<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 33-86154
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRYLANE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5961 13-3794198
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
463 SEVENTH AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10018
(212) 613-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROBERT A. PULCIANI
BRYLANE INC.
463 SEVENTH AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10018
(212) 613-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
ROGER H. LUSTBERG, ESQ. GREGG A. NOEL, ESQ.
THOMAS M. CLEARY, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
RIORDAN & MCKINZIE 300 SOUTH GRAND AVENUE, 34TH FLOOR
300 SOUTH GRAND AVENUE, 29TH FLOOR LOS ANGELES, CALIFORNIA 90071
LOS ANGELES, CALIFORNIA 90071
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($.01 par value).................. $115,000,000.00 $35,938.00
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o).
(2) Of this amount, $20,819.00 was paid with the initial filing of the
Registration Statement on November 9, 1994 (based on the initial amount to
be registered of 4,025,000 shares and the initial proposed maximum
offering price per share of $15.00), $5,318 was paid on October 18, 1996,
and $9,801 is being paid herewith.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 23, 1996
PROSPECTUS
SHARES
BRYLANE INC.
COMMON STOCK
-----------
All the shares of Common Stock of Brylane Inc. offered hereby are being
offered by Brylane Inc. Prior to the Offering, there has been no public market
for the Common Stock. It is currently estimated that the initial public
offering price will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price of the Common Stock.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "BYL" subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
- -------------------------------------------------------------------------------
Total (3)........................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and certain of its subsidiaries have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act
of 1933. See "Underwriting".
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date of this prospectus, to purchase up to an
additional shares of Common Stock, on the same terms as set forth
above, to cover over-allotments. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting".
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York on or about , 1997.
-----------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
J.P. MORGAN & CO.
-----------
The date of this Prospectus is , 1997.
<PAGE>
----------------
[PICTURES AND TEXT TO COME]
This document does not constitute an offer to sell or the solicitation of an
offer to buy securities in any jurisdiction in which such offer or
solicitation is unlawful. There are restrictions on the offer and sale of
securities in the United Kingdom. All applicable provisions of the Financial
Services Act 1986 and the Public Offers of Securities Regulations 1995 with
respect to anything done by any person in, from or otherwise involving the
United Kingdom must be complied with. See "Underwriting".
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
In connection with the Offering, Brylane, L.P., a Delaware limited
partnership (the "Partnership"), will become a wholly-owned subsidiary of
Brylane Inc. pursuant to a plan in which the Partnership will retain all of its
assets, operations and liabilities (the "Incorporation Plan"). See "The
Incorporation Plan". This Prospectus gives effect to the Incorporation Plan
and, unless the context otherwise requires, (i) the term "Brylane" refers to
the Partnership prior to the acquisition of the Chadwick's of Boston catalog
division of The TJX Companies, Inc. ("TJX"), (ii) the term "Chadwick's" refers
to the Chadwick's of Boston catalog division of TJX acquired by Brylane in
December 1996, (iii) the term the "Company" refers to Brylane Inc., its
subsidiaries and their respective operations, and includes the Partnership,
after the acquisition of Chadwick's, (iv) the term "The Limited" refers to The
Limited, Inc. and its subsidiaries and affiliates, and (v) all information set
forth in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this Prospectus.
THE COMPANY
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.1 billion for the latest
twelve months. The Company has established a focused portfolio of profitable
catalogs that target consumers of both special and regular size apparel.
Through its nationally recognized Lane Bryant and Roaman's catalogs, Brylane is
the leading catalog retailer of women's special size apparel (sizes 14 to 56)
and, through its KingSize catalog, is a leading catalog retailer of men's
special size apparel (sizes XL to 9XL). Chadwick's of Boston, which the Company
acquired in December 1996, is the nation's largest off-price women's apparel
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's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
is currently developing several new catalog concepts. For example, Brylane
launched the Sue Brett catalog to serve the regular size mature women's apparel
market, and Chadwick's successfully tested its Bridgewater catalog, which
offers a broad assortment of regular size women's and men's classic apparel.
Brylane is also testing a regular size men's apparel catalog. Additionally,
Brylane has expanded its customer base by marketing certain of its catalogs
under the "Sears" name to customers of Sears, Roebuck and Co. under an
exclusive licensing arrangement with Sears Shop at Home Services, Inc.
("Sears").
As a result of the growth of its established catalogs, the acquisition of the
KingSize catalog, and the introduction of new catalog concepts, Brylane's net
sales have increased from $424.5 million in fiscal 1992 to $601.1 million in
fiscal 1995, representing a compound annual growth rate of 12.3%. Due to the
growth in its core business, the introduction of new merchandise categories
such as special size apparel, gifts and men's apparel, and the successful
execution of its marketing strategies, Chadwick's net sales have increased from
$295.5 million in fiscal 1992 to $465.6 million in fiscal 1995, representing a
compound annual growth rate of 16.4%.
The Company believes that Chadwick's represents a significant strategic
addition to the Company's catalog portfolio. Chadwick's of Boston is one of the
most well-recognized brand names in women's catalog apparel retailing. The
Company believes that Chadwick's customer list is one of the largest and most
valuable in the women's apparel industry. Chadwick's targets middle to upper
middle income women between the ages of 25 and 55, who the Company believes
represent approximately one-third of the adult female population in the United
States, or approximately 33 million women. Chadwick's offers a broad assortment
of casual, career and social wear apparel at attractive prices. Although
Chadwick's will continue to operate in its current facilities with its current
management team, the Company believes that there are several opportunities to
enhance the revenue growth of its entire catalog portfolio by sharing customer
lists and merchandising and marketing expertise, as well as to reduce its
expenses by leveraging the Company's combined purchasing power.
3
<PAGE>
The Company's merchandising strategy is to (i) provide value-priced apparel
with a consistent quality and fit, (ii) concentrate on apparel with limited
fashion risk, and (iii) offer a broad selection of sizes, styles and colors.
The Company believes that the effective implementation of its merchandising
strategy, together with its high level of customer service, have contributed to
the growth of its large and loyal customer base. The Company's combined
customer file has grown to over 21 million names as of September 30, 1996
(which includes 1.8 million names from the Sears customer file and gives effect
to the acquisition of Chadwick's), of which approximately 9.7 million are
active customers who have placed an order in the preceding 12 months. Over 40%
of the Lane Bryant, Roaman's and Lerner active customers placed an order three
or more times during the 12 months ended September 30, 1996.
Catalog sales have been the fastest growing channel of retail apparel sales.
From 1994 to 1995, catalog women's apparel sales increased 6.1% to $8.9
billion, while overall retail women's apparel sales increased by approximately
1% to $80.9 billion. The percentage of the U.S. adult population that made a
purchase through a catalog has increased to 52% in 1995 from 41% in 1993. The
Company believes that catalog sales of apparel will continue to increase
because the busy lifestyles of today's men and women demand the convenience and
the time savings afforded by catalog shopping.
The Company believes that the special size customer is underserved by other
catalog retailers and by specialty and department stores, which carry a more
limited selection of merchandise than that offered in Brylane's catalogs. From
1994 to 1995, men's and women's catalog special size apparel sales increased by
6.7% to $3.8 billion. Brylane believes that the special size customer base will
continue to increase as the general population continues to age and as average
body weight continues to increase. Additionally, Brylane believes that catalog
shopping is particularly well suited to special size customers, who Brylane
believes prefer the convenience of shopping from home. Management estimates
that approximately 30 million or 35% of U.S. women wear special size clothing
(sizes 14 or larger) and that approximately 9 million or 10% of U.S. men wear
special size clothing (sizes 2XL or larger). Typical retail stores and catalogs
which sell special sizes carry a more limited selection of merchandise above
sizes 26 for women and 3XL for men when compared with the selection of
merchandise offered in Brylane's catalogs.
The Company has developed a successful business strategy which includes: (i)
operating a portfolio of market leading catalogs, (ii) offering an extensive
selection of quality, value-priced apparel, (iii) maintaining strong sourcing
capabilities and disciplined inventory control, (iv) maintaining highly
efficient telemarketing, fulfillment and distribution operations and (v)
emphasizing superior customer service. The Company believes that the execution
of its business strategy will enable it to continue to grow.
GROWTH STRATEGY
The Company's growth strategy is to increase its sales and profits by:
. Realizing Strategic Benefits from the Acquisition of Chadwick's
The Company believes that it will realize several significant strategic
benefits from the acquisition of Chadwick's. The Company believes that
revenue growth can be enhanced through sharing customer lists, utilizing
merchandising and marketing expertise developed at each company, including
in the introduction of new merchandise categories (such as special sizes in
the Chadwick's catalog and petite size women's and regular size men's
apparel in Brylane's catalogs) and introducing private label credit cards
to Chadwick's customers. The Company will have opportunities to leverage
its combined purchasing power, particularly in the procurement of paper and
telecommunications services. In addition the Company expects that certain
costs such as MIS processing and development, insurance, packaged supplies
and professional services can be leveraged for the combined entity.
. Expanding Merchandise Offerings
The Company intends to continue to refine and broaden its merchandise
offerings in order to satisfy the apparel needs of its customers. The
Company believes that this strategy freshens the appeal of each
4
<PAGE>
catalog's assortment of merchandise and stimulates increased sales. For
example, the Company recently introduced or expanded offerings of women's
career wear, men's apparel, special sizes, tall and petite sizes, shoes,
intimate apparel, non-apparel gift items and jewelry in certain catalogs.
. Offering Promotional Incentives
The Company has implemented certain promotional programs in many of its
catalogs, including installment and deferred billing payment programs and
shipping and handling incentives. These programs have resulted in a
significant improvement in net sales and average order size, particularly
in the Company's Chadwick's and Lerner catalogs. The Company intends to
expand the use of these programs to its other catalogs during 1997.
. Refining Customer List Segmentation Techniques
An important element of the Company's marketing strategy is the improved
segmentation of its existing customer files. Brylane has recently installed
a modeling and scoring software program that uses more sophisticated multi-
variable regression analyses to create predictive purchasing models. This
program will employ up to 75 different variables including, among others,
geography, size, products purchased, credit availability, payment type and
proximity to certain retail stores. The Company believes that the
development and refinement of Brylane's predictive purchasing models will
allow Brylane to better target its customer mailings and more effectively
utilize its customer file. In addition, Chadwick's is also testing
increasingly sophisticated statistical circulation models to improve its
ability to predict customer purchase behavior based on a wide range of
variables. The Company believes that its ability to better predict customer
purchasing behavior maximizes the effectiveness of catalog mailings to
current and prospective customers.
. Expanding the Customer File
The Company plans to increase the number of names in its customer file
through cost effective prospecting programs. For example, the Company has
recently implemented a program of cable television advertising to solicit
new customers and to promote brand awareness for certain of its catalogs.
In conjunction with Sears, the Company plans to improve the segmentation of
the over 20 million name file of Sears, Roebuck and Co. to increase its
success rate with prospects. The Company will continue to rent, exchange or
purchase available customer lists and to access the lists of credit card
holders of The Limited's Lane Bryant and Lerner retail stores.
. Continuing to Develop Recent Catalog Additions
The Company believes that its Sue Brett and Bridgewater catalogs broaden
the Company's catalog portfolio and provide substantial opportunities for
growth. Management believes that Sue Brett, which was launched in Spring
1995, is well positioned to capitalize on the underserved mature women's
regular size apparel market. Due to Sue Brett's early success, the Company
established a separate merchandising team for this catalog, and intends to
substantially increase its circulation. In May 1996, Chadwick's tested its
Bridgewater catalog, which offers a broad assortment of regular size
women's and men's classic apparel. Based on the success of this test, the
Company plans to significantly increase the circulation of this catalog in
1997. In addition, in order to capitalize on the growth potential of the
Company's KingSize catalog, the Company plans to continue to improve and
broaden the merchandise assortment in this catalog, apply the Company's
promotional incentives to this catalog, and cross-market the KingSize
catalog to customers of Brylane's other catalogs.
. Introducing or Acquiring New Catalogs
The Company intends to continue to evaluate opportunities to introduce or
acquire new catalogs. For example, Brylane has been testing a catalog
format targeted at the regular size men's apparel segment. These tests have
demonstrated that Brylane's female customers have a propensity to purchase
the offerings of men's apparel included in Brylane's catalogs, and will be
expanded over the next twelve months. The
5
<PAGE>
Company believes that its existing customer lists and the Sears customer
file can be effectively utilized to develop the regular size men's catalog
as well as other new catalog concepts. In addition, based on the strong
response to the special size apparel offerings tested in its existing
catalog, Chadwick's intends to create a stand-alone special size apparel
catalog in 1997. The Company may also selectively pursue strategic
acquisitions that either expand or complement the Company's existing
business.
BACKGROUND AND HISTORY
In August 1993, the Partnership acquired the Lane Bryant, Roaman's and Lerner
catalog businesses formerly owned and operated by The Limited (the "Brylane
Acquisition"). The Partnership was formed by affiliates of Freeman Spogli & Co.
Incorporated, a private investment firm ("FS&Co."), and members of management,
which collectively acquired a 60% aggregate interest in the Partnership, and
affiliates of The Limited, which received the remaining 40% interest. In
October 1995, the Partnership acquired the KingSize catalog division (the
"KingSize Acquisition") of WearGuard Corporation ("WearGuard"), which included
the assignment to Brylane of WearGuard's license to distribute the Sears Big &
Tall catalog. In December 1996, the Partnership acquired the Chadwick's of
Boston catalog division of TJX (the "Chadwick's Acquisition"). See "The
Company--History and Background" and "Certain Relationships and Related
Transactions".
From 1987 through 1993, Chadwick's net sales grew at a compound annual growth
rate of 46.7%. By the fall of 1994, Chadwick's order fulfillment and customer
service operations were unable to keep pace with its rapid sales growth,
resulting in a decline in sales growth, an increase in operating expenses and a
substantial decline in profitability. In response, Chadwick's reorganized its
management team in the first quarter of 1995. This new management team
implemented a series of initiatives to increase operational efficiencies and
improve customer service to the levels necessary to support Chadwick's strong
and established merchandising organization. These initiatives included
improvements in Chadwick's fulfillment and telemarketing operations and in its
inventory management, and better coordination among all facets of its business.
As a result of these initiatives, Chadwick's income from operations
substantially improved in fiscal 1995, and, for the thirty-nine weeks ended
October 26, 1996, Chadwick's achieved record income from operations.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ shares
Common Stock to be outstanding after the Offering
(1)............................................... shares
Use of proceeds.................................... The Company intends to use the
estimated $92.0 million net proceeds
from the Offering to prepay
borrowings and accrued interest
outstanding under the Term Loans of
the Bank Credit Facility (as defined
herein). In addition, upon
consummation of the Offering, the
Company intends to use a substantial
amount of its excess cash to further
prepay indebtedness outstanding under
the Term Loans. See "Use of Proceeds"
and "Unaudited Pro Forma As Adjusted
Financial Statements".
New York Stock Exchange Symbol..................... BYL
</TABLE>
- --------
(1) Does not include an aggregate of 1,111,821 shares of common stock of the
Company ("Common Stock") issuable upon exercise of stock options, 75,000
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock (as defined), or 727,273 shares of Common Stock issuable upon
conversion of the Convertible Note (as defined). See "The Incorporation
Plan", "Certain Relationships and Related Transactions--The Chadwick's
Acquisition", and "Management--Option Plans". All references in this
Prospectus to total share amounts outstanding after the Offering reflect
the 15,471,445 shares of Common Stock issued by the Company to acquire the
outstanding partnership units in the Partnership pursuant to the
Incorporation Plan and the issuance by the Company of shares of
Common Stock in the Offering.
----------------
Unless the context otherwise requires, (i) all references to a year or a
fiscal year of Brylane refer to the fiscal year that ends on the Saturday
closest to January 31 of the following calendar year (for example, "fiscal
1995" or "1995" means the year ended February 3, 1996), and (ii) all references
to a year or a fiscal year of Chadwick's refer to the fiscal year that ends on
the last Saturday in January of the following calendar year (for example,
"fiscal 1995" or "1995" means the year ended January 27, 1996).
----------------
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 trademarks which are
owned by, Sears, Roebuck and Co.
7
<PAGE>
SUMMARY FINANCIAL DATA
BRYLANE
The following table presents summary historical financial data of Brylane for
the periods indicated. The information below should be read in conjunction with
"Unaudited Pro Forma As Adjusted Financial Statements", "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
the combined and consolidated financial statements of Brylane and related notes
thereto included elsewhere in this Prospectus. The statements of operations
data for the combination of historical fifty-two weeks ended January 29, 1994
have been derived by summing, without adjustment, the audited financial
statements of the Predecessor (as defined) for the twenty-six weeks ended July
31, 1993 and of the Partnership for the twenty-six weeks ended January 29,
1994. The balance sheet data at November 2, 1996 and the statements of
operations data for the thirty-nine weeks ended October 28, 1995 and November
2, 1996 have been derived from the unaudited consolidated financial statements
of the Partnership.
<TABLE>
<CAPTION>
COMBINATION
OF
PREDECESSOR HISTORICAL PARTNERSHIP
------------------ ----------- --------------------------------------
THIRTY-NINE WEEKS
FISCAL YEAR ENDED FIFTY-TWO FISCAL YEAR ENDED ENDED
------------------ WEEKS ENDED ------------------ ------------------
FEB. 1, JAN. 30, JAN. 29, JAN. 28, FEB. 3, OCT. 28, NOV. 2,
1992 1993 1994 1995 1996(1) 1995 1996
-------- -------- ----------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.............. $377,549 $424,523 $489,866 $578,530 $601,055 $435,205 $467,009
Cost of goods sold..... 193,509 212,103 246,754 288,217 298,414 216,892 225,708
Non-recurring inventory
charge(2).............. -- -- 11,487 2,614 569 142 --
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 184,040 212,420 231,625 287,699 302,072 218,171 241,301
Operating income....... 16,578 42,903 35,326 52,819 48,562 33,599 39,630
Interest expense, net.. -- -- 10,060 19,576 20,624 14,882 16,200
Income before income
taxes.................. 16,578 42,903 25,266 33,243 27,938 18,717 23,430
Net income............. 10,078 26,203 14,591 33,154 27,850 18,595 23,305
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA(3):
Income before income
taxes.................. $ 33,243 $ 27,938 $ 18,717 $ 23,430
Provision for income
taxes.................. 12,300 10,337 6,925 8,669
-------- -------- -------- --------
Net income............. $ 20,943 $ 17,601 $ 11,792 $ 14,761
======== ======== ======== ========
OPERATING AND OTHER DA-
TA:
Gross profit (before
non-recurring inven-
tory charge) as a per-
centage of net sales.. 48.7% 50.0% 49.6% 50.2% 50.4% 50.2% 51.7%
Catalog and advertising
expense as a percent-
age of net sales...... 30.1% 26.7% 26.1% 26.6% 29.0% 29.4% 29.0%
EBITDA(4).............. $ 19,998 $ 46,149 $ 51,991 $ 62,785 $ 57,488 $ 39,490 $ 46,905
Number of catalogs
mailed................ 158,860 181,799 229,298 298,734 311,671 237,278 259,585
Names in customer
files(5).............. 6,214 6,561 7,340 8,905 10,158 9,625 11,105
Active customers(6).... 3,470 3,708 4,189 5,159 5,308 5,011 5,417
</TABLE>
<TABLE>
<CAPTION>
AT NOV. 2, 1996
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................. $ 10,659
Working capital........ 31,884
Total assets........... 348,342
Long-term debt (includ-
ing current portion).. 216,692
Partnership equity..... 44,207
</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 and by $569,000 for the KingSize
Acquisition to reflect the fair market value of the inventory at August 1,
1993, the effective date of the Brylane Acquisition, and at October 1,
1995, the effective date of the KingSize Acquisition, respectively, as more
fully described in "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 for the KingSize
Acquisition.
(3) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(4) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense and non-
recurring inventory charges. The use of such information is intended only
to supplement the conventional income statement presentation, and is not to
be 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.
(5) This information includes the names contained in all of Brylane's customer
files as of the last day of the preceding calendar quarter and also
includes names contained in the Sears customer file as of the same date.
The names in the customer files consist of customers who have placed an
order within the 48 months ending on the last day of the preceding calendar
quarter. Names contained in the Sears customer file have increased from
92,000 at December 31, 1993 to 1.8 million at September 30, 1996.
(6) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter. Active customers
contained in the Sears customer file have increased from 92,000 at December
31, 1993 to 928,000 at September 30, 1996.
8
<PAGE>
SUMMARY FINANCIAL DATA
CHADWICK'S
The following table presents summary historical financial data of Chadwick's
for the periods indicated. Due to different classifications within line items,
the Chadwick's line items are not directly comparable to those of Brylane. The
information below should be read in conjunction with "Unaudited Pro Forma As
Adjusted Financial Statements", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the combined financial
statements of Chadwick's and related notes thereto included elsewhere in this
Prospectus. The balance sheet data at October 26, 1996 and the income statement
data for the thirty-nine weeks ended October 28, 1995 and October 26, 1996 have
been derived from the unaudited combined financial statements of Chadwick's.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
------------------------------------------------ ------------------
JAN. 25, JAN. 30, JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1992 1993(1) 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $173,374 $295,532 $424,276 $432,660 $465,598 $355,671 $370,319
Cost of sales,
including buying and
order fulfillment..... 106,111 183,186 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 67,263 112,346 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative
expenses, including
catalog and order
processing costs...... 55,656 90,366 131,439 155,329 160,282 126,615 129,731
Income from operations. 11,607 21,980 23,604 5,457 26,448 17,570 34,409
Income before
extraordinary items
and cumulative effect
of accounting changes. 7,108 13,184 12,285 1,262 11,674 7,391 17,562
Net income(2).......... 7,108 13,184 12,665 1,070 8,336 7,391 17,562
OPERATING AND OTHER
DATA:
Gross profit as a
percentage of net
sales................. 38.8% 38.0% 36.5% 37.2% 40.1% 40.5% 44.3%
EBITDA(3).............. $ 13,580 $ 25,116 $ 28,109 $ 11,156 $ 33,160 $ 22,625 $ 39,428
Number of catalogs
mailed................ 78,555 123,064 213,168 234,973 196,073 169,749 149,607
Names in customer
file(4)............... 3,601 5,151 7,501 9,421 10,248 10,020 10,693
Active customers(5).... 1,970 3,113 4,500 4,956 4,399 4,579 4,242
</TABLE>
<TABLE>
<CAPTION>
AT OCT. 26, 1996
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 464
Working capital............................................... 116,618
Total assets.................................................. 272,914
Long-term debt (including current portion)(6)................. 88,587
Net assets.................................................... 74,237
</TABLE>
- --------
(1) The fiscal year ended January 30, 1993 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in the
fiscal year ended January 28, 1995 and $3,338,000 in the fiscal year ended
January 27, 1996.
(3) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense. The
use of such information is intended only to supplement the conventional
income statement presentation, and is not to be considered as an
alternative to net income or any other indicator of Chadwick's operating
performance which is presented in accordance with generally accepted
accounting principles above.
(4) This information includes the names contained in Chadwick's customer file
as of the last day of the preceding calendar quarter. The names in the
customer file consist of customers who have placed an order within the 48
months ending on the last day of the preceding calendar quarter.
(5) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter.
(6) Includes loans and advances from TJX.
9
<PAGE>
SUMMARY FINANCIAL DATA
PRO FORMA AS ADJUSTED
The summary unaudited pro forma as adjusted financial data for the Company
set forth below has been derived from the unaudited pro forma as adjusted
financial information included elsewhere in this Prospectus and gives effect to
(i) the Chadwick's Acquisition and the financing thereof, including the
issuance of the Convertible Note and borrowings under the Bank Credit Facility,
(ii) the KingSize Acquisition, (iii) the Offering and the application of net
proceeds therefrom, and (iv) the application of existing cash, as if those
transactions had occurred on January 29, 1995 with respect to the statements of
operations data and certain operating data, and as of November 2, 1996 with
respect to the balance sheet and certain other operating data. The summary
unaudited pro forma as adjusted financial data does not necessarily represent
what the Company's financial position and results of operations would have been
if these transactions had actually been completed as of the dates indicated,
and is not intended to project the Company's financial position or results of
operations for any future period. The following summary unaudited pro forma as
adjusted financial data should be read in conjunction with the respective
audited financial statements of each of Brylane and Chadwick's.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDING
FEB. 3, NOV. 2,
1996(1) 1996
----------------- ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Net sales....................................... $1,087,349 $835,252
Gross profit.................................... 520,970 410,714
Operating income................................ 71,194 65,644
Interest expense, net........................... 31,613 22,658
Income before income taxes...................... 39,581 42,986
Net income...................................... 23,947 26,007
Net income per share............................ $ $
Weighted average shares outstanding.............
OPERATING AND OTHER DATA:
Gross profit (before non-recurring inventory
charge) as a
percentage of net sales........................ 47.9% 49.2%
Catalog and advertising expense as a percentage
of net sales................................... 25.2% 25.4%
EBITDA(2)....................................... $ 92,312 $ 81,773
Number of catalogs mailed....................... 507,744 409,192
Names in customer files(3)...................... 20,406 21,798
Active customers(4)............................. 9,707 9,659
</TABLE>
<TABLE>
<CAPTION>
AT NOV. 2, 1996
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 13,641
Working capital....................................................... 53,588
Total assets.......................................................... 733,223
Long-term debt (including current portion)............................ 325,337
Stockholders' equity.................................................. 205,893
</TABLE>
- --------
(1) Includes a 53-week period for Brylane and a 52-week period for Chadwick's.
(2) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense and non-
recurring inventory charges. The use of such information is intended only
to supplement the conventional income statement presentation, and is not to
be 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.
(3) This information includes the names contained in all of the Company's
customer files as of the last day of the preceding calendar quarter and
also includes names contained in the Sears customer file as of the same
date. The names in the customer files consist of customers who have placed
an order within the 48 months ending on the last day of the preceding
calendar quarter. Names contained in the Sears customer file have increased
from 92,000 at December 31, 1993 to 1.8 million at September 30, 1996.
(4) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter. Active customers
contained in the Sears customer file have increased from 92,000 at December
31, 1993 to 928,000 at September 30, 1996.
10
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby.
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 "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 800 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.
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 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. There can be no assurance that such competition
would not have a material adverse effect on Brylane. See "Certain
Relationships and Related Transactions".
The Stockholders Agreement to be entered into at the closing of this
Offering by and among the Company, affiliates of FS&Co., an affiliate of The
Limited, 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"), Chadwick's, Inc., a wholly-owned subsidiary of
TJX (the "TJX Noteholder"), and WearGuard (the "Stockholders Agreement")
11
<PAGE>
provides, with certain exceptions, that the Company may not, without The
Limited's consent, for so long as The Limited holds, directly or indirectly,
at least 20% of the outstanding Common Stock of the Company, engage in any
business that competes with the businesses conducted by The Limited 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 catalogs 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 "Certain Relationships and Related
Transactions" and "Description of Capital Stock--Stockholders 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, or (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. In addition, the Trademark Agreement and each of the licenses granted
thereunder will terminate (i) ten years after 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, (ii) 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 occurrence of certain mergers, consolidations or business
combinations. See "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 November 2,
1996, after giving effect to the Incorporation Plan, the Offering and the use
of the net proceeds received therefrom, and the use of existing cash, the
Company would have had total outstanding long-term indebtedness (including
current portion) of $325.3 million, as compared with total stockholders'
equity of $205.9 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 Bank Credit
Facility and the indenture (the "Indenture") that governs the Company's Senior
Subordinated Notes (the "Senior Subordinated Notes") contain 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. 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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Financing Arrangements".
12
<PAGE>
SEARS AGREEMENT
In March 1994, Brylane entered into an agreement with Sears 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. (as amended, the "Sears Agreement"). 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 "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
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 and Chadwick's historically have 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 and Chadwick's each 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 and Chadwick's were 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments and Outlook".
CONTROL OF THE COMPANY
Upon completion of the Offering, % of the Company will be beneficially
owned by affiliates of FS&Co., and % of the Company will be beneficially
owned by an affiliate of The Limited. 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 the Company, 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.
13
<PAGE>
The Stockholders Agreement contains a number of provisions that could
prevent changes in the control or management of the Company. For example, in
the Stockholders Agreement, FS&Co. and The Limited will agree 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, the TJX Noteholder 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, and, to the extent permitted
by law, will direct their nominees on the Board of Directors of the Company to
vote 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 will also prohibit FS&Co., The Limited,
WearGuard and the TJX Noteholder, and their respective affiliates, and Leeway
& Co. and NYNEX, from acquiring beneficial ownership of any additional shares
of Common Stock. Nothing in the Stockholders Agreement requires, in the event
that either the affiliates of FS&Co. or of The Limited offers to sell their
shares of Common Stock to the other, that either of them make the same offer
available to other stockholders of the Company. See "Description of Capital
Stock--Stockholders Agreement". See also "Security Ownership".
In addition, certain provisions of the Company's Certificate of
Incorporation and ByLaws and of the Delaware General Corporation Law, together
or separately, could have the effect of discouraging potential acquisition
proposals or delaying or preventing changes in the control or management of
the Company, and may limit the price that certain investors might be willing
to pay in the future for shares of the Common Stock. These provisions include
the ability to issue, without further stockholder approval, preferred stock
with rights and privileges which would be senior to the Common Stock. See
"Description of Capital 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 Chadwick's
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 1995, Brylane and Chadwick's made approximately 21% and 34% of
their respective 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
"Business--Private Label Purchasing and Vendor Relationships" and "Business--
Regulatory Matters."
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. See "Description of Certain Financing Arrangements".
14
<PAGE>
The future success of the Company will depend in part upon the continued
success and profitability of Chadwick's. The success of Chadwick's will depend
in part upon the Company's ability to retain management personnel of
Chadwick's. A failure to operate Chadwick's profitably would have a material
adverse effect on the Company's results of operations and financial condition.
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 December 9, 1996, the Company had approximately 5,500 associates,
including approximately 1,000 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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock, assuming the issuance of shares of Common Stock
offered by the Company. All of the shares of Common Stock to be sold in
the Offering will be eligible for immediate sale in the public market without
restriction, unless purchased by affiliates of the Company. The remaining
15,471,445 shares of Common Stock outstanding will be "restricted securities"
as that term is defined in Rule 144 under the Securities Act. Substantially
all of such restricted shares are entitled to piggyback registration rights,
as well as certain demand registration rights exercisable six months after the
completion of the Offering. However, 12,571,667 of such shares may be eligible
for public resale 90 days after the completion of the Offering pursuant to
Rule 144 (subject to the volume limitations contained therein) or Rule 701.
Further, options to purchase an aggregate of 41,250 additional shares of
Common Stock previously granted to employees of the Company are currently
exercisable. The remaining options to purchase an aggregate of 1,070,571
shares of Common Stock previously granted to employees of the Company will
begin to vest and become exercisable as early as March 1997. The Company
intends, prior to the later of (i) 120 days following the consummation of this
Offering, and (ii) the termination of any lockup period to which employee
stockholders may be subject, to cause the shares held by such employees or
subject to options granted under the Brylane 1996 Option Plan (as defined) to
be registered under the Securities Act. See "Shares Eligible for Future Sale"
and "Management--Option Plans".
The Securities and Exchange Commission (the "Commission") has recently
proposed amendments to Rules 144 and 144(k) that would permit resales of
"restricted securities" after a one-year, rather than a two-year holding
period, subject to compliance with the other provisions of Rule 144, and would
permit resales of such restricted securities held by non-affiliates under Rule
144(k) after a two-year, rather than a three-year holding period. Adoption of
such amendments could result in resales of restricted securities sooner than
would be the case under Rules 144 and 144(k) as currently in effect. However,
there can be no assurance of when, if ever, such amendments will be approved.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices of the
Common Stock. The Company has agreed not to sell any shares of its capital
stock (or any rights, options or warrants to purchase, or any securities
convertible or exchangeable
15
<PAGE>
into or exercisable for, capital stock), with certain limited exceptions, for
a period of 180 days following the date of this Prospectus, without the prior
written consent of Merrill Lynch & Co. on behalf of the Representatives (as
defined herein). In addition, FS&Co., The Limited, Leeway & Co., NYNEX, the
TJX Noteholder and WearGuard, as well as the executive officers, directors and
certain employees of the Company, have each agreed not to sell, directly or
indirectly, any of their shares, with certain limited exceptions, for a period
of 180 days following the date of this Prospectus.
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock offered
hereby will be determined by negotiations among the Company and the
Underwriters and may not be indicative of the market price for the Common
Stock after the Offering. No predictions can be made as to the effect, if any,
that future market sales of Common Stock or the availability of Common Stock
for sale will have on the prevailing market price of the Common Stock
following the Offering. See "Underwriting" and "Shares Eligible for Future
Sale".
The market price for shares of the Common Stock may be volatile and may
fluctuate based upon a number of factors including, without limitation, the
Company's operating performance, news announcements or changes in general
economic and market conditions. In addition, the stock market in recent years
has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations may adversely affect the market price of the Common Stock.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act. Discussions containing such forward-looking
statements may be found in the material set forth under "Prospectus Summary",
"The Company", "Capitalization", "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments and
Outlook" and "--Liquidity and Capital Resources", and "Business", as well as
within the Prospectus 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 above and the matters set forth in the Prospectus generally.
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.
DILUTION
Purchasers of the Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock
of $ from the initial public offering price. See "Dilution".
16
<PAGE>
THE COMPANY
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.1 billion for the latest
twelve months. The Company has established a focused portfolio of profitable
catalogs that target consumers of both special and regular size apparel.
Through its nationally recognized Lane Bryant and Roaman's catalogs, Brylane
is the leading catalog retailer of women's special size apparel (sizes 14 to
56) and, through its KingSize catalog, is a leading catalog retailer of men's
special size apparel (sizes XL to 9XL). Chadwick's of Boston, which the
Company acquired in December 1996, is the nation's largest off-price women's
apparel 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's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
is currently developing several new catalog concepts. For example, Brylane
launched the Sue Brett catalog to serve the regular size mature women's
apparel market, and Chadwick's successfully tested its Bridgewater catalog,
which offers a broad assortment of regular size women's and men's classic
apparel. Brylane is also testing a regular size men's apparel catalog.
Additionally, Brylane has expanded its customer base by marketing certain of
its catalogs under the "Sears" name to customers of Sears, Roebuck and Co.
under an exclusive licensing arrangement with Sears.
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 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
FS&Co. and The Limited formed the Partnership to acquire these catalog
businesses. FS&Co., together with certain members of management, acquired a
60% aggregate interest in the Partnership, while The Limited retained the
remaining 40%. See "Certain Relationships and Related Transactions--The
Brylane Acquisition".
In October 1995, the Partnership acquired the KingSize catalog division of
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 cash payment of $52.5 million and 350,000 newly issued limited
partnership units in the Partnership. See "Certain Relationships and Related
Transactions--The KingSize Acquisition".
On December 9, 1996, Brylane acquired the Chadwick's of Boston catalog
division of TJX (excluding substantially all accounts receivable). 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 the $20.0 million Convertible Note. 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 old bank credit facility, the Partnership entered into
the new Bank Credit Facility. In addition, in connection with the Chadwick's
Acquisition, the Partnership received an aggregate of approximately $51.3
million in new equity from Leeway & Co., NYNEX and certain affiliates of
FS&Co. See "Certain Relationships and Related Transactions--The Chadwick's
Acquisition" and "Description of Certain Financing Arrangements".
In connection with the Offering, the Partnership will become a wholly-owned
subsidiary of the Company pursuant to a plan in which FS&Co., The Limited,
Leeway & Co., NYNEX, WearGuard, members of management and others will exchange
certain securities for Common Stock of the Company. The Partnership will
retain all of its assets, operations and liabilities. Upon consummation of the
Offering and the Incorporation
17
<PAGE>
Plan, FS&Co., The Limited, Leeway & Co., NYNEX, WearGuard and management of
the Company will own %, %, %, %, % and % of the Company,
respectively. See "The Incorporation Plan" and "Security Ownership".
The executive offices of the Company are located at 463 Seventh Avenue, 21st
Floor, New York, New York 10018, Telephone: (212) 613-9500.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $92.0 million after deducting estimated underwriting discount
and offering expenses payable by the Company. The Company intends to use such
net proceeds to prepay $92.0 million of borrowings and accrued interest
outstanding under the Term Loans of the Bank Credit Facility (borrowings which
mature in February 2002 and February 2003, bore interest at 7.8% at December
12, 1996, and were incurred to fund a portion of the cash paid in connection
with the Chadwick's Acquisition). In addition, upon consummation of the
Offering, the Company intends to use a substantial amount of its excess cash
to further prepay indebtedness outstanding under the Term Loans. To the extent
that the Underwriters exercise their over-allotment option, the Company
intends to use the net proceeds received therefrom to further prepay
indebtedness outstanding under the Term Loans. See "Capitalization",
"Unaudited Pro Forma As Adjusted Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources".
DIVIDEND POLICY
Although the Partnership has made tax distributions to its partners, the
Company has never declared or paid a cash dividend on the Common Stock. The
Company anticipates that all of its earnings in the foreseeable future will be
used for the repayment of indebtedness and for the development and expansion
of its business and, therefore, does not anticipate paying dividends on the
Common Stock in the foreseeable future. The terms and provisions of the Bank
Credit Facility and the Indenture restrict the ability of the Partnership to
make distributions that would enable the Company to pay dividends on the
Common Stock. See "Description of Certain Financing Arrangements". At November
2, 1996, the Partnership could not have made any such distribution to the
Company by virtue of the restrictions contained in the Bank Credit Facility.
Any determination to pay cash dividends in the future will be at the
discretion of the Board of Directors of the Company and will be dependent,
among other things, upon the Company's results of operations and financial
condition, contractual restrictions, and other factors deemed relevant at that
time.
18
<PAGE>
DILUTION
"Dilution per share" means the difference between the initial public
offering price per share of Common Stock and the pro forma net tangible book
value per share of Common Stock after giving effect to the Offering. "Net
tangible book value (deficiency) per share" is determined by dividing total
assets less total liabilities, debt issuance costs, goodwill and other
intangible assets by the number of shares of Common Stock outstanding. The
following table illustrates such pro forma per share dilution after giving
effect to the Offering and the Incorporation Plan at November 2, 1996.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)............ $
Net tangible book value (deficiency) per share before the
Offering(2)(3)............................................. $
Increase per share attributable to new investors............
-----
Pro forma net tangible book value (deficiency) per share after
the Offering(3)(4)...........................................
------
Dilution per share to new investors........................... $
======
</TABLE>
- --------
(1) Before deducting estimated underwriting discount and offering expenses
payable by the Company.
(2) Calculated based on 15,471,445 shares of Common Stock outstanding after
consummation of the Incorporation Plan. See "Prospectus Summary--The
Offering".
(3) Does not include an aggregate of 1,111,821 shares of Common Stock issuable
upon exercise of stock options at exercise prices ranging from $5.67 to
$20.00 per share, 75,000 shares of Common Stock issuable upon conversion
of the Series A Preferred Stock, or 727,273 shares of Common Stock
issuable upon conversion of the Convertible Note. See "The Incorporation
Plan", "Certain Relationships and Related Transactions--The Chadwick's
Acquisition" and "Management--Option Plans".
(4) Calculated based on shares of Common Stock outstanding after
consummation of the Offering and the Incorporation Plan. See "Prospectus
Summary--The Offering".
The following table sets forth, as of November 2, 1996, (i) the total number
of shares held by the current stockholders, after giving effect to the
Incorporation Plan, and the total consideration paid for such shares, which
calculations are based on the number of shares issued in exchange for
Partnership interests, and (ii) the total number of shares to be purchased
from the Company in the Offering and the total consideration paid for such
shares by new investors.
<TABLE>
<CAPTION>
AVERAGE
SHARES OF PRICE PER
COMMON STOCK TOTAL CONSIDERATION SHARE OF
------------------ ---------------------- COMMON
NUMBER PERCENT AMOUNT PERCENT STOCK
---------- ------- ----------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current stockholders......... 15,471,445 % $ 182,241 % $ 11.78
New investors................
---------- ----- ----------- -------
Total...................... 100.0% $ 100.0%
========== ===== =========== =======
</TABLE>
19
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the
Partnership and its consolidated subsidiaries (i) at November 2, 1996, (ii)
pro forma to reflect the Chadwick's Acquisition, and (iii) pro forma as
adjusted to reflect (x) the Incorporation Plan and the Offering and the
application of the estimated net proceeds of $92.0 million to be received from
the Offering to prepay $92.0 million of borrowings and accrued interest
outstanding under the Term Loans of the Bank Credit Facility, and (y) the use
of $10.0 million of cash available at November 2, 1996 to further prepay
additional indebtedness outstanding under the Term Loans. See "Use of
Proceeds". The table should be read in conjunction with "Unaudited Pro Forma
As Adjusted Financial Statements" of the Company and the financial statements
of the Partnership and Chadwick's and related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AT NOV. 2, 1996
-----------------------------------
THE PARTNERSHIP
-----------------------
PRO FORMA
FOR THE THE COMPANY
CHADWICK'S PRO FORMA
HISTORICAL ACQUISITION AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 10,659 $ 23,641 $ 13,641
========= ========= =========
Current portion of long-term debt............. $ 14,395 $ 25,750 $ 10,521
Long-term debt, net of current portion:
Old bank credit facility.................... 77,960 -- --
Bank Credit Facility........................ -- 257,250 170,479
Senior Subordinated Notes due 2003.......... 124,337 124,337 124,337
Convertible Subordinated Note due 2006...... -- 20,000 20,000
--------- --------- ---------
Total long-term debt...................... 202,297 401,587 314,816
--------- --------- ---------
Total debt.............................. 216,692 427,337 325,337
Series A Convertible Redeemable Preferred
Stock........................................ -- 1,500 1,500
--------- --------- ---------
Partnership/Stockholders' equity:
Partners' capital/Stockholders' equity, net. 128,392 180,590 293,090
Reduction for predecessor cost carryover
basis(1)................................... (152,067) (152,067) (152,067)
Retained earnings........................... 67,882 66,396 64,870
--------- --------- ---------
Total partnership/stockholders'
equity(1)(2)............................. 44,207 94,919 205,893
--------- --------- ---------
Total capitalization...................... $ 260,199 $ 523,756 $ 532,730
========= ========= =========
</TABLE>
- --------
(1) The continuing interest of The Limited in Brylane has been reflected at
The Limited's historical basis (carryover basis), less an adjustment for
the cash distribution to The Limited in connection with the Brylane
Acquisition, resulting in a reduction in equity.
(2) Does not include an aggregate of 1,111,821 shares of Common Stock issuable
upon exercise of stock options at exercise prices ranging from $5.67 to
$20.00 per share, 75,000 shares of Common Stock issuable upon conversion
of the Series A Preferred Stock, or 727,273 shares of Common Stock
issuable upon conversion of the Convertible Note. See "The Incorporation
Plan", "Certain Relationships and Related Transactions--The Chadwick's
Acquisition" and "Management--Option Plans".
20
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL STATEMENTS
The following unaudited pro forma as adjusted financial statements have been
prepared by combining the historical consolidated financial statements of the
Partnership for the fiscal year ended February 3, 1996 and for the thirty-nine
weeks ended November 2, 1996 with the combined financial statements of
Chadwick's for the year ended January 27, 1996 and for the thirty-nine weeks
ended October 26, 1996, respectively and give effect to the transactions
described in the notes to these financial statements as if such transactions
occurred on January 29, 1995 (the first day of the latest full fiscal period
presented) for the statements of operations and on November 2, 1996 for the
balance sheet.
The Company believes that the pro forma adjustments give appropriate effect
to the assumptions described in the notes to the unaudited pro forma as
adjusted financial statements and that they are properly applied in the pro
forma as adjusted financial statements, and provide a reasonable basis for
presenting all of the significant effects of (i) the Chadwick's Acquisition,
the KingSize Acquisition and the financing thereof by the Partnership, (ii)
the Incorporation Plan, (iii) the Offering and the application of the
estimated net proceeds received therefrom, and (iv) the application of
existing cash. The pro forma statements of operations exclude certain non-
recurring items, including the inventory charge of $9,564,000 related to the
increase to fair value of the Chadwick's inventory as described in the notes
to the unaudited pro forma as adjusted financial statements. Also excluded
from the pro forma as adjusted statements of operations are non-recurring
charges related to the modification of options previously granted pursuant to
Brylane's 1993 Performance Partnership Unit Option Plan and which are
estimated to be $2.4 million for the year ending February 1, 1997.
The unaudited pro forma as adjusted financial statements have been prepared
based on the assumptions described in the notes thereto and include
assumptions relating to the allocation of the consideration paid for the
assets and liabilities of Chadwick's based on preliminary estimates of fair
value. The actual allocation of such consideration may differ from that
reflected in the unaudited pro forma as adjusted financial statements after
valuations and other procedures to be performed have been completed. The
estimated values of the assets and liabilities at the time of the Chadwick's
Acquisition also could vary from the amounts as of October 26, 1996. In
addition, the proceeds from the Offering, the interest rate on, and the
borrowings under the Bank Credit Facility and the fees and expenses with
respect to the Chadwick's Acquisition and the Offering are assumed solely for
the purpose of presenting the unaudited pro forma as adjusted financial
statements set forth below.
The unaudited pro forma as adjusted financial statements and summary table
provided on the next page should be read in conjunction with the respective
financial statements of the Partnership and Chadwick's and notes thereto
included elsewhere in this Prospectus. Certain reclassifications among line
items have been made to the Chadwick's historical statement of operations and
balance sheet to conform with Brylane's financial statement presentation. The
unaudited pro forma as adjusted statements of operations and unaudited pro
forma as adjusted balance sheet are not necessarily indicative of what the
consolidated statements of operations and the consolidated balance sheet
actually would have been had the transactions occurred at January 29, 1995 or
November 2, 1996, respectively, nor do they purport to indicate the results of
future operations of the Company.
21
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE COMPANY
---------------------------
FISCAL YEAR THIRTY-NINE
ENDED WEEKS ENDED
NOV. 2,
FEB. 3, 1996(1) 1996
--------------- -----------
(IN THOUSANDS, EXCEPT
STATEMENTS OF OPERATIONS DATA: PER SHARE DATA)
<S> <C> <C>
Net sales........................................... $1,087,349 $835,252
Cost of goods sold.................................. 566,379 424,538
---------- --------
Gross profit........................................ 520,970 410,714
Operating expenses:
Catalog and advertising expense................... 274,303 212,460
Fulfillment expense............................... 95,739 65,974
Support services expense.......................... 68,978 58,571
Intangibles and organization cost amortization.... 10,756 8,065
---------- --------
Total operating expenses........................ 449,776 345,070
---------- --------
Operating income.................................... 71,194 65,644
Interest expense, net............................... 31,613 22,658
---------- --------
Income before income taxes.......................... 39,581 42,986
Provision for income taxes.......................... 15,634 16,979
---------- --------
Net income.......................................... $ 23,947 $ 26,007
========== ========
Net income per share................................ $ $
Weighted average shares outstanding.................
</TABLE>
<TABLE>
<CAPTION>
AT NOV. 2, 1996
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 13,641
Working capital................................................. 53,588
Total assets.................................................... 733,223
Long-term debt (including current portion)...................... 325,337
Stockholders' equity............................................ 205,893
</TABLE>
- --------
(1)Includes a 53-week period for Brylane and a 52-week period for Chadwick's.
22
<PAGE>
BRYLANE INC.
UNAUDITED PRO FORMA AS ADJUSTED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------------------------
BRYLANE, L.P. PRO FORMA
HISTORICAL AS ADJUSTED
FIFTY-TWO KINGSIZE CHADWICK'S FISCAL YEAR
WEEKS ENDED ACQUISITION CHADWICK'S ACQUISITION OFFERING ENDED
FEB. 3, 1996 ADJUSTMENTS(1) HISTORICAL(6) ADJUSTMENTS ADJUSTMENTS FEB. 3, 1996
------------- -------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $601,055 $23,627 $462,667 $ $ $1,087,349
Cost of goods sold...... 298,414 11,204 257,184 (423)(7) 566,379
Non-recurring inventory
charge................. 569 (569)(2) -- --
-------- ------- -------- -------- ------- ----------
Gross profit............ 302,072 12,992 205,483 423 520,970
Operating expenses:
Catalog and
advertising expense.. 174,446 5,250 94,607 274,303
Fulfillment expense... 37,333 1,934 56,472 95,739
Support services
expense.............. 37,024 1,217 (3) 28,069 2,668 (8) 68,978
Intangibles and
organization cost
amortization......... 4,707 935 (4) -- 5,114 (9) 10,756
-------- ------- -------- -------- ------- ----------
Total operating
expenses............... 253,510 9,336 179,148 7,782 449,776
-------- ------- -------- -------- ------- ----------
Operating income........ 48,562 3,656 26,335 (7,359) 71,194
Interest expense, net... 20,624 1,823 (5) 6,807 16,757 (10) (7,526)(15) 31,613
(893)(11)
(6,807)(12)
1,332 (13) (504)(16)
-------- ------- -------- -------- ------- ----------
Income before income
taxes.................. 27,938 1,833 19,528 (17,748) 8,030 39,581
Provision for income
taxes.................. 88 -- 7,854 (7,854)(14) 15,546 (17) 15,634
-------- ------- -------- -------- ------- ----------
Net income before
extraordinary items.... $ 27,850 $ 1,833 $ 11,674 $ (9,894) $(7,516) $ 23,947
======== ======= ======== ======== ======= ==========
Earnings per share(18).. $
Weighted average shares
outstanding(18)........
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
-------------------------------------------------------------------------------
BRYLANE, L.P. CHADWICK'S PRO FORMA
HISTORICAL HISTORICAL AS ADJUSTED
THIRTY-NINE THIRTY-NINE CHADWICK'S THIRTY-NINE
WEEKS ENDED WEEKS ENDED ACQUISITION OFFERING WEEKS ENDED
NOV. 2, 1996 OCT. 26, 1996(6) ADJUSTMENTS ADJUSTMENTS NOV. 2, 1996
------------- ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $467,009 $368,243 $ $ $ 835,252
Cost of goods sold ..... 225,708 196,993 1,837 (7) 424,538
-------- -------- -------- -------- ---------
Gross profit............ 241,301 171,250 (1,837) 410,714
Operating expenses:
Catalog and
advertising expense.. 135,390 77,070 212,460
Fulfillment expense... 29,057 36,917 65,974
Support services
expense.............. 32,995 22,872 2,704 (8) 58,571
Intangibles and
organization cost
amortization......... 4,229 -- 3,836 (9) 8,065
-------- -------- -------- -------- ---------
Total operating
expenses............... 201,671 136,859 6,540 345,070
-------- -------- -------- -------- ---------
Operating income........ 39,630 34,391 (8,377) 65,644
Interest expense, net... 16,200 4,474 11,855 (10) (5,347)(15) 22,658
(670)(11) (378)(16)
(4,475)(12)
999 (13)
-------- -------- -------- -------- ---------
Income before income
taxes.................. 23,430 29,917 (16,086) 5,725 42,986
Provision for income
taxes.................. 125 12,355 (12,355)(14) 16,854 (17) 16,979
-------- -------- -------- -------- ---------
Net income ............. $ 23,305 $ 17,562 $ (3,731) $(11,129) $ 26,007
======== ======== ======== ======== =========
Earnings per share(18).. $
Weighted average shares
outstanding(18)........
</TABLE>
(Notes begin on page 25)
23
<PAGE>
BRYLANE INC.
UNAUDITED PRO FORMA AS ADJUSTED BALANCE SHEET
(AS OF NOVEMBER 2, 1996)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PARTNERSHIP CHADWICK'S
HISTORICAL HISTORICAL CHADWICK'S
NOV 2, OCT. 26, ACQUISITION OFFERING PRO FORMA
1996 1996 ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
----------- ---------- ----------- ----------- -----------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 10,659 $ 6,751 $ 12,982 (19) $ (10,000)(24) $ 13,641
(6,751)(20)
Accounts receivable......... 8,122 93,105 (88,732)(20) 12,495
Inventories................. 93,286 106,469 9,564 (21) 209,319
Paper inventory............. 10,729 6,944 17,673
Other....................... 5,370 548 5,918
--------- -------- --------- --------- ---------
Total current assets...... 128,166 213,817 (72,937) (10,000) 259,046
Property & equipment, net..... 28,303 48,627 76,930
Catalog costs................. 22,328 8,144 (450)(21) 30,022
Organization & deferred fi-
nancing costs................ 7,082 -- 7,005 (13) (2,522)(16) 9,109
(2,456)(11)
Intangibles & other assets.... 162,463 -- 168,187 (21) 335,650
5,000 (21)
Deferred income taxes......... -- 1,061 (1,061)(20) 20,500 (25) 22,466
970 (11) 996 (16)
--------- -------- --------- --------- ---------
Total assets.............. $ 348,342 $271,649 $ 104,258 $ 8,974 $ 733,223
========= ======== ========= ========= =========
<CAPTION>
LIABILITIES & PARTNERSHIP/
STOCKHOLDERS' EQUITY
--------------------------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $ 62,467 $ 46,817 $ $ $ 109,284
Accrued interest............ 2,478 -- (533)(22) 1,945
Accrued expenses............ 11,871 49,956 6,855 (22) 68,682
Reserve for returns......... 5,071 9,955 15,026
Federal and state taxes..... -- (320) 320 (20)
Current portion of long-term
debt....................... 14,395 -- 11,605 (23) (15,479)(24)(26) 10,521
--------- -------- --------- --------- ---------
Total current liabilities. 96,282 106,408 18,247 (15,479) 205,458
--------- -------- --------- --------- ---------
Long-term debt................ 202,297 -- 199,040 (23) (86,521)(24)(26) 314,816
Deferred income taxes......... -- 2,422 (2,422)(20) 0
Other long-term liabilities... 5,556 88,586 (88,586)(20) 5,556
--------- -------- --------- --------- ---------
Total liabilities......... 304,135 197,416 126,279 (102,000) 525,830
--------- -------- --------- --------- ---------
Series A Convertible Redeem-
able Preferred Stock......... -- -- 1,500 1,500
--------- -------- --------- --------- ---------
Partnership/Stockholders' eq-
uity:
Partners' capital, 12,905
units...................... 130,882 -- 51,328 (19) (182,210)(27) --
Reduction for predecessor
cost-carryover basis....... (152,067) -- (152,067)
Common stock, $.01 par value
40,000 shares authorized;
shares issued and outstand-
ing pro forma.............. -- -- --
Additional paid in capital,
net of loans to management
investors.................. (2,490) -- 870 (21) 182,210 (27) 293,090
92,000 (27)
20,500 (25)
Retained earnings........... 67,882 74,233 (68,377)(21) (1,526)(16) 64,870
(5,856)(20)
(1,486)(11)
--------- -------- --------- --------- ---------
Total
partnership/stockholders'
equity................... 44,207 74,233 (23,521) 110,974 205,893
--------- -------- --------- --------- ---------
Total liabilities &
partnership/stockholders'
equity................... $ 348,342 $271,649 $ 104,258 $ 8,974 $ 733,223
========= ======== ========= ========= =========
</TABLE>
(Notes begin on following page)
24
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL STATEMENTS
(1) Brylane acquired the assets of the KingSize catalog division of
WearGuard (which includes the KingSize catalog and the license for the Sears
Big & Tall catalog) on October 16, 1995. For accounting purposes, the
transaction was accounted for on the effective date of October 1, 1995. Since
Brylane's historical statements of operations for the year ended February 3,
1996 include the results of operations for the KingSize and Big & Tall
catalogs for the period from October 1, 1995 through February 3, 1996, the pro
forma adjustments reflect the results of operations of KingSize and Big & Tall
prior to the KingSize Acquisition for the eight months ended September 30,
1995.
(2) The non-recurring inventory charge resulted from increasing inventory by
$569,000 for the KingSize Acquisition to reflect the fair market value at
October 1, 1995, the effective date of the transaction. The increase in
inventory value was fully amortized into cost of goods sold by February 3,
1996. The adjustment reflects the elimination of the non-recurring charge.
(3) Excludes $1,077,000 in administrative overhead allocated to the KingSize
catalog division by WearGuard.
(4) Eliminates goodwill amortization recorded by KingSize as a division of
WearGuard and includes amortization on the straight-line basis of the acquired
customer file of $520,000 over eight years, the noncompete covenant of
$300,000 over its five year term and goodwill of $50,762,000 over 40 years.
(5) Includes interest expense on the $35,000,000 of indebtedness incurred to
finance the KingSize Acquisition at 7.81%.
(6) Brylane acquired the assets of Chadwick's (excluding substantially all
accounts receivable) on December 9, 1996. The pro forma adjustments reflect
the results of operations of Chadwick's prior to the Chadwick's Acquisition
for the nine months ended October 26, 1996. Certain reclassifications among
line items have been made to the historical statement of operations and
balance sheet to conform with Brylane's financial statement presentation. Such
reclassifications had no effect on previously reported net income.
(7) Reflects the removal of the change in the capitalized buying and
fulfillment center costs in order to conform Chadwick's accounting policies
with those of Brylane's.
(8) Includes the recognition of the costs related to the sale of the
deferred billing receivables to Alliance Data Systems Corporation. Calculated
using the average outstanding deferred billing receivable balance at the end
of the month for the corresponding period.
(9) Includes goodwill amortization on a straight-line basis of $168,187,000
over 40 years and amortization on a straight-line basis of the acquired
customer file of $5,000,000 over approximately six years.
(10) Includes interest expense on the net increase in indebtedness of
$210,645,000 incurred to finance the Chadwick's Acquisition at 7.96% for the
year ended February 3, 1996 and 7.50% for the nine months ended November 2,
1996. A change of 1/4% in the interest rate payable on the outstanding balance
under the Bank Credit Facility would change annual interest expense by
approximately $527,000 before the effect of income taxes. (see footnote 23)
(11) In connection with the repayment of the old bank credit facility, a pro
rata portion of the deferred financing fees associated with the obligations to
be repaid will be written off as a charge to operations. This expense is
estimated to be $2,456,000 ($1,486,000 net of tax) with a related future tax
benefit of $970,000. This non-recurring charge has not been included in the
pro forma as adjusted statements of operations. The annual reduction of
amortization expense attributable to the write-off is approximately $893,000.
(12) Reflects the elimination of interest expense related to the advances
from TJX.
(13) Represents amortization of deferred financing fees related to the Bank
Credit Facility of $7,005,000 over the term of the debt.
(14) Amounts reflect adjustments for federal and state income taxes as if
Chadwick's had been taxed as a Partnership during these periods.
25
<PAGE>
(15) Reduction of interest expense of $7,526,000 and $5,347,000 at February
3, 1996 and November 2, 1996, respectively, as a result of the prepayment of
$102,000,000 of indebtedness outstanding under the bank credit facility
(existing debt) assuming the average interest rate in effect during the
related period, net of the estimated reduction of interest income of $588,000
during the fifty-three weeks ended February 3, 1996, and $393,000 during the
thirty-nine weeks ended November 2, 1996, related to the use of a portion of
the existing cash described in footnote 24 below.
(16) In connection with the Offering a pro rata portion of the deferred
financing fees associated with the obligations to be repaid will be written
off as a charge to operations. This expense is estimated to be $2,522,000
($1,526,000 net of tax) with a related future tax benefit of $996,000, which
is realized over the term of the underlying debt obligations for tax purposes.
This non-recurring charge has been included in the pro forma as adjusted
balance sheet but has not been included in the pro forma as adjusted
statements of operations. The annual reduction of amortization expense
attributable to the write-off is approximately $504,000.
(17) Recognition of income tax expense since the Company is a C-corporation
and will pay income taxes directly, whereas the Partnership, under the
partnership form of doing business, passed through the tax effects of its
profits and losses to its partners. The tax provision has been computed using
an estimated effective rate of 39.5%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Certain Tax
Matters".
(18) Pro forma net income per share has been calculated for all periods
presented assuming that shares issued in connection with the Offering and
shares reserved for future issuance upon the exercise of options
outstanding under the Company's option plans, as determined using the treasury
stock method, were outstanding for all periods presented.
(19) Includes the excess cash received by Brylane as a result of the
borrowings under the Bank Credit Facility, the equity contributions from the
partners net of the payment of the financing fees and repayment of the bank
credit facility including accrued interest as follows (in thousands).
<TABLE>
<S> <C>
Proceeds from borrowings under the Bank Credit Facility........ $ 283,000
Receipt of equity contribution from partners................... 51,328
Receipt of equity contributions for Series A Preferred Stock... 1,500
Repayment of bank credit facility including accrued interest... (92,888)
Payment of financing fees...................................... (7,158)
Cash paid to TJX............................................... (222,800)
---------
$ 12,982
</TABLE>
(20) Reflects the elimination of assets not acquired and liabilities not
assumed pursuant to the Chadwick's Purchase Agreement as follows (in
thousands):
<TABLE>
<S> <C>
Cash and cash equivalents...................................... $ (6,751)
Deferred billing account receivables........................... (88,732)
Deferred income taxes.......................................... 1,361
Intercompany note payable to TJX............................... 88,586
Federal and State prepaid taxes................................ (320)
--------
Equity of TJX in the assets of Chadwick's not acquired......... $ 5,856
</TABLE>
(21) Reflects pro forma adjustments to allocate the purchase price to the
assets acquired at estimated fair value and to conform the accounting
practices of Chadwick's to those of Brylane as follows (in thousands):
<TABLE>
<S> <C>
Increase in inventory to reflect estimated fair value........... $18,021
Decrease in inventory resulting from elimination of capitalized
buying and fulfillment center costs to conform to Brylane's
accounting policies............................................ (8,457)
-------
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
Net increase in inventory....................................... 9,564
Increase in intangibles and other assets for customer list...... 5,000
Decrease in prepaid catalog costs to conform to Brylane's method
of amortization................................................ (450)
-------
Adjustments to net assets....................................... $14,114
</TABLE>
The Acquisition will be accounted for as a purchase pursuant to Accounting
Principles Board Opinion No. 16, "Business Combinations." The pro forma
allocations of the purchase cost for the Chadwick's Acquisition was determined
based on the book value as of October 26, 1996 of the net assets acquired. The
actual purchase price may differ from this amount based on the assets and
liabilities of Chadwick's as of December 9, 1996. The purchase cost will be
allocated to the acquired assets and liabilities of Chadwick's based on their
estimated fair values. Such allocations are subject to final determination
based on valuations and other studies to be performed after receipt of the
closing balance sheet. The final values may differ from those set forth below
(in thousands).
<TABLE>
<S> <C> <C> <C>
Purchase Cost:
Cash............................................ $222,800
Convertible Note................................ 20,000
Estimated Chadwick's acquisition fees and ex-
penses......................................... 7,008
Exchange of TJX options for options in Brylane
L.P. .......................................... 870 $250,678
--------
Estimated Book Value:
TJX equity in Chadwick's........................ $ 74,233
Net assets not acquired (see above)............. (5,856) 68,377
--------
Purchase cost above carrying value at October 26,
1996............................................. 182,301
Adjustments to net assets (see above)............. (14,114)
--------
Goodwill and other intangibles.................... $168,187
</TABLE>
(22) Reflects adjustments to current liabilities for accrual of the
acquisition related expenses of $6,855,000 not paid at the time of closing and
reduction of accrued interest of $533,000 for the prepayment of interest on
the old bank credit facility.
(23) Reflects the incurrence of indebtedness to finance the Acquisition, and
repayment of the old bank credit facility with the proceeds from the Bank
Credit Facility (in thousands):
<TABLE>
<S> <C> <C>
Proceeds from borrowings under the Bank Credit Facility..... $283,000
Issuance of Convertible Note................................ 20,000
Repayment of old bank credit facility....................... (92,355)
--------
$210,645
</TABLE>
(24) Application of $10,000,000 of available cash to prepay $10,000,000 of
additional indebtedness outstanding under the Bank Credit Facility upon
consummation of the Offering.
(25) Establishment of an estimated deferred tax asset of $20,500,000,
representing the tax effect at current tax rates of temporary differences
between assets and liabilities for financial and tax reporting purposes. This
difference is attributable to the step-up in the tax basis of the Company's
assets at the closing of the Brylane Acquisition and upon the contribution to
the Company by The Limited of its interests in the Partnership at the closing
of the Offering, and represents estimated future tax benefits to the Company
arising from those assets. The Partnership did not record deferred taxes since
its partners incurred the tax effects of its profits and losses.
(26) Net proceeds of $92,000,000 from the issuance of shares of Common
Stock at an assumed initial public offering price of $ per share are applied
to the prepayment of indebtedness outstanding under the Bank Credit Facility.
(27) The exchange of partnership units and shares of common stock of VP
Holding for shares of Common Stock having a par value of $.01 per share, and
the net proceeds from the sale of shares of Common Stock having a par value of
$.01 per share to the public at an assumed initial offering price of $ per
share. See "The Incorporation Plan".
27
<PAGE>
SELECTED FINANCIAL DATA
BRYLANE
The following table presents certain historical financial data of Brylane
for the periods indicated. The balance sheet data at February 1, 1992, January
30, 1993, July 31, 1993, January 29, 1994, January 28, 1995 and February 3,
1996, and the statements of operations data for the fiscal years ended
February 1, 1992, January 30, 1993, January 28, 1995 and February 3, 1996, and
for the twenty-six weeks ended July 31, 1993 and January 29, 1994, have been
derived from the combined and consolidated financial statements of the
Predecessor and the Partnership, as appropriate, which have been audited by
Coopers & Lybrand L.L.P., independent accountants. The statements of
operations data for the combination of the historical fifty-two weeks ended
January 29, 1994 have been derived by summing, without adjustment, the audited
financial statements of the Predecessor for the twenty-six weeks ended July
31, 1993 and of the Partnership for the twenty-six weeks ended January 29,
1994. The balance sheet data at October 28, 1995 and November 2, 1996 and the
statements of operations data for the thirty-nine weeks ended October 28, 1995
and November 2, 1996 have been derived from the unaudited consolidated
financial statements of the Partnership. The information below should be read
in conjunction with "Unaudited Pro Forma As Adjusted Financial Statements",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the combined and consolidated financial statements of Brylane
and related notes thereto included elsewhere in this Prospectus. In the
opinion of Brylane's management, the unaudited financial statements were
prepared on the same basis as the audited financial statements and included
all adjustments, consisting of normal recurring adjustments, necessary to
present fairly the information set forth herein. The statements of operations
data for the thirty-nine weeks ended November 2, 1996 may not be indicative of
results to be expected for the full year.
<TABLE>
<CAPTION>
COMBINATION OF
PREDECESSOR PARTNERSHIP HISTORICAL PARTNERSHIP
------------------------------- ----------- -------------- --------------------------------------
THIRTY-NINE WEEKS
FISCAL YEAR ENDED TWENTY-SIX TWENTY-SIX FIFTY-TWO FISCAL YEAR ENDED ENDED
------------------ WEEKS ENDED WEEKS ENDED WEEKS ENDED ------------------ ------------------
FEB. 1, JAN. 30, JULY 31, JAN. 29, JAN. 29, JAN. 28, FEB. 3, OCT. 28, NOV. 2,
1992 1993 1993 1994 1994 1995 1996(1) 1995 1996
-------- -------- ----------- ----------- -------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................ $377,549 $424,523 $242,086 $247,780 $489,866 $578,530 $601,055 $435,205 $467,009
Cost of goods sold....... 193,509 212,103 122,530 124,224 246,754 288,217 298,414 216,892 225,708
Non-recurring inventory
charge(2)............... -- -- -- 11,487 11,487 2,614 569 142 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............. 184,040 212,420 119,556 112,069 231,625 287,699 302,072 218,171 241,301
Operating expenses:
Catalog and advertising
expense................ 113,597 113,432 61,165 66,860 128,025 153,830 174,446 127,879 135,390
Fulfillment expense..... 30,243 33,199 18,335 21,477 39,812 41,656 37,333 26,124 29,057
Support services ex-
pense.................. 23,622 22,886 12,964 13,377 26,341 35,152 37,024 27,271 32,995
Intangibles and
organization cost
amortization........... -- -- -- 2,121 2,121 4,242 4,707 3,298 4,229
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating ex-
penses................ 167,462 169,517 92,464 103,835 196,299 234,880 253,510 184,572 201,671
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income......... 16,578 42,903 27,092 8,234 35,326 52,819 48,562 33,599 39,630
Interest expense, net.... -- -- -- 10,060 10,060 19,576 20,624 14,882 16,200
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before in-
come taxes.............. 16,578 42,903 27,092 (1,826) 25,266 33,243 27,938 18,717 23,430
Provision for income tax-
es(3)................... 6,500 16,700 10,600 75 10,675 89 88 122 125
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........ $ 10,078 $ 26,203 $ 16,492 $ (1,901) $ 14,591 $ 33,154 $ 27,850 $ 18,595 $ 23,305
======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA(4):
Income before income tax-
es...................... $ (1,826) $ 25,266 $ 33,243 $ 27,938 $ 18,717 $ 23,430
Provision for income tax-
es...................... (676) 9,348 12,300 10,337 6,925 8,669
-------- -------- -------- -------- -------- --------
Net income (loss)........ $ (1,150) $ 15,918 $ 20,943 $ 17,601 $ 11,792 $ 14,761
======== ======== ======== ======== ======== ========
Earnings per unit........
Weighted average units
outstanding.............
OPERATING AND OTHER DATA:
Gross profit (before non-
recurring inventory
charge) as a percentage
of net sales............ 48.7% 50.0% 49.4% 49.9% 49.6% 50.2% 50.4% 50.2% 51.7%
Catalog and advertising
expense as a percentage
of net sales............ 30.1% 26.7% 25.3% 27.0% 26.1% 26.6% 29.0% 29.4% 29.0%
EBITDA(5)................ $ 19,998 $ 46,149 $ 28,566 $ 23,425 $ 51,991 $ 62,785 $ 57,488 $ 39,490 $ 46,905
Number of catalogs
mailed.................. 158,860 181,799 106,448 122,850 229,298 298,734 311,671 237,278 259,585
Names in customer
files(6)................ 6,214 6,561 6,834 7,340 8,905 10,158 9,625 11,105
Active customers(7)...... 3,470 3,708 3,826 4,189 5,159 5,308 5,011 5,417
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash equiva-
lents................... -- -- -- $ 10,043 $ 28,495 $ 7,469 $ 4,159 $ 10,659
Working capital.......... $ 12,880 $ 9,516 $ 12,372 9,736 23,426 23,504 12,056 31,884
Total assets............. 99,189 89,132 95,882 255,051 286,491 327,903 332,841 348,342
Long-term debt (including
current portion)........ -- -- -- 229,070 214,168 226,740 230,090 216,692
Partnership/Stockholder's
equity (deficit)........ 50,650 39,619 42,789 (31,333) 1,777 27,187 19,820 44,207
</TABLE>
(Footnotes on following page)
28
<PAGE>
- --------
(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 and by $569,000 for the KingSize
Acquisition to reflect the fair market value of the inventory at August 1,
1993, the effective date of the Brylane Acquisition, and at October 1,
1995, the effective date of the KingSize Acquisition, respectively, as
more fully described in "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 for the KingSize
Acquisition.
(3) Represents provision for income taxes as a corporate division of The
Limited during fiscal years ended February 1, 1992 and 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, the fiscal years ended January
28, 1995 and February 3, 1996, and the thirty-nine weeks ended October 28,
1995 and November 2, 1996.
(4) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(5) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense and
non-recurring inventory charges. The use of such information is intended
only to supplement the conventional income statement presentation, and is
not to be 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.
(6) This information includes the names contained in all of Brylane's customer
files as of the last day of the preceding calendar quarter and also
includes names contained in the Sears customer file as of the same date.
The names in the customer files consist of customers who have placed an
order within the preceding 48 months ending on the last day of the
preceding calendar quarter. Names contained in the Sears customer file
have increased from 92,000 at December 31, 1993 to 1.8 million at
September 30, 1996.
(7) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter. Active customers
contained in the Sears customer file have increased from 92,000 at
December 31, 1993 to 928,000 at September 30, 1996.
29
<PAGE>
SELECTED FINANCIAL DATA
CHADWICK'S
The following table presents certain historical financial data of Chadwick's
for the five-year period ended January 27, 1996. The information related to
the income statement data for the years ended January 29, 1994, January 28,
1995, and January 27, 1996, and the balance sheet data as of January 28, 1995
and January 27, 1996, are derived from audited combined financial statements
of Chadwick's. The income statement data for the thirty-nine weeks ended
October 28, 1995 and October 26, 1996, and for the years ended January 25,
1992 and January 30, 1993, and the balance sheet data as of January 25, 1992,
January 30, 1993, January 29, 1994, October 28, 1995 and October 26, 1996, is
derived from unaudited combined financial statements of Chadwick's. Due to
different classifications within line items, the Chadwick's line items are not
directly comparable to those of Brylane. The information below should be read
in conjunction with "Unaudited Pro Forma As Adjusted Financial Statements",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the combined financial statements of Chadwick's and related
notes thereto included elsewhere in this Prospectus. In the opinion of
Chadwick's management, the unaudited financial statements were prepared on the
same basis as the audited financial statements and included all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
information set forth herein. The results of operations for the thirty-nine
weeks ended October 26, 1996 may not be indicative of results to be expected
for the full year.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
------------------------------------------------ ------------------
JAN. 25, JAN. 30, JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1992 1993(1) 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $173,374 $295,532 $424,276 $432,660 $465,598 $355,671 $370,319
Cost of sales, including
buying and order
fulfillment costs...... 106,111 183,186 269,233 271,874 278,868 211,846 206,179
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 67,263 112,346 155,043 160,786 186,730 144,185 164,140
Selling, general and ad-
ministrative expenses,
including catalog and
order processing costs. 55,656 90,366 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 11,607 21,980 23,604 5,457 26,448 17,570 34,409
Interest expense (in-
come), net............. (213) (33) 3,378 3,940 6,920 5,211 4,497
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes, extraordinary
items and cumulative
effect of accounting
changes................ 11,820 22,013 20,226 1,517 19,528 12,359 29,917
Provision for income
taxes.................. 4,712 8,829 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- -------- -------- --------
Income before
extraordinary items and
cumulative effect of
accounting changes..... $ 7,108 $ 13,184 $ 12,285 $ 1,262 $ 11,674 $ 7,391 $ 17,562
======== ======== ======== ======== ======== ======== ========
Net income(2)........... $ 7,108 $ 13,184 $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
======== ======== ======== ======== ======== ======== ========
OPERATING AND OTHER DA-
TA:
Gross profit as a per-
centage of net sales... 38.8% 38.0% 36.5% 37.2% 40.1% 40.5% 44.3%
EBITDA(3)............... $ 13,580 $ 25,116 $ 28,109 $ 11,156 $ 33,160 $ 22,625 $ 39,428
Number of catalogs
mailed................. 78,555 123,064 213,168 234,973 196,073 169,749 149,607
Names in customer
file(4)................ 3,601 5,151 7,501 9,421 10,248 10,020 10,693
Active customers(5)..... 1,970 3,113 4,500 4,956 4,399 4,579 4,242
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 9,228 $ 20,777 $ 52,368 $ 44,409 $ 77,843 $102,401 $116,618
Total assets............ 70,673 121,094 156,095 177,625 199,215 243,213 272,914
Long-term debt (includ-
ing current por-
tion)(6)............... 7,580 22,152 52,154 47,391 70,769 99,404 88,587
Net assets.............. 21,420 34,604 47,269 48,339 56,675 55,730 74,237
</TABLE>
- -------
(1) The fiscal year ended January 30, 1993 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in the
fiscal year ended January 28, 1995 and $3,338,000 in the fiscal year ended
January 27, 1996.
(3) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense. The
use of such information is intended only to supplement the conventional
income statement presentation, and is not to be considered as an
alternative to net income or any other indicator of Chadwick's operating
performance which is presented in accordance with generally accepted
accounting principles above.
(4) This information includes the names contained in Chadwick's customer file
as of the last day of the preceding calendar quarter. The names in the
customer file consist of customers who have placed an order within the 48
months ending on the last day of the preceding calendar quarter.
(5) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter.
(6)Includes loans and advances from TJX.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
"Selected Financial Data", the "Unaudited Pro Forma As Adjusted Financial
Statements" and the respective financial statements of Brylane and Chadwick's
and related notes thereto included elsewhere in this Prospectus. Both Brylane
and Chadwick's use a 53/52 week fiscal year for financial reporting purposes.
RECENT DEVELOPMENTS AND OUTLOOK
On December 9, 1996, Brylane completed the Chadwick's Acquisition. The
Company believes that it will realize several significant strategic benefits
from the acquisition of Chadwick's. The Company believes that revenue growth
can be enhanced through sharing customer lists, utilizing merchandising and
marketing expertise developed at each company, including in the introduction
of new merchandise categories (such as special sizes in the Chadwick's catalog
and petite size women's and regular size men's apparel in Brylane's catalogs),
and introducing private label credit cards to Chadwick's customers. The
Company will have opportunities to leverage its combined purchasing power,
particularly in the procurement of paper and telecommunications services. In
addition, the Company expects that certain costs such as MIS processing and
development, insurance, packaging supplies and professional services can be
leveraged for the combined entity.
In 1995 and for the nine month period ended November 2, 1996, Brylane's
results of operations were significantly impacted by a postal rate increase in
January 1995 and record paper prices which peaked in the fall of 1995. Brylane
undertook a number of cost saving initiatives in response to these events,
including: (i) limiting catalog circulation increases by focusing on Brylane's
more responsive customers; (ii) increasing shipping and handling charges and
eliminating Brylane's policy of refunding to customers the postage costs they
incur in connection with merchandise returns and exchanges; (iii)
renegotiating certain key contracts related to Brylane's private label credit
cards and long-distance telephone services; and (iv) reducing the trim size
and page count and changing the paper grade of certain catalogs. These
initiatives enabled Brylane to essentially maintain its operating profit
margin near historical levels and continue to refine and implement its growth
strategy.
Despite this difficult operating environment, Brylane enhanced its
operations in several areas. Brylane expanded into special size men's apparel
through the KingSize Acquisition and Brylane continued to develop the Sue
Brett catalog business, which Brylane believes will contribute significantly
to its growth. During 1996, Brylane has made significant changes to the
merchandise offerings in its Lerner catalog, including the addition of an
increased number of career wear selections and additional sizes. Brylane also
designed, tested and implemented several marketing programs in 1996, including
installment and deferred billing, free express shipping, free delivery and
other promotional offers. The use of these promotions has resulted in a
significant improvement in net sales and average order size, particularly in
the Lerner catalog. The initiatives undertaken at the Lerner catalog and the
growth of the Sue Brett and Sears catalogs contributed to an increase of 7.4%
in Brylane's net sales (excluding sales associated with the KingSize
Acquisition) for the thirteen weeks ended November 2, 1996 when compared with
the comparable period of 1995. The Company intends to utilize these marketing
programs in a larger portion of its catalogs in 1997. Also, the Company is
taking advantage of the expertise with cable television advertising developed
by its KingSize operations to produce and effectively use television
commercials to acquire new customers for its women's special size catalogs.
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 last quarter of 1996 and the first two quarters
of 1997.
From 1987 through 1993, Chadwick's net sales grew at a compound annual
growth rate of 46.7%. By the fall of 1994, Chadwick's order fulfillment and
customer service operations were unable to keep pace with its rapid sales
growth, resulting in a decline in sales growth, an increase in operating
expenses and a substantial decline in profitability. In response, Chadwick's
reorganized its management team in the first quarter of 1995. This new
management team implemented a series of initiatives to increase operational
efficiencies and improve
31
<PAGE>
customer service to the levels necessary to support Chadwick's strong and
established merchandising organization. These initiatives included
improvements in Chadwick's fulfillment and telemarketing operations and in its
inventory management, and better coordination among all facets of its
business. As a result of these initiatives, Chadwick's income from operations
substantially improved in fiscal 1995, and, for the thirty-nine weeks ended
October 26, 1996, Chadwick's achieved record income from operations.
As a result of the Chadwick's Acquisition and the application of purchase
accounting related thereto, the Company's results in the future will reflect
additional amortization expense associated with the write-up of Chadwick's
inventory and certain intangible assets, and may reflect additional
depreciation expense associated with the write-up of Chadwick's fixed assets.
Any such expenses will be deductible for tax purposes. The amount of such
amortization and depreciation expense cannot be determined at this time.
Furthermore, Brylane entered into an agreement whereby ADS will 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 Chadwick's historical periods, and
the Company's operating expenses will increase due to costs associated with
the sale of such receivables. Interest expense will also increase as a result
of the financing arrangements entered into in connection with the Chadwick's
Acquisition. See "Unaudited Pro Forma As Adjusted Financial Statements" and
"Description of Certain Financing Arrangements". In addition, certain line
items included in Chadwick's financial statements will be reclassified on a
going forward basis so that such line items include the same categories as
Brylane. None of these reclassifications will affect the recorded net income
of Chadwick's.
In connection with certain amendments to options previously granted under
Brylane's 1993 Performance Option Plan, the Company currently anticipates that
it will incur non-cash compensation expense of approximately $3.1 million. The
Company estimates that approximately $2.4 million will be expensed in the
fourth quarter of 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 combination of historical fifty-two weeks ended January 29, 1994, the
fiscal years ended January 28, 1995 and February 3, 1996, and the thirty-nine
week periods ended October 28, 1995 and November 2, 1996 include certain
adjustments that make it difficult to compare these results with results from
periods ending before these acquisitions. 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 negatively impacted for the
combination of historical fifty-two weeks ended January 29, 1994 and the
fiscal year ended January 28, 1995 by $11.5 million and $2.6 million,
respectively, 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 depreciation and 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 $0.4 million per
year, and the amortization of intangible assets related to the KingSize
Acquisition of $1.4 million per year. See "Unaudited Pro Forma As Adjusted
Financial Statements" and "Selected Financial Data".
After giving effect to the consummation of the Incorporation Plan and the
Offering and the application of the net proceeds received therefrom to reduce
outstanding indebtedness, and the use of a substantial amount of its excess
cash to further reduce outstanding indebtedness, as described in "Use of
Proceeds", the Company's pro forma results of operations reflect a significant
reduction in interest expense. In addition, as a result of the Incorporation
Plan, the Company will experience an increase in income tax expense due to the
introduction of a taxable entity as the owner of all the interests in the
Partnership. Previously, payments approximating such taxes were distributed to
all of Brylane's partners based upon the tax liabilities with respect to the
income allocated to certain of Brylane's partners, and these payments were not
recorded as an expense by Brylane in its financial statements. See "--
Liquidity and Capital Resources", "--Certain Tax Matters" and "Unaudited Pro
Forma As Adjusted Financial Statements".
32
<PAGE>
RESULTS OF OPERATIONS--BRYLANE
The following tables set forth certain operating data of Brylane for the
periods indicated.
<TABLE>
<CAPTION>
PARTNERSHIP
COMBINATION -------------------------------------------
OF HISTORICAL FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
FIFTY-TWO ------------------ -----------------------
WEEKS ENDED JAN. 28, FEB. 3, OCT. 28, NOV. 2,
JAN. 29, 1994 1995 1996(1) 1995 1996
------------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $489,866 $578,530 $601,055 $435,205 $467,009
Gross profit before non-
recurring inventory
charge................. 243,112 290,313 302,641 218,313 241,301
Non-recurring inventory
charge................. 11,487 2,614 569 142 --
-------- -------- -------- -------- --------
Gross profit............ 231,625 287,699 302,072 218,171 241,301
Operating expenses:
Catalog and advertising
expense............... 128,025 153,830 174,446 127,879 135,390
Fulfillment expense.... 39,812 41,656 37,333 26,124 29,057
Support services ex-
pense................. 26,341 35,152 37,024 27,271 32,995
Amortization of
acquisitions
intangibles and
organization costs.... 2,121 4,242 4,707 3,298 4,229
-------- -------- -------- -------- --------
Operating income........ 35,326 52,819 48,562 33,599 39,630
Add back: Non-recurring
inventory charge(2)... 11,487 2,614 569 142 --
Add back: Amortization
of acquisition
intangibles and
organization costs(3). 2,121 4,242 4,707 3,298 4,229
Add back: Step-up de-
preciation(4)......... 184 368 368 276 276
-------- -------- -------- -------- --------
Operating income before
acquisition related
adjustments............ $ 49,118 $ 60,043 $ 54,206 $ 37,315 $ 44,135
======== ======== ======== ======== ========
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA(5):
Operating income....... $ 35,326 $ 52,819 $ 48,562 $ 33,599 $ 39,630
Interest expense, net.. 10,060 19,576 20,624 14,882 16,200
-------- -------- -------- -------- --------
Income before income
taxes................. 25,266 33,243 27,938 18,717 23,430
Provision for income
taxes................. 9,924 12,300 10,337 6,925 8,669
-------- -------- -------- -------- --------
Net income............. $ 15,342 $ 20,943 $ 17,601 $ 11,792 $ 14,761
======== ======== ======== ======== ========
The following table sets forth certain operating data of Brylane expressed
as a percentage of net sales for the periods indicated.
<CAPTION>
PARTNERSHIP
COMBINATION -------------------------------------------
OF HISTORICAL FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
FIFTY-TWO ------------------ -----------------------
WEEKS ENDED JAN. 28, FEB. 3, OCT. 28, NOV. 2,
JAN. 29, 1994 1995 1996(1) 1995 1996
------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit before non-
recurring inventory
charge................. 49.6 50.2 50.4 50.2 51.7
Non-recurring inventory
charge................. 2.3 0.5 0.1 0.0 --
-------- -------- -------- -------- --------
Gross profit............ 47.3 49.7 50.3 50.2 51.7
Operating expenses:
Catalog and advertising
expense............... 26.1 26.6 29.0 29.4 29.0
Fulfillment expense.... 8.1 7.2 6.2 6.0 6.2
Support services
expense............... 5.4 6.1 6.2 6.3 7.1
Amortization of
acquisitions
intangibles and
organization costs.... 0.4 0.7 0.8 0.8 0.9
-------- -------- -------- -------- --------
Operating income........ 7.3 9.1 8.1 7.7 8.5
Add back: Non-recurring
inventory charge(2)... 2.3 0.5 0.1 0.0 --
Add back: Amortization
of acquisition
intangibles and
organization costs(3). 0.4 0.7 0.8 0.8 0.9
Add back: Step-up
depreciation(4)....... 0.0 0.1 0.0 0.1 0.1
-------- -------- -------- -------- --------
Operating income before
acquisition related
adjustments............ 10.0% 10.4% 9.0% 8.6% 9.5%
======== ======== ======== ======== ========
</TABLE>
(Footnotes on following page)
33
<PAGE>
- --------
(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 and by $569,000 for the KingSize
Acquisition to reflect the fair market value of the inventory at August 1,
1993, the effective date of the Brylane Acquisition, and at October 1,
1995, the effective date of the KingSize 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.
(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 and, 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.
(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) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 28, 1995
NET SALES. Net sales for the thirty-nine weeks ended November 2, 1996
increased 7.3% to $467.0 million from $435.2 million in the comparable period
of fiscal 1995. The increase in net sales is primarily due to the acquisition
of the KingSize and Big & Tall catalogs. Excluding sales from the KingSize and
Big & Tall catalogs, net sales increased by 1.6% to $439.2 million for the
thirty-nine weeks ended November 2, 1996 from $432.2 million in the comparable
period of fiscal 1995 primarily due to increased sales from the Lerner, Sue
Brett and Sears catalogs, offset in part by decreased sales from the women's
special size catalogs.
GROSS PROFIT. Gross profit, excluding the non-recurring inventory charge,
for the thirty-nine weeks ended November 2, 1996 improved to $241.3 million
(51.7% of net sales) from $218.3 million (50.2% of net sales) for the same
period of 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 the thirty-nine weeks ended November 2, 1996, catalog and
advertising expense increased to $135.4 million (29.0% of net sales) from
$127.9 million (29.4% of net sales) for the same period of fiscal 1995. The
decrease in catalog and advertising expense as a percent of net sales in the
thirty-nine weeks ended November 2, 1996 is primarily due to decreased paper
costs.
FULFILLMENT EXPENSE. Fulfillment expense includes distribution center,
telemarketing, credit services and customer service expenses, partially offset
by net merchandise postage revenue. Fulfillment expense in the thirty-nine
weeks ended November 2, 1996 increased to $29.1 million (6.2% of net sales)
from $26.1 million (6.0% of net sales) for the same period in 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 the thirty-nine weeks
ended November 2, 1996 increased to $33.0 million (7.1% of net sales) from
$27.3 million (6.3% of net sales) for the same period in 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.
34
<PAGE>
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense in the thirty-nine weeks ended November 2, 1996 included
$3.2 million related to the Brylane Acquisition and $1.0 million related to
the KingSize Acquisition. Acquisition related intangibles and organization
cost amortization expense in the thirty-nine weeks ended October 28, 1995
included $3.2 million related to the Brylane Acquisition and $0.1 million
related to the KingSize Acquisition. The amortization related to the Brylane
Acquisition is attributable to goodwill and other intangible assets over a 30-
year composite life as well as organization costs over five years since August
1, 1993, the effective date of the Brylane Acquisition. The amortization
related to the KingSize Acquisition is attributable to goodwill over a 40-year
life, the customer file over an eight-year life, and a noncompetition
agreement over a five-year life since October 1, 1995, the effective date of
the KingSize Acquisition.
OPERATING INCOME. Operating income before acquisition related amortization
in the thirty-nine weeks ended November 2, 1996 increased to $44.1 million
(9.5% of net sales) from $37.3 million (8.6% of net sales) for the same period
of fiscal 1995. As a percent of net sales, operating income increased as a
result of the increase in gross profit, and to a lesser extent, as a result of
the decrease in catalog and advertising expense as discussed above, partially
offset by an increase in fulfillment and support services expenses.
INTEREST EXPENSE. Interest expense, net, in the thirty-nine weeks ended
November 2, 1996 increased to $16.2 million (3.5% of net sales) from $14.9
million (3.4% of net sales) for the same period of fiscal 1995 due to the full
nine-month effect of the borrowings of $35.0 million incurred in connection
with the KingSize Acquisition partially offset by slightly lower interest
rates on the term loans of the bank credit facility.
INCOME TAXES. With respect to federal and state income taxes, the
Partnership is a limited partnership and therefore has generally not been
subject to income tax on its earnings. The Partnership's income taxes, which
represent federal and state income taxes on the Partnership's subsidiaries
which are C-corporations, were $0.1 million and $0.1 million for the thirty-
nine weeks ended November 2, 1996 and October 28, 1995, respectively. Upon the
consummation of the Incorporation Plan, the Partnership will become a wholly-
owned subsidiary of the Company and, therefore, the Partnership's earnings
will be attributable to the Company and will be subject to federal and state
income taxes for future periods due to the C-corporation status of the
Company. If income taxes had been recorded as if Brylane was a C-corporation,
income taxes would have been $8.7 million for the thirty-nine weeks ended
November 2, 1996 and $6.9 million for the same period of fiscal 1995.
SUPPLEMENTAL NET INCOME. If income taxes had been recorded as if Brylane was
a C-corporation, Brylane's net income would have increased $3.0 million to
$14.8 million for the thirty-nine weeks ended November 2, 1996 from
$11.8 million for the same period of fiscal 1995.
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 additional 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 certain discontinued 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) in 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
35
<PAGE>
$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 in fiscal
1995 increased to $174.4 million (29.0% of net sales) 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 United States Postal Service (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 Network National Bank
("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.
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.
INCOME TAXES. The Partnership's income taxes, which represent federal and
state income taxes on the Partnership's subsidiaries which are C-corporations,
were $0.1 million and $0.1 million for fiscal 1995 and 1994, respectively.
Upon the consummation of the Incorporation Plan, the Partnership will become a
wholly-owned
36
<PAGE>
subsidiary of the Company and, therefore, the Partnership's earnings will be
attributable to the Company and will be subject to federal and state income
taxes for future periods due to the C-corporation status of the Company. If
income taxes had been recorded as if Brylane was a C-corporation, income taxes
would have been $10.3 million in fiscal 1995 and $12.3 million in fiscal 1994.
SUPPLEMENTAL NET INCOME. If income taxes had been recorded as if Brylane was
a C-corporation, Brylane's net income would have decreased $3.3 million to
$17.6 million in fiscal 1995 from $20.9 million in fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993 (COMBINED PERIOD)
NET SALES. Net sales in fiscal 1994 increased 18.1% to $578.5 million from
$489.9 million in fiscal 1993. The increase in net sales was primarily due to
the successful rollout of Brylane's Sears women's apparel catalogs, which had
been test mailed in the fall of 1993, and to increased sales from Brylane's
Lane Bryant, Roaman's and Lerner catalogs. Excluding net sales associated with
Brylane's Sears women's apparel catalogs, Brylane's net sales increased 7.0%
to $515.1 million in fiscal 1994 from $481.2 million in fiscal 1993. Mailings
to customers and prospects of the Lane Bryant, Roaman's and Lerner catalogs
increased by 13.7%, generating a 5.0% increase in orders. Brylane began
circulating its Sears women's apparel catalogs in August 1993. Net sales from
these Sears catalogs during fiscal 1994 increased $54.8 million over fiscal
1993, as Brylane rapidly increased circulation to persons on the Sears
customer list.
GROSS PROFIT. Gross profit in fiscal 1994 improved to $287.7 million (49.7%
of net sales) from $231.6 million (47.3% of net sales) in fiscal 1993. The
gross profit for fiscal 1994 and 1993 includes the effect of non-recurring
charges of $2.6 million and $11.5 million, respectively, related to the step-
up of the value of inventory in connection with the Brylane Acquisition.
Excluding these charges, gross profit increased to $290.3 million (50.2% of
net sales) from $243.1 million (49.6% of net sales). This improvement in gross
profit as a percent of net sales was primarily due to higher initial markups
and slightly lower scheduled and promotional markdowns in fiscal 1994 versus
fiscal 1993.
CATALOG AND ADVERTISING EXPENSE. Catalog and advertising expense in fiscal
1994 increased to $153.8 million (26.6% of net sales) from $128.0 million
(26.1% of net sales) in fiscal 1993. This increase on a percent of net sales
basis is attributable primarily to increased production costs and lower
response rates experienced in connection with the rollout and increased
circulation of Brylane's three Sears women's apparel catalogs and, to a lesser
extent, to lower response rates resulting from Brylane's increased circulation
of its Lane Bryant, Roaman's and Lerner catalogs to prospects and to inactive
customers, and was partially offset by lower per catalog production costs.
FULFILLMENT EXPENSE. Fulfillment expense in fiscal 1994 increased to $41.7
million (7.2% of net sales) from $39.8 million (8.1% of net sales) for the
same period in fiscal 1993. As a percent of net sales, fulfillment expense
declined primarily due to a reduction in certain telemarketing costs through
the installation of a more efficient telephone switching system, the
elimination of Brylane's policy of refunding to customers the postage costs
they incur in connection with merchandise returns and exchanges, and an
increase in net merchandise postage revenue primarily resulting from an
increase in certain shipping and handling rates charged to customers,
partially offset by slightly higher customer service expenses. The changes in
the postage refund policy and shipping and handling rates discussed above were
implemented during the third quarter of fiscal 1994 in anticipation of the
January 1995 USPS postal rate increase. Fulfillment expense in fiscal 1994 and
fiscal 1993 includes depreciation expense of $0.4 million and $0.2 million,
respectively, for the step-up in the value of Brylane's property and equipment
related to the Brylane Acquisition.
SUPPORT SERVICES EXPENSE. Support services expense in fiscal 1994 increased
to $35.2 million (6.1% of net sales) from $26.3 million (5.4% of net sales) in
fiscal 1993. The increase in support services expense as a percent of net
sales is primarily attributable to the license fee and other expenses
associated with the initial arrangement under the Sears Agreement.
37
<PAGE>
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense in fiscal 1994 and fiscal 1993 included $4.2 million and
$2.1 million, respectively, attributable to the Brylane Acquisition.
OPERATING INCOME. Operating income before giving effect to amortization and
the non-recurring inventory charge associated with the Brylane Acquisition
increased 22.2% to $60.0 million (10.4% of net sales) in fiscal 1994 from
$49.1 million (10.0% of net sales) in fiscal 1993 as a result of the increase
in gross profit, partially offset by the increase in operating expenses as
discussed above.
INTEREST EXPENSE. Interest expense, net, increased to $19.6 million (3.4% of
net sales) in fiscal 1994 from $10.1 million (2.1% of net sales) in fiscal
1993 due to the indebtedness incurred in connection with the Brylane
Acquisition, which was consummated on August 30, 1993.
INCOME TAXES. In fiscal 1994, the Partnership's income taxes were $0.1
million and represent federal and state income taxes on the Partnership's
subsidiaries which are C-corporations. In fiscal 1993, the Partnership's
income taxes were $10.7 million and reflect the fact that the Partnership's
predecessor entity was a C-corporation. Upon the consummation of the
Incorporation Plan, the Partnership will become a wholly-owned subsidiary of
the Company and, therefore, the Partnership's earnings will be attributable to
the Company and will be subject to federal and state income taxes for future
periods due to the C-corporation status of the Company. If income taxes had
been recorded as if Brylane was a C-corporation, income taxes would have been
$12.3 million in fiscal 1994 and $9.9 million in fiscal 1993.
SUPPLEMENTAL NET INCOME. If income taxes had been recorded as if Brylane was
a C-corporation, Brylane's net income would have increased $5.6 million to
$20.9 million in fiscal 1994 from $15.3 million in fiscal 1993.
38
<PAGE>
RESULTS OF OPERATIONS--CHADWICK'S
The following tables set forth certain operating data of Chadwick's for the
periods indicated.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
-------------------------- -----------------
JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $424,276 $432,660 $465,598 $355,671 $370,319
Cost of sales, including buying
and order fulfillment costs...... 269,233 271,874 278,868 211,846 206,179
-------- -------- -------- -------- --------
Gross profit...................... 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative expenses,
including catalog and order
processing costs................. 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- --------
Income from operations............ 23,604 5,457 26,448 17,570 34,409
Interest expense (income), net.... 3,378 3,940 6,920 5,211 4,492
-------- -------- -------- -------- --------
Income before income taxes,
extraordinary items and
cumulative effect of accounting
changes.......................... 20,226 1,517 19,528 12,359 29,917
Provision for income taxes........ 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- --------
Income before extraordinary items
and cumulative effect of
accounting changes............... $ 12,285 $ 1,262 $ 11,674 $ 7,391 $ 17,562
======== ======== ======== ======== ========
Net income(1)..................... $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
======== ======== ======== ======== ========
</TABLE>
The following table sets forth certain operating data of Chadwick's
expressed as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FISCAL YEAR ENDED ENDED
-------------------------- -----------------
JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying
and order fulfillment costs...... 63.5 62.8 59.9 59.5 55.7
----- ----- ----- ----- -----
Gross margin.................... 36.5 37.2 40.1 40.5 44.3
Selling, general and administra-
tive expenses, including catalog
and order processing costs....... 31.0 35.9 34.4 35.6 35.0
----- ----- ----- ----- -----
Income from operations.......... 5.6 1.3 5.7 4.9 9.3
Interest expense, net............. 0.8 0.9 1.5 1.5 1.2
----- ----- ----- ----- -----
Income before income taxes, ex-
traordinary items and
cumulative effect of accounting
changes.......................... 4.8% 0.4% 4.2% 3.4% 8.1%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in
fiscal year ended January 28, 1995 and $3,338,000 million in fiscal year
ended January 27, 1996.
THIRTY-NINE WEEKS ENDED OCTOBER 26, 1996 COMPARED WITH THIRTY-NINE WEEKS ENDED
OCTOBER 28, 1995
Net sales for the thirty-nine weeks ended October 26, 1996 increased 4.1% to
$370.3 million from $355.7 million in the comparable period of the prior year.
Sales increased due to a significant increase in average order size, partially
offset by a 11.9% decrease in the number of catalogs mailed from 169.7 million
catalogs in the 1995 period to 149.6 million catalogs in the comparable period
of 1996. The improvements in operations and inventory management that began in
the second quarter of 1995, as well as the expansion of the deferred billing
program, contributed to the increase in average order size and net sales in
the thirty-nine weeks of 1996.
Cost of sales, including buying and order fulfillment costs, as a percentage
of net sales decreased to 55.7% in the thirty-nine weeks ended October 26,
1996 from 59.5% in the thirty-nine weeks ended October 28, 1995.
39
<PAGE>
The improvement reflects improved merchandise sourcing and a reduction in
fulfillment center labor and shipping costs as a percentage of net sales. In
addition, results for the thirty-nine weeks ended October 28, 1995 did not
fully reflect the benefit of operating improvements initiated during that
year.
Selling, general and administrative expenses, including catalog and order
processing costs, as a percentage of net sales declined to 35.0% for the
thirty-nine weeks ended October 26, 1996 from 35.6% in the comparable period
of the prior year. This improvement was primarily due to an increase in sales
per catalog.
Interest expense declined to $4.5 million for the thirty-nine weeks ended
October 26, 1996 from $5.2 million for the thirty-nine weeks ended October 28,
1995 as a result of reduced rates on intercompany indebtedness owed to TJX.
Net income was $17.6 million for the thirty-nine weeks ended October 26,
1996 compared to $7.4 million in the comparable period of the prior year.
FISCAL 1995 COMPARED WITH FISCAL 1994 AND FISCAL 1994 COMPARED WITH FISCAL
1993
Net sales for fiscal 1995 totalled $465.6 million on circulation of 196.1
million catalogs versus net sales of $432.7 million on circulation of 235.0
million catalogs in fiscal 1994. The increase in net sales of 7.6%, despite a
decrease in circulation of 16.6%, is attributable to a number of factors,
including improvements in inventory management and order fulfillment, which
allowed Chadwick's to satisfy and ship customer orders on a more timely and
efficient basis, expansion of Chadwick's deferred billing program, and
improvement in overall levels of customer service. These factors combined to
significantly increase the Company's net sales per catalog mailed in fiscal
1995.
Net sales of $432.7 million in fiscal 1994 increased 2.0% over net sales of
$424.3 million in fiscal 1993 while circulation increased 10.2% to 235.0
million catalogs in 1994 from 213.2 million catalogs in fiscal 1993. Sales
were negatively impacted in fiscal 1994 due to Chadwick's poor performance in
fulfilling customer orders, resulting in customer dissatisfaction and loss of
sales. This operational problem, along with higher catalog circulation to
prospective customers in fiscal 1994, were factors contributing to the
decrease in the net sales per catalog in fiscal 1994.
Cost of sales, including buying and order fulfillment costs, as a percentage
of net sales was 59.9%, 62.8% and 63.5% in fiscal 1995, 1994 and 1993,
respectively. The improvement in the percentage in fiscal 1995 from fiscal
1994 reflects an increase in shipping and handling income, less excess
inventory to liquidate and improved fulfillment center labor productivity. The
improvement in this percentage in fiscal 1994 from fiscal 1993 is primarily
due to savings in shipping costs.
Selling, general and administrative expenses, including catalog and order
processing costs, as a percentage of net sales were 34.4%, 35.9% and 31.0% in
fiscal 1995, 1994 and 1993, respectively. These expenses as a percentage of
net sales decreased in fiscal 1995 as a result of improved sales per catalog,
partially offset by an increase in paper and postage costs per catalog mailed
and increased order processing expenses. Catalog production costs decreased
due to lower circulation, which was partially offset by increases in paper and
postage costs. Total selling, general and administrative expenses as a
percentage of net sales increased in fiscal 1994 as a result of a decrease in
catalog productivity and an increase in order processing costs.
Interest expense was $6.9 million, $3.9 million and $3.4 million in fiscal
1995, 1994 and 1993, respectively. The increase in interest expense in fiscal
1995 is due to increased short-term borrowings from TJX and higher short-term
interest rates. The increased borrowings during fiscal 1995 are primarily the
result of additional working capital requirements associated with the
expansion of Chadwick's deferred billing program.
Chadwick's effective income tax rate was 40.2%, 16.8% and 39.3% in fiscal
1995, 1994 and 1993, respectively. The low level of pretax income in fiscal
1994 along with certain tax benefits in that year resulted in
40
<PAGE>
a lower effective income tax rate. The difference between the federal
statutory income tax rate and the effective income tax rate is primarily
attributable to the effective state income tax rate.
Chadwick's recorded an extraordinary charge for the early retirement of debt
in both fiscal 1995 and fiscal 1994. The after-tax extraordinary charge of
$3.3 million in fiscal 1995 was due to the early prepayment of a $45.0 million
loan secured by a mortgage on Chadwick's offices and fulfillment center. The
charge of $192,000 in fiscal 1994 was incurred when Chadwick's retired its
outstanding $5.4 million mortgage, in connection with the $45.0 million
financing described above. Net income in fiscal 1993 was impacted by the
cumulative effect of accounting changes for postretirement medical costs and
for accounting for income taxes, resulting in an increase in net income of
$380,000. After giving effect to these items, Chadwick's net income was $8.3
million, $1.1 million and $12.7 million in fiscal 1995, 1994 and 1993,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Brylane 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 the
Partnership's partners.
Brylane's cash flow provided by operating activities decreased to $24.4
million for the thirty-nine weeks ended November 2, 1996, from $25.2 million
for the thirty-nine weeks ended October 28, 1995. This decrease was primarily
due to increased merchandise inventory at November 2, 1996, partially offset
by a reduction in paper inventory and an increase in accounts payable.
Brylane's cash balance was $10.7 million at November 2, 1996, compared to $7.5
million at February 3, 1996. The increase in the cash balance from February 3,
1996 to November 2, 1996 was achieved despite using $18.0 million for
financing activities, which included $10.1 million in debt payments and
$8.0 million in tax distributions to partners, as well as $3.2 million in
capital expenditures as discussed below.
Brylane's capital expenditures were $7.3 million, $5.3 million and $0.7
million for fiscal 1995, 1994 and 1993, respectively. 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. Brylane's capital expenditures
during 1993 consisted of installing new, more efficient distribution center
equipment and telephone equipment.
The Company's capital expenditures for fiscal 1996 are currently estimated
to be $6.3 million, including $2.6 million related to Chadwick's after
December 1996. During the thirty-nine weeks ended November 2, 1996, Brylane
spent $3.2 million, including $2.5 million for the replacement of Brylane's
original tilt tray sorter. During the remainder of fiscal 1996, the Company
will spend a total of $3.1 million, including $1.9 million on a new order
entry system for Chadwick's telemarketing. The Company currently anticipates
that capital expenditures in fiscal 1997 and fiscal 1998 will aggregate
approximately $12.0 million per year (including approximately $3.4 million in
fiscal 1997 for Chadwick's new order entry system). The remaining amounts in
fiscal 1997 and fiscal 1998 will be spent on routine maintenance and upgrades
for both the Chadwick's and Brylane catalog businesses. Brylane plans to fund
its capital expenditures for 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, as administrative agent, Merrill Lynch Capital
Corporation, as documentation agent, and the other lenders parties thereto,
and guaranteed by each of the Company's subsidiaries (the "Bank Credit
Facility"), which consists of (i) a $213.0 million five-
41
<PAGE>
year term loan (the "Tranche A Term Loan"), (ii) a $70.0 million six-year and
one quarter term loan ( the "Tranche B Term Loan", and collectively with the
Tranche A Term Loan, the "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 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 existing indebtedness under its old 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, the
Partnership 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 will initially bear interest at LIBOR plus 2.0% and the Tranche B
Term Loan will initially bear interest at LIBOR plus 2.5%. The Term Loans
begin amortizing in May 1997, with scheduled principal payments of $26 million
during fiscal 1997 (excluding the effects of the Offering). After giving
effect to the Incorporation Plan and the Offering and the use of the net
proceeds to be received therefrom, and the use of a substantial amount of
excess cash, all as described further in "Use of Proceeds", scheduled
principal payments on the Term Loans will aggregate approximately $13.0
million in fiscal 1997 and $20.8 million in fiscal 1998. As of December 11,
1996, the Company had no borrowings under the Revolving Credit Facility, and
after giving effect to the issuance of $48.2 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 $76.8 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 bear interest at 10% per annum, payable semi-
annually, and mature in 2003. The Bank Credit Facility and the Indenture
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. See "Description of
Certain Financing Arrangements". During the first three quarters of fiscal
1996, Brylane made tax distributions to its partners totaling $8.0 million.
The Partnership expects that it will make total tax distributions to its
partners during fiscal 1996, for periods up to the time of the Offering, that
will approximate the tax payments the Partnership would be required to make if
it were a tax-paying corporation, rather than a partnership. Brylane's
estimated tax distributions and capital expenditures for the first three
quarters of fiscal 1996 were in compliance with the Covenants. See "--Certain
Tax Matters" and "Description of Certain Financing Arrangements--Senior
Subordinated Notes".
In connection with the Chadwick's Acquisition, Brylane entered into an
Accounts Receivables Purchase Agreement dated as of December 9, 1996 with
Alliance Data Systems Corporation ("ADS") (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 80 basis points or a
defined prime rate plus 15 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 Bank
Credit Facility. See "Certain Relationships and Related Transactions--
Additional Agreements--Accounts Receivable Purchase Agreement".
As a result of the Offering, the Company's indebtedness will decrease
significantly. The Company intends to use the net proceeds received from the
Offering to prepay $92.0 million of borrowings and accrued interest
outstanding under the Term Loans. In addition, upon consummation of the
Offering, the Company intends to use
42
<PAGE>
a substantial amount of its excess cash to further prepay indebtedness
outstanding under the Term Loans. See "Use of Proceeds", "Unaudited Pro Forma
As Adjusted Financial Statements" and "Description of Certain Financing
Arrangements--Bank Credit Facility".
Based on current and projected operating results and giving effect to the
reductions in its total indebtedness discussed above, 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 Bank Credit Facility), tax distributions to its partners for periods
prior to the consummation of the Offering, 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.
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.
The following tables set forth certain unaudited quarterly data of Brylane
and Chadwick's for the periods shown (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------------------------------------- ----------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QTR. QTR. QTR. QTR. QTR. QTR QTR
BRYLANE -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $143,195 $150,784 $141,226 $165,850 $150,680 $157,945 $158,384
Operating income*..... 11,278 17,983 8,054 16,891 11,774 18,068 14,293
Operating margin...... 7.9% 11.9% 5.7% 10.2% 7.8% 11.4% 9.0%
CHADWICK'S
Net sales............. $116,611 $ 87,602 $151,458 $109,927 $131,996 $ 92,904 $145,419
Operating income...... 5,080 (1,237) 13,727 8,878 12,865 4,444 17,100
Operating margin...... 4.4% (1.4)% 9.1% 8.1% 9.7% 4.8% 11.7%
</TABLE>
- --------
* Before acquisition related adjustments.
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 "Certain Relationships and
Related Transactions". 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. See "Unaudited Pro Forma As Adjusted Financial
Statements".
The Partnership intends to elect under Section 754 of the Internal Revenue
Code of 1986, as amended (the "Code"), for the current tax year to increase
the tax basis of its assets by approximately $50.7 million to reflect
43
<PAGE>
the federal tax gain that The Limited and its affiliates will recognize in
connection with its contribution to the Company of its partnership interests
in the Partnership pursuant to the Incorporation Plan. 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 will 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 will be
included in a deferred tax asset upon consummation of the Incorporation Plan.
If the Offering had occurred on November 2, 1996, the deferred tax asset would
have been approximately $20.5 million. See "Unaudited Pro Forma As Adjusted
Financial Statements".
TAX DISTRIBUTION. To the extent that the partners of the Partnership, other
than The Limited, Leeway & Co., NYNEX and WearGuard, recognize taxable income
resulting from the allocation of income of the Partnership prior to the
consummation of the transactions contemplated by the Incorporation Plan, the
Partnership Agreement provides that such partners will receive a distribution
to cover their federal and state tax liabilities attributable thereto. If such
a distribution is payable, The Limited, Leeway & Co., NYNEX and WearGuard will
each also be entitled to a proportionate distribution to cover its respective
tax liabilities on its share of the same amount of Partnership income. During
fiscal 1995, the Partnership made tax distributions to its partners totaling
$6.6 million. These tax distributions approximate the tax payments the
Partnership would be required to make if it were a tax-paying corporation,
rather than a partnership. While the amount of such potential distributions by
the Partnership to its partners will not be determinable until after the
consummation of the Incorporation Plan, the Company believes that such amounts
will not exceed $6.0 million total.
ADOPTION OF ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", which is effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. Brylane's adoption
of SFAS No. 121 had no effect on the Company's financial statements.
In October 1995, the 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
with respect to stock-based compensation and requires certain additional
disclosures, including disclosures if the Company elects not to adopt the
accounting requirements of SFAS No. 123. 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 No. 25. Consequently, beginning with the Company's Form 10-K for
fiscal 1996, the Company will provide pro forma disclosures of what net income
and earnings per share would have been had the fair market value method of
SFAS No. 123 been used for the relevant periods.
44
<PAGE>
BUSINESS
GENERAL
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.1 billion for the latest
twelve months. The Company has established a focused portfolio of profitable
catalogs that target consumers of both special and regular size apparel.
Through its nationally recognized Lane Bryant and Roaman's catalogs, Brylane
is the leading catalog retailer of women's special size apparel (sizes 14 to
56) and, through its KingSize catalog, is a leading catalog retailer of men's
special size apparel (sizes XL to 9XL). Chadwick's of Boston, which the
Company acquired in December 1996, is the nation's largest off-price women's
apparel 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's Lerner catalogs has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
is currently developing several new catalog concepts. For example, Brylane
launched the Sue Brett catalog to serve the regular size mature women's
apparel market, and Chadwick's successfully tested its Bridgewater catalog,
which offers a broad assortment of regular size women's and men's classic
apparel. Brylane is also testing a regular size men's apparel catalog.
Additionally, Brylane has expanded its customer base by marketing certain of
its catalogs under the "Sears" name to customers of Sears, Roebuck and Co.
under an exclusive licensing arrangement with Sears Shop at Home Services,
Inc. ("Sears").
As a result of the growth of its established catalogs, the acquisition of
the KingSize catalog and the introduction of new catalog concepts, Brylane's
net sales have increased from $424.5 million in fiscal 1992 to $601.1 million
in fiscal 1995, representing a compound annual growth rate of 12.3%. Due to
the growth in its core business, the introduction of new merchandise
categories such as special size apparel, gifts and men's apparel, and the
successful execution of its marketing strategies, Chadwick's net sales have
increased from $295.5 million in fiscal 1992 to $465.6 million in fiscal 1995,
representing a compound annual growth rate of 16.4%.
The Company believes that Chadwick's represents a significant strategic
addition to the Company's catalog portfolio. Chadwick's of Boston is one of
the most well-recognized brand names in women's catalog apparel retailing. The
Company believes that Chadwick's customer list is one of the largest and most
valuable in the women's apparel industry. Chadwick's targets middle to upper
middle income women between the ages of 25 and 55, who the Company believes
represent approximately one-third of the adult female population in the United
States, or approximately 33 million women. Chadwick's offers a broad
assortment of casual, career and social wear apparel at attractive prices.
Although Chadwick's will continue to operate in its current facilities with
its current management team, the Company believes that there are several
opportunities to enhance the revenue growth of its entire catalog portfolio by
sharing customer lists and merchandising and marketing expertise, as well as
to reduce its expenses by leveraging the Company's combined purchasing power.
The Company's merchandising strategy is to (i) provide value-priced apparel
with a consistent quality and fit, (ii) concentrate on apparel with limited
fashion risk, and (iii) offer a broad selection of sizes, styles and colors.
The Company believes that the effective implementation of its merchandising
strategy, together with its high level of customer service, have contributed
to the growth of its large and loyal customer base. The Company's combined
customer file has grown to over 21 million names as of September 30, 1996
(which includes 1.8 million names from the Sears customer file and gives
effect to the acquisition of Chadwick's), of which approximately 9.7 million
are active customers who have placed an order in the preceding 12 months. Over
40% of the Lane Bryant, Roaman's and Lerner active customers placed an order
three or more times during the 12 months ended September 30, 1996.
Catalog sales have been the fastest growing channel of retail apparel sales.
From 1994 to 1995, catalog women's apparel sales increased 6.1% to $8.9
billion, while overall retail women's apparel sales increased by approximately
1% to $80.9 billion. The percentage of the U.S. adult population that made a
purchase through a catalog has increased to 52% in 1995 from 41% in 1993. The
Company believes that catalog sales of apparel
45
<PAGE>
will continue to increase because the busy lifestyles of today's men and women
demand the convenience and the time savings afforded by catalog shopping.
The Company believes that the special size customer is underserved by other
catalog retailers and by specialty and department stores, which carry a more
limited selection of merchandise than that offered in Brylane's catalogs. From
1994 to 1995, men's and women's catalog special size apparel sales increased
by 6.7% to $3.8 billion. Brylane believes that the special size customer base
will continue to increase as the general population continues to age and as
average body weight continues to increase. Additionally, Brylane believes that
catalog shopping is particularly well suited to special size customers, who
Brylane believes prefers the convenience of shopping from home. Management
estimates that approximately 30 million or 35% of U.S. women wear special size
clothing (sizes 14 or larger) and that approximately 9 million or 10% of U.S.
men wear special size clothing (sizes 2XL or larger). Typical retail stores
and catalogs which sell special sizes carry a more limited selection of
merchandise above sizes 26 for women and 3XL for men when compared with the
selection of merchandise offered in Brylane's catalogs.
BUSINESS STRATEGY
The Company has successfully developed and executed its business strategy,
which has placed the Company in a favorable position for future growth. The
fundamentals of this strategy include the following:
. Operate a Portfolio of Market Leading Catalogs
The Company operates a portfolio of catalogs, most of which are the
leaders in their respective markets. By focusing on delivering high quality
merchandise at value prices, the Company intends to maintain Chadwick's
position as the largest off-price women's apparel catalog, Lane Bryant and
Roaman's positions as the largest catalogs of special size women's apparel,
and KingSize's position as a leading catalog of special size men's apparel.
In addition, the Company plans to continue its development of Lerner and
Sue Brett as growing catalogs in the regular size women's apparel market.
. Offer an Extensive Selection of Quality, Value-Priced Apparel
The Company offers an extensive selection of quality, value-priced
apparel. By concentrating on apparel with limited fashion risk, the Company
is able to offer a substantially greater number of sizes, styles and colors
than its competitors. The Lane Bryant, Roaman's and KingSize catalogs offer
extensive selections of merchandise size 26 and over for women and size 3XL
and over for men, in many cases offering three to four times more stock
keeping units ("SKUs") than Brylane's competitors. Such sizes generated
approximately 30% of Lane Bryant and Roaman's net sales of women's special
size apparel and approximately 45% of KingSize's net sales of men's special
size apparel in 1995. The Chadwick's catalog offers a broad selection of
high quality branded and private label apparel in a large array of colors
and sizes at prices typically 25% to 50% below the regular prices of
department and specialty retail stores.
. Maintain Strong Sourcing Capabilities and Disciplined Inventory Control
The Company has established excellent, long-standing relationships with a
number of apparel manufacturers and suppliers, both domestically and
internationally. The Company believes these relationships are a major
reason that it is able to offer merchandise of high quality and consistent
fit at an excellent value. The Company's disciplined inventory control
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.
. Maintain Highly Efficient Telemarketing, Fulfillment and Distribution
Operations
The Company focuses on providing superior customer service through a well
trained telemarketing staff and services its customers through two state-
of-the-art fulfillment centers. In order to manage the high number of SKUs
required to provide the broad selection of merchandise offered in its
catalogs, the Company has developed highly sophisticated and efficient
order fulfillment and inventory management methods. Chadwick's is currently
installing a new state of the art order entry system that will provide its
telemarketing representatives with on-line customer and merchandise
information that will enable Chadwick's to increase its cross-selling
efforts and improve its customer service.
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. Emphasize Superior Customer Service
The Company emphasizes superior customer service and provides toll-free
telephone service for orders and other customer needs. The Company's
telephone operators are trained to provide friendly service, and the
Company offers an unconditional guarantee of its merchandise. Brylane's
management information systems provide Brylane's operators and customer
service representatives with real-time customer information, allowing them
to better serve its customers.
GROWTH STRATEGY
The Company's growth strategy is to increase its sales and profits by:
. Realizing Strategic Benefits from the Acquisition of Chadwick's
The Company believes that it will realize several significant strategic
benefits from the acquisition of Chadwick's. The Company believes that
revenue growth can be enhanced through sharing customer lists, utilizing
merchandising and marketing expertise developed at each company, including
in the introduction of new merchandise categories (such as special sizes in
the Chadwick's catalog and petite size women's and regular size men's
apparel in Brylane's catalogs), introducing private label credit cards to
Chadwick's customers. The Company will have opportunities to leverage its
combined purchasing power, particularly in the procurement of paper and
telecommunications services. In addition the Company expects that certain
costs such as MIS processing and development, insurance, packaging supplies
and professional services can be leveraged for the combined entity.
. Expanding Merchandise Offerings
The Company intends to continue to refine and broaden its merchandise
offerings in order to satisfy the apparel needs of its customers. The
Company believes that this strategy freshens the appeal of each catalog's
assortment of merchandise and stimulates increased sales. For example, the
Company recently introduced or expanded offerings of women's career wear,
men's apparel, special sizes, tall and petite sizes, shoes, intimate
apparel, non-apparel gift items and jewelry in certain catalogs.
. Offering Promotional Incentives
The Company has implemented certain promotional programs in many of its
catalogs, including installment and deferred billing payment programs and
shipping and handling incentives. These programs have resulted in a
significant improvement in net sales and average order size, particularly
in the Company's Chadwick's and Lerner catalogs. The Company intends to
expand the use of these programs to its other catalogs during 1997.
. Refining Customer List Segmentation Techniques
An important element of the Company's marketing strategy is the improved
segmentation of its existing customer files. Brylane has recently installed
a modeling and scoring software program that uses more sophisticated multi-
variable regression analyses to create predictive purchasing models. This
program will employ up to 75 different variables including, among others,
geography, size, products purchased, credit availability payment type and
proximity to certain retail stores. The Company believes that the
development and refinement of Brylane's predictive purchasing models will
allow Brylane to better target its customer mailings and more effectively
utilize its customer file. In addition, Chadwick's is also testing
increasingly sophisticated statistical circulation models to improve its
ability to predict customer purchase behavior based on a wide range of
variables. The Company believes that its ability to better predict customer
purchasing behavior maximizes the effectiveness of catalog mailings to
current and prospective customers.
. Expanding the Customer File
The Company plans to increase the number of names in its customer file
through cost effective prospecting programs. For example, the Company has
recently implemented a program of cable television advertising to solicit
new customers and to promote brand awareness for certain of its catalogs.
In conjunction with Sears, the Company plans to improve the segmentation of
the over 20 million name file of
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Sears, Roebuck and Co. to increase its success rate with prospects. The
Company will continue to rent, exchange or purchase available customer
lists and to access the lists of credit card holders of The Limited's Lane
Bryant and Lerner retail stores.
. Continuing to Develop Recent Catalog Additions
The Company believes that its Sue Brett and Bridgewater catalogs broaden
the Company's catalog portfolio and provide substantial opportunities for
growth. Management believes that Sue Brett, which was launched in Spring
1995, is well positioned to capitalize on the underserved mature women's
regular size apparel market. Due to Sue Brett's early success, the Company
established a separate merchandising team for this catalog, and intends to
substantially increase its circulation. In May 1996, Chadwick's tested its
Bridgewater catalog, which offers a broad assortment of regular size
women's and men's classic apparel. Based on the success of this test, the
Company plans to significantly increase the circulation of this catalog in
1997. In addition, in order to capitalize on the growth potential of the
Company's KingSize catalog, the Company plans to continue to improve and
broaden the merchandise assortment in this catalog, apply the Company's
promotional incentives to this catalog, and cross-market the KingSize
catalog to customers of Brylane's other catalogs.
. Introducing or Acquiring New Catalogs
The Company intends to continue to evaluate opportunities to introduce or
acquire new catalogs. For example, Brylane has been testing a catalog
format targeted at the regular size men's apparel segment. These tests have
demonstrated that Brylane's female customers have a propensity to purchase
the offerings of men's apparel included in Brylane's catalogs, and will be
expanded over the next twelve months. The Company believes that its
existing customer lists and the Sears customer file can be effectively
utilized to develop the regular size men's catalog as well as other new
catalog concepts. In addition, based on the strong response to the special
size apparel offerings tested in its existing catalog, Chadwick's intends
to create a stand-alone special size apparel catalog in 1997. The Company
may also selectively pursue strategic acquisitions that either expand or
complement the Company's existing business.
CUSTOMERS
The Company has a large and loyal customer base. As of September 30, 1996,
the Company's combined customer file contained over 21 million customers
(including 1.8 million names from the Sears customer file and giving effect to
the acquisition of Chadwick's), of which approximately 9.7 million are active
customers. Over 40% of the Lane Bryant, Roaman's and Lerner active customers
placed an order three or more times during the 12 months ended September 30,
1996. The Company defines a customer as someone who has placed an order with
any of the Company's catalogs within the last 48 months, and an active
customer as one who has placed at least one order within the last 12 months.
Some 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.
The following table presents the Company's unaudited pro forma net sales for
the thirty-nine weeks ended November 2, 1996 for each of the Company's catalog
concepts (dollars in millions).
<TABLE>
<CAPTION>
CATALOG AMOUNT PERCENT
------- ------ -------
<S> <C> <C>
Chadwick's(1)................................................. $368.2 44.1%
Lane Bryant and Roaman's...................................... 306.5 36.7
Lerner........................................................ 73.0 8.7
Sears Catalogs(2)............................................. 60.1 7.2
KingSize...................................................... 18.6 2.2
Sue Brett..................................................... 8.8 1.1
------ -----
$835.2 100.0%
====== =====
</TABLE>
- --------
(1) Including Bridgewater.
(2) Including Big & Tall.
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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 off-price
merchandise. In addition, Chadwick's has expanded its merchandise offerings to
target women who wear petite and special size apparel. Chadwick's 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
September 30, 1996, the Chadwick's customer files contained 10.7 million
customer names, of which 4.2 million names are active customers. The average
order by a Chadwick's customer during fiscal 1995 was approximately $86.
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 special size customer segment is 51, and that the
typical customer has an income level somewhat below that of the national
average. As of September 30, 1996, the Lane Bryant and Roaman's customer files
contained 4.1 million and 2.2 million customer names, respectively, of which
2.2 million and 1.1 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 1995 was approximately $72 and $71, 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 36, and that the
average Lerner customer has an income level approximately equal to the
national average. As of September 30, 1996, the Lerner customer file contained
2.4 million customer names, of which 0.9 million are active customers. The
average order by a Lerner customer during fiscal 1995 was approximately $65.
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 were not already existing customers of Brylane. The
Company 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 September 30, 1996, the Sears catalogs customer file contained 1.8 million
customer names, of which 928,000 are active customers. The average order by a
Sears customer during fiscal 1995 was approximately $68 for women's apparel
and $99 for men's apparel. The Company believes there may also be an
opportunity to develop an additional Sears catalog based on the Chadwick's
catalog. See " Sears Agreement".
KINGSIZE. The KingSize catalog targets 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 average KingSize customer has an income
level above the national average. As of September 30, 1996, the KingSize
customer file contained 355,000 customer names, of which 158,000 are active
customers. The average order by a KingSize customer during fiscal 1995 was
approximately $104.
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 September 30, 1996, the Sue Brett customer
file contained 209,000 customer names, of which 158,000 are active customers.
The average order by a Sue Brett customer during fiscal 1995 was approximately
$65.
MERCHANDISING
As a result of its targeted merchandising strategies, the Company has
succeeded in developing distinct identities for each of its catalogs. The
Company's merchandising strategy to (i) provide value-priced apparel with a
consistent quality and fit, (ii) concentrate on apparel with limited fashion
risk, and (iii) offer a broad selection of sizes, styles and colors. The
Company intends to continue to refine and broaden its merchandise offerings in
order to satisfy the apparel needs of its customers. The Company believes that
this strategy freshens the appeal of each catalog's assortment of merchandise
and stimulates increased sales.
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<PAGE>
CHADWICK'S. Chadwick's believes that it is unique in its ability to offer
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 SKUs, in sizes 2 to 26.
The average price point per item sold by Chadwick's in fiscal 1995 was
approximately $27. When compared with Brylane, Chadwick's offers more
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 "Certain Relationships and
Related Transactions--The Chadwick's Acquisition".
Chadwick's has successfully introduced a number of complementary merchandise
categories to its customers. These categories, which have been tested and
offered on a limited basis, include men's apparel, children's apparel, women's
special size apparel, accessories, gifts and cosmetics. Since Chadwick's began
offering complementary merchandise categories in 1992, net sales of these
products have grown to represent 16.2% of Chadwick's net sales in 1995.
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. Both catalogs offer
extensive selections of merchandise over size 26, in many cases offering three
to four times more SKUs than its competitors. Approximately 30% of Lane Bryant
and Roaman's net sales are in sizes 26 or larger. Lane Bryant and Roaman's
catalogs offer 89,900 and 65,800 SKUs, respectively, in sizes 14 to 56. The
average price point per item sold by both Lane Bryant and Roaman's in fiscal
1995 was approximately $22.
Each of the special size women's catalogs offers a broad mix of apparel. In
1995, sportswear, intimate apparel and dresses accounted for approximately 52%,
22% and 12% of Lane Bryant and Roaman's net sales, respectively. Footwear,
outerwear and accessories accounted for the balance of such net sales.
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 license from The Limited, and the Roaman's
private label brand name, which is owned by the Company. See "Certain
Relationships and Related Transactions--Additional Agreements--Trademark
Agreement".
LERNER. The Lerner catalog offers a broad selection of quality contemporary
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 1995 was approximately
$21.
In 1995, sportswear, dresses and outwear accounted for approximately 70%, 14%
and 12% of Lerner net sales, respectively. Footwear, accessories and intimate
apparel accounted for the balance of such net sales.
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 catalogs 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 "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; Women's View (Lane Bryant and
Roaman's); Smart Choice (Lerner); Classics (Sue Brett):
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<PAGE>
and Big & Tall (KingSize). This allows the Company to fill the orders
generated by these catalogs with minimal incremental inventory risk. See "--
Sears Agreement".
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. Approximately 45% of
KingSize's sales (including Big & Tall) are in sizes 3XL or larger. The
average price point per item sold by KingSize in fiscal 1995 was approximately
$38. In addition, the Company has been testing a catalog format targeted at
the regular size men's apparel segment, and expects to expand these tests
during the next 12 months.
In 1995, sportswear, outerwear and underwear accounted for approximately
60%, 15% and 12% of KingSize net sales (including sales from the Company's
Sears Big & Tall catalogs), respectively. Footwear and accessories accounted
for the balance of such net sales.
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 1995 was approximately $26.
MARKETING
PROMOTIONAL STRATEGIES. The Company has implemented highly effective
promotional incentives in many of its catalogs. Promotional incentives include
installment and deferred 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. The Company
intends to expand the use of these programs during 1997.
PRIVATE LABEL CREDIT CARDS. Brylane views the use of credit as an important
marketing tool with existing and new customers, and believes that it provides
Brylane with a competitive advantage over the catalog retailers that do not
employ similar programs. Approximately 90.9% of Brylane's fiscal 1995 sales
(including sales from Brylane's Sears catalogs) were paid for using credit.
Brylane estimates that in fiscal 1995, credit purchases per order of women's
apparel were on average $73 or 45.6% greater than those made with cash. In
addition, approximately 68.0% of Brylane's fiscal 1995 sales (excluding sales
from Brylane's Sears catalogs) were paid for using the Lane Bryant, Roaman's
and Lerner private label credit cards. Brylane estimates that its private
label credit card customers spend approximately 40% more than its customers
who use bank cards and approximately 140% more than its customers who pay with
cash. Through private label cards, the total amount of credit available to
Brylane'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. The Company believes that there is a
significant opportunity to increase Chadwick's sales through the introduction
of a Chadwick's private label credit card.
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<PAGE>
Brylane's on-line computer system enables its telephone sales
representatives to immediately identify which new customers have been pre-
approved to receive private label credit cards. Brylane believes that this
access to instantaneous credit for first time buyers helps to establish them
as repeat customers. Brylane also uses promotional inserts in credit statement
mailings to its customers.
For catalogs distributed under the Sears Agreement, 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.
The Company offers its customers the Lane Bryant, Roaman's, Lerner, Sue
Brett and KingSize private label credit cards 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 assumes all risks associated with the collection of
receivables generated by credit card sales (except for costs relating to
certain agreed upon credit promotion programs). In July 1995, Brylane entered
into an amendment to the Credit Card Agreement that provided, among other
things, for a reduced transaction fee payable by Brylane and an extension of
the earliest date at which the Credit Card Agreement can be terminated to July
2006. See "Certain Relationships and Related Transactions--Additional
Agreements--Credit Card Processing Agreement".
LIST MANAGEMENT. An important element of the Company'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 a modeling and scoring software
program that uses more sophisticated multi-variable regression analyses to
create its predictive purchasing models. This program will employ up to 75
different variables including, among others, geography, size, products
purchased, credit availability, payment type and proximity to certain retail
stores. The Company believes that the development and refinement of Brylane's
predictive purchasing models will allow Brylane to better target its catalog
mailings and more effectively utilize its customer file. In addition,
Chadwick's is also testing increasingly sophisticated statistical circulation
models to improve its ability to predict customer purchase behavior based on a
wide range of variables. 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. The Company's prospect acquisition programs are
designed to attract new customers in a cost effective manner. The Company
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 the Company. The Company has recently
implemented a program of cable television advertising to solicit catalog
requests for its KingSize catalogs, as well as tests of similar programs for
its Lane Bryant and Roaman's catalogs. Based on the successful results of the
KingSize program and the test results of the Lane Bryant and Roaman's
commercials, Brylane expects to increase significantly its use of cable
television advertising as part of its efforts to solicit catalog requests and
to acquire new customers. In conjunction with Sears, the Company plans to
improve the segmentation of the over 20 million name Sears customer file to
increase its success rate with prospects.
CUSTOMER SERVICE AND TELEMARKETING. Providing superior service to customers
is a key element of the Company's marketing strategy, and is supported by the
Company'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. The Company's return policy provides that if a customer is not
satisfied with a purchase for any reason, the merchandise can be returned to
the
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Company for a refund or exchange. The return rate for Brylane (which includes
exchanges) for fiscal 1993, 1994 and 1995 was 23.2%, 24.2% and 22.6%,
respectively, of shipped sales. The return rate for Chadwick's (which includes
exchanges) for fiscal 1993, 1994 and 1995 was 26.5%, 26.5% and 25.0%,
respectively, of shipped sales.
The Company's telemarketing operations are conducted at 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 1,756
telemarketing/customer service stations. In fiscal 1995, these facilities
processed approximately 26 million calls. The number of associates manning
these stations varies greatly during the hours of each day of each selling
season, based on anticipated call volume.
The Company trains its telephone sales representatives to determine the
correct size for its special size customers. The proper fit for all customers
is ensured by the Company's merchandising emphasis on consistent sizing and
fit across its product lines. Brylane's computerized database provides the
sales representatives with on-line information about previous customer orders,
which allows the sales representatives to personalize each transaction.
Brylane's computerized database also includes an inventory control system,
which allows Brylane's telephone sales representatives to inform customers
immediately about merchandise availability and estimated delivery dates for
back-ordered merchandise. As part of its efforts in this area, Brylane's sales
representatives are trained to describe current sale items or other promotions
to customers. Brylane's promotional selling efforts resulted in an additional
$19.4 million in net sales during fiscal 1995.
The telephone switches at Brylane's three facilities enable it to
efficiently balance its incoming telephone calls during periods of heavy
telephone volume. In 1994, Brylane installed a telephone switch at its
Indianapolis telemarketing center, which enabled it to significantly increase
its telephone volume capacity and to reduce costs by providing more accurate
and timely information to management. In addition, Brylane intends to
implement a new telephone routing program within the next six months. This
program will enable Brylane to reroute calls between each catalog's
telemarketing groups and Brylane's three telemarketing centers during periods
of heavy activity. In addition, in June 1996, Brylane renegotiated its
agreement with its long-distance telephone service provider to, among other
things, reduce the rates charged to Brylane for its long-distance telephone
service.
Chadwick's is installing a new state of the art order entry system that
provides its customer service representatives with on-line catalog information
and data on customer orders and past purchases. This additional information is
expected to increase the ability of Chadwick's sales representatives to
personalize transactions, market additional products that complement the
purchases being made by the customer and recommend alternatives for items that
are either unavailable or on back order. Chadwick's new system utilizes
"universal agents" that receive both telephone orders and customer service
calls, and which the Company believes will lead to an increase in
productivity. Chadwick's also expects that this new system will permit it to
process orders more efficiently.
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 16.4 million shipments in fiscal 1995. In the fall of 1994,
Brylane developed and implemented "one-pass picking", a highly sophisticated
and efficient method for gathering the merchandise needed to fill customer
orders, at its Indianapolis fulfillment center. Brylane believes that it is
currently the only catalog retailer that employs "one-pass picking". In
September 1995, Brylane completed an $8.0 million enhancement of the package
sorting and shipping capabilities of the Indianapolis fulfillment center,
including the addition of a second high speed tilt tray
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sorter. These enhancements to the fulfillment center approximately doubled
Brylane's shipping and receiving capabilities. In addition, Brylane recently
completed a $2.9 million project to replace the original tilt tray sorter,
which replacement became operational in the fourth quarter of 1996. The West
Bridgewater facility processed over 11 million shipments in 1995 and has the
capacity to process approximately 40% more shipments before any capital
expansion of the center will be required.
DELIVERY. The Company reduces order delivery costs through careful
management of its shipping techniques. For example, third and fourth class
mailing costs, which accounted for approximately 88.6% of Brylane's orders
shipped in fiscal 1995, are managed to obtain the benefits of various mailing
rate discount programs offered by the USPS. The Company sorts packages by zip
code, prints the zip bar codes 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 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
approximately 86.8% of Brylane's net sales in fiscal 1995. 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 its objective of 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. While Chadwick's also
benefits from private label merchandise offerings, it offers a significantly
larger percentage of nationally recognized brand name merchandise. Chadwick's
private label merchandise accounted for approximately 56.0% of Chadwick's
fiscal 1995 net sales. 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 purchases from
foreign suppliers accounted for 20.7% of merchandise purchased in fiscal 1995.
In 1995, approximately 34.0% of Chadwick's merchandise was purchased from
foreign suppliers.
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., 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
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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 merchandise brokers
(who then resell such merchandise to retailers) and with discount retailers.
Chadwick's historically has been successful in selling its overstock through
its twice-yearly, end-of-season clearance catalogs, through its retail outlet
stores located in Nashua, New Hampshire and Brockton, Massachusetts, and to
TJX and other third parties. 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 "Certain Relationships
and Related Transactions-- The Chadwick's Acquisition".
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 1993, 1994 and 1995, cancellations were 5.5%, 4.9% and 5.1%,
respectively, of the total dollar value of orders received for the Brylane
catalogs and 3.8%, 3.9% and 5.1% of the total dollar value of orders received
for the Chadwick's catalogs.
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 one year.
During this period, the Company will evaluate alternative sources for these
services, including having Chadwick's perform certain of the functions itself,
and transferring certain of the functions to Brylane. See "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 "Properties".
SEARS AGREEMENT
In March 1994, Brylane entered into an exclusive licensing agreement with
Sears (as amended, the "Sears Agreement") to produce special size women's
apparel catalogs (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 already existing customers
of Brylane and that 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 reviewed 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
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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
purchase using a Sears credit card or various bank 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 catalog 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 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 the Company's markets.
The Company competes on the basis of its extensive merchandise selection,
product quality and price, credit extension and customer service. The Company
believes that its long-standing relationships with many of its customers,
reputation for quality merchandise, extensive customer files and low-cost,
efficient infrastructure allow it to compete effectively in all of its other
market segments. See "Risk Factors--Competition and Other Business Factors".
The Transaction Agreement 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 generally provides
that the Company may not, without The Limited's consent, for so long as the
Limited Stockholder holds, directly or indirectly, at least 20% of the
outstanding Common Stock of the Company, 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 catalogs as of October 14, 1996. The Company currently has
no plans to further expand its business into areas that are competitive with
The Limited. See "Risk Factors--Competition and Other Business Factors" and
"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
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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 "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, Roaman's, 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
trademarks, including Sue Brett, KingSize, Peak Performance, Hunters Run,
David Benjamin, Lasting Comfort, Venezia, Forenza, 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". See "Certain Relationships and Related Transactions--The
Chadwick's Acquisition".
ASSOCIATES
The Company's skilled and dedicated associates are a key resource. At
December 9, 1996, the Company employed (directly or indirectly through its
subsidiaries) approximately 5,500 individuals, including part-time and full-
time associates. During peak sales periods, the Company hires approximately
700 additional part-time and temporary associates. Approximately 1,000 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.
PROPERTIES
The principal executive offices of the Company and the Partnership are
located in New York, New York in approximately 74,000 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. 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 Brylane. 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. See "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.
REGULATORY MATTERS
Since June 30, 1996, the Partnership has collected applicable sales and use
taxes on merchandise sales in the states of Indiana, 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. The Company currently collects sales and use
tax on merchandise sales in the states of Indiana, Maryland,
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Massachusetts, New York and Texas. 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, 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 such 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 37.5%
(with an average rate of 20.0%) of appraised value on certain items of
inventory. During fiscal 1995, Brylane and Chadwick's made approximately 20.7%
and 34.0% of their respective merchandise purchases from foreign suppliers.
See "Risk Factors--Dependence on Suppliers; Foreign Sourcing".
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.
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THE INCORPORATION PLAN
To effect the Incorporation Plan, the Company, certain affiliates of FS&Co.,
The Limited, Lane Bryant Direct Holding, Inc., a Delaware corporation
("Lane Bryant Direct"), which is an affiliate of The Limited, 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, will result in the Company acquiring, directly, or indirectly
through the acquisition of wholly-owned subsidiaries, a 100% ownership
interest in the Partnership in exchange for shares of the Common Stock of the
Company. Pursuant to the terms of the Exchange Agreement, one share of the
Common Stock of the Company will be issued for each partnership unit of the
Partnership or share of common stock of VP Holding (as defined) tendered in
exchange therefor. The description of the Exchange Agreement set forth below
is qualified by reference to the Exchange Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
Pursuant to the Exchange Agreement, 8,527,000 of the shares of common stock
of VP Holding Corporation, a Delaware corporation ("VP Holding"), which
indirectly holds the sole general partnership interest in the Partnership and
a limited partnership interest in the Partnership through its wholly-owned
subsidiaries, VGP Corporation, a Delaware corporation ("VGP"), and VLP
Corporation, a Delaware corporation ("VLP", and together with VGP, the "FS
Parties"), respectively, will be exchanged by affiliates of FS&Co. for
8,527,000 shares of Common Stock. VGP currently owns 2,562,500 partnership
units in the Partnership, and VLP currently owns 6,509,167 partnership units
in the Partnership. Upon consummation of the Incorporation Plan, including
completion of the transactions discussed below, VGP and VLP will own a 16.6%
interest and a 83.4% interest, respectively, in the Partnership, and the
Company will own, indirectly, a 100% interest in the Partnership.
Pursuant to the Exchange Agreement, (i) Lane Bryant Direct will transfer 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 will transfer 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. will transfer 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 will
transfer 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) assuming that the TJX Noteholder does not convert the
Partnership Note (as defined) into partnership units prior to the Offering,
the TJX Noteholder shall deliver to the Company the Convertible Subordinated
Note Due 2006 in the original principal amount of $20,000,000 (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"), in exchange for a substitute Convertible Subordinated Note Due 2006
issued by the Company and the Partnership on substantially the same terms and
conditions as the Partnership Note (the "Convertible Note"). In the event that
the TJX Noteholder elects to convert all or a part of the Partnership Note
into partnership units prior to the Offering, pursuant to the Exchange
Agreement, the TJX Noteholder will transfer its then existing limited
partnership interest in the Partnership, consisting of that number of
partnership units acquired pursuant to such conversion of the Partnership Note
in exchange for the same number of shares of Common Stock, and if the
Partnership Note is only converted in part, the remainder of the Partnership
Note will be exchanged for the Convertible Note, which will then be
convertible into the remainder number of shares of Common Stock. Immediately
following the Offering and the consummation of the Incorporation Plan, the
Company will transfer all of the limited partnership units in the Partnership
contributed to the Company by Lane Bryant Direct, WearGuard, Leeway & Co.,
NYNEX and, if applicable, the TJX Noteholder to VP Holding, which will in turn
transfer such units to VLP.
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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 will also exchange such shares of VP Holding for an aggregate of
544,667 shares of Common Stock. Such shares of Common Stock will be issued to
these individuals pursuant to agreements which will contain certain
restrictions that are substantially similar to the restrictions under which
the shares of VP Holding common stock had been held, subject to termination of
certain rights and obligations upon consummation of the Offering, as provided
in such agreements. See "Management--Stock Subscription Plan". The shares of
VP Holding Preferred Stock (as defined) purchased by certain members of
management in connection with the Chadwick's Acquisition will be exchanged for
preferred stock of the Company with substantially similar terms (the "Series A
Preferred Stock"). See "Description of Capital Stock--Series A Preferred
Stock". The Series A Preferred Stock will be issued pursuant to agreements
that will contain certain restrictions that are substantially similar to those
under which the shares of VP Holding Preferred Stock were issued, subject to
the termination of certain rights and obligations upon consummation of the
Offering. See "Certain Relationships and Related Transactions----The
Chadwick's Acquisition".
In addition, as part of the Incorporation Plan, all options to purchase
partnership units in the Partnership previously granted to certain members of
management of the Company and others will be cancelled, and such members of
management and others will be issued options to purchase shares of Common
Stock in accordance with the terms of the Company's new stock option plans.
The agreements pursuant to which such options will be granted will contain
terms and conditions which are substantially similar to those contained in the
agreements previously entered into with such individuals, subject to
termination of certain rights and obligations upon consummation of the
Offering, as provided in such agreements. See "Management--Option Plans".
Upon consummation of the Incorporation Plan, and assuming that the TJX
Noteholder does not convert the Partnership Note into partnership units prior
to the Offering, the Common Stock will be owned as follows: affiliates of
FS&Co., 8,527,000 shares; Lane Bryant Direct, 5,000,000 shares; WearGuard,
399,778 shares; Leeway & Co., 500,000 shares; NYNEX, 500,000 shares;
management of the Company, 494,667 shares; and others, 50,000 shares. Assuming
that the TJX Noteholder does not convert the Partnership Note into partnership
units prior to the Offering, the Company will own, through its indirect,
wholly-owned subsidiary, VGP, the sole general partnership interest in the
Partnership with a 16.6% interest in the Partnership, and the Company will
also own, 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, upon consummation of the Incorporation
Plan, the Company will indirectly control a 100% interest in the Partnership.
The Partnership will retain title to all of its assets and remain liable for
all of its obligations, including all of the liabilities and encumbrances
relating to the Senior Subordinated Notes and the Bank Credit Facility.
In the Offering, the Company will sell to the Underwriters an aggregate of
shares of Common Stock for cash consideration equal to an assumed
initial public offering price of $ per share, less underwriting discounts
and commissions, which shares will be distributed to the public. See
"Underwriting".
The Exchange Agreement provides that, immediately prior to the closing of
the Offering, the affiliate or affiliates of the FS Parties holding Common
Stock (the "FS Stockholders"), the affiliate or affiliates of The Limited
holding Common Stock (the "Limited Stockholder"), WearGuard, Leeway & Co.,
NYNEX and, if applicable, the affiliate or affiliates of the TJX Noteholder
holding Common Stock, will enter into a Registration Rights Agreement and a
Stockholders Agreement, and will amend the Partnership Agreement. See "Shares
Eligible For Future Sale--Registration Rights", "Description of Capital
Stock--Stockholders Agreement" and "Certain Relationships and Related
Transactions". This Prospectus gives effect to the Incorporation Plan and the
events which will occur immediately prior to the closing of the Offering as
provided in the Exchange Agreement.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE BRYLANE ACQUISITION
Pursuant to the terms of the Transaction Agreement, on August 30, 1993, the
FS Parties and certain affiliates of The Limited entered into the Partnership
Agreement and formed Brylane, L.P., which acquired substantially all of the
assets and liabilities of the Lane Bryant, Roaman's and Lerner catalog
businesses (the "Business") and acquired a license to use certain related
trademarks. See "--Additional Agreements--Trademark License Agreement". The
execution of the Partnership Agreement and the closing of the Brylane
Acquisition occurred contemporaneously with the closing of the financing
thereof, on August 30, 1993 (the "Closing Date"); however, for accounting
purposes, the Brylane Acquisition was recorded as of August 1, 1993.
The aggregate purchase price for the Brylane Acquisition was $335.0 million.
Pursuant to the terms of the Transaction Agreement, the FS Parties and certain
members of management contributed an aggregate of $75.0 million to the capital
of the Partnership, for a 60% aggregate interest in the Partnership, including
approximately $2.4 million in promissory notes received from members of
management of the Partnership in connection with their purchase of shares of
stock of VP Holding. See "Management--Stock Subscription Plan". Certain
affiliates of The Limited contributed substantially all of the assets and
liabilities of the Business to the Partnership in return for a cash
distribution of $285.0 million and a 40% aggregate limited partnership
interest in the Partnership. In addition to this initial equity interest, The
Limited received a warrant (the "Limited Warrant") which entitled The Limited
to purchase up to 1,250,000 newly issued limited partnership units of the
Partnership, at a price of $10.00 per unit, upon the achievement of certain
operating performance goals. The Limited Warrant has expired pursuant to its
terms and is no longer exercisable.
Equity contributions to the Partnership totalled $125.0 million (including
the equity interest retained by The Limited). The Partnership's initial debt
consisted of $125.0 million principal amount of its Senior Subordinated Notes
and a $110.0 million term loan under its then existing bank credit facility.
THE KINGSIZE ACQUISITION
On October 16, 1995, Brylane acquired the KingSize catalog division of
WearGuard (the "KingSize Acquisition"). For accounting purposes, the KingSize
Acquisition was recorded using an effective date of October 1, 1995. As
consideration for the sale of its KingSize catalog division, WearGuard
received a cash 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 bank credit facility to provide
for an additional $35.0 million term loan. 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. In addition, the Partnership Agreement
was amended to admit WearGuard as a new limited partner of Brylane.
In connection with the KingSize Acquisition, Brylane formed K.S. Management
Services, Inc. ("K.S. Management"), which entered into a services agreement
with Brylane pursuant to which K.S. Management provides services to Brylane,
including the provision of the services of certain senior personnel who
perform management services for Brylane with respect to its KingSize catalog.
K.S. Management holds the leasehold on the Company's office space in Hingham,
Massachusetts, owns certain furniture and fixtures related thereto, and
operates with approximately 20 employees.
K.S. Management has also guaranteed the obligations of the Partnership under
the new Bank Credit Facility and the obligations of the Partnership and
Brylane's wholly-owned subsidiary, Brylane Capital Corp., under the Indenture
for Brylane's Senior Subordinated Notes.
THE CHADWICK'S ACQUISITION
On December 9, 1996, Brylane purchased the assets (excluding substantially
all of the accounts receivable) of Chadwick's, Inc., a Massachusetts
corporation and a wholly-owned subsidiary of TJX, ("Chadwick's, Inc."
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or the "TJX Noteholder"), used in the Chadwick's of Boston catalog business
(the "Chadwick's Acquisition"). The aggregate purchase price for the
Chadwick's Acquisition was $242.8 million, which consisted of a cash payment
of $192.1 million to the TJX Noteholder, a cash payment of $30.7 million to
CDM Corp., a Nevada corporation and a wholly-owned subsidiary of Chadwick's,
Inc. which held certain trademarks purchased by Brylane ("CDM"), and the
issuance of the Partnership Note to the TJX Noteholder. The cash portion of
the purchase price is subject to certain post-closing adjustments. See
"Description of Certain Financing Arrangements--Convertible Subordinated
Note". 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 old
bank credit facility, the Partnership entered into the new Bank Credit
Facility. See "Description of Certain Financing Arrangements--Bank Credit
Facility". In connection with the Chadwick's Acquisition, TJX assigned to
Brylane its interest in certain trademarks, including the Chadwick's(R) and
Chadwick's of Boston(R) registered trademarks. Brylane also purchased all of
the outstanding stock of Chadwick's Tradename Sub, Inc. ("Tradename Sub")
which was formed by TJX to hold certain non-exclusive licensing rights to
certain trademarks purchased by Brylane.
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 one year. 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 Leeway & Co.,
NYNEX and certain affiliates of FS&Co. 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.
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 "The
Incorporation Plan", "Description of Capital Stock--Series A Preferred Stock"
and "Security Ownership". 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 to be 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 Services, Inc. ("C.O.B. Management"), which assumed Chadwick's,
Inc.'s obligations under the lease for 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.
Both C.O.B. Management and Tradename Sub have guaranteed the obligations of
Brylane under the new Bank Credit Facility and the obligations of Brylane and
Brylane Capital Corp. under the Indenture for Brylane's Senior Subordinated
Notes.
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
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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 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 the Company)
constituting less than one-half of the units in the Partnership (or equivalent
shares of the Company'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 the Company) 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 the
Company), (iii) two years after any person which competes with any retail or
catalog business conducted by The Limited or its affiliates 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 its Lane
Bryant or Lerner retail businesses prior to such event) 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 its Lane Bryant or Lerner retail businesses prior to such event) 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 the Company) as
discussed in (ii)(C) above, units or stock of the Company 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.
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 the Company) 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 the Company) and (y) following
consummation of the Offering, for purposes of calculating sales of stock or
ownership percentages 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 equity interests in the entity holding the
Business or any direct or indirect parent of any such entity (any such
affiliate, an "Equity Owner"), shall constitute a sale of a corresponding
percentage of equity interests in the 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. 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".
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.
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CREDIT CARD PROCESSING 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 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, Lane Bryant, Roaman's, Sue Brett and
KingSize 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%. 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. 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 1995 were $10.3 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 using the cards without recourse to the Company
(except for costs relating to certain agreed upon credit promotion programs).
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.
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 borne by Brylane and World Financial on terms to be negotiated from time
to time in a manner consistent with past practices. 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.
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 up to $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 80 basis points or a defined prime rate
plus 15 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 new 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
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can terminate Brylane's appointment as servicing agent at any time with or
without cause. The Company will account for the Receivable 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 catalogs as of October 14,
1996. The Company has no current plans to expand its business beyond these
core areas in competition with The Limited. In addition, The Limited agreed in
the Transaction Agreement, for so long as the FS Parties hold any direct or
indirect interest in the Partnership or any successor corporation, to certain
noncompetition and nonsolicitation provisions in favor of the Partnership. The
noncompetition and nonsolicitation provisions contained in the Transaction
Agreement also provide certain customary exceptions. 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 (the "Chadwick's Purchase Agreement"), 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 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, and (iii) print
catalogs in which less than 10% of the merchandise is men's or women's
apparel. Also, TJX may 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 best efforts to,
within one to two years of such acquisition, divest itself of any competitive
business which accounts for more than 5% of the annual revenues of such
acquired company. See "Description of Capital Stock--Stockholders Agreement".
OTHER TRANSACTIONS
In connection with the Brylane Acquisition, Brylane paid to certain
affiliates of FS&Co. an aggregate of $4.5 million in fees (plus reimbursement
of expenses) as compensation for their services in structuring and arranging
the financing of the Brylane Acquisition and for certain financial advisory
services rendered in connection with the Brylane Acquisition. 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 entered into between such
affiliates of FS&Co., on the one hand, and each of VP Holding and VGP, on the
other hand, as well as the forms of no-interest demand promissory notes made
by such affiliates of FS&Co. 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. To date, VGP has not made any
demand for payment to the affiliates of FS&Co. pursuant to the terms of the
demand notes. The loan agreements
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and the demand notes will terminate upon consummation of the Offering. The
Company will then enter into a similar loan agreement with VP Holding and VGP
and issue 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
will then contribute such demand note to VGP in order to maintain the minimum
net worth of the Partnership as discussed above.
In connection with the consummation of the transactions contemplated by the
Exchange Agreement, the Company will pay an aggregate of $180,000 and $90,000
in fees on behalf of affiliates of FS&Co. and of The Limited, respectively, in
connection with certain filings made or to be made by such entities pursuant
to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
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MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF THE BOARD OF DIRECTORS
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 provides management services to Brylane) and the
current members of the Board of Directors of the Company (the "Board"):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter J. Canzone................. 66 Chief Executive Officer, Chairman of the
Board and Director
William C. Johnson (1)(2)........ 56 Vice Chairman of the Board and Director
Sheila R. Garelik................ 51 President
Robert A. Pulciani............... 56 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
Richard L. Bennett............... 64 Senior Vice President-Human Resources
Jessie Bourneuf.................. 47 President-KingSize
William G. Brosius............... 60 Senior Vice President-Operations/Customer
Service
Bruce G. Clark................... 51 Senior Vice President-MIS/Telemarketing
Kevin Doyle...................... 43 Vice President/General Manager-Roaman's
Kevin McGrain.................... 42 Vice President/General Manager-Sears
Business
Carol Meyrowitz.................. 42 Executive Vice President-Chadwick's
Merchandising
Loida Noriega-Wilson............. 40 Vice President/General Manager-Lerner
Dhananjaya K. Rao................ 47 President and Chief Executive Officer-
Chadwick's
Jules Silbert.................... 69 Senior Vice President-Marketing
Arlene Silverman................. 47 Senior Vice President/General Manager-Lane
Bryant
Mark J. Doran(2)................. 32 Director
Samuel P. Fried (1).............. 45 Director
William K. Gerber (2)............ 42 Director
John M. Roth (1)(2).............. 38 Director
Ronald P. Spogli (1)............. 48 Director
</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. Mr. Canzone became a member of the Board in connection
with the Company's formation 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 in connection with the Company's
formation and was elected Vice Chairman of the Board in June 1995. Mr. Johnson
currently serves as an advisor to the Chairman of the Board of Grolier
Incorporated. 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 became
the Treasurer of Brylane in connection with the Company's
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formation. Mr. Pulciani joined Brylane in 1988, and served as Senior Vice
President and Chief 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-MIS/Telemarketing of Brylane and
its predecessor since May 1988. 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
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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 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 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 Company's
formation and is one of the Brylane Entities' 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 Company's
formation and is one of the Brylane Entities' 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 Company's
formation 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 Company's formation 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 executive officers of Brylane have an average of approximately 15 years
of experience with the Business.
As will be provided in the Stockholders Agreement, the Board currently
consists of three nominees of FS&Co., two nominees of The Limited, the Chief
Executive Officer of Brylane, and an additional person elected by the nominees
of the Board. The Company intends that, in addition to Mr. Johnson, one
additional independent director will serve on the Board. The second
independent director will be added after the completion of the Offering, as
soon as an appropriate individual is identified and agrees to serve.
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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 directors will not receive compensation for services on
any committee of the Board. There are no family relationships between any
officers or members of the Board.
EXECUTIVE COMPENSATION
The Company is a recently formed entity, and it is currently contemplated
that the officers of the Company will not be compensated by the Company for
their services to the Company. Officers of the Company who are also officers
of the Partnership or its subsidiaries will receive compensation from the
Partnership or these subsidiaries for their services to the Partnership. 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 1995 fiscal year, (ii) the 1994 fiscal year, and (iii)
the period from August 1, 1993 (the effective date of the Brylane Acquisition
for accounting purposes) to January 29, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(C)
---------------
ANNUAL COMPENSATION OPTIONS TO
NAME AND --------------------- PURCHASE COMMON ALL OTHER
PRINCIPAL POSITION PERIOD SALARY(A) BONUS(A)(B) STOCK(D) COMPENSATION(E)
------------------ ------------------ --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Peter J. Canzone........ Fiscal 1995 $520,500 $196,602 20,000 $106,393
Chief Executive Officer Fiscal 1994 491,000 361,427 -- 111,933
and Chairman of the August 1, 1993 235,000 130,723 250,000 77,004
Board
- January 29, 1994
Sheila R. Garelik....... Fiscal 1995 318,500 155,043 10,000 65,125
President Fiscal 1994 297,750 204,128 -- 65,961
August 1, 1993 140,625 89,277 43,750 44,611
- January 29, 1994
Robert A. Pulciani...... Fiscal 1995 266,750 85,383 6,000 53,309
Executive Vice Fiscal 1994 250,500 155,982 -- 55,204
President,
Chief Financial August 1, 1993 120,000 56,483 36,459 36,665
Officer,
Secretary and Treasurer - January 29, 1994
Jules Silbert........... Fiscal 1995 270,000 77,335 6,000 46,749
Senior Vice President- Fiscal 1994 222,083 109,424 20,000 9,843
Marketing August 1, 1993 26,796 9,414 -- --
- January 29, 1994
Bruce G. Clark.......... Fiscal 1995 205,750 53,877 5,500 38,569
Senior Vice President- Fiscal 1994 193,250 98,480 -- 40,087
MIS/Telemarketing August 1, 1993 92,500 35,623 34,375 26,933
- January 29, 1994
</TABLE>
(Footnotes on following page)
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(a) 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 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. For the
six-month season ended January 29, 1994, Messrs. Canzone, Pulciani,
Silbert and Clark, and Ms. Garelik, elected to defer $25,496, $12,616, $0,
$9,414 and $15,757, respectively, of their aggregate salary and bonus for
such period.
(b) Bonuses were earned during the six-month seasons ended January 29, 1994,
July 30, 1994, January 28, 1995, July 29, 1995 and February 3, 1996, but
were not paid until February 1994, August 1994, February 1995, August 1995
and February 1996, respectively. See "--Performance Bonus Program" for a
discussion of Brylane's bonus program in which the above-named individuals
are entitled to participate.
(c) 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,
nor did any such Named Executive Officer receive any restricted stock
award, stock appreciation right or payment under any long-term incentive
plan.
(d) Pursuant to the Incorporation Plan, these options to purchase shares of
Common Stock will be issued by the Company in substitution for the options
to purchase partnership units in the Partnership previously issued to the
Named Executive Officers in 1995 pursuant to the Partnership's 1995
Partnership Unit Option Plan and in 1993 pursuant to the Partnership's
1993 Performance Partnership Unit Option Plan. Pursuant to the
Incorporation Plan, an option to purchase one share of Common Stock will
be issued in substitution for each outstanding option to purchase one
partnership unit. See "--Option Plans" and "The Incorporation Plan".
(e) In fiscal 1995, fiscal 1994 and the period ended January 29, 1994, these
amounts consist of approximately $5,000, $5,000 and $2,083, respectively,
under a supplemental medical benefits plan, with the balance consisting of
deferred compensation in the form of a matching contribution by the
Partnership under the Deferred Compensation Plan, a cash contribution by
the Partnership under the Retirement Plan, and a contribution by the
Partnership under the Supplemental Retirement Plan, where applicable. See
"--Deferred Compensation Plan" and "--Retirement Plans". 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, $17,017, $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
1994. In the period ended January 29, 1994, Messrs. Canzone, Pulciani and
Clark, and Ms. Garelik, earned (i) $23,575, $11,232, $8,036 and $14,626,
respectively, under the Deferred Compensation Plan; and (ii) $17,139,
$17,139, $16,814 and $17,139, respectively, under the Retirement Plan
(which was not paid until June 1994). Messrs. Canzone and Pulciani, and
Ms. Garelik, were the only employees eligible to participate in the
Supplemental Retirement Plan during this period, and received $34,207,
$6,211 and $10,763, respectively, under such plan. Mr. Silbert was not
eligible to participate in the Deferred Compensation Plan, the Retirement
Plan or the Supplemental Retirement Plan during this period.
EMPLOYMENT AGREEMENTS
B.L. Management Services, Inc., an indirect, wholly-owned subsidiary of the
Company ("B.L. Management"), has entered into employment agreements with each
of Messrs. Canzone, Pulciani, Silbert and
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McGrain, and 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,
$170,000, $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 renewed 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 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 Offering, the Company has adopted the Brylane Inc.
1996 Stock Subscription Plan (the "Brylane Subscription Plan"), which will, in
part, supersede and act as a successor to a stock subscription plan (as
amended, the "Subscription Plan") adopted by VP Holding in connection with the
Brylane Acquisition. Participants in the Brylane Subscription Plan will be 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. The Company 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 to be
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
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Plan, immediately prior to the closing of the Offering, each of these
participants will exchange their shares of common stock of VP Holding
purchased under the Subscription Plan (the "Employee Shares") for shares of
Common Stock of the Company (the "Company Employee Shares"), at the rate of
one share of Common Stock of the Company for each Employee Share. See
"Security Ownership". These individuals will also enter into new stock
subscription agreements which reflect the reconfiguration of the Business and
the creation of the Company. See "The Incorporation Plan". If a participant's
employment with the Company or a subsidiary is terminated for any reason prior
to August 30, 1997, the Company will retain the right to repurchase such
participant's Company Employee Shares at fair market value (as defined).
In connection with the Brylane Acquisition, and pursuant to the Subscription
Plan, an aggregate of 453,000 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 Employee Shares pursuant to the Subscription Plan, and
additional Employee Shares have been 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 Employee Shares have been pledged to VP
Holding, and the Company Employee Shares will be pledged to the Company, in
order to secure repayment of the promissory notes. As of November 2, 1996, of
the aggregate purchase price of approximately $5.2 million paid for the
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
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.
Doyle, 5,000; Mr. McGrain, 15,000; Ms. Silverman, 15,000; Mr. Bennett, 22,500;
Mr. Brosius, 22,500; and Mr. Clark, 25,000. For these individuals, $500,000,
$200,000, $125,000, $150,000, $75,000, $112,500, $112,500 and $125,000 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, K.S.
Management and the Partnership, respectively, Mr. Silbert, Ms. Bourneuf and
Ms. Noriega-Wilson purchased 20,000, 7,500 and 15,000 Employee Shares,
respectively, at a purchase price of $10.00, $15.00 and $15.00 per Employee
Share, respectively, for which $100,000, $0 and $112,500 of their respective
purchase prices were 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 Representatives of the Partnership, Mr.
Johnson purchased 30,000 Employee Shares at a purchase price of $10.00 per
share.
SENIOR MANAGEMENT STOCK SUBSCRIPTION PLAN
In connection with the Offering, the Company has adopted the Brylane Inc.
1996 Senior Management Stock Subscription Plan (the "Senior Management Plan"),
which will, in part, supersede and act as a successor to the Subscription Plan
with respect to the 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, immediately prior
to the closing of the Offering, each of the Senior Management Investors will
also exchange their Employee Shares for Company Employee Shares, at the same
rate of exchange described above in "--Stock Subscription Plan". See "Security
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<PAGE>
Ownership". The Senior Management Investors will enter into new stock
subscription agreements (the "Senior Management Agreements") which reflect the
reconfiguration of the Partnership and the creation of the Company. If a
Senior Management Investor's employment with the Company or a subsidiary is
terminated for any reason prior to August 30, 1997, the Company will retain
the right to repurchase such Senior Management Investor's Company Employee
Shares at fair market value (as defined). Until May 27, 1998, the Company may
be required to repurchase Mr. Johnson's Company 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
Brylane 1996 Performance Option Plan
In connection with the Offering, the Company has adopted the Brylane Inc.
1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option
Plan"), which will supersede and act as the successor to the Partnership's
1993 Performance Partnership Unit Option Plan (as amended, 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
Incorporation Plan, all options to purchase partnership units in the
Partnership granted pursuant to the 1993 Option Plan will terminate, and each
optionee will be granted a substitute option to purchase one share of Common
Stock of the Company, 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 1993 Option Plan, pursuant to new option
agreements which will contain terms and conditions which are substantially
similar to those contained in the original option agreements entered into
pursuant to the 1993 Option Plan. However, in connection with the Offering,
certain rights of first refusal and other rights and obligations will
terminate as provided in the original option agreements entered into pursuant
to the 1993 Option Plan. 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. As amended, all options granted under the
Brylane 1996 Performance Option Plan terminate 10 years from the date of grant
of the options under the 1993 Option Plan (if not sooner due to termination of
employment).
In connection with the Brylane Acquisition, and pursuant to the 1993 Option
Plan, 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 have been granted to new employees of Brylane, B.L. Management and
K.S. Management in connection with their employment. On August 30, 1993,
Messrs. Canzone, Pulciani, Doyle, McGrain, Bennett, Brosius and Clark, and
Mmes. Garelik and Silverman were granted the right to purchase 250,000,
36,459, 3,750, 11,250, 31,250, 31,250, 34,375, 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, K.S.
Management and the Partnership, respectively, Mr. Silbert, Ms. Bourneuf and
Ms. Noriega-Wilson were granted options to purchase 20,000, 25,000 and 15,000
partnership units, respectively, at a price of $10.00, $15.00 and $10.00 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, 1998 to
August 30, 2002 and to change the term of such options from 16 years to 10
years. It is anticipated that the Board of Directors of the Company will
authorize a similar amendment to the form of option agreement under the 1996
Brylane Performance Option Plan. In addition, the exercise price of the
options
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outstanding under the 1993 Option Plan was increased from $10.00 per
partnership unit to $15.00 per partnership unit. The Partnership currently
anticipates that it will incur non-cash compensation expense of approximately
$3.1 million related to this amendment to the options outstanding under the
1993 Option Plan. The Company estimates that approximately 80% of this expense
will be incurred in the fourth quarter of fiscal 1996 and the remaining 20%
will be incurred through fiscal 1997.
As of December 9, 1996, options for the purchase of 644,584 partnership
units at a purchase price of $15.00 per unit were outstanding under the 1993
Option Plan. As of December 9, 1996, no options were exercisable under the
1993 Option Plan.
Brylane 1996 Option Plan
In connection with the Offering, the Company has adopted the Brylane Inc.
1996 Stock Option Plan (the "Brylane 1996 Option Plan") which will supersede
and act as the successor to the Partnership's 1995 Partnership Unit Option
Plan (the "1995 Option Plan"). As amended, an aggregate of 700,000 shares of
Common Stock have been reserved for issuance under the Brylane 1996 Option
Plan. Pursuant to the Incorporation Plan, all options to purchase partnership
units in the Partnership granted pursuant to the 1995 Option Plan will
terminate, and each optionee will be granted a substitute option to purchase
one share of Common Stock of the Company, 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 will contain terms and conditions
which are substantially similar to those contained in the original option
agreements entered into pursuant to the 1995 Option Plan. However, in
connection with the Offering, certain rights of first refusal and other rights
and obligations will terminate as provided in the original option agreements
entered into pursuant to the 1995 Option Plan. All options (other than the
Substitute Options discussed below) 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. As amended, all options granted
under the Brylane 1996 Option Plan 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).
Pursuant to 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. As amended, an aggregate amount of 700,000 units were reserved
for issuance upon the exercise of options granted under the 1995 Option Plan.
On September 21, 1995, Messrs. Canzone, Johnson, Pulciani, Silbert, Doyle,
McGrain, Bennett, Brosius and Clark, Mmes. Garelik, Noriega-Wilson and
Silverman were granted the right to purchase 20,000, 25,000, 6,000, 6,000,
1,000, 3,000, 5,000, 5,000, 5,500, 10,000, 4,000 and 4,000 partnership units,
respectively, at a price of $15.00 per unit and a term of 7 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, Doyle, McGrain, Bennett, Brosius and Clark, and
Mmes. Garelik, Bourneuf, Noriega-Wilson and Silverman were granted the right
to purchase 24,000, 12,000, 6,000, 2,000, 4,000, 6,000, 6,000, 5,000, 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 an amendment 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
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. It is anticipated that the Board of Directors of the
Company will authorize similar changes to the Brylane 1996 Option Plan.
In November 1996, in connection with the Chadwick's Acquisition, the Board
of Representatives of the Partnership granted 131,000 options to purchase
partnership units under the 1995 Option Plan at a price of $20.00
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per unit to certain key employees of Chadwick's, subject to the receipt of
certain regulatory approvals. Such options have a term of 10 years. Of such
131,000 options, Mr. Rao and Ms. Meyrowitz were each granted an option to
purchase 25,000 partnership units under the 1995 Option Plan.
In addition, in connection with the Chadwick's Acquisition, the Board of
Representatives of the Partnership granted 16,104 Substitute Options under the
1995 Option Plan at a price of $9.92 per unit, which options vest in whole on
September 20, 1997 and expire on September 20, 2004, to certain key employees
of Chadwick's, subject to the receipt of certain regulatory approvals, in
exchange for certain of their options to purchase TJX common stock. Of such
16,104 Substitute Options, options to purchase 1,000 and 820 partnership units
were granted to Mr. Rao and Ms. Meyrowitz, respectively.
Also in connection with the Chadwick's Acquisition, the Board of
Representatives of the Partnership granted 49,383 Substitute Options under the
1995 Option Plan at a price of $5.67 per unit, of which one-half vests on
September 6, 1997 and one-half vests on September 6, 1998, and which expire on
September 6, 2005, to certain key employees of Chadwick's, subject to the
receipt of certain regulatory approvals, in exchange for certain of their
options to purchase TJX common stock. Of such 49,383 Substitute Options,
options to purchase 2,660 and 2,000 partnership units were granted to Mr. Rao
and Ms. Meyrowitz, respectively.
As of December 9, 1996, options for the purchase of 127,750 partnership
units at a purchase price of $15.00 per unit, options for the purchase of
143,000 partnership units at a purchase price of $19.00 per unit, options for
the purchase of 131,000 partnership units at a purchase price of $20.00 per
unit, Substitute Options for the purchase of 16,104 partnership units at a
purchase price of $9.92 per unit, and Substitute Options for the purchase of
49,383 partnership units at a purchase price of $5.67 per unit were
outstanding under the 1995 Option Plan, and options for the purchase of
232,763 shares remained available for issuance. As of December 9, 1996, no
options had been exercised under the 1995 Option Plan.
The following table sets forth information concerning options granted to the
Named Executive Officers of the Company during fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(5)
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#)(1)(2) YEAR ($/SH)(3) DATE(4) 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Canzone........ 20,000 16.16 15.00 9/21/02 123,000 285,000
Sheila R. Garelik....... 10,000 8.08 15.00 9/21/02 61,500 142,500
Robert A. Pulciani...... 6,000 4.85 15.00 9/21/02 36,900 85,500
Jules Silbert........... 6,000 4.85 15.00 9/21/02 36,900 85,500
Bruce G. Clark.......... 5,500 4.44 15.00 9/21/02 33,825 78,375
</TABLE>
- --------
(1) Pursuant to the Incorporation Plan, the options to purchase shares of
Common Stock set forth in the table above will be issued by the Company in
substitution for the options to purchase partnership units previously
issued to the Named Executive Officers pursuant to the 1995 Option Plan.
Pursuant to the Incorporation Plan, an option to purchase one share of
Common Stock will be issued in substitution for each outstanding option to
purchase one partnership unit.
(2) In July 1996, the Partnership granted to each of the Named Executive
Officers additional options to purchase partnership units pursuant to the
1995 Option Plan. See "--Option Plans".
(3) The exercise price of each option was equal to the fair market value of
the Common Stock on the date of grant.
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(4) These options will be granted under the Brylane 1996 Option Plan and will
terminate 7 years from the date of grant of the options issued to the
Named Executive Officers under the 1995 Option Plan (if not 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 of the options issued to the Named Executive Officers under
the 1995 Option Plan. See "--Option Plans".
(5) The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the stock
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
stock price. No gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named
Executive Officers as of February 3, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FEBRUARY 3, 1996 FEBRUARY 3, 1996
SHARES ACQUIRED VALUE (#)(1)(2) ($)(3)
ON EXERCISE REALIZED --------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter J. Canzone........ -- -- 0/270,000 0/
Sheila R. Garelik....... -- -- 0/53,750 0/
Robert A. Pulciani...... -- -- 0/42,459 0/
Jules Silbert........... -- -- 0/26,000 0/
Bruce G. Clark.......... -- -- 0/39,875 0/
</TABLE>
- --------
(1) Pursuant to the Incorporation Plan, all of the options to purchase Common
Stock set forth in the table above will be issued by the Company in
substitution for the options to purchase partnership units previously
issued to the Named Executive Officers pursuant to the 1993 Option Plan
and the 1995 Option Plan. Pursuant to the Incorporation Plan, an option to
purchase one share of Common Stock will be issued in substitution for each
outstanding option to purchase one partnership unit.
(2) In July 1996, the Partnership granted to each of the Named Executive
Officers additional options to purchase partnership units pursuant to the
1995 Option Plan. See "--Option Plans".
(3) These values are calculated using the initial public offering price of
$ per share, 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 $61,200 for 1995)
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
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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 not borrow funds from the Retirement Plan.
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 of 1986, as amended. 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.
DEFERRED COMPENSATION PLAN
The Company has adopted the Brylane, L.P. Deferred Compensation Plan for
eligible employees (the "Deferred Compensation Plan"). The Deferred
Compensation Plan credits participants' accounts with amounts of compensation
(not in excess of 3% 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 participants' accounts vest in the same manner
as under the Retirement Plan. A participant's account is 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 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 will be 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
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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 the 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 will be 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 the
goals.
INSURANCE
Historically, Brylane participated in The Limited's self-insured programs
for general liability, workers' compensation and medical and dental benefits.
The Company (and its subsidiaries) have continued similar insurance programs,
which in some cases are supplemented by third party insurance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has recently formed a Compensation Committee of its Board of
Directors 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 "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. In connection with the
Incorporation Plan, these securities will be exchanged for 30,000 shares of
Company Common Stock, an option to purchase 20,000 shares of Company Common
Stock, and an option to purchase 25,000 shares of Company Common Stock,
respectively. See "--Stock Subscription Plan" and "--Option Plans".
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SECURITY OWNERSHIP
The following table sets forth certain information, as of December 9, 1996,
regarding the beneficial ownership of the Company's Common Stock and Series A
Preferred Stock (i) immediately prior to the Offering, giving effect to the
transactions contemplated by the Exchange Agreement and the Incorporation Plan
and (ii) as adjusted to reflect the sale of the shares of Common Stock
pursuant to the Offering, by (a) each stockholder who is known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock,
(b) each director, (c) each of the Named Executive Officers, and (d) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED (A) (C) (D)
------------------------
NAME AND ADDRESS SHARES BEFORE AFTER
OF BENEFICIAL OWNER (A) BENEFICIALLY OWNED (B) OFFERING OFFERING
----------------------- ---------------------- ---------- ----------
<S> <C> <C> <C>
Freeman Spogli & Co. Incor-
porated (e)(f)............. 8,527,000 55.1% %
The Limited, Inc. (g)....... 5,000,000 32.3
Peter J. Canzone............ 106,667(h) * *
Sheila R. Garelik........... 43,333(i) * *
Robert A. Pulciani.......... 27,000(j) * *
Jules Silbert............... 22,000(k) * *
Bruce G. Clark.............. 26,833(l) * *
Ronald P. Spogli (f)........ -- -- --
John M. Roth (f)............ -- -- --
Mark J. Doran (f)........... -- -- --
Samuel P. Fried............. -- -- --
William K. Gerber........... -- -- --
William C. Johnson.......... 38,333(m) * *
All directors and executive
officers of Brylane as a
group (19 persons)......... 8,912,333(n) 57.5% %
</TABLE>
- --------
* Less than 1%.
(a) The persons and entities named in this table have sole voting power and
investment power with respect to all shares of Common Stock or Series A
Preferred Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in this table
and these notes.
(b) Mr. Rao and Ms. Meyrowitz each own 50%, or 37,500 shares, of the VP
Holding Preferred Stock and, after giving effect to the transactions
contemplated by the Incorporation Plan, Mr. Rao and Ms. Meyrowitz will
each own 50% of the Series A Preferred Stock.
(c) Assumes no exercise of the Underwriters' over-allotment option.
(d) The Company has reserved for issuance, to officers, key employees, certain
members of the Board and consultants of the Company (or its subsidiaries),
options to purchase up to 1,479,584 shares of Company Common Stock. See
"Management--Option Plans".
(e) The shares shown as beneficially owned by FS&Co. are held of record as
follows: 4,093,690 shares owned by FS Equity Partners II, L.P. ("FSEP
II"); 4,273,129 shares owned by FS Equity Partners III, L.P. ("FSEP III");
and 160,181 shares owned by FS Equity Partners International, L.P. ("FSEP
International"). 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 the Company held by each of
FSEP II, FSEP III and FSEP International, respectively.
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(f) 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 indicated as beneficially
owned 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 indicated as 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.
(g) All shares shown as beneficially owned by The Limited are held of record
by Lane Bryant Direct. The business address of The Limited is 3 Limited
Parkway, Columbus, Ohio 43230.
(h) Includes 6,667 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(i) Includes 3,333 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(j) Includes 2,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(k) Includes 2,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(l) Includes 1,833 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(m) Includes 8,333 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(n) Includes 31,166 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
SHARES ELIGIBLE FOR FUTURE SALE
RESTRICTED SECURITIES
Upon completion of this Offering, the Company will have outstanding
shares of Common Stock, assuming the issuance of shares of
Common Stock offered by the Company and no exercise of the Underwriters' over-
allotment option. Of these shares, the shares sold in this Offering
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act") unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 15,471,445 shares outstanding upon completion of
this Offering will be "restricted securities" as that term is defined under
Rule 144.
7,027,000 of the 8,527,000 shares of Common Stock held by affiliates of
FS&Co. and the 5,000,000 shares of Common Stock held by an affiliate of The
Limited at the closing of the Offering, may be eligible for sale in the public
market 90 days after the completion of the Offering subject to compliance with
the volume limitations of Rule 144. The remaining 1,500,000 shares of Common
Stock held by affiliates of FS&Co. will become eligible for sale in the public
market, subject to compliance with the volume limitations of Rule 144, upon
expiration of such affiliates' holding periods no sooner than December 9,
1998. In addition, 333,333 of the 399,778 shares of Common Stock held by
WearGuard at the closing of the Offering, will become eligible for
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sale in the public market, subject to compliance with the volume limitations
of Rule 144, upon expiration of WearGuard's holding period no sooner than
October 16, 1997. The remaining 66,445 shares of Common Stock held by
WearGuard, as well as the 500,000 shares held by Leeway & Co. and the 500,000
shares held by NYNEX, will become eligible for sale in the public market,
subject to compliance with the volume limitations of Rule 144, upon expiration
of such stockholders' holding periods no sooner than December 9, 1998.
The 200,500 shares issued pursuant to the Brylane Subscription Plan (the
"Management Shares") will be held by certain employees of the Company, and may
be eligible for sale 90 days after the completion of the Offering pursuant to
Rule 701 under the Securities Act, or pursuant to the terms of Rule 144
(subject to applicable volume limitations). See "Management--Stock
Subscription Plan". The 307,500 shares issued to the Senior Management
Investors pursuant to the Senior Management Plan, as well as 20,000 shares
issued to an individual affiliated with FS&Co. and 16,667 shares held by Ms.
Bourneuf, are restricted securities under the Securities Act, and may be
eligible for sale 90 days after completion of the Offering pursuant to Rule
701 under the Securities Act or pursuant to the terms of Rule 144 (subject to
applicable volume limitations). See "Management--Senior Management Stock
Subscription Plan". The Company intends, prior to the later of (i) 120 days
following the consummation of this Offering, and (ii) the termination of any
lockup period to which holders of Company Employee Shares may be subject, to
cause such Company Employee Shares to be registered under the Securities Act
on an appropriate registration statement (which may, if necessary to permit
resales, include a resale prospectus in appropriate form).
The 75,000 shares of VP Holding Preferred Stock issued to Mr. Rao and Ms.
Meyrowitz are (and the 75,000 shares of Common Stock issuable upon conversion
of the Series A Preferred Stock will be) restricted securities and will be
eligible for resale under Rule 144 (subject to applicable volume limitations)
no sooner than December 9, 1998.
In general, under Rule 144 as it is currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted shares from
the Company or any affiliate of the Company, the acquiror or subsequent holder
thereof is entitled to sell, within any three-month period commencing 90 days
after the date of the effectiveness of the Registration Statement of which
this Prospectus is a part, a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock ( shares
immediately after this Offering) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale, subject
to the filing of a Form 144 with respect to such sale and certain other
limitations and restrictions. In addition, if three years have elapsed since
the later of the date of acquisition of restricted shares from the Company or
from any affiliate of the Company, and the acquiror or any subsequent holder
thereof is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, such person would be entitled to sell
such shares under Rule 144(k) without regard to the above-described
requirements.
The Commission has recently proposed amendments to Rules 144 and 144(k) that
would permit resales of "restricted securities" after a one-year, rather than
a two-year holding period, subject to compliance with the other provisions of
Rule 144, and would permit resales of such restricted securities held by non-
affiliates under Rule 144(k) after a two-year, rather than a three-year
holding period. Adoption of such amendments could result in resales of
restricted securities sooner than would be the case under Rules 144 and 144(k)
as currently in effect. However, there can be no assurance of when, if ever,
such amendments will be approved.
Each of the employees of the Company who is issued shares of Company Common
Stock pursuant to the Brylane Subscription Plan, and each of the Senior
Management Investors who is issued shares under the Senior Management Plan,
may be entitled to rely on the resale provisions of Rule 701, which permit
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and which permit affiliates to sell their Rule 701 shares without
having to comply with Rule 144's holding period restrictions, in each case
commencing 90 days after the date of the effectiveness of the Registration
Statement of which this Prospectus is a part.
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The Company has agreed not to sell any shares of its capital stock (or any
rights, options or warrants to purchase, or any securities convertible or
exchangeable into or exercisable for, capital stock), with certain limited
exceptions, for a period of 180 days following the date of this Prospectus,
without the prior written consent of Merrill Lynch & Co. on behalf of the
Representatives (as defined herein). In addition, FS&Co., The Limited, Leeway
& Co., NYNEX, the TJX Noteholder and WearGuard, as well as the executive
officers, directors and certain employees of the Company, have each agreed not
to sell, directly or indirectly, any of their shares, with certain limited
exceptions, for a period of 180 days following the date of this Prospectus.
The Company is unable to estimate the number of shares of Company Common
Stock that will be sold under Rule 144, Rule 701, under the employee
registration statement, or upon exercise of registration rights, since this
will depend in part on the market price for the Common Stock, the personal
circumstances of the sellers and other factors not susceptible of being known
in advance. Prior to this Offering, there has been no public market for the
Common Stock, and any sale of substantial amounts of restricted shares in the
open market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock offered hereby.
REGISTRATION RIGHTS
Pursuant to the terms of the Exchange Agreement, upon consummation of this
Offering, the Company, the FS Stockholders, the Limited Stockholder, the TJX
Noteholder, Leeway & Co., NYNEX and WearGuard will enter into the Registration
Rights Agreement (the "Registration Rights Agreement"). Pursuant to the terms
of the Registration Rights Agreement, at any time on or after the date which
is six months following the closing of this Offering, each of the FS
Stockholders or the Limited Stockholder, on behalf of itself or any of its
affiliates, holding stock of the Company, individually or in the aggregate,
representing not less than 10% of the total number of shares of the Company
Common Stock then outstanding, or not less than $15.0 million in fair market
value as determined by the Board (or such lesser number as constitutes all
shares of Common Stock then held by such stockholder, provided that such
number represents not less than 3% of the total number of shares of Common
Stock then outstanding), will be able to require the Company to file up to two
registration statements registering its Common Stock; provided, that the
Company shall not be obligated to effect more than two such demand
registrations during any eighteen-month period. After receiving notice of such
a registration request, the TJX Noteholder, Leeway & Co., NYNEX, WearGuard and
the Holder (as defined) that did not make the demand registration may each
request that its shares also be included in such a demand registration, and
the Company shall be obligated to include such shares. Unless the Holder
making such demand registration shall consent, no other party, including the
Company, shall be permitted to offer securities under any such demand
registration, except that in the case of a demand registration by the FS
Stockholders, the FS Stockholders may include the registrable securities of
Leeway and NYNEX prior to and in preference of any securities of the Company
and any other stockholder, and except that in the case of a demand
registration requested by the FS Stockholders or a demand registration
requested by the Limited Stockholder in which shares of the FS Stockholders
are included, each of Leeway & Co. and NYNEX may, at its option, include up to
a percentage of its shares equal to the percentage of the FS Stockholders'
shares that are being sold in such demand registration. In addition, the
Registration Rights Agreement also will entitle the FS Stockholders and the
Limited Stockholder and their respective affiliates, the TJX Noteholder,
Leeway & Co., NYNEX and WearGuard, at any time on and after the date which is
90 days following this Offering, to include Common Stock in any public
offering of shares of Common Stock by the Company (other than pursuant to a
registration statement on Form S-4 or Form S-8 of the Securities Act or a
registration statement filed in connection with an exchange offer or offering
of securities solely to the Company's existing securityholders, and subject to
certain limitations on the number of shares included in such registration, as
determined by the underwriters of such offering, if any). Finally, at any time
on or after the date which is six months following this Offering, each of
WearGuard, the TJX Noteholder, Leeway & Co. and NYNEX (or any affiliate of any
of them that owns Common Stock) will be able to require the Company to file
one registration statement (which may be on Form S-3 if available for use by
the Company) registering its Common Stock. After receiving notice of such
registration request, the FS Stockholders and the Limited Stockholder and
their respective affiliates may each request that its shares be included in
such demand
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registration. If the Holder making such demand registration reasonably
determines in good faith that the success of such offering would be adversely
affected by the inclusion of other shares, no other party, including the
Company, shall be permitted to offer securities under such Holder's demand
registration. WearGuard's demand right will terminate as soon as WearGuard is
eligible to sell its shares without restriction as to amount and manner of
sale under Rule 144 of the Securities Act. The demand right of each of the TJX
Noteholder, Leeway & Co. and NYNEX shall terminate three years after the
completion of the Offering. Other than as described above with respect to the
demand registration right of each of WearGuard, the TJX Noteholder, Leeway &
Co. and NYNEX, these registration rights continue indefinitely until their
exercise. Subject to certain limitations, the Company is required to bear all
costs of any registration, other than underwriting fees, discounts or
commissions and any out-of-pocket expenses of the Holders, if any. Following
completion of this Offering, all of the 14,926,778 shares of Common Stock
owned collectively by the FS Stockholders, The Limited Stockholder, Leeway &
Co., NYNEX and WearGuard as well as any shares of Common Stock held by the TJX
Noteholder as a result of a conversion (in whole or part) of the Partnership
Note prior to the completion of this Offering, and/or the Convertible Note
following the completion of this Offering, will be subject to the Registration
Rights Agreement. See "Security Ownership".
SHARES OF COMMON STOCK SUBJECT TO OPTIONS
The Company has granted to certain executive officers and directors options
to purchase an aggregate of 1,111,821 shares of Common Stock. An aggregate of
41,250 of such options are currently exercisable; while an aggregate of 4,000
of such options are not exercisable prior to March 25, 1997; an aggregate of
143,000 of such options are not exercisable prior to July 15, 1997; an
aggregate of 49,383 of such options are not exercisable prior to September 6,
1997; an aggregate of 16,104 of such options are not exercisable prior to
September 20, 1997; an aggregate of 82,500 of such options are not exercisable
prior to September 21, 1997; and the remaining 644,584 of such options are not
exercisable prior to August 30, 1998. The Company has agreed with respect to
the Brylane 1996 Option Plan, on the later of (i) 120 days after consummation
of the Offering, or (ii) the termination of any lockup period entered into in
connection with the Offering, to cause the shares of Common Stock to be
received upon exercise of the options granted under the Brylane 1996 Option
Plan to be registered under the Securities Act on a registration statement on
Form S-8. The Company has agreed with respect to the Brylane 1996 Performance
Option Plan, within 120 days of the first date that each option granted under
such plan is vested, to cause the shares of Common Stock to be received upon
exercise of such options to be registered under the Securities Act on a
registration statement or Form S-8. See "Management--Option Plans".
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DESCRIPTION OF CAPITAL STOCK
Pursuant to its Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on October 31, 1994 (the "Certificate"), the
Company is currently authorized to issue capital stock consisting of
40,000,000 shares of Common Stock, par value $0.01 per share, and 1,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock").
In addition, the Board of Directors of the Company has approved the
designation of 75,000 shares of the Company's authorized preferred stock as
Series A Convertible Redeemable Preferred Stock, $.01 par value per share,
which is convertible into shares of Common Stock (the "Series A Preferred
Stock"). In connection with the transactions contemplated by the Incorporation
Plan, the Company will file a certificate of designation (the "Certificate of
Designation") setting forth the rights, privileges and preferences of the
Series A Preferred Stock.
The following summary description of the capital stock of the Company does
not purport to be complete and is qualified in its entirety by reference to
the Certificate, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and Delaware corporate law.
