UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10738
ANNTAYLOR STORES CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3499319
- - ------------------------------ -------------------------------------
(State of 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)
(212) 541-3300
---------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Outstanding as of
Class August 31, 1996
----------------------------- -----------------
Common Stock, $.0068 par value 23,108,417
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INDEX TO FORM 10-Q
Page No.
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters and Six Months Ended
August 3, 1996 and July 29, 1995........................ 3
Condensed Consolidated Balance Sheets at
August 3, 1996 and February 3, 1996..................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended August 3, 1996 and
July 29, 1995........................................... 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Operations..... 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.... 16
Item 6. Exhibits and Reports on Form 8-K....................... 16
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANN TAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Six Months Ended August 3, 1996 and July 29, 1995
(unaudited)
Quarters Ended Six Months Ended
--------------------- -------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
--------- -------- --------- --------
(in thousands except per share amounts)
Net sales $187,862 $183,695 $372,329 $352,001
Cost of sales 107,115 114,869 208,428 206,224
------- ------- ------- -------
Gross profit 80,747 68,826 163,901 145,777
Selling, general and
administrative expenses 70,029 67,233 140,283 129,684
Amortization of goodwill 2,376 2,376 4,753 4,753
------- ------- ------- -------
Operating income (loss) 8,342 (783) 18,865 11,340
Interest expense 6,210 4,468 12,331 8,966
Other income, net (293) (231) (424) (174)
------- ------- -------- -------
Income (loss) before income taxes 2,425 (5,020) 6,958 2,548
Income tax provision (benefit) 1,798 (1,211) 4,519 2,866
------- ------- ------- -------
Net income (loss) $ 627 $(3,809) $ 2,439 $ (318)
======= ====== ======= =======
Net income (loss) per share $ .03 $ (.16) $ .11 $ (.01)
======= ====== ======= =======
Weighted average shares and
share equivalents outstanding 23,237 23,225 23,226 23,337
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
August 3, 1996 and February 3, 1996
August 3, 1996 February 3,1996
-------------- ---------------
(unaudited)
(in thousands)
ASSETS
Current assets
Cash $ 1,287 $ 1,283
Accounts receivable, net 64,112 70,395
Merchandise inventories 99,231 102,685
Prepaid expenses and other current assets 12,473 12,808
Prepaid tenancy 9,075 8,099
Deferred income taxes 3,400 3,400
------- -------
Total current assets 189,578 198,670
Property and equipment
Land and building 8,983 8,923
Leasehold improvements 78,055 73,677
Furniture and fixtures 109,513 99,548
Construction in progress 3,807 14,190
------- -------
200,358 196,338
Less accumulated depreciation and
amortization 53,981 42,443
------- -------
Net property and equipment 146,377 153,895
Goodwill, net of accumulated amortization
of $71,478,000 and $66,725,000,
respectively 308,772 313,525
Investment in CAT 6,198 5,438
Deferred financing costs, net of accumulated
amortization of $2,740,000 and
$1,960,000, respectively 3,216 3,933
Other assets 3,172 3,248
------- -------
Total assets $657,313 $678,709
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 36,112 $ 42,909
Accrued expenses 26,323 29,018
Current portion of long-term debt 26,276 40,266
------- -------
Total current liabilities 88,711 112,193
Long-term debt 135,051 232,192
Deferred income taxes 1,300 1,300
Other liabilities 7,968 7,336
Commitments and contingencies
Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of
AnnTaylor Finance Trust
Holding Solely Convertible Debentures 96,042 ---
Stockholders' equity
Common stock, $.0068 par value;
40,000,000 shares authorized;
23,139,977 and 23,127,743 shares
issued, respectively 157 157
Additional paid-in capital 311,563 311,284
Warrants to acquire 23,182 and
36,605 shares of common stock,
respectively 378 596
Retained earnings 16,502 14,120
Deferred compensation on restricted stock (17) (33)
------- -------
328,583 326,124
Less treasury stock, 31,560 and 44,983
shares, respectively, at cost (342) (436)
------- -------
Total stockholders' equity 328,241 325,688
------- -------
Total liabilities and stockholders'
equity $657,313 $678,709
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended August 3, 1996 and July 29, 1995
(unaudited)
Six Months Ended
------------------------------
August 3, 1996 July 29,1995
-------------- ------------
(in thousands)
Operating activities:
Net income (loss) $ 2,439 $ (318)
Adjustments to reconcile net income
(loss) to net cash provided by
(used by) operating activities:
Equity earnings in CAT (760) (644)
Provision for loss on accounts receivable 835 457
Depreciation and amortization 12,358 9,139
Amortization of goodwill 4,753 4,753
Amortization of deferred financing costs 780 385
Amortization of deferred compensation 16 52
Loss on disposal of property and equipment 220 401
(Increase) decrease in:
Receivables 5,448 (11,619)
Merchandise inventories 3,454 (5,706)
Prepaid expenses and other current assets (641) (6,346)
Increase (decrease) in:
Accounts payable (6,797) 8,800
Accrued expenses (2,695) (5,912)
Other non-current assets and
liabilities, net 707 864
------ ------
Net cash provided by (used by) operating
activities 20,117 (5,694)
Investing activities:
Purchases of property and equipment (5,059) (43,319)
------ ------
Net cash used by investing activities (5,059) (43,319)
Financing activities:
Net (repayments) borrowings under revolving
credit agreement (97,000) 45,000
Payments on mortgage (131) ---
Net proceeds from issuance of Preferred
Securities 95,985 ---
Exercise of stock options 155 282
Net (repayments) borrowings under
receivables facility (14,000) 4,000
Payment of financing costs (63) ---
------- ------
Net cash (used by) provided by financing
activities (15,054) 49,282
Net increase in cash 4 269
Cash, beginning of period 1,283 1,551
------- ------
Cash, end of period $ 1,287 $ 1,820
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for interest $11,395 $ 8,035
======= =======
Cash paid during the period for income taxes $ 3,405 $ 5,915
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
---------------------
The condensed consolidated financial statements are unaudited
but, in the opinion of management, contain all adjustments (which
are of a normal recurring nature) necessary to present fairly the
financial position, results of operations and cash flows for the
periods presented. All significant intercompany accounts and
transactions have been eliminated.
The results of operations for the 1996 interim period shown in
this report are not necessarily indicative of results to be
expected for the fiscal year.
The February 3, 1996 condensed consolidated balance sheet
amounts have been derived from the previously audited
consolidated balance sheet of AnnTaylor Stores Corporation.
Certain fiscal 1995 amounts have been reclassified to conform
to the 1996 presentation.
The financial information set forth herein should be read in
conjunction with the Notes to the Company's Consolidated
Financial Statements contained in the AnnTaylor Stores
Corporation 1995 Annual Report to Stockholders.
2. Income Per Share
----------------
Net income per share is calculated by dividing net income by
the total of the weighted average number of common shares and
common share equivalents outstanding, assuming the exercise of
outstanding warrants and the dilutive effect of outstanding stock
options, computed in accordance with the treasury stock method.
