rule 430A,
the initial public offering price per share for the Initial U.S.
Shares and the purchase price per share for the Initial U.S.
Shares to be paid by the several U.S. Underwriters shall be
agreed upon and set forth in the U.S. Price Determination
Agreement. In the event that the U.S. Price Determination
Agreement has not been executed by the close of business on the
fourth business day following the date on which the Registration
Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party
except that Sections 7 and 8 shall remain in effect.
(d) In addition, on the basis of the representations
and warranties herein contained, and subject to the terms and
conditions herein set forth, each Selling Stockholder grants an
option to the U.S. Underwriters, severally and not jointly, to
purchase up to the additional number of U.S. Option Shares set
forth opposite such Selling Stockholder's name in the appropriate
column of Schedule B at the same purchase price per share as
shall be applicable to the Initial U.S. Shares. The option
hereby granted will expire 30 days after the date upon which the
Registration Statement becomes effective or, if the Company has
elected to rely upon Rule 430A, the date of the U.S. Price
Determination Agreement, and may be exercised, in whole or from
time to time in part, only for the purpose of covering over-
allotments that may be made in connection with the offering and
distribution of the Initial U.S. Shares upon notice by you to the
Company and the Selling Stockholders setting forth the number of
U.S. Option Shares as to which the several U.S. Underwriters are
exercising the option, and the time and date of payment and
delivery thereof. Such time and date of delivery (the "Date of
Delivery") shall be determined by you but shall not be later than
seven full business days after the exercise of such option, nor
in any event prior to the Closing Time. If the option is
exercised as to only a portion of the U.S. Option Shares, each of
the Selling Stockholders will sell its pro rata portion of the
U.S. Option Shares to be purchased by the U.S. Underwriters. If
the option is exercised as to all or any portion of the U.S.
Option Shares, the U.S. Option Shares as to which the option is
exercised shall be purchased by the U.S. Underwriters, severally
and not jointly, in their respective underwriting obligation
proportions.
<PAGE>
15
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Shares shall be made at the
offices of Shearman & Sterling, 599 Lexington Avenue, New York,
New York 10022, or at such other place as shall be agreed upon by
the Company, the Selling Stockholders and you, at 10:00 A.M.
either (i) on the fifth full business day after the effective
date of the Registration Statement or (ii) if the Company has
elected to rely upon Rule 430A, the fifth full business day after
execution of the U.S. Price Determination Agreement (unless, in
either case, postponed pursuant to Section 11 or 12), or at such
other time not more than ten full business days thereafter as you
and the Company and the Selling Stockholders shall determine
(such date and time of payment and delivery being herein called
the "Closing Time"). In addition, in the event that any or all
of the U.S. Option Shares are purchased by the U.S. Underwriters,
payment of the purchase price for, and delivery of certificates
for, such U.S. Option Shares shall be made at the offices of
Shearman & Sterling set forth above, or at such other place as
the Company, the Selling Stockholders and you shall determine, on
the Date of Delivery as specified in the notice from you to the
Company and the Selling Stockholders. Payment shall be made to
the Company by certified or official bank check or checks or wire
transfers in New York Clearing House funds payable to the order
of the Company and to the Selling Stockholders or to a custodian
or other representative of the Selling Stockholders by certified
or official bank check or checks in New York Clearing House funds
payable to the order of the Selling Stockholders, against
delivery to you for the respective accounts of the several U.S.
Underwriters of certificates for the U.S. Shares to be purchased
by them.
(f) Certificates for the Initial U.S. Shares and U.S.
Option Shares to be purchased by the U.S. Underwriters shall be
in such denominations and registered in such names as you may
request in writing at least two full business days before the
Closing Time or the Date of Delivery, as the case may be. The
certificates for the Initial U.S. Shares and U.S. Option Shares
will be made available in New York City for examination and
packaging by you not later than 10:00 A.M. on the business day
immediately prior to the Closing Time or the Date of Delivery, as
the case may be.
(g) It is understood that each U.S. Underwriter has
authorized you, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the U.S. Shares
that it has agreed to purchase. You, individually and not as
U.S. Representatives, may (but shall not be obligated to) make
payment of the purchase price for the Initial U.S. Shares, or
U.S. Option Shares, to be purchased by any U.S. Underwriter whose
check or checks shall not have been received by the Closing Time
<PAGE>
16
or the Date of Delivery, as the case may be, but such payment
shall not relieve such U.S. Underwriter from its obligations
hereunder.
(h) The several and not joint obligations of the
Company and the Selling Stockholders to sell to each U.S.
Underwriter the Initial U.S. Shares and (with respect to the
Company) the U.S. Option Shares and the several and not joint
obligations of the U.S. Underwriters to purchase and pay for the
Shares, upon the terms and subject to the conditions of this
Agreement, are subject to the concurrent closing of the sale of
the International Shares to the International Underwriters
pursuant to the terms of the International Purchase Agreement.
Section 3. Certain Covenants of the Company [and the
-------------------------------- -------
U.S. Underwriters]. [(a)] The Company covenants with each U.S.
-----------------
Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company
elects to rely upon Rule 430A and subject to Section 3(b) hereof,
will comply with the requirements of Rule 430A and will notify
you immediately, and confirm the notice in writing (i) when the
Registration Statement, or any post-effective amendment to the
Registration Statement, shall have become effective, or any
supplement to the Prospectuses or any amended Prospectuses shall
have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission to amend the
Registration Statement or amend or supplement the Prospectuses or
for additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending
the use of any preliminary prospectus, or of the suspension of
the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes. The Company will use every
reasonable effort to prevent the issuance of any such stop order
or of any order preventing or suspending such use and, if any
such order is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) The Company will not at any time file or make any
amendment to the Registration Statement, or any amendment or
supplement (i) if the Company has not elected to rely upon Rule
430A, to each Prospectus (including amendments of the documents
incorporated by reference into each Prospectus) or (ii) if the
Company has elected to rely upon Rule 430A, to either the
prospectuses included in the Registration Statement at the time
it becomes effective or to each Prospectus (including amendments
of the documents incorporated by reference into the prospectus or
<PAGE>
17
Prospectuses), of which you shall not have previously been
advised and furnished a copy, or to which you or counsel for the
U.S. Underwriters shall reasonably object in writing.
(c) The Company has furnished or will furnish to you
as many signed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all
exhibits and documents filed therewith (including documents
incorporated by reference into each Prospectus pursuant to Item
12 of Form S-3 under the 1933 Act) and signed copies of all
consents and certificates of experts, as you may reasonably
request and has furnished or will furnish to you, for each other
U.S. Underwriter, one conformed copy of the Registration
Statement as originally filed and of each amendment thereto
(including documents incorporated by reference into each
Prospectus but without exhibits).
(d) The Company will deliver to each U.S. Underwriter,
without charge, from time to time until the effective date of the
Registration Statement (or, if the Company has elected to rely
upon Rule 430A, until the date of the U.S. Price Determination
Agreement), as many copies of each preliminary prospectus as such
U.S. Underwriter may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the
1933 Act. The Company will deliver to each Underwriter, without
charge, as soon as the Registration Statement shall have become
effective (or, if the Company has elected to rely upon Rule 430A,
as soon as practicable on or after the date of the U.S. Price
Determination Agreement) and thereafter from time to time as
requested during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as such U.S. Underwriter
may reasonably request; and in case any U.S. Underwriter is
required to deliver a prospectus in connection with sales of any
of the U.S. Shares at any time nine months or more after the
effective date of the Registration Statement (or, if the Company
has elected to rely upon Rule 430A, the date of the U.S. Price
Determination Agreement), upon such U.S. Underwriter's request,
but at the expense of such U.S. Underwriter, the Company will
prepare and deliver to Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the 1933 Act.
(e) The Company will comply to the best of its ability
with the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the 1934 Act Regulations so as to permit the completion of
the distribution of the U.S. Shares as contemplated in this
Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in
<PAGE>
18
connection with sales of the U.S. Shares any event shall occur or
condition exist as a result of which it is necessary, in the
opinion of counsel for the U.S. Underwriter or counsel for the
Company, to amend the Registration Statement or amend or
supplement any Prospectus in order that each Prospectus will not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein
not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary,
in the opinion of either such counsel, at any such time to amend
the Registration Statement or amend or supplement any Prospectus
in order to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Sections 3(b) and 3(d) hereof,
such amendment or supplement as may be necessary to correct such
untrue statement or omission or to make the Registration
Statement or each Prospectus comply with such requirements.
(f) The Company will use its best efforts in
cooperation with the U.S. Underwriters to qualify the Shares for
offering and sale under the applicable securities laws of such
states and other jurisdictions as you may designate and to
maintain such qualifications in effect for a period of not less
than one year from the effective date of the Registration
Statement; provided, however, that neither the Company nor the
Subsidiary shall be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so
subject. The Company will file such statements and reports as
may be required by the laws of each jurisdiction in which the
Shares have been qualified as above provided.
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than 45
days after the close of the period covered thereby, an earnings
statement of the Company (in form complying with the provisions
of Rule 158 of the 1933 Act Regulations), covering a period of 12
months beginning after the effective date of the Registration
Statement and covering a period of 12 months beginning after the
effective date of any post-effective amendment to the
Registration Statement but not later than the first day of the
Company's fiscal quarter next following such respective effective
dates.
(h) The Company will use the net proceeds received by
it from the sale of the Shares in the manner specified in each
Prospectus under the caption "Use of Proceeds".
<PAGE>
19
(i) The Company, during the period when any Prospectus
is required to be delivered under the 1933 Act, will file
promptly all documents required to be filed with the Commission
pursuant to Section 13 or 14 of the 1934 Act subsequent to the
time the Registration Statement becomes effective; provided,
however, that the Company will not at any time file any such
document of which you shall not have previously been advised and
furnished a copy.
(j) For a period of 120 days from the date hereof, the
Company will not, without the prior written consent of Merrill
Lynch, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any Common Stock
or warrants or other securities convertible into or exchangeable
or exercisable for Common Stock, other than to the U.S.
Underwriters pursuant to this Agreement and the U.S. Price
Determination Agreement, to the International Underwriters
pursuant to the International Purchase Agreement and the
International Price Determination Agreement and other than
pursuant to the Company's 1992 Amended and Restated Stock Option
Plan and the Associate Stock Purchase Plan.
(k) The Company has complied and will comply with all
the provisions of Florida H.B. 1771, codified as Section 517.075
of the Florida statutes, and all regulations promulgated
thereunder relating to issuers doing business in Cuba.
(l) The Company will use its best efforts to list the
U.S. Shares on the New York Stock Exchange on the date of the
U.S. Price Determination Agreement.
(m) If the Company has elected to rely upon Rule 430A,
it will take such steps as it deems necessary to ascertain
promptly whether the forms of prospectus transmitted for filing
under Rule 424(b) were received for filing by the Commission and,
in the event that they were not, it will promptly file such
prospectuses.
Section 4. Payment of Expenses. The Company and the
-------------------
Selling Stockholders will pay all costs and expenses incident to
the performance of their obligations under this Agreement,
including (a) the printing and filing of the Registration
Statement (including financial statements and exhibits), as
originally filed and as amended, the preliminary prospectuses and
each Prospectus and any amendments or supplements thereto, and
the cost of furnishing copies thereto to the U.S. Underwriters
and the International Underwriters, (b) the printing and
distribution of certificates for the U.S. Shares and the Blue Sky
Survey, (c) the delivery of certificates for the Shares to the
U.S. Underwriters and the International Underwriters, including
<PAGE>
20
any stock transfer taxes payable upon the sale of the Shares to
the U.S. Underwriters and the International Underwriters (it
being understood that the U.S. Underwriter will pay any New York
stock transfer tax, and the Company and the Selling Stockholders
will reimburse the U.S. Underwriters for carrying costs if a
rebate of such transfer taxes is sought but not obtained on the
date of payment), (d) the fees and disbursements of the Company's
counsel and accountants, (e) the qualification of the Shares
under the applicable securities laws in accordance with Section
3(f), including filing fees and fees and disbursements of counsel
for the U.S. Underwriters in connection therewith and in
connection with the Blue Sky Survey, and (f) any filing fees in
connection with any filing for review of the offering with the
National Association of Securities Dealers, Inc.
If this Agreement is terminated by you in accordance
with the provisions of Section 5, 10(a)(i) or 12, the Company and
the Selling Stockholders shall reimburse the U.S. Underwriters
for all their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the U.S. Underwriters.
The provisions of this Section shall not affect any
agreement that the Company and the Selling Stockholders may make
for the sharing of such costs and expenses.
Section 5. Conditions of U.S. Underwriters'
--------------------------------
Obligations. In addition to the execution and delivery of the
-----------
U.S. Price Determination Agreement, the obligations of the
several U.S. Underwriters to purchase and pay for the U.S. Shares
that they have respectively agreed to purchase pursuant to this
Agreement (including any U.S. Option Shares as to which the
option granted in Section 2 has been exercised and the Date of
Delivery determined by you is the same as the Closing Time) are
subject to the accuracy of the representations and warranties of
the Company and the Selling Stockholders contained herein
(including those contained in the U.S. Price Determination
Agreement) or in certificates of any officer of the Company or
the Subsidiary delivered pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of
their obligations hereunder, and to the following further
conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date of this Agreement
or, with your consent, at a later time and date not later,
however, than 5:30 P.M. on the first business day following the
date hereof, or at such later time or on such later date as you
may agree to in writing with the approval of a majority in
interest of the several U.S. Underwriters; and at the Closing
Time no stop order suspending the effectiveness of the
<PAGE>
21
Registration Statement shall have been issued under the 1933 Act
and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or to the knowledge of the
Company, shall have been instituted or shall be pending or, to
your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been
complied with to the satisfaction of counsel for the U.S.
Underwriters. If the Company has elected to rely upon Rule 430A,
a prospectus containing the Rule 430A Information shall have been
filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have
been filed and declared effective in accordance with the
requirements of Rule 430A).
(b) At the Closing Time, you shall have received a
signed opinion of Skadden, Arps, Slate, Meagher & Flom, counsel
for the Company, dated as of the Closing Time, in form and
substance satisfactory to counsel for the U.S. Underwriters, to
the effect that:
(i) The Shares sold by the Company pursuant to the
provisions of this Agreement and the International Purchase
Agreement have been duly authorized and, when issued and
delivered by the Company upon receipt of payment therefor in
accordance with the terms of this Agreement will be validly
issued, fully paid and non-assessable; no holder thereof is
or will be subject to personal liability by reason of being
such a holder; such Shares are not subject to the preemptive
rights of any stockholder of the Company; and all corporate
action required to be taken for the authorization, issue and
sale of such Shares has been validly and sufficiently taken.
(ii) The Shares sold by the Selling Stockholders
pursuant to the provisions of this Agreement have been duly
authorized and validly issued and are fully paid and non-
assessable; and no holder thereof is or will be subject to
personal liability by reason of being such a holder.
(iii) As of January 29, 1994, the authorized,
issued and outstanding capital stock of the Company is as
set forth in each Prospectus under the heading
"Capitalization".
(iv) The Shares conform in all material respects as to
legal matters to the descriptions thereof under the caption
"Description of Capital Stock" in each Prospectus.
(v) This Agreement (including the U.S. Price
Determination Agreement) and the International Purchase
<PAGE>
22
Agreement have been duly authorized, executed and delivered
by the Company.
(vi) No authorization, approval, consent or license of
any government, governmental instrumentality or court,
domestic or foreign (other than under the 1933 Act and the
securities or blue sky laws of the various states that, in
the opinion of such counsel, are normally applicable to
transactions of the type contemplated by this Agreement), is
required for the valid authorization, issuance, sale and
delivery of the Shares, except such as may be required under
the 1933 Act and the 1933 Act Regulations or state
securities law and the securities laws of any jurisdiction
in which the International Shares are offered and sold by
the International Underwriters pursuant to the International
Purchase Agreement.