COMMON STOCK
Holders of Common Stock are entitled to cast one vote per share on all
matters and, except as described below, a majority vote is required for all
actions taken by holders of Common Stock. Holders of Common Stock are entitled
to receive such dividends as may be declared by the Board of Directors out of
legally available funds. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of Common Stock are entitled to share
ratably in any distribution of the Company's assets, after payment of all
debts and other liabilities. However, the primary assets of the Company are
its ownership of all of the outstanding common stock of VP Holding which,
after giving effect to the Incorporation Plan, will indirectly own 100% of the
interests in the Partnership through its wholly-owned subsidiaries, VGP and
VLP. In the event of a liquidation, dissolution or winding-up of the Company,
certain creditors of the Partnership (pursuant to the terms of the Bank Credit
Facility and the Indenture) will have priority over the Company with respect
to the distribution of the assets of the Partnership. The holders of Common
Stock have no preemptive or other subscription or conversion rights. All
outstanding shares of Common Stock are, and the shares to be sold in this
Offering will be, upon issuance, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Certificate provides that the Board of Directors has the authority,
without further action of stockholders, to issue up to 1,000,000 shares of
Preferred Stock in one or more series. The Board is authorized to determine
the rights, preferences, privileges and restrictions granted to and imposed
upon any series or class of the Preferred Stock upon issuance and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The New York Stock Exchange, upon which the
Company's Common Stock has been approved for listing, imposes some
restrictions on the issuance of preferred stock with certain terms deemed by
the New York Stock Exchange to be adverse to holders of Common Stock.
Nonetheless, the rights and privileges afforded by the Certificate could
adversely affect the voting power and other rights of holders of Common Stock,
and the authority of the Board of Directors to issue Preferred Stock without
further stockholder approval, under certain circumstances, could have the
effect of delaying, deferring or preventing a change in control of the
Company. As of the date of this Prospectus, the Board of Directors of the
Company has authorized one series of Preferred Stock. 75,000 shares of
Preferred Stock have been designated by the Board as the Series A Preferred
Stock. These shares will be issued upon consummation of the Offering in
exchange for the 75,000 shares of VP Holding Preferred Stock issued to Mr. Rao
and Ms. Meyrowitz. See "The Incorporation Plan". On December 9, 1999, "vested
shares" (as defined in the Company's Certificate of Designation) of the Series
A Preferred Stock 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). Shares of Series A
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Preferred Stock will "vest" 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). The Company may
at any time redeem "unvested shares" (as defined in the Company's Certificate
of Designation) for $20.00 per share. In the event of a "change of control"
(as defined in the Company's Certificate of Designation) each vested share at
the option of one holder 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. Holders of the shares of the Series A Preferred Stock have
(i) no right to receive dividends, (ii) no voting or approval rights other
than as required by Delaware law, and (iii) a liquidation preference of $20.00
per share. There are no plans, agreements or understandings for the issuance
of any other shares of Preferred Stock.
STOCKHOLDER ACTION AND SPECIAL MEETINGS
The Certificate states that special meetings of the stockholders of the
Company may only be called by the Board of Directors, the Chairman of the
Board of Directors, or stockholders owning at least 50% of the Common Stock,
and that at any special meeting of the stockholders of the Company no business
may be transacted and no corporate action may be taken other than that stated
in the notice of meeting.
STOCKHOLDERS AGREEMENT
Pursuant to the terms of the Exchange Agreement, upon the consummation of
the Offering, the Company, the FS Stockholders, the Limited Stockholder,
WearGuard, the TJX Noteholder, NYNEX and Leeway & Co. will enter into the
Stockholders Agreement. The Stockholders Agreement will provide that, during
the term of the Stockholders Agreement, the FS Stockholders will be entitled
to nominate three members of the Company's Board of Directors, and the Limited
Stockholder will be entitled to nominate two members of the Company's Board of
Directors. The initial members of the Board of Directors of the Company will
be the current members of the Board of Representatives of the Partnership,
plus any additional independent members (if necessary in connection with the
Offering) elected by the members of the Board. However, the number of
directors that each of the Limited Stockholder and the FS Stockholders may
nominate declines with the percentage of Common Stock held by each of them. In
the Stockholders Agreement, FS&Co., The Limited, Leeway & Co., NYNEX, the TJX
Noteholder and WearGuard will agree that, without the consent of the other (in
the case of FS&Co. or The Limited), or the consent of both FS&Co. and The
Limited (in the case of Leeway & Co., NYNEX, the TJX Noteholder or WearGuard),
until one year after the date on which persons other than The Limited, FS&Co.,
Leeway & Co., NYNEX, the TJX Noteholder 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, and, to the extent permitted by law, will direct their nominees
on the Board of Directors of the Company to vote 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
will also prohibit the FS Stockholders, the Limited Stockholder, the TJX
Noteholder and WearGuard, and their respective affiliates, and Leeway & Co.
and NYNEX, from directly or indirectly authorizing or making a tender or
exchange offer for, or purchasing or otherwise acquiring, beneficial ownership
of any additional shares of Common Stock. Nothing in the Stockholders
Agreement requires, in the event that any of the affiliates of FS&Co., The
Limited, Leeway & Co., NYNEX, the TJX Noteholder or WearGuard offers to sell
their shares of Common Stock to each other, that any of them make the same
offer available to other stockholders of the Company. Rights under the
Stockholders Agreement will not be assignable except to an affiliate of the
transferring stockholder (or, in the case of Leeway & Co., to a successor
trust or plan).
The Stockholders Agreement will contain provisions whereby the Company and
FS&Co. will agree, for so long as The Limited holds, directly or indirectly,
at least 20% of the outstanding Common Stock of the Company, that none of the
Company, the FS Stockholders or any of their respective affiliates shall
(subject to certain exceptions) (i) directly or indirectly, engage anywhere in
the world in any activities that compete with any business conducted by The
Limited or any of its affiliates as such businesses were conducted on August
30, 1993 (other than in the mail order business for women's special size
apparel, moderately priced fashion apparel and
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related accessories, and for certain moderately priced regular size or special
size men's apparel and related accessories) or (ii) 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 to
terminate his or her relationship with The Limited or any affiliate of The
Limited. The noncompetition and nonsolicitation provisions contained in the
Stockholders Agreement will also provide certain customary exceptions.
The Stockholders Agreement will contain provisions whereby (i) the FS
Stockholders, if they find a third-party buyer for all of their shares or if
they are required to sell all of their shares for any reason, may request that
each of WearGuard, Leeway & Co. and NYNEX shall sell all of its shares on
substantially the same terms and conditions as apply to the FS Stockholders'
sale and (ii) if the FS Stockholders or any of their affiliates proposes to
transfer all or any part of their shares to a third party, each of WearGuard,
Leeway & Co. and NYNEX will have the right to transfer, on the same terms and
conditions as the transfer of shares by the FS Stockholders or any of their
affiliates, a percentage of its shares equal to the percentage of the
transferring FS Stockholder's (direct or indirect) total number of shares to
be transferred pursuant to such transfer. The rights and obligations of each
of the FS Stockholders, Leeway & Co. and NYNEX described in this paragraph
will not apply in the case of any sale (i) pursuant to a registration
statement under the Securities Act of 1933 or (ii) into the public market
pursuant to Rule 144 of the Securities Act of 1933.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Following the consummation of the Offering, the Company will be subject to
the "business combination" statute of the Delaware General Corporation Law
(Section 203). In general, such statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder", unless (i) such
transaction is approved by the board of directors prior to the date the
interested stockholder obtains such status, (ii) upon consummation of such
transaction, the "interested stockholder" beneficially owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) the "business
combination" is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder". A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to the "interested stockholder".
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) beneficially 15% or more of
a corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
OTHER LIMITATIONS ON CONTROL CHANGES
The Bank Credit Facility and the Indenture contain provisions with respect
to a change of control of the Partnership and the Company. See "Description of
Certain Debt Financing Arrangements".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
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DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS
Set forth below is a summary of certain financing instruments to which the
Partnership or the Company is a party. The summary does not purport to be
complete and is qualified in its entirety by reference to such agreements,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
BANK CREDIT FACILITY
In connection with the Chadwick's Acquisition, the Partnership entered into
the new Bank Credit Facility which consists of (i) a $213.0 million five-year
Tranche A Term Loan, (ii) a $70.0 million six-year and one quarter Tranche B
Term Loan, and (iii) a $125.0 million (subject to a borrowing base limit)
five-year Revolving Credit Facility with a $75.0 million sublimit for letters
of credit. The proceeds of the Term Loans 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 existing indebtedness under
its old bank credit facility. As of December 11, 1996, the Partnership had no
borrowings under the Revolving Credit Facility, and after giving effect to the
issuance of $48.2 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 $76.8 million.
The Revolving Credit Facility can be used for general corporate purposes,
including working capital needs, letters of credit and permitted investments
(as defined in the Bank Credit Facility).
Borrowings under the Term Loans and the Revolving Credit Facility bear
interest at one of two rates to be 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% (the "Base Rate") or (ii) a margin
over LIBOR (as defined) for specified interest periods. The margin for each
rate varies based on the Partnership's net debt to operating cash flow ratio.
The Tranche A Term Loan will initially bear interest at LIBOR plus 2.0% and
the Tranche B Term Loan will initially bear interest at LIBOR plus 2.5%.
The Partnership is required to pay fees on the unutilized portion of the
Revolving Credit Facility and for letters of credit. In addition, the
Partnership paid a fee in connection with the consummation of the Bank Credit
Facility and paid certain customary agency fees to the agents thereunder.
The Tranche A Term Loan has scheduled quarterly amortization requirements of
$25.0 million, $40.0 million, $45.0 million, $50.0 million, and $53.0 million,
respectively, for the Partnership's 1997 to 2001 fiscal years. The Tranche B
Term Loan provides for quarterly installments aggregating $1.0 million per
fiscal year through fiscal 2001 and then $44.0 million in fiscal 2002 with a
balloon payment of $21.0 million due at final maturity on February 28, 2003.
In addition to the scheduled amortization, additional principal prepayments of
the Term Loans are required to be made with the proceeds of certain asset
sales, certain debt and equity issuances and annual excess cash flow (as
defined). The portion of such proceeds that must be applied to prepayments is
linked in certain cases to the Partnership's debt coverage ratio (as defined).
As a result of the Offering, the Company's indebtedness will decrease
significantly. The Company intends to use the net proceeds received from the
Offering to prepay $92.0 million of borrowings and accrued interest
outstanding under the Term Loans. In addition, upon consummation of the
Offering, the Company intends to use a substantial amount of its excess cash
to further prepay indebtedness outstanding under the Term Loans. See "Use of
Proceeds" and "Unaudited Pro Forma As Adjusted Financial Statements." After
giving effect to the Incorporation Plan and the Offering and the use of the
net proceeds to be received therefrom, and the use of existing cash, all as
described further in "Use of Proceeds", scheduled principal payments on the
Term Loans will aggregate approximately $14.0 million in fiscal 1997 and $22.0
million in fiscal 1998.
The obligations of the Partnership under the Bank Credit Facility are
secured by (i) security interests in the intangible assets of the Partnership,
including its licenses, trademarks, mailing and customer lists and contract
rights (including the Partnership's rights under the Transaction Agreement,
the Chadwick's Purchase Agreement and the Trademark Agreement), (ii) pledges
of the stock of Capital Corp. (as defined) and each of the
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Partnership's subsidiaries and subsidiary partnerships and (iii) first
mortgages on the Partnership's Indianapolis, Indiana and West Bridgewater,
Massachusetts fulfillment centers. In connection with the Bank Credit
Facility, The Limited and the Licensors under the Trademark Agreement have
agreed to certain restrictions on termination of the Trademark Agreement. Each
of the Partnership's subsidiaries and the subsidiary partnerships have
guaranteed the obligations of the Partnership under the Bank Credit Facility.
The Bank Credit Facility contains certain financial covenants which require
the Partnership to meet financial ratios and tests including (i) a maximum
debt to cash flow ratio which commences at 4.5 to 1.0 and decreases to 2.0 to
1.0 in 2002, (ii) a minimum fixed charge coverage ratio which commences at
1.90 to 1 and increases to 3.0 to 1 in 2000 and (iii) a minimum net worth test
at any time not to fall below the sum of (a) $80 million plus (b) 90% (50%
after the Partnership's net worth exceeds $150 million) of the excess of
positive quarterly net income minus decreases in net worth attributable to
partnership tax advances and tax distributions, plus (c) 90% of increases in
net worth attributable to issuances of additional equity. For purposes of
these covenants, (i) the debt coverage ratio equals debt divided by operating
cash flow, (ii) operating cash flow equals net income (excluding extraordinary
or non-recurring gains or losses) plus depreciation and amortization plus
income taxes deducted in determining net income and interest expense, (iii)
the fixed charge coverage ratio equals operating cash flow plus rental expense
divided by the sum of interest and rental expense, and (iv) the Partnership's
net worth and its net income will be adjusted to exclude the effect on net
income of initial write-ups of inventory.
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 (as
defined) of the Partnership and its parent entities.
SENIOR SUBORDINATED NOTES
On August 30, 1993, the Partnership and Brylane Capital Corp., as co-issuer
("Capital Corp.", and collectively with the Partnership, the "Issuers"),
issued $125.0 million aggregate principal amount of Senior Subordinated Notes
pursuant to an indenture dated as of August 30, 1993 (as amended, the
"Indenture") among the Issuers, the Partnership's subsidiaries (the
"Guarantors"), and United States Trust Company of New York, as trustee (the
"Trustee"). Interest on the Senior Subordinated Notes is payable semi-annually
on September 1 and March 1 of each year beginning on March 1, 1994 at a rate
of 10% per annum. The Senior Subordinated Notes mature on September 1, 2003
and are unconditionally guaranteed by the Guarantors on a senior subordinated
basis.
At any time on or after September 1, 1998, the Senior Subordinated Notes may
be redeemed, at the option of the Issuers, in whole or in part, at 105.00% of
the principal amount thereof, plus accrued interest to the redemption date,
reducing to 100% of the principal amount thereof, plus accrued interest to the
date of redemption on or after September 1, 2002. In addition, upon a Change
of Control (as defined) prior to September 1, 1998, the Senior Subordinated
Notes may be redeemed, at the option of the Issuers, in whole or in part, at
any time within 180 days after such Change of Control, at a redemption price
equal to the principal amount thereof, together with accrued and unpaid
interest, if any, to the redemption date plus the Applicable Premium (as
defined).
The Issuers are required to make an offer to redeem the Senior Subordinated
Notes at 101% of principal amount thereof, plus accrued and unpaid interest to
the date of redemption (i) to the extent that Excess Proceeds of Asset Sales
(net cash proceeds not applied to repay Senior Indebtedness or reinvested in
the Issuer's business) exceed $10 million, or (ii) if there is a Change in
Control (as defined). The offer to redeem resulting from Asset Sales is
limited to the net proceeds from such Asset Sales and is subject to (i) the
prior claims of secured creditors to the extent of the lien of such creditors
on the assets sold, (ii) the prior claims of the lenders under the Bank
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Credit Facility and (iii) the acceptance of the offer by the holders of the
Senior Subordinated Notes. Failure of the Issuers to purchase the Senior
Subordinated Notes of any holder who accepts the Issuers' offer would
constitute an Event of Default (as defined).
The Senior Subordinated Notes are subordinated in right of payment and
subject, as set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness (as defined). The guarantees are subordinated to the
guarantees by the Guarantors of the Partnership's obligations under the Bank
Credit Facility and will be subordinated in the future to all future
guarantees by the Guarantors of Senior Indebtedness.
The Indenture contains certain restrictive covenants, including, but not
limited to, covenants with respect to the following matters: (i) limitation on
Indebtedness; (ii) limitation on Restricted Payments; (iii) limitation on
transactions with affiliates; (iv) limitation on Liens with respect to pari
passu or subordinated indebtedness; (v) limitation on issuances of guarantees
of and pledges for Indebtedness; (vi) limitation on sale of assets;
(vii) limitation on sales of equity interests in subsidiaries; and (viii)
restrictions on consolidation, merger and sale of assets of the Issuers.
CONVERTIBLE SUBORDINATED NOTE
As part of the consideration for the Chadwick's Acquisition, the Partnership
issued to the TJX Noteholder a Convertible Subordinated Note due 2006 in the
principal amount of $20,000,000 (the "Partnership Note") which is convertible
at any time, in whole or in part, at the option of the TJX Noteholder into a
total of 727,273 partnership units of the Partnership at a conversion price of
$27.50 per unit. The Partnership Note pays interest quarterly at an initial
rate of 6% per annum for the first year, which rate increases by 1% per annum
on each anniversary of the issuance date, if the Offering has not been
completed, to a maximum of 10%. Pursuant to the terms of the Partnership Note
and the Exchange Agreement, immediately prior to the consummation of the
Offering, the TJX Noteholder shall deliver the Partnership Note to the
Company, and in exchange therefor, the Company and the Partnership shall
jointly issue to the TJX Noteholder the Convertible Note (collectively with
the Partnership Note, the "Subordinated Notes") that contains terms
substantially identical to the Partnership Note, except for differences
required by the fact that the Company is a corporation. The Convertible Note
is due 2006 and is convertible at the option of the TJX Noteholder at any time
in whole or in part into Common Stock at a conversion price of $27.50 per
share (subject to adjustment for stock splits and similar events). The
Subordinated Notes are redeemable at the Company's option at any time after
December 15, 2001 at an initial redemption price of 104% and reducing to
100.8%, together in each case with accrued interest through the date of
redemption. In addition, (i) after the completion of the Offering, the
Convertible Note will be redeemable after December 15, 1999 and prior to
December 15, 2001, if the Common Stock has traded for a period of 20
consecutive trading days at a premium of at least 25% to the then applicable
Conversion Price, at a redemption price commencing at 104.2% and reducing to
103%, and (ii) after a Change of Control, the Subordinated Notes will be
redeemable for 90 days at the Company's option at a price commencing at 108%
in 1996, and reducing to 100.8%, together in each case with accrued interest
through the date of redemption. The Subordinated Notes are subject to
repurchase by the Company at the option of the TJX Noteholder upon a Change of
Control (as defined in the Senior Subordinated Notes) or certain leveraged
recapitalizations (as defined) at a purchase price in cash in an amount equal
to 101% of principal amount then outstanding, plus accrued and unpaid
interest.
The Subordinated Notes rank pari passu with the Senior Subordinated Notes
but are subordinated in right of payment and subject, as set forth therein, to
the prior payment in full of all Senior Indebtedness (as defined). The
Subordinated Notes contain customary events of default for subordinated
indebtedness (including cross acceleration to other indebtedness of the
Company).
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UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Lazard Freres & Co. LLC and J.P. Morgan Securities Inc.
(collectively, the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Purchase Agreement relating to the
Common Stock, to purchase from the Company the number of shares of Common
Stock set forth opposite their respective names below. The Underwriters are
committed to purchase all of such shares if any are purchased. Under certain
circumstances, the commitments of certain non-defaulting Underwriters may be
increased as set forth in the Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Lazard Freres & Co. LLC.............................................
J.P. Morgan Securities Inc. ........................................
-----------
Total..........................................................
===========
</TABLE>
The Underwriters propose initially to offer the shares of Common Stock to
the public at the offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $. per share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $. per share on sales to other dealers.
After the public offering, the initial offering price, the concession and
discount may be changed.
The Company has granted to the Underwriters an option exercisable for
days from the date of this Prospectus to purchase up to an additional
shares of Common Stock to cover over-allotments, if any, at the initial public
offering price less the underwriting discount. If the Underwriters exercise
this option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to the shares of Common Stock initially offered hereby.
In the Purchase Agreement, the Company and certain of its subsidiaries have
agreed to indemnify the several Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
The Company has agreed (i) not to sell any shares of its capital stock (or
any rights, options or warrants to purchase, or any securities convertible or
exchangeable into or exercisable for, capital stock), with certain limited
exceptions for a period of 180 days following the date of the Registration
Statement of which this Prospectus is a part, without the prior written
consent of Merrill Lynch on behalf of the Representatives. In addition,
FS&Co.,
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The Limited, Leeway & Co., NYNEX, the TJX Noteholder and WearGuard, as well as
the executive officers, directors and certain employees of the Company, have
each agreed not to sell, directly or indirectly, any of their shares, with
certain limited exceptions, for a period of 180 days following the date of
this Prospectus.
Each of the Underwriters has represented and agreed that: (a) it has not
offered or sold, and prior to the date six months after the date of issue of
the Common Stock will not offer or sell, any Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995, (b) it has
complied and will comply with all applicable provisions of the Public Offers
of Securities Regulations 1995 and the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom and (c) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document in
connection with the issue or sale of Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document
may otherwise lawfully be passed on.
No action has been taken in any jurisdiction by the Company or the
Underwriters that would permit a public offering of the Common Stock offered
pursuant to the Offering in any jurisdiction where action for that purpose is
required, other than the United States. The distribution of this Prospectus
and the offering or sale of the Common Stock in certain jurisdictions may be
restricted by law. Accordingly, the Common Stock may not be offered or sold,
directly or indirectly, and neither this Prospectus nor any other offering
material or advertisement in connection with the Common Stock may be
distributed or published, in or from any jurisdiction, except under
circumstances that will result in compliance with applicable rules and
regulations of any such jurisdiction. Such restrictions may be set out in
applicable Prospectus supplements. Persons into whose possession this
Prospectus comes are required by the Company and the Underwriters to inform
themselves about and to observe any applicable restrictions. This Prospectus
does not constitute an offer of, or an invitation to subscribe for purchase,
any Common Stock and may not be used for the purpose of an offer to, or
solicitation by, anyone in any jurisdiction or in any circumstances in which
such offer or solicitation is not authorized or is unlawful.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority in excess of 5%.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price has been determined by
negotiations among the Company and the Underwriters. Among the factors
considered in such negotiations, in addition to prevailing conditions in the
equity securities markets, were price-earnings ratios of publicly traded
companies that the Company and the Underwriters believe to be comparable to
the Company, an assessment of the Company's recent results of operations,
estimates of the future prospects of the Company, the present state of the
Company's development, the current state of the Company's industry and the
economics of the Company's principal markets as a whole. The initial public
offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial offering price.
At the request of the Company, the Underwriters have reserved up to
shares of the Common Stock for sale (at the initial public offering price) to
certain employees of the Company and other persons associated with the Company
or affiliated with any director, officer or management employee of the Company
who have expressed an interest in purchasing such shares. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares offered hereby.
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The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "BYL", subject to official notice of issuance. In
order to meet the requirements for listing the Common Stock on such exchange,
the Underwriters have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial owners.
The Company has been advised by Merrill Lynch that an affiliate of Merrill
Lynch owns a limited partnership interest in FSEP III of approximately 1%.
Merrill Lynch acted as agent in the placement of limited partnership interests
for the aforementioned partnership, which is an investor in the Company. In
addition, Merrill Lynch has provided and may in the future provide financial
advisory and financing services to both FS&Co. and its affiliates and to the
Company.
Certain of the Underwriters engage in transactions with and perform services
for the Company in the ordinary course of business. In August 1993, Merrill
Lynch, Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. acted as
placement agents in connection with the offering of the Senior Subordinated
Notes by the Partnership and Brylane Capital Corp., a wholly-owned subsidiary
of the Partnership, and received underwriting discounts and commissions in
connection therewith.
From time to time, in the ordinary course of their respective businesses,
affiliates of J.P. Morgan Securities Inc. have engaged, and may in the future
engage, in commercial banking and investment banking transactions with the
Company. In particular, Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), an affiliate of J.P. Morgan Securities Inc., was the agent bank
under the Company's old bank credit facility. In addition, in connection with
entering into the Bank Credit Facility, Morgan Guaranty acted as
administrative agent and Merrill Lynch Capital Corporation ("Merrill Lynch
Capital"), an affiliate of Merrill Lynch, acted as documentation agent. A
portion of the proceeds from this Offering will be used to prepay a portion of
the Term Loan under the Company's Bank Credit Facility, including amounts owed
to Morgan Guaranty and Merrill Lynch Capital. See "Use of Proceeds". In
addition, Morgan Guaranty is the agent bank under a revolving commitment
facility for each of The Limited and World Financial.
Brylane paid to Lazard Freres & Co. LLC a fee and reimbursement of expenses
for investment banking services performed by it in connection with the Brylane
Acquisition. From time to time, Lazard Freres & Co. LLC performs investment
banking services for The Limited and its subsidiaries, and in connection
therewith receives customary fees.
Brylane paid to Merrill Lynch and Lazard Freres & Co. LLC fees for
investment banking services performed by them in connection with the
Chadwick's Acquisition.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Riordan &
McKinzie, a Professional Law Corporation, Los Angeles, California. Certain
legal matters relating to the Offering will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California. Certain principals and employees of Riordan & McKinzie are
partners in certain partnerships which are limited partners of FSEP II and
FSEP III, respectively. See "Security Ownership".
EXPERTS
The combined financial statements of the Predecessor (a division of The
Limited consisting of the entities described in Note 2 of Notes to Financial
Statements) for the twenty-six weeks ended July 31, 1993, and the consolidated
financial statements of the Partnership as of January 28, 1995 and February 3,
1996, for the twenty-six weeks ended January 29, 1994 and for each of the two
fiscal years ended January 28, 1995 and February 3, 1996, appended hereto as
part of this Prospectus, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report dated March 19, 1996,
which report is also appended hereto.
93
<PAGE>
The combined balance sheets of Chadwick's of Boston, Ltd. as of January 28,
1995 and January 27, 1996, and the combined statements of income and net
assets, and cash flows for the years ended January 29, 1994, January 28, 1995
and January 27, 1996, included in this Prospectus, have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Partnership is, and as a result of the Offering, the Company will
become, subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports and other information with the Commission. The reports and other
information filed by the Company and the Partnership with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such information can also be obtained by mail at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a site on the
World Wide Web, the address of which is http://www.sec.gov, which site
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the Commission under the Securities Act. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information contained in the Registration Statement and
the exhibits and schedules thereto, and reference is hereby made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of any documents filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
94
<PAGE>
BRYLANE, L.P. / CHADWICK'S
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BRYLANE, L.P. AND SUBSIDIARIES FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Balance Sheets as of January 28, 1995, February 3, 1996 and November 2,
1996 (unaudited)........................................................ F-3
Statements of Operations for the twenty-six weeks ended July 31, 1993
(Predecessor) and January 29, 1994, the fiscal years ended January 28,
1995 and February 3, 1996, and the thirty-nine weeks ended October 28,
1995 (unaudited) and November 2, 1996 (unaudited) ...................... F-4
Statements of Cash Flows for the twenty-six weeks ended July 31, 1993
(Predecessor) and January 29, 1994, the fiscal years ended January 28,
1995 and February 3, 1996, and the thirty-nine weeks ended October 28,
1995 (unaudited) and November 2, 1996 (unaudited) ...................... F-5
Statements of Stockholder's/Partnership Equity for the twenty-six weeks
ended July 31, 1993 (Predecessor) and January 29, 1994, the fiscal years
ended January 28, 1995 and February 3, 1996, and the thirty-nine weeks
ended November 2, 1996 (unaudited) ..................................... F-6
Notes to Financial Statements............................................ F-7
CHADWICK'S FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-18
Combined Statements of Income and Net Assets for the fiscal years ended
January 29, 1994, January 28, 1995 and January 27, 1996; and the thirty-
nine weeks ended October 28, 1995 (unaudited) and October 26, 1996
(unaudited)............................................................. F-19
Combined Balance Sheets as of January 28, 1995 and January 27, 1996; and
October 26, 1996 (unaudited)............................................ F-20
Combined Statements of Cash Flows for the fiscal years ended January 29,
1994, January 28, 1995 and January 27, 1996; and the thirty-nine weeks
ended October 28, 1995 (unaudited) and October 26, 1996 (unaudited)..... F-21
Notes to Combined Financial Statements................................... F-22
</TABLE>
F-1
<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 January 28, 1995 and
February 3, 1996, and the related consolidated statements of operations,
partnership equity, and cash flows of the Partnership for the twenty-six weeks
ended January 29, 1994, and the years ended January 28, 1995 and February 3,
1996, and the related combined statements of operations, stockholder's equity
and cash flows of Brylane (the "Predecessor", a division of The Limited, Inc.)
for the twenty-six weeks ended July 31, 1993. These financial statements are
the responsibility of the Partnership's and Predecessor's managements,
respectively. 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 January 28, 1995 and
February 3, 1996, and the consolidated results of operations and cash flows
for the twenty-six weeks ended January 29, 1994, and the years ended January
28, 1995 and February 3, 1996, in conformity with generally accepted
accounting principles. Further, in our opinion, the combined financial
statements of the Predecessor referred to above present fairly, in all
material respects, its combined results of operations and cash flows for the
twenty-six weeks ended July 31, 1993, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
March 19, 1996
F-2
<PAGE>
BRYLANE, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, NOVEMBER 2,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................ $ 28,495 $ 7,469 $ 10,659
Accounts receivable...................... 1,738 2,387 8,122
Inventories.............................. 72,608 76,627 93,286
Paper inventory.......................... 6,651 16,102 10,729
Other.................................... 4,371 4,559 5,370
--------- --------- ---------
Total current assets................... 113,863 107,144 128,166
Property and equipment, net................ 24,392 28,223 28,303
Catalog costs.............................. 18,649 18,131 22,328
Organization and deferred financing costs.. 9,757 8,228 7,082
Intangibles and other assets............... 119,188 166,177 162,463
Deferred offering costs.................... 642 -- --
--------- --------- ---------
Total assets........................... $ 286,491 $ 327,903 $ 348,342
========= ========= =========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable......................... $ 43,970 $ 47,131 $ 62,467
Accrued interest......................... 5,535 6,366 2,478
Accrued expenses......................... 13,991 12,231 11,871
Reserve for returns...................... 4,418 4,192 5,071
Current portion of long-term debt........ 22,524 13,720 14,395
--------- --------- ---------
Total current liabilities.............. 90,438 83,640 96,282
Long-term debt............................. 191,644 213,020 202,297
Other long-term liabilities................ 2,632 4,056 5,556
--------- --------- ---------
Total liabilities...................... 284,714 300,716 304,135
Partnership equity:
General partner, 2,562,500 units......... 25,625 25,625 25,625
Limited partners, 9,985,000 units at Jan-
uary 28, 1995 and 10,340,000 units at
February 3, 1996 and 10,342,500 units at
November 2, 1996........................ 99,850 105,204 105,257
Reduction for predecessor cost--carryover
basis................................... (152,067) (152,067) (152,067)
Loans to management investors............ (2,453) (2,515) (2,490)
Retained earnings........................ 30,822 50,940 67,882
--------- --------- ---------
Total partnership equity............... 1,777 27,187 44,207
--------- --------- ---------
Total liabilities and equity........... $ 286,491 $ 327,903 $ 348,342
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BRYLANE, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR PARTNERSHIP
COMBINED CONSOLIDATED
----------- -----------------------------------------------------------
FISCAL YEARS ENDED
-----------------------
TWENTY-SIX TWENTY-SIX THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JULY 31, JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
(53 WEEKS) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $242,086 $247,780 $578,530 $601,055 $435,205 $467,009
Cost of goods sold...... 122,530 124,224 288,217 298,414 216,892 225,708
Non-recurring inventory
charge................. -- 11,487 2,614 569 142 --
-------- -------- -------- -------- -------- --------
Gross margin............ 119,556 112,069 287,699 302,072 218,171 241,301
Operating expenses:
Catalog and
advertising.......... 61,165 66,860 153,830 174,446 127,879 135,390
Fulfillment........... 18,335 21,477 41,656 37,333 26,124 29,057
Support services...... 12,964 13,377 35,152 37,024 27,271 32,995
Intangibles and
organization cost
amortization......... -- 2,121 4,242 4,707 3,298 4,229
-------- -------- -------- -------- -------- --------
Total operating ex-
penses................. 92,464 103,835 234,880 253,510 184,572 201,671
-------- -------- -------- -------- -------- --------
Operating income........ 27,092 8,234 52,819 48,562 33,599 39,630
Interest expense, net... -- 10,060 19,576 20,624 14,882 16,200
-------- -------- -------- -------- -------- --------
Income (loss) before in-
come taxes............. 27,092 (1,826) 33,243 27,938 18,717 23,430
Provision for income
taxes.................. 10,600 75 89 88 122 125
-------- -------- -------- -------- -------- --------
Net income (loss)....... $ 16,492 $ (1,901) $ 33,154 $ 27,850 $ 18,595 $ 23,305
======== ======== ======== ======== ======== ========
Supplemental data
(Unaudited) (Note 4):
Historical income
(loss) before provi-
sion for income tax-
es................... $ (1,826) $ 33,243 $ 27,938 $ 18,717 $ 23,430
Supplemental provision
for income taxes..... (676) 12,300 10,337 6,925 8,669
-------- -------- -------- -------- --------
Supplemental net
income (loss)........ $ (1,150) $ 20,943 $ 17,601 $ 11,792 $ 14,761
======== ======== ======== ======== ========
Supplemental earnings
per share
(see note 1).........
Supplemental weighted
average shares
outstanding (see
note 1)..............
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BRYLANE, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR PARTNERSHIP
COMBINED CONSOLIDATED
----------- -----------------------------------------------------------
TWENTY-SIX TWENTY-SIX FISCAL YEARS ENDED THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED ----------------------- WEEKS ENDED WEEKS ENDED
JULY 31, JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
(53 WEEKS) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)...... $ 16,492 $ (1,901) $ 33,154 $ 27,850 $ 18,595 $ 23,305
Impact of other operat-
ing activities on cash
flows:
Depreciation......... 1,474 1,583 3,110 3,650 2,593 3,046
Deferred taxes....... 206 -- 43 (6) -- --
Non-recurring
inventory charge.... -- 11,487 2,614 569 142 --
Imputed interest..... -- 1,533 -- 185 185 --
Amortization:
Intangibles and
organization costs. -- 2,121 4,242 4,707 3,298 4,229
Deferred financing
costs (included in
interest expense).. -- 734 1,469 1,469 1,101 1,102
Discount on notes
(included in
interest expense).. -- 40 98 97 72 73
Loss (Gain) on sale
of asset............ -- -- (19) 14 14 5
Changes in assets
and liabilities:
Inventories......... (3,643) (7,499) (14,195) (4,019) 2,151 (16,660)
Catalog costs and
paper inventory.... (719) (5,870) (2,928) (8,933) (9,749) 1,176
Accounts payable
and accrued
expenses........... 3,870 1,868 12,429 479 10,397 16,605
Accrued interest.... -- 6,260 (725) 831 (3,168) (3,889)
Other assets and
liabilities........ (3,621) (2,844) (334) 6,669 (426) (4,636)
-------- --------- -------- --------- -------- --------
Net cash provided by op-
erating activities..... 14,059 7,512 38,958 33,562 25,205 24,356
-------- --------- -------- --------- -------- --------
Investing activities:
Cash payments in con-
nection with the
KingSize
Acquisition, net of
cash acquired......... -- -- -- (51,975) (51,975) --
Cash payments in
connection with the
Brylane Acquisition... -- $(285,000) -- -- -- --
Acquisition related
fees and expenses paid
at closing............ -- (10,365) -- (1,278) -- --
Capital expenditures... (165) (505) (5,287) (7,290) (6,193) (3,159)
Proceeds from sale of
asset................. -- -- 44 -- -- --
-------- --------- -------- --------- -------- --------
Net cash used in invest-
ing activities......... (165) (295,870) (5,243) (60,543) (58,168) (3,159)
-------- --------- -------- --------- -------- --------
Financing activities:
Payment on Bank Credit
Facility.............. -- (5,000) (15,000) (22,524) (19,151) (10,121)
Proceeds from the issu-
ance of long-term
debt.................. -- 234,030 -- 35,000 35,000 --
Tax distribution to
partners.............. -- -- -- (6,562) (6,343) (7,963)
Deferred offering
costs................. -- -- (642) -- (155) --
Proceeds from the sale,
net of repurchase, of
partnership interests,
net of management
notes................. -- 72,635 387 41 112 77
Net transfers to The
Limited, Inc. ........ (13,322) -- -- -- -- --
Change in cash over-
draft................. (572) (3,272) -- -- -- --
Acquisition related
fees & expenses paid
at closing............ (837)
-------- --------- -------- --------- -------- --------
Net cash (used in) pro-
vided by financing ac-
tivities............... (13,894) 298,393 (15,255) 5,955 8,626 (18,007)
-------- --------- -------- --------- -------- --------
Cash and cash equiva-
lents, at beginning of
period................. -- -- 10,035 28,495 28,495 7,469
-------- --------- -------- --------- -------- --------
Cash and cash equiva-
lents, at end of peri-
od..................... $ -- $ 10,035 $ 28,495 $ 7,469 $ 4,158 $ 10,659
======== ========= ======== ========= ======== ========
Supplemental disclosure of cash flow information:
The amounts of interest and income taxes paid during each of the periods pre-
sented were not material except as follows:
Interest paid during the fiscal years ended
January 28, 1995 and February 3, 1996 and
quarters ended October 28, 1995 and November
2, 1996..................................... $ 20,127 $ 19,328 $ 17,741 $ 19,285
======== ========= ======== ========
Supplemental disclosure of noncash financing activity:
Purchase price for KingSize Acquisition, net of acquisition
costs...................................................... $ 57,750 $ 57,750
Cash portion of purchase price.............................. 52,500 52,500
--------- --------
Partnership units issued for purchase....................... $ 5,250 $ 5,250
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BRYLANE, L.P.
STATEMENTS OF STOCKHOLDER'S/PARTNERSHIP EQUITY
Predecessor:
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------- PAID-IN INTERCOMPANY EARNINGS
SHARES AMOUNT CAPITAL ACCOUNT (DEFICIT) TOTAL
------ ------ ------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 30,
1993................... 600 $ 1 $ 90 $ 52,505 $(12,977) $ 39,619
Net transfers to The
Limited, Inc. ........ -- -- -- (13,322) -- (13,322)
Net income............. -- -- -- -- 16,492 16,492
--- ---- ---- -------- -------- --------
Balance, July 31, 1993.. 600 $ 1 $ 90 $ 39,183 $ 3,515 $ 42,789
=== ==== ==== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Partnership:
<TABLE>
<CAPTION>
REDUCTION FOR
PREDECESSOR
GENERAL PARTNER LIMITED PARTNERS COST-- LOANS TO ACCUMULATED
----------------- -------------------- CARRYOVER MANAGEMENT EARNINGS
UNITS AMOUNT UNITS AMOUNT BASIS INVESTORS (DEFICIT) TOTAL
--------- ------- ---------- -------- ------------- ---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1993. 2,562,500 $25,625 9,937,500 $ 99,375 $(152,067) $(2,365) $ -- $(29,432)
Net loss............... -- -- -- -- -- -- (1,901) (1,901)
--------- ------- ---------- -------- --------- ------- ------- --------
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............. -- -- -- -- -- -- 23,305 23,305
Sale of units.......... -- -- 7,500 113 -- -- -- 113
Repurchase of units.... -- -- (5,000) (60) -- 25 -- (35)
Tax distributions
payable to partners... -- -- -- -- -- -- (6,363) (6,363)
--------- ------- ---------- -------- --------- ------- ------- --------
Balance, November 2,
1996 (Unaudited)....... 2,562,500 $25,625 10,342,500 $105,257 $(152,067) $(2,490) $67,882 $ 44,207
========= ======= ========== ======== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
(1) NATURE OF OPERATIONS:
Brylane is a leading catalog retailer of special size and regular size
women's apparel, and special size men's apparel. The women's catalogs market
apparel in the budget to low-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 women's customer through its Lerner and Sue Brett catalogs.
Brylane also markets apparel to these same customer segments through four
catalogs under licensing arrangements with Sears Shop at Home Services, Inc.
("Sears").
Brylane's merchandising strategy is to provide value-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" or the
"Company"), 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 (the
"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 at $50 million. The Limited also received a warrant (the
"Limited Warrant") entitling it to purchase up to 1,250,000 newly issued
partnership units in Brylane, at a price of $10 per unit. At July 27, 1996,
the Limited Warrant expired as certain conditions were not met.
In order to finance the Brylane Acquisition, Brylane secured financing
through proceeds from its Bank Credit Facility and sale of the Notes. Such
debt agreements closed on August 30, 1993. For financial statement purposes,
however, the debt was recorded on the effective date of August 1, 1993. In
accordance with Accounting Principles Board Opinion No. 16, interest was
imputed for the period from August 1 through August 30, 1993 in the amount of
$1.5 million, which was reflected in interest expense and offset goodwill.
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
allocation of the purchase price (before adjustments for carryover basis
accounting) was as follows (dollars in thousands):
<TABLE>
<S> <C>
Current assets.................................................. $ 95,027
Property and equipment.......................................... 25,434
Intangibles and other assets.................................... 260,640
Liabilities assumed............................................. (46,101)
--------
$335,000
========
</TABLE>
F-7
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
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., and K.S. Management Services, 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.
Effective July 6, 1996, for business reasons, 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.
Prior to the Brylane Acquisition, the combined financial statements of the
Predecessor included the accounts of six wholly-owned subsidiaries, including
their respective subsidiaries, of The Limited: Lane Bryant Direct Holding,
Inc., Lerner Direct Holding, Inc., Roaman's Holding, Inc., Brymark, Inc.,
Roamark, Inc. and Lernmark, Inc. on a historical basis. The Limited provided
corporate administrative services and support, including tax, treasury, legal,
internal audit and public relations. Expenses for these services have not been
allocated, as management believes these amounts were not material. Management
also believes that the costs that would have been incurred for these services
had Brylane operated on a stand-alone basis would not have had a material
impact on the combined financial statements. Accounts and transactions between
the combined companies have been eliminated.
Due to purchase accounting adjustments and other changes resulting from the
Brylane Acquisition, the financial information for Brylane is not directly
comparable to the financial information for the Predecessor.
(3) KINGSIZE ACQUISITION:
In October 1995, KingSize Catalog Sales, L.P., an Indiana limited
partnership ("KingSize Partnership") and an indirect wholly-owned entity of
Brylane, completed the acquisition of the assets of the KingSize catalog
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. The KingSize Acquisition included the sale by WearGuard to the
KingSize Partnership of inventory, contracts, customer lists, goodwill,
accounts receivable and certain equipment relating to the operation of the
business, and the assumption of certain liabilities relating to the business
by the KingSize Partnership. In addition, the parties entered into a
Noncompetition Agreement dated October 16, 1995.
In connection with the KingSize Acquisition, 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 bank credit facility ("Bank Credit Facility"). In connection with the
KingSize Acquisition, Brylane further amended its Bank Credit Facility to
provide for an additional $35.0 million in available borrowing capacity. In
accordance with Accounting Principles Board Opinion No. 16, interest was
imputed for the period from October 1 through October 15, 1995 in the amount
of $185,000.
The KingSize Acquisition closed on October 16, 1995. 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
F-8
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
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 was as follows (dollars in thousands):
<TABLE>
<S> <C>
Current assets.................................................... $10,737
Property and equipment............................................ 331
Intangibles and other assets...................................... 51,903
Liabilities assumed............................................... (3,821)
-------
$59,150
=======
</TABLE>
The following unaudited pro forma results of operations for the year ended
February 3, 1996 assume that the KingSize Acquisition (which included the
assignment to Brylane of WearGuard's license to distribute the Sears Big &
Tall catalog) occurred as of the beginning of the period. In preparing the pro
forma information, certain adjustments 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 nonrecurring 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.
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 been obtained had the KingSize Acquisition
been made as of that date or of results which may occur in the future (dollars
in thousands):
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR
ENDED
FEBRUARY 3,
1996
-----------
<S> <C>
Net sales...................................................... $624,682
Operating income............................................... 52,218
Net income..................................................... 29,683
</TABLE>
(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.
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 29, 1994 and
January 28, 1995 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 original maturities of three months or
less to be cash equivalents.
Inventories
Merchandise inventories are stated at the lower of cost or market,
principally valued on the average cost basis, except for inventories
attributable to the new investments in Brylane and KingSize which were
recorded at
F-9
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
estimated fair value. A non-recurring inventory charge representing the fair
value, as of the date of the Brylane Acquisition, of inventory in excess of
its original historical cost was amortized partly during the twenty-six weeks
ended January 29, 1994 ($11.5 million), and the remainder ($2.6 million) was
amortized during the first quarter ended April 30, 1994. 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).
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, 10 years 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.
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.
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 January 28, 1995, February 3, 1996, and November 2, 1996
was $90,000, $150,000, and $195,000, respectively. Deferred financing costs of
$11.8 million relate to the financing incurred in connection with the Brylane
Acquisition and are amortized over the term of the related debt using the
effective interest method. Accumulated amortization of deferred financing
costs at January 28, 1995, February 3, 1996, and November 2, 1996 was $2.2
million, $3.7 million, and $4.8 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
$6.3 million, $10.5 million, and $13.6 million at January 28, 1995, February
3, 1996, and November 2, 1996, 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 of intangible assets was $465,000 and $1.5 million at
February 3, 1996 and November 2, 1996, respectively.
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).
F-10
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
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 twenty-six weeks ended January
29, 1994, the years ended January 28, 1995 and February 3, 1996, and the
thirty-nine weeks ended October 28, 1995 and November 2, 1996 represents
federal, state and local income taxes relating only to taxable income of the
C-corporations included in the consolidated financial statements.
Supplemental Net Income and Earnings per Share
Supplemental net income represents the results of operations adjusted to
reflect a provision for income tax on historical income before provision for
income taxes, which gives effect to the change in Brylane's tax status to a C-
corporation subsequent to the public sale of its Common Stock. The difference
between the pro forma income tax rates utilized and the federal statutory rate
of 35% relates primarily to state income taxes, net of federal tax benefit.
Supplemental earnings per share represents supplemental net income divided
by the weighted average outstanding shares after giving affect to the
Offering.
Revenue Recognition
Sales are recorded at the time of shipment. The Company provides a reserve
for estimated merchandise returns, based on its prior customer returns
experience.
Interim Financial Information
The financial statements for the thirty-nine weeks ended October 28, 1995
and November 2, 1996 are unaudited but include all adjustments (consisting of
normal recurring adjustments) which are in the opinion of management necessary
for a fair statement of the results of the interim periods. The interim
results for the thirty-nine weeks ended November 2, 1996 are not necessarily
indicative of the results to be expected for the year ending February 1, 1997.
Reclassifications
Certain reclassifications have been made to the 1993 statement of cash flows
and to the 1994 and 1995 balance sheets, statements of operations and
statements of 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 (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, NOVEMBER 2,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Land, buildings and improvements........ $14,888 $14,997 $14,998
Furniture, fixtures and equipment....... 13,747 19,359 22,467
Leasehold improvements.................. 359 2,120 2,130
------- ------- -------
28,994 36,476 39,595
Accumulated depreciation and amortiza-
tion................................... 4,602 8,253 11,292
------- ------- -------
Property and equipment, net............. $24,392 $28,223 $28,303
======= ======= =======
</TABLE>
F-11
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
(6) LONG-TERM DEBT:
In order to finance the Brylane Acquisition, Brylane secured financing
through proceeds from its Bank Credit Facility and sale of the Notes. The Bank
Credit Facility and the Notes are fully and unconditionally guaranteed,
jointly and severally, by certain wholly-owned subsidiaries of Brylane, B.L.
Management Services, Inc., B.L. Catalog Distribution, Inc., B.N.Y. Service
Corp., and KS Management Services, Inc., and by each of Brylane's wholly-owned
general partnerships, B.L. Management Services Partnership and B.L. Catalog
Distribution Partnership (collectively, the "Subsidiary Guarantors").
Bank Credit Facility
In connection with the Brylane Acquisition, Brylane received bank financing
from a group of lenders in an amount of up to $150.0 million. The Bank Credit
Facility consists of (i) a $110.0 million six-year term loan (the "Term Loan")
and (ii) a $40.0 million five-year revolving credit facility with a $20.0
million sublimit for letters of credit (the "Revolving Credit Facility"). The
proceeds of the Term Loan were fully drawn to fund a portion of the purchase
price for the Brylane Acquisition. In connection with the KingSize
Acquisition, the Company's indebtedness was increased to $110.0 million, due
to borrowings under a new term loan of $35.0 million to fund a portion of the
KingSize Acquisition (the "KingSize Term Loan", and collectively with the Term
Loan, the "Term Loans"). The KingSize Term Loan bears interest at the same
rate as the original Term Loan and begins amortizing in October 1999.
Additionally, the letters of credit sublimit of $20.0 million was increased to
$30.0 million. As of January 28, 1995, February 3, 1996 and November 2, 1996,
Brylane had no borrowings under the Revolving Credit Facility and, after
giving effect to the issuance of letters of credit for $14.6 million, $17.2
million and $23.3 million, respectively, had additional capacity under the
Revolving Credit Facility of approximately $25.4 million, $22.8 million and
$16.7 million, respectively. As of January 28, 1995, February 3, 1996 and
November 2, 1996, the aggregate principal balance outstanding under the Term
Loans was $90.0 million, $102.5 million and $92.4 million, respectively.
The Term Loans currently bear interest at LIBOR plus 2.0%, which is adjusted
to the current rate at intervals of one to six months. The margin over LIBOR
may vary based on Brylane's operating cash flow to net debt ratio. The margin
remained at 2.0% for the year ended February 3, 1996 and for the thirty-nine
weeks ended November 2, 1996. The Term Loan will be repaid in quarterly
installments which commenced in the quarter ended January 29, 1994 with a $5.0
million principal payment. Scheduled principal payments were $15.0 million for
the year ended January 28, 1995, $13.5 million for the year ended February 3,
1996 and $10.1 million for the thirty-nine weeks ended November 2, 1996. In
addition to scheduled principal repayments on the Term Loans, Brylane is
obligated to make certain mandatory prepayments of the Term Loans and the
Revolving Credit Facility under certain circumstances. Such a mandatory
prepayment of the Term Loan based on Brylane's excess cash flow, as defined,
was paid during the first quarter of fiscal 1995 in the amount of $9.0
million. Additional scheduled principal payments under the Term Loan will
equal $3.6 million during the remainder of 1996. Scheduled principal payments
under the Term Loan will equal $15.6 million in fiscal 1997, $24.6 million in
fiscal 1998, and $13.5 million in fiscal 1999. In addition, scheduled
principal payments under the KingSize Term Loan will equal $17.5 million in
fiscal 1999 and $17.5 million in fiscal 2000. The terms of the Partnership
Agreement may under certain conditions require and the terms of the Term Loans
will under certain conditions 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 Term Loans.
At January 28, 1995, February 3, 1996 and November 2, 1996, interest terms
available to Brylane, for borrowings similar to the Term Loans, were similar
to those presently provided under the Bank Credit Facility.
F-12
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
Accordingly, the principal amount outstanding of the Term Loan approximated
the fair value at January 28, 1995, February 3, 1996 and November 2, 1996.
The Bank Credit Facility contains certain financial covenants which require
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 January 28, 1995, February 3, 1996 and November 2, 1996,
Brylane was in compliance with the required covenants. In addition, the Bank
Credit Facility contains 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 Bank Credit Facility contains customary events of
default, including certain changes of control of Brylane.
The obligations of Brylane under the Bank Credit Facility are collateralized
by the intangible assets of Brylane.
Senior Subordinated Notes
Brylane issued $125.0 million of the Notes and received $124.0 million after
original issue discount. The Notes are due September 1, 2003 and bear interest
of 10% per annum payable on September 1 and March 1, commencing March 1, 1994.
The effective interest rate on the Notes is 10.125% per annum. The unamortized
original issue discount remaining at January 28, 1995, February 3, 1996
and November 2, 1996 was $832,000, $736,000 and $663,000, respectively.
Based on quoted market prices at January 28, 1995, February 3, 1996 and
November 2, 1996, the fair value of the Notes was approximately $123.4
million, $111.9 million and $124.4 million, respectively. The decline in fair
market value is primarily attributable to an increase in market interest
rates.
(7) OPERATING LEASES:
Brylane leases office space and equipment under leasing arrangements
classified as operating leases which expire at various times through fiscal
2003. Rent expense under these leases was $2.2 million and $2.1 million in the
twenty-six weeks ended July 31, 1993 and January 29, 1994, respectively, $5.6
million and $5.8 million in the fiscal years ended January 28, 1995 and
February 3, 1996, respectively, and $4.3 million and $4.6 million in the
thirty-nine weeks ended October 28, 1995 and November 2, 1996, respectively.
In April 1996, Brylane signed a new lease commencing May 1, 1996 and
expiring December 31, 2001. Lease payments required by this lease are paid at
$45,000 per year.
Future minimum lease payments required under these leases, at February 3,
1996, are as follows (dollars in thousands):
<TABLE>
<S> <C>
1996............................................................... $ 5,317
1997............................................................... 4,840
1998............................................................... 4,315
1999............................................................... 3,182
2000............................................................... 1,420
Thereafter......................................................... 1,656
-------
$20,730
=======
</TABLE>
F-13
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
(8) INCOME TAXES:
Partnership
Under the partnership form of doing business, the tax effect of profits and
losses of the Partnership are incurred by the partners. Brylane will make cash
advances and annual distributions to the 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 twenty-six weeks ended
January 29, 1994, the fiscal years ended January 28, 1995 and February 3,
1996, and the thirty-nine weeks ended October 28, 1995 and November 2, 1996,
represents federal, state and local taxes relating only to taxable income of
the C-corporations included in the consolidated financial statements.
Predecessor
Income tax information related to the combined financial statements of the
Predecessor is as follows (dollars in thousands):
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
JULY 31,
1993
-----------
<S> <C>
Currently payable:
Federal...................................................... $ 9,043
State........................................................ 1,351
-------
10,394
Deferred....................................................... 206
-------
Total provision................................................ $10,600
=======
</TABLE>
As the Predecessor was a division of The Limited, the current tax provision
is a component of the intercompany account.
A reconciliation between the statutory Federal income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
JULY 31,
1993
-----------
<S> <C>
Federal income tax rate........................................ 34.0%
State income tax, net of Federal income tax effect............. 5.1
----
39.1%
====
</TABLE>
The components of the deferred tax provision follow (dollars in thousands):
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
JULY 31,
1993
-----------
<S> <C>
Excess of tax over book depreciation........................... $(293)
Catalog costs.................................................. 516
Other items, net............................................... (17)
-----
$ 206
=====
</TABLE>
F-14
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
(9) 1993 OPTION PLAN:
In connection with the Brylane Acquisition, Brylane adopted its 1993
Performance Partnership Unit Option Plan (the "1993 Option Plan") for
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 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. Options to
purchase an aggregate of 615,209, and 622,709 partnership units of Brylane at
a price of $10 per unit were outstanding under the 1993 Option Plan at
January 28, 1995 and February 3, 1996, respectively. Options to purchase an
aggregate of 619,584 partnership units of Brylane at a price of $10 per unit,
and options to purchase an additional 25,000 partnership units at a price of
$15 per unit were outstanding at November 2, 1996. Options to purchase 25,000
partnership units were granted at a price of $15 per unit, and options to
purchase 3,125 partnership units were cancelled during the thirty-nine weeks
ended November 2, 1996. All options become exercisable on the fifth or
fifteenth anniversary of the closing of the Brylane Acquisition and terminate
either 10 or 16 years from the date of grant.
(10) 1995 OPTION PLAN:
On July 15, 1995, Brylane adopted its 1995 Partnership Unit Option Plan (the
"1995 Option Plan"). Under the 1995 Option Plan, 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 500,000 partnership units in Brylane. Options to
purchase an aggregate of 123,750 partnership units of Brylane at a price of
$15 per unit were outstanding under the 1995 Option Plan at February 3, 1996.
Options to purchase an aggregate of 127,750 partnership units of Brylane at a
price of $15 per unit, and options to purchase an additional 143,000
partnership units at a price of $19 per unit were outstanding at November 2,
1996. Options to purchase 4,000 partnership units were granted at a price of
$15 per unit, and options to purchase 143,000 partnership units were granted
at a price of $19 per unit during the thirty-nine weeks ended November 2,
1996. All options terminate seven years from the date of grant (if not sooner
due to termination of employment). All options become exercisable in three
equal installments on the first, second and third anniversaries of the date of
grant.
(11) STOCK SUBSCRIPTION PLAN:
Also in connection with the Brylane Acquisition, Brylane adopted a stock
subscription plan (the "Subscription Plan") pursuant to which officers,
certain key employees and a member of the Board of Representatives purchased
453,000 common shares of a partner in Brylane ("VP Holding") at a price of $10
per share. A portion of the purchase price was received in the form of
promissory notes and has been recorded as a reduction of partnership equity.
During the year ended January 28, 1995, an additional 60,000 shares were
purchased under the Subscription Plan at a price of $10 per share, and VP
Holding repurchased 12,500 shares for cash of $62,500 and cancellation of a
management note receivable of $62,500. As a result, 500,500 common shares were
outstanding under the Subscription Plan at January 28, 1995. During the year
ended February 3, 1996, an additional 15,000 shares were purchased under the
Subscription Plan at a price of $15 per share, and VP Holding repurchased
10,000 shares for cash of $71,000 and cancellation of a management note
receivable of $50,000. As a result, 505,500 common shares were outstanding
under the Subscription Plan at February 3, 1996. During the thirty-nine weeks
ended November 2, 1996, an additional 7,500 shares were purchased under the
Subscription Plan at a price of $15 per share, and 5,000 shares were
cancelled. As a result, 508,000 common shares were outstanding under the
Subscription Plan at November 2, 1996.
F-15
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
(12) RETIREMENT PLAN:
Effective August 30, 1993, Brylane adopted the Brylane L.P. Savings and
Retirement Plan (the "Retirement Plan"). Full-time employees who have attained
twenty-one years of age and have completed one year of service are eligible to
participate in the Retirement Plan. Employees can contribute up to ten percent
of their salaries to the Retirement Plan on a pre-tax basis, subject to
Internal Revenue Service limitations. 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. Prior to the Brylane Acquisition, Brylane participated in a similar
defined contribution retirement plan sponsored by The Limited. Brylane's cost
under these plans was $1.2 million and $1.4 million in the twenty-six weeks
ended July 31, 1993 and January 29, 1994, respectively, $3.1 million and $2.9
million in the years ended January 28, 1995 and February 3, 1996,
respectively, and $2.2 million and $2.4 million in the thirty-nine weeks ended
October 28, 1995 and November 2, 1996, respectively.
(13) 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.
(14) 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 joint venture 60% owned by 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. This is similar to the arrangement between
World Financial and the Predecessor. The total expense amounted to $5.2
million and $5.1 million in the twenty-six weeks ended July 31, 1993 and
January 29, 1994, respectively, $10.7 million and $10.3 million in the years
ended January 28, 1995 and February 3, 1996, and $7.9 million and $7.3 million
in the thirty-nine weeks ended October 28, 1995 and November 2, 1996,
respectively.
Certain affiliates of The Limited granted Brylane the use of certain
trademarks for a specified period, as described in a trademark license
agreement.
Prior to the Brylane Acquisition, Brylane participated in The Limited's self
insurance programs for general liability, workers' compensation and medical
and dental benefits. Brylane expensed $1.9 million in the twenty-six weeks
ended July 31, 1993. There were no charges from The Limited for self insurance
in the twenty-six weeks ended January 29, 1994 or any subsequent period.
Prior to the Brylane Acquisition, The Limited funded all payments on behalf
of Brylane. The net intercompany account presented in the financial statements
of the Predecessor is principally comprised of intercompany advances and
reimbursements. No interest income or expense has been recorded on the net
intercompany balance.
F-16
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 AND NOVEMBER
2, 1996 IS UNAUDITED)
In connection with the Brylane Acquisition, Brylane paid FS Management Co.
and FS&Co. Management L.P., both of which are affiliated with FS&Co., an
aggregate of $4.5 million in fees as compensation for services in structuring
and arranging financing in connection with the Brylane Acquisition. Such fees
are included in organization and deferred financing costs.
(15) 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.
(16) SUBSEQUENT EVENTS (UNAUDITED):
On December 9, 1996, Brylane, L.P. completed the Chadwick's Acquisition.
Brylane purchased the assets of Chadwick's, excluding certain accounts
receivable, for approximately $222.8 million in cash and a $20.0 million
convertible subordinated note. Financing for the transaction was provided
through borrowings under the New Credit Agreement and $51.3 million of equity
financing.
On December 9, 1996, in contemplation of an initial public offering, The
Limited, 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, and NYNEX Master Trust, a trust governed by the laws of the State of
New York, entered into a First Amended and Restated Incorporation and Exchange
Agreement ("Exchange Agreement") whereby their ownership interests in the
Partnership will be exchanged for 6,399,778 shares of Common Stock in Brylane
Inc., a newly formed corporation. Also pursuant to the Exchange Agreement,
certain affiliates of FS&Co. will exchange their interests for 8,527,000
shares of Common Stock of Brylane Inc. Additionally, pursuant to certain stock
subscription agreements entered into with management investors, 544,667 shares
will be exchanged for shares of common stock in Brylane Inc.
As a result of certain amendments to the Partnership's 1993 Performance
Partnership Unit Option Plan, the Partnership will incur a non-cash
compensation expense of approximately $3.1 million. The Partnership estimates
that $2.4 million of this expense will be incurred in the fourth quarter of
1996 and the remainder will be incurred through fiscal 1997.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Chadwick's, Inc.:
We have audited the accompanying combined balance sheets of Chadwick's, Inc.
and subsidiaries as of January 28, 1995 and January 27, 1996 and the related
combined statements of income and net assets, and cash flows for each of the
three fiscal years in the period ended January 27, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Chadwick's, Inc.
and subsidiaries as of January 28, 1995 and January 27, 1996 and the combined
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 27, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996
F-18
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF INCOME AND NET ASSETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------
JANUARY 29, JANUARY 28, JANUARY 27, OCTOBER 28, OCTOBER 26,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $424,276 $432,660 $465,598 $355,671 $370,319
-------- -------- -------- -------- --------
Cost of sales, including
buying and order
fulfillment costs...... 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- --------
Gross profit.......... 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative
expenses, including
catalog and order
processing costs....... 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- --------
Income from
operations........... 23,604 5,457 26,448 17,570 34,409
Interest expense, net... 3,378 3,940 6,920 5,211 4,492
-------- -------- -------- -------- --------
Income before income
taxes, extraordinary
items and cumulative
effect of accounting
changes................ 20,226 1,517 19,528 12,359 29,917
Provision for income
taxes.................. 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- --------
Income before
extraordinary items and
cumulative effect of
accounting changes..... 12,285 1,262 11,674 7,391 17,562
Extraordinary charge,
net of income taxes.... -- (192) (3,338) -- --
Cumulative effect of
accounting changes, net
of income taxes........ 380 -- -- -- --
-------- -------- -------- -------- --------
Net income.............. 12,665 1,070 8,336 7,391 17,562
Net assets at beginning
of period.............. 34,604 47,269 48,339 48,339 56,675
-------- -------- -------- -------- --------
Net assets at end of
period................. $ 47,269 $ 48,339 $ 56,675 $ 55,730 $ 74,237
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
CHADWICK'S, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27, OCTOBER 26,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 1,420 $ 1,406 $ 464
Accounts receivable, net of allowance for
doubtful accounts of $479, $2,582 and
$2,062, respectively...................... 10,056 41,444 99,873
Current deferred taxes and income taxes re-
coverable................................. 9,534 2,624 1,844
Merchandise inventories.................... 93,993 82,612 106,469
Prepaid expenses, including catalog costs.. 9,499 18,829 15,636
-------- -------- --------
Total current assets..................... 124,502 146,915 224,286
-------- -------- --------
Property at cost:
Land and buildings......................... 29,586 30,563 30,881
Leasehold improvements..................... 4,232 5,873 6,092
Furniture, fixtures and equipment.......... 38,193 41,458 42,199
-------- -------- --------
72,011 77,894 79,172
Less accumulated depreciation and amortiza-
tion...................................... 18,888 25,594 30,544
-------- -------- --------
53,123 52,300 48,628
-------- -------- --------
Total assets............................. $177,625 $199,215 $272,914
======== ======== ========
<CAPTION>
LIABILITIES AND NET ASSETS
--------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable........................... $ 41,961 $ 36,889 $ 46,817
Accrued expenses and other current liabili-
ties...................................... 38,132 32,183 60,388
Current deferred taxes and income taxes
payable................................... -- -- 463
-------- -------- --------
Total current liabilities................ 80,093 69,072 107,668
Long-term debt............................... 45,000 -- --
Loans and advances from TJX.................. 2,391 70,769 88,587
Deferred income taxes........................ 1,802 2,699 2,422
Commitments (see Note B)
Net assets............................... 48,339 56,675 74,237
-------- -------- --------
Total liabilities and net assets......... $177,625 $199,215 $272,914
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- ------------------
JANUARY 29, JANUARY 28, JANUARY 27, OCTOBER OCTOBER
1994 1995 1996 28, 1995 26, 1996
----------- ----------- ----------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
Adjustments to recon-
cile net income to net
cash provided from
(used in) operating
activities:
Extraordinary charge. -- 192 3,338 -- --
Depreciation and am-
ortization.......... 4,505 5,699 6,712 5,055 5,018
Other................ (380) -- 297 (2) (68)
Changes in assets and
liabilities:
(Increase) in ac-
counts receivable... (2) (4,645) (31,388) (76,663) (58,429)
(Increase) decrease
in federal and state
income taxes
recoverable and
current deferred
income taxes........ (3,206) (3,310) 9,258 9,534 780
(Increase) decrease
in merchandise
inventories......... (14,995) (7,187) 11,381 5,842 (23,857)
(Increase) decrease
in prepaid expenses. (4,020) (1,159) (9,330) (6,136) 3,193
(Increase) in other
assets.............. -- -- -- (453) --
Increase (decrease)
in accounts payable. (10,407) 13,503 (5,072) (9,884) 9,928
Increase (decrease)
in accrued expenses
and other current
liabilities......... 1,973 11,134 (5,949) 10,304 28,205
Increase in federal
and state income
taxes payable and
current deferred in-
come taxes.......... -- -- -- 5,458 463
Increase (decrease)
in deferred income
taxes............... 1,133 621 897 306 (277)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating ac-
tivities............... (12,734) 15,918 (11,520) (49,248) (17,482)
-------- -------- -------- -------- --------
Cash flows from invest-
ing activities:
Property additions..... (16,203) (10,586) (6,338) (3,818) (1,278)
-------- -------- -------- -------- --------
Net cash (used in) in-
vesting activities..... (16,203) (10,586) (6,338) (3,818) (1,278)
-------- -------- -------- -------- --------
Cash flows from financ-
ing activities:
Proceeds from
borrowings of long-
term debt............. -- 45,000 -- -- --
Principal payments on
long-term debt........ (19) (32) -- -- --
Prepayment of long-term
debt.................. -- (5,774) (50,534) -- --
Increase (decrease) in
borrowings from TJX,
net................... 30,036 (44,317) 68,378 52,013 17,818
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing ac-
tivities............... 30,017 (5,123) 17,844 52,013 17,818
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 1,080 209 (14) (1,053) (942)
-------- -------- -------- -------- --------
Cash and cash equiva-
lents at beginning of
year................... 131 1,211 1,420 1,420 1,406
-------- -------- -------- -------- --------
Cash and cash equiva-
lents at end of period. $ 1,211 $ 1,420 $ 1,406 $ 367 $ 464
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION: Chadwick's, Inc. (the "Company"), which holds the
assets of the Chadwick's of Boston catalog, is a wholly-owned subsidiary of
The TJX Companies, Inc. ("TJX"). These combined financial statements include
the operating results of the Chadwick's of Boston catalog and its related
trademark subsidiary.
The preparation of the 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 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.
DESCRIPTION OF BUSINESS: The Company is an off-price catalog operator which
sells primarily women's career, casual and social apparel through its
Chadwick's of Boston catalog.
FISCAL YEAR: The Company's fiscal year ends on the last Saturday in January.
The fiscal years ended January 29, 1994, January 28, 1995 and January 27, 1996
each included 52 weeks.
REVENUE RECOGNITION: The Company recognizes sales and the related cost of
sales at the time the merchandise is shipped to customers. The Company allows
for merchandise returns at the customer's discretion, and provides an
allowance for returns based on projected merchandise returns. The Company
offers a deferred billing program under which the Company does not charge the
credit card of a customer who requests the program and purchases merchandise
on credit until approximately 90 to 120 days after the mailing of the catalog
from which the merchandise is purchased. An allowance for doubtful accounts is
established as deferred billing sales are recorded based upon projected future
credit losses.
MERCHANDISE LIQUIDATIONS: The Company writes down the value of merchandise
identified for liquidation to its net realizable value and reflects the
transaction net in cost of sales. The Company received $29.7 million, $21.9
million and $20.2 million, for the fiscal years ended January 1994, 1995 and
1996, respectively, with respect to liquidated merchandise.
CASH AND CASH EQUIVALENTS: The Company generally considers highly liquid
investments with a maturity of three months or less at time of purchase to be
cash equivalents. The Company's investments are primarily time deposits with
major banks. Fair value of cash equivalents approximates carrying value.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost or
market. The Company primarily uses the retail method for valuing inventories
on the first-in first-out basis.
PREPAID CATALOG EXPENSES: Catalog costs are capitalized as incurred and
amortized over the period the catalog generates revenue which generally does
not exceed four months. Prepaid catalog expenses were $7.9 million and $16.7
million as of January 28, 1995 and January 27, 1996, respectively.
DEPRECIATION AND AMORTIZATION: For financial reporting purposes, the Company
provides for depreciation and amortization of property principally by the use
of the straight-line method over the estimated useful lives of the assets.
Leasehold costs and improvements are generally amortized over the lease term
or their estimated useful life, whichever is shorter. Maintenance and repairs
are charged to expense as incurred. Upon retirement or sale, the cost of
disposed assets and the related depreciation are eliminated and any gain or
loss is included in net income.
F-22
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NEW ACCOUNTING STANDARDS: During 1995, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of" and FASB Statement No.
123, "Accounting for Stock Based Compensation." The Company will implement the
new standards in its fiscal year ending January 25, 1997 and it expects that
the impact of implementation will be immaterial. The Company plans to adopt
the disclosure only provisions of FASB Statement No. 123.
ACCOUNTING CHANGES: Effective January 31, 1993, TJX adopted Statement of
Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company recorded its share
of a one-time implementation charge of $79,000, net of taxes of $51,000, as a
cumulative effect of accounting change.
In addition, effective January 31, 1993, TJX also implemented Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes."
The amount applicable to the Company resulted in an after-tax gain of $459,000
which was also recorded as a cumulative effect of accounting change.
INTERIM FINANCIAL INFORMATION: The combined financial statements for the
thirty-nine weeks ended October 28, 1995 and October 26, 1996 are unaudited
but include all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim period.
A. RELATED PARTY TRANSACTIONS
TJX loans funds to the Company on an as needed basis. The Company pays
interest to TJX on its intercompany balance, net of its cash balance, on a
monthly basis. At the beginning of a fiscal year, the intercompany balance is
determined to be long-term and interest is charged on that balance at a rate
determined annually by TJX. The long-term intercompany balance was $16.7
million for the fiscal year ended January 29, 1994, $46.7 million for the
fiscal year ended January 28, 1995 and $2.4 million for the fiscal year ended
January 27, 1996. The long-term interest rate was 9.0%, 8.0% and 8.5%, in the
fiscal years ended January of 1994, 1995 and 1996, respectively.
In addition to the above, interest is charged or credited to the Company
each month on the difference between its long-term intercompany balance and
the intercompany balance, net of cash at the end of the month. Interest income
on this portion of the intercompany balance which represents funds invested
with TJX is credited at a rate which approximates TJX's short-term investment
rate. Interest expense on this portion of the intercompany balance which
represents borrowings from TJX is charged at a rate which approximates TJX's
short-term borrowing rate. During the past three years, the maximum amounts
the Company has borrowed from TJX on a short-term basis (based on month end
borrowing levels) were $66.2 million in the fiscal year ended January 29,
1994, $18.6 million in the fiscal year ended January 28, 1995 and $116.0
million in the fiscal year ended January 27, 1996. The average short-term
interest rate on its borrowings was approximately 4%, 5% and 7% in the fiscal
years ended January of 1994, 1995 and 1996, respectively.
TJX provides certain services to the Company, primarily data processing and
payroll processing. The Company pays a charge which it believes approximates
the costs incurred by TJX. The Company paid $2.6 million, $3.3 million and
$4.4 million in the fiscal years ended January of 1994, 1995 and 1996,
respectively, for these services. The Company also participates in numerous
benefit plans and insurance plans of TJX and is charged its share of the costs
incurred in connection with the plans.
Additionally, the Company pays a charge to TJX for administrative support,
including financial, treasury, general legal, tax, audit and human resources.
The Company pays an annual fee equal to 0.1% of its budgeted sales for these
services. The Company paid $409,000, $504,000 and $461,000 for the fiscal
years ended January of 1994, 1995 and 1996, respectively.
F-23
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company also enters into several transactions with other operating
divisions of TJX. In the fiscal years ended January of 1994, 1995 and 1996,
TJX purchased liquidated merchandise from the Company of $24.2 million, $14.4
million, and $10.6 million, respectively. Accounts receivable as of January
28, 1995 and January 27, 1996 includes $2.5 million and $1.2 million,
respectively due from TJX with respect to liquidated merchandise. Also, the
Company leased certain buying, warehouse and distribution space and two outlet
locations from TJX for which the Company paid $206,000, $251,000 and $289,000
in the fiscal years ended January of 1994, 1995 and 1996, respectively.
B. COMMITMENTS AND CONTINGENCIES
The Company is committed for a limited number of leases, primarily for the
rental of real estate. The real estate leases range up to five years and have
variable renewal options. In addition, the Company is generally required to
pay insurance, real estate taxes and other operating expenses. The following
is a schedule of future minimum lease payments for the Company as of January
27, 1996:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY, OPERATING LEASES
--------------------------- ----------------
<S> <C>
1997........................................................ $ 497,000
1998........................................................ 523,000
1999........................................................ 135,000
2000........................................................ 66,000
2001........................................................ 66,000
Later years................................................. 44,000
----------
Total minimum lease payments................................ $1,331,000
==========
</TABLE>
Rental expense under operating leases amounted to $1,174,000, $996,000 and
$1,147,000 for the fiscal years ended January of 1994, 1995 and 1996,
respectively.
The Company had outstanding letters of credit in the amount of $19.1 million
as of January 27, 1996. The letters of credit are issued for the purchase of
inventory.
C. INCOME TAXES
The Company is included in the consolidated federal income tax return of TJX
and, where applicable, is consolidated for state reporting purposes. The
current income tax provision charged to the Company by TJX is based on the
cost or benefits the Company provides in the consolidated tax returns. The
deferred tax provision is computed based upon the differences between the tax
basis of the Company's assets and liabilities and the reported amounts in the
financial statements. The Company believes the income tax provision is
representative of the Company's tax provision as if it was a stand-alone
company.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY,
------------------------------
1994 1995 1996
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................... $ 5,947 $ 336 $ 1,793
State...................................... 1,959 (162) 542
Deferred:
Federal.................................... 41 62 4,212
State...................................... (6) 19 1,307
--------- -------- ---------
Provision for income taxes................... $ 7,941 $ 255 $ 7,854
========= ======== =========
</TABLE>
F-24
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a net deferred tax (asset) liability as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JANUARY 27,
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventory.............................. $ 3,712 $ 5,825 $ 3,371
Reserve for customer returns........... 3,622 3,419 3,632
All other.............................. 4,072 2,825 3,000
------- ------- -------
Total deferred tax assets................ 11,406 12,069 10,003
------- ------- -------
Deferred tax liabilities:
Property and equipment................. 2,419 3,071 3,074
Capitalized catalog costs.............. 3,434 3,091 6,924
Other.................................. 770 1,204 821
------- ------- -------
Total deferred tax liabilities........... 6,623 7,366 10,819
------- ------- -------
Net deferred tax (asset) liability....... $(4,783) $(4,703) $ 816
======= ======= =======
</TABLE>
The following is a reconciliation of the federal statutory income tax rate
to the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JANUARY,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............................ 35% 35% 35%
Permanent differences, primarily charitable contributions
of inventory.............................................. (2) (12) (1)
State income taxes, net of federal benefit................. 6 (6) 6
--- --- ---
Effective income tax rate.................................... 39% 17% 40%
=== === ===
</TABLE>
D. PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company participates in TJX's non-contributory defined benefit
retirement plan. The TJX plan covers the majority of full-time employees who
have attained 21 years of age and have completed one year of service. Benefits
are based on compensation earned in each year of service. TJX also has an
unfunded supplemental retirement plan which covers certain key employees of
the Company and provides additional retirement benefits based on average
compensation. Pension expenses paid by the Company to TJX amounted to
$101,000, $195,000 and $256,000 in the fiscal years ended January of 1994,
1995 and 1996, respectively.
TJX does not segregate plan assets or liabilities by participating
subsidiary company, and as a result, the following tables reflect the periodic
pension cost and funded status of the TJX plan.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............ $ 3,375 $ 4,554 $ 3,920
Interest cost on pro-
jected benefit obliga-
tion................... 5,995 6,526 6,915
Actual return on assets. (12,188) 4,545 (15,215)
Net amortization and de-
ferrals................ 5,760 (11,600) 9,384
-------- -------- --------
Net periodic pension
cost................... $ 2,942 $ 4,025 $ 5,004
======== ======== ========
</TABLE>
F-25
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation, including vested bene-
fits of $71,592 and $81,296........................... $77,256 $91,606
------- -------
Projected benefit obligation........................... 82,297 97,891
Plan assets at fair market value....................... 66,454 71,792
------- -------
Projected benefit obligation in excess of plan assets.. 15,843 26,099
Unrecognized net gain (loss) from past experience dif-
ferent from that assumed and effects of changes in as-
sumptions............................................. (1,897) (7,563)
Prior service cost not yet recognized in net periodic
pension cost.......................................... (1,127) (1,035)
Unrecognized net asset (obligation) as of initial date
of application of SFAS No. 87......................... (568) (745)
------- -------
Accrued pension cost................................... $12,251 $16,756
======= =======
Weighted average discount rate......................... 8.25% 7.00%
Rate of increase on future compensation levels......... 4.50% 4.00%
Expected long-term rate of return on assets............ 9.50% 9.00%
</TABLE>
The Company also participates in TJX's 401(k) plans which match a portion of
employee contributions. The Company's match for employee contributions was
$158,000, $191,000 and $186,000 in the fiscal years ended January of 1994,
1995 and 1996, respectively.
The TJX postretirement benefit plan is unfunded and provides limited
postretirement medical and life insurance benefits to associates who
participate in TJX's retirement plan and who retire at age 55 or older with 10
years or more of service. The postretirement expense paid by the Company was
$28,000, $75,000 and $81,000 in the fiscal years ended January of 1994, 1995
and 1996, respectively.
TJX does not segregate plan liabilities by participating subsidiary company,
and as a result, the following tables reflect the periodic postretirement
benefit cost and funded status of the TJX plan.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
--------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 476 $ 952 $ 757
Interest cost on accumulated benefit obligation...... 820 963 1,046
Net amortization..................................... -- 88 --
-------- -------- --------
Net periodic postretirement benefit cost............. $ 1,296 $ 2,003 $ 1,803
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement obligation:
Retired associates................................... $ 6,394 $ 6,731
Fully eligible active associates..................... 712 1,146
Other active associates.............................. 5,168 7,861
------- -------
Accumulated postretirement obligations................. 12,274 15,738
Unrecognized net gain (loss) due to change in assump-
tions................................................. (149) (2,676)
------- -------
Accrued postretirement benefits........................ $12,125 $13,062
======= =======
Discount rate.......................................... 8.25% 7.00%
Medical inflation rate................................. 5.00% 5.00%
</TABLE>
F-26
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits................... $ 2,314 $ 3,727
Reserve for customer returns......................... 8,266 8,780
Customer prepayments................................. 13,495 8,372
All other............................................ 14,057 11,304
------- -------
Accrued expenses and other current liabilities....... $38,132 $32,183
======= =======
</TABLE>
F. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's cash payments for interest expense and income taxes are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY,
---------------------------
1994 1995 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest expense............................... $ 3,378 $ 3,657 $ 7,247
Income taxes................................... 11,196 3,204 3,078
</TABLE>
G. DEBT
During the fiscal year ended January 28, 1995, the Company secured a 10-year
$45 million real estate mortgage on its fulfillment center (guaranteed by
TJX), at 8.73% annual interest. The proceeds were used to prepay the $5.4
million outstanding mortgage on the facility, with the balance of the proceeds
used to repay advances from TJX. The early retirement of the $5.4 million
mortgage resulted in an after-tax extraordinary charge of $192,000 ($325,000
pre-tax) in the fiscal year ended January 28, 1995. In the fiscal year ended
January 27, 1996, the Company prepaid its $45 million real estate mortgage on
the fulfillment center in connection with TJX's purchase of Marshalls and
incurred an extraordinary after-tax charge of $3.3 million ($5.6 million pre-
tax) on the early retirement of this debt.
Information relating to the Company's borrowings from TJX is described in
Note A.
F-27
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
The Company............................................................... 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 19
Capitalization............................................................ 20
Unaudited Pro Forma As Adjusted Financial Statements...................... 21
Selected Financial Data................................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 45
The Incorporation Plan.................................................... 59
Certain Relationships and Related Transactions............................ 61
Management................................................................ 67
Security Ownership........................................................ 80
Shares Eligible for Future Sale........................................... 81
Description of Capital Stock.............................................. 85
Description of Certain Financing Arrangements............................. 88
Underwriting.............................................................. 91
Legal Matters............................................................. 93
Experts................................................................... 93
Available Information..................................................... 94
Index to Historical Financial Statements.................................. F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
BRYLANE INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
J.P. MORGAN & CO.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Commission and
the NASD filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- -------
<S> <C>
SEC registration fee............................................. $35,938
NASD filing fee.................................................. $12,000
NYSE filing fee.................................................. *
Blue sky fees and expenses....................................... $20,000
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Transfer agent and registrar fees................................ *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Brylane Inc. (the "Company") is a Delaware corporation. Article VI of the
Company's Bylaws provides that the Company may indemnify its officers and
Directors to the full extent permitted by law. Section 145 of the General
Corporation Law of the State of Delaware (the "GCL") provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
action, suit or proceeding provided that such director or officer acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, provided that such director or officer had no cause to believe his
or her conduct was unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses actually and reasonably incurred
in connection with the defense or settlement of such action or suit provided
that such director or officer acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such director or officer shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action was brought shall determine that
despite the adjudication of liability such director or officer is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
II-1
<PAGE>
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith; that indemnification provided for by Section
145 shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled; and that the corporation shall have power to purchase
and maintain insurance on behalf of a director or officer of the corporation
against any liability asserted against him or her or incurred by him or her in
any such capacity or arising out of his or her status as such whether or not
the corporation would have the power to indemnify him or her against such
liabilities under Section 145.
Article Tenth of the Company's Certificate of Incorporation currently
provides that each Director shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability (i) for any breach of the Director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL, or (iv) for any transaction from
which the Director derived an improper benefit.
The Partnership has previously entered into indemnity agreements (the "Old
Indemnity Agreements") with each member of its Board of Representatives. The
Old Indemnity Agreements generally indemnify such persons against liabilities
arising out of their service in their capacities as members of the Board of
Representatives, officers, employees or agents of the Partnership.
In addition, B.L. Management and B.L. Distribution have previously entered
into separate indemnity agreements with Mr. Pulciani in his capacity as the
sole director of each of B.L. Management and B.L. Distribution. Such indemnity
agreements generally indemnify Mr. Pulciani against liabilities arising out of
his service in his capacity as a director or agent of B.L. Management or B.L.
Distribution.
Upon consummation of the Incorporation Plan, the Company and the
Partnership, as the Company's wholly-owned subsidiary, will enter into new
indemnity agreements (the "New Indemnity Agreements") by and between the
Company and the Partnership, on the one hand, and each of the directors of the
Company, on the other hand. The New Indemnity Agreements will become effective
as of the date of closing of the Offering and will supersede the Old Indemnity
Agreements. The New Indemnity Agreements will generally indemnify the
directors of the Company against liabilities arising out of their service in
their capacities as directors or agents of the Company, or in their capacities
as Representatives or agents of the Partnership, as the case may be.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 30, 1993, pursuant to the terms of the Transaction Agreement and
the Partnership Agreement, the FS Parties contributed an aggregate of $75.0
million to the capital of the Partnership (of which $2.4 million consisted of
promissory notes received from members of the management of the Partnership or
its subsidiaries in connection with their purchase of shares of stock of VP
Holding. See "Management--Stock Subscription Plan"). In exchange for such
contribution, VGP became the sole general partner of the Partnership owning a
20.5% interest in the profits and losses of the Partnership and VLP became a
limited partner of the Partnership owning a 39.5% interest in the profits and
losses of the Partnership. At the same time, certain affiliates of The Limited
contributed substantially all of the assets and liabilities of the Business to
the Partnership in return for a cash distribution from the Partnership to the
parent entities (and successors by merger) of certain of such affiliates of
$285.0 million and the issuance to Lane Bryant Direct, Inc., an affiliate of
The Limited ("Lane Bryant"), of a limited partnership interest in the
Partnership representing a 40% interest in the profits and losses of the
Partnership. The issuances of the partnership interests described above were
exempt from registration under Section 4(2) of the Securities Act.
II-2
<PAGE>
In connection with the Brylane Acquisition, on August 30, 1993, The Limited
received a warrant entitling it to purchase up to 1,250,000 partnership units
in the Partnership, at a purchase price of $10.00 per unit, if the Partnership
achieves certain operating performance goals (the "Limited Warrant"). The
initial issuance of the Limited Warrant to The Limited was exempt from
registration under Section 4(2) of the Securities Act.
In order to finance a substantial portion of the consideration paid in the
Brylane Acquisition, on August 30, 1993, the Partnership and Capital Corp.
(collectively, the "Issuers") issued $125.0 million aggregate principal amount
of 10% Senior Subordinated Notes, due 2003, Series A (the "Original Notes"),
pursuant to an offering memorandum dated August 20, 1993. The initial
purchasers of the Original Notes were Merrill Lynch & Co., Donaldson, Lufkin &
Jenrette Securities Corporation, Lazard Freres & Co., and J.P. Morgan
Securities Inc. (the "Initial Purchasers"), who acted as the placement agents
of the offering. The aggregate offering price was $124,030,000 and the Initial
Purchasers' discount was $3,437,500. The issuance of the Original Notes were
exempt from registration under Section 4(2) of the Securities Act. In
addition, the Initial Purchasers represented to the Issuers that they would
resell the Original Notes only to (i) "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) in compliance with Rule 144A,
(ii) to a limited number of institutional "accredited investors" (as defined
in Rule 501(A)(1), (2), (3) or (7) under the Securities Act), and (iii)
pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act.
On November 26, 1993, the Issuers opened an offer to exchange, upon the
terms and conditions contained in a Registration Statement on Form S-4
previously filed with the Commission, all of the $125.0 million principal
amount outstanding of the Original Notes, for 10% Senior Subordinated Notes
due 2003, Series B (the "New Notes"), which were registered under the
Securities Act. The exchange offer was made to satisfy the Issuers'
obligations under a Registration Rights Agreement to register the Original
Notes under the Securities Act, and the Issuers did not receive any proceeds
from such exchange offer. The Issuers closed the exchange offer on December
27, 1993.
In connection with the initial capitalization of VP Holding, FSEP II was
issued 4,093,690 shares of common stock of VP Holding at a purchase price of
$10.00 per share. At the same time, FSEP III was issued 2,933,310 shares of
the common stock of VP Holding at a purchase price of $10.00 per share. The
issuance of such shares was exempt from registration under Section 4(2) of the
Securities Act. Subsequent to the Brylane Acquisition, FSEP III transferred
102,170 shares of its common stock of VP Holding to an affiliate, FSEP
International. On August 30, 1993, VP Holding issued 20,000 shares of common
stock to Peter J. Sodini at a purchase price of $10.00 per share. The issuance
of shares to Mr. Sodini was exempt under Section 4(2) of the Securities Act.
In connection with the Brylane Acquisition, VP Holding, an affiliate of
FS&Co., adopted a Stock Subscription Plan (the "Subscription Plan") pursuant
to which an aggregate of 485,500 shares (net of repurchases) of the common
stock of VP Holding were issued, at a purchase price of $10.00 per share, and
22,500 shares were issued, at a purchase price of $15.00 per share, to certain
members of management and of the Board of Representatives and certain other
key employees of the Partnership (or its subsidiaries). Of the aggregate
508,000 shares issued to management and employees pursuant to the Subscription
Plan (the "Management Shares"), 453,000 shares were issued at the time of the
Brylane Acquisition on August 30, 1993. Of the aggregate purchase price of
$4.5 million paid for such shares, promissory notes in the aggregate amount of
approximately $2.4 million were delivered under the Subscription Plan.
Subsequent to the Brylane Acquisition, an additional 52,500 shares were issued
to management and employees pursuant to the terms of the Subscription Plan. Of
the aggregate purchase price of $637,500 paid for such shares, promissory
notes in the aggregate amount of $262,500 were delivered under the
Subscription Plan. The issuances of shares of common stock of VP Holding
pursuant to the Subscription Plan described above were each exempt from
registration under Section 4(2) of the Securities Act or Rule 701 promulgated
under the Securities Act. Subsequent to the Brylane Acquisition and in
connection with his election to the Board of Representatives of the
Partnership, VP Holding issued 30,000 shares of common stock to William C.
Johnson at a purchase price of $10.00 per share, pursuant to the Stock
Subscription Plan. The issuance of shares to Mr. Johnson was exempt under
Section 4(2) of the Securities Act.
II-3
<PAGE>
Pursuant to the terms of the Partnership Agreement, each time that
Management Shares were issued under the Subscription Plan subsequent to the
date of the Brylane Acquisition, VLP was issued a corresponding number of
partnership units at the same purchase price as such Management Shares. Such
issuances of partnership units to VLP were exempt under Section 4(2) of the
Securities Act.
In connection with the KingSize Acquisition, on October 16, 1995, WearGuard
received 350,000 limited partnership units in partial payment of the purchase
price of the KingSize business. The issuance of the limited partnership units
was exempt from registration under Section 4(2) of the Securities Act.
Pursuant to a letter agreement dated October 5, 1995 between ARAMARK and
Jessie Bourneuf, Ms. Bourneuf was to receive 16,667 partnership units on or
about October 16, 1996. In accordance therewith, on October 16, 1996,
WearGuard transferred 16,667 partnership units to VP Holding, and VP Holding
issued 16,667 shares of VP Holding common stock to Ms. Bourneuf. Such issuance
of shares of VP Holding common stock was exempt from registration under
Section 4(2) of the Securities Act.
In connection with the Chadwick's Acquisition, on December 9, 1996,
(i) FSEP III purchased 1,441,989 shares of common stock of VP Holding at a
purchase price of $20.00 per share; (ii) 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 at a purchase price of $20.00 per share; (iv) 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 to 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 Section 4(2) of the
Securities Act.
Pursuant to the terms of the Incorporation Plan, and in connection with the
closing of the Offering, (i) Lane Bryant Direct will receive 5,000,000 shares
of Common Stock in exchange for its 32.3% interest in the Partnership;
(ii) WearGuard will receive 399,778 shares of Common Stock in exchange for its
2.6% interest in the Partnership; (iii) Leeway & Co. will receive 500,000
shares of Common Stock in exchange for its 3.2% interest in the Partnership;
(iv) NYNEX will receive 500,000 shares of Common Stock in exchange for its
3.2% interest in the Partnership; (v) assuming that the TJX Noteholder does
not convert the Partnership Note into partnership units prior to the Offering,
the TJX Noteholder will receive from the Company the Convertible Note which is
convertible into shares of Common Stock and which contains terms substantially
identical to the terms of the Partnership Note; (vi) FSEP II will receive
4,093,690 shares of Common Stock in exchange for its 4,093,690 shares of
common stock of VP Holding; (vii) FSEP III will receive 4,273,129 shares of
Common Stock in exchange for its 4,273,129 shares of common stock of VP
Holding; (viii) FS International will receive 160,181 shares of Common Stock
in exchange for its 160,181 shares of common stock of VP Holding; (ix) the
officer and director holders of 508,000 of the shares of common stock of VP
Holding will receive 508,000 shares of Common Stock pursuant to the Brylane
Subscription Plan or the Senior Management Plan; (x) Mr. Sodini will receive
20,000 shares of Common Stock in exchange for his 20,000 shares of common
stock of VP Holding; (xi) Ms. Bourneuf will receive 16,667 shares of Common
Stock in exchange for her 16,667 shares of common stock of VP Holding; and
(xii) Mr. Rao and Ms. Meyrowitz will each receive 37,500 shares of Series A
Preferred Stock in exchange for his or her 37,500 shares of VP Holding
Preferred Stock. Since each of the holders of the shares of common stock and
preferred stock of VP 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 which is convertible into shares of Common Stock, as
the case may be, in connection with the transactions contemplated by the
Incorporation Plan, the Company believes that none of the foregoing
transactions involve a "sale" within the meaning of the Securities Act. Such
exchanges would also be exempt from the registration provisions of the
Securities Act by virtue of Section 4(2) of the Securities Act.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1*** Form of Underwriting Agreement.
2.1tttt 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, The Limited, WearGuard, Leeway
& Co., NYNEX, Chadwick's, Inc. ("Chadwick's") and the Company
(with exhibits referenced therein, certain of which will be
included by amendment to this Registration Statement at Exhibits
3.13, 4.10, and 4.11).
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 Corp. ("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.
3.8ttt Amendment No. 4 to Partnership Agreement dated October 14, 1994.
3.9tt Amendment No. 5 to Partnership Agreement dated September 22, 1995.
3.10tt Amendment No. 6 to Partnership Agreement dated October 16, 1995.
3.11tttt Amendment No. 7 to Partnership Agreement dated October 14, 1996.
3.12tttt Amendment No. 8 to the Partnership Agreement dated December 5,
1996.
3.13ii Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of , 1996.
3.14*** Certificate of Incorporation of the Company.
3.15*** Bylaws of the Company.
3.16tttt 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.
3.17tttt 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.
4.1+ Purchase Agreement dated August 20, 1993 among the Partnership,
Brylane Capital, VGP Corporation 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.
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 (the "First
Supplemental Indenture").
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.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.10ii Registration Rights Agreement dated as of , 1996 by and
among the Company, FSEP II, FSEP III, FSEP International, Lane
Bryant Direct, WearGuard, Chadwick's, Leeway & Co. and NYNEX.
4.11ii Stockholders Agreement dated as of , 1996 by and among the
Company, FSEP II, FSEP III, FSEP International, Lane Bryant
Direct, WearGuard, Chadwick's, Leeway & Co. and NYNEX.
4.12tt Third Supplemental Indenture dated as of October 16, 1995 by and
among the Partnership, Brylane Capital, KingSize Partnership, K.S.
Management, KingSize Sales and United States Trust Company of New
York, as Trustee.
4.13tttt Fourth Supplemental Indenture dated as of December 9, 1996 by and
among the Partnership, Brylane Capital Corp., C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United States
Trust Company of New York, as Trustee.
5.1ii Opinion of Riordan & McKinzie, a Professional Law Corporation.
10.1+ Transaction Agreement dated as of July 13, 1993 among VGP
Corporation, VLP Corporation 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+ 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").
10.6tttt 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
and the Partnership.
10.7+ Electronic Media Trademark License Agreement made as of the 20th
day of August, 1993 among the Licensors and the Licensees.
10.8+ Agreement to be Bound by the Trademark License Agreement and the
Electronic Media Trademark License Agreement executed by the
Partnership.
10.9+ Service Agreement made as of the 30th day of August, 1993 between
B.L. Management and the Partnership.
10.10+ 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.
10.11+ 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.
10.12tttt Credit Agreement dated as of December 9, 1996 (the "Credit
Agreement") among the Partrnership, 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.
10.13tttt Security Agreement dated as of December 9, 1996 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.14tttt Pledge Agreement dated as of December 9, 1996 among the
Partnership, the Subsidiary Pledgors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.15tttt 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.
10.16tttt 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.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17tttt 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).
10.18tttt 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.
10.19+ 1993 Employee Stock Subscription Plan of VP Holding Corporation
("VP Holding") (the "Subscription Plan").
10.20+ 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).
10.21+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, Jules
Silbert, Jessie Bourneuf, Loida Noriega-Wilson, Richard L.
Bennett, William G. Brosius and Bruce G. Clark 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).
10.22+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Arlene Silverman, Kevin McGrain 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).
10.23+ 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.24+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Peter J. Canzone, Sheila R.
Garelik, Robert A. Pulciani, Jules Silbert, Jessie Bourneuf, Loida
Noriega-Wilson, Richard L. Bennett, William G. Brosius and Bruce
G. Clark under the 1993 Option Plan.
10.25+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Arlene Silverman, Kevin
McGrain and certain other participants under the 1993 Option Plan.
10.26t 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.27t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Peter J. Canzone, William C.
Johnson, Sheila R. Garelik, Robert A. Pulciani, Jules Silbert,
Jessie Bourneuf, Loida Noriega-Wilson, Arlene Silverman, Richard
L. Bennett, William G. Brosius and Bruce G. Clark under the 1995
Option Plan.
10.28t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Kevin McGrain and certain
other participants under the 1995 Option Plan.
10.29+ Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.30+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.31+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
10.32ttt Amendment No. 1 to Credit Card Agreement dated as of July 1, 1995
HH between World Financial and the Partnership.
10.33*** Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.34*** Addendum dated February 18, 1994 to Stock Subscription Agreement
between VP Holding and Jules Silbert.
10.35*** Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.36*** Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.37tttt Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan").
10.38tttt Form of Stock Subscription Agreement to be made and entered into
by and between the Company and nine management investors who will
be issued Common Stock of the Company under the Senior Management
Plan.
10.39tttt Form of Stock Subscription Agreement to be made and entered into
by and between the Company and William C. Johnson.
10.40tttt Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.41tttt Form of Stock Subscription Agreement to be made and entered into
by and between the Company and certain management employees who
will be issued Common Stock of the Company under the Brylane
Subscription Plan.
10.42tttt Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996
Performance Option Plan").
10.43tttt Form of Stock Option Agreement to be entered into by and between
the Company and certain participants under the Brylane 1996
Performance Option Plan.
10.44tttt Form of Stock Option Agreement to be entered into by and between
the Company and William C. Johnson under the Brylane 1996
Performance Option Plan.
10.45tttt Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option
Plan").
10.46tttt Form of Stock Option Agreement to be entered into by and between
the Company and certain participants under the Brylane 1996 Option
Plan.
10.47t License Agreement effective as of March 1, 1994 by and between the
H Partnership and Sears Shop At Home Services, Inc. ("Sears") (with
Exhibits E and F attached thereto).
10.48**** Loan Agreement made as of August 30, 1993 by and between FSEP II,
VP Holding and VGP.
10.49**** No Interest Demand Promissory Note made by FSEP II in favor of VP
Holding.
10.50**** Loan Agreement made as of August 30, 1993 by and between FSEP III,
VP Holding and VGP.
10.51**** No Interest Demand Promissory Note made by FSEP III in favor of VP
Holding.
10.52t License Agreement effective as of August 1, 1994 by and between
H WearGuard Corporation ("WearGuard") and Sears (with Exhibits E and
F attached thereto).
10.53t First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.54t Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.55tt Asset Purchase Agreement dated September 22, 1995 by and among the
Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as
guarantor.
10.56tt Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.57tt Letter Amendment to the Purchase Agreement dated October 16, 1995
by and between the Partnership and WearGuard.
10.58tt Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S. Management.
10.59tt Transition Services Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.60tt Noncompetition Agreement dated as of October 16, 1995 by and among
the Partnership, KingSize Partnership, ARAMARK and WearGuard.
10.61tttt 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.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.62tttt Form of Employment Agreement dated as of May 1, 1996 between B.L.
Management and each of Sheila R. Garelik and Arlene Silverman.
10.63tttt 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.
10.64tttt Amendment No. 1 to Employment Agreement dated as of July 15, 1996
between B.L. Management and Sheila R. Garelik.
10.65tttt License Amendment made as of July 23, 1996 between the Partnership
HHH and Sears.
10.66tttt Asset Purchase Agreement dated as of October 18, 1996 by and among
TJX, Chadwick's and the Partnership.
10.67tttt Amendment Number One to the Asset Purchase Agreement made as of
the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.68tttt Asset Purchase Agreement dated as of October 18, 1996 by and among
CDM Corp. and the Partnership.
10.69tttt Services Agreement dated as of December 9, 1996 between TJX and
the Partnership.
10.70tttt Inventory Purchase Agreement effective as of December 9, 1996 by
HHH and between the Partnership and TJX.
10.71tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Dhananjaya K. Rao.
10.72tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Carol Meyrowitz.
10.73tttt VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Dhananjaya K.
Rao.
10.74tttt VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Carol
Meyrowitz.
10.75tttt Form of Brylane Inc. Stock Subscription Agreement for Preferred
Stock made as of December , 1996 by and between Brylane, Inc. and
each of Dhananjaya K. Rao and Carol Meyrowitz.
10.76tttt 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 to be made by the Company and the Partnership in
favor of Chadwick's filed as an exhibit thereto).
10.77tttt Unit Subscription Agreement entered into as of December 5, 1996 by
and among the Partnership, VP Holding, FSEP II, FSEP III, FSEP
International, VGP Corporation, VLP Corporation, WearGuard,
Leeway, and NYNEX.
10.78tttt Form of Amendment to Performance Partnership Unit Option Agreement
under the 1993 Option Plan.
10.79tttt Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
21.1tttt Subsidiaries of Brylane.
23.1ii Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2tttt Consent of Coopers & Lybrand L.L.P. regarding Brylane, L.P.
23.3tttt Consent of Coopers & Lybrand L.L.P. regarding Chadwick's of
Boston, Ltd.
24.1*** Powers of Attorney.
24.2tttt Powers of Attorney.
27.1tttt 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.
II-9
<PAGE>
++ 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.
+++ 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.
* 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.
** 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.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-86154) on November 9, 1994.
**** Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995.
t 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 ("1995
Third Quarter Form 10-Q").
tt 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).
ttt 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").
tttt Filed herewith.
H Certain portions of this exhibit have been omitted from the copies filed
as part of 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.
HH Certain portions of this exhibit have been omitted from the copies filed
as part of the Partnership's 1995 Form 10-K (as defined herein) and are
the subject of an order granting confidential treatment with respect
thereto.
HHH Certain portions of this exhibit have been omitted from the copies filed
as part of this Amendment No. 2 to Registration Statement (as defined
herein) and are the subject of a request for confidential treatment with
respect thereto.
ii To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the financial statements and notes
thereto.
II-10
<PAGE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
3. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 23rd day of December 1996.
BRYLANE INC.
By: /s/ Robert A. Pulciani
___________________________________
Robert A. Pulciani
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter J. Canzone, Robert A. Pulciani and John
M. Roth, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, as well
as any registration statement (or amendment thereto) related to this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Peter J. Canzone President, Chief Executive December 23, 1996
____________________________________ Officer and Director
Peter J. Canzone (Principal Executive
Officer)
/s/ Robert A. Pulciani Executive Vice President, December 23, 1996
____________________________________ Chief Financial Officer,
Robert A. Pulciani Secretary and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Ronald P. Spogli Director December 23, 1996
____________________________________
Ronald P. Spogli
/s/ John M. Roth Director December 23, 1996
____________________________________
John M. Roth
/s/ Mark J. Doran Director December 23, 1996
____________________________________
Mark J. Doran
/s/ Samuel P. Fried Director December 23, 1996
____________________________________
Samuel P. Fried
/s/ William K. Gerber Director December 23, 1996
____________________________________
William K. Gerber
/s/ William C. Johnson Director December 23, 1996
____________________________________
William C. Johnson
</TABLE>
II-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Chadwick's, Inc.:
In connection with our audits of the combined financial statements of
Chadwick's, Inc. and subsidiaries as of January 28, 1995 and January 27, 1996,
and for each of the three years in the period ended January 27, 1996, which
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996
S-1
<PAGE>
CHADWICK'S,INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Fiscal Year ended
January 27, 1996..... $ 479 $ 2,717 $ (614) $ 2,682
Fiscal Year ended
January 28, 1995..... $ 0 $ 479 $ 0 $ 479
Fiscal Year ended
January 29, 1994..... $ 0 $ 0 $ 0 $ 0
Reserve for Inventory
Liquidations:
Fiscal Year ended
January 27, 1996..... $14,945 $ 34,696 $ (39,978) $ 9,663
Fiscal Year ended
January 28, 1995..... $12,148 $ 39,144 $ (36,347) $14,945
Fiscal Year ended
January 29, 1994..... $ 7,624 $ 34,668 $ (30,144) $12,148
Reserve for Customer
Returns:
Fiscal Year ended
January 27, 1996..... $ 8,266 $157,920 $(157,406) $ 8,780
Fiscal Year ended
January 28, 1995..... $ 8,756 $210,779 $(211,269) $ 8,266
Fiscal Year ended
January 29, 1994..... $ 9,116 $220,897 $(221,257) $ 8,756
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1.1*** Form of Underwriting Agreement.
2.1tttt 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, The Limited, WearGuard, Leeway
& Co., NYNEX, Chadwick's, Inc. ("Chadwick's") and
the Company (with exhibits referenced therein,
certain of which will be included by amendment to
this Registration Statement at Exhibits 3.13,
4.10, and 4.11).
Certificate of Limited Partnership of the
3.1+ 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
Corp. ("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.
3.8ttt Amendment No. 4 to Partnership Agreement dated
October 14, 1994.
3.9tt Amendment No. 5 to Partnership Agreement dated
September 22, 1995.
3.10tt Amendment No. 6 to Partnership Agreement dated
October 16, 1995.
3.11tttt Amendment No. 7 to Partnership Agreement dated
October 14, 1996.
3.12tttt Amendment No. 8 to the Partnership Agreement dated
December 5, 1996.
3.13ii Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of ,
1996.
3.14*** Certificate of Incorporation of the Company.
3.15*** Bylaws of the Company.
3.16tttt 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.
3.17tttt 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.
4.1+ Purchase Agreement dated August 20, 1993 among the
Partnership, Brylane Capital, VGP Corporation 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.
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
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 (the "First
Supplemental Indenture").
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.
4.10ii Registration Rights Agreement dated as of ,
1996 by and among the Company, FSEP II, FSEP III,
FSEP International, Lane Bryant Direct, WearGuard,
Chadwick's, Leeway & Co. and NYNEX.
4.11ii Stockholders Agreement dated as of , 1996 by
and among the Company, FSEP II, FSEP III, FSEP
International, Lane Bryant Direct, WearGuard,
Chadwick's, Leeway & Co. and NYNEX.
4.12tt Third Supplemental Indenture dated as of October
16, 1995 by and among the Partnership, Brylane
Capital, KingSize Partnership, K.S. Management,
KingSize Sales and United States Trust Company of
New York, as Trustee.
4.13tttt Fourth Supplemental Indenture dated as of December
9, 1996 by and among the Partnership, Brylane
Capital Corp., C.O.B. Management Services, Inc.,
Chadwick's Tradename Sub, Inc. and United States
Trust Company of New York, as Trustee.
5.1ii Opinion of Riordan & McKinzie, a Professional Law
Corporation.
10.1+ Transaction Agreement dated as of July 13, 1993
among VGP Corporation, VLP Corporation 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+ 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").
10.6tttt 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 and the Partnership.
10.7+ Electronic Media Trademark License Agreement made
as of the 20th day of August, 1993 among the
Licensors and the Licensees.
10.8+ Agreement to be Bound by the Trademark License
Agreement and the Electronic Media Trademark
License Agreement executed by the Partnership.
10.9+ Service Agreement made as of the 30th day of
August, 1993 between B.L. Management and the
Partnership.
10.10+ 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.
10.11+ 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.12tttt Credit Agreement dated as of December 9, 1996 (the
"Credit Agreement") among the Partrnership, 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.
10.13tttt Security Agreement dated as of December 9, 1996
among the Partnership, the Subsidiary Grantors (as
defined therein), and Morgan Guaranty, as Security
Agent.
10.14tttt Pledge Agreement dated as of December 9, 1996
among the Partnership, the Subsidiary Pledgors (as
defined therein), and Morgan Guaranty, as Security
Agent.
10.15tttt 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.
10.16tttt 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.
10.17tttt 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).
10.18tttt 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.
10.19+ 1993 Employee Stock Subscription Plan of VP
Holding Corporation ("VP Holding") (the
"Subscription Plan").
10.20+ 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).
10.21+ Form of Stock Subscription Agreement made by and
between VP Holding and each of Sheila R. Garelik,
Robert A. Pulciani, Jules Silbert, Jessie
Bourneuf, Loida Noriega-Wilson, Richard L.
Bennett, William G. Brosius and Bruce G. Clark 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).
10.22+ Form of Stock Subscription Agreement made by and
between VP Holding and each of Arlene Silverman,
Kevin McGrain 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).
10.23+ 1993 Performance Partnership Unit Option Plan of
the Partnership (the "1993 Option Plan").
10.24+ Form of Performance Partnership Unit Option
Agreement by and between the Partnership and each
of Peter J. Canzone, Sheila R. Garelik, Robert A.
Pulciani, Jules Silbert, Jessie Bourneuf, Loida
Noriega-Wilson, Richard L. Bennett, William G.
Brosius and Bruce G. Clark under the 1993 Option
Plan.
10.25+ Form of Performance Partnership Unit Option
Agreement by and between the Partnership and each
of Arlene Silverman, Kevin McGrain and certain
other participants under the 1993 Option Plan.
10.26t 1995 Partnership Unit Option Plan of the
Partnership (the "1995 Option Plan").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.27t Form of Partnership Unit Option Agreement entered
into by and between the Partnership and each of
Peter J. Canzone, William C. Johnson, Sheila R.
Garelik, Robert A. Pulciani, Jules Silbert, Jessie
Bourneuf, Loida Noriega-Wilson, Arlene Silverman,
Richard L. Bennett, William G. Brosius and
Bruce G. Clark under the 1995 Option Plan.
10.28t Form of Partnership Unit Option Agreement entered
into by and between the Partnership and each of
Kevin McGrain and certain other participants under
the 1995 Option Plan.
10.29+ Form of Indemnity Agreement made by and between
the Partnership and each of the members of the
Board of Representatives of the Partnership.
10.30+ Indemnity Agreement dated as of September, 1993
made by and between B.L. Management and Robert A.
Pulciani.
10.31+ Indemnity Agreement dated as of September, 1993
made by and between B.L. Distribution and Robert
A. Pulciani.
10.32ttt Amendment No. 1 to Credit Card Agreement dated as
HH of July 1, 1995 between World Financial and the
Partnership.
10.33*** Amendment No. 1 to the Subscription Plan dated
February 18, 1994.
10.34*** Addendum dated February 18, 1994 to Stock
Subscription Agreement between VP Holding and
Jules Silbert.
10.35*** Stock Subscription Agreement made and entered into
as of May 27, 1994 by and between VP Holding and
William C. Johnson.
10.36*** Performance Partnership Unit Option Agreement
entered into as of May 27, 1994 by and between the
Partnership and William C. Johnson.
10.37tttt Brylane Inc. 1996 Senior Management Stock
Subscription Plan (the "Senior Management Plan").
10.38tttt Form of Stock Subscription Agreement to be made
and entered into by and between the Company and
nine management investors who will be issued
Common Stock of the Company under the Senior
Management Plan.
10.39tttt Form of Stock Subscription Agreement to be made
and entered into by and between the Company and
William C. Johnson.
10.40tttt Brylane Inc. 1996 Stock Subscription Plan (the
"Brylane Subscription Plan").
10.41tttt Form of Stock Subscription Agreement to be made
and entered into by and between the Company and
certain management employees who will be issued
Common Stock of the Company under the Brylane
Subscription Plan.
10.42tttt Brylane Inc. 1996 Performance Stock Option Plan
(the "Brylane 1996 Performance Option Plan").
10.43tttt Form of Stock Option Agreement to be entered into
by and between the Company and certain
participants under the Brylane 1996 Performance
Option Plan.
10.44tttt Form of Stock Option Agreement to be entered into
by and between the Company and William C. Johnson
under the Brylane 1996 Performance Option Plan.
10.45tttt Brylane Inc. 1996 Stock Option Plan (the "Brylane
1996 Option Plan").
10.46tttt Form of Stock Option Agreement to be entered into
by and between the Company and certain
participants under the Brylane 1996 Option Plan.
10.47t License Agreement effective as of March 1, 1994 by
H and between the Partnership and Sears Shop At Home
Services, Inc. ("Sears") (with Exhibits E and F
attached thereto).
10.48**** Loan Agreement made as of August 30, 1993 by and
between FSEP II, VP Holding and VGP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.49**** No Interest Demand Promissory Note made by FSEP II
in favor of VP Holding.
10.50**** Loan Agreement made as of August 30, 1993 by and
between FSEP III, VP Holding and VGP.
10.51**** No Interest Demand Promissory Note made by FSEP
III in favor of VP Holding.
10.52t License Agreement effective as of August 1, 1994
H by and between WearGuard Corporation ("WearGuard")
and Sears (with Exhibits E and F attached
thereto).
10.53t First Amendment to License Agreement effective as
of August 1, 1995 by and between Sears and
WearGuard.
10.54t Consent to Assignment dated October 10, 1995
between and among Sears, WearGuard and KingSize
Catalog Sales, L.P. ("KingSize Partnership").
10.55tt Asset Purchase Agreement dated September 22, 1995
by and among the Partnership, WearGuard and
ARAMARK Corporation ("ARAMARK"), as guarantor.
10.56tt Letter Amendment to the Purchase Agreement dated
September 22, 1995 by and between the Partnership
and WearGuard.
10.57tt Letter Amendment to the Purchase Agreement dated
October 16, 1995 by and between the Partnership
and WearGuard.
10.58tt Assignment of Purchase Agreement dated October 16,
1995 by and among the Partnership, KingSize
Partnership and K.S. Management.
10.59tt Transition Services Agreement dated as of October
16, 1995 by and among the Partnership, KingSize
Partnership, ARAMARK and WearGuard.
10.60tt Noncompetition Agreement dated as of October 16,
1995 by and among the Partnership, KingSize
Partnership, ARAMARK and WearGuard.
10.61tttt 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.
10.62tttt Form of Employment Agreement dated as of May 1,
1996 between B.L. Management and each of Sheila R.
Garelik and Arlene Silverman.
10.63tttt 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.
10.64tttt Amendment No. 1 to Employment Agreement dated as
of July 15, 1996 between B.L. Management and
Sheila R. Garelik.
10.65tttt License Amendment made as of July 23, 1996 between
HHH the Partnership and Sears.
10.66tttt Asset Purchase Agreement dated as of October 18,
1996 by and among TJX, Chadwick's and the
Partnership.
10.67tttt Amendment Number One to the Asset Purchase
Agreement made as of the 9th day of December, 1996
among TJX, Chadwick's and the Partnership.
10.68tttt Asset Purchase Agreement dated as of October 18,
1996 by and among CDM Corp. and the Partnership.
10.69tttt Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.70tttt Inventory Purchase Agreement effective as of
HHH December 9, 1996 by and between the Partnership
and TJX.
10.71tttt Employment Agreement dated as of December 9, 1996
between the Partnership and Dhananjaya K. Rao.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
10.72tttt Employment Agreement dated as of December 9, 1996
between the Partnership and Carol Meyrowitz.
10.73tttt VP Holding Stock Subscription Agreement for
Preferred Stock made as of December 9, 1996 by and
between VP Holding and Dhananjaya K. Rao.
10.74tttt VP Holding Stock Subscription Agreement for
Preferred Stock made as of December 9, 1996 by and
between VP Holding and Carol Meyrowitz.
10.75tttt Form of Brylane Inc. Stock Subscription Agreement
for Preferred Stock made as of December , 1996 by
and between Brylane, Inc. and each of Dhananjaya
K. Rao and Carol Meyrowitz.
10.76tttt 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 to be made by the Company and the
Partnership in favor of Chadwick's filed as an
exhibit thereto).
10.77tttt Unit Subscription Agreement entered into as of
December 5, 1996 by and among the Partnership, VP
Holding, FSEP II, FSEP III, FSEP International,
VGP Corporation, VLP Corporation, WearGuard,
Leeway, and NYNEX.
10.78tttt Form of Amendment to Performance Partnership Unit
Option Agreement under the 1993 Option Plan.
10.79tttt Accounts Receivable Purchase Agreement dated as of
December 9, 1996 between the Partnership and
Alliance Data Systems Corporation.
21.1tttt Subsidiaries of Brylane.
23.1ii Consent of Riordan & McKinzie (contained in
Exhibit 5.1).
23.2tttt Consent of Coopers & Lybrand L.L.P. regarding
Brylane, L.P.
23.3tttt Consent of Coopers & Lybrand L.L.P. regarding
Chadwick's of Boston, Ltd.
24.1*** Powers of Attorney.
24.2tttt Powers of Attorney.
27.1tttt 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.
++ 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.
+++ 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.
* 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.
** 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.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-86154) on November 9, 1994.
**** Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995.
t 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 ("1995
Third Quarter Form 10-Q").
tt 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).
ttt 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").
<PAGE>
tttt Filed herewith.
H Certain portions of this exhibit have been omitted from the copies filed
as part of 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.
HH Certain portions of this exhibit have been omitted from the copies filed
as part of the Partnership's 1995 Form 10-K (as defined herein) and are
the subject of an order granting confidential treatment with respect
thereto.
HHH Certain portions of this exhibit have been omitted from the copies filed
as part of this Amendment No. 2 to Registration Statement (as defined
herein) and are the subject of a request for confidential treatment with
respect thereto.
ii To be filed by amendment.
<PAGE>
EXHIBIT 2.1
FIRST AMENDED AND RESTATED
INCORPORATION AND EXCHANGE AGREEMENT
dated as of
December 9, 1996
by and among
FS EQUITY PARTNERS II, L.P.,
FS EQUITY PARTNERS III, L.P.,
FS EQUITY PARTNERS INTERNATIONAL, L.P.,
LANE BRYANT DIRECT HOLDING, INC.,
THE LIMITED, INC.,
WEARGUARD CORPORATION,
LEEWAY & CO.,
NYNEX MASTER TRUST,
CHADWICK'S, INC.,
and
BRYLANE INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS..................................................... 3
Section 1.01. Definitions..................................................... 3
ARTICLE II EXCHANGE........................................................ 5
Section 2.01. Issuance of Shares to the Freeman Spogli Funds; Consideration
Therefor........................................................ 5
Section 2.02. Issuance of Shares to Lane Bryant; Consideration Therefor....... 5
Section 2.03. Issuance of Shares to WearGuard; Consideration Therefor......... 6
Section 2.04. Issuance of Shares to Leeway; Consideration Therefor............ 6
Section 2.05. Issuance of Shares to NYNEX; Consideration Therefor............. 6
Section 2.06. Issuance of Shares to Chadwick's; Consideration Therefor........ 6
Section 2.07. Exchange of Notes............................................... 7
Section 2.08. Closing......................................................... 7
ARTICLE III RESTRICTIVE LEGENDS............................................. 7
Section 3.01. Restrictive Legends............................................. 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS.................................................... 8
Section 4.01. Ownership and Capital Structure................................. 8
Section 4.02. Investment Intent............................................... 9
Section 4.03. Authority....................................................... 9
Section 4.04. No Conflict..................................................... 9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
COMPANY......................................................... 10
Section 5.01. Organization.................................................... 10
Section 5.02. Capitalization.................................................. 10
Section 5.03. Valid Issuance of Securities.................................... 10
Section 5.04. Authority....................................................... 10
Section 5.05. No Conflict..................................................... 11
ARTICLE VI CONDITIONS PRECEDENT TO CLOSING................................. 11
Section 6.01. Closing of Initial Public Offering.............................. 12
</TABLE>
i.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.02. Registration Rights Agreement................................... 12
Section 6.03. Stockholders Agreement.......................................... 12
Section 6.04. Amendment to Partnership Agreement.............................. 12
Section 6.05. Accuracy of the Company's Representations and Warranties........ 12
Section 6.06. Performance by the Company...................................... 12
Section 6.07. Certification by the Company.................................... 12
Section 6.08. Accuracy of the Stockholders' Representations and Warranties.... 12
Section 6.09. Performance by the Stockholders................................. 13
Section 6.10. Certification by the Stockholders............................... 13
Section 6.11. Exchange of Securities.......................................... 13
Section 6.12. Legal Opinion................................................... 13
ARTICLE VII INDEMNIFICATION................................................. 14
Section 7.01. Indemnification................................................. 14
Section 7.02. Procedures...................................................... 14
ARTICLE VIII TAXATION........................................................ 15
Section 8.01. Treatment Under Section 351 of the Code......................... 15
Section 8.02. Intangibles..................................................... 15
ARTICLE IX TERMINATION..................................................... 16
Section 9.01. Termination..................................................... 16
ARTICLE X TRANSFER TAXES AND OTHER FEES................................... 16
Section 10.01. Transfer Taxes and Other Fees................................... 16
ARTICLE XI MISCELLANEOUS................................................... 17
Section 11.01. Transaction Agreement........................................... 17
Section 11.02. Brylane, L.P.................................................... 17
Section 11.03. VP Holding...................................................... 17
Section 11.04. Notices......................................................... 17
Section 11.05. Fulfillment of Conditions....................................... 21
Section 11.06. Survival........................................................ 21
Section 11.07. Amendments, Modifications and Waivers........................... 21
Section 11.08. Successors and Assigns; Enforceability by Stockholders.......... 21
Section 11.09. Severability.................................................... 21
Section 11.10. Captions........................................................ 22
</TABLE>
ii.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 11.11. Entire Agreement................................................ 22
Section 11.12. Governing Law................................................... 22
Section 11.13. Remedies........................................................ 22
Section 11.14. Further Assurances.............................................. 22
</TABLE>
iii.
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
Exhibit 2.02 Assignment of Units (Issuance of shares to Lane Bryant)
Exhibit 2.03 Assignment of Units (Issuance of shares to WearGuard)
Exhibit 2.04 Assignment of Units (Issuance of shares to Leeway)
Exhibit 2.05 Assignment of Units (Issuance of shares to Nynex Master Trust)
Exhibit 2.06 Assignment of Units (Issuance of shares to Chadwick's, Inc.)
Exhibit 2.07 Convertible Subordinated Note due 2006
Exhibit 4.03A Registration Rights Agreement
Exhibit 4.03B Stockholders Agreement
Exhibit 5.01A Certificate of Incorporation of the Company
Exhibit 5.01B By-laws of the Company
Exhibit 6.04 Brylane, L.P. Amended and Restated Agreement of Limited
Partnership
</TABLE>
<TABLE>
<CAPTION>
Schedules
---------
<S> <C>
Schedule 4.01 Brylane, L.P. Capitalization Table
Schedule 5.02 Brylane Inc. Capitalization Table
</TABLE>
iv.
<PAGE>
FIRST AMENDED AND RESTATED
--------------------------
INCORPORATION AND EXCHANGE AGREEMENT
------------------------------------
This First Amended and Restated Incorporation and Exchange Agreement
(this "Agreement") is made as of this 9th day of December, 1996 by and 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"), Lane Bryant Direct Holding, Inc., a Delaware corporation ("Lane
Bryant"), The Limited, Inc., a Delaware corporation ("The Limited"), WearGuard
Corporation, a Delaware corporation ("WearGuard"), Chadwick's Inc., a
Massachusetts corporation, 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") with reference to the following background.
R E C I T A L S
- - - - - - - -
A. This Agreement amends and restates that certain Incorporation and
Exchange Agreement by and among FSEP II, FSEP III, FSEP International, Lane
Bryant, The Limited, WearGuard and the Company dated as of October 14, 1996 (the
"Original Agreement").
B. VGP Corporation, a Delaware corporation (the "FS General
Partner"), VLP Corporation, a Delaware corporation (the "FS Limited Partner"),
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") dated 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, 1994,
Amendment No. 5 to Agreement of Limited Partnership dated September 22, 1995,
which, among other things, admitted WearGuard as a Limited Partner of the
Partnership, Amendment No. 6 to Agreement of Limited Partnership dated October
16, 1995, Amendment No. 7 to Agreement of Limited Partnership dated as of
October 14, 1996, and Amendment No. 8 to Agreement of Limited Partnership dated
as of the date hereof, which, among other things, provides for the admission of
Leeway and NYNEX, and the possible admission of Chadwick's, as Limited Partners
of the Partnership (as so amended, the "Partnership Agreement").
<PAGE>
C. The FS General Partner and the FS Limited Partner are wholly-
owned subsidiaries of VP Holding Corporation, a Delaware corporation ("VP
Holding"), which is controlled by FSEP II, FSEP III and FSEP International (the
"Freeman Spogli Funds"), and LBD, Lerner and Roaman's are the predecessors of
Lane Bryant which is an Affiliate (as defined below) of The Limited.
D. Pursuant to the Asset Purchase Agreement (the "Purchase
Agreement") dated as of October 18, 1996, by and among Brylane, L.P., a Delaware
limited partnership, (the "Partnership"), Chadwick's and TJX Companies, a
Delaware corporation ("TJX"), Chadwick's is selling to the Partnership
substantially all of the assets (the "Acquisition") used in the "Chadwick's of
Boston" catalog division of TJX.
E. In connection with the Acquisition, Chadwick's will be issued by
the Partnership a Convertible Subordinated Note in the principal amount of
$20,000,000 due 2006 (the "Partnership Note") which will be convertible at any
time at the option of Chadwick's into a total of 727,273 partnership Units of
the Partnership (as defined below), subject to adjustment in accordance with the
terms of the Partnership Note.
F. In connection with the issuance of the Partnership Note, the
parties hereto wish to provide that, after the consummation of the Initial
Public Offering (as defined below), at the option of Chadwick's or the Company,
the Partnership Note will be exchanged for the Company Note (as defined below)
and any Units held by Chadwick's as a result of conversion of the Partnership
Note prior to the Initial Public Offering shall be exchanged for shares of
Common Stock (as defined below) of the Company pursuant to the terms of this
Agreement.
G. In connection with the Acquisition, each of Leeway and NYNEX will
become Limited Partners of the Partnership and shall each be issued 500,000
Units of the Partnership at a price of $20.00 per Unit, all pursuant to the
terms and subject to the conditions of that certain Unit Subscription Agreement
by and among the Partnership, FS General Partner, FS Limited Partner, Leeway and
NYNEX dated as of December 9, 1996 (the "Subscription Agreement").
H. In connection with the Acquisition, FS Limited Partner shall be
issued 1,500,000 Units at a price of $20.00 per Unit, all pursuant to the terms
and subject to the conditions of the Subscription Agreement.
I. In connection with the Acquisition, WearGuard shall be issued
66,445 Units at a price of $20.00 per Unit, all pursuant to the terms and
subject to the conditions of the Subscription Agreement.
J. The parties hereto desire to implement the provisions of Article
X of the Partnership Agreement and Lane Bryant, WearGuard, Leeway and NYNEX each
desire to
2.
<PAGE>
exchange Units of the Partnership, and the Freeman Spogli Funds desire to
exchange shares of common stock of VP Holding for shares of Common Stock (as
defined below) of the Company as part of an exchange under Section 351 of the
Code (as defined below).
K. In connection with the implementation of the provisions of
Article X of the Partnership Agreement, the parties hereto desire to amend and
restate the Original Agreement by entering into this Agreement and to consummate
the transactions contemplated hereby in accordance with the terms and subject to
the conditions of this Agreement.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.01. 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 Incorporation and Exchange 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
conducted by the Partnership, and any other business which the Partnership has
conducted from time to time.
"Closing" shall have the meaning set forth in Section 2.08.
-------
"Closing Date" shall have the meaning set forth in Section 2.08.
------------
3.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time (or any corresponding provisions of succeeding law).
"Common Stock" means the common stock of the Company, $.01 par value
------------
per share.
"Contractual Obligation" shall have the meaning set forth in Section
----------------------
4.04.
"General Partner" means the FS General Partner and any other Person
---------------
who becomes a general partner of the Partnership in accordance with the terms of
the Partnership Agreement.
"Governmental Authority" shall have the meaning set forth in Section
----------------------
4.03.
"Initial Public Offering" means the initial sale of equity securities
-----------------------
of the Company pursuant to an effective registration statement under the
Securities Act of 1933, as amended (other than a registration statement on Form
S-8 or otherwise relating to equity securities issuable under any employee
benefit plan of the Company).
"Limited Partner" means the FS Limited Partner, Lane Bryant,
---------------
WearGuard, Leeway, NYNEX and any other Person who becomes a limited partner of
the Partnership in accordance with the terms of the Partnership Agreement.
"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.
"Registration Rights Agreement" shall have the meaning set forth in
-----------------------------
Section 4.03.
"Requirement of Law" shall have the meaning set forth in Section 4.04.
------------------
"SEC" means the Securities Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended.
"Stockholders" means FSEP II, FSEP III, FSEP International, Lane
------------
Bryant and WearGuard, Leeway, NYNEX and, if Chadwick's should hold any Units
prior to the Closing, Chadwick's.
4.
<PAGE>
"Stockholders Agreement" shall have the meaning set forth in Section
----------------------
4.03.
"Subsidiary" of any entity means (i) a corporation a majority of whose
----------
capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such entity, by one
or more Subsidiaries of such entity or by such entity and one or more
Subsidiaries of such entity or (ii) any other entity (other than a corporation)
in which such entity, a subsidiary of such entity or such entity and one or more
subsidiaries of such entity, directly or indirectly, at the date of
determination thereof, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of the directors or other governing body
of such entity.
"Unit" has the meaning set forth in the Partnership Agreement.
----
"VP Holding Exchange Shares" shall have the meaning set forth in
--------------------------
Section 2.01.
ARTICLE II
EXCHANGE
--------
Section 2.01. Issuance of Shares to the Freeman Spogli Funds;
-----------------------------------------------
Consideration Therefor. On the terms and subject to the conditions of this
- ----------------------
Agreement, at the Closing, the Company hereby agrees to issue to the Freeman
Spogli Funds 4,093,690, 4,273,129 and 160,181 shares of Common Stock (based on
an exchange ratio of one share of Common Stock to one (1) VP Holding Exchange
Share (as defined below)) registered in the names of FSEP II, FSEP III and FSEP
International, respectively. In consideration therefor, FSEP II, FSEP III and
FSEP International severally agree at the Closing to exchange and transfer to
the Company 4,093,690, 4,273,129 and 160,181 shares of common stock, $.01 par
value per share (collectively, the "VP Holding Exchange Shares") of VP Holding.
At the Closing (as hereinafter defined), the Freeman Spogli Funds shall deliver
to the Company certificates evidencing the VP Holding Exchange Shares, duly
endorsed for transfer or accompanied by stock powers or assignments duly
executed with all necessary stock transfer stamps attached thereto. Neither the
FS General Partner nor the FS Limited Partner shall be entitled to any shares of
Common Stock in respect of its Units.
Section 2.02. Issuance of Shares to Lane Bryant; Consideration
------------------------------------------------
Therefor. On the terms and subject to the conditions of this Agreement, at the
- --------
Closing, the Company hereby agrees to issue to Lane Bryant 5,000,000 shares of
Common Stock (based on an exchange ratio of one share of Common Stock to one (1)
Unit) registered in the name of Lane Bryant. In consideration therefor, Lane
Bryant agrees, on the terms and subject to the conditions of this Agreement, at
the Closing to exchange and transfer to the Company, 5,000,000 Units, and
5.
<PAGE>
to execute the Assignment of Units attached hereto as Exhibit 2.02 with all
------------
necessary tax transfer stamps attached thereto.
Section 2.03. Issuance of Shares to WearGuard; Consideration
----------------------------------------------
Therefor. On the terms and subject to the conditions of this Agreement, at the
- --------
Closing, the Company hereby agrees to issue to WearGuard 399,778 shares of
Common Stock (based on an exchange ratio of one share of Common Stock to one (1)
Unit) registered in the name of WearGuard. In consideration therefor, WearGuard
agrees, on the terms and subject to the conditions of this Agreement, at the
Closing to exchange and transfer to the Company, 399,778 Units, and to execute
the Assignment of Units attached hereto as Exhibit 2.03 with all necessary tax
------------
transfer stamps attached thereto. WearGuard and the other parties hereto
acknowledge that pursuant to an Agreement (the "Bourneuf Agreement") dated
October 14, 1996 by and among Jessie Bourneuf, an individual ("Bourneuf"),
WearGuard, VP Holding and the other parties listed in the Bourneuf Agreement,
WearGuard on or about October 16, 1996, agreed to transfer 16,667 Units to VP
Holding, who, in turn, shall issue 16,667 shares of common stock of VP Holding
to Bourneuf (based on an exchange ratio of one share of common stock of VP
Holding to one (1) Unit). All parties hereto further acknowledge that Bourneuf
has agreed to exchange her shares of common stock of VP Holding for shares of
Common Stock immediately prior to consummation of the Initial Public Offering.
Section 2.04. Issuance of Shares to Leeway; Consideration Therefor.
----------------------------------------------------
On the terms and subject to the conditions of this Agreement, at the Closing,
the Company hereby agrees to issue to Leeway 500,000 shares of Common Stock
(based on an exchange ratio of one share of Common Stock to one (1) Unit)
registered in the name of Leeway. In consideration therefor, Leeway agrees, on
the terms and subject to the conditions of this Agreement, at the Closing to
exchange and transfer to the Company, 500,000 Units, and to execute the
Assignment of Units attached hereto as Exhibit 2.04 with all necessary tax
------------
transfer stamps attached thereto.
Section 2.05. Issuance of Shares to NYNEX; Consideration Therefor.
---------------------------------------------------
On the terms and subject to the conditions of this Agreement, at the Closing,
the Company hereby agrees to issue to NYNEX 500,000 shares of Common Stock
(based on an exchange ratio of one share of Common Stock to one (1) Unit)
registered in the name of NYNEX. In consideration therefor, NYNEX agrees, on
the terms and subject to the conditions of this Agreement, at the Closing to
exchange and transfer to the Company, 500,000 Units, and to execute the
Assignment of Units attached hereto as Exhibit 2.05 with all necessary tax
------------
transfer stamps attached thereto.
Section 2.06. Issuance of Shares to Chadwick's; Consideration
-----------------------------------------------
Therefor. If Chadwick's should hold any Units prior to the Closing, then, on
- --------
the terms and subject to the conditions of this Agreement, at the Closing, the
Company hereby agrees to issue to Chadwick's one share of Common Stock hereunder
registered in the name of Chadwick's for each Unit exchanged by Chadwick's
hereunder; provided that such exchange ratio shall be
--------
6.
<PAGE>
adjusted if necessary to be the same as the exchange ratio applicable in respect
of Units held by other Limited Partners. In consideration therefor, Chadwick's
agrees, on the terms and subject to the conditions of this Agreement, at the
Closing to exchange and transfer to the Company, all of the Units held by
Chadwick's, and to execute the Assignment of Units attached hereto as Exhibit
-------
2.06 with all necessary tax transfer stamps attached thereto.
- ----
Section 2.07. Exchange of Notes. At the Closing, and subject to the
-----------------
terms and conditions thereof, at the option of the Company, Chadwick's shall
deliver to the Company the Convertible Subordinated Note due 2006 in the
original principal amount of $20,000,000 issued by the Partnership (the
"Partnership Note") to be exchanged for the Company's Convertible Subordinated
Note due 2006 in an aggregate principal amount equal to the outstanding
principal amount of the Partnership Note at the time of such exchange, which
note is in the form of Exhibit 2.07 hereto (the "Company Note"). At the option
------------
of the Chadwick's, the Company shall issue and exchange the Company Note for the
Partnership Note on the same basis as is provided in the preceding sentence. In
the event that the exchange ratio of Units for shares of Common Stock is one-to-
one, as provided above, the Conversion Price (as defined in the Company Note)
shall be the same as the Conversion Price (as defined in the Partnership Note)
of the Partnership Note as of the Closing. In the event that the exchange ratio
of Units into shares of Common Stock is not one-to-one, the Conversion Price of
the Company Note shall be appropriately adjusted.
Section 2.08. Closing. The closing of the transactions contemplated
-------
by this Agreement (the "Closing") shall take place immediately prior to the
consummation of the Initial Public Offering (the "Closing Date") at the location
of the closing of the Initial Public Offering unless the parties hereto agree
otherwise. At Closing the Company will own (directly or indirectly through one
or more wholly-owned subsidiaries) 100% of the Units.
ARTICLE III
RESTRICTIVE LEGENDS
-------------------
Section 3.01. Restrictive Legends.
-------------------
(a) It is understood and agreed that the certificates evidencing the
shares of Common Stock to be delivered to the Stockholders at the Closing, and
each certificate issued upon transfer thereof, shall bear the following legends,
in addition to any other legends required by Delaware law:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED AND
SOLD ONLY IF SO
7.
<PAGE>
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 [DATE OF EXECUTION] 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."
(b) The Company agrees that it will issue new shares of Common Stock
without the first sentence of the legend referred to in Section 3.01(a) to a
Stockholder if the Stockholder demonstrates to the reasonable satisfaction of
the Company, through, among other things, any of the actions referred to in
clauses (i), (ii) or (iii) of the second sentence of Section 4.02 that such
legend is not necessary under the Securities Act. The Company further agrees
that it will issue new shares of Common Stock without the second sentence of the
legend referred to in Section 3.01(a) in the event it is demonstrated to the
Company's reasonable satisfaction that the relevant shares of Common Stock are
no longer subject to the restrictions on transfer set forth in the Stockholders
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
--------------------------------------------------
Each Stockholder severally represents and warrants (as to itself only)
to the Company as follows:
Section 4.01. Ownership and Capital Structure.
-------------------------------
(a) Other than as set forth on Schedule 4.01 hereto, such
-------------
Stockholder does not hold any Partnership interests, Units, VP Holding Exchange
Shares or securities convertible into or exchangeable for any Partnership
interests, Units, VP Holding Exchange Shares or any rights to subscribe for or
to purchase, or any warrants or options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) or, or any calls,
commitments or claims of any character relating to any such Partnership
interests, Units or VP Holding Exchange Shares.
8.
<PAGE>
(b) Such Stockholder is the lawful owner of the Units or VP
Holding Exchange Shares, as the case may be, to be transferred by it hereunder,
free and clear of all liens, encumbrances, restrictions and claims of every kind
and has full legal right, power and authority to enter into this Agreement and
to sell, assign, transfer and convey its Units or VP Holding Exchange Shares
pursuant to this Agreement; and, upon the transfer to the Company of such
Stockholder's Units or VP Holding Exchange Shares, as the case may be, pursuant
to this Agreement the Company will hold valid title thereto free and clear of
all liens, encumbrances, restrictions, preemptive rights, options and claims of
every kind.
Section 4.02. Investment Intent. The shares of Common Stock to be
-----------------
acquired by such Stockholder hereunder, as applicable, (i) are being acquired by
such Stockholder for its own account (as principal and not as trustee or agent)
and (ii) are not being acquired by such Stockholder with a view to, or for sale
in connection with, any distribution thereof which is not in compliance with
applicable securities laws. Such Stockholder hereby acknowledges that such
shares of Common Stock may be transferred only upon (i) registration thereof
under the Securities Act or (ii) furnishing to the Company a no-action letter or
an opinion of experienced securities counsel to the effect that such transfer is
in accordance with an available exemption from the registration requirements
thereof or (iii) delivery of a certificate setting forth the basis for applying
Rule 144 or 144A under the Securities Act to such transfer; and that none of
the shares of Common Stock have been registered under the Securities Act.
Section 4.03. Authority. Such Stockholder has full legal right,
---------
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement dated the Closing Date by and among the Company, the Freeman
Spogli Funds, Lane Bryant, WearGuard, Leeway, NYNEX and Chadwick's substantially
in the form attached hereto as Exhibit 4.03A (the "Registration Rights
-------------
Agreement") and the Stockholders Agreement dated the Closing Date by and among
the Company, the Freeman Spogli Funds, Lane Bryant, WearGuard substantially in
the form attached hereto as Exhibit 4.03B (the "Stockholders Agreement"), and
-------------
the execution and delivery of this Agreement, the Registration Rights Agreement
and the Stockholders Agreement by it and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
requisite action. Except for compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, no
consent, waiver or authorization of, or filing with any other person (including
without limitation, any federal or state governmental authority or other
political authority (collectively, "Governmental Authority")) is required in
connection with any of the foregoing or with the validity or enforceability
against such Stockholder of this Agreement, the Registration Rights Agreement
and the Stockholders Agreement. Each of this Agreement, the Registration Rights
Agreement and the Stockholders Agreement has been duly executed and delivered by
such Stockholders and constitutes the legal, valid and binding agreement of such
Stockholder, enforceable against it in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and subject to general principles of equity.
9.
<PAGE>
Section 4.04. No Conflict. The execution, delivery and performance
-----------
of this Agreement, the Registration Rights Agreement, the Stockholders
Agreement, and the consummation of the transactions contemplated hereby and
thereby do not and will not, with or without the passage of time or the giving
of notice or both, (i) conflict with or violate any provision of such
Stockholder's respective Certificate of Incorporation, By-laws, partnership
agreement or other governing documents, as applicable, (ii) assuming compliance
with the matters referred to in Section 4.03, conflict with or violate any
applicable law, statute, treaty, rule, regulation, arbitration award, judgment,
decree, order or other determination of any Governmental Authority
(collectively, "Requirement of Law") applicable to such Stockholder or any
mortgage, security, lease franchise, agreement, guaranty, instrument or
undertaking (collectively, "Contractual Obligation") of such Stockholder or
(iii) result in, or require, the creation or imposition of any lien charge or
other encumbrance on any of its properties or revenues pursuant to any
Requirement of Law or Contractual Obligation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to each Stockholder as follows:
Section 5.01. Organization. The Company is a corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite power to own its properties and assets and to
conduct its business as now conducted, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required, except where the failure to be so qualified would not
have a material adverse effect on the business, condition (financial or
otherwise), operations, prospects or properties of the Company and the
Partnership taken as a whole ("Material Adverse Effect"). Exhibit 5.01A hereto
-------------
contains a true and correct copy of the Certificate of Incorporation of the
Company as presently in effect, and Exhibit 5.01B hereto contains a true and
-------------
correct copy of the By-laws of the Company, as presently in effect.
Section 5.02. Capitalization. The Company's authorized capital stock
--------------
consists of, and on the Closing Date will consist of, 1,000,000 shares of
preferred stock, 40,000,000 shares of Common Stock. Immediately after the
Closing, the Company's issued and outstanding capital stock will be as set forth
on Schedule 5.02 hereto. Other than as set forth on Schedule 5.02, immediately
------------- -------------
after the Closing there are no issued or outstanding options, warrants or other
rights to acquire, or any outstanding securities or obligations convertible into
or exchangeable for, any shares of the capital stock of the Company.
Section 5.03. Valid Issuance of Securities. The shares of Common
----------------------------
Stock, when issued and delivered by the Company and paid for by the Stockholders
pursuant to the terms of this Agreement, (i) will have been duly authorized,
validly issued, fully paid and
10.
<PAGE>
nonassessable, (ii) will be free and clear of all liens, encumbrances, equities
and claims (other than securities law restrictions) and (iii) will be issued
without violation of any preemptive rights.
Section 5.04. Authority. The Company has full legal right, power and
---------
authority (i) to enter into and perform this Agreement, the Registration Rights
Agreement and the Stockholders Agreement including the issuance of the shares of
Common Stock. The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Stockholders Agreement by the Company, the
issuance of the shares of Common Stock by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby have all been
duly authorized by all necessary corporate action on the part of the Company,
its Board and its stockholders. No consent, waiver or authorization of, or
filing with any other person (including without limitation, any Governmental
Authority) is required in connection with any of the foregoing or with the
validity or enforceability against the Company of this Agreement, the
Registration Rights Agreement, the Stockholders Agreement, and the shares of
Common Stock, except for consents, waivers, authorizations or filings which if
not obtained or made would not have a Material Adverse Effect. This Agreement
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and subject to general
principles of equity. When executed and delivered by the Company, in accordance
with the terms of this Agreement, the Registration Rights Agreement and
Stockholders Agreement will have been duly executed and delivered by the Company
and will constitute the legal, valid and binding agreement of the Company,
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and subject to general principles of equity.
Section 5.05. No Conflict. The execution, delivery and performance
-----------
of this Agreement, the Registration Rights Agreement and the Stockholders
Agreement, and the consummation of the transactions contemplated hereby and
thereby do not and will not, with or without the passage of time or the giving
of notice or both, (i) conflict with or violate any provision of the Company's
Certificate of Incorporation or By-laws, (ii) conflict with or violate any
applicable law, statute, treaty, rule, regulation, arbitration award, judgment,
decree, order or other determination of any Governmental Authority
(collectively, "Requirement of Law") applicable to the Company or any mortgage,
security, lease franchise, agreement, guaranty, instrument or undertaking
(collectively, "Contractual Obligation") of the Company, in each case in a
manner which would have a Material Adverse Effect or (iii) result in, or
require, the creation or imposition of any lien charge or other encumbrance on
any of its properties or revenues pursuant to any Requirement of Law or
Contractual Obligation.
11.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
The obligations of the Stockholders and the Company hereunder are
subject to the satisfaction or waiver, on or prior to the Closing Date, of all
of the conditions set out below in Sections 6.01 through 6.04. The obligations
of the Stockholders hereunder are further subject to the satisfaction or waiver,
on or prior to the Closing Date, of all of the conditions set out below in
Sections 6.05 through 6.07 and clause (vii) of Section 6.11. The obligations of
the Company hereunder are subject to the satisfaction or waiver, on or prior to
the Closing Date, of all of the conditions set out below in Sections 6.08
through 6.10 and clauses (i) through (vi) of Section 6.11. The obligations of
Lane Bryant, The Limited, WearGuard, Chadwick's, Leeway and NYNEX hereunder are
subject to the satisfaction or waiver, on or prior to the Closing Date, of the
additional condition set forth in Section 6.12.
Section 6.01. Closing of Initial Public Offering. All conditions to
----------------------------------
the consummation of the Initial Public Offering shall have been satisfied or
waived by the Company or the Underwriters as applicable, the Company and the
Underwriters therefor shall be prepared to close the Initial Public Offering
immediately after the Closing and the Initial Public Offering shall result in
(i) receipt by the Company of at least $30,000,000 of gross proceeds from the
sale of newly issued Common Stock in a primary offering or (ii) the sale of
newly issued Common Stock representing at least 20% of the outstanding Common
Stock of the Company after giving effect to such offering.
Section 6.02. Registration Rights Agreement. Each of the parties
-----------------------------
hereto shall enter into and deliver at the Closing the Registration Rights
Agreement substantially in the form attached hereto as Exhibit 4.03A, which
-------------
shall be effective as of the Closing Date.
Section 6.03. Stockholders Agreement. Each of the parties hereto
----------------------
shall enter into and deliver at the Closing the Stockholders Agreement
substantially in the form attached hereto as Exhibit 4.03B which shall be
-------------
effective as of the Closing Date.
Section 6.04. Amendment to Partnership Agreement. The parties hereto
----------------------------------
hereby agree that upon the consummation of the transactions contemplated herein,
the Partnership Agreement shall be amended and restated substantially in the
form attached hereto as Exhibit 6.04.
------------
Section 6.05. Accuracy of the Company's Representations and
---------------------------------------------
Warranties. The representations and warranties of the Company set forth in this
- ----------
Agreement and in any of the documents and agreements entered into pursuant to
this Agreement shall be true and correct in all material respects as of the
Closing Date as if made on that date.
12.
<PAGE>
Section 6.06. Performance by the Company. The Company shall have
--------------------------
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, complied
with, or satisfied by the Company on or prior to the Closing Date.
Section 6.07. Certification by the Company. The Stockholders shall
----------------------------
have received a certificate, dated the Closing Date, signed by the Company,
certifying that the conditions specified in Sections 6.01, 6.05 and 6.06 have
been fulfilled.
Section 6.08. Accuracy of the Stockholders' Representations and
-------------------------------------------------
Warranties. The representations and warranties of each of the Stockholders set
- ----------
forth in this Agreement and in any of the documents and agreements entered into
pursuant to this Agreement shall be true and correct in all material respects as
of the Closing Date as if made on that date.
Section 6.09. Performance by the Stockholders. The Stockholders
-------------------------------
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
complied with, or satisfied by the Stockholders on or prior to the Closing Date.
Section 6.10. Certification by the Stockholders. The Company shall
---------------------------------
have received certificates, dated the Closing Date, signed by each of the
Stockholders, certifying that the conditions specified in Sections 6.08 and 6.09
have been fulfilled.
Section 6.11. Exchange of Securities. At the Closing, (i) the
----------------------
Freeman Spogli Funds shall have delivered to the Company certificates
representing the VP Holding Exchange Shares, duly endorsed in blank, or
accompanied by appropriate stock powers, in proper form for transfer pursuant to
Section 2.01 with all necessary stock transfer stamps attached thereto, (ii)
Lane Bryant shall have delivered to the Company an Assignment of Units in the
form attached hereto as Exhibit 2.02 with all necessary tax transfer stamps
------------
attached thereto in order to transfer all of its Units to the Company, (iii)
WearGuard shall have delivered to the Company an Assignment of Units in the form
attached hereto as Exhibit 2.03 with all necessary tax transfer stamps attached
------------
thereto in order to transfer all of its Units to the Company, (iv) Leeway shall
have delivered to the Company an Assignment of Units in the form attached hereto
as Exhibit 2.04 with all necessary tax transfer stamps attached thereto in order
------------
to transfer all of its Units to the Company, (v) NYNEX shall have delivered to
the Company an Assignment of Units in the form attached hereto as Exhibit 2.05
------------
with all necessary tax transfer stamps attached thereto in order to transfer all
of its Units to the Company, (vi) if Chadwick's should hold any Units prior to
the Closing, Chadwick's shall have delivered to the Company an Assignment of
Units in the form attached hereto as Exhibit 2.06 with all necessary tax
------------
transfer stamps attached thereto in order to transfer all of its Units to the
Company, (vii) the Company shall have delivered to the Freeman Spogli Funds,
Lane Bryant, WearGuard, Leeway, NYNEX and Chadwick's (if it should hold any
Units prior to the Closing) certificates representing shares of Common Stock
pursuant to
13.
<PAGE>
Sections 2.01, 2.02, 2.03, 2.04, 2.05 and 2.06, and (viii) if either the Company
or Chadwick's shall have exercised its option set forth in Section 2.07,
Chadwick's shall have delivered the Partnership Note to the Company and the
Company shall have delivered the Company Note to Chadwick's in exchange therefor
pursuant to Section 2.07.
Section 6.12. Legal Opinion. The Limited, Lane Bryant, WearGuard,
-------------
Leeway, NYNEX and Chadwick's shall receive an opinion of counsel to the Company
in form and substance reasonably satisfactory to each such Person with respect
to the matters specified in the first sentence of Section 5.01, Section 5.03,
Section 5.04 and Section 5.05.
ARTICLE VII
INDEMNIFICATION
---------------
Section 7.01. Indemnification.
---------------
(a) The Freeman Spogli Funds shall indemnify and hold harmless each
of the Company, Lane Bryant, WearGuard, Leeway, NYNEX and Chadwick's and their
respective Affiliates from any and all losses, liabilities, damages or expenses,
including reasonable attorneys' fees and costs of investigation incurred arising
out of or related in any way to any operations or activities of the FS General
Partner, the FS Limited Partner or VP Holding (or any predecessor or successor
to any of such entities) prior to the date of the Initial Public Offering,
provided that the amount of such loss shall be determined by taking into account
any actual federal, state and local income tax savings resulting from such loss.
(b) The Limited shall indemnify and hold harmless each of the
Company, all other Partners and Chadwick's and their respective Affiliates from
any and all losses, liabilities, damages or expenses, including reasonable
attorneys' fees and costs of investigation incurred arising out of or related in
any way to any operations or activities of Lane Bryant (or any predecessor or
successor to such entity) prior to the date of the Initial Public Offering,
provided that the amount of such loss shall be determined by taking into account
any actual federal, state and local income tax savings resulting from such loss.
(c) WearGuard shall indemnify and hold harmless each of the Company
and all other Partners and their respective Affiliates from any and all losses,
liabilities, damages or expenses, including reasonable attorneys' fees and costs
of investigation incurred arising out of or related in any way to any operations
or activities of WearGuard (or any predecessor or successor to such entity)
prior to the date of the Initial Public Offering, provided that the amount of
such loss shall be determined by taking into account any actual federal, state
and local income tax savings resulting from such loss.
14.
<PAGE>
(d) The foregoing indemnities shall not apply to liabilities arising
out of the conduct of the Business or management of the Partnership except for
any such liabilities directly or indirectly arising from a breach of the
Partnership Agreement by the relevant party.
Section 7.02. Procedures. If a third party asserts a claim against
----------
any indemnified party for which indemnification would be available under Section
7.01 (a "Claim"), the indemnified party shall promptly give notice of such
Claim, describing such claim with reasonable specificity, to the indemnifying
party; provided, that the failure to give such notice shall not affect the right
--------
of the indemnified party to indemnification under Section 7.01 except to the
extent that such failure materially prejudices the ability of the indemnifying
party to defend such Claim. The indemnifying party may employ counsel
reasonably satisfactory to the indemnified party; provided that in the event
--------
that the indemnified party reasonably determines in good faith that its interest
with respect to such Claim cannot appropriately be represented by the
indemnifying party, such indemnified party shall have the right to participate
in the defense of such Claim and to have its expenses reimbursed promptly with
respect to such Claim. In addition, in the event that such indemnifying party,
within a reasonable time after notice of any such Claim, fails to defend any
indemnified party, such indemnified party will (upon further notice to such
indemnifying party) have the right to undertake the defense of such Claim for
the account of such indemnifying party and to have its expenses reimbursed
promptly with respect to such Claim. Regardless of which party is controlling
the defense of any Claim, (i) both the indemnifying party and the indemnified
party shall act in good faith and (ii) no settlement of any such Claim may be
agreed to by the controlling party without the written consent of such party
(which consent shall not be unreasonably withheld). The controlling party shall
deliver, or cause to be delivered, to the other party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of any such Claim and
timely notices of, and the right to participate in (as observer), any hearing or
other court proceeding relating to such Claim.
ARTICLE VIII
TAXATION
--------
Section 8.01. Treatment Under Section 351 of the Code. The parties
---------------------------------------
hereto intend that the contributions hereunder by the Freeman Spogli Funds, Lane
Bryant, WearGuard, Leeway, NYNEX and Chadwick's (if it should hold Units prior
to the Closing) to the Company in exchange for shares of Common Stock are to be
treated, together with the transfer of shares of VP Holding by certain
management employees of the Partnership in exchange for shares of Common Stock
on the same exchange basis as the Freeman Spogli Funds and the issuance of
shares of Common Stock in the Initial Public Offering, for federal income tax
purposes under Section 351 of the Code. Each party hereto represents that it
will take (or refrain from taking, as the case may be) any and all actions
necessary for such
15.
<PAGE>
exchange to be treated under Section 351 of the Code. Each of the Freeman Spogli
Funds, Lane Bryant, WearGuard, Leeway, NYNEX and Chadwick's represents that it
has no plan or intention to sell or otherwise dispose of shares of Common Stock
received by it hereunder and each agrees not to sell or otherwise dispose of
such shares of Common Stock if such sale or other disposition would result in
such shares of Common Stock being treated for purposes of Sections 351 and
368(c) of the Code as not being owned by each such party immediately after such
exchange.
Section 8.02. Intangibles. The parties hereto understand that the
-----------
Partnership intends to make an election under Section 754 of the Code with the
result that, to the extent that Lane Bryant recognizes gain for federal income
tax purposes as a result of the transfer hereunder of its Units to the Company,
the Partnership will adjust the basis of Partnership assets, including
Partnership assets which are intangibles for purposes of Section 197 of the
Code, with respect to the Company. Lane Bryant agrees to elect under Section
197(f)(9)(B) of the Code to recognize gain, and pay tax on such gain as provided
in Section 197(f)(9)(B) (ii)(II), to the extent such gain is required to be
recognized under Section 357(c) of the Code on the transfer hereunder of such
Units to the Company and such gain is allocable under Section 743 of the Code to
an intangible described in Sections 197(d)(1)(A) or (B) of the Code or for which
depreciation or amortization would not have been allowable but for Section 197
of the Code.
ARTICLE IX
TERMINATION
-----------
Section 9.01. Termination. Notwithstanding anything to the contrary
-----------
contained herein, this Agreement shall terminate and there shall be no liability
or obligation on the part of the Company or the Stockholders or any of their
respective Affiliates if (i) the Initial Public Offering does not result in
receipt by the Company of at least $30,000,000 of gross proceeds from the sale
of newly issued Common Stock in a primary offering or (ii) the sale of newly
issued Common Stock representing at least 20% of the outstanding Common Stock of
the Company after giving effect to such offering.
ARTICLE X
TRANSFER TAXES AND OTHER FEES
-----------------------------
Section 10.01. Transfer Taxes and Other Fees. The Partnership or the
-----------------------------
Company will pay to each Stockholder an amount, if any, which, after deduction
of all taxes imposed on the receipt or accrual thereof, will equal all transfer
taxes (but not income, franchise or other taxes measured by receipts or income)
which are payable in connection with
16.
<PAGE>
the execution and delivery of this Agreement or the authorization and issuance
of the shares of Common Stock hereunder or in connection with any modification
of this Agreement, and will indemnify and save each Stockholder harmless without
limitation as to time, from and against any and all liabilities with respect to
all such taxes, if any, and the Partnership or the Company agree to pay to each
Stockholder additional amounts which, after deduction of all taxes imposed on
the receipt or accrual thereof, will ensure that each Stockholder incurs no
greater cost or expense than it would have incurred had there been no such taxes
payable. The Stockholders will cooperate with the Partnership to obtain a refund
of any such taxes from governmental authorities, if applicable. The Partnership
also agrees to pay all filing fees for FSEP II, FSEP III, FSEP International,
The Limited and Chadwick's in connection with the filing of applications
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.01. Transaction Agreement. The Limited and Lane Bryant
---------------------
hereby agree that the reference to "VGP" in the first sentence of Section
5.04(b) of the Transaction Agreement dated as of July 13, 1993 among the FS
General Partner, the FS Limited Partner and the transferors referred to therein,
as amended by that Amendment No. 1 to Transaction Agreement dated August 30,
1993 (the "Transaction Agreement"), shall from and after the date hereof be
deemed a reference to the Freeman Spogli Funds, and that effective upon the
consummation of the Initial Public Offering, Section 7.04 of the Transaction
Agreement shall terminate.
Section 11.02. Brylane, L.P. For as long as The Limited and the
-------------
Freeman Spogli Funds hold a direct or indirect ownership interest in the
Company, the Company agrees that the Partnership shall at all times be directly
or indirectly wholly-owned by the Company. Notwithstanding the foregoing, the
Company may dissolve the Partnership or may transfer Units of the Partnership in
connection with the transfer (i) of all or substantially all of the Units of the
Partnership, or (ii) of Units to an affiliate of the Company.
Section 11.03. VP Holding. The Company agrees to retain ownership of
----------
VP Holding as a wholly-owned subsidiary for a period of eighteen (18) months
following the Closing.
Section 11.04. Notices.
-------
(a) All communications under this Agreement shall be in writing and
shall be mailed by first class mail, postage prepaid.
17.
<PAGE>
If to the Stockholders:
(1) If to FSEP II, FSEP III or FSEP International:
Freeman Spogli & Co. Incorporated
11100 Santa Monica Boulevard
Suite 1900
Los Angeles, California 90025
Attention: William M. Wardlaw
With a copy to:
Riordan & McKinzie
300 South Grand Avenue, Suite 2900
Los Angeles, California 90071-3155
Attention: Richard J. Welch, Esq.
(2) If to Lane Bryant:
The Limited, Inc.
Three Limited Parkway
Columbus, Ohio 43230
Attention: General Counsel
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch, Esq.
David L. Caplan, Esq.
(3) If to The Limited:
The Limited, Inc.
Three Limited Parkway
Columbus, Ohio 43230
Attention: General Counsel
18.
<PAGE>
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch, Esq.
David L. Caplan, Esq.
(4) If to WearGuard:
WearGuard Corporation
c/o ARAMARK Corporation
The ARAMARK Tower
1100 Market Street, 29th Floor
Philadelphia, Pennsylvania 19107
Attention: General Counsel
(5) If to Chadwick's:
The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
Attention: President and General Counsel
With a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Arthur G. Siler, Esq.
Telecopier: (617) 951-7050
(6) 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
Telecopier: (908) 771-9613
19.
<PAGE>
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.
Telecopier: (201) 992-5620
(7) If to NYNEX:
Mellon Bank, N.A., as Trustee
for the NYNEX Master Trust
One Mellon Bank Center
Room 3346
Pittsburgh, Pennsylvania 15258-0001
Attention: Robert F. Sass
Telecopier: (412) 236-4225
with a copy to:
NYNEX Asset Management Company
200 Park Avenue
New York, NY 10166
Attention: A. Jay Baldwin
Bruce Franzese, Esq.
Telecopier: (212) 682-7246
and to:
Simpson Thacher & Barlett
425 Lexington Avenue
New York, New York 10017
Attention: I. Scott Gottdiener, Esq.
Telecopier: (212) 455-2502
or at such other address as a Stockholder may have furnished the Company in
writing, or
20.
<PAGE>
If to the Company:
Brylane, Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Peter J. Canzone
With a copy to:
Riordan & McKinzie
300 South Grand Avenue, Suite 2900
Los Angeles, California 90071-3155
Attention: Richard J. Welch, Esq.
or at such other address as the Company may have furnished in writing to each
Stockholder.
(b) Any notice so addressed and mailed by registered or certified
mail shall be deemed to have been given when mailed.
Section 11.05. Fulfillment of Conditions. Each party will use their
-------------------------
or its respective best efforts to perform, comply with and fulfill all
obligations, covenants and conditions required by this Agreement to be
performed, complied with or fulfilled by such party prior to or as of the
Closing Date. Each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations (including, without limitation, in connection with
obtaining any requisite approval) and to execute such agreements, powers of
attorney or other documents or instruments to expeditiously consummate and make
effective the transactions contemplated by this Agreement. In case at any time
after the Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
Section 11.06. Survival. All warranties, representations, and
--------
covenants made herein or in any certificate or other instrument delivered by the
parties hereto or on their behalf under this Agreement shall be considered to
have been relied upon and shall survive the delivery of the shares of Common
Stock and payment therefor, regardless of any investigation made by any such
party or on their behalf. All statements in any such certificate or other
instrument shall constitute warranties and representations by such party
hereunder.
Section 11.07. Amendments, Modifications and Waivers. Any covenant,
-------------------------------------
agreement, provision or condition of this Agreement may be amended or modified,
or compliance therewith may be waived (either generally or in any particular
instance and either retroactively or prospectively), by (and only by) an
instrument in writing signed by the
21.
<PAGE>
Company and the Stockholder against whom such amendment, modification or waiver
is being asserted, except that (i) none of WearGuard, Chadwick's, Leeway nor
NYNEX shall be required to or entitled to approve any amendment, modification or
waiver, unless such amendment, modification or waiver would adversely affect the
rights hereunder of WearGuard, Chadwick's, Leeway or NYNEX and (ii) 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.
Section 11.08. Successors and Assigns; Enforceability by
-----------------------------------------
Stockholders. This Agreement shall be so binding upon and shall inure to the
- ------------
benefit of the parties hereto and their respective successors and assigns.
Section 11.09. Severability. Should any part of this Agreement for
------------
any reason be declared invalid, such decision shall not affect the validity of
any remaining portion which remaining portion shall remain in full force and
effect as if this Agreement had been executed with the invalid portion thereto
eliminated and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
included therein any such part or parts which may, for any reason, be hereafter
declared invalid.
Section 11.10. Captions. The descriptive headings of the various
--------
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
Section 11.11. 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 11.12. 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.
Section 11.13. Remedies. Each party to this Agreement acknowledges
--------
and agrees that in the event of any breach of this Agreement by any one of them,
any of the parties, as the case may be, would be irreparably harmed and could
not be made whole by monetary damages. Each party accordingly agrees (a) to
waive the defense in any action for specific performance that a remedy at law
would be adequate and (b) each party, 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.
22.
<PAGE>
Section 11.14. Further Assurances. Notwithstanding anything
------------------
contained herein or in the Partnership Agreement (including Article X thereof)
to the contrary, each of WearGuard, Leeway, NYNEX and Chadwick's agrees that, in
the event that an entity other than the Company is formed as the successor to or
parent entity (as defined in the Partnership Agreement) of the Partnership in
connection with the implementation of the provisions of Article X of the
Partnership Agreement, whether or not in connection with an Initial Public
Offering, it will enter into such amendments hereto and to the Company Note, and
such further agreements or instruments with such entity as are necessary to
implement the provisions of Article X of the Partnership Agreement and the
essential intent and purpose of this Agreement, whether or not in connection
with an Initial Public Offering. Notwithstanding anything contained in this
Section 11.14 to the contrary, the FS General Partner will consult, discuss and
analyze with each of Chadwick's, Leeway and NYNEX prior to finalizing the
structure of any transaction (each, a "Different Transaction") contemplated
under this Section 11.14 (other than the transaction contemplated in this
Agreement) in order to assess the tax impact such Different Transaction would
have on each of Chadwick's, Leeway and NYNEX in an effort to avoid any material
detriment to the tax position of Chadwick's, Leeway or NYNEX; provided, however,
-------- -------
that in the event that any advice, request or desire of either Chadwick's,
Leeway or NYNEX with respect to the structure of any such Different Transaction
is for any reason not reflected in or accommodated by the final structure
(approved by the FS General Partner and Lane Bryant) of such Different
Transaction, each of Chadwick's, Leeway and NYNEX shall nonetheless be bound by
the provisions of this Section 11.14. All Units which are exchanged shall be
treated equally under any transaction contemplated by this Section 11.14.
23.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: /s/ John M. Roth
---------------------------------
Name: John M. Roth
------------------------
Title: Vice President
------------------------
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
------------------------
LANE BRYANT DIRECT HOLDING, INC.
By: /s/ William K. Gerber
---------------------------------
Name: William K. Gerber
------------------------
Title: Vice President
------------------------
24.
<PAGE>
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
---------------------------
BRYLANE INC.
By: /s/ Peter J. Canzone
------------------------------------
Name: Peter J. Canzone
---------------------------
Title: President and Chief
Executive Officer
---------------------------
CHADWICK'S, INC.
By: /s/ Donald G. Campbell
------------------------------------
Name: Donald G. Campbell
---------------------------
Title: 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/ John Muir
-------------------------------------
Name: John Muir
----------------------------
Title: Assistant Vice President
----------------------------
25.
<PAGE>
THE NYNEX MASTER TRUST
By: MELLON BANK, N.A., solely in its capacity as
Trustee for the NYNEX MASTER PENSION TRUST
(as directed by the NYNEX CORPORATION), and
not in its individual capacity
By: /s/
-----------------------------------------
Name:
--------------------------------
Title: Vice President
--------------------------------
Brylane, L.P. hereby agrees to perform all of its agreements and
obligations set forth in Section 10.01.
BRYLANE, L.P.
By: VGP Corporation
Its: General Partner
By: /s/ John M. Roth
-----------------------------------------
Name: John M. Roth
--------------------------------
Title: President
--------------------------------
26.
<PAGE>
EXHIBIT 2.02
ASSIGNMENT OF UNITS - LANE BRYANT
Lane Bryant Direct Holding, Inc., a Delaware corporation ("Lane
Bryant"), does hereby transfer, convey, assign and deliver effective as of the
date hereof, unto Brylane Inc., a Delaware corporation ("Brylane"), 5,000,000
Units (as defined in that certain First Amended and Restated Incorporation and
Exchange Agreement dated as of December 9, 1996 by and among FS Equity Partners
II, L.P., FS Equity Partners III, L.P., FS Equity Partners International, L.P.,
Lane Bryant, The Limited, Inc., WearGuard Corporation, Leeway & Co. as nominee
for the Long-Term Investment Trust, NYNEX Master Trust, Chadwick's, Inc. and
Brylane) in consideration of the issuance to Lane Bryant of 5,000,000 shares of
common stock, par value $0.01 per share, of Brylane. Lane Bryant hereby agrees
to instruct Brylane, L.P. to take all actions necessary to register the above-
referenced transfer of Units from Lane Bryant to Brylane.
IN WITNESS WHEREOF, the undersigned has executed this Assignment of
Units as of this ___ day of ________________, 199__.
LANE BRYANT DIRECT HOLDING, INC.,
a Delaware corporation
By:
----------------------------
Name:
---------------------
Title:
--------------------
<PAGE>
EXHIBIT 2.03
ASSIGNMENT OF UNITS - WEARGUARD
WearGuard Corporation, a Delaware corporation ("WearGuard"), does
hereby transfer, convey, assign and deliver effective as of the date hereof,
unto Brylane Inc., a Delaware corporation ("Brylane"), 399,788 Units (as defined
in that certain First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FS Equity Partners II, L.P., FS Equity
Partners III, L.P., FS Equity Partners International, L.P., Lane Bryant Direct
Holding, Inc., The Limited, Inc., WearGuard, Leeway & Co. as nominee for the
Long-Term Investment Trust, NYNEX Master Trust, Chadwick's, Inc. and Brylane) in
consideration of the issuance to WearGuard of 399,788 shares of common stock,
par value $0.01 per share, of Brylane. WearGuard hereby agrees to instruct
Brylane, L.P. to take all actions necessary to register the above-referenced
transfer of Units from WearGuard to Brylane.
IN WITNESS WHEREOF, the undersigned has executed this Assignment of
Units as of this ___ day of _______, 199__.
WEARGUARD CORPORATION,
a Delaware corporation
By:
---------------------------
Name:
-------------------
Title:
------------------
<PAGE>
EXHIBIT 2.04
ASSIGNMENT OF UNITS - LEEWAY
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"), does hereby transfer, convey, assign and deliver effective as of the
date hereof, unto Brylane Inc., a Delaware corporation ("Brylane"), 500,000
Units (as defined in that certain First Amended and Restated Incorporation and
Exchange Agreement dated as of December 9, 1996 by and among FS Equity Partners
II, L.P., FS Equity Partners III, L.P., FS Equity Partners International, L.P.,
Lane Bryant Direct Holding, Inc., The Limited, Inc., WearGuard Corporation,
Leeway, NYNEX Master Trust, Chadwick's, Inc. and Brylane) in consideration of
the issuance to Leeway of 500,000 shares of common stock, par value $0.01 per
share, of Brylane. Leeway hereby agrees to instruct Brylane, L.P. to take all
actions necessary to register the above-referenced transfer of Units from Leeway
to Brylane.
IN WITNESS WHEREOF, the undersigned has executed this Assignment of
Units as of this ___ day of _______, 199__.
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:
-----------------------------
Name:
----------------------
Title:
---------------------
<PAGE>
EXHIBIT 2.05
ASSIGNMENT OF UNITS - NYNEX
NYNEX Master Trust, a trust governed by the laws of the State of New
York ("NYNEX"), does hereby transfer, convey, assign and deliver effective as of
the date hereof, unto Brylane Inc., a Delaware corporation ("Brylane"), 500,000
Units (as defined in that certain First Amended and Restated Incorporation and
Exchange Agreement dated as of December 9, 1996 by and among FS Equity Partners
II, L.P., FS Equity Partners III, L.P., FS Equity Partners International, L.P.,
Lane Bryant Direct Holding, Inc., The Limited, Inc., WearGuard Corporation,
Leeway & Co. as nominee for the Long-Term Investment Trust, NYNEX, Chadwick's,
Inc. and Brylane) in consideration of the issuance to NYNEX of 500,000 shares of
common stock, par value $0.01 per share, of Brylane. NYNEX hereby agrees to
instruct Brylane, L.P. to take all actions necessary to register the above-
referenced transfer of Units from NYNEX to Brylane.
IN WITNESS WHEREOF, the undersigned has executed this Assignment of
Units as of this ___ day of _______________, 199__.
NYNEX MASTER TRUST,
a trust governed by the laws of the State of New
York
By: Mellon Bank, N.A.,
as Trustee for NYNEX Master Trust as
directed by NYNEX Corporation
By:
-----------------------------
Name:
----------------------
Title:
---------------------
<PAGE>
EXHIBIT 2.06
ASSIGNMENT OF UNITS - CHADWICK'S
Chadwick's, Inc., a Massachusetts corporation ("Chadwick's"), does
hereby transfer, convey, assign and deliver effective as of the date hereof,
unto Brylane Inc., a Delaware corporation ("Brylane"), 727,273 Units (as defined
in that certain First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FS Equity Partners II, L.P., FS Equity
Partners III, L.P., FS Equity Partners International, L.P., Lane Bryant Direct
Holding, Inc., The Limited, Inc., WearGuard Corporation, Leeway & Co. as nominee
for the Long-Term Investment Trust, NYNEX Master Trust, Chadwick's and Brylane)
in consideration of the issuance to Chadwick's of 727,273 shares of common
stock, par value $0.01 per share, of Brylane. Chadwick's hereby agrees to
instruct Brylane, L.P. to take all actions necessary to register the above-
referenced transfer of Units from Chadwick's to Brylane.
IN WITNESS WHEREOF, the undersigned has executed this Assignment of
Units as of this ___ day of ________________, 199__.
CHADWICK'S, INC.,
a Massachusetts corporation
By:
---------------------------
Name:
-------------------
Title:
------------------
<PAGE>
Exhibit 2.07 is being filed separately as Exhibit 10.76 to the Registration
Statement.
<PAGE>
EXHIBIT 4.03A
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is dated as of
this ______ day of _______________ __, 1996 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"), Lane Bryant Direct Holding, Inc., a Delaware corporation
("Limited Stockholder"), WearGuard Corporation, a Delaware corporation
("WearGuard"), Chadwick's, Inc., a Massachusetts corporation, ("Chadwick's"),
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, Chadwick's, 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. Chadwick's 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 parties hereto (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 Chadwick's 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 (the "Partnership Note"), all pursuant
to the transactions described in and the terms of the Incorporation and Exchange
Agreement.
C. In connection with an Initial Public Offering (as defined in the
Partnership Agreement) of Common Stock, the FS Stockholders, the Limited
Stockholder, WearGuard,
<PAGE>
Chadwick's, 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 Chadwick's).
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 ___________ __, 1996 among the
Company, the FS Stockholders, the Limited Stockholder, WearGuard, Chadwick's,
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.
"Initial Public Offering" shall have the meaning set forth in the
-----------------------
Partnership Agreement.
2.
<PAGE>
"Minority Holders" means WearGuard, Leeway, NYNEX, Chadwick's (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, Chadwick's 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, Chadwick's, 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 Chadwick's 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.
"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.
3.
<PAGE>
"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
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
4.
<PAGE>
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 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
5.
<PAGE>
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 Chadwick's, 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.
(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
6.
<PAGE>
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 Chadwick's, 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 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
7.
<PAGE>
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 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.
8.
<PAGE>
(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 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
9.
<PAGE>
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
Chadwick's, Leeway or NYNEX or registration under Section 2.2 in which
Chadwick's, Leeway or NYNEX participates, (i) the Company will cooperate to
facilitate an orderly distribution of the shares of Chadwick's, Leeway or NYNEX,
as the case may be, and Chadwick's, 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 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
10.
<PAGE>
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.
(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
11.
<PAGE>
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 "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)
12.
<PAGE>
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 Chadwick's, Leeway or NYNEX and
up to three (3) registrations pursuant to Section 2.2 in which Chadwick's,
Leeway or NYNEX participates, the Company shall also pay the reasonable fees and
expenses of special counsel for Chadwick's, 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 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
- --------
13.
<PAGE>
in this 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 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
14.
<PAGE>
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 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
15.
<PAGE>
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 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.
16.
<PAGE>
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, Chadwick's 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 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 Chadwick's
17.
<PAGE>
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 Chadwick's 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 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
18.
<PAGE>
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, Chadwick's, 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, Chadwick's, 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.
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
19.
<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 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
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
20.
<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 Chadwick's: 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
22.
<PAGE>
that all rights and obligations of the parties hereunder shall be enforceable to
the fullest extent permitted by law.
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: _______________________________________
Name: ________________________________
Title: ________________________________
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: _______________________________________
Name: ________________________________
Title: ________________________________
FS EQUITY PARTNERS INTERNATIONAL, L.P.
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: _______________________________________
Name: ________________________________
Title: ________________________________
LANE BRYANT DIRECT HOLDING, INC.
By: _______________________________________
Name: ________________________________
Title: ________________________________
24.
<PAGE>
BRYLANE INC.
By: _______________________________________
Name: ________________________________
Title: ________________________________
WEARGUARD CORPORATION
By: _______________________________________
Name: ________________________________
Title: ________________________________
CHADWICK'S, INC.
By: _______________________________________
Name: ________________________________
Title: ________________________________
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: _______________________________________
Name: ________________________________
Title: ________________________________
NYNEX MASTER TRUST
By: Mellon Bank, N.A., as Trustee for Nynex Master
Trust, as directed by NYNEX Corporation
By: _______________________________________
Name: ________________________________
25.
<PAGE>
Title: ________________________________
26.
<PAGE>
EXHIBIT 4.03B
STOCKHOLDERS AGREEMENT
dated as of
___________ __, 1996
among
FS EQUITY PARTNERS II, L.P.
FS EQUITY PARTNERS III, L.P.
FS EQUITY PARTNERS INTERNATIONAL, L.P.
LANE BRYANT DIRECT HOLDING, INC.
WEARGUARD CORPORATION
CHADWICK'S, INC.
LEEWAY & CO.
NYNEX MASTER TRUST
and
BRYLANE INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS........................................ 1
Section 1.1 Definitions........................................ 1
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........ 4
Section 2.4 Transfers of Common Stock.......................... 4
ARTICLE III ADDITIONAL RIGHTS AND OBLIGATIONS OF
STOCKHOLDERS AND THE COMPANY....................... 4
Section 3.1 Financial Statements............................... 4
Section 3.2 Confidentiality.................................... 5
Section 3.3 Protection of Business; Nonsolicitation............ 5
Section 3.4 Acquisition of Common Stock........................ 7
Section 3.5 Fiscal Year........................................ 7
Section 3.6 Obligation to Sell Securities; Rights of Inclusion. 7
ARTICLE IV CORPORATE GOVERNANCE............................... 9
Section 4.1 Board of Directors................................. 9
Section 4.2 Corporate Actions.................................. 11
Section 4.3 Not Applicable to Chadwick's, Leeway or NYNEX...... 11
ARTICLE V TERMINATION........................................ 11
Section 5.1 Termination........................................ 11
ARTICLE VI MISCELLANEOUS...................................... 11
Section 6.1 Remedies........................................... 11
Section 6.2 Successors and Assigns............................. 12
Section 6.3 No Waivers; Amendments............................. 12
Section 6.4 Notices............................................ 12
Section 6.5 Inspection......................................... 15
Section 6.6 Governing Law...................................... 15
</TABLE>
i.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.7 Section Headings................................... 15
Section 6.8 Entire Agreement................................... 15
Section 6.9 Severability....................................... 15
Section 6.10 Counterparts....................................... 16
Section 6.11 Chadwick's Agreement to be Bound................... 16
</TABLE>
ii.
<PAGE>
STOCKHOLDERS AGREEMENT
----------------------
This Stockholders Agreement (the "Agreement") is dated as of this
______ day of __________, 1996 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"),
Lane Bryant Direct Holding, Inc., a Delaware corporation ("Limited
Stockholder"), 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 Chadwick's, Inc., a Massachusetts corporation ("Chadwick's")
and Brylane Inc., a Delaware corporation (the "Company"). Each of the FS
Stockholders, the Limited Stockholder, WearGuard, NYNEX, Leeway, Chadwick's 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
the Stockholders acquired ________ shares of the common stock of the Company,
par value $________ 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;
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:
<PAGE>
"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.
----------------
"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.
------
2.
<PAGE>
"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 REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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
______________, ____, 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.
3.
<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
4.
<PAGE>
and deliver to each Stockholder statements of income and cash flows of the
Company 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
5.
<PAGE>
indirectly, engage anywhere in the world in any activities that compete with any
business 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
6.
<PAGE>
outstanding, neither the Company nor the FS Stockholders nor any of their
Affiliates 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) Chadwick's or the TJX Companies, Inc., a Delaware corporation
("TJX") (the parent of Chadwick's), or any of their 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
7.
<PAGE>
those arising under applicable securities laws, and such Person's authority,
power and 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.
8.
<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 is demonstrably
9.
<PAGE>
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.
10.
<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, Chadwick's, 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 Chadwick's, 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 Chadwick's, 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
11.
<PAGE>
at law would be adequate and (b) that the Company and the 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, Chadwick's, 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, Chadwick's, 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.
12.
<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
13.
<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
14.
<PAGE>
If to Chadwick's: 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.
15.
<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 Chadwick's Agreement to be Bound. Upon the acquisition
--------------------------------
of any shares of Common Stock by Chadwick's, the parties hereto acknowledge that
Chadwick's be bound by the terms of this Agreement as a Stockholder. Upon
Chadwick's execution hereof, Chadwick's 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.
16.
<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: ________________________________
Name: ________________________
Title: _______________________
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: ________________________________
Name: ________________________
Title: _______________________
FS EQUITY PARTNERS INTERNATIONAL, L.P.
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings Limited
Its: General Partner
By: ________________________________
Name: ________________________
Title: _______________________
(Signatures continued on next page)
17.
<PAGE>
LANE BRYANT DIRECT HOLDING, INC.
By: ________________________________
Name: ________________________
Title: _______________________
BRYLANE INC.
By: ________________________________
Name: ________________________
Title: _______________________
THE LIMITED, INC.
By: ________________________________
Name: ________________________
Title: _______________________
WEARGUARD CORPORATION
By: ________________________________
Name: ________________________
Title: _______________________
CHADWICK'S, INC.
By: ________________________________
Name: ________________________
Title: _______________________
(Signatures continued on next page)
18.
<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: ________________________________
Name: ________________________
Title: _______________________
NYNEX MASTER TRUST
By: Mellon Bank, N.A., as Trustee for
NYNEX Master Trust, as directed by NYNEX
Corporation
By: ________________________________
Name: ________________________
Title: _______________________
19.
<PAGE>
Exhibit 5.01A was previously filed as Exhibit 3.14 to the Registration
Statement.
<PAGE>
Exhibit 5.01B was previously filed as Exhibit 3.15 to the Registration
Statement.
<PAGE>
EXHIBIT 6.04
BRYLANE, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
DATED AS OF _____________, 199__
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
Page
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
-------------
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
5.2 Tax Distributions............................... 17
-----------------
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
-----------------------------
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XI
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 ______ day of
_____________, 1996 (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
2.
<PAGE>
(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.
- -
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
3.
<PAGE>
Partnership liabilities assumed by such Partner or which are secured
by any Property distributed to such Partner.
(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
4.
<PAGE>
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 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
6.
<PAGE>
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 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.
6.
<PAGE>
"Nonrecourse Deductions" has the meaning set forth in Section
----------------------
1.704-2(b)(1) of the Regulations.
"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.
7.
<PAGE>
"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 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
8.
<PAGE>
disposition of such asset and shall be taken into account for purposes
of computing Profits or Losses;
(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:
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
9.
<PAGE>
Transferee 8.1
VGP Preamble
VLP Preamble
Wholly-Owned Entities 2.3
WearGuard Preamble
WearGuard Asset Purchase
Agreement Preamble
(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".
10.
<PAGE>
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 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, 13,717,198 84.26%
2300 Southeastern pursuant to the
Avenue, Indianapolis, Transaction
Indiana 46201 Agreement
===================================================================
</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.
-------------
12.
<PAGE>
(a) No Limited Partner shall be liable for any of the debts,
liabilities, contracts or other obligations of the Partnership. Other than their
respective 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
13.
<PAGE>
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
(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
14.
<PAGE>
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, 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
15.
<PAGE>
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.
(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,
16.
<PAGE>
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).
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
17.
<PAGE>
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.
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.
18.
<PAGE>
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.
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
19.
<PAGE>
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 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
20.
<PAGE>
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.
(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
22.
<PAGE>
a Partner) shall deliver to the Partnership and the parties to this Agreement
such 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
25.
<PAGE>
accomplishment of a merger or of any of the matters referred to herein by any
other means otherwise permitted by law.
26.
<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: ________________________
Its:
VLP CORPORATION
By: ________________________
Its:
27.
<PAGE>
EXHIBIT 3.11
AMENDMENT NO. 7 TO AGREEMENT OF LIMITED PARTNERSHIP
This Amendment No. 7 to Agreement of Limited Partnership of Brylane, L.P.
(this "Amendment") is made as of this 14th day of October 1996 by and among VGP
Corporation, a Delaware corporation (the "FS General Partner"), VLP Corporation,
a Delaware corporation (the "FS Limited Partner"), WearGuard Corporation, a
Delaware corporation, and Lane Bryant Direct Holding, Inc., a Delaware
corporation, with reference to the following background.
A. The parties hereto (or their predecessors) are parties to that certain
Agreement of Limited Partnership of Brylane, L.P. (the "Partnership") made as of
the 30th day of August, 1993, as amended (the "Partnership Agreement").
B. The parties hereto have determined that it is in their mutual best
interest to amend the Partnership Agreement in the manner set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Each term used herein which is not
-----------------------
defined herein shall have the meaning assigned to such term in the Partnership
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Partnership Agreement shall from and
after the date hereof refer to the Partnership Agreement as amended hereby.
SECTION 2. Amendment of Partnership Agreement. Section 6.01(a) of the
----------------------------------
Partnership Agreement is amended by replacing the period at the end of such
Section with a comma and inserting the following:
"(ix) prohibit the Partnership, the Partners or any of their
Affiliates from engaging in the conduct of a mail order retail
business encompassing regular 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 the date hereof at price points substantially similar or lower
than those for the comparable products offered by the KingSize
Division as of the date hereof."
SECTION 3. Governing Law. This Amendment 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.
SECTION 4. Counterparts. This Amendment may be signed in counterparts,
------------
each of which shall constitute an original and which together shall constitute
one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers on the day and year first
written above.
VGP CORPORATION
By: /s/ John M. Roth
-------------------------------------
Name: John M. Roth
Title: President
VLP CORPORATION
By: /s/ John M. Roth
-------------------------------------
Name: John M. Roth
Title: President
LANE BRYANT DIRECT HOLDING, INC.
By: /s/ William K. Gerber
-------------------------------------
Name: William K. Gerber
Title:
WEARGUARD CORPORATION
By: /s/ Michael J. O'Hara
-------------------------------------
Name: Michael J. O'Hara
Title: Vice President
<PAGE>
EXHIBIT 3.12
AMENDMENT NO. 8 TO AGREEMENT OF LIMITED PARTNERSHIP
---------------------------------------------------
This Amendment No. 8 to the Agreement of Limited Partnership of
Brylane, L.P. (this "Amendment") is made as of December 5, 1996 by and among
Brylane, L.P., a Delaware limited partnership (the "Partnership"), VGP
Corporation, a Delaware corporation ("FS General Partner"), VLP Corporation, a
Delaware corporation ("FS Limited Partner"), Lane Bryant Direct Holding, Inc., a
Delaware corporation ("Lane Bryant") (as successor in interest to Lane Bryant
Direct, Inc., a Delaware corporation, Lerner Direct, Inc., a Delaware
corporation, and Roaman's, Inc., a Delaware corporation), WearGuard Corporation,
a Delaware corporation ("WearGuard"), Chadwick's, Inc., a Massachusetts
corporation ("Chadwick's"), 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 NYNEX Master Trust, a trust governed by the
laws of the State of New York ("NYNEX"), with reference to the following
background.
R E C I T A L S:
- - - - - - - -
A. FS General Partner, FS Limited Partner, Lane Bryant and WearGuard
are parties to that certain Agreement of Limited Partnership of the Partnership
made as of the 30th day of August, 1993 and amended by Amendment No. 1,
Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment
No. 6 and Amendment No. 7 thereto (as amended, the "Partnership Agreement").
B. The Partnership has determined that it is in its best interest to
purchase substantially all of the assets (the "Acquisition") used in the
"Chadwick's of Boston" catalog division (the "Division") of the TJX Companies,
Inc., a Delaware corporation ("TJX"), pursuant to the terms and conditions of
that certain Asset Purchase Agreement by and among TJX, Chadwick's Inc., (a
wholly-owned subsidiary of TJX) and the Partnership dated October 18, 1996 (the
"Purchase Agreement").
C. In connection with the Purchase Agreement, the Partnership has
issued to Chadwick's that certain Convertible Subordinated Note in the principal
amount of $20,000,000 due 2006 (the "Note"), which Note is convertible at any
time, in whole or in part, at the option of Chadwick's into a total of 727,273
Units at a conversion price of $27.50 per Unit as part of the consideration paid
to Chadwick's by the Partnership for the Acquisition, all pursuant to the terms
and conditions of the Purchase Agreement and the Note.
D. The FS General Partner and the FS Limited Partner 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 ("FSEP II"), FS Equity Partners III, L.P., a Delaware
limited partnership ("FSEP III") and FS Equity Partners
<PAGE>
International, L.P., a Delaware limited partnership ("FSEP International", and
collectively with FSEP II and FSEP III, the "Freeman Spogli Funds").
E. In connection with the Acquisition Leeway and NYNEX each desire
to become a Limited Partner and to subscribe for and acquire from the
Partnership 500,000 and 500,000 Units, respectively, for a purchase price of
$20.00 per Unit, all pursuant to the terms and conditions of that certain Unit
Subscription Agreement by and among the Partnership, FS General Partner, FS
Limited Partner, Leeway, and NYNEX dated as of the date hereof (the
"Subscription Agreement") and this Amendment.
F. In connection with the Acquisition, FS Limited Partner desires to
subscribe for and acquire from the Partnership 1,500,000 additional Units at a
price of $20.00 per Unit, all pursuant to the terms and conditions of the
Subscription Agreement and this Amendment.
G. In connection with the Acquisition, WearGuard desires to
subscribe for and acquire from the Partnership 66,445 additional Units for a
price of $20.00 per Unit, all pursuant to the terms and conditions of the
Subscription Agreement and this Amendment.
H. In connection with the Acquisition, VP Holding Corporation, a
Delaware corporation, has agreed to issue 75,000 shares of its Series A
Convertible Redeemable Preferred Stock (the "Preferred Stock") to certain former
employees of the Division (the "Preferred Stockholders") for a price of $20.00
per share, and VP Holding Corporation desires to contribute the proceeds of such
issuance to the Partnership.
I. The parties hereto have determined it is in their mutual best
interests to amend the Partnership Agreement in the manner set forth below in
connection with (i) the issuance of the Note to Chadwick's, the election by
Chadwick's to convert the Note into Units and the admission of Chadwick's as a
Limited Partner of the Partnership upon such conversion, (ii) the issuance of
the Preferred Stock to the Preferred Stockholders, the conversion of the
Preferred Stock into common stock of VP Holding and any repurchase or redemption
of Preferred Stock or common stock from the Preferred Stockholders, (iii) the
issuance of 500,000 and 500,000 Units to Leeway and NYNEX, respectively, the
admission of Leeway and NYNEX as Limited Partners of the Partnership and (iv)
the issuance of 1,505,980 Units to FS Limited Partner, and (v) the issuance of
66,445 Units to WearGuard.
J. The parties hereto have determined it is in their mutual best
interests to subject the Note to transferability restrictions substantially
equivalent to the restrictions on the transferability of Units of Limited
Partners set forth in Sections 9.01, 9.03, 9.04 and 9.06 of the Partnership
Agreement.
K. Certain of the parties hereto have formed Brylane Inc., a
Delaware corporation ("Brylane Inc.") and entered into that certain
Incorporation and Exchange
2
<PAGE>
Agreement dated as of October 14, 1996 by and among the Freeman Spogli Funds,
The Limited, Inc., a Delaware corporation ("The Limited"), Lane Bryant,
WearGuard and Brylane Inc. (as amended from time to time, the "Incorporation
Agreement") in order to implement Article X of the Partnership Agreement.
L. In light of the Acquisition, the issuance by the Partnership of
the Note and the admission of Leeway and NYNEX as Limited Partners, the parties
to the Incorporation and Exchange Agreement, Chadwick's, Leeway and NYNEX have
amended and restated the Incorporation by entering into that certain First
Amended and Restated Incorporation and Exchange Agreement dated as of December
5, 1996.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Each term used herein which is
-----------------------
not defined herein, or otherwise specified, shall have the meaning assigned to
such term in the Partnership Agreement. Unless otherwise defined herein, the
term "Closing" shall mean the closing of the transactions contemplated by the
Purchase Agreement. Each reference to "hereof," "hereunder," "herein" and
"hereby" and each other similar reference and each reference to "this Agreement"
and each other similar reference contained in the Partnership Agreement shall
from and after the date hereof refer to the Partnership Agreement as amended
hereby.
