AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1996
REGISTRATION NO. 333-6605
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C>
ANNTAYLOR STORES CORPORATION DELAWARE 13-3499319
ANNTAYLOR FINANCE TRUST DELAWARE 13-7089625
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
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142 WEST 57TH STREET, NEW YORK, NEW YORK 10019, (212) 541-3000
(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) 541-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
VINCENT J. PISANO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE, NEW YORK, NEW YORK 10022, (212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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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 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Convertible Trust Originated
Preferred SecuritiesSM of
AnnTaylor Finance
Trust............................ 2,012,500 $58.625(1)(2) $117,982,813(1)(2) $40,684
Convertible Subordinated
Debentures of AnnTaylor Stores
Corporation...................... (3) -- -- --
Common Stock of AnnTaylor Stores
Corporation...................... 5,121,812(4) -- -- --
Guarantee(5)...................... -- -- -- --
Total.......................... 2,012,500 100% $117,982,813 $40,684(6)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act.
(2) Exclusive of accrued interest and distributions, if any.
(3) $100,625,000 in aggregate principal amount of 8 1/2% Convertible
Subordinated Debentures (the "Convertible Debentures") of AnnTaylor Stores
Corporation (the "Company") were issued and sold to AnnTaylor Finance Trust
("Ann Taylor Finance" or the "Trust") in connection with the issuance by the
Trust of 2,012,500 of its 8 1/2% Convertible Trust Originated Preferred
SecuritiesSM (the "Convertible TOPrSSM" or "Preferred Securities"). The
Convertible Debentures may be distributed, under certain circumstances, to
the holders of Preferred Securities for no additional consideration.
(4) Such shares of Company Common Stock are issuable upon conversion of the
Preferred Securities registered hereunder. This Registration Statement also
covers such shares as may be issuable pursuant to anti-dilution adjustments.
(5) Includes the obligations of the Company under the Guarantee and certain
back-up undertakings under the Indenture pursuant to which the Convertible
Debentures were issued, the Convertible Debentures and the Amended and
Restated Declaration of Trust of the Trust, including the Company's
obligations under such Indenture to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Preferred
Securities and the Common Securities of the Trust), which in the aggregate
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. No separate consideration will be received for the Guarantee and
the back-up undertakings.
(6) Previously paid.
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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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
PROSPECTUS
2,012,500 PREFERRED SECURITIES
ANNTAYLOR FINANCE TRUST
8 1/2% CONVERTIBLE TRUST ORIGINATED PREFERRED
SECURITIESSM (CONVERTIBLE TOPRSSM)
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
ANNTAYLOR STORES CORPORATION
[LOGO]
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This Prospectus relates to the 8 1/2% Convertible Trust Originated Preferred
SecuritiesSM (the "Convertible TOPrSSM" or "Preferred Securities"), which
represent preferred undivided beneficial ownership interests in the assets of
AnnTaylor Finance Trust, a statutory business trust formed under the laws of
the State of Delaware ("AnnTaylor Finance" or the "Trust"), and the shares of
common stock, par value $.0068 per share (the "Company Common Stock"), of
AnnTaylor Stores Corporation, a Delaware corporation (the "Company"), issuable
upon conversion of the Preferred Securities. The Preferred Securities were
issued and sold (the "Original Offering") on April 25, 1996 and May 17, 1996
(together, the "Original Offering Date") to the Initial Purchasers (as defined
herein) and were simultaneously sold by the Initial Purchasers in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), in the United States to persons reasonably
believed by the Initial Purchasers to be qualified institutional buyers as
defined in Rule 144A under the Securities Act, to certain qualified
institutional buyers acting on behalf of institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and
outside the United States to non-U.S. persons in offshore transactions in
reliance on Regulation S under the Securities Act. The Company owns all the
common securities (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities") representing undivided beneficial interests
in the assets of the Trust. The Trust exists for the sole purpose of issuing
the Trust Securities and investing the proceeds thereof to purchase an
equivalent amount of 8 1/2% Convertible Subordinated Debentures Due 2016 (the
"Convertible Debentures") of the Company. Upon an event of default under the
Declaration (as defined herein), the holders of the Preferred Securities will
have a preference over the holders of the Common Securities with respect to
payments in respect of distributions and payments upon redemption, liquidation
or otherwise.
The Preferred Securities and the Company Common Stock issuable upon
conversion of the Preferred Securities (collectively the "Offered Securities")
may be offered and sold from time to time by the holders named herein or by
their transferees, pledgees, donees or their successors (collectively, the
"Selling Holders") pursuant to this Prospectus. The Offered Securities may be
sold by the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Selling Holders" and "Plan of
Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from the
sale of the Offered Securities and will pay all underwriting discounts, selling
commissions and transfer taxes, if any, applicable to any such sale. The Company
is responsible for payment of all other expenses incident to the registration of
the Offered Securities. The Selling Holders and any broker-dealers, agents or
underwriters that participate in the distribution of the Offered Securities may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the Offered
Securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" for a description
of indemnification arrangements.
(continued on following page)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER THE
"RISK FACTORS" BEGINNING ON PAGE 7.
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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.
The date of this Prospectus is , 1996.
<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>
(continued from front cover)
Each Preferred Security is convertible at the option of the holder thereof
into shares of Company Common Stock at a conversion rate of 2.545 shares of
Company Common Stock for each Preferred Security (equivalent to $19.65 per share
of Company Common Stock), subject to adjustment in certain circumstances. The
Company Common Stock is quoted on the New York Stock Exchange ("NYSE") under the
symbol "ANN". On September 27, 1996, the last reported sale price of the Company
Common Stock on the NYSE Composite Tape was $16 7/8.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 8 1/2% of the liquidation amount of $50 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on each January 15, April 15, July 15 and October 15,
commencing July 15, 1996. See "Description of the Preferred
Securities--Distributions". The payment of distributions out of moneys held by
the Trust and payments on liquidation of the Trust or the redemption of
Preferred Securities, as described below, are guaranteed by the Company (the
"Guarantee") to the extent the Trust has funds available therefor as described
under "Description of the Guarantee". The Guarantee, when taken together with
the Company's obligations under the Indenture (as defined herein) pursuant to
which the Convertible Debentures were issued, the Convertible Debentures and its
obligations under the Declaration (as defined herein), including its obligations
under the Indenture to pay costs, expenses, debts and liabilities of the Trust
(other than with respect to the Trust Securities), provide a full and
unconditional guarantee of amounts due on the Preferred Securities. The
Company's obligations under the Guarantee rank (i) subordinate and junior to all
other liabilities of the Company except any liabilities that may be pari passu
by their terms, (ii) pari passu with the most senior preferred stock issued from
time to time by the Company and with any guarantee now or hereafter entered into
by the Company in respect of any preferred or preference stock or any preferred
securities of any affiliate of the Company and (iii) senior to the Company
Common Stock. See "Description of the Guarantee". The obligations of the Company
under the Convertible Debentures are subordinate and junior in right of payment
to Senior Indebtedness (as defined herein) of the Company. The Company's
operations are conducted through its wholly owned subsidiary, AnnTaylor, Inc.
("Ann Taylor"). At August 3, 1996, indebtedness of Ann Taylor, including trade
payables of $36.1 million, aggregated approximately $197.4 million, which
indebtedness is effectively senior to the Convertible Debentures.
The distribution rate and the distribution payment dates and other payment
dates for the Preferred Securities correspond to the interest rate and interest
payment dates and other payment dates for the Convertible Debentures, which are
the sole assets of the Trust. If the Company fails to make principal or interest
payments on the Convertible Debentures, the Trust will not have sufficient funds
to make distributions on the Preferred Securities, in which event the Guarantee
will not apply to such distributions until the Trust has sufficient funds
available therefor.
The Company has the right to defer payments of interest on the Convertible
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period"), but not beyond the maturity of the Convertible Debentures. If interest
payments are so deferred, distributions on the Preferred Securities also will be
deferred. During any Extension Period, distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at a rate of 8
1/2% per annum compounded quarterly. During any Extension Period, holders of
Preferred Securities will be required to include such deferred interest in their
gross income for United States Federal income tax purposes in advance of receipt
of the cash distributions with respect to such deferred interest payments.
Moreover, if a holder of Preferred Securities converts its Preferred Securities
into Company Common Stock during any Extension Period, the holder will not
receive any cash related to the deferred distributions. There could be multiple
Extension Periods of varying lengths throughout the term of Convertible
Debentures (but distributions would continue to accumulate quarterly and accrue
interest until the end of any such Extension Period). See "Risk Factors--Option
to Extend Interest Payment Period; Tax Consequences", "Description of the
Preferred Securities--Distributions" and "Description of the Convertible
Debentures--Option to Extend Interest Payment Period".
The Convertible Debentures are redeemable by the Company, in whole or in
part, from time to time, on or after April 15, 1999 at the redemption prices set
forth herein. The Convertible Debentures may also be redeemed at any time upon
the occurrence of a Tax Event (as defined herein). If the Company redeems
Convertible Debentures, the Trust must redeem Trust Securities on a pro rata
basis having an aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Debentures so redeemed at a redemption price
corresponding to the redemption price of the Convertible Debentures plus accrued
and unpaid distributions thereon (the "Redemption Price") to the date fixed for
redemption. See "Description of the Preferred Securities--Redemption". The
Preferred Securities will be redeemed upon maturity of the
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Convertible Debentures. In addition, the Trust will be dissolved upon the
occurrence of a Tax Event arising from a change in law or a change in legal
interpretation regarding tax matters, unless the Convertible Debentures are
redeemed in the limited circumstances described herein. The Trust will also be
dissolved upon the occurrence of an Investment Company Event (as defined
herein). Upon dissolution of the Trust, the Convertible Debentures will be
distributed to the holders of the Trust Securities, on a pro rata basis, in lieu
of any cash distribution. If the Convertible Debentures are distributed to the
holders of the Preferred Securities, the Company will use its best efforts to
cause the Convertible Debentures to be listed on the NYSE or other national
securities exchange or similar organization as the Preferred Securities are then
listed or quoted. See "Description of the Preferred Securities--Special Event
Redemption or Distribution" and "Description of the Convertible Debentures".
In the event of the liquidation, winding up or termination of the Trust, the
holders of the Preferred Securities will be entitled to receive for each
Preferred Security a liquidation amount of $50 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless, in connection with such dissolution in the event of a Tax Event or an
Investment Company Event, Convertible Debentures are distributed to the holders
of the Preferred Securities. See "Description of the Preferred Securities--
Liquidation Distribution Upon Dissolution".
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Exchange Act, and in accordance therewith files periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC" or "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661.
Copies of all or part of such materials may also be obtained at prescribed rates
from the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such materials
can also be inspected at the offices of the New York Stock Exchange, at 20 Broad
Street, New York, New York 10005. The Commission also maintains a Web site at
http://www.sec.gov. that contains reports, proxy statements and other
information.
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) on Form S-3 under the Securities
Act with respect to the securities offered by this Prospectus (the "Registration
Statement"). This Prospectus, which constitutes 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 securities offered by
this Prospectus, reference is made to the Registration Statement, including the
exhibits thereto, and the financial statements and notes thereto filed or
incorporated by reference as a part thereof, which are on file at the offices of
the Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete, and, in each such instance, are
qualified in all respects by reference to the applicable documents filed with
the Commission. The Registration Statement and the exhibits thereto filed by the
Company with the Commission may be inspected and copied at the locations
described above.
No separate financial statements of the Trust have been included herein. The
Company does not consider that such financial statements would be material to
holders of Preferred Securities because (i) all of the voting securities of the
Trust will be owned, directly or indirectly, by the Company, a reporting company
under the Exchange Act, (ii) the Trust has no independent operations and exists
for the sole purpose of issuing securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in the
Convertible Debentures issued by the Company and (iii) the obligations of the
Trust under the Trust Securities are fully and unconditionally guaranteed by the
Company pursuant to the Guarantee, when taken together with the Company's
obligations under the Convertible Debentures, the Indenture and the Declaration,
including its obligations under the Indenture to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities). See
"Description of the Convertible Debentures" and "Description of the Guarantee".
4
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act (Commission File No. 1-10738) are incorporated herein by
reference:
(a) Annual Report on Form 10-K for the year ended February 3, 1996;
(b) Proxy Statement relating to the 1996 Annual Meeting of Stockholders;
(c) Proxy Statement relating to the Special Meeting of Stockholders held on
August 15, 1996;
(d) Quarterly Reports on Form 10-Q for the quarters ended May 4, 1996 and
August 3, 1996;
(e) Current Reports on Form 8-K, filed on April 8, 1996, May 2, 1996, June
10, 1996, June 21, 1996, August 30, 1996 and September 26, 1996; and
(f) The description of the Company Common Stock, contained in the Company's
registration statement on Form 8-A, which became effective May 16, 1991.
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 filing of a post-effective amendment that indicates the termination of this
offering shall be deemed to be incorporated in this Prospectus by reference and
to be a part hereof from the date of filing of such documents.
Any statements contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this offering 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 that 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. Telephone requests may be
directed to the Corporate Secretary at (212) 541-3300.
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THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING, WITHOUT LIMITATION,
STATEMENTS UNDER THE CAPTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K
(THE "FORM 10-K"), "UNAUDITED HISTORICAL AND PRO FORMA COMBINED FINANCIAL
STATEMENTS" IN EXHIBIT 99 TO THE COMPANY'S FORM 10-K, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF OPERATIONS" IN THE COMPANY'S QUARTERLY REPORTS ON FORM 10-Q AND
"UNAUDITED HISTORICAL AND PRO FORMA COMBINED BALANCE SHEETS, STATEMENTS OF
OPERATIONS AND NOTES THERETO" IN THE COMPANY'S CURRENT REPORTS ON FORM 8-K FILED
ON JUNE 21, 1996, AUGUST 30, 1996, AND SEPTEMBER 26, 1996. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN
THAT ANY OF SUCH
5
<PAGE>
MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THE
RETAIL APPAREL INDUSTRY INCREASES SIGNIFICANTLY; (2) CUSTOMERS DO NOT RESPOND
FAVORABLY TO THE COMPANY'S MERCHANDISE OFFERINGS; (3) COSTS OR DIFFICULTIES
RELATED TO THE ASSIMILATION OF THE SOURCING FUNCTIONS AND EMPLOYEES ACQUIRED IN
CONNECTION WITH THE CAT/CYGNE TRANSACTION (AS HEREAFTER DEFINED) ARE GREATER
THAN EXPECTED; (4) THE COMPANY'S SUBSTANTIAL DEGREE OF LEVERAGE HINDERS ITS
ABILITY TO OBTAIN ADDITIONAL FINANCING, REDUCES FUNDS AVAILABLE FOR OPERATIONS
OR HINDERS ITS ABILITY TO ADJUST RAPIDLY TO CHANGING MARKET CONDITIONS; (5) THE
COMPANY'S FINANCIAL CONDITION IS MATERIALLY AND ADVERSELY AFFECTED BY THE
OUTCOME OF CERTAIN LITIGATION DESCRIBED IN THE COMPANY'S CURRENT REPORT ON FORM
8-K FILED ON MAY 2, 1996; (6) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE
THAN EXPECTED; AND (7) THE REGULATORY ENVIRONMENT CHANGES SIGNIFICANTLY, OR THE
RATE OF IMPORT DUTIES OR EXPORT QUOTAS INCREASES SIGNIFICANTLY WITH RESPECT TO
THE COMPANY'S MERCHANDISE. FURTHER INFORMATION ON OTHER FACTORS THAT COULD
AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS
IS INCLUDED IN THE SECTION HEREIN ENTITLED "RISK FACTORS".
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Offered Securities should consider carefully
the information set forth or incorporated by reference in this Prospectus and,
in particular, should evaluate the following risks in connection with an
investment in the Preferred Securities being offered hereby.
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. As with other retail businesses, the Company's
operations may be adversely affected by 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. The
Company believes that the decrease in its comparable store sales in Fiscal 1995
is attributable to the poor consumer response to Ann Taylor's merchandise
offerings, as well as weakness in demand for women's apparel generally. There
can be no assurance that a prolonged economic downturn and weakness in demand
for women's apparel would not have a material adverse impact on the Company and
Ann Taylor.
INTEGRATION OF CAT AND THE CYGNE SOURCING BUSINESS
In Fiscal 1995, Ann Taylor purchased approximately 16% of its merchandise
directly from Cygne Designs, Inc. ("Cygne") and an additional 38% of its
merchandise through CAT US Inc. and C.A.T. (Far East) Limited (together, "CAT"),
a direct sourcing joint venture which was 40% owned by Ann Taylor and 60% owned
by Cygne. On September 20, 1996, Ann Taylor acquired Cygne's interest in CAT and
certain of the assets (the "Assets") of the Ann Taylor Woven Division of Cygne
(the "Division") that were used in sourcing merchandise for Ann Taylor (the
"CAT/Cygne Transaction"). As a result of the CAT/Cygne Transaction, CAT became
an indirect wholly owned subsidiary of the Company and will perform all of Ann
Taylor's direct sourcing functions, including those previously provided by the
Division, under the name Ann Taylor Global Sourcing. The direct sourcing
business differs from the Company's traditional retail business and requires
certain skills that traditionally have not been required of Ann Taylor
personnel. The Company may face challenges in assimilating CAT's and the
Division's sourcing functions and their employees into the Ann Taylor
organization and will require management to focus a portion of its time on
overseeing the integration process. To facilitate such integration, Ann Taylor
has entered into three-year consulting agreements with Cygne for the services of
Mr. Bernard Manuel, Chief Executive Officer of Cygne, and Mr. Irving Benson,
President of Cygne. In addition, Mr. Dwight Meyer, formerly president of CAT,
has entered into a three-year employment agreement with Ann Taylor pursuant to
which he will serve as Executive Vice President-- Sourcing of Ann Taylor Global
Sourcing. Mr. Meyer has significant experience running direct sourcing
operations, including for the last 4 years, as President of CAT. Despite these
steps, there can be no assurance that Ann Taylor will be able to successfully
integrate CAT's and the Division's sourcing operations with its existing
operations or realize certain of the benefits expected to be obtained from the
CAT/Cygne Transaction.
INDEBTEDNESS AND ABILITY TO SERVICE INDEBTEDNESS
After giving effect to the Original Offering and the application of the net
proceeds thereof to reduce outstanding indebtedness of Ann Taylor, as of August
3, 1996, the long-term consolidated indebtedness of the Company and Ann Taylor,
including the current portion of long-term debt, was $161.3 million, or
approximately 29% of its total capitalization. After further giving effect to
the CAT/Cygne Transaction, including additional borrowings that are expected to
be made in connection
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therewith, as of August 3, 1996, the long-term consolidated indebtedness of the
Company and Ann Taylor, including the current portion of long-term debt, would
have been approximately $173.4 million or approximately 29% of its total
capitalization. This high degree of leverage could have important consequences
to the holders of the Offered Securities, including the following: (i) the
ability of Ann Taylor to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be impaired
in the future; (ii) a substantial portion of Ann Taylor's cash flow from
operations will be required for the payment of principal and interest on its
indebtedness, thereby reducing the funds available to Ann Taylor for its
operations and for the payment of dividends to the Company to be used to make
payments on the Convertible Debentures; (iii) the Company may be substantially
more leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; and (iv) the Company's substantial degree of leverage
may hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable in the event of a downturn in general economic
conditions or its business. In addition, substantially all of Ann Taylor's
borrowings other than the 8 3/4% Notes (as defined herein) are and will continue
to be at variable rates of interest, which exposes Ann Taylor to the risk of
increased interest rates. See "Financing Arrangements".
