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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
For the transition period from to
Commission file number 33-69532
BRYLANE, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1895382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BRYLANE CAPITAL CORP.
(Exact name of co-registrant as specified in its charter)
DELAWARE 95-4439747
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
463 Seventh Avenue
New York, NY 10018
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 613-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the 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
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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. [X]
All of the general and limited partnership units in Brylane, L.P. are owned
by affiliates of Brylane Inc., the indirect parent of Brylane, L.P. Brylane Inc.
reports separately under the Securities Exchange Act of 1934. See "Item 13.
Certain Relationships and Related Transactions--The Exchange Transaction". All
of the common stock of Brylane Capital Corp. is held by Brylane, L.P.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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BRYLANE, L.P.
BRYLANE CAPITAL CORP.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended February 1, 1997
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PART I
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Item 1. Business.......................................... 1
Item 2. Properties........................................ 14
Item 3. Legal Proceedings................................. 14
Item 4. Submission of Matters to a Vote of
Security Holders............................ 14
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............. 15
Item 6. Selected Financial Data........................... 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 18
Item 8. Financial Statements and Supplementary Data....... 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...... 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation............................ 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................... 39
Item 13. Certain Relationships and Related Transactions.... 40
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.......... 46
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PART I
As used in this Annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company", "Brylane" and the
"Partnership" refer to Brylane, L.P., a Delaware limited partnership, its
wholly-owned subsidiary, Brylane Capital Corp., a Delaware corporation ("Brylane
Capital"), and their predecessor companies. The term "subsidiaries" refers to
the following subsidiaries and partnerships of Brylane: B.L. Catalog
Distribution, Inc., a Delaware corporation and a wholly-owned subsidiary of
Brylane ("B.L. Distribution"), B.L. Catalog Distribution Partnership, an Indiana
general partnership ("B.L. Distribution Partnership"), B.L. Management Services,
Inc., a Delaware corporation and a wholly-owned subsidiary of Brylane ("B.L.
Management"), B.L. Management Services Partnership, a New York general
partnership ("B.L. Management Partnership"), B.N.Y. Service Corp., a Delaware
corporation and a wholly-owned subsidiary of Brylane ("B.N.Y. Service"), K.S.
Management Services, Inc., a Delaware corporation and a wholly-owned subsidiary
of Brylane ("K.S. Management"), C.O.B. Management Services, Inc., a Delaware
corporation and a wholly-owned subsidiary of Brylane ("C.O.B. Management"),
Chadwick's Tradename Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of Brylane ("Tradename Sub"), and Brylane Capital, unless the context
indicates otherwise.
Unless otherwise indicated, as used in this Form 10-K: (i) all references
to a fiscal year shall mean the fiscal year of the Company which commences in
such year (for example, the fiscal year commencing February 4, 1996 and ending
February 1, 1997 is referred to herein as "fiscal 1996" or "1996"), and (ii) all
numerical and financial data for Brylane includes numerical and financial data
for the Chadwick's catalog operations for the eight weeks ended February 1,
1997.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "ITEM 1. BUSINESS--
GENERAL", "--MARKETING--LIST MANAGEMENT" AND "--COMPETITION", AND "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "--LIQUIDITY AND CAPITAL RESOURCES", AS WELL AS WITHIN THIS FORM
10-K GENERALLY. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW UNDER "RISK FACTORS". THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
Lane Bryant(R), Roaman's(R), Lerner(R), Sue Brett(R), Chadwick's(R),
Chadwick's of Boston, Ltd.(R), KingSize(R), Hunters Run(R), David Benjamin(R),
Lasting Comfort(R), Venezia(R) and Forenza(R) are federally registered
trademarks which are owned or licensed by the Company. Bridgewater(TM) and Peak
Performance(TM) are common law trademarks which are owned or licensed by the
Company.
Sears(R) and Woman's View(R) are federally registered trademarks of, and
Smart Choice(TM), Classics(TM) and Big & Tall(TM) are common law trademarks
which are owned by, Sears, Roebuck and Co.
ITEM 1. BUSINESS
GENERAL
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with catalogs that target consumers of both special and regular
size apparel. Through its Lane Bryant and Roaman's catalogs, Brylane is the
leading catalog retailer of women's special size apparel (sizes 14 through 56)
and, through its KingSize catalog, is a leading catalog retailer of men's
special size apparel (sizes XL to 9XL). The Company's Chadwick's of Boston
catalog division ("Chadwick's"), which the Company acquired in December 1996, is
the nation's largest off-price women's catalog retailer, and offers a broad
selection of high quality apparel at prices typically 25% to 50% below the
regular prices of department and specialty retail stores. Brylane also reaches
the women's regular size apparel market (sizes 4 to 18) through its Lerner
catalog, and the regular size mature women's apparel market (sizes 8 to 24)
through its Sue Brett catalog. In addition, the Company is currently developing
several new catalog concepts. For example, in May 1996, Chadwick's introduced
its Bridgewater catalog, which offers a broad
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assortment of regular size women's and men's classic apparel. Brylane is also
testing a regular size men's apparel catalog. Brylane also markets apparel to
some of these same customer segments through four catalogs which it distributes
under the "Sears" name to customers of Sears, Roebuck and Co. under an exclusive
licensing arrangement with Sears Shop at Home Services Inc. ("Sears").
Brylane's merchandising strategy is to provide value-priced apparel with a
consistent quality and fit, to concentrate on apparel with limited fashion risk,
and to offer a broad selection of sizes, styles and colors.
HISTORY AND BACKGROUND
Brylane's catalog retail business dates back to the mailing of the first
Lane Bryant catalog in 1924 and the first Roaman's catalog during the 1940s.
Both Lane Bryant and Roaman's were acquired by The Limited, Inc. ("The Limited")
in the early 1980s. In 1985, the Lerner catalog business was launched to
capitalize on the Lerner name, which had developed as The Limited's Lerner
retail store operations grew to over 800 stores during the 1980s.
In 1993, The Limited decided to sell the Lane Bryant, Roaman's and Lerner
catalog businesses in an effort to increase its focus on the continued growth of
its various retail store operations. On August 30, 1993, affiliates of Freeman
Spogli & Co. Incorporated, a private investment firm ("FS&Co."), and The Limited
formed the Partnership to acquire these catalog businesses (the "Brylane
Acquisition"). FS&Co., together with certain members of management, acquired a
60% aggregate interest in the Partnership, while The Limited retained the
remaining 40%. For accounting purposes, the Brylane Acquisition was recorded as
of August 1, 1993.
On October 16, 1995, Brylane acquired the KingSize catalog division (the
"KingSize Acquisition") of WearGuard Corporation ("WearGuard"), a wholly-owned
subsidiary of ARAMARK Corporation ("ARAMARK"). In connection with the KingSize
Acquisition, WearGuard assigned to Brylane its license to distribute the Sears
Big & Tall catalog, as well as its interest in certain trademarks, including the
KingSize(R) registered trademark. As consideration for the sale of the KingSize
catalog division, WearGuard received a payment of $52.5 million and 350,000
newly issued limited partnership units in Brylane. In order to fund a portion
of the purchase price, the Company amended its then existing 1993 bank credit
facility to provide for an additional $35.0 million term loan. For accounting
purposes, the KingSize Acquisition was recorded as of October 1, 1995.
On December 9, 1996, Brylane acquired the Chadwick's of Boston catalog
division of The TJX Companies, Inc. ("TJX"), excluding substantially all
accounts receivable (the "Chadwick's Acquisition"). In connection with the
Chadwick's Acquisition, Brylane and TJX entered into a services agreement, as
well as an inventory purchase agreement pursuant to which TJX has committed to
purchase certain amounts of Chadwick's excess inventory through January 2000.
As consideration for the sale of the Chadwick's of Boston catalog division,
affiliates of TJX received aggregate cash payments of $222.8 million (subject to
certain post-closing adjustments) and a $20.0 million Convertible Note due 2006
of the Partnership. In order to fund a portion of the cash paid in connection
with the Chadwick's Acquisition and to repay its then existing indebtedness
under its 1993 bank credit facility, the Partnership entered into the 1996 Bank
Credit Facility (as defined herein). See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources". In addition, in connection with the Chadwick's Acquisition, the
Partnership received an aggregate of approximately $51.3 million in new equity
from certain affiliates of FS&Co., Leeway & Co., a Massachusetts partnership, as
nominee for the Long-Term Investment Trust, a trust governed by the laws of the
State of New York ("Leeway & Co."), NYNEX Master Trust, a trust governed by the
laws of the State of New York ("NYNEX"), and WearGuard. See "Item 13. Certain
Relationships and Related Transactions--The Chadwick's Acquisition".
On February 26, 1997, in connection with the initial public offering of
Brylane Inc. (the "Initial Public Offering"), the Partnership became a wholly-
owned subsidiary of Brylane Inc. pursuant to an exchange transaction in which
Brylane Inc. acquired, directly, and indirectly through the acquisition of
wholly-owned subsidiaries, a 100% ownership interest in the Partnership in
exchange for shares of the common stock, $.01 par value (the "Common Stock"), of
Brylane Inc. (the "Exchange Transaction"). In connection with the Exchange
Transaction, the Partnership retained all of its assets, operations and
liabilities. See "Item 7. Management's Discussion and
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Analysis of Financial Condition and Results of Operations" and "Item 13. Certain
Relationship and Related Transactions--The Exchange Transaction".
CUSTOMERS
Brylane has a substantial and loyal customer base. As of December 31,
1996, Brylane's combined customer files contained 25.2 million customer names
(including 2.0 million names from the Sears catalogs customer file and giving
effect to the acquisition of Chadwick's), of which approximately 10.0 million
are active customers (including 1.0 million customers from the Sears catalogs
customer file). Of Brylane's customers who made a purchase during the most
recent twenty-six week season ended February 1, 1997, approximately one-half of
the Lane Bryant and Roaman's customers, and approximately one-third of the
Lerner customers, placed an order three or more times during such period.
Brylane defines a customer as someone who has placed an order with any of the
Company's established catalogs, excluding its Sears catalogs, within the last 48
months, and an active customer as one who has placed at least one order with
these catalogs within the last 12 months. Certain of the Company's customers
purchase from more than one of the Company's catalogs and are therefore
considered to be a separate customer of each such catalog.
CHADWICK'S. The Chadwick's catalog targets women between the ages of 25
and 55 who wear regular size apparel (sizes 4 to 20) and seek high quality
merchandise at prices well below those offered by department and specialty
stores. In addition, Chadwick's has expanded its merchandise offerings to
target women who wear petite and special size apparel (sizes 2 to 26). Brylane
believes that the median age of the Chadwick's customer is 42, and that the
typical customer has an income level equal to or above the national average. As
of December 31, 1996, the Chadwick's customer file contained 14.1 million
customer names, of which 4.4 million names are active customers. The average
order by a Chadwick's customer during the eight weeks ended February 1, 1997 was
approximately $94.
LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's catalogs target
value-conscious women who wear special sizes (sizes 14 to 56). Brylane believes
that the median age of its women's special size customer segment is 51, and that
the typical customer has an income level somewhat below that of the national
average. As of December 31, 1996, the Lane Bryant and Roaman's customer files
contained 4.2 million and 1.9 million customer names, respectively, of which
approximately 2.2 million and 1.0 million names are active customers of Lane
Bryant and Roaman's, respectively. The average order by a Lane Bryant or
Roaman's customer during fiscal 1996 was approximately $74 and $73,
respectively.
LERNER. The Lerner catalog targets younger, value-conscious women age 25
and up who wear sizes 4 to 18 and purchase at budget to moderate prices.
Brylane believes that the median age of the Lerner customer is 38, and that the
average Lerner customer has an income level approximately equal to the national
average. As of December 31, 1996, the Lerner customer file contained 2.4
million customer names, of which 1.0 million are active customers. The average
order by a Lerner customer during fiscal 1996 was approximately $74.
SEARS CATALOGS. Through its licensing agreement with Sears, the Company
has expanded its customer base by offering Lane Bryant, Roaman's, Lerner, Sue
Brett and KingSize merchandise through its Sears versions of these catalogs to
selected individuals from the over 20 million name customer file of Sears,
Roebuck and Co. who are not already existing customers of the Company. Brylane
believes that the median age and income level of its Sears customer is close to
that of the average customer of the Company's comparable catalogs. As of
December 31, 1996, the Sears catalogs customer file contained 2.0 million
customer names, of which 1.0 million are active customers. The average order by
a Sears customer during fiscal 1996 was approximately $72 for women's apparel
and $100 for men's apparel.
KINGSIZE. The KingSize catalog targets value-conscious men who wear
special sizes (sizes XL to 9XL). Brylane believes that the median age of its
men's special size customer segment is 52, and that the typical KingSize
customer has an income level above the national average. As of December 31,
1996, the KingSize customer file contained 378,700 customer names, of which
163,700 are active customers. The average order by a KingSize customer during
fiscal 1996 was approximately $97.
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SUE BRETT. The Sue Brett catalog targets mature regular size women who
wear sizes 8 to 24. Brylane believes that the median age of the Sue Brett
customer is 45, and that the average Sue Brett customer has an income level
somewhat above the national average. As of December 31, 1996, the Sue Brett
customer file contained 255,900 customer names, of which 184,100 are active
customers. The average order by a Sue Brett customer during fiscal 1996 was
approximately $67.
MERCHANDISING
Brylane's merchandising strategy is (i) to provide value-priced, private
label apparel with a consistent quality and fit, (ii) to concentrate on apparel
with limited fashion risk, and (iii) to offer a broad selection of sizes, styles
and colors.
CHADWICK'S. The Chadwick's catalog offers value across its merchandise
lines, which feature a wide array of colors, styles and sizes designed to
satisfy its customers' wardrobe needs for career, casual and social wear.
Chadwick's offers merchandise which includes both basic styles and current
fashion. Chadwick's offers 54,800 stock keeping units ("SKUs"), in sizes 2 to
26. The average price point per item sold by Chadwick's during the eight weeks
ended February 1, 1997 was approximately $27. Chadwick's offers nationally
recognized brand names, including Pierre Cardin, Herman Geist, JG Hook and
Blassport. The private label brand names featured in the Chadwick's catalog
include, among others, Savannah (which Brylane uses under license from TJX),
Fads, Stephanie Andrews and JL Plum. See "Item 13. Certain Relationships and
Related Transactions--The Chadwick's Acquisition".
LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's special size
catalogs focus primarily on contemporary, traditional and basic women's apparel
and also include a limited offering of certain fashion-oriented items. While
both the Lane Bryant and Roaman's catalogs offer the same merchandise
classifications, the Lane Bryant catalog offers greater style selections in
certain classifications, especially in basic apparel items. Lane Bryant and
Roaman's catalogs offer 90,600 and 53,400 SKUs, respectively, in sizes 14 to 56.
The average price point per item sold by both Lane Bryant and Roaman's in fiscal
1996 was approximately $22.
Lane Bryant and Roaman's catalogs feature private label brand names which
have higher gross profit margins than national brand merchandise. Private label
brand names used on merchandise included in the Lane Bryant and Roaman's
catalogs include, among others, Hunters Run, Venezia, Lasting Comfort and
Forenza, which Brylane uses under licenses from The Limited, and the Roaman's
private label brand name, which is owned by the Company. See "Item 13. Certain
Relationships and Related Transactions--Additional Agreements--Trademark
Agreement".
LERNER. The Lerner catalog offers a broad selection of quality
contemporary, traditional and basic women's apparel in sizes 4 to 18. Compared
to Chadwick's, the Lerner catalog targets a younger customer and offers slightly
more fashion forward merchandise. Recently, the Company has made significant
changes to the merchandise offerings contained in its Lerner catalog, including
the addition of an increased number of career wear selections and additional
sizes. The average price point per item sold by Lerner in fiscal 1996 was
approximately $23.
Consistent with the Company's other catalogs, the Lerner catalog places
great emphasis on its product sourcing strategy to enable the Company to offer
quality, value-priced, private label merchandise. The private label brand names
featured on merchandise included in the Lerner catalog include, among others,
David Benjamin and Forenza, which Brylane uses under license from The Limited,
as well as certain other private label brand names which are owned by certain of
Brylane's vendors. See "Item 13. Certain Relationships and Related
Transactions--Additional Agreements--Trademark Agreement".
SEARS CATALOGS. The merchandise offered in the Sears catalogs is the same
as that offered in the comparable Company catalog: Woman's View (Lane Bryant
and Roaman's); Smart Choice (Lerner); Classics (Sue Brett); and Big & Tall
(KingSize). This allows the Company to fill the orders generated by these
catalogs with minimal incremental inventory risk. See "--Sears Agreement".
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KINGSIZE. The KingSize catalog offers a broad selection of quality
contemporary, traditional and basic men's apparel in sizes XL to 9XL. Although
the KingSize catalog also offers some fashion-oriented items, most of the
merchandise in the KingSize catalog has limited fashion risk. Brylane believes
that KingSize offers a broader selection of sizes and styles than most specialty
and department stores and competing catalogs. The average price point per item
sold by KingSize in fiscal 1996 was approximately $29.
The KingSize catalog features private label brand names which have higher
gross profit margins than national brand merchandise. Private label brand names
used on merchandise included in the KingSize catalog are KingSize and Peak
Performance, both of which are owned by the Company.
SUE BRETT. The Sue Brett catalog offers quality contemporary, traditional
and basic women's merchandise in sizes 8 to 24. The Company has established a
separate merchandising team that has increased the overall percentage of unique
merchandise contained in this catalog, and has expanded the selection of
merchandise to include, among other things, shoes and jewelry. The average
price point per item sold by Sue Brett in fiscal 1996 was approximately $25.
MARKETING
There are several important elements to the Company's marketing strategy.
PROMOTIONAL STRATEGIES. The Company has implemented highly effective
promotional incentives in many of its catalogs. Promotional incentives include
deferred and installment billing, free delivery for new customers, free express
delivery for orders of a certain size, "buy one, get one free" strategies,
pricing discounts when purchasing an additional item, and discount offers.
Brylane also uses promotions based on its private label credit cards, such as
credit limit increases to stimulate additional sales from existing customers and
to promote customer loyalty. Recently, the Company has significantly increased
the use of deferred billing programs, under which merchandise purchased is not
billed to the customer's credit card until 90 to 120 days after the applicable
catalog is mailed. Deferred billing programs have resulted in a significant
increase in net sales and average order size, particularly in the Company's
Chadwick's and Lerner catalogs.
PRIVATE LABEL CREDIT CARDS. Brylane views the use of credit as an
important marketing tool with existing and new customers. The Company offers
its customers the Lane Bryant, Roaman's, Lerner, Sue Brett and KingSize private
label credit cards which are issued by World Financial Network National Bank
("World Financial"), a wholly-owned subsidiary of Alliance Data Systems
Corporation ("ADS") which, in turn, is a joint venture 60% owned by partnerships
controlled by, and affiliates of, Welsh Carson Anderson & Stowe and 40% owned by
The Limited, pursuant to the Credit Card Processing Agreement between Brylane
and World Financial (as amended, the "Credit Card Agreement"). The Lane Bryant
and Lerner private label credit cards are also issued to customers of the Lane
Bryant and Lerner retail stores, and Lane Bryant and Lerner cardholders can use
them either for catalog or store purchases. Under the Credit Card Agreement,
World Financial determines the credit worthiness of a particular customer based
on a standard credit rating system and generally assumes all risks associated
with the collection of receivables generated by credit card sales without
recourse to the Company. See "Item 13. Certain Relationships and Related
Transactions--Additional Agreements--Credit Card Agreement".
Approximately 91.3% of the Company's total fiscal 1996 sales (including
sales from the Company's Sears catalogs) were paid for using credit cards.
Approximately 63.7% of the Company's fiscal 1996 sales (excluding sales from
Brylane's Sears catalogs) from the Lane Bryant, Roaman's, Lerner, Sue Brett and
KingSize catalogs were paid for using Brylane's private label credit cards.
Through private label cards, the total amount of credit available to the
Company's customers who hold third party cards can be increased, and credit may
be made available to certain of its customers who may not qualify for third
party cards, but are eligible for the generally lower credit limits available
under the private label cards. For catalogs distributed under the Sears
Agreement (as defined herein), customers can use the Sears credit card (but not
Brylane's private label cards). The Sears credit card is administered by an
affiliate of Sears, which assumes all risks associated with the collection of
those credit card receivables.
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LIST MANAGEMENT. An important element of Brylane's marketing strategy is
the improved segmentation of its existing customer files. Brylane currently
employs customer file segmentation analyses, based on the recency, frequency and
monetary value of past purchases to create catalog circulation strategies that
are designed to increase customer response rates and average sales per catalog.
Brylane has recently installed and is currently testing a modeling and scoring
software program that uses more sophisticated multi-variable regression analyses
to create its predictive purchasing models. The Company believes that its
ability to better predict customer purchasing behavior maximizes the
effectiveness of its catalog mailings to current and prospective customers.
CUSTOMER ACQUISITION. Brylane's prospect acquisition programs are designed
to attract new customers in a cost effective manner. Brylane utilizes various
sources to acquire new names, including list rentals or purchases from
competitors and related catalog concepts; access to lists of credit card holders
of The Limited's Lane Bryant and Lerner retail stores; licensing arrangements;
magazine solicitations; cable television advertising; promotional inserts;
friends' name cards inserted in mailed catalogs; and reactivation of previous
customers of Brylane. The Company has recently implemented a program of cable
television advertising to solicit catalog requests for its KingSize catalog, as
well as tests of similar programs for its Lane Bryant and Roaman's catalogs. In
conjunction with Sears, the Company has been improving the segmentation of the
over 20 million name Sears, Roebuck and Co. customer file to increase its
success rate with prospects.
CUSTOMER SERVICE AND TELEMARKETING. Providing superior service to
customers is a key element of Brylane's marketing strategy, and is supported by
Brylane's toll-free telephone service for orders and other customer needs, an
emphasis on customer service and friendliness in training for its telephone
sales representatives, and an unconditional guarantee of its merchandise at any
time. Brylane's return policy provides that if a customer is not satisfied with
a purchase for any reason, the merchandise can be returned to Brylane for a
refund or exchange. The return rate for Brylane (which includes exchanges) for
fiscal 1994, 1995 and 1996 was 24.2%, 22.6%, and 24.1%, respectively, of shipped
sales.
In fiscal 1996, Brylane received approximately 78.9% of customer orders
through its toll-free phone service. Brylane's toll-free service was
established in fiscal 1989 with separate telemarketing groups and toll-free
numbers for each catalog. Brylane's telemarketing operations are conducted in
Indianapolis, Indiana, Greenwood, Indiana, San Antonio, Texas and West
Bridgewater, Massachusetts. The Company's telemarketing operations are open 24
hours a day, seven days a week, and currently have an aggregate of approximately
1,700 telemarketing/customer service stations. In fiscal 1996, Brylane
processed 16.7 million calls at its Indianapolis, Greenwood and San Antonio
facilities. In addition, for the eight weeks ended February 1, 1997, Brylane
processed 1.1 million calls at its West Bridgewater facility and outsourced
393,000 calls to a third party call center. The number of associates manning
these stations varies greatly during the hours of each day of each selling
season, based on anticipated call volume.
FULFILLMENT, DELIVERY AND CATALOG PRODUCTION
Through its fulfillment, delivery and catalog production methods, the
Company works to maintain its position as a low-cost operator in the catalog
industry.
FULFILLMENT CENTERS. The Company's commitment to customer service is
supported by its 750,000 square foot Indianapolis, Indiana fulfillment center,
which supports its Brylane catalogs, and its 700,000 square foot West
Bridgewater, Massachusetts facilities, which support its Chadwick's catalogs.
Designed to process and ship customer orders rapidly and in a cost effective
manner, each fulfillment center utilizes high speed conveyor belts, laser beam
bar code scanning and tilt tray sorters. The Indianapolis facility processed
approximately 17.5 million shipments in fiscal 1996. The Company recently
completed a $2.7 million project to replace the original tilt tray sorter, which
replacement became operational in the fourth quarter of 1996. The West
Bridgewater facility processed 1.7 million shipments since the Chadwick's
Acquisition and has the capacity to process approximately 40% more shipments
annually before any capital expansion of such center will be required.
DELIVERY. The Company minimizes order delivery costs through careful
management of its shipping techniques. For example, third and fourth class
mailing costs, which accounted for 81.9% of orders shipped from the Indianapolis
facility in fiscal 1996, are managed to obtain the benefits of various mailing
rate discount programs
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offered by the United States Postal Service ("USPS"). The Company sorts
packages by zip code and automatically calculates the weight of each parcel to
be shipped to determine if discounted bulk rate postage may be available. The
Company believes that the volume of its mailings provides it with a competitive
advantage over smaller catalog retailers who cannot take full advantage of this
rate structure. The Company also reduces order shipping costs by sorting and
sending packages by truck to up to 21 USPS drop points around the country, where
the packages enter the USPS system for delivery to customers. In addition to
third class and fourth class mail delivery, the Company offers United Parcel
Service ("UPS") delivery and UPS Express Delivery.
CATALOG PRODUCTION. The Company closely manages the catalog production
process to control printing and mailing costs while maintaining attractive and
effective catalog presentations. The Company has contracts with various
printers which cover its production requirements and afford protection against
certain cost increases. The Company also employs bulk sorting and drop shipping
of catalogs to take maximum advantage of available USPS rate discounts.
PRIVATE LABEL PURCHASING AND VENDOR RELATIONSHIPS
Brylane emphasizes private label merchandise, which accounted for 85.8% of
Brylane's net sales (excluding the Chadwick's catalog) in fiscal 1996.
Brylane's private label apparel and accessories produce higher gross profit
margins than the national brand merchandise found in its catalogs. The emphasis
on private label merchandise also affords Brylane greater control over the
manufacturing process, allowing it to achieve consistency of quality and fit in
the various merchandise categories offered, and enabling it to offer a greater
number of sizes, styles and colors than its competitors. Brylane believes this
approach both increases customer loyalty and confidence in making a purchase and
reduces merchandise returns. The Company's private label merchandise is sourced
from a diverse group of established vendors who work directly with the Company's
buyers and are provided with rigorous design specifications and quality control
procedures. The Company is the major customer of and has long-standing
relationships with many of its private label and national brand vendors,
resulting in close and cooperative working relationships and enabling the
Company to obtain merchandise at favorable prices. Brylane's 10 largest vendors
accounted for 22.3% of purchased merchandise in fiscal 1996. No single
supplier, however, accounted for more than 4.5% of merchandise purchased in
fiscal 1996. Brylane's purchases from foreign suppliers accounted for 28.1% of
merchandise purchased in fiscal 1996.
To ensure the distinct merchandising focus of its catalogs, the Company
conducts purchasing separately for its Chadwick's, Lane Bryant, Roaman's,
Lerner, Sue Brett and KingSize catalogs and, within each catalog, has dedicated
buyers for specific product lines. The Company's merchandising staff actively
monitors the apparel markets and offerings by other catalog and retail stores in
an effort to ensure that the Company's offerings are competitive in design and
price. To improve purchasing efficiency, the Company also relies on "pre-
mailing" programs (i.e., limited catalog distribution prior to the start of a
selling season) to test customer acceptance of new product offerings.
INVENTORY MANAGEMENT
The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions, while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at the
end of each season. The Company maintains higher inventory levels for basic
apparel items which are not generally fashion sensitive. Inventory levels for
items with greater fashion risk are maintained at lower levels, with the goal of
selling all such merchandise prior to the end of a season. The Company's
disciplined inventory control systems enable it to maintain minimum inventory
levels, which the Company is able to replenish quickly as a result of its close
relationships with its domestic suppliers. These lower levels of inventory
enable the Company to avoid excessive markdowns and to reduce its losses on
overstocks at the end of each selling season. When overstocks do occur, Brylane
is generally successful in selling the goods through relationships it has
established with discount retailers and with merchandise brokers (who then
resell such merchandise to retailers). In addition, in connection with the
Chadwick's Acquisition, the Partnership has entered into an inventory purchase
agreement with TJX pursuant to which TJX has committed to purchase certain
amounts of Chadwick's excess inventory through January 2000. See "Item 13.
Certain Relationships and Related Transactions--The Chadwick's Acquisition".
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Despite its careful inventory management, the Company experiences out-of-
stock and back order inventory conditions, both of which are common in catalog
retailing. As a result, the Company experiences some order cancellations.
During fiscal 1994, 1995 and 1996, cancellations were 4.9%, 5.1% and 5.3%,
respectively, of the total dollar value of orders received.
MANAGEMENT INFORMATION SYSTEMS
Brylane's management information systems provide support to all segments of
its operations, including merchandising, marketing, telemarketing, fulfillment,
customer service, financial reporting and inventory management. Chadwick's
management information systems are currently supported by TJX's mainframe
computer. In connection with the Chadwick's Acquisition, Brylane entered into a
services agreement with TJX whereby TJX agreed to provide services relating to
the Chadwick's business for approximately three years. See "Item 13. Certain
Relationships and Related Transactions--The Chadwick's Acquisition".
Brylane's management information systems are supported by an IBM mainframe
computer that processes up to 77 million transactions per month. This computer
is connected to approximately 1,900 terminals between Brylane's three
telemarketing facilities and its New York and Hingham, Massachusetts offices.
See "Item 2. Properties".
SEARS AGREEMENT
In March 1994, Brylane entered into an exclusive licensing agreement with
Sears (as amended, the "Sears Agreement") to produce a special size women's
apparel catalog (Woman's View), based on Brylane's Lane Bryant and Roaman's
catalogs, for distribution to customers of Sears, Roebuck and Co. Brylane has
also been mailing catalogs based on Brylane's Lerner catalog (Smart Choice)
since the first quarter of 1994, and the Sue Brett catalog (Classics) since the
third quarter of 1994, to these customers. In October 1995, in connection with
the KingSize Acquisition, Brylane and Sears expanded the Sears Agreement to
include an exclusive license to produce and distribute the Sears Big & Tall
catalog, based on Brylane's KingSize catalog, to customers of Sears, Roebuck and
Co. The Woman's View, Smart Choice, Classics and Big & Tall catalogs are
currently being mailed to individuals who are not existing customers of Brylane
and who are included in the more than 20 million name customer file of Sears,
Roebuck and Co.
As amended, the initial term of the Sears Agreement continues through
February 28, 1999. The Sears Agreement can be renewed by the parties for
additional one year terms thereafter; provided, that either of the parties may
terminate the agreement upon twelve months' notice prior to the end of the
initial term or any renewal thereof. Under the Sears Agreement, the catalogs
mailed are substantially similar to Brylane's comparable catalogs, but have a
Sears logo and a different name. The merchandise is identical to that contained
in Brylane's comparable catalogs, which allows Brylane to fill incremental
customer orders by increasing the amount of merchandise that it purchases,
rather than increasing the number of different kinds of merchandise categories
that it keeps in inventory. This approach limits Brylane's incremental
inventory risk. Customers' calls are answered by telemarketing representatives
using the Sears Shop At Home name for the women's and men's apparel catalogs,
and customers can pay for their purchases using a Sears credit card or various
bank credit cards. Brylane performs all merchandising, fulfillment,
telemarketing and management information functions through its existing
facilities. In the event that the Sears Agreement terminates, Brylane will
retain the names of all customers who have purchased through the Sears catalogs
covered by such agreement and, at that point, Brylane will be able to mail
Brylane's other catalogs to these customers.
COMPETITION
The retail apparel business is highly competitive. Lane Bryant, Roaman's
and Woman's View compete in the sale of special size women's apparel primarily
with other mail order companies, department stores and specialty retailers,
including the Lane Bryant retail stores operated by The Limited, Catherines
Stores and United Retail Group (which is 20.5% owned by The Limited). Brylane's
principal competitors in the mail order retailing of special size women's
apparel include J.C. Penney (general catalog and Liz Baker), Arizona Mail Order
(Old Pueblo and Regalia), Hanover Direct (Silhouettes) and Spiegel (For You).
Chadwick's, Lerner and Smart Choice
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compete in the sale of value-priced women's fashion sportswear with many other
mail order companies, specialty retailers, discount stores and department
stores, including the Lerner retail stores operated by The Limited and T.J. Maxx
and Marshalls, each of which is owned by TJX. KingSize and Big & Tall compete
in the sale of special size men's apparel with specialty retailers (including
Casual Male and Repp Stores), department stores, other mail order companies
(including J.C. Penney's Big & Tall catalog and Phoenix's Big & Tall catalog)
and discount stores. In addition, sales of clothing through home television
shopping networks or other electronic media could provide additional sources of
competition for the Company. The Company does not believe that it has any
significant competition in the special size or off-price segment of the women's
apparel catalog retail market. However, there can be no assurance that other
retailers of apparel will not decide to enter into the Company's markets.
Brylane sells its products to customers throughout the United States. The
Company competes on the basis of its extensive merchandise selection, product
quality and price, credit extension and customer service. See "Risk Factors--
Competition and Other Business Factors".
The Transaction Agreement (as defined herein) contains certain
noncompetition and nonsolicitation provisions, subject to certain exceptions,
binding upon The Limited which terminate when affiliates of FS&Co. no longer
hold an interest in the Company. If such provisions were to terminate, The
Limited could compete directly with Brylane in the retail catalog business for
special size women's apparel. In addition, the Stockholders Agreement (the
"Stockholders Agreement") entered into in connection with the Initial Public
Offering by and among Brylane Inc., affiliates of FS&Co., an affiliate of The
Limited, The Limited, TJX, WearGuard, Leeway & Co. and NYNEX provides, with
certain exceptions, that the Company may not, without The Limited's consent, for
so long as the Limited Stockholder (as defined herein) holds, directly or
indirectly, at least 20% of the outstanding Common Stock of Brylane Inc., the
parent company of the Partnership, engage in any business that competes with the
businesses conducted by The Limited or its affiliates as of August 30, 1993,
other than in the mail order business for women's special size apparel,
moderately priced fashion apparel and related accessories, and for moderately
priced regular size or special size men's apparel and related accessories that
are substantially similar to the products offered in the Company's KingSize
catalog as of October 14, 1996. Although the Company currently has no plans to
further expand its business into areas that are competitive with The Limited,
these noncompetition provisions could restrict the Company's ability to do so.
See "Item 13. Certain Relationships and Related Transactions--Additional
Agreements--Noncompetition Agreements".
TRADEMARKS, TRADE NAMES AND LICENSES
The Company is the owner in the United States of the Roaman's, Sue Brett,
KingSize, Chadwick's, Chadwick's of Boston, Ltd. and Bridgewater trademarks, as
well as certain other trademarks which it uses as private label brand names.
Brylane uses the Lane Bryant and Lerner registered trademarks, as well as
certain other trademarks used as private label brand names, under a royalty-free
license from The Limited. See "Item 13. Certain Relationships and Related
Transactions--Additional Agreements--Trademark Agreement". Brylane uses the
Woman's View, Smart Choice and Big & Tall trademarks pursuant to the licensing
arrangements contained in the Sears Agreement. See "--Sears Agreement". In
addition, the Company also licenses certain other marks from TJX and other third
parties. While certain of these licensed names are important to the Company's
business, management does not believe that the loss of any of the marks licensed
from TJX would have a material adverse effect upon the Company's business,
financial condition and results of operations.
The Company uses the Lane Bryant, Lerner, Woman's View, Smart Choice, Big &
Tall, Chadwick's, Chadwick's of Boston, Ltd. and Bridgewater trademarks, and the
Classics name, only on the covers of its catalogs and in general advertising and
promotional materials, and not as labels or tags on any garments or other
merchandise it distributes. The Company's other owned and licensed trademarks,
including Sue Brett, KingSize, Peak Performance, Hunters Run, David Benjamin,
Lasting Comfort, Forenza, Venezia, Savannah, Fads, JL Plum and Stephanie
Andrews, are used for certain of the Company's apparel offerings, as well as in
other marketing and merchandising activities. Such trademarks are important to
the operations of the Company. See "Risk Factors--Relationship with The
Limited" and "Item 13. Certain Relationships and Related Transactions--The
Chadwick's Acquisition".
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ASSOCIATES
The Company's skilled and dedicated associates are a key resource. At
February 1, 1997, the Company employed (directly or indirectly through its
subsidiaries) approximately 5,100 individuals, including part-time and full-time
associates. During peak sales periods, the Company hires approximately 700
additional part-time and temporary associates. Approximately 1,100 of
Chadwick's associates are covered under one of TJX's collective bargaining
agreements with the Union of Needletrades, Industrial and Textile Employees.
This agreement expires on December 31, 1997, and it is expected that the Company
will commence negotiations for a new agreement at an appropriate time. The
Company considers its labor relations and overall employee relations to be good.
REGULATORY MATTERS
The Company currently collects sales and use tax on merchandise sales in
the states of Indiana, Maryland, Massachusetts, New York and Texas because the
Partnership has physical presence in those states, and in the state of Florida
because of a written agreement with that state which is effective through
September 1997. Prior to June 30, 1996, the Partnership collected applicable
sales and use taxes in approximately 41 states, regardless of whether the
Partnership was otherwise required to collect such taxes in those states,
generally pursuant to a Multistate Sales Tax Agreement, dated as of January 1,
1988, among the Partnership, the Multistate Tax Commission and a consortium of
35 states represented by the Multistate Tax Commission, which governed the
Brylane business when it was acquired by the Partnership. In March 1996, the
Partnership advised the Multistate Tax Commission, based on advice received from
legal counsel, that it was not extending the Multistate Sales Tax Agreement
beyond its expiration date of June 30, 1996. Based upon present law, the
Company believes that it is not generally required to collect and remit sales
and use taxes on merchandise sold in states in which it does not have a physical
presence, absent the Multistate Sales Tax Agreement. It is possible that there
may be a judicial decision or that Congress may pass legislation in the future
permitting states in which the Company does not have a physical presence to
require it to collect and remit sales and use taxes with respect to sales in
such states. Accordingly, there can be no assurance that the Company will not
have an obligation to collect and remit sales and use taxes in states in
addition to those states in which it is presently required to collect and remit
such taxes.
The Company's business, and the direct mail industry in general, is subject
to regulation by a variety of state and federal laws and regulations related to,
among other things, advertising, offering and extending credit, imports and
sales tax. Legislation has been proposed in the past designed to impose a
ceiling on the rates charged in connection with the extension of credit through
credit cards. It is impossible to predict whether such legislation will be
enacted and, if enacted, what form it will take. However, any such legislation
could have an adverse impact on the Company's credit card financing
arrangements. The Company's imported products are subject to United States
customs duties, and some of the Company's imported products are subject to
import quotas when imported from particular countries. In the ordinary course
of its business, the Company may from time to time be subject to claims for
duties, and the Company's imported products may be subject to other import
restrictions. United States customs duties currently are between 0% and 48.0%
(with an average rate of 18.0%) of appraised value on certain items of
inventory. During fiscal 1996, Brylane made approximately 28.1% of its
merchandise purchases from foreign suppliers. See "Risk Factors--Dependence on
Suppliers; Foreign Sourcing".
SEASONALITY
The Company has two annual six-month selling seasons, Spring/Summer and
Fall/Winter. The Company is not dependent on the year-end holiday season for a
disproportionate share of its business. The Company's sales and operating
results are more influenced throughout the year by the timing of the mailing of
its catalogs and by its merchandising strategies than by seasonal fluctuations.
Because the Company offers different products in each season, trends that are
manifested in one selling season may not be carried over into the next season.
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RISK FACTORS
The following risk factors should be carefully reviewed in addition to the
other information contained in this Annual Report on Form 10-K.
COMPETITION AND OTHER BUSINESS FACTORS
The retail apparel business is highly competitive. Each of the Company's
women's catalogs compete in the sale of women's apparel with other catalog
retailers, department stores, discount stores and specialty retailers. In
particular, Lane Bryant, Roaman's and Woman's View compete in the sale of
special size women's apparel with the Lane Bryant retail stores operated by The
Limited, and Lerner and Smart Choice compete in the sale of women's sportswear
and other apparel with the Lerner retail stores operated by The Limited.
Chadwick's competes with many retail sellers of apparel, including T.J. Maxx and
Marshalls, each of which is owned by TJX. The Company's KingSize and Big & Tall
catalogs compete in the sale of special size men's apparel with specialty
retailers, department stores, other mail order companies and discount stores.
In addition, sales of clothing through home television shopping networks or
other electronic media could provide additional sources of competition for
Brylane in the future. Some of the Company's competitors may have greater
financial resources than the Company. An increase in the amount of competition
faced by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1. Business-
- -Competition".
The Company's future performance will be subject to a number of other
factors beyond its control, including declines in discretionary consumer
spending or in demand for apparel generally, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, although the Company believes that its strategy of providing a
broad range of basic merchandise that is current, but not "leading edge", limits
fashion risk, it is still subject to risks associated with changes in fashion
preferences. Misjudgment by the Company as to fashion trends or consumer
preferences, or a downturn in discretionary consumer spending, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company benefits from the name recognition and reputation generated by
the Lane Bryant retail stores and the Lerner retail stores which are operated by
The Limited. At present, The Limited operates over 800 Lane Bryant stores and
over 750 Lerner stores. The Limited is under no obligation to continue to own
or operate the Lane Bryant and Lerner stores, and there can be no assurance that
The Limited will not change the focus of such stores in a manner that would be
adverse to Brylane's catalog concepts bearing the same trademarks, although The
Limited has agreed that, during the term of the Trademark Agreement (as defined
herein), it will not disparage or diminish the stature, image or quality of any
of the trademarks subject to the Trademark Agreement.
RELATIONSHIP WITH THE LIMITED
In connection with the Brylane Acquisition, Brylane became a party to a
trademark license agreement with The Limited (as amended, the "Trademark
Agreement") pursuant to which the Company has use of the Lane Bryant(R),
Lerner(R) and certain other trademarks, on a royalty-free basis, until August
2013, subject to earlier termination as described in the paragraphs that follow.
The Company has determined to use the Lane Bryant(R) and Lerner(R) trademarks in
its catalogs and in general advertising and promotional materials, and not as
labels or tags on any garments or other merchandise it distributes. The other
trademarks covered by the Trademark Agreement are used for certain of the
Company's apparel offerings, as well as other marketing and merchandising
activities.
The Trademark Agreement and each of the licenses granted thereunder will
terminate on August 20, 2013 unless earlier terminated by (i) Brylane with six
months' notice on or after August 20, 1998, (ii) The Limited in the event of (x)
a breach by Brylane of any of its material obligations under the Trademark
Agreement or (y) certain bankruptcy or insolvency events involving Brylane,
(iii) ten years after the earliest date that the direct or indirect ownership
interests of affiliates of FS&Co. or the ownership interests of affiliates of
The Limited in Brylane drop below certain specified levels, or (iv) subject to
certain extensions, (x) two years after any competitor of The Limited acquires
"control" of Brylane (as defined in the Trademark Agreement), or (y) two or four
years after the
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occurrence of certain mergers, consolidations or business combinations. See
"Item 13. Certain Relationships and Related Transactions--Additional Agreements-
- -Trademark Agreement".
Upon a termination of the Trademark Agreement, the Company would need to
create new names and trademarks for its catalogs, as well as for the merchandise
offerings that currently utilize the licensed trademarks, and effect a
transition of customer recognition and acceptance of such new names and
trademarks. While the Company believes that the termination provisions of the
Trademark Agreement would afford it sufficient time to achieve this transition,
no assurance can be given that it would be successful or that the termination of
the Trademark Agreement would not have a material adverse effect on the Company.
LEVERAGE AND CERTAIN RESTRICTIONS IMPOSED BY LENDERS
The Partnership has incurred substantial indebtedness. As of February 1,
1997, after giving effect to the Initial Public Offering and the use of the net
proceeds received therefrom and contributed by Brylane Inc. to the Partnership,
and the subsequent voluntary prepayment of debt, the Partnership would have had
total outstanding long-term indebtedness (including current portion) of $328.1
million, as compared with total partnership equity of $193.1 million. The
Company will require substantial cash to fund scheduled payments of principal
and interest on its outstanding indebtedness as well as any increased working
capital requirements. The 1996 Bank Credit Facility and the Indenture (as
defined herein) that governs the Company's Senior Subordinated Notes (as defined
herein) contain covenants that, among other things, restrict the Partnership's
ability to incur debt, make distributions (including cash dividends), incur
liens, make capital expenditures and make investments or acquisitions. As a
result of these covenants, the ability of the Company to secure additional
financing, if needed, is restricted, and the Company may be prevented from
engaging in transactions that might otherwise be considered beneficial to the
Company. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
SEARS AGREEMENT
In March 1994, Brylane entered into the Sears Agreement which, as amended,
provides the Company with an exclusive license to distribute its Woman's View,
Smart Choice, Classics and Big & Tall catalogs to customers selected by the
Company from the more than 20 million name customer file of Sears, Roebuck and
Co. The initial term of the Sears Agreement expires on February 28, 1999 and
automatically continues for additional one-year terms thereafter; provided, that
either of the parties may terminate the Sears Agreement upon twelve months'
written notice prior to the end of the initial term or any renewal thereof. In
addition, upon the default of either Sears or the Company, the Sears Agreement
may be terminated by the non-defaulting party either immediately or upon the
payment of all sums owed by such non-defaulting party under the Sears Agreement,
depending on the type of default. Events of default under the Sears Agreement
include, among others, (i) the material failure of the Company to comply with
the operating policies and procedures set forth in the Sears Agreement; (ii) the
material failure of the Company to actively follow any mutually agreed upon
circulation and mailing plan; (iii) any bankruptcy or insolvency proceedings
being commenced against either party; and (iv) the inability of either party to
pay debts as they come due.
A termination of the Sears Agreement could have a material adverse effect
on the Company's business, financial condition and results of operations. Upon
termination of the Sears Agreement, the Company will retain the names of all
customers who have purchased through the Sears catalogs covered by such
agreement and, at that point, the Company will be able to mail the Company's
other catalogs to these customers. However, no assurance can be given as to the
extent that the Company will be able to retain these individuals as customers of
the Company. See "Item 1. Business--Sears Agreement".
