UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10738
ANNTAYLOR STORES CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3499319
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
142 West 57th Street, New York, NY 10019
- ---------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 541-3300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding as of
Class May 28, 1999
----- ------------
Common Stock, $.0068 par value 26,327,838
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INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Quarters Ended May 1, 1999
and May 2, 1998..................................... 3
Condensed Consolidated Balance Sheets at
May 1, 1999 and January 30, 1999................... 4
Condensed Consolidated Statements of Cash Flows
for the Quarters Ended May 1, 1999 and
May 2, 1998........................................ 5
Notes to Condensed Consolidated Financial Statements.. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .. 17
Item 5. Other Information..................................... 18
Item 6. Exhibits and Reports on Form 8-K...................... 18
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters Ended May 1, 1999 and May 2, 1998
(unaudited)
Quarters Ended
--------------
May 1, 1999 May 2, 1998
----------- -----------
(in thousands, except per
(share amounts)
Net sales............................................$ 249,400 $ 198,170
Cost of sales........................................ 118,063 96,836
------- ------
Gross profit......................................... 131,337 101,334
Selling, general and administrative expenses......... 97,156 81,129
Amortization of goodwill............................. 2,760 2,760
------- ------
Operating income..................................... 31,421 17,445
Interest expense..................................... 4,321 4,727
Other expense, net................................... 668 180
------- ------
Income before income taxes........................... 26,432 12,538
Income tax provision................................. 11,677 6,119
------- ------
Net income........................................$ 14,755 $ 6,419
======= ======
Basic earnings per share.............................$ 0.56 $ 0.25
======= ======
Diluted earnings per share...........................$ 0.51 $ 0.25
======= ======
See accompanying notes to condensed consolidated financial statements.
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ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 1, 1999 and January 30, 1999
May 1, January 30,
1999 1999
---- ----
(unaudited)
(in thousands)
ASSETS
Current assets
Cash and cash equivalents........................ $ 65,473 $ 67,031
Accounts receivable, net......................... 73,458 71,049
Merchandise inventories.......................... 136,353 136,748
Prepaid expenses and other current assets........ 24,965 23,637
-------- --------
Total current assets........................... 300,249 298,465
Property and equipment, net.......................... 156,701 151,785
Goodwill, net ....................................... 316,939 319,699
Deferred financing costs, net ....................... 2,291 2,627
Other assets......................................... 2,649 2,841
-------- --------
Total assets................................... $778,829 $775,417
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 48,020 $ 65,419
Accrued salaries and bonus....................... 11,113 17,132
Accrued tenancy.................................. 8,113 8,465
Accrued expenses................................. 43,076 37,535
Current portion of long-term debt................ 1,231 1,206
-------- --------
Total current liabilities...................... 111,553 129,757
Long-term debt....................................... 103,632 103,951
Other liabilities.................................... 12,380 12,386
Commitments and contingencies
Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of
Subsidiary, AnnTaylor Finance Trust,
Holding Solely Convertible Debentures............ 96,682 96,624
Stockholders' equity
Common stock, $.0068 par value; 40,000,000
shares authorized; 26,323,237 and 26,035,301
shares issued, respectively...................... 179 177
Additional paid-in capital....................... 369,032 359,805
Warrants to acquire 2,520 and 2,814 shares
of common stock, respectively................ 41 46
Retained earnings................................ 87,992 73,295
Deferred compensation on restricted stock........ (2,257) (272)
-------- --------
454,987 433,051
Treasury stock, 18,577 and 17,201 shares,
respectively, at cost........................ (405) (352)
-------- --------
Total stockholders' equity..................... 454,582 432,699
-------- --------
Total liabilities and stockholders' equity..... $778,829 $775,417
======== ========
See accompanying notes to condensed consolidated financial statements.
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<PAGE>5
ANNTAYLOR STORES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended May 1, 1999 and May 2, 1998
(unaudited)
Quarters Ended
--------------
May 1, 1999 May 2, 1998
----------- -----------
(in thousands)
Operating activities:
Net income................................................$14,755 $ 6,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loss on accounts receivable.............. 291 331
Depreciation and amortization.......................... 7,569 7,053
Amortization of goodwill............................... 2,760 2,760
Amortization of deferred compensation.................. 161 133
Non-cash interest...................................... 336 286
Loss on disposal of property and equipment............. 653 201
(Increase) decrease in:
Receivables.......................................... (2,700) (5,717)
Merchandise inventories.............................. 395 (12,954)
Prepaid expenses and other current assets............ (1,328) 373
Increase (decrease) in:
Accounts payable.....................................(17,399) 8,346
Accrued liabilities.................................. (830) 5,832
Other non-current assets and liabilities, net........ 185 456
------- -------
Net cash provided by operating activities................. 4,848 13,519
Investing activities:
Purchases of property and equipment.......................(13,137) (7,891)
------- -------
Net cash used by investing activities.....................(13,137) (7,891)
Financing activities:
Payments on mortgage...................................... (294) (272)
Proceeds from exercise of stock options................... 7,030 ---
Proceeds from exercise of warrants........................ (5) ---
Repurchase of restricted stock............................ --- (19)
------- -------
Net cash provided by (used by) financing activities....... 6,731 (291)
------- -------
Net (decrease) increase in cash............................. (1,558) 5,337
Cash and cash equivalents, beginning of period.............. 67,031 31,369
------- -------
Cash and cash equivalents, end of period....................$65,473 $36,706
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest..................$ 2,503 $ 2,389
======= =======
Cash paid during the period for income taxes..............$ 744 $ 2,920
======= =======
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
- ------------------------
The condensed consolidated financial statements are unaudited but, in the
opinion of management, contain all adjustments (which are of a normal recurring
nature) necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. All significant
intercompany accounts and transactions have been eliminated.