Unless otherwise extended or refinanced, Ann Taylor will be required in 1998
to repay in full its obligations under the Amended and Restated Credit
Agreement, dated as of September 29, 1995 (as amended, the "Bank Credit
Agreement"), between Ann Taylor and the Lenders named therein, which currently
provides for a $24.5 million Term Loan (the "Term Loan") and a $122 million
Revolving Credit Facility (the "Revolving Credit Facility"). After giving effect
to the Original Offering and the application of the net proceeds thereof to
reduce outstanding indebtedness of Ann Taylor, as of August 3, 1996, Ann
Taylor's outstanding indebtedness under the Term Loan was $24.5 million and
under the Revolving Credit Facility was $4.0 million. After further giving
effect to additional borrowings made in connection with consummation of the
CAT/Cygne Transaction, as of August 3, 1996, Ann Taylor's outstanding
indebtedness under the Term Loan would have been $24.5 million and Ann Taylor's
outstanding indebtedness under the Revolving Credit Facility would have been
$15.0 million. Ann Taylor is also required, commencing in Fiscal 1996, to reduce
outstanding borrowings under the Revolving Credit Facility to $50 million or
less for a 30-day period each fiscal year. Amounts under Ann Taylor's
Receivables Facility (the "Receivables Facility"), under which $26.0 million was
outstanding at August 3, 1996, become due in January 1997. Although there can be
no assurance, the Company expects to negotiate an extension of the maturity of
the Receivables Facility during 1996.
AnnTaylor Global Sourcing, Inc. ("ATGS") obtains its principal working
capital financing pursuant to a $40 million loan facility (the "ATGS Credit
Agreement") provided by The Hongkong and Shanghai Banking Corporation Limited
("HKSBC"). The ATGS Credit Agreement terminates on July 29, 1997. Although
ATGS and Ann Taylor are currently in compliance with the terms of their
respective financing agreements, the ATGS Credit Agreement contains a cross-
default provision which relates to defaults under other indebtedness of ATGS and
indebtedness of Ann Taylor, pursuant to which a default by ATGS on other
indebtedness or by Ann Taylor under the Bank Credit Agreement gives HKSBC the
right to cancel ATGS's $40 million credit facility and to demand immediate
repayment of the amounts outstanding under that facility. The ATGS Credit
Agreement requires that the provisions of the Bank Credit Agreement as in effect
at the time of the execution of the ATGS Credit Agreement be complied with,
notwithstanding any future amendments, modifications or waivers. Ann Taylor has
outstanding an $8 million stand-by letter of credit to support ATGS's
obligations to HKSBC. HKSBC has the right under certain circumstances to draw on
such letter of credit to cover unpaid principal and interest owed by ATGS.
Ann Taylor's ability to make scheduled principal payments, or to refinance
its obligations, with respect to its indebtedness, and to pay interest thereon,
will depend on its financial and operating performance, which, in turn, is
subject to prevailing economic conditions and to certain financial, business and
other factors beyond its control. If Ann Taylor's cash flow and capital
resources are
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insufficient to fund its debt service obligations, Ann Taylor may be forced to
reduce or delay planned capital expenditures, sell assets, seek additional funds
from an equity offering of the Company or refinance or restructure its debt.
There can be no assurance that Ann Taylor's cash flow and capital resources will
be sufficient for payment of its indebtedness in the future. If Ann Taylor is
not able to satisfy its debt service obligations, it could default on its
indebtedness, including the Bank Credit Agreement, the Receivables Facility and
the 8 3/4% Notes (as defined herein), which would entitle the holders of such
indebtedness to accelerate the maturity thereof, thereby permitting acceleration
of debt under other instruments that may contain cross-acceleration or
cross-default provisions. In addition, ATGS may not be able to generate
sufficient cash flow or have sufficient capital resources to fund its debt
service obligations. If such circumstances were to occur and if Ann Taylor could
not provide the necessary funds in order for ATGS to meet its obligations, ATGS
could default on its indebtedness under the ATGS Credit Agreement. See
"Financing Arrangements".
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
Ann Taylor's ability to pay dividends, as well as repay debt, make
acquisitions, create liens, make capital expenditures and make certain
investments, is restricted by the provisions of the Bank Credit Agreement (and
with respect to certain of the restrictions, the Indenture (the "Note
Indenture") relating to its 8 3/4% Subordinated Notes due 2000 (the "8 3/4%
Notes")) and the Receivables Facility, and is dependent 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.
There can be no assurance that financial results that comply with the
restrictive covenants and financial tests in the Bank Credit Agreement and the
Receivables Facility will be achieved, and Ann Taylor's inability to satisfy
these covenants, if not waived by its lenders, could result in a default under
one or more of such financing arrangements. In the event of such a default, the
lenders could elect to declare all amounts borrowed, together with accrued and
unpaid interest, due and payable. In addition, a failure to comply with the
obligations contained in the Bank Credit Agreement, the Receivables Facility or
the Note Indenture could result in an event of default under the Bank Credit
Agreement, the Receivables Facility or the Note Indenture, respectively, which
could permit acceleration of debt under other instruments that may contain
cross-acceleration or cross-default provisions. See "Financing Arrangements". If
Ann Taylor were unable to pay such amounts, the lenders could proceed against
any collateral securing obligations due to them. If such indebtedness were to be
accelerated, there can be no assurance that the assets of Ann Taylor would be
sufficient to repay in full such indebtedness and other indebtedness of Ann
Taylor or to pay dividends to the Company to pay principal and interest on the
Convertible Debentures in order for the Trust to meet its obligations under the
Preferred Securities. Although the payment of dividends and distributions is
generally prohibited by the Bank Credit Agreement, the Company has entered into
an amendment with the lenders under the Bank Credit Agreement in order to pay
the regularly scheduled distributions relating to the Preferred Securities so
long as there is no event of default under the Bank Credit Agreement. The
Receivables Facility has restrictions on the payment of dividends and
distributions that mirror the Bank Credit Agreement, as amended from time to
time. Therefore, the amendment to the dividend covenant under the Bank Credit
Agreement to permit regularly scheduled dividends on the Preferred Securities
has the effect of amending the corresponding covenant in the Receivables
Facility in a similar fashion. The Note Indenture will continue to contain
certain restrictions on the payment of dividends by Ann Taylor. See "Financing
Arrangements".
During Fiscal 1995, Ann Taylor was not in compliance with certain of the
financial covenants contained in its then-existing bank credit agreement and
receivables facility on two occasions, which noncompliance was cured by a waiver
under or an amendment to those facilities. Ann Taylor is currently in compliance
with all of the financial covenants contained in the Bank Credit Agreement and
the Receivables Facility. Although based upon its current projections, the
Company believes that it will be able to remain in compliance with all of the
financial covenants in the Bank Credit Agreement and
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the Receivables Facility, no assurance can be given that the Company's financial
results will provide such compliance.
RANKING OF OBLIGATIONS UNDER GUARANTEE AND CONVERTIBLE DEBENTURES
The Company's obligations under the Guarantee rank (i) subordinate and
junior to all other liabilities of the Company except any liabilities that may
be pari passu expressly by their terms, (ii) pari passu with the most senior
preferred stock issued from time to time by the Company and with any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock or preferred securities of any affiliate of the Company and
(iii) senior to the Company Common Stock. The obligations of the Company under
the Convertible Debentures are subordinate and junior in right of payment to
Senior Indebtedness of the Company. No payment of principal of (including
redemption payments, if any), premium, if any, or interest on, the Convertible
Debentures may be made if (i) any Senior Indebtedness of the Company is not paid
when due and any applicable grace period with respect to such default has ended
and such default has not been cured or waived, ceased to exist or (ii) the
maturity of any Senior Indebtedness of the Company has been accelerated because
of a default. At August 3, 1996, Senior Indebtedness of the Company consisted
solely of the Company's guarantee of $186.5 million of indebtedness of Ann
Taylor. In addition, because the Company's operations are conducted through Ann
Taylor, and Ann Taylor has not guaranteed the payment of principal of and
interest on the Convertible Debentures, all liabilities of Ann Taylor, including
trade payables, are effectively senior to the Convertible Debentures and the
Guarantee. As of August 3, 1996, Ann Taylor had approximately $197.4 million
principal amount of indebtedness outstanding, including trade payables of $36.1
million. There are no terms of the Preferred Securities, the Convertible
Debentures or the Guarantee that limit the Company's or AnnTaylor's ability to
incur additional indebtedness or liabilities, including indebtedness or
liabilities that would rank senior or effectively senior to the Convertible
Debentures and the Guarantee. See "Description of the Guarantee--Status of the
Guarantee; Subordination" and "Description of the Convertible
Debentures--Subordination".
HOLDING COMPANY STRUCTURE AND SUBORDINATION
The ability of the Trust to pay amounts due on the Preferred Securities is
wholly dependent upon the Company's making payments on the Convertible
Debentures. Since the Company is a holding company whose operations are
conducted through Ann Taylor and its subsidiaries, the ability of the Company to
pay interest and principal on the Convertible Debentures, and therefore for the
Trust to make distributions and other payments on the Preferred Securities, will
be dependent on Ann Taylor's ability to pay dividends to the Company in
sufficient amounts. Because Ann Taylor does not guarantee the payment of
principal of and interest on the Convertible Debentures, claims of holders of
the Preferred Securities effectively are subordinate to the claims of creditors
of Ann Taylor, including trade creditors. See "--Ranking of Obligations Under
Guarantee and Convertible Debentures".
CONTROL OF THE COMPANY
As of August 3, 1996, the ML Entities owned approximately 26.6% of the
outstanding Company Common Stock. Consequently, the ML Entities, which have two
designees on the Company's Board of Directors, are in a position to influence
the management and affairs of the Company. After giving effect to the issuance
of approximately 2.3 million shares of Company Common Stock in connection with
the CAT/Cygne Transaction, and upon conversion of the Convertible Debentures,
the ML Entities would own approximately 20.1% of the outstanding Company Common
Stock.
MANAGEMENT OF THE COMPANY
Effective August 23, 1996, Sally Frame Kasaks resigned as the Chairman and
Chief Executive Officer and a Director of the Company and Ann Taylor, and J.
Patrick Spainhour, the Company's
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President and Chief Operating Officer, was promoted to Chairman and Chief
Executive Officer. The Company has initiated a search for a President and Chief
Operating Officer to direct the Company's merchandising efforts, which were
formerly supervised by Ms. Kasaks.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
The Company has the right under the Indenture to defer interest payments
from time to time on the Convertible Debentures for successive periods not
exceeding 20 consecutive quarterly interest periods during which no interest
shall be due and payable, provided, that no such Extension Period may extend
beyond the maturity date of the Convertible Debentures. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
select a new Extension Period, subject to the requirements described herein. As
a consequence of such extension, quarterly distributions on the Preferred
Securities would be deferred (although such distributions would continue to
accrue with interest thereon compounded quarterly) by the Trust during any such
Extension Period. In the event that the Company exercises this right, then,
during such period the Company (i) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock except for
dividends or distributions in shares of its capital stock of the same class on
which such dividend or distribution is being paid and conversions or exchanges
of common stock of one class into common stock of another class and except for a
redemption, purchase or other acquisition of shares of its capital stock made
for the purpose of an employee incentive plan or benefit plan of the Company or
any of its subsidiaries, (ii) shall not make any payment of interest, principal
of or premium, if any, on, or repay, repurchase or redeem any debt securities
issued by the Company that rank pari passu with or junior to the Convertible
Debentures (except by conversion into or exchange for shares of its capital
stock), and (iii) shall not make any guarantee payments with respect to the
foregoing. Prior to the termination of any such Extension Period, the Company
may further extend the Extension Period; provided, that such Extension Period,
together with all previous and further extensions thereof, may not exceed 20
consecutive quarters and that such Extension Period may not extend beyond the
maturity date of the Convertible Debentures. Consequently, there could be
multiple Extension Periods of varying lengths throughout the term of the
Convertible Debentures. See "Description of the Preferred
Securities--Distributions" and "Description of the Convertible
Debentures--Option to Extend Interest Payment Period".
Should the Company exercise its right to defer payments of interest on the
Convertible Debentures, each holder of Preferred Securities will continue to
accrue income (as original issue discount ("OID")) in respect of the deferred
interest allocable to its Preferred Securities for United States Federal income
tax purposes, which will be allocated but not distributed to holders of record
of Preferred Securities. As a result, each such holder of Preferred Securities
will recognize income for United States Federal income tax purposes in advance
of the receipt of cash and will not receive the cash from the Trust related to
such income if such holder disposes of its Preferred Securities prior to the
record date for the date on which distributions of such amounts are made.
Moreover, if a holder of Preferred Securities converts its Preferred Securities
into Company Common Stock during any Extension Period, the holder will not
receive any cash related to the deferred distributions. The Company has no
current intention of exercising its right to defer payments of interest by
extending the interest payment period on the Convertible Debentures. However,
should the Company determine to exercise such right in the future, the market
price of the Preferred Securities is likely to be affected. A holder that
disposes of or converts its Preferred Securities during any Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Preferred Securities. In addition, as a result of the
existence of the Company's right to defer interest payments, the market price of
the Preferred Securities (which represent an undivided beneficial interest in
the Convertible Debentures) may be more volatile than other similar securities
where the issuer does not have such rights to defer interest payments. See
"United States Federal Income Taxation--Potential Extension of Interest Payment
Period and Original Issue Discount".
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PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity for United States
Federal income tax purposes instruments with a maximum term of more than 20
years that are not shown as indebtedness on the consolidated balance sheet of
the issuer. On March 29, 1996, Senate Finance Committee Chairman William V.
Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint
statement (the "Joint Statement") indicating their intent that certain
legislative proposals initiated by the Clinton administration, including the
Proposed Legislation, that may be adopted by either of the tax-writing
committees of Congress, would have an effective date that is no earlier than the
date of "appropriate Congressional action". Based on the Joint Statement, it is
expected that if the Proposed Legislation were enacted, such legislation would
not apply to the Convertible Debentures since they were issued prior to the date
of any "appropriate Congressional action". Furthermore, even if the Proposed
Legislation were enacted in its current form with effective date provisions
making it applicable to the Convertible Debentures, it would not cause the
Convertible Debentures to be treated as equity for United States Federal income
tax purposes since the maximum term of the Convertible Debentures will not
exceed 20 years. There can be no assurances, however, that any proposed
legislation enacted after the date hereof will not otherwise adversely affect
the tax treatment of the Convertible Debentures. If legislation is enacted that
adversely affects the tax treatment of the Convertible Debentures, such
legislation could result in the distribution of the Convertible Debentures to
holders of the Preferred Securities or, in certain limited circumstances, the
redemption of such securities by the Company and the distribution of the
resulting cash in redemption of the Preferred Securities. See "Description of
the Preferred Securities--Special Event Redemption or Distribution".
RIGHTS UNDER THE GUARANTEE
The Guarantee Trustee holds the Guarantee for the benefit of the holders of
the Preferred Securities. The Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and unpaid distributions
that are required to be paid on the Preferred Securities, to the extent the
Trust has funds available therefor, (ii) the Redemption Price, with respect to
the Preferred Securities called for redemption by the Trust, to the extent the
Trust has funds available therefor and (iii) upon a voluntary or involuntary
dissolution, winding up or termination of the Trust (other than in connection
with a distribution of the Convertible Debentures to holders of Preferred
Securities or a redemption of all of the Preferred Securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of payment to the extent
the Trust has funds available therefor and (b) the amount of assets of the Trust
remaining available for distribution to holders of the Preferred Securities upon
the liquidation of the Trust. The holders of a majority in liquidation amount of
the Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Notwithstanding the foregoing, any holder of
Preferred Securities may directly institute a legal proceeding directly against
the Company to enforce the obligations of the Guarantor under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee, or any other person or entity. If the Company were to default on its
obligation to pay amounts payable on the Convertible Debentures, the Trust would
lack available funds for the payment of distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and in such event holders
of the Preferred Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, a holder of the Preferred Securities would be
required to rely on the enforcement (1) by the Property Trustee of its rights,
as registered holder of the Convertible Debentures, against the Company pursuant
to the terms of the Convertible Debentures or (2) by such holder of Preferred
Securities of its right against the Company to enforce payments on the
Convertible Debentures. See "Description of the Guarantee" and "Description of
the Convertible Debentures". The Declaration provides that each holder of
Preferred
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Securities, by acceptance thereof, agrees to the provisions of the Guarantee,
including the subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as the sole holder of the
Convertible Debentures against the Company. In addition, the holders of a
majority in liquidation amount of the Preferred Securities will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee to exercise the remedies available to it
under the Indenture as a holder of the Convertible Debentures. If the Property
Trustee fails to enforce its rights under the Convertible Debentures, any holder
of Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Property Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Convertible Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, on the redemption date), then a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Convertible
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder (a "Direct Action") on or after the
respective due date specified in the Convertible Debentures. In connection with
such Direct Action, the Company will be subrogated to the rights of such holder
of Preferred Securities under the Declaration to the extent of any payment made
by the Company to such holder of Preferred Securities in such Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Tax Event or an Investment Company Act Event (each
as defined herein, and each, a "Special Event"), the Trust will be dissolved,
except in the limited circumstance described below, with the result that the
Convertible Debentures would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In certain
circumstances, the Company shall have the right to redeem the Convertible
Debentures, in whole (but not in part), in lieu of a distribution of the
Convertible Debentures by the Trust, in which event the Trust will redeem the
Trust Securities. See "Description of the Preferred Securities--Special Event
Redemption or Distribution".
Under current United States Federal income tax law, a distribution of
Convertible Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Preferred Securities. Upon the occurrence of a Special
Event, however, a dissolution of the Trust in which holders of the Preferred
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation--Receipt of Convertible Debentures or Cash Upon
Liquidation of the Trust".
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Debentures that may be distributed in exchange for
Preferred Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Preferred Securities that an investor may purchase, or the
Convertible Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities. Because holders of
Preferred Securities may receive Convertible Debentures upon the occurrence of a
Special Event, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Convertible Debentures and should
carefully review all the information regarding the Convertible Debentures
contained herein. See "Description of the Preferred
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Securities--Special Event Redemption or Distribution" and "Description of the
Convertible Debentures--General".
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will not
be entitled to vote to appoint, remove or replace, or to increase or decrease
the number of the Issuer Trustees. See "Description of Preferred
Securities--Voting Rights".
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid distributions. In addition, as a result of the
Company's right to defer interest payments, the market price of the Preferred
Securities (which represent an undivided interest in the Convertible Debentures)
may be more volatile than other similar securities where the issuer does not
have such right to defer interest payments. A holder who disposes of or converts
its Preferred Securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the
Convertible Debentures through the date of disposition or conversion in income
as ordinary income (i.e., original issue discount), and to add such amount to
its adjusted tax basis in its pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of original issue
discount, all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States Federal income tax purposes. See
"United States Federal Income Taxation".