The number of shares used in the calculation was as follows:
Quarters Ended Six Months Ended
------------------- ------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
-------- -------- -------- -------
(in thousands)
Common shares 23,097 23,057 23,091 23,051
Warrants 32 52 34 54
Stock options 108 116 101 232
------ ------ ------ ------
23,237 23,225 23,226 23,337
====== ====== ====== ======
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<PAGE> 7
Fully diluted income per share, assuming the conversion into
common stock of the 8-1/2% Convertible Trust Originated Preferred
Securities described below, is not presented for the quarter and
six months ended August 3, 1996 due to the anti-dilutive effect
of the assumed conversion.
3. Long-Term Debt
--------------
The following summarizes long-term debt outstanding at August
3, 1996:
(in thousands)
Revolving Credit Facility.......... $ 4,000
Term Loan.......................... 24,500
8-3/4% Notes....................... 100,000
Receivables Facility............... 26,000
Mortgage........................... 6,827
-------
Total debt...................... 161,327
Less current portion............... 26,276
-------
Total long-term debt............ $135,051
========
On April 25, 1996, the Company completed the sale (the
"Initial Sale"), in a private placement, of $87,500,000 8-1/2%
Convertible Trust Originated Preferred Securities ("Preferred
Securities") issued by its financing vehicle, AnnTaylor Finance
Trust, a Delaware business trust (the "Trust"). On May 17, 1996,
the Trust, a wholly-owned subsidiary of the Company, issued an
additional $13,125,000 of Preferred Securities pursuant to the
exercise of an over-allotment option (the "Over-allotment Sale")
granted to the placement agents in connection with the Initial
Sale. The Preferred Securities have a liquidation preference of
$50 per security ($100,625,000 in the aggregate) and are
convertible at the option of the holders thereof into the
Company's common stock at a conversion rate of 2.545 shares of
common stock for each Preferred Security (equivalent to $19.65
per share of common stock, which represented a 20% premium to the
$16.375 closing price of the common stock on the New York Stock
Exchange at the date of the execution of the purchase agreement
relating to the sale of the Preferred Securities). The sole
assets of the Trust are $103,700,000 of 8-1/2% Convertible
Subordinated Debentures of the Company maturing on April 15,
2016. A total of 2,012,500 Preferred Securities were issued, and
are convertible into an aggregate of 5,121,812 shares of common
stock.
The sale of the Preferred Securities enabled the Company to
pay down $94,000,000 of outstanding borrowings under its
revolving credit facility, without reduction of the commitment
thereunder.
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<PAGE> 8
4. CAT/Cygne Transaction
----------------------
In Fiscal 1995, the Company purchased approximately 16% of its
merchandise directly from Cygne Designs, Inc. ("Cygne") and an
additional 38% of its merchandise through the Company's direct
sourcing joint venture with Cygne known as CAT. In April 1996,
the Company announced that it had entered into an agreement in
principle, dated as of April 8, 1996, pursuant to which the
Company will purchase from Cygne all the shares of CAT owned by
Cygne and the assets of the Ann Taylor Woven Division of Cygne
that are used in sourcing merchandise for the Company (the
"CAT/Cygne Transaction"). On June 7, 1996 the Company and its
wholly owned subsidiary AnnTaylor, Inc. ("Ann Taylor") entered
into a definitive purchase agreement (the "Purchase Agreement")
with Cygne and its wholly owned subsidiary Cygne Group (F.E.)
Limited, providing for the CAT/Cygne Transaction. The Purchase
Agreement was amended by the parties on August 27, 1996.
Pursuant to the Purchase Agreement, as amended, the purchase
price for Cygne's interest in CAT and the Ann Taylor Woven
Division assets will consist of (i) shares of common stock of the
Company having an aggregate value, based on the market price of
the Company's common stock for the ten trading days prior to the
closing of the transaction, of $36,000,000 (provided that the
Company will not be required to issue more than 2.5 million
shares, unless the aggregate value of 2.5 million shares at
closing is less than $32,500,000, in which case the Company will
issue shares of common stock having an aggregate value of
$32,500,000, but not more than 3.0 million shares); and (ii) cash
in an amount equal to the tangible net book value of the fixed
assets (but not to exceed $2,646,000), plus the tangible net book
value of the inventory of the Ann Taylor Woven Division, less the
amount of certain liabilities of the Division to be assumed by
Ann Taylor. At Ann Taylor's option, it may deliver cash in lieu
of some or all of any shares issuable in excess of 2.5 million
shares. The Company will also pay cash in respect of an
obligation under an existing employment agreement with CAT. The
Company has agreed to register the shares to be issued to Cygne
for resale, although Cygne is subject to certain restrictions on
the timing of sales and the amount of shares which can be sold at
any one time.
The Purchase Agreement, as amended, provides that Cygne may
terminate the agreement if the aggregate value of the Company's
common stock to be issued at closing, including any additional
shares issuable or additional cash payable under the amendment,
is less than $32,500,000, and that either party may terminate the
agreement if the closing has not occurred by September 30, 1996.
The Company received the consent of its lenders to the
transaction contemplated by the original Purchase Agreement, and
is currently seeking lender approval of the amendment to the
Purchase Agreement. CAT has received a written commitment for
the continuation of CAT's existing $40,000,000 credit facility.
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<PAGE> 9
The closing of the CAT/Cygne Transaction is subject to various
conditions, including (i) the approval of the transaction by
Cygne's stockholders and (ii) the consent and release of liens by
certain lenders to Cygne. It is currently anticipated that the
transaction will close in September 1996 following approval by
Cygne's stockholders. There can be no assurance, however, that
the conditions referred to above will be satisfied, that the
transaction will be consummated or, if consummated, that it will
be consummated within the currently anticipated time frame.
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<PAGE> 10
Item 2. Management's Discussion and Analysis of Operations
---------------------------------------------------
Results of Operations
- - ---------------------
Quarters Ended Six Months Ended
----------------- ------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
--------- -------- -------- -------
Number of Stores:
Open at beginning of period........ 307 275 306 262
Opened during period................ 1 14 5 29
Expanded during period*............. 1 5 1 17
Closed during period................ 2 --- 5 2
Open at end of period............... 306 289 306 289
Type of Stores Open at End of Period:
AnnTaylor Stores................. 257 247
AnnTaylor Factory Stores......... 23 23
AnnTaylor Loft stores............ 17 11
AnnTaylor Studio stores.......... 9 8
- - --------------------
* Expanded stores are excluded from comparable store sales for
the first year following expansion.
Quarter Ended August 3, 1996 Compared to Quarter Ended July 29, 1995
- - ----------------------------------------------------------------------
The Company's net sales in the second quarter of 1996
increased to $187,862,000 from $183,695,000 in the second quarter
of 1995, an increase of $4,167,000 or 2.3%. The increase in net
sales was primarily attributable to the 24 new stores opened and
the 14 existing stores expanded since the end of the second
quarter of 1995, partially offset by the closing of 7 stores
since the end of the second quarter of 1995 and by an 8.7%
decrease in comparable store sales in the second quarter of 1996.