IMPACT OF INCREASES IN COSTS OF POSTAGE, PAPER AND PRINTING
Increases in postal rates and paper and printing costs have a direct impact
on the cost of the production and mailing of the Company's catalogs and
promotional materials, as well as the Company's order fulfillment. Like others
in the catalog industry, the Company passes on a significant portion of the
costs of order fulfillment directly to its customers, but it does not directly
pass on the costs of preparing and mailing catalogs and other promotional
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materials. The Company relies heavily on discounts from the basic postal rate
structure, such as discounts for bulk mailings and pre-sorting by zip code and
carrier routes. Brylane historically has not entered into long-term contracts
for its paper purchases. Consequently, no assurances can be given that the
Company will not be subject to increases in paper costs or to shortages in the
supply of paper in the future. In addition, although the Company currently has
contracts for printing of its catalogs, the remaining terms of these contracts
range from one to five years, and no assurance can be given that the Company's
printing costs will not increase upon renegotiation of these contracts.
Significant increases in postal rates or in paper or printing costs could have a
material adverse effect on the Company's business, financial condition and
results of operations, particularly to the extent that the Company is unable to
pass on such increases directly to its customers or to offset such increases by
either raising prices or reducing other costs. Brylane experienced an increase
in postal rates in January 1995 and an increase in paper costs from the fall of
1994 through the fall of 1995. While Brylane was able to partially mitigate
these cost increases, no assurances can be given that similar increases in
postal rates or in the Company's costs of paper will not occur in the future.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
CONTROL OF THE COMPANY
Currently, affiliates of FS&Co. beneficially own 43.8% of Brylane Inc., the
parent company of the Partnership, and an affiliate of The Limited beneficially
owns 25.7% of Brylane Inc. By virtue of its ownership of a large percentage of
the outstanding Common Stock, FS&Co. will be in a position to exercise
substantial influence over actions that require the consent of stockholders. In
addition, pursuant to the terms of the Stockholders Agreement, FS&Co. will be
able to nominate three members of the Board of Directors of Brylane Inc., and
The Limited will be able to nominate two members. The number of directors that
FS&Co. and The Limited may nominate declines with the percentage of Common Stock
held by each.
The Stockholders Agreement contains a number of provisions that could
prevent changes in the control or management of the Company. For example,
FS&Co. and The Limited have agreed that, without the consent of the other, until
one year after the date on which persons other than The Limited, FS&Co., Leeway
& Co., NYNEX, TJX or WearGuard, or their respective affiliates, own 20% or more
of the then outstanding Common Stock, they will vote or cause to be voted all
shares of Common Stock beneficially owned by them against any consolidation,
combination or merger of the Company or any sale or other transfer of all or
substantially all of the assets of the Company. The Stockholders Agreement also
prohibits FS&Co., The Limited, WearGuard and TJX, and their respective
affiliates, and Leeway & Co. and NYNEX, from acquiring beneficial ownership of
any additional shares of Common Stock.
DEPENDENCE ON SUPPLIERS; FOREIGN SOURCING
Brylane's concentration on private label merchandise in its special size
catalogs, and the broad range of merchandise offered in its other catalogs,
requires that it maintain good relationships with many manufacturing sources and
suppliers. Moreover, the number of available manufacturers and suppliers for
special size apparel are more limited when compared with the number available
for apparel generally. Although the Company believes that it has established
excellent relationships with its principal manufacturing sources and suppliers,
the Company does not have long-term contracts, and its future success will
depend in some measure upon its ability to maintain such relationships. The
inability of the Company to source quality goods in a timely fashion at
favorable prices could have a material adverse effect on the Company's business,
financial condition and results of operations.
In fiscal 1996, Brylane made approximately 28.1% of its merchandise
purchases from foreign suppliers. Although all of the Company's foreign
purchases are denominated in U.S. dollars, the Company is subject to a number of
risks which are beyond its control, including currency and exchange risks,
changes in duties, quotas or other import restrictions, the imposition of taxes
or other charges on imports, disruptions or delays in shipments and
transportation, political instability, and labor disputes and strikes. There
can be no assurance that the occurrence of any destabilizing event abroad will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1. Business--Private Label
Purchasing and Vendor Relationships" and "Item 1. Business--Regulatory Matters".
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RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of the Company's growth strategy is to pursue strategic
acquisitions that either expand or complement the Company's business.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations and the
assimilation and retention of the personnel of the acquired companies, and
potential adverse short-term effects on the Company's operating results. In
addition, the Company may require additional debt or equity financing for future
acquisitions, which may not be available on terms favorable to the Company, if
at all. The inability of the Company to successfully finance, complete and
integrate strategic acquisitions in a timely manner could have an adverse impact
on the Company's ability to effect a portion of its growth strategy.
RISK OF DISASTER
The Company conducts its fulfillment operations from facilities located in
Indianapolis, Indiana and West Bridgewater, Massachusetts. If a disaster (such
as a tornado or fire) were to destroy or significantly damage either of these
facilities, the Company would need to obtain alternative facilities from which
to conduct its fulfillment operations and would need to replenish its inventory,
both of which would result in significantly increased operating costs and
significant delays in the fulfillment of customer orders. While the Company
maintains business interruption insurance, such increased costs or delays would
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS RELATED TO UNIONIZED EMPLOYEES
At February 1, 1997, the Company had approximately 5,100 associates,
including approximately 1,100 associates of Chadwick's who were members of a
labor union. If unionized associates were to engage in a strike or other work
stoppage or if additional associates were to become unionized, the Company could
experience a significant disruption of operations and higher labor costs, all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located in New York, New
York in approximately 90,000 square feet of leased office space. The Company
owns its 750,000 square foot fulfillment and telemarketing center located on
approximately 26 acres of land in Indianapolis, Indiana. Recently, the Company
leased an additional 125,000 square feet of warehouse space in Plainfield,
Indiana. The Company also leases approximately 73,000 square feet in San
Antonio, Texas, and approximately 13,400 square feet in Greenwood, Indiana, for
telemarketing operations related to the Brylane catalogs. The executive offices
of the Company's KingSize operations are located in Hingham, Massachusetts in
approximately 8,000 square feet of leased office space. In addition, the
executive offices, telemarketing center, warehouse and fulfillment center of the
Company's Chadwick's operations are located in a Company-owned facility in West
Bridgewater, Massachusetts that contains approximately 580,000 square feet of
space. The Company leases an additional 126,000 square foot facility in West
Bridgewater, Massachusetts for returns processing and customer service related
to Chadwick's. The Company also leases from TJX approximately 11,000 square
feet and 12,500 square feet of retail space for Chadwick's outlet stores in
Brockton, Massachusetts and Nashua, New Hampshire, respectively, and has an
arrangement with TJX whereby it has access to use a 7,500 square foot buying
office located in New York, New York. See "Item 13. Certain Relationships and
Related Transactions--The Chadwick's Acquisition". The Company believes that
its existing facilities are adequate to meet its current needs, and will provide
capacity sufficient to handle its anticipated growth for the next several years.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of business.
The Company does not believe that unfavorable outcomes in such litigation would
have a material adverse effect on its business, financial condition and results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Brylane, L.P. is a privately-held company. There is no established
public trading market for its partnership units.
(b) As of February 1, 1997, there were 6 holders of Brylane, L.P.'s
general and limited partnership interests. There is now one general
partner and one limited partner of Brylane, L.P. Brylane Inc.
indirectly owns 100% of the Partnership. Brylane Inc. reports
separately under the Securities Exchange Act of 1934. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" and
"Item 13. Certain Relationships and Related Transactions--The Exchange
Transaction".
(c) During fiscal 1996, Brylane, L.P. made advances to its partners based
upon their respective tax liabilities in connection with the
allocation of partnership income and gain to such partners pursuant to
the terms of the Agreement of Limited Partnership of Brylane, L.P.
dated as of August 30, 1993 (as amended, the "Partnership Agreement").
As of February 1, 1997, Brylane Capital had 1,000 shares of $.01 par value
common stock outstanding, all owned by its parent, Brylane, L.P. There is no
public trading market for Brylane Capital's outstanding common stock. During
fiscal 1996, Brylane Capital did not make any distributions in respect of its
outstanding common stock.
RECENT SALES OF UNREGISTERED SECURITIES
On December 9, 1996, in connection with the Chadwick's Acquisition, (i) FS
Equity Partners III, L.P., an affiliate of FS&Co. ("FSEP III"), purchased
1,441,989 shares of common stock of VP Holding Corporation ("VP Holding"), at a
purchase price of $20.00 per share; (ii) FS Equity Partners International, L.P.,
an affiliate of FS&Co. ("FSEP International"), purchased 58,011 shares of common
stock of VP Holding at a purchase price of $20.00 per share; (iii) Mr. Rao and
Ms. Meyrowitz each purchased 37,500 shares of VP Holding Preferred Stock (as
defined herein) at a purchase price of $20.00 per share; (iv) VLP Corporation, a
wholly-owned subsidiary of VP Holding ("VLP"), purchased 1,500,000 partnership
units of the Partnership at a purchase price of $20.00 per unit; (v) Leeway &
Co. purchased 500,000 partnership units of the Partnership at a purchase price
of $20.00 per unit; (vi) NYNEX purchased 500,000 partnership units of the
Partnership at a purchase price of $20.00 per unit; and (vii) in partial payment
of the Chadwick's Acquisition purchase price, the Partnership issued the
Partnership Note (as defined herein) to Chadwick's, Inc., a wholly-owned
subsidiary of TJX ("Chadwick's, Inc." or the "TJX Noteholder"). The issuance of
VP Holding common stock to each of FSEP III and FSEP International, the issuance
of VP Holding Preferred Stock to each of Mr. Rao and Ms. Meyrowitz, the issuance
of partnership units to each of VLP, Leeway & Co. and NYNEX and the issuance of
the Partnership Note to the TJX Noteholder were each exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act. No
underwriter participated in the transaction. The VP Holding Preferred Stock was
convertible into common stock of VP Holding and the Partnership Note was
convertible into partnership units of the Partnership.
On February 26, 1997, in connection with the closing of the Exchange
Transaction, (i) M&P Distributing Company, an affiliate of The Limited (the
"Limited Stockholder"), WearGuard, Leeway & Co. and NYNEX received shares of
Common Stock in exchange for their interests in the Partnership; (ii) the TJX
Noteholder received from the Company the Convertible Note (as defined herein);
(iii) FS Equity Partners II, L.P., an affiliate of FS&Co. ("FSEP II"), FSEP III,
FSEP International, Mr. Sodini and Ms. Bourneuf received shares of Common Stock
in exchange for their shares of common stock of VP Holding; (iv) the officer and
director holders of shares of common stock of VP Holding received shares of
Common Stock pursuant to the Brylane Subscription Plan (as defined herein) or
the Senior Management Plan (as defined herein); and (v) Mr. Rao and Ms.
Meyrowitz received shares of Series A Preferred Stock (as defined herein) in
exchange for their shares of VP Holding Preferred Stock. Such exchanges were on
a one-to-one basis. See "Item 13. Certain Relationships and Related
Transactions--The Exchange Transaction". Since each of the holders of the
shares of common stock and preferred stock of VP
15
<PAGE>
Holding, the interests in the Partnership and the Partnership Note agreed at the
time of their respective original acquisitions of their shares or partnership
interests or Partnership Note to exchange their shares, partnership interests or
Partnership Note for shares of Common Stock or the Convertible Note, as the case
may be, in connection with the Exchange Transaction, the Company believes that
none of the foregoing transactions involved a "sale" within the meaning of the
Securities Act. Such exchanges would also be exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act. No underwriter
participated in the transaction. The Series A Preferred Stock is convertible
into shares of Common Stock on a one-to-one basis. The shares of Series A
Preferred Stock "vest" or become convertible in three equal annual installments
commencing December 9, 1997, as long as Mr. Rao or Ms. Meyrowitz, as applicable,
remain employed by Brylane (subject to certain accelerating events). On
December 9, 1999, "vested" shares will, at the option of the holders thereof,
either be redeemed by the Company for $20.00 per share (subject to adjustment
for stock splits, dividends or reclassifications) or converted into one share of
Common Stock (subject to adjustment for stock splits, dividends or
reclassifications). In the event of a "change of control" (as defined in
Brylane Inc.'s Certificate of Designation of the Series A Preferred Stock) each
"vested" share, at the option of the holder thereof, may be redeemed for $20.00
per share or converted into one share of Common Stock, while "unvested" shares
must be redeemed for $20.00 per share. The Convertible Note is convertible at
any time, in whole or in part, at the option of the TJX Noteholder into a total
of 727,273 shares of Common Stock at a conversion price of $27.50 per share
(subject to adjustment for stock splits and similar events).
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain historical data of Brylane for the
periods indicated. The balance sheet data as of January 30, 1993, July 31,
1993, January 29, 1994, January 28, 1995, February 3, 1996 and February 1, 1997,
and the statements of operations data for the fiscal year ended January 30,
1993, the twenty-six weeks ended July 31, 1993 and January 29, 1994, and the
fiscal years ended January 28, 1995, February 3, 1996 and February 1, 1997, have
been derived from the combined and consolidated financial statements of the
predecessor company of Brylane (the "Predecessor") and the Partnership, as
appropriate, which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The information below should be read in conjunction with the
audited financial statements and related notes thereto included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
PREDECESSOR PARTNERSHIP
----------------------------- -----------------------------------------------------
FISCAL YEAR TWENTY-SIX TWENTY-SIX FISCAL YEAR ENDED
-------------------------------------
ENDED WEEKS ENDED WEEKS ENDED JAN. 28, FEB. 3, FEB. 1,
JAN. 30, 1993 JULY 31, 1993 JAN. 29, 1994 1995 1996(1) 1997
------------- ------------- ------------- ---------- ----------- -----------
(53 WEEKS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA: (DOLLARS IN THOUSANDS)
Net sales................................. $424,523 $242,086 $247,780 $578,530 $601,055 $ 705,353
Cost of goods sold........................ 212,103 122,530 124,224 288,217 298,414 346,572
Non-recurring inventory charge(2)......... -- -- 11,487 2,614 569 1,657
-------- -------- -------- -------- -------- ---------
Gross profit.............................. 212,420 119,556 112,069 287,699 302,072 357,124
Operating expenses:
Catalog and advertising................. 113,432 61,165 66,860 153,830 174,446 186,985
Fulfillment............................. 33,199 18,335 21,477 41,656 37,333 55,450
Support services........................ 22,886 12,964 13,377 35,152 37,024 54,422
Intangibles and organization cost
amortization........................... -- -- 2,121 4,242 4,707 6,518
-------- -------- -------- -------- -------- ---------
Total operating expenses............... 169,517 92,464 103,835 234,880 253,510 303,375
-------- -------- -------- -------- -------- ---------
Operating income.......................... 42,903 27,092 8,234 52,819 48,562 53,749
Interest expense, net..................... -- -- 10,060 19,576 20,624 24,026
-------- -------- -------- -------- -------- ---------
Income (loss) before income taxes and
extraordinary charge..................... 42,903 27,092 (1,826) 33,243 27,938 29,723
Provision for income taxes(3)............. 16,700 10,600 75 89 88 315
Net income (loss) before extraordinary
charge................................... 26,203 16,492 (1,901) 33,154 27,850 29,408
Extraordinary charge(4)................... -- -- -- -- -- 2,456
-------- -------- -------- -------- -------- ---------
Net income (loss)......................... $ 26,203 $ 16,492 $ (1,901) $ 33,154 $ 27,850 $ 26,952
======== ======== ======== ======== ======== =========
BALANCE SHEET DATA (END OF PERIOD):
Total assets.............................. $ 89,132 $ 95,882 $255,051 $286,491 $327,903 $ 705,234
Long-term debt (including current portion) -- -- 229,070 214,168 226,740 427,362
Partnership/Stockholders' equity (deficit) 39,619 42,789 (31,333) 1,777 27,187 103,863
OPERATING AND OTHER DATA:
EBITDA(5)................................. $ 46,149 $ 28,566 $ 23,425 $ 62,785 $ 57,488 $ 69,145
Cash flow from operating activities....... 36,068 14,059 7,512 39,002 33,562 13,023
Cash flow from investment activities...... (483) (165) (295,870) (5,287) (60,543) (233,098)
Cash flow from financing activities....... (35,585) (13,894) 298,393 (15,255) 5,955 215,891
</TABLE>
_________________
(1) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect the
fair market value of the inventory at August 1, 1993, the effective date of
the Brylane Acquisition, at October 1, 1995, the effective date of the
KingSize Acquisition, and at December 9, 1996, the closing date of the
Chadwick's Acquisition, respectively, as more fully described in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations". The increases in inventory value had been fully amortized into
cost of goods sold as of April 30, 1994 for the Brylane Acquisition and as
of February 3, 1996
17
<PAGE>
for the KingSize Acquisition. The non-recurring inventory charge related to
the Chadwick's Acquisition was amortized into cost of goods sold in the
amount of $1,657,000 in fiscal 1996 with the remainder to be amortized in
Spring 1997.
(3) Represents provision for income taxes as a corporate division of The Limited
for the fiscal year ended January 30, 1993 and the twenty-six weeks ended
July 31, 1993, and as a partnership for the twenty-six weeks ended January
29, 1994 and the fiscal years ended January 28, 1995, February 3, 1996 and
February 1, 1997.
(4) Consists of deferred financing fees written off in connection with the
repayment of the 1993 bank credit facility.
(5) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to write-off of
deferred financing fees and non-cash compensation expense related to the
1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation and is not
considered as an alternative to net income or any other indicator of
Brylane's operating performance which is presented in accordance with
generally accepted accounting principles above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Item 6. Selected Financial Data" and the consolidated and combined financial
statements and related notes thereto which appear elsewhere in this Form 10-K.
The Company uses a 52/53 week fiscal year for financial reporting purposes.
As a result of the Chadwick's Acquisition and the application of purchase
accounting related thereto, the Company's results of operations for 1996 reflect
a non-recurring inventory charge of $1.7 million related to the write-up of
Chadwick's inventory of $5.0 million. The subsequent amortization of such
write-up into cost of goods sold reduced the Company's gross margin in fiscal
1996. The remaining $3.3 million write-up of the Chadwick's inventory will be
amortized into cost of goods sold during Spring 1997. The Company also
anticipates the prospective impact of several other Chadwick's Acquisition
related adjustments to its results of operations. In particular, the Company's
results will reflect additional amortization expense associated with the write-
up of certain intangible assets related to the Chadwick's Acquisition of $5.3
million per year. Furthermore, Brylane entered into an agreement whereby a
third party has committed to purchase certain accounts receivable generated by
Chadwick's deferred billing programs. Consequently, accounts receivable related
to the Chadwick's catalog in the future will be significantly lower than in
Brylane's historical periods, and the Company's operating expenses will increase
due to costs associated with the sale of such receivables. See "Item 13.
Certain Relationships and Related Transactions--Additional Agreements--Accounts
Receivable Purchase Agreement". Interest expense will also increase as a result
of the financing arrangements entered into in connection with the Chadwick's
Acquisition. See "--Liquidity and Capital Resources".
In connection with certain amendments to options previously granted under
the 1993 Option Plan (as defined herein), the Company incurred non-cash
compensation expense totalling $3.1 million, of which $2.4 million was expensed
in the fourth quarter of fiscal 1996 and the remaining $0.7 million will be
expensed through the end of fiscal 1997.
As a result of the Brylane Acquisition and the KingSize Acquisition, and
the application of purchase accounting related thereto, the results of
operations for the fiscal years ended January 28, 1995, February 3, 1996 and
February 1, 1997 include certain adjustments related to the write-up of certain
inventory to reflect its fair market value. In particular, due to a $14.1
million write-up of certain inventory in connection with the Brylane Acquisition
and a $0.6 million write-up of certain inventory in connection with the KingSize
Acquisition, and the subsequent amortization of such write-ups through cost of
goods sold, gross margins were reduced for the fiscal year ended January 28,
1995 by $2.6 million related to the Brylane Acquisition, and in the fiscal year
ended February 3, 1996 by $0.6 million related to the KingSize Acquisition.
Although there will be no further impact on gross margin associated with the
amortization of these write-ups, the Company's financial statements will
continue to reflect the impact of several other acquisition related adjustments
to its results of operations. In particular, in addition to the incremental
amortization expense related to the Chadwick's Acquisition described above, the
Company's results will reflect the amortization of intangible assets related to
the Brylane Acquisition of $4.2 million per year, step-up depreciation
associated with the write-up of certain fixed assets in connection with the
Brylane Acquisition of
18
<PAGE>
$0.4 million per year, and the amortization of intangible assets related to the
KingSize Acquisition of $1.4 million per year. See "Item 6. Selected Financial
Data".
As a result of the Initial Public Offering, the Company's indebtedness has
decreased significantly. The Company used the net proceeds, received from the
Initial Public Offering and contributed by Brylane Inc. to the Partnership, to
prepay approximately $89.3 million of borrowings outstanding under the term
loans of the 1996 Bank Credit Facility (as defined herein). The Company also
used excess cash to further prepay indebtedness outstanding under the term loans
of the 1996 Bank Credit Facility. The Company has realized in the first quarter
of fiscal 1997 a write-off of $2.1 million of deferred financing costs related
to such repayment of debt which will be reflected as an extraordinary charge.
See "--Liquidity and Capital Resources". In addition, in Spring 1997, the
Partnership anticipates using approximately $10 million in excess cash to
further reduce the Company's indebtedness, and entering into a new bank credit
facility (the "1997 Bank Credit Facility") with lower interest expense. The
Company anticipates realizing in the first quarter of fiscal 1997 an additional
write-off of approximately $4.4 million related to the replacement of the 1996
Bank Credit Facility with the 1997 Bank Credit Facility which will be reflected
as an extraordinary charge.
RESULTS OF OPERATIONS
The following tables set forth certain operating data of Brylane for the
periods indicated.
<TABLE>
<CAPTION>
PARTNERSHIP
------------------------------------------------
FISCAL YEAR ENDED
------------------------------------------------
JAN. 28, 1995 FEB. 3, 1996(1) FEB. 1, 1997
-------------- --------------- ------------
(53 WEEKS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $578,530 $601,055 $705,353
Gross profit before non-recurring inventory charge........................ 290,313 302,641 358,781
Non-recurring inventory charge............................................ 2,614 569 1,657
-------- -------- --------
Gross profit.............................................................. 287,699 302,072 357,124
Operating expenses:
Catalog and advertising................................................. 153,830 174,446 186,985
Fulfillment............................................................. 41,656 37,333 55,450
Support services........................................................ 35,152 37,024 54,422
Amortization of acquisitions intangibles and organization costs......... 4,242 4,707 6,518
-------- -------- --------
Operating income.......................................................... 52,819 48,562 53,749
Add back: Non-recurring inventory charge(2)............................ 2,614 569 1,657
Amortization of acquisitions intangibles and organization
costs(3)..................................................... 4,242 4,707 6,518
Step-up depreciation(4)...................................... 368 368 368
Non-cash compensation expense(5)............................. -- -- 2,400
Operating income before acquisitions related and non-recurring
adjustments............................................................. $ 60,043 $ 54,206 $ 64,692
======== ======== ========
</TABLE>
Notes on following page
19
<PAGE>
The following table sets forth certain operating data of Brylane expressed
as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
PARTNERSHIP
------------------------------------------------
FISCAL YEAR ENDED
------------------------------------------------
JAN. 28, 1995 FEB. 3, 1996(1) FEB. 1, 1997
------------- --------------- ------------
(53 WEEKS)
<S> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0%
Gross profit before non-recurring inventory charge................ 50.2 50.4 50.8
Non-recurring inventory charge.................................... 0.5 0.1 0.2
----- ----- -----
Gross profit...................................................... 49.7 50.3 50.6
Operating expenses:
Catalog and advertising.......................................... 26.6 29.0 26.5
Fulfillment...................................................... 7.2 6.2 7.9
Support services................................................. 6.1 6.2 7.7
Amortization of acquisitions intangibles and organization costs.. 0.7 0.8 0.9
----- ----- -----
Operating income.................................................. 9.1 8.1 7.6
Add back: Non-recurring inventory charge(2)..................... 0.5 0.1 0.2
Amortization of acquisitions intangibles and
organization costs(3)................................. 0.7 0.8 0.9
Step-up depreciation(4)............................... 0.1 0.0 0.1
Non-cash compensation expense(5)...................... -- -- 0.4
Operating income before acquisitions related and non-recurring ----- ----- -----
adjustments..................................................... 10.4% 9.0% 9.2%
===== ===== =====
</TABLE>
_____________________
(1) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect the
fair market value of inventory at August 1, 1993, the effective date of the
Brylane Acquisition, at October 1, 1995, the effective date of the KingSize
Acquisition, and at December 9, 1996, the closing date of the Chadwick's
Acquisition, respectively. The increases in inventory value had been fully
amortized into cost of goods sold as of April 30, 1994 for the Brylane
Acquisition and as of February 3, 1996 for the KingSize Acquisition. The
non-recurring inventory charge related to the Chadwick's Acquisition was
amortized into cost of goods sold in the amount of $1,657,000 in 1996 with
the remainder being amortized in Spring 1997.
(3) Represents amortization of goodwill and other intangible assets related to
the Brylane Acquisition of $125,450,000 over a 30-year composite life and of
organizational costs of $300,000 over five years. Subsequent to October 1,
1995, includes amortization related to the KingSize Acquisition of goodwill
of $50,762,000 over a 40-year life, of customer file of $520,000 over an
eight-year life, and of a noncompetition agreement of $300,000 over a five-
year life. Subsequent to December 9, 1996, includes amortization related to
the Chadwick's Acquisition of goodwill of $179,485,000 over a 40-year life,
and of customer file of $4,020,000 over a five-year life.
(4) Property and equipment were written up by $2,943,000 at the time of the
Brylane Acquisition. This step-up is being depreciated over eight years
using the straight-line method.
(5) Represents non-cash compensation expense related to amendments to the 1993
Option Plan.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES. Net sales for the fifty-two weeks ended February 1, 1997
increased 17.4% to $705.4 million from $601.1 million in the fifty-three weeks
ended February 3, 1996. The increase in net sales is primarily due to the
acquisition of the Chadwick's of Boston catalog in December 1996. Excluding
sales from the Chadwick's of Boston catalog, net sales increased by 6.8% to
$642.0 million for fiscal 1996 from $601.1 million in fiscal 1995 primarily due
to the acquisition of the KingSize and Big & Tall catalogs, as well as increased
sales from the Lerner catalog. Excluding both net sales of $11.8 million
related to Brylane's fifty-third week of fiscal 1995 as well as
20
<PAGE>
sales from the Chadwick's of Boston catalog, net sales increased by 8.9% to
$642.0 million for fiscal 1996 from $589.3 million in fiscal 1995.
GROSS PROFIT. Gross profit in fiscal 1996 improved to $357.1 million
(50.6% of net sales) from $302.1 million (50.3% of net sales) for fiscal 1995.
The gross profit for fiscal 1996 and 1995 includes the effect of non-recurring
charges of $1.7 million and $0.6 million, respectively, related to the step-up
of the value of inventory in connection with the Chadwick's Acquisition and the
KingSize Acquisition, respectively. Excluding the non-recurring inventory
charges, gross profit for fiscal 1996 improved to $358.8 million (50.8% of net
sales) from $302.6 million (50.4% of net sales) for fiscal 1995. The increase
in gross profit as a percent of net sales is primarily due to higher initial
mark-ups resulting from improved merchandise sourcing.
CATALOG AND ADVERTISING EXPENSE. Catalog and advertising expense is
comprised of the costs to produce and distribute catalogs, primarily paper,
printing and catalog mailing costs, and the cost of acquiring new prospect
names. For fiscal 1996, catalog and advertising expense increased to $187.0
million (26.5% of net sales) from $174.4 million (29.0% of net sales) for fiscal
1995. The decrease in catalog and advertising expense as a percent of net sales
in fiscal 1996 was due to a decrease in catalog production costs per catalog
produced, an increase in the sales productivity per catalog, and the addition of
the Chadwick's catalog with lower overall advertising costs for the eight week
period ended February 1, 1997.
Paper prices, which peaked in the Fall of 1995, have declined throughout
1996. Brylane's most recent purchases of paper have been at price levels well
below those experienced in the Fall of 1995. Assuming that paper prices remain
at current levels, the Company believes that it will experience lower year-over-
year paper costs in the first two quarters of 1997.
FULFILLMENT EXPENSE. Fulfillment expense includes distribution center,
telemarketing, credit services and customer service expenses, partially offset
by net merchandise postage revenue. Fulfillment expense in fiscal 1996
increased to $55.5 million (7.9% of net sales) from $37.3 million (6.2% of net
sales) for fiscal 1995. As a percent of net sales, fulfillment expense was
higher due to increased shipping promotions used to stimulate sales.
SUPPORT SERVICES EXPENSE. Support services expense includes staffing and
other administrative overhead costs associated with merchandising, advertising,
quality assurance, management information systems, finance, human resources, the
New York and Hingham offices and the license fees associated with the Sears
Agreement. Support services expense for fiscal 1996 increased to $54.4 million
(7.7% of net sales) from $37.0 million (6.2% of net sales) for fiscal 1995. The
increase in support services expense as a percent of net sales is due to an
increase in staffing to support the growth of the business and to an increase in
the license fee paid to Sears, partially offset by an increase in licensing
revenue received from third parties.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization
cost amortization expense in fiscal 1996 included $4.2 million related to the
Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $0.9
million related to the Chadwick's Acquisition. Acquisition related intangibles
and organization cost amortization expense in fiscal 1995 included $4.2 million
related to the Brylane Acquisition and $0.5 million related to the KingSize
Acquisition.
OPERATING INCOME. Operating income before acquisition related
amortization, extraordinary charge and non-cash compensation expense in fiscal
1996 increased to $64.7 million (9.2% of net sales) from $54.2 million (9.0% of
net sales) for fiscal 1995. As a percent of net sales, operating income
increased as a result of the decrease in catalog and advertising expense as
discussed above and an increase in gross profit, partially offset by an increase
in fulfillment and support services expenses.
INTEREST EXPENSE. Interest expense, net, in fiscal 1996 increased to $24.0
million (3.4% of net sales) from $20.6 million (3.4% of net sales) for fiscal
1995 due to the effects of the borrowings of $35.0 million incurred in
connection with the KingSize Acquisition on October 16, 1995 and since December
9, 1996, the effect of the increase in indebtedness for the financing of the
Chadwick's Acquisition, partially offset by slightly lower interest rates on the
term loans of the 1993 bank credit facility.
21
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales for the fifty-three weeks ended February 3, 1996
increased 3.9% to $601.1 million from $578.5 million in the fifty-two weeks
ended January 28, 1995. The increase in net sales was primarily due to the
inclusion of additional sales resulting from the KingSize Acquisition, as well
as the fifty-third week of net sales, and was partially offset by the
discontinuance of certain direct sell advertising programs in the fall of 1995.
Excluding net sales associated with the KingSize Acquisition, the fifty-third
week and the direct sell advertising programs, Brylane's net sales increased
1.2% to $571.2 million in fiscal 1995 from $564.5 million in fiscal 1994. The
increase in net sales was primarily due to slightly increased catalog
circulation and essentially flat catalog productivity.
GROSS PROFIT. Gross profit in fiscal 1995 improved to $302.1 million
(50.3% of net sales) from $287.7 million (49.7% of net sales) for fiscal 1994.
The gross profit for fiscal 1995 and 1994 includes the effect of non-recurring
charges of $0.6 million and $2.6 million, respectively, related to the step-up
of the value of inventory in connection with the KingSize Acquisition and the
Brylane Acquisition, respectively. Excluding the non-recurring inventory
charges, gross profit increased to $302.6 million (50.4% of net sales) in fiscal
1995 from $290.3 million (50.2% of net sales) in fiscal 1994. The increase in
gross profit, excluding these charges, as a percent of net sales was primarily
due to higher initial markups and lower losses on overstock inventory, partially
offset by slightly higher promotional markdowns in fiscal 1995 versus fiscal
1994.
CATALOG AND ADVERTISING EXPENSE. Catalog and advertising expense increased
to $174.4 million (29.0% of net sales) in fiscal 1995 from $153.8 million (26.6%
of net sales) in fiscal 1994. The increase in catalog and advertising expense
as a percent of net sales is primarily due to higher per catalog production
costs during fiscal 1995 resulting from increased paper prices and postage rates
as discussed below.
Effective January 1, 1995, the USPS increased postage rates by
approximately 14% to 19%. In addition, Brylane experienced increases in its
paper costs since the second half of 1994, and paper costs continued to rise
during fiscal 1995. In response to these increased costs, Brylane took steps
designed to mitigate their impact, including limiting catalog circulation
increases by focusing on Brylane's more responsive customers, and reducing the
trim size and page count and changing the paper grade of certain of its
catalogs. However, Brylane was unable to fully offset these increased paper and
postage costs during fiscal 1995.
FULFILLMENT EXPENSE. Fulfillment expense in fiscal 1995 decreased to $37.3
million (6.2% of net sales) from $41.7 million (7.2% of net sales) in fiscal
1994. As a percent of net sales, fulfillment expense improved primarily due to
an increase in net merchandise postage revenue, improved telemarketing costs and
reduced credit card processing fees resulting from an amendment to Brylane's
Credit Card Agreement with World Financial. Net merchandise postage revenue
increased in fiscal 1995 primarily due to an increase in the shipping and
handling rates charged to customers, as well as the full year impact of the
elimination of Brylane's policy of refunding to customers the postage costs they
incur in connection with merchandise returns and exchanges. These changes were
implemented in the third quarter of fiscal 1994 in an effort to offset the
increase in outgoing postage expense resulting from the January 1, 1995 postage
rate increase. Improved telemarketing costs resulted from more efficient
management of payroll costs, which was facilitated by the installation of a new
telephone switch in fiscal 1994 and a reduction in the rate charged by Brylane's
long distance telephone service provider. Finally, Brylane experienced fewer
customer service adjustments for non-delivery of packages shipped via the USPS
as a result of policy changes made by Brylane in the customer service area.
SUPPORT SERVICES EXPENSE. Support services expense in fiscal 1995
increased to $37.0 million (6.2% of net sales) from $35.2 million (6.1% of net
sales) in fiscal 1994. The increase in support services expense as a percent of
net sales is primarily due to higher expenses for staffing in the merchandising,
management information systems and human resources areas that were necessary to
support the growth of the business.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization
cost amortization expense in fiscal 1995 included $4.2 million related to the
Brylane Acquisition and $0.5 million related to the KingSize Acquisition.
Acquisition related intangibles and organization cost amortization expense in
fiscal 1994 included $4.2 million related to the Brylane Acquisition.
22
<PAGE>
OPERATING INCOME. Operating income before giving effect to amortization
and non-recurring inventory charges associated with the Brylane Acquisition and
KingSize Acquisition decreased to $54.2 million (9.0% of net sales) in fiscal
1995 from $60.0 million (10.4% of net sales) in fiscal 1994 as a result of the
increase in operating expenses as discussed above, partially offset by the
increase in gross profit margin.
INTEREST EXPENSE. Interest expense, net, in fiscal 1995 increased to $20.6
million (3.4% of net sales) from $19.6 million (3.4% of net sales) in fiscal
1994 due to increased borrowings of $35.0 million incurred in connection with
the KingSize Acquisition, higher interest rates during fiscal 1995, and
increased letters of credit under the revolving credit facility of the 1993 bank
credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital needs, principally
building inventory to meet increased sales, and its capital expenditure
requirements through funds generated from operations. After the Brylane
Acquisition, the KingSize Acquisition and the Chadwick's Acquisition, the
Company's liquidity requirements have also included servicing the debt incurred
to finance these acquisitions and, to a lesser extent, making tax distributions
to Brylane's partners.
Brylane's cash flow provided by operating activities decreased to $13.0
million in fiscal 1996 from $33.6 million in fiscal 1995. This decrease was
primarily due to an increase in accounts receivable as a result of an increase
in Brylane's deferred receivables program, as well as the acquisition of
Chadwick's, which uses deferred receivables extensively, and an increase in
merchandise inventory at February 1, 1997 in order to achieve a better in-stock
position, partially offset by an increase in accounts payable and accrued
expenses. Brylane's cash balance was $3.3 million at February 1, 1997 compared
to $7.5 million at February 3, 1996. The decrease in the cash balance from
February 3, 1996 to February 1, 1997 resulted from the use of $23.9 million for
financing and investing activities, which included $10.1 million in debt
payments on the 1993 bank credit facility prior to the Chadwick's Acquisition
and $9.9 million in tax distributions to partners, as well as $3.9 million in
capital expenditures discussed below.
Brylane's capital expenditures were $3.9 million, $7.3 million and $5.3
million for fiscal 1996, 1995 and 1994, respectively. Of the total capital
expenditures made in fiscal 1996, the Company spent $2.7 million for the
replacement of Brylane's original tilt tray sorter, $0.5 million for other
Indianapolis fulfillment center enhancements and $0.3 million for Chadwick's
fulfillment center enhancements. The remaining $0.4 million of capital
expenditures in fiscal 1996 was spent on miscellaneous improvements to the New
York office and Indianapolis fulfillment center. In 1994, Brylane embarked on
two major capital expenditure projects designed to increase its capacity and
reduce its fulfillment and telemarketing expenses. In 1994 and 1995, Brylane
spent a total of $8.0 million to improve its Indianapolis fulfillment center,
which consisted primarily of the addition of a second high speed tilt tray
sorter, and spent a total of $2.4 million to open Brylane's San Antonio, Texas
telemarketing facility, which opened in April 1995. The balance of Brylane's
capital expenditures in 1994 and 1995 consisted of $2.2 million for routine
maintenance and upgrades.
The Company's capital expenditures for fiscal 1997 are currently estimated
to be $12.5 million, including $3.1 million for a new order entry system for
Chadwick's telemarketing operations, $2.6 million for management information
systems, $1.6 million for the Chadwick's fulfillment and return processing
centers, and $0.9 million for remodeling the stacker cranes at the Indianapolis
fulfillment center. The remaining $4.3 million of capital expenditures in
fiscal 1997 will be spent on routine maintenance and upgrades for both of
Brylane's catalog fulfillment centers. Brylane plans to fund its capital
expenditures for fiscal 1997 using cash generated from operations.
In connection with the Chadwick's Acquisition, the Partnership entered into
a Credit Agreement dated December 9, 1996 among Brylane, Morgan Guaranty Trust
Company of New York ("Morgan Guaranty"), as administrative agent, Merrill Lynch
Capital Corporation ("Merrill Lynch"), as documentation agent, and the other
lenders parties thereto, and guaranteed by each of the Company's subsidiaries
(the "1996 Bank Credit Facility"), which consists of (i) a $213.0 million five-
year term loan (the "Tranche A Term Loan"), (ii) a $70.0 million six-year and
three-month term loan (the "Tranche B Term Loan", and collectively with the
Tranche A Term Loan, the
23
<PAGE>
"Term Loans"), and (iii) a $125.0 million five-year revolving credit facility
(the "Revolving Credit Facility") with a $75.0 million sublimit for letters of
credit. The proceeds of the term loans of the 1996 Bank Credit Facility were
used to fund a portion of the cash paid upon the closing of the Chadwick's
Acquisition (including related fees and expenses) as well as to repay Brylane's
then existing indebtedness under its 1993 bank credit facility. The Revolving
Credit Facility can be used for letters of credit and general corporate
purposes, including working capital needs. The Term Loans require scheduled
quarterly principal prepayments over their terms. In addition, Brylane is
obligated to make certain mandatory prepayments of the Term Loans and the
Revolving Credit Facility under certain circumstances. Borrowings under the
Term Loans and the Revolving Credit Facility bear interest at one of two rates
selected by the Partnership (i) a margin over the higher of (A) Morgan Guaranty
Trust Company of New York's prime rate or (B) the federal funds rate plus 0.5%
or (ii) a margin over LIBOR (as defined) for specified interest periods. The
margin for each rate may vary based on the ratio of the Partnership's net debt
to operating cash flow ratio. The Tranche A Term Loan initially bears interest
at LIBOR plus 2.0% and the Tranche B Term Loan initially bears interest at LIBOR
plus 2.5%. The Term Loans begin amortizing in May 1997, with aggregate
scheduled principal payments of $26.0 million during fiscal 1997 (excluding the
effects of the Initial Public Offering). After giving effect to the Initial
Public Offering and the use of the net proceeds received therefrom and
contributed by Brylane Inc. to the Partnership, and the use of excess cash to
repay debt, scheduled principal payments on the Term Loans will aggregate
approximately $15.5 million in fiscal 1997 and $24.2 million in fiscal 1998. As
of February 1, 1997, the Company had no borrowings under the Revolving Credit
Facility and, after giving effect to the issuance of $47.9 million in
outstanding letters of credit, which the Company intends to pay through funds
generated from operations, had additional capacity under the Revolving Credit
Facility of approximately $77.1 million.
In connection with the Brylane Acquisition, the Partnership issued $125.0
million aggregate principal amount of its senior subordinated notes (the "Senior
Subordinated Notes"). The Senior Subordinated Notes bear interest at 10% per
annum, payable semi-annually, and mature in 2003. The 1996 Bank Credit Facility
and the Indenture dated as of August 30, 1993 among Brylane and Brylane Capital,
as Issuers, the subsidiaries of Brylane, as Guarantors, and United States Trust
Company of New York, as Trustee (as supplemented, the "Indenture") pursuant to
which the Senior Subordinated Notes were issued contain covenants (the
"Covenants") that, among other things, restrict the Partnership's ability to
incur debt, make distributions, incur liens, make capital expenditures and make
investments or acquisitions. During fiscal 1996, Brylane made advances to its
partners totaling $9.9 million with respect to their tax liabilities. These
advances approximate the tax payments the Partnership would be required to make
if it were a tax-paying corporation, rather than a partnership. Brylane's tax
distributions, capital expenditures and the Chadwick's Acquisition for fiscal
1996 were in compliance with the Covenants. See "--Certain Tax Matters".
In connection with the Chadwick's Acquisition, Brylane entered into an
Accounts Receivable Purchase Agreement dated as of December 9, 1996 with ADS (as
amended on January 27, 1997, the "Receivables Purchase Agreement") pursuant to
which ADS has agreed to purchase from the Company eligible customer accounts
receivable generated through Chadwick's deferred billing programs. ADS'
commitment to purchase receivables is limited to $100.0 million outstanding at
any time. ADS will purchase the receivables on a limited recourse basis at a
discount from face value. The Company will pay transaction costs including a
fee of $0.03 per purchased account, and carrying costs equal to, at the
Company's election, LIBOR plus 95 basis points or the lesser of (a) a defined
prime rate plus 15 basis points and (b) the federal funds rate plus 110 basis
points. The receivables purchase facility has a three-year term and is subject
to early termination upon occurrence of certain events, including chargebacks
and customer default ratios above specified levels or an uncured default by the
Partnership under its 1996 Bank Credit Facility. See "Item 13. Certain
Relationships and Related Transactions--Additional Agreements--Accounts
Receivable Purchase Agreement".
While no assurances can be given in this regard, based on current and
projected operating results and giving effect to the reductions in its total
indebtedness as a result of the use of the proceeds from the Initial Public
Offering, the Company believes that cash flow from operations will provide
adequate funds for ongoing operations, debt service on its indebtedness
(including scheduled prepayments under the 1996 Bank Credit Facility), tax
distributions to its partners and planned capital expenditures for the
foreseeable future. In addition, the Company will have availability under the
Revolving Credit Facility to finance seasonal working capital needs.
24
<PAGE>
SEASONALITY
See "Item 1. Business--Seasonality" for a discussion of factors which
influence the Company's quarterly sequence of revenue and operating income.
INFLATION AND FOREIGN CURRENCY EXPOSURE
The results of operations for the periods discussed have not been
significantly affected by inflation. Foreign purchase orders are all
denominated in U.S. dollars and, therefore, foreign currency fluctuations are
not material to the Company's operating results.
CERTAIN TAX MATTERS
DEPRECIATION AND AMORTIZATION. FS&Co. and The Limited have treated the
Brylane Acquisition for federal income tax purposes as a purchase by the
Partnership of a proportionate part of the assets of Brylane (approximately 57%
of each asset) and as a contribution by certain affiliates of The Limited of the
remaining portion of such assets. See "Item 1. Business--History and
Background". FS&Co. and The Limited have allocated a substantial portion of the
purchase price paid for the purchased portion of the assets to intangible assets
which are being amortized for federal income tax purposes over a 15-year period.
The Partnership has elected under Section 754 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), for its 1996 tax year to
increase the tax basis of its assets by approximately $50.7 million to reflect
the federal tax gain that The Limited and its affiliates recognized in
connection with the Limited Stockholder's contribution to the Company of its
partnership interest in the Partnership pursuant to the Exchange Transaction. A
substantial portion of this adjustment in tax basis will be allocated to
intangible assets, which will be amortized for federal income tax purposes over
15 years. This adjustment to tax basis does not require a comparable basis
adjustment in the Company's financial statements, but the future tax benefit
that the Company will recognize through the amortization thereof for tax
purposes is included in a deferred tax asset of approximately $19.1 million.