The results of operations for the 1999 interim period shown in this report
are not necessarily indicative of results to be expected for the fiscal year.
The January 30, 1999 condensed consolidated balance sheet amounts have been
derived from the previously audited consolidated balance sheet of AnnTaylor
Stores Corporation ("the Company").
Certain fiscal 1998 amounts have been reclassified to conform to the 1999
presentation.
Detailed footnote information is not included for the quarters ended May 1,
1999 and May 2, 1998. The financial information set forth herein should be read
in conjunction with the Notes to the Company's Consolidated Financial Statements
contained in the AnnTaylor Stores Corporation 1998 Annual Report
to Stockholders.
2. NET INCOME PER SHARE
- ------------------------
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share assumes the issuance of additional shares of common stock
that are issuable by the Company upon the conversion of all outstanding
warrants, stock options, and convertible preferred securities. Basic and diluted
earnings per share calculations follow:
Three Months Ended
-------------------------------------------------
May 1, 1999 May 2, 1998
--------------------- ------------------------
(in thousands, except per share amounts)
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
BASIC EARNINGS PER SHARE
- ------------------------
Income available to common
stockholders $ 14,755 26,187 $0.56 $ 6,419 25,644 $0.25
===== =====
EFFECT OF DILUTIVE
SECURITIES
- ------------------
Warrants --- 3 --- 3
Stock options --- 333 --- 36
Preferred securities 1,297 5,122 --- ---
-------- ----- ------- ------
DILUTED EARNINGS PER SHARE
- --------------------------
Income available to common
stockholders $ 16,052 31,645 $0.51 $ 6,419 25,683 $0.25
======== ====== ===== ======= ====== =====
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ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. NET INCOME PER SHARE (CONTINUED)
- ------------------------------------
Conversion of the preferred securities into common stock is not included in
the computation of diluted earnings per share for the quarter ended May 2, 1998
due to the antidilutive effect of the conversion as of that date.
3. LONG-TERM DEBT
- ------------------
The following summarizes long-term debt outstanding at May 1, 1999:
(in thousands)
8-3/4% Notes............................... $ 100,000
Mortgage................................... 4,863
-------
Total debt ............................. 104,863
Less current portion....................... 1,231
-------
Total long-term debt.................... $ 103,632
4. ENTERPRISE-WIDE OPERATING INFORMATION
- -----------------------------------------
The Company is a specialty retailer of women's apparel, shoes, and
accessories. Given the economic characteristics of the store formats, the
similar nature of the products sold, the type of customer and method of
distribution, the operations of the Company are aggregated into one reportable
segment. The Company believes that the customer base for its 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.
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<PAGE> 8
ANNTAYLOR STORES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. SUBSEQUENT EVENTS
- -----------------------
On May 20, 1999, the Company announced that it will be redeeming all of its
outstanding 8-1/2% Convertible Subordinated Debentures due 2016 (the
"Debentures"). The Debentures are held by AnnTaylor Finance Trust, a Delaware
business trust (the "Trust"). As a result of this redemption, AnnTaylor Finance
Trust issued a notice on May 27, 1999 calling for the redemption of all of the
Trust's outstanding 8 1/2% Convertible Originated Preferred Securities (the
"Preferred Securities") and 8 1/2% Convertible Common Securities (together with
the Preferred Securities, the "Trust Securities"). The redemption date for the
Debentures and the Trust Securities will be June 29, 1999.
The Trust Securities were issued in April 1996 and are convertible into
shares of Company common stock at a conversion price of $19.65 per share of
common stock, or 2.545 shares of common stock per $50 liquidation amount of
Trust Security. Holders of Trust Securities will have the right to convert the
Trust Securities into shares of Company common stock on or before June 28, 1999.
Holders of Trust Securities that are not tendered for conversion by that date
will receive 105.95% of the liquidation amount of the Trust Securities redeemed,
plus accrued distributions. The Trust Securities are convertible into an
aggregate of 5,121,812 shares of Company common stock representing approximately
16% of the Company's outstanding common stock as of May 1, 1999. Because the
market price of the Company's common stock has been significantly higher than
the conversion price, the Company expects that most of the holders of the
preferred securities will exercise their right to convert the preferred
securities to shares of Company common stock.
The Company's 1999 Annual Meeting of Stockholders was held on May 18, 1999.
At that meeting, an amendment of the Company's Restated Certificate of
Incorporation, increasing the number of shares of common stock the Corporation
is authorized to issue from 40,000,000 to 120,000,000, was approved.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
- ---------------------
Quarters Ended
------------------------
May 1, 1999 May 2, 1998
----------- -----------
Number of Stores:
Open at beginning of period....................... 365 324
Opened during period.............................. 11 16
Expanded or remodeled during period*.............. --- 2
Closed during period.............................. 5 1
Open at end of period............................. 371 339
Type of Stores Open at End of Period:
Ann Taylor stores................................. 309 291
Ann Taylor Loft stores............................ 50 34
Ann Taylor Factory Stores......................... 12 14
--------------
* Expanded stores are excluded from comparable store sales for the first
year following expansion.