(vii) The statements made in the Prospectuses under
the captions "Description of Capital Stock" and "Certain
United States Federal Tax Consequences to Non-U.S.
Stockholders", to the extent that they constitute matters of
law or legal conclusions, have been reviewed by such counsel
and fairly summarize the information required to be
disclosed therein in all material respects.
(viii) The execution and delivery of this Agreement
and the International Purchase Agreement, the issuance and
delivery of the Shares, the consummation by the Company of
the transactions contemplated in this Agreement, in the
International Purchase Agreement and in the Registration
Statement and compliance by the Company with the terms of
this Agreement and the International Purchase Agreement do
not and will not result in any violation of the charter or
by-laws of the Company or the Subsidiary, and do not and
will not conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or
the Subsidiary under (A) any agreement or instrument set
forth on Schedule I to such counsel's opinion, (B) any
existing applicable law, rule or regulation (other than
securities or blue sky laws of the various states, as to
which such counsel need express no opinion, and other than
the federal securities laws, which are addressed elsewhere
in such counsel's opinion) that, in the opinion of such
counsel, are normally applicable to transactions of the type
contemplated by this Agreement, or (C) any judgment, order
or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the
Company or the Subsidiary or any of their respective
<PAGE>
23
properties of which such counsel is aware. Such counsel
need express no opinion, however, as to whether the
execution, delivery and performance by the Company of any of
the agreements identified in the preceding sentence will
constitute a violation of or a default under any covenant,
restriction or provision with respect to financial ratios or
tests or any aspect of the financial condition or results of
operations of the Company.
(ix) Such counsel has been informed by the Commission
that the Registration Statement became effective under the
1933 Act on the date of this Agreement; any required filing
of each Prospectus or any supplement thereto pursuant to
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and, to the knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are
pending or have been threatened by the Commission under the
1933 Act.
(x) The Registration Statement (including the Rule
430A Information, if applicable) and each Prospectus,
excluding the documents incorporated by reference therein,
and each amendment or supplement thereto (except for the
financial statements and other financial or statistical data
included therein or omitted therefrom, as to which such
counsel need express no opinion), as of their respective
effective or issue dates, appear on their face to have been
appropriately responsive in all material respects to the
requirements of the 1933 Act and the 1933 Act Regulations.
In addition, such opinion shall state that such counsel
have participated in the preparation of the Registration
Statement, the documents incorporated by reference therein and
the Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, and with your
representatives and your counsel at which the contents of the
Registration Statement, the documents incorporated by reference
therein, the Prospectuses and related matters were discussed and,
although such counsel need not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement, the documents
incorporated by reference therein or the Prospectuses, on the
basis of the foregoing, no facts have come to the attention of
such counsel that have caused them to believe (A) that the
Registration Statement (including the Rule 430A Information, if
applicable) or any amendment thereto (except for the financial
statements and other financial or statistical data included
<PAGE>
24
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time the Registration Statement or
any such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) that each Prospectus or any
amendment or supplement thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time each Prospectus was issued, at
the time any such amended or supplemented prospectus was issued
or at the Closing Time, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading except that such counsel need
express no opinion or belief with respect to the financial
statements, schedules and other financial or statistical data
included therein or omitted therefrom.
Such opinion shall be to such further effect with
respect to other legal matters relating to this Agreement and the
sale of the U.S. Shares pursuant to this Agreement as counsel for
the U.S. Underwriters may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to counsel for the U.S. Underwriters. Such
counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and the
Subsidiary and certificates of public officials; provided that
such certificates have been delivered to the U.S. Underwriters.
(c) At the Closing Time, you shall have received a
signed opinion of Jocelyn F.L. Barandiaran, general counsel for
the Company, dated as of the Closing Time, together with signed
or reproduced copies of such opinion for each of the other U.S.
Underwriters, in form and substance satisfactory to counsel for
the U.S. Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and
conduct its business as described in each Prospectus.
(ii) The Company is duly qualified to transact business
as a foreign corporation and is in good standing in each
<PAGE>
25
other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have
a material adverse effect on the Company and the Subsidiary,
considered as one enterprise.
(iii) The Subsidiary is a corporation duly
incorporated, validly existing and in good standing under
the laws of the State of Delaware with corporate power and
authority under such laws to own, lease and operate its
properties and conduct its business.
(iv) The Subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property
of a nature, or transacts business of a type, that would
make such qualification necessary, except to the extent that
the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and the
Subsidiary, considered as one enterprise.
(v) All of the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and
are fully paid and non-assessable; no holder thereof is or
will be subject to personal liability by reason of being
such a holder; and none of the outstanding shares of capital
stock of the Company was issued in violation of the
preemptive rights of any stockholder of the Company arising
by operation of law or under the charter or by-laws of the
Company.
(vi) All of the outstanding shares of capital stock of
the Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; all of such shares
are owned by the Company, directly or through one or more
subsidiaries, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind
(other than pursuant to the Bank Credit Agreement); no
holder thereof is subject to personal liability by reason of
being such a holder; and none of such shares was issued in
violation of the preemptive rights of any stockholder of the
Subsidiary arising by operation of law or under the charter
or by-laws of the Subsidiary.
(vii) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in each
Prospectus that are not described as required, nor of any
contracts or documents of a character required to be
<PAGE>
26
described or referred to in the Registration Statement or
each Prospectus or to be filed as exhibits to the
Registration Statement that are not described, referred to
or filed as required.
(viii) Except to the extent described in the
Prospectuses, to the knowledge of such counsel, no default
exists in the performance or observance of any material
obligation, agreement, covenant or condition contained in
any contract, indenture, loan agreement, note, lease or
other agreement or instrument that is described or referred
to in the Registration Statement or the Prospectuses or
filed as an exhibit to the Registration Statement.
(ix) The documents incorporated by reference in each
Prospectus (except for the financial statements and other
financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no
opinion), as of the dates they were filed with the
Commission, appear on their face to have been appropriately
responsive in all material respects to the requirements of
the 1934 Act and the 1934 Act Regulations.
In addition, such opinion shall state that such counsel
has participated in the preparation of the Registration
Statement, the documents incorporated by reference therein, and
the Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, and with your
representatives and your counsel at which the contents of the
Registration Statement, the documents incorporated by reference
therein, the Prospectuses and related matters were discussed and,
although such counsel need not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement, the documents
incorporated by reference therein, or the Prospectuses, on the
basis of the foregoing, no facts have come to the attention of
such counsel that have caused such counsel to believe (A) that
the Registration Statement (including the Rule 430A Information,
if applicable) or any amendment thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time the Registration Statement or
any such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) that each Prospectus or any
amendment or supplement thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
<PAGE>
27
express no opinion), at the time each Prospectus was issued, at
the time any such amended or supplemented prospectus was issued
or at the Closing Time, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading, except that such counsel need
express no opinion or belief with respect to the financial
statements, schedules and other financial or statistical data
included therein or omitted therefrom.
Such opinion shall be to such further effect with
respect to other legal matters relating to this Agreement and the
sale of the U.S. Shares pursuant to this Agreement as counsel for
the U.S. Underwriters may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to counsel for the U.S. Underwriters. Such
counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and the
Subsidiary and certificates of public officials; provided that
such certificates have been delivered to the U.S. Underwriters.
(d) At the Closing Time, you shall have received
signed opinions of counsel for the Selling Stockholders, dated
as of the Closing Time, together with signed or reproduced copies
of such opinions for each of the other U.S. Underwriters, in form
and substance satisfactory to counsel for the U.S. Underwriters,
to the effect that:
(i) This Agreement and the International Purchase
Agreement have been duly executed and delivered by the
Selling Stockholders.
(ii) To the best knowledge of such counsel, each
Selling Stockholder is the sole registered holder of the
U.S. Shares to be sold by such Selling Stockholder pursuant
to this Agreement, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of
any kind, and has full right, power and authority to sell,
transfer and deliver such U.S. Shares pursuant to this
Agreement. By delivery of a certificate or certificates
therefor such Selling Stockholder will transfer to the U.S.
Underwriters who have purchased such U.S. Shares pursuant to
this Agreement (without notice of any defect in the title of
such Selling Stockholder and who are otherwise bona fide
purchasers for purposes of the Uniform Commercial Code) all
<PAGE>
28
of such Selling Stockholder's interest in its ratable share
of such U.S. Shares, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of
any kind. In rendering such opinion, counsel may assume
that the U.S. Underwriters purchase the securities in good
faith and are without notice of any defect in the title of
the Selling Stockholders to the Shares being purchased from
the Selling Stockholders.
Such opinion shall be to such further effect with
respect to other legal matters relating to this Agreement and the
sale of the U.S. Shares pursuant to this Agreement by the Selling
Stockholders as counsel for the U.S. Underwriters may reasonably
request. In giving such opinion, such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the
law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware,
upon opinions of other counsel, who shall be counsel satisfactory
to counsel for the U.S. Underwriters, in which case the opinion
shall state that they believe you and they are entitled to so
rely. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they
deem proper, upon certificates of the Selling Stockholders and
certificates of public officials; provided that such certificates
have been delivered to the U.S. Underwriters.
(e) At the Closing Time, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated as of the Closing Time, together with signed
or reproduced copies of such opinion for each of the other U.S.
Underwriters, to the effect that the opinions delivered pursuant
to Sections 5(b), 5(c) and 5(d) appear on their face to be
appropriately responsive to the requirements of this Agreement
except, specifying the same, to the extent waived by you, and
with respect to the incorporation and legal existence of the
Company, the Shares, this Agreement, the Registration Statement,
each Prospectus, the documents incorporated by reference and such
other related matters as you may require. In giving such
opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to you. Such counsel may also state that,
insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of
officers of the Company and certificates of public officials.
(f) At the Closing Time, (i) the Registration
Statement and each Prospectus, as they may then be amended or (in
the case of Prospectuses) supplemented, shall contain all
<PAGE>
29
statements that are required to be stated therein under the 1933
Act and the 1933 Act Regulations and in all material respects
shall conform to the requirements of the 1933 Act and the 1933
Act Regulations, the Company shall have complied in all material
respects with Rule 430A (if it shall have elected to rely
thereon) and neither the Registration Statement nor each
Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) there shall not have
been, since the respective dates as of which information is given
in the Registration Statement, any material adverse change in the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary, considered
as one enterprise, whether or not arising in the ordinary course
of business, (iii) no action, suit or proceeding shall be pending
or, to the knowledge of the Company, threatened against the
Company or the Subsidiary that would be required to be set forth
in each Prospectus other than as set forth therein or in any
supplement thereto and no proceedings shall be pending or, to the
knowledge of the Company, threatened against the Company or the
Subsidiary before or by any government, governmental
instrumentality or court, domestic or foreign, that could be
reasonably expected to result in any material adverse change in
the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the Subsidiary
considered as one enterprise, other than as set forth in each
Prospectus, (iv) the Company shall have complied in all material
respects with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Closing Time
and (v) the representations and warranties of the Company set
forth in Section 1(a) shall be accurate as though expressly made
at and as of the Closing Time. At the Closing Time, you shall
have received a certificate of the President or an Executive Vice
President, and the Chief Financial Officer or principal
accounting officer of the Company, dated as of the Closing Time,
to such effect.
(g) At the Closing Time, (i) the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
and in any certificates by or on behalf of the Selling
Stockholders delivered pursuant to the provisions hereof shall be
accurate as though expressly made at and as of the Closing Time,
(ii) each Selling Stockholder shall have performed its
obligations under this Agreement in all material respects and
(iii) you shall have received a certificate of each Selling
Stockholder, dated as of the Closing Time, to the effect set
forth in subsections (i) and (ii) of this Section 5(g); provided,
however, that the failure of any such Selling Stockholder to
satisfy the conditions of this paragraph shall permit the U.S.
<PAGE>
30
Underwriters not to purchase only the U.S. Shares to be sold by
such Selling Stockholder hereunder; and provided further, that in
no event shall the obligation of the Selling Stockholders to
satisfy the foregoing condition constitute a condition to the
obligations of the U.S. Underwriters to purchase any U.S. Shares
from the Company pursuant to this Agreement.
(h) At the time that this Agreement is executed by the
Company, you shall have received from Deloitte & Touche a letter,
dated such date, in form and substance satisfactory to you
confirming that they are independent public accountants with
respect to the Company within the meaning of the 1933 Act and the
applicable published 1933 Act Regulations, and stating in effect
that:
(i) in their opinion, the audited financial statements
included or incorporated by reference in the Registration
Statement and each Prospectus comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act and the 1934 Act and the
respective published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination
in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Company; a
reading of the minutes of all meetings of the stockholders,
directors and executive, finance and audit committees of the
Company and the Subsidiary; and inquiries of certain
officials of the Company who have responsibility for
financial and accounting matters of the Company and the
Subsidiary as to transactions and events subsequent to the
date of the most recent audited financial statements in or
incorporated in the Prospectuses, and such other inquiries
and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that at
a specified date not more than five business days prior to
the date of the letter, there were any increases in the
long-term debt of the Company and its subsidiaries or any
decreases in stockholders' equity or the capital stock of
the Company as compared with the amounts shown on the most
recent balance sheet included or incorporated in the
Registration Statement and the Prospectuses except in each
case for decreases and increases that the Registration
Statement and the Prospectuses disclose have occurred or may
occur, or for the period from January 29, 1994 to such
specified date there were any decreases, as compared with
the corresponding period in the preceding year, in revenues,
income before income taxes (or any increase in the loss
before income taxes) or net income (or any increase in net
<PAGE>
31
loss), except in each case for decreases or increases that
the Registration Statement discloses have occurred or may
occur; and
(iii) in addition to the procedures referred to in
clause (ii) above, they have performed specified procedures,
not constituting an audit, with respect to certain amounts,
percentages, numerical data and financial information
appearing in the Registration Statement, which have
previously been specified by you and which shall be
specified in such letter, and have compared certain of such
items with, and have found such items to be in agreement
with, the accounting and financial records of the Company.
(i) At the Closing Time, you shall have received from
Deloitte & Touche a letter, in form and substance satisfactory to
you and dated as of the Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
Section 5(h), except that the specified date referred to shall be
a date not more than five days prior to the Closing Time.
(j) At the Closing Time, counsel for the U.S.
Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the issuance and sale of
the Shares as contemplated in this Agreement and the matters
referred to in Section 5(d) and in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or the Selling Stockholders, the
performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all
proceedings taken by the Company and the Selling Stockholders at
or prior to the Closing Time in connection with the
authorization, issuance and sale of the Shares as contemplated in
this Agreement shall be satisfactory in form and substance to you
and to counsel for the U.S. Underwriters.
(k) The U.S. Shares shall have been duly authorized
for listing by the New York Stock Exchange on the date of the
U.S. Price Determination Agreement, subject only to notice of
issuance thereof and notice of a satisfactory distribution of the
Common Stock.
If any of the conditions specified in this Section 5
shall not have been fulfilled when and as required by this
Agreement, this Agreement may be terminated by you on notice to
the Company and the Selling Stockholders at any time at or prior
to the Closing Time, and such termination shall be without
liability of any party to any other party, except as provided in
<PAGE>
32
Section 4 herein. Notwithstanding any such termination, the
provisions of Sections 7 and 8 shall remain in effect.
Section 6. Conditions to Purchase of U.S. Option
-------------------------------------
Shares. In the event that the U.S. Underwriters exercise their
------
option granted in Section 2 to purchase all or any of the U.S.
Option Shares and the Date of Delivery determined by you pursuant
to Section 2 is later than the Closing Time, the obligations of
the several U.S. Underwriters to purchase and pay for the U.S.
Option Shares that they shall have respectively agreed to
purchase pursuant to this Agreement are subject to the accuracy
of the representations and warranties of the Company and the
Selling Stockholders herein contained, to the performance by the
Company and the Selling Stockholders of their obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective
at the Date of Delivery, and at the Date of Delivery no stop
order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act and no proceedings for
that purpose shall have been instituted or shall be pending or,
to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been
complied with to the satisfaction of counsel for the U.S.