TAX DISTRIBUTION. To the extent that the partners of the Partnership,
other than The Limited, Leeway & Co., NYNEX and WearGuard, recognized taxable
income resulting from the allocation of income of the Partnership prior to the
consummation of the Exchange Transaction, pursuant to the Partnership Agreement,
such partners received a distribution to cover their federal and state tax
liabilities attributable thereto. Since such a distribution was payable, The
Limited, Leeway & Co., NYNEX and WearGuard also received a proportionate
distribution to cover their respective tax liabilities on their respective share
of the same amount of Partnership income. During fiscal 1996, the Partnership
made advances to its partners totaling $9.9 million with respect to their tax
liabilities. These advances approximate the tax payments the Partnership would
be required to make if it were a tax-paying corporation, rather than a
partnership. Subsequent to the Exchange Transaction, the Partnership will
continue to make tax distributions to its current partners.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are the current executive officers of the
Partnership or its subsidiaries (including B.L. Management and K.S. Management,
each of which provide management services to Brylane) and the current members of
the Board of Representatives of Brylane (the "Board"):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter J. Canzone........... 67 Chief Executive Officer, Chairman of the Board and
Member of the Board
William C. Johnson(1)(2)... 57 Vice Chairman of the Board and Member of the
Board
Sheila R. Garelik.......... 52 President
Robert A. Pulciani......... 56 Executive Vice President, Chief Financial Officer and
Secretary
Richard L. Bennett......... 65 Senior Vice President-Human Resources
Jessie Bourneuf............ 47 President-KingSize
William G. Brosius......... 60 Senior Vice President-Operations/Customer Service
Bruce G. Clark............. 52 Senior Vice President-Telemarketing
Kevin Doyle................ 43 Vice President/General Manager-Roaman's
Kevin McGrain.............. 42 Vice President/General Manager-Sears Business
Carol Meyrowitz............ 43 Executive Vice President-Chadwick's Merchandising
Loida Noriega-Wilson....... 41 Vice President/General Manager-Lerner
Dhananjaya K. Rao.......... 48 President and Chief Executive Officer-Chadwick's
Jules Silbert.............. 69 Senior Vice President-Marketing/New Business
Development
Arlene Silverman........... 47 Senior Vice President/General Manager-Lane Bryant
Mark J. Doran.............. 33 Member of the Board
Samuel P. Fried(1)......... 45 Member of the Board
William K. Gerber.......... 43 Member of the Board
John M. Roth(1)............ 38 Member of the Board
Ronald P. Spogli(1)........ 49 Member of the Board
</TABLE>
- ----------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Canzone has been Chief Executive Officer of Brylane and its predecessor
since 1978 and also served as President of Brylane and its predecessor from 1978
until July 1996. In connection with the Brylane Acquisition, Mr. Canzone became
a member of the Board and was elected Chairman of the Board in June 1995.
Between 1969 and 1978, Mr. Canzone was employed by Lane Bryant in a variety of
merchandising positions.
Mr. Johnson became a member of the Board on February 18, 1994 and was
elected Vice Chairman of the Board in June 1995. From March 1990 until December
1994, Mr. Johnson served as Chief Executive Officer of Grolier Incorporated.
Prior to joining Grolier Incorporated, from 1982 to 1989, Mr. Johnson served as
Chairman of the Board and Chief Executive Officer of Fingerhut Corporation.
Ms. Garelik has been President of Brylane since July 1996. Ms. Garelik
served as Executive Vice President/President-Lane Bryant from the Brylane
Acquisition until July 1996, and served as Executive Vice President/General
Manager of Roaman's from 1989 until the Brylane Acquisition. Between 1969 and
1989, Ms. Garelik was employed by Brylane's predecessor in a variety of
merchandising positions.
Mr. Pulciani has been Executive Vice President, Chief Financial Officer and
Secretary of Brylane and its predecessor since May 1993. Mr. Pulciani joined
Brylane in 1988, and served as Senior Vice President and Chief
26
<PAGE>
Financial Officer from May 1988 to May 1993. Prior to joining Brylane, Mr.
Pulciani was Vice President and Controller of Carson Pirie Scott.
Mr. Bennett has been Senior Vice President-Human Resources of Brylane and
its predecessor since March 1986. Mr. Bennett joined Brylane in 1983, and
served as Vice President-Human Resources from 1983 to March 1986. Prior to
joining Brylane, Mr. Bennett was with Dayton Hudson from 1975 to 1983 as
Director of Employee Relations/Personnel.
Ms. Bourneuf has been President of the Company's KingSize business since
the KingSize Acquisition in October 1995. Prior to joining Brylane, Ms.
Bourneuf served as President of the KingSize catalog division of WearGuard since
1989. From 1981 to 1989, Ms. Bourneuf served as Senior Vice President of
Marketing of WearGuard, and from 1978 to 1980, Ms. Bourneuf served as Marketing
Director of Talbots.
Mr. Brosius has been Senior Vice President-Operations/Customer Service of
Brylane and its predecessor since October 1987. Mr. Brosius joined Brylane in
1969, and served as Vice President-Fulfillment from 1979 to October 1987.
Mr. Clark has been Senior Vice President-Telemarketing of Brylane and its
predecessor since May 1988. Mr. Clark also served as Senior Vice President-
MIS/Telemarketing from May 1988 to April 1997. Mr. Clark joined Brylane in
1983, and served as Vice President-MIS/Telemarketing from 1983 to May 1988.
Prior to joining Brylane, Mr. Clark was a Partner with Arthur Andersen & Co.
Mr. Doyle has been Vice President/General Manager-Roaman's since November
1996. Mr. Doyle joined Brylane in 1975 and served as Control Buyer, Assistant
Buyer, Associate Buyer, Buyer and Senior Buyer over a period of 14 years. Mr.
Doyle also served as Merchandise Director of Lane Bryant from August 1989 until
September 1993 and served as General Merchandise Manager of Roaman's from
September 1993 to November 1996.
Mr. McGrain was appointed Vice President/General Manager of the Company's
Sears Business in August 1995. Mr. McGrain joined Brylane in September 1988 and
was Vice President-Controller of Lerner from May 1992 to August 1995.
Ms. Meyrowitz has been Executive Vice President-Merchandising of the
Company's Chadwick's business since the Chadwick's Acquisition in December 1996.
From May 1996 to December 1996, Ms. Meyrowitz served as Executive Vice
President-Merchandising of Chadwick's, Inc. From March 1991 to May 1996, Ms.
Meyrowitz served as Senior Vice President and General Merchandise Manager of
Chadwick's, Inc. Previously, Ms. Meyrowitz was General Merchandise Manager at
Chadwick's from March 1990 to March 1991, and Vice President and Senior
Merchandise Manager from January 1989 to March 1990. Prior to that, Ms.
Meyrowitz was Vice President and Divisional Merchandise Manager of the Hit or
Miss Division of TJX from 1986 to 1989, and she was a Buyer at the Hit or Miss
Division from 1983 to 1986.
Ms. Noriega-Wilson joined Brylane in April 1995 as Vice President/General
Manager-Lerner. Prior to joining Brylane, Ms. Noriega-Wilson served as Vice
President of Merchandising of Montgomery Ward Direct from February 1993 to
February 1995. From September 1992 to January 1993, Ms. Noriega-Wilson served
as Vice President of Merchandising for Clegg Industries, an independent private
investment group. From 1988 to July 1992, Ms. Noriega-Wilson served as Vice
President of Merchandising & Marketing of Together Limited in London, England.
Prior to that, Ms. Noriega-Wilson was with Spiegel for 10 years, where she
served as Divisional Merchandise Manager from 1986 to 1988.
Mr. Rao has been President and Chief Executive Officer of the Company's
Chadwick's business since the Chadwick's Acquisition in December 1996. From May
1996 to December 1996, Mr. Rao served as President and Chief Executive Officer
of Chadwick's, Inc. From January 1995 to May 1996, Mr. Rao served as Senior
Vice President, Operations and Marketing of Chadwick's, Inc. Previously, Mr.
Rao worked at the T. J. Maxx Division of TJX from 1978 until 1995. His
management positions during such time included Senior Vice President of
Distribution and Financial Planning and Analysis from November 1994 to January
1995, Senior Vice President of Distribution, Merchandise Planning and Inventory
Management from 1991 to 1994, Senior Vice President and Director of Distribution
from 1989 to 1991 and Vice President and Director of Distribution from 1981 to
1989.
Mr. Silbert has been Senior Vice President-Marketing/New Business
Development of Brylane since July 1995. From December 1993 to July 1995, Mr.
Silbert served as Vice President-New Business Development of Brylane. Prior to
joining Brylane, Mr. Silbert was President of The Silbert Group, Inc., an
independent
27
<PAGE>
management consulting firm, since April 1982. From 1978 to April 1982, Mr.
Silbert served as the President of the retail stores division of the Lane Bryant
Company. From 1970 to 1978, Mr. Silbert served as the President of the catalog
retail division of the Lane Bryant Company.
Ms. Silverman has been Senior Vice President/General Manager-Lane Bryant
since August 1996 and previously served as Senior Vice President/General
Manager-Roaman's from February 1995 to August 1996. Ms. Silverman joined
Brylane in 1973, and served as Division Merchandise Manager from May 1989 to May
1991, and served as Vice President of Roaman's from May 1991 to February 1995.
Mr. Doran became a member of the Board in January 1995 and is one of the
FS&Co. nominees to the Board. Mr. Doran joined FS&Co. in 1988. Previously, Mr.
Doran was employed in the high yield bond department of Kidder Peabody & Co.
Incorporated. Mr. Doran is also a director of EnviroSource, Inc.
Mr. Fried became a member of the Board in connection with the Brylane
Acquisition and is one of The Limited nominees to the Board. Mr. Fried has been
Vice President and General Counsel of The Limited since joining The Limited in
November 1991. Mr. Fried became Vice President, Secretary and General Counsel
of Intimate Brands, Inc., a subsidiary of The Limited, in May 1995, and Vice
President of Ambercrombie & Fitch in June 1996. Prior to joining The Limited,
from February 1987 to October 1991, Mr. Fried served as Vice President,
Secretary and General Counsel of Exide Corporation.
Mr. Gerber became a member of the Board in connection with the Brylane
Acquisition and is one of The Limited nominees to the Board. Mr. Gerber has
been Vice President of Finance of The Limited since July 1993, Vice President of
Intimate Brands, Inc. since May 1995, and Vice President of Ambercrombie & Fitch
since June 1996. From August 1987 to June 1993, Mr. Gerber was Vice President
and Corporate Controller of The Limited. Mr. Gerber joined The Limited in 1983
and held various financial positions at The Limited Stores division of The
Limited between 1983 and 1987.
Mr. Roth became a member of the Board in connection with the Brylane
Acquisition and is one of the FS&Co. nominees to the Board. Mr. Roth joined
FS&Co. in March 1988 and became a general partner in March 1993. Mr. Roth is
also a director of EnviroSource, Inc.
Mr. Spogli is a founding partner of FS&Co., a private investment firm that
was founded in 1983. Mr. Spogli became a member of the Board in connection with
the Brylane Acquisition and is one of the FS&Co. nominees to the Board. Mr.
Spogli is the Chairman of the Board and a Director of EnviroSource, Inc. Mr.
Spogli also serves on the Board of Directors of Buttrey Food and Drug Stores
Company.
The Board consists of three nominees of VGP Corporation, the general
partner of the Partnership ("VGP"), two nominees of The Limited, the Chief
Executive Officer of Brylane and an additional representative mutually agreed to
by VGP and The Limited. The Company intends that, in addition to Mr. Johnson,
one additional independent representative will serve on the Board and the Audit
Committee. The second independent representative will be added as soon as an
appropriate individual is identified and agrees to serve.
Each member of the Board is elected to hold office until his respective
successor is elected and qualified. Officers serve at the discretion of the
Board. The Board has a Compensation Committee, which administers the Company's
stock, option and other compensation plans, and an Audit Committee, which
reviews the results and scope of the audit and other services provided by the
Company's independent auditors.
The members of the Board do not receive compensation for services on the
Board but are reimbursed for their out-of-pocket expenses in serving on the
Board. Similarly, the members of the Board do not receive compensation for
services on any committee of the Board. There are no family relationships
between any officers or members of the Board.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Chief Executive Officer and the other four most highly compensated
executive officers (the "Named Executive Officers") for their services to the
Partnership for (i) the 1996 fiscal year, (ii) the 1995 fiscal year, and (iii)
the 1994 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(3)
------------------
ANNUAL COMPENSATION OPTIONS TO
------------------------- PURCHASE ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD SALARY(1) BONUS(1)(2) PARTNERSHIP UNITS COMPENSATION(4)
- -------------------------------------- ----------- ---------- ----------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Peter J. Canzone....................... Fiscal 1996 $552,750 $421,464 24,000(5) $118,358
Chief Executive Officer 250,000(6)
and Chairman of the Board Fiscal 1995 520,500 196,602 20,000(5) 106,393
Fiscal 1994 491,000 361,427 -- 111,933
Sheila R. Garelik...................... Fiscal 1996 364,542 244,484 18,000(5) 69,009
President 43,750(6)
Fiscal 1995 318,500 155,043 10,000(5) 65,125
Fiscal 1994 297,750 204,128 -- 65,961
Robert A. Pulciani..................... Fiscal 1996 286,583 185,059 12,000(5) 55,166
Executive Vice President, 36,459(6)
Chief Financial Officer, Fiscal 1995 266,750 85,383 6,000(5) 52,767
Secretary and Treasurer Fiscal 1994 250,500 155,982 -- 55,204
Jules Silbert.......................... Fiscal 1996 282,833 165,898 6,000(5) 47,380
Senior Vice President- 20,000(6)
Marketing/New Business Fiscal 1995 270,000 77,335 6,000(5) 41,749
Development Fiscal 1994 222,083 109,424 -- 4,843
Bruce G. Clark......................... Fiscal 1996 219,083 115,662 5,000(5) 41,349
Senior Vice President- 34,375(6)
Telemarketing Fiscal 1995 205,750 53,877 5,500(5) 38,569
Fiscal 1994 193,250 98,480 -- 40,087
</TABLE>
___________________
(1) Included in the aggregate of salary and bonus is an amount of compensation
that was deferred at the election of each Named Executive Officer. For
fiscal 1996, Messrs. Canzone, Pulciani, Silbert and Clark, and Ms. Garelik,
elected to defer $97,421, $115,581, $67,310, $66,949 and $152,256,
respectively, of their aggregate salary and bonus for such period. For
fiscal 1995, Messrs. Canzone, Pulciani, Silbert and Clark, and Ms. Garelik,
elected to defer $71,710, $46,818, $52,100, $40,626 and $111,911,
respectively, of their aggregate salary and bonus for such period. For
fiscal 1994, Messrs. Canzone, Pulciani, Silbert and Clark, and Ms. Garelik,
elected to defer $85,243, $40,648, $12,109, $39,405 and $86,959,
respectively, of their aggregate salary and bonus for such period.
(2) Bonuses were earned during the six-month seasons ended July 30, 1994,
January 28, 1995, July 29, 1995, February 3, 1996, August 3, 1996 and
February 1, 1997, but were not paid until August 1994, February 1995, August
1995, February 1996, August 1996 and February 1997, respectively. See "--
Performance Bonus Program" for a discussion of Brylane's bonus program in
which the above-named individuals are entitled to participate.
(3) For each of the periods set forth in the table above, no Named Executive
Officer received aggregate Other Annual Compensation in excess of the lesser
of $50,000 or 10% of the total of such officer's salary and bonus,
29
<PAGE>
nor did any such Named Executive Officer receive any restricted stock award,
stock appreciation right or payment under any long-term incentive plan.
(4) In fiscal 1996, fiscal 1995 and fiscal 1994, these amounts consist of
approximately $5,000, $5,000 and $5,000, respectively, under a supplemental
medical benefits plan (except for Mr. Silbert who was not eligible to
receive any benefits under such plan during the periods shown), with the
balance consisting of deferred compensation in the form of a matching
contribution by the Partnership under the Deferred Compensation Plan (as
defined herein), a cash contribution by the Partnership under the Retirement
Plan (as defined herein), and a contribution by the Partnership under the
Supplemental Retirement Plan (as defined herein), where applicable. See "--
Deferred Compensation Plan" and "--Retirement Plans". In 1996, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $58,453,
$28,299, $26,924, $20,085 and $36,542, respectively, under the Deferred
Compensation Plan; (ii) $10,119, $10,119, $8,619, $10,119 and $10,119,
respectively, under the Retirement Plan (which was not paid until April
1997); and (iii) $44,786, $11,748, $11,837, $6,145 and $17,348,
respectively, under the Supplemental Retirement Plan. In 1995, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $43,026,
$21,128, $20,840, $15,578 and $28,413, respectively, under the Deferred
Compensation Plan; (ii) $10,164, $10,164, $8,664, $10,164 and $10,164,
respectively, under the Retirement Plan (which was not paid until May 1996);
and (iii) $48,203, $16,475, $12,245, $7,827 and $21,548, respectively, under
the Supplemental Retirement Plan. In 1994, Messrs. Canzone, Pulciani,
Silbert and Clark, and Ms. Garelik, earned (i) $51,146, $24,389, $4,843,
$17,504 and $30,113, respectively, under the Deferred Compensation Plan;
(ii) $10,182, $10,182, $0, $10,182 and $10,182, respectively, under the
Retirement Plan (which was not paid until May 1995); and (iii) $45,605,
$15,633, $0, $7,401 and $20,666, respectively, under the Supplemental
Retirement Plan. Mr. Silbert was not eligible to participate in the
Retirement Plan or the Supplemental Retirement Plan in fiscal 1994. Mr.
Silbert became eligible to participate in the Deferred Compensation Plan on
January 1, 1995.
(5) These options were granted to the Named Executive Officers in 1995 and 1996
pursuant to the Partnership's 1995 Partnership Unit Option Plan. As a
result of the Exchange Transaction, an option to purchase one share of
Common Stock was issued in substitution for each outstanding option to
purchase one partnership unit. See "--Option Plans--1995 Option Plan".
(6) These options were granted to the Named Executive Officers in 1993 (or in
the case of Mr. Silbert, in 1994) pursuant to the Partnership's 1993
Performance Partnership Unit Option Plan. In connection with the Chadwick's
Acquisition, the Partnership amended the options which were previously
granted to the Named Executive Officers in 1993 (or in the case of Mr.
Silbert, in 1994) pursuant to the Partnership's 1993 Performance Partnership
Unit Option Plan. As a result of the Exchange Transaction, an option to
purchase one share of Common Stock was issued in substitution for each
outstanding option to purchase one partnership unit. See "--Option Plans--
1993 Performance Option Plan".
EMPLOYMENT AGREEMENTS
B.L. Management has entered into employment agreements with each of Messrs.
Canzone, Pulciani, Silbert and McGrain and with Mmes. Garelik, Noriega-Wilson
and Silverman, which agreements commenced on May 1, 1996. These agreements
provide for annual salaries for each of these individuals which currently are
$555,000, $288,000, $284,000, $185,000, $385,000, $210,000 and $225,000,
respectively. In addition, the Partnership has entered into comparable
employment agreements with each of Messrs. Bennett, Brosius and Clark which
provide for annual salaries which currently are $210,000, $204,000 and $220,000,
respectively. Each of the employment agreements entered into by B.L. Management
and the Partnership will expire on or about April 30, 1997, but will be
automatically renewable for one-year terms thereafter, unless notice is given as
specified in such employment agreements. On July 15, 1996, B.L. Management
entered into an amendment to the employment agreement with Ms. Garelik which
reflects Ms. Garelik's promotion to President of the Partnership and her
corresponding increased compensation and bonus plan participation. In the event
that the employment of any of these individuals is terminated without "cause" or
the individual resigns for "good reason" (as such terms are defined in the
employment agreements), Brylane will be required to pay such individual's base
salary (reduced by any salary earned from other sources) for the greater of (i)
the remainder of the term of the applicable employment agreement or (ii) nine
months (or six months in the case of one executive). The employment agreements
also provide for (i) the payment of one year's salary upon termination of
employment by reason of death or disability (less any amounts paid to such
individuals under any disability plans), and (ii) with respect to the
termination of any of these individuals other than for "cause", the payment of a
pro rata portion of any bonuses or incentive compensation payable with respect
to any
30
<PAGE>
period commencing prior to the date of such individual's termination. In
addition, the employment agreements provide that each executive will not compete
with Brylane for a period of twelve months after termination (subject to certain
exceptions), unless the executive terminates his or her employment for "good
reason".
The Partnership has entered into employment agreements with each of Mr. Rao
and Ms. Meyrowitz, which agreements commenced on December 9, 1996 and will
continue for a three-year term. These agreements provide for annual salaries of
$340,000 for Mr. Rao and $325,000 for Ms. Meyrowitz and for participation in
Chadwick's performance bonus programs. Upon termination of these employment
agreements, the Partnership has agreed, subject to certain conditions, to enter
into new employment agreements on terms substantially similar to those contained
in the employment agreements described above for B.L. Management. Prior to this
time, in the event the employment of either of these individuals is terminated
without "cause" or if the individual resigns for "good reason" (as such terms
are defined in the employment agreements), the Partnership will be required to
pay such individual's base salary (reduced by compensation from other employment
after the first 12 months of the period) for the longer of (i) one year or (ii)
the remainder of the term of the applicable employment agreement, continue
certain benefits, and make prorated bonus payments. The Rao and Meyrowitz
employment agreements also provide for the payment of an amount equal to two
times such individual's annual base salary, along with certain additional
benefits, in the event such individual's employment terminates under certain
circumstances for the two year period following a "change of control" (as
defined). Upon a change of control, whether or not an individual's employment
terminates, the agreements provide for the immediate, lump sum payment of
certain bonus amounts. In addition, these employment agreements provide that,
subject to certain exceptions, such executives will not compete with the
Partnership for a period of 12 months after termination of employment by the
Company under certain circumstances.
STOCK SUBSCRIPTION PLAN
In connection with the Brylane Acquisition, VP Holding adopted a Stock
Subscription Plan (as amended, the "Subscription Plan") pursuant to which an
aggregate of 453,000 shares of the common stock of VP Holding (the "VP Holding
Employee Shares") were issued, at a purchase price of $10.00 per share, to
certain members of management and certain other key employees of the Partnership
(or its subsidiaries) or members of the Board of Representatives of the
Partnership. Subsequent to the Brylane Acquisition, the Subscription Plan was
amended to provide for the issuance of up to an aggregate of 653,000 VP Holding
Employee Shares pursuant to the Subscription Plan, and additional VP Holding
Employee Shares were purchased by new employees of the Partnership, B.L.
Management and K.S. Management in connection with their employment. Pursuant to
the terms of the Subscription Plan, participants who chose not to pay the entire
purchase price of their subscription in cash could elect to pay up to 50% of
such purchase price through the delivery of a five-year, full recourse
promissory note, bearing interest at the rate of interest designated by Morgan
Guaranty Trust Company of New York as the prime rate at the time of purchase
(which at the time of the Brylane Acquisition was approximately 6%). In a few
instances, the portion of the purchase price paid by promissory note was greater
than 50% of the total purchase price. Accrued interest on the promissory notes
is payable quarterly, and the principal balance of, including all accrued and
unpaid interest on, the promissory notes is payable in full at maturity. The VP
Holding Employee Shares were pledged to VP Holding, in order to secure repayment
of the promissory notes. As of February 1, 1997, of the aggregate purchase price
of approximately $5.2 million paid for the VP Holding Employee Shares (net of
repurchases), promissory notes in the aggregate amount of approximately $2.5
million have been delivered under the Subscription Plan.
On August 30, 1993, the following executive officers purchased the number
of VP Holding Employee Shares set forth after their names at a purchase price of
$10.00 per share: Mr. Canzone, 100,000; Ms. Garelik, 40,000; Mr. Pulciani,
25,000; Mr. Clark, 25,000; Mr. Bennett, 22,500; Mr. Brosius, 22,500; Ms.
Silverman, 15,000; Mr. McGrain, 15,000; and Mr. Doyle, 5,000. For these
individuals, $500,000, $200,000, $125,000, $125,000, $112,500, $112,500,
$75,000, $150,000 and $50,000 of their purchase price, respectively, was
financed through the delivery of promissory notes on the terms described above.
Subsequent to the Brylane Acquisition and in connection with their employment
with B.L. Management, the Partnership and K.S. Management, respectively, Mr.
Silbert, Ms. Noriega-Wilson and Ms. Bourneuf purchased 20,000, 15,000 and 7,500
VP Holding Employee Shares, respectively, at a purchase price of $10.00, $15.00
and $15.00 per VP Holding Employee Share, respectively, for which $100,000,
$112,500 and $0 of their purchase price, respectively, was financed through the
delivery of promissory notes on the terms described above. Subsequent to the
Brylane Acquisition and in connection with his election to the Board of
31
<PAGE>
Representatives of the Partnership, Mr. Johnson purchased 30,000 VP Holding
Employee Shares at a purchase price of $10.00 per share.
All of the VP Holding Employee Shares were purchased pursuant to Stock
Subscription Agreements which contained certain restrictions on transfer,
repurchase rights and obligations, rights of first refusal, "drag along" rights
and "tag along" rights.
In connection with the Initial Public Offering, Brylane Inc. adopted the
Brylane Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan"),
which in part, supersedes and acts as a successor to the Subscription Plan
adopted by VP Holding in connection with the Brylane Acquisition. Participants
in the Brylane Subscription Plan are all of the members of management of Brylane
other than the Named Executive Officers, Messrs. Johnson, Bennett and Brosius,
and Mmes. Bourneuf and Noriega-Wilson. Brylane Inc. has reserved 653,000 shares
of Common Stock for issuance under the Brylane Subscription Plan and the Brylane
Inc. 1996 Senior Management Stock Subscription Plan, collectively, including
shares issued in exchange for shares of common stock of VP Holding. Pursuant to
the terms of the Stock Subscription Agreements (as defined in the Subscription
Plan) entered into by each of the participants in the Subscription Plan, as a
result of the Initial Public Offering, each of these participants has exchanged
their VP Holding Employee Shares for shares of Common Stock of Brylane Inc. (the
"Brylane Inc. Employee Shares"), at the rate of one Brylane Inc. Employee Share
for each VP Holding Employee Share. See "Item 12. Security Ownership" and "Item
13. Certain Relationships and Related Transactions--The Exchange Transaction".
These individuals have also entered into new stock subscription agreements which
reflect the reconfiguration of the Partnership and the creation of Brylane Inc.
In addition, the Brylane Inc. Employee Shares have been pledged to Brylane Inc.
in order to secure repayment of the promissory notes issued at the time of
purchase of the VP Holding Employee Shares. If a participant's employment with
Brylane Inc., the Partnership or a subsidiary is terminated for any reason prior
to August 30, 1997, Brylane Inc. will retain the right to repurchase such
participant's Brylane Inc. Employee Shares at fair market value (as defined).
SENIOR MANAGEMENT STOCK SUBSCRIPTION PLAN
In connection with the Initial Public Offering, Brylane Inc. has adopted
the Brylane Inc. 1996 Senior Management Stock Subscription Plan (the "Senior
Management Plan"), which in part, supersedes and acts as a successor to the
Subscription Plan with respect to the VP Holding Employee Shares purchased by
the Named Executive Officers, Messrs. Johnson, Bennett and Brosius, and Mmes.
Bourneuf and Noriega-Wilson (collectively, the "Senior Management Investors").
Pursuant to the terms of the Stock Subscription Agreements entered into by each
of the Senior Management Investors participating in the Subscription Plan, as a
result of the Initial Public Offering, each of the Senior Management Investors
has exchanged his or her VP Holding Employee Shares for Brylane Inc. Employee
Shares, at the same rate of exchange described above in "--Stock Subscription
Plan". See "Item 12. Security Ownership" and "Item 13. Certain Relationships and
Related Transactions--The Exchange Transaction". The Senior Management Investors
have entered into new stock subscription agreements (the "Senior Management
Agreements") which reflect the reconfiguration of the Partnership and the
creation of Brylane Inc. If a Senior Management Investor's employment with
Brylane Inc., the Partnership or a subsidiary is terminated for any reason prior
to August 30, 1997, Brylane Inc. will retain the right to repurchase such Senior
Management Investor's Brylane Inc. Employee Shares at fair market value (as
defined in the Senior Management Agreements). Until May 27, 1998, Brylane Inc.
may be required to repurchase Mr. Johnson's Brylane Inc. Employee Shares at the
greater of $10.00 per share or fair market value in the event of Mr. Johnson's
death or disability.
OPTION PLANS
1993 Performance Option Plan
In connection with the Brylane Acquisition, the Partnership adopted its
1993 Performance Partnership Unit Option Plan (as amended, the "1993 Option
Plan"), pursuant to which officers and key employees of the Partnership (or its
subsidiaries) were granted the right to purchase an aggregate of 579,584
partnership interests (in the form of units) in the Partnership, at a price of
$10.00 per unit. As amended, an aggregate amount of 779,584 units were reserved
for issuance upon the exercise of options granted under the 1993 Option Plan,
and additional options were granted to new employees of the Partnership, B.L.
Management and K.S. Management in connection with their
32
<PAGE>
employment. On August 30, 1993, Messrs. Canzone, Pulciani, Clark, Bennett,
Brosius, McGrain and Doyle, and Mmes. Garelik and Silverman were granted the
right to purchase 250,000, 36,459, 34,375, 31,250, 31,250, 11,250, 3,750, 43,750
and 11,250 partnership units, respectively, at a price of $10.00 per unit.
Subsequent to the Brylane Acquisition and in connection with their employment
with B.L. Management, the Partnership and K.S. Management, respectively, Mr.
Silbert, Ms. Noriega-Wilson and Ms. Bourneuf were granted options to purchase
20,000, 15,000 and 25,000 partnership units, respectively, at a price of $10.00,
$10.00 and $15.00 per unit, respectively. Subsequent to the Brylane Acquisition
and in connection with his election to the Board of Representatives of the
Partnership, Mr. Johnson was granted the right to purchase 20,000 partnership
units at a price of $10.00 per unit.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized an amendment to the existing option agreements
previously entered into pursuant to the 1993 Option Plan that revised the
performance criteria for the vesting of the options subject thereto to include
the cash flow from the acquisition of the KingSize and Chadwick's businesses, to
change the outside vesting date of the options from August 30, 2008 to August
30, 2002, and to change the term of such options from 16 years to 10 years. The
1993 Option Plan was amended as well to provide that options granted thereunder
may have a term no longer than 10 years. As amended, substantially all options
become exercisable in full (i) on August 30, 1998, upon the determination by the
Board (or a committee thereof) that the Company has achieved an aggregate
targeted earnings before interest, income taxes, depreciation and amortization
of $323.0 million for the four and one-half year period ending January 31, 1998,
or (ii) on August 30, 2002. In addition, the exercise price of the options
outstanding under the 1993 Option Plan was increased from $10.00 per partnership
unit to $15.00 per partnership unit. The Partnership has incurred a non-cash
compensation expense of approximately $3.1 million related to this amendment to
the options outstanding under the 1993 Option Plan. Approximately $2.4 million
of this expense was incurred in the fourth quarter of fiscal 1996 and the
remaining $0.7 million will be incurred in fiscal 1997.
As of February 1, 1997, options for the purchase of a total of 644,584
partnership units, at a price of $15.00 per unit, were outstanding under the
1993 Option Plan, and options for the purchase of 135,000 units remained
available for issuance. As of April 25, 1997, no options were exercisable under
the 1993 Option Plan.
In connection with the Initial Public Offering, Brylane Inc. adopted the
Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance
Option Plan"), which supersedes and acts as the successor to the 1993 Option
Plan. An aggregate of 779,584 shares of Common Stock have been reserved for
issuance under the Brylane 1996 Performance Option Plan. Pursuant to the
Exchange Transaction, all options to purchase partnership units in the
Partnership granted pursuant to the 1993 Option Plan have terminated, and each
optionee has been granted a substitute option to purchase one share of Common
Stock of Brylane Inc., at an exercise price per share equal to the exercise
price per unit of the options exchanged, for each partnership unit purchasable
by the optionee under the 1993 Option Plan, pursuant to new option agreements
which contain terms and conditions which are substantially similar to those
contained in the original option agreements entered into pursuant to the 1993
Option Plan. Prior to the Initial Public Offering, the form of option agreement
under the 1996 Brylane Performance Option Plan and the 1996 Brylane Performance
Option Plan itself were amended in the same manner as the 1993 Option Plan and
the option agreements thereunder. As amended, all options granted under the
Brylane 1996 Performance Option Plan vest in the same manner as the options
under the 1993 Option Plan and terminate 10 years from the date of grant of the
options under the 1993 Option Plan (if not sooner due to termination of
employment).
1995 Option Plan
In 1995, the Partnership adopted its 1995 Partnership Unit Option Plan (the
"1995 Option Plan") and reserved 500,000 partnership units for issuance upon the
exercise of options granted under the 1995 Option Plan. Under the 1995 Option
Plan, officers, key employees, certain members of the Board of Representatives
and consultants of the Partnership (or its subsidiaries) may be granted the
right to purchase partnership units in the Partnership. All options (other than
the Substitute Options discussed below) terminate seven years from the date of
grant (if not sooner due to termination of employment). All options (other than
the Substitute Options discussed below) become exercisable in three equal
installments on the first, second and third anniversaries of the date of grant.
On September 21, 1995, Messrs. Canzone, Johnson, Pulciani, Silbert, Clark,
Bennett, Brosius, McGrain and Doyle, and Mmes. Garelik, Noriega-Wilson and
Silverman were granted the right to purchase 20,000, 25,000, 6,000, 6,000,
5,500, 5,000, 5,000, 3,000, 1,000, 10,000, 4,000 and 4,000 partnership units,
respectively, at a price of $15.00 per unit and a term of 7
33
<PAGE>
years. In connection with her employment with K.S. Management, on March 25,
1996, Ms. Bourneuf was granted the right to purchase 4,000 partnership units at
a price of $15.00 per unit and a term of 7 years. On July 15, 1996, Messrs.
Canzone, Pulciani, Silbert, Clark, Bennett, Brosius, McGrain and Doyle, and
Mmes. Garelik, Bourneuf, Noriega-Wilson and Silverman were granted the right to
purchase 24,000, 12,000, 6,000, 5,000, 6,000, 6,000, 4,000, 2,000, 18,000,
4,000, 6,000 and 6,000 partnership units, respectively, at a price of $19.00 per
unit and a term of 7 years.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized amendments to the 1995 Option Plan to (i) increase
the number of partnership units which may be issued pursuant to the exercise of
options granted under the 1995 Option Plan from 500,000 to 1,700,000; (ii)
permit the Board or the Committee (as defined) to grant options with a term of
up to 10 years; and (iii) permit the Board or the Committee, in the case where
the Partnership acquires a new company or business, to grant substitute options
under the 1995 Option Plan (the "Substitute Options") in exchange for options
granted to a Participant (as defined) by the Participant's former employer, with
such term, exercise price and vesting criteria as are necessary to preserve the
economic value of the options being exchanged therefor.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership granted 130,250 options to purchase partnership units under
the 1995 Option Plan, at a price of $20.00 per unit, to certain key employees of
Chadwick's. Such options vest in three equal annual increments on the first,
second and third anniversaries of the date of grant and expire on December 9,
2006. Of such 130,250 options, Mr. Rao and Ms. Meyrowitz were each granted an
option to purchase 25,000 partnership units.
In addition, in connection with the Chadwick's Acquisition, the Board of
Representatives of the Partnership granted 15,696 Substitute Options under the
1995 Option Plan, at a price of $9.92 per unit, to certain key employees of
Chadwick's in exchange for certain of their options to purchase TJX common
stock. Such options vest in whole on September 20, 1997 and expire on September
20, 2004. Of such 15,696 Substitute Options, Mr. Rao and Ms. Meyrowitz were
granted options to purchase 2,269 and 1,861 partnership units, respectively.
Also in connection with the Chadwick's Acquisition, the Board of
Representatives of the Partnership granted 47,908 Substitute Options under the
1995 Option Plan, at a price of $5.67 per unit, to certain key employees of
Chadwick's in exchange for certain of their options to purchase TJX common
stock. Such options vest in equal 50% increments on September 6, 1997 and
September 6, 1998, and expire on September 6, 2005. Of such 47,908 Substitute
Options, Mr. Rao and Ms. Meyrowitz were granted options to purchase 6,033 and
4,536 partnership units, respectively.
As of February 1, 1997, options for the purchase of 127,750 partnership
units at a price of $15.00 per unit, options for the purchase of 143,000
partnership units at a price of $19.00 per unit, options for the purchase of
130,250 partnership units at a price of $20.00 per unit, Substitute Options for
the purchase of 15,696 partnership units at a price of $9.92 per unit, and
Substitute Options for the purchase of 47,908 partnership units at a price of
$5.67 per unit were outstanding under the 1995 Option Plan, and options for the
purchase of 1,235,396 units remained available for issuance. As of April 25,
1997, no options had been exercised under the 1995 Option Plan.
In connection with the Initial Public Offering, Brylane Inc. adopted the
Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option Plan") which
supersedes and acts as the successor to the 1995 Option Plan. Pursuant to the
Exchange Transaction, all options to purchase partnership units in the
Partnership granted pursuant to the 1995 Option Plan have terminated, and each
optionee has been granted a substitute option to purchase one share of Common
Stock of Brylane Inc., at an exercise price per share equal to the exercise
price per unit of the options being exchanged, for each partnership unit
purchasable by the optionee under the 1995 Option Plan, pursuant to new option
agreements which contain terms and conditions which are substantially similar to
those contained in the original option agreements entered into pursuant to the
1995 Option Plan. Prior to the Initial Public Offering, the Brylane 1996 Option
Plan was amended in the same manner as the 1995 Option Plan. As amended, all
options granted under the Brylane 1996 Option Plan (other than the Substitute
Options discussed above) become exercisable in three equal annual installments
on the first, second and third anniversaries of the date of grant of the options
under the 1995 Option Plan and terminate 7 to 10 years from the date of grant of
the options under the 1995 Option Plan (if not sooner due to termination of
employment).
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<PAGE>
The following table sets forth information concerning options granted to
the Named Executive Officers of the Company during fiscal 1996.
PARTNERSHIP UNIT OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
UNITS OPTIONS OF PARTNERSHIP UNIT PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES EXERCISE OR TERM(2)
GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------------
NAME (#)(1) YEAR ($/UNIT) DATE 5%($) 10%($)
- --------------------- ------------- ------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Canzone..... 24,000 16.78 19.00(3) 7/15/03(5) 186,960 433,200
250,000 40.35 15.00(4) 8/30/03(6) 3,285,000 5,995,000
Sheila R. Garelik.... 18,000 12.59 19.00(3) 7/15/03(5) 140,220 324,900
43,750 7.06 15.00(4) 8/30/03(6) 574,875 1,049,125
Robert A. Pulciani... 12,000 8.39 19.00(3) 7/15/03(5) 93,480 216,600
36,459 5.88 15.00(4) 8/30/03(6) 479,071 874,287
Jules Silbert........ 6,000 4.20 19.00(3) 7/15/03(5) 46,740 108,300
20,000 3.23 15.00(4) 2/18/04(6) 262,800 479,600
Bruce G. Clark....... 5,000 3.50 19.00(3) 7/15/03(5) 38,950 90,250
34,375 5.55 15.00(4) 8/30/03(6) 451,688 824,313
</TABLE>
____________________
(1) Pursuant to the Exchange Transaction, the options to purchase partnership
units previously issued to the Named Executive Officers pursuant to the 1993
Option Plan or the 1995 Option Plan, as the case may be, have been
terminated and replaced by options to purchase shares of Common Stock of
Brylane Inc. with substantially similar terms.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant. It is calculated assuming that the partnership unit
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option, and that the option
is exercised and sold on the last day of its term for the appreciated
partnership unit price. No gain to the optionee is possible unless the
partnership unit price increases over the option term.
(3) The exercise price per unit of these options was equal to the fair market
value of the Brylane partnership unit on the date of grant.
(4) The original exercise price of these options was $10.00 per unit, which was
equal to the fair market value of the Brylane partnership unit on the
original date of grant. These options were amended in connection with the
Chadwick's Acquisition to, among other things, increase the exercise price
from $10.00 per unit to $15.00 per unit. See "--Option Plans--1993
Performance Option Plan". The fair market value of the Brylane partnership
unit on the date of such amendment was $20.00 per unit.
(5) These options were granted under the Partnership's 1995 Option Plan and will
terminate seven years from the date of grant (or sooner due to termination
of employment). These options become exercisable in three equal
installments on the first, second and third anniversaries of the date of
grant. See "--Option Plans--1995 Option Plan".
(6) These options were granted under the 1993 Option Plan and will terminate 10
years from the date of grant (or sooner due to termination of employment).
These options are being reported as option grants in the last fiscal year
due to the amendment in connection with the Chadwick's Acquisition of the
options previously granted to the Named Executive Officers in 1993 (or in
the case of Mr. Silbert, in 1994) under the 1993 Option Plan. As amended,
these options will become exercisable in full (i) on August 30, 1998, upon
Brylane's achievement of certain performance targets, or (ii) on August 30,
2002. See "--Option Plans--1993 Performance Option Plan".
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<PAGE>
The following table sets forth information concerning the number and value
of partnership units underlying unexercised options held by each of the Named
Executive Officers as of February 1, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNITS VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
PARTNERSHIP AT FEBRUARY 1, 1997 (#)(1) FEBRUARY 1, 1997 ($)(2)
UNITS ACQUIRED VALUE --------------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------- --------------- ------------ --------------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter J. Canzone -- -- 6,667/287,333 60,003/2,489,997
Sheila R. Garelik -- -- 3,333/68,417 29,997/543,753
Robert A. Pulciani -- -- 2,000/52,459 18,000/424,131
Jules Silbert -- -- 2,000/30,000 18,000/246,000
Bruce G. Clark -- -- 1,833/43,042 16,497/367,378
</TABLE>
_____________
(1) Pursuant to the Exchange Transaction, the options to purchase partnership
units previously issued to the Named Executive Officers pursuant to the 1993
Option Plan and the 1995 Option Plan have been terminated and replaced by
options to purchase shares of Common Stock of Brylane Inc. with
substantially similar terms under the Brylane 1996 Performance Option Plan
and the Brylane 1996 Option Plan, respectively.
(2) These values are calculated using the fair market value of $24.00 per unit,
less the exercise price of the options.
RETIREMENT PLANS
All of the Company's employees over 21 years of age are eligible to
participate in the Brylane, L.P. Savings and Retirement Plan (the "Retirement
Plan"), after one year of employment. The Retirement Plan allows eligible
employees to make pre-tax contributions up to the lesser of $9,500 or 10% of
their compensation. All amounts contributed by employees are immediately fully
vested. The Company matches 100% of employee contributions to the Retirement
Plan up to a maximum employer contribution of 3% of the employee's compensation.
In addition, the Company makes additional contributions to the Retirement Plan
equal to 4% of each participant's compensation up to the Social Security taxable
wage base for the year (which was $62,700 for 1996) and equal to 7% of each
participant's total compensation which exceeds that amount. An additional 1% of
compensation is contributed by the Company on behalf of those participants who
have completed at least five years of service. The Company's contributions
begin to vest after three years of service, at which time such contributions are
20% vested. Thereafter, the contributions vest at a rate of 20% each year so
that the Company's contributions are fully vested after seven years of service.
Notwithstanding the foregoing, the Company's contributions fully vest when the
employee reaches age 65, dies or becomes disabled while employed by the Company.
Benefits under the Retirement Plan are paid in the form of a lump sum
distribution following termination of employment. In certain circumstances,
participants may be entitled to receive a distribution prior to termination of
employment. Participants may borrow from the Retirement Plan up to 50% of their
vested funds.
In addition to the Retirement Plan, the Company maintains the Brylane, L.P.
Supplemental Retirement Plan for certain highly compensated employees (the
"Supplemental Retirement Plan"). The Supplemental Retirement Plan allows an
eligible employee to receive the contributions which the employee would
otherwise receive under the Retirement Plan, except for certain limitations
imposed by the Internal Revenue Code. An individual will receive such a
contribution only if he or she is employed by the Company on the last day of the
year. Gains and losses are credited to such employee account at a rate of 7
3/4%, compounded annually.
Vesting of contributions to the Supplemental Retirement Plan occurs at the
same rate as the Company's contributions to the Retirement Plan. The nonvested
portion of any account is forfeited upon termination of employment. Benefits
under the Supplemental Retirement Plan are paid in the same manner as under the
Retirement Plan. The benefits under the Supplemental Retirement Plan are not
funded, consisting of unsecured liabilities payable by the Company out of its
general assets.
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DEFERRED COMPENSATION PLAN
The Company has adopted the Brylane, L.P. Deferred Compensation Plan (the
"Deferred Compensation Plan") for eligible employees. The Deferred Compensation
Plan credits participants' accounts with amounts of compensation, up to 90% of
compensation, which they defer voluntarily pursuant to elections made prior to
the period with respect to which such compensation is earned ("Deferrals"). The
Deferrals will not be subject to federal income tax at the time of the Deferral.
Each participant's Deferrals are fully vested at all times. Further, the
Company may cause matching contributions to be credited to certain participants'
accounts at its discretion. Matching contributions credited to the
participant's accounts vest in the same manner as under the Retirement Plan. A
participant's accounts are payable at such time and in the same manner as under
the Retirement Plan.
Participation in the Deferred Compensation Plan is at the discretion of the
Board. Participants' accounts in the Deferred Compensation Plan will be
credited with interest at a rate specified by a committee of members of the
Board (currently the greater of LIBOR plus 2.0% or 7 3/4%). The benefits under
the Deferred Compensation Plan are not funded, consisting of unsecured
liabilities payable by the Company out of its general assets. Participants may
elect to have benefits paid in the form of lump-sum distributions or over a
period of time. Since December 1993, the Company has made pay-outs in the
approximate aggregate amount of $306,000 to certain former employees and one
former executive officer under the Deferred Compensation Plan.
PERFORMANCE BONUS PROGRAM
The Company (and its subsidiaries) have a semi-annual performance bonus
program based upon goals relating to the Company's operating profit. Such goals
are established at the beginning of each six-month season based upon a review by
the Board of management's operating budget for that season. Each participant in
such program may receive a bonus based on a certain percentage of half of his or
her annual salary, with the actual bonus amount to be based upon the extent to
which the operating profit goals for that season are met or exceeded.
CHADWICK'S MANAGEMENT INCENTIVE PLAN
In connection with the Chadwick's Acquisition, Brylane adopted the
Chadwick's Management Incentive Plan (the "Chadwick's MIP"). The Chadwick's MIP
is intended to provide key officers and associates of the Company's Chadwick's
division with cash incentive opportunities based on annual performance goals.
The Chadwick's MIP is administered by the Company's Compensation Committee,
which has full authority to grant awards, including selecting the relevant
performance criteria thereunder, adjusting performance criteria or award amounts
in certain circumstances, and amending the terms of such plan. At the beginning
of each fiscal year, the Compensation Committee determines a range of
performance goals from minimum to target to maximum, and for each participant
determines the relative weights of these performance goals and the award amounts
payable upon attainment of such goals.