Quarter Ended May 1, 1999 Compared to Quarter Ended May 2, 1998
- ---------------------------------------------------------------
The Company's net sales in the first quarter of 1999 increased to
$249,400,000 from $198,170,000 in the first quarter of 1998, an increase of
$51,230,000 or 25.9%. Comparable store sales for the first quarter of 1999
increased 16.9%, compared to a decrease of 5.5% in the first quarter of 1998.
Management believes that the sales increase was primarily attributable to the
opening of new stores and a net increase in comparable store sales as a result
of favorable customer reaction to the Company's product offerings and
merchandise assortment.
Gross profit as a percentage of net sales increased to 52.7% in the first
quarter of 1999 from 51.1% in the first quarter of 1998. This increase in gross
margin primarily reflects a greater percentage of merchandise being sold at full
price and higher margins achieved on those sales, offset in part by a higher
markdown rate on goods that were sold below full price, compared to the first
quarter of 1998.
Selling, general and administrative expenses represented 39.0% of net sales
in the first quarter of 1999, compared to 40.9% of net sales in the first
quarter of 1998. The decrease in selling, general, and administrative expenses
as a percentage of net sales was primarily attributable to increased leverage on
fixed expenses resulting from increased comparable store sales, partially offset
by an increase in the provision for management performance bonus expense.
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<PAGE> 10
As a result of the foregoing, the Company had operating income of
$31,421,000, or 12.6% of net sales, in the first quarter of 1999, compared to
operating income of $17,445,000, or 8.8% of net sales, in the first quarter of
1998. Amortization of goodwill was $2,760,000 in both the first quarter of 1999
and the first quarter of 1998. Operating income, without giving effect to
goodwill amortization in either year, was $34,181,000, or 13.7% of net sales, in
the first quarter of 1999 and $20,205,000, or 10.2% of net sales, in the first
quarter of 1998.
Interest expense was $4,321,000 in the first quarter of 1999 and $4,727,000
in the first quarter of 1998. The decrease in interest expense is attributable
to greater interest income earned on cash on hand.
The income tax provision was $11,677,000, or 44.2% of income before income
taxes, in the first quarter of 1999 compared to $6,119,000, or 48.8% of income
before income taxes, in the first quarter of 1998. The effective income tax rate
for both periods was higher than the statutory rate primarily as a result of
non-deductible goodwill amortization.
As a result of the foregoing factors, the Company had net income of
$14,755,000, or 5.9% of net sales, for the first quarter of 1999, compared to
net income of $6,419,000, or 3.2% of net sales, for the first quarter of 1998.
AnnTaylor Stores Corporation conducts no business other than the management
of Ann Taylor.
Financial Condition
- -------------------
For the first quarter of 1999, net cash provided by operating activities
totaled $4,848,000, primarily as a result of earnings and noncash charges
partially offset by a decrease in accounts payable and accrued liabilities and
an increase in receivables, prepaid expenses and other current assets. Cash used
by investing activities during the first quarter of 1999 amounted to
$13,137,000, for the purchase of property and equipment. Cash provided by
financing activities during the first quarter of 1999 amounted to $6,731,000
primarily as a result of the receipt of proceeds from exercises of employee
stock options to purchase Company common stock.
Merchandise inventories were $136,353,000 at May 1, 1999, compared to
inventories of $136,748,000 at January 30, 1999. Merchandise inventories at May
1, 1999 and January 30, 1999 included approximately $12,161,000 and $32,329,000,
respectively, of inventory associated with the Company's sourcing division,
which is primarily finished goods in transit from factories.
At May 1, 1999, there were no borrowings outstanding under Ann Taylor's
$150,000,000 senior secured revolving credit facility (the "Credit Facility").
Loans outstanding under the Credit Facility at any time may not exceed
$50,000,000. Maximum availability for loans and letters of credit
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<PAGE> 11
under the Credit Facility is governed by a monthly borrowing base, determined by
the application of specified advance rates against certain eligible assets.
The Company also has outstanding an aggregate of $100,625,000 of convertible
preferred securities issued by its financing vehicle, AnnTaylor Finance Trust.
On May 27, 1999, the Trust issued a notice calling for the redemption of all of
these preferred securities on June 29, 1999. In connection with the redemption
of the preferred securities, the Company will redeem all of its 8 1/2%
Convertible Subordinated Debentures due 2016 which are held by the Trust. The
preferred securities were issued in April 1996 and are convertible into shares
of Company common stock at a conversion price of $19.65 per share of common
stock, or 2.545 shares of common stock per $50 liquidation amount of the
security. Holders of the preferred securities will have the right to convert the
preferred securities into shares of Company common stock on or before June 28,
1999. Holders of the preferred securities that are not tendered for conversion
by that date will receive 105.95% of the liquidation amount of the preferred
securities redeemed, plus accrued distributions. Because the market price of the
Company's common stock has been significantly higher than the conversion price,
the Company expects that most of the holders of the preferred securities will
exercise their right to convert the preferred securities to shares of Company
common stock. To the extent that some of the preferred securities are not
tendered for conversion by June 28, 1999, the Company expects to fund the
required payments to holders of such preferred securities from internally
generated funds.