Underwriters.
(b) At the Date of Delivery, the provisions of
Sections 5(f)(i) through 5(f)(v) shall have been complied with at
and as of the Date of Delivery and, at the Date of Delivery, you
shall have received a certificate of the President or an
Executive Vice President, and the Treasurer or Controller, of the
Company, dated as of the Date of Delivery, to such effect.
(c) At the Date of Delivery, you shall have received
the favorable opinions of Skadden, Arps, Slate, Meagher & Flom,
counsel for the Company, and counsel for the Selling
Stockholders, together with signed or reproduced copies of such
opinions for each of the other U.S. Underwriters, in each case in
form and substance satisfactory to counsel for the U.S.
Underwriters, dated as of the Date of Delivery, relating to the
U.S. Option Shares and otherwise to the same effect as the
opinions required by Sections 5(b) and 5(d), respectively.
(d) At each applicable Date of Delivery, you shall
have received a signed opinion of Jocelyn F.L. Barandiaran,
general counsel for the Company, dated as of such Date of
Delivery, in form and substance satisfactory to counsel for the
U.S. Underwriters, to the same effect as the opinion required by
Section 5(c).
<PAGE>
33
(e) At the Date of Delivery, you shall have received
the favorable opinion of Shearman & Sterling, counsel for the
U.S. Underwriters, dated as of the Date of Delivery, relating to
the U.S. Option Shares and otherwise to the same effect as the
opinion required by Section 5(e).
(f) At the Date of Delivery, you shall have received a
letter from
Deloitte & Touche, in form and substance satisfactory to you and
dated as of the Date of Delivery, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
Section 5(h), except that the specified date referred to shall be
a date not more than five days prior to the Date of Delivery.
(g) At the Date of Delivery, counsel for the U.S.
Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the issuance and sale of
the U.S. Option Shares as contemplated in this Agreement and the
matters referred to in Section 6(e) and in order to evidence the
accuracy and completeness of any of the representations,
warranties or statements of the Company or the Selling
Stockholders, the performance of any of the covenants of the
Company, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company and the
Selling Stockholders at or prior to the Date of Delivery in
connection with the authorization, issuance and sale of the U.S.
Option Shares as contemplated in this Agreement shall be
satisfactory in form and substance to you and to counsel for the
U.S. Underwriters.
(h) At the Date of Delivery, the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
shall be accurate as though expressly made at and as of the Date
of Delivery and, at the Date of Delivery, you shall have received
a certificate of each Selling Stockholder, dated as of the Date
of Delivery, to such effect with respect to such Selling
Stockholder.
Section 7. Indemnification. (a) The Company and each
---------------
Selling Stockholder jointly and severally agree to indemnify and
hold harmless each U.S. Underwriter and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of
the 1933 Act to the extent and in the manner set forth in clauses
(i), (ii) and (iii) below; provided, however, that the liability
of each Selling Stockholder under this Section 7 is limited to
the aggregate net proceeds (after deducting the underwriting
discount, but before deducting expenses) received by such Selling
Stockholder:
<PAGE>
34
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, and all documents incorporated therein by
reference, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out
of an untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of the
Company and the Selling Stockholders; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 7(d) hereof,
reasonable fees and disbursements of counsel chosen by you),
reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply
to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity
with written information furnished to the Company by any U.S.
Underwriter or International Underwriter through you expressly
for use in the Registration Statement (or any amendment thereto),
including the Rule 430A Information, if applicable, or any
preliminary prospectus or the Prospectuses (or any amendment or
supplement thereto); provided further that the foregoing
indemnification with respect to any preliminary prospectus shall
not inure to the benefit of any U.S. Underwriter (or any person
<PAGE>
35
controlling such U.S. Underwriter) from whom the person asserting
any such losses, claims, damages or liabilities purchased any of
the U.S. Shares if a copy of the Prospectuses (as then amended or
supplemented if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of
such U.S. Underwriter to such person, if such is required by law,
at or prior to the written confirmation of the sale of such
Shares to such person and if the Prospectuses (as so amended or
supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability.
Insofar as this indemnity agreement may permit
indemnification for liabilities under the 1933 Act of any person
who is a partner of a U.S. Underwriter or who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act and
who, at the date of this Agreement, is a director or officer of
the Company or controls the Company within the meaning of Section
15 of the 1933 Act, such indemnity agreement is subject to the
undertaking of the Company in the Registration Statement under
Item 17 thereof.
(b) Each U.S. Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act and each Selling
Stockholder and each person, if any, who controls any
Selling Stockholder within the meaning of Section 15 of the
1933 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity agreement in
Section 7(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Company by such U.S. Underwriter through
you expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, or such preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto).
(c) Each Selling Stockholder severally agrees to
indemnify and hold
harmless the Company, its directors, each of its officers
who signed the Registration Statement (or any amendment
thereto), the other Selling Stockholders and each person, if
any, who controls the Company or any other Selling
Stockholder within the meaning of Section 15 of the 1933 Act
<PAGE>
36
against any and all loss, liability, claim, damage and
expense described in the indemnity contained in Section
7(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any
amendment thereto), or any preliminary prospectus or the
Prospectus (or any supplement thereto) in reliance upon and
in conformity with information furnished in writing or
confirmed in writing to the Company by or on behalf of such
Selling Stockholder expressly for use in the Registration
Statement (or any amendment thereto), or any preliminary
prospectus or the Prospectus (or any amendment or supplement
thereto).
(d) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it
in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve
it from any liability that it may have otherwise than on
account of this indemnity agreement. An indemnifying party
may participate at its own expense in the defense of such
action. In no event shall the indemnifying party or parties
be liable for the fees and expenses of more than one counsel
for all indemnified parties (including, if applicable, the
International Underwriters) in connection with any one
action or separate but similar or related actions in the
same jurisdiction arising out of the same general
allegations or circumstances. If it so elects within a
reasonable time after receipt of such notice, an
indemnifying party, jointly with any other indemnifying
parties receiving such notice, may assume the defense of
such action with counsel chosen by it and approved by the
indemnified parties defendant in such action, unless such
indemnified parties reasonably object to such assumption on
the ground that there may be legal defenses available to
them which are different from or are in addition to those
available to such indemnifying party. If an indemnifying
party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of
counsel for the indemnified parties incurred thereafter in
connection with such action.
Section 8. Contribution. In order to provide for just
------------
and equitable contribution in circumstances under which the
indemnity provided for in Section 7 is for any reason held to be
unenforceable by the indemnified parties although applicable in
accordance with its terms, the Company, the Selling Stockholders
and the U.S. Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity incurred by the Company, the
<PAGE>
37
Selling Stockholders and one or more of the U.S. Underwriters, as
incurred, in such proportions that (a) the U.S. Underwriters are
responsible for that portion represented by the percentage that
the underwriting discount appearing on the cover page of the U.S.
Prospectus bears to the offering price appearing thereon and
(b) the Company and the Selling Stockholders are severally
responsible for the balance on the same basis as each of them
would have been obligated to provide indemnification pursuant to
Section 7; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each
person, if any, who controls the Company or a Selling Stockholder
within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as the Company or a Selling
Stockholder, as the case may be.
Section 9. Representations, Warranties and Agreements
------------------------------------------
to Survive Delivery. The representations, warranties,
-------------------
indemnities, agreements and other statements of the Selling
Stockholders, the Company or its officers set forth in or made
pursuant to this Agreement will remain operative and in full
force and effect regardless of any investigation made by or on
behalf of the Selling Stockholders, the Company, any U.S.
Underwriter or any controlling person thereof and will survive
delivery of and payment for the U.S. Shares.
Section 10. Termination of Agreement. (a) You may
------------------------
terminate this Agreement, by notice to the Company and the
Selling Stockholders, at any time at or prior to the Closing Time
(i) if there has been, since the respective dates as of which
information is given in the Registration Statement, any material
adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company
and the Subsidiary, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in
the United States or internationally or any outbreak of
hostilities or escalation of existing hostilities or other
calamity or crisis the effect of which on the financial markets
of the United States or internationally is such as to make it, in
your judgment, impracticable to market the Shares, or enforce
contracts for the sale of the Shares, or (iii) if trading in any
securities of the Company has been suspended by the Commission or
the New York Stock Exchange, or if trading generally on the New
<PAGE>
38
York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been
required, by such exchange or by order of the Commission or any
other governmental authority or (iv) if a banking moratorium has
been declared by either federal or New York authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party
to any other party, except to the extent provided in Section 4.
Notwithstanding any such termination, the provisions of Sections
7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2, with the effect stated in such Section.
Section 11. Default by One or More of the U.S.
----------------------------------
Underwriters. If one or more of the U.S. Underwriters shall fail
------------
at the Closing Time to purchase the Initial U.S. Shares that it
or they are obligated to purchase pursuant to this Agreement (the
"Defaulted U.S. Shares"), you shall have the right, within 24
hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted U.S. Shares
in such amounts as may be agreed upon and upon the terms set
forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted U.S. Shares does not
exceed 10% of the total number of Initial U.S. Shares, the non-
defaulting U.S. Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their respective
Initial U.S. Share underwriting obligation proportions bear to
the underwriting obligation proportions of all non-defaulting
U.S. Underwriters, or
(b) if the number of Defaulted U.S. Shares exceeds 10%
of the total number of Initial U.S. Shares, this Agreement shall
terminate without liability on the part of any non-defaulting
U.S. Underwriter.
No action taken pursuant to this Section shall relieve
any defaulting U.S. Underwriter from liability in respect of its
default.
In the event of any such default that does not result
in a termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Time for a period
not exceeding seven days in order to effect any required changes
in the Registration Statement or Prospectuses or in any other
<PAGE>
39
documents or arrangements. As used herein, the term "U.S.
Underwriter" includes any person substituted for a U.S.
Underwriter under this Section 11.
Section 12. Default by a Selling Stockholder or the
---------------------------------------
Company. If any Selling Stockholder shall fail at the Closing
-------
Time to sell and deliver the number of Initial U.S. Shares that
such Selling Stockholder is obligated to sell, the U.S.
Underwriters will purchase the Initial U.S. Shares that the
Company and the remaining Selling Stockholders have agreed to
sell pursuant to this Agreement.
In the event of a default by a Selling Stockholder
under this Section, either you or the Company shall have the
right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the
Registration Statement or Prospectuses or in any other documents
or arrangements.
If the Company shall fail at the Closing Time to sell
and deliver the number of Shares that it is obligated to sell,
then this Agreement shall terminate without any liability on the
part of any non-defaulting party except to the extent provided in
Section 4 and except that the provisions of Sections 7 and 8
shall remain in effect.
No action taken pursuant to this Section shall relieve
the Company or any Selling Stockholder so defaulting from
liability, if any, in respect of such default.
Section 13. Notices. All notices and other
-------
communications under this Agreement shall be in writing and shall
be deemed to have been duly given if delivered, mailed or
transmitted by any standard form of telecommunication. Notices
to you or the U.S. Underwriters shall be directed to you at
Merrill Lynch World Headquarters, North Tower, World Financial
Center, New York, New York 10281-1201 (telecopier no.: (212) 449-
3150), attention of James R. Love, Director; and notices to the
Company shall be directed to it at AnnTaylor Stores Corporation,
142 West 57th Street, New York, New York 10019 (telecopier no.:
(212) 541-3299), attention of Jocelyn F.L. Barandiaran, Esq.
Section 14. Parties. This Agreement is made solely for
-------
the benefit of the several U.S. Underwriters, the Company and the
Selling Stockholders and, to the extent expressed, any person who
controls the Company, any Selling Stockholder or any of the U.S.
Underwriters within the meaning of Section 15 of the 1933 Act,
and the directors of the Company, its officers who have signed
the Registration Statement, and their respective executors,
administrators, successors and assigns and, subject to the
<PAGE>
40
provisions of Section 11, no other person shall acquire or have
any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such
purchaser, from any of the several U.S. Underwriters of the U.S.
Shares. All of the obligations of the U.S. Underwriters
hereunder are several and not joint.
Section 15. Representation of U.S. Underwriters. You
-----------------------------------
will act for the several U.S. Underwriters in connection with the
transactions contemplated by this Agreement, and any action under
or in respect of this Agreement taken by you as U.S.
Representatives will be binding upon all the U.S. Underwriters.
Section 16. Governing Law and Time. This Agreement
----------------------
shall be governed by the laws of the State of New York.
Specified times of the day refer to New York City time.
Section 17. Counterparts. This Agreement may be
------------
executed in one or more counterparts and when a counterpart has
been executed by each party, all such counterparts taken together
shall constitute one and the same agreement.
<PAGE>
41
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us a
counterpart hereof, whereupon this instrument will become a
binding agreement among the Company, the Selling Stockholders and
the several U.S. Underwriters in accordance with its terms.
Very truly yours,
ANNTAYLOR STORES CORPORATION
By______________________________
Name:
Title:
The Selling Stockholders:
MERRILL LYNCH CAPITAL
APPRECIATION PARTNERSHIP
NO. B-II, L.P.
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
<PAGE>
42
ML OFFSHORE LBO PARTNERSHIP
NO. B-II
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
MLCP ASSOCIATES L.P. NO. I.
By: Merrill Lynch Capital Partners,
Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
ML IBK POSITIONS, INC.
By_____________________________
James V. Caruso
Vice President
MERCHANT BANKING L.P. NO. III
By: Merrill Lynch MBP Inc.,
as General Partner
By __________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1989
By: KECALP Inc.,
as General Partner
<PAGE>
43
By__________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc.,
as General Partner
By____________________________
James V. Caruso
Vice President
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By_________________________________
Name:
Title:
Investment Banking Group
For themselves and as U.S. Representatives of the
-------------------------------------------------
other U.S. Underwriters named in Schedule A
-------------------------------------------
SCHEDULE A
Number of
Initial U.S. Shares
U.S. Underwriter to be Purchased
---------------- -------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . .
Morgan Stanley & Co. Incorporated
<PAGE>
Robertson, Stephens & Company, L.P.
William Blair & Company . . . . .
----------------------
Total . . . . . . . . . . .
=======================
<PAGE>
SCHEDULE B
Number of
Number of
Shares of
Initial U.S. Shares Common
Stock
Selling Stockholder to be Sold Subject to
------------------- ---------------- ----------
Option
------
Merrill Lynch Capital Appreciation
Partnership No. B-II, L.P.
ML Offshore LBO Partnership No. B-II
MLCP Associates L.P. No. I .
ML IBK Positions, Inc. . . .
Merchant Banking L.P. No. III
Merrill Lynch KECALP L.P. 1989
Merrill Lynch KECALP L.P. 1987
_________
__________
Total . . . . . . .
==============================
=
. . . . . . . . . __________
= ==========
<PAGE>
EXHIBIT A
ANNTAYLOR STORES CORPORATION
(a Delaware corporation)
4,000,000 Shares
of Common Stock
U.S. PRICE DETERMINATION AGREEMENT
----------------------------------
May , 1994
---
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
As U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Reference is made to the U.S. Purchase Agreement dated May
, 1994 (the "U.S. Purchase Agreement") among AnnTaylor Stores
--
Corporation (the "Company"), the Selling Stockholders named in
Schedule B thereto or hereto (the "Selling Stockholders") and the
several U.S. Underwriters named in Schedule A thereto or hereto
(the "U.S. Underwriters"), for whom Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, Robertson, Stephens & Company, L.P. and William
Blair & Company are acting as representatives (the "U.S.
Representatives"). The U.S. Purchase Agreement provides for the
purchase by the U.S. Underwriters from the Company and the
Selling Stockholders, subject to the terms and conditions set
forth therein, of an aggregate of 4,000,000 shares (the "Initial
U.S. Shares") of the Company's common stock, par value $.0068 per
share. This Agreement is the U.S. Price Determination Agreement
referred to in the U.S. Purchase Agreement.
