SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934 .
For the fiscal year ended February 1, 1997
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 1-10738
ANNTAYLOR STORES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3499319
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
(212) 541-3300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
- -------------------- -----------------------------------------
Common Stock, The New York Stock Exchange
$.0068 Par Value
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
--- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes No x .
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The aggregate market value of the registrant's voting stock
held by non-affiliates of the registrant as of March 14, 1997 was
$425,882,709.
The number of shares of the registrant's Common Stock
outstanding as of March 14, 1997 was 25,593,021.
Documents Incorporated by Reference:
Portions of the Registrant's Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders to be held on
June 18, 1997 are incorporated by reference into Part III.
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<PAGE> 1
PART I
ITEM 1. Business
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General
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AnnTaylor Stores Corporation (the "Company"), through its
wholly owned subsidiary AnnTaylor, Inc. ("Ann Taylor"), is a
leading national specialty retailer of better quality women's
apparel, shoes and accessories sold primarily under the Ann
Taylor brand name. The Company believes that "Ann Taylor" is a
highly recognized national brand that defines a distinct fashion
point of view. 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 has sought to capitalize on the Ann Taylor brand
through the introduction of new product lines in its Ann Taylor
stores. The Company believes that product extensions support the
Company's total wardrobing strategy, and provide existing and new
customers with additional reasons to shop at Ann Taylor stores.
Product extensions expanded or developed over the last several
years include Ann Taylor shoes, ATdenim, Ann Taylor Petites, and
fragrance and personal care products.
As of February 1, 1997, the Company operated 309 stores in
41 states and the District of Columbia, under the names Ann
Taylor, Ann Taylor Factory Store, Ann Taylor Loft and Ann Taylor
Studio. Of the 259 stores operated under the Ann Taylor name,
approximately three-quarters are located in regional malls and
upscale specialty retail centers, with the balance located in
downtown and village locations. These stores represent the
Company's core merchandise line. The Company believes that the
customer base for its Ann Taylor Stores consists primarily of
relatively affluent, fashion-conscious women from the ages of 25
to 55, and that the majority of its customers are working women
with limited time to shop, who are attracted to Ann Taylor by its
focused merchandising and total wardrobing strategies,
personalized customer service, efficient store layouts and
continual flow of new merchandise.
In 1995, the Company began testing Ann Taylor Loft, a
separate moderate-price store concept for customers who
appreciate Ann Taylor style, but are more value conscious.
Merchandise is designed uniquely for these stores and is sold
under the Ann Taylor Loft and Shoe Loft labels. As of February
1, 1997, the Company operated 15 Ann Taylor Loft stores, all
located in factory outlet centers. The Company also operates 16
stores in factory outlet centers under the name Ann Taylor
Factory Store or Ann Taylor Loft, that offer both original priced
Ann Taylor Loft merchandise, as well as clearance merchandise
from Ann Taylor and Ann Taylor Loft stores. The Company believes
that the Ann Taylor Loft concept represents an opportunity for
the Company to compete in the moderately-priced women's apparel
market, and management is developing a strategic plan to
determine how best to maximize its potential in this market.
The Company also operates 10 Ann Taylor Factory Stores that
serve principally as a clearance vehicle for both Ann Taylor and
Ann Taylor Loft merchandise. All of these stores are located in
factory outlet centers.
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<PAGE> 2
In Fall 1994, the Company began testing Ann Taylor Studio
stores, a free-standing shoe and accessory store concept offering
the broadest assortment of Ann Taylor shoes, as well as certain
accessories also sold in Ann Taylor stores, such as hosiery,
belts, handbags, and fragrance and personal care products. By
Fall 1995, the Company had nine Ann Taylor Studio stores. The
Company did not open any new Studio stores during Fiscal 1996.
The Company has determined that the Studio stores, which have not
been profitable, are not consistent with the Company's total
wardrobing strategy, and in January 1997 the Company announced
its plans to close all nine Studio stores during Fiscal 1997.
The Company 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 March 14, 1997, certain
limited partnerships controlled directly or indirectly by ML
Capital Partners, together with certain other affiliates of
ML&Co. (collectively, the "ML Entities"), beneficially owned an
aggregate of 6,155,118 shares, or approximately 24.0%, of the
outstanding Common Stock of the Company. 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. Unless
the context indicates otherwise, all references herein to the
Company include the Company, its wholly owned subsidiary Ann
Taylor and their respective subsidiaries.
Merchandise Design and Production
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Ann Taylor merchandise is developed by the Company's in-
house product design and development team, which designs
merchandise exclusively for the Company's stores. The Company's
merchandising group determines inventory needs for the upcoming
season, edits the assortment developed by the design team, plans
monthly merchandise flows, and arranges for the production of
merchandise either through the Company's sourcing division, or
with vendors who are private label specialists, or directly with
manufacturers.
The Company's production management and quality assurance
department establishes the technical specifications for all Ann
Taylor merchandise, inspects factories in which Ann Taylor
merchandise is produced, including periodic inspections while
goods are in production to identify potential problems prior to
shipment and, upon receipt, inspects merchandise on a test basis
for uniformity of size and color, as well as for overall quality
of manufacturing.
The Company believes that procuring merchandise directly
from manufacturers improves the Company's competitive position by
providing it with greater control over pre-production processes,
resulting in greater consistency in merchandise quality and
sizing, and by reducing merchandise costs. To this end, in May
1992, the Company commenced a joint venture, known as "CAT", with
one of its private label vendors, Cygne Designs, Inc. ("Cygne").
CAT was formed for the purpose of acting as a sourcing agent
exclusively for Ann Taylor, placing merchandise orders directly
with manufacturers. In 1995, the Company purchased approximately
38% of its merchandise through CAT and approximately 16% of its
merchandise from Cygne. Until September 1996, the Company owned
a minority interest in CAT. In September 1996, the Company
acquired Cygne's entire interest in CAT, which became a wholly
owned subsidiary of Ann Taylor, as well as certain assets of the
Ann Taylor Woven Division of Cygne that Cygne used in sourcing
merchandise for Ann Taylor (the "Sourcing Acquisition"). These
operations have been combined and are now known as "Ann Taylor
Global Sourcing" ("ATGS").
In Fiscal 1996, prior to the consummation of the Sourcing
Acquisition, the Company purchased approximately 42% and 19% of
its merchandise from CAT and Cygne, respectively. Subsequent to
the Sourcing Acquisition, the Company purchased approximately 57%
of its merchandise through ATGS. ATGS sources merchandise from
approximately 90 manufacturers and vendors. Substantially all of
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<PAGE> 3
the merchandise purchased through ATGS is manufactured outside the
United States in over 15 different countries. The Company also
purchased merchandise from approximately 50 other vendors;
however, no single third-party vendor accounted for more than 5%
of the Company's total purchases. Although most of the Company's
third-party vendors are domestic, consistent with the retail
apparel industry as a whole, many of the Company's domestic
vendors import a large portion of their merchandise from abroad.
The Company cannot predict whether any of the foreign
countries in which its products are currently manufactured or any
of the countries in which the Company may manufacture its
products in the future will be subject to future or increased
import restrictions by the U.S. government, including the
likelihood, type or effect of any trade restriction. Trade
restrictions, including increased tariffs or quotas, against
apparel, footwear or other items sold by the Company could affect
the importation of such merchandise generally and, in that event,
could increase the cost or reduce the supply of merchandise
available to the Company and adversely affect the Company's
business, financial condition, results of operations and
liquidity. The Company's merchandise flow may also be adversely
affected by political instability in any of the countries in
which its goods are manufactured, if it affects the production or
export of merchandise from such countries; significant
fluctuation in the value of the U.S. dollar against foreign
currencies; and restrictions on the transfer of funds.
The Company does not maintain any long-term or exclusive
commitments or arrangements to purchase merchandise from any
single supplier. The Company believes it has a good relationship
with its suppliers and that, as the number of the Company's
stores increases, there will continue to be adequate sources to
produce a sufficient supply of quality goods in a timely manner
and on satisfactory economic terms.
Inventory Control and Merchandise Allocation
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The Company's merchandise planning and allocation department
analyzes each store's size, location, demographics, sales and
inventory history to determine the quantity of merchandise to be
purchased for and the allocation of merchandise to the Company's
stores. Upon receipt, merchandise is allocated in order to
achieve an emphasis that is suited to each store's customer base.
Merchandise typically is sold at its original marked price
for several weeks, with the length of time varying by item. The
Company reviews its inventory levels on an on-going basis in
order to identify slow-moving merchandise and broken assortments
(items no longer in stock in a sufficient range of sizes) and
uses markdowns to clear merchandise. Markdowns may be used if
inventory exceeds customer demand for reasons of style, seasonal
adaptation or changes in customer preference or if it is
determined that the inventory will not sell at its currently
marked price. Marked-down items remaining unsold are
periodically moved to the Company's Factory Stores where
additional markdowns may be taken. In Fiscal 1996, inventory
turned 4.7 times (excluding inventory associated with ATGS) and
in Fiscal 1995, inventory turned 4.3 times. Inventory turnover
is determined by dividing net cost of goods sold by the average
of the cost of inventory at the beginning and end of the period.
The Company uses a centralized distribution system, under
which nearly all Ann Taylor merchandise is distributed to the
Company's stores through its distribution center located in
Louisville, Kentucky. See "Properties". Merchandise is shipped
by the distribution center to the Company's stores several times
each week.
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<PAGE> 4
Stores
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As of February 1, 1997, the Company operated 309 stores
which were distributed among 41 states and the District of
Columbia, as shown on the following table:
Locations by State
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Number of Number of Number of
State Stores State Stores State Stores
- ----- -------- ----- --------- ----- ---------
Alabama......... 2 Kentucky....... 2 North Carolina.... 6
Arizona......... 5 Louisiana...... 4 Ohio.............. 14
Arkansas........ 1 Maryland....... 7 Oklahoma.......... 3
California...... 54 Massachusetts.. 13 Oregon............ 2
Colorado........ 5 Michigan....... 8 Pennsylvania...... 13
Connecticut..... 9 Minnesota...... 4 Rhode Island...... 1
Delaware........ 1 Mississippi.... 1 South Carolina.... 3
District of
Columbia........ 6 Missouri....... 7 Tennessee......... 6
Florida......... 23 Nebraska....... 2 Texas............. 19
Georgia......... 6 Nevada......... 3 Utah.............. 2
Hawaii.......... 2 New Hampshire.. 2 Vermont........... 1
Illinois........ 11 New Jersey..... 14 Virginia.......... 8
Indiana......... 6 New Mexico..... 2 Washington........ 3
Kansas.......... 1 New York....... 26 Wisconsin......... 1
The Company selects store locations that it believes are
convenient for its customers. Store locations are determined on
the basis of various factors, including geographic location,
demographic studies, anchor tenants in a mall location, other
specialty stores in a mall or specialty center location or in the
vicinity of a village location, and the proximity to professional
offices in a downtown or village location. Ann Taylor Factory
Stores and Ann Taylor Loft stores are generally located in
factory outlet malls in which co-tenants include a significant
number of nationally recognized upscale brand name retailers.
Ann Taylor Stores opened prior to January 30, 1993 averaged
3,500 square feet in size, with the exception of three stores
that ranged between 10,300 square feet and 12,500 square feet.
Since 1993, the average size of new Ann Taylor Stores has been
approximately 5,900 square feet. Ann Taylor Stores to be opened
in Fiscal 1997 are expected to average approximately 4,500 square
feet. The Company believes that the increase in store size
since 1993 enhances the Company's ability to merchandise its
customer offerings and reinforce its total wardrobing concept,
provides area necessary for the proper presentation of Ann Taylor
shoes, petites and other product line extensions, and improves
customer service and ease of shopping. Ann Taylor Factory
Stores average 6,600 square feet and Ann Taylor Loft stores
average 10,900 square feet. The Company's stores typically have
approximately 19% of their total square footage allocated to
stockroom and other non-selling space.
In Fall 1995, the Company opened two flagship Ann Taylor
Stores, each in excess of 20,000 square feet, one on Madison
Avenue in New York City, and the other on Post Street in San
Francisco. These two larger stores represent the fullest
assortment of Ann Taylor merchandise, and include amenities
unique to these stores.
Expansion
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An important aspect of the Company's business strategy is a
real estate expansion program designed to reach new customers
through the opening of new stores, as well as the expansion of
existing stores in order to accommodate product extensions and
improve customer service. The Company adds additional stores, or
expands the size of existing stores, in markets where Ann Taylor
already has a presence as market conditions warrant and sites
become available. The Company also opens new stores in
additional markets that it believes have a sufficient
concentration of its target customers. Prior to 1993, the
Company's store expansion program focused primarily on adding new
Ann Taylor Stores. Since 1993, the expansion of existing Ann
Taylor Stores has been an integral part of the Company's
expansion strategy.
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<PAGE> 5
The following table sets forth certain information regarding
store openings, expansions and closings for Ann Taylor Stores
("ATS"), Ann Taylor Factory Stores ("ATO"), Ann Taylor Loft
Stores ("ATL") and Ann Taylor Studio Stores ("ATA") since the
consummation of the Acquisition in the beginning of 1989:
Total
Stores No. No.
Open at Stores Stores
Beginning No. Stores Opened Expanded Closed No. Stores Open
of During Fiscal Year During During at End of Fiscal Year
Fiscal Fiscal ------------------- Fiscal Fiscal --------------------------
Year Year ATS ATO ATL ATA Year(a) Year(a) ATS ATO ATL ATA Total
- ------ ---- ---- --- --- --- --- ------- ----- --- --- --- -----
1989 119 20 1 --- --- 2 1 138 1 --- --- 139
1990 139 29 3 --- --- 3 1 166 4 --- --- 170
1991 170 33 --- --- --- 3 3 196 4 --- --- 200
1992 200 20 --- --- --- 5 1 215 4 --- --- 219
1993 219 8 5 --- --- 12 1 222 9 --- --- 231
1994 231 8 12 --- 5 25 4 236 21 --- 5 262
1995 262 26 2 16 4 30 4 258 22 17 9 306
1996 306 9 1 1 --- 7 8 259 10(b) 31(b) 9 309
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(a) All stores expanded and all stores closed were Ann Taylor
Stores, except that one store expanded in 1994 was an ATO
store, and one store expanded in 1995 was an ATO store that
was converted into an ATL store in connection with such
expansion.
(b) The 16 ATO and ATL stores that sell both original price Ann
Taylor Loft merchandise, as well as clearance merchandise
from Ann Taylor Stores and Ann Taylor Loft, are classified
as ATL stores.
The Company believes that its existing store base is a
significant strategic asset of its business. Ann Taylor Stores
are located in some of the most productive retail centers in the
United States. The Company believes that it is one of the most
sought after tenants by real estate developers because of its
strong Ann Taylor brand franchise and its high average sales per
square foot productivity ($476 per square foot in Fiscal 1996).
The Company has invested approximately $127 million in its store
base since 1993; approximately 60% of its stores are either new
or have been completely remodeled, as a result of an expansion or
relocation, in the last four years.
During Fiscal 1996, the Company slowed its real estate
expansion program to enable it to more effectively consolidate
the growth that had occurred during recent years. In 1996, the
Company opened nine Ann Taylor Stores, one Ann Taylor Loft Store
and one Ann Taylor Factory Store, and expanded seven existing Ann
Taylor Stores. The Company also closed eight Ann Taylor Stores,
at the expiration of or in accordance with those stores'
respective lease terms. This real estate expansion program
resulted in a net increase in the Company's total store square
footage from approximately 1,651,000 square feet to approximately
1,705,000 square feet, a net increase of approximately 54,000
square feet, or 3.3%. In Fiscal 1997, the Company intends to
increase store gross square footage by approximately 128,000
square feet, or 7.5%, representing approximately 26 new Ann
Taylor Stores and the expansion of 11 existing Ann Taylor Stores.
Capital expenditures for the Company's Fiscal 1996 store
expansion program, net of landlord construction allowances,
totaled approximately $10.0 million, including expenditures for
store refurbishing and store refixturing. The Company expects
that capital expenditures for its Fiscal 1997 store expansion
program, net of landlord construction allowances, will be
approximately $23.0 million, including expenditures for store
refurbishing and store refixturing. The Company's bank credit
agreement provides for, among other things, an annual limitation
on capital expenditures of $25.0 million in Fiscal 1996 and $32.5
million in Fiscal 1997 and beyond, subject to increase if certain
conditions are satisfied. See Note 2 to the Company's
Consolidated Financial Statements.
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<PAGE> 6
The Company's ability to continue to increase store square
footage will be dependent upon general economic and business
conditions affecting consumer confidence and spending, the
availability of desirable locations and the negotiation of
acceptable lease terms. See "Management's Discussion and
Analysis--Liquidity and Capital Resources".
Customer Credit
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Customers may pay for merchandise with the Ann Taylor credit
card, American Express, Visa, MasterCard, cash or check. Credit
card sales were 77.8% of net sales in Fiscal 1996, 77.0% in
Fiscal 1995 and 77.7% in Fiscal 1994. In Fiscal 1996, 20.8% of
net sales were made with the Ann Taylor credit card, and 57.0%
were made with third-party credit cards, including 0.7% on a co-
branded Ann Taylor Visa card that the Company began testing in
Fiscal 1996. As of February 1, 1997, the Company's Ann Taylor
credit card accounts receivable totaled $54,505,000, net of
allowance for doubtful accounts. Accounts written off in Fiscal
1996 were approximately $1,729,000, or 0.2% of net sales.
Ann Taylor has offered customers its proprietary credit card
since 1976. The Company believes that the Ann Taylor credit card
enhances customer loyalty while providing the customer with
additional credit. However, the percentage of the Company's
total sales made with its proprietary credit card has been
declining over the past few years. The Company believes the
declining penetration of its Ann Taylor credit card as a
percentage of sales is attributable to the gain of market share
by bank cards throughout the retail industry generally, as well
as to the increase in the number of the Company's Ann Taylor
Factory Stores and Loft stores, which experience a significantly
lower penetration of sales with the Ann Taylor card. At February
1, 1997, the Company had over 430,000 Ann Taylor credit card
accounts that had been used during the past 18 months.
Advertising and Promotion
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For many years, the Company relied on its Ann Taylor
catalog, mailed principally to Ann Taylor credit card holders, as
its principal advertising vehicle. The Company has also
occasionally run print advertisements in newspapers and national
women's fashion magazines such as Elle, Vogue and Harpers Bazaar.
In early 1996, the Company suspended publication of its catalog
and ran very few print advertisements. Management is presently
evaluating its advertising, marketing and promotional strategies
and anticipates that it may increase its advertising and
marketing efforts by Fall 1997 or early Fiscal 1998.
Trademarks and Service Marks
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The trademarks and service marks for Ann Taylor either have
been registered or have trademark applications pending with the
United States Patent and Trademark Office and with the registries
of many foreign countries. The Company's rights in the
"AnnTaylor" mark are a significant part of the Company's
business, as the Company believes its mark is well known in the
women's retail apparel industry. Accordingly, the Company
intends to maintain its "AnnTaylor" mark and related
registrations and vigorously protect its trademarks against
infringement.
Competition
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The women's retail apparel industry is highly competitive.
The Company's Ann Taylor Stores compete with certain departments
in national or local department stores, and with other specialty
store chains and independent retail stores carrying similar lines
of merchandise. The Company believes that its focused
merchandise selection, exclusive Ann Taylor brand fashions,
personalized service and convenience distinguish it from other
specialty retailers. Many of the Company's competitors are
considerably larger and have substantially greater financial,
marketing and other resources than the Company and there is no
assurance that the Company will be able to compete successfully
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<PAGE> 7
with them in the future. Further, as noted above, the Company believes
that the Ann Taylor Loft concept offers the Company the opportunity to
compete in the moderately-priced women's apparel market. The
Company does not have significant prior experience in this
market, and the competitive factors described above are
applicable to this market as well. Further, existing competitors
in that market may have significantly greater brand recognition
among this customer segment than the Company.
Employees
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Store management receives compensation in the form of
salaries and performance-based bonuses. Sales associates are
paid on an hourly basis plus performance incentives. A number of
programs exist that offer incentives to both management and sales
associates to increase sales and support the Company's total
wardrobing strategy.
As of February 1, 1997, the Company had approximately 6,400
employees, of whom 1,450 were full-time salaried employees, 1,700
were full-time hourly employees and 3,250 were part-time hourly
employees working less than 30 hours per week. None of the
Company's employees are represented by a labor union. The
Company believes that its relationship with its employees is
good.
ITEM 2. Properties
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As of February 1, 1997, the Company operated 309 stores, all
of which were leased. The store leases typically provide for
initial terms of ten years, although some leases have shorter or
longer initial periods, and grant the Company the right to extend
the term for one or two additional five-year periods. Most of
the store leases require Ann Taylor to pay a specified minimum
rent, plus a contingent rent based on a percentage of the store's
net sales in excess of a certain threshold. Most of the leases
also require Ann Taylor to pay real estate taxes, insurance and
certain common area and maintenance costs. The current terms of
the Company's leases, including renewal options, expire as
follows:
Fiscal Years Lease Number of
Terms Expire Stores
------------------ ---------
1997 - 1999............... 38
2000 - 2002............... 20
2003 - 2005............... 126
2006 and later............ 125
Ann Taylor leases corporate offices at 142 West 57th Street
in New York City, containing approximately 86,700 square feet,
and approximately 59,000 square feet of office space at 1372
Broadway in New York City. The leases for these premises expire
in 2006 and 2010, respectively. The Company also leases office
space in New Haven, Connecticut, containing approximately 31,000
square feet. The lease for these premises expires in 1998.
Ann Taylor's wholly owned subsidiary, AnnTaylor Distribution
Services, Inc. owns its 256,000 square foot distribution center
located in Louisville, Kentucky. Nearly all Ann Taylor
merchandise is distributed to the Company's stores through this
facility. The parcel on which the Louisville distribution center
is located comprises approximately 20 acres and could accommodate
possible future expansion of the facility.
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<PAGE> 8
ITEM 3. Legal Proceedings
-----------------
On April 26, 1996, certain alleged stockholders of the
Company filed a purported class action lawsuit in the United
States District Court Southern District of New York, against the
Company, Ann Taylor, certain officers and directors of the
Company and Ann Taylor, ML&Co. and certain affiliates of ML&Co.
(Novak v. Kasaks, et. al., No. 96 CIV 3073 (S.D.N.Y. 1996)). The
complaint alleges causes of action under Section 10(b) and
Section 20(a) of the Securities Exchange Act of 1934, as amended,
by alleging that the Company and the other defendants engaged in
a fraudulent scheme and course of business that operated a fraud
or deceit on purchasers of the Company's common stock during the
period commencing February 3, 1994 through May 4, 1995 due to
alleged false and misleading statements about the Company and Ann
Taylor. The complaint seeks, among other things, certification
as a class action on behalf of all purchasers of common stock
during the period commencing February 3, 1994 through May 4,
1995, the awarding of compensatory damages to the plaintiffs and
purported members of the class, the awarding of costs, including
pre-judgment and post-judgment interest, reasonable attorneys'
fees and expert witness fees to the plaintiffs and purported
members of the class and equitable and/or injunctive relief. The
Company believes that the complaint is without merit and intends
to defend the action vigorously. The Company and other
defendants have filed motions to dismiss the actions. These
motions are pending, and discovery in this case has been
suspended pending judicial disposition of these motions. As the
case is in preliminary stages, any liability that may arise from
this action cannot be predicted at this time.
The Company is also a party to routine litigation incident
to its business. Although the amount of any liability that
could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will
not have a material adverse effect on the financial position,
results of operations and liquidity of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
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<PAGE> 9
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
-------------------------------------------------------------
Matters
-------
The Company's common stock is listed and traded on the New
York Stock Exchange under the symbol ANN. The number of holders
of record of common stock at March 14, 1997 was 777. The
following table sets forth the high and low closing sale prices
for the common stock on the New York Stock Exchange during Fiscal
1996 and Fiscal 1995.
Market Price
---------------------
High Low
---------- ---------
Fiscal Year 1996
Fourth quarter..................... $ 21-3/8 $15-3/8
Third quarter...................... 19-7/8 12
Second quarter..................... 23-1/4 12
First quarter...................... 19-1/8 11-1/8
Fiscal Year 1995
Fourth quarter..................... $ 15-5/8 $ 9-1/2
Third quarter...................... 21-7/8 10-1/4
Second quarter..................... 25-5/8 19-1/2
First quarter...................... 37-3/4 25-1/8
In Fiscal 1996, in connection with the Sourcing Acquisition,
the Company issued an aggregate of 2,348,145 shares of common
stock to Cygne (including shares issued to a wholly owned
subsidiary of Cygne) in partial consideration for the sourcing
operations purchased from Cygne. See "Management's Discussion
and Analysis -- Sourcing Acquisition". Also in Fiscal 1996, the
Company awarded to J. Patrick Spainhour, Chairman and Chief
Executive Officer of the Company, 75,000 shares of restricted
common stock pursuant to the terms of his employment agreement
with the Company, and also awarded to Patricia DeRosa, President
and Chief Operating Officer of the Company, 30,000 shares of
restricted common stock, pursuant to the terms of her employment
agreement with the Company. The Company believes that each of
the foregoing share issuances was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as
amended, in each case as a transaction by an issuer not involving
a public offering.
The Company has never paid dividends on the common stock and
does not intend to pay dividends in the foreseeable future. As a
holding company, the ability of the Company to pay dividends is
dependent upon the receipt of dividends or other payments from
Ann Taylor. The payment of dividends by Ann Taylor to the
Company is subject to certain restrictions under Ann Taylor's
Bank Credit Agreement, the indenture relating to the 8-3/4% Notes
and the Receivables Facility described below under "Management's
Discussion and Analysis--Liquidity and Capital Resources". The
payment of cash dividends on the common stock by the Company is
also subject to certain restrictions contained in the Company's
guarantee of Ann Taylor's obligations under the Bank Credit
Agreement. In addition, in connection with the preferred
securities issued by the Company's financing vehicle, AnnTaylor
Finance Trust, the payment by the Company of cash dividends on
the common stock is restricted in the event of a default by the
Company of its obligations in relation to the preferred
securities or in the event payment of dividends on the preferred
securities is deferred. Any determination to pay cash dividends
in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and
other factors deemed relevant at that time by the Company's Board
of Directors.
===================================================================
<PAGE> 10
ITEM 6. Selected Financial Data
-----------------------
The following selected historical financial information for
the periods indicated has been derived from the audited
consolidated financial statements of the Company. The Company's
consolidated statements of operations, stockholders' equity and
cash flows for each of the three fiscal years ended February 1,
1997, February 3, 1996 and January 28, 1995, and consolidated
balance sheets as of February 1, 1997 and February 3, 1996, as
audited by Deloitte & Touche llp, independent auditors, appear
elsewhere in this document. The information set forth below
should be read in conjunction with "Management's Discussion and
Analysis" and the consolidated financial statements and notes
thereto of the Company included elsewhere in this document. All
references to years are to the fiscal year of the Company, which
ends on the Saturday nearest January 31 in the following calendar
year. All fiscal years for which financial information is set
forth below had 52 weeks, with the exception of Fiscal 1995,
which had 53 weeks.
====================================================================
<PAGE> 11
Fiscal Years Ended
--------------------------------------------------
Feb. 1, Feb. 3, Jan. 28, Jan. 29, Jan. 30,
1997 1996 1995 1994 1993
--------- -------- --------- -------- -------
(dollars in thousands, except per
square foot data and per share data)
Operating Statement
Information:
Net sales (a).........$ 798,117 $ 731,142 $658,804 $501,649 $468,381
Cost of sales......... 443,443 425,225 357,783 271,749 264,301
---------- --------- ------- ------- -------
Gross profit........ 354,674 305,917 301,021 229,900 204,080
Selling, general and
administrative
expenses.......... 291,027 271,136 214,224 169,371 152,072
Studio shoe stores
closing
expense (b)......... 3,600 --- --- --- ---
Employment contract
separation
expense (c)......... 3,500 --- --- --- ---
Distribution center
restructuring
charge (d).......... --- --- --- 2,000 ---
Amortization of
goodwill (e)........ 10,086 9,506 9,506 9,508 9,504
---------- --------- ------- ------- -------
Operating income.... 46,461 25,275 77,291 49,021 42,504
Interest
expense (f)......... 24,416 20,956 14,229 17,696 21,273
Stockholder
litigation
settlement (g)...... --- --- --- --- 3,905
Other (income)
expense, net........ 403 38 168 (194) 259
---------- --------- ------- ------- -------
Income before
income taxes
and extraordinary
loss................ 21,642 4,281 62,894 31,519 17,067
Income tax provision.. 12,975 5,157 30,274 17,189 11,150
---------- --------- ------- ------- --------
Income (loss) before
extraordinary loss.. 8,667 (876) 32,620 14,330 5,917
Extraordinary
loss (h)............ --- --- 868 11,121 ---
--------- --------- ------- ------- -------
Net income (loss)... $ 8,667 $ (876) $ 31,752 $ 3,209 $ 5,917
========= ========= ======= ======= =======
Income (loss)
per share
before
extraordinary
loss................ $ .36 $ (.04) $ 1.40 $ .66 $ .28
Extraordinary loss
per share (h)....... --- --- (.04) (.51) ---
--------- -------- ------- ------- -------
Net income (loss)
per share......... $ .36 $ (.04) $ 1.36 $ .15 $ .28
========= ========= ========= ======= =======
Weighted average
shares
outstanding
(in thousands)...... 24,104 23,209 23,286 21,929 21,196
Operating Information:
Percentage increase
(decrease) in
comparable store
sales (i)........... 1.8% (8.9)% 13.7% 2.3% (1.0)%
Net sales per gross
square foot (j)......$ 476 $ 518 $ 627 $ 576 $ 600
Number of stores:
Open at beginning
of the period...... 306 262 231 219 200
Opened during the
period............. 11 48 35 13 20
Expanded during the
period............. 7 30 25 12 5
Closed during the
period............. 8 4 4 1 1
Open at the end of
the period......... 309 306 262 231 219
Total store square
footage at end
of period............ 1,705,000 1,651,000 1,173,000 929,000 814,000
Capital expenditures...$ 16,107 $ 78,378 $ 61,341 $ 25,062 $ 4,303
Depreciation and
amortization,
including
goodwill (e).........$ 36,294 $ 28,294 $ 21,293 $ 18,013 $ 16,990
Working capital
turnover (k)......... 7.8x 7.8x 8.5x 12.1x 16.8x
Inventory turnover (l). 4.7x 4.3x 4.6x 4.9x 5.3x
Balance Sheet Information
(at end of period):
Working capital (m)....$ 118,850 $ 86,477 $ 102,181 $ 53,283 $ 29,539
Goodwill, net (e)...... 341,779 313,525 323,031 332,537 342,045
Total assets........... 688,139 678,709 598,254 513,399 487,592
Total debt............. 131,192 272,458 200,000 189,000 195,474
Preferred securities... 96,158 --- --- --- ---
Stockholders' equity... 370,582 325,688 326,112 259,271 245,298
(Footnotes on following page)
===========================================================================
<PAGE> 12
(Footnotes for preceding page)
(a) Prior to 1990, all shoes sold in Ann Taylor Stores were "Joan
& David" shoes, sold in leased shoe departments by Joan &
David Helpern, Inc. ("Joan & David") pursuant to a license
agreement. In 1990, the Company introduced a line of Ann
Taylor brand shoes. As of February 1, 1993, Joan & David no
longer operated leased shoe departments in any Ann Taylor
stores. In Fiscal 1992, net sales included sales from leased
shoe departments of $8,207,000.