SECTION 2. Issuance of Additional Units to FS Limited Partner and
------------------------------------------------------
WearGuard. At the closing of the transactions contemplated by the Subscription
- ---------
Agreement, and subject to the terms and conditions thereof, the Partnership will
issue to (i) FS Limited Partner 1,505,980 additional Units at a price of $20.00
per Unit, as consideration for the $30,119,600 Capital Contribution made by FS
Limited Partner under the Subscription Agreement and (ii) WearGuard 66,445
additional Units at a price of $20.00 per Unit as consideration for the
$1,328,900 Contribution made by WearGuard under the Subscription Agreement.
To effectuate the foregoing, a new subsection (c) shall be added to
Section 3.02 as follows:
(c) As of the closing of that certain Unit Subscription Agreement
by and among the Partnership, VP Holding, the Freeman Spogli Funds, FS
Limited Partner, 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
3
<PAGE>
("Leeway"), and NYNEX Master Trust, a trust governed by the laws of
the State of New York ("NYNEX") dated December 5, 1996, (the
"Subscription Agreement"), the Partnership will issue to FS Limited
Partner 1,500,000 Units, at a price of $20.00 per Unit, as
consideration for FS Limited Partner having made a Capital
Contribution pursuant to the Subscription Agreement of $30,000,000,
with respect to such Units. As a result of the foregoing, FS Limited
Partner will have a total of 6,509,167 Units and a 42.07% Percentage
Interest.
To effectuate the foregoing, a new subsection (d) shall be added to
Section 3.02 as follows:
(d) As of the closing of the Subscription Agreement, the
Partnership will issue to WearGuard 66,445 Units at a price of $20.00
per Unit as consideration for WearGuard having made a Capital
Contribution pursuant to the Subscription Agreement of $1,328,900 with
respect to such Units. As a result of the foregoing, WearGuard will
have a total of 399,778 Units and a 2.58% Percentage Interest.
SECTION 3. Admission of Each of Chadwick's, Leeway and NYNEX as a
------------------------------------------------------
Limited Partner and Amendment of Section 3.02 of the Partnership Agreement.
- --------------------------------------------------------------------------
(a) At the closing of the transactions contemplated under the
Subscription Agreement, and subject to the terms and conditions thereof, the
Partnership will issue to Leeway 500,000 Units at a price of $20.00 per Unit as
consideration for the $10,000,000 Capital Contribution made by Leeway with
respect to such Units. Upon the issuance of these Units, Leeway shall be
admitted as a Limited Partner of the Partnership. By its execution hereof, and
in consideration of the representations, covenants and agreements contained in
the Partnership Agreement, Leeway confirms and agrees that it shall be bound by
all of the provisions of the Partnership Agreement as amended by this Amendment
applicable to Limited Partners, and as amended from time to time.
To effectuate the foregoing, a new subsection (e) shall be added to
Section 3.02 as follows:
(e) As of the closing of the Subscription Agreement, Leeway shall
be admitted as a Limited Partner and the Partnership will issue
500,000 Units to Leeway at a price of $20.00 per Unit as consideration
for
4
<PAGE>
Leeway having made a Capital Contribution pursuant to the
Subscription Agreement of $10,000,000 with respect to such Units,
which amount shall be its initial Capital Account. As a result of the
foregoing, Leeway will have a 3.23% Percentage Interest.
(b) At the closing of the transactions contemplated under the
Subscription Agreement, and subject to the terms and conditions thereof, the
Partnership will issue to NYNEX 500,000 Units at a price of $20.00 per Unit as
consideration for the $10,000,000 Capital Contribution made by NYNEX with
respect to such Units. Upon the issuance of these Units, NYNEX shall be
admitted as a Limited Partner of the Partnership. By its execution hereof, and
in consideration of the representations, covenants and agreements contained in
the Partnership Agreement, NYNEX confirms and agrees that it shall be bound by
all of the provisions of the Partnership Agreement as amended by this Amendment
applicable to Limited Partners, and as amended from time to time.
To effectuate the foregoing, a new subsection (f) shall be added to
Section 3.02 as follows:
(f) As of the closing of the Subscription Agreement, NYNEX shall
be admitted as a Limited Partner and the Partnership will issue
500,000 Units to NYNEX at a price of $20.00 per Unit as consideration
for NYNEX having made a Capital Contribution pursuant to the
Subscription Agreement of $10,000,000 with respect to such Units,
which amount shall be its initial Capital Account. As a result of the
foregoing, NYNEX will have a 3.23% Percentage Interest.
(c) Upon Chadwick's election to convert the Note into Units, and
subject to the terms and conditions of the Note, the Partnership will issue to
Chadwick's the number of Units into which the Note shall have been duly and
validly converted. Upon such issuance of Units, Chadwick's shall be admitted as
a Limited Partner of the Partnership. By its execution hereof, and in
consideration of the representations, covenants and agreements contained in the
Partnership Agreement, Chadwick's confirms and agrees that it shall be bound by
all of the provisions of the Partnership Agreement as amended by this Amendment
applicable to Limited Partners, and as amended from time to time.
To effectuate the foregoing, a new subsection (g) shall be added to
Section 3.02 of the Partnership Agreement as follows:
(g) Upon the due and valid conversion of all or part of that
certain Convertible Subordinated Note in
5
<PAGE>
the principal amount of TWENTY MILLION DOLLARS ($20,000,000) issued by
the Partnership to Chadwick's, a Massachusetts corporation
("Chadwick's"), due 2006 (the "Note") in accordance with the terms of
the Note, Chadwick's shall be admitted as a Limited Partner and the
Partnership will issue to Chadwick's the number of Units into which
the converted portion shall have been duly and validly converted at a
conversion price of $27.50 per Unit (as adjusted pursuant to the terms
of the Note) up to 727,273 Units, and Chadwick's shall be treated as
having received the principal amount of the Note converted with
respect to such Units and as having made a Capital Contribution in
such amount, which amount shall be its initial Capital Account, which
shall be increased from time to time in connection with further
conversions of the Note, if any.
SECTION 4. Amendment of Section 3.04(d) of the Partnership Agreement.
---------------------------------------------------------
The last sentence of Section 3.04(d) shall be amended and restated as follows:
The rights of a Partner under this Section 3.04(d) shall terminate (i)
with respect to Lane Bryant, on the one hand, and the FS General
Partner and the FS Limited Partner, on the other hand, at such time as
Lane Bryant or the FS General Partner and the FS Limited Partner (as a
group), as the case may be, shall have sold at least one-half of the
Units held by such entity (in the case of Lane Bryant) or such group
(in the case of the FS Limited Partner and the FS General Partner) as
of the closing ("Closing") of the transactions contemplated by that
certain Asset Purchase Agreement by and among the TJX Companies, Inc.,
a Delaware corporation ("TJX"), Chadwick's and the Partnership dated
October 18, 1996 (the "Purchase Agreement") and (ii) with respect to
any other Partner, at such time as such Partner's Percentage Interest
shall be less than 10%; provided that the rights of each of WearGuard
--------
and Chadwick's under this Section 3.04(d) shall not terminate until
the Percentage Interest of WearGuard or Chadwick's, as applicable,
shall be less than 3% and 3%, respectively; provided further, that the
-------- -------
rights of Leeway or NYNEX, as applicable, under this Section 3.04(d)
shall not terminate until Leeway or NYNEX, as applicable, shall hold
less than
6
<PAGE>
50% of the Units it held as of the date of the Closing; and
provided further that Units retired in accordance with Section 8.09
-------- -------
shall be excluded from any determination under clause (i) of this
sentence.
SECTION 5. Amendment of Section 6.01 of the Partnership Agreement. A
------------------------------------------------------
new subsection (d) shall be added to Section 6.01 of the Partnership Agreement
as follows:
(d) Notwithstanding anything to the contrary contained in this
Section 6.01, the Partners expressly agree that the provisions of
Section 6.01(a) and 6.01(b) shall not apply to Chadwick's, TJX,
Leeway, NYNEX or any of their respective Subsidiaries or Affiliates.
SECTION 6. Amendment of Section 7.04 of the Partnership Agreement.
------------------------------------------------------
(a) A new clause shall be added to the end of subsection (a) of
Section 7.04 of the Partnership Agreement as follows:
provided that each of WearGuard and Chadwick's, regardless of its
--------
Percentage Interest, shall have rights under this Section 7.04(a),
which rights shall terminate when the Percentage Interest of each of
WearGuard and Chadwick's, as applicable, shall be less than 1.5% and
3.0%, respectively.
(b) A new subsection (f) shall be added to the end of Section
7.04 of the Partnership Agreement as follows:
(f) Notwithstanding anything contained in this Section 7.04 to
the contrary, each of Leeway and NYNEX, regardless of its Percentage
Interest, shall have rights under Sections 7.04(a), 7.04(b) and
7.04(d), which rights shall terminate when each of Leeway and NYNEX,
as applicable, shall hold less than 50% of the Units it held as of the
date of the Closing.
SECTION 7. Amendment of subsection (d) to Section 8.03 of the
--------------------------------------------------
Partnership Agreement. Subsection 8.03(d) of the Partnership Agreement shall be
- ---------------------
amended and restated as follows:
(d) Each of WearGuard, Leeway and NYNEX is entitled to receive
all notices of: (i) the time
7
<PAGE>
and place of any regularly scheduled or specially called meetings of
the Board or (ii) the time and place of any regularly scheduled or
specially called meetings of any committee of the Board. Additionally,
all information disseminated to the Board pertaining to any Board
meeting or to any unanimous written consent of the Board shall be
distributed to each of WearGuard, Leeway and NYNEX at the same time
and in the same manner as the distribution of such information to all
other members of the Board. Further, each of WearGuard, Leeway and
NYNEX shall be entitled to have one representative attend and
participate in all in-person and telephonic meetings of the Board and
all in-person and telephonic meetings of any committee of the Board,
in all cases as a nonvoting participant; provided, that this right
--------
shall not prohibit the holding of any meeting as long as each of
WearGuard, Leeway and NYNEX has been provided with the notice referred
to in the first sentence of this Section 8.03(d). The rights of
WearGuard pursuant to this Section 8.03(d) shall terminate when
WearGuard has sold more than 175,000 Units. The rights of Leeway or
NYNEX, as applicable, pursuant to this Section 8.03(d) shall terminate
when each of Leeway or NYNEX, as applicable, shall hold less than 50%
of the Units it held as of the date of the Closing. The rights granted
to each of WearGuard, Leeway and NYNEX under this Section 8.03(d) or
Section 7.04 shall not entitle WearGuard, Leeway nor NYNEX to receive
or have any access to any material non-public information concerning
the trademarks licensed under the Trademark License Agreement at any
time when WearGuard, ARAMARK, Leeway or NYNEX, or any of their
respective Affiliates, compete with any retail or catalogue business
conducted by The Limited or any of its Affiliates as of the Closing.
SECTION 8. Addition of Section 8.10 and Section 8.11 of the
------------------------------------------------
Partnership Agreement. A new Section 8.10 shall be added to the Partnership
- ---------------------
Agreement as follows:
8.10 Actions Related to VP Holding Preferred Stock.
---------------------------------------------
(a) Upon the sale of 75,000 shares of VP Holding Series A
Convertible Redeemable Preferred Stock (the "Preferred Stock") to
certain former employees
8
<PAGE>
of "Chadwick's of Boston" catalog division of TJX (the "Preferred
Stockholders") at a price of $20.00 per share, VP Holding shall
contribute to the Partnership (through FS General Partner or FS
Limited Partner, as the case may be) the aggregate $1,500,000 proceeds
of such sale.
(b) At the request of VP Holding, the Partnership shall
distribute funds to VP Holding (through FS General Partner or FS
Limited Partner) (at the rate of $20.00 (as adjusted for stock
dividends or splits) per share redeemed or repurchased) in order to
(i) permit VP Holding to redeem any shares of Preferred Stock as
required or permitted by the terms of the Preferred Stock or (ii)
repurchase any shares of Preferred Stock or common stock of VP Holding
from the Preferred Stockholders pursuant to a right of first refusal.
Prior to the Initial Public Offering, in the event VP Holding is
required to redeem shares under the terms of the Preferred Stock the
Partnership agrees for the benefit of the Preferred Stockholders that
it shall distribute the required funds (up to $20.00 per share of
Preferred Stock) to VP Holding to make such redemption. In the event
that the Preferred Stock is exchanged for the preferred stock of
another corporation, prior to such corporation's initial public
offering, in the event it is required to redeem shares of such
preferred stock the Partnership agrees for the benefit of the
Preferred Stockholders that it shall distribute the required funds to
make such redemption.
(c) Immediately upon any conversion of shares of Preferred Stock
into common stock of VP Holding pursuant to the terms of the Preferred
Stock, the Partnership shall issue to FS General Partner or the FS
Limited Partner, as the case may be, a number of Units equal to the
number of shares of common stock of VP Holding issued upon such
conversion (based on a ratio of one (1) share of common stock of VP
Holding to one (1) Unit); provided that the number of Units to be
--------
issued pursuant to this Section 8.10(c) shall be adjusted as
appropriate to reflect any stock dividends, stock splits, reverse
stock splits or similar actions with respect to the capital stock of
VP Holding or analogous actions with respect to Units. Upon any
distribution to FS General
9
<PAGE>
Partner or FS Limited Partner referred to in clause (b)(ii) above with
respect to a repurchase of common stock of VP Holding, the Partnership
shall retire a number of Units held by the FS General Partner or FS
Limited Partner, as the case may be, equal to the number of shares of
common stock of VP Holding repurchased with the funds so distributed;
provided that the number of Units to be retired shall be adjusted as
appropriate to reflect any stock dividends, stock splits, reverse
stock splits or similar actions with respect to the capital stock of
VP Holding or analogous actions with respect to Units.
(d) No issuance of Units in accordance with Section 8.10 shall
cause the Partners to lose any rights set forth in Section 3.04, 7.04,
8.01, 8.02, 8.03 or Article IX where such party would have retained
such rights but for such issuance of Units.
A new Section 8.11 shall be added to the Partnership Agreement as
follows:
8.11 ERISA Matters.
-------------
If the Partnership (a) has knowledge that any assets of the
Partnership will be treated as "plan assets" (within the meaning of
Department of Labor regulations 29 CFR (S) 25103-101), (b) proposes to
enter into a transaction which, to the Partnership's knowledge, could
result in the Partnership's assets (or any portion thereof) being
treated as plan assets, or (c) has knowledge that the continued
ownership of the Units by NYNEX or Leeway constitutes or results in
any non-exempt prohibited transaction under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the Internal
Revenue Code of 1986, as amended (the "Code"), or any other violation
under ERISA, the Partnership shall consult with Leeway and NYNEX and
together endeavor to take such commercially reasonable actions or
structure such transaction in a commercially reasonable manner which
would avoid such treatment; provided, however, that the Partnership
-------- -------
shall have no obligation to take any action or structure any
transaction to avoid such treatment if the Partnership determines, in
its sole discretion, that it is not in the interests of the
Partnership to do so.
10
<PAGE>
Notwithstanding the foregoing, if the Partnership has knowledge that
the Partnership's assets will be treated as plan assets or that the
ownership of the Units by NYNEX or Leeway constitutes or results in
any non-exempt prohibited transactions under ERISA or the Code, or any
other violation under ERISA, the Partnership shall promptly advise
Leeway and NYNEX of such fact.
SECTION 9. Amendment of Sections 9.03, 9.05, 9.06 and 9.08 of the
------------------------------------------------------
Partnership Agreement.
- ---------------------
(a) A new sentence shall be added to the end of Section 9.03(a)
as follows:
Notwithstanding anything to the contrary herein, (A) Leeway may
Transfer all or any portion of its Units to a successor trust or plan
(each, a "Leeway Assignee," and collectively with Leeway, the "Leeway
Group") 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 (i) such Transfer shall not
materially adversely affect the legal or tax status of the
Partnership, (ii) such Transfer does not result in an increase of more
than one beneficial owner of Units for purposes of Section 3(C)(1) of
the Investment Company Act of 1940 or an increase of more than one
Partner of the Partnership for purposes of Treasury Regulation Section
1.7704-1(h), subject to Sections 9.01 and 9.06 and (B) NYNEX may
transfer all of its Units to a successor trust or a plan as a result
of, or in connection with, the consummation of the proposed merger of
Bell Atlantic and NYNEX Corporation, subject to Sections 9.01 and
9.06.
(b) A new sentence shall be added to the end of Section 9.05(e)
as follows:
After the Drag Along/Tag Along Date, notwithstanding anything
contained in this Section 9.05(e) to the contrary, in the event the
Eligible Purchasers collectively elect to purchase all of the Offered
Units with respect to any Offer Notice delivered by the FS General
Partner or the FS Limited Partner ("FS Offered Units"), each of
WearGuard, Leeway and NYNEX shall nonetheless have a Tag Along Right
with respect to such FS Offered Units
11
<PAGE>
and the Eligible Purchasers shall be obligated, with respect to the
exercise by WearGuard, Leeway and/or NYNEX of its Tag Along Right, to
purchase the Units of WearGuard, Leeway or NYNEX, as the case may be.
(c) A new sentence shall be added to the end of Section 9.06(f)
of the Partnership Agreement as follows:
In the event WearGuard, Leeway or NYNEX is required to Transfer their
Units as a result of a Partner exercising its rights under Section
9.05(b), none of WearGuard, Leeway or NYNEX shall be required to make
any representation or warranty in connection with such Transfer other
than as to such Person's valid ownership of its Units, free and clear
of all liens and encumbrances other than those arising under
applicable securities laws, and such Person's authority, power and
right to enter into and consummate such Transfer without violating any
other agreement or instrument.
(d) The last sentence of Section 9.08 of the Partnership
Agreement shall be amended and restated as follows:
Notwithstanding anything to the contrary contained in this Section
9.08, each of WearGuard, Leeway, NYNEX and Chadwick's, regardless of
the Percentage Interest any of them then holds in the Partnership,
shall at all times have the Tag Along Right set forth in Section
9.05(e) available to Partners with a Percentage Interest of 10% or
more as provided in clause (iii) of this Section 9.08. The
Partnership shall provide 40 days notice to Chadwick's of any
transaction in which the Tag Along Rights set forth in Section 9.05(e)
may be exercised by holders of Units.
SECTION 10. Restrictions on Transferability of the Note. A new
-------------------------------------------
subsection (g) shall be added to Section 9.06 of Partnership Agreement as
follows:
(g) Notwithstanding anything to the contrary contained in this
Article IX, Chadwick's, the Note and any Transferee of the Note (or
any portion thereof) shall be subject to the transferability
restrictions, terms and conditions set forth in Sections 9.01, 9.03,
9.04 and 9.06 hereof applicable to Limited Partners as if Chadwick's
12
<PAGE>
were a Limited Partner and the Note were Units. In applying the
provisions of such Sections to Chadwick's, the Note (or portion
thereof) and any Transferee of the Note (or portion thereof), (i) all
terms applicable to Limited Partners in such Sections shall be
applicable to Chadwick's and any Transferee of the Note (or portion
thereof), (ii) the term "Unit" or "Units" shall be replaced by the
term "Note" or "Note Portion," as the context requires, (iii) the term
"Offered Units" shall be replaced by the term "Offered Note Portion,"
and (iv) the term "Remaining Offered Units" shall be replaced by the
term "Remaining Note Portion." As a condition precedent to any
Transfer of the Note (or portion thereof), each Transferee (if not
already a party hereto) shall execute and deliver to each party hereto
an instrument or instruments substantially in the form of Attachment A
or otherwise reasonably satisfactory to such parties confirming that
the Transferee agrees to be bound by the terms of (i) this Agreement
applicable to the transferor of the Note (or portion thereof) to be
Transferred and (ii) that certain First Amended and Restated
Incorporation and Exchange Agreement dated as of December 9, 1996 by
and among 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, Lane Bryant Direct Holding, Inc., a Delaware
corporation, The Limited, Inc., a Delaware corporation, Chadwick's,
Leeway & Co. as nominee for the Long-Term Investment Trust, and NYNEX
Master Trust and Brylane Inc., a Delaware corporation (as amended from
time to time, the "Incorporation Agreement"), as such Incorporation
Agreement may be amended from time to time (including the exhibits
thereto), in the same manner and to the extent applicable to the
transferor of the Note. The provisions of this subsection 9.06(g)
shall not apply to any Transfer of the Note to a controlled Affiliate
of TJX, provided that such controlled Affiliate Transferee, prior to
--------
such Transfer, agrees in writing to be bound by all of the provisions
of (i) the Partnership Agreement, as amended from time to time, and
(ii) the Incorporation Agreement (including the exhibits thereto).
13
<PAGE>
SECTION 11. Amendment of Section 10.01(b) of the Partnership
------------------------------------------------
Agreement. The last sentence of Section 10.01(b) of the Partnership Agreement
- ---------
shall be amended by adding the following language of the end thereof and a new
sentence shall be added as follows:
and none of Chadwick's, WearGuard, Leeway nor NYNEX shall be required
to act in accordance with clauses (i) and (ii) above if the FS General
Partner, the FS Limited Partner and the Freeman Spogli Funds shall
have determined, in their sole discretion, that the FS General
Partner, the FS Limited Partner and the Freeman Spogli Funds are not
required to and do not act in accordance with clauses (i) and (ii)
above. Notwithstanding anything contained in this Article X to the
contrary, the FS General Partner will consult, discuss and analyze
with each of Chadwick's, Leeway and NYNEX prior to finalizing the
structure of any transaction (each, a "Different Transaction")
contemplated under this Section 10.01(b) (other than the transaction
contemplated in the Incorporation Agreement) in order to assess the
tax impact such Different Transaction would have on each of
Chadwick's, Leeway and NYNEX in an effort to avoid any material
detriment to the tax position of Chadwick's, Leeway or NYNEX;
provided, however, that in the event that any advice, request or
-------- -------
desire of either Chadwick's, Leeway or NYNEX with respect to the
structure of any such Different Transaction is for any reason not
reflected in or accommodated by the final structure (approved by the
FS General Partner and Lane Bryant) of such Different Transaction
contemplated under this Section 10.01(b), each of Chadwick's, Leeway
and NYNEX shall nonetheless be bound by the provisions of this Article
X.
SECTION 12. Amendment of Section 10.01(d) of the Partnership
------------------------------------------------
Agreement. Section 10.01(d) of the Partnership Agreement shall be amended and
- ---------
restated as follows:
(d) If the Freeman Spogli Funds or any Affiliate or Affiliates of
the Freeman Spogli Funds holding stock of Newco (the "FS Stockholder")
elect to distribute any or all of their shares of Newco in the Initial
Public Offering, each of (i) the Affiliate or Affiliates of The
Limited holding stock of Newco (the "Limited Stockholder"), (ii)
WearGuard, (iii) Chadwick's,
14
<PAGE>
(iv) Leeway and (v) NYNEX shall have a right to distribute a pro rata
portion (based on the proportion that the shares the FS Stockholder
seeks to distribute in the Initial Public Offering bears to the total
shares then held by the FS Stockholder) of its or their shares of
Newco in such Initial Public Offering.
SECTION 13. Amendment of Section 10.02 of the Partnership Agreement.
-------------------------------------------------------
Clause (ii) of Section 10.02 of the Partnership Agreement shall be amended and
restated as follows:
(ii) the FS Stockholder, the Limited Stockholder, WearGuard, Leeway,
NYNEX and Chadwick's shall enter into a Registration Rights Agreement
substantially in the form of Exhibit 4.03A to the Incorporation
-------------
Agreement (the "Registration Rights Agreement") and a Stockholders
Agreement substantially in the form of Exhibit 4.03B to the
-------------
Incorporation Agreement (the "Stockholders Agreement"), it being
understood and agreed that there will be no restrictions on, or rights
with respect to transfers of, the Note or equity interests in Newco,
except as set forth in such Registration Rights Agreement and
Stockholders Agreement.
SECTION 14. Amendment of Section 13.02 of the Partnership Agreement.
-------------------------------------------------------
A new sentence shall be added to the end of Section 13.02 of the Partnership
Agreement as follows:
Notwithstanding anything to the contrary contained in this Section
13.02, any amendment to this Agreement which would adversely affect
the specific rights of Leeway, NYNEX or Chadwick's as set forth in
this Agreement, the Note, the Registration Rights Agreement, the
Incorporation Agreement or the Stockholders Agreement shall require
the prior written consent of Leeway, NYNEX or Chadwick's,
respectively, with regard to any such amendment; provided, however,
--------
that any issuance of Units in accordance with the terms of this
Agreement and grant of additional rights to the holder of such Units
in connection therewith is not prohibited by the foregoing (if not
prohibited by this Agreement, the Note, the Registration Rights
Agreement, the Incorporation Agreement or the Stockholders Agreement);
and provided
--------
15
<PAGE>
further that 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.
SECTION 15. Change of Measurement Date for Termination of Rights.
----------------------------------------------------
Notwithstanding anything contained herein or in the Partnership Agreement to the
contrary, the parties hereto hereby agree that in applying the provisions of the
Partnership Agreement where the rights of a Partner or group terminate if such
party has sold more than a certain number or percentage of the Units it held "as
of the date hereof," as of "August 30, 1993," as of "the date of the Partnership
Agreement" or as of dates similarly phrased, the date "August 30, 1993" shall be
replaced by the date of the Closing and the phrases "as of the date hereof," "as
of the date of the Partnership Agreement" and all similar phrases shall be
replaced by the phrase "as of the Closing."
SECTION 16. No Violation of Section 6.01 or Section 3.3(b). All
----------------------------------------------
parties hereto hereby expressly consent to the purchase of substantially all of
the assets of the Division and agree and acknowledge that such purchase and
operation of the business of the Division substantially as the Division is
operated as of the date hereof will not violate Section 6.01 of the Partnership
Agreement and will not violate Section 3.3(b) of the Stockholders Agreement.
The Limited also expressly approves and consents to all Sections hereof.
SECTION 17. Waiver of Rights Under Section 3.04(d); Tag Along Rights.
--------------------------------------------------------
(a) Each of The Limited and Lane Bryant hereby expressly waives its
rights under Section 3.04(d) of the Partnership Agreement with respect to (i)
the Units issued to FS Limited Partner, WearGuard, Leeway and NYNEX pursuant to
the Subscription Agreement and Sections 2 and 3 hereof, (ii) to the Units that
may be issued to Chadwick's upon conversion of the Note pursuant to Section 3
hereof and (iii) Units that may be issued to FS General Partner and/or FS
Limited Partner upon conversion of the VP Holding Preferred Stock as
contemplated by Section 8 hereof.
(b) Each of the parties hereto and The Limited agrees and acknowledges
that the Freeman Spogli Funds have granted to (i) certain employees of the
Partnership and/or its subsidiaries, (ii) Leeway and (iii) NYNEX Trust certain
tag along rights ("FS Tag Along Rights") with respect to the Units indirectly
held by the Freeman Spogli Funds, which FS Tag Along Rights are exercisable
prior to the Tag Along/Drag Along Date. In the event of a transfer of Units by
the FS General Partner and/or the FS Limited Partner (directly or indirectly)
prior to the Tag Along/Drag Along Date with respect to which Lane Bryant desires
to exercise its Right of First Offer set forth in Section 9.04 or the Limited's
Right of First Refusal in Section 9.04, or their Tag Along Right set forth in
Section 9.05(e) of the Partnership Agreement, then the number of Units sold
(directly or indirectly) by each of
16
<PAGE>
FS General Partner, FS Limited Partner, Lane Bryant or WearGuard, as the case
may be, shall be reduced to accommodate the FS Tag Along Rights.
SECTION 18. Consent by Brylane Inc. and the Freeman Spogli Funds.
----------------------------------------------------
Brylane Inc. and the Freeman Spogli Funds hereby expressly approve and consent
to all Sections of this Amendment.
SECTION 19. Assignment of Rights and Obligations. Notwithstanding
------------------------------------
anything contained herein or in the Partnership Agreement to the contrary, each
of WearGuard, Leeway and NYNEX may (i) assign their rights under Section 9.05
and Section 9.06(f) of the Partnership Agreement to one purchaser of more than
50% of the Units then held by such Person (or, in the case of the Leeway Group,
to one purchaser of more than 50% of the Units then collectively held by the
Leeway Group) and (ii) Transfer its Units to a controlled Affiliate of
WearGuard, Leeway and NYNEX, as the case may be, subject to Sections 9.01 and
9.06 (but not subject to Sections 9.03, 9.04 and 9.05) of the Partnership
Agreement, provided that, prior to any such assignment or Transfer, each such
assignee Person or controlled Affiliate transferee, as the case may be, shall
enter into a written agreement to be bound by the terms and conditions of this
Amendment, the Partnership Agreement and the Incorporation Agreement (including
all exhibits thereto) applicable to WearGuard, Leeway and NYNEX, as the case may
be, and provided, further, that their respective rights, if any, under Sections
-------- -------
3.04(d), 7.04 and 8.03(d) may not be assigned.
SECTION 20. Transaction Agreement. Each of Chadwick's, WearGuard,
---------------------
Leeway and NYNEX is hereby expressly made a third party beneficiary to Section
7.04 of the Transaction Agreement.
SECTION 21. Governing Law. This Amendment 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.
SECTION 22. Effectiveness. This Amendment shall become effective, if
-------------
at all, only on the date of Closing (as such term is defined in the Purchase
Agreement).
SECTION 23. Counterparts. This Amendment may be executed in
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
BRYLANE, L.P.,
a Delaware limited partnership
By: VGP Corporation
Its General Partner
By: /s/ John M. Roth
-----------------------
Name: John M. Roth
---------------
Title: President
--------------
VGP CORPORATION,
a Delaware corporation
By: /s/ John M. Roth
-----------------------
Name: John M. Roth
---------------
Title: President
--------------
VLP CORPORATION,
a Delaware corporation
By: /s/ John M. Roth
--------------------------------
Name: John M. Roth
-------------------------
Title: President
------------------------
LANE BRYANT DIRECT, INC.,
a Delaware corporation
By: LANE BRYANT DIRECT HOLDING, INC.,
a Delaware corporation,
Its: Successor in Interest
By: /s/ William K. Gerber
--------------------------------
Name: William K. Gerber
-------------------------
Title: Vice President
------------------------
18
<PAGE>
WEARGUARD CORPORATION,
a Delaware corporation
By: /s/ Barbara A. Austell
--------------------------------
Name: Barbara A. Austell
-------------------------
Title: Treasurer
------------------------
CHADWICK'S, INC.,
a Massachusetts corporation
By: /s/ Donald G. Campbell
--------------------------------
Name: Donald G. Campbell
-------------------------
Title: 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/ John Muir
---------------------------------
Name: John Muir
--------------------------
Title: Assistant Vice President
-------------------------
19
<PAGE>
MASTER NYNEX TRUST
By: Mellon Bank, N.A., as Trustee for NYNEX
Master Trust, as directed by NYNEX
Corporation
By: /s/
--------------------------------
Name:
-------------------------
Title: Vice President
------------------------
For Purposes of Sections 16 and 17 only:
THE LIMITED,
a Delaware corporation
By: /s/ William K. Gerber
----------------------------------
Name: William K. Gerber
---------------------------
Title: Vice President of Finance
--------------------------
For Purposes of Section 18 only:
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: /s/ John M. Roth
--------------------------------
Name: John Roth
Title: Vice President
------------------------
20
<PAGE>
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 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 Roth
Title: Vice President
------------------------
21
<PAGE>
EXHIBIT 3.16
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VP HOLDING CORPORATION
VP Holding Corporation (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the Board of Directors of the Company (the "Board")
-----
adopted resolutions proposing and declaring advisable the amendment to the
Company's Certificate of Incorporation set forth below, and that such amendment
was approved by written consent of a majority of the stockholders of the Company
and notice was provided to the stockholders pursuant to the applicable
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
SECOND: Paragraph Fourth is deleted entirely and replaced with a new
------
Paragraph Fourth that shall read in its entirety as follows:
"Fourth: (a) The total number of shares of stock which the
Corporation shall have authority to issue is ten million five hundred
thousand (10,500,000), consisting of ten million (10,000,000) shares
of common stock, $0.01 par value per share, and five hundred thousand
(500,000) shares of preferred stock, $0.01 par value per share.
(b) The preferred stock authorized by this Certificate
of Incorporation may be issued from time to time in series. The Board
of Directors is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to and imposed upon
any series of preferred stock with respect to any wholly unissued
series of preferred stock, and to fix the number of shares of any
series of preferred stock and the designation of any series of
preferred stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series."
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed this 5th day of December 1996.
VP HOLDING CORPORATION,
a Delaware corporation
/s/ John M. Roth
-------------------------------------
By: John M. Roth
Its: President
2
<PAGE>
EXHIBIT 3.17
CERTIFICATE OF DESIGNATION
OF
THE SERIES A CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
VP HOLDING CORPORATION
----------------------
VP Holding Corporation, a corporation organized and existing under the
Delaware General Corporation Law (the "Corporation"), hereby certifies that the
following resolutions were adopted as of December 6, 1996 by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board of Directors")
by the provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 500,000
shares of Preferred Stock of the Corporation authorized in Article IV of the
Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred
Stock consisting of 75,000 shares, which series shall have the following powers,
designations, preferences and relative, participating, optional or other rights,
and the following qualifications, limitations and restrictions (in addition to
the powers, designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations and restrictions, set forth in
the Certificate of Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount. The shares of such series shall be
---------------------
designated as "Series A Convertible Redeemable Preferred Stock" (the "Series A
Preferred Stock") and the authorized number of shares constituting such series
shall be 75,000 shares. The par value of the Series A Preferred Stock shall be
$.01 per share.
Section 2. Dividends.
---------
The holders of shares of the Series A Preferred Stock will not be
entitled to receive dividends payable in cash or property (other than such stock
dividends, reclassifications or splits with respect to the Series A Preferred
Stock as may be declared by the Board of Directors in its sole discretion).
Section 3. Redemption at Corporation's Option.
----------------------------------
(a) The shares of the Series A Preferred Stock will be redeemable at
the option of the Corporation by resolution of its Board of Directors, in whole
or from time to time in part, at any time with respect to shares of Series A
Preferred Stock that will always be Unvested Shares (as defined in Section
8(a)), subject to the limitations set forth below, at a redemption price of
$20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits), upon giving notice as provided below. It is the
intent of this provision that redemption not be permitted with
<PAGE>
respect to shares of Series A Preferred Stock that may, in the future, vest in
accordance with Section 8.
(b) Subject to the foregoing, the number of shares to be redeemed
shall be determined by the Board of Directors in its sole discretion.
Redemption shall be on a pro rata basis among all holders of Series A Preferred
Stock. Once the Corporation has mailed a notice of redemption pursuant to this
Section 3 (as described below), such holder(s) may not exercise any rights under
Section 6.
(c) At least 10 days but not more than 30 days prior to the date fixed
for the redemption of shares of the Series A Preferred Stock, a written notice
shall be mailed to each holder of record of shares of the Series A Preferred
Stock to be redeemed in a postage prepaid envelope addressed to such holder at
his post office address as shown on the records of the Corporation, notifying
such holder of the election of the Corporation to redeem such shares, stating
the dated fixed for redemption thereof (an "Optional Redemption Date"), and
calling upon such holder to surrender to the Corporation on the Optional
Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Optional Redemption Date each holder of shares of
the Series A Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at the place
designated in such notice and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less that all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Optional Redemption
Date, all rights of the holders thereof as stockholders of the Corporation,
except the right to receive the redemption price of such shares, without
interest, upon the surrender of certificates representing the same, shall cease
and terminate and such shares shall not thereafter be transferred on the books
of the Corporation, and such shares shall not be deemed to be outstanding for
any purpose whatsoever.
(d) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 3 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to series until such shares are once more designated as part of a particular
series of the Preferred Stock.
Section 4. Redemption at Holder's Option.
-----------------------------
(a) At the request of the holder thereof, subject to Section 4(b), the
Corporation shall, to the extent permitted by law and from funds legally
available therefor, redeem at the redemption price of $20.00 per share (as
appropriately adjusted for stock dividends, reclassifications or splits) any
Vested Share (as defined in Section 8(a)) of Series A Preferred Stock on the
third
2
<PAGE>
anniversary of the closing of transactions contemplated by that certain Asset
Purchase Agreement dated October 18, 1996 among TJX Companies, Inc., Chadwick's,
Inc. and Brylane, L.P. (the "Closing Date"); provided that no request for
redemption under this Section 4 may be made after 4:30 p.m. New York City time
on the date that is the third anniversary of the Closing Date. Each holder of
Vested Shares of the Series A Preferred Stock to be redeemed shall present and
surrender his certificate or certificates for such shares to the Corporation at
the time the request for redemption is made and, subject to Section 4(b),
promptly after the third anniversary of the Closing Date the redemption price of
such shares shall be paid to or on the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled (the date of any such payment being the
"Mandatory Redemption Date"). From and after the Mandatory Redemption Date, all
rights of the holder of Series A Preferred Stock requesting redemption as a
stockholder of the Corporation, except the right to receive the redemption price
(without interest) of such shares upon the surrender of certificates
representing the same, shall cease and terminate and such shares shall not
thereafter be transferred on the books of the Corporation, and such shares shall
not be deemed to be outstanding for any purpose whatsoever.
(b) If, on the Mandatory Redemption Date, the funds of the Corporation
legally available for such redemption shall be insufficient to redeem all Vested
Shares required to be redeemed, funds to the maximum extent legally available
for such purposes shall be utilized to redeem the maximum number of outstanding
Vested Shares on such date on a pro rata basis among the requesting holders of
Vested Shares and thereafter the Corporation shall continue to redeem such
shares (on a pro rata basis) as promptly as practicable after funds are legally
available therefor.
(c) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 4 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to the series until such shares are once more designated as part of a particular
series of the Preferred Stock.
Section 5. Voting Rights.
-------------
Except as required by Delaware law, the holders of shares of the
Series A Preferred Stock shall not be entitled to vote on any matter.
Section 6. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation and
any preferential distribution with respect to any other class or shares of the
Corporation ranking senior with respect to rights upon liquidation or
dissolution of the Corporation to the Series A Preferred Stock, the holders of
shares of the Series A
3
<PAGE>
Preferred Stock shall be entitled to receive out of the remaining net assets of
the Corporation, the amount of $20.00 (as appropriately adjusted for stock
dividends, reclassifications or splits) for each share of the Series A Preferred
Stock, before any distribution shall be made to the holders of the Common Stock
with respect to payments upon dissolution or liquidation of the Corporation. If
upon any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of the
outstanding shares of Series A Preferred Stock shall be insufficient to permit
the payment to such stockholders of the full preferential amounts aforesaid,
then the entire assets of the Corporation to be distributed shall be distributed
ratably among the holders of outstanding shares of Series A Preferred Stock
based on the full preferential amounts for the number of outstanding shares of
Series A Preferred Stock held by each holder.
(b) For purposes of this Section 6, a dissolution, winding up or
liquidation shall not include (i) any consolidation or merger of the Corporation
with or into any other corporation or entity or a plan of exchange between the
Corporation and any other corporation or entity or (ii) a sale or other
disposition of all or substantially all of the Corporation's assets to another
corporation or entity.
(c) After the payment of the full preferential amounts provided for
herein to the holders of shares of the Series A Preferred Stock or funds
necessary for such payment have been set aside in trust for the holders thereof,
such holders shall be entitled to no other or further participation in the
distribution of the assets of the Corporation.
Section 7. Redemption Upon Change of Control.
---------------------------------
(a) Subject to Section 7(d), in the event of a Change of Control (as
defined below) (the date of such occurrence, the "Change of Control Date"), each
Vested Share shall, at the option of the holder thereof, either (i) be redeemed
by the Corporation at a price of $20.00 per share (as appropriately adjusted for
stock dividends, reclassifications or splits) or (ii) be converted into Common
Stock of the Corporation at the Conversion Ratio (as defined below); provided,
however, that shares that are not Vested Shares will not be convertible at the
option of the holder thereof and shall be redeemed by the Corporation at a price
of $20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits). A "Change of Control" shall have occurred for
purposes of this Section 7(a) upon the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than
Permitted Holders (as defined below), is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have beneficial ownership of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of all classes of Voting Equity Interests (as defined below)
of the Corporation, Brylane, L.P. (the "Partnership") or the Partnership's
general partner; provided that the Permitted Holders do not have the right or
--------
ability by voting power, contract or otherwise to
4
<PAGE>
elect or designate for election a majority of the Board of Representatives or
Directors provided, further, that unless the Compensation Committee of the
-------- -------
Partnership shall otherwise determine prior to the acquisition of such majority
ownership, such acquisition of ownership shall not constitute a Change of
Control if an Original Purchaser or an Executive Related Party is the person or
a member of a group constituting the person acquiring such ownership; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Representatives or Directors (together with
any new members of the Board of Representatives or Directors whose election to
such Board or whose nomination for election by the holders of Equity Interests
(as defined below) of the Partnership or the Corporation was approved by (a) a
Permitted Holder or (b) a vote of at least 66 2/3% of the members of the Board
of Representatives or Directors then still in office who were either members of
the Board of Representatives or Directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Representatives or
Directors then in office; (iii) the Partnership or its general partner or the
Corporation consolidates with or merges with or into any person or entity or
conveys, transfers or leases all or substantially all of its assets to any
person or entity, or any corporation or partnership or entity consolidates with
or merges into or with the Partnership or its general partner or the
Corporation, in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Partnership or its general partner or
the Corporation are changed into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Equity
Interests of the Partnership or its general partner or the Corporation are not
changed or exchanged at all (except to the extent necessary to reflect a change
in the jurisdiction of incorporation of the Partnership or its general partner
or the Corporation or where (A) the outstanding Voting Equity Interests of the
Partnership or its general partner or the Corporation are changed into or
exchanged for (x) Voting Equity Interests of the surviving corporation or
entity, or (y) cash, securities and other property (other than Equity Interests
of the surviving corporation or entity) and (B) no "person" or "group" other
than Permitted Holders owns immediately after such transaction, directly or
indirectly, more than the greater of (1) 50% of the total outstanding Voting
Equity Interests of the surviving corporation or entity, and (2) the percentage
of the outstanding Voting Equity Interests of the surviving corporation or
partnership or entity owned, directly or indirectly, by Permitted Holders
immediately after such transaction); or (iv) the sale or other disposition by
the Partnership, in one transaction or a series of related transactions (but not
including a disposition that is part of any sale-and-leaseback or similar
financing transactions), of assets aggregating more than thirty percent (30%) of
the assets of the Partnership's Chadwick's of Boston business (taken at the
values as stated on the books of the Partnership determined in accordance with
generally accepted accounting principles consistently applied), or responsible
for generating more than thirty percent (30%) of the net sales of the
Partnership's Chadwick's of Boston business; provided, that unless otherwise
--------
determined by the Compensation Committee of the Partnership, no transaction
described above shall constitute a Change of Control with respect to the shares
of Series A Preferred Stock issued to an Original Purchaser if, immediately
after such transaction, such Original Purchaser (as defined in Section 8(a)) or
any Executive Related Party (as defined below) shall own Equity Interests of any
surviving corporation or entity
5
<PAGE>
("Surviving Entity") having a fair value as a percentage of the fair value of
the Equity Interests of such Surviving Entity greater than 125% of the fair
value of the Equity Interests of the Partnership and/or the Corporation owned by
such Original Purchaser and any Executive Related Party immediately prior to
such transaction, expressed as a percentage of the fair value of all Equity
Interests of the Partnership and/or the Corporation immediately prior to such
transaction; provided, further, that for purposes of this definition, if a
-------- -------
transaction agreement requires as a condition precedent approval by the
equityholders of the Partnership and/or the Corporation of the transaction or
related agreement, a Change of Control shall not be deemed to have taken place
unless such approval is secured and the transaction is consummated.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred as a result of (i) a transaction
pursuant to which the Corporation and/or Partnership and/or its general partner
is reorganized or reconstituted as a corporation or other entity, or a
corporation or other entity becomes the direct or indirect parent entity of the
Partnership, its general partner and/or the Corporation, or (ii) any sale of
Equity Interests in a public offering.
"Equity Interest" in any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents or
interest in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such person.
"Executive Related Party" shall mean any affiliate or associate of an
Original Purchaser other than the Corporation or the Partnership, or an
affiliate of the Partnership or the Corporation. The terms "affiliate" and
"associate" shall have the meanings ascribed thereto in Rule 12b-2 under the
Exchange Act (the term "registrant" in the definition of "associate" meaning, in
this case, the Partnership or the Corporation).
"Permitted Holders" means (i) The Limited, Inc., a Delaware
corporation, and any of its affiliates, (ii) Freeman Spogli & Co., a California
general partnership, and any of its affiliates, (iii) WearGuard Corporation, a
Delaware corporation, and any of its affiliates, (iv) Chadwicks, Inc. (v) Leeway
& Co., as nominee for The AT&T Long-Term Investment Trust ("ATT") and the
affiliates and permitted assignees of ATT (vi) NYNEX Master Trust and its
affiliates and permitted assignees and (vii) the Corporation (with respect to
the general partner of the Partnership); provided that Brylane, L.P. and it
--------
subsidiaries shall not be deemed affiliates of The Limited, Inc., Freeman Spogli
& Co., WearGuard Corporation, Chadwick's, Inc., Leeway & Co., as nominee for The
AT&T Long-Term Investment Trust and NYNEX Master Trust for purposes of this
definition.
"Voting Equity Interests" means Equity Interests of the class or
classes pursuant to which the holders thereof have (i) in respect of a
corporation, the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time Equity Interests of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency) or (ii) in
6
<PAGE>
respect of limited liability company or other entity the general voting power
under ordinary circumstances to elect the board of directors or other governing
board of such entity.
(b) The Corporation shall notify the holders of Series A Preferred
Stock in writing of the occurrence of a Change of Control (i) within 15 days
after a Change of Control caused by an event described in clauses (i) or (ii) of
the definition of Change of Control above or (ii) 15 days prior to Change of
Control caused by an event described in clauses (iii) or (iv) of the definition
of Change of Control above. The Corporation shall either (i) redeem, subject to
subsection (d) below, shares of Series A Preferred Stock at a redemption price
equal to $20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits) or (ii) convert shares of Series A Preferred Stock
into shares of common stock at the Conversion Ratio. Subject to the proviso in
the first sentence of Section 7(a), holders of Series A Preferred Stock shall
have five days from receipt of such notice to elect to have shares redeemed or
converted. The Corporation shall have no obligations under this Section 7 to
redeem or convert shares of Series A Preferred Stock unless the event causing
the Change of Control is consummated. Shares to be redeemed or converted shall
be delivered with the holder's election together with any completed transfer
documents reasonably required by the Board of Directors of the Corporation.
(c) All shares of Series A Preferred Stock from and after the Change
of Control Date (unless default shall be made by the Corporation in redeeming
the shares of the Series A Preferred Stock so delivered), shall no longer be
deemed to be issued and outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price or the shares of Common Stock issued upon
conversion) shall cease and terminate.
(d) If, on the Change of Control Date, the funds of the Corporation
legally available for such redemption shall be insufficient to redeem all
outstanding shares of Series A Preferred Stock funds to the maximum extent
legally available for such purposes shall be utilized to redeem the maximum
number of outstanding shares of Series A Preferred Stock on such date on a pro
rata basis among the holders of all outstanding shares of Series A Preferred
Stock that have requested redemption or whose shares are required to be redeemed
hereunder and thereafter the Corporation shall continue to redeem such shares
(on a pro rata basis) as promptly as practicable after funds are available
therefor.
(e) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 7 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to the series until such shares are once more designated as part of a particular
series of the Preferred Stock.
7
<PAGE>
Section 8. Conversion. The shares of Series A Preferred Stock shall
----------
have the following conversion rights.
(a) Definitions.
(i) "Vested Shares" with respect to shares of Series A Preferred
Stock issued to an Original Purchaser shall mean:
12,500 shares of Series A Preferred Stock on and after the
first anniversary of the Closing Date; plus 12,500 shares of
----
Series A Preferred Stock on and after the second anniversary
of the Closing Date (for an aggregate of 25,000 Vested
Shares); plus 12,500 shares of Series A Preferred Stock on
----
the third anniversary of the Closing Date (for an aggregate
of 37,500 Vested Shares)(all such share amounts as
appropriately adjusted for stock dividends or splits).
Shares of Series A Preferred Stock shall not vest if an
Original Purchaser is not employed by the Partnership on a
vesting date, unless his or her employment (A) has been
terminated by the Partnership other than for Cause (in which
case all unvested shares will immediately vest), (B) has
terminated due to the Original Purchaser's death or
Disability or Incapacity (in which case all unvested shares
will immediately vest) or (C) has been terminated by the
Original Purchaser for Good Reason (in which case all
unvested shares will immediately vest). In the event an
Original Purchaser is then employed by the Partnership and
there is a Change of Control, all shares of Series A
Preferred Stock originally issued to such Original Purchaser
shall immediately become "Vested Shares" if not already
vested.
(ii) "Unvested Shares" shall mean any shares of Series A
Preferred Stock that are not Vested Shares and may not, with
the passage of time, become vested.
(iii) "Cause" shall mean dishonesty, conviction of a felony or
gross neglect by an Original Purchaser of his duties (other
than as a result of Disability, Incapacity or death), or
conflict of interest, which gross neglect or conflict shall
continue for 30 days after the Partnership gives written
notice to an Original Purchaser requesting the cessation of
such gross neglect or conflict.
8
<PAGE>
(iv) "Disability" shall have the meaning given it in the long-
term disability plan previously operated by the
Partnership's Chadwick's of Boston business (or any
successor plan operated by the Partnership or any of its
affiliates, so long as the definition of "Disability" in any
such successor plan is not more restrictive). An Original
Purchaser's employment shall be deemed to be terminated for
Disability on the date on which such Original Purchaser is
entitled to receive long-term disability compensation
pursuant to such long-term disability plan.
(v) "Good Reason" shall mean, with respect to any voluntary
termination of employment by an Original Purchaser, the
following:
1) the assignment to such Original Purchaser of any duties
materially inconsistent with his positions, duties,
responsibilities, reporting requirements, and status
with the Partnership (or a subsidiary) on the later of
December 9, 1996 or 120 days prior to the date of such
termination, or a substantive change in such Original
Purchaser's titled, reporting requirements or offices
as in effect on the later of December 9, 1996 or 120
days prior to the date of such termination, or any
removal of such Original Purchaser from or any failure
to reelect him to such positions, except in connection
with the termination of such Original Purchaser 's
employment by the Partnership (or a subsidiary) for
Cause or by such Original Purchaser other than for Good
Reason; or any other action by the Partnership (or a
subsidiary) which results in a diminishment in such
position, authority, duties or responsibilities, other
than an insubstantial and inadvertent action which is
remedied by the Partnership or the subsidiary promptly
after receipt of notice thereof given by such Original
Purchaser; or
2) if such Original Purchaser's rate of base salary for
any fiscal year is less than 100% of the base salary
paid to such Original Purchaser in the completed fiscal
year immediately preceding the fiscal year in which
such Original Purchaser voluntarily terminates his
employment, or if such Original Purchaser's total cash
compensation opportunities, including salary and
incentive, for any fiscal year are less than 100% of
the total cash compensation opportunities made
available to such Original Purchaser in the completed
fiscal year immediately
9
<PAGE>
preceding the fiscal year in which such Original
Purchaser voluntarily terminates his employment; or
3) any relocation by the Partnership of such Original
Purchaser's principal place of employment of more than
50 miles from the place where such Original Purchaser's
principal residence was located on the date that such
Original Purchaser gives notice of such termination.
4) any breach by the Partnership of any term or provision
of its Employment Agreement with such Original
Purchaser, as such agreement may be amended from time
to time.
Notwithstanding the foregoing, a voluntary termination
by such Original Purchaser of his employment shall not be
deemed to be for "Good Reason" unless such termination
occurs within 120 days after the occurrence of any event
described in clauses 1), 2), 3) or 4) above without such
Original Purchaser's express written consent, such Original
Purchaser gives notice to the Partnership at least 30 days
in advance requesting that the situation described in such
clauses be remedied, and the situation remains unremedied
upon expiration of such 30-day period.
(vi) "Incapacity" shall mean a disability (other than Disability
within the meaning of that definition) or other impairment
of health that renders an Original Purchaser unable to
perform his duties to the satisfaction of the Compensation
Committee of the Board of Representatives of the
Partnership. If by reason of Incapacity such Original
Purchaser is unable to perform his duties for at least six
months in any consecutive 12-month period, upon written
notice by the Company the employment of an Original
Purchaser shall be deemed to have terminated by reason of
Incapacity.
(vii) "Original Purchaser" shall mean each of Carol Meyrowitz or
Dhananjaya Rao.
(b) Any Vested Share may, at the option of the holder thereof, be
converted into one share of Common Stock of the Corporation (the "Conversion
Ratio")(subject to adjustment as set forth below).
10
<PAGE>
(c) All outstanding Vested Shares shall be converted automatically
into Common Stock of the Corporation at the Conversion Ratio at 5:00 p.m. New
York City time on the third anniversary of the Closing Date if the rights
granted under Section 4 have not been properly exercised with respect to any
such shares.
(d) Each holder of Vested Shares who desires to convert the same into
Common Stock shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation and shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state therein the number of Vested Shares being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock to be converted and the person entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such Common Stock on such date.
(e) The Conversion Ratio is subject to adjustment from time to time
upon the occurrence of the events enumerated in this subparagraph (e).
If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares of
its capital stock;
then, in the case of paragraphs (i), (ii) and (iii) of this subsection (e), the
Conversation Ratio in effect immediately prior to such action shall be
proportionately adjusted, and in the case of paragraphs (iv) and (v) of this
subsection (e), appropriate provision shall be made so that the holder of any
Series A Preferred Stock converted after such action may receive the aggregate
number and kind of shares
11
<PAGE>
of capital stock of the Corporation which it would have owned immediately
following such action if such Series A Preferred Stock had been converted
immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by John M. Roth, its President, this 6th day of
December 1996.
VP HOLDING CORPORATION
By: /s/ John M. Roth
------------------------
Title: President
12
<PAGE>
EXHIBIT 4.13
FOURTH SUPPLEMENTAL INDENTURE
Fourth Supplemental Indenture, dated as of December 9, 1996, by and
among Brylane, L.P., a Delaware limited partnership ("Brylane"), Brylane Capital
Corp., a Delaware corporation ("Finance Corp." and, together with Brylane, the
"Issuers"), 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 United States Trust Company of New York, as trustee (the
"Trustee"), under the Indenture, dated as of August 30, 1993, as amended by that
First Supplemental Indenture dated as of November 22, 1993, that Second
Supplemental Indenture dated as of January 28, 1994, and that Third Supplemental
Indenture dated as of October 16, 1995 (as so supplemented, the "Indenture"),
among the Issuers, the Guarantors named on the signature pages thereto, and the
Trustee, pursuant to which the Issuers' 10% Senior Subordinated Notes due 2003
(the "Notes") were issued. All capitalized terms used herein and not otherwise
defined shall have the meanings given them in the Indenture.
WHEREAS, the Board of Representatives of Brylane has determined that
it is in the best interests of Brylane to form C.O.B. Management, a wholly-owned
subsidiary of Brylane;
WHEREAS, the Board of Representatives of Brylane has determined that
it is in the best interests of Brylane to form Tradename Sub, a wholly-owned
subsidiary of Brylane;
WHEREAS, the Board of Representatives of Brylane and the Boards of
Directors of Finance Corp., C.O.B. Management and Tradename Sub have determined
that it is in the best interests of the Issuers, C.O.B. Management and Tradename
Sub to authorize and approve an amendment to the Indenture, in accordance with
subparagraph (e) of Section 901 of the Indenture, in order to add each of C.O.B.
Management and Tradename Sub as a Guarantor pursuant to the requirements of
Section 1013 of the Indenture;
WHEREAS, Sections 901 and 903 of the Indenture provide, among other
things, that the Issuers and the Trustee may amend the Indenture as provided
herein without the consent of any Holder so long as such amendment does not
adversely affect the interests of any such Holder, or the rights, duties or
immunities of the Trustee, under the Indenture, any Guarantee or otherwise;
WHEREAS, Section 906 of the Indenture provides, among other things,
that Securities authenticated and delivered after the execution of any
supplemental indenture may bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture;
<PAGE>
WHEREAS, the Issuers have furnished the Trustee with (i) an Officers'
Certificate and an Opinion of Counsel stating that the execution of this Fourth
Supplemental Indenture is authorized or permitted by the Indenture, that the
Fourth Supplemental Indenture conforms to the requirements of the Trust
Indenture Act of 1939, as amended and currently in effect, and that the Fourth
Supplemental Indenture does not adversely affect the rights of any Holders, or
the rights, duties or immunities of the Trustee, under the Indenture, any
Guarantee or otherwise, and (ii) resolutions of the Issuers, C.O.B. Management
and Tradename Sub authorizing the execution of this Fourth Supplemental
Indenture;
WHEREAS, pursuant to the terms of that certain Release of Guarantee,
dated as of July 5, 1996, KingSize Catalog Sales, Inc., a Delaware corporation
and a wholly-owned subsidiary of Brylane ("KingSize Inc."), and KingSize Catalog
Sales, L.P., an Indiana limited partnership and an indirect wholly-owned entity
of Brylane ("KingSize Partnership"), were released from their respective
guarantees of the Issuers' obligations under the Indenture and the Securities
due to the fact that KingSize Partnership and KingSize Inc. were merged with and
into Brylane effective as of July 6, 1996; and
WHEREAS, all things necessary to make this Fourth Supplemental
Indenture a valid supplement of the Indenture have been satisfied.
NOW, THEREFORE, each party hereto, for the equal and proportionate
benefit of the other parties hereto and the Holders, are executing and
delivering this Fourth Supplemental Indenture.
Section 1. Guarantee by C.O.B. Management For value received, and
------------------------------
subject to the provisions of Section 1013(c) of the Indenture, C.O.B. Management
---------------
hereby agrees to become a party to the Indenture as a Guarantor under and
pursuant to Article Fourteen of the Indenture and to unconditionally guarantee
to the Holders of the Securities the payment of principal of, premium, if any,
and interest on the Securities in the amounts and at the times when due and
interest on the overdue principal and interest, if any, of the Securities, if
lawful, and the payment or performance of all other obligations of the Issuers
under the Indenture or the Securities, to the respective Holders of the
Securities and the Trustee, all in accordance with and subject to the terms and
limitations of the Securities and Article Fourteen of the Indenture, and to be
bound in all respects as a Guarantor under the Indenture, and further agrees to
waive and not in any manner whatsoever claim or take the benefit or advantage of
any rights of reimbursement, indemnity or subrogation or any other rights
against Brylane or any other Subsidiary as a result of any payment by such
Subsidiary under its Guarantee.
Section 2. Guarantee by Tradename Sub. For value received, and
--------------------------
subject to the provisions of Section 1013(c) of the Indenture, Tradename Sub
---------------
hereby agrees to become a party to the Indenture as a Guarantor under and
pursuant to Article Fourteen of the Indenture
2
<PAGE>
and to unconditionally guarantee to the Holders of the Securities the payment of
principal of, premium, if any, and interest on the Securities in the amounts and
at the times when due and interest on the overdue principal and interest, if
any, of the Securities, if lawful, and the payment or performance of all other
obligations of the Issuers under the Indenture or the Securities, to the
respective Holders of the Securities and the Trustee, all in accordance with and
subject to the terms and limitations of the Securities and Article Fourteen of
the Indenture, and to be bound in all respects as a Guarantor under the
Indenture, and further agrees to waive and not in any manner whatsoever claim or
take the benefit or advantage of any rights of reimbursement, indemnity or
subrogation or any other rights against Brylane or any other Subsidiary as a
result of any payment by such Subsidiary under its Guarantee.
Section 3. Amendment of Page 12 of the Indenture. The definition of
-------------------------------------
Guarantor at page 12 of the Indenture is hereby amended to read in its entirety
as follows:
"Guarantor" means 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., C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc., K.S. Management
Services, Inc., and any other guarantor of the Indenture Obligations.
Section 4. Endorsement of Securities. Securities authenticated and
-------------------------
delivered after the execution and delivery of this Fourth Supplemental Indenture
shall bear a notation evidencing the Guarantee by each of C.O.B. Management and
Tradename Sub as described in Section 1 and Section 2 of this Fourth
Supplemental Indenture, as well as the Guarantee of each of the other
Guarantors, substantially in the form attached as Exhibit A hereto.
---------
Section 5. Ratification of Indenture. As amended by this Fourth
-------------------------
Supplemental Indenture, the Indenture is in all respects ratified and confirmed
and, as so supplemented by this Fourth Supplemental Indenture, shall be read,
taken and construed as one and the same instrument.
Section 6. The Trustee. The Trustee shall not be responsible in any
-----------
manner whatsoever for the recitals of fact herein, all of which are made by the
Issuers, C.O.B. Management and Tradename Sub, and the Trustee shall not be
responsible or accountable in any manner whatsoever for or with respect to the
validity, execution or sufficiency of this Fourth Supplemental Indenture.
Section 7. The Effective Date. This Fourth Supplemental Indenture
------------------
shall become a legally effective and binding instrument upon the execution and
delivery hereof by all parties hereto.
3
<PAGE>
Section 8. Counterparts. This Fourth Supplemental Indenture may be
------------
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which so executed shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
instrument.
Section 9. Governing Law. This Fourth Supplemental Indenture shall
-------------
be governed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflicts of law.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be signed and acknowledged by their respective
officers, thereunto duly authorized and attested, all as of the day and year
first above written.
Dated as of December 9, 1996 BRYLANE, L.P.,
a Delaware limited partnership
Attest:
/s/ Peter J. Canzone By: /s/ Robert A. Pulciani
- ------------------------- ---------------------------
Peter J. Canzone, Robert A. Pulciani,
Authorized Representative Authorized Representative
Dated as of December 9, 1996 BRYLANE CAPITAL CORP.,
a Delaware corporation
Attest:
/s/ Peter J. Canzone By: /s/ Robert A. Pulciani
- ------------------------- ---------------------------
Peter J. Canzone, Robert A. Pulciani,
President and Chief Executive Vice President,
Executive Officer Chief Financial Officer,
Secretary and Treasurer
Dated as of December 9, 1996 C.O.B. MANAGEMENT SERVICES,
INC., a Delaware corporation
Attest:
/s/ Peter J. Canzone By: /s/ Robert A. Pulciani
- ------------------------- ---------------------------
Peter J. Canzone, Robert A. Pulciani,
President and Chief Executive Vice President,
Executive Officer Chief Financial Officer,
Secretary and Treasurer
[Signatures continued on following page]
5
<PAGE>
[Signatures continued from previous page]
Dated as of December 9, 1996 CHADWICK'S TRADENAME SUB, INC.
a Delaware corporation
Attest:
/s/ Peter J. Canzone By: /s/ Robert A. Pulciani
- ------------------------- ---------------------------
Peter J. Canzone, Robert A. Pulciani,
President and Chief Executive Vice President,
Executive Officer Chief Financial Officer,
Secretary and Treasurer
Dated as of December 9, 1996 UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
Attest:
/s/ Robert F. Lee By: /s/ Margaret M. Ciesmelewski
- -------------------------------- -----------------------------
Name: Robert F. Lee Name: Margaret M. Ciesmelewski
--------------------------- -----------------------------
Title: Assistant Secretary Title: Assistant Vice President
-------------------------- ----------------------------
(SEAL)
6
<PAGE>
EXHIBIT A
FORM OF ENDORSEMENT TO BE PLACED ON SECURITIES
AUTHENTICATED AND DELIVERED AFTER EXECUTION
OF THE FOURTH SUPPLEMENTAL INDENTURE
----------------------------------------------------
"Pursuant to the terms of that Fourth Supplemental Indenture, dated as
of December 9, 1996, by and among Brylane, L.P., Brylane Capital Corp., C.O.B.
Management Services, Inc., a newly-formed Delaware corporation and a wholly-
owned subsidiary of Brylane, L.P. ("C.O.B. Management"), Chadwick's Tradename
Sub, Inc., a newly-formed Delaware corporation and a wholly-owned subsidiary of
Brylane L.P. ("Tradename Sub"), and United States Trust Company of New York, as
Trustee, C.O.B. Management and Tradename Sub have each become a party to the
Indenture as a Guarantor under and pursuant to Article Fourteen of the
Indenture, and each, as well as each of the other Guarantors (as defined in the
Indenture, as supplemented), subject to the provisions of Section 1013(c) of the
---------------
Indenture, hereby unconditionally guarantees to the Holders of the Securities
the payment of principal of, premium, if any, and interest on the Securities in
the amounts and at the times when due and interest on the overdue principal and
interest, if any, of the Securities, if lawful, and the payment or performance
of all other obligations of the Issuers under the Indenture or the Securities,
to the respective Holders of the Securities and the Trustee, all in accordance
with and subject to the terms and limitations of the Securities and Article
Fourteen of the Indenture, and to be bound in all respects as a Guarantor under
the Indenture, and further agrees to waive and not in any manner whatsoever
claim or take the benefit or advantage of any rights of reimbursement, indemnity
or subrogation or any other rights against Brylane or any other Subsidiary as a
result of any payment by such Subsidiary under its Guarantee. This Guarantee
will not become effective until the Trustee duly executes the certificate of
authentication on this Security."
A-1
<PAGE>
EXHIBIT 10.6
AMENDMENT NO. 1
TO
TRADEMARK LICENSE AGREEMENT
This Amendment No. 1 to Trademark License Agreement (the "Amendment")
is entered into as of this 9th day of December, 1996 by and among Lanco, Inc., a
Delaware corporation ("Lanco"), Lernco, Inc., a Delaware corporation ("Lernco"),
Limited Stores, Inc., a Delaware corporation ("Limited Stores"), Lane Bryant,
Inc., a Delaware corporation ("Lane Bryant"), Lane Bryant Direct Holding, Inc.
("LBDH") a Delaware corporation (as successor corporation to Lane Bryant Direct,
Inc. and Lerner Direct, Inc.), and Brylane, L.P., a Delaware limited partnership
("Brylane").
WHEREAS, on August 20, 1993, certain of the parties hereto entered
into a Trademark License Agreement (the "Agreement") providing for (i) the
licensing of certain trademarks by Lanco, Lernco, Limited Stores and Lane Bryant
to LBDH pursuant to the terms and subject to the conditions set forth in the
Agreement and (ii) the assignment by LBDH of the Agreement and the licenses
therewith to Brylane;
WHEREAS, pursuant to terms and subject to the conditions set forth in
the Agreement, Lerner Stores, Inc. licensed certain trademarks to LBDH which
were subsequently assigned to Brylane, but did not execute the Agreement as a
party thereto, and the signature block for Lernco incorrectly referred to
"Lerner, Inc."; and
WHEREAS, the parties to the Agreement desire to amend the Agreement as
set forth herein and to provide for the addition of Lerner Stores, Inc. as a
party thereto and to have Lernco confirm its execution of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereby agree as follows:
1. Amendment of Agreement.
----------------------
(a) Clause (ii)A of Section 6.1(a) is amended to read in its
entirety as follows:
"(A) the date on which VGP, VLP and their Affiliates, on the one
hand, and the Brylane Entities and their Affiliates, on the other
hand, own Units constituting less than one-half of the Units owned by
such entities on the Closing of the transactions contemplated by that
certain Asset Purchase Agreement by and among the TJX Companies, Inc.,
a Delaware corporation ("TJX"), Chadwick's Inc., a Massachusetts
corporation and a
<PAGE>
wholly-owned subsidiary of TJX ("Chadwick's") and the Partnership
dated October 18, 1996 (the "Purchase Agreement," and the term
"Closing" shall have the meaning herein assigned to such term in the
Purchase Agreement),"
(b) A new sentence shall be added to the end of Section 6.1 (a)
as follows:
"Units issued to (i) each of the FS Limited Partner, Chadwick's,
Leeway & Co., a Massachusetts limited partnership, as nominee for the
Long-Term Investment Trust, a Massachusetts business trust ("Leeway")
and the NYNEX Master Trust ("NYNEX") pursuant to Amendment No. 8 to
the Partnership Agreement dated effective as of the Closing
("Amendment No. 8") and (ii) WearGuard Corporation, a Delaware
Corporation, pursuant to Amendments No. 5 and No. 6 to the Partnership
Agreement dated as of September 22, 1995 and October 16, 1995,
respectively, and Amendment No. 8 shall be excluded from any
determination under Section 6.1(a)(ii)(C) hereof (including a
determination under Section 6.1(a)(ii)(C) pursuant to the fourth
sentence of this Section 6.1(a))."
(c) From and after the consummation of the Initial Public Offering
(as defined in that certain Incorporation and Exchange Agreement dated as of
October 14, 1996 by and among FS Equity Partners II, L.P., FS Equity Partners
III, L.P., FS Equity Partners International, L.P., LBDH, The Limited, Inc.,
WearGuard Corporation and Brylane Inc., as amended from time to time), all
references to "VGP, VLP and their Affiliates" contained in Section 6.1 shall
thereafter be deemed to be a reference to the FS Funds and their Affiliates.
2. Addition of Lerner Stores, Inc.; Lernco Execution of the
--------------------------------------------------------
Agreement. Lerner Stores, Inc. hereby confirms and agrees that it shall be
- ---------
bound by all of the provisions of (i) the Agreement and (ii) the Electronic
Media Trademark License Agreement (the "Electronic Media Agreement") dated as of
August 20, 1993 among Lanco, Lernco, Limited Stores, Lane Bryant and LBDH,
binding upon "Lernco, Inc.," in each case as if it were an original signatory as
of August 30, 1994 to the Agreement and the Electronic Media Agreement. Lernco
hereby confirms that the signature block "Lerner, Inc." in the Agreement and the
Electronic Media Agreement was intended to refer to Lernco and that it is bound
by all of the provisions of the Agreement and the Electronic Media Agreement,
binding upon Lernco.
2.
<PAGE>
3. Ratification of Agreement. As amended by this Amendment, the
-------------------------
Agreement is in all respects ratified and confirmed and as so amended by this
Amendment shall be read, taken and construed as one and the same instrument.
Except as expressly amended hereby, the Agreement shall remain in full force and
effect.
4. Defined Terms. Each reference in the Agreement to this
-------------
"Agreement", "hereof", "herein", "hereunder" or "hereby" and each other similar
reference shall be deemed to refer to the Agreement as amended hereby.
5. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
6. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment this 9th
day of December, 1996.
Lanco, Inc.
By:________________________________
Title:
Lernco, Inc.
By:________________________________
Title:
Limited Stores, Inc.
By:________________________________
Title:
[signatures continued on following page]
3.
<PAGE>
[signature page, cont'd]
Lane Bryant, Inc.
By:________________________________
Title:
Lerner Stores, Inc.
By:________________________________
Title:
Lane Bryant Direct Holding, Inc.
By:________________________________
Title:
Brylane, L.P.
By: VGP Corporation
Its: General Partner
By:________________________________
4.
<PAGE>
EXHIBIT 10.12
EXECUTION COPY
================================================================================
$408,000,000
CREDIT AGREEMENT
dated as of
December 9, 1996
among
Brylane, L.P.,
The Lenders Listed Herein,
Morgan Guaranty Trust Company of New York,
as Administrative Agent
and
Merrill Lynch Capital Corporation,
as Documentation Agent
================================================================================
[CS&M Ref No. 1385-309]
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.............................................. 2
SECTION 1.02. Accounting Terms and Determinations...................... 32
SECTION 1.03. Types of Borrowings...................................... 32
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend...................................... 33
SECTION 2.02. Method of Borrowing...................................... 34
SECTION 2.03. Notes.................................................... 36
SECTION 2.04. Interest Rate Elections.................................. 37
SECTION 2.05. Interest Rates........................................... 39
SECTION 2.06. Commitment Fees.......................................... 41
SECTION 2.07. Termination or Reduction of
Commitments............................................ 42
SECTION 2.08. Mandatory Repayments and Prepayments..................... 42
SECTION 2.09. Optional Prepayments..................................... 46
SECTION 2.10. General Provisions as to Payments........................ 47
SECTION 2.11. Funding Losses........................................... 48
SECTION 2.12. Computation of Interest and Fees......................... 48
SECTION 2.13. Letters of Credit........................................ 48
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness............................................ 54
SECTION 3.02. Each Credit Event........................................ 59
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Existence and Power...................................... 60
SECTION 4.02. Corporate and Governmental
Authorization; No Contravention......................... 60
SECTION 4.03. Binding Effect........................................... 61
SECTION 4.04. Financial Information; Title to
Properties.............................................. 61
SECTION 4.05. Litigation............................................... 62
SECTION 4.06. Compliance with ERISA.................................... 62
SECTION 4.07. Taxes.................................................... 63
SECTION 4.08. Subsidiaries............................................. 63
SECTION 4.09. Not an Investment Company................................ 63
SECTION 4.10. Compliance with Laws..................................... 64
SECTION 4.11. Agreements............................................... 64
SECTION 4.12. Federal Reserve Regulations.............................. 64
SECTION 4.13. Disclosure............................................... 64
SECTION 4.14. Governmental Approvals................................... 65
SECTION 4.15. Security Interests....................................... 65
SECTION 4.16. Employment and Management Agreements..................... 66
SECTION 4.17. Capitalization........................................... 66
SECTION 4.18. Environmental Matters.................................... 66
ARTICLE V
COVENANTS
SECTION 5.01. Information.............................................. 67
SECTION 5.02. Payment of Obligations................................... 70
SECTION 5.03. Maintenance of Property; Insurance;
Casualty and Condemnation............................... 71
SECTION 5.04. Conduct of Business and Maintenance
of Existence............................................ 72
SECTION 5.05. Compliance with Laws..................................... 73
SECTION 5.06. Inspection of Property, Books and
Records................................................. 73
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SECTION 5.07. Fiscal Year.............................................. 74
SECTION 5.08. Further Assurances....................................... 74
SECTION 5.09. Subsidiaries; Partnerships............................... 74
SECTION 5.10. Amendment of Certain Documents........................... 75
SECTION 5.11. Debt; Preferred Stock; Rate
Protection Agreements................................... 75
SECTION 5.12. Restricted Payments...................................... 78
SECTION 5.13. Mergers, Consolidations,
Acquisitions and Sales of Assets........................ 80
SECTION 5.14. Transactions with Affiliates............................. 81
SECTION 5.15. Sale and Lease-Back Transactions......................... 82
SECTION 5.16. Investments.............................................. 82
SECTION 5.17. Negative Pledge.......................................... 83
SECTION 5.18. Use of Proceeds and Letters of
Credit.................................................. 85
SECTION 5.19. Grants of Negative Pledges or
Dividend Restrictions................................... 85
SECTION 5.20. Changes in Accounting.................................... 85
SECTION 5.21. Fixed Charge Coverage Ratio.............................. 85
SECTION 5.22. Minimum Adjusted Net Worth............................... 86
SECTION 5.23. Debt Coverage Ratio...................................... 86
SECTION 5.24. Capital Expenditures..................................... 86
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default........................................ 87
SECTION 6.02. Notice of Default........................................ 91
ARTICLE VII
THE AGENT, SECURITY AGENT AND ISSUING BANKS
SECTION 7.01. Appointment and Authorization............................ 91
SECTION 7.02. Agent and Affiliates..................................... 91
SECTION 7.03. Action by Agent.......................................... 91
SECTION 7.04. Consultation with Experts................................ 92
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SECTION 7.05. Liability of Agent....................................... 92
SECTION 7.06. Indemnification.......................................... 92
SECTION 7.07. Credit Decision.......................................... 92
SECTION 7.08. Successor Agent.......................................... 93
SECTION 7.09. Agents Fees.............................................. 93
SECTION 7.10. Sub-Agents............................................... 93
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair.................................... 94
SECTION 8.02. Illegality............................................... 94
SECTION 8.03. Increased Cost and Reduced Return........................ 95
SECTION 8.04. Base Rate Loans Substituted for
Affected Fixed Rate Loans............................... 97
SECTION 8.05. Replacement of Lenders................................... 97
SECTION 8.06. Taxes.................................................... 98
ARTICLE IX
CONVERSION OF BORROWER
SECTION 9.01. General.................................................. 101
SECTION 9.02. New Corporate Borrower................................... 101
SECTION 9.03. Holding Company Structure................................ 103
SECTION 9.04. Liquidation.............................................. 104
SECTION 9.05. Post-Conversion Actions.................................. 104
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices.................................................. 105
SECTION 10.02. No Waivers............................................... 105
SECTION 10.03. Expenses; Documentary Taxes;
Indemnification......................................... 105
</TABLE>
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SECTION 10.04. Sharing of Set-Offs.................................... 106
SECTION 10.05. Amendments and Waivers................................. 107
SECTION 10.06. Successors and Assigns................................. 108
SECTION 10.07. Collateral............................................. 110
SECTION 10.08. Waiver of Trial by Jury................................ 110
SECTION 10.09. New York Law........................................... 110
SECTION 10.10. Counterparts; Integration.............................. 111
SECTION 10.11. Limitation on Recourse................................. 111
SECTION 10.12. Interest Rate Limitation............................... 111
Exhibit A - Note
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Guarantee Agreement
Exhibit D - Pledge Agreement
Exhibit E - Security Agreement
Exhibit F - Trademark Collateral Agreement
Exhibit G - Forms of Opinions of Borrower's Counsel
Exhibit H - Form of Perfection Certificate
Exhibit I - Form of Issuing Bank Agreement
Schedule 1 - Commitments
Schedule 2 - Mortgaged Properties
Schedule 4.08 - Subsidiaries
Schedule 4.16 - Employment and Management Agreements
Schedule 5.14 - Certain Fees
Schedule 5.17 - Certain Liens
</TABLE>
-v-
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of December 9, 1996, among BRYLANE, L.P.,
the LENDERS listed on the signature pages hereof, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Administrative Agent, and MERRILL
LYNCH CAPITAL CORPORATION, as Documentation Agent.
Preliminary Statement
---------------------
The Borrower (such term, and all other capitalized terms in this
preliminary statement, being used as herein after defined) has entered into the
Asset Purchase Agreements pursuant to which the Borrower has agreed to undertake
the Acquisition. In connection therewith, the Borrower has requested the
Lenders, subject to the terms and conditions of this Agreement, to extend credit
to the Borrower, in the aggregate principal amount of up to $408,000,000, in the
form of (i) Term Loans to be made by the Lenders on the Effective Date in an
aggregate principal amount not in excess of $283,000,000, (ii) Revolving Loans
to be made by the Lenders from time to time during the Revolving Loan
Availability Period in an aggregate principal amount at any time outstanding not
in excess of $125,000,000 (subject to certain limitations specified herein) and
(iii) Letters of Credit to be issued by the Issuing Banks from time to time
during the Revolving Loan Availability Period in an aggregate amount at any time
outstanding not in excess of $75,000,000 (subject to certain limitations
specified herein); provided that the sum of Revolving Loans and Letters of
--------
Credit shall not exceed $125,000,000. The proceeds of the Term Loans shall be
used by the Borrower to finance a portion of the Acquisition and to refinance
certain existing Debt. The proceeds of the Revolving Loans shall be used by the
Borrower for general corporate
<PAGE>
-2-
purposes, including to finance the working capital requirements of the Borrower.
Letters of Credit shall be issued only for general corporate purposes in the
ordinary course of business of the Borrower.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
------------
the following meanings:
"Acquisition" means the purchase by the Borrower of substantially all
the assets (excluding cash and certain accounts receivable) of Chadwick's, Inc.
and its subsidiary, CDM Corp., pursuant to the Asset Purchase Agreements.
"Adjusted EBITDA" means, for any period, the sum of (a) Consolidated
Net Income for such period, excluding extraordinary or nonrecurring gains or
losses, plus (b) depreciation, amortization (including amortization of deferred
financing costs and of the initial write-up of inventories resulting from the
acquisition of a business, including the Acquisition) and interest expense
deducted in determining such Consolidated Net Income, plus (c) income taxes
deducted in determining such Consolidated Net Income.
"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.05(b).
"Administrative Questionnaire" means, with respect to each Lender, the
administrative questionnaire in the form submitted to such Lender by the Agent
and submitted to the Agent (with a copy to the Borrower) duly completed by such
Lender.
<PAGE>
-3-
"Affiliate" means any Person (other than a Subsidiary) directly or
indirectly controlling, controlled by or under common control with the Borrower.
As used in this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. For purposes of this Agreement and the other Loan
Documents, any Person that directly or indirectly owns a 10% or greater
ownership interest in the Borrower (or, following a Conversion, 10% or more of
the regularly voting common equity securities of the Borrower or its Parent
Corporation, as applicable), together with its affiliates, shall be deemed to be
an Affiliate of the Borrower.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as administrative agent for the Lenders hereunder, and its successors
in such capacity.
"Applicable Lending Office" means, with respect to any Lender, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Applicable Percentage" of any Lender means the percentage of the
aggregate Revolving Commitments represented by such Lender's Revolving
Commitment.
"Asset Purchase Agreements" means, collectively, (i) the Asset
Purchase Agreement, dated as of October 18, 1996, among The TJX Companies, Inc.,
Chadwick's, Inc. and the Borrower, and (ii) the Asset Purchase Agreement, dated
as of October 18, 1996, between CDM Corp. and the Borrower.
"Asset Sale Prepayment Event" means any sale, assignment, transfer or
other disposition of, or casualty to or condemnation of, any assets or
properties of the Borrower or any Subsidiary, other than (a) sales of inventory
and used or surplus equipment in the ordinary course of
<PAGE>
-4-
business, (b) sales of credit card receivables pursuant to the Credit Card
Agreement and (c) any other event that would constitute an "Asset Sale
Prepayment Event" if the Borrower intends to reinvest the Net Cash Proceeds
therefrom in capital assets within six months after receipt of such Net Cash
Proceeds (any such event described in this clause (c) being referred to as a
"Reinvestment Event"); provided that (i) if the Net Cash Proceeds from any
--------
Reinvestment Event, plus the Net Cash Proceeds from any previous Reinvestment
Event that have not yet been reinvested in capital assets, exceed $15,000,000,
then an "Asset Sale Prepayment Event" shall be deemed to have occurred with Net
Cash Proceeds equal to such excess, and (ii) if the Net Cash Proceeds from any
Reinvestment Event have not been fully reinvested in capital assets by the date
that is six months after the receipt of such Net Cash Proceeds, an "Asset Sale
Prepayment Event" shall be deemed to have occurred on such date with Net Cash
Proceeds equal to the Net Cash Proceeds from such Reinvestment Event (excluding
any excess portion thereof referred to in clause (i) above) minus the reinvested
portion; provided further that, if a Reinvestment Event constitutes a casualty
-------- -------
or condemnation, then (A) clause (i) above shall not apply to Net Cash Proceeds
therefrom consisting of insurance proceeds or condemnation awards and (B) the
six-month period referred to in clause (ii) above shall be extended for such
period of time as the Borrower is actively and diligently engaged in the repair
or replacement of the affected asset or property.
"Assignee" has the meaning set forth in Section 10.06(c).
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means at any time a loan out standing hereunder which
bears interest at such time at a rate based on the Base Rate pursuant to a
Notice of Borrow-
<PAGE>
-5-
ing or Notice of Interest Rate Election (or in the case of the Borrower's
failure to timely provide such a notice) or pursuant to Article VIII.
"Base Rate Margin" means (a) with respect to any Tranche B Term Loan
that is a Base Rate Loan, the applicable Tranche B Margin, and (b) with respect
to any other Base Rate Loan outstanding on any day: (i) 1.00% if such day is
prior to the Pricing Adjustment Date, and (ii) if such day is on or after the
Pricing Adjustment Date:
(A) 0.00%, if such day falls within a Level I Pricing Period;
(B) 0.25%, if such day falls within a Level II Pricing Period;
(C) 0.50%, if such day falls within a Level III Pricing Period;
(D) 0.75%, if such day falls within a Level IV Pricing Period; or
(E) 1.00%, if such day falls within a Level V Pricing Period.
"Borrower" means Brylane, L.P., a Delaware limited partnership, and
its successors (including any successor contemplated by Article IX).
"Borrowing" has the meaning set forth in Section 1.03.
"Borrowing Base" means, at any time, an amount equal to the sum of (a)
70% of the excess of (i) the book value of the Borrower's inventory as of such
date, minus (ii) the book value of any such inventory that is classified for
purposes of the Borrower's financial statements as slow-moving or obsolete
inventory, plus (b) 50% of the excess of (i) the book value (net of accumulated
<PAGE>
-6-
depreciation) of the Borrower's property, plant and equipment as of such date
minus (ii) the aggregate outstanding principal amount of Capital Financing Debt
as of such date. The Borrowing Base at any time shall be determined by
reference to the most recent Borrowing Base Certificate delivered to the Agent,
absent any error in such Borrowing Base Certificate.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit B hereto, duly completed and executed by the chief financial officer,
chief accounting officer or treasurer of the Borrower.
"Capital Expenditures" means, with respect to any period, (a) the
additions to property, plant and equipment and other capital expenditures of the
Borrower and its Consolidated Subsidiaries for such period, as the same are (or
would be) set forth, in accordance with generally accepted accounting
principles, in a consolidated statement of cash flow of the Borrower for such
period, and (b) any other additions to assets or expenditures of the Borrower
and its Consolidated Subsidiaries during such period financed with Capital
Financing Debt, whether or not such other additions to assets or expenditures
are (or would be) set forth in such statement of cash flow (but without
duplication of amounts described in clause (a) above); provided that Permitted
--------
Acquisitions shall not constitute "Capital Expenditures" for purposes of this
Agreement.
"Capital Financing Debt" means (a) Debt (including obligations under
capital leases) incurred to finance the acquisition, construction, improvement
or lease of property, plant or equipment or other capital assets; provided that
--------
such Debt is incurred at the time of or within 90 days after such acquisition or
lease, or during or within 90 days after the substantial completion of such
construction or improvement; and (b) any Debt incurred to refinance Debt
described in clause (a) above, provided that the principal amount of such
refinancing Debt does not exceed the principal amount of Debt being refinanced.
<PAGE>
-7-
"Cash Available for Principal Payments" means, for any period,
Consolidated Net Income for such period, plus, without duplication, (a)
----
depreciation, amortization (including amortization of the initial write-up of
inventories resulting from the acquisition of a business, including pursuant to
the Acquisition) and other noncash items deducted in determining such
Consolidated Net Income, (b) the amount, if any, by which Net Working Investment
decreased during such period and (c) the amount, if any, of cash received by the
Borrower and its Subsidiaries during such period (net of any expenses
attributable thereto not deducted in determining such Consolidated Net Income)
pursuant to transactions not in the ordinary course of business, to the extent
receipt of such cash is (x) not included in income in determining such
Consolidated Net Income but to be included in income in a later period or
periods and (y) not attributable to a Prepayment Event or Reinvestment Event,
minus, without duplication, (i) the amount of any noncash items included in
- -----
income in determining such Consolidated Net Income, (ii) the amount, if any, by
which Net Working Investment increased during such period, (iii) the amount of
Capital Expenditures made during such period (but excluding Capital Expenditures
to the extent financed with Capital Financing Debt or financed with Net Cash
Proceeds from a Reinvestment Event), (iv) to the extent not deducted in
determining such Consolidated Net Income, the amount, if any, paid by the
Borrower during such period as cash consideration for Permitted Acquisitions
(provided that no deduction shall be permitted pursuant to this clause (iv)
after the aggregate cumulative amount of cash consideration for Permitted
Acquisitions equals $35,000,000), (v) the amount, if any, of items included in
income in determining such Consolidated Net Income representing cash received
and included in calculating "Cash Available for Principal Payments" in a
previous period pursuant to clause (c) above, (vi) the amount, if any, by which
deferred compensation decreased during such period, (vii) to the extent not
deducted in determining such Consolidated Net Income, the amount of Tax Advances
and Tax Distributions paid in cash during such period in compliance
<PAGE>
-8-
with Section 5.12, and (viii) in the case of the fiscal year ending on the
Saturday closest to and January 31, 1998, to the extent not deducted in
determining such Consolidated Net Income for such fiscal year, the aggregate
amount, if any, paid by the Borrower during such fiscal year in cash in respect
of post-closing purchase price adjustments and tax adjustments pursuant to the
Asset Purchase Agreements; provided that, for purposes of the foregoing,
--------
Consolidated Net Income shall be determined without regard to any gains, losses,
taxes or expenses resulting from or incurred in connection with a Prepayment
Event or Reinvestment Event.
A "Change of Control" shall be deemed to have occurred if (a) prior to
a Conversion (i) any Person other than an affiliate of FS&Co. shall be a general
partner in the Borrower, (ii) The Limited and its subsidiaries, as a group,
shall own (beneficially and of record) and control partnership interests in the
Borrower representing less than 15% of the ownership interests in the Borrower
represented by all its outstanding partnership interests, (iii) FS&Co. and its
affiliates, as a group, shall own (beneficially and of record) and control
partnership interests in the Borrower representing less than 20% of the
ownership interests in the Borrower represented by all its outstanding
partnership interests, (iv) the Initial Control Group, as a group, shall own
(beneficially and of record) and control partnership interests in the Borrower
representing less than a majority of the ownership interests in the Borrower
represented by all its outstanding partnership interests, (v) any person or
group (within the meaning of Rule 13d-5 of the Securities and Exchange
Commission as in effect on the date hereof) other than a Person or Persons in
the Initial Control Group shall become the beneficial owner (within the meaning
of Rule 13d-3 of such Commission as in effect on the date hereof) of partnership
interests (including any options, warrants or rights to purchase, and any
securities convertible into or exchangeable for, partnership interests) of the
Borrower representing 20% or more of the ownership interests in the Borrower
represented by all its outstanding partnership interests or (vi) less than a
majority of the
<PAGE>
-9-
seats (other than vacant seats) on the board of representatives of the Borrower
shall at any time be occupied by persons who were (x) designated by a Person or
Persons in the Initial Control Group, or (y) appointed by persons so designated,
or (b) after a Conversion (i) if the Borrower remains a partnership, any
partnership interest in the Borrower shall be owned by any Person other than the
Borrower's Parent Corporation and such Parent Corporation's wholly-owned
subsidiaries, (ii) FS&Co. and its affiliates, as a group, shall own
(beneficially and of record) and control voting securities of the Borrower (or
its Parent Corporation, if applicable) representing less than 20% of the voting
power represented by all outstanding securities of the Borrower (or its Parent
Corporation, if applicable), (iii) the Initial Control Group, as a group, shall
own (beneficially and of record) and control voting securities of the Borrower
(or its Parent Corporation, if applicable) representing less than 40% of the
voting power represented by all outstanding securities of the Borrower (or its
Parent Corporation, if applicable), (iv) any person or group (within the meaning
of Rule 13d-5 of the Securities and Exchange Commission as in effect on the date
hereof) other than a Person or Persons in the Initial Control Group shall become
the beneficial owner (within the meaning of Rule 13d-3 of such Commission as in
effect on the date hereof) of voting securities (including any options, rights
or warrants to purchase, and any securities convertible into or exchangeable
for, voting securities) of the Borrower (or its Parent Corporation, if
applicable) representing 20% or more of the voting power represented by all
outstanding securities of the Borrower (or its Parent Corporation, if
applicable), or (v) less than a majority of the seats (other than vacant seats)
on the board of directors of the Borrower (or its Parent Corporation, if
applicable) shall at any time be occupied by persons who were (x) nominated by a
Person or Persons in the Initial Control Group, or (y) appointed by directors so
nominated, or (c) at any time, whether prior to or after a Conversion, a "Change
of Control", as defined in the Subordinated Debt Documents, shall occur;
provided that an event described in clause (b)(ii) or (b)(iii) above shall
- --------
<PAGE>
-10-
not constitute a "Change of Control" if, after giving effect to such event and
to any repayment of Debt effected in connection with such event, the Debt
Coverage Ratio is equal to or less than 2.5:1.0.
"Class" has the meaning set forth in Section 1.03.
"Commitment" means, with respect to each Lender, its Tranche A Term
Commitment, Tranche B Term Commitment or Revolving Loan Commitment or all such
Commitments, as the context may require.
"Consolidated Adjusted Net Worth" means at any date (a) the partners'
capital (or, if the Borrower is a corporation, stockholders' equity) of the
Borrower as of such date, adjusted to eliminate (i) the effects on Consolidated
Net Income of the amortization of the initial write-up of inventories resulting
from an acquisition of a business on or after the Effective Date, including the
Acquisition, and (ii) any accounting adjustments resulting from a Conversion,
minus (b) the amount, if any, of Tax Advances and Management Notes outstanding
on such date, to the extent such outstanding Tax Advances and Management Notes
are included in determining the amount referred to in clause (a) above.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Borrower and its Consolidated Subsidiaries for such
period.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"Conversion" has the meaning set forth in Section 9.01.
<PAGE>
-11-
"Convertible Subordinated Debt" means Debt of the Borrower (and its
Parent Corporation, if applicable) in the aggregate principal amount of
$20,000,000 in respect of convertible subordinated notes issued as part of the
consideration for the Acquisition, maturing 10 years after the Effective Date
and convertible into limited partnership interests in the Borrower or, if a
Conversion occurs, into shares of common stock of the Borrower or, if
applicable, its Parent Corporation.
"Credit Card Agreements" means (a) the Credit Card Processing
Agreement in effect on the Effective Date between the Borrower and World
Financial Network National Bank, as amended and in effect from time to time, (b)
the Accounts Receivable Purchase Agreement in effect on the Effective Date
between the Borrower and Alliance Data Systems Corporation, as amended and in
effect from time to time, and (c) any successor, replacement or additional
agreement providing for similar services and transactions.
"Debt" of any Person means at any date, without duplication, (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 which are capitalized in
accordance with generally accepted accounting principles, (v) all obligations of
such Person as an account party in respect of letters of credit and bankers'
acceptances, (vi) 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 (vii) all Debt
of others Guaranteed by such Person. The amount of any Debt described in clause
(vi) above shall be deemed to be limited to the fair market value of the assets
on which a Lien has been granted to secure such Debt unless such Debt has been
assumed or Guaranteed by such Person. The amount of any Debt described in clause
(vii) above shall be limited to the
<PAGE>
-12-
maximum amount payable under the applicable Guarantee of such Person if such
Guarantee contains limitations on the amount payable thereunder.
"Debt Coverage Ratio" means, at any date, the ratio of (i) the
consolidated Debt of the Borrower and its Consolidated Subsidiaries (excluding
(a) Letter of Credit Exposure and the amount of any other outstanding letters of
credit, except to the extent such Letter of Credit Exposure and other
outstanding letters of credit represent unreimbursed drawings thereunder;
provided that amounts excluded under this clause (a) shall not exceed
- --------
$75,000,000, and (b) contingent liabilities to repurchase accounts receivable
pursuant to the Credit Card Agreements, to the extent such contingent
liabilities constitute Debt), determined on a consolidated basis as of such
date, divided by (ii) Adjusted EBITDA for the most recent period of four
consecutive fiscal quarters of the Borrower ended on or prior to such date;
provided that if the Acquisition or a Permitted Acquisition has occurred during
- --------
the period since the commencement of the period of four consecutive fiscal
quarters for which such Adjusted EBITDA has been determined and on or prior to
such date of determination, then such Adjusted EBITDA shall be determined on a
pro forma basis (i.e., based on the assumption that the Acquisition or such
----
Permitted Acquisition, as the case may be, occurred on the first day of such
period of four consecutive fiscal quarters) in accordance with generally
accepted accounting principles.
"Debt Prepayment Event" means the incurrence by the Borrower or any
Subsidiary after the Effective Date of any Debt referred to in clause (iv) of
Section 5.11(a).
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
<PAGE>
-13-
"Descriptive Memorandum" means the Information Memorandum dated
November 1996 prepared by J.P. Morgan Securities Inc., Merrill Lynch Capital
Corporation and the Borrower in connection with the Financing Transactions.
"Documentation Agent" means Merrill Lynch Capital Corporation in its
capacity as documentation agent for the Lenders hereunder.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Lender, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
"Environmental and Safety Laws" means any and all applicable Federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, approvals, concessions, grants, franchises,
licenses, agreements with Governmental Authorities or other governmental
restrictions or requirements binding upon the Borrower or any of its
Subsidiaries, as applicable, relating to the environment, or to employee health
or safety as it pertains to the use or handling of or exposure to noxious odors
or toxic, caustic or radioactive substances, materials or wastes (including,
without limitation, petroleum or petroleum products, polychlorinated byphenyls
(PCBs), asbestos or asbestos containing materials) or to the preservation or
reclamation of natural resources as a result of the actual or threatened
emission, discharge or release of pollutants or contaminants into the
environment
<PAGE>
-14-
including, without limitation, ambient air, surface water, groundwater, or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any such pollutants,
contaminants, toxic, caustic or hazardous substances, materials or wastes or the
clean-up or other remediation thereof, including the Hazardous Materials
Transportation Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste
Amendments of 1984, the Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977, the Clean Air Act of 1970, as amended, the Toxic
Substances Control Act of 1976, the Occupational Safety and Health Act of 1970,
as amended, the Emergency Planning and Community Right-to-Know Act of 1986, the
Safe Drinking Water Act of 1974, as amended, and any similar or implementing
state law, and all amendments or regulations promulgated hereunder.
"Equity Prepayment Event" means the issuance of additional partnership
interests or equity securities, or receipt of additional capital contributions,
by the Borrower (or, after a Conversion, its Parent Corporation, if applicable),
or any other equity investment in the Borrower (or, after a Conversion, its
Parent Corporation, if applicable), in each case after the Effective Date;
provided that (a) the foregoing shall not constitute "Equity Prepayment Events"
- --------
to the extent attributable to equity investments by members of management of the
Borrower (either made directly in the Borrower or indirectly by any partner in
or stockholder of the Borrower from funds obtained, directly or indirectly, from
such members of management) unless either (i) the aggregate Net Cash Proceeds
therefrom exceed $2,500,000 during any fiscal year of the Borrower or (ii) after
giving effect thereto the aggregate cumulative amount of Net Cash Proceeds
therefrom since the Effective Date exceeds the sum of $1,000,000 plus the
aggregate cumulative amount of Restricted Payments made since the
<PAGE>
-15-
Effective Date pursuant to clause (e) of Section 5.12, in which case the
foregoing shall constitute "Equity Prepayment Events" to the extent of any such
excess referred to in clause (i) or (ii) above and (b) the foregoing shall not
constitute an "Equity Prepayment Event" to the extent attributable to the
issuance by VP Holding Corporation of preferred stock on or about the Effective
Date and the investment of the proceeds thereof, directly or indirectly, in the
Borrower.
"Equity Prepayment Percentage" means, with respect to the Net Cash
Proceeds of any Equity Prepayment Event, (i) 100%, if the Debt Coverage Ratio at
the time of receipt of such Net Cash Proceeds (but calculated prior to giving
effect to the receipt and application thereof) is greater than or equal to
4.0:1, (ii) 75%, if such Debt Coverage Ratio is greater than or equal to 3.0:1
but less than 4.0:1, (iii) 50%, if such Debt Coverage Ratio is greater than or
equal to 2.0:1 but less than 3.0:1 or (iv) 0.0% if such Debt Coverage Ratio is
less than 2.0:1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or
<PAGE>
-16-
affiliate of such Lender as it may hereafter designate as its Euro-Dollar
Lending Office by notice to the Borrower and the Agent.
"Euro-Dollar Loan" means at any time a loan outstanding hereunder
which bears interest at such time at a rate based on the Adjusted London
Interbank Offered Rate pursuant to a Notice of Borrowing or Notice of Interest
Rate Election.
"Euro-Dollar Margin" means (a) with respect to any Tranche B Term Loan
that is a Euro-Dollar Loan, the applicable Tranche B Margin, and (b) with
respect to any other Euro-Dollar Loan outstanding on any day (i) 2.00%, if
such day is prior to the Pricing Adjustment Date, and (ii) if such day is on or
after the Pricing Adjustment Date:
(A) 1.00%, if such day falls within a Level I Pricing Period;
(B) 1.25%, if such day falls within a Level II Pricing Period;
(C) 1.50%, if such day falls within a Level III Pricing Period;
(D) 1.75%, if such day falls within a Level IV Pricing Period; or
(E) 2.00%, if such day falls within a Level V Pricing Period.
"Euro-Dollar Reference Banks" means the principal London offices of
[Midland Bank PLC, NationsBank of North Carolina, N.A.] and Morgan Guaranty
Trust Company of New York.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.05(b).
<PAGE>
-17-
"Event of Default" has the meaning set forth in Section 6.01.
"Excess Cash Flow" means, for any period, the excess, if any, of Cash
Available for Principal Payments for such period over the sum of (a) principal
payments made during such period in respect of Term Loans, but excluding (i) any
such principal payments made pursuant to subsection (e) or (f) of Section 2.08
or clause (iv) of Section 5.11(a) plus (b) principal payments made during such
period in respect of Capital Financing Debt (other than pursuant to a
refinancing) and any Debt incurred in reliance upon clause (iv) of Section
5.11(a).
"Existing Credit Agreement" means the Credit Agreement dated as of
August 30, 1993, among the Borrower, certain banks and Morgan Guaranty Trust
Company of New York, as agent, as amended and in effect immediately prior to the
Effective Date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of l%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
--------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Finance Corp." means Brylane Capital Corp., a Delaware corporation,
and its successors.
<PAGE>
-18-
"Financing Transactions" means the transactions contemplated by the
Loan Documents, including the borrowing of the Loans and the grant of security
interests under the Security Documents.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
the sum of (i) Adjusted EBITDA for such period plus (ii) rental expense deducted
in determining Consolidated Net Income for such period divided by (b) the sum of
rental expense and interest expense (excluding any portion of interest expense
representing amortization of financing costs paid in a previous period) deducted
in determining Consolidated Net Income for such period.
"FS&Co." means Freeman Spogli & Co., a California general partnership.
"Governmental Authority" means any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
--------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
<PAGE>
-19-
"Guarantee Agreement" means the Guarantee Agreement among the
Subsidiaries and the Agent, substantially in the form of Exhibit C hereto, as
amended from time to time.
"Incremental Capital Expenditures" means any Capital Expenditures made
in reliance upon the proviso to Section 5.24.
"Initial Control Group" means (i) FS&Co. and its affiliates and (ii)
The Limited and its subsidiaries; provided that the Borrower and its
--------
Subsidiaries shall not be considered to be affiliates of FS&Co. or subsidiaries
of The Limited for purposes of identifying the "Initial Control Group".
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing or Notice of Interest Rate Election; provided that:
---------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment of
principal of the Loans of the applicable Class is required to be made under
<PAGE>
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subsection (a), (b) or (c) of Section 2.08 but does not end on such date,
then (i) the principal amount (if any) of each Euro-Dollar Loan required to
be repaid on such date shall have an Interest Period ending on such date
and (ii) the remainder (if any) of each such Euro-Dollar Loan shall have an
Interest Period determined as set forth above; and
(2) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending on the next Quarterly Payment Date that occurs
thereafter; provided that:
--------
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b)(i) below) which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment of
principal of the Loans of the applicable Class is required to be made under
subsection (a), (b) or (c) of Section 2.08 but does not end on such date,
then (i) the principal amount (if any) of each Base Rate Loan required to
be repaid on such date shall have an Interest Period ending on such date
and (ii) the remainder (if any) of each such Base Rate Loan shall have an
interest Period determined as set forth above.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Issuing Banks" means (i) The Bank of Nova Scotia and (ii) any other
Lender that shall enter into an Issuing Bank Agreement as provided in Section
2.13(m), in each case
<PAGE>
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in their capacities as the issuers of Letters of Credit, and their respective
successors in such capacity.
"Issuing Bank Agreement" has the meaning set forth in Section 2.13.
"Lender" means each bank or other financial institution listed on the
signature pages hereof, each Assignee which becomes a Lender pursuant to Section
10.06(c), and their respective successors.
"Letter of Credit" means any letter of credit issued pursuant to
Section 2.13.
"Letter of Credit Disbursement" means a payment or disbursement made
by an Issuing Bank pursuant to a Letter of Credit.
"Letter of Credit Exposure" means at any time the sum of (i) the
aggregate undrawn amount of all outstanding Letters of Credit plus (ii) the
aggregate amount of all Letter of Credit Disbursements not yet reimbursed by the
Borrower as provided in Section 2.13. The Letter of Credit Exposure of any
Lender at any time shall mean its Applicable Percentage of the aggregate Letter
of Credit Exposure at such time.
"Level I Pricing Period" means any period on or after the Pricing
Adjustment Date during which the Pricing Ratio is less than or equal to 2.00:1
and no Event of Default has occurred and is continuing.
"Level II Pricing Period" means any period on or after the Pricing
Adjustment Date during which the Pricing Ratio is greater than 2.00:1 but less
than or equal to 2.50:1 and no Event of Default has occurred and is continuing.
"Level III Pricing Period" means any period on or after the Pricing
Adjustment Date during which the Pricing
<PAGE>
-22-
Ratio is greater than 2.50:1 but less than or equal to 3.00:1 and no Event of
Default has occurred and is continuing.
"Level IV Pricing Period" means any period on or after the Pricing
Adjustment Date during which the Pricing Ratio is greater than 3.00:1 but less
than or equal to 3.50:1 and no Event of Default has occurred and is continuing.
"Level V Pricing Period" means any period on or after the Pricing
Adjustment Date that is not a Level I Pricing Period, a Level II Pricing Period,
a Level III Pricing Period or a Level IV Pricing Period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Loan" means a Term Loan or a Revolving Loan, whether made as a Base
Rate Loan or a Euro-Dollar Loan, and "Loans" means Term Loans or Revolving Loans
or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, the Letters of
Credit, the Guarantee Agreement, the Trademark Collateral Agreement and the
Security Documents.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Management Notes" means promissory notes payable to the Borrower from
members of management of the Borrower and contributed to the Borrower as an
equity investment in the Borrower; provided that the aggregate principal amount
--------
<PAGE>
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of such promissory notes at any time outstanding shall not exceed $3,500,000.
"Margin Stock" has the meaning given such term under Regulation U.
"Material Adverse Effect" means (i) a materially adverse effect on the
assets, financial condition or results of operations of the Borrower and its
Consolidated Subsidiaries taken as a whole, (ii) material impairment of the
ability of the Borrower or any Subsidiary to perform any material Obligations
under the Loan Documents, or (iii) material impairment of the rights of or
benefits available to the Lenders under any Loan Document.
"Material Debt" means Debt of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal amount exceeding $5,000,000.
"Maximum Subordinated Debt Prepayment" means, with respect to any
Equity Prepayment Event, (i) if the Equity Prepayment Percentage with respect
thereto is 100%, then $0.00, (ii) if the Equity Prepayment Percentage with
respect thereto is 75%, then an amount equal to 25% of the Equity Prepayment
Percentage of the Net Cash Proceeds in respect of such Equity Prepayment Event,
(iii) if the Equity Prepayment Percentage with respect thereto is 50%, then an
amount equal to 50% of the Equity Prepayment Percentage of the Net Cash Proceeds
in respect of such Equity Prepayment Event, or (iv) if the Equity Prepayment
Percentage with respect thereto is 0.0%, then $0.00; provided that, in the case
--------
of an Equity Prepayment Event occurring prior to the date that is 180 days after
the Effective Date, "Maximum Subordinated Debt Prepayment" means an amount equal
to 35% of the Net Cash Proceeds in respect of such Equity Prepayment Event.
"Minimum Adjusted Net Worth" means, at any date, the sum of (a)
$80,000,000, plus (b) 90% (or, if as of the end of the fiscal quarter for which
an amount is being
<PAGE>
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calculated for purposes of this clause (b) "Minimum Adjusted Net Worth" exceeds
$150,000,000, then 50%) of the excess of (i) Consolidated Net Income in respect
of each fiscal quarter of the Borrower ending after the Effective Date and prior
to such date of determination (adjusted as provided below), minus (ii) as long
as the Borrower is a partnership, the decrease in Consolidated Adjusted Net
Worth attributable to Tax Advances and Tax Distributions made in respect of the
Tax Distribution Amount for such fiscal quarter, plus (c) 90% of each increase
in Consolidated Adjusted Net Worth attributable to the issuance of additional
partnership interests or equity securities by, or capital contributions to, or
other equity investments in, the Borrower after the Effective Date; provided
--------
that (i) "Minimum Adjusted Net Worth" shall not decrease if the amount
determined pursuant to clause (b) above in respect of any fiscal quarter is
negative (and any such negative amount shall be disregarded in calculating
"Minimum Adjusted Net Worth") and (ii) for purposes of clause (b) above,
Consolidated Net Income shall be adjusted to eliminate the effects thereon of
[the amortization of the initial write-up of inventories resulting from the
Acquisition and] any accounting adjustments resulting from a Conversion.
"Mortgage" means a mortgage, deed of trust or other security document
granting a lien on a Mortgaged Property to secure the Obligations.
"Mortgaged Property" means each real property and the improvements
thereto identified on Schedule [ ].
"Net Cash Proceeds" means, with respect to any Prepayment Event or
Reinvestment Event or any other event requiring a calculation of "Net Cash
Proceeds" hereunder, an amount equal to the cash proceeds (including insurance
proceeds and condemnation awards) received by the Borrower and its Subsidiaries
from or in respect of such event (including cash received as proceeds from any
noncash consideration received in respect of any such event), less (i) any
expenses reasonably incurred by the Borrower and its
<PAGE>
-25-
Subsidiaries in respect of such event, (ii) in the case of an Asset Sale
Prepayment Event or Reinvestment Event, amounts required to be applied to repay
Debt (other than Loans or Subordinated Debt) associated with the assets or
properties subject to such Event and reasonable reserves established in good
faith by the Borrower to satisfy any indemnification obligations undertaken in
connection with such Event or to pay other retained liabilities associated with
such assets or properties, (iii) taxes paid or payable by the Borrower and its
Subsidiaries (as determined reasonably and in good faith by the chief financial
officer or chief accounting officer of the Borrower) in respect of such event
and (iv) as long as the Borrower is a partnership, the increase, if any, in the
Tax Distribution Amount attributable to such event (as determined reasonably and
in good faith by the chief financial officer or chief accounting officer of the
Borrower).
"Net Working Investment" means, at any date (i) the consolidated
current assets of the Borrower and its Consolidated Subsidiaries (excluding
cash, Temporary Cash Investments and the unamortized portion of the initial
write-up of inventories resulting from the Transactions) minus (ii) the
consolidated current liabilities of the Borrower and its Consolidated
Subsidiaries (excluding any current liabilities in respect of Debt), all
determined as of such date. Net Working Investment at any date may be a
positive or negative number. Net Working Investment increases when it becomes
more positive or less negative and decreases when it become less positive or
more negative.
"Note" means a promissory note of the Borrower payable to a Lender,
substantially in the form of Exhibit A hereto for the applicable Class,
evidencing the obligation of the Borrower to repay the Loans made by such Lender
of a particular Class, and "Notes" means any of or all such promissory notes
issued hereunder.
"Notice of Borrowing" has the meaning set forth in Section 2.02.
<PAGE>
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"Notice of Interest Rate Election" has the meaning set forth in
Section 2.04.
"Obligations" means (a) the due and punctual payment by the Borrower
of (i) the principal of and interest on the Loans, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under Section
2.13 in respect of any Letter of Credit Disbursement, when and as due, including
interest thereon, if any, (iii) all other monetary obligations of the Borrower
to the Agent, the Security Agent, the Issuing Banks and the Lenders under this
Agreement and the other Loan Documents to which the Borrower is or is to be a
party and (iv) all monetary obligations of the Borrower under any Rate
Protection Agreement entered into with a counterparty that was a Lender at the
time such Rate Protection Agreement was entered into, (b) the due and punctual
performance of all other obligations of the Borrower under this Agreement and
the other Loan Documents and (c) the due and punctual payment and performance of
all obligations of each Subsidiary under the Loan Documents to which it is or is
to be a party.
"Parent" means, with respect to any Lender, any Person controlling
such Lender.
"Parent Corporation" means any corporation that becomes the owner,
directly or indirectly, of all the outstanding partnership interests of the
Borrower pursuant to a Conversion.
"Participant" has the meaning set forth in Section 10.06(b).
"Partnership Agreement" means the partnership agreement of the
Borrower, as amended from time to time.
<PAGE>
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"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" means (a) any acquisition by the Borrower of
assets or properties (other than Investments) to be utilized in the Borrower's
business, or comprising a separate business of the same type conducted by the
Borrower prior to such acquisition, excluding assets and properties acquired in
the ordinary course of business or (b) any acquisition by the Borrower of all
the outstanding capital stock of a corporation; provided that (i) no Default has
--------
occurred and is continuing at the time of, or would result from, such
acquisition, (ii) the consideration paid by the Borrower in connection with such
acquisition consists entirely of cash or limited partnership interests in the
Borrower (or common stock of the Borrower or its Parent Corporation, if
applicable), or Permitted Preferred Stock, or warrants or options to acquire any
such limited partnership interests (or common stock) or Permitted Preferred
Stock, or a combination thereof, (iii) the aggregate cash consideration paid by
the Borrower in connection with such acquisition and all previous acquisitions
constituting "Permitted Acquisitions" does not exceed the sum of (A) $35,000,000
plus (B) the Net Cash Proceeds from Equity Prepayment Events previously received
by the Borrower minus (C) the sum of the aggregate amount that the Borrower has
expended to make Restricted Payments pursuant to clauses (f) and (g) of Section
5.12 plus the aggregate principal amount of Term Loans required to have been
prepaid pursuant to subsection (e) of Section 2.08 in respect of such Net Cash
Proceeds and pursuant to clause (g) of Section 5.12 in order to permit
Restricted Payments thereunder, and (iv) if such acquisition is made pursuant to
clause (b) above, then (A) substantially all the business of the acquired
corporation is of the same type as the business conducted by the Borrower prior
to such acquisition, (B) the acquired corporation does not have any Debt that
will remain outstanding after giving effect to such acquisition (other than Debt
that would be permitted under clause (vii) of
<PAGE>
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Section 5.11(a) if incurred by the Borrower at the time of such acquisition),
(C) such corporation does not have any subsidiaries (other than subsidiaries
that are liquidated or merged into the Borrower within 90 days after such
acquisition or that constitute Permitted Subsidiaries) and (D) such corporation
is liquidated or merged into the Borrower within 90 days after such acquisition.
Notwithstanding the foregoing, the Acquisition shall not be considered to be a
"Permitted Acquisition".
"Permitted Preferred Stock" means preferred stock issued by the
Borrower (if it becomes a corporation pursuant to a Conversion) that (a) does
not require payment of cash dividends, (b) is not subject to any mandatory
redemption or repurchase requirements and (c) is not convertible or
exchangeable (other than at the option of the Borrower or its Parent
Corporation) into or for any other security other than limited partnership
interests in the Borrower (or common stock of the Borrower or its Parent
Corporation, if applicable) or other securities that would constitute "Permitted
Preferred Stock" hereunder.
"Permitted Subsidiary" means any Subsidiary that (i) is a Wholly Owned
Consolidated Subsidiary and (ii) complies with the requirements set forth in
Section 5.04(c) or, in the case of Finance Corp., Section 5.04(b).
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and is either (i) maintained by a
member of the ERISA Group for employees of a member of the ERISA Group or (ii)
maintained pursuant to a collective
<PAGE>
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bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the ERISA Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"Pledge Agreement" means the Pledge Agreement among the Borrower, such
Subsidiaries as shall become parties thereto and the Security Agent,
substantially in the form of Exhibit D hereto, as amended from time to time.
"Prepayment Event" means an Asset Sale Prepayment Event, a Debt
Prepayment Event or an Equity Prepayment Event.
"Pricing Adjustment Date" means the day that is six months after the
Effective Date.
"Pricing Ratio" means, at any date, the ratio of (i) the consolidated
Debt of the Borrower and its Consolidated Subsidiaries (excluding (a) the Letter
of Credit Exposure and the amount of any other outstanding letters of credit,
except to the extent such Letter of Credit Exposure and other outstanding
letters of credit represent unreimbursed drawings thereunder; provided that
--------
amounts excluded under this clause (a) shall not exceed $75,000,000, and (b)
contingent liabilities to repurchase accounts receivable pursuant to the Credit
Card Agreements, to the extent such contingent liabilities constitute Debt),
determined on a consolidated basis, divided by (ii) Adjusted EBITDA for the most
recent period of four consecutive fiscal quarters of the Borrower for which
financial statements have been delivered to the Agent; provided that, solely for
--------
purposes of this definition, the consolidated Debt of the Borrower and its
Consolidated Subsidiaries shall be determined for purposes of clause (i) above
on the basis of (a) Term Loans outstanding on the last day of the most recent
fiscal quarter covered by the financial statements referred to in clause (ii)
above, and (b) the daily average outstanding amount of all other Debt during
such most recent
<PAGE>
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period of four consecutive fiscal quarters; provided further that if the
----------------
Acquisition or a Permitted Acquisition has occurred during the period since the
commencement of the period of four consecutive fiscal quarters for which such
Adjusted EBITDA has been determined and on or prior to such date of
determination, then such Adjusted EBITDA shall be determined on a pro forma
basis (i.e., based on the assumption that the Acquisition or such Permitted
----
Acquisition, as the case may be, occurred on the first day of such period of
four consecutive fiscal quarters) in accordance with generally accepted
accounting principles. A change in the Pricing Ratio shall be effective on the
date of receipt by the Agent of the Borrower's financial statements
demonstrating such change.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Payment Date" means each day that is the last Euro-Dollar
Business Day preceding the Saturday closest to January 31, April 30, July 31 and
October 31, of each year.
"Rate Protection Agreements" means interest rate protection
agreements, foreign currency exchange agreements and other interest or exchange
rate hedging, cap, collar or swap arrangements.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reinvestment Event" has the meaning set forth in the definition of
the term "Asset Sale Prepayment Event".
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA, or the regulations issued thereunder, with respect to a Plan
(other than those
<PAGE>
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excepted from such reporting requirements by virtue-thereof).
"Required Lenders" means at any time Lenders with Loans, Letter of
Credit Exposure and unused Commitments representing at least a majority of the
sum of the aggregate principal amount of Loans outstanding and the aggregate
amount of the Letter of Credit Exposure and unused Commitments at such time.
"Restricted Payment" means (a) any Tax Advance, Tax Distribution or
other distribution by the Borrower to any one or more of the partners in the
Borrower or otherwise on account of any partnership interest in the Borrower,
(b) if the Borrower shall become a corporation, any dividend or other
distribution on any shares of the Borrower's capital stock (except dividends
payable solely in shares of its common stock or Permitted Preferred Stock), (c)
any payment or other consideration on account of the purchase, redemption,
retirement or acquisition of (i) any partnership interest in the Borrower, any
shares of the Parent Corporation's capital stock or, if the Borrower becomes a
corporation, any shares of the Borrower's capital stock or (ii) any option,
warrant or other right to acquire any partnership interest in the Borrower, any
shares of the Parent Corporation's capital stock or, if the Borrower becomes a
corporation, any shares of the Borrower's capital stock, (d) any payment or
prepayment of principal of or premium (if any) or interest on or any other
amount in respect of any Subordinated Debt, or (e) any payment or other
consideration on account of the prepayment, purchase, redemption, retirement,
defeasance, acquisition, termination, cancellation or compromise of any
Subordinated Debt.
"Revolving Loan" means a loan made by a Lender pursuant to Section
2.01(c).
"Revolving Loan Availability Period" means the period from and
including the Effective Date to but excluding the Tranche A Maturity Date, or
such earlier date
<PAGE>
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as the Revolving Loan Commitments shall have expired or been terminated.
"Revolving Loan Commitment" means, as to any Lender, the obligation of
such Lender to make Revolving Loans to the Borrower and to acquire
participations in Letters of Credit in an aggregate principal amount at any one
time outstanding not exceeding the amount set forth opposite such Lender's name
in Schedule 1 hereto under the caption "Revolving Loan Commitment", as the same
may be reduced from time to time pursuant to Section 2.07 and subject to the
limitations of Sections 2.01(c) and 2.13.
"Security Agent" means Morgan Guaranty Trust Company of New York in
its capacity as security agent under the Security Documents and its successors
in such capacity.
"Security Agreement" means the Security Agreement among the Borrower,
its Subsidiaries and the Security Agent, substantially in the form of Exhibit E
hereto, as amended from time to time.
"Security Documents" means the Mortgages, the Pledge Agreement, the
Security Agreement and all other security agreements, mortgages, deeds of trust
and other documents and instruments executed and delivered pursuant to Section
5.08 in order to secure any Obligations.
"Subordinated Debt" means the Convertible Subordinated Debt and Debt
in respect of the Subordinated Notes or any Debt incurred in compliance with
clause (ii) of Section 5.11(a) to refinance the Convertible Subordinated Debt or
the Subordinated Notes.
"Subordinated Debt Documents" means any indentures, notes or other
agreements, instruments or securities evidencing or governing the terms of any
Subordinated Debt, including any agreements or instruments pursuant to which any
Subordinated Debt is guaranteed or secured.
<PAGE>
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"Subordinated Debt Prepayment Amount" has the meaning set forth in
Section 2.08(e).
"Subordinated Guarantee Agreement" means an agreement pursuant to
which a Subsidiary Guarantees Subordinated Debt and which (i) is required by the
terms of a Subordinated Debt Document, (ii) is subordinated to such Subsidiary's
Debt in respect of the Obligations on the same terms that the Subordinated Debt
is required to be subordinated, (iii) is unsecured and (iv) does not impose any
additional covenants or other obligations (other than covenants and obligations
already contained in the Subordinated Debt Documents which become applicable by
virtue of such agreement) upon such Subsidiary.
"Subordinated Notes" means the senior subordinated notes due September
1, 2003 jointly issued by the Borrower and Finance Corp. in the aggregate
principal amount of $125,000,000.
"Subsidiary" means any corporation or other entity (including any
partnership) of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Borrower.
"Tax Advance" means any loan made to a partner in the Borrower in
accordance with Section 5.01(c) of the Partnership Agreement.
"Tax Distribution" means any distribution made to a partner in the
Borrower in accordance with Section 5.01(b) or (d) of the Partnership Agreement.
"Tax Distribution Amount" means, in respect of any period during which
the Borrower is a partnership, an amount equal to (a) the sum of the highest
marginal Federal income tax rate and highest state and local income or franchise
tax rate applicable to any corporate partner in the Borrower on
<PAGE>
-34-
its income from the Borrower for such period, expressed as a percentage,
multiplied by (b) the Borrower's taxable income for such period; provided that
--------
(i) the foregoing shall be determined giving effect to the deduction of state
and local income and franchise taxes for purposes of determining Federal income
taxes, (ii) the foregoing shall be determined giving effect to any carryforward
of cumulative tax losses of the Borrower from any previous period (to the extent
not previously utilized) since the organization of the Borrower and any
investment tax credits and other tax credits generated by the Borrower and (iii)
if the Borrower remains a partnership after a Conversion occurs, the tax rates
determined pursuant to clause (a) above shall be based on the actual tax rates
applicable to the Parent Corporation. The "Tax Distribution Amount" for any
period may be estimated for any period, provided that such estimate is
reasonably made by the Borrower's chief financial officer or chief accounting
officer in good faith, but in the event that the Borrower files any Federal
income tax return that is inconsistent with its estimate for any period (or in
the event that it is subsequently determined that such estimate or the amounts
reflected in any such Federal income tax return were incorrect) then an
appropriate adjustment shall be made to the Tax Distribution Amount for the next
succeeding period or periods to reflect such discrepancy. The "Tax Distribution
Amount" also shall be increased by the amount of any Tax Distribution to be made
in accordance with Section 5.01(d) of the Partnership Agreement.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated in the highest grade by a nationally recognized credit rating agency,
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000, (iv)
repurchase agreements with respect to
<PAGE>
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securities described in clause (i) above entered into with an office of a bank
or trust company meeting the criteria specified in clause (iii) above, or (v)
any mutual fund managed by a reputable investment manager that invests
substantially all of its assets in Investments of the type described in clauses
(i), (ii), (iii) or (iv) above; provided in each case that such Investment
--------
matures within one year from the date of acquisition thereof by the Borrower or
a Subsidiary (except that an Investment described in clause (v) above need not
satisfy the foregoing maturity requirement, but such Investment shall be subject
to redemption on demand and the Investments made by such mutual fund shall
satisfy the foregoing maturity requirement).
"Term Commitment" means a Tranche A Term Commitment or a Tranche B
Term Commitment.
"Term Loan" means a Tranche A Term Loan or a Tranche B Term Loan.
"Termination Date" means the last day of the Revolving Loan
Availability Period or such earlier date as the Revolving Loan Commitments shall
have expired or been terminated, all Revolving Loans have been repaid in full,
all Letter of Credit Disbursements shall have been repaid in full, and all
Letters of Credit shall have expired or been canceled.
"The Limited" means The Limited, Inc., a Delaware corporation, and its
successors.
"Trademark Agreements" means, collectively, (i) the Trademark License
Agreement and the Electronic Media Trademark License Agreement previously
entered into among certain subsidiaries of The Limited as contemplated by the
Transaction Agreement, the rights of the licensees under which have been
assigned to the Borrower, as amended from time to time and (ii) each of (A) the
Assignment and License of Trademarks Agreement among The TJX Companies, Inc.,
<PAGE>
-36-
Chadwick's, Inc. and the Borrower, as amended from time to time, (B) the
Trademarks License Agreement among The TJX Companies, Inc. and the Borrower, as
amended from time to time, and (C) the Trademarks License Agreement among the
TJX Companies, Inc. and Chadwick's Trade Name Sub, Inc., as amended from time to
time, each to be entered into in connection with the Acquisition.
"Trademark Collateral Agreement" means the Trademark Collateral
Agreement among each of The Limited, certain subsidiaries thereof and the
Security Agent, substantially in the form of Exhibit F hereto, as amended from
time to time.
"Tranche A Maturity Date" means the last Euro-Dollar Business Day
preceding the Saturday closest to January 31, 2002.
"Tranche A Term Commitment" means, as to any Lender, the obligation of
such Lender to make Tranche A Term Loans to the Borrower in an aggregate
principal amount not exceeding the amount set forth opposite such Lender's name
in Schedule 1 hereto under the caption "Tranche A Term Commitment", as the same
may be reduced from time to time pursuant to Section 2.07.
"Tranche A Term Loan" means a loan made by a Lender pursuant to
Section 2.01(a).
"Tranche B Margin" means (a) with respect to any Tranche B Term Loan
that is a Base Rate Loan, 1.50%, and (b) with respect to any Tranche B Term Loan
that is a Euro-Dollar Loan, 2.50%.
"Tranche B Maturity Date" means the last Euro-Dollar Business Day of
the month of February 2003.
"Tranche B Term Commitment" means, as to any Lender, the obligation of
such Lender to make Tranche B Term Loans to the Borrower in an aggregate
principal amount not
<PAGE>
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exceeding the amount set forth opposite such Lender's name in Schedule 1 hereto
under the caption "Tranche B Term Commitment", as the same may be reduced from
time to time pursuant to Section 2.07.
"Tranche B Term Loan" means a loan made by a Lender pursuant to
Section 2.01(b).
"Transaction Agreement" means the Transaction Agreement dated as of
July 13, 1993, among VGP, VLP and certain subsidiaries of The Limited, as
amended from time to time.
"Transaction Documents" means (i) the Transaction Agreement, the
Partnership Agreement, the Credit Card Agreements, the Asset Purchase Agreements
and the Trademark Agreements and (ii) any and all contracts and agreements in
effect on the Effective Date between the Borrower and any Subsidiary, on the one
hand, and any Person in the Initial Control Group, on the other hand.
"Transactions" means the Financing Transactions and the Acquisition.
"Type" has the meaning set forth in Section 1.03.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all vested benefits under
such Plan exceeds (ii) the fair market value of all Plan assets, all determined
as of the then most recent valuation date for such Plan based on the actuarial
assumptions used to fund the Plan, but only to the extent that such excess
represents a potential liability of a member of the ERISA Group to the PBGC or
the Plan under Title IV of ERISA.
"VGP" means VGP Corporation, a Delaware corporation, and its
successors.
<PAGE>
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"VLP" means VLP Corporation, a Delaware corporation, and its
successors.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
------------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Lenders; provided that, if the Borrower notifies the Agent that the
--------
Borrower wishes to amend any covenant contained in Article V or the definition
of "Pricing Ratio" to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant or such definition (or
if the Agent notifies the Borrower that the Required Lenders wish to amend any
such covenant or such definition for such purpose), then the Borrower's
compliance with such covenant or the calculation of the Pricing Ratio, as
applicable, shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such amendment becomes effective in accordance with this Agreement.
SECTION 1.03. Types of Borrowings. The term "Borrowing" refers to
--------------------
the portion of the aggregate principal amount of Loans of any Class outstanding
hereunder which bears interest of a specific Type and for a specific
<PAGE>
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Interest Period (subject to clauses (1)(c), and (2)(b) of the definition of
Interest Period) pursuant to a Notice of Borrowing or Notice of Interest Rate
Election. Each Lender's ratable share of each Borrowing is referred to herein as
a separate "Loan". Borrowings and Loans hereunder are distinguished by "Class"
and by "Type". The "Class" of a Loan (or of a Commitment to make such a Loan or
of a Borrowing comprising such Loans) refers to whether such Loan is a Tranche A
Term Loan, a Tranche B Term Loan or a Revolving Loan, each of which constitutes
a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or
a Euro-Dollar Loan. Borrowings and Loans may be identified by both Class and
Type (e.g., a "Tranche A Euro-Dollar Loan" is a Loan which is both a Tranche A
----
Term Loan and a Euro-Dollar Loan).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. (a) Tranche A Term Loans. Each
-------------------- ---------------------
Lender having a Tranche A Term Loan Commitment severally agrees, on the terms
and conditions set forth in this Agreement, to make a loan to the Borrower on
the Effective Date in an aggregate principal amount not exceeding its Tranche A
Term Commitment.
(b) Tranche B Term Loans. Each Lender having a Tranche B Term Loan
---------------------
Commitment severally agrees, on the terms and conditions set forth in this
Agreement, to make a loan to the Borrower on the Effective Date in an aggregate
principal amount not exceeding its Tranche B Term Commitment.
(c) Revolving Loans. Each Lender having a Revolving Loan
---------------
Commitment severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower from time to time during the Revolving
Loan Availability Period; provided that the aggregate principal
--------
<PAGE>
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amount of such Lender's loans at any one time outstanding shall not exceed the
excess of (i) the lesser of its Revolving Loan Commitment or its Applicable
Percentage of the Borrowing Base at such time, over (ii) its Letter of Credit
Exposure at such time. Within the foregoing limit, the Borrower may borrow under
this subsection (c), repay or (to the extent permitted by Section 2.09) prepay
loans made under this subsection (c) and reborrow at any time during the
Revolving Loan Availability Period under this subsection (c).
(d) Borrowings Ratable. Each Borrowing under subsection (a), (b) or
-------------------
(c) of this Section 2.01 shall be made from the Lenders ratably in proportion to
their respective Commitments of the relevant Class.
SECTION 2.02. Method of Borrowing. (a) The Borrower shall give the
--------------------
Agent notice (a "Notice of Borrowing") not later than 10:00 A.M. (New York City
time) on the date of any Base Rate Borrowing and not later than 10:00 A.M. (New
York City time) at least three Euro-Dollar Business Days before each Euro-Dollar
Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing, which shall be
$5,000,000 or a larger multiple of $1,000,000 (except that any Borrowing
may be in the aggregate amount of the unused Commitment of the applicable
Class);
(iii) whether the Loans comprising such Borrowing are to be Base Rate
Loans or Euro-Dollar Loans; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable
<PAGE>
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thereto, subject to the provisions of the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Lender of the contents thereof and of such Lender's share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(c) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Lender shall (except as provided in subsection (d) of this
Section) make available its share of such Borrowing, in Federal or other funds
immediately available in New York City, to the Agent at its address specified in
or pursuant to Section 10.01. Unless the Agent determines that any applicable
condition specified in Article III has not been satisfied, the Agent will make
the funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
(d) If any Lender makes a new Loan hereunder on a day on which the
Borrower is to repay all or any part of an outstanding Loan from such Lender,
such Lender shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made available by such Lender to
the Agent as provided in subsection (b), or remitted by the Borrower to the
Agent as provided in Section 2.10, as the case may be.
(e) If the Agent has not received from the Borrower the payment
required by Section 2.13(g) by 12:30 P.M. (New York City time) on the date on
which an Issuing Bank has notified the Borrower and the Agent that payment of a
draft presented under any Letter of Credit will be made, as provided in Section
2.13(g), the Agent will promptly notify such Issuing Bank and each Lender of the
Letter of Credit Disbursement and, in the case of each Lender, its Applicable
Percentage of such Letter of Credit Disbursement. Not later than 2:00 P.M. (New
York City time)
<PAGE>
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on such date, each Lender shall make available such Lender's Applicable
Percentage of such Letter of Credit Disbursement, in Federal or other funds
immediately available in New York City, to the Agent at its address specified in
or pursuant to Section 10.01, and the Agent will promptly make such funds
available to the applicable Issuing Bank. The Agent will promptly remit to each
Lender that shall have made such funds available its Applicable Percentage of
any amounts subsequently received by the Agent from the Borrower in respect of
such Letter of Credit Disbursement.
(f) Unless the Agent shall have received notice from a Lender prior
to the date of any Borrowing, or prior to the time of any required payment by
such Lender in respect of a Letter of Credit Disbursement, that such Lender will
not make available to the Agent such Lender's share of such Borrowing or
payment, the Agent may assume that such Lender has made such share available to
the Agent on the date of such Borrowing or payment in accordance with
subsections (c) and (d) or (e), as applicable, of this Section 2.02 and the
Agent may, in reliance upon such assumption, make available to the Borrower or
an Issuing Bank, as applicable, on such date a corresponding amount. If and to
the extent that such Lender shall not have so made such share available to the
Agent, such Lender and the Borrower severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available by the Agent until the
date such amount is repaid to the Agent, at (i) in the case of the Borrower, a
rate per annum equal to the higher of the Federal Funds Rate and the interest
rate applicable thereto pursuant to Section 2.05 or Section 2.13(g), as
applicable, and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall repay to the Agent such corresponding amount in respect of a
Borrowing, such amount so repaid shall constitute such Lender's Loan included in
such Borrowing for purposes of this Agreement.
<PAGE>
-43-
SECTION 2.03. Notes. (a) Each Lender's Tranche A Term Loans,
------
Tranche B Term Loans and Revolving Loans shall be evidenced by a separate Note
(in the form applicable to such Class) payable to the order of such Lender for
the account of its Applicable Lending Office in an amount equal to (i) in the
case of its Note evidencing Tranche A Term Loans or Tranche B Term Loans, the
aggregate principal amount of Term Loans of such Class made by such Lender (or
its predecessor in interest) on the Effective Date, or (ii) in the case of its
Note evidencing Revolving Loans, the aggregate Commitment of such Lender of such
Class.
(b) Each Lender may, by notice to the Borrower and the Agent, request
that its Loans of a particular Type and Class be evidenced by a separate Note.
Each such Note shall be in substantially the form of Exhibit A hereto applicable
to the relevant Class with appropriate modifications to reflect the fact that it
evidences solely Loans of the relevant Type. Each reference in this Agreement
to the "Note" or "Notes" of such Lender shall be deemed to refer to and include
any or all of such Notes, as the context may require.
(c) Upon receipt of each Lender's Note or Notes pursuant to Section
3.01(b), the Agent shall mail such Note or Notes to such Lender. Each Lender
shall record the date and amount of each Loan made by it and the date and amount
of each payment of principal made by the Borrower with respect thereto, and
prior to any transfer of any of its Notes shall endorse on the schedule forming
a part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of any
--------
Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Lender is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
<PAGE>
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SECTION 2.04. Interest Rate Elections. (a) The initial Type of
------------------------
Loans comprising each Borrowing, and the duration of the initial Interest Period
applicable thereto if they are initially Euro-Dollar Loans, shall be as
specified in the applicable Notice of Borrowing. Thereafter, the Borrower may
from time to time elect to change or continue the Type of, or the duration of
the Interest Period applicable to, the Loans included in any Borrowing
(excluding overdue Loans and subject in each case to the provisions of the
definition of Interest Period and Article VIII), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
designate such Loans as Euro-Dollar Loans, may elect to continue such Loans
as Base Rate Loans for an additional Interest Period, or may elect to
designate such Loans as any combination of Base Rate Loans and Euro-Dollar
Loans; and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
designate such Loans as Base Rate Loans, may elect to continue such Loans
as Euro-Dollar Loans for an additional Interest Period, or may elect to
designate such Loans as any combination of Base Rate Loans and Euro-Dollar
Loans.
Notwithstanding the foregoing, the Borrower may not elect an Interest Period for
Euro-Dollar Loans of any Class unless (A) the aggregate outstanding principal
amount of such Euro-Dollar Loans (including any such Euro-Dollar Loans of the
same Class made pursuant to Section 2.01 on the date that such Interest Period
is to begin) to which such Interest Period will apply is at least $5,000,000 and
(B) such election will not result in the total number of outstanding Euro-Dollar
Borrowings exceeding 10 at any time.
(b) Any election permitted by subsection (a) of this Section may
become effective on any Euro-Dollar Business Day specified by the Borrower (the
"Election Date"); provided that the Borrower may not specify an
--------
<PAGE>
-45-
Election Date with respect to an outstanding Euro-Dollar Loan that is not the
last day of the Interest Period therefor. Each such election shall be made by
the Borrower by delivering a notice (a "Notice of Interest Rate Election") to
the Agent not later than 10:00 A.M. (New York City time) at least one Domestic
Business Day before the Election Date, if all the resulting Loans will be Base
Rate Loans, and at least three Euro-Dollar Business Days before the Election
Date, if the resulting Loans will include Euro-Dollar Loans. Each Notice of
Interest Rate Election shall specify with respect to the outstanding Loans to
which such notice applies:
(i) the Election Date;
(ii) if the Type of Loan is to be changed, the new Type of Loan and,
if such new Type is a Euro-Dollar Loan, the duration of the first Interest
Period applicable thereto;
(iii) if such Loans are Euro-Dollar Loans and the Type of such Loans
is to be continued for an additional or different Interest Period, the
duration of such additional or different Interest Period; and
(iv) if such Loans are to be designated as a combination of Base
Rate Loans and Euro-Dollar Loans, the information specified in clauses (i)
through (iii) above as to each resulting Borrowing and the aggregate amount
of each such Borrowing.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period and the last
sentence of subsection (a) of this Section.
(c) Upon receipt of a Notice of Interest Rate Election, the Agent
shall promptly notify each Lender of the contents thereof and of such Lender's
share of such
<PAGE>
-46-
Borrowing and such notice shall not thereafter be revocable by the Borrower.
(d) If the Borrower (i) fails to deliver a timely Notice of Interest
Rate Election to the Agent electing to continue or change the Type of, or the
duration of the Interest Period applicable to, the Loans included in any
Borrowing as provided in this Section and (ii) has not theretofore delivered a
notice of prepayment relating to such Loans, then the Borrower shall be deemed
to have given the Agent a Notice of Interest Rate Election electing to change
the Type of such Loans to (or continue the Type thereof as) Base Rate Loans,
with an Interest Period commencing on the last day of the then current Interest
Period.
SECTION 2.05. Interest Rates. (a) Each Base Rate Loan shall bear
---------------
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the sum of
the applicable Base Rate Margin at the time and the Base Rate for such day.
Such interest shall be payable for each Interest Period on the last day thereof.
Any overdue principal of and, to the extent permitted by law, overdue interest
on any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 2% plus the rate otherwise
applicable to such Base Rate Loan for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the sum of the applicable Euro-Dollar Margin at the time plus
the applicable Adjusted London Interbank Offered Rate. Such interest shall be
payable for each Interest Period on the last day thereof and, if such Interest
Period is longer than three months, at intervals of three months after the first
day thereof.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum
<PAGE>
-47-
equal to the quotient obtained (rounded upwards, if necessary, to the next
higher 1/100 of l%) by dividing (i) the applicable London Interbank Offered Rate
by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upwards, if necessary, to the next higher 1/16 of l%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents). The Adjusted London Interbank Offered Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
(c) Any overdue principal of and, to the extent permitted by law,
overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand,
for each day from and including the date payment thereof was due to but
excluding the date of actual payment, at a rate per annum equal to the sum of 2%
plus the higher of (i) the sum of the
<PAGE>
-48-
applicable Euro-Dollar Margin at the time plus the Adjusted London Interbank
Offered Rate applicable to such Loan and (ii) the applicable Euro-Dollar Margin
at the time plus the quotient obtained (rounded upwards, if necessary, to the
next higher 1/100 of l%) by dividing (x) the average (rounded upwards, if
necessary, to the next higher 1/16 of 1%) of the respective rates per annum at
which one-day (or, if such amount due remains unpaid more than three Euro-Dollar
Business Days, then for such other period of time not longer than three months
as the Agent may select) deposits in dollars in an amount approximately equal to
such overdue payment due to each of the Euro-Dollar Reference Banks are offered
to such Euro-Dollar Reference Bank in the London interbank market for the
applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar
Reserve Percentage (or, if the circumstances described in clause (a) or (b) of
Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the
rate applicable to Base Rate Loans for such day).
(e) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Lenders by telecopy, telex or cable of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(f) Each Euro-Dollar Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If any Euro-
Dollar Reference Bank does not furnish a timely quotation, the Agent shall
determine the relevant interest rate on the basis of the quotation or quotations
furnished by the remaining Euro-Dollar Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.06. Commitment Fees. During the period from and including
----------------
the date of execution and delivery of this Agreement to but excluding the last
day of the
<PAGE>
-49-
Revolving Loan Availability Period, the Borrower shall pay to the Agent for the
account of the Lenders ratably in proportion to their Revolving Loan Commitments
a commitment fee at the applicable rate specified below on the daily average
amount by which the aggregate amount of the Revolving Loan Commitments exceeds
the sum of the Letter of Credit Exposure and the aggregate outstanding principal
amount of the Revolving Loans. Such commitment fee shall accrue at the rate of
(i) 0.25% per annum during any Level I Pricing Period, (ii) 0.375% per annum
during any Level II Pricing Period, (iii) 0.4375% per annum during any Level III
Pricing Period or (iv) 0.50% at all other times. If the rate at which the
commitment fee accrues shall change, the daily average amount referred to above
shall be determined separately for the periods before and after such change.
During the period from and including the date of execution and delivery of this
Agreement to but excluding the Effective Date or earlier termination of the Term
Commitments, the Borrower shall pay to the Agent for the account of the Lenders
ratably in proportion to their Term Commitments a commitment fee at the rate of
0.50% per annum on the amount of their respective Term Commitments. All such
commitment fees shall accrue from and including the date of execution and
delivery of this Agreement to but excluding, in the case of the Term
Commitments, the Effective Date or earlier termination of the Term Commitments,
or, in the case of the Revolving Loan Commitments, the last day of the Revolving
Loan Availability Period. Accrued commitment fees under this paragraph shall be
calculated by the Agent as of the Effective Date, as of each Quarterly Payment
Date and as of the date of termination of the Revolving Loan Commitments in
their entirety. The Agent shall make such calculation and notify the Borrower of
the amount so calculated within three Domestic Business Days after each date as
of which such calculation is so required, and such fees shall be payable by the
Borrower upon receipt of such notice, except that commitment fees accrued prior
to the Effective Date or any earlier termination of the Commitments shall be
payable on such date.
<PAGE>
-50-
SECTION 2.07. Termination or Reduction of Commitments. (a) During
----------------------------------------
the Revolving Loan Availability Period, the Borrower may, upon at least three
Domestic Business Days' notice to the Agent, (i) terminate the Revolving Loan
Commitments at any time, if there is no Letter of Credit Exposure at such time
and if no Revolving Loans are outstanding at such time, or (ii) ratably reduce
from time to time by an aggregate amount of $5,000,000 or any larger multiple of
$1,000,000 the aggregate amount of the Revolving Loan Commitments in excess of
the sum of the Letter of Credit Exposure and the aggregate outstanding principal
amount of the Revolving Loans; provided that the Borrower may not terminate or
--------
reduce the Revolving Loan Commitments pursuant to this subsection (a) at any
time that any Term Loans remain outstanding.
(b) After the Term Loans have been fully repaid, the Revolving Loan
Commitments shall be ratably reduced at each time that a prepayment would have
been required in respect of the Term Loans pursuant to subsection (e) or (f) of
Section 2.08 if Term Loans were then outstanding, by an amount equal to the
prepayment that would have been so required.
(c) The Term Commitments of each Class shall automatically terminate
at the close of business on the Effective Date.
SECTION 2.08. Mandatory Repayments and Prepayments. (a) Subject to
-------------------------------------
adjustment as provided in subsection (j) of this Section, on each date specified
below the Borrower shall repay (i) Tranche A Term Loans in the aggregate amount,
if any, set forth under the caption "Tranche A Amount" opposite such date and
(ii) Tranche B Term Loans in the aggregate amount, if any, set forth under the
caption "Tranche B Amount" opposite such date:
<TABLE>
<CAPTION>
Tranche A Amount Tranche B Amount
---------------- ----------------
<S> <C> <C>
May 3, 1997 $ 6,250,000 $ 250,000
August 2, 1997 $ 6,250,000 $ 250,000
</TABLE>
<PAGE>
-51-
<TABLE>
<CAPTION>
Tranche A Amount Tranche B Amount
---------------- ----------------
<S> <C> <C>
November 1, 1997 $ 6,250,000 $ 250,000
January 31, 1998 $ 6,250,000 $ 250,000
May 2, 1998 $10,000,000 $ 250,000
August 1, 1998 $10,000,000 $ 250,000
October 31, 1998 $10,000,000 $ 250,000
January 30, 1999 $10,000,000 $ 250,000
May 1, 1999 $11,250,000 $ 250,000
July 31, 1999 $11,250,000 $ 250,000
October 30, 1999 $11,250,000 $ 250,000
January 29, 2000 $11,250,000 $ 250,000
April 29, 2000 $12,500,000 $ 250,000
July 29, 2000 $12,500,000 $ 250,000
October 28, 2000 $12,500,000 $ 250,000
February 3, 2001 $12,500,000 $ 250,000
May 5, 2001 $13,250,000 $ 250,000
August 4, 2001 $13,250,000 $ 250,000
November 3, 2001 $13,250,000 $ 250,000
February 2, 2002 $13,250,000 $ 250,000
May 4, 2002 $11,000,000
August 3, 2002 $11,000,000
November 2, 2002 $11,000,000
February 1, 2003 $11,000,000
Tranche B Maturity Date $21,000,000
</TABLE>
(b) Any Tranche A Term Loans outstanding on the Tranche A Maturity
Date shall be due and payable on such date, together with accrued interest
thereon. Any Tranche B Term Loans outstanding on the Tranche B Maturity Date
shall be due and payable on such date, together with accrued interest thereon.
(c) Any Revolving Loans outstanding on the Termination Date shall be
due and payable on such date, together with accrued interest thereon.
(d) In the event and on each occasion that the sum of the Letter of
Credit Exposure plus the aggregate outstanding principal amount of the Revolving
Loans exceeds the lesser of the Borrowing Base or the sum of the Revolving Loan
Commitments, the Borrower shall forthwith prepay
<PAGE>
-52-
Revolving Loans (or, if no Revolving Loans are outstanding, provide cash
collateral in respect of the Letter of Credit Exposure pursuant to Section
2.13(k) and thereupon such cash shall be deemed to reduce the Letter of Credit
Exposure by an equivalent amount solely for purposes of this subsection) in an
amount equal to such excess.
(e) In the event and on each occasion after the Effective Date that a
Prepayment Event occurs, the Borrower shall, promptly following (and in any
event not later than the Domestic Business Day next following) the receipt of
Net Cash Proceeds in respect of such Prepayment Event, prepay Term Loans as
provided in subsection (i) of this Section in an aggregate principal amount
equal to 100% of such Net Cash Proceeds, in the case of an Asset Sale Prepayment
Event or Debt Prepayment Event, or the applicable Equity Prepayment Percentage
of such Net Cash Proceeds, in the case of an Equity Prepayment Event; provided
--------
that (i) no such prepayment shall be required in an aggregate principal amount
less than $1,000,000 and any receipt of Net Cash Proceeds that would otherwise
result in prepayment of a lesser amount shall cumulate until the aggregate
amount of Net Cash Proceeds from Prepayment Events received and not yet applied
hereunder equals or exceeds $1,000,000, at which time such prepayment shall be
made, and (ii) in the case of an Equity Prepayment Event, if no Default has
occurred and is continuing at the time, the Borrower may, at its option, elect
by notice delivered to the Agent on or prior to the date that the prepayment in
respect of such event would be required pursuant to the foregoing provisions of
this subsection (e), to apply an amount specified in such notice (the amount so
specified, the "Subordinated Debt Prepayment Amount") to purchase, redeem,
prepay or acquire Subordinated Debt in accordance with clause (f) of Section
5.12; provided that the Subordinated Debt Prepayment Amount in respect of any
--------
Equity Prepayment Event shall not exceed the Maximum Subordinated Debt
Prepayment with respect thereto. If the Borrower delivers to the Agent a notice
with respect to an Equity Prepayment Event as provided in clause (ii) above,
then the prepayment of Term Loans required pursuant to this
<PAGE>
-53-
subsection (e) with respect to such event shall be reduced by the Subordinated
Debt Prepayment Amount specified in such notice; provided that on the date 90
--------
days after the date that such prepayment would have been required the Borrower
shall deliver to the Agent a certificate specifying the aggregate amount of
Restricted Payments made pursuant to clause (f) of Section 5.12 in respect of
the applicable Equity Prepayment Event and shall prepay Term Loans in an
aggregate principal amount equal to the excess, if any, of the Subordinated Debt
Prepayment Amount specified by the Borrower in its notice to the Agent referred
to above over the aggregate amount of Restricted Payments so made.
(f) As promptly as practicable but in any event within 90 days after
the end of each fiscal year of the Borrower, commencing with the fiscal year
ending on the Saturday closest to January 31, 1998, the Borrower shall prepay
Term Loans as provided in subsection (i) of this Section in an aggregate
principal amount equal to the Excess Cash Flow with respect to such fiscal year
multiplied by (i) 67%, if the Debt Coverage Ratio as of the last day of such
fiscal year was greater than or equal to 2.50:1 or (ii) 50%, if the Debt
Coverage Ratio as of the last day of such fiscal year was less than 2.50:1 but
greater than or equal to 2.00:1; provided that no prepayment shall be required
--------
pursuant to this subsection (f) with respect to the Excess Cash Flow for any
fiscal year if the Debt Coverage Ratio as of the last day of such fiscal year
was less than 2.00:1. The Borrower shall deliver to the Agent at or prior to
the time of each prepayment pursuant to this subsection (f) a certificate
executed by the chief financial officer of the Borrower setting forth, in a form
acceptable to the Agent, a reasonably detailed calculation of the amount of such
prepayment.
(g) On the date of each repayment or prepayment of Loans pursuant to
this Section, the Borrower shall pay interest accrued on the principal amount
repaid or prepaid to the day of repayment or prepayment. The repayments and
prepayments of the Loans required by the respective subsec-
<PAGE>
-54-
tions of this Section and the optional prepayments permitted by Section 2.09 are
separate and cumulative, so that any one such repayment or prepayment shall
reduce any other repayment or prepayment only as and to the extent specified in
subsection (j) of this Section.
(h) Prior to the date of each mandatory repayment or prepayment
pursuant to this Section, the Borrower shall, by notice to the Agent given not
later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day
prior to the date of such repayment or prepayment, select which outstanding
Borrowings of the required Class are to be repaid or prepaid (in accordance with
subsection (i) of this Section, if applicable); provided that the Borrower shall
--------
not elect to prepay any Euro-Dollar Borrowing if a Base Rate Borrowing of the
required Class is outstanding. Upon receipt of such notice, the Agent shall
promptly notify each Lender of the contents thereof and of such Lender's ratable
share of such prepayment, and such notice shall not thereafter be revocable by
the Borrower. Each such repayment or prepayment shall be applied to repay or
prepay ratably the respective Loans included in the Borrowings so selected.
(i) In the event of any mandatory prepayment of Term Loans pursuant
to subsection (e) or (f) of this Section, or any optional prepayment of Term
Loans pursuant to Section 2.09, at a time when Term Loans of both Classes remain
outstanding, the Borrower shall select Borrowings to be prepaid so that the
aggregate amount of each such prepayment is allocated between Borrowings of
Tranche A Term Loans and Borrowings of Tranche B Term Loans pro rata based on
the aggregate principal amount of outstanding Term Loans of each such Class;
provided that any Lender holding a Tranche B Term Loan may elect, by notice to
- --------
the Agent prior to the prepayment date, to decline all or any portion of any
such prepayment of its Tranche B Term Loans (other than an optional prepayment
of its Tranche B Term Loans pursuant to Section 2.09, which may not be
declined), in which case the aggregate amount that would have been applied to
prepay
<PAGE>
-55-
Tranche B Term Loans but was so declined shall be applied to prepay Tranche A
Term Loans.
(j) Any mandatory prepayment of the Term Loans of either Class
pursuant to subsection (e) or (f) of this Section, and any optional prepayment
of the Term Loans of either Class pursuant to Section 2.09, shall be applied to
reduce the remaining scheduled repayments of the Term Loans of such Class
pursuant to subsection (a) of this Section pro rata, except as provided in
clause (iv) of Section 5.11(a) with respect to a Debt Prepayment Event.
SECTION 2.09. Optional Prepayments. (a) Subject to subsection (b)
---------------------
below, the Borrower may, upon at least one Domestic Business Day's notice to the
Agent, in the case of Base Rate Borrowings, or three Euro-Dollar Business Days'
notice to the Agent, in the case of Euro-Dollar Borrowings, prepay any Borrowing
in whole at any time, or from time to time in part in amounts aggregating
$5,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such notice of prepayment shall specify which outstanding Borrowing is to
be prepaid in connection therewith. Each such optional prepayment shall be
applied to prepay ratably the Loans of the several Lenders included in such
Borrowing.
(b) Except as provided in Section 8.02, the Borrower may not
voluntarily prepay all or any portion of the principal amount of any Euro-Dollar
Borrowing prior to the end of the related Interest Period. Any prepayment of a
Borrowing pursuant to this Section that includes Term Loans of either Class
shall be subject to the requirements of subsection (i) of Section 2.08.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Lender of the contents thereof and of such
Lender's ratable share of such prepayment and such notice shall not thereafter
be revocable by the Borrower.
<PAGE>
-56-
SECTION 2.10. General Provisions as to Payments. (a) The Borrower
----------------------------------
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 10.01. The Agent will promptly distribute
to each Lender its ratable share of each such payment received by the Agent for
the account of the Lenders. Whenever any payment of principal of, or interest
on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-
Dollar Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the date for payment thereof shall be
the next preceding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment, each Lender shall
repay to the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Rate.
<PAGE>
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SECTION 2.11. Funding Losses. If any payment of principal with
---------------
respect to any Euro-Dollar Loan (pursuant to Article II, VI or VIII or
otherwise) is made on any day other than the last day of the Interest Period
applicable thereto, or the end of an applicable period fixed pursuant to Section
2.05(c), or if the Borrower fails to borrow, continue or prepay any Euro-Dollar
Loans after notice has been given to any Lender in accordance with Section 2.02,
2.04 or 2.08, the Borrower shall reimburse each Lender within 15 days after
demand for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation)
any loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
failure to borrow, provided that such Lender shall have delivered to the
--------
Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
SECTION 2.12. Computation of Interest and Fees. Interest based on
---------------------------------
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All fees and other
interest shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.13. Letters of Credit. (a) The Borrower may request the
------------------
issuance, extension or renewal of Letters of Credit, in a form reasonably
acceptable to the Agent and the applicable Issuing Bank, appropriately
completed, for the account of the Borrower, at any time and from time to time
during the Revolving Loan Availability Period; provided that any Letter of
--------
Credit shall be issued only if, and each request by the Borrower for the
issuance of any Letter of Credit shall be deemed a representation and warranty
of the Borrower that, immediately following the
<PAGE>
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issuance of any such Letter of Credit, (i) the Letter of Credit Exposure shall
not exceed $75,000,000, (ii) the sum of the Letter of Credit Exposure and the
aggregate principal amount of outstanding Revolving Loans shall not exceed the
then current Borrowing Base and (iii) the sum of the Letter of Credit Exposure
and the aggregate principal amount of outstanding Revolving Loans shall not
exceed the aggregate Revolving Loan Commitments at the time.
(b) Each Letter of Credit shall expire at the close of business on
the date that is five Domestic Business Days prior to the last day of the
Revolving Loan Availability Period, unless such Letter of Credit expires by its
terms (or is required by subsection (c) below to expire) on an earlier date.
Each Letter of Credit shall provide for payments of drawings in dollars.
(c) Each issuance of any Letter of Credit shall be made on at least
three Domestic Business Days' prior written or telex notice (or such shorter
notice as shall be acceptable to the applicable Issuing Bank) from the Borrower
to the Agent (which shall give prompt notice thereof to each Lender) and the
applicable Issuing Bank specifying the date of issuance, the date on which such
Letter of Credit is to expire (which shall not be later than the earlier of (i)
the date that is five Domestic Business Days prior to the last day of the
Revolving Loan Availability Period, and (ii) subject to extension, 180 days, in
the case of documentary or trade Letters of Credit, and one year, in the case of
standby Letters of Credit, after the date of any such Letter of Credit, or, if
such Letter of Credit provides that the expiry thereof may be accelerated upon
an Event of Default with respect to the Borrower specified in clause (h) or (i)
of Section 6.01, any later date permitted under clause (i) above), the amount of
such Letter of Credit, the name and address of the beneficiary of such Letter of
Credit, whether such Letter of Credit is a documentary or trade Letter of Credit
or a standby Letter of Credit, and such other information as may be necessary or
desirable to complete such Letter of Credit. Each Issuing Bank will give the
Agent prompt notice of the issuance and amount of such Letter of Credit and the
expiration of such Letter of Credit. Each Issuing Bank also will give the Agent
and the Borrower (i) daily notice of the amount available to be drawn under each
outstanding Letter of Credit and (ii) a quarterly summary indicating, on a daily
basis during such quarter, the issuance of any Letter of Credit and the amount
thereof, the expiration of any Letter of Credit and any payment on drafts
presented under Letters of Credit.
<PAGE>
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(d) Each Issuing Bank that issues a Letter of Credit, by the issuance
of a Letter of Credit and without any further action on the part of such Issuing
Bank or the Lenders in respect thereof, hereby grants to each Lender, and each
Lender hereby acquires from such Issuing Bank, a participation in such Letter of
Credit equal to such Lender's Applicable Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the issuance
of such Letter of Credit. In consideration and in furtherance of the foregoing,
each Lender hereby absolutely and unconditionally agrees to pay to the Agent, on
behalf of such Issuing Bank, in accordance with Section 2.02(e), such Lender's
Applicable Percentage of each Letter of Credit Disbursement made by such Issuing
Bank and not reimbursed by the Borrower when due in accordance with subsection
(g) of this Section; provided that the Lenders shall not be obligated to make
--------
any such payment with respect to any wrongful Letter of Credit Disbursement made
as a result of the gross negligence or wilful misconduct of the applicable
Issuing Bank.
(e) Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to subsection (d) above in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever (subject only to the proviso in subsection
(d) above).
(f) During the Revolving Loan Availability Period (and thereafter, so
long as any Letter of Credit remains outstanding), the Borrower shall pay (i) to
the Agent for the account of the Lenders ratably in proportion to their
Revolving Loan Commitments a fee on the amount available to be drawn under each
outstanding Letter of Credit at a rate per annum equal to the applicable Euro-
Dollar Margin from time to time in effect with respect to Revolving Euro-Dollar
Loans (minus 0.375%, in the case of documentary or trade Letters of Credit), and
(ii) to each Issuing Bank for its own account, a fee at the rate per annum
specified in such Issuing Bank's Issuing Bank Agreement on the amount available
to be drawn under each outstanding Letter of Credit issued by such Issuing Bank.
Such fees shall accrue from and including the Effective Date to but excluding
the last day of the Revolving Loan Availability Period (provided that such fees
shall continue to accrue so long as any Letter of Credit remains outstanding).
Accrued fees under this subsection shall be calculated by the Agent as of each
Quarterly Payment Date and as of the Termination Date. The Agent shall make
such calculation and notify the Borrower of
<PAGE>
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the amount so calculated within three Domestic Business Days after each date as
of which such calculation is so required, and such fees shall be payable by the
Borrower upon receipt of such notice. In addition to the foregoing, the Borrower
shall pay directly to each Issuing Bank, for its own account, such Issuing
Bank's customary processing and documentation fees in connection with the
issuance or amendment of or payment on any Letter of Credit, payable within 15
days after demand therefor by such Issuing Bank.
(g) If an Issuing Bank shall pay any draft presented under a Letter
of Credit, the Borrower shall pay to the Agent, on behalf of such Issuing Bank,
an amount equal to the amount of such draft before 12:00 Noon (New York City
time), on the day on which such Issuing Bank shall have notified the Borrower
that payment of such draft will be made. The Agent will promptly pay any such
amounts received by it to such Issuing Bank. If the Borrower shall fail to pay
any amount required to be paid by it under this subsection when due, such unpaid
amount shall bear interest, for each day from and including the due date to but
excluding the date of payment, at a rate per annum equal to the interest rate
applicable to overdue Base Rate Revolving Loans.
(h) The Borrower's obligation to reimburse Letter of Credit
Disbursements as provided in subsection (g) above shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance with
the terms of this Agreement under any and all circumstances whatsoever, and
irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any other Loan Document;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower, any Subsidiary or any other person may at any time have
against the beneficiary under any Letter of Credit, any Issuing Bank, the
Agent or any Lender or any other Person in connection with this Agreement,
any other Loan Document
<PAGE>
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or any other related or unrelated agreement or transaction;
(iii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(iv) payment by any Issuing Bank under a Letter of Credit against
presentation of a draft or other document which does not comply with the
terms of such Letter of Credit; provided that such payment was not
--------
wrongfully made as a result of the gross negligence or wilful misconduct of
the applicable Issuing Bank; and
(v) any other act or omission or delay of any kind or any other
circumstance or event whatsoever, whether or not similar to any of the
foregoing and whether or not foreseeable, that might, but for the
provisions of this subsection (h), constitute a legal or equitable
discharge of the Borrower's obligations hereunder.
(i) It is expressly understood and agreed that, for purposes of
determining whether a wrongful payment under a Letter of Credit resulted from an
Issuing Bank's gross negligence or wilful misconduct, an Issuing Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary
and, in making any payment under any Letter of Credit (i) an Issuing Bank's
exclusive reliance on the documents presented to it under such Letter of Credit
as to any and all matters set forth therein, including reliance on the amount of
any draft presented under such Letter of Credit, whether or not the amount due
to the beneficiary thereunder equals the amount of such draft and whether or not
any document presented pursuant to such Letter of Credit proves to be
insufficient in any respect, if such document on its face appears to be in
order, and whether or not any other statement or any other document presented
pursuant to such Letter of Credit
<PAGE>
-62-
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial
respect of the documents presented under such Letter of Credit with the terms
thereof shall, in each case, be deemed not to constitute wilful misconduct or
gross negligence of the applicable Issuing Bank. It is further understood and
agreed that, notwithstanding the proviso to clause (iv) of subsection (h) above,
the Borrower's obligation hereunder to reimburse Letter of Credit Disbursements
will not be excused by the gross negligence or wilful misconduct of an Issuing
Bank to the extent that such Letter of Credit Disbursement actually discharged a
liability of, or otherwise benefited, or was recovered by, the Borrower;
provided that the foregoing shall not be construed to excuse an Issuing Bank
- --------
from liability to the Borrower to the extent of any direct damages suffered by
the Borrower that are caused by such Issuing Bank's gross negligence or wilful
misconduct in determining whether drafts and other documents presented under a
Letter of Credit comply with the terms thereof.
(j) Each Issuing Bank shall, promptly following its receipt thereof,
examine all documents purporting to represent a demand for payment under a
Letter of Credit. Each Issuing Bank shall as promptly as possible give
telephonic notification, confirmed by telex or telecopy, to the Agent and the
Borrower of such demand for payment and whether such Issuing Bank has made or
will make a Letter of Credit Disbursement thereunder, provided that the failure
to give such notice shall not relieve the Borrower of its obligation to
reimburse any such Letter of Credit Disbursement in accordance with this
Section. The Agent shall promptly give each Lender notice thereof.
(k) In the event that the Borrower is required pursuant to the terms
of this Agreement or any other Loan Document to provide cash collateral in
respect of the Letter of Credit Exposure, the Borrower shall deposit in an
account with the Security Agent, for the benefit of the Lenders, an amount in
cash equal to the Letter of Credit Exposure (or such lesser amount as shall be
required hereunder or
<PAGE>
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thereunder). Such deposit shall be held by the Security Agent as collateral for
the payment and performance of the Obligations. The Security Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account. Other than any interest earned on the investment of such
deposits in Temporary Cash Investments, which investments shall be made as
directed by the Borrower (unless such investments shall be contrary to
applicable law or regulation or a Default shall have occurred and be continuing,
in which case investments shall be made at the option and sole but reasonable
discretion of the Security Agent), such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall automatically be applied by the Security
Agent to reimburse each Issuing Bank for Letter of Credit Disbursements and, if
the maturity of the Loans has been accelerated, to satisfy the Obligations. If
the Borrower is required to provide an amount of cash collateral hereunder as a
result of an Event of Default, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three Domestic Business Days
after all Events of Default have been cured or waived. If the Borrower is
required to provide an amount of cash collateral hereunder pursuant to Section
2.08(d), such amount (to the extent not applied as aforesaid) shall be returned
to the Borrower upon demand; provided that, after giving effect to such return,
--------
(i) the sum of the Letter of Credit Exposure plus the aggregate outstanding
principal amount of Revolving Loans would not exceed the lesser of the aggregate
Revolving Loan Commitments or the Borrowing Base and (ii) no Default shall have
occurred and be continuing.
(l) All letters of credit outstanding under the Existing Credit
Agreement as of the Effective Date shall be deemed to have been issued hereunder
on the Effective Date and shall constitute "Letters of Credit" for all purposes
of the Loan Documents.
<PAGE>
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(m) The Borrower, the Agent and any Lender that is willing to be an
Issuing Bank hereunder may agree that such Lender shall be an Issuing Bank by
the execution and delivery of an agreement substantially in the form of Exhibit
I (an "Issuing Bank Agreement"). The Agent shall notify the Lenders of the
identity of any Issuing Bank appointed pursuant to this subsection (m). The
Borrower also may terminate the status of any Issuing Bank as an Issuing Bank
hereunder at any time by at least three Domestic Business Days' prior notice to
such Issuing Bank and the Agent, and the Agent shall thereupon notify the
Lenders of such termination; provided that such termination shall operate only
--------
to relieve such Issuing Bank of its obligation to issue Letters of Credit
hereunder and shall not affect such Issuing Bank's status as an Issuing Bank or
its rights and obligations hereunder with respect to any Letters of Credit
previously issued by it.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective
--------------
on the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 10.05):
(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party);
(b) receipt by the Agent for the account of each Lender of a duly
executed Note or Notes, dated on or before the Effective Date complying
with the provisions of Section 2.03;
<PAGE>
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(c) receipt by the Agent of (i) opinions of each of Riordan &
McKinzie, Richards & O'Neil, Foley, Hoag & Elliot and Ice Miller Donadio &
Ryan, in each case as counsel for the Borrower, substantially in the forms
of Exhibits G-1, G-2, G-3 and G-4 hereto, respectively, and covering such
additional matters relating to the transactions contemplated hereby as the
Required Lenders may reasonably request and (ii) the opinions of counsel to
be delivered pursuant to the Asset Purchase Agreements, together with
letters from such counsel to the effect that the Lenders may rely upon
their respective opinions as though addressed to the Lenders;
(d) receipt by the Agent of a certificate signed by the Chairman and
Chief Executive Officer and any Vice President of the Borrower, dated the
Effective Date, to the effect set forth in clauses (c) and (d) of Section
3.02;
(e) receipt by the Agent of counterparts of the Guarantee Agreement
duly executed by the parties thereto;
(f) receipt by the Security Agent of counterparts of the Pledge
Agreement, duly executed by the parties thereto, and certificates
representing all outstanding shares of capital stock of each corporate
Subsidiary existing on the Effective Date, accompanied by stock powers
endorsed in blank;
(g) receipt by the Security Agent of counterparts of the Security
Agreement, duly executed by the parties thereto, and a duly completed and
executed Perfection Certificate from the Borrower, substantially in the
form of Exhibit H hereto;
(h) receipt by the Security Agent of copies of each document
(including each Uniform Commercial Code financing statement) required by
law or reasonably requested by the Security Agent to be filed, registered
<PAGE>
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or recorded in order to create in favor of the Security Agent for the
benefit of the Lenders a valid, legal and perfected security interest in or
lien on the collateral that is the subject of the Security Agreement;
(i) receipt by the Security Agent of the results of a search of the
Uniform Commercial Code filings made with respect to the Borrower and its
Subsidiaries in the States in which are located the chief executive offices
of such persons and the other jurisdictions in which Uniform Commercial
Code filings are to be made pursuant to the preceding paragraph, together
with copies of such financing statements disclosed by such search, and
accompanied by evidence that each lien indicated in any such financing
statement is permitted hereunder or has been released;
(j) receipt by the Security Agent of (i) counterparts of a Mortgage
with respect to each Mortgaged Property, satisfactory in form and substance
to the Security Agent and signed on behalf of the record owner of such
Mortgaged Property, (ii) a policy or policies of title insurance issued by
a nationally recognized title insurance company, insuring the Lien of each
such Mortgage as a valid first Lien on the Mortgaged Property described
therein, free of any other Liens except as permitted by Section 5.17,
together with such endorsements, coinsurance and reinsurance as the
Security Agent or the Required Lenders may reasonably request, (iii) such
surveys, abstracts, appraisals and legal opinions as may be required
pursuant to such Mortgages or as the Security Agent or the Required Lenders
may reasonably request, including FIRREA appraisals to the extent required
by applicable law or regulation; and (iv) with respect to the warehouse
facilities located in the state of Indiana, a policy or policies of flood
insurance issued by a nationally recognized insurance company;
<PAGE>
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(k) receipt by the Security Agent of an initial Borrowing Base
Certificate as of the Saturday closest to the last day of October, 1996;
(l) receipt by the Security Agent of counterparts of the Trademark
Collateral Agreements, duly executed by the parties thereto;
(m) receipt by the Agent of true and complete copies of the
Transaction Documents and all other agreements and documents relating to or
to be entered into in connection with the Acquisition, and satisfaction of
the Lenders with the form and substance thereof (it being understood that
the form and substance of the Transaction Documents delivered to the
Lenders prior to the execution and delivery of this Agreement and the forms
of other agreements and documents attached as exhibits thereto shall be
considered satisfactory);
(n) the Convertible Subordinated Debt shall have been issued on terms
and conditions satisfactory to the Lenders and the Agent shall have
received true and complete copies of the Subordinated Debt Documents
executed and delivered in connection therewith which shall be in form and
substance satisfactory to the Lenders (it being understood that the terms
and conditions of the Convertible Subordinated Debt disclosed to the
Lenders prior to the execution and delivery of this Agreement, and the
forms of the Subordinated Debt Documents delivered to the Lenders prior to
the execution and delivery of this Agreement, shall be considered
satisfactory);
(o) receipt by the Lenders of satisfactory evidence that the
Borrower, its partners and their respective affiliates shall have obtained
all consents and approvals of, and shall have made all filings and
registrations with, any Governmental Authority required in order to
consummate the Acquisition, in each case
<PAGE>
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without the imposition of any condition which, in the judgment of the
Required Lenders, presents a reasonable possibility of a Material Adverse
Effect;
(p) receipt by the Lenders of a pro forma (giving effect to the
Acquisition) consolidated balance sheet of the Borrower as of a recent
date, which shall not be materially inconsistent with information disclosed
to the Lenders prior to the execution and delivery of this Agreement;
(q) the Required Lenders shall not have advised the Agent that, in
their judgment, there shall have occurred a material adverse change in the
assets, financial condition, prospects or results or operations of the
Borrower and its Subsidiaries (including the assets and business to be
acquired pursuant to the Acquisition), taken as a whole;
(r) receipt by the Borrower of at least $50,000,000 of additional
cash equity contributions and the availability of cash balances of the
Borrower (prior to giving effect to such additional cash equity) in an
amount not less than $4,000,000;
(s) the Acquisition shall be consummated on the Effective Date in
accordance with the terms and conditions of the Asset Purchase Agreements
without giving effect to any amendment, modification, waiver or breach
thereof that, in the judgment of the Required Lenders, is materially
adverse to the interests of the Lenders;
(t) the purchase price for the Acquisition shall not exceed
$222,800,000 of cash consideration (plus working capital and tax adjustment
payments to be made after the Effective Date as provided in the Asset
Purchase Agreements) and issuance of the Convertible Subordinated Debt;
<PAGE>
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(u) the Agent and the Documentation Agent shall be reasonably
satisfied that the total fees and expenses payable by the Borrower and its
Subsidiaries in connection with the Acquisition and the Financing
Transactions shall not exceed $15,000,000;
(v) the Borrower shall have made arrangements satisfactory to the
Agent and the Documentation Agent to repay all loans outstanding under the
Existing Credit Agreement, together with accrued and unpaid interest, fees
and other amounts owing thereunder, to terminate all lending commitments
thereunder, and to obtain the release and termination of all Liens securing
obligations thereunder, in each case on the Effective Date, and after
giving effect thereto and to the Acquisition the only Debt of the Borrower
and its Subsidiaries on the Effective Date will be Loans, Subordinated Debt
and other Debt that was permitted by the Existing Credit Agreement;
(w) receipt by the Agent of all fees and other compensation payable
to the Agent, the Documentation Agent, the Lenders or the Security Agent on
or prior to the Effective Date pursuant to their agreements with the
Borrower;
(x) receipt by the Agent of the certificate to be delivered on the
Effective Date pursuant to Section 5.03(b) and satisfaction of the Lenders
with the amount and scope of the Borrower's insurance coverage set forth
therein and the identity of the insurers providing such coverage; and
(y) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Borrower and its Subsidiaries, the
corporate authority for and the validity of the Loan Documents, and any
other matters relevant hereto, all in form and substance satisfactory to
the Agent;
<PAGE>
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provided that this Agreement shall not become effective or be binding on any
- --------
party hereto unless all of the foregoing conditions are satisfied not later than
January 27, 1997. The Agent shall promptly notify the Borrower and the Lenders
of the Effective Date, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 3.02. Each Credit Event. The obligation of any Lender to
------------------
make a Loan on the occasion of any Borrowing (it being understood that, for
purposes of this Section, a "Borrowing" does not include a change or
continuation of the Type of, or the duration of the Interest Period applicable
to, a previously outstanding Borrowing pursuant to Section 2.04) and of the
Issuing Bank to issue, extend or renew a Letter of Credit is subject to the
satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.02 or a notice requesting issuance, extension or renewal of a
Letter of Credit as required by Section 2.13(c), as applicable;
(b) the fact that, immediately after such Borrowing or the issuance,
extension or renewal of such Letter of Credit, the aggregate outstanding
principal amount of the Loans of each Class and the Letter of Credit
Exposure will not exceed the limitations set forth in Sections 2.01 and
2.13(a);
(c) the fact that, immediately after such Borrowing or issuance of
such Letter of Credit, no Default shall have occurred and be continuing;
and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents shall be true on
and as of the date of such Borrowing or issuance, extension or renewal of
such Letter of Credit (except to the extent
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such representations and warranties expressly relate solely to an earlier
date).
Each Borrowing hereunder and the issuance, extension or renewal of each Letter
of Credit hereunder shall be deemed to be a representation and warranty by the
Borrower on the date of such Borrowing or issuance as to the facts specified in
clauses (b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Existence and Power. The Borrower is a limited
--------------------
partnership (or, if the Borrower shall become a corporation pursuant to a
Conversion, a corporation) duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has all powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted or proposed to be conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
----------------------------------------------
Contravention. The execution, delivery and performance by each of
- --------------
the Borrower and its Subsidiaries of this Agreement and the other Loan Documents
to which it is to be a party and the consummation of the Financing Transactions
and the Acquisition are within its powers, have been duly authorized by all
necessary action on the part of the Borrower, its partners, the Subsidiaries and
their respective stockholders or partners (as applicable), require no action by
or in respect of, or filing with, any Governmental Authority (other than (i)
such as have been duly taken or made, (ii) filings required to perfect Liens
granted under the Security Documents and (iii) compliance with "bulk sales"
laws) and do not contravene, or constitute a default under, any provision of
applicable law or
<PAGE>
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regulation or of the partnership agreement, certificate of incorporation or By-
laws (as applicable) of the Borrower or any Subsidiary or of any judgment,
injunction, order or decree or (to the extent that such contravention or default
could result in a Material Adverse Effect) any agreement or other instrument
binding upon the Borrower or any Subsidiary or result in the creation or
imposition of any Lien (other than the Liens of the Security Documents) on any
asset of the Borrower or any of its Subsidiaries, in each case both before and
after giving effect to the Transactions.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
---------------
binding agreement of the Borrower and the other Loan Documents, when executed
and delivered in accordance with this Agreement, will constitute valid and
binding obligations of each of the Borrower and the Subsidiaries party thereto,
in each case enforceable in accordance with its terms.
SECTION 4.04. Financial Information; Title to Properties. (a) The
-------------------------------------------
consolidated balance sheet of the Borrower as of February 3, 1996 and the
related consolidated statements of operations, partnership equity and cash flows
for each of the two fiscal years ended February 3, 1996, reported on by Coopers
& Lybrand and set forth in the Descriptive Memorandum, copies of which have been
delivered to each of the Lenders, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Borrower as of such date and the results of its operations and cash flows for
such years.
(b) The unaudited consolidated balance sheet of the Borrower as of
August 3, 1996, and the related unaudited consolidated statements of operations
and cash flows for the 13-week and 26-week periods ended August 3, 1996, set
forth in the Descriptive Memorandum, copies of which have been delivered to each
of the Lenders, fairly present, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements
referred to in subsection (a) of this Section (except as
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disclosed therein), the consolidated financial position of the Borrower as of
such date and the results of its operations for such periods (subject to normal
year-end adjustments).
(c) The unaudited pro forma consolidated statement of income for the
fiscal year ended February 3, 1996, set forth in the Descriptive Memorandum, has
been derived from the historical financial statements for such period referred
to in subsection (a) of this Section adjusted to give effect to the Transactions
on the basis described therein. Such pro forma consolidated statement of income
presents fairly, on a pro forma basis, the Borrower's consolidated income for
such period, assuming that the adjustments specified therein had occurred as
described therein.
(d) Since February 3, 1996, there has been no material adverse change
in the assets, financial condition or results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole (it being understood that
the consummation of the Transactions on the Effective Date shall not be
considered to constitute such a material adverse change).
(e) Each of the Borrower and the Subsidiaries has good and marketable
title to, or valid leasehold interests in, all its material properties and
assets, except for minor defects in title that do not interfere with its ability
to conduct its business as currently conducted or proposed to be conducted or to
utilize such properties and assets for their intended purposes.
SECTION 4.05. Litigation. There is no injunction, stay, decree or
-----------
order of any Governmental Authority or any action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
of an
<PAGE>
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adverse decision, which in any such case could have a Material Adverse Effect or
which in any manner draws into question the validity of any Transaction
Document, this Agreement or the other Loan Documents.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group
----------------------
has, in all material respects, fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each Plan. No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code in respect of any Plan,
(ii) failed to make any contribution or payment to any Plan, or made any
amendment to any Plan, which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any material liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Taxes. The Borrower and its Subsidiaries have filed or
------
caused to be filed all United States Federal income tax returns and all other
material tax returns which are required to be filed by them and have paid or
caused to be paid all taxes shown to be due on such returns or pursuant to any
assessment received by the Borrower or any Subsidiary, except where the same may
be contested in good faith by appropriate proceedings. The charges, accruals
and reserves on the books of the Borrower and its Subsidiaries in respect of
taxes or other governmental charges are, in the opinion of the Borrower,
adequate.
SECTION 4.08. Subsidiaries. Each of the Borrower's Subsidiaries is a
-------------
corporation, a general partnership or a limited partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has all corporate or
<PAGE>
-75-
partnership powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted. As of
the Effective Date, after giving effect to the Acquisition, the only
Subsidiaries of the Borrower shall be the Subsidiaries identified on Schedule
4.08, each of which shall be a Permitted Subsidiary.
SECTION 4.09. Not an Investment Company. The Borrower is not an
--------------------------
"investment company", nor is it controlled by an "investment company", within
the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.10. Compliance with Laws. Neither the Borrower nor any of
---------------------
the Subsidiaries is in violation of any law, rule or regulation, or in default
with respect to any judgment, writ, injunction or decree applicable to it of any
Governmental Authority, that (individually or in the aggregate) could result in
a Material Adverse Effect.
SECTION 4.11. Agreements. (a) Except as disclosed in the
-----------
Descriptive Memorandum, neither the Borrower nor any of the Subsidiaries is a
party to any agreement or instrument or subject to any partnership or corporate
restriction that has resulted or could result in a Material Adverse Effect.
Neither the Borrower nor any of the Subsidiaries is a party to any agreement or
instrument or subject to any restriction (other than restrictions on the payment
of dividends or partnership distributions imposed by law) that restricts or
impairs (i) the ability of the Borrower and its Subsidiaries to grant to the
Security Agent Liens on any of their assets to secure the Obligations or (ii)
the ability of any Subsidiary to pay dividends on its capital stock or
distributions to its partners, as applicable.
(b) Neither the Borrower nor any of the Subsidiaries is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Debt, or any other agreement or instrument to which it is a
<PAGE>
-76-
party or by which it or any of its properties or assets are or may be bound,
where such default could result in a Material Adverse Effect.
SECTION 4.12. Federal Reserve Regulations. Neither the Borrower nor
----------------------------
any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
SECTION 4.13. Disclosure. All information (including the Descriptive
-----------
Memorandum but excluding projected financial information) furnished in writing
by or on behalf of the Borrower or any Subsidiary to the Agent or any Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby was true and accurate in all material respects or based on reasonable
estimates on the date as of which such information was stated or certified. The
Borrower has disclosed to the Lenders in writing any and all facts (other than
prevailing economic conditions affecting similarly situated businesses
generally) known to any officer of the Borrower which materially and adversely
affect or may materially and adversely affect (to the extent the Borrower can
now reasonably foresee) the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole. All projected financial information which has been furnished by or on
behalf of the Borrower or any Subsidiary to the Agent or any Lender was, at the
time so furnished, believed by the Borrower to have been prepared in a
reasonable manner and based on reasonable assumptions with respect to the
Borrower's business; provided that no representation is made by the Borrower
--------
that the future results of the Borrower will equal those set forth in such
projected financial information.
SECTION 4.14. Governmental Approvals. As of the Effective Date, all
-----------------------
consents and approvals of, and filings and registrations with, and all other
actions in respect of,
<PAGE>
-77-
all Governmental Authorities required in order to consummate the Transactions
shall have been obtained, given, filed or taken and shall be in full force and
effect, other than filings required in order to perfect Liens granted under the
Security Documents.
SECTION 4.15. Security Interests. (a) The security interests
-------------------
created in favor of the Security Agent under the Pledge Agreement will at all
times after the execution and delivery of the Pledge Agreement constitute valid,
first-priority, perfected security interests in the Pledged Securities (as
defined therein), and such Pledged Securities will be subject to no Liens (other
than unperfected Liens imposed by law) or security interests of any other
Person. No filings or recordings are or will be required in order to perfect
the security interests in the Pledged Securities created under the Pledge
Agreement.
(b) Upon the completion of the filings and recordations in the filing
and recording offices specified in the Perfection Certificate referred to in
Section 3.01, the security interests created in favor of the Security Agent for
the benefit of the Lenders under the Security Documents will constitute valid,
perfected security interests in the collateral subject thereto, subject only to
Liens permitted by the Loan Documents.
SECTION 4.16. Employment and Management Agreements. Except as
-------------------------------------
disclosed in Schedule 4.16, as of the Effective Date (after giving effect to the
Transactions) there are no (a) employment agreements covering management
employees of the Borrower, (b) agreements for management or consulting services
to which the Borrower is a party or by which it is bound, or (c) collective
bargaining agreements or other labor agreements covering any of the employees of
the Borrower.
SECTION 4.17. Capitalization. As of the Effective Date, the only
---------------
general partner in the Borrower is VGP. As of the Effective Date, there are no
outstanding
<PAGE>
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subscriptions, options, warrants, calls, rights (including preemptive rights) or
other agreements or commitments of any nature relating to any partnership
interests in the Borrower, except as provided for in the Partnership Agreement
and except with respect to management plans and arrangements and the Convertible
Subordinated Debt.
SECTION 4.18. Environmental Matters. Except as disclosed in the
----------------------
environmental audit reports delivered to the Agent prior to the date of
execution of this Agreement, each of the Borrower and the Subsidiaries has
complied with all Environmental and Safety Laws, except for any noncompliance
that, individually or in the aggregate, could not reasonably be anticipated to
result in a Material Adverse Effect. None of the Borrower and the Subsidiaries
has received notice of any failure so to comply which alone or together with any
other such failure could result in a Material Adverse Effect. Except as
disclosed in the environmental audit reports delivered to the Agent prior to the
date of execution of this Agreement, the facilities of the Borrower and the
Subsidiaries do not treat, store or dispose of any hazardous wastes, hazardous
substances, hazardous materials, toxic substances or toxic pollutants, as those
terms are used in any Environmental and Safety Laws, in violation thereof where
such violation could result, individually or together with other violations, in
a Material Adverse Effect.
<PAGE>
-79-
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Loan Document remains unpaid or any
Letter of Credit remains outstanding:
SECTION 5.01. Information. The Borrower will deliver to each of the
------------
Lenders:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, consolidated and consolidating
balance sheets of the Borrower and its Consolidated Subsidiaries as of the
end of such fiscal year and the related consolidated and consolidating
statements of income and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
reported on by Coopers & Lybrand or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the
Borrower, consolidated balance sheets of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
statements of income and cash flows for such quarter and for the portion of
the Borrower's fiscal year ended at the end of such quarter, setting forth
in each case in comparative form the figures for the corresponding quarter
and the corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by
the chief financial officer or the chief accounting officer of the
Borrower;
<PAGE>
-80-
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of the Borrower (i)
setting forth in reasonable detail a list of Investments in order to
establish whether the Borrower was in compliance with Section 5.16, (ii)
setting forth in reasonable detail the calculations required to establish
whether the Borrower was in compliance with the requirements of Sections
5.21, 5.22 and 5.23 on the date of such financial statements, (iii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto, (iv)
stating whether, since the date of the most recent financial statements
previously delivered pursuant to this Section, there has been any material
change in the generally accepted accounting principles applied in the
preparation of such statements and, if so, describing such change, (v)
identifying any Reinvestment Events that occurred during the previous six-
month period and the status of the reinvestment of the Net Cash Proceeds
thereof, (vi) as long as the Borrower is a partnership, setting forth the
Tax Distribution Amount and a reasonably detailed calculation thereof, and
(vii) in the case of each such certificate delivered on or after the
Pricing Adjustment Date, setting forth the Pricing Ratio and a reasonably
detailed calculation thereof;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i)
stating whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and (ii)
confirming the calculations set forth in the officer's certificate
delivered simultaneously
<PAGE>
-81-
therewith pursuant to subclauses (ii), (vi) and (vii) of clause (c) above;
(e) as soon as available and in any event within 20 days after the
Saturday closest to the last day of each calendar month, a summary
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of such Saturday and the related summary consolidated
statement of income for the fiscal month then ended and for the portion of
the Borrower's fiscal year then ended, setting forth in each case in
comparative form the figures for the corresponding fiscal month and the
corresponding portion of the Borrower's previous fiscal year, prepared in
accordance with generally accepted accounting principles (subject to normal
year-end adjustments);
(f) within 20 days after the Saturday closest to the last day of each
calendar month (commencing with the month ending November 30, 1996), a
Borrowing Base Certificate as of such Saturday certified by the chief
financial officer or chief accounting officer of the Borrower (which
certificate the Agent and the Security Agent shall have the right to audit
at the expense of the Borrower; provided that not more than two such audits
--------
may be conducted at the Borrower's expense during any fiscal year of the
Borrower unless an Event of Default has occurred and is continuing);
(g) prompt notice of any default or alleged default under or breach
or alleged breach of the Trademark Agreements or Credit Card Agreements;
(h) prompt notice of each Prepayment Event or Reinvestment Event,
including a reasonably detailed calculation of the Net Cash Proceeds
therefrom;
(i) within five days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a certificate
of the chief
<PAGE>
-82-
financial officer or the chief accounting officer of the Borrower setting
forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(j) promptly upon the delivery or mailing thereof to the partners in
the Borrower (or, following a Conversion, the shareholders of the Borrower
or its Parent Corporation, as applicable), copies of all reports, financial
information (including budgets or projections), proxy statements and other
information so delivered or mailed;
(k) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the Borrower, its Parent Corporation or Finance
Corp. shall have filed with the Securities and Exchange Commission;
(l) if and when any member of the ERISA Group (i) becomes aware of or
gives or is required to give notice to the PBGC of any Reportable Event
with respect to any Plan which might constitute grounds for or result in a
termination of such Plan by the PBGC under Title IV of ERISA, or knows that
the plan administrator of any Plan has become aware of or has given or is
required to give notice of any Reportable Event, a copy of the notice of
such Reportable Event given or required to be given to the PBGC if any such
notice is required; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA under circumstances that would result in
a material amount of withdrawal liability, a copy of such notice; (iii)
receives notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan, a copy of such
notice; or (iv) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Internal
<PAGE>
-83-
Revenue Code a notice of failure to make a required installment or other
payment with respect to a Plan, a statement of the chief financial officer
or the chief accounting officer of the Borrower setting forth details as to
such failure and the action that the Borrower proposes to take with respect
thereto, together with a copy of any such notice given to the PBGC;
(m) promptly upon delivery thereof to the holders of Subordinated
Debt, copies of any and all reports, notices, financial information
(including any budgets or projections) and other information delivered to
such holders, to the extent not duplicative of information previously
delivered to the Lenders; and
(n) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Lender, may reasonably request.
SECTION 5.02. Payment of Obligations. The Borrower will pay and
-----------------------
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except in connection with a good faith
contest with the applicable obligee, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance; Casualty and
------------------------------------------------
Condemnation. (a) The Borrower will keep, and will cause each Subsidiary to
- -------------
keep, all property useful and necessary in its business in good working order
and condition, ordinary wear and tear excepted.
(b) The Borrower will maintain, and will cause each Subsidiary to
maintain, (i) physical damage insurance
<PAGE>
-84-
on all real and personal property on an all risks basis (including the perils of
flood and quake), covering the repair and replacement cost of all such property
and consequential loss coverage for business interruption and extra expense
(such consequential loss coverage to be in a reasonable amount in relation to
the Borrower's gross revenues), (ii) public liability insurance (including
products/completed operations liability coverage) in such amounts (on a per
occurrence basis) as is customary with prudent companies similarly situated in
the same or similar businesses, and (iii) such other insurance coverage in such
amounts and with respect to such risks as shall be required by the terms of any
other Loan Document or as the Required Lenders may reasonably request. All such
insurance shall be provided by financially sound and reputable insurers or such
other insurers as the Required Lenders may approve in writing. The Borrower will
deliver to the Lenders (i) on the Effective Date, a certificate dated such date
showing the amount of coverage as of such date, (ii) upon request of any Lender
through the Agent from time to time full information as to the insurance
carried, (iii) within five days of receipt of notice from any insurer a copy of
any notice of cancellation or material change in coverage from that existing on
the Effective Date and (iv) forthwith, notice of any cancellation or nonrenewal
of coverage by the Borrower.