CHADWICK'S LONG RANGE MANAGEMENT INCENTIVE PLAN
In connection with the Chadwick's Acquisition, Brylane adopted the
Chadwick's Long Range Management Incentive Plan (the "Chadwick's LRMIP"). The
Chadwick's LRMIP is administered by the Compensation Committee, which has full
authority to grant awards, including selecting the relevant performance criteria
thereunder, adjusting the performance criteria or award amounts in certain
circumstances, and amending the terms of such plan. Awards under the Chadwick's
LRMIP are generally made annually for each successive rolling three-year cycle.
At the time of award, the Compensation Committee determines a range of
performance goals for the three-year award cycle, from minimum to target to
maximum, and for each participant determines the relative weights of these
performance goals and the award amounts payable upon attainment of such goals.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee of the Board of Representatives
which consists of Ronald P. Spogli, John M. Roth, Samuel P. Fried and William C.
Johnson. Messrs. Spogli and Roth are two of the three FS&Co. nominees to the
Board, and Mr. Fried is one of the two nominees of The Limited to the Board.
See
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"Item 13. Certain Relationships and Related Transactions" for information
regarding the interests of FS&Co. and of The Limited in certain transactions and
arrangements involving the Company. In May 1994, in connection with his
election to the Board of Representatives of the Partnership, Mr. Johnson
purchased 30,000 shares of VP Holding common stock and was granted an option to
purchase 20,000 partnership units in the Partnership under the 1993 Option Plan.
In September 1995, Mr. Johnson was granted an option to purchase 25,000
partnership units in the Partnership under the 1995 Option Plan. Also, in
September 1995, the Company agreed to pay to Mr. Johnson an annual consulting
fee of $75,000. As a result of the Exchange Transaction, these securities have
been exchanged for 30,000 shares of Brylane Inc. Common Stock, an option to
purchase 20,000 shares of Brylane Inc. Common Stock, and an option to purchase
25,000 shares of Brylane Inc. Common Stock, respectively. See "--Senior
Management Stock Subscription Plan" and "--Option Plans".
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the general and limited partnership units in Brylane as
of April 22, 1997, after giving effect to the Exchange Transaction and the
Initial Public Offering, by (i) each person who is known by Brylane to be the
beneficial owner of more than 5% of the partnership units in Brylane, (ii) each
member of the Board and each of the Named Executive Officers, individually, and
(iii) all members of the Board and executive officers as a group:
<TABLE>
<CAPTION>
PARTNERSHIP UNITS OWNED (2)
----------------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER(1) TYPE OF INTEREST UNITS CLASS
- ------------------------------------ ------------------- ------------- -------------
<S> <C> <C> <C>
VGP Corporation(3).................. General Partner 16.6% 100.0%
VLP Corporation(4).................. Limited Partner 83.4% 100.0%
Peter J. Canzone (5)................ -- -- --
Sheila R. Garelik (5)............... -- -- --
Robert A. Pulciani (5).............. -- -- --
Jules Silbert (5)................... -- -- --
Bruce G. Clark (5).................. -- -- --
Ronald P. Spogli (6)................ -- -- --
John M. Roth (6).................... -- -- --
Mark J. Doran (6)................... -- -- --
Samuel P. Fried..................... -- -- --
William K. Gerber................... -- -- --
William C. Johnson (5).............. -- -- --
All representatives and executive
officers of Brylane as a group
(20 persons)...................... -- 57.4% N/A
</TABLE>
______________
(1) The persons and entities named in this table have sole voting power and
investment power with respect to all partnership units in Brylane shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in this table and these notes.
(2) Brylane had reserved for issuance, to officers, key employees, certain
members of the Board and consultants of Brylane (or its subsidiaries),
options to purchase up to 2,479,584 partnership units in Brylane. Pursuant
to the Exchange Transaction, these options have now been terminated and
replaced by options to purchase shares of Brylane Inc. Common Stock. See
"Item 11. Executive Compensation--Option Plans".
(3) As a result of the Exchange Transaction, VGP is a wholly-owned subsidiary
of VP Holding, which is, in turn, a wholly-owned subsidiary of Brylane Inc.
(4) As a result of the Exchange Transaction, VLP is a wholly-owned subsidiary
of VP Holding, which is, in turn, a wholly-owned subsidiary of Brylane Inc.
(5) As a result of the Exchange Transaction and the Initial Public Offering,
the members of the Board and executive officers of the Partnership as a
group own approximately 46% of the outstanding Common Stock of Brylane
Inc., which indirectly owns 100% of the Partnership, and 100% of the
Brylane Inc. Series A Convertible Redeemable Preferred Stock (the "Series A
Preferred Stock") which is convertible into Brylane Inc. Common Stock.
(6) As a result of the Exchange Transaction and the Initial Public Offering,
FSEP II, FSEP III and FSEP International are stockholders of Brylane Inc.,
owning approximately 21%, 22% and 1%, respectively, of the outstanding
Common Stock of Brylane Inc. FS&Co. is the sole general partner of FSEP
II. FS Capital Partners, L.P. ("FS Capital"), an affiliate of FS&Co., is
the sole general partner of FSEP III. FS Holdings, Inc. ("FSHI") is the
sole general partner of FS Capital. The sole general partner of FSEP
International is FS&Co. International, L.P. ("FS&Co. International"). The
sole general partner of FS&Co. International is FS International Holdings
Limited ("FS International Holdings"), an affiliate of FS&Co. As the
general partners of FSEP II, FS Capital (which is the general partner of
FSEP III), and FS&Co. International (which is the general partner of FSEP
International), respectively, FS&Co., FSHI and FS International Holdings
have the sole power to vote and dispose of the shares of Brylane Inc.
Common Stock held by each of FSEP II, FSEP III and FSEP International.
Messrs. Spogli and Roth, each of whom is a member of the Board, and Mr.
Bradford M. Freeman, Mr. J. Frederick Simmons and Mr. William M. Wardlaw
are general partners of FS&Co., and Messrs. Spogli, Roth, Freeman, Simmons
and Wardlaw and Mr. Charles P. Rullman are the sole directors, officers and
shareholders of FSHI and FS International Holdings, and as such may be
deemed to be the beneficial owners of the shares of Brylane Inc. Common
Stock beneficially owned
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by FS&Co. Mr. Doran, a member of the Board, is affiliated with FS&Co.,
FS&Co. International and FS Capital, and as such may be deemed to be the
beneficial owner of the shares of Brylane Inc. Common Stock beneficially
owned by FS&Co. The business address of FS&Co. and its general partners,
FSHI and its sole directors, officers and shareholders, FS Capital, FSEP II
and FSEP III is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025. The business address of FS International Holdings,
FS&Co. International and FSEP International is c/o Paget-Brown & Company,
Ltd., West Winds Building, Third Floor, P.O. Box 1111, Grand Cayman, George
Town, Cayman Islands, B.W.I. The business address of Mr. Doran is 599
Lexington Avenue, 18th Floor, New York, New York 10022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE CHADWICK'S ACQUISITION
On December 9, 1996, Brylane purchased the assets (excluding substantially
all of the accounts receivable) of Chadwick's, Inc. used in the Chadwick's of
Boston catalog business. The aggregate purchase price for the Chadwick's
Acquisition was $242.8 million, which consisted of a cash payment of $222.8
million to TJX and the issuance of the Convertible Subordinated Note Due 2006 in
the original principal amount of $20.0 million (bearing interest at an initial
rate of 6%) issued by the Partnership to the TJX Noteholder in connection with
the Chadwick's Acquisition (the "Partnership Note") to the TJX Noteholder. The
cash portion of the purchase price is subject to certain post-closing
adjustments. In order to fund a portion of the cash paid in connection with the
Chadwick's Acquisition and to repay its existing indebtedness under its 1993
bank credit facility, the Partnership entered into the 1996 Bank Credit
Facility. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
In connection with the Chadwick's Acquisition, Brylane entered into a
services agreement with TJX whereby TJX agreed to provide services relating to
the Chadwick's business for approximately three years. In addition, Brylane
entered into an inventory purchase agreement with TJX pursuant to which TJX has
committed to purchase certain amounts of Chadwick's excess inventory through
January 29, 2000.
In connection with the Chadwick's Acquisition, the Partnership received an
aggregate of approximately $51.3 million in new equity from certain affiliates
of FS&Co., Leeway & Co., NYNEX and WearGuard. The Partnership Agreement was
amended to provide for, among other things, (i) the issuance of 500,000
partnership units to, and the admission as limited partners of the Partnership
of, each of Leeway & Co. and NYNEX in consideration for a capital contribution
to the Partnership of $10.0 million by each of Leeway & Co. and NYNEX, (ii) the
issuance of 1,500,000 partnership units to VLP in consideration of a capital
contribution of $30.0 million to the Partnership by VLP (which contribution was
funded by the purchase of additional shares of common stock of VP Holding by
affiliates of FS&Co. and the subsequent capital contribution of such funds to
VLP by VP Holding), and (iii) the admission of the TJX Noteholder as a limited
partner of Brylane upon the conversion by the TJX Noteholder of the Partnership
Note into partnership units of Brylane. On February 26, 1997, as part of the
Exchange Transaction, the Partnership Note was exchanged for the Convertible
Note.
In connection with the Chadwick's Acquisition, in December 1996, Dhananjaya
K. Rao and Carol Meyrowitz each purchased 37,500 shares of Series A Convertible
Redeemable Preferred Stock of VP Holding (the "VP Holding Preferred Stock") for
a purchase price of $750,000 each. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management". Pursuant to the provisions of Stock
Subscription Agreements entered into with Mr. Rao and Ms. Meyrowitz, the shares
of VP Holding Preferred Stock (and Series A Preferred Stock issued in exchange
therefor) may not be transferred for three years from their date of purchase and
thereafter may be transferred only after first offering such shares to VP
Holding or the Company, as applicable, and are subject to certain other rights
and obligations.
Also in connection with the Chadwick's Acquisition, Brylane formed C.O.B.
Management which assumed Chadwick's, Inc.'s obligations relating to Chadwick's
New York buying office. C.O.B. Management also employs approximately 80
employees of the Company's Chadwick's division who work out of the New York
buying office during part of each week.
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THE EXCHANGE TRANSACTION
To effect the Exchange Transaction, Brylane Inc., certain affiliates of
FS&Co., The Limited, Lane Bryant Direct Holding, Inc., an affiliate of The
Limited and the predecessor to the Limited Stockholder, WearGuard, Leeway & Co.,
NYNEX and the TJX Noteholder entered into the First Amended and Restated
Incorporation and Exchange Agreement dated as of December 9, 1996 (the "Exchange
Agreement"), which together with the other transactions described below,
resulted in Brylane Inc. acquiring, directly, and indirectly through the
acquisition of wholly-owned subsidiaries, a 100% ownership interest in the
Partnership in exchange for shares of the Common Stock of Brylane Inc. Pursuant
to the terms of the Exchange Agreement, one share of the Common Stock of Brylane
Inc. was issued for each partnership unit of the Partnership or share of common
stock of VP Holding tendered in exchange therefor.
Pursuant to the Exchange Agreement, 8,527,000 of the shares of common stock
of VP Holding, which indirectly holds the sole general partnership interest in
the Partnership and now the sole limited partnership interest in the Partnership
through its wholly-owned subsidiaries, VGP and VLP, respectively, were exchanged
by affiliates of FS&Co. for 8,527,000 shares of Common Stock. As of February 1,
1997, VGP owned 2,562,500 partnership units in the Partnership, and VLP owned
6,509,167 partnership units in the Partnership. As a result of the Exchange
Transaction, including the transactions discussed below, VGP and VLP now own a
16.6% interest (2,562,500 partnership units) and a 83.4% interest (12,908,945
partnership units), respectively, in the Partnership, and Brylane Inc. owns 100%
of the outstanding common stock of VP Holding and indirectly owns, through VP
Holding, VGP and VLP, a 100% interest in the Partnership.
Pursuant to the Exchange Agreement, (i) the Limited Stockholder transferred
its limited partnership interest in the Partnership, consisting of 5,000,000
partnership units, in exchange for an aggregate of 5,000,000 shares of Common
Stock; (ii) WearGuard transferred its limited partnership interest in the
Partnership, consisting of 399,778 partnership units (equivalent to the 350,000
partnership units originally issued to WearGuard in connection with the KingSize
Acquisition, less 16,667 of such units indirectly transferred on October 16,
1995 by WearGuard to Ms. Jessie Bourneuf, the Company's President--KingSize,
plus 66,445 partnership units issued to WearGuard pursuant to its capital
contribution to the Partnership in connection with the Chadwick's Acquisition),
in exchange for an aggregate of 399,778 shares of Common Stock; (iii) Leeway &
Co. transferred its limited partnership interest in the Partnership, consisting
of 500,000 partnership units, in exchange for an aggregate of 500,000 shares of
Common Stock; (iv) NYNEX transferred its limited partnership interest in the
Partnership, consisting of 500,000 partnership units, in exchange for an
aggregate of 500,000 shares of Common Stock; and (v) the TJX Noteholder
delivered the Partnership Note to Brylane Inc. in exchange for the substitute
Convertible Subordinated Note Due 2006 issued by Brylane Inc. and the
Partnership on substantially the same terms and conditions as the Partnership
Note (the "Convertible Note"). Immediately following the Initial Public
Offering and the consummation of the Exchange Transaction, Brylane Inc.
transferred all of the limited partnership units in the Partnership contributed
to Brylane Inc. by the Limited Stockholder, WearGuard, Leeway & Co. and NYNEX to
VP Holding, which in turn transferred such units to VLP.
In addition, pursuant to their respective stock subscription agreements
with VP Holding, certain members of management of the Partnership and others who
purchased the remaining 544,667 outstanding shares of common stock of VP Holding
also exchanged such shares of VP Holding for an aggregate of 544,667 shares of
Common Stock. Such shares of Common Stock were issued to these individuals
pursuant to agreements which contain certain restrictions that are substantially
similar to the restrictions under which the shares of VP Holding common stock
had been held, except for the termination of certain rights and obligations as a
result of the Initial Public Offering, as provided in such agreements. See
"Item 11. Executive Compensation--Stock Subscription Plan". In addition, the
shares of VP Holding Preferred Stock purchased by certain members of management
in connection with the Chadwick's Acquisition were exchanged for the Series A
Preferred Stock of Brylane Inc. with substantially similar terms. Immediately
following the Initial Public Offering and the consummation of the Exchange
Transaction, the shares of VP Holding Preferred Stock transferred to Brylane
Inc. were cancelled. The Series A Preferred Stock was issued pursuant to
agreements that contain certain restrictions that are substantially similar to
those under which the shares of VP Holding Preferred Stock were issued, except
for the termination of certain rights and obligations as a result of the Initial
Public Offering. See "Item 13. Certain Relationships and Related Transactions--
The Chadwick's Acquisition" and "Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters--Recent Sales of Unregistered Securities".
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<PAGE>
In addition, as part of the Exchange Transaction, all options to purchase
partnership units in the Partnership previously granted to certain members of
management of the Company and others were cancelled, and such members of
management and others were issued options to purchase shares of Common Stock in
accordance with the terms of Brylane Inc.'s new stock option plans. The
agreements pursuant to which such options were granted contain terms and
conditions which are substantially similar to those contained in the agreements
previously entered into with such individuals, except for the termination of
certain rights and obligations as a result of the Initial Public Offering, as
provided in such agreements. See "Item 11. Executive Compensation--Option
Plans".
As a result of the Exchange Transaction, Brylane Inc. owns through its
indirect, wholly-owned subsidiary, VGP, the sole general partnership interest in
the Partnership with a 16.6% interest in the Partnership, and Brylane Inc. also
owns, through its indirect, wholly-owned subsidiary, VLP, all of the limited
partnership interests in the Partnership, with an aggregate 83.4% interest in
the Partnership. Thus, Brylane Inc. now indirectly controls a 100% interest in
the Partnership. The Partnership has retained title to all of its assets and
remains liable for all of its obligations, including all of the liabilities and
encumbrances relating to the Senior Subordinated Notes and the 1996 Bank Credit
Facility.
Pursuant to the Exchange Agreement, immediately prior to the closing of the
Initial Public Offering, Brylane Inc., FSEP II, FSEP III, FSEP International,
the Limited Stockholder, The Limited, TJX, WearGuard, Leeway & Co. and NYNEX
entered into a Registration Rights Agreement and a Stockholders Agreement. In
addition, the Partnership Agreement was amended to reflect that VGP and VLP are
now the sole general and sole limited partner, respectively, of the Partnership.
See "--Additional Agreements--Noncompetition Agreements" and "Risk Factors--
Control of the Company".
ADDITIONAL AGREEMENTS
TRADEMARK AGREEMENT. In connection with the Brylane Acquisition, the
Partnership became a party to the Trademark Agreement with The Limited and
certain of its affiliates (the "Licensors"), pursuant to which the Licensors
granted to the Partnership an exclusive, royalty-free license (the "License") to
use certain trademarks and trade names (collectively, the "Trademarks") in
connection with the Lane Bryant, Roaman's and Lerner catalog businesses (the
"Business") for a period of up to 20 years. The Partnership may assign the
Trademark Agreement and the License without the consent of The Limited (i) to
the purchaser of all or substantially all of the assets of the Business or (ii)
to any corporation which is a successor to the Partnership or any successor
thereto. The Trademark Agreement will terminate on the earliest to occur of the
following: (i) August 20, 2013, (ii) ten years after the earliest to occur of
(A) the date on which affiliates of FS&Co., on the one hand, and The Limited and
its affiliates, on the other hand, directly or indirectly own units in the
Partnership (or stock in Brylane Inc.) constituting less than one-half of the
units in the Partnership (or equivalent shares of Brylane Inc.'s stock) owned by
such entities on December 9, 1996, (B) the date on which affiliates of FS&Co.
together own less than 20% of the then outstanding partnership units of the
Partnership (or stock in Brylane Inc.) or (C) the date on which The Limited and
its affiliates own less than 10% of the then outstanding partnership units of
the Partnership (or stock in Brylane Inc.), (iii) two years after any person
which competes with any retail or catalog business conducted by The Limited or
its affiliates as of August 20, 1993 acquires control of the Business, and (iv)
if the Company is party to a business combination voted against by The Limited
or any of its affiliates, (A) two years after such event (or ten years after
such event if The Limited has sold either of its Lane Bryant or Lerner retail
businesses prior to such event with respect to the Trademarks used in the
businesses sold by The Limited) if the other party in such combination competes
with The Limited or any of its affiliates or (B) four years after such event (or
ten years after such event if The Limited has sold either of its Lane Bryant or
Lerner retail businesses prior to such event with respect to the Trademarks used
in the businesses sold by The Limited) in any other circumstance; provided,
however, that for purposes of calculating whether The Limited and its affiliates
own less than 10% of the then outstanding partnership units in the Partnership
(or stock in Brylane Inc.) as discussed in (ii)(C) above, partnership units or
stock of Brylane Inc. issued to (i) each of VLP, Leeway & Co., and NYNEX in
connection with the Chadwick's Acquisition and pursuant to the Exchange
Agreement, (ii) the TJX Noteholder upon conversion of the Partnership Note (or
the Convertible Note) and (iii) WearGuard in connection with the KingSize
Acquisition and the Chadwick's Acquisition and pursuant to the Exchange
Agreement shall be disregarded. The Trademark Agreement may also be terminated
by The Limited (a) upon 30 days' notice upon a material breach of the Trademark
Agreement by Brylane, which breach remains uncured or (b) upon the bankruptcy or
insolvency of Brylane. See "Risk Factors--Relationship with The Limited".
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Under the Trademark Agreement (x) a person shall be deemed to have acquired
"control" of the Business if (1) a designee or representative of such person
serves on the Board of Representatives (or similar body) of the Partnership, any
successor to the Partnership or any entity controlling the Partnership or such a
successor (including Brylane Inc.) for a period of 60 days, (2) such person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the Business, whether through the ownership of
voting securities, by contract or otherwise, or (3) such person possesses a
direct or indirect contractual right to receive material non-public information
concerning any of the Trademarks or the use thereof from the Partnership, any
successor to the Partnership or any entity controlling the Partnership or such a
successor (including Brylane Inc.) and (y) following consummation of the Initial
Public Offering, for purposes of calculating sales of stock in Brylane Inc. or
the ownership percentage in Brylane Inc. of The Limited and its affiliates, a
sale of stock or other equity interests in any affiliate of the Limited
Stockholder which, directly or indirectly, owns stock in Brylane Inc. or other
entity holding the Business or any direct or indirect parent of Brylane Inc. or
any such entity (any such affiliate, an "Equity Owner"), shall constitute a sale
of a corresponding percentage of stock in Brylane Inc. or other entity holding
the Business owned, directly or indirectly, by the Limited Stockholder or any
such Equity Owner, as the case may be. This provision does not apply to sales
of stock of The Limited.
In addition to the Trademark Agreement, the Partnership became a party to
an Electronic Media Trademark License Agreement pursuant to which the Licensors
granted to the Partnership a non-exclusive right, permission and privilege to
use the Trademarks in connection with the promotion, distribution and sale of
special size women's apparel, moderately priced fashion apparel and related
accessories through television and other electronic media, subject to prior
reasonable determination by The Limited that any proposed electronic marketing
activity would not disparage or diminish the stature, image or quality of such
Trademarks or cause confusion or deception among Lerner or Lane Bryant retail
customers.
CREDIT CARD AGREEMENT. In connection with the Brylane Acquisition, Brylane
entered into the Credit Card Agreement (as amended on July 1, 1995) with World
Financial, a joint venture 60% owned by partnerships controlled by, and
affiliates of, Welsh Carson Anderson & Stowe and 40% owned by The Limited,
pursuant to which World Financial provides credit to customers of Brylane,
issues credit cards to these customers bearing the Lerner(R), Lane Bryant(R),
Roaman's(R), Sue Brett(R) and KingSize(R) trademarks, and processes credit card
transactions for a fee equal to a percentage of the sale amount generated by
such transactions (exclusive of shipping, handling and taxes). The balance of
such amount is remitted to Brylane within two business days of its incurrence.
The fee payable to World Financial under this arrangement is currently set at
2.4% of net sales generated using these credit cards. In the event of a
legislated or judicial reduction in the annual percentage rate that may be
charged by World Financial to cardholders, Brylane and World Financial have
agreed to negotiate in good faith an increase in the fee. In addition, in the
event that the aggregate amount of receivables generated through the use of the
credit cards exceeds $525 million, the fee shall be adjusted to reimburse World
Financial for its borrowing costs with respect to such receivables in excess of
$525 million. Furthermore, the fee may be adjusted every six months based on
the average finance charges per cardholder statement. However, the fee may not
exceed 2.5% (subject to certain exceptions). Aggregate fees paid to World
Financial by Brylane under the Credit Card Agreement during fiscal 1996 were
$10.0 million. Under the Credit Card Agreement, World Financial determines the
creditworthiness of a particular customer based on standards consistent with
past practice and generally assumes all risks associated with the collection of
receivables generated by credit card sales without recourse to the Company. In
the event that the Credit Card Agreement should terminate as described below,
however, Brylane would be obligated to repurchase from World Financial certain
then-outstanding Lerner and Lane Bryant mail order account balances, and all
Roaman's, Sue Brett and KingSize account balances, at the face amount thereof
(subject to certain exceptions).
Pursuant to the terms of the Credit Card Agreement, Brylane is obligated to
use its best efforts to promote the use of credit cards in the Business and to
acquire new cardholders through, among other things, "instant credit", pre-
approved solicitations and applications inserted into catalogs. World Financial
has the right to review and approve any credit marketing materials used in these
promotional activities prior to their use, which approval shall not be
unreasonably withheld. The cost of these credit solicitation activities are
shared equally by Brylane and World Financial. In addition, the Credit Card
Agreement requires World Financial to provide without charge to Brylane a list
of all Lerner and Lane Bryant retail cardholders on no more than one occasion
per month. Brylane is authorized to use the lists for the purpose of increasing
its catalog mailing lists.
43
<PAGE>
The Credit Card Agreement will remain in effect until terminated (i) by
either party on not less than twelve months' notice delivered on or after July
1, 2005, (ii) by either party upon a breach by the other party of any of its
material obligations under the Credit Card Agreement, (iii) by World Financial
on not less than twelve months' notice if any competitor of The Limited or any
of its affiliates acquires "control" of Brylane (as defined in the Credit Card
Agreement), or (iv) automatically upon certain bankruptcy events involving
Brylane. See "Risk Factors--Relationship with The Limited".
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT. In connection with the Chadwick's
Acquisition, Brylane entered into the Receivables Purchase Agreement pursuant to
which ADS has agreed to purchase from time to time, at the request of Brylane,
eligible customer accounts receivable generated through Chadwick's deferred
billing programs in amounts of $100 million outstanding at any time. ADS will
purchase the receivables on a limited recourse basis at a discount from face
value. Brylane will pay transaction costs including a fee of $.03 per purchased
account, and carrying costs equal to, at the Partnership's election, LIBOR plus
95 basis points or the lesser of (a) a defined prime rate plus 15 basis points
and (b) the federal funds rate plus 110 basis points. In addition, Brylane will
pay a commitment fee and a fee on the unused portion of the commitment from time
to time. The Receivables Purchase Agreement specifies a commitment period
through December 31, 1999, subject to earlier termination (on a prospective
basis only) by the purchaser under certain specified circumstances (including
(i) that bad debt experience in prior programs exceeded 7.5%, (ii) that Brylane
fails to maintain a specified minimum net worth or (iii) that Brylane fails to
comply with the financial covenants contained in the 1996 Bank Credit Facility
(as it may be modified or amended from time to time)). In connection with the
Receivables Purchase Agreement, Brylane also entered into a service agreement
with ADS pursuant to which it has agreed to act as servicing agent to process
the purchased accounts and submit them for acceptance by the credit card issuers
on the applicable deferred billing dates offered to Chadwick's customers. All
payments by the credit card issuers will be made directly to a bank account
owned by ADS. ADS can terminate Brylane's appointment as servicing agent at any
time with or without cause. The Company will account for the Receivables
Purchase Agreement in accordance with Statement of Financial Accounting
Standards No. 125 "Accounting For Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities".
NONCOMPETITION AGREEMENTS. The Stockholders Agreement provides, with
certain exceptions, that so long as The Limited holds, directly or indirectly, a
20% equity interest in the Company, the Company may not, without The Limited's
consent, engage in any business that competes with businesses conducted by The
Limited or its affiliates as of August 30, 1993, other than in the mail order
business for women's special size apparel, moderately priced fashion apparel and
related accessories, and for moderately priced regular size or special size
men's apparel and related accessories that are substantially similar to the
products offered in the Company's KingSize catalog as of October 14, 1996, at
price points substantially similar or lower than those for the comparable
products offered by the Company's KingSize catalog as of the date of the
Stockholders Agreement. The Company has no current plans to expand its business
beyond these core areas in competition with The Limited. In addition, the
Transaction Agreement pursuant to which affiliates of FS&Co. and The Limited
formed the Partnership (as amended, the "Transaction Agreement") contains
certain noncompetition and nonsolicitation provisions pursuant to which The
Limited agreed, in general, and subject to certain exceptions, not to compete
with Brylane's catalog business for special size women's apparel by publishing
similar catalogs, or to solicit any person who is an employee of such business
to terminate his or her relationship with Brylane. These provisions terminate
when the affiliates of FS&Co. no longer hold any direct or indirect interest in
the Partnership or any successor corporation (including Brylane Inc.).
In connection with the KingSize Acquisition, Brylane, ARAMARK and WearGuard
entered into a Noncompetition Agreement, whereby ARAMARK and WearGuard have
agreed to certain noncompetition and nonsolicitation provisions (with certain
customary exceptions) in favor of Brylane that will remain in effect until the
later of (a) October 16, 2000 or (b) the date upon which WearGuard (and its
affiliates) has disposed of its entire interest in the Partnership.
In addition, pursuant to that certain Asset Purchase Agreement dated
October 18, 1996 by and among TJX, Chadwick's, Inc. and Brylane, TJX agreed, for
a period of five years, to not own or conduct (with an exception for passive
ownership of less than 10% of a company) any business that sells merchandise
through printed women's or men's apparel catalogs which are substantially
similar to the "Chadwick's of Boston" catalog. TJX is permitted, however, to
(i) sell merchandise through the Internet and other electronic media, (ii) use
print advertising for apparel and merchandise sold through stores and electronic
media even if such items may be purchased by mail or telephone, and (iii) print
catalogs in which less than 10% of the merchandise is men's or women's apparel.
Also, TJX may
44
<PAGE>
acquire a company that conducts a competitive business if such competitive
business accounts for less than 25% of such acquired company's annual revenues
and TJX uses its commercially reasonable efforts to, within one to two years of
such acquisition, divest itself of any competitive business which account for
more than 5% of the annual revenues of such acquired company.
OTHER TRANSACTIONS
In connection with the Chadwick's Acquisition, Brylane paid to an affiliate
of FS&Co. $2.5 million in fees as compensation for certain financial advisory
services. Brylane believes that the fees paid to these affiliates of FS&Co. are
comparable to the consideration which could reasonably have been negotiated in
an arm's length transaction with an unaffiliated third party. Affiliates of
FS&Co. will provide financial advisory services to Brylane without compensation
other than reimbursement for their out-of-pocket expenses.
In connection with the Brylane Acquisition, certain affiliates of FS&Co.
agreed to loan, on demand, an aggregate of $1.0 million to VP Holding, which
obligations were evidenced by loan agreements between such affiliates of FS&Co.
and each of VP Holding and VGP, as well as no-interest demand promissory notes
in favor of VP Holding. Pursuant to the terms of the loan agreements, VP
Holding then contributed these demand notes to the capital of VGP in connection
with the satisfaction of certain minimum net worth requirements related to the
treatment of the Partnership as a partnership for federal income tax purposes.
As a result of the Initial Public Offering, these loan agreements and the demand
notes have been terminated and Brylane Inc. has entered into a similar loan
agreement with VP Holding and VGP and issued a similar no-interest demand
promissory note in the principal amount of $1.0 million to VP Holding. Pursuant
to such loan agreement, VP Holding has contributed such demand note to VGP in
order to maintain the minimum net worth of the Partnership as discussed above.
In connection with the formation of Brylane Inc. and the exchange of
partnership units of the Partnership and shares of VP Holding common stock for
shares of Common Stock of Brylane Inc. pursuant to the Exchange Transaction, the
Company paid in fiscal 1996 an aggregate of $90,000 and $45,000 in fees on
behalf of affiliates of FS&Co. and of The Limited, respectively, in connection
with certain filings made by such entities pursuant to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
(A)(1) INDEX TO FINANCIAL STATEMENTS:
<S> <C> <C>
BRYLANE, L.P. AND SUBSIDIARIES AND PARTNERSHIPS
Report of Independent Accountants.............................................................. F-1
Consolidated Balance Sheets as of February 3, 1996 and February 1, 1997........................ F-2
Consolidated Statements of Income for the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997.......................................................... F-3
Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997.......................................................... F-4
Statements of Partnership Equity for the fiscal years ended
January 28, 1995, February 3, 1996 and February 1, 1997........................................ F-5
Notes to Consolidated Financial Statements..................................................... F-6
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
None.
(A)(3) EXHIBITS
</TABLE>
The exhibits listed on the accompanying Exhibit Index are filed as part of
this Form 10-K. In addition, following is a list of each executive compensation
plan and arrangement required to be filed as an exhibit.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
- ---------------------------------------------
(A) 1993 Employee Stock Subscription Plan of VP Holding Corporation
(the "Subscription Plan") -- Exhibit 10.28.
(B) Amendment No. 1 to the Subscription Plan dated February 18, 1994 --
Exhibit 10.29.
(C) Stock Subscription Agreement made and entered into as of August 30,
1993 by and between VP Holding and Peter Canzone (with Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto) -- Exhibit 10.30.
(D) Form of Stock Subscription Agreement made by and between VP Holding
and each of Sheila R. Garelik, Robert A. Pulciani, Richard L.
Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida
Noriega-Wilson and Jessie Bourneuf who purchased common stock of VP
Holding under the Subscription Plan with cash and, in certain
cases, promissory note (with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits thereto) -- Exhibit
10.31.
(E) Form of Stock Subscription Agreement made by and between VP Holding
and each of Arlene Silverman, Kevin McGrain, Kevin Doyle and
certain other management investors who purchased common stock of VP
Holding under the Subscription Plan with cash and, in certain
cases, promissory note (with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits thereto) -- Exhibit
10.32.
46
<PAGE>
(F) Addendum dated February 18, 1994 to Stock Subscription Agreement
between VP Holding and Jules Silbert -- Exhibit 10.33.
(G) Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson -- Exhibit
10.34.
(H) 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan") -- Exhibit 10.35.
(I) Form of Performance Partnership Unit Option Agreement entered into
by and between the Partnership and each of Peter J. Canzone, Sheila
R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G.
Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and
Jessie Bourneuf under the 1993 Option Plan -- Exhibit 10.36.
(J) Form of Performance Partnership Unit Option Agreement entered into
by and between the Partnership and each of Arlene Silverman, Kevin
McGrain, Kevin Doyle and certain other participants under the 1993
Option Plan -- Exhibit 10.37.
(K) Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson -- Exhibit 10.38.
(L) Form of Amendment to Performance Partnership Unit Option Agreement
under the 1993 Option Plan -- Exhibit 10.39.
(M) 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan") -- Exhibit 10.40.
(N) Form of Partnership Unit Option Agreement entered into by and
between Brylane and each of Peter J. Canzone, Sheila R. Garelik,
Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce
G. Clark, Arlene Silverman, Jules Silbert, Loida Noriega-Wilson,
Jessie Bourneuf and William C. Johnson under the 1995 Option Plan
-- Exhibit 10.41.
(O) Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Kevin McGrain, Kevin Doyle and
certain other participants under the 1995 Option Plan -- Exhibit
10.42.
(P) Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan") -- Exhibit 10.43.
(Q) Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and nine management investors who were issued Common
Stock of Brylane Inc. under the Senior Management Plan -- Exhibit
10.44.
(R) Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and William C. Johnson under the Senior Management
Plan -- Exhibit 10.45.
(S) Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan") -- Exhibit 10.46.
(T) Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and certain management employees who were issued
Common Stock of Brylane Inc. under the Brylane Subscription Plan --
Exhibit 10.47.
(U) Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996
Performance Option Plan") -- Exhibit 10.48.
(V) Form of Stock Option Agreement entered into by and between Brylane
Inc. and certain participants under the Brylane 1996 Performance
Option Plan -- Exhibit 10.49.
(W) Form of Stock Option Agreement entered into by and between Brylane
Inc. and William C. Johnson under the Brylane 1996 Performance
Option Plan -- Exhibit 10.50.
(X) Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option
Plan") -- Exhibit 10.51.
(Y) Form of Stock Option Agreement entered into by and between Brylane
Inc. and certain participants under the Brylane 1996 Option Plan --
Exhibit 10.52.
47
<PAGE>
(Z) Form of Employment Agreement dated as of May 1, 1996 between B.L.
Management and each of Peter J. Canzone, Robert A. Pulciani, Jules
Silbert, Loida Noriega-Wilson and Kevin McGrain -- Exhibit 10.64.
(AA) Form of Employment Agreement dated as of May 1, 1996 between B.L.
Management and each of Sheila R. Garelik and Arlene Silverman --
Exhibit 10.65.
(BB) Form of Employment Agreement dated as of May 1, 1996 between the
Partnership and each of Richard L. Bennett, Bruce G. Clark and
William G. Brosius -- Exhibit 10.66.
(CC) Amendment No. 1 to Employment Agreement dated as of July 15, 1996
between B.L. Management and Sheila R. Garelik -- Exhibit 10.67.
(DD) Employment Agreement dated as of December 9, 1996 between the
Partnership and Dhananjaya K. Rao -- Exhibit 10.74.
(EE) Employment Agreement dated as of December 9, 1996 between the
Partnership and Carol Meyrowitz -- Exhibit 10.75.
(FF) VP Holding Stock Subscription Agreement for Preferred Stock made as
of December 9, 1996 by and between VP Holding and Dhananjaya K.
Rao -- Exhibit 10.76.
(GG) VP Holding Stock Subscription Agreement for Preferred Stock made as
of December 9, 1996 by and between VP Holding and Carol Meyrowitz
-- Exhibit 10.77.
(HH) Form of Brylane Inc. Stock Subscription Agreement for Preferred
Stock made as of December 9, 1996 by and between Brylane Inc. and
each of Dhananjaya K. Rao and Carol Meyrowitz -- Exhibit 10.78.
(B) REPORTS ON FORM 8-K
On December 20, 1996, the Company filed a Current Report on Form 8-K (File
No. 33-69532) to include, under "Item 2. Acquisition or Disposition of Assets",
a description of the agreements whereby the Company agreed to acquire the
Chadwick's of Boston catalog division (the "Chadwick's Business") of The TJX
Companies, Inc., a Delaware corporation, and to include the following exhibits
relating to the Company's acquisition of the Chadwick's Business: (i) the
definitive Asset Purchase Agreements dated October 18, 1996, (ii) the Amendment
Number One to the Asset Purchase Agreement dated as of December 9, 1996, (iii)
the Services Agreement dated as of December 9, 1996, (iv) the Inventory Purchase
Agreement dated as of December 9, 1996 and (v) other documents relating to the
Company's purchase of the Chadwick's Business. The Chadwick's Business is a
catalog business devoted to off-price women's regular size apparel and related
accessories.
On February 21, 1997, the Company filed an Amendment of Current Report on
Form 8-K/A to include the required audited and unaudited pro forma financial
statements relating to the Company's purchase of the Chadwick's Business.
(C) EXHIBITS
The Exhibits listed on the accompanying Index to Exhibits are filed as part
of this Form 10-K.
48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Representatives of Brylane, L.P.
We have audited the accompanying consolidated balance sheet of Brylane, L.P.
(the "Partnership", which is a limited partnership) as of February 3, 1996 and
February 1, 1997, and the related consolidated statements of income, partnership
equity, and cash flows of the Partnership for the years ended January 28, 1995,
February 3, 1996 and February 1, 1997. These financial statements are the
responsibility of the Partnership'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, the consolidated financial statements of the Partnership
referred to above present fairly, in all material respects, the consolidated
financial position of the Partnership as of February 3, 1996 and February 1,
1997, and its consolidated results of operations and cash flows for the years
ended January 28, 1995, February 3, 1996 and February 1, 1997, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Columbus, Ohio
April 12, 1997
F-1
<PAGE>
BRYLANE, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
---------------------------
<TABLE>
<CAPTION>
February 3, February 1,
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................................................. $ 7,469 $ 3,285
Accounts receivable, trade (net)...................................................... 2,387 22,750
Accounts receivable, other............................................................ - 32,107
Inventories........................................................................... 76,627 168,821
Paper inventory....................................................................... 16,102 9,790
Catalog costs......................................................................... 18,131 31,222
Other................................................................................. 4,559 6,252
-------- --------
Total current assets 125,275 274,227
Property and equipment, net............................................................... 28,223 75,970
Organization and deferred financing costs................................................. 8,228 11,114
Intangibles and other assets.............................................................. 166,177 343,243
Deferred offering costs................................................................... - 680
------- -------
Total assets $ 327,903 $ 705,234
======= =======
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable...................................................................... $ 47,131 $ 93,928
Accrued interest...................................................................... 6,366 8,612
Accrued expenses...................................................................... 12,231 45,356
Reserve for returns................................................................... 4,192 18,603
Current portion of long-term debt..................................................... 13,720 26,000
------- -------
Total current liabilities 83,640 192,499
Long-term debt............................................................................ 213,020 401,362
Other long-term liabilities............................................................... 4,056 6,010
------- -------
Total liabilities 300,716 599,871
Convertible Redeemable Preferred Stock.................................................... - 1,500
Partnership equity:
General partner, 2,562,500 units...................................................... 25,625 25,625
Limited partners, 10,340,000 units at February 3, 1996 and 12,908,945 units at
February 1, 1997.............................................................. 105,204 159,855
Reduction for predecessor cost - carryover basis...................................... (152,067) (152,067)
Loans to management investors......................................................... (2,515) (2,490)
Retained earnings..................................................................... 50,940 72,940
------- -------
Total partnership equity.................................................. 27,187 103,863
------- -------
Total liabilities and equity $ 327,903 $ 705,234
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
BRYLANE, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
---------------------------------
<TABLE>
<CAPTION>
---------- ---------- ----------
Fiscal Fiscal Fiscal
Year Ended Year Ended Year Ended
January 28, February 3, February 1,
1995 1996 1997
---------- ---------- ----------
(53 Weeks)
<S> <C> <C> <C>
Net sales................................................... $ 578,530 $ 601,055 $ 705,353
Cost of goods sold.......................................... 288,217 298,414 346,572
Non-recurring inventory charge.............................. 2,614 569 1,657
-------- -------- --------
Gross margin................................................ 287,699 302,072 357,124
Operating expenses:
Catalog and advertising............................... 153,830 174,446 186,985
Fulfillment........................................... 41,656 37,333 55,450
Support services...................................... 35,152 37,024 54,422
Intangibles and organization cost amortization........ 4,242 4,707 6,518
-------- -------- --------
Total operating expenses.................................... 234,880 253,510 303,375
-------- -------- --------
Operating income............................................ 52,819 48,562 53,749
Interest expense, net....................................... 19,576 20,624 24,026
-------- -------- --------
Income before income taxes
and extraordinary charge.............................. 33,243 27,938 29,723
Provision for income taxes.................................. 89 88 315
-------- -------- --------
Net income before extraordinary charge...................... 33,154 27,850 29,408
Extraordinary charge related to early
retirement of debt.................................... - - 2,456
-------- -------- --------
Net income.................................................. $ 33,154 $ 27,850 $ 26,952
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
BRYLANE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
-------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------
Fiscal Years Ended
----------------------------------------------
January 28, February 3, February 1,
1995 1996 1997
----------- ----------- -----------
(53 Weeks)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income..................................................................... $ 33,154 $ 27,850 $ 26,952
Impact of other operating activities on cash flows:
Depreciation................................................................ 3,110 3,650 4,821
Non-recurring inventory charge.............................................. 2,614 569 1,657
Extraordinary charge related to early retirement of debt..................... - - 2,456
Non-cash compensation expense................................................ - - 2,400
Imputed interest............................................................ - 185 -
Amortization:
Intangibles and organization costs...................................... 4,242 4,707 6,518
Deferred financing costs (included in interest expense)................. 1,469 1,469 1,603
Discount on notes (included in interest expense)........................ 98 97 97
Changes in operating assets and liabilities:
Accounts receivable...................................................... (598) (549) (15,137)
Inventories............................................................. (14,195) (4,019) (32,064)
Catalog costs and paper inventory....................................... (2,928) (8,933) (2,492)
Accounts payable and accrued expenses................................... 12,429 479 16,262
Accrued interest........................................................ (725) 831 2,246
Other assets and liabilities............................................ 332 7,226 (2,296)
------------- ------------- -----------
Net cash provided by operating activities......................................... 39,002 33,562 13,023
------------- ------------- -----------
INVESTING ACTIVITIES:
Cash payment in connection with the Chadwick's
Acquisition, net of cash acquired...................................... - - (222,951)
Cash payments in connection with the KingSize Acquisition
net of cash acquired.................................................. - (51,975) -
Acquisition related fees and expenses paid at closing.......................... - (1,278) (6,215)
Capital expenditures........................................................... (5,287) (7,290) (3,932)
------------- ------------- -----------
Net cash used in investing activities............................................. (5,287) (60,543) (233,098)
------------- ------------- -----------
FINANCING ACTIVITIES:
Payment on bank credit facility................................................ (15,000) (22,524) (102,476)
Proceeds from the issuance of long-term debt................................... - 35,000 283,000
Payments on term loan.......................................................... - - (5,000)
Proceeds from borrowing under term-loan........................................ - - 5,000
Equity contributions from partners............................................. - - 51,329
Proceeds from issuance of preferred stock...................................... - - 1,500
Tax distribution to partners................................................... - (6,562) (9,854)
Debt issuance fees and expenses................................................ - - (7,005)
Deferred offering costs........................................................ (642) - (680)
Proceeds from the sale, net of repurchase, of partnership
interests............................................................. 387 41 77
------------- ------------- -----------
Net cash (used in) provided by financing activities............................... (15,255) 5,955 215,891
------------- ------------- -----------
Cash and cash equivalents, at beginning of year................................... 10,035 28,495 7,469
------------- ------------- -----------
Cash and cash equivalents, at end of year......................................... $ 28,495 $ 7,469 $ 3,285
============= ========== ==========
Supplemental disclosure of cash flow information:
The amounts of interest and income taxes paid during each of the periods
presented were not material except as follows.
Interest paid during the fiscal years ended February 3, 1996
and February 1, 1997................................................... $ 20,127 $ 19,328 $ 20,581
============= =========== ==========
Supplemental disclosure of noncash financing activity:
Purchase price for KingSize aquisition, net of acquisition costs............... $ 57,750
Cash portion of purchase price................................................. 52,500
-------------
Partnership units issued for purchase.......................................... $ 5,250
=============
Purchase price for Chadwick's acquisition, net of acquisition costs............ $ 242,954
Cash portion of purchase price................................................. 222,954
-----------
Convertible note............................................................... $ 20,000
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
BRYLANE, L.P.