(b) Relates to the planned closing of the Company's nine Studio
shoe stores. The charge of $3,600,000 ($2,052,000, or $0.08
per share, net of income tax benefit) is to cover the write-
off of the net book value of the nine stores and lease and
other related costs for these locations.
(c) In connection with the resignation in August 1996 of the
former Chairperson, a one-time pre-tax charge of $3,500,000
($1,958,000, or $0.08 per share, net of related tax benefit)
was recorded relating to the estimated costs of the Company's
obligations under her employment contract with the Company.
(d) In connection with the relocation of the Company's
distribution center, completed in late Spring 1995, a charge
of $2,000,000 ($1,140,000, or $0.05 per share, net of related
tax benefit) was recorded relating to severance and job
training costs, as well as the write-off of the net book
value of certain assets.
(e) As a result of the Acquisition of Ann Taylor by the Company,
which was effective as of January 29, 1989, $380,250,000,
representing the excess of the allocated purchase price over
the fair value of the Company's net assets, was recorded as
goodwill and is being amortized on a straight-line basis over
40 years. In addition, as a result of the Sourcing
Acquisition, effective September 20, 1996, the Company
recorded goodwill of $38,430,000 that is being amortized on a
straight-line basis over 25 years.
(f) Includes non-cash interest expense of $1,574,000, $1,004,000,
$978,000, $4,199,000 and $8,581,000 in Fiscal 1996, 1995,
1994, 1993 and 1992, respectively, from amortization of
deferred financing costs, and in 1993, and 1992, from
accretion of original issue discount and, in 1992, from the
issuance of additional 10% junior subordinated exchange notes
due 2004.
(g) In connection with the settlement in January 1993 of a
stockholder class action lawsuit that was filed against the
Company and certain other defendants in October 1991, a
charge of $3,905,000 ($2,265,000, or $0.11 per share, net of
related tax benefit) was recorded.
(h) In Fiscal 1994, Ann Taylor incurred an extraordinary loss of
$1,522,000 ($868,000, or $0.04 per share, net of income tax
benefit), in connection with the prepayment of long-term debt
with the proceeds of a public sale of common stock of the
Company. In Fiscal 1993, Ann Taylor incurred an
extraordinary loss of $17,244,000 ($11,121,000, or $0.51 per
share, net of income tax benefit) due to debt refinancing
activities.
(i) Comparable store sales are calculated by excluding the net
sales of a store for any month of one period if the store was
not also open during the same month of the prior period. In
a year with 53 weeks, such as Fiscal 1995, sales in the last
week of that year are not included in determining comparable
store sales. Commencing with stores expanded in Fiscal 1993,
a store that is expanded by more than 15% is treated as a new
store for the first year following the opening of the
expanded store. Excluding sales from leased shoe
departments, comparable store sales would have been 4.0% and
0.8% for Fiscal 1993 and Fiscal 1992, respectively. See
footnote (a) above.
(j) Net sales per square foot ("sales per square foot") is
determined by dividing net sales for the period by the
average of the gross square feet at the beginning and end of
each period. Unless otherwise indicated, references herein
to square feet are to gross square feet, rather than net
selling space.
(k) Working capital turnover is determined by dividing net sales
by the average of the amount of working capital at the
beginning and end of the period.
(l) Inventory turnover is determined by dividing cost of sales
(excluding costs of leased shoe departments) by the average
of the cost of inventory at the beginning and end of the
period (excluding inventory associated with ATGS).
(m) Includes current portion of long-term debt of $287,000,
$40,266,000, $0, $8,757,000 and $37,000,000 in Fiscal 1996,
1995, 1994, 1993 and 1992, respectively.
==========================================================================
<PAGE> 13
ITEM 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Sales Growth
- ------------
The following table sets forth certain sales and store data
for the periods indicated:
Fiscal Year Ended
------------------------------------
Fiscal Fiscal Fiscal
1996 1995 1994
-------- --------- ---------
(52 weeks) (53 weeks) (52 weeks)
Net sales ($000).............. $ 798,117 $ 731,142 $ 658,804
Total net sales growth
percentage
(52 week basis.............. 10.6% 9.5% 31.3%
Comparable store sales
increase (decrease)
percentage (52 week basis).. 1.8% (8.9)% 13.7%
Net sales per average
square foot................. $ 476 $ 518 $ 627
Total store square
footage at end of period..... 1,705,000 1,651,000 1,173,000
Number of
New stores.................. 11 48 35
Expanded stores............. 7 30 25
Closed stores............... 8 4 4
Total stores open at
end of period............... 309 306 262
Since 1993, Ann Taylor Stores opened by the Company average
5,900 square feet, compared to the average store size prior to
1993 of 3,500 square feet. In addition, since 1993, the Company
has expanded 74 stores from an average size of 3,500 square feet
to an average store size of 5,900 square feet. Ann Taylor
Factory Stores average 6,600 square feet, and Ann Taylor Loft
stores average 10,900 square feet. This increase in average
store size has had, and is expected to continue to have, a
negative effect on sales per square foot. However, the Company
believes that the larger store format enhances the Company's
ability to merchandise its customer offerings and reinforces its
total wardrobing concept, provides area necessary for the proper
presentation of Ann Taylor shoes, petites and other product line
extensions, and improves customer service and ease of shopping.
Ann Taylor Stores to be opened in Fiscal 1997 are expected to
average approximately 4,500 square feet.
The Company's net sales do not show significant seasonal
variation, although net sales in the fourth quarter have
historically been moderately higher than in the other quarters.
As a result, the Company has not had significant overhead and
other costs generally associated with large seasonal variations.
Results of Operations
- ---------------------
The following table sets forth operating statement data
expressed as a percentage of net sales for the periods
indicated:
Fiscal Year
------------------------
1996 1995 1994
---- ---- ----
Net sales....................... 100.0% 100.0% 100.0%
Cost of sales................... 55.6 58.2 54.3
----- ----- -----
Gross profit................ 44.4 41.8 45.7
Selling, general and
administrative expenses....... 36.5 37.0 32.5
Studio shoe stores closing
expense....................... 0.4 --- ---
Employment contract
separation expense............ 0.4 --- ---
Amortization of goodwill........ 1.3 1.3 1.5
----- ----- -----
Operating income............ 5.8 3.5 11.7
Interest expense................ 3.1 2.9 2.2
Other expense, net.............. --- --- ---
----- ----- -----
Income before income taxes
and extraordinary loss........ 2.7 0.6 9.5
Income tax provision............ 1.6 0.7 4.6
----- ----- -----
Income (loss) before
extraordinary loss............. 1.1 (0.1) 4.9
Extraordinary loss............... --- --- 0.1
----- ----- -----
Net income (loss)............ 1.1% (0.1)% 4.8%
===== ===== =====
=====================================================================
<PAGE> 14
Fiscal 1996 Compared to Fiscal 1995
- ------------------------------------
The Company's net sales increased to $798,117,000 in Fiscal
1996 (53 weeks) from $731,142,000 in Fiscal 1995 (52 weeks), an
increase of $66,975,000, or 9.2%. Total sales for the fifty-two
week period ended February 1, 1997 were up 10.6% compared to the
fifty-two week period ended January 27, 1996. This increase in
net sales was attributable to the inclusion of a full year of
operating results for the 48 stores opened and 30 stores expanded
during 1995, the opening of 11 new stores and the expansion of 7
stores in 1996, and to a comparable sales increase of 1.8% for
the fifty-two week period ended February 1, 1997. This sales
increase was partially offset by the closing of 8 stores in 1996.
The Company believes that the 1.8% increase in its comparable
store sales in 1996 was attributable primarily to positive
customer reaction to the Company's Fall 1996 merchandise
offerings.
Gross profit as a percentage of net sales increased to 44.4%
in 1996 from 41.8% in 1995. This increase was primarily
attributable to lower markdowns associated with decreased
promotional activities.
Selling, general and administrative expenses as a percentage
of net sales decreased to 36.5% in 1996 from 37.0% in 1995. The
decrease in selling, general and administrative expenses as a
percentage of net sales was primarily the result of increased
leverage on fixed expenses due to improved comparable store
sales.
Operating income increased to $46,461,000, or 5.8% of net
sales, in 1996 from $25,275,000, or 3.5% of net sales, in 1995.
Operating income in 1996 was reduced by $3,500,000, or 0.4% of
net sales, representing the estimated costs of the Company's
obligations under the former Chairperson's employment contract
following her resignation in August 1996, and by a one-time
charge of $3,600,000, or 0.4% of net sales, relating to the
planned closing of the nine Ann Taylor Studio shoe stores
announced in January 1997. Amortization of goodwill was
$10,086,000 in 1996 compared to $9,506,000 in 1995. Operating
income without giving effect to such amortization was
$56,547,000, or 7.1% of net sales, in 1996 and $34,781,000, or
4.8% of net sales, in 1995.
Interest expense was $24,416,000 in 1996 compared to
$20,956,000 in 1995. The increase in interest expense was
attributable to higher interest rates associated with the
issuance of 8-1/2% Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities (the "preferred securities") by
the Company's financing vehicle, AnnTaylor Finance Trust,
partially offset by a decrease in the Company's long-term debt.
The weighted average interest rate on the Company's outstanding
indebtedness at February 1, 1997 was 8.80% compared to 8.26% at
February 3, 1996.
The income tax provision was $12,975,000, or 60.0% of income
before income taxes, in the 1996 period compared to $5,157,000,
or 120.5% of income before income taxes, in 1995. The effective
tax rates for both periods were higher than the statutory rates,
primarily as a result of non-deductible goodwill expense.
As a result of the foregoing factors, the Company had net
income of $8,667,000, or 1.1% of net sales, for 1996 compared to
a net loss of $876,000, or 0.1% of net sales, for 1995.
Fiscal 1995 Compared to Fiscal 1994
- -----------------------------------
The Company's net sales increased to $731,142,000 in 1995
(53 weeks) from $658,804,000 in 1994 (52 weeks), an increase of
$72,338,000, or 11.0%. Total sales for the fifty-two week period
ended January 27, 1996 were up 9.5% to $721,561,000 compared to
1994. The increase in net sales was attributable to the
inclusion of a full year of operating results for the 35 stores
opened and 25 stores expanded during 1994 and the opening of 48
new stores and the expansion of 30 stores in 1995. The sales
increase was partially offset by the closing of 4 stores in 1995
and by an 8.9% decrease in comparable store sales for the fifty-
two week period ended January 27, 1996. The Company believes
====================================================================
<PAGE> 15
that the 8.9% decrease in its comparable store sales in 1995 was
attributable primarily to poor customer reaction to the Company's
merchandise offerings, as well as to the generally weak economic
environment for women's apparel sales that prevailed throughout
most of 1995. The Company believes that its 1995 merchandise
offerings were "over-assorted" and failed to achieve the
cohesive, distinctive look that had defined the brand in the
previous two years.
Gross profit as a percentage of net sales decreased to 41.8%
in 1995 from 45.7% in 1994. This decrease was primarily
attributable to higher markdowns associated with increased
promotional activities and, to a lesser extent, to a lower
initial mark up rate associated with merchandise manufactured for
Ann Taylor Factory Stores and Ann Taylor Loft stores, compared to
the initial mark up on merchandise manufactured for Ann Taylor
Stores.
Selling, general and administrative expenses as a percentage
of net sales increased to 37.0% in 1995 from 32.5% in 1994. The
increase in selling, general and administrative expenses as a
percentage of net sales was primarily due to higher tenancy,
store maintenance and store selling costs as a percentage of
sales as a result of both decreased comparable store sales and
lower than average sales per square foot productivity of stores
added in 1995 (approximately 73% of the increase), higher
distribution center expense relating, in part, to start-up costs
of the Company's distribution center facility in Louisville,
Kentucky (approximately 8% of the increase), additional catalog
expense relating to the Company's test of its catalog as a mail
order vehicle (approximately 7% of the increase), higher
merchandising and design expense (approximately 6% of the
increase) and higher packaging and supplies expense
(approximately 5% of the increase). The Company returned its
catalog format to principally an advertising vehicle, rather than
a mail order business, in Fall 1995 and suspended publication of
its catalog entirely in early 1996.
Operating income decreased to $25,275,000, or 3.5% of net
sales, in 1995, from $77,291,000, or 11.7% of net sales, in 1994.
Amortization of goodwill was $9,506,000 in 1995 and 1994.
Operating income without giving effect to such amortization was
$34,781,000, or 4.8% of net sales, in 1995, and $86,797,000, or
13.2% of net sales, in 1994.
Interest expense was $20,956,000 and $14,229,000 in 1995 and
1994, respectively. The increase in interest expense was
attributable to higher interest rates applicable to the Company's
debt obligations throughout most of the 1995 period and an
increase in the Company's long-term debt. The weighted average
interest rate on the Company's outstanding indebtedness at
February 3, 1996 was 8.26% compared to 8.90% at January 28, 1995.
The income tax provision was $5,157,000, or 120.5% of income
before income taxes in the 1995 period compared to $30,274,000,
or 48.1% of income before income taxes and extraordinary loss, in
1994. The effective tax rates for both periods were higher than
the statutory rates, primarily as a result of non-deductible
goodwill expense.
As a result of the foregoing factors, the Company had a net
loss of $876,000, or 0.1% of net sales, for 1995 compared to net
income of $31,752,000, or 4.8% of net sales, for 1994.
Changes in Financial Position
- -----------------------------
Accounts receivable decreased to $63,605,000 at the end of
1996 from $70,395,000 at the end of 1995, a decrease of
$6,790,000, or 9.7%. This decrease was primarily attributable to
a decrease in construction allowances receivable, which declined
$3,536,000, or 51.7%, to $3,309,000 and to a decrease in Ann
Taylor credit card receivables, which declined $2,900,000, or
5.1%, to $54,505,000 in 1996.
=================================================================
<PAGE> 16
Merchandise inventories decreased to $100,237,000 at
February 1, 1997 from $102,685,000 at February 3, 1996, a
decrease of $2,448,000, or 2.4%. Merchandise inventories at
February 1, 1997 included approximately $13,728,000 of inventory
associated with ATGS, the Company's recently acquired sourcing
operation (see page 18). Total square footage increased to
approximately 1,705,000 square feet at February 1, 1997 from
approximately 1,651,000 square feet at February 3, 1996.
Merchandise inventory on a per square foot basis, excluding
inventory associated with ATGS, was approximately $51 at the end
of 1996, compared to approximately $62 at the end of 1995, a
decrease of approximately 19%. This decrease is a reflection of
more conservative inventory management as part of the Company's
strategy to increase inventory turns. Inventory turned 4.7 times
in 1996, excluding inventory associated with ATGS, and the
Company is planning inventory turns of at least 5.0 times in
1997. Inventory turnover is determined by dividing cost of sales
by the average of the cost of inventory at the beginning and end
of the period (excluding inventory associated with ATGS).
Accounts payable decreased to $34,341,000 at the end of 1996
from $42,909,000 at the end of 1995, a decrease of $8,568,000.
The decrease in accounts payable is primarily due to decreased
store inventory levels at the end of 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of working capital are cash
flow from operations and borrowings under the Company's revolving
credit facility under the Bank Credit Agreement and the
Receivables Facility described below. The following sets forth
material measures of the Company's liquidity:
Fiscal Year
-----------------------------
1996 1995 1994
-----------------------------
(dollars in thousands)
Cash provided by
operating activities............ $ 67,532 $ 7,376 $ 17,149
Working capital................... $118,850 $86,477 $102,181
Current ratio..................... 2.53:1 1.77:1 2.55:1
Debt to equity ratio.............. .35:1 .84:1 .61:1
Cash provided by operating activities, as presented on the
consolidated statements of cash flows, increased in 1996
principally as a result of increases in earnings, noncash
charges, accounts payable and accrued liabilities, and decreases
in receivables, merchandise inventories and prepaid expenses.
Working capital increased as a result of a decrease in the
current portion of long-term debt of approximately $40,000,000
partially offset by a decrease in merchandise inventories and
receivables.
The Company's Bank Credit Agreement provides, among other
things, for a $25,000,000 term loan and a $125,000,000 revolving
credit facility. As described below, in January 1996 the Company
prepaid a portion of the term loan and reduced the revolving
credit facility to $122,000,000. The principal amount of the
term loan is payable on September 29, 1998, and the maturity date
of the revolving credit facility is July 29, 1998; however, the
Company is required to reduce the outstanding balance under the
revolving credit facility to $50,000,000 or less for thirty
consecutive days in 1996 and in each fiscal year thereafter. The
maximum amount that may be borrowed under the revolving credit
facility is reduced by the amount of commercial and standby
letters of credit outstanding under the Bank Credit Agreement.
At February 1, 1997, there were no borrowings outstanding under
the revolving credit facility and the amount available under the
facility was approximately $110,000,000. The Bank Credit
Agreement contains financial and other covenants, including
limitations on indebtedness, liens and investments, restrictions
on dividends or other distributions to stockholders, and
requirements to maintain certain financial ratios and specified
levels of net worth. The Company's ability to satisfy such
financial covenants will be dependent upon, among other things,
the Company's sales and earnings and the amount of capital
expenditures made by the Company. The Bank Credit Agreement also
provides for, among other things, an annual limitation on capital
expenditures of $32,500,000 in 1997 and beyond, subject to
increase if certain conditions are satisfied.
==================================================================
<PAGE> 17
In April and May of 1996, the Company completed the sale of
an aggregate of $100,625,000 of preferred securities issued by
its financing vehicle, AnnTaylor Finance Trust. The preferred
securities have a liquidation preference of $50 per security and
are convertible at the option of the holders thereof into shares
of common stock of the Company at a conversion rate of 2.545
shares of common stock for each preferred security. A total of
2,012,500 preferred securities were issued, and are convertible
into an aggregate of 5,121,812 shares of common stock,
representing approximately 17% of the Company's outstanding
common stock as of February 1, 1997. The Company received net
proceeds of $95,984,000 in connection with the sale of the
preferred securities and applied $94,000,000 to reduce
outstanding borrowings under the revolving credit facility,
without a permanent reduction of the commitment thereunder.
In November 1995, Ann Taylor and its wholly owned
subsidiary, AnnTaylor Distribution Services, Inc., received the
proceeds of a $7,000,000 seven-year mortgage loan secured by the
Company's distribution center land and building in Louisville,
Kentucky. The mortgage loan bears interest at 7.5% and is
payable in monthly installments of approximately $65,000 through
December 1, 1997, and thereafter in monthly installments
sufficient to amortize the then remaining principal balance over
a period of five years. Pursuant to the requirements of the Bank
Credit Agreement, in January 1996 the Company applied one-half of
the proceeds of the mortgage to reduce the amount available under
the revolving credit facility, thereby reducing the revolving
credit facility by $3,000,000, and prepaid a portion of the term
loan.
Since the fourth quarter of Fiscal 1993, Ann Taylor sells
its proprietary credit card accounts receivable to AnnTaylor
Funding, Inc., a wholly owned subsidiary of Ann Taylor.
AnnTaylor Funding, Inc. uses the receivables to secure borrowings
of up to $40,000,000, depending upon the eligible accounts
receivable balance, under a receivables financing facility (as
amended, the "Receivables Facility"). The Receivables Facility
matures in May 1998. AnnTaylor Funding, Inc. had total assets of
approximately $55,189,000 at February 1, 1997, all of which are
subject to the security interest of the lender under the
Receivables Facility. At February 1, 1997, there were no
borrowings outstanding under the Receivables Facility.
In connection with the Sourcing Acquisition (described
below), the Hongkong and Shanghai Banking Corporation ("HKSBC")
entered into an Amended and Restated Credit Agreement (the "HKSBC
Agreement") with ATGS, continuing the $40,000,000 credit facility
of ATGS's predecessor. The facility is available principally for
the issuance of letters of credit; cash borrowings under the
facility are limited to a maximum of $8,000,000. Such credit
facility matures on July 29, 1997 and contains financial and
other covenants. As of February 1, 1997, commercial and standby
letters of credit outstanding under this facility totaled
$28,189,000 and there were no borrowings outstanding under this
facility. If this facility is not extended beyond its current
expiration, the Company believes that it has sufficient credit
available under its Bank Credit Agreement to continue to obtain
letters of credit in the normal course of business.
The Company's capital expenditures totaled $16,107,000,
$78,378,000, and $61,341,000 in 1996, 1995 and 1994,
respectively. The decrease in capital expenditures in 1996 is
due primarily to the construction of fewer new and expanded
stores compared to the prior year. The Company slowed its real
estate expansion program in 1996 to enable it to more effectively
consolidate the growth that had occurred during recent years.
The Company expects its capital expenditure requirements will be
approximately $27,000,000 in 1997, of which $23,000,000 will be
allocated to the Company's real estate expansion program. The
actual amount of the Company's capital expenditures will depend
in part on the number of stores opened, expanded and refurbished
and on the amount of construction allowances the Company receives
from the landlords of its new or expanded stores. See "Business-
- -Expansion".
Dividends and distributions from Ann Taylor to the Company
are restricted by the Bank Credit Agreement, the Receivables
Facility and the Indenture for Ann Taylor's 8-3/4% Notes.
====================================================================
<PAGE> 18
In order to finance its operations and capital requirements,
the Company expects to use internally generated funds, trade
credit and funds available to it under the Bank Credit Agreement
and the HKSBC Agreement, as well as the Receivables Facility.
The Company typically purchases merchandise from its third-party
vendors (excluding manufacturers from whom ATGS purchases
merchandise) on terms requiring payment within 30 days or less
after the Company's receipt of the merchandise. If some or all
of the Company's third-party vendors were to demand shorter
payment terms, the Company's working capital needs would
increase. The Company believes that cash flow from operations
and funds available under the Bank Credit Agreement, the
Receivables Facility and the HKSBC Agreement are sufficient to
enable it to meet its on-going cash needs for its business, as
presently conducted, for the foreseeable future.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies the computation, presentation
and disclosure requirements for basic and diluted earnings per
share. The Company expects that this statement will have no
material effect on the Company's reported earnings per share.
Sourcing Acquisition
- --------------------
In Fiscal 1995, the Company purchased approximately 16% of
its merchandise directly from Cygne Designs, Inc. ("Cygne") and
an additional 38% of its merchandise through the Company's direct
sourcing joint venture with Cygne known as CAT. On September 20,
1996 (the "Effective Date"), Ann Taylor acquired the entire
interest of Cygne in CAT and certain of the assets (the "Assets")
of the Ann Taylor Woven Division of Cygne (the "Division") that
were used for sourcing merchandise for Ann Taylor. As a result
of the Sourcing Acquisition, CAT became an indirect wholly owned
subsidiary of the Company and now performs all of Ann Taylor's
direct sourcing functions, including those previously provided by
the Division, under the name AnnTaylor Global Sourcing. The
results of operations of ATGS are included in the consolidated
financial statements of the Company since the Effective Date.
The Company believes that the Sourcing Acquisition provides
Ann Taylor with greater control over pre-production processes and
production management, which it expects will result in a variety
of operational benefits, such as greater consistency in
merchandise quality and sizing. The Company also believes that
it will recognize a net reduction in the cost of merchandise
purchased through the sourcing division (after taking into
account the cost of operating ATGS).
In consideration for Cygne's interest in CAT and the Assets,
the Company paid (i) 2,348,145 shares of common stock of the
Company having an aggregate value, as of the Effective Date, of
$36,000,000, (ii) $3,200,000 in cash in payment for inventory and
fixed assets and (iii) approximately $6,500,000 in cash in
settlement of open accounts payable by Ann Taylor to Cygne for
merchandise delivered by Cygne prior to the closing. The Company
also assumed certain liabilities related to the operations of the
Division. The purchase price is subject to post-closing
adjustments based upon final determination of the value of
certain of the assets purchased and liabilities assumed. As of
February 1, 1997, certain post-closing adjustments are expected
to reduce the net cash paid for inventory and fixed assets to
approximately $227,000. The total purchase price has been
allocated to the tangible and intangible assets and liabilities
of CAT and the Division that were acquired, based on
preliminary estimates of their respective fair values. The
allocation of the purchase price reflected in the accompanying
Consolidated Balance Sheets may be adjusted upon final
determination of the purchase price adjustments, but
management does not believe the subsequent changes, if any, will
be significant. The excess of the purchase price over the fair
value of the net assets acquired was recorded as goodwill and is
being amortized on a straight-line basis over 25 years.
Pursuant to the terms of a Stockholders Agreement entered
into at the time of the Sourcing Acquisition, the Company
registered the sale of the shares of Common Stock issued to Cygne
as part of the consideration for the acquisition. Cygne
subsequently sold, pursuant to this registration statement, all
of the shares of Common Stock issued to it by the Company.
====================================================================
<PAGE> 19
In connection with the Sourcing Acquisition, Ann Taylor
entered into two three-year consulting agreements with Cygne for
the services of Mr. Bernard Manuel, Chairman and Chief Executive
Officer of Cygne, and Mr. Irving Benson, then President of Cygne.
In November 1996, Mr. Benson resigned from his employment with
Cygne and, in accordance with the terms of the consulting
agreement relating to Mr. Benson's services, Cygne's obligations
and rights under the consulting agreement were automatically
assigned to Mr. Benson.
Statement Regarding Forward Looking Disclosures
- -----------------------------------------------
Sections of this Annual Report, including the preceding
Management's Discussion and Analysis of Financial Condition and
Results of Operations, contain various 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.
These forward looking statements involve certain risks and
uncertainties, and no assurance can be given that any of such
matters will be realized. Actual results may differ materially
from those contemplated by such forward looking statements as a
result of, among other things, increased competition in the
retail apparel industry; failure by the Company to accurately
predict customer fashion preferences; a decline in the demand for
merchandise offered by the Company; greater costs or difficulties
than expected related to the assimilation of the sourcing
functions and employees acquired in connection with the Sourcing
Acquisition; general economic conditions that are less favorable
than expected; the inability of the Company to locate new store
sites or negotiate favorable lease terms for additional stores or
for the expansion of existing stores; a significant change in the
regulatory environment applicable to the Company's business; an
increase in the rate of import duties or export quotas with
respect to the Company's merchandise; an adverse outcome of
certain litigation described in "Legal Proceedings" that
materially and adversely affects the Company's financial
condition; or lack of sufficient customer acceptance of the Ann
Taylor Loft concept in the moderate-priced women's apparel
market.
===================================================================
<PAGE> 20
ITEM 8. Financial Statements and Supplementary Data
-------------------------------------------
The following consolidated financial statements of the
Company for the years ended February 1, 1997, February 3, 1996
and January 28, 1995 are included as a part of this Report (See
Item 14):
Consolidated Statements of Operations for the fiscal years
ended February 1, 1997, February 3, 1996 and January 28,
1995.
Consolidated Balance Sheets as of February 1, 1997 and
February 3, 1996.
Consolidated Statements of Stockholders' Equity for the
fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995.
Consolidated Statements of Cash Flows for the fiscal years
ended February 1, 1997, February 3, 1996 and January 28,
1995.
Notes to Consolidated Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosures
-------------------------
None.
=========================================================================
<PAGE> 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant
---------------------------------------------------
The information required by this item is incorporated herein
by reference to the Section entitled "Nominees for Election as
Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for its
1997 Annual Meeting of Stockholders.
ITEM 11. Executive Compensation
----------------------
The information required by this item is incorporated herein
by reference to the Sections entitled "Compensation of
Directors", "Executive Compensation" and "Employment Contracts"
in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by this item is incorporated herein
by reference to the Section entitled "Beneficial Ownership of
Common Stock" in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders.
ITEM 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by this item is incorporated herein
by reference to the Sections entitled "Compensation of Directors
and Related Matters" and "Compensation Committee Report on
Executive Compensation--Compensation Committee Interlocks and
Insider Participation" in the Company's Proxy Statement for its
1997 Annual Meeting of Stockholders.
In connection with the Sourcing Acquisition, the Company
issued to Cygne an aggregate of 2,348,145 shares of Common Stock.
See "Management's Discussion and Analysis -- Sourcing
Acquisition".
===================================================================
<PAGE> 22
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) List of documents filed as part of this Annual Report:
The following consolidated financial statements of the Company
and the independent auditors' report are included on pages 27
through 46 and are filed as part of this Annual Report:
Consolidated Statements of Operations for the fiscal years
ended February 1, 1997, February 3, 1996 and January 28, 1995;
Consolidated Balance Sheets as of February 1, 1997, and
February 3, 1996; Consolidated Statements of Stockholders'
Equity for the fiscal years ended February 1, 1997, February 3, 1996
and January 28, 1995; Consolidated Statements of Cash Flows
for the fiscal years ended February 1, 1997, February 3, 1996
and January 28, 1995; Notes to Consolidated Financial
Statements; Independent Auditors' Report.
(b) Reports on Form 8-K
None
(c) Exhibits
The exhibits listed below are filed as a part of this Annual
Report.
Exhibit Number
--------------
3.1 Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission (the
"Commission") on August 10, 1992 (Registration No. 33-
50688).
3.2 By-Laws of the Company. Incorporated by reference to
Exhibit 3.2 to the Form 10-Q of the Company for the
Quarter ended November 2, 1991 filed on December 17,
1991 (Registration No. 33-28522).
4.1 Indenture, dated as of June 15, 1993, between Ann
Taylor and Fleet Bank, N.A., as Trustee, including the
form of Subordinated Note due 2000. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form
8-K of Ann Taylor filed on July 7, 1993.
4.1.1 Instrument of Resignation, Appointment and Acceptance,
dated as of December 1, 1995, among Ann Taylor, Fleet
Bank, N.A., as Resigning Trustee, and Norwest Bank
Minnesota, N.A., the Successor Trustee. Incorporated
by reference to Exhibit 4.1.1 to the Annual Report on
Form 10-K of the Company filed on April 8, 1996.
10.1 Form of Warrant Agreement entered into between
AnnTaylor and The Connecticut Bank and Trust Company,
National Association, including the form of Warrant.
Incorporated by reference to Exhibit 4.3 to Amendment
No. 1 to the Registration Statement of the Company and
Ann Taylor filed on June 21, 1989 (Registration No. 33-
28522).
10.2 Amended and Restated Credit Agreement, dated as of
September 29, 1995, among Ann Taylor, Bank of America
National Trust and Savings Association ("Bank of
America"), and Fleet Bank, National Association, as Co-
Agents, the financial institutions from time to time
party thereto, BA Securities, Inc., as Arranger, and
Bank of America, as Agent. Incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K of
Ann Taylor filed on October 17, 1995.