(c) The Borrower will furnish to the Agent and the Lenders prompt
written notice of any casualty or other insured damage to any portion of any
Mortgaged Property or the commencement of any action or proceeding for the
taking of any Mortgaged Property or any part thereof or interest therein under
power of eminent domain or by condemnation or similar proceeding. If any such
event results in Net Cash Proceeds (whether in the form of insurance proceeds,
condemnation award or otherwise), the Security Agent is authorized to collect
such Net Cash Proceeds and, if received by the Borrower or any Subsidiary, such
Net Cash Proceeds shall be paid over to the Security Agent; provided that if the
--------
aggregate Net Cash Proceeds in respect of such
<PAGE>
-85-
event are less than $5,000,000, such Net Cash Proceeds shall be paid over to the
Borrower unless a Default has occurred and is continuing. All such Net Cash
Proceeds retained by or paid over to the Security Agent shall be held by the
Security Agent and released from time to time to pay the costs of repairing,
restoring or replacing the affected property in accordance with the terms of the
applicable Mortgage, subject to the provisions of the applicable Mortgage
regarding application of such Net Cash Proceeds during a Default. If any Net
Cash Proceeds retained by or paid over to the Security Agent as provided above
continue to be held by the Security Agent on the date that is two years after
the collection of such Net Cash Proceeds, then such Net Cash Proceeds shall be
applied to prepay Term Loans as provided in Section 2.08(e).
SECTION 5.04. Conduct of Business and Maintenance of Existence. (a)
-------------------------------------------------
The Borrower will continue, and will cause each Subsidiary to continue, to
engage in business of the same general type as conducted by the Borrower and its
Subsidiaries prior to the Effective Date, and will preserve, renew and keep in
full force and effect, and will cause each Subsidiary to preserve, renew and
keep in full force and effect, their respective existences (except that the
Borrower may become a corporation pursuant to a Conversion) and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business.
(b) All outstanding shares of Finance Corp.'s capital stock shall be
owned directly by the Borrower, Finance Corp.'s only business or activity shall
be the issuance of the Subordinated Debt and activities incidental thereto and
Finance Corp. shall not own or acquire any assets.
(c) The only business or activity of a Permitted Subsidiary (other
than Finance Corp.) shall be (i) creative design activities associated with the
preparation of catalogues in connection with the Borrower's business, (ii) the
production and distribution of such catalogues,
<PAGE>
-86-
(iii) other activities incidental to the Borrower's business, (iv) the leasing
of property and employment of management and employees for purposes of the
foregoing activities, (v) other activities incidental to such Permitted
Subsidiary's business and (vi) ownership of interests in other Permitted
Subsidiaries. Without limiting the generality of the foregoing, Permitted
Subsidiaries (including Finance Corp.) shall not own or acquire any inventory or
collect or hold any revenues or other proceeds generated from the sale of
inventory, all of which activities shall be conducted by the Borrower. The
Borrower will not permit any Permitted Subsidiary to incur any Debt (other than
pursuant to the Guarantee Agreement, the Security Documents and a Subordinated
Guarantee Agreement and, in the case of Finance Corp., the Subordinated Debt) or
other liability (other than liabilities for franchise taxes and similar
liabilities incidental to its existence).
SECTION 5.05. Compliance with Laws. The Borrower will comply, and
---------------------
cause each Subsidiary to comply, with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities (including, without
limitation, Environmental and Safety Laws and ERISA and the rules and
regulations thereunder) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings or where the failure to
comply, either alone or combined with other failures to comply, could not have a
Material Adverse Effect.
SECTION 5.06. Inspection of Property, Books and Records. The
------------------------------------------
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Subsidiary to permit, representatives of any Lender
at such Lender's expense to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective offi-
<PAGE>
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cers, employees and independent public accountants, all at such reasonable times
and as often as may reasonably be desired; provided that (a) reasonable advance
--------
notice shall be given to the Borrower of any such visit or inspection of
properties and (b) the Borrower shall be afforded an opportunity to participate
in any such discussions with independent public accountants.
SECTION 5.07. Fiscal Year. The Borrower will cause its fiscal year
------------
to end on the Saturday closest to January 31 in each year.
SECTION 5.08. Further Assurances. The Borrower will execute any and
-------------------
all further documents, financing statements, agreements and instruments, and
take all further action, which may be required under applicable law, or which
the Required Lenders or the Agent or Security Agent may reasonably request, in
order to effectuate the transactions contemplated by the Loan Documents and in
order to grant, preserve, protect and perfect the validity and first priority of
the security interests created or intended to be created by the Security
Documents. In addition, (a) the Borrower will deliver prompt written notice to
the Lenders of each Permitted Acquisition describing the assets and properties
acquired and the Borrower will, at the Borrower's cost and expense, promptly
secure the Obligations by pledging or creating, or causing to be pledged or
created, first priority (subject to Liens incurred prior to the applicable
Permitted Acquisition) perfected security interests with respect to such assets
and properties as the Agent or the Required Lenders shall reasonably designate,
and (b) if the Borrower shall form or acquire any additional Subsidiary, the
Borrower will, at the Borrower's expense, cause such Subsidiary to become a
party to the Guarantee Agreement and the Security Agreement and pledge (or cause
to be pledged) the capital stock of such Subsidiary under the Pledge Agreement.
Such additional security interests and Liens will be created under security
agreements, mortgages, deeds of trust and other instruments and documents in
form and substance reasonably satisfactory to the Required
<PAGE>
-88-
Lenders, and the Borrower shall deliver or cause to be delivered to the Lenders
all such instruments and documents (including legal opinions, title insurance
policies and lien searches) as the Required Lenders shall reasonably request to
evidence compliance with this Section 5.08. The Borrower agrees to provide such
evidence as the Required Lenders shall reasonably request as to the perfection
and (subject to Liens incurred prior to the applicable Permitted Acquisition)
first priority status of each such security interest and Lien.
SECTION 5.09. Subsidiaries; Partnerships. The Borrower will not have
---------------------------
any Subsidiaries other than (i) Wholly-Owned Consolidated Subsidiaries acquired
pursuant to Permitted Acquisitions and liquidated or merged into the Borrower
within 90 days after the date of acquisition and (ii) Permitted Subsidiaries.
The Borrower will not, and will not permit any of its Subsidiaries to, enter
into any partnership (other than a partnership that is a Permitted Subsidiary)
or joint venture.
SECTION 5.10. Amendment of Certain Documents. The Borrower will not
-------------------------------
permit any amendment or modification to be made to, or any waiver of its rights
or the rights of any Subsidiary under, any Transaction Document or Subordinated
Debt Document, other than (a) amendments, modifications and waivers with respect
to the Credit Card Agreements that are not, individually or in the aggregate,
materially adverse to the interests of the Lenders, (b) amendments,
modifications and waivers with respect to the Trademark Agreement that are not,
individually or in the aggregate, adverse to the interests of the Borrower or
the Lenders, (c) amendments, modifications and waivers with respect to the
Subordinated Debt Documents limited to (i) immaterial changes necessary to
comply with the Trust Indenture Act of 1939, as amended, in connection with
registration under the Securities Act of 1933 and (ii) other changes that would
not result in the Subordinated Debt governed by such Subordinated Debt Documents
having terms and conditions that would not be permitted terms and
<PAGE>
-89-
conditions for Subordinated Debt incurred to refinance the Convertible
Subordinated Debt or the Subordinated Notes (as the case may be), as described
in the proviso to clause (ii) of Section 5.11(a), and (d) amendments to the
Partnership Agreement that will not have the effect of increasing the amount of
Tax Advances or Tax Distributions and that are not, individually or in the
aggregate, adverse to the interests of the Borrower or the Lenders; provided
--------
that any such amendment, modification or waiver permitted hereunder shall be
made only after prior notice to the Lenders, and copies thereof shall be
delivered to the Lenders.
SECTION 5.11. Debt; Preferred Stock; Rate Protection Agreements. (a)
--------------------------------------------------
The Borrower will not, nor will it permit any of its Subsidiaries to, incur or
at any time be liable with respect to any Debt, except:
(i) Debt outstanding under this Agreement and the other Loan
Documents;
(ii) unsecured Subordinated Debt in an aggregate principal amount not
exceeding $125,000,000 (in respect of the Subordinated Notes or any
permitted refinancing thereof) and $20,000,000 (in respect or the
Convertible Subordinated Debt or any permitted refinancing thereof) at any
time outstanding; provided that any Subordinated Debt incurred to refinance
--------
the Subordinated Notes or the Convertible Subordinated Debt shall have
terms and conditions no less favorable to the Borrower and the Lenders than
the Subordinated Notes or the Convertible Subordinated Debt, as the case
may be, and, without limiting the generality of the foregoing, shall (A)
not require any payment of principal earlier than the original scheduled
maturity date of the Subordinated Notes or the Convertible Subordinated
Debt, as the case may be (except pursuant to mandatory repurchase
provisions that are the same as, or more favorable to the Borrower than,
those applicable to the Subordinated Notes or the Convertible Subordinated
Debt, as the case may be), (B) bear interest at a fixed rate that is
<PAGE>
-90-
equal to or less than the rate of interest borne by the Subordinated Notes
or the Convertible Subordinated Debt, as the case may be, and (C) have
terms of subordination, covenants, events of default, mandatory offers to
repurchase and other material terms that are the same as, or more favorable
to the Borrower and the Lenders than, those applicable to the Subordinated
Notes or the Convertible Subordinated Debt, as the case may be; provided
--------
further that any Subordinated Debt to be incurred after the Effective Date
-------
shall not be incurred without reasonable prior notice to the Lenders and
prior delivery to the Lenders of copies of the Subordinated Debt Documents
to be executed and delivered in connection therewith;
(iii) Capital Financing Debt in an aggregate principal amount not
exceeding (A) $10,000,000 at any time outstanding prior to the end of the
fiscal year ending on the Saturday closest to January 31, 1998, and (B)
$30,000,000 at any time outstanding thereafter;
(iv) unsecured Debt for borrowed money issued solely for cash
consideration; provided that the incurrence of such Debt shall constitute a
--------
Debt Prepayment Event and (A) all the proceeds of such Debt shall be
applied forthwith to the prepayment of Term Loans or, after the Term Loans
are fully repaid, the reduction of Revolving Loan Commitments and (B)
notwithstanding any contrary provision in this Agreement, any prepayment of
Term Loans of either Class required by clause (A) above shall be applied to
reduce subsequent scheduled repayments thereof pursuant to Section 2.08(a)
in reverse chronological order;
(v) Debt arising under the Credit Card Agreements, to the extent that
payment obligations thereunder are deemed to constitute Debt; provided that
--------
the foregoing shall not be construed to permit the sale of accounts
receivable pursuant to the Credit Card Agreements with recourse to the
Borrower or otherwise on terms and
<PAGE>
-91-
conditions (other than price) materially less favorable to the Borrower
than those specified in the Credit Card Agreements as in effect on the
Effective Date;
(vi) other unsecured Debt in an aggregate principal amount not
exceeding $5,000,000 at any time outstanding;
(vii) Debt in respect of the financing of insurance premiums for
insurance obtained in the ordinary course of business; provided that the
--------
amount of such Debt relating to any policy of insurance shall not at any
time exceed the amount that the Borrower or a Subsidiary would be entitled
to receive as a refund of insurance premium if such insurance policy were
to be cancelled at such time; and
(viii) unsecured Debt of any Wholly-Owned Consolidated Subsidiary
owing to the Borrower in respect of an Investment made by the Borrower in
such Subsidiary in compliance with Section 5.16;
provided that the Borrower shall not permit any Subsidiary to incur or become
- --------
liable for any Debt, whether or not permitted above, other than (1) Subordinated
Debt of Finance Corp. permitted under clause (ii) above, (2) Debt of a Wholly-
Owned Consolidated Subsidiary acquired pursuant to a Permitted Acquisition that
is outstanding at the time of such acquisition to the extent permitted under
clause (vi) above, (3) Debt arising under the Guarantee Agreement or any
Security Document to which such Subsidiary is a party, (4) Subordinated Debt
arising under a Subordinated Guarantee Agreement to which such Subsidiary is a
party, if such Subsidiary is required to enter into such Subordinated Guarantee
Agreement by the terms of the Subordinated Debt Documents and if such Subsidiary
also Guarantees the Obligations pursuant to the Guarantee Agreement, and (5)
Debt permitted under clause (vii) or (viii) above.
<PAGE>
-92-
(b) The Borrower will not, nor will it permit any of its Subsidiaries
to, issue any additional capital stock or partnership interests other than, in
the case of the Borrower, (i) additional partnership interests issued in
accordance with the Partnership Agreement and (ii) common stock and Permitted
Preferred Stock issued in connection with or after a Conversion.
(c) The Borrower will, commencing 90 days after the Effective Date,
from time to time enter into, and maintain in effect, such Rate Protection
Agreements as shall be necessary so that at all times at least 45% of its long-
term Debt (determined on a consolidated basis in accordance with generally
accepted accounting principles) consists of Debt that bears a fixed rate of
interest and Debt that is hedged pursuant to Rate Protection Agreements to
effectively bear interest at a fixed rate or to cap the rate of interest
thereon.
SECTION 5.12. Restricted Payments. The Borrower will not, nor will
--------------------
it permit any of its Subsidiaries to, declare or make or agree to make, directly
or indirectly, any Restricted Payment, except (a) the Borrower may pay interest
on the Subordinated Debt as and when due unless prohibited by the terms of
subordination applicable thereto; (b) the Borrower may refinance Subordinated
Debt with the proceeds of, or exchange Subordinated Debt for, Subordinated Debt
permitted under clause (ii) of Section 5.11(a) if no Default has occurred and is
continuing or would result therefrom; (c) the Borrower may make Tax Advances and
Tax Distributions if (i) no Default described in clause (a) of Section 6.01 has
occurred and is continuing, (ii) the Borrower is a partnership at the time such
Tax Advance or Tax Distribution is made and (iii) the aggregate cumulative
amount of Tax Advances and Tax Distributions does not exceed the aggregate
cumulative Tax Distribution Amounts for periods completed since the Effective
Date; (d) the Borrower may make Restricted Payments to VGP, VLP or their holding
company as reimbursement of out-of-pocket expenses actually incurred by such
Affiliates to third parties (not including
<PAGE>
-93-
other Affiliates or employees of Affiliates) in connection with their respective
existences, the administration of the Borrower and the Subsidiaries and
activities incidental thereto, provided that aggregate Restricted Payments
pursuant to this clause (d) shall not exceed $250,000 during any fiscal year of
the Borrower; (e) the Borrower may make Restricted Payments in order to redeem,
repurchase or otherwise reacquire equity interests in the Borrower (including
Restricted Payments to any partner or shareholder in the Borrower in order to
permit such partner or shareholder (either directly or indirectly through
additional payments or distributions to its parent entities) to redeem,
repurchase or otherwise reacquire equity interests in such partner, shareholder
or parent entity) from members of the Borrower's management, if (i) no Default
has occurred and is continuing and (ii) after giving effect to any such
Restricted Payment, the aggregate cumulative amount of Restricted Payments made
pursuant to this clause (e) shall not exceed the sum of $2,000,000 plus the
amount of Net Cash Proceeds received by the Borrower on or after the Effective
Date and prior to making such Restricted Payment from the issuance of additional
partnership interests or equity securities to members of management of the
Borrower and from capital contributions attributable to the issuance by any
partner or shareholder in the Borrower or any parent entity thereof of
additional equity securities to members of management of the Borrower; provided
--------
that Management Notes may be forgiven or returned without regard to the
limitation in clause (e)(ii) above and the forgiveness or return thereof shall
not be treated as Restricted Payments for purposes of determining compliance
with such clause (e)(ii); (f) if an Equity Prepayment Event occurs with respect
to which the Equity Prepayment Percentage is greater than 0.0%, the Borrower may
purchase, redeem, prepay or acquire Subordinated Debt if (i) no Default has
occurred and is continuing, (ii) any Restricted Payments made pursuant to this
clause (f) shall be made within the 90-day period provided for in Section
2.08(e) following delivery by the Borrower to the Agent of a notice in
accordance with Section 2.08(e) electing to make such
<PAGE>
-94-
Restricted Payments in lieu of prepaying Term Loans as a result of an Equity
Prepayment Event, (iii) the aggregate amount of Restricted Payments made
pursuant to this clause (f) during any 90-day period referred to above shall not
exceed the Subordinated Debt Prepayment Amount specified in the applicable
notice and (iv) the aggregate principal amount of Subordinated Debt permitted by
clause (ii) of Section 5.11(a) shall be permanently reduced by the aggregate
principal amount of Subordinated Debt purchased, redeemed, prepaid or acquired
pursuant to this clause (f); and (g) if an Equity Prepayment Event occurs with
respect to which the Equity Prepayment Percentage is 0.0%, the Borrower may
purchase, redeem, prepay or acquire Subordinated Debt provided that (i) no
Default has occurred and is continuing, (ii) within two Domestic Business Days
after each Restricted Payment pursuant to this clause (g) the Borrower shall
make an optional prepayment of Term Loans in accordance with Section 2.09 in an
aggregate principal amount equal to the amount of such Restricted Payment and
notify the Agent that such optional prepayment is being made in order to permit
Restricted Payments pursuant to this clause (g) and (iii) the sum of the
aggregate Restricted Payments made pursuant to this clause (g) plus the
aggregate principal amount of Term Loans required to be prepaid as a result of
the foregoing clause (ii) of this clause (g) shall not exceed the excess of (A)
the Net Cash Proceeds from all Equity Prepayment Events after the Effective Date
with respect to which the Equity Prepayment Percentage was 0.0% over (B) the
aggregate amount of cash consideration paid by the Borrower in connection with
Permitted Acquisitions in reliance upon Net Cash Proceeds referred to in clause
(A).
SECTION 5.13. Mergers, Consolidations, Acquisitions and Sales of
--------------------------------------------------
Assets. (a) The Borrower will not, nor will it permit any of its Subsidiaries
- -------
to, merge into or consolidate with any other Person, or permit any other Person
to merge into or consolidate with it, or purchase or otherwise acquire (in one
transaction or a series of related transactions) any material assets, except
that (i) the foregoing shall not prohibit the consummation of the
<PAGE>
-95-
Acquisition, (ii) the foregoing shall not prohibit the acquisition of assets in
the ordinary course of business (including Capital Expenditures permitted by
Section 5.24), (iii) the foregoing shall not prohibit Permitted Acquisitions,
subject to 30 days' prior written notice to the Lenders of such Permitted
Acquisition describing the material terms of such Acquisition and delivery to
the Lenders prior to consummation of such Permitted Acquisition of a certificate
of the chief financial officer or the chief accounting officer of the Borrower,
setting forth calculations establishing to the reasonable satisfaction of the
Agent that the Borrower will be in compliance with Section 5.23 upon giving
effect to such Permitted Acquisition, (iv) the foregoing shall not prohibit a
Conversion in accordance with Article IX, (v) if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be
continuing any Wholly-Owned Consolidated Subsidiary (other than Finance Corp.)
may merge or liquidate into the Borrower in a transaction in which the Borrower
is the survivor and (vi) the foregoing shall not prohibit capital contributions
to the Borrower made in cash or Investments by the Borrower in Subsidiaries
permitted under Section 5.16; provided that the acquisition of assets by
--------
Subsidiaries shall be subject to the further restrictions set forth in Section
5.04.
(b) The Borrower will not, nor will it permit any of its Subsidiaries
to, sell, assign, transfer or otherwise dispose of any asset, including any
stock, without the prior written consent of the Required Lenders to such sale,
assignment, transfer or disposition and the terms thereof; provided, however,
-------- -------
that the foregoing shall not prohibit a Conversion in accordance with Article IX
or the sale of (i) inventory in the ordinary course of business, (ii) used or
surplus equipment in the ordinary course of business, (iii) credit card
receivables pursuant to the Credit Card Agreements, and (iv) other tangible
personal property and real property not exceeding $3,000,000 in fair market
value in any fiscal year of the Borrower; provided further,
----------------
<PAGE>
-96-
however, that such sales shall be made for fair market value and solely for
- -------
cash consideration.
SECTION 5.14. Transactions with Affiliates. The Borrower will not,
-----------------------------
nor will it permit any of its Subsidiaries to, directly or indirectly, (a) make
any Investment in an Affiliate, (b) sell, lease or otherwise transfer any assets
to or perform services for an Affiliate, (c) purchase, lease or acquire assets
or services from an Affiliate, or (d) enter into any other transaction directly
or indirectly with or for the benefit of an Affiliate (including, without
limitation, Guarantees and assumptions of obligations of an Affiliate); provided
--------
that (i) the Borrower or any of its Subsidiaries may enter into any such
transaction with an Affiliate that does not involve the payment of financial or
management advisory fees or similar consideration to an Affiliate if the
monetary or business consideration arising therefrom would not be less
advantageous to the Borrower or such Subsidiary than the monetary or business
consideration which it would obtain in a comparable arm's length transaction
with a Person not an Affiliate, (ii) the foregoing shall not prohibit the grant
of warrants or options to acquire equity interests in the Borrower pursuant to
management incentive arrangements, (iii) the foregoing shall not prohibit the
Restricted Payments permitted under Section 5.12 and (iv) the foregoing shall
not prohibit the Transactions or the execution, delivery and performance by the
Borrower of a stockholders agreement and registration rights agreement
substantially in the respective forms attached to the Partnership Agreement and
(v) the foregoing shall not prohibit the payment described in Schedule 5.14.
SECTION 5.15. Sale and Lease-Back Transactions. The Borrower will
---------------------------------
not, nor will it permit any of its Subsidiaries to, enter into any arrangement,
directly or indirectly, with any Person whereby it shall sell or transfer any
asset, real or personal, whether now owned or hereafter acquired, and thereafter
rent or lease such asset or other assets which it intends to use for
substantially
<PAGE>
-97-
the same purpose or purposes as the asset being sold or transferred, except that
the Borrower may enter into any such arrangement within 90 days after acquiring
the asset that is sold or transferred; provided that (i) for purposes of
--------
determining compliance with clause (iii) of Section 5.11(a), such arrangement
shall be deemed to constitute Capital Financing Debt in a principal amount equal
to the amount that would constitute Debt if such arrangement were accounted for
as a capital lease and (ii) the Borrower shall not enter into any such
arrangement if, after giving effect thereto, the Borrower would not be in
compliance with clause (iii) of Section 5.11(a).
SECTION 5.16. Investments. The Borrower will not, nor will it permit
------------
any of its Subsidiaries to, make or acquire any Investment in any Person
(including any Subsidiary) other than:
(a) Temporary Cash Investments;
(b) the acquisition by the Borrower of all the outstanding capital
stock of a corporation pursuant to a Permitted Acquisition;
(c) the Management Notes;
(d) Tax Advances permitted under Section 5.12; and
(e) Investments consisting of advances and capital contributions made
by the Borrower in cash to any Permitted Subsidiary; provided that (i) such
--------
Investments in Finance Corp. shall be limited to amounts necessary to
discharge franchise taxes and similar liabilities incidental to its
existence, (ii) such Investments in any other Permitted Subsidiary shall be
limited to amounts necessary to discharge liabilities permitted to be
incurred by such Subsidiaries under Section 5.04, (iii) no such Investment
shall be made more than five Domestic Business Days prior to the date that
payment is to be
<PAGE>
-98-
made in respect of the liability to be discharged with the proceeds of such
Investment and (iv) such Investments shall be represented by promissory
notes or capital stock pledged pursuant to the Pledge Agreement or
partnership interests subject to a perfected Lien in favor of the Security
Agent.
SECTION 5.17. Negative Pledge. The Borrower will not, nor will it
----------------
permit any of its Subsidiaries to, create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except Liens granted under the
Security Documents and except:
(a) any Lien (other than a Lien securing Debt) existing on any asset
(other than an asset subject to a security interest granted under the
Pledge Agreement or the Security Agreement) prior to the acquisition
thereof by the Borrower or a Consolidated Subsidiary and not created in
contemplation of such acquisition;
(b) Liens for taxes not delinquent or being contested in good faith
and by appropriate proceedings;
(c) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws, or under unemployment
insurance;
(d) mechanics', workers', materialmen's, warehousemen's, landlords'
or other like Liens arising in the ordinary course of business with respect
to obligations which are not due or which are being contested in good
faith;
(e) easements, rights-of-way, charges, covenants, restrictions and
matters of public record, survey defects and imperfections of title that do
not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business, in each
case affecting real property;
<PAGE>
-99-
(f) the reservation by any prior grantor of any right, title or
interest in and to all oil, gas and other hydrocarbon substances, minerals,
ores and metals of every nature and kind in and under real property that do
not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business;
(g) any Liens securing Capital Financing Debt; provided that such
--------
Lien does not attach to any asset other than the asset financed by such
Capital Financing Debt and proceeds thereof;
(h) Liens, if any, on credit card receivables sold pursuant to the
Credit Card Agreements that arise under the Credit Card Agreements by
virtue of such sale and proceeds thereof;
(i) Liens incurred in the ordinary course of business to secure
performance of surety and indemnity bonds, leases and other contracts
(other than to secure Debt);
(j) interests (other than Debt) of a lessor or lessee arising under a
lease;
(k) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with
imported goods, which duties are not delinquent or are being contested in
good faith by appropriate proceedings;
(l) unperfected Liens on inventory arising in the ordinary course of
business securing trade accounts payable to suppliers of such inventory
which are not past due or which are being contested in good faith; and
(m) Liens arising in the ordinary course of its business which (i) do
not attach to any asset subject
<PAGE>
-100-
to a security interest granted under the Security Documents, (ii) do not
secure Debt or any other monetary obligation (other than judgments and
appeal bonds not exceeding $2,000,000 in the aggregate) and (iii) do not in
the aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business.
SECTION 5.18. Use of Proceeds and Letters of Credit. The Letters of
--------------------------------------
Credit and the proceeds of the Loans made under this Agreement will be used by
the Borrower only for the purposes set forth in the preliminary statement of
this Agreement. None of such proceeds will be used, directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
any Margin Stock.
SECTION 5.19. Grants of Negative Pledges or Dividend Restrictions.
----------------------------------------------------
The Borrower will not, nor will it permit any of its Subsidiaries to, agree to
or become bound by any agreement or other arrangement that would restrict or
impair (i) the ability of the Borrower and its Subsidiaries to grant to the
Security Agent a Lien on any of their respective properties or assets (provided
that the foregoing shall not prohibit restrictions in (a) agreements entered
into in connection with the incurrence of Capital Financing Debt that restrict
or impair the ability to grant Liens on the asset financed thereby while such
Capital Financing Debt remains outstanding or (b) the Credit Card Agreements
that restrict or impair the ability to grant Liens on accounts receivable sold
thereunder) or (ii) the ability of any Subsidiary of the Borrower to pay
dividends on its capital stock.
SECTION 5.20. Changes in Accounting. The Borrower will not, nor will
----------------------
it permit any of its Subsidiaries to, change its accounting policies or
practices from those utilized in the preparation of the financial statements of
the Borrower referred to in Section 4.04,
<PAGE>
-101-
except as permitted or required by generally accepted accounting principles
consistently applied.
SECTION 5.21 Fixed Charge Coverage Ratio. The Fixed Charge Coverage
----------------------------
Ratio for the period of four consecutive fiscal quarters ending on the last day
of each fiscal quarter of the Borrower set forth below will not be less than the
ratio set forth below opposite such fiscal quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending on: Ratio
- ------------------------- -----
<S> <C>
February 1, 1997 1.90:1.0
May 3, 1997 1.90:1.0
August 2, 1997 1.90:1.0
November 1, 1997 2.20:1.0
January 31, 1998 2.20:1.0
May 2, 1998 2.20:1.0
August 1, 1998 2.20:1.0
October 31, 1998 2.40:1.0
January 30, 1999 2.40:1.0
May 1, 1999 2.40:1.0
July 31, 1999 2.40:1.0
October 30, 1999 2.75:1.0
January 29, 2000 2.75:1.0
April 29, 2000 2.75:1.0
July 29, 2000 2.75:1.0
October 28, 2000 3.0:1.0
February 3, 2001 3.0:1.0
May 5, 2001 3.0:1.0
August 4, 2001 3.0:1.0
November 3, 2001 3.0:1.0
February 2, 2002 3.0:1.0
May 4, 2002 3.0:1.0
August 3, 2002 3.0:1.0
November 2, 2002 3.0:1.0
February 1, 2003 3.0:1.0
</TABLE>
<PAGE>
-102-
SECTION 5.22. Minimum Adjusted Net Worth. Consolidated Adjusted Net
---------------------------
Worth will not at any date be less than Minimum Adjusted Net Worth at such date.
SECTION 5.23. Debt Coverage Ratio. The Debt Coverage Ratio will not
--------------------
at any time during any period set forth below be greater than the ratio set
forth below with respect to such period:
<TABLE>
<CAPTION>
Period
- ------------------------------------------------
From and Including To and Excluding Ratio:
- ------------------------- -------------------- ------
<S> <C> <C>
Effective Date January 31, 1998 4.5:1
January 31, 1998 January 30, 1999 3.9:1
January 30, 1999 January 29, 2000 3.40:1
January 29, 2000 February 3, 2001 2.8:1
February 3, 2001 February 2, 2002 2.25:1
February 2, 2002, and at all times thereafter 2.0:1
</TABLE>
SECTION 5.24. Capital Expenditures. Capital Expenditures during any
---------------------
fiscal year of the Borrower, commencing with the fiscal year ending on the
Saturday closest to January 31, 1998, will not exceed the sum of (a) $12,500,000
plus (b) during any fiscal year of the Borrower other than the first such fiscal
year, the excess of $12,500,000 over the amount of Capital Expenditures during
the immediately preceding fiscal year; provided that additional Capital
--------
Expenditures not exceeding an aggregate of $30,000,000 for all such periods will
be permitted in excess of those permitted by clauses (a) and (b) above, except
that not more than $7,000,000 of such additional Capital Expenditures shall be
permitted during the first two such fiscal years; and provided further that, to
the extent that Capital Expenditures after the Effective Date but prior to the
Saturday closest to January 31, 1997 do not exceed $4,000,000, the excess of
$4,000,000 over the actual amount expended during such period may be added to
the amount of Capital Expenditures permitted under clause (a) above for
<PAGE>
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the fiscal year ending on the Saturday closest to January 31, 1998.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following
------------------
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay (i) when due any principal of any
Loan or any reimbursement obligation in respect of a Letter of Credit
Disbursement or (ii) within three Domestic Business Days of the date due,
any interest on any Loan, any fees or any other amount payable hereunder or
under any other Loan Document;
(b) the Borrower shall fail to observe or perform (i) any covenant
contained in clause (a) or (b) of Section 5.01 for three Domestic Business
Days after notice thereof has been given to the Borrower by the Agent at
the request of any Lender or (ii) any covenant contained in clause (i) of
Section 5.01 or in Section 5.07 or in Sections 5.09 to 5.24, inclusive;
(c) the Borrower or any Subsidiary shall fail to observe or perform
any covenant or agreement contained in any Loan Document (other than those
covered by clause (a) or (b) above) for 10 days after written notice
thereof has been given to the Borrower by the Agent at the request of any
Lender;
(d) any representation, warranty, certification or statement made by
the Borrower or any Subsidiary in any Loan Document or in any certificate,
financial statement or other document delivered pursuant to any
<PAGE>
-104-
Loan Document shall prove to have been incorrect in any material respect
when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment of
principal, interest or premium in respect of any Material Debt (other than
the Obligations) at maturity;
(f) any event or condition (including, without limitation, failure to
make any payment when due) shall occur which results in the acceleration of
the maturity of any Material Debt or enables (or, with the giving of notice
or lapse of time or both, would enable) the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof or
to require the prepayment, redemption or repurchase thereof or to terminate
any commitment to lend such Debt;
(g) any of the Trademark Agreements (other than those referred to in
clause (ii) of the definition thereof) or the Credit Card Agreements shall
be canceled, terminated or repudiated (other than termination of a Credit
Card Agreement in connection with the replacement thereof with another
Credit Card Agreement), or any event shall occur that results in any of
such Trademark Agreements having a term that expires earlier than the
initial term thereof, or any default, breach or other event shall occur
that would permit a termination of any of such Trademark Agreements (if the
Trademark Collateral Agreement were not in effect) or the Credit Card
Agreements and shall continue beyond any applicable grace period;
(h) the Borrower or any Subsidiary (i) shall commence 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,
<PAGE>
-105-
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) shall consent 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, or (iii) shall
make a general assignment for the benefit of creditors, or (iv) shall fail
generally to pay its debts as they become due, or (v) shall take any
corporate action to authorize any of the foregoing;
(i) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary 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 shall remain undismissed and unstayed
for a period of 60 days; or an order for relief shall be entered against
the Borrower or any Subsidiary under the Federal bankruptcy laws as now or
hereafter in effect;
(j) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $1,000,000 which it shall have
become liable to pay to the PBGC or to a Plan under Title IV of ERISA or
Section 412 of the Internal Revenue Code; or notice of intent to terminate
a Plan or Plans having aggregate Unfunded Liabilities in excess of
$2,000,000 (collectively, a "Material Plan") shall be filed under Title IV
of ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Plan against any member of the ERISA Group to enforce
<PAGE>
-106-
Section 515 or 4219(c)(5) of ERISA where the amount in controversy exceeds
$2,000,000 and such proceeding shall not have been dismissed within 30 days
thereafter; or a Reportable Event or Reportable Events shall have occurred
with respect to a Material Plan and the Agent shall have notified the
Borrower that the Required Lenders have made a determination that, on the
basis of such Reportable Event or Reportable Events, there are reasonable
grounds for the termination of such Material Plan by the PBGC or for the
appointment by an appropriate United States District Court of a trustee to
administer such Material Plan;
(k) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $2,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and shall continue
unsatisfied and unstayed for a period of 10 days, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties of
the Borrower or any Subsidiary to enforce any such judgment;
(l) a Change of Control shall occur; or
(m) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by the Borrower or any
Subsidiary not to be, a valid, perfected, first priority security interest
in respect of any material amount of collateral, other than as a result of
an act or omission of the Security Agent, the Agent or any Lender and
subject to exceptions as to priority expressly permitted under the Loan
Documents;
then, and in every such event, the Agent shall (i) if requested by Lenders
having more than 50% in aggregate amount of the Commitments, by notice to the
Borrower terminate the Commitments and they shall thereupon terminate, (ii) if
requested by Lenders holding Notes
<PAGE>
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evidencing more than 50% in aggregate principal amount of the Loans, by notice
to the Borrower declare the Notes (together with accrued interest thereon) to
be, and the Notes shall thereupon become, immediately due and payable (in whole
or, in the sole discretion of the Lenders, from time to time in part) without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower, (iii) if requested by Lenders having more than
50% of the Letter of Credit Exposure, require cash collateral as contemplated by
Section 2.13(k) in an amount not exceeding the Letter of Credit Exposure, (iv)
exercise and direct the Security Agent to exercise remedies available under the
Guarantee Agreement, the Security Documents or otherwise, as requested by the
Required Lenders, or (v) any combination of the foregoing; provided that in the
--------
case of any of the Events of Default specified in clause (h) or (i) above with
respect to the Borrower without any notice to the Borrower or any other act by
the Agent or the Lenders, the Commitments shall thereupon terminate and the
Notes (together with accrued interest thereon) shall become immediately due and
payable (in whole) without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice to the
------------------
Borrower under clause (b)(i) or (c) of Section 6.01 promptly upon being
requested to do so by any Lender, and shall thereupon notify all the Lenders
thereof.
ARTICLE VII
THE AGENT, SECURITY AGENT AND ISSUING BANKS
SECTION 7.01. Appointment and Authorization. Each Lender irrevocably
------------------------------
appoints and authorizes each of the Agent, the Security Agent and any Issuing
Bank (each being referred to as an "Agent" for purposes of this Article VII) to
take such action as agent on its behalf and to exercise
<PAGE>
-108-
such powers under this Agreement and the other Loan Documents as are delegated
to such Agent by the terms hereof or thereof, together with all such powers as
are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Each Lender that is an Agent
---------------------
shall have the same rights and powers under this Agreement as any other Lender
and may exercise or refrain from exercising the same as though it were not an
Agent, and each such Lender and its affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with the Borrower or any
Subsidiary or affiliate of the Borrower as if it were not an Agent.
SECTION 7.03. Action by Agent. The obligations of any Agent under
----------------
the Loan Documents are only those expressly set forth herein and therein.
Without limiting the generality of the foregoing, no Agent shall be required to
take any action with respect to any Default, except as expressly provided in
Article VI.
SECTION 7.04. Consultation with Experts. Each Agent may consult with
--------------------------
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither any Agent nor any of its
-------------------
directors, officers, agents, or employees shall be liable for any action taken
or not taken by it in connection herewith (i) with the consent or at the request
of the Required Lenders or (ii) in the absence of its own gross negligence or
willful misconduct. Neither any Agent nor any of its directors, officers, agents
or employees shall be responsible for or have any duty to ascertain, inquire
into or verify (i) any statement, warranty or representation made in connection
with this Agreement or any borrowing hereunder; (ii) the performance
<PAGE>
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or observance of any of the covenants or agreements of the Borrower or any
Subsidiary; (iii) the satisfaction of any condition specified in Article III,
except receipt of items required to be delivered to it; or (iv) the validity,
effectiveness or genuineness of this Agreement, any other Loan Document or
Transaction Document or any other instrument or writing furnished in connection
herewith. No Agent shall incur any liability by acting in reliance upon any
notice, consent, certificate, statement, or other writing (which may be a
telecopy, bank wire, telex or similar writing) believed by it to be genuine or
to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Lender shall, ratably in
----------------
accordance with its Loans, Letter of Credit Exposure and unused Commitment,
indemnify each Agent (to the extent not reimbursed by the Borrower) against any
cost, expense (including counsel fees and disbursements), claim, demand, action,
loss or liability (except such as result from such Agent's gross negligence or
willful misconduct) that such Agent may suffer or incur in connection with this
Agreement or any other Loan Document or any action taken or omitted by such
Agent hereunder or thereunder.
SECTION 7.07. Credit Decision. Each Lender acknowledges that it
----------------
has, independently and without reliance upon any Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. Any Agent (other than an Issuing Bank
----------------
in respect of Letters of Credit issued by it) may resign at any time by giving
written notice
<PAGE>
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thereof to the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor to such Agent after
consultation with the Borrower (but the foregoing shall not be construed to
require any consent or approval by the Borrower). If no successor to such Agent
shall have been so appointed by the Required Lenders, and shall have accepted
such appointment, within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which, in the case of the Agent under this Agreement, shall be
a commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $500,000,000. Upon the acceptance of its appointment as an Agent by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations. After any retiring
Agent's resignation, the provisions of this Article shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was an Agent.
SECTION 7.09. Agents Fees. The Borrower shall pay to each Agent for
------------
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and such Agent.
SECTION 7.10. Sub-Agents. Each Agent may perform any of its
-----------
obligations and exercise any of its rights under the Loan Documents by or
through sub-agents. The provisions of this Article VII shall inure to the
benefit of any sub-agent of any Agent in the same manner and to the same extent
as they inure to the benefit of such Agent.
<PAGE>
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ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
-------------------------------------------------
Unfair. If on or prior to the first day of any Interest Period for any Euro-
- -------
Dollar Borrowing:
(a) the Agent is advised by the Euro-Dollar Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to
the Euro-Dollar Reference Banks in the relevant market for such Interest
Period, or
(b) Lenders having 50% or more of the aggregate amount of the
Commitments or Loans of the relevant Class advise the Agent that the
Adjusted London Interbank Offered Rate, as the case may be, as determined
by the Agent will not adequately and fairly reflect the cost to such
Lenders of funding their Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Lenders to make
Euro-Dollar Loans shall be suspended. Unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any Euro-Dollar Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
SECTION 8.02. Illegality. If, on or after the date of this
-----------
Agreement, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or
<PAGE>
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compliance by any Lender (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-
Dollar Loans and such Lender shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Lenders and the Borrower, whereupon
until such Lender notifies the Borrower and the Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Lender to
make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent
pursuant to this Section, such Lender shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Lender, be otherwise disadvantageous to
such Lender. If such Lender shall determine that it may not lawfully continue to
maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall
so specify in such notice, the Borrower shall immediately prepay in full the
then outstanding principal amount of each such Euro-Dollar Loan, together with
accrued interest thereon. Concurrently with prepaying each such Euro-Dollar
Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount
from such Lender (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Lenders), and
such Lender shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after
----------------------------------
the date hereof the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Applicable Lending Office) with any request or directive
<PAGE>
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(whether or not having the force of law) of any such authority, central bank or
comparable agency:
(i) shall subject any Lender (or its Applicable Lending Office) to
any tax, duty or other charge with respect to its Euro-Dollar Loans, its
Notes, its participations in Letters of Credit or its obligation to make
Euro-Dollar Loans or acquire participations in Letters of Credit, or shall
change the basis of taxation of payments to any Lender (or its Applicable
Lending Office) of the principal of or interest on its Euro-Dollar Loans or
any other amounts due under this Agreement in respect of its Euro-Dollar
Loans or its obligation to make Euro-Dollar Loans (except for changes in
the rate of tax on, or determined by reference to, the overall net income
of such Lender or its Applicable Lending Office imposed by the jurisdiction
in which such Lender's principal executive office or Applicable Lending
Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any Euro-Dollar Loan any such
requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended
by, any Lender (or its Applicable Lending Office) or shall impose on any
Lender (or its Applicable Lending Office) or on the London interbank market
any other condition affecting its Euro-Dollar Loans, its Notes, its
participations in Letters of Credit or its obligation to make Euro-Dollar
Loans or acquire participations in Letters of Credit;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan
or holding or acquiring a participation in any Letter of Credit, or to
<PAGE>
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reduce the amount of any sum received or receivable by such Lender (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Lender to be material, then, within 15 days
after demand by such Lender (with a copy to the Agent), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduction.
(b) If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Lender (or its Parent)
as a consequence of such Lender's obligations hereunder to a level below that
which such Lender (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, within 15 days after demand by such Lender (with a copy
to the Agent), the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender (or its Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section and will designate
a different Applicable Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment of
such Lender, be otherwise disadvantageous to such Lender. A certificate of any
Lender claiming compensation under this
<PAGE>
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Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. In determining
such amount, such Lender may use any reasonable averaging and attribution
methods.
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate
---------------------------------------------------
Loans. If (a) the obligation of any Lender to make Euro-Dollar Loans has been
- ------
suspended pursuant to Section 8.02 or (b) any Lender has demanded compensation
under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar
Business Days' prior notice to such Lender through the Agent, have elected that
the provisions of this Section shall apply to such Lender, then, unless and
until such Lender notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer apply:
(i) all Loans which would otherwise be made by such Lender as Euro-
Dollar Loans shall be made instead as Base Rate Loans (on which interest
and principal shall be payable contemporaneously with the related Euro-
Dollar Loans of the other Lenders); and
(ii) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead.
SECTION 8.05. Replacement of Lenders. In the event (a) any Lender
-----------------------
delivers a notice under Section 8.02 or (b) any Lender demands compensation
pursuant to Section 8.03, then the Borrower may, at its sole expense and effort,
require such Lender to assign, without recourse (in accordance with Section
10.06), all of its rights and obligations under this Agreement and the Notes to
an Assignee which shall assume such assigned obligations; provided that (i) such
--------
assignment shall not conflict with any law, rule or regulation or order of any
court or other Governmental Authority having jurisdiction, (ii) the
<PAGE>
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Borrower shall have received the written consent of the Agent (and of an Issuing
Bank, if such Lender has a Revolving Loan Commitment) and (iii) such Assignee
(or, in the case of amounts other than principal, interest and accrued Fees, the
Borrower) shall have paid to the transferor Lender in immediately available
funds an amount equal to the sum of the principal of and interest accrued to the
date of such payment on the outstanding Loans and participations in Letter of
Credit Disbursements of such Lender, plus all Fees and other amounts accrued for
the account of such Lender hereunder (including any amounts under Section 2.11
and Section 8.03, it being understood that such assignment shall be treated as a
prepayment for purposes of Section 2.11); provided further that if prior to any
----------------
such assignment the circumstances or event that resulted in such Lender's notice
under Section 8.02 or demand for compensation under Section 8.03, as the case
may be, cease to cause such Lender to suffer increased costs or reductions in
amounts received or receivable or reduction in return on capital, or cease to
have the consequences specified in Section 8.02, as the case may be (including
as a result of any action taken by such Lender), or if such Lender shall waive
its right to claim further compensation under Section 8.03 in respect of such
circumstances or event or shall withdraw its notice under Section 8.02 in
respect of such circumstances or event, as the case may be, then such Lender
shall not thereafter be required to make any such assignment hereunder.
SECTION 8.06. Taxes. (a) For the purposes of this Section 8.06, the
------
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Lender,
---------
each Issuing Bank and the Agent, taxes imposed on its income, and franchise or
similar taxes imposed on it, by a
<PAGE>
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jurisdiction under the laws of which such Lender, such Issuing Bank or the Agent
(as the case may be) is organized or in which its principal executive office is
located or, in the case of each Lender, in which its Applicable Lending Office
is located and (ii) in the case of each Lender, any United States withholding
tax imposed on such payments but only to the extent that such Lender is subject
to United States withholding tax at the time such Lender first becomes a party
to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any other Loan
Document or from the execution or delivery of, or otherwise with respect to,
this Agreement or any other Loan Document.
(b) Any and all payments by the Borrower to or for the account of any
Lender, any Issuing Bank or the Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
--------
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) such Lender, such Issuing Bank or the Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Agent, at its address referred to in Section
10.01, the original or a certified copy of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Lender, each Issuing Bank
and the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
<PAGE>
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amounts payable under this Section) paid by such Lender, such Issuing Bank or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto. This indemnification
shall be paid within 15 days after such Lender, such Issuing Bank or the Agent
(as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
(but only so long as such Lender remains lawfully able to do so), shall provide
the Borrower and the Agent with Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Lender is entitled to benefits under an income tax treaty
to which the United States is a party which exempts the Lender from United
States withholding tax or reduces the rate of withholding tax on payments of
interest for the account of such Lender or certifying that the income receivable
pursuant to this Agreement is effectively connected with the conduct of a trade
or business in the United States.
(e) For any period with respect to which a Lender has failed to
provide the Borrower or the Agent with the appropriate form pursuant to Section
8.06(d) (unless such failure is due to a change in treaty, law or regulation
occurring subsequent to the date on which such form originally was required to
be provided), such Lender shall not be entitled to indemnification under Section
8.06(b) or (c) with respect to Taxes imposed by the United States; provided that
--------
if a Lender, which is otherwise exempt from or subject to a reduced rate of
withholding tax, becomes subject to Taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as
<PAGE>
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such Lender shall reasonably request to assist such Lender to recover such
Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Lender pursuant to this Section, then such Lender will change
the jurisdiction of its Applicable Lending Office if such change (i) will
eliminate or reduce any such additional payment which may thereafter accrue and
(ii) in the judgment of such Lender, is not otherwise disadvantageous (other
than in a de minimis respect) to such Lender.
-- -------
ARTICLE IX
CONVERSION OF BORROWER
SECTION 9.01. General. The purpose of this Article is to provide for
--------
the ability of the Borrower and its partners to reorganize the initial ownership
structure of the Borrower so that the Borrower becomes a corporation, and/or
becomes wholly owned by a corporation, in order to facilitate an offering of
equity interests in the Borrower, either directly by the Borrower or indirectly
by a parent corporation that holds (directly or indirectly) all the partnership
interests in or capital stock of the Borrower, as applicable. Any such
reorganization, regardless of form or method, is referred to herein as a
"Conversion". The following Sections of this Article describe alternative
methods of Conversion and certain conditions applicable thereto. In addition to
the conditions set forth below, any Conversion shall be subject to the condition
that no Default (including, without limitation, any Change of Control) shall
have occurred and be continuing at the time of, or result from, such Conversion.
SECTION 9.02. New Corporate Borrower. Subject to the conditions set
-----------------------
forth below, a Conversion may be accomplished by (a) the transfer (including
transfers accomplished by merger or consolidation) of all the assets
<PAGE>
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of the Borrower, including all real and personal property, all cash and
Investments and all rights under contracts and agreements (including the
Trademark Agreement and Credit Card Agreements) and other intangible assets, to
a corporation organized under the laws of any State in the United States of
America or the laws of the District of Columbia (such corporation being referred
to herein as the "Corporate Borrower"), and (b) the assumption by the Corporate
Borrower of all liabilities and other obligations of the Borrower, including the
Obligations. Any Conversion pursuant to this Section shall be subject to the
satisfaction (or waiver in accordance with Section 10.05) of the following
conditions:
(i) immediately prior to such Conversion, the Corporate Borrower
shall not have any material assets or liabilities (other than (A)
liabilities fully indemnified by The Limited and (B) liabilities that also
constitute liabilities of the Borrower prior to such Conversion) and shall
not have any subsidiaries (other than the Borrower and the Subsidiaries);
(ii) receipt by the Security Agent of copies of each document
(including each Uniform Commercial Code financing statement) required by
law or reasonably requested by the Security Agent to be filed, registered
or recorded in order to maintain the validity, perfection and priority of
the security interests and liens granted under the Security Documents;
(iii) receipt by the Lenders of satisfactory evidence that the
Borrower and its Subsidiaries and the Corporate Borrower shall have
obtained all consents and approvals of, and shall have made all filings and
registrations with, any Governmental Authority, or any party to any
contract or agreement with the Borrower or any Subsidiary, or any other
third party, required to be obtained in order to consummate such
Conversion, in each case without the imposition of any condition
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which, in the judgment of the Required Lenders, could have a Material
Adverse Effect;
(iv) receipt by the Agent of reasonable advance notice of such
Conversion together with drafts of all documentation to be entered into in
order to consummate such Conversion (which shall include assumption
agreements, in form and substance satisfactory to the Agent, for the
assumption by the Corporate Borrower of the Obligations) and a reasonable
opportunity to comment upon such drafts;
(v) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Corporate Borrower, the corporate
authority for such Conversion, and any other matters relevant thereto, all
in form and substance satisfactory to the Agent, including, without
limitation, (A) an opinion of counsel (who shall be reasonably satisfactory
to the Agent if other than Riordan & McKinzie) comparable to that delivered
on the Effective Date pursuant to clause (c)(i) of Section 3.01 and
covering such additional matters relating to such Conversion as the Agent
or the Required Lenders may reasonably request and (B) a certificate signed
by the President and any Vice President of each of the Borrower and the
Corporate Borrower to the effect set forth in clauses (c) and (d) of
Section 3.02; and
(vi) such Conversion shall be consummated on a single date.
Upon consummation of a Conversion in accordance with this Section 9.02, the
Corporate Borrower shall be deemed to be the "Borrower" for all purposes of this
Agreement and the other Loan Documents.
SECTION 9.03. Holding Company Structure. Subject to the conditions
--------------------------
specified below, a Conversion may be accomplished by the transfer (including
transfers
<PAGE>
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accomplished by merger or consolidation) to a single corporation organized under
the laws of any State in the United States of America or of the District of
Columbia (which corporation will become the Parent Corporation as a result of
such Conversion) of all outstanding partnership interests (and any options,
warrants or rights to purchase, and any securities convertible into or
exchangeable for, partnership interests, if the same are to remain outstanding
after such Conversion) in the Borrower, either directly or by transfer
(including transfers accomplished by merger or consolidation) to such
corporation of all outstanding capital stock of any corporation holding,
directly or indirectly, a partnership interest. Any Conversion pursuant to this
Section shall be subject to the satisfaction (or waiver in accordance with
Section 10.05) of the conditions specified in clauses (iii) and (iv) of Section
9.02 and the following additional conditions:
(i) after giving effect to such Conversion, (A) the Borrower will be,
directly or indirectly, wholly owned by the Parent Corporation, (B) the
Parent Corporation will not have any subsidiaries, other than the Borrower
and the Subsidiaries and subsidiaries resulting from transfers to the
Parent Corporation of capital stock of corporations holding partnership
interests in the Borrower as described above, and (C) neither the Parent
Corporation nor any of its subsidiaries described above shall have any
material assets (other than partnership interests in the Borrower and
assets of the Borrower and the Subsidiaries) or liabilities (other than (1)
liabilities fully indemnified by The Limited, (2) liabilities that also
constituted liabilities of the Borrower prior to such Conversion and (3)
liabilities of the Borrower and the Subsidiaries);
(ii) the Parent Corporation shall enter into an agreement with the
Agent, in form and substance satisfactory to the Agent, pursuant to which
the Parent Corporation will agree that neither it nor any of its
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subsidiaries (other than the Borrower and the Subsidiaries) will engage in
any business or activity other than the ownership of the Borrower and
activities incidental thereto; and
(iii) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Parent Corporation, the corporate
authority for such Conversion, and any other matters incidental thereto,
all in form and substance satisfactory to the Agent.
SECTION 9.04. Liquidation. Subject to the conditions specified
------------
below, a Conversion may be accomplished by (a) the transfer (including transfers
accomplished by merger or consolidation) to any corporation that would satisfy
the requirements to qualify as a Corporate Borrower as provided in Section 9.02
of all outstanding partnership interests (and any options, warrants or rights to
purchase, and any securities convertible into or exchangeable for, partnership
interests) in the Borrower and (b) the liquidation of the Borrower (which may be
accomplished by operation of law) into such corporation. Any Conversion
pursuant to this Section shall be subject to the satisfaction (or waiver in
accordance with Section 10.05) of the conditions specified in clauses (i), (ii),
(iii), (iv) and (v) of Section 9.02 (as though such corporation into which the
Borrower is to be liquidated were to be a Corporate Borrower), except, as to the
condition specified in clause (i) of Section 9.02, the corporation into which
the Borrower is to be liquidated may own partnership interests in the Borrower.
Upon consummation of a Conversion in accordance with this Section 9.04, the
corporation into which the Borrower is liquidated shall be deemed to be the
"Borrower" for all purposes of this Agreement and the other Loan Documents.
SECTION 9.05. Post-Conversion Actions. Promptly following a
------------------------
Conversion, the Borrower shall distribute to the Agent, the Security Agent, the
Issuing Banks and the Lenders
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copies of all documentation executed and delivered in connection therewith.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. All notices, requests and other
--------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower, each Issuing Bank or the Agent, at its
address or telecopy number set forth on the signature pages hereof (with a copy
to Freeman Spogli & Co. Incorporated, 599 Lexington Avenue, 18th Floor, New
York, NY 10022, Attention: Mr. J.M. Roth, in the case of any notice to the
Borrower relating to a Default), (y) in the case of any Lender, at its address
or telex number set forth in its Administrative Questionnaire or (z) in the case
of any party, at such other address or telecopy or telex number as such party
may hereafter specify for the purpose by notice to the Agent and the Borrower.
Each such notice, request or other communication shall be effective (i) if given
by telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answer back is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered at the address specified in this Section; provided that notices
--------
to the Agent under Article II or Article VIII shall not be effective until
received.
SECTION 10.02. No Waivers. No failure or delay by the Agent, the
-----------
Security Agent, any Issuing Bank or any Lender in exercising any right, power or
privilege hereunder or under any other Loan Document 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
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and remedies herein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.
SECTION 10.03. Expenses; Documentary Taxes; Indemnification. (a)
---------------------------------------------
The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent,
the Security Agent, the Documentation Agent and (in the case of expenses
relating to the issuance of a Letter of Credit) the Issuing Bank, including fees
and disbursements of special counsel for the Agent and the Documentation Agent,
in connection with the preparation of this Agreement and the other Loan
Documents, any primary or secondary syndication of the credit facilities
hereunder, any waiver or consent hereunder or thereunder or any amendment hereof
or thereof or any Default or alleged Default hereunder or any Conversion or
proposed Conversion and (ii) if an Event of Default occurs, all reasonable out-
of-pocket expenses incurred by the Agent, the Security Agent, any Issuing Bank
or any Lender, including fees and disbursements of counsel, in connection with
such Event of Default and collection, bankruptcy and other enforcement
proceedings resulting therefrom. The Borrower shall indemnify each Lender
against any transfer taxes, documentary taxes, assessments or charges made by
any Governmental Authority by reason of the execution and delivery of this
Agreement or the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, the Security Agent,
the Documentation Agent, each Issuing Bank and each Lender and hold the Agent,
the Security Agent, each Issuing Bank and each Lender harmless from and against
any and all liabilities, losses, damages, costs and expenses of any kind,
including, without limitation, the reasonable fees and disbursements of counsel,
which may be incurred by any Lender (or by the Agent, the Documentation Agent,
the Security Agent or any Issuing Bank in connection with its actions as such)
in connection with any investigative, administrative or judicial proceeding
(whether or not the Agent, the Documentation Agent, the Security Agent, such
Issuing Bank or such Lender shall be designated a party thereto) relating to or
arising out of any Loan Document or
<PAGE>
-126-
any actual or proposed use of proceeds of Loans or Letters of Credit hereunder;
provided that neither the Agent, the Documentation Agent, the Security Agent,
- --------
any Issuing Bank nor any Lender shall have the right to be indemnified hereunder
for its own gross negligence or wilful misconduct as determined by a court of
competent jurisdiction.
(c) The provisions of this Section 10.03 shall remain in effect and
survive regardless of any termination of this Agreement or the repayment of the
Obligations.
SECTION 10.04. Sharing of Set-Offs. Each Lender agrees that if it
--------------------
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of its claims in respect of
Letter of Credit Disbursements and principal and interest due with respect to
any Note held by it which is greater than the proportion received by any other
Lender in respect of the aggregate amount of claims in respect of Letter of
Credit Disbursements and principal and interest due with respect to any Note
held by such other Lender, the Lender receiving such proportionately greater
payment shall purchase such participations in the claims in respect of Letter of
Credit Disbursements and Notes held by the other Lenders, and such other
adjustments shall be made, as may be required so that all such payments of
claims in respect of Letter of Credit Disbursements and of principal and
interest with respect to the Notes held by the Lenders shall be shared by the
Lenders pro rata; provided that nothing in this Section shall impair the right
--------
of any Lender to exercise any right of set-off or counterclaim it may have and
to apply the amount subject to such exercise to the payment of indebtedness of
the Borrower other than its indebtedness under the Loan Documents. The Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any holder of a participation in a Letter of Credit or Note, whether or not
acquired pursuant to the foregoing arrangements, may exercise rights of set-off
or counterclaim and other rights with respect to such participation as fully as
if such holder of a participation
<PAGE>
-127-
were a direct creditor of the Borrower in the amount of such participation.
SECTION 10.05. Amendments and Waivers. Any provision of this
-----------------------
Agreement or any other Loan Document may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed or otherwise approved in
writing by the Borrower and the Required Lenders (and, if the rights or duties
of the Agent, the Security Agent or the Issuing Banks are affected thereby, by
the Agent, the Security Agent or the Issuing Banks, as the case may be);
provided that no such amendment or waiver shall (i) increase the Commitment of
- --------
any Lender or subject any Lender to any additional obligation without the
consent of such Lender, (ii) reduce the principal of or rate of interest on any
Loan or any fees hereunder without the consent of each Lender affected thereby,
(iii) postpone the date fixed for any payment of principal of any Loan under
Section 2.08(a), (b) or (c) or for any reimbursement of a Letter of Credit
Disbursement or payment of interest on any Loan or any fees hereunder or for any
reduction or termination of any Commitment without the consent of each Lender
affected thereby, (iv) permit the termination of the Trademark Agreement or any
Credit Card Agreements, or any amendment or waiver thereof that would be
materially adverse to the interests of the Borrower or the Lenders, without the
consent of each Lender, (v) permit the release of any material amount of
collateral under any Security Document (except as provided therein), without the
consent of each Lender, (vi) change the percentage of the Commitments, the
percentage of the aggregate unpaid principal amount of the Notes or the number
of Lenders which shall be required for the Lenders or any of them to take any
action under this Section or any other provision of this Agreement, without the
consent of each Lender, (vii) change any provisions of any Loan Document in a
manner that by its terms adversely affects the rights in respect of payments due
to Lenders holding Loans of any Class differently than those holding Loans of
any other Class, without the consent of Lenders holding a majority in interest
of the outstanding Loans and
<PAGE>
-128-
unused Commitments of each affected Class (in addition to any other consent
required under any other clause of this Section) or (viii) change the rights of
Lenders holding Tranche B Term Loans to decline mandatory prepayments as
provided in Section 2.08, without the consent of Lenders holding a majority in
interest of the outstanding Tranche B Term Loans.
SECTION 10.06. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement (other than
pursuant to a Conversion in accordance with Article IX) without the prior
written consent of all Lenders.
(b) Any Lender may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in any or all of its
Commitment or its Loans or its participations in Letters of Credit. In the
event of any such grant by a Lender of a participating interest to a
Participant, whether or not upon notice to the Borrower and the Agent, such
Lender shall remain responsible for the performance of its obligations
hereunder, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement pursuant to which any Lender may
grant such a participating interest shall provide that such Lender shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
--------
participation agreement may provide that such Lender will not agree to any
modification, amendment or waiver described in clause (i), (ii), (iii), (iv) or
(v) of Section 10.05 without the consent of the Participant. The Borrower agrees
that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of
<PAGE>
-129-
Article VIII and Section 2.11 with respect to its participating interest. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent of
a participating interest granted in accordance with this subsection (b).
(c) Any Lender may at any time assign to one or more banks or other
financial institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume such rights and obligations, pursuant to an instrument
executed by such Assignee and such transferor Lender, after consultation with
the Borrower regarding such assignment (but the foregoing shall not be construed
to require any consent or approval by the Borrower) and with (and subject to)
the subscribed consent of the Agent (except in the case of assignments to
Affiliates of Lenders) and, in the case of an assignment of a Revolving Loan
Commitment, the Issuing Banks; provided that (i) each such assignment shall be
--------
in a minimum amount of $5,000,000 or, if less, all the remaining rights and
obligations of the transferor Lender, and (ii) any such assignment of rights and
obligations in respect of any Class of Loans or Commitments shall be made
ratably of all rights and obligations in respect of such Class but shall not
require a ratable assignment of rights and obligations in respect of another
Class. Upon execution and delivery of such an instrument, payment by such
Assignee to such transferor Lender of an amount equal to the purchase price
agreed between such transferor Lender and such Assignee, delivery to the Agent
of an executed copy of such instrument and payment to the Agent by the Assignor
of a processing fee of $3,500, then such Assignee shall be a Lender party to
this Agreement and shall have all the rights and obligations of a Lender with a
Commitment as set forth in such instrument of assumption, and the transferor
Lender shall be released from its obligations hereunder to a corresponding
extent, and no further consent or action by any party shall be required. Upon
the consummation of any assignment
<PAGE>
-130-
pursuant to this subsection (c), the transferor Lender, the Agent and the
Borrower shall make appropriate arrangements so that, if required, a new Note or
Notes are issued to the Assignee, at the Borrower's expense. If the Assignee is
not incorporated under the laws of the United States of America or a state
thereof, it shall deliver to the Borrower and the Agent certification as to
exemption from deduction or withholding of any United States Federal income
taxes in accordance with Section 8.06.
(d) Any Lender may at any time assign all or any portion of its
rights under this Agreement and its Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Lender from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under Section 8.03 or
8.06 than such Lender would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.06
requiring such Lender to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 10.07. Collateral. Each of the Lenders represents to the
-----------
Agent and each of the other Lenders that it in good faith is not relying upon
any Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
SECTION 10.08. Waiver of Trial by Jury. Each of the parties hereto
------------------------
irrevocably waives any and all rights to trial by jury in any legal proceeding
arising out of or relating to this Agreement or any other Loan Document or the
transactions contemplated hereby.
<PAGE>
-131-
SECTION 10.09. New York Law. THIS AGREEMENT AND EACH NOTE SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 10.10. Counterparts; Integration. This Agreement may be
--------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 10.11. Limitation on Recourse. Notwithstanding any contrary
-----------------------
provision of this Agreement or any other Loan Document, it is expressly agreed
that the Agent, the Security Agent, each Issuing Bank and each Lender shall look
solely to the assets of the Borrower (and of any Subsidiary party to the
Guarantee Agreement or any Security Document) for the payment and performance of
the obligations of the Borrower hereunder and thereunder, without recourse
against any partner in the Borrower or any assets of such partner on account of
such obligations.
SECTION 10.12. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein or in the Notes to the contrary, if at any time the applicable interest
rate, together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other Loan Document, or otherwise contracted for, charged, received, taken or
reserved by any Lender, shall exceed the maximum lawful rate (the "Maximum
Rate") which may be contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest payable under the
Note or Notes held by such Lender, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
<PAGE>
-132-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
BRYLANE, L.P.,
by VGP CORPORATION, General
Partner,
by /s/ Mark J. Doran
---------------------------------
Title: Vice President, Treasurer and
Secretary
463 Seventh Avenue
21st Floor
New York, NY 10018
Attention of Chief
Financial Officer
Telecopy number:212-613-9567
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent,
by /s/ Adam J. Silver
-----------------------------------
Title: Associate
60 Wall Street
New York, N.Y. 10260
Attention of Deborah A. Brodheim
Telex number:177615 MGT UT
Telecopy number:212-648-5018
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by /s/ Adam J. Silver
-----------------------------------
Title: Associate
<PAGE>
-133-
MERRILL LYNCH CAPITAL
CORPORATION,
by
---------------------------------
Title:
World Financial Center
North Tower
250 Vesey Street
7th Floor
New York, NY 10281-1307
BANK OF AMERICA,
by
---------------------------------
Title:
335 Madison Avenue
New York, NY 10017
THE BANK OF NOVA SCOTIA,
by /s/ J. ALAN EDWARDS
--------------------------------
Title: AUTHORIZED SIGNATORY
One Liberty Plaza
165 Broadway
26th Floor
New York, NY 10006
BANKBOSTON
by
--------------------------------
Title:
100 Federal Street
Boston, MA 02106-2016
<PAGE>
-134-
DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
by /s/ David H. Kahn
--------------------------------
Title: Assistant Vice President
31 West 52nd Street
New York, NY 10019
by /s/ Belinda Wheeler
--------------------------------
Title: Assistant Vice President
31 West 52nd Street
New York, NY 10019
FLEET NATIONAL BANK,
by /s/ Eugenie M. Sullivan
--------------------------------
Title: Senior Vice President
One Federal Street
Boston, MA 02211
WELLS FARGO, BANK, N.A.
by /s/ Delia B. Fance
--------------------------------
Title: Vice President
333 South Grand Avenue
9th Floor
Los Angeles, CA 90071
<PAGE>
-135-
THE FUJI BANK, LIMITED,
by /s/ Peter L. Chinnici
--------------------------------
Title: Joint General Manager
225 West Wacker Drive
Suite 2000
Chicago, IL 60606
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
by /s/
--------------------------------
Title: Joint General Manager
350 South Grand Avenue
Suite 3000
Los Angeles, CA 90071
PNC BANK, NATIONAL ASSOCIATION
by /s/ M.J. Williams
--------------------------------
Title: Vice President
249 Fifth Avenue
2nd Floor
Pittsburgh, PA 15222-2707
UNION BANK OF CALIFORNIA,
by /s/ Richard A. Sutter
--------------------------------
Title: Vice President
350 California Street
San Francisco, CA 94104-1402
<PAGE>
-136-
BANQUE PARIBAS,
by /s/ Deanna C. Walker
--------------------------------
Title: Assistant Vice President
2121 San Jacinto
Suite 930
Dallas, TX 75201
by /s/ Kenneth E. Moore, Jr.
--------------------------------
Title: Vice President
CORESTATES BANK,
by /s/ Irene Rosen Marks
--------------------------------
Title: Vice President
1345 Chestnut Street
Philadelphia, PA 19101
CAISSE NATIONALE DE CREDIT AGRICOLE,
by /s/ Craig Welch
--------------------------------
Title: First Vice President
520 Madison Avenue
New York, NY 10022
IMPERIAL BANK,
by /s/ Ray Vadalma
--------------------------------
Title: Senior Vice President
9920 South La Cienega Boulevard
Suite 1015
Inglewood, CA 90301
<PAGE>
-137-
NATIONAL CITY BANK OF INDIANA
by /s/ Larry J. Mayers
--------------------------------
Title: Vice President
101 West Washington Street
Indianapolis, IN 46255
NIPPON CREDIT BANK, LTD.,
by /s/ Barry S. Fein
--------------------------------
Title: Assistant Vice President
245 Park Avenue
30th Floor
New York, NY 10167
THE SUMITOMO BANK, LTD.,
by /s/ James Broadley and /s/
---------------------------------
Title: Vice President and Vice
President
450 Lexington Avenue
Suite 1700
New York, NY 10017
<PAGE>
-138-
ARAB BANKING CORPORATION,
by /s/ Louise Billero
--------------------------------
Title: Vice President
277 Park Avenue
32nd Floor
New York, NY 10172-3299
VAN KAMPEN AMERICAN, CAPITAL PRIME RATE
INCOME TRUST
by /s/ Jeff Maillet
--------------------------------
Title: Senior Vice President and
Director
One Parkview Plaza
5th Floor
Oakbrook Terrace, IL 60181
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY,
by /s/ John B. Joyce
--------------------------------
Title: Managing Director
1295 State Street
Springfield, MA 01109
EATON VANCE SENIOR DEBT PORTFOLIO,
by
---------------------------------
24 Federal Street
Boston, MA 02110
<PAGE>
-139-
INDOSUEZ CAPITAL,
by
--------------------------------
Title:
1211 6th Avenue
7th Floor
New York, NY 10036
ING CAPITAL ADVISORS, INC., as Agent for Bank
Syndication Account,
by /s/ Michael Hath
--------------------------------
Title: Vice President
333 South Grand Avenue
Suite 400
Los Angeles, CA 90071
PROTECTIVE LIFE INSURANCE COMPANY,
by /s/ Mark K. Okada
--------------------------------
Title: Executive Vice President of
Protective Asset Management,
L.L.C.
13455 Noel Road
Suite 1150
Dallas, TX 75240
KZH HOLDING CORPORATION,
by /s/ Robert Goodwin
--------------------------------
Title: Authorized Signatory
c/o Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, NY 10001
<PAGE>
-140-
BANQUE PARIBAS,
by /s/
--------------------------------
Title: Vice President
787 7th Avenue
32nd Floor
New York, NY 10001
<PAGE>
-141-
AMSOUTH BANK OF ALABAMA,
by /s/ John Hooker
--------------------------------
Title: Commercial Banking Officer
1900 5th Avenue North
11th Floor
Birmingham, AL 35203
THE BANK OF NEW YORK
by /s/ Michael V. Flannery
--------------------------------
Title: Vice President
One Wall Street
New York, NY 10286
<PAGE>
Exhibit A-1 is being filed separately as Exhibit 10.15 to the
Registration Statement.
<PAGE>
Exhibit A-2 is being filed separately as Exhibit 10.16 to the
Registration Statement.
<PAGE>
EXHIBIT A-3
REVOLVING NOTE
New York, New York
[ ], 19[ ]
For value received, BRYLANE, L.P., a Delaware limited partnership (the
"Borrower"), promises to pay to the order of (the "Lender") on the
last day of the Revolving Loan Availability Period, for the account of its
Applicable Lending Office, the unpaid principal amount of all Revolving Loans
made by the Lender to the Borrower pursuant to the Credit Agreement referred to
below. The Borrower also promises to pay interest on the unpaid principal
amount of such Revolving Loans on the dates and at the rate or rates provided
for in the Credit Agreement. All such payments of principal and interest shall
be made in lawful money of the United States in Federal or other immediately
available funds at the office of Morgan Guaranty Trust Company of New York, 60
Wall Street, New York, New York.
All Revolving Loans made by the Lender, and all repayments of the
principal thereof, shall be recorded by the Lender and, prior to any transfer
hereof, appropriate notations to evidence the foregoing information with respect
to each such Revolving Loan then outstanding shall be endorsed by the Lender on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that the failure of the Lender to make any such
--------
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under any of the other Loan Documents.
This note is one of the Notes referred to in the Credit Agreement
dated as of December , 1996, among the Borrower, the lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New York, as
Administrative
<PAGE>
2
Agent and Merrill Lynch Capital Corporation, as Documentation Agent (as the same
may be amended from time to time, the "Credit Agreement"). Terms defined in the
Credit Agreement are used herein with the same meanings. Reference is made to
the Credit Agreement for provisions for the mandatory and optional prepayment
hereof and the acceleration of the maturity hereof.
Notwithstanding any contrary provision of the Credit Agreement or any
other Loan Document, it is expressly agreed that the Agent, the Security Agent,
the Documentation Agent, the Issuing Bank and each Bank shall look solely to the
assets of the Borrower (and of any Subsidiary party to the Guarantee Agreement
or any Security Document) for the payment and performance of the obligations of
the Borrower hereunder and thereunder, without recourse against any partner in
the Borrower or any assets of such partner on account of such obligations.
BRYLANE, L.P.,
by VGP CORPORATION,
General Partner,
by
-----------------------------
Title:
<PAGE>
3
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Amount of Unpaid
of Principal Principal Notations
Date Loan Repaid Balance Made By
- --------- ------ --------- --------- ---------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
[FORM OF BORROWING BASE CERTIFICATE]
Reference is made to the Credit Agreement dated as of December 9, 1996
(the "Credit Agreement"), among Brylane, L.P., a Delaware limited partnership
(the "Borrower"), the Lenders listed on the signature pages thereof, Morgan
Guaranty Trust Company of New York, as Administrative Agent, and Merrill Lynch
Capital Corporation, as Documentation Agent. This Certificate is a Borrowing
Base Certificate prepared pursuant to Section 5.01(f) of the Credit Agreement.
Capitalized terms used herein but not defined herein have the meanings assigned
to them in the Credit Agreement.
The undersigned chief financial officer, chief accounting officer or
treasurer of the Borrower hereby certifies that the attached Schedule I sets
forth an accurate computation determined in accordance with the terms of the
Credit Agreement.
[ ],
by______________________________
Title:
Date:
<PAGE>
Exhibit C is being filed separately as Exhibit 10.17 to the Registration
Statement.
<PAGE>
Exhibit D is being filed separately as Exhibit 10.14 to the Registration
Statement.
<PAGE>
Exhibit E is being filed separately as Exhibit 10.13 to the Registration
Statement.
<PAGE>
Exhibit F is being filed separately as Exhibit 10.18 to the Registration
Statement.
<PAGE>
EXHIBIT G-1
[Letterhead of]
RIORDAN & MCKINZIE
To the Banks, the Agent,
the Documentation Agent and the
Security Agent Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Re: Credit Agreement among Brylane, L.P., the lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New York, as
Agent, and Merrill Lynch Capital Corporation, as Documentation Agent
----------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Brylane, L.P., a Delaware limited partnership
(the "Borrower"), Brylane Capital Corp., a Delaware corporation ("Finance
Corp."), B.L. Management Services, Inc., a Delaware corporation (the "New York
Holding Subsidiary"), B.L. Catalog Distribution, Inc., a Delaware corporation
(the "Indiana Holding Subsidiary"), B.N.Y. Service Corp., a Delaware corporation
("B.N.Y. Service"), B.L. Management Services Partnership, a New York general
partnership between the Borrower, the New York Holding Subsidiary and B.N.Y.
Service (the "New York Partnership"), K.S. Management, Inc., a Delaware
corporation ("K.S. Management"), [Chadwick's Management Corp.] and B.L. Catalog
Distribution Partnership, an Indiana general partnership between the Borrower
and the Indiana Holding Subsidiary (the "Indiana Partnership" and, together with
Finance Corp., the New York Holding Subsidiary, the Indiana Holding Subsidiary,
K.S. Management, B.N.Y. Service, [Chadwick's Management] and the New York
Partnership, collectively the "Subsidiaries") in connection with the Credit
Agreement dated as of December , 1996 (the "Credit Agreement") among the
Borrower, the lenders listed on the signature pages thereof (the "Lenders"),
Morgan Guaranty Trust Company of New York, as Agent, and Merrill Lynch Capital
Corporation, as Documentation Agent. Capitalized terms not defined in this
letter have the meanings given to them in the Credit Agreement. The Borrower and
the
<PAGE>
2
Subsidiaries are referred to herein collectively as the "Loan Parties" and
individually as a "Loan Party."
This opinion is delivered to you pursuant to Section 3.01(c) of the Credit
Agreement. In connection with this opinion, we have examined and relied upon the
following documents (all of the documents referred to in clauses (a) through (e)
below being collectively referred to herein as the "Documents"):
(a) A copy of the Credit Agreement executed by the Borrower;
(b) A copy of the Guarantee Agreement dated as of December , 1996,
executed by each of the Subsidiaries;
(c) A copy of the Pledge Agreement dated as of December , 1996, executed
by the Borrower;
(d) A copy of the Security Agreement dated as of December , 1996, executed
by the Borrower and each of the Subsidiaries;
(e) A copy of the Mortgage dated as of December , 1996, executed by the
Borrower;
(f) Certificates of the Secretary of State of the State of Delaware dated
as of December , 1996 as to the corporate existence and good standing of Finance
Corp., the New York Holding Subsidiary, the Indiana Holding Subsidiary, B.N.Y.
Service, K.S. Management and [Chadwick's Management], respectively, in the State
of Delaware, together with "bring down" letters dated December , 1996, with
respect thereto from CT Corporation;
(g) Certificates of the Secretary of State of the State of New York dated
as of December , 1996 as to the existence and good standing as a foreign
corporation of Finance Corp., the New York Holding Subsidiary, B.N.Y. Service
and K.S. Management, respectively, in the State of New York;
(h) A certified copy of the Certificate of Incorporation of each of
Finance Corp., the New York Holding Subsidiary, the Indiana Holding Subsidiary,
B.N.Y. Service, K.S. Management and [Chadwick's Management], and all amendments
thereto (such Loan Party's "Charter");
<PAGE>
3
(i) A certified copy of the bylaws of each of Finance Corp., the New York
Holding Subsidiary, B.N.Y. Service, K.S. Management, [Chadwick's Management] and
the Indiana Holding Subsidiary and all amendments thereto (such Loan Party's
"Bylaws");
(j) A certified copy of the Partnership Agreement of each of the Borrower,
the New York Partnership and the Indiana Partnership and all amendments thereto
(such Loan Party's "Partnership Agreement"); and
(k) A copy of resolutions adopted by the Board of Directors of each of
Finance Corp., the New York Holding Subsidiary, the Indiana Holding Subsidiary,
B.N.Y. Service, K.S. Management and [Chadwick's Management], certified as being
all proceedings and actions of such Board of Directors with respect to the
Documents and the Transactions.
We have been furnished with, and with your consent have relied upon, a
certificate of officers or general partners, as applicable, of each of the Loan
Parties, with respect to certain factual matters, including a listing of all of
the material agreements and material instruments binding on or affecting such
Loan Party (other than the Loan Documents) (each such certificate, a
"Certificate"). We have also examined originals or copies of such partnership
and corporate records, agreements and other instruments, and of certificates or
comparable documents of public officials and of officers and representatives of
the Loan Parties as we have deemed necessary as the basis for the opinions
hereinafter set forth. In our examination of the documents referred to above, we
have assumed the authenticity of all documents submitted to us as original or
certified documents, the genuineness of all signatures on original or certified
documents (other than the signatures of the officers and partners of the Loan
Parties), the conformity to original documents of all documents submitted to us
as copies thereof and the correctness and accuracy of all facts not
independently established by us set forth in all certificates and reports
identified in this opinion.
We have investigated such questions of law for the purpose of rendering
this opinion as we have deemed necessary. We are opining herein as to the
effect on the subject transactions only of United States Federal law and the
General Corporation Law of the State of Delaware. We are not opining on, and we
assume no responsibility as to, the applicability to or effect on any of the
matters covered
<PAGE>
4
herein of the laws of any other jurisdiction. In addition, except as expressly
covered in this opinion, we are not expressing any opinion as to the effect of
compliance by Lenders with any state or federal laws or regulations applicable
to the transactions because of the nature of any of their businesses. We
express no opinion with respect to federal securities or state securities or
"blue sky" laws or state or federal antifraud, antitrust or environmental laws.
We express no opinion with respect to the Borrower's or any other Person's
compliance with their fiduciary duties.
Based upon the foregoing, and in reliance thereon and subject to the
limitations, qualifications and exceptions set forth below, we are of the
following opinion:
1. Each of Finance Corp., the New York Holding Subsidiary, the Indiana
Holding Subsidiary, B.N.Y. Service, K.S. Management and [Chadwick's Management]
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Each of Finance Corp., the New York Holding
Subsidiary, B.N.Y. Service, K.S. Management and [Chadwick's Management] is
qualified as a foreign corporation and is in good standing in the State of New
York. The Indiana Holding Subsidiary is not qualified as a foreign corporation
and is not in good standing in any jurisdiction other than Delaware. Each of
Finance Corp., the New York Holding Subsidiary, the Indiana Holding Subsidiary,
B.N.Y. Service, K.S. Management and [Chadwick's Management] has the corporate
power and corporate authority to own its properties and assets and to carry on
its business as it is currently being, or is currently proposed to be,
conducted.
2. The execution, delivery and performance by each of Finance Corp., the
New York Holding Subsidiary, the Indiana Holding Subsidiary, B.N.Y. Service,
K.S. Management and [Chadwick's Management] of each Document to which it is a
party and the consummation of the Financing Transactions and, to the extent
involving Finance Corp., the New York Holding Subsidiary, the Indiana Holding
Subsidiary, B.N.Y. Service, K.S. Management and [Chadwick's Management],
respectively, the Transactions are within in its corporate powers, have been
duly authorized and approved by all necessary corporate action on the part of
each of them and on the part of each of their respective stockholders, require
no action by or in respect of, or filing with, any federal Governmental
Authority or with any Delaware Governmental Authority pursuant to the Delaware
General
<PAGE>
5
Corporation Law (other than (i) such as have been duly taken or made, (ii)
filings required to perfect Liens granted under the Security Documents (iii)
filings necessary to qualify the Borrower and certain of the Subsidiaries as
foreign corporations in the States of Indiana and New York and (iv) filings in
connection with the recordation of intellectual property rights transferred
pursuant to the Transaction Documents).
3. The execution, delivery and performance by each Loan Party of each
Document to which it is a party and the consummation of the Financing
Transactions and, to the extent involving such Loan Party, the Transaction do
not contravene, or constitute a default under, or result in the creation or
imposition of any lien (other than the Lien of the Security Documents) on any
asset of such Loan Party, in each case both before and after giving effect to
the Transactions, under (i) any provision of applicable federal law or federal
regulations or any applicable provision of the Delaware General Corporation Law,
(ii) the Partnership Agreement, Charter or Bylaws of any Loan Party, (iii) any
judgment, injunction, order or decree, known to us, and binding on any Loan
Party or (iv) any contractual restriction contained in any document identified
in any Certificate, except for contraventions, defaults or liens with respect to
the Transaction that would not have a Material Adverse Effect; provided,
---------
however, that we express no opinion as to whether or not such execution,
- -------
delivery or consummation will contravene, constitute a default under or result
in the imposition of any lien upon any asset of any Loan Party pursuant to any
contractual restriction contained in any document identified in any Certificate
with respect to financial ratios or tests or any aspects of the financial
condition or results of operations of the Borrower. The foregoing opinion is
limited to those laws and regulations that a lawyer exercising customary
professional diligence would reasonably recognize as being directly applicable
to the Loan parties, the Transaction or both.
4. The borrowings by the Borrower pursuant to the Credit Agreement and
the use of the proceeds of the Loans as contemplated thereby do not violate
Regulations, G, T, U, or X of the Board of Governors of the Federal Reserve
System.
5. To the best of our knowledge, there is no injunction, stay, decree or
order of any Governmental Authority, or any action, suit or proceeding pending
or threatened against or affecting the Borrower or any of the
<PAGE>
6
Subsidiaries before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision,
which in any such case could have a Material Adverse Effect or which in any
manner draws into question the validity of any Transaction Document or Loan
Document.
6. The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
7. Each Loan Party has duly executed and delivered each Document to which
it is a party.
As used in this opinion, the phrase "to the best of our knowledge" means to
the best of our actual knowledge, which knowledge is based solely on inquiry
within our firm and of the Loan Parties, without other inquiry or investigation.
We advise you that certain members of this firm own interests in a
partnership which owns interests in the Loan Parties.
This opinion is rendered to you and is solely for your benefit in
connection with the Credit Agreement. This opinion may not be relied on by you
for any purpose other than in connection with this transaction, nor may be it
relied upon by any other person, firm or corporation for any purpose without our
prior written consent. Notwithstanding the foregoing, this opinion may be
relied upon by any Person who subsequently becomes a Lender under the Credit
Agreement.
Very truly yours,
---------------------------------
Riordan & McKinzie
<PAGE>
EXHIBIT G-2
[Letterhead of]
ICE MILLER DONADIO & RYAN
December , 1996
To the Banks, the Agent, the
Security Agent and the Documentation Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, NY 10260
Ladies and Gentlemen:
We have acted as special Indiana counsel to Brylane, L.P., a Delaware
limited partnership ("Brylane" or the "Borrower"), Brylane Capital Corp., a
Delaware corporation ("Finance Corp."), B.L. Management Services, Inc., a
Delaware corporation ("New York Holding Subsidiary"), B.L. Catalog Distribution,
Inc., a Delaware corporation ("Indiana Holding Subsidiary"), B.N.Y. Service
Corp., a Delaware corporation ("B.N.Y. Service"), K.S. Management Services,
Inc., a Delaware corporation ("K.S. Management"), [Chadwick's Management Corp.],
B.L. Management Services Partnership, a New York general partnership between
Brylane, New York Holding Subsidiary and B.N.Y. Service ("B.L. Management
Services Partnership"), B.L. Catalog Distribution Partnership, an Indiana
general partnership between Brylane and Indiana Holding Subsidiary ("B.L.
Catalog Distribution Partnership" and, together with Finance Corp., New York
Holding Subsidiary, Indiana Holding Subsidiary, B.L. Management Services
Partnership, B.N.Y. Service, K.S. Management and [Chadwick's Management],
collectively, the "Subsidiaries") in connection with (a) the Credit Agreement
dated as of December , 1996 (the "Credit Agreement"), among the Borrower, the
lenders listed on the signature pages thereof, Morgan Guaranty Trust Company of
New York, as Agent, and Merrill Lynch Capital Corporation, as Documentation
Agent, (b) the Guarantee Agreement dated as of December , 1996 (the "Guarantee
Agreement"), among the Subsidiaries, the Agent and the Documentation Agent, (c)
the Pledge Agreement dated as of December , 1996 (the "Pledge
<PAGE>
2
Agreement"), among the Borrower and Morgan Guaranty Trust Company of New York, a
Delaware corporation, as security agent (the "Security Agent"), (d) the Security
Agreement dated as of December , 1996 (the "Security Agreement"), among the
Borrower, the Subsidiaries and the Security Agent and (e) the Mortgage, Security
Agreement, Fixture Filing and Assignment of Lease And Rents dated as of December
, 1996 (the "Mortgage") by the Borrower to and with the Security Agent. Unless
otherwise indicated, capitalized terms used herein but not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
This opinion is delivered to you pursuant to Section 3.01(c) of the Credit
Agreement. In connection with this opinion, we have examined and relied upon
the following documents (all of the documents referred to in clauses (a) through
(e) below being collectively referred to herein as the "Documents"):
(a) The Credit Agreement;
(b) The Guarantee Agreement;
(c) The Security Agreement;
(d) The Pledge Agreement;
(e) The Mortgage;
(f) A certified copy of the Partnership Agreement of the Indiana
Partnership and all amendments thereto (the "Partnership Agreement");
(g) A copy of resolutions adopted by the Board of Directors of the Indiana
Holding Subsidiary, certified as being all proceedings and actions of such Board
of Directors with respect to the Documents and the Transactions;
(h) The financing statements on Form UCC-1 attached hereto as Exhibit A
---------
(the "Financing Statements") to be filed with the Secretary of State of the
State of Indiana (the "Filing Office"); and
(i) A certificate dated December , 1996 from the Indiana Partnership as
to pertinent resolutions of its general partners and certain other factual
matters.
<PAGE>
3
We have been furnished with, and with your consent have relied upon, a
certificate of general partners or officers, as applicable, of each of the
Indiana Partnership, the Borrower and the Indiana Holding Subsidiary, with
respect to certain factual matters (each such certificate, a "Certificate"). We
have also examined originals or copies of such partnership and corporate
records, agreements and other instruments, and of certificates or comparable
documents of public officials and of officers and representatives of the Indiana
Partnership, the Borrower or the Indiana Holding Subsidiary as we have deemed
necessary as the basis for the opinions hereinafter set forth. In our
examination of the documents referred to above, we have assumed the authenticity
of all documents submitted to us as original or certified documents, the
genuineness of all signatures on original or certified documents, the conformity
to original documents of all documents submitted to us as copies thereof and the
correctness and accuracy of all facts not independently established by us set
forth in all certificates and reports identified in this opinion.
We have investigated such questions of law for the purpose of rendering
this opinion as we have deemed necessary. We are opining herein as to the
effect on the subject transactions only of the law of the State of Indiana. We
are not opining on, and we assume no responsibility as to, the applicability to
or effect on any of the matters covered herein of the laws of any other
jurisdiction. In addition, except as expressly covered in this opinion, we are
not expressing any opinion as to the effect of compliance by Lenders with any
state or federal laws or regulations applicable to the transactions because of
the nature of any of their businesses. We express no opinion with respect to
federal securities or state securities or "blue sky" laws or state or federal
antifraud, antitrust or environmental laws. We express no opinion with respect
to any Person's compliance with their fiduciary duties.
In rendering the opinions expressed below, we have not made any
investigation of the business, property or affairs of the Indiana Partnership,
the Borrower, the Indiana Holding Subsidiary or any other party to the Loan
Documents, and we have also assumed, without any independent investigation or
verification of any kind, certain other facts and matters of law that are
necessary to enable us to
<PAGE>
4
render the opinions hereinafter expressed. Those additional assumptions, upon
which we have relied, are as follows:
(A) The Indiana Holding Subsidiary is a corporation duly organized and
validly existing and in good standing under the laws of the State of
Delaware; and the Borrower is a limited partnership duly organized and
validly existing and in good standing under the laws of the State of
Delaware.
(B) Each of the Loan Documents to which it is a party has been duly
executed by authorized partners of the Indiana Partnership.
(C) Each party to the Loan Documents (other than the Indiana Partnership)
has been duly organized and is validly existing and in good standing
under its jurisdiction of incorporation or formation, has full power
and authority to enter into, execute, deliver, receive and perform
each of the Loan Documents; the entry into, execution, delivery,
receipt, and performance thereof by such parties have been duly
authorized by all requisite action on the part of such parties; and
each of the Loan Documents has been duly entered into, executed,
received and delivered by such parties.
(D) Each of the Loan Documents constitutes the legal, valid, binding and
enforceable obligations of the parties thereto.
(E) None of the documents identified in the Loan Documents but not
reviewed by us contain provisions which are inconsistent with those of
the Documents or provisions which would make unenforceable the
Documents, or any of them, or any provision thereof.
(F) All parties to any of the Loan Documents will duly file business
activity reports with the Indiana Department of State Revenue (the
"Indiana Business Activity Report") required under Ind. Code 6-8.1-6-
6, unless exempt therefrom (and we hereby advise that such provision
provides that, unless a corporation or other entity is exempt, it may
not pursue in the Indiana courts any claim arising under Indiana law
or arising out of a contract executed under Indiana law until the
<PAGE>
5
proper Indiana Business Activity Reports are filed).
(G) The execution, delivery and performance of the Loan Documents by the
parties thereto (each a "Signatory Party") do not and will not
contravene, conflict with, violate or result in breach of (i) any law,
statute or ordinance of any jurisdiction (other than the State of
Indiana), (ii) any provision of the articles of incorporation, bylaws
or partnership agreement of any Signatory Party other than the Indiana
Partnership, and (iii) any approvals, consents, licenses, orders,
writs, judgments, injunctions or decrees of any court, arbitrator,
administrative agency or other governmental authority, or any
indenture, mortgage, deed of trust, agreement, lease, ground lease or
other instrument to which any Signatory Party is a party or by which
any Signatory Party or any of its property or assets of any Signatory
Party is bound or may be subject.
(H) The Agent, the Documentation Agent and the Security Agent will at all
times exercise the rights and remedies under the Loan Documents in
good faith and in a manner which is commercially reasonable, and full
and adequate consideration has been given for the undertakings of the
Indiana Partnership under the Security Agreement and the Guarantee
Agreement.
(I) The principal place of business and chief executive office of each of
the Indiana Holding Subsidiary and the Indiana Partnership is in the
State of Indiana.
(J) The names and addresses of the Indiana Partnership, the Indiana
Holding Subsidiary and the Security Agent as set forth in the
Financing Statements are the correct names and mailing addresses for
the Indiana Partnership, the Indiana Holding Subsidiary and the
Security Agent, as the case may be, and the address of the Security
Agent set forth therein is an address from which information regarding
the security interests in the personal property may be obtained.
<PAGE>
6
(K) The Indiana Partnership and the Indiana Holding Subsidiary have
"rights" (as defined in the Uniform Commercial Code as enacted in the
State of Indiana (the "Indiana UCC")) in the Collateral (as defined in
the Security Agreement) located in the State of Indiana. The
descriptions of the Collateral accurately and reasonably identify the
property intended to be completely described, respectively, in the
Security Agreement and the Financing Statements.
(L) The pledge of the Indiana Holding Subsidiary's 1% general partnership
interest in the Indiana Partnership (the "Pledged Partnership
Interest") has been registered in the name of the Security Agent with
the Indiana Partnership pursuant to Article 8 of the Indiana UCC.
(M) The Mortgage secures a fee interest in real property, and the
Mortgagee is either an entity qualified to do business in the state of
Indiana or is a foreign banking corporation under the laws of such
state.
Based upon the foregoing and subject to the limitations, qualifications,
exceptions and assumptions set forth herein, we are of the opinion that:
1. The Indiana Partnership is a general partnership duly organized and
validly existing under the laws of the State of Indiana and has all partnership
power and partnership authority to carry on its business as now conducted or
proposed to be conducted.
2. The execution, delivery and performance by the Indiana Partnership of
the Credit Agreement and the other Loan Documents to which it is a party have
been duly authorized by all necessary action on the part of the Indiana
Partnership, its partners, and their respective stockholders or partners (as
applicable), require no action by or in respect of, or filing with, any
Governmental Authority in the State of Indiana (other than (i) such as have been
duly taken or made, (ii) filings required to perfect Liens granted under the
Security Documents and (iii) compliance with "bulk sales" laws) and do not
contravene, or constitute a default under, any provision of Indiana law or
regulation applicable to the Indiana Partnership or of the Partnership
Agreement.
<PAGE>
7
3. To the extent Indiana law applies, the Security Agreement creates and
constitutes a valid security interest in, lien on or pledge of the Collateral
(as defined in the Security Agreement) of the Indiana Partnership and the
Indiana Holding Subsidiary located in the State of Indiana only to the extent a
lien or security interest therein or pledge thereof may be created solely by
execution and delivery of an agreement between debtor and creditor (without the
creditor obtaining possession of the collateral) under Indiana law. The
Financing Statements relating to the Collateral (as defined in the Security
Agreement) located in Indiana are in proper form for filing in the State of
Indiana pursuant to the Indiana UCC and the filing thereof in the Filing Office
will perfect the security interests created under the Security Agreement in such
Collateral owned by the Indiana Partnership or the Indiana Holding Subsidiary on
the date hereof and hereafter acquired and located in Indiana, to the extent
that such security interests can be perfected by the filing of financing
statements in Indiana pursuant to the Indiana UCC.
4. Upon due execution and delivery, the Mortgage will constitute the
legal, valid, and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms. The Mortgage is in proper form for
recordation upon the land records of the town in the state of Indiana where the
Mortgaged Property is located and upon proper recordation of the Mortgage upon
said land records, the Mortgage will have a valid and perfected mortgage lien on
the Mortgaged Property. The Fixture Filing is in proper form for recording on
the land records of the town in the state of Indiana where the Mortgaged
Property is located and upon proper recordation of the Fixture Filing upon said
land records, the Security Agent, on behalf of the Secured Parties, will have a
valid and perfected security interest in all of the Borrower's right, title and
interest in and to the fixtures described therein and no further filing or
refiling or other action is necessary in the state of Indiana in order to
perfect or maintain such security interest.
In addition to and without limiting the generality of any exceptions,
qualifications, limitations and assumptions noted above, and without expanding
any opinion expressed,
<PAGE>
8
the foregoing opinions, notwithstanding anything herein to the contrary, are
subject to the following:
(A) The opinions expressed in numbered paragraph 3 may be:
(i) limited or otherwise affected by bankruptcy, insolvency,
reorganization, liquidation, readjustment of debt, receivership,
moratorium, fraudulent conveyance, equity of redemption or other
similar laws now or hereafter in effect governing the rights and
remedies of debtors and creditors generally;
(ii) with respect to specific enforcement of the terms of the Security
Agreement which may restrict transferability of personal property
described therein and secured thereby, limited or otherwise affected
by (S) 9-311 of the Uniform Commercial Code as enacted in the State of
Indiana (relating generally to the alienability of a debtor's rights
in personal property);
(iii) limited or otherwise affected by general principles of equity,
regardless of whether considered in a proceeding at law or in equity.
(B) In rendering these opinions we have made no examination of and express
no opinion with respect to: (i) the Borrower's, the Indiana Holding
Subsidiary's or the Indiana Partnership's rights in or title to the
Collateral (as defined in the Security Agreement), (ii) what liens,
security interests, charges or encumbrances thereon actually are of
record, or (iii) the priority of the lien and security interests
granted to the Security Agent.
The opinions expressed herein are matters of professional judgment and are
not a guarantee of result. We are qualified to practice law only in the State
of Indiana. All of the opinions expressed in this opinion are limited to the
laws of the State of Indiana. To the extent that any portion or portions of the
Loan Documents is governed by the laws of any jurisdiction other than those of
the State of Indiana, we express no opinion with respect to such portion or
portions. The opinions expressed herein are effective as of the date hereof.
We express no opinions other than as
<PAGE>
9
herein expressly set forth and no expansion of our opinions may be made by
implication or otherwise. Our opinions are limited solely to the present laws
of the State of Indiana and we do not undertake to advise you of any matter
within the scope of this letter that comes to our attention after the date of
this letter and disclaim any responsibility to advise you of any future changes
in law or fact that may affect the opinions set forth herein.
This opinion is rendered solely in connection with the transactions
described above and for your benefit, and may be relied upon solely by you.
Very truly yours,
--------------------------
Ice Miller Donadio & Ryan
<PAGE>
EXHIBIT G-3
[Letterhead of]
RICHARDS & O'NEIL
December , 1993
To the Lenders, the Documentation Agent
and the Security Agent Referred to below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, NY 10260
Re: Credit Agreement dated as of December , 1996 among Brylane
L.P., the lenders listed on the signature pages thereof, Morgan
Guaranty Trust Company of New York, as Agent and Merrill Lynch
Capital Corporation, as Documentation Agent
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special New York counsel to Brylane, L.P., a Delaware
limited partnership ("Brylane" or the "Borrower"), Brylane Capital Corp., a
Delaware corporation ("Finance Corp."), B.L. Management Services, Inc., a
Delaware corporation ("New York Holding Subsidiary"), B.L. Catalog Distribution,
Inc., a Delaware corporation ("Indiana Holding Subsidiary"), B.N.Y. Service
Corp., a Delaware corporation ("B.N.Y. Service"), K.S. Management Services,
Inc., a Delaware corporation ("K.S. Management"), [Chadwick's Management Corp.],
B.L. Management Services Partnership, a New York general partnership between
Brylane, New York Holding Subsidiary and B.N.Y. Service ("B.L. Management
Services Partnership"), B.L. Catalog Distribution Partnership, an Indiana
general partnership between Brylane and Indiana Holding Subsidiary ("B.L.
Catalog Distribution Partnership") and, together with
<PAGE>
2
Finance Corp., New York Holding Subsidiary, Indiana Holding Subsidiary, B.L.
Management Services Partnership, B.N.Y. Service, K.S. Management and [Chadwick's
Management], collectively, the "Subsidiaries") in connection with the Credit
Agreement, dated as of December , 1996 (the "Credit Agreement"), among Brylane,
the lenders listed on the signature pages thereof (the "Lenders"), Morgan
Guaranty Trust Company of New York, as Agent (the "Agent"), and Merrill Lynch
Capital Corporation, as Documentation Agent (the "Documentation Agent"), and the
consummation of the transactions contemplated thereby.
This opinion is delivered to you pursuant to Section 3.01(c) of the
Credit Agreement. All capitalized terms that are used but not defined herein
shall have the respective meanings assigned to them in the Credit Agreement.
The Borrower and the Subsidiaries may be hereinafter referred to individually as
a "Loan Party" and collectively as the "Loan Parties."
In rendering this opinion, we have examined executed originals,
counterparts or copies of each of the following:
(i) the Credit Agreement;
(ii) the Guarantee Agreement;
(iii) the Pledge Agreement;
(iv) the Security Agreement;
(v) the Mortgage, Security Agreement, Fixture Filing and Assignment
of Leases and Rents (the "Mortgage"); and
(vi) the partnership agreement of B.L. Management Services
Partnership (the "B.L. Management Services Partnership
Agreement").
We have also reviewed the forms of Notes. The Credit Agreement, the
forms of Notes, the Guarantee Agreement, the Pledge Agreement, the Security
Agreement and the Mortgage are herein referred to collectively as the "Operative
Documents." The Operative Documents, the Partnership Agreement of Brylane and
the B.L. Management Services Partnership Agreement are herein referred to
collectively as the "Documents."
As to various questions of fact material to this opinion, we have been
furnished with and with your consent have relied upon, without any independent
investigation or verification of any kind, the representations and warranties
<PAGE>
3
contained in the Documents and the other documents executed and delivered in
connection therewith and upon certificates and other documents of officers,
general partners and representatives of Brylane, the Subsidiaries and of public
officials and we have made such other investigations as we have deemed relevant
or necessary as the basis for the opinions hereinafter set forth. In our
examination of the documents referred to above, we have assumed the genuineness
of all signatures, and the incumbency, authority and power, of all Persons
signing the Documents as or on behalf of the parties thereto, the authenticity
and completeness of all documents submitted to us as original or certified
documents, and the conformity to authentic original documents of all documents
submitted to us as certified, conformed, facsimiled or photostatic copies.
To the extent that the obligations of Brylane and the Subsidiaries may
be dependent upon such matters, we have assumed for purposes of this opinion
that: (i) each of Brylane and the Subsidiaries (other than B.L. Management
Services Partnership) is duly incorporated or otherwise formed, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
formation; (ii) the execution, delivery and performance by each of Brylane and
the Subsidiaries (other than B.L. Management Services Partnership) of each of
the Documents to which it is a party (including the execution and delivery of
the Notes by Brylane), and the consummation by each of Brylane and the
Subsidiaries (other than B.L. Management Services Partnership) of the
transactions contemplated thereby are within its corporate or other
organizational power and authority and each document executed by each of Brylane
and the Subsidiaries (other than B.L. Management Services Partnership) has been
duly authorized, executed and delivered by all necessary action on its part; and
(iii) no other corporate or other action is required by the stockholders or
partners of Brylane and the Subsidiaries (other than B.L. Management Services
Partnership) to authorize the execution and delivery of the Documents by each of
Brylane and the Subsidiaries (other than B.L. Management Services Partnership)
or the consummation of the transactions contemplated thereby.
To the extent that the obligations of Brylane and the Subsidiaries may
be dependent upon such matters, we have assumed, for purposes of this opinion
that: (i) each of the Lenders, the Agent, the Documentation Agent and the
Security Agent are duly incorporated or otherwise duly formed,
<PAGE>
4
validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation; (ii) each of the Lenders, the Agent, the
Documentation Agent and the Security Agent has full corporate or other
organizational power and authority to execute, deliver and perform its
obligations under the Operative Documents and each of the other documents and
agreements executed by it in connection therewith; (iii) each such document
executed by the Lenders, the Agent, the Documentation Agent and the Security
Agent has been duly authorized, executed and delivered by each of the Lenders,
the Agent, the Documentation Agent and the Security Agent, as the case may be,
and constitutes the legal, valid and binding obligation of each of such parties,
enforceable against it in accordance with its terms; (iv) that each party to the
Documents has complied with all legal requirements pertaining to its status as
such status relates to its rights to enforce the Documents against the other
party; (v) that there has not been any mutual mistake of fact or
misunderstanding, fraud, duress or undue influence in connection with the
Documents; and (vi) that there are no agreements or understandings among the
parties to the Documents, written or oral, or usage of trade or course of prior
dealing among such parties, that would, in any case, define, supplement or
qualify the terms of the Documents.
You also have advised us that in rendering the opinions set forth
below we may assume that (A) with respect to the Pledge Agreement and the
Security Agreement, Brylane or the Subsidiaries has "rights" in the Collateral
(as defined in such agreements) within the meaning of Section 9-203 of the
Uniform Commercial Code of the State of New York (the "New York UCC"),
consistent with the purposes of the Pledge Agreement and the Security Agreement;
(B) the description of the Collateral reasonably identifies what is described;
(C) with respect to the Mortgage, (i) the Mortgage secures a fee interest in
real property and (ii) the Mortgagee is either an entity qualified to transact
business in the state of New York or a foreign banking corporation under the
laws of such state; (D) the funds to be loaned or advanced to Brylane, as
contemplated by the Credit Agreement, have been or will be, as applicable,
delivered to and received by Brylane; and (E) each Subsidiary has received
adequate consideration in connection with its obligations under the Guarantee
Agreement and each of the other Operative Documents to which it is a party. We
also have assumed that the holders of the Notes (whether the Lenders or any
subsequent holders), the Agent, the
<PAGE>
5
Documentation Agent and the Security Agent will act in good faith and will seek
to enforce their rights and remedies under the Operative Documents in a
commercially reasonable manner.
We also have assumed that the constitutionality or validity of a
relevant statute, rule, regulation or agency action is not in issue unless a
reported decision has specifically addressed but not resolved, or has
established, its unconstitutionality or invalidity.
We have investigated such questions of law for the purpose of
rendering this opinion as we have deemed necessary. We are attorneys admitted
to practice only in the State of New York and we opine herein only as to the
effect of the law of the State of New York on the subject transactions. We do
not opine on, and we assume no responsibility as to, the applicability to or the
effect on any of the matters covered herein of, the laws of any other
jurisdiction, including, without limitation, federal laws. In addition, we do
not express any opinion as to any law of the State of New York applicable to the
environment, taxes, "bulk sales," securities, "blue sky" or antifraud matters.
The opinions set forth below are subject to the following additional
limitations, qualifications and exceptions:
(a) the enforceability of the Operative Documents may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or similar laws now or hereafter in effect relating to creditors'
rights and remedies generally;
(b) the remedies of specific performance and injunctive and other
forms of relief are subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
and such enforceability may be subject to the discretion of the court before
which any proceeding therefor may be brought;
(c) certain remedial and exculpatory provisions contained in the
Operative Documents may be unenforceable (including (i) certain self-help
provisions and provisions which purport to create evidentiary standards; (ii)
provisions which purport to restrict access to legal or equitable remedies or to
waive or release any statutory
<PAGE>
6
provisions or common law rights or benefits that may not be waived or released;
and (iii) under certain circumstances, provisions declaring that the failure to
exercise or delay in exercising rights or remedies will not operate as a waiver
of any such right or remedy);
(d) no opinion is expressed as to the enforceability of provisions
which purport to establish consent to the jurisdiction of any court; and
(e) no opinion is expressed below with respect to the enforceability
of provisions regarding indemnification against liabilities where such
indemnification is contrary to public policy.
The opinions set forth herein are as of the date of this letter and we
do not render any opinion as to the effect of any matter which may occur
subsequent to the date hereof.
Based upon and subject to the foregoing, after giving effect to the
consummation of the transactions contemplated by the Operative Documents, we are
of the opinion that:
1. B.L. Management Services Partnership is a general partnership duly
organized and validly existing under the laws of the state of New York and has
all partnership power and authority to carry on its business as now conducted or
as proposed to be conducted.
2. The execution, delivery and performance by B.L. Management
Services Partnership of the Operative Documents to which it is a party are
within its power and have been duly authorized by all necessary action on the
part of B.L. Management Services Partnership and its partners.
3. The execution, delivery and performance by each of the Loan
Parties of the Operative Documents to which it is a party and the consummation
of the Financing Transactions and, to the extent involving Brylane or any
Subsidiary, the other Transactions, require no action by or in respect of, or
filing with, any Governmental Authority of the State of New York other than (i)
filings required to perfect Liens granted under the Security Documents; and (ii)
such actions as have been duly taken or filings that have been made.
<PAGE>
7
4. The execution, delivery and performance by each of the Loan
Parties of the Operative Documents to which it is a party do not, assuming
compliance with the filing requirements referred to in paragraph 3 above,
contravene, or conflict with, or constitute a violation of any provision of any
present New York law or regulation binding upon or applicable to Brylane or the
Subsidiaries nor result in the creation or imposition of any Lien (except as
contemplated by the Operative Documents) on any asset of Brylane or the
Subsidiaries, which contravention, conflict or violation, individually or in the
aggregate, would have a material adverse effect on the business, condition
(financial or other), results of operations or properties or prospects of
Brylane and its Subsidiaries, taken as a whole.
5. Each of the Credit Agreement and the Mortgage constitutes the
valid and binding obligation of Brylane, enforceable against it in accordance
with its terms. The Mortgage is in proper form for recordation upon the land
records of the towns in the state of New York where the mortgaged property is
located and, upon proper recordation of the Mortgage upon such land records, the
Mortgagee will have a valid and perfected mortgage lien on the Mortgaged
Property. The Fixture Filing is in proper form for recording on the land
records of the town in the state of New York where the Mortgaged Property is
located and, upon proper recordation of the Fixture Filing upon said land
records, the Security Agent, on behalf of the Secured Parties, will have a valid
and perfected security interest in all of the Borrower's right, title and
interest in and to the fixtures described therein and no further filing or
refiling or other action is necessary in the state of New York in order to
perfect or maintain such security interest.
6. The Notes, when executed and delivered by Brylane in accordance
with the Credit Agreement, will constitute valid and binding obligations of
Brylane, enforceable against it in accordance with its terms. Each of the
Guarantee Agreement, the Pledge Agreement and the Security Agreement constitutes
the valid and binding obligation of each of the Loan Parties that is a party
thereto, enforceable against such party in accordance with its terms.
7. The Security Agreement creates a valid security interest (the
"Security Interest") in favor of the Security Agent, for the benefit of the
Secured Parties in
<PAGE>
8
the Collateral (as each such term is defined in the Security Agreement). The
Security Interest validly secures the Obligations, including the payment of any
future Loans made by the Lenders to Brylane, whether or not at the time such
Loans are made an Event of Default or other event not within the control of the
Lenders has relieved or may relieve the Lenders from their obligations to make
such Loans.
8. Assuming that (i) financing statements covering the Collateral
have been duly executed by the debtors and the Secured Parties and have been
duly filed in the offices listed on Schedule I hereto, (ii) the correct names
and addresses of the debtors and the Secured Parties are set forth in the
financing statements and (iii) the representations made by the Loan Parties in
the Documents with respect to locations of the Collateral and the Loan Parties
are and remain true and correct, such filings are sufficient to perfect the
security interests created by the Security Agreement in all right, title and
interest of the debtors in those items and types of Collateral described in the
Security Agreement in which a security interest may be perfected by filing a
financing statement under the New York UCC.
9. Upon delivery to the Security Agent pursuant to the Pledge
Agreement of the shares of capital stock and the promissory notes listed on
Schedule I to the Pledge Agreement (the "Current Pledged Securities"), together
with stock powers duly executed in blank, and assuming (i) the Security Agent
takes possession of the certificates representing all Current Pledged Securities
in the State of New York, (ii) the Security Agent is taking such Current Pledged
Securities for value in good faith, and (iii) the Security Agent and the Secured
Parties are without notice of any adverse claim with respect to the Current
Pledged Securities within the meaning of Section 8-302 of the New York UCC, the
security interest created in favor of the Security Agent for the benefit of the
Secured Parties under the Pledge Agreement in the Current Pledged Securities
constitutes a valid and perfected security interest; provided, however, that:
-------- -------
(a) in the case of the issuance of additional securities in respect
of the Current Pledged Securities and the pledge in accordance with the Pledge
Agreement of additional securities (in each case as such term is defined in
Section 8-102 of the New York UCC), the security interests therein will be
perfected (A) with reference to
<PAGE>
9
certificated securities, only if possession thereof is obtained by the Security
Agent in accordance with the provisions of the Pledge Agreement, and (B) with
reference to uncertificated securities, only upon compliance with Section 8-321
of the New York UCC;
(b) in the case of proceeds, continuation of perfection of the
Security Agent's security interest therein is limited to the extent set forth in
Section 9-306 of the New York UCC; and
(c) we express no opinion as to continuation of perfection of the
security interest in the Current Pledged Securities to the extent they are held
by the Security Agent other than in the State of New York.
The foregoing opinions are subject to the qualification that we
express no opinion as to (a) the creation, validity, attachment or perfection of
the security interests created by the Pledge Agreement and the Security
Agreement insofar as they are not governed by Articles 8 or 9 of the New York
UCC; and (b) the adequacy of the description of the Collateral insofar as such
description includes terms which are not defined under Articles 8 or 9 of the
New York UCC.
Our opinion expressed in paragraph 4 is limited to those laws and
regulations that a lawyer exercising customary professional diligence would
reasonably recognize as being directly applicable to the Loan Parties, the
Transactions and the Financing Transactions.
No opinion is expressed above as to any law, statute, rule or
regulation which is applicable to the Transactions or the Financing Transactions
because of the nature of any of the Agent's, the Documentation Agent's, the
Security Agent's and the Lenders' businesses.
This opinion is rendered only to you and is solely for your benefit in
connection with the Credit Agreement. This opinion may not be relied upon by
you for any other purpose, nor may it be relied upon by any other person, firm
or corporation for any purpose without our prior express written consent.
Very truly yours,
---------------------------
Richards & O'Neil
<PAGE>
EXHIBIT G-4
[Letterhead of]
FOLEY, HOAG & ELLIOTT
December , 1993
To the Lenders, the Documentation Agent
and the Security Agent Referred to below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, NY 10260
Re: Credit Agreement dated as of December , 1996 among Brylane
L.P., the lenders listed on the signature pages thereof, Morgan
Guaranty Trust Company of New York, as Agent and Merrill Lynch
Capital Corporation, as Documentation Agent
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Brylane, L.P., a
Delaware limited partnership ("Brylane" or the "Borrower"), Brylane Capital
Corp., a Delaware corporation ("Finance Corp."), B.L. Management Services, Inc.,
a Delaware corporation ("New York Holding Subsidiary"), B.L. Catalog
Distribution, Inc., a Delaware corporation ("Indiana Holding Subsidiary"),
B.N.Y. Service Corp., a Delaware corporation ("B.N.Y. Service"), K.S. Management
Services, Inc., a Delaware corporation ("K.S. Management"), [Chadwick's
Management Corp.], B.L. Management Services Partnership, a New York general
partnership between Brylane, New York Holding Subsidiary and B.N.Y. Service
("B.L. Management Services Partnership"), B.L. Catalog Distribution Partnership,
an Indiana general partnership between Brylane and Indiana Holding Subsidiary
("B.L. Catalog Distribution Partnership" and, together with Finance
<PAGE>
2
Corp., New York Holding Subsidiary, Indiana Holding Subsidiary, B.L. Management
Services Partnership, B.N.Y. Service, K.S. Management and [Chadwick's
Management], collectively, the "Subsidiaries") in connection with the Credit
Agreement, dated as of December , 1996 (the "Credit Agreement"), among Brylane,
the lenders listed on the signature pages thereof (the "Lenders"), Morgan
Guaranty Trust Company of New York, as Agent (the "Agent"), and Merrill Lynch
Capital Corporation, as Documentation Agent (the "Documentation Agent"), and the
consummation of the transactions contemplated thereby.
This opinion is delivered to you pursuant to Section 3.01(c) of the
Credit Agreement. All capitalized terms that are used but not defined herein
shall have the respective meanings assigned to them in the Credit Agreement.
The Borrower and the Subsidiaries may be hereinafter referred to individually as
a "Loan Party" and collectively as the "Loan Parties."
In rendering this opinion, we have examined executed originals,
counterparts or copies of each of the following:
(i) the Credit Agreement;
(ii) the Guarantee Agreement;
(iii) the Pledge Agreement;
(iv) the Security Agreement;
(v) the Mortgage, Security Agreement, Fixture Filing and
Assignment of Leases and Rents (the "Mortgage"); and
(vi) the partnership agreement of B.L. Management Services
Partnership (the "B.L. Management Services Partnership
Agreement").
We have also reviewed the forms of Notes. The Credit Agreement, the
forms of Notes, the Guarantee Agreement, the Pledge Agreement, the Security
Agreement and the Mortgage are herein referred to collectively as the "Operative
Documents." The Operative Documents, the Partnership Agreement of Brylane and
the B.L. Management Services Partnership Agreement are herein referred to
collectively as the "Documents."
As to various questions of fact material to this opinion, we have been
furnished with and with your consent have relied upon, without any independent
investigation or verification of any kind, the representations and warranties
<PAGE>
3
contained in the Documents and the other documents executed and delivered in
connection therewith and upon certificates and other documents of officers,
general partners and representatives of Brylane, the Subsidiaries and of public
officials and we have made such other investigations as we have deemed relevant
or necessary as the basis for the opinions hereinafter set forth. In our
examination of the documents referred to above, we have assumed the genuineness
of all signatures, and the incumbency, authority and power, of all Persons
signing the Documents as or on behalf of the parties thereto, the authenticity
and completeness of all documents submitted to us as original or certified
documents, and the conformity to authentic original documents of all documents
submitted to us as certified, conformed, facsimiled or photostatic copies.
To the extent that the obligations of Brylane and the Subsidiaries may
be dependent upon such matters, we have assumed for purposes of this opinion
that: (i) each of Brylane and the Subsidiaries is duly incorporated or
otherwise formed, validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation; (ii) the execution, delivery and
performance by each of Brylane and the Subsidiaries of each of the Documents to
which it is a party (including the execution and delivery of the Notes by
Brylane), and the consummation by each of Brylane and the Subsidiaries of the
transactions contemplated thereby are within its corporate or other
organizational power and authority and each document executed by each of Brylane
and the Subsidiaries has been duly authorized, executed and delivered by all
necessary action on its part; and (iii) no other corporate or other action is
required by the stockholders or partners of Brylane and the Subsidiaries to
authorize the execution and delivery of the Documents by each of Brylane and the
Subsidiaries or the consummation of the transactions contemplated thereby.
To the extent that the obligations of Brylane and the Subsidiaries may
be dependent upon such matters, we have assumed, for purposes of this opinion
that: (i) each of the Lenders, the Agent, the Documentation Agent and the
Security Agent are duly incorporated or otherwise duly formed, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
formation; (ii) each of the Lenders, the Agent, the Documentation Agent and the
Security Agent has full corporate or other organizational power and authority to
execute, deliver and perform its obligations
<PAGE>
4
under the Operative Documents and each of the other documents and agreements
executed by it in connection therewith; (iii) each such document executed by the
Lenders, the Agent, the Documentation Agent and the Security Agent has been duly
authorized, executed and delivered by each of the Lenders, the Agent, the
Documentation Agent and the Security Agent, as the case may be, and constitutes
the legal, valid and binding obligation of each of such parties, enforceable
against it in accordance with its terms; (iv) that each party to the Documents
has complied with all legal requirements pertaining to its status as such status
relates to its rights to enforce the Documents against the other party; (v) that
there has not been any mutual mistake of fact or misunderstanding, fraud, duress
or undue influence in connection with the Documents; and (vi) that there are no
agreements or understandings among the parties to the Documents, written or
oral, or usage of trade or course of prior dealing among such parties, that
would, in any case, define, supplement or qualify the terms of the Documents.
You also have advised us that in rendering the opinions set forth
below we may assume that (A) with respect to the Pledge Agreement and the
Security Agreement, Brylane or the Subsidiaries has "rights" in the Collateral
(as defined in such agreements) within the meaning of Section 9-203 of the
Uniform Commercial Code of the State of Massachusetts (the "Massachusetts UCC"),
consistent with the purposes of the Pledge Agreement and the Security Agreement;
(B) the description of the Collateral reasonably identifies what is described;
(C) with respect to the Mortgage, (i) the Mortgage secures a fee interest in
real property and (ii) the Mortgagee is either an entity qualified to transact
business in the state of Massachusetts or a foreign banking corporation under
the laws of such state; (D) the funds to be loaned or advanced to Brylane, as
contemplated by the Credit Agreement, have been or will be, as applicable,
delivered to and received by Brylane; and (E) each Subsidiary has received
adequate consideration in connection with its obligations under the Guarantee
Agreement and each of the other Operative Documents to which it is a party. We
also have assumed that the holders of the Notes (whether the Lenders or any
subsequent holders), the Agent, the Documentation Agent and the Security Agent
will act in good faith and will seek to enforce their rights and remedies under
the Operative Documents in a commercially reasonable manner.
<PAGE>
5
We also have assumed that the constitutionality or validity of a
relevant statute, rule, regulation or agency action is not in issue unless a
reported decision has specifically addressed but not resolved, or has
established, its unconstitutionality or invalidity.
We have investigated such questions of law for the purpose of
rendering this opinion as we have deemed necessary. We are attorneys admitted
to practice only in the State of Massachusetts and we opine herein only as to
the effect of the law of the State of Massachusetts on the subject transactions.
We do not opine on, and we assume no responsibility as to, the applicability to
or the effect on any of the matters covered herein of, the laws of any other
jurisdiction, including, without limitation, federal laws. In addition, we do
not express any opinion as to any law of the State of Massachusetts applicable
to the environment, taxes, "bulk sales," securities, "blue sky" or antifraud
matters.
The opinions set forth below are subject to the following additional
limitations, qualifications and exceptions:
(a) the enforceability of the Operative Documents may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or similar laws now or hereafter in effect relating to creditors'
rights and remedies generally;
(b) the remedies of specific performance and injunctive and other
forms of relief are subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
and such enforceability may be subject to the discretion of the court before
which any proceeding therefor may be brought;
(c) certain remedial and exculpatory provisions contained in the
Operative Documents may be unenforceable (including (i) certain self-help
provisions and provisions which purport to create evidentiary standards; (ii)
provisions which purport to restrict access to legal or equitable remedies or to
waive or release any statutory provisions or common law rights or benefits that
may not be waived or released; and (iii) under certain circumstances, provisions
declaring that the failure to exercise or delay
<PAGE>
6
in exercising rights or remedies will not operate as a waiver of any such right
or remedy);
(d) no opinion is expressed as to the enforceability of provisions
which purport to establish consent to the jurisdiction of any court; and
(e) no opinion is expressed below with respect to the enforceability
of provisions regarding indemnification against liabilities where such
indemnification is contrary to public policy.
The opinions set forth herein are as of the date of this letter and we
do not render any opinion as to the effect of any matter which may occur
subsequent to the date hereof.
Based upon and subject to the foregoing, after giving effect to the
consummation of the transactions contemplated by the Operative Documents, we are
of the opinion that:
1. Chadwick's, Inc. is a corporation duly organized and validly
existing under the laws of the state of Massachusetts and has all corporate
power and authority to carry on its business as now conducted or as proposed to
be conducted.
2. The execution, delivery and performance by each of the Loan
Parties of the Operative Documents to which it is a party and the consummation
of the Financing Transactions and, to the extent involving Brylane or any
Subsidiary, the other Transactions, require no action by or in respect of, or
filing with, any Governmental Authority of the State of Massachusetts other than
(i) filings required to perfect Liens granted under the Security Documents; and
(ii) such actions as have been duly taken or filings that have been made.
3. The execution, delivery and performance by each of the Loan
Parties of the Operative Documents to which it is a party do not, assuming
compliance with the filing requirements referred to in paragraph 3 above,
contravene, or conflict with, or constitute a violation of any provision of any
present Massachusetts law or regulation binding upon or applicable to Brylane or
the Subsidiaries nor result in the creation or imposition of any Lien (except as
contemplated by the Operative Documents) on any asset of
<PAGE>
7
Brylane or the Subsidiaries, which contravention, conflict or violation,
individually or in the aggregate, would have a material adverse effect on the
business, condition (financial or other), results of operations or properties or
prospects of Brylane and its Subsidiaries, taken as a whole.
4. Each of the Credit Agreement and the Mortgage constitutes the
valid and binding obligation of Brylane, enforceable against it in accordance
with its terms. The Mortgage is in proper form for recordation upon the land
records of the town in the state of Massachusetts where the mortgaged property
is located and, upon proper recordation of the Mortgage upon such land records,
the Mortgagee will have a valid and perfected mortgage lien on the Mortgaged
Property. The Fixture Filing is in proper form for recording on the land
records of the town in the state of Massachusetts where the Mortgaged Property
is located and, upon proper recordation of the Fixture Filing upon said land
records, the Security Agent, on behalf of the Secured Parties, will have a valid
and perfected security interest in all of the Borrower's right, title and
interest in and to the fixtures described therein and no further filing or
refiling or other action is necessary in the state of Massachusetts in order to
perfect or maintain such security interest.
5. The Notes, when executed and delivered by Brylane in accordance
with the Credit Agreement, will constitute valid and binding obligations of
Brylane, enforceable against it in accordance with its terms. Each of the
Guarantee Agreement, the Pledge Agreement and the Security Agreement constitutes
the valid and binding obligation of each of the Loan Parties that is a party
thereto, enforceable against such party in accordance with its terms.
6. The Security Agreement creates a valid security interest (the
"Security Interest") in favor of the Security Agent, for the benefit of the
Secured Parties in the Collateral (as each such term is defined in the Security
Agreement). The Security Interest validly secures the Obligations, including
the payment of any future Loans made by the Lenders to Brylane, whether or not
at the time such Loans are made an Event of Default or other event not within
the control of the Lenders has relieved or may relieve the Lenders from their
obligations to make such Loans.
<PAGE>
8
7. Assuming that (i) financing statements covering the Collateral
have been duly executed by the debtors and the Secured Parties and have been
duly filed in the offices listed on Schedule I hereto, (ii) the correct names
and addresses of the debtors and the Secured Parties are set forth in the
financing statements and (iii) the representations made by the Loan Parties in
the Documents with respect to locations of the Collateral and the Loan Parties
are and remain true and correct, such filings are sufficient to perfect the
security interests created by the Security Agreement in all right, title and
interest of the debtors in those items and types of Collateral described in the
Security Agreement in which a security interest may be perfected by filing a
financing statement under the Massachusetts UCC.
8. Upon delivery to the Security Agent pursuant to the Pledge
Agreement of the shares of capital stock and the promissory notes listed on
Schedule I to the Pledge Agreement (the "Current Pledged Securities"), together
with stock powers duly executed in blank, and assuming (i) the Security Agent
takes possession of the certificates representing all Current Pledged Securities
in the State of Massachusetts, (ii) the Security Agent is taking such Current
Pledged Securities for value in good faith, and (iii) the Security Agent and the
Secured Parties are without notice of any adverse claim with respect to the
Current Pledged Securities within the meaning of Section 8-302 of the
Massachusetts UCC, the security interest created in favor of the Security Agent
for the benefit of the Secured Parties under the Pledge Agreement in the Current
Pledged Securities constitutes a valid and perfected security interest,
provided, however, that:
- -------- -------
(a) in the case of the issuance of additional securities in respect
of the Current Pledged Securities and the pledge in accordance with the Pledge
Agreement of additional securities, (in each case as such term is defined in
Section 8-102 of the Massachusetts UCC), the security interests therein will be
perfected (A) with reference to certificated securities, only if possession
thereof is obtained by the Security Agent in accordance with the provisions of
the Pledge Agreement, and (B) with reference to uncertificated securities, only
upon compliance with Section 8-321 of the Massachusetts UCC;
(b) in the case of proceeds, continuation of perfection of the
Security Agent's security interest therein
<PAGE>
9
is limited to the extent set forth in Section 9-306 of the Massachusetts UCC;
and
(c) we express no opinion as to continuation of perfection of the
security interest in the Current Pledged Securities to the extent they are held
by the Security Agent other than in the State of Massachusetts.
The foregoing opinions are subject to the qualification that we
express no opinion as to (a) the creation, validity, attachment or perfection of
the security interests created by the Pledge Agreement and the Security
Agreement insofar as they are not governed by Articles 8 or 9 of the
Massachusetts UCC; and (b) the adequacy of the description of the Collateral
insofar as such description includes terms which are not defined under Articles
8 or 9 of the Massachusetts UCC.
Our opinion expressed in paragraph 4 is limited to those laws and
regulations that a lawyer exercising customary professional diligence would
reasonably recognize as being directly applicable to the Loan Parties, the
Transactions and the Financing Transactions.
No opinion is expressed above as to any law, statute, rule or
regulation which is applicable to the Transactions or the Financing Transactions
because of the nature of any of the Agent's, the Documentation Agent's, the
Security Agent's and the Lenders' businesses.
This opinion is rendered only to you and is solely for your benefit in
connection with the Credit Agreement. This opinion may not be relied upon by
you for any other purpose, nor may it be relied upon by any other person, firm
or corporation for any purpose without our prior express written consent.
Very truly yours,
------------------------------
Foley, Hoag & Elliot
<PAGE>
EXHIBIT H
[Form of]
PERFECTION CERTIFICATE
The undersigned, the [Financial Officer] of BRYLANE, L.P., a Delaware
limited partnership (the "Borrower"), with reference to (a) the Credit Agreement
dated as of December 9, 1996 (the "Credit Agreement"), among the Borrower, the
----------------
lenders listed on the signature pages thereof, Morgan Guaranty Trust Company of
New York, as administrative agent, and Merrill Lynch Capital Corporation, as
documentation agent, and (b) the Security Agreement dated as of December , 1996
(the "Security Agreement"), among the Borrower, certain subsidiaries of the
------------------
Borrower and Morgan Guaranty Trust Company of New York, as security agent (all
terms used but not defined herein having the meanings given them in the Credit
Agreement and the Security Agreement), hereby certifies to the Agent, the
Security Agent and each Lenders as follows:
1. Names. (a) The exact name of the Borrower and of each Subsidiary
------
Grantor under the Security Agreement as such name appears in its respective
certificate of limited partnership, certificate of incorporation or partnership
agreement, as applicable, is as follows:
(b) The following is a list of all other names (including trade names
or similar appellations) currently used by the Borrower and any Subsidiary
Grantor or any of its divisions or other business units in connection with the
conduct of its business or the ownership of its properties:
2. Current Locations. (a) The chief executive office of the
------------------
Borrower and each Subsidiary Grantor is located at the following address:
Name Mailing Address County State
- ---- --------------- ------ -----
<PAGE>
2
(b) The following are all locations where the Borrower or any
Subsidiary Grantor maintains any books or records relating to any accounts
receivable:
Name Mailing Address County State
- ---- --------------- ------ -----
(c) The following are all the places of business of the Borrower or
any Subsidiary Grantor not identified above:
Name Mailing Address County State
- ---- --------------- ------ -----
3. File Search Reports. Attached hereto as Schedule 3(A) are true
--------------------
copies of file search reports from the Uniform Commercial Code filing offices in
each jurisdiction identified in Section 2 hereof with respect to the Borrower
and each Subsidiary Grantor. Attached hereto as Schedule 3(B) is a true copy of
each financing statement or other filing identified in such file search reports
with respect to any Transferor.
4. UCC Filings. A duly signed financing statement on Form UCC-1 in
------------
substantially the form of Schedule 4 hereto has been delivered to the Security
Agent for filing in the Uniform Commercial Code filing office in each
jurisdiction identified in Section 2(a) hereof with respect to the Borrower or
any Subsidiary Grantor.
5. Schedule of Filings. Attached hereto as Schedule 5 is a schedule
--------------------
setting forth, with respect to the filings described in Section 4 above, each
filing office in which such filing is to be made.
<PAGE>
3
IN WITNESS WHEREOF, we have hereunto set our hands this day of
December 1996.
___________________________________
Title:
<PAGE>
EXHIBIT I
ISSUING BANK AGREEMENT dated as of [ ],
among BRYLANE, L.P., a Delaware limited
partnership (the "Borrower"), [________] (the
"New Issuing Bank"), and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as administrative agent
(the "Administrative Agent") for the lenders
(the "Lenders") party to the Credit Agreement
dated as of December 9, 1996 (as amended or
modified, the "Credit Agreement"), among the
Borrower, the Lenders, the Administrative
Agent and MERRILL LYNCH CAPITAL CORPORATION,
as documentation agent (the "Documentation
Agent").
The New Issuing Bank is a Lender party to the Credit Agreement.
Capitalized terms used herein and not otherwise defined herein are used as
defined in the Credit Agreement. The Borrower desires to appoint the New
Issuing Bank as an "Issuing Bank" under the Credit Agreement, and the New
Issuing Bank desires to accept such appointment.
Accordingly, it is hereby agreed that, subject to the consent of the
Administrative Agent, the New Issuing Bank shall be an "Issuing Bank" under the
Credit Agreement, with all the rights, powers and obligations of an Issuing Bank
thereunder.
By its execution hereof, the Administrative Agent hereby consents to
the appointment of the New Issuing Bank as an "Issuing Bank" under the Credit
Agreement. The Borrower shall pay to the New Issuing Bank, for its own account,
a fee at the rate of __% per annum on the amount available to be drawn on each
outstanding Letter of Credit issued by the New Issuing Bank.
<PAGE>
2
This Agreement shall constitute a part of the Credit Agreement.
Without limiting the generality of the foregoing, Sections 10.09 and 10.10 of
the Credit Agreement shall apply to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BRYLANE, L.P.,
by VGP CORPORATION, General
Partner,
by_________________________________
Name:
Title:
[NEW ISSUING BANK],
by____________________________________
Name:
Title:
[Address for notices]
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent,
by______________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.13
SECURITY AGREEMENT dated as of December 9, 1996 among
BRYLANE, L.P., a Delaware limited partnership (the "Borrower"),
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the subsidiaries of the Borrower listed on Schedule 1 hereto and
such other subsidiaries of the Borrower as shall become parties
hereto pursuant to Section 6.16 hereof (collectively, the
"Subsidiary Grantors", the Borrower and the Subsidiary Grantors
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being collectively called the "Grantors"); and MORGAN GUARANTY
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TRUST COMPANY OF NEW YORK, as security agent (in such capacity,
the "Security Agent") for the Secured Parties, as defined herein.
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Reference is made to the Credit Agreement dated as of December 9, 1996
(as amended from time to time, the "Credit Agreement"), among the Borrower, the
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lenders party thereto (the "Lenders"), Morgan Guaranty Trust Company of New
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York, as administrative agent (in such capacity, the "Administrative Agent") and
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Merrill Lynch Capital Corporation, as documentation agent (in such capacity, the
"Documentation Agent"). The Lenders have agreed to extend credit to the
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Borrower pursuant to, and subject to the terms and conditions specified in, the
Credit Agreement. The obligations of the Lenders to extend credit under the
Credit Agreement are conditioned upon, among other things, the execution and
delivery by the Grantors of a security agreement in the form hereof to secure
(a) the due and punctual payment by the Borrower of (i) the principal of and
interest on the Loans, when and as due, whether at maturity, by acceleration,
upon one or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in respect of any
Letter or Letters of Credit, when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide cash
collateral, (iv) all other monetary obligations of the Borrower to the Secured
Parties under the Credit Agreement and the other Loan Documents to
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which the Borrower is or is to be a party, and (v) each payment required to be
made by the Borrower under any Rate Protection Agreement entered into by the
Borrower with a counterparty that was a Lender at the time such Rate Protection
Agreement was entered into, (b) the due and punctual performance of all other
obligations of the Borrower under the Credit Agreement and the other Loan
Documents to which the Borrower is or is to be a party, (c) the due and punctual
performance of all obligations of the Borrower under each Rate Protection
Agreement entered into with any counterparty that was a Lender at the time such
Rate Protection Agreement was entered into and (d) the due and punctual payment
and performance of all obligations of each Subsidiary under the Loan Documents
to which it is or is to be a party (all the foregoing obligations being
collectively called the "Obligations").
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Accordingly, the Grantors and the Security Agent hereby agree as
follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Terms Defined in the Credit Agreement. Terms used
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herein and not otherwise defined herein shall have the meanings set forth in the
Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used
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herein, the following terms shall have the following meanings:
"Collateral" shall mean all (i) Documents, (ii) General Intangibles
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and (iii) Proceeds.
"Copyright License" shall mean any written agreement, now or hereafter
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in effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any
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Copyright now or hereafter owned by any third party, and all rights of such
Grantor under any such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
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acquired by any Grantor: (i) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (ii) all registrations and applications
for registration of any such copy right in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule I.
"Credit Agreement" shall have the meaning assigned to such term in the
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preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets
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and documents covering or relating to any of the Collateral.
"General Intangibles" shall mean all choses in action and causes of
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action and all other assignable intangible personal property of any Grantor of
every kind and nature (other than accounts receivable) now owned or hereafter
acquired by any Grantor, including corporate or other business records,
mailing/customer lists, contract rights (including rights under leases, whether
entered into as lessor or lessee, Rate Protection Agreements, the Trademark
Agreements, the Transaction Agreement, the Asset Purchase Agreements and other
agreements), Intellectual Property, Partnership Interests, goodwill,
registrations, franchises and tax refund claims.
"Intellectual Property" shall mean all intellectual and similar
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property of any Grantor of every kind and nature now owned or hereafter acquired
by any Grantor, including Copyrights, Licenses, Trademarks, trade secrets,
confidential or proprietary technical and business information, know-how, show-
how or other data or
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information, software and databases and all embodiments or fixations thereof and
related documentation, registrations and franchises, and all additions,
improvements and accessions to, and books and records describing or used in
connection with, any of the foregoing.
"License" shall mean any Trademark License, Copyright License or other
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license or sublicense to which any Grantor is a party, including those listed on
Schedule II.
"Obligations" shall have the meaning assigned to such term in the
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preliminary statement of this Agreement.
"Partnership Interests" shall mean any interest of any Grantor in any
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general or limited partnership, whether as a general partner or limited partner,
and all rights of such Grantor in respect thereof, including any and all such
interests and rights of any Grantor as a partner in any Subsidiary that is a
partnership.
"Perfection Certificate" means a certificate substantially in the form
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of Exhibit I to the Credit Agreement, completed and supplemented with the
schedules and attachments contemplated thereby, and duly executed by a financial
officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale,
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exchange, license, lease or other disposition of any asset or property which
constitutes Collateral, any value received as a consequence of the possession of
any Collateral (it being understood that "Proceeds" shall not include inventory
or other tangible personal property or any revenues generated by the Grantors in
the ordinary course of their respective businesses using trademarks and
tradenames constituting Collateral) and any payment received from any insurer or
other person or entity as a result of the destruction, loss, theft, damage or
other involuntary conversion of whatever nature of any asset or property which
constitutes Collateral, and shall include any claim of any
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Grantor against any third party for (and the right to sue and recover for and
the rights to damages or profits due or accrued arising out of or in connection
with) (i) past, present or future infringement or dilution of any Trademark now
or hereafter owned by any Grantor or licensed under a Trademark License or
injury to the goodwill associated with or symbolized by any Trademark now or
hereafter owned by any Grantor, (ii) past, present or future breach of any
License, (iii) past, present or future infringement of any Copyright now or
hereafter owned by any Grantor or licensed under a Copyright License, and (iv)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Secured Parties" shall mean (a) the Lenders party to the Credit
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Agreement, (b) each counterparty to a Rate Protection Agreement entered into
with the Borrower, if such counterparty was a Lender at the time such Rate
Protection Agreement was entered into, (c) the Agent, the Security Agent, the
Documentation Agent and the Issuing Banks, in their capacities as such under
each Loan Document, (d) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Loan Document, and (e) the successors and
assigns of the foregoing.
"Security Interest" shall have the meaning as signed to such term in
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Section 2.01.
"Trademark License" shall mean any written agreement (including the
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Trademark Agreements), now or hereafter in effect, (a) granting to any third
party any right to use any Trademark now or hereafter owned by any Grantor or
which such Grantor otherwise has the right to license, and all rights of such
Grantor under any such agreement, or (b) granting to such Grantor any right to
use any Trademark now or hereafter owned by any third party, and all rights of
such Grantor under any such agreement.
"Trademarks" shall mean all of the following now owned or hereafter
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acquired (including acquisition of rights
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in respect thereof pursuant to a Trademark License) by any Grantor: (i) all
trademarks, service marks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, trade dress, logos, other source
or business identifiers, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all registration and recording applications filed in connection
therewith, including registrations and registration applications in the United
States Patent and Trademark Office, any State of the United States or any
similar offices in any other country or any political subdivision thereof, and
all extensions or renewals thereof, including those listed on Schedule III, (ii)
all goodwill associated therewith or symbolized thereby, and (iii) all other
assets, rights and interests that uniquely reflect or embody such goodwill.
ARTICLE II. SECURITY INTEREST
SECTION 2.01. Security Interest. As security for the payment or
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performance, as the case may be, of the Obligations, each Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the Security Agent, its successors and its assigns, for the
benefit of the Secured Parties, and hereby grants to the Security Agent, its
successors and assigns, for the benefit of the Secured Parties, a security
interest in, all of such Grantor's right, title and interest in, to and under
the Collateral (the "Security Interest"). Without limiting the generality of
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the foregoing, the Borrower hereby assigns, as collateral security, to the
Security Agent all its right, title and interest in, to and under the
Acquisition Agreements, the Trademark Agreements and the Transaction Agreement
(which assignment also shall constitute part of the Security Interest). The
Security Agent is hereby authorized to file one or more financing statements,
continuation statements, filings with the United States Patent and Trademark
Office or United States
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Copyright Office (or any successor office or any similar office in any other
country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor, naming any Grantor or the
Grantors as debtors and the Security Agent as secured party.
Anything in this Section 2.01 to the contrary notwithstanding, no
Grantor shall be deemed to have borrowed, sold, conveyed, assigned, set over,
mortgaged, pledged, hypothecated or transferred, or to have granted a security
interest in, any contract right (including any lease), or in any of such
Grantor's right, title or interest therein, thereto or thereunder, if any such
action, without the consent of a third party thereto, would constitute a breach
or other contravention thereof; provided that the foregoing shall not apply to
the Acquisitions Agreements, the Trademark Agreements (except for the agreements
referred to in clause (ii) of the definition thereof), the Transaction Agreement
or the partnership agreement of any partnership that is a Subsidiary. The
Grantors shall use their best efforts, upon the request of the Security Agent,
to obtain the consent of any such third party required with respect to any
contract right which is material, individually or in the aggregate, to the
business, condition or prospects of any Grantor.
The Grantors agree at all times to keep accurate and complete
accounting records with respect to the Collateral, including a record of all
payments and Proceeds received.
SECTION 2.02. No Assumption of Liability. The Security Interest is
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granted as security only and shall not subject the Security Agent or any Secured
Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of any of the Collateral.
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ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Grantors jointly and severally represent and warrant to the
Security Agent and the Lenders that:
SECTION 3.01. Title and Authority. Each of the Grantors has good and
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valid rights in and title to the Collateral with respect to which it has
purported to grant a Security Interest hereunder (other than Trademarks which
are not, individually or in the aggregate, material to any Grantor's business,
condition or prospects) and has full power and authority to grant to the
Security Agent the Security Interest in such Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other person other than
any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
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prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements or other appropriate filings, recordings or registrations containing
a description of the Collateral have been delivered to the Security Agent for
filing in each governmental, municipal or other office specified in Schedule 5
to the Perfection Certificate, which are all the filings, recordings and
registrations (other than filings, required to be made in the United States
Patent and Trademark Office and the United States Copyright Office in order to
perfect the Security Interest in Collateral consisting of United States
registered trademarks and registered copyrights) that are necessary to publish
notice of and protect the validity of and to establish a legal, valid and
perfected security interest in favor of the Security Agent (for the benefit of
the Secured Parties) in respect of all Collateral in which the Security Interest
may be perfected by filing, recording or registration in the United States (or
any political subdivision thereof) and its territories and possessions, and no
further or subsequent filing, refiling, recording, rerecording, registration in
the United States (or any political subdivision thereof) and its
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territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.
(b) Each Grantor shall ensure and warrants that fully executed
security agreements in the form hereof and containing a description of all
Collateral consisting of Intellectual Property shall have been received and
delivered for recording within one month after the execution of this Agreement
with respect to United States registered Trademarks (and Trademarks for which
United States registration applications are pending) and within one month after
the execution of this Agreement with respect to United States registered
Copyrights by the United States Patent and Trademark Office and the United
States Copyright Office pursuant to 15 U.S.C. (S) 1060 or 17 U.S.C. (S) 205 and
the regulations thereunder, as applicable, to protect the validity of and to
establish a legal, valid and perfected security interest in favor of the
Security Agent (for the benefit of the Secured Parties) in respect of all
Collateral consisting of Licenses, Trademarks and Copyrights in which a security
interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary (other than such
actions as are necessary to perfect the Security Interest with respect to any
Collateral consisting of Licenses, Trademarks and Copyrights (or registration or
application for registration thereof) acquired or developed after the date
hereof).
SECTION 3.03. Validity of Security Interest. The Security Interest
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constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and
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performance of the Obligations, (b) subject to the filings described in Section
3.02 above, a perfected security interest in all Collateral in which a security
interest may be perfected by filing, recording or registering a financing
statement or analogous document in the United States (or any political
subdivision thereof) and its territories and possessions pursuant to the Uniform
Commercial Code or other applicable law in such jurisdictions, and (c) a
security interest that shall be perfected in all Collateral in which a security
interest may be perfected upon the receipt and recording of this Agreement with
the United States Patent and Trademark Office and the United States Copyright
Office, as applicable, within the one-month period (commencing as of the date
hereof) pursuant to 15 U.S.C. (S) 1060 or the one-month period (commencing as of
the date hereof) pursuant to 17 U.S.C. (S) 205. The Security Interest is and
shall be prior to any other Lien on any of the Collateral, other than Liens that
the Credit Agreement expressly permits to be prior to the Security Interest.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
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Grantors free and clear of any Lien, except for Liens expressly permitted by the
Credit Agreement. Other than as contemplated hereby, none of the Grantors has
filed or consented to the filing of (a) any financing statement or analogous
document under the Uniform Commercial Code or any other applicable laws covering
any Collateral, (b) any assignment in which any Grantor assigns any Collateral
or any security agreement or similar instrument covering any Collateral with
the United States Patent and Trademark Office or the United States Copyright
Office or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office.
ARTICLE IV. COVENANTS
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SECTION 4.01. Change of Name; Location of Collateral; Records; Place
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of Business. (a) Each of the Grantors agrees promptly to notify the Security
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Agent of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility) or
(iii) in its identity or corporate structure.
SECTION 4.02. Periodic Certification. Within 45 days after the
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Effective Date, the Borrower shall deliver to the Security Agent a certificate
executed by a financial officer and the chief legal officer of the Borrower
setting forth, with respect to each filing, recording or registra tion
contemplated by Section 3.02, the filing office, date and file number thereof
and attaching true, correct and complete acknowledgement copies of each such
filing, recording or registration. Each year, at the time of delivery of annual
financial statements with respect to the preceding fiscal year pursuant to
Section 5.01 of the Credit Agreement, the Borrower shall deliver to the Security
Agent a certificate executed by a financial officer and the chief legal officer
of the Borrower (a) setting forth the information with respect to the Grantors
required pursuant to Section 2 of the Perfection Certificate, (b) certifying
that all Uniform Commercial Code financing statements or other appropriate
filings, recordings or registrations, including all refilings, rerecordings and
reregistrations, containing a description of the Collateral have been filed of
record in each governmental, municipal or other appropriate office in each
jurisdiction identified pursuant to clause (a) above to the extent necessary to
protect and perfect the Security Interest for a period of not less than 18
months after the date of such certificate, (c) setting forth, with respect to
each filing, recording or registration (including each refiling, rerecording or
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reregistration) made since the date of the Perfection Certificate or the most
recent certificate delivered pursuant to this Section, the filing office, date
and file number thereof, and (d) attaching true, correct and complete
acknowledgement copies of each such filing, recording or registration not
theretofore delivered to the Security Agent.
SECTION 4.03. Protection of Security. Each of the Grantors shall, at
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its own cost and expense, take any and all actions necessary to defend title to
the Collateral against all persons and to defend the Security Interest of the
Security Agent in the Collateral and the priority thereof against any Lien not
expressly permitted under the Credit Agreement.
SECTION 4.04. Further Assurances. Each of the Grantors agrees, at
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its expense, to execute, acknowledge, deliver and cause to be duly filed all
such further instruments and documents and take all such actions as the Security
Agent or any of the Lenders may from time to time request to better assure,
preserve, protect and perfect the Security Interest and the rights and remedies
created hereby, including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement, the granting of
the Security Interest and the filing of any financing statements or other
documents in connection herewith. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note
or other instrument, such note or instrument shall be immediately pledged and
delivered to the Security Agent, duly endorsed in a manner satisfactory to the
Security Agent.
Without limiting the generality of the foregoing, each Grantor hereby
agrees, promptly upon receipt of notice from the Security Agent, to supplement
this Agreement by supplementing Schedule I, II or III hereto or adding
additional schedules hereto to specifically identify any asset or item that
constitutes Copyrights, Licenses, or
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Trademarks. Each Grantor agrees that it will use its best efforts to take such
action as shall be necessary in order that all representations and warranties
hereunder shall be true and correct with respect to such Collateral within 30
days after the date it has been notified by the Security Agent of the specific
identification of such Collateral.
SECTION 4.05. Taxes; Encumbrances. At its option, the Security Agent
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may discharge past due taxes, assessments, charges, fees, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and not permitted under the Credit Agreement, and may pay for the maintenance
and preservation of the Collateral to the extent any of the Grantors fails to
do so as required by the Credit Agreement or this Agreement, and each of the
Grantors jointly and severally agrees to reimburse the Security Agent on demand
for any payment made or any expense incurred by the Security Agent pursuant to
the foregoing authorization; provided, however, that nothing in this Section
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shall be interpreted as excusing any Grantor from the performance of, or
imposing any obligation on the Security Agent or any Secured Party to cure or
perform, any covenants or other promises of any Grantor with respect to taxes,
assessments, charges, fees, liens, security interests or other encumbrances and
maintenance as set forth herein or in the Credit Agreement.
SECTION 4.06. Continuing Obligations of the Grantors. Each of the
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Grantors shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it under each contract, agreement or
instrument relating to the Collateral, all in accordance with the terms and
conditions thereof, and the Grantors jointly and severally agree to indemnify
and hold harmless the Security Agent and the Secured Parties from and against
any and all liability for such performance.
SECTION 4.07. Use and Disposition of Collateral. None of the
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Grantors shall make or permit to be made an assignment, pledge or hypothecation
of the Collateral or
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shall grant any other Lien in respect of the Collateral except as expressly
permitted by the Credit Agreement. None of the Grantors shall make or permit to
be made any transfer of the Collateral and each Grantor shall remain at all
times in possession of the Collateral owned by it, except that unless and until
the Security Agent shall notify the Grantors that an Event of Default shall have
occurred and be continuing and that during the continuance thereof the Grantors
shall not sell, convey, lease, assign, transfer or otherwise dispose of any
Collateral (which notice may be given by telephone if promptly confirmed in
writing), the Grantors may use and dispose of the Collateral in any lawful
manner not inconsistent with the provisions of this Agreement, the Credit
Agreement or any other Loan Document.
SECTION 4.08. Covenants Regarding License, Trademark and Copyright
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Collateral. (a) Each Grantor (either itself or through its licensees or its
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sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(b) Each Grantor (either itself or through licensees) will, for each
work covered by a material Copyright, continue to publish, reproduce, display,
adopt and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(c) Each Grantor shall notify the Security Agent immediately if it
knows or has reason to know that any Trademark or Copyright material to the
conduct of its business may become abandoned, lost or dedicated to the
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public, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, United States Copyright Office or
any court or similar office of any country) regarding such Grantor's ownership
of any Trademark or Copyright, its right to register the same, or to keep and
maintain the same.
(d) In no event shall any Grantor, either itself or through any
agent, employee, licensee or designee, file an application for any Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly (or, in
the case of Trademarks and Copyrights which are not, individually or in the
aggregate, material to any Grantor's business, condition or prospects, no less
frequently than on a quarterly basis) informs the Security Agent, and, upon
request of the Security Agent, executes and delivers any and all agreements,
instruments, documents and papers as the Security Agent may request to evidence
the Security Agent's security interest in such Trademark or Copyright, and each
Grantor hereby appoints the Security Agent as its attorney-in-fact to execute
and file such writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an interest,
is irrevocable.
(e) Each Grantor will take all reasonably necessary steps that are
consistent with the practice in any proceeding before the United States Patent
and Trademark Office, United States Copyright Office or any office or agency in
any political subdivision of the United States or in any other country or any
political subdivision thereof, to maintain and pursue each material application
relating to the Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each registration of the Trademarks and
Copyrights which is material to the
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conduct of any Grantor's business, including timely filings of applications for
renewal, affidavits of use, affidavits of incontestability and payment of
maintenance fees, and, if consistent with good business judgment, to initiate
opposition, interference and cancelation proceedings against third parties.
(f) In the event that any Collateral consisting of a Trademark or
Copyright material to the conduct of any Grantor's business is believed
infringed, misappropriated or diluted by a third party, such Grantor promptly
shall notify the Security Agent after it obtains knowledge thereof and shall, if
consistent with good business judgment, promptly sue for infringement,
misappropriation or dilution and to recover any and all damages for such
infringement, misappropriation or dilution (or, in the event any third party is
contractually entitled to maintain any such suit, such Grantor shall pursue all
its available remedies, including, if applicable, by demanding such third party
to commence such suit and pursue such recovery), and take such other actions as
are appropriate under the circumstances to protect such Collateral.
(g) Each Grantor shall use its best efforts to obtain all requisite
consents or approvals by the licensor of each Copyright License or Trademark
License to effect the assignment of all of the Grantors' right, title and
interest thereunder to the Security Agent or its designee.
ARTICLE V. REMEDIES
SECTION 5.01. Remedies upon Default. Upon the occurrence and during
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the continuance of an Event of Default, each of the Grantors agrees to deliver
each item of Collateral to the Security Agent on demand, and it is agreed that
the Security Agent shall have the right (subject to applicable law) to take any
of or all the following actions at the same or different times: on demand, to
cause the Security Interest to become an assignment, transfer and
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conveyance of any of or all such Collateral by the applicable Grantors to the
Security Agent, or to license or, to the extent permitted by applicable law,
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Security Agent shall determine (other
than in violation of the Trademark Agreements or any other then-existing
licensing arrangements to the extent that waivers have not been obtained in the
Trademark Collateral Agreement or cannot otherwise be obtained), and with or
without legal process and with or without previous notice or demand for
performance, to exercise any and all rights afforded to a secured party under
the Uniform Commercial Code or other applicable law. Without limiting the
generality of the foregoing, each of the Grantors agrees that the Security Agent
shall have the right, subject to the mandatory requirements of current law, to
sell, assign or otherwise dispose of all or any part of the Collateral, at
public or private sale or at any broker's board or on any securities exchange,
for cash, upon credit or for future delivery as the Security Agent shall deem
appropriate. The Security Agent shall be authorized at any such sale (if it
deems it advisable to do so) to restrict the prospective bidders or purchasers
to persons who will represent and agree that they are purchasing the Collateral
for their own account for investment and not with a view to the distribution or
sale thereof, and upon consummation of any such sale the Security Agent shall
have the right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such sale shall hold
the property sold absolutely, free from any claim or right on the part of any of
the Grantors, and each of the Grantors hereby waives (to the extent permitted by
law) all rights of redemption, stay and appraisal which such Grantor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.
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The Security Agent shall give the Grantors 10 days' written notice
(which each of the Grantors agrees is reasonable notice within the meaning of
Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New
York or its equivalent in other jurisdictions) of the Security Agent's intention
to make any sale of Collateral. Such notice, in the case of a public sale,
shall state the time and place for such sale and, in the case of a sale at a
broker's board or on a securities exchange, shall state the board or exchange at
which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Security Agent may fix and state in the
notice (if any) of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Security Agent may (in its sole and absolute discretion)
determine. The Security Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Security Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case any sale of all or any
part of the Collateral is made on credit or for future delivery, the Collateral
so sold may be retained by the Security Agent until the sale price is paid by
the purchaser or purchasers thereof, but the Security Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any public sale made pursuant to this
Section, any Secured Party may bid for or purchase, free (to the extent
permitted by law) from any right of redemption, stay, valuation or appraisal on
the part of any of the Grantors (all said rights being also hereby waived and
18
<PAGE>
released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any of the Grantors as a credit
against the purchase price, and such Secured Party may, upon compliance with the
terms of sale, hold, retain and dispose of such property without further
accountability to any of the Grantors therefor. For purposes hereof, a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof; the Security Agent shall be free to carry out such sale pursuant
to such agreement and none of the Grantors shall be entitled to the return of
the Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Security Agent shall have entered into such an agreement all
Events of Default shall have been remedied and the Obligations paid in full. As
an alternative to exercising the power of sale herein conferred upon it, the
Security Agent may proceed by a suit or suits at law or in equity to foreclose
this Agreement and to sell the Collateral or any portion thereof pursuant to a
judgment or decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver.
SECTION 5.02. Application of Proceeds. The Security Agent shall
------------------------
apply the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the Agent
or the Security Agent (in its capacity as such hereunder or under any other
Loan Document) in connection with such collection or sale or otherwise in
connection with this Agreement or any of the Obligations, including all
court costs and the fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Security Agent hereunder or under any
other Loan Document on behalf of any of the Grantors and any other costs or
expenses
19
<PAGE>
incurred in connection with the exercise of any right or remedy hereunder
or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Security Agent shall have absolute discretion as to the time of application
of any such proceeds, moneys or balances in accordance with this Agreement.
Upon any sale of the Collateral by the Security Agent (including pursuant to a
power of sale granted by statute or under a judicial proceeding), the receipt of
the Security Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Security Agent or such officer or be
answerable in any way for the misapplication thereof.
SECTION 5.03. Grant of License to Use Intellectual Property. For the
----------------------------------------------
purpose of enabling the Security Agent to exercise rights and remedies under
this Article at such time as the Security Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Security
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral now owned or hereafter acquired by such Grantor, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer software and programs used for the compilation or printout
thereof (other than in violation
20
<PAGE>
of any Trademark Agreements or any other then-existing licensing arrangements to
the extent that waivers have not been obtained in the Trademark Collateral
Agreement or cannot otherwise be obtained). The use of such license by the
Security Agent shall be exercised, at the option of the Security Agent, upon the
occurrence and during the continuation of an Event of Default; provided that any
--------
license, sub-license or other transaction entered into by the Security Agent in
accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
ARTICLE VI. MISCELLANEOUS
SECTION 6.01. Notices. All communications and notices hereunder
--------
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 10.01 of the Credit Agreement. All communications and
notices hereunder to any Subsidiary Grantor shall be given to it in care of the
Borrower at the address specified in the Credit Agreement for notices to the
Borrower thereunder.
SECTION 6.02. Security Interest Absolute. All rights of the Security
---------------------------
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement or any other Loan Document,
any agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing; (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument;
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations; or
21
<PAGE>
(d) any other circumstance which might otherwise constitute a defense available
to, or a discharge of, any Grantor in respect of the Obligations or this
Agreement.
SECTION 6.03. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans, and the execution and delivery to the Lenders of the Notes
evidencing such Loans, regardless of any investigation made by the Lenders or on
their behalf, and shall continue in full force and effect until this Agreement
shall terminate.
SECTION 6.04. Binding Effect; Several Agreement. This Agreement
----------------------------------
shall become effective as to any Grantor when a counterpart hereof executed on
behalf of such Grantor shall have been delivered to the Security Agent and a
counterpart hereof shall have been executed on behalf of the Security Agent, and
thereafter shall be binding upon such Grantor and the Security Agent and their
respective successors and assigns, and shall inure to the benefit of such
Grantor, the Security Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign
its rights hereunder or any interest herein or in the Collateral except as
expressly contemplated by this Agreement or the Credit Agreement. This Agreement
shall be construed as a separate agreement with respect to each Grantor and may
be amended, modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without affecting the
obligations of any other Grantor hereunder.
SECTION 6.05. Successors and Assigns. Whenever in this Agreement any
-----------------------
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
22
<PAGE>
agreements by or on behalf of any Grantor or the Security Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.
SECTION 6.06. Security Agent Appointed Attorney-in-Fact. Each of the
------------------------------------------
Grantors hereby appoints the Security Agent the attorney-in-fact of such Grantor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument which the Security Agent may deem necessary
or advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Security Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default, with full power of substitution either in
the Security Agent's name or in the name of any Grantor, to ask for, demand, sue
for, collect, receive and give acquittance for any and all moneys due or to
become due under and by virtue of any Collateral, to endorse checks, drafts,
orders and other instruments for the payment of money payable to such Grantor
representing any dividend or other distribution payable in respect of the
Collateral or any part thereof or on account thereof and to give full discharge
for the same, to settle, compromise, prosecute or defend any action, claim or
proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer
and make any agreement respecting, or otherwise deal with, the same; provided,
--------
however, that nothing herein contained shall be construed as requiring or
- -------
obligating the Security Agent to make any commitment or to make any inquiry as
to the nature or sufficiency of any payment received by the Security Agent, or
to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken by the Security
Agent or omitted to be taken with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of any Grantor
or to any claim or action against the Security Agent or any other Secured Party.
23
<PAGE>
SECTION 6.07. Security Agent's Fees and Expenses; Indemnification.
----------------------------------------------------
(a) Each of the Grantors jointly and severally agrees to pay upon demand to the
Security Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents, which
the Security Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from
or other realization upon any of the Collateral, (iii) the exercise, enforcement
or protection of any of the rights of the Security Agent hereunder or (iv) the
failure of the Grantors to perform or observe any of the provisions hereof.
(b) Without limitation of their indemnification obligations under the
other Loan Documents, each of the Pledgors jointly and severally agrees to
indemnify the Security Agent from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by the
Security Agent in connection with any investigative, administrative or judicial
proceeding relating hereto or to the Collateral, whether or not the Security
Agent is a party thereto; provided that the Security Agent shall not have the
--------
right to be indemnified hereunder for its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
(c) Any such amounts payable as provided here under shall be
additional Obligations secured hereby and by the other Security Documents. The
provisions of this Section shall remain operative and in full force and effect
regardless of the termination of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the Loans, the
invalidity or unenforceability of any term or provision of this Agreement or any
other Loan Document, or any investigation made by or on behalf of the Security
Agent or any Bank. All amounts
24
<PAGE>
due under this Section shall be payable on written demand therefor.
SECTION 6.08. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
--------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.09. Waivers; Amendment. (a) No failure or delay of the
-------------------
Security Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Security Agent hereunder
and of the Security Agent, the Agent and the Lenders under the other Loan
Documents are cumulative and are not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provisions of this Agreement or any
other Loan Document or consent to any departure by any Grantor therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on any
Grantor in any case shall entitle such Grantor or any other Grantor to any other
or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Security Agent and the Grantor or Grantors with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 10.05 of the Credit Agreement.
SECTION 6.10. Waiver of Jury Trial. Each of the parties hereto
---------------------
irrevocably waives any and all rights to trial by jury in any legal proceeding
arising out of or
25
<PAGE>
relating to this Agreement or any other Loan Document or the transactions
contemplated hereby.
SECTION 6.11. Severability. In the event any one or more of the
------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 6.12. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract (subject to Section 6.04),
and shall become effective as provided in Section 6.04.
SECTION 6.13. Headings. Article and Section headings used herein are
--------
for convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 6.14. Jurisdiction; Consent to Service of Process. (a) Each
-------------------------------------------
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such
26
<PAGE>
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Security Agent or any
Bank may otherwise have to bring any action or proceeding relating to this
Agreement or the other Loan Documents against any Grantor or its properties in
the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 6.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 6.15. Termination. This Agreement and the Security Interest
------------
shall terminate when all the Obligations (other than obligations of the Borrower
under Section 10.03(b) of the Credit Agreement, or any other indemnification
provisions contained in the Loan Documents, in respect of claims which have not
then been asserted) have been indefeasibly paid in full and the Lenders have no
further commitment to lend or to issue Letters of Credit under the Credit
Agreement, at which time the Security Agent shall execute and deliver to the
Grantors, at the Grantors' expense, all Uniform Commercial Code termination
statements and similar customary documents which the Grantors shall reasonably
request to evidence such termination. Any execution and delivery of termination
statements or
27
<PAGE>
documents pursuant to this Section shall be without recourse to or warranty by
the Security Agent. Each Subsidiary Grantor shall automatically be released from
its obligations hereunder and the Security Interest in the Collateral of such
Subsidiary Grantor shall be automatically released in the event that all the
capital stock of such Subsidiary Grantor shall be sold, transferred or otherwise
disposed of to a person that is not an Affiliate of the Borrower in accordance
with the terms of the Credit Agreement; provided that the Required Lenders shall
--------
have consented to such sale, transfer or other disposition and the terms of such
consent did not provide otherwise.
SECTION 6.16. Additional Grantors. Upon execution and delivery by
--------------------
the Security Agent and a Subsidiary of an instrument in the form of Annex 1
hereto, such Subsidiary shall become a Subsidiary Grantor and Grantor hereunder
with the same force and effect as if originally named as a Subsidiary Grantor
and Grantor herein. The execution and delivery of any such instrument shall not
require the consent of any Grantor hereunder. The rights
28
<PAGE>
and obligations of each Grantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Grantor as a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BRYLANE, L.P.,
by VGP CORPORATION, General Partner
by /s/ Mark J. Doran
---------------------------
Name: Mark J. Doran
Title: Vice President, Treasurer
and Secretary
B.L. CATALOG DISTRIBUTION, INC.,
by /s/ Robert A. Pulciani
---------------------------
Name: Robert A. Pulciani
Title: Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
29
<PAGE>
B.L. CATALOG DISTRIBUTION PARTNERSHIP,
by B.L. CATALOG DISTRIBUTION
INC., General Partner,
by /s/ Robert A. Pulciani
---------------------------
Name: Robert A. Pulciani
Title: Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
by BRYLANE, L.P., General
Partner
by VGP CORPORATION, General
Partner
by /s/ Mark J. Doran
---------------------------
Name: Mark J. Doran
Title: Vice President, Treasurer
and Secretary
B.L. MANAGEMENT SERVICES, INC.,
by /s/ Robert A. Pulciani
---------------------------
Name: Robert A. Pulciani
Title: Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
30
<PAGE>
B.L. MANAGEMENT SERVICES PARTNERSHIP,
by B.L. MANAGEMENT SERVICES
INC., General Partner,
by /s/ Peter J. Canzone
---------------------------
Name: Peter J. Canzone
Title: Chief Executive Officer
by B.N.Y. SERVICE CORP., General
Partner,
by /s/ Peter J. Canzone
---------------------------
Name: Peter J. Canzone
Title: President and
Chief Executive Officer
B.N.Y. SERVICE CORP.
by /s/ Peter J. Canzone
---------------------------
Name: Peter J. Canzone
Title: President and
Chief Executive Officer
K.S. MANAGEMENT SERVICES, INC.
by /s/ Peter J. Canzone
---------------------------
Name: Peter J. Canzone
Title: Chief Executive Officer
31
<PAGE>
C.O.B. MANAGEMENT SERVICES, INC.
by /s/ Peter J. Canzone
---------------------------
Name: Peter J. Canzone
Title: President and Chief
Executive Officer
CHADWICK'S TRADENAME SUB, INC.
by /s/ Peter J. Canzone
---------------------------
Name: Peter J. Canzone
Title: President and Chief
Executive Officer
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as Security Agent,
by
---------------------------
Title:
32
<PAGE>
ANNEX 1 to
Security Agreement
SUPPLEMENT NO. dated as of , 199 , to the Security
Agreement dated as of December 9, 1996 among BRYLANE, L.P., a
Delaware limited partnership (the "Borrower"), the subsidiaries
--------
of the Borrower listed on Schedule 1 thereto and such other
subsidiaries of the Borrower as shall become parties thereto
pursuant to Section 6.16 thereof (collectively, the "Subsidiary
----------
Grantors", the Borrower and the Subsidiary Grantors being
--------
collectively called the "Grantors"); and MORGAN GUARANTY TRUST
--------
COMPANY OF NEW YORK, a Delaware corporation, as security agent
(in such capacity, the "Security Agent") for the Secured Parties,
--------------
as defined therein.
A. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Security Agreement.
B. The Borrower and the Subsidiary Grantors have entered into the
Security Agreement in order to induce the Lenders to extend credit under the
Credit Agreement. The Security Agreement provides that additional Subsidiaries
may become Subsidiary Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement. Pursuant to the
Credit Agreement, the undersigned Subsidiary (the "New Subsidiary Grantor") is
----------------------
required to become a Subsidiary Grantor under the Security Agreement. The New
Subsidiary Grantor desires to become a Subsidiary Grantor and Grantor under the
Security Agreement in order to induce the Lenders to continue to extend credit
under the Credit Agreement and as consideration therefor.
Accordingly, the Security Agent and the New Subsidiary Grantor agree
as follows:
<PAGE>
SECTION 1. In accordance with the Security Agreement, the New
Subsidiary Grantor by its signature hereto shall become a Subsidiary Grantor and
Grantor under the Security Agreement with the same force and effect as if
originally named therein as a Subsidiary Grantor and Grantor and the New
Subsidiary Grantor hereby (a) agrees to all the terms and provisions of the
Security Agreement applicable to it as a Subsidiary Grantor and Grantor
thereunder and (b) represents and warrants that the representations and
warranties made by it as a Subsidiary Grantor and Grantor thereunder are true
and correct on and as of the date hereof. In furtherance of the foregoing, the
New Subsidiary Grantor, as security for the payment or performance, as the case
may be, of the Obligations, does hereby create, grant, assign, set over,
mortgage, pledge, hypothecate and transfer to the Security Agent, its successors
and its assigns, for the benefit of the Secured Parties, a security interest in
all of the Subsidiary Grantor's right, title and interest in, to and under the
Collateral. Each reference to a "Grantor" or a "Subsidiary Grantor" in the
Security Agreement shall be deemed to include the New Subsidiary Grantor, and
each reference to the "Security Interest" in the Security Agreement shall be
deemed to include the security interest granted under this Section 1. The
Security Agreement is hereby incorporated herein by reference.
SECTION 2. This Supplement shall become effective when the Security
Agent shall have received a counterpart of this Supplement executed on behalf of
the New Subsidiary Grantor.
SECTION 3. The New Subsidiary Grantor hereby represents and warrants
that this Supplement has been duly authorized, executed and delivered by the New
Subsidiary Grantor and constitutes a valid and binding obligation of the New
Subsidiary Grantor, enforceable against it in accordance with its terms.
2
<PAGE>
SECTION 4. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect in accordance with its terms.
SECTION 5. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provi sions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith negotiations to
replace any invalid, illegal or unenforceable provisions herein with valid
provisions, the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 7. This Supplement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
SECTION 8. The New Subsidiary Grantor agrees to reimburse the
Security Agent for its reasonable out-of-pocket expenses in connection with this
Supplement, includ ing the reasonable fees and expenses of counsel for the
Security Agent.
IN WITNESS WHEREOF, the New Subsidiary Grantor and the Security Agent
have duly executed this Supplement to the Security Agreement as of the day and
year first above written.
[NAME OF NEW SUBSIDIARY GRANTOR],
3
<PAGE>
by
-------------------------
Name:
Title:
Address:
-----------------
-----------------
-----------------
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Security Agent,
by
-------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 10.14
PLEDGE AGREEMENT dated as of December 9, 1996 among BRYLANE,
L.P., a Delaware limited partnership (the "Borrower"), such
--------
subsidiaries of the Borrower as shall become parties hereto
pursuant to Section 5.16 hereof (collectively, the "Subsidiary
----------
Pledgors"; the Borrower and the Subsidiary Pledgors being
--------
collectively called the "Pledgors"); and MORGAN GUARANTY TRUST
--------
COMPANY OF NEW YORK, as security agent (in such capacity, the
"Security Agent") for the Secured Parties, as defined herein.
---------------
Reference is made to the Credit Agreement dated as of December 9, 1996
(as amended from time to time, the "Credit Agreement"), among the Borrower, the
----------------
Lenders party thereto (the "Lenders"), Morgan Guaranty Trust Company of New
-------
York, as administrative agent (in such capacity, the "Agent") and Merrill Lynch
-----
Capital Corporation, as documentation agent (in such capacity, the
"Documentation Agent"). The Lenders have agreed to extend credit to the
- --------------------
Borrower pursuant to, and subject to the terms and conditions specified in, the
Credit Agreement. The obligations of the Lenders to extend credit under the
Credit Agreement are conditioned upon, among other things, the execution and
delivery by the Pledgors of a pledge agreement in the form hereof to secure (a)
the due and punctual payment by the Borrower of (i) the principal of and
interest on the Loans, when and as due, whether at maturity, by acceleration,
upon one or more dates set for prepayment or otherwise; (ii) each payment
required to be made by the Borrower under the Credit Agreement in respect of any
Letter or Letters of Credit, when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide cash
collateral, (iii) all other monetary obligations of the Borrower to the Secured
Parties under the Credit Agreement and the other Loan Documents to which the
Borrower is or is to be a party and (iv) each payment required to be made by the
Borrower under any Rate
<PAGE>
2
Protection Agreement entered into by the Borrower with a counterparty that was a
Lender at the time such Rate Protection Agreement was entered into; (b) the due
and punctual performance of all other obligations of the Borrower under the
Credit Agreement and the other Loan Documents to which the Borrower is or is to
be a party and (c) the due and punctual payment and performance of all
obligations of each Subsidiary under the Loan Documents to which it is or is to
be a party (all the foregoing obligations being collectively called the
"Obligations").
-----------
Accordingly, the Pledgors and the Security Agent hereby agree as
follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Terms Defined in the Credit Agreement. Terms used
--------------------------------------
herein and not otherwise defined herein shall have the meanings set forth in the
Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used
----------------------------------------
herein, the following terms shall have the following meanings:
"Collateral" shall have the meaning assigned to such term in Section
----------
2.01.
"Credit Agreement" shall have the meaning assigned to such term in the
----------------
preliminary statement of this Agreement.
"Federal Securities Laws" shall have the meaning assigned to such term
-----------------------
in Section 4.03.
"Obligations" shall have the meaning assigned to such term in the
-----------
preliminary statement of this Agreement.
<PAGE>
3
"Pledged Notes" shall have the meaning assigned to such term in
-------------
Section 2.01.
"Pledged Securities" shall mean the Pledged Stock, the Pledged Notes,
------------------
all other shares of capital stock, debt securities and other securities
(including warrants, options and similar rights to acquire securities) now or
hereafter included in the Collateral and all stock certificates and other
instruments evidencing any such securities.
"Pledged Stock" shall have the meaning assigned to such term in
-------------
Section 2.01.
"Secured Parties" shall mean (a) the Lenders party to the Credit
---------------
Agreement; (b) each counterparty to a Rate Protection Agreement entered into
with the Borrower, if such counterparty was a Lender at the time such Rate
Protection Agreement was entered into; (c) the Agent, the Security Agent, the
Issuing Banks and the Documentation Agent, in their capacities as such under
each Loan Document; (d) the beneficiaries of each indemnification obligation
undertaken by any Pledgor under any Loan Document; and (e) the successors and
assigns of the foregoing.
ARTICLE II
Pledge
------
SECTION 2.01. Pledge. As security for the payment or performance, as
-------
the case may be, of the Obligations, each Pledgor hereby bargains, sells,
conveys, assigns, sets over, mortgages, pledges, hypothecates and transfers to
the Security Agent, its successors and its assigns, for the benefit of the
Secured Parties, and hereby grants to the Security Agent, its successors and
assigns, for the benefit of the Secured Parties, a security interest in, all of
such Grantor's right, title and interest in, to and under (a) the shares of
capital stock listed opposite the name of such Pledgor on Schedule I hereto and
all shares
<PAGE>
4
of the capital stock of any Subsidiary hereafter acquired by such Pledgor (the
"Pledged Stock") and the certificates representing the Pledged Stock; (b) the
-------------
promissory notes listed opposite the name of such Pledgor on Schedule I hereto
and all promissory notes or other debt securities of any Subsidiary hereafter
acquired by such Pledgor (the "Pledged Notes") and the certificates representing
-------------
the Pledged Notes; (c) all other property which may be delivered to and held by
the Security Agent pursuant to the terms hereof; (d) subject to Section 2.04,
all payments of dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed, in respect of, in exchange
for or upon the conversion of the securities referred to in clauses (a), (b) and
(c) above; (e) subject to Section 2.04, all rights and privileges of such
Pledgor with respect to the securities and other property referred to in clauses
(a), (b), (c) and (d) above; and (f) all proceeds of any of the foregoing (the
items referred to in clauses (a) through (f) being collectively called the
"Collateral").
----------
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and references pertaining or incidental thereto,
unto the Security Agent, its successors and its assigns, for the benefit of the
Secured Parties, forever; subject, however, to the terms, covenants and
------- -------
conditions hereinafter set forth.
SECTION 2.02. Delivery of the Collateral; Intercompany Obligations.
-----------------------------------------------------
(a) Upon delivery to the Security Agent, (i) the Pledged Securities shall be
accompanied by stock powers duly executed in blank or other instruments of
transfer satisfactory to the Security Agent and by such other instruments and
documents as the Security Agent may reasonably request and (ii) all other
property comprising part of the Collateral shall be accompanied by proper
instruments of assignment duly executed by the applicable Pledgor and such other
instruments or documents as the Security Agent may reasonably request. Each
delivery
<PAGE>
5
of Pledged Securities shall be accompanied by a schedule describing the
securities theretofore and then being pledged hereunder, which schedule shall be
attached hereto as Schedule I and made a part hereof. Each schedule so deliv-
ered shall supersede any prior schedules so delivered.
(b) Each of the Pledgors agrees to promptly deliver or cause to be
delivered to the Security Agent any and all Pledged Securities, and any and all
certificates or other instruments or documents representing the Collateral.
(c) Each Pledgor will cause any obligations in respect of borrowed
money or similar advances owed to such Pledgor by the Borrower or any Subsidiary
to be evidenced by a duly executed promissory note which is pledged and
delivered to the Security Agent pursuant to the terms hereof. Any such
promissory notes may be in the form of a demand note for any and all moneys
advanced.
SECTION 2.03. Registration in Nominee Name; Denominations. The
--------------------------------------------
Security Agent shall have the right (in its sole and absolute discretion) to
hold the Pledged Securities in its own name as pledgee, the name of its nominee
or the name of the applicable Pledgor, endorsed or assigned in blank or in favor
of the Security Agent. Each of the Pledgors will promptly give to the Security
Agent copies of any notices or other communications received by it with respect
to Pledged Securities registered in the name of such Pledgor. The Security
Agent shall at all times have the right to exchange the certificates
representing Pledged Securities for certificates of smaller or larger
denominations for any purpose consistent with this Agreement.
SECTION 2.04. Voting Rights; Dividends and Interest; etc. (a)
-------------------------------------------
Unless and until an Event of Default shall have occurred and be continuing and
the Security Agent
<PAGE>
6
shall have notified the Pledgors that their rights under this Section 2.04 are
being suspended:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers accruing to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan Documents;
provided, however, that such action would not materially and adversely
-------- -------
affect the rights inuring to a holder of the Pledged Securities or the
rights and remedies of the Security Agent or any of the Secured Parties
under this Agreement or the Credit Agreement or any other Loan Document or
the ability of the Security Agent or any of the Secured Parties to exercise
the same.
(ii) The Security Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to such Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers which it is entitled to exercise
pursuant to subparagraph (i) above.
(iii) Each Pledgor shall be entitled to receive and retain any and
all dividends and principal and interest payments paid in cash on the
Pledged Securities pledged by it to the extent and only to the extent that
such cash dividends and principal and interest payments are permitted by,
and otherwise paid in accordance with, the terms and conditions of the
Credit Agreement, the other Loan Documents and applicable laws. Other than
(A) pursuant to the first sentence of this paragraph (a)(iii) or (B)
pursuant to a distribution or transfer of any of the assets of a Subsidiary
Pledgor to the Borrower or to a Subsidiary Pledgor that is a Wholly Owned
Consolidated Subsidiary in a transaction permitted under the Credit
Agreement,
<PAGE>
7
all noncash dividends and principal and interest payments, and all
dividends paid or payable in cash or otherwise in connection with a partial
or total liquidation or dissolution, return of capital, capital surplus or
paid-in surplus, and all other distributions made on or in respect of
Pledged Securities, whether paid or payable in cash or otherwise, whether
resulting from a subdivision, combination or reclassification of the
outstanding capital stock of the issuer of any Pledged Securities or
received in exchange for Pledged Securities or any part thereof, or in
redemption thereof, or as a result of any merger, consolidation,
acquisition or other exchange of assets to which such issuer may be a party
or otherwise, shall be and become part of the Collateral, and, if received
by a Pledgor, shall not be commingled by such Pledgor with any of its other
funds or property but shall be held separate and apart therefrom, shall be
held in trust for the benefit of the Security Agent and shall be forthwith
delivered to the Security Agent in the same form as so received (with any
necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of
Default, after the Security Agent shall have notified the Pledgors of the
suspension of their rights under paragraph (a)(iii) above, then all rights of
any Pledgor to receive dividends and principal and interest payments which such
Pledgor is authorized to receive pursuant to paragraph (a)(iii) above shall
cease, and all such rights shall thereupon become vested in the Security Agent,
which shall have the sole and exclusive right and authority to receive and
retain such dividends, interest and principal payments. All dividends and
principal and interest payments which are received by any Pledgor contrary to
the provisions of this Section 2.04 shall be received in trust for the benefit
of the Security Agent, shall be segregated from other property or funds of such
Pledgor and shall be forthwith delivered to the Security Agent in the same form
as so received (with any necessary endorsement). Any and all money and other
property paid over to or
<PAGE>
8
received by the Security Agent pursuant to the provisions of this paragraph (b)
shall be retained by the Security Agent in an account to be established by the
Security Agent upon receipt of such money or other property and shall be applied
in accordance with the provisions of Section 4.02.
(c) Upon the occurrence and during the continuance of an Event of
Default, after the Security Agent shall have notified the Pledgors of the
suspension of their rights under paragraph (a)(i) above, then all rights of the
Pledgors to exercise the voting and consensual rights and powers which they are
entitled to exercise pursuant to paragraph (a)(i) of this Section 2.04, and the
obligations of the Security Agent under paragraph (a)(ii) of this Section 2.04,
shall cease, and all such rights shall thereupon become vested in the Security
Agent, which shall have the sole and exclusive right and authority to exercise
such voting and consensual rights and powers.
(d) Any notice given by the Security Agent to the Pledgors suspending
their rights under paragraph (a) above (i) may be given by telephone if promptly
confirmed in writing, (ii) may be given to one or more of the Pledgors at the
same or different times and (iii) may suspend the rights of the Pledgors under
paragraph (a)(i) or paragraph (a)(iii) in part without suspending all such
rights (as specified by the Security Agent in its sole and absolute discretion)
and without waiving or otherwise affecting the Security Agent's rights to give
additional notices from time to time suspending other rights so long as an Event
of Default has occurred and is continuing.
<PAGE>
9
ARTICLE III
Representations, Warranties and Covenants
-----------------------------------------
The Pledgors jointly and severally represent, warrant and covenant to
and with the Security Agent and the Lenders that:
(a) the Pledged Stock and Pledged Notes represent all the outstanding
capital stock of each Subsidiary that is a corporation and all the
outstanding indebtedness of each Subsidiary owed to the Borrower or to
another Subsidiary;
(b) the Pledged Stock has been duly and validly authorized and issued
by the issuers thereof and is fully paid and nonassessable;
(c) except for the security interest granted hereunder, each of the
Pledgors (i) is and will at all times continue to be the direct owner,
beneficially and of record, of the Pledged Securities indicated on Schedule
I to be owned by such Pledgor, (ii) holds the same free and clear of all
Liens (other than unperfected Liens imposed by law) or security interests
of any other Person, (iii) will make no assignment, pledge, hypothecation
or transfer of, or create any security interest in, the Collateral, other
than pursuant hereto, and (iv) subject to Section 2.04, will cause any and
all Collateral, whether for value paid by any Pledgor or otherwise, to be
forthwith deposited with the Security Agent and pledged or assigned
hereunder;
(d) except for restrictions and limitations imposed by securities laws
generally, the Collateral pledged hereunder is and will be freely
transferable and assignable, and no portion of such Collateral is or will
be subject to any option, right of first refusal, shareholders agreement,
charter or by-law provision,
<PAGE>
10
partnership agreement restriction or other contractual restriction of any
nature which might prohibit, impair, delay or otherwise affect the pledge
of such Collateral hereunder, the sale or disposition of the Collateral
pursuant hereto after the occurrence of an Event of Default or the exercise
by the Security Agent of its rights and remedies hereunder;
(e) each of the Pledgors (i) has the power and authority to pledge the
Collateral pledged by it hereunder in the manner hereby done or
contemplated and (ii) will defend its title or interest thereto or therein
against any and all Liens (other than the Lien of this Agreement), however
arising, of all persons whomsoever;
(f) no consent or approval of any Governmental Authority or any
securities exchange was or is necessary to the validity of the pledge
effected hereby;
(g) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities, certificates, instruments or other
documents representing or evidencing the Collateral are delivered to the
Security Agent in accordance with this Agreement, the Security Agent will
obtain a legal, valid and perfected first priority security interest in the
Pledged Securities as security for the payment and performance of the
Obligations; and
(h) the pledge effected hereby is effective to vest in the Security
Agent, on behalf of the Secured Parties, the rights of the Security Agent
in the Collateral as set forth herein.
<PAGE>
11
ARTICLE IV
Remedies
--------
SECTION 4.01. Remedies upon Default. If an Event of Default shall
---------------------
have occurred and be continuing, the Security Agent may exercise, to the extent
permitted by law, all the rights of a secured party under the Uniform Commercial
Code of the State of New York (whether or not the Code is in effect in the
jurisdiction where such rights are exercised) and, in addition, the Security
Agent may, without being required to give any notice, except as herein provided
or as may be required by mandatory provisions of law, sell the Collateral, or
any part thereof, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Security Agent shall deem appropriate. The Security Agent shall be authorized
at any such sale (if it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Security Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and each Pledgor hereby waives (to the extent
permitted by law) all rights of redemption, stay, valuation and appraisal which
such Pledgor now has or may at any time in the future have under any rule of law
or statute now existing or hereafter enacted.
The Security Agent shall give each Pledgor at least 10 days' prior
written notice (which each Pledgor agrees is reasonable notice within the
meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the
State of New York or its equivalent in other jurisdictions) of the Security
Agent's intention to make any sale of Collateral owned by such Pledgor. Such
notice, in
<PAGE>
12
the case of a public sale, shall state the time and place for such sale and, in
the case of a sale at a broker's board or on a securities exchange, shall state
the board or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange and, in the case of a private sale, shall state the time after which
any such sale is to be made. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places as the Security
Agent may fix and state in the notice of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Security Agent may (in its sole and absolute
discretion) determine. The Security Agent shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. The Security
Agent may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by the Security Agent until the sale price is
paid in full by the purchaser or purchasers thereof, but the Security Agent
shall not incur any liability in case any such purchaser or purchasers shall
fail to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may be sold again upon like notice. At any public sale
made pursuant to this Section any Secured Party may bid for or purchase, free
(to the extent permitted by law) from any right of redemption, stay, valuation
or appraisal on the part of any Pledgor (all said rights being also hereby
waived and released to the extent permitted by law), the Collateral or any part
thereof offered for sale and may make payment on account thereof by using any
Obligation then due and payable to it from any Pledgor as a credit against the
purchase price, and the Security Agent
<PAGE>
13
may, upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to any Pledgor therefor. For purposes
hereof, a written agreement to purchase the Collateral or any portion thereof
shall be treated as a sale thereof; the Security Agent shall be free to carry
out such sale pursuant to such agreement, and none of the Pledgors shall be
entitled to the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Security Agent shall have entered into
such an agreement all Events of Default shall have been remedied and the
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Security Agent may proceed by a suit or suits at
law or in equity to foreclose this Agreement and to sell the Collateral or any
portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver.
SECTION 4.02. Application of Proceeds of Sale. The proceeds of any
--------------------------------
sale of Collateral pursuant to Section 4.01, as well as any Collateral
consisting of cash, shall be applied by the Security Agent as follows:
FIRST: to the payment of all costs and expenses incurred by the Agent
or the Security Agent (in its capacity as such hereunder or under any other
Loan Document) in connection with such sale or otherwise in connection with
this Agreement or any of the Obligations, including all court costs and the
fees and expenses of its agents and legal counsel, the repayment of all
advances made by the Security Agent hereunder or under any other Loan
Document on behalf of any of the Pledgors and any other costs or expenses
incurred in connection with the exercise of any right or remedy hereunder
or under any other Loan Document;
SECOND: to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts
<PAGE>
14
of the Obligations owed to them on the date of any such distribution); and
THIRD: to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Security Agent shall have absolute discretion as to the time of application
of any such proceeds, moneys or balances in accordance with this Agreement.
Upon any sale of the Collateral by the Security Agent (including pursuant to a
power of sale granted by statute or under a judicial proceeding), the receipt of
the Security Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Security Agent or such officer or be
answerable in any way for the misapplication thereof.
SECTION 4.03. Securities Act, etc. In view of the position of the
--------------------
Pledgors in relation to the Pledged Securities, or because of other present or
future circumstances, a question may arise under the Securities Act of 1933, as
now or hereafter in effect, or any similar statute hereafter enacted analogous
in purpose or effect (such Act and any such similar statute as from time to time
in effect being called the "Federal Securities Laws") with respect to any
-----------------------
disposition of the Pledged Securities permitted hereunder. The Pledgors
understand that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Security Agent if the Security Agent were to
attempt to dispose of all or any part of the Pledged Securities, and might also
limit the extent to which or the manner in which any subsequent transferee of
any Pledged Securities could dispose of the same. Similarly, there may be other
legal restrictions or limitations affecting the Security Agent in any attempt to
dispose of all or part of the Pledged Securities under applicable Blue Sky or
other state securities laws or
<PAGE>
15
similar laws analogous in purpose or effect. The Pledgors recognize that in
light of the foregoing restrictions and limitations the Security Agent may, with
respect to any sale of Pledged Securities, limit the purchasers to those who
will agree, among other things, to acquire Pledged Securities for their own
account, for investment, and not with a view to the distribution or resale
thereof. The Pledgors acknowledge and agree that in light of the foregoing
restrictions and limitations, the Security Agent, in its sole and absolute
discretion, (a) may proceed to make such a sale whether or not a registration
statement for the purpose of registering the Pledged Securities or part thereof
shall have been filed under the Federal Securities Laws, and (b) may approach
and negotiate with a single possible purchaser to effect such sale. The Pledgors
acknowledge and agree that any such sale might result in prices and other terms
less favorable to the seller than if such sale were a public sale without such
restrictions. In the event of any such sale, the Security Agent shall incur no
responsibility or liability for selling all or any part of the Pledged
Securities at a price which the Security Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions of this Section
will apply notwithstanding the existence of a public or private market upon
which the quotations or sales prices may exceed substantially the price at
which the Security Agent sells.
SECTION 4.04. Registration, etc. Each of the Pledgors agrees that,
------------------
upon the occurrence and during the continuance of an Event of Default, if for
any reason the Security Agent desires to sell any of the Pledged Securities at a
public sale, it will, at any time and from time to time, upon the written
request of the Security Agent, take or cause the issuer of such Pledged
Securities to take such action and prepare, distribute and/or file such
documents, as are required or advisable in the reasonable opinion of
<PAGE>
16
counsel for the Security Agent to permit the public sale of such Pledged
Securities. Each of the Pledgors jointly and severally agrees to (a) indemnify,
defend and hold harmless the Security Agent, the other Secured Parties and their
respective officers, directors, affiliates and controlling persons from and
against all losses, liabilities, expenses, costs (including the reasonable fees
and expenses of legal counsel to the Security Agent and the Agent) and claims
(including the costs of investigation) which they may incur insofar as any such
loss, liability, expense, cost or claim arises out of or is based upon any
alleged untrue statement of a material fact contained in any prospectus,
offering circular or similar document (or any amendment or supplement thereto),
or arises out of or is based upon any alleged omission to state a material fact
required to be stated therein or necessary to make the statements in any thereof
not misleading, except insofar as the same may have been caused by any untrue
statement or omission based upon information furnished in writing to any Pledgor
or the issuer of such Pledged Securities by the Security Agent or any other
Secured Party expressly for use therein, and (b) enter into an indemnification
agreement with any underwriter of or placement agent for any Pledged Securities,
on its standard form, to substantially the same effect. Each of the Pledgors
further agrees to use all reasonable efforts to qualify, file or register, or
cause the issuer of such Pledged Securities to qualify, file or register, any of
the Pledged Securities under the Blue Sky or other securities laws of such
states as may be requested by the Security Agent and keep effective, or cause to
be kept effective, all such qualifications, filings or regis trations. The
Pledgors will jointly and severally bear all costs and expenses of carrying out
their obligations under this Section. The Pledgors acknowledge that there is no
adequate remedy at law for failure by them to comply with the provisions of this
Section and that such failure would not be adequately compensable in damages,
and therefore agree that their agreements contained in this Section may be
specifically enforced.