STATEMENTS OF PARTNERSHIP EQUITY
(DOLLARS IN THOUSANDS)
----------------------------------------------
<TABLE>
<CAPTION>
Reduction for
Predecessor
General Partner Limited Partners Cost- Loans to Accumulated
---------- -------- ----------- --------- Carryover Management Earnings
Units Amount Units Amount Basis Investors (Deficit) Total
---------- -------- ----------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994.................. 2,562,500 $25,625 9,937,500 $99,375 ($152,067) ($2,365) ($1,901) ($31,333)
Net income.............................. - - - - - - 33,154 33,154
Sale of units........................... - - 60,000 600 - (150) - 450
Repurchase of units..................... - - (12,500) (125) - 62 - (63)
Tax distributions payable to partners... - - - - - - (431) (431)
--------- ------- --------- ---------- --------- -------- -------- --------
Balance, January 28, 1995.................. 2,562,500 25,625 9,985,000 99,850 (152,067) (2,453) 30,822 1,777
Net income.............................. - - - - - - 27,850 27,850
Sale of units........................... - - 365,000 5,475 - (112) - 5,363
Repurchase of units..................... - - (10,000) (121) - 50 - (71)
Tax distributions payable to partners... - - - - - - (7,732) (7,732)
--------- ------- ---------- --------- ---------- -------- -------- --------
Balance, February 3, 1996.................. 2,562,500 25,625 10,340,000 105,204 (152,067) (2,515) 50,940 27,187
Net income.............................. - - - - - - 26,952 26,952
Sale of units........................... - - 2,573,945 51,441 - 25 - 51,466
Repurchase of units..................... - - (5,000) (60) - - - (60)
Exchange of stock options............... - - - 3,270 - - - 3,270
Tax distributions payable to partners... - - - - - - (4,952) (4,952)
--------- ------- ---------- --------- ---------- ------- --------- ---------
Balance, February 1, 1997.................. 2,562,500 $25,625 12,908,945 $159,855 ($152,067) ($2,490) $72,940 $103,863
========= ======= ========== ======== =========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) NATURE OF OPERATIONS
Brylane is a leading catalog retailer of special size women's apparel,
regular size women's apparel and special size men's apparel. The women's
catalogs market apparel in the budget and low to moderate price range and the
men's catalogs market apparel in the moderate price range. Brylane services the
special size customer through its Lane Bryant, Roaman's, and KingSize (men's)
catalogs, and the regular size woman's customer through its Chadwick's, Lerner,
Sue Brett and Bridgewater catalogs. Brylane also markets apparel to these same
customer segments through four catalogs which it distributes under licensing
arrangements with Sears Shop at Home Services, Inc. ("Sears").
Brylane's merchandising strategy is to provide valued-priced, private
label apparel with a consistent quality and fit, to concentrate on apparel with
limited fashion risk, and to offer a broader selection of sizes and styles in
special size apparel than can be found at most retail stores and in other
competing catalogs. Each of Brylane's catalogs offers its customers
contemporary, traditional and basic apparel.
(2) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
In August 1993, certain affiliates of Freeman Spogli & Co. ("FS&Co.") and
of The Limited, Inc. ("The Limited") formed Brylane, L.P. ("Brylane"), a
Delaware limited partnership, and acquired the Lane Bryant, Roaman's and Lerner
catalog businesses (the "Brylane Acquisition") formerly conducted by certain
direct and indirect subsidiaries of The Limited ("Predecessor"). The aggregate
purchase price was $335 million. The Brylane Acquisition closed on August 30,
1993. For accounting purposes, the transaction was accounted for on the
effective date of August 1, 1993.
In connection with the Brylane Acquisition certain affiliates of FS&Co. and
certain management investors contributed $75 million to the capital of Brylane
for a 60% aggregate interest. Certain affiliates of The Limited contributed
substantially all assets and liabilities of the catalog business to Brylane and
received cash of $285 million and a 40% aggregate interest in Brylane with an
assigned value of $50 million.
The Brylane Acquisition has been accounted for utilizing the purchase
method of accounting. The continuing interest of certain affiliates of The
Limited in Brylane was reflected at The Limited's historical basis (carryover
basis) in accordance with Emerging Issues Task Force (EITF) Issue no. 88-16. For
the proportionate interests of the affiliates of FS&Co. and members of
management who invested in the transaction, the purchase price was allocated to
the assets and liabilities of Brylane at their estimated fair values as
determined based on management's estimates. Partners' capital and the basis of
the transferred assets have been reduced for predecessor cost carryover basis.
The consolidated financial statements include the accounts of Brylane and
its wholly-owned subsidiaries and partnerships, including Brylane Capital Corp.,
B.L. Management Services, Inc., B.L. Catalog Distribution, Inc., B.L. Management
Services Partnership, B.L. Catalog Distribution Partnership, B.N.Y. Service
Corp., K.S. Management Services, Inc., C.O.B. Management Services, Inc. and
Chadwick's Tradename Sub, Inc. These entities are collectively referred to as
Brylane or the Partnership. Accounts between the consolidated entities have been
eliminated. Each of the wholly-owned subsidiaries and partnerships has
guaranteed Brylane's 10% Senior Subordinated Notes due 2003 (the "Notes").
Separate financial statements of these subsidiary guarantors have not been
included as the subsidiaries guarantee the Notes on a full, unconditional, and
joint and several basis. Management believes that the aggregate assets,
liabilities, earnings, and equity of the subsidiary guarantors are currently,
both on an individual and a combined basis, inconsequential to Brylane on a
consolidated basis, and therefore, that information provided in separate
financial statements of the subsidiary guarantors is not deemed material to the
readers of the financial statements.
Effective July 6, 1996, KingSize Catalog Sales, L.P., and KingSize Catalog
Sales, Inc. were merged into Brylane. All of the assets and liabilities of
these entities were transferred to Brylane, which continues to run the KingSize
Big & Tall catalog business.
F-6
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) ACQUISITIONS:
In October 1995, KingSize Catalog Sales, L.P., an Indiana limited
partnership and an indirect wholly-owned entity of Brylane ("KingSize
Partnership"), completed the acquisition of the assets of the KingSize division
of WearGuard Corporation ("WearGuard"), a wholly-owned subsidiary of ARAMARK
Corporation (the "KingSize Acquisition"). The business acquired is a catalog
business devoted to big and tall men's apparel, footwear and related
accessories. Brylane paid to WearGuard $52.5 million in cash and issued to
WearGuard 350,000 newly issued limited partnership units in Brylane. Brylane
financed the cash portion of the purchase price out of available funds as well
as additional borrowings under its 1993 bank credit facility. Brylane acquired
the inventory, contracts, customer lists, goodwill, accounts receivable and
certain equipment relating to the operation of the business, and the assumption
of certain liabilities. In addition, the parties entered into a noncompetition
agreement.
For accounting purposes, the KingSize Acquisition has been recorded using the
purchase method of accounting on the effective date of October 1, 1995.
Brylane's financial statements include the results of KingSize on a consolidated
basis from the effective date of the acquisition. The purchase price, including
acquisition costs of $1.4 million, has been allocated to the assets and
liabilities of KingSize at their estimated fair values. The fair values of
assets and liabilities have been determined based on management's estimates. The
allocation of the purchase price is as follows (in thousands):
Current assets. . . . . . . . . . . . . . . . . . . . $10,737
Property and equipment. . . . . . . . . . . . . . . . 331
Intangibles and other assets. . . . . . . . . . . . . 51,903
Liabilities assumed . . . . . . . . . . . . . . . . . (3,821)
-------
$59,150
===========
In December 1996, Brylane, L.P. completed the acquisition of certain assets
of the Chadwick's of Boston catalog division ("Chadwick's") of Chadwick's, Inc.,
a wholly-owned subsidiary of the TJX companies ("TJX") (the "Chadwick's
Acquisition"). Chadwick's is a catalog business devoted to selling off-price
women's career, casual and social apparel. The Chadwick's acquisition included
the purchase of inventory, property, plant and equipment, customer lists,
trademarks, goodwill and the assumption of certain liabilities relating to the
business by Brylane. In addition, the parties entered into a services agreement,
as well as an inventory purchase agreement pursuant to which TJX has committed
to purchase certain amounts of Chadwick's excess inventory through January 2000.
Brylane paid to TJX $222.7 million (subject to certain post - closing
adjustments) and issued to TJX (the "TJX noteholder") a $20.0 million
Convertible Redeemable Note due 2006. In order to fund a portion of the cash
paid in connection with the Chadwick's Acquisition and to repay its existing
indebtedness under its 1993 bank credit facility, the Partnership entered into
the 1996 Bank Credit Facility. In addition, the Partnership received an
aggregate of approximately $51.3 million in new equity from certain affiliates
of FS&Co., Leeway & Co., NYNEX and WearGuard.
F-7
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For accounting purposes, the Chadwick's Acquisition has been recorded using
the purchase method of accounting, Brylane's financial statements include the
results of Chadwick's on a consolidated basis from the closing date of the
acquisition. The purchase price, reflecting preliminary adjustments of $28.8
million, and including acquisition costs of $7.1 million, has been allocated to
the assets and liabilities of Chadwick's at their estimated fair values. The
preliminary purchase price adjustment is recorded in accounts receivable other.
The fair values of assets and liabilities have been determined based on
management's estimates. The allocation of the purchase price is as follows (in
thousands):
Current assets....................... $ 89,990
Property and equipment............... 45,805
Intangibles and other assets......... 183,506
Liabilities assumed.................. (98,067)
--------
$ 221,234
========
The following unaudited pro forma results of operations for the years ended
February 3, 1996 and February 1, 1997 assume that the KingSize Acquisition and
the Chadwick's Acquisition occurred as of January 29, 1995. In preparing the
pro forma information, certain adjustments related to the KingSize acquisition
have been made for (i) the amortization of goodwill and other intangible assets
created in the KingSize Acquisition; (ii) the interest expense related to the
borrowings which were used to finance a portion of the purchase price; (iii) the
non-recurring charge related to the valuation of the acquired inventory; and
(iv) the administrative overhead and goodwill amortization related to KingSize
as a division of WearGuard. Certain adjustments related to the Chadwick's
Acquisition have been made for (i) the amortization of goodwill and other
intangible assets created in the Chadwick's Acquisition; (ii) the interest
expense on the net increase in indebtedness which was used to finance a portion
of the purchase price; (iii) the sale of deferred billing receivables to
Alliance Data Systems Corporation; (iv) the non-recurring charge related to the
valuation of the acquired inventory; (v) the amortization of deferred financing
fees related to the 1996 Bank Credit Facility and the write-off and reduction of
amortization expense related to the repayment of the 1993 bank credit facility;
and (vi) the elimination of interest expense and federal and state taxes related
to Chadwick's as a division of TJX.
The pro forma information is provided for informational purposes only. It
is based on historical information and does not purport to be indicative of the
results that actually would have occurred had the KingSize and Chadwick's
Acquisitions been made as of the indicated dates or of results which may occur
in the future (in thousands):
Unaudited
-------------------------
For the fiscal year ended
-------------------------
February 3, 1996 February 1, 1997
---------------- ----------------
Net Sales............ $1,090,318 $1,167,965
Operating income..... 70,625 87,269
Net Income........... 30,894 46,941
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year
Brylane's fiscal year ends on the Saturday closest to January 31 and
consists of 52 or 53 weeks. Brylane's fiscal years ended January 28, 1995 and
February 1, 1997 consisted of 52 weeks, and the fiscal year ended February 3,
1996 consisted of 53 weeks. The fiscal year is designated in the notes to the
financial statements by the calendar year in which the fiscal year commences.
Cash Equivalents
Brylane considers investments with initial maturities of three months or
less to be cash equivalents.
Accounts Receivable
The Brylane, L.P. sells eligible accounts receivable generated through
deferred billing programs to Alliance Data Systems Corporation ("ADS") (See note
(13) "Related Party Transactions"). All sales are accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" which was effective for transactions occurring after December 13,
1996. Costs associated with these transactions are included in operations.
Deferred billing accounts receivable balances are net of allowance for doubtful
accounts of $0 and $1,975,000 at February 3, 1996 and February 1, 1997.
Inventories
Merchandise inventories are stated at the lower of cost or market,
principally valued on the average cost basis under a standard costing system or
using the retail method of accounting, except for inventories attributable to
the initial investment in KingSize and Chadwick's which were recorded at
estimated fair value. A non-recurring inventory charge representing the
estimated fair value in excess of its original historical cost, as of the date
of the KingSize Acquisition, was fully amortized in fiscal 1995 ($569,000). A
non-recurring inventory charge representing the estimated fair value, as of the
date of the Chadwick's Acquisition, of inventory in excess of its original
historical cost was amortized partly during the fiscal year ended February 1,
1997 ($1.7 million) with the remainder to be amortized in the Spring/Summer
season of fiscal 1997 ($3.3 million).
Catalog Costs
Catalog costs primarily consist of catalog production and mailing costs
that have not yet been fully amortized. Catalog costs are amortized over the
expected revenue stream, which is approximately three months from the date
catalogs are mailed as determined based on management's estimates.
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging principally from
10-30 years for buildings and improvements, the lesser of 10 years or the life
of the lease for leasehold improvements and 3-10 years for other property and
equipment. The cost and related accumulated depreciation or amortization of
assets sold or retired are removed from the accounts, with any resulting gain or
loss included in net income. Repairs and maintenance are charged to expense as
incurred; renewals and betterments which extend service lives are capitalized.
F-9
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization and Deferred Financing Costs
Organization costs amounting to $300,000 relate to the formation of Brylane
and its wholly-owned subsidiaries and partnerships. Such costs are amortized
over five years using the straight-line method. Accumulated amortization of
organization costs at February 3, 1996, and February 1, 1997 was $150,000, and
$210,000, respectively. Original deferred financing costs of $11.8 million
incurred in connection with the Brylane Acquisition were capitalized and
amortized over the term of the related debt using the effective interest method.
In connection with the repayment of the 1993 bank credit facility, a pro rata
portion of the deferred financing fees of $2.5 million associated with the
obligations to be repaid were written off as a charge to operations. The
remaining balance of $9.3 million will continue to be amortized over the
remaining life of the related obligations. Deferred financing costs of $7.0
million incurred in connection with the 1996 Bank Credit Facility were
capitalized and are amortized over the term of the related debt using the
effective interest method. Accumulated amortization of deferred financing costs
at February 3, 1996, and February 1, 1997 was $3.7 million, and $5.3 million,
respectively.
Intangible Assets
Intangible assets associated with the Brylane Acquisition include
trademarks of $8.8 million, customer lists of $2.2 million and goodwill of
$114.5 million. Such intangibles are amortized over a 30-year composite life
using the straight-line method. Accumulated amortization of intangible assets
was $10.5 million, and $14.6 million at February 3, 1996, and February 1, 1997,
respectively. Intangible assets associated with the KingSize Acquisition include
customer lists of $520,000, a noncompetition agreement of $300,000, and goodwill
of $50.8 million. Amortization is computed using the straight-line method over a
life of eight years for the customer lists, five years for the noncompetition
agreement, and 40 years for goodwill. Accumulated amortization was $465,000 and
$1.9 million, at February 3, 1996 and February 1, 1997, respectively. Intangible
assets associated with the Chadwick's Acquisition include customer lists of $4.0
million and goodwill of $179.5 million. Amortization is computed using the
straight-line method over a life of five years for the customer lists and 40
years for goodwill. Accumulated amortization was $882,000 at February 1, 1997.
Brylane's policy is to periodically review the value assigned to goodwill
to determine if it has been permanently impaired by adverse conditions which
might affect Brylane. Such reviews include an analysis of current results and
take into consideration the discounted value of projected operating cash flow
(earnings before interest, taxes and depreciation and amortization).
Income Taxes
Under the partnership form of doing business, the tax effects of profits
and losses of the Partnership are incurred by the partners. Brylane makes cash
advances and annual distributions to partners in amounts sufficient for the
partners to pay income taxes on their ratable share of taxable income. As a
result, the provision for income taxes for the years ended January 28, 1995,
February 3, 1996, and February 1, 1997 represents federal, state and local
income taxes relating only to taxable income of the C-corporations included in
the consolidated financial statements.
Revenue Recognition
Sales are recorded at the time of shipment. The Brylane, L.P. provides a
reserve for estimated merchandise returns, based on its prior customer returns
experience.
F-10
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership Unit Option Plan
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Awards of Stock-Based Compensation to Employees",
which is effective for fiscal years beginning after December 15, 1995. SFAS
No.123 provides alternative accounting treatment to Accounting Principles Board
("APB") Opinion No. 25 "Accounting for Stock Issued to Employees" with respect
to stock-based compensation and requires certain additional disclosures. Brylane
adopted the disclosure requirements of SFAS No. 123 in the first quarter of
1996, but has elected to continue to measure compensation costs following
present accounting rules under APB Opinion No. 25 (See note (8) "Partnership
Unit Option Plans").
Reclassifications
Certain reclassifications have been made to the 1995 balance sheets, and
the 1994 and 1995 statements of income and cash flows to conform with the 1996
financial statement presentation. Such reclassifications had no effect on
previously reported net income.
(5) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment consist
of (in thousands) :
<TABLE>
<CAPTION>
February 3, February 1,
1996 1997
------------ -----------
<S> <C> <C>
Land, buildings and improvements.............. $ 14,997 $50,841
Furniture, fixtures and equipment............. 19,359 68,125
Leasehold improvements........................ 2,120 3,127
------ -------
36,476 122,093
Accumulated depreciation and amortization.... 8,253 46,123
------ -------
Property and equipment, net.................. $ 28,223 $75,970
====== ======
</TABLE>
(6) LONG-TERM DEBT:
In order to finance the Brylane Acquisition, Brylane secured financing
through proceeds from a bank credit facility ("1993 bank credit facility") and
the sale of the Notes. In connection with the Chadwick's Acquisition, Brylane
repaid the 1993 bank credit facility and entered into a 1996 Bank Credit
Facility ("Bank Credit Facility"). The Bank Credit Facility and Notes are fully
and unconditionally guaranteed, jointly and severally, by each of Brylane's
wholly-owned subsidiaries: Brylane Capital Corp., B.L. Management Services,
Inc., B.L. Catalog Distribution, Inc., B.N.Y. Service Corp., K.S. Management
Services, Inc., C.O.B. Management Services, Inc., Chadwick's Tradename Sub,
Inc., and by each of Brylane's wholly-owned general partnerships, B.L.
Management Services Partnership and B.L. Catalog Distribution Partnership
(collectively, "Subsidiary Guarantors").
F-11
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts outstanding under long-term debt agreements are as follows
(in thousands):
<TABLE>
<CAPTION>
February 3, February 1,
1996 1997
------------ ------------
<S> <C> <C>
1993 bank credit facility term loan (the "Term Loans")
bearing interest at the rate of LIBOR plus 2.0%
adjusted to the current rate at intervals of one
to six months based on Brylane's operating cash
flow to net debt ratio. At February 3, 1996 and
November 2, 1996, the margin was 2.0%.
Various maturities through October 2000................. $102,476 0
1993 bank credit facility revolving loan
maximum borrowing of $40,000, sublimit
for letters of credit of 30,000......................... 0 0
1996 Bank Credit Facility ("Tranche A
Term Loan"), bearing interest at
the rate of (i) a margin over the higher
of prime rate or federal funds rate plus 0.5%
or (ii) a margin over LIBOR. At February 1, 1997,
the rate was LIBOR plus 2.0%: Various maturities
through 2001............................................ 0 213,000
1996 Bank Credit Facility Tranche B Term
Loan; ("Tranche B Term Loan")
bearing interest at (i) a margin over
the higher of prime rate or federal
funds rate plus 0.5% or (ii) a
margin over LIBOR. At
February 1, 1997 the rate was
LIBOR plus 2.5%. Various
maturities through February 2003........................ 0 70,000
1996 Bank Credit Facility revolving
loan ("Revolving Credit Facility"),
maximum borrowings of $125,000,
sublimit for letters of credit $75,000.................. 0 0
Convertible subordinated note,
bearing interest at the rate of
6% per annum, maturing
December 9, 2006........................................ 0 20,000
Senior subordinated notes, bearing interest at the
rate of 10.0% per annum, maturing
September 1, 2003....................................... 125,000 125,000
-------- -------
227,476 428,000
Discount on senior subordinated notes................... (736) (638)
-------- -------
226,740 427,362
Less current portion.................................... (13,720) (26,000)
-------- -------
$213,020 $401,362
======== =======
</TABLE>
In addition to scheduled maturities on the Tranche A and Tranche B Term
Loan, Brylane is obligated to make certain mandatory prepayments of the loans
and the Revolving Credit Facility under certain circumstances. Such a mandatory
prepayment of the Tranche A and Tranche B Term Loans is based on Brylane's
excess cash flow, as defined. The terms of the Partnership Agreement may under
certain conditions require and the terms of the Tranche A and Tranche B Term
Loan will allow, until the fourth anniversary of the closing of the Brylane
Acquisition, each such scheduled or mandatory principal payment to be placed
into an escrow account rather than being applied to reduce the principal amount
of the Tranche A and Tranche B Term Loans.
F-12
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At February 3, 1996 and February 1, 1997, interest terms available to
Brylane, for borrowing similar to the Term Loans and the Tranche A and B Term
Loans, were similar to those presently provided under the Bank Credit Facility.
Accordingly, the principal amount outstanding of the Term Loans and the Tranche
A and B Term Loans approximated the fair value at February 3, 1996 and February
1, 1997.
Based on quoted market prices at February 3, 1996 and February 1, 1997 the
fair market value of the Notes was approximately $111.9 million and $130.3
million, respectively. The change in fair market value is primarily attributable
to changes in bond ratings and market interest rates.
The 1993 bank credit facility contained certain financial covenants which
required Brylane to meet financial ratios and tests, including a minimum net
worth test, a minimum fixed charge coverage ratio and a minimum cash flow to net
debt ratio. At February 3, 1996, Brylane was in compliance with the required
covenants. In addition, the 1993 bank credit facility contained covenants
customarily found in credit agreements of such type including, among other
things, limitations on indebtedness, liens, asset sales, distributions and other
restricted payments, acquisitions, mergers, investments, capital expenditures
and prepayment or amendment of certain indebtedness. The 1993 bank credit
facility contained customary events of default, including certain changes of
control of Brylane.
The Bank Credit Facility contains certain financial covenants which require
Brylane to meet financial ratios and tests, including a maximum debt to cash
flow ratio, a minimum fixed charge coverage ratio, and a minimum net worth test.
At February 1, 1997, Brylane was in compliance with the required covenants. In
addition, the Bank Credit Facility contains covenants customarily found in
credit agreements including, among other things, limitations on indebtedness,
liens, Asset Sales (as defined), partnership distributions and other restricted
payments, mergers and certain acquisitions, investments, transactions with
affiliates, capital expenditures, the prepayment or amendment of certain
indebtedness, the granting of certain negative pledges and the amendment of
material agreements. The Bank Credit Facility also contains customary events of
default, including certain changes of control of the Partnership.
The obligations of Brylane under the Bank Credit Facility are
collateralized by the intangible assets of Brylane.
As of February 3, 1996 and February 1, 1997, Brylane had no borrowings
under the Revolving Credit Facility and, after giving effect to the issuance of
letters of credit for $17.2 million and $47.9 million, respectively, had
additional capacity under the Revolving Credit Facility of approximately $22.8
million and $77.1 million, respectively. As of February 3, 1996 and February 1,
1997, the aggregate principal balance outstanding under the Term Loans and the
Tranche A and B Term Loans was $102.5 million and $283.0 million, respectively.
At February 1, 1997, annual maturities of long-term debt by fiscal year are
as follows (in thousands):
1997......... $ 26,000
1998......... 41,000
1999......... 46,000
2000......... 51,000
2001......... 54,000
Thereafter... 210,000
--------
Total Debt... $428,000
========
F-13
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) OPERATING LEASES:
Brylane leases office, outlet store and warehouse space and equipment under
leasing arrangements classified as operating leases which expire at various
times through fiscal 2003. Rent expense under these leases was $5.6 million,
$5.8 million and $6.6 million in the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997.
Future minimum lease payments required under these leases at February 1, 1997,
are as follows (in thousands):
1997......... $6,149
1998......... 5,348
1999......... 3,856
2000......... 1,754
2001......... 1,447
Thereafter... 686
------
$19,240
======
(8) PARTNERSHIP UNIT OPTION PLANS:
1993 Option Plan
In connection with the Brylane Acquisition, Brylane adopted its 1993
Performance Partnership Unit Option Plan (the "1993 Option Plan") whereby
officers, key employees, certain members of the Board of Representatives of the
Partnership and consultants of Brylane (or its Subsidiaries) may be granted the
right to purchase an aggregate of up to 779,584 partnership units in Brylane.
The options were issued at fair market value at the date of the grant based on
the capital contributed by FS&Co. and The Limited.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized an amendment to the existing option agreement that
revised the performance criteria for the vesting of the options, and changed the
outside vesting date of the options from August 30, 2008 to August 30, 2002 and
reduced the term from 16 to 10 years. In addition, the exercise price of the
options outstanding under the 1993 Option Plan was increased from $10.00 per
partnership unit to $15.00 per partnership unit. In accordance with APB Opinion
No. 25, the options were deemed to have a new measurement date. Based on the new
measurement date, the Partnership incurred non-cash compensation expense of $2.4
million in the fourth quarter of 1996 and expects to incur an additional $0.7
million in fiscal 1997. All options become exercisable on the fifth or ninth
anniversary of the Brylane Acquisition and terminate 10 years from date of grant
(if not sooner due to termination of employment).
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Outstanding at beginning of year........ 615,209 622,709
Granted................................. 15,000 669,584
Cancelled............................... (7,500) (647,709)
------- --------
Outstanding at end of year.............. 622,709 644,584
======= ========
Options exercisable at year-end.. - -
Weighted-average fair value of
options granted during the year $9.71 $9.99
</TABLE>
1995 Option Plan:
On July 15, 1995, Brylane adopted its 1995 Partnership Unit Option Plan
(the "1995 Option Plan") whereby officers, key employees, certain members of the
Board of Representatives of the Partnership and consultants of Brylane (or its
Subsidiaries) may be granted the right to purchase an aggregate of up to 500,000
partnership units in Brylane.
F-14
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized amendments to increase the number of partnership
units which may be issued from 500,000 to 1,700,000 and permit the Board or
Compensation Committee to grant options with a term of up to 10 years.
Additionally, Chadwick's employees were granted substitute options in exchange
for options previously granted by TJX. The term, exercise price and vesting
criteria of the replacement options were determined to preserve the economic
value of the options being exchanged. The granting of the options resulted in an
adjustment to the Chadwick's Acquisition purchase price of $0.9 million for the
related compensation expense.
A summary of the Partnership's 1995 Option Plan as of February 3, 1996 and
February 1, 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ----------------------------
Weighted-Average Weighted-Average
Units Exercise Price Units Exercise Price
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year... - 123,750 $15.00
Granted............................ 123,750 $15.00 340,854 17.04
Cancelled.......................... - -
------- -------
Outstanding at end of year......... 123,750 15.00 464,604 16.50
Options exercisable at year-end.... - 41,250
Weighted-average fair value of
options granted during the year... $ 5.81 $ 9.69
</TABLE>
The following table summarizes information about the 1995 Option Plan at
February 1, 1997:
<TABLE>
<CAPTION>
Options Outstanding
- ----------------------------------------------------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At February 1, 1997 Contractual Life Exercise Price
--------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
$ 5 to 10 63,604 8.6 years $ 6.72
$11 to 15 127,750 5.6 years 15.00
$16 to 20 273,250 8.0 years 19.48
-------
$ 5 to 20 464,604 7.4 years 16.50
=======
Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Number
Range of Exercisable Weighted-Average
Exercise Prices at February 1, 1997 Exercise Price
--------------- ------------------- ----------------
$ 5 to 10 - -
$11 to 15 41,250 $15.00
$16 to 20 - -
------ ------
41,250 $15.00
====== ======
</TABLE>
F-15
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Disclosures Under Statement of Financial Accounting Standards No. 123:
Pro forma information regarding net income as required by SFAS No. 123 has
been determined as if the Brylane, L.P. accounted for its stock options under
the fair value approach. The fair value of each option is estimated on the date
of grant using the Black - Scholes model with the following assumptions for
1995: expected volatility of 31.2%, risk - free interest rate of 5.99% and an
expected life of five years. The weighted average assumptions applied in 1996
are as follows: expected volatility of 31.2%, weighted average risk-free
interest rate of 6.04%, and weighted average expected life of 5.25 years.
Had compensation costs been determined based on the fair value method of
SFAS No. 123, the Company's net income would have been adjusted to the pro forma
amounts indicated below. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the options vesting
period (in thousands).
<TABLE>
<CAPTION>
February 3, 1996 February 1, 1997
---------------- ----------------
<S> <C> <C>
Net income, as reported $27,850 $26,952
Net income, pro forma $27,658 $28,351
</TABLE>
(9) STOCK SUBSCRIPTION PLAN:
Brylane has a stock subscription plan (the "Subscription Plan") whereby
officers, certain key employees and a member of the Board of Representatives may
purchase interests in an entity that indirectly owns interests in the
Partnership. Pursuant to the Subscription Plan, this entity acquires additional
interests in the Partnership using the proceeds received in connection with such
purchases. The portion of the purchase price received in the form of promissory
notes is recorded as a reduction of partnership equity. The price at which the
units are purchased is set at fair value at the date of issuance as determined
by Brylane, L.P. from analyses and outside purchases.
Activity under the Stock Subscription Plan for fiscal 1994, fiscal 1995 and
fiscal 1996 follows:
<TABLE>
<CAPTION>
Average
Price
Number Per
of Units Unit
-------- ------
<S> <C> <C>
Units outstanding, January 29, 1994... 453,000 $10.00
Activity during 1994:
Issued............................... 60,000 10.00
Repurchased.......................... (12,500) 10.00
-------- -------
Units outstanding, January 28, 1995... 500,500 10.00
Activity during 1995:
Issued............................... 15,000 15.00
Repurchased.......................... (10,000) 12.10
------- ------
Units outstanding, February 3, 1996... 505,500 10.15
Activity during 1996:
Issued............................... 7,500 15.00
Repurchased.......................... (5,000) 12.10
-------- ------
Units outstanding, February 1, 1997... 508,000 $10.22
======= ======
</TABLE>
F-16
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) RETIREMENT PLAN:
Effective August 30, 1993, Brylane adopted the Brylane, L.P. Savings and
Retirement Plan (the "Retirement Plan"). All of the Company's employees who have
attained twenty-one years of age and have completed one year of service are
eligible to participate in the Retirement Plan. Eligible employees can
contribute up to the lesser of $9,500 or ten percent of their compensation to
the Retirement Plan on a pre-tax basis. Brylane will match up to three percent
of the participants' eligible compensation. Brylane is required to make
additional contributions to the Retirement Plan equal to four percent of each
participant's compensation up to the Social Security taxable wage base and equal
to seven percent of each participant's compensation which exceeds that amount.
An additional one percent of eligible compensation is contributed on behalf of
those participants who have completed at least five years of service. Brylane's
contributions begin to vest after three years of service, at which time such
contributions are 20% vested. Thereafter, the contributions vest at a rate of
20% each year so that Brylane's contributions are fully vested after seven years
of service. Brylane's cost under these plans was $3.1 million, $2.9 million and
$3.6 million in the years ended January 28, 1995, February 3, 1996 and February
1, 1997, respectively.
As a result of the Chadwick's Acquisition, the Brylane, L.P. participates
in a multi-employer plan that provides defined benefits to its union employees.
Brylane, L.P. expense for this plan for the eight-weeks ended February 1, 1997
amounted to $252,750.
(11) CONVERTIBLE REDEEMABLE PREFERRED STOCK:
In connection with the Chadwick's Acquisition, certain members of
Chadwick's management purchased 75,000 shares of VP Holding Corporation Series A
Convertible Redeemable Preferred Stock for a purchase price of $1.5 million. The
shares of VP Holding Corporation Series A Convertible Redeemable Preferred Stock
vest in three equal annual installments beginning one year from the date of
purchase and may not be transferred or redeemed at the option of the holder for
three years from their date of purchase; thereafter, they may be transferred
only after first offering such shares to VP Holding Corporation. The redemption
price has been set at $20 per share (as appropriately adjusted for stock
dividends, reclassifications or splits).
(12) PARTNERSHIP EQUITY:
The general partner of Brylane is an affiliate of FS&Co. Profits of the
Partnership will be allocated first, 100% to the general partner in an amount
equal to the excess of cumulative allocated losses over allocated profits;
second, to each partner in proportion to cumulative allocated losses over
profits; and the balance in proportion to percentage interest.
Losses will be allocated first, to each partner in proportion to
cumulative allocated profits over losses; second, to each partner in proportion
to the sum of capital contributions and cumulative allocated profits over
losses; and the balance 100% to the general partner.
(13) RELATED PARTY TRANSACTIONS:
On August 30, 1993 (amended July 1, 1995), Brylane entered into a Credit
Card Agreement with World Financial Network National Bank ("World Financial") a
wholly-owned subsidiary of Alliance Data Systems Corporation ("ADS"), a joint
venture 60% owned by affiliates of Welsh Carson Anderson & Stowe and 40% owned
by The Limited, Inc., pursuant to which World Financial provides credit to
customers of Brylane, issues five proprietary credit cards and processes credit
card transactions for a fee. The total expense amounted to $10.7 million, $10.3
million and $10.0 million in the years ended January 28, 1995, February 3, 1996
and February 1, 1997. In addition, the Brylane, L.P. sold accounts receivable to
ADS and incurred processing fees of $142,000 in fiscal 1996.
F-17
<PAGE>
BRYLANE, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain affiliates of The Limited granted Brylane the use of certain
trademarks for a specified period, as defined in a trademark license agreement.
In connection with the Chadwick's Acquisition, Brylane paid FS Management
Co. and FS&Co. Management L.P., both of which are affiliated with FS&Co., an
aggregate of $2.5 million in fees as compensation for services in structuring
and arranging financing. Such fees are included in intangibles and other assets.
(14) COMMITMENTS AND CONTINGENCIES:
Brylane is involved in various legal proceedings that are incidental to the
conduct of its business. Although the amount of any liability with respect to
these proceedings cannot be determined, in the opinion of management, any such
liability will not have a material adverse effect on the financial position or
results of operations of Brylane.
(15) SUBSEQUENT EVENTS:
On February 26, 1997, pursuant to the First Amended and Restated
Incorporation and Exchange Agreement (the "Exchange Agreement"), certain
affiliates of FS&Co., The Limited, M&P Distributing Company, WearGuard, Leeway &
Co., and NYNEX exchanged their shares of common stock of VP Holding Corporation
or ownership interests in the Partnership, except for the TJX Noteholder, for
14,926,778 shares of Common Stock in Brylane Inc., a newly formed corporation,
and the TJX Noteholder exchanged the $20.0 million Convertible Note due 2006 of
the Partnership for a similar security in Brylane, L.P. and Brylane Inc.
Additionally, pursuant to their respective stock subscription agreements with VP
Holding Corporation, certain members of management and others exchanged their
shares of common stock of VP Holding Corporation for an aggregate of 544,667
shares of Common Stock of Brylane Inc.
On February 26, 1997, Brylane Inc. offered 4,000,000 shares of common stock
to the public at an initial public offering price of $24.00 per share. Net
proceeds, after underwriting discounts and related fees, of $89.3 million were
used to repay obligations outstanding under the Tranche A Term Loan of the Bank
Credit Facility resulting in a write-off of $2.1 million of deferred financing
costs in the first quarter of fiscal 1997.
In April 1997, Brylane signed a new lease commencing April 15, 1997 and
expiring March 31, 2012. Annual payments required by this lease are $1.5 million
for the period April 15, 1997 through April 14, 2002 and $1.6 million for the
period April 15, 2002 through March 31, 2012.
Brylane, L.P. anticipates entering into its 1997 Bank Credit Facility which
will result in the write-off of approximately $4.4 million in deferred financing
costs. This item will be treated as an extraordinary charge during Spring/Summer
season of fiscal 1997. The proceeds from 1997 Bank Credit Facility will be used
to repay the 1996 Bank Credit Facility.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 2nd day of May, 1997.
Brylane, L.P.
By: VGP Corporation
Its: General Partner
By: /s/ JOHN M. ROTH
-------------------------------------
John M. Roth
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant or
VGP Corporation as general partner of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER J. CANZONE Authorized Representative and Chief May 2, 1997
- --------------------------
Peter J. Canzone Executive Officer and Chairman of the
Board of Representatives of Brylane, L.P.
(Principal Executive Officer of Brylane,
L.P.)
/s/ ROBERT A. PULCIANI Authorized Representative and Executive May 2, 1997
- --------------------------
Robert A. Pulciani Vice President, Chief Financial Officer
and Secretary of Brylane, L.P.
(Principal Financial and Accounting
Officer of Brylane, L.P.)
/s/ JOHN M. ROTH Member of the Board of Representatives May 2, 1997
- --------------------------
John M. Roth of Brylane, L.P. and President and Sole
Director of VGP Corporation
(Principal Executive Officer of VGP
Corporation, the Sole General Partner of
Brylane, L.P.)
/s/ MARK J. DORAN Member of the Board of Representatives May 2, 1997
- --------------------------
Mark J. Doran of Brylane, L.P. and Vice President,
Treasurer and Secretary of VGP
Corporation
(Principal Financial and Accounting
Officer of VGP Corporation, the Sole
General Partner of Brylane, L.P.)
/s/ RONALD P. SPOGLI Member of the Board of Representatives May 2, 1997
- --------------------------
Ronald P. Spogli of Brylane, L.P.
/s/ SAMUEL P. FRIED Member of the Board of Representatives May 2, 1997
- --------------------------
Samuel P. Fried of Brylane, L.P.
/s/ WILLIAM K. GERBER Member of the Board of Representatives May 2, 1997
- --------------------------
William K. Gerber of Brylane, L.P.
/s/ WILLIAM C. JOHNSON Member of the Board of Representatives May 2, 1997
- --------------------------
William C. Johnson of Brylane, L.P.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 2nd day of May, 1997.
Brylane Capital Corp.
By: /s/ ROBERT A. PULCIANI
--------------------------------------------
Robert A. Pulciani
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER J. CANZONE President, Chief Executive May 2, 1997
- -------------------------
Peter J. Canzone Officer and Director
(Principal Executive Officer)
/s/ ROBERT A. PULCIANI Executive Vice President, Chief Financial May 2, 1997
- -------------------------
Robert A. Pulciani Officer, Secretary and Treasurer
(Principal Financial and Accounting
Officer)
/s/ RONALD P. SPOGLI Director May 2, 1997
- -------------------------
Ronald P. Spogli
/s/ JOHN M. ROTH Director May 2, 1997
- -------------------------
John M. Roth
/s/ MARK J. DORAN Director May 2, 1997
- -------------------------
Mark J. Doran
/s/ SAMUEL P. FRIED Director May 2, 1997
- -------------------------
Samuel P. Fried
/s/ WILLIAM K. GERBER Director May 2, 1997
- -------------------------
William K. Gerber
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
2.1#### First Amended and Restated Incorporation and
Exchange Agreement dated as of December 9,
1996 by and among FSEP II, FSEP III, FSEP
International, Lane Bryant Direct Holding,
Inc., The Limited, WearGuard, Leeway & Co.,
NYNEX, Chadwick's, Inc. and Brylane Inc.
3.1+ Certificate of Limited Partnership of the
Partnership.
3.2+ Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement")
dated as of August 30, 1993 (with forms of
Registration Rights Agreement (Newco) and
Stockholders Agreement (Newco) attached as
exhibits thereto).
3.3+ Certificate of Incorporation of Brylane Capital.
3.4+ Bylaws of Brylane Capital.
3.5+++ Amendment No. 1 to Partnership Agreement
dated as of November 22, 1993.
3.6* Amendment No. 2 to Partnership Agreement
dated as of January 28, 1994.
3.7** Amendment No. 3 to Partnership Agreement
dated as of March 16, 1994.
3.8### Amendment No. 4 to Partnership Agreement
dated October 14, 1994.
3.9## Amendment No. 5 to Partnership Agreement
dated September 22, 1995.
3.10## Amendment No. 6 to Partnership Agreement
dated October 16, 1995.
3.11#### Amendment No. 7 to Partnership Agreement
dated October 14, 1996.
3.12#### Amendment No. 8 to the Partnership Agreement
dated December 5, 1996.
3.13@ Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of
February 26, 1997.
3.14*** Certificate of Incorporation of Brylane Inc.
3.15*** Bylaws of Brylane Inc.
3.16#### Certificate of Amendment of Certificate of
Incorporation of VP Holding, as filed with
the Office of the Secretary of State of
Delaware on December 5, 1996.
3.17#### Certificate of Designation of the Series A
Convertible Redeemable Preferred Stock of VP
Holding as filed with the Office of the
Secretary of State of Delaware on December 6,
1996.
3.18###### Form of Certificate of Designation of the
Series A Convertible Redeemable Preferred
Stock of Brylane Inc. filed with the Office
of the Secretary of State of Delaware on
February 14, 1997.
4.1+ Purchase Agreement dated August 20, 1993
among the Partnership, Brylane Capital, VGP
and each of the Initial Purchasers named
therein.
4.2+ Registration Rights Agreement made and
entered into the 30th day of August, 1993
among the Partnership, Brylane Capital and
the Initial Purchasers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
4.3+ Indenture dated as of August 30, 1993 among
the Partnership and Brylane Capital, as
Issuers, B.L. Management, B.L. Distribution,
B.L. Management Partnership and B.L.
Distribution Partnership, as Guarantors, and
United States Trust Company of New York, as
Trustee (the "Indenture").
4.4+ Form of Old Note (included at page 37 of the
Indenture).
4.5+ Form of New Note (included at page 42 of the
Indenture, as amended at page 2 of the First
Supplemental Indenture).
4.6+ Form of Guarantee by B.L. Management, B.L.
Distribution, B.L. Management Partnership and
B.L. Distribution Partnership (included at
page 57 and in Article Fourteen of the
Indenture).
4.7+ Form of Intercompany Note (included as
Exhibit A to the Indenture).
4.8+++ First Supplemental Indenture dated as of
November 22, 1993 by and among the
Partnership and Brylane Capital, as Issuers,
and United States Trust Company of New York,
as Trustee.
4.9* Second Supplemental Indenture dated as of
January 28, 1994 among the Partnership,
Brylane Capital, B.N.Y. Service Corp. and
United States Trust Company of New York, as
Trustee.
4.10## Third Supplemental Indenture dated as of
October 16, 1995 by and among the
Partnership, Brylane Capital, KingSize
Catalog Sales, L.P., K.S. Management,
KingSize Catalog Sales, Inc. and United
States Trust Company of New York, as Trustee.
4.11#### Fourth Supplemental Indenture dated as of
December 9, 1996 by and among the
Partnership, Brylane Capital, C.O.B.
Management Services, Inc., Chadwick's
Tradename Sub, Inc. and United States Trust
Company of New York, as Trustee.
4.12@ Registration Rights Agreement dated as of
February 26, 1997 by and among Brylane Inc.,
FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard,
TJX, Leeway & Co. and NYNEX.
4.13@ Stockholders Agreement dated as of February
26, 1997 by and among Brylane Inc., FSEP II,
FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard,
TJX, Leeway & Co. and NYNEX.
10.1+ Transaction Agreement dated as of July 13,
1993 among VGP, VLP and the Transferors
referred to therein (the "Transaction
Agreement").
10.2+ Amendment No. 1 to Transaction Agreement
dated as of August 30, 1993.
10.3+ Addendum to Transaction Agreement dated
August 30, 1993 executed by the Partnership.
10.4+ Credit Card Processing Agreement (the "Credit
Card Agreement") made as of the 30th day of
August, 1993 between World Financial Network
National Bank ("World Financial") and the
Partnership.
10.5### Amendment No. 1 to Credit Card Agreement
xx dated as of July 1, 1995 between World
Financial and the Partnership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
10.6+ Trademark License Agreement (the "Trademark
License Agreement") made as of the 20th day
of August, 1993 among Lanco, Inc., Lernco,
Inc., Limited Stores, Inc., Lane Bryant, Inc.
(collectively, the "Licensors"), Lane Bryant
Direct, Inc., and Lerner Direct, Inc.
(collectively, the "Licensees").
10.7#### Amendment No. 1 to Trademark License
Agreement entered into as of the 9th day of
December, 1996 by and among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane
Bryant, Inc., Lane Bryant Direct Holding,
Inc. and the Partnership.
10.8+ Electronic Media Trademark License Agreement
made as of the 20th day of August, 1993 among
the Licensors and the Licensees.
10.9+ Agreement to be Bound by the Trademark
License Agreement and the Electronic Media
Trademark License Agreement executed by the
Partnership.
10.10+ Service Agreement made as of the 30th day of
August, 1993 between B.L. Management and the
Partnership.
10.11+ Catalog Production Agreement made and entered
into as of the 30th day of August, 1993
between B.L. Distribution Partnership and
B.L. Management Partnership.
10.12+ Catalog Production, Distribution, License and
Administrative Services Agreement made and
entered into as of the 30th day of August,
1993 between the Partnership and B.L.
Distribution Partnership.
10.13#### Credit Agreement dated as of December 9, 1996
(the "Credit Agreement") among the
Partnership, the Lenders listed on the
signature pages thereof, Morgan Guaranty
Trust Company of New York ("Morgan
Guaranty"), as Administrative Agent, and
Merrill Lynch Capital Corporation ("Merrill
Lynch"), as Documentation Agent.
10.14#### Security Agreement dated as of December 9,
1996 among the Partnership, the Subsidiary
Grantors (as defined therein), and Morgan
Guaranty, as Security Agent.
10.15#### Pledge Agreement dated as of December 9, 1996
among the Partnership, the Subsidiary
Pledgors (as defined therein), and Morgan
Guaranty, as Security Agent.
10.16#### Form of Tranche A Term Notes executed by the
Partnership in favor of each of the various
Lenders which are signatories to the Credit
Agreement.
10.17#### Form of Tranche B Term Notes executed by the
Partnership in favor of each of the various
Lenders which are signatories to the Credit
Agreement.
10.18#### Guarantee Agreement dated as of December 9,
1996 among the Guarantors (as defined
therein), Morgan Guaranty, as Administrative
Agent, and the Issuing Banks (as defined in
the Credit Agreement).
10.19#### Trademark Collateral Agreement dated as of
December 9, 1996 among Lanco, Inc., Lernco,
Inc., Limited Stores, Inc., Lerner Stores,
Inc., Lane Bryant, Inc. and Morgan Guaranty,
as Security Agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
10.20**** Loan Agreement made as of August 30, 1993 by
and between FSEP II, VP Holding and VGP.
10.21**** No Interest Demand Promissory Note made by
FSEP II in favor of VP Holding.
10.22**** Loan Agreement made as of August 30, 1993 by
and between FSEP III, VP Holding and VGP.
10.23**** No Interest Demand Promissory Note made by
FSEP III in favor of VP Holding.