10.2.1 First Amendment to Amended and Restated Credit
Agreement, dated as of January 4, 1996, among Ann
Taylor, Bank of America, Fleet Bank, National
Association, as Co-Agents, the financial institutions
from time to time party thereto, BA Securities, Inc.,
as Arranger, and Bank of America, as Agent.
Incorporated by reference to Exhibit 10.2.1 to the
Annual Report on Form 10-K of the Company filed on
April 8, 1996.
10.2.2 Second Amendment to the Amended and Restated Credit
Agreement, dated as of April 9, 1996 among Ann Taylor,
Bank of America and Fleet Bank, National Association,
as Co-Agents, the financial institutions from time to
time party thereto, BA Securities Inc. as Arranger, and
Bank of America as Agent. Incorporated by reference to
Exhibit 10.1 on Form 10-Q of the Company for the
Quarter ended August 3, 1996 filed on September 16,
1996.
====================================================================
<PAGE> 23
Exhibit
Number
- -------
10.3 Amended and Restated Guaranty, dated as of September
29, 1995, made by the Company in favor of Bank of
America, as Agent. Incorporated by reference to
Exhibit 10.4 to the Current Report on Form 8-K of Ann
Taylor filed on October 17, 1995.
10.4 Amended and Restated Security and Pledge Agreement,
dated as of September 29, 1995, made by Ann Taylor in
favor of Bank of America, as Agent. Incorporated by
reference to Exhibit 10.2 to the Current Report on Form
8-K of Ann Taylor filed on October 17, 1995.
10.5 Amended and Restated Security and Pledge Agreement,
dated as of September 29, 1995, made by the Company in
favor of Bank of America, as Agent. Incorporated by
reference to Exhibit 10.5 to the Current Report on Form
8-K of Ann Taylor filed on October 17, 1995.
10.6 Trademark Security Agreement, dated as of September 29,
1995, made by Ann Taylor in favor of Bank of America,
as Agent. Incorporated by reference to Exhibit 10.3 to
the Current Report on Form 8-K of Ann Taylor filed on
October 17, 1995.
10.7 1989 Stock Option Plan. Incorporated by reference to
Exhibit 10.18 to the Registration Statement of the
Company and Ann Taylor filed on May 3, 1989
(Registration No. 33-28522).
10.7.1 Amendment to 1989 Stock Option Plan. Incorporated by
reference to Exhibit 10.15.1 to the Annual Report on
Form 10-K of the Company filed on April 30, 1993.
10.8 Lease, dated as of March 17, 1989, between Carven
Associates and Ann Taylor concerning the West 57th
Street headquarters. Incorporated by reference to
Exhibit 10.21 to the Registration Statement of the
Company and Ann Taylor filed on May 3, 1989
(Registration No. 33-28522).
10.8.1 First Amendment to Lease, dated as of November 14,
1990, between Carven Associates and Ann Taylor.
Incorporated by reference to Exhibit 10.17.1 to the
Registration Statement of the Company filed on April
11, 1991 (Registration No. 33-39905).
10.8.2 Second Amendment to Lease, dated as of February 28,
1993, between Carven Associates and Ann Taylor.
Incorporated by reference to Exhibit 10.17.2 to the
Annual Report on Form 10-K of the Company filed on
April 29, 1993.
10.8.3 Extension and Amendment to Lease dated as of October 1,
1993, between Carven Associates and Ann Taylor.
Incorporated by reference to Exhibit 10.11 to the Form
10-Q of Ann Taylor for the Quarter ended October 30,
1993 filed on November 26, 1993.
10.8.4 Modification of Amendment and Extension to Lease, dated
as of April 14, 1994 between Carven Associates and Ann
Taylor. Incorporated by reference to Exhibit 10.15.4
to the Annual Report on Form 10-K of the Company filed
on April 28, 1995.
10.8.5 Fifth Amendment to Lease, dated as of March 14, 1995,
between Carven Associates and Ann Taylor. Incorporated
by reference to Exhibit 10.15.5 to the Annual Report on
Form 10-K of the Company filed on April 28, 1995.
10.9 Tax Sharing Agreement, dated as of July 13, 1989,
between the Company and Ann Taylor. Incorporated by
reference to Exhibit 10.24 to Amendment No. 2 to the
Registration Statement of the Company and Ann Taylor
filed on July 13, 1989 (Registration No. 33-28522).
10.10 Employment Agreement dated as of February 1, 1994
between the Company and Sally Frame Kasaks.
Incorporated by reference to Exhibit 10.8 to the Form
10-Q of the Company for the Quarter ended October 29,
1994 filed on December 9, 1994.
10.11 Employment Agreement dated February 16, 1996 between
the Company and J. Patrick Spainhour. Incorporated by
reference to Exhibit 10.4 to the Annual Report on Form
10-K of the Company filed on April 8, 1996.
10.11.1Amendment to the Employment Agreement, dated August 23,
1996, between the Company and J. Patrick Spainhour.
10.12 Employment Agreement dated November 25, 1996 between
the Company and Patricia DeRosa. Incorporated by
reference to Exhibit 10.3 to Form 10-Q of AnnTaylor for
the Quarter ended November 2, 1996 filed on December
17, 1996.
====================================================================
<PAGE> 24
Exhibit
Number
- -------
10.13 Employment Agreement dated September 20, 1996 between
Ann Taylor and Dwight F. Meyer. Incorporated by
reference to Exhibit 10.4 to the Form 10-Q of Ann
Taylor for the Quarter ended November 2, 1996 filed on
December 17, 1996.
10.14 Separation Agreement dated January 24, 1997 between Ann
Taylor and Paul E. Francis.
10.15 The AnnTaylor Stores Corporation 1992 Stock Option and
Restricted Stock and Unit Award Plan, Amended and
Restated as of February 23, 1994 (the "1992 Option
Plan").
10.16 Amended and Restated Management Performance
Compensation Plan as approved by stockholders on June
1, 1994. Incorporated by reference to Exhibit 10.22.1
to the Annual Report on Form 10-K of the Company filed
on April 28, 1995.
10.16.1 Amendment to the AnnTaylor Stores Corporation
Management Performance Compensation Plan dated as of
February 24, 1995. Incorporated by reference to
Exhibit 10.22.2 to the Annual Report on Form 10-K of
the Company filed on April 28, 1995.
10.17 Associate Stock Purchase Plan. Incorporated by
reference to Exhibit 10.31 to the Form 10-Q of the
Company for the Quarter Ended October 31, 1992 filed on
December 15, 1992.
10.18 Interest Rate Swap Agreement dated as of July 22, 1993,
between Ann Taylor and Fleet Bank of Massachusetts,
N.A. Incorporated by reference to Exhibit 10.6 to the
Form 10-Q of Ann Taylor for the Quarter ended July 31,
1993 filed on September 2, 1993.
10.19 Stock Purchase Agreement, dated as of July 13, 1993,
between Ann Taylor and Cleveland Investment, Ltd.
Incorporated by reference to Exhibit 10.7 to the Form
10-Q of Ann Taylor for the Quarter ended July 31, 1993
filed on September 2, 1993.
10.20 Amended and Restated Receivables Financing Agreement
dated October 31, 1995, among AnnTaylor Funding, Inc.,
Ann Taylor, Market Street Capital Corp. and PNC Bank,
National Association. Incorporated by reference to
Exhibit 10.31.4 to the Form 10-Q of the Company for the
Quarter ended October 28, 1995 filed on December 8,
1995.
10.20.1 First Amendment to the Amended and Restated Receivables
Financing Agreement, dated as of October 31, 1995,
among AnnTaylor Funding, Inc., Ann Taylor, Market
Street Capital Corp. and PNC Bank, National
Association. Incorporated by reference to Exhibit
10.5 to the Form 10-Q of Ann Taylor for the Quarter
ended November 2, 1996 filed on December 17, 1996.
10.21 Purchase and Sale Agreement dated as of January 27,
1994 between Ann Taylor and AnnTaylor Funding, Inc.
Incorporated by reference to Exhibit 10.29 to the
Annual Report on Form 10-K of the Company filed on
March 31, 1994.
10.22 AnnTaylor Stores Corporation Deferred Compensation
Plan. Incorporated by reference to Exhibit 10.33 to
the Annual Report on Form 10-K of the Company filed on
April 28, 1995.
10.22.1 Amendment to the AnnTaylor Stores Corporation Deferred
Compensation Plan as approved by the Board of Directors
on August 11, 1995. Incorporated by reference to
Exhibit 10.33.1 to the Form 10-Q of the Company for the
Quarter Ended July 29, 1995 filed on September 11,
1995.
10.23 Mortgage, Assignment of Rents and Leases, Security
Agreement and Fixture Financing Statement dated
November 20, 1995, between AnnTaylor Distribution
Services, Inc., as Mortgagor, and General Electric
Capital Assurance Company, as Mortgagee. Incorporated
by reference to Exhibit 10.34 to the Form 10-Q of Ann
Taylor for the Quarter ended October 28, 1995 filed on
December 8, 1995.
10.24 Promissory Note dated November 20, 1995 from Ann Taylor
and AnnTaylor Distribution Services, Inc., collectively
as Borrower, to General Electric Capital Assurance
Company, as Lender. Incorporated by reference to
Exhibit 10.35 to the Form 10-Q of Ann Taylor for the
Quarter ended October 28, 1995 filed on December 8,
1995.
===================================================================
<PAGE> 25
Exhibit
Number
- -------
10.25 Amended and Restated Credit Agreement, dated as of
September 20, 1996, between AnnTaylor Global Sourcing,
Inc. and the Hongkong and Shanghai Banking Corporation
Limited. Incorporated by reference to Exhibit 10.6 to
the Form 10-Q of Ann Taylor for the Quarter ended
November 2, 1996 filed on December 17, 1996.
10.25.1 Promissory Note dated September 20, 1996 from AnnTaylor
Global Sourcing, Inc. to the Hongkong and Shanghai
Banking Corporation Limited, New York Branch.
Incorporated by reference to Exhibit 10.7 to Form 10-Q
of Ann Taylor for the Quarter ended November 2, 1996
filed on December 17, 1996.
10.25.2 Amended and Restated Security Agreement, dated as of
September 20, 1996, between AnnTaylor Global Sourcing,
Inc. and the Hongkong and Shanghai Banking Corporation
Limited. Incorporated by reference to Exhibit 10.8 to
the Form 10-Q of Ann Taylor for the Quarter ended
November 2, 1996 filed on December 17, 1996.
10.25.3 Letter of Negative Pledge, dated as of September 20,
1996 from AnnTaylor Global Sourcing, Inc. to the
Hongkong and Shanghai Banking Corporation Limited.
Incorporated by reference to Exhibit 10.9 to the Form
10-Q of Ann Taylor for the Quarter ended November 2,
1996 filed on December 17, 1996.
10.26 Stock and Asset Purchase Agreement, dated as of June 7,
1996, by and among the Company, Ann Taylor, Cygne and
Cygne Group (F.E.) Limited. Incorporated by reference
to Exhibit 2 to the Registrants' Current Report on Form
8-K filed on June 10, 1996.
10.26.1 Amendment to Stock and Asset Purchase Agreement, dated
as of August 27, 1996, by and among the Company, Ann
Taylor, Cygne and Cygne Group (F.E.) Limited.
Incorporated by reference to Exhibit 3 to the
Registrants' Current Report on Form 8-K filed on August
30, 1996.
10.26.2 Stockholders Agreement, dated as of September 20, 1996,
among the Company, Cygne and Cygne Group (F.E.)
Limited, a Hong Kong corporation and wholly owned
subsidiary of Cygne.
10.26.3 Consulting Agreement, dated as of September 20, 1996,
by and between the Company, Cygne and Mr. Bernard M.
Manuel.
10.26.4 Consulting Agreement, dated as of September 20, 1996,
by and between the Company, Cygne and Mr. Irving
Benson.
10.27 Certificate of Trust of AnnTaylor Finance Trust.
Incorporated by reference to Exhibit 4.1 to the
Registration Statement of the Company and AnnTaylor
Finance Trust filed on June 21, 1996 (Registration 333-
06605).
10.27.1 Amended and Restated Declaration of Trust of AnnTaylor
Finance Trust, dated as of April 25, 1996 among the
Company, 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. Incorporated by
reference to Exhibit 4.2 to the Registration Statement
of the Company and AnnTaylor Finance Trust filed on
June 21, 1996 (Registration 333-06605).
10.27.2 Indenture, dated as of April 15, 1996, among
AnnTaylor Stores Corporation and The Bank of New York,
as Trustee, including form of Preferred Securities and
form of Convertible Subordinated Debentures due 2016.
Incorporated by reference to Exhibit 4.3 to the
Registration Statement of the Company and AnnTaylor
Finance Trust filed on June 21, 1996. (Registration
No. 333-06605).
10.27.3 Amendment No. 1 to the Amended and Restated Declaration
of Trust of AnnTaylor Finance Trust, dated as of August
27, 1996, between the Company and Bank of New York, as
Trustee. Incorporated by reference to Exhibit 10.2 to
Form 10-Q of Ann Taylor for the Quarter ended August 3,
1996 filed on September 16, 1996.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
===================================================================
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANNTAYLOR STORES CORPORATION
By: /s/ J. Patrick Spainhour
------------------------
J. Patrick Spainhour
Chairman and Chief
Executive Officer
Date: May 1, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ J. Patrick Spainhour Chairman and Chief May 1, 1997
- ------------------------ Executive Officer ----------------
J. Patrick Spainhour and Director
/s/ Patricia DeRosa President and Chief May 1, 1997
- ------------------------ Operating Officer -----------------
Patricia DeRosa and Director
/s/ Walter J. Parks Senior Vice President- May 1, 1997
- ------------------------ Chief Financial ------------------
Walter J. Parks Officer
/s/ James M. Smith Vice President and May 1, 1997
________________________ Controller, Principal -----------------
James M. Smith Accounting Officer
/s/ Gerald S. Armstrong Director May 1, 1997
- ------------------------- -------------------
Gerald S. Armstrong
/s/ James J. Burke, Jr. Director May 1, 1997
- ------------------------- ---------------------
James J. Burke, Jr.
/s/ Robert C. Grayson Director May 1, 1997
- ------------------------- ----------------------
Robert C. Grayson
/s/ Rochelle B. Lazarus Director May 1, 1997
- ------------------------- ------------------------
Rochelle B. Lazarus
/s/ Hanne M. Merriman Director May 1, 1997
- ------------------------- -------------------------
Hanne M. Merriman
=======================================================================
<PAGE> 27
ANNTAYLOR STORES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
Independent Auditors' Report...................................... 28
Consolidated Financial Statements:
Consolidated Statements of Operations for the fiscal years
ended February 1, 1997, February 3, 1996 and
January 28, 1995............................................ 29
Consolidated Balance Sheets as of February 1, 1997 and
February 3, 1996............................................ 30
Consolidated Statements of Stockholders' Equity for the
fiscal years ended February 1, 1997, February 3, 1996
and January 28, 1995........................................ 31
Consolidated Statements of Cash Flows for the fiscal years
ended February 1, 1997, February 3, 1996 and
January 28, 1995............................................ 32
Notes to Consolidated Financial Statements.................... 33
==========================================================================
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
ANNTAYLOR STORES CORPORATION:
We have audited the accompanying consolidated financial
statements of AnnTaylor Stores Corporation and its subsidiaries,
listed in the accompanying index. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of the Company and its subsidiaries at February 1, 1997 and
February 3, 1996, and the results of their operations and their
cash flows for each of the three fiscal years in the period ended
February 1, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
March 6, 1997
===================================================================
<PAGE> 20
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended February 1, 1997, February 3, 1996 and
January 28, 1995
Fiscal Years Ended
--------------------------------------
February 1, February 3, January 28,
1997 1996 1995
------------ ----------- -----------
(in thousands, except per share amounts)
Net sales................................ $798,117 $731,142 $658,804
Cost of sales............................ 443,443 425,225 357,783
------- ------- -------
Gross profit 354,674 305,917 301,021
Selling, general and
administrative expenses............... 291,027 271,136 214,224
Studio shoe stores closing expense....... 3,600 --- ---
Employment contract separation expense... 3,500 --- ---
Amortization of goodwill................. 10,086 9,506 9,506
------- ------- -------
Operating income......................... 46,461 25,275 77,291
Interest expense......................... 24,416 20,956 14,229
Other expense, net....................... 403 38 168
------- ------- -------
Income before income taxes and
extraordinary loss.................... 21,642 4,281 62,894
Income tax provision..................... 12,975 5,157 30,274
------- ------- -------
Income (loss) before extraordinary loss.. 8,667 (876) 32,620
Extraordinary loss (net of income
tax benefit of $654,000)............... --- --- 868
------- ------- -------
Net income (loss)..................... $ 8,667 $ (876) $ 31,752
======= ======= =======
Net income (loss) per share of common stock:
Income (loss) per share before
extraordinary loss.................... $ .36 $ (.04) $ 1.40
Extraordinary loss per share............. --- --- (.04)
------- ------- -------
Net income (loss) per share........... $ .36 $ (.04) $ 1.36
======= ======= =======
See accompanying notes to consolidated financial statements.
=============================================================================
<PAGE> 30
ANNTAYLOR STORES CORPORATION
CONSOLIDATED BALANCE SHEETS
February 1, 1997 and February 3, 1996
February 1, February 3,
1997 1996
----------- -----------
(in thousands, except per share amounts)
ASSETS
Current assets
Cash $ 7,025 $ 1,283
Accounts receivable, net 63,605 70,395
Merchandise inventories 100,237 102,685
Prepaid expenses and other current assets 25,653 24,307
------- -------
Total current assets 196,520 198,670
Property and equipment
Land and building 8,930 8,923
Leasehold improvements 76,576 73,677
Furniture and fixtures 120,268 99,548
Construction in progress 3,307 14,190
------- -------
209,081 196,338
Less accumulated depreciation
and amortization 65,648 42,443
------- -------
Net property and equipment 143,433 153,895
Goodwill, net 341,779 313,525
Deferred financing costs, net 2,743 3,933
Other assets 3,664 8,686
------- -------
Total assets $688,139 $678,709
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 34,341 $42,909
Accrued tenancy 6,827 5,675
Gift certificates redeemable 4,903 4,269
Accrued expenses 31,312 19,074
Current portion of long-term debt 287 40,266
------- -------
Total current liabilities 77,670 112,193
Long-term debt 130,905 232,192
Deferred income taxes 4,872 1,300
Other liabilities 7,952 7,336
Commitments and contingencies
Company-Obligated Mandatorily
Redeemable Convertible
Preferred Securities of Subsidiary,
AnnTaylor Finance Trust,
Holding Solely Convertible Debentures 96,158 ---
Stockholders' equity
Common stock, $.0068 par value;
40,000,000 shares authorized;
25,598,489 and 23,127,743 shares
issued, respectively 174 157
Additional paid-in capital 349,545 311,284
Warrants to acquire 2,814 and 36,605
shares of common stock, respectively 46 596
Retained earnings 22,613 14,120
Deferred compensation on restricted stock (1,590) (33)
------- -------
370,788 326,124
Treasury stock, 11,601 and 44,983
shares, respectively, at cost (206) (436)
------- -------
Total stockholders' equity 370,582 325,688
------- -------
Total liabilities and stockholders'
equity $688,139 $678,709
======= =======
See accompanying notes to consolidated financial statements.
======================================================================
<PAGE> 31
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended February 1, 1997, February 3, 1996 and
January 28, 1995
(in thousands)
Retained
Addi- Earnings Treasury
Common Stock tional Warrants Accum- Restric- Stock
-------------- Paid-in _____________ ulated ted Stock_____________
Shares Amount Capital Shares Amount Deficit) Awards Shares Amount
------ ------ ------- ------ ------ -------- ------ ------ ------
Balance at
January 29,
1994 21,903 $ 149 $271,810 446 $7,378 $(16,756) $(119) 451 $(3,191)
Net income --- --- --- --- --- 31,752 --- --- ---
Exercise of
stock options
and related
tax benefit 191 2 4,480 --- --- --- --- 3 (118)
Exercise of
warrants --- --- 3,675 (388)(6,427) --- --- (388) 2,752
Issuance of
common stock 1,000 6 30,414 --- --- --- --- --- ---
Activity
related
to common
stock issued
as employee
incentives 13 --- 335 --- --- --- (30) --- ---
------ --- ------ ---- ----- ------ --- --- -----
Balance at
January 28,
1995 23,107 157 310,714 58 951 14,996 (149) 66 (557)
Net loss --- --- --- --- --- (876) --- --- ---
Exercise of
stock options
and related
tax benefit 23 --- 405 --- --- --- --- --- (12)
Exercise of
warrants --- --- 203 (21) (355) --- --- (22) 152
Activity related
to common
stock issued
as employee
incentives (2) --- (38) --- --- --- 116 1 (19)
------ --- ------ ---- ----- ------ --- --- ----
Balance at
February 3,
1996 23,128 157 311,284 37 596 14,120 (33) 45 (436)
Net income --- --- --- --- --- 8,667 --- --- ---
Exercise of
stock options
and related
tax benefit 18 --- 216 --- --- --- --- --- ---
Exercise of
warrants --- --- 314 (34) (550) --- --- (34) 236
Issuance of
stock for
Sourcing
Acquisition 2,348 16 35,984 --- --- --- --- --- ---
Amortization
of discount
on preferred
securities --- --- --- --- --- (174) --- --- ---
Activity
related to
common stock
issued as
employee
incentives 104 1 1,747 --- --- --- (1,557) 1 (6)
------ --- ------ ---- ----- ------ ------ -- ----
Balance at
February 1,
1997 25,598 $ 174 $349,545 3 $46 $22,613 $(1,590) 12 $(206)
====== === ======= ==== ===== ====== ====== == ====
See accompanying notes to consolidated financial statements.
================================================================================
<PAGE> 32
ANNTAYLOR STORES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended February 1, 1997, February 3, 1996 and
January 28, 1995
Fiscal Years Ended
----------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ---------- ----------
(in thousands)
Operating activities:
Net income (loss)......................... $ 8,667 $ (876) $ 31,752
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Extraordinary loss.................... --- --- 1,522
Equity earnings in CAT................ (1,402) (1,646) (1,547)
Provision for loss on
accounts receivable................. 1,803 1,280 1,727
Depreciation and amortization......... 26,208 18,788 11,787
Amortization of goodwill.............. 10,086 9,506 9,506
Amortization of deferred
compensation........................ 191 68 298
Non-cash interest..................... 1,574 1,004 978
Deferred income taxes................. (985) 3,150 ---
Loss on disposal of property
and equipment....................... 3,209 1,143 1,268
Change in assets and liabilities
net of effects from purchase
of AnnTaylor Global Sourcing:
Decrease (increase)
in receivables............... 4,987 (10,464) (13,659)
Decrease (increase) in
merchandise inventories...... 9,342 (8,980) (32,815)
Decrease (increase) in
prepaid expenses and
other current assets.......... 247 (12,951) (772)
Decrease in other non-current
assets and liabilities, net... 738 429 567
Increase in accounts payable
and accrued liabilities......... 2,867 6,925 6,537
------- ------- -------
Net cash provided by operating
activities.............................. 67,532 7,376 17,149
------- ------- -------
Investing activities:
Purchases of property and equipment... (16,107) (78,378) (61,341)
Purchase of AnnTaylor Global Sourcing..... (227) --- ---
------- ------- -------
Net cash used by investing activities..... (16,334) (78,378) (61,341)
------- ------- -------
Financing activities:
Borrowings (repayments) under
revolving credit facility............... (101,000) 37,000 64,000
Payments of long-term debt................ --- --- (56,000)
Net proceeds from issuance
of preferred securities................. 95,984 --- ---
Net proceeds from issuance
of common stock......................... --- --- 30,420
Proceeds from term loan................... --- 24,500 ---
Proceeds from (payments of) mortgage...... (266) 6,958 ---
Borrowings (repayments) under
receivables facility................... (40,000) 4,000 3,000
Proceeds from exercise of stock options... 210 384 4,371
Payment of financing costs................ (384) (2,108) (340)
------- ------- -------
Net cash provided by (used by)
financing activities.................... (45,456) 70,734 45,451
------- ------- -------
Net increase (decrease) in cash............. 5,742 (268) 1,259
Cash, beginning of year..................... 1,283 1,551 292
------- ------- -------
Cash, end of year........................... $ 7,025 $ 1,283 $ 1,551
======= ======= =======
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year
for interest............................ $ 22,689 $ 19,607 $ 13,211
======= ======= =======
Cash paid during the year
for income taxes........................ $ 8,990 $ 6,886 $ 26,242
======= ======= =======
See accompanying notes to consolidated financial statements.
=============================================================================
<PAGE> 33
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Ann Taylor is a leading national specialty retailer of
better quality women's apparel, shoes and accessories sold
principally under the Ann Taylor brand name.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts
of AnnTaylor Stores Corporation (the "Company") and AnnTaylor,
Inc. ("Ann Taylor"). The Company has no material assets other
than the common stock of Ann Taylor and the common securities of
AnnTaylor Finance Trust and conducts no business other than the
management of Ann Taylor. All intercompany accounts have been
eliminated in consolidation.
Certain Fiscal 1995 and 1994 amounts have been reclassified
to conform to the Fiscal 1996 presentation.
Fiscal Year
- -----------
The Company follows the standard fiscal year of the retail
industry, which is a 52 or 53 week period ending on the Saturday
closest to January 31 of the following calendar year. The fiscal
year ended February 3, 1996 included 53 weeks. The other fiscal
years presented included 52 weeks.
Finance Service Charge Income
- -----------------------------
Income from finance service charges relating to customer
receivables, which is deducted from selling, general and
administrative expenses, amounted to $9,024,000 for Fiscal 1996,
$8,328,000 for Fiscal 1995 and $6,871,000 for Fiscal 1994.
Merchandise Inventories
- -----------------------
Merchandise inventories are accounted for by the retail
inventory method and are stated at the lower of cost (first-in,
first-out method) or market. The majority of the Company's
inventory represents finished goods available for sale.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. The Company
capitalized interest costs of approximately $1,300,000 in Fiscal
1995. Depreciation and amortization are computed on a straight-
line basis over the estimated useful lives of the assets (3 to 40
years) or, in the case of leasehold improvements, over the lives
of the respective leases, if shorter.
Pre-Opening Expenses
- --------------------
Pre-opening store expenses are charged to selling, general
and administrative expenses in the period incurred.
====================================================================
<PAGE> 34
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies (Continued)
-------------------------------------------------------
Deferred Financing Costs
- ------------------------
Deferred financing costs are being amortized using the
interest method over the term of the related debt. Accumulated
amortization at February 1, 1997 and February 3, 1996 was
$3,534,000 and $1,960,000, respectively.
Goodwill
- --------
Goodwill relating to the 1989 acquisition of Ann Taylor by
the Company is being amortized on a straight-line basis over 40
years. Goodwill relating to the 1996 Sourcing Acquisition (see
Note 13) is being amortized on a straight-line basis over 25
years. Accumulated amortization at February 1, 1997 and February
3, 1996 was $76,811,000 and $66,725,000, respectively. On an
annual basis, the Company compares the carrying value of its
goodwill to an estimate of the Company's fair value to evaluate
the reasonableness of the carrying value and remaining
amortization period. Fair value is computed using projections of
future cash flows.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", which requires an asset and liability method
of accounting for deferred income taxes. Under the asset and
liability method, deferred tax assets and liabilities are
recognized, and income or expense is recorded, for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reported
period. Actual results could differ from these estimates.
Impairment of Long-Lived Assets
- --------------------------------
The Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"),
in Fiscal 1996. The implementation of SFAS 121 did not have a
material adverse effect on the consolidated financial statements
of the Company.
==================================================================
<PAGE> 35
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Long-Term Debt
--------------
The following summarizes long-term debt outstanding at
February 1, 1997 and February 3, 1996:
February 1, 1997 February 3, 1996
------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands)
Senior Debt:
Revolving credit facility..... $ --- $ --- $101,000 $101,000
Term loan..................... 24,500 24,500 24,500 24,500
Mortgage...................... 6,692 6,692 6,958 6,958
8-3/4% Notes................... 100,000 97,750 100,000 83,125
Interest rate swap agreement... --- --- --- 384
Receivables facility........... --- --- 40,000 40,000
------- ------- ------- -------
Total debt............ 131,192 128,942 272,458 255,967
Less current portion........... 287 287 40,266 40,266
------- ------- ------- -------
Total long-term debt.. $130,905 $128,655 $232,192 $215,701
======= ======= ======= =======
In accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", the Company determined the
estimated fair value of its financial instruments using quoted
market information, as available. As judgment is involved, the
estimates are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
The Company's Bank Credit Agreement provides, among other
things, for a $25,000,000 term loan and a $125,000,000 revolving
credit facility. As described below, in January 1996, the
Company prepaid a portion of the term loan and reduced the
revolving credit facility to $122,000,000. The principal amount
of the term loan is payable on September 29, 1998, and the
maturity date of the revolving credit facility is July 29, 1998;
however, the Company is required to reduce the outstanding loan
balance under the revolving credit facility to $50,000,000 or
less for thirty consecutive days during Fiscal 1996 and in each
fiscal year thereafter. The maximum amount that may be borrowed
under the revolving credit facility is reduced by the amount of
commercial and standby letters of credit outstanding under the
Bank Credit Agreement. At February 1, 1997 the amount available
under the revolving credit facility was $110,000,000.
The term loan bears interest at a rate equal to, at the
Company's option, the Bank of America National Trust and Savings
Association ("Bank of America") (1) Base Rate plus 2.50%, or (2)
Eurodollar Rate plus 3.50%, and amounts outstanding under the
revolving credit facility bear interest at a rate equal to, at
the Company's option, the Bank of America (1) Base Rate, or (2)
Eurodollar Rate plus 1.00%. In addition, Ann Taylor is required
to pay the lenders a quarterly commitment fee of 0.375% per annum
of the unused revolving loan commitment. At February 1, 1997,
the interest rate on the $24,500,000 outstanding under the term
loan was 8.938% per annum.
Under the terms of the Bank Credit Agreement, Bank of
America obtained a pledge of Ann Taylor's outstanding common
stock held by the Company and a security interest in certain
assets of Ann Taylor, excluding inventory and accounts
receivable. In addition, the Bank Credit Agreement contains
financial and other covenants, including limitations on
indebtedness, liens and investments, restrictions on dividends or
other distributions to stockholders, and maintaining certain
financial ratios and specified levels of net worth. The Bank
Credit Agreement also provides for, among other things, an annual
limitation on capital expenditures of $25,000,000 in Fiscal 1996
and $32,500,000 in Fiscal 1997 and beyond, subject to increase if
certain conditions are satisfied.
===================================================================
<PAGE> 36
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Long-Term Debt (Continued)
--------------------------
Since the fourth quarter of Fiscal 1993, Ann Taylor sells
its proprietary credit card accounts receivable to AnnTaylor
Funding, Inc., a wholly owned subsidiary of Ann Taylor, that uses
the receivables to secure borrowings of up to $40,000,000, based
on its eligible accounts receivable, under a receivables
financing facility (the "Receivables Facility"). The Receivables
Facility matures in May 1998. As of February 1, 1997, there were
no borrowings outstanding under the Receivables Facility.