<PAGE>
17
ARTICLE V
Miscellaneous
-------------
SECTION 5.01. Notices. All communications and notices hereunder
--------
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 10.01 of the Credit Agreement. All communications and
notices hereunder to any Subsidiary Pledgor shall be given to it in care of the
Borrower at the address specified in the Credit Agreement for notices to the
Borrower thereunder.
SECTION 5.02. Security Interest Absolute. All rights of the Security
---------------------------
Agent hereunder, the security interests granted hereunder and all obligations of
the Pledgors hereunder shall be absolute and unconditional irrespective of (a)
any lack of validity or enforceability of the Credit Agreement or any other Loan
Document, any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Credit Agreement, any other Loan Document or any other agreement or
instrument, (c) any exchange, release or nonperfection of any Lien on other
collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Pledgor in respect of the
Obligations or this Agreement.
SECTION 5.03. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any Pledgor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and
<PAGE>
18
shall survive the making by the Lenders of the Loans, and the execution and
delivery to the Lenders of the Notes evidencing such Loans, regardless of any
investigation made by the Lenders or on their behalf, and shall continue in full
force and effect until this Agreement shall terminate.
SECTION 5.04. Binding Effect; Several Agreement. This Agreement
----------------------------------
shall become effective as to any Pledgor when a counterpart hereof executed on
behalf of such Pledgor shall have been delivered to the Security Agent and a
counterpart hereof shall have been executed on behalf of the Security Agent, and
thereafter shall be binding upon such Pledgor and the Security Agent and their
respective successors and assigns, and shall inure to the benefit of such
Pledgor, the Security Agent and the other Secured Parties and their respective
successors and assigns, except that no Pledgor shall have the right to assign
its rights hereunder or any interest herein or in the Collateral except as
expressly contemplated by this Agreement or the Credit Agreement. This
Agreement shall be construed as a separate agreement with respect to each
Pledgor and may be amended, modified, supplemented, waived or released with
respect to any Pledgor without the approval of any other Pledgor and without
affecting the obligations of any other Pledgor hereunder.
SECTION 5.05. Successors and Assigns. Whenever in this Agreement any
-----------------------
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Pledgor or the Security Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.
SECTION 5.06. Security Agent Appointed Attorney-in-Fact. Each of the
-----------------------------------------
Pledgors hereby appoints the Security Agent the attorney-in-fact of such Pledgor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument which the Security
<PAGE>
19
Agent may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, the Security Agent shall have the right, upon the
occurrence and during the continuance of an Event of Default, with full power of
substitution either in the Security Agent's name or in the name of any Pledgor,
to ask for, demand, sue for, collect, receive and give acquittance for any and
all moneys due or to become due under and by virtue of any Collateral, to
endorse checks, drafts, orders and other instruments for the payment of money
payable to such Pledgor representing any dividend or other distribution payable
in respect of the Collateral or any part thereof or on account thereof and to
give full discharge for the same, to settle, compromise, prosecute or defend any
action, claim or proceeding with respect thereto, and to sell, assign, endorse,
pledge, transfer and make any agreement respecting, or otherwise deal with, the
same; provided, however, that nothing herein contained shall be construed as
-------- -------
requiring or obligating the Security Agent to make any commitment or to make any
inquiry as to the nature or sufficiency of any payment received by the Security
Agent, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become due
in respect thereof or any property covered thereby, and no action taken by the
Security Agent or omitted to be taken with respect to the Collateral or any part
thereof shall give rise to any defense, counterclaim or offset in favor of any
Pledgor or to any claim or action against the Security Agent or any other
Secured Party.
SECTION 5.07. Security Agent's Fees and Expenses; Indemnification.
----------------------------------- ----------------
(a) Each of the Pledgors jointly and severally agrees to pay upon demand to the
Security Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents, which
the Security Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from
or other realization upon any of the
<PAGE>
20
Collateral, (iii) the exercise, enforcement or protection of any of the rights
of the Security Agent hereunder or (iv) the failure of the Pledgors to perform
or observe any of the provisions hereof.
(b) Without limitation of their indemnification obligations under the
other Loan Documents, each of the Pledgors jointly and severally agrees to
indemnify the Security Agent from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by the
Security Agent in connection with any investigative, administrative or judicial
proceeding relating hereto or to the Collateral, whether or not the Security
Agent is a party thereto; provided that the Security Agent shall not have the
--------
right to be indemnified hereunder for its own gross negligence or wilful
misconduct as determined by a court of competent jurisdiction.
(c) Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security Documents. The
provisions of this Section shall remain operative and in full force and effect
regardless of the termination of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the Loans, the
invalidity or unenforceability of any term or provision of this Agreement or any
other Loan Document, or any investigation made by or on behalf of the Security
Agent or any Lender. All amounts due under this Section shall be payable on
written demand therefor.
SECTION 5.08. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
--------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 5.09. Waivers; Amendment. (a) No failure or delay of the
-------------------
Security Agent in exercising any power or right hereunder shall operate as a
waiver thereof,
<PAGE>
21
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Security Agent hereunder and of
the Security Agent, the Agent and the Lenders under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provisions of this Agreement or any other Loan
Document or consent to any departure by any Pledgor therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on any Pledgor in any case
shall entitle such Pledgor or any other Pledgor to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Security Agent and the Pledgor or Pledgors with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 10.05 of the Credit Agreement.
SECTION 5.10. Waiver of Jury Trial. Each of the parties hereto
---------------------
irrevocably waives any and all rights to trial by jury in any legal proceeding
arising out of or relating to this Agreement or any other Loan Document or the
transactions contemplated hereby.
SECTION 5.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal
<PAGE>
22
or unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 5.12 Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract (subject to Section 5.04),
and shall become effective as provided in Section 5.04.
SECTION 5.13. Headings. Article and Section headings used herein are
---------
for convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 5.14. Jurisdiction; Consent to Service of Process. (a) Each
----------------------------------- --------
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Security Agent or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against any
Pledgor or its properties in the courts of any jurisdiction.
<PAGE>
23
(b) Each Pledgor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 5.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 5.15. Termination. This Agreement and the security interests
------------
granted hereby shall terminate when all the Obligations (other than obligations
of the Borrower under Section 10.03(b) of the Credit Agreement, or any other
indemnification provisions contained in the Loan Documents, in respect of claims
which have not then been asserted) have been indefeasibly paid in full and the
Lenders have no further commitment to lend or to issue Letters of Credit under
the Credit Agreement, at which time the Security Agent shall reassign and
deliver to the Pledgors, at the Pledgors' expense and against receipt, such of
the Collateral as shall not have been sold or otherwise applied hereunder and
shall remain held by the Security Agent hereunder, together with such documents
as the Pledgors shall reasonably request to evidence such termination and
reassignment. Any such reassignment and any execution and delivery of documents
pursuant to this Section shall be without recourse to or warranty by the
Security Agent. Each Subsidiary Pledgor shall automatically be released from
its obligations hereunder and the security interest granted hereby in the
Collateral of such Subsidiary Pledgor shall be automatically released in the
event that all the capital stock of such Subsidiary Pledgor shall be sold,
transferred or otherwise
<PAGE>
24
disposed of to a person that is not an Affiliate of the Borrower in accordance
with the terms of the Credit Agreement; provided that the Required Lenders shall
--------
have consented to such sale, transfer or other disposition and the terms of such
consent did not provide otherwise.
SECTION 5.16. Additional Pledgors. Upon execution and delivery by
--------------------
the Security Agent and a Subsidiary of an instrument in the form of Annex I
hereto, such Subsidiary shall become a Subsidiary Pledgor and Pledgor hereunder
with the same force and effect as if originally named as a Subsidiary Pledgor
and Pledgor herein. The execution and delivery of any such instrument shall not
require the consent of any Pledgor hereunder. The rights and obligations of
each Pledgor hereunder shall remain in full force and effect notwithstanding the
addition of any new Pledgor as a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BRYLANE, L.P.,
by VGP CORPORATION, General
Partner,
by /s/ Mark J. Doran
--------------------------------
Name: Mark J. Doran
Title: Vice President, Treasurer
and Secretary
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as security
agent,
by __________________________________
Name:
Title:
<PAGE>
ANNEX 1 to
Pledge Agreement
SUPPLEMENT NO. dated as of _____________, to the Pledge
Agreement dated as of December 9, 1996 among BRYLANE, L.P., a
Delaware limited partnership (the "Borrower"), such subsidiaries
--------
of the Borrower that have become parties thereto pursuant to
Section 5.16 thereof (collectively, the "Subsidiary Pledgors";
-------------------
the Borrower and the Subsidiary Pledgors being collectively
called the "Pledgors"); and MORGAN GUARANTY TRUST COMPANY OF NEW
--------
YORK, as security agent (in such capacity, the "Security Agent")
--------------
for the Secured Parties, as defined therein.
A. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Pledge Agreement.
B. The Borrower and the Subsidiary Pledgors have entered into the
Pledge Agreement in order to induce the Lenders to extend credit under the
Credit Agreement. The Pledge Agreement provides that additional Subsidiaries
may become Subsidiary Pledgors under the Pledge Agreement by execution and
delivery of an instrument in the form of this Supplement. Pursuant to the
Credit Agreement, the undersigned Subsidiary (the "New Subsidiary Pledgor") is
required to become a Subsidiary Pledgor under the Pledge Agreement. The New
Subsidiary Pledgor desires to become a Subsidiary Pledgor and Pledgor under the
Pledge Agreement in order to induce the Lenders to continue to extend credit
under the Credit Agreement and as consideration therefor.
Accordingly, the Security Agent and the New Subsidiary Pledgor agree
as follows:
SECTION 1. (a) In accordance with the Pledge Agreement, the New
Subsidiary Pledgor by its signature hereto shall become a Subsidiary Pledgor and
Pledgor under
<PAGE>
2
the Pledge Agreement with the same force and effect as if originally named
therein as a Subsidiary Pledgor and Pledgor and the New Subsidiary Pledgor
hereby (i) agrees to all the terms and provisions of the Pledge Agreement
applicable to it as a Subsidiary Pledgor and Pledgor thereunder and (ii)
represents and warrants that the representations and warranties made by it as a
Subsidiary Pledgor and Pledgor thereunder are true and correct on and as of the
date hereof. In furtherance of the foregoing, the New Subsidiary Pledgor, as
security for the payment or performance, as the case may be, of the Obligations,
hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges,
hypothecates and transfers to the Security Agent, its successors and its
assigns, for the benefit of the Secured Parties, and hereby grants to the
Security Agent, its successors and its assigns, for the benefit of the Secured
Parties, a security interest in, all of the Subsidiary Pledgor's right, title
and interest in, to and under the Collateral. Each reference to a "Pledgor" or a
"Subsidiary Pledgor" in the Pledge Agreement shall be deemed to include the New
Subsidiary Pledgor. The Pledge Agreement is hereby incorporated herein by
reference.
(b) Attached hereto is a schedule identifying the Pledged Securities
included in the Collateral pledged by the New Subsidiary Pledgor hereunder,
which schedule supplements, and shall hereafter be deemed a part of, Schedule I
to the Pledge Agreement.
SECTION 2. This Supplement shall become effective when the Security
Agent shall have received a counterpart of this Supplement executed on behalf of
the New Subsidiary Pledgor.
SECTION 3. The New Subsidiary Pledgor hereby represents and warrants
that this Supplement has been duly authorized, executed and delivered by the New
Subsidiary Pledgor and constitutes a valid and binding obligation of the New
Subsidiary Pledgor, enforceable against it in accordance with its terms.
<PAGE>
3
SECTION 4. Except as expressly supplemented hereby, the Pledge
Agreement shall remain in full force and effect in accordance with its terms.
SECTION 5. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace any
invalid, illegal or unenforceable provisions herein with valid provisions, the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 7. This Supplement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
SECTION 8. The New Subsidiary Pledgor agrees to reimburse the
Security Agent for its reasonable out-of-pocket expenses in connection with this
Supplement, includ-
<PAGE>
4
ing the reasonable fees and expenses of counsel for the Security Agent.
IN WITNESS WHEREOF, the New Subsidiary Pledgor and the Security Agent
have duly executed this Supplement to the Pledge Agreement as of the day and
year first above written.
[NAME OF NEW SUBSIDIARY PLEDGOR],
by___________________________________
Title:
Address:___________________________
___________________________
___________________________
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Security Agent,
by___________________________________
Title:
<PAGE>
EXHIBIT 10.15
[Form of]
TRANCHE A TERM NOTE
New York, New York
December 9, 1996
For value received, BRYLANE, L.P., a Delaware limited partnership (the
"Borrower"), promises to pay to the order of (the
"Lender"), for the account of its Applicable Lending Office, (i) on each
Quarterly Payment Date on which a payment of principal is due in respect of
Tranche A Term Loans pursuant to the Credit Agreement referred to below, the
unpaid principal amount of Tranche A Term Loans of the Lender due and payable to
the Lender on such Quarterly Payment Date, as provided in the Credit Agreement,
and (ii) on the Tranche A Maturity Date, the aggregate unpaid principal amount
of Tranche A Term Loans of the Lender. The Borrower also promises to pay
interest on the unpaid principal amount of each such Tranche A Term Loan on the
dates and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Morgan
Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Tranche A Term Loans made by the Lender and all repayments of the
principal of any such Tranche A Term Loans shall be recorded by the Lender and,
prior to any transfer hereof, appropriate notations to evidence the foregoing
information with respect to each such Tranche A Term Loan then outstanding shall
be endorsed by the Lender on the schedule attached hereto, or on a continuation
of such schedule attached to and made a part hereof; provided that the failure
--------
of the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under any of the other Loan Documents.
<PAGE>
2
This note is one of the Notes referred to in the Credit Agreement
dated as of December , 1996 among the Borrower, the Lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New York, as
Administrative Agent, and Merrill Lynch Capital Corporation, as Documentation
Agent (as the same may be amended from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the mandatory and
optional prepayment hereof and the acceleration of the maturity hereof.
Notwithstanding any contrary provision of the Credit Agreement or any
other Loan Document, it is expressly agreed that the Agent, the Security Agent,
the Issuing Bank and each Lender shall look solely to the assets of the Borrower
(and of any Subsidiary party to the Guarantee Agreement or any Security
Document) for the payment and performance of the obligations of the Borrower
hereunder and thereunder, without recourse against any partner in the Borrower
or any assets of such partner on account of such obligations.
BRYLANE, L.P.,
by VGP CORPORATION, General
Partner,
by
_____________________________________
Title:
<PAGE>
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Class Amount Amount of Unpaid
of of Principal Principal Notations
Date Loan Loan Repaid Balance Made by
- ------- ----- ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 10.16
[Form of]
TRANCHE B TERM NOTE
New York, New York
December 9, 1996
For value received, BRYLANE, L.P., a Delaware limited partnership (the
"Borrower"), promises to pay to the order of (the
"Lender"), for the account of its Applicable Lending Office, (i) on each
Quarterly Payment Date on which a payment of principal is due in respect of
Tranche B Term Loans pursuant to the Credit Agreement referred to below, the
unpaid principal amount of Tranche B Term Loans of the Lender due and payable to
the Lender on such Quarterly Payment Date, as provided in the Credit Agreement,
and (ii) on the Tranche B Maturity Date, the aggregate unpaid principal amount
of Tranche B Term Loans of the Lender. The Borrower also promises to pay
interest on the unpaid principal amount of each such Tranche B Term Loan on the
dates and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Morgan
Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Tranche B Term Loans made by the Lender and all repayments of the
principal of any such Tranche B Term Loans shall be recorded by the Lender and,
prior to any transfer hereof, appropriate notations to evidence the foregoing
information with respect to each such Tranche B Term Loan then outstanding shall
be endorsed by the Lender on the schedule attached hereto, or on a continuation
of such schedule attached to and made a part hereof; provided that the failure
--------
of the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under any of the other Loan Documents.
<PAGE>
1
This note is one of the Notes referred to in the Credit Agreement
dated as of December , 1996 among the Borrower, the Lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New York, as
Administrative Agent and Merrill Lynch Capital Corporation, as Documentation
Agent (as the same may be amended from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the mandatory and
optional prepayment hereof and the acceleration of the maturity hereof.
Notwithstanding any contrary provision of the Credit Agreement or any
other Loan Document, it is expressly agreed that the Agent, the Security Agent,
the Issuing Bank and each Lender shall look solely to the assets of the Borrower
(and of any Subsidiary party to the Guarantee Agreement or any Security
Document) for the payment and performance of the obligations of the Borrower
hereunder and thereunder, without recourse against any partner in the Borrower
or any assets of such partner on account of such obligations.
BRYLANE, L.P.,
by VGP CORPORATION, General
Partner,
by
______________________
Title:
<PAGE>
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Class Amount Amount of Unpaid
of of Principal Principal Notations
Date Loan Loan Repaid Balance Made by
- ------- ----- ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 10.17
GUARANTEE AGREEMENT dated as of December 9, 1996, among the
subsidiaries of BRYLANE L.P., a Delaware limited partnership
("Brylane"), listed on Schedule I hereto and such other
---------
subsidiaries as shall become parties hereto pursuant to Section
15 hereof (such listed and other subsidiaries of Brylane being
referred to herein individually as a "Guarantor" and collectively
---------
as the "Guarantors"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
----------
as administrative agent (the "Agent") for the lenders (the
-----
"Lenders") and the Issuing Banks (as defined in the Credit
--------
Agreement) party to the Credit Agreement dated as of December 9,
1996 (as amended from time to time, the "Credit Agreement") among
----------------
Brylane, the Lenders, the Agent and MERRILL LYNCH CAPITAL
CORPORATION, as Documentation Agent (the "Documentation Agent").
-------------------
The Lenders have respectively agreed to make loans to Brylane, and the
Issuing Banks (such term and the other capitalized terms used herein and not
otherwise defined herein having the meanings assigned to them in the Credit
Agreement) have agreed to issue the Letters of Credit for the account of
Brylane. The obligations of the Lenders to lend, and of the Issuing Bank to
issue Letters of Credit, under the Credit Agreement are conditioned on, among
other things, the execution and delivery by the Guarantors of a guarantee
agreement in the form hereof. As Subsidiaries of Brylane, the Guarantors
acknowledge that they will derive substantial benefits from the extension of
credit to Brylane under the Credit Agreement. As consideration therefor and in
order to induce the Lenders to make Loans and to induce the Issuing Banks to
issue Letters of Credit, the Guarantors are willing to execute and deliver this
Agreement.
Accordingly, the parties hereto agree as follows:
<PAGE>
SECTION 1. Each of the Guarantors unconditionally and irrevocably
Guarantees, jointly with the other Guarantors and severally, as a primary
obligor and not merely as a surety, (a) the due and punctual payment by Brylane
of (i) the principal of and interest on the Loans, when and as due, whether at
maturity, by acceleration, upon one or more dates set for repayment or
otherwise; (ii) each payment required to be made by Brylane under Section 2.13
of the Credit Agreement in respect of any Letter of Credit Disbursement, when
and as due, including interest thereon, if any; (iii) all other monetary
obligations of Brylane to the Lenders, the Issuing Banks, the Agent, the
Security Agent and the Documentation Agent under the Credit Agreement and the
other Loan Documents to which Brylane is or is to be a party; and (iv) each
payment required to be made by Brylane under any Rate Protection Agreement that
was entered into by Brylane with a counterparty that was a Lender at the time
such Rate Protection Agreement was entered into; (b) the due and punctual
performance of all other obligations of Brylane under the Credit Agreement, the
other Loan Documents and any Rate Protection Agreement referred to in clause;
(iv) above; and (c) the due and punctual payment and performance of all
obligations of each Subsidiary under the Loan Documents to which it is or is to
be a party (all the foregoing obligations being collectively called the
"Obligations"). Each of the Guarantors further agrees that the Obligations may
-----------
be extended or renewed, in whole or in part, without notice to or further assent
from it, and it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Obligation.
SECTION 2. Each of the Guarantors waives presentment to, demand of
payment from and protest to Brylane or any Subsidiary of any of the Obligations,
and also waives notice of acceptance of its guarantee and notice to protest for
nonpayment. The obligations of each Guarantor hereunder shall not be affected
by (a) the failure of the Agent, the Security Agent, the Documentation Agent,
the Issuing Banks or any Lender to assert any claim or demand or to enforce any
right or remedy against Brylane or
2
<PAGE>
any Subsidiary under the provisions of any Loan Document or otherwise; (b) any
rescission, waiver, amendment or modification of, or any release from any of the
terms or provisions of, any Loan Document, any guarantee or any other agreement,
including with respect to any other Guarantor under this Agreement; (c) the
release of any security held by the Agent, the Security Agent, the Documentation
Agent, the Issuing Bank or any Lender for the Obligations of any of them; or (d)
the failure of the Agent, the Security Agent, the Documentation Agent, the
Issuing Banks or any Lender to exercise any right or remedy against any other
Guarantor or guarantor of the Obligations.
SECTION 3. Each of the Guarantors further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection, and
waives any right to require that the resort be had by the Agent, the Security
Agent, the Documentation Agent, the Issuing Banks or any Lender to any security
held for payment of the Obligations or to any balance of any deposit account or
credit on the books of the Agent, the Security Agent, the Documentation Agent,
the Issuing Banks or any Lender in favor of Brylane or any other person.
SECTION 4. The obligations of each Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise. Without
limiting the generality of the foregoing, the obligations of each Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Agent, the Security Agent, the Documentation Agent, the Issuing
Bank or any Lender to assert any claim or demand or to enforce any remedy under
any Loan Document, any guarantee or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, wilful or
otherwise, in the
3
<PAGE>
performance of the Obligations, or by any other act or omission which may or
might in any manner or to any extent vary the risk of any Guarantor as a matter
of law or equity (other than the indefeasible payment in full of all the
Obligations).
SECTION 5. Each of the Guarantors further agrees that its guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the Agent, the Security Agent, the Documentation Agent,
the Issuing Banks or any Lender upon the bankruptcy or reorganization of
Brylane, any Guarantor or otherwise.
SECTION 6. In furtherance of the foregoing and not in limitation of
any other right which the Agent, the Security Agent, the Documentation Agent,
the Issuing Banks or any Lender has at law or in equity against any Guarantor by
virtue hereof, upon the failure of Brylane or any Subsidiary to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of repayment or otherwise, each of the Guarantors
hereby promises to and will, upon receipt of written demand by the Agent,
forthwith pay, or cause to be paid, to the Agent for distribution to the
Lenders, the Issuing Banks, the Documentation Agent and the Security Agent, if
and as appropriate, in cash the amount of such unpaid Obligation. Each Guarantor
hereby waives any claim, right or remedy which such Guarantor may now have or
hereafter acquire against Brylane or any other subsidiary that arises hereunder,
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of such Guarantor against Brylane or any other
Subsidiary whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise. If any amount shall
erroneously be paid to any Guarantor on account of such subrogation,
contribution, reimbursement, indemnity and similar rights,
4
<PAGE>
such amount shall be held in trust for the benefit of the Lenders and shall
forthwith be paid to the Agent to be credited and applied to the payment of the
Obligations. Any term or provision of this Agreement to the contrary
notwithstanding, the maximum aggregate amount of the Obligations guaranteed
hereunder by any Guarantor shall not exceed the maximum amount that can be
hereby guaranteed by the Guarantor without rendering this Agreement, as it
relates to such Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
SECTION 7. Each of the Guarantors jointly and severally represents
and warrants that all representations and warranties contained in the Credit
Agreement which relate to the Guarantors are true and correct.
SECTION 8. The guarantees made hereunder shall survive and be in full
force and effect so long as any Obligation is outstanding and has not been
indefeasibly paid and so long as the Lenders have any further commitment to lend
or any Issuing Bank has any further obligation to issue Letters of Credit under
the Credit Agreement or any Letter of Credit is outstanding, and shall be
reinstated to the extent provided in Section 5. Each Guarantor shall be
released from its guarantee hereunder in the event that all the capital stock of
such Guarantor shall be sold, transferred or otherwise disposed of, in
accordance with the terms of the Credit Agreement, by Brylane or a Subsidiary
that shall own such stock, to a person that is not an Affiliate of Brylane, if
the Required Lenders shall have consented to such sale, transfer or other
disposition (and if the terms of any such consent shall not provide otherwise).
SECTION 9. This Agreement and the terms, covenants and conditions
hereof shall be binding upon each Guarantor and its successors and shall inure
to the benefit of the Agent, the Security Agent, the Documentation Agent, the
Issuing Banks and the Lenders and their respective
5
<PAGE>
successors and assigns. None of the Guarantors shall be permitted to assign or
transfer any of its rights or obligations under this Agreement, except as
expressly contemplated by this Agreement or the Credit Agreement.
SECTION 10. No failure on the part of the Agent to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Agent, the Security Agent, the Documentation Agent, the
Issuing Banks or any Lender preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder and
under the other Loan Documents are cumulative and are not exclusive of any other
remedies provided by law. Except as provided in the Credit Agreement, none of
the Agent, the Security Agent, the Documentation Agent, the Issuing Banks or the
Lenders shall be deemed to have waived any rights hereunder or under any other
agreement or instrument unless such waiver shall be in writing and singed by
such parties.
SECTION 11. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 12. All communications and notices hereunder shall be in
writing and given as provided in Section 10.01 of the Credit Agreement. All
communications and notices hereunder to any Guarantor shall be given to it in
care of Brylane at the address specified in the Credit Agreement for notices to
Brylane thereunder.
SECTION 13. In case any one or more of the provisions contained in
this Agreement should be held invalid, illegal or unenforceable in any respect
with respect to any Guarantor, no party hereto shall be required to comply with
such provision with respect to such Guarantor for so long as such provision is
held to be invalid, illegal or unenforceable and the validity, legality and
6
<PAGE>
enforceability of the remaining provisions contained herein, and of such
provision with respect to any other Guarantor, shall not in any way be affected
or impaired. The parties shall endeavor in good-faith negotiations to replace
any invalid, illegal or unenforceable provisions with valid provisions, the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 14. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument; provided that this
--------
Agreement shall be construed as a separate agreement with respect to each
Guarantor and may be amended, modified, supplemented, waived or released with
respect to any Guarantor without the approval of any other Guarantor and without
affecting the obligations of any other Guarantor hereunder. This Agreement
shall be effective with respect to any Guarantor when a counterpart which bears
the signature of such Guarantor shall have been delivered to the Agent.
SECTION 15. Upon execution and delivery by the Agent and a Subsidiary
of an instrument in the form of Annex 1 attached hereto, such Subsidiary shall
become a Guarantor hereunder with the same force and effect as if originally
named as Guarantor herein. The execution and delivery of any such instrument
shall not require the consent of any other Guarantor hereunder. The rights and
obligations of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BRYLANE CAPITAL CORP., as a
Guarantor,
by /s/ Peter J. Canzone
--------------------------------------------
Name: Peter J. Canzone
Title: President and Chief Executive Officer
7
<PAGE>
B.L. CATALOG DISTRIBUTION,
INC., as a Guarantor,
by /s/ Peter J. Canzone
--------------------------------------------
Name: Peter J. Canzone
Title: President and Chief Executive Officer
B.L. CATALOG DISTRIBUTION
PARTNERSHIP, as a Guarantor,
by B.L. CATALOG DISTRIBUTION
INC., General Partner,
by /s/ Peter J. Canzone
--------------------------------------------
Name: Peter J. Canzone
Title: President and Chief Executive Officer
B.L. MANAGEMENT SERVICES,
INC., as a Guarantor,
by /s/ Peter J. Canzone
--------------------------------------------
Name: Peter J. Canzone
Title: President and Chief Executive Officer
8
<PAGE>
B.L. MANAGEMENT SERVICES
PARTNERSHIP, as a Guarantor,
by B.L. MANAGEMENT SERVICES,
INC., General Partner,
by /s/ Peter J. Canzone
--------------------------------------------
Name: Peter J. Canzone
Title: President and Chief Executive Officer
by B.N.Y. SERVICE CORP.,
General Partner,
by /s/ Robert A. Pulciani
--------------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
B.N.Y. SERVICE CORP., as a
Guarantor,
by /s/ Robert A. Pulciani
--------------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
9
<PAGE>
K.S. MANAGEMENT SERVICES,
INC.,
by /s/ Robert A. Pulciani
--------------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
C.O.B. MANAGEMENT SERVICES,
INC., as a Guarantor,
by /s/ Robert A. Pulciani
--------------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
CHADWICK'S TRADENAME SUB,
INC., as a Guarantor,
by /s/ Robert A. Pulciani
--------------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
administrative agent,
by
___________________________
Name:
Title:
10
<PAGE>
SUPPLEMENT NO. 1 dated as of , to the Guarantee
Agreement dated as of December , 1996 (as amended and
supplemented through the date hereof, the "Guarantee Agreement"),
-------------------
among the subsidiaries of BRYLANE, L.P., a Delaware limited
partnership ("Brylane"), party thereto (such subsidiaries of
-------
Brylane being referred to herein individually as a "Guarantor"
---------
and collectively as the "Guarantors"), MORGAN GUARANTY TRUST
----------
COMPANY OF NEW YORK, as administrative agent (the "Agent") for
-----
the lenders (the "Lenders") and the Issuing Lender (as defined in
-------
the Credit Agreement) party to the Credit Agreement dated as of
December 9, 1996 (as amended from time to time, the "Credit
------
Agreement") among Brylane, the Lenders, the Agent and MERRILL
---------
LYNCH CAPITAL CORPORATION, as Documentation Agent (the
"Documentation Agent").
--------------------
A. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Guarantee Agreement.
B. The Guarantors have entered into the Guarantee Agreement in order
to induce the Lenders to extend credit under the Credit Agreement. The
Guarantee Agreement provides that additional Subsidiaries may become Guarantors
under the Guarantee Agreement by execution and delivery of an instrument in the
form of this Supplement. Pursuant to the Credit Agreement, the undersigned
Subsidiary (the "New Guarantor") is required to become a Guarantor under the
-------------
Guarantee Agreement. The New Guarantor desires to become a Guarantor under the
Guarantee Agreement in order to induce the Lenders to continue to extend credit
under the Credit Agreement and as consideration therefor.
<PAGE>
Accordingly, the Agent and the New Guarantor agree as follows:
SECTION 1. In accordance with the Guarantee Agreement, the New
Guarantor by its signature hereto shall become a Guarantor under the Guarantee
Agreement with the same force and effect as if originally named therein as a
Guarantor and the New Guarantor hereby (a) agrees to all the terms and
provisions of the Guarantee Agreement applicable to it as a Guarantor thereunder
and (b) represents and warrants that the representations and warranties made by
it as a Guarantor thereunder are true and correct on and as of the date hereof.
In furtherance of the foregoing, the New Guarantor unconditionally guarantees,
jointly with the other Guarantors and severally, as a primary obligor and not
merely as surety, all of the Obligations. Each reference to a "Guarantor" in the
Guarantee Agreement shall be deemed to include the New Guarantor. The Guarantee
Agreement is hereby incorporated herein by reference.
SECTION 2. This Supplement shall become effective when the Agent
shall have received a counterpart of this Supplement executed on behalf of the
New Guarantor.
SECTION 3. The New Guarantor hereby represents and warrants that this
Supplement has been duly authorized, executed and delivered by the New Guarantor
and constitutes a valid and binding obligation of the New Guarantor, enforceable
against it in accordance with its terms.
SECTION 4. Except as expressly supplemented hereby, the Guarantee
Agreement shall remain in full force and effect in accordance with its terms.
SECTION 5. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
2
<PAGE>
SECTION 6. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith negotiations to
replace any invalid, illegal or unenforceable provisions herein with valid
provisions, the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 7. This Supplement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
3
<PAGE>
SECTION 8. The New Guarantor agrees to reimburse the Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees and expenses of counsel for the Agent.
IN WITNESS WHEREOF, the New Guarantor and the Agent have duly executed
this Supplement to the Guarantee Agreement as of the day and year first above
written.
[New Guarantor],
by
_______________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent,
by
________________________
Title:
4
<PAGE>
EXHIBIT 10.18
TRADEMARK COLLATERAL AGREEMENT dated as of December 9, 1996,
among LANCO, INC., a Delaware corporation ("Lanco"), LERNCO,
-----
INC., a Delaware corporation ("Lernco"), LIMITED STORES, INC., a
------
Delaware corporation ("Limited Stores"), LERNER STORES, INC., a
--------------
Delaware corporation ("Lerner Stores"), LANE BRYANT, INC., a
Delaware corporation ("Lane Bryant" and, together with Lanco,
-----------
Lernco, Limited Stores and Lerner Stores, the "Licensors"), and
---------
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as security agent (in
such capacity, the "Security Agent") for the lenders (the
--------------
"Lenders") party to the Credit Agreement dated as of December 9,
--------
1996 (as the same may be amended from time to time, the "Credit
------
Agreement"), among BRYLANE, L.P., a Delaware limited partnership
---------
(the "Borrower"), the Lenders, MORGAN GUARANTY TRUST COMPANY OF
--------
NEW YORK, as administrative agent (the "Agent") and MERRILL LYNCH
-----
CAPITAL CORPORATION, as documentation agent (the "Documentation
-------------
Agent"). The Security Agent, the Lenders, the Agent, the
-----
Documentation Agent and the Issuing Banks (as defined in the
Credit Agreement) are hereinafter called the "Secured Parties".
---------------
Preliminary Statement
---------------------
The Licensors and Lane Bryant Direct Holding, Inc., a Delaware
corporation, which is the successor by merger to Lane Bryant Direct, Inc. and
Lerner Direct Holding, Inc., which, in turn, is the successor by merger to
Lerner Direct, Inc. ("Lane Bryant Direct Holding" or the "Licensee"), are
-------------------------- --------
parties to a Trademark License Agreement dated as of August 20, 1993 (as amended
from time to time, and as specifically amended by Amendment No. 1 to the
<PAGE>
Trademark License Agreement, dated as of December 9, 1996, the "License
-------
Agreement"). The rights of the Licensee under the License Agreement were
- ---------
assigned to the Borrower pursuant to the Transaction Agreement dated as of July
13, 1993 (as amended from time to time, the "Transaction Agreement") pursuant to
---------------------
the execution by Borrower of an Agreement To Be Bound substantially in the form
of Appendix II to the License Agreement. The Secured Parties have made and/or
may make, pursuant to the Credit Agreement or otherwise, one or more loans,
advances and/or other financial accommodations to the Borrower (the
"Obligations"), to be guaranteed by subsidiaries of the Borrower and secured in
-----------
whole or in part pursuant to one or more agreements, instruments and other
documents (as the same may be amended from time to time, the "Security
--------
Documents") granting security interests in and liens on certain assets of the
- ---------
Borrower and its subsidiaries. The assets of the Borrower to be assigned and
pledged under the Security Documents will include the rights of the Borrower
under the License Agreement (the "Trademark Collateral"). The obligations of the
--------------------
Lenders to extend credit under the Credit Agreement are conditioned upon, among
other things, the execution and delivery by the parties hereto of an agreement
in the form hereof.
Accordingly, the parties hereto agree as follows:
1. Acknowledgement. (a) The Licensors and The Limited, Inc. ("The
---------------- ---
Limited") hereby acknowledge and consent to the assignment, pledge, transfer and
- -------
grant to the Security Agent of a continuing security interest in, and a lien
upon, the Trademark Collateral in the manner and for the purposes provided in
the Security Documents. The Licensors and The Limited also acknowledge receipt
of copies of the Security Documents and, subject to the terms of this Agreement,
hereby consent to all of the terms and provisions of the Security Documents
relating to the
2
<PAGE>
Trademark Collateral and to the exercise by the Security Agent of the rights,
remedies, powers and privileges granted to the Security Agent under the Security
Documents relating to the Trademark Collateral in accordance with the terms
thereof as now or at any time hereafter in effect.
(b) The Licensors and The Limited agree that, in the event of a
foreclosure by the Security Agent of its security interest in the Trademark
Collateral (or an outright assignment by the Borrower in lieu of foreclosure)
(any of the foregoing events, a "Foreclosure Event"), the Security Agent or any
-----------------
third party that acquires rights in the Trademark Collateral shall become, and
shall have all the rights and interests of, the Licensee under the License
Agreement (a "Successor Licensee"), without any requirement for any consent or
------------------
other action by any Licensor or The Limited; provided that the Security Agent or
--------
such third party shall execute an Agreement To Be Bound substantially in the
form of Appendix II to the License Agreement; and provided further that such
----------------
Agreement To Be Bound shall not require the Security Agent or such third party
to assume, and the Security Agent or such third party shall not be bound by, any
liability or obligation in respect of events occurring prior to the Security
Agent or such third party becoming a Successor Licensee, including, without
limitation, any liability for a breach of the License Agreement by the Borrower
occurring while the Borrower was the Licensee.
2. Termination Provisions. (a) Except as otherwise provided in this
----------------------
Section 2, (i) the provisions of Section 6.1(a) of the License Agreement shall
not be affected by the granting by the Borrower to the Security Agent of a
security interest in the Trademark Collateral and (ii) the exercise by the
Security Agent of any right, remedy, power or privilege under the Security
Documents shall be subject to the provisions of Section 6.1(a) of the License
Agreement.
(b) Notwithstanding anything to the contrary set forth in the License
Agreement (and except as provided in Section 2(c) hereof), the original 20-year
term of the License Agreement and each License granted thereunder, as
3
<PAGE>
specified in clause (i) of Section 6.1(a) of the License Agreement, shall not be
affected by any event specified in clause (ii), (iii) or (iv) of Section 6.1(a)
of the License Agreement, unless such event occurs prior to the occurrence of a
Foreclosure Event and without causing any Default or Event of Default (each as
defined in the Credit Agreement) under the Credit Agreement as such Credit
Agreement is now in effect.
(c) Notwithstanding paragraph (b) above, upon and after the
occurrence of a Foreclosure Event, the early termination provisions set forth in
clause (iii) of Section 6.1(a) of the License Agreement shall apply if the
Successor Licensee is or (by virtue of an acquisition, merger, consolidation or
other business combination or otherwise) becomes a person or entity which
competes with any retail or catalogue business conducted by The Limited or any
of its affiliates on the date hereof, determined as provided in the Trademark
Agreement.
(d) Notwithstanding anything to the contrary set forth in the License
Agreement (and except as otherwise provided in Section 2(e) hereof), The Limited
shall not exercise its right to terminate the License Agreement or any License
granted thereunder pursuant to clause (3) of Section 6.1(b) of the License
Agreement, unless the Obligations have been finally and indefeasibly paid in
full and a Foreclosure Event shall not have occurred.
(e) Following the occurrence of a Foreclosure Event, the License
Agreement or any License granted thereunder may be terminated by The Limited in
the event of the occurrence with respect to any Successor Licensee of an event
of the type specified in clause (3) of Section 6.1(b) of the License Agreement.
(f) The Limited agrees that (i) it shall deliver to the Security
Agent a copy of any notice or other communication to the Borrower regarding any
breach or alleged breach by the Borrower of its obligations under the
4
<PAGE>
License Agreement promptly after delivery of such notice to the Borrower, (ii)
if after the expiration of the 30-day period referred to in clause (2) of
Section 6.1(b) of the License Agreement, any breach by the Borrower remains
uncured, The Limited shall not exercise its right under clause (2) of Section
6.1(b) of the License Agreement to terminate the License Agreement or any
License granted thereunder without (A) giving written notice to the Security
Agent (a "Breach Notice") after the expiration of such 30-day period of the
-------------
Borrower's failure to cure the breach within such period and The Limited's
desire to terminate the License Agreement if such breach is not cured and (B)
giving the Security Agent and the Lenders at least 60 days after the delivery of
such Breach Notice to effect a cure of the breach or to initiate a Foreclosure
Event, (iii) if the Security Agent or the Lenders initiate foreclosure
proceedings in respect of a Foreclosure Event within the 60-day period referred
to in clause (ii) above and give the Licensors notice of such proceedings, The
Limited shall not exercise its right under clause (2) of Section 6.1(b) of the
License Agreement to terminate the License Agreement or any License granted
thereunder so long as proceedings in respect of such Foreclosure Event are being
diligently pursued to the extent allowed by law and (iv) from and after the
occurrence of any Foreclosure Event, The Limited shall not exercise its right
under clause (2) of Section 6.1(b) of the License Agreement to terminate the
License Agreement or any License granted thereunder based on any breach arising
prior to the occurrence of such Foreclosure Event or as a result of such
Foreclosure Event.
(g) Notwithstanding the provisions of Section 2(f) hereof, The
Limited shall be entitled to terminate the License Agreement or any License
granted thereunder pursuant to clause (2) of Section 6.1(b) of the License
Agreement in the event of a breach by any Successor Licensee of any of its
material obligations under the License Agreement arising after the occurrence of
a Foreclosure Event, if any such breach remains uncured 30
5
<PAGE>
days after written notice thereof to the Successor Licensee by The Limited.
3. Enforceability of Rights of the Licensee. By reason of the
----------------------------------------
Security Documents, all of the rights of the Licensee to enforce the obligations
of the Licensors and The Limited under the License Agreement may be exercised by
the Security Agent directly against the Licensors or The Limited, as the case
may be, if an Event of Default (as defined in the Credit Agreement as such
Credit Agreement is now in effect) shall occur and be continuing.
4. Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of the Licensors and The Limited and shall inure to the
benefit of and be enforceable by the Secured Parties, the Security Agent and its
successors and assigns, including any Successor Licensee. This Agreement is for
the sole benefit of the parties hereto, their permitted assigns and the Secured
Parties, and nothing herein expressed or implied shall give or be construed to
give to the Borrower any legal or equitable rights hereunder.
5. Amendments; Modifications; Notices. So long as any Security
----------------------------------
Document remains in effect, neither The Limited nor any Licensor shall enter
into any amendment, modification or waiver in respect of the License Agreement
(other than such amendments, modifications and waivers that do not adversely
affect the interests of the Borrower or the Secured Parties) without the prior
written consent of the Security Agent. No amendment, modification or waiver of
any provision of this Agreement, nor consent to any departure by The Limited or
any Licensor therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Security Agent, The Limited and the Licensors and
then such amendment, modification, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
6
<PAGE>
6. No Waiver; Cumulative Remedies. No failure on the part of the
------------------------------
Security Agent to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by the Security Agent
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All rights, powers and remedies of the Security Agent
hereunder are cumulative and are not exclusive of any other rights, powers and
remedies of the Security Agent provided by law.
7. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto on separate counterparts, each of which
when executed and delivered shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
8. Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telecopy or sent, postage prepaid, by registered, certified or
express mail or reputable overnight courier service and shall be deemed given
when so delivered by hand or telecopied, or if mailed, three days after mailing
(one business day in the case of express mail or overnight courier service), as
follows:
(i) if to any Licensor or The Limited,
The Limited, Inc.
Three Limited Parkway
Columbus, Ohio 43230
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
7
<PAGE>
New York, New York 10017
Attention: David Caplan, Esq.; and
(ii) if to the Security Agent,
Morgan Guaranty Trust Company of New York
902 Market Street
Wilmington, Delaware 19801
Attention: [ ]
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: James C. Vardell, III.
9. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
10. Survival. The provisions hereof shall be irrevocable and remain
--------
in full force and effect until the Obligations have been finally and
indefeasibly paid in full and the Borrower has fully performed all of its
obligations to the Secured Parties under and in accordance with the terms of all
present and future agreements, instruments and documents evidencing the
Obligations and all present and future Security Documents (in each case
including any extensions, modifications and renewals thereof or substitutions
therefor at any time made), and until all obligations, if any, of the Secured
Parties to extend loans, advances, or financial accommodations to the Borrower
shall have been terminated; provided that if, prior to termination of this
--------
Agreement as provided above, a Foreclosure Event
8
<PAGE>
occurs, the provisions hereof shall remain in full force and effect for the term
of the License Agreement.
11. Miscellaneous. The Limited and the Licensors agree to make this
-------------
Agreement known to any transferee of any Mark (as defined in the License
Agreement) and any person or entity which may have an interest or right in any
Mark. In the event of a transfer of any Mark, The Limited will cause the
transferee to agree to be bound by the terms of this Agreement and will notify
the Security Agent of such transfer. The Limited and the Licensors acknowledge
and agree that the provisions set forth in this Agreement are, and are intended
to be, an inducement and consideration to each Secured Party to make, or to
permit to remain outstanding, loans, advances and/or financial accommodations to
the Borrower, and each Secured Party shall be deemed conclusively to have relied
upon such provisions in making, or permitting to remain outstanding, such loans,
advances and/or financial accommodations, and each Secured Party is made an
obligee hereunder and may enforce directly the provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Trademark Collateral
Agreement to be executed and delivered by their respective officers thereunto
duly authorized as of the day and year first above written.
LANCO, INC.,
by
-------------------------------
Name:
Title:
9
<PAGE>
LERNCO, INC.,
by
-------------------------------
Name:
Title:
LIMITED STORES, INC.,
by
-------------------------------
Name:
Title:
LERNER STORES, INC.,
by
-------------------------------
Name:
Title:
LANE BRYANT DIRECT HOLDING, INC.,
by
-------------------------------
Name:
Title:
10
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Security
Agent,
by
-------------------------------
Name:
Title:
Acknowledged and agreed to as of December 9, 1996, as to those portions of this
Agreement granting rights to, or imposing obligations on, The Limited, Inc.:
THE LIMITED, INC.,
by
---------------------------
Name:
Title:
11
<PAGE>
EXHIBIT 10.37
BRYLANE INC.
1996 SENIOR MANAGEMENT STOCK SUBSCRIPTION PLAN
Section 1. Description of Plan. This is the Brylane Inc. 1996 Senior
-------------------
Management Stock Subscription Plan, dated ____________, 1996 (the "Plan"), of
Brylane Inc., a Delaware corporation (the "Company"). Under the Plan, executive
officers, certain members of the Board of Directors of the Company (the "Board")
and other officers as may be designated by the Board may acquire shares of
common stock of the Company (the "Common Stock"). Executive officers, certain
members of the Board of Directors and other designated officers of directly or
indirectly majority or wholly owned entities (individually, a "Subsidiary" and
collectively, the "Subsidiaries") of the Company or that the Company may form or
acquire in the future also may be selected as set forth below to acquire shares
of Common Stock. This plan is a successor to the VP Holding Corporation 1993
Employee Stock Subscription Plan (the "VP Holding Plan") and has been
established, in part, to issue shares of Common Stock in exchange for shares of
common stock of VP Holding issued pursuant to the VP Holding Plan.
Section 2. Purpose of Plan. The purpose of the Plan and the issuance
---------------
of the shares of Common Stock to specified persons is to further the growth,
development and financial success of the Company and its Subsidiaries by
providing additional incentives to certain present and prospective executive
officers, members of the Board of the Company and/or equivalent bodies of its
Subsidiaries and other designated officers. By assisting such persons in
acquiring Common Stock of the Company, the Company can ensure that such persons
will themselves benefit directly from the Company's and its Subsidiaries'
growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
shares of Common Stock under the Plan shall be the present and prospective
executive officers of the Company or its Subsidiaries, members of the Board of
Directors (or equivalent body) of the Company or its Subsidiaries who are not
designees of the FS Stockholders (as defined in that certain Stockholders'
Agreement of Brylane, Inc. or Lane Bryant Direct Holding, Inc. and other
officers of the Company or its Subsidiaries designated by the Committee (as
defined below) (an "Eligible Participant").
Section 4. Administration. The Plan shall be administered by a
--------------
committee (the "Committee") to be composed of not less than two members of the
Board. Members of the Committee shall be appointed, both initially and as
vacancies occur, by the Board, to serve at the pleasure of the Board. Upon the
first registration of an equity security of the Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to the extent possible
and advisable, the Committee may be constituted so as to permit this Plan to
comply with Rule 16b-3 promulgated under Section 16 of the Exchange Act and
Section 162(m) of the Internal Revenue Code, if necessary. The Committee shall
meet at such times and places as it determines and may meet through a telephone
conference call. A majority of its members shall constitute a quorum, and the
decision of a majority of those present at any
<PAGE>
meeting at which a quorum is present shall constitute the decision of the
Committee. A memorandum signed by all of its members shall constitute the
decision of the Committee without necessity, in such event, for holding an
actual meeting.
Section 5. Shares Subject to the Plan. The number of shares of
--------------------------
Common Stock which may be issued pursuant to the Plan shall not exceed an amount
equal to 653,000 less the number of shares of Common Stock issued pursuant to
the Brylane Inc. 1996 Stock Subscription Plan, subject to adjustment to reflect
any distribution of shares of capital stock or other securities of the Company
or any successor or assign of the Company which is made in respect of, in
exchange for or in substitution of the shares of Common Stock in the Company by
reason of any stock dividend, stock split, reverse split, combination, merger or
consolidation. The maximum number of shares that may be issued to any Eligible
Participant is 500,000. In the event that any shares of Common Stock issued
pursuant to the Plan are reacquired by the Company, such shares of Common Stock
shall again become available for issuance under the Plan, subject to the
approval of the Committee.
Section 6. Issuance of Shares of Common Stock. The Company's
----------------------------------
obligation to issue shares of Common Stock pursuant to the Plan is expressly
conditioned upon the completion by the Company of any registration or other
qualification of such shares of Common Stock under any state and/or federal law
or rulings and regulations of any government regulatory body and the making of
such investment representations or other representations and undertakings by an
Eligible Participant (or such person's legal representative, heir or legatee, as
the case may be) in order to comply with the requirements of any exemption from
any such registration or other qualification of such shares of Common Stock
which the Company in its sole discretion shall deem necessary or advisable.
Section 7. Stock Subscription Agreement. The shares of Common Stock
----------------------------
issued pursuant to the Plan shall be evidenced by a written stock subscription
agreement (the "Stock Subscription Agreement") executed by the Company and the
Eligible Participant which shall contain each of the provisions and agreements
herein specifically required to be contained therein and may contain such other
terms and conditions as the Committee deems desirable and which are not
inconsistent with the Plan.
Section 8. Effectiveness and Termination of Plan. The Plan shall be
-------------------------------------
effective on the date on which it is adopted by the Board and the Board may in
its sole discretion terminate the Plan at any time.
Section 9. Amendment of Plan. The Committee may make such amendments
-----------------
to the Plan and, with the consent of each Eligible Participant adversely
affected, to the terms and conditions of the Stock Subscription Agreement as it
shall deem advisable.
2.
<PAGE>
Section 10. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as directors, the members of the Committee
(current and former) shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, and
against all amounts paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such Committee member is not
entitled to indemnification under applicable law provided that within 60 days
after institution of any such action, suit or proceeding such Committee member
shall in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
Section 11. Governing Law. The Plan shall be construed under and
-------------
governed by the laws of the State of Delaware without regard to conflict of law
provisions thereof.
Section 12. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Stock Subscription Agreement shall confer, intend to
confer or imply any rights of employment by or other relationship with or rights
to continued employment by or other relationship with the Company, any
Subsidiary or any other entity in favor of any Eligible Participant or limit the
ability of the Company, any Subsidiary or any other entity to terminate, with or
without cause, in its sole and absolute discretion, the employment of or other
relationship with any such person, subject to the terms of any written
employment agreement to which such person is a party.
3.
<PAGE>
EXHIBIT 10.38
BRYLANE INC.
MANAGEMENT STOCK SUBSCRIPTION AGREEMENT
---------------------------------------
THIS MANAGEMENT STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is
made and entered into as of _______________, 199__ by and between Brylane Inc.,
a Delaware corporation (the "Company"), and _________________ ("Participant"),
pursuant to that certain Brylane Inc. 1996 Senior Management Stock Subscription
Plan (the "Plan").
R E C I T A L S:
---------------
A. Participant previously purchased shares of common stock of VP
Holding Corporation pursuant to the terms of that certain Stock Subscription
Agreement dated as of [August 30, 1993] between VP Holding Corporation, a
Delaware corporation ("VP Holding"), and Participant (the "VP Holding
Subscription Agreement").
B. Pursuant to the terms of Section 9(c)(i) of the VP Holding
Subscription Agreement, Participant agreed in connection with the formation of
IPO Corporation (as defined in the VP Holding Subscription Agreement, with the
term IPO Corporation understood to refer to the Company) to exchange the shares
of VP Holding common stock held by Participant for shares of common stock, $0.01
par value per share, of the Company (the "Common Stock") in the same manner as
FSEP (as defined in the VP Holding Subscription Agreement) exchanges its shares
of VP Holding common stock for shares of Common Stock of the Company in
connection with the formation of the Company. Participant further agreed in
Section 9(d) of the VP Holding Subscription Agreement to take such other actions
and to execute such agreements and documents as are necessary or desirable to
consummate such exchange.
C. The Company now desires to issue shares of Common Stock to
Participant in exchange for the shares of VP Holding common stock held by
Participant in the manner contemplated by and required under Section 9(c) of the
VP Holding Subscription Agreement and based on the same exchange ratio at which
FSEP is exchanging shares of VP Holding common stock it holds for shares of
Common Stock. Pursuant to the terms of Section 9(c)(ii) of the VP Holding
Subscription Agreement, all stockholders of VP Holding shall receive the same
kind of securities of the Company for each share of VP Holding common stock.
The date on which such exchange occurs shall be referred to herein as the
"Closing Date," with the exchange to occur concurrently with the exchange of
shares of VP Holding common stock by FSEP.
<PAGE>
D. Pursuant to Section 10(h) of the VP Holding Subscription
Agreement, Participant agreed to hold such shares of Common Stock issued in
exchange for the shares of VP Holding common stock held by Participant subject
to the restrictions and interests created by the VP Holding Subscription
Agreement which are restated and set forth in this Agreement.
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, in order to implement the
prior agreements set forth in the VP Holding Subscription Agreement the parties
agree as follows:
1. Exchange of Stock. The Company will issue to Participant in
-----------------
exchange for the shares of VP Holding common stock held by Participant, subject
to the conditions and restrictions contained in this Agreement, _______ shares
(individually, a "Share," and collectively, the "Shares") of the Common Stock of
the Company, which for purposes of this Agreement shall be deemed to have been
issued at a price of $10.00 per Share, for an aggregate deemed exchange price of
$__________ (the "Purchase Price") (as such amounts may be adjusted in
connection with the Initial Public Offering (as defined in the VP Holding
Subscription Agreement)). The Purchase Price is equal to the Purchase Price of
the VP Holding common stock held by the Participant which was paid by delivery
of (a) cash or Participant's check in the amount of $_______, and (b) a
promissory note of Participant issued to VP Holding for the remainder of the
Purchase Price (the "Note"). Payment of all amounts owed under the Note and
compliance by Participant with the terms and conditions of the VP Holding
Subscription Agreement and the Pledge Agreement (as defined in the VP Holding
Subscription Agreement) were secured by a pledge of the shares of common stock
of VP Holding held by Participant, in conjunction with which Participant
executed the Pledge Agreement. Participant hereby agrees to make continued
payments under the Note (which has been assigned to Brylane, L.P., a Delaware
limited partnership (the "Partnership")) and Participant further agrees that the
Pledge Agreement shall secure payment in full of all obligations under the Note
and Participant agrees to be bound by and fully perform all terms and conditions
of this Agreement, the Note and the Pledge Agreement and agrees and acknowledges
that the Shares will be substituted as collateral under the Pledge Agreement for
the shares of VP Holding common stock and shall be subject to all of the terms
and conditions thereof. This Agreement constitutes full authorization to VP
Holding to transfer the shares of VP Holding common stock held by the
Participant on its books and records to reflect the Company as the transferee
thereof.
2.
<PAGE>
2. Restriction on Transfer of the Shares.
-------------------------------------
(a) Except as otherwise provided herein including as set forth in
clause (b) below, Participant may not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of (collectively, "Transfer") any of the
Shares, or any right, title or interest therein prior to August 30, 1997. Any
purported Transfer or Transfers (including involuntary Transfers initiated by
operation of legal process) of any of the Shares or any right, title or interest
therein, except in strict compliance with the terms and conditions of this
Agreement, shall be null and void.
(b) Notwithstanding any provision of Section 2(a), Participant may
Transfer any of the Shares, or any right, title or interest therein upon
consummation of an Initial Public Offering meeting the requirements of Section
7(b)(i) or (ii) or, if later, after expiration of the lock-up period set forth
in the Lock Up Agreement (as defined below) if the Participant executes and
complies with the provisions of any reasonable lock-up agreement the Participant
is requested to execute in connection with the Initial Public Offering (the
"Lock-up Agreement"). All Transfers must comply with Section 7 of the Pledge
Agreement.
3. Repurchase Upon Termination.
---------------------------
(a) The Company's Repurchase Option. Until August 30, 1997, in the
-------------------------------
event that Participant's employment with the Company and all of its directly or
indirectly majority or wholly owned entities (individually, a "Subsidiary," and
collectively, the "Subsidiaries") terminates for any reason (including, without
limitation, by reason of Participant's death, disability, retirement, voluntary
resignation or dismissal by the Company or any of its Subsidiaries, with or
without cause), the Company shall have the option (the "Repurchase Option") to
purchase from Participant all or any portion of the Shares for a period of 60
days after the effective date of such termination (the effective date of
termination is hereinafter referred to as the "Termination Date"). The purchase
price (the "Repurchase Price") for each Share to be purchased pursuant to the
Repurchase Option shall equal the Fair Market Value (as hereinafter defined) for
each Share repurchased hereunder.
(b) Definition of Fair Market Value. As used herein, the definition
-------------------------------
of "Fair Market Value" of each Share shall be determined based on the average of
the Quoted Prices of a share of Common Stock for the five consecutive business
days prior to the Termination Date. The "Quoted Price" of a share of Common
Stock shall be the last reported sales price of the Common Stock as reported by
NASDAQ ("NASDAQ"), or if the Common Stock is listed on a securities exchange,
the last reported sales price of the Common Stock on such exchange (which shall
be for consolidated trading if applicable to such exchange), or if the Common
Stock is not so reported or listed, the average of the last reported bid and
asked price of the Common Stock. If at any time the Common Stock is not listed
on any exchange
3.
<PAGE>
or NASDAQ, the Board of Directors shall determine such fair market value on the
basis of the best available evidence, which determination shall be final and
binding.
(c) Exercise of Repurchase Option. The Repurchase Option shall be
-----------------------------
exercised by the Company by delivery to Participant, within the 60 day period
specified in Section 3(a) hereof, of a written notice of its election to so
exercise. Such notice shall therein specify (i) the number of Shares which
shall have vested as of the Termination Date; (ii) the number of Shares which
the Company elects to repurchase; and (iii) a day, which shall not be more than
30 days after the date such notice is delivered, on or before which Participant
shall surrender (if Participant has not already done so) the certificate or
certificates representing the Shares to be purchased pursuant to the Repurchase
Option (duly endorsed in blank for Transfer) at the principal office of the
Company in exchange for a check, payable to Participant or such person as
Participant shall request, in the amount equal to the Repurchase Price,
calculated as provided in this Section 3, multiplied by the number of the Shares
to be purchased. If Participant fails to so surrender such certificate or
certificates on or before such date, from and after such date the Shares which
the Company elected to repurchase shall be deemed to be no longer outstanding,
and Participant shall cease to be a stockholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the Repurchase Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
Notwithstanding the foregoing in this Section 3(c), in the event any principal,
interest, fees, expenses or other amounts due on or in connection with the Note
(the "Outstanding Amount") are owed to the Company by Participant, the
Repurchase Price for the number of the Shares to be repurchased hereunder shall
be reduced (to an amount not less than zero) by such Outstanding Amount, which
reduction shall be specified in reasonable detail in the Company's written
notice of election to exercise the Repurchase Option. If the Outstanding Amount
exceeds the Repurchase Price for the number of Shares to be repurchased,
Participant shall remain obligated and liable to the Company for the unpaid
balance thereof.
4. Permitted Transfers. Subject to and upon full compliance with
-------------------
Section 7 of the Pledge Agreement, Participant may, at any time or times,
transfer any or all of the Shares: (a) inter vivos to Participant's spouse or
issue, a trust for their benefit, or pursuant to any will or testamentary trust;
or (b) upon Participant's death, to any person in accordance with the laws of
descent and/or testamentary distribution (such persons described in clauses (a)
and (b) hereof are collectively referred to herein as "Permitted Transferees").
Notwithstanding the foregoing in this Section 4, Shares shall not be Transferred
pursuant to clause (a) or (b) of this Section 4 until the Permitted Transferee
executes a valid undertaking, in form and substance reasonably satisfactory to
the Company, to the effect that the Permitted Transferee and the Shares so
Transferred shall thereafter remain subject to all of the provisions of this
Agreement (including the Repurchase Option) and the Pledge Agreement, as though
the Permitted Transferee were a party to this Agreement and the Pledge
Agreement, bound in every respect in the same way as Participant.
4.
<PAGE>
5. Security for Performance. Pursuant to Section 1 hereof, the
------------------------
Company and Participant hereby acknowledge (a) that the Shares will be
automatically pledged to secure the payment of all obligations existing under
the Note whether for principal, interest, fees, expenses or otherwise and/or to
ensure Participant's compliance with the terms and conditions of this Agreement
and the Pledge Agreement and (b) that the Pledge Agreement requires that the
certificates evidencing the Shares (the "Certificates") be held as security for
the payment of all obligations existing under the Note, whether for principal,
interest, fees, expenses or otherwise, and for Participant's compliance with the
terms and conditions of this Agreement and the Pledge Agreement. The Note and
Pledge Agreement are currently held by the Partnership. Subject to compliance
with the terms and conditions of this Agreement and of the Pledge Agreement,
Participant shall exercise all rights and privileges of the registered holder of
the Shares while they are held pursuant to the Pledge Agreement and shall be
entitled to receive any dividend or other distribution thereon.
6. Investment Representations. Participant represents and warrants
--------------------------
to the Company as follows:
(a) Participant's Own Account. Participant is acquiring the Shares
-------------------------
for Participant's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Shares Not Registered. Participant understands that the Shares
---------------------
have not been registered under the Act or registered or qualified under the
securities laws of any state and that Participant may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification.
7. Effectiveness and Termination.
-----------------------------
(a) This Agreement shall become effective immediately prior to the
time that the Company completes an Initial Public Offering that results in (i)
receipt by the Company of at least $30,000,000 of gross proceeds from the sale
of newly issued stock or (ii) the sale of newly issued Common Stock representing
at least 20% of the outstanding Common Stock of the Company (after giving effect
to such offering); provided that such time must occur prior to June 30, 1997;
provided, further, that if the Company completes an Initial Public Offering
prior to June 30, 1997 that does not satisfy the requirements of clause (i) or
(ii) of this sentence, a new subscription agreement containing all rights and
obligations required to be contained therein pursuant to the VP Holding
Subscription Agreement will be executed by the Company and Participant. Until
such effective time occurs, the VP Holding Subscription Agreement shall remain
in effect.
5.
<PAGE>
(b) This Agreement shall terminate with respect to those Shares which
are acquired by the Company pursuant to Section 3 upon such acquisition.
8. Registration Rights. If the Participant is otherwise free to
-------------------
transfer the Shares under Section 2(b) hereof, but the Participant cannot
transfer such Shares in compliance with Rule 144 or Rule 701 under the
Securities Act of 1933, as amended (the "Act"), as a result of the formation of
the Company or the manner in which the exchange of VP Holding common stock for
the Shares occurs, then the Company shall, on the later of (i) 120 days after
the consummation of the Initial Public Offering or (ii) the termination of any
lock-up period pursuant to the Lock-up Agreement, cause the Shares held by the
Participant to be registered under the Act, on a registration statement on Form
S-8 (which may, if necessary to permit resales, include a resale prospectus in
appropriate form).
9. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION
AGREEMENT DATED AS OF _______________ BY AND BETWEEN BRYLANE INC., A
DELAWARE CORPORATION, AND THE ORIGINAL PARTICIPANT HEREOF, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
BRYLANE INC."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or
6.
<PAGE>
delivered when sent, if given by personal delivery, shall be deemed to have been
validly served, given or delivered upon actual delivery and, if mailed, shall be
deemed to have been validly served, given or delivered three Business Days after
deposit in the United States mails, as registered or certified mail, with proper
postage prepaid and addressed to the party or parties to be notified, at the
following addresses (or such other address(es) a party may designate for itself
by like notice):
If to the Company:
Brylane Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
If to Participant:
_________________________
_________________________
_________________________
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto.
(e) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
(f) Disputes. In the event of any dispute among the parties arising
--------
out of this Agreement, the prevailing party shall be entitled to recover from
the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Recapitalizations or Exchanges Affecting the Company's Capital
--------------------------------------------------------------
Stock; Issuances of Capital Stock. The provisions of this Agreement shall apply
- ---------------------------------
to any and all shares of capital stock or other securities of the Company or any
successor or assign of the Company which may be issued in respect of, in
exchange for or in substitution of, the Shares by reason of any stock dividend,
stock split, reverse split, recapitalization, reclassification, combination,
merger, consolidation or otherwise, and such shares or other securities shall be
encompassed within the term "Shares" for purposes of this Agreement and the
Pledge
7.
<PAGE>
Agreement. The Company agrees that it shall not issue additional shares of
common stock to FSEP (or any affiliate thereof) unless the Company's Board of
Directors shall have made a good faith determination that the purchase price for
any such shares is equal to the fair market value of such shares.
(i) No Rights as an Employee. Nothing in this Agreement shall affect
------------------------
in any manner whatsoever the rights of the Company or any of its Subsidiaries to
terminate Participant's employment for any reason, with or without cause,
subject to the terms and conditions of any employment agreement to which
Participant may be a party.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Participant, and Participant shall have no right to be
advised of, any material information regarding the Company or any of its
Subsidiaries at any time prior to, upon or in connection with the Company's
repurchase of the Shares under this Agreement at the cessation or termination of
Participant's employment with the Company and/or any of its Subsidiaries.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns, and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the Repurchase Option provided for in Section 3 of this Agreement to any
of its affiliates, successors and/or assigns. For purposes of this Agreement,
the term "Shares" shall include shares of capital stock or other securities of
the Company or any successor or assign of the Company which are issued in
respect of, in exchange for or in substitution of the Shares by reason of any
stock dividend, stock split, reverse split, recapitalization, reclassification,
combination, merger, exchange or consolidation. Unless specifically provided
herein to the contrary, Participant may not assign any or all of its rights
and/or obligations and/or delegate any or all its duties under this Agreement
without the prior written consent of the Company. Upon an assignment of any or
all of Participant's rights and/or obligations and/or a delegation of any or all
of its duties under this Agreement in accordance with the terms of this
Agreement, this Agreement shall inure to the benefit of, and be binding upon,
Participant's respective affiliates, successors and/or assigns in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto.
(l) Headings. Introductory headings at the beginning of each section
--------
and subsection of this Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon or description of the contents
of any such section and subsection of this Agreement.
8.
<PAGE>
(m) Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which, when taken
together, shall constitute one and the same Agreement.
9.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
Brylane Inc.,
a Delaware corporation
By: _______________________________
Its:___________________________
PARTICIPANT:
______________________________________
______________________________________
10.
<PAGE>
EXHIBIT 10.39
BRYLANE INC.
MANAGEMENT STOCK SUBSCRIPTION AGREEMENT
THIS MANAGEMENT STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is
made and entered into as of ____________, 199__ by and between Brylane Inc., a
Delaware corporation (the "Company"), and William C. Johnson ("Participant"),
pursuant to that certain Brylane Inc. 1996 Senior Management Stock Subscription
Plan (the "Plan").
R E C I T A L S:
---------------
A. Participant previously purchased shares of common stock of VP
Holding Corporation pursuant to the terms of that certain Stock Subscription
Agreement dated as of May 27, 1994 between VP Holding Corporation, a Delaware
corporation ("VP Holding"), and Participant (the "VP Holding Subscription
Agreement").
B. Pursuant to the terms of Section 9(b)(i) of the VP Holding
Subscription Agreement, Participant agreed in connection with the formation of
IPO Corporation (as defined in the VP Holding Subscription Agreement, with the
term IPO Corporation understood to refer to the Company) to exchange the shares
of VP Holding common stock held by Participant for shares of common stock, $0.01
par value per share, of the Company (the "Common Stock") in the same manner as
FSEP (as defined in the VP Holding Subscription Agreement) exchanges its shares
of VP Holding common stock for shares of Common Stock of the Company in
connection with the formation of the Company. Participant further agreed in
Section 9(c) of the VP Holding Subscription Agreement to take such other actions
and to execute such agreements and documents as are necessary or desirable to
consummate such exchange.
C. The Company now desires to issue 30,000 shares of Common Stock to
Participant in exchange for 30,000 shares of VP Holding common stock held by
Participant in the manner contemplated by and required under Section 9(b)(ii) of
the VP Holding Subscription Agreement and based on the same exchange ratio at
which FSEP is exchanging shares of VP Holding common stock it holds for shares
of Common Stock. The date on which such exchange occurs shall be referred to
herein as the "Closing Date," with the exchange to occur concurrently with the
exchange of shares of VP Holding common stock by FSEP.
<PAGE>
D. Pursuant to Section 10(h) of the VP Holding Subscription
Agreement, Participant agreed to hold such shares of Common Stock issued in
exchange for the shares of VP Holding common stock held by Participant subject
to the restrictions and interests created by the VP Holding Subscription
Agreement which are restated and set forth in this Agreement.
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, in order to implement the
prior agreements set forth in the VP Holding Subscription Agreement the parties
agree as follows:
1. Exchange of Stock. The Company will issue to Participant in
-----------------
exchange for the shares of VP Holding common stock held by Participant, subject
to the conditions and restrictions contained in this Agreement, 30,000 shares
(individually, a "Share," and collectively, the "Shares") of the Common Stock of
the Company, which for purposes of this Agreement shall be deemed to have been
issued at a price of $10.00 per Share, for an aggregate deemed exchange price of
$300,000 (the "Purchase Price") (as such amounts may be adjusted in connection
with the Initial Public Offering (as defined in the VP Holding Subscription
Agreement) and such adjustments shall apply to the exchange ratio at which FSEP
will exchange shares of VP Holding common stock it holds for shares of Common
Stock). The Purchase Price is equal to the Purchase Price of the VP Holding
common stock held by the Participant which was paid by delivery of cash or
Participant's check in the amount of $300,000. Participant agrees to be bound
by and fully perform all terms and conditions of this Agreement and agrees that
this Agreement constitutes full authorization to VP Holding to transfer the
shares of VP Holding common stock held by the Participant on its books and
records to reflect the Company as the transferee thereof.
2. Restriction on Transfer of the Shares. Participant hereby agrees
-------------------------------------
to execute and comply with the provisions of a reasonable lock-up agreement in
connection with an Initial Public Offering (the "Lock-up Agreement").
3. The Company's Repurchase Obligation.
-----------------------------------
(a) The Company's Repurchase Obligation. Until May 27, 1998, if
-----------------------------------
the Participant ceases to be a member of the Board of Directors of the Company
and/or all of its directly or indirectly majority or wholly owned entities
(individually, a "Subsidiary," and collectively, the "Subsidiaries") due to the
Participant's death or disability, upon the request of the Participant (or his
legal representative), made within 120 days of the effective date of such
termination (the "Termination Date"), the Company shall repurchase all or any
part of
2
<PAGE>
the Participant's Shares at a price (the "Repurchase Price") equal to $10.00 per
Share or the Fair Market Value of a Share (as defined below), whichever is
greater, provided that such repurchase is permitted under the debt agreements of
the Company or any of its direct or indirect subsidiaries. If such debt
agreements do not permit such repurchase, the Company's obligations under this
subsection (a) shall continue until 120 days after the date such repurchase
shall be permitted; provided however that notwithstanding the foregoing, all
obligations of the Company under this subsection (a) shall terminate on the
later of May 27, 1998 or the second anniversary of the Termination Date. The
Participant (or his legal representative) shall provide the Company within such
120 day period with a written notice of the Participant's (or his legal
representative's) election to require the Company to repurchase Shares pursuant
to this Section 3(a). Such notice shall specify (i) the number of Shares which
the Participant (or his legal representative) elects to have the Company
repurchase pursuant to this Section 3(a); and (ii) a day which shall not be less
than 20 days and not more than 30 days after the date such notice is delivered,
on which Participant (or his legal representative) shall surrender (if such
surrender has not already occurred) the certificate or certificates representing
the Shares to be repurchased by the Company pursuant to this Section 3(a) (duly
endorsed in blank for transfer) at the principal office of the Company in
exchange for the Company's check, payable to Participant (or Participant's legal
representative) in the amount equal to the Repurchase Price, calculated as
provided in this Section 3(a), multiplied by the number of Shares to be
purchased. At the closing of the Company's purchase of the Shares, the Company
will notify the Participant (or his legal representative) in writing of the
amount of the Repurchase Price.
(b) Company Agreement. The Company hereby agrees that any existing
-----------------
debt agreement that contains provisions with respect to permitted distributions
by Brylane, L.P. (the "Partnership") to the Company to make the repurchase
described in Section 3(a) shall not be amended with respect to such provisions
unless (i) the effect of such amendment is to expand the right of the
Partnership to make such distributions, or (ii) the Partnership is restructuring
its outstanding debt or is in default under any such agreement in which event
the Company shall cause the Partnership to use its reasonable efforts to
maintain a similar provision in any amended agreement. The Company shall cause
the Partnership to use its reasonable best efforts to cause substantially
similar provisions with respect to such permitted distributions to be contained
in the documents executed in connection with refinancing of such indebtedness of
the Partnership outstanding on the date hereof.
(c) Definition of Fair Market Value. As used herein, the "Fair Market
-------------------------------
Value" of a Share shall be determined based on the average of the Quoted Prices
of a share of Common Stock for the five consecutive business days prior to the
Termination Date. The "Quoted Price" of a share of Common Stock shall be the
last reported sales price of the Common Stock as reported by Nasdaq ("Nasdaq"),
or if the Common Stock is listed on a securities exchange, the last reported
sales price of the Common Stock on such exchange (which shall be for
consolidated trading if applicable to such exchange), or if the Common
3
<PAGE>
Stock is not so reported or listed, the average of the last reported bid and
asked price of the Common Stock. If at any time the Common Stock is not listed
on any exchange or Nasdaq, the Board of Directors shall determine such Fair
Market Value on the basis of the best available evidence, which determination
shall be final and binding.
4. Investment Representations. Participant represents and warrants
--------------------------
to the Company as follows:
(a) Binding Agreement. This Agreement has been duly and validly
-----------------
executed and delivered by the Participant and this Agreement constitutes a
legal, valid and binding agreement of the Participant, enforceable against the
Participant in accordance with its terms (except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies).
(b) Participant's Own Account. Participant is acquiring the
-------------------------
Shares for Participant's own account and not with a view to or for sale in
connection with any distribution of the Shares. The Participant is a resident of
the State of Connecticut.
(c) Shares Not Registered. Participant understands that the
---------------------
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Participant may not Transfer the
Shares unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification.
Notwithstanding the foregoing, Participant has certain registration rights under
Section 6.
5. Termination. This Agreement shall terminate and be of no force
-----------
and effect if the Company does not complete an Initial Public Offering that
results in (i) receipt by the Company of at least $30,000,000 of gross proceeds
from the sale of newly issued stock or (ii) the sale of newly issued Common
Stock representing at least 20% of the outstanding Common Stock of the Company
(after giving effect to such offering); provided, however, that if the Company
completes an Initial Public Offering that does not satisfy the requirements of
clause (i) or (ii) of this sentence, a new subscription agreement containing all
rights and obligations required to be contained therein pursuant to the VP
Holding Subscription Agreement will be executed by the Company and Participant.
6. Registration Rights. If the Participant is otherwise free to
-------------------
transfer the Shares under Section 2 hereof, but the Participant cannot transfer
such Shares in compliance with Rule 144 (due to the imposition of a waiting
period) under the Securities Act of 1933, as amended (the "Act"), then the
Company shall, on the later of (i) 120 days after the consummation of the
Initial Public Offering or (ii) the termination of any lock-up period
4
<PAGE>
pursuant to the Lock-up Agreement; provided, however, in no event shall
registration be effected later than the time any of the FSEP shares are first
available for public sale whether pursuant to a filed registration statement or
otherwise, cause the Shares held by the Participant to be registered under the
Act, on a registration statement on Form S-8 (which shall, if necessary to
permit resales of all Shares owned by Participant include a resale prospectus in
appropriate form) or, if unavailable, on Forms S-2 or S-3 (to the extent the
Company qualifies for the use of such forms).
7. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION
AGREEMENT DATED AS OF ____________, 199__ BY AND BETWEEN BRYLANE INC.,
A DELAWARE CORPORATION, AND THE ORIGINAL PARTICIPANT HEREOF, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
BRYLANE INC."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party
5
<PAGE>
or parties to be notified, at the following addresses (or such other address(es)
a party may designate for itself by like notice):
If to the Company:
Brylane Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
If to Participant:
William C. Johnson
P.O. Box 7106
Rancho Santa Fe, California 92067
Federal Express: 5406 El Secreto
Rancho Santa Fe, California 92067
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
(f) Disputes. In the event of any dispute among the parties
--------
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Recapitalizations or Exchanges Affecting the Company's
------------------------------------------------------
Capital Stock; Issuances of Capital Stock. The provisions of this Agreement
- -----------------------------------------
shall apply to any and all shares of capital stock or other securities of the
Company or any successor or assign of the Company which may be issued in respect
of, in exchange for or in substitution of, the Shares by reason of any stock
dividend, stock split, reverse split, recapitalization, reclassification,
combination, merger, consolidation or otherwise, and such shares or other
securities shall be encompassed within the term "Shares" for purposes of this
Agreement. The Company agrees that it shall not issue additional shares of
common stock to FSEP unless
6
<PAGE>
the Company's Board of Directors shall have made a good faith determination that
the purchase price for any such shares is equal to the fair market value of such
shares.
(i) No Rights to Continued Service. Nothing in this Agreement
------------------------------
shall affect in any manner whatsoever the rights of the Company (or any other
entity) to terminate Participant's status as a member of the Board of Directors
of the Company or as a member of the Board of Representatives of the Partnership
for any reason, with or without cause.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Participant, and Participant shall have no right to be
advised of, any material information regarding the Partnership, Company or any
of its Subsidiaries at any time prior to, upon or in connection with the
Company's repurchase of the Shares under this Agreement at the cessation or
termination of Participant's service as a member of the Board of Directors of
the Company or as a member of the Board of Representatives of the Partnership.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. For purposes of this Agreement, the term "Shares"
shall include shares of capital stock or other securities of the Company or any
successor or assign of the Company which are issued in respect of, in exchange
for or in substitution of the Shares by reason of any stock dividend, stock
split, reverse split, recapitalization, reclassification, combination, merger,
exchange or consolidation. Unless specifically provided herein to the contrary,
Participant may not assign any or all of its rights and/or obligations and/or
delegate any or all its duties under this Agreement without the prior written
consent of the Company. Upon an assignment of any or all of Participant's
rights and/or obligations and/or a delegation of any or all of its duties under
this Agreement in accordance with the terms of this Agreement, this Agreement
shall inure to the benefit of, and be binding upon, Participant's respective
affiliates, successors and/or assigns in the same manner and to the same extent
as if such affiliates, successors and/or assigns were original parties hereto.
(l) Headings. Introductory headings at the beginning of each
--------
section and subsection of this Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
7
<PAGE>
8. Representations, Warranties and Covenants of the Company.
--------------------------------------------------------
(a) Organization and Related Matters. The Company is duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all necessary corporate power and authority to own its
properties and assets and to carry on its businesses as now conducted and is
duly qualified or licensed to do business as a foreign corporation in good
standing in all jurisdictions in which the character or the location of the
assets owned or leased by it or the nature of the business conducted by it
requires licensing or qualifications. True, correct and complete copies of the
charter documents of the Company and the Plan as in effect on the date hereof
have been delivered to the Participant. The Company beneficially owns all of the
outstanding partnership interests of the Partnership.
(b) Capitalization. As of the date hereof, the authorized
--------------
capital stock of the Company consists of 40,000,000 shares of common stock,
$0.01 par value (the "Common Stock"), of which _______ shares are issued and
outstanding, and 1,000,000 shares of preferred stock, $0.01 par value of which
no shares are issued and outstanding. All Shares issued to the Participant
hereunder will be validly issued, fully paid, nonassessable and free of
preemptive rights. There are no options, warrants, calls, subscriptions or other
rights or other agreements, arrangements or commitments of any nature obligating
the Company to issue, transfer or sell any shares of Common Stock, except as
otherwise provided in (i) this Agreement, (ii) the Plan and the 1996 Stock
Subscription Plan, (iii) the Brylane Inc. 1996 Performance Stock Option Plan and
(iv) the 1996 Stock Option Plan.
(c) Authority Relative to This Agreement. The Company has all
------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Company's Board of Directors
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by the Company
and this Agreement constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms (except as
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by principles governing
the availability of equitable remedies).
(d) Consents and Approvals; No Violation. No order, permit,
------------------------------------
consent, approval, license, authorization or validation or, and no registration,
filing of notice with, any governmental entity is necessary to authorize or
permit, or is required in connection with, the execution, delivery or
performance of this Agreement or the consummation by the Company of the
transactions contemplated hereby (assuming the truth of Participant's
representations in Section 4 hereof). Neither the execution, delivery nor
consummation of this Agreement nor compliance by the Company with any of the
provisions
8
<PAGE>
hereof will (i) violate, conflict with or result in any breach of any provision
of the Company's charter documents, (ii) result in a violation or breach or
termination of, or constitute a default under, any material agreement to which
the Company is subject, or (iii) violate any judgment, order, writ, injunction,
decree, award, statute, rule or regulation to which the Company is subject
(assuming the truth of the Participant's representations in Section 4).
(e) Exchange Ratio. The Company shall issue shares of Common
--------------
Stock to Participant based on the same exchange ratio at which FSEP is
exchanging shares of VP Holding common stock it holds for shares of Common
Stock.
(f) Same Number and Kind of Securities. The Company hereby agrees
----------------------------------
that with respect to its formation as the IPO Corporation, all stockholders of
VP Holding including the Participant, any management stockholder of VP Holding,
FSEP and any limited partner of FSEP (subsequent to any distribution by FSEP to
its limited partners) shall receive the same number and kind of securities of
the Company for each share of VP Holding common stock.
(g) Tax Effects. The Company will consider the tax effects on the
-----------
Participant of any exchange for or conversion of shares of VP Holding common
stock into shares of Common Stock.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
BRYLANE INC.,
a Delaware corporation
By: _____________________________
Its: _________________________
PARTICIPANT:
__________________________________
William C. Johnson
10
<PAGE>
EXHIBIT 10.40
BRYLANE INC. 1996 STOCK SUBSCRIPTION PLAN
Section 1. Description of Plan. This is the Brylane Inc. 1996 Stock
-------------------
Subscription Plan, dated ____________, 1996 (the "Plan"), of Brylane Inc., a
Delaware corporation (the "Company"). Under the Plan, key employees and
consultants of the Company may acquire shares of common stock of the Company
(the "Common Stock"). Key employees and consultants of directly or indirectly
majority or wholly owned entities (individually, a "Subsidiary" and
collectively, the "Subsidiaries") of the Company or that the Company may form or
acquire in the future also may be selected as set forth below to acquire shares
of Common Stock. This Plan is a successor to the VP Holding Corporation 1993
Employee Stock Subscription Plan (the "VP Holding Plan") and has been
established in part to issue shares of Common Stock of the Company in exchange
for shares of common stock of VP Holding issued pursuant to the VP Holding Plan.
Section 2. Purpose of Plan. The purpose of the Plan and the issuance
---------------
of the shares of Common Stock to specified persons is to further the growth,
development and financial success of the Company and its Subsidiaries by
providing additional incentives to certain present and prospective key employees
and consultants of the Company and/or its Subsidiaries. By assisting such
persons in acquiring Common Stock of the Company, the Company can ensure that
such persons will themselves benefit directly from the Company's and its
Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
shares of Common Stock under the Plan shall be the present and prospective key
employees and consultants of the Company and/or its Subsidiaries (an "Eligible
Participant"); provided that bona fide services shall be rendered to the Company
and/or its Subsidiaries by such consultant and such services shall not have been
in connection with the offer and sale of securities in a capital raising
transaction.
Section 4. Administration. The Plan shall be administered by the
--------------
Board of Directors of the Company or a committee thereof (the "Board") who shall
be empowered to interpret and administer the Plan in its sole discretion.
Section 5. Shares Subject to the Plan. The number of shares of
--------------------------
Common Stock which may be issued pursuant to the Plan shall not exceed an amount
equal to 653,000 less the number of shares of Common Stock issued pursuant to
the Brylane Inc. 1996 Senior Management Stock Subscription Plan, subject to
adjustment to reflect any distribution of shares of capital stock or other
securities of the Company or any successor or assign of the Company which is
made in respect of, in exchange for or in substitution of the shares of Common
Stock in the Company by reason of any stock dividend, stock split, reverse
split, combination, merger or consolidation. In the event that any shares of
Common Stock issued pursuant to the Plan are reacquired by the Company, such
shares of Common Stock shall again become available for issuance under the Plan,
subject to the approval of the Board.
<PAGE>
Section 6. Issuance of Shares of Common Stock. The Company's
----------------------------------
obligation to issue shares of Common Stock pursuant to the Plan is expressly
conditioned upon the completion by the Company of any registration or other
qualification of such shares of Common Stock under any state and/or federal law
or rulings and regulations of any government regulatory body and the making of
such investment representations or other representations and undertakings by an
Eligible Participant (or such person's legal representative, heir or legatee, as
the case may be) in order to comply with the requirements of any exemption from
any such registration or other qualification of such shares of Common Stock
which the Company in its sole discretion shall deem necessary or advisable.
Section 7. Stock Subscription Agreement. The shares of Common Stock
----------------------------
issued pursuant to the Plan shall be evidenced by a written stock subscription
agreement (the "Stock Subscription Agreement") executed by the Company and the
Eligible Participant which shall contain each of the provisions and agreements
herein specifically required to be contained therein and may contain such other
terms and conditions as the Board deems desirable and which are not inconsistent
with the Plan.
Section 8. Effectiveness and Termination of Plan. The Plan shall be
-------------------------------------
effective on the date on which it is adopted by the Board and the Board may in
its sole discretion terminate the Plan at any time.
Section 9. Amendment of Plan. The Board may make such amendments to
-----------------
the Plan and, with the consent of each Eligible Participant adversely affected,
to the terms and conditions of the Stock Subscription Agreement as it shall deem
advisable.
Section 10. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as directors, the members of the Board (current
and former) shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Board member is not entitled to
indemnification under applicable law; provided that within 60 days after
institution of any such action, suit or proceeding such Board member shall in
writing offer the Company the opportunity, at the Company's expense, to handle
and defend the same.
Section 11. Governing Law. The Plan shall be construed under and
-------------
governed by the laws of the State of Delaware without regard to conflict of law
provisions thereof.
2.
<PAGE>
Section 12. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Stock Subscription Agreement shall confer, intend to
confer or imply any rights of employment by or other relationship with or rights
to continued employment by or other relationship with the Company, any
Subsidiary or any other entity in favor of any Eligible Participant or limit the
ability of the Company, any Subsidiary or any other entity to terminate, with or
without cause, in its sole and absolute discretion, the employment of or other
relationship with any such person, subject to the terms of any written
employment agreement to which such person is a party.
3.
<PAGE>
EXHIBIT 10.41
BRYLANE INC.
STOCK SUBSCRIPTION AGREEMENT
----------------------------
THIS STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of _______________, 199__ by and between Brylane Inc., a
Delaware corporation (the "Company"), and _________________ ("Participant"),
pursuant to that certain Brylane Inc. 1996 Stock Subscription Plan (the "Plan").
R E C I T A L S:
---------------
A. Participant previously purchased shares of common stock of VP
Holding Corporation pursuant to the terms of that certain Stock Subscription
Agreement dated as of [August 30, 1993] between VP Holding Corporation, a
Delaware corporation ("VP Holding"), and Participant (the "VP Holding
Subscription Agreement").
B. Pursuant to the terms of Section 9(b)(i) of the VP Holding
Subscription Agreement, Participant agreed in connection with the formation of
IPO Corporation (as defined in the VP Holding Subscription Agreement, with the
term IPO Corporation understood to refer to the Company) to exchange the shares
of VP Holding common stock held by Participant for shares of common stock, $0.01
par value per share, of the Company (the "Common Stock") in the same manner as
FSEP (as defined in the VP Holding Subscription Agreement) exchanges its shares
of VP Holding common stock for shares of Common Stock of the Company in
connection with the formation of the Company. Participant further agreed in
Section 9(c) of the VP Holding Subscription Agreement to take such other actions
and to execute such agreements and documents as are necessary or desirable to
consummate such exchange.
C. The Company now desires to issue shares of Common Stock to
Participant in exchange for the shares of VP Holding common stock held by
Participant in the manner contemplated by and required under Section 9(b) of the
VP Holding Subscription Agreement and based on the same exchange ratio at which
FSEP is exchanging shares of VP Holding common stock it holds for shares of
Common Stock. Pursuant to the terms of Section 9(b)(ii) of the VP Holding
Subscription Agreement, all stockholders of VP Holding shall receive the same
kind of securities of the Company
<PAGE>
for each share of VP Holding common stock. The date on which such exchange
occurs shall be referred to herein as the "Closing Date," with the exchange to
occur concurrently with the exchange of shares of VP Holding common stock by
FSEP.
D. Pursuant to Section 10(h) of the VP Holding Subscription
Agreement, Participant agreed to hold such shares of Common Stock issued in
exchange for the shares of VP Holding common stock held by Participant subject
to the restrictions and interests created by the VP Holding Subscription
Agreement which are restated and set forth in this Agreement.
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, in order to implement the
prior agreements set forth in the VP Holding Subscription Agreement the parties
agree as follows:
1. Exchange of Stock. The Company will issue to Participant in
-----------------
exchange for the shares of VP Holding common stock held by Participant, subject
to the conditions and restrictions contained in this Agreement, _______ shares
(individually, a "Share," and collectively, the "Shares") of the Common Stock of
the Company, which for purposes of this Agreement shall be deemed to have been
issued at a price of $10.00 per Share, for an aggregate deemed exchange price of
$__________ (the "Purchase Price") (as such amounts may be adjusted in
connection with the Initial Public Offering (as defined in the VP Holding
Subscription Agreement)). The Purchase Price is equal to the Purchase Price of
the VP Holding common stock held by the Participant which was paid by delivery
of (a) cash or Participant's check in the amount of $_______, and (b) a
promissory note of Participant issued to VP Holding for the remainder of the
Purchase Price (the "Note"). Payment of all amounts owed under the Note and
compliance by Participant with the terms and conditions of the VP Holding
Subscription Agreement and the Pledge Agreement (as defined in the VP Holding
Subscription Agreement) were secured by a pledge of the shares of common stock
of VP Holding held by Participant, in conjunction with which Participant
executed the Pledge Agreement. Participant hereby agrees to make continued
payments under the Note (which has been assigned to Brylane, L.P., a Delaware
limited partnership (the "Partnership")) and Participant further agrees that the
Pledge Agreement shall secure payment in full of all obligations under the Note
and Participant agrees to be bound by and fully perform all terms and conditions
of this Agreement, the Note and the Pledge Agreement and agrees and acknowledges
that the Shares will be substituted as collateral under the Pledge Agreement for
2.
<PAGE>
the shares of VP Holding common stock and shall be subject to all of the terms
and conditions thereof. This Agreement constitutes full authorization to VP
Holding to transfer the shares of VP Holding common stock held by the
Participant on its books and records to reflect the Company as the transferee
thereof.
2. Restriction on Transfer of the Shares.
-------------------------------------
(a) Except as otherwise provided herein including as set forth in
clause (b) below, Participant may not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of (collectively, "Transfer") any of the
Shares, or any right, title or interest therein prior to August 30, 1997. Any
purported Transfer or Transfers (including involuntary Transfers initiated by
operation of legal process) of any of the Shares or any right, title or interest
therein, except in strict compliance with the terms and conditions of this
Agreement, shall be null and void.
(b) Notwithstanding any provision of Section 2(a), Participant may
Transfer any of the Shares, or any right, title or interest therein upon
consummation of an Initial Public Offering meeting the requirements of Section
7(b)(i) or (ii) or, if later, after expiration of the lock-up period set forth
in the Lock-up Agreement (as defined below) if the Participant executes and
complies with the provisions of any reasonable lock-up agreement the Participant
is requested to execute in connection with the Initial Public Offering (the
"Lock-up Agreement"). All Transfers must comply with Section 7 of the Pledge
Agreement.
3. Repurchase Upon Termination.
---------------------------
(a) The Company's Repurchase Option. Until August 30, 1997, in the
-------------------------------
event that Participant's employment with the Company and all of its directly or
indirectly majority or wholly owned entities (individually, a "Subsidiary," and
collectively, the "Subsidiaries") terminates for any reason (including, without
limitation, by reason of Participant's death, disability, retirement, voluntary
resignation or dismissal by the Company or any of its Subsidiaries, with or
without cause), the Company shall have the option (the "Repurchase Option") to
purchase from Participant all or any portion of the Shares for a period of 60
days after the effective date of such termination (the effective date of
termination is hereinafter referred to as the "Termination Date"). The purchase
price (the "Repurchase Price") for each Share to be purchased pursuant to the
Repurchase Option shall equal the Fair Market Value (as hereinafter defined) for
each Share repurchased hereunder.
(b) Definition of Fair Market Value. As used herein, the definition
-------------------------------
of "Fair Market Value" of each Share shall be determined based on the average of
the Quoted Prices of a share of Common Stock for the five consecutive business
days prior to the Termination Date. The "Quoted Price" of a share of Common
Stock shall be the last reported sales price of the Common Stock as reported by
NASDAQ ("NASDAQ"), or if the Common
3.
<PAGE>
Stock is listed on a securities exchange, the last reported sales price of the
Common Stock on such exchange (which shall be for consolidated trading if
applicable to such exchange), or if the Common Stock is not so reported or
listed, the average of the last reported bid and asked price of the Common
Stock. If at any time the Common Stock is not listed on any exchange or NASDAQ,
the Board of Directors shall determine such fair market value on the basis of
the best available evidence, which determination shall be final and binding.
(c) Exercise of Repurchase Option. The Repurchase Option shall be
-----------------------------
exercised by the Company by delivery to Participant, within the 60 day period
specified in Section 3(a) hereof, of a written notice of its election to so
exercise. Such notice shall therein specify (i) the number of Shares which
shall have vested as of the Termination Date; (ii) the number of Shares which
the Company elects to repurchase; and (iii) a day, which shall not be more than
30 days after the date such notice is delivered, on or before which Participant
shall surrender (if Participant has not already done so) the certificate or
certificates representing the Shares to be purchased pursuant to the Repurchase
Option (duly endorsed in blank for Transfer) at the principal office of the
Company in exchange for a check, payable to Participant or such person as
Participant shall request, in the amount equal to the Repurchase Price,
calculated as provided in this Section 3, multiplied by the number of the Shares
to be purchased. If Participant fails to so surrender such certificate or
certificates on or before such date, from and after such date the Shares which
the Company elected to repurchase shall be deemed to be no longer outstanding,
and Participant shall cease to be a stockholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the Repurchase Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
Notwithstanding the foregoing in this Section 3(c), in the event any principal,
interest, fees, expenses or other amounts due on or in connection with the Note
(the "Outstanding Amount") are owed to the Company by Participant, the
Repurchase Price for the number of the Shares to be repurchased hereunder shall
be reduced (to an amount not less than zero) by such Outstanding Amount, which
reduction shall be specified in reasonable detail in the Company's written
notice of election to exercise the Repurchase Option. If the Outstanding Amount
exceeds the Repurchase Price for the number of Shares to be repurchased,
Participant shall remain obligated and liable to the Company for the unpaid
balance thereof.
4. Permitted Transfers. Subject to and upon full compliance with
-------------------
Section 7 of the Pledge Agreement, Participant may, at any time or times,
transfer any or all of the Shares: (a) inter vivos to Participant's spouse or
issue, a trust for their benefit, or pursuant to any will or testamentary trust;
or (b) upon Participant's death, to any person in accordance with the laws of
descent and/or testamentary distribution (such persons described in clauses (a)
and (b) hereof are collectively referred to herein as "Permitted Transferees").
Notwithstanding the foregoing in this Section 4, Shares shall not be Transferred
pursuant to clause (a) or (b) of this Section 4 until the Permitted Transferee
executes a valid undertaking, in form and substance reasonably satisfactory to
the Company, to the effect that the Permitted
4.
<PAGE>
Transferee and the Shares so Transferred shall thereafter remain subject to all
of the provisions of this Agreement (including the Repurchase Option) and the
Pledge Agreement, as though the Permitted Transferee were a party to this
Agreement and the Pledge Agreement, bound in every respect in the same way as
Participant.
5. Security for Performance. Pursuant to Section 1 hereof, the
------------------------
Company and Participant hereby acknowledge (a) that the Shares will be
automatically pledged to secure the payment of all obligations existing under
the Note whether for principal, interest, fees, expenses or otherwise and/or to
ensure Participant's compliance with the terms and conditions of this Agreement
and the Pledge Agreement and (b) that the Pledge Agreement requires that the
certificates evidencing the Shares (the "Certificates") be held as security for
the payment of all obligations existing under the Note, whether for principal,
interest, fees, expenses or otherwise, and for Participant's compliance with the
terms and conditions of this Agreement and the Pledge Agreement. The Note and
Pledge Agreement are currently held by the Partnership. Subject to compliance
with the terms and conditions of this Agreement and of the Pledge Agreement,
Participant shall exercise all rights and privileges of the registered holder of
the Shares while they are held pursuant to the Pledge Agreement and shall be
entitled to receive any dividend or other distribution thereon.
6. Investment Representations. Participant represents and warrants
--------------------------
to the Company as follows:
(a) Participant's Own Account. Participant is acquiring the Shares
-------------------------
for Participant's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Shares Not Registered. Participant understands that the Shares
---------------------
have not been registered under the Act or registered or qualified under the
securities laws of any state and that Participant may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification.
7. Effectiveness and Termination.
-----------------------------
(a) This Agreement shall become effective immediately prior to the
time that the Company completes an Initial Public Offering that results in (i)
receipt by the Company of at least $30,000,000 of gross proceeds from the sale
of newly issued stock or (ii) the sale of newly issued Common Stock representing
at least 20% of the outstanding Common Stock of the Company (after giving effect
to such offering); provided that such time must occur prior to June 30, 1997;
provided, further, that if the Company completes an Initial Public Offering that
does not satisfy the requirements of clause (i) or (ii) of this sentence, a
5.
<PAGE>
new subscription agreement containing all rights and obligations required to be
contained therein pursuant to the VP Holding Subscription Agreement will be
executed by the Company and Participant. Until such effective time occurs, the
VP Holding Subscription Agreement shall remain in effect.
(b) This Agreement shall terminate with respect to those Shares which
are acquired by the Company pursuant to Section 3 upon such acquisition.
8. Registration Rights. If the Participant is otherwise free to
-------------------
transfer the Shares under Section 2 hereof, but the Participant cannot transfer
such Shares in compliance with Rule 144 or Rule 701 under the Securities Act of
1933, as amended (the "Act"), as a result of the formation of the Company or the
manner in which the exchange of VP Holding common stock for the Shares occurs,
then the Company shall, on the later of (i) 120 days after consummation of the
Initial Public Offering or (ii) the termination of any lock-up period pursuant
to the Lock-up Agreement cause the Shares held by the Participant to be
registered under the Act, on a registration statement on Form S-8 (which may, if
necessary to permit resales, include a resale prospectus in appropriate form).
9. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION
AGREEMENT DATED AS OF _______________ BY AND BETWEEN BRYLANE INC., A
DELAWARE CORPORATION, AND THE ORIGINAL PARTICIPANT HEREOF, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
BRYLANE INC."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
6.
<PAGE>
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) a party may designate for itself by like notice):
If to the Company:
Brylane Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
If to Participant:
_________________________
_________________________
_________________________
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto.
(e) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
(f) Disputes. In the event of any dispute among the parties arising
--------
out of this Agreement, the prevailing party shall be entitled to recover from
the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
7.
<PAGE>
(h) Recapitalizations or Exchanges Affecting the Company's Capital
--------------------------------------------------------------
Stock; Issuances of Capital Stock. The provisions of this Agreement shall apply
- ---------------------------------
to any and all shares of capital stock or other securities of the Company or any
successor or assign of the Company which may be issued in respect of, in
exchange for or in substitution of, the Shares by reason of any stock dividend,
stock split, reverse split, recapitalization, reclassification, combination,
merger, consolidation or otherwise, and such shares or other securities shall be
encompassed within the term "Shares" for purposes of this Agreement and the
Pledge Agreement. The Company agrees that it shall not issue additional shares
of common stock to FSEP (or any affiliate thereof) unless the Company's Board of
Directors shall have made a good faith determination that the purchase price for
any such shares is equal to the fair market value of such shares.
(i) No Rights as an Employee. Nothing in this Agreement shall affect
------------------------
in any manner whatsoever the rights of the Company or any of its Subsidiaries to
terminate Participant's employment for any reason, with or without cause,
subject to the terms and conditions of any employment agreement to which
Participant may be a party.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Participant, and Participant shall have no right to be
advised of, any material information regarding the Company or any of its
Subsidiaries at any time prior to, upon or in connection with the Company's
repurchase of the Shares under this Agreement at the cessation or termination of
Participant's employment with the Company and/or any of its Subsidiaries.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns, and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the Repurchase Option provided for in Section 3 of this Agreement to any
of its affiliates, successors and/or assigns. For purposes of this Agreement,
the term "Shares" shall include shares of capital stock or other securities of
the Company or any successor or assign of the Company which are issued in
respect of, in exchange for or in substitution of the Shares by reason of any
stock dividend, stock split, reverse split, recapitalization, reclassification,
combination, merger, exchange or consolidation. Unless specifically provided
herein to the contrary, Participant may not assign any or all of its rights
and/or obligations and/or delegate any or all its duties under this Agreement
without the prior written consent of the Company. Upon an assignment of any or
all of Participant's rights and/or obligations and/or a delegation of any or all
of its duties under this Agreement in accordance with the terms of this
Agreement, this Agreement shall inure to the benefit of, and be binding upon,
Participant's
8.
<PAGE>
respective affiliates, successors and/or assigns in the same manner and to the
same extent as if such affiliates, successors and/or assigns were original
parties hereto.
(l) Headings. Introductory headings at the beginning of each section
--------
and subsection of this Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon or description of the contents
of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which, when taken
together, shall constitute one and the same Agreement.
9.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
Brylane Inc.,
a Delaware corporation
By: _______________________________
Its:___________________________
PARTICIPANT:
______________________________________
______________________________________
10.
<PAGE>
EXHIBIT 10.42
BRYLANE INC.
1996 PERFORMANCE STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1996 Performance Stock
-------------------
Option Plan, dated _________, 1996 (the "Plan"), of Brylane Inc., a Delaware
corporation (the "Company"). Under this Plan, officers, key employees and
consultants of the Company or any of its subsidiaries and certain members of the
Board of Directors of the Company, to be selected as set forth below, may be
granted options ("Options") to purchase shares of the common stock of the
Company ("Common Stock"). For purposes of this Plan, the term "subsidiary"
means any directly or indirectly majority or wholly owned entity of the Company
(individually, a "Subsidiary" and collectively, the "Subsidiaries"). It is
intended that the Options under this Plan will either qualify for treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and be designated "Incentive Stock Options" or not
qualify for such treatment and be designated "Nonqualified Stock Options."
Incentive Stock Options may only be granted to employees. This Plan is a
successor to the Brylane, L.P. 1993 Performance Partnership Unit Option Plan and
has been established, in part, to issue Options to purchase shares of Common
Stock under Section 12 hereof in exchange for options to acquire equity
interests in Brylane, L.P.
Section 2. Purpose of Plan. The purpose of the Plan and of granting
---------------
Options to specified persons is to further the growth, development and financial
success of the Company and its Subsidiaries by providing additional incentives
to certain officers, key employees, consultants and members of the Board of
Directors (or equivalent bodies) of the Company or its Subsidiaries. By
assisting such persons in acquiring shares of Common Stock, the Company can
ensure that such persons will themselves benefit directly from the Company's and
its Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
grants of Options under the Plan shall be (i) the officers, key employees and
consultants of the Company and the Subsidiaries; provided that bona fide
services shall be rendered to the Company or its Subsidiaries by such consultant
and such services shall not have been in connection with the offer and sale of
securities in a capital-raising transaction and (ii) members of the Board of
Directors (or equivalent bodies) of the Company or its Subsidiaries who are not
designees of FS Stockholders (as defined in that certain Stockholders' Agreement
of Brylane, Inc. or Lane Bryant Direct Holding, Inc. A person who holds an
Option is herein referred to as a "Participant," and more than one Option may be
granted to any Participant.
The aggregate fair market value (determined as of the time an Option
is granted) of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Participant in any calendar year under
this Plan and any other incentive stock option plans (which qualify under
Section 422 of the Code) of the Company or any Subsidiary shall not exceed
$100,000.
<PAGE>
Section 4. Administration.
--------------
(a) The Plan shall be administered by a committee (the "Committee") to
be composed of not less than two members of the Board. Members of the Committee
shall be appointed, both initially and as vacancies occur, by the Board, to
serve at the pleasure of the Board. Upon the first registration of an equity
security of the Company under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the extent possible and advisable, the Committee may be
constituted so as to permit this Plan to comply with Rule 16b-3 promulgated
under Section 16 of the Exchange Act and Section 162(m) of the Code. The
Committee shall meet at such times and places as it determines and may meet
through a telephone conference call. A majority of its members shall constitute
a quorum, and the decision of a majority of those present at any meeting at
which a quorum is present shall constitute the decision of the Committee. A
memorandum signed by all of its members shall constitute the decision of the
Committee without necessity, in such event, for holding an actual meeting.
(b) The Committee is authorized and empowered to administer the Plan
and, subject to the Plan, (i) to select the Participants to determine the number
of shares of Common Stock which may be purchased and in general to grant Options
and to extend the time period during which a Nonqualified Stock Option may be
exercised; (ii) to determine the dates upon which Options shall be granted and
the terms and conditions thereof in a manner not inconsistent with the Plan,
which terms and conditions need not be identical as to the various Options
granted; (iii) to determine which Options are to be Incentive Stock Options and
which Options are to be Nonqualified Stock Options; (iv) to interpret the Plan;
(v) to prescribe, amend and rescind rules relating to the Plan; (vi) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Committee; (vii)
to determine the rights and obligations of Participants under the Plan; (viii)
to specify the purchase price to be paid by Participants for shares of Common
Stock; (ix) to accelerate the time during which an Option may be exercised in
accordance with the provisions of Section 16 hereof, and to otherwise accelerate
the time during which an Option may be exercised (but not reduce the time of
exercise for Options which have vested), in each case notwithstanding the
provisions in the Option Agreement (as defined in Section 13) stating the time
during which it may be exercised; and (x) to make all other determinations
deemed necessary or advisable for the administration of the Plan. The good
faith interpretation and construction by the Committee of any provision of the
Plan or of any Option granted under it shall be final, conclusive and binding.
No member of the Committee shall be liable for any action or determination made
with respect to the Plan or any Option granted hereunder.
Section 5. Shares Subject to Plan. The aggregate amount of shares of
----------------------
Common Stock for which Options may be granted pursuant to the Plan shall be
779,584 subject to adjustment as provided in Section 11 hereof. The maximum
number of shares that may be granted to a single Participant is 500,000. The
number of shares of Common Stock
2.
<PAGE>
which may be purchased by a Participant upon exercise of each Option shall be
determined by the Committee and set forth in each Option Agreement. Upon the
expiration or termination, in whole or in part, for any reason of an outstanding
Option or any portion thereof which shall not have vested or shall not have been
exercised in full or in the event that any shares of Common Stock acquired
pursuant to the Plan are reacquired by the Company, (a) any shares of Common
Stock which have not been purchased or (b) the shares of Common Stock
reacquired, as the case may be, shall again become available for the granting of
additional Options under the Plan. Notwithstanding the preceding sentence,
shares subject to a terminated option shall continue to be considered to be
outstanding for purposes of determining the maximum number of shares that may be
issued to a single Participant. Similarly, the repricing of an Option will be
considered the grant of a new Option for this purpose.
Section 6. Option Price. Except as provided in Section 11 or Section
------------
12 hereof, the purchase price per share (the "Option Price") of the shares of
Common Stock underlying each Option shall not be less than 100 percent of the
fair market value of such shares on the date of grant of Option; provided,
however, that if the Participant is a 10-percent stockholder of the Company (as
defined in Code Section 422(b)(6)) at the time such Participant is granted an
Incentive Stock Option, the Option Price shall be not less than 110 percent of
said fair market value. Such fair market value shall be determined by the
Committee (i) if the Company's securities are traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (or a similar successor system), on the basis of the reported
closing sales price on such date or, in the absence of a reported sales price on
such date, on the basis of the average of the reported closing bid and asked
price on such date, or (ii) in the absence of both a reported sales price and a
reported bid and asked price under clause (i), the Committee shall determine
such fair market value on the basis of such evidence as it deems appropriate in
its sole discretion.
Section 7. Restrictions on Grants; Vesting of Options.
------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under the Plan subsequent to 10 years from
the date hereof. The vesting of all Options may be based on the Company's
attaining of performance criteria as specified at the time of the granting
thereof and may also be based on the passage of time. The Committee shall
determine the performance criteria, the performance measurement period and the
vesting schedule applicable to each Option or group of Options in a schedule, a
copy of which shall be filed with the records of the Committee and attached to
each Option Agreement to which the same applies. The performance criteria, the
performance measurement period and the vesting schedule need not be identical
for all Options granted hereunder. Following the conclusion of each applicable
performance measurement period, the Committee shall determine the extent, if at
all, to which each Option subject thereto shall have vested based upon the
applicable performance criteria and vesting schedule. To the extent each such
Option shall not have vested, and does not also vest based on the passage of
time, it shall, automatically terminate and cease to be exercisable to such
extent notwithstanding the stated
3.
<PAGE>
term during which it may be exercised. The Committee shall promptly notify each
affected Participant of such determination. The Committee may periodically
review the performance criteria applicable to any Option or Options and, in its
sole good faith judgment, may adjust the same to reflect unanticipated major
events, including but not limited to catastrophic occurrences, mergers and
acquisitions.
Section 8. Exercise of Options. Once vested, and prior to its
-------------------
termination date, an Option may be exercised by the Participant by giving
written notice to the Company specifying the number of shares of Common Stock to
be purchased and accompanied by payment of the full purchase price therefor in
cash, by check or in such other form of lawful consideration as the Committee
may approve from time to time, including without limitation and in the sole
discretion of the Committee, the assignment and transfer by the Participant to
the Company of outstanding shares of Common Stock theretofore held by the
Participant in a manner intended to comply with the provisions of Rule l6b-3
under the Exchange Act, if applicable. After giving due considerations of the
consequences under Section 16 of the Exchange Act and under the Code, the
Committee may also authorize the exercise of Options by the delivery to the
Company or its designated agent of an irrevocable written notice of exercise
form together with irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the shares of Common Stock and to deliver the sale or
margin loan proceeds directly to the Company to pay the exercise price of the
Option. Once vested, and prior to its termination date, an Option may only be
exercised by the Participant or in the event of death of the Participant, by the
person or persons (including the deceased Participant's estate) to whom the
deceased Participant's rights under such Option shall have passed by will or the
laws of descent and distribution. Notwithstanding the foregoing, in the event
of disability (within the meaning of Section 22(e)(3) of the Code) of a
Participant, a designee of the Participant (or the legal representative of the
Participant if the Participant has no designee) may exercise the Option on
behalf of such Participant (provided such Option would have been exercisable by
such Participant) until the right to exercise such Option expires, as set forth
in such Participant's particular Option Agreement or this Plan.
Section 9. Issuance of Common Stock. The Company's obligation to
------------------------
issue its shares of Common Stock upon exercise of an Option is expressly
conditioned upon the compliance by the Company with any registration or other
qualification obligations with respect to such shares of Common Stock under any
state and/or federal law or rulings and regulations of any government regulatory
body and/or the making of such investment representations or other
representations and undertakings by the Participant (or the Participant's
designee, legal representative, heir or legatee, as the case may be) in order to
comply with the requirements of any exemption from any such registration or
other qualification obligations with respect to such shares of Common Stock
which the Company in its sole discretion shall deem necessary or advisable.
Such required representations and undertakings may include representations and
agreements that such Participant (or the Participant's designee, legal
representative, heir or legatee): (a) is purchasing such shares of
4.
<PAGE>
Common Stock for investment and not with any present intention of selling or
otherwise disposing of such shares of Common Stock; and (b) agrees to have a
legend placed upon the face and reverse of any certificates evidencing such
shares of Common Stock (or, if applicable, an appropriate data entry made in the
ownership records of the Company) setting forth (i) any representations and
undertakings which such Participant has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of any
such shares of Common Stock, the Participant must furnish to the Company an
opinion of counsel, satisfactory to the Company and its counsel, to the effect
that such sale or disposition will not violate the applicable requirements of
state and federal laws and regulatory agencies; provided, however, that any such
legend or data entry shall be removed when no longer applicable without the
necessity of an opinion of counsel. Inability of the Company to obtain, from
any regulatory body having jurisdiction, authority reasonably deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
of Common Stock hereunder shall relieve the Company of any liability in respect
of the nonissuance or sale of such shares of Common Stock as to which such
requisite authority shall not have been obtained. Any shares of Common Stock
issued by the Company upon exercise of an Option granted hereunder may be
subject to a right of first refusal of the Company with respect to all shares of
Common Stock proposed to be transferred by Participant, as described in Section
13 hereof and certain other restrictions set forth in each particular Option
Agreement.
Section 10. Nontransferability. An Option may not be sold, pledged,
------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution. Any permitted transferee shall
be required prior to any transfer of an Option or shares of Common Stock
acquired pursuant to the exercise of an Option to execute a written undertaking
to be bound by the provisions of the applicable Option Agreement.
Section 11. Recapitalization, Reorganization; Merger or Consolidation.
---------------------------------------------------------
(a) Subject to Section 11(b) hereof, if the outstanding shares of Common Stock
of the Company are exchanged for different securities of the Company through a
reorganization, recapitalization or reclassification or if the number of
outstanding shares is changed through a stock split or stock dividend, an
appropriate adjustment shall be made (i) in the number or kind of shares which
may be purchased pursuant to the exercise of Options, as provided in Section 5
hereof, and (ii) in the number, exercise price, or kind of securities subject to
any outstanding Option granted under the Plan. Any such adjustment in an
outstanding Option, however, shall be made without change in the total price
applicable to the unexercised portion of the Option but with a corresponding
adjustment in the price for each share covered by the Option. In making such
adjustments, or in determining that no such adjustments are necessary, the
Committee may rely upon the advice of counsel and accountants to the Company,
and the good faith determination of the Committee shall be final, conclusive and
binding. No fractional shares of stock shall be issued or issuable under the
Plan on account of any such adjustment.
5.
<PAGE>
(b) Subject to Section 16 hereof (i) upon the dissolution,
liquidation or sale of all or substantially all of the business, properties and
assets of the Company, (ii) upon any reorganization, merger, consolidation or
exchange of securities in which the Company does not survive, (iii) upon any
reorganization, merger, consolidation or exchange of securities in which the
Company does survive and any of the Company's stockholders have the opportunity
to receive cash, securities and/or other property in exchange for their shares
of Common Stock of the Company or (iv) upon any acquisition by any person or
group (as defined in Section 13d of the Securities Act of 1934) of beneficial
ownership of more than 50% of the Company's then outstanding shares of Common
Stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein as an "Extraordinary Event"), the Plan and each outstanding
Option shall terminate. In such event, each Participant who is not tendered an
option by the surviving entity in accordance with all of the terms of the
immediately succeeding sentence, or who does not accept any such substituted
option which is so tendered, shall have the right until 10 days before the
effective date of such Extraordinary Event to exercise, in whole or in part, any
unexpired Option or Options issued to the Participant, to the extent that said
Option is then vested and exercisable pursuant to the provisions of said Option
or Options and of Section 7 of the Plan. The Company shall use its reasonable
best efforts to cause the surviving entity in any Extraordinary Event to tender
to any Participant an option or options to purchase other securities of the
surviving entity on the same basis as any Participant may purchase shares of
Common Stock hereunder and under the applicable Option Agreement (including
satisfaction of similar vesting provisions). The Company shall use its
reasonable best efforts to cause such new option or options to contain such
terms and provisions as shall substantially preserve the rights and benefits of
any Option then outstanding under the Plan with any reasonable changes to take
into account the circumstances of the surviving entity.
(c) The grant of an Option under the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications or
changes in its capital or business structures or to merge, consolidate,
dissolve, or liquidate or to sell or transfer all or any part of its business or
assets.
Section 12. Substitute Options. If the Company at any time should
------------------
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Options may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase interests in such entity held by them at
the time of succession. The Committee, in its sole and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such entity), the number of Options to be received by
each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and
6.
<PAGE>
absolute judgment of the Committee (and in compliance with Section 424(a) of the
Code), the economic benefit provided by such Option is not greater than the
economic benefit represented by the option in the acquired entity as of the date
of the Company's acquisition of such entity.
Section 13. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall indicate whether such Option is to be an Incentive Stock Option or a
Nonqualified Stock Option, and if an Incentive Stock Option shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock option under Section 422 of the Code; (c) may contain provisions which
give the Company a right of first refusal to purchase any shares of Common Stock
issued pursuant to the exercise of Options granted under the Plan which a
Participant proposes to sell and (d) may contain such other terms and conditions
as the Committee deems desirable and which are not inconsistent with the Plan.
Section 14. Rights as a Stockholder. No Participant (or any legal
-----------------------
representative, heir or legatee) shall have any rights as a stockholder with
respect to any shares covered by any Option until the date of the issuance of a
stock certificate to such person upon the due exercise of such Option. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
Section 15. Termination of Options. Each Option granted under the
----------------------
Plan shall set forth a termination date thereof, in addition to any other
termination events set forth in the Plan and in each particular Option
Agreement, which, with respect to Nonqualified Stock Options, shall be no later
than 16 years from the date such Option is granted and with respect to Incentive
Stock Options, shall be not later than ten years from the date such Option is
granted, unless the Participant is a 10-percent stockholder of the Company (as
described in Section 422(b)(6) of the Code) at the time such Option is granted,
in which case the Option shall terminate no later than five years from the date
of the grant thereof. An Incentive Stock Option shall contain any termination
events required by Section 422 of the Code. The termination of employment or
engagement in another relationship of a Participant (by death or otherwise)
shall not accelerate or otherwise affect the number of shares with respect to
which an Option may be exercised, and the Option may only be exercised with
respect to that number of shares which could have been purchased under the
Option had the Option been exercised by the Participant on the date of such
termination.
Section 16. Acceleration of Options. Notwithstanding the provisions
-----------------------
of Section 7 or Section 15 hereof, or any provision to the contrary contained in
a particular Option Agreement, the Committee, in its sole discretion, at any
time, or from time to time,
7.
<PAGE>
may elect to accelerate the vesting of all or any portion of any Option then
outstanding. The decision by the Committee to accelerate an Option or to
decline to accelerate an Option shall be final, conclusive and binding. In the
event of the acceleration of the exercisability of Options as the result of a
decision by the Committee pursuant to this Section 16, each outstanding Option
so accelerated shall be exercisable for a period of at least five days from and
after the date of such acceleration and upon such other terms and conditions as
the Committee may determine in its sole discretion; provided that such terms and
--------
conditions (other than terms and conditions relating solely to the acceleration
of exercisability and the related termination of an Option) may not adversely
affect the rights of any Participant without the consent of the Participant so
adversely affected. Any outstanding Option which has not been exercised by the
holder at the end of such period shall terminate automatically and become null
and void.
Section 17. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
shares of Common Stock issued to the Participant upon the exercise of an Option,
as may be required from time to time under any federal or state tax laws and
regulations. This withholding of tax shall be made from the Company's (or such
Subsidiary's) concurrent or next payment of wages, salary, bonus or other income
to the Participant or by payment to the Company (or such Subsidiary) by the
Participant of the required withholding tax, as the Committee may determine;
provided, however, that, in the sole discretion of the Committee, the
Participant may pay such tax by reducing the number of shares of Common Stock
issued upon exercise of an Option (for which purpose such shares of Common Stock
shall be valued at fair market value as determined in good faith by the
Committee, which determination shall be final, conclusive and binding).
Section 18. Effectiveness and Termination of the Plan. The Plan shall
-----------------------------------------
be effective on the date on which it is adopted by the Board. The Plan shall
terminate, in addition to the other termination events set forth in the Plan, at
the earliest of the time when all shares of Common Stock which may be issued
hereunder have been so issued; provided, however, that the Board may in its sole
discretion terminate the Plan at any other time. Subject to Section 11 hereof,
no such termination shall in any way affect any Option then outstanding.
Section 19. Time of Granting Options. The date of grant of an Option
------------------------
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
8.
<PAGE>
Section 20. Amendment of Plan. The Board of Directors may make such
-----------------
amendments to the Plan and, with the consent of each Participant adversely
affected, the Committee may make such changes in the terms and conditions of
granted Options as it shall deem advisable. Such amendments and changes shall
include, but not be limited to, acceleration of the time at which an Option may
be exercised, but may not, without the approval of the stockholders (a) increase
the maximum number of shares subject to Options, except pursuant to Section 11
hereof, or (b) change the designation of the class of employees eligible to
receive Incentive Stock Options.
Section 21. Transfers and Leaves of Absence. For purposes of the
-------------------------------
Plan, (a) a transfer of a Participant's employment or consulting relationship,
without an intervening period, between the Company and a Subsidiary shall not be
deemed a termination of employment or a termination of a consulting relationship
and (b) a Participant who is granted in writing a leave of absence shall be
deemed to have remained in the employ of, or in a consulting relationship with,
the Company (or a Subsidiary, whichever is applicable) during such leave of
absence except that for purposes of exercising an Incentive Stock Option, the
Participant will be considered to have terminated employment on the 91st day of
the leave, unless his or her right to re-employment is guaranteed by statute or
contract.
Section 22. No Obligation to Exercise Option. The granting of an
--------------------------------
Option shall impose no obligation on the Participant to exercise such Option.
Section 23. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board, the members of the
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including reasonable attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is not entitled to
indemnification under applicable law; provided that within 60 days after
institution of any such action, suit or proceeding such Committee member shall
in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
Section 24. Governing Law. The Plan and any Option granted pursuant
-------------
to the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 25. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Option Agreement shall confer, intend to confer or imply
any rights of employment or any rights to a consulting or other relationship or
rights to continued
9.
<PAGE>
employment by, or rights to a continued consulting or other relationship with,
the Company or any Subsidiary in favor of any Participant or limit the ability
of the Company, any Subsidiary or any other entity to terminate, with or without
cause, in its sole and absolute discretion, the employment of, or consulting or
other relationship with, any Participant, subject to the terms of any written
employment or consulting agreement to which a Participant is a party.
10.
<PAGE>
EXHIBIT 10.43
BRYLANE INC.
NONQUALIFIED PERFORMANCE STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of
_____________, 199__ by and between Brylane Inc., a Delaware corporation (the
"Company"), and _____________ ("Optionee") pursuant to the Brylane Inc. 1996
Performance Stock Option Plan dated ___________, 1996 (the "Plan"). All
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Plan.
R E C I T A L S:
- - - - - - - -
A. Optionee is an employee or consultant of Brylane, L.P., a Delaware
limited partnership and wholly-owned subsidiary of the Company (the
"Partnership"), and/or of a direct or indirect subsidiary of the Partnership
(individually, a "Subsidiary" and collectively, the "Subsidiaries") or an
independent member of the Board of Directors or Board of Representatives of the
Company and/or its Subsidiaries.
B. The Partnership has previously granted to Optionee the right to
purchase units of limited partnership interests of the Partnership ("Units")
pursuant to a Performance Partnership Unit Option Agreement by and between the
Partnership and Optionee dated [August 30, 1993] (the "Unit Option Agreement")
and the 1993 Performance Partnership Unit Option Plan of the Partnership (the
"Unit Option Plan").
C. Pursuant to the terms of Section 13(c) of the Unit Option Plan,
upon the formation of IPO Corporation (as defined in the Unit Option Plan, with
the term IPO Corporation understood to refer to the Company), the Company may
terminate the Unit Option Plan and all Unit Option Agreements if a new plan is
adopted and new option agreements are issued by the Company; provided, however,
that each participant under the Unit Option Plan shall have the right to
purchase the number of shares of common stock, $0.01 par value per share (the
"Common Stock"), of the Company that each participant would have received upon
formation of the Company in exchange for Units representing the same number of
Units which each participant would have been entitled to purchase (subject to
satisfaction of vesting provisions) pursuant to the terms of the Unit Option
Plan and applicable Unit Option Agreement immediately prior to the formation of
the Company. Pursuant to Section 7(e) or 7(f) of the Unit Option Agreement, as
applicable, Participant agreed to take such actions and to execute such
agreements and documents as are necessary or desirable in connection with the
foregoing, the formation of the Company and consummation of all transactions
related thereto.
D. The Company now desires to grant Optionee the right to purchase
shares of Common Stock of the Company pursuant to the terms and conditions of
this Agreement and the Plan in connection with the termination and cancellation
of the options
<PAGE>
held by Optionee pursuant to the Unit Option Agreement and the termination of
the Unit Option Plan.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, in order to implement the transactions contemplated in connection with
the termination of the Unit Option Plan and the prior agreements set forth in
the Unit Option Agreement, the parties agree as follows:
1. Option; Number of Shares. The Company hereby grants to Optionee
------------------------
the right (the "Option") to purchase up to a maximum of _______ shares (the
"Shares") of Common Stock at a price of $10.00 per share (the "Option Price") to
be paid in accordance with Section 6 hereof; which Option is granted under
Section 12 of the Plan in substitution for the options held by Optionee pursuant
to the Unit Option Agreement and as contemplated by Section 13(c) of the Unit
Option Plan. The Option and the right to purchase all or any portion of the
Shares are subject to the terms and conditions stated in this Agreement and in
the Plan. It is intended that the Option will not qualify for treatment as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Performance Criteria and Vesting. The Option shall vest, in whole
--------------------------------
or in part as specified on Schedule A hereto, (i) at such time that the Business
----------
(as defined on Schedule A hereto) achieves the performance criteria (the
"Performance Criteria") during the performance measurement period (the
"Measurement Period") and/or (ii) upon the passage of time, as specified on said
Schedule A. The Committee shall determine the extent to which the Business has
achieved the Performance Criteria following the conclusion of the Measurement
Period and, consequently, the extent, if at all, that the Option has vested. To
the extent the Option has not vested and does not also vest based on the passage
of time, it shall, to that extent, automatically terminate and cease to be
exercisable to such extent notwithstanding the stated term during which it may
be exercised.
3. Effectiveness; Term of Agreement.
--------------------------------
(a) This Agreement shall become effective immediately prior to the
time that the Company completes an initial public offering (an "Initial Public
Offering") pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Act") that results in (i) receipt by the Company
of at least $30,000,000 of gross proceeds from the sale of newly issued stock or
(ii) the sale of newly issued Common Stock representing at least 20% of the
outstanding common stock of the Company (after giving effect to such offering);
provided that such time must occur prior to June 30, 1997;
2.
<PAGE>
provided, further, that if the Company completes an Initial Public Offering
prior to June 30, 1997 that does not satisfy the requirements of clause (i) or
(ii) of this sentence, a new option agreement containing all rights and
obligations required to be contained therein pursuant to the Unit Option
Agreement will be executed by the Company and Optionee. Until such effective
time occurs, the Unit Option Agreement shall remain in effect.
(b) The Option, and Optionee's right to exercise the Option, shall
terminate when the first of the following occurs:
(i) termination pursuant to Section 2 hereof or Sections 11, 15 or 16
of the Plan;
(ii) the expiration of either 10 years from August 30, 1993 if the
Option has become vested pursuant to Section 3(a) of Schedule A hereto or 16
years from August 30, 1993 if the Option has become vested pursuant to Section
3(b) of Schedule A hereto; or
(iii) 90 days after the date of termination of Optionee's employment
or other relationship with the Company and the Subsidiaries, unless such
termination results from Optionee's death or disability (within the meaning of
Section 22(e)(3) of the Code) or Optionee dies within 90 days after the date of
termination of Optionee's employment or consulting relationship with the Company
and the Subsidiaries, in which case this Agreement and the Option shall
terminate 180 days after the date of termination of Optionee's employment or
other relationship with the Company and the Subsidiaries.
4. Termination of Employment or Other Relationship. The termination
-----------------------------------------------
for any reason of Optionee's employment or other relationship with the Company
and the Subsidiaries shall not accelerate the vesting of the Option or affect
the number of Shares with respect to which the Option may be exercised;
provided, however, that the Option may only be exercised with respect to that
number of Shares which could have been purchased under the Option had the Option
been exercised by Optionee on the date of such termination.
5. Death of Optionee; No Assignment. The rights of Optionee under
--------------------------------
this Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee; provided, however, that in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of Optionee, a designee of
Optionee (or the Optionee's legal representative if Optionee has not designated
anyone) may exercise the Option on behalf of Optionee (provided the Option would
have been exercisable by Optionee) until the right to exercise the Option
expires pursuant to Section 3 hereof. Any attempt to sell, pledge, assign,
3.
<PAGE>
hypothecate, transfer or otherwise dispose of the Option in contravention of
this Agreement or the Plan shall be void and shall have no effect. If Optionee
should die while Optionee is engaged in an employment or consulting relationship
with the Company and/or any Subsidiary, and provided Optionee's rights hereunder
shall have vested, in whole or in part, pursuant to Section 2 hereof, Optionee's
designee, legal representative, or legatee, the successor trustee of Optionee's
inter vivos trust or the person who acquired the right to exercise the Option by
reason of the death of Optionee (individually, a "Successor") shall succeed to
Optionee's rights under this Agreement. After the death of Optionee, only a
Successor may exercise the Option.
6. Exercise of Option. On or after the vesting of the Option in
------------------
accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to the extent exercisable as
determined under Section 2 hereof, upon delivery of the following to the Company
at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares (which may not be less than 100) or all of the
Shares (if less than 100 Shares then remain covered by the Option) then being
purchased;
(b) a check, cash or any combination thereof in the amount of the
aggregate Option Price (or payment of the aggregate Option Price in such other
form of lawful consideration as the Committee may approve from time to time
under the provisions of Section 8 of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's or the Partnership's withholding obligations under
federal, state or other applicable tax laws with respect to the taxable income,
if any, recognized by Optionee in connection with the exercise, in whole or in
part, of the Option (unless the Company and Optionee shall have made other
arrangements for deductions or withholding from Optionee's wages, bonus or other
income paid to Optionee by the Company or any Subsidiary, provided such
arrangements satisfy the requirements of applicable tax laws); and
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 8(b) hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee, or a
Successor, as the case may be, and such other agreements, representations and
undertakings as described in the Plan.
7. Registration Rights. If Optionee cannot transfer the shares of
-------------------
Common Stock to be received from the Company upon exercise of this Option in
compliance with Rule 701 under the Act, the Company shall, within 120 days of
the first date that this Option
4.
<PAGE>
is vested, cause the shares of Common Stock to be received upon exercise of this
Option to be registered under the Act on a registration statement on Form S-8
(which may, if necessary to permit resales, include a resale prospectus in
appropriate form).
8. Representations and Warranties of Optionee.
------------------------------------------
(a) Optionee represents and warrants that the Option is being acquired
by Optionee for Optionee's personal account, for investment purposes only, and
not with a view to the distribution, resale or other disposition thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such securities under the Act on the
basis of certain exemptions from such registration requirement. Accordingly,
Optionee agrees that Optionee's exercise of the Option may be expressly
conditioned upon Optionee's delivery to the Company of such representations and
undertakings as the Company may reasonably require in order to secure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing of such Shares.
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
9. No Rights as a Stockholder. Optionee shall have no rights as a
--------------------------
stockholder of any shares of Common Stock covered by the Option until the date
(the "Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 11 of
the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the Exercise Date.
10. Limitation of Company's Liability for Nonissuance. Inability of
-------------------------------------------------
the Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of Common Stock hereunder and under the Plan
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
11. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Company's principal
5.
<PAGE>
executive offices upon request and without charge. The good faith
interpretation of the Committee of any provision of the Plan, the Option or this
Agreement, and any determination with respect thereto or hereto by the
Committee, shall be final, conclusive and binding on all parties.
12. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
13. Notices. All notices, requests and other communications
-------
hereunder shall be in writing and, if given by telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to the Company:
Brylane Inc.
463 Seventh Ave., 21st Floor
New York, New York 10018
If to Optionee:
__________________________
__________________________
__________________________
14. Not an Employment or Other Agreement. Nothing contained in this
------------------------------------
Agreement shall confer, intend to confer or imply any rights to an employment or
other relationship or rights to a continued employment or other relationship
with the Company and/or any Subsidiary in favor of Optionee or limit the ability
of the Company and/or any Subsidiary to terminate, with or without cause, in its
sole and absolute discretion, the employment or other relationship with
Optionee, subject to the terms of any written employment or other agreement to
which Optionee is a party.
6.
<PAGE>
15. Governing Law. This Agreement shall be construed under and
-------------
governed by the laws of the State of Delaware without regard to the conflict of
law provisions thereof.
16. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
7.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
BRYLANE INC.
a Delaware corporation
By: ___________________________
Title:_____________________
OPTIONEE:
________________________________
8.
<PAGE>
EXHIBIT 10.44
BRYLANE INC.
NONQUALIFIED PERFORMANCE STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of
_____________, 199__ by and between Brylane Inc., a Delaware corporation (the
"Company"), and William C. Johnson ("Optionee") pursuant to the Brylane Inc.
1996 Performance Stock Option Plan dated ___________, 1996 (the "Plan"). All
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Plan.
R E C I T A L S:
- - - - - - - -
A. Optionee is an independent member of the Board of Directors of
the Company and the Board of Representatives of Brylane, L.P., a Delaware
limited partnership and direct and indirect wholly-owned subsidiary of the
Company (the "Partnership").
B. The Partnership has previously granted to Optionee the right to
purchase units of limited partnership interests of the Partnership ("Units")
pursuant to a Performance Partnership Unit Option Agreement by and between the
Partnership and Optionee dated May 27, 1994 (the "Unit Option Agreement") and
the 1993 Performance Partnership Unit Option Plan of the Partnership (the "Unit
Option Plan").
C. Pursuant to the terms of Section 13(c) of the Unit Option Plan,
upon the formation of IPO Corporation (as defined in the Unit Option Plan, with
the term IPO Corporation understood to refer to the Company), the Company may
terminate the Unit Option Plan and all Unit Option Agreements if a new plan is
adopted and new option agreements are issued by the Company; provided, however,
that each participant under the Unit Option Plan shall have the right to
purchase the number of shares of common stock, $0.01 par value per share (the
"Common Stock"), of the Company that each participant would have received upon
formation of the Company in exchange for Units representing the same number of
Units which each participant would have been entitled to purchase (subject to
satisfaction of vesting provisions) pursuant to the terms of the Unit Option
Plan and applicable Unit Option Agreement immediately prior to the formation of
the Company. Pursuant to Section 7(c) of the Unit Option Agreement, as
applicable, Participant agreed to take such actions and to execute such
agreements and documents as are necessary or desirable in connection with the
foregoing, the formation of the Company and consummation of all transactions
related thereto.
<PAGE>
D. The Company now desires to grant Optionee the right to purchase
shares of Common Stock of the Company pursuant to the terms and conditions of
this Agreement and the Plan in connection with the termination and cancellation
of the options held by Optionee pursuant to the Unit Option Agreement and the
termination of the Unit Option Plan.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, in order to implement the transactions contemplated in connection with
the termination of the Unit Option Plan and the prior agreements set forth in
the Unit Option Agreement, the parties agree as follows:
1. Option; Number of Shares. The Company hereby grants to Optionee
------------------------
the right (the "Option") to purchase up to a maximum of 20,000 shares (the
"Shares") of Common Stock at a price of $10.00 per share (the "Option Price") to
be paid in accordance with Section 6 hereof; which Option is granted under
Section 12 of the Plan in substitution for options held by Optionee pursuant to
the Unit Option Agreement and as contemplated by Section 13(c) of the Unit
Option Plan. The Option and the right to purchase all or any portion of the
Shares are subject to the terms and conditions stated in this Agreement and in
the Plan. It is intended that the Option will not qualify for treatment as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Performance Criteria and Vesting. The Option shall vest, in
--------------------------------
whole or in part as specified on Schedule A hereto, (i) at such time that the
----------
Business (as defined on Schedule A hereto) achieves the performance criteria
(the "Performance Criteria") during the performance measurement period (the
"Measurement Period") and/or (ii) upon the passage of time, as specified on said
Schedule A. The Committee shall determine the extent to which the Business has
achieved the Performance Criteria following the conclusion of the Measurement
Period and, consequently, the extent, if at all, that the Option has vested. To
the extent the Option has not vested and does not also vest based on the passage
of time, it shall, to that extent, automatically terminate and cease to be
exercisable to such extent notwithstanding the stated term during which it may
be exercised.
3. Term of Agreement. The Option, and Optionee's right to exercise
-----------------
the Option, shall terminate when the first of the following occurs:
2
<PAGE>
(a) termination pursuant to Section 2 hereof or Sections 11 or 15 of
the Plan;
(b) the expiration of either 10 years from May 27, 1994 if the Option
has become vested pursuant to Section 3(a) of Schedule A hereto or 16 years from
May 27, 1994 if the Option has become vested pursuant to Section 3(b) of
Schedule A hereto;
(c) 90 days after the date of termination of Optionee's membership on
the Board of Directors of the Company and the Board of Representatives of the
Partnership and any direct or indirect subsidiaries of the Company
(individually, a "Subsidiary" and collectively, the "Subsidiaries"), unless such
termination results from Optionee's death or disability (within the meaning of
Section 22(e)(3) of the Code) or Optionee dies within 90 days after the date of
termination of Optionee's membership on the Board of Directors of the Company
and the Board of Representatives of the Partnership and all of the Subsidiaries,
in which case this Agreement and the Option shall terminate 180 days after the
date of termination of Optionee's employment or consulting relationship with the
Partnership and all of the Subsidiaries; or
(d) the failure of an initial sale to the public of equity securities
of the Company (an "Initial Public Offering") pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act")
to (i) result in receipt by the Company of at least $30,000,000 of gross
proceeds from the sale of newly issued stock or (ii) result in the sale of newly
issued Common Stock representing at least 20% of the outstanding common stock of
the Company (after giving effect to such offering), upon which this Agreement
shall terminate and be of no force and effect; provided, however, that if the
Company completes an Initial Public Offering that does not satisfy the
requirements of clause (i) or (ii) of this sentence, a new option agreement
containing all rights and obligations required to be contained therein pursuant
to the Unit Option Agreement will be executed by the Company and Optionee.
4. Termination of Relationship. The termination for any reason of
---------------------------
Optionee's Board of Representative membership shall not accelerate the vesting
of the Option or affect the number of Shares with respect to which the Option
may be exercised; provided, however, that the Option may only be exercised with
respect to that number of Shares which could have been purchased under the
Option had the Option been exercised by Optionee on the date of such
termination.
5. Death of Optionee; No Assignment. The rights of Optionee under
--------------------------------
this Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee;
3
<PAGE>
provided, however, that in the event of disability (within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) of Optionee,
a designee of Optionee (or the Optionee's legal representative if Optionee has
not designated anyone) may exercise the Option on behalf of Optionee (provided
the Option would have been exercisable by Optionee) until the right to exercise
the Option expires pursuant to Section 3 hereof. Any attempt to sell, pledge,
assign, hypothecate, transfer or otherwise dispose of the Option in
contravention of this Agreement or the Plan shall be void and shall have no
effect. If Optionee should die while Optionee is engaged in a relationship with
the Partnership and/or any Subsidiary, and provided Optionee's rights hereunder
shall have vested, in whole or in part, pursuant to Section 2 hereof, Optionee's
designee, legal representative, or legatee, the successor trustee of Optionee's
inter vivos trust or the person who acquired the right to exercise the Option by
reason of the death of Optionee (individually, a "Successor") shall succeed to
Optionee's rights under this Agreement. After the death of Optionee, only a
Successor may exercise the Option.
6. Exercise of Option. On or after the vesting of the Option in
------------------
accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to the extent exercisable as
determined under Section 2 hereof, upon delivery of the following to the
Partnership at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement
and states the number of Shares (which may not be less than 100, or all of the
Shares if less than 100 Shares then remain covered by the Option) then being
purchased;
(b) a check, cash or any combination thereof in the amount of the
aggregate Option Price (or payment of the aggregate Option Price in such other
form of lawful consideration as the Committee may approve from time to time
under the provisions of Section 8 of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's or the Partnership's withholding obligations
under federal, state or other applicable tax laws with respect to the taxable
income, if any, recognized by Optionee in connection with the exercise, in whole
or in part, of the Option (unless the Partnership and Optionee shall have made
other arrangements for deductions or withholding from Optionee's wages, bonus or
other income paid to Optionee by the Partnership or any Subsidiary, provided
such arrangements satisfy the requirements of applicable tax laws); and
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 8(b) hereof, in such form and substance as the
Company may
4
<PAGE>
require, setting forth the investment intent of Optionee, or a Successor, as the
case may be, and such other agreements, representations and undertakings as
described in the Plan.
7. Registration Rights. If Optionee cannot transfer the shares of
-------------------
Common Stock to be received from the Company upon exercise of this Option in
compliance with Rule 701 under the Act, the Company shall, within 120 days of
the first date that this Option is vested, cause the shares of Common Stock to
be received upon exercise of this Option to be registered under the Act on a
registration statement on Form S-8 (which shall, if necessary to permit resales
of all Shares owned by Optionee, include a resale prospectus in appropriate
form).
8. Representations and Warranties of Optionee.
------------------------------------------
(a) Optionee represents and warrants that this Agreement has been
duly and validly executed and delivered by Optionee and this Agreement
constitutes a legal, valid and binding agreement of Optionee, enforceable
against Optionee in accordance with its terms (except as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies).
(b) Optionee represents and warrants that the Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof, and that Optionee is a resident of the State of Connecticut.
(c) Optionee acknowledges that the Company may issue Shares upon
the exercise of the Option without registering such securities under the Act on
the basis of certain exemptions from such registration requirement. Accordingly,
Optionee agrees that Optionee's exercise of the Option may be expressly
conditioned upon Optionee's delivery to the Company of such representations and
undertakings as the Company may reasonably require in order to secure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing of such Shares. Optionee acknowledges that, because
Shares received upon exercise of an Option may be unregistered, Optionee may be
required to hold the Shares indefinitely unless they are subsequently registered
for resale under the Act or an exemption from such registration is available.
(d) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
5
<PAGE>
9. No Rights as a Stockholder. Optionee shall have no rights as a
--------------------------
stockholder of any shares of Common Stock covered by the Option until the date
(the "Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 11 of
the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the Exercise Date.
10. Limitation of Company's Liability for Nonissuance. Inability of
-------------------------------------------------
the Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of Common Stock hereunder and under the Plan
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
11. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Partnership's principal executive offices upon request and
without charge. The good faith interpretation of the Committee of any provision
of the Plan, the Option or this Agreement, and any determination with respect
thereto or hereto by the Committee, shall be final, conclusive and binding on
all parties.
12. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
13. Notices. All notices, requests and other communications
-------
hereunder shall be in writing and, if given by telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
6
<PAGE>
If to the Company:
Brylane Inc.
463 Seventh Ave., 21st Floor
New York, New York 10018
If to Optionee:
William C. Johnson
P.O. Box 7106
Rancho Santa Fe, California 92067
Federal Express:
5406 El Secreto
Rancho Santa Fe, California 92067
14. Governing Law. This Agreement shall be construed under and
-------------
governed by the laws of the State of Delaware without regard to the conflict of
law provisions thereof.
15. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
16. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company is duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware. The Company
has all necessary power and authority to own its properties and assets and to
carry on its business as now conducted and is duly qualified or licensed to do
business as a foreign corporation in good standing in all jurisdictions in which
the character or the location of the assets owned or leased by it or the nature
of the business conducted by it requires licensing or qualification. True,
correct and complete copies of the Certificate of Incorporation of the Company
and the Plan as in effect on the date hereof have been delivered to the
Optionee. The Company's direct and indirect wholly-owned Subsidiaries are: VP
Holding Corporation (a Delaware corporation), VGP Corporation (a Delaware
corporation), VLP Corporation (a Delaware corporation), Brylane, L.P. (a
Delaware limited partnership), B.L. Catalog Distribution, Inc. (a Delaware
corporation), B.L. Management Services, Inc. (a Delaware corporation), Brylane
Capital Corp. (a Delaware corporation), B.L. Catalog Distribution Partnership
(an Indiana general partnership) and B.L. Management Services Partnership (a New
York general partnership).
7
<PAGE>
(b) As of the date hereof, the authorized capital stock of the
Company consists of 40,000,000 shares of common stock, $0.01 par value per share
(the "Common Stock"), of which _______ shares are issued and outstanding and
1,000,000 shares of preferred stock, $0.01 par value. There are no options or
other rights or other agreements, arrangements or commitments of any nature
obligating the Company to issue, transfer or sell any Shares, except as
otherwise provided (i) in this Agreement, (ii) the Brylane Inc. 1996 Senior
Management Stock Subscription Plan, (iii) the Brylane Inc. 1996 Stock
Subscription Plan, (iv) the Plan and (v) the Brylane Inc. 1996 Stock Option
Plan.
(c) The Company has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by the Company and this Agreement constitutes
a legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms (except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally or by principles governing the availability of equitable
remedies).
(d) No order, permit, consent, approval, license, authorization
or validation of, and no registration, filing of notice with, any governmental
entity is necessary to authorize or permit, or is required in connection with,
the execution, delivery or performance of this Agreement or the consummation by
the Company of the transactions contemplated hereby (assuming the truth of
Optionee's representations in Section 8 hereof).
(e) Neither the execution, delivery nor consummation of this
Agreement nor compliance by the Company with any of the provisions hereof will
(i) violate, conflict with or result in any breach of any provision of the
Certificate of Incorporation of the Company, (ii) result in a violation or
breach or termination of, or constitute a default under, any material agreement
to which the Company is subject, or (iii) violate any judgment, order, writ,
injunction, decree, award, statute, rule or regulation to which the Company is
subject (assuming the truth of Optionee's representations in Section 8 hereof).
8
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
BRYLANE INC.,
a Delaware corporation
By: ____________________________
Title: ____________________
OPTIONEE:
_________________________________
William C. Johnson
9
<PAGE>
EXHIBIT 10.45
BRYLANE INC.
1996 STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1996 Performance Stock
-------------------
Option Plan, dated _________, 1996 (the "Plan"), of Brylane Inc., a Delaware
corporation (the "Company"). Under this Plan, officers, key employees and
consultants of the Company or any of its subsidiaries and certain members of the
Board of Directors of the Company, to be selected as set forth below, may be
granted options ("Options") to purchase shares of the common stock of the
Company ("Common Stock"). For purposes of this Plan, the term "subsidiary"
means any directly or indirectly majority or wholly owned entity of the Company
(individually, a "Subsidiary" and collectively, the "Subsidiaries"). It is
intended that the Options under this Plan will either qualify for treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and be designated "Incentive Stock Options" or not
qualify for such treatment and be designated "Nonqualified Stock Options."
Incentive Stock Options may only be granted to employees. This Plan is a
successor to the Brylane, L.P. 1995 Performance Partnership Unit Option Plan and
has been established, in part, to issue Options to purchase shares of Common
Stock under Section 12 hereof in exchange for options to acquire equity
interests in Brylane, L.P.
Section 2. Purpose of Plan. The purpose of the Plan and of granting
---------------
Options to specified persons is to further the growth, development and financial
success of the Company and its Subsidiaries by providing additional incentives
to certain officers, key employees, consultants and members of the Board of
Directors (or equivalent bodies) of the Company or its Subsidiaries. By
assisting such persons in acquiring shares of Common Stock, the Company can
ensure that such persons will themselves benefit directly from the Company's and
its Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
grants of Options under the Plan shall be (i) the officers, key employees and
consultants of the Company and the Subsidiaries; provided that bona fide
services shall be rendered to the Company or its Subsidiaries by such consultant
and such services shall not have been in connection with the offer and sale of
securities in a capital-raising transaction and (ii) members of the Board of
Directors (or equivalent bodies) of the Company or its Subsidiaries who are not
designees of FS Stockholders (as defined in that certain Stockholders' Agreement
of Brylane, Inc. or Lane Bryant Direct Holding, Inc. A person who holds an
Option is herein referred to as a "Participant," and more than one Option may be
granted to any Participant. The aggregate fair market value (determined as of
the time an Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any Participant in
any calendar year under this Plan and any other incentive stock option plans
(which qualify under Section 422 of the Code) of the Company or any Subsidiary
shall not exceed $100,000.
<PAGE>
Section 4. Administration.
--------------
(a) The Plan shall be administered by a committee (the "Committee") to
be composed of not less than two members of the Board. Members of the Committee
shall be appointed, both initially and as vacancies occur, by the Board, to
serve at the pleasure of the Board. Upon the first registration of an equity
security of the Company under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the extent possible and advisable, the Committee may be
constituted so as to permit this Plan to comply with Rule 16b-3 promulgated
under Section 16 of the Exchange Act and Section 162(m) of the Code. The
Committee shall meet at such times and places as it determines and may meet
through a telephone conference call. A majority of its members shall constitute
a quorum, and the decision of a majority of those present at any meeting at
which a quorum is present shall constitute the decision of the Committee. A
memorandum signed by all of its members shall constitute the decision of the
Committee without necessity, in such event, for holding an actual meeting.
(b) The Committee is authorized and empowered to administer the Plan
and, subject to the Plan, (i) to select the Participants, to determine the
number of shares of Common Stock which may be purchased and in general to grant
Options and to extend the time period during which a Nonqualified Stock Option
may be exercised; (ii) to determine the dates upon which Options shall be
granted and the terms and conditions thereof in a manner not inconsistent with
the Plan, which terms and conditions need not be identical as to the various
Options granted; (iii) to determine which Options are to be Incentive Stock
Options and which Options are to be Nonqualified Stock Options; (iv) to
interpret the Plan; (v) to prescribe, amend and rescind rules relating to the
Plan; (vi) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Committee; (vii) to determine the rights and obligations of Participants
under the Plan; (viii) to specify the purchase price to be paid by Participants
for shares of Common Stock; (ix) to accelerate the time during which an Option
may be exercised in accordance with the provisions of Section 16 hereof, and to
otherwise accelerate the time during which an Option may be exercised (but not
reduce the time of exercise for Options which have vested), in each case
notwithstanding the provisions in the Option Agreement (as defined in Section
13) stating the time during which it may be exercised; and (x) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The good faith interpretation and construction by the Committee of any provision
of the Plan or of any Option granted under it shall be final, conclusive and
binding. No member of the Committee shall be liable for any action or
determination made with respect to the Plan or any Option granted hereunder.
Section 5. Shares Subject to Plan. The aggregate amount of shares of
----------------------
Common Stock for which Options may be granted pursuant to the Plan shall be
500,000 subject to adjustment as provided in Section 11 hereof. The maximum
number of shares that may be granted to a single Participant is 400,000. The
number of shares of Common Stock
2.
<PAGE>
which may be purchased by a Participant upon exercise of each Option shall be
determined by the Committee and set forth in each Option Agreement. Upon the
expiration or termination, in whole or in part, for any reason of an outstanding
Option or any portion thereof which shall not have vested or shall not have been
exercised in full or in the event that any shares of Common Stock acquired
pursuant to the Plan are reacquired by the Company, (a) any shares of Common
Stock which have not been purchased or (b) the shares of Common Stock
reacquired, as the case may be, shall again become available for the granting of
additional Options under the Plan. Notwithstanding the preceding sentence,
shares subject to a terminated option shall continue to be considered to be
outstanding for purposes of determining the maximum number of shares that may be
issued to a single Participant. Similarly, the repricing of an Option will be
considered the grant of a new Option for this purpose.
Section 6. Option Price. Except as provided in Section 11 or Section
------------
12 hereof, the purchase price per share (the "Option Price") of the shares of
Common Stock underlying each Option shall not be less than 100 percent of the
fair market value of such shares on the date of grant of Option; provided,
however, that if the Participant is a 10-percent stockholder of the Company (as
defined in Code Section 422(b)(6)) at the time such Participant is granted an
Incentive Stock Option, the Option Price shall be not less than 110 percent of
said fair market value. Such fair market value shall be determined by the
Committee (i) if the Company's securities are traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (or a similar successor system), on the basis of the reported
closing sales price on such date or, in the absence of a reported sales price on
such date, on the basis of the average of the reported closing bid and asked
price on such date, or (ii) in the absence of both a reported sales price and a
reported bid and asked price under clause (i), the Committee shall determine
such fair market value on the basis of such evidence as it deems appropriate in
its sole discretion.
Section 7. Restrictions on Grants; Vesting of Options.
------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under the Plan subsequent to 10 years from
the date hereof. The vesting of all Options may be based on the passage of
time. The Committee shall determine the vesting schedule applicable to each
Option or group of Options in a schedule, a copy of which shall be filed with
the records of the Committee and attached to each Option Agreement to which the
same applies. The vesting schedule need not be identical for all Options granted
hereunder. The Committee may periodically review the vesting criteria
applicable to any Option or Options and, in its sole good faith judgment, may
adjust the same to reflect unanticipated major events, including but not limited
to catastrophic occurrences, mergers and acquisitions.
Section 8. Exercise of Options. Once vested, and prior to its
-------------------
termination date, an Option may be exercised by the Participant by giving
written notice to the Company specifying the number of shares of Common Stock to
be purchased and accompanied by payment of the full purchase price therefor in
cash, by check or in such
3.
<PAGE>
other form of lawful consideration as the Committee may approve from time to
time, including without limitation and in the sole discretion of the Committee,
the assignment and transfer by the Participant to the Company of outstanding
shares of Common Stock theretofore held by the Participant in a manner intended
to comply with the provisions of Rule l6b-3 under the Exchange Act, if
applicable. After giving due considerations of the consequences under Section
16 of the Exchange Act and under the Code, the Committee may also authorize the
exercise of Options by the delivery to the Company or its designated agent of an
irrevocable written notice of exercise form together with irrevocable
instructions to a broker-dealer to sell or margin a sufficient portion of the
shares of Common Stock and to deliver the sale or margin loan proceeds directly
to the Company to pay the exercise price of the Option. Once vested, and prior
to its termination date, an Option may only be exercised by the Participant or
in the event of death of the Participant, by the person or persons (including
the deceased Participant's estate) to whom the deceased Participant's rights
under such Option shall have passed by will or the laws of descent and
distribution. Notwithstanding the foregoing, in the event of disability (within
the meaning of Section 22(e)(3) of the Code) of a Participant, a designee of the
Participant (or the legal representative of the Participant if the Participant
has no designee) may exercise the Option on behalf of such Participant (provided
such Option would have been exercisable by such Participant) until the right to
exercise such Option expires, as set forth in such Participant's particular
Option Agreement or this Plan.
Section 9. Issuance of Common Stock. The Company's obligation to
------------------------
issue its shares of Common Stock upon exercise of an Option is expressly
conditioned upon the compliance by the Company with any registration or other
qualification obligations with respect to such shares of Common Stock under any
state and/or federal law or rulings and regulations of any government regulatory
body and/or the making of such investment representations or other
representations and undertakings by the Participant (or the Participant's
designee, legal representative, heir or legatee, as the case may be) in order to
comply with the requirements of any exemption from any such registration or
other qualification obligations with respect to such shares of Common Stock
which the Company in its sole discretion shall deem necessary or advisable.
Such required representations and undertakings may include representations and
agreements that such Participant (or the Participant's designee, legal
representative, heir or legatee): (a) is purchasing such shares of Common Stock
for investment and not with any present intention of selling or otherwise
disposing of such shares of Common Stock; and (b) agrees to have a legend placed
upon the face and reverse of any certificates evidencing such shares of Common
Stock (or, if applicable, an appropriate data entry made in the ownership
records of the Company) setting forth (i) any representations and undertakings
which such Participant has given to the Company or a reference thereto, and (ii)
that, prior to effecting any sale or other disposition of any such shares of
Common Stock, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed
4.
<PAGE>
when no longer applicable without the necessity of an opinion of counsel.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, authority reasonably deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares of Common Stock
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares of Common Stock as to which such requisite
authority shall not have been obtained. Any shares of Common Stock issued by
the Company upon exercise of an Option granted hereunder may be subject to a
right of first refusal of the Company with respect to all shares of Common Stock
proposed to be transferred by Participant, as described in Section 13 hereof and
certain other restrictions set forth in each particular Option Agreement.
Section 10. Nontransferability. An Option may not be sold, pledged,
------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution. Any permitted transferee shall
be required prior to any transfer of an Option or shares of Common Stock
acquired pursuant to the exercise of an Option to execute a written undertaking
to be bound by the provisions of the applicable Option Agreement.
Section 11. Recapitalization, Reorganization; Merger or Consolidation.
---------------------------------------------------------
(a) Subject to Section 11(b) hereof, if the outstanding shares of Common Stock
of the Company are exchanged for different securities of the Company through a
reorganization, recapitalization or reclassification or if the number of
outstanding shares is changed through a stock split or stock dividend, an
appropriate adjustment shall be made (i) in the number or kind of shares which
may be purchased pursuant to the exercise of Options, as provided in Section 5
hereof, and (ii) in the number, exercise price, or kind of securities subject to
any outstanding Option granted under the Plan. Any such adjustment in an
outstanding Option, however, shall be made without change in the total price
applicable to the unexercised portion of the Option but with a corresponding
adjustment in the price for each share covered by the Option. In making such
adjustments, or in determining that no such adjustments are necessary, the
Committee may rely upon the advice of counsel and accountants to the Company,
and the good faith determination of the Committee shall be final, conclusive and
binding. No fractional shares of stock shall be issued or issuable under the
Plan on account of any such adjustment.
(b) Subject to Section 16 hereof (i) upon the dissolution,
liquidation or sale of all or substantially all of the business, properties and
assets of the Company, (ii) upon any reorganization, merger, consolidation or
exchange of securities in which the Company does not survive, (iii) upon any
reorganization, merger, consolidation or exchange of securities in which the
Company does survive and any of the Company's stockholders have the opportunity
to receive cash, securities and/or other property in exchange for their shares
of Common Stock of the Company or (iv) upon any acquisition by any person or
group (as defined in Section 13d of the Securities Act of 1934) of beneficial
ownership of more than 50% of the Company's then outstanding shares of Common
Stock (each of the events
5.
<PAGE>
described in clauses (i), (ii), (iii) or (iv) is referred to herein as an
"Extraordinary Event"), the Plan and each outstanding Option shall terminate.
In such event, each Participant who is not tendered an option by the surviving
entity in accordance with all of the terms of the immediately succeeding
sentence, or who does not accept any such substituted option which is so
tendered, shall have the right until 10 days before the effective date of such
Extraordinary Event to exercise, in whole or in part, any unexpired Option or
Options issued to the Participant, to the extent that said Option is then vested
and exercisable pursuant to the provisions of said Option or Options and of
Section 7 of the Plan. The Company shall use its reasonable best efforts to
cause the surviving entity in any Extraordinary Event to tender to any
Participant an option or options to purchase other securities of the surviving
entity on the same basis as any Participant may purchase shares of Common Stock
hereunder and under the applicable Option Agreement (including satisfaction of
similar vesting provisions). The Company shall use its reasonable best efforts
to cause such new option or options to contain such terms and provisions as
shall substantially preserve the rights and benefits of any Option then
outstanding under the Plan with any reasonable changes to take into account the
circumstances of the surviving entity.
(c) The grant of an Option under the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications or
changes in its capital or business structures or to merge, consolidate,
dissolve, or liquidate or to sell or transfer all or any part of its business or
assets.
Section 12. Substitute Options. If the Company at any time should
------------------
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Options may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase interests in such entity held by them at
the time of succession. The Committee, in its sole and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such entity), the number of Options to be received by
each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code), the economic benefit provided by such Option is not
greater than the economic benefit represented by the option in the acquired
entity as of the date of the Company's acquisition of such entity.
Section 13. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall indicate whether such Option is
6.
<PAGE>
to be an Incentive Stock Option or a Nonqualified Stock Option, and if an
Incentive Stock Option shall contain terms and conditions permitting such Option
to qualify for treatment as an incentive stock option under Section 422 of the
Code; (c) may contain provisions which give the Company a right of first refusal
to purchase any shares of Common Stock issued pursuant to the exercise of
Options granted under the Plan which a Participant proposes to sell and (d) may
contain such other terms and conditions as the Committee deems desirable and
which are not inconsistent with the Plan.
Section 14. Rights as a Stockholder. No Participant (or any legal
-----------------------
representative, heir or legatee) shall have any rights as a stockholder with
respect to any shares covered by any Option until the date of the issuance of a
stock certificate to such person upon the due exercise of such Option. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
Section 15. Termination of Options. Each Option granted under the
----------------------
Plan shall set forth a termination date thereof, in addition to any other
termination events set forth in the Plan and in each particular Option
Agreement, which, with respect to Nonqualified Stock Options, shall be no later
than seven years from the date such Option is granted and with respect to
Incentive Stock Options, if the Participant is a 10-percent stockholder of the
Company (as described in Section 422(b)(6) of the Code) at the time such Option
is granted, the Option shall terminate no later than five years from the date of
the grant thereof. An Incentive Stock Option shall contain any termination
events required by Section 422 of the Code. The termination of employment or
engagement in another relationship of a Participant (by death or otherwise)
shall not accelerate or otherwise affect the number of shares with respect to
which an Option may be exercised, and the Option may only be exercised with
respect to that number of shares which could have been purchased under the
Option had the Option been exercised by the Participant on the date of such
termination.
Section 16. Acceleration of Options. Notwithstanding the provisions
-----------------------
of Section 7 or Section 15 hereof, or any provision to the contrary contained in
a particular Option Agreement, the Committee, in its sole discretion, at any
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding. The decision by the Committee to
accelerate an Option or to decline to accelerate an Option shall be final,
conclusive and binding. In the event of the acceleration of the exercisability
of Options as the result of a decision by the Committee pursuant to this Section
16, each outstanding Option so accelerated shall be exercisable for a period of
at least five days from and after the date of such acceleration and upon such
other terms and conditions as the Committee may determine in its sole
discretion; provided that such terms and conditions (other than terms and
--------
conditions relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which
7.
<PAGE>
has not been exercised by the holder at the end of such period shall terminate
automatically and become null and void.
Section 17. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
shares of Common Stock issued to the Participant upon the exercise of an Option,
as may be required from time to time under any federal or state tax laws and
regulations. This withholding of tax shall be made from the Company's (or such
Subsidiary's) concurrent or next payment of wages, salary, bonus or other income
to the Participant or by payment to the Company (or such Subsidiary) by the
Participant of the required withholding tax, as the Committee may determine;
provided, however, that, in the sole discretion of the Committee, the
Participant may pay such tax by reducing the number of shares of Common Stock
issued upon exercise of an Option (for which purpose such shares of Common Stock
shall be valued at fair market value as determined in good faith by the
Committee, which determination shall be final, conclusive and binding).
Section 18. Effectiveness and Termination of the Plan. The Plan shall
-----------------------------------------
be effective on the date on which it is adopted by the Board. The Plan shall
terminate, in addition to the other termination events set forth in the Plan, at
the earliest of the time when all shares of Common Stock which may be issued
hereunder have been so issued; provided, however, that the Board may in its sole
discretion terminate the Plan at any other time. Subject to Section 11 hereof,
no such termination shall in any way affect any Option then outstanding.
Section 19. Time of Granting Options. The date of grant of an Option
------------------------
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 20. Amendment of Plan. The Board of Directors may make such
-----------------
amendments to the Plan and, with the consent of each Participant adversely
affected, the Committee may make such changes in the terms and conditions of
granted Options as it shall deem advisable. Such amendments and changes shall
include, but not be limited to, acceleration of the time at which an Option may
be exercised, but may not, without the approval of the stockholders (a) increase
the maximum number of shares subject to Options, except pursuant to Section 11
hereof, or (b) change the designation of the class of employees eligible to
receive Incentive Stock Options.
Section 21. Transfers and Leaves of Absence. For purposes of the
-------------------------------
Plan, (a) a transfer of a Participant's employment or consulting relationship,
without an intervening
8.
<PAGE>
period, between the Company and a Subsidiary shall not be deemed a termination
of employment or a termination of a consulting relationship and (b) a
Participant who is granted in writing a leave of absence shall be deemed to have
remained in the employ of, or in a consulting relationship with, the Company (or
a Subsidiary, whichever is applicable) during such leave of absence except that
for purposes of exercising an Incentive Stock Option, the Participant will be
considered to have terminated employment on the 91st day of the leave, unless
his or her right to re-employment is guaranteed by statute or contract.
Section 22. No Obligation to Exercise Option. The granting of an
--------------------------------
Option shall impose no obligation on the Participant to exercise such Option.
Section 23. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board, the members of the
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including reasonable attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is not entitled to
indemnification under applicable law; provided that within 60 days after
institution of any such action, suit or proceeding such Committee member shall
in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
Section 24. Governing Law. The Plan and any Option granted pursuant
-------------
to the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 25. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Option Agreement shall confer, intend to confer or imply
any rights of employment or any rights to a consulting or other relationship or
rights to continued employment by, or rights to a continued consulting or other
relationship with, the Company or any Subsidiary in favor of any Participant or
limit the ability of the Company, any Subsidiary or any other entity to
terminate, with or without cause, in its sole and absolute discretion, the
employment of, or consulting or other relationship with, any Participant,
subject to the terms of any written employment or consulting agreement to which
a Participant is a party.
9.
<PAGE>
EXHIBIT 10.46
BRYLANE INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of
_____________, 199__ by and between Brylane Inc., a Delaware corporation (the
"Company"), and _____________ ("Optionee") pursuant to the Brylane Inc. 1996
Stock Option Plan dated ___________, 1996 (the "Plan"). All capitalized terms
not otherwise defined herein shall have the meanings set forth in the Plan.
R E C I T A L S:
- - - - - - - -
A. Optionee is an employee or consultant of Brylane, L.P., a Delaware
limited partnership and wholly-owned subsidiary of the Company (the
"Partnership"), and/or of a direct or indirect subsidiary of the Partnership
(individually, a "Subsidiary" and collectively, the "Subsidiaries") or an
independent member of the Board of Directors or Board of Representatives of the
Company and/or its Subsidiaries or an independent member of the Board of
Directors or Board of Representatives of the Company and/or it Subsidiaries.
B. The Partnership has previously granted to Optionee the right to
purchase units of limited partnership interests of the Partnership ("Units")
pursuant to a Partnership Unit Option Agreement by and between the Partnership
and Optionee dated [_____________, 199__] (the "Unit Option Agreement") and the
1995 Partnership Unit Option Plan of the Partnership (the "Unit Option Plan").
C. Pursuant to the terms of Section 13(c) of the Unit Option Plan,
upon the formation of IPO Corporation (as defined in the Unit Option Plan, with
the term IPO Corporation understood to refer to the Company), the Company may
terminate the Unit Option Plan and all Unit Option Agreements if a new plan is
adopted and new option agreements are issued by the Company; provided, however,
that each participant under the Unit Option Plan shall have the right to
purchase the number of shares of common stock, $0.01 par value per share (the
"Common Stock"), of the Company that each participant would have received upon
formation of the Company in exchange for Units representing the same number of
Units which each participant would have been entitled to purchase (subject to
satisfaction of vesting provisions) pursuant to the terms of the Unit Option
Plan and applicable Unit Option Agreement immediately prior to the formation of
the Company. Pursuant to Section 7(e) or 7(f) of the Unit Option Agreement, as
applicable, Participant agreed to take such actions and to execute such
agreements and documents as are necessary or desirable in connection with the
foregoing, the formation of the Company and consummation of all transactions
related thereto.
D. The Company now desires to grant Optionee the right to purchase
shares of Common Stock of the Company pursuant to the terms and conditions of
this
<PAGE>
Agreement and the Plan in connection with the termination and cancellation of
the options held by Optionee pursuant to the Unit Option Agreement and the
termination of the Unit Option Plan.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, in order to implement the transactions contemplated in connection with
the termination of the Unit Option Plan and the prior agreements set forth in
the Unit Option Agreement, the parties agree as follows:
1. Option; Number of Shares. The Company hereby grants to Optionee
------------------------
the right (the "Option") to purchase up to a maximum of _______ shares (the
"Shares") of Common Stock at a price of $________ per share (the "Option Price")
to be paid in accordance with Section 6 hereof; which Option is granted under
Section 12 of the Plan in substitution for the options held by Optionee pursuant
to the Unit Option Agreement and as contemplated by Section 13(c) of the Unit
Option Plan. The Option and the right to purchase all or any portion of the
Shares are subject to the terms and conditions stated in this Agreement and in
the Plan. It is intended that the Option will not qualify for treatment as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Vesting Criteria. The Option shall vest, in whole or in part as
----------------
specified on Schedule A attached hereto.
----------
3. Effectiveness; Term of Agreement.
--------------------------------
(a) This Agreement shall become effective immediately prior to the
time that the Company completes an initial public offering (an "Initial Public
Offering") pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Act") that result in (i) receipt by the Company of
at least $30,000,000 of gross proceeds from the sale of newly issued stock or
(ii) the sale of newly issued Common Stock representing at least 20% of the
outstanding common stock of the Company (after giving effect to such offering),
provided that such time must occur prior to June 30, 1997; provided, further,
that if the Company completes an Initial Public Offering prior to June 30, 1997
that does not satisfy the requirements of clause (i) or (ii) of this sentence, a
new option agreement containing all rights and obligations required to be
contained therein pursuant to the Unit Option Agreement will be executed by the
Company and Optionee. Until such effective time occurs, the Unit Option
Agreement shall remain in effect.
2.
<PAGE>
(b) The Option, and Optionee's right to exercise the Option, shall
terminate when the first of the following occurs:
(i) termination pursuant to Sections 11, 15 or 16 of the Plan;
(ii) the expiration of seven years from the date hereof; or
(iii) 90 days after the date of termination of Optionee's employment
or other relationship with the Company and the Subsidiaries, unless such
termination results from Optionee's death or disability (within the meaning of
Section 22(e)(3) of the Code) or Optionee dies within 90 days after the date of
termination of Optionee's employment or consulting relationship with the Company
and the Subsidiaries, in which case this Agreement and the Option shall
terminate 180 days after the date of termination of Optionee's employment or
other relationship with the Company and the Subsidiaries.
4. Termination of Employment or Other Relationship. The termination
-----------------------------------------------
for any reason of Optionee's employment or other relationship with the Company
and the Subsidiaries shall not accelerate the vesting of the Option or affect
the number of Shares with respect to which the Option may be exercised;
provided, however, that the Option may only be exercised with respect to that
number of Shares which could have been purchased under the Option had the Option
been exercised by Optionee on the date of such termination.
5. Death of Optionee; No Assignment. The rights of Optionee under
--------------------------------
this Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee; provided, however, that in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of Optionee, a designee of
Optionee (or the Optionee's legal representative if Optionee has not designated
anyone) may exercise the Option on behalf of Optionee (provided the Option would
have been exercisable by Optionee) until the right to exercise the Option
expires pursuant to Section 3 hereof. Any attempt to sell, pledge, assign,
hypothecate, transfer or otherwise dispose of the Option in contravention of
this Agreement or the Plan shall be void and shall have no effect. If Optionee
should die while Optionee is engaged in an employment or other relationship with
the Company and/or any Subsidiary, and provided Optionee's rights hereunder
shall have vested, in whole or in part, pursuant to Section 2 hereof, Optionee's
designee, legal representative, or legatee, the successor trustee of Optionee's
inter vivos trust or the person who acquired the right to exercise the Option by
reason of the death of Optionee (individually, a "Successor") shall succeed to
Optionee's
3.
<PAGE>
rights under this Agreement. After the death of Optionee, only a Successor may
exercise the Option.
6. Exercise of Option. On or after the vesting of the Option in
------------------
accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to the extent exercisable as
determined under Section 2 hereof, upon delivery of the following to the Company
at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares (which may not be less than 100) or all of the
Shares (if less than 100 Shares then remain covered by the Option) then being
purchased;
(b) a check, cash or any combination thereof in the amount of the
aggregate Option Price (or payment of the aggregate Option Price in such other
form of lawful consideration as the Committee may approve from time to time
under the provisions of Section 8 of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's or the Partnership's withholding obligations under
federal, state or other applicable tax laws with respect to the taxable income,
if any, recognized by Optionee in connection with the exercise, in whole or in
part, of the Option (unless the Company and Optionee shall have made other
arrangements for deductions or withholding from Optionee's wages, bonus or other
income paid to Optionee by the Company or any Subsidiary, provided such
arrangements satisfy the requirements of applicable tax laws); and
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 8(b) hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee, or a
Successor, as the case may be, and such other agreements, representations and
undertakings as described in the Plan.
7. Registration Rights. If Optionee cannot transfer the shares of
-------------------
Common Stock to be received from the Company upon exercise of this Option in
compliance with Rule 701 under the Act, the Company shall, on the later of (i)
120 days after consummation of the Initial Public Offering or (ii) the
termination of any lock-up period pursuant to a lock-up agreement entered into
in connection with the Initial Public Offering, cause the shares of Common Stock
to be received upon exercise of this Option to be registered under the Act on a
registration statement on Form S-8 (which may, if necessary to permit resales,
include a resale prospectus in appropriate form).
8. Representations and Warranties of Optionee.
------------------------------------------
4.
<PAGE>
(a) Optionee represents and warrants that the Option is being acquired
by Optionee for Optionee's personal account, for investment purposes only, and
not with a view to the distribution, resale or other disposition thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such securities under the Act on the
basis of certain exemptions from such registration requirement. Accordingly,
Optionee agrees that Optionee's exercise of the Option may be expressly
conditioned upon Optionee's delivery to the Company of such representations and
undertakings as the Company may reasonably require in order to secure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing of such Shares.
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
9. No Rights as a Stockholder. Optionee shall have no rights as a
--------------------------
stockholder of any shares of Common Stock covered by the Option until the date
(the "Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 11 of
the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the Exercise Date.
10. Limitation of Company's Liability for Nonissuance. Inability of
-------------------------------------------------
the Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of Common Stock hereunder and under the Plan
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
11. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Company's principal executive offices upon request and
without charge. The good faith interpretation of the Committee of any provision
of the Plan, the Option or this Agreement, and any determination with respect
thereto or hereto by the Committee, shall be final, conclusive and binding on
all parties.
5.
<PAGE>
12. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
13. Notices. All notices, requests and other communications
-------
hereunder shall be in writing and, if given by telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to the Company:
Brylane Inc.
463 Seventh Ave., 21st Floor
New York, New York 10018
If to Optionee:
__________________________
__________________________
__________________________
14. Not an Employment or Other Agreement. Nothing contained in this
------------------------------------
Agreement shall confer, intend to confer or imply any rights to an employment or
other relationship or rights to a continued employment or other relationship
with the Company and/or any Subsidiary in favor of Optionee or limit the ability
of the Company and/or any Subsidiary to terminate, with or without cause, in its
sole and absolute discretion, the employment or other relationship with
Optionee, subject to the terms of any written employment or other agreement to
which Optionee is a party.
15. Governing Law. This Agreement shall be construed under and
-------------
governed by the laws of the State of Delaware without regard to the conflict of
law provisions thereof.
6.
<PAGE>
16. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
7.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
BRYLANE INC.
a Delaware corporation
By: ___________________________
Title:_____________________
OPTIONEE:
________________________________
8.
<PAGE>
EXHIBIT 10.61
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of May 1, 1996 and is
entered into between B.L. Management Services, Inc., a Delaware corporation (the
"Corporation") and ________________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Corporation desires to employ the Executive, and the Executive
desires to be so employed by the Corporation, on the terms and subject to the
conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually agree,
as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Corporation hereby employs the Executive, and the Executive agrees
to be employed by the Corporation, as [Title], for a term commencing on May 1,
1996 and continuing until the earlier of April 30, 1997 or the date such
employment shall have been terminated as provided in Section 3 hereof.
Beginning May 1, 1997, this Agreement shall renew automatically for an
additional one year term until the Corporation gives Executive written notice at
least 14 calendar days prior to the end of a term, of its intention to terminate
this Agreement; provided, however, that this Agreement may terminate earlier
than the end of a term as provided in Section 3 hereof. In his capacity as
[Title], the Executive shall faithfully perform to the best of his ability and
in a satisfactory manner all services and acts necessary or advisable as may be
assigned to him by the Board of Representatives (the "Partnership Board") of
Brylane, L.P., a Delaware limited partnership and the parent entity of the
Corporation (the "Partnership"). Throughout the term hereof the Executive
shall, except as may from time to time be otherwise agreed in writing by the
Corporation, devote his full-time working hours to his duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Corporation hereunder, the Executive shall be paid by the
Corporation a base salary at the annual rate of $________ for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any adjustments annually by the
<PAGE>
Board of Directors of the Corporation (the "Corporation Board") or, at the
Corporation Board's option, a compensation committee thereof (the "Committee"),
provided that any adjustments shall be in the sole discretion of the Corporation
Board or the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Corporation for management
employees. The Executive shall receive such other compensation as shall be
approved by the Corporation Board and shall participate in all fringe benefits
(including, without limitation, group medical, life, disability and accidental
death and dismemberment insurance), bonus and benefit plans which shall be
generally available from time to time to management employees of the
Corporation.
(c) The Executive shall be reimbursed in accordance with the policies
of the Corporation as adopted by the Corporation Board from time to time for his
reasonable travel, entertainment, business, meeting and similar expenditures,
incurred for the benefit of the Corporation and subject to approval of the Chief
Executive Officer of the Corporation or the Corporation Board. As an additional
condition to the reimbursement of such expenses by the Corporation to the
Executive, the Executive shall provide the Corporation with copies of all
available invoices and receipts, and otherwise account to the Corporation in
sufficient detail and with adequate documentation to allow the Corporation to
confirm the business nature of the expenses and claim an income tax deduction
for such paid items, if such items are deductible.
(d) The Partnership agrees that the Partnership shall provide the
Executive with a benefits package substantially similar (which is not materially
less favorable to the Executive in the aggregate) to those coverages and
benefits provided or made available by the previous employer of the Executive
(the "Prior Employer") or its affiliates to the Executive (and his dependents)
immediately prior to the consummation of the transactions contemplated by that
certain Transaction Agreement dated as of July 13, 1993, by and among VGP
Corporation, VLP Corporation and the Transferors (including the Prior Employer)
referred to therein. In addition, the Partnership shall provide a bonus or
incentive compensation plan which provides the Executive with the opportunity to
earn the right to be paid additional compensation as set forth on Exhibit A
---------
hereto. This subsection (d) shall not be implemented so as to limit any rights
or benefits to which the Executive or his dependents may be entitled under any
employee benefit plan maintained by or contributed to by the Corporation.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by the
Corporation on at least 30 days' prior written notice if the Corporation Board
determines that the Executive has become permanently disabled (as hereinafter
defined). Such
2
<PAGE>
written notice shall provide reasonable detail regarding the basis for such
determination. The Executive shall be deemed to be "permanently disabled," as
used in this subsection, if the Executive has been substantially unable to
discharge his duties and obligations hereunder by reason of illness, accident or
disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Corporation for cause (as hereinafter defined) upon written
notice from the Corporation Board to the Executive. Such written notice shall
provide reasonable detail regarding the basis for such determination. The
Corporation shall have "cause" to terminate the Executive, as used in this
subsection, only if the Corporation Board shall determine that the Executive
has, (i) refused or failed within a reasonable period of time to carry out any
reasonable and material direction from the Chief Executive Officer of the
Corporation, the Corporation Board or the Partnership Board (other than a
failure resulting from the Executive's incapacity due to physical or mental
illness), (ii) been guilty of a material and willful breach of the terms of this
Agreement, (iii) demonstrated gross negligence or willful misconduct in the
execution of his assigned duties, (iv) been convicted of a felony or other
serious crime involving moral turpitude, (v) engaged in fraud, embezzlement or
other illegal conduct to the detriment of the Corporation, (vi) intentionally
imparted confidential information relating to the Corporation to a third party,
other than in the course of carrying out the Executive's duties, or (vii)
materially and willfully breached any of his obligations pursuant to the Stock
Subscription Agreement dated as of August 30, 1993 between VP Holding
Corporation and the Executive if such breach has not been cured 5 days after
receipt of written notice to the Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
(d) In addition to the circumstances set forth in subsections (a), (b)
and (c) of this Section 3, the Corporation may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate his employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Corporation. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Corporation in the
Executive's base salary herein provided or as the same may be increased from
time to time or (ii) a material and willful breach by the Corporation of any of
its obligations to the Executive hereunder, including, without limitation, the
Corporation's failure to obtain the written assumption agreement described in
Section 10(a) if such agreement is not obtained within 5 days after written
notice that a written assumption agreement required under Section 10(a) has not
been obtained.
3
<PAGE>
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate his employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Corporation.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Corporation's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Corporation pursuant to subsection (a) of this Section 3 the Executive will get
the benefit of any Corporation disability plans; provided, however, that for a
period of 12 consecutive months after the effective date of the termination the
Corporation will pay the Executive the difference (if any) between the level of
annualized salary provided for in Section 2 hereof, less required withholdings,
and the amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically terminated
pursuant to subsection (c) of this Section 3, the Corporation shall continue to
pay to the Executive (or, if applicable, to his executor, administrator or
heirs) the Executive's salary in equal monthly installments at the level of
annualized salary provided for in Section 2 hereof being paid to the Executive
at the time of such termination, less required withholdings, for a period of 12
consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the Corporation
pursuant to subsection (d) of this Section 3 or if the Executive terminates his
employment pursuant to subsection (e) of this Section 3, the Corporation shall
continue to pay to the Executive the Executive's salary in equal monthly
installments at the level of annualized salary provided for in Section 2 hereof
being paid to the Executive at the time of such termination, less required
withholdings, for the greater of (A) the nine consecutive months after the
effective date of the termination, and (B) the period after the effective date
of the termination, through and including the April 30th immediately following
the effective date of the termination.
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
compensation earned by the
4
<PAGE>
Executive as the result of employment by another employer after the effective
date of termination of the Executive's employment by the Corporation.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the executive's employment by the
Corporation under federal, state or local law which provides for the
continuation of any medical or other employee benefits after such termination
date.
4. Noncompetition. If the Executive is terminated by the Corporation
--------------
for cause in accordance with Subsection 3(b) hereof, or if the Executive
terminates his employment other than for "good reason" in accordance with
Subsection 3(e) hereof, then except as provided in the next sentence, for a
period of 12 months after such termination, the Executive will not carry on (as
an employee, agent, consultant, independent contractor, stockholder, partner,
owner or otherwise) any trade or business competing with the then trade or
business of the Corporation (or its affiliates) in any state in which the
Corporation (or its affiliates) is carrying on such trade or business as of the
effective date of such termination. The foregoing provisions of this Section 4
notwithstanding, the Executive may own not more than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Corporation's (and its affiliates')
business and affairs that may come to his knowledge or have come to his
knowledge while employed by the Corporation or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Corporation and (iii) matters of a
technical nature. Except as required in the performance of his duties to the
Corporation under this Agreement, the Executive shall not use for his own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Corporation in advance.
6. Executive's Representation. The Executive shall be, and he
--------------------------
represents that he is, free to enter into this Agreement and not under any
contractual restraint which would prohibit his satisfactorily performing his
duties to the Corporation hereunder.
7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts of laws) of the State of New York.
5
<PAGE>
8. Costs. If either party brings any legal action against the other
-----
to enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Corporation and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Corporation shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Corporation's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Corporation pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Corporation hereunder and the Corporation shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the
--------
Executive of the terms of this Agreement, including specifically, but not
limited to, Sections 4 and 5, will result in immediate and irreparable injury
and harm to the Corporation, and will cause damage to the Corporation in amounts
difficult to ascertain. Accordingly, the Corporation shall be entitled to, and
Executive hereby consents to the entry of, the remedies or injunction and
specific performance, or either of such remedies, as well as all other remedies
to which the Corporation may be entitled, at law, in equity or otherwise.
6
<PAGE>
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Corporation:
B.L. Management Services, Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President - Human Resources
If to the Executive:
________________________
________________________
________________________
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and
7
<PAGE>
interpretation, the terms of such restrictive covenant shall be those allowed by
law and the covenant shall be deemed to have been revised accordingly. Each and
every term of this Agreement shall be enforced to the fullest extent permitted
by law.
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
The "Corporation": B.L. MANAGEMENT SERVICES, INC.
By:
----------------------------------------------
Title: Executive Vice President and
Chief Financial Officer
The "Executive": [NAME]
----------------------------------------------
Signature
The undersigned hereby guarantees the
performance of this Agreement by B.L.
Management Services, Inc., a Delaware
corporation
BRYLANE, L.P.
---------------------------------------------
Its: Authorized Representative
8
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Partnership Board
of management's operating budget for that season. Each participant in such
program may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Partnership Board, or the Committee, in its sole
discretion, operating profit for any given six-month season will also exclude
any and all operating profit that is attributable to transactions entered into
by Brylane or its affiliates during that six-month season. The Executive's
individual participant percentage under such plan will be ___%, subject to any
adjustments by the Partnership Board, or the Committee, as it may see fit in its
sole discretion.
9
<PAGE>
EXHIBIT 10.62
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of May 1, 1996 and is
entered into between B.L. Management Services, Inc., a Delaware corporation (the
"Corporation") and ________________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Corporation desires to employ the Executive, and the Executive
desires to be so employed by the Corporation, on the terms and subject to the
conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually agree,
as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Corporation hereby employs the Executive, and the Executive agrees
to be employed by the Corporation, as [Title], for a term commencing on May 1,
1996 and continuing until the earlier of April 30, 1997 or the date such
employment shall have been terminated as provided in Section 3 hereof.
Beginning May 1, 1997, this Agreement shall renew automatically for an
additional one year term until the Corporation gives Executive written notice at
least 14 calendar days prior to the end of a term, of its intention to terminate
this Agreement; provided, however, that this Agreement may terminate earlier
than the end of a term as provided in Section 3 hereof. In her capacity as
[Title], the Executive shall faithfully perform to the best of her ability and
in a satisfactory manner all services and acts necessary or advisable as may be
assigned to her by the Chief Executive Officer. Throughout the term hereof the
Executive shall, except as may from time to time be otherwise agreed in writing
by the Corporation, devote her full-time working hours to her duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Corporation hereunder, the Executive shall be paid by the
Corporation a base salary at the annual rate of $________ for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any adjustments annually by the Board of
Directors of the Corporation (the "Corporation Board") or, at the Corporation
<PAGE>
Board's option, a compensation committee thereof (the "Committee"), provided
that any adjustments shall be in the sole discretion of the Corporation Board or
the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Corporation for management
employees. The Executive shall receive such other compensation as shall be
approved by the Corporation Board and shall participate in all fringe benefits
(including, without limitation, group medical, life, disability and accidental
death and dismemberment insurance), bonus and benefit plans which shall be
generally available from time to time to management employees of the
Corporation.
(c) The Executive shall be reimbursed in accordance with the policies
of the Corporation as adopted by the Corporation Board from time to time for her
reasonable travel, entertainment, business, meeting and similar expenditures,
incurred for the benefit of the Corporation and subject to approval of the Chief
Executive Officer of the Corporation or the Corporation Board. As an additional
condition to the reimbursement of such expenses by the Corporation to the
Executive, the Executive shall provide the Corporation with copies of all
available invoices and receipts, and otherwise account to the Corporation in
sufficient detail and with adequate documentation to allow the Corporation to
confirm the business nature of the expenses and claim an income tax deduction
for such paid items, if such items are deductible.
(d) Brylane, L.P., a Delaware limited partnership and the parent
entity of the Corporation (the "Partnership"), agrees that the Partnership shall
provide the Executive with a benefits package substantially similar (which is
not materially less favorable to the Executive in the aggregate) to those
coverages and benefits provided or made available by the previous employer of
the Executive (the "Prior Employer") or its affiliates to the Executive (and her
dependents) immediately prior to the consummation of the transactions
contemplated by that certain Transaction Agreement dated as of July 13, 1993, by
and among VGP Corporation, VLP Corporation and the Transferors (including the
Prior Employer) referred to therein. In addition, the Partnership shall provide
a bonus or incentive compensation plan which provides the Executive with the
opportunity to earn the right to be paid additional compensation as set forth on
Exhibit A hereto. This subsection (d) shall not be implemented so as to limit
- ---------
any rights or benefits to which the Executive or her dependents may be entitled
under any employee benefit plan maintained by or contributed to by the
Corporation.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by the
Corporation on at least 30 days' prior written notice if the Corporation Board
determines that the Executive has become permanently disabled (as hereinafter
defined). Such
2
<PAGE>
written notice shall provide reasonable detail regarding the basis for such
determination. The Executive shall be deemed to be "permanently disabled," as
used in this subsection, if the Executive has been substantially unable to
discharge her duties and obligations hereunder by reason of illness, accident or
disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Corporation for cause (as hereinafter defined) upon written
notice from the Corporation Board to the Executive. Such written notice shall
provide reasonable detail regarding the basis for such determination. The
Corporation shall have "cause" to terminate the Executive, as used in this
subsection, only if the Corporation Board shall determine that the Executive
has, (i) refused or failed within a reasonable period of time to carry out any
reasonable and material direction from the Chief Executive Officer of the
Corporation, the Corporation Board or the Board of Representatives of the
Partnership (the "Partnership Board") (other than a failure resulting from the
Executive's incapacity due to physical or mental illness), (ii) been guilty of a
material and willful breach of the terms of this Agreement, (iii) demonstrated
gross negligence or willful misconduct in the execution of her assigned duties,
(iv) been convicted of a felony or other serious crime involving moral
turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the
detriment of the Corporation, (vi) intentionally imparted confidential
information relating to the Corporation to a third party, other than in the
course of carrying out the Executive's duties, or (vii) materially and willfully
breached any of her obligations pursuant to the Stock Subscription Agreement
dated as of August 30, 1993 between VP Holding Corporation and the Executive if
such breach has not been cured 5 days after receipt of written notice to the
Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
(d) In addition to the circumstances set forth in subsections (a), (b)
and (c) of this Section 3, the Corporation may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate her employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Corporation. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Corporation in the
Executive's base salary herein provided or as the same may be increased from
time to time; (ii) a material and willful breach by the Corporation of any of
its obligations to the Executive hereunder, including, without limitation, the
Corporation's failure to obtain the written assumption agreement described in
Section 10(a) if such agreement is not obtained within 5 days after written
notice that a written assumption agreement required under Section 10(a) has not
been obtained; or (iii) the
3
<PAGE>
involuntary termination (other than "for cause") of Mr. Peter J. Canzone as an
executive officer of the Partnership at any time.
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate her employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Corporation.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Corporation's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Corporation pursuant to subsection (a) of this Section 3 the Executive will get
the benefit of any Corporation disability plans; provided, however, that for a
period of 12 consecutive months after the effective date of the termination the
Corporation will pay the Executive the difference (if any) between the level of
annualized salary provided for in Section 2 hereof, less required withholdings,
and the amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically terminated
pursuant to subsection (c) of this Section 3, the Corporation shall continue to
pay to the Executive (or, if applicable, to her executor, administrator or
heirs) the Executive's salary in equal monthly installments at the level of
annualized salary provided for in Section 2 hereof being paid to the Executive
at the time of such termination, less required withholdings, for a period of 12
consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the Corporation
pursuant to subsection (d) of this Section 3 or if the Executive terminates her
employment pursuant to subsection (e) of this Section 3, the Corporation shall
continue to pay to the Executive the Executive's salary in equal monthly
installments at the level of annualized salary provided for in Section 2 hereof
being paid to the Executive at the time of such termination, less required
withholdings, for the greater of (A) the nine consecutive months after the
effective date of the termination, and (B) the period after the effective date
of the termination, through and including the April 30th immediately following
the effective date of the termination.