<PAGE>
3
Pursuant to Section 2 of the U.S. Purchase Agreement, the
undersigned agree with the U.S. Representatives as follows:
1. The initial public offering price per share for
the Initial U.S. Shares shall be $ .
--------------
2. The purchase price per share for the Initial U.S.
Shares to be paid by the several U.S. Underwriters shall be
$ , representing an amount equal to the initial public
----------
offering price set forth above, less $ per share.
------------
The Company represents and warrants to each of the U.S.
Underwriters that the representations and warranties of the
Company set forth in Section 1(a) of the U.S. Purchase Agreement
are accurate as though expressly made at and as of the date
hereof.
The Selling Stockholders represent and warrant to each of
the U.S. Underwriters that the representations and warranties of
the Selling Stockholders set forth in Section 1(b) of the U.S.
Purchase Agreement are accurate as though expressly made at and
as of the date hereof.
As contemplated by Section 2 of the U.S. Purchase
Agreement, attached as Schedule A is a completed list of the
several U.S. Underwriters and as Schedule B is a completed list
of the Selling Stockholders, which shall be a part of this
Agreement and the U.S. Purchase Agreement.
This Agreement shall be governed by the laws of the State
of New York.
If the foregoing is in accordance with the understanding
of the U.S. Representatives of the agreement between the U.S.
Underwriters, the Company and the Selling Stockholders, please
sign and return to the Company a counterpart hereof, whereupon
this instrument along with all counterparts and together with the
U.S. Purchase Agreement shall be a binding agreement between the
U.S. Underwriters, the Company and the Selling Stockholders in
accordance with its terms and the terms of the U.S. Purchase
Agreement.
<PAGE>
3
Very truly yours,
ANNTAYLOR STORES CORPORATION
By
----------------------------------
Name:
------------------------
Title:
The Selling Stockholders:
MERRILL LYNCH CAPITAL
APPRECIATION PARTNERSHIP
NO. B-II, L.P.
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
ML OFFSHORE LBO PARTNERSHIP
NO. B-II
By: Merrill Lynch LBO Partners B-
I, L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
<PAGE>
4
MLCP ASSOCIATES L.P. NO. I.
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
ML IBK POSITIONS, INC.
By_____________________________
James V. Caruso
Vice President
MERCHANT BANKING L.P. NO. III
By: Merrill Lynch MBP Inc.,
as General Partner
By __________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1989
By: KECALP Inc.,
as General Partner
By__________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc.,
as General Partner
<PAGE>
5
By____________________________
James V. Caruso
Vice President
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
By________________________________
Name:
Title:
Investment Banking Group
For themselves and as U.S. Representatives of the
-------------------------------------------------
other U.S.Underwriters named in Schedule A.
------------------------------------------
_________________________________________________________________
_________________________________________________________________
ANNTAYLOR STORES CORPORATION
(a Delaware corporation)
1,000,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
Dated: May , 1994
---
_________________________________________________________________
_________________________________________________________________
<PAGE>
ANNTAYLOR STORES CORPORATION
(a Delaware corporation)
1,000,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
May , 1994
--
MERRILL LYNCH INTERNATIONAL LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
As Co-Lead Managers of the several International Underwriters
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9L4
England
Ladies and Gentlemen:
AnnTaylor Stores Corporation, a Delaware corporation
(the "Company"), proposes to issue and sell to the underwriters
named in Schedule A (collectively, the "International
Underwriters"), for whom you are acting as co-lead managers (the
"Co-Lead Managers"), 200,000 authorized but unissued shares of
the Company's Common Stock, par value $.0068 per share (shares of
which class of stock of the Company are hereinafter referred to
as "Common Stock"), and the stockholders named in Schedule B
(collectively, the "Selling Stockholders") propose to sell
severally an aggregate of 800,000 outstanding shares of Common
Stock, as set forth on Schedule B, to the International
Underwriters. Such shares of Common Stock, aggregating 1,000,000
shares, are to be sold to each International Underwriter, acting
severally and not jointly, in such amounts as are set forth in
Schedule A opposite the name of such International Underwriter.
The Selling Stockholders also grant to the International
Underwriters, severally and not jointly, the option described in
Section 2 to purchase all or any part of 150,000 additional
shares of Common Stock to cover over-allotments. The aforesaid
1,000,000 shares of Common Stock (the "Initial International
Shares"), together with all or any part of the 150,000 additional
shares of Common Stock subject to the option described in
Section 2 (the "International Option Shares"), are collectively
herein called the "International Shares". The International
Shares are more fully described in the International Prospectus
referred to below.
<PAGE>
2
It is understood that the Company and the Selling
Stockholders are concurrently entering into an agreement, dated
the date hereof (the "U.S. Purchase Agreement"), providing for
the issuance and sale by the Company and the sale by the Selling
Stockholders of an aggregate of 4,000,000 shares of Common Stock
(the "Initial U.S. Shares") through arrangements with certain
underwriters in the United States and Canada (the "U.S.
Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, Robertson,
Stephens & Company, L.P. and William Blair & Company are acting
as representatives (the "U.S. Representatives"). It is further
understood that the Selling Stockholders are also granting the
U.S. Underwriters an option to purchase all or any part of
600,000 additional shares of Common Stock (the "U.S. Option
Shares") to cover over-allotments. The Initial U.S. Shares and
the U.S. Option Shares are hereinafter collectively referred to
as the "U.S. Shares". The International Shares and the U.S.
Shares are hereinafter collectively referred to as the "Shares".
The Company and the Selling Stockholders understand
that the International Underwriters will simultaneously enter
into an agreement with the U.S. Underwriters dated the date
hereof (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the International
Underwriters and the U.S. Underwriters under the direction of
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
You have advised us that you and the other
International Underwriters, acting severally and not jointly,
desire to purchase the International Shares and that you have
been authorized by the other International Underwriters to
execute this Agreement and the International Price Determination
Agreement referred to below on their behalf.
The initial public offering price per share for the
International Shares and the purchase price per share for the
International Shares shall be agreed upon by the Company, the
Selling Stockholders and the Co-Lead Managers, acting on behalf
of the several International Underwriters, and such agreement
shall be set forth in a separate written instrument substantially
in the form of Exhibit A hereto (the "International Price
Determination Agreement"). The International Price Determination
Agreement may take the form of an exchange of any standard form
of written telecommunication among the Company, the Selling
Stockholders and the Co-Lead Managers and shall specify such
applicable information as is indicated in Exhibit A hereto. The
offering of the International Shares will be governed by this
Agreement, as supplemented by the International Price
Determination Agreement. From and after the date of the
execution and delivery of the International Price Determination
<PAGE>
3
Agreement, this Agreement shall be deemed to incorporate, and all
references herein to "this Agreement" shall be deemed to include,
the International Price Determination Agreement.
The Company has prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration
statement on Form S-3 (Registration No. 33-52941) covering the
registration of the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary
prospectus, or prospectuses, and either (A) has prepared and
proposes to file, prior to the effective date of such
registration statement, an amendment to such registration
statement, including a final prospectus or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file a prospectus, in accordance
with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)")
of the 1933 Act Regulations, promptly after execution and
delivery of the International Price Determination Agreement. Two
forms of prospectus are to be used in connection with the
offering and sale of the Shares: one relating to the
International Shares (the "Form of International Prospectus") and
one relating to the U.S. Shares (the "Form of U.S. Prospectus").
The Form of U.S. Prospectus is identical to the Form of
International Prospectus, except for the front cover page, the
information contained under the caption "Underwriting" and the
back cover page. The information, if any, included in such
prospectus that was omitted from the prospectus included in such
registration statement at the time it becomes effective but that
is deemed, pursuant to paragraph (b) of Rule 430A, to be part of
such registration statement at the time it becomes effective is
referred to herein as the "Rule 430A Information". Each Form of
International Prospectus and Form of U.S. Prospectus used before
the time such registration statement becomes effective, and any
Form of International Prospectus and Form of U.S. Prospectus that
omits the Rule 430A Information that is used after such
effectiveness and prior to the execution and delivery of the
International Price Determination Agreement or the U.S. Price
Determination Agreement, is herein called a "preliminary
prospectus". Such registration statement, including the exhibits
thereto and the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, as amended at
the time it becomes effective and also including, if applicable,
the Rule 430A Information, is herein called the "Registration
Statement", and the Form of International Prospectus and Form of
U.S. Prospectus, including the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, included in the Registration Statement at the time it
becomes effective is herein called the "International Prospectus"
and the "U.S. Prospectus", respectively, and collectively, the
<PAGE>
4
"Prospectuses", and individually, a "Prospectus", except that, if
the final International Prospectus or U.S. Prospectus first
furnished to the International Underwriters or U.S. Underwriters,
respectively, after the execution of the International Price
Determination Agreement or the U.S. Price Determination
Agreement, as the case may be, for use in connection with the
offering of the Shares differs from the prospectuses included in
the Registration Statement at the time it becomes effective
(whether or not such prospectuses are required to be filed
pursuant to Rule 424(b)), the terms "International Prospectus",
"U.S. Prospectus", "Prospectuses" and "Prospectus" shall refer to
the final International Prospectus or U.S. Prospectus, as the
case may be, first furnished to the International Underwriters or
the U.S. Underwriters, as the case may be, for such use.
All references in this Agreement to financial
statements and schedules and other information that is
"contained", "included" or "stated" in the Registration Statement
or the Prospectuses (and all other references of like import)
shall be deemed to mean and include all such financial statements
and schedules and other information that is or is deemed to be
incorporated by reference in the Registration Statement or the
Prospectuses, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration
Statement or the Prospectuses shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of
1934, as amended (the "1934 Act"), that is or is deemed to be
incorporated by reference in the Registration Statement or the
Prospectuses, as the case may be.
The Company and the Selling Stockholders understand
that the International Underwriters propose to make a public
offering of the International Shares as soon as you deem
advisable after the Registration Statement becomes effective and
the International Price Determination Agreement has been executed
and delivered.
Section 1. Representations and Warranties. (a) The
------------------------------
Company represents and warrants to and agrees with the
International Underwriters that:
(i) The Company meets the requirements for use of Form
S-3 under the 1933 Act and when the Registration Statement
on such form shall become effective, on the date hereof, and
on the effective date of any amendment or supplement to the
Registration Statement, (A) the Registration Statement and
any amendments and supplements thereto will comply in all
material respects with the requirements of the 1933 Act and
the 1933 Act Regulations; (B) neither the Registration
Statement nor any amendment or supplement thereto will
<PAGE>
5
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(C) neither of the Prospectuses nor any amendment or
supplement thereto will include an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
except that this representation and warranty does not apply
to statements or omissions made in reliance upon and in
conformity with information furnished in writing or
confirmed in writing to the Company by or on behalf of any
Underwriter through you expressly for use in the
Registration Statement or the Prospectuses.
(ii) The documents incorporated by reference in the
Prospectuses pursuant to Item 12 of Form S-3 under the 1933
Act, at the time they were filed with the Commission,
complied in all material respects with the requirements of
the 1934 Act, and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and,
when read together with the other information in the
Prospectuses, at the time the Registration Statement becomes
effective, on the date hereof, and on the effective date of
any amendment or supplement to the Registration Statement,
will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
(iii) Deloitte & Touche, who are reporting upon the
audited financial statements and schedules included or
incorporated by reference in the Registration Statement, are
independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) This Agreement has been duly authorized, executed
and delivered by the Company.
(v) The consolidated financial statements included or
incorporated by reference in the Registration Statement
present fairly the consolidated financial position of the
Company and the Subsidiary (as hereinafter defined) as of
the dates indicated and the consolidated results of
operations and the consolidated cash flows of the Company
and the Subsidiary for the periods specified. Such
financial statements have been prepared in conformity with
generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The
<PAGE>
6
financial statement schedules, if any, included in the
Registration Statement present fairly the information
required to be stated therein. The selected financial data
included or incorporated by reference in each Prospectus
present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited
financial statements included or incorporated by reference
in the Registration Statement.
(vi) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and
conduct its business as described in each Prospectus; and
the Company is duly qualified to transact business as a
foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have
a material adverse effect on the Company and the Subsidiary,
considered as one enterprise. The Company is not engaged in
any business other than acting as a holding company for the
capital stock of AnnTaylor, Inc., a Delaware corporation
(the "Subsidiary").
(vii) The Company's only subsidiaries are the
Subsidiary, AnnTaylor Travel, Inc., a Delaware corporation
and a wholly owned subsidiary of the Subsidiary, and
AnnTaylor Funding, Inc., a Delaware corporation and a wholly
owned subsidiary of the Subsidiary, and the Company has a
minority ownership interest in each of CAT U.S., Inc. and
C.A.T. (Far East), Ltd. The Subsidiary is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Delaware with corporate power under
such laws to own, lease and operate its properties and
conduct its business; and the Subsidiary is duly qualified
to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or
leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except
to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the
Company and the Subsidiary, considered as one enterprise.
All of the outstanding shares of capital stock of the
Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable and are owned, directly or
indirectly, by the Company free and clear of any pledge,
lien, security interest, charge, claim, equity or
encumbrance of any kind, except as provided in or pursuant
<PAGE>
7
to the Bank Credit Agreement dated as of June 28, 1993, as
amended (the "Bank Credit Agreement"), among the Subsidiary
and the lenders named therein.
(viii) The Company had at the date indicated a duly
authorized, issued and outstanding capitalization as set
forth in each Prospectus in the column entitled "Actual"
under the caption "Capitalization" and the Shares conform to
the description thereof under the caption "Description of
Capital Stock" contained in each Prospectus.
(ix) The Shares to be sold by the Company pursuant to
this Agreement and the U.S. Purchase Agreement have been
duly authorized and, when issued and paid for in accordance
with this Agreement and the U.S. Purchase Agreement, will be
validly issued, fully paid and non-assessable; no holder
thereof will be subject to personal liability by reason of
being such a holder; and such Shares are not subject to the
preemptive or other similar rights of any stockholder of the
Company.
(x) The Shares to be sold by the Selling Stockholders
have been duly authorized and validly issued and are fully
paid and non-assessable; and no holder thereof is or will be
subject to personal liability by reason of being such a
holder.
(xi) All of the other outstanding shares of capital
stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; no holder
thereof is or will be subject to personal liability by
reason of being such a holder; and none of the outstanding
shares of capital stock of the Company was issued in
violation of the preemptive rights of any stockholder of the
Company.
(xii) Since the respective dates as of which
information is given in the Registration Statement and each
Prospectus, except as otherwise stated therein or
contemplated thereby, there has not been (A) any material
adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the
Company and the Subsidiary, considered as one enterprise,
whether or not arising in the ordinary course of business,
or (B) any dividend or distribution of any kind declared,
paid or made by the Company on its capital stock.
(xiii) Neither the Company nor the Subsidiary is in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
<PAGE>
8
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which
it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a
material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects
of the Company and the Subsidiary. The execution and
delivery of this Agreement and the U.S. Purchase Agreement
by the Company, the issuance and delivery of the Shares, the
consummation by the Company of the transactions contemplated
in this Agreement and the U.S. Purchase Agreement and in the
Registration Statement and compliance by the Company with
the terms of this Agreement have been duly authorized by all
necessary corporate action on the part of the Company and do
not and will not result in any violation of the charter or
by-laws of the Company or the Subsidiary and do not and will
not conflict with, or result in a breach of any of the terms
or provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or
the Subsidiary under (A) any contract, indenture, mortgage,
loan agreement, note,lease or other agreement or instrument
to which the Company or the Subsidiary is a party or by
which either of them may be bound or to which any of their
properties may be subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that
would not have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or
business prospects of the Company or the Subsidiary,
considered as one enterprise) or (B) any existing applicable
law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic
or foreign, having jurisdiction over the Company or the
Subsidiary or any of their respective properties.