AnnTaylor Funding, Inc. had total assets of approximately
$55,189,000 at February 1, 1997, all of which are subject to the
security interest of the lender under the Receivables Facility.
On June 28, 1993, Ann Taylor issued $110,000,000 principal
amount of its 8-3/4% Subordinated Notes due 2000 ("8-3/4% Notes"). The
outstanding principal amount of these notes as of February 1,
1997 was $100,000,000.
In July 1993, Ann Taylor entered into a $110,000,000
(notional amount) interest rate swap agreement, which had the
effect of converting the Company's interest obligations on the
8-3/4% Notes to a variable rate. Under the agreement, the Company
received a fixed rate of 4.75% and paid a floating rate based on
LIBOR, as determined in six month intervals. The swap agreement
matured in July 1996. Net receipts or payments under the
agreement were recognized as adjustments to interest expense.
In November 1995, Ann Taylor and its wholly owned subsidiary
AnnTaylor Distribution Services, Inc. received the proceeds of a
$7,000,000 seven-year mortgage loan secured by the Company's
distribution center land and building in Louisville, Kentucky.
The mortgage loan bears interest at 7.5% and is payable in
monthly installments of approximately $65,000 through December 1,
1997, and thereafter in monthly installments sufficient to
amortize the then remaining principal balance over a period of
five years. Pursuant to the requirements of the Bank Credit
Agreement, in January 1996, the Company applied one-half of the
proceeds of the mortgage to reduce the amount available under the
revolving credit facility, thereby reducing the revolving credit
facility by $3,000,000, and prepaid a portion of the term loan.
The aggregate principal payments of all long-term
obligations are as follows:
Fiscal Year (in thousands)
----------
1997.................................. $ 287
1998.................................. 25,748
1999.................................. 1,206
2000.................................. 101,300
2001.................................. 1,401
2002 and thereafter................... 1,250
-------
Total............................... $131,192
=======
At February 1, 1997 and February 3, 1996, Ann Taylor had
outstanding commercial and standby letters of credit under the
Bank Credit Agreement of $12,116,000 and $7,850,000,
respectively.
In connection with the Sourcing Acquisition discussed in
Note 13, the Hongkong and Shanghai Banking Corporation entered
into an Amended and Restated Credit Agreement with AnnTaylor
Global Sourcing, Inc. ("ATGS", formerly known as CAT US Inc.
("CAT") and now a wholly owned subsidiary of Ann Taylor),
continuing the $40,000,000 credit facility of ATGS's predecessor.
The facility is available principally for the issuance of letters
of credit; cash borrowings under the facility are limited to a
maximum of $8,000,000. Such credit facility matures on July 29,
1997 and contains financial and other covenants. As of February
1, 1997, commercial and standby letters of credit outstanding
under this facility totaled $28,189,000 and there were no
borrowings outstanding under this facility.
===================================================================
<PAGE> 37
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Preferred Securities
---------------------
In April and May of Fiscal 1996, the Company completed the
sale of an aggregate of $100,625,000 of 8-1/2% Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities (the
"preferred securities") issued by its financing vehicle,
AnnTaylor Finance Trust, a Delaware business trust (the "Trust").
The preferred securities have a liquidation preference of $50 per
security ($100,625,000 in the aggregate) and are convertible at
the option of the holders thereof into the Company's common stock
at a conversion rate of 2.545 shares of common stock for each
preferred security (equivalent to $19.65 per share of common
stock, which represented a 20% premium to the $16.375 closing
price of the common stock on the New York Stock Exchange at the
date of the execution of the purchase agreement relating to the
sale of the preferred securities). The sole assets of the Trust
are $103,700,000 of 8-1/2% Convertible Subordinated Debentures of
the Company maturing on April 15, 2016. A total of 2,012,500
preferred securities were issued, and are convertible into an
aggregate of 5,121,812 shares of common stock. The Company
received net proceeds of $95,984,000 in connection with the sale
of the preferred securities, of which $94,000,000 was applied to
reduce outstanding borrowings under Ann Taylor's revolving credit
facility, without a permanent reduction of the commitment
thereunder. The carrying value and estimated fair value of the
preferred securities at February 1, 1997 were $96,158,000 and
$107,669,000, respectively.
4. Allowance for Doubtful Accounts
-------------------------------
A summary of activity in the allowance for doubtful accounts
for the fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995 is as follows:
Fiscal Years Ended
-----------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
(in thousands)
Balance at beginning of year......... $ 736 $ 931 $ 787
Provision for loss on
accounts receivable............... 1,803 1,280 1,727
Accounts written off................. (1,728) (1,475) (1,583)
------ ------ ------
Balance at end of year............... $ 811 $ 736 $ 931
====== ====== ======
5. Commitments and Contingencies
-----------------------------
Rental Commitments
- ------------------
Ann Taylor occupies its retail stores and administrative
facilities under operating leases, most of which are non-
cancelable. Some leases contain renewal options for periods
ranging from one to ten years under substantially the same terms
and conditions as the original leases. Most of the store leases
require Ann Taylor to pay a specified minimum rent, plus a
contingent rent based on a percentage of the store's net sales in
excess of a certain threshold. In addition, most of the leases
require Ann Taylor to pay real estate taxes, insurance and
certain common area and maintenance costs in addition to the
future minimum lease payments shown below.
=================================================================
<PAGE> 38
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Commitments and Contingencies (Continued)
-----------------------------------------
Future minimum lease payments under non-cancelable operating
leases at February 1, 1997 are as follows:
Fiscal Year (in thousands)
------------
1997................................ $ 60,021
1998................................ 59,242
1999................................ 56,288
2000................................ 54,164
2001................................ 51,306
2002 and thereafter................. 242,431
-------
Total $523,452
=======
Rent expense for the fiscal years ended February 1, 1997,
February 3, 1996 and January 28, 1995 was as follows:
Fiscal Years Ended
----------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
(in thousands)
Minimum rent............... $55,571 $47,132 $35,382
Percentage rent............ 2,433 3,090 4,684
------ ------ ------
Total................. $58,004 $50,222 $40,066
====== ====== =======
Litigation
- ----------
The Company has been named as a defendant in several legal
actions arising from its normal business activities. Although
the amount of any liability that could arise with respect to
these actions cannot be accurately predicted, in the opinion of
the Company, any such liability will not have a material adverse
effect on the financial position, results of operations or
liquidity of the Company.
In addition, the Company, Ann Taylor, certain officers and
directors of the Company and Ann Taylor, Merrill Lynch & Co.
("ML&Co.") and certain affiliates of ML&Co. have been named as
defendants in a purported class action lawsuit filed by certain
alleged stockholders alleging that the Company and the other
defendants engaged in a fraudulent scheme and course of business
that operated a fraud or deceit on purchasers of the Company's
common stock. The Company believes that the complaint is without
merit and intends to defend the action vigorously. The Company
and other defendants have filed motions to dismiss the action.
These motions are pending, and discovery in this case has been
suspended pending judicial disposition of these motions. As the
case is in preliminary stages, any liability that may arise from
this action cannot be predicted at this time.
Other
- -----
The Company is currently under tax examination by the
Internal Revenue Service (the "IRS"). Such examination is not
yet complete and no assertions or claims have yet been made by
the IRS. Management believes that the effect of any claims which
may arise as a result of the IRS audit will not have a materially
adverse effect on the consolidated financial condition, operating
results or liquidity of the Company. However, there can be no
assurance that certain claims will not be made or that the effect
of such claims will not be significant.
=======================================================================
<PAGE> 39
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Net Income per Share
---------------------
Net income per share is calculated by dividing net income by
the total of the weighted average number of common shares and
common share equivalents outstanding during the period, assuming
the exercise of the warrants and the dilutive effect of the stock
options, computed in accordance with the treasury stock method.
Fully diluted income per share, assuming the conversion into
common stock of the preferred securities, is not presented for
the year ended February 1, 1997 due to the antidilutive effect of
the assumed conversion.
The number of shares used in the calculation for the fiscal
years ended February 1, 1997, February 3, 1996 and January 28,
1995 was as follows:
Fiscal Years Ended
------------------------------------
February 1, February 3, January 28,
1996 1995 1994
------------ ------------ -----------
(in thousands)
Common shares............ 23,981 23,067 22,687
Warrants................. 22 44 90
Stock options............ 101 98 509
------ ------ ------
24,104 23,209 23,286
====== ====== ======
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 specifies the computation, presentation
and disclosure requirements for basic and diluted earnings per
share. The Company expects that this statement will have no
material effect on earnings per share.
7. Common Stock Warrants
---------------------
At February 1, 1997, the Company had outstanding warrants to
acquire, in the aggregate, 2,814 shares of the common stock of
the Company (the "Warrants"). The Warrants, when exercised,
entitle the holders thereof to acquire such shares, subject to
adjustment, at no additional cost. The Warrants expire on July
15, 1999 and became exercisable as a result of the initial public
offering of the Company's common stock in May 1991.
8. Preferred Stock
----------------
At February 1, 1997, February 3, 1996 and January 28, 1995,
there were 2,000,000 shares of preferred stock, par value $.01,
authorized and unissued.
9. Stock Options Plans
-------------------
In 1989 and 1992, the Company established stock option
plans. 137,969 shares of common stock are reserved for issuance
under the 1989 plan and 1,456,600 shares of common stock are
reserved for issuance under the 1992 plan. Under the terms of
both plans, the exercise price of any option may not be less than
100% of the fair market value of the common stock on the date of
grant. Stock options granted prior to 1994 generally vest over a
five year period, with 20% becoming exercisable immediately upon
grant of the option and 20% per year for the next four years.
Stock options granted since 1994 generally vest either (i) over a
four year period, with 25% becoming exercisable on each of the
first four anniversaries of the grant, or (ii) in nine years with
accelerated vesting upon the achievement of specified earnings or
stock price targets within a five year period. All stock options
granted under the 1989 plan and the 1992 plan expire ten years
from the date of grant. At February 1, 1997, there were 20,327
shares under the 1989 plan and 110,157 shares under the 1992 plan
available for future grant. In addition, in Fiscal 1992 the
Company granted its then-Chairman options to purchase an
aggregate of 200,000 shares; this grant was made outside of the
option plans.
==================================================================
<PAGE> 40
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stock Options Plans (Continued)
-------------------------------
The Company accounts for the stock options in accordance
with Accounting Principles Board Opinion No. 25, under which no
compensation costs have been recognized for stock option awards.
Had compensation costs of option awards been determined under a
fair value alternative method as stated in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company would have been required to prepare a
fair value model for such options and record such amount in the
financial statements as compensation expense. Proforma net
income and net income per share for Fiscal 1996 after taking into
account such expense would have been $8.2 million and $0.34,
respectively, and proforma net loss and net loss per share for
Fiscal 1995 would have been $1.1 million and $0.05, respectively.
The Company arrived at the fair value of each stock grant at the
date of grant by using the Black Scholes option pricing model
with the following weighted average assumptions used for grants
for the fiscal years ended February 1, 1997 and February 3, 1996:
risk-free interest rate of 5.8% and 7.0%, respectively; expected
life of 4.3 years and 5.0 years, respectively; and expected
volatility of 44.8% and 55.2%, respectively.
The following summarizes stock option transactions for the
fiscal years ended February 1, 1997, February 3, 1996 and January
28, 1995:
Weighted Number
Option Prices Average Price of Shares
-------------- ------------- ----------
Outstanding Options
January 29, 1994..... $6.80 - $26.00 $18.95 909,312
Granted............... $25.375 - $42.75 $26.73 787,500
Exercised............. $6.80 - $28.00 $15.71 (190,771)
Canceled.............. $6.80 - $28.00 $24.18 (108,035)
Outstanding Options
January 28, 1995..... $6.80 - $42.75 $23.03 1,398,006
Granted............... $12.50 - $44.125 $31.90 478,250
Exercised............. $6.80 - $22.75 $13.68 (22,611)
Canceled.............. $6.80 - $42.75 $27.64 (299,468)
Outstanding Options
February 3, 1996..... $6.80 - $44.125 $28.00 1,554,177
Granted............... $11.00 - $21.625 $17.52 463,500
Exercised............. $6.80 $ 6.80 (18,234)
Canceled.............. $11.50 - $42.75 $27.31 (335,358)
Outstanding Options
February 1, 1997..... $6.80 - $44.125 $22.69 1,664,085
At February 1, 1997, February 3, 1996 and January 28, 1995
there were exercisable 660,290 options, 586,135 options and
461,669 options, respectively, which have weighted average
exercise prices of $21.03 per share, $19.78 per share and $17.77
per share, respectively.
In 1994, the Company's 1992 stock option plan was amended
and restated to include restricted stock and unit awards. A unit
represents the right to receive the cash value of a share of
common stock on the date the restrictions on the unit lapse. On
February 23, 1994, 13,630 shares of restricted stock and 6,820
restricted units were awarded. The restrictions on these grants
lapse with respect to one-third of the shares and units awarded
on each of the first through third anniversaries of the date of
the grant. In the event a grantee terminates employment with the
Company, any restricted stock or restricted units remaining
subject to restrictions are forfeited. As of February 1, 1997,
2,688 shares of restricted stock and 1,345 restricted units were
outstanding. The resulting unearned compensation expense was
charged to stockholders' equity and is being amortized over the
applicable restricted period.
====================================================================
<PAGE> 41
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Executive Compensation
----------------------
Effective August 23, 1996, the then-Chairman and Chief
Executive Officer and Director of the Company and its wholly
owned subsidiary, Ann Taylor, resigned from her position. See
Note 12 for a discussion of the Company's obligations under the
former Chairman's employment agreement.
Upon this resignation, the Company's then-President and
Chief Operating Officer J. Patrick Spainhour was promoted to the
position of Chairman and Chief Executive Officer. In connection
with this promotion, Mr. Spainhour was granted 75,000 shares of
restricted common stock. The resulting unearned compensation
expense of $1,171,875, based on the market value on the date of
the grant, was charged to stockholders' equity and is being
amortized over the restricted period applicable to these shares.
Additionally, as of December 9, 1996, the President and Chief
Operating Officer of the Company received a grant of 30,000
restricted shares of common stock and 20,000 restricted units of
common stock. The resulting unearned compensation expense of
$592,500, based on the market value on the date of the grant, was
charged to stockholders' equity and is being amortized over the
restricted period applicable to these shares. For the fiscal
year ended February 1, 1997, unearned compensation expense of
$174,744 was amortized.
11. Extraordinary Item
------------------
On May 18, 1994, the Company completed a public offering of
1,000,000 shares of common stock (the "Offering") at a price of
$32.00 per share, resulting in aggregate net proceeds of
$30,420,000 to the Company (after payment of underwriting
discounts and expenses of the Offering payable by the Company).
As required by the Company's then-existing bank credit agreement,
$30,000,000 of the net proceeds of the Offering were used to
reduce the amount of a term loan outstanding under that
agreement. The write-off of deferred financing costs associated
with the payment on the term loan with the proceeds of the
Offering and refinancing of long-term debt resulted in an
extraordinary loss in Fiscal 1994 of $1,522,000 ($868,000 net of
income tax benefit). Fiscal 1994 proforma income before
extraordinary loss, income before extraordinary loss per share
and weighted average shares outstanding, assuming the Offering
had occurred at the beginning of the year, would have been
$32,875,000, $1.40 and 23,536,000, respectively.
The Offering was consummated concurrently with the public
offering and sale of 4,075,000 shares of the Company's common
stock held by certain affiliates of ML&Co. (the "Selling
Stockholders"). The Company did not receive any of the proceeds
of the shares sold by the Selling Stockholders.
12. Nonrecurring Charges
--------------------
Studio Shoe Stores Closing
- --------------------------
In connection with the planned closing of the Company's nine
Ann Taylor Studio shoe stores, announced in January 1997, the
Company recorded a non-cash pre-tax charge of $3,600,000. Of the
total impairment loss, $2,500,000 represents impairment of long-
lived assets such as properties and store fixtures and $1,100,000
pertains to lease and other related costs for these locations
until the properties are sublet.
===================================================================
<PAGE> 42
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Nonrecurring Charges (Continued)
--------------------------------
Resignation of the Chairman and Chief Executive Officer
- -------------------------------------------------------
Effective August 23, 1996, the then Chairman and Chief
Executive Officer and Director of the Company and its wholly
owned subsidiary, Ann Taylor, resigned. In connection with the
resignation, a one-time pre-tax charge of $3,500,000 was recorded
relating to the estimated costs of the Company's obligations
under the Chairman's employment contract with the Company.
13. Certain Relationships and Related Transactions
----------------------------------------------
Transactions with Merrill Lynch and its Affiliates
- --------------------------------------------------
At February 1, 1997, certain affiliates of ML&Co. held
approximately 24.0% of the Company's outstanding common stock.
Two of the members of the Board of Directors of the Company and
Ann Taylor serve as representatives of ML&Co. and its affiliates.
As a result, ML&Co. and such affiliates are in a position to
influence the management of the Company and Ann Taylor.
In Fiscal 1996, the Company paid approximately $1,207,500 to
ML&Co. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated
("Merrill Lynch") in connection with their services as placement
agents for the sale of the preferred securities (see Note 3).
The Company agreed to indemnify ML&Co. and Merrill Lynch, as
placement agents, against certain liabilities, including certain
liabilities under the federal securities law, in connection with
the sale of the preferred securities.
In Fiscal 1994, the Company paid underwriting commissions of
approximately $1,027,000 to Merrill Lynch in connection with the
Offering (see Note 11). The Company agreed to indemnify Merrill
Lynch, as underwriter, against certain liabilities, including
certain liabilities under the federal securities law, in
connection with the Offering.
Sourcing Acquisition
- --------------------
In Fiscal 1995, the Company purchased approximately 16% of
its merchandise directly from Cygne Designs, Inc. ("Cygne") and
an additional 38% of its merchandise through the Company's direct
sourcing joint venture with Cygne known as CAT. On September 20,
1996 (the "Effective Date"), pursuant to the Stock and Asset
Purchase Agreement dated as of June 7, 1996, by and among the
Company, Ann Taylor, Cygne and Cygne Group F.E. Limited (as
amended, the "Purchase Agreement"), Ann Taylor acquired the
entire interest of Cygne in CAT and certain of the assets (the
"Assets") of the Ann Taylor Woven Division of Cygne (the
"Division") that were used for sourcing merchandise for Ann
Taylor (the "Sourcing Acquisition"). As a result of the Sourcing
Acquisition, CAT became an indirect wholly owned subsidiary of
the Company and now performs all of Ann Taylor's direct sourcing
functions, including those previously provided by the Division,
under the name AnnTaylor Global Sourcing, Inc. For financial
reporting purposes, the transaction has been accounted for as of
the Effective Date under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16,
"Accounting for Business Combinations".
===================================================================
<PAGE> 43
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Certain Relationships and Related Transactions (Continued)
-----------------------------------------------------------
In consideration for Cygne's interest in CAT and the Assets,
the Company paid (i) 2,348,145 shares of common stock of the
Company having an aggregate value, as of the Effective Date, of
$36,000,000, (ii) $3,200,000 in cash as payment for inventory and
fixed assets and (iii) approximately $6,500,000 in cash in
settlement of open accounts payable by Ann Taylor to Cygne for
merchandise delivered by Cygne prior to the closing. The Company
also assumed certain liabilities related to the operations of the
Division. The purchase price is subject to post-closing
adjustments based upon final determination of the value of
certain of the assets purchased and liabilities assumed. As of
February 1, 1997, certain post-closing adjustments are expected
to reduce the net cash paid to approximately $227,000. The total
purchase price to the Company of the Sourcing Acquisition has
been allocated to the tangible and intangible assets and
liabilities of CAT and the Division that were acquired, based on
preliminary estimates of their respective fair values.
Accordingly, the allocation of the purchase price reflected in
the accompanying consolidated balance sheets may be adjusted upon
final determination of the purchase price adjustments.
Management does not believe the subsequent changes, if any, will
be significant. The excess of the purchase price over the fair
value of the net assets acquired was recorded as goodwill and is
being amortized on a straight-line basis over 25 years.
In connection with the Sourcing Acquisition, Ann Taylor
entered into two three-year consulting agreements with Cygne for
the services of Mr. Bernard Manuel, Chairman and Chief Executive
Officer of Cygne, and Mr. Irving Benson, the then-President of
Cygne. In November 1996, Mr. Benson resigned from his employment
with Cygne and, in accordance with the terms of the consulting
agreement relating to Mr. Benson's services, Cygne's obligations
and rights under the consulting agreement were automatically
assigned to Mr. Benson.
The following unaudited proforma consolidated data for the
Company for the fiscal years ended February 1, 1997 and February
3, 1996 have been presented to reflect the Sourcing Acquisition
as if it had occurred at the beginning of each such period:
Fiscal Years Ended
-----------------------------------------
February 1, 1997 February 3, 1996
------------------ -----------------
Actual Proforma Actual Proforma
------ -------- ------ --------
(in thousands, except per share amounts)
Net sales................... $798,117 $798,117 $731,142 $731,142
Net income (loss)............ 8,667 11,595 (876) 2,871
Net income (loss) per share.. 0.36 0.45 (0.04) 0.11
Weighted average shares...... 24,104 25,581 23,209 25,557
The proforma data set forth above does not purport to be
indicative of the results that actually would have occurred if
the Sourcing Acquisition had occurred at the beginning of the
periods presented or of results which may occur in the future.
A summary of the noncash activity that occurred in the
fiscal year ended February 1, 1997 in conjunction with the
Sourcing Acquisition is as follows:
(in thousands)
Fair value of assets acquired.................. $4,727
Excess of purchase price over the
fair value of net assets acquired.......... 38,340
Ann Taylor's previous investment in CAT........ (6,840)
Issuance of the Company's common stock......... (36,000)
-------
Cash paid...................................... $ 227
=======
====================================================================
<PAGE> 44
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Income Taxes
------------
The provision for income taxes for the fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995 consists
of the following:
Fiscal Years Ended
---------------------------
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
------- ------- -------
(in thousands)
Federal:
Current..................... $ 9,898 $ 1,400 $22,534
Deferred.................... (802) 2,249 ---
------ ------ ------
Total federal............. 9,096 3,649 22,534
------ ------ ------
State and local:
Current..................... 3,844 607 7,740
Deferred.................... (152) 901 ---
------ ------ ------
Total state and local..... 3,692 1,508 7,740
------ ------ ------
Foreign:
Current..................... 187 --- ---
Deferred.................... --- --- ---
------ ------ ------
Total foreign............. 187 --- ---
------ ------ ------
Total....................... $12,975 $ 5,157 $30,274
====== ====== ======
The reconciliation between the provision for income taxes
and the provision for income taxes at the federal statutory rate
for the fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995 is as follows:
Fiscal Years Ended
---------------------------------
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
------- ------- --------
(in thousands)
Income before income taxes
and extraordinary loss....... $21,642 $4,281 $62,894
====== ===== ======
Federal statutory rate......... 35% 35% 35%
====== ===== ======
Provision for income taxes
at federal statutory rate.... $7,575 $1,498 $22,013
State and local income
taxes, net of federal
income tax benefit.......... 2,273 980 5,031
Non-deductible amortization
of goodwill.................. 3,429 3,327 3,327
Undistributed income of
joint venture................ (382) (387) (420)
Other.......................... 80 (261) 323
------ ----- ------
Provision for income taxes.. $12,975 $5,157 $30,274
====== ===== ======
====================================================================
<PAGE> 45
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Income Taxes (Continued)
------------------------
The tax effects of significant items comprising the
Company's net deferred tax assets as of February 1, 1997 and
February 3, 1996 are as follows:
February 1, February 3,
1997 1996
----------- -----------
(in thousands)
Current:
Inventory........................ $ 2,070 $ 1,899
Accrued expenses................. 7,492 2,188
Real estate...................... (1,433) (1,139)
Other............................ (172) 452
------ ------
Total current..................... $ 7,957 $ 3,400
====== ======
Noncurrent:
Depreciation..................... $(6,528) $(3,024)
Rent expense..................... 3,328 2,840
Other............................ (1,672) (1,116)
------ ------
Total noncurrent.................. $(4,872) $(1,300)
====== ======
Income taxes provided reflect the current and deferred tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. U.S. federal income taxes
are provided on unremitted foreign earnings except those that are
considered permanently reinvested, which at February 1, 1997
amounted to approximately $6,000,000. However, if these earnings
were not considered permanently reinvested, under current law,
the incremental tax on such undistributed earnings would be
approximately $1,800,000.
15. Retirement Plans
----------------
Savings Plan. Ann Taylor maintains a defined contribution
401(k) savings plan for substantially all full-time employees.
Participants may contribute to the plan an aggregate of up to 10%
of their annual earnings. Ann Taylor makes a matching
contribution of 50% with respect to the first 3% of each
participant's annual earnings contributed to the plan. Ann
Taylor's contributions to the plan for Fiscal 1996, Fiscal 1995
and Fiscal 1994 were $390,000, $337,000 and $333,000,
respectively.
Pension Plan. Substantially all full-time employees of Ann
Taylor are covered under a noncontributory defined benefit
pension plan. The pension plan is a "cash balance pension plan".
Each participant accrues a benefit based on compensation and
years of service with Ann Taylor. Ann Taylor's funding policy
for the plan is to contribute annually the amount necessary to
provide for benefits based on accrued service and projected pay
increases. Plan assets consist primarily of cash, equity and
fixed income securities.
The following table sets forth the funded status of the
Pension Plan at February 1, 1997, February 3, 1996 and January
28, 1995, in accordance with Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions":
==================================================================
<PAGE> 46
ANNTAYLOR STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Retirement Plans (Continued)
----------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
(dollars in thousands)
Actuarial present value of
benefits obligation:
Accumulated benefit obligation,
including vested benefits of
$2,147,000, $2,064,000 and
$1,500,000, respectively............. $3,413 $2,893 . $2,516
===== ===== =====
Projected benefit obligation
for service rendered to date........ $3,413 $2,893 $2,516
Plan assets at fair value.............. 4,745 2,537 2,522
----- ----- -----
Plan assets in excess of
projected benefit obligation
(projected benefit obligation
in excess of plan assets)...... 1,332 (356) 6
Unrecognized net gain.................. (802) (231) (136)
----- ----- -----
Prepaid (accrued) pension cost......... $ 530 $ (587) $ (130)
===== ===== =====
Net periodic pension cost for
Fiscal 1996, Fiscal 1995 and
Fiscal 1994 included the
following components:
Service cost/benefits earned
during the year...................... $ 981 $ 681 $ 622
Interest cost on projected
benefit obligation.................. 213 185 133
Actual loss (return) on plan assets.... (527) (104) 72
Net amortization and deferral.......... 300 (132) (285)
----- ----- -----
Net periodic pension cost.............. $ 967 $ 630 $ 542
===== ===== =====
Assumptions used to determine
the projected benefit
obligation and plan
assets were:
Discount rate....................... 8.00% 6.75% 8.50%
Rate of increase in
compensation level................ 4.00% 4.00% 5.50%
Expected long-term rate
of return on assets............... 9.00% 9.00% 8.00%
16. Quarterly Financial Data (Unaudited)
------------------------------------
Quarter
--------------------------------------
First Second Third Fourth
----- ------ ----- ------
(in thousands, except per share amount)
Fiscal 1996
Net sales.................. $184,467 $187,862 $212,670 $213,118
Operating income........... 10,523 8,342 15,174 12,422
Net income................. 1,812 627 3,262 2,966
Net income per share....... $ .08 $ .03 $ .13 $ .12
Fiscal 1995
Net sales.................. $168,306 $183,695 $178,500 $200,641
Operating income (loss).... 12,123 (783) 8,687 5,248
Net income (loss).......... 3,491 (3,809) 686 (1,244)
Net income (loss)
per share................ $ .15 $ (.16) $ .03 $ (.05)
The sum of the quarterly per share data may not equal the
annual amounts due to changes in the weighted average shares and
share equivalents outstanding.
EXHIBIT 10.11.1
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT (this "Amendment") is entered into as of
August 23, 1996 (the "Amendment Effective Date"), by and
between ANNTAYLOR STORES CORPORATION (the "Company") and J.
PATRICK SPAINHOUR (the "Executive"), and amends the
Employment Agreement, dated as of February 16, 1996, between
the Company and the Executive (the "Original Agreement").
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties,
the Company and the Executive agree as follows:
1. All capitalized terms used and not defined herein
shall have the meanings ascribed to them in the Original
Agreement.
2. Section 2 of the Original Agreement is hereby
amended by extending the end of the initial term of
employment of the Executive from February 19, 1999 to August
23, 1999, unless further extended or sooner terminated as
provided in the Original Agreement.
3. The first two sentences of Section 3(a) of the
Original Agreement is are hereby amended to provide that,
effective as of August 23, 1996, the Executive shall serve as
Chairman and Chief Executive Officer of the Company, and
shall report directly to the Board of Directors of the
Company. The third sentence of Section 3(a) of the Original
Agreement is hereby deleted in its entirety.
4. Section 5(a)(i) of the Original Agreement is hereby
amended by increasing Executive's annual base salary to a
rate of $650,000, effective from and as of August 23, 1996,
and is hereby further amended to provide that, effective from
as of January 1, 1998, Executive's annual base salary shall
be increased to a rate of $725,000. Such base salary rates
may be increased from time to time, in the discretion of the
Board of Directors, in accordance with the Company's annual
executive performance review procedures, as provided in
Section 5(a) of the Original Agreement.
5. Section 5(a)(ii) of the Original Agreement is hereby
amended to increase Executive's Performance Percentage under
the Company's Management Performance Compensation Plan to 50%
for the Fall 1996 Season. Thereafter, the Performance
Percentage shall be determined as provided in the Performance
Plan. The last sentence of Section 5(a)(ii) shall continue
to apply.
==============================================================
Amendment to Employment Agreement
Page 2
6. The Executive shall be granted a performance-vesting
Non-Qualified Stock Option (the "Performance Option") to
acquire seventy-five thousand (75,000) shares of the
Company's Common Stock under the Option Plan, with an
exercise price equal to the fair market value (as defined,
and determined as of the date of grant, under the Option
Plan) of the Common Stock. The Performance Option shall
become exercisable on the earliest to occur of the following:
(i) the ninth anniversary of the date of grant (the "grant
date"), (ii) the date of achievement by the Company of total
earnings per share of at least $1.50 over four consecutive
quarters ending after the grant date, and (iii) the first
date occurring after the grant date on which the fair market
value (as defined in the Option Plan) of a share of Common
Stock on each of the ten consecutive trading days immediately
preceding such date is equal to at least $35.00; provided
--------
that, (a) in the case of each of clauses (ii) and (iii), (1)
- ----
such date occurs no later than the fifth anniversary of the
grant date, and (2) a portion of the Performance Option may
become exercisable, based upon satisfaction of terms and
conditions consistent with those set forth in the Company's
standard stock option agreement applicable to performance
options, if exercisability has not otherwise occurred by the
fifth anniversary of the grant date; and (b) in the case of
each of clauses (i) through (iii), the Executive has remained
continuously employed by the Company until the applicable
date. The Performance Option shall contain such other terms
and conditions as are set forth in the Company's standard
stock option agreements applicable to such type of option,
including, but not limited to, accelerated exercisability
upon the occurrence of an Acceleration Event under the Option
Plan.