LACK OF PUBLIC MARKET
There is no existing trading market for the Preferred Securities, and there
can be no assurance regarding the future development of a market for the
Preferred Securities, or the ability of holders of the Preferred Securities to
sell their Preferred Securities or the price at which such holders may be able
to sell their Preferred Securities. If such a market were to develop, the
Preferred Securities could trade at prices that may be higher or lower than the
initial offering price depending on many factors, including prevailing interest
rates, the price of the Company Common Stock, the Company's operating results,
any election by the Company to extend interest payment periods and the market
for similar securities. The Initial Purchasers currently make a market in the
Preferred Securities. The Initial Purchasers are not obligated to do so,
however, and any market making with respect to the Preferred Securities may be
discontinued at any time without notice. Therefore, there can be no assurance as
to the liquidity of any trading market for the Preferred Securities or that an
active public market for the Preferred Securities will develop. The Company
agreed to use its best efforts to list the Preferred Securities on the NYSE upon
effectiveness of this registration statement. However, the Preferred Securities
are currently ineligible for listing on the NYSE. The Company does not intend to
apply for listing or quotation of the Preferred Securities on any other
securities exchange or stock market. The Preferred Securities are ineligible for
trading in the Private Offerings, Resales and Trading through Automated Linkages
(PORTAL) Market of the National Association of Securities Dealers, Inc. See
"Description of the Preferred Securities--Registration Rights".
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THE COMPANY
The Company, through its wholly owned subsidiary 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. Ann Taylor
merchandise represents classic styles, updated to reflect current fashion
trends. The Company's stores offer a full range 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 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 believes that "Ann Taylor" is a highly recognized national brand
that defines a distinct fashion point of view. As a result of strong consumer
acceptance of this niche positioning, the Company's sales per square foot
productivity and operating profit margins have historically been among the
highest in the specialty apparel retailing industry. The Company has adopted a
growth strategy of capitalizing on this brand recognition by introducing product
extensions within its stores and entering new channels of distribution, as well
as continuing its retail store expansion program.
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 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 buyout transaction (the
"Acquisition") in 1989. As of August 3, 1996, certain limited partnerships
controlled directly or indirectly by ML Capital Partners, together with certain
other affiliates of ML&Co. (collectively, the "ML Entities"), owned 6,155,118
shares, or approximately 26.6%, of the outstanding Company Common Stock. The ML
Entities have two designees on the Company's Board of Directors and, therefore,
are in a position to influence management of the Company.
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) 541-3000.
Unless the context indicates otherwise, all references herein to the Company
include the Company and its wholly owned subsidiary Ann Taylor.
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ANNTAYLOR FINANCE TRUST
AnnTaylor Finance is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust (the "Declaration") executed by AnnTaylor
Stores Corporation, as sponsor of the Trust, and the trustees of the Trust (the
"Issuer Trustees") and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware. The Company owns Common Securities
in an aggregate liquidation amount equal to 3% of the total capital of the
Trust. The Common Securities rank pari passu, and payments are made thereon pro
rata, with the Preferred Securities, except that, upon the occurrence and during
the continuance of an event of default under the Declaration, the rights of the
holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The assets of the Trust
consist solely of the Convertible Debentures. The Trust exists for the exclusive
purpose of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds of the
Trust Securities in the Convertible Debentures and (iii) engaging in only those
other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of Issuer Trustees will initially be
five. Three of the Issuer Trustees (the "Regular Trustees") will be individuals
who are employees or officers of or who are affiliated with the Company. The
fourth trustee will be a financial institution that is unaffiliated with the
Company (the "Property Trustee"). The fifth trustee will be an entity that
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, The Bank of New York, a New York banking
corporation, will act as Property Trustee and its affiliate, The Bank of New
York (Delaware), a Delaware banking corporation, will act as Delaware Trustee
until, in each case, removed or replaced by the holder of the Common Securities.
The Bank of New York will also act as indenture trustee under the Guarantee (the
"Guarantee Trustee") and under the Indenture (the "Indenture Trustee").
Initially, J. Patrick Spainhour, the Chairman of the Board of Directors and
Chief Executive Officer, Paul E. Francis, the Executive Vice President--Finance
and Administration and Chief Financial Officer and Walter J. Parks, the Senior
Vice President--Finance of the Company will act as Regular Trustees. See
"Description of the Guarantee" and "Description of the Preferred Securities".
The Property Trustee holds title to the Convertible Debentures for the
benefit of the holders of the Trust Securities and the Property Trustee has the
power to exercise all rights, powers and privileges under the Indenture as the
holder of the Convertible Debentures. In addition, the Property Trustee
maintains exclusive control of a segregated non-interest-bearing bank account
(the "Property Account") to hold all payments made in respect of the Convertible
Debentures for the benefit of the holders of the Trust Securities. The Guarantee
Trustee holds the Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the holder of all the Common Securities, has the
right to appoint, remove or replace any of the Issuer Trustees and to increase
or decrease the number of trustees, provided that the number of trustees shall
be at least two. The Company will pay all fees and expenses related to the Trust
and the offering of the Preferred Securities. See "Description of the
Convertible Debentures".
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Preferred Securities". The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Declaration, the
Indenture and the Guarantee will be qualified under the Trust Indenture Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company. See "The
Company".
16
<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
"Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of
AnnTaylor Finance Trust Holding Solely Convertible Debentures".
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities. Neither the Company nor the Trust will receive any proceeds
from the sale of the Offered Securities.
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five fiscal years in the period
ended February 3, 1996, and for the six months ended August 3, 1996 and July 29,
1995.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------ ---------------------
FEB. 3, JAN. 28, JAN. 29, JAN. 30, FEB. 1, AUGUST 3, JULY 29,
1996 1995 1994 1993 1992 1996 1995
------- -------- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges............................ 1.08x 3.35x 2.16x 1.58x 1.21x 1.32x 1.09x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary loss and fixed charges.
Fixed charges include interest on indebtedness, distributions on the Preferred
Securities and the portion of operating lease rental expense representative of
the interest factor.
17
<PAGE>
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of the
Company as of August 3, 1996, and as adjusted to give effect to the CAT/Cygne
Transaction. See the consolidated financial statements, including the notes
thereto, incorporated by reference herein.
<TABLE>
<CAPTION>
AS OF AUGUST 3, 1996
-----------------------------
ACTUAL PRO FORMA
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt:
Receivables Facility.......................................... $ 26,000 $ 26,000
Current portion of Mortgage and other......................... 276 898
------------ -----------
Total current portion of long-term debt................... $ 26,276 $ 26,898
------------ -----------
------------ -----------
Long-term debt:
Revolving Credit Facility..................................... $ 4,000 $ 15,000
Term Loan..................................................... 24,500 24,500
Mortgage and other............................................ 6,551 6,973
8 3/4% Notes.................................................. 100,000 100,000
------------ -----------
Total long-term debt...................................... 135,051 146,473
------------ -----------
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of AnnTaylor Finance Trust Holding Solely
Convertible Debentures(a)..................................... 96,042 96,042
Stockholders' equity:
Common stock, $.0068 par value; 40,000,000 shares authorized;
23,139,977 shares issued........................................ 157 173
Additional paid-in capital.................................... 311,563 347,547
Warrants to acquire 23,182 shares of common stock............. 378 378
Retained earnings............................................. 16,502 16,502
Deferred compensation on restricted stock..................... (17) (17)
------------ -----------
328,583 364,583
Less: Treasury stock, 31,560 shares, at cost.................... (342) (342)
------------ -----------
Total stockholders' equity................................ 328,241 364,241
------------ -----------
Total capitalization.................................... $ 559,334 606,756
------------ -----------
------------ -----------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) As described herein, the sole assets of the Trust will be the 8 1/2% Convertible
Subordinated Debentures due 2016 of the Company with a principal amount of
$103,737,200, and upon redemption of such debt, the Preferred Securities will be
mandatorily redeemable.
</TABLE>
18
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The following summary of certain material terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration. The Preferred
Securities were issued pursuant to the terms of the Declaration. The Declaration
incorporates by reference terms of the Trust Indenture Act. The Declaration will
be qualified under the Trust Indenture Act. The Bank of New York, as Property
Trustee, acts as indenture trustee for the Declaration for purposes of
compliance with the Trust Indenture Act. Capitalized terms not otherwise defined
herein have the meanings assigned to them in the Declaration.
GENERAL
The Preferred Securities were issued in fully registered form without
interest coupons.
The Declaration authorized the Regular Trustees to issue the Trust
Securities on behalf of the Trust. The Preferred Securities represent undivided
beneficial ownership interests in the assets of the Trust and entitle the
holders thereof to a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the Common
Securities, as well as other benefits as described in the Declaration.
All of the Common Securities are owned by the Company. The Common Securities
rank pari passu, and payments are made thereon on a pro rata basis, with the
Preferred Securities, except that upon the occurrence of a Declaration Event of
Default, the rights of the holders of the Common Securities to receive payment
of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of Preferred
Securities. See "--Subordination of Common Securities". Title to the Convertible
Debentures is held by the Property Trustee for the benefit of the holders of the
Trust Securities. The Declaration does not permit the issuance by the Trust of
any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. The payment of distributions out of money held by the
Trust, and payments upon redemption of the Preferred Securities or liquidation
of the Trust, are guaranteed by the Company to the extent described under
"Description of the Guarantee". The Guarantee is held by The Bank of New York,
the Guarantee Trustee, for the benefit of the holders of the Preferred
Securities. The Guarantee does not cover payment of distributions when the Trust
does not have sufficient available funds to pay such distributions. In such
event, the remedy of a holder of Preferred Securities is to (i) vote to direct
the Property Trustee to enforce the Property Trustee's rights under the
Convertible Debentures or (ii) if the failure of the Trust to pay distributions
is attributable to the failure of the Company to pay interest or principal on
the Convertible Debentures, to institute a proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on the Convertible Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder on or
after the respective due date specified in the Convertible Debentures. See
"--Voting Rights". The Guarantee, when taken together with the Company's
obligations under the Convertible Debentures, the Indenture and the Declaration,
including its obligations under the Indenture to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. See "Description of the Guarantee".
DISTRIBUTIONS
Distributions on Preferred Securities are fixed at a rate per annum of 8
1/2% of the stated liquidation amount of $50 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
a rate per annum of 8 1/2% thereof compounded quarterly. The term "distribution"
as used herein includes any such interest (including any Additional Interest and
Liquidation Damages,
19
<PAGE>
each as defined herein) payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from the date of initial issuance and will be payable quarterly in arrears on
each January 15, April 15, July 15 and October 15, commencing July 15, 1996,
when, as and if available for payment, by the Property Trustee, except as
otherwise described below. The Company has the right under the Indenture to
defer interest payments from time to time on the Convertible Debentures for
successive periods not exceeding 20 consecutive quarterly interest periods
during which no interest shall be due and payable, provided, that no such
Extension Period may extend beyond the maturity date of the Convertible
Debentures. As a consequence of such extension, quarterly distributions on the
Preferred Securities would be deferred (though such distributions would continue
to accrue with interest since interest would continue to accrue on the
Convertible Debentures) during any such extended interest payment period. In the
event that the Company exercises this right, then, during such period the
Company (i) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock except for dividends or distributions in
shares of its capital stock of the same class on which such dividend or
distribution is being paid and conversions or exchanges of common stock of one
class into common stock of another class and except for a redemption, purchase
or other acquisition of shares of its capital stock made for the purpose of an
employee incentive plan or benefit of the Company or any of its subsidiaries,
(ii) shall not make any payment of interest, principal of or premium, if any,
on, or repay, repurchase or redeem any debt securities issued by the Company
that rank pari passu with or junior to the Convertible Debentures (except by
conversion into or exchange for shares of its capital stock), and (iii) shall
not make any guarantee payments with respect to the foregoing. Prior to the
termination of any such Extension Period, the Company may further extend such
Extension Period; provided, that such Extension Period, together with all
previous and further extensions thereof, may not exceed 20 consecutive quarters
and that such Extension Period may not extend beyond the maturity date of the
Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may select a new Extension Period,
subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Debentures. See "Description of the Convertible Debentures--Interest" and
"Description of the Convertible Debentures--Option to Extend Interest Payment
Period". If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to the holders of record of Preferred Securities
as they appear on the books and records of the Trust on the record date next
following the termination of such deferral period.
Distributions on the Preferred Securities will be made to the extent that
the Trust has funds available for the payment of such distributions in the
Property Account. Amounts available to the Trust for distribution to the holders
of the Preferred Securities will be limited to payments received by the Trust
from the Company for the Convertible Debentures. See "Description of the
Convertible Debentures". The payment of distributions out of funds held by the
Trust, is guaranteed by the Company, as set forth under "Description of the
Guarantee".
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which will be fifteen days prior to the relevant payment dates.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "--Book-Entry
Only Issuance--The Depository Trust Company" below. In the event that any date
on which distributions are payable on the Preferred Securities is not a Business
Day, payment of the distribution payable on such date will be made on the next
succeeding day which is a Business Day (without any distribution or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A "Business Day" shall mean any day other than a day on
20
<PAGE>
which banking institutions in The City of New York or in Wilmington, Delaware
are authorized or required by law to close.
CONVERSION RIGHTS
General. Preferred Securities are convertible at any time prior to the
Business Day immediately preceding the date of repayment of such Preferred
Securities, whether at maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event), at the option of the holder thereof and in
the manner described below, into shares of Company Common Stock at an initial
conversion rate of 2.545 shares of Company Common Stock for each Preferred
Security (equivalent to a conversion price of $19.65 per share of Company Common
Stock), subject to adjustment as described under "--Conversion Price
Adjustments" below. The Trust covenants in the Declaration not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Property Trustee, as conversion agent (the "Conversion Agent"),
by a holder of Preferred Securities. A holder of a Preferred Security wishing to
exercise its conversion right shall deliver an irrevocable conversion notice,
together, if the Preferred Security is a Certificated Security (as defined
herein), with such Certificated Security, to the Conversion Agent which shall,
on behalf of such holder, exchange such Preferred Security for a portion of the
Convertible Debentures and immediately convert such Convertible Debentures into
Company Common Stock. Holders may obtain copies of the required form of the
conversion notice from the Conversion Agent. Procedures for converting
book-entry Preferred Securities into shares of Company Common Stock differ, as
described under "--Book-Entry Only Issuance--The Depository Trust Company".
Holders of Preferred Securities at the close of business on a distribution
record date will be entitled to receive the distribution payable on such
Preferred Securities on the corresponding distribution payment date
notwithstanding the conversion of such Preferred Securities following such
distribution record date but prior to such distribution payment date. Except as
provided in the immediately preceding sentence, neither the Trust nor the
Company will make, or be required to make, any payment, allowance or adjustment
for accumulated and unpaid distributions, whether or not in arrears, on
converted Preferred Securities. The Company will make no payment or allowance
for distributions on the shares of Company Common Stock issued upon such
conversion, except to the extent that such shares of Company Common Stock are
held of record on the record date for any such distributions. Each conversion
will be deemed to have been effected immediately prior to the close of business
on the day on which the related conversion notice was received by the Conversion
Agent.
No fractional shares of Company Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company in cash based on the last reported sale price of Company Common Stock on
the date such Preferred Securities are surrendered for conversion.
Conversion Price Adjustments--General. The conversion price is subject to
adjustment in certain events, including (a) the issuance of shares of Company
Common Stock as a dividend or a distribution with respect to Company Common
Stock, (b) subdivisions, combinations and reclassification of Company Common
Stock, (c) the issuance to all holders of Company Common Stock of rights or
warrants entitling them (for a period not exceeding 45 days) to subscribe for
shares of Company Common Stock at less than the then Current Market Price (as
defined below) of the Company Common Stock, (d) the distribution to holders of
Company Common Stock of evidences of indebtedness of the Company, securities or
capital stock, cash or assets (including securities, but excluding those rights,
warrants, dividends and distributions referred to above and dividends and
distributions paid exclusively in cash), (e) the payment of dividends (and other
distributions) on Company Common Stock paid exclusively in cash, excluding cash
dividends if the annualized per share amount thereof does not exceed 15% of the
current market price of Company Common Stock as of the trading day immediately
preceding the date of declaration of such dividend, and (f) payment to holders
of Company Common Stock in respect of a tender or exchange offer (other than an
odd-lot offer) by the Company for
21
<PAGE>
Company Common Stock at a price in excess of 110% of the then Current Market
Price of Company Common Stock as of the trading day next succeeding the last
date tenders or exchanges may be made pursuant to such tender or exchange offer.
"Current Market Price" means the average of the daily closing prices for the
five consecutive trading days selected by the Company commencing not more than
20 trading days before, and ending not later than, the earlier of the day in
question or, if applicable, the day before the "ex" date with respect to the
issuance or distribution in question.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus the conversion price of the Preferred
Securities) by any amount selected by the Company for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deems advisable to avoid or diminish any income tax to holders of
Company Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes. See "United States Federal Income Taxation--Adjustment of Conversion
Price".
No adjustment of the conversion price will be made upon the issuance of any
shares of Company Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in shares of Company
Common Stock under any such plan. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least one percent
(1%) in the price then in effect; provided, however, that any adjustment that
would not be required to be made shall be carried forward and taken into account
in any subsequent adjustment. If any action would require adjustment of the
conversion price pursuant to more than one of the provisions described above,
only one adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to the holder of the Preferred
Securities.
Conversion Price Adjustments--Merger, Consolidation or Sale of Assets of the
Company. In the event that the Company shall be a party to any transaction
(including, without limitation, and with certain exceptions, (a)
recapitalization or reclassification of the Company Common Stock, (b)
consolidation of the Company with, or merger of the Company into, any other
Person, or any merger of another Person into the Company, (c) any sale, transfer
or lease of all or substantially all of the assets of the Company or (d) any
compulsory share exchange) pursuant to which the Company Common Stock is
converted into the right to receive other securities, cash or other property
(each of the foregoing being referred to as a "Transaction"), then the holders
of Preferred Securities then outstanding shall have the right to convert the
Preferred Securities into the kind and amount of securities, cash or other
property receivable upon the consummation of such Transaction by a holder of the
number of shares of Company Common Stock issuable upon conversion of such
Preferred Securities immediately prior to such Transaction.
In the case of a Transaction, each Preferred Security would become
convertible into the securities, cash or property receivable by a holder of the
number of shares of the Company Common Stock into which such Preferred Security
was convertible immediately prior to such Transaction. This change could
substantially lessen or eliminate the value of the conversion privilege
associated with the Preferred Securities in the future. For example, if the
Company were acquired in a cash merger, each Preferred Security would become
convertible solely into cash and would no longer be convertible into securities
whose value would vary depending on the future prospects of the Company and
other factors.
Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends to holders of Preferred Securities or to the holders of Company
Common Stock. See "United States Federal Income Taxation".
22
<PAGE>
REDEMPTION
The Convertible Debentures will mature on April 15, 2016, and may be
redeemed, in whole or in part, at any time after April 15, 1999 or at any time
in certain circumstances upon the occurrence of a Tax Event. Upon the repayment
of the Convertible Debentures, whether at maturity or upon redemption (either at
the option of the Company or pursuant to a Tax Event), the proceeds from such
repayment shall simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the Convertible Debentures so repaid or
redeemed at the applicable Redemption Price, together with accrued and unpaid
distributions through the date of redemption; provided, that holders of the
Trust Securities shall be given not less than 30 nor more than 60 days' notice
of such redemption. See "--Special Event Redemption or Distribution",
"--Redemption Procedures", "Description of the Convertible Debentures--General"
and "Description of the Convertible Debentures--Optional Redemption".