(xiv) No authorization, approval, consent or
license of any government, governmental instrumentality or
court, domestic or foreign (other than under the 1933 Act,
the 1933 Act Regulations, the securities or blue sky laws of
the various states and the securities laws of any
jurisdiction outside the United States in which
International Shares are offered or sold by the
International Underwriters), is legally required for the
valid authorization, issuance, sale and delivery of the
Shares as contemplated by this Agreement and the U.S.
Purchase Agreement.
(xv) Except as disclosed in the Prospectuses, there is
no action, suit or proceeding before or by any government,
governmental instrumentality or court, domestic or foreign,
<PAGE>
9
now pending or, to the knowledge of the Company, threatened
against the Company or the Subsidiary that is required to be
disclosed in the Prospectuses or that is reasonably expected
by the Company to result in any material adverse change in
the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the
Subsidiary, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect
the consummation of the transactions contemplated by this
Agreement, the U.S. Purchase Agreement or the Registration
Statement. The aggregate of all pending legal or
governmental proceedings to which the Company or the
Subsidiary is a party that are not described in the
Prospectuses, including ordinary routine litigation
incidental to the business of the Company or the Subsidiary,
as the case may be, is not reasonably expected by the
Company to have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary,
considered as one enterprise.
(xvi) There are no contracts or documents of a
character required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits to
the Registration Statement that are not described and filed
as required.
(xvii) The Company and the Subsidiary each owns,
possesses or has obtained all material governmental
licenses, permits, certificates, consents, orders, approvals
and other authorizations necessary to own or lease, as the
case may be, and to operate its properties and to carry on
its business as presently conducted, except where the
failure to possess such licenses, permits, certificates,
consents, orders, approvals or other authorizations would
not have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary,
considered as one enterprise, and neither the Company nor
the Subsidiary has received any notice of proceedings
relating to revocation or modification of any such licenses,
permits, certificates, consents, orders, approvals or
authorizations, which, in the reasonable judgment of the
Company, if the subject of an unfavorable decision, ruling
or finding, would have a material adverse effect on the
condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the
Subsidiary, considered as one enterprise.
<PAGE>
10
(xviii) The Company and the Subsidiary each owns or
possesses, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and
trade names necessary to carry on its business as presently
conducted, and neither the Company nor the Subsidiary has
received any notice of infringement of or conflict with
asserted rights of others with respect to any patents,
patent licenses, trademarks, service marks or trade names
that in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could materially adversely
affect the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and
the Subsidiary, considered as one enterprise.
(xix) The Company has not taken and will not take,
directly or indirectly, any action designed to, or that the
Company reasonably believes would cause or result in
stabilization or manipulation of the price of the Common
Stock; and the Company has not distributed and will not
distribute any prospectus (as such term is defined in the
1933 Act and the 1933 Act Regulations) in connection with
the offering and sale of the Shares other than any
preliminary prospectus filed with the Commission or the
Prospectuses or other material permitted by the 1933 Act or
the 1933 Act Regulations.
(xx) The Company has obtained the written agreement of
certain officers of the Company who beneficially own an
aggregate of at least 100,000 shares of Common Stock or
securities convertible into or exchangeable or exercisable
for Common Stock ("convertible securities") that, for a
period of 120 days from the date hereof, such persons will
not, without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which
consent will not be unreasonably withheld, directly or
indirectly, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of any shares of Common Stock
or convertible securities; provided, however, that during
such 120 day period, (i) such shares of Common Stock or
convertible securities may be transferred by will or the
laws of descent and distribution and (ii) such persons may
make gifts of shares of Common Stock or convertible
securities or transfer such shares of Common Stock or
convertible securities to family trusts, so long as the
donee agrees to be bound by the foregoing restriction in the
same manner as it applies to such persons.
(xxi) Except as disclosed in the Registration
Statement and except as would not individually or in the
aggregate have a material adverse effect on the condition
<PAGE>
11
(financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary,
considered as one enterprise, (A) the Company and the
Subsidiary are in compliance with all applicable
Environmental Laws, (B) the Company and the Subsidiary have
all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or
threatened Environmental Claims against the Company or the
Subsidiary, and (D) there are no circumstances with respect
to any property or operations of the Company or the
Subsidiary that could reasonably be anticipated to form the
basis of an Environmental Claim against the Company or the
Subsidiary.
For purposes of this Agreement, the following terms
shall have the following meanings: "Environmental Law"
means any United States (or other applicable jurisdiction's)
federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law
and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent
decree or judgment, relating to the environment, health,
safety or any chemical, material or substance, exposure to
which is prohibited, limited or regulated by any
governmental authority. "Environmental Claims" means any
and all administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
(xxii) There are no persons, corporations,
partnerships or other entities with registration or other
similar rights to have any securities registered pursuant to
the Registration Statement.
(b) Each of the Selling Stockholders severally and not
jointly represents and warrants to, and agrees with, the
International Underwriters as follows:
(i) When the Registration Statement shall become
effective, on the date hereof, and on the effective date of
any amendment or supplement to the Registration Statement,
(A) such parts of the Registration Statement and any
amendments and supplements thereto as specifically refer to
such Selling Stockholder will not contain an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading and (B) such parts of each
Prospectus as specifically refer to such Selling Stockholder
<PAGE>
12
will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(ii) All authorizations and consents necessary for the
execution and delivery by or on behalf of such Selling
Stockholder of this Agreement and the sale and delivery
pursuant to this Agreement of the Shares to be sold by such
Selling Stockholder have been given and are in full force
and effect on the date hereof and will be in full force and
effect at the Closing Time and, if any International Option
Shares are purchased, on the Date of Delivery.
(iii) The execution and delivery of this Agreement
and the consummation by any Selling Stockholder of the
transactions contemplated in this Agreement and the U.S.
Purchase Agreement will not result in a breach by such
Selling Stockholder of, or constitute a default by such
Selling Stockholder under, any material agreement,
instrument, decree, judgment or order to which such Selling
Stockholder is a party or by which such Selling Stockholder
may be bound.
(iv) Such Selling Stockholder will, at the Closing Time
and, if any International Option Shares are purchased, on
the Date of Delivery, be the sole registered holder of the
International Shares to be sold by such Selling Stockholder
pursuant to this Agreement, free and clear of any pledge,
lien, security interest, charge, claim, equity or
encumbrance of any kind, other than pursuant to this
Agreement; such Selling Stockholder has full right, power
and authority to sell, transfer and deliver such
International Shares pursuant to this Agreement; and, upon
delivery of such International Shares and payment of the
purchase price therefor as contemplated in this Agreement,
each of the International Underwriters will receive all of
such Selling Stockholder's interest in its ratable share of
the International Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind.
(v) For a period of 120 days from the date hereof,
such Selling Stockholder will not, without the prior written
consent of Merrill Lynch, directly or indirectly, sell,
offer to sell, grant any option for the sale of, or
otherwise dispose of, any shares of Common Stock or other
securities convertible into Common Stock, other than to the
International Underwriters pursuant to this Agreement or to
the U.S. Underwriters pursuant to the U.S. Purchase
<PAGE>
13
Agreement; provided that during such period such Selling
Stockholder may make gifts of shares of Common Stock or
other securities convertible into Common Stock upon the
condition that the donees agree to be bound by the foregoing
restriction in the same manner as it applies to such Selling
Stockholder.
(vi) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to, or
that such Selling Stockholder reasonably believes would,
cause or result in stabilization or manipulation of the
price of the Common Stock; and such Selling Stockholder has
not distributed and will not distribute any prospectus (as
such term is defined in the 1933 Act and the 1933 Act
Regulations) in connection with the offering and sale of the
Shares other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted
by the 1933 Act or the 1933 Act Regulations.
(c) Any certificate signed by any officer of the
Company or the Subsidiary and delivered to you or to counsel
for the International Underwriters shall be deemed a
representation and warranty by the Company to each
International Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of the Selling
Stockholders as such and delivered to you or to counsel for
the International Underwriters shall be deemed a
representation and warranty by the Selling Stockholders to
each International Underwriter as to the matters covered
thereby.
Section 2. Sale and Delivery to the International
--------------------------------------
Underwriters; Closing. (a) On the basis of the representations
---------------------
and warranties herein contained, and subject to the terms and
conditions herein set forth, the Company and the Selling
Stockholders agree, severally and not jointly, to sell to each
International Underwriter, and each International Underwriter
agrees, severally and not jointly, to purchase from the Company
and the Selling Stockholders, at the purchase price per share for
the Initial International Shares to be agreed upon by the Co-Lead
Managers, the Company and the Selling Stockholders in accordance
with Section 2(b) or 2(c), and set forth in the International
Price Determination Agreement, the number of Initial
International Shares set forth opposite the name of such
International Underwriter in Schedule A, plus such additional
number of Initial International Shares which such Underwriter may
become obligated to purchase pursuant to Section 11 hereof. If
the Company elects to rely on Rule 430A, Schedules A and B may be
attached to the International Price Determination Agreement.
<PAGE>
14
(b) If the Company has elected not to rely upon Rule
430A, the initial public offering price per share for the Initial
International Shares and the purchase price per share for the
Initial International Shares to be paid by the several
International Underwriters shall be agreed upon and set forth in
the International Price Determination Agreement, dated the date
hereof, and an amendment to the Registration Statement containing
such per share price information will be filed before the
Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A,
the initial public offering price per share for the Initial
International Shares and the purchase price per share for the
Initial International Shares to be paid by the several
International Underwriters shall be agreed upon and set forth in
the International Price Determination Agreement. In the event
that the International Price Determination Agreement has not been
executed by the close of business on the fourth business day
following the date on which the Registration Statement becomes
effective, this Agreement shall terminate forthwith, without
liability of any party to any other party except that Sections 7
and 8 shall remain in effect.
(d) In addition, on the basis of the representations
and warranties herein contained, and subject to the terms and
conditions herein set forth, each Selling Stockholder grants an
option to the International Underwriters, severally and not
jointly, to purchase up to the additional number of International
Option Shares set forth opposite such Selling Stockholder's name
in the appropriate column of Schedule B at the same purchase
price per share as shall be applicable to the Initial
International Shares. The option hereby granted will expire 30
days after the date upon which the Registration Statement becomes
effective or, if the Company has elected to rely upon Rule 430A,
the date of the International Price Determination Agreement, and
may be exercised, in whole or from time to time in part, only for
the purpose of covering over-allotments that may be made in
connection with the offering and distribution of the Initial
International Shares upon notice by you to the Company and the
Selling Stockholders setting forth the number of International
Option Shares as to which the several International Underwriters
are exercising the option, and the time and date of payment and
delivery thereof. Such time and date of delivery (the "Date of
Delivery") shall be determined by you but shall not be later than
seven full business days after the exercise of such option, nor
in any event prior to the Closing Time. If the option is
exercised as to only a portion of the International Option
Shares, each of the Selling Stockholders will sell its pro rata
portion of the International Option Shares to be purchased by the
International Underwriters. If the option is exercised as to all
<PAGE>
15
or any portion of the International Option Shares, the
International Option Shares as to which the option is exercised
shall be purchased by the International Underwriters, severally
and not jointly, in their respective underwriting obligation
proportions.
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial International Shares shall be made
at the offices of Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022, or at such other place as shall be agreed
upon by the Company, the Selling Stockholders and you, at 10:00
A.M. either (i) on the fifth full business day after the
effective date of the Registration Statement or (ii) if the
Company has elected to rely upon Rule 430A, the fifth full
business day after execution of the International Price
Determination Agreement (unless, in either case, postponed
pursuant to Section 11 or 12), or at such other time not more
than ten full business days thereafter as you and the Company and
the Selling Stockholders shall determine (such date and time of
payment and delivery being herein called the "Closing Time"). In
addition, in the event that any or all of the International
Option Shares are purchased by the International Underwriters,
payment of the purchase price for, and delivery of certificates
for, such International Option Shares shall be made at the
offices of Shearman & Sterling set forth above, or at such other
place as the Company, the Selling Stockholders and you shall
determine, on the Date of Delivery as specified in the notice
from you to the Company and the Selling Stockholders. Payment
shall be made to the Company by certified or official bank check
or checks or wire transfers in New York Clearing House funds
payable to the order of the Company and to the Selling
Stockholders or to a custodian or other representative of the
Selling Stockholders by certified or official bank check or
checks in New York Clearing House funds payable to the order of
the Selling Stockholders, against delivery to you for the
respective accounts of the several International Underwriters of
certificates for the International Shares to be purchased by
them.
(f) Certificates for the Initial International Shares
and International Option Shares to be purchased by the
International Underwriters shall be in such denominations and
registered in such names as you may request in writing at least
two full business days before the Closing Time or the Date of
Delivery, as the case may be. The certificates for the Initial
International Shares and International Option Shares will be made
available in New York City for examination and packaging by you
not later than 10:00 A.M. on the business day immediately prior
to the Closing Time or the Date of Delivery, as the case may be.
<PAGE>
16
(g) It is understood that each International
Underwriter has authorized you, for its account, to accept
delivery of, receipt for, and make payment of the purchase price
for, the International Shares that it has agreed to purchase.
You, individually and not as Co-Lead Managers, may (but shall not
be obligated to) make payment of the purchase price for the
Initial International Shares, or International Option Shares, to
be purchased by any International Underwriter whose check or
checks shall not have been received by the Closing Time or the
Date of Delivery, as the case may be, but such payment shall not
relieve such International Underwriter from its obligations
hereunder.
(h) The several and not joint obligations of the
Company and the Selling Stockholders to sell to each
International Underwriter the Initial International Shares and
(with respect to the Company) the International Option Shares and
the several and not joint obligations of the International
Underwriters to purchase and pay for the Shares, upon the terms
and subject to the conditions of this Agreement, are subject to
the concurrent closing of the sale of the U.S. Shares to the U.S.
Underwriters pursuant to the terms of the U.S. Purchase
Agreement.
Section 3. Certain Covenants of the Company [and the
-------------------------------- -------
International Underwriters]. [(a)] The Company covenants with
--------------------------
each International Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company
elects to rely upon Rule 430A and subject to Section 3(b) hereof,
will comply with the requirements of Rule 430A and will notify
you immediately, and confirm the notice in writing (i) when the
Registration Statement, or any post-effective amendment to the
Registration Statement, shall have become effective, or any
supplement to the Prospectuses or any amended Prospectuses shall
have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission to amend the
Registration Statement or amend or supplement the Prospectuses or
for additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending
the use of any preliminary prospectus, or of the suspension of
the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes. The Company will use every
reasonable effort to prevent the issuance of any such stop order
or of any order preventing or suspending such use and, if any
such order is issued, to obtain the lifting thereof at the
earliest possible moment.
<PAGE>
17
(b) The Company will not at any time file or make any
amendment to the Registration Statement, or any amendment or
supplement (i) if the Company has not elected to rely upon Rule
430A, to each Prospectus (including amendments of the documents
incorporated by reference into each Prospectus) or (ii) if the
Company has elected to rely upon Rule 430A, to either the
prospectuses included in the Registration Statement at the time
it becomes effective or to each Prospectus (including amendments
of the documents incorporated by reference into the prospectus or
Prospectuses), of which you shall not have previously been
advised and furnished a copy, or to which you or counsel for the
International Underwriters shall reasonably object in writing.
(c) The Company has furnished or will furnish to you
as many signed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all
exhibits and documents filed therewith (including documents
incorporated by reference into each Prospectus pursuant to Item
12 of Form S-3 under the 1933 Act) and signed copies of all
consents and certificates of experts, as you may reasonably
request and has furnished or will furnish to you, for each other
International Underwriter, one conformed copy of the Registration
Statement as originally filed and of each amendment thereto
(including documents incorporated by reference into each
Prospectus but without exhibits).