7. Executive shall be granted seventy-five thousand
(75,000) restricted shares of common stock of the Company
(the "Restricted Shares"). One-third of the Restricted
Shares shall vest on, and be delivered to the Executive
promptly following, each of the first three anniversaries of
the Amendment Effective Date, provided the Executive has
--------
remained continuously employed by the Company until the
applicable date. Notwithstanding the foregoing, any
outstanding unvested Restricted Shares shall become fully
vested (i) upon occurrence of an Acceleration Event, as
defined under the Option Plan, or (ii) if the Company shall
terminate the Executive's employment other than for Cause or
the Executive shall terminate his employment for Good Reason.
The Company shall file with the Securities and Exchange
Commission a shelf registration statement covering the
Restricted Shares, pursuant to which Executive may sell
vested Restricted Shares from time to time. The Company
shall use its best efforts to cause the registration
statement to become effective on or before August 22, 1997
and to keep such registration statement effective until all
such shares have been sold by Executive (except during such
times that maintaining effectiveness would require the
Company to disclose a material corporate development but the
Company does not believe that such disclosure would be in the
best interests of the Company and its stockholders).
=================================================================
Amendment to Employment Agreement
Page 3
8. From and after the Amendment Effective Date, the
term "Agreement", as used in the Original Agreement, shall
mean the Original Agreement as amended by this Amendment, and
the Original Agreement, as so amended, shall continue in full
force and effect.
9. Sections 11 through 17 of the Original Agreement are
hereby made a part of, and are incorporated by this
reference, into this Amendment.
IN WITNESS WHEREOF, the parties have executed this
Amendment this 27th day of January, 1997, intending it to be
effective as of August 23, 1996.
ANNTAYLOR STORES CORPORATION EXECUTIVE:
By:/s/ Rochelle Lazarus /s/ J. Patrick Spainhour
______________________________ __________________________
Rochelle Lazarus, Director J. PATRICK SPAINHOUR
EXHIBIT 10.14
PERSONAL AND CONFIDENTIAL
January 24, 1997
Mr. Paul E. Francis
535 Pelham Manor Road
Pelham Manor, NY 10803
Dear Paul:
This will confirm the agreement between you and AnnTaylor, Inc.
(hereafter referred to as the "Company") regarding your
separation from the Company.
1. We agree that your date of separation from employment with
the Company will be February 14, 1997 (the "Separation
Date") and, effective as of the Separation Date, you hereby
resign from your positions as a director and/or officer of
the Company, its parent company, and any of the Company's
subsidiaries.
2. In consideration of your delivery of the Release referred to
in paragraph 4 and the representations and agreements set
forth in this letter agreement, including those set forth in
paragraph 5 hereof, the Company agrees to pay you the
severance compensation described in paragraph 3 below,
subject to the terms and conditions set forth in this
letter.
3. Subject to this letter agreement becoming effective and to
your compliance with the terms hereof, your severance
compensation shall consist of the following:
(a) Cash compensation of up to $335,000.00, less all
applicable federal, state and local withholding taxes
("Taxes"), payable in up to twenty-four equal semi-
monthly installments of $13,958.33 (less Taxes),
commencing upon the later of the Separation Date and
the Effective Date of this letter agreement (as defined
in paragraph 11 below), and continuing through the
earlier of (i) the twelve-month anniversary of such
date and (ii) such time as you procure other full time
employment. You agree that if you procure other full
time employment prior to the twenty-fourth payment
referenced above, you will provide the Company prompt
written notice thereof.
=====================================================================
Mr. Paul E. Francis
January 24, 1997
Page 2
(b) The Company shall permit you to continue your
participation in its medical and dental insurance
programs at the associate rate of contribution, from
the Separation Date throughout the period during which
you are receiving severance compensation pursuant to
paragraph 3(a) above. At the end of that period, you
shall be entitled to participate in such programs in
accordance with the applicable COBRA regulations.
(c) If the Separation Date occurs before the time that
the Company makes incentive compensation payments to
its associates under the Management Performance
Compensation Plan (the "Performance Plan") for the Fall
1996 Season, the Company shall also make a payment to
you, at the time that such payment is made to all
associates, in an amount equal to the incentive
compensation payment you would have received under the
Performance Plan for the Fall 1996 Season if you had
continued to be employed by the Company (less Taxes).
(d) The "performance options" previously granted to
you under the Company's 1992 Stock Option and
Restricted Stock and Restricted Unit Award Plan (the
"Option Plan") and the related stock option agreements,
and listed on Schedule I hereto, shall remain
outstanding through February 28, 1999 and shall
continue to be eligible for vesting and exercise in
accordance with the terms set forth in the applicable
stock option agreements as if you had continued in the
employ of the Company through such date. All such
performance options that have not vested or are not
exercised by the close of business on February 28, 1999
shall be canceled at such time.
Certain of the "time options" previously granted
to you under the Option Plan and the related stock
option agreements, also listed on Schedule I hereto,
that would not have vested until after April 6, 1997
shall be canceled as of the Separation Date. However,
the remaining "time options" previously granted to you
and listed on Schedule I shall continue to be
outstanding and shall vest in accordance with the
original vesting schedule applicable thereto, through
and including April 6, 1997 as if you had continued in
the employ of the Company through such date, and all
vested time options shall be exercisable through the
close of business on February 28, 1999 as if you had
continued in the employ of the Company through such
time. All unexercised vested time options not
exercised by the close of business on February 28, 1999
shall be canceled at such time.
=====================================================================
Mr. Paul E. Francis
January 24, 1997
Page 3
4. In consideration of the compensation described in paragraph
3 above, on the Separation Date you shall execute and
deliver to the Company a Release in the form of Schedule II
hereto.
5. You represent that you have not filed against the Company or
the Company's parents, subsidiaries, affiliates or any
Related Persons (as defined in Schedule II), any complaints,
charges or law suits arising out of your employment by the
Company, or any other matter arising on or prior to the date
hereof. You covenant and agree that you will not seek
recovery against the Company or any of its parents,
subsidiaries, affiliates or any Related Person arising out
of any of the matters set forth in this paragraph or any of
the matters that are the subject of the Release referred to
in paragraph 4.
6. Nothing set forth in this agreement shall prevent you from
enforcing the terms of this agreement, nor do you waive or
lose any rights that you have to compensation for vested
accrued unused 1997 vacation, or any rights that you have as
a former employee under the Company's stock option plans,
stock purchase plan, or retirement or insurance plans, as
applicable.
7. You represent that you have returned or will immediately
return to the Company all confidential information of the
Company ("Company Information"), and you will not retain any
copies, reproductions or excerpts thereof, including without
limitation mailing lists, customer lists, reports, files,
memoranda, records, credit cards, door and file keys,
training manuals, and other physical or personal property
which you received or prepared or helped prepare in
connection with your employment by the Company, and other
technical, business or financial information or trade
secrets the use or disclosure of which might reasonably be
construed to be contrary to the interests of the Company or
any Related Person.
8. In the course of your employment with the Company you
acquired confidential Company Information. You understand
and agree that such Company Information was disclosed to you
in confidence and for the benefit and use of only the
Company. You acknowledge that you have no ownership right
or interest in any Company Information used or developed
during the course of your employment. You understand and
agree that (a) you will keep such Company Information
confidential at all times after your employment with the
Company and (b) you will not make use of Company Information
on your own behalf or on behalf of any third party.
=====================================================================
Mr. Paul E. Francis
January 24, 1997
Page 4
9. You agree that, from the date hereof through February 28,
1999, you will not solicit, entice, persuade, induce or
influence any individual who is an employee of the Company
to terminate his or her employment with the Company or to
become employed by any other individual or entity, and you
shall not approach any such employee for any such purpose.
Any breach of the terms of this paragraph shall result in
your automatic forfeiture of the severance compensation set
forth in paragraph 3 above.
10. The Company advises you to consult with an attorney of your
choosing prior to signing this agreement. You confirm that
you have the right and have been given the opportunity to
review this agreement and, specifically, the release set
forth in paragraph 4 and the representations and agreements
set forth in paragraph 5, with an attorney of your choice.
You also understand and agree that the Company is under no
obligation to offer you the severance compensation set forth
in paragraph 3 and that you are under no obligation to
consent to the release set forth in paragraph 4 and the
representations and agreements set forth in paragraph 5, and
that you have entered into this agreement freely and
voluntarily.
11. You may have forty-five days to consider the terms of this
agreement. Furthermore, once you have signed this
agreement, you will have seven additional days from the date
you sign it to revoke your consent. To revoke this
agreement you must clearly communicate your decision to do
so to the Senior Vice President - Human Resources of the
Company (212-541-3361) within the seven day period. This
agreement will not become effective until seven days after
the date you have signed it, as indicated on the last page
hereof. Such seventh day is considered to be the "Effective
Date" of this agreement.
12. You agree to keep the terms of your severance compensation
and this agreement confidential, other than as necessary to
consult with your legal or tax advisors.
13. The terms in this letter constitute the entire agreement
between us and may not be altered or modified other than in
a writing signed by you and the Company. This letter
supersedes in its entirety the letter to you from the
Company dated January 13, 1997. You represent that in
executing this letter agreement you do not rely and have not
relied upon any representation or statement not set forth
herein made by the Company or any of its agents,
representatives, attorneys or Related Persons with respect
to the subject matter, basis or effect of this letter
agreement, or otherwise.
=====================================================================
Mr. Paul E. Francis
January 24, 1997
Page 5
14. This agreement will be governed by the laws of the State of
New York, without reference to its choice of law rules.
If this letter correctly sets forth our understanding, please so
signify by signing and dating the enclosed copy of this letter
and returning it to the Senior Vice President - Human Resources,
AnnTaylor, Inc., 142 West 57th Street, New York, New York 10019.
Very truly yours,
AnnTaylor, Inc.
By: /s/ J. Patrick Spainhour
__________________________
Chairman & CEO
AGREED TO AND ACCEPTED:
/s/ Paul E. Francis
___________________________
PAUL E. FRANCIS
Dated: January 24, 1997
----------------
===========================================================================
Mr. Paul E. Francis
January 24, 1997
Page 6
SCHEDULE I
STOCK OPTION GRANTS UNDER THE
ANNTAYLOR STORES CORPORATION 1992 STOCK OPTION
AND RESTRICTED STOCK AND RESTRICTED UNIT AWARD PLAN
Performance Options
- --------------------
:----------:-------------:--------------------:
: Grant : Exercise : No. Performance :
: Date : Price : Options Awarded :
:----------:-------------:--------------------:
: : : :
: 02/23/94: $25.375 : 53,336 :
:----------:-------------:--------------------:
: 02/24/95: $33.000 : 20,000 :
:----------:-------------:--------------------:
Time Options
- -------------
:----------:----------:------------:-----------:---------------:-------------:
: : : : No. Time : No. Time : No. Time :
: : : No. Time : Options : Options : Options :
: Grant : Exercise : Options : Vested at : Canceled :Vesting in :
: Date : Price : Awarded : 2/21/97 : on 2/21/97 : Future :
:----------:----------:------------:-----------:---------------:-------------:
: 04/06/93 : $18.125 : 30,000 : 24,000 : 0 : 6,000 :
: : : : : : (4/6/97) :
:----------:----------:------------:-----------:---------------:-------------:
: 04/06/93 : $26.000 : 40,000 : 32,000 : 0 : 8,000 :
: : : : : : (4/6/97) :
:----------:----------:------------:-----------:---------------:-------------:
: 02/23/94 : $25.375 : 26,664 : 13,332 : 6,666 : 6,666 :
: : : : : : (2/23/97) :
:----------:----------:------------:-----------:---------------:-------------:
: 02/24/95 : $33.000 : 10,000 : 2,500 : 5,000 : 2,500 :
: : : : : : (2/24/97) :
:----------:----------:------------:-----------:---------------:-------------:
==============================================================================
<PAGE> 7
SCHEDULE II
FORM OF RELEASE TO BE DELIVERED
ON THE SEPARATION DATE
Reference is made to the agreement dated January 24, 1997 between
the undersigned, Paul E. Francis, and AnnTaylor, Inc. (the
"Company"), relating to the separation of employment of the
undersigned from the Company (the "Agreement").
In consideration of the compensation described in paragraph 3 of
the Agreement, I, Paul Francis, hereby voluntarily, knowingly and
willingly release and forever discharge the Company, its parents,
subsidiaries and affiliates, together with its and their
respective officers, directors, partners, shareholders,
employees, successors and assigns (collectively, the "Related
Persons"), from any and all charges, complaints, claims,
promises, agreements, controversies, causes of action and demands
of any nature whatsoever which against any of them that I or my
heirs, executors, administrators, successors or assigns ever had,
now have or hereafter can, shall or may have by reason of any
matter, cause or thing whatsoever arising through and including
the date of this Release. This release includes, but is not
limited to, any rights or claims relating in any way to my
employment relationship with the Company, or the termination
thereof, or under any statute, including the federal Age
Discrimination in Employment Act, Title VII of the Civil Rights
Act, The Americans With Disabilities Act, the New York Human
Rights Law, and any other federal, state or local law.
The foregoing notwithstanding, this Release shall not constitute
a release or waiver of any rights that the undersigned may have
to indemnification from the Company or AnnTaylor Stores
Corporation in connection with the action captioned Carol Novak
-----------
and Robert Nieman, On behalf of Themselves and All Others
- -----------------------------------------------------------------
Similarly Situated v. Sally Frame Kasas [sic], et al., No. 96
- -------------------------------------------------------
Civ. 3073 (BDP) (S.D.N.Y.). The undersigned shall cooperate with
the Company in connection with the defense of this matter.
I represent that I have not filed against the Company or the
Company's parents, subsidiaries, affiliates or any Related
Persons, any complaints, charges or law suits arising out of my
employment by the Company, or any other matter arising on or
prior to the date hereof, and I covenant and agree that I will
not seek recovery against the Company or any of its parents,
subsidiaries, affiliates or any Related Person arising out of any
of the matters set forth in the second paragraph of this Release.
IN WITNESS WHEREOF, I have executed and delivered this Release to
the Company as of this 14th day of February, 1997.
_______________________
Paul E. Francis
____________________
Witness
====================================================================
<PAGE> 8
RELEASE
Reference is made to the agreement dated January 24, 1997 between
the undersigned, Paul E. Francis, and AnnTaylor, Inc. (the
"Company"), relating to the separation of employment of the
undersigned from the Company (the "Agreement").
In consideration of the compensation described in paragraph 3 of
the Agreement, I, Paul Francis, hereby voluntarily, knowingly and
willingly release and forever discharge the Company, its parents,
subsidiaries and affiliates, together with its and their
respective officers, directors, partners, shareholders,
employees, successors and assigns (collectively, the "Related
Persons"), from any and all charges, complaints, claims,
promises, agreements, controversies, causes of action and demands
of any nature whatsoever which against any of them that I or my
heirs, executors, administrators, successors or assigns ever had,
now have or hereafter can, shall or may have by reason of any
matter, cause or thing whatsoever arising through and including
the date of this Release. This release includes, but is not
limited to, any rights or claims relating in any way to my
employment relationship with the Company, or the termination
thereof, or under any statute, including the federal Age
Discrimination in Employment Act, Title VII of the Civil Rights
Act, The Americans With Disabilities Act, the New York Human
Rights Law, and any other federal, state or local law.
The foregoing notwithstanding, this Release shall not constitute
a release or waiver of any rights that the undersigned may have
to indemnification from the Company or AnnTaylor Stores
Corporation in connection with the action captioned Carol Novak
------------
and Robert Nieman, On behalf of Themselves and All Others
- -----------------------------------------------------------------
Similarly Situated v. Sally Frame Kasas [sic], et al., No. 96
- -------------------------------------------------------
Civ. 3073 (BDP) (S.D.N.Y.). The undersigned shall cooperate with
the Company in connection with the defense of this matter.
I represent that I have not filed against the Company or the
Company's parents, subsidiaries, affiliates or any Related
Persons, any complaints, charges or law suits arising out of my
employment by the Company, or any other matter arising on or
prior to the date hereof, and I covenant and agree that I will
not seek recovery against the Company or any of its parents,
subsidiaries, affiliates or any Related Person arising out of any
of the matters set forth in the second paragraph of this Release.
IN WITNESS WHEREOF, I have executed and delivered this Release to
the Company as of this 14th day of February, 1997.
/s/ Paul E. Francis
_______________________
Paul E. Francis
/s/ Jocelyn Barandiaran
________________________
Witness
EXHIBIT 10.15
THE
ANNTAYLOR STORES CORPORATION
1992 STOCK OPTION AND RESTRICTED
STOCK AND UNIT AWARD PLAN
Amended and Restated as of February 23, 1994
===============================================================
Table of Contents
Section Page
1. Purpose . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . 1
3. Administration . . . . . . . . . . . . . . . 3
4. Eligibility . . . . . . . . . . . . . . . . . 4
5. Stock . . . . . . . . . . . . . . . . . . . . 5
6. Terms and Conditions of Options . . . . . . . 5
7. Terms and Conditions of Restricted Stock
Awards and Restricted Unit Awards . . . . . 10
8. Agreement of Grantee Regarding Withholding
Taxes . . . . . . . . . . . . . . . . . . . 12
9. Term of Plan . . . . . . . . . . . . . . . . 13
10. Amendment and Termination of the Plan . . . . 13
11 Approval of Stockholders . . . . . . . . . . 13
12 Miscellaneous . . . . . . . . . . . . . . . . 14
(ii)
=============================================================
List of Defined Terms
Term Section
Acceleration Event . . . . . . . . . . . . 6(i)(2)
Board . . . . . . . . . . . . . . . . . . . 3
Cause . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . 1
Committee . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . 2
Corporation . . . . . . . . . . . . . . . . 1
Disability . . . . . . . . . . . . . . . . 2
Exchange Act . . . . . . . . . . . . . . . 3
Executive Officers. . . . . . . . . . . . . 3
Fair Market Value . . . . . . . . . . . . . 2
Grantee. . . . . . . . . . . . . . . . . . 2
Grants. . . . . . . . . . . . . . . . . . . 3
Incentive Stock Option . . . . . . . . . . 1
Maximum Liability. . . . . . . . . . . . . 8
Nonqualified Stock Options . . . . . . . . 1
Option Agreements . . . . . . . . . . . . . 3
Option Price. . . . . . . . . . . . . . . . 3
Optionee . . . . . . . . . . . . . . . . . 4
Option . . . . . . . . . . . . . . . . . . 2
Plan . . . . . . . . . . . . . . . . . . . 1
Restricted Award Agreement . . . . . . . . 3
Restricted Period . . . . . . . . . . . . . 7(b)
Restricted Share . . . . . . . . . . . . . 2
Restricted Stock Award . . . . . . . . . . 3
Restricted Unit . . . . . . . . . . . . . . 2
Restricted Unit Award . . . . . . . . . . . 3
Rule 16b-3 . . . . . . . . . . . . . . . . 3
Subsidiary Corporation . . . . . . . . . . 2
(iii)
=============================================================
THE ANNTAYLOR STORES CORPORATION
1992 STOCK OPTION
AND RESTRICTED STOCK AND UNIT AWARD PLAN
Amended and Restated as of February 23, 1994
1. Purpose.
--------
This 1992 Stock Option and Restricted Stock and Unit
Award Plan, as amended and restated as of February 23, 1994
(the "Plan"), is intended to encourage stock ownership by
employees of AnnTaylor Stores Corporation (the "Corporation"),
its divisions and Subsidiary Corporations, so that they may
acquire or increase their proprietary interest in the
Corporation, and to encourage such employees to remain in
the employ of the Corporation, its divisions and Subsidiary
Corporations, and to put forth maximum efforts for the success
of the business. It is further intended that no Option
granted pursuant to this Plan shall constitute an "incentive
stock option" ("Incentive Stock Option") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as
amended ("Code"), and all Options so granted shall
constitute "nonqualified stock options" ("Nonqualified Stock
Options").
2. Definitions.
------------
As used in this Plan, the following words and phrases
shall have the meanings indicated:
(a) "CAUSE" used in connection with the termination
of employment of a Grantee shall mean a termination of
employment of the Grantee by the Corporation or a division
or Subsidiary Corporation due to (i) the failure to render
services to the employer corporation in accordance with the
terms of such Grantee's employment, which failure amounts to
a material neglect of such Grantee's duties to the employer
corporation, (ii) the commission by the Grantee of an act of
fraud, misappropriation (including the unauthorized
disclosure of confidential or proprietary information) or
embezzlement, or (iii) a conviction of or guilty plea or
confession to any felony.
(b) "COMMON STOCK" shall mean shares of the
Corporation's Common Stock, par value $.0068 per share.
(c) "DISABILITY" shall mean a Grantee's inability
to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted
or can be expected to last for a continuous period of not
less than twelve (12) months.
================================================================
(d) "FAIR MARKET VALUE" per share as of a particular
date shall mean (i) the closing sales price per share
of Common Stock as reported on the New York Stock Exchange
(or if the shares of Common Stock are not then traded on
such exchange, on the principal national securities exchange
on which they are then traded) for the last preceding date
on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are not then
traded on a national securities exchange but are traded on
an over-the-counter market, the average of the closing bid
and asked prices for the shares of Common Stock in such over-
the-counter market for the last preceding date on which
there was a sale of such Common Stock in such market, or
(iii) if the shares of Common Stock are not then listed on a
national securities exchange or traded in an over-the-counter
market, such value as the Committee in its discretion
may determine.
(e) "GRANTEE" shall mean a person to whom an
Option, Restricted Stock Award or Restricted Unit Award has
been granted.
(f) "OPTION" shall mean the right, granted to a
Grantee pursuant to Section 3, to purchase a specified
number of shares of Common Stock, on the terms and subject
to the restrictions set forth in this Plan and by the
Committee upon the grant of the Option to the Grantee.
(g) "RESTRICTED SHARE" shall mean a share of
Common Stock, awarded to a Grantee pursuant to Section 3,
that is subject to the terms and restrictions set forth in
this Plan and by the Committee upon the award of the
Restricted Share to the Grantee.
(h) "RESTRICTED UNIT" shall mean the right,
awarded to a Grantee pursuant to Section 3, to receive an
amount in cash equal to the Fair Market Value of one share
of Common Stock, on the terms and subject to the
restrictions set forth in this Plan and by the Committee
upon the award of the Restricted Unit to the Grantee.
(i) "SUBSIDIARY CORPORATION" shall mean any
corporation (other than the Corporation) in an unbroken chain
of corporations beginning with the employer corporation if,
at the time of granting an Option, Restricted Stock Award or
Restricted Unit Award, each of the corporations other than
the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
-2-
=======================================================================
3. Administration.
--------------
The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of the
Corporation (the "Board"). The Committee shall consist of
two or more persons, each member of the Committee shall be a
member of the Board, and at least two members of the
Committee shall be both "outside directors" within the
meaning of section 162(m) of the Code and "disinterested
persons" within the meaning of Rule 16b-3, as from time to
time amended ("Rule 16b-3"), promulgated under Section 16 of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The Committee shall have the authority in its
discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to
exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in
the administration of the Plan, including, without limitation,
the authority to grant Options and make awards of
Restricted Shares and Restricted Units ("Restricted Stock
Awards" and "Restricted Unit Awards", respectively, and
sometimes collectively with the grant of Options, "Grants");
to determine the purchase price of the shares of Common Stock
covered by each Option (the "Option Price"); to determine
the persons to whom, and the time or times at which,
Options, Restricted Stock Awards and Restricted Unit Awards
shall be granted; to determine the number of shares to be
covered by each Option, and to determine the number of
Restricted Shares and Restricted Units to be covered by each
Restricted Stock Award and Restricted Unit Award; to interpret
the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and
provisions of the agreements (which need not be identical)
entered into in connection with grants of Options ("Option
Agreements") and Restricted Stock Awards and Restricted Unit
Awards ("Restricted Award Agreements"); and to make all
other determinations deemed necessary or advisable for the
administration of the Plan.
The determinations of the Committee shall be binding
and conclusive on all parties. The Committee may delegate
to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties
as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Committee or such
person may have under the Plan.
-3-
=================================================================
The Board shall fill all vacancies, however caused, in
the Committee. The Board may from time to time appoint
additional members to the Committee, and may at any time
remove one or more Committee members and substitute others.
One member of the Committee shall be selected by the Board
as chairman. The Committee shall hold its meetings at such
times and places as it shall deem advisable. All
determinations of the Committee shall be made by a majority
of its members either present in person or participating by
conference telephone at any meeting or by written consent,
except that, with respect to Grantees who are executive officers
of the Corporation within the meaning of Rule 3-b7
promulgated under Section 3 of the Exchange Act ("Executive
Officers"), all action of the Committee shall be taken solely
by those members of the Committee who are "outside directors"
and "disinterested persons" as defined above, even if
less than a majority of the Committee. The Committee may
appoint a secretary and make such rules and regulations for
the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for
any action taken or determination made in good faith with
respect to the Plan or any Grant made hereunder.
4. Eligibility.
------------
Options, Restricted Stock Awards and Restricted Unit
Awards may be granted to employees (including, without
limitation, officers who are employees) of the Corporation
or its present or future divisions and Subsidiary
Corporations. In determining the persons to whom Options,
Restricted Stock Awards and Restricted Unit Awards shall be
granted and the number of shares to be covered by each
Option, and the number of Restricted Shares and Restricted
Units to be covered by each Restricted Stock Award and
Restricted Unit Award, the Committee shall take into account
the duties of the respective persons, their present and
potential contributions to the success of the Corporation
and such other factors as the Committee shall deem relevant
in connection with accomplishing the purpose of the Plan. A
person to whom an Option has been granted hereunder is
sometimes referred to herein as an "Optionee".
A Grantee shall be eligible to receive more than one
Grant during the term of the Plan, but only on the terms and
subject to the restrictions hereinafter set forth.
-4-
===============================================================
5. Stock.
-----
The shares of Common Stock subject to Options and
Restricted Stock Awards hereunder may, in whole or in part,
be authorized but unissued shares or shares that shall have
been or may be reacquired by the Corporation. The aggregate
number of shares of Common Stock as to which Options may be
granted from time to time under this Plan shall not exceed
1,600,000, and the number of shares of Common Stock as to
which Restricted Stock Awards may be granted from time to
time hereunder shall not exceed 67,000. The aggregate
number of Restricted Units that may be awarded from time to
time under the Plan shall not exceed 33,000. The limitations
established by the preceding sentences shall be subject to
adjustment as provided in Section 6(i) hereof. Effective as
of January 1, 1994, no more than 50% of the Options granted
in any fiscal year hereunder may be granted to any single
Executive Officer.
If any shares subject to an Option Grant or Restricted
Stock Award are forfeited, canceled, exchanged or
surrendered or if a Grant otherwise terminates or expires
without a distribution of shares to the Grantee, the shares
of Common Stock with respect to such Grant shall, to the
extent of any such forfeiture, cancellation, exchange,
surrender, termination or expiration, again be available for
Grants under the Plan; provided, however, that, to the
extent required for the Plan to comply with Rule 16b-3, in
the case of forfeiture, cancellation, exchange or surrender
of Restricted Shares subject to a Restricted Stock Award,
the number of shares with respect to such Award shall not be
available for Grants hereunder unless any dividends paid on
such shares are also forfeited, canceled, exchanged or
surrendered. If any Restricted Units are forfeited,
canceled, exchanged or surrendered or if a Restricted Unit
Award otherwise terminates or expires without any payment
being required to be made with respect to any of the
Restricted Units subject thereto, then such Restricted Units
shall, to the extent of any such forfeiture, cancellation,
exchange, surrender, termination or expiration, again be
available for Grants under the Plan.
6. Terms and Conditions of Options.
-------------------------------
Each Option granted pursuant to the Plan shall be
evidenced by a written Option Agreement between the Corporation
and the Optionee, which agreement shall comply with and be
subject to the following terms and conditions (and with such
other terms and conditions not inconsistent with the terms
of this Plan as the Committee, in its discretion, shall
establish):
(a) NUMBER OF SHARES. Each Option Agreement
shall state the number of shares of Common Stock to which
the Option relates.
-5-
========================================================================
(b) TYPE OF OPTION. Each Option Agreement shall
specifically state that no portion of the Option constitutes
an Incentive Stock Option and the entire Option constitutes
a Nonqualified Stock Option.
(c) OPTION PRICE. Each Option Agreement shall
state the Option Price, which shall be not less than one
hundred percent (100%) of the Fair Market Value of the
shares of Common Stock of the Corporation on the date of
grant of the Option. The Option Price shall be subject to
adjustment as provided in Section 6(i) hereof. The date on
which the Committee adopts a resolution expressly granting
an Option shall be considered the day on which such Option
is granted, unless such resolution expressly provides for a
specific later date.
(d) MEDIUM AND TIME OF PAYMENT. The Option Price
shall be paid in full, at the time of exercise, (i) in cash,
(ii) in shares of Common Stock having a Fair Market Value
equal to such Option Price, or (iii) in a combination of
cash and shares or (iv) in the sole discretion of the
Committee, through a cashless exercise procedure involving a
broker; provided, however, that such method and time for
payment shall be permitted by and be in compliance with applicable
law.
(e) TERM AND EXERCISE OF OPTIONS. Except as
provided in Section 6(i) hereof or unless otherwise determined
by the Committee, the shares covered by an Option shall
become exercisable over such period, in cumulative
installments or otherwise, or upon the satisfaction of such
performance goals or other conditions, as the Committee
shall determine; provided, however, that the Committee shall
have the authority to accelerate the exercisability of all
or any portion of any outstanding Option at such time and
under such circumstances as it, in its sole discretion,
deems appropriate, and provided further, however, that such
exercise period shall not exceed ten (10) years from the
date of grant of such Option. The exercise period shall be
subject to earlier termination as provided in Sections 6(f)
and 6(g) hereof. An Option may be exercised, as to any or
all full shares of Common Stock as to which the Option has
become exercisable, by giving written notice of such
exercise to the Committee; provided, however, that an Option
may not be exercised at any one time as to fewer than 100
shares (or such number of shares as to which the Option is
then exercisable if such number of shares is less than 100).
(f) TERMINATION. Except as provided in this
Section 6(f) and in Section 6(g) hereof, an Option may not be
exercised unless the Optionee is then in the employ of the
Corporation or one of its divisions or Subsidiary
Corporations, and unless the Optionee has remained continuously
so employed since the date of grant of the Option. In
the event that the employment of an Optionee shall terminate
(other than by reason of death or Disability), all Options
of such Optionee that are exercisable at the time of such
termination may, unless earlier terminated in accordance
with their terms, be exercised within three (3) months after
-6-
================================================================
such termination, or at such later time as the Committee may
in its discretion determine, but not beyond the date on
which the Option would otherwise expire pursuant to
paragraph (e) of this Section 6; provided, however, that if
the employment of an Optionee shall terminate for Cause, all
Options theretofore granted to such Optionee shall, to the
extent not theretofore exercised, terminate forthwith.