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the
4
<PAGE>
amount of any payment provided for in this Section 3, other than amounts set
forth in subsection (g)(i) of this Section 3, shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Corporation.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the executive's employment by the
Corporation under federal, state or local law which provides for the
continuation of any medical or other employee benefits after such termination
date.
4. Noncompetition. If the Executive is terminated by the Corporation
--------------
for cause in accordance with Subsection 3(b) hereof, or if the Executive
terminates her employment other than for "good reason" in accordance with
Subsection 3(e) hereof, then except as provided in the next sentence, for a
period of 12 months after such termination, the Executive will not carry on (as
an employee, agent, consultant, independent contractor, stockholder, partner,
owner or otherwise) any trade or business competing with the then trade or
business of the Corporation (or its affiliates) in any state in which the
Corporation (or its affiliates) is carrying on such trade or business as of the
effective date of such termination. The foregoing provisions of this Section 4
notwithstanding, the Executive may own not more than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Corporation's (and its affiliates')
business and affairs that may come to her knowledge or have come to her
knowledge while employed by the Corporation or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Corporation and (iii) matters of a
technical nature. Except as required in the performance of her duties to the
Corporation under this Agreement, the Executive shall not use for her own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Corporation in advance.
6. Executive's Representation. The Executive shall be, and she
--------------------------
represents that she is, free to enter into this Agreement and not under any
contractual restraint which would prohibit her satisfactorily performing her
duties to the Corporation hereunder.
5
<PAGE>
7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts of laws) of the State of New York.
8. Costs. If either party brings any legal action against the other to
-----
enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Corporation and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Corporation shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Corporation's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Corporation pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Corporation hereunder and the Corporation shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the
--------
Executive of the terms of this Agreement, including specifically, but not
limited to, Sections 4 and 5, will result in immediate and irreparable injury
and harm to the Corporation, and will cause
6
<PAGE>
damage to the Corporation in amounts difficult to ascertain. Accordingly, the
Corporation shall be entitled to, and Executive hereby consents to the entry of,
the remedies or injunction and specific performance, or either of such remedies,
as well as all other remedies to which the Corporation may be entitled, at law,
in equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Corporation:
B.L. Management Services, Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President - Human Resources
If to the Executive:
_____________________________
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent
7
<PAGE>
of such prohibition or unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent that a restrictive covenant contained herein
may, at any time, be more restrictive than permitted under the laws of any
jurisdiction where this Agreement may be subject to review and interpretation,
the terms of such restrictive covenant shall be those allowed by law and the
covenant shall be deemed to have been revised accordingly. Each and every term
of this Agreement shall be enforced to the fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
The "Corporation": B.L. MANAGEMENT SERVICES, INC.
By:
--------------------------------------------
Title: President and Chief Executive Officer
The "Executive": [NAME]
--------------------------------------------
Signature
The undersigned hereby guarantees the
performance of this Agreement by B.L.
Management Services, Inc., a Delaware
corporation
BRYLANE, L.P.
----------------------------------
Its: Authorized Representative
8
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Partnership Board
of management's operating budget for that season. Each participant in such
program may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Partnership Board, or the Committee, in its sole
discretion, operating profit for any given six-month season will also exclude
any and all operating profit that is attributable to transactions entered into
by Brylane or its affiliates during that six-month season. The Executive's
individual participant percentage under such plan will be ___%, subject to any
adjustments by the Partnership Board, or the Committee, as it may see fit in its
sole discretion.
9
<PAGE>
EXHIBIT 10.63
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of May 1, 1996 and
is entered into between Brylane, L.P., a Delaware limited partnership (the
"Partnership") and ________________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Partnership desires to employ the Executive, and the Executive
desires to be so employed by the Partnership, on the terms and subject to the
conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Partnership hereby employs the Executive, and the Executive agrees
to be employed by the Partnership, as [Title], for a term commencing on May 1,
1996 and continuing until the earlier of April 30, 1997 or the date such
employment shall have been terminated as provided in Section 3 hereof.
Beginning May 1, 1997, this Agreement shall renew automatically for an
additional one year term until the Partnership gives Executive written notice at
least 14 calendar days prior to the end of a term, of its intention to terminate
this Agreement; provided, however, that this Agreement may terminate earlier
than the end of a term as provided in Section 3 hereof. In his capacity as
[Title], the Executive shall faithfully perform to the best of his ability and
in a satisfactory manner all services and acts necessary or advisable as may be
assigned to him by the Chief Executive Officer. Throughout the term hereof the
Executive shall, except as may from time to time be otherwise agreed in writing
by the Partnership, devote his full-time working hours to his duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Partnership hereunder, the Executive shall be paid by the
Partnership a base salary at the annual rate of $________ for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any adjustments annually by the Board of
Representatives of the Partnership (the "Board") or, at the Board's option, a
compensation committee thereof (the "Committee"), provided that any adjustments
shall be in the sole discretion of the Board or the Committee.
<PAGE>
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Partnership for management
employees. The Executive shall receive such other compensation as shall be
approved by the Board and shall participate in all fringe benefits (including,
without limitation, group medical, life, disability and accidental death and
dismemberment insurance), bonus and benefit plans which shall be generally
available from time to time to management employees of the Partnership.
(c) The Executive shall be reimbursed in accordance with the policies
of the Partnership as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting and similar expenditures, incurred for
the benefit of the Partnership and subject to approval of the Chief Executive
Officer of the Partnership or the Board. As an additional condition to the
reimbursement of such expenses by the Partnership to the Executive, the
Executive shall provide the Partnership with copies of all available invoices
and receipts, and otherwise account to the Partnership in sufficient detail and
with adequate documentation to allow the Partnership to confirm the business
nature of the expenses and claim an income tax deduction for such paid items, if
such items are deductible.
(d) The Partnership agrees that the Partnership shall provide the
Executive with a benefits package substantially similar (which is not materially
less favorable to the Executive in the aggregate) to those coverages and
benefits provided or made available by the previous employer of the Executive
(the "Prior Employer") or its affiliates to the Executive (and his dependents)
immediately prior to the consummation of the transactions contemplated by that
certain Transaction Agreement dated as of July 13, 1993, by and among VGP
Corporation, VLP Corporation and the Transferors (including the Prior Employer)
referred to therein. In addition, the Partnership shall provide a bonus or
incentive compensation plan which provides the Executive with the opportunity to
earn the right to be paid additional compensation as set forth on Exhibit A
---------
hereto. This subsection (d) shall not be implemented so as to limit any rights
or benefits to which the Executive or his dependents may be entitled under any
employee benefit plan maintained by or contributed to by the Partnership.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by
the Partnership on at least 30 days' prior written notice if the Board
determines that the Executive has become permanently disabled (as hereinafter
defined). Such written notice shall provide reasonable detail regarding the
basis for such determination. The Executive shall be deemed to be "permanently
disabled," as used in this subsection, if the Executive has been substantially
unable to discharge his duties and obligations hereunder by reason of illness,
accident or disability for a period of 180 days in any twelve-month period.
2
<PAGE>
(b) The employment of the Executive hereunder may be terminated
forthwith by the Partnership for cause (as hereinafter defined) upon written
notice from the Board to the Executive. Such written notice shall provide
reasonable detail regarding the basis for such determination. The Partnership
shall have "cause" to terminate the Executive, as used in this subsection, only
if the Board shall determine that the Executive has, (i) refused or failed
within a reasonable period of time to carry out any reasonable and material
direction from the Chief Executive Officer of the Partnership or the Board
(other than a failure resulting from the Executive's incapacity due to physical
or mental illness), (ii) been guilty of a material and willful breach of the
terms of this Agreement, (iii) demonstrated gross negligence or willful
misconduct in the execution of his assigned duties, (iv) been convicted of a
felony or other serious crime involving moral turpitude, (v) engaged in fraud,
embezzlement or other illegal conduct to the detriment of the Partnership, (vi)
intentionally imparted confidential information relating to the Partnership to a
third party, other than in the course of carrying out the Executive's duties, or
(vii) materially and willfully breached any of his obligations pursuant to the
Stock Subscription Agreement dated as of August 30, 1993 between VP Holding
Corporation and the Executive if such breach has not been cured 5 days after
receipt of written notice to the Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
(d) In addition to the circumstances set forth in subsections (a),
(b) and (c) of this Section 3, the Partnership may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate his employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Partnership. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Partnership in the
Executive's base salary herein provided or as the same may be increased from
time to time or (ii) a material and willful breach by the Partnership of any of
its obligations to the Executive hereunder, including, without limitation, the
Partnership's failure to obtain the written assumption agreement described in
Section 10(a) if such agreement is not obtained within 5 days after written
notice that a written assumption agreement required under Section 10(a) has not
been obtained.
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate his employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Partnership.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Partnership's obligation
hereunder shall
3
<PAGE>
be limited to, (i) the payment of the compensation accrued under Section 2
hereof to the effective date of such termination and (for any termination other
than pursuant to Section 3(b)) a pro rata portion of any bonuses or incentive
compensation payable with respect to any period commencing prior to the
termination date, and (ii) in the case of termination under subsections (a),
(c), (d) or (e) of this Section 3, the additional compensation provided in
subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Partnership pursuant to subsection (a) of this Section 3 the Executive will get
the benefit of any Partnership disability plans; provided, however, that for a
period of 12 consecutive months after the effective date of the termination the
Partnership will pay the Executive the difference (if any) between the level of
annualized salary provided for in Section 2 hereof, less required withholdings,
and the amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically terminated
pursuant to subsection (c) of this Section 3, the Partnership shall continue to
pay to the Executive (or, if applicable, to his executor, administrator or
heirs) the Executive's salary in equal monthly installments at the level of
annualized salary provided for in Section 2 hereof being paid to the Executive
at the time of such termination, less required withholdings, for a period of 12
consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Partnership pursuant to subsection (d) of this Section 3 or if the Executive
terminates his employment pursuant to subsection (e) of this Section 3, the
Partnership shall continue to pay to the Executive the Executive's salary in
equal monthly installments at the level of annualized salary provided for in
Section 2 hereof being paid to the Executive at the time of such termination,
less required withholdings, for the greater of (A) the nine consecutive months
after the effective date of the termination, and (B) the period after the
effective date of the termination, through and including the April 30th
immediately following the effective date of the termination.
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Partnership.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the executive's employment by the
Partnership under federal,
4
<PAGE>
state or local law which provides for the continuation of any medical or other
employee benefits after such termination date.
4. Noncompetition. If the Executive is terminated by the Partnership for
--------------
cause in accordance with Subsection 3(b) hereof, or if the Executive terminates
his employment other than for "good reason" in accordance with Subsection 3(e)
hereof, then except as provided in the next sentence, for a period of 12 months
after such termination, the Executive will not carry on (as an employee, agent,
consultant, independent contractor, stockholder, partner, owner or otherwise)
any trade or business competing with the then trade or business of the
Partnership (or its affiliates) in any state in which the Partnership (or its
affiliates) is carrying on such trade or business as of the effective date of
such termination. The foregoing provisions of this Section 4 notwithstanding,
the Executive may own not more than 5% of the issued and outstanding shares of
any class of securities of an issuer whose securities are listed on a national
securities exchange or registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Partnership's (and its affiliates')
business and affairs that may come to his knowledge or have come to his
knowledge while employed by the Partnership or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Partnership and (iii) matters of a
technical nature. Except as required in the performance of his duties to the
Partnership under this Agreement, the Executive shall not use for his own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Partnership in advance.
6. Executive's Representation. The Executive shall be, and he represents
--------------------------
that he is, free to enter into this Agreement and not under any contractual
restraint which would prohibit his satisfactorily performing his duties to the
Partnership hereunder.
7. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal substantive laws (and not the laws of
conflicts of laws) of the State of Indiana.
8. Costs. If either party brings any legal action against the other to
-----
enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees
5
<PAGE>
and expenses of attorneys, accountants and expert witnesses, which shall
include, without limitation, all fees, costs and expenses of appeals and of
enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Partnership and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Partnership shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Partnership's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Partnership pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Partnership hereunder and the Partnership shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the Executive
--------
of the terms of this Agreement, including specifically, but not limited to,
Sections 4 and 5, will result in immediate and irreparable injury and harm to
the Partnership, and will cause damage to the Partnership in amounts difficult
to ascertain. Accordingly, the Partnership shall be entitled to, and Executive
hereby consents to the entry of, the remedies or injunction and specific
performance, or either of such remedies, as well as all other remedies to which
the Partnership may be entitled, at law, in equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require
6
<PAGE>
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by any party of the breach of any
term or provision contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Partnership:
Brylane, L.P.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President-Human Resources
If to the Executive:
_____________________________
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
7
<PAGE>
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The "Partnership": BRYLANE, L.P.
By: VGP Corporation
Its: General Partner
By:
--------------------------------------
Title: President
The "Executive": [NAME]
--------------------------------------
Signature
8
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be 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 for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Board, or the Committee, in its sole discretion,
operating profit for any given six-month season will also exclude any and all
operating profit that is attributable to transactions entered into by Brylane or
its affiliates during that six-month season. The Executive's individual
participant percentage under such plan will be ___%, subject to any adjustments
by the Board, or the Committee, as it may see fit in its sole discretion.
9
<PAGE>
EXHIBIT 10.64
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 ("Amendment No. 1") to that certain Employment
Agreement dated as of May 1, 1996 (the "Employment Agreement") between Sheila R.
Garelik (the "Executive") and B.L. Management Services, Inc., a Delaware
corporation (the "Corporation"), is dated as of July 15, 1996, and is entered
into between the Executive and the Corporation. All capitalized terms not
otherwise defined shall have the same meaning ascribed to them in the Employment
Agreement.
R E C I T A L S
---------------
WHEREAS, the Corporation has decided to promote the Executive from
Executive Vice President/President - Lane Bryant to President of Brylane, L.P.
subject to the terms and conditions set forth in this Amendment herein and the
Executive has agreed to accept such promotion.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree to the following Amendment No. 1 to the Employment Agreement:
1. The first sentence of Section 1 of the Employment Agreement shall
be amended in its entirety to read as follows:
"Subject to the other terms and conditions set forth herein, the
Corporation hereby employs the Executive, and the Executive agrees to be
employed by the Corporation, as President, for a term commencing on May 1, 1996
and continuing until the earlier of April 30, 1997 or the date such employment
shall have been terminated as provided in Section 3 hereof."
2. The third sentence of Section 1 of the Employment Agreement shall
be amended in its entirety to read as follows:
"In her capacity as President, the Executive shall faithfully
perform to the best of her ability and in a satisfactory manner all services and
acts necessary or advisable as may be assigned to her by the Chief Executive
Officer."
3. The first sentence of subparagraph (a) of Section 2 of the
Employment Agreement shall be amended in its entirety to read as follows:
"For all services to be rendered by Executive hereunder, and for
all rights granted the Corporation hereunder, the Executive shall be paid by the
Corporation a base salary at the annual rate of $385,000 for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings."
<PAGE>
4. The last sentence of Exhibit A to the Employment Agreement shall
be amended in its entirety to read as follows:
"The Executive's individual participant percentage under such
plan will be 60%, subject to any adjustments by the Partnership Board, or the
Committee, as it may see fit in its sole discretion."
5. Except as set forth above, all other provisions of the Employment
Agreement shall remain in full force and effect, including without limitation,
Sections 3 and 4 relating to the rights and obligations of the Executive upon
termination of the Executive's employment with the Corporation.
6. This Amendment No. 1 may be executed in counterparts, which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of the day and year first above written.
The "Corporation": B.L. MANAGEMENT SERVICES, INC.
By: /s/ Peter J. Canzone
------------------------------
Title: President and
Chief Executive Officer
The "Executive": SHEILA R. GARELIK
/s/ Sheila Garelik
-----------------------------------
Signature
The undersigned hereby guarantees the
performance of this Amendment No. 1 by
B.L. Management Services, Inc., a
Delaware corporation
BRYLANE, L.P.
/s/ Peter J. Canzone
-----------------------------------
Its: Authorized Representative
2
<PAGE>
EXHIBIT 10.65
LICENSE AMENDMENT
-----------------
THIS LICENSE AMENDMENT is made as of this 23rd day of July 1996, between BRYLANE
L.P. a Delaware Limited Partnership ("Brylane"), and SEARS SHOP AT HOME
SERVICES, INC., a Delaware Corporation ("SSAH").
BACKGROUND FACTS:
----------------
A. Brylane and SSAH entered into a License Agreement dated March 1, 1994 which
has been supplemented by Schedule No. 1 dated March 1, 1994, Schedule No. 2
dated February 1, 1995 and Schedule No. 3 dated February 1, 1995 (as
supplemented, the "License Agreement")
B. The License Agreement allows Brylane to conduct specialty catalog Programs
to sell various products to SSAH's customers.
C. Brylane has purchased certain assets from Wearguard Corporation another
licensee of SSAH. Included in those assets is Wearguard's right to conduct the
[King -Size] Big & Tall Program.
D. Brylane and SSAH desire to amend the License Agreement as provided herein.
In consideration of the foregoing and the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The Initial Term of the License Agreement is extended to February 28, 1999.
2. The attached Schedule No. 4 are the terms and conditions on which Wearguard
had been operating the original [King -Size] Big & Tall Program. Schedule
No. 4 has been restated to show Brylane as the Licensee. Brylane and SSAH
agree to sign Schedule No. 4 at the same time as they sign this License
Amendment. Section 14 of the License Agreement notwithstanding for
Schedule No. 4 only, the consideration to be paid to Licensor by Licensee
shall be as provided in Exhibit E-2 attached to this License Amendment.
3. a. The License Agreement, except as amended herein, is in all other
respects fully ratified and confirmed.
b. Except as defined herein, all capitalized items used in this License
Amendment shall have the meanings ascribed to such terms in the License
Agreement.
<PAGE>
c. Each party executing this License Amendment represents and warrants
that he/she has the power and authority to execute this document on behalf
of his/her respective party.
d. Brylane represents and warrants that Brylane has the full power and
authority to enter into this License Amendment and to amend the License
Agreement and that Brylane does not need the consent of any lender holding
a security interest in Brylane's business or any other party.
IN WITNESS WHEREOF, the parties have executed this License Amendment as of the
day and year first above written.
SEARS SHOP AT HOME SERVICES, INC.
By: /s/ Vachel Pennebaker
-------------------------
Its: President + CEO
-------------------------
BRYLANE, L.P.
By: /s/ Peter J. Canzone
-------------------------
Its: Chairman/CEO
-------------------------
<PAGE>
SCHEDULE NO. 4
--------------
This Schedule is made and entered into as of 23rd day of July, 1996 by and
between Sears Shop at Home Services, Inc., a Delaware corporation (hereinafter
"Licensor"), and Brylane L.P. a Delaware Limited Partnership (hereinafter
"Licensee"). This Schedule shall be governed by the terms and conditions of the
License Agreement between the parties dated March 1, 1994 (hereinafter
"Agreement").
PROGRAM: [KING-SIZE CO.] BIG & TALL
- --------
TERM: This Schedule shall be coterminous with the Agreement unless earlier
- -----
terminated as provided therein.
PRODUCT/CATEGORIES: Big & Tall Men's Apparel, as more fully described in
- -------------------
Exhibit A, attached hereto and made a part hereof.
ADDITIONAL LICENSOR MARK(S): Big & Tall
- ----------------------------
ADDITIONAL LICENSEE MARK(S): King-Size
- ----------------------------
PRODUCT: All Products presented to Licensor as of the date of this Schedule and
- --------
any Product of substantially the same type and quality is approved by Licensor
for the term of this Schedule.
PRODUCT LITERATURE: All materials shall conform to Licensor's Advertising
- -------------------
Guidelines. Licensor acknowledges that final copy and final cover reviews occur
six (6) weeks prior to printing. Licensor will clear all final copy and final
cover within five (5) working days of receipt. If Licensor fails to respond by
these time constraints, clearance is deemed to be received by Licensee.
Licensee will provide Licensor color copies of Catalog covers to obtain
approval.
MARKETING STRATEGY: The marketing strategy will maximize the long-term value of
- -------------------
the business. An annual and seasonal marketing strategy, including circulation
quantities and catalog request programs, will be jointly agreed to by the
parties. The circulation plan provided by Licensee to Licensor for the period
beginning with the effective date of this Agreement through 12/31, 96 is
acceptable to Licensor. The circulation decisions will be discussed and agreed
to annually, for each season, and as otherwise required during the year.
However, Licensor will not require Licensee to circulate to segments where
projected incremental revenue per book is below breakeven, exclusive of
royalties. Program catalogs will be mailed to the Customer List as modified by
marketing selections developed by Licensee. Any annual revisions of more than
five percent (5%) must be jointly agreed to by both parties.
<PAGE>
OPERATING STANDARDS: The Program shall operate according to the Operating
- --------------------
Standards outlined in Exhibit B of the Agreement.
ADDRESS: All promotional materials sent to Customers under the Program
- --------
described in this Schedule and all response vehicles for mail orders therefor
will carry Licensor's name and the following address:
BIG & TALL
P.O. BOX 8361
INDIANAPOLIS, INDIANA 46283-8361
IN WITNESS WHEREOF, the parties have signed this Schedule as of the day and year
first written by their proper officers or representatives duly authorized
thereunto.
SEARS SHOP AT HOME SERVICES, INC. BRYLANE, L.P.
By: /s/ Vachel Pennebaker By: /s/ Peter J. Canzone
----------------------- ----------------------
Vachel Pennebaker Peter J. Canzone
President and CEO Chairman/CEO
<PAGE>
EXHIBIT A TO SCHEDULE 4
-----------------------
PROGRAM: [KING-SIZE CO.] BIG & TALL
- --------
PRODUCT/CATEGORIES: Big & Tall Men's Apparel, defined as men's apparel and
- -------------------
accessories of 2XL or larger, or neck size 18" or larger, or waist size of 42"
or larger (with all associated inseams), or chest size of 44" or larger.
Slacks
Sweaters
Shorts
Branded Collections
Swimwear
Outerwear
Activewear
Jeans
Shirts
Westernwear
Hosiery
Underwear
Nightwear & Robes
Men's Accessories
Sport coats
Suits
TERMS OF EXCLUSIVITY:
- ---------------------
1. The rights granted by Licensor are exclusive to Licensee with respect to
merchandise in the Product/Categories identified above, as marketed to potential
Program Customers through a big and tall Catalog marketing such Products to the
men's big and tall segment. Item exclusivity cannot be granted; however,
----
duplication of items in non-Licensee Programs shall be held to a minimum.
2. The following Product/Categories may be represented in this Program;
however, due to their limited exposure in the Program, Licensor does not grant
--------
Licensee exclusive rights to these Product/Categories:
License Apparel
Leather Apparel
Men's Footwear
<PAGE>
EXHIBIT E-2
-----------
FINANCIAL CONSIDERATION SCHEDULE TO LICENSE AGREEMENT BETWEEN BRYLANE, L.P. AND
SEARS SHOP AT HOME SERVICES, INC.
FINANCIAL CONSIDERATION:
- ------------------------
Licensor and Licensee shall be responsible for generating revenue by mailing
catalogs developed by Licensee, to list selections provided by Licensor. *
*
*
* Information deleted
pursuant to Rule 406.
<PAGE>
EXHIBIT 10.66
ASSET PURCHASE AGREEMENT
BY AND AMONG
THE TJX COMPANIES, INC.,
CHADWICK'S, INC.,
AND
BRYLANE, L.P.
________________
AS OF OCTOBER 18, 1996
<PAGE>
Page
----
TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES...... 1
1.1. Transfer of Assets.................................. 1
------------------
1.2. Assumption of Liabilities........................... 2
-------------------------
1.3. The Closing......................................... 2
-----------
1.4. Estimated Purchase Price; Purchase Price............ 3
----------------------------------------
1.5. Purchase Price Allocations and Tax Adjustment....... 5
---------------------------------------------
2. REPRESENTATIONS AND WARRANTIES OF TJX AND SELLER............... 7
2.1. Organization; Capitalization........................ 7
----------------------------
2.2. Authorization; No Violation......................... 8
---------------------------
2.3. Financial Statements; Absence of Undisclosed
--------------------------------------------
Liabilities......................................... 10
-----------
2.4. Title to Assets..................................... 10
---------------
2.5. Tax Matters......................................... 11
-----------
2.6. Contracts........................................... 12
---------
2.7. Compliance with Laws................................ 14
--------------------
2.8. Employee Relations.................................. 14
------------------
2.9. Absence of Certain Changes or Events................ 14
------------------------------------
2.10. Trade Names and Other Intangible Property........... 17
-----------------------------------------
2.11. Employee Benefit Plans.............................. 17
----------------------
2.12. Transactions with Affiliates........................ 18
----------------------------
2.13. Insurance........................................... 19
---------
2.14. Litigation.......................................... 19
----------
2.15. Regulatory Approvals................................ 19
--------------------
2.16. Environmental Matters............................... 19
---------------------
2.17. Inventory........................................... 20
---------
2.18. Accounts Receivable................................. 20
-------------------
2.19. Disclosure.......................................... 20
----------
2.20. Investment Intent, Related Matters.................. 20
----------------------------------
3. REPRESENTATIONS AND WARRANTIES OF BUYER........................ 21
3.1. Organization......................................... 21
------------
3.2. Authorization; No Violation.......................... 21
---------------------------
3.3. Regulatory Approvals................................. 21
--------------------
3.4. Litigation........................................... 22
----------
3.5. Financial Statements................................. 22
--------------------
3.6. Absence of Certain Changes........................... 22
--------------------------
3.7. Financing............................................ 22
---------
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Page
----
3.8. Partnership Documents................................ 23
---------------------
3.9. Disclosure........................................... 23
----------
4. ACCESS TO INFORMATION, ETC.; PUBLIC ANNOUNCEMENTS.............. 23
4.1. Access to Information, Etc........................... 23
--------------------------
4.2. Public Announcements................................. 23
--------------------
5. COVENANTS OF THE PARTIES....................................... 23
5.1. Conduct of Business.................................. 23
-------------------
5.2. Compliance with Laws................................. 25
--------------------
5.3. Continuing Obligation to Inform...................... 25
-------------------------------
5.4. Union Agreement...................................... 26
---------------
5.5. Customer Lists....................................... 27
--------------
5.6. TJX D&B Guarantee.................................... 28
-----------------
5.7. Non-Competition...................................... 28
---------------
5.8. Creation by Seller of the Trade Name Sub............. 29
----------------------------------------
5.9. Reimbursement by the Parties......................... 29
----------------------------
5.10. Efforts to Obtain Satisfaction of Conditions......... 29
--------------------------------------------
5.11. Acquisition Proposals................................ 29
---------------------
5.12. Certain Employment and Employee Benefit Matters...... 30
-----------------------------------------------
5.13. Bulk Transfers....................................... 33
--------------
5.14. Consents to Assignment............................... 33
----------------------
5.15. Sharing of Data...................................... 33
---------------
5.16. Use of Name.......................................... 34
----------
5.17. Certain Matters Pertaining to Taxes.................. 35
-----------------------------------
5.18. Further Assurances................................... 36
------------------
5.19. Title Matters........................................ 36
-------------
5.20. Environmental Investigations......................... 37
----------------------------
5.21. Deferred Payment Receivables......................... 38
----------------------------
6. CONDITIONS TO OBLIGATIONS OF ALL PARTIES....................... 39
6.1. Governmental Approvals............................... 39
----------------------
6.2. Adverse Proceedings.................................. 39
-------------------
6.3. Transaction Agreements............................... 39
----------------------
6.4. Assumed Union Agreement.............................. 40
-----------------------
7. CONDITIONS TO OBLIGATIONS OF BUYER............................. 40
7.1. Continued Truth of Representations and
--------------------------------------
Warranties of TJX and Seller; Compliance
----------------------------------------
with Covenants and Obligations....................... 40
------------------------------
7.2. Opinions of Counsel.................................. 40
-------------------
7.3. Closing Deliveries................................... 40
------------------
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<PAGE>
Page
----
7.4. CDM Agreement........................................ 41
-------------
7.5. Material Adverse Change.............................. 41
-----------------------
8. CONDITIONS TO OBLIGATIONS OF SELLER............................ 41
8.1. Continued Truth of Representations and
--------------------------------------
Warranties of Buyer; Compliance with
------------------------------------
Covenants and Obligations............................ 42
-------------------------
8.2. Opinion of Counsel................................... 42
------------------
8.3. Closing Deliveries................................... 42
------------------
8.4. Assumption Documents................................. 42
--------------------
8.5. CDM Agreement........................................ 43
-------------
8.6. Material Adverse Change.............................. 43
-----------------------
9. INDEMNIFICATION................................................ 43
9.1. Indemnification by TJX and Seller.................... 43
---------------------------------
9.2. Indemnification by Buyer............................. 43
------------------------
9.3. Termination of Indemnification....................... 44
------------------------------
9.4. Claims for Indemnification........................... 44
--------------------------
9.5. Defense by Indemnifying Party........................ 45
-----------------------------
9.6. Exclusive Remedy..................................... 45
----------------
10. TERMINATION OF AGREEMENT...................................... 45
10.1. Termination by Agreement of the Parties or
------------------------------------------
by Passage of Time......................................... 45
------------------
10.2. Termination by Reason of Breach............................ 46
-------------------------------
11. BROKERS....................................................... 46
11.1. For TJX and Seller.................................. 46
------------------
11.2. For Buyer........................................... 47
---------
12. DEFINED TERMS................................................. 47
13. NOTICES....................................................... 54
14. SUCCESSORS AND ASSIGNS........................................ 55
15. ENTIRE AGREEMENT; ATTACHMENTS................................. 55
16. EXPENSES...................................................... 56
17. GOVERNING LAW................................................. 56
18. WAIVER OF JURY TRIAL.......................................... 56
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<PAGE>
19. SECTION HEADINGS.............................................. 56
20. KNOWLEDGE..................................................... 56
21. SEVERABILITY.................................................. 57
22. NO IMPLIED RIGHTS............................................. 57
23. TRANSFER OF RIGHTS OF BUYER TO ONE OR MORE AFFILIATES; PLEDGE
TO FINANCING PARTIES........................................ 57
24. COUNTERPARTS.................................................. 57
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<PAGE>
EXHIBITS AND SCHEDULES
----------------------
EXHIBITS
- --------
6.3A Form of Services Agreement
6.3B Forms of Trademark Agreements
6.3C Form of New York City Buying Office Letter
6.3D Form of Inventory Purchase Agreement
12.4 Terms of Buyer Note
SCHEDULES
- ---------
1.4A Procedures for Preparing the Coopers Report
1.4B Form of Seller Net Assets Statement
1.4C Form of Purchase Price Calculation
2.2 Conflicts
2.3 Liabilities
2.4 Real Property; Title to Assets
2.5 Tax Matters
2.6 Contractual Obligations
2.7 Compliance with Laws
2.8 Employee Relations
2.9 Certain Changes or Events
2.10 Trade Names and Other Intangible Property
2.11 Employee Benefit Plans
2.12 Transactions with Affiliates
2.13 Insurance Policies
2.14 Notices, Claims and Litigation
2.16 Environmental Matters
2.17 Inventory
3.5 Buyer's Financial Statements
5.1 Conduct of Business
5.4 Union Agreement Amendment
5.7 Schedule of Recent Leases
5.12 Severance Plan
12.10 Other Excluded Assets
12.11 Other Excluded Liabilities
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<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
Agreement made as of the 18th day of October, 1996 by and among THE TJX
COMPANIES, INC., a Delaware corporation ("TJX"), CHADWICK'S, INC., a
Massachusetts corporation and a wholly-owned Subsidiary of TJX ("Chadwick's" or
the "Seller"), and Brylane, L.P., a limited partnership organized under the laws
of the state of Delaware ("Buyer"). Terms defined herein are used in the
attached Schedules and Exhibits as so defined unless otherwise defined therein.
WHEREAS, Chadwick's operates the catalog division of TJX doing business
under the name "Chadwick's of Boston";
WHEREAS, CDM Corp., a Nevada corporation ("CDM" and collectively with
Chadwick's and the Trade Name Sub referred to below, the "Division"), is a
wholly-owned subsidiary of Seller and holds rights to certain trademarks,
tradenames and other intellectual property;
WHEREAS, prior to the Closing, TJX shall establish a new wholly-owned
subsidiary incorporated in the State of Delaware (the "Trade Name Sub") and
shall transfer and license certain trademarks to the Trade Name Sub, and the
shares of the Trade Name Sub shall be included in the Purchased Assets; and
WHEREAS, Buyer desires to purchase or receive an assignment from Seller,
and Seller desires to sell or assign to Buyer, the business of the Division as
presently conducted (the "Business"), except for the Excluded Assets and the
assets and liabilities of CDM which are being separately purchased and assumed
by Buyer pursuant to an Asset Purchase Agreement dated the date hereof between
CDM and Buyer (the "CDM Agreement") and except as provided in any Transaction
Agreement, through the purchase or assignment of the Purchased Assets (as
hereinafter defined) and the assumption of the Assumed Liabilities (as
hereinafter defined) under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES.
1.1 Transfer of Assets. Except as otherwise set forth herein and subject
------------------
to the terms and conditions of this Agreement, and on the basis of the
representations, warranties and covenants set forth herein, as of Closing,
Seller will sell, convey, transfer, assign, and deliver to Buyer, and Buyer will
purchase from Seller, the Purchased Assets.
<PAGE>
1.2 Assumption of Liabilities. Subject to the conditions set forth
-------------------------
herein, as of the Closing, Buyer will assume and agree thereafter to pay, fully
satisfy when due and fully perform when required, all of the liabilities and
obligations of Seller, TJX and TJX affiliates (other than CDM), whether
occurring prior to, at or following the Closing, and, whether primary or
secondary, direct or indirect, absolute or contingent, primarily arising out of
or primarily relating to the Business or the Purchased Assets, except the
Excluded Liabilities (such liabilities and obligations being assumed hereunder
being referred to herein as the "Assumed Liabilities").
Buyer's obligations under this Agreement and the other Transaction
Agreements will not be subject to offset or reduction by reason of any actual or
alleged breach of any representation, warranty or covenant contained in this
Agreement or any other Transaction Agreement or any right or alleged right to
indemnification hereunder or thereunder. Seller's obligation under this
Agreement and the other Transaction Agreements shall not be subject to offset or
reduction by reason of any actual or alleged breach of any representations,
warranty or covenant contained in this Agreement or any other Transaction
Agreement or any right or alleged right to indemnification hereunder or
thereunder.
1.3 The Closing. Unless this Agreement shall have been terminated and the
-----------
transactions herein contemplated shall have been abandoned pursuant to Section
10, and subject to the satisfaction or waiver of the conditions set forth in
Sections 6, 7 and 8, the closing of the transactions contemplated herein and
under the Transaction Agreements shall take place at 10:00 a.m. Boston time on
the first Monday following the satisfaction or waiver of all of the conditions
required to be satisfied at or prior to the Closing (except that if such
conditions are satisfied or waived prior to December 2, 1996, such conditions
shall not for this purpose be deemed to be satisfied or waived until the earlier
of December 2, 1996 and the execution of definitive financing documents pursuant
to the Financing Commitments (as defined in Section 3.7)), which Monday is at
least three business days after such satisfaction or waiver, at the offices of
Ropes & Gray, One International Place, Boston, Massachusetts, unless another
date, time or place is agreed to in writing by the parties hereto, but in no
event later than December 23, 1996, provided that such date may be deferred to a
date no later than January 27, 1997 that is the first Monday that is at least
three business days after the expiration or termination of any waiting periods
under the HSR Act, if applicable, and provided further that if TJX or Seller
shall deliver supplemental information to Buyer pursuant to Section 5.3, then
such closing date shall be the later of (a) the date determined pursuant to the
foregoing provisions of this sentence and (b) the first Monday that is at least
five days after the date on which such supplemental information was delivered to
Buyer (such date being referred to as the "Delivery Date"). At such closing,
Seller shall deliver to Buyer those documents specified in Sections 7.3 and 7.4
hereof, against payment of the Estimated Cash Purchase Price (as defined in
Section 1.4) to Seller by wire transfer in immediately available funds and
delivery of the Buyer Notes to Seller. Notwithstanding the foregoing, upon the
Delivery Date, the closing shall be deemed to occur at midnight on the Saturday
preceding the Delivery Date, which time is herein referred to as the "Closing"
for all purposes, including the
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<PAGE>
allocation or assumption of assets, benefits and liabilities to be purchased,
transferred or assumed hereunder and the status of employees as employees of
Seller or Buyer hereunder; provided, however, that solely for the purpose of
determining whether the conditions set forth in Sections 6, 7 and 8 have been
fulfilled, the Closing shall be deemed to be the Monday referred to above.
1.4 Estimated Purchase Price; Purchase Price. At the closing referred to
----------------------------------------
above, (i) Buyer shall pay to Seller $192,100,000 plus interest thereon at the
Base Rate from the Closing to the date of payment of the foregoing amount (the
"Estimated Cash Purchase Price") and (ii) Buyer shall issue and deliver to
Seller the Buyer Notes. The Estimated Cash Purchase Price (but not the Buyer
Notes) shall be subject to post-closing adjustment as provided below. The
Estimated Cash Purchase Price as so adjusted is herein referred to as the "Cash
Purchase Price."
(a) As promptly as possible following the Closing, Seller shall cause
to be prepared an unaudited consolidated balance sheet of the Division as
of the time immediately prior to the Closing (the "Closing Balance Sheet")
in accordance with generally accepted accounting principles applied
consistently with Seller's past practices used in the preparation of the
Financial Statements (as defined in Section 2.3(a)). Buyer shall provide
Seller with access to records and transferred employees of the Division,
and shall otherwise cooperate with Seller, to facilitate the preparation of
the Closing Balance Sheet.
As promptly as possible following the receipt of the Closing Balance
Sheet, Coopers and Lybrand L.L.P. ("Coopers") shall perform certain
procedures as set forth in Schedule 1.4A in connection with the elements,
-------------
accounts or items of the Closing Balance Sheet that are to be included in
the Seller Net Assets for the purposes of issuing a report (the "Coopers
Report") thereon detailing the results of such procedures as applied by
Coopers in accordance with standards established by the American Institute
of Certified Public Accountants. Prior to the issuance by Coopers of the
Coopers Report, representatives of Seller and Buyer shall have the
opportunity to review Cooper's work papers. Such preparation of the Seller
Net Assets Statement and the Coopers Report shall be conducted under the
supervision of the Coopers partner in charge of the account of Seller with
consultation and review by the Coopers partner in charge of the account of
Buyer.
As promptly as possible following the receipt of the Closing Balance
Sheet, Coopers shall prepare and deliver a Seller Net Assets Statement in
substantially the form of Schedule 1.4B, prepared in accordance with the
-------------
procedures specified therein, and a calculation of the Cash Purchase Price
in substantially the form of Schedule 1.4C. Assets and liabilities on the
-------------
Seller Net Assets Statement will be equal to such items in the Closing
Balance Sheet except as otherwise specified in Schedule 1.4B. The Seller
-------------
Net Assets Statement will exclude Excluded Assets and Excluded Liabilities.
-3-
<PAGE>
The "Seller Net Assets" shall mean the net asset figure appearing on the
Seller Net Assets Statement.
Coopers shall furnish the Seller Net Assets Statement and the Coopers
Report to Seller and Buyer within 45 days following the Closing or as soon
thereafter as practicable. Buyer and Seller shall cooperate fully with
Coopers in facilitating the issuance of such Coopers Report.
(b) If Buyer disagrees with the Seller Net Assets Statement furnished
in accordance with Section 1.4(a) or the calculation of the final Cash
Purchase Price, Buyer shall, within 30 days after receipt thereof,
respectively, furnish to Seller and Coopers a written statement of such
disagreement, together with an explanation of the reasons therefor. If
Buyer does not furnish such a statement within such period, the amount of
the Seller Net Assets set forth on the Seller Net Assets Statement and the
amount of the Cash Purchase Price derived therefrom shall be binding and
conclusive on all parties hereto. If Buyer does furnish such a statement
to Seller within such period, the parties hereto shall first use
commercially reasonable efforts to resolve such disagreement among
themselves. If the parties are unable to resolve the dispute within 20
days after delivery of such notification, the dispute shall be submitted
promptly to Deloitte & Touche, or if such firm declines to serve, then to
KPMG Peat Marwick, LLP (such firm being herein referred to as the
"Alternative Accountants"), for resolution within 30 days after submission.
The determination of the Alternative Accountants as to the resolution of
any such dispute shall be binding and conclusive upon all parties hereto.
(c) If the amount of the Seller Net Assets as set forth on the Seller
Net Assets Statement is: (i) less than $107,498,000, then the Cash
Purchase Price shall be the Estimated Cash Purchase Price minus the amount
-----
by which the Seller Net Assets are less than $107,498,000; (ii) greater
than $107,498,000, then the Cash Purchase Price shall be the Estimated Cash
Purchase Price plus the amount by which the Seller Net Assets are greater
----
than $107,498,000; or (iii) $107,498,000, then the Cash Purchase Price
shall be the Estimated Cash Purchase Price.
(d) If, pursuant to Section 1.4(c), the Cash Purchase Price is
greater than or less than the Estimated Cash Purchase Price, the
difference, together with interest thereon at the base lending rate as
announced by The First National Bank of Boston at its headquarters and in
effect from time to time (the "Base Rate"), calculated daily, from the date
of the Closing to the payment of such difference, shall be paid by Buyer to
Seller or by Seller to Buyer, as the case may be, within five days after
the later of (i) delivery of the Seller Net Assets Statement, including the
calculation of the Cash Purchase Price appended thereto, or (ii) the
earlier of the resolution of any dispute by Buyer and Seller following
notification of their disagreement or a determination by the Alternative
Accountants pursuant to paragraph (b) above. Any such amount shall be
-4-
<PAGE>
paid by cashier's or certified check or by wire transfer of immediately
available funds to an account designated by Seller or Buyer, as applicable.
(e) The fees and expenses of Coopers in preparing the original
Closing Balance Sheet and the original Seller Net Assets Statement shall be
shared equally by Seller and Buyer, except that each party will bear all
expenses for any special work performed at its request. The fees and
expenses of the Alternative Accountants in connection with the resolution
of disputes pursuant to paragraph (b) above shall be shared equally by
Seller and Buyer.
1.5 Purchase Price Allocations and Tax Adjustment.
---------------------------------------------
(a) Allocation. Buyer and Seller agree to allocate the aggregate of
----------
the Cash Purchase Price, the principal amount of the Buyer Notes and the
amount of Assumed Liabilities among the Purchased Assets for all purposes
(including financial accounting and Tax reporting purposes) by allocating
the aggregate sum as follows:
(i) first, to all tangible assets among the Purchased Assets in
proportion to, but not in an amount in excess of, the fair market
value of such tangible assets, as determined by the certified public
accountants of Buyer (which accountants shall be reasonably acceptable
to Seller) in connection with the preparation of the balance sheet of
Buyer immediately after Closing; and
(ii) second, any residual amount shall be allocated to goodwill
of the Business and any other intangible assets among the Purchased
Assets, as determined by the certified public accountants of Buyer.
Buyer's certified public accountants shall prepare Form 8594 (or any successor
Form) for federal Income Tax purposes and any similar Form for state Income Tax
purposes in accordance with these values, and Buyer and Seller each agree to
file such Form(s) with their respective Income Tax Returns.
(b) Tax Adjustment. Seller shall provide Buyer with an estimated
--------------
statement of the tax basis of the Purchased Assets prepared in accordance
with past practice and applicable federal income tax principles
simultaneously with the delivery of the Net Asset Statement. Within 30
days of receiving Seller's statement, Buyer shall provide Seller a
statement relating to the allocation of the Purchase Price in accordance
with Section 1.5(a) (the "Allocated Purchase Price"). Coopers shall
determine the amount by which the Allocated Purchase Price for the
Purchased Assets other than goodwill (or any other capital asset described
in Section 1221 of the Code or any asset the disposition of which
-5-
<PAGE>
hereunder is taxable as a capital gain) exceeds Seller's basis in such
assets for federal income tax purposes. Such excess multiplied by 35
percent is herein referred to as the "Net Federal Payment", which shall be
"grossed up" in the manner set forth below to determine the Tax Adjustment.
Coopers shall also calculate the Tax Adjustment due from Buyer to Seller
(with any dispute resolved in the manner set forth below), and an
appropriate installment of the Tax Adjustment shall be paid by Buyer to
Seller at least two business days before Seller pays the corresponding
portion of the Net Federal Payment to the Internal Revenue Service with
respect to Seller's estimated or final tax liability for Seller's fiscal
year ending January, 1997. All calculations shall be based on the
assumption that Seller elected not to use the installment method of
reporting income from the transaction. The "Tax Adjustment" shall be the
aggregate amount which, after deduction of all net Taxes required to be
paid by Seller (determined by assuming that Seller is not subject to
Federal income taxation on capital gains realized in its taxable years
ending in January of 1997 and January of 1998) with respect to the receipt
thereof, is equal to the Net Federal Payment. If, prior to the filing of
Seller's federal Income Tax Return for the year ending January, 1997,
either Seller or Buyer shall determine that corrections or other
adjustments are required in either the Net Federal Payment, the allocation
of the Purchase Price pursuant to Section 1.5(a) or the Tax Adjustment,
either party may require a redetermination of the Tax Adjustment and if the
redetermined Tax Adjustment is greater than the sum of the previous
payments from Buyer to Seller, Buyer shall pay to Seller the amount by
which the Tax Adjustment exceeds such prior payments or, if the sum of the
previous payments from Buyer to Seller is greater than the redetermined Tax
Adjustment, Seller shall refund to Buyer the amount by which such prior
payments exceed the Tax Adjustment as redetermined. In the event that the
Internal Revenue Service shall thereafter propose an adjustment in
connection with the examination of Seller's federal Income Tax Return on
the ground that the allocation of the Purchase Price in accordance with the
provisions of Section 1.5(a)(i) was incorrect, Seller shall notify Buyer of
such proposed adjustment and shall permit Buyer, through its counsel, a
reasonable opportunity to participate in any administrative protest of such
proposed adjustment and, provided Buyer acknowledges its responsibility pay
the Additional Tax Adjustment, Seller agrees to accept the direction of
Buyer with respect to any proposal to settle the amount at issue. If the
matter cannot be settled with the Internal Revenue Service and Buyer wishes
to pursue the matter at Buyer's cost, Seller shall have the right to impose
such conditions as to further proceedings as are reasonable in such
circumstances. If it should be finally determined that the Net Federal
Payment was understated, Buyer shall promptly pay to Seller a further Tax
Adjustment (the "Additional Tax Adjustment") sufficient to permit Seller to
receive the amount of such understatement, together with any interest,
penalties and additions to tax
-6-
<PAGE>
attributable to such understatement and if it should be finally determined
that the Net Federal Payment was overstated, Seller shall return an amount
to Buyer sufficient to leave Seller with only the amount of the Net Federal
Payment as finally determined. If Buyer, Seller and their accountants are
unable to agree as to the amount of the Tax Adjustment or any Additional
Tax Adjustments or as to the payments due as a consequence of thereof,
Buyer and Seller shall each submit its calculations of such amounts to a
Big Six Accounting Firm agreed upon by Buyer and Seller for the
determination by such Firm of such amounts, which determination shall be
final and binding upon the parties. The fees and expenses of such Big Six
Accounting Firm shall be borne by the party whose calculations were least
in agreement with the Big Six Accounting Firm, as determined by the Big Six
Accounting Firm.
2. REPRESENTATIONS AND WARRANTIES OF TJX AND SELLER.
Each of TJX and Seller hereby, jointly and severally, represents and
warrants to Buyer as set forth below (and each of the parties acknowledges that,
except as specifically stated herein, such representations and warranties do not
cover and are not made in respect of or applicable to CDM or the Excluded Assets
and Excluded Liabilities, but all such representations and warranties, to the
extent applicable, shall apply to the Trade Name Sub upon its establishment):
2.1 Organization; Capitalization.
----------------------------
(a) TJX is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own its properties, to carry on its
business as now conducted, and to consummate the transactions contemplated
hereby.
(b) Seller is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts, and has
all requisite corporate power and authority to own, operate and lease its
properties, to carry on its business as now conducted, and to consummate
the transactions contemplated hereby. Seller is duly qualified to do
business as a foreign corporation and in good standing in each other
jurisdiction in which its ownership, operation or lease of property or the
character of its business requires such qualification, except for failures
to be so qualified or in good standing that would not reasonably be
expected to have a material adverse effect on the assets, business
operations, financial condition or results of operations of the Division,
taken as a whole (a "Material Adverse Effect"). Copies of the Certificate
of Incorporation and By-laws of Seller, each as amended to date, have been
previously delivered to Buyer, are complete and correct, and no amendments
have been made thereto or have been authorized since the date of such
delivery. Seller is not in violation of any provision of its Certificate
of Incorporation or By-laws.
-7-
<PAGE>
(c) Trade Name Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to own its properties, to carry on
its businesses as now conducted, and to consummate the transactions
contemplated hereby. Trade Name Sub is duly qualified to do business as a
foreign corporation and in good standing in each other jurisdiction in
which its ownership, operation or lease of property or the character of its
business requires such qualification, except for failures to be so
qualified or in good standing that would not reasonably be expected to have
a Material Adverse Effect. Copies of the Certificate of Incorporation and
By-laws of Trade Name Sub, each as amended to date, have been previously
delivered to Buyer, are complete and correct, and no amendments have been
made thereto or have been authorized since the date of such delivery. Trade
Name Sub is not in violation of any provision of its Certificate of
Incorporation or By-laws.
(d) Other than Seller's ownership of CDM and the establishment of
the Trade Name Sub prior to Closing, neither Seller nor CDM has any
subsidiaries or any material investment in any other Person or owns, either
directly or indirectly, any capital stock or other equity or ownership
interest in any corporation, partnership, association, trust, joint venture
or other entity.
(e) The authorized capital stock of Trade Name Sub will as of the
Closing date consist of 3000 shares of common stock, $.01 par value per
share ("Trade Name Sub Common Stock"), of which 1000 shares will be issued
and outstanding. Seller will as of the Closing date be the record and
beneficial holder of all issued and outstanding shares of Trade Name Sub
Common Stock. Such shares will as of the Closing date have been duly and
validly issued, and will be fully paid and nonassessable. Seller will as
of the Closing date have valid title to such outstanding shares free and
clear of any and all covenants, conditions, restrictions, voting trust
arrangements, liens, charges, encumbrances, options and adverse claim or
rights whatsoever. There will as of the Closing date be no outstanding
warrants, options or other rights to purchase or acquire from Trade Name
Sub, or securities exchangeable for or convertible into, any shares of
Trade Name Sub Common Stock or other equity securities of Trade Name Sub
nor will there be as of the Closing date in existence any agreements to
issue such shares or securities in the future.
(f) Immediately before the transfer to it of certain trademarks,
which will be effective immediately prior to the Closing, Trade Name Sub
will have no assets and no liabilities other than certain costs not
exceeding $10,000 relating to its formation as a corporation, and will
never have had any active business operations.
2.2 Authorization; No Violation. Each of TJX and Seller has full
---------------------------
corporate power and authority to execute and deliver this Agreement and the
other Transaction Agreements to
-8-
<PAGE>
which it is a party, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated on its part hereby and thereby. The
execution and delivery of this Agreement and each other Transaction Agreement to
which it is a party by TJX and Seller, and the consummation by TJX and Seller of
all transactions contemplated hereby and thereby, have been duly authorized by
all requisite corporate action on the part of TJX and Seller. This Agreement and
all other Transaction Agreements to which TJX or Seller is a party have been, or
will have been when entered into, duly executed and delivered by each, and
constitute, or will constitute when entered into, the valid and legally binding
obligations of TJX and Seller, as the case may be, enforceable against TJX, or
Seller in accordance with their respective terms, except as limited by (x)
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(y) equitable principles of general applicability. The execution, delivery and
performance by TJX and Seller of this Agreement and the execution, delivery and
performance by TJX and Seller of each other Transaction Agreement to which each
is a party, and the consummation by TJX and Seller of the transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) conflict with, or result in any violation or
breach of, or give rise to the right to terminate, accelerate or cancel any
obligation under, or require the payment of any fee, or constitute a default
under (i) any provision of the Certificate of Incorporation or By-laws of TJX or
Seller, (ii) except as disclosed in Schedule 2.2, and except for such violations
------------
or conflicts which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect, any agreement, contract, license,
indenture or other instrument to which TJX or Seller is a party or by which any
of them or any of their assets are bound or (iii) except for such violations or
conflicts which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect, any judgment, order, award, writ,
decree, statute, law, ordinance, rule or regulation applicable to TJX or Seller
or by which any of their assets are bound, or (b) except for such liens, charges
or encumbrances which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect, cause the creation of any lien
(except as disclosed in Schedule 2.2), charge or encumbrance upon any of the
------------
assets of Seller, (c) except as disclosed in Schedule 2.2 require the consent,
------------
waiver, approval or authorization of or any filing by any of them with any
person or governmental authority (other than the filing of a premerger
notification report under the HSR Act and, upon consummation of the transaction
contemplated by this Agreement, a Current Report on Form 8-K under the
Securities Exchange Act of 1934), other than such failures to obtain consent,
waiver approval or authorization or such failures to file which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect, or (d) except as disclosed in Schedule 2.2, result in a loss or
------------
adverse modification of any license, permit, certificate, franchise or contract
granted to or otherwise held by Seller or CDM which would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; provided
that no representation or warranty is made as to the transferability of any
permit, license or similar right.
-9-
<PAGE>
2.3 Financial Statements; Absence of Undisclosed Liabilities.
--------------------------------------------------------
(a) TJX has furnished to Buyer (i) the consolidated audited financial
statements of the Division as of and for the year ended January 27, 1996,
including the statements of operations, statements of cash flows and
balance sheets including the operating results of Seller and CDM; and (ii)
the unaudited financial statements of the Division as of and for the
twenty-six weeks ended July 27, 1996, including the statements of
operations, statements of cash flows and balance sheets including the
operating results of Seller and CDM (the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally
accepted accounting principles applied and, in the case of the unaudited
financial statements, consistently with the audited financial statements,
except for changes expressly noted therein, and present fairly, in all
material respects, the consolidated financial position and results of
operations and cash flows of the Division as of the dates and for the
periods covered thereby, subject, in the case of interim financials, to the
absence of footnotes and to customary year-end audit adjustments.
(b) Immediately prior to the Closing, the Division will not have any
liabilities or obligations of a nature required by generally accepted
accounting principles to be reflected on a balance sheet or in notes
thereto, except in each case (i) for liabilities incurred in the ordinary
course of business after July 27, 1996 and not required to be reflected on
a balance sheet, (ii) as set forth or reflected in the Financial Statements
or the Seller Net Assets Statement (or described in the notes thereto) or
(iii) as disclosed in the Schedule 2.3 hereto or as expressly contemplated
------------
in this Agreement.
2.4 Title to Assets. Seller will as of the Closing have, and upon the
---------------
Closing will convey to Buyer, good and valid title to all assets (other than the
Fee Property, which is addressed below) reflected on the Seller Net Assets
Statement, in each case free and clear of all mortgages, liens, security
interests or encumbrances of any nature whatsoever except (i) such as are
disclosed in the notes to the Financial Statements or on Schedule 2.4 hereto,
------------
(ii) liens and other encumbrances securing Debt reflected on the Seller Net
Assets Statement, (iii) mechanics', carriers', workmen's, repairmen's,
landlords' or other like liens arising or incurred in the ordinary course of
business, (iv) liens for Taxes, assessments and other governmental charges which
are not due and payable or which may thereafter be paid without penalty
(provided adequate accruals therefor are reflected on the Seller Net Assets
Statement), (v) liens and other encumbrances arising through Buyer or its
affiliates, and (vi) other imperfections of title or encumbrances which
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect (the encumbrances referred to in the foregoing clauses
(i)-(vi) being "Permitted Liens"). Each such asset has been maintained in
accordance with past practice, and is usable in the ordinary course of business
in accordance with past practice, other than such failures to conform with the
foregoing standard which individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect. Such assets, together with the
services currently provided by TJX and its Affiliates to
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<PAGE>
the Division and the assets conveyed to Buyer pursuant to the CDM Agreement,
are, when utilized by a labor force substantially similar to that employed by
Seller on the date hereof and when furnished adequate working capital, adequate
to conduct the business operations currently conducted by the Division.
Schedule 2.4 contains a true and complete list of all real property (together
- ------------
with a list of all leases, subleases and material amendments thereto) which is
used in connection with the Business and/or which Seller or CDM owns in fee
(such real property owned in fee being the "Fee Property"). Except as set
forth on Schedule 2.4, neither Seller nor CDM owns, occupies, leases, subleases,
------------
operates or holds any options or interests in any real property (including,
solely for purposes of this sentence, the Excluded Assets). Seller and CDM have
good, valid, leasehold title to all property leased by them from third parties
and good and marketable title in fee simple to the Fee Property, in each case
free and clear of all liens, security interests and other encumbrances, except
for Permitted Liens. Except as to matters which individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect, each lease,
sublease or other agreement (collectively, the "Leases") set forth in
Schedule 2.4 (or required to be set forth in Schedule 2.4) is in full force
- ------------ ------------
and effect; all rents and additional rents due to date on each such Lease have
been paid or properly accrued for; in each case, the lessee has been in
peaceable possession since the commencement of the original term of such Lease
and no waiver, indulgence or postponement of the lessee's obligations thereunder
has been granted by the lessor; and except as set forth in Schedule 2.4 or as
------------
set forth in a separate letter between the parties of even date herewith
referring to this Section 2.4, there exists no event of default or event,
occurrence, condition or act which, with the giving of notice, the lapse of time
or the happening of any further event or condition, would become a default
under such Lease. Schedule 2.4 also lists all material Transferred Leases.
------------
2.5 Tax Matters. Except as set forth in Schedule 2.5:
----------- ------------
(a) All Returns required to be filed on or before the date hereof by,
or with respect to Seller or CDM have been duly and timely filed (taking
into account extensions); and Seller and CDM have timely paid, withheld or
made provision for all Taxes shown as due and payable on any such Returns.
(b) Each of Seller and CDM is a member of the TJX Affiliated Group,
and the TJX Affiliated Group files a consolidated federal Income Tax
Return.
(c) No assessment or deficiency for Taxes which has not been paid has
been made or proposed against Seller or CDM, nor are any of the Returns now
being or, to the best knowledge of Seller and TJX, threatened to be
examined or audited, and no consents waiving or extending any applicable
statutes of limitations for the Returns, or any Taxes required to be paid
thereunder, have been filed. Seller, CDM or TJX shall promptly notify
Buyer of any notice of pending action or proceeding involving Taxes
relating to Seller or CDM between the date hereof and the date of the
Closing. All deficiencies for Taxes
-11-
<PAGE>
determined as a result of any past completed audit have been satisfied.
Seller has delivered or made available to Buyer complete and correct copies
of all audit reports and statements of deficiencies with respect to any Tax
assessed against or agreed to by Seller, CDM or TJX for the three most
recent taxable periods for which such audit reports and statements of
deficiencies have been received with respect to Seller or CDM.
(d) Seller and CDM have collected the Transfer Taxes shown on the
Returns provided to Buyer and have remitted such amounts shown to be due to
the appropriate governmental authorities.
(e) None of the assets of Seller or CDM are subject to any liens in
respect of Taxes (other than for current Taxes not yet due and payable).
(f) Neither Seller nor CDM has made any payments, is obligated to
make any payments or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(g) Seller has delivered to Buyer (or made available to Buyer as part
of the diligence process) complete and correct copies of all state, local
and foreign income or franchise Tax Returns filed by Seller or CDM for the
three most recent taxable years for which such Tax Returns have been filed
immediately preceding the date of this Agreement. Other than with respect
to Taxes shown on Tax Returns described in this clause, neither Seller nor
CDM is subject to any Tax imposed on net income in any jurisdiction or by
any taxing authority.
2.6 Contracts. Schedule 2.6 contains a true and complete list of all
--------- ------------
contracts, agreements, deeds, indentures, notes, letters of credit, mortgages,
leases, licenses, instruments, commitments, sales orders, purchase orders,
quotations, bids, undertakings, arrangements or understandings, written or oral
(each, a "Contract") of the types described below to which or by which Seller or
CDM is a party or otherwise bound or to which or by which any of Seller's or
CDM's assets are subject or bound and in effect on the date hereof, not
including any Excluded Liabilities (Contracts of the type described below,
collectively, the "Contractual Obligations").
(a) All collective bargaining agreements and other labor agreements;
all employment or material consulting agreements; and all other plans,
agreements or arrangements that constitute compensation or benefits to any
of the directors, officers or employees of Seller or CDM, except to the
extent any of the foregoing constitute an Employee Plan;
-12-
<PAGE>
(b) All Contracts under which Seller or CDM is or will after the
Closing be restricted from carrying on any business or other activities
anywhere in the world;
(c) All Contracts (including, without limitation, options) to sell or
otherwise dispose of any assets except in the ordinary course of business
or to purchase or otherwise acquire any property or properties or other
assets except pursuant to purchase orders for inventory and other
arrangements with suppliers in the ordinary course of business, other than
Contracts with respect to assets or properties having individual values of
less than $150,000 individually or $1,000,000 in the aggregate or Contracts
involving liabilities or obligations of the Division of less than $150,000
individually or $1,000,000 in the aggregate;
(d) All Contracts under which Seller or CDM has any liability for
Debt or obligation for Debt or constituting or giving rise to a Guarantee
by Seller or CDM of any liability or obligation of any Person (including,
without limitation, partnership and joint venture agreements) other than
(i) Debts or Guarantees individually involving liabilities or obligations
of the Division of less than $100,000 individually or $1,000,000 in the
aggregate, (ii) Excluded Liabilities, and (iii) arrangements with suppliers
in the ordinary course of business.
(e) All leases (except as set forth in Schedule 2.4) or other
------------
Contracts under which any tangible personal property (other than inventory)
having a cost or capital lease obligation in excess of $150,000
individually or $1,000,000 in the aggregate is held or used by Seller or
CDM;
(f) All Contracts to lease or sublease (as lessor) any real property;
(g) All Contracts whereby Seller or CDM has agreed to purchase any
property (other than inventory) individually involving liabilities of the
Division in excess of $150,000 individually or $1,000,000 in the aggregate
which extend beyond 12 months and are not terminable by Seller or CDM
without penalty within 12 months; and
(h) Each other Contract (other than Contracts of the type described
in (a) through (g) of this Section 2.6 or listed on Schedule 2.4) not in
-------------
the ordinary course of business that involves liabilities or obligations of
the Division in excess of $200,000 individually or $1,000,000 in the
aggregate.
Seller has heretofore made available to Buyer for inspection a true and
complete copy of each of the Contractual Obligations referred to in (a) through
(h) above. To the knowledge of TJX, each such Contract is valid, binding and
enforceable against each party thereto, except where the failure to be valid,
binding or enforceable would not reasonably be expected to have a Material
Adverse Effect. Neither Seller nor CDM nor, to the knowledge of TJX, any third
party is in default under or in breach or violation of, nor has an event
occurred that (with or
-13-
<PAGE>
without notice, lapse of time or both) would constitute a default by Seller or
CDM or, to the knowledge of TJX, any third party of the Contractual Obligations,
other than defaults, breaches or violations of such Contractual Obligations
which are disclosed in Schedule 2.2 or which, individually or in the aggregate,
------------
would not reasonably be expected to have a Material Adverse Effect. Neither
Seller nor CDM has received or given notice of any such breach, default or event
of default.
2.7 Compliance with Laws. The Division has all requisite licenses,
--------------------
permits and certificates (all of which are in full force and effect), including
health and safety permits, from federal, state and local authorities necessary
to conduct its business and own, operate and lease its assets (collectively, the
"Permits"), except for such failures to so have which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
To the knowledge of TJX, the Division is not in violation of any law, regulation
or ordinance (including, without limitation, laws, regulations or ordinances
relating to building, zoning, sanitation or safety matters, but excluding
Environmental Law which is governed by Section 2.16) relating to its assets or
business, except for such violations which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. None of
such licenses, permits or certificates will be impaired as a result of the
transactions contemplated by this Agreement, except as disclosed in Schedule 2.7
------------
or except in any case that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Neither Seller nor
CDM has received any notice to the effect that, or otherwise been advised that,
it is not in compliance with, or that it is in violation of, any such federal,
state or local license, permit or certificate in a manner that would reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
2.8 Employee Relations. Except as set forth on Schedule 2.8: (i) none of
------------------ ------------
the employees of the Division is represented by any labor union; (ii) there is
no unfair labor practice charge or complaint or enforceable decision and order
against Seller or CDM pertaining to current or former employees of the Division
pending before the National Labor Relations Board (the "NLRB"), the Equal
Employment Opportunity Commission, the Department of Labor, OSHA, or any other
state or local agency, or relating to the Fair Labor Standards Act; and (iii)
there is no pending labor strike or, to the knowledge of TJX, labor organizing
activity affecting the Division.
2.9 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
2.9 or except as contemplated by this Agreement, since July 27, 1996, the
- ---
business of the Division has been conducted in the usual and ordinary course
consistent with past practice. Except as set forth on Schedule 2.9 and except
------------
to the extent that any of the following events relate to Excluded Assets or
Excluded Liabilities, since July 27, 1996 neither Seller nor CDM has:
(a) made any capital expenditures or commitments with respect thereto
except routine expenditures for repairs and maintenance and except in an
aggregate amount substantially consistent with the Committed Capital Budget
Status Report dated as of
-14-
<PAGE>
October 15, 1996 (under the column "FYE 1/97 Capital Plan") which has been
previously provided to Buyer (the "Capital Budget Plan");
(b) incurred or otherwise become liable in respect of any Debt or
become liable in respect of any Guarantee, other than (A) Excluded
Liabilities, (B) arrangements with suppliers in the ordinary course of
business and (C) Debts or Guarantees, individually involving liabilities or
obligations of the Division of less than $100,000 individually or $500,000
in the aggregate;
(c) mortgaged or pledged any of its assets or subjected any of its
assets to any lien or encumbrance;
(d) sold, leased to others or otherwise disposed of any of its assets
except in the ordinary course of business and consistent with past
practice;
(e) purchased any equity security of any Person (other than the Trade
Name Sub) or any assets (other than inventory) constituting all or
substantially all of a business, or been party to any merger, consolidation
or other business combination or entered into any Contractual Obligation
relating to any such purchase, merger, consolidation or business
combination;
(f) made any loan, advance or capital contribution to or investment in
any Person other than loans, advances or capital contributions to or
investments in or to Seller, CDM, the Trade Name Sub, TJX or any of its
Affiliates, and other than anticipation payments for supplies or loans or
advances to employees in the ordinary course of business;
(g) canceled or compromised any Debt or claim other than in the
ordinary course of business and other than any intercompany advances or
claims between Seller and its affiliates;
(h) made or agreed to make any material change in its customary
methods of accounting or accounting practices;
(i) settled or agreed to settle any material cause of action or suit
(in contract or tort or otherwise), arbitration, process or investigation
by or before any governmental authority;
(j) amended, canceled or terminated any Contract, license or other
instrument material to either, except in the ordinary course of business
and except for the termination, at the time of Closing, of intercompany
advance arrangements;
-15-
<PAGE>
(k) made any material revaluation of the assets of Seller and CDM,
including without limitation, any material write-offs, material increases
or decreases in any reserves except in the ordinary course of business and
consistent with past practice, or any write up of the value of inventory,
property, plant, equipment or any other asset;
(l) suffered any other event or condition of any character which would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(m) failed to pay or discharge when due or in accordance with past
practices any material liabilities except for liabilities which are being
contested in good faith;
(n) made any material change to its catalog and prospect mailings from
the planned advertising and mailings program described in the Catalog Plan
entitled "Remaining 1996 Chadwick's Mailings" (the "Catalog Plan") which
has been previously provided to Buyer; provided that for purposes of this
paragraph (n), material change shall be limited to any one or more of the
following events: (A) canceling a planned catalog edition; (B) a material
reduction in the circulation of any catalog; (C) a material reduction in
the level of prospecting in a particular season (which for purposes of this
paragraph (xiv) shall consist of Spring, Summer, Fall, Winter and holiday);
or (D) a material change in the number of pages of any catalog edition;
(o) maintained its property, plant and equipment other than in
accordance with past practice;
(p) had any material change in its relationships with its employees,
agents, customers or suppliers;
(q) made any changes in the rate of compensation payable (or paid or
agreed or orally promised to pay, conditionally or otherwise, any extra
compensation) to any director, officer, manager, employee, consultant or
agent of Seller (other than increases or bonuses granted in the ordinary
course of business and consistent with past practices, which increases as
in the aggregate would not reasonably be expected to have a Material
Adverse Effect); or
(r) made any material addition to or material modification of any
Employee Plan other than additions or modifications that are also
applicable to other divisions or subsidiaries of TJX or necessary to
consummate the transactions contemplated hereby.
Since July 27, 1996, none of TJX, Seller or CDM has entered into any Contractual
Obligation (and TJX has not entered into any Contractual Obligation obligating
Seller or CDM) to do any of the things referred to in clauses (a) through (g)
and (j) above with respect to Seller or CDM.
-16-
<PAGE>
2.10 Trade Names and Other Intangible Property. Schedule 2.10 contains a
----------------------------------------- -------------
true and complete list of all registered and, to the knowledge of TJX,
unregistered trademarks, trade names and service marks and applications therefor
owned by or licensed to TJX, Seller, the Trade Name Sub or CDM and used in the
Business as presently conducted by the Division, other than certain marks and
names the use of which is not material to the Division. Except as disclosed on
Schedule 2.10, to the knowledge of TJX, Seller, the Trade Name Sub or CDM owns
- -------------
or has the right to use all trademarks, trade names and service marks identified
on Schedule 2.10, except for such failures to own or have the right to use as in
-------------
the aggregate would not reasonably be expected to have a Material Adverse
Effect. Each Contract that involves liabilities or obligations of the Division
to any third party in excess of $150,000 for the use of trademarks, trade names
or service marks is listed on Schedule 2.10.
-------------
Except as set forth on Schedule 2.10, (a) to the knowledge of TJX, no
-------------
other person has made a written claim that is currently unresolved that such
other person is the legal owner of any of the trademarks, trade names and
service marks listed on Schedule 2.10; (b) TJX, Seller, the Trade Name Sub and
-------------
CDM, and each of them, has the right to transfer the right to use all of the
trademarks, trade names and service marks listed on Schedule 2.10 for use by
-------------
Buyer in the conduct of the Business as is presently conducted; and (c) none of
TJX, the Trade Name Sub or Seller have granted any license or right to use any
of the trademarks, trade names and service marks identified in Schedule 2.10 to
-------------
any other Person other than as set forth on Schedule 2.10.
-------------
2.11 Employee Benefit Plans.
----------------------
(a) Plans. Schedule 2.11 contains a true and complete list of all
----- -------------
bonus, stock bonus, stock option, stock purchase, vacation pay, holiday
pay, dependent care assistance, pension, profit sharing, retirement,
deferred compensation, excess benefit, health insurance, life insurance,
disability, severance pay, salary continuation and other similar
retirement, welfare or fringe benefit plans, whether or not reduced to
writing, in which any employees of the Division participate or under which
any such employees have accrued and remain entitled to a benefit and which
are maintained (or to which contributions currently are made or required to
be made) by Seller or by any other member (hereinafter, "Benefit Plan
Affiliate") of any controlled group of corporations, group of trades or
businesses under common control, or affiliated service group of which
Seller is also a member, which group would be treated as a single employer
under Section 414(b), (c) or (m) of the Code (the "Employee Plans"). Each
Employee Plan (other than any such plan that is a multiemployer plan)
described in Section 3(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") is herein referred to as an "Employee Welfare
Plan" and each Employee Plan (other than any such plan that is a
multiemployer plan) described in Section 3(2) of ERISA is herein referred
to as an Employee Pension Plan. The Employee Welfare Plans and Employee
Pension Plans are
-17-
<PAGE>
herein referred to collectively as the "ERISA Plans". With respect to
Employee Plans other than multiemployer plans, Seller has provided or made
available to Buyer a copy of each such plan (including amendments and
related funding agreements) that has been reduced to writing, a description
of each such plan (including amendments) that has not been reduced to
writing, the current Summary Plan Description for each such plan that is an
ERISA Plan, the most recent Internal Revenue Service determination letter
for each such plan that is intended to be qualified under Section 401(a) of
the Code, and, where applicable, the most recent Form 5500 filed with
respect to each such plan.
(b) ERISA Plans. Each Employee Pension Plan that is intended to be
-----------
qualified under Section 401(a) of the Code is so qualified. Each ERISA
Plan has been administered in all material respects in accordance with its
terms and applicable law. Neither Seller nor any Benefit Plan Affiliate
has incurred any liability under Title IV of ERISA (other than for the
payment of PBGC premiums in the normal course) with respect to any ERISA
Plan, nor to the knowledge of the TJX has any event occurred that would
give rise to any such liability.
(c) Multiemployer Plans. Except as set forth on Schedule 2.11, none
------------------- -------------
of the Employee Plans is a multiemployer plan.
(d) Lawsuits, etc.. Except as set forth on Schedule 2.11 and except
-------------- -------------
for matters that would not reasonably be expected to have a Material
Adverse Effect, there are no lawsuits or claims (other than claims for
benefits in the normal course and domestic-relations litigation involving
the assignment of benefits) pending or, to the knowledge of TJX, threatened
with respect to benefits under any Employee Plan, nor is there any pending
or, to the knowledge of TJX, threatened governmental audit or similar
investigation relating to any Employee Plan.
2.12 Transactions with Affiliates. Except as disclosed in Schedule 2.12,
---------------------------- -------------
as set forth in any Transaction Agreement or as expressly contemplated
hereunder, no officer or director of TJX, Seller, the Trade Name Sub or CDM nor
any "Related Party" of TJX is a party to any material transaction with Seller or
CDM, including, without limitation, any contract, agreement or other arrangement
providing for the rental of real or personal property from, or otherwise
requiring payments to, any Related Party, which will be in effect immediately
after the Closing. Except as set forth in Schedule 2.12, no employee of Seller,
-------------
the Trade Name Sub, CDM nor any Related Party of TJX is indebted in an amount
greater than $50,000 to Seller, CDM or the Trade Name Sub except for advances
made in the ordinary course of business to meet reimbursable business expenses
anticipated to be incurred by such obligor and none of Seller, CDM or the Trade
Name Sub is indebted to any such employee or Related
-18-
<PAGE>
Party of TJX other than for compensation for services rendered or reimbursable
business expenses as an employer and other than for any claims which are subject
to Section 2.14.
2.13 Insurance. TJX or Seller maintains and will continue until the
---------
Closing to maintain policies of fire and casualty, liability and other forms of
insurance in such amounts, with such deductibles and against such risks and
losses as are, in TJX's judgment, reasonable for the business and assets of the
Division. A true and complete list of such insurance policies is set forth on
Schedule 2.13. All of such policies are sufficient for compliance with all
- -------------
requirements of law and all contracts, leases and other agreements to which
Seller or any subsidiary is a party except where any such insufficiencies would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
2.14 Litigation. Except as set forth on Schedule 2.14, neither Seller nor
---------- -------------
CDM is a party to any litigation, suit, action, investigation, proceeding,
unfair labor practice complaint or grievance or controversy before any court,
administrative agency or other governmental authority relating to or affecting
the assets of the Division. Except as set forth on Schedule 2.14, to the
-------------
knowledge of TJX, neither Seller nor CDM is threatened with, and none of the
assets of the Division are subject to, any litigation, suit, action,
investigation, proceeding, unfair labor practice complaint or grievance or
controversy before any court, administrative agency or other governmental
authority relating to or affecting the assets of the Division that would
reasonably be expected to have a Material Adverse Effect. To the knowledge of
TJX, the Division is in compliance with all judgments, orders, writs,
injunctions or decrees of any court, administrative agency or governmental
authority to which the Division or its assets are subject, except for such
failures to be in compliance which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. There are no such
actions, proceedings or investigations pending or, to the knowledge of TJX,
threatened against Seller or CDM, or, to the knowledge of TJX, pending or
threatened against any other party challenging the validity or propriety of the
transactions contemplated by this Agreement other than from the failure to
obtain consents which are not a condition to Buyer's closing hereunder (which
latter challenges that are known by TJX shall be included in an updated Schedule
--------
2.14 furnished to Seller immediately prior to the Closing solely for
- ----
informational purposes).
2.15 Regulatory Approvals. All governmental consents, approvals,
--------------------
authorizations and other requirements prescribed by any law, rule or regulation
that must be obtained or satisfied by Seller or CDM and are necessary for the
consummation of the transactions contemplated by this Agreement, have been, or
will be prior to the Closing, obtained and satisfied, except for such failures
to be so obtained or satisfied which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
2.16 Environmental Matters. Except as set forth on Schedule 2.16, to the
--------------------- -------------
knowledge of TJX, each of Seller and CDM has operated in compliance in all
respects with, and has no liability under, any applicable federal, state and
local environmental protection, pollution control, occupational, health and
safety or similar laws, statutes, rules, regulations,
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<PAGE>
ordinances, restrictions, licenses and permits (collectively, the "Environmental
Law"), except for such noncompliances which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. Except as
set forth on Schedule 2.16, to the knowledge of TJX, there has not been any and
-------------
there is no past or continuing release or threat of release, generation or
discharge of any hazardous or toxic substance, including without limitation a
"hazardous substance" as defined in 42 U.S.C. (S) 9601(14) and asbestos, PCB's,
oil, gasoline and other petroleum-based substances (each, a "Hazardous
Substance"), into the environment at, on or from any property currently or
previously leased, owned, occupied or operated by either Seller or CDM, except
for such releases, generations and discharges as, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
To the knowledge of TJX, except as set forth on Schedule 2.16 there have been
-------------
no Hazardous Substances generated by Seller or CDM that have been disposed of or
come to rest at any site that has been included in the National Priority List or
analogous state or local site list and none of Seller or CDM has been alleged to
be in violation of, or been subject to any administrative or judicial proceeding
pursuant to any Environmental Law. TJX has delivered to Buyer copies of all
environmental audits or other studies or reports that assess environmental
conditions at any property currently or previously leased, owned, occupied or
operated by Seller or CDM.
2.17 Inventory. Except as disclosed in the Financial Statements or on
---------
Schedule 1.4B, the value at which the Inventory of Seller and CDM is carried on
(a) the July 27, 1996 consolidated balance sheet included in the Financial
Statements (the "Balance Sheet") and (b) the Closing Balance Sheet reflects or
will reflect the customary inventory valuation policies of Seller (including the
establishment of reserves) and is in accordance with GAAP consistently applied.
Since July 27, 1996, Seller and CDM have continued to replenish their inventory
in the ordinary course of business consistent with past practice, and have not
made any material change in their inventory policies or procedures, except for
changes regarding the liquidation of merchandise as disclosed in Schedule 2.17.
-------------
2.18 Accounts Receivable. All accounts receivable (excluding Deferred
-------------------
Payment Receivables) reflected on the Balance Sheet are collectible at the
aggregate recorded amounts thereof and all accounts receivable (excluding
Deferred Payment Receivables) acquired since the date of the Balance Sheet are
collectible at the aggregate recorded amounts thereof, in all cases net of
reserves therefor.
2.19 Disclosure. The October 15, 1996 draft form of preliminary prospectus
----------
of Chadwick's furnished to Buyer does not contain any misstatement of material
fact or omit to state any material fact necessary to make the statements made
therein, in light of the context in which they are made, not misleading.
2.20 Investment Intent, Related Matters. Seller is acquiring the Buyer
----------------------------------
Notes for Seller's own account and Seller has the present intention of holding
the Buyer Notes for investment purposes and not with a view to, or for sale or
resale in connection with, any
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public distribution thereof or with any present intention of selling,
distributing or otherwise disposing of the Buyer Notes. Seller is an "accredited
investor" as that term is defined in Regulation D under the Securities Act.
Seller understands that the Buyer Notes have not been registered under the
Securities Act and may be transferred only pursuant to registration thereunder
or an exemption therefrom.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to TJX and Seller as follows:
3.1 Organization. Buyer is a limited partnership duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware, and has
all requisite power and authority to own its properties and to carry on its
business as now being conducted. A certified copy of the Certificate of Limited
Partnership of Buyer, as amended to date, has been previously delivered to
Seller and is complete and correct.
3.2 Authorization; No Violation. Buyer has full power and authority to
---------------------------
execute and deliver this Agreement and the other agreements provided for herein,
to carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated on its part hereby and thereby. The execution and
delivery of this Agreement and other Transaction Agreements by Buyer, and the
consummation by Buyer of the transactions contemplated hereby and thereby, have
been duly authorized by all requisite partnership action on the part of Buyer.
This Agreement and each other Transaction Agreement have been or will have been
when entered into duly executed and delivered by Buyer, and constitute or will
constitute when entered into the valid and legally binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
limited by (i) bankruptcy, insolvency or similar laws affecting creditor's
rights generally and (ii) equitable principles of general applicability. The
execution, delivery and performance of this Agreement and each other Transaction
Agreement, and the consummation by Buyer of the transactions contemplated hereby
and thereby, will not, with or without the giving of notice or the passage of
time or both, (a) violate the provisions of any material law, rule or regulation
applicable to Buyer; (b) violate the provisions of Buyer's Agreement of Limited
Partnership; (c) violate any material judgment, decree, order or award of any
court, governmental body or arbitrator; or (d) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of Buyer pursuant to, any
indenture, mortgage, deed of trust or other material agreement or instrument to
which it or its properties is a party or by which Buyer is or may be bound,
except for such violations, conflicts, defaults or the like which, individually
or in the aggregate, would not reasonably be expected to have a Buyer's Material
Adverse Effect.
3.3 Regulatory Approvals. All material consents, approvals,
--------------------
authorizations and other requirements prescribed by any material law, rule or
regulation that must be obtained or
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satisfied by Buyer and are necessary for the consummation of the transactions
contemplated by this Agreement have been, or will be prior to the Closing,
obtained and satisfied, except for such failures to so obtain or satisfy which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect, on the assets, business operations, financial condition
or results of operation of Buyer ("Buyer's Material Adverse Effect").
3.4 Litigation. Buyer is not a party to, nor, to the knowledge of Buyer,
----------
has been threatened with, and none of the assets of Buyer are subject to, any
litigation, suit, action, investigation, proceeding, unfair labor practice
complaint or grievance or controversy before any court, administrative agency or
other governmental authority relating to or affecting the assets of Buyer that
would reasonably be expected to have a Buyer's Material Adverse Effect. To the
knowledge of Buyer, Buyer is in compliance with all judgments, orders, writs,
injunctions or decrees of any court, administrative agency or governmental
authority to which Buyer or its assets are subject, except for such failures to
be in compliance which, individually or in the aggregate, would not reasonably
be expected to have a Buyer's Material Adverse Effect. Except for any failure
to obtain any consent which is not a condition to the Closing hereunder by
Seller, there are no such actions, proceedings or investigations pending or, to
the knowledge of Buyer, threatened against Buyer, or, to the knowledge of Buyer,
pending or threatened against any other party challenging the validity or
propriety of the transactions contemplated by this Agreement.
3.5 Financial Statements. Attached hereto as Schedule 3.5 are (i) the
------------------- ------------
audited consolidated financial statements of Buyer as of and for the year ended
February 3, 1996, including the statements of operations, statements of cash
flows and balance sheets, and (ii) the unaudited financial statements of Buyer
as of and for the twenty-six weeks ended August 3, 1996, including the
statements of operations, statements of cash flows and balance sheets, (the
"Buyer's Financial Statements"). Buyer's Financial Statements have been
prepared in accordance with generally accepted accounting principles applied
consistently with Buyer's past practices and accounting policies, except for
changes expressly noted therein, and present fairly, in all material respects,
the consolidated financial position and results of operations and cash flows of
Buyer as of the dates and for the periods covered thereby, subject, in the case
of interim financials, to the absence of footnotes and to customary year-end
adjustments.
3.6 Absence of Certain Changes. Since August 3, 1996, Buyer has not
--------------------------
suffered any event or condition of any character which in any one case or in the
aggregate has had a material adverse effect, or any event or condition which
individually or in the aggregate has or would reasonably be expected to have a
Buyer's Material Adverse Effect; it being understood that Buyer has incurred or
expects to incur Debt in order to finance the transactions contemplated by this
Agreement.
3.7 Financing. Buyer has received and delivered to Seller firm commitment
---------
letters from certain financing parties (the "Financing Parties") dated as of the
date hereof (the "Financing Commitments"), with respect to debt and equity
financing in an amount sufficient
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to enable Buyer to pay the Estimated Cash Purchase Price. Such Financing
Commitments have not been altered or amended and are in full force and effect.
3.8 Partnership Documents. A copy of each of the Agreement of Limited
---------------------
Partnership dated as of August 30, 1993 and each of Amendments Nos. 1 through 7
thereto of Buyer have been previously delivered to TJX and Seller, each such
document is complete and correct, and except for such Amendments Nos. 1 through
7 there are no amendments or modifications to Buyer's Agreement of Limited
Partnership.
3.9 Disclosure. The October 17, 1996 draft form of preliminary prospectus
----------
of Buyer furnished to TJX and Seller does not (without giving effect to the
transactions contemplated by this Agreement) contain any misstatement of
material fact or omit to state any material fact necessary to make the
statements made therein, in light of the context in which they are made, not
misleading.
4. ACCESS TO INFORMATION, ETC.; PUBLIC ANNOUNCEMENTS.
4.1 Access to Information, Etc. From the date of this Agreement until the
--------------------------
Closing or any earlier termination of this Agreement, TJX and Seller shall
afford the officers, attorneys, accountants, Financing Parties and other
authorized representatives and professionals of Buyer access upon reasonable
notice and during normal business hours to all management personnel, offices,
properties, books and records (including information with respect to customer
lists, but not the identities of individual customers on such lists) of TJX and
Seller relating to the business of the Division, so that Buyer may have full
opportunity to make such investigation as it reasonably desires of the
management, business, properties and affairs of the Division, and Buyer shall
(at its expense) be permitted to make abstracts from, or copies of, all such
books and records. TJX and Seller shall furnish to Buyer such financial and
operating data and other information as to the assets and the business of the
Division as Buyer shall reasonably request. The foregoing shall not limit the
Buyer's obligations under that certain Confidentiality Agreement dated as of
July 20, 1995, as amended, by and between TJX and Buyer (the "Confidentiality
Agreement").
4.2 Public Announcements. The parties agree that prior to the Closing,
--------------------
except as otherwise required by law, any and all public announcements or other
public communications concerning this Agreement and the transactions
contemplated hereby shall, unless required under applicable securities laws, be
subject to the approval of all parties, which approval shall not be unreasonably
withheld.
5. COVENANTS OF THE PARTIES.
5.1 Conduct of Business. Except as set forth in Schedule 5.1 or as
------------------- ------------
otherwise contemplated by this Agreement, prior to the Closing Seller shall
carry on the business of the Division in the ordinary course consistent with
past practice. Without limiting the foregoing,
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prior to the Closing, except as set forth in Schedule 5.1 or as otherwise
------------
contemplated hereby, Seller shall and it shall cause CDM to (except with the
prior written consent of Buyer):
(a) not take any action to amend the Certificate of Incorporation or
By-laws of Seller or CDM other than such amendments which will not
adversely affect Seller's obligations hereunder;
(b) not mortgage, pledge, or subject to any lien, charge or any other
encumbrance any of the assets of the Division except in the ordinary course
of business consistent with past practice;
(c) not sell, assign, or transfer any of the assets of the Division
except in the ordinary course of business consistent with past practices;
(d) not merge or consolidate with or into any corporation or other
entity;
(e) not enter into any lease for which the aggregate estimable rental
liability of such lease is greater than $150,000, other than (i) leases
entered into in the ordinary course of business consistent with past
practice that do not involve real estate and (ii) those leases reflected in
the Capital Budget Plan;
(f) not materially alter the terms, status or funding condition of
any Employee Plan with respect to any employees of the Division except for
such alterations that are also applicable to other divisions or
subsidiaries of TJX or are necessary to consummate the transactions
contemplated hereby;
(g) not settle any litigation, suit, action, investigation,
proceeding or controversy before any court, administrative agency or other
governmental authority except for such litigation, suit, action,
investigation or proceeding that individually would not result in
liabilities of the Division in excess of $250,000; and
(h) use its commercially reasonable efforts to preserve intact its
business organization and use its commercially reasonable efforts
consistent with past practices to keep available the services of its
employees and to preserve the goodwill of its business relationships with,
including, without limitation, its suppliers;
(i) not make any material change to its catalog and prospect mailings
from the planned advertising and mailing program described to Buyer in the
Catalog Plan; provided that for purposes of this Section 5.1(i), material
change shall mean one of the following events: (A) canceling a planned
distribution of catalogs; (B) material reduction in the circulation of any
catalog; (C) material reduction in the level of prospecting in a particular
season (which purposes for this paragraph (i) shall consist of
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spring, summer, fall, winter and holiday); or (D) material change in the
number of pages of any catalog edition; or
(j) not make any material change in its program of maintenance for
its property, plant and equipment, and continue substantially to follow the
Capital Budget Plan;
(k) continue to replenish and maintain the inventory of the Business
in a normal and customary manner, consistent with the current practices of
the Business;
(l) use their commercially reasonable efforts (without cost to either
of them or TJX and its other affiliates) to obtain any consents or
approvals required under any Contracts (including customer contracts) or
otherwise that are necessary to complete the transaction or to avoid a
default under any such Contracts;
(m) pay or discharge when due all material liabilities in accordance
with past payment practices except for liabilities that are contested in
good faith;
(n) not terminate the employment by Seller of any Management Employee
without the consent of Buyer, such consent not to be unreasonably withheld,
provided that if Buyer shall not respond to a request from Seller for such
consent within five business days of its receipt of such request from
Seller, such consent shall be deemed to have been given, and provided
further that if Seller shall terminate the employment of any Management
Employee over the reasonable objection, or without seeking consent, of
Buyer, the sole consequence under this Agreement of such termination shall
be that all liabilities and obligations of Seller to such terminated
Management Employee shall be Excluded Liabilities; and
(o) not commit or agree to do any of the foregoing in the future.
5.2 Compliance with Laws. Prior to the Closing, Seller will comply, and
--------------------
will cause CDM to comply, with all laws and regulations which are applicable to
it, the ownership of its assets or to the conduct of its business and will
perform and comply with all contracts, commitments and obligations by which it
is bound, except in each case for failures to so comply or perform as in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
5.3 Continuing Obligation to Inform. From time to time prior to the
-------------------------------
Closing, TJX and Seller will deliver or cause to be delivered to Buyer material
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule or Exhibit inaccurate or incomplete in any
material respect at any time after the date hereof until the Closing. If Buyer
receives any such supplemental information prior to the Closing, Buyer
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<PAGE>
shall have the right to review such supplemental information for a period of
five days from the receipt thereof and to object to any item of such
supplemental information which was not contained in this Agreement or in the
Schedules or Exhibits attached hereto within such five day period if such item
is material to the Division taken as a whole. Any such objection shall be set
forth in writing and shall state in detail the basis for such objection. If
Buyer objects to any such item on the basis set forth above within such five day
period then Buyer shall have as its sole remedy hereunder the option to
terminate the Agreement within such five day period or to proceed with the
Closing and, upon the Closing, Buyer shall be conclusively deemed to have waived
all claims hereunder relating to such misrepresentation or breach of warranty
(unless such supplemental information arises from a breach of a covenant under
this Agreement by TJX or Seller, in which event Buyer may pursue the remedies
available to it pursuant to this Agreement as limited by Section 9.6). If Buyer
does not object within such five day period, such supplemental information shall
be incorporated into this Agreement.
5.4 Union Agreement. Seller and Buyer shall negotiate in good faith
---------------
with Local No. 313 of the International Ladies Garment Worker's Union AFL-CIO
(the "Union") to enable Buyer to assume all Seller's obligations under the
agreement dated as of January 1, 1995 between NBC Distributors Inc., Avon
Trading Corporation, Seller and the Union (the "Union Agreement") and in
connection therewith to amend the Union Agreement as set forth on Schedule 5.4.
------------
Subject to obtaining consent of the Union to Buyer's assumption of the Union
Agreement with the Union's agreement to amend the Union Agreement as set forth
on Schedule 5.4, effective upon the Closing, Buyer shall become a successor
------------
employer to Seller and shall assume all of Seller's obligations under the Union
Agreement as so consented to (the "Assumed Union Agreement").
Each of the parties hereto agrees that Section 4204 of ERISA shall apply to
the transactions described herein, and each of the parties hereto agrees it
shall at all times take any and all necessary actions to meet the requirements
of Section 4204 of ERISA, including, without limitation, as follows:
(a) Effective upon the Closing, Buyer shall adopt and assume all Seller's
obligations under the multiemployer plan referred to in the Union Agreement (the
"Multiemployer Plan"), including, without limitation, the obligation to
contribute to the Multiemployer Plan. Buyer shall contribute to the
Multiemployer Plan, with respect to Employees of the Business, for substantially
the same number of "contribution base units" (as defined in Section 4001(a)(11)
and 4204(a)(1)(A) of ERISA) for which Seller has an obligation to contribute
with respect to the Multiemployer Plan immediately prior to the Closing.
(b) Buyer shall take all action necessary to comply with Section 4204 of
ERISA with respect to the Multiemployer Plan and furnish proof of such
compliance to Seller. Such compliance shall include, without limitation, the
posting of a bond or escrow (or letter of credit if acceptable to the
Multiemployer Plan) within the time required by Section 4204(a)(1)(B) of ERISA
for the Multiemployer Plan, in an amount, for the period of time, and
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in a form that complies with Section 4204(a)(1)(B) of ERISA, or within such time
period obtaining a variance from such bonding or escrow requirement from the
Multiemployer Plan or from the Pension Benefit Guaranty Corporation (the "PBGC")
so that a transfer of contribution obligations to Buyer under the Multiemployer
Plan with respect to employees of the Business does not result in a complete or
partial withdrawal of Seller from the Multiemployer Plan under Sections 4203 or
4205 of ERISA, respectively.
(c) Unless a variance is obtained from the applicable Multiemployer Plan
or the PBGC, Seller agrees that if Buyer completely or partially withdraws
(within the meaning of Sections 4203 or 4205 of ERISA) from the Multiemployer
Plan with respect to contribution base units made on behalf of employees of the
Business during the five plan years of the Multiemployer Plan beginning after
the Closing, Seller shall be secondarily liable, and Buyer shall be primarily
liable, to the Multiemployer Plan in an amount equal to the withdrawal liability
Seller would have had to the Multiemployer Plan under Title IV of ERISA, as of
the Closing, as a result of the sale of the Business (but for the application of
Section 4204 of ERISA to such transaction).
(d) With respect to the Multiemployer Plan, if at any time prior to the
expiration of the fifth plan year of such Multiemployer Plan following the
Closing, Seller is liquidated or any other event described in Section 4204(a)(3)
of ERISA occurs, then Seller shall provide a bond or amount in escrow where
required in accordance with Section 4204(a)(3) of ERISA.
5.5 Customer Lists.
--------------
(a) TJX acknowledges and agrees that all customer lists and other current
customer-related information acquired by Seller in the conduct of its business
concerning the customers of Seller will upon the Closing be the sole property of
Buyer and shall not be used by TJX or its Subsidiaries or disclosed by TJX or
its Subsidiaries, except as provided in subsection (b) or as otherwise agreed to
in writing by Buyer. Buyer acknowledges and agrees that all customer lists and
other current customer-related information acquired by TJX in the conduct of its
business concerning the customers of TJX and its Subsidiaries (other than Seller
and CDM) are the sole property of TJX and its Subsidiaries and shall not be used
by Buyer or its Subsidiaries or disclosed by Buyer or its Subsidiaries, except
as otherwise provided in subsection (c) or as otherwise agreed to in writing by
TJX.
(b) TJX may use the Chadwick's "one million name" customer list currently
in its possession for one currently planned credit card solicitation mailing and
for reasonable associated followup telemarketing, provided that the
telemarketing will not extend more than three months after completion of the
mailing.
(c) Buyer may use the TJX "large size" customer list currently in its
possession for two catalog mailings and two associated remailings, provided that
such mailings and remailings are completed prior to January 31, 1998.
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(d) Each of TJX and Brylane shall, upon completion of the activities
permitted by paragraphs (b) or (c), as the case may be, promptly return to the
other all copies (whether electronic or paper) of the relevant customer list.
5.6 TJX D&B Guarantee. TJX currently provides a guarantee of payment to
-----------------
the Division's vendors through a Dun & Bradstreet notification. Buyer
acknowledges that TJX intends to terminate such guarantee as to liabilities
incurred by the Division after the Closing, at the earliest date such
termination may become effective. Until such guarantee shall have been
terminated, Buyer will not, and will not permit its Subsidiaries to, incur any
obligations to vendors in excess of the aggregate amount customarily incurred by
Seller.
5.7 Non-Competition.
---------------
(a) Effective from the date hereof, and for a period of five years
thereafter, TJX and its subsidiaries, including without limitation Seller,
shall not directly or indirectly participate in the ownership, management,
operation or control of, or be connected as a partner, consultant, agent or
otherwise with, or have any financial interest in (through stock or other
equity ownership, investing of capital, lending of money or otherwise,
although excluding passive ownership of less than ten percent of the
outstanding equity in a company), alone or in association with others, any
business (any such business, a "Competitive Business") that sells
merchandise anywhere in the world through printed women's or men's apparel
catalogs that are substantially similar to the catalogs currently
distributed by Chadwick's (determined based on merchandise categories,
merchandise quality and value-orientation); provided, however, that the
foregoing shall not preclude TJX or any of its subsidiaries from engaging
or participating in (i) the sale of merchandise through the Internet or
other visual electronic media; (ii) print advertising of apparel or other
merchandise sold through stores or visual electronic media, notwithstanding
that items featured in such advertising may be ordered by mail, telephone,
telecopy or electronically; or (iii) printed catalogs in which less than
ten percent of the merchandise items are men's or women's apparel.
Notwithstanding the foregoing, TJX or any of its subsidiaries may acquire
stock or assets of a business that conducts a Competitive Business;
provided, however, such Competitive Business accounts for less than twenty-
five percent (25%) of the annual revenues of such acquired business; and
provided further, that TJX or such subsidiary shall use all commercially
reasonable efforts to, or shall use all commercially reasonable efforts to
cause such acquired business to, within one year of the acquisition of such
acquired business, and in any event shall within two years of such
acquisition, divest itself of any such Competitive Business which accounts
for five percent (5%) or more of the annual revenues of such acquired
business.
(b) For a period of two years after the Closing, neither TJX nor any
of its subsidiaries will, directly or indirectly, solicit the employment of
any employee of Buyer, while such employee is an employee of Buyer or
within two months thereafter,
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who immediately prior to the Closing was employed by Seller as a Management
Employee; provided, however, that TJX or any of its subsidiaries may
solicit the employment of any such employee whose employment has been
terminated by Buyer.
(c) TJX and Seller acknowledge that the restrictions contained in this
Section 5.7 are reasonably necessary for the protection of Buyer and
realization by Buyer of the benefit of their bargain under this Agreement
and that a violation of such provisions will cause damage that may be
irreparable or impossible to ascertain and, accordingly, that Buyer will be
entitled to injunctive or other similar relief in equity from a court of
competent jurisdiction to enforce these restrictions or restrain a
violation of this Agreement. If at the time of enforcement of any
provision of Section 5.7, a court (or arbitrator selected by the agreement
of the parties) holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the
maximum period, scope or geographical area reasonable under such
circumstances will be substituted for the stated period, scope or area.
5.8 Creation by Seller of the Trade Name Sub. Prior to the Delivery Date
----------------------------------------
TJX shall establish the Trade Name Sub as a wholly-owned subsidiary of Seller
incorporated in the State of Delaware and shall transfer or license to the Trade
Name Sub certain trademarks as described in the Trademark Agreements.
5.9 Reimbursement by the Parties.
----------------------------
(a) To the extent that TJX or Seller, on the one hand, or Buyer, on
the other hand, receive any payment after the Closing which belongs to the
other party, it shall promptly pay over such payment to the other party.
(b) Buyer shall promptly reimburse TJX for any post-Closing drawdowns
made upon TJX or any of its subsidiaries under letters of credit or under
any Guarantees for merchandise included in the Purchased Assets received
after the Closing.
5.10 Efforts to Obtain Satisfaction of Conditions. Each party hereto
--------------------------------------------
covenants and agrees to use all commercially reasonable efforts to obtain the
satisfaction of the conditions specified in this Agreement including, without
limitation, its commercially reasonable efforts to obtain all necessary
consents, approvals and waivers to the consummation of the transactions
contemplated by this Agreement.
5.11 Acquisition Proposals. Following the execution of this Agreement and
---------------------
prior to any termination hereof, neither TJX nor Seller, nor any of their
respective directors, officers, employees or other representatives or agents
shall, directly or indirectly, communicate, solicit, initiate, encourage or
participate (including furnishing non-public information concerning Seller's
business, properties or assets) in any discussions or negotiations with regard
to any proposal (other than the transaction contemplated by this Agreement) for
a tender offer,
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exchange offer, merger or other business combination involving Seller or CDM or
for the acquisition of an equity interest in, or a substantial portion of the
assets of, Seller or CDM (an "Acquisition Proposal"). TJX and Seller each agree
to promptly communicate to Buyer the identity of any other party and the initial
terms of any proposal any of them may receive from any other party in respect of
an Acquisition Proposal.
5.12 Certain Employment and Employee Benefit Matters.
-----------------------------------------------
(a) Employment. Except for the CDM employee, Buyer agrees to employ
----------
from and after the Closing all persons (the "Employees") employed by the
Division immediately prior to the Closing, including any such employee
absent from active service by reason of illness, disability, or leave of
absence whether paid or unpaid, at salary and wage rates not less than
those paid prior to the Closing. Nothing in the preceding sentence shall
preclude Buyer from terminating any Employee after the date of the Closing,
subject to the other provisions of this Agreement; provided that with
respect to any such termination of employment occurring within six months
following the Closing, Buyer shall honor all severance policies,
agreements, or other arrangements that are contemplated by this Agreement
to be in effect with respect to the terminated Employee immediately after
the Closing.
(b) Continuation of Welfare Benefits. For a period of not less than
--------------------------------
six months from and after the Closing, and thereafter to the extent
required by law, Buyer shall make available to the Employees (and their
spouses and dependants) medical, dental, life insurance, and disability
benefits in each case substantially equivalent to the medical, dental, life
insurance and disability benefits that were available generally to the
Employees (including spouses and dependents) under the applicable Employee
Welfare Plans prior to the Closing; provided, that the eligibility of an
Employee (and his or her spouse and dependents) for such benefits upon and
after Closing shall be determined (i) without regard to any preexisting-
condition, waiting-period, actively-at-work or similar exclusion or
condition except for any such to which such Employee is subject under the
applicable Employee Welfare Plans immediately prior to the Closing, and
(ii) after taking into account for eligibility purposes the Employee's
service with Seller and any Benefit Plan Affiliate prior to the Closing.
(c) Liability of Seller, etc. for Certain Claims. From and after the
--------------------------------------------
Closing, Seller and its Benefit Plan Affiliates shall be liable for all
welfare-benefit and fringe-benefit claims that were incurred prior to the
Closing by the Employees (or their eligible spouses and dependents) and
that are presented within twelve (12) months following the Closing. For
purposes of the foregoing sentences, a claim will be deemed to have been
incurred when an individual is provided with medical, dental, vision or
other services that are covered expenses and give rise to the claim;
provided, that a claim for life insurance or similar death benefits will be
deemed to have been incurred at time of death. In addition, Seller and its
Benefit Plan Affiliates shall
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provide and remain liable for continuation of coverage required under
Sections 601 through 608 of ERISA and Section 4980B of the Code ("COBRA")
with respect to any person as to whom the qualifying event (as defined at
Section 603 of ERISA) occurred prior to the Closing. Buyer shall defend and
indemnify Seller and its Benefit Plan Affiliates from any and all claims,
premiums, administrative fees, costs and expenses incurred by Seller or any
Benefit Plan Affiliate in connection with or relating to COBRA continuation
coverage provided to, or claimed by, any Employee (and/or any dependent of
any such Employee) with respect to a qualifying event occurring at or after
Closing, including, without limitation, any such coverage in respect of
Employees whose group health plan coverage is eliminated, reduced,
curtailed or otherwise modified (including by reason of differences in the
terms and conditions of Buyer's plans as compared to the terms and
conditions of the applicable Employee Welfare Plan) at or after Closing.
(d) Disability and workers' compensation benefits. Seller and its
---------------------------------------------
Benefit Plan Affiliates shall continue to provide and be liable for long-
term disability benefits in accordance with the terms of the applicable
Employee Welfare Plan to each individual whose claim for such long-term
disability benefits was incurred before the Closing. For purposes of the
preceding sentence, a long-term disability benefit claim shall be treated
as having been incurred before the Closing only if the injury or illness
giving rise to such claim occurred before the Closing and such claim is
covered by the long term disability benefit insurance coverage provided by
Northwestern National Life Insurance Coverage to Seller and its Benefit
Plan Affiliates as such coverage is in effect prior to the Closing. Seller
and its Benefit Plan Affiliates shall continue to provide and be liable for
workers' compensation benefits and employer's liability benefits in
accordance with the terms of the applicable worker's compensation program
and applicable law to each individual who immediately prior to the Closing
was legally entitled to workers compensation benefits and employer's
liability benefits from Seller and its Benefit Plan Affiliates (whether or
not such legal entitlement has been established as of the Closing) for an
injury or illness which occurred before the Closing. In accordance with
past practices of the Division, Buyer shall make reasonable efforts to
encourage and accommodate the return to employment of Employees described
in the preceding two sentences.
(e) Severance, etc.. Buyer shall provide the Employees severance
---------------
arrangements as set forth in the Severance Pay Plan attached hereto as
Schedule 5.12 (the "Severance Plan"), which Buyer shall adopt immediately
-------------
after the Closing.
(f) 401(k) plan; defined benefit plan. Effective as of the Closing,
---------------------------------
TJX shall cause the account balances of affected Employees under TJX's
401(k) plans (the "Seller's 401(k) Plan") to be fully vested to the extent
not already vested. As soon as practicable following Closing, TJX shall
cause such vested accounts to be transferred on a non-elective basis
pursuant to Section 414(l) of the Code to a tax-qualified 401(k)
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plan maintained by Buyer for Buyer's employees ("Buyer's Plan"), and Buyer
shall cause Buyer's Plan to accept such transferred accounts. Buyer shall
also cause Buyer's Plan, or another tax-qualified defined contribution plan
maintained by Buyer, to accept rollovers or direct rollovers of "eligible
rollover distributions," if any, made with respect to Employees under TJX's
tax-qualified defined pension plan by reason of the transactions
contemplated by this Agreement. In connection with the transfers (including
rollovers) described in the preceding sentences, Buyer shall furnish to the
administrator of the transferor plan evidence reasonably satisfactory to
the administrator that the transferee plan of Buyer is, as of the date of
the transfer, qualified under Section 401(a) of the Code. Seller shall
furnish to Buyer evidence reasonably satisfactory to Buyer that Seller's
401(k) Plan is, as of the date of the transfer, qualified under Section
401(a) of the Code. The Employees shall be eligible to participate, from
and after the Closing, in Buyer's Plan in accordance with the terms of such
plan but taking into account in the case of each Employee, for eligibility
and vesting purposes, pre-Closing service creditable to such Employee for
purposes of Seller's 401(k) Plan. Nothing in this Agreement shall be
construed as requiring or contemplating any transfer of assets (except for
direct rollovers, if any, as described above) from or special distribution
or vesting under TJX's tax-qualified defined benefit pension plan and its
related trust or as entitling any Employee to continued active
participation in such plan.
(g) Deferred compensation, etc.. Seller shall continue to be liable
---------------------------
for benefits, if any, accrued with respect to Employees prior to the
Closing under Seller's General Deferred Compensation Plan and accrued and
vested with respect to Employees prior to the Closing under Seller's
Supplemental Executive Retirement Plan.
(h) Employees covered by a collective bargaining agreement.
------------------------------------------------------
Notwithstanding any provision of this Section 5.12, in the case of any
Employee who is covered by a collective bargaining agreement, Buyer shall
offer employment on such terms and provide only such pay and benefits as
are provided for in the Assumed Union Agreement. Without limiting the
foregoing, the parties shall take such actions with respect to the
Multiemployer Plan as are described in Section 5.4.
(i) Cooperation. In connection with any benefits that may be paid
-----------
or payable to an Employee following the Closing under any Employee Plan,
Buyer shall cooperate with and assist Seller and its Benefit Plan
Affiliates in obtaining all necessary consents and in providing to the
Employee all necessary disclosures. Seller shall also cooperate with Buyer
in Buyer's efforts to succeed to or obtain the benefit of Seller's
unemployment insurance rating reserve account (or comparable concept) in
each relevant jurisdiction.
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5.13. Bulk Transfers. The parties hereto waive compliance with the
--------------
requirements of any so-called Bulk Sales law of any jurisdiction in connection
with the sale of the Purchased Assets to Buyer.
5.14. Consents to Assignment. To the extent any of the Transferred Leases
----------------------
or Contracts provides that such Transferred Lease or Contract may not be
assigned to Buyer without the written consent of the lessor, any mortgagee,
lender or other third party (collectively, a "Consenting Party") or if Buyer
should reasonably request any nondisturbance agreement, each of TJX and Seller
shall use their commercially reasonable efforts to secure and to deliver all
necessary consents and nondisturbance agreements to Buyer at or prior to the
Closing; provided that, without the written consent of Buyer or Seller, as
applicable, no such consent or nondisturbance agreement shall require any
payment by Buyer, Seller or CDM or result in an increase in the continuing
obligations thereunder.
5.15. Sharing of Data. The parties agree that from and after the Closing:
---------------
(a) TJX and Seller shall have the right for a period of five years
following the Closing (or such longer period as shall be necessary to
satisfy TJX's legal and tax obligations or requirements) to have reasonable
access to such books, records and accounts, including financial and tax
information, correspondence, production records, employment records and
other similar information as are transferred to Buyer pursuant to the terms
of this Agreement for the limited purposes of concluding its involvement in
the business of the Division prior to the Closing, engaging in related
litigation with third parties and complying with its obligations under
applicable securities, tax, environmental, employment or other laws and
regulations. Buyer shall have the right for a period of five years
following the Closing (or such longer period as shall be necessary to
satisfy Buyer's legal and tax obligations or requirements) to have
reasonable access to those books, records and accounts, including financial
and tax information, correspondence, production records, employment records
and other records as are retained by TJX and Seller pursuant to the terms
of this Agreement to the extent that any of the foregoing relates to the
business of the Division transferred to Buyer hereunder, or is otherwise
needed by Buyer for the purpose of engaging in related litigation with
third parties, or in order to comply with its obligations under applicable
securities, tax, environmental, employment or other laws and regulations.
Each party hereby covenants to the other parties that it will keep such
books, records, accounts, and information in existence and in good order
for such period of time as the other parties are entitled to reasonable
access thereto pursuant to this Section 5.15.
(b) Buyer shall make available to TJX or Seller upon written request
(i) copies of any books or records of the Division, (ii) Buyer's personnel
to assist TJX or Seller in locating and obtaining any books or records of
the Division, and (iii) any of Buyer's personnel whose assistance or
participation is reasonably required by TJX or Seller or
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any of its affiliates in anticipation of, or preparation for, existing or
future litigation, Returns or other matters in which TJX, Seller or any of
their affiliates is involved.
(c) Each of TJX and Seller hereby covenant and agree that they will
keep confidential all information obtained or retained pursuant to the
provisions of this Section 10.1 in accordance with the provisions of the
Confidentiality Agreement. The provisions contained in such
Confidentiality Agreement are hereby incorporated herein by this reference.
(d) TJX may retain copies of any books, records and accounts of
Seller and CDM. TJX may utilize such books, records and accounts only to
satisfy, enforce or defend its obligations and rights hereunder or under
any Transaction Agreements or for tax purposes or for purposes relating to
any litigation, suit, action, investigation, proceeding or controversy
affecting TJX, Seller, CDM or Trade Name Sub.
(e) At all times from and after the Closing, each of Seller and Buyer
shall use reasonable efforts to make available to the other upon written
request its and its Subsidiaries' officers, directors, employees and agents
as witnesses to the extent that such persons may reasonably be required in
connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
(f) Except to the extent otherwise contemplated by the Services
Agreement or any other Transaction Agreement, a party providing
information, services or personnel to the other party under this Section
5.15 shall be entitled to receive from the recipient, upon the presentation
of invoices therefor, payments for such amounts, relating to supplies,
disbursements and other out-of-pocket expenses, as may be reasonably
incurred in providing such Information or Services; provided, however, that
no such reimbursements shall be required for the salary or cost of fringe
benefits or similar expenses pertaining to personnel of the providing
party.
5.16. Use of Name. From and after the Closing, TJX and Seller agree not to
-----------
use or permit any of their respective subsidiaries to use the name "Chadwick's",
"Chadwick's of Boston", or any of the other names that constitute tradenames
that are being transferred to Buyer pursuant to the terms of this Agreement, or
any derivation or any name likely to be confused therewith after the Closing in
connection with any business except for (a) such use as is contemplated by the
Trademark Agreements; (b) licenses other than for tradenames owned by the
Division or for which the Division has an exclusive license; (c) any of the
other marks that constitute trademarks or tradenames as to which Buyer at any
time ceases to have exclusive right of use, other than rights transferred by
Buyer to third parties after the Closing and (d) ministerial use by Seller of
the corporate names "Chadwick's, Inc." or "Chadwick's of Boston, Ltd.", which
Seller agrees to change or cause to be changed as soon as practicable, and in
any event within ten business days after the Closing.
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5.17. Certain Matters Pertaining to Taxes.
-----------------------------------
(a) Income Taxes. TJX, Seller and CDM will include the income of the
------------
Division on their respective Income Tax Returns for all periods through the
Closing and pay any Income Taxes attributable to such income. TJX shall be
liable for and pay and shall indemnify and hold harmless Buyer from and
against any and all damages, losses and expense arising out of any
liability for all Income Taxes of Seller, CDM or TJX.
(b) Transfer Taxes. Notwithstanding any other provisions of this
--------------
Agreement to the contrary, Buyer shall pay, or cause to be paid, all the
following Transfer Taxes:
(i) all Transfer Taxes incurred in connection with the sale and
transfer of the Purchased Assets under this Agreement and the
"Purchased Assets" under, and as defined in, the CDM Agreement, and
Buyer shall promptly reimburse Seller on an after-tax basis for any
such tax, fee or duty which it is required to pay under applicable
law;
(ii) all Transfer Taxes for any period ending on the Closing
which were not required to be paid prior to the Closing and which are
reflected on the Closing Balance Sheet; and
(iii) all Transfer Taxes asserted to be due for periods prior to
the date of the Closing which were not reflected on Returns filed with
the jurisdiction asserting liability, except to the extent that it is
finally determined that such liability is based on the presence or
actions of TJX or its affiliates other than Seller or CDM in such
jurisdiction.
Except as provided above in this paragraph (b), Seller shall be
responsible for payment of all Transfer Taxes asserted to be due for
periods prior to the Closing.
(c) Other Taxes. With respect to Other Taxes, Buyer shall be
-----------
responsible for preparing, and filing on Seller's behalf, all Returns
required to be filed subsequent to the date of the Closing and for paying
all such Taxes other than (i) Other Taxes arising with respect to Excluded
Assets (irrespective of whether such Other Taxes relate to transactions or
events occurring before or after the Closing) and (ii) Other Taxes which
Seller is expressly obligated to pay hereunder.
(d) Buyer's Taxes and Obligations. Buyer shall indemnify and hold
-----------------------------
TJX and its affiliates, including Seller and CDM, harmless from any loss,
liability or expenses of such persons arising out of any claims for Taxes
pertaining to operations of Buyer after the date of the Closing, any
transactions of Buyer which are not contemplated hereby and which are
outside the ordinary course of business occurring as of the
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Closing or subsequent to the Closing and such Taxes attributable to pre-
closing events or transactions as are included within the Assumed
Liabilities.
(e) Cooperation. Seller and Buyer shall reasonably cooperate and
-----------
shall cause their respective Affiliates, agents, auditors, representatives,
officers and employees reasonably to cooperate, in preparing and filing all
Tax Returns (including amended returns and claims for refund), including
maintaining and making available to each other all records necessary in
connection with Taxes and in resolving all disputes and audits with respect
to all taxable periods relating to Taxes. Buyer shall provide Seller with
pre-closing data relevant to the preparation of Seller's Income Tax Returns
within 45 days following the Closing and shall provide Seller with
confirmation that accrued Taxes on the Closing Balance Sheet have been paid
promptly following such payment. Buyer and Seller agree to retain or cause
to be retained all books and records pertinent to the Business until the
applicable period for assessment under applicable law (giving effect to any
and all extensions or waivers) has expired, and to abide by or cause the
abidance with all record retention agreements entered into with any taxing
authority. Buyer and Seller each agree to give the other reasonable notice
prior to transferring, discarding or destroying any such books relating to
Tax matters and, if the other party so requests, shall allow such other
party to take possession of such books and records. Buyer and Seller shall
cooperate with each other in the conduct of any audit or other proceedings
involving the Business for any Tax purposes and each shall execute and
deliver such powers of attorney and other documents as are necessary to
carry out the intent of this subsection. For any Transfer Tax Return or
Other Tax Return that Buyer is responsible for filing and that requires the
signature of an officer of Seller or CDM, Buyer shall present a completed
Return for the signature of an appropriate officer. Buyer shall give such
officer any support for the Tax Return reasonably requested by such
officer. The officer shall sign the return and deliver it to Buyer as soon
as reasonably practicable.
(f) At Buyer's request, TJX, Seller and CDM shall cooperate with
Buyer and treating Buyer as a successor employer for purposes of any
payroll tax purpose, including but not limited to withholding, social
security and unemployment insurance taxes.
5.18. Further Assurances. From time to time after the Closing, at the
------------------
request of Buyer, Seller shall execute and deliver any further instruments and
take such other action as Buyer may reasonably request to vest or confirm in
Buyer title to the Purchased Assets or otherwise carry out the transactions
contemplated hereby.
5.19. Title Matters. Seller will cooperate with Buyer in Buyer's efforts
-------------
to obtain a title insurance policy with respect to the Fee Property. The cost of
such title insurance policy shall be borne solely by Buyer. Seller has delivered
or will deliver to Buyer copies of any surveys of the Fee Property in Seller's
possession.
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5.20. Environmental Investigations. The parties covenant and agree as
----------------------------
follows:
(a) Defined Terms.
-------------
(i) "Remedial Work" means activities which are necessary to
-------------
remediate an environmental condition in order to cause such condition
not to be in violation of Environmental Law, including, without
limitation, remedial investigations, remedial action plans, removal,
treatment, storage, transportation and disposal of Hazardous
Substances.
(ii) "Remediation Costs" means the cost (not including allocated
-----------------
overheads or other internal costs) of performing the Remedial Work.
Remediation Costs shall not include the cost of the Phase I
Environmental Investigations or the Phase II Environmental
Investigations.
(iii) "Phase I Environmental Investigations" means the types of
------------------------------------
activities usually associated with Phase I environmental
investigations including, but not limited to, site inspections,
records review, interviews with government officials and employees of
Seller and CDM and related report preparation.
(iv) "Phase II Environmental Investigations" means the types of
-------------------------------------
activities usually associated with Phase II environmental
investigations including, but not limited to, soil and groundwater
sampling and related data and report preparation.
(b) Phase I Environmental Investigations. Buyer may conduct a Phase
------------------------------------
I Environmental Investigation in respect of the Fee Property. If Buyer
elects to perform any such Phase I Environmental Investigation, then such
Investigation shall be conducted by Prime Engineering or a nationally
recognized environmental consulting firm to be selected by Buyer or its
lenders with the reasonable approval of TJX. All costs of the Phase I
Environmental Investigations shall be the sole responsibility of Buyer.
(c) Phase II Environmental Investigations. If the Phase I
-------------------------------------
Environmental Investigation report in respect of the Fee Property
reasonably recommends the performance of a Phase II Environmental
Investigation at any real property, then Buyer shall have the right to
perform any such Phase II Environmental Investigation. All costs of the
Phase II Environmental Investigations shall be the sole responsibility of
Buyer. Buyer shall indemnify and hold harmless Seller from and against any
and all losses, liabilities, claims, damages or expenses (including
reasonable legal fees) suffered or incurred by Seller to the extent arising
out of or based on any such
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<PAGE>
investigation; without limiting the generality of the foregoing, Buyer
shall repair any damage occurring to the Fee Property in connection with
such investigation.
(d) Cooperation. When consents of third parties are required for
-----------
access to conduct an environmental investigation of any real property,
Seller shall exercise commercially reasonable efforts to obtain the consent
of such third parties. Seller shall cooperate in all reasonable respects
to permit the conduct of the Phase I and Phase II Environmental
Investigations upon reasonable notice and during normal business hours,
provided that such Environmental Investigations shall not interfere with
the conduct of the Business.
(e) Environmental Reports. TJX shall be entitled to review on an
---------------------
ongoing basis the data and work papers of the environmental consulting firm
and Buyer with respect to any Remediation Costs or Remediation Work. Final
Phase I Environmental Investigation reports and Phase II Environmental
Investigation reports (collectively, the "Environmental Reports") shall
include a reasonable estimate of the reasonable and probable Remediation
Costs.
(f) Remediation Costs. If the Environmental Reports disclose that
-----------------
Remediation Costs that may reasonably be expected to be required by law to
be paid by Buyer will exceed $2,000,000, then Buyer may terminate this
Agreement in accordance with the provisions of Section 10 unless TJX and
Seller jointly and severally indemnify Buyer, on terms reasonably
satisfactory to Buyer, for such excess and the Remedial Work would not
cause a material disruption of the operation of the Fee Property. If Buyer
does not elect to terminate this Agreement pursuant to the terms of this
subparagraph, then Buyer shall be solely responsible for all Remediation
Costs.
5.21. Deferred Payment Receivables. Within three business days after the
----------------------------
Closing, Buyer shall deliver, on paper and on electronic media, a list of all
Deferred Payment Receivables as of the close of business on the Closing,
including amounts, account numbers and bill dates of each separate Deferred
Payment Receivable. If not included on such list, the name, address and
telephone number of the customer associated with each Deferred Payment
Receivable shall be furnished to Seller promptly upon request. Seller will
process and submit such Deferred Payment Receivables for payment to its account
in accordance with its practices and policies (including deferred payment
policies) as in effect immediately prior to the Closing, and will employ its
customary collection practices in attempting to realize upon the Deferred
Payment Receivables.
(a) If merchandise giving rise to such a Deferred Payment Receivable
is returned to Buyer prior to the bill date of the Deferred Payment
Receivable, Buyer shall promptly notify Seller. Seller shall refrain from
submitting such Deferred Payment Receivable for payment, and Buyer shall
promptly pay to Seller an amount equal to such Deferred Payment Receivable.
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(b) If merchandise giving rise to such a Deferred Payment Receivable
is returned to Buyer after the bill date of the Deferred Payment
Receivable, any credit issued by Buyer shall be issued from Buyer's
account.
(c) If the issuing bank or other issuer refuses payment of a Deferred
Payment Receivable (referred to as a "hard decline"), Seller shall bear
such loss and may attempt to collect the amount of such Deferred Payment
Receivable from the customer in accordance with its customary collection
practices.
(d) All "charge-backs" of Deferred Payment Receivables will be made
by the issuing bank or other issuer to and against Seller's account. If
Seller has received reasonable indication from the issuing bank, other
issuer or the customer that such "charge-back" resulted from a return of
merchandise, Buyer shall promptly pay to Seller an amount equal to such
Deferred Payment Receivable. In addition, if and to the extent that the
aggregate amount of all "charge backs" of Deferred Payment Receivables
against Seller's account that have not been reimbursed by Buyer exceeds
$250,000, Buyer shall promptly pay to Seller an amount equal to such
excess.
6. CONDITIONS TO OBLIGATIONS OF ALL PARTIES.
The obligations of Seller and Buyer under this Agreement to consummate the
transactions described in Sections 1.1, 1.2 and 1.3 at the Closing are subject
to the fulfillment, on or before the Closing, of the following conditions
precedent, unless waived in writing by all parties hereto:
6.1. Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation
(including the expiration or termination of any waiting periods under the HSR
Act, if applicable, but excluding consents, authorizations and approvals
relating to use, occupancy, tax liens and similar matters) for the consummation
of the transactions contemplated by this Agreement shall have consented to,
authorized, permitted or approved such transactions.
6.2. Adverse Proceedings. The respective obligations of each party to
-------------------
effect the transactions contemplated by the Agreement shall be subject to the
conditions that no United States or state governmental authority or other agency
or commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order (whether temporary, preliminary, or
permanent) which is in effect and has the effect of prohibiting consummation of
the transactions contemplated by this Agreement.
6.3. Transaction Agreements. The other parties hereto that are intended to
----------------------
be parties thereto shall have entered into a Services Agreement (the "Services
Agreement"),
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Trademark Agreements (the "Trademark Agreements"), a New York City Buying Office
Letter (the "New York City Buying Office Letter"), and an Inventory Purchase
Agreement (the "Inventory Purchase Agreement"), each in substantially the form
of Exhibits 6.3A, 6.3B, 6.3C and 6.3D, respectively, and a Registration Rights
----------------------------------
Agreement (the "Registration Rights Agreement") in form and substance reasonably
satisfactory to TJX and Buyer.
6.4. Assumed Union Agreement. The Assumed Union Agreement shall have
-----------------------
become effective upon the Closing.
7. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer under this Agreement to purchase the Purchased
Assets and assume the Assumed Liabilities and to issue the Buyer Notes at the
Closing are subject to the fulfillment, on or before the Delivery Date, of the
following conditions precedent, each of which may be waived in writing in the
sole discretion of Buyer:
7.1. Continued Truth of Representations and Warranties of TJX and Seller;
--------------------------------------------------------------------
Compliance with Covenants and Obligations. Subject to Section 5.3, the
- -----------------------------------------
representations and warranties of TJX and Seller shall be true on and as of the
Delivery Date in all material respects as though such representations and
warranties were made on and as of the Delivery Date, except for any changes
permitted by the terms hereof or contemplated herein and except as to
representations and warranties made as of a specific date, which shall be
correct as of such date. Each of TJX and Seller shall have performed and
complied in all material respects with all terms, conditions, covenants,
obligations, agreements and restrictions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
7.2. Opinions of Counsel. Buyer shall have received the opinions of Ropes
-------------------
& Gray and Jay H. Meltzer, Esq., counsel to TJX and Seller, respectively, in
form and substance reasonably satisfactory to Buyer.
7.3. Closing Deliveries. Buyer shall have received at or prior to the
------------------
closing on the Delivery Date each of the following:
(a) a certificate signed by the President or any Vice President of
each of TJX and Seller, dated as of the Delivery Date, to the effect that
the conditions specified in Section 7.1 have been satisfied;
(b) certificates of the Secretary of State of The Commonwealth of
Massachusetts, where available prior to the Delivery Date, the State of
Nevada and the State of Delaware as to the legal existence and good
standing (including tax where available prior to the Delivery Date) of
Seller, CDM and the Trade Name Sub, respectively;
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(c) certificates of the Secretary or any Assistant Secretary of TJX
and Seller, respectively, attesting to the incumbency of TJX's and Seller's
officers, respectively, the authenticity of the resolutions authorizing the
transactions contemplated by the Agreement, and the authenticity and
continuing validity of the charter documents delivered pursuant to Section
2.1;
(d) a cross-receipt executed by Seller;
(e) one or more bills of sale, in form and substance reasonably
satisfactory to Buyer (the "Bills of Sale"), conveying in the aggregate all
of the Division's owned personal property included in the Purchased Assets;
(f) Lease Assignment and Assumption Agreements for each real property
lease and personal property lease included in the Purchased Assets and
Assumed Liabilities, in form and substance reasonably satisfactory to Buyer
(the "Lease Assignment and Assumption Agreements");
(g) A deed for the Fee Property and any other parcel of owned real
estate included in the Purchased Assets, in form and substance reasonably
satisfactory to Buyer (each, a "Deed");
(h) such other bills of sale, assignments and other instruments of
transfer as may be necessary conveying and transferring to Buyer title to
the Purchased Assets not transferred by the documents described in
subparagraphs (e) through (g) above; and
(i) such other documents, instruments or certificates as Buyer may
reasonably request.
7.4. CDM Agreement. CDM shall have executed and delivered the CDM
-------------
Agreement and all conditions precedent to Buyer's obligation to close thereunder
shall have been satisfied or waived.
7.5. Material Adverse Change. Since July 27, 1996, there shall have been
-----------------------
no material adverse change in the assets, financial condition, prospects or
results of operations of the Division.
8. CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller under this Agreement to sell and deliver the
Purchased Assets at the Closing are subject to the fulfillment, on or before the
Delivery Date, of the following conditions precedent, each of which may be
waived in writing at the sole discretion of Seller:
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8.1. Continued Truth of Representations and Warranties of Buyer;
-----------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties of
- -----------------------------------------
Buyer in this Agreement shall be true on and as of the closing on the Delivery
Date in all material respects as though such representations and warranties were
made on and as of such date, except for any changes permitted by the terms
hereof or consented to in writing by Seller and except, in the case of the
representations and warranties contained in Section 3.8, for further amendments
to the Agreement of Limited Partnership referenced therein, true and complete
copies of which shall have been furnished to Seller, that do not have an adverse
effect on the value or rights of the Buyer Notes. Buyer shall have performed and
complied in all material respects with all terms, conditions, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by it prior to or at the Closing.
8.2. Opinion of Counsel. Seller shall have received the opinions of
------------------
Riordan & McKinzie and Foley, Hoag & Eliot, counsel to Buyer, in form and
substance reasonably satisfactory to Seller.
8.3. Closing Deliveries. Seller shall have received at or prior to the
------------------
Closing each of the following:
(a) a certificate signed by the President or any Vice President of
Buyer, dated as of the Closing, to the effect that the conditions specified
in Section 8.1 have been satisfied;
(b) a certificate of the Secretary of State of the State of Delaware
as to the legal existence and good standing (including tax) of Buyer in
Delaware;
(c) certificates of the Secretary or any Assistant Secretary of Buyer
attesting to the incumbency of Buyer's officers, the authenticity of the
resolutions authorizing the transactions contemplated by this Agreement,
and the authenticity and continuing validity of the charter documents
delivered pursuant to Section 3.1;
(d) payment of the Estimated Cash Purchase Price by wire transfer in
immediately available funds;
(e) the Buyer Notes executed by Buyer;
(f) a cross-receipt executed by Buyer; and
(g) such other documents, instruments or certificates as Seller may
reasonably request.
8.4. Assumption Documents. Upon the terms and subject to the conditions
--------------------
contained herein, at the Closing, Buyer shall execute and deliver to Seller one
or more
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<PAGE>
instruments of assumption for the Assumed Liabilities, including the Lease
Assignment and Assumption Agreements, in forms reasonably satisfactory to Buyer
and Seller.
8.5. CDM Agreement. Buyer shall have executed and delivered the CDM
-------------
Agreement and all conditions precedent to CDM's obligation to close thereunder
shall have been satisfied or waived.
8.6. Material Adverse Change. Since August 3, 1996, there shall have been
-----------------------
no material adverse change in the assets, financial condition, prospects or
results of operations of Buyer and its subsidiaries taken as a whole.
9. INDEMNIFICATION.
9.1. Indemnification by TJX and Seller. Each of TJX and Seller hereby,
---------------------------------
jointly and severally, agrees to indemnify each of Buyer, its subsidiaries and
their respective affiliates, officers and directors (each, an "indemnified
party") against and hold them harmless from any loss, liability, claim, damage
or expense (including reasonable legal fees and expenses and including all
amounts paid in the investigation or defense of the foregoing) suffered or
incurred by any such indemnified party to the extent arising out of or based
upon (i) subject to Section 5.3, any breach of any representation or warranty of
TJX, Seller or CDM contained in this Agreement or the CDM Agreement or in any
certificate or document delivered by TJX, Seller or CDM pursuant hereto or
thereto which by the terms of and in accordance with Section 9.3 survives the
Closing; (ii) any breach of any covenant or agreement of TJX, Seller or CDM
contained in this Agreement or the CDM Agreement; (iii) any of the Excluded
Liabilities; (iv) the enforcement by Buyer of this Section 9.1; and (v) WARN or
any state plant closing or notification law to the extent arising out of or
based upon any actions taken or omissions made by Seller with respect to the
Division prior to the Closing; provided, however, that no such indemnified party
shall be entitled to receive any amount pursuant to clause (i) above unless the
aggregate of all losses, liabilities, costs and expenses relating thereto for
which TJX and Seller would, but for this proviso, be liable exceeds on a
cumulative basis $2,500,000, and then only to the extent of any such excess.
Further, TJX and Seller shall not be required to indemnify the indemnified
parties to the extent any losses, liabilities, costs and expenses, withholding
any identification pursuant to Section 9.4, in the aggregate exceed the sum of
the Cash Purchase Price plus $20,000,000.
9.2. Indemnification by Buyer. Buyer hereby agrees to indemnify each of
------------------------
TJX, its subsidiaries and their respective affiliates, officers and directors
(each, an "indemnified party") against and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by any such indemnified party to the extent
arising from (i) any breach of any representation or warranty of Buyer contained
in this Agreement which by the terms of Section 9.3 survives the Closing; (ii)
any breach of any covenant or agreement of Buyer contained in this Agreement;
(iii) any of the Assumed Liabilities, (iv) except to the extent specifically
contemplated by this Agreement, all
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<PAGE>
other matters arising out of or in connection with the operation, assets or
liabilities of the Business or the Purchased Assets after the Closing; (v) any
Guarantee or obligation to assure performance or letter of credit given or made
by TJX, Seller or an affiliate of TJX with respect to any obligation of Seller
or CDM being assumed by Buyer, (vi) the enforcement by TJX or Seller or its
affiliates or any indemnified party of this Section 9.2; and (vii) WARN or any
state plant closing or notification law, to the extent arising out of or based
upon any actions taken or omissions made by Buyer with respect to the Division
after the Closing.
9.3. Termination of Indemnification. The obligations to indemnify and hold
------------------------------
harmless a party hereto:
(a) pursuant to clause (i) of Section 9.1 and clause (i) of Section
9.2, shall terminate on the earlier of October 31, 1998 or 120 days after
the end of the first full, 12-month fiscal year of Buyer following the
Closing in respect of which audited financial statements of Buyer shall
have been prepared (the "Expiration Date"); provided, however, that the
obligations to indemnify and hold harmless a party hereto pursuant to
clause (i) of Section 9.1 and clause (i) of Section 9.2 (X) with respect to
the breach of any representation or warranty contained in Section 2.1, 2.2,
3.1 or 3.2 hereof, or in Section 2.1 or 2.2 of the CDM Agreement, shall not
terminate, (Y) with respect to the breach of any representation or warranty
contained in Section 2.4, 2.11 or 2.16, shall terminate on the date that is
four years after the Closing, and (Z) with respect to the breach of any
representation and warranty contained in Section 2.5, shall terminate on
the last day of the applicable statute of limitations;
(b) pursuant to clause (ii) of Section 9.1 shall survive indefinitely
(except the obligations to indemnify and hold harmless with respect to a
breach of any covenant set forth in Sections 5.1 and 5.2 shall terminate on
the Expiration Date); and
(c) pursuant to the other clauses of Section 9.1 and of Section 9.2
hereof, shall not terminate;
provided, however, that as to clause (a) or (b) above such obligations to
indemnify and hold harmless shall not terminate with respect to any item as to
which the person to be indemnified (or the related party thereof) shall have,
before the expiration of the applicable period, previously made a claim by
delivering a notice (stating in reasonable detail the basis of such claim) to
the party to be providing the indemnification.
9.4. Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification hereunder the party seeking indemnification (the "Indemnified
Party"), shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure.
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<PAGE>
The Indemnifying Party shall deal in good faith with the Indemnified Party's
claim for indemnification, and shall respond within a reasonable time period. In
the event of any such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party, the notice to
the Indemnifying Party shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom.
9.5. Defense by Indemnifying Party. In connection with any claim giving
-----------------------------
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date the Indemnifying Party
receives notice of such claim, (a) the Indemnified Party may defend against such
claim or litigation with its own counsel and at the expense of the Indemnifying
Party and (b) the Indemnifying Party shall be entitled to participate in (but
not control) the defense of such action, with its own counsel and at its own
expense. The Indemnified Party shall not settle or compromise any claim by a
third party for which it is entitled to indemnification hereunder without the
prior written consent of the Indemnifying Party which consent shall not be
unreasonably withheld, except that the Indemnified Party may compromise or
settle any such claim in the event the Indemnifying Party fails to assume the
defense of such claim as provided in the prior sentence. Except for the
settlement of a claim which involves the payment of money only (in which case
the Indemnifying Party shall give the Indemnified Party the opportunity to
discuss with it such payment, which opportunity shall not affect the right of
the Indemnifying Party to effect such settlement in its full discretion), the
Indemnifying Party shall not settle or compromise any claim without the prior
written consent of the Indemnified Party.
9.6. Exclusive Remedy. Except in any case involving actual fraud, any
----------------
violation of Section 5.7 or any violation of Section 5.18, or as otherwise
expressly set forth in this Agreement, the parties' sole and exclusive remedy
(other than termination pursuant to Section 10) with respect to any and all
claims relating to the subject matter of this Agreement or the CDM Agreement
shall be pursuant to the indemnification provisions set forth in this Section 9.
10. TERMINATION OF AGREEMENT.
10. Termination by Agreement of the Parties or by Passage of Time. This
-------------------------------------------------------------
Agreement may be terminated by the mutual written agreement of the parties
hereto or by any party hereto or thereto if the transactions contemplated herein
and therein have not been consummated on or before December 23, 1996, unless
such failure shall have resulted from any willful breach of any representation,
warranty or covenant by the party proposing termination; provided that such date
may be deferred to a date no later than January 27, 1997 that is the first
Monday that is at least three business days after the expiration or termination
of
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<PAGE>
any waiting periods under the HSR Act, if applicable, and provided further that
if TJX or Seller shall deliver supplemental information to Buyer pursuant to
Section 5.3, then such termination date shall be the later of (a) the date
determined pursuant to the foregoing provisions of this sentence and (b) the
first Monday that is at least five days after the date on which such
supplemental information was delivered to Buyer. This Agreement may be
terminated by TJX and Seller on the one hand, or by Buyer on the other hand, if
there is a material breach by the other party or parties hereto of any
representation, warranty, covenant or agreement on the part of such other party
or parties set forth in this Agreement, or if a representation or warranty of
such other party shall be untrue in any material respect, or if any condition
specified in Section 6, 7 or 8 to the obligations of the terminating party
cannot be satisfied at Closing; and in any such case such other party or parties
acknowledges in writing that the conditions specified in Section 6 or in Section
7 or 8, as the case may be, to the obligations of the terminating party cannot
be satisfied at Closing. In the event of such termination by agreement or
passage of time (other than as a result of any such willful breach), Buyer shall
have no further obligation or liability to TJX or Seller under this Agreement,
and TJX and Seller shall have no further obligation or liability to Buyer under
this Agreement.
10.2. Termination by Reason of Breach. This Agreement may be terminated by
-------------------------------
TJX or Seller, if any time prior to the Closing there shall occur a material or
willful breach of any of the representations, warranties or covenants of Buyer
or the failure by Buyer to perform any material condition or obligation
hereunder, and may be terminated by Buyer, subject to Section 5.3, if at any
time prior to the Closing there shall occur a material or willful breach of any
of the representations, warranties or covenants of TJX or Seller or the failure
of TJX or Seller to perform any material condition or obligation hereunder. If
this Agreement is terminated by reason of breach, subject to Section 5.3, the
breaching party shall indemnify the non-breaching party for all costs and
expenses incurred by the non-breaching party (including all legal, accounting or
other professional fees and commitment fees); provided, that the non-breaching
party shall have any and all further rights and remedies available to it under
law or equity as a result of such breach.
11. BROKERS.
11. For TJX and Seller. Each of TJX and Seller represents and warrants
------------------
that it has not engaged any broker or finder (other than Salomon Brothers Inc
and Morgan Stanley & Co. Incorporated) or incurred any liability for brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement other than to Salomon Brothers Inc and Morgan
Stanley & Co. Incorporated. Each of TJX and Seller agrees to pay all fees,
expenses and other compensation owed to Salomon Brothers Inc and Morgan Stanley
& Co. Incorporated, in respect of its services to TJX and Seller, and agrees to
indemnify and hold harmless Buyer against any claims or liabilities asserted
against it by any person acting or claiming to act as a broker or finder on
behalf of any of them. Neither Seller nor CDM is currently bound by any
agreement for the provision of investment banking or financial advisory services
with respect to any proposed recapitalization or issuance of debt or equity
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<PAGE>
securities of Seller or CDM, or the provision of any other investment banking or
financial advisory services to Seller or CDM, except in connection herewith.
11.2. For Buyer. Buyer represents and warrants that it has not engaged any
---------
broker or finder (other than Merrill Lynch, Pierce, Fenner & Smith) or incurred
any liability for brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement other than to Merrill
Lynch, Pierce, Fenner & Smith. Buyer agrees to pay all fees, expenses and other
compensation owed to Merrill Lynch in respect of its services to Buyer, and
agrees to indemnify and hold harmless each of TJX and Seller against any claims
or liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of Buyer.
12. DEFINED TERMS.
12.1. The following terms defined elsewhere in this Agreement as set forth
below shall have the respective meaning therein defined:
<TABLE>
<CAPTION>
Terms Section
----- -------
<S> <C>
Additional Tax Adjustment.................... Section 1.5(b)
Alternative Accountants...................... Section 1.4(b)
Assumed Liabilities.......................... Section 1.2
Assumed Union Agreement...................... Section 5.4
Balance Sheet................................ Section 2.17
Benefit Plan Affiliate....................... Section 2.11
Business..................................... Preamble
Base Rate.................................... Section 1.4(d)
Bills of Sale................................ Section 7.3
Buyer........................................ Preamble
Buyer's Financial Statements................. Section 3.5
Buyer's Material Adverse Effect.............. Section 3.2
Buyer's Plan................................. Section 5.12(f)
Capital Budget Plan.......................... Section 2.9(a)
Cash Purchase Price.......................... Section 1.4
Catalog Plan................................. Section 2.9
CDM.......................................... Preamble
CDM Agreement................................ Preamble
Chadwick's................................... Preamble
Closing Balance Sheet........................ Section 1.4(a)
Closing...................................... Section 1.3
Competitive Business......................... Section 5.7
Confidentiality Agreement.................... Section 4.1
Consenting Party............................. Section 5.14
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Contract..................................... Section 2.6
Contractual Obligations...................... Section 2.6
Coopers...................................... Section 1.4(a)
Coopers Report............................... Section 1.4(a)
Deed......................................... Section 7.3(g)
Division..................................... Preamble
Employees.................................... Section 5.12
Employee Plans............................... Section 2.11
Employee Welfare Plans....................... Section 2.11
Environmental Law............................ Section 2.16
ERISA Plan................................... Section 2.11
ERISA........................................ Section 2.11
Estimated Cash Purchase Price................ Section 1.4
Expiration Date.............................. Section 9.3
Fee Property................................. Section 2.4
Financial Statements......................... Section 2.3(a)
Financing Commitments........................ Section 3.7
Financing Parties............................ Section 3.7
Hazardous Substance.......................... Section 2.16
Indemnified Party............................ Section 9.4
Indemnifying Party........................... Section 9.4
Information.................................. Section 5.15
Lease Assignment and Assumption Agreements... Section 7.3(f)
Leases....................................... Section 2.4
Material Adverse Effect...................... Section 2.1(b)
Multiemployer Plan........................... Section 5.4(a)
Net Federal Payment.......................... Section 1.5(b)
New York City Buying Office Letter........... Section 6.3
NLRB......................................... Section 2.8
PBGC......................................... Section 5.4(b)
Permits...................................... Section 2.7
Permitted Lien............................... Section 2.4
Phase I Environmental Investigation.......... Section 5.20
Phase II Environmental Investigation......... Section 5.20
Registration Rights Agreement................ Section 6.3
Remedial Work................................ Section 5.20
Remediation Costs............................ Section 5.20
Seller....................................... Preamble
Seller Net Assets............................ Section 1.4(a)
Seller Net Assets Statement.................. Section 1.4(a)
Seller's 401(k) Plan......................... Section 5.12(f)
Services Agreement........................... Section 56.3
Severance Plan............................... Section 5.12(d)
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Tax Adjustment............................... Section 1.5(b)
TJX.......................................... Preamble
Trade Name Sub............................... Preamble
Trade Name Sub Common Stock.................. Section 2.1
Trademark Agreements......................... Section 6.3
Union........................................ Section 5.4
Union Agreement.............................. Section 5.4
WARN......................................... Section 5.4
</TABLE>
12.2. "Accounts Receivable" shall mean the accounts receivable of Seller
-------------------
included in the Closing Balance Sheet (excluding Deferred Payment Receivables).
12.3. "Books and Records" shall mean the books of accounts and records,
-----------------
computer software and records, customer, mailing, delivery, buying history and
prospect lists and other intangible assets (other than Proprietary Rights)
primarily pertaining to the Purchased Assets, the Assumed Liabilities, Seller's
customers, suppliers and employees and the Business, other than the Excluded
Assets and Excluded Liabilities.
12.4. "Buyer Notes" shall mean the Convertible Subordinated Notes, in form
-----------
and substance reasonably satisfactory to Seller and having the terms set forth
on Exhibit 12.4, having an aggregate principal amount equal to $20,000,000 to be
------------
issued by Buyer to Seller on the Delivery Date.
12.5. "Code" shall mean the United States Internal Revenue Code of 1986, as
----
amended.
12.6. "Contract Rights" shall mean all rights and interest of Seller as of
---------------
the date of the Closing in and to all Contracts (as defined in Section 2.6 of
this Agreement), other than Excluded Assets and Excluded Liabilities.
12.7. "Debt" of any Person shall mean all obligations of such Person (a) in
----
respect of indebtedness for borrowed money, (b) evidenced by notes, bonds,
debentures or similar instruments, (c) for the deferred purchase price of goods
or services (other than trade payables or accruals incurred in the ordinary
course of business), (d) under capital leases and (e) in the nature of
Guarantees of the obligations described in clauses (a) through (d) above of any
other Person.
12.8. "Deferred Payment Receivables" shall mean accounts receivable
----------------------------
associated with the Division's deferred billing program and/or credit card sales
on or prior to the date of the Closing as set forth in the Closing Balance
Sheet.
12.9. "Encumbrances" shall mean any lien, charge, security interest or
------------
encumbrance which secures an obligation to pay money.
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<PAGE>
12.10. "Excluded Assets", notwithstanding any other provision of this
---------------
Agreement, shall mean the rights, titles and interests of Seller and the Trade
Name Sub in and to the following items which shall not be acquired by Buyer
hereunder;
(a) all claims, choses in action and rights or actions by Seller, CDM
or the Trade Name Sub against third parties (including, but not limited to,
claims for refunds against governmental agencies or other entities) which
do not relate primarily to the Purchased Assets or Assumed Liabilities and
all claims for refunds of Income Taxes attributable to all periods
(including partial periods) ending on or prior to the date of the Closing;
(b) nontransferable Permits and deposits;
(c) all cash and cash equivalents on hand as of the Closing related
to the Business, wherever located, including, without limitation, in
accounts, lock boxes, and other similar accounts (whether maintained at a
bank, savings and loan or other financial institution);
(d) all Deferred Payment Receivables;
(e) equity interests in CDM; and
(f) any other asset or right listed or described on Schedule 12.10.
--------------
12.11. "Excluded Liabilities" notwithstanding any other provision of this
--------------------
Agreement, shall mean the following liabilities and obligations of the Division:
(a) all liabilities or obligations of Seller and CDM for (i) Income
Taxes, (ii) Transfer Taxes to the extent provided in Section 5.17(b) and
(iii) Other Taxes attributable to the ownership, use or operation of
Excluded Assets (but specifically excluding sales taxes on sales of
merchandise by Seller) and any assessments, fines, interest and penalties
in respect thereof;
(b) all obligations and liabilities primarily related to the Excluded
Assets (including reserves associated with the collection of Deferred
Payment Receivables and closing down the Cosmopolitan catalog), other than
liabilities and obligations for which Buyer is liable under any Transaction
Agreement;
(c) all liabilities and obligations of Seller, CDM or the Trade Name
Sub to TJX or any TJX affiliate other than Seller, CDM or the Trade Name
Sub, except for obligations referred to in clause (v) of Section 9.2
(Guarantees, etc.) and for liabilities and obligations listed in Schedule
--------
12.11;
-----
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<PAGE>
(d) all obligations and liabilities of Seller, CDM or the Trade Name
Sub for which any of them is responsible pursuant to Section 5.12 (Certain
Employment and Employee Benefit Matters);
(e) all liabilities, obligations and claims arising from occurrences
prior to the Closing which are covered by any general liability, casualty,
property damage, products liability, auto liability, excess general
liability or any insurance policy, whether or not subject to a deductible,
excluding workers compensation and insurance programs which are subject to
Section 5.12 (Certain Employment and Employee Benefit Matters), maintained
by or on behalf of Seller, regardless of the amount of reserves, if any,
established with respect to any such liabilities, obligations and claims
and regardless of whether any claim has been made prior to the Closing with
respect to any such events or occurrences;
(f) all obligations and liabilities of Seller relating to its
proposed bank financing with Bank of Boston and The First National Bank of
Chicago:
(g) all obligations and liabilities of Seller for professional,
service and filing fees relating to the proposed initial public offering of
common stock of Chadwick's of Boston, Ltd.;
(h) all obligations and liabilities of Seller relating to costs of
formation of the Trade Name Sub;
(i) all obligations and liabilities of Seller relating to fees and
commissions described in the first sentence of Section 11.1.
(j) all liabilities and obligations with respect to lawsuits filed
against Seller, CDM or the Trade Name Sub prior to the date of this
Agreement; and
(k) all other liabilities and obligations of Seller listed on
Schedule 12.11.
--------------
12.12. "Fixtures and Equipment" shall mean all of the furniture, fixtures,
----------------------
furnishings, motor vehicles, machinery, equipment, spare and replacement parts
and all other items of tangible personal property owned by Seller as of the date
of the Closing.
12.13. "Guarantee" with respect to any Person, shall mean (i) any guarantee
---------
of the payment or performance of, or any contingent obligation in respect of,
any Debt or other obligation of any other Person, (ii) any other arrangement
whereby credit is extended to any other Person on the basis of any promise or
undertaking of such Person (A) to pay the Debt of such other Person, (B) to
purchase any obligation owed by such other Person, (C) to purchase or lease
assets (other than inventory in the ordinary course of business) under
circumstances
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that would enable such other Person to discharge one or more of its obligations,
or (D) to maintain the capital, working capital, solvency or general financial
condition of such other Person, and (iii) any liability of such Person as a
general partner of a partnership or as a venturer in a joint venture in respect
of Debt or other obligations of such partnership or venture.
12.14. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
-------
Act of 1976, as amended.
12.15. "Income Tax" shall mean any Tax which is, in whole or in part, based
----------
on or measured by income or gains.
12.16. "Inventory" shall mean all merchandise, stock-keeping units,
---------
work-in-process, inventories and similar materials, owned by Seller as of the
Closing and used in the Business or held for resale by the Business.
12.17. "Management Employee" shall mean any individual employed by Seller
-------------------
at a position of supervisor or higher.
12.18. "Other Tax" shall mean any Tax that is not an Income or Transfer
---------
Tax.
12.19. "Permits" shall mean all of Seller's licenses, permits,
-------
certificates, franchises and other governmental authorizations necessary to
carry on the Business as presently conducted other than such authorizations
related to Excluded Assets.
12.20. "Person" shall mean any individual, partnership, corporation,
------
association, trust, joint venture, unincorporated organization or other entity,
and any governmental entity.
12.21. "Proprietary Rights" shall mean all (i) fictitious names, trade
------------------
names, registered and unregistered trademarks and service marks and all related
applications, (ii) patents, patent rights and all related applications and (iii)
copyrights in published and material unpublished works.
12.22. "Purchased Assets" shall mean all of Seller's rights, title and
----------------
interest in and to all of the assets and properties primarily used in the
conduct of the Business other than Excluded Assets, whether tangible,
intangible, real, personal or mixed, and wherever located, including, without
limitation, the following:
(a) shares representing all the outstanding capital stock of the
Trade Name Sub;
(b) refunds or transferable deposits relating primarily to the
Business;
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<PAGE>
(c) all Contract Rights and all rights and interest of Seller in and
to all other agreements, contracts, subleases, leases, and commitments
primarily related to the Business;
(d) all Accounts Receivable;
(e) the Transferred Leases;
(f) all real property;
(g) all Fixtures and Equipment;
(h) all Inventory;
(i) all Supplies;
(j) all Books and Records, subject to Section 5.5;
(k) all Proprietary Rights except as otherwise provided in this
Agreement or any other Transaction Agreement;
(l) to the extent transferable, all Permits;
(m) prepaid expenses and prepaid rent, except those relating to
Excluded Assets;
(n) the goodwill of the Business and its value as a going concern;
and
(o) all claims, judgments, choses in action and rights or actions
against third parties including, but not limited to, claims for refunds
against governmental agencies or other entities which relate primarily to
the Purchased Assets or Assumed Liabilities or the Business.
Notwithstanding the foregoing, Purchased Assets shall not include any
Excluded Assets.
12.23. "Related Party" shall mean an "affiliate" as such term is defined in
-------------
the rules and regulations promulgated under the Securities Act.
12.24. "Return" shall mean any return, declaration, report, claim for
------
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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12.25. "SEC" shall mean the Securities and Exchange Commission.
---
12.26. "Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
12.27. "Supplies" shall mean all supplies, wrapping supplies and packaging
--------
items, employee uniforms and similar items.
12.28. "Tax" shall mean any federal, state, local, or foreign income, gross
---
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental taxes under Code Section 59A, customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, fee, levy, duty, impost or charge of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
12.29. "TJX Affiliated Group" shall mean the affiliated group, within the
--------------------
meaning of Section 1504(a) of the Code, of which TJX is the common parent.
12.30. "Transaction Agreements" shall include this Agreement, the CDM
----------------------
Agreement, the Lease Assignment and Assumption Agreements, the Services
Agreement, the Trademark Agreements, the Bills of Sale, the Deeds, the Inventory
Purchase Agreement, the Buyer Notes, the Registration Rights Agreement and the
New York City Buying Office Letter;
12.31. "Transfer Tax" shall mean any sales, use, registration, recording,
------------
value added, license or similar levy or fee imposed upon the transfer of
ownership or the use of tangible or intangible property, including without
limitation any deed stamp.
12.32. "Transferred Leases" shall mean all of the leases or subleases of
------------------
real and personal property to which Seller is a lessee or a sublessee that are
used in the conduct of the Business.
13. NOTICES.
Any notices or other communications required or permitted hereunder shall
be sufficiently given if delivered personally or sent by telex, telecopier,
nationally recognized overnight delivery service or registered, certified or
first class mail, postage prepaid, addressed as follows or to such other address
of which the parties may have given notice:
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<PAGE>
To TJX or Seller: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
Attention: President and General Counsel
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
To Buyer: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Telecopy: (212) 613-9567
With a copy to: John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally; (b)
when the answer back is received if sent by telex; (c) when confirmation of
receipt is received if sent by telecopier; (d) one business day after being
sent, if sent by nationally recognized overnight delivery service; (e) three
business days after being sent, if sent by registered or certified mail; or (f)
five business days after being sent, if sent by first class mail.
14. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns (which shall be
deemed to include any person purchasing or otherwise acquiring all or
substantially all of the assets of a party hereto or any of its successors or
assigns), except that the parties may not assign their respective obligations
hereunder without the prior written consent of the other party, except that
Seller may assign its rights and obligations to any direct or indirect
subsidiary of TJX. No transfer or assignment by any party shall relieve such
party of any of its obligations hereunder.
15. ENTIRE AGREEMENT; ATTACHMENTS. This Agreement, all Exhibits and
Schedules hereto, and all agreements and instruments to be delivered by the
parties pursuant hereto in
-55-
<PAGE>
accordance with the applicable provisions of this Agreement or referenced herein
constitute the Agreement and (together with the Confidentiality Agreement)
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties. No representations, warranties, prospectus or other
information not expressly set forth herein shall be of any force and effect,
absent actual fraud or intentional wrongdoing, and are not being relied on by
Buyer, TJX or Seller. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
16. EXPENSES.
Except as otherwise expressly provided herein, the parties shall each pay
their own expenses in connection with this Agreement and the transactions
contemplated hereby. Buyer shall pay the filing fee costs in connection with
any HSR Act filing.
17. GOVERNING LAW.
This Agreement and all rights and obligations of the parties and all claims
relating to this Agreement shall be governed by and construed in accordance with
the internal laws of The Commonwealth of Massachusetts.
18. WAIVER OF JURY TRIAL.
Each of TJX, Seller and Buyer hereby irrevocably waives, to the fullest
extent permitted by law, all rights to trial by jury in any action, proceeding,
or counterclaim (whether based upon contract, tort or otherwise) arising out of
or relating to this Agreement or any of the transactions contemplated hereby.
19. SECTION HEADINGS.
The section headings contained herein are for the convenience of the reader
only and shall not be deemed to be a part of this Agreement.
20. KNOWLEDGE.
The term "knowledge of TJX" as used in this Agreement shall mean to the
knowledge or belief of Bernard Cammarata, Richard Lesser or Donald G. Campbell
of TJX or Dhananjaya Rao, Carol Meyrowitz, Lawrence Kinney or Jack Tynan of
Seller based on a reasonable diligence inquiry by such individuals in the
ordinary course of business as to the truth or accuracy of such representation
or warranty.
-56-
<PAGE>
21. SEVERABILITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
22. NO IMPLIED RIGHTS.
Nothing expressed or implied herein shall confer upon any past or present
employee of TJX, Seller or of any other affiliate of TJX, his or her
representatives, beneficiaries, successors and assigns, nor upon any collective
bargaining agent, any rights or remedies of any nature, including without
limitation, any rights to employment or continued employment with Seller, TJX,
Buyer or any successor or affiliate.
23. TRANSFER OF RIGHTS OF BUYER TO ONE OR MORE AFFILIATES; PLEDGE TO
FINANCING PARTIES. Buyer and TJX hereby agree that, at any time on or prior to
the Closing, Buyer may transfer to one of its direct, wholly-owned subsidiaries
all rights and obligations provided herein to purchase from Seller the Purchased
Assets; provided, however, that such subsidiary expressly assumes all
obligations of Buyer and that no such transfer shall relieve Buyer of any of its
obligations hereunder; and provided further that the Buyer Notes will in any
event be issued by Buyer. In addition, TJX agrees that Buyer and such
subsidiary may grant a security interest in this Agreement and all other
agreements to be entered into in connection herewith to the Financing Parties
who will provide financing for the transactions contemplated by this Agreement
under any and all financing documents entered into by such Financing Parties to
secure Buyer's and such subsidiary's obligations to such Financing Parties under
any such documents.
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
[The remainder of this page has been intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed by
the parties hereto under seal as of and on the date first above written.
THE TJX COMPANIES, INC.
By: /s/ Donald G. Campbell
------------------------------
Donald G. Campbell
------------------------------
Title: Executive Vice President
---------------------------
CHADWICK'S, INC.
By: /s/ Donald G. Campbell
------------------------------
Donald G. Campbell
------------------------------
Title: Vice President
---------------------------
BRYLANE, L.P.,
a Delaware limited partnership
By: VGP Corporation
Its: General Partner
By: /s/ John M. Roth
------------------------------
John M. Roth
President
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<PAGE>
Exhibit 6.3A is being filed separately as Exhibit 10.69 to the
Registration Statement.
<PAGE>
EXHIBIT 6.3B-1
ASSIGNMENT AND LICENSE OF TRADEMARKS
THIS ASSIGNMENT AND LICENSE OF TRADEMARKS is made as of this ___ day of
December, 1996, by and between The TJX Companies, Inc., a Delaware corporation
("TJX"), Chadwick's, Inc., a Massachusetts corporation ("Chadwick's"), CDM
Corp., a Nevada corporation ("CDM" and collectively with TJX and Chadwick's, the
"Assignors") and Brylane, L.P., a Delaware limited partnership (the "Assignee").
WHEREAS, TJX, Chadwick's and CDM are the owners of all rights, title and
interests in and to the trademarks, trademark applications and registrations set
forth on Exhibit A, Exhibit B and Exhibit C hereto, respectively, subject, in
--------- --------- ---------
the case of the trademark applications and registrations set forth on Exhibit A
to the non-exclusive license of Hit or Miss Inc. pursuant to the HOM Trademark
License Agreement (defined below) (collectively the "Trademarks"); and
WHEREAS, the Assignee desires to obtain all of the Assignors' rights, title
and interests in, to and under such Trademarks, including the goodwill of the
Assignors' business symbolized by such Trademarks;
WHEREAS, TJX and its Subsidiaries may have remaining inventory of products
marked with or sold under the Trademarks;
WHEREAS, pursuant to this Assignment and License, the Assignee shall grant,
and TJX and its Subsidiaries shall obtain, a limited, non-exclusive, non-
sublicenseable and non-assignable license to sell-off products marked with or
sold, promoted, advertised or distributed under any of the Trademarks;
NOW, THEREFORE, the Assignors and Assignee hereby agree as follows:
1. Assignment. For good and valuable consideration, the receipt and
----------
sufficiency of which is hereby acknowledged by the Assignors, the Assignors
hereby sell, convey, assign, transfer and deliver to the Assignee, its
successors and assigns, all of the Assignors' rights, title and interests in, to
and under the Trademarks, together with the goodwill of the Assignors' business
symbolized by the Trademarks, all applications, registrations and recordings in
the United States Patent and Trademark Office (or, in the case of state
registrations or recordings, in the equivalent state trademark filing office),
if any, relating to the Trademarks and all reissues, extensions or renewals
thereof, and together with the right to sue and recover damages for all past or
future infringements thereof and to stand in the place of the Assignors
<PAGE>
in all matters related thereto. The Trademarks are being assigned "as is"
without any representation or warranty whatsoever.
2. Limited License. Assignee hereby grants TJX and its Subsidiaries, the
---------------
royalty-free, non-exclusive, non-assignable and non-sublicensable right, license
and privilege (the "License") during the 24-month period following the date
hereof to sell-off any of their products ordered or in their possession prior to
the date hereof that are marked with or sold, promoted, advertised or
distributed under, any of the Trademarks. For the purposes hereof,
"Subsidiaries" means all Persons of which Assignor owns directly or indirectly
at least a majority of the outstanding capital stock (or other shares of
beneficial interest) entitled to vote generally or at least a majority of the
partnership, joint venture or similar interests, and "Person" means any
individual, partnership, corporation, association, trust, joint venture,
unincorporated organization or other entity, and any government, governmental
department or agency or political subdivision thereof.
3. Assignment and Assumption of the HOM Trademark License Agreement. TJX
----------------------------------------------------------------
hereby assigns to Assignee all of its rights and obligations under that certain
Trademark License Agreement dated September 30, 1995 by and between TJX and Hit
or Miss Inc. (the "HOM Trademark License Agreement") attached as Exhibit D
---------
hereto and Assignee hereby agrees to assume, perform and observe all
obligations, covenants and agreements to be performed by TJX under the HOM
Trademark License Agreement and to be bound in all respects by the terms and
conditions thereof as if Assignee was the original party thereto; provided,
--------
however, that the assignment and assumption of the HOM Trademark License
- -------
Agreement hereunder shall exclude any and all obligations, covenants, agreements
and terms relating to those trademarks under the HOM Trademark License Agreement
that are not Trademarks listed on Exhibit A hereto.
4. Quality Control by Assignor. TJX hereby acknowledges the distinctiveness,
---------------------------
prestige, high reputation and goodwill associated with the Trademarks. TJX
agrees that, in order to preserve such distinctiveness, prestige, high
reputation and goodwill associated with the Trademarks as of the date hereof,
TJX at all times will (i) comply with all reasonable quality control policies
and procedures communicated by Assignee to TJX in writing from time to time
hereunder, provided that such policies and procedures are consistent with
Assignee's quality control policies and procedures as of the date hereof, and
(ii) take all other measures reasonably necessary to maintain such
distinctiveness, prestige, high reputation and goodwill. TJX agrees that in the
event TJX or any of its Subsidiaries fails to comply with the provisions of this
Section 4 and such failure is not cured within sixty (60) days of TJX's receipt
of written notice from Assignee with respect thereto, the License shall
immediately terminate and TJX and its Subsidiaries shall be required immediately
to cease and desist from using the Trademarks.
5. Covenant of Assignor. TJX acknowledges and agrees that the License is
--------------------
granted to it and its Subsidiaries hereunder solely for the purpose of selling-
off inventory generated in the
-2-
<PAGE>
ordinary course of business by TJX or its Subsidiaries. If prior to the date
hereof TJX or any of its Subsidiaries produced or made available for
distribution products identified with any of the Trademarks in quantities
substantially greater than TJX or such Subsidiaries generally produce or make
available for distribution in the ordinary course of business, the License shall
immediately terminate and TJX and its Subsidiaries shall be required immediately
to cease and desist from using the Trademarks.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
License of Trademarks to be executed as of the day and year first written above.
THE TJX COMPANIES, INC.
By:_____________________________
Name:
Title:
CHADWICK'S, INC.
By:_____________________________
Name:
Title:
CDM CORP.
By:_____________________________
Name:
Title:
BRYLANE, L.P.
By:_____________________________
Name:
Title:
-4-
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On __________________, 1996, before me, the undersigned, a Notary Public in
and for said State, personally appeared _____________________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person who executed the within instrument as the
___________________________________ of The TJX Companies, Inc. and acknowledged
to me that such corporation executed the within instrument pursuant to its
bylaws or a resolution of its Board of Directors.
WITNESS my hand and official seal.
_______________________________
[SEAL]
THE TJX COMPANIES, INC.
By: ______________________________
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
On _________________, 1996, before me, the undersigned, a Notary Public in
and for said State, personally appeared _____________________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person who executed the within instrument as the
___________________________________ of Chadwick's, Inc. and acknowledged to me
that such corporation executed the within instrument pursuant to its bylaws or a
resolution of its Board of Directors.
WITNESS my hand and official seal.
_______________________________
[SEAL]
CHADWICK'S, INC.
By: ______________________________
Name:
Title:
-5-
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On __________________, 1996, before me, the undersigned, a Notary Public in
and for said State, personally appeared _____________________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person who executed the within instrument as the
___________________________________ of CDM Corp. and acknowledged to me that
such corporation executed the within instrument pursuant to its bylaws or a
resolution of its Board of Directors.
WITNESS my hand and official seal.
_______________________________
[SEAL]
CDM CORP.
By: ______________________________
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
On _________________, 1996, before me, the undersigned, a Notary Public in
and for said State, personally appeared _____________________________,
personally known to me or proved to me on the basis of satisfactory evidence to
be the person who executed the within instrument as the
___________________________________ of Bryland, L.P. and acknowledged to me that
such corporation executed the within instrument pursuant to its bylaws or a
resolution of its Board of Directors.
WITNESS my hand and official seal.
_______________________________
[SEAL]
BRYLANE, L.P.
By: ______________________________
Name:
Title:
-6-
<PAGE>
Exhibit A
---------
MARKS
-----
<TABLE>
<CAPTION>
MARK CLASSIFICATION & GOODS
- ---- ----------------------
<S> <C>
AVERROE Class 25 - clothing, namely pants,
Registration No. 1,377,383 skirts, shorts, sweaters, shirts and
Registration Date: 01/07/86 jackets
8&15 Accepted: 11/13/91
Expires: 01/07/06
Owner: The TJX Companies, Inc.
COLLECTION 7 Class 25 - clothing, namely suits,
and design jackets, blazers and pants
Registration No. 1,220,988
Registration Date: 12/21/82
8&15 Accepted: 09/11/89
Expires: 12/21/01
Owner: The TJX Companies, Inc.
COLLECTION 7 Class 14 - Jewelry
Registration No. 1706616
Registration Date: 08/11/92
8&15 Due: 08/11/97-98
Owner: The TJX Companies, Inc.
COLLECTION 7 Class 26 - Hair Accessories, namely
Registration No. 1,708,364 bows, hairbands and barrettes
Registration Date: 08/18/92
8&15 Due: 08/11/97-98
Owner: The TJX Companies, Inc.
CT AND DESIGN Class 42 - miscellaneous service
Registration No. 1,215,338 mark, namely retail department
Registration Date: 11/02/82 services
8&15 Accepted: 06/27/90
Expires: 11/02/02
Owner: The TJX Companies, Inc.
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C>
CWTC Class 25 - clothing, namely jeans and
Registration No. 1,269,948 pants
Registration Date: 03/13/84
8&15 Accepted: 05/16/90
Expires: 03/13/04
Owner: The TJX Companies, Inc.
DAVID HOLLIS COLLECTION Class 25 - sweaters, shirts, blouses,
Registration No. 1,277,124 pants, shorts, skirts, blazers,
Registration Date: 05/08/84 swimwear, dresses, jackets, long
8&15 Accepted: 09/05/90 coats, slickers and suits
Expires: 05/08/04
Owner: The TJX Companies, Inc.
DAVID HOLLIS COLLECTION Class 25 - suits, tops, pants and
Registration No. 1,215,954 skirts
Registration Date: 11/09/82
8&15 Accepted: 11/27/89
Expires: 11/09/02
Owner: The TJX Companies, Inc.
GALLAGHER Class 25 - clothing, namely blouses,
(Supplemental Register) skirts, dresses, pants, leather pants
Registration No. 1744104 and skirts and outerwear
Registration Date: 12/29/02
8&15 Due: 12/29/98-98
Expires: 12/29/02
Owner: The TJX Companies, Inc.
GALLAGHER Class 18 - leather goods, handbags
(Supplemental Register) and eelskin wallets
Registration No. 1739273
Registration Date: 12/08/92
8&15 Due: 12/08/97-98
Expires: 12/08/02
Owner: The TJX Companies, Inc.
H M ABERNATHY Class 25 - t-shirts, sweaters,
Registration No. 1,278,117 shirts, pants, shorts, slickers and
Registration Date: 05/15/84 socks
8&15 Accepted: 05/16/90
Expires: 05/15/04
Owner: The TJX Companies, Inc.
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C>
H M ABERNATHY DESIGN Class 25 - outerwear, namely
Registration No. 1,232,011 raincoats & rain jackets
Registration Date: 03/22/83
8&15 Accepted: 10/16/89
Expires: 03/22/03
Owner: The TJX Companies, Inc.
J. L. PLUM DESIGN Class 25 - clothing, namely sweaters
Registration No. 1,214,946 and t-shirts
Registration Date: 11/02/82
8&15 Accepted: 11/27/89
Expires: 11/02/02
Owner: The TJX Companies, Inc.
JL PLUM Class 42 - retail store services
Registration No. 1,989,822
Registration Date: 7/30/96
Expires: 07/30/06
Owner: The TJX Companies, Inc.
KATELYN COURT Class 25 - clothing, namely blouses,
Registration No. 1,255,402 shirts, pants, skirts, coats, jackets
Registration Date: 10/25/83 and dresses
8&15 Accepted: 10/16/89
Expires: 10/25/03
Owner: The TJX Companies, Inc.
KATHY GALLAGHER Class 25 - clothing namely blouses,
Registration No. 1,294,496 skirts, and dresses
Registration Date: 09/11/84
8&15 Accepted: 01/17/91
Expires: 09/11/04
Owner: The TJX Companies, Inc.
KLE AND DESIGN Class 25 - clothing, namely blouses,
Registration No. 1,220,987 dresses, and sweaters
Registration Date: 12/21/82
8&15 Accepted: 08/07/89
Expires: 12/21/02
Owner: The TJX Companies, Inc.
</TABLE>
-9-
<PAGE>
<TABLE>
<S> <C>
KLE AND DESIGN Class 14 jewelry
Registration No. 1,711,569
Registration Date: 09/01/92
8&15 Due: 09/01/97-98
Expires: 09/01/02
Owner: The TJX Companies, Inc.
SAIL GEAR Class 25 - clothing, namely slickers,
Registration No. 1,233,576 shorts, pants, skirts and t-shirts
Registration Date: 07/05/83
8&15 Accepted: 08/15/89
Expires: 07/05/03
Owner: The TJX Companies, Inc.
SIGNATURES BY REED ROBERTS Class 25 - clothing, namely suits,
Registration No. 1,238,501 coats and car coats
Registration Date: 05/17/83
8&15 Accepted: 10/02/89
Expires: 05/17/03
Owner: The TJX Companies, Inc.
SUNPOINT Class 25 - clothing, namely swimsuits
Registration No. 1,409,570
Registration Date: 09/16/86
8&15 Accepted: 11/24/92
Expires: 09/16/06
Owner: The TJX Companies, Inc.
</TABLE>
DAVID HOLLIS - UNREGISTERED TRADEMARK
-10-
<PAGE>
EXHIBIT B
---------
CHADWICK'S OF BOSTON, LTD
-------------------------
U.S. TRADEMARK INDEX
--------------------
<TABLE>
<CAPTION>
MARK CLASSIFICATION & GOODS
- ---- ----------------------
<S> <C>
BOATYARD BASICS Class 25 - men's and women's wearing
Registration No. 1,997,331 apparel
Registration Date: 08/27/96
8&15 Due: 8/27/01-02
Expires: 08/27/06
BRIDGEWATER Class 42 - Mail order catalog services
Application No. 74/476777
Application Date: 01/05/94
BRIDGEWATER Class 25 - Clothing for women, men
Application No.: 75/022,985 and children
Application Date: 11/21/95
Owner: Chadwick's of Boston, Ltd.
CLUB NEWPORT Class 25 - men's and women's wearing
Registration No. 1,927,077 apparel; namely pants, tops, shirts,
Registration Date: 10/17/95 sweaters, skirts and shorts
8&15 Due: 10/17/00-01
Expires: 10/17/05
Owner: Chadwick's of Boston, Ltd.
COPPER BAY RUGGED WEAR Class 25 - men's & women's wearing
Application No. 74/613,946 apparel, namely beachwear, bathing
Application Date: 12/19/94 suits, blouses, coats, dresses,
footwear, gowns, headwear, hosiery,
jackets, lingerie, neckwear,
sleepwear, pants, shirts, shoes,
suits, sweaters, tops, underwear &
vests
JESSICA LONDON Class 25 -
Application No.
Application Date:
Owner: Chadwick's of Boston, Ltd.
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C>
KENSINGTON ROAD Class 25 - men's and women's wearing
Registration No. 1,907,874 apparel; namely pants, tops, shirts,
Registration Date: 07/25/95 sweaters, skirts and shorts
8&15 Due: 07/25/00-01
Expires: 07/25/05
NORTHEAST TERRAIN CO. Class 25 - men's & women's wearing
Application No. 74/613,941 apparel, namely beachwear, bathing
Application Date: 12/19/94 suits, blouses, coats, dresses,
footwear, gowns, headwear, hosiery,
jackets, lingerie, neckwear,
sleepwear, pants, shirts, shoes,
suits, sweaters, tops, underwear &
vests
REAL COMFORT Class 25 - clothing
Application No. 74/497,889
Application Date: 03/07/94
RUGGED ELEMENTS Class 25 - men's & women's wearing
Application No. 74/613,947 apparel, namely beachwear, bathing
Application Date: 12/19/94 suits, blouses, coats, dresses,
footwear, gowns, headwear, hosiery,
jackets, lingerie, neckwear,
sleepwear, pants, shirts, shorts,
suits, sweaters, tops, underwear &
vests
SAMANTHA TAYLOR Class 25 - women's clothing; namely
Application No. 75/164,219 sweaters
Application Date: 09/11/96
Owner: Chadwick's of Boston, Ltd.
STEPHANIE ANDREWS Class 25 - clothing
Application No. 74/596,814
Application Date: 11/09/94
VICTORIA HOLLEY Class 25 - clothing
Application No. 74/597,248
Application Date: 11/09/94
</TABLE>
-12-
<PAGE>
EXHIBIT C
---------
CDM CORP.
U.S. TRADEMARK INDEX
--------------------
<TABLE>
<CAPTION>
MARK CLASSIFICATION & GOODS
- ---- ----------------------
<S> <C>
CAREER ADVANTAGES Class 42 - miscellaneous service
Registration No. 1,661,252 mark, namely mail order catalog
Registration Date: 10/15/91 services in the clothing field
8&15 Due: 10/15/97-97
Expires: 10/15/01
CHADWICK'S Class 42 - miscellaneous service
(Supplemental Register) mark, namely retail clothing store
Registration No. 1,211,131 services
Registration Date: 09/28/82
8&15 Accepted: 10/28/88
Expires: 09/28/02
Note: License Agreement w/ Colonial
Shoe expires 04/01/05
CHADWICK'S OF BOSTON, LTD. Class 42 - mail order catalog
Registration No. 1,672,908 services featuring women's reg.
Registration Date: 01/21/92 clothing and accessories
8&15 Due: 01/21/97-98
Expires: 01/21/02
CHADWICK'S FASHIONS BY CHADWICK'S Class 42 - miscellaneous service
Registration No. 1,211,037 mark, namely retail clothing store
Registration Date: 09/28/82 services
8&15 Accepted: 11/14/88
Expires: 09/28/02
Note: License Agreement w/ Colonial
Shoe expires 04/01/05
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C>
CHADWICK'S Class 42 - retail clothing store
Registration No. 1,948,523 services and mail order catalog
Registration Date: 01/16/96 services
8&15 Due: 01/16/01-02
Expires: 01/16/06
FADS
Registration No. 1,750,226 Class 25 - women's dresses, women's
Registration Date: 02/02/93 jumpsuits, women's rompers, and like
8&15 Due: 02/02/98-99 daytime wearing apparel and apparel
Expires: 02/02/03 accessories
THE ORIGINAL OFF-PRICE FASHION CATALOG Class 42 - miscellaneous service
Registration No. 1,649,769 mark, namely mail order catalog
Registration Date: 07/02/91 services in the clothing field
8&15 Due: 07/02/96-97
Expires: 07/02/01
</TABLE>
-14-
<PAGE>
EXHIBIT D
---------
HOM Agreement
-15-
<PAGE>
EXHIBIT 6.3B-2
TRADEMARK LICENSE AGREEMENT
---------------------------
This Trademark License Agreement (the "Agreement") is entered into as of
December ___, 1996 (the "Effective Date") by and among The TJX Companies, Inc.,
a Delaware corporation ("TJX"), and Brylane, L.P., a Delaware limited
partnership ("Brylane" or the "Company"), TJX and Brylane each being hereinafter
referred to singly as a "Party" and collectively as the "Parties."
W I T N E S S E T H:
-------------------
WHEREAS, TJX is the owner of the Marks (as hereinafter defined) including
all of the goodwill of the products and services associated therewith;
WHEREAS, TJX desires to grant to Brylane a royalty-free, non-exclusive,
non-assignable (except to the limited extent provided herein), non-sublicensable
(except as otherwise provided herein) right and license to use the Marks to
identify certain Products and Services (as such terms are hereinafter defined)
in accordance with the terms and provisions of this Agreement;
WHEREAS, Brylane desires to obtain from TJX such a royalty-free, non-
exclusive, non-assignable (except to the limited extent provided herein), non-
sublicensable (except as otherwise provided herein) right and license to so use
the Marks in accordance herewith;
WHEREAS, TJX shall retain its rights in, and continue to use, the Marks
throughout the world to identify its products and services;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the Parties hereby agree as follows:
1. Definitions.
------------
1.1 "Marks" shall mean all trademarks, service marks, trade names,
symbols, names and logos listed on Exhibit A hereto, and including any
----------
and all United States applications, registrations and recordings,
pending registrations, reissues, extensions or renewals thereof.
1.2 "Person" shall mean any individual, partnership, corporation,
association, trust, joint venture, unincorporated organization or
other entity, and any government, governmental department or agency or
political subdivision thereof.
<PAGE>
1.3 "Products" shall mean, with respect to each Mark, all products
currently or hereafter made, sold, promoted, advertised or distributed
by Brylane that fall under any international product class(es) in
which such Mark is federally registered as of the Effective Date
hereof.
1.4 "Services" shall mean, with respect to each Mark, all services
currently or hereafter developed, sold, promoted, advertised or
distributed by Brylane that fall under any international service
class(es) in which such Mark is federally registered as of the
Effective Date hereof.
1.5 "Term" shall mean, with respect to each Mark, the Term as set forth
opposite such Mark on Exhibit A hereto.
---------
1.6 "Territory" shall mean the universe.
2. Grant of License.
-------- -------
2.1 Grant to Brylane with respect to the Marks. For good and valuable
------------------------------------------
consideration the receipt of which is hereby acknowledged, TJX hereby
grants to Brylane, during the applicable Term for each Mark, the
royalty-free, non-exclusive, non-assignable (except to the limited
extent herein provided) and non-sublicensable (except as otherwise
provided herein) right, license and privilege, (collectively, the
"License"): (i) to use such Mark to identify the Services throughout
the Territory; and (ii) to mark the Products with such Mark, and to
develop, make, sell, promote, advertise and distribute the Products so
marked anywhere in the Territory.
2.2 Use of Subcontractors and Sublicensees. The Company hereby agrees
--------------------------------------
that it shall not sublicense or subcontract any of the rights included
in the License (or any of Brylane's obligations hereunder) to any
Person (other than a Person that is a subcontractor engaged by Brylane
primarily to manufacture Products) without first obtaining TJX's
written consent thereto, which consent TJX may withhold in its sole
discretion.
2.3 Discontinuation of Use of Marks. Notwithstanding any other provision
-------------------------------
of this Agreement, if, during the applicable Term for any Mark,
Brylane decides to cease using such Mark to identify the Products and
Services hereunder, Brylane shall provide TJX prompt notice thereof
and the License (and all rights granted to Brylane thereunder) with
respect to that Mark shall immediately and automatically revert to
TJX.
3. Quality Control.
---------------
-2-
<PAGE>
3.1 Acknowledgment of Prestige of the Marks. The Company hereby
---------------------------------------
acknowledges the distinctiveness, prestige, high reputation and
goodwill associated with the Marks. The Company agrees that, in order
to preserve such distinctiveness, prestige, reputation and goodwill
associated with the Marks as of the Effective Date hereof, Brylane
will at all times (i) comply with all reasonable quality control
policies and procedures communicated by TJX to Brylane in writing from
time to time hereunder, provided that such policies and procedures are
consistent with TJX's quality control policies and procedures as of
the Effective Date hereof; and (ii) take all other measures reasonably
necessary to maintain such distinctiveness, prestige, reputation and
goodwill.
4. Ownership of the Marks
----------------------
4.1 Acknowledgment of Ownership of Marks. The Company hereby acknowledges
------------------------------------
and agrees that, as between TJX and Brylane, TJX is and shall be the
sole and exclusive owner of the Marks and all of the goodwill
associated therewith, and that the Marks, and such goodwill, shall
remain at all times the sole and exclusive property of TJX. TJX
reserves all of its rights with respect to the Marks not granted to
Brylane hereunder and Brylane acknowledges and agrees that TJX in its
sole discretion may continue to use such rights and license them to
third parties other than Brylane; provided, however, that TJX shall
-------- -------
not license the Savannah Mark (more completely identified in Exhibit A
hereto) to any person other than (a) Brylane; (b) persons who are
Subsidiaries of TJX at the time such license is granted and (c) Nash
International Group, Ltd. ("Nash") pursuant to that License Agreement
dated May 25, 1990 between TJX and Nash.
4.2 No Conflicting Filings. At no time shall Brylane apply for any
----------------------
registration of any of the Marks or of any other mark or designation
which is reasonably likely to be confused with any of the Marks nor
shall Brylane file any document with respect to any of the Marks with
any governmental authority to take any action which would unreasonably
and adversely affect the validity and/or enforceability of any of the
Marks.
4.3 Further Assurances. The Company shall take all such actions and
------------------
execute all such documents and instruments (at TJX's expense) that are
reasonably requested by TJX to carry out the intent of the Parties
under this Agreement and, in particular, to effect and maintain the
enforceability of any and all registrations for the Marks.
5. Term and Termination.
--------------------
-3-
<PAGE>
5.1 Term. The term of this Agreement shall commence on the Effective Date
----
hereof and, unless terminated pursuant to the terms hereof, continue
for a period of sixty (60) months thereafter, subject to the
provisions of Section 5.2 and subject to the earlier termination of
Licenses hereunder as provided in Section 2.1.
5.2 Termination.
-----------
5.2.1 Termination for Material Default. This Agreement may be
--------------------------------
terminated by either Party upon failure of the other Party to cure any
material breach within ninety (90) days of its receipt from the other
Party of a written notice setting forth the exact nature of such
alleged breach.
5.2.2 Effect of Termination; Sell Off. Upon the expiration of the
-------------------------------
applicable Term for a Mark, all of the rights in and to such Mark
granted by TJX to Brylane hereunder shall immediately revert to TJX
and, upon the termination of this Agreement for any reason, all of the
rights in and to all of the Marks granted by TJX to Brylane hereunder
shall immediately revert to TJX; provided, however, that Brylane shall
be permitted to sell off any Products marked with such Mark or Marks,
as the case may be, ordered or in its possession prior to such
expiration or termination hereof and to render any Services necessary
to be rendered by Brylane in connection with the sell-off of such
Products, and the License with respect to such Mark or Marks, as the
case may be, shall be extended during such sell-off period (which
period shall in no event exceed 24 months following such expiration or
termination) solely to the extent necessary for Brylane to complete
such sell-off. The Company covenants that it shall use the Marks only
in the ordinary course of business and Brylane understands and agrees
that (i) its right of sell-off under this Section 5.2.2 is hereby
expressly conditioned on its compliance with such covenant; and (ii)
if, prior to such expiration or termination, Brylane makes, sells or
orders Products marked with such Mark or Marks, as the case may be, in
substantially greater quantities than Brylane generally makes, sells
or orders in the ordinary course of business, such sell-off right
shall immediately terminate and Brylane shall be required immediately
to cease and desist from using such Mark or Marks, as the case may be,
in connection with the Products or Services or with any other products
or services.
-4-
<PAGE>
6. Enforcement of Trademark Rights; Registration.
---------------------------------------------
6.1 Filing and Maintenance. TJX shall be responsible for the preparation,
----------------------
filing, prosecution and maintenance of each Mark during the applicable
Term for such Mark and shall bear all costs associated therewith.
6.2 Enforcement of Rights. The Company agrees that it will notify TJX
---------------------
promptly in writing of any act or alleged act of any person or entity
of unfair competition, infringement, imitation or any other
unauthorized use of any of the Marks to identify any article or
service similar to any Product or Service or otherwise, that becomes
known to Brylane. TJX has the right, but shall not be obligated, to
prosecute at its own expense any such infringements. In the event
that TJX should choose not to exercise such right, Brylane shall have
the right, but shall not be obligated, to prosecute at its own expense
such infringements. The total cost of any such infringement action
shall be borne by the Parties independently, each Party being liable
solely for the fees and expenses it incurred in connection with the
action. Any recovery or damages for past infringement derived from
such an action shall first be used to reimburse the Parties, as the
case may be, for all expenses and legal fees connected with such
action. Any remaining damages after payment of such fees and expenses
shall be allocated between TJX and Brylane equally if the Parties have
jointly conducted the infringement action or, if one Party conducted
the proceeding, to that Party.
6.3 Cooperation. Each Party agrees to provide reasonable cooperation to
-----------
the Party who initiates an action or proceeding to abate and obtain
compensation for the infringement of any of the Marks. In this
connection, however, it is agreed that the initiating Party shall pay,
or reimburse the cooperating Party for, all reasonable out-of-pocket
expenses, such as, without limitation, travel and long distance
telephone charges incurred in connection with providing such
cooperation but excluding the non-initiating Party's attorneys fees.
7. Representations and Warranties.
------------------------------
7.1 Representations and Warranties of TJX. TJX represents, warrants and
-------------------------------------
covenants to Brylane as follows: (a) TJX has the full and unrestricted
right, power and authority to enter into and perform the terms,
covenants and conditions of this Agreement; and (b) to TJX's
knowledge, the use of the Marks by Brylane to the extent permitted
hereunder will not infringe the proprietary rights of any Person under
any law, rule, regulation or order of the United States of America or
any state thereof (including rights arising under the laws of
trademark, trade secrets, rights of publicity, unfair competition, or
any other similar laws).
-5-
<PAGE>
7.2 Indemnification of The Company. TJX shall defend, indemnify and hold
------------------------------
Brylane harmless from and against any and all demands, claims,
actions, suits and proceedings, that may at any time be brought
against Brylane and any and all liabilities, losses, damages, costs
and expenses (including but not limited to reasonable attorneys' fees
and other legal costs and expenses) that may at any time be suffered
or incurred by Brylane, as a result of, or in connection with, any
breach by TJX of any of the representations or warranties made by TJX
to Brylane pursuant to Section 7.1 above or of any other covenants
made by TJX to Brylane hereunder or any product or service provided by
TJX that is marked with or promoted under any of the Marks.
Notwithstanding the foregoing, if TJX prevails in any actions, suits
or proceedings defended by it pursuant hereto, any and all fees and
expenses incurred by or chargeable to it in connection therewith
(including, without limitation, any reasonable attorneys' fees and
other legal costs and expenses) shall be reimbursed to it using the
proceeds, if any, received from the losing party in such action, suit
or proceeding.
7.3 Representations and Warranties of The Company. The Company hereby
---------------------------------------------
represents, warrants and covenants to TJX as follows: (a) Brylane has
the full and unrestricted right, power and authority to enter into and
perform the terms, covenants and conditions of this Agreement; and (b)
any Products made, sold or distributed by Brylane and any Services
developed, sold or provided by Brylane shall comply with all
applicable laws, rules and regulations of any jurisdiction in the
Territory having authority over such Products or Services.
7.4 Indemnification of TJX. The Company shall defend, indemnify and hold
----------------------
TJX harmless from and against any and all demands, claims, actions,
suits and proceedings, that may at any time be brought against TJX and
any and all liabilities, losses, damages, costs and expenses
(including but not limited to reasonable attorneys' fees and other
legal costs and expenses) that may at any time be suffered or incurred
by TJX, as a result of, or in connection with, any breach by Brylane
of any of the representations or warranties made by Brylane to TJX
pursuant to Section 7.3 above or of any of the other covenants made by
Brylane to TJX hereunder or any Product or Service provided by
Brylane. Notwithstanding the foregoing, if Brylane prevails in any
actions, suits or proceedings defended by it pursuant hereto, any and
all fees and expenses incurred by or chargeable to it in connection
therewith (including, without limitation, any attorneys' fees and
other legal costs and expenses) shall be reimbursed to it using the
proceeds, if any, received from the losing party in such action, suit
or proceeding.
8. General.
-------
-6-
<PAGE>
8.1 Entire Agreement; Waivers. This Agreement constitutes the entire
-------------------------
agreement among the Parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written,
of the Parties with respect to such subject matter. No waiver of any
provision of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), shall
constitute a continuing waiver unless otherwise expressly provided nor
shall be effective unless in writing and executed (i) in the case of a
waiver by TJX, by TJX and (ii) in the case of a waiver by Brylane, by
Brylane.
8.2 Amendment or Modification. The Parties hereto may not amend or modify
-------------------------
this Agreement except in such manner as may be agreed upon by a
written instrument executed by TJX and Brylane.
8.3 Survival, etc. All representations, warranties, covenants and
-------------
agreements made by or on behalf of either Party hereto in this
Agreement (including, without limitation, the Exhibits hereto), shall
be deemed to have been relied upon by the other Party hereto and shall
survive the execution and delivery of this Agreement and continue in
full force and effect forever thereafter (subject to any applicable
statutes of limitations).
8.4 Severability. In the event that any provision hereof would, under
------------
applicable law, be invalid or unenforceable in any respect, such
provision shall (to the extent permitted under applicable law) be
construed by modifying or limiting it so as to be valid and
enforceable to the maximum extent compatible with, and possible under,
applicable law. The provisions hereof are severable, and in the event
any provision hereof should be held invalid or unenforceable in any
respect, it shall not invalidate, render unenforceable or otherwise
affect any other provision hereof.