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event shall occur and
be continuing, the Trust shall, unless the Convertible Debentures are redeemed
in the limited circumstances described below, be dissolved with the result that,
after satisfaction of creditors, if any, of the Trust, Convertible Debentures
with an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, and
having the same record date for payment as the Preferred Securities and the
Common Securities outstanding at such time would be distributed on a pro rata
basis to the holders of the Preferred Securities and the Common Securities in
liquidation of such holders' interests in the Trust, within 90 days following
the occurrence of such Special Event; provided, however, that in the case of the
occurrence of a Tax Event, as a condition of such dissolution and distribution,
the Regular Trustees shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on published revenue rulings of the Internal
Revenue Service, to the effect that the holders of the Preferred Securities will
not recognize any income, gain or loss for United States Federal income tax
purposes as a result of such dissolution and distribution of Convertible
Debentures; and, provided, further, that if at the time there is available to
the Trust the opportunity to eliminate, within such 90-day period, the Special
Event by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure which in the sole
judgment of the Company has or will cause no adverse effect on the Trust, the
Company or the holders of the Trust Securities and will involve no material
cost, the Trust will pursue such measure in lieu of dissolution. Furthermore, if
in the case of the occurrence of a Tax Event, (i) the Regular Trustees have
received an opinion (a "Redemption Tax Opinion") of nationally recognized
independent tax counsel experienced in such matters that, as a result of a Tax
Event, there is more than an insubstantial risk that the Company would be
precluded from deducting the interest on the Convertible Debentures for United
States Federal income tax purposes even if the Convertible Debentures were
distributed to the holders of Preferred Securities and Common Securities in
liquidation of such holders' interests in the Trust as described above or (ii)
the Regular Trustees shall have been informed by such tax counsel that a No
Recognition Opinion cannot be delivered to the Trust, the Company shall have the
right, upon not less than 30 nor more than 60 days' notice, to redeem the
Convertible Debentures, in whole (but not in part) for cash within 90 days
following the occurrence of such Tax Event, and promptly following such
redemption, the Preferred Securities and Common Securities will be redeemed by
the Trust at the Redemption Price; provided, however, that if at the time there
is available to the Company or the Trust the opportunity to eliminate, within
such 90-day period, the Tax Event by taking some ministerial action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure which in the sole judgment of the Company has or will cause no adverse
effect on the Trust, the Company or the holders of the Trust Securities and will
involve no material cost, the Company or the Trust will pursue such measure in
lieu of redemption.
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<PAGE>
Because the Company is a holding company whose operations are conducted
through Ann Taylor, the ability of the Company to redeem the Convertible
Debentures, and, therefore for the Trust to redeem the Preferred Securities,
will be dependent on Ann Taylor's ability to pay dividends to the Company in
sufficient amounts. Ann Taylor's Bank Credit Agreement, the Note Indenture and
the Receivables Facility impose certain restrictions on the ability of Ann
Taylor to dividend funds to the Company, including a prohibition against making
a dividend to the Company in order to redeem the Convertible Debentures.
Therefore, any redemption of the Convertible Debentures, and, therefore, the
Preferred Securities, will require a waiver or amendment to the Bank Credit
Agreement prior to such redemption. See "Risk Factors--Indebtedness and Ability
to Service Indebtedness", "Risk Factors-- Restrictive Convenants and Asset
Encumbrances", "Risk Factors--Ranking of Obligations Under Guarantee and
Convertible Debentures" and "Financing Arrangements".
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs from the
theretofore generally accepted position or (d) any action taken by any
governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after April 18, 1996 (collectively, a "Change in Tax Law"), there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date thereof, subject to United States Federal income tax with respect to
income accrued or received on the Convertible Debentures, (ii) the Trust is, or
will be within 90 days of the date thereof, subject to more than a de minimis
amount of other taxes, duties or other governmental charges or (iii) interest
payable by the Company to the Trust on the Convertible Debentures is not, or
within 90 days of the date thereof will not be, deductible by the Company for
United States Federal income tax purposes. Notwithstanding anything in the
previous sentence to the contrary, a Tax Event shall not include any Change in
Tax Law that requires the Company for United States Federal income tax purposes
to defer taking a deduction for any original issue discount that accrues with
respect to the Convertible Debentures until the interest payment related to such
OID is paid by the Company in money; provided, that such Change in Tax Law does
not create more than an insubstantial risk that the Company will be prevented
from taking a deduction for OID accruing with respect to the Convertible
Debentures at a date that is no later than the date the interest payment related
to such OID is actually paid by the Company in money.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
that as a result of the occurrence of a change in law or regulation or a change
in interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date hereof.
On the date fixed for any distribution of Convertible Debentures, upon
dissolution of the Trust, (i) the Preferred Securities and the Common Securities
will no longer be deemed to be outstanding and (ii) certificates representing
Trust Securities will be deemed to represent beneficial interests in the
Convertible Debentures having an aggregate principal amount equal to the stated
liquidation amount of, and bearing accrued and unpaid interest equal to accrued
and unpaid distributions on, such Trust Securities until such certificates are
presented to the Company or its agent for transfer or reissuance.
24
<PAGE>
There can be no assurance as to the market price for the Convertible
Debentures that may be distributed in exchange for Trust Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures that the investor may subsequently receive on dissolution
and liquidation of the Trust may trade at a discount to the price of the Trust
Securities exchanged. If the Convertible Debentures are distributed to the
holders of the Preferred Securities, the Company will use its best efforts to
cause the Convertible Debentures to be listed on the NYSE or on any such other
national securities exchange or similar organization as the Preferred Securities
are then listed or quoted.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
In the event of any redemption in part, the Trust shall not be required to
(i) issue, register the transfer of or exchange any Preferred Security during a
period beginning at the opening of business 15 days before any selection for
redemption of Preferred Securities and ending at the close of business on the
earliest date in which the relevant notice of redemption is deemed to have been
given to all holders of Preferred Securities to be so redeemed and (ii) register
the transfer of or exchange any Preferred Securities so selected for redemption,
in whole or in part, except for the unredeemed portion of any Preferred
Securities being redeemed in part.
If the Trust gives a notice of redemption in respect of Preferred Securities
(which notice will be irrevocable), and if the Company has paid to the Property
Trustee a sufficient amount of cash in connection with the related redemption or
maturity of the Convertible Debentures, then, by 12:00 noon, New York time, on
the redemption date, the Trust will irrevocably deposit with DTC funds
sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
such amount in respect of Preferred Securities represented by the Global
Certificates (as defined herein) and will irrevocably deposit with the paying
agent for the Preferred Securities funds sufficient to pay such amount in
respect of any Certificated Securities and will give such paying agent
irrevocable instructions and authority to pay such amount to the holders of
Certificated Securities upon surrender of their certificates. If notice of
redemption shall have been given and funds are deposited as required, then upon
the date of such deposit, all rights of holders of such Preferred Securities so
called for redemption will cease, except the right of the holders of such
Preferred Securities to receive the Redemption Price, but without interest on
such Redemption Price. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the amount payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities is improperly withheld or
refused and not paid either by the Trust or by the Company pursuant to the
Guarantee described under "Description of the Guarantee", distributions on such
Preferred Securities will continue to accrue at the then applicable rate, from
the original redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the amount payable upon redemption (other than for calculating any
premium).
In the event that fewer than all of the outstanding Preferred Securities are
to be redeemed, the Preferred Securities will be redeemed pro rata.
Subject to the foregoing and applicable law (including, without limitation,
United States Federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
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SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the liquidation
amount of the Trust Securities; provided, however, that, if on any distribution
date or redemption date a Declaration Event of Default shall have occurred and
be continuing, no payment of any distribution on, or amount payable upon
redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all outstanding Preferred Securities for all distribution periods terminating on
or prior thereto, or in the case of payment of the amount payable upon
redemption of the Preferred Securities, the full amount of such amount in
respect of all outstanding Preferred Securities shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all distributions on, or the amount payable upon
redemption of, Preferred Securities then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until any such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Preferred Securities and not the holder of the
Common Securities, and only the holders of the Preferred Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $50 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
Liquidation, Convertible Debentures in an aggregate stated principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, the Preferred Securities have been
distributed on a pro rata basis to the holders of the Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on April 15,
2021, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company, (iii) upon the filing of a certificate of dissolution or the equivalent
with respect to the Company, the filing of a certificate of cancellation with
respect to the Trust after having obtained the consent of at least a majority in
liquidation amount of the Trust Securities, voting together as a single class,
to file such certificate of cancellation, or the revocation of the charter of
the Company and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iv) upon the distribution of all of the Convertible
Debentures upon the occurrence of a Special Event, (v) upon the entry of a
decree of a judicial dissolution of the Company or the Trust, or (vi) upon the
redemption of all the Trust Securities.
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MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State of
the United States; provided, that (i) if the Trust is not the survivor, such
successor entity either (x) expressly assumes all of the obligations of the
Trust under the Trust Securities or (y) substitutes for the Preferred Securities
other securities having substantially the same terms as the Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Securities rank with respect to distributions, assets and payments, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Convertible
Debentures, (iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with another organization on
which the Preferred Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose substantially identical to that of the Trust, (vii) the Company
guarantees the obligations of such successor entity under the Successor
Securities to the same extent as provided by the Guarantee, (viii) prior to such
merger, consolidation, amalgamation or replacement, the Company has received an
opinion of a nationally recognized independent counsel to the Trust reasonably
acceptable to the Property Trustee experienced in such matters to the effect
that: (A) such merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' interest in the new
entity), (B) following such merger, consolidation, amalgamation or replacement,
neither the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (C) following such merger,
consolidation, amalgamation or replacement, the Trust (or such successor trust)
will be treated as a grantor trust for United States Federal income tax
purposes. Notwithstanding the foregoing, the Trust shall not, except with the
consent of holders of 100% in liquidation amount of the Common Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger or replacement would
cause the Trust or the successor entity to be classified as other than a grantor
trust for United States Federal income tax purposes.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and, therefore, the Indenture.
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If the Property Trustee fails to enforce its rights under the Convertible
Debentures after a holder of Preferred Securities has made a written request,
such holder of record of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the Property Trustee's rights under
the Convertible Debentures without first instituting any legal proceeding
against the Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, the redemption date), then a
holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of or interest
on the Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the Convertible Debentures. In connection with
such Direct Action, the Company will be subrogated to the rights of such holder
of Preferred Securities under the Declaration to the extent of any payment made
by the Company to such holder of Preferred Securities in such Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee
as the sole holder of the Convertible Debentures will have the right under the
Indenture to declare the principal of and interest on the Convertible Debentures
to be immediately due and payable. The Company and the Trust are each required
to file annually with the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act and
under "Description of the Guarantee--Amendments and Assignment", and as
otherwise required by law and the Declaration, the holders of the Preferred
Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in liquidation amount of the Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee, or direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including the
right to direct the Property Trustee, as holder of the Convertible Debentures,
to (i) exercise the remedies available to it under the Indenture as a holder of
the Convertible Debentures, (ii) waive any past Indenture Event of Default that
is waiveable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Convertible Debentures shall be due
and payable or (iv) consent to any amendment, modification, or termination of
the Indenture or the Convertible Debentures where such consent shall be
required; provided, however, that where a consent or action under the Indenture
would require the consent or act of the holders of more than a majority of the
aggregate principal amount of Convertible Debentures affected thereby, only the
holders of the percentage of the aggregate stated liquidation amount of the
Preferred Securities which is at least equal to the percentage required under
the Indenture may direct the Property Trustee to give such consent or take such
action. If the Property Trustee fails to enforce its rights under the
Convertible Debentures after a holder of record of Preferred Securities has made
a written request, such holder of record of Preferred Securities may directly
institute a legal proceeding directly against the Company to enforce the
Property Trustee's rights under the Convertible Debentures without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption on the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Debentures
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having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder on or after the respective due date
specified in the Convertible Debentures. The Property Trustee shall notify all
holders of the Preferred Securities of any notice of default received from the
Indenture Trustee with respect to the Convertible Debentures. Such notice shall
state that such Indenture Event of Default also constitutes a Declaration Event
of Default. The Property Trustee shall be under no obligation to take any of the
actions described in clause (i), (ii) or (iii) above unless the Property Trustee
has obtained an opinion of independent tax counsel to the effect that as a
result of such action, the Trust will not fail to be classified as a grantor
trust for United States Federal income tax purposes and each holder will be
treated as owning an undivided beneficial interest in the Convertible
Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of the holders of more than a majority of the aggregate principal amount
of the Convertible Debentures, the Property Trustee may only give such consent
at the direction of the holders of at least the same proportion in aggregate
stated liquidation amount of the Securities. The Property Trustee shall not take
any such action in accordance with the directions of the holders of the Trust
Securities unless the Property Trustee has obtained an opinion of tax counsel to
the effect that for the purposes of United States Federal income tax the Trust
will not be classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Convertible Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities represented by the
Global Certificates may exercise their voting rights are described below. See
"--Book-Entry Only Issuance--The Depository Trust Company".
Holders of the Preferred Securities have no rights to appoint or remove the
Regular Trustees, who may be appointed, removed or replaced solely by the
Company as the holder of all of the Common Securities.
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MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Property Trustee and the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution,
winding-up or termination of the Trust other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a majority in liquidation amount of the Trust Securities affected thereby;
provided, that if any amendment or proposal referred to in clause (i) above
would adversely affect only the Preferred Securities or the Common Securities,
then only the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of a majority in liquidation amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States Federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Property Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
REGISTRATION RIGHTS
In connection with the Original Offering, the Company and the Trust entered
into a registration rights agreement with the Initial Purchasers (the
"Registration Rights Agreement") pursuant to which the Company and the Trust
would, at the Company's expense, for the benefit of the holders of the Preferred
Securities, the Guarantee, the Convertible Debentures and the shares of Company
Common Stock issuable upon conversion of the Convertible Debentures (together,
the "Registrable Securities"), (i) file with the Securities and Exchange
Commission (the "SEC" or the "Commission") within 60 days after the date of
issuance of the Registrable Securities (June 24, 1996), a registration statement
(the "Shelf Registration Statement") covering resales of the Registrable
Securities, (ii) use their best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act within 180 days
after the date of the issuance of the Registrable Securities (October 22, 1996)
and (iii) use their best efforts to keep effective the Shelf Registration
Statement until three years after the date it is declared effective or such
earlier date as all Registrable Securities shall have been disposed of or on
which all Registrable Securities held by persons that are not affiliates of the
Company or the Trust may be resold without registration pursuant to Rule 144(k)
under the Securities Act (the "Effectiveness Period"). The Company would provide
to each holder of Registrable Securities copies of the prospectus which is a
part of the Shelf Registration Statement, notify each holder when the Shelf
Registration Statement had become effective and take certain other actions as
are required to permit unrestricted resales of the Registrable Securities. A
holder of Registrable Securities that sells such Registrable Securities pursuant
to the Shelf Registration Statement would be required to be named as a selling
security holder in the related Prospectus and to deliver a Prospectus to
purchasers, would be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and would be bound by the
provisions of the Registration Rights Agreement, including certain
indemnification obligations.
If (i) on or prior to 60 days following the date of original issuance of the
Registrable Securities (June 24, 1996), a Shelf Registration Statement had not
been filed with the Commission, or (ii) on or prior to the 180th day following
the issuance of the Registrable Securities (October 22, 1996), such Shelf
Registration Statement had not been declared effective (each, a "Registration
Default"),
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additional interest ("Liquidated Damages") would accrue on the Convertible
Debentures and, accordingly, additional distributions would accrue on the
Preferred Securities, in each case from and including the day following such
Registration Default. Liquidated Damages would be paid quarterly in arrears,
with the first quarterly payment due on the first interest or distribution
payment date, as applicable, following the date on which such Liquidated Damages
begin to accrue, and would accrue at a rate per annum equal to an additional
one-quarter of one percent (0.25%) of the principal amount or liquidation
amount, as applicable, to and including the 90th day following such Registration
Default and one-half of one percent (0.50%) thereof from and after the 91st day
following such Registration Default. In the event that the Shelf Registration
Statement ceases to be effective during the Effectiveness Period for more than
30 consecutive days or any 90 days, whether or not consecutive, during any
12-month period, then the interest rate borne by the Convertible Debentures and
the distribution rate borne by the Preferred Securities would each increase by
an additional one-half of one percent (0.50%) per annum from such 31st or 91st
day, as applicable, until such time as the Shelf Registration Statement again
becomes effective. This Prospectus is a part of the Shelf Registration Statement
filed in accordance with the foregoing requirements.
The Company and the Trust have agreed in the Registration Rights Agreement
to use their best efforts to cause the Preferred Securities and the Company
Common Stock issuable upon conversion of the Convertible Debentures to be listed
on the NYSE upon effectiveness of the Shelf Registration Statement. However, the
Preferred Securities are currently ineligible for listing on the NYSE. See "Risk
Factors--Lack of Public Market".
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which is filed as
an exhibit to this Registration Statement.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of interest in the global certificate or certificates issued in connection with
sales of Preferred Securities made pursuant to this Prospectus. Except as
described in the next paragraph, the Preferred Securities were issued only as
fully registered securities registered in the name of Cede & Co. (as nominee for
DTC). One or more fully registered global Preferred Security certificates (the
"Global Certificates") will be issued, representing, in the aggregate, Preferred
Securities sold pursuant to this Prospectus, and will be deposited with DTC. In
the event of a transfer of securities that were issued in fully registered,
certificated form, the holder of such certificates will be required to exchange
them for interests in the Global Certificates representing the number of
Preferred Securities being transferred.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
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Purchases of Preferred Securities within the DTC system must be made by or
through Participants, which will receive a credit for the Preferred Securities
on DTC's records. The ownership interest of each actual purchaser of Preferred
Securities ("Beneficial Owner") is in turn to be recorded on the Participants'
and Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Participants to whose
accounts such Preferred Securities are credited, which may or may not be the
Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Preferred Securities represented thereby for all
purposes under the Declaration and the Preferred Securities. No beneficial owner
of an interest in a Global Certificate will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Preferred Securities (including the presentation of
Preferred Securities for exchange as described below) only at the direction of
one or more Participants to whose account the DTC interests in the Global
Certificates are credited and only in respect of such portion of the aggregate
liquidation amount of Preferred Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Preferred Securities, DTC will exchange the Global
Certificates for Certificated Securities, which it will distribute to its
Participants and which will be legended as set forth under the heading "Notices
to Investors".
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Preferred Securities held in book-entry
form will be sent to Cede & Co. If less than all of the Preferred Securities are
being redeemed, DTC will determine the amount of the interest of each
Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Participants to whose accounts the Preferred Securities
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Distributions on the Preferred Securities held in book-entry form will be
made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants and
Indirect Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and Indirect Participants and not of DTC, the Trust
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or the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the responsibility
of the Trust, disbursement of such payments to Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company, the Issuer
nor the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, Preferred Security certificates are required to be printed and
delivered. Additionally, the Trust (with the consent of the Company) may decide
to discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the Preferred Securities
will be printed and delivered. In each of the above circumstances, the Company
will appoint a paying agent with respect to the Preferred Securities.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Preferred Securities
as represented by a Global Certificate.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities represented by the Global
Certificates shall be made to DTC, which shall credit the relevant accounts at
DTC on the applicable distribution dates or, in the case of Certificated
Securities, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address shall appear on the Register. The Paying
Agent shall initially be The Bank of New York. The Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice to the Issuer
Trustees. In the event that The Bank of New York shall no longer be the Paying
Agent, the Trustee shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company).
REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT
The Property Trustee will act as Registrar, Transfer Agent, Paying Agent and
Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Company and certain of its subsidiaries maintain deposit accounts and
conduct other banking transactions with the Property Trustee in the ordinary
course of their businesses. The Property Trustee, prior to the occurrence of a
default with respect to the Trust Securities, undertakes to perform only such
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<PAGE>
duties as are specifically set forth in the Declaration and, after default,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provisions, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of Preferred Securities will not be
required to offer such indemnity in the event such holders, by exercising their
voting rights, direct the Property Trustee to take any action following a
Declaration Event of Default.