For Fiscal 1999, the Company's capital expenditures, which are primarily
attributable to the Company's store expansion, renovation, and refurbishment
programs and investment in information systems, are expected to be approximately
$50,000,000, of which $13,137,000 were incurred in the three months ended May 1,
1999. During the first three months of Fiscal 1999, the Company opened 7 new Ann
Taylor stores and 4 Ann Taylor Loft stores, including one location that was
converted from an Ann Taylor store. The Company expects to open a total of 19
Ann Taylor stores and 29 Ann Taylor Loft stores (including four Ann Taylor
stores being converted to Ann Taylor Loft stores), and to expand or relocate a
total of 10 Ann Taylor stores, in Fiscal 1999.
Dividends and distributions from Ann Taylor to the Company are restricted by
the terms of the Credit Facility and the Indenture for Ann Taylor's 8 3/4%
Subordinated Notes due 2000. The payment of cash dividends by the Company on its
capital stock is also subject to certain restrictions contained in the Company's
guarantee of Ann Taylor's obligations under the Credit Facility. 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.
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<PAGE> 12
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 Credit Facility. The Company believes that cash flow from
operations and funds available under the Credit Facility are sufficient to
enable it to meet its on-going cash needs for its business, as presently
conducted, for the foreseeable future.
Ann Taylor's Credit Facility matures on June 30, 2000 and includes an
automatic one-year extension, contingent upon the satisfaction of certain
conditions. However, the commitments under the Credit Facility terminate on
February 16, 2000 unless Ann Taylor's outstanding 8 3/4% Subordinated Notes due
2000 (the "8 3/4% Notes") are refinanced on or prior to such date with the
proceeds of subordinated debt or capital stock, the terms and conditions of
which are reasonably satisfactory to lenders under the Credit Facility. The
Company intends to raise at least $100 million through the sale of discounted
convertible subordinated debentures due 2019 ("Convertible Debentures"), and to
use the proceeds from the issuance of these securities to refinance the 8 3/4%
Notes. The Convertible Debentures will be convertible at the option of the
holders thereof into shares of the Company's common stock. Consummation of the
issuance of the Convertible Debentures is subject to obtaining the consents of
the required lenders under the Credit Facility, and to market and other
conditions, and there can be no assurance that the offering of the Convertible
Debentures will be consummated. The Convertible Debentures will not be
registered or required to be registered under the Securities Act of 1933 (the
"Securities Act") and will be sold in the United States in a private placement
under Rule 144A under the Securities Act, and may not be offered or sold in the
United States absent registration or an applicable exemption from registration
requirements.
Year 2000 Status
- ----------------
Many computer systems use only two digits to identify a year (for example,
"99" is used for the year "1999"). As a result, these systems may be unable to
process accurately dates later than December 31, 1999, since they may recognize
"00" as the year "1900", instead of the year "2000". This anomaly is often
referred to as the "Year 2000 compliance" issue. Since 1997, the Company has
been executing a plan to remediate or replace affected systems on a timely
basis. Equipment and other non-information technology systems that use
microchips or other embedded technology, such as certain conveyor systems at the
Company's distribution center, are also covered by the Company's Year 2000
compliance project.
The Company's Year 2000 compliance project includes four phases: (1)
evaluation of the Company's owned or leased systems and equipment to identify
potential Year 2000 compliance issues; (2) remediation or replacement of Company
systems and equipment determined to be non-compliant (and testing of remediated
systems before returning them to production); (3) inquiry regarding Year 2000
readiness of material business partners and other third parties on whom the
Company's business is dependent; and (4) development of
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<PAGE> 13
contingency plans, where feasible, to address potential third party
non-compliance or failure of material Company systems.
The initial phase of the Company's Year 2000 compliance project was the
evaluation of all software, hardware and equipment owned, leased or licensed by
the Company, and identification of those systems and equipment requiring Year
2000 remediation. This analysis was completed during Fiscal 1998.
All material computer hardware and equipment in the Company's U.S. home
offices, distribution center and retail stores that was not Year 2000 compliant
has been remediated or replaced. Of those software systems that were found not
to be Year 2000 compliant, approximately 90% of all material systems have been
remediated or replaced by Year 2000 compliant software. The Company anticipates
that all remaining material systems, will be remediated or replaced by the end
of the second quarter of Fiscal 1999. Hardware and software unique to the
Company's sourcing offices located outside the United States are scheduled to be
remediated or replaced by the end of the second quarter of Fiscal 1999.
Over the past few years, the Company's strategic plan has included
significant investment in and modernization of many of the Company's computer
systems. As a result, much of the costs and timing for replacement of certain of
the Company's systems that were not Year 2000 compliant were already anticipated
as part of the Company's planned information systems spending and did not need
to be accelerated as a result of the Company's Year 2000 project. The total cost
to the Company specifically associated with addressing the Year 2000 issue with
respect to its systems and equipment has not been, and is not anticipated to be,
material to the Company's financial position or results of operations in any
given year. The Company estimates that the total additional cost of managing its
Year 2000 project, remediating existing systems and replacing non-compliant
systems, is approximately $2.1 million, of which approximately $1.1 million is
being expensed as incurred (including $965,000 expensed in Fiscal 1998, and
$61,000 in the first quarter of Fiscal 1999), and $1 million which was
capitalized (including $855,000 capitalized in Fiscal 1998 and approximately
$175,000 in the first quarter of 1999).