Management believes that the decrease in comparable store sales
was due primarily to the Company's lower inventory position
during the period; during the second quarter of 1996, inventories
were on average approximately 20% lower on a per square foot
basis compared to the same period of the prior fiscal year.
Gross profit as a percentage of net sales increased to 43.0%
in the second quarter of 1996 from 37.5% in the second quarter of
1995. This increase was attributable to decreased cost of goods
sold as a percentage of net sales, primarily resulting from lower
markdowns.
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<PAGE> 11
Selling, general and administrative expenses were $70,029,000,
or 37.3% of net sales in the second quarter of 1996, compared to
$67,233,000, or 36.6% of net sales in the second quarter of 1995.
The increase in expense was primarily attributable to increased
retail square footage, which at quarter end was 15.6% higher than
at the end of the second quarter of 1995. The operating expense
rate as a percentage of sales increased primarily as a result of
decreased leverage on fixed expenses as a result of negative
comparable store sales, and higher expense rates in new
retail square footage, partially offset by increased productivity
in selling expenses and the suspension of our mail order catalog.
As a result of the foregoing, the Company had operating income
of $8,342,000, or 4.4% of net sales, in the second quarter of
1996, compared to an operating loss of $783,000, or (0.4)% of net
sales, in the second quarter of 1995. Amortization of goodwill
was $2,376,000 in the second quarter of both 1996 and 1995.
Operating income, without giving effect to such amortization in
either year, was $10,718,000, or 5.7% of net sales, in the 1996
period and $1,593,000, or 0.9% of net sales, in the 1995 period.
Interest expense was $6,210,000 in the second quarter of 1996
and $4,468,000 in the second quarter of 1995. The increase in
interest expense is attributable to higher interest rates
applicable to the Company's debt obligations and higher
outstanding indebtedness in 1996.
The income tax provision was $1,798,000, or 74.1% of income
before income taxes, in the second quarter of 1996 compared to an
income tax benefit of $1,211,000 or 24.1% of loss before income
taxes in the second quarter of 1995. The effective income tax
rate for both periods differed from the statutory rate primarily
as a result of non-deductible goodwill amortization.
As a result of the foregoing factors, the Company had net
income of $627,000, or 0.3% of net sales, for the second quarter
of 1996 compared to a net loss of $3,809,000, or (2.1)% of net
sales, for the second quarter of 1995.
AnnTaylor Stores Corporation conducts no business other than
the management of Ann Taylor.
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<PAGE> 12
Six Months Ended August 3, 1996 Compared to Six Months Ended July 29, 1995
- - --------------------------------------------------------------------------
The Company's net sales in the first six months of 1996
increased to $372,329,000 from $352,001,000 in the first six
months of 1995, an increase of $20,328,000 or 5.8%. The increase
in net sales was primarily attributable to the 24 new stores
opened and the 14 existing stores expanded since the end of the
second quarter of 1995, partially offset by the closing of 7
stores since the end of the second quarter of 1995 and by a 7.4%
decrease in comparable store sales in the first half of 1996.
Management believes that the decrease in comparable store sales
was due primarily to the Company's lower inventory position
during the period; during the first half of 1996, inventories
were on average approximately 24% lower on a per square foot
basis compared to the same period of the prior fiscal year.
Gross profit as a percentage of net sales increased to 44.0%
in the first six months of 1996 from 41.4% in the first six
months of 1995. This increase was attributable to the decreased
cost of goods sold as a percentage of net sales, primarily
resulting from lower markdowns.
Selling, general and administrative expenses were
$140,283,000, or 37.7% of net sales in the first six months of
1996, compared to $129,684,000, or 36.8% of net sales in the
first six months of 1995. The increase in expense was primarily
attributable to increased retail square footage, which at quarter
end was 15.6% higher than at the end of the second quarter of
1995. The operating expense rate as a percentage of sales
increased primarily as a result of decreased leverage on fixed
expenses as a result of negative comparable store sales, and
higher expense rates in new retail square footage, partially offset
by increased productivity in selling expenses and the suspension of
our mail order catalog.
As a result of the foregoing, operating income increased to
$18,865,000, or 5.1% of net sales, in the first six months of
1996, from $11,340,000, or 3.2% of net sales, in the first six
months of 1995. Amortization of goodwill was $4,753,000 in the
first six months of 1996 and 1995. Operating income, without
giving effect to such amortization in either year, was
$23,618,000, or 6.3% of net sales, in the 1996 period and
$16,093,000, or 4.6% of net sales, in the 1995 period.
Interest expense was $12,331,000 in the first six months of
1996 and $8,966,000 in the first six months of 1995. The
increase in interest expense is primarily attributable to higher
interest rates applicable to the Company's debt obligations and
higher outstanding indebtedness in 1996.
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<PAGE> 13
The income tax provision was $4,519,000, or 64.9% of income
before income taxes in the 1996 period, compared to $2,866,000,
or 112.5% of income before income taxes in the 1995 period. The
effective income tax rate for both periods was higher than the
statutory rate primarily as a result of non-deductible goodwill
amortization.
As a result of the foregoing factors, the Company had net
income of $2,439,000 or 0.7% of net sales for the first six
months of 1996 compared to a net loss of $318,000 or (0.1)% of
net sales for the first six months of 1995.
Financial Condition
- - -------------------
For the first six months of 1996, net cash provided by
operating activities totaled $20,117,000, primarily as a result
of net income and non-cash operating expenses. Cash used for
investing activities during the first six months of 1996 amounted
to $5,059,000, for the purchase of property and equipment. Cash
used by financing activities during the first six months of 1996
amounted to $15,054,000, primarily as a result of repayments of
amounts outstanding under the revolving credit agreement and the
receivables facility, partially offset by net proceeds from the
issuance of Preferred Securities.
Accounts receivable decreased to $64,112,000 at August 3, 1996
from $70,395,000 at February 3, 1996, a decrease of $6,283,000 or
8.9%. This decrease was primarily attributable to lower
construction allowance receivables outstanding, which decreased
$4,187,000, and Ann Taylor credit card receivables which
decreased approximately $3,523,000.
Merchandise inventories were $99,231,000 at August 3, 1996,
compared to inventories of $102,685,000 at February 3, 1996.
Total square footage increased to 1,667,000 square feet at August
3, 1996 from 1,651,000 square feet at February 3, 1996.
At August 3, 1996, borrowings of $4,000,000 were outstanding
under the revolving credit agreement and $26,000,000 were
outstanding under AnnTaylor Funding, Inc.'s receivables facility.
Ann Taylor can borrow up to $122,000,000 under the revolving
credit agreement and AnnTaylor Funding, Inc. can borrow up to
$40,000,000 under the receivables facility, depending upon its
accounts receivable balance. The receivables facility matures in
January 1997. The Company expects to negotiate an extension of
the maturity of this facility.