8.5 Assignment. The Company may not assign any of its rights, interests,
----------
duties or obligations under this Agreement without obtaining TJX's
prior written consent thereto, except to a successor to all or
substantially all of the assets of Brylane and its subsidiaries. All
assignments in violation of this Section shall be void and without any
effect.
8.6 Successors and Assigns. All of the terms and provisions of this
----------------------
Agreement shall be binding upon and shall inure to the benefit of the
Parties hereto and their respective transferees, successors and
assigns (each of which such transferees, successors and assigns shall
be deemed to be a Party hereto for all purposes hereof).
-7-
<PAGE>
8.7 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if delivered personally or sent
by telex, telecopier, nationally recognized overnight delivery service
or registered, certified or first class mail, postage prepaid,
addressed as follows or to such other address of which the parties may
have given notice:
If to TJX, to: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
With copies to each: Attention: President and General Counsel
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
If to Brylane, to: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Telecopier: (212) 613-9567
With a copy to: John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
Unless otherwise specified herein, such notices or other
communications shall be deemed received (a) on the date delivered, if
delivered personally; (b) when the answer back is received if sent by
telex; (c) when confirmation of receipt is received if sent by
telecopier; (d) one business day after being sent, if sent by
nationally recognized overnight delivery service; (e) three business
days after being sent, if sent by registered or certified mail; or (f)
five business days after being sent, if sent by first class mail.
8.8 Headings, etc. Section and subsection headings are not to be
-------------
considered part of this Agreement, are included solely for
convenience, are not intended to be full
-8-
<PAGE>
or accurate descriptions of the content thereof and shall not affect
the construction hereof. This Agreement shall be deemed to express the
mutual intent of the Parties, and no rule of strict construction shall
be applied against either Party.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
8.10 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts
applicable to contracts executed in and to be performed in that state,
without giving effect to any choice or conflict of law provision or
rule that would cause the application of the laws of any other
jurisdiction.
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed, as of the Effective Date by
their respective officers thereunto duly authorized.
THE TJX COMPANIES, INC.
By:_____________________________
Name:
Title:
BRYLANE, L.P.
By:_____________________________
Name:
Title:
-9-
<PAGE>
EXHIBIT A
---------
MARKS
-----
<TABLE>
<CAPTION>
MARK CLASSIFICATION & GOODS TERM COMMENCING ON
- --------------------------- -------------------------------- THE EFFECTIVE DATE
-------------------
<S> <C> <C>
Rosanna Class 25 - Clothing; namely 12 months
Reg. No. 965621 sweaters, dresses, knit suits,
Reg. Date: 08/07/73 knit shirts, pants and jackets.
Renewed: 1993
Expires: 08/07/03
Owner: The TJX
Companies, Inc.
Heather & Tweed Class 25 - Men's clothing; 12 months
Reg. No. 1,677,693 namely sweaters, knit shirts,
Reg. Date: 03/03/92 shirts, slacks and sport coats.
8 & 15 Due: 03/03/97-98
Expires: 03/03/02
Owner: The TJX
Companies, Inc.
Savannah Class 25 - Ladies clothing; 60 months
Reg. No. 1,139,984 namely jackets, pants, dresses,
Reg. Date: 09/30/80 skirts, blouses and scarves.
Expires: 09/30/00
Owner: The TJX
Companies, Inc.
</TABLE>
-10-
<PAGE>
EXHIBIT 6.3B-3
TRADEMARK LICENSE AGREEMENT
---------------------------
This Trademark License Agreement (the "Agreement") is entered into as of
December __, 1996 (the "Effective Date") by and among The TJX Companies, Inc., a
Delaware corporation with its principal offices located at 770 Cochituate Road,
Framingham, MA 01701 ("TJX"), and Chadwick's Tradename Sub, Inc., a Delaware
corporation, with its principal offices located at 35 United Drive, West
Bridgewater, Massachusetts 02379 (the "Company"), TJX and the Company each being
hereinafter referred to singly as a "Party" and collectively as the "Parties."
W I T N E S S E T H:
-------------------
WHEREAS, TJX is the owner of the Marks (as hereinafter defined) including
all of the goodwill of the products and services associated therewith;
WHEREAS, TJX desires to grant to the Company a royalty-free, non-exclusive,
non-assignable (except to the limited extent provided herein), non-sublicensable
(except as otherwise provided herein) right and license to use the Marks to
identify certain Products and Services (as such terms are hereinafter defined)
in accordance with the terms and provisions of this Agreement;
WHEREAS, the Company desires to obtain from TJX such a royalty-free, non-
exclusive, non-assignable (except to the limited extent provided herein), non-
sublicensable (except as otherwise provided herein) right and license to so use
the Marks in accordance herewith;
WHEREAS, TJX shall retain its rights in, and continue to use, the Marks
throughout the world to identify its products and services;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the Parties hereby agree as follows:
1. Definitions.
------------
1.1 "HOM Trademark License and Assignment Agreement" shall mean that
certain Trademark License and Assignment Agreement dated September 30,
1995 by and between TJX and Hit or Miss Inc. that relates to the Marks
identified in Exhibit A hereto.
<PAGE>
1.2 "Marks" shall mean all trademarks, service marks, trade names,
symbols, names and logos listed on Exhibit A hereto, and including any
----------
and all United States applications, registrations and recordings,
pending registrations, reissues, extensions or renewals thereof.
1.3 "Person" shall mean any individual, partnership, corporation,
association, trust, joint venture, unincorporated organization or
other entity, and any government, governmental department or agency or
political subdivision thereof.
1.4 "Products" shall mean, with respect to each Mark, all products
currently or hereafter made, sold, promoted, advertised or distributed
[by the Company] that fall under any international product class(es)
in which such Mark is federally registered as of the Effective Date
hereof.
1.5 "Services" shall mean, with respect to each Mark, all services
currently or hereafter developed, sold, promoted, advertised or
distributed by the Company that fall under any international service
class(es) in which such Mark is federally registered as of the
Effective Date hereof.
1.6 "Territory" shall mean the universe.
2. Grant of License.
----------------
2.1 Grant to the Company with respect to the Marks. For good and valuable
----------------------------------------------
consideration the receipt of which is hereby acknowledged, TJX hereby
grants to the Company during the Term (as hereinafter defined) hereof,
the royalty-free, non-exclusive, non-assignable (except to the limited
extent herein provided) and non-sublicensable (except as otherwise
provided herein) right, license and privilege, (collectively, the
"License"): (i) to use the Marks to identify the Services throughout
the Territory; and (ii) to mark the Products with any of the Marks,
and to develop, make, sell, promote, advertise and distribute the
Products so marked anywhere in the Territory.
2.2 Use of Subcontractors and Sublicensees. The Company hereby agrees
--------------------------------------
that it shall not sublicense or subcontract any of the rights included
in the License (or any of the Company's obligations hereunder) to any
Person (other than a Person that is a subcontractor engaged by the
Company primarily to manufacture Products) without first obtaining
TJX's written consent thereto, which consent TJX may withhold in its
sole discretion.
2.3 Discontinuation of Use of Marks. Notwithstanding any other provision
-------------------------------
of this Agreement, if at any time during the Term hereof, the Company
decides to cease using any Mark to identify the Products and Services
hereunder, the
-2-
<PAGE>
Company shall provide TJX prompt notice thereof and the License (and
all rights granted to the Company thereunder) with respect to that
Mark shall immediately and automatically revert to TJX.
3. Quality Control.
---------------
3.1 Acknowledgment of Prestige of the Marks. The Company hereby
---------------------------------------
acknowledges the distinctiveness, prestige, high reputation and
goodwill associated with the Marks. The Company agrees that, in order
to preserve such distinctiveness, prestige, reputation and goodwill
associated with the Marks as of the Effective Date hereof, the Company
will at all times (i) comply with all reasonable quality control
policies and procedures communicated by TJX to the Company in writing
from time to time hereunder, provided that such policies and
procedures are consistent with TJX's quality control policies and
procedures as of the Effective Date hereof; and (ii) take all other
measures reasonably necessary to maintain such distinctiveness,
prestige, reputation and goodwill.
4. Ownership of the Marks
----------------------
4.1 Acknowledgment of Ownership of Marks. The Company hereby acknowledges
------------------------------------
and agrees that, as between TJX and the Company, TJX is and shall be
the sole and exclusive owner of the Marks and all of the goodwill
associated therewith, and that the Marks, and such goodwill, shall
remain at all times the sole and exclusive property of TJX. TJX
reserves all of its rights with respect to the Marks not granted to
the Company hereunder and the Company acknowledges and agrees that TJX
in its sole discretion may continue to use such rights and license
them to third parties other than the Company, except to the extent
provided in the HOM Trademark License and Assignment Agreement.
4.2 No Conflicting Filings. At no time shall the Company apply for any
----------------------
registration of any of the Marks or of any other mark or designation
which is reasonably likely to be confused with any of the Marks nor
shall the Company file any document with respect to any of the Marks
with any governmental authority to take any action which would
unreasonably and adversely affect the validity and/or enforceability
of any of the Marks.
4.3 Further Assurances. The Company shall take all such actions and
------------------
execute all such documents and instruments (at TJX's expense) that are
reasonably requested by TJX to carry out the intent of the Parties
under this Agreement and, in particular, to effect and maintain the
enforceability of any and all registrations for the Marks.
-3-
<PAGE>
5. Term and Termination.
--------------------
5.1 Term. The term of this Agreement (the "Term") shall commence on the
----
Effective Date hereof and, unless terminated pursuant to the terms
hereof, continue up to and including September 30, 1997, subject to
the provisions of Section 5.2.
5.2 Termination.
-----------
5.2.1 Termination for Material Default. This Agreement may be
--------------------------------
terminated by either Party upon failure of the other Party to cure any
material breach within ninety (90) days of its receipt from the other
Party of a written notice setting forth the exact nature of such
alleged breach.
5.2.2 Effect of Termination; Sell Off. Upon the expiration or
-------------------------------
termination of this Agreement for any reason, all of the rights in and
to the Marks granted by TJX to the Company hereunder shall immediately
revert to TJX; provided, however, that the Company shall be permitted
to sell off any Products ordered or in its possession prior to such
expiration or termination hereof and to render any Services necessary
to be rendered by the Company in connection with the sell-off of such
Products, and the License shall be extended during such sell-off
period (which period shall in no event exceed 24 months following the
expiration or termination hereof) solely to the extent necessary for
the Company to complete such sell-off.
6. Enforcement of Trademark Rights; Registration.
---------------------------------------------
6.1 Filing and Maintenance. TJX shall be responsible for the preparation,
----------------------
filing, prosecution and maintenance of the Marks and shall bear all
costs associated therewith.
6.2 Enforcement of Rights. The Company agrees that it will notify TJX
---------------------
promptly in writing of any act or alleged act of any person or entity
of unfair competition, infringement, imitation or any other
unauthorized use of any of the Marks to identify any article or
service similar to any Product or Service or otherwise, that becomes
known to the Company. TJX has the right, but shall not be obligated,
to prosecute at its own expense any such infringements. In the event
that TJX should choose not to exercise such right, the Company shall
have the right, but shall not be obligated, to prosecute at its own
expense such infringements. The total cost of any such infringement
action shall be borne by the Parties independently, each Party being
liable solely for the fees and expenses it incurred in connection with
the action. Any recovery or damages for past infringement derived
from such an action shall first be used to
-4-
<PAGE>
reimburse the Parties, as the case may be, for all expenses and legal
fees connected with such action. Any remaining damages after payment
of such fees and expenses shall be allocated between TJX and the
Company equally if the Parties have jointly conducted the infringement
action or, if one Party conducted the proceeding, to that Party.
6.3 Cooperation. Each Party agrees to provide reasonable cooperation to
-----------
the Party who initiates an action or proceeding to abate and obtain
compensation for the infringement of any of the Marks. In this
connection, however, it is agreed that the initiating Party shall pay,
or reimburse the cooperating Party for, all reasonable out-of-pocket
expenses, such as, without limitation, travel and long distance
telephone charges incurred in connection with providing such
cooperation but excluding the non-initiating Party's attorneys fees.
7. Representations and Warranties.
------------------------------
7.1 Representations and Warranties of TJX. TJX represents, warrants and
-------------------------------------
covenants to the Company as follows: (a) TJX has the full and
unrestricted right, power and authority to enter into and perform the
terms, covenants and conditions of this Agreement; and (b) to TJX's
knowledge, the use of the Marks by the Company to the extent permitted
hereunder will not infringe the proprietary rights of any Person under
any law, rule, regulation or order of the United States of America or
any state thereof (including rights arising under the laws of
trademark, trade secrets, rights of publicity, unfair competition, or
any other similar laws).
7.2 Indemnification of the Company. TJX shall defend, indemnify and hold
------------------------------
the Company harmless from and against any and all demands, claims,
actions, suits and proceedings, that may at any time be brought
against the Company and any and all liabilities, losses, damages,
costs and expenses (including but not limited to reasonable attorneys'
fees and other legal costs and expenses) that may at any time be
suffered or incurred by the Company, as a result of, or in connection
with, any breach by TJX of any of the representations or warranties
made by TJX to the Company pursuant to Section 7.1 above or of any
other covenants made by TJX to the Company hereunder or any product or
service provided by TJX that is marked with or promoted under any of
the Marks. Notwithstanding the foregoing, if TJX prevails in any
actions, suits or proceedings defended by it pursuant hereto, any and
all fees and expenses incurred by or chargeable to it in connection
therewith (including, without limitation, any reasonable attorneys'
fees and other legal costs and expenses) shall be reimbursed to it
using the proceeds, if any, received from the losing party in such
action, suit or proceeding.
-5-
<PAGE>
7.3 Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents, warrants and covenants to TJX as follows: (a) the Company
has the full and unrestricted right, power and authority to enter into
and perform the terms, covenants and conditions of this Agreement; and
(b) any Products made, sold or distributed by the Company and any
Services developed, sold or provided by the Company shall comply with
all applicable laws, rules and regulations of any jurisdiction in the
Territory having authority over such Products or Services.
7.4 Indemnification of TJX. The Company shall defend, indemnify and hold
----------------------
TJX harmless from and against any and all demands, claims, actions,
suits and proceedings, that may at any time be brought against TJX and
any and all liabilities, losses, damages, costs and expenses
(including but not limited to reasonable attorneys' fees and other
legal costs and expenses) that may at any time be suffered or incurred
by TJX, as a result of, or in connection with, any breach by the
Company of any of the representations or warranties made by the
Company to TJX pursuant to Section 7.3 above or of any of the other
covenants made by the Company to TJX hereunder or any Product or
Service provided by the Company. Notwithstanding the foregoing, if
the Company prevails in any actions, suits or proceedings defended by
it pursuant hereto, any and all fees and expenses incurred by or
chargeable to it in connection therewith (including, without
limitation, any attorneys' fees and other legal costs and expenses)
shall be reimbursed to it using the proceeds, if any, received from
the losing party in such action, suit or proceeding.
8. General.
-------
8.1 Entire Agreement; Waivers. This Agreement constitutes the entire
-------------------------
agreement among the Parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written,
of the Parties with respect to such subject matter. No waiver of any
provision of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), shall
constitute a continuing waiver unless otherwise expressly provided nor
shall be effective unless in writing and executed (i) in the case of a
waiver by TJX, by TJX and (ii) in the case of a waiver by the Company,
by the Company.
8.2 Amendment or Modification. The Parties hereto may not amend or modify
-------------------------
this Agreement except in such manner as may be agreed upon by a
written instrument executed by TJX and the Company.
8.3 Survival, etc. All representations, warranties, covenants and
-------------
agreements made by or on behalf of either Party hereto in this
Agreement (including, without
-6-
<PAGE>
limitation, the Exhibits hereto), shall be deemed to have been relied
upon by the other Party hereto and shall survive the execution and
delivery of this Agreement and continue in full force and effect
forever thereafter (subject to any applicable statutes of
limitations).
8.4 Severability. In the event that any provision hereof would, under
------------
applicable law, be invalid or unenforceable in any respect, such
provision shall (to the extent permitted under applicable law) be
construed by modifying or limiting it so as to be valid and
enforceable to the maximum extent compatible with, and possible under,
applicable law. The provisions hereof are severable, and in the event
any provision hereof should be held invalid or unenforceable in any
respect, it shall not invalidate, render unenforceable or otherwise
affect any other provision hereof.
8.5 Assignment. The Company may not assign any of its rights, interests,
----------
duties or obligations under this Agreement without obtaining TJX's
prior written consent thereto, except that the Company may assign its
rights, interests, duties or obligations to Brylane, L.P., a Delaware
limited partnership ("Brylane"), or to any direct or indirect
subsidiary of Brylane; provided that no such transfer or assignment
shall relieve the Company of any of its obligations hereunder. All
assignments in violation of this Section shall be void and without any
effect.
8.6 Successors and Assigns. All of the terms and provisions of this
----------------------
Agreement shall be binding upon and shall inure to the benefit of the
Parties hereto and their respective transferees, successors and
assigns (each of which such transferees, successors and assigns shall
be deemed to be a Party hereto for all purposes hereof).
8.7 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if delivered personally or sent
by telex, telecopier, nationally recognized overnight delivery service
or registered, certified or first class mail, postage prepaid,
addressed as follows or to such other address of which the parties may
have given notice:
If to TJX, to: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
With copies to each: Attention: President and General Counsel
-7-
<PAGE>
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
If to the Company, to: Chadwick's Tradename Sub, Inc.
35 United Drive
West Bridgewater, Massachusetts 02379
Attn: President
Telecopier: (508) 583-2071
With a copy to: John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
Unless otherwise specified herein, such notices or other
communications shall be deemed received (a) on the date delivered, if
delivered personally; (b) when the answer back is received if sent by
telex; (c) when confirmation of receipt is received if sent by
telecopier; (d) one business day after being sent, if sent by
nationally recognized overnight delivery service; (e) three business
days after being sent, if sent by registered or certified mail; or (f)
five business days after being sent, if sent by first class mail.
8.8 Headings, etc. Section and subsection headings are not to be
-------------
considered part of this Agreement, are included solely for
convenience, are not intended to be full or accurate descriptions of
the content thereof and shall not affect the construction hereof.
This Agreement shall be deemed to express the mutual intent of the
Parties, and no rule of strict construction shall be applied against
either Party.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
8.10 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts
applicable to contracts executed in and to be performed in that
state, without giving effect to any choice or conflict of law
provision or rule that would cause the application of the laws of any
other jurisdiction.
-8-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed, as of the Effective Date by
their respective officers thereunto duly authorized.
THE TJX COMPANIES, INC.
By:_____________________________
Name:
Title:
CHADWICK'S TRADENAME SUB, INC.
By:_____________________________
Name:
Title:
-9-
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
MARK CLASSIFICATION & GOODS
- ---- ----------------------
<S> <C>
ABERNATHY SPORT Class 25 - clothing, namely short
Registration No. 1,228,562 sets, rompers and active wear, such
Registration Date: 02/22/83 as pants and shirts
8&15 Accepted: 07/24/89
Expires: 02/22/03
Owner: The TJX Companies, Inc.
ELLEN ASHLEY Class 25 - blouses, shirts, pants,
Registration No. 1,241,257 skirts, jackets, sweaters and t-shirts
Registration Date: 06/07/83
8&15 Accepted: 08/07/89
Expires: 06/07/03
Owner: The TJX Companies, Inc.
ELLEN ASHLEY Class 25 - tops, shorts, blazers,
Registration No. 1,902,813 dresses, long coats, slickers, suits,
Registration Date: 07/04/95 socks, hosiery & panties
8&15 Due: 07/04/00-01
Expires: 07/04/05
Owner: The TJX Companies, Inc.
ELLEN ASHLEY Class 42 - retail clothing store
Registration No. 1,863,369 services
Registration Date: 11/15/94
8&15 Due: 11/15/99-00
Expires: 11/15/04
Owner: The TJX Companies, Inc.
REED HUNTER Class 25 - clothing, namely shirts,
Registration No. 1,210,625 belts, socks and sweaters
Registration Date: 09/28/82
8&15 Accepted: 05/01/90
Expires: 09/28/02
Owner: The TJX Companies, Inc.
</TABLE>
-10-
<PAGE>
EXHIBIT 6.3-C
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
New York Buying Office
----------------------
ASSIGNMENT AND ASSUMPTION AGREEMENT made as of the _____ day of December,
1996 by and between THE TJX COMPANIES, INC., a Delaware corporation ("TJX"),
having an address at 770 Cochituate Road, Framingham, Massachusetts 01701 and
C.O.B. MANAGEMENT SERVICES, INC., a Delaware corporation ("Management") having
an address at c/o Brylane, L.P., 463 Seventh Avenue, New York, New York 10018
and a wholly-owned subsidiary of Brylane, L.P., a Delaware limited partnership
("Brylane"), having an address at 463 Seventh Avenue, New York, New York 10018.
WHEREAS, Hit or Miss Inc. ("Hit or Miss") is the Tenant under a lease dated
October 20, 1993 with Robert H. Arnow, as Landlord, of Demised Premises (the
"Demised Premises") consisting of a portion of the 16th floor of the building
known by address of "1452-1460 Broadway", New York, New York, for a term of
approximately ten years and four months, a copy of which is attached hereto as
Exhibit A (the "Lease");
WHEREAS, TJX's affiliates, Chadwick's, Inc. ("Chadwick's") and Winners
Apparel LTD. ("Winners"), share with Hit or Miss the occupancy and use of said
Demised Premises and costs are allocated one-third to each, except that Hit or
Miss pays 50% of the telephone usage and receptionist's services, and 80% of the
office management salary, with TJX or its affiliates being responsible for the
balance thereof. A copy of the Agreement - New York Buying Office, dated
September 30, 1995, between TJX and Hit or Miss setting forth these arrangements
is attached hereto as Exhibit B (the "New York Buying Office Agreement");
WHEREAS, pursuant to an Asset Purchase Agreement dated as of October 18,
1996 among TJX, Chadwick's and Brylane, Brylane is purchasing assets of
Chadwick's and has agreed to purchase certain of the interests and assume
certain of the obligations of TJX and its affiliates under the New York Buying
Office Agreement.
NOW, THEREFORE, for mutual consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. Assignment to Management. TJX hereby transfers and assigns to
------------------------
Management all of its rights and interests under the New York Buying Office
Agreement for the occupancy and use by Chadwick's, in accordance with past
practice, of space in the Demised Premises. A brief outline of such past
practice is attached hereto as Exhibit C.
2. Assumption of TJX's Obligations. Management hereby assumes and agrees
-------------------------------
to be fully obligated and responsible for all of the payment and performance
obligations, responsibilities and liabilities allocable to Chadwick's for which
TJX is responsible (the "Chadwick's Obligations") under the New York Buying
Office Agreement. The Chadwick's Obligations shall consist of:
<PAGE>
(i) 50% of all payment and performance obligations, responsibilities and
liabilities under the Lease or otherwise arising from the Demised Premises
under the first two sentences of Section 2 of the New York Buying Office
Agreement;
(ii) 100% of TJX's obligation for the cost of telephone usage and
receptionist services under Section 2(a) of said Agreement;
(iii) 50% of TJX's obligation for office management salary under
Section 2(b) of said Agreement;
(iv) 100% of costs and expenses incurred for provision of services solely
to Management (as the successor to Chadwick's) under Section 2(c) of said
Agreement;
(v) 100% of all payment and performance obligations under the Lease or
otherwise arising from the Demised Premises if Management (as the successor
to Chadwick's) is the sole occupant of the Demised Premises under the first
sentence in Section 3 of said Agreement (or 33 1/3% thereof if TJX,
Management (as the successor to Chadwick's) and Winners are the sole
occupants and 50% thereof if Management (as the successor to Chadwick's)
and Winners are the sole occupants); and
(vi) 33 1/3% of damages and liabilities payable to the Landlord under the
Lease for the balance of the term of the Lease in the event Hit or Miss,
TJX, Management (as the successor to Chadwick's) and Winners are all
evicted by the Landlord from or vacate the Demised Premises.
Management hereby agrees to indemnify and hold harmless TJX and Chadwick's, and
each of them, from and against the Chadwick's Obligations, whether or not
Management is evicted from the Demised Premises or ceases to have the benefit of
any or all of the rights and interests assigned by TJX under Section 1 of this
Agreement for the occupancy and use of a portion of said Demised Premises.
Management shall be obligated and responsible for paying all costs and expenses,
including attorneys' fees, from time to time incurred by TJX in enforcing
Management's obligations under this Agreement. Management shall pay amounts
owing under this Section 2 to TJX on such regular payment or billing
arrangements as TJX shall specify in writing to Management and payments not
received by TJX within ten (10) days after billing or the regularly scheduled
payment date so specified, shall bear interest at 10% per annum from the date so
billed or scheduled.
3. No Notice of Default. TJX represents and warrants to Management that
--------------------
TJX has not received any oral or written notice from the Landlord under the
Lease that such Landlord intends to exercise any remedies in respect of any
claimed existing breach of the Lease.
4. Notices. TJX shall provide to Management copies of all notices it
-------
receives from Hit or Miss regarding the New York Buying Office Agreement
promptly following receipt thereof. All notices pursuant to this Agreement
shall be in writing and shall be given by
-2-
<PAGE>
certified or registered mail, return receipt requested, by expedited overnight
courier, with receipt, or by delivery in hand during the usual business hours of
the addressee, addressed as follows:
If to TJX: The TJX Companies, Inc.
770 Cochituate Road
Framingham, MA 01701
Attention: General Counsel
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, MA 02110-2624
If to Management: C.O.B. Management Services, Inc.
c/o Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Telecopy: (212) 613-9567
With a copy to: John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
or such other address as such party may, from time to time, designate by notice
as aforesaid. Notices shall be deemed given two days after they have been
deposited in the United States mail, postage prepaid, or when received,
whichever shall be earlier.
5. Further Assurances. Each party agrees to provide such agreements and
------------------
undertakings as shall be necessary to fulfill the purposes of this Agreement,
upon the reasonable request of the other party.
6. Miscellaneous. This Agreement may be amended only in writing signed by
-------------
both parties. No waiver of any part of this Agreement shall be effective unless
in writing, and no waiver in any instance shall be construed as a waiver in any
other or subsequent instance.
-3-
<PAGE>
IN WITNESS WHEREOF, The TJX Companies, Inc. and C.O.B. Management Services,
Inc. have each caused this Agreement to be executed by its duly authorized
officer as of the date first set forth above.
THE TJX COMPANIES, INC.
By:________________________________
Name:
Title:
C.O.B. MANAGEMENT SERVICES, INC.
By:________________________________
Name:
Title:
-4-
<PAGE>
EXHIBIT A
---------
(Lease between Hit or Miss and Robert H. Arnow for the New York Buying Office)
-5-
<PAGE>
EXHIBIT C
---------
(Outline of Past Practices for Use of Space in the New York Buying Office)
-6-
<PAGE>
Exhibit 6.3D is being filed separately as Exhibit 10.70 to the
Registration Statement.
<PAGE>
EXHIBIT 12.4
TERM SHEET
BRYLANE, L.P.
CONVERTIBLE SUBORDINATED NOTES
------------------------------
ISSUER: Brylane, L.P. (the "Company"). References to the
Company after a Roll-Up (as defined below) refer to
the Company or the Successor (as defined below), as
the context requires.
AMOUNT: $20 million.
ISSUE: Convertible Subordinated Notes (the "Subordinated
Notes").
INTEREST RATE: Initial rate of 6% per annum, paid quarterly on the
third, sixth, ninth and twelfth month anniversaries
of the closing. On each anniversary of issuance,
the interest rate shall increase by 100 bps (up to
a maximum of 10% per annum) in the event that by
such anniversary the Company has not "rolled up" (a
"Roll-Up") into a corporate successor the
("Successor") and the Successor has not completed
an initial public offering of common stock.
MATURITY: The tenth anniversary of the Closing.
CONVERSION: Convertible at any time at the option of the holder
into 727,273 limited partnership units of the
Company (the "Units"). Currently there are
12,905,000 Units outstanding (before giving effect
to a $45 million issuance to fund this
transaction), and 915,334 Units subject to options
(before giving effect to options issued in
connection with the Chadwick's acquisition). The
conversion price will be subject to anti-dilution
adjustments customary for Rule 144A or publicly
traded convertible debt, which in the case of a
reclassification, merger, consolidation, sale of
substantially all assets or other transaction
resulting in the holders of Units receiving
securities, cash or other property, will provide
that the holder of the Subordinated Notes will
thereafter receive upon conversion the same
securities, cash or other
<PAGE>
property that it would have received if it had
converted immediately prior to such transaction.
Tax distributions, regular quarterly dividends, and
distributions to VP Holding Corporation to fund
repurchases of management interest held through VP
Holding will not trigger conversion adjustments.
Accrued interest will not be payable on conversion.
Following a Roll-Up, the Subordinated Notes will be
exchanged for Subordinated Notes of the Successor
having substantially identical terms and
convertible into a number of shares of the
Successor equal to the shares of the Successor that
the holder would have received in the Roll-Up if it
had converted immediately prior thereto (subject to
adjustment in the same manner as provided above).
REDEMPTION: (a) Optionally redeemable by the Company upon 30
days notice at any time after the fifth anniversary
of issuance at the following redemption prices
(expressed as a percentage of principal amount),
plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12-month
period beginning on the anniversary of issuance in
the years indicated below (assuming issuance on or
before December 31, 1996):
Year Redemption Price
---- ----------------
2001 104.0%
2002 103.2%
2003 102.4%
2004 101.6%
2005 100.8%
2006 100.0%
(b) In the event the Company has completed an
initial public offering of common stock, the
Subordinated Notes will be optionally redeemable by
the Company prior to the fifth anniversary of
issuance upon 30 days notice at any time commencing
after three years from the date of issuance;
provided that the Company's common stock shall have
closed at least a 25% premium to the then
applicable conversion price for 20 consecutive
trading
-2-
<PAGE>
days. The redemption prices (expressed as a
percentage of principal amount), plus accrued and
unpaid interest, if any, to the redemption date,
shall be as indicated below, if redeemed during the
12-month period beginning on the anniversary of
issuance in the years indicated below (assuming
issuance on or before December 31, 1996):
Year Redemption Price
---- ----------------
1999 104.2%
2000 103.6%
2001 103.0%
2002 102.4%
2003 101.8%
2004 101.2%
2005 100.6%
2006 100.0%
SUBORDINATION: Subordinated to all senior debt and senior
subordinated debt of the Company (defined in manner
comparable to "Senior Indebtedness" in the
Indenture (the "Indenture") for the Company's 10%
Senior Subordinated Notes due 2003 (the "Senior Sub
Notes")), and including the Bank Credit Facility
(as defined in the Indenture) and the Senior Sub
Notes. Subordination provisions to be comparable to
those contained in the Indenture.
DEFAULTS AND REMEDIES: Comparable to Sections 501 and 502 (other than
paragraph (g)) of the Indenture, except that the
baskets shall be $7,500,000.
COVENANTS: Covenants will be comparable to those customary for
publicly traded convertible debt, and specifically
including:
All distributions by the Company must be pro
rata.
Covenants comparable to Sections 7.01 and 7.02
of the Company's Agreement of Limited
Partnership (the "Partnership Agreement").
Access and information (other than monthly
financials or reports) comparable to that
provided
-3-
<PAGE>
to a five percent partner under Sections 7.03
and 7.04 of the Partnership Agreement.
Covenants prohibiting transactions of the type
described in Section 8.01(b)(ix) (also to be
applicable to affiliate transactions with
subsidiary partnerships) of the Partnership
Agreement.
Covenants comparable to Sections 801(a)(i) and
(ii) (subject to subparagraphs (d) and (e)),
except in the case of a Roll-Up the Company
will remain the obligor under the Subordinated
Notes), 1001 and 1004 of the Indenture.
CHANGE OF CONTROL PUT: The holder will have the right to cause the Company
to repurchase Subordinated Notes at 101% of
principal amount, plus accrued and unpaid interest,
upon a Change of Control (as defined in the
Indenture, but also including a releveraging in
which existing holders receive significant proceeds
and retain substantially the same percentage
ownership).
TAG/DRAG ALONGS: The Units will have tag along rights comparable to
those contained in Section 9.05(e) of the
Partnership Agreement. The holder of the
Subordinated Notes will have notice of the tag
along event and be permitted to convert
simultaneous with the transfer. In the event of a
bona fide Change of Control transaction, the
Company may call the Subordinated Notes at the
following redemption prices (expressed as a
percentage of principal amount), plus accrued and
unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning on
the anniversary of issuance in the years indicated
below (assuming issuance on or before December 31,
1996):
Year Redemption Price
---- ----------------
1996 108.0%
1997 107.2%
1998 106.4%
1999 105.6%
2000 104.8%
2001 104.0%
-4-
<PAGE>
2002 103.2%
2003 102.4%
2004 101.6%
2005 100.8%
2006 100.0%
TRANSFER RESTRICTIONS: Transfer restrictions comparable to those
applicable to limited partners under the
Partnership Agreement, terminating upon a Roll-Up.
REGISTRATION RIGHTS: Piggyback registration rights on the underlying
common stock after the initial public offering (or
in any other IPO involving sales by any other
equity holder). Piggyback rights will entitle the
holder to pro rata sale with any other equity
seller, other than the Company. Piggyback rights
will terminate on the third anniversary of closing.
One demand registration right commencing 6 months
after the initial offering and terminating on the
third anniversary of the initial public offering
(which registration may not be for an underwritten
offering).
The holder and the Company will cooperate to
facilitate an orderly distribution of the holder's
shares. This will include the holder advising the
Company of its intentions with respect to
significant public sales, and the Company making
management available at the Company's offices or by
telephone, upon reasonable notice and at reasonable
times and for the holder, its representatives and a
small number of potential purchasers, for marketing
and diligence discussions of the Company and its
business.
Standback after initial public offering of 120 days
(180 days on the initial public offering), but in
no event longer than standbacks applicable to other
significant stockholders. Standbacks terminate on
the earlier of the third anniversary of the closing
and the date on which the holder owns less than 1%
of the equity on a fully diluted basis.
The Company will be responsible for all expenses in
piggyback or demand registrations, including in the
demand and the first three piggyback registrations
costs of
-5-
<PAGE>
one counsel for shareholders, but excluding
underwriting discounts and commissions.
Customary indemnification provisions.
-6-
<PAGE>
EXHIBIT 10.67
AMENDMENT NUMBER ONE
TO
ASSET PURCHASE AGREEMENT
This Amendment Number One (this "Amendment") is made as of the 9th day
of December, 1996, among The TJX Companies, Inc., a Delaware corporation
("TJX"), Chadwick's, Inc., a Massachusetts corporation and a wholly-owned
subsidiary of TJX ("Chadwick's"), and Brylane, L.P., a limited partnership
organized under the laws of the state of Delaware ("Brylane"), to the Asset
Purchase Agreement between Buyer and Seller dated as of October 18, 1996 (the
"Asset Purchase Agreement").
Recitals
1. TJX, Chadwick's and Brylane desire to amend certain provisions of
the Asset Purchase Agreement and to add certain additional provisions to the
Asset Purchase Agreement, all as set forth below.
2. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms as set forth in the Asset
Purchase Agreement.
Agreement
Therefore, in consideration of the foregoing and the mutual agreements
and covenants set forth below and in the Asset Purchase Agreement, the parties
hereto hereby agree as follows:
1. AMENDMENT.
1.1. Schedule 12.11.
1.1.1. Schedule 12.11 to the Asset Purchase Agreement is hereby
amended by adding the following thereto:
"3. Claim by Louis Alcide relating to alleged discrimination on the
basis of his race, color and national origin in connection with
the termination of his employment with Chadwick's."
2. EFFECT ON ASSET PURCHASE AGREEMENT. Except to the extent of the amendments
set forth specifically herein, all provisions of the Asset Purchase Agreement
are and shall remain in full force and effect and are hereby ratified and
confirmed in all respects, and the execution, delivery and effectiveness of this
Amendment shall not operate as a waiver or amendment of any provision of the
Asset Purchase Agreement not specifically amended herein.
<PAGE>
3. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts, each of which shall be deemed for all purposes to
be an original, but all of which together shall constitute one and the same
Amendment. This Amendment shall become effective immediately upon execution.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have caused this Amendment Number One to be executed, as of the date first above
written by their respective officers thereunto duly authorized.
THE TJX COMPANIES, INC.
By: /s/ Donald G. Campbell
----------------------------------------
Name: Donald G. Campbell
Title: Executive Vice President
CHADWICK'S, INC.
By: /s/ Donald G. Campbell
----------------------------------------
Name: Donald G. Campbell
Title: Vice President
BRYLANE, L.P.
By: VGP Corporation
Its: General Partner
By: /s/ John M. Roth
----------------------------------------
Name: John M. Roth
Title: President
<PAGE>
EXHIBIT 10.68
ASSET PURCHASE AGREEMENT
BY AND AMONG
CDM CORP.
AND
BRYLANE, L.P.
-------------------------
AS OF OCTOBER 18, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. PURCHASE AND SALE OF ASSETS; ETC.................................... 1
1.1. Transfer of Assets................................................ 1
1.2. The Closing....................................................... 1
1.3. Purchase Price.................................................... 2
2. REPRESENTATIONS AND WARRANTIES OF CDM............................... 2
2.1. Organization; Capitalization...................................... 2
2.2. Authorization..................................................... 2
2.3. Title to Assets................................................... 3
2.4. Trademarks and Tradenames......................................... 3
3. REPRESENTATIONS AND WARRANTIES OF BUYER............................. 4
3.1. Organization...................................................... 4
3.2. Authorization; No Violation....................................... 4
4. ACCESS TO INFORMATION; PUBLIC ANNOUNCEMENTS......................... 4
4.1. Access to Information, Etc........................................ 4
4.2. Public Announcements.............................................. 5
5. COVENANTS OF THE PARTIES............................................ 5
5.1. Continuing Obligation to Inform................................... 5
5.2. Efforts to Obtain Satisfaction of Conditions...................... 5
5.3. Sharing of Data................................................... 5
5.4. Use of Trademarks and Tradenames.................................. 6
5.5. Reimbursement by the Parties...................................... 6
6. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES........................... 7
6.1. Governmental Approvals............................................ 7
6.2. Adverse Proceedings............................................... 7
7. CONDITIONS TO OBLIGATIONS OF BUYER.................................. 7
7.1. Continued Truth of Representations and Warranties of CDM;
Compliance with Covenants and Obligations......................... 7
7.2. Closing Deliveries................................................ 7
7.3. Chadwick's Asset Purchase Agreement............................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
8. CONDITIONS TO OBLIGATIONS OF CDM.................................... 8
8.1. Continued Truth of Representations and Warranties of Buyer;
Compliance with Covenants and Obligations......................... 8
8.2. Closing Deliveries................................................ 9
8.3. Chadwick's Asset Purchase Agreement............................... 9
9. EXCLUSIVE REMEDY.................................................... 9
10. TERMINATION OF AGREEMENT............................................ 9
10.1. Termination by Agreement of the Parties or by Passage of Time.... 9
10.2. Termination by Reason of Breach.................................. 10
11. DEFINED TERMS....................................................... 10
12. NOTICES............................................................. 11
13. SUCCESSORS AND ASSIGNS.............................................. 12
14. ENTIRE AGREEMENT; ATTACHMENTS....................................... 12
15. EXPENSES............................................................ 12
16. GOVERNING LAW....................................................... 12
17. WAIVER OF JURY TRIAL................................................ 13
18. SECTION HEADINGS.................................................... 13
19. KNOWLEDGE........................................................... 13
20. SEVERABILITY........................................................ 13
21. TRANSFER OF RIGHTS OF BUYER TO ONE OR MORE AFFILIATES;
PLEDGE TO LENDERS................................................... 13
22. COUNTERPARTS........................................................ 13
</TABLE>
-ii-
<PAGE>
SCHEDULES
Schedules
- ---------
2.2 Conflicts
2.3 Title to Assets
2.4 Trademarks
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
Agreement made as of the 18th day of October, 1996 by and among CDM Corp.,
a Nevada corporation and the wholly owned subsidiary of Chadwick's, Inc.
("CDM"), and Brylane, L.P., a limited partnership organized under the laws of
the state of Delaware ("Buyer"). Terms defined in the Chadwick's Asset Purchase
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
WHEREAS, Chadwick's, Inc. ("Chadwick's") operates the catalog division of
TJX doing business under the name "Chadwick's of Boston";
WHEREAS, CDM holds rights to certain trademarks and tradenames used by
Chadwick's;
WHEREAS, Buyer desires to purchase or receive an assignment from the CDM,
and CDM desires to sell or assign to Buyer the Purchased Assets (as hereinafter
defined) under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS; ETC.
1.1. Transfer of Assets. Except as otherwise set forth herein as subject
------------------
to the terms and conditions of this Agreement, and on the basis of the
representations, warranties and covenants set forth herein, at the Closing, CDM
will sell, convey, transfer, assign, and deliver to Buyer, and Buyer will
purchase from CDM, the Purchased Assets.
Buyer's obligations under this Section will not be subject to offset or
reduction by reason of any actual or alleged breach of any representation,
warranty or covenant contained in this Agreement or any other Transaction
Agreement or any right or alleged right to indemnification hereunder or
thereunder. CDM's obligation under this Agreement and the other Transaction
Agreements shall not be subject to offset or reduction by reason of any actual
or alleged breach of any representations, warranty or covenant contained in this
Agreement or any other Transaction Agreement or any right or alleged right to
indemnification hereunder or thereunder.
1.2. The Closing. Unless this Agreement shall have been terminated and
-----------
the transactions herein contemplated shall have been abandoned pursuant to
Section 10, and subject to the satisfaction or waiver of the conditions set
forth in Sections 6, 7 and 8, the Closing of the transactions contemplated
herein shall take place simultaneously with, and only upon, the Closing under
the Asset Purchase Agreement dated the date hereof between The TJX
<PAGE>
Companies Inc. ("TJX"), Chadwick's and Buyer (the "Chadwick's Asset Purchase
Agreement"). At the Closing, CDM shall deliver to Buyer those documents
specified in Section 7.2 hereof, against payment of the Purchase Price (as
defined in Section 1.3) by wire transfer in immediately available funds.
1.3. Purchase Price. The amount to be paid by Buyer to CDM at the Closing
--------------
shall be $30,700,000.00 (the "Purchase Price").
2. REPRESENTATIONS AND WARRANTIES OF CDM.
CDM hereby represents and warrants to Buyer as set forth below; and each of
the parties acknowledges that, except as specifically stated herein, such
representations and warranties are made only in respect of and applicable to the
Purchased Assets:
2.1. Organization; Capitalization. CDM is a corporation duly organized,
----------------------------
validly existing and in good standing under the laws of the State of Nevada, and
has all requisite corporate power and authority to own, operate and lease its
properties, to carry on its business as now conducted, and to consummate the
transactions contemplated hereby. Copies of the Certificate of Incorporation
and By-laws of CDM, each as amended to date, have been previously delivered to
Buyer, are complete and correct, and no amendments have been made thereto or
have been authorized since the date of such delivery. CDM is not in violation
of any provision of its Certificate of Incorporation or By-laws.
2.2. Authorization; No Violation. CDM has full corporate power and
---------------------------
authority to execute and deliver this Agreement and the other Transaction
Agreements to which it is a party, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated on its part hereby
and thereby. The execution and delivery by CDM of this Agreement and other
Transaction Agreements to which it is a party, and the consummation by CDM of
all transactions contemplated hereby and thereby, have been duly authorized by
all requisite corporate action on the part of CDM. This Agreement and all other
Transaction Agreements to which CDM is a party have been, or will have been when
entered into, duly executed and delivered, and constitute, or will constitute
when entered into, the valid and legally binding obligations of CDM enforceable
against CDM in accordance with their respective terms, except as limited by (a)
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(b) equitable principles of general applicability. The execution, delivery and
performance by CDM of this Agreement and the execution, delivery and performance
by CDM of each other Transaction Agreement to which it is a party, and the
consummation by CDM of the transactions contemplated hereby and thereby, will
not, with or without the giving of notice or the passage of time or both, (a)
conflict with, or result in any violation or breach of, or give rise to the
right to terminate, accelerate or cancel any obligation under, or require the
payment of any fee, or constitute a default under (i) any provision of its
Certificate of Incorporation or By-laws, (ii) except as disclosed in Schedule
--------
2.2, and except for such violations or conflicts which, individually or in the
- ---
aggregate, would not reasonably be
-2-
<PAGE>
expected to have a material adverse effect on the assets, business, operations,
financial condition or results of operations of the Division, taken as a whole
(a "Material Adverse Effect"), any agreement, contract, license, indenture or
other instrument to which CDM is a party or by which any of them or their assets
are bound or (iii) except for such violations or conflicts which, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect, any judgment, order, award, writ, decree, statute, law, ordinance, rule
or regulation applicable to CDM or by which any of its assets are bound, or (b)
except for such liens, charges or encumbrances which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect,
cause the creation of any lien, charge or encumbrance upon any of its assets,
(c) except as disclosed in Schedule 2.2 require the consent, waiver, approval or
------------
authorization of or any filing by CDM with any person or governmental authority
(other than the filing of a premerger notification report under the HSR Act and,
upon consummation of the transaction contemplated by this Agreement, a Current
Report on Form 8-K under the Securities Exchange Act of 1934), other than such
failures to obtain consent, waiver approval or authorization or such failures to
file which would not reasonably be expected to have a Material Adverse Effect,
or (d) except as disclosed in Schedule 2.2, result in a loss or adverse
------------
modification of any license, permit, certificate, franchise or contract granted
to or otherwise held by CDM which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
2.3. Title to Assets. CDM will as of the Closing have good and valid title
---------------
to the Purchased Assets, in each case free and clear of all mortgages, liens,
security interests or encumbrances of any nature whatsoever except (i) such as
are disclosed in the notes to the Financial Statements or on Schedule 2.3
------------
hereto, (ii) liens for Taxes, assessments and other governmental charges which
are not due and payable or which may thereafter be paid without penalty and
(iii) other imperfections of title or encumbrances which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
2.4. Trademarks and Tradenames. Schedule 2.4 contains a true and complete
------------------------- ------------
list of all registered and unregistered trademarks and tradenames owned by or
licensed to CDM. Except as set forth on Schedule 2.4, (a) CDM has no knowledge
------------
of any claim by any other person that such other person is the legal owner of
any of the trademarks listed on Schedule 2.4; (b) CDM has the right to transfer
------------
the right to use all of the trademarks listed on Schedule 2.4 for use by Buyer
------------
in the conduct of the Business as is presently conducted; and (c) CDM has not
granted any license or right to use any of the trademarks identified in Schedule
--------
2.4 to any person other than Chadwick's and other than as set forth on Schedule
- --- --------
2.4
- ---
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to CDM as follows:
3.1. Organization. Buyer is a limited partnership duly organized, validly
------------
existing and in good standing under the laws of the [State of Delaware], and has
all requisite power and
-3-
<PAGE>
authority to own its properties and to carry on its business as now being
conducted. A certified copy of the Certificate of Limited Partnership of Buyer,
as amended to date, have been previously delivered to CDM and is complete and
correct.
3.2. Authorization; No Violation. Buyer has full power and authority to
---------------------------
execute and deliver this Agreement and the other agreements provided for herein,
to carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated on its part hereby and thereby. The execution and
delivery of this Agreement and other Transaction Agreements by Buyer, and the
consummation by Buyer of the transactions contemplated hereby and thereby, have
been duly authorized by all requisite partnership action on the part of Buyer.
This Agreement and other Transaction Agreements have been or will have been when
entered into duly executed and delivered by Buyer, and constitute or will
constitute when entered into the valid and legally binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
limited by (i) bankruptcy, insolvency or similar laws affecting creditor's
rights generally and (ii) equitable principles of general applicability. The
execution, delivery and performance of this Agreement and other Transaction
Agreements, and the consummation by Buyer of the transactions contemplated
hereby and thereby, will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any material law, rule or
regulation applicable to Buyer; (b) violate the provisions of Buyer's Agreement
of Limited Partnership; (c) violate any material judgment, decree, order or
award of any court, governmental body or arbitrator; or (d) conflict with or
result in the breach or termination of any term or provision of, or constitute a
default under, or cause any acceleration under, or cause the creation of any
lien, charge or encumbrance upon the properties or assets of Buyer pursuant to,
any indenture, mortgage, deed of trust or other material agreement or instrument
to which it or its properties is a party or by which Buyer is or may be bound,
except for such violations, conflicts, defaults or the like which, individually
or in the aggregate, would not reasonably be expected to have a Buyer's Material
Adverse Effect.
4. ACCESS TO INFORMATION; PUBLIC ANNOUNCEMENTS.
4.1. Access to Information, Etc. From the date of this Agreement until
--------------------------
the Closing Date or any earlier termination of this Agreement, CDM shall afford
the officers, attorneys, accountants, lenders and other authorized
representatives and professionals of Buyer access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of CDM relating to the Purchased Assets, so that Buyer may
have full opportunity to make such investigation as it reasonably desires of the
Purchased Assets, and Buyer shall (at its expense) be permitted to make
abstracts from, or copies of, all such books and records. CDM shall furnish to
Buyer such financial and operating data and other information as to the
Purchased Assets as Buyer shall reasonably request. The foregoing shall not
limit Buyer's obligations under the Confidentiality Agreement.
-4-
<PAGE>
4.2. Public Announcements. The parties agree that prior to the Closing,
--------------------
except as otherwise required by law, any and all public announcements or other
public communications concerning this Agreement and the transactions
contemplated hereby shall, unless required under applicable securities laws, be
subject to the approval of all parties, which approval shall not be unreasonably
withheld.
5. COVENANTS OF THE PARTIES.
5.1. Continuing Obligation to Inform. From time to time prior to the
-------------------------------
Closing, CDM will deliver or cause to be delivered to Buyer material
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule or Exhibit inaccurate or incomplete in any
material respect at any time after the date hereof until the Closing Date. If
Buyer receives any such supplemental information prior to the Closing, Buyer
shall have the right to review such supplemental information for a period of
five days from the receipt thereof and to object to any item of such
supplemental information which was not contained in this Agreement or in the
Schedules or Exhibits attached hereto within such five day period if such item
has a Material Adverse Effect. Any such objection shall be set forth in writing
and shall state in detail the basis for such objection. If Buyer objects to any
such item on the basis set forth above within such five day period then Buyer
shall have as its sole remedy hereunder the option to terminate the Agreement
within such five day period or to proceed with the Closing and, upon the
Closing, Buyer shall be conclusively deemed to have waived all claims hereunder
relating to such misrepresentation or breach of warranty (unless such
supplemental information arises from a breach of a covenant under this Agreement
by CDM, in which event Buyer may pursue the remedies available to it pursuant to
this Agreement as limited by Section 9). If Buyer does not object within such
five day period, such supplemental information shall be incorporated into this
Agreement.
5.2. Efforts to Obtain Satisfaction of Conditions. The parties hereto
--------------------------------------------
covenant and agree to use all commercially reasonable efforts to obtain the
satisfaction of the conditions specified in this Agreement including, without
limitation, its commercially reasonable efforts to obtain all necessary consents
to the consummation of the transactions contemplated by this Agreement.
5.3. Sharing of Data. The parties agree that from and after the Closing:
---------------
(a) CDM shall have the right for a period of five years following the
Closing (or such longer period as shall be necessary to satisfy CDM's legal
and tax obligations or requirements) to have reasonable access to such
books, records and accounts, including financial and tax information,
correspondence and other similar information as are transferred to Buyer
pursuant to the terms of this Agreement for the limited purposes of
concluding its involvement in the Purchased Assets, engaging in related
litigation with third parties and complying with its obligations under
applicable
-5-
<PAGE>
securities, tax, environmental, employment or other laws and regulations.
Buyer shall have the right for a period of five years following the Closing
(or such longer period as shall be necessary to satisfy Buyer's legal and
tax obligations or requirements) to have reasonable access to those books,
records and accounts, including financial and tax information,
correspondence and other records as are retained by CDM pursuant to the
terms of this Agreement to the extent that any of the foregoing relates to
the Purchased Assets, or is otherwise needed by Buyer for the purpose of
engaging in related litigation with third parties, or in order to comply
with its obligations under applicable laws and regulations. Each party
hereby covenants to the other parties that it will keep such books,
records, accounts, and information in existence and in good order for such
period of time as the other parties are entitled to reasonable access
thereto pursuant to this Section 5.3(a).
(b) Buyer shall make available to CDM upon written request (i) copies
of any books or records relating to the Purchased Assets, (ii) Buyer's
personnel to assist CDM in locating and obtaining any books or records
relating to the Purchased Assets, and (iii) any of Buyer's personnel whose
assistance or participation is reasonably required by CDM in anticipation
of, or preparation for, existing or future litigation, Returns or other
matters in which CDM is involved.
(c) CDM hereby covenants and agrees that it will keep confidential
all information obtained pursuant to the provisions of this Section 5.4 in
accordance with the provisions of the Confidentiality Agreement. The
provisions contained in such Confidentiality Agreement are hereby
incorporated herein by this reference.
5.4. Use of Trademarks and Tradenames. From and after the Closing, CDM
--------------------------------
agrees not to use the name "Chadwick's" or "Chadwick's of Boston", or any of the
other names that constitute tradenames that are being transferred to Buyer
pursuant to the terms of this Agreement, or any derivation or any name likely to
be confused therewith after the Closing in connection with any business.
5.5. Reimbursement by the Parties. To the extent that CDM, on the one
----------------------------
hand, or Buyer, on the other hand, receives any payment after the Closing which
belongs to the other party, it shall promptly pay over such payment to the other
party.
5.6. Further Assurances. From time to time after the Closing, at the
------------------
request of Buyer, CDM shall execute and deliver any further instruments and take
such other action as Buyer may reasonably request to vest or confirm in Buyer
title to the Purchased Assets or otherwise carry out the transactions
contemplated hereby.
-6-
<PAGE>
6. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES.
The obligations of CDM and Buyer under this Agreement to consummate the
purchase or assignment of the Purchased Assets at the Closing are subject to the
fulfillment, on or before the Closing Date, of the following conditions
precedent, unless waived in writing by all parties hereto:
6.1. Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation
(including the expiration or termination of any waiting periods under the Hart-
Scott-Rodino Antitrust Improvement Act of 1976, as amended ("HSR Act"), if
applicable, but excluding consents, authorizations and approvals relating to
use, occupancy, tax liens and similar matters) for the consummation of the
transactions contemplated by this Agreement shall have consented to, authorized,
permitted or approved such transactions.
6.2. Adverse Proceedings. The respective obligations of each party to
-------------------
effect the transactions contemplated by the Agreement shall be subject to the
conditions that no United States or state governmental authority or other agency
or commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order (whether temporary, preliminary, or
permanent) which is in effect and has the effect of prohibiting consummation of
the transactions contemplated by this Agreement.
7. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer under this Agreement to purchase the Purchased
Assets and assume the Assumed Liabilities at the Closing are subject to the
fulfillment, on or before the Closing Date, of the following conditions
precedent, each of which may be waived in writing in the sole discretion of
Buyer:
7.1. Continued Truth of Representations and Warranties of CDM; Compliance
--------------------------------------------------------------------
with Covenants and Obligations. Subject to Section 5.1, the representations and
- ------------------------------
warranties of CDM shall be true on and as of the Delivery Date in all material
respects as though such representations and warranties were made on and as of
the Delivery Date, except for any changes permitted by the terms hereof or
contemplated herein and except as to representations and warranties made as of a
specific date. CDM shall have performed and complied in all material respects
with all terms, conditions, covenants, obligations, agreements and restrictions
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
7.2. Closing Deliveries. Buyer shall have received at or prior to the
------------------
Closing each of the following:
-7-
<PAGE>
(a) a certificate signed by the President or any Vice President of
CDM dated as of the Delivery Date, to the effect that the conditions
specified in Section 7.1 have been satisfied;
(b) certificates of the Secretary of State of the State of Nevada as
to the legal existence and good standing (including tax if available before
the Delivery Date) of CDM;
(c) certificates of the Secretary or any Assistant Secretary of CDM,
attesting to the incumbency of CDM's officers, respectively, the
authenticity of the resolutions authorizing the transactions contemplated
by the Agreement, and the authenticity and continuing validity of the
charter documents delivered pursuant to Section 2.1;
(d) a cross-receipt executed by CDM;
(e) one or more bills of sale, in form and substance reasonably
satisfactory to Buyer, conveying in the aggregate all of CDM's owned
personal property included in the Purchased Assets;
(f) such other documents, instruments or certificates as Buyer may
reasonably request.
7.3. Chadwick's Asset Purchase Agreement. TJX and Chadwick's shall have
-----------------------------------
executed and delivered the Chadwick's Asset Purchase Agreement and all
conditions precedent to Buyer's obligation to close thereunder shall have been
satisfied or waived.
8. CONDITIONS TO OBLIGATIONS OF CDM.
The obligations of CDM under this Agreement to sell and deliver the
Purchased Assets at the Closing are subject to the fulfillment, on or before the
Delivery Date, of the following conditions precedent, each of which may be
waived in writing at the sole discretion of CDM:
8.1. Continued Truth of Representations and Warranties of Buyer;
-----------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties of
- -----------------------------------------
Buyer in this Agreement shall be true on and as of the Delivery Date in all
material respects as though such representations and warranties were made on and
as of such date, except for any changes permitted by the terms hereof or
consented to in writing by CDM. Buyer shall have performed and complied in all
material respects with all terms, conditions, obligations, agreements and
restrictions required by this Agreement to be performed or complied with by it
prior to or at the Closing.
-8-
<PAGE>
8.2. Closing Deliveries. CDM shall have received at or prior to the
------------------
Closing each of the following:
(a) a certificate signed by the President or any Vice President of
Buyer, dated as of the Delivery Date, to the effect that the conditions
specified in Section 8.1 have been satisfied;
(b) payment of the Purchase Price by wire transfer in immediately
available funds;
(c) a cross-receipt executed by Buyer; and
(d) such other documents, instruments or certificates as CDM may
reasonably request.
8.3. Chadwick's Asset Purchase Agreement. Buyer shall have executed and
-----------------------------------
delivered the Chadwick's Asset Purchase Agreement and all conditions precedent
to TJX's and Chadwick's' obligation to close thereunder shall have been
satisfied or waived.
9. EXCLUSIVE REMEDY. Except in any case involving actual fraud or as
otherwise expressly set forth in this Agreement, the parties' sole and exclusive
remedy (other than termination pursuant to Section 10) with respect to any and
all claims relating to the subject matter of this Agreement shall be pursuant to
the indemnification provisions set forth in Section 9 of the Chadwick's Asset
Purchase Agreement.
10. TERMINATION OF AGREEMENT.
10.1. Termination by Agreement of the Parties or by Passage of Time. This
-------------------------------------------------------------
Agreement may be terminated by the mutual written agreement of the parties
hereto or by any party hereto if the transactions contemplated herein have not
been consummated on or before December 23, 1996, unless such failure shall have
resulted from any willful breach of any representation, warranty or covenant by
the party proposing termination; provided that such date may be deferred to a
date no later than January 27, 1997 that is the first Monday that is at least
three business days after the expiration or termination of any waiting periods
under the HSR Act, if applicable, and provided further that if CDM shall deliver
supplemental information to Buyer pursuant to Section 5.1, then such termination
date shall be the later of (a) the date determined pursuant to the foregoing
provisions of this sentence and (b) the first Monday that is at least five days
after the date on which such supplemental information was delivered to Buyer.
This Agreement may be terminated by CDM on the one hand, or by Buyer on the
other hand, if there is a material breach by the other party or parties hereto
of any representation, warranty, covenant or agreement on the part of such other
party or parties set forth in this Agreement, or if a representation or warranty
of such other party shall be untrue in any material respect, or such other party
shall conclude that the conditions specified
-9-
<PAGE>
in Section 6 or in Section 7 or 8, as the case may be, cannot be satisfied at
Closing; and in any such case such other party or parties acknowledges in
writing that the conditions specified in Section 6 or in Section 7 or 8, as the
case may be, to the obligations of the terminating party cannot be satisfied at
Closing. In the event of such termination by agreement or passage of time (other
than as a result of any such willful breach), Buyer shall have no further
obligation or liability to CDM under this Agreement, and CDM shall have no
further obligation or liability to Buyer under this Agreement.
10.2. Termination by Reason of Breach. This Agreement may be terminated
-------------------------------
by CDM, if any time prior to the Closing there shall occur a material or willful
breach of any of the representations, warranties or covenants of Buyer or the
failure by Buyer to perform any material condition or obligation hereunder, and
may be terminated by Buyer, subject to the ability of Buyer to waive such breach
pursuant to the provisions contained in Section 5.1, if at any time prior to the
Closing there shall occur a material or willful breach of any of the
representations, warranties or covenants of CDM or the failure of CDM to perform
any material condition or obligation hereunder. If this Agreement is terminated
by reason of breach, subject to Section 5.1, the breaching party shall indemnify
the non-breaching party for all costs and expenses incurred by the non-breaching
party (including all legal, accounting or other professional fees and commitment
fees); provided, that the non-breaching party shall have any and all further
rights and remedies available to it under law or equity as a result of such
breach; and provided further, that in no event shall either party be liable for
consequential or indirect damages, including lost profits.
11. DEFINED TERMS.
11.1. The following terms defined elsewhere in this Agreement as set forth
below shall have the respective meaning therein defined:
<TABLE>
<CAPTION>
Terms Section
----- -------
<S> <C>
Buyer................................. Preamble
CDM................................... Preamble
Chadwick's............................ Preamble
Chadwick's Asset Purchase Agreement... Section 1.2
HSR Act............................... Section 6.1
Material Adverse Effect............... Section 2.2
Purchase Price........................ Section 1.3
TJX................................... Section 1.2
</TABLE>
11.2. "Code" means the United States Internal Revenue Code of 1986, as
----
amended.
11.3. "Purchased Assets" shall mean all of CDM's rights, title and
----------------
interest in and to all rights in the trademarks and tradenames listed in
Schedule 2.4 and any related application,
- ------------
-10-
<PAGE>
together with all fictitious names and copyrights in published and material
unpublished works, in each case except as otherwise provided in this Agreement
or any other Transaction Agreement.
11.4. "Return" means any return, declaration, report, claim for refund, or
------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
11.5. "Tax" means any federal, state, local, or foreign income, gross
---
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental taxes under Code Section 59A, custom
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, fee, levy, duty, impost or charge of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
12. NOTICES.
Any notices or other communications required or permitted hereunder shall
be sufficiently given if delivered personally or sent by telex, telecopier,
nationally recognized overnight delivery service or registered, certified or
first class mail, postage prepaid, addressed as follows or to such other address
of which the parties may have given notice:
To CDM: c/o The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
Attention: President and General Counsel
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
To Buyer: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Telecopier: (212) 613-9567
-11-
<PAGE>
With a copy to: John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally; (b)
when the answer back is received if sent by telex; (c) when confirmation of
receipt is received if sent by telecopier; (d) one business day after being
sent, if sent by nationally recognized overnight delivery service; (e) three
business days after being sent, if sent by registered or certified mail; or (f)
five business days after being sent, if sent by first class mail.
13. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns (which shall be
deemed to include any person purchasing or otherwise acquiring all or
substantially all of the assets of a party hereto or any of its successors or
assigns), except that the parties may not assign their respective obligations
hereunder without the prior written consent of the other party, except that CDM
may assign its rights and obligations to any direct or indirect subsidiary of
TJX. No transfer or assignment by any party shall relieve such party of any of
its obligations hereunder.
14. ENTIRE AGREEMENT; ATTACHMENTS. This Agreement, all Exhibits and Schedules
hereto, and all agreements and instruments to be delivered by the parties
pursuant hereto in accordance with the applicable provisions of this Agreement
or referenced herein constitute the Agreement and represent the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. No representations, warranties, prospectus or other information not
expressly set forth herein shall be of any force and effect, absent actual fraud
or intentional wrongdoing, and are not being relied on by Buyer or CDM. The
Exhibits and Schedules attached hereto or to be attached hereafter are hereby
incorporated as integral parts of this Agreement.
15. EXPENSES.
Except as otherwise expressly provided herein, the parties shall each pay
their own expenses in connection with this Agreement and the transactions
contemplated hereby. Buyer shall pay the filing fee costs in connection with
any HSR Act filing.
-12-
<PAGE>
16. GOVERNING LAW.
This Agreement and all rights and obligations of the parties and all claims
relating to this Agreement shall be governed by and construed in accordance with
the internal laws of The Commonwealth of Massachusetts.
17. WAIVER OF JURY TRIAL.
Each of CDM and Buyer hereby irrevocably waives, to the fullest extent
permitted by law, all rights to trial by jury in any action, proceeding, or
counterclaim (whether based upon contract, tort or otherwise) arising out of or
relating to this Agreement or any of the transactions contemplated hereby.
18. SECTION HEADINGS.
The section headings contained herein are for the convenience of the reader
only and shall not be deemed to be a part of this Agreement.
19. KNOWLEDGE.
The term "knowledge of CDM" as used in this Agreement shall mean to the
knowledge or belief of Bernard Cammarata, Richard Lesser or Donald G. Campbell
of TJX or Dhananjaya Rao, Carol Meyrowitz, Lawrence Kinney or Jack Tynan of
Chadwick's based on a reasonable diligence inquiry by such individuals in the
ordinary course of business as to the truth or accuracy of such representation
or warranty.
20. SEVERABILITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
21. TRANSFER OF RIGHTS OF BUYER TO ONE OR MORE AFFILIATES; PLEDGE TO LENDERS.
Buyer and CDM hereby agree that, at any time on or prior to the Closing, Buyer
may transfer to one of its direct, wholly-owned subsidiaries all rights and
obligations provided herein to purchase from CDM the Purchased Assets; provided,
however, that such subsidiary expressly assumes all obligations of Buyer and
that no such transfer shall relieve Buyer of any of its obligations hereunder.
In addition, CDM agrees that Buyer and such subsidiary may grant a security
interest in this Agreement and all other agreements to be entered into in
connection herewith to the Financing Parties who will provide financing for the
transactions contemplated by this Agreement under any and all financing
documents entered into by such Financing Parties to secure Buyer's and such
subsidiary's obligations to such Financing Parties under any such documents.
-13-
<PAGE>
22. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
[The remainder of this page has been intentionally left blank.]
-14-
<PAGE>
IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed by
the parties hereto under seal as of and on the date first above written.
CDM CORP.
By: /s/ Alfred Appel
----------------------------
Title: Assistant Secretary
BRYLANE, L.P.,
a Delaware limited partnership
By: VGP Corporation
Its: General Partner
By: /s/ John M. Roth
---------------------------
John M. Roth
President
-15-
<PAGE>
EXHIBIT 10.69
===============================================================================
SERVICES AGREEMENT
between
THE TJX COMPANIES, INC.
and
BRYLANE, L.P.
Dated as of December 9, 1996
===============================================================================
<PAGE>
SERVICES AGREEMENT
------------------
THIS SERVICES AGREEMENT (the "Agreement"), made as of this ____ day of
December 1996, is entered into by Brylane, L.P., a Delaware limited partnership
having an address at 463 Seventh Avenue, New York, New York 10018 ("Brylane"),
and The TJX Companies, Inc., a Delaware corporation with its principal office at
770 Cochituate Road, Framingham, Massachusetts 01701 ("TJX").
WITNESSETH:
-----------
WHEREAS, TJX, its subsidiary Chadwick's, Inc. ("COB") and certain related
entities and Brylane have entered into an Asset Purchase Agreement dated October
18, 1996 (the "Purchase Agreement") pursuant to which Brylane has agreed to
purchase the assets of COB; and
WHEREAS, TJX is willing to continue to provide to Brylane certain services
relating to the COB business that it is presently providing to COB upon the
terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereby agree as follows:
1. SERVICES.
1.1 Services to be Made Available. In accordance with the terms and
-----------------------------
provisions of this Agreement, TJX agrees to perform (or cause its subsidiaries
to perform) for Brylane and its subsidiaries services relating to the COB
business described in the Annexes hereto (collectively, the "Services") in the
amounts and to the extent specified with respect to each such Service in the
applicable Annex hereto and Brylane agrees to perform any of its obligations
hereunder and as set forth in the following Annexes:
Services Applicable Annex
-------- ----------------
Data Processing A
Treasury Services B
Corporate Payroll Services C
Legal Services D
<PAGE>
1.2 Fees. Brylane agrees to pay to TJX a fee for each of the Services as
----
specified in the applicable Annex hereto.
Not more often than once per fiscal month, TJX shall forward to Brylane
invoices for the Services listing the Services provided hereunder and listing
the fees for such Services, together with such additional documentation
evidencing the provision thereof as Brylane shall reasonably request. Invoices
for Services provided for partial fiscal months and relating to Services for
which the fees are to be calculated on a monthly basis shall be based upon the
number of days in such fiscal month. Within 30 days of receiving an invoice and
such additional documentation (if any) reasonably requested by Brylane, Brylane
shall pay to TJX the amount invoiced. Brylane agrees to pay to TJX interest on
any such invoice amount that is not paid within 30 days after receipt by Brylane
at a rate per annum equal to the rate announced by The First National Bank of
Boston as its Base Rate, calculated daily, for each day that such invoice amount
remains overdue.
1.3 Term of Agreement. This Agreement shall become effective as of the
-----------------
date first set forth above and shall terminate with respect to each Service on
the date specified for such Service or as determined in accordance with the
applicable Annex hereto.
1.4 Timely Performance and Cooperation. TJX shall use commercially
----------------------------------
reasonable efforts to perform the Services in a timely manner that will be at
least consistent with its past practices and Brylane shall use commercially
reasonable efforts to cooperate with TJX in connection with the provision of the
Services.
2. REPRESENTATIONS AND WARRANTIES.
As an inducement to enter into this Agreement, each party represents to and
agrees with the other that:
(a) it is a corporation or partnership duly organized, validly
existing and in good standing under the law of the State of Delaware and
has all requisite corporate or partnership power, as the case may be, to
carry out the transactions contemplated by this Agreement;
(b) it has duly and validly taken all corporate or partnership action,
as the case may be, necessary to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby; and
(c) this Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms.
-2-
<PAGE>
3. OTHER TERMS AND PROVISIONS.
3.1 Independent Contractor Status. TJX shall perform all services under
-----------------------------
this Agreement as an "independent contractor" and not as an agent of Brylane.
TJX is not authorized to, and shall not, assume or create any obligation or
responsibility, express or implied, on behalf of, or in the name of, Brylane or
bind Brylane in any manner. TJX shall be solely responsible for the payment of
all salaries and benefits and all employment taxes with respect to its employees
and the employees of its subsidiaries providing the Services.
3.2 Indemnification. Brylane hereby agrees to indemnify and hold harmless
---------------
TJX, its subsidiaries, each of their respective directors, officers, employees,
agents and affiliates (a "TJX Indemnitee") from and against all costs and
damages incurred by such TJX Indemnitee to third parties as a result of the
provision by TJX pursuant to this Agreement of the Services, other than (i)
costs or damages incurred by such TJX Indemnitee as a result of its willful
misconduct or gross negligence and (ii) certain license fees for software, if
any, as further specified in paragraph 3 of Annex A attached hereto. TJX hereby
agrees to indemnify and hold harmless Brylane, its subsidiaries, each of their
respective directors, officers, employees, agents and affiliates (a "Brylane
Indemnitee") from and against all costs and damages incurred by such Brylane
Indemnitee to third parties as a result of: (i) the willful misconduct or gross
negligence of TJX in the provision by it of the Services pursuant to this
Agreement, or (ii) any claim that the use in the provision of Services of any
software developed or owned by TJX or any of its affiliates infringes upon the
patent, copyright or other intellectual property interests of any third party.
Procedures relating to indemnification claims and obligations shall follow and
be handled in accordance with Sections 9.4 and 9.5 of the Purchase Agreement.
In addition, in no event shall an indemnifying party be liable for any claim by
a third party that is settled or compromised by an indemnified party without the
written consent of the indemnifying party. This section shall survive the
termination of this Agreement.
3.3 Limitation of Liability and Reimbursement. Other than as specified in
-----------------------------------------
paragraph 3 of Annex A attached hereto, neither TJX nor any of its subsidiaries
or any of their respective directors, officers, employees, agents or affiliates
shall in any event be liable for any damages or expenses of any kind or nature
whatsoever that may arise out of TJX's (or any such subsidiary's or any such
directors', officers', employees', agents' or affiliates') performance or
failure to perform any of its obligations under this Agreement, other than those
damages caused by TJX's (or any such subsidiary's or such persons') willful
misconduct or gross negligence. In addition, notwithstanding anything in this
Agreement to the contrary, in no event will the parties hereto or any of their
respective subsidiaries or any of their respective directors, officers,
employees, agents or affiliates be liable to any person, for lost profits, lost
savings, or other indirect, special, incidental or consequential damages whether
such damages are based on tort, contract, or any other legal theory, and even if
such party or any of its subsidiaries or any of their respective directors,
officers, employees, agents or affiliates has been advised of the possibility of
such damages. This section shall survive the termination of this Agreement.
-3-
<PAGE>
3.4 Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
3.5 Assignment. Except by operation of law or in connection with the sale
----------
of all or substantially all the assets of a party hereto, this Agreement shall
not be assignable, in whole or in part, directly or indirectly, by either party
hereto without the prior written consent of the other, and any attempt to assign
any rights or obligations arising under this Agreement without such consent
shall be void. Subject to the foregoing, this Agreement shall be binding in all
events upon any successor to all or substantially all the assets of a party
hereto.
3.6 Further Assurances. Subject to the provisions hereof, each of TJX and
------------------
Brylane shall make, execute, acknowledge and deliver such other agreements,
documents or instruments and take or cause to be taken such other actions as may
be reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of TJX and Brylane shall, in connection with entering into this
Agreement, performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders and
decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, or other regulatory or administrative
agency, commission or similar authority and promptly provide the other with all
such information as the other may reasonably request in order to be able to
comply with the provisions of this sentence.
3.7 Parties in Interest. Nothing in this Agreement expressed or implied
-------------------
is intended or shall be construed to confer any right or benefit upon any person
or entity other than TJX and Brylane and their respective successors and
permitted assigns.
3.8 Waivers, Etc.; Amendments. No failure or delay on the part of TJX or
-------------------------
Brylane in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No amendment, modification or waiver of any provision of this
Agreement nor consent to any departure by TJX or Brylane therefrom shall in any
event be effective unless the same shall be in writing, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
3.9 Confidentiality. Subject to any contrary requirement of law and the
---------------
right of each party to enforce its rights hereunder in any legal action, each
party shall keep strictly confidential and shall cause its employees and agents
to keep strictly confidential any information that it or any of its agents or
employees may acquire pursuant to, or in the course of performing its
obligations under, any provision of this Agreement; provided, however, that
-4-
<PAGE>
such obligation to maintain confidentiality shall not apply to information that
has been made or becomes public other than as a result of acts by the receiving
party.
3.10 Force Majeure. TJX shall not be liable for failure to perform or any
-------------
delay in performing any of its obligations under this Agreement if such failure
or delay is due to fire, flood or other natural disasters or acts of God, war,
embargo, riot, strike or the intervention of any government authority or other
causes beyond its reasonable control ("Force Majeure"). TJX agrees to notify
Brylane promptly of any Force Majeure and to use commercially reasonable efforts
to resume performance as soon as is reasonably practicable.
3.11 Entire Agreement. This Agreement contains the entire understanding of
----------------
the parties with respect to the provisions of Services from TJX to Brylane.
3.12 Headings. Descriptive headings are for convenience only and shall not
--------
control or affect the meaning or construction of any provision of this
Agreement.
3.13 Specific Performance. TJX acknowledges that its failure to perform
--------------------
Services under this Services Agreement may result in irreparable harm to
Brylane. Brylane's right to commence any action at law or in equity under this
Services Agreement or in connection with any other claim arising out of or
relating to the services includes, but is not limited to, the right to assert a
claim for specific performance of TJX's obligations hereunder; provided,
--------
however, that such right shall be available only in response to a failure by TJX
- -------
to perform Services. Brylane shall not be required to prove actual damages in
any such action for specific performance.
3.14 Counterparts. This Agreement may be executed by the parties hereto on
------------
separate counterparts and in any number of counterparts, and each such executed
counterpart shall be, and shall be deemed to be, an original instrument.
3.15 Notices. Any notice or other communication in connection with this
-------
Agreement shall be deemed to be delivered if in writing (or in the form of a
telecopy) addressed or transmitted as provided below and if either (i) actually
delivered at said address, (ii) in the case of a letter, three business days
shall have elapsed after the same shall have been deposited in the United States
mails, postage prepaid and registered or certified, or (iii) if in the form of a
telecopy, when the receiving party gives telephonic notice of complete and
legible receipt, to:
-5-
<PAGE>
If to Brylane: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Telecopy: (212) 613-9567
With a copy to: John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
If to TJX, to: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
with copies to each: President and General Counsel
With a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
or to such other address as either party herein may designate for itself by
notice given as herein provided.
3.16. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic substantive law of The Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule that would cause the application of the domestic substantive law of any
other jurisdiction.
-6-
<PAGE>
IN WITNESS WHEREOF, The TJX Companies, Inc. and Brylane, L.P. have each
caused this Agreement to be executed by its duly authorized officer as of the
date first set forth above.
THE TJX COMPANIES, INC.
By: /s/ DONALD G. CAMPBELL
----------------------------------------
Name: Donald G. Campbell
Title: Executive Vice President
BRYLANE, L.P.
By: /s/ PETER J. CANZONE
----------------------------------------
Name: Peter J. Canzone
Title: Chief Executive Officer and
Chairman of the Board
<PAGE>
Annex A
-------
Data Processing Services
------------------------
<PAGE>
Data Processing Annex to Services Agreement
The purpose of this Data Processing Annex (the "Annex") to the Services
Agreement is to define more precisely the data processing services that will be
provided by TJX to Brylane. In the event of any inconsistency between this Annex
and the Services Agreement, this Annex shall control. Fiscal Years referred to
herein are identified by reference to the year in which the TJX fiscal year
ends. Thus, Fiscal 1997 refers to the fiscal year ended January 25, 1997.
1. Service Requirements. During the Term (as such term is defined
--------------------
below), TJX shall provide Brylane with the computing services for the COB
business as described in Attachment I attached hereto (collectively, the
"Computing Services") in accordance with the terms hereof. The term of the
Services Agreement with respect to Computing Services (the "Term") shall
terminate on January 31, 1998.
For the period commencing on the date of the Services Agreement and ending
on January 31, 1998, Brylane's requirements for computer usage (such
requirements being hereinafter referred to collectively as the "planned
requirements") during such period and TJX's charges for such periods shall be as
set forth in Attachments II and I, respectively.
Brylane may extend the period of Computing Services for the six month
period ending July 25, 1998 in accordance with the February to July usage plan
for Fiscal 1999 as set forth in Attachment II by providing TJX written notice of
its desire to extend by July 31, 1997.
2. Calculation of Charges. The charges for the Computing Services shall
----------------------
be calculated based on per hourly and per item arrangements set forth in
Attachment I.
TJX shall send monthly invoices to Brylane during the term of this
agreement based on Brylane's usage of services.
If Brylane's requirements exceed one hundred twenty percent (120%) of its
planned requirements for each six (6) month period, then TJX will be entitled to
adjust its charges to the extent reasonably necessary to recover its additional
costs, if any, resulting from Brylane's additional requirements. TJX shall use
its commercially reasonable efforts to satisfy any computer usage request in
excess of one hundred twenty percent (120%) of Brylane's planned requirements.
A-1
<PAGE>
In the event that Brylane's actual requirements for any six (6) month
period with respect to item 1 and the payroll component of item 2 of Attachment
I are less than eighty percent (80%) of its planned requirements for such
period, Brylane shall pay to TJX an amount equal to the charge for eighty
percent (80%) of the planned requirements.
Brylane agrees to provide to TJX by the fifteenth day of each month, a
written forecast of the anticipated computer, disk and print resource usage of
the COB business for each month remaining in the Term. The planned requirements
shown in Attachment II will not be affected by this written forecast.
3. Third Party License Fees. TJX shall promptly notify Brylane upon its
------------------------
receipt of any notice that a third party intends to increase its software
license fees because of the Computing Services being provided by TJX to Brylane
hereunder. In such event, TJX shall, with Brylane's participation and
cooperation, negotiate the amount of such increase and shall seek to ensure that
all additional license rights (other than those already held by TJX, which shall
not be affected) are in the name of, or freely assignable (without payment of
additional consideration) to, Brylane. If TJX incurs additional license fees,
then such fees shall be borne as follows: Byrlane shall reimburse TJX for the
first $500,000 of such fees; TJX and Brylane shall each pay 50% of the next
$500,00 of such fees; and TJX shall pay the balance of any such additional fees.
4. Performance Targets. It is expected that the performance targets for
-------------------
the Computing Services provided to Brylane shall be no less than those specified
on Attachment III, assuming Brylane's conformity with TJX's operating standards.
Notwithstanding the foregoing, TJX shall not be required to maintain the
performance targets for Computing Services to the extent that it is unable to
maintain them for other users of computing services (including TJX) for reasons
beyond its commercially reasonable control. In the event that TJX is unable to
meet the performance targets for Computing Services for reasons beyond its
commercially reasonable control, TJX shall provide Brylane the same levels and
quality of Computing Services that it provides to other users of computing
services (including TJX) and shall use its commercially reasonable efforts to
alleviate any condition causing a diminution in such performance targets.
A-2
<PAGE>
5. Invoices. TJX shall render to Brylane each month, within 30 days
--------
after the end of the month, an invoice for the charges for Computing Services
incurred during the previous month. Such invoice shall be payable in accordance
with the terms of the Services Agreement.
6. Delivery of Software. Upon Brylane's request, TJX shall deliver to
--------------------
Brylane within a reasonable period after such request the following items with
respect to all applications (i.e. utility routines, utility programs and/or
systems software) developed by TJX and used solely in connection with COB's
business and in which no third party has any rights (the "TJX Software"):
(a) One copy of object code on magnetic media.
(b) One copy of source code on magnetic media.
(c) One copy of any documentation, including source documentation,
maintenance documentation and other documentation, for such software
to the extent then available.
Brylane shall pay TJX for its additional costs relating to such delivery of
software.
TJX hereby grants to Brylane the royalty free, non-exclusive, non-
assignable and non-sublicensable right, license and privilege to use the TJX
Software. Brylane agrees that all TJX Software and all copies thereof are
proprietary to TJX and title thereto remain in TJX. All applicable rights to
patents, copyrights, trademarks and trade secrets in the TJX Software are and
shall remain in TJX. Brylane shall not sell, transfer, publish, disclose,
display or otherwise make available the TJX Software or copies thereof to
others. THE TJX SOFTWARE IS BEING PROVIDED TO BRYLANE AS IS AND ALL WARRANTIES
ARE EXCLUDED, INCLUDING THE WARRANTY OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. This paragraph shall survive the termination of the
Computer Services and that of the Services Agreement.
7. Coordinating Committee. For the purpose of providing and continuing
----------------------
the harmonious relationship between TJX and Brylane, each shall appoint two
individuals to coordinate and review the relationship between the two companies
and their performance under this Annex, as well as strategic planning and
technology changes. These individuals
A-3
<PAGE>
shall meet periodically, no less frequently than quarterly, to discuss
operations under this Annex and any problems arising hereunder.
A-4
<PAGE>
Attachment I
to Annex A
to Services Agreement
Certain initial charges are indicated and certain related arrangements
explained.
<TABLE>
<CAPTION>
Initial Estimated Estimated
1. Computer FY '97 FY '98 FY '99
<S> <C> <C> <C>
(a) CPU/Model 952 (per hour) $1,431.00 $1,431.00 $1,431.00
CPU/Model 600J (per hour) 517.00 $ 517.00 517.00
(b) PRINT, 1-up (per 1K lines) .43 .43 .43
PRINT, 2-up (per 1K lines) .26 .26 .26
PRINT, REMOTE (per 1K lines) .022 .022 .022
PRINT, SARVIEW (per 1K lines) .022 .022 .022
(c) MICROFICHE (per fiche) .46 .46 .46
(d) DATA ENTRY (per record) .041 .041 .041
DATA ENTRY (per floppy file) 11.30 11.30 11.30
(e) DEDICATED DISK (per GB/mo.) 260.00 260.00 260.00
(f) NETWORK CONNECT Fee 43.00 43.00 43.00
(per unit/mo.)
(g) PAYROLL (per check) .36 .37 .39
(h) D/C Rate (per hour) 35.00 35.00 35.00
(i) Software Rate (per hour) 50.00 50.00 50.00
</TABLE>
2. Payroll, General Ledger, Fixed Asset, E/P System, and other Corporate
Systems Support.
(a) Payroll Support - rate shown for item 1(g) above includes 50 staff
days of Direct Support. Service requests exceeding this annual level,
if agreed to by TJX, will be billed at the Software Rate per hour.
(b) Other systems - usage as incurred in item 1(a) above, plus an
application support fee of $4,500 per month for General Ledger, Fixed
Asset, E/P, and related software plus any license fees (at cost) if
----
additional charges are incurred.
Notwithstanding Section 1 of the Annex, production of W-2 Forms shall, at
Brylane's option, extend through the calendar year ending on December 31 in
the year in which the termination of the other Computing Services occurs.
<PAGE>
3. Maintenance and operation of the TJX Data Communication network
(a) Communication lines & hardware - provided at TJX's cost
(b) Routine support - 50 staff days are included in item 1(f) above;
support exceeding this annual level, if agreed to by TJX, will be
billed at the D/C Rate per hour.
(c) Unplanned projects, if agreed to by TJX, will be billed at the D/C
Rate per hour plus materials at cost
4. Technical System Support
(a) Unplanned software - acquired, installed, and billed at cost
(b) Routine support - up to 200 staff days are included in Item 1(a)
above. Support exceeding this annual level must be agreed to by TJX
will be billed at the Software Rate per hour.
(c) Unplanned projects - billed at $50/hour plus materials at cost
5. New Technology Support
Support for Graham Technologies Project including the Pilot shall not
exceed 10 staff days and neither TJX nor any of its subsidiaries or any of
their respective directors, officers, employees, agents or affiliates shall
in any event be liable for any damage or expenses of any kind whatsoever
that may arise out of the Graham Technology Project or any new technology
project for which support is provided. This paragraph shall survive the
termination of the Computer Services and that of the Services Agreement.
6. Technical Training Classes
Computer-related training classes which are offered to TJX associates will
be made available to Brylane's associates on a space available basis. The
classes will be billed to Brylane at TJX cost.
<PAGE>
Attachment II
to Annex A
to Service Agreement
FISCAL 1997 COMPUTER UTILIZATION PLAN
PLANNED USAGE FOR CHADWICK'S OF BOSTON
<TABLE>
<CAPTION>
FEB MAR APR MAY JUN JUL
(4) (5) (4) (4) (5) (4)
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION
BATCH CPU (hours)
Telemarketing 34.9 81.0 72.0 69.7 48.5 57.0
Finance 17.4 31.6 35.2 33.0 32.4 19.0
Merchandising 17.4 25.8 19.9 20.0 20.8 17.0
Marketing 34.0 66.7 32.8 69.3 50.2 38.0
Fulfillment 43.0 60.6 63.7 66.8 81.1 51.4
Loss Prevention 2.5 4.9 4.6 4.6 4.2 4.2
Misc. direct marketing 15.6 20.9 14.3 15.6 20.9 15.0
MPCS/Purchase orders 20.0 28.3 24.7 29.4 31.9 21.0
All other (payroll, GL,
HR, __ 16.1 22.4 11.4 9.7 4.7 15.0
------ ------- ------- ------- ------- -------
Batch CPU (Hours) 202.9 342.2 276.6 320.1 294.7 237.6
CICS CPU (hours) 358.7 603.5 526.1 589.3 587.0 514.5
IMS CPU (hours) 0.0 0.0 0.0 0.0 0.0 0.0
PRINT 1up(thousands of lines) 60 129 71 72 239 95
PRINT 2up(thousands of lines) 3 0 1 140 13 5
MICROFICHE (pages) 5,147 3,370 5,309 4,883 11,921 3,768
DATA ENTRY (records) 8,010 9,060 10,580 9,670 17,893 8,000
REMOTE PRINT 75,618 156,333 138,120 129,685 145,170 130,821
TEST
BATCH CPU (hours) 122.1 71.6 70.8 52.7 194.7 125.0
CICS CPU (hours) 12.9 15.8 7.5 8.5 7.2 12.8
PRINT 1up(thousands of lines) 775 2,201 839 676 1,736 975
PRINT 2up(thousands of lines) 163 62 1,513 4 95 53
OTHER
NETWORK SUPPORT 543 544 544 545 544 544
ACCOUNTING SYSTEM 0 0 0 0 0 0
PAYROLL USAGE (checks) 8,370 11,418 9,034 6,916 11,375 9,100
DEDICATED DISK (hours) 114.0 133.0 133.0 133.0 131.4 137.1
SARVIEW 6,665 9,804 7,101 8,588 9,600 7,100
<CAPTION>
AUG SEP OCT NOV DEC JAN TOTALS
(4) (5) (4) (4) (5) (4) (52)
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION
BATCH CPU (hours)
Telemarketing 54.8 103.3 51.9 88.3 80.0 70.0 841.5
Finance 18.0 30.0 36.0 41.0 36.0 22.0 353.8
Merchandising 19.0 21.0 22.0 20.0 24.0 20.0 246.9
Marketing 57.0 71.0 42.0 56.0 50.0 29.0 598.0
Fulfillment 51.2 66.0 64.9 71.1 75.0 59.7 756.5
Loss Prevention 4.2 5.0 5.0 5.0 5.0 4.2 53.4
Misc. direct marketing 15.0 20.0 15.0 15.0 200 15.0 202.3
MPCS/Purchase orders 20.0 28.0 20.0 22.0 28.0 22.0 295.3
All other (payroll, GL,
HR, __ 15.0 20.0 15.0 15.0 200 15.0 181.3
------- ------- ------- ------- -------- ------- ---------
Batch CPU (Hours) 254.3 364,3 301.6 333.4 340.0 256.9 3,526.8
CICS CPU (hours) 499.2 853.0 688.9 701.2 833.4 499.7 7,362.5
IMS CPU (hours) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PRINT 1up(thousands of lines) 1,546 227 89 87 334 3,274 6,203
PRINT 2up(thousands of lines) 84 12 5 4 18 179 464
MICROFICHE (pages) 7,457 11,921 3,768 7,457 11,921 3,768 80,690
DATA ENTRY (records) 10,000 12,900 10,000 10,000 12,000 6,000 124,113
REMOTE PRINT 120,910 181,652 196,460 186,875 196,969 137,320 1,794,133
TEST
BATCH CPU (hours) 125.0 200.0 150.0 100.0 150.0 120.0 1,481.9
CICS CPU (hours) 13.9 14.9 10.8 11.4 14.2 11.6 141.5
PRINT 1up(thousands of lines) 1,418 1,567 1,128 1,531 3,413 2,033 18,292
PRINT 2up(thousands of lines) 77 85 62 83 186 111 2,514
OTHER
NETWORK SUPPORT 544 544 544 544 544 574 6,528
ACCOUNTING SYSTEM 0 0 0 0 0 0 0
PAYROLL USAGE (checks) 9,100 11,375 9,100 9,100 11,375 9,100 117,363
DEDICATED DISK (hours) 137.1 139.6 139.6 139.6 139.6 139.6 1,610.9
SARVIEW 7,100 9,600 7,100 7,100 8,800 7,100 97,056
=========
Total CPU 12,512.7
</TABLE>
<PAGE>
Attachment II
to Annex A
to Service Agreement
FISCAL 1998 COMPUTER UTILIZATION PLAN
PLANNED USAGE FOR CHADWICK'S OF BOSTON
<TABLE>
<CAPTION>
PLAN PLAN PLAN PLAN PLAN PLAN
FEB MAR APR MAY JUN JUL
<S> <C> <C> <C> <C> <C> <C>
CURRENT PRODUCTION
- ------------------
Batch CPU (hours)
Telemarketing 43.1 83.7 84.1 72.1 48.5 59.0
Finance 20.3 32.3 39.4 33.8 32.4 19.5
Merchandising 18.0 20.0 20.4 20.1 20.8 17.1
Marketing 35.2 67.0 33.8 69.6 50.5 38.2
Fulfillment 53.1 62.6 74.3 71.1 81.1 53.2
Loss Prevention 2.6 4.9 4.9 4.6 4.2 4.2
Misc. direct marketing 16.6 21.1 14.9 15.8 20.9 16.2
MPCS/Purchase orders 21.3 25.6 25.9 29.7 31.9 21.2
All other (payroll, G/L, HR
etc.) 21.1 22.9 12.8 4.1 4.7 15.4
------ ------- ------- ------- ------- -------
Batch CPU (Hours) 231.3 349.2 310.1 320.9 294.9 242.9
CICS CPU (Hours) 483.5 916.5 791.0 612.7 575.3 530.3
IMS CPU (hours) 0.0 0.0 0.0 0.0 0.0 0.0
Print 1up(lines x 1000) 66 142 78 3,247 263 105
Print 2up(lines x 1000) 3 0 1 177 14 6
Microfiche (pages) 6,663 3,530 5,573 7,812 11,921 3,956
Data Entry (Records) 10,650 9,491 13,099 11,679 17,893 8,400
Remote Print 90,951 150,800 155,566 131,524 145,170 134,746
<CAPTION>
PLAN
PLAN PLAN PLAN PLAN PLAN PLAN FULL
AUG SEP OCT NOV DEC JAN YEAR
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT PRODUCTION
- ------------------
Batch CPU (hours)
Telemarketing 60.4 113.6 92.8 91.2 82.1 67.7 898.2
Finance 19.3 32.1 39.4 42.0 38.7 21.5 370.7
Merchandising 19.3 21.3 22.4 20.1 24.1 19.9 249.4
Marketing 57.8 72.0 42.8 56.3 50.2 28.9 602.2
Fulfillment 56.3 72.6 73.6 73.5 77.0 57.7 806.0
Loss Prevention 4.3 5.1 5.2 5.5 6.5 4.2 56.3
Misc. direct marketing 15.4 20.6 16.5 17.1 22.2 18.9 212.2
MPCS/Purchase orders 20.6 28.8 20.6 22.2 28.2 21.6 300.9
All other (payroll, G/L, HR
etc.) 16.1 21.4 18.4 15.4 20.4 14.6 185.3
------- ------- ------- ------- ------- ------- ---------
Batch CPU (Hours) 269.5 387.6 329.0 343.3 349.4 253.1 3,681.2
CICS CPU (Hours) 572.1 952.7 827.9 737.3 679.6 487.6 8,166.6
IMS CPU (hours) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Print 1up(lines x 1000) 1,791 250 98 74 367 3,601 9,991
Print 2up(lines x 1000) 65 13 6 4 20 197 526
Microfiche (pages) 8,522 13,624 4,486 7,012 12,375 3,599 91,063
Data Entry (Records) 11,429 14,743 11,905 10,476 12,457 5,714 137,966
Remote Print 131,274 197,222 218,912 192,214 201,471 133,397 1,893,277
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEST
- ----
<S> <C> <C> <C> <C> <C> <C>
Batch CPU (Hours) 134.3 78.8 77.0 64.7 214.2 137.5
CICS CPU (Hours) 14.2 17.4 8.3 19.4 7.9 14.1
Print 1up(lines x 1000) 853 2,421 840 1,401 1,910 1,073
Print 2up(lines x 1000) 170 90 1,654 76 105 58
OTHER
- -----
Network Support(per mo) 544 544 544 544 544 544
Accounting System 0 0 0 0 0 0
Payroll Usage System (checks) 8,370 11,418 9,034 9,100 11,375 9,100
Dedicated Disk(GB/month) 177.6 177.6 197.6 175.7 170.8 175.9
Sarview 7,332 10,764 7,811 7,810 10,780 7,810
JANUARY 5 WEEK MONTH ADJUSTMENT (CPU Hours) 50.0 50.0
- -------------------------------------------
NEW PRODUCTION
- --------------
Graham Technologies (34.6) (112.4) (107.9) (195.3) (184.9) (233.7)
Tracking Mdse from
Pic to Pack 0.0 0.0 0.0 3.2 3.4 2.4
C.A.R. Processing 0.0 0.0 0.0 3.2 3.4 2.4
Multiple Releases 0.0 0.0 0.0 0.0 0.0 0.0
Merchandising projects 0.0 0.0 0.0 0.0 0.0 0.0
Control Item Costs, Retail
Mark On, Coverage Model to
Item Planning, Key Item
Planning, Vendor Performance,
Expand MPCS Database
Liquidations Management 0.0 0.0 0.0 0.7 0.7 0.7
PO/Receiving/AP Integration 0.0 0.0 0.0 0.0 0.0 0.0
Link Shipping & Customer
Order Systems 0.0 0.0 0.0 0.0 0.0 0.0
DB2 Conversions
House File 0.0 0.0 0.0 0.0 0.0 0.0
Order, Inventory, Binbox,
etc. 0.0 0.0 0.0 0.0 0.0 0.0
Marketing CDC Database 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL NEW PRODUCTION (34.8) (112.4) (107.9) (188.2) (177.4) (228.1)
=======
Feb. - July Total CPU: 6,446.4
<CAPTION>
TEST
- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Batch CPU (Hours) 137.5 220.0 165.0 110.0 165.0 132.0 1,636.8
CICS CPU (Hours) 15.3 16.4 11.9 12.5 15.6 12.5 165.7
Print 1up(lines x 1000) 1,560 1,724 1,241 1,684 3,754 2,236 20,696
Print 2up(lines x 1000) 85 94 68 91 205 122 2,837
OTHER
- -----
Network Support(per mo) 544 544 544 544 544 544 6,528
Accounting System 0 0 0 0 0 0 0
Payroll Usage System (checks) 9,100 11,375 9,100 9,100 11,375 9,100 117,547
Dedicated Disk(GB/month) 193.5 197.0 202.2 156.7 185.6 176.3 2,217.1
Sarview 7,810 10,780 7,810 7,810 10,780 7,810 105,127
JANUARY 5 WEEK MONTH ADJUSTMENT (CPU Hours)
- -------------------------------------------
NEW PRODUCTION
- -----------------------------
Graham Technologies (292.3) (522.1) (442.4) (398.7) (361.1) (252.3) (3,128.1)
Tracking Mdse from
Pic to Pack 2.8 3.8 3.6 3.2 3.3 2.5 28.3
C.A.R. Processing 2.8 3.6 3.6 3.2 3.3 2.5 28.3
Multiple Releases 0.0 0.7 0.8 0.6 0.7 0.7 3.2
Merchandising projects 3.4 4.5 4.2 3.9 4.3 3.3 23.9
Control Item Costs, Retail
Mark On, Coverage Model to
Item Planning, Key Item
Planning, Vendor Performance,
Expand MPCS Database
Liquidations Management 0.7 1.4 0.7 0.7 1.4 0.7 7.7
PO/Receiving/AP Integration 1.1 1.7 2.1 2.2 2.0 1.1 10.2
Link Shipping & Customer
Order Systems 1.4 1.9 1.6 1.6 1.7 1.2 9.6
DB2 Conversions
House File 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Order, Inventory, Binbox,
etc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Marketing CDC Database 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL NEW PRODUCTION (280.1) (503.8) (425.9) (383.3) (334.5) (240.3) (3,016.7)
=========
Total CPU: 10,585.6
</TABLE>
<PAGE>
Attachment II
to Annex A
to Service Agreement
FISCAL 1999 COMPUTER UTILIZATION PLAN
PLANNED USAGE FOR CHADWICK'S OF BOSTON
<TABLE>
<CAPTION>
PLAN PLAN PLAN PLAN PLAN PLAN
FEB MAR APR MAY JUN JUL
<S> <C> <C> <C> <C> <C> <C>
CURRENT PRODUCTION
- ------------------
Batch CPU (hours)
Telemarketing 44.1 85.7 86.0 73.7 49.6 60.4
Finance 20.7 32.6 40.0 34.4 32.9 19.6
Merchandising 18.1 26.0 20.4 20.2 20.9 17.1
Marketing 35.3 67.3 33.7 69.9 50.7 38.3
Fulfillment 53.4 54.1 76.0 72.7 83.0 54.4
Loss Prevention 2.6 4.9 4.9 4.6 4.2 4.3
Misc. direct marketing 16.7 21.3 15.0 15.9 21.0 15.3
MPCS/Purchase orders 21.4 26.6 26.1 29.9 32.1 21.4
All other (payroll, G/L, HR
etc.) 21.5 23.3 13.0 4.2 4.6 15.6
------ ------- ------- ------- ------- -------
Batch CPU (Hours) 234.7 354.2 315.2 326.6 298.2 246.6
CICS CPU (Hours) 499.6 947.0 817.3 633.9 594.5 545.0
IMS CPU (hours) 0.0 0.0 0.0 0.0 0.0 0.0
Print 1up(lines x 1000) 73 136 66 3,512 289 115
Print 2up(lines x 1000) 4 0 1 195 16 6
Microfiche (pages) 7,091 3,640 6,792 8,073 12,316 4,018
Data Entry (Records) 11,026 9,888 13,536 12,068 18,409 8,610
Remote Print 94,014 165,160 160,751 135,909 150,009 139,237
<CAPTION>
PLAN
PLAN PLAN PLAN PLAN PLAN PLAN FULL
AUG SEP OCT NOV DEC JAN YEAR
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT PRODUCTION
- ------------------
Batch CPU (hours)
Telemarketing 61.8 116.3 95.0 91.4 81.0 68.2 919.2
Finance 19.6 32.7 40.5 42.7 30.4 21.8 376.9
Merchandising 18.3 21.4 22.5 20.2 24.2 20.0 250.3
Marketing 57.0 72.3 42.9 56.5 50.4 29.0 604.2
Fulfillment 57.6 74.3 75.3 75.2 77.8 58.1 824.8
Loss Prevention 4.3 5.2 5.2 5.6 6.6 4.2 56.7
Misc. direct marketing 15.5 20.7 15.7 17.3 21.3 17.0 213.6
MPCS/Purchase orders 20.7 29.0 20.9 22.4 24.4 21.9 302.9
All other (payroll, G/L, HR
etc.) 16.3 21.8 18.7 15.6 21.7 14.9 188.4
------- ------- ------- ------- ------- ------- ---------
Batch CPU (Hours) 273.3 393.5 334.9 349.7 350.7 257.0 3,736.9
CICS CPU (Hours) 591.2 984.5 835.5 761.9 701.3 505.9 8,438.8
IMS CPU (hours) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Print 1up(lines x 1000) 1,871 275 108 61 404 3,952 10,990
Print 2up(lines x 1000) 94 15 6 5 22 217 579
Microfiche (pages) 8,806 14,028 4,635 8,073 12,788 3,708 94,099
Data Entry (Records) 11,810 15,234 12,302 10,825 12,872 6,903 142,565
Remote Print 135,850 203,790 226,210 198,621 208,157 137,843 1,956,387
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
TEST
- ----
Batch CPU (Hours) 147.7 88.6 85.7 71.1 235.6 151.3
CICS CPU (Hours) 15.6 19.1 9.1 21.3 8.7 15.5
Print 1up(lines x 1000) 915 2,613 924 1,512 2,801 1,130
Print 2up(lines x 1000) 107 99 1,831 83 115 64
OTHER
- -----
Network Support(per mo) 544 544 544 544 544 544
Accounting System 0 0 0 0 0 0
Payroll Usage System (checks) 8,370 11,418 9,034 9,100 11,375 9,100
Dedicated Disk(GB/month) 217.7 217.7 241.9 215.1 209.1 215.4
Sarview 8,015 11,863 8,592 8,591 11,858 8,591
NEW PRODUCTION
- --------------
Graham Technologies (242.5) (483.7) (420.1) (324.3) (282.8) (289.6)
Tracking Mdse from
Pic to Pack 2.6 3.9 3.7 3.3 3.5 3.5
C.A.R. Processing 2.6 3.9 3.7 3.3 3.5 3.5
Multiple Releases 0.6 0.7 0.8 0.6 0.7 0.6
Merchandising projects 3.2 5.1 4.3 4.1 4.1 3.3
Control Item Costs, Retail Mark
On, Coverage Model to Item
Planning, Key Item Planning,
Vendor Performance, Expand
MPCS Database
Liquidations Management 0.7 1.4 0.7 0.7 0.7 0.7
PO/Receiving/AP Integration 1.9 1.8 2.1 1.8 1.7 1.1
Link Shipping & Customer
Order
Systems 1.3 2.0 1.9 1.7 1.8 1.3
DB2 Conversions
House File 0.0 0.0 0.0 0.0 0.0 0.0
Order, Inventory, Binbox,
etc. 0.0 0.0 0.0 0.0 0.0 0.0
Marketing CDC Database 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL NEW PRODUCTION (230.4) (464.9) (401.0) (308.8) (268.8) (271.7)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
TEST
- ----
Batch CPU (Hours) 151.3 242.0 185.0 120.0 185.0 145.2 1,800.5
CICS CPU (Hours) 16.8 18.0 10.1 13.8 17.2 14.0 182.2
Print 1up(lines x 1000) 1,716 1,896 1,365 1,853 4,130 2,450 22,766
Print 2up(lines x 1000) 93 103 75 100 225 134 3,121
OTHER
- -----
Network Support(per mo) 544 544 544 544 544 544 6,528
Accounting System 0 0 0 0 0 0 0
Payroll Usage System (checks) 9,100 11,375 9,100 9,100 11,375 9,100 117,547
Dedicated Disk(GB/month) 230.9 241.2 247.5 228.5 227.2 218.8 2,713.7
Sarview 8,591 11,858 8,591 8,591 11,858 8,521 115,639
NEW PRODUCTION
- --------------
Graham Technologies (301.7) (538.7) (456.5) (411.4) (352.3) (264.3) (4,373.8)
Tracking Mdse from
Pic to Pack 2.9 3.9 3.7 3.3 3.4 2.5 39.4
C.A.R. Processing 2.9 3.9 3.7 3.3 3.4 2.5 39.4
Multiple Releases 0.6 0.7 0.6 0.6 0.7 0.7 7.6
Merchandising projects 3.5 4.9 4.3 4.0 4.3 3.3 48.3
Control Item Costs, Retail Mark
On, Coverage Model to Item
Planning, Key Item Planning,
Vendor Performance, Expand
MPCS Database
Liquidations Management 0.7 1.4 0.7 0.7 1.4 0.7 10.5
PO/Receiving/AP Integration 1.1 1.6 2.1 2.2 2.1 1.2 20.0
Link Shipping & Customer
Order Systems 1.5 2.0 1.6 1.7 1.7 1.3 19.7
DB2 Conversions
House File 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Order, Inventory, Binbox,
etc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Marketing CDC Database 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL NEW PRODUCTION (281.6) (520.0) (439.6) (395.6) (346.3) (245.1) (4,188.8)
</TABLE>
<PAGE>
Attachment III
to Annex A
to Services Agreement
Performance Targets for Computing Services
------------------------------------------
Item Fiscal Quarter Goal
---- -------------------
Hardware/Software Availability 99.0%
TSO Availability 99.0%
On-Line Application Availability 98.0%
Report Delivery on Schedule 97.0%
Response Time Target
IMS-All (95 Percentile) 5.0 sec.
TSO-All (95 Percentile) 3.0 sec.
CICS-All (95 Percentile) 5.0 sec.
DB2-All (95 Percentile) 5.0 sec.
The targets above will continue to be calculated and reported monthly in the
same manner they were reported prior to June, 1996.
Note: All Fiscal Quarter Goals to be renegotiated annually as part of annual
budgeting process. All Fiscal Quarter Goals for future Firm Periods are based
upon technical design document review by TJX prior to construction.
These performance targets assume Brylane's conformity with TJX's operating
standards.
<PAGE>
Annex B
Treasury Services
-----------------
The following services will be provided to Brylane:
1. Treasury Services
-----------------
Assistance with the establishment of Trustee accounts at State Street Bank
and Trust Co. for the Brylane 401(k) Plan.
2. Letters of Credit
-----------------
At the Closing, COB will have outstanding Letters of Credit (the "Letters
of Credit") through the First National Bank of Boston and the First
National Bank of Chicago (the "Banks") relating to the purchase of
merchandise. TJX and Brylane agree that these Letters of Credit shall
remain outstanding until they are drawn down under the normal course of
business or expire. TJX will continue to provide services with respect to
these Letters of Credit on Brylane's behalf.
TJX will provide Brylane with the information provided to them by the Banks
regarding COB's Letters of Credit, and Brylane will instruct TJX as to any
action to be taken with respect to the Letters of Credit.
TJX will fund draw downs under the Letters of Credit, upon notification
from the Banks. TJX will notify Brylane of the amounts drawn against the
Letters of Credit and shall provide the Brylane's Chief Financial Officer,
copies of all relevant documents via facsimile transmission as promptly as
practicable (Fax No. (212) 613-9567). If such facsimile copies are
received by Brylane on or before 11:00 a.m. (EST) on any week day when
banks are open for business in New York, Massachusetts and Pennsylvania (a
"Business Day"), Brylane will reimburse TJX for such amounts by wire
transfer of immediately available federal funds or by another agreed upon
mechanism whereby TJX shall receive good funds as soon as practicable, but
in no
<PAGE>
event later than 5:00 p.m. on the Business Day TJX funds the draw downs. In
the case of facsimile copies received after 11:00 a.m. (EST), good funds
shall be transferred from Brylane to TJX on the immediately succeeding
Business Day.
If Brylane shall fail to reimburse TJX with good funds on the applicable
Business Day as required above, Brylane shall pay to TJX interest on the
funds so owed at an annual rate equal to the Prime Rate (the rate of
interest from time to time announced by the First National Bank of Boston
as its prime rate) until paid, accruing on a daily basis, provided that the
obligation to pay interest hereunder shall not relieve Brylane of its
obligation to reimburse TJX promptly.
3. EFT Tax Payments
----------------
COB is currently required to make certain of its state sales, withholding
and income tax payments electronically (the "EFT Payments"), via the ACH
credit or ACH debit method. TJX has been making these payments on behalf
of COB upon notification from COB when taxes are due. TJX is required to
deposit these payments with its bank one day prior to the tax due date.
TJX and Brylane agree that TJX will continue to make the EFT Payments with
respect to the COB business until the earlier of the end of Fiscal Year
1997 or Brylane has established procedures to handle this function
independently.
Brylane will continue to provide TJX with the necessary details pertaining
to each of its EFT Payments at least two Business Days prior to the EFT
Payment due date. In addition, Brylane will reimburse TJX for such amounts
by wire transfer of immediately available federal funds or by another
agreed upon mechanism whereby TJX shall receive good funds as soon as
practicable, but in no event later than on the Business Day TJX is required
to deposit the EFT Payments with its bank.
B-2
<PAGE>
If Brylane shall fail to reimburse TJX with good funds on the applicable
Business Day as required, Brylane shall pay to TJX interest on the funds so
owed at the Prime Rate until paid, provided that the obligation to pay
interest hereunder shall not relieve Brylane of its obligation to reimburse
TJX promptly.
B-3
<PAGE>
Annex C
Corporate Payroll Services
--------------------------
Description of Services
- -----------------------
TJX Corporate Financial Accounting Department will provide the following payroll
services to Brylane, but only with respect to Purchased Assets:
Submission of transmittals to Production Control for scheduling and
processing the payroll system.
Perform reconciliations for gross and net pay, 401(k) contributions and
direct deposit amounts. Send confirmation letters to Brylane.
Maintain control logs for payroll check stock and signature overlay.
Maintenance of payroll tables for Brylane data for: Earnings and
deductions and these limits - tax locations, H&W rates and eligibility, and
tax rates.
Distribution of payroll reports and tapes.
Submission of third-party reporting to vendors, including: Direct deposit,
savings bonds, H&W, 401(k), and unemployment compensation.
Coordinate systems maintenance activities with CIS (Corporate Systems
Development and Production Control).
Produce quarterly and year-end payroll tax reporting.
Produce individual W-2 form reprints for prior year W2's.
Coordinate and implement Brylane's related programs including: United Way,
bonus payouts, leased auto adjustments, stock options, earnings adjustments
and deferred compensation.
Provide periodic assistance regarding questions and issues relating to the
payroll system, payroll operations, and payroll taxes.
Quarterly and/or year-end reporting services, following the period payroll
was processed by TJX, will continue for three months following the period
payroll check processing has ceased at no additional fee.
<PAGE>
All of these services will be provided to Brylane at a rate of $4,000 per month
through January 31, 1998. Thereafter, this rate will be negotiated annually by
October 1 of each year (for service which will be provided in the following
fiscal year). This service can be terminated at the end of any fiscal quarter
after July 31, 1997, provided written notification has been received by TJX
sixty days prior to the termination date. The termination of this service must
be coordinated with the Payroll services provided in Annex A. Upon termination
of the Payroll services provided in Attachment I of Annex A, this service must
also terminate.
C-2
<PAGE>
Annex D
TJX will use commercially reasonable best efforts to make available to
Brylane upon reasonable notice the legal services of Irving Ritz for an
aggregate of up to 15 hours (at a rate of $300/hr.) through December 31, 1997.
Such service will be related to negotiations and relations with the United
Needleworkers of America union located at Chadwick's West Bridgewater locality.
<PAGE>
EXHIBIT 10.70
INVENTORY PURCHASE AGREEMENT
This Inventory Purchase Agreement, effective as of December 9, 1996,
is made and entered into by and between Brylane, L.P., a Delaware limited
partnership ("Brylane"), and The TJX Companies, Inc., a Delaware corporation
("TJX").
WHEREAS, Chadwick's, Inc., a wholly-owned subsidiary of TJX ("COB"),
is a catalog retailer of off-price women's apparel and other merchandise and TJX
is an off-price retailer of similar merchandise;
WHEREAS, for a number of years COB has had excess inventory which it
has liquidated by sales to TJX, among others; and
WHEREAS, Brylane has agreed to purchase substantially all of the
assets of COB from TJX (the "Asset Acquisition");
WHEREAS, in connection with the Asset Acquisition, Brylane and TJX
desire to enter into an arrangement for the sale to TJX of certain excess
inventory upon terms and conditions similar to those previously agreed to by TJX
and COB; and
NOW, THEREFORE, the parties agree as follows:
1. The term of this Agreement shall be for the period beginning as
of the date hereof and ending January 29, 2000 (the "Term").
2. Subject to the terms and conditions of this Agreement, in each
Contract Year (as defined below) Brylane shall, consistent with the past
practices of COB, make all Excess Inventory (as defined below) available for
sale to TJX. As used herein, "Contract Year" shall mean the twelve-month period
ending on the last Saturday in January in each calendar year of the Term (except
that the first Contract Year shall commence on the date hereof and end on the
last Saturday in January 1997) and "Excess Inventory" shall mean all of the
first quality merchandise purchased for sale through the Chadwick's of Boston
Ltd. catalogs that Brylane does not sell through either the Chadwick's of
Boston, Ltd. regular or sale catalogs or through the two existing COB outlet
stores.
3. From time to time and consistent with the past practices of COB,
Brylane shall specify to TJX, in reasonable detail, the Excess Inventory to be
made available for sale to TJX hereunder. Brylane shall use commercially
reasonable efforts to make Excess Inventory available for sale to TJX at times
and in quantities consistent with the past course of dealing between COB and
TJX. Within seven (7) business days after any such Excess Inventory has been
made available to TJX for inspection, TJX may offer to purchase
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the Excess Inventory at a * , it being the intention of the parties
that they are to deal with each other fairly and consistent with the past
practice of COB and TJX. Any such offer from TJX shall be deemed to include a
representation and warranty that any price offered by TJX complies with the
requirements of the immediately preceding sentence. In all events, TJX shall be
required to offer to purchase Excess Inventory having a value, measured by
Brylane's original retail price for the merchandise, of at least *
during each Contract Year (the "Annual Minimum"), except that during the first
Contract Year the Annual Minimum shall be the product of * times the
quotient obtained by dividing the number of days in the first contract year by
365; in each case, reduced as provided in Section 4.
4. Within five (5) business days after receipt of an offer from TJX
pursuant to Section 3, Brylane shall advise TJX whether it wishes to accept
TJX's offer. If Brylane shall reject any offer made by TJX in accordance with
Section 3, the Annual Minimum for the Contract Year in which the rejection
occurs shall be reduced by the Brylane retail price of the merchandise for which
the offer has been rejected.
5. Brylane shall ship all Excess Inventory purchased by TJX
hereunder as soon as reasonably practicable F.O.B., West Bridgewater,
Massachusetts. TJX shall make payment to Brylane within thirty (30) days from
the date the goods are received. If TJX shall fail to make payment within 30
days, TJX shall pay to Brylane interest on the amount so owed at an annual rate
equal to the rate of interest from time to time announced by the First National
Bank of Boston as its prime rate until paid.
6. In the event of any conflict between this Agreement and any
purchase order, this Agreement shall prevail.
7. The parties agree to use all reasonable efforts to resolve in an
amicable manner any and all disputes between them in connection with this
Agreement. In the event of the occurrence of a dispute which cannot otherwise
be resolved by the parties, such dispute shall be referred to the respective
Chief Executive Officers or Executive Vice Presidents -- Merchandising (or
equivalent position) of the parties for resolution.
8. Except for obligations relating to the payment of money, neither
party shall be liable for any loss, damage or penalty resulting from delays or
failures in performance resulting from acts of God or other causes beyond its
reasonable control. Each party agrees to notify the other promptly of any
circumstance delaying its performance and to resume performance as soon
thereafter as is reasonably practicable.
9. No modification of this Agreement or any waiver of any rights
hereunder shall be effective unless assented to in writing by the party to be
charged, and the
*Information deleted
pursuant to Rule 406.
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waiver of any breach or default shall not constitute a waiver of any other right
hereunder or any subsequent breach or default.
10. All notices and other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by electronic facsimile transmission, cable,
telegram or telex or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to TJX, to: The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopier: (508) 390-2457
With copies to each: President and General Counsel
And with a copy to: Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
If to Brylane: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Telecopy: (212) 613-9567
With a copy to: John M. Roth Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Telecopy: (212) 758-7499
or to such other address as either party herein may designate for itself by
notice given as herein provided.
11. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. This Agreement
may not be assigned by either party without the prior written approval of the
other party.
12. This Agreement shall be construed and enforced in accordance with
the laws of The Commonwealth of Massachusetts without reference to conflict of
laws principles.
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IN WITNESS WHEREOF, The TJX Companies, Inc. and Brylane, L.P. have
each caused this Agreement to be executed under seal by its duly authorized
officer as of the date first set forth above.
THE TJX COMPANIES, INC.
By: /s/ Donald G. Campbell
-------------------------
Name: Donald G. Campbell
Title: Executive Vice President
BRYLANE, L.P.
By: /s/ Peter J. Canzone
-------------------------
Name: Peter J. Canzone
Title: Authorized Representative
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EXHIBIT 10.71
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT between Brylane, L.P., a Delaware limited partnership
("Brylane" or the "Company"), and Dhananjaya K. Rao ("Executive"), is dated as
of December 9, 1996.
Executive is a key executive of the Company or a Subsidiary and an integral
part of its management.
The Company desires to employ Executive, and Executive desires to be so
employed by the Company, on the terms and subject to the conditions hereinafter
set forth.
The Company recognizes that the possibility of a change of control of the
Company or Chadwick's (as hereinafter defined) may result in the departure or
distraction of management to the detriment of the Company.
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following a change of control of
the Company or Chadwick's and to assure Executive of certain other benefits upon
a change of control.
The Company also wishes to assure Executive of fair severance should his
employment terminate in certain other circumstances.
In consideration of Executive's continued employment with the Company or a
Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Definitions. The following terms as used in this Agreement shall have
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the following meanings:
a. "Base Salary" shall mean Executive's annual base salary, exclusive
of any bonus or other benefits he may receive.
b. "Cause" shall mean dishonesty, conviction of a felony or gross
neglect by Executive of his duties (other than as a result of Disability,
Incapacity or death), or conflict of interest, which gross neglect or
conflict shall continue for 30 days after the Company gives written notice
to Executive requesting the cessation of such gross neglect or conflict.
In respect of any termination during any Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board of
Representatives of the Company at a meeting called and held for that
purpose (after
<PAGE>
reasonable notice to Executive), and at which Executive together with his
counsel was given an opportunity to be heard, finding that Executive was
guilty of conduct described in the definition of "Cause" above, and
specifying the particulars thereof in detail; provided, however, that the
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Company may suspend Executive and withhold payment of his Base Salary from
the date that notice of termination is given until the earliest to occur of
(a) termination of Executive for Cause effected in accordance with the
foregoing procedures (in which case Executive shall not be entitled to his
Base Salary for such period), (b) a determination by a majority of the
Board of Representatives of the Company that Executive was not guilty of
the conduct described in the definition of "Cause" above (in which case
Executive shall be reinstated and paid any of his previously unpaid Base
Salary for such period), or (c) the 90th day after notice of termination is
given (in which case Executive shall be reinstated and paid any of his
previously unpaid Base Salary for such period).
c. "Chadwick's" shall mean The Chadwick's of Boston, Ltd. business
previously owned and operated by The TJX Companies, Inc. ("TJX").
d. "Change of Control" shall have the meaning set forth in Exhibit A.
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e. "Current Title" shall mean Executive's most senior title during
the period 180 days prior to the commencement of a Standstill Period.
f. "Date of Termination" shall mean the date on which Executive's
employment is terminated.
g. "Disability" shall have the meaning given it in the long-term
disability plan previously operated by Chadwick's (or any successor plan
operated by Brylane or any of its affiliates, so long as the definition of
"Disability" in any such successor plan is not more restrictive).
Executive's employment shall be deemed to be terminated for Disability on
the date on which Executive is entitled to receive long-term disability
compensation pursuant to such long-term disability plan.
h. "Employment Period" shall mean the period commencing as of the
date of this Agreement and ending on December 9, 1999.
i. "Executive" shall have the meaning set forth in the first
paragraph of this Agreement.
j. "Good Reason" shall mean, with respect to any voluntary
termination of employment by Executive other than during a Standstill
Period, the following:
i. the assignment to Executive of any duties materially
inconsistent with his positions, duties, responsibilities, reporting
requirements, and status with the
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Company (or a Subsidiary) on the later of the date of this Agreement
and 120 days prior to the date of such termination, or a substantive
change in Executive's titles, reporting requirements or offices as in
effect on the later of the date of this Agreement and 120 days prior
to the date of such termination, or any removal of Executive from or
any failure to reelect him to such positions, except in connection
with the termination of Executive's employment by the Company (or a
Subsidiary) for Cause or by Executive other than for Good Reason; or
any other action by the Company (or a Subsidiary) which results in a
diminishment in such position, authority, duties or responsibilities,
other than an insubstantial and inadvertent action which is remedied
by the Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
ii. if Executive's rate of Base Salary for any fiscal year is
less than 100 percent of the Base Salary paid to Executive in the
completed fiscal year immediately preceding the fiscal year in which
Executive voluntarily terminates his employment, or if Executive's
total cash compensation opportunities, including salary and
incentives, for any fiscal year are less than 100 percent of the total
cash compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the fiscal year in which
Executive voluntarily terminates his employment; or
iii. any relocation by Company of Executive's principal place of
employment of more than 50 miles from the place where Executive's
principal residence was located on the date that Executive gives
notice of such termination.
iv. any breach by the Company of any term or provision of this
Agreement.
Notwithstanding the foregoing, a voluntary termination by Executive of his
Employment shall not be deemed to be for "Good Reason" unless such
termination occurs within 120 days after the occurrence of any event
described in clauses (i), (ii), (iii) or (iv) above without Executive's
express written consent, Executive gives notice to the Company at least 30
days in advance requesting that the situation described in such clauses be
remedied, and the situation remains unremedied upon expiration of such 30-
day period. In addition, in no event shall a termination by Executive for
"Good Reason" during the Employment Period be seemed to be a breach by
Executive of this Agreement.
k. "Incapacity" shall mean a disability (other than a disability
within the meaning of "Disability" in paragraph g. above) or other
impairment of health that renders Executive unable to perform his duties to
the satisfaction of the Compensation Committee of the Board of
Representatives of the Company. If by reason of Incapacity
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Executive is unable to perform his duties for at least six months in any
consecutive 12-month period, upon written notice by the Company the
employment of Executive shall be deemed to have terminated by reason of
Incapacity.
l. "Prohibited Period" means a period commencing on the Date of
Termination and ending on the later of the last day of the Employment
Period and the date one year from the Date of Termination.
m. "Qualified Termination" shall mean the termination of Executive's
employment during any Standstill Period (1) by the Company other than for
Cause, (2) by reason of death, Incapacity or Disability, or (3) by
Executive voluntarily in connection with the following events:
i. the assignment to him of any duties materially inconsistent
with his positions, duties, responsibilities, reporting requirements,
and status with the Company (or a Subsidiary) immediately prior to a
Change of Control, or a substantive change in Executive's titles,
reporting requirements or offices as in effect immediately prior to a
Change of Control, or any removal of Executive from or any failure to
reelect him to such positions, except in connection with the
termination of Executive's employment by the Company (or a Subsidiary)
for Cause or by Executive other than in connection with an event
described in this clause (3); or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company or the Subsidiary
promptly after receipt of notice thereof given by Executive; or
ii. if Executive's rate of Base Salary for any fiscal year is
less than 100 percent of the Base Salary paid to Executive in the
completed fiscal year immediately preceding the Change of Control, or
if Executive's total cash compensation opportunities, including salary
and incentives, for any fiscal year are less than 100 percent of the
total cash compensation opportunities made available to Executive in
the completed fiscal year immediately preceding the Change of Control;
or
iii. the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life insurance,
medical insurance or disability plan in which Executive was
participating immediately prior to a Change of Control unless the
Company (or a Subsidiary) provides Executive with a plan or plans that
provide substantially similar benefits in the aggregate, or the taking
of any action by the Company (or a Subsidiary) that would adversely
affect Executive's participation in or materially reduce Executive's
benefits in the aggregate under such plans or deprive Executive of
any material
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fringe benefit enjoyed by Executive immediately prior to a Change of
Control, unless the elimination or reduction of any such benefit,
perquisite or plan affects all other executives in the same
organizational level (it being the Company's burden to establish this
fact); or
iv. any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period which
is not effected in compliance with paragraph b. above; or
v. any relocation by Company of Executive's principal place of
employment of more than 50 miles from the place where Executive's
principal residence was located at the time of the Change of Control;
or
vi. any other breach by the Company of any term or provision of
this Agreement; or
vii. termination by Executive of his employment for Retirement.
Notwithstanding the foregoing, a voluntary termination by Executive of his
Employment shall not be deemed to fall within this clause (m) unless: (A)
with respect to any of the events described in clauses (i), (ii), (iii),
(iv), (v) or (vi) above, such termination occurs within 120 days after the
occurrence of any of such event without Executive's express written
consent, Executive gives notice to the Company at least 30 days in advance
requesting that the situation described in such clauses be remedied, and
the situation remains unremedied upon expiration of such 30-day period; (B)
with respect to the event described in clause (vii) above, such termination
occurs within 120 days after the occurrence of such event without
Executive's express written consent and Executive gives notice to the
Company at least 30 days in advance; or (C) with respect to the event
described in clause (vii), Executive gives notice to the Company at least
30 days in advance. In addition, in no event shall a termination by
Executive during the Employment Period that qualifies as a "Qualified
Termination" be deemed to be a breach by Executive of this Agreement.
n. "Retirement" shall mean voluntary termination by Executive of his
employment in accordance with the Company's retirement plan or program
generally applicable to its salaried employees or in accordance with any
retirement arrangement established with Executive's consent with respect to
him. Nothing in this Agreement shall affect any agreement between
Executive and the Company with respect to his retirement.
o. "Standstill Period" shall be the period commencing on the date of
a Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
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p. "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting
power of all classes of stock.
2. Employment. Subject to the other terms and conditions set forth
----------
herein, the Company hereby employs Executive, and Executive agrees to be
employed by the Company, as President and Chief Executive Officer--Chadwicks,
for a term commencing on December 9, 1996 and continuing until the earlier of
December 9, 1999 or the date such employment shall have been terminated in
accordance with the terms of this Agreement. This Agreement shall terminate and
be of no further force or effect as of December 9, 1999; provided, that on such
date, if Executive is then still employed by the Company and willing to continue
in the employ of the Company, the Company hereby covenants and agrees to enter
into a new employment contract with Executive that contains terms and conditions
that are substantially similar to those contained in the form of employment
contract attached as Exhibit B hereto. In his capacity as President and Chief
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Executive Officer--Chadwicks, Executive shall faithfully perform to the best of
his ability all services and acts necessary or advisable as may be assigned to
him by the Board of Representatives of Brylane and consistent with his position
as President and Chief Executive Officer--Chadwicks. Throughout the term
hereof, Executive shall, except as may from time to time be otherwise agreed in
writing by the Company, devote his full-time working hours to his duties
hereunder.
3. Compensation.
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a. For all services to be rendered by Executive hereunder, and for
all rights granted the Company hereunder, Executive shall be paid by the
Company a base salary at the annual rate of $340,000 for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings.
This base salary shall be reviewed for any upward adjustments by the Board
of Representatives of Brylane or, at the Board's option, the Compensation
Committee, in March 1997 and every March thereafter; provided, that any
--------
adjustments to Executive's salary shall be in the sole discretion of the
Board or the Compensation Committee.
b. Executive shall be entitled to paid vacations, personal and sick
days consistent with the policies of the Company for management employees.
Executive shall receive such other compensation as shall be approved by the
Board and shall participate in all fringe benefits (including, without
limitation, group medical, life, disability and accidental death and
dismemberment insurance), bonus and benefit plans which shall be generally
available from time to time to management employees of the Company.
Notwithstanding the foregoing provisions of this subsection (b), the
Company agrees that it shall provide Executive with a benefits package
which is not materially less favorable to Executive in the aggregate when
compared with those
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coverages and benefits provided or made available by Chadwick's or its
affiliates to Executive (and his dependents) immediately prior to the
consummation of the transactions contemplated by that certain Asset
Purchase Agreement dated as of October 18, 1996, by and among TJX,
Chadwick's and Brylane (including, but not limited to, LRMIP, SERP, car,
life and other insurance programs, financial planning and medical, in all
cases with appropriate vesting for service). To the extent that a benefit
or program can not be transferred, it will be matched with a replacement
program or benefit or, if it can not be matched with a similar program or
benefit, a program or benefit with equivalent value will be created. In
addition, Brylane shall provide a bonus or incentive compensation plan
which provides Executive with the opportunity to earn the right to be paid
additional compensation as set forth on Exhibit C hereto.
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c. Executive shall be reimbursed in accordance with the policies of
the Company as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting and similar expenditures, incurred
for the benefit of the Company and subject to approval of the Chief
Executive Officer of Brylane or the Board. As an additional condition to
the reimbursement of such expenses by the Company to Executive, Executive
shall provide the Company with copies of all available invoices and
receipts, and otherwise account to the Company in sufficient detail and
with adequate documentation to allow the Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid
items, if such items are deductible.
4. Benefits Upon a Change of Control.
---------------------------------
a. Benefits Following Termination of Employment. Executive shall be
--------------------------------------------
entitled to the following benefits upon a Qualified Termination:
i. Within 30 days following the Date of Termination, the
Company shall pay to Executive the following in a lump sum:
(1) an amount equal to two times Executive's Base Salary
for one year at the rate in effect immediately prior to the Date
of Termination or the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title,
the rate in effect immediately prior to such change), whichever
is highest, plus the accrued and unpaid portion of Executive's
Base Salary through the Date of Termination. Any payments made
to Executive under any long term disability plan of the Company
with respect to the two years following termination of employment
shall be offset against such two times Base Salary payment.
Executive shall promptly make reimbursement payments to the
Company to the extent any such disability payments are received
after the Base Salary payment.
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(2) if Executive was a participant in the Supplemental
Executive Retirement Plan of TJX or any successor plan operated
by Brylane or any of its affiliates (in either event, "SERP"),
immediately prior to the Change of Control and the number of
years Executive has been employed by the Company (or a
Subsidiary) is five or more, including service for TJX and its
subsidiaries, an amount equal to the present value of the
payments that Executive would have been entitled to receive under
the TJX SERP as a Category B participant (regardless of whether
he was participating in any SERP on the Date of Termination).
The present value of such payments shall be calculated using the
following rules and assumptions:
(a) a credit equal to the number of Years of Service
(as that term is defined in the TJX SERP, but which term
shall in any event count years of service with the Company)
that Executive has been employed by the Company and
subsidiaries at the Date of Termination, including service
for TJX and its subsidiaries, shall be added to his Years of
Service in determining Executive's total Years of Service.
However, the total Years of Service determined hereunder
shall not exceed the lesser of (x) 20 or (y) the Years of
Service that Executive would have had if he had retired at
the age of 65;
(b) Executive's Average Compensation (as that term is
defined in the TJX SERP) shall be determined as of the Date
of Termination;
(c) Executive's Primary Social Security Benefit (as
that term is defined in the TJX SERP) shall mean the annual
primary insurance amount to which Executive is entitled or
would, upon application therefor, become entitled at age 65
under the provisions of the Federal Social Security Act as
in effect on the Date of Termination assuming that Executive
received annual income at the rate of his Base Salary from
the Date of Termination until his 65th birth date which
would be treated as wages for purposes of the Social
Security Act;
(d) the monthly benefit under the TJX SERP determined
using the criteria set forth in (A), (B), and (C) above
shall be multiplied by 12 to determine an annual benefit;
and
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(e) the present value of such annual benefit shall be
determined by multiplying the result in (D) by the
appropriate actuarial factor from the most recently
published table 4A (or its equivalent) as published by the
Pension Benefit Guaranty Corporation and which is effective
for plan terminations occurring on the Date of Termination,
using Executive's age to the nearest year determined as of
that date. If, as of the Date of Termination, Executive has
previously satisfied the eligibility requirements for Early
Retirement under the TJX Retirement Plan (or any successor
plan operated by Brylane or any of its affiliates), then the
appropriate factor shall be that based on the most recently
published "PBGC Actuarial Value of $1.00 Per Year Deferred
to Age 60 And Payable For Life Thereafter --Healthy Lives,"
except that if Executive's age to the nearest year is more
than 60, then such higher age shall be substituted for 60.
If, as of the Date of Termination, Executive has not
satisfied the eligibility requirements for Early Retirement
under the TJX Retirement Plan (or any successor plan
operated by Brylane or any of its affiliates), then the
appropriate factor shall be based on the most recently
published "PBGC Actuarial Value of $1.00 Per Year Deferred
To Age 65 And Payable For Life Thereafter -- Healthy Lives."
If Executive receives a payment under this subparagraph (2), he shall
not be entitled to any other payments under SERP.
ii. Until the second anniversary of the Date of Termination, the
Company shall maintain in full force and effect for the continued
benefit of Executive and his family all life insurance, medical
insurance and disability plans and programs in which Executive was
entitled to participate immediately prior to the Change of Control (or
if Executive's title was changed to a level below that of Executive's
Current Title, all such plans and programs in which Executive was
entitled to participate immediately prior to such change, if the
benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of
such plans and programs. In the event that Executive is ineligible to
participate in such plans or programs, the Company shall arrange upon
comparable terms to provide Executive with benefits substantially
similar to those which he is entitled to receive under such plans and
programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life, medical or disability coverage or
benefits shall be deemed satisfied to the extent (but only to the
extent) of any such coverage or benefits provided by another employer.
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iii. Until the second anniversary of the Date of Termination,
the Company shall make available to Executive the use of any
automobile that was made available to Executive prior to the Date of
Termination, including ordinary replacement thereof in accordance with
the Company's automobile policy in effect immediately prior to the
Change of Control, or if Executive's title was changed to a level
below that of Executive's Current Title, the Company shall make
available to Executive the use of an automobile of a type comparable
to the automobile that was made available to him immediately prior to
such change (or, in lieu of making such automobile available, the
Company may at its option pay to Executive the present value of its
cost of providing such automobile). Within 30 days after the close of
each calendar year ending within such two-year period, the Company
shall also pay to Executive an amount to gross up Executive for the
federal and state tax liability of Executive, if any, for the use of
such automobile during the calendar year. If immediately prior to the
Date of Termination, the Company provided Executive with an automobile
allowance rather than with the use of an automobile, the Company shall
pay to Executive in a lump sum within 30 days following the Date of
Termination an amount equal to (i) two times Executive's automobile
allowance for one year at the rate in effect immediately prior to the
Date of Termination or the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title, the
rate in effect immediately prior to such change), whichever is
highest, including any increase in such rate which would have become
effective during the two-year period following the Date of Termination
(had a Qualified Termination not occurred), in accordance with the
Company's automobile policy in effect immediately prior to the Change
of Control, plus (ii) the accrued and unpaid portion of Executive's
automobile allowance through the Date of Termination, plus (iii) an
amount to gross up Executive for the federal and state tax liability
of Executive on such lump sum payment. In addition to either providing
the use of an automobile or paying the amount described in the
preceding sentence, the Company shall also reimburse Executive for
reasonable amounts of cellular telephone expenses incurred by
Executive during the two-year period following the Date of
Termination.
Payments under this Section 4(a) and Section 4(b) below, shall be made
without regard to whether the deductibility of such payments (or any other
payments to or for the benefit of Executive) would be limited or precluded
by Internal Revenue Code Section 280G and without regard to whether such
payments (or any other payments) would subject Executive to the federal
excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to
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or for the benefit of Executive, after reduction for all federal taxes
(including the tax described in Internal Revenue Code Section 4999, if
applicable) with respect to such payments ("Executive's total after-tax
payments"), would be increased by the limitation or elimination of any
payment under this Section 4(a) or Section 4(b),
-10-
<PAGE>
amounts payable under this Section 4(a) and Section 4(b) shall be reduced
to the extent, and only to the extent, necessary to maximize Executive's
total after-tax payments. The determination as to whether and to what
extent payments under this Section 4(a) or Section 4(b) are required to be
reduced in accordance with the preceding sentence shall be made at the
Company's expense by Coopers & Lybrand or by such other certified public
accounting firm as the Compensation Committee of the Company's Board of
Representatives may designate prior to a Change of Control. In the event of
any underpayment or overpayment under this Section 4(a) or Section 4(b), as
determined by Coopers & Lybrand (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to Executive or
refunded to the Company, as the case may be, with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Internal
Revenue Code.
b. Other Benefits. Within 30 days following a Change of Control,
--------------
whether or not Executive's employment has been terminated, the Company
shall pay to Executive the following in a lump sum:
i. an amount equal to the "Target Bonus" under the plan
referred to in Exhibit C attached hereto or any successor plan
---------
operated by Brylane or any of its affiliates and which is applicable
to Executive for the fiscal year in which the Change of Control occurs
(in either event, "MIP") (or if Executive's title was changed to a
level below that of Executive's Current Title within 180 days before
the commencement of a Standstill Period, the "Target Bonus" applicable
to Executive for the fiscal year in which such change occurred as if
he continued to hold Executive's Current Title, if higher); and
ii. if Executive is a participant in the Long Range Management
Incentive Plan of TJX or any successor plan operated by Brylane of any
of its affiliates and in effect at the Change of Control (in either
event, "LRMIP") (but specifically excluding any long-range incentive
plan which states that its sole or primary purpose is retention), an
amount with respect to each Award Period (as that term is defined in
LRMIP) for which Executive has been designated as a participant equal
to the product of (A) the maximum award payable to Executive for such
Award Period, as designated by the Company's Compensation Committee
under LRMIP (or, if Executive's title was changed to a level below
that of Executive's Current Title, in the case of an Award Period
which commences after such change, the maximum award payable to
Executive for such Award Period shall be deemed to be the maximum
award payable to Executive for the Award Period which commenced
immediately prior to such change, if higher), and (B) a fraction, the
denominator of which is the total number of fiscal years in the Award
Period and the numerator of which is the number of fiscal years which
have elapsed in such Award Period prior to the
-11-
<PAGE>
Change of Control (for purposes of this fraction, if the Change of
Control occurs during the first quarter of a fiscal year, then one-
quarter of the fiscal year shall be deemed to have elapsed prior to
the Change of Control, and if the Change of Control occurs after the
first quarter of the fiscal year, then the full fiscal year shall be
deemed to have elapsed prior to the Change of Control).
5. Nonsolicitation and Noncompetition; Other Severance Payments; No
----------------------------------------------------------------
Mitigation of Damages; Notice of New Employment; Withholding.
- ------------------------------------------------------------
a. Nonsolicitation and Noncompetition; Trade Secrets.
-------------------------------------------------
i. Upon the termination of Executive's employment for any
reason, Executive shall not during the Prohibited Period under any
circumstances (1) employ, solicit the employment of, or accept
unsolicited the services of, any "protected person" or (2) recommend
the employment of any "protected person" to any other business
organization in which Executive has any direct or indirect interest
(other than a less-than-one percent equity interest in an entity),
with which Executive is affiliated or for which Executive renders
services. A "protected person" shall be a person known by Executive
to be employed by the Company or its subsidiaries at or within six
months prior to the commencement of conversations with such person
with respect to employment.
As to (1) each "protected person" to whom the foregoing applies,
(2) each subcategory of "protected person" as defined above, (3) each
limitation on (A) employment of, (B) solicitation of, or (C)
unsolicited acceptance of services from, each "protected person" and
(4) each month of the period during which the provisions of this
paragraph (i) apply to each of the foregoing, the provisions set forth
in this paragraph (i) are deemed to be separate and independent
agreements and in the event of unenforceability of any such agreement,
such unenforceable agreement shall be deemed automatically deleted
from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this paragraph (i) or any
other term of this agreement.
ii. During the course of his employment, Executive will have
learned many trade secrets of the Company and its subsidiaries and
will have access to confidential information and business plans of the
Company. Therefore, subject to paragraph (iii) of this Section 5(a),
if Executive should terminate his employment voluntarily at any time
other than for Good Reason, but including by reason of Retirement or
Disability, or if the Company should terminate Executive's employment
at any time for Cause, then, during the Prohibited Period, Executive
will not carry on (as an employee, agent, consultant, independent
contractor, stockholder, partner, owner or otherwise, other than as an
investor in a less-than-one percent equity interest in an entity)
any trade or
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<PAGE>
business competing with the then trade or business of Brylane (or its
affiliates) in any state in which Brylane (or its affiliates) is
carrying on such trade or business as of the effective date of such
termination. For purposes of this paragraph, TJX and its subsidiaries
shall also be deemed competitors. Executive agrees that if, at any
time, pursuant to action of any court, administrative or governmental
body or other arbitral tribunal, the operation of any part of this
paragraph shall be determined to be unlawful or otherwise
unenforceable, then the coverage of this paragraph shall be deemed
restricted as to duration, geographical scope or otherwise, to the
extent, and only to the extent, necessary to make this paragraph
lawful and enforceable in the particular jurisdiction in which such
determination is made.
iii. Paragraph (ii) of this Section 5(a) shall not apply if
Executive's employment is terminated either by the Company or by
Executive during a Standstill Period.
b. Other Severance Payments.
------------------------
i. If Executive's employment is terminated prior to the last
day of the Employment Period, and such termination is either by
Executive for Good Reason or by the Company for any reason other than
for Cause, and such termination is not a Qualified Termination, no
compensation or other benefits shall be payable to or accrue to
Executive hereunder, except as follows:
(1) For the longer of (A) one year after the Date of
Termination or (B) the remainder of the Employment Period, the
Company will continue to pay to Executive his Base Salary at the
rate in effect on the Date of Termination. Base Salary shall be
paid for the first twelve months of the period without reduction
for compensation earned from other employment or self-employment,
and shall thereafter be reduced by such compensation.
(2) Until the expiration of Base Salary payments described
in (1) immediately above or until Executive shall commence other
employment or self-employment, whichever shall first occur, the
Company will provide medical and hospital insurance and term life
insurance (but not long-term disability insurance) for Executive
and his family, comparable to the insurance provided for
executives generally, as the Company shall determine, and upon
the same terms and conditions as shall be provided for Company
executives generally, provided that Executive's continued
participation is possible under the general terms and provisions
of such plans and programs. In the event that Executive is
ineligible to participate in such plans or programs, the Company
shall arrange upon
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<PAGE>
comparable terms to provide Executive with benefits substantially
similar to those which he is entitled to receive under such plans
and programs.
(3) For purposes of the MIP, Executive shall be entitled to
payment, if any, pursuant to the terms of the MIP, or, if
greater, such amount as Executive would have earned under MIP if
his employment had continued until the end of the fiscal year
(pro-rated for the period of active employment during the year).
Executive shall also be entitled to payments or benefits under other
plans of the Company to the extent provided therein in the
circumstances.
ii. If Executive's employment terminates by reason of death,
Disability or Incapacity, and such termination is not a Qualified
Termination, no compensation or benefits shall be payable to or accrue
to Executive hereunder, except that Executive shall be entitled to
payment, if any, pursuant to the terms of the MIP or, if greater, such
amount as Executive would have earned under the MIP until the end of
the fiscal year (pro-rated for the period of active employment during
such year). Executive shall also be entitled to payments or benefits
under other Employer plans, including any long-term disability plan,
to the extent therein provided in the circumstances.
iii. In the event that Executive has any other agreement with
the Company (or a Subsidiary) which entitles Executive to severance
payments upon the termination of his employment with the Company, the
amount of any such severance payments shall be deducted from the
payments to be made under this Agreement. If Executive should violate
any of the provisions of Section 5(a) hereof, all compensation and
benefits payable under Section 5(b) shall cease.
c. No Duty to Mitigate Damages; Remedies Not Exclusive. Executive's
---------------------------------------------------
benefits under this Agreement shall be considered severance pay in
consideration of his past service (including service with TJX and its
subsidiaries) and his continued service from the date of this Agreement,
and his entitlement thereto shall not be governed by any duty to mitigate
his damages by seeking further employment, nor shall such benefits be
offset by any compensation which he may receive from future employment,
except as provided in Section 5(b)(i). In addition, notwithstanding
anything contained in this Agreement to the contrary, in the event that
Executive's termination of employment with the Company, either for "Good
Reason" or in circumstances that constitute a "Qualified Termination", are
based on circumstances involving a breach of the terms and conditions of
this Agreement by a party other than the Executive, then the benefits to be
provided to Executive in connection with such a termination shall be in
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<PAGE>
addition to, and not in limitation of, any other legal or equitable
remedies to which Executive may otherwise be entitled.
d. Notice of New Employment. If Executive's employment terminates
------------------------
other than in a Qualified Termination, Executive agrees (i) to notify the
Company immediately upon his securing employment or becoming self-employed
during any period when Executive's compensation from the Company shall be
subject to reduction or his benefits provided by the Company shall be
subject to termination under Section 5(b) and (ii) to furnish to the
Company written evidence of his compensation earned from any such
employment or self-employment as the Company shall from time to time
request. In addition, upon Executive's termination of employment for any
reason other than the death of Executive, Executive shall immediately
return all written trade secrets, confidential information and business
plans of the Company and its affiliates and shall execute a certificate
certifying that he has returned all such items in his possession or under
his control.
e. Withholding. Anything to the contrary notwithstanding, all
-----------
payments required to be made by the Company hereunder to Executive shall be
subject to the withholding of such amounts, if any, relating to tax and
other payroll deductions as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation.
6. Anticipatory Termination. Anything in this Agreement to the contrary
------------------------
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated by Executive that such termination (a) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (b) otherwise arose in connection with or in anticipation of a
specifically threatened Change of Control, then for all purposes of this
Agreement, a Change of Control shall be deemed to have occurred on the date
immediately prior to the date of such termination.
7. Miscellaneous. In the event the definition of Change of Control in
-------------
this Agreement differs from the definition of "change of control" contained in
any other executive compensation or employee benefit plan (other than a tax-
qualified plan) maintained by the Company in which Executive is a Participant,
the definition of Change of Control contained herein shall control for the
purposes of determining whether a "change of control" has occurred under such
other plan with respect to Executive.
8. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. Arbitration shall be by a
-15-
<PAGE>
panel of three arbitrators, one each chosen by Executive and the Company, and
the third chosen by mutual agreement of the arbitrators chosen by Executive and
the Company.
9. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in obtaining any right or benefit
to which Executive is entitled under this Agreement in the event of a Change of
Control. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at the
First National Bank of Boston, until paid in full.
10. Notice of Termination. During a Standstill Period, Executive's
---------------------
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
11. Notices. All notices shall be in writing and shall be deemed given
-------
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Robert A. Pulciani
To Executive: At his home address,
as last shown on the
records of the Company
The failure by Executive to set forth in any notice of termination of employment
any fact or circumstance which contributes to a showing of Good Reason or that
such termination is described in clause (3) of Section 1(m) shall not waive any
of Executive's rights hereunder or preclude him from asserting such fact or
circumstance in enforcing his rights hereunder.
12. Severability. In the event that any provision of this Agreement shall
------------
be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
13. General Provisions.
------------------
a. Binding Agreement. This Agreement shall be binding upon and inure
-----------------
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts
would still be payable to him hereunder, benefits would still be provided
to his family hereunder or rights would still
-16-
<PAGE>
be exercisable by him hereunder as if he had continued to live, such
amounts shall be paid to Executive's estate, such benefits shall be
provided to Executive's family and such rights shall remain exercisable by
Executive's estate in accordance with the terms of this Agreement. This
Agreement shall not otherwise be assignable by Executive.
b. Successors. This Agreement shall inure to and be binding upon the
----------
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or
otherwise, by agreement in form and substance satisfactory to Executive, to
assume expressly this Agreement. If the Company shall not obtain such
agreement prior to the effective date of any such succession, Executive
shall have all rights resulting under this Agreement from a termination by
Executive described in clause (3) of Section 1(m). This Agreement shall
not otherwise be assignable by the Company, and, in any event, the Company
shall remain obligated to Executive for all obligations and shall not rely
on any suretyship defenses.
c. Amendment or Modification; Waiver. This Agreement may not be
---------------------------------
amended unless agreed to in writing by Executive and the Company. No
waiver by either party of any breach of this Agreement shall be deemed a
waiver of a subsequent breach.
d. Titles. No provision of this Agreement is to be construed by
------
reference to the title of any section.
e. Continued Employment. This Agreement shall not give Executive any
--------------------
right of continued employment or any right to compensation or benefits from
the Company or any Subsidiary except the rights specifically stated herein.
f. Prior Agreement. This Agreement shall supersede and replace any
---------------
prior employment, change of control or severance agreement between the
Company or any of its subsidiaries, or any predecessor, and Executive.
g. Remedies. Any material breach or violation by Executive of the
--------
terms of Section 5 of this Agreement, will result in immediate and
irreparable injury and harm to the Company, and will cause damage to the
Company in amounts difficult to ascertain. Accordingly, the Company shall
be entitled to, and Executive hereby consents to the entry of, the remedies
or injunction and specific performance, or either of such remedies, as well
as all other remedies to which the Company may be entitled, at law, in
equity or otherwise, with respect to any such breach or violation.
h. Governing Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.
-17-
<PAGE>
14. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRYLANE, L.P.
By /s/ Peter J. Canzone
-----------------------------
Authorized Representative
EXECUTIVE:
/s/ Dhananjaya K. Rao
-----------------------------
Dhananjaya K. Rao
-18-
<PAGE>
EXHIBIT A
Definition of "Change of Control"
---------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
other than Permitted Holders (as defined below), is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have beneficial ownership of
all shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of all classes of
Voting Equity Interests (as defined below) of VP Holding Corporation, a
Delaware corporation (the "Corporation"), Newco (as hereinafter defined),
Brylane (the "Partnership") or the Partnership's general partner; provided,
--------
that the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Representatives or Directors; provided, further, that
-------- -------
unless the Compensation Committee of the Partnership shall otherwise
determine prior to the acquisition of such majority ownership, such
acquisition of ownership shall not constitute a Change of Control if
Executive or an Executive Related Party is the person or a member of a
group constituting the person acquiring such ownership; or
(b) (i) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Representatives or
Directors (together with any new members of the Board of Representatives or
Directors whose election to such Board or whose nomination for election by
the holders of Equity Interests (as defined below) of the Partnership, the
Corporation or Newco was approved by (a) a Permitted Holder or (b) a vote
of at least 66-2/3% of the members of the Board of Representatives or
Directors then still in office who were either members of the Board of
Representatives or Directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Representatives or
Directors then in office;
(c) (i) the Partnership or its general partner, the Corporation or
Newco consolidates with or merges with or into any person or entity or
conveys, transfers or leases all or substantially all of its assets to any
person or entity, or any corporation or partnership consolidates with or
merges into or with the Partnership or its general partner, the Corporation
or Newco, in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Partnership or its general
partner, the Corporation or Newco are changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Equity Interests
<PAGE>
of the Partnership or its general partner, the Corporation or Newco are not
changed or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Partnership or its
general partner, the Corporation or Newco or where (A) the outstanding
Voting Equity Interests of the Partnership or its general partner or the
Corporation are changed into or exchanged for (x) Voting Equity Interests
of the surviving corporation or entity, or (y) cash, securities and other
property (other than Equity Interests of the surviving corporation or
entity) and (B) no "person" or "group" other than Permitted Holders owns
immediately after such transaction, directly or indirectly, more than the
greater of (i) 50% of the total outstanding Voting Equity Interests of the
surviving corporation or entity and (2) the percentage of the outstanding
Voting Equity Interests of the surviving corporation or partnership or
entity owned, directly or indirectly, by Permitted Holders immediately
after such transaction); or (ii) the sale or other disposition by the
Partnership, in one transaction or a series of related transactions (but
not including a disposition that is part of any sale-and-leaseback or
similar financing transactions), of assets aggregating more than thirty
percent (30%) of the assets of the Partnership's Chadwick's of Boston
business (taken at the values as stated on the books of the Partnership
determined in accordance with generally accepted accounting principles
consistently applied), or responsible for generating more than thirty
percent (30%) of the net sales of the Partnership's Chadwick's of Boston
business; provided, that unless otherwise determined by the Compensation
--------
Committee of the Partnership, no transaction shall constitute a Change of
Control if, immediately after such transaction, Executive or any Executive
Related Party shall own Equity Interests of any surviving corporation
("Surviving Entity") having a fair value as a percentage of the fair value
of the Equity Interests of such Surviving Entity greater than 125% of the
fair value of the Equity Interests of the Partnership, the Corporation
and/or Newco (as defined in the Partnership Agreement) owned by Executive
and any Executive Related Party immediately prior to such transaction,
expressed as a percentage of the fair value of all Equity Interests of the
Partnership, the Corporation and/or Newco immediately prior to such
transaction; provided, further, that for purposes of this paragraph (c), if
-------- -------
such agreement requires as a condition precedent approval by the
equityholders of the Partnership, the Corporation and/or Newco of the
agreement or transaction, a Change of Control shall not be deemed to have
taken place unless such approval is secured and the transaction is
consummated.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred as a result of (i) a transaction
pursuant to which the Corporation and/or Partnership and/or its general partner
is reorganized or reconstituted as a corporation or other entity or a
corporation or other entity becomes the direct or indirect parent entity of the
Partnership and/or the Corporation (collectively "Newco"), or (ii) any sale of
Equity Interests in a public offering.
In addition, for purposes of this Exhibit A, the following terms have the
---------
meanings set forth below:
-2-
<PAGE>
"Equity Interest" in any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents or interest
in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such person.
An "Executive Related Party" shall mean any affiliate or associate of
Executive other than the Partnership, Newco or the Corporation, as the case may
be, or an affiliate of the Partnership, Newco or the Corporation, as the case
may be. The terms "affiliate" and "associate" shall have the meanings ascribed
thereto in Rule 12b-2 under the Exchange Act (the term "registrant" in the
definition of "associate" meaning, in this case, the Partnership, Newco or the
Corporation, as the case may be).
"Permitted Holders" means (i) The Limited, Inc., a Delaware corporation,
and any of its affiliates, (ii) Freeman Spogli & Co., a California general
partnership, and any of its affiliates, (iii) WearGuard Corporation, a Delaware
corporation, and any of its affiliates, (iv) Chadwick's, Inc., (v) Leeway & Co.,
as nominee for the AT&T Long-Term Investment Trust ("AT&T"), and any affiliates
and permitted assignees of AT&T, (vi) NYNEX Master Trust and any of its
affiliates and permitted assignees, and (vii) VP Holding Corporation (with
respect to the general partner of the partnership); provided, that Brylane, L.P.
--------
and its subsidiaries shall not be deemed affiliates of The Limited, Inc.,
Freeman Spogli & Co., WearGuard Corporation, Chadwick's Inc., Leeway & Co., as
nominee for the AT&T Long-Term Investment Trust and NYNEX Master Trust for
purposes of this definition.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on July 1, 1996.
"Voting Equity Interests" means Equity Interests of the class or classes
pursuant to which the holders thereof have (i) in respect of a corporation, the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of a corporation (irrespective
of whether or not at the time Equity Interests of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency) or (ii) in respect of a limited liability company or other entity,
the general voting power under ordinary circumstances to elect the board of
directors or other governing board of such entity.
-3-
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Partnership Board
of management's operating budget for that season. Each participant in such
program may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the formation
of the Partnership, such as the write-up of inventory to fair market value on
August 30, 1993 and the amortization of the cost of intangibles resulting from
the purchase accounting relating to the acquisition and any charge resulting
from the acquisition of the Chadwick's of Boston business. Except as otherwise
determined by the Partnership Board, or the Committee, in its sole discretion,
operating profit for any given six-month season will also exclude any and all
operating profit that is attributable to transactions entered into by Brylane or
its affiliates during that six-month season. The Executive's individual
participant percentage under such plan will be 50%, subject to any adjustments
by the Partnership Board, or the Committee, as it may see fit in its sole
discretion.
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of ________,
1999 and is entered into between Brylane, L.P., a Delaware limited partnership
("Brylane" or the "Partnership"), and ________________ (the "Executive").
R E C I T A L S
- - - - - - - -
WHEREAS, the Partnership desires to employ the Executive, and the
Executive desires to be so employed by the Partnership, on the terms and subject
to the conditions hereinafter set forth.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Partnership hereby employs the Executive, and the Executive agrees
to be employed by the Partnership, as ________________________, for a term
commencing on ________, 1999 and continuing until the earlier of ________, 2000
or the date such employment shall have been terminated as provided in Section 3
hereof. Beginning ________, 1999, this Agreement shall renew automatically for
an additional one year term until the Partnership or Executive gives the other
party hereto written notice at least 14 calendar days prior to the end of a
term, of its intention to terminate this Agreement; provided, however, that this
Agreement may terminate earlier than the end of a term as provided in Section 3
hereof. In her capacity as ________________________, the Executive shall
faithfully perform to the best of her ability and in a satisfactory manner all
services and acts necessary or advisable as may be assigned to her by the Chief
Executive Officer. Throughout the term hereof the Executive shall, except as
may from time to time be otherwise agreed in writing by the Partnership, devote
her full-time working hours to her duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Partnership hereunder, the Executive shall be paid by the
Partnership a base salary at the annual rate of $[amount shall be not less than
base salary in effect at termination of the Employment Agreement] for each 12-
month period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any upward adjustments
<PAGE>
annually by the Board of Representatives of the Partnership (the "Partnership
Board") or, at the Partnership Board's option, a compensation committee thereof
(the "Committee"), provided that any adjustments shall be in the sole discretion
of the Partnership Board or the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Partnership for management
employees. The Executive shall receive such other compensation as shall be
approved by the Partnership Board and shall participate in all fringe benefits
(including, without limitation, group medical, life, disability and accidental
death and dismemberment insurance), bonus and benefit plans which shall be
generally available from time to time to management employees of the
Partnership.
(c) The Executive shall be reimbursed in accordance with the policies
of the Partnership as adopted by the Partnership Board from time to time for her
reasonable travel, entertainment, business, meeting and similar expenditures,
incurred for the benefit of the Partnership and subject to approval of the Chief
Executive Officer of the Partnership or the Partnership Board. As an additional
condition to the reimbursement of such expenses by the Partnership to the
Executive, the Executive shall provide the Partnership with copies of all
available invoices and receipts, and otherwise account to the Partnership in
sufficient detail and with adequate documentation to allow the Partnership to
confirm the business nature of the expenses and claim an income tax deduction
for such paid items, if such items are deductible.
(d) The Partnership hereby agrees to provide the Executive with a
benefits package substantially similar (which is not materially less favorable
to the Executive in the aggregate) to those coverages and benefits provided or
made available by the predecessor to the Partnership (or its affiliates), to
executives (and their dependents) with responsibilities substantially similar to
those of the Executive, immediately prior to the consummation of the
transactions contemplated by that certain Transaction Agreement dated as of July
13, 1993, by and among VGP Corporation, VLP Corporation and the Transferors
referred to therein. In addition, the Partnership shall provide a bonus or
incentive compensation plan which provides the Executive with the opportunity to
earn the right to be paid additional compensation as set forth on Exhibit A
---------
hereto. This subsection (d) shall not be implemented so as to limit any rights
or benefits to which the Executive or her dependents may be entitled under any
employee benefit plan maintained by or contributed to by the Partnership.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by
the Partnership on at least 30 days' prior written notice if the Partnership
Board determines that the Executive has become permanently disabled (as
hereinafter defined).
2
<PAGE>
Such written notice shall provide reasonable detail regarding the basis for such
determination. The Executive shall be deemed to be "permanently disabled," as
used in this subsection, if the Executive has been substantially unable to
discharge her duties and obligations hereunder by reason of illness, accident or
disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Partnership for cause (as hereinafter defined) upon written
notice from the Partnership Board to the Executive. Such written notice shall
provide reasonable detail regarding the basis for such determination. The
Partnership shall have "cause" to terminate the Executive, as used in this
subsection, only if the Partnership Board shall determine that the Executive
has, (i) refused or failed within a reasonable period of time to carry out any
reasonable and material direction from the Chief Executive Officer of the
Partnership, the Partnership Board (other than a failure resulting from the
Executive's incapacity due to physical or mental illness), (ii) been guilty of a
material and willful breach of the terms of this Agreement, (iii) demonstrated
gross negligence or willful misconduct in the execution of her assigned duties,
(iv) been convicted of a felony or other serious crime involving moral
turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the
detriment of the Partnership, (vi) intentionally imparted confidential
information relating to the Partnership to a third party, other than in the
course of carrying out the Executive's duties, or (vii) materially and willfully
breached any of her obligations pursuant to the Stock Subscription Agreement
dated as of ________, 1996 between VP Holding Partnership and the Executive if
such breach has not been cured 5 days after receipt of written notice to the
Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
(d) In addition to the circumstances set forth in subsections (a),
(b) and (c) of this Section 3, the Partnership may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate her employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Partnership. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Partnership in the
Executive's base salary herein provided or as the same may be increased from
time to time; (ii) any relocation by the Partnership of Executive's principal
place of employment of more than 50 miles from the place where Executive's
principal residence was located on the date notice is given; or (iii) a material
and willful breach by the Partnership of any of its obligations to the Executive
hereunder, including, without limitation, the Partnership's failure to obtain
the written assumption agreement described in Section 10(a) if such agreement is
not obtained within 5
3
<PAGE>
days after written notice that a written assumption agreement required under
Section 10(a) has not been obtained.
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate her employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Partnership.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Partnership's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Partnership pursuant to subsection (a) of this Section 3 the Executive
will get the benefit of any Partnership disability plans; provided,
however, that for a period of 12 consecutive months after the effective
date of the termination the Partnership will pay the Executive the
difference (if any) between the level of annualized salary provided for in
Section 2 hereof, less required withholdings, and the amounts provided
under such disability plans; or
(ii) if the Executive's employment is automatically terminated
pursuant to subsection (c) of this Section 3, the Partnership shall
continue to pay to the Executive (or, if applicable, to her executor,
administrator or heirs) the Executive's salary in equal monthly
installments at the level of annualized salary provided for in Section 2
hereof being paid to the Executive at the time of such termination, less
required withholdings, for a period of 12 consecutive months after the
effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Partnership pursuant to subsection (d) of this Section 3 or if the
Executive terminates her employment pursuant to subsection (e) of this
Section 3, the Partnership shall continue to pay to the Executive the
Executive's salary in equal monthly installments at the level of
annualized salary provided for in Section 2 hereof being paid to the
Executive at the time of such termination, less required withholdings, for
the greater of (A) the nine consecutive months after the effective date of
the termination, and (B) the period after the effective date of the
termination, through and including the [[month and day of this Agreement]
-------------------------------
immediately following the effective date of the termination.]
4
<PAGE>
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Partnership.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the Executive's employment by the
Partnership under federal, state or local law which provides for the
continuation of any medical or other employee benefits after such termination
date.
4. Noncompetition. If the Executive is terminated by the Partnership
--------------
for cause in accordance with Subsection 3(b) hereof, or if the Executive
terminates her employment other than for "good reason" in accordance with
Subsection 3(e) hereof, then except as provided in the next sentence, for a
period of 12 months after such termination, the Executive will not carry on (as
an employee, agent, consultant, independent contractor, stockholder, partner,
owner or otherwise) any trade or business competing with the then trade or
business of the Partnership (or its affiliates) in any state in which the
Partnership (or its affiliates) is carrying on such trade or business as of the
effective date of such termination. The foregoing provisions of this Section 4
notwithstanding, the Executive may own not more than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Partnership's (and its affiliates')
business and affairs that may come to her knowledge or have come to her
knowledge while employed by the Partnership or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Partnership and (iii) matters of a
technical nature. Except as required in the performance of her duties to the
Partnership under this Agreement, the Executive shall not use for her own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Partnership in advance.
6. Executive's Representation. The Executive shall be, and she
--------------------------
represents that she is, free to enter into this Agreement and not under any
contractual restraint which would prohibit her satisfactorily performing her
duties to the Partnership hereunder.
5
<PAGE>
7. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal substantive laws (and not the laws of
conflicts of laws) of the State of New York.
8. Costs. If either party brings any legal action against the other to
-----
enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Partnership and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Partnership shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Partnership's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Partnership pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Partnership hereunder, and the Partnership shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the
--------
Executive of the terms of this Agreement, including specifically, but not
limited to, Sections 4 and 5, will result in immediate and irreparable injury
and harm to the Partnership, and will cause damage to the Partnership in amounts
difficult to ascertain. Accordingly, the Partnership
6
<PAGE>
shall be entitled to, and Executive hereby consents to the entry of, the
remedies or injunction and specific performance, or either of such remedies, as
well as all other remedies to which the Partnership may be entitled, at law, in
equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Partnership:
Brylane, L.P.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President - Human Resources
If to the Executive:
[To Come]
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
7
<PAGE>
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The "Partnership": BRYLANE, L.P.
By: _____________________________________
President and Chief Executive Officer
The "Executive": [TO COME]
_____________________________________
Signature
8
<PAGE>
EXHIBIT C
Brylane shall provide Executive with management incentive compensation
("MIP") with a 50% target and using a methodology consistent with Chadwick's
past practices. The current year's (12-months ending January 31, 1997)
incentive compensation will be calculated as if Executive's new salary and
incentive compensation were in place for the full year.
<PAGE>
EXHIBIT 10.72
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT between Brylane, L.P., a Delaware limited partnership
("Brylane" or the "Company"), and Carol Meyrowitz ("Executive"), is dated as of
December 9, 1996.
Executive is a key executive of the Company or a Subsidiary and an integral
part of its management.
The Company desires to employ Executive, and Executive desires to be so
employed by the Company, on the terms and subject to the conditions hereinafter
set forth.
The Company recognizes that the possibility of a change of control of the
Company or Chadwick's (as hereinafter defined) may result in the departure or
distraction of management to the detriment of the Company.
The Company wishes to assure Executive of fair severance should her
employment terminate in specified circumstances following a change of control of
the Company or Chadwick's and to assure Executive of certain other benefits upon
a change of control.
The Company also wishes to assure Executive of fair severance should her
employment terminate in certain other circumstances.
In consideration of Executive's continued employment with the Company or a
Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Definitions. The following terms as used in this Agreement shall have
-----------
the following meanings:
a. "Base Salary" shall mean Executive's annual base salary, exclusive
of any bonus or other benefits she may receive.
b. "Cause" shall mean dishonesty, conviction of a felony or gross
neglect by Executive of her duties (other than as a result of Disability,
Incapacity or death), or conflict of interest, which gross neglect or
conflict shall continue for 30 days after the Company gives written notice
to Executive requesting the cessation of such gross neglect or conflict.
In respect of any termination during any Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to
occur of (i) the 30th day after notice of termination is given and (ii) the
delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board of
Representatives of the Company at a meeting called and held for that
purpose (after
<PAGE>
reasonable notice to Executive), and at which Executive together with her
counsel was given an opportunity to be heard, finding that Executive was
guilty of conduct described in the definition of "Cause" above, and
specifying the particulars thereof in detail; provided, however, that the
-------- -------
Company may suspend Executive and withhold payment of her Base Salary from
the date that notice of termination is given until the earliest to occur of
(a) termination of Executive for Cause effected in accordance with the
foregoing procedures (in which case Executive shall not be entitled to her
Base Salary for such period), (b) a determination by a majority of the
Board of Representatives of the Company that Executive was not guilty of
the conduct described in the definition of "Cause" above (in which case
Executive shall be reinstated and paid any of her previously unpaid Base
Salary for such period), or (c) the 90th day after notice of termination is
given (in which case Executive shall be reinstated and paid any of her
previously unpaid Base Salary for such period).
c. "Chadwick's" shall mean The Chadwick's of Boston, Ltd. business
previously owned and operated by The TJX Companies, Inc. ("TJX").
d. "Change of Control" shall have the meaning set forth in Exhibit A.
---------
e. "Current Title" shall mean Executive's most senior title during
the period 180 days prior to the commencement of a Standstill Period.
f. "Date of Termination" shall mean the date on which Executive's
employment is terminated.
g. "Disability" shall have the meaning given it in the long-term
disability plan previously operated by Chadwick's (or any successor plan
operated by Brylane or any of its affiliates, so long as the definition of
"Disability" in any such successor plan is not more restrictive).
Executive's employment shall be deemed to be terminated for Disability on
the date on which Executive is entitled to receive long-term disability
compensation pursuant to such long-term disability plan.
h. "Employment Period" shall mean the period commencing as of the
date of this Agreement and ending on December 9, 1999.
i. "Executive" shall have the meaning set forth in the first
paragraph of this Agreement.
j. "Good Reason" shall mean, with respect to any voluntary
termination of employment by Executive other than during a Standstill
Period, the following:
i. the assignment to Executive of any duties materially
inconsistent with her positions, duties, responsibilities, reporting
requirements, and status with the
-2-
<PAGE>
Company (or a Subsidiary) on the later of the date of this Agreement
and 120 days prior to the date of such termination, or a substantive
change in Executive's titles, reporting requirements or offices as in
effect on the later of the date of this Agreement and 120 days prior
to the date of such termination, or any removal of Executive from or
any failure to reelect her to such positions, except in connection
with the termination of Executive's employment by the Company (or a
Subsidiary) for Cause or by Executive other than for Good Reason; or
any other action by the Company (or a Subsidiary) which results in a
diminishment in such position, authority, duties or responsibilities,
other than an insubstantial and inadvertent action which is remedied
by the Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
ii. if Executive's rate of Base Salary for any fiscal year is
less than 100 percent of the Base Salary paid to Executive in the
completed fiscal year immediately preceding the fiscal year in which
Executive voluntarily terminates her employment, or if Executive's
total cash compensation opportunities, including salary and
incentives, for any fiscal year are less than 100 percent of the total
cash compensation opportunities made available to Executive in the
completed fiscal year immediately preceding the fiscal year in which
Executive voluntarily terminates her employment; or
iii. any relocation by Company of Executive's principal place of
employment of more than 50 miles from the place where Executive's
principal residence was located on the date that Executive gives
notice of such termination.
iv. any breach by the Company of any term or provision of this
Agreement.
Notwithstanding the foregoing, a voluntary termination by Executive of her
Employment shall not be deemed to be for "Good Reason" unless such
termination occurs within 120 days after the occurrence of any event
described in clauses (i), (ii), (iii) or (iv) above without Executive's
express written consent, Executive gives notice to the Company at least 30
days in advance requesting that the situation described in such clauses be
remedied, and the situation remains unremedied upon expiration of such 30-
day period. In addition, in no event shall a termination by Executive for
"Good Reason" during the Employment Period be deemed to be a breach by
Executive of this Agreement.
k. "Incapacity" shall mean a disability (other than a disability
within the meaning of "Disability" in paragraph g. above) or other
impairment of health that renders Executive unable to perform her duties to
the satisfaction of the Compensation Committee of the Board of
Representatives of the Company. If by reason of Incapacity
-3-
<PAGE>
Executive is unable to perform her duties for at least six months in any
consecutive 12-month period, upon written notice by the Company the
employment of Executive shall be deemed to have terminated by reason of
Incapacity.
l. "Prohibited Period" means a period commencing on the Date of
Termination and ending on the later of the last day of the Employment
Period and the date one year from the Date of Termination.
m. "Qualified Termination" shall mean the termination of Executive's
employment during any Standstill Period (1) by the Company other than for
Cause, (2) by reason of death, Incapacity or Disability, or (3) by
Executive voluntarily in connection with the following events:
i. the assignment to her of any duties materially inconsistent
with her positions, duties, responsibilities, reporting requirements,
and status with the Company (or a Subsidiary) immediately prior to a
Change of Control, or a substantive change in Executive's titles,
reporting requirements or offices as in effect immediately prior to a
Change of Control, or any removal of Executive from or any failure to
reelect her to such positions, except in connection with the
termination of Executive's employment by the Company (or a Subsidiary)
for Cause or by Executive other than in connection with an event
described in this clause (3); or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company or the Subsidiary
promptly after receipt of notice thereof given by Executive; or
ii. if Executive's rate of Base Salary for any fiscal year is
less than 100 percent of the Base Salary paid to Executive in the
completed fiscal year immediately preceding the Change of Control, or
if Executive's total cash compensation opportunities, including salary
and incentives, for any fiscal year are less than 100 percent of the
total cash compensation opportunities made available to Executive in
the completed fiscal year immediately preceding the Change of Control;
or
iii. the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life insurance,
medical insurance or disability plan in which Executive was
participating immediately prior to a Change of Control unless the
Company (or a Subsidiary) provides Executive with a plan or plans that
provide substantially similar benefits in the aggregate, or the taking
of any action by the Company (or a Subsidiary) that would adversely
affect Executive's participation in or materially reduce Executive's
benefits in the aggregate under such plans or deprive Executive of
any material fringe benefit enjoyed by Executive immediately prior to
a Change of Control,
-4-
<PAGE>
unless the elimination or reduction of any such benefit, perquisite or
plan affects all other executives in the same organizational level (it
being the Company's burden to establish this fact); or
iv. any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period which
is not effected in compliance with paragraph b. above; or
v. any relocation by Company of Executive's principal place of
employment of more than 50 miles from the place where Executive's
principal residence was located at the time of the Change of Control;
or
vi. any other breach by the Company of any term or provision of
this Agreement; or
vii. termination by Executive of her employment for Retirement.
Notwithstanding the foregoing, a voluntary termination by Executive of her
Employment shall not be deemed to fall within this clause (m) unless: (A)
with respect to any of the events described in clauses (i), (ii), (iii),
(iv), (v) or (vi) above, such termination occurs within 120 days after the
occurrence of any of such event without Executive's express written
consent, Executive gives notice to the Company at least 30 days in advance
requesting that the situation described in such clauses be remedied, and
the situation remains unremedied upon expiration of such 30-day period; (B)
with respect to the event described in clause (vii) above, such termination
occurs within 120 days after the occurrence of such event without
Executive's express written consent and Executive gives notice to the
Company at least 30 days in advance; or (C) with respect to the event
described in clause (vii), Executive gives notice to the Company at least
30 days in advance. In addition, in no event shall a termination by
Executive during the Employment Period that qualifies as a "Qualified
Termination" be deemed to be a breach by Executive of this Agreement.
n. "Retirement" shall mean voluntary termination by Executive of her
employment in accordance with the Company's retirement plan or program
generally applicable to its salaried employees or in accordance with any
retirement arrangement established with Executive's consent with respect to
her. Nothing in this Agreement shall affect any agreement between
Executive and the Company with respect to her retirement.
o. "Standstill Period" shall be the period commencing on the date of
a Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
-5-
<PAGE>
p. "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting
power of all classes of stock.
2. Employment. Subject to the other terms and conditions set forth
----------
herein, the Company hereby employs Executive, and Executive agrees to be
employed by the Company, as Executive Vice President--Chadwick's Marketing for a
term commencing on December 9, 1996 and continuing until the earlier of December
9, 1999 or the date such employment shall have been terminated in accordance
with the terms of this Agreement. This Agreement shall terminate and be of no
further force or effect as of December 9, 1999; provided, that on such date, if
Executive is then still employed by the Company and willing to continue in the
employ of the Company, the Company hereby covenants and agrees to enter into a
new employment contract with Executive that contains terms and conditions that
are substantially similar to those contained in the form of employment contract
attached as Exhibit B hereto. In her capacity as Executive Vice President--
---------
Chadwick's Marketing, Executive shall faithfully perform to the best of her
ability all services and acts necessary or advisable as may be assigned to her
by the Board of Representatives of Brylane and consistent with her position as
Executive Vice President--Chadwick's Marketing. Throughout the term hereof,
Executive shall, except as may from time to time be otherwise agreed in writing
by the Company, devote her full-time working hours to her duties hereunder.
3. Compensation.
------------
a. For all services to be rendered by Executive hereunder, and for
all rights granted the Company hereunder, Executive shall be paid by the
Company a base salary at the annual rate of $325,000 for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings.
This base salary shall be reviewed for any upward adjustments by the Board
of Representatives of Brylane or, at the Board's option, the Compensation
Committee, in March 1997 and every March thereafter; provided, that any
--------
adjustments to Executive's salary shall be in the sole discretion of the
Board or the Compensation Committee.
b. Executive shall be entitled to paid vacations, personal and sick
days consistent with the policies of the Company for management employees.
Executive shall receive such other compensation as shall be approved by the
Board and shall participate in all fringe benefits (including, without
limitation, group medical, life, disability and accidental death and
dismemberment insurance), bonus and benefit plans which shall be generally
available from time to time to management employees of the Company.
Notwithstanding the foregoing provisions of this subsection (b), the
Company agrees that it shall provide Executive with a benefits package
which is not materially less favorable to Executive in the aggregate when
compared with those coverages and benefits provided or made available by
Chadwick's or its affiliates to
-6-
<PAGE>
Executive (and her dependents) immediately prior to the consummation of the
transactions contemplated by that certain Asset Purchase Agreement dated as
of October 18, 1996, by and among TJX, Chadwick's and Brylane (including,
but not limited to, LRMIP, SERP, car, life and other insurance programs,
financial planning and medical, in all cases with appropriate vesting for
service). To the extent that a benefit or program cannot be transferred,
it will be matched with a replacement program or benefit or, if it cannot
be matched with a similar program or benefit, a program or benefit with
equivalent value will be created. In addition, Brylane shall provide a
bonus or incentive compensation plan which provides Executive with the
opportunity to earn the right to be paid additional compensation as set
forth on Exhibit C hereto.
---------
c. Executive shall be reimbursed in accordance with the policies of
the Company as adopted by the Board from time to time for her reasonable
travel, entertainment, business, meeting and similar expenditures, incurred
for the benefit of the Company and subject to approval of the Chief
Executive Officer of Brylane or the Board. As an additional condition to
the reimbursement of such expenses by the Company to Executive, Executive
shall provide the Company with copies of all available invoices and
receipts, and otherwise account to the Company in sufficient detail and
with adequate documentation to allow the Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid
items, if such items are deductible.
4. Benefits Upon a Change of Control.
---------------------------------
a. Benefits Following Termination of Employment. Executive shall be
--------------------------------------------
entitled to the following benefits upon a Qualified Termination:
i. Within 30 days following the Date of Termination, the Company
shall pay to Executive the following in a lump sum:
(1) an amount equal to two times Executive's Base Salary
for one year at the rate in effect immediately prior to the Date
of Termination or the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title,
the rate in effect immediately prior to such change), whichever
is highest, plus the accrued and unpaid portion of Executive's
Base Salary through the Date of Termination. Any payments made
to Executive under any long term disability plan of the Company
with respect to the two years following termination of employment
shall be offset against such two times Base Salary payment.
Executive shall promptly make reimbursement payments to the
Company to the extent any such disability payments are received
after the Base Salary payment.
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<PAGE>
(2) if Executive was a participant in the Supplemental
Executive Retirement Plan of TJX or any successor plan operated
by Brylane or any of its affiliates (in either event, "SERP"),
immediately prior to the Change of Control and the number of
years Executive has been employed by the Company (or a
Subsidiary) is five or more, including service for TJX and its
subsidiaries, an amount equal to the present value of the
payments that Executive would have been entitled to receive under
the TJX SERP as a Category B participant (regardless of whether
she was participating in any SERP on the Date of Termination).
The present value of such payments shall be calculated using the
following rules and assumptions:
(a) a credit equal to the number of Years of Service
(as that term is defined in the TJX SERP, but which term
shall in any event count years of service with the Company)
that Executive has been employed by the Company and
subsidiaries at the Date of Termination, including service
for TJX and its subsidiaries, shall be added to her Years of
Service in determining Executive's total Years of Service.
However, the total Years of Service determined hereunder
shall not exceed the lesser of (x) 20 or (y) the Years of
Service that Executive would have had if she had retired at
the age of 65;
(b) Executive's Average Compensation (as that term is
defined in the TJX SERP) shall be determined as of the Date
of Termination;
(c) Executive's Primary Social Security Benefit (as
that term is defined in the TJX SERP) shall mean the annual
primary insurance amount to which Executive is entitled or
would, upon application therefor, become entitled at age 65
under the provisions of the Federal Social Security Act as
in effect on the Date of Termination assuming that Executive
received annual income at the rate of her Base Salary from
the Date of Termination until her 65th birth date which
would be treated as wages for purposes of the Social
Security Act;
(d) the monthly benefit under the TJX SERP determined
using the criteria set forth in (A), (B), and (C) above
shall be multiplied by 12 to determine an annual benefit;
and
(e) the present value of such annual benefit shall be
determined by multiplying the result in (D) by the
appropriate
-8-
<PAGE>
actuarial factor from the most recently published table 4A
(or its equivalent) as published by the Pension Benefit
Guaranty Corporation and which is effective for plan
terminations occurring on the Date of Termination, using
Executive's age to the nearest year determined as of that
date. If, as of the Date of Termination, Executive has
previously satisfied the eligibility requirements for Early
Retirement under the TJX Retirement Plan (or any successor
plan operated by Brylane or any of its affiliates), then the
appropriate factor shall be that based on the most recently
published "PBGC Actuarial Value of $1.00 Per Year Deferred
to Age 60 And Payable For Life Thereafter -- Healthy Lives,"
except that if Executive's age to the nearest year is more
than 60, then such higher age shall be substituted for 60.
If, as of the Date of Termination, Executive has not
satisfied the eligibility requirements for Early Retirement
under the TJX Retirement Plan (or any successor plan
operated by Brylane or any of its affiliates), then the
appropriate factor shall be based on the most recently
published "PBGC Actuarial Value of $1.00 Per Year Deferred
To Age 65 And Payable For Life Thereafter -- Healthy Lives."
If Executive receives a payment under this subparagraph (2), she shall
not be entitled to any other payments under SERP.
ii. Until the second anniversary of the Date of Termination, the
Company shall maintain in full force and effect for the continued
benefit of Executive and her family all life insurance, medical
insurance and disability plans and programs in which Executive was
entitled to participate immediately prior to the Change of Control (or
if Executive's title was changed to a level below that of Executive's
Current Title, all such plans and programs in which Executive was
entitled to participate immediately prior to such change, if the
benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of
such plans and programs. In the event that Executive is ineligible to
participate in such plans or programs, the Company shall arrange upon
comparable terms to provide Executive with benefits substantially
similar to those which she is entitled to receive under such plans and
programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life, medical or disability coverage or
benefits shall be deemed satisfied to the extent (but only to the
extent) of any such coverage or benefits provided by another employer.
iii. Until the second anniversary of the Date of Termination,
the Company shall make available to Executive the use of any
automobile that was
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<PAGE>
made available to Executive prior to the Date of Termination,
including ordinary replacement thereof in accordance with the
Company's automobile policy in effect immediately prior to the Change
of Control, or if Executive's title was changed to a level below that
of Executive's Current Title, the Company shall make available to
Executive the use of an automobile of a type comparable to the
automobile that was made available to her immediately prior to such
change (or, in lieu of making such automobile available, the Company
may at its option pay to Executive the present value of its cost of
providing such automobile). Within 30 days after the close of each
calendar year ending within such two-year period, the Company shall
also pay to Executive an amount to gross up Executive for the federal
and state tax liability of Executive, if any, for the use of such
automobile during the calendar year. If immediately prior to the Date
of Termination, the Company provided Executive with an automobile
allowance rather than with the use of an automobile, the Company shall
pay to Executive in a lump sum within 30 days following the Date of
Termination an amount equal to (i) two times Executive's automobile
allowance for one year at the rate in effect immediately prior to the
Date of Termination or the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title, the
rate in effect immediately prior to such change), whichever is
highest, including any increase in such rate which would have become
effective during the two-year period following the Date of Termination
(had a Qualified Termination not occurred), in accordance with the
Company's automobile policy in effect immediately prior to the Change
of Control, plus (ii) the accrued and unpaid portion of Executive's
automobile allowance through the Date of Termination, plus (iii) an
amount to gross up Executive for the federal and state tax liability
of Executive on such lump sum payment. In addition to either providing
the use of an automobile or paying the amount described in the
preceding sentence, the Company shall also reimburse Executive for
reasonable amounts of cellular telephone expenses incurred by
Executive during the two-year period following the Date of
Termination.
Payments under this Section 4(a) and Section 4(b) below, shall be made
without regard to whether the deductibility of such payments (or any other
payments to or for the benefit of Executive) would be limited or precluded
by Internal Revenue Code Section 280G and without regard to whether such
payments (or any other payments) would subject Executive to the federal
excise tax levied on certain "excess parachute payments" under Internal
Revenue Code Section 4999; provided, that if the total of all payments to
--------
or for the benefit of Executive, after reduction for all federal taxes
(including the tax described in Internal Revenue Code Section 4999, if
applicable) with respect to such payments ("Executive's total after-tax
payments"), would be increased by the limitation or elimination of any
payment under this Section 4(a) or Section 4(b), amounts payable under this
Section 4(a) and Section 4(b) shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments.
The
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<PAGE>
determination as to whether and to what extent payments under this Section
4(a) or Section 4(b) are required to be reduced in accordance with the
preceding sentence shall be made at the Company's expense by Coopers &
Lybrand or by such other certified public accounting firm as the
Compensation Committee of the Company's Board of Representatives may
designate prior to a Change of Control. In the event of any underpayment or
overpayment under this Section 4(a) or Section 4(b), as determined by
Coopers & Lybrand (or such other firm as may have been designated in
accordance with the preceding sentence), the amount of such underpayment or
overpayment shall forthwith be paid to Executive or refunded to the
Company, as the case may be, with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code.
b. Other Benefits. Within 30 days following a Change of Control,
--------------
whether or not Executive's employment has been terminated, the Company
shall pay to Executive the following in a lump sum:
i. an amount equal to the "Target Bonus" under the plan referred
to in Exhibit C attached hereto or any successor plan operated by
---------
Brylane or any of its affiliates and which is applicable to Executive
for the fiscal year in which the Change of Control occurs (in either
event, "MIP") (or if Executive's title was changed to a level below
that of Executive's Current Title within 180 days before the
commencement of a Standstill Period, the "Target Bonus" applicable to
Executive for the fiscal year in which such change occurred as if she
continued to hold Executive's Current Title, if higher); and
ii. if Executive is a participant in the Long Range Management
Incentive Plan of TJX or any successor plan operated by Brylane of any
of its affiliates and in effect at the Change of Control (in either
event, "LRMIP") (but specifically excluding any long-range incentive
plan which states that its sole or primary purpose is retention), an
amount with respect to each Award Period (as that term is defined in
LRMIP) for which Executive has been designated as a participant equal
to the product of (A) the maximum award payable to Executive for such
Award Period, as designated by the Company's Compensation Committee
under LRMIP (or, if Executive's title was changed to a level below
that of Executive's Current Title, in the case of an Award Period
which commences after such change, the maximum award payable to
Executive for such Award Period shall be deemed to be the maximum
award payable to Executive for the Award Period which commenced
immediately prior to such change, if higher), and (B) a fraction, the
denominator of which is the total number of fiscal years in the Award
Period and the numerator of which is the number of fiscal years which
have elapsed in such Award Period prior to the Change of Control (for
purposes of this fraction, if the Change of Control occurs during the
first quarter of a fiscal year, then one-quarter of the fiscal year
shall
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<PAGE>
be deemed to have elapsed prior to the Change of Control, and if the
Change of Control occurs after the first quarter of the fiscal year,
then the full fiscal year shall be deemed to have elapsed prior to the
Change of Control).
5. Nonsolicitation and Noncompetition; Other Severance Payments; No
----------------------------------------------------------------
Mitigation of Damages; Notice of New Employment; Withholding.
- ------------------------------------------------------------
a. Nonsolicitation and Noncompetition; Trade Secrets.
-------------------------------------------------
i. Upon the termination of Executive's employment for any
reason, Executive shall not during the Prohibited Period under any
circumstances (1) employ, solicit the employment of, or accept
unsolicited the services of, any "protected person" or (2) recommend
the employment of any "protected person" to any other business
organization in which Executive has any direct or indirect interest
(other than a less-than-one percent equity interest in an entity),
with which Executive is affiliated or for which Executive renders
services. A "protected person" shall be a person known by Executive
to be employed by the Company or its subsidiaries at or within six
months prior to the commencement of conversations with such person
with respect to employment.
As to (1) each "protected person" to whom the foregoing applies,
(2) each subcategory of "protected person" as defined above, (3) each
limitation on (A) employment of, (B) solicitation of, or (C)
unsolicited acceptance of services from, each "protected person" and
(4) each month of the period during which the provisions of this
paragraph (i) apply to each of the foregoing, the provisions set forth
in this paragraph (i) are deemed to be separate and independent
agreements and in the event of unenforceability of any such agreement,
such unenforceable agreement shall be deemed automatically deleted
from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this paragraph (i) or any
other term of this agreement.
ii. During the course of her employment, Executive will have
learned many trade secrets of the Company and its subsidiaries and
will have access to confidential information and business plans of the
Company. Therefore, subject to paragraph (iii) of this Section 5(a),
if Executive should terminate her employment voluntarily at any time
other than for Good Reason, but including by reason of Retirement or
Disability, or if the Company should terminate Executive's employment
at any time for Cause, then, during the Prohibited Period, Executive
will not carry on (as an employee, agent, consultant, independent
contractor, stockholder, partner, owner or otherwise, other than as an
investor in a less-than-one percent equity interest in an entity)
any trade or business competing with the then trade or business of
Brylane (or its affiliates) in any state in which Brylane (or its
affiliates) is carrying on such trade or
-12-
<PAGE>
business as of the effective date of such termination. For purposes of
this paragraph, TJX and its subsidiaries shall also be deemed
competitors. Executive agrees that if, at any time, pursuant to action
of any court, administrative or governmental body or other arbitral
tribunal, the operation of any part of this paragraph shall be
determined to be unlawful or otherwise unenforceable, then the
coverage of this paragraph shall be deemed restricted as to duration,
geographical scope or otherwise, to the extent, and only to the
extent, necessary to make this paragraph lawful and enforceable in the
particular jurisdiction in which such determination is made.
iii. Paragraph (ii) of this Section 5(a) shall not apply if
Executive's employment is terminated either by the Company or by
Executive during a Standstill Period.
b. Other Severance Payments.
------------------------
i. If Executive's employment is terminated prior to the last day
of the Employment Period, and such termination is either by Executive
for Good Reason or by the Company for any reason other than for Cause,
and such termination is not a Qualified Termination, no compensation
or other benefits shall be payable to or accrue to Executive
hereunder, except as follows:
(1) For the longer of (A) one year after the Date of
Termination or (B) the remainder of the Employment Period, the
Company will continue to pay to Executive her Base Salary at the
rate in effect on the Date of Termination. Base Salary shall be
paid for the first twelve months of the period without reduction
for compensation earned from other employment or self-employment,
and shall thereafter be reduced by such compensation.