Although the Company believes its Year 2000 compliance efforts with respect
to its systems will be successful, any failure or delay could result in actual
costs and timing differing materially from that presently contemplated, and in a
disruption of business. The Company is developing a contingency plan to permit
its primary operations to continue if the Company's modifications and
conversions of its systems are not successfully completed on a timely basis, but
the foregoing cost estimates do not take into account any expenditures arising
out of a response to any such contingencies that materialize. The Company's cost
estimates also do not include time or costs that may be incurred as a result of
third parties' failure to become Year 2000 compliant on a timely basis.
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<PAGE> 14
The Company has been communicating with its business partners, including key
manufacturers, vendors, banks and other third parties with whom it does
business, to obtain information regarding their state of readiness with respect
to the Year 2000 issue. During the first quarter of fiscal 1999, the Company
completed an initial assessment of the Year 2000 readiness of those third
parties whose services are most significant to the Company's business. The
Company intends to continue to monitor the Year 2000 readiness of its key
suppliers of goods and services during the year. Failure of third parties to
remediate Year 2000 issues affecting their respective businesses on a timely
basis, or to implement contingency plans sufficient to permit uninterrupted
continuation of their businesses in the event of a failure of their systems,
could have a material adverse effect on the Company's business and results of
operations. Potential interruptions of such third parties' business or service
to the Company resulting from Year 2000 issues will be addressed in the
Company's contingency planning efforts, discussed below.
The Company's Year 2000 compliance project includes development of a
contingency plan designed to support critical business operations in the event
of the occurrence of systems failures or the occurrence of reasonably likely
worst case scenarios. The Company operates a large number of retail stores in
widely disbursed geographical locations, and Company merchandise is manufactured
by a large number of suppliers. The Company believes that these factors will
help to mitigate the adverse impact of potential Year 2000 failures by third
party suppliers or utilities. The Company believes that the most reasonably
likely worst case scenarios would involve an interruption of the supply of
merchandise to the Company's stores, as a result of the delay in completion of
the Company's merchandise orders by manufacturers, or a delay in the delivery of
merchandise to the Company's stores due to a disruption of service at ports of
export or at the U.S. port of import, or a disruption in service by
transportation providers, or a disruption in operation of the Company's
distribution center. The Company anticipates that its contingency plans will be
substantially developed by the end of the second quarter of Fiscal 1999.
The Company may not be able to compensate adequately for business
interruption caused by certain third parties. Potential risks include suspension
or significant curtailment of service or significant delays by banks, utilities
or common carriers, or at U.S. ports of entry. The Company's business also could
be materially adversely affected by the failure of governmental agencies to
address Year 2000 issues affecting the Company's operations. For example, a
significant amount of the Company's merchandise is manufactured outside the
United States, and the Company is dependent upon the issuance by foreign
governmental agencies of export visas for, and upon the U.S. Customs Service to
process and permit entry into the United States of, such merchandise. If
failures in government systems result in the suspension or delay of these
agencies' services, the Company could experience significant interruption or
delays in its inventory flow.
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<PAGE> 15
The costs and timing for management's completion of Year 2000 compliance
modification and testing processes, and management's assessment and contingency
planning with respect to reasonably likely worst case scenarios, are based on
management's best judgement and estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, the success of third parties' Year 2000 compliance efforts and other
factors. There can be no assurance that these assumptions will be realized or
that actual results will not vary materially.
Statement Regarding Forward Looking Disclosures
- -----------------------------------------------
Sections of this Quarterly Report on Form 10-Q, 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. Examples
of forward-looking statements are statements that use the words "expect",
"anticipate", "plan", "intend", "project", "believe" and similar expressions.
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, failure by the Company to predict accurately
customer fashion preferences; a decline in the demand for merchandise offered by
the Company; competitive influences; changes in levels of store traffic or
consumer spending habits; effectiveness of the Company's brand awareness and
marketing programs; lack of sufficient customer acceptance of the Ann Taylor
Loft concept in the moderate-priced women's apparel market; general economic
conditions that are less favorable than expected or a downturn in the retail
industry; 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; financial or political instability in
any of the countries in which the Company's goods are manufactured; any material
adverse effects of the Year 2000 issue on the business of the Company or third
parties with which the Company does business; or an adverse outcome of the
litigation referred to in Note 5 to the Consolidated Financial Statements of the
Company as of January 30, 1999 that materially and adversely affects the
Company's financial condition. The Company assumes no obligation to update or
revise any such forward looking statements, which speak only as of their date,
even if experience or future events or changes make it clear that any projected
financial or operating results implied by such forward-looking statements will
not be realized.
===============================================================================
<PAGE> 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
AnnTaylor Stores Corporation's 1999 Annual Meeting of Stockholders was held
on May 18, 1999. The following matters were voted upon and approved by the
Company's stockholders at the meeting:
1. Mr. James J. Burke, Ms. Patricia DeRosa and Mr. Ronald W. Hovsepian were
re-elected as Class II Directors of the Company for terms expiring in
2002. 19,145,829, 19,146,019, and 19,138,995 shares were voted in favor
of, and 1,006,356, 1,006,166, and 1,013,190 were voted against, the
reelection of Mr. Burke, Ms. DeRosa and Mr. Hovsepian, respectively. Mr.
Gerald S. Armstrong, Mr. Wesley E. Cantrell and Ms. Hanne M. Merriman
continued as Class III Directors with terms expiring in 2000 and Mr.
Robert C. Grayson, Ms. Rochelle B. Lazarus, and Mr. J. Patrick Spainhour
continued as Class I Directors with terms expiring in 2001.