GOVERNING LAW
The Declaration and the Preferred Securities is governed by, and will be
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for United States Federal income tax
purposes so that the Debentures will be treated as indebtedness of the Company
for United States Federal income tax purposes. In this connection, the Regular
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust or the Declaration that the Regular Trustees
determine in their discretion to be necessary or desirable for such purposes as
long as such action does not adversely affect the interests of the holders of
the Preferred Securities.
Holders of the Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
was executed and delivered by the Company for the benefit of the holders from
time to time of Preferred Securities. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Guarantee. The Guarantee incorporates by
reference the terms of the Trust Indenture Act. The Guarantee will be qualified
under the Trust Indenture Act. The Bank of New York, as the Guarantee Trustee,
holds the Guarantee for the benefit of the holders of the Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company
irrevocably and unconditionally agrees to pay in full to the holders of the
Preferred Securities (except to the extent paid by such Trust), as and when due,
regardless of any defense, right of set off or counterclaim which the Trust may
have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities to the extent the Trust has funds available
therefor, (ii) the Redemption Price, with respect to any Preferred Securities
called for redemption by the Trust, to the extent the Trust has funds available
therefor and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities or the redemption
of all the Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment to the extent the Trust has funds available
therefor and (b) the amount of assets of the Trust remaining available for
distribution to holders of Preferred Securities upon the liquidation of the
Trust. The holders of a majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee. Notwithstanding the foregoing, any holder of Preferred Securities may
directly institute a legal proceeding against the Company to enforce the
obligations of the Guarantor under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts payable
on the Convertible Debentures, the Trust would lack available funds for the
payment of distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and in such event holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, a holder of the Preferred Securities would be required to rely on the
enforcement (1) by the Property Trustee of its rights, as registered holder of
the Convertible Debentures, against the Company pursuant to the terms of the
Convertible Debentures or (2) by such holder of Preferred Securities of its
right against the Company to enforce payments on Convertible Debentures. See
"Description of the Convertible Debentures". The Declaration provides that each
holder of Preferred Securities, by acceptance thereof, agrees to the provisions
of the Guarantee, including the subordination provisions thereof, and the
Indenture.
The Guarantee is a guarantee on a subordinated basis with respect to the
Preferred Securities from the time of issuance of such Preferred Securities but
does not apply to any payment of distributions or Redemption Price, or to
payments upon the dissolution, winding-up or termination of the Trust, except to
the extent the Trust shall have funds available therefor. If the Company does
not make interest payments on the Convertible Debentures, the Trust will not pay
distributions on the Preferred Securities and will not have funds available
therefor. See "Description of the Convertible Debentures". The Guarantee, when
taken together with the Company's obligations under the Convertible Debentures,
and the Indenture thereto and the Declaration, including its obligations under
the Indenture to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities),
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<PAGE>
provide a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Preferred Securities issued by the Trust.
The Company has also agreed separately to irrevocably guarantee the
obligations of the Trust with respect to the Common Securities (the "Common
Securities Guarantee") to the same extent as the Guarantee, except that upon the
occurrence and during the continuation of a Declaration Event of Default,
holders of Preferred Securities shall have priority over holders of Common
Securities with respect to distributions and payments on liquidation, redemption
or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company has covenanted that, so long as any Preferred
Securities remain outstanding, if (i) the Company has exercised its option to
defer interest payments on the Convertible Debentures by extending the interest
payment period and such extension shall be continuing, (ii) the Company shall be
in default with respect to its payment or other obligations under the Guarantee
or (iii) there shall have occurred and be continuing any event that, with the
giving of notice or the lapse of time or both, would constitute an Indenture
Event of Default, then the Company (a) shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock, except for
dividends or distributions in shares of its capital stock of the same class on
which such dividend or distribution is being paid and conversions or exchanges
of common stock of one class into common stock of another class and except for a
redemption, purchase or other acquisition of shares of its capital stock made
for the purpose of an employee incentive plan or benefit plan of the Company or
any of its subsidiaries, (b) shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu with or junior to the Convertible Debentures
(except by conversion into or exchange for shares of its capital stock), and (c)
shall not make any guarantee payments with respect to the foregoing.
As part of the Guarantee, the Company has agreed that it will honor all
obligations described therein relating to the conversion of the Preferred
Securities into Company Common Stock as described in "Description of the
Preferred Securities--Conversion Rights".
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of at least a majority in liquidation amount of all the outstanding
Preferred Securities. The manner of obtaining any such approval of holders of
the Preferred Securities will be as set forth under "Description of the
Preferred Securities--Voting Rights". All guarantees and agreements contained in
the Guarantee bind the successors, assigns, receivers, trustees and
representatives of the Company and inure to the benefit of the holders of the
Preferred Securities then outstanding. Except in connection with any permitted
merger or consolidation of the Company with or into another entity or any
permitted sale, transfer or lease of the Company's assets to another entity as
described below under "Description of the Convertible Debentures--Restrictions",
the Company may not assign its rights or delegate its obligations under the
Guarantee without the prior approval of the holders of at least a majority of
the aggregate stated liquidation amount of the Preferred Securities then
outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Preferred Securities upon
(i) full payment of the Redemption Price of all Preferred Securities, (ii) upon
distribution of the Convertible Debentures held by the Trust to the holders of
the Preferred Securities, (iii) upon liquidation of the Trust or (iv) upon the
distribution of Company Common Stock to such holder in respect of the conversion
of such holder's Preferred Securities into Company Common Stock and will
terminate completely upon full payment of
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<PAGE>
the amounts payable in accordance with the Declaration of the Trust. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities must restore payment of
any sum paid under such Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee constitutes an unsecured obligation of the Company and ranks
(i) subordinate and junior to all other liabilities of the Company except any
liabilities that may be pari passu expressly by their terms, (ii) pari passu
with the most senior preferred stock issued from time to time by the Company and
with any guarantee now or hereafter entered into by the Company in respect of
any preferred or preference stock or preferred securities of any affiliate of
the Company and (iii) senior to the Company Common Stock. The terms of the
Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Guarantee.
The Guarantee constitutes a guarantee of payment and not of collection (that
is, the guaranteed party may directly institute a legal proceeding against the
Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the Guarantee, shall
exercise the same degree of care as a prudent man would exercise in the conduct
of his own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Preferred Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
GOVERNING LAW
The Guarantee is governed by, and will be construed in accordance with, the
laws of the State of New York.
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<PAGE>
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust invested the proceeds from the issuance and sale
of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture (the "Indenture") between the Company and The Bank of New York, as
trustee (the "Indenture Trustee"), a copy of which has been filed as an exhibit
to the Registration Statement. Certain capitalized terms used herein are defined
in the Indenture. The Indenture will be qualified under the Trust Indenture Act.
Under certain circumstances involving the dissolution of the Trust following
the occurrence of a Special Event, Convertible Debentures may be distributed to
the holders of the Trust Securities in liquidation of the Trust. See
"Description of the Preferred Securities--Special Event Redemption or
Distribution".
If the Convertible Debentures are distributed to the holders of Preferred
Securities, the Company will use its best efforts to have the Convertible
Debentures listed on the NYSE or on such other national securities exchange or
similar organization on which the Preferred Securities are then listed or
quoted.
GENERAL
The Convertible Debentures were issued as unsecured debt under the
Indenture. The Convertible Debentures will be limited in aggregate principal
amount of $103,737,200, such amount being the sum of the aggregate stated
liquidation amount of the Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Compounded Interest (as defined herein) and Additional Interest, if any, on
April 15, 2016.
The Convertible Debentures, if distributed to holders of Preferred
Securities in liquidation of such holder's interest in the Trust, will initially
be issued in the same form as the Preferred Securities that such Convertible
Debentures replace. Any Global Certificate will be replaced with one or more
Global Securities (as defined under "--Book-Entry and Settlement"). Under
certain limited circumstances, Convertible Debentures may be issued in
certificated form in exchange for a Global Security. In the event that
Convertible Debentures are issued in certificated form, such Convertible
Debentures will be in denominations of $50 and integral multiples thereof and
may be transferred or exchanged at the offices described below.
Payments on Convertible Debentures issued as a Global Security will be made
to DTC, a successor depositary or, in the event that no depositary is used, to a
Paying Agent for the Convertible Debentures. In the event Convertible Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Convertible Debentures will be registrable and Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Indenture Trustee in The City of New York; provided, that unless the
Convertible Debentures are held by the Trust or any successor permissible under
"Description of the Preferred Securities--Merger, Consolidation or Amalgamation
of the Trust", payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto.
There are no covenants or provisions in the Indenture that afford holders of
Convertible Debentures protection in the event of a highly leveraged transaction
or other similar transaction involving the Company that may adversely affect
such holders.
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INTEREST
Each Convertible Debenture bears interest at the rate of 8 1/2% per annum
from the original date of issuance, payable quarterly in arrears on January 15,
April 15, July 15 and October 15 (each, an "Interest Payment Date"), commencing
July 15, 1996, to the person in whose name such Convertible Debenture is
registered, subject to certain exceptions, at the close of business on the
Business Day next preceding such Interest Payment Date. If any Convertible
Debentures are held in certificated form, the record date for each Interest
Payment Date shall be 15 days prior to such Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed. In the event
that any date on which interest is payable on the Convertible Debentures is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right at any time during the term of the Convertible
Debentures to defer interest payments from time to time by extending the
interest payment period for successive periods not exceeding 20 consecutive
quarters for each such period; provided, no Extension Period may extend beyond
the maturity date of the Convertible Debentures. At the end of each Extension
Period, the Company shall pay all interest then accrued and unpaid (including
Additional Interest and Liquidated Damages) together with interest thereon
compounded quarterly at the rate specified for the Convertible Debentures to the
extent permitted by applicable law ("Compounded Interest"); provided, that
during any Extension Period, the Company (i) shall not declare or pay dividends
on, make distributions with respect to, or redeem, purchase or acquire, or make
a liquidation payment with respect to, any of its capital stock, except for
dividends or distributions in shares of its capital stock of the same class on
which such dividend or distribution is being paid and conversions or exchanges
of common stock of one class into common stock of another class and except for a
redemption, purchase or other acquisition of shares of its capital stock made
for the purpose of an employee incentive plan or benefit plan of the Company or
any of its subsidiaries, (ii) shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem, any debt securities
issued by the Company that rank pari passu with or junior to the Convertible
Debentures (except by conversion into or exchange for shares of its capital
stock) and (iii) shall not make any guarantee payments with respect to the
foregoing. Prior to the termination of any such Extension Period, the Company
may further extend such Extension Period; provided, that such Extension Period
together with all previous and further extensions thereof may not exceed 20
consecutive quarters and may not extend beyond the maturity of the Convertible
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the above requirements. No interest during an Extension Period, except at the
end thereof, shall be due and payable. The Company has no current intention of
exercising its right to defer payments of interest by extending the interest
payment period on the Convertible Debentures. If the Property Trustee shall be
the sole holder of the Convertible Debentures, the Company shall give the
Regular Trustees and the Property Trustee notice of its selection of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the distributions on the Preferred Securities are payable or (ii) the date the
Trust is required to give notice to the NYSE (or any applicable self-regulatory
organization) or to holders of the Preferred Securities of the record date or
the date such distribution is payable, but in any event not less than ten
Business Days prior to such record date. The Company shall cause the Trust to
give notice of the Company's selection of such Extension Period to the holders
of the Preferred Securities. If the Property Trustee shall not be
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<PAGE>
the sole holder of the Convertible Debentures, the Company shall give the
holders of the Convertible Debentures notice of its selection of such Extension
Period at least ten Business Days prior to the earlier of (i) the Interest
Payment Date or (ii) the date the Company is required to give notice to the NYSE
(or any applicable self-regulatory organization) or to holders of the
Convertible Debentures on the record or payment date of such related interest
payment, but in any event not less than two Business Days prior to such record
date.
ADDITIONAL INTEREST
If the Trust would be required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then, in any such case, the
Company will pay as additional interest ("Additional Interest") such amounts as
shall be required so that the net amounts received and retained by the Trust
after paying any such taxes, duties, assessments or governmental charges will be
not less than the amounts the Trust would have received had no such taxes,
duties, assessments or governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into Company Common Stock at the
option of the holders of the Convertible Debentures at any time prior to the
Business Day immediately preceding the date of repayment of such Convertible
Debentures, whether at maturity or upon redemption (either at the option of the
Company or pursuant to a Tax Event), at the initial conversion price set forth
on the cover page of this Prospectus subject to the conversion price adjustments
described under "Description of the Preferred Securities--Conversion Rights".
The Trust has covenanted not to convert Convertible Debentures held by it except
pursuant to a notice of conversion delivered to the Conversion Agent by a holder
of Preferred Securities. Upon surrender of a Preferred Security to the
Conversion Agent for conversion, the Trust will distribute $50 principal amount
of the Convertible Debentures to the Conversion Agent on behalf of the holder of
the Preferred Securities so converted, whereupon the Conversion Agent will
convert such Convertible Debentures to Company Common Stock on behalf of such
holder. The Company's delivery to the holders of the Convertible Debentures
(through the Conversion Agent) of the fixed number of shares of Company Common
Stock into which the Convertible Debentures are convertible (together with the
cash payment, if any, in lieu of fractional shares) will be deemed to satisfy
the Company's obligation to pay the principal amount of the Convertible
Debentures so converted, and the accrued and unpaid interest thereon
attributable to the period from the last date to which interest has been paid or
duly provided for; provided, however, that if any Convertible Debenture is
converted after a record date for payment of interest, the interest payable on
the related interest payment date with respect to such Convertible Debenture
shall be paid to the Trust (which will distribute such interest to the
converting holder) or other holder of Convertible Debentures, as the case may
be, despite such conversion.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Convertible Debentures, in
whole or in part, at any time or from time to time after April 15, 1999 upon not
less than 30 nor more than 60 days' notice, at a redemption price equal to
105.95% of the principal amount of the Convertible Debentures to be redeemed
plus any accrued and unpaid interest, including Additional Interest, Compounded
Interest and Liquidation Damages, if any, to the redemption date if redeemed on
or before April 15, 2000, and
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<PAGE>
at the following optional redemption prices (expressed as a percentage of the
principal amount of Convertible Debentures), if redeemed during the 12-month
period beginning April 15:
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000................................ 105.10%
2001................................ 104.25
2002................................ 103.40
2003................................ 102.55
2004................................ 101.70
2005................................ 100.85
2006 and thereafter................. 100.00
</TABLE>
plus, in each case, accrued and unpaid interest, including Additional Interest,
Compounded Interest and Liquidation Damages, if any, to the redemption date.
If a partial redemption of the Preferred Securities resulting from a partial
redemption of the Convertible Debentures would result in the delisting of the
Preferred Securities, the Company may only redeem Convertible Debentures in
whole.
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that, among
other things, would treat as equity for United States Federal income tax
purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On March
29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways
and Means Committee Chairman Bill Archer issued the Joint Statement indicating
their intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action". Based on
the Joint Statement, it is expected that if the Proposed Legislation were
enacted, such legislation would not apply to the Convertible Debentures since
they were issued prior to the date of any "appropriate Congressional action".
Furthermore, even if the Proposed Legislation were enacted in its current form
with effective date provisions making it applicable to the Convertible
Debentures, it would not cause the Convertible Debentures to be treated as
equity for United States Federal income tax purposes since the maximum term of
the Convertible Debentures will not exceed 20 years. There can be no assurances,
however, that any proposed legislation enacted after the date hereof will not
otherwise adversely affect the tax treatment of the Convertible Debentures. If
legislation is enacted that adversely affects the tax treatment of the
Convertible Debentures, such legislation could result in the distribution of the
Convertible Debentures to holders of the Preferred Securities or, in certain
limited circumstances, the redemption of such securities by the Company and the
distribution of the resulting cash in redemption of the Preferred Securities.
See "Description of the Preferred Securities--Special Event Redemption or
Distribution".
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company. No payment of principal of (including redemption payments, if any),
premium, if any, or interest on, the Convertible Debentures may be made if (i)
any Senior Indebtedness of the Company is not paid when due and any applicable
grace period with respect to such default has ended and such default has not
been cured or waived, or ceased to exist or (ii) the maturity of any Senior
Indebtedness of the Company has been accelerated
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<PAGE>
because of a default. At August 3, 1996, Senior Indebtedness of the Company
consisted of the Company's guarantee of $186.5 million of indebtedness of Ann
Taylor. Upon any distribution of assets of the Company to creditors upon any
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
principal of, and premium, if any, and interest due or to become due on, all
Senior Indebtedness of the Company must be paid in full before the holders of
the Convertible Debentures are entitled to receive or retain any payment. Upon
satisfaction of all claims related to all Senior Indebtedness of the Company
then outstanding, the rights of the holders of the Preferred Securities will be
subrogated to the rights of the holders of Senior Indebtedness of the Company to
receive payments or distributions applicable to Senior Indebtedness until all
amounts owing on the Convertible Debentures are paid in full.
The term "Senior Indebtedness" shall mean in respect of the Company: (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Convertible Debentures and (2) any indebtedness between or among such obligor or
its affiliates, including all other debt securities and guarantees in respect of
those debt securities issued to any other trust, or trustee of such trust,
partnership or other entity affiliated with the Company that is, directly or
indirectly, a financing vehicle of the Company (a "Financing Entity") in
connection with the issuance by such Financing Entity of preferred securities or
other securities that rank pari passu with, or junior to, the Preferred
Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. The Company's operations are conducted
through its wholly owned subsidiary, Ann Taylor. At August 3, 1996, indebtedness
of Ann Taylor, including trade payables of $36.1 million, aggregated
approximately $197.4 million, which indebtedness is effectively senior to the
Convertible Debentures.
CERTAIN COVENANTS
In the Indenture, the Company has covenanted that, so long as any
Convertible Debentures are outstanding, if (i) there shall have occurred and be
continuing any event that with the giving of notice or the lapse of time or
both, would constitute an Indenture Event of Default, (ii) the Company shall be
in default with respect to its payment of any obligations under the Guarantee,
or (iii) the Company has exercised its option to defer interest payments on the
Convertible Debentures by extending the interest payment period and such period,
or any extension thereof, shall be continuing, then the Company (a) shall not
declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock, except for dividends or distributions in shares of its capital
stock of the same class on which such dividend or distribution is being paid and
conversions or exchanges of common stock of one class into common stock of
another class and except for a redemption, purchase or other acquisition of
shares of its capital stock made for the purposes of an employee incentive plan
or benefit plan of the Company or any of its subsidiaries, (b)
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<PAGE>
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company that rank
pari passu with or junior to the Convertible Debentures (except by conversion
into or exchange for shares of its capital stock), and (c) shall not make any
guarantee payments with respect to the foregoing.