Nothing in the Plan or in any Option granted pursuant
hereto shall confer upon an individual any right to continue
in the employ of the Corporation or any of its divisions
or Subsidiary Corporations or interfere in any way with the
right of the Corporation or any such division or Subsidiary
Corporation to terminate such employment.
(g) DEATH OR DISABILITY OF OPTIONEE. If an
Optionee shall die while employed by the Corporation or a
Subsidiary Corporation or within three (3) months after the
termination of such Optionee's employment, other than for
Cause, or if the Optionee's employment shall terminate by
reason of Disability, all Options theretofore granted to
such Optionee (to the extent otherwise exercisable) may,
unless earlier terminated in accordance with their terms, be
exercised by the Optionee or by the Optionee's estate or by
a person who acquired the right to exercise such Option by
bequest or inheritance or otherwise by reason of the death
or Disability of the Optionee, at any time within one year
after the date of death or termination by reason of
Disability or at such later time as the Committee may in its
discretion determine, but not beyond the date on which the
Option would otherwise expire pursuant to paragraph (e) of
this Section 6.
(h) NONTRANSFERABILITY OF OPTIONS. Options
granted under the Plan shall not be transferable otherwise
than by will or by the laws of descent and distribution, and
Options may be exercised, during the lifetime of the
Optionee, only by the Optionee or by his guardian or legal
representative.
(i) EFFECT OF CERTAIN CHANGES. (1) If there
is any change in the shares of Common Stock through the
declaration of stock dividends, distributions made with
respect to shares of Common Stock, recapitalizations,
restructurings, stock splits, or combinations or exchanges
of such shares, or the like, then the number of shares of
Common Stock or other securities available for Options, the
kind and amount of shares and other securities covered by
outstanding Options, and/or the Option Price, as
appropriate, shall be adjusted as necessary to reflect
equitably such change in the shares of Common Stock;
provided, however, that any fractional shares resulting from
such adjustment shall be eliminated.
-7-
================================================================
(2) If while unexercised Options remain
outstanding under the Plan--
(A) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act),
other than the Corporation, Merrill Lynch Capital
Partners and affiliates, any person who on the
date hereof is a director or officer of the
Corporation, any trustee or other fiduciary
holding securities under an employee benefit plan
of the Corporation, or any corporation owned,
directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions
as their ownership of stock of the Corporation, is
or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation
representing 20% or more of the combined voting
power of the Corporation's then outstanding
securities;
(B) during any period of two
consecutive years, individuals who at the
beginning of such period constitute the Board, and
any new director (other than a director designated
by a person who has entered into an agreement with
the Corporation to effect a transaction described
in clause (A) or (C) of this Section 7(i)(2))
whose election by the Board or nomination for
election by the Corporation's stockholders was
approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously
so approved, cease for any reason to constitute at
least a majority thereof; or
(C) the stockholders of the Corporation
approve a merger or consolidation of the
Corporation with any other entity other than a merger
or consolidation which would result in the voting
securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) more than
80% of the combined voting power of the voting
securities of the Corporation or such surviving
entity outstanding immediately after such merger
or consolidation, or the stockholders of the
Corporation approve a plan of complete liquidation
of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially
all of the Corporation's assets
(each, an "Acceleration Event"), then all Options not
theretofore exercisable by their terms shall become
exercisable in full. Following the Acceleration Event, except
with respect to Options held for less than six months prior
to such event by Optionees who are Executive Officers, the
Committee shall provide for the cancellation of all Options
then outstanding; provided, however, that, for purposes of
-8-
=====================================================================
such cancellation, the Committee may limit the definition of
Acceleration Event as necessary to comply with the
conditions and requirements of Rule 16b-3. Upon such
cancellation, the Corporation shall make, in exchange
therefor, a cash payment for any such Option in an amount
per share equal to the difference between the per share
exercise price of such Option and the Fair Market Value of a
share of Common Stock on the date during the prior sixty-day
period that produces the highest Fair Market Value.
(3) In the event of a change in the Common
Stock of the Corporation as presently constituted which is
limited to a change of all of its authorized shares with par
value into the same number of shares with a different par
value or without par value, the shares resulting from any
such change shall be deemed to be the Common Stock within
the meaning of the Plan.
(4) The foregoing adjustments shall be made
by the Committee, whose determination in that respect shall
be final, binding and conclusive.
(5) Except as hereinbefore expressly provided
in this Section 6(i), the Optionee shall have no rights by
reason of any subdivision or consolidation of shares of
stock of any class or the payment of any stock dividend or
any other increase or decrease in the number of shares of
stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets
or stock of another corporation; and any issue by the
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common
Stock subject to the Option. The grant of an Option
pursuant to the Plan shall not affect in any way the right
or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital
or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its
business or assets.
(j) RIGHTS AS A STOCKHOLDER. An Optionee or a
transferee of an Option shall have no rights as a stockholder
with respect to any shares covered by the Option
until the date of the issuance of a stock certificate for
such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or
other property) or distribution of other rights for which
the record date is prior to the date such stock certificate
is issued, except as provided in Section 6(i) hereof.
(k) OTHER PROVISIONS. The Option Agreements
authorized under the Plan shall contain such other provisions,
including without limitation the imposition of
restrictions upon the exercise of an Option, as the
Committee shall deem advisable.
-9-
===============================================================
7. Terms and Conditions of Restricted Stock Awards and
-------------------------------------------------------
Restricted Unit Awards.
- ----------------------
Each Restricted Stock Award and Restricted Unit Award
granted under the Plan shall be evidenced by a written
Restricted Award Agreement between the Corporation and the
Grantee, which agreement shall comply with, and be subject
to, the following terms and conditions (and with such other
terms and conditions not inconsistent with the terms of this
Plan as the Committee, in its discretion, shall establish):
(a) NUMBER OF SHARES AND UNITS. The Committee shall
determine the number of Restricted Shares to be awarded to a
Grantee pursuant to the Restricted Stock Award and the
number of Restricted Units to be awarded to a Grantee
pursuant to a Restricted Unit Award.
(b) NONTRANSFERABILITY. Except as set forth in
subsections (f) and (g) of this Section 7, a Grantee may not
sell, assign, transfer, pledge, hypothecate or otherwise
dispose of any Restricted Shares or Restricted Units awarded
to said Grantee under this Plan, or any interest therein,
except by will or the laws of descent and distribution, for
a period of five years, or such shorter period as the
Committee shall determine, from the date on which the award is
granted. The Committee may also in its discretion impose
such other restrictions and conditions on Restricted Shares
and Units awarded as it deems appropriate. In determining
the Restricted Period of an award, the Committee may provide
that the restrictions shall lapse with respect to specified
percentages of the awarded shares or units on successive
anniversaries of the date of such award or upon the
satisfaction of such other conditions as the Committee may
impose. In no event shall the Restricted Period end with
respect to a Restricted Stock Award or Restricted Unit Award
prior to the satisfaction by the Grantee of any liability
arising under Section 8 hereof. Any attempt to dispose of
any Restricted Shares in contravention of any such
restrictions shall be null and void and without effect. The
period during which such restrictions on transfer, and such
other restrictions as the Committee may impose, are in
effect is referred to as the "Restricted Period".
(c) CERTIFICATES REPRESENTING RESTRICTED SHARES. The
Corporation shall not be required to issue stock
certificates representing Restricted Shares awarded to a
Grantee until the Restricted Period related to such shares
has lapsed. If any stock certificates representing
Restricted Shares awarded pursuant to a Restricted Stock
Award are issued prior to the lapse of the Restricted
Period, such stock certificate shall bear an appropriate
legend referring to such restrictions. Such certificates
may be retained by the Corporation during the Restricted
Period.
-10-
===============================================================
(d) TERMINATION. If the Grantee's continuous
employment with the Corporation or any of its divisions or
Subsidiary Corporations shall terminate for any reason prior
to the expiration of the Restricted Period applicable to any
Restricted Shares or Restricted Units granted to such
Grantee, or prior to the satisfaction of any other conditions
established by the Committee applicable to such Grant,
any such Restricted Shares or Restricted Units then remaining
subject to restrictions (after taking into account the
provisions of subsections (f) and (g) of this Section 7)
shall thereupon be forfeited by the Grantee and any such
Restricted Shares shall be transferred to, and reacquired
by, the Corporation or its Subsidiary Corporation at no cost
to the Corporation or the Subsidiary Corporation. In such
event, the Grantee, or in the event of his death, his
personal representative, shall, with respect to any such
shares, forthwith deliver to the Secretary of the Corporation
any stock certificates in the possession of the Grantee
or the Grantee's representative representing the Restricted
Shares remaining subject to such restrictions, accompanied
by such instruments of transfer, if any, as may reasonably
be required by the Secretary of the Corporation.
(e) RIGHTS AS A STOCKHOLDER. Upon receipt by a
Grantee of a Restricted Stock Award, the Grantee shall
possess all incidents of ownership of the Restricted Shares
(subject to subsection (b) of this Section 7), including the
right to receive or reinvest dividends with respect to such
shares and to vote such shares.
(f) EFFECT OF CERTAIN CHANGES. The number of
Restricted Shares or Restricted Units subject to a Grant
shall be appropriately adjusted by the Committee in the
event of any change in the shares of Common Stock set forth
in Section 6(i)(1). Upon the occurrence of an Acceleration
Event, as defined in Section 6(i)(2), all restrictions then
outstanding with respect to a Restricted Stock Award and
Restricted Unit Award shall automatically expire and be of
no further force and effect.
(g) OTHER PROVISIONS. The Committee shall have the
authority (and the Restricted Award Agreement may so
provide) to cancel all or any portion of any outstanding
restrictions and conditions prior to the expiration of the
Restricted Period with respect to all or part of a
Restricted Stock Award or Restricted Unit Award on such terms
and conditions as the Committee may deem appropriate. The
Restricted Award Agreements authorized under this Plan shall
contain such other provisions not inconsistent with the
terms hereof as the Committee shall deem advisable.
-11-
=================================================================
8. Agreement by Grantee Regarding Withholding Taxes.
------------------------------------------------
When a Grantee or other person becomes entitled to
receive shares of Common Stock pursuant to the exercise of an
Option or upon the lapse of restrictions relating to a
Restricted Stock Award, or to receive a cash payment with
respect to a Restricted Unit Award upon the lapse of
restrictions relating thereto, the Corporation shall have
the right to require the Grantee or such other person to pay
to the Corporation, or to withhold from any cash payment
required to be made with respect to a Restricted Unit Award,
the amount of any taxes that the Corporation may be required
to withhold before delivery to such Grantee or other person
of a certificate or certificates representing such shares,
or the delivery to such Grantee of a payment with respect to
Restricted Units.
Unless otherwise prohibited by the Committee or by
applicable law, a Grantee may satisfy any such withholding
tax obligation by any of the following methods, or by a
combination of such methods: (a) tendering a cash payment;
(b) authorizing the Corporation to withhold from the shares
of Common Stock otherwise issuable to such Grantee (or, in
the case of a Restricted Stock Award, from the shares with
respect to which the restrictions shall have lapsed) shares
having an aggregate Fair Market Value, determined as of the
date the withholding tax obligation arises, less than or
equal to the amount of the total withholding tax obligation
or, at the discretion of the Committee, up to the total tax
liability of the Grantee or other person calculated at the
maximum combined marginal federal, state and local tax rates
applicable to the Grantee or other person (the "Maximum
Liability"); (c) delivering to the Corporation previously
acquired shares of Common Stock (none of which shares may be
subject to any claim, lien, security interest, community
property right or other right of spouses or present or
former family members, pledge, option, voting agreement or
other restriction or encumbrance of any nature whatsoever)
having an aggregate Fair Market Value, determined as of the
date the withholding tax obligation arises, less than or
equal to the amount of the total withholding tax obligation
or, at the discretion of the Committee, up to the Maximum
Liability; or (d) authorizing the Committee to withhold from
the payment of a Restricted Stock Unit with respect to which
the Restricted Period has lapsed an amount less than or
equal to the amount of the total withholding tax obligation
or, at the discretion of the Committee, up to the Maximum
Liability. A Grantee's election to pay his or her withholding
tax obligation or all or part of the Maximum Liability
(in whole or in part) by the method described in clause (b)
hereof is irrevocable once it is made, may be disapproved by
the Committee and, if made by any Executive Officer, must be
made (x) only during the period beginning on the third business
day following the date of release of the Corporation's
quarterly or annual summary statement of sales and earnings
and ending on the twelfth business day following the date of
such release or (y) not less than six months prior to the
date such Grantee's withholding tax obligation arises.
-12-
====================================================================
9. Term of Plan.
-------------
The term of this Plan is ten (10) years from the date
the Plan was originally adopted by the Board, or the date
the Plan is approved by the stockholders of the Corporation,
whichever is earlier. No Option, Restricted Stock Award or
Restricted Unit Award shall be granted pursuant to this Plan
later than January 31, 2002, but Options and Restricted
Stock and Unit Awards theretofore granted may extend beyond
that date in accordance with their terms.
10. Amendment and Termination of the Plan.
-------------------------------------
The Board may, at any time and from time to time,
suspend, terminate, modify or amend the Plan; provided,
however, that any amendment that would materially increase
the aggregate number of shares of Common Stock as to which
Options or Restricted Stock Awards may be granted under the
Plan, materially increase the benefits accruing to participants
under the Plan, or materially modify the requirements
as to eligibility for participation in the Plan, each within
the meaning of Rule 16b-3, and, in the sole discretion of
the Committee, any amendment that requires shareholder
approval in order for the Plan to comply with Section 162(m)
of the Code, shall be subject to the approval of the holders
of a majority of the Common Stock present and entitled to
vote at a duly held meeting of the shareholders of the
Corporation, except that any such increase or modification
that may result from adjustments authorized by Section 6(i)
hereof shall not require such approval. Except as provided
in Section 6 hereof, no suspension, termination, modification
or amendment of the Plan may adversely affect any Grant
previously made, unless the written consent of the Grantee
is obtained.
11. Approval of Stockholders.
------------------------
The Plan shall take effect upon its adoption by the
Board of Directors but shall be subject to the approval of
the holders of a majority of the issued and outstanding
shares of Common Stock of the Corporation, which approval
must occur within twelve months after the date the Plan is
adopted by the Board.
-13-
=================================================================
12. Miscellaneous.
--------------
(a) Effect of Headings. The section and
--------------------
subsection headings contained herein are for convenience only
and shall not affect the construction hereof.
(b) Compliance with Legal Requirements. The Plan
-----------------------------------
and the other obligations of the Corporation under the Plan
and any agreement shall be subject to all applicable federal
and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required.
The Corporation, in its discretion, may postpone the
issuance or delivery of Common Stock under any Grant as the
Corporation may consider appropriate, and may require any
Grantee to make such representations and furnish such
information as it may consider appropriate in connection
with the issuance or delivery of Common Stock in compliance
with applicable laws, rules and regulations.
(c) No Right To Continued Employment. Nothing in
---------------------------------
the Plan or in any agreement entered into pursuant hereto
shall confer upon any Grantee the right to continue in the
employ of the Corporation or any of its divisions or
Subsidiary Corporations, to be entitled to any remuneration
or benefits not set forth in the Plan or such agreement or
to interfere with or limit in any way the right of the
Corporation or such division or Subsidiary Corporation to
terminate such Grantee's employment.
(d) Grantee Rights. No Grantee shall have any
---------------
claim to be made any Grant under the Plan, and there is no
obligation for uniformity of treatment for Grantees. Except
as provided specifically herein, a Grantee or a transferee
of a Grant shall have no rights as a stockholder with
respect to any shares covered by any Grant until the date of
the issuance of a stock certificate for such shares.
(e) Beneficiary. A Grantee may file with the
-----------
Committee a written designation of a beneficiary on such form
as may be prescribed by the Committee and may, from time to
time, amend or revoke such designation. If no designated
beneficiary survives the Grantee, the executor or
administrator of the Grantee's estate shall be deemed to be
the Grantee's beneficiary.
(f) Interpretation. The Plan is designed and
---------------
intended to comply with Rule 16b-3 promulgated under the
Exchange Act and, to the extent applicable, with Section
162(m) of the Code, and all provisions hereof shall be
construed in a manner to so comply.
-14-
EXHIBIT 10.26.2
STOCKHOLDERS AGREEMENT
----------------------
STOCKHOLDERS AGREEMENT, dated as of September
20, 1996 (the "Agreement"), among AnnTaylor Stores
Corporation, a Delaware corporation (the "Company"),
Cygne Designs, Inc., a Delaware corporation ("Cygne"),
and Cygne Group ( F.E.) Limited, a Hong Kong corporation
and wholly owned subsidiary of Cygne ("CGFE" and,
together with Cygne, "Holder").
WHEREAS, pursuant to that certain Stock and
Asset Purchase Agreement, dated as of June 7, 1996 (the
"Purchase Agreement"), as amended as of August 27, 1996,
the Company has acquired (the "Acquisition") from Holder
(i) all of the shares of common stock, par value $.01 per
share, of CAT US, Inc., a Delaware corporation, and all
of the HK $1 ordinary shares of C.A.T. (Far East) Limited,
a Hong Kong corporation, owned by Holder and (ii)
certain of the assets of Cygne's AnnTaylor Woven Division;
WHEREAS, in consideration for the Acquisition,
the Company has, among other things, issued to Holder
2,348,145 shares of common stock, par value $.0068 per
share (the "Common Stock"), of the Company (the shares of
Common Stock issued to Holder in consideration for the
Acquisition are hereinafter referred to as the
"Acquisition Shares"); and
WHEREAS, the Company and Holder have determined
that it is in their best interests that certain aspects
of their relationship be regulated according to the terms
and provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein and for good
and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as
follows:
==================================================================
Page 2
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions.
As used in this Agreement, the following terms
shall have the following meanings:
The term "Acquisition" shall have the meaning
-----------
ascribed to it in the second paragraph of the preamble.
The term "Acquisition Shares" shall have the
------------------
meaning ascribed to it in the third paragraph of the
preamble.
The term "Affiliate" shall have the meaning
---------
ascribed to it in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
The term "Agreement" shall have the meaning
---------
ascribed to it in the first paragraph of the preamble.
The term "Common Stock" shall have the meaning
------------
ascribed to it in the third paragraph of the preamble.
The term "Company" shall have the meaning
-------
ascribed to it in the first paragraph of the preamble.
The term "Company Offering" shall mean the sale
----------------
of equity securities of the Company, or securities
convertible into or exchangeable or exercisable for
equity securities of the Company, pursuant to a registration
statement filed by the Company under the Securities
Act (other than (i) a registration statement filed on
Form S-4 or any successor form or (ii) a registration
statement filed on Form S-8 or any successor form)
respecting an underwritten offering, whether primary or
secondary, that is declared effective by the SEC.
The term "Company Subsidiary" shall mean any
------------------
Person the majority of the outstanding voting securities
or interests of which are owned by the Company, and shall
include AnnTaylor Stores Corporation Finance Trust.
The term "Effective Date" shall have the
--------------
meaning ascribed to it in Section 2.02.
==================================================================
Page 3
The term "Exchange Act" shall mean the Securities
------------
Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder.
The term "Holder" shall have the meaning
------
ascribed to it in the first paragraph of the preamble.
The term "Losses" shall have the meaning ascribed
------
to it in Section 2.06(a).
The term "Person" shall mean an individual,
------
trustee, corporation, partnership, business trust,
limited liability company, limited liability partnership,
joint stock company, trust, unincorporated association,
union, business association, firm or other entity.
The term "Purchase Agreement" shall have the
------------------
meaning ascribed to it in the second paragraph of the
preamble.
The term "Registration Expenses" shall have the
---------------------
meaning ascribed to it in Section 2.05.
The term "Rule 144" shall mean Rule 144
--------
promulgated under the Securities Act (or any successor
rule).
The term "Rule 415 Offering" shall have the
-----------------
meaning ascribed to it in Section 2.01(a).
The term "SEC" shall mean the Securities and Ex
---
change Commission.
The term "Securities Act" shall mean the Securities
--------------
Act of 1933, as amended, and the rules and regulations of the
SEC promulgated thereunder.
The term "Shelf Registration Statement" shall
----------------------------
have the meaning ascribed to it in Section 2.01(a).
The term "Transfer" shall mean any attempt to,
--------
directly or indirectly, offer, sell, assign, transfer,
grant a participation in, pledge or otherwise dispose of
any of the Acquisition Shares, or the consummation of any
===============================================================
Page 4
such transactions, or the soliciting of any offers to
purchase or otherwise acquire, or take a pledge of any of
the Acquisition Shares.
ARTICLE II
REQUIRED REGISTRATION
Section 2.01 Required Registration.
(a) Form S-3. As promptly as practicable, but
in no event later than fifteen (15) business days after
the date on which the Acquisition closes, the Company
shall use reasonable best efforts to prepare and file
with the SEC a registration statement (the "Shelf
Registration Statement") on Form S-3 or another appropriate
form permitting registration of the Acquisition
Shares so as to permit promptly the resale of the
Acquisition Shares by Holder pursuant to an offering on a
delayed or continuous basis pursuant to Rule 415 (or any
successor rule) under the Securities Act (a "Rule 415
Offering") and shall use reasonable best efforts to cause
the Shelf Registration Statement to be declared effective
by the SEC as promptly as practicable.
(b) Effectiveness. The Company shall use
reasonable best efforts to keep the Shelf Registration
Statement continuously effective under the Securities Act
until the date that is the earliest to occur of (i) the
date that all Acquisition Shares covered by the Shelf
Registration Statement have been sold, (ii) the third
anniversary of the date hereof and (iii) when, in the
written opinion of counsel to the Company, all
outstanding Acquisition Shares held by persons which are
not Affiliates of the Company may be resold without
registration under the Securities Act pursuant to Rule
144(k) under the Act or any successor provision thereto.
(c) Amendments/Supplements. The Company shall
amend and supplement the Shelf Registration Statement and
the prospectus contained therein if required by the
rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf
Registration Statement or if required by the Securities
Act; provided, however, that the Company may delay the
filing of any such amendment or supplement for up to 90
days if the Company in good faith has a valid business
reason for such delay.
(d) Offerings. At any time after the effective
date of the Shelf Registration Statement, Holder, subject to the
====================================================================
Page 5
restrictions and conditions contained herein, and to compliance which
all applicable state and federal securities laws, shall have the
right to dispose of all or any portion of the Acquisition Shares
from time to time in negotiated or market transactions (which may
include delivery to class action plaintiffs or a
distribution to Holder's stockholders).
Section 2.02 Holdback Agreement.
From and after the first anniversary of the
date on which the Shelf Registration Statement is
declared effective by the SEC (the "Effective Date"),
upon the request of the Company, Holder shall not effect
any public sale or distribution (including sales pursuant
to Rule 144) of Acquisition Shares, during the ten (10)-day
period prior to the date on which the Company has
notified Holder that the Company intends to commence a
Company Offering through the filing of a registration
statement with the Securities and Exchange Commission,
through the one hundred twenty (120)-day period immediately
following the closing date of such Company Offering; provided,
--------
however, that Holder shall not be obligated to comply with this
- -------
Section 2.02 on more than one (1) occasion in any twelve
(12)-month period.
Section 2.03 Blackout Provisions.
The Company shall be deemed not to have used
its reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite
period if the Company voluntarily takes any action that
would result in Holder not being able to offer and sell
any Acquisition Shares during that period, unless (i)
such action is required by applicable law, (ii) upon the
occurrence of any event contemplated by Section
2.04(a)(8) below, such action is taken by the Company in
good faith and for valid business reasons or (iii) the
continued effectiveness of the Shelf Registration Statement
would require the Company to disclose a material
financing, acquisition or other corporate development,
and the proper officers of the Company shall have
determined in good faith that such disclosure is not in
the best interests of the Company and its stockholders,
and, in the case of clause (ii) above, the Company
thereafter promptly comply with the requirements of
Section 2.04(a)(8) below; provided that the Company takes
the same action in respect of the Shelf Registration
Statement filed pursuant to that certain Registration
Rights Agreement, dated as of April 25, 1996, between the
Company and the Initial Purchasers named therein.
===================================================================
Page 6
Section 2.04 Registration Procedures.
(a) Procedures. In connection with the
registration of the Acquisition Shares pursuant to this
Agreement, the Company shall use reasonable best efforts
to effect the registration and sale of the Acquisition
Shares in accordance with Holder's intended method of
disposition thereof and, in connection therewith, the
Company shall as expeditiously as practicable:
(1) prepare and file with the SEC
the Shelf Registration Statement and use
reasonable best efforts to cause the Shelf
Registration Statement to become and remain
effective in accordance with Section 2.01(a)
and (b) above;
(2) prepare and file with the SEC
amendments and supplements to the Shelf
Registration Statement and the prospectuses used in
connection therewith in accordance with Section
2.01(c) above;
(3) before filing with the SEC the
Shelf Registration Statement or prospectus or
any amendments or supplements thereto, the
Company shall furnish to one counsel selected
by Holder and one counsel for the underwriter
or sales or placement agent, if any, in connection
therewith, drafts of all such documents
proposed to be filed and provide such counsel
with a reasonable opportunity for review
thereof and comment thereon, such review to be
conducted and such comments to be delivered
with reasonable promptness;
(4) promptly (i) notify Holder of
each of (x) the filing and effectiveness of the
Shelf Registration Statement and each prospectus
and any amendments or supplements thereto,
(y) the receipt of any comments from the SEC or
any state securities law authorities or any
other governmental authorities with respect to
any such Shelf Registration Statement or
prospectus or any amendments or supplements
thereto, and (z) any oral or written stop order
with respect to such registration, any
suspension of the registration or qualification
of the sale of the Acquisition Shares in any
jurisdiction or any initiation or threatening
of any proceedings with respect to any of the
foregoing and (ii) use reasonable best efforts
to obtain the withdrawal of any order suspending
==================================================================
Page 7
the registration or qualification (or the
effectiveness thereof) or suspending or
preventing the use of any related prospectus in
any jurisdiction with respect thereto;
(5) furnish to Holder, the underwriters
or the sales or placement agent, if
any, and one counsel for each of the foregoing,
a conformed copy of the Shelf Registration
Statement and each amendment and supplement
thereto (in each case, including all exhibits
thereto) and such additional number of copies
of such Shelf Registration Statement, each
amendment and supplement thereto (in such case,
without such exhibits), the prospectus (including
each preliminary prospectus) included in
such Shelf Registration Statement and
prospectus supplements and all exhibits thereto
and such other documents as Holder,
underwriter, agent or such counsel may reasonably
request in order to facilitate the disposition
of the Acquisition Shares by Holder;
(6) if requested by Holder or the
managing underwriter or underwriters of a Rule
415 Offering, subject to approval of counsel to
the Company in its reasonable judgment, promptly
incorporate in a prospectus, supplement or
post-effective amendment to the Shelf
Registration Statement such information concerning
underwriters and the plan of distribution
of the Acquisition Shares as such managing
underwriter or underwriters or Holder reasonably
shall furnish to the Company in writing
and request be included therein, including,
without limitation, information with respect to
the number of Acquisition Shares being sold by
Holder to such underwriter or underwriters, the
purchase price being paid therefor by such
underwriter or underwriters and with respect to
any other terms of the underwritten offering of
the Acquisition Shares to be sold in such offering;
and make all required filings of such prospectus,
supplement or post-effective amendment
as soon as reasonably practicable after being
notified of the matters to be incorporated in
such prospectus, supplement or post-effective
amendment;
(7) use reasonable best efforts to
register or qualify the Acquisition Shares
under such securities or "blue sky" laws of
such jurisdictions as Holder reasonably
requests and do any and all other acts and
things which may be reasonably necessary or
=============================================================
Page 8
advisable to enable Holder to consummate the
disposition in such jurisdictions in which the
Acquisition Shares are to be sold and keep such
registration or qualification in effect for so
long as the Shelf Registration Statement remains
effective under the Securities Act (provided that
the Company shall not be required to
(i) qualify generally to do business in any
jurisdiction where it would not otherwise be
required to qualify but for this paragraph, (ii)
subject itself to taxation in any such jurisdiction
where it would not otherwise be subject
to taxation but for this paragraph or (iii)
consent to the general service of process in
any jurisdiction where it would not otherwise
be subject to general service of process but
for this paragraph);
(8) notify Holder, at any time when
a prospectus relating to the Shelf Registration
Statement is required to be delivered under the
Securities Act, upon the discovery that, or of
the happening of any event as a result of
which, the Shelf Registration Statement, as
then in effect, contains an untrue statement of
a material fact or omits to state any material
fact required to be stated therein or any fact
necessary to make the statements therein not
misleading, and, subject to Section 2.03 above,
promptly prepare and furnish to the Holder a
supplement or amendment to the prospectus
contained in the Shelf Registration Statement so
that the Shelf Registration Statement shall
not, and such prospectus as thereafter delivered
to the purchasers of such Acquisition
Shares shall not, contain an untrue statement
of a material fact or omit to state any material
fact required to be stated therein or any
fact necessary to make the statements therein
not misleading;
(9) cause all of the Acquisition
Shares to be listed on each national securities
exchange and included in each established over-
the-counter market on which or through which
the Common Stock is then listed or traded;
(10) make available for inspection by
Holder, any underwriter participating in any
disposition pursuant to the Shelf Registration
Statement, and any attorney, accountant or
other agent retained by Holder or underwriter,
all reasonably requested financial and other
records, pertinent corporate documents and properties
of the Company, and cause the Company's
officers, directors, employees, attorneys and
==================================================================
Page 9
independent accountants to supply all information
reasonably requested by Holder, underwriters,
attorneys, accountants or agents in
connection with the Shelf Registration
Statement; information which the Company determines,
in good faith, to be confidential shall
not be disclosed by such persons unless,
subject to Section 2.03 above, (i) the disclosure of such information
is required by applicable federal securities laws or is necessary
to avoid or correct a misstatement or omission in such Shelf
Registration Statement or (ii) the release of such information
is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction; Holder agrees,
on its own behalf and on behalf of all of its
underwriters, accountants, attorneys and
agents, that the information obtained by any of
them as a result of such inspections shall be
deemed confidential unless and until such is
made generally available to the public; Holder
further agrees, on its own behalf and on behalf
of all of its underwriters, accountants, attorneys
and agents, that it will, upon learning
that disclosure of such information is sought
in a court of competent jurisdiction, give
notice to the Company and allow the Company, at
its expense, to undertake appropriate action to
prevent disclosure of the information deemed
confidential; nothing contained herein shall
require the Company to waive any attorney-
client privilege or disclose attorney work
product;
(11) use reasonable best efforts to
comply with all applicable laws related to the
Shelf Registration Statement and offering and
sale of securities and all applicable rules and
regulations of governmental authorities in
connection therewith (including, without
limitation, the Securities Act and the Exchange
Act, and the rules and regulations promulgated
by the Commission) and make generally available
to its security holders as soon as practicable
(but in any event not later than fifteen (15)
months after the effectiveness of the Shelf
Registration Statement) an earnings statement
of the Company and the Company Subsidiaries
complying with Section 11(a) of the Securities
Act;
(12) use reasonable best efforts to
furnish to Holder a signed counterpart of (x)
an opinion of counsel for the Company and (y) a
"comfort" letter signed by the independent
public accountants who have certified the
Company's financial statements included or
=====================================================================
Page 10
incorporated by reference in such registration
statement, covering such matters with respect
to such registration statement and, in the case
of the accountants' comfort letter, with
respect to events subsequent to the date of
such financial statements as are customarily
covered in opinions of issuer's counsel and in
accountants' comfort letters delivered to the
underwriters in underwritten public offerings
of securities for the account of, or on behalf
of, a holder of common stock, such opinion and
comfort letters to be dated the date that such
opinion and comfort letters are customarily
dated in such transactions; and
(13) take other actions as Holder or
the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition
of the Acquisition Shares.