2. The amendment of the Company's Restated Certificate of Incorporation to
increase the numbers of shares of common stock the Corporation is
authorized to issue from 40,000,000 to 120,000,000 was approved. 16,196,419
shares were voted in favor of, 3,945,425 shares were voted against, and
10,341 shares abstained from voting on, this proposal.
3. The adoption of the Company's Associate Discount Stock Purchase Plan was
approved. 19,772,250 shares were voted in favor for, 143,810 shares were
voted against, and 24,409 shares abstained from voting on, this proposal.
4. The appointment of Deloitte & Touche llp as the Company's independent
auditors for the 1999 fiscal year was ratified. 20,131,509 shares were
voted in favor of, 8,715 shares were voted against, and 11,961 shares
abstained from voting on, this proposal.
===============================================================================
<PAGE> 17
Item 5. Other Information
- -------------------------
On May 20, 1999, the Company announced that it will be redeeming all of its
outstanding 8-1/2% Convertible Subordinated Debentures due 2016 (the
"Debentures"). The Debentures are held by AnnTaylor Finance Trust, a Delaware
business trust (the "Trust"). As a result of this redemption, AnnTaylor Finance
Trust issued a notice on May 27, 1999 calling for the redemption of all of the
Trust's outstanding 8 1/2% Convertible Originated Preferred Securities (the
"Preferred Securities") and 8 1/2% Convertible Common Securities (together with
the Preferred Securities, the "Trust Securities"). The redemption date for the
Debentures and the Trust Securities will be June 29, 1999.
The Trust Securities were issued in April 1996 and are convertible into
shares of Company common stock at a conversion price of $19.65 per share of
common stock, or 2.545 shares of common stock per $50 liquidation amount of
Trust Security. Holders of Trust Securities will have the right to convert the
Trust Securities into shares of Company common stock on or before June 28, 1999.
Holders of Trust Securities that are not tendered for conversion by that date
will receive 105.95% of the liquidation amount of the Trust Securities redeemed,
plus accrued distributions. The Trust Securities are convertible into an
aggregate of 5,121,812 shares of Company common stock, representing
approximately 16% of the Company's outstanding common stock as of May 1, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Restated Certificate of Incorporation of the Company.
10.21 Separation Agreement dated March 25, 1999 between Ann
Taylor and Walter Parks.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
==============================================================================
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AnnTaylor Stores Corporation
Date: June 11, 1999 By: /s/ J. Patrick Spainhour
---------------------------- ----------------------------
J. Patrick Spainhour
Chairman and Chief Executive
Officer
Date: June 11, 1999 By: /s/ Barry Erdos
---------------------------- ----------------------------
Barry Erdos
Executive Vice President -
Chief Financial Officer and
Treasurer
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ANNTAYLOR STORES CORPORATION
- ---------------------------------------------------------------------
Pursuant to Sections 242 and 228 of the
General Corporation Law of the State of Delaware
- ---------------------------------------------------------------------
AnnTaylor Stores Corporation, a Delaware corporation (the
"Corporation"), does hereby certify as follows:
FIRST: That the first paragraph of Article FOURTH of the
Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
Article FOURTH. The total number of shares of stock which
the Corporation shall have authority to issue is one hundred
and twenty million (120,000,000) shares of Common Stock, each
having a par value of sixty eight-one hundredths of one cent
($.0068), and two million (2,000,000) shares of preferred
stock, each having a par value of one cent ($.01).
SECOND: That this Amendment has been duly adopted in
accordance with the provisions of Sections 242 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be executed in its corporate name this
18th day of May, 1999.
ANNTAYLOR STORES CORPORATION
By: /s/ J. Patrick Spainhour
Chairman and Chief
Executive Officer
ATTEST: /s/ Jocelyn Barandiaran
Secretary
============================================================================
RESTATED CERTIFICATE OF INCORPORATION
OF
ANNTAYLOR STORES CORPORATION
____________________
Pursuant to Section 245 of the General
Corporation Law of the State of Delaware
____________________
AnnTaylor Stores Corporation, a Delaware corporation
organized under the name AnnTaylor Holdings, Inc. on November 4,
1988, having changed its name to AnnTaylor Stores Corporation by
amendment to its Certificate of Incorporation on April 5, 1991,
does hereby restate and integrate, without further amendment, and
without any discrepancy between these provisions and the provisions
of the Corporation's Certificate of Incorporation as heretofore
amended, pursuant to Section 245 of the General Corporation Law of
the State of Delaware, its Certificate of Incorporation to read in
its entirety as set forth below:
FIRST: The name of the Corporation is AnnTaylor Stores
Corporation (hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its
registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in
any lawful act or activity for which a corporation may be or
organized under the General Corporation Law of the State of
Delaware as set forth in Title 8 of the Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is forty million
(40,000,000) shares of Common Stock, each having a par value of
sixty eight-one hundredths of one cent ($.0068), and two million
(2,000,000) shares of preferred stock, each having a par value of
one cent ($.01).
=============================================================================
The Board of Directors is expressly authorized to
provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such
class or series such voting powers, full or limited, or no voting
powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by
the Board of Directors providing for the issuance of such class or
series and as may be permitted by the General Corporation Law of
the State of Delaware, including, without limitation, the authority
to provide that any such class or series may be (i) subject to
redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation; or (iv)
convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other
class or classes of stock, of the Corporation at such price or
prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions.