=============================================================================
<PAGE> 14
On April 25, 1996, the Company completed the sale of
$87,500,000 of Preferred Securities issued by its financing
vehicle, AnnTaylor Finance Trust. On May 17, 1996, the Trust
issued an additional $13,125,000 of Preferred Securities pursuant
to the exercise of an over-allotment option granted to the
placement agents in connection with the Initial Sale. The
Preferred Securities have a liquidation preference of $50 per
security and are convertible at the option of the holders thereof
into common stock at a conversion rate of 2.545 shares of common
stock for each Preferred Security. A total of 2,012,500
Preferred Securities were issued, and are convertible into an
aggregate of 5,121,812 shares of common stock, representing
approximately 22% of the outstanding common stock as of May 31,
1996. The sale of the Preferred Securities enabled the Company
to pay down $94,000,000 of outstanding borrowings under its
revolving credit facility, without reduction of the commitment
thereunder.
The Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation and
refurbishment programs, totaled $5,059,000 in the first six
months of 1996. The Company now expects to open a total of nine
new Ann Taylor Stores, one Ann Taylor Loft Store and one Ann
Taylor Factory Store and to expand seven existing Ann Taylor
Stores, in fiscal 1996. Total capital expenditures for 1996,
including capital expenditures for this store expansion program,
are expected to be approximately $16,000,000.
Dividends and distributions from Ann Taylor to the Company are
restricted by the Bank Credit Agreement, the Receivables Facility
and the Indenture for the 8-3/4% Notes (the "Indenture"). The
payment of cash dividends by the Company on its capital 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.
Distributions on the Preferred Securities accrue from the date
of the original issuance of the Preferred Securities and are
payable at the annual rate of 8-1/2% of the liquidation amount
of $50 per Preferred Security. Subject to certain distribution
deferral provisions, distributions on the Preferred Securities
are payable quarterly in arrears on each January 15, April 15,
July 15 and October 15, commencing July 15, 1996. Payment of
distributions on the Preferred Securities by the Trust is
dependent upon receipt of payment of interest by the Company on
its 8-1/2% Convertible Subordinated Debentures held by the Trust.
The Company's ability to make such interest payments is dependent
upon its receipt of dividends or other distributions from Ann
Taylor. As indicated above, the payment of dividends and
distributions from Ann Taylor to the Company is subject to
certain restrictions contained in the Bank Credit Agreement and
the Indenture. The Company currently believes that Ann Taylor
=============================================================================
<PAGE> 15
will be able to make such distributions to the Company in the
foreseeable future within the limitations set forth in the
Indenture. In addition, provided that Ann Taylor is not then in
default under the Bank Credit Agreement at the time of any such
distribution, the lenders under the Bank Credit Agreement have
consented to quarterly distributions by Ann Taylor to the Company
equal to the amount of interest due on the Convertible
Subordinated Debentures.
In order to finance its operations and capital requirements,
the Company expects to use internally generated funds, trade
credit, and funds available under the revolving credit facility
and the receivables facility. The Company believes that cash
flow from operations and funds available under the revolving
credit facility and the receivables facility are sufficient to
enable it to meet its ongoing cash needs for the foreseeable
future.
=============================================================================
<PAGE> 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
As reported in the Company's Quarterly Report on Form 10Q for
the fiscal quarter ended May 4, 1996, at the Company's Annual
Stockholders Meeting held on June 14, 1996, Ms. Sally Frame
Kasaks and Mr. James J. Burke, Jr. were reelected as Class I
Directors of the Company, for terms expiring in 1999, and the
appointment of Deloitte & Touche llp as the Company's independent
accountants for the 1996 fiscal year was ratified by the
Company's stockholders. On August 23, 1996, the Company
announced that Sally Frame Kasaks had resigned her positions as
Officer and Director of the Company and its subsidiaries.
A Special Meeting of the Company's stockholders was held on
August 15, 1996 to approve and ratify the financing transaction
pursuant to which the $100,625,000 8-1/2% Convertible Trust
Originated Preferred Securities were issued (the "Financing
Transaction"). At the Special Meeting, 15,200,945 shares were
voted in favor of approval and ratification of the Financing
Transaction, 95,914 shares were voted against and 66,747 shares
abstained from voting on the transaction. Accordingly, the
Financing Transaction was approved and ratified by the
stockholders of the Company.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits:
10.1 Second Amendment to the Amended and Restated
Credit Agreement, dated as of April 9, 1996
among AnnTaylor, Bank of America National
Trust and Savings Association and Fleet Bank,
National Association, as Co-Agents, the
financial institutions from time to time
party thereto, BA Securities Inc. as
Arranger, and Bank of America as Agent.
10.2 Amendment No. 1 to the Amended and Restated
Declaration of Trust of AnnTaylor Finance
Trust, dated as of August 27, 1996, between
AnnTaylor Stores Corporation and Bank of New
York, as Trustee.
=============================================================================
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K:
The Company filed a report with the Commission on
Form 8-K dated June 10, 1996 with respect to the
execution by the Company and Ann Taylor of a
definitive purchase agreement with Cygne and its
wholly owned subsidiary Cygne Group (F.E) Limited,
providing for the Company's previously announced
proposed acquisition of Cygne's interest in the
Company's direct sourcing joint venture with Cygne
and the assets of the Ann Taylor Woven Division of
Cygne that sources merchandise for Ann Taylor.
The Company filed a report with the Commission on
Form 8-K dated June 21, 1996 which provided
combined Financial Statements of CAT US, Inc. and
C.A.T. (Far East) Limited and subsidiary and the
AnnTaylor Woven Division of Cygne as of February 3,
1996 and January 28, 1995 and for the two years
ended February 3, 1996, and ATSC and acquired
companies unaudited Historical and Proforma
combined Financial Statements as of May 4, 1996 and
for the quarter then ended.
The Company filed a report with the Commission on
Form 8-K dated August 29, 1996 with respect to (i)
the resignation of Sally Frame Kasaks as the Company's
Chairman and Chief Executive Officer and the
promotion of J. Patrick Spainhour from President and
Chief Operating Officer to Chairman and Chief
Executive Officer, (ii) the amendment of the Stock
and Asset Purchase Agreement among AnnTaylor Stores
Corporation, AnnTaylor, Inc., Cygne Designs, Inc.
and Cygne Group (F.E.) Limited, and (iii)
preliminary unaudited pro forma financial
information for the Company, CAT U.S., Inc., C.A.T.
(Far East) Limited and the AnnTaylor Woven Division
of Cygne on a combined basis for the six months
ended August 3, 1996.