(d) The Company will deliver to each International
Underwriter, without charge, from time to time until the
effective date of the Registration Statement (or, if the Company
has elected to rely upon Rule 430A, until the date of the
International Price Determination Agreement), as many copies of
each preliminary prospectus as such International Underwriter may
reasonably request, and the Company hereby consents to the use of
such copies for purposes permitted by the 1933 Act. The Company
will deliver to each Underwriter, without charge, as soon as the
Registration Statement shall have become effective (or, if the
Company has elected to rely upon Rule 430A, as soon as
practicable on or after the date of the International Price
Determination Agreement) and thereafter from time to time as
requested during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as such International
Underwriter may reasonably request; and in case any International
Underwriter is required to deliver a prospectus in connection
with sales of any of the International Shares at any time nine
months or more after the effective date of the Registration
Statement (or, if the Company has elected to rely upon Rule 430A,
the date of the International Price Determination Agreement),
upon such International Underwriter's request, but at the expense
<PAGE>
18
of such International Underwriter, the Company will prepare and
deliver to Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section
10(a)(3) of the 1933 Act.
(e) The Company will comply to the best of its ability
with the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the 1934 Act Regulations so as to permit the completion of
the distribution of the International Shares as contemplated in
this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in
connection with sales of the International Shares any event shall
occur or condition exist as a result of which it is necessary, in
the opinion of counsel for the International Underwriter or
counsel for the Company, to amend the Registration Statement or
amend or supplement any Prospectus in order that each Prospectus
will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the
statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of either
such counsel, at any such time to amend the Registration
Statement or amend or supplement any Prospectus in order to
comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Sections 3(b) and 3(d) hereof, such
amendment or supplement as may be necessary to correct such
untrue statement or omission or to make the Registration
Statement or each Prospectus comply with such requirements.
(f) The Company will use its best efforts in
cooperation with the International Underwriters to qualify the
Shares for offering and sale under the applicable securities laws
of such states and other jurisdictions as you may designate and
to maintain such qualifications in effect for a period of not
less than one year from the effective date of the Registration
Statement; provided, however, that neither the Company nor the
Subsidiary shall be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so
subject. The Company will file such statements and reports as
may be required by the laws of each jurisdiction in which the
Shares have been qualified as above provided.
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than
45 days after the close of the period covered thereby, an
earnings statement of the Company (in form complying with the
<PAGE>
19
provisions of Rule 158 of the 1933 Act Regulations), covering a
period of 12 months beginning after the effective date of the
Registration Statement and covering a period of 12 months
beginning after the effective date of any post-effective
amendment to the Registration Statement but not later than the
first day of the Company's fiscal quarter next following such
respective effective dates.
(h) The Company will use the net proceeds received by
it from the sale of the Shares in the manner specified in each
Prospectus under the caption "Use of Proceeds".
(i) The Company, during the period when any Prospectus
is required to be delivered under the 1933 Act, will file
promptly all documents required to be filed with the Commission
pursuant to Section 13 or 14 of the 1934 Act subsequent to the
time the Registration Statement becomes effective; provided,
however, that the Company will not at any time file any such
document of which you shall not have previously been advised and
furnished a copy.
(j) For a period of 120 days from the date hereof, the
Company will not, without the prior written consent of Merrill
Lynch, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any Common Stock
or warrants or other securities convertible into or exchangeable
or exercisable for Common Stock, other than to the International
Underwriters pursuant to this Agreement and the International
Price Determination Agreement, to the U.S. Underwriters pursuant
to the U.S. Purchase Agreement and the U.S. Price Determination
Agreement and other than pursuant to the Company's 1992 Amended
and Restated Stock Option Plan and the Associate Stock Purchase
Plan.
(k) The Company has complied and will comply with all
the provisions of Florida H.B. 1771, codified as Section 517.075
of the Florida statutes, and all regulations promulgated
thereunder relating to issuers doing business in Cuba.
(l) The Company will use its best efforts to list the
International Shares on the New York Stock Exchange on the date
of the International Price Determination Agreement.
(m) If the Company has elected to rely upon Rule 430A,
it will take such steps as it deems necessary to ascertain
promptly whether the forms of prospectus transmitted for filing
under Rule 424(b) were received for filing by the Commission and,
in the event that they were not, it will promptly file such
prospectuses.
<PAGE>
20
Section 4. Payment of Expenses. The Company and the
-------------------
Selling Stockholders will pay all costs and expenses incident to
the performance of their obligations under this Agreement,
including (a) the printing and filing of the Registration
Statement (including financial statements and exhibits), as
originally filed and as amended, the preliminary prospectuses and
each Prospectus and any amendments or supplements thereto, and
the cost of furnishing copies thereto to the International
Underwriters and the U.S. Underwriters, (b) the printing and
distribution of certificates for the International Shares and the
Blue Sky Survey, (c) the delivery of certificates for the Shares
to the International Underwriters and the U.S. Underwriters,
including any stock transfer taxes payable upon the sale of the
Shares to the International Underwriters and the U.S.
Underwriters (it being understood that the International
Underwriter will pay any New York stock transfer tax, and the
Company and the Selling Stockholders will reimburse the
International Underwriters for carrying costs if a rebate of such
transfer taxes is sought but not obtained on the date of
payment), (d) the fees and disbursements of the Company's counsel
and accountants, (e) the qualification of the Shares under the
applicable securities laws in accordance with Section 3(f),
including filing fees and fees and disbursements of counsel for
the International Underwriters in connection therewith and in
connection with the Blue Sky Survey, and (f) any filing fees in
connection with any filing for review of the offering with the
National Association of Securities Dealers, Inc.
If this Agreement is terminated by you in accordance
with the provisions of Section 5, 10(a)(i) or 12, the Company and
the Selling Stockholders shall reimburse the International
Underwriters for all their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the
International Underwriters.
The provisions of this Section shall not affect any
agreement that the Company and the Selling Stockholders may make
for the sharing of such costs and expenses.
Section 5. Conditions of International Underwriters'
-----------------------------------------
Obligations. In addition to the execution and delivery of the
-----------
International Price Determination Agreement, the obligations of
the several International Underwriters to purchase and pay for
the International Shares that they have respectively agreed to
purchase pursuant to this Agreement (including any International
Option Shares as to which the option granted in Section 2 has
been exercised and the Date of Delivery determined by you is the
same as the Closing Time) are subject to the accuracy of the
representations and warranties of the Company and the Selling
Stockholders contained herein (including those contained in the
<PAGE>
21
International Price Determination Agreement) or in certificates
of any officer of the Company or the Subsidiary delivered
pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholders of their obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date of this Agreement
or, with your consent, at a later time and date not later,
however, than 5:30 P.M. on the first business day following the
date hereof, or at such later time or on such later date as you
may agree to in writing with the approval of a majority in
interest of the several International Underwriters; and at the
Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act
and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or to the knowledge of the
Company, shall have been instituted or shall be pending or, to
your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been
complied with to the satisfaction of counsel for the
International Underwriters. If the Company has elected to rely
upon Rule 430A, a prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule
424(b) (or a post-effective amendment providing such information
shall have been filed and declared effective in accordance with
the requirements of Rule 430A).
(b) At the Closing Time, you shall have received a
signed opinion of Skadden, Arps, Slate, Meagher & Flom, counsel
for the Company, dated as of the Closing Time, in form and
substance satisfactory to counsel for the International
Underwriters, to the effect that:
(i) The Shares sold by the Company pursuant to the
provisions of this Agreement and the U.S. Purchase Agreement
have been duly authorized and, when issued and delivered by
the Company upon receipt of payment therefor in accordance
with the terms of this Agreement will be validly issued,
fully paid and non-assessable; no holder thereof is or will
be subject to personal liability by reason of being such a
holder; such Shares are not subject to the preemptive rights
of any stockholder of the Company; and all corporate action
required to be taken for the authorization, issue and sale
of such Shares has been validly and sufficiently taken.
(ii) The Shares sold by the Selling Stockholders
pursuant to the provisions of this Agreement have been duly
authorized and validly issued and are fully paid and non-
<PAGE>
22
assessable; and no holder thereof is or will be subject to
personal liability by reason of being such a holder.
(iii) As of January 29, 1994, the authorized,
issued and outstanding capital stock of the Company is as
set forth in each Prospectus under the heading
"Capitalization".
(iv) The Shares conform in all material respects as to
legal matters to the descriptions thereof under the caption
"Description of Capital Stock" in each Prospectus.
(v) This Agreement (including the International Price
Determination Agreement) and the U.S. Purchase Agreement
have been duly authorized, executed and delivered by the
Company.
(vi) No authorization, approval, consent or license of
any government, governmental instrumentality or court,
domestic or foreign (other than under the 1933 Act and the
securities or blue sky laws of the various states that, in
the opinion of such counsel, are normally applicable to
transactions of the type contemplated by this Agreement), is
required for the valid authorization, issuance, sale and
delivery of the Shares, except such as may be required under
the 1933 Act and the 1933 Act Regulations or state
securities law and the securities laws of any jurisdiction
in which the International Shares are offered and sold by
the International Underwriters pursuant to this Agreement.
(vii) The statements made in the Prospectuses under
the captions "Description of Capital Stock" and "Certain
United States Federal Tax Consequences to Non-U.S.
Stockholders", to the extent that they constitute matters of
law or legal conclusions, have been reviewed by such counsel
and fairly summarize the information required to be
disclosed therein in all material respects.
(viii) The execution and delivery of this Agreement
and the U.S. Purchase Agreement, the issuance and delivery
of the Shares, the consummation by the Company of the
transactions contemplated in this Agreement, in the U.S.
Purchase Agreement and in the Registration Statement and
compliance by the Company with the terms of this Agreement
and the U.S. Purchase Agreement do not and will not result
in any violation of the charter or by-laws of the Company or
the Subsidiary, and do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
<PAGE>
23
property or assets of the Company or the Subsidiary under
(A) any agreement or instrument set forth on Schedule I to
such counsel's opinion, (B) any existing applicable law,
rule or regulation (other than securities or blue sky laws
of the various states, as to which such counsel need express
no opinion, and other than the federal securities laws,
which are addressed elsewhere in such counsel's opinion)
that, in the opinion of such counsel, are normally
applicable to transactions of the type contemplated by this
Agreement, or (C) any judgment, order or decree of any
government, governmental instrumentality or court, domestic
or foreign, having jurisdiction over the Company or the
Subsidiary or any of their respective properties of which
such counsel is aware. Such counsel need express no
opinion, however, as to whether the execution, delivery and
performance by the Company of any of the agreements
identified in the preceding sentence will constitute a
violation of or a default under any covenant, restriction or
provision with respect to financial ratios or tests or any
aspect of the financial condition or results of operations
of the Company.
(ix) Such counsel has been informed by the Commission
that the Registration Statement became effective under the
1933 Act on the date of this Agreement; any required filing
of each Prospectus or any supplement thereto pursuant to
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and, to the knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are
pending or have been threatened by the Commission under the
1933 Act.
(x) The Registration Statement (including the Rule
430A Information, if applicable) and each Prospectus,
excluding the documents incorporated by reference therein,
and each amendment or supplement thereto (except for the
financial statements and other financial or statistical data
included therein or omitted therefrom, as to which such
counsel need express no opinion), as of their respective
effective or issue dates, appear on their face to have been
appropriately responsive in all material respects to the
requirements of the 1933 Act and the 1933 Act Regulations.
In addition, such opinion shall state that such counsel
have participated in the preparation of the Registration
Statement, the documents incorporated by reference therein and
the Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the
<PAGE>
24
independent public accountants for the Company, and with your
representatives and your counsel at which the contents of the
Registration Statement, the documents incorporated by reference
therein, the Prospectuses and related matters were discussed and,
although such counsel need not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement, the documents
incorporated by reference therein or the Prospectuses, on the
basis of the foregoing, no facts have come to the attention of
such counsel that have caused them to believe (A) that the
Registration Statement (including the Rule 430A Information, if
applicable) or any amendment thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time the Registration Statement or
any such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) that each Prospectus or any
amendment or supplement thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time each Prospectus was issued, at
the time any such amended or supplemented prospectus was issued
or at the Closing Time, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading except that such counsel need
express no opinion or belief with respect to the financial
statements, schedules and other financial or statistical data
included therein or omitted therefrom.
Such opinion shall be to such further effect with
respect to other legal matters relating to this Agreement and the
sale of the International Shares pursuant to this Agreement as
counsel for the International Underwriters may reasonably
request. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law
of the State of New York, the federal law of the United States
and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to counsel for the
International Underwriters. Such counsel may also state that,
insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of
officers of the Company and the Subsidiary and certificates of
public officials; provided that such certificates have been
delivered to the International Underwriters.
<PAGE>
25
(c) At the Closing Time, you shall have received a
signed opinion of Jocelyn F.L. Barandiaran, general counsel for
the Company, dated as of the Closing Time, together with signed
or reproduced copies of such opinion for each of the other
International Underwriters, in form and substance satisfactory to
counsel for the International Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and
conduct its business as described in each Prospectus.
(ii) The Company is duly qualified to transact business
as a foreign corporation and is in good standing in each
other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have
a material adverse effect on the Company and the Subsidiary,
considered as one enterprise.
(iii) The Subsidiary is a corporation duly
incorporated, validly existing and in good standing under
the laws of the State of Delaware with corporate power and
authority under such laws to own, lease and operate its
properties and conduct its business.
(iv) The Subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property
of a nature, or transacts business of a type, that would
make such qualification necessary, except to the extent that
the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and the
Subsidiary, considered as one enterprise.
(v) All of the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and
are fully paid and non-assessable; no holder thereof is or
will be subject to personal liability by reason of being
such a holder; and none of the outstanding shares of capital
stock of the Company was issued in violation of the
preemptive rights of any stockholder of the Company arising
by operation of law or under the charter or by-laws of the
Company.
(vi) All of the outstanding shares of capital stock of
the Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; all of such shares
<PAGE>
26
are owned by the Company, directly or through one or more
subsidiaries, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind
(other than pursuant to the Bank Credit Agreement); no
holder thereof is subject to personal liability by reason of
being such a holder; and none of such shares was issued in
violation of the preemptive rights of any stockholder of the
Subsidiary arising by operation of law or under the charter
or by-laws of the Subsidiary.
(vii) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in each
Prospectus that are not described as required, nor of any
contracts or documents of a character required to be
described or referred to in the Registration Statement or
each Prospectus or to be filed as exhibits to the
Registration Statement that are not described, referred to
or filed as required.
(viii) Except to the extent described in the
Prospectuses, to the knowledge of such counsel, no default
exists in the performance or observance of any material
obligation, agreement, covenant or condition contained in
any contract, indenture, loan agreement, note, lease or
other agreement or instrument that is described or referred
to in the Registration Statement or the Prospectuses or
filed as an exhibit to the Registration Statement.
(ix) The documents incorporated by reference in each
Prospectus (except for the financial statements and other
financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no
opinion), as of the dates they were filed with the
Commission, appear on their face to have been appropriately
responsive in all material respects to the requirements of
the 1934 Act and the 1934 Act Regulations.
In addition, such opinion shall state that such counsel
has participated in the preparation of the Registration
Statement, the documents incorporated by reference therein, and
the Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, and with your
representatives and your counsel at which the contents of the
Registration Statement, the documents incorporated by reference
therein, the Prospectuses and related matters were discussed and,
although such counsel need not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement, the documents
<PAGE>
27
incorporated by reference therein, or the Prospectuses, on the
basis of the foregoing, no facts have come to the attention of
such counsel that have caused such counsel to believe (A) that
the Registration Statement (including the Rule 430A Information,
if applicable) or any amendment thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time the Registration Statement or
any such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) that each Prospectus or any
amendment or supplement thereto (except for the financial
statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need
express no opinion), at the time each Prospectus was issued, at
the time any such amended or supplemented prospectus was issued
or at the Closing Time, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading, except that such counsel need
express no opinion or belief with respect to the financial
statements, schedules and other financial or statistical data
included therein or omitted therefrom.