10.24+ Form of Indemnity Agreement made by and
between the Partnership and each of the
members of the Board of Representatives of
the Partnership.
10.25+ Indemnity Agreement dated as of September
1993 made by and between B.L. Management and
Robert A. Pulciani.
10.26+ Indemnity Agreement dated as of September
1993 made by and between B.L. Distribution
and Robert A. Pulciani.
10.27+ 1993 Employee Stock Subscription Plan of VP
Holding (the "Subscription Plan").
10.28*** Amendment No. 1 to the Subscription Plan
dated February 18, 1994.
10.29+ Stock Subscription Agreement made and entered
into as of August 30, 1993 by and between VP
Holding and Peter Canzone (with Secured
Promissory Note and Stock Pledge Agreement
attached as exhibits thereto).
10.30+ Form of Stock Subscription Agreement made by
and between VP Holding and each of Sheila R.
Garelik, Robert A. Pulciani, Richard L.
Bennett, William G. Brosius, Bruce G. Clark,
Jules Silbert, Loida Noriega-Wilson and
Jessie Bourneuf who purchased common stock of
VP Holding under the Subscription Plan with
cash and, in certain cases, promissory note
(with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits
thereto).
10.31+ Form of Stock Subscription Agreement made by
and between VP Holding and each of Arlene
Silverman, Kevin McGrain, Kevin Doyle and
certain other management investors who
purchased common stock of VP Holding under
the Subscription Plan with cash and, in
certain cases, promissory note (with forms of
Secured Promissory Note and Stock Pledge
Agreement attached as exhibits thereto).
10.32*** Addendum dated February 18, 1994 to Stock
Subscription Agreement between VP Holding and
Jules Silbert.
10.33*** Stock Subscription Agreement made and entered
into as of May 27, 1994 by and between VP
Holding and William C. Johnson.
10.34+ 1993 Performance Partnership Unit Option Plan
of the Partnership (the "1993 Option Plan").
10.35+ Form of Performance Partnership Unit Option
Agreement entered into by and between the
Partnership and each of Peter J. Canzone,
Sheila R. Garelik, Robert A. Pulciani, Richard
L. Bennett, William G. Brosius, Bruce G.
Clark, Jules Silbert, Loida Noriega-Wilson and
Jessie Bourneuf under the 1993 Option Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
10.36+ Form of Performance Partnership Unit Option
Agreement entered into by and between the
Partnership and each of Arlene Silverman,
Kevin McGrain, Kevin Doyle and certain other
participants under the 1993 Option Plan.
10.37*** Performance Partnership Unit Option Agreement
entered into as of May 27, 1994 by and
between the Partnership and William C.
Johnson.
10.38#### Form of Amendment to Performance Partnership
Unit Option Agreement under the 1993 Option
Plan.
10.39#### 1995 Partnership Unit Option Plan of the
Partnership (the "1995 Option Plan").
10.40# Form of Partnership Unit Option Agreement
entered into by and between the Partnership
and each of Peter J. Canzone, Sheila R.
Garelik, Robert A. Pulciani, Richard L.
Bennett, William G. Brosius, Bruce G. Clark,
Arlene Silverman, Jules Silbert, Loida
Noriega-Wilson, Jessie Bourneuf and William
C. Johnson under the 1995 Option Plan.
10.41# Form of Partnership Unit Option Agreement
entered into by and between the Partnership
and each of Kevin McGrain, Kevin Doyle and
certain other participants under the 1995
Option Plan.
10.42#### Brylane Inc. 1996 Senior Management Stock
Subscription Plan (the "Senior Management
Plan").
10.43#### Form of Stock Subscription Agreement entered
into by and between Brylane Inc. and nine
management investors who were issued Common
Stock of Brylane Inc. under the Senior
Management Plan.
10.44#### Form of Stock Subscription Agreement entered
into by and between Brylane Inc. and William
C. Johnson under the Senior Management Plan.
10.45#### Brylane Inc. 1996 Stock Subscription Plan
(the "Brylane Subscription Plan").
10.46#### Form of Stock Subscription Agreement entered
into by and between Brylane Inc. and certain
management employees who were issued Common
Stock of Brylane Inc. under the Brylane
Subscription Plan.
10.47#### Brylane Inc. 1996 Performance Stock Option
Plan (the "Brylane 1996 Performance Option
Plan").
10.48#### Form of Stock Option Agreement entered into
by and between Brylane Inc. and certain
participants under the Brylane 1996
Performance Option Plan.
10.49#### Form of Stock Option Agreement entered into
by and between Brylane Inc. and William C.
Johnson under the Brylane 1996 Performance
Option Plan.
10.50#### Brylane Inc. 1996 Stock Option Plan (the
"Brylane 1996 Option Plan").
10.51#### Form of Stock Option Agreement entered into
by and between Brylane Inc. and certain
participants under the Brylane 1996 Option
Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
10.52# License Agreement effective as of March 1,
x 1994 by and between the Partnership and Sears
Shop At Home Services, Inc. ("Sears") (with
Exhibits E and F attached thereto).
10.53# License Agreement effective as of August 1,
x 1994 by and between WearGuard Corporation
("WearGuard") and Sears (with Exhibits E and
F attached thereto).
10.54# First Amendment to License Agreement
effective as of August 1, 1995 by and between
Sears and WearGuard.
10.55#### License Amendment made as of July 23, 1996
xxx between the Partnership and Sears.
10.56## Asset Purchase Agreement dated September 22,
1995 by and among the Partnership, WearGuard
and ARAMARK Corporation ("ARAMARK"), as
guarantor.
10.57## Letter Amendment to the Purchase Agreement
dated September 22, 1995 by and between the
Partnership and WearGuard.
10.58# Consent to Assignment dated October 10, 1995
between and among Sears, WearGuard and
KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.59## Letter Amendment to the Purchase Agreement
dated October 16, 1995 by and between the
Partnership and WearGuard.
10.60## Assignment of Purchase Agreement dated
October 16, 1995 by and among the
Partnership, KingSize Partnership and K.S.
Management.
10.61## Transition Services Agreement dated as of
October 16, 1995 by and among the
Partnership, KingSize Partnership, ARAMARK
and WearGuard.
10.62## Noncompetition Agreement dated as of October
16, 1995 by and among the Partnership,
KingSize Partnership, ARAMARK and WearGuard.
10.63#### Form of Employment Agreement dated as of May
1, 1996 between B.L. Management and each of
Peter J. Canzone, Robert A. Pulciani, Jules
Silbert, Loida Noriega-Wilson and Kevin
McGrain.
10.64#### Form of Employment Agreement dated as of May
1, 1996 between B.L. Management and each of
Sheila R. Garelik and Arlene Silverman.
10.65#### Form of Employment Agreement dated as of May
1, 1996 between the Partnership and each of
Richard L. Bennett, Bruce G. Clark and
William G. Brosius.
10.66#### Amendment No. 1 to Employment Agreement dated
as of July 15, 1996 between B.L. Management
and Sheila R. Garelik.
10.67#### Asset Purchase Agreement dated as of October
18, 1996 by and among TJX, Chadwick's and the
Partnership.
10.68#### Amendment Number One to the Asset Purchase
Agreement made as of the 9th day of December,
1996 among TJX, Chadwick's and the
Partnership.
10.69#### Asset Purchase Agreement dated as of October
18, 1996 by and among CDM Corp. and the
Partnership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
10.70#### Services Agreement dated as of December 9,
1996 between TJX and the Partnership.
10.71#### Amendment to Services Agreement dated as of
December 9, 1996 between TJX and the
Partnership.
10.72#### Inventory Purchase Agreement effective as of
xxx December 9, 1996 by and between the
Partnership and TJX.
10.73#### Employment Agreement dated as of December 9,
1996 between the Partnership and Dhananjaya
K. Rao.
10.74#### Employment Agreement dated as of December 9,
1996 between the Partnership and Carol
Meyrowitz.
10.75#### VP Holding Stock Subscription Agreement for
Preferred Stock made as of December 9, 1996
by and between VP Holding and Dhananjaya K.
Rao.
10.76#### VP Holding Stock Subscription Agreement for
Preferred Stock made as of December 9, 1996
by and between VP Holding and Carol
Meyrowitz.
10.77#### Form of Brylane Inc. Stock Subscription
Agreement for Preferred Stock made as of
December 9, 1996 by and between Brylane Inc.
and each of Dhananjaya K. Rao and Carol
Meyrowitz.
10.78#### Brylane, L.P. Convertible Subordinated Note
Due 2006 dated December 9, 1996 made by the
Partnership in favor of Chadwick's (with
Brylane Inc. and Brylane, L.P. Convertible
Subordinated Note Due 2006 made by Brylane
Inc. and the Partnership in favor of
Chadwick's filed as an exhibit thereto).
10.79#### Unit Subscription Agreement entered into as
of December 5, 1996 by and among the
Partnership, VP Holding, FSEP II, FSEP III,
FSEP International, VGP, VLP, WearGuard,
Leeway and NYNEX.
10.80#### Accounts Receivable Purchase Agreement dated
as of December 9, 1996 between the
Partnership and Alliance Data Systems
Corporation.
21.1@ Subsidiaries of Brylane Inc./Brylane, L.P.
27.1@ Financial Data Schedule.
</TABLE>
- ---------------
+ Filed as an exhibit to the Partnership's Registration Statement on
Form S-4 (Registration No. 33-69532) on September 29, 1993 and
incorporated by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 9, 1993 and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 23, 1993 and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994 and
incorporated by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 1994 and
incorporated by reference herein.
*** Filed as an exhibit to Brylane Inc.'s Registration Statement on Form
S-1 (Registration No. 33-86154) on November 9, 1994 and incorporated
by reference herein.
<PAGE>
**** Filed as an exhibit to Amendment No. 1 to Brylane Inc.'s Registration
Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995
and incorporated by reference herein.
# Filed on December 12, 1995 as an exhibit to the Partnership's
Quarterly Report on Form 10-Q for the quarterly period ended October
28, 1995 (the "1995 Third Quarter Form 10-Q") and incorporated by
reference herein.
## Filed on December 30, 1995 as an exhibit to the Partnership's
Amendment of Current Report on Form 8-K/A (File No. 33-69532) and
incorporated by reference herein.
### Filed on May 3, 1996 as an exhibit to the Partnership's Annual Report
on Form 10-K for the fiscal year ended February 3, 1996 ("1995 Form
10-K") and incorporated by reference herein.
#### Filed as an exhibit to Amendment No. 2 to Brylane Inc.'s Registration
Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996
and incorporated by reference herein.
##### Filed as an exhibit to Amendment No. 3 to Brylane Inc.'s Registration
Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997
and incorporated by reference herein.
###### Filed as an exhibit to Amendment No. 4 to Brylane Inc.'s Registration
Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997
and incorporated by reference herein.
@ Filed herewith.
x Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter
Form 10-Q (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
xx Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as
defined herein) and are the subject of an order granting confidential
treatment with respect thereto.
xxx Certain portions of this exhibit have been omitted from the copies
filed as part of Amendment No. 2 to Brylane Inc.'s Registration
Statement on Form S-1 and are the subject of a request for
confidential treatment with respect thereto.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
No annual report or proxy material has been sent to security holders
during the period from August 30, 1993 through the date hereof.
<PAGE>
EXHIBIT 3.13
BRYLANE, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
DATED AS OF FEBRUARY 26, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS...................... 2
1.1 Definitions....................................... 2
-----------
ARTICLE II
THE PARTNERSHIP................... 10
2.1 Formation and Applicable Provisions............. 10
-----------------------------------
2.2 Name............................................ 10
----
2.3 Purpose......................................... 10
-------
2.4 Term............................................ 10
----
2.5 Principal Office................................ 10
----------------
2.6 Delaware Office; Agent for Service of Process... 10
---------------------------------------------
2.7 Certificates.................................... 11
------------
2.8 Admission of Partners........................... 11
---------------------
2.9 Wholly-Owned Entities........................... 11
---------------------
ARTICLE III
PARTNERS' CAPITAL CONTRIBUTIONS........... 12
3.1 General Partner................................. 12
---------------
3.2 Limited Partners................................ 12
----------------
3.3 Transaction Agreement and the WearGuard Asset
---------------------------------------------
Purchase Agreement.............................. 12
------------------
3.4 Other Matters................................... 12
-------------
ARTICLE IV
ALLOCATIONS..................... 13
4.1 Profits......................................... 13
-------
4.2 Losses.......................................... 14
------
4.3 Special Allocations............................. 14
-------------------
4.4 Curative Allocations............................ 16
--------------------
4.5 Tax Allocations................................. 16
---------------
ARTICLE V
DISTRIBUTIONS.................... 17
5.1 Distributions................................... 17
-------------
5.2 Tax Distributions............................... 17
-----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.3 Amounts Withheld............................... 17
----------------
ARTICLE VI
ACCOUNTING AND TAXATION............... 18
6.1 Fiscal Year..................................... 18
-----------
6.2 Maintenance of Books and Records................ 18
--------------------------------
6.3 Access to Books of Account...................... 18
--------------------------
6.4 Financial Statements; Tax Matters Partner....... 18
-----------------------------------------
6.5 Tax Elections.................................... 18
-------------
6.6 Tax Information.................................. 19
---------------
ARTICLE VII
MANAGEMENT...................... 19
7.1 Board of Representatives........................ 19
------------------------
7.2 Appointment and Removal of Representatives...... 19
------------------------------------------
7.3 Meetings of the Board........................... 19
---------------------
7.4 Officers of the Partnership..................... 20
---------------------------
7.5 Indemnification of Representatives and Officers. 20
-----------------------------------------------
ARTICLE VIII
RESTRICTIONS ON TRANSFER............... 22
8.1 Restrictions on Transfer Generally.............. 22
----------------------------------
8.2 Transfers of Units Held by VGP.................. 22
------------------------------
8.3 Transfers of Units Held by Limited Partners..... 22
-------------------------------------------
8.4 Provisions Relating to Transfers................ 22
--------------------------------
8.5 Effect of Transfers............................. 23
-------------------
ARTICLE IX
BANKRUPTCY...................... 23
9.1 Bankruptcy of General Partner.................... 23
-----------------------------
ARTICLE X
DISSOLUTION OF THE PARTNERSHIP............ 24
10.1 Dissolution...................................... 24
-----------
10.2 Waiver........................................... 24
------
10.3 Winding-Up of the Partnership.................... 24
-----------------------------
ARTICLE XI
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
MISCELLANEOUS....................... 25
11.1 Amendments..................................... 25
----------
11.2 Governing Law.................................. 25
-------------
11.3 Merger......................................... 25
------
</TABLE>
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This Amended and Restated Agreement of Limited Partnership of Brylane,
L.P. (as amended or modified from time to time, this "Amended and Restated
Agreement" or "Agreement") is made and is effective as of this 26th day of
February, 1997 (the "Effective Date") among VGP Corporation, a Delaware
corporation ("VGP") and VLP Corporation, a Delaware corporation ("VLP"), with
reference to the following background:
A. VGP Corporation, a Delaware corporation ("VGP"), VLP
Corporation, a Delaware corporation ("VLP"), Lane Bryant Direct, Inc., a
Delaware corporation ("LBD"), Lerner Direct, Inc., a Delaware corporation
("Lerner"), and Roaman's, Inc., a Delaware corporation ("Roaman's"), entered
into that certain Agreement of Limited Partnership of Brylane, L.P. (the
"Partnership") made as of the 30th day of August, 1993, as amended by Amendment
No. 1 to Agreement of Limited Partnership dated November 22, 1993, Amendment No.
2 to Agreement of Limited Partnership dated January 29, 1994, Amendment No. 3 to
Agreement of Limited Partnership dated March 16, 1994, Amendment No. 4 to
Agreement of Limited Partnership dated October 14, 1995, Amendment No. 5 to
Agreement of Limited Partnership dated September 22, 1995 which, among other
things, admitted WearGuard Corporation, a Delaware corporation ("WearGuard") as
a limited partner of the Partnership, Amendment No. 6 to Agreement of Limited
Partnership dated October 16, 1995, which, among other things, issued 350,000
Units to WearGuard as partial consideration, pursuant to that certain Asset
Purchase Agreement with the Partnership dated September 22, 1995 (the "WearGuard
Asset Purchase Agreement") to implement the provisions of that certain
Transaction Agreement dated as of July 13, 1993 (as amended from time to time,
the "Transaction Agreement"), Amendment No. 7 to Agreement of Limited
Partnership dated October 14, 1996 and Amendment No. 8 to Agreement of Limited
Partnership dated as of December 5, 1996 which, among other things, admitted
Leeway & Co., a Massachusetts partnership, as nominee for the Long-Term
Investment Trust, a trust governed by the laws of the State of New York
("Leeway") and the NYNEX Master Trust, a trust governed by the laws of the State
of New York ("NYNEX") as limited partners of the Partnership and provided for
the possible admission of Chadwick's, Inc., a Delaware corporation
("Chadwick's") upon the conversion into Units of a convertible note ("Note")
issued by the Partnership to Chadwick's in connection with that certain Asset
Purchase Agreement by and among the TJX Companies, Inc., (the parent of
Chadwick's), Chadwick's and the Partnership dated October 18, 1996 (such
Agreement of Limited Partnership and Amendments to Agreement of Limited
Partnership collectively referred to herein as the "Old Partnership Agreement");
B. VGP and VLP are wholly-owned subsidiaries of VP Holding
Corporation, a Delaware corporation ("VP Holding"), which is controlled by FS
Equity Partners II, L.P., a California limited partnership, FS Equity Partners
III, L.P., a Delaware limited partnership, FS Equity Partners International,
L.P., a Delaware limited partnership
<PAGE>
(collectively, the "Freeman Spogli Funds"); and LBD, Lerner and Roaman's are the
predecessors of Lane Bryant Direct Holding, Inc., a Delaware corporation ("Lane
Bryant");
C. On the Effective Date and immediately prior to the execution
hereof, Lane Bryant, WearGuard, Leeway, NYNEX and Chadwick's (if it has
converted the Note prior to the execution hereof) each transferred its interest
in the Partnership to Brylane, Inc., a Delaware corporation (the "Company"), and
the Company contributed such interests in the Partnership to VP Holding which in
turn shall contribute them to VLP, and the Freeman Spogli Funds and all of the
other shareholders of VP Holding transferred their shares of VP Holding to the
Company with the result that the partners of the Partnership are two indirect
wholly owned subsidiaries of the Company, VGP and VLP; and
D. From and after the Effective Date, VGP and VLP desire to
implement the provisions herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
-----------
(a) The following terms, as used herein, have the following
meanings:
"Act" means the Delaware Revised Uniform Limited Partnership Act, 6
---
Del. C. (S) 17-101 et seq, as amended from time to time.
-- ---
"Adjusted Capital Account Deficit" means, with respect to any Limited
--------------------------------
Partner, the deficit balance, if any, in such Limited Partner's Capital Account
as of the end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such
Limited Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of
the Regulations; and
(ii) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-
- - - -
1(b)(2)(ii)(d)(6) of the Regulations.
- -
2
<PAGE>
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
-
and shall be applied in a manner consistent with such intent.
"Bankruptcy" of a Person means (i) the commencement by such Person of
----------
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, (ii) the granting of
consent by such Person to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, (iii) the making by such Person of a general assignment
for the benefit of creditors, (iv) the taking by such Person of any action to
authorize any of the foregoing, (v) the commencement of an involuntary case or
other proceeding against such Person seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
remaining undismissed for a period of 60 days, or (vi) the entry of an order for
relief against such Person under federal bankruptcy laws as now or hereafter in
effect.
"Bankruptcy Code" means the United States Bankruptcy Code of 1978,
---------------
as amended.
"Business" means the mail order retail business encompassing large
--------
size women's apparel, moderately priced fashion apparel and related accessories
and any other business which the Partnership conducts from time to time.
"Business Day" means the Day that commences on a calendar day that is
------------
not a Saturday, Sunday or a calendar day on which banking institutions in
Delaware are not required to be open.
"Capital Account" means, with respect to any Partner, the Capital
---------------
Account maintained for such Partner in accordance with the following provisions:
(i) To each Partner's Capital Account there shall be
credited such Partner's Capital Contributions, such Partner's
distributive share of Profits and any items in the nature of income or
gain which are specially allocated pursuant to Section 4.3 or Section
4.4 hereof, and the amount of any Partnership liabilities assumed by
such Partner or which are secured by any Property distributed to such
Partner.
3
<PAGE>
(ii) From each Partner's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any Property
distributed to such Partner pursuant to any provision of this
Agreement, such Partner's distributive share of Losses and any items
in the nature of expenses or losses which are specially allocated
pursuant to Section 4.3 or Section 4.4 hereof, and the amount of any
liabilities of such Partner assumed by the Partnership or which are
secured by any property contributed by such Partner to the
Partnership.
(iii) In the event a Partner transfers a Unit in accordance
with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the
transferred Unit.
(iv) In determining the amount of any liability for purposes
of subparagraphs (i) and (ii) there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Section 1.704-
1(b) of the Regulations, and shall be interpreted and applied in a manner
consistent with such Regulations.
"Capital Contribution" means, with respect to any Partner, the amount
--------------------
of money and the initial Gross Asset Value of any property (other than money)
contributed to the Partnership with respect to the Units held by such Partner or
the predecessor(s) of such Partner. In the event a Unit is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Contribution made with respect to such Unit.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time (or any corresponding provisions of succeeding law).
"Commission" means the Securities and Exchange Commission.
----------
"Day" means the 24-hour period commencing at 6:00 a.m., local time,
---
on the calendar day in question.
"Debt" means, with respect to any Person, at any date, (i) all
----
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under
4
<PAGE>
leases which are capitalized in accordance with generally accepted accounting
principles, (v) all Debt of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person, and (vi) all Debt of
others guaranteed by such Person.
"Depreciation" means, for each Fiscal Year, an amount equal to the
------------
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided that if the adjusted
--------
basis for federal income tax purposes of an asset at the beginning of such
Fiscal Year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the General
Partner.
"Fiscal Year" means (i) in the case of the first fiscal year of the
-----------
Partnership, the period commencing on the date of this Agreement and ending on
the last Saturday of January 1994, (ii) any subsequent 52-53 week period ending
on the Saturday closest to January 31 of each calendar year or (iii) any portion
of the period described in clause (ii) that is considered a short taxable year
of the Partnership under the Code and the Regulations, as the case may be.
"General Partner" means VGP and any other Person who becomes a general
---------------
partner of the Partnership in accordance with the terms hereof.
"Gross Asset Value" means, with respect to any asset, the asset's
-----------------
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market value
of such asset, as determined by the contributing Partner and the
General Partner;
(ii) The Gross Asset Values of all Partnership assets shall
be adjusted to equal their respective fair market values, as
reasonably determined by the Partners, as of the following times: (A)
the acquisition of additional Units by any new or existing Partner in
exchange for more than a de minimis Capital Contribution; (B) the
----------
distribution by the Partnership to a Partner of more than a de minimis
----------
amount of Property as consideration for Units; and (C) the liquidation
of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g)
-
of the Regulations, provided, however, that adjustments pursuant to
--------
clauses (A) and (B) above shall be made only if the Partners
reasonably determine that such adjustments are necessary or
5
<PAGE>
appropriate to reflect the relative economic interests of the Partners
in the Partnership and provided that the agreed initial Gross Asset
--------
Values of the Transferred Assets shall be the amounts set forth on
Attachment H to the Transaction Agreement;
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as reasonably
determined by the Partners; and
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Section 1.704-
1(b)(2)(iv)(m) of the Regulations, and subparagraph (vi) of the
-
definition of "Profits" or "Losses" and Section 4.3(g) hereof;
------
provided, however, that Gross Asset Values shall not be adjusted
--------
pursuant to this subparagraph (iv) to the extent that an adjustment
pursuant to subparagraph (ii) is required in connection with a
transaction that would otherwise result in an adjustment pursuant to
this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (i), (ii) or (iv), such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of the allocations made pursuant to Article IV. For
purposes of this definition of Gross Asset Value, a Capital Contribution or
distribution shall be considered de minimis if its value is less than
----------
$1,000,000.
"Incurrence" means the incurrence, creation, assumption or in any
----------
other manner becoming liable with respect to, or responsible for the payment of,
any Debt.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset.
"Limited Partner" means VLP, the Company and any other Person who
---------------
becomes a limited partner of the Partnership in accordance with the terms
hereof. For purposes of the Act, the Limited Partners shall constitute a single
class or group of limited partners of the Partnership.
"Nonrecourse Deductions" has the meaning set forth in Section
----------------------
1.704-2(b)(1) of the Regulations.
6
<PAGE>
"Nonrecourse Liability" has the meaning set forth in Section
---------------------
1.704-2(b)(3) of the Regulations.
"Original Capital Contribution" means, with respect to each of VGP,
-----------------------------
VLP and the Company, the Capital Contribution made by such Partner, or the
predecessors of such Partner in the case of the Company, referred to in Section
3.1 and Section 3.2, respectively (which is equal to $10.00 per Unit). In the
event a Unit held by any such Partner is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the $10.00 Original
Capital Contribution made by the transferor with respect to such Unit.
"Partner" means each Person who from time to time shall be admitted
-------
as a partner of the Partnership.
"Partner Nonrecourse Debt" has the meaning set forth in Section
------------------------
1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" means an amount, with respect
-------------------------------------
to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"Partner Nonrecourse Deductions" has the meaning set forth in Sections
------------------------------
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
"Partnership" means the limited partnership formed pursuant to this
-----------
Agreement as such limited partnership may from time to time be constituted.
"Partnership Minimum Gain" has the meaning set forth in Sections
------------------------
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Percentage Interest" means, with respect to any Partner, as of any
-------------------
date, the ratio (expressed as a percentage) of the number of Units held by such
Partner on such date to the total number of Units outstanding on such date. The
initial Percentage Interests of VGP, VLP and the Company (through its
predecessor, Lane Bryant) are set forth in Sections 3.1 and 3.2 hereof. In the
event that any Unit is retired in accordance with this Agreement, the Percentage
Interest of the Partner holding such Unit shall be reduced accordingly.
"Profits" and "Losses" means, for each Fiscal Year, an amount equal to
--------------------
the Partnership's taxable income or loss, determined in accordance with Code
Section 703(a) (for this purpose, all items of income, gain, loss, or deduction
required to be
7
<PAGE>
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the
-
Regulations, and not otherwise taken into account in computing Profits
or Losses pursuant to this definition of "Profits" and "Losses" shall
be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraphs (ii) or (iii) of the
definition of Gross Asset Value, the amount of such adjustment shall
be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year, computed in accordance with the definition of
Depreciation;
(vi) To the extent an adjustment to the adjusted tax basis
of any Partnership asset pursuant to Code Section 734(b) is required,
pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations, to be
- -
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Partner's interest in the
Partnership, the amount of such adjustment shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreased such basis) from the disposition of such
asset and shall be taken into account for purposes of computing
Profits or Losses;
8
<PAGE>
(vii) Notwithstanding any other provision of this
definition, any items which are specially allocated pursuant to
Section 4.3 or Section 4.4 hereof shall not be taken into account in
computing Profits or Losses.
"Property" means all property acquired by the Partnership, and shall
--------
include both tangible and intangible property.
"Regulations" means the Income Tax Regulations, including Temporary
-----------
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Unit" means an ownership interest in the Partnership of a General
----
Partner or a Limited Partner, and shall include, except as otherwise provided in
Section 8.5, any and all rights and obligations of such Partner under this
Agreement with respect thereto.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
<S> <C>
Bankrupt Partner 9.1
Board 7.1
Catalog Company 2.9
Catalog Distribution 2.9
Chadwick's Preamble
Covered Person 7.5
Effective Date Preamble
Freeman Spogli Funds Preamble
Lane Bryant Preamble
Leeway Preamble
Lerner Preamble
Liquidator 10.3
Management Co. 2.9
Note Preamble
NYNEX Preamble
Regulatory Allocations 4.4
Roaman's Preamble
Term 2.4
Transaction Agreement Preamble
Transfer 8.1
Transferee 8.1
VGP Preamble
VLP Preamble
Wholly-Owned Entities 2.3
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
WearGuard Preamble
WearGuard Asset Purchase Agreement Preamble
</TABLE>
(c) Capitalized terms not otherwise defined herein shall have
the meanings set forth in the Transaction Agreement.
ARTICLE II
THE PARTNERSHIP
2.1 Formation and Applicable Provisions. The Partnership has been
-----------------------------------
formed in accordance with the Act and upon the terms and conditions set forth in
this Agreement and, as of the Effective Date, the parties have agreed to
continue the Partnership in accordance with the Act and upon the terms and
conditions set forth in this Amended and Restated Agreement; provided, however,
--------
that all actions by or among the Partners or the predecessors thereof prior to
the Effective Date shall be governed by the Old Partnership Agreement.
2.2 Name. The name of the Partnership shall be Brylane, L.P. or
----
such other name as may be determined by the Board.
2.3 Purpose. The purpose of the Partnership shall be either
-------
directly or indirectly through wholly-owned corporations or partnerships between
one or more of such corporations and the Partnership (collectively, "Wholly-
Owned Entities"), to hold, own, manage and operate the Business, to engage in
activities and transactions incidental thereto and to engage in such other
activities and transactions (including disposition of the Business) as shall be
approved by the Board in accordance with the terms of this Agreement.
2.4 Term. The Partnership, as constituted by the Old Partnership
----
Agreement, commenced as of August 30, 1993 and shall continue according to this
Amended and Restated Agreement until dissolved in accordance with Section 10.1.
The legal existence of the Partnership shall continue until the cancellation of
the Partnership's certificate of limited partnership. Such period of time as
the Partnership shall remain in existence is referred to herein as the "Term".
2.5 Principal Office. The principal office of the Partnership shall
----------------
be 2300 Southeastern Avenue, Indianapolis, Indiana 46201 or such other or
additional place or places as the Board shall determine from time to time.
2.6 Delaware Office; Agent for Service of Process. The address of
---------------------------------------------
the Partnership's registered office in the State of Delaware shall be
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle 19801, and the name
10
<PAGE>
of the registered agent for service of process on the Partnership in the State
of Delaware shall be The Corporation Trust Company.
2.7 Certificates. Whenever required by law the General Partner
------------
shall execute, swear to, acknowledge, file and cause to be published, as
appropriate, a certificate of limited partnership, as required by law, so long
as it is in keeping with the stated purpose of the Partnership, and a
certificate of fictitious business name, as required by law, as well as any
amendments or renewals of such certificates as may be required, and shall send
copies of all such certificates of limited partnership and any amendment or
renewal thereof to the Limited Partners after the filing thereof. The
Partnership shall promptly execute and duly file with the proper offices in each
state in which the Partnership may conduct the activities authorized hereunder,
one or more certificates as required by the laws of each such state in order
that the Partnership may lawfully conduct the business, purposes and activities
herein authorized in each such state, and the Partnership shall take any other
actions or measures necessary in each such state or states for the Partnership
to conduct such activities.
2.8 Admission of Partners. As of the Effective Date, VGP remains
---------------------
the general partner of the Partnership, and VLP remains a Limited Partner.
Additional Partners may be admitted to the Partnership from time to time in
accordance with the terms hereof upon execution and delivery of an instrument
satisfactory to the General Partner confirming that such party agrees to be
bound by the terms of this Agreement.
2.9 Wholly-Owned Entities. The Partnership has formed two wholly-
---------------------
owned subsidiaries, B.L. Catalog Distribution, Inc., a Delaware corporation
("Catalog Company") and B.L. Management Services, Inc., a Delaware corporation
("Management Co."). Catalog Company and the Partnership have formed B.L.
Catalog Distribution Partnership, an Indiana Partnership, to produce and
distribute catalogs on behalf of the Partnership ("Catalog Distribution").
Management Co. has entered into an agreement with the Partnership pursuant to
which Management Co. has and will perform certain managerial services for the
Partnership. In addition, Management Co. and the Partnership have formed B.L.
Management Services Partnership, a New York Partnership, to design and produce
catalogs on behalf of Catalog Distribution. The Partnership may, from time to
time, form other wholly-owned corporations or partnerships with such
corporations to operate part of its Business.
11
<PAGE>
ARTICLE III
PARTNERS' CAPITAL CONTRIBUTIONS
3.1 General Partner. The name, address, Original Capital
---------------
Contribution, number of Units and Percentage Interest of VGP are as follows:
<TABLE>
<CAPTION>
=====================================================================
Original
Capital Number Percentage
Name and Address Contribution of Units Interest
- ------------------------- ---------------- --------- ----------
<S> <C> <C> <C>
VGP Corporation $25,625,000, 2,562,500 15.74
2300 Southeastern pursuant to the
Avenue, Indianapolis, Transaction
Indiana 46201 Agreement
=====================================================================
</TABLE>
3.2 Limited Partner. The name, address, Original Capital
---------------
Contribution, number of Units and Percentage Interest as of the date hereof of
the Limited Partner are as follows:
<TABLE>
<CAPTION>
=======================================================================================
Original Capital Number Percentage
Name and Address Contribution of Units Interest
- ------------------------- -------------------------------- ---------- -----------
<S> <C> <C> <C>
VLP Corporation a) $49,375,000, pursuant to 13,717,198 84.26%
2300 Southeastern the Transaction Agreement
Avenue, Indianapolis,
Indiana 46201
======================================================================================
</TABLE>
Approximately $2.3 million of the $75 million Original Capital
Contribution of VGP and VLP consists of notes from members of management of the
Business. The remainder of such Capital Contribution consists of cash.
3.3 Transaction Agreement and the WearGuard Asset Purchase
------------------------------------------------------
Agreement. The Original Capital Contributions made by VGP and VLP were made on
the terms set forth in the Transaction Agreement.
3.4 Other Matters.
-------------
(a) No Limited Partner shall be liable for any of the debts,
liabilities, contracts or other obligations of the Partnership. Other than
their respective
12
<PAGE>
Capital Contributions, no Partner shall be required to lend any funds, or to
make any capital contributions, to the Partnership.
(b) Except as otherwise provided in this Agreement, no Partner shall
demand or receive a return of its Capital Contributions or withdraw from the
Partnership without the consent of all Partners. Under circumstances requiring
a return of any Capital Contributions, no Partner shall have the right to
receive property other than cash except as may be specifically provided herein.
(c) A Partner shall receive such payments and distributions in its
capacity as a Partner as determined by the Board in its sole discretion.
(d) In no event shall there be more than one General Partner at
any given time.
(e) By execution and delivery of this Agreement, each of the Partners
(i) represents and warrants that any newly issued or transferred (as defined
below) Units are being acquired solely for its own account for investment and
with no present intention of distributing or reselling all or any part thereof
and (ii) acknowledges that it is aware that the Units have not been registered
under the 1933 Act that Units cannot be sold or otherwise disposed of unless
they are registered thereunder or unless an exemption from such registration is
available, and that it is able and prepared to bear the economic risks with
respect to its Units.
ARTICLE IV
ALLOCATIONS
4.1 Profits. After giving effect to the special allocations set
-------
forth in Sections 4.3 and 4.4 hereof, Profits for any Fiscal Year shall be
allocated in the following order and priority:
(a) First, 100% to the General Partner in an amount equal to the
excess, if any, of (i) the cumulative Losses allocated to the General Partner
pursuant to Section 4.2(c) hereof for all prior Fiscal Years, over (ii) the
cumulative Profits allocated to the General Partner pursuant to this Section
4.1(a) for all prior Fiscal Years;
(b) Second, to each Partner in proportion to and to the extent of an
amount equal to the excess, if any, of (i) the cumulative Losses allocated to
the Partner pursuant to Section 4.2(b) hereof for all prior Fiscal Years, over
(ii) the cumulative Profits allocated to the Partner pursuant to this Section
4.1(b) for all prior Fiscal Years; and
13
<PAGE>
(c) The balance, if any, to the Partners in proportion to their
Percentage Interest.
4.2 Losses. After giving effect to the special allocations set
------
forth in Sections 4.3 and 4.4 hereof, Losses for any Fiscal Year shall be
allocated in the following order and priority:
(a) First, to the Partners in proportion to and to the extent of an
amount equal to the excess, if any, of (i) the cumulative Profits allocated to
the Partners pursuant to Section 4.1(c) hereof for all prior Fiscal Years, over
(ii) the cumulative Losses allocated to the Partners pursuant to this Section
4.2(a) for all prior Fiscal Years;
(b) Second, to each Partner, in proportion to, and in an amount equal
to the excess, if any, of (i) the sum of (A) Capital Contributions of the
Partners plus (B) the cumulative Profits allocated to the Partner pursuant to
Section 4.1(b) hereof for all prior Fiscal Years, over (ii) the cumulative
Losses allocated to the Partner pursuant to this Section 4.2(b) for all prior
Fiscal Years; and
(c) The balance, if any, 100% to the General Partner.
4.3 Special Allocations. The following special allocations shall be
-------------------
made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
-----------------------
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article IV, if there is a net decrease in Partnership Minimum Gain during any
Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Section 1.704-2(g) of
the Regulations. Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations.
This Section 4.3(a) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in
-------------------------------
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Article IV, if there is a net decrease in Partner Nonrecourse Debt Minimum
Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each
Partner who has a share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Partnership income and gain for such Fiscal Year (and,
14
<PAGE>
if necessary, subsequent Fiscal Years) in an amount equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(4) of the Regulations. Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the regulations.
This Section 4.3(b) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith.
(c) Qualified Income Offset. In the event any Limited Partner
-----------------------
unexpectedly receives any adjustments, allocations, or distributions described
in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-
- - - -
1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain shall
- -
be specially allocated to each such Limited Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Limited Partner as quickly as possible, provided
that an allocation pursuant to this Section 4.3(c) shall be made only if and to
the extent that such Limited partner would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Article IV have been
tentatively made as if this Section 4.3(c) were not in this Agreement.
(d) Gross Income Allocation. In the event any Limited Partner has a
-----------------------
deficit Capital Account at the end of any Fiscal Year which is in excess of the
sum of (i) the amount such Limited Partner is obligated to restore pursuant to
any provision of this Agreement, and (ii) the amount such Limited Partner is
deemed to be obligated to restore pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Limited
Partner shall be specially allocated items of Partnership income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 4.3(d) shall be made only if and to the extent that
such Limited Partner would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Article IV have been made as if
Section 4.3(c) hereof and this Section 4.3(d) were not in this Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
----------------------
Year shall be specifically allocated among the Partners in proportion to their
Percentage Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any Fiscal Year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Section 1.704-2(i)(1) of the Regulations.
15
<PAGE>
(g) Section 754 Adjustments. To the extent an adjustment to the
-----------------------
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required pursuant to Section 1.704(b)(2)(iv)(m)(2) or
- -
1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in
- -
determining Capital Accounts as the result of a distribution to a Partner in
complete liquidation of its interest in the Partnership, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in accordance with their interests in the Partnership in the event
Section 1.704-1(b)(2)(iv)(m)(2) of the Regulations applies, or to the Partner to
- -
whom such distribution was made in the event Section 1.704-1(b)(2)(iv)(m)(4) of
- -
the Regulations applies.
4.4 Curative Allocations. The allocations set forth in Sections
--------------------
4.3(a), 4.3(b), 4.3(c), 4.3(d), 4.3(e), 4.3(f), 4.3(g) and 4.5 hereof (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Partnership income,
gain, loss or deduction pursuant to this Section 4.4. Therefore,
notwithstanding any other provision of this Article IV (other than the
Regulatory Allocations), the Partners shall make such offsetting special
allocations of Partnership income, gain, loss or deduction so that, after such
offsetting allocations are made, each Partner's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Partner would
have had if the Regulatory Allocations were not part of this Agreement and all
Partnership items were allocated pursuant to Sections 4.1 and 4.2.
4.5 Tax Allocations.
---------------
(a) The Partners agree to treat those certain matters pertaining to
the transfer of the Transferred Assets by the predecessor Partners of the
Company pursuant to Sections 4.05(a) or 4.05(c) of the Old Partnership Agreement
as if such sections were still in full force and effect, or to act in such a
manner as to give effect to such sections to the fullest extent reasonable. In
particular, the Partners agree to undertake to provide such predecessor Partners
the benefits that Section 4.05(a) of the Old Partnership Agreement would have
provided had it remained in effect.
(b) Subject to Sections 4.5(a) and in accordance with Code Section
704(c) and the Regulations thereunder, income, gain, loss, and deduction with
respect to any property that is treated as having contributed to the capital of
the Partnership shall, solely for tax purposes, be allocated among the Partners
so as to take account of any variation between the adjusted basis of such
property to the Partnership for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with the definition of Gross Asset
Value in Section 1.1); provided that such allocations shall be based upon the
-------- ----
"traditional method" described in the proposed Regulations under Code Section
704(c).
16
<PAGE>
In the event that Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (iv) of the definition of Gross Asset Value in
Section 1.1, subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the Regulations thereunder;
provided that except as provided in Section 4.5(a) such allocations shall be
- -------- ----
based upon the "traditional method" described in the proposed Regulations under
Code Section 704(c).
ARTICLE V
DISTRIBUTIONS
5.1 Distributions. From and after the Effective Date, the
-------------
Partnership shall make such distributions as the Board deems appropriate.
5.2 Tax Distributions. Distributions shall be made with respect to
-----------------
the tax liabilities of the Partners for the taxable period ending on the
Effective Date, the amount of which shall be determined as "Tax Payment
Distributions" under the provisions of Section 5.01 of the Old Partnership
Agreement as if the Effective Date were the end of a Fiscal Year of the
Partnership (the items of taxable income, loss, deduction and credit for such
partial year period ending on the Effective Date shall be determined under
Section 706 of the Code (and any corresponding provisions of applicable state
income tax law) by closing the Partnership books and determining such items for
the partial year period ending with the month end immediately preceding (or
coinciding with) the Effective Date and if the Effective Date is not a month
end, adjusting such items through the Effective Date by a daily prorated amount
of such items for the monthly period which includes the Effective Date);
provided that the amount of such distribution to each such Partner shall be pro
- --------
rata (in accordance with their Percentage Interests) and based upon the income
tax liability of VGP determined by taking into account all of the provisions of
such Section 5.01, including the provisions of paragraph (f) but ignoring any
alternative minimum tax liability and, provided further that all such payments
--------
shall be made no later than 90-days following the Closing.
5.3 Amounts Withheld. All amounts withheld pursuant to the Code or
----------------
any provision of any state or local tax law with respect to any payment,
distribution or allocation to the Partnership or the Partners shall be treated
as amounts distributed to the Partners pursuant to this Article V for all
purposes under this Agreement. The General Partner is authorized to withhold
from distributions, or with respect to allocations, to the Partners and to pay
over to any federal, state, or local government any amounts required to be so
withheld pursuant to the Code or any provisions of any other federal, state, or
local law, and shall allocate any such amounts to the Partners with respect to
which such amount was withheld.
17
<PAGE>
ARTICLE VI
ACCOUNTING AND TAXATION
6.1 Fiscal Year. The books and records of the Partnership shall be
-----------
kept on an accrual basis and the fiscal and taxable year of the Partnership at
all times shall be the fiscal year of The Limited in effect on the date hereof
(which ends on the Saturday closest to January 31 of each year).
6.2 Maintenance of Books and Records. At all times during the Term,
--------------------------------
the Board shall cause to be kept, at the principal office of the Partnership,
full and complete books of account.
6.3 Access to Books of Account. Each Partner shall have the right,
--------------------------
during usual business hours upon reasonable notice and at such Partner's
expense, to (i) audit, examine, and make copies or extracts of or from the books
of account of the Partnership, (ii) visit the facilities of the Partnership and
(iii) discuss the affairs of the Partnership with the officers, employees,
attorneys and accountants of the Partnership.
6.4 Financial Statements; Tax Matters Partner.
-----------------------------------------
(a) As soon as practicable following the end of each Fiscal Year of
the Partnership, the Board shall cause to be prepared and delivered to each
Partner statements of income and cash flows for the Partnership for such Fiscal
Year, and a balance sheet of the Partnership as of the end of such Fiscal Year,
in such form as may be necessary in order for the Company and the Partners to
prepare financial statements which can be certified by independent certified
public accountants of recognized national standing as to fairness of
presentation, preparation in accordance with generally accepted accounting
principles and consistency.
(b) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6321(a)(7) of the Code and shall act
in any similar capacity under applicable state, local or foreign law.
6.5 Tax Elections. The General Partner shall have the right to make
-------------
any applicable elections for tax purposes as it deems appropriate, including,
but not limited to, an election under Section 754 of the Code.
18
<PAGE>
6.6 Tax Information.
---------------
(a) As soon as practicable following the end of each Fiscal Year of
the Partnership, the Board shall cause to be prepared and delivered to each
Partner the Form 1065 of the Partnership and related Schedules K-1 of the
Partners for such Fiscal Year, statements setting forth such Partner's share of
the income or loss of the Partnership for such Fiscal Year, and each Partner's
Capital Account as of the end of such Fiscal Year, which shall be reported on by
the certified public accountants of the Partnership, together with all other
information necessary in preparing such Partner's Federal, state and local
income and franchise tax returns in the relevant jurisdictions.
(b) The Partnership shall provide each Partner with such information
as such Partner shall reasonably request to enable it to comply on a timely
basis with its estimated tax obligations.
ARTICLE VII
MANAGEMENT
7.1 Board of Representatives. Except as expressly provided herein,
------------------------
the business and affairs of the Partnership (including all actions to be taken
by the Partners or by the Partnership under this Agreement) shall be managed by
or under the direction of a board of representatives of the Partnership (the
"Board") pursuant to the provisions of this Agreement. Except as expressly
provided herein, the Board shall have the authority and full discretion with
respect to the management of the business and affairs of the Partnership. No
Partner shall act on behalf of, or take any action binding, the Partnership
without the prior approval or consent of the Board.
7.2 Appointment and Removal of Representatives. The Board shall
------------------------------------------
consist of such number of representatives as the Company shall determine, each
of whom shall be appointed by, and serve at the pleasure of, VGP.
7.3 Meetings of the Board.
---------------------
(a) The Board shall hold such meetings at such time and place as shall
be determined by the Board. Meetings of the Board may be called at any time on
at least two Business Days' prior notice by any member of the Board. Except as
otherwise determined by the Board, all meetings of the Board shall be held at
the principal office of the Partnership.