(b) Further Agreements. Without limiting any
of the foregoing, in the event that the sale of
Acquisition Shares is to be made by or through an under
writer, the Company shall enter into an underwriting
agreement with a managing underwriter or underwriters
selected by Holder containing representations, warranties,
indemnities and agreements customarily included
(but not inconsistent with the agreements contained
herein) by an issuer of common stock in underwriting
agreements with respect to offerings of common stock for
the account of, or on behalf of, holders of common stock;
provided, however, that the Holder shall not utilize the
- -------- -------
Shelf Registration Statement for more than one underwritten
offering during the term of this Agreement. In
connection with the sale of Acquisition Shares hereunder,
Holder may, at its option, require that any and all
representations and warranties by, and the other agreements
of, the Company to or for the benefit of such underwriter
or underwriters (or which would be made to or for the
benefit of such an underwriter or underwriter if such
sale of Acquisition Shares were pursuant to a customary
underwritten offering) be made to and for the benefit of
Holder and that any or all of the conditions precedent to
the obligations of such underwriter or underwriters (or
which would be so for the benefit of such underwriter or
underwriters under a customary underwriting agreement) be
conditions precedent to the obligations of Holder in
connection with the disposition of its securities
pursuant to the terms hereof. In connection with any
offering of Acquisition Shares registered pursuant to
this Agreement, the Company shall, upon receipt of duly
endorsed certificates representing the Acquisition
Shares, (x) furnish to the underwriter, if any (or, if no
underwriter, Holder), unlegended certificates representing
ownership of Acquisition Shares being sold, in such
denominations as requested, and (y) instruct any transfer
=================================================================
Page 11
agent and registrar of the Acquisition Shares to release
any stop transfer order with respect thereto.
Holder agrees that upon receipt of any notice
from the Company of the happening of any event of the
kind described in paragraph (8) of Section 2.04(a),
Holder shall forthwith discontinue its disposition of
Acquisition Shares pursuant to the Shelf Registration
Statement and prospectus relating thereto until its
receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (8) of Section
2.04(a) and, if so directed by the Company, deliver to
the Company all copies, other than permanent file copies,
then in Holder's possession of the prospectus current at
the time of receipt of such notice relating to the
Acquisition Shares.
Section 2.05 Registration Expenses.
All expenses incidental to the Company's
performance of, or compliance with, its obligations under
this Agreement including, without limitation, all
registration and filing fees, all fees and expenses of
compliance with securities and "blue sky" laws (including,
without limitation, the fees and expenses of counsel
for underwriters or placement or sales agents in
connection with "blue sky" law compliance), all printing
and copying expenses, all messenger and delivery expenses,
all reasonable out-of-pocket expenses of underwriters
and sales and placement agents in connection therewith
(excluding discounts and commissions and the fees and
expenses of counsel therefor), all fees and expenses of
the Company's independent certified public accountants
and counsel (including, without limitation, with respect
to "comfort" letters and opinions) and other Persons
retained by the Company in connection therewith
(collectively, the "Registration Expenses"), shall be
borne by the Company. The Company shall not be responsible
for and shall not pay the fees and expenses of
legal counsel, accountants, agents or experts retained by
Holder in connection with the sale of the Acquisition
Shares. The Company will pay its internal expenses
(including, without limitation, all salaries and expenses
of its officers and employees performing legal or
accounting duties, the expense of any annual audit and
the expense of any liability insurance) and the expenses
and fees for listing the Acquisition Shares on the New
York Stock Exchange.
Section 2.06 Indemnification.
(a) By the Company. The Company agrees to
indemnify Holder, its officers, directors, employees and
================================================================
Page 12
agents and each Person who controls (within the meaning
of Section 15 of the Securities Act or Section 20 of the
Exchange Act) Holder or such other indemnified Person
against all losses, claims, damages, liabilities and
expenses (collectively, the "Losses") caused by,
resulting from or relating to any untrue or alleged
untrue statement of material fact contained in the Shelf
Registration Statement, any prospectus or preliminary
prospectus or any amendment thereof or supplement thereto
or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the
same are caused by or contained in, or alleged to be
omitted from, any information furnished in writing to the
Company by Holder or its underwriter or other agent
expressly for use therein or by Holder's failure to
deliver, or its underwriter's or other agent's failure to
deliver, a copy of the Shelf Registration Statement or
prospectus or any amendments or supplements thereto after
the Company has furnished Holder with the requested
number of copies of the same. In connection with an
underwritten offering and without limiting any of the
Company's other obligations under this Agreement, the
Company shall indemnify such underwriters, their
officers, directors, employees and agents and each Person
who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) such
underwriters or such other indemnified Person to the same
extent as provided above with respect to the indemnification
of Holder.
(b) By Holder. In connection with the Shelf
Registration Statement, Holder shall furnish to the Company
in writing information regarding Holder's ownership
of Acquisition Shares and its intended method of distribution
thereof and shall indemnify the Company, its directors,
officers, employees and agents and each Person who
controls (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) the Company
or such other indemnified Person against all Losses
caused by, resulting from or relating to any untrue or
alleged untrue statement of material fact contained in
the Shelf Registration Statement, any prospectus or
preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary
to make the statements therein not misleading, but only
to the extent that such untrue statement or omission or
alleged untrue statement or omission (i) is caused by,
results from or relates to, or is alleged to be omitted
from, such information so furnished in writing by Holder
or (ii) arises out of or results from Holder's failure to
deliver, or its underwriter's or other agent's failure to
deliver, a copy of the Shelf Registration Statement or
prospectus or any amendments or supplements thereto after
the Company has furnished Holder with the requested
number of copies of the same; provided, however, that
Holder shall not be liable for any claims hereunder in
====================================================================
Page 13
excess of the amount of net proceeds received by Holder
from the sale of Acquisition Shares pursuant to the Shelf
Registration Statement. In connection with an underwritten
offering and without limiting any of Holder's other
obligations under this Agreement, (i) Holder shall
indemnify such underwriters, their officers, directors,
employees and agents and each Person who controls (within
the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) such underwriters or such
other indemnified Person to the same extent as provided
above with respect to the indemnification of the Company
and (ii) Holder shall cause each underwriter of an
underwritten offering to indemnify the Company, its
directors, officers, employees and agents and each Person
who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) the
Company or such indemnified Person against all Losses
caused by, resulting from or relating to any untrue or
alleged untrue statement of material fact contained in
the Shelf Registration Statement, any prospectus or
preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary
to make the statements therein not misleading, but only
to the extent that such untrue statement or omission or
alleged untrue statement or omission (x) is caused by,
results from or relates to, or is alleged to be omitted
from, such information furnished in writing by such
underwriter or (y) arises out of or results from such
underwriter's failure to delivery a copy of the Shelf
Registration Statement or prospectus or any amendments or
supplements thereto after the Company has furnished such
underwriter with the requested number of copies of the
same.
(c) Notice. Any Person entitled to indemni-
fication hereunder shall give prompt written notice to
the indemnifying party of any claim with respect to which
it seeks indemnification; provided, however, the failure
-------- -------
to give such notice shall not release the indemnifying
party from its obligation, except to the extent that the
indemnifying party has been prejudiced by such failure to
provide such notice.
(d) Defense of Actions. In any case in which
any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate therein, and, to the extent that it may wish,
jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified
party of its election so to assume the defense
thereof, the indemnifying party shall not (so long as it
shall continue to have the right to defend, contest,
==============================================================
Page 14
litigate and settle the matter in question in accordance
with this paragraph) be liable to such indemnified party
hereunder for any legal or other expense subsequently
incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation,
supervision and monitoring (unless such indemnified
party reasonably objects to such assumption on the
grounds that there may be defenses available to it which
are different from or in addition to the defenses
available to such indemnifying party, in which event the
indemnified party shall be reimbursed by the indemnifying
party for the reasonable expenses incurred in connection
with retaining one separate legal counsel). An indemnifying
party shall not be liable for any settlement of an
action or claim effected without its consent. The
indemnifying party shall lose its right to defend,
contest, litigate and settle a matter if it shall fail to
diligently contest such matter (except to the extent
settled in accordance with the next following sentence).
No matter shall be settled by an indemnifying party
without the consent of the indemnified party unless such
settlement contains a full and unconditional release of
the indemnified party.
(e) Survival. The indemnification provided
for under this Agreement shall remain in full force and
effect regardless of any investigation made by or on
behalf of the indemnified Person and will survive the
transfer of the Registrable Securities.
(f) Contribution. If recovery is not available
under the foregoing indemnification provisions for
any reason or reasons other than as specified therein,
any Person who otherwise would be entitled to indemnification
by the terms thereof shall nevertheless be entitled to contribution
with respect to any Losses with respect to which such Person
would be entitled to such indemnification but for such reason or
reasons. In determining the amount of contribution to which the
respective Persons are entitled, there shall be
considered the Persons' relative knowledge and access to
information concerning the matter with respect to which
the claim was asserted, the opportunity to correct and
prevent any statement or omission, and other equitable
considerations appropriate under the circumstances. It
is hereby agreed that it would not necessarily be
equitable if the amount of such contribution were
determined by pro rata or per capita allocation. No
person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not
found guilty of such fraudulent misrepresentation.
===============================================================
Page 15
Section 2.07 Transferability of Registration Rights.
The rights and obligations of Holder under this
ARTICLE II may not be transferred or assigned without the
prior written consent of the Company; provided, however,
--------- -------
that such rights and obligations may be assigned by
Holder in connection with a pledge of the Acquisition
Shares in a bona fide transaction to secure indebtedness
of Cygne for borrowed money to a lender that agrees in a
writing reasonably satisfactory to the Company to be
subject to the terms of this Agreement.
ARTICLE III
STANDSTILL PROVISIONS
Section 3.01 Certain Prohibited Actions.
During the term of this Agreement, without the
prior written consent of the Company, neither Cygne nor
CGFE shall, and each shall cause each of its Affiliates
not to, singly or as part of a "group", directly or
indirectly, through one or more intermediaries or
otherwise (i) make, or in any way participate, directly
or indirectly, in, any "solicitation" of "proxies" (as
such terms are defined or used in Regulation 14A under
the Exchange Act) with respect to the Common Stock or any
securities of the Company Subsidiaries (including by the
execution of actions by written consent), become a
"participant" in any "election contest" (as such terms
are defined or used in Rule 14a-11 under the Exchange
Act) with respect to the Company or seek to advise or
influence any person or entity with respect to the voting
of any shares of Common Stock or any securities of the
Company Subsidiaries; (ii) initiate, propose, or
participate in the solicitation of stockholders for the
approval of one or more stockholder proposals with
respect to the Company, as described in Rule 14a-8 under
the Exchange Act, or induce or encourage any other
individual or entity to initiate any stockholder proposal
relating to the Company; (iii) form, join, influence or
participate in a "group", or act in concert with any
other person or entity, for the purpose of acquiring,
holding, voting or disposing of any securities of the
Company or the Company Subsidiaries or taking any other
actions prohibited under this Section 3.01; (iv) hold any
discussions with another Person regarding, make any
proposal to or any public announcement relating to a
tender or exchange offer for any securities of the
Company or the Company Subsidiaries, or a merger,
business combination, sale of assets, liquidation,
restructuring, recapitalization or other extraordinary
corporate transaction relating to the Company or any of
===============================================================
Page 16
the Company Subsidiaries or its or their material assets
or take any action which might require the Company to
make a public announcement regarding any of the
foregoing; (v) cause the merger of Cygne or CGFE with or
into, the consolidation of the Cygne or CGFE with, or the
sale of the business or assets of Cygne or CGFE substantially
as an entirety to, any other Person unless
(A) Cygne or CGFE, as the case may be, is the surviving
Person or the surviving Person agrees in writing to be
bound by this Agreement and (B) within 120 days after
consummation of the transaction, the surviving Person
disposes of all shares of Common Stock owned by it (in
excess of those owned by Cygne or CGFE, as the case may
be, prior to consummation of the transaction); (vi) act,
alone or in concert with others (including by providing
financing for another party), to seek or offer to control
the Company; (vii) deposit any Acquisition Shares in a
voting trust or subject any Acquisition Shares to any
arrangement or agreement with respect to the voting thereof
(except pursuant to Section 3.03 below); (viii) execute
any written consents; (ix) enter into any discussions,
negotiations, arrangements or understandings with or
provide any information to any third party with respect
to any of the foregoing; (x) disclose any intention, plan
or arrangement inconsistent with the foregoing
prohibitions or advise or assist any other Person in
connection with any activity included in the foregoing
prohibitions; or (xi) seek, request, or propose any
waiver, modification, amendment or termination of any
provision of this Section 3.01 (other than any request or
proposal made or solicited by the Company).
Section 3.02 Transferability of Acquisition Shares.
(a) Lock-up Period. Except pursuant to a
pledge in a bona fide transaction to secure indebtedness
of Cygne for borrowed money to a lender that agrees in a
writing reasonably acceptable to the Company to be
subject to the terms of this Agreement, Holder may not
Transfer any of the Acquisition Shares prior to the
Effective Date.
(b) Permitted Transfers. From and after the
Effective Date, Holder may not Transfer the Acquisition
Shares except in the following circumstances:
(i) to the Company or with the
Company's prior written consent;
(ii) pursuant to a pledge in a
bona fide transaction to secure indebtedness of
Cygne for borrowed money to a lender that
====================================================================
Page 17
agrees in a writing reasonably acceptable to
the Company to be subject to the terms of this
Agreement;
(iii) to an Affiliate that agrees
in a writing reasonably acceptable to the
Company to be bound by the terms of this Agreement;
(iv) pursuant to a tender offer made
by a person with respect to which the Company
does not recommend rejection;
(v) pursuant to a settlement with
the plaintiffs in the class action Veronica
---------
Zucker v. Sasaki, et al.;
-----------------------
(vi) pursuant to a pro rata dividend
or other pro rata distribution to all of
Cygne's stockholders, upon liquidation of Cygne
or otherwise; or
(vii) pursuant to Rule 144 or
otherwise pursuant to the Shelf Registration
Statement;
provided, however, that, other than pursuant to clauses
- -------- -------
(iv)-(vi) above or pursuant to an underwritten public
offering, no Transfers of more than two percent (2%) of
the Company's then outstanding shares of Common Stock may
be made in any two (2)-week period; and provided,
--------
further, that any underwriter of a public offering or any
- -------
placement agent, broker or other agent shall be
instructed that (x) no Transfers of any Acquisition
Shares may knowingly be made to any person who
beneficially owns in excess of five percent (5%) of the
then outstanding shares of Common Stock, and (y) no
Transfer of more than two percent (2%) of the Company's
then outstanding Common Stock may knowingly be made to a
single purchaser (or group of related purchasers).
Section 3.03 Voting.
During the term of this Agreement, the Holder
(i) shall be present in person or represented by proxy at
all stockholder meetings of the Company so that all
Acquisition Shares then beneficially owned by Holder
shall be counted for the purpose of determining the
presence of a quorum at such meetings, and (ii) shall
vote, or act by consent with respect to, all Acquisition
Shares then beneficially owned by Holder pro rata in the
same proportion as the votes cast by all other
stockholders of the Company.
================================================================
Page 18
ARTICLE IV
MISCELLANEOUS
Section 4.01 Effectiveness of Agreement.
The provisions of this Agreement shall be
effective as of the date hereof.
Section 4.02 Restrictive Legends.
Holder hereby acknowledges and agrees that,
during the term of this Agreement, each of the
certificates representing Acquisition Shares shall be
subject to stop transfer instructions and shall include
the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED WHETHER BY SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE,
GIFT, BEQUEST, APPOINTMENT OR OTHERWISE, AND
ANNTAYLOR STORES CORPORATION (THE "COMPANY") WILL NOT
REGISTER THE TRANSFER OF SUCH SHARES, EXCEPT PURSUANT AND
SUBJECT TO THAT CERTAIN STOCKHOLDERS AGREEMENT DATED
SEPTEMBER 20, 1996, AS MAY BE AMENDED FROM TIME TO TIME,
BETWEEN ATSC AND CYGNE DESIGNS, INC. A COPY OF SUCH
AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY."
Section 4.03 Recapitalization.
In the event that any capital stock or other
securities are issued as a dividend or distribution on,
in respect of, in exchange for, or in substitution of,
any Acquisition Shares, such securities shall be deemed
to be Acquisition Shares for all purposes under this
Agreement.
===============================================================
Page 19
Section 4.04 Notices.
All notices, requests, demands, waivers and
other communications required or permitted to be given
under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally,
by mail (certified or registered mail, return receipt
requested), by reputable overnight courier or by facsimile
transmission (receipt of which is confirmed):
(a) If to the Company, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Holder, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
=====================================================================
Page 20
or to such other person or address as any party shall
specify by notice in writing, given in accordance with
this Section 4.04, to the other parties hereto. All such
notices, requests, demands, waivers and communications
shall be deemed to have been given on the date on which so
hand-delivered, on the third business day following the
date on which so mailed, on the next business day following
the date on which delivered to such overnight courier
and on the date of such facsimile transmission and confirmation,
except for a notice of change of person or address, which shall
be effective only upon receipt thereof.
Section 4.05 Entire Agreement.
This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter
hereof. This Agreement supersedes all prior agreements
and understandings, oral and written, with respect to its
subject matter.
Section 4.06 Severability.
Should any provision of this Agreement, or any
part thereof, for any reason be declared invalid or
unenforceable, such declaration shall not affect the validity
or enforceability of any other provision of this
Agreement, or any other part thereof, all of which other
provisions, and parts, shall remain in full force and
effect, and the application of such invalid or unenforceable
provision, or such part thereof, to persons or circumstances
other than those as to which it is held invalid or
unenforceable shall be valid and be enforced to the
fullest extent permitted by law.
Section 4.07 Binding Effect; Assignment.
This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors,
successors and permitted assigns, but, except as expressly
contemplated herein, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be as
signed, directly or indirectly, by the Company or Holder
without the prior written consent of the other. Upon any
such assignment, this Agreement shall be amended to
substitute the assignee as a party hereto in a writing
reasonably acceptable to the other party.
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Page 21
Section 4.08 Amendment, Modification and Waiver.
This Agreement may be amended, modified or
supplemented at any time by written agreement of the
parties hereto. Any failure by Holder, on the one hand,
or the Company, on the other hand, to comply with any term
or provision of this Agreement may be waived by the
Company or Holder, respectively, at any time by an instrument
in writing signed by or on behalf of the Company and
Holder, but such waiver or failure to insist upon strict
compliance with such term or provision shall not operate
as a waiver of, or estoppel with respect to, any subsequent
or other failure to comply.
Section 4.09 Third-Party Beneficiaries.
This Agreement is not intended, and shall not be
deemed, to confer upon or give any person except the
parties hereto and their respective successors and
permitted assigns, any remedy, claim, liability, reimbursement,
cause of action or other right under or by reason of
this Agreement.
Section 4.10 Counterparts.
This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of
which together shall constitute one and the same
instrument.
Section 4.11 Interpretation.
The article and section headings contained in
this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties and shall not
in any way affect the meaning or interpretation of this
Agreement.
Section 4.12 Governing Law.
This Agreement shall be governed by the laws of
the State of New York, without regard to the principles of
conflicts of law thereof.
Section 4.13 Termination; Restrictive Legend.
This Agreement shall terminate on the third
anniversary of the date hereof; provided, however, that
-------- -------
the provisions of Section 2.06 hereof shall survive
termination of this Agreement. It is understood and
=============================================================
Page 22
agreed that any restrictive legends set forth on any
Acquisition Shares shall be removed by delivery of
substitute certificates without such legends and such
Acquisition Shares shall no longer be subject to the terms
of this Agreement, upon the resale of such Acquisition
Shares in accordance with the terms of this Agreement
(other than pursuant to Section 3.02(b) (i), (ii) or
(iii)) or, if not theretofore removed, on the third
anniversary of the date hereof.
IN WITNESS WHEREOF, the undersigned hereby agree
to be bound by the terms and provisions of this
Stockholders Agreement as of the date first above written.
ANNTAYLOR STORES CORPORATION
By: /s/ Walter J. Parks
-------------------------
_
Name: Walter J. Parks
Title: Senior Vice President - Finance
CYGNE DESIGNS, INC.
By: /s/ Bernard M. Manuel
---------------------------
Name: Bernard M. Manuel
Title: Chairman and Chief Executive Officer
CYGNE GROUP (F.E.) LIMITED
By: /s/ Bernard M. Manuel
-----------------------------
Name: Bernard M. Manuel
Title: Director
EXHIBIT 10.26.3
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and entered
into as of the 20th day of September, 1996, by and between
AnnTaylor Stores Corporation, a Delaware corporation
("ATSC"), AnnTaylor, Inc., a Delaware corporation
and wholly owned subsidiary of ATSC ("ATI" and, together
with ATSC, "Ann Taylor"), Cygne Designs, Inc., a Delaware
corporation ("Cygne"), and Mr. Bernard M. Manuel ("Consultant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Stock and
Asset Purchase Agreement, dated as of June 7, 1996, as
amended as of August 27, 1996, among ATSC, ATSI, Cygne
and Cygne Group (F.E.) Limited, a Hong Kong corporation
and wholly owned subsidiary of Cygne ("CGFE"), ATI acquired
from Cygne (i) all of the shares of common stock,
par value $.01 per share, of CAT US, Inc., a Delaware
corporation ("CAT-US"), owned by Cygne; and (ii) certain
of the assets of Cygne's AnnTaylor Woven Division (the
"Division");
WHEREAS, pursuant to the Purchase Agreement,
ATI acquired from CGFE all of the shares of common stock,
par value $1 HK per share, of C.A.T. (Far East) Limited,
a Hong Kong corporation ("CAT-Far East" and, together
with CAT-US, "CAT"), owned by CGFE;
WHEREAS, CAT serves as a fully dedicated
sourcing capability for ATI;
WHEREAS, prior to the date hereof, Cygne,
through the Division, served as a private label designer,
merchandiser and manufacturer of women's apparel for ATI;
WHEREAS, Consultant is the Chairman and Chief
Executive Officer of Cygne with particular expertise
regarding sourcing of fabric and materials, particularly
with respect to suppliers and factories in Hong Kong and
Asia; and
WHEREAS, Ann Taylor, as partial consideration
for the transactions contemplated by the Purchase Agreement,
===============================================================
Consulting Agreement
Bernard Manuel
Page 2
desires to obtain, and Cygne and Consultant desire that
Consultant provide, information, consultation,
advice and other services in aid of Ann Taylor's business,
all subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing
and of the representations, warranties, covenants,
agreements and conditions contained herein, Ann Taylor,
Cygne and Consultant, intending to be legally bound,
agree as follows:
1. Engagement of Consultant.
------------------------
(a) Cygne hereby covenants and agrees to
make Consultant available to provide services to Ann
Taylor upon the terms and conditions set forth herein.
Consultant hereby agrees to act as a consultant to and on
behalf of Ann Taylor in accordance with the terms and
conditions set forth herein. Cygne, Consultant and Ann
Taylor agree that Consultant will provide services to Ann
Taylor not in excess of thirty percent (30%) of his
business time and that Consultant will continue his
duties as Chairman and Chief Executive Officer of Cygne.
Cygne agrees to allow Consultant reasonable time to
perform his duties as a consultant to Ann Taylor on a
timely basis, provided, however, that the performance of
-------- -------
such duties shall be at mutually agreeable times that do
not unreasonably interfere with Consultant's continuing
obligations to Cygne.
(b) Cygne shall cause Consultant to, at
the request of the President of Ann Taylor, provide Ann
Taylor information, consultation and advice on fabric and
material sourcing, particularly with respect to suppliers
and factories in Hong Kong and Asia.
(c) Cygne shall cause Consultant, and
Consultant hereby agrees, to diligently and faithfully
serve Ann Taylor and to devote his reasonable best efforts,
his highest talents and skills, and all necessary
time and attention in providing the information, consultation
and advice requested pursuant to paragraph (b) of
this Section 1; provided that Consultant shall not,
without the consent of Cygne and Consultant, be required
to travel outside HongKong. Cygne hereby consents to the
====================================================================
Consulting Agreement
Bernard Manuel
Page 3
allocation of up to thirty percent (30%) of Consultant's
business time to perform services under this Agreement.
2. Term of Agreement. Unless terminated at
-----------------
an earlier date in accordance with Section 4 of this
Agreement, the term of this Agreement shall commence on
the date of this Agreement and shall end on the third
anniversary thereof (the "Expiration Date").
3. Payment for Services.
--------------------
(a) Consultant's Fee. In consideration
----------------
of Cygne causing Consultant to perform the services
provided for in this Agreement, Ann Taylor shall pay to
Cygne, at such time and in the manner as set forth in
Section 3(b) hereof, a fee of $225,000 per year (the
"Consultant's Fee"). Ann Taylor shall not provide Consultant
with any compensation or benefits, including, but
not limited to, medical or pension benefits, bonuses or
vacation, holiday or sick pay.
(b) Time of Payment. The Consultant's
---------------
Fee shall be due and payable to Cygne by Ann Taylor in
quarterly installments commencing on the date hereof;
provided, however, that the first installment shall be
- -------- -------
prorated to reflect the remaining days of the current fiscal
quarter.
(c) Reimbursement of Expenses. Ann
-------------------------
Taylor shall reimburse Cygne or Consultant, as the case
may be, for all reasonable out-of-pocket expenses in
curred by Cygne or Consultant in connection with the
performance of Consultant's services hereunder in accordance
with AnnTaylor's travel policies.
4. Termination.
------------
(a) Death. This Agreement shall terminate
-----
upon the Consultant's death.
(b) Termination by Default. Each of the
----------------------
following shall constitute, without limitation or restriction,
an event of default under this Agreement, in which
case, the non-defaulting party may give the other notice
that this Agreement shall terminate on the date selected
by the non-defaulting party and set forth in such notice
====================================================================
Consulting Agreement
Bernard Manuel
Page 4
(the "Termination Date"), unless cured as specified
below:
(i) If either Ann Taylor or
Cygne shall, whether by action or inaction,
breach in any material respect any obligation
under this Agreement, including a material
failure by Consultant to perform his duties and
responsibilities hereunder, and such breach is
not remedied within thirty (30) days after written
notice thereof from the non-defaulting party;
(ii) If, for any reason, Consultant
shall be convicted of a felony; or if Consultant
shall be convicted of any other crime as a result of
which his ability to perform the services described
in Section 1 hereof is materially impaired;
(iii) If there has been fraud, bad faith
or willful misconduct on the part of Cygne or Consultant
in connection with the performance of Consultant's duties
and responsibilities hereunder;
(iv) If Ann Taylor institutes proceedings relief
under the United States Bankruptcy Code or any similar law, or
consents to entry of an order for relief against it in any
bankruptcy or insolvency proceeding or similar proceeding, or files
a petition or answer or consent for reorganization or other relief
under any bankruptcy act or similar law, or consents to the filing
against it, of any petition for the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar
official) of it, or of any substantial part of its property, or
makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due, or
fails to pay its debts as they become due or takes any action in
furtherance of the foregoing; or
(v) If Cygne or Consultant breaches
in any manner Section 5 hereof.
============================================================================
Consulting Agreement
Bernard Manuel
Page 5
(c) Effect of Termination. Upon termination
---------------------
of this Agreement, Cygne's obligation to cause
Consultant to provide services to Ann Taylor hereunder,
and Ann Taylor's obligation to make payment to Cygne
under Section 3 hereof, shall terminate, except that
AnnTaylor shall be obligated to reimburse all expenses
incurred through the termination date in accordance with
Section 3(b) hereof.
5. Confidentiality.
---------------
(a) Proprietary Information. Each of
-----------------------
Cygne and Consultant acknowledges and agrees that during
the course of the provision of Consultant's services to
Ann Taylor, Consultant may be exposed to sensitive data
and information concerning the business and affairs of
Ann Taylor, including, without limitation, fabric, product
and merchandise designs, and that all of such data
and information, financial plans, financial results, quantity
or assortment of merchandise orders or plans and inventory
levels (collectively, the "Proprietary Information") are
vital, sensitive, confidential and proprietary to Ann Taylor.
(b) Consultant's Agreement. In consideration
----------------------
of the Purchase Price (as defined in the Purchase
Agreement) to be paid by Ann Taylor to Cygne in connection
with the transactions contemplated by the Purchase
Agreement, Consultant agrees to the covenants and restrictions
set forth in this Section 5.
(c) Cygne's Agreement. In consideration
-----------------
of the Purchase Price to be paid by Ann Taylor to Cygne
in connection with the transactions contemplated by the
Purchase Agreement, Cygne agrees to the covenants and
restrictions set forth in this Section 5.
(d) Trade Secret Status. Each of Cygne
-------------------
and Consultant expressly acknowledges the trade secret
status of the Proprietary Information and acknowledges
that the Proprietary Information constitutes a
protectable business interest of Ann Taylor, and covenants
and agrees that during the term of the engagement
hereunder and at all times after the expiration or termination
of such engagement, neither Cygne nor Consultant
shall, directly or indirectly, whether, in the case of
Consultant, individually, as a director, stockholder,
=====================================================================
Consulting Agreement
Bernard Manuel
Page 6
owner, partner, employee, principal or agent of or consultant
to any business, or in any other capacity, make
known, disclose, furnish, make available or utilize any
of the Proprietary Information, other than in the proper
performance of the duties contemplated herein during the
term of the engagement hereunder. Cygne's and Consultant's
obligations under this Section 5(d) with respect to particular
Proprietary Information shall terminate only at such time
(if any) as the Proprietary Information in question becomes
generally known to the public other than through a breach of
either Cygne's or Consultant's obligations hereunder.
(e) Return of Proprietary Information.
---------------------------------
Each of Cygne and Consultant acknowledges and agrees that
all records or documents containing Proprietary Information
prepared by Consultant or coming into his possession by
virtue of the engagement are and shall remain the
property of Ann Taylor and that, upon termination or expiration
of this engagement, Consultant shall return immediately to Ann
Taylor all such items in his possession, together with all
copies and extracts, and will destroy all summaries thereof and
any such information stored electronically on tapes, computer
disks or in any other manner.