=============================================================================
<PAGE> 18
SIGNATURES
----------
Pursuant to the requirements 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
Date: September 16, 1996 By: /s/ Paul E. Francis
-------------------- -----------------------------
Paul E. Francis
Executive Vice President -
Finance and Administration
(Chief Financial Officer)
Date: September 16, 1996 By: /s/ Walter J. Parks
-------------------- ------------------------------
Walter J. Parks
Senior Vice President - Finance
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statements of operations and condensed consolidated
balance sheets and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000874214
<NAME> ANN TAYLOR STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-3-1996
<CASH> 1,287
<SECURITIES> 0
<RECEIVABLES> 64,827
<ALLOWANCES> 715
<INVENTORY> 99,231
<CURRENT-ASSETS> 189,578
<PP&E> 200,358
<DEPRECIATION> 53,981
<TOTAL-ASSETS> 657,313
<CURRENT-LIABILITIES> 88,711
<BONDS> 100,000
0
0
<COMMON> 157
<OTHER-SE> 328,084
<TOTAL-LIABILITY-AND-EQUITY> 657,313
<SALES> 372,329
<TOTAL-REVENUES> 372,329
<CGS> 208,428
<TOTAL-COSTS> 208,428
<OTHER-EXPENSES> 144,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,331
<INCOME-PRETAX> 6,958
<INCOME-TAX> 4,519
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,439
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
SECOND AMENDMENT, dated as of April 9, 1996 (this
"Amendment"), to and of the AMENDED AND RESTATED CREDIT
---------
AGREEMENT, dated as of September 29, 1995 (as amended,
supplemented or modified from time to time, the "Credit
------
Agreement"), among ANNTAYLOR, INC., a Delaware corporation (the
- - ---------
"Borrower"), each other financial institution signatory hereto as
--------
a Lender and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION in its separate capacity as administrative agent for
the Lenders hereunder (in such capacity, the "Agent").
-----
W I T N E S S E T H :
---------------------
WHEREAS, ATSC intends to participate in the preferred
stock transaction described in Schedule 1 hereto and the Borrower
intends to acquire the shares of CAT U.S. Inc. and C.A.T. (Far
East) Ltd. not already owned by it, and certain other assets, as
described in Schedule 2 hereto;
WHEREAS, the Borrower has asked the Lenders to amend
certain provisions to the Credit Agreement;
WHEREAS, the Lenders are willing to so amend the Credit
Agreement but only on and subject to the terms and conditions
hereof;
NOW, THEREFORE, in consideration of the premises and
mutual agreements contained herein and for other valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined
-------------
herein, terms defined in the Credit Agreement are used herein as
therein defined.
Section 2. Amendment of Section 1.01 (Certain Defined
------------------------------------------
Terms).
- - -------
(a) Section 1.01 of the Credit Agreement is hereby
amended by deleting the definitions "Cash Interest Expense",
---------------------
"Funded Debt" and "Unrestricted Subsidiary" appearing in such
----------- -----------------------
subsection and substituting therefor the following new
definitions:
"`Cash Interest Expense' shall mean, for any period,
---------------------
without duplication, (i) all Interest Expense for such
period payable in cash (other than in respect of the
Convertible Debentures) and (ii) all interest actually paid
in cash during such period in respect of the Convertible
Debentures."
"`Funded Debt' shall mean, as at any date of
-----------
determination, all indebtedness then outstanding (a) for the
principal of Loans under this Agreement, (b) for money
borrowed or under any debt Securities issued by ATSC (other
than the Convertible Debentures), the Borrower or any
Restricted Subsidiary (whether or not subordinated, and
specifically including the Subordinated Notes), (c) any
unreimbursed drawings under letters of credit issued for the
account of ATSC, the Borrower or any Restricted Subsidiary
and (d) the principal of loans under, and unreimbursed
drawings under letters of credit issued under, the CAT
Facility.
"`Unrestricted Subsidiary' shall mean a Subsidiary
-----------------------
of the Borrower which has been designated as such by
resolution duly adopted by the board of directors of the
Borrower, which at the time of such designation had assets
of $1,000 or less and which does not own or hold any
Securities of, or any Lien on any Property of, ATSC, the
Borrower or any Restricted Subsidiary provided no Subsidiary
--------
of the Borrower shall be (or if already an Unrestricted
Subsidiary shall immediately cease to be) an Unrestricted
Subsidiary if, at any time, ATSC, the Borrower or any other
Restricted Subsidiary of the Borrower shall create, incur,
issue, assume, guarantee or in any other manner whatsoever
be or become liable with respect to any Claim against or any
Contractual Obligation or Indebtedness of, such Subsidiary,
and provided further that CAT U.S. Inc., C.A.T. (Far East)
--------
Ltd and any Subsidiary of either thereof shall each be
Unrestricted Subsidiaries, notwithstanding the existence of
the CAT Facility Guarantee."
(b) Section 1.01 of the Credit Agreement is further
amended by inserting, in correct alphabetical order, the
following new definitions:
"`CAT' shall mean CAT U.S. Inc. and C.A.T. (Far East)
---
Ltd., collectively or, when the context permits, either of
such entities."
"`CAT Acquisition' shall mean the acquisition by the
---------------
Borrower of the shares of CAT U.S. Inc. and C.A.T. (Far
East) Ltd. not already owned by it, as described in
Schedule 2 to the Second Amendment."
"'CAT Facility' shall mean the $40,000,000 credit
------------
facility made available to C.A.T. (Far East) Ltd. by
Hongkong and Shanghai Banking Corporation or any refinancing
or replacement thereof satisfactory to the Requisite
Lenders."
"`CAT Facility Guarantee' shall mean the guarantee, in
----------------------
form and substance satisfactory to the Requisite Lenders, to
be made by the Borrower in respect of the CAT Facility,
which guarantee shall be subordinated to the Obligations on
terms satisfactory to the Requisite Lenders."
"`Convertible Debentures' shall mean the convertible
----------------------
debentures described in Schedule 1 to the Second Amendment."
"`Cygne Assets' shall mean the Cygne Assets described
------------
in Schedule 2 to the Second Amendment."
"`Declaration of Trust' shall mean the declaration of
--------------------
trust described in Schedule 1 to the Second Amendment."
"`Second Amendment' shall mean the Second Amendment,
----------------
dated as of April 9, 1996, to this Agreement."
"`Specified Preferred Stock' shall mean the preferred
-------------------------
stock described in Schedule 1 to the Second Amendment.
"`Specified Stock Guarantee' shall mean the Guarantee
-------------------------
described in Schedule 1 to the Second Amendment."
"`Specified Preferred Stock Issuer' shall mean the
--------------------------------
preferred stock issuer described in Schedule 1 to the Second
Amendment."
Section 3. Amendment to Section 2.02. Section 2.02 of
-------------------------
the Credit Agreement is hereby amended by adding the following
new paragraph (h) after paragraph (g) thereof:
(h) Notwithstanding any other provision of this
Agreement, the portion of the Revolving Loan Commitments
equal to the principal amount of Revolving Loans prepaid
upon issuance of the Specified Preferred Stock as provided
in the Second Amendment may not be utilized for Loans or
Letters of Credit for a period of 15 days from the date of
such prepayment.
Section 4. Amendment to Section 6.01 (Financial
------------------------------------
Statements). (a) Section 6.01 of the Credit Agreement is hereby
- - ----------
amended by deleting paragraph (c) thereof in its entirety and
substituting therefor the following new paragraph (c).