(b) A quorum for any meeting of the Board shall require the presence
of a majority of the members then serving on the Board. The vote of a majority
of
19
<PAGE>
the number of members necessary to constitute a quorum shall be required for any
valid act of the Board.
(c) Any member of the Board may waive notice of any meeting of the
Board in writing before, at or after such meeting. The attendance of a member
of the Board at a meeting shall constitute a waiver of notice of such meeting,
except when a member attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not properly called or
convened. Members of the Board may participate in a meeting by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute attendance in person at such meeting. All actions
by the Board at a meeting shall be reflected in the minutes of such meeting.
Subject to the provisions of this Agreement, the Board may otherwise regulate
its proceedings as it deems fit. The Board may take action without a meeting if
all members of the Board consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board.
7.4 Officers of the Partnership. Except as otherwise determined by
---------------------------
the Board, the Partnership may have employees and agents who may be designated
as officers or authorized representatives of the Partnership and who shall (i)
serve at the pleasure of the Board, (ii) have such powers as are vested in them
pursuant to a duly adopted resolution of the Board and (iii) have the power to
bind the Partnership through the exercise of such powers to the extent
consistent with such resolution and the terms hereof. In addition, the Board
may retain Management Co. to provide management services pursuant to such
service agreements or arrangements as the Partnership may enter into with
Management Co. from time to time. The initial chief executive officer of
Management Co. is Peter Canzone.
7.5 Indemnification of Representatives and Officers.
-----------------------------------------------
(a) None of the General Partner or its Affiliates or any Person who is
or was a partner, director, officer, employee or agent of the General Partner or
its Affiliates (each a "Covered Person") shall be liable to the Partnership or
any Limited Partner for any action taken or omitted to be taken in good faith on
behalf of the Partnership and with the belief that such action or omission is in
the best interest of the Partnership, so long as such action or omission is not
in violation of any of the provisions hereof or does not constitute fraud, gross
negligence or willful misconduct by such Covered Person. No Covered Person
shall be liable to the Partnership or any Partner for any action taken or
omitted to be taken by another Partner, nor shall a Covered Person (in the
absence of a breach of any of the provisions of this Agreement by such Covered
Person or fraud, gross negligence or willful misconduct by such Covered Person)
be liable to the Partnership or any Partner for any action or omission of any
other Covered Person or any employee or agent of the Partnership.
20
<PAGE>
(b) For the purposes of this Section 7.5, "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative, legislative or investigative; and "damages" means all damages,
losses, costs and expenses, including without limitation attorney's fees and any
expenses of establishing a right to indemnification under this section 7.5.
Except as expressly provided in this Section 7.5, the Partnership shall, to the
fullest extent permitted by the laws applicable of the State of Delaware if the
Partnership were a Delaware corporation, indemnify and hold harmless any Covered
Person or member of the Board against damages arising out of or resulting from
an act or failure to act of such Covered Person or member of the Board on behalf
of the Partnership. Without limiting the generality of the foregoing, the
Partnership hereby agrees to indemnify and hold harmless each Covered Person and
member of the Board against all damages incurred in connection with (i) any
demand, claim, action or proceeding against such Covered Person or member of the
Board and relating in any way to the Partnership or the respective properties,
Business or affairs and (ii) any judgments, fines and amounts paid in settlement
or compromise of any such demands, claim, action or proceeding; provided that
--------
this indemnity shall not extend to (a) conduct by any Covered Person or member
of the Board proved to constitute fraud, willful misconduct or gross negligence
or (b) any liability arising from any acts or omissions by a Covered Person or
member of the Board after such Person ceases to be a Covered Person or member of
the Board. Expenses (including attorney's fees) incurred in connection with any
proceeding may be paid by the Partnership in advance of the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of any Covered
Person or member of the Board involved in such proceeding to repay such expenses
if it shall ultimately be determined that such Covered Person or member of the
Board is not entitled to be indemnified by the Partnership. No Covered Person
or member of the Board may satisfy any right of indemnity or reimbursement
granted in this Section 7.5 or to which it may otherwise be entitled, except out
of the assets of the Partnership and no Partner shall be personally liable with
respect to any such claim for indemnity or reimbursement.
(c) To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or to the Partners, the General Partner and any other Covered Person
acting in connection with the Partnership's business or affairs, shall not be
liable to the Partnership or to any Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of a Covered Person otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such Covered Person.
21
<PAGE>
ARTICLE VIII
RESTRICTIONS ON TRANSFER
8.1 Restrictions on Transfer Generally. No Partner shall, directly
----------------------------------
or indirectly, transfer, sell, assign, pledge, hypothecate, encumber or
otherwise dispose of any Unit to any Person (any such act by a Partner being
referred to as a "Transfer," and any Person acquiring a Unit being referred to
as a "Transferee"), except (i) in compliance with the 1933 Act and all
applicable state securities laws and (ii) as expressly permitted by this
Agreement. Any attempt to Transfer any Unit not in compliance with this
Agreement shall be null and void, and the Partnership shall not give effect to
any such attempted Transfer.
8.2 Transfers of Units Held by VGP. VGP may not Transfer all or any
------------------------------
portion of its Units without the consent of all of the Limited Partners.
8.3 Transfers of Units Held by Limited Partners. Subject to
-------------------------------------------
Sections 8.1, 8.4, 8.5 and 8.6, any Limited Partner may Transfer all or any
portion of its Units.
8.4 Provisions Relating to Transfers. The following provisions
--------------------------------
shall apply to each Transfer permitted under this Article VIII:
(a) As a condition precedent to any Transfer permitted under this
Article VIII, each Transferee (if not already a party hereto) shall execute and
deliver to each party hereto an instrument or instruments reasonably
satisfactory to the General Partner confirming that the Transferee agrees to be
bound by the terms of this Agreement applicable to the transferor of the Units
to be Transferred.
(b) The Partner making a Transfer permitted by this Article VIII shall
be required to pay any and all filing and recording fees, fees of counsel and
accountants and other costs and expenses reasonably incurred by the Partnership
as a result of such Transfer.
(c) Upon becoming a party to this Agreement, each Transferee shall be
substituted for, and except as specifically set forth below shall enjoy the same
rights and be subject to the same obligations as, its predecessor hereunder.
(d) No Transfer by a Partner permitted under this Article VIII shall
relieve the transferor Partner of any of its obligations or liabilities under
this Agreement arising prior to the closing of the consummation of such
Transfer.
(e) In connection with each Transfer permitted under this Article
VIII, the transferor Partner and the Transferee (other than a Transferee who is
already a Partner) shall deliver to the Partnership and the parties to this
Agreement such
22
<PAGE>
other documents and instruments as such parties reasonably may request in
connection with such Transfer. In addition, the parties to this Agreement shall
use all reasonable efforts to take, or cause to be taken, all actions and to do
or cause to be done, all things necessary (including without limitation, in
connection with obtaining any requisite approval) to expeditiously consummate
each Transfer permitted or required under this Article VIII.
8.5 Effect of Transfers. Upon consummation of any Transfer of Units
-------------------
in accordance with the provisions of this Agreement, (i) the Transferee shall be
admitted to the Partnership as a Partner (if not already a Partner) and for
purposes of this Agreement such Transferee shall be deemed a Partner, (ii) the
Transferred Units shall continue to be subject to all obligations applicable to
Units under this Agreement, (iii) the Capital Account (or applicable portion
thereof in the case of a Transfer of less than all of a Partner's Units) of the
transferor Partner shall be Transferred to the name of such Transferee at the
close of business on the effective date of such Transfer and (iv) the Transferee
shall be assigned all rights of the transferor Partner hereunder.
ARTICLE IX
BANKRUPTCY
9.1 Bankruptcy of General Partner.
-----------------------------
(a) If the Bankruptcy of the General Partner (a "Bankrupt Partner")
occurs, all of the remaining Partners may agree in writing (i) to dissolve the
Partnership or (ii) within 90 days after such Bankruptcy occurs, to continue the
business of the Partnership and to appoint, effective as of the date of such
Bankruptcy, another General Partner. In the case of clause (ii), the business
of the Partnership shall be carried on by such newly appointed General Partner
and the Bankrupt Partner shall become a Limited Partner.
(b) In the event that the General Partner shall become a "debtor" as
defined in the Bankruptcy Code in any case commenced thereunder and at any time
during the pendency of such case there shall be appointed (i) a trustee with
respect to the Bankrupt Partner under Section 701, 702 or 1104 of the Bankruptcy
Code (or any successor provisions thereto), or (ii) an examiner having expanded
powers beyond those specifically enumerated in Section 1104(b) of the Bankruptcy
Code, then the other Partners may, at any time thereafter, so long as such
condition exists, elect to dissolve the Partnership, in which event the affairs
of the Partnership shall be wound up as provided in Article X.
23
<PAGE>
ARTICLE X
DISSOLUTION OF THE PARTNERSHIP
10.1 Dissolution. A dissolution of the Partnership shall take place
-----------
upon the first to occur of the following: (i) the written consent of each
Partner to dissolve the Partnership; (ii) the transfer or sale of all or
substantially all of the Partnership's assets in accordance with the terms of
this Agreement; (iii) an election to dissolve the Partnership pursuant to
Section 9.1; or (iv) the occurrence of any circumstances that by law causes a
dissolution of the Partnership.
10.2 Waiver. Each Partner covenants and agrees that it will not
------
withdraw or resign from the Partnership or do anything that would otherwise
dissolve or terminate the Partnership without the prior consent of the other
Partners. Each Partner waives all rights it may have at any time to maintain
any action for partition or sale of any Partnership assets as now or hereafter
permitted under applicable law. Each Partner waives its right to seek a court
decree of dissolution (other than a dissolution in accordance with this
Agreement) or to seek the appointment of a court receiver for the Partnership as
now or hereafter permitted under applicable law. Each Partner acknowledges and
agrees that this Article X provides the exclusive means for the dissolution and
winding up of the Partnership by the Partners.
10.3 Winding-Up of the Partnership. Upon any dissolution of the
-----------------------------
Partnership, the Partnership shall continue solely for the purposes of winding
up its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors and Partners and no Partner shall take any action that
is inconsistent with, or not necessary to or appropriate for, the winding up of
the Partnership's business and affairs, provided that all covenants contained in
--------
the Old Partnership Agreement and this Agreement and all obligations provided
for in the Old Partnership Agreement and this Agreement (other than those
covenants and obligations under Section 4.5(a) of this Agreement that pertain to
Section 4.05(a) of the Old Partnership Agreement, which covenants and
obligations shall survive until the expiration of the applicable statute of
limitations) shall continue to be fully binding upon the Partners until such
time as the Partnership Property has been distributed pursuant to this Section
10.3 and the Partnership has been terminated. The General Partner, or, if there
is no remaining General Partner, a Person elected by the Partners shall be
responsible for overseeing the winding up and dissolution of the Partnership
(the General Partner or any other Person elected pursuant to this Section 10.3
to wind up the affairs of the Partnership being referred to as the
"Liquidator"). The Liquidator shall take full account of the Partnership's
liabilities and Property and, not later than 90 days after the date on which the
dissolution occurred, shall cause the Property to be sold for cash and shall
cause the proceeds therefrom, to the extent sufficient therefor, to be applied
and distributed, to the maximum extent permitted by law, in the following order:
24
<PAGE>
(a) first, to the payment (or the making of reasonable provision
for payment) of all debts and liabilities of the Partnership and the
expenses of liquidation and to the setting up of any reserves which
are reasonably necessary for any contingent, conditional and unmatured
liabilities or obligations of the Partnership or of the Partners
arising out of, or in connection with, the Partnership; and
(b) second, to the Partners in proportion to and to the extent
of their respective Capital Accounts, after giving effect to all
contributions, distributions and allocations for all periods.
Notwithstanding anything to the contrary in this Agreement, if any
General Partner's Capital Account has a deficit balance (after giving effect to
all contributions, distributions, and allocations for all taxable years,
including the year during which such dissolution occurs), such General Partner
shall contribute to the capital of the Partnership cash in the amount necessary
to restore such deficit balance to zero within 90 days after the date on which
the dissolution occurred.
ARTICLE XI
MISCELLANEOUS
11.1 Amendments. This Agreement may be amended or modified in
----------
writing by Partners holding a majority of Units then outstanding.
11.2 Governing Law. This Agreement and the rights of the parties
-------------
hereunder shall be interpreted in accordance with the laws of the State of
Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflicts of laws.
11.3 Merger. Subject to Section 7.1(b), the Partnership may merge
------
with, or consolidate into, another business entity (as defined in Section 17-
211(a) of the Act) upon the approval by the Board. In accordance with Section
17-211 of the Act (including Section 17-211(g)), notwithstanding anything to the
contrary contained in this Agreement, an agreement of merger or consolidation
approved by the Board, may (A) effect any amendment to this Agreement, or (B)
effect the adoption of a new partnership agreement for the Partnership if it is
the surviving or resulting limited partnership of the merger or consolidation.
Any amendment to this Agreement or adoption of a new partnership agreement made
pursuant to the foregoing sentence shall be effective at the effective time or
date of the merger or consolidation. The provisions of this Section 11.3 shall
not be construed to limit the accomplishment of a merger or of any of the
matters referred to herein by any other means otherwise permitted by law.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be duly executed by their respective authorized officers
on the day and year first above written.
VGP CORPORATION
By: /s/ John M. Roth
-----------------
Name: John M. Roth
Its: President
VLP CORPORATION
By: /s/ John M. Roth
-----------------
Name: John M. Roth
Its: President
26
<PAGE>
Exhibit 4.12
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is dated as of
this 26th day of February, 1997 among FS Equity Partners II, L.P., a California
limited partnership ("FSEP II"), FS Equity Partners III, L.P., a Delaware
limited partnership ("FSEP III"), FS Equity Partners International, L.P., a
Delaware limited partnership ("FSEP International") (FSEP II, FSEP III and FSEP
International are collectively referred to herein as the "FS Stockholders"), M&P
Distributing Company, a Nevada corporation ("Limited Stockholder"), The Limited,
Inc., a Delaware corporation, WearGuard Corporation, a Delaware corporation
("WearGuard"), The TJX Companies, Inc., a Delaware corporation ("TJX"), Leeway &
Co., a Massachusetts partnership, as nominee for the Long-Term Investment Trust,
a trust governed by the laws of the State of New York ("Leeway"), NYNEX Master
Trust, a trust governed by the laws of the State of New York ("NYNEX") and
Brylane Inc., a Delaware corporation (the "Company"). Each of the FS
Stockholders, the Limited Stockholder, WearGuard, TJX, Leeway, NYNEX and any
other Person who shall become a party to or agree to be bound by the terms of
this Agreement after the date hereof is sometimes hereinafter referred to as a
"Stockholder."
W I T N E S S E T H:
- - - - - - - - - -
A. The FS Stockholders, the Limited Stockholder, WearGuard, Leeway
and NYNEX have acquired common stock, par value $0.01 per share (the "Common
Stock"), of the Company in the manner contemplated by the Agreement of Limited
Partnership dated as of August 30, 1993, (as amended from time to time, the
"Partnership Agreement") among the Partners referred to therein.
B. TJX has or may acquire shares of Common Stock in a manner
contemplated by that certain First Amended and Restated Incorporation and
Exchange Agreement dated as of December 9, 1996 among the FS Stockholders,
Limited Stockholder, The Limited, Inc., WearGuard, Chadwick's, Inc., a
Massachusetts corporation, Leeway, NYNEX and the Company (as amended from time
to time, the "Incorporation and Exchange Agreement"), including through the
conversion into Common Stock of a Convertible Subordinated Note due 2006 to be
jointly issued by the Company and the Partnership (the "Company Note") to TJX in
exchange for that certain Convertible Subordinated Note due 2006 in the original
principal amount of $20,000,000 issued by the Partnership to Chadwick's, Inc.
(the "Partnership Note") and transferred to TJX on February 18, 1997, all
pursuant to the transactions described in and the terms of the Incorporation and
Exchange Agreement.
<PAGE>
C. In connection with an Initial Public Offering (as defined in the
Partnership Agreement) of Common Stock, the FS Stockholders, the Limited
Stockholder, WearGuard, TJX, Leeway and NYNEX are to be granted certain rights
with respect to the Common Stock held by them (or to be held by it in the case
of TJX).
D. In order to ensure that such parties are granted such rights, the
parties hereto desire to enter into this Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 Definitions. Terms defined in the Stockholders Agreement
-----------
(the "Stockholders Agreement") dated as of February 26, 1997 among the Company,
the FS Stockholders, the Limited Stockholder, WearGuard, TJX, Leeway, and NYNEX
are used herein as therein defined. In addition, the following terms shall have
the following meanings:
"Commission" means the Securities and Exchange Commission.
----------
"Demand Registration" means a Demand Registration as defined in
-------------------
Section 2.1.
"Excess Amount" means the number of Registrable Securities requested
-------------
by a Minority Holder or Minority Holders or a Holder or Holders, as the case may
be, to be sold pursuant to Section 2.1 which the managing Underwriter or
Underwriters determines exceeds the largest number of Registrable Securities
which can successfully be sold in an orderly manner in such offering within a
price range acceptable to the Company.
"Holder" means the FS Stockholders, the Limited Stockholder, or any
------
Affiliate of any of them which owns Common Stock.
"Includible Amount" means the number of Registrable Securities
-----------------
requested by a Minority Holder or Minority Holders and/or a Holder or Holders,
as the case may be, to be sold pursuant to Section 2.3(a) which the Minority
Holder who makes the Minority Holder Demand Registration request reasonably
determines in good faith is the largest number of Registrable Securities which
can successfully be sold in an orderly manner in such offering without adversely
affecting the offering.
2
<PAGE>
"Initial Public Offering" shall have the meaning set forth in the
-----------------------
Partnership Agreement.
"Minority Holders" means WearGuard, Leeway, NYNEX, TJX (if it has
----------------
acquired Common Stock, or any Affiliate of any of them which owns Common Stock;
provided that, for purposes of any provision pursuant to which notice is to be
- --------
given to Minority Holders, TJX shall be treated as a Minority Holder if it then
holds Common Stock, the Company Note or the Partnership Note.
"Minority Holders Demand Registration" means, with respect to each of
------------------------------------
WearGuard, TJX, Leeway and NYNEX, a Demand Registration as defined in Section
2.3.
"1933 Act" means the Securities Act of 1933 and the rules and
--------
regulations thereunder.
"1934 Act" means the Securities Exchange Act of 1934 and the rules
--------
and regulations thereunder.
"Person" means an individual, a corporation, a partnership, an
------
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Piggy-Back Registration" means a Piggy-Back Registration as defined
-----------------------
in Section 2.2.
"Registrable Security" means any share of Common Stock outstanding
--------------------
until (i) a registration statement covering such Common Stock has been declared
effective by the Commission and it has been disposed of pursuant to such
effective registration statement, (ii) it is sold under circumstances in which
all of the applicable conditions of Rule 144 (or any similar provisions then in
force) under the 1933 Act ("Rule 144") are met or it may be sold pursuant to
Rule 144(k) under such Act or (iii) it has been otherwise Transferred, the
Company has delivered a new certificate or other evidence of ownership for it
not bearing the legend required pursuant to the Stockholders Agreement and it
may be resold without subsequent registration under the 1933 Act; provided that,
--------
notwithstanding the foregoing, shares of Common Stock held by TJX shall remain
Registrable Securities until the date that is three (3) years after the
completion of the Initial Public Offering.
"Requisite Share Number" means a number of Registrable Securities
----------------------
representing not less than 10% of the total number of shares of Common Stock
then outstanding or shares of Common Stock representing not less than
$15,000,000 in fair market value as determined by the Board, or such lesser
number as constitutes all shares of Common Stock then held by the relevant
Holder representing not less than 3% of the total number of shares of Common
Stock then outstanding.
3
<PAGE>
"Selling Holder" means a Holder or a Minority Holder who is proposing
--------------
to sell, selling or causing its Affiliates to propose to sell or sell
Registrable Securities pursuant to a registration statement under the 1933 Act.
"Selling Holder Notice" means a Selling Holder Notice as defined in
---------------------
Section 2.1.
"Transfer" means any direct or indirect transfer, sale, assignment,
--------
pledge, hypothecation, encumbrance or other disposition of Common Stock.
"Underwriter" means a securities dealer who purchases any Registrable
-----------
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
ARTICLE II
REGISTRATION RIGHTS
-------------------
SECTION 2.1 Demand Registration.
-------------------
(a) Request for Registration. At any time and from time to
------------------------
time on or after the date which is six (6) months following the closing of the
Initial Public Offering, any Holder, on behalf of itself or any of its
Affiliates owning, individually or in the aggregate, at least the Requisite
Share Number may make a written request for registration under the 1933 Act of
all or part of its or their Registrable Securities (a "Demand Registration");
provided that the Holder or Holders making such request are together
- --------
requesting that the Requisite Share Number be registered, and provided, further,
-------- -------
that the Company shall not be obligated to effect (i) more than two Demand
Registrations in any eighteen (18) month period or (ii) more than two Demand
Registrations (A) for the FS Stockholders and their Affiliates and (B) for the
Limited Stockholder and its Affiliates, in each case in the aggregate. Such
request will specify the number of shares of Registrable Securities proposed to
be sold and will also specify the intended method of disposition thereof. The
Company shall give written notice of such registration request within ten (10)
days after the receipt thereof to all other Holders and the Minority Holders.
Within twenty (20) days after receipt of such notice by any Holder and Minority
Holder, such Holder and Minority Holder may request in writing that Registrable
Securities be included in such registration and the Company shall include in the
Demand Registration the Registrable Securities of any such Holder or Minority
Holder, or any of such Holder's or Minority Holder's Affiliates, requested to be
so included. Each such request by such other Holders and Minority Holders
(each, a "Selling Holder Notice") shall specify the number of shares of
Registrable Securities proposed to be sold and the intended method of
disposition thereof. Unless the Holder making such Demand Registration shall
consent in writing, no other party, including the Company, shall be permitted to
offer securities under any such Demand Registration; provided, however, that in
-------- -------
the case of a Demand Registration requested by the FS Stockholders ("FS Demand
Registration"), the FS
4
<PAGE>
Stockholders may include the Registrable Securities of Leeway and NYNEX prior to
and in preference of, and without incurring any obligation to include, any
Registrable Securities of the Company and any other Stockholder, notwithstanding
anything contained in this Section or in Section 2.2 hereof to the contrary.
Notwithstanding anything contained in this Section or in Section 2.2 to the
contrary, in any FS Demand Registration or in any Demand Registration requested
by the Limited Stockholder ("Limited Demand Registration") in which Registrable
Securities of the FS Stockholders are included, each of Leeway and NYNEX may, at
its option, include up to a percentage of its Registrable Securities equal to
the percentage of the FS Stockholders' Registrable Securities that is being sold
by the FS Stockholders in such FS Demand Registration or Limited Demand
Registration, as the case may be (with, in the case of a Limited Demand
Registration, the number of Registrable Securities to be included by the FS
Stockholders to be reduced to accommodate the inclusion of any Registrable
Securities held by Leeway or NYNEX).
(b) Effective Registration. A registration will not count as a
----------------------
Demand Registration until it has become effective.
(c) Underwritten Offering. If the Holder initiating a Demand
---------------------
Registration so elects, the offering of such Registrable Securities pursuant to
such Demand Registration shall be in the form of an underwritten offering. The
Company and such Holder shall select one or more nationally recognized firms of
investment bankers to act as the managing Underwriter or Underwriters in
connection with such offering and shall select any additional managers to be
used in connection with the offering.
SECTION 2.2 Piggy-Back Registration. If at any time ninety (90) days
-----------------------
following the closing of the Initial Public Offering the Company proposes to
file a registration statement under the 1933 Act with respect to an offering by
the Company for its own account or for the account of any of its respective
securityholders of any class of security of the same class as the Registrable
Securities (other than a registration statement on Form S-4 or S-8 (or any
substitute form that may be adopted by the Commission) or a registration
statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing securityholders), then the Company shall give
written notice of such proposed filing to the Holders and the Minority Holders
as soon as practicable (but in no event less than ten (10) days before the
anticipated filing date), and such notice shall offer the Holders and the
Minority Holders the opportunity to register such number of shares of
Registrable Securities as each such Holder or Minority Holder may request in
writing within five (5) days of receipt of such notice on behalf of itself or
its Affiliates (which request shall specify the Registrable Securities intended
to be disposed of by such Holder and its Affiliates, or such Minority Holder and
its Affiliates and the intended method of distribution thereof) (a "Piggy-Back
Registration"). The Company shall use its best efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggy-Back Registration to
be included on the same terms and conditions as any similar securities of the
Company included therein to permit the sale or other disposition of such
Registrable Securities in accordance
5
<PAGE>
with the intended method of distribution thereof. Subject to Section 2.4(b),
any Holder or Minority Holder shall have the right to withdraw its request for
inclusion of its Registrable Securities in any Piggy-Back Registration by giving
written notice to the Company of its request to withdraw within twenty (20) days
of its request for inclusion. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective; provided that
--------
the Company shall reimburse Minority Holders, if applicable, or Holders of
Registrable Securities requested to be included in such Piggy-Back Registration
for all out-of-pocket expenses (including counsel fees and expenses) incurred
prior to such withdrawal. Notwithstanding the foregoing, if any Stockholder is
permitted to include shares of Common Stock in the Initial Public Offering or if
the Initial Public Offering consists solely of an offering by one or more
Stockholders, each of TJX, Leeway, and NYNEX shall be entitled to include its
shares on the same basis as such Stockholder.
SECTION 2.3 Minority Holder Demand Registration.
-----------------------------------
(a) Request for Registration. At any time and from time to
------------------------
time on or after the date which is six (6) months following the closing of the
Initial Public Offering, the Minority Holders may each make a written request
for registration under the 1933 Act of all or part of their respective
Registrable Securities (which registration may be effected on Form S-3 if the
Company is eligible to use such Form) (with respect to each Minority Holder, a
"Minority Holder Demand Registration"); provided that each Minority Holder shall
--------
have only one Minority Holder Demand Registration right. The Company shall give
written notice of any such Minority Holder Demand Registration request within
ten (10) days after the receipt thereof to all Holders and to all other Minority
Holders, as applicable. Within twenty (20) days after receipt of such notice by
any Holder or Minority Holder, as applicable, such Holder or Minority Holder, as
applicable, may request in writing that Registrable Securities be included in
such registration and the Company shall include in the Minority Holder Demand
Registration the Registrable Securities of any such Holder or any of its
Affiliates or Minority Holder, or any of its Affiliates, requested to be so
included; provided that, unless the Minority Holder who has made such Minority
--------
Holder Demand Registration Request shall consent in writing, no other party,
including the Company, shall be permitted to offer securities under such
Minority Holder Demand Registration. Each Selling Holder Notice shall specify
the number of shares of Registrable Securities proposed to be sold and the
intended method of disposition thereof. No Minority Holder Demand Registration
shall be an underwritten offering.
(b) Effective Registration. A registration will not count as a
----------------------
Minority Holder Demand Registration until it has become effective and it has
remained effective until all Registrable Securities offered thereunder have been
sold or it has been effective for a total of six (6) months in the aggregate.
6
<PAGE>
(c) Termination.
-----------
(1) Notwithstanding anything to the contrary contained
within this Section 2.3, the Minority Holder Demand Registration right with
respect to WearGuard shall immediately terminate with respect to WearGuard at
such time as WearGuard shall be eligible to sell its Registrable Securities
without restriction as to amount or manner of sale under Rule 144, or any
successor regulation, and the Company shall have delivered to WearGuard an
opinion of counsel with a national reputation, which may be counsel to the
Company, to that effect.
(2) The rights of each of TJX, Leeway and NYNEX pursuant to
Section 2.3 shall terminate on the date that is three (3) years after the
completion of the Initial Public Offering.
SECTION 2.4 Reduction of Offering.
---------------------
(a) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of an offering described in Section 2.1 or 2.2
determine that the size of the offering that the Holders, the Company and/or
such other Persons intend to make is such that the success of the offering would
be materially and adversely affected by inclusion of the Registrable Securities
requested to be included, then (i) with respect to a Demand Registration, and
subject to the right of the Holder making such Demand Registration request to
exclude any securities not held by such Holder therefrom, if the size of the
offering is the basis of such Underwriter's or Underwriters' determination, the
Company shall not include in such registration an amount of Registrable
Securities requested to be included in such offering by all Holders and Minority
Holders, as the case may be, equal to the Excess Amount (such reduction to be
allocated pro rata among such Holders and Minority Holders, as the case may be,
according to the number of Registrable Securities requested for inclusion) and
(ii) in the case of a Piggy-Back Registration, if securities are being offered
for the account of other Persons as well as the Company, the securities the
Company seeks to include shall have priority over securities sought to be
included by any other Person (including the Holders and the Minority Holders)
and, with respect to the Registrable Securities intended to be offered by
Holders and Minority Holders, the proportion by which the amount of such class
of securities intended to be offered by Holders and Minority Holders is reduced
shall not exceed the proportion by which the amount of such class of securities
intended to be offered by such other Persons is reduced (it being understood
that with respect to the Holders, the Minority Holders and third parties, such
reduction may be all of such class of securities).
(b) If a Minority Holder who makes a Minority Holder Demand
Registration request described in Section 2.3(a) reasonably determines in good
faith that the success of the offering would be adversely affected by the
inclusion of the Registrable Securities requested to be included then, if the
size of the offering is the basis of such Minority Holder's determination, the
Company shall only include in such registration an
7
<PAGE>
amount of Registrable Securities requested to be included in such offering by
all Holders and Minority Holders, as the case may be, equal to the Includible
Amount, and with respect to the allocation of the Includible Amount (i) the
securities the Minority Holder who made the Minority Holder Demand Registration
request seeks to include shall have priority over securities sought to be
included by any other Person (including the Holders and the other Minority
Holders), (ii) the securities the Company seeks to include shall, after giving
effect to clause (i) of this Section 2.4(b), have priority over securities
sought to be included by any other Person (including the Holders and the other
Minority Holders) and (iii) after giving effect to clauses (i) and (ii) of this
Section 2.4(b), the remaining Includible Amount, if any, shall be allocated pro
rata among the Holders and other Minority Holders, as the case may be, according
to the number of Registrable Securities requested for inclusion.
(c) If, as a result of the proration provisions of Section
2.4(a) or 2.4(b), any Selling Holder shall not be entitled to include all
Registrable Securities in a Demand Registration or Piggy-Back Registration that
such Selling Holder has requested to be included, such Selling Holder may elect
to withdraw its request to include Registrable Securities in such registration
(a "Withdrawal Election"); provided, however, that a Withdrawal Election shall
-------- -------
be irrevocable and, after making a Withdrawal Election, a Selling Holder shall
no longer have any right to include Registrable Securities in the registration
as to which such Withdrawal Election was made.
ARTICLE III
REGISTRATION PROCEDURES
-----------------------
SECTION 3.1 Filings; Information. Whenever any Holder requests that
--------------------
any Registrable Securities be registered pursuant to a Demand Registration, or
when any Minority Holder requests that any Registrable Securities be registered
pursuant to a Minority Holder Demand Registration, the Company will use its best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof as quickly as
practicable, and:
(a) In connection with any Demand Registration request, the
Company will as expeditiously as possible prepare and file with the Commission a
registration statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become and remain
effective until the earlier of (i) one hundred eighty (180) days from the date
such registration statement became effective or (ii) the date on which the sale
of Registrable Securities has been completed; provided that, if the Company
--------
shall furnish to any Holder making a request pursuant to Section 2.1 a
certificate signed by either its Chairman or the Vice Chairman stating that in
his good faith judgment it would be significantly disadvantageous to the
8
<PAGE>
Company for such a registration statement to be filed as expeditiously as
possible, the Company shall have a period of not more than ninety (90) days
within which to file such registration statement measured from the date of
receipt of the request in accordance with Section 2.1.
(b) In connection with a Minority Holder Demand Registration request,
the Company will as expeditiously as possible prepare and file with the
Commission a registration statement and use its best efforts to cause such filed
registration statement to become and remain effective until the earlier of (i)
one hundred eighty (180) days from the date such registration statement became
effective or (ii) the date on which the sale of Registrable Securities has been
completed; provided that, if the Company shall furnish to the Minority Holder
--------
making such Minority Holder Demand Registration request a certificate signed by
either its Chairman or the Vice Chairman stating that in his good faith judgment
it would be significantly disadvantageous to the Company for such a registration
statement to be filed as expeditiously as possible, the Company shall have a
period of not more than one hundred eighty (180) days within which to file such
registration statement measured from the date of receipt of such Minority Holder
Demand Registration request in accordance with Section 2.3; provided further
-------- -------
that the Company's right under this Section 3.1(b) to delay the filing of a
registration statement for a Minority Holder Demand Registration may only be
exercised once in a 365-day period with respect to a specific Minority Holder.
(c) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, counsel representing the Selling Holders, and each Underwriter, if any,
of the Registrable Securities covered by such registration statement, copies of
such registration statement as proposed to be filed, together with exhibits
thereto, which documents will be subject to prompt review and approval by the
foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Selling Holder or Underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Selling Holder.
(d) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the Commission
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
(e) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder reasonably (in light of
such Selling Holder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may
9
<PAGE>
be necessary by virtue of the business and operations of the Company and do any
and all other acts and things that may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition of the Registrable
Securities owned by such Selling Holder; provided that the Company will not be
--------
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (e), (B)
subject itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction.
(f) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment.
(g) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (the Selling Holders may, at their
option, require that any or all of the representations, warranties and covenants
of the Company to or for the benefit of such Underwriters also be made to and
for the benefit of such Selling Holders).
(h) The Chairman of the Board of Directors of the Company, the Chief
Executive Officer of the Company and other members of the management of the
Company will cooperate fully in any offering of Registrable Securities pursuant
to Section 2.1 hereof, including, without limitation, participation in meetings
with potential investors and preparation of all materials for such investors.
With respect to a Minority Holder Demand Registration requested by TJX, Leeway
or NYNEX or registration under Section 2.2 in which TJX, Leeway or NYNEX
participates, (i) the Company will cooperate to facilitate an orderly
distribution of the shares of TJX, Leeway or NYNEX, as the case may be, and TJX,
Leeway or NYNEX, as the case may be, will advise the Company of its intentions
with respect to any significant sale of Registrable Securities and (ii) the
Company will make management available at the Company's offices or by telephone,
upon reasonable notice and at reasonable times and for the seller's
representatives and a small number of potential purchasers and/or placement
agents, for marketing and diligence discussions regarding the Company and its
business.
(i) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the
10
<PAGE>
registration statement and make available for inspection by any Selling Holder
of such Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
professional retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors"), (it being understood that the Company is responsible for
payment of the reasonable fees and expenses of only one counsel (in addition to
counsel to the issuer) pursuant to clause (h) of Section 3.2) all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), subject to restrictions imposed by any
governmental authority governing access to classified information, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
--------
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and provided, further, that if failing the entry of a
-------- -------
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities
agrees that information obtained by it solely as a result of such inspections
(not including any information obtained from a third party who, insofar as is
known to the Selling Holder after reasonable inquiry, is not prohibited from
providing such information by a contractual, legal or fiduciary obligation to
the Company) shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public.
Each Selling Holder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such Records 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 Records deemed
confidential.
(j) The Company will use its reasonable best efforts to furnish to
each Selling Holder and to each Underwriter, if any, a signed counterpart,
addressed to such Selling Holder or Underwriter, of (i) an opinion or opinions
of counsel to the Company and (ii) a comfort letter or comfort letters from the
Company's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions or comfort letters, as
the case may be, as the Selling Holders of Registrable Securities included in
such offering or the managing Underwriter therefor reasonably requests.
11
<PAGE>
(k) The Company will comply with all applicable rules and regulations
of the Commission, and make available to its securityholders, as soon as
reasonably practicable, an earnings statement covering a period of twelve (12)
months, beginning within three (3) months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act.
(l) The Company will use its best efforts (i) to cause all such
Registrable Securities to be listed on a national securities exchange (if such
shares are not already so listed) and on each additional national securities
exchange on which similar securities issued by the Company are then listed (if
any), if the listing of such Registrable Securities is then permitted under the
rules of such exchange or (ii) to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the NASD.
(m) The Company may require each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(f)
hereof, such Selling Holder will forthwith discontinue and, if applicable, cause
its Affiliates to discontinue disposition of Registrable Securities pursuant to
the registration statement covering such Registrable Securities until such
Selling Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3.1(f) hereof, and, if so directed by the Company, such
Selling Holder will deliver to the Company all copies, other than permanent file
copies then in such Selling Holder's possession, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice. In
the event the Company shall give such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
(including the period referred to in Section 3.1(a) hereof) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 3.1(f) hereof to the date when the Company shall make
available to the Selling Holders of Registrable Securities covered by such
registration statement a prospectus supplemented or amended to conform with the
requirements of Section 3.1(f) hereof.
SECTION 3.2 Registration Expenses. In connection with any Demand
---------------------
Registration pursuant to Section 2.1 hereof, any registration statement filed
pursuant to Section 2.2 hereof, and any Minority Holder Demand Registration
pursuant to Section 2.3 hereof, the Company shall pay the following registration
expenses incurred in connection with the registration hereunder, whether or not
such registration becomes effective (the
12
<PAGE>
"Registration Expenses"): (a) all registration and filing fees, (b) fees and
expenses of compliance with securities or blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (c) printing expenses, (d) the Company's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), (e) the fees and
expenses incurred in connection with the listing of the Registrable Securities,
(f) fees and disbursements of counsel for the Company and fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort letters
requested pursuant to Section 3.1(j) hereof), (g) the fees and expenses of any
special experts retained by the Company in connection with such registration,
and (h) reasonable fees and expenses of one counsel (who shall be reasonably
acceptable to the Company) for all of the Selling Holders (in addition to
counsel for the Company), provided that with respect to a Minority Holder Demand
Registration requested by TJX, Leeway or NYNEX and up to three (3) registrations
pursuant to Section 2.2 in which TJX, Leeway or NYNEX participates, the Company
shall also pay the reasonable fees and expenses of special counsel for TJX,
Leeway or NYNEX, as the case may be. The Company shall have no obligation to
pay any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any other out-of-pocket expenses of the Holders or
the Minority Holders.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
--------------------------------
SECTION 4.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors and agents, and each Person, if any, who controls such
Selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act from and against any loss, claim, damage or liability and any
action in respect thereof to which such Selling Holder, its officers, directors
and agents, and any such controlling Person may become subject under the 1933
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or arises out of, or is based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Selling Holder, its officers, directors and agents, and each such
controlling Person for any legal and other expenses reasonably incurred by that
Selling Holder, its officers, directors and agents, or any such controlling
Person in investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action. The Company also agrees to indemnify
any Underwriters of the Registrable Securities, their officers and
13
<PAGE>
directors and each Person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Selling Holders provided in
this Section 4.1; provided that the indemnity agreement contained in this
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Section 4.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage or liability and any action in respect thereof if such settlement
is effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
loss, claim, damage, liability and any action in respect thereof to the extent
that it arises from or is based upon written information relating to a Person
furnished expressly for use in connection with such registration by such Person,
nor shall the Company be liable to any Person for any such loss, claim, damage
or liability and any action in respect thereof to the extent it arises from or
is based upon (a) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Person after such Person had received a
written notice provided by the Company that such registration statement or
prospectus contained such untrue statement or alleged untrue statement of a
material fact, (b) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading after such Person had received a written notice provided by the
Company that such registration statement or prospectus contained such omission
or alleged omission, or (c) the failure of such Person to deliver any
preliminary or final prospectus, or any amendments or supplements thereto,
required under applicable securities laws, including the 1933 Act, to be so
delivered, provided that a sufficient number of copies thereof had been provided
by the Company to such Person.
SECTION 4.2 Indemnification by Selling Holders of Registrable Securities.
------------------------------------------------------------
Each Selling Holder agrees, severally but not jointly, to indemnify and hold
harmless the Company, its officers, directors and agents and each Person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from
the Company to such Selling Holder, but only with reference to information
related to such Selling Holder furnished in writing by such Selling Holder or on
such Selling Holder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. Each Selling Holder also
agrees to indemnify and hold harmless Underwriters of the Registrable
Securities, if any, their officers and directors and each Person who controls
such Underwriters on substantially the same basis as that of the indemnification
of the Company provided in this Section 4.2; provided that in no event shall any
--------
indemnity obligation under this Section 4.2 exceed the net proceeds from the
offering received by such Selling Holder.
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person against whom such indemnity may be
sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of
the claim or the commencement of such action provided that the failure to
14
<PAGE>
notify the Indemnifying Party shall not relieve it from any liability which it
may have to an Indemnified Party otherwise than under Section 4.1 or 4.2 and
except to the extent of any actual prejudice resulting therefrom. If any such
claim or action shall be brought against an Indemnified Party, and it shall
notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled
to participate therein, and, to the extent that it wishes, jointly with any
other similarly notified Indemnifying Party, to assume the defense thereof with
counsel satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
--------
have the right to employ separate counsel to represent the Indemnified Party and
its controlling Persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (a) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(b) based upon the written opinion of counsel of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. The Indemnifying Party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settlement is made with such consent or if there be a
final judgment for the plaintiff, the Indemnifying Party shall indemnify the
Indemnified Party from and against any loss, claim, damage, or liability by
reason of such settlement or judgment. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding.
SECTION 4.4 Contribution. If the indemnification provided for in this
------------
Article IV is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (a) as between the Company and the Selling
Holders on the one hand and the Underwriters, if any, on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Holders on the one hand and the Underwriters on the
other from the offering of the Registrable Securities, or if such allocation is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits but also the relative fault of the Company and
the Selling Holders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (b) as between the Company on the one hand and each Selling
Holder on the other, or as among the Selling Holders, as the case may be, in
such proportion as is appropriate to reflect the
15
<PAGE>
relative fault of the Company and of each Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations;
provided, however, that no person found guilty of fraudulent misrepresentation
- -------- -------
(within the meaning of Section 11(f) of the 1933 Act) by a court of competent
jurisdiction shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation). The relative benefits received by
the Company and the Selling Holders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Holders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Selling Holders or by the Underwriters. The
relative fault of the Company on the one hand and of each Selling Holder, and
with respect to the Selling Holders among themselves, on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriting discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Each Selling
Holder's obligations
16
<PAGE>
to contribute pursuant to this Section 4.4 are several and not joint, and in no
event shall such obligation exceed the net proceeds of the offering received by
such Selling Holder.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 5.1 Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
Registration Rights; provided that (i) if the FS Stockholders, the Limited
--------
Stockholder or any of their Affiliates, or any of the Minority Holders or any of
their Affiliates participates in such registration, they will not be required to
make any representations or warranties except those which relate solely to
themselves and (ii) the liability of the FS Stockholders, the Limited
Stockholder or any of their Affiliates, or any of the Minority Holders or any of
their Affiliates to any Underwriter under such underwriting agreement will be
limited to liability arising from misstatements in, or omissions from, written
information regarding such Person provided by or on behalf of such Person for
inclusion in the prospectus.
SECTION 5.2 Rule 144. The Company covenants that it will use its
--------
reasonable best efforts to file any reports required to be filed by it under the
1933 Act and the 1934 Act and that it will take such further action as any
Holder or Minority Holder may reasonably request, all to the extent reasonably
required from time to time to enable Holders and their Affiliates or Minority
Holders and their Affiliates to sell Registrable Securities without registration
under the 1933 Act within the limitation of the exemptions provided by (a) Rule
144 or Rule 144A under the 1933 Act, as such Rules may be amended from time to
time, or (b) any similar Rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder or Minority Holder, the Company will deliver to
such Holder or Minority Holder a written statement as to whether it has complied
with such requirements.
SECTION 5.3 Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by WearGuard, TJX or Holders of
-----------------------------------------------------------
Registrable Securities. To the extent not inconsistent with applicable law, and
- ----------------------
except with respect to a Minority Holder Demand Registration, each of the
Minority Holders and each Holder of Registrable Securities agrees not to effect
any sale or distribution or to permit any of its Affiliates to effect any sale
or distribution of the issue being registered or of a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 or Rule 144A under the
1933 Act, during the fourteen (14) days prior to, and during the one hundred
twenty (120) day period
17
<PAGE>
beginning on, the effective date of the registration statement filed by the
Company (except as part of such registration) if, and to the extent, requested
by the managing Underwriter or Underwriters in the case of an underwritten
public offering, provided that TJX's obligations with respect to any such
agreement shall terminate on the earlier of (i) the date that is three (3) years
from the date of issuance of the Partnership Note and (ii) such time as TJX owns
less than one percent (1%) of the Company's fully diluted common equity.
(b) Restrictions on Sale by the Company and Others. With respect to
----------------------------------------------
a Demand Registration effected pursuant to Section 2.1 hereof, the Company
agrees (i) not to effect any sale or distribution of any securities similar to
those being registered in accordance with Section 2.1 hereof, or any securities
convertible into or exchangeable or exercisable for such securities, during the
fourteen (14) days prior to, and during the one hundred twenty (120) day period
beginning on, the effective date of any registration statement (except as part
of a registration statement where the Holder making such Demand Registration
consents) or the commencement of a public distribution of Registrable
Securities; and (ii) that any agreement entered into after the date hereof
pursuant to which the Company issues or agrees to issue any privately placed
securities shall contain a provision under which holders of such securities
agree not to effect any sale or distribution of any such securities during the
periods described in (i) above, in each case including a sale pursuant to Rule
144 (except as part of any such registration, if permitted); provided, however,
-------- -------
that the provisions of this paragraph (b) shall not prevent the conversion or
exchange of any securities pursuant to their terms into or for other securities
and shall not prevent the issuance of securities by the Company under any
employee benefit, stock option or stock subscription plans or in private
placements.
SECTION 5.4 Stockholders Agreement. Notwithstanding anything above to
----------------------
the contrary, all Transfers of Registrable Securities subject to the
provisions of the Stockholders Agreement shall be made only in accordance with
such provisions.