FIFTH: The name and mailing address of the Sole
Incorporator is as follows:
Name Mailing Address
Deborah M. Reusch P.O. Box 636
Wilmington, DE 19899
SIXTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation
of the powers of the Corporation and of its directors and
stockholders:
===========================================================================
(1) The business and affairs of the Corporation
shall be managed by or under the direction of the Board
of Directors.
(2) The directors shall have concurrent power
with the stockholders to make, alter, amend, change,
add to or repeal the By-Laws of the Corporation.
(3) The Board of Directors shall consist of not
less than three nor more than fifteen directors, with
the exact number of directors to be determined from
time to time by resolution adopted by the affirmative
vote of a majority of the directors then in office.
The directors shall be divided into three classes,
designated Class I, Class II and Class II. Each class
shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting
the entire Board of Directors. The term of the initial
Class I directors shall terminate on the date of the
1992 annual meeting of stockholders; the term of the
initial Class II directors shall terminate on the date
of the 1993 annual meeting of stockholders; and the
term of the initial Class III directors shall terminate
on the date of the 1994 annual meeting of
stockholders. At each annual meeting of stockholders
beginning in 1992, successors to the class of directors
whose term expires at that annual meeting shall be
elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as
possible, but in no case will a decrease in the number
of directors shorten the term of any incumbent
director. A director shall hold office until the
annual meeting for the year in which his or her term
expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors
that results from an increase in the number of
directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is
present, and any other vacancy occurring in the Board
of Directors may be filled by a majority of the
directors then in office, even if less than a quorum,
or by a sole remaining director. Any director of any
class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term
that shall coincide with the remaining term of that
class. Any director elected to fill a vacancy not
resulting from an increase in the number of directors
shall have the same remaining term as that of his or
her predecessor. Directors of the Corporation may be
removed by the stockholders of the Corporation only for
cause. Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of
preferred stock issued by the Corporation shall have
the right, voting separately by class or series, to
elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of
vacancies and other features of such directorships
shall be governed by the terms of this Restated
Certificate of Incorporation applicable thereto, and
such directors so elected shall not be divided into
classes pursuant to this Section (3) of Article SIXTH
unless expressly provided by such terms.
==========================================================================
(4) No director shall be personally liable to
the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174
of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper
personal benefit. Any repeal or modification of this
Article SIXTH by the stockholders of the Corporation
shall not adversely affect any right or protection of a
director of the Corporation existing at the time of
such repeal or modification with respect to acts or
omissions occurring prior to such repeal or
modification.
(5) In addition to the powers and authority
hereinbefore or by statute expressly conferred upon
them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may
be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the GCL, this
Certificate of Incorporation, and any By-Laws adopted
by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate
any prior act of the directors which would have been
valid if such By-Laws had not been adopted.
SEVENTH: Meetings of stockholders may be held within
or without the State of Delaware, as the By-Laws may provide. The
books of the Corporation may be kept (subject to any provision
contained in the GCL) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
EIGHTH: Any action required or permitted to be taken
by the stockholders of the Corporation must be effected at an
annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders.
NINTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate
of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
===========================================================================
IN WITNESS WHEREOF, AnnTaylor Stores Corporation has
caused this Restated Certificate of Incorporation to be executed in
its corporate name this 4th day of June, 1992.
ANNTAYLOR STORES CORPORATION
By: /s/ Joseph J. Schumm
---------------------------
Name: Joseph J. Schumm
Title: President
ATTEST: /s/ Jocelyn F.L. Barandiaran
---------------------------------
Name: Jocelyn F.L. Barandiaran
Title: Secretary
EXHIBIT 10.21
PERSONAL AND CONFIDENTIAL
March 25, 1999
Mr. Walter J. Parks
20 Deep Gorge Road
Trumbull, CT 06611
Dear Walter:
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 March 31, 1999 (the "Separation Date") and, effective as of the
Separation Date, you hereby resign from your positions as an officer and/or
director 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, you shall receive severance
compensation equal to:
(a) Cash compensation of $122,500, minus all applicable federal, state and
local withholding taxes ("Taxes"), payable in twelve equal
semi-monthly installments of $10,208.33 (less Taxes), commencing as of
the Effective Date of this letter agreement (as defined in paragraph
11 below).
(b) If you have not procured other full time employment by the six-month
anniversary of the Effective Date, the Company will continue to pay
you semi-monthly installments of $10,208.33 (less Taxes) for up to six
additional months, commencing with the six-month anniversary of the
Effective Date, until the earlier of (i) the time you procure such
other full time employment and (ii) the twelve-month anniversary of
the Effective Date. The foregoing notwithstanding, the installment
payments provided for in this paragraph (b) shall be reduced by the
amount of any compensation you receive from other sources for
part-time or temporary employment, consulting engagements, or
otherwise, prior to procuring full-time employment, and shall cease
upon your commencement of other full time employment. You agree that
you will provide the Company prompt written notice of the amounts of
any such other compensation and, if you procure other full time
employment prior to the six-month anniversary of the Effective Date,
you will provide the Company prompt written notice of such other
employment. You also agree to return to the Company any excess
payments made to you by the Company, to the extent that actual
payments made exceed the net amount to which you are entitled pursuant
to this paragraph (b).
===============================================================================
Mr. Walter J. Parks
March 25, 1999
Page 2
(c) 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 receive severance compensation pursuant to paragraphs 3(a)
and 3(b) above. At the end of that period, you shall be entitled to
participate in such programs in accordance with the applicable COBRA
regulations.