"(c) As soon as practicable, and in any event within
45 days after the end of each Fiscal Year, (i) on a
consolidated basis for ATSC, the Borrower and its
Subsidiaries, and (ii) on a consolidated basis for CAT,
detailed financial projections for the next succeeding
Fiscal Year, including a written explanation of the
principal assumptions made with respect thereto;"
(b) Section 6.01 of the Credit Agreement is hereby
further amended by (i) deleting "and" at the end of clause (n)
thereof, (ii) deleting "." at the end of clause (o) thereof and
substituting "; and" in lieu thereof, and (iii) adding the
following new clause (p):
"(p) As soon as practicable, and in any event
within 30 days of the end of each fiscal month:
(i) on a consolidated basis for
ATSC, the Borrower and its Restricted Subsidiaries, a
balance sheet, income statement and cash flow statement
for such fiscal month and for the portion of the fiscal
year ended with such month, all certified by a
Responsible Officer;
(ii) the actual financial results
for such month and for the portion of the fiscal year
ended with such month, compared against the financial
projections delivered pursuant to Section 6.01(c), with
a discussion by a Responsible Officer of any
discrepancies;
(iii) the store-by-store financials
for such month and for the portion of the fiscal year
ended with such month, including cash flows and 4-wall
contributions;
(iv) a detailed analysis of actual
Capital Expenditures and commitments for such month and
for the portion of the fiscal year ended with such
month;
(v) after the CAT Acquisition, a
balance sheet, income statement and cash flow statement
of CAT for such month and for the portion of the fiscal
year ended with such month.
Section 5. Amendment to Section 7.01 (Corporate
------------------------------------
Existence, Etc.) Section 7.01 of the Credit Agreement is hereby
- - --------------
amended by deleting such subsection and substituting therefor the
following new Section 7.01:
"7.01 Corporate Existence, Etc. The Borrower
-------------------------
shall, and shall cause ATSC and each of its Subsidiaries to,
at all times maintain its corporate existence and preserve
and keep in full force and effect its rights and franchises
except as permitted under Section 8.08; provided, that ATSC
------------ --------
may liquidate the Specified Preferred Stock Issuer under the
terms and subject to the conditions specified in the
Declaration of Trust."
Section 6. Amendments to Article VIII 8 (Negative
---------------------------------------
Covenants).
- - ---------
(a) Section 8.01 (Indebtedness) of the Credit
------------
Agreement is hereby amended by (i) deleting the text of clause
(j) thereof and substituting in lieu thereof the words
"[Reserved]", (ii) deleting "and" at the end of clause (l)
thereof, (iii) deleting "." at the end of clause (m) thereof and
substituting ";" in lieu thereof, and (iv) adding the following
new clauses (n) and (o):
"(n) Indebtedness of ATSC under the Convertible
Debentures and under the Specified Stock Guarantee; and
(o) Indebtedness of the Borrower (i) arising from the
assumption by it of capitalized lease obligations, in an
aggregate amount of approximately $1,000,000, in connection
with the CAT Acquisition and (ii) under the CAT Facility
Guarantee."
(b) Section 8.02(a) (Sales of Assets) of the Credit
---------------
Agreement is hereby amended by deleting clause (vii) thereof and
substituting in lieu thereof the following new clause (vii):
"(vii) transfers by the Borrower, or a Subsidiary of
the Borrower, of the Cygne Assets to CAT or a subsidiary of
CAT in connection with the CAT Acquisition, free and clear
of all liens in favor of the Agent and the Lenders;"
(c) Section 8.03 (Investments) of the Credit Agreement
-----------
is hereby amended by (i) deleting clauses (i), (j) and (k)
thereof and substituting in lieu thereof the following new
clauses (i) through (n):
"(i) prior to the CAT Acquisition, Investments by the
Borrower in the CAT Joint Venture pursuant to the CAT Joint
Venture Agreement in the form of (i) capital stock, (ii)
advances made to the CAT Joint Venture not to exceed
$5,000,000 in the aggregate outstanding at any time and
(iii) one or more Letters of Credit issued in respect of
obligations of the CAT Joint Venture;
(j) Investments in the form of advance payments to
suppliers not in excess of an aggregate amount of (i) prior
to the CAT Acquisition, $10,000,000 outstanding at any one
time and (ii) after the CAT Acquisition, $3,000,000
outstanding at any one time;
(k) Investments in the form of (i) the CAT
Acquisition, (ii) Letters of Credit issued for the account
of the Borrower in respect of obligations of CAT arising in
the ordinary course of the business of CAT as conducted on
the date of the Second Amendment (and after giving effect to
any acquisition of the Cygne Assets) and in an aggregate
undrawn and unreimbursed amount at any time outstanding not
exceeding $20,000,000, and (iii) other Investments in CAT in
an aggregate amount not to exceed $2,000,000 at any time
outstanding;
(l) Investments by ATSC in the Specified Preferred
Stock Issuer in an amount not to exceed 3% of the aggregate
total equity of the Specified Preferred Stock Issuer;
(m) Investments by ATSC in the Specified Preferred
Stock Issuer arising out of payments made under the
Specified Stock Guarantee; and
(n) other Investments by the Borrower not in excess of
an aggregate amount of $500,000 outstanding at any one
time."
(d) Section 8.04 (Accommodation Obligations) of the
-------------------------
Credit Agreement is hereby amended by deleting paragraph (e) of
such subsection and substituting therefor the following new
paragraph (e):
"(e) Accommodation Obligations arising in connection
with (i) prior to the CAT Acquisition, the Borrower's
agreement to provide the CAT Joint Venture with one or more
Letters of Credit issued for the benefit of the CAT Joint
Venture pursuant to the CAT Joint Venture Agreement to the
extent permitted by Section 8.03(i) , (ii) arrangements
---------------
similar to those described in the foregoing clause (i) for
the benefit of other joint ventures, and (iii) from and
after the CAT Acquisition, the CAT Facility Guarantee;
provided, that the Borrower shall not enter into any
--------
amendment, waiver, supplement or other modification to any
document relating to such guarantee without the written
consent of the Agent and the Requisite Lenders;"
(e) Section 8.04 (Accommodation Obligations) of the
-------------------------
Credit Agreement is further amended by (i) deleting "." at the
end of clause (f) thereof and substituting "; and" in lieu
thereof, and (ii) adding the following new clause (g):
"(g) guarantee obligations of ATSC arising in
connection with the Specified Stock Guarantee."