SECTION 5.5 Successors and Assigns. This Agreement, and all
----------------------
obligations and rights hereunder, shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided that no rights of any Stockholder under this Agreement may be
--------
assigned, except that (i) with respect to each Minority Holder, a Minority
Demand Registration and the right to participate in Piggy-back Registrations
pursuant to Section 2.1 and Section 2.2 hereof may be assigned by such Minority
Holder to one purchaser of more than 50% of the Registrable Securities then held
by such Minority Holder, (ii) any Stockholder may assign its rights hereunder to
an Affiliate of such Stockholder, provided that, prior to such assignment, such
--------
Affiliate shall enter into a written agreement to be bound by the terms and
conditions of this Agreement applicable to such Stockholder and (iii) Leeway may
assign its rights hereunder to a successor trust or plan (each a "Leeway
Assignee") in connection with a reorganization of the Long-Term Investment Trust
(or a constituent trust or plan or the sponsor of a constituent trust or plan),
provided that (A) such assignment shall not materially adversely affect the
- --------
legal or tax status of the Company or the Partnership, (B) such assignment does
not result in an increase of more than one beneficial owner of Common Stock for
purposes of Section 3(c)(1) of the
18
<PAGE>
Investment Company Act of 1940, (C) Leeway, its Affiliates and the Leeway
Assignees (collectively, the "Leeway Group") shall collectively have one
Minority Demand Registration in which all members of the Leeway Group may
participate (if they so choose) on a pro rata basis and each member of the
Leeway Group may participate in Piggy-back Registrations pursuant to the terms
of Section 2.1 and Section 2.2 hereof, (D) such Minority Demand Registration and
the right to participate in Piggy-back Registrations pursuant to Section 2.1 and
Section 2.2 hereof may be assigned to one purchaser of more than 50% of the
Registrable Securities then held by the Leeway Group, and (E) prior to any such
assignment, each such assignee Person shall enter into a written agreement to be
bound by the terms and conditions of this Agreement applicable to Leeway. For
purposes of this Section 5.5, any successor or assignee of NYNEX as a result of,
or in connection with, the consummation of the proposed merger of Bell Atlantic
and NYNEX Corporation shall be deemed to be an Affiliate of NYNEX.
SECTION 5.6 No Waivers; Amendments.
----------------------
(a) No failure or delay by any party in exercising any right, power,
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(b) This Agreement may not be amended, modified or supplemented other
than by a written instrument signed by each party hereto (except that none of
WearGuard, TJX, Leeway nor NYNEX shall be required to or entitled to approve any
amendment, modification or supplement to the Agreement, unless such amendment,
modification or supplement to the Agreement would adversely affect the rights of
WearGuard, TJX, Leeway or NYNEX, as the case may be, hereunder). With respect
to any grant of additional rights hereunder or in any other agreement covering
the matters contemplated by this Agreement, Leeway and NYNEX shall be treated
equally.
(c) Any provision of this Agreement may be waived if, but only if,
such waiver is in writing and is signed by the party against whom the
enforcement of such waiver is sought.
19
<PAGE>
SECTION 5.7 Notices. All notices, requests, and other communications to
-------
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be given as follows:
If to the Brylane Inc.
Company, to: 463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Mr. Peter J. Canzone
Telecopy: (212) 613-9551
With a copy to: Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071-3155
Attention: Richard J. Welch, Esq.
Telecopy: (213) 229-8550
If to Limited The Limited, Inc.
Stockholder or to Three Limited Parkway
The Limited, to: Columbus, Ohio 43230
Attention: General Counsel
Telecopy: (614) 479-7188
With a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch, Esq.
David L. Caplan, Esq.
Telecopy: (212) 450-4800
If to the FS Freeman Spogli & Co. Incorporated
Stockholders, to: 11100 Santa Monica Boulevard
Suite 1900
Los Angeles, California 90025
Attention: Mr. William M. Wardlaw
Telecopy: (310) 444-1870
20
<PAGE>
With a copy to: Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071-3155
Attention: Richard J. Welch, Esq.
Telecopy: (213) 229-8550
If to WearGuard: WearGuard Corporation
c/o ARAMARK Corporation
The ARAMARK Towers
1100 Market Street
29th Floor
Philadelphia, Pennsylvania 19107
Attention: General Counsel
Telecopy: (215) 238-3333
If to TJX: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Attention: President and General Counsel
Telecopy: (508) 390-2457
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopy: (617) 951-7050
If to Leeway: Leeway & Co.
c/o AT&T Investment Management Corp.
One Oak Way, Room 1ED176
Berkeley Heights, New Jersey 07922-2727
Attention: Eliot H. Powell
Telecopy: (908) 771-9613
With a copy to: Lowenstein, Sandler, Kohl, et. al.
A Professional Corporation
65 Livingston Avenue
Roseland, New Jersey 07068-1791
Attention: George J. Mazin, Esq.
Telecopy: (201) 992-5620
21
<PAGE>
If to NYNEX: Mellon Bank, N.A., as Trustee
for NYNEX Master Trust
One Mellon Bank Center
Room 3346
Pittsburgh, Pennsylvania 15258-0001
Attention: Mr. Robert F. Sass
Telecopy: (412) 236-4225
with a copy to: NYNEX Asset Management Company
200 Park Avenue
New York, New York 10166
Attention: Mr. A. Jay Baldwin
Bruce Franzese, Esq.
Telecopy: (212) 682-7246
and to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: I. Scott Gottdiener, Esq.
Telecopy: (212) 455-2502
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose of notice to the other parties.
Each such notice, request or other communication shall be effective (a) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this Section and evidence of receipt is received or (b) if given by any other
means, upon delivery or refusal of delivery at the address specified in this
Section 5.6.
SECTION 5.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the state of Delaware (without regard
to the choice of law provisions thereof).
SECTION 5.9 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements and understandings,
written or oral, relating to the subject matter hereof.
SECTION 5.10 Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdictions, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
22
<PAGE>
SECTION 5.11 Counterparts. This Agreement may be signed in counterparts,
------------
each of which shall constitute an original and which together shall constitute
one and the same agreement.
23
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: /s/ John M. Roth
-----------------------------------
Name: John M. Roth
Title: General Partner
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ John M. Roth
------------------------------
Name: John M. Roth
Title: Vice President
FS EQUITY PARTNERS INTERNATIONAL, L.P.
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: /s/ John M. Roth
-------------------------------
Name: John M. Roth
Title: Vice President
M&P DISTRIBUTING COMPANY
By: /s/ John N. Brewer
-----------------------------------
Name: John N. Brewer
Title: Asst. Secretary
24
<PAGE>
THE LIMITED, INC.
By: /s/ William K. Gerber
----------------------------------------
Name: William K. Gerber
Title: Vice President of Finance
BRYLANE INC.
By: /s/ Robert A. Pulciani
----------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
WEARGUARD CORPORATION
By: /s/ Barbara A. Austell
----------------------------------------
Name: Barbara A. Austell
Title: Treasurer
THE TJX COMPANIES, INC.
By: /s/ Jay H. Meltzer
-----------------------------------------
Name: Jay H. Meltzer
Title: Senior Vice President
LEEWAY & CO.,
as nominee for the Long-Term Investment Trust
By: State Street Bank and Trust, as Trustee
for the Long-Term Investment Trust
By: /s/ Edward J. Lavin Jr.
----------------------------------------
Name: Edward J. Lavin Jr.
Title: Vice President
25
<PAGE>
NYNEX MASTER TRUST
By: Mellon Bank, N.A., as Trustee for Nynex
Master Trust, as directed by NYNEX
Corporation
By: /s/ Allan M. Seaman
----------------------------------------
Name: Allan M. Seaman
Title: Associate Counsel
26
<PAGE>
Exhibit 4.13
STOCKHOLDERS AGREEMENT
DATED AS OF
FEBRUARY 26, 1997
AMONG
FS EQUITY PARTNERS II, L.P.
FS EQUITY PARTNERS III, L.P.
FS EQUITY PARTNERS INTERNATIONAL, L.P.
M&P DISTRIBUTING COMPANY
THE LIMITED, INC.
WEARGUARD CORPORATION
THE TJX COMPANIES, INC.
LEEWAY & CO.
NYNEX MASTER TRUST
AND
BRYLANE INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS........................................... 2
Section 1.1 Definitions....................................... 2
ARTICLE II RESTRICTIONS ON TRANSFERS............................. 3
Section 2.1 Transfers in Accordance with this Agreement....... 3
Section 2.2 Legend............................................ 3
Section 2.3 Additional Provisions Relating to Transfers....... 5
Section 2.4 Transfers of Common Stock......................... 5
ARTICLE III ADDITIONAL RIGHTS AND OBLIGATIONS OF
STOCKHOLDERS AND THE COMPANY.......................... 5
Section 3.1 Financial Statements.............................. 5
Section 3.2 Confidentiality................................... 6
Section 3.3 Protection of Business; Nonsolicitation........... 6
Section 3.4 Acquisition of Common Stock....................... 8
Section 3.5 Fiscal Year....................................... 8
Section 3.6 Obligation to Sell Securities; Rights of Inclusion 8
ARTICLE IV CORPORATE GOVERNANCE.................................. 10
Section 4.1 Board of Directors................................ 10
Section 4.2 Corporate Actions................................. 12
Section 4.3 Not Applicable to TJX, Leeway or NYNEX............ 12
ARTICLE V TERMINATION........................................... 12
Section 5.1 Termination....................................... 12
ARTICLE VI MISCELLANEOUS......................................... 12
Section 6.1 Remedies.......................................... 12
Section 6.2 Successors and Assigns............................ 13
Section 6.3 No Waivers; Amendments............................ 13
Section 6.4 Notices........................................... 14
Section 6.5 Inspection........................................ 16
Section 6.6 Governing Law..................................... 16
Section 6.7 Section Headings.................................. 16
</TABLE>
i.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.8 Entire Agreement................................. 16
Section 6.9 Severability..................................... 16
Section 6.10 Counterparts..................................... 17
Section 6.11 TJX's Agreement to be Bound...................... 17
</TABLE>
ii.
<PAGE>
STOCKHOLDERS AGREEMENT
----------------------
This Stockholders Agreement (the "Agreement") is dated as of this 26th
day of February, 1997 among FS Equity Partners II, L.P., a California limited
partnership ("FSEP II"), FS Equity Partners III, L.P., a Delaware limited
partnership ("FSEP III"), FS Equity Partners International, L.P., a Delaware
limited partnership ("FSEP International") (FSEP II, FSEP III and FSEP
International are collectively referred to herein as the "FS Stockholders"), M&P
Distributing Company, a Nevada corporation ("Limited Stockholder"), The Limited,
Inc., a Delaware corporation, WearGuard Corporation, a Delaware corporation
("WearGuard"), Leeway & Co., a Massachusetts partnership, as nominee for the
Long-Term Investment Trust, a trust governed by the laws of the State of New
York ("Leeway"), NYNEX Master Trust, a trust governed by the laws of the State
of New York ("NYNEX") and The TJX Companies, Inc., a Delaware corporation
("TJX") and Brylane Inc., a Delaware corporation (the "Company"). Each of the
FS Stockholders, the Limited Stockholder, WearGuard, NYNEX, Leeway, TJX and any
other Person who shall become a party to or agree to be bound by the terms of
this Agreement after the date hereof is sometimes hereinafter referred to as a
"Stockholder".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in the manner contemplated by the Agreement of Limited
Partnership dated as of August 30, 1993 (as amended from time to time, the
"Partnership Agreement") among VGP Corporation, VLP Corporation, Lane Bryant
Direct Holding, Inc. (as the successor corporation to Lane Bryant Direct, Inc.,
Lerner Direct, Inc. and Roaman's, Inc.), WearGuard, NYNEX, Leeway and
Chadwick's, Inc., a Massachusetts corporation, (and by which TJX and the Limited
Stockholder have agreed to be bound) the Stockholders acquired 14,926,778 shares
of the common stock of the Company, par value $0.01 per share (the "Common
Stock");
WHEREAS, the parties have agreed that certain aspects of their
relationship as holders of Common Stock of the Company are to be governed by the
terms of this Agreement;
<PAGE>
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Definitions. As used in this Agreement, the following
-----------
terms have the following meanings:
"Affiliate" means with respect to any Person, any Person directly or
---------
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" means this Stockholders Agreement, as amended from time to
---------
time.
"Board" means the Board of Directors of the Company.
-----
"Business" means the mail order retail business encompassing large
--------
size women's apparel, moderately priced fashion apparel and related accessories.
"Business Day" means each day other than Saturdays, Sundays and days
------------
when commercial banks are authorized to be closed for business in New York, New
York.
"Commission" shall mean the Securities and Exchange Commission.
----------
"Common Stock" shall have the meaning set forth in the preamble.
------------
"Company" shall have the meaning set forth in the preamble.
-------
"Competing Business" shall have the meaning set forth in Section 3.3.
------------------
"Freeman Spogli Funds" shall have the meaning set forth in Section
--------------------
3.3.
"FS Nominees" shall have the meaning set forth in Section 4.1.
-----------
"Limited Nominees" shall have the meaning set forth in Section 4.1.
----------------
2.
<PAGE>
"Person" means an individual, a corporation, a partnership, an
------
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"Public Offering" shall mean, with respect to the Company, any
---------------
underwritten public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act of 1933, as amended.
"Registration Rights Agreement" means that certain Registration Rights
-----------------------------
Agreement dated as of the date hereof by and among the parties hereto.
"Shares" means shares of Common Stock.
------
"Stockholder" shall have the meaning set forth in the preamble.
-----------
"The Limited" means The Limited, Inc., a Delaware corporation.
-----------
"Transfer" means, with respect to Shares or any other securities, as
--------
the case may be, any direct or indirect transfer, sale, assignment, pledge,
hypothecation, encumbrance or other disposition thereof.
"Transferee" means any transferee of Shares in a Transfer.
----------
ARTICLE II
RESTRICTIONS ON TRANSFERS
-------------------------
Section 2.1 Transfers in Accordance with this Agreement. No
-------------------------------------------
Stockholder shall Transfer any Shares, except in compliance with the Securities
Act of 1933, as amended, applicable state securities laws and this Agreement.
Any attempt to Transfer any Shares not in compliance with this Agreement shall
be null and void and the Company shall not, and shall ensure that any transfer
agent shall not, register upon its books any Transfer of Shares by a Stockholder
to any Person except a Transfer in accordance with this Agreement.
Section 2.2 Legend.
------
(a) A copy of this Agreement shall be filed with the Secretary of
the Company and kept with the records of the Company. Each of the Stockholders
hereby agrees that each outstanding certificate representing Shares issued to
any Stockholder and any certificate for Shares issued in exchange for any
similarly legended certificate shall bear a legend reading substantially as
follows:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
3.
<PAGE>
AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IN A MANNER
EXEMPT FROM REGISTRATION UNDER SUCH ACT. THE SHARES REPRESENTED BY
THIS CERTIFICATE ALSO ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCKHOLDERS AGREEMENT OF BRYLANE INC.
(THE "COMPANY"), DATED AS OF FEBRUARY 26, 1997, COPIES OF WHICH MAY BE
OBTAINED FROM THE COMPANY. NO TRANSFER OF SUCH SHARES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE
WITH THE TERMS OF SUCH AGREEMENT.
4.
<PAGE>
The foregoing legend shall be in addition to any other legend required to be
placed on any certificates for Shares under applicable law.
(b) No Transfer of Shares (other than in a Public Offering, in
accordance with Rule 144 under the Securities Act of 1933, as amended, or to the
Company) shall be effective unless the certificates representing the Shares
issued to the Transferee bear the legend set forth in clause (a) of this
Section.
Section 2.3 Additional Provisions Relating to Transfers. The
-------------------------------------------
following provisions shall apply to each Transfer permitted under this Article
II:
(a) The Stockholder making a Transfer permitted hereunder shall
be required to pay any and all filing and recording fees, fees of counsel and
accountants and other costs and expenses reasonably incurred by the Company as a
result of such Transfer.
(b) No Transfer by a Stockholder permitted hereunder shall
relieve the transferor Stockholder of any of its obligations or liabilities
under this Agreement arising prior to consummation of such Transfer.
Section 2.4 Transfers of Common Stock. Subject to Sections 2.1, 2.2
-------------------------
and 2.3, any Stockholder may Transfer all or any portion of the Common Stock
held by it, provided that, prior to a Transfer to an Affiliate of a Stockholder,
such Affiliate shall enter into a written agreement to be bound by the terms and
conditions of this Agreement which are applicable to all Stockholders.
ARTICLE III
ADDITIONAL RIGHTS AND OBLIGATIONS
---------------------------------
OF STOCKHOLDERS AND THE COMPANY
-------------------------------
Section 3.1 Financial Statements.
--------------------
(a) As soon as practicable following the end of each fiscal year
of the Company but in any event within 90 days after the end of such fiscal
year, the Board shall cause to be prepared and delivered to each Stockholder
statements of income and cash flows for the Company for such fiscal year, and a
balance sheet of the Company as of the end of such fiscal year, in each case
setting forth comparative figures for the preceding fiscal year, and certified
by independent certified public accountants of recognized national standing as
to fairness of presentation, preparation in accordance with generally accepted
accounting principles and consistency.
(b) No later than ten days following the end of each fiscal month
of the Company (other than the last fiscal month of each fiscal year), the
Company shall prepare and deliver to each Stockholder statements of income and
cash flows of the Company
5.
<PAGE>
for such month and for the year to date and an unaudited balance sheet of the
Company as of the end of such month, in each case setting forth comparative
figures for the related periods in the prior fiscal year and certified by the
chief financial officer of the Company as to fairness of presentation,
preparation in accordance with generally accepted accounting principles and
consistency; provided that (i) the Board shall use its best efforts to cause
--------
such monthly financial statements and related materials to be delivered within 5
days of the end of each fiscal month and (ii) in the event that it is not
possible to deliver such financial statements and related information within the
10 day period specified in this Section 3.1(b), the Company shall deliver drafts
of such financial statements and related materials within such 10 day period and
shall deliver the final versions thereof as promptly as possible, but in no
event later than 45 days after the end of the relevant fiscal month.
(c) No later than five days after transmission thereof, the
Company shall deliver to each Stockholder, copies of all financial statements,
proxy statements, notices and reports as the Company shall deliver to its debt
or equity holders or its lenders and copies of all registration statements
(without exhibits), other than Form S-8 or any similar successor form, and all
reports which the Company files with the Commission. The Company shall not be
obligated pursuant to this provision or Section 3.1(d) to deliver to any
Stockholder which competes with any retail or catalogue business conducted by
The Limited as of the date of the Partnership Agreement, any material non-public
information concerning the Marks licensed under the Trademark License Agreement
dated as of August 20, 1993 among the licensors referred to therein and Lane
Bryant Direct Holding, Inc. (as the successor corporation to Lane Bryant Direct,
Inc., Lerner Direct, Inc. and Roaman's, Inc.) as amended from time to time.
(d) At the request of any Stockholder and at such Stockholder's
expense, the Board shall prepare and deliver, or cause to be prepared and
delivered, to each Stockholder, as soon as practicable following such request,
any additional financial information and statements as such Stockholder shall
from time to time reasonably request.
Section 3.2 Confidentiality. All information received pursuant to
---------------
Section 3.1 shall be kept confidential by each Stockholder except for
information which (a) was available to such Stockholder on a non-confidential
basis prior to its provision to such Stockholder under this Agreement, (b)
becomes generally available to the public other than as a result of a disclosure
by such Stockholder, (c) becomes available to such Stockholder on a
nonconfidential basis other than as a result of the provision of such
information under this Agreement or (d) such Stockholder is legally compelled to
disclose.
Section 3.3 Protection of Business; Nonsolicitation.
---------------------------------------
(a) The Company and the FS Stockholders each hereby covenant and
agree that for so long as The Limited holds a direct or indirect ownership
interest in the Company representing at least 20% of the Common Stock of the
Company then outstanding, none of the Company, the FS Stockholders or any
Affiliate of such Person shall, directly or indirectly, engage anywhere in the
world in any activities that compete with any business
6.
<PAGE>
conducted by The Limited or any of its Affiliates as such businesses are
conducted as of the date of the Partnership Agreement (a "Competing Business");
provided that this Section shall not (i) prevent the Company, the Stockholders
- --------
or any of their Affiliates from engaging anywhere in the world in any activity
that the Business is engaged in on the date of the Partnership Agreement, (ii)
apply to investments by the Company, the Stockholders or any of their Affiliates
in securities of another entity which constitute, in the aggregate, less than 5%
of the outstanding shares of such entity entitled to vote generally in the
election of directors or similar persons, (iii) prohibit the acquisition (by
merger or otherwise) of the securities or assets of a business where the gross
revenues of such business attributable to Competing Businesses constitute less
than 15% of the total gross revenues of such business and where the entry into a
Competing Business is not the principal purpose of such acquisition, (iv) apply
to any Transferee of Common Stock, where the relevant Transfer is effected in
accordance with the terms of this Agreement, (v) prohibit the Company, the
Stockholders or any of their Affiliates from engaging in Competing Businesses
where such Competing Businesses are ancillary to another existing business of
the Company, the Stockholders or any such Affiliate, as the case may be, and
constitute less than 15% of the total gross revenues of such business, (vi)
prohibit the Company from operating outlet stores for its merchandise where (A)
such stores are not operated under either the "Lerner" or "Lane Bryant" name (or
any confusingly similar name), (B) tags on merchandise bearing either such name
are removed, clipped or otherwise mutilated to indicate to the customer that
such goods are not first class goods and (C) such stores are not located within
10 miles of a Lerner or Lane Bryant retail store; provided that this Section
--------
shall not obligate the Company to move a retail store selling such merchandise
if, after the opening of such store, a Lerner or Lane Bryant retail store is
opened within such 10 mile radius, (vii) prohibit FS Equity Partners II, L.P., a
California limited partnership, FS Equity Partners III, L.P., a Delaware limited
partnership, FS Equity Partners International, L.P., a Delaware limited
partnership, or any other investment fund organized by Freeman Spogli & Co. or
any Affiliate of Freeman Spogli & Co. (collectively, the "Freeman Spogli Funds")
or any limited partner of the Freeman Spogli Funds from owning or acquiring a
Competing Business in transactions not involving the Company or any Stockholder
other than an FS Stockholder (in which case this Section 3.3(a) shall not apply
to such Competing Business), (viii) prohibit a lender to the Company pursuant to
the exercise of remedies under the relevant financing documents or a financial
institution, pension fund, insurance company or other institutional investor
with widely diversified interests (which may include minority, passive interests
in Competing Businesses) from acquiring an interest in the Company, or (ix)
prohibit the Company or any of its subsidiaries (including without limitation
the Partnership) from engaging in the conduct of a mail order retail business
encompassing regular size or large size men's apparel and related accessories so
long as such apparel and accessories are substantially similar to the products
offered by the Partnership's KingSize Division as of October 14, 1996 at price
points substantially similar or lower than those for the comparable products
offered by the KingSize Division as of the date hereof.
(b) For so long as The Limited holds a direct or indirect
ownership interest in the Company representing at least 20% of the Common Stock
of the Company then outstanding, neither the Company nor the FS Stockholders nor
any of their Affiliates
7.
<PAGE>
shall, without the prior written approval of The Limited, directly or indirectly
solicit any person who is an employee of The Limited or any Affiliate of The
Limited at any time on or after the date of this Agreement to terminate his or
her relationship with The Limited or any Affiliate of The Limited; provided that
--------
the foregoing shall not apply to (i) persons hired as a result of the use of an
independent employment agency (so long as the agency was not directed to solicit
such person) or as a result of the use of a general solicitation (such as an
advertisement) not specifically directed to employees of The Limited or any
Affiliate of The Limited, (ii) any Transferee of Common Stock where the relevant
Transfer is effected in accordance with the terms of this Agreement, (iii) any
Competing Business owned or acquired by the Freeman Spogli Funds or by any
limited partner of the Freeman Spogli Funds in accordance with clause (vii) of
Section 3.3(a) or (iv) a Stockholder referred to in clause (viii) of Section
3.3(a).
(c) Notwithstanding anything to the contrary contained in this
Section 3.3, the parties expressly agree that the provisions of Section 3.3(a)
and 3.3(b) shall not apply to (i) WearGuard, ARAMARK Corporation, a Delaware
corporation ("ARAMARK") (the parent of WearGuard), or any of their respective
subsidiaries, (ii) TJX, or any of its respective subsidiaries, (iii) Leeway or
any of its Affiliates or (iv) NYNEX or any of its Affiliates.
Section 3.4 Acquisition of Common Stock. No Stockholder shall, and
---------------------------
no Stockholder (other than Leeway and NYNEX) shall permit any of their
respective Affiliates to, directly or indirectly, authorize or make a tender or
exchange offer for, or purchase or otherwise acquire, or agree or offer to
purchase or otherwise acquire, directly or indirectly, beneficial ownership of
additional Common Stock.
Section 3.5 Fiscal Year. For so long as The Limited holds a direct
-----------
or indirect ownership interest in the Company representing at least 20% of the
Common Stock of the Company then outstanding, the FS Stockholders will direct
their nominees on the Board to take any and all actions necessary to cause the
fiscal and taxable year of the Company to be the fiscal year of The Limited in
effect on the date hereof (which ends on the Saturday closest to January 31 of
each year).
Section 3.6 Obligation to Sell Securities; Rights of Inclusion.
--------------------------------------------------
(a) If the FS Stockholders find a third-party buyer for all of
the Shares held by the FS Stockholders or if the FS Stockholders are required to
sell all their Shares for any reason (whether such sale is by way of purchase,
exchange, merger or other form of transaction), upon the request of the FS
Stockholders, each of WearGuard, Leeway and NYNEX shall sell all of its Shares
on the same terms and conditions as apply to the FS Stockholders' sale, except
that none of WearGuard, Leeway or NYNEX shall be required to make any
representation or warranty in connection with such sale other than as to such
Person's valid ownership of its Shares, free and clear of all liens and
encumbrances other than those arising under applicable securities laws, and such
Person's authority, power and
8.
<PAGE>
right to enter into and consummate such sale without violating any other
agreement or instrument.
(b) If the FS Stockholders or any of their Affiliates proposes to
offer, sell, assign, grant a participation in or otherwise transfer (each, a
"Transfer") all or any part of the shares of Common Stock then held by such
Person to any Person (other than a Subsidiary of any of the FS Stockholders)
(each, a "Tag Along Offer"), the FS Stockholders shall provide written notice of
such Tag Along Offer to WearGuard, NYNEX and Leeway. Such notice shall identify
the purchaser, the number of shares of Common Stock proposed to be sold, the
consideration offered and any other material terms and conditions of the Tag
Along Offer. If the offer price consists in part or in whole of consideration
other than cash, the FS Stockholders will provide such information, to the
extent reasonably available to the FS Stockholders, relating to such
consideration as WearGuard, NYNEX or Leeway may reasonably request in order to
evaluate such non-cash consideration.
(c) Each of WearGuard, Leeway and NYNEX shall have the right
("W,L&N Tag Along Right"), exercisable as set forth below, to Transfer, pursuant
to the Tag Along Offer, the Applicable Percentage of its shares of Common Stock
on the same terms and conditions as the FS Stockholders or any of its
Affiliates. For purposes of this paragraph (c), "Applicable Percentage" means,
in connection with any Transfer by the FS Stockholder or any Affiliate of the FS
Stockholders, the percentage of such FS Stockholder's (direct or indirect) total
number of shares of Common Stock to be sold pursuant to such Transfer. Each such
W,L&N Tag Along Right shall be exercisable by delivering written notice to the
FS Stockholders within 25 days after receipt of the Offering Notice. Failure to
exercise such W,L&N Tag Along Right within such 25-day period shall be regarded
as a waiver of such W,L&N Tag Along Right. If the FS Stockholders, directly or
indirectly, transfer shares of Common Stock to an Affiliate, such Affiliate
shall agree in writing to be bound by the provisions of this subsection (c).
(d) Each of WearGuard, Leeway and NYNEX acknowledge and agree
that the FS Stockholders has granted certain tag-along rights ("Management Tag
Along Rights") to certain employees (or former employees) of the Partnership and
its subsidiaries and, as a consequence thereof, in the event WearGuard, Leeway
or NYNEX desire to exercise an W,L&N Tag Along Right with respect to any
Transfer, the Shares transferred by the FS Stockholders, Leeway and NYNEX, as
the case may be, shall be reduced as necessary to accommodate the Management Tag
Along Rights.
(e) The rights and obligations of each of the FS Stockholders,
WearGuard, Leeway and NYNEX under Sections 3.6(a), (b), (c) and (d) hereof shall
not apply in the case of any sale (i) pursuant to a registration statement under
the Securities Act of 1933 ("Act") or (ii) into the public market pursuant to
Rule 144 of the Act.
9.
<PAGE>
ARTICLE IV
CORPORATE GOVERNANCE
--------------------
Section 4.1 Board of Directors.
------------------
(a) The parties shall use their reasonable best efforts to ensure
that the Board consists of not more than nine members. Subject to Section
4.1(d), the Limited Stockholder shall be entitled, but not required, to nominate
two members (the "Limited Nominees") of the Board. Subject to Section 4.1(d),
the FS Stockholders as a group shall be entitled, but not required, to nominate
three members (the "FS Nominees") of the Board. The initial members of the Board
shall be the members of the Board of Representatives as most recently designated
pursuant to the Partnership Agreement and the Board shall elect such additional
independent members, if any, as may be required under applicable law or stock
exchange requirements or by the National Association of Securities Dealers or
underwriters in connection with Public Offerings. The Limited Stockholder and
any Transferee of the Limited Stockholder agree not to nominate as a member of
the Board any nominee or representative of a Person that competes with any
retail or catalogue business conducted by The Limited or any of its Affiliates
as of the date of the Partnership Agreement.
(b) (i) Each of the Stockholders agrees to vote or cause to be
voted all of the shares beneficially owned or held of record by such Stockholder
at any regular or special meeting of the Stockholders of the Company called for
the purpose of filling positions on the Board, or in any written consent
executed in lieu of such a meeting of stockholders, and agrees to take or cause
to be taken all actions otherwise necessary, to ensure the election to the Board
of the Limited Nominees and the FS Nominees.
(ii) Each of the Company and each Stockholder hereby agrees
to use its best efforts to call, or cause the appropriate officers and directors
of the Company to call, a special meeting of stockholders of the Company and
each Stockholder hereby agrees to vote or cause to be voted all of the Shares
beneficially owned or held of record by such Stockholder for, or to take or
cause to be taken all actions by written consent in lieu of any such meeting
necessary to cause, the removal (with or without Cause) of (A) any Limited
Nominee if the Limited Stockholder requests such director's removal for any
reason, and (B) any FS Nominee if the FS Stockholders request such director's
removal for any reason. The Limited Stockholder or the FS Stockholders shall
have the right to nominate a new nominee in the event any Limited Nominee or FS
Nominee, as the case may be, shall be so removed or shall vacate his
directorship for any reason.
(c) Except as provided in Section 4.1(b)(ii), each Stockholder
hereby agrees that, it will not vote in favor of the removal of any Limited
Nominee or FS Nominee unless such removal shall be for Cause. For the purposes
of this Section 4.1, "Cause" shall mean the willful and continued failure by a
director substantially to perform his duties as a director of the Company, the
willful engaging by a director in conduct which
10.
<PAGE>
is demonstrably and materially injurious to the Company, or the director's
conviction of any crime constituting a felony which involves moral turpitude.
(d) Notwithstanding the foregoing (i) at such time as the Limited
Stockholder and any Affiliate of the Limited Stockholder which held Units (as
defined in the Partnership Agreement), shall have sold Common Stock and/or Units
representing or corresponding in aggregate to more than one-half of the Units
held by the Brylane Entities (as defined in the Partnership Agreement) on the
date of the Partnership Agreement, the Limited Stockholder shall be entitled to
nominate no more than one member of the Board, (ii) at such time as the FS
Stockholders or any Affiliate of the FS Stockholders which held Units, shall
have sold Common Stock and/or Units representing or corresponding in the
aggregate to more than one-third of the Units held by FS Limited Partner and FS
General Partner (each as defined in the Partnership Agreement) as a group on the
date of the Closing of the Partnership Agreement, the FS Stockholders as a group
shall be entitled to nominate no more than two members of the Board, (iii) at
such time as the FS Stockholders or any Affiliate of the FS Stockholders which
held Units, shall have sold Common Stock and/or Units representing or
corresponding in aggregate to more than two-thirds of the Units held by FS
Limited Partner and FS General Partner as a group on the date of the Closing (as
defined in the Partnership Agreement) the FS Stockholders as a group shall be
entitled to nominate no more than one member of the Board and (iv) at such time
as the Limited Stockholder or the FS Stockholders shall own less than 5% of the
Common Stock, such Stockholder's right to nominate members of the Board shall
terminate. Units retired in accordance with Section 8.9 of the Partnership
Agreement shall be excluded from any determination under clauses (ii) or (iii)
of this Section 4.1(d). Sales of Common Stock by the Limited Stockholder to any
wholly-owned subsidiary of The Limited shall not be considered to be a sale
under clause (i) of this Section 4.1(d).
(e) For purposes of Section 4.1(d), the direct or indirect
issuance or Transfer to a third party of any capital stock or other ownership
interests in, VGP, VLP, any parent entity of VGP or VLP, the Brylane Entities,
any parent entity of the Brylane Entities or any successor to any of the
foregoing prior to the execution hereof shall be deemed to have been a Transfer
of a corresponding percentage of Units (as such term is defined in the
Partnership Agreement). The preceding sentence shall not apply to issuances of
capital stock of VP Holding Corporation to, or Transfers of capital stock of VP
Holding Corporation by, employees of the Partnership, its subsidiaries or
Wholly-Owned Entities (as such term is defined in the Partnership Agreement).
After execution hereof, the direct or indirect issuance to a third party or
Transfer of any capital stock or other ownership interests in the Limited
Stockholder or any parent entity of the Limited Stockholder shall be deemed to
be a Transfer of the corresponding percentage of shares of Common Stock. The FS
Stockholders shall not be deemed to own shares of Common Stock issued to
employees of the Partnership, its subsidiaries or Wholly-Owned Entities. The
provisions of this Section 4.1(e) shall not apply to sales of stock of, or other
equity interests in, The Limited or any general or limited partner of the FS
Funds or to sales of equity interests in the FS Funds.
11.
<PAGE>
Section 4.2 Corporate Actions. The Stockholders each agree that,
-----------------
without the consent of (i) the Limited Stockholder in the case of the FS
Stockholders, (ii) the FS Stockholders in the case of the Limited Stockholder
and (iii) both the FS Stockholder and the Limited Stockholder in the case of
WearGuard, Leeway or NYNEX, until one (1) year after the date on which Persons
other than The Limited, the FS Funds, TJX, WearGuard, Leeway, NYNEX and their
respective Affiliates own 20% or more of the then outstanding Common Stock of
the Company, they will vote or cause to be voted all shares of Common Stock
beneficially owned by them against, and the FS Stockholders and the Limited
Stockholder, to the extent permitted by law, will direct their designees on the
Board to vote against, any consolidation, combination or merger of the Company
with or into any other Person or any sale or other transfer of all or
substantially all of the assets of the Company.
Section 4.3 Not Applicable to TJX, Leeway or NYNEX. Notwithstanding
--------------------------------------
anything contained in this Article IV to the contrary, the rights and
obligations contained in Section 4.1(a), (b) and (c) and Section 4.2 shall not
apply to TJX, Leeway or NYNEX.
ARTICLE V
TERMINATION
-----------
Section 5.1 Termination. This Agreement shall terminate upon the
-----------
occurrence of any of the following:
(a) the written agreement of each Stockholder;
(b) the tenth anniversary of the date hereof;
(c) Stockholders together shall own less than 10% of Common Stock
outstanding; or
(d) the dissolution, liquidation or winding up of the Company.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Remedies. The Company and the Stockholders acknowledge
--------
and agree that in the event of any breach of this Agreement by any one of them,
the Company or the relevant Stockholder or Stockholders, as the case may be,
would be irreparably harmed and could not be made whole by monetary damages.
The Company and the Stockholders accordingly agree (a) to waive the defense in
any action for specific performance that a remedy at law would be adequate and
(b) that the Company and the
12.
<PAGE>
Stockholders, in addition to any other remedy to which they may be entitled at
law or in equity, shall be entitled to compel specific performance of this
Agreement.
Section 6.2 Successors and Assigns. This Agreement, and all
----------------------
obligations and rights hereunder, shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided that no rights of any Stockholder under this Agreement may be
--------
assigned and no Person which receives Common Stock as a result of a Transfer
permitted by this Agreement will be bound by the provisions of this Agreement,
except as otherwise provided with respect to an Affiliate pursuant to Section
2.4. For purposes of this Section 6.2, any successor or assignee of NYNEX as a
result of, or in connection with, the consummation of the proposed merger of
Bell Atlantic and NYNEX Corporation shall be deemed to be an Affiliate of NYNEX.
Notwithstanding anything contained hereunder to the contrary, Leeway may assign
its rights hereunder to a successor trust or plan in connection with a
reorganization of the Long-Term Investment Trust (or a constituent trust or plan
or the sponsor of a constituent trust or plan), provided that (A) such transfer
--------
shall not materially adversely affect the legal or tax status of the Company,
(B) such transfer does not result in an increase of more than one beneficial
owner of Shares for purposes of Section 3(c)(1) of the Investment Company Act of
1940, and (C) that prior to any such assignment, each such assignee Person shall
enter into a written agreement to be bound by the terms and conditions of this
Agreement applicable to Leeway.
Section 6.3 No Waivers; Amendments.
----------------------
(a) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(b) This Agreement may not be amended, modified or supplemented
other than by a written instrument signed by each party hereto, except that (i)
none of WearGuard, TJX, Leeway and NYNEX shall be required to or entitled to
approve any amendment, modification or supplement to the Agreement, unless such
amendment, modification or supplement to the Agreement would adversely affect
the rights hereunder of WearGuard, TJX, Leeway or NYNEX and (ii) with respect to
any grant of additional rights hereunder or in any other agreement covering the
matters contemplated by the Agreement, Leeway and NYNEX shall be treated
equally.
(c) Any provision of this Agreement may be waived if, but only
if, such waiver is in writing and is signed by the party against whom the
enforcement of such waiver is sought.
13.
<PAGE>
Section 6.4 Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be given as follows:
If to the Brylane Inc.
Company, to: 463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Mr. Peter J. Canzone
Telecopy: 212-613-9551
With a copy to: Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attention: Richard J. Welch, Esq.
Telecopy: 213-229-8550
If to Limited The Limited, Inc.
Stockholder or to Three Limited Parkway
The Limited, to: Columbus, Ohio 43230
Attention: General Counsel
Telecopy: 614-479-7188
With a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch, Esq.
David L. Caplan, Esq.
Telecopy: 212-450-4800
If to the FS Freeman Spogli & Co.
Stockholders, to: 11100 Santa Monica Blvd.
Suite 1900
Los Angeles, California 90025
Attention: Mr. William M. Wardlaw
Telecopy: 310-444-1870
With a copy to: Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attention: Richard J. Welch, Esq.
Telecopy: 213-229-8550
14.
<PAGE>
If to WearGuard: WearGuard Corporation
c/o ARAMARK Corporation
The ARAMARK Towers
1100 Market Street
29th Floor
Philadelphia, Pennsylvania 19107
Attention: General Counsel
Telecopy: (215) 238-3333
If to NYNEX: Mellon Bank, N.A., as Trustee
for NYNEX Master Trust
One Mellon Bank Center
Room 3346
Pittsburgh, PA 15258-0001
Attention: Robert F. Sass
Telecopy: (412) 236-4225
with a copy to: NYNEX Asset Management Company
200 Park Avenue
New York, New York 10166
Attention: A. Jay Baldwin
Bruce Franzese, Esq.
Telecopy: (212) 682-7246
and to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: I. Scott Gottdiener, Esq.
Telecopy: (212) 455-2502
If to Leeway: Leeway & Co.
c/o AT&T Investment Management Corp.
One Oak Way, Room 1ED176
Berkeley Heights, New Jersey 07922-2727
Attention: Eliot H. Powell
Telecopy: (908) 771-9613
with a copy to: Lowenstein, Sandler, Kohl, et. al.
A Professional Corporation
65 Livingston Avenue
Roseland, New Jersey 07068-1791
Attention: George J. Mazin, Esq.
Telecopy: (201) 992-5620
15.
<PAGE>
If to TJX: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Attention: President and General Counsel
Telecopy: (508) 390-2457
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopy: (617) 951-7050
or to such other address or telecopy number and with such other copies, as such
party may hereafter specify for the purpose by notice to the other parties.
Each such notice, request or other communication shall be effective (a) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this Section and evidence of receipt is received or (b) if given by any other
means, upon delivery or refusal of delivery at the address specified in this
Section 6.4.
Section 6.5 Inspection. So long as this Agreement shall be in
----------
effect, this Agreement and any amendments hereto shall be made available for
inspection by any Stockholder at the principal offices of the Company.
Section 6.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the state of Delaware (without regard
to the choice of law provisions thereof).
Section 6.7 Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
Section 6.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements and understandings,
written or oral, relating to the subject matter hereof.
Section 6.9 Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdictions, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
16.
<PAGE>
Section 6.10 Counterparts. This Agreement may be signed in
------------
counterparts, each of which shall constitute an original and which together
shall constitute one and the same agreement.
Section 6.11 TJX's Agreement to be Bound. Upon the acquisition of
---------------------------
any shares of Common Stock by TJX, the parties hereto acknowledge that TJX will
be bound by the terms of this Agreement as a Stockholder. Upon TJX's execution
hereof, TJX agrees to be bound by the provisions of Section 3.4 of this
Stockholders Agreement as if it were a Stockholder as of the date hereof.
17.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: /s/ John M. Roth
-----------------------------------------
Name: John M. Roth
Title: General Partner
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ John M. Roth
-----------------------------------
Name: John M. Roth
Title: Vice President
FS EQUITY PARTNERS INTERNATIONAL,
L.P.
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: /s/ John M. Roth
-----------------------------------
Name: John M. Roth
Title: Vice President
(Signatures continued on next page)
18.
<PAGE>
M&P DISTRIBUTING COMPANY
By: /s/ John N. Brewer
-----------------------------------------
Name: John N. Brewer
Title: Asst. Secretary
BRYLANE INC.
By: /s/ Robert A. Pulciani
-----------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
THE LIMITED, INC.
By: /s/ William K. Gerber
-----------------------------------------
Name: William K. Gerber
Title: Vice President of Finance
WEARGUARD CORPORATION
By: /s/ Barbara A. Austell
-----------------------------------------
Name: Barbara A. Austell
Title: Treasurer
THE TJX COMPANIES, INC.
By: /s/ Jay H. Meltzer
-----------------------------------------
Name: Jay H. Meltzer
Title: Senior Vice President
(Signatures continued on next page)
19.
<PAGE>
LEEWAY & CO., as nominee for the Long-Term
Investment Trust
By: State Street Bank and Trust, as Trustee for
the Long-Term Investment Trust
By: /s/ Edward J. Lavin Jr.
-----------------------------------------
Name: Edward J. Lavin Jr.
Title: Vice President
NYNEX MASTER TRUST
By: Mellon Bank, N.A., as Trustee for
NYNEX Master Trust, as directed by NYNEX
Corporation
By: /s/ Allan M. Seaman
-----------------------------------------
Name: Allan M. Seaman
Title: Associate Counsel
20.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF BRYLANE INC./BRYLANE, L.P.
VP Holding Corporation, a Delaware corporation/(1)/
VGP Corporation, a Delaware corporation/(2)/
VLP Corporation, a Delaware corporation/(2)/
Brylane, L.P., a Delaware limited partnership/(3)/
Brylane Capital Corp., a Delaware corporation/(4)/
B.L. Management Services, Inc., a Delaware corporation/(4)/
B.L. Catalog Distribution, Inc., a Delaware corporation/(4)/
B.N.Y. Service Corp., a Delaware corporation/(4)/
K.S. Management Services, Inc./(4)/
B.L. Management Services Partnership, a New York general partnership/(5)/
B.L. Catalog Distribution Partnership, an Indiana general partnership/(6)/
C.O.B. Management Services, Inc., a Delaware corporation/(4)/
Chadwick's Tradename Sub, Inc., a Delaware corporation/(4)/
- --------------------------
/(1)/ 100% of the issued and outstanding shares of common stock of VP Holding
Corporation are owned by Brylane Inc.
/(2)/ 100% of the issued and outstanding shares of common stock of each of these
entities is owned by VP Holding Corporation.
/(3)/ VGP Corporation owns the sole general partnership interest in Brylane,
L.P., with a 16.6% profit and loss interest therein; VLP Corporation owns the
sole limited partnership interest in Brylane, L.P., with a 83.4% profit and loss
interest therein.
/(4)/ 100% of the issued and outstanding shares of common stock of each of these
entities is owned by Brylane, L.P.
/(5)/ B.N.Y. Service Corp. owns a 99% general partnership interest in this
partnership; B.L. Management Services, Inc. owns the remaining 1% general
partnership interest.
/(6)/ Brylane, L.P. owns a 99% general partnership interest in this partnership;
B.L. Catalog Distribution, Inc. owns the remaining 1% general partnership
interest.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912276
<NAME> BRYLANE CAPITAL CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 3,285
<SECURITIES> 0
<RECEIVABLES> 56,832
<ALLOWANCES> 1,975
<INVENTORY> 168,821
<CURRENT-ASSETS> 274,227
<PP&E> 122,093
<DEPRECIATION> 46,123
<TOTAL-ASSETS> 705,234
<CURRENT-LIABILITIES> 192,499
<BONDS> 401,362
1,500
0
<COMMON> 0
<OTHER-SE> 103,863
<TOTAL-LIABILITY-AND-EQUITY> 705,234
<SALES> 705,353
<TOTAL-REVENUES> 705,353
<CGS> 346,572
<TOTAL-COSTS> 348,229
<OTHER-EXPENSES> 296,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,026
<INCOME-PRETAX> 29,723
<INCOME-TAX> 315
<INCOME-CONTINUING> 29,408
<DISCONTINUED> 0
<EXTRAORDINARY> 2,456
<CHANGES> 0
<NET-INCOME> 26,952
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