(d) An additional cash payment in an amount equal to the incentive
compensation payment you would have received under the company's
Management Performance Compensation Plan for the Fiscal Year 1998
Performance Period if you had continued to be employed by the Company
(less Taxes), and payable on the later of (i) the date on which
payments for such Performance Period are made to active employees
under the Plan, and (ii) five days after the Effective Date.
(e) The Performance Vesting Options and the Time Vesting Options
previously granted to you under the Company's 1992 Stock Option and
Restricted Stock and Unit Award Plan (the "Option Plan") and the
related stock option agreements, and listed on Schedule A attached
hereto, shall remain outstanding through January 31, 2000 and shall
continue to be eligible for vesting and exercise in accordance with
the terms of the Plan and the applicable option agreement between the
Company and you, as if you had continued to be employed by the Company
through January 31, 2000. Any such stock options remaining unvested or
unexercised at the close of business on January 31, 2000 shall be
canceled at such time.
==============================================================================
Mr. Walter J. Parks
March 25, 1999
Page 3
(f) The Company shall make available to you, at the Company's expense,
executive outplacement services, to be provided by a consultant of
your choosing, selected from among the consultants referred by the
Company, for up to twelve months following the Effective Date.
4. In consideration of the compensation described in paragraph 3 above,
on the later of (i) the Separation Date and (ii) the date you execute
and deliver this letter agreement to the Company, you shall execute
and deliver to the Company a Release in the form of Schedule B
attached hereto.
5. You represent that you 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
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 1999 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, or your entitlement to continue participation in
the Company's medical insurance programs in accordance with the
applicable COBRA regulations.
7. You represent that you have returned or will immediately return to the
Company all property and all confidential information of the Company
("Company Information"), and you will not retain any copies,
reproductions or excerpts thereof, including without limitation
training manuals, reports, files, memoranda, records, mailing lists,
customer lists, credit cards, laptop computer, cellular telephone,
door and file keys, 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. Confidential Company Information includes but
is not limited to information relating to the Company or its parent,
subsidiary or affiliated companies, regarding strategic plans,
financial information, inventory levels, marketing strategy, sales
strategy, training programs, anticipated future merchandise designs or
===========================================================================
Mr. Walter J. Parks
March 25, 1999
Page 4
styles, patterns and fits of garments, and information relating to the
Company's actual or anticipated business, research, development,
product or sales, that is not otherwise disclosed publicly by the
Company.
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.
9. You agree that, from the date hereof through March 31, 2000, 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 twenty-one 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.
==============================================================================
Mr. Walter J. Parks
March 25, 1999
Page 5
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. 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.
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/Gerri Feemster
---------------------------
Senior Vice President -
Human Resources
AGREED TO AND ACCEPTED:
/s/ Walter J. Parks
- -----------------------
WALTER J. PARKS
Dated: April 1, 1999
================================================================================
Mr. Walter J. Parks
March 25, 1999
Page 6
SCHEDULE A
Unexercised Stock Options Outstanding
at March 25, 1999
- -----------|-----------|-------------|---------------|-------------------------
A | B | C | D | E
- -----------|-----------|-------------|---------------|-------------------------
- -----------|-----------|-------------|---------------|-------------------------
| | | Number of |
| | Number of | Outstanding | Summary of
| | Options | Options in | Vesting Terms (see
| Exercise | Remaining | Column C that| Option Agreement for
Grant Date | Price | Outstanding| are Vested | full terms)
- -----------|-----------|-------------|---------------|-------------------------
2/23/94 | $25.375 | 5,000 | 0 | Vest on 2/23/03
- -----------|-----------|-------------|---------------|-------------------------
| | | |
2/24/95 | $33.000 | 6,665 | 0 | Vest upon achievement
| | | | of specified
| | | | performance target of
| | | | $2.84 EPS or $60
| | | | Market Price,
| | | | provided target is
| | | | achieved by 2/24/00
- -----------|-----------|-------------|---------------|-------------------------
5/1/96 | $17.125 | 1,250 | 0 | 625 per year, on each
| | | | of 5/1/99 and 5/1/00
- -----------|-----------|-------------|---------------|-------------------------
2/20/97 | $21.00 | 2,668 | 0 | 1,334 per year, on
| | | | each of 2/20/00 and
| | | | 2/20/01
- -----------|-----------|-------------|---------------|-------------------------
===============================================================================
Mr. Walter J. Parks
March 25, 1999
Page 7
SCHEDULE B
FORM OF RELEASE
Reference is made to the agreement dated March 25, 1999 between the undersigned,
Walter J. Parks, 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, Walter J. Parks, 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 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 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 claims for age discrimination under the federal
Age Discrimination in Employment Act, and claims under Title VII of the Civil
Rights Act, The Americans With Disabilities Act, the New York Human Rights Law,
the Connecticut Human Rights and Opportunities Law, and any other federal, state
or local law.
I represent that I have not filed against the Company or the Company's parent,
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 mattes set forth in this Release.
IN WITNESS WHEREOF, I have executed and delivered this Release to the Company
this 1st day of April, 1999.
/s/ Walter J. Parks
----------------------
Walter J. Parks
/s/ Karen J. Parks
____________________
Witness
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONDENSED
CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874214
<NAME> AnnTaylor Stores Corporation
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0
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</TABLE>