The Company has agreed (i) to directly or indirectly maintain 100% ownership
of the Common Securities of the Trust; provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of such Common Securities and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Convertible Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States Federal income tax purposes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other corporation or convey, transfer or lease its assets substantially
as an entirety unless (a) if the Company is not the survivor, the successor is a
corporation organized in the United States and expressly assumes the due and
punctual payment of the principal of (and premium, if any) and interest on all
Convertible Debentures issued thereunder and the performance of every other
covenant of the Indenture on the part of the Company and (b) immediately
thereafter no event of default under the Indenture and no event which, after
notice or lapse of time, or both, would become an event of default under the
Indenture, shall have happened and be continuing. Upon any such consolidation,
merger, conveyance or transfer, the successor corporation shall succeed to and
be substituted for the Company under the Indenture and thereafter the
predecessor corporation shall be relieved of all obligations and covenants under
the Indenture and the Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of the Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Special Event, the Convertible Debentures will
be issued in the same form as the Preferred Securities which such Convertible
Debentures replace. Any Global Certificate will be replaced by one or more
global certificates (each a "Global Security") registered in the name of the
depositary or its nominee. Except under the limited circumstances described
below, the Convertible Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as, Convertible Debentures
in definitive form. The Global Securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Convertible
Debentures in definitive form and will not be considered the holders thereof for
any purpose under the Indenture, and no Global Security representing Convertible
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the depositary or its
nominee or to a successor depositary or its nominee. Accordingly, each
Beneficial Owner must rely on the procedures of DTC or if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Indenture.
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THE DEPOSITARY
If Convertible Debentures are distributed to holders of Preferred Securities
in liquidation of such holders' interests in the Trust and a Global Security is
issued, DTC will act as securities depositary for the Convertible Debentures
represented by such Global Security. For a description of DTC and the specific
terms of the depositary arrangements, see "Description of the Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company". As of the
date of this Prospectus, the description therein of DTC's book-entry system and
DTC's practices as they relate to purchases, transfers, notices and payments
with respect to the Convertible Preferred Securities apply in all material
respects to any debt obligations represented by one or more Global Securities
held by DTC. The Company may appoint a successor to DTC or any successor
depositary in the event DTC or such successor depositary is unable or unwilling
to continue as a depositary for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Convertible Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act of 1934, as amended (the
"Exchange Act"), at which time the Depositary is required to be so registered to
act as such depositary and no successor depositary shall have been appointed,
(iii) the Company, in its sole discretion, determines that such Global Security
shall be so exchangeable or (iv) there shall have occurred an Event of Default
with respect to such Convertible Debentures. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Convertible Debentures registered in such names as the Depositary shall direct.
It is expected that such instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Debentures: (i) failure for 30 days to pay
interest on the Convertible Debentures, including any Additional Interest,
Compounded Interest and Liquidated Damages in respect thereof, when due provided
that a valid extension of an interest payment period will not constitute a
default in the payment of interest (including any Additional Interest,
Compounded Interest or Liquidated Damages) for this purpose; or (ii) failure to
pay principal of or premium, if any, on the Convertible Debentures when due
whether at maturity, upon redemption, by declaration or otherwise; or (iii)
failure by the Company to deliver shares of Company Common Stock upon an
election by a holder of Preferred Securities to convert such Preferred
Securities; or (iv) failure to observe or perform any other covenant contained
in the Indenture for 90 days after notice to the Company by the Trustee or by
the holders of not less than 25% in aggregate outstanding principal amount of
the Convertible Debentures; (v) the dissolution, winding up or termination of
the Trust, except in connection with the distribution of Convertible Debentures
to the holders of Preferred Securities in liquidation of the Trust upon the
redemption of all outstanding Preferred Securities and in connection with
certain mergers, consolidations or amalgamations permitted by the Declaration;
or (vi) certain events in bankruptcy, insolvency or reorganization of the
Company.
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The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Event of Default; provided, however, that,
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of outstanding
Convertible Debentures may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal, have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "--Modifications and Amendments of the
Indenture".
Notwithstanding the foregoing, if an Indenture Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Debentures on the date such
interest or principal is otherwise payable, the Company acknowledges that, in
such event, a holder of Preferred Securities may institute a Direct Action for
payment on or after the respective due date specified in the Convertible
Debentures. The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of all the
holders of Preferred Securities. Notwithstanding any payment made to such holder
of Convertible Preferred Securities by the Company in connection with a Direct
Action, the Company shall remain obligated to pay the principal of or interest
on the Convertible Debentures held by the Trust or the Property Trustee and the
Company shall be subrogated to the rights of the holder of such Preferred
Securities with respect to payments on the Preferred Securities to the extent of
any payments made by the Company to such holder in any Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Debentures.
The Holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may on behalf of the holders of all the
Convertible Debentures waive any past defaults except (a) a default in payment
of the principal of (or premium, if any) or interest, if any, on any Convertible
Debentures and (b) a default in respect of a covenant or provision of the
Indenture which cannot be amended or modified without the consent of the holder
of each Convertible Debenture; provided, however, that if the Convertible
Debentures are held by the Trust or a trustee of such Trust, such waiver or
modification to such waiver shall not be effective until the holders of a
majority in liquidation amount of Trust Securities shall have consented to such
waiver or modification to such waiver; provided, further, that if the consent of
the holder of each outstanding Convertible Debenture is required, such waiver
shall not be effective until each holder of the Trust Securities shall have
consented to such waiver.
A default under any other indebtedness of the Company or the Trust would not
constitute an Event of Default under the Convertible Debentures.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing, the
Indenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any holders of
Convertible Debentures, unless such holders shall have offered to the Indenture
Trustee reasonable indemnity. Subject to such provisions for the indemnification
of the Indenture Trustee, the holders of a majority in aggregate principal
amount of the Convertible Debentures then outstanding will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee, or exercising any trust or power conferred
on the Indenture Trustee with respect to such series.
No holder of any Convertible Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Indenture Trustee written
notice of a continuing Event of Default, (ii) if the Trust is not the sole
holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall also have
made written request, (iii) such holder has
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offered reasonable indemnity to the Indenture Trustee to institute such
proceeding as Indenture Trustee, (iv) the Indenture Trustee shall have failed to
institute such proceeding within 60 days of such notice, and (v) the Indenture
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Convertible Debentures a direction
inconsistent with such request. However, such limitations do not apply to a suit
instituted by a holder of a Convertible Debenture for enforcement of payment of
the principal of or interest on such Convertible Debenture on or after the
respective due dates expressed in such Convertible Debenture.
The Company is required to file annually with the Indenture Trustee and the
Property Trustee a certificate as to whether or not the Company is in compliance
with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures; provided,
however, that no such modification may, without the consent of the holder of
each outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, or adversely affect the right
to convert Convertible Debentures or the subordination provisions of the
Indenture, or (ii) reduce the percentage in aggregate principal amount of
outstanding Convertible Debentures, the holders of which are required to consent
to any such supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
GOVERNING LAW
The Indenture and the Convertible Debentures is governed by, and will be
construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent man would exercise in the conduct
of his own affairs. Subject to such provision, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Convertible Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Indenture Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the Indenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
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EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures is equal to the sum of
the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures match the distribution rate and distribution and other payment dates
for the Preferred Securities; (iii) pursuant to the Indenture, the Company shall
pay all, and the Trust shall not be obligated to pay, directly or indirectly,
costs, expenses, debt and obligations of the Trust other than with respect to
the Trust Securities; and (iv) the Declaration provides that the Issuer Trustees
will not cause or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of the Guarantee". If the Company does not make interest payments
on the Convertible Debentures purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Guarantee is a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of its issuance but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
The Guarantee covers the payment of distributions and other payments on the
Preferred Securities only if and to the extent that the Company has made a
payment of interest or principal on the Convertible Debentures held by the Trust
as its sole asset. The Guarantee, when taken together with the Company's
obligations under the Convertible Debentures and the Indenture and its
obligations under the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), provides a full and unconditional guarantee of amounts on the
Preferred Securities.
If the Company fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities-- Book-Entry
Only Issuance--The Depository Trust Company" and "Description of the Preferred
Securities--Voting Rights", may direct the Property Trustee to enforce its
rights under the Convertible Debentures. If the Property Trustee fails to
enforce its rights under the Convertible Debentures, any holder of Preferred
Securities may directly institute a legal proceeding against the Company to
enforce the Property Trustee's rights under the Convertible Debentures without
first instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Preferred
Securities may institute a Direct Action for payment on or after the respective
due date specified in the Convertible Debentures. In connection with such Direct
Action, the Company will be subrogated to the rights of such holder of Preferred
Securities under the Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action. The
Company, under the Guarantee, acknowledges that the Guarantee Trustee shall
enforce the Guarantee on behalf of the holders of the Preferred Securities. If
the Company fails to make payments under the
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Guarantee, the Guarantee provides a mechanism whereby the holders of the
Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any holder
of Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee,
or any other person or entity.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Company 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
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally, including the election
of directors. Subject to the rights of holders of preferred stock, the holders
of Company Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, holders of Company Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to the rights of
holders of preferred stock, including any liquidation amount payable with
respect to any outstanding preferred stock. The holders of Company Common Stock
have no preemptive or conversion rights and are not subject to further calls or
assessments by the Company.
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-LAWS PROVISIONS
Pursuant to the 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
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nominate a director or raise business at such meetings must be received by the
Company not less than 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 information concerning the stockholder submitting the proposal.
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 will be 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.
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FINANCING ARRANGEMENTS
BANK CREDIT AGREEMENT
The Bank Credit Agreement currently provides for a $24.5 million Term Loan
and a $122 million Revolving Credit Facility.
The principal amount of the Term Loan is payable on September 29, 1998. At
August 3, 1996, the Company had $24.5 million outstanding under the Term Loan.
The Term Loan bears interest at a rate equal to, at the Company's option, Bank
of America National Trust and Saving Association's (i) Base Rate plus 2.50%, or
(ii) Eurodollar Rate plus 3.50%.
The Revolving Credit Facility currently provides for borrowings by Ann
Taylor in a principal amount of up to $122 million at any one time, including
letters of credit. Subject to the terms of the Revolving Credit Facility, Ann
Taylor may, from time to time, borrow, repay and reborrow under such facility.
The entire unpaid balance may be prepaid at any time without penalty, and is
payable in full on July 29, 1998. Amounts borrowed under the Revolving Credit
Facility are not subject to scheduled repayment prior to such date; however, Ann
Taylor is required to reduce the outstanding payment balance of the Revolving
Credit Facility to $50 million or less for a 30-day period in Fiscal 1996 and
each fiscal year thereafter. Prior to the third quarter of Fiscal 1996, loans
under the Revolving Credit Facility bear interest at a rate equal to, at the
Company's option, Bank of America's (i) Base Rate plus .75%, or (ii) Eurodollar
Rate plus 1.75%. Beginning in the third quarter of Fiscal 1996, loans under the
Revolving Credit Facility will bear interest at a rate to be determined by
reference to the ratio of funded debt to EBITDA. At August 3, 1996, Ann Taylor
had borrowings of $13.2 million under the Revolving Credit Facility, including
$9.2 million in letters of credit.
The Bank Credit Agreement contains mandatory prepayment and commitment
reduction provisions in the event that Ann Taylor or any of its restricted
subsidiaries consummates (i) a financing transaction secured by a mortgage on
the distribution center located in Louisville, Kentucky, which is owned by a
wholly owned subsidiary of Ann Taylor (the "Distribution Center Financing") or
(ii) one or more financing transactions (including sale and leaseback
transactions) secured by equipment or store furniture or fixtures. These
provisions generally require that an amount equal to 50% of the greater of (a)
the net cash proceeds of such transaction and (b) the principal amount of
indebtedness incurred in such transaction be applied to prepay loans and to
reduce the commitment under the Bank Credit Agreement. The Distribution Center
Financing was consummated in November 1995, and the original commitments under
the Revolving Credit Facility and the Term Loan were reduced by $3 million ($125
million to $122 million) and $500,000 ($25 million to $24.5 million),
respectively.
The Bank Credit Agreement contains financial covenants, including a minimum
net worth test, a minimum fixed charge test and a debt to capitalization ratio
test. The Bank Credit Agreement contains certain other restrictive covenants
that impose limitations (subject to certain exceptions) on Ann Taylor and the
Company with respect to, among other things, (i) creating or incurring liens,
(ii) selling or disposing of property or assets, (iii) making or owning
investments, (iv) incurring guarantees or other contingent obligations, (v)
declaring or paying dividends or making distributions on account of, or
acquiring, common stock or preferred stock of Ann Taylor or the Company, (vi)
making any change in the nature of Ann Taylor's business, (vii) engaging in
certain transactions with affiliates, (viii) as to Ann Taylor only,
consolidating, merging, dissolving or liquidating, or selling all or
substantially all of Ann Taylor's assets, (ix) redeeming or purchasing, or
paying or repaying principal of or interest on the 8 3/4% Notes, (x) modifying
certain material agreements, and (xi) making capital expenditures in excess of
the thresholds set forth in the Bank Credit Agreement. The Bank Credit Agreement
also restricts the ability of Ann Taylor and the Company to incur additional
indebtedness, subject to certain exceptions. In order to issue the Convertible
Debentures and the Guarantee, and to make distributions on the Preferred
Securities (so long as there is no event of default under the Bank Credit
Agreement), the Company and Ann Taylor obtained an amendment to certain of these
covenants. Such amendment contains a restrictive covenant prohibiting the
amendment or other modification of the terms of the
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Preferred Securities, if such amendment or modification would, as determined by
the lenders, be adverse to their interests, without the consent of the lenders
under the Bank Credit Agreement.
The obligations of Ann Taylor under the Bank Credit Agreement are secured by
a lien on substantially all of its tangible and intangible property (other than
its receivables and inventory), including trademarks and service marks (but
excluding leasehold interests), pursuant to various security agreements. In
addition, the Company has guaranteed Ann Taylor's payment obligations under the
Bank Credit Agreement and has pledged all of Ann Taylor's common stock to secure
its guaranty.
RECEIVABLES FACILITY
All of Ann Taylor's receivables ("Receivables") are sold to its wholly owned
subsidiary, Ann Taylor Funding, Inc. ("Funding") pursuant to a Purchase and Sale
Agreement, dated as of January 27, 1994, and as amended as of October 31, 1995.
Funding and Ann Taylor are parties to an Amended and Restated Receivables
Financing Agreement, dated as of October 31, 1995, with Market Street Capital
Corp., as lender ("Market Street"), and PNC, National Association ("PNC"), as
administrator, pursuant to which the Receivables are pledged to Market Street to
serve as collateral for up to $40 million of indebtedness.
Loans under the Receivables Facility bear interest at different rates
depending on whether such loans are funded by the issuance by Market Street of
short-term promissory notes ("Commercial Paper Notes"). If the loans are funded
by Commercial Paper Notes, the interest rate is determined based on the discount
rate or rates at which such Commercial Paper Notes are sold and the commissions
and charges charged with respect to such Commercial Paper Notes. If the loans
are not funded by Commercial Paper Notes, the interest rate is equal to (i)
PNC's reserve adjusted Eurodollar Rate, plus 1.25% per annum, or, in certain
circumstances, (ii) the higher of (a) PNC's prime rate plus .25% or (b) PNC's
federal fund rate, plus 1.25% per annum. These loans presently are not funded by
Commercial Paper Notes. Interest is due and payable monthly.
The Receivables Facility contains financial covenants applicable to Ann
Taylor similar to those contained in the Bank Credit Agreement, and contains
restrictions on the payment of dividends and distributions that mirror the Bank
Credit Agreement, as amended from time to time. See "--Bank Credit Agreement".
8 3/4% NOTES
The 8 3/4% Notes mature on June 15, 2000, are limited to $110,000,000
aggregate principal amount and are unsecured and subordinated obligations of Ann
Taylor. At August 3, 1996, $100,000,000 aggregate principal amount of 8 3/4%
Notes was outstanding. Each 8 3/4% Note bears interest at the rate of 8 3/4% per
annum, payable semi-annually on June 15 and December 15 of each year. There is
no sinking fund for the 8 3/4% Notes.
The Note Indenture contains, among other things, certain covenants,
including limitations on indebtedness, limitations on restricted payments such
as dividends on Ann Taylor's capital stock, limitations on other subordinated
indebtedness and restrictions on transactions with affiliates and the use of
proceeds from asset sales. Under the Note Indenture, Ann Taylor may not make a
Restricted Payment unless (i) no event of default has occurred and is
continuing; (ii) the aggregate of all Restricted Payments made after June 21,
1993 shall not exceed the sum of (a) 50% of Consolidated Adjusted Net Income (as
defined in the Note Indenture) of Ann Taylor since May 1, 1993 plus (b) the
aggregate net proceeds received by Ann Taylor from (x) the issue or sale of
capital stock or (y) any equity contribution by the Company plus (c) the
aggregate net proceeds received by Ann Taylor from debt securities exchanged for
capital stock plus (d) the aggregate amount received in repayment of any loan or
advance plus (e) $10,000,000; and (iii) the Company could incur $1.00 of
additional Indebtedness (as defined in the Note Indenture) under the Note
Indenture. At August 3, 1996, approximately $161 million was available for
Restricted Payments under the Note Indenture.
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The 8 3/4% Notes may not be redeemed by Ann Taylor prior to June 15, 1998,
except in the event of a Change in Control Trigger Event (as defined in the Note
Indenture). On or after July 15, 1998, the 8 3/4% Notes will be subject to
redemption at the option of Ann Taylor, in whole or in part. Under the terms of
the Note Indenture, upon the happening of a Change in Control Trigger Event, and
the satisfaction of certain conditions relating to Ann Taylor's indebtedness
that is senior to the 8 3/4% Notes, each holder of 8 3/4% Notes may require Ann
Taylor to repurchase such holder's 8 3/4% Notes at 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase.
The Bank Credit Agreement prohibits Ann Taylor from making an optional
redemption of the 8 3/4% Notes, without the consent of the lenders thereunder.
ATGS CREDIT AGREEMENT
The ATGS Credit Agreement provides for a $40 million facility (the "ATGS
Facility") to be used for letters of credit with a sublimit of $8 million for
loans to finance the payment of letter of credit obligations. The ATGS Facility
terminates on July 29, 1997. The ATGS Facility, entered into as of September 20,
1996, is an amended and restated facility modifying the agreement that had been
in place between CAT (the predecessor in interest to ATGS) and HKSBC.
At August 3, 1996, CAT had $39 million outstanding under the old ATGS
Facility of which $38.6 million was comprised of issued but undrawn letters of
credit. The loans under the ATGS Facility bear interest at a rate equal to
Marine Midland Bank's prime rate plus 0.50%.
Subject to the terms of the ATGS Credit Agreement, ATGS may, from time to
time, borrow, repay and reborrow under the ATGS Facility. Amounts issued under
letters of credit must be paid on demand after payment by HKSBC of such amount.
Upon one day's notice to the HKSBC, ATGS may borrow funds up to $8 million to
reimburse HKSBC for amounts it has paid under letters of credit. Such loans are
payable no later than sixty days from the date of issuance. The loans may be
prepaid at the option of ATGS. The loans are required to be prepaid in the
amount of the excess if the amount of the loans exceed (i) $8 million or (ii)
the borrowing base minus all undrawn letters of credit and the outstanding
principal amount of all reimbursement obligations. The ATGS Facility may be
terminated prior to the termination date provided that a fee of 0.25% is paid on
the total facility amount. ATGS is also required to pay a fee of 0.25% on the
unused amount of the ATGS Facility.
The ATGS Credit Agreement contains financial covenants including a minimum
net worth test, a leverage ratio and a current ratio. The ATGS Credit Agreement
contains certain other restrictive covenants that impose limitations (subject to
certain exceptions) on ATGS from, among other things, (i) creating or incurring
additional indebtedness, (ii) creating or incurring liens, (iii) selling or
disposing of property or assets, (iv) making or owning investments, (v)
declaring or paying dividends, (vi) engaging in transactions with affiliates,
(vii) changing its lines of business and (viii) amending or waiving any
obligations of Ann Taylor under the Sales Agreement dated as of September 20,
1996, between Ann Taylor and ATGS.