(f) Section 8.05 (Restricted Payments) of the Credit
-------------------
Agreement is hereby amended by (i) deleting "and" at the end of
clause (d) thereof, (ii) deleting "." at the end of clause (e)
thereof and substituting ";" in lieu thereof, and (iii) adding
the following new clauses (f), (g) and (h):
"(f) scheduled payments of dividends on Specified
Preferred Stock; provided, that the Borrower will cause
--------
the Specified Preferred Stock Issuer to exercise its
right to defer payments of dividends at any time when
an Event of Default or Potential Event of Default shall
have occurred and be continuing or would result from
the payment of such dividends;
(g) dividends paid and declared by the Borrower
to ATSC to the extent necessary to pay interest under
the Convertible Debentures; provided, that (i) no such
--------
dividend shall be declared or paid at any time when an
Event of Default or Potential Event of Default shall
have occurred and be continuing or would result from
the payment of such dividends, and at any such time the
Borrower will cause ATSC to exercise its right to defer
payment of such interest and (ii) such dividends shall
not be paid prior to the due date of the corresponding
interest payment on the Convertible Debentures;" and
(h) dividends paid and declared by the Borrower to
ATSC up to the amount of the Investment by ATSC in the
Specified Preferred Stock Issuer, no earlier than the date
of such Investment.
(g) Section 8.08 (Restrictions on Fundamental Changes)
-----------------------------------
of the Credit Agreement is hereby amended by deleting paragraph
(a) of such subsection and substituting therefor the following
new paragraph (a):
"(a) The Borrower shall not, and shall not permit any
Restricted Subsidiary to, enter into any merger or
consolidation, or liquidate, wind-up or dissolve (or suffer
any liquidation or dissolution), discontinue its business or
convey, lease, sell, transfer or otherwise dispose of, in
one transaction or series of transactions, all or any
substantial part of its business or Property, whether now or
hereafter acquired, except (i) as otherwise permitted under
Section 8.02(a), (ii) that any Restricted Subsidiary may
---------------
merge into or convey, sell, lease or transfer all or
substantially all of its assets to, the Borrower or any
other Restricted Subsidiary, (iii) that nothing contained
herein shall prohibit the Borrower from dissolving or
liquidating any Subsidiary if in the reasonable opinion of
the Borrower's senior management such dissolution or
liquidation has no reasonable likelihood of having a
Material Adverse Effect and (iv) that ATSC may liquidate the
Specified Preferred Stock Issuer under terms and subject to
conditions specified in the Declaration of Trust."
(h) Section 8.15 (Capital Expenditures) is hereby
--------------------
amended by inserting the words "and shall not permit CAT or any
Restricted Subsidiary to" after the words "The Borrower shall
not" at the beginning of the first two sentences thereof.
(i) Section 8 (Negative Covenants) is further amended
------------------
by inserting the following Section 8.16 at the end thereof:
"8.16 Specified Preferred Stock. The Borrower shall
-------------------------
not permit any amendment or other modification of the terms
and conditions of the Specified Preferred Stock, the
Declaration of Trust or the Convertible Debentures, other
than any such amendment or other modification which the
Requisite Lenders (acting reasonably) determine not to be
adverse to their interests hereunder. The Borrower shall
not permit the Preferred Stock Issuer to own assets, incur
any liability or engage in any business other than as
expressly described in Schedule 1 to the Second Amendment.
Section 7. Amendments to Article X (Events of
----------------------------------
Default). Paragraphs (e), (f) and (g) of Section 10.01 are
- - -------
hereby amended to insert the words "or CAT" following the words
"Restricted Subsidiary" wherever such words appear in such
provisions.
Section 8. No Pledge Required. The obligation of ATSC
------------------
to pledge its interest in the Specified Preferred Stock Issuer is
hereby waived.
Section 9. Conditions Precedent. This Amendment shall
--------------------
become effective as of the date (the "Amendment Effective Date")
-------------------------
on which each of the conditions precedent set forth below shall
have been fulfilled to the satisfaction of the Requisite Lenders
and the Agent:
(a) Amendment. The Agent shall have received
---------
counterparts of this Amendment, duly executed by the
Borrower, the Requisite Lenders and the Agent.
(b) Amendment Fee. The Agent shall have received from
-------------
the Borrower an Amendment Fee of $25,000 for pro rata the
--- ----
account of the Lenders.
(c) No Default or Event of Default. On and as of the
------------------------------
Amendment Effective Date and after giving effect to this
Amendment, no Default or Event of Default shall have
occurred and be continuing.
(d) Representations and Warranties. The
------------------------------
representations and warranties made by the Borrower in this
Amendment and in the Loan Documents after giving effect to
this Amendment shall be true and correct in all material
respects on and as of the Amendment Effective Date as if
made on such date, except where such representations and
warranties expressly relate to an earlier date in which case
such representations and warranties shall be true and
correct in all material respects as of such earlier date.
(e) Issuance of Specified Preferred Stock. The
-------------------------------------
Specified Preferred Stock Issuer shall have issued and sold
at least $65,000,000 aggregate liquidation amount of
Specified Preferred Stock and shall have applied the net
proceeds thereof to purchase from ATSC an equal principal
amount of Convertible Debentures; ATSC shall have made a
capital contribution to the Borrower in an amount equal to
such net proceeds; and the Borrower shall have applied such
amount to the partial repayment of the Revolving Loans
pursuant to Section 2.05(a) of the Credit Agreement. The
---------------
amount so prepaid must remain undrawn for at least 15 days
from the date of such prepayment, and thereafter such amount
may be reborrowed pursuant to the terms and conditions of
Section 2.02 of the Credit Agreement.
------------
Section 10. Representation and Warranty. To induce
---------------------------
the Lenders to enter into this Amendment, the Borrower hereby
represents and warrants to the Lenders that as of the Amendment
Effective Date the representations and warranties made by the
Borrower in the Loan Documents are true and correct in all
material respects on and as of the Amendment Effective Date,
after giving effect to the effectiveness of this Amendment, as if
made on and as of the Amendment Effective Date unless expressly
stated to relate to an earlier date, in which case such
representations and warranties shall be true and correct in all
material respects as of such earlier date; provided that
--------
references in such representations and warranties to the Credit
Agreement shall be deemed to be references to this Amendment and
to the Credit Agreement as amended by this Amendment.
Section 11. Miscellaneous. Except for the amendments
-------------
expressly provided herein, the Credit Agreement shall continue to
be, and shall remain, in full force and effect in accordance with
its terms. The amendments provided herein shall be limited
precisely as drafted and shall not be construed to be an
amendment of any other provision of the Credit Agreement other
than as specifically provided herein.
(a) The Borrower hereby confirms that, after giving
effect hereto, each Loan Document to which it is a party remains
in full force and effect in accordance with its terms.
(b) The Borrower agrees to pay or reimburse the Agent
for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment any other documents
prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and
disbursements of Simpson Thacher & Bartlett, counsel to the
Agent.
(c) This Amendment may be executed in any number of
counterparts by the parties hereto (including by facsimile
transmission), and all of said counterparts when taken together
shall be deemed to constitute one and the same instrument.
(d) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York
by their proper and duly authorized officers as of the date first
above written.