(f) Consultant Non-Solicitation. Consultant
---------------------------
agrees that during the term of this Agreement and
for a period of one (1) year thereafter he shall not, directly
or indirectly, induce or solicit (or authorize or
assist in the taking of any such actions by any third
party) any employee or consultant of Ann Taylor to leave
his or her business association with Ann Taylor.
(g) Cygne Non-Solicitation. Cygne agrees
----------------------
that during the term of this Agreement and for a period
of one (1) year thereafter it shall not, directly or
indirectly, induce or solicit (or authorize or assist in the
taking of any such actions by any third party) any employee
or consultant of Ann Taylor to leave his or her
business association with Ann Taylor.
(h) Ann Taylor Non-Solicitation. Ann
---------------------------
Taylor agrees that during the term of this Agreement and
for a period of one (1) year thereafter it shall not, di-
rectly or indirectly, induce or solicit (or authorize or
assist in the taking of any such actions by any third
=====================================================================
Consulting Agreement
Bernard Manual
Page 7
party) any employee or consultant of Cygne to leave his
or her business association with Cygne.
(i) Acknowledgment. Consultant and Cygne
--------------
acknowledge and agree that the covenants set forth in
this Section 5 and each subsection hereof are reasonable
and necessary for the protection of Ann Taylor's business
interests, that irreparable injury will result to
Ann Taylor if Consultant or Cygne breaches any of the
terms of said covenants, and that in the event of
Consultant's or Cygne's actual or threatened breach of
any such covenants, Ann Taylor will have no adequate
remedy at law. Cygne and Consultant accordingly agree
that in the event of any actual or threatened breach by
Consultant of any of said covenants, Ann Taylor shall be
entitled to immediate injunctive and other equitable
relief without bond and without the necessity of showing
actual monetary damages. Cygne accordingly agrees that
in the event of any actual or threatened breach by Cygne
of any of said covenants, Ann Taylor shall be entitled to
immediate injunctive and other equitable relief without
bond and without the necessity of showing actual monetary
damages. Notwithstanding the provisions of Section 9
hereof, such equitable relief may be sought in any court
of competent jurisdiction. Nothing contained herein
shall be construed as prohibiting Ann Taylor from pursuing
any other remedies available to it for such breach or
threatened breach, including the recovery of any damages
which it is able to prove.
(j) The provisions of this Section 5
shall survive the expiration or termination of this
Agreement, and any of the arrangements contained herein,
and shall be binding upon Consultant's, Cygne's and
Ann Taylor's corporate or personal successors and assigns.
6. Representations and Warranties of Consultant.
--------------------------------------------
Consultant represents and warrants to Cygne and
Ann Taylor that he has full legal power and authority to
enter into this Agreement, perform all of his obligations
hereunder and to consummate the transactions contemplated
hereby.
=====================================================================
Consulting Agreement
Bernard Manuel
Page 8
7. Consultant's Independence and Discretion.
(a) Nothing herein contained shall be construed
to constitute the parties hereto as partners or as
joint venturers, or as agent of the others, or, as
between Ann Taylor and Consultant, as employer and employee.
By virtue of the relationship described herein,
Consultant's relationship to Ann Taylor during the term
of this Agreement shall only be that of an independent
contractor and the Consultant shall perform all services
pursuant to this Agreement as an independent contractor.
The Consultant shall not provide any services under
Ann Taylor's business name and shall not present himself
as an agent or employee of Ann Taylor and shall have no
authority to enter into any binding obligation on behalf
of Ann Taylor.
(b) Subject to the terms of this Agreement,
the manner, means, details or methods by which the
Consultant performs his obligations under this Agreement
shall be determined by Cygne, subject to the reasonable
satisfaction of Ann Taylor.
(c) Each of Cygne and Consultant acknowledges
and agrees that Ann Taylor shall not provide to Consultant
any unemployment, disability, workers' compensation
or medical insurance or any other employee benefits.
Payments to Cygne under Section 3 hereof shall not be subject
to withholding taxes or other employment taxes.
8. Arbitration. Any controversy or claim
-----------
arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration before
three (3) arbitrators selected in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association in the City of New York. Arbitration as
provided herein shall be the exclusive means for determination
of all matters as above provided, and any decision
and award of the arbitrators shall be final, binding and
conclusive upon the parties and such decision and award
may be entered as a final judgment in any court of competent
jurisdiction. Except as provided in Section 5(j)
hereof, none of the parties shall institute any action or
proceeding in any court of law or equity, state or federal,
other than as may be necessary for purposes of enforcement
=====================================================================
Consulting Agreement
Bernard Manuel
Page 9
of the arbitrators' decision and award hereunder.
9. Consultant's Employment. Cygne and Consultant
-----------------------
hereby acknowledge that Consultant's execution of this Agreement
is a condition to Consultant's continued employment with Cygne.
10. Notices. All notices, requests, demands,
-------
waivers and other communications required or permitted to
be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered
personally, by mail (certified or registered mail, return
receipt requested), by reputable overnight courier or by
facsimile transmission (receipt of which is confirmed):
(a) If to ATSC or ATI, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Cygne, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
====================================================================
Consulting Agreement
Bernard Manuel
Page 10
(c) If to Consultant, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: Bernard M. Manuel
Facsimile: (212) 536-4174
or to such other person or address as any party shall
specify by notice in writing, given in accordance with
this Section 10 to the other parties hereto. All such
notices, requests, demands, waivers and communications
shall be deemed to have been given on the date on which so
hand-delivered, on the third business day following the
date on which so mailed, on the next business day following
the date on which delivered to such overnight courier
and on the date of such facsimile transmission and confirmation,
except for a notice of change of person or address, which shall
be effective only upon receipt thereof.
11. Entire Agreement. This Agreement contains
-----------------
the entire understanding of the parties hereto with respect
to the subject matter hereof. This Agreement supersedes all
prior agreements and understandings, oral and written, with
respect to its subject matter.
12. Severability. Should any provision of this
-------------
Agreement, or any part thereof, for any reason be declared
invalid or unenforceable, such declaration shall not affect
the validity or enforceability of any other provision
of this Agreement, or any other part thereof, all of which
other provisions, and parts, shall remain in full force
and effect, and the application of such invalid or unenforceable
provision, or such part thereof, to persons or circumstances other
than those as to which it is held invalid or unenforceable shall
be valid and be enforced to the fullest extent permitted by law.
13. Binding Effect; Assignment. This Agreement
--------------------------
and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, executors, successors and permitted as
signs, but, except as contemplated herein, neither this
Agreement nor any of the rights, interests or obligations
hereunder shall be assigned, directly or indirectly, by
ATSC, ATI, Cygne or Consultant without the prior written
consent of the other parties hereto; provided, however,
-------- -------
=====================================================================
Consulting Agreement
Bernard Manuel
Page 11
that ATSC or ATI may assign any or all of its rights,
interests or obligations hereunder to any one or more,
direct or indirect, wholly owned subsidiaries of ATSC or
ATI, provided, however, that no such assignment by ATSC or
-------- -------
ATI shall limit or affect ATSC's or ATI's obligations here
under; provided, further, however, that this Agreement
-------- ------- -------
shall automatically be assigned to and assumed by Consultant
in the event that (i) Consultant's employment with
Cygne is terminated; or (ii) Cygne is liquidated or dissolved,
whether through Chapter 7 of the U.S. Bankruptcy
Laws or otherwise; provided, however, that Consultant
-------- -------
hereby agrees, in the event of any such assignment by
Cygne and assumption by Consultant, to assume and perform
all of Cygne's obligations hereunder, to the extent applicable.
14. Amendment, Modification and Waiver. This
----------------------------------
Agreement may be amended, modified or supplemented at any
time by written agreement of the parties hereto. Any
failure by Cygne or Consultant, on the one hand, or ATSC
or ATI, on the other hand, to comply with any term or
provision of this Agreement may be waived by ATSC, ATI, Cygne
or Consultant, respectively, at any time by an instrument
in writing signed by or on behalf of ATSC, ATI, Cygne or
Consultant, but such waiver or failure to insist upon
strict compliance with such term or provision shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure to comply.
15. Third-Party Beneficiaries. Except as
-------------------------
otherwise expressly provided herein, this Agreement is not
intended, and shall not be deemed, to confer upon or give
any person except the parties hereto and their respective
successors and permitted assigns, any remedy, claim,
liability, reimbursement, cause of action or other right
under or by reason of this Agreement.
16. Counterparts. This Agreement may be
------------
executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one
and the same instrument.
17. Interpretation. The section headings
--------------
contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties
and shall not in any way affect the meaning or interpre-
tation of this Agreement. As used in this Agreement, the
================================================================
Consulting Agreement
Bernard Manuel
Page 12
term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any
department or agency thereof.
18. Governing Law. This Agreement shall be
-------------
governed by the laws of the State of New York, without regard
to the principles of conflicts of law thereof.
==================================================================
Consulting Agreement
Bernard Manuel
Page 13
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the date and year first
above written.
ANNTAYLOR STORES CORPORATION
By: /s/ Walter J. Parks
----------------------------
Name: Walter J. Parks
Title: Senior Vice President -
Finance
ANNTAYLOR, INC.
By: /s/ Walter J. Parks
---------------------------
Name: Walter J. Parks
Title: Senior Vice President -
Finance
CYGNE DESIGNS, INC.
By: /s/ Paul D. Baiocchi
------------------------------
Name: Paul D. Baiocchi
Title: Vice President
CONSULTANT
/s/ Bernard M. Manuel
-----------------------------------
Bernard M. Manuel
Consultant
EXHIBIT 10.26.4
CONSULTING AGREEMENT
---------------------
THIS CONSULTING AGREEMENT is made and entered
into as of the 20th day of September, 1996, by and between
AnnTaylor Stores Corporation, a Delaware corporation
("ATSC"), AnnTaylor, Inc., a Delaware corporation
and wholly owned subsidiary of ATSC ("ATI" and, together
with ATSC, "Ann Taylor"), Cygne Designs, Inc., a Delaware
corporation ("Cygne"), and Mr. Irving Benson ("Consultant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Stock and
Asset Purchase Agreement, dated as of June 7, 1996, as
amended as of August 27, 1996, among ATSC, ATSI, Cygne
and Cygne Group (F.E.) Limited, a Hong Kong corporation
and wholly owned subsidiary of Cygne ("CGFE"), ATI
acquired from Cygne (i) all of the shares of common stock,
par value $.01 per share, of CAT US, Inc., a Delaware
corporation ("CAT-US"), owned by Cygne; and (ii) certain
of the assets of Cygne's AnnTaylor Woven Division (the
"Division");
WHEREAS, pursuant to the Purchase Agreement,
ATI acquired from CGFE all of the shares of common stock,
par value $1 HK per share, of C.A.T. (Far East) Limited,
a Hong Kong corporation ("CAT-Far East" and, together
with CAT-US, "CAT"), owned by CGFE;
WHEREAS, CAT serves as a fully dedicated
sourcing capability for ATI;
WHEREAS, prior to the date hereof, Cygne,
through the Division, served as a private label designer,
merchandiser and manufacturer of women's apparel for ATI;
WHEREAS, Consultant is the President and Vice
Chairman of Cygne with particular expertise regarding
design, merchandising and product development; and
======================================================================
Consulting Agreement
Irving Benson
Page 2
WHEREAS, Ann Taylor, as partial consideration
for the transactions contemplated by the Purchase Agreement,
desires to obtain, and Cygne and Consultant desire
that Consultant provide, information, consultation,
advice and other services in aid of Ann Taylor's business,
all subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing
and of the representations, warranties, covenants,
agreements and conditions contained herein, Ann Taylor,
Cygne and Consultant, intending to be legally bound,
agree as follows:
1. Engagement of Consultant.
-------------------------
(a) Cygne hereby covenants and agrees to
make Consultant available to provide services to Ann
Taylor upon the terms and conditions set forth herein.
Consultant hereby agrees to act as a consultant to and on
behalf of Ann Taylor in accordance with the terms and
conditions set forth herein. Cygne, Consultant and Ann
Taylor agree that Consultant will provide services to Ann
Taylor not in excess of thirty percent (30%) of his
business time and that Consultant will continue his
duties as President and Vice Chairman of Cygne. Cygne
agrees to allow Consultant reasonable time to perform his
duties as a consultant to Ann Taylor on a timely basis,
provided, however, that the performance of such duties
- -------- -------
shall be at mutually agreeable times that do not unreasonably
interfere with Consultant's continuing obligations to Cygne.
(b) Cygne shall cause Consultant to, at
the request of the President of Ann Taylor, provide Ann
Taylor information, consultation and advice on design,
merchandising and product development.
(c) Cygne shall cause Consultant, and
Consultant hereby agrees, to diligently and faithfully
serve Ann Taylor and to devote his reasonable best efforts,
his highest talents and skills, and all necessary
time and attention in providing the information, consultation
and advice requested pursuant to paragraph (b) of
this Section 1; provided that Consultant shall not,
without the consent of Cygne and Consultant, be required
to travel outside New York. Cygne hereby consents to the
====================================================================
Consulting Agreement
Irving Benson
Page 3
allocation of up to thirty percent (30%) of Consultant's
business time to perform services under this Agreement.
2. Term of Agreement. Unless terminated at
-----------------
an earlier date in accordance with Section 4 of this
Agreement, the term of this Agreement shall commence on
the date of this Agreement and shall end on the third
anniversary thereof (the "Expiration Date").
3. Payment for Services.
--------------------
(a) Consultant's Fee. In consideration
----------------
of Cygne causing Consultant to perform the services
provided for in this Agreement, Ann Taylor shall pay to
Cygne, at such time and in the manner as set forth in
Section 3(b) hereof, a fee of $225,000 per year (the
"Consultant's Fee"). Ann Taylor shall not provide Consultant
with any compensation or benefits, including, but
not limited to, medical or pension benefits, bonuses or
vacation, holiday or sick pay.
(b) Time of Payment. The Consultant's
---------------
Fee shall be due and payable to Cygne by Ann Taylor in
quarterly installments commencing on the date hereof;
provided, however, that the first installment shall be
- -------- -------
prorated to reflect the remaining days of the current
fiscal quarter.
(c) Reimbursement of Expenses. Ann
-------------------------
Taylor shall reimburse Cygne or Consultant, as the case
may be, for all reasonable out-of-pocket expenses in
curred by Cygne or Consultant in connection with the
performance of Consultant's services hereunder in
accordance with AnnTaylor's travel policies.
4. Termination.
-----------
(a) Death. This Agreement shall terminate
-----
upon the Consultant's death.
(b) Termination by Default. Each of the
----------------------
following shall constitute, without limitation or restriction,
an event of default under this Agreement, in which
case, the non-defaulting party may give the other notice
that this Agreement shall terminate on the date selected
by the non-defaulting party and set forth in such notice
================================================================
Consulting Agreement
Irving Benson
Page 4
(the "Termination Date"), unless cured as specified
below:
(i) If either Ann Taylor or
Cygne shall, whether by action or inaction,
breach in any material respect any obligation
under this Agreement, including a material
failure by Consultant to perform his duties and
responsibilities hereunder, and such breach is
not remedied within thirty (30) days after written
notice thereof from the non-defaulting party;
(ii) If, for any reason, Consultant
shall be convicted of a felony; or if Consultant
shall be convicted of any other crime as a result
of which his ability to perform the services described
in Section 1 hereof is materially impaired;
(iii) If there has been fraud,
bad faith or willful misconduct on the part of
Cygne or Consultant in connection with the performance
of Consultant's duties and responsibilities hereunder;
(iv) If Ann Taylor institutes proceedings
relief under the United States Bankruptcy Code or any similar
law, or consents to entry of an order for relief against it
in any bankruptcy or in solvency proceeding or similar proceeding,
or files a petition or answer or consent for reorganization
or other relief under any bankruptcy act or similar law, or consents
to the filing against it, of any petition for the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of it, or of any substantial part of its property,
or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due, or fails
to pay its debts as they become due or takes any action in
furtherance of the foregoing; or
(v) If Cygne or Consultant breaches
in any manner Section 5 hereof.
=========================================================================
Consulting Agreement
Irving Benson
Page 5
(c) Effect of Termination. Upon termination
---------------------
of this Agreement, Cygne's obligation to cause Consultant to
provide services to Ann Taylor hereunder, and Ann Taylor's
obligation to make payment to Cygne under Section 3 hereof,
shall terminate, except that AnnTaylor shall be obligated to
reimburse all expenses incurred through the termination date
in accordance with Section 3(b) hereof.
5. Confidentiality.
---------------
(a) Proprietary Information. Each of
-----------------------
Cygne and Consultant acknowledges and agrees that during
the course of the provision of Consultant's services to
Ann Taylor, Consultant may be exposed to sensitive data
and information concerning the business and affairs of
Ann Taylor, including, without limitation, fabric, product
and merchandise designs, and that all of such data
and information, financial plans, financial results, quantity
or assortment of merchandise orders or plans and inventory
levels (collectively, the "Proprietary Information") are vital,
sensitive, confidential and proprietary to Ann Taylor.
(b) Consultant's Agreement. In consideration
----------------------
of the Purchase Price (as defined in the Purchase Agreement) to
be paid by Ann Taylor to Cygne in connection with the transactions
contemplated by the Purchase Agreement, Consultant agrees to the
covenants and restrictions set forth in this Section 5.
(c) Cygne's Agreement. In consideration
-----------------
of the Purchase Price to be paid by Ann Taylor to Cygne
in connection with the transactions contemplated by the
Purchase Agreement, Cygne agrees to the covenants and
restrictions set forth in this Section 5.
(d) Trade Secret Status. Each of Cygne
--------------------
and Consultant expressly acknowledges the trade secret
status of the Proprietary Information and acknowledges
that the Proprietary Information constitutes a
protectable business interest of Ann Taylor, and covenants
and agrees that during the term of the engagement
hereunder and at all times after the expiration or termination
of such engagement, neither Cygne nor Consultant
shall, directly or indirectly, whether, in the case of
Consultant, individually, as a director, stockholder,
===================================================================
Consulting Agreement
Irving Benson
Page 6
owner, partner, employee, principal or agent of or consultant
to any business, or in any other capacity, make
known, disclose, furnish, make available or utilize any
of the Proprietary Information, other than in the proper
performance of the duties contemplated herein during the
term of the engagement hereunder. Cygne's and Consultant's
obligations under this Section 5(d) with respect to particular
Proprietary Information shall terminate only at such time
(if any) as the Proprietary Information in question becomes
generally known to the public other than through a breach
of either Cygne's or Consultant's obligations hereunder.
(e) Return of Proprietary Information.
---------------------------------
Each of Cygne and Consultant acknowledges and agrees that
all records or documents containing Proprietary Information
prepared by Consultant or coming into his possession by virtue
of the engagement are and shall remain the property of
Ann Taylor and that, upon termination or expiration of this
engagement, Consultant shall return immediately to Ann Taylor
all such items in his possession, together with all copies and
extracts, and will destroy all summaries thereof and any such
information stored electronically on tapes, computer disks or in
any other manner.
(f) Consultant Non-Solicitation. Consultant
---------------------------
agrees that during the term of this Agreement and
for a period of one (1) year thereafter he shall not,
directly or indirectly, induce or solicit (or authorize or
assist in the taking of any such actions by any third
party) any employee or consultant of Ann Taylor to leave
his or her business association with Ann Taylor.
(g) Cygne Non-Solicitation. Cygne agrees
----------------------
that during the term of this Agreement and for a period
of one (1) year thereafter it shall not, directly or
indirectly, induce or solicit (or authorize or assist in the
taking of any such actions by any third party) any
employee or consultant of Ann Taylor to leave his or her
business association with Ann Taylor.
(h) Ann Taylor Non-Solicitation. Ann
---------------------------
Taylor agrees that during the term of this Agreement and
for a period of one (1) year thereafter it shall not, di-
rectly or indirectly, induce or solicit (or authorize or
assist in the taking of any such actions by any third
=====================================================================
Consulting Agreement
Irving Benson
Page 7
party) any employee or consultant of Cygne to leave his
or her business association with Cygne.
(i) Acknowledgment. Consultant and Cygne
--------------
acknowledge and agree that the covenants set forth in
this Section 5 and each subsection hereof are reasonable
and necessary for the protection of Ann Taylor's business
interests, that irreparable injury will result to
Ann Taylor if Consultant or Cygne breaches any of the
terms of said covenants, and that in the event of
Consultant's or Cygne's actual or threatened breach of
any such covenants, Ann Taylor will have no adequate
remedy at law. Cygne and Consultant accordingly agree
that in the event of any actual or threatened breach by
Consultant of any of said covenants, Ann Taylor shall be
entitled to immediate injunctive and other equitable
relief without bond and without the necessity of showing
actual monetary damages. Cygne accordingly agrees that
in the event of any actual or threatened breach by Cygne
of any of said covenants, Ann Taylor shall be entitled to
immediate injunctive and other equitable relief without
bond and without the necessity of showing actual monetary
damages. Notwithstanding the provisions of Section 9
hereof, such equitable relief may be sought in any court
of competent jurisdiction. Nothing contained herein
shall be construed as prohibiting Ann Taylor from pursuing
any other remedies available to it for such breach or
threatened breach, including the recovery of any damages
which it is able to prove.
(j) The provisions of this Section 5
shall survive the expiration or termination of this
Agreement, and any of the arrangements contained herein,
and shall be binding upon Consultant's, Cygne's and
Ann Taylor's corporate or personal successors and
assigns.
6. Representations and Warranties of Consultant.
--------------------------------------------
Consultant represents and warrants to Cygne and Ann Taylor
that he has full legal power and authority to enter into this
Agreement, perform all of his obligations hereunder and to
consummate the transactions contemplated hereby.
===================================================================
Consulting Agreement
Irving Benson
Page 8
7. Consultant's Independence and Discretion.
-----------------------------------------
(a) Nothing herein contained shall be construed
to constitute the parties hereto as partners or as
joint venturers, or as agent of the others, or, as
between Ann Taylor and Consultant, as employer and employee.
By virtue of the relationship described herein,
Consultant's relationship to Ann Taylor during the term
of this Agreement shall only be that of an independent
contractor and the Consultant shall perform all services
pursuant to this Agreement as an independent contractor.
The Consultant shall not provide any services under
Ann Taylor's business name and shall not present himself
as an agent or employee of Ann Taylor and shall have no
authority to enter into any binding obligation on behalf
of Ann Taylor.
(b) Subject to the terms of this Agreement,
the manner, means, details or methods by which the
Consultant performs his obligations under this Agreement
shall be determined by Cygne, subject to the reasonable
satisfaction of Ann Taylor.
(c) Each of Cygne and Consultant acknowledges
and agrees that Ann Taylor shall not provide to
Consultant any unemployment, disability, workers' compensation
or medical insurance or any other employee benefits. Payments
to Cygne under Section 3 hereof shall not be subject to withholding
taxes or other employment taxes.
8. Arbitration. Any controversy or claim
-----------
arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration before
three (3) arbitrators selected in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association in the City of New York. Arbitration as
provided herein shall be the exclusive means for determination
of all matters as above provided, and any decision
and award of the arbitrators shall be final, binding and
conclusive upon the parties and such decision and award
may be entered as a final judgment in any court of competent
jurisdiction. Except as provided in Section 5(j)
hereof, none of the parties shall institute any action or
proceeding in any court of law or equity, state or federal,
other than as may be necessary for purposes of enforcement of
========================================================================
Consulting Agreement
Irving Benson
Page 9
the arbitrators' decision and award hereunder.
9. Consultant's Employment. Cygne and Consultant
-----------------------
hereby acknowledge that Consultant's execution of
this Agreement is a condition to Consultant's continued
employment with Cygne.
10. Notices. All notices, requests, demands,
-------
waivers and other communications required or permitted to
be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered
personally, by mail (certified or registered mail, return
receipt requested), by reputable overnight courier or by
facsimile transmission (receipt of which is confirmed):
(a) If to ATSC or ATI, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Cygne, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
===================================================================
Consulting Agreement
Irving Benson
Page 10
(c) If to Consultant, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: Irving Benson
Facsimile: (212) 536-4174
or to such other person or address as any party shall
specify by notice in writing, given in accordance with
this Section 10 to the other parties hereto. All such
notices, requests, demands, waivers and communications
shall be deemed to have been given on the date on which so
hand-delivered, on the third business day following the
date on which so mailed, on the next business day following
the date on which delivered to such overnight courier
and on the date of such facsimile transmission and confirmation,
except for a notice of change of person or address, which shall
be effective only upon receipt thereof.
11. Entire Agreement. This Agreement contains
----------------
the entire understanding of the parties hereto with respect
to the subject matter hereof. This Agreement supersedes
all prior agreements and understandings, oral and
written, with respect to its subject matter.
12. Severability. Should any provision of this
------------
Agreement, or any part thereof, for any reason be declared
invalid or unenforceable, such declaration shall not affect
the validity or enforceability of any other provision
of this Agreement, or any other part thereof, all of which
other provisions, and parts, shall remain in full force
and effect, and the application of such invalid or unenforceable
provision, or such part thereof, to persons or
circumstances other than those as to which it is held
invalid or unenforceable shall be valid and be enforced to
the fullest extent permitted by law.
13. Binding Effect; Assignment. This Agreement
--------------------------
and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, executors, successors and permitted as
signs, but, except as contemplated herein, neither this
Agreement nor any of the rights, interests or obligations
hereunder shall be assigned, directly or indirectly, by
ATSC, ATI, Cygne or Consultant without the prior written
consent of the other parties hereto; provided, however,
-------- -------
=====================================================================
Consulting Agreement
Irving Benson
Page 11
that ATSC or ATI may assign any or all of its rights,
interests or obligations hereunder to any one or more,
direct or indirect, wholly owned subsidiaries of ATSC or
ATI, provided, however, that no such assignment by ATSC or
-------- -------
ATI shall limit or affect ATSC's or ATI's obligations
hereunder; provided, further, however, that this Agreement
-------- ------- -------
shall automatically be assigned to and assumed by Consultant
in the event that (i) Consultant's employment with
Cygne is terminated; or (ii) Cygne is liquidated or
dissolved, whether through Chapter 7 of the U.S. Bankruptcy
Laws or otherwise; provided, however, that Consultant
-------- -------
hereby agrees, in the event of any such assignment by
Cygne and assumption by Consultant, to assume and perform
all of Cygne's obligations hereunder, to the extent applicable.
14. Amendment, Modification and Waiver. This
----------------------------------
Agreement may be amended, modified or supplemented at any
time by written agreement of the parties hereto. Any
failure by Cygne or Consultant, on the one hand, or ATSC
or ATI, on the other hand, to comply with any term or provision
of this Agreement may be waived by ATSC, ATI, Cygne
or Consultant, respectively, at any time by an instrument
in writing signed by or on behalf of ATSC, ATI, Cygne or
Consultant, but such waiver or failure to insist upon
strict compliance with such term or provision shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure to comply.
15. Third-Party Beneficiaries. Except as
-------------------------
otherwise expressly provided herein, this Agreement is not
intended, and shall not be deemed, to confer upon or give
any person except the parties hereto and their respective
successors and permitted assigns, any remedy, claim, liability,
reimbursement, cause of action or other right under or by reason
of this Agreement.
16. Counterparts. This Agreement may be executed
------------
in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one
and the same instrument.
17. Interpretation. The section headings contained
--------------
in this Agreement are solely for the purpose of reference, are
not part of the agreement of the parties and shall not in any
way affect the meaning or interpretation of this Agreement.
As used in this Agreement, the term "person" shall mean and
=====================================================================
Consulting Agreement
Irving Benson
Page 12
include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
18. Governing Law. This Agreement shall be governed
--------------
by the laws of the State of New York, without regard
to the principles of conflicts of law thereof.
=======================================================================
Consulting Agreement
Irving Benson
Page 13
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the date and year first
above written.
ANNTAYLOR STORES CORPORATION
By: /s/ Walter J. Parks
--------------------------
Name: Walter J. Parks
Title: Senior Vice President -
Finance
ANNTAYLOR, INC.
By: /s/ Walter J. Parks
----------------------------
Name: Walter J. Parks
Title: Senior Vice President -
Finance
CYGNE DESIGNS, INC.
By: /s/ Paul D. Baiocchi
------------------------------
Name: Paul D. Baiocchi
Title: Vice President
CONSULTANT
/s/ Irving Benson
--------------------------------------
Irving Benson
Consultant
Exhibit 21
SUBSIDIARIES OF
ANNTAYLOR STORES CORPORATION
ANNTAYLOR FINANCE TRUST,
a statutory business trust
formed under Delaware law
sponsored by
AnnTaylor Stores Corporation
ANNTAYLOR, INC.,
a Delaware corporation
ANNTAYLOR TRAVEL, INC.,
a Delaware corporation and
wholly owned subsidiary of
AnnTaylor, Inc.
ANNTAYLOR FUNDING, INC.,
a Delaware corporation and
wholly owned subsidiary of
AnnTaylor, Inc.
ANNTAYLOR DISTRIBUTION SERVICES, INC.,
a Delaware corporation and
wholly owned subsidiary of
AnnTaylor, Inc.
ANNTAYLOR LOFT, INC.,
a Delaware corporation and
wholly owned subsidiary of
AnnTaylor, Inc.
ANNTAYLOR GLOBAL SOURCING, INC.,
a Delaware corporation and
wholly owned subsidiary of
AnnTaylor, Inc.
ANNTAYLOR SOURCING FAR EAST LIMITED,
an entity organized under the laws of Hong Kong and
wholly owned subsidiary of
AnnTaylor, Inc.
ANNTAYLOR SOURCING ITALY Srl,
an entity organized under the laws of Italy and
wholly owned subsidiary of
AnnTaylor Sourcing Far East Limited
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
AnnTaylor Stores Corporation:
We consent to the incorporation by reference in AnnTaylor
Stores Corporation's Registration Statements No. 33-31505 on
Form S-8, No. 33-50688 on Form S-8, No. 33-52389 on Form S-8
and No. 33-55629 on Form S-8 of our report dated March 6,
1997 appearing in the Annual Report on Form 10-K of
AnnTaylor Stores Corporation for the year ended February 1,
1997.
NEW YORK, NEW YORK
APRIL 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary of financial information extracted from the
condensed consolidated statements of operations and condensed consolidated
balance sheets and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000874214
<NAME> ANN TAYLOR STORES CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 7,025
<SECURITIES> 0
<RECEIVABLES> 64,416
<ALLOWANCES> 811
<INVENTORY> 100,237
<CURRENT-ASSETS> 196,520
<PP&E> 209,081
<DEPRECIATION> 65,648
<TOTAL-ASSETS> 688,139
<CURRENT-LIABILITIES> 77,670
<BONDS> 100,000
0
0
<COMMON> 174
<OTHER-SE> 370,408
<TOTAL-LIABILITY-AND-EQUITY> 688,139
<SALES> 798,117
<TOTAL-REVENUES> 798,117
<CGS> 443,443
<TOTAL-COSTS> 443,443
<OTHER-EXPENSES> 308,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,416
<INCOME-PRETAX> 21,642
<INCOME-TAX> 12,975
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,667
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