The obligations of ATGS under the ATGS Credit Agreement are secured by a
lien on substantially all of its tangible and intangible property, pursuant to a
security agreement and are supported by a letter of credit provided by Ann
Taylor in the amount of $8 million.
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UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States Federal
income tax consequences of the purchase, ownership, disposition and conversion
of Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets. This summary addresses the United
States Federal income tax considerations to holders of Preferred Securities who
are citizens or residents of the United States, corporations, partnerships or
other entities created or organized in or under the laws of the United States or
any political subdivision thereof or therein, or estates or trusts the income of
which is subject to United States Federal income taxation regardless of its
source or other holders who are otherwise subject to United States federal
income taxation on a net income basis with respect to Preferred Securities
("U.S. Holders") and does not address the tax consequences to holders of
Preferred Securities who are not U.S. Holders. This summary does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as other than a capital asset. This summary also does not
address the tax consequences to persons that have a functional currency other
than the U.S. Dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Preferred Securities. Further, it does not include
any description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the Preferred Securities. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company has taken the position that the Convertible Debentures will be
classified for United States Federal income tax purposes as indebtedness of the
Company under current law, and, by acceptance of a Preferred Security, each
holder covenants to treat the Convertible Debentures as indebtedness and the
Preferred Securities as evidence of an indirect beneficial ownership interest in
the Convertible Debentures. No assurance can be given, however, that such
position of the Company will not be challenged by the Internal Revenue Service
or, if challenged, that such a challenge will not be successful. The remainder
of this discussion assumes that the Convertible Debentures will be classified as
indebtedness of the Company for United States Federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Skadden, Arps,
Slate, Meagher & Flom, special counsel to the Company and the Trust, rendered
its opinion generally to the effect that, under then current law and assuming
full compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United Stated Federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States Federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Convertible Debentures, and each holder will be required to
include in its gross income any original issue discount accrued with respect to
its allocable share of those Convertible Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Convertible
Debentures, to defer payments of interest by extending interest payment periods
for up to 20 quarters, all of the stated interest payments on the Convertible
Debentures will be treated as "original issue discount". Holders of debt
instruments issued with OID must include that discount in income on an economic
accrual basis
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before the receipt of cash attributable to the interest, regardless of their
method of tax accounting. Generally, all of a holder's taxable interest income
with respect to the Convertible Debentures will be accounted for as OID. Actual
payments and distributions of stated interest will not, however, be separately
reported as taxable income. The amount of OID that accrues in any quarter will
approximately equal the amount of the interest that accrues on the Convertible
Debentures in that quarter at the stated interest rate. In the event that the
interest payment period is extended, holders will continue to accrue OID
approximately equal to the amount of the interest payment due at the end of the
extended interest payment period on an economic accrual basis over the length of
the extended interest payment period.
Because income on the Preferred Securities will constitute OID, corporate
holders of Preferred Securities will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
MARKET DISCOUNT AND BOND PREMIUM
To the extent a holder acquires its Preferred Securities at a price that is
greater or less than the adjusted issue price of such holder's proportionate
share of the Convertible Debentures (which generally should approximate the face
amount plus accrued but unpaid interest on the Convertible Debentures), the
holder may be deemed to have acquired its undivided interest in the Convertible
Debentures with acquisition premium or market discount. A holder who purchases
Preferred Securities at a premium will be permitted to reduce the amount of OID
required to be included in income to reflect the acquisition premium. A holder
who purchases Preferred Securities at a market discount will include the amount
of such discount in income in accordance with the market discount rules
described below.
A holder that acquires its undivided beneficial interest in the Convertible
Debentures at a market discount generally will be required to recognize ordinary
income to the extent of accrued market discount on the Convertible Debentures
upon their retirement or, to the extent of any gain, upon the disposition of the
Preferred Securities. Such market discount will accrue ratably or, at the
election of the holder, under a constant yield method over the remaining term of
the Convertible Debentures. A holder will also be required to defer the
deduction of a portion of the interest paid or accrued on indebtedness incurred
to purchase or carry Preferred Securities that represent an undivided interest
in Convertible Debentures acquired with market discount. In lieu of the
foregoing, a holder may elect to include market discount in income currently as
it accrues on all market discount instruments acquired by such holder in the
taxable year of the election or thereafter, in which case the interest deferral
rule will not apply.
A holder may elect, in lieu of applying the market discount or premium rules
described above, to account for all income under the Convertible Debentures as
if it were OID. A holder that makes this election and that is considered to have
acquired its undivided beneficial interest in the Convertible Debentures with
market discount will be considered to have made the election described in the
immediately preceding paragraph.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities--Special Event Redemption or Distribution", Convertible
Debentures may be distributed to holders in exchange for the Preferred
Securities and in liquidation of the Trust. Under current law, such a
distribution to holders, for United States Federal income tax purposes, would be
treated as a nontaxable event to each holder, and each holder would receive an
aggregate tax basis in the Convertible Debentures equal to such holder's
aggregate tax basis in its Preferred Securities. A holder's holding period in
the Convertible Debentures so received in liquidation of the Trust would include
the period during which the Preferred Securities were held by such holder. If,
however, the related Special Event is a Tax Event which results in the Trust
being treated as an association taxable as a corporation,
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<PAGE>
the distribution would likely constitute a taxable event to holders of the
Preferred Securities, in which event the Company would generally be required to
redeem the Convertible Debentures and distribute the resulting cash in
liquidation of the Trust.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Convertible Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in redemption of their
Preferred Securities. Under current law, such a redemption would, for United
States Federal income tax purposes, constitute a taxable disposition of the
redeemed Preferred Securities, and a holder would recognize gain or loss as if
it sold such redeemed Preferred Securities for cash. See "--Sales of Preferred
Securities".
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the Preferred
Securities and the holder's adjusted tax basis in such Preferred Securities. A
holder's adjusted tax basis in the Preferred Securities generally will be its
initial purchase price increased by OID previously includible in such holder's
gross income to the date of disposition and decreased by payments received on
the Preferred Securities to the date of disposition. Subject to the market
discount rules described above, such gain or loss will be a capital gain or loss
and will be a long-term capital gain or loss if the Preferred Securities have
been held for more than one year at the time of sale.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. A holder who disposes of or converts his Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Convertible Debentures
through the date of disposition or conversion in income as ordinary income, and
to add such amount to his adjusted tax basis in his pro rata share of the
underlying Convertible Debentures deemed disposed of or converted. To the extent
the selling price is less than the holder's adjusted tax basis (which basis will
include, in the form of OID, all accrued but unpaid interest), a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States Federal income tax
purposes.
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed the Proposed Legislation that, among
other things, would treat as equity for United States Federal income tax
purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On March
29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways
and Means Committee Chairman Bill Archer issued the Joint Statement indicating
their intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action". Based
on the Joint Statement, it is expected that if the Proposed Legislation were
enacted, such legislation would not apply to the Convertible Debentures since
they were issued prior to the date of any "appropriate Congressional action".
Furthermore, even if the Proposed Legislation were enacted in its current form
with effective date provisions making it applicable to the Convertible
Debentures, it would not cause the Convertible Debentures to be treated as
equity for the United States Federal income tax purposes since the maximum term
of the Convertible Debentures will not exceed 20 years. There can be no
assurances, however, that any proposed legislation enacted after the date hereof
will not otherwise adversely affect the tax treatment of the Convertible
Debentures. If legislation is enacted that adversely affects the tax treatment
of the Convertible Debentures, such legislation could result in the distribution
of the
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Convertible Debentures to holders of the Preferred Securities or, in certain
limited circumstances, the redemption of such securities by the Company and the
distribution of the resulting cash in redemption of the Preferred Securities.
See "Description of the Preferred Securities--Special Event Redemption or
Distribution."
CONVERSION OF PREFERRED SECURITIES INTO COMMON STOCK
A holder will not recognize gain or loss upon the conversion, through the
Conversion Agent, of Preferred Securities for a proportionate share of the
Convertible Debentures held by the Trust.
A holder will not recognize income, gain or loss upon the conversion,
through the Conversion Agent, of Convertible Debentures into Company Common
Stock. A holder will, however, recognize gain upon the receipt of cash in lieu
of a fractional share of Company Common Stock equal to the amount of cash
received less the holder's tax basis in such fractional share. A holder's tax
basis in the Company Common Stock received upon exchange and conversion should
generally be equal to the holder's tax basis in the Preferred Securities
delivered to the Conversion Agent for exchange less the basis allocated to any
fractional share for which cash is received and a holder's holding period in the
Company Common Stock received upon exchange and conversion should generally
begin on the date the holder acquired the Preferred Securities delivered to the
Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the conversion ratio of the Convertible Debentures
were adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Company Common Stock into or for which the
Convertible Debentures are convertible or exchangeable) of the holders of the
Preferred Securities in the assets or earnings and profits of the Company were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable antidilution formula. An adjustment in the conversion ratio would not
be considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Company Common
Stock. Thus, under certain circumstances, a reduction in the conversion price
for the holders may result in deemed dividend income to holders to the extent of
the current or accumulated earnings and profits of the Company. Holders of the
Preferred Securities would be required to include their allocable share of such
deemed dividend income in gross income but would not receive any cash related
thereto.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Preferred Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Preferred Securities by
January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided the
required information is provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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SELLING HOLDERS
The Preferred Securities were originally issued by the Trust and sold by
Merrill Lynch, Pierce, Fenner & Smith, Incorporated, CS First Boston, Donaldson,
Lufkin & Jenrette Securities Corporation and Robertson, Stephens & Company LLC
(the "Initial Purchasers"), in a transaction exempt from the registration
requirements of the Securities Act, to persons reasonably believed by such
Initial Purchasers to be "qualified institutional buyers" (as defined in Rule
144A under the Securities Act), to certain qualified institutional buyers acting
on behalf of institutional "accredited investors" (as defined in Rule 501(a)
(1), (2), (3) or (7) under the Securities Act), or outside the United States to
non-U.S. persons in offshore transactions in reliance on Regulation S under the
Securities Act. The Selling Holders may from time to time offer and sell
pursuant to this Prospectus any or all of the Preferred Securities, any
Convertible Debentures and Company Common Stock issued upon conversion of the
Preferred Securities. The term Selling Holder includes the holders listed below
and the beneficial owners of the Preferred Securities and their transferees,
pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Holders of the Preferred Securities and the respective number of Preferred
Securities beneficially owned by each Selling Holder that may be offered
pursuant to this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
SELLING HOLDER SECURITIES
-------------- ----------
<C> <S> <C>
1. AIM CHARTER FUND (A SERIES OF AIM EQUITY FUNDS, INC.)....... 140,000
2. GLOBAL BERMUDA, L.P. ....................................... 127,500
3. OCM CONVERTIBLE TRUST....................................... 105,500
4. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION......... 81,900
5. FRANK RUSSELL TRUST COMPANY EQUITY 1 FUND................... 80,000
6. OCH-ZIFF CAPITAL MANAGEMENT, L.P. .......................... 80,000
7. STATE OF CONNECTICUT COMBINED INVESTMENT FUNDS.............. 69,000
8. DELTA AIRLINES MASTER TRUST................................. 62,200
9. DE SHAW & CO., INC. ........................................ 51,500
10. CINCINNATI INSURANCE COMPANY................................ 50,000
11. ALLSTATE INSURANCE COMPANY.................................. 50,000
12. PONDWAVE & CO. ............................................. 41,000
13. T. ROWE PRICE GROWTH & INCOME FUND, INC. ................... 40,000
14. VAN KAMPEN AMERICAN CAPITAL HARBOR FUND..................... 37,000
15. LAKESHORE INTERNATIONAL, LTD. .............................. 35,000
16. ELLIOT ASSOCIATES, L.P. .................................... 34,900
17. BZW SECURITIES LIMITED...................................... 31,700
18. PENSION RESERVE INVESTMENT MANAGEMENT BOARD................. 30,000
19. STATE EMPLOYEES' RETIREMENT FUND OF THE STATE OF DELAWARE... 22,500
20. AIM BALANCED FUND (A SERIES OF AIM FUNDS GROUP)............. 20,000
21. RELIANT TRADING............................................. 12,500
22. SHEPHERD FUND, LTD. ........................................ 12,500
23. BANCROFT CONVERTIBLE FUND, INC. ............................ 10,000
24. ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC. ......... 10,000
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
SELLING HOLDER SECURITIES
-------------- ----------
<C> <S> <C>
25. JMG CONVERTIBLE INVESTMENTS, L.P. .......................... 10,000
26. FRANKLIN INVESTORS SECURITIES CONVERTIBLE SECURITIES FUND... 7,500
27. VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES, INC..... 6,600
28. OPPENHEIMER VARIABLE ACCOUNT FUNDS FOR THE ACCOUNT OF
OPPENHEIMER GROWTH & INCOME FUND............................ 5,000
29. OCM CONVERTIBLE LIMITED PARTNERSHIP......................... 5,000
30. PARESCO INC. & LIBERTYVIEW FUND LLC & LIBERTYVIEW PLUS
FUND........................................................ 5,000
31. AIM V.I. GROWTH & INCOME FUND (A SERIES OF AIM VARIABLE
INSURANCE FUNDS, INC.)...................................... 5,000
32. BOST & CO. ................................................. 5,000
33. COLONIAL PENN INSURANCE CO. ................................ 5,000
34. COLONIAL PENN LIFE INSURANCE CO. ........................... 5,000
35. HARRIS INVESTMENT MANAGEMENT INC./HARRIS INSIGHT CONVERTIBLE
FUND........................................................ 5,000
36. GERSHON PARTNER'S L.P. ..................................... 3,334
37. RAMIUS FUND................................................. 3,334
38. PALLADIN PARTNERS L.P. ..................................... 3,332
39. HIGHBRIDGE CAPITAL CORPORATION.............................. 1,185
40. ANY OTHER HOLDER OF CONVERTIBLE PREFERRED SECURITIES OR
FUTURE TRANSFEREE FROM ANY SUCH HOLDER...................... 702,515
----------
Total....................................................... 2,012,500
----------
----------
</TABLE>
As of August 3, 1996, Merrill Lynch, Pierce, Fenner & Smith ("Merrill
Lynch") held of record 53,000 or approximately 2.63% of the outstanding
Preferred Securities. Merrill Lynch disclaims beneficial ownership of these
Preferred Securities. Merrill Lynch is affiliated with the ML Entities, which,
as of August 3, 1996, beneficially owned 6,155,118 shares of Company Common
Stock or approximately 26.6% of the outstanding Company Common Stock. The ML
Entities have two designees on the Company's Board of Directors and, therefore,
are in a position to influence the management and affairs of the Company.
None of the other Selling Holders has, or within the past three years has
had, any position, office or other material relationship with the Trust or the
Company or any of their predecessors or affiliates. Because the Selling Holders
may, pursuant to this Prospectus, offer all or some portion of the Preferred
Securities, the Convertible Debentures or the Company Common Stock issuable upon
conversion of the Preferred Securities, no estimate can be given as to the
amount of the Preferred Securities, the Convertible Debentures or the Company
Common Stock issuable upon conversion of the Preferred Securities that will be
held by the Selling Holders upon termination of any such sales. In addition, the
Selling Holders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Preferred Securities since the date on
which they provided the information regarding their Preferred Securities, in
transactions exempt from the registration requirements of the Securities Act.
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PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Selling
Holders will be indemnified by the Company and the Trust, jointly and severally,
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company and the Trust will be indemnified by the Selling Holders severally
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
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ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Code ("Plans"), may purchase Preferred Securities, subject to the investing
fiduciary's determination that the investment in Preferred Securities satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
the Plan.
The Company and/or any of its affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (within the
meaning of Section 4975 of the Code) with respect to certain Plans. The
acquisition and ownership of Preferred Securities by a Plan (or by an individual
retirement arrangement or other plan described in Section 4975(e)(1) of the
Code) with respect to which the Company or any of its affiliates is considered a
party in interest or a disqualified person, may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
Preferred Securities are acquired pursuant to and in accordance with an
applicable exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Preferred Securities unless such Preferred Securities are acquired pursuant to
and in accordance with an applicable prohibited transaction exemption. Any other
Plans or other entities whose assets include Plan assets subject to ERISA or
Section 4975 of the Code proposing to acquire Preferred Securities should
consult with their own counsel.
LEGAL MATTERS
Certain legal matters with respect to the Preferred Securities, the
Convertible Debentures, the Guarantee and the Company Common Stock issuable upon
conversion will be passed upon for the Company and the Trust by Jocelyn F.L.
Barandiaran, Esquire, Senior Vice President, General Counsel and Corporate
Secretary of the Company, and by Skadden, Arps, Slate, Meagher & Flom. Ms.
Barandiaran beneficially owns 2,000 shares of Company Common Stock and has been
granted options to purchase an additional 52,500 shares of Company Common Stock.
EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus of AnnTaylor Stores Corporation as of February 3, 1996 and January
28, 1995 and for each of the fiscal years in the three year period ended
February 3, 1996, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated by reference herein,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The combined financial statements of the AnnTaylor Woven Division of Cygne
Designs, Inc., CAT US Inc. and C.A.T. (Far East) Limited and Subsidiary as of
February 3, 1996 and January 28, 1995 and for each of the years then ended, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon, incorporated by reference herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
60
<PAGE>
======================================= ======================================
- --------------------------------------- --------------------------------------
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN 2,012,500 PREFERRED
CONNECTION WITH THE OFFERING MADE BY SECURITIES
THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ANNTAYLOR FINANCE TRUST, ANNTAYLOR
STORES CORPORATION OR ANY OF THEIR
AGENTS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A ANNTAYLOR
SOLICITATION OF AN OFFER TO BUY, ANY OF FINANCE TRUST
THE SECURITIES OFFERED HEREBY 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, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF 8 1/2% CONVERTIBLE TRUST
ANNTAYLOR FINANCE TRUST OR ORIGINATED PREFERRED
ANNTAYLOR STORES CORPORATION SINCE THE
DATE HEREOF. SECURITIESSM ("CONVERTIBLE TOPRSSM")
FULLY AND UNCONDITIONALLY
------------------- GUARANTEED BY, AND
TABLE OF CONTENTS CONVERTIBLE INTO
COMMON STOCK OF,
ANNTAYLOR STORES
CORPORATION
PAGE
----
Available Information......... 4
Incorporation of Certain
Documents by Reference...... 5
Risk Factors.................. 7
The Company................... 15
[LOGO]
AnnTaylor Finance Trust....... 16
Accounting Treatment.......... 17
Use of Proceeds............... 17
Ratio of Earnings to Fixed
Charges....................... 17
Capitalization................ 18
Description of the
Preferred Securities....... 19
Description of the
Guarantee................... 35
Description of the
Convertible Debentures...... 38
Effect of Obligations
Under the Convertible
Debentures and the
Guarantee................... 47
---------------------------
Description of Capital Stock.. 48
Financing Arrangements........ 50 PROSPECTUS
----------------------------
United States Federal Income
Taxation.................... 53
Selling Holders............... 57
Plan of Distribution.......... 59
ERISA Considerations.......... 60
Legal Matters................. 60
Experts....................... 60
- --------------------------------------- --------------------------------------
======================================= ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses (other than the SEC filing fee) are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 40,684
Printing expenses.............................................. 15,000
Legal fees and expenses........................................ 175,000
Blue Sky fees and expenses (including legal fees and
expenses)...................................................... 20,000
Accounting fees and expenses................................... 75,000
Miscellaneous.................................................. 24,316
----------
Total.................................................. $ 350,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTOR 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 this 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
-------------- -----------
<C> <S>
4.1 Certificate of Trust of AnnTaylor Finance Trust.*
4.2 Amended and Restated Declaration of Trust of AnnTaylor Finance Trust, dated
as of April 25, 1996, among AnnTaylor Stores Corporation, as Sponsor, The
Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee and J. Patrick Spainhour, Paul E. Francis and Walter J.