ANNTAYLOR, INC., as Borrower
By: /s/ Walter J. Parks
----------------------------------
Title: SVP-Finance
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Dietmar Schiel
--------------------------------
Title: Vice President
LENDERS
-------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ John W. Pocalyko
---------------------------------
Title: Vice President
BANQUE INDOSUEZ
By: /s/
---------------------------------
Title:
CITIBANK, N.A.
By: /s/
--------------------------------
Title:
FLEET BANK, NATIONAL ASSOCIATION
By: /s/
---------------------------------
Title:
FLEET NATIONAL BANK OF
MASSACHUSETTS (formerly known as
Shawmut Bank, N.A.)
By: /s/
------------------------------------
Title:
INDOSUEZ CAPITAL FUNDING II,
LIMITED
By: Indosuez Capital as Portfolio
Advisor
By: /s/
-------------------------------------
Title:
LTCB TRUST COMPANY
By: /s/ Rene O. LeBlanc
---------------------------------------
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/
--------------------------------------
Title:
PRIME INCOME TRUST
By: /s/
---------------------------------------
Title:
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ Mark K. Okada CFA
--------------------------------------
Title: Principal
=================================================================
Schedule 1
----------
Specified Preferred Stock
-------------------------
ATSC will form AnnTaylor Finance Trust (the "Preferred
---------
Stock Issuer"), which will be a statutory business trust formed
- - ------------
under Delaware law pursuant to a Declaration of Trust (the
"Declaration of Trust"). The Preferred Stock Issuer will issue
--------------------
and sell preferred securities (the "Specified Preferred Stock")
-------------------------
and common securities (together with the Specified Preferred
Stock, the "Specified Stock"). ATSC will issue convertible
---------------
debentures (the "Convertible Debentures"), in a principal amount
----------------------
equal to the amount of the Specified Stock, to the Preferred
Stock Issuer. The amount of interest payable on the Convertible
Debentures will be equal to the amount of dividends payable on
the Specified Stock. In addition, ATSC will issue a subordinated
guarantee (the "Specified Stock Guarantee") in respect of
-------------------------
dividend, redemption, additional amounts and liquidation payments
on the Specified Stock, but only to the extent that funds for
such payments are actually held by the Preferred Stock Issuer.
ATSC is permitted to defer interest on the Convertible Debentures
for up to 20 consecutive quarters, and dividends on the Specified
Stock would be deferred similarly. Otherwise, interest on the
Convertible Debentures and dividends on the Specified Stock are
payable quarterly. The Convertible Debentures mature, and the
Specified Stock is redeemable, in 2016. The Convertible
Debentures are subordinated to all senior indebtedness of ATSC,
including ATSC's guaranty of the Borrower's obligations under the
Credit Agreement. ATSC will contribute the net proceeds of this
transaction to the Borrower, which will use such proceeds to
repay the Revolving Loans (without any commitment reduction).
==================================================================
Schedule 2
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CAT Acquisition
The Borrower or a subsidiary of the Borrower will
acquire (i) shares of CAT owned by Cygne Designs, Inc. ("Cygne"),
-----
which shares constitute 60% of CAT's outstanding common stock,
(ii) shares of C.A.T. (Far East) Ltd. and (iii) assets of Cygne
relating to or used exclusively or primarily by the AnnTaylor
Woven Division of Cygne, including inventory, leasehold
improvements, fixtures, furniture and equipment (the "Cygne
-----
Assets"). The Cygne Assets may be transferred to CAT, a
- - ------
subsidiary of CAT or a subsidiary of the Borrower either prior to
or after closing.
The Borrower will assume certain capitalized and
operating leases for space currently occupied by the AnnTaylor
Woven Division of Cygne. Such capitalized lease liabilities
shall not exceed $1 million; the aggregate annual operating lease
rentals shall not exceed $2.5 million.
The purchase price of the CAT Acquisition will be: (i)
shares of ATSC's common stock having a market value of $36
million; provided that the number of shares to be issued will be
capped at 2.5 million, representing the number of shares issuable
in the event the price of ATSC's common stock has declined 20% as
of the closing date; and (ii) cash (estimated to be between $5-10
million) equal to the sum of (a) the tangible net book value of
the Cygne Assets less (b) the amount of the assumed capitalized
lease obligations plus (c) certain working capital obligations of
CAT at closing.
Cygne will submit a schedule of letters of credit
outstanding at the closing date for raw materials and making
charges relating to the Borrower's fabric and work-in-progress;
at closing, the Borrower will either substitute its own letters
of credit or provide alternative form of support.
The existing $40 million credit facility with The
Hongkong and Shanghai Banking Corporation or another financial
institution acceptable to the Requisite Lenders (the "CAT Loan
--------
Facility") will be continued on terms and conditions reasonably
- - --------
satisfactory to the Borrower and the Requisite Lenders. In any
event, the CAT Loan Facility will not contain a cross-default to
Cygne following the CAT Acquisition. The Borrower may be
requested to issue a subordinated guarantee the CAT Loan
Facility, subject to the execution and delivery of an
intercreditor agreement reasonably satisfactory to the Requisite
Lenders.
Simultaneously with the CAT Acquisition, all CAT stock
acquired by the Borrower will be pledged to the Agent to secure
the Obligations.
AMENDMENT NO. 1
TO
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
ANNTAYLOR FINANCE TRUST
Amendment No. 1 (the "Amendment") to Amended
and Restated Declaration of Trust (the "Declaration") of
AnnTaylor Finance Trust (the "Trust"), dated as of April
25, 1996, executed by AnnTaylor Stores Corporation, a
Delaware corporation, as trust sponsor (the "Sponsor"),
and the trustees of the Trust (the "Trustees")
WHEREAS, the Trust desires by this Amendment to
conform the Fiscal Year (the "Fiscal Year") of the Trust
to that of the Sponsor;
WHEREAS, the Amendment does not affect the
rights, powers, duties, obligations or immunities of The
Bank of New York (the "Property Trustee") and The Bank of
New York (Delaware) (the "Delaware Trustee"); and
WHEREAS, all conditions and requirements necessary
to effectuate this Amendment have been complied with;
NOW THEREFORE, pursuant to Section 12.1 of the
Declaration, Article XI of the Declaration shall be amend
ed as follows:
Section 1. The Declaration is amended to
delete Section 11.1 and replace it with the following:
Section 11.1. Fiscal Year. The
-----------
fiscal year ("Fiscal Year") of the Trust shall
end on the Saturday closest to January 31 of
the following calendar year, or such other year
as is required by the Code.
Section 2. Section 11.2(c) of the Declaration
is amended to replace the words "Fiscal Year" in the
second sentence of Section 11.2(c) with the words "calen
dar year".
Section 3. This Amendment shall be effective
as of the date executed below.
IN WITNESS WHEREOF, the undersigned has caused
this Amendment to be executed as of this 27th day of
August, 1996.
J. Patrick Spainhour,
as Trustee
/s/ J. Patrick Spainhour
___________________________
Paul E. Francis,
as Trustee
/s/ Paul E. Francis
___________________________
Walter J. Parks,
as Trustee
/s/ Walter J. Parks
__________________________