Such opinion shall be to such further effect with
respect to other legal matters relating to this Agreement and the
sale of the International Shares pursuant to this Agreement as
counsel for the International Underwriters may reasonably
request. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law
of the State of New York, the federal law of the United States
and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to counsel for the
International Underwriters. Such counsel may also state that,
insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of
officers of the Company and the Subsidiary and certificates of
public officials; provided that such certificates have been
delivered to the International Underwriters.
(d) At the Closing Time, you shall have received
signed opinions of counsel for the Selling Stockholders, dated
as of the Closing Time, together with signed or reproduced copies
of such opinions for each of the other International
Underwriters, in form and substance satisfactory to counsel for
the International Underwriters, to the effect that:
<PAGE>
28
(i) This Agreement and the U.S. Purchase Agreement
have been duly executed and delivered by the Selling
Stockholders.
(ii) To the best knowledge of such counsel, each
Selling Stockholder is the sole registered holder of the
International Shares to be sold by such Selling Stockholder
pursuant to this Agreement, free and clear of any pledge,
lien, security interest, charge, claim, equity or
encumbrance of any kind, and has full right, power and
authority to sell, transfer and deliver such International
Shares pursuant to this Agreement. By delivery of a
certificate or certificates therefor such Selling
Stockholder will transfer to the International Underwriters
who have purchased such International Shares pursuant to
this Agreement (without notice of any defect in the title of
such Selling Stockholder and who are otherwise bona fide
purchasers for purposes of the Uniform Commercial Code) all
of such Selling Stockholder's interest in its ratable share
of such International Shares, free and clear of any pledge,
lien, security interest, charge, claim, equity or
encumbrance of any kind. In rendering such opinion, counsel
may assume that the International Underwriters purchase the
securities in good faith and are without notice of any
defect in the title of the Selling Stockholders to the
Shares being purchased from the Selling Stockholders.
Such opinion shall be to such further effect with
respect to other legal matters relating to this Agreement and the
sale of the International Shares pursuant to this Agreement by
the Selling Stockholders as counsel for the International
Underwriters may reasonably request. In giving such opinion,
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the
federal law of the United States and the General Corporation Law
of the State of Delaware, upon opinions of other counsel, who
shall be counsel satisfactory to counsel for the International
Underwriters, in which case the opinion shall state that they
believe you and they are entitled to so rely. Such counsel may
also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of the Selling Stockholders and certificates of
public officials; provided that such certificates have been
delivered to the International Underwriters.
(e) At the Closing Time, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the
International Underwriters, dated as of the Closing Time,
together with signed or reproduced copies of such opinion for
each of the other International Underwriters, to the effect that
<PAGE>
29
the opinions delivered pursuant to Sections 5(b), 5(c) and 5(d)
appear on their face to be appropriately responsive to the
requirements of this Agreement except, specifying the same, to
the extent waived by you, and with respect to the incorporation
and legal existence of the Company, the Shares, this Agreement,
the Registration Statement, each Prospectus, the documents
incorporated by reference and such other related matters as you
may require. In giving such opinion, such counsel may rely, as
to all matters governed by the laws of jurisdictions other than
the law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to you. Such counsel
may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and certificates of
public officials.
(f) At the Closing Time, (i) the Registration
Statement and each Prospectus, as they may then be amended or (in
the case of Prospectuses) supplemented, shall contain all
statements that are required to be stated therein under the 1933
Act and the 1933 Act Regulations and in all material respects
shall conform to the requirements of the 1933 Act and the 1933
Act Regulations, the Company shall have complied in all material
respects with Rule 430A (if it shall have elected to rely
thereon) and neither the Registration Statement nor each
Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) there shall not have
been, since the respective dates as of which information is given
in the Registration Statement, any material adverse change in the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and the Subsidiary, considered
as one enterprise, whether or not arising in the ordinary course
of business, (iii) no action, suit or proceeding shall be pending
or, to the knowledge of the Company, threatened against the
Company or the Subsidiary that would be required to be set forth
in each Prospectus other than as set forth therein or in any
supplement thereto and no proceedings shall be pending or, to the
knowledge of the Company, threatened against the Company or the
Subsidiary before or by any government, governmental
instrumentality or court, domestic or foreign, that could be
reasonably expected to result in any material adverse change in
the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the Subsidiary
considered as one enterprise, other than as set forth in each
Prospectus, (iv) the Company shall have complied in all material
respects with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Closing Time
<PAGE>
30
and (v) the representations and warranties of the Company set
forth in Section 1(a) shall be accurate as though expressly made
at and as of the Closing Time. At the Closing Time, you shall
have received a certificate of the President or an Executive Vice
President, and the Chief Financial Officer or principal
accounting officer of the Company, dated as of the Closing Time,
to such effect.
(g) At the Closing Time, (i) the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
and in any certificates by or on behalf of the Selling
Stockholders delivered pursuant to the provisions hereof shall be
accurate as though expressly made at and as of the Closing Time,
(ii) each Selling Stockholder shall have performed its
obligations under this Agreement in all material respects and
(iii) you shall have received a certificate of each Selling
Stockholder, dated as of the Closing Time, to the effect set
forth in subsections (i) and (ii) of this Section 5(g); provided,
however, that the failure of any such Selling Stockholder to
satisfy the conditions of this paragraph shall permit the
International Underwriters not to purchase only the International
Shares to be sold by such Selling Stockholder hereunder; and
provided further, that in no event shall the obligation of the
Selling Stockholders to satisfy the foregoing condition
constitute a condition to the obligations of the International
Underwriters to purchase any International Shares from the
Company pursuant to this Agreement.
(h) At the time that this Agreement is executed by the
Company, you shall have received from Deloitte & Touche a letter,
dated such date, in form and substance satisfactory to you
confirming that they are independent public accountants with
respect to the Company within the meaning of the 1933 Act and the
applicable published 1933 Act Regulations, and stating in effect
that:
(i) in their opinion, the audited financial statements
included or incorporated by reference in the Registration
Statement and each Prospectus comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act and the 1934 Act and the
respective published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination
in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Company; a
reading of the minutes of all meetings of the stockholders,
directors and executive, finance and audit committees of the
Company and the Subsidiary; and inquiries of certain
<PAGE>
31
officials of the Company who have responsibility for
financial and accounting matters of the Company and the
Subsidiary as to transactions and events subsequent to the
date of the most recent audited financial statements in or
incorporated in the Prospectuses, and such other inquiries
and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that at
a specified date not more than five business days prior to
the date of the letter, there were any increases in the
long-term debt of the Company and its subsidiaries or any
decreases in stockholders' equity or the capital stock of
the Company as compared with the amounts shown on the most
recent balance sheet included or incorporated in the
Registration Statement and the Prospectuses except in each
case for decreases and increases that the Registration
Statement and Prospectuses disclose have occurred or may
occur, or for the period from January 29, 1994 to such
specified date there were any decreases, as compared with
the corresponding period in the preceding year, in revenues,
income before income taxes (or any increase in the loss
before income taxes) or net income (or any increase in net
loss), except in each case for decreases or increases that
the Registration Statement discloses have occurred or may
occur; and
(iii) in addition to the procedures referred to in
clause (ii) above, they have performed specified procedures,
not constituting an audit, with respect to certain amounts,
percentages, numerical data and financial information
appearing in the Registration Statement, which have
previously been specified by you and which shall be
specified in such letter, and have compared certain of such
items with, and have found such items to be in agreement
with, the accounting and financial records of the Company.
(i) At the Closing Time, you shall have received from
Deloitte & Touche a letter, in form and substance satisfactory to
you and dated as of the Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
Section 5(h), except that the specified date referred to shall be
a date not more than five days prior to the Closing Time.
(j) At the Closing Time, counsel for the International
Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the issuance and sale of
the Shares as contemplated in this Agreement and the matters
referred to in Section 5(d) and in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or the Selling Stockholders, the
<PAGE>
32
performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all
proceedings taken by the Company and the Selling Stockholders at
or prior to the Closing Time in connection with the
authorization, issuance and sale of the Shares as contemplated in
this Agreement shall be satisfactory in form and substance to you
and to counsel for the International Underwriters.
(k) The International Shares shall have been duly
authorized for listing by the New York Stock Exchange on the date
of the International Price Determination Agreement, subject only
to notice of issuance thereof and notice of a satisfactory
distribution of the Common Stock.
If any of the conditions specified in this Section 5
shall not have been fulfilled when and as required by this
Agreement, this Agreement may be terminated by you on notice to
the Company and the Selling Stockholders at any time at or prior
to the Closing Time, and such termination shall be without
liability of any party to any other party, except as provided in
Section 4 herein. Notwithstanding any such termination, the
provisions of Sections 7 and 8 shall remain in effect.
Section 6. Conditions to Purchase of International
---------------------------------------
Option Shares. In the event that the International Underwriters
-------------
exercise their option granted in Section 2 to purchase all or any
of the International Option Shares and the Date of Delivery
determined by you pursuant to Section 2 is later than the Closing
Time, the obligations of the several International Underwriters
to purchase and pay for the International Option Shares that they
shall have respectively agreed to purchase pursuant to this
Agreement are subject to the accuracy of the representations and
warranties of the Company and the Selling Stockholders herein
contained, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall remain effective
at the Date of Delivery, and at the Date of Delivery no stop
order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act and no proceedings for
that purpose shall have been instituted or shall be pending or,
to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been
complied with to the satisfaction of counsel for the
International Underwriters.
(b) At the Date of Delivery, the provisions of
Sections 5(f)(i) through 5(f)(v) shall have been complied with at
<PAGE>
33
and as of the Date of Delivery and, at the Date of Delivery, you
shall have received a certificate of the President or an
Executive Vice President, and the Treasurer or Controller, of the
Company, dated as of the Date of Delivery, to such effect.
(c) At the Date of Delivery, you shall have received
the favorable opinions of Skadden, Arps, Slate, Meagher & Flom,
counsel for the Company, and counsel for the Selling
Stockholders, together with signed or reproduced copies of such
opinions for each of the other International Underwriters, in
each case in form and substance satisfactory to counsel for the
International Underwriters, dated as of the Date of Delivery,
relating to the International Option Shares and otherwise to the
same effect as the opinions required by Sections 5(b) and 5(d),
respectively.
(d) At each applicable Date of Delivery, you shall
have received a signed opinion of Jocelyn F.L. Barandiaran,
general counsel for the Company, dated as of such Date of
Delivery, in form and substance satisfactory to counsel for the
International Underwriters, to the same effect as the opinion
required by Section 5(c).
(e) At the Date of Delivery, you shall have received
the favorable opinion of Shearman & Sterling, counsel for the
International Underwriters, dated as of the Date of Delivery,
relating to the International Option Shares and otherwise to the
same effect as the opinion required by Section 5(e).
(f) At the Date of Delivery, you shall have received a
letter from
Deloitte & Touche, in form and substance satisfactory to you and
dated as of the Date of Delivery, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
Section 5(h), except that the specified date referred to shall be
a date not more than five days prior to the Date of Delivery.
(g) At the Date of Delivery, counsel for the
International Underwriters shall have been furnished with all
such documents, certificates and opinions as they may reasonably
request for the purpose of enabling them to pass upon the
issuance and sale of the International Option Shares as
contemplated in this Agreement and the matters referred to in
Section 6(e) and in order to evidence the accuracy and
completeness of any of the representations, warranties or
statements of the Company or the Selling Stockholders, the
performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all
proceedings taken by the Company and the Selling Stockholders at
or prior to the Date of Delivery in connection with the
<PAGE>
34
authorization, issuance and sale of the International Option
Shares as contemplated in this Agreement shall be satisfactory in
form and substance to you and to counsel for the International
Underwriters.
(h) At the Date of Delivery, the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
shall be accurate as though expressly made at and as of the Date
of Delivery and, at the Date of Delivery, you shall have received
a certificate of each Selling Stockholder, dated as of the Date
of Delivery, to such effect with respect to such Selling
Stockholder.
Section 7. Indemnification. (a) The Company and each
---------------
Selling Stockholder jointly and severally agree to indemnify and
hold harmless each International Underwriter and each person, if
any, who controls any International Underwriter, within the
meaning of Section 15 of the 1933 Act to the extent and in the
manner set forth in clauses (i), (ii) and (iii) below; provided,
however, that the liability of each Selling Stockholder under
this Section 7 is limited to the aggregate net proceeds (after
deducting the underwriting discount, but before deducting
expenses) received by such Selling Stockholder:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, and all documents incorporated therein by
reference, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out
of an untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of the
Company and the Selling Stockholders; and
<PAGE>
35
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 7(d) hereof,
reasonable fees and disbursements of counsel chosen by you),
reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply
to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity
with written information furnished to the Company by any
International Underwriter or U.S. Underwriter through you
expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information, if applicable, or
any preliminary prospectus or the Prospectuses (or any amendment
or supplement thereto); provided further that the foregoing
indemnification with respect to any preliminary prospectus shall
not inure to the benefit of any International Underwriter (or any
person controlling such International Underwriter) from whom the
person asserting any such losses, claims, damages or liabilities
purchased any of the International Shares if a copy of the
Prospectuses (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was
not sent or given by or on behalf of such International
Underwriter to such person, if such is required by law, at or
prior to the written confirmation of the sale of such Shares to
such person and if the Prospectuses (as so amended or
supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability.
Insofar as this indemnity agreement may permit
indemnification for liabilities under the 1933 Act of any person
who is a partner of an International Underwriter or who controls
an International Underwriter within the meaning of Section 15 of
the 1933 Act and who, at the date of this Agreement, is a
director or officer of the Company or controls the Company within
the meaning of Section 15 of the 1933 Act, such indemnity
agreement is subject to the undertaking of the Company in the
Registration Statement under Item 17 thereof.
(b) Each International Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act and each Selling
<PAGE>
36
Stockholder and each person, if any, who controls any
Selling Stockholder within the meaning of Section 15 of the
1933 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity agreement in
Section 7(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Company by such International Underwriter
through you expressly for use in the Registration Statement
(or any amendment thereto), including the Rule 430A
Information, if applicable, or such preliminary prospectus
or the Prospectuses (or any amendment or supplement
thereto).
(c) Each Selling Stockholder severally agrees to
indemnify and hold
harmless the Company, its directors, each of its officers
who signed the Registration Statement (or any amendment
thereto), the other Selling Stockholders and each person, if
any, who controls the Company or any other Selling
Stockholder within the meaning of Section 15 of the 1933 Act
against any and all loss, liability, claim, damage and
expense described in the indemnity contained in Section
7(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any
amendment thereto), or any preliminary prospectus or the
Prospectus (or any supplement thereto) in reliance upon and
in conformity with information furnished in writing or
confirmed in writing to the Company by or on behalf of such
Selling Stockholder expressly for use in the Registration
Statement (or any amendment thereto), or any preliminary
prospectus or the Prospectus (or any amendment or supplement
thereto).
(d) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it
in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve
it from any liability that it may have otherwise than on
account of this indemnity agreement. An indemnifying party
may participate at its own expense in the defense of such
action. In no event shall the indemnifying party or parties
be liable for the fees and expenses of more than one counsel
for all indemnified parties (including, if applicable, the
U.S. Underwriters) in connection with any one action or
<PAGE>
37
separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances. If it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice,
may assume the defense of such action with counsel chosen by
it and approved by the indemnified parties defendant in such
action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal
defenses available to them which are different from or are
in addition to those available to such indemnifying party.
If an indemnifying party assumes the defense of such action,
the indemnifying parties shall not be liable for any fees
and expenses of counsel for the indemnified parties incurred
thereafter in connection with such action.