Parks, as Trustees.*
4.3 Indenture for the 8 1/2% Convertible Subordinated Debentures, dated as of
April 15, 1996, among AnnTaylor Stores Corporation and The Bank of New
York, as Indenture Trustee.*
4.4 Form of 8 1/2% Preferred Securities (included in Exhibit A-1 to Exhibit 4.2
above).*
4.5 Form of 8 1/2% Convertible Subordinated Debentures (included in Exhibit A
to Exhibit 4.3 above).*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
4.6 AnnTaylor Stores Corporation Preferred Securities Guarantee Agreement,
dated as of April 25, 1996, between AnnTaylor Stores Corporation, as
Guarantor, and The Bank of New York, as Guarantee Trustee.*
4.7 Amendment No. 1 to Amended and Restated Declaration of Trust of AnnTaylor
Finance Trust, dated as of August 27, 1996 (Incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended
August 3, 1996).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the legality of the
Preferred Securities, Convertible Subordinated Debentures and Guarantee
being registered hereby.
5.2 Opinion of Jocelyn F.L. Barandiaran, General Counsel of AnnTaylor Stores
Corporation, as to the legality of the Common Stock of AnnTaylor Stores
Corporation being registered hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to certain tax matters.
10.1 Registration Rights Agreement, dated April 25, 1996, between AnnTaylor
Finance Trust and Merrill Lynch & Co., as Representative of the Initial
Purchasers.*
12.1 Ratio of Earnings to Fixed Charges of AnnTaylor Stores Corporation.*
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibits 5.1
and 8.1).
23.2 Consent of Jocelyn F.L. Barandiaran, General Counsel of AnnTaylor Stores
Corporation (included in Exhibit 5.2).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Ernst & Young LLP.
24 Power of Attorney (set forth on signature page of the Registration
Statement).*
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Indenture Trustee under the 8 1/2%
Convertible Subordinated Debenture Indenture.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Property Trustee under the Amended and
Restated Declaration of Trust.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Guarantee Trustee under the
Guarantee.*
</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.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, 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 Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Act
and is, therefore, 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 Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
(e) The Company hereby undertakes that:
(1) 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
(2) 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-3
<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 to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on September 30,
1996.
ANNTAYLOR STORES CORPORATION
By /s/ J. PATRICK SPAINHOUR
...................................
Chairman of the Board, Chief
Executive Officer and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, 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 September 30, 1996
.................................. Executive Officer and Director
J. Patrick Spainhour
* Executive Vice President--Finance September 30, 1996
.................................. and Administration, Chief
Paul E. Francis Financial
Officer and Director
* Senior Vice President--Finance September 30, 1996
.................................. and Principal Accounting Officer
Walter J. Parks
* Director September 30, 1996
..................................
Gerald S. Armstrong
* Director September 30, 1996
..................................
James J. Burke, Jr.
* Director September 30, 1996
..................................
Robert C. Grayson
* Director September 30, 1996
..................................
Rochelle B. Lazarus
* Director September 30, 1996
..................................
Hanne M. Merriman
</TABLE>
*By /s/ JOCELYN F. L. BARANDIARAN
................................
Jocelyn F. L. Barandiaran
Attorney in Fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AnnTaylor
Finance Trust 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
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on
September 30, 1996.
ANNTAYLOR FINANCE TRUST
By /s/ J. PATRICK SPAINHOUR
...................................
J. Patrick Spainhour
Trustee
By /s/ PAUL E. FRANCIS
...................................
Paul E. Francis
Trustee
By /s/ WALTER J. PARKS
...................................
Walter J. Parks
Trustee
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
4.1 Certificate of Trust of AnnTaylor Finance Trust.*
4.2 Amended and Restated Declaration of Trust of AnnTaylor Finance Trust, dated
as of April 25, 1996, among AnnTaylor Stores Corporation, as Sponsor, The
Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee and J. Patrick Spainhour, Paul E. Francis and Walter J.
Parks, as Trustees.*
4.3 Indenture for the 8 1/2% Convertible Subordinated Debentures, dated as of
April 15, 1996, among AnnTaylor Stores Corporation and The Bank of New
York, as Indenture Trustee.*
4.4 Form of 8 1/2% Preferred Securities (included in Exhibit A-1 to Exhibit 4.2
above).*
4.5 Form of 8 1/2% Convertible Subordinated Debentures (included in Exhibit A
to Exhibit 4.3 above).*
4.6 AnnTaylor Stores Corporation Preferred Securities Guarantee Agreement,
dated as of April 25, 1996, between AnnTaylor Stores Corporation, as
Guarantor, and The Bank of New York, as Guarantee Trustee.*
4.7 Amendment No. 1 to Amended and Restated Declaration of Trust of AnnTaylor
Finance Trust, dated as of August 27, 1996 (Incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended
August 3, 1996).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the legality of the
Preferred Securities, Convertible Subordinated Debentures and Guarantee
being registered hereby.
5.2 Opinion of Jocelyn F.L. Barandiaran, General Counsel of AnnTaylor Stores
Corporation, as to the legality of the Common Stock of AnnTaylor Stores
Corporation being registered hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to certain tax matters.
10.1 Registration Rights Agreement, dated April 25, 1996, between AnnTaylor
Finance Trust and Merrill Lynch & Co., as Representative of the Initial
Purchasers.*
12.1 Ratio of Earnings to Fixed Charges of AnnTaylor Stores Corporation.*
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibits 5.1
and 8.1).
23.2 Consent of Jocelyn F.L. Barandiaran, General Counsel of AnnTaylor Stores
Corporation (included in Exhibit 5.2).
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of Ernst & Young LLP.
24 Power of Attorney (set forth on signature page of the Registration
Statement).*
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Indenture Trustee under the 8 1/2%
Convertible Subordinated Debenture Indenture.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Property Trustee under the Amended and
Restated Declaration of Trust.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Guarantee Trustee under the
Guarantee.*
</TABLE>
- ------------
* Previously filed.
EXHIBIT 5.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK 10022-3897
---
(212) 735-3000
FAX: (212) 735-2000
September 30, 1996
AnnTaylor Stores Corporation
AnnTaylor Finance Trust
142 West 57th Street
New York, New York 10019
Re: AnnTaylor Stores Corporation and
AnnTaylor Finance Trust
Registration Statement on Form S-3
Registration No. 333-6605
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to AnnTaylor Finance Trust, a
statutory business trust organized under the Business Trust Act of the State of
Delaware (Chapter 38, Title 12 of the Delaware Code, 12 Del. C. Sec.Sec. 3801,
-------
et seq.) (the "Trust"), in connection with the preparation of a Registration
- -- ----
Statement on Form S-3 (Registration No. 333-6605) of AnnTaylor Stores
Corporation, a Delaware corporation (the "Company"), and the Trust filed by the
Company and the Trust with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), on June 21, 1996, and Amendment No. 1 thereto, filed with the Commission
on September 30, 1996 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"), relating to the
registration (i) by the Trust of 2,012,500 of the Trust's 8-1/2% Convertible
Trust Originated Preferred SecuritiesSM (liquidation amount $50 per preferred
security)(the "Preferred Securities"), representing undivided beneficial
<PAGE>
AnnTaylor Stores Corporation
September 30, 1996
Page 2
interests in the assets of the Trust, and (ii) by the Company of the shares of
common stock, par value $.0068 per share, of the Company (the "Company Common
Stock") issuable upon conversion of the Preferred Securities, and certain other
securities described below.
The Preferred Securities were issued pursuant to the Amended and
Restated Declaration of Trust of the Trust, dated as of April 25, 1996 (the
"Declaration"), among the Company, as sponsor, J. Patrick Spainhour, Paul E.
Francis and Walter J. Parks, as trustees (the "Regular Trustees"), The Bank of
New York (Delaware), as Delaware Trustee (the "Delaware Trustee"), and The Bank
of New York, as Property Trustee (the "Property Trustee"), and were guaranteed
by the Company as to the payment of distributions and as to payments on
liquidation, redemption and otherwise pursuant to the Preferred Securities
Guarantee Agreement, dated as of April 25, 1996, between the Company and The
Bank of New York, as guarantee trustee (the "Guarantee Agreement"). We have
been advised that the proceeds from the sale by the Trust of the Preferred
Securities were invested in 8-1/2% Convertible Subordinated Debentures due 2016
(the "Convertible Debentures") of the Company, which were issued pursuant to an
indenture, dated as of April 15, 1996 (the "Indenture"), between the Company and
The Bank of New York, as trustee.
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act. Capitalized terms
used but not otherwise defined herein have the meanings ascribed to them in the
Registration Statement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (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) a specimen certificate evidencing the Common
Stock, (v) the Declaration filed as an exhibit to the Registration Statement
(including the designation of the terms of the Preferred Securities annexed
thereto), (vi) the Guarantee Agreement filed as an exhibit to the
<PAGE>
AnnTaylor Stores Corporation
September 30, 1996
Page 3
Registration Statement, (vii) a specimen certificate evidencing the Preferred
Securities, (viii) a specimen certificate evidencing the Convertible Debentures,
(ix) the Indenture filed as an exhibit to the Registration Statement, (x) the
Purchase Agreement, dated April 18, 1996, among the Trust, the Company and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS
First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation
and Robertson, Stephens & Company LLC, as initial purchasers, and (xi) the
certificate of trust (the "Certificate of Trust") filed by the Regular Trustees,
the Delaware Trustee and the Property Trustee with the Secretary of State of the
State of Delaware on April 18, 1996. We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of such records of the
Company and the Trust and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed by parties other than the Company or the Trust, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and that such documents constitute valid and binding
obligations of such parties. As to any facts material to this opinion that we
did not independently establish or verify, we have relied upon certificates,
statements and representations of officers, trustees and other representatives
of the Company, the Trust and others.
Members of our firm are admitted to the Bar in the States of Delaware
and New York and we express no opinion as to the laws of any other jurisdiction.
<PAGE>
AnnTaylor Stores Corporation
September 30, 1996
Page 4
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. The Preferred Securities have been duly authorized by the
Declaration and are validly issued, fully paid and nonassessable undivided
beneficial interests in the assets of the Trust; and the holders of the
Preferred Securities are entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware. We bring to your attention,
however, that the holders of the Preferred Securities may be obligated, pursuant
to the Declaration, to make payments, including (a) to provide indemnity and/or
security in connection with, and pay taxes or governmental charges arising from,
transfers of Preferred Securities and (b) to provide security and indemnity in
connection with the requests of or directions to the Property Trustee to
exercise its rights and powers under the Declaration.
2. The Guarantee Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that (a) enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
3. The Convertible Debentures have been duly authorized, executed,
issued and delivered by the Company and constitute valid and binding obligations
of the Company entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by (a) bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity
<PAGE>
AnnTaylor Stores Corporation
September 30, 1996
Page 5
(regardless of whether enforcement is considered in a proceeding in equity or at
law) and except that the waiver of stay or extension laws contained in Section
515 of the Indenture may be unenforceable.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also hereby consent to the use of
our name under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission promulgated thereunder. This opinion is
expressed as of the date hereof unless otherwise expressly stated and we
disclaim any undertaking to advise you of any subsequent changes of the facts
stated or assumed herein or any subsequent changes in applicable law.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
EXHIBIT 5.2
142 West 57th Street
New York, New York
10019
212.594.3226
or
212.541.3229
ANN TAYLOR
Jocelyn F.L. Barandiaran
Vice President/General
Counsel/Secretary
September 30, 1996
AnnTaylor Stores Corporation
AnnTaylor Finance Trust
142 West 57th Street
New York, New York 10019
Re:AnnTaylor Stores Corporation and
AnnTaylor Finance Trust
Registration Statement on Form S-3
Registration No. 333-6605
- ---------------------------------------
Ladies and Gentlemen:
I am Vice President, General Counsel and Secretary of AnnTaylor Stores
Corporation, a Delaware corporation (the "Company"), and am delivering this
opinion in connection with the Registration Statement on Form S-3 of AnnTaylor
Finance Trust, a statutory business trust organized under the Business Trust Act
of the State of Delaware (Chapter 38, Title 12 of the Delaware Code, 12 Del. C.
Sec.Sec. 3801, et seq. (the "Trust") and the Company (Registration No. 333-6605)
-- ----
filed by the Trust and the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), on June 21, 1996, and Amendment No. 1 thereto, filed with the Commission
on September 30, 1996 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"), relating to the
registration (i) by the Trust of 2,012,500 of the Trust's 8-1/2% Convertible
Trust Originated Preferred
<PAGE>
AnnTaylor Stores Corporation
September 30, 1996
Page 2
SecuritiesSM (liquidation amount $50 per preferred security)(the "Preferred
Securities"), representing undivided beneficial interests in the assets of the
Trust, and (ii) by the Company of the shares of common stock, par value $.0068
per share (the "Company Common Stock"), of the Company, issuable upon conversion
of the Preferred Securities and certain other securities described below.
The Preferred Securities were issued pursuant to the Amended and Restated
Declaration of Trust of the Trust, dated as of April 25, 1996, (the
"Declaration") among the Company, as sponsor, J. Patrick Spainhour, Paul E.
Francis and Walter J. Parks, as trustees, The Bank of New York (Delaware), as
Delaware Trustee, and The Bank of New York, as Property Trustee, and were
guaranteed by the Company as to the payment of distributions and as to payments
on liquidation, redemption and otherwise pursuant to the Preferred Securities
Guarantee Agreement, dated as of April 25, 1996, between the Company and The
Bank of New York, as guarantee trustee (the "Guarantee Agreement"). The
proceeds from the sale by the Trust of the Preferred Securities were invested in
8-1/2% Convertible Subordinated Debentures due 2016 (the "Convertible
Debentures") of the Company, which were issued pursuant to an indenture, dated
as of April 15, 1996 (the "Indenture"), between the Company and The Bank of New
York, as trustee.
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act. Capitalized terms
used herein but not otherwise defined herein have the meanings ascribed to them
in the Registration Statement.
In connection with this opinion, I have examined and am familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
(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) a specimen
certificate evidencing the Common Stock, (v) the Declaration filed as an exhibit
to the Registration Statement, (vi) the Guar-
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AnnTaylor Stores Corporation
September 30, 1996
Page 3
antee Agreement, (vii) a specimen certificate evidencing the Preferred
Securities, (viii) a specimen certificate evidencing the Convertible Debentures,
(ix) the Indenture filed as an exhibit to the Registration Statement and (x) the
Purchase Agreement, dated April 18, 1996, among the Trust, the Company and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS
First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation
and Robertson, Stephens & Company LLC, as initial purchasers. I have also
examined originals or copies, certified or otherwise identified to my
satisfaction, of such records of the Company and the Trust and such other
documents, certificates and records as I have deemed necessary or appropriate as
a basis for the opinions set forth below.
In my examination, I have assumed the legal capacity of natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such copies. In making my examination of
documents executed by parties other than the Company or the Trust, I have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and that such documents constitute valid and binding
obligations of such parties. As to any facts material to this opinion that I
did not independently establish or verify, I have relied upon certificates,
statements and representations of officers, trustees and other representatives
of the Company, the Trust and others.
I am admitted to the Bar in the State of New York and express no
opinion as to the laws of any other jurisdiction except the General Corporation
Law of the State of Delaware.
Based upon and subject to the foregoing, I am of the opinion that the
shares of Company Common Stock
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AnnTaylor Stores Corporation
September 30, 1996
Page 4
initially issuable upon conversion of the Preferred Securities and the
Convertible Debentures have been duly authorized and reserved for issuance upon
conversion and, if and when issued upon conversion of the Convertible
Debentures, will be validly issued, fully paid and nonassessable shares of
Company Common Stock.
I hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and the reference to me under the
heading "Legal Matters" in the Registration Statement. 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 Securities Act or the rules and regulations of
the Commission promulgated thereunder.
Very truly yours,
/s/ JOCELYN F.L. BARANDIARAN
EXHIBIT 8.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK 10022-3897
---
(212) 735-3000
FAX:(212) 735-2000
September 30, 1996
AnnTaylor Stores Corporation
AnnTaylor Finance Trust
142 West 57th Street
New York, New York 10019
Re: Registration Statement on Form S-3
Registration No. 33-6605
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to AnnTaylor Finance Trust, a
statutory business trust organized under the Business Trust Act of the State of
Delaware (Chapter 38, Title 12 of the Delaware Code, 12 Del. C. Sec.Sec. 3801,
-------
et seq.) (the "Trust"), in connection with the preparation of a Registration
- -- ----
Statement on Form S-3 (Registration No. 333-6605) of AnnTaylor Stores
Corporation, a Delaware corporation (the "Company"), and the Trust filed by the
Company and the Trust with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), on June 21, 1996, and Amendment No. 1 thereto, filed with the Commission
on September 30, 1996 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"), relating to the
registration (i) by the Trust of 2,012,500 of the Trust's 8-1/2% Convertible
Trust Originated Preferred SecuritiesSM (liquidation amount $50 per preferred
security)(the "Preferred Securities"), representing undivided beneficial
interests in the assets of the Trust, and (ii) by the
<PAGE>
AnnTaylor Stores Corporation
AnnTaylor Finance Trust
September 30, 1996
Page 2
Company of the shares of common stock, par value $.0068 per share, of the
Company (the "Company Common Stock") issuable upon conversion of the Preferred
Securities, and certain other securities.
We hereby confirm that, although the discussion set forth in the above
captioned registration statement under the heading "UNITED STATES FEDERAL INCOME
TAXATION" does not purport to discuss all possible United States federal income
tax consequences of the purchase, ownership and disposition of Preferred
Securities, in our opinion such discussion constitutes, in all material
respects, a fair and accurate summary of the United States federal income tax
consequences of the purchase, ownership and disposition of Preferred Securities,
based upon current law. It is possible that contrary positions may be taken by
the Internal Revenue Service and that a court may agree with such contrary
positions.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 8.1 to the Registration Statement. We also consent to the use of our
name under the heading "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder. This opinion is expressed
as of the date hereof unless otherwise expressly stated and we disclaim any
undertaking to advise you of any subsequent changes of the facts stated or
assumed herein or any subsequent changes in applicable law.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
ANNTAYLOR STORES CORPORATION:
We consent to the incorporation by reference in this Registration Statement
of AnnTaylor Stores Corporation and AnnTaylor Finance Trust on Form S-3 of our
report dated March 11, 1996 (April 8, 1996 as to Note 15), appearing in the
Annual Report on Form 10-K of AnnTaylor Stores Corporation for the fiscal year
ended February 3, 1996. We also consent to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
September 26, 1996
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of AnnTaylor Finance Trust and AnnTaylor
Stores Corporation and to the incorporation by reference therein of our report
on the combined financial statements of the AnnTaylor Woven Division of Cygne
Designs, Inc., CAT US Inc. and C.A.T. (Far East) Limited and Subsidiary included
in AnnTaylor Stores Corporation's Form 8-K filed with the Securities and
Exchange Commission on June 21, 1996.
ERNST & YOUNG LLP
New York, New York
September 26, 1996