Section 8. Contribution. In order to provide for just
------------
and equitable contribution in circumstances under which the
indemnity provided for in Section 7 is for any reason held to be
unenforceable by the indemnified parties although applicable in
accordance with its terms, the Company, the Selling Stockholders
and the International Underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity incurred by the
Company, the Selling Stockholders and one or more of the
International Underwriters, as incurred, in such proportions that
(a) the International Underwriters are responsible for that
portion represented by the percentage that the underwriting
discount appearing on the cover page of the International
Prospectus bears to the offering price appearing thereon and
(b) the Company and the Selling Stockholders are severally
responsible for the balance on the same basis as each of them
would have been obligated to provide indemnification pursuant to
Section 7; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls an
International Underwriter within the meaning of Section 15 of the
1933 Act shall have the same rights to contribution as such
International Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company or a Selling
Stockholder within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as the Company or a
Selling Stockholder, as the case may be.
Section 9. Representations, Warranties and Agreements
------------------------------------------
to Survive Delivery. The representations, warranties,
-------------------
indemnities, agreements and other statements of the Selling
<PAGE>
38
Stockholders, the Company or its officers set forth in or made
pursuant to this Agreement will remain operative and in full
force and effect regardless of any investigation made by or on
behalf of the Selling Stockholders, the Company, any
International Underwriter or any controlling person thereof and
will survive delivery of and payment for the International
Shares.
Section 10. Termination of Agreement. (a) You may
------------------------
terminate this Agreement, by notice to the Company and the
Selling Stockholders, at any time at or prior to the Closing Time
(i) if there has been, since the respective dates as of which
information is given in the Registration Statement, any material
adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company
and the Subsidiary, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in
the United States or internationally or any outbreak of
hostilities or escalation of existing hostilities or other
calamity or crisis the effect of which on the financial markets
of the United States or internationally is such as to make it, in
your judgment, impracticable to market the Shares, or enforce
contracts for the sale of the Shares, or (iii) if trading in any
securities of the Company has been suspended by the Commission or
the New York Stock Exchange, or if trading generally on the New
York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been
required, by such exchange or by order of the Commission or any
other governmental authority or (iv) if a banking moratorium has
been declared by either federal or New York authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party
to any other party, except to the extent provided in Section 4.
Notwithstanding any such termination, the provisions of Sections
7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2, with the effect stated in such Section.
Section 11. Default by One or More of the International
-------------------------------------------
Underwriters. If one or more of the International Underwriters
------------
shall fail at the Closing Time to purchase the Initial
International Shares that it or they are obligated to purchase
pursuant to this Agreement (the "Defaulted International
Shares"), you shall have the right, within 24 hours thereafter,
to make arrangements for one or more of the non-defaulting
International Underwriters, or any other underwriters, to
<PAGE>
39
purchase all, but not less than all, of the Defaulted
International Shares in such amounts as may be agreed upon and
upon the terms set forth in this Agreement; if, however, you have
not completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted International Shares
does not exceed 10% of the total number of Initial International
Shares, the non-defaulting International Underwriters shall be
obligated to purchase the full amount thereof in the proportions
that their respective Initial International Share underwriting
obligation proportions bear to the underwriting obligation
proportions of all non-defaulting International Underwriters, or
(b) if the number of Defaulted International Shares
exceeds 10% of the total number of Initial International Shares,
this Agreement shall terminate without liability on the part of
any non-defaulting International Underwriter.
No action taken pursuant to this Section shall relieve
any defaulting International Underwriter from liability in
respect of its default.
In the event of any such default that does not result
in a termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Time for a period
not exceeding seven days in order to effect any required changes
in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term
"International Underwriter" includes any person substituted for
an International Underwriter under this Section 11.
Section 12. Default by a Selling Stockholder or the
---------------------------------------
Company. If any Selling Stockholder shall fail at the Closing
-------
Time to sell and deliver the number of Initial International
Shares that such Selling Stockholder is obligated to sell, the
International Underwriters will purchase the Initial
International Shares that the Company and the remaining Selling
Stockholders have agreed to sell pursuant to this Agreement.
In the event of a default by a Selling Stockholder
under this Section, either you or the Company shall have the
right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the
Registration Statement or Prospectuses or in any other documents
or arrangements.
If the Company shall fail at the Closing Time to sell
and deliver the number of Shares that it is obligated to sell,
then this Agreement shall terminate without any liability on the
part of any non-defaulting party except to the extent provided in
<PAGE>
40
Section 4 and except that the provisions of Sections 7 and 8
shall remain in effect.
No action taken pursuant to this Section shall relieve
the Company or any Selling Stockholder so defaulting from
liability, if any, in respect of such default.
Section 13. Notices. All notices and other
-------
communications under this Agreement shall be in writing and shall
be deemed to have been duly given if delivered, mailed or
transmitted by any standard form of telecommunication. Notices
to you or the International Underwriters shall be directed to you
at Merrill Lynch International Limited, Ropemaker Place, 25
Ropemaker Street, London, EC2Y 9L4, England (telecopier no.:
, attention of
-------------------- -------------------------------
; and notices to the Company shall be directed to it at
--
AnnTaylor Stores Corporation, 142 West 57th Street, New York, New
York 10019 (telecopier no.: (212) 541-3299), attention of
Jocelyn F.L. Barandiaran, Esq.
Section 14. Parties. This Agreement is made solely for
-------
the benefit of the several International Underwriters, the
Company and the Selling Stockholders and, to the extent
expressed, any person who controls the Company, any Selling
Stockholder or any of the International Underwriters within the
meaning of Section 15 of the 1933 Act, and the directors of the
Company, its officers who have signed the Registration Statement,
and their respective executors, administrators, successors and
assigns and, subject to the provisions of Section 11, no other
person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include
any purchaser, as such purchaser, from any of the several
International Underwriters of the International Shares. All of
the obligations of the International Underwriters hereunder are
several and not joint.
Section 15. Representation of International
-------------------------------
Underwriters. You will act for the several International
------------
Underwriters in connection with the transactions contemplated by
this Agreement, and any action under or in respect of this
Agreement taken by you as Co-Lead Managers will be binding upon
all the International Underwriters.
Section 16. Governing Law and Time. This Agreement
----------------------
shall be governed by the laws of the State of New York.
Specified times of the day refer to New York City time.
Section 17. Counterparts. This Agreement may be
------------
executed in one or more counterparts and when a counterpart has
<PAGE>
41
been executed by each party, all such counterparts taken together
shall constitute one and the same agreement.
<PAGE>
42
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us a
counterpart hereof, whereupon this instrument will become a
binding agreement among the Company, the Selling Stockholders and
the several International Underwriters in accordance with its
terms.
Very truly yours,
ANNTAYLOR STORES CORPORATION
By______________________________
Name:
Title:
The Selling Stockholders:
MERRILL LYNCH CAPITAL
APPRECIATION PARTNERSHIP
NO. B-II, L.P.
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
<PAGE>
43
ML OFFSHORE LBO PARTNERSHIP
NO. B-II
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
MLCP ASSOCIATES L.P. NO. I.
By: Merrill Lynch Capital Partners,
Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
ML IBK POSITIONS, INC.
By_____________________________
James V. Caruso
Vice President
MERCHANT BANKING L.P. NO. III
By: Merrill Lynch MBP Inc.,
as General Partner
By __________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1989
By: KECALP Inc.,
as General Partner
<PAGE>
44
By__________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc.,
as General Partner
By____________________________
James V. Caruso
Vice President
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
By: MERRILL LYNCH INTERNATIONAL LIMITED
By_________________________________
Name:
Title:
Investment Banking Group
For themselves and as Co-Lead Managers of the
---------------------------------------------
other International Underwriters named in Schedule A
----------------------------------------------------
<PAGE>
SCHEDULE A
Number of Initial
International Shares
International Underwriter to be Purchased
------------------------- -----------------------
Merrill Lynch International Limited
Morgan Stanley & Co. International Limited
Robertson, Stephens & Company, L.P.
William Blair & Company . . . . .
----------------------
Total . . . . . . . . . . .
=======================
<PAGE>
SCHEDULE B
Number of
Number of
Shares of
Initial International
Common Stock
Selling Stockholder Shares to be Sold Subject to
------------------- ------------------ ----------
Option
------
Merrill Lynch Capital Appreciation
Partnership No. B-II, L.P.
ML Offshore LBO Partnership No. B-II
MLCP Associates L.P. No. I .
ML IBK Positions, Inc. . . .
Merchant Banking L.P. No. III
Merrill Lynch KECALP L.P. 1989
Merrill Lynch KECALP L.P. 1987
_________
__________
Total . . . . . . .
==============================
=
. . . . . . . . . __________
= ==========
<PAGE>
EXHIBIT A
ANNTAYLOR STORES CORPORATION
(a Delaware corporation)
1,000,000 Shares
of Common Stock
INTERNATIONAL PRICE DETERMINATION AGREEMENT
-------------------------------------------
May , 1994
---
MERRILL LYNCH INTERNATIONAL LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
As Co-Lead Managers of the several International Underwriters
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London, EC2Y 9L4
England
Ladies and Gentlemen:
Reference is made to the International Purchase Agreement
dated May , 1994 (the "International Purchase Agreement")
---
among AnnTaylor Stores Corporation (the "Company"), the Selling
Stockholders named in Schedule B thereto or hereto (the "Selling
Stockholders") and the several International Underwriters named
in Schedule A thereto or hereto (the "International
Underwriters"), for whom Merrill Lynch International Limited,
Morgan Stanley & Co. International Limited, Robertson, Stephens &
Company, L.P. and William Blair & Company are acting as co-lead
managers (the "Co-Lead Managers"). The International Purchase
Agreement provides for the purchase by the International
Underwriters from the Company and the Selling Stockholders,
subject to the terms and conditions set forth therein, of an
aggregate of 1,000,000 shares (the "Initial International
Shares") of the Company's common stock, par value $.0068 per
share. This Agreement is the International Price Determination
Agreement referred to in the International Purchase Agreement.
Pursuant to Section 2 of the International Purchase
Agreement, the undersigned agree with the Co-Lead Managers as
follows:
<PAGE>
2
1. The initial public offering price per share for
the Initial International Shares shall be $ .
--------------
2. The purchase price per share for the Initial
International Shares to be paid by the several International
Underwriters shall be $ , representing an amount equal
----------
to the initial public offering price set forth above, less
$ per share.
------------
The Company represents and warrants to each of the
International Underwriters that the representations and
warranties of the Company set forth in Section 1(a) of the
International Purchase Agreement are accurate as though expressly
made at and as of the date hereof.
The Selling Stockholders represent and warrant to each of
the International Underwriters that the representations and
warranties of the Selling Stockholders set forth in Section 1(b)
of the International Purchase Agreement are accurate as though
expressly made at and as of the date hereof.
As contemplated by Section 2 of the International Purchase
Agreement, attached as Schedule A is a completed list of the
several International Underwriters and as Schedule B is a
completed list of the Selling Stockholders, which shall be a part
of this Agreement and the International Purchase Agreement.
This Agreement shall be governed by the laws of the State
of New York.
If the foregoing is in accordance with the understanding
of the Co-Lead Managers of the agreement between the
International Underwriters, the Company and the Selling
Stockholders, please sign and return to the Company a counterpart
hereof, whereupon this instrument along with all counterparts and
together with the International Purchase Agreement shall be a
binding agreement between the International Underwriters, the
Company and the Selling Stockholders in accordance with its terms
and the terms of the International Purchase Agreement.
<PAGE>
3
Very truly yours,
ANNTAYLOR STORES CORPORATION
By
---------------------------------------
Name:
-------------------
Title:
The Selling Stockholders:
MERRILL LYNCH CAPITAL
APPRECIATION PARTNERSHIP
NO. B-II, L.P.
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
ML OFFSHORE LBO PARTNERSHIP
NO. B-II
By: Merrill Lynch LBO Partners B-I,
L.P.,
as General Partner
By: Merrill Lynch Capital
Partners, Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
MLCP ASSOCIATES L.P. NO. I.
<PAGE>
4
By: Merrill Lynch Capital Partners,
Inc.,
as General Partner
By_____________________________
James V. Caruso
Vice President
ML IBK POSITIONS, INC.
By_____________________________
James V. Caruso
Vice President
MERCHANT BANKING L.P. NO. III
By: Merrill Lynch MBP Inc.,
as General Partner
By __________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1989
By: KECALP Inc.,
as General Partner
By__________________________
James V. Caruso
Vice President
MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc.,
as General Partner
By____________________________
<PAGE>
5
James V. Caruso
Vice President
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
ROBERTSON, STEPHENS & COMPANY, L.P.
WILLIAM BLAIR & COMPANY
By: Merrill Lynch International Limited
By_________________________________
Name:
Title:
Investment Banking Group
For themselves and as Co-Lead Managers of the
---------------------------------------------
other International Underwriters named in Schedule A
----------------------------------------------------
Exhibit 5
April 20, 1994
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Re: Registration Statement on Form S-3
of AnnTaylor Stores Corporation
----------------------------------
Dear Sirs and Madams:
I am Vice President, General Counsel and Secretary of
AnnTaylor Stores Corporation, a Delaware corporation (the "Compa-
ny"), and am rendering this opinion in connection with the
Registration Statement on Form S-3 (File No. 33-52941) of the
Company (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), related to the offering by the
Company and certain stockholders of the Company of an aggregate
of 5,750,000 shares (the "Shares") of common stock, par value
$.0068 per share (the "Common Stock"), of the Company (including
750,000 shares subject to the Underwriters' over allotment
option).
In connection with this opinion, I have examined the
following: (i) the Restated Certificate of Incorporation and By-
laws of the Company, as amended to date, (ii) the Registration
Statement, (iii) the applicable resolutions of the Board of
Directors of the Company, (iv) the forms of the U.S. Purchase
Agreement to be entered into among the Company, certain stock-
holders of the Company, Merrill Lynch & Co. (Merrill Lynch,
Pierce, Fenner & Smith Incorporated), Morgan Stanley & Co. Incor-
porated, Robertson Stephens & Company and William Blair & Compa-
ny, and the International Purchase Agreement to be entered into
among the Company, certain stockholders of the Company, Merrill
Lynch International Limited, Morgan Stanley & Co International
Limited, Robertson Stephens & Company and William Blair & Company
(together, the "Purchase Agreements") and (v) a specimen certifi-
cate evidencing the Common Stock. I have also examined originals
or copies, certified or otherwise identified to my satisfaction,
of such other documents, certificates and records as I have
<PAGE>
deemed necessary or appropriate as a basis for the opinions set
forth herein.
In such examination, I have assumed the genuineness of
all signatures (except signatures on behalf of the Company), the
legal capacity of natural persons, the authenticity of all
documents submitted to me as originals, the conformity to origi-
nal documents of all documents submitted to me as certified or
photostatic copies and the authenticity of the originals of such
documents. As to any facts material to this opinion which I did
not independently establish or verify, I have relied upon state-
ments and representations of officers and other representatives
of the Company and others.
I am admitted to the Bar of the State of New York and
express no opinion regarding the laws of any other jurisdiction,
other than the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing and the quali-
fications and limitations set forth in this letter, I am of the
opinion that the Shares have been duly authorized and, when
issued, delivered and paid for in accordance with the terms of
the Purchase Agreements, will be validly issued, fully paid and
nonassessable shares of Common Stock.
I hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to me
under the heading "Legal Matters" in the Prospectus. In giving
such consent, I do not thereby admit that I am in the category of
persons whose consent is required under Section 7 of the Securi-
ties Act.
Very truly yours,
/s/ Jocelyn F.L. Barandiaran
----------------------------
2
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
ANNTAYLOR STORES CORPORATION:
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 33-52941 of AnnTaylor Stores Corporation on Form S-3
of our report dated March 25, 1994, appearing in the Annual Report on Form 10-K
of AnnTaylor Stores Corporation for the fiscal year ended January 29, 1994, and
to the use of our report dated March 25, 1994, appearing in the Prospectus,
which is part of this Registration Statement. We also consent to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE
New Haven, Connecticut
April 18, 1994