(2) Until the expiration of Base Salary payments described
in (1) immediately above or until Executive shall commence other
employment or self-employment, whichever shall first occur, the
Company will provide medical and hospital insurance and term life
insurance (but not long-term disability insurance) for Executive
and her family, comparable to the insurance provided for
executives generally, as the Company shall determine, and upon
the same terms and conditions as shall be provided for Company
executives generally, provided that Executive's continued
participation is possible under the general terms and provisions
of such plans and programs. In the event that Executive is
ineligible to participate in such plans or programs, the Company
shall arrange upon comparable terms to provide Executive with
benefits substantially
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<PAGE>
similar to those which she is entitled to receive under such
plans and programs.
(3) For purposes of the MIP, Executive shall be entitled to
payment, if any, pursuant to the terms of the MIP, or, if
greater, such amount as Executive would have earned under MIP if
her employment had continued until the end of the fiscal year
(pro-rated for the period of active employment during the year).
Executive shall also be entitled to payments or benefits under other
plans of the Company to the extent provided therein in the
circumstances.
ii. If Executive's employment terminates by reason of death,
Disability or Incapacity, and such termination is not a Qualified
Termination, no compensation or benefits shall be payable to or accrue
to Executive hereunder, except that Executive shall be entitled to
payment, if any, pursuant to the terms of the MIP or, if greater, such
amount as Executive would have earned under the MIP until the end of
the fiscal year (pro-rated for the period of active employment during
such year). Executive shall also be entitled to payments or benefits
under other Employer plans, including any long-term disability plan,
to the extent therein provided in the circumstances.
iii. In the event that Executive has any other agreement with
the Company (or a Subsidiary) which entitles Executive to severance
payments upon the termination of her employment with the Company, the
amount of any such severance payments shall be deducted from the
payments to be made under this Agreement. If Executive should violate
any of the provisions of Section 5(a) hereof, all compensation and
benefits payable under Section 5(b) shall cease.
c. No Duty to Mitigate Damages; Remedies Not Exclusive. Executive's
---------------------------------------------------
benefits under this Agreement shall be considered severance pay in
consideration of her past service (including service with TJX and its
subsidiaries) and her continued service from the date of this Agreement,
and her entitlement thereto shall not be governed by any duty to mitigate
her damages by seeking further employment, nor shall such benefits be
offset by any compensation which she may receive from future employment,
except as provided in Section 5(b)(i). In addition, notwithstanding
anything contained in this Agreement to the contrary, in the event that
Executive's termination of employment with the Company, either for "Good
Reason" or in circumstances that constitute a "Qualified Termination", are
based on circumstances involving a breach of the terms and conditions of
this Agreement by a party other than the Executive, then the benefits to be
provided to Executive in connection with such a termination shall be in
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<PAGE>
addition to, and not in limitation of, any other legal or equitable
remedies to which Executive may otherwise be entitled.
d. Notice of New Employment. If Executive's employment terminates
------------------------
other than in a Qualified Termination, Executive agrees (i) to notify the
Company immediately upon her securing employment or becoming self-employed
during any period when Executive's compensation from the Company shall be
subject to reduction or her benefits provided by the Company shall be
subject to termination under Section 5(b) and (ii) to furnish to the
Company written evidence of her compensation earned from any such
employment or self-employment as the Company shall from time to time
request. In addition, upon Executive's termination of employment for any
reason other than the death of Executive, Executive shall immediately
return all written trade secrets, confidential information and business
plans of the Company and its affiliates and shall execute a certificate
certifying that she has returned all such items in her possession or under
her control.
e. Withholding. Anything to the contrary notwithstanding, all
-----------
payments required to be made by the Company hereunder to Executive shall be
subject to the withholding of such amounts, if any, relating to tax and
other payroll deductions as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation.
6. Anticipatory Termination. Anything in this Agreement to the contrary
------------------------
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated by Executive that such termination (a) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (b) otherwise arose in connection with or in anticipation of a
specifically threatened Change of Control, then for all purposes of this
Agreement, a Change of Control shall be deemed to have occurred on the date
immediately prior to the date of such termination.
7. Miscellaneous. In the event the definition of Change of Control in
-------------
this Agreement differs from the definition of "change of control" contained in
any other executive compensation or employee benefit plan (other than a tax-
qualified plan) maintained by the Company in which Executive is a Participant,
the definition of Change of Control contained herein shall control for the
purposes of determining whether a "change of control" has occurred under such
other plan with respect to Executive.
8. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. Arbitration shall be by a
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<PAGE>
panel of three arbitrators, one each chosen by Executive and the Company, and
the third chosen by mutual agreement of the arbitrators chosen by Executive and
the Company.
9. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in obtaining any right or benefit
to which Executive is entitled under this Agreement in the event of a Change of
Control. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at the
First National Bank of Boston, until paid in full.
10. Notice of Termination. During a Standstill Period, Executive's
---------------------
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
11. Notices. All notices shall be in writing and shall be deemed given
-------
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Robert A. Pulciani
To Executive: At her home address,
as last shown on the
records of the Company
The failure by Executive to set forth in any notice of termination of employment
any fact or circumstance which contributes to a showing of Good Reason or that
such termination is described in clause (3) of Section 1(m) shall not waive any
of Executive's rights hereunder or preclude her from asserting such fact or
circumstance in enforcing her rights hereunder.
12. Severability. In the event that any provision of this Agreement shall
------------
be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
13. General Provisions.
------------------
a. Binding Agreement. This Agreement shall be binding upon and inure
-----------------
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts
would still be payable to her hereunder, benefits would still be provided
to her family hereunder or rights would still
-16-
<PAGE>
be exercisable by her hereunder as if she had continued to live, such
amounts shall be paid to Executive's estate, such benefits shall be
provided to Executive's family and such rights shall remain exercisable by
Executive's estate in accordance with the terms of this Agreement. This
Agreement shall not otherwise be assignable by Executive.
b. Successors. This Agreement shall inure to and be binding upon the
----------
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or
otherwise, by agreement in form and substance satisfactory to Executive, to
assume expressly this Agreement. If the Company shall not obtain such
agreement prior to the effective date of any such succession, Executive
shall have all rights resulting under this Agreement from a termination by
Executive described in clause (3) of Section 1(m). This Agreement shall
not otherwise be assignable by the Company, and, in any event, the Company
shall remain obligated to Executive for all obligations and shall not rely
on any suretyship defenses.
c. Amendment or Modification; Waiver. This Agreement may not be
---------------------------------
amended unless agreed to in writing by Executive and the Company. No
waiver by either party of any breach of this Agreement shall be deemed a
waiver of a subsequent breach.
d. Titles. No provision of this Agreement is to be construed by
------
reference to the title of any section.
e. Continued Employment. This Agreement shall not give Executive any
--------------------
right of continued employment or any right to compensation or benefits from
the Company or any Subsidiary except the rights specifically stated herein.
f. Prior Agreement. This Agreement shall supersede and replace any
---------------
prior employment, change of control or severance agreement between the
Company or any of its subsidiaries, or any predecessor, and Executive.
g. Remedies. Any material breach or violation by Executive of the
--------
terms of Section 5 of this Agreement, will result in immediate and
irreparable injury and harm to the Company, and will cause damage to the
Company in amounts difficult to ascertain. Accordingly, the Company shall
be entitled to, and Executive hereby consents to the entry of, the remedies
or injunction and specific performance, or either of such remedies, as well
as all other remedies to which the Company may be entitled, at law, in
equity or otherwise, with respect to any such breach or violation.
h. Governing Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.
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<PAGE>
14. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRYLANE, L.P.
By /s/ Peter J. Canzone
---------------------------
Authorized Representative
EXECUTIVE:
/s/ Carol Meyrowitz
---------------------------
Carol Meyrowitz
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EXHIBIT A
Definition of "Change of Control"
---------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
other than Permitted Holders (as defined below), is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have beneficial ownership of
all shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of all classes of
Voting Equity Interests (as defined below) of VP Holding Corporation, a
Delaware corporation (the "Corporation"), Newco (as hereinafter defined),
Brylane (the "Partnership") or the Partnership's general partner; provided,
--------
that the Permitted Holders do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Representatives or Directors; provided, further, that
-------- -------
unless the Compensation Committee of the Partnership shall otherwise
determine prior to the acquisition of such majority ownership, such
acquisition of ownership shall not constitute a Change of Control if
Executive or an Executive Related Party is the person or a member of a
group constituting the person acquiring such ownership; or
(b) (i) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Representatives or
Directors (together with any new members of the Board of Representatives or
Directors whose election to such Board or whose nomination for election by
the holders of Equity Interests (as defined below) of the Partnership, the
Corporation or Newco was approved by (a) a Permitted Holder or (b) a vote
of at least 66-2/3% of the members of the Board of Representatives or
Directors then still in office who were either members of the Board of
Representatives or Directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Representatives or
Directors then in office;
(c) (i) the Partnership or its general partner, the Corporation or
Newco consolidates with or merges with or into any person or entity or
conveys, transfers or leases all or substantially all of its assets to any
person or entity, or any corporation or partnership consolidates with or
merges into or with the Partnership or its general partner, the Corporation
or Newco, in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Partnership or its general
partner, the Corporation or Newco are changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Equity Interests
<PAGE>
of the Partnership or its general partner, the Corporation or Newco are not
changed or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Partnership or its
general partner, the Corporation or Newco or where (A) the outstanding
Voting Equity Interests of the Partnership or its general partner or the
Corporation are changed into or exchanged for (x) Voting Equity Interests
of the surviving corporation or entity, or (y) cash, securities and other
property (other than Equity Interests of the surviving corporation or
entity) and (B) no "person" or "group" other than Permitted Holders owns
immediately after such transaction, directly or indirectly, more than the
greater of (i) 50% of the total outstanding Voting Equity Interests of the
surviving corporation or entity and (2) the percentage of the outstanding
Voting Equity Interests of the surviving corporation or partnership or
entity owned, directly or indirectly, by Permitted Holders immediately
after such transaction); or (ii) the sale or other disposition by the
Partnership, in one transaction or a series of related transactions (but
not including a disposition that is part of any sale-and-leaseback or
similar financing transactions), of assets aggregating more than thirty
percent (30%) of the assets of the Partnership's Chadwick's of Boston
business (taken at the values as stated on the books of the Partnership
determined in accordance with generally accepted accounting principles
consistently applied), or responsible for generating more than thirty
percent (30%) of the net sales of the Partnership's Chadwick's of Boston
business; provided, that unless otherwise determined by the Compensation
--------
Committee of the Partnership, no transaction shall constitute a Change of
Control if, immediately after such transaction, Executive or any Executive
Related Party shall own Equity Interests of any surviving corporation
("Surviving Entity") having a fair value as a percentage of the fair value
of the Equity Interests of such Surviving Entity greater than 125% of the
fair value of the Equity Interests of the Partnership, the Corporation
and/or Newco (as defined in the Partnership Agreement) owned by Executive
and any Executive Related Party immediately prior to such transaction,
expressed as a percentage of the fair value of all Equity Interests of the
Partnership, the Corporation and/or Newco immediately prior to such
transaction; provided, further, that for purposes of this paragraph (c), if
-------- -------
such agreement requires as a condition precedent approval by the
equityholders of the Partnership, the Corporation and/or Newco of the
agreement or transaction, a Change of Control shall not be deemed to have
taken place unless such approval is secured and the transaction is
consummated.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred as a result of (i) a transaction
pursuant to which the Corporation and/or Partnership and/or its general partner
is reorganized or reconstituted as a corporation or other entity or a
corporation or other entity becomes the direct or indirect parent entity of the
Partnership and/or the Corporation (collectively "Newco"), or (ii) any sale of
Equity Interests in a public offering.
In addition, for purposes of this Exhibit A, the following terms have the
---------
meanings set forth below:
-2-
<PAGE>
"Equity Interest" in any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents or interest
in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such person.
An "Executive Related Party" shall mean any affiliate or associate of
Executive other than the Partnership, Newco or the Corporation, as the case may
be, or an affiliate of the Partnership, Newco or the Corporation, as the case
may be. The terms "affiliate" and "associate" shall have the meanings ascribed
thereto in Rule 12b-2 under the Exchange Act (the term "registrant" in the
definition of "associate" meaning, in this case, the Partnership, Newco or the
Corporation, as the case may be).
"Permitted Holders" means (i) The Limited, Inc., a Delaware corporation,
and any of its affiliates, (ii) Freeman Spogli & Co., a California general
partnership, and any of its affiliates, (iii) WearGuard Corporation, a Delaware
corporation, and any of its affiliates, (iv) Chadwick's, Inc., (v) Leeway & Co.,
as nominee for the AT&T Long-Term Investment Trust ("AT&T"), and any affiliates
and permitted assignees of AT&T, (vi) NYNEX Master Trust and any of its
affiliates and permitted assignees, and (vii) VP Holding Corporation (with
respect to the general partner of the partnership); provided, that Brylane, L.P.
--------
and it subsidiaries shall not be deemed affiliates of The Limited, Inc., Freeman
Spogli & Co., WearGuard Corporation, Chadwick's Inc., Leeway & Co., as nominee
for the AT&T Long-Term Investment Trust and NYNEX Master Trust for purposes of
this definition.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on July 1, 1996.
"Voting Equity Interests" means Equity Interests of the class or classes
pursuant to which the holders thereof have (i) in respect of a corporation, the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of a corporation (irrespective
of whether or not at the time Equity Interests of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency) or (ii) in respect of a limited liability company or other entity,
the general voting power under ordinary circumstances to elect the board of
directors or other governing board of such entity.
-3-
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Partnership Board
of management's operating budget for that season. Each participant in such
program may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the formation
of the Partnership, such as the write-up of inventory to fair market value on
August 30, 1993 and the amortization of the cost of intangibles resulting from
the purchase accounting relating to the acquisition and any charge resulting
from the acquisition of the Chadwick's of Boston business. Except as otherwise
determined by the Partnership Board, or the Committee, in its sole discretion,
operating profit for any given six-month season will also exclude any and all
operating profit that is attributable to transactions entered into by Brylane or
its affiliates during that six-month season. The Executive's individual
participant percentage under such plan will be 50%, subject to any adjustments
by the Partnership Board, or the Committee, as it may see fit in its sole
discretion.
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of ________,
1999 and is entered into between Brylane, L.P., a Delaware limited partnership
("Brylane" or the "Partnership"), and ________________ (the "Executive").
R E C I T A L S
- - - - - - - -
WHEREAS, the Partnership desires to employ the Executive, and the
Executive desires to be so employed by the Partnership, on the terms and subject
to the conditions hereinafter set forth.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Partnership hereby employs the Executive, and the Executive agrees
to be employed by the Partnership, as ________________________, for a term
commencing on ________, 1999 and continuing until the earlier of ________, 2000
or the date such employment shall have been terminated as provided in Section 3
hereof. Beginning ________, 1999, this Agreement shall renew automatically for
an additional one year term until the Partnership or Executive gives the other
party hereto written notice at least 14 calendar days prior to the end of a
term, of its intention to terminate this Agreement; provided, however, that this
Agreement may terminate earlier than the end of a term as provided in Section 3
hereof. In her capacity as ________________________, the Executive shall
faithfully perform to the best of her ability and in a satisfactory manner all
services and acts necessary or advisable as may be assigned to her by the Chief
Executive Officer. Throughout the term hereof the Executive shall, except as
may from time to time be otherwise agreed in writing by the Partnership, devote
her full-time working hours to her duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Partnership hereunder, the Executive shall be paid by the
Partnership a base salary at the annual rate of $[amount shall be not less than
base salary in effect at termination of the Employment Agreement] for each 12-
month period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any upward adjustments
<PAGE>
annually by the Board of Representatives of the Partnership (the "Partnership
Board") or, at the Partnership Board's option, a compensation committee thereof
(the "Committee"), provided that any adjustments shall be in the sole discretion
of the Partnership Board or the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Partnership for management
employees. The Executive shall receive such other compensation as shall be
approved by the Partnership Board and shall participate in all fringe benefits
(including, without limitation, group medical, life, disability and accidental
death and dismemberment insurance), bonus and benefit plans which shall be
generally available from time to time to management employees of the
Partnership.
(c) The Executive shall be reimbursed in accordance with the policies
of the Partnership as adopted by the Partnership Board from time to time for her
reasonable travel, entertainment, business, meeting and similar expenditures,
incurred for the benefit of the Partnership and subject to approval of the Chief
Executive Officer of the Partnership or the Partnership Board. As an additional
condition to the reimbursement of such expenses by the Partnership to the
Executive, the Executive shall provide the Partnership with copies of all
available invoices and receipts, and otherwise account to the Partnership in
sufficient detail and with adequate documentation to allow the Partnership to
confirm the business nature of the expenses and claim an income tax deduction
for such paid items, if such items are deductible.
(d) The Partnership hereby agrees to provide the Executive with a
benefits package substantially similar (which is not materially less favorable
to the Executive in the aggregate) to those coverages and benefits provided or
made available by the predecessor to the Partnership (or its affiliates), to
executives (and their dependents) with responsibilities substantially similar to
those of the Executive, immediately prior to the consummation of the
transactions contemplated by that certain Transaction Agreement dated as of July
13, 1993, by and among VGP Corporation, VLP Corporation and the Transferors
referred to therein. In addition, the Partnership shall provide a bonus or
incentive compensation plan which provides the Executive with the opportunity to
earn the right to be paid additional compensation as set forth on Exhibit A
---------
hereto. This subsection (d) shall not be implemented so as to limit any rights
or benefits to which the Executive or her dependents may be entitled under any
employee benefit plan maintained by or contributed to by the Partnership.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by
the Partnership on at least 30 days' prior written notice if the Partnership
Board determines that the Executive has become permanently disabled (as
hereinafter defined).
2
<PAGE>
Such written notice shall provide reasonable detail regarding the basis for such
determination. The Executive shall be deemed to be "permanently disabled," as
used in this subsection, if the Executive has been substantially unable to
discharge her duties and obligations hereunder by reason of illness, accident or
disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Partnership for cause (as hereinafter defined) upon written
notice from the Partnership Board to the Executive. Such written notice shall
provide reasonable detail regarding the basis for such determination. The
Partnership shall have "cause" to terminate the Executive, as used in this
subsection, only if the Partnership Board shall determine that the Executive
has, (i) refused or failed within a reasonable period of time to carry out any
reasonable and material direction from the Chief Executive Officer of the
Partnership, the Partnership Board (other than a failure resulting from the
Executive's incapacity due to physical or mental illness), (ii) been guilty of a
material and willful breach of the terms of this Agreement, (iii) demonstrated
gross negligence or willful misconduct in the execution of her assigned duties,
(iv) been convicted of a felony or other serious crime involving moral
turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the
detriment of the Partnership, (vi) intentionally imparted confidential
information relating to the Partnership to a third party, other than in the
course of carrying out the Executive's duties, or (vii) materially and willfully
breached any of her obligations pursuant to the Stock Subscription Agreement
dated as of ________, 1996 between VP Holding Partnership and the Executive if
such breach has not been cured 5 days after receipt of written notice to the
Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
(d) In addition to the circumstances set forth in subsections (a),
(b) and (c) of this Section 3, the Partnership may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate her employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Partnership. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Partnership in the
Executive's base salary herein provided or as the same may be increased from
time to time; (ii) any relocation by the Partnership of Executive's principal
place of employment of more than 50 miles from the place where Executive's
principal residence was located on the date notice is given; or (iii) a material
and willful breach by the Partnership of any of its obligations to the Executive
hereunder, including, without limitation, the Partnership's failure to obtain
the written assumption agreement described in Section 10(a) if such agreement is
not obtained within 5
3
<PAGE>
days after written notice that a written assumption agreement required under
Section 10(a) has not been obtained.
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate her employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Partnership.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Partnership's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Partnership pursuant to subsection (a) of this Section 3 the Executive
will get the benefit of any Partnership disability plans; provided,
however, that for a period of 12 consecutive months after the effective
date of the termination the Partnership will pay the Executive the
difference (if any) between the level of annualized salary provided for in
Section 2 hereof, less required withholdings, and the amounts provided
under such disability plans; or
(ii) if the Executive's employment is automatically terminated
pursuant to subsection (c) of this Section 3, the Partnership shall
continue to pay to the Executive (or, if applicable, to her executor,
administrator or heirs) the Executive's salary in equal monthly
installments at the level of annualized salary provided for in Section 2
hereof being paid to the Executive at the time of such termination, less
required withholdings, for a period of 12 consecutive months after the
effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Partnership pursuant to subsection (d) of this Section 3 or if the
Executive terminates her employment pursuant to subsection (e) of this
Section 3, the Partnership shall continue to pay to the Executive the
Executive's salary in equal monthly installments at the level of
annualized salary provided for in Section 2 hereof being paid to the
Executive at the time of such termination, less required withholdings, for
the greater of (A) the nine consecutive months after the effective date of
the termination, and (B) the period after the effective date of the
termination, through and including the [[month and day of this Agreement]
-------------------------------
immediately following the effective date of the termination.]
4
<PAGE>
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Partnership.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the Executive's employment by the
Partnership under federal, state or local law which provides for the
continuation of any medical or other employee benefits after such termination
date.
4. Noncompetition. If the Executive is terminated by the Partnership
--------------
for cause in accordance with Subsection 3(b) hereof, or if the Executive
terminates her employment other than for "good reason" in accordance with
Subsection 3(e) hereof, then except as provided in the next sentence, for a
period of 12 months after such termination, the Executive will not carry on (as
an employee, agent, consultant, independent contractor, stockholder, partner,
owner or otherwise) any trade or business competing with the then trade or
business of the Partnership (or its affiliates) in any state in which the
Partnership (or its affiliates) is carrying on such trade or business as of the
effective date of such termination. The foregoing provisions of this Section 4
notwithstanding, the Executive may own not more than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Partnership's (and its affiliates')
business and affairs that may come to her knowledge or have come to her
knowledge while employed by the Partnership or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Partnership and (iii) matters of a
technical nature. Except as required in the performance of her duties to the
Partnership under this Agreement, the Executive shall not use for her own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Partnership in advance.
6. Executive's Representation. The Executive shall be, and she
--------------------------
represents that she is, free to enter into this Agreement and not under any
contractual restraint which would prohibit her satisfactorily performing her
duties to the Partnership hereunder.
5
<PAGE>
7. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal substantive laws (and not the laws of
conflicts of laws) of the State of New York.
8. Costs. If either party brings any legal action against the other to
-----
enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Partnership and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Partnership shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Partnership's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Partnership pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Partnership hereunder, and the Partnership shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the
--------
Executive of the terms of this Agreement, including specifically, but not
limited to, Sections 4 and 5, will result in immediate and irreparable injury
and harm to the Partnership, and will cause damage to the Partnership in amounts
difficult to ascertain. Accordingly, the Partnership
6
<PAGE>
shall be entitled to, and Executive hereby consents to the entry of, the
remedies or injunction and specific performance, or either of such remedies, as
well as all other remedies to which the Partnership may be entitled, at law, in
equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Partnership:
Brylane, L.P.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President - Human Resources
If to the Executive:
[To Come]
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
7
<PAGE>
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The "Partnership": BRYLANE, L.P.
By: _____________________________________
President and Chief Executive Officer
The "Executive": [TO COME]
_____________________________________
Signature
8
<PAGE>
EXHIBIT C
Brylane shall provide Executive with management incentive compensation
("MIP") with a 50% target and using a methodology consistent with Chadwick's
past practices. The current year's (12-months ending January 31, 1997)
incentive compensation will be calculated as if Executive's new salary and
incentive compensation were in place for the full year.
<PAGE>
EXHIBIT 10.73
VP HOLDING CORPORATION
STOCK SUBSCRIPTION AGREEMENT
----------------------------
THIS STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of December 9, 1996 by and between VP Holding Corporation, a
Delaware corporation (the "Company"), and Dhananjaya K. Rao ("Purchaser").
R E C I T A L S:
---------------
A. The Company indirectly holds a limited partnership interest in
Brylane, L.P. (the "Partnership") and a general partnership interest in the
Partnership pursuant to that certain Agreement of Limited Partnership dated as
August 30, 1993, as amended (the "Partnership Agreement"), among VLP Corporation
("VLP"), VGP Corporation ("VGP") and certain of subsidiaries of The Limited
(VLP, VGP and such subsidiaries are sometimes collectively referred to herein as
the "Partners").
B. The Company now desires to sell to Purchaser and Purchaser
desires to purchase from the Company shares of Series A Preferred Stock, $0.01
par value per share, of the Company (the "Series A Preferred Stock"), subject to
the terms and conditions set forth in this Agreement. The date on which such
sale and purchase occur shall be referred to herein as the "Closing Date."
C. The Partners and/or the Company may form a corporation that is a
successor to, or parent entity of, the Partnership and/or the Company or a
successor to the Partnership (collectively, "Newco"). Newco may at some time
complete an initial sale to the public (an "Initial Public Offering") of equity
securities pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Act").
D. In order to induce the Company to sell its shares of Series A
Preferred Stock to the Purchaser, Purchaser agrees to hold such shares and the
shares of common stock received upon conversion of such shares subject to the
restrictions and interests created by this Agreement.
A G R E E M E N T:
-----------------
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties agree as follows:
1. Sales and Purchase of Stock. The Company hereby agrees to sell to
---------------------------
Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from the Company, 37,500
shares (individually, a "Share," and collectively, the "Shares") of Series A
Preferred Stock of the Company, at a price of $20.00 per share, for an aggregate
purchase price of $750,000 (the "Purchase Price"). The Purchase Price shall be
payable by delivery of cash or Purchaser's check in the amount of the Purchase
Price. Purchaser shall deliver the cash or check to the Company prior to the
Closing Date. In connection with the purchase of Shares hereunder, Purchaser
acknowledges that he or she has reviewed the memorandum regarding Section 83(b)
of the Internal Revenue Code of 1986, as amended, attached hereto as Exhibit A.
---------
2. Restriction on Transfer of the Shares. Purchaser may not sell,
-------------------------------------
transfer, assign, pledge, hypothecate or otherwise dispose of (collectively,
"Transfer") any of the Shares, or any right, title or interest therein, prior to
the third anniversary of the Closing Date and, thereafter, any Transfer must be
in compliance with Sections 3 and 5 hereof. Any purported Transfer or Transfers
(including involuntary Transfers initiated by operation of legal process) of any
of the Shares or any right, title or interest therein, except in strict
compliance with the terms and conditions of this Agreement, shall be null and
void.
3. Right of First Refusal.
----------------------
(a) Sales; Notice. At any time on or after the third anniversary
-------------
of the Closing Date, Purchaser may Transfer for cash (and only for such form of
consideration) any or all of the Shares to any third party subject to the
provisions of this Section 3 and Section 4(c), 5(d) and 7(a) hereof. Prior to
any such intended Transfer, Purchaser shall first give at least 30 days' advance
written notice (the "Notice") to the Company specifying (i) Purchaser's bona
fide intention to sell such Shares; (ii) the name(s) and address(es) of the
proposed transferee(s); (iii) the number of Shares Purchaser proposes to
Transfer (individually, an "Offered Share," and collectively, the "Offered
Shares"); (iv) the price for which Purchaser proposes to Transfer each Offered
Share (the "Proposed Purchase Price"); and (v) all other material terms and
conditions of the proposed transfer.
(b) Election by the Company. Within 20 days after receipt of the
-----------------------
Notice, the Company (or its designee) may elect to purchase all of the Offered
Shares at the price and on the terms and conditions set forth in the Notice by
delivery of written notice of such election to Purchaser, specifying a day,
which shall not be more than 20 days after such notice is delivered, on or
before which Purchaser shall surrender (if Purchaser has not already done so)
the certificate or certificates representing the Offered Shares (duly endorsed
in blank for transfer) at the principal office of the Company. Within 20 days
after delivery of such notice to Purchaser, the Company shall
2
<PAGE>
deliver to Purchaser a check, payable to Purchaser or to such person as
Purchaser shall request, in the amount equal to the product of the Proposed
Purchase Price multiplied by the number of Offered Shares (the "First Refusal
Price") in exchange for the Offered Shares. If Purchaser fails to so surrender
such certificate or certificates on or before such date, from and after such
date the Offered Shares shall be deemed to be no longer outstanding, and
Purchaser shall cease to be a stockholder with respect to such Shares and shall
have no rights with respect thereto except only the right to receive payment of
the First Refusal Price, without interest, upon surrender of the certificate or
certificates therefor duly endorsed in blank for Transfer. If the Company does
not elect to purchase all of the Offered Shares, Purchaser shall be entitled to
Transfer the Offered Shares, subject to Sections 5(d) and 7(a) of this
Agreement, to the transferee(s) named in the Notice at the Proposed Purchase
Price or at a higher price and on the terms and conditions set forth in the
Notice; provided, however, that such Transfer must be consummated within 90 days
after the date of the Notice and any proposed Transfer after such 90-day period
may be made only by again complying with the procedures set forth in this
Section 3.
4. Investment Representations. Purchaser represents and warrants to
--------------------------
the Company as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
-----------------------
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
---------------------
business of the Company and its direct or indirect, majority or wholly-owned
entities including the Partnership (a "Subsidiary" and collectively
"Subsidiaries"); (ii) has had an opportunity to discuss with representatives of
the Company and its Subsidiaries the condition of and prospects for the
continued operation and financing of the Company and its Subsidiaries and such
other matters as Purchaser has deemed appropriate in considering whether to
invest in the Shares; and (iii) has been provided access to all available
information about the Company and its Subsidiaries requested by Purchaser.
(c) Shares Not Registered. Purchaser understands that the Shares
---------------------
have not been registered under the Act or registered or qualified under the
securities laws of any state and that Purchaser may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification
and the Company receives an opinion from Purchaser's counsel to such effect, in
form and substance reasonably satisfactory to the Company. Purchaser is an
"accredited investor" as defined in Rule 501 of Regulation D of the Act.
3
<PAGE>
5. Obligation to Sell Securities; Other Obligations.
------------------------------------------------
(a) If FS Equity Partners II, L.P., a California limited
partnership, and FS Equity Partners III, L.P., a Delaware limited partnership
(collectively, "FSEP"), find a third-party buyer, for all of the shares of
Common Stock of the Company, VGP and/or VLP (the "Companies") held by FSEP or
for all of the Partnership units (the "Units") indirectly held by FSEP or if the
Company or FSEP are required to sell all shares of the Company pursuant to the
Partnership Agreement (whether such sale is by way of purchase, exchange, merger
or other form of transaction), upon the request of FSEP, the Purchaser shall
sell all of his or her Shares (on an as-converted basis if the Shares have not
yet been converted into common stock) on the same terms and conditions as apply
to the FSEP sale (except for differences based on the fact that Partnership
Units and not stock are being sold); provided that, prior to the third
anniversary of the date hereof, Purchaser shall not be required to receive less
than $20.00 per Share (as appropriately adjusted for stock dividends,
reclassifications or splits) under this provision. The Purchaser agrees to be
bound by the provisions of Section 9.05 of the Partnership Agreement in the same
manner and to the same extent as FSEP in the event FSEP is required to sell any
securities in accordance with such section.
(b) The Company may at any time by notice to the holder
repurchase any or all Unvested Shares (as defined in Section 8(a) of the
Certificate of Designation creating the Shares) of the Purchaser at a price of
$20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits). If Purchaser fails to surrender certificates
evidencing repurchased shares on date set for repurchase in such notice, from
and after such date the Shares which the Company elected to repurchase shall be
deemed to be no longer outstanding, and Purchaser shall cease to be a
stockholder with respect to such Shares and shall have no rights with respect
thereto except only the right to receive payment of the repurchase price,
without interest, upon surrender of the certificate or certificates therefor
(duly endorsed in blank for transfer).
(c) In addition to the obligations of the Purchaser to sell the
Shares pursuant to Sections 5(a) and (b) above, the Purchaser hereby agrees to
exchange or otherwise transfer his or her Shares and Newco shall be obligated to
exchange such Shares (i) for preferred stock of Newco with terms and conditions
substantially similar to the Series A Preferred Stock if the Shares have not
been converted into common stock or (ii) for common stock of Newco if the Shares
have been converted into Common Stock, in connection with the formation of Newco
(whether or not in connection with an initial public offering). The Purchaser
shall be entitled to receive the appropriate Newco securities at the time that
FSEP converts its Company shares into Newco securities. Purchaser agrees that
any conversion ratio with respect to such preferred stock will be equivalent to
the exchange ratio of Company common stock for Newco common stock. Purchaser
agrees to execute a new agreement with respect to Newco securities containing
substantially similar provisions to this Agreement. The form of the Certificate
of Designation of the Newco preferred stock is attached hereto as Exhibit B.
---------
4
<PAGE>
(d) The Purchaser agrees to consent to any sale, transfer,
reorganization, exchange, merger, combination or other form of transaction
described in this Section 5 or contemplated by Article X of the Partnership
Agreement and to execute such agreements, powers of attorney, voting proxies or
other documents and instruments as may be necessary or desirable to consummate
such sale, transfer, reorganization, exchange, merger, combination or other form
of transaction. Purchaser further agrees to timely take such other actions as
FSEP may reasonably request in connection with the approval of the consummation
of such sale, transfer, reorganization, exchange, merger, combination or other
form of transaction, including voting as a stockholder to approve any such sale,
transfer, reorganization, exchange, merger, combination or other form of
transaction and including the execution of a reasonable lock-up agreement in
connection with an Initial Public Offering.
(e) The obligations of Purchaser pursuant to Section 5 shall be
binding on any transferee of any of the Shares and Purchaser shall obtain and
deliver to the Company and FSEP a written commitment to be bound by such
provisions from such transferee prior to any transfer.
6. Termination.
-----------
The provision of Sections 2, 3, 5(a) and 5(b) shall terminate with
respect to shares of Common Stock received upon conversion of Shares upon
completion of an Initial Public Offering satisfying the following requirements:
(i) the offering results in receipt by Newco of at least $30,000,000 of gross
proceeds from the sale of newly issued stock or (ii) the offering results in the
sale of newly issued common stock representing at least 20% of the outstanding
common stock of Newco (after giving effect to such offering).
7. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION
AGREEMENT DATED AS OF DECEMBER 9, 1996 BY AND BETWEEN VP HOLDING
CORPORATION, A DELAWARE CORPORATION, AND THE ORIGINAL PURCHASER
HEREOF, A COPY OF
5
<PAGE>
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF VP
HOLDING CORPORATION."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) a party may designate for itself by like notice):
If to the Company:
VP Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
If to Purchaser:
_________________________
_________________________
_________________________
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
6
<PAGE>
(f) Disputes. In the event of any dispute among the parties
--------
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Conversion, Recapitalizations or Exchanges Affecting the
--------------------------------------------------------
Company's Capital Stock; Issuances of Capital Stock. The provisions of this
- ---------------------------------------------------
Agreement shall apply to any and all shares of capital stock or other securities
of the Company or any successor or assign of the Company, or the Partnership,
including Newco, which may be issued in respect of, in exchange for or in
substitution of, the Shares by reason of any conversion, stock dividend, stock
split, reverse split, recapitalization, reclassification, combination, merger,
consolidation or otherwise, and such shares or other securities shall be
encompassed within the term "Shares" for purposes of this Agreement.
(i) No Rights as an Employee. Nothing in this Agreement shall
------------------------
affect in any manner whatsoever the rights of the Company or any of its
Subsidiaries to terminate Purchaser's employment for any reason, with or without
cause, subject to the terms and conditions of any employment agreement to which
Purchaser may be a party.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Purchaser, and Purchaser shall have no right to be
advised of, any material information regarding the Partnership, Company or any
of its Subsidiaries at any time prior to, upon or in connection with the
Company's repurchase of the Shares under this Agreement.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns (including Newco), and this Agreement shall inure to the benefit of, and
be binding upon, such respective affiliates, successors and/or assigns of the
Company in the same manner and to the same extent as if such affiliates,
successors and/or assigns were original parties hereto. Without limiting the
foregoing, the Company may assign the right of first refusal provided for in
Section 3 of this Agreement or the repurchase right contained in Section 5(b) of
this Agreement, to any designee, including any of its affiliates, successors
and/or assigns. Unless specifically provided herein to the contrary, Purchaser
may not assign any or all of its rights and/or obligations and/or delegate any
or all its duties under this Agreement without the prior written consent of the
Company. Upon an assignment of any or all of Purchaser's rights and/or
obligations and/or a delegation of any or all of its duties under this Agreement
in accordance with the terms of this Agreement, this Agreement shall inure to
the benefit of, and be binding upon,
7
<PAGE>
Purchaser's respective affiliates, successors and/or assigns in the same manner
and to the same extent as if such affiliates, successors and/or assigns were
original parties hereto.
(l) Headings. Introductory headings at the beginning of each
--------
section and subsection of this Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
VP HOLDING CORPORATION,
a Delaware corporation
By: /s/ John M. Roth
--------------------------------------
Its: President
PURCHASER:
/s/ Dhananjaya K. Rao
------------------------------------------
Dhananjaya K. Rao
8
<PAGE>
EXHIBIT A
---------
M E M O R A N D U M
TO: Ms. Carol Meyrowitz
Mr. Dhananjaya K. Rao
FROM: Riordan & McKinzie
DATE: December 2, 1996
RE: Income Tax Consequences of Restricted Stock
- --------------------------------------------------------------------------------
This memorandum discusses certain federal income tax consequences to
you with respect to your purchase of shares of Series A Preferred Stock (the
"Shares") of VP Holding Corporation, a Delaware corporation (the "Company").
Because you are an employee of Brylane L.P., the limited partnership
in which subsidiaries of the Company hold both an interest as a general partner
and an interest as a limited partner, we believe that the Shares are subject to
Federal income taxation under the provisions of Section 83 of the Internal
Revenue Code of 1986 (the "Code"). We believe that the Shares are subject to a
"substantial risk of forfeiture" under Section 83 of the Code and thus, the
shares would be "restricted stock." The "substantial risk of forfeiture" arises
because of your right to convert the Shares into common stock of the Company is
dependent upon such shares being "vested" over the next three years and that the
Shares are subject to repurchase by the Company at a price of $20 per share if
you cease being an employee under certain circumstances over that three year
period. Thus, we believe such restrictions would be treated as a "substantial
risk of forfeiture" because your right to the "full enjoyment" of such shares
are conditioned upon the future performance of your services.
Section 83 of the Code generally will tax you upon the fair market
value of shares of restricted stock at the time when the substantial risk of
forfeiture lapses.
As a result, you would be taxed upon one-third of the Shares on each of the next
three anniversaries of their purchase by you if you remain an employee of
Brylane L.P. At such time, you would have income equal to the excess of the
then fair market value of one-third of the Shares over their purchase price. As
the Shares would then be convertible into common stock, it is possible that the
Shares could have substantial value in excess of your purchase price. If your
employment is terminated under certain limited circumstances, such restrictions
may never lapse.
<PAGE>
You are obligated to recognize income in this amount regardless of
whether or not you dispose of the Shares at that time or have the ability to
sell the Shares. This recognition event could require the payment of a
significant amount of income tax at a time when cash is unavailable to pay the
tax, if the Shares have substantially appreciated in value from the time of your
purchase.
If you believe that the Shares will substantially appreciate in value
over the next three years, you can file an election with the Internal Revenue
Service to have your purchase of the Shares governed by Section 83(b) of the
Code. If you make this election, the fact that the Shares are subject to a
substantial risk of forfeiture is ignored for income tax purposes. In other
words, you will not recognize taxable income when the Company's right to
repurchase the Shares at less than their fair market value terminates.
If you make the Section 83(b) election, you will be required to report
as taxable income the amount by which the fair market value of the shares you
purchased exceeds the purchase price you paid for the Shares. At this time, the
Company believes that the purchase price of the Shares is equal to their fair
market value, so no taxable income need be reported.
Any amount included in your gross income as a result of the issuance
of the Shares or the termination of the Company's repurchase right will be
ordinary income. Such amount constitutes "wages" with respect to which the
Company is required to deduct and withhold federal income tax and Federal
Insurance Contribution Act tax. Such deductions will be made from the wages,
salary, bonus or other income to which the purchaser would otherwise be entitled
and, at the Company's election, you may be required to pay to the Company (for
withholding on your behalf) any amount not so deducted but required to be so
withheld.
When you sell the Shares, you will recognize capital gain or loss in
an amount equal to the difference between the sale proceeds and your basis in
the shares. The basis in the Shares is equal to the value of the Shares on the
date the risk of forfeiture terminates, or if you make the Section 83(b)
election, the value of the Shares on the date the Shares were purchased, which
should be $20.00 per share. Your gain will be short-term or long-term depending
upon whether your holding period in the shares exceeds one year at the time of
disposition.
THE PRECEDING DISCUSSION IS APPLICABLE TO FEDERAL TAX LAW ONLY WITH
RESPECT TO THE SHARES AS RESTRICTED STOCK. ALTHOUGH MANY STATES HAVE RULES
RELATING TO RESTRICTED STOCK THAT PARALLEL THOSE OF THE FEDERAL LAW, YOU SHOULD
CONSULT WITH YOUR TAX ADVISER CONCERNING THE STATE TAX CONSEQUENCES AND
REQUIREMENTS APPLICABLE TO YOUR PURCHASE OF THE SHARES.
If you wish to make the Section 83(b) election with respect to your
Restricted Stock:
2
<PAGE>
1. Review the attached Section 83(b) election form. Complete
(INCLUDING SOCIAL SECURITY NUMBER) and sign the form. Make 4 copies of the
completed form.
2. File one copy of the Section 83(b) election form with the
Internal Revenue Service office at which you file your federal income tax
return. NOTE: THE FORM MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
------
30 DAYS AFTER THE DATE ON WHICH YOU PURCHASED THE SHARES IN ORDER TO MAKE A
- -------
VALID ELECTION. For example, if the transaction closes on December 9, 1996, you
must file the election on or before January 7, 1997.
3. Deliver one copy to Robert Pulciani at Brylane, L.P.
4. Attach one copy to your federal income tax return and, if
appropriate, one copy to your state income tax return for 1996.
If you have any questions concerning the Section 83(b) election,
please contact your tax advisor. You may also wish to have your tax advisor
contact Jeffrey L. DuRocher of Riordan & McKinzie at (213) 229-8445.
3
<PAGE>
ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF TRANSFER
1.
----------------------------------
(Name)
----------------------------------
(Street Address)
----------------------------------
(City, State, Zip Code)
----------------------------------
(Social Security Number)
2. This election has been made under Internal Revenue Code 83(b) and is being
made with respect to the following property:
Shares of the Series A Preferred Stock of VP Holding Corporation
-------------------------------------------------------------------------
3. The property was transferred on the following date: December 9, 1996
--------------------
The election is made for the following taxable year (e.g. December 31,
1996): December 31, 1996
-----------------
4. The property transferred is subject to the following restrictions:
The Preferred Stock is not vested and is subject to repurchase by the
----------------------------------------------------------------------
Company upon termination of the taxpayer's employment by the Company.*
----------------------------------------------------------------------
5. The property transferred, with respect to which the election has been made,
has the following fair market value at the time of transfer: $20.00 per
----------
share
------------
6. The amount, if any, paid for such property: $20.00 per share
----------------------------
7. A copy of this statement was given to the following: Brylane L.P., 2300
------------------
Southeastern Avenue, Indianapolis, Indiana 46206
-------------------------------------------------------------------------
(The entity for whom the services were performed).
If the transferee of the restricted property and the person performing the
services are not the same, then a copy of this statement has been given to
the following: (same)
------------------------------
------------------------------------------
(The transferee of the restricted property).
----------------------------------------
(Signature)
NOTE: This filing is being made for Alternative Minimum Tax (AMT) purposes
* This repurchase right expires with respect to one-third of these
shares per year over the next three years.
<PAGE>
EXHIBIT B
---------
CERTIFICATE OF DESIGNATION
OF
THE SERIES A CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
BRYLANE, INC.
---------------------
Brylane, Inc., a corporation organized and existing under the Delaware
General Corporation Law (the "Corporation"), hereby certifies that the following
resolutions were adopted as of __________________, 19__ by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board of Directors")
by the provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the
______________ shares of Preferred Stock of the Corporation authorized in
Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series
of the Preferred Stock consisting of [75,000] shares, which series shall have
the following powers, designations, preferences and relative, participating,
optional or other rights, and the following qualifications, limitations and
restrictions (in addition to the powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, set forth in the Certificate of Incorporation which are applicable
to the Preferred Stock):
Section 1. Designation of Amount. The shares of such series shall be
---------------------
designated as "Series A Convertible Redeemable Preferred Stock" (the "Series A
Preferred Stock") and the authorized number of shares constituting such series
shall be [75,000] shares. The par value of the Series A Preferred Stock shall
be $.01 per share.
Section 2. Dividends.
---------
The holders of shares of the Series A Preferred Stock will not be
entitled to receive dividends payable in cash or property (other than such stock
dividends, reclassifications or splits with respect to the Series A Preferred
Stock as may be declared by the Board of Directors in its sole discretion).
Section 3. Redemption at Corporation's Option.
----------------------------------
(a) The shares of the Series A Preferred Stock will be redeemable at
the option of the Corporation by resolution of its Board of Directors, in whole
or from time to time in part, at any time with respect to shares of Series A
Preferred Stock that will always be Unvested Shares (as defined in Section
8(a)), subject to the limitations set forth below, at a redemption price of
[$20.00] per share (as appropriately adjusted for stock dividends,
reclassifications or splits), upon giving notice as provided below. It is the
intent of this provision that redemption
<PAGE>
not be permitted with respect to shares of Series A Preferred Stock that may, in
the future, vest in accordance with Section 8.
(b) Subject to the foregoing, the number of shares to be redeemed
shall be determined by the Board of Directors in its sole discretion.
Redemption shall be on a pro rata basis among all holders of Series A Preferred
Stock. Once the Corporation has mailed a notice of redemption pursuant to this
Section 3 (as described below), such holder(s) may not exercise any rights under
Section 6.
(c) At least 10 days but not more than 30 days prior to the date fixed
for the redemption of shares of the Series A Preferred Stock, a written notice
shall be mailed to each holder of record of shares of the Series A Preferred
Stock to be redeemed in a postage prepaid envelope addressed to such holder at
his post office address as shown on the records of the Corporation, notifying
such holder of the election of the Corporation to redeem such shares, stating
the dated fixed for redemption thereof (an "Optional Redemption Date"), and
calling upon such holder to surrender to the Corporation on the Optional
Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Optional Redemption Date each holder of shares of
the Series A Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at the place
designated in such notice and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less that all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Optional Redemption Date,
all rights of the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price of such shares, without interest, upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred on the books of the Corporation,
and such shares shall not be deemed to be outstanding for any purpose
whatsoever.
(d) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 3 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to series until such shares are once more designated as part of a particular
series of the Preferred Stock.
Section 4. Redemption at Holder's Option.
-----------------------------
(a) At the request of the holder thereof, subject to Section 4(b), the
Corporation shall, to the extent permitted by law and from funds legally
available therefor, redeem at the redemption price of [$20.00] per share (as
appropriately adjusted for stock dividends, reclassifications or splits) any
Vested Share (as defined in Section 8(a)) of Series A Preferred
2
<PAGE>
Stock on the third anniversary of the closing of transactions contemplated by
that certain Asset Purchase Agreement dated October 18, 1996 among TJX
Companies, Inc., Chadwick's, Inc. and Brylane, L.P. (the "Closing Date");
provided that no request for redemption under this Section 4 may be made after
4:30 p.m. New York City time on the date that is the third anniversary of the
Closing Date. Each holder of Vested Shares of the Series A Preferred Stock to
be redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the time the request for redemption is made and,
subject to Section 4(b), promptly after the third anniversary of the Closing
Date the redemption price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled (the date of any
such payment being the "Mandatory Redemption Date"). From and after the
Mandatory Redemption Date, all rights of the holder of Series A Preferred Stock
requesting redemption as a stockholder of the Corporation, except the right to
receive the redemption price (without interest) of such shares upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred on the books of the Corporation,
and such shares shall not be deemed to be outstanding for any purpose
whatsoever.
(b) If, on the Mandatory Redemption Date, the funds of the Corporation
legally available for such redemption shall be insufficient to redeem all Vested
Shares required to be redeemed, funds to the maximum extent legally available
for such purposes shall be utilized to redeem the maximum number of outstanding
Vested Shares on such date on a pro rata basis among the requesting holders of
Vested Shares and thereafter the Corporation shall continue to redeem such
shares (on a pro rata basis) as promptly as practicable after funds are legally
available therefor.
(c) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 4 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to the series until such shares are once more designated as part of a particular
series of the Preferred Stock.
Section 5. Voting Rights.
-------------
Except as required by Delaware law, the holders of shares of the
Series A Preferred Stock shall not be entitled to vote on any matter.
Section 6. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation and
any preferential distribution with respect to any other class or shares of the
Corporation ranking senior with respect to rights upon liquidation or
3
<PAGE>
dissolution of the Corporation to the Series A Preferred Stock, the holders of
shares of the Series A Preferred Stock shall be entitled to receive out of the
remaining net assets of the Corporation, the amount of [$20.00] (as
appropriately adjusted for stock dividends, reclassifications or splits) for
each share of the Series A Preferred Stock, before any distribution shall be
made to the holders of the Common Stock with respect to payments upon
dissolution or liquidation of the Corporation. If upon any liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of the outstanding shares of
Series A Preferred Stock shall be insufficient to permit the payment to such
stockholders of the full preferential amounts aforesaid, then the entire assets
of the Corporation to be distributed shall be distributed ratably among the
holders of outstanding shares of Series A Preferred Stock based on the full
preferential amounts for the number of outstanding shares of Series A Preferred
Stock held by each holder.
(b) For purposes of this Section 6, a dissolution, winding up or
liquidation shall not include (i) any consolidation or merger of the Corporation
with or into any other corporation or entity or a plan of exchange between the
Corporation and any other corporation or entity or (ii) a sale or other
disposition of all or substantially all of the Corporation's assets to another
corporation or entity.
(c) After the payment of the full preferential amounts provided for
herein to the holders of shares of the Series A Preferred Stock or funds
necessary for such payment have been set aside in trust for the holders thereof,
such holders shall be entitled to no other or further participation in the
distribution of the assets of the Corporation.
Section 7. Redemption Upon Change of Control.
---------------------------------
(a) Subject to Section 7(d), in the event of a Change of Control (as
defined below) (the date of such occurrence, the "Change of Control Date"), each
Vested Share shall, at the option of the holder thereof, either (i) be redeemed
by the Corporation at a price of $20.00 per share (as appropriately adjusted for
stock dividends, reclassifications or splits) or (ii) be converted into Common
Stock of the Corporation at the Conversion Ratio (as defined below); provided,
however, that shares that are not Vested Shares will not be convertible at the
option of the holder thereof and shall be redeemed by the Corporation at a price
of [$20.00] per share (as appropriately adjusted for stock dividends,
reclassifications or splits). A "Change of Control" shall have occurred for
purposes of this Section 7(a) upon the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than
Permitted Holders (as defined below), is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have beneficial ownership of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of all classes of Voting Equity Interests (as defined below)
of the Corporation, Brylane, L.P. (the
4
<PAGE>
"Partnership") or the Partnership's general partner; provided that the Permitted
--------
Holders do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Representatives or
Directors provided, further, that unless the Compensation Committee of the
-------- -------
Partnership shall otherwise determine prior to the acquisition of such majority
ownership, such acquisition of ownership shall not constitute a Change of
Control if an Original Purchaser or an Executive Related Party is the person or
a member of a group constituting the person acquiring such ownership; or; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Representatives or Directors (together with
any new members of the Board of Representatives or Directors whose election to
such Board or whose nomination for election by the holders of Equity Interests
(as defined below) of the Partnership or the Corporation was approved by (a) a
Permitted Holder or (b) a vote of at least 66 2/3% of the members of the Board
of Representatives or Directors then still in office who were either members of
the Board of Representatives or Directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Representatives or
Directors then in office; (iii) the Partnership or its general partner or the
Corporation consolidates with or merges with or into any person or entity or
conveys, transfers or leases all or substantially all of its assets to any
person or entity, or any corporation or partnership or entity consolidates with
or merges into or with the Partnership or its general partner or the
Corporation, in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Partnership or its general partner or
the Corporation are changed into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Equity
Interests of the Partnership or its general partner or the Corporation are not
changed or exchanged at all (except to the extent necessary to reflect a change
in the jurisdiction of incorporation of the Partnership or its general partner
or the Corporation or where (A) the outstanding Voting Equity Interests of the
Partnership or its general partner or the Corporation are changed into or
exchanged for (x) Voting Equity Interests of the surviving corporation or
entity, or (y) cash, securities and other property (other than Equity Interests
of the surviving corporation or entity) and (B) no "person" or "group" other
than Permitted Holders owns immediately after such transaction, directly or
indirectly, more than the greater of (1) 50% of the total outstanding Voting
Equity Interests of the surviving corporation or entity, and (2) the percentage
of the outstanding Voting Equity Interests of the surviving corporation or
partnership or entity owned, directly or indirectly, by Permitted Holders
immediately after such transaction); or (iv) the sale or other disposition by
the Partnership, in one transaction or a series of related transactions (but not
including a disposition that is part of any sale-and-leaseback or similar
financing transactions), of assets aggregating more than thirty percent (30%) of
the assets of the Partnership's Chadwick's of Boston business (taken at the
values as stated on the books of the Partnership determined in accordance with
generally accepted accounting principles consistently applied), or responsible
for generating more than thirty percent (30%) of the net sales of the
Partnership's Chadwick's of Boston business; provided, that unless otherwise
--------
determined by the Compensation Committee of the Corporation, no transaction
described above shall constitute a Change of Control with respect to the shares
of Series A Preferred Stock issued to an Original Purchaser if, immediately
after such transaction, such
5
<PAGE>
Original Purchaser (as defined in Section 8(a)) or any Executive Related Party
(as defined below) shall own Equity Interests of any surviving corporation or
entity ("Surviving Entity") having a fair value as a percentage of the fair
value of the Equity Interests of such Surviving Entity greater than 125% of the
fair value of the Equity Interests of the Partnership and/or the Corporation
owned by such Original Purchaser and any Executive Related Party immediately
prior to such transaction, expressed as a percentage of the fair value of all
Equity Interests of the Partnership and/or the Corporation immediately prior to
such transaction; provided, further, that for purposes of this definition, if a
-------- -------
transaction agreement requires as a condition precedent approval by the
equityholders of the Partnership and/or the Corporation of the transaction or
related agreement, a Change of Control shall not be deemed to have taken place
unless such approval is secured and the transaction is consummated.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred as a result of any sale of Equity
Interests in a public offering.
"Equity Interest" in any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents or
interest in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such person.
"Executive Related Party" shall mean any affiliate or associate of an
Original Purchaser other than the Corporation or the Partnership, or an
affiliate of the Partnership or the Corporation. The terms "affiliate" and
"associate" shall have the meanings ascribed thereto in Rule 12b-2 under the
Exchange Act (the term "registrant" in the definition of "associate" meaning, in
this case, the Partnership or the Corporation).
"Permitted Holders" means (i) The Limited, Inc., a Delaware
corporation, and any of its affiliates, (ii) Freeman Spogli & Co., a California
general partnership, and any of its affiliates, (iii) WearGuard Corporation, a
Delaware corporation, and any of its affiliates, (iv) Chadwicks, Inc. (v) Leeway
& Co., as nominee for The AT&T Long-Term Investment Trust ("ATT") and the
affiliates and permitted assignees of ATT and (vi) NYNEX Master Trust and its
affiliates and permitted assignees and (vii) VP Holding Corporation (with
respect to the general partner of the Partnership); provided that Brylane, L.P.
--------
and it subsidiaries shall not be deemed affiliates of The Limited, Inc., Freeman
Spogli & Co., WearGuard Corporation, Chadwick's, Inc., Leeway & Co., as nominee
for The AT&T Long-Term Investment Trust and NYNEX Master Trust for purposes of
this definition.
"Voting Equity Interests" means Equity Interests of the class or
classes pursuant to which the holders thereof have (i) in respect of a
corporation, the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time Equity Interests of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency)
6
<PAGE>
or (ii) in respect of limited liability company or other entity the general
voting power under ordinary circumstances to elect the board of directors or
other governing board of such entity.
(b) The Corporation shall notify the holders of Series A Preferred
Stock in writing of the occurrence of a Change of Control (i) within 15 days
after a Change of Control caused by an event described in clauses (i) or (ii) of
the definition of Change of Control above or (ii) 15 days prior to Change of
Control caused by an event described in clauses (iii) or (iv) of the definition
of Change of Control above. The Corporation shall either (i) redeem, subject to
subsection (d) below, shares of Series A Preferred Stock at a redemption price
equal to $20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits) or (ii) convert shares of Series A Preferred Stock
into shares of common stock at the Conversion Ratio. Subject to the proviso in
the first sentence of Section 7(a), holders of Series A Preferred Stock shall
have five days from receipt of such notice to elect to have shares redeemed or
converted. The Corporation shall have no obligations under this Section 7 to
redeem or convert shares of Series A Preferred Stock unless the event causing
the Change of Control is consummated. Shares to be redeemed or converted shall
be delivered with the holder's election together with any completed transfer
documents reasonably required by the Board of Directors of the Corporation.
(c) All shares of Series A Preferred Stock from and after the Change
of Control Date (unless default shall be made by the Corporation in redeeming
the shares of the Series A Preferred Stock so delivered), shall no longer be
deemed to be issued and outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price or the shares of Common Stock issued upon
conversion) shall cease and terminate.
(d) If, on the Change of Control Date, the funds of the Corporation
legally available for such redemption shall be insufficient to redeem all
outstanding shares of Series A Preferred Stock funds to the maximum extent
legally available for such purposes shall be utilized to redeem the maximum
number of outstanding shares of Series A Preferred Stock on such date on a pro
rata basis among the holders of all outstanding shares of Series A Preferred
Stock that have requested redemption or whose shares are required to be redeemed
hereunder and thereafter the Corporation shall continue to redeem such shares
(on a pro rata basis) as promptly as practicable after funds are available
therefor.
(e) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 7 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to the series until such shares are once more designated as part of a particular
series of the Preferred Stock.
7
<PAGE>
Section 8. Conversion. The shares of Series A Preferred Stock shall
----------
have the following conversion rights.
(a) Definitions.
(i) "Vested Shares" with respect to shares of Series A Preferred
Stock issued to an Original Purchaser shall mean:
12,500 shares of Series A Preferred Stock on and after the
first anniversary of the Closing Date; plus 12,500 shares of
----
Series A Preferred Stock on and after the second anniversary
of the Closing Date (for an aggregate of 25,000 Vested
Shares); plus 12,500 shares of Series A Preferred Stock on
----
the third anniversary of the Closing Date (for an aggregate
of 37,500 Vested Shares)(all such share amounts as
appropriately adjusted for stock dividends or splits).
Shares of Series A Preferred Stock shall not vest if an
Original Purchaser is not employed by the Partnership on a
vesting date, unless his or her employment (A) has been
terminated by the Partnership other than for Cause (in which
case all unvested shares will immediately vest), (B) has
terminated due to the Original Purchaser's death or
Disability or Incapacity (in which case all unvested shares
will immediately vest) or (C) has been terminated by the
Original Purchaser for Good Reason (in which case all
unvested shares will immediately vest). In the event an
Original Purchaser is then employed by the Partnership and
there is a Change of Control, all shares of Series A
Preferred Stock originally issued to such Original Purchaser
shall immediately become "Vested Shares" if not already
vested.
(ii) "Unvested Shares" shall mean any shares of Series A
Preferred Stock that are not Vested Shares and may not, with
the passage of time, become vested.
(iii) "Cause" shall mean dishonesty, conviction of a felony or
gross neglect by an Original Purchaser of his duties (other
than as a result of Disability, Incapacity or death), or
conflict of interest, which gross neglect or conflict shall
continue for 30 days after the Partnership gives written
notice to an Original Purchaser requesting the cessation of
such gross neglect or conflict.
8
<PAGE>
(iv) "Disability" shall have the meaning given it in the long-
term disability plan previously operated by the
Partnership's Chadwick's of Boston business (or any
successor plan operated by the Partnership or any of its
affiliates, so long as the definition of "Disability" in any
such successor plan is not more restrictive). An Original
Purchaser's employment shall be deemed to be terminated for
Disability on the date on which such Original Purchaser is
entitled to receive long-term disability compensation
pursuant to such long-term disability plan.
(v) "Good Reason" shall mean, with respect to any voluntary
termination of employment by an Original Purchaser, the
following:
1) the assignment to such Original Purchaser of any duties
materially inconsistent with his positions, duties,
responsibilities, reporting requirements, and status
with the Partnership (or a subsidiary) on the later of
December 9, 1996 or 120 days prior to the date of such
termination, or a substantive change in such Original
Purchaser's titled, reporting requirements or offices
as in effect on the later of December 9, 1996 or 120
days prior to the date of such termination, or any
removal of such original Purchaser from or any failure
to reelect him to such positions, except in connection
with the termination of such Original Purchaser 's
employment by the Partnership (or a subsidiary) for
Cause or by such Original Purchaser other than for Good
Reason; or any other action by the Partnership (or a
subsidiary) which results in a diminishment in such
position, authority, duties or responsibilities, other
than an insubstantial and inadvertent action which is
remedied by the Partnership or the subsidiary promptly
after receipt of notice thereof given by such Original
Purchaser; or
2) if such Original Purchaser's rate of base salary for
any fiscal year is less than 100% of the base salary
paid to such Original Purchaser in the completed fiscal
year immediately preceding the fiscal year in which
such Original Purchaser voluntarily terminates his
employment, or if such Original Purchaser's total cash
compensation opportunities, including salary and
incentive, for any fiscal year are less than 100% of
the total cash compensation opportunities made
available
9
<PAGE>
to such Original Purchaser in the completed fiscal year
immediately preceding the fiscal year in which such
Original Purchaser voluntarily terminates his
employment; or
3) any relocation by the Partnership of such Original
Purchaser's principal place of employment of more than
50 miles from the place where such Original Purchaser's
principal residence was located on the date that such
Original Purchaser gives notice of such termination.
4) any breach by the Partnership of any term or provision
of its Employment Agreement with such Original
Purchaser, as such agreement may be amended from time
to time.
Notwithstanding the foregoing, a voluntary termination
by such Original Purchaser of his employment shall not be
deemed to be for "Good Reason" unless such termination
occurs within 120 days after the occurrence of any event
described in clauses 1), 2), 3) or 4) above without such
Original Purchaser's express written consent, such Original
Purchaser gives notice to the Partnership at least 30 days
in advance requesting that the situation described in such
clauses be remedied, and the situation remains unremedied
upon expiration of such 30-day period.
(vi) "Incapacity" shall mean a disability (other than Disability
within the meaning of that definition) or other impairment
of health that renders an Original Purchaser unable to
perform his duties to the satisfaction of the Compensation
Committee of the Board of Representatives of the
Partnership. If by reason of Incapacity such Original
Purchaser is unable to perform his duties for at least six
months in any consecutive 12-month period, upon written
notice by the Company the employment of an Original
Purchaser shall be deemed to have terminated by reason of
Incapacity.
(vii) "Original Purchaser" shall mean each of Carol Meyrowitz or
Dhananjaya Rao.
(b) Any Vested Share may, at the option of the holder thereof, be
converted into one share of Common Stock of the Corporation (the "Conversion
Ratio")(subject to adjustment as set forth below).
10
<PAGE>
(c) All outstanding Vested Shares shall be converted automatically
into Common Stock of the Corporation at the Conversion Ratio at 5:00 p.m. New
York City time on the third anniversary of the Closing Date if the rights
granted under Section 4 have not been properly exercised with respect to any
such shares.
(d) Each holder of Vested Shares who desires to convert the same into
Common Stock shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation and shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state therein the number of Vested Shares being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock to be converted and the person entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such Common Stock on such date.
(e) The Conversion Ratio is subject to adjustment from time to time
upon the occurrence of the events enumerated in this subparagraph (e).
If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares of
its capital stock;
then, in the case of paragraphs (i), (ii) and (iii) of this subsection (e), the
Conversation Ratio in effect immediately prior to such action shall be
proportionately adjusted, and in the case of paragraphs (iv) and (v) of this
subsection (e), appropriate provision shall be made so that the holder of any
Series A Preferred Stock converted after such action may receive the aggregate
number and kind of shares of capital stock of the Corporation which it would
have owned
11
<PAGE>
immediately following such action if such Series A Preferred Stock had been
converted immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
12
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by ___________________, its _________________, this
____ day of ____________________________.
BRYLANE, INC.
By:_____________________________
Title:
13
<PAGE>
EXHIBIT 10.74
VP HOLDING CORPORATION
STOCK SUBSCRIPTION AGREEMENT
----------------------------
THIS STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of December 9, 1996 by and between VP Holding Corporation, a
Delaware corporation (the "Company"), and Carol Meyrowitz ("Purchaser").
R E C I T A L S:
---------------
A. The Company indirectly holds a limited partnership interest in
Brylane, L.P. (the "Partnership") and a general partnership interest in the
Partnership pursuant to that certain Agreement of Limited Partnership dated as
August 30, 1993, as amended (the "Partnership Agreement"), among VLP Corporation
("VLP"), VGP Corporation ("VGP") and certain of subsidiaries of The Limited
(VLP, VGP and such subsidiaries are sometimes collectively referred to herein as
the "Partners").
B. The Company now desires to sell to Purchaser and Purchaser
desires to purchase from the Company shares of Series A Preferred Stock, $0.01
par value per share, of the Company (the "Series A Preferred Stock"), subject to
the terms and conditions set forth in this Agreement. The date on which such
sale and purchase occur shall be referred to herein as the "Closing Date."
C. The Partners and/or the Company may form a corporation that is a
successor to, or parent entity of, the Partnership and/or the Company or a
successor to the Partnership and/or the Company (collectively, "Newco"). Newco
may at some time complete an initial sale to the public (an "Initial Public
Offering") of equity securities pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Act").
D. In order to induce the Company to sell its shares of Series A
Preferred Stock to the Purchaser, Purchaser agrees to hold such shares and the
shares of common stock received upon conversion of such shares subject to the
restrictions and interests created by this Agreement.
A G R E E M E N T:
-----------------
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties agree as follows:
1. Sales and Purchase of Stock. The Company hereby agrees to sell to
---------------------------
Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from the Company, 37,500
shares (individually, a "Share," and collectively, the "Shares") of Series A
Preferred Stock of the Company, at a price of $20.00 per share, for an aggregate
purchase price of $750,000 (the "Purchase Price"). The Purchase Price shall be
payable by delivery of cash or Purchaser's check in the amount of the Purchase
Price. Purchaser shall deliver the cash or check to the Company prior to the
Closing Date. In connection with the purchase of Shares hereunder, Purchaser
acknowledges that he or she has reviewed the memorandum regarding Section 83(b)
of the Internal Revenue Code of 1986, as amended, attached hereto as Exhibit A.
---------
2. Restriction on Transfer of the Shares. Purchaser may not sell,
-------------------------------------
transfer, assign, pledge, hypothecate or otherwise dispose of (collectively,
"Transfer") any of the Shares, or any right, title or interest therein, prior to
the third anniversary of the Closing Date and, thereafter, any Transfer must be
in compliance with Sections 3 and 5 hereof. Any purported Transfer or Transfers
(including involuntary Transfers initiated by operation of legal process) of any
of the Shares or any right, title or interest therein, except in strict
compliance with the terms and conditions of this Agreement, shall be null and
void.
3. Right of First Refusal.
----------------------
(a) Sales; Notice. At any time on or after the third anniversary
-------------
of the Closing Date, Purchaser may Transfer for cash (and only for such form of
consideration) any or all of the Shares to any third party subject to the
provisions of this Section 3 and Section 4(c), 5(d) and 7(a) hereof. Prior to
any such intended Transfer, Purchaser shall first give at least 30 days' advance
written notice (the "Notice") to the Company specifying (i) Purchaser's bona
fide intention to sell such Shares; (ii) the name(s) and address(es) of the
proposed transferee(s); (iii) the number of Shares Purchaser proposes to
Transfer (individually, an "Offered Share," and collectively, the "Offered
Shares"); (iv) the price for which Purchaser proposes to Transfer each Offered
Share (the "Proposed Purchase Price"); and (v) all other material terms and
conditions of the proposed transfer.
(b) Election by the Company. Within 20 days after receipt of the
-----------------------
Notice, the Company (or its designee) may elect to purchase all of the Offered
Shares at the price and on the terms and conditions set forth in the Notice by
delivery of written notice of such election to Purchaser, specifying a day,
which shall not be more than 20 days after such notice is delivered, on or
before which Purchaser shall surrender (if Purchaser has not already done so)
the certificate or certificates representing the Offered Shares (duly endorsed
in blank for transfer) at the principal office of the Company. Within 20 days
after delivery of such notice to Purchaser, the Company shall
2.
<PAGE>
deliver to Purchaser a check, payable to Purchaser or to such person as
Purchaser shall request, in the amount equal to the product of the Proposed
Purchase Price multiplied by the number of Offered Shares (the "First Refusal
Price") in exchange for the Offered Shares. If Purchaser fails to so surrender
such certificate or certificates on or before such date, from and after such
date the Offered Shares shall be deemed to be no longer outstanding, and
Purchaser shall cease to be a stockholder with respect to such Shares and shall
have no rights with respect thereto except only the right to receive payment of
the First Refusal Price, without interest, upon surrender of the certificate or
certificates therefor duly endorsed in blank for Transfer. If the Company does
not elect to purchase all of the Offered Shares, Purchaser shall be entitled to
Transfer the Offered Shares, subject to Sections 5(d) and 7(a)of this Agreement,
to the transferee(s) named in the Notice at the Proposed Purchase Price or at a
higher price and on the terms and conditions set forth in the Notice; provided,
however, that such Transfer must be consummated within 90 days after the date of
the Notice and any proposed Transfer after such 90-day period may be made only
by again complying with the procedures set forth in this Section 3.
4. Investment Representations. Purchaser represents and warrants to
--------------------------
the Company as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
-----------------------
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
---------------------
business of the Company and its direct or indirect, majority or wholly-owned
entities including the Partnership (a "Subsidiary" and collectively
"Subsidiaries"); (ii) has had an opportunity to discuss with representatives of
the Company and its Subsidiaries the condition of and prospects for the
continued operation and financing of the Company and its Subsidiaries and such
other matters as Purchaser has deemed appropriate in considering whether to
invest in the Shares; and (iii) has been provided access to all available
information about the Company and its Subsidiaries requested by Purchaser.
(c) Shares Not Registered. Purchaser understands that the
---------------------
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Purchaser may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification
and the Company receives an opinion from Purchaser's counsel to such effect, in
form and substance reasonably satisfactory to the Company. Purchaser is an
"accredited investor" as defined in Rule 501 of Regulation D of the Act.
3.
<PAGE>
5. Obligation to Sell Securities; Other Obligations.
------------------------------------------------
(a) If FS Equity Partners II, L.P., a California limited
partnership, and FS Equity Partners III, L.P., a Delaware limited partnership
(collectively, "FSEP"), find a third-party buyer, for all of the shares of
Common Stock of the Company, VGP and/or VLP (the "Companies") held by FSEP or
for all of the Partnership units (the "Units") indirectly held by FSEP or if the
Company or FSEP are required to sell all shares of the Company pursuant to the
Partnership Agreement (whether such sale is by way of purchase, exchange, merger
or other form of transaction), upon the request of FSEP, the Purchaser shall
sell all of his or her Shares (on an as-converted basis if the Shares have not
yet been converted into common stock) on the same terms and conditions as apply
to the FSEP sale (except for differences based on the fact that Partnership
Units and not stock are being sold); provided that, prior to the third
anniversary of the date hereof, Purchaser shall not be required to receive less
than $20.00 per Share (as appropriately adjusted for stock dividends,
reclassifications or splits) under this provision. The Purchaser agrees to be
bound by the provisions of Section 9.05 of the Partnership Agreement in the same
manner and to the same extent as FSEP in the event FSEP is required to sell any
securities in accordance with such section.
(b) The Company may at any time by notice to the holder
repurchase any or all Unvested Shares (as defined in Section 8(a) of the
Certificate of Designation creating the Shares) of the Purchaser at a price of
$20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits). If Purchaser fails to surrender certificates
evidencing repurchased shares on date set for repurchase in such notice, from
and after such date the Shares which the Company elected to repurchase shall be
deemed to be no longer outstanding, and Purchaser shall cease to be a
stockholder with respect to such Shares and shall have no rights with respect
thereto except only the right to receive payment of the repurchase price,
without interest, upon surrender of the certificate or certificates therefor
(duly endorsed in blank for transfer).
(c) In addition to the obligations of the Purchaser to sell the
Shares pursuant to Sections 5(a) and (b) above, the Purchaser hereby agrees to
exchange or otherwise transfer his or her Shares and Newco shall be obligated to
exchange such Shares (i) for preferred stock of Newco with terms and conditions
substantially similar to the Series A Preferred Stock if the Shares have not
been converted into common stock or (ii) for common stock of Newco if the Shares
have been converted into Common Stock, in connection with the Newco (whether or
not in connection with an initial public offering). The Purchaser shall be
entitled to receive the appropriate Newco securities at the time that FSEP
converts its Company shares into Newco securities. Purchaser agrees that any
conversion ratio with respect to such preferred stock will be equivalent to the
exchange ratio of Company common stock for Newco common stock. Purchaser agrees
to execute a new agreement with respect to Newco securities containing
substantially similar provisions to this Agreement. The form of the Certificate
of Designation of the Newco preferred stock is attached hereto as Exhibit B.
---------
4.
<PAGE>
(d) The Purchaser agrees to consent to any sale, transfer,
reorganization, exchange, merger, combination or other form of transaction
described in this Section 5 or contemplated by Article X of the Partnership
Agreement and to execute such agreements, powers of attorney, voting proxies or
other documents and instruments as may be necessary or desirable to consummate
such sale, transfer, reorganization, exchange, merger, combination or other form
of transaction. Purchaser further agrees to timely take such other actions as
FSEP may reasonably request in connection with the approval of the consummation
of such sale, transfer, reorganization, exchange, merger, combination or other
form of transaction, including voting as a stockholder to approve any such sale,
transfer, reorganization, exchange, merger, combination or other form of
transaction and including the execution of a reasonable lock-up agreement in
connection with an Initial Public Offering.
(e) The obligations of Purchaser pursuant to Section 5 shall be
binding on any transferee of any of the Shares and Purchaser shall obtain and
deliver to the Company and FSEP a written commitment to be bound by such
provisions from such transferee prior to any transfer.
6. Termination.
-----------
The provision of Sections 2, 3, 5(a) and 5(b) shall terminate with
respect to shares of Common Stock received upon conversion of Shares upon
completion of an Initial Public Offering satisfying the following requirements:
(i) the offering results in receipt by Newco of at least $30,000,000 of gross
proceeds from the sale of newly issued stock or (ii) the offering results in the
sale of newly issued common stock representing at least 20% of the outstanding
common stock of Newco (after giving effect to such offering).
7. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION
AGREEMENT DATED AS OF DECEMBER 9, 1996 BY AND BETWEEN VP HOLDING
CORPORATION, A DELAWARE CORPORATION, AND THE ORIGINAL PURCHASER
HEREOF, A COPY OF
5.
<PAGE>
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF VP
HOLDING CORPORATION."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) a party may designate for itself by like notice):
If to the Company:
VP Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
If to Purchaser:
_________________________
_________________________
_________________________
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
6.
<PAGE>
(f) Disputes. In the event of any dispute among the parties
--------
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Conversion, Recapitalizations or Exchanges Affecting the
--------------------------------------------------------
Company's Capital Stock; Issuances of Capital Stock. The provisions of this
- ---------------------------------------------------
Agreement shall apply to any and all shares of capital stock or other securities
of the Company or any successor or assign of the Company, or the Partnership,
including Newco, which may be issued in respect of, in exchange for or in
substitution of, the Shares by reason of any conversion, stock dividend, stock
split, reverse split, recapitalization, reclassification, combination, merger,
consolidation or otherwise, and such shares or other securities shall be
encompassed within the term "Shares" for purposes of this Agreement.
(i) No Rights as an Employee. Nothing in this Agreement shall
------------------------
affect in any manner whatsoever the rights of the Company or any of its
Subsidiaries to terminate Purchaser's employment for any reason, with or without
cause, subject to the terms and conditions of any employment agreement to which
Purchaser may be a party.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Purchaser, and Purchaser shall have no right to be
advised of, any material information regarding the Partnership, Company or any
of its Subsidiaries at any time prior to, upon or in connection with the
Company's repurchase of the Shares under this Agreement.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns (including Newco), and this Agreement shall inure to the benefit of, and
be binding upon, such respective affiliates, successors and/or assigns of the
Company in the same manner and to the same extent as if such affiliates,
successors and/or assigns were original parties hereto. Without limiting the
foregoing, the Company may assign the right of first refusal provided for in
Section 3 of this Agreement or the repurchase right contained in Section 5(b) of
this Agreement, to any designee, including any of its affiliates, successors
and/or assigns. Unless specifically provided herein to the contrary, Purchaser
may not assign any or all of its rights and/or obligations and/or delegate any
or all its duties under this Agreement without the prior written consent of the
Company. Upon an assignment of any or all of Purchaser's rights and/or
obligations and/or a delegation of any or all of its duties under this Agreement
in accordance with the terms of this Agreement, this Agreement shall inure to
the benefit of, and be binding upon,
7.
<PAGE>
Purchaser's respective affiliates, successors and/or assigns in the same manner
and to the same extent as if such affiliates, successors and/or assigns were
original parties hereto.
(l) Headings. Introductory headings at the beginning of each
--------
section and subsection of this Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
VP HOLDING CORPORATION,
a Delaware corporation
By: /s/ John M. Roth
------------------------------------
Its: President
PURCHASER:
/s/ Carol Meyrowitz
----------------------------------------
Carol Meyrowitz
8.
<PAGE>
EXHIBIT A
---------
M E M O R A N D U M
TO: Ms. Carol Meyrowitz
Mr. Dhananjaya K. Rao
FROM: Riordan & McKinzie
DATE: December 2, 1996
RE: Income Tax Consequences of Restricted Stock
- --------------------------------------------------------------------------------
This memorandum discusses certain federal income tax consequences to
you with respect to your purchase of shares of Series A Preferred Stock (the
"Shares") of VP Holding Corporation, a Delaware corporation (the "Company").
Because you are an employee of Brylane L.P., the limited partnership
in which subsidiaries of the Company hold both an interest as a general partner
and an interest as a limited partner, we believe that the Shares are subject to
Federal income taxation under the provisions of Section 83 of the Internal
Revenue Code of 1986 (the "Code"). We believe that the Shares are subject to a
"substantial risk of forfeiture" under Section 83 of the Code and thus, the
shares would be "restricted stock." The "substantial risk of forfeiture" arises
because of your right to convert the Shares into common stock of the Company is
dependent upon such shares being "vested" over the next three years and that the
Shares are subject to repurchase by the Company at a price of $20 per share if
you cease being an employee under certain circumstances over that three year
period. Thus, we believe such restrictions would be treated as a "substantial
risk of forfeiture" because your right to the "full enjoyment" of such shares
are conditioned upon the future performance of your services.
Section 83 of the Code generally will tax you upon the fair market
value of shares of restricted stock at the time when the substantial risk of
forfeiture lapses.
As a result, you would be taxed upon one-third of the Shares on each of the next
three anniversaries of their purchase by you if you remain an employee of
Brylane L.P. At such time, you would have income equal to the excess of the
then fair market value of one-third of the Shares over their purchase price. As
the Shares would then be convertible into common stock, it is possible that the
Shares could have substantial value in excess of your purchase price. If your
employment is terminated under certain limited circumstances, such restrictions
may never lapse.
<PAGE>
You are obligated to recognize income in this amount regardless of
whether or not you dispose of the Shares at that time or have the ability to
sell the Shares. This recognition event could require the payment of a
significant amount of income tax at a time when cash is unavailable to pay the
tax, if the Shares have substantially appreciated in value from the time of your
purchase.
If you believe that the Shares will substantially appreciate in value
over the next three years, you can file an election with the Internal Revenue
Service to have your purchase of the Shares governed by Section 83(b) of the
Code. If you make this election, the fact that the Shares are subject to a
substantial risk of forfeiture is ignored for income tax purposes. In other
words, you will not recognize taxable income when the Company's right to
repurchase the Shares at less than their fair market value terminates.
If you make the Section 83(b) election, you will be required to report
as taxable income the amount by which the fair market value of the shares you
purchased exceeds the purchase price you paid for the Shares. At this time, the
Company believes that the purchase price of the Shares is equal to their fair
market value, so no taxable income need be reported.
Any amount included in your gross income as a result of the issuance
of the Shares or the termination of the Company's repurchase right will be
ordinary income. Such amount constitutes "wages" with respect to which the
Company is required to deduct and withhold federal income tax and Federal
Insurance Contribution Act tax. Such deductions will be made from the wages,
salary, bonus or other income to which the purchaser would otherwise be entitled
and, at the Company's election, you may be required to pay to the Company (for
withholding on your behalf) any amount not so deducted but required to be so
withheld.
When you sell the Shares, you will recognize capital gain or loss in
an amount equal to the difference between the sale proceeds and your basis in
the shares. The basis in the Shares is equal to the value of the Shares on the
date the risk of forfeiture terminates, or if you make the Section 83(b)
election, the value of the Shares on the date the Shares were purchased, which
should be $20.00 per share. Your gain will be short-term or long-term depending
upon whether your holding period in the shares exceeds one year at the time of
disposition.
THE PRECEDING DISCUSSION IS APPLICABLE TO FEDERAL TAX LAW ONLY WITH
RESPECT TO THE SHARES AS RESTRICTED STOCK. ALTHOUGH MANY STATES HAVE RULES
RELATING TO RESTRICTED STOCK THAT PARALLEL THOSE OF THE FEDERAL LAW, YOU SHOULD
CONSULT WITH YOUR TAX ADVISER CONCERNING THE STATE TAX CONSEQUENCES AND
REQUIREMENTS APPLICABLE TO YOUR PURCHASE OF THE SHARES.
If you wish to make the Section 83(b) election with respect to your
Restricted Stock:
2.
<PAGE>
1. Review the attached Section 83(b) election form. Complete
(INCLUDING SOCIAL SECURITY NUMBER) and sign the form. Make 4 copies of the
completed form.
2. File one copy of the Section 83(b) election form with the
Internal Revenue Service office at which you file your federal income tax
return. NOTE: THE FORM MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
------
30 DAYS AFTER THE DATE ON WHICH YOU PURCHASED THE SHARES IN ORDER TO MAKE A
- -------
VALID ELECTION. For example, if the transaction closes on December 9, 1996, you
must file the election on or before January 7, 1997.
3. Deliver one copy to Robert Pulciani at Brylane, L.P.
4. Attach one copy to your federal income tax return and, if
appropriate, one copy to your state income tax return for 1996.
If you have any questions concerning the Section 83(b) election,
please contact your tax advisor. You may also wish to have your tax advisor
contact Jeffrey L. DuRocher of Riordan & McKinzie at (213) 229-8445.
3.
<PAGE>
ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF TRANSFER
1.
-----------------------------------
(Name)
-----------------------------------
(Street Address)
-----------------------------------
(City, State, Zip Code)
-----------------------------------
(Social Security Number)
2. This election has been made under Internal Revenue Code 83(b) and is being
made with respect to the following property:
Shares of the Series A Preferred Stock of VP Holding Corporation
-------------------------------------------------------------------------
3. The property was transferred on the following date: December 9, 1996
--------------------
The election is made for the following taxable year (e.g. December 31,
1996): December 31, 1996
-----------------
4. The property transferred is subject to the following restrictions:
The Preferred Stock is not vested and is subject to repurchase by the
------------------------------------------------------------------------
Company upon termination of the taxpayer's employment by the Company.*
------------------------------------------------------------------------
5. The property transferred, with respect to which the election has been made,
has the following fair market value at the time of transfer: $20.00 per
----------
share
--------------
6. The amount, if any, paid for such property: $20.00 per share
---------------------------
7. A copy of this statement was given to the following: Brylane L.P., 2300
------------------
Southeastern Avenue, Indianapolis, Indiana 46206
------------------------------------------------------------------------
(The entity for whom the services were performed).
If the transferee of the restricted property and the person performing the
services are not the same, then a copy of this statement has been given to
the following: (same)
---------
------------------------------------------
(The transferee of the restricted property).
- --------------------------------------------------------------------------------
(Signature)
NOTE: This filing is being made for Alternative Minimum Tax (AMT) purposes
* This repurchase right expires with respect to one-third of these
shares per year over the next three years.
<PAGE>
EXHIBIT B
---------
CERTIFICATE OF DESIGNATION
OF
THE SERIES A CONVERTIBLE REDEEMABLE
PREFERRED STOCK
OF
BRYLANE, INC.
---------------------
Brylane, Inc., a corporation organized and existing under the Delaware
General Corporation Law (the "Corporation"), hereby certifies that the following
resolutions were adopted as of __________________, 19__ by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board of Directors")
by the provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the
______________ shares of Preferred Stock of the Corporation authorized in
Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series
of the Preferred Stock consisting of [75,000] shares, which series shall have
the following powers, designations, preferences and relative, participating,
optional or other rights, and the following qualifications, limitations and
restrictions (in addition to the powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, set forth in the Certificate of Incorporation which are applicable
to the Preferred Stock):
Section 1. Designation of Amount. The shares of such series shall be
---------------------
designated as "Series A Convertible Redeemable Preferred Stock" (the "Series A
Preferred Stock") and the authorized number of shares constituting such series
shall be [75,000] shares. The par value of the Series A Preferred Stock shall
be $.01 per share.
Section 2. Dividends.
---------
The holders of shares of the Series A Preferred Stock will not be
entitled to receive dividends payable in cash or property (other than such stock
dividends, reclassifications or splits with respect to the Series A Preferred
Stock as may be declared by the Board of Directors in its sole discretion).
Section 3. Redemption at Corporation's Option.
----------------------------------
(a) The shares of the Series A Preferred Stock will be redeemable at
the option of the Corporation by resolution of its Board of Directors, in whole
or from time to time in part, at any time with respect to shares of Series A
Preferred Stock that will always be Unvested Shares (as defined in Section
8(a)), subject to the limitations set forth below, at a redemption price of
[$20.00] per share (as appropriately adjusted for stock dividends,
reclassifications or splits), upon giving notice as provided below. It is the
intent of this provision that redemption
<PAGE>
not be permitted with respect to shares of Series A Preferred Stock that may, in
the future, vest in accordance with Section 8.
(b) Subject to the foregoing, the number of shares to be redeemed
shall be determined by the Board of Directors in its sole discretion.
Redemption shall be on a pro rata basis among all holders of Series A Preferred
Stock. Once the Corporation has mailed a notice of redemption pursuant to this
Section 3 (as described below), such holder(s) may not exercise any rights under
Section 6.
(c) At least 10 days but not more than 30 days prior to the date fixed
for the redemption of shares of the Series A Preferred Stock, a written notice
shall be mailed to each holder of record of shares of the Series A Preferred
Stock to be redeemed in a postage prepaid envelope addressed to such holder at
his post office address as shown on the records of the Corporation, notifying
such holder of the election of the Corporation to redeem such shares, stating
the dated fixed for redemption thereof (an "Optional Redemption Date"), and
calling upon such holder to surrender to the Corporation on the Optional
Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Optional Redemption Date each holder of shares of
the Series A Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at the place
designated in such notice and thereupon the redemption price of such shares
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less that all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Optional Redemption Date,
all rights of the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price of such shares, without interest, upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred on the books of the Corporation,
and such shares shall not be deemed to be outstanding for any purpose
whatsoever.
(d) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 3 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to series until such shares are once more designated as part of a particular
series of the Preferred Stock.
Section 4. Redemption at Holder's Option.
-----------------------------
(a) At the request of the holder thereof, subject to Section 4(b), the
Corporation shall, to the extent permitted by law and from funds legally
available therefor, redeem at the redemption price of [$20.00] per share (as
appropriately adjusted for stock dividends, reclassifications or splits) any
Vested Share (as defined in Section 8(a)) of Series A Preferred
2
<PAGE>
Stock on the third anniversary of the closing of transactions contemplated by
that certain Asset Purchase Agreement dated October 18, 1996 among TJX
Companies, Inc., Chadwick's, Inc. and Brylane, L.P. (the "Closing Date");
provided that no request for redemption under this Section 4 may be made after
4:30 p.m. New York City time on the date that is the third anniversary of the
Closing Date. Each holder of Vested Shares of the Series A Preferred Stock to
be redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the time the request for redemption is made and,
subject to Section 4(b), promptly after the third anniversary of the Closing
Date the redemption price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled (the date of any
such payment being the "Mandatory Redemption Date"). From and after the
Mandatory Redemption Date, all rights of the holder of Series A Preferred Stock
requesting redemption as a stockholder of the Corporation, except the right to
receive the redemption price (without interest) of such shares upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred on the books of the Corporation,
and such shares shall not be deemed to be outstanding for any purpose
whatsoever.
(b) If, on the Mandatory Redemption Date, the funds of the Corporation
legally available for such redemption shall be insufficient to redeem all Vested
Shares required to be redeemed, funds to the maximum extent legally available
for such purposes shall be utilized to redeem the maximum number of outstanding
Vested Shares on such date on a pro rata basis among the requesting holders of
Vested Shares and thereafter the Corporation shall continue to redeem such
shares (on a pro rata basis) as promptly as practicable after funds are legally
available therefor.
(c) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 4 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to the series until such shares are once more designated as part of a particular
series of the Preferred Stock.
Section 5. Voting Rights.
-------------
Except as required by Delaware law, the holders of shares of the
Series A Preferred Stock shall not be entitled to vote on any matter.
Section 6. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation and
any preferential distribution with respect to any other class or shares of the
Corporation ranking senior with respect to rights upon liquidation or
3
<PAGE>
dissolution of the Corporation to the Series A Preferred Stock, the holders of
shares of the Series A Preferred Stock shall be entitled to receive out of the
remaining net assets of the Corporation, the amount of [$20.00] (as
appropriately adjusted for stock dividends, reclassifications or splits) for
each share of the Series A Preferred Stock, before any distribution shall be
made to the holders of the Common Stock with respect to payments upon
dissolution or liquidation of the Corporation. If upon any liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of the outstanding shares of
Series A Preferred Stock shall be insufficient to permit the payment to such
stockholders of the full preferential amounts aforesaid, then the entire assets
of the Corporation to be distributed shall be distributed ratably among the
holders of outstanding shares of Series A Preferred Stock based on the full
preferential amounts for the number of outstanding shares of Series A Preferred
Stock held by each holder.
(b) For purposes of this Section 6, a dissolution, winding up or
liquidation shall not include (i) any consolidation or merger of the Corporation
with or into any other corporation or entity or a plan of exchange between the
Corporation and any other corporation or entity or (ii) a sale or other
disposition of all or substantially all of the Corporation's assets to another
corporation or entity.
(c) After the payment of the full preferential amounts provided for
herein to the holders of shares of the Series A Preferred Stock or funds
necessary for such payment have been set aside in trust for the holders thereof,
such holders shall be entitled to no other or further participation in the
distribution of the assets of the Corporation.
Section 7. Redemption Upon Change of Control.
---------------------------------
(a) Subject to Section 7(d), in the event of a Change of Control (as
defined below) (the date of such occurrence, the "Change of Control Date"), each
Vested Share shall, at the option of the holder thereof, either (i) be redeemed
by the Corporation at a price of $20.00 per share (as appropriately adjusted for
stock dividends, reclassifications or splits) or (ii) be converted into Common
Stock of the Corporation at the Conversion Ratio (as defined below); provided,
however, that shares that are not Vested Shares will not be convertible at the
option of the holder thereof and shall be redeemed by the Corporation at a price
of [$20.00] per share (as appropriately adjusted for stock dividends,
reclassifications or splits). A "Change of Control" shall have occurred for
purposes of this Section 7(a) upon the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than
Permitted Holders (as defined below), is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have beneficial ownership of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of all classes of Voting Equity Interests (as defined below)
of the Corporation, Brylane, L.P. (the
4
<PAGE>
"Partnership") or the Partnership's general partner; provided that the Permitted
--------
Holders do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Representatives or
Directors provided, further, that unless the Compensation Committee of the
-------- -------
Partnership shall otherwise determine prior to the acquisition of such majority
ownership, such acquisition of ownership shall not constitute a Change of
Control if an Original Purchaser or an Executive Related Party is the person or
a member of a group constituting the person acquiring such ownership; or; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Representatives or Directors (together with
any new members of the Board of Representatives or Directors whose election to
such Board or whose nomination for election by the holders of Equity Interests
(as defined below) of the Partnership or the Corporation was approved by (a) a
Permitted Holder or (b) a vote of at least 66 2/3% of the members of the Board
of Representatives or Directors then still in office who were either members of
the Board of Representatives or Directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of such Board of Representatives or
Directors then in office; (iii) the Partnership or its general partner or the
Corporation consolidates with or merges with or into any person or entity or
conveys, transfers or leases all or substantially all of its assets to any
person or entity, or any corporation or partnership or entity consolidates with
or merges into or with the Partnership or its general partner or the
Corporation, in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Partnership or its general partner or
the Corporation are changed into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Equity
Interests of the Partnership or its general partner or the Corporation are not
changed or exchanged at all (except to the extent necessary to reflect a change
in the jurisdiction of incorporation of the Partnership or its general partner
or the Corporation or where (A) the outstanding Voting Equity Interests of the
Partnership or its general partner or the Corporation are changed into or
exchanged for (x) Voting Equity Interests of the surviving corporation or
entity, or (y) cash, securities and other property (other than Equity Interests
of the surviving corporation or entity) and (B) no "person" or "group" other
than Permitted Holders owns immediately after such transaction, directly or
indirectly, more than the greater of (1) 50% of the total outstanding Voting
Equity Interests of the surviving corporation or entity, and (2) the percentage
of the outstanding Voting Equity Interests of the surviving corporation or
partnership or entity owned, directly or indirectly, by Permitted Holders
immediately after such transaction); or (iv) the sale or other disposition by
the Partnership, in one transaction or a series of related transactions (but not
including a disposition that is part of any sale-and-leaseback or similar
financing transactions), of assets aggregating more than thirty percent (30%) of
the assets of the Partnership's Chadwick's of Boston business (taken at the
values as stated on the books of the Partnership determined in accordance with
generally accepted accounting principles consistently applied), or responsible
for generating more than thirty percent (30%) of the net sales of the
Partnership's Chadwick's of Boston business; provided, that unless otherwise
--------
determined by the Compensation Committee of the Corporation, no transaction
described above shall constitute a Change of Control with respect to the shares
of Series A Preferred Stock issued to an Original Purchaser if, immediately
after such transaction, such
5
<PAGE>
Original Purchaser (as defined in Section 8(a)) or any Executive Related Party
(as defined below) shall own Equity Interests of any surviving corporation or
entity ("Surviving Entity") having a fair value as a percentage of the fair
value of the Equity Interests of such Surviving Entity greater than 125% of the
fair value of the Equity Interests of the Partnership and/or the Corporation
owned by such Original Purchaser and any Executive Related Party immediately
prior to such transaction, expressed as a percentage of the fair value of all
Equity Interests of the Partnership and/or the Corporation immediately prior to
such transaction; provided, further, that for purposes of this definition, if a
-------- -------
transaction agreement requires as a condition precedent approval by the
equityholders of the Partnership and/or the Corporation of the transaction or
related agreement, a Change of Control shall not be deemed to have taken place
unless such approval is secured and the transaction is consummated.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred as a result of any sale of Equity
Interests in a public offering.
"Equity Interest" in any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents or
interest in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such person.
"Executive Related Party" shall mean any affiliate or associate of an
Original Purchaser other than the Corporation or the Partnership, or an
affiliate of the Partnership or the Corporation. The terms "affiliate" and
"associate" shall have the meanings ascribed thereto in Rule 12b-2 under the
Exchange Act (the term "registrant" in the definition of "associate" meaning, in
this case, the Partnership or the Corporation).
"Permitted Holders" means (i) The Limited, Inc., a Delaware
corporation, and any of its affiliates, (ii) Freeman Spogli & Co., a California
general partnership, and any of its affiliates, (iii) WearGuard Corporation, a
Delaware corporation, and any of its affiliates, (iv) Chadwicks, Inc. (v) Leeway
& Co., as nominee for The AT&T Long-Term Investment Trust ("ATT") and the
affiliates and permitted assignees of ATT and (vi) NYNEX Master Trust and its
affiliates and permitted assignees and (vii) VP Holding Corporation (with
respect to the general partner of the Partnership); provided that Brylane, L.P.
--------
and it subsidiaries shall not be deemed affiliates of The Limited, Inc., Freeman
Spogli & Co., WearGuard Corporation, Chadwick's, Inc., Leeway & Co., as nominee
for The AT&T Long-Term Investment Trust and NYNEX Master Trust for purposes of
this definition.
"Voting Equity Interests" means Equity Interests of the class or
classes pursuant to which the holders thereof have (i) in respect of a
corporation, the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time Equity Interests of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency)
6
<PAGE>
or (ii) in respect of limited liability company or other entity the general
voting power under ordinary circumstances to elect the board of directors or
other governing board of such entity.
(b) The Corporation shall notify the holders of Series A Preferred
Stock in writing of the occurrence of a Change of Control (i) within 15 days
after a Change of Control caused by an event described in clauses (i) or (ii) of
the definition of Change of Control above or (ii) 15 days prior to Change of
Control caused by an event described in clauses (iii) or (iv) of the definition
of Change of Control above. The Corporation shall either (i) redeem, subject to
subsection (d) below, shares of Series A Preferred Stock at a redemption price
equal to $20.00 per share (as appropriately adjusted for stock dividends,
reclassifications or splits) or (ii) convert shares of Series A Preferred Stock
into shares of common stock at the Conversion Ratio. Subject to the proviso in
the first sentence of Section 7(a), holders of Series A Preferred Stock shall
have five days from receipt of such notice to elect to have shares redeemed or
converted. The Corporation shall have no obligations under this Section 7 to
redeem or convert shares of Series A Preferred Stock unless the event causing
the Change of Control is consummated. Shares to be redeemed or converted shall
be delivered with the holder's election together with any completed transfer
documents reasonably required by the Board of Directors of the Corporation.
(c) All shares of Series A Preferred Stock from and after the Change
of Control Date (unless default shall be made by the Corporation in redeeming
the shares of the Series A Preferred Stock so delivered), shall no longer be
deemed to be issued and outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price or the shares of Common Stock issued upon
conversion) shall cease and terminate.
(d) If, on the Change of Control Date, the funds of the Corporation
legally available for such redemption shall be insufficient to redeem all
outstanding shares of Series A Preferred Stock funds to the maximum extent
legally available for such purposes shall be utilized to redeem the maximum
number of outstanding shares of Series A Preferred Stock on such date on a pro
rata basis among the holders of all outstanding shares of Series A Preferred
Stock that have requested redemption or whose shares are required to be redeemed
hereunder and thereafter the Corporation shall continue to redeem such shares
(on a pro rata basis) as promptly as practicable after funds are available
therefor.
(e) Shares of the Series A Preferred Stock redeemed pursuant to the
provisions of this Section 7 shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to the series until such shares are once more designated as part of a particular
series of the Preferred Stock.
7
<PAGE>
Section 8. Conversion. The shares of Series A Preferred Stock shall
----------
have the following conversion rights.
(a) Definitions.
(i) "Vested Shares" with respect to shares of Series A Preferred
Stock issued to an Original Purchaser shall mean:
12,500 shares of Series A Preferred Stock on and after the
first anniversary of the Closing Date; plus 12,500 shares of
----
Series A Preferred Stock on and after the second anniversary
of the Closing Date (for an aggregate of 25,000 Vested
Shares); plus 12,500 shares of Series A Preferred Stock on
----
the third anniversary of the Closing Date (for an aggregate
of 37,500 Vested Shares)(all such share amounts as
appropriately adjusted for stock dividends or splits).
Shares of Series A Preferred Stock shall not vest if an
Original Purchaser is not employed by the Partnership on a
vesting date, unless his or her employment (A) has been
terminated by the Partnership other than for Cause (in which
case all unvested shares will immediately vest), (B) has
terminated due to the Original Purchaser's death or
Disability or Incapacity (in which case all unvested shares
will immediately vest) or (C) has been terminated by the
Original Purchaser for Good Reason (in which case all
unvested shares will immediately vest). In the event an
Original Purchaser is then employed by the Partnership and
there is a Change of Control, all shares of Series A
Preferred Stock originally issued to such Original Purchaser
shall immediately become "Vested Shares" if not already
vested.
(ii) "Unvested Shares" shall mean any shares of Series A
Preferred Stock that are not Vested Shares and may not, with
the passage of time, become vested.
(iii) "Cause" shall mean dishonesty, conviction of a felony or
gross neglect by an Original Purchaser of his duties (other
than as a result of Disability, Incapacity or death), or
conflict of interest, which gross neglect or conflict shall
continue for 30 days after the Partnership gives written
notice to an Original Purchaser requesting the cessation of
such gross neglect or conflict.
8
<PAGE>
(iv) "Disability" shall have the meaning given it in the long-
term disability plan previously operated by the
Partnership's Chadwick's of Boston business (or any
successor plan operated by the Partnership or any of its
affiliates, so long as the definition of "Disability" in any
such successor plan is not more restrictive). An Original
Purchaser's employment shall be deemed to be terminated for
Disability on the date on which such Original Purchaser is
entitled to receive long-term disability compensation
pursuant to such long-term disability plan.
(v) "Good Reason" shall mean, with respect to any voluntary
termination of employment by an Original Purchaser, the
following:
1) the assignment to such Original Purchaser of any duties
materially inconsistent with his positions, duties,
responsibilities, reporting requirements, and status
with the Partnership (or a subsidiary) on the later of
December 9, 1996 or 120 days prior to the date of such
termination, or a substantive change in such Original
Purchaser's titled, reporting requirements or offices
as in effect on the later of December 9, 1996 or 120
days prior to the date of such termination, or any
removal of such Original Purchaser from or any failure
to reelect him to such positions, except in connection
with the termination of such Original Purchaser's
employment by the Partnership (or a subsidiary) for
Cause or by such Original Purchaser other than for Good
Reason; or any other action by the Partnership (or a
subsidiary) which results in a diminishment in such
position, authority, duties or responsibilities, other
than an insubstantial and inadvertent action which is
remedied by the Partnership or the subsidiary promptly
after receipt of notice thereof given by such Original
Purchaser; or
2) if such Original Purchaser's rate of base salary for
any fiscal year is less than 100% of the base salary
paid to such Original Purchaser in the completed fiscal
year immediately preceding the fiscal year in which
such Original Purchaser voluntarily terminates his
employment, or if such Original Purchaser's total cash
compensation opportunities, including salary and
incentive, for any fiscal year are less than 100% of
the total cash compensation opportunities made
available
9
<PAGE>
to such Original Purchaser in the completed fiscal year
immediately preceding the fiscal year in which such
Original Purchaser voluntarily terminates his
employment; or
3) any relocation by the Partnership of such Original
Purchaser's principal place of employment of more than
50 miles from the place where such Original Purchaser's
principal residence was located on the date that such
Original Purchaser gives notice of such termination.
4) any breach by the Partnership of any term or provision
of its Employment Agreement with such Original
Purchaser, as such agreement may be amended from time
to time.
Notwithstanding the foregoing, a voluntary termination
by such Original Purchaser of his employment shall not be
deemed to be for "Good Reason" unless such termination
occurs within 120 days after the occurrence of any event
described in clauses 1), 2), 3) or 4) above without such
Original Purchaser's express written consent, such Original
Purchaser gives notice to the Partnership at least 30 days
in advance requesting that the situation described in such
clauses be remedied, and the situation remains unremedied
upon expiration of such 30-day period.
(vi) "Incapacity" shall mean a disability (other than Disability
within the meaning of that definition) or other impairment
of health that renders an Original Purchaser unable to
perform his duties to the satisfaction of the Compensation
Committee of the Board of Representatives of the
Partnership. If by reason of Incapacity such Original
Purchaser is unable to perform his duties for at least six
months in any consecutive 12-month period, upon written
notice by the Company the employment of an Original
Purchaser shall be deemed to have terminated by reason of
Incapacity.
(vii) "Original Purchaser" shall mean each of Carol Meyrowitz or
Dhananjaya Rao.
(b) Any Vested Share may, at the option of the holder thereof, be
converted into one share of Common Stock of the Corporation (the "Conversion
Ratio")(subject to adjustment as set forth below).
10
<PAGE>
(c) All outstanding Vested Shares shall be converted automatically
into Common Stock of the Corporation at the Conversion Ratio at 5:00 p.m. New
York City time on the third anniversary of the Closing Date if the rights
granted under Section 4 have not been properly exercised with respect to any
such shares.
(d) Each holder of Vested Shares who desires to convert the same into
Common Stock shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation and shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state therein the number of Vested Shares being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock to be converted and the person entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such Common Stock on such date.
(e) The Conversion Ratio is subject to adjustment from time to time
upon the occurrence of the events enumerated in this subparagraph (e).
If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares;
(iv) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares of
its capital stock;
then, in the case of paragraphs (i), (ii) and (iii) of this subsection (e), the
Conversation Ratio in effect immediately prior to such action shall be
proportionately adjusted, and in the case of paragraphs (iv) and (v) of this
subsection (e), appropriate provision shall be made so that the holder of any
Series A Preferred Stock converted after such action may receive the aggregate
number and kind of shares of capital stock of the Corporation which it would
have owned
11
<PAGE>
immediately following such action if such Series A Preferred Stock had been
converted immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
12
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by ___________________, its _________________, this
____ day of ____________________________.
BRYLANE, INC.
By:_____________________________
Title:
13
<PAGE>
EXHIBIT 10.75
BRYLANE INC.
STOCK SUBSCRIPTION AGREEMENT
----------------------------
THIS STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of ________________, 199_ by and between Brylane Inc., a
Delaware corporation (the "Company"), and _______________ ("Purchaser").
R E C I T A L S:
---------------
A. Purchaser previously purchased shares of Series A Convertible
Redeemable preferred stock of VP Holding Corporation pursuant to the terms of
that certain Stock Subscription Agreement dated as of December 9, 1996 between
VP Holding Corporation, a Delaware corporation ("VP Holding"), and Purchaser
(the "VP Holding Subscription Agreement").
B. Pursuant to the terms of Section 5(c) of the VP Holding
Subscription Agreement, Purchaser agreed in connection with the formation of
Newco (as defined in the VP Holding Subscription Agreement, with the term Newco
understood to refer to the Company) to exchange the shares of VP Holding
preferred stock held by Purchaser for shares of Series A Convertible Redeemable
Preferred Stock, $0.01 par value per share, of the Company (the "Preferred
Stock"). Purchaser further agreed in Section 5(d) of the VP Holding
Subscription Agreement to take such other actions and to execute such agreements
and documents as are necessary or desirable to consummate such exchange.
C. The Company now desires to issue 37,500 shares of Preferred Stock
to Purchaser in exchange for 37,500 shares of VP Holding preferred stock held by
Purchaser in the manner contemplated by and required under Section 5(c) of the
VP Holding Subscription Agreement. The date on which such exchange occurs shall
be referred to herein as the "Closing Date," with the exchange to occur
concurrently with the exchange of shares of VP Holding common stock by FSEP (as
hereinafter defined).
D. Pursuant to Section 5(c) of the VP Holding Subscription
Agreement, Purchaser agreed to hold such shares of Preferred Stock issued in
exchange for the shares of VP Holding preferred stock held by Purchaser subject
to the restrictions and interests created by the VP Holding Subscription
Agreement which are restated and set forth in this Agreement.
<PAGE>
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties agree as follows:
1. Exchange of Stock. The Company will issue to Purchaser in
-----------------
exchange for the shares of VP Holding preferred stock held by Purchaser, subject
to the conditions and restrictions contained in this Agreement, 37,500 shares
(individually, a "Share," and collectively, the "Shares") of the Preferred Stock
of the Company, which for purposes of this Agreement shall be deemed to have
been issued at a price of $20.00 per Share, for an aggregate deemed exchange
price of $750,000 (the "Purchase Price"). The Purchase Price is equal to the
Purchase Price of the VP Holding preferred stock held by the Purchaser which was
paid by delivery of cash in the amount of $750,000. Purchaser agrees to be
bound by and fully perform all terms and conditions of this Agreement and agrees
that this Agreement constitutes full authorization to VP Holding to transfer the
shares of VP Holding preferred stock held by the Purchaser on its books and
records to reflect the Company as the transferee thereof.
2. Restriction on Transfer of the Shares.
-------------------------------------
(a) Purchaser hereby agrees to execute and comply with the
provisions of a lock-up agreement in connection with an Initial Public Offering
containing the same terms and conditions as lock-up agreements executed by all
officers, directors and principal stockholders of the Company (the "Lock-up
Agreement").
(b) Purchaser may not sell, transfer, assign, pledge, hypothecate
or otherwise dispose of (collectively, "Transfer") any of the Shares, or any
right, title or interest therein, prior to the third anniversary of the Closing
Date and, thereafter, any Transfer must be in compliance with Sections 3 and 5
hereof.
(c) Any purported Transfer or Transfers (including involuntary
Transfers initiated by operation of legal process) of any of the Shares or any
right, title or interest therein, except in strict compliance with the terms and
conditions of this Agreement, shall be null and void.
3. Right of First Refusal.
----------------------
(a) Sales; Notice. At any time on or after the third anniversary
-------------
of the Closing Date, Purchaser may Transfer for cash (and only for such form of
consideration) any or all of the Shares to any third party subject to the
provisions of this Section 3 and Section 4(c), 5(d) and 7(a) hereof. Prior to
any such intended Transfer, Purchaser shall first give at least 30
2.
<PAGE>
days advance written notice (the "Notice") to the Company specifying (i)
Purchaser's bona fide intention to sell such Shares; (ii) the name(s) and
address(es) of the proposed transferee(s); (iii) the number of Shares Purchaser
proposes to Transfer (individually, an "Offered Share," and collectively, the
"Offered Shares"); (iv) the price for which Purchaser proposes to Transfer each
Offered Share (the "Proposed Purchase Price"); and (v) all other material terms
and conditions of the proposed transfer.
(b) Election by the Company. Within 20 days after receipt of the
-----------------------
Notice, the Company (or its designee) may elect to purchase all of the Offered
Shares at the price and on the terms and conditions set forth in the Notice by
delivery of written notice of such election to Purchaser, specifying a day,
which shall not be more than 20 days after such notice is delivered, on or
before which Purchaser shall surrender (if Purchaser has not already done so)
the certificate or certificates representing the Offered Shares (duly endorsed
in blank for transfer) at the principal office of the Company. Within 20 days
after delivery of such notice to Purchaser, the Company shall deliver to
Purchaser a check, payable to Purchaser or to such person as Purchaser shall
request, in the amount equal to the product of the Proposed Purchase Price
multiplied by the number of Offered Shares (the "First Refusal Price") in
exchange for the Offered Shares. If Purchaser fails to so surrender such
certificate or certificates on or before such date, from and after such date the
Offered Shares shall be deemed to be no longer outstanding, and Purchaser shall
cease to be a stockholder with respect to such Shares and shall have no rights
with respect thereto except only the right to receive payment of the First
Refusal Price, without interest, upon surrender of the certificate or
certificates therefor duly endorsed in blank for Transfer. If the Company does
not elect to purchase all of the Offered Shares, Purchaser shall be entitled to
Transfer the Offered Shares, subject to Sections 5(d) and 7(a) of this
Agreement, to the transferee(s) named in the Notice at the Proposed Purchase
Price or at a higher price and on the terms and conditions set forth in the
Notice; provided, however, that such Transfer must be consummated within 90 days
after the date of the Notice and any proposed Transfer after such 90-day period
may be made only by again complying with the procedures set forth in this
Section 3.
4. Investment Representations. Purchaser represents and warrants to
--------------------------
the Company as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
-----------------------
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
---------------------
business of the Company and its direct or indirect, majority or wholly-owned
entities including Brylane, L.P. (the "Partnership") (a "Subsidiary" and
collectively "Subsidiaries"); (ii) has had an opportunity to discuss with
representatives of the Company and its Subsidiaries the condition of and
prospects for the continued operation and financing of the Company and its
Subsidiaries and
3.
<PAGE>
such other matters as Purchaser has deemed appropriate in considering whether to
invest in the Shares; and (iii) has been provided access to all available
information about the Company and its Subsidiaries requested by Purchaser.
(c) Shares Not Registered. Purchaser understands that the Shares
---------------------
have not been registered under the Act or registered or qualified under the
securities laws of any state and that Purchaser may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification
and the Company receives an opinion from Purchaser's counsel to such effect, in
form and substance reasonably satisfactory to the Company. Purchaser is an
"accredited investor" as defined in Rule 501 of Regulation D of the Act.
5. Obligation to Sell Securities; Other Obligations.
------------------------------------------------
(a) If FS Equity Partners II, L.P., a California limited
partnership, and FS Equity Partners III, L.P., a Delaware limited partnership
(collectively, "FSEP"), find a third-party buyer, for all of the shares of
Common Stock of the Company, VP Holding, VGP and/or VLP (the "Companies") held
by FSEP or for all of the Partnership units (the "Units") indirectly held by
FSEP or if the Company or FSEP are required to sell all shares of the Company
pursuant to the Partnership Agreement (whether such sale is by way of purchase,
exchange, merger or other form of transaction), upon the request of FSEP, the
Purchaser shall sell all of his or her Shares (on an as-converted basis if the
Shares have not yet been converted into common stock) on the same terms and
conditions as apply to the FSEP sale (except for differences based on the fact
that Partnership Units and not stock are being sold; provided that, prior to the
third anniversary of the date hereof, Purchaser shall not be required to receive
less than $20.00 per Share (as appropriately adjusted for stock dividends,
reclassifications or splits) under this provision. The Purchaser agrees to be
bound by the provisions of Section 9.05 of the Partnership Agreement in the same
manner and to the same extent as FSEP in the event FSEP is required to sell any
securities in accordance with such section.
(b) The Company may at any time by notice to the holder repurchase
any or all Unvested Shares (as defined in Section 8(a) of the Certificate of
Designation creating the Shares) of the Purchaser at a price of $20.00 per share
(as appropriately adjusted for stock dividends, reclassifications or splits). If
Purchaser fails to surrender certificates evidencing repurchased shares on date
set for repurchase in such notice, from and after such date the Shares which the
Company elected to repurchase shall be deemed to be no longer outstanding, and
Purchaser shall cease to be a stockholder with respect to such Shares and shall
have no rights with respect thereto except only the right to receive payment of
the repurchase price, without interest, upon surrender of the certificate or
certificates therefor (duly endorsed in blank for transfer).
4.
<PAGE>
(c) The Purchaser agrees to consent to any sale, transfer,
reorganization, exchange, merger, combination or other form of transaction
described in this Section 5 or contemplated by Article X of the Partnership
Agreement and to execute such agreements, powers of attorney, voting proxies or
other documents and instruments as may be necessary or desirable to consummate
such sale, transfer, reorganization, exchange, merger, combination or other form
of transaction. Purchaser further agrees to timely take such other actions as
FSEP may reasonably request in connection with the approval of the consummation
of such sale, transfer, reorganization, exchange, merger, combination or other
form of transaction, including voting as a stockholder to approve any such sale,
transfer, reorganization, exchange, merger, combination or other form of
transaction and including the execution of a reasonable lock-up agreement in
connection with an Initial Public Offering.
(d) The obligations of Purchaser pursuant to Section 5 shall be
binding on any transferee of any of the Shares and Purchaser shall obtain and
deliver to the Company and FSEP a written commitment to be bound by such
provisions from such transferee prior to any transfer.
6. Effectiveness and Termination.
-----------------------------
(a) This Agreement shall become effective immediately prior to
the time that the Company completes an Initial Public Offering that results in
(i) receipt by the Company of at least $30,000,000 of gross proceeds from the
sale of newly issued stock or (ii) the sale of newly issued Common Stock
representing at least 20% of the outstanding Common Stock of the Company (after
giving effect to such offering); provided that such time must occur prior to
June 30, 1997; provided, further, that if the Company completes an Initial
Public Offering prior to June 30, 1997 that does not satisfy the requirements of
clause (i) or (ii) of this sentence, a new subscription agreement containing all
rights and obligations required to be contained therein pursuant to the VP
Holding Subscription Agreement will be executed by the Company and Purchaser.
Until such effective time occurs, the VP Holding Subscription Agreement shall
remain in effect.
(b) The provisions of Sections 2(b), 3, and 5 shall terminate
with respect to shares of Common Stock received upon conversion of Shares upon
completion of an Initial Public Offering satisfying the following requirements:
(i) the offering results in receipt by the Company of at least $30,000,000 of
gross proceeds from the sale of newly issued stock or (ii) the offering results
in the sale of newly issued common stock representing at least 20% of the
outstanding common stock of the Company (after giving effect to such offering).
7. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
5.
<PAGE>
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK SUBSCRIPTION
AGREEMENT DATED AS OF _______________, 199_ BY AND BETWEEN BRYLANE
INC., A DELAWARE CORPORATION, AND THE ORIGINAL PURCHASER HEREOF, A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES
OF BRYLANE INC."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) a party may designate for itself by like notice):
If to the Company:
Brylane Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
If to Purchaser:
_________________________
_________________________
_________________________
6.
<PAGE>
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
(f) Disputes. In the event of any dispute among the parties
--------
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Conversion, Recapitalizations or Exchanges Affecting the
--------------------------------------------------------
Company's Capital Stock; Issuances of Capital Stock. The provisions of this
- ---------------------------------------------------
Agreement shall apply to any and all shares of capital stock or other securities
of the Company or any successor or assign of the Company, or the Partnership,
which may be issued in respect of, in exchange for or in substitution of, the
Shares by reason of any conversion, stock dividend, stock split, reverse split,
recapitalization, reclassification, combination, merger, consolidation or
otherwise, and such shares or other securities shall be encompassed within the
term "Shares" for purposes of this Agreement.
(i) No Rights as an Employee. Nothing in this Agreement shall
------------------------
affect in any manner whatsoever the rights of the Company or any of its
Subsidiaries to terminate Purchaser's employment for any reason, with or without
cause, subject to the terms and conditions of any employment agreement to which
Purchaser may be a party.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Purchaser, and Purchaser shall have no right to be
advised of, any material information regarding the Partnership, Company or any
of its Subsidiaries at any time prior to, upon or in connection with the
Company's repurchase of the Shares under this Agreement.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns, and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the right of first refusal provided for in Section 3 of this Agreement or
the repurchase right
7.
<PAGE>
contained in Section 5(b) of this Agreement, to any designee, including any of
its affiliates, successors and/or assigns. Unless specifically provided herein
to the contrary, Purchaser may not assign any or all of its rights and/or
obligations and/or delegate any or all its duties under this Agreement without
the prior written consent of the Company. Upon an assignment of any or all of
Purchaser's rights and/or obligations and/or a delegation of any or all of its
duties under this Agreement in accordance with the terms of this Agreement, this
Agreement shall inure to the benefit of, and be binding upon, Purchaser's
respective affiliates, successors and/or assigns in the same manner and to the
same extent as if such affiliates, successors and/or assigns were original
parties hereto.
(l) Headings. Introductory headings at the beginning of each
--------
section and subsection of this Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
BRYLANE INC.,
a Delaware corporation
By: _____________________________________________
Its: _________________________________________
PURCHASER:
___________________________________________________
___________________________________________________
8.
<PAGE>
EXHIBIT 10.76
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO THE DISTRIBUTION THEREOF, AND NEITHER SUCH NOTE NOR ANY INTEREST THEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED OR PLEDGED UNLESS (1) THE PARTNERSHIP (AS
DEFINED BELOW) EXPRESSLY APPROVES IN WRITING SUCH SALE, ASSIGNMENT, TRANSFER OR
PLEDGE OR SUCH TRANSACTION IS PERMITTED PURSUANT TO THE TERMS, AND SUBJECT TO
COMPLIANCE WITH THE PROVISIONS OF, THAT CERTAIN AGREEMENT OF LIMITED PARTNERSHIP
OF BRYLANE, L.P. DATED AUGUST 30, 1993, AS AMENDED, AND (2) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW COVERING SUCH NOTE OR THE PARTNERSHIP RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO THE PARTNERSHIP OR OTHER EVIDENCE REASONABLY ACCEPTABLE TO
THE PARTNERSHIP INDICATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR PLEDGE IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
AND ANY APPLICABLE STATE SECURITIES LAW.
BRYLANE, L.P.
CONVERTIBLE SUBORDINATED NOTE
DUE 2006
$20,000,000 December 9, 1996
Brylane, L.P., a Delaware limited partnership ("Partnership"), promises
to pay to Chadwick's, Inc., a Massachusetts corporation ("Noteholder"), the
principal sum of TWENTY MILLION DOLLARS ($20,000,000) on December 9, 2006 and to
pay interest thereon at the rate of 6% per annum, at the times and subject to
the adjustments and to the terms and provisions set forth herein ("Note"). The
Note may not be sold, assigned, transferred or pledged without the express
written approval of the Partnership unless such sale, assignment, transfer or
pledge is permitted pursuant to the terms, and subject to compliance with the
provisions of, the Partnership Agreement, or the Incorporation Agreement, under
which the Note shall be exchanged for the Brylane Note.
ARTICLE 1
INTEREST/PAYMENT
Section 1.1 Interest. The Partnership promises to pay interest on the
--------
unpaid principal of the Note in cash quarterly to the Noteholder on each March
15, June 15,
<PAGE>
September 15 and December 15, except (each, an "Interest Payment Date"),
commencing on March 15, 1997. The initial rate of interest shall be 6% per
annum. On the first anniversary of issuance of the Note, and on every
anniversary thereafter, the interest rate per annum payable hereunder shall
increase by 1.0% (up to a maximum interest rate of 10% per annum or such lower
rate as may be required by law) in the event that, prior to such anniversary
date, the Initial Public Offering shall not have been completed.
Interest will accrue from the most recent date to which interest has been
paid. Interest will be computed on the basis of a 360-day year on the basis of
the actual days elapsed. To the extent lawful, the Partnership shall pay
interest on overdue installments of interest, if any (without regard to any
applicable grace period), at the rate borne by the Note, compounded annually.
Interest on the Note will be paid to the Noteholder on each Interest Payment
Date. Interest will be paid in immediately available funds by wire transfer to
an account designated by Noteholder.
Anything in this Note to the contrary notwithstanding, if from any
circumstances whatever fulfillment of any provisions of this Note shall involve
transcending the limit of validity prescribed by the usury laws of the State of
New York, then ipso facto the obligation to be fulfilled shall be reduced to the
----------
limit of such validity so that in no event shall exaction be possible under this
Note in excess of the limit of such validity, but such obligation shall be
fulfilled to the limit of such validity and if under any circumstances
whatsoever interest in excess of the limit of such validity will have been paid
by the Partnership in connection with the loan evidenced by this Note, such
excess shall be refunded to the Partnership so that under no circumstance shall
interest on the loan evidenced by this Note exceed the maximum rate allowed by
the State of New York ("Maximum Permissible Rate"). If interest payable by the
Noteholder on any date would exceed the maximum amount permitted by the Maximum
Permissible Rate, such interest payment shall automatically be reduced to such
maximum permitted amount, and interest for any subsequent period, to the extent
less than the maximum amount permitted for such period by the Maximum
Permissible Rate, shall be increased by the unpaid amount of such reduction, to
the extent permitted by law.
ARTICLE 2
CONVERSION
Section 2.1 Conversion Privilege. The Noteholder may Convert the
--------------------
principal amount hereof (or any portion thereof that is an integral multiple of
$1000) into fully paid and nonassessable Units at any time prior to 5:00 p.m.
(New York time) on the day prior to the maturity of the Note except that, if the
Note is called for redemption, such Conversion right shall terminate at 5:00
p.m. (New York time) on the day immediately preceding the redemption date
(unless the Partnership shall default in making the redemption payment when it
becomes due, in which case the Conversion right shall terminate at 5:00 p.m.
(New York time) on the date such default is cured). The number of Units
issuable upon Conversion of the Note shall be determined by dividing the entire
principal amount hereof (or any portion thereof
2
<PAGE>
that is an integral multiple of $1000 subject to a Conversion request) Converted
by the Conversion price ("Conversion Price") in effect on the Conversion Date
(as defined below).
The initial Conversion Price per Unit is TWENTY-SEVEN DOLLARS AND FIFTY
CENTS ($27.50) and is subject to adjustment as provided in this Article.
The Noteholder is not entitled to any rights of a holder of a Unit until
the Noteholder has validly Converted the Note into Units in the manner set forth
herein, and the Noteholder has become party to the Partnership Agreement.
Section 2.2 Conversion Procedure. To Convert the Note (or any portion
--------------------
hereof), the Noteholder must (1) complete and sign a notice of election to
Convert substantially in the form attached hereto as Exhibit 2.2, (2) surrender
-----------
the Note to the Partnership and (3) pay any tax, if required. Upon Conversion,
no adjustment or payment will be made for accrued and unpaid interest on the
Converted Note (or applicable portion hereof) or for distributions on Units
issuable upon Conversion of the Note, but if the Noteholder surrenders the Note
for Conversion (i) on an Interest Payment Date or (ii) if the Partnership has
issued a notice of redemption under Section 3 hereof setting a redemption date
on any December Interest Payment Date, within three Business Days prior to such
December Interest Date, then, notwithstanding such Conversion, the interest
payable on such Interest Payment Date will be paid to the Noteholder. The
number of Units issuable upon Conversion of the Note is determined by dividing
the principal amount hereof (or any portion thereof that is an integral multiple
of $1000 subject to a Conversion request) by the Conversion Price in effect on
the Conversion Date.
If the Noteholder has delivered a Designated Event Purchase Notice
pursuant to Section 4.2 hereof, exercising the option of the Noteholder to
-----------
require the Partnership to purchase the Note, the Note may be Converted only if
the notice of exercise is withdrawn as provided in accordance with the terms of
Section 4.4 hereof.
- -----------
The date on which the Noteholder satisfies all of the Conversion
requirements set forth in this Section is the Conversion date ("Conversion
Date"). As soon as practicable after the Conversion Date, the Partnership shall
issue to the Noteholder the number of whole Units into which this Note (or
portion hereof) shall have been Converted and the Noteholder shall be admitted
to the Partnership as a Limited Partner pursuant to the terms and conditions of
the Partnership Agreement. The Partnership shall also deliver a new Note for
the principal amount, if any, that was not converted (which new Note shall be
identical, except as to principal amount, to the surrendered Note) and a check
payable to the Noteholder for any fractional Unit, determined pursuant to
Section 2.3. The Noteholder shall become the registered owner of such Units on
- -----------
the Conversion Date and, provided that there is no outstanding principal amount
of the Note remaining, as of such date, the Noteholder's rights as the
Noteholder hereunder shall cease.
3
<PAGE>
Section 2.3 Fractional Units. The Partnership will not issue fractional
----------------
Units upon Conversion of the Note, or any portion thereof. In lieu thereof, the
Partnership will pay an amount in cash based upon the Conversion Price of a Unit
on the date of Conversion.
Section 2.4 Adjustment of Conversion Price. The Conversion Price shall
------------------------------
be subject to adjustment from time to time as follows:
(a) In case the Partnership shall (1) make a distribution in Units to
Partners without payment of consideration therefor, (2) subdivide its
outstanding Units into a greater number of Units or (3) combine its
outstanding Units into a smaller number of Units, the Conversion Price in
effect immediately prior to such action shall be adjusted so that the
Noteholder shall be entitled to receive the number of Units which it
would have owned immediately following such action had the Note been
Converted immediately prior thereto. Any adjustment made pursuant to
this subsection (a) shall become effective immediately after the record
--------------
date, if any, in the case of a distribution or immediately after the
effective date in the case of a subdivision or combination or a
distribution made without a record date, as the case may be.
(b) In case the Partnership shall issue rights or warrants to all
Partners entitling such Partners (for a period commencing no earlier than
the record date for the determination of holders of Units entitled to
receive such rights or warrants and expiring not more than 45 days after
such record date) to subscribe for or purchase Units (or securities
Convertible into Units) at a price per Unit less than the Current Fair
Value of the Units on such record date, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to such record date by a
fraction of which the numerator shall be the number of Units outstanding
on such record date, plus the number of Units which the aggregate
offering price of the offered Units (or the aggregate Conversion price of
the Convertible securities so offered) would purchase at such Current
Fair Value, and of which the denominator shall be the number of Units
outstanding on such record date plus the number of additional Units
offered (or into which the Convertible securities so offered are
Convertible). Such adjustments shall become effective immediately after
such record date.
(c) In case the Partnership shall distribute to all holders of Units
(i) interests of the Partnership other than Units, (ii) evidences of
indebtedness or (iii) other assets (other than (x) annual or regular
quarterly distributions on the Units in an aggregate amount in any fiscal
year of the Partnership not exceeding 15 percent (15%) of the Current
Fair Value of the Units as of the date of such distribution, or (y)
Employee Distributions or (z) Tax Distributions), or shall distribute to
all holders of Units rights or warrants to subscribe for securities
(other than those securities referred to in subsection (b) above), then
--------------
in each such case the Conversion Price shall be adjusted so that the same
shall equal the price determined
4
<PAGE>
by multiplying the Conversion Price in effect immediately prior to the
date of such distribution by a fraction of which the numerator shall be
the Current Fair Value of the Units on the record date mentioned below
less the fair market value (as determined in good faith by the Board of
Representatives, whose determination shall be conclusive evidence of such
fair market value and described in a resolution of the Board of
Representatives) of the portion of the assets so distributed or of such
subscription rights or warrants applicable to one Unit, and of which the
denominator shall be such Current Fair Value of the Unit. Such adjustment
shall become effective immediately after the record date for the
determination of the holders of Units entitled to receive such
distribution. Notwithstanding the foregoing, in the event that the
Partnership shall distribute rights or warrants to subscribe for
additional Units (other than the Units referred to in subsection (b)
--------------
above) ("Rights") to all holders of Units, the Partnership may (with the
consent of the Noteholder), in lieu of making any adjustment pursuant to
this subsection (c), make proper provision so that if the Noteholder
--------------
Converts the Note, or any portion thereof, after the record date for such
distribution and prior to the expiration or redemption of the Rights, the
Noteholder shall be entitled to receive upon such Conversion, in addition
to the Units issuable upon such Conversion ("Conversion Units"), a number
of Rights to be determined as follows: (i) if such Conversion occurs on
or prior to the date for the distribution to the holders of Rights of
separate certificates, or any other form, evidencing such Rights
("Distribution Date"), the same number of Rights to which a holder of a
number of Units equal to the number of Conversion Units is entitled at
the time of such Conversion in accordance with the terms and provisions
of and applicable to the Rights; and (ii) if such Conversion occurs after
the Distribution Date, the same number of Rights to which a holder of the
number of Units into which the Note was Convertible immediately prior to
the Distribution Date would have been entitled on the Distribution Date
in accordance with the terms and provisions of and applicable to the
Rights.
(d) In any case in which this Section shall require that an
adjustment be made immediately following a record date for an event, the
Partnership may elect to defer, until such event, issuing to the
Noteholder, if the Note, or any portion thereof, was Converted after such
record date, the Units and other interests of the Partnership issuable
upon such Conversion over and above the Units and other interests of the
Partnership issuable upon such Conversion only on the basis of the
Conversion Price prior to adjustment; and, in lieu of the Units the
issuance of which is so deferred, the Partnership shall issue due bills
or other appropriate evidence of the right to receive such interests.
Section 2.5 No Adjustment. No adjustment in the Conversion Price shall
-------------
be required until cumulative adjustments amount to 1% or more of the Conversion
Price as last adjusted; provided, however, that any adjustments which by reason
-------- -------
of this Section are not required to be made shall be carried forward and taken
into account in any subsequent
5
<PAGE>
adjustment. All calculations under this Article shall be made to the nearest
cent or to the nearest one-thousandth of a Unit, as the case may be.
Section 2.6 Other Adjustments.
-----------------
(a) In the event that, as a result of an adjustment made pursuant to
Section 2.4 above, the Noteholder shall become entitled to receive any
-----------
interests of the Partnership other than Units, then the Conversion Price
of such other interests so receivable thereafter upon Conversion of the
Note shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect
to Units contained in this Article.
(b) In the event that Units are not delivered until after the
expiration of any of the rights or warrants to subscribe for or purchase
Units referred to in Section 2.4(b) and Section 2.4(c) hereof, the
-------------- --------------
Conversion Price shall be readjusted to the Conversion Price which would
otherwise be in effect had the adjustment made upon the issuance of such
rights or warrants been made on the basis of delivery of only the number
of Units actually delivered.
Section 2.7 Notice of Adjustment. Whenever the Conversion Price is
--------------------
adjusted, the Partnership shall promptly mail to the Noteholder a notice of the
adjustment signed by the Chief Financial Officer of the Partnership briefly
stating the facts requiring the adjustment and the manner of computing it. The
notice shall be prima facie evidence of the correctness of such adjustment.
Section 2.8 Notice of Certain Transactions. In the event that:
------------------------------
(a) the Partnership takes any action which would require an
adjustment in the Conversion Price;
(b) the Partnership shall declare or authorize a redemption or
repurchase of in excess of 5% of the then outstanding Units;
(c) there is a dissolution or liquidation of the Partnership; or
(d) there is an Exchange Event;
the Partnership shall mail to the Noteholder a notice describing the
circumstances and stating the proposed record or effective date, as the case may
be. The Partnership shall mail the notice at least 15 days before such date;
however, failure to mail such notice or any defect therein (i) shall not affect
the validity of any transaction referred to in clause (a) or (b) of this Section
---------- ---
but (ii) shall cause any and all rights the Noteholder would have had had the
Partnership not failed to mail such notice to be preserved until 30 days after
Noteholder actually receives such notice.
6
<PAGE>
Section 2.9 Effect of Reclassifications, Consolidations, Mergers,
-----------------------------------------------------
Changes of Ownership or Sales on Conversion Privilege. If any of the following
- -----------------------------------------------------
shall occur, namely: (i) any reclassification or change of outstanding Units,
(ii) any consolidation or merger to which the Partnership is a party (other than
a merger (a) in which the Partnership is the continuing entity, (b) which does
not result in any reclassification of, or change (other than a change in name as
a result of a subdivision or combination) in, outstanding Units, and (c) in
which holders of Units are not entitled to receive cash, securities or other
consideration for Units as a result of such consolidation or merger), or (iii)
any sale or conveyance of all or substantially all of the property or business
of the Partnership as an entirety, then the Partnership, or such successor or
purchasing Person, as the case may be, and the Noteholder shall, as a condition
precedent to such reclassification, change, consolidation, merger, sale or
conveyance, execute and deliver an amendment to the Note in form and substance
reasonably satisfactory to the Noteholder providing that the Note shall
thereafter be Convertible only into, and upon such Conversion the Noteholder
shall be entitled to receive, the kind and amount of shares or interests and
other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance, by a holder
of the number of Units deliverable upon Conversion of the Note immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Such amendment shall provide for adjustments of the Conversion Price which shall
be as nearly equivalent as may be practicable to the adjustments of the
Conversion Price provided for in this Article. The foregoing, however, shall not
in any way affect the rights the Noteholder may otherwise have, pursuant to
clause (ii) of the last sentence of subsection (c) of Section 2.4, to receive
- ----------- -------------- -----------
Rights upon Conversion of the Note. If, in the case of any such consolidation,
merger, sale or conveyance, the interests or other securities and property
(including cash) receivable thereupon by a holder of Units includes shares of
stock or other securities and property of a Person other than the successor or
purchasing Person, as the case may be, in such consolidation, merger, sale or
conveyance, then such amendment to the Note shall also be executed by such other
Person and shall contain such additional provisions to protect the interests of
the Noteholder as the Board of Representatives shall reasonably consider
necessary by reason of the foregoing. The provision of this Section shall
similarly apply to successive consolidations, mergers, sales or conveyances.
ARTICLE 3
REDEMPTION
Section 3.1 Optional Redemption. The Note will be subject to redemption
-------------------
at the Partnership's option on and subsequent to December 15, 2001. On such
date and thereafter, the Note will be subject to redemption at the option of the
Partnership (together with the redemptions described in Sections 3.2 and 3.3,
------------ ---
"Optional Redemption"), in whole or in part (in any integral multiple of
$1,000), upon not less than 30 days' prior notice by mail at the following
redemption prices (expressed as percentages of the principal amount set forth
7
<PAGE>
below), in each case together with accrued and unpaid interest up to but not
including the redemption date. If redeemed during the 12-month period beginning
December 15 of the
8
<PAGE>
years indicated below, such redemption price shall be as indicated:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2001...........................104.0%
2002...........................103.2%
2003...........................102.4%
2004...........................101.6%
2005...........................100.8%
2006...........................100.0%
</TABLE>
On or after the redemption date, interest will cease to accrue on the Note, or
portion thereof called for redemption, subject to Section 3.8 hereof.
-----------
Section 3.2 Optional Redemption After Change in Control.
-------------------------------------------
Notwithstanding Section 3.1 above, the Note will be subject to redemption at the
-----------
Partnership's option on and subsequent to a Change in Control. On such date and
thereafter, the Note will be subject to redemption at the option of the
Partnership, in whole or in part (in any integral multiple of $1,000), for a
period of 90 days after the Change in Control, upon not less than 30 days' prior
notice by mail at the following redemption prices (expressed as percentages of
the principal amount set forth below), in each case together with accrued and
unpaid interest up to but not including the redemption date. If redeemed during
the 12-month period beginning December 15 of the years indicated below, such
redemption price shall be as indicated:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
1996 108.0%
1997 107.2%
1998 106.4%
1999 105.6%
2000 104.8%
2001 104.0%
2002 103.2%
2003 102.4%
2004 101.6%
2005 100.8%
2006 100.0%
</TABLE>
On or after the redemption date, interest will cease to accrue on the Note, or
portion thereof called for redemption, subject to Section 3.8 hereof.
-----------
9
<PAGE>
Section 3.3 Optional Redemption After Initial Public Offering Based on
----------------------------------------------------------
Current Market Price. Notwithstanding Section 3.1 above, in the event that an
- -------------------- -----------
Initial Public Offering shall have been completed in which (i) the Corporation
shall have received at least $30,000,000 of gross proceeds from the sale of
newly issued Common Stock in a primary offering or (ii) Common Stock of the
Corporation representing at least 20% of the outstanding Common Stock of the
Corporation after giving effect to such offering shall have been newly issued,
the Note will be subject to redemption by the Partnership prior to December 15,
2001 upon 30 days notice at any time commencing after December 15, 1999 if the
Current Market Price of the Common Stock shall be at least 25% greater than the
Conversion Price (as adjusted pursuant to the terms and conditions hereof and of
the Incorporation Agreement) on each Trading Day in a period of 20 consecutive
Trading Days ending not more than 10 days before such notice is given. On such
date and thereafter, the Note will be subject to redemption at the option of the
Partnership, in whole or in part (in any integral multiple of $1,000), upon not
less than 30 days' prior notice by mail at the following redemption prices
(expressed as percentages of the principal amount set forth below), in each case
together with accrued and unpaid interest up to but not including the redemption
date. If redeemed during the 12-month period beginning December 15 of the years
indicated below, such redemption price shall be as indicated:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
1999...........................104.2%
2000...........................103.6%
2001...........................103.0%
2002...........................102.4%
2003...........................101.8%
2004...........................101.2%
2005...........................100.6%
2006...........................100.0%
</TABLE>
On or after the redemption date, interest will cease to accrue on the Note, or
portion thereof called for redemption, subject to Section 3.8 hereof.
-----------
Section 3.4 Notice of Redemption. If the Partnership elects to redeem
--------------------
the Note pursuant to the provisions of Sections 3.1, 3.2 or 3.3 hereof, at least
------------ --- ---
30 days before a redemption date, it shall mail a notice of redemption to the
Noteholder at its registered address.
The notice shall state:
(a) the redemption date;
(b) the redemption price;
10
<PAGE>
(c) if the Note is being redeemed in part, the portion of the
principal amount of the Note to be redeemed and that, after the
redemption date, upon cancellation of the Note, a new Note in principal
amount equal to the unredeemed portion will be issued in the name of the
Noteholder thereof;
(d) the paragraph of the Note pursuant to which the Note is being
redeemed and the circumstances entitling the Partnership to effect such
redemption; and
(e) the current Conversion Price and the date on which the right to
Convert the Note or portions thereof into Units will expire.
Section 3.5 Effect of Notice of Redemption. Once notice of redemption
------------------------------
is mailed, the Note becomes due and payable on the redemption date at the price
set forth in the Note.
Section 3.6 Payment of Redemption Price and Cancellation of the Note.
--------------------------------------------------------
On or before the redemption date and upon the tendering of the Note by the
Noteholder to the Partnership, unless the Note has been theretofore Converted
into Units pursuant to the provisions hereof, the Partnership shall deliver to
the Noteholder a certified or bank check sufficient to pay the redemption price
of and accrued interest on the Note up to but not including the redemption date
and cancel the Note or, if so requested by Noteholder, shall transfer such
amount in immediately available funds by wire transfer to an account designated
by the Noteholder.
Section 3.7 Partial Redemption of the Note. The Partnership may redeem
------------------------------
all or any portion of the Note, upon the terms and at the redemption prices set
forth in the Note. Upon cancellation of the Note due to partial redemption of
the Note, the Partnership shall issue at the expense of the Partnership a new
note equal in principal amount to the unredeemed portion of the Note.
Section 3.8 Effect of Default in Payment of Redemption Price. Once a
------------------------------------------------
notice of redemption has been mailed, if the Partnership fails on the redemption
date to pay to the Noteholder the redemption price of, and accrued interest on,
the Note ("Redemption Payment Default"), then interest on the Note shall
continue to accrue after such redemption date. After the occurrence of a
Redemption Payment Default, the Partnership may thereafter redeem the Note by
making the required payment, except that the Partnership shall mail a notice
specifying the date on which such payment is to be made to the Noteholder at
least seven days before the scheduled payment date.
11
<PAGE>
ARTICLE 4
NOTEHOLDER RIGHT TO CAUSE REPURCHASE
Section 4.1 Repurchase of Note Upon a Change of Control or Releveraging.
-----------------------------------------------------------
If a (i) Change of Control or (ii) a Releveraging (each, a "Designated Event")
shall occur at any time, then the Noteholder shall have the right to require
that the Partnership purchase the Note, in whole only, at a purchase price
("Designated Event Purchase Price") in cash in an amount equal to 101% of the
principal amount of the Note, plus accrued and unpaid interest, to the date of
purchase ("Designated Event Purchase Date"), pursuant to the offer described
below ("Designated Event Offer") and the other procedures set forth in
Sections 4.2 and 4.3 of this Article.
- ------------ ---
Section 4.2 Notice. Within 30 days following any Change of Control, and
-------
at least 15 days before any Releveraging, the Partnership shall mail notice of
such Designated Event (a "Designated Event Purchase Notice") to the Noteholder,
stating or including:
(a) that a Change of Control has occurred, or that a Releveraging is
expected to occur, as the case may be, the date of such event, and that
the Noteholder has the right to require the Partnership to repurchase the
Note, at the Designated Event Purchase Price;
(b) (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Partnership, the most
recent subsequently filed Quarterly Report on Form 10-Q, as applicable,
and any Current Report on Form 8-K of the Partnership filed subsequent to
such Quarterly Report, or, in the event the Partnership is not required
to prepare any of the foregoing forms, comparable financial information
and (ii) the circumstances and relevant facts (to the extent known by the
Partnership) regarding such Designated Event and, to the extent
available, pro forma historical income, cash flow and capitalization
--- -----
after giving effect to such Designated Event, if any;
(c) the Designated Event Purchase Date, which, in the case of a
Change in Control, shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed or such later date as is
necessary to comply with any applicable securities laws or regulations,
and in the case of a Releveraging shall be no later than the first
Business Day after the Releveraging (or, if practicable, the day of the
Releveraging);
(d) that the Designated Event Offer is being made pursuant to this
Article and that the Note properly tendered pursuant to the Designated
Event Offer will be accepted for payment at the Designated Event Purchase
Price;
(e) the Designated Event Purchase Price;
12
<PAGE>
(f) that the Note must be surrendered on or prior to the Designated
Event Purchase Date to the Partnership at the office of the Partnership;
(g) that the Note tendered will continue to accrue interest and that
unless the Partnership defaults in the payment of the Designated Event
Purchase Price, the
Note accepted for payment pursuant to the Designated Event Offer shall
cease to accrue interest after the Designated Event Purchase Date; and
(h) the procedures for withdrawing a tender.
Section 4.3 Payment and Delivery. Upon receipt by the Partnership of
--------------------
the proper tender of the Note by the Noteholder, the Noteholder shall (unless
the tender of the Note is properly withdrawn) thereafter be entitled to receive
solely the Designated Event Purchase Price with respect to the Note. Upon
surrender of the Note for purchase in accordance with the foregoing provisions,
the Note shall be paid by the Partnership at the Designated Event Purchase Price
in the manner set forth in Section 3.6; provided, however, that installments of
----------- -------- -------
interest whose Stated Maturity is on or prior to the Designated Event Purchase
Date shall be payable to the Noteholder. If the Note tendered for purchase
shall not be so paid upon surrender thereof, the principal thereof (and premium,
if any, thereon) shall, until paid, bear interest from the Designated Event
Purchase Date at the rate borne by the Note.
Section 4.4 Withdrawal of Notice. A Designated Event Purchase Notice
--------------------
may be withdrawn before or after delivery of the Note by the Noteholder to the
Partnership at the office of the Partnership, by means of a written notice of
withdrawal delivered by the Noteholder to the Partnership at the office of the
Partnership not later than 5:00 p.m. (New York time) two Business Days prior to
the Designated Event Purchase Date specifying that the Noteholder rejects the
Designated Event Offer and withdraws the Designated Event Purchase Notice.
ARTICLE 5
SUBORDINATION
Section 5.1 Note Subordinate to Senior Indebtedness. The Partnership
---------------------------------------
covenants and agrees, and the Noteholder by its acceptance hereof, likewise
covenants and agrees, that, to the extent and in the manner hereinafter set
forth in this Article, the Indebtedness represented by the Note and the payment
of the principal of, premium, if any, and interest hereon are hereby expressly
made subordinate and subject in right of payment as provided in this Article to
the prior payment in full, in cash or cash equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of all Senior Indebtedness.
This Note and the Indebtedness represented hereby constitute Subordinated
Indebtedness for purposes of and as defined in the Senior Subordinated Notes.
13
<PAGE>
This Article shall constitute a continuing offer to all Persons who, in
reliance upon such provisions, become holders of, or continue to hold Senior
Indebtedness; and such provisions are made for the benefit of the holders of
Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
Section 5.2 Payment Over of Proceeds Upon Dissolution, Etc.. In the
-----------------------------------------------
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Partnership or to its creditors, as such,
or to its assets, or (b) any liquidation, dissolution or other winding up of the
Partnership, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Partnership, then and in
any such event:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or cash equivalents or, as acceptable to each
holder of Senior Indebtedness, in any other manner, of all amounts due on
or in respect of all Senior Indebtedness, before the Noteholder is
entitled to receive any payment or distribution of any kind or character
(excluding Permitted Junior Securities) on account of principal of,
premium, if any, or interest on the Note; and
(b) any payment or distribution of assets of the Partnership of any
kind or character, whether in cash, property or securities (excluding
Permitted Junior Securities), by set-off or otherwise, to which the
Noteholder (in its capacity as Noteholder) would be entitled but for the
provisions of this Article shall be paid by the liquidating trustee or
agent or other Person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior Indebtedness may have
been issued, ratably according to the aggregate amounts remaining unpaid
on account of the Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full in cash or cash equivalents or
as acceptable to the holders of Senior Indebtedness, in any other manner,
of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section, the Noteholder shall have received any payment or
distribution of assets of the Partnership of any kind or character,
whether in cash, property or securities, in respect of principal,
premium, if any, and interest on the Note before all Senior Indebtedness
is paid in full, then and in such event such payment or distribution
(excluding Permitted Junior Securities) shall be paid over or delivered
forthwith directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any
14
<PAGE>
instruments evidencing any of such Senior Indebtedness have been issued
for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full in
cash or cash equivalents or, as acceptable to each holder of Senior
Indebtedness, any other manner, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.
The consolidation of the Partnership with, or the merger of the
Partnership with or into, another Person or the liquidation or dissolution of
the Partnership following the conveyance, transfer or lease of its properties
and assets substantially as an entirety to another Person upon the terms and
conditions set forth in Article 9 shall not be deemed a dissolution, winding up,
---------
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Partnership for the purposes of this
Section if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in Article 9.
---------
Section 5.3 Suspension of Payment When Senior Indebtedness in Default.
---------------------------------------------------------
(a) Unless Section 5.2 shall be applicable, upon the occurrence and
-----------
during the continuance of a Payment Default, no payment or distribution
of any assets of the Partnership of any kind or character (excluding
Permitted Junior Securities) shall be made by the Partnership on account
of principal of, premium, if any, or interest on, the Note, or on account
of the purchase, redemption, defeasance or other acquisition of or in
respect of the Note, unless and until such Payment Default shall have
been cured or waived or shall have ceased to exist or the Designated
Senior Indebtedness shall have been discharged or paid in full in cash or
cash equivalents, or in any other manner as acceptable to each holder of
such Designated Senior Indebtedness, after which the Partnership shall
(subject to the other provisions of this Article) resume making any and
all required payments in respect of the Note, including any missed
payments.
(b) Unless Section 5.2 shall be applicable, upon (1) the occurrence
-----------
and during the continuance of a Non-payment Default and (2) receipt by
the Noteholder and the Partnership from a representative of the holder of
any Designated Senior Indebtedness (collectively a "Senior
Representative") or the holder of any Designated Senior Indebtedness of
written notice of such Non-payment Default, no payment or distribution of
any assets of the Partnership of any kind or character (excluding
Permitted Junior Securities) shall be made by the Partnership on account
of any principal of, premium, if any, or interest on, the Note, or on
account of the purchase, redemption, defeasance or other acquisition of
or in respect of the Note for a period ("Payment Blockage Period")
commencing on the date of receipt by the Partnership of such notice and
continuing until the earliest of (subject to any
15
<PAGE>
blockage of payments that may then or thereafter be in effect under
subsection (a) of this Section) (x) 179 days after receipt of such
--------------
written notice by the Partnership (provided any Designated Senior
Indebtedness as to which notice was given shall theretofore have not been
accelerated), (y) the date on which such Non-payment Default is cured or
waived or ceases to exist or on which the Designated Senior Indebtedness
related thereto is discharged or paid in full in cash or cash
equivalents, or in any other manner as acceptable to the holders of
Designated Senior Indebtedness or (z) the date on which such Payment
Blockage Period shall have been terminated by written notice to the
Partnership from the Senior Representative or holder of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which, in
the case of clause (x), (y) or (z), the Partnership shall (subject to
---------- --- ---
the other provisions of this Article including paragraph (a) above)
-------------
promptly resume making any and all required payments in respect of the
Note, including any missed payments. Notwithstanding any other provision
of this Note, in no event shall a Payment Blockage Period under this
paragraph (b) extend beyond 179 days from the date of the receipt by
-------------
the Partnership of the notice referred to in clause (2) of this
----------
paragraph (b) ("Initial Blockage Period"). Any number of notices of
-------------
Non-payment Defaults may be given during the Initial Blockage Period;
provided that during any period of 365 consecutive days
--------
only one Payment Blockage Period under this paragraph (b) may commence
-------------
and the duration of such period may not exceed 179 days. No Non-payment
Default with respect to Designated Senior Indebtedness that existed or
was continuing on the date of the commencement of any Payment Blockage
Period will be, or can be, made the basis for the commencement of a
second Payment Blockage period, whether or not within a period of 365
consecutive days, unless such Non-payment Default shall have been cured
or waived for a period of not less than 90 consecutive days. The
Partnership will deliver notice to the Noteholder promptly after the date
on which any Non-payment Default is cured or waived or ceases to exist or
on which the Designated Senior Indebtedness related thereto is discharged
or paid in full.
(c) In the event that, notwithstanding the foregoing, the Partnership
shall make any payment to the Noteholder prohibited by the foregoing
provisions of this Section, then and in such event such payment shall be
paid over and delivered forthwith to a Senior Representative or as a
court of competent jurisdiction shall direct.
Section 5.4 Payment Permitted if No Default. Nothing contained in this
-------------------------------
Article or elsewhere in this Note shall prevent the Partnership, at any time
except during the pendency of any case, proceeding, dissolution, liquidation or
other winding-up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Partnership referred to in Section 5.2 or under
-----------
the conditions described in Section 5.3, from making payments at any time of
-----------
principal of, premium, if any, or interest on the Note.
16
<PAGE>
Section 5.5 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
After the payment in full, in cash or cash equivalents or, as acceptable to each
holder of Senior Indebtedness, in any other manner of all Senior Indebtedness,
the Noteholder shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Note shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Noteholder would
be entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by the Noteholder, shall, as among the Partnership, its creditors other than
holders of Senior Indebtedness, and the Noteholder be deemed to be a payment or
distribution by the Partnership to or on account of the Senior Indebtedness.
Section 5.6 Provisions Solely to Define Relative Rights. The provisions
-------------------------------------------
of this Article are intended solely for the purpose of defining the relative
rights of the Noteholder on the one hand and the holders of Senior Indebtedness
on the other hand. Nothing contained in this Article or elsewhere in this Note
is intended to or shall (a) impair, as among the Partnership, its creditors
other than holders of Senior Indebtedness and the Noteholder the obligation of
the Partnership, which is absolute and unconditional, to pay to the Noteholder
the principal of, premium, if any, and interest on the Note as and when the same
shall become due and payable in accordance with its terms; (b) affect the
relative rights against the Partnership of the Noteholder and creditors of the
Partnership other than the holders of Senior Indebtedness; or (c) prevent the
Noteholder from exercising all remedies otherwise permitted by applicable law
upon default under the Note, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of creditors or
other marshaling of assets and liabilities of the Partnership referred to in
Section 5.2, to receive, pursuant to and in accordance with such Section, cash,
- -----------
property and securities otherwise payable or deliverable to the Noteholder, or
(2) under the conditions specified in Section 5.3, to prevent any payment
-----------
prohibited by such Section or enforce their rights pursuant to Section 5.3(c).
--------------
Section 5.7 Noteholder to Effectuate Subordination. The Noteholder
--------------------------------------
agrees to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article, including, in the event of any
dissolution, winding-up, liquidation or reorganization of the Partnership
whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the
timely filing of a claim for the unpaid balance of the indebtedness of the
Partnership owing to the Noteholder in the form required in such proceedings and
the causing of such claim to be approved. If the Noteholder does not file a
proper claim at least 30 days before the expiration of the time to file such
claim, then the holders of Senior Indebtedness, and their agents, trustees or
other representatives are authorized (but shall not have any obligation) to do
so for and on behalf of the Noteholder.
17
<PAGE>
Section 5.8 No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on
the part of the Partnership or by any act or failure to act, in good
faith, by any such holder, or by any non-compliance by the Partnership
with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
--------------
Section, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Partnership or the
Noteholder, without incurring responsibility to the Noteholder and
without impairing or releasing the subordination provided in this Article
or the obligations hereunder of the Noteholder to the holders of Senior
Indebtedness, do any one or more of the following: (1) change the manner,
place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell,
exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Senior Indebtedness; (3) release any Person liable
in any manner for the collection or payment of Senior Indebtedness; and
(4) exercise or refrain from exercising any rights against the
Partnership and any other Person; provided, however, that in no event
-------- -------
shall any such actions limit the right of the Noteholder to take any
action to accelerate the maturity of the Note pursuant to Article 7
---------
of this Note or to pursue any rights or remedies hereunder or under
applicable laws if the taking of such action does not otherwise violate
the terms of this Article, subject to the rights, if any, under this
Article, of the holders, from time to time, of Senior Indebtedness to
receive the cash, property or securities receivable upon the exercise of
such rights or remedies.
Section 5.9 Reliance on Judicial Orders or Certificates. Upon any
-------------------------------------------
payment or distribution of assets of the Partnership referred to in this
Article, the Noteholder shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Noteholder for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Partnership, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article, provided that the foregoing shall
--------
apply only if such court has been fully apprised of the provisions of this
Article.
18
<PAGE>
Section 5.10 No Suspension of Remedies. Nothing contained in this
-------------------------
Article shall limit the right of the Noteholder to take any action to accelerate
the maturity of the Note pursuant to Article 7 of this Note or to pursue any
---------
rights or remedies hereunder or under applicable law, subject to the rights, if
any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
Section 5.11 Reinstatement. The provisions of this Article shall
-------------
continue to be effective or reinstated, as the case may be, if at any time any
payment of the Senior Indebtedness is rescinded or must otherwise be returned by
any Senior Representative, any bank which is party to the Bank Credit Facility
or any other holder of Senior Indebtedness upon the insolvency, bankruptcy or
reorganization of the Partnership or Brylane Capital Corp., a Delaware
corporation, or any successor Person thereto, or otherwise, all as though such
payment had not been made.
Section 5.12 Amendments to Article 5. Notwithstanding any other
-----------------------
provision of this Note, no change, modification or amendment of any provision of
this Article shall be effective against any holder of Senior Indebtedness that
did not consent to such change, modification or amendment.
ARTICLE 6
COVENANTS
Section 6.1 Payment of Principal, Premium and Interest. The Partnership
------------------------------------------
will duly and punctually pay the principal of, premium, if any, and interest on
the Note in accordance with the terms of the Note.
Section 6.2 Pro Rata Distributions. All distributions to Partners will
----------------------
be pro rata.
Section 6.3 Partnership or Corporate Existence. Subject to Article 9,
---------------------------------- ---------
the Partnership will do or cause to be done all things necessary to preserve and
keep in full force and effect its partnership existence and the corporate or
partnership existence of each Subsidiary; provided, however, that the
-------- -------
Partnership shall not be required to preserve any such corporate existence of
any such Subsidiary if the Board of Representatives shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Partnership and the Subsidiaries as a whole and that the loss thereof would
not reasonably be expected to have a material adverse effect on the ability of
the Partnership to perform its obligations hereunder; and provided, further,
-------- -------
however, that the foregoing shall not prohibit a sale, transfer or conveyance of
- -------
a Subsidiary or any of its assets in compliance with the terms of this Note.
The Partnership will, and will cause its Subsidiaries to, obtain and preserve
qualification to do business as a foreign limited partnership or a foreign
corporation, as the
19
<PAGE>
case may be, in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Note.
Section 6.4 Stay, Extension and Usury Laws. The Partnership covenants
------------------------------
(to the extent that it may lawfully do so) that it will not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Note; and the Partnership (to the extent it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Noteholder, but will suffer and permit the execution of
every such power as though no such law has been enacted.
Section 6.5 Preservation of Noteholder's Right to Receive Units. The
---------------------------------------------------
Partnership covenants and agrees that it shall not enter into any agreements,
make any arrangements or amend the Partnership Agreement in a manner that would
restrict the Noteholder's right or ability to receive Units upon Conversion of
the Note in the manner set forth herein.
Section 6.6 Financial Statements.
--------------------
(a) Annual Statements. The Partnership will furnish to the
-----------------
Noteholder as soon as available, and in any event within 90 days after
the end of each fiscal year of the Partnership, the consolidated balance
sheets of the Partnership and its subsidiaries as at the end of such
fiscal year and the consolidated statements of income, and changes in
financial position for such year of the Partnership and its subsidiaries,
together with comparative consolidated figures for the next preceding
fiscal year, accompanied by the reports or certificates of an independent
certified public accountant of recognized national standing to the effect
that such consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with prior years (except as to changes described therein
with which such accountant concurs) and fairly present the financial
condition of the Partnership and its subsidiaries at the dates thereof
and the results of their operations and changes in financial position for
the periods covered thereby.
(b) Quarterly Reports. The Partnership will furnish to the
-----------------
Noteholder as soon as available and, in any event, within 45 days after
the end of each fiscal quarter of each fiscal year of the Partnership,
the unaudited consolidated and consolidating balance sheet of the
Partnership and its subsidiaries as at the end of such quarter and the
consolidated and consolidating statements of income and changes in
financial condition for the fiscal quarter then ending of the Partnership
and its subsidiaries, together with comparative figures for the same
period in the preceding fiscal year and, with respect to the fourth
fiscal quarter of each fiscal year of the Partnership, showing year to
date figures, accompanied by a certificate of the
20
<PAGE>
General Partner of the Partnership that such statements have been
properly prepared in accordance with generally accepted accounting
principles consistently applied (except as to changes described therein)
and fairly present the financial position of the Partnership and its
subsidiaries at the dates thereof and the results of their operations and
changes in financial position for the periods covered thereby, subject
only to normal year-end audit adjustments.
(c) SEC Financial Filings. So long as the Partnership is required to
---------------------
file Form 10-K's, 10-Q's and 8-K's with the Securities and Exchange
Commission ("SEC"), the Partnership may satisfy the requirements of
paragraphs (a) and (b) above by furnishing to the Noteholder a copy of
-------------- --
such filings (including any financial statements incorporated therein) by
the date such Forms are required to be filed with the SEC.
(d) No later than five days after transmission thereof, the
Partnership shall deliver to the Noteholder copies of any other
statements, notices and reports delivered by the Partnership to its
Partners, securityholders or lenders.
(e) So long as the Note may be Converted into a number of Units equal
to at least 3% of all outstanding Units (including such Converted Units),
at the request of the Noteholder and at the Noteholder's expense, the
Board shall prepare and deliver, or cause to be prepared and delivered,
to the Noteholder, as soon as practicable following such request, any
additional financial information and statements as the Noteholder shall
from time to time reasonably request.
(f) Other Information. The Partnership will furnish to the
-----------------
Noteholder promptly upon the filing with the SEC, copies of any
registration statements, Proxy Statements and Form 8-K's and any
successor forms thereof.
Section 6.7 Accrual Basis. The books and records of the Partnership
-------------
shall be kept on an accrual basis.
Section 6.8 Maintenance of Books and Records. The Partnership shall
--------------------------------
cause to be kept, at the principal office of the Partnership, full and complete
books of account. The books of account shall be maintained in a manner that
provides sufficient assurance that:
(a) transactions of the Partnership are executed in accordance with
the general or specific authorization of the Board of Representatives or
the officers of the Partnership, consistent with the provisions of the
Partnership Agreement; and
(b) transactions of the Partnership are recorded in such form and
manner as will (i) permit preparation of income and franchise tax returns
of the Partners in their respective appropriate jurisdictions and
information returns in accordance with the Partnership Agreement and as
required by law, (ii) permit preparation of the
21
<PAGE>
Partnership's financial statements in a manner consistent with generally
accepted accounting principles subject to such changes as are
necessitated by the transactions contemplated hereby and (iii) maintain
accountability for the Partnership's assets.
Section 6.9 Access to Books of Account. The Noteholder shall have the
--------------------------
right, during usual business hours upon reasonable notice and at the
Noteholder'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. Such rights may be
exercised through any authorized representative of the Noteholder and
information received as a result the exercise of such rights shall be subject to
the restrictions set forth in the Confidentiality Agreement (whether or not the
confidentiality agreement is then in effect and whether or not the Noteholder is
a party to the Confidentiality Agreement). Notwithstanding any other provision
of this Agreement, the General Partner may, but shall not be obligated to, take
any action necessary to prevent the Noteholder from receiving or having access
to any material non-public information concerning the trademarks licensed under
the Trademark Agreement.
Section 6.10 Related Party Transactions. After the date of issuance of
--------------------------
the Note, neither the Partnership nor any Subsidiary shall, without the written
consent of the Noteholder, enter into any transaction with any Subsidiary (other
than a wholly-owned Subsidiary), any Partner, any Affiliate of any Partner, or
any partner or Affiliate of any Subsidiary other than (A) transactions that are
at least as favorable to the Partnership or the Subsidiary as could have been
obtained on an arm's-length basis with a Person who is not a Subsidiary, Partner
or an Affiliate of a Partner, or a partner or Affiliate of any Subsidiary (as
determined in the good faith judgment of the Board of Representatives) or (B)
the transactions contemplated by the Credit Card Agreement and the Trademark
Agreement.
Section 6.11 Issuance of Units; Listing of Units, Etc.
-----------------------------------------
(a) The Partnership shall at all times keep available, solely for the
purpose of effecting the Conversion of the Note, the full number of Units
deliverable upon Conversion of the entire principal amount of the Note or
portion thereof not theretofor Converted.
(b) If any Units to be issued upon Conversion of the Note require
registration with or approval of any governmental authority under any
Federal or State law before such Units may be issued upon Conversion, the
Partnership will in good faith and as expeditiously as possible endeavor
to cause such Units to be duly registered or approved, as the case may
be. If the Units are listed on the New York Stock Exchange or any other
national securities exchange or admitted for trading on the National
Association of Securities Dealers Automated Quotation System, the
Partnership will, as expeditiously as possible, if permitted by the rules
of such exchange or the NASD, cause to be listed and keep listed on such
exchange or such
22
<PAGE>
quotation system, upon official notice of issuance or upon admission for
trading, all Units issuable upon Conversion of the Note.
(c) The Units issuable upon Conversion of the Note, when the same
shall be issued in accordance with the terms hereof, are hereby declared
to be and shall be validly issued and nonassessable Units in the hands of
holders thereof.
ARTICLE 7
DEFAULTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be occasioned by the provisions of Article
-------
5 or be voluntary or involuntary or be effected by operation of law or pursuant
- -
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on the
Note when it becomes due and payable, and such default shall continue for
a period of 30 days;
(b) there shall be a default in the payment of the principal of (or
premium, if any, on) the Note at its Stated Maturity, upon acceleration,
optional or mandatory redemption, required repurchase or otherwise;
(c) (i) there shall be a default in the performance, or breach, of
any covenant or agreement of the Partnership (other than a default in the
performance or breach of a covenant or agreement which is specifically
dealt with in clause (a) or (b) or in clauses (ii) or (iii) of this
---------- --- ------------ -----
clause (c)) and such default or breach shall continue for a period of 30
----------
days after written notice has been given, by certified mail, to the
Partnership by the Noteholder; (ii) there shall be a default in the
performance or breach of the provisions of Article 9; or (iii) the
---------
Partnership shall have failed to make or consummate a Designated Event
Offer in accordance with the provisions of Article 4;
---------
(d) one or more defaults shall have occurred under any agreements,
indentures or instruments under which either the Partnership or any
Subsidiary then has outstanding Indebtedness in excess of $7,500,000 in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(e) one or more judgments, orders or decrees for the payment of money
in excess of $7,500,000 (net of amounts covered by insurance pursuant to
which
23
<PAGE>
payments are made within 10 days after the applicable period described
in clause (ii) of this paragraph (e) (treating any deductibles,
----------- -------------
self-insurance or retention as being not so covered)), either
individually or in the aggregate, shall be entered against either the
Partnership or any Subsidiary or any of their respective properties and
shall not be discharged and either (i) any creditor shall have commenced
an enforcement proceeding upon such judgment, order or decree, or (ii)
there shall have been a period of 60 consecutive days during which a stay
of enforcement of such judgment or order, by reason of an appeal or
otherwise, shall not be in effect;
(f) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of either the
Partnership or any Significant Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or (ii) a decree or order
adjudging either the Partnership or any Significant Subsidiary bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of either the Partnership or any Significant
Subsidiary under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of either the Partnership or any Significant
Subsidiary or of any substantial part of any of its property, or ordering
the winding up or liquidation of its affairs, and any such decree or
order for relief shall continue to be in effect, or any such other decree
or order shall be unstayed and in effect, for a period of 60 consecutive
days; or
(g) either the Partnership or any Significant Subsidiary (i)
commences a voluntary case or proceeding under any applicable Bankruptcy
Law or any other case or proceeding to be adjudicated bankrupt or
insolvent, (ii) consents to the entry of a decree or order for relief in
respect of either the Partnership or any Significant Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy law or to
the commencement of any bankruptcy or any insolvency case or proceeding
against it, (iii) files a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, (iv)
(x) consents to the filing of such petition or to the appointment of, or
taking possession by, a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of either the
Partnership or such Significant Subsidiary or of any substantial part of
its property, (y) makes an assignment for the benefit of creditors, or
(z) admits in writing of its inability to pay its debts generally as they
become due, or (v) either the Partnership or any Significant Subsidiary
takes any corporate or partnership action in furtherance of any such
actions in this paragraph (g).
-------------
The Partnership shall deliver to the Noteholder within five Business
Days after the occurrence thereof, written notice of any Default, its status and
what action the Partnership is taking or proposes to take with respect thereto.
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<PAGE>
Section 7.2 Acceleration of Maturity; Rescission and Annulment. If an
--------------------------------------------------
Event of Default (other than an Event of Default specified in clause (f) or (g)
---------- ---
of Section 7.1 that occurs with respect to either of the Partnership or any
-----------
Significant Subsidiary) shall occur and be continuing, the Noteholder may
declare the Note due and payable immediately at its outstanding principal amount
together with accrued and unpaid interest, if any, to the date the Note becomes
due and payable by a notice in writing to the Partnership and, if the Bank
Credit Facility is in effect, to the agent under the Bank Credit Facility, and
upon any such declaration, such principal and interest shall become due and
payable immediately, except if the Bank Credit Facility is in effect, any such
acceleration shall not be effective until the first to occur of (l) an
acceleration under the Bank Credit Facility or (2) the fifth Business Day after
receipt by the Partnership and by such agent under the Bank Credit Facility of
such written notice given hereunder, and thereupon the Noteholder may, at its
discretion, proceed to protect and enforce its rights by appropriate judicial
proceeding. If an Event of Default specified in clause (f) or (g) of Section
---------- --- -------
7.1 occurs with respect to either of the Partnership, or any Significant
- ---
Subsidiary and is continuing, then the Note shall ipso facto become and be
---- -----
immediately due and payable, in an amount equal to the outstanding principal
amount of the Note, together with accrued and unpaid interest, if any, to the
date the Note becomes due and payable, without any declaration or other act on
the part of the Noteholder.
In the event a declaration of acceleration arising from an Event of
Default specified in clause (d) of Section 7.1 shall have occurred and be
---------- -----------
continuing, such declaration of acceleration shall be automatically annulled if
the Indebtedness that is the subject of such Event of Default has been
discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness and, if such Indebtedness is not
Senior Indebtedness, such rescission has been made without any payment or other
transfer or grant or any tangible or intangible property or right to such
holders in connection with such recision, and written notice of such discharge
or recision, as the case may be, shall have been given to the Noteholder by the
Partnership and by the holders of such Indebtedness or a trustee, fiduciary or
agent for such holders, within 75 days after such declaration of acceleration in
respect to the Note, and (x) no other Event of Default has occurred during such
75-day period, and (y) no Default arising from such discharge has occurred
during such 75-day period, which, in either case, has not been cured or waived
during such 75-day period.
At any time after such declaration of acceleration has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Noteholder as provided hereinafter in this Article, the Noteholder by
written notice to the Partnership, may rescind and annul such declaration and
its consequences.
No such rescission shall affect any subsequent or other Event of Default or
impair any right consequent thereon.
Section 7.3 Restoration of Rights and Remedies. If the Noteholder has
----------------------------------
instituted any proceeding to enforce any right or remedy under this Note and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the
25
<PAGE>
Noteholder, then and in every such case the Partnership and the Noteholder
shall, subject to any determination in such proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Noteholder shall continue as though no such proceeding had
been instituted.
Section 7.4 Rights and Remedies Cumulative. No right or remedy herein
------------------------------
conferred upon or reserved to the Noteholder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
Section 7.5 Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Noteholder to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Noteholder may be exercised from time to time, and as
often as may be deemed expedient, by the Noteholder.
Section 7.6 Waiver of Past Defaults. The Noteholder by notice to the
-----------------------
Partnership may waive an existing Event of Default and its consequences. When
an Event of Default is waived, it is cured and ceases; but no such waiver shall
extend to any subsequent or other Event of Default or impair any right
consequent thereon.
ARTICLE 8
DEFINITIONS
Section 8.1 Definitions. For all purposes of this Note, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article 8 have the meanings assigned to
---------
them in this Article 8, and include the plural as well as the singular;
---------
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Note as a whole and not to any particular
Article, Section or other subdivision; and
26
<PAGE>
(d) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
the time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be. Acquired Indebtedness shall
be deemed to be incurred on the date of the related acquisition of assets from
any Person or the date the acquired Person becomes a Subsidiary, as the case may
be.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person (or any partner of such
Person) or (ii) any other Person that owns, directly or indirectly, 5% or more
of such Person's (or any partner of such Person's) Voting Equity Interests or
any executive officer or director of either of such other Persons. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Bank Credit Facility" means the Credit Agreement, dated as of December
9, 1996, among, inter alia, the Partnership, Morgan Guaranty Trust Company of
----- ----
New York, as agent, Merrill Lynch Capital, as documentation agent, and the
lenders party thereto, as such agreement, in whole or in part, may be amended,
renewed, extended, substituted, refinanced, restructured, replaced, supplemented
or otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing).
"Bankruptcy Law" means Title 11, United States Code or any similar
federal or state law for debtor relief.
"Board of Representatives" means the board of representatives or
directors, management committee or any authorized committee thereof responsible
for the management of the business and affairs of the Partnership or its general
partner.
"Brylane Note" means the 6% Convertible Subordinated Note due 2006 to be
issued by Brylane Inc., a Delaware corporation, pursuant to the Incorporation
Agreement.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to close.
27
<PAGE>
"Capital Lease Obligation" of any Person means any obligations of such
Person and its subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total voting power of all classes of Voting Equity Interests of
the Partnership or its General Partner; provided that the Permitted Holders
--------
"beneficially own" (as so defined) a lesser percentage of such Voting Equity
Interests than such other Person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Representatives; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Representatives (together with any new members of the Board of Representatives
whose election to such Board or whose nomination for election by the holders of
Equity Interests of the Partnership was approved by (a) a Permitted Holder or
(b) a vote of at least 66-2/3% of the members of the Board of Representatives
then still in office who were either members of the Board of Representatives at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Representatives then in office; (iii) the Partnership or its General
Partner consolidates with or merges with or into any Person or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation or partnership consolidates with or merges into or with the
Partnership or its General Partner, in any such event pursuant to a transaction
in which the outstanding Voting Equity Interests of the Partnership or its
General Partner are changed into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Equity
Interests of the Partnership or its General Partner are not changed or exchanged
at all (except to the extent necessary to reflect a change in the jurisdiction
of partnership of the Partnership or its General Partner or where (A) the
outstanding Voting Equity Interests of the Partnership or its General Partner
are changed into or exchanged for (x) Voting Equity Interests of the surviving
corporation or partnership which are not Redeemable Equity Interests or (y)
cash, securities and other property (other than Equity Interests of the
surviving corporation) and (B) no "person" or "group" other than Permitted
Holders owns immediately after such transaction, directly or indirectly, more
than the greater of (1) 35% of the total outstanding Voting Equity Interests of
the surviving corporation or partnership and (2) the percentage of the
outstanding Voting Equity Interests of the surviving corporation or partnership
owned, directly or indirectly, by Permitted Holders immediately after such
transaction; or (iv) the Partnership is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies
with the provisions described under Article 9 of the Note. Notwithstanding
---------
anything in this definition to the contrary, a "Change of Control" shall not be
deemed to have occurred solely as a result of a transaction pursuant to which
the Partnership is reorganized or reconstituted as a
28
<PAGE>
corporation pursuant to Article 9 of the Note and no event described in the
---------
definition of "Change of Control" above shall have occurred.
"Common Stock" means the common stock of the Corporation.
"Confidentiality Agreement" means that certain Confidentiality Agreement
dated March 24, 1993 between Freeman Spogli & Co. and the Limited, Inc., as the
same may be amended from time to time.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss), Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income (Loss) in each case, for
such period, of such Person and its subsidiaries on a Consolidated basis, plus
the amount of Partner Tax Distributions for such period, all determined in
accordance with GAAP consistently applied, to (b) the sum of Consolidated
Interest Expense for such period and cash and non-cash dividends paid on any
Preferred Equity Interest of such Person during such period; provided that (i)
--------
in making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and (A) bearing a
--- -----
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of such Person, a fixed or floating rate of interest,
shall be computed by applying, at the option of such Person, either the fixed or
floating rate and (ii) in making such computation, the Consolidated Interest
Expense of such Person attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
--- -----
upon the average daily balance of such Indebtedness during the applicable
period.
"Consolidated Income Tax Expense" of any Person means, for any period,
the provision for Federal, state, local and foreign income taxes of such Person
and its consolidated subsidiaries for such period as determined in accordance
with GAAP consistently applied.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Consolidated Subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount, (ii) the net cost under
interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation and (iv) accrued interest,
plus (b) (i) the interest expense attributable to Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person during such
period and (ii) all capitalized interest of such Person and its Consolidated
Subsidiaries, in each case as determined in accordance with GAAP consistently
applied.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such
29
<PAGE>
period as determined in accordance with GAAP consistently applied, adjusted, to
the extent included in calculating such net income (loss), by excluding, without
duplication, (i) all extraordinary gains and losses, net of taxes, (ii) the
portion of net income (loss) of such Person and its Consolidated Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by such Person
or one of its Consolidated Subsidiaries, (iii) net income (loss) of any Person
combined with such Person or any of its Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains or losses (less all fees and expenses relating
thereto), net of taxes, in respect of dispositions of assets other than in the
ordinary course of business or (vi) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Subsidiary or its shareholders; provided, however, that in the case of
-------- -------
the Partnership, there shall also be deducted in calculating Consolidated Net
Income (Loss) the amounts of Partner Tax Distributions made for the applicable
period.
"Consolidated Net Worth" of any Person means the Consolidated
stockholders' equity or partners' capital (excluding Redeemable Equity
Interests) of such Person and its subsidiaries, as determined in accordance with
GAAP consistently applied.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, as determined in accordance
with GAAP consistently applied (excluding any non-cash charge which requires an
accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied. The term "Consolidated" shall have a similar meaning.
"Conversion" or "Convert" means the right of the Noteholder to purchase
Units, which purchase is effected by receiving all or part of the principal
amount of the Note and returning such amount to the Partnership to purchase
Units for the Conversion Price as determined in this Note, provided that the
cash payment of the principal amount of the Note and the cash payment of the
Conversion Price will be offset against each other with the result that no
actual cash payment will be made by either party to the other.
"Corporation" means Brylane Inc., a Delaware corporation, or such other
entity that is the successor to or becomes the parent entity of the Partnership
in connection with the Initial Public Offering.
30
<PAGE>
"Credit Card Agreement" means the Credit Card Processing Agreement
between World Financial Network National Bank, a national banking association
and wholly owned subsidiary of The Limited, Inc., a Delaware corporation, and
any successor thereto, and the Partnership, dated as of August 30, 1993, and any
other agreement or agreements entered into by the Partnership for similar
purposes, as any such agreement or agreements may be amended from time to time.
"Current Fair Value" per Unit on any date means (i) the value of a Unit
as determined in good faith by the Board of Representatives, whose determination
shall be conclusive evidence of such value and described in a resolution of the
Board of Representatives or (ii) if the Units are listed or admitted for trading
on the New York Stock Exchange or another national securities exchange or are
quoted on the Nasdaq National Market, the average of the Current Market Prices
per Unit for the 10 Business Days ending 10 days before the date of
determination of the Current Fair Value.
"Current Market Price" means (i) in the case of a security listed or
admitted to trading on any securities exchange, the closing price, regular way,
on such day, or if no sale takes place on such day, the average of the closing
bid and asked quotations regular way on such day or (ii) in the case of a
security not then listed or admitted to trading on any securities exchange, the
last reported sale price on such day, or if no sale takes place on such day, the
average of the high bid and low asked quotations regular way on the day in
question in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System, or if not so quoted, as
reported by National Quotation Bureau, Incorporated, or a similar organization.
"Default" means any event which is, or after notice or passage of any
time or both would be, an Event of Default.
"Designated Event" means either a Change in Control or a Releveraging.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Bank Credit Facility and (ii) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $20,000,000 and is
specifically designated in the instrument evidencing such Senior Indebtedness or
the agreement under which such Senior Indebtedness arises as "Designated Senior
Indebtedness" by the Partnership.
"Employee Distribution" means any distributions of cash or Employee
Equity Interests (as defined in Section 8.07 of the Partnership Agreement) or
------------
other equity interests to FS General Partner or FS Limited Partner (as defined
in the Partnership Agreement) made with respect to the purchase of, repurchase
of, pledge of or payment of tax obligations associated with shares of Common
Stock of VP Holdings, or the Corporation, issued to employees, consultants or
directors of the Partnership or the Corporation.
31
<PAGE>
"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person.
"Event of Default" has the meaning specified in Article 7 hereof.
---------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Event" means the formation of a corporation organized under the
laws of Delaware as a successor to, or parent entity of, the Partnership or any
successor Person thereto and the consummation of the transactions contemplated
by Article 9 of the Note in anticipation of an Initial Public Offering.
---------
"General Partner" means VGP Corporation, a Delaware corporation and any
other Person who becomes a general partner of the Partnership in accordance with
the terms of the Partnership Agreement.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are, in effect on the date of this Note.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
contained in this Section guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services without requiring that such property
be received or such services be rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include endorsements
--------
for collection or deposit, in either case in the ordinary course of business.
"Incorporation Agreement" means that certain Incorporation and Exchange
Agreement dated as of October 14, 1996 by and among FS Equity Partners II, L.P.,
FS Equity Partners III, L.P., FS Equity Partners International, L.P., Lane
Bryant Direct Holding, Inc., The Limited, Inc., WearGuard Corporation, Brylane
Inc. and the Noteholder ("Original Incorporation Agreement"), as amended and
restated by that certain First Amended and Restated Incorporation and Exchange
Agreement dated as of December 9, 1996 by and among the parties to the Original
Incorporation Agreement, Noteholder, Leeway & Co. and the
32
<PAGE>
NYNEX Master Trust ("Amended and Restated Incorporation Agreement"), a copy of
which is attached as Exhibit 8.1(I) hereto, as amended from time to time.
--------------
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit issued under letter of credit
facilities, acceptance facilities or other similar facilities and in connection
with any agreement to purchase, redeem, exchange, convert or otherwise acquire
for value any Equity Interest of such Person, or any warrants, rights or options
to acquire such Equity Interest, now or hereafter outstanding, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
-----------
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Equity Interests issued by
such Person valued at the greater of their voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends, and (ix) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing of any liability of the types referred to in clauses (i) through
-----------
(viii) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Equity Interest which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Equity Interest as if
such Redeemable Equity Interest were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Note and if such price is
based upon, or measured by, the fair market value of such Redeemable Equity
Interest, such fair market value to be determined in good faith by the board of
representatives or directors or other governing body of the issuer thereof.
"Initial Public Offering" means the consummation of the transactions
contemplated by the Incorporation Agreement or such other agreement or
agreements entered into by the parties thereto to fulfill the intent and purpose
of the Incorporation Agreement and Article X of the Partnership Agreement.
---------
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements
33
<PAGE>
(including, without limitation, interest rate swaps, caps, floors, collars and
similar agreements) and/or other types of interest rate hedging agreements from
time to time.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Non-payment Default" means any event (other than a Payment Default) the
occurrence of which entitles one or more Persons to accelerate the maturity of
any Designated Senior Indebtedness.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Partner" means each Person who from time to time shall be admitted as a
partner of the Partnership.
"Partnership Agreement" means that certain Agreement of Limited
Partnership of Brylane, L.P. dated August 30, 1993 by and among VGP Corporation,
VLP Corporation, Lane Bryant Direct Holding, Inc. and WearGuard Corporation, as
amended.
"Partner Tax Distributions" means, with respect to the Partnership,
amounts distributable by the Partnership to holders of Equity Interests of the
Partnership of amounts necessary pursuant to the Partnership Agreement to
satisfy current income tax liabilities of such holders attributable to such
Equity Interests as a result of income of the Partnership.
"Payment Default" means any default in the payment of any amount of
Designated Senior Indebtedness as and when due whether at maturity, by
acceleration, upon a date set for prepayment or otherwise, including principal,
premium, if any, interest, commitment fees, letter of credit fees or
reimbursement obligations in respect of letters of credit under Designated
Senior Indebtedness.
"Percentage Interests" 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.
"Permitted Holders" means (i) The Limited, Inc., a Delaware corporation,
and any of its Affiliates, (ii) Freeman Spogli & Co., a California general
partnership, and any of its Affiliates, (iii) WearGuard Corporation, a Delaware
corporation, and any of its Affiliates, (iv) the Noteholder, and any of its
Affiliates, (v) 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, and any of its Affiliates and (vi) the NYNEX Master Trust, a trust
governed by the laws of the State of New York ("NYNEX"), and any of its
Affiliates; provided that the
--------
34
<PAGE>
Partnership and its Subsidiaries shall not be deemed Affiliates of The Limited,
Inc., Freeman Spogli & Co., WearGuard Corporation, Noteholder, Leeway & Co. or
NYNEX for purposes of this definition.
"Permitted Junior Securities" means, so long as the effect of any
exclusion employing this definition is not to cause or permit the Note (or any
securities proposed to be issued as "Permitted Junior Securities") to be treated
in any case or proceeding or similar event described in clause (a), (b) or (c)
---------- --- ---
of Section 5.2 as part of the same class of claims as the Senior Indebtedness or
-----------
any class of claims pari passu with, or senior to, the Senior Indebtedness, for
---- -----
any payment or distribution, debt or equity securities of the Partnership (or
any successor corporation) that are provided for by a plan of reorganization or
readjustment and that are subordinated at least to the same extent that the
Securities are subordinated to the payment of all Senior Indebtedness then
outstanding; provided that (1) if a new corporation results from such
--------
reorganization or readjustment, such corporation assumes any Senior Indebtedness
not paid in full in cash or cash equivalents or, as acceptable to the holders of
Senior Indebtedness, in any other manner in connection with such reorganization
or readjustment and (2) the rights of the holders of such Senior Indebtedness
are not, without the consent of such holders, altered by such reorganization or
readjustment.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Equity Interests" means, with respect to any Person, any
Equity Interest of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over Equity Interests of any other class in such Person.
"Redeemable Equity Interest" means any Equity Interest that, either by
its terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be required to be redeemed prior to any Stated Maturity of the
principal of the Note or is redeemable at the option of the holder thereof at
any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Releveraging" means a transaction or series of transactions (the
"transaction") (a) in which the Partners receive cash or other assets (other
than their equity interests in the Person that carries on the business of the
Partnership after such transaction) having a fair market value in excess of 75%
of the aggregate Current Fair Value of the Units held by the Partners before
such transaction and (b) immediately after which those Persons who were Partners
immediately before such transaction own, directly or indirectly, together with
the lenders in such transaction, at least 85% of the aggregate equity interests
in the Person that
35
<PAGE>
carries on the business of the Partnership, in connection with which the
Partnership or any of its Subsidiaries has created, issued, assumed, guaranteed,
or otherwise in any manner become directly or indirectly liable for or with
respect to or otherwise incurred (collectively, "incurred") any Indebtedness
and immediately after which (on a pro forma basis) the Consolidated Fixed
--- -----
Change Coverage Ratio for the Partnership for the four full fiscal quarters for
which financial information is available immediately preceding the incurrence of
such Indebtedness taken as one period (and after giving pro forma effect to
--- -----
(i) the incurrence of such Indebtedness and (if applicable) the application of
the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was incurred, and the application of such proceeds occurred,
at the beginning of such four-quarter period; (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Partnership and its Subsidiaries
since the first day of such four-quarter period as if such Indebtedness was
incurred, repaid or retired at the beginning of such four-quarter period (except
that, in making such computation, the amount of Indebtedness under any revolving
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition; and (iv) any acquisition or disposition
by the Partnership and its Subsidiaries of any company or any business or any
group of assets constituting an operating unit out of the ordinary course of
business, whether by merger, stock purchase or sale, or asset purchase or sale,
or any related repayment of Indebtedness, in each case since the first day of
such four-quarter period, assuming such acquisition or disposition had been
consummated on the first day of such four-quarter period) is less than
2.50:1.00.
"Rights" shall have the meaning set forth in Section 2.4(c).
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy laws whether or
not allowable in such proceeding) on any Indebtedness of the Company (other than
as otherwise provided in this definition), whether outstanding on the date of
this Note or thereafter created, incurred or assumed, and whether at any time
owing, actually or contingently, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Note. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall include the principal of, premium,
if any, and interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy laws
whether or not allowable in such proceeding) on all monetary obligations of
every kind and nature of the Partnership from time to time owed under (i) the
Bank Credit Facility, including, without limitation, fees, reimbursement
obligations in respect of letters of credit and indemnity and expense
reimbursement obligations and (ii) the Senior Subordinated Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the Note, (ii) Indebtedness that is represented by
Redeemable Equity Interests, (iii) Indebtedness which when incurred and without
respect to any election under Section 1111(b) of Title 11 United
36
<PAGE>
States Code, is without recourse to the Partnership, (iv) any liability for
foreign, federal, state, local or other taxes owed or owing by the Partnership,
and (v) Indebtedness of the Partnership to a Subsidiary or any other Affiliate
of the Partnership or any of such Affiliate's subsidiaries (other than
Indebtedness in respect of the Bank Credit Facility).
"Senior Representative" means a representative of one or more holders of
Designated Senior Indebtedness.
"Senior Subordinated Notes" means the 10% Senior Subordinated Securities
due 2003, Series B, issued by the Partnership and Brylane Capital Corp., a
Delaware corporation pursuant to the Indenture dated as of August 30, 1993 by
and among the Partnership, Brylane Capital Corp., United States Trust Company of
New York, as trustee, and the other parties listed thereto.
"Significant Subsidiary" means any Subsidiary of the Partnership in which
the Partnership's and its other Subsidiaries' (x) investments in and advances to
such Subsidiary exceed 5% of the total assets of the Partnership and its other
Subsidiaries Consolidated as of the end of the most recently completed fiscal
year, (y) proportionate share of the total assets (after intercompany
eliminations) of such Subsidiary exceeds 5% of the total assets of the
Partnership and its other Subsidiaries Consolidated as of the end of the most
recently completed fiscal year, or (z) equity in the income from continuing
operations before income taxes, extraordinary items and cumulative effect of a
change in accounting principles of the Subsidiary exceed 5% of the income of the
Partnership and its other Subsidiaries Consolidated for the most recently
completed fiscal year.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the date specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Stockholder" means a Stockholder as defined in the Stockholders
Agreement.
"Stockholders Agreement" means that certain Stockholders Agreement
attached as Exhibit E to the Original Incorporation Agreement, as the same will
---------
be amended by the Amended and Restated Incorporation Agreement, or such other
form of Stockholders Agreement entered into pursuant to Article X of the
---------
Partnership Agreement.
"Subordinated Indebtedness" means any Indebtedness of the Partnership
subordinated in right of payment to the Note.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Equity Interests of which is at the time owned, directly or indirectly,
by the Partnership or by one or more Subsidiaries.
37
<PAGE>
"Tax Distribution" means any distribution of cash to Partners which is a
Tax Payment Distribution (as defined in Section 5.01(b) of the Partnership
---------------
Agreement) or is otherwise made to pay taxable income allocable to Partners.
"Trademark Agreement" means that certain Trademark License Agreement
dated as of August 20, 1993 by and among Lanco, Inc., a Delaware corporation
("Lanco"), Lernco, Inc., a Delaware corporation ("Lernco"), Limited Stores,
Inc., a Delaware corporation ("Limited Stores"), Lane Bryant, Inc., a Delaware
corporation ("Lane Bryant" and, together with Lanco, Lernco and Limited Stores,
the "Licensors"), Lane Bryant Direct, Inc., a Delaware corporation ("Lane Bryant
Direct"), and Lerner Direct, Inc., a Delaware corporation ("Lerner") and any
other agreement or agreements entered into by the Partnership and such licensors
for similar purposes, as any such agreement or agreements may be amended from
time to time.
"Trading Day" shall mean (A) if the applicable security is listed or
admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which the New York Stock Exchange or another
national securities exchange is open for business, (B) if the applicable
security is quoted on The Nasdaq National Market, a day on which trades may be
made thereon or (C) if the applicable security is not so listed, admitted for
trading or quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Unit" means on ownership interest in the Partnership of a Limited
Partner, and shall include, except as otherwise provided in Sections 9.07 and
-------------
9.08 of the Partnership Agreement, any and all rights and obligations of such
- ----
Partner under the Partnership Agreement with respect thereto.
"Voting Equity Interests" means Equity Interests of the class or classes
pursuant to which the holders thereof have (i) in respect of a corporation, the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of a corporation (irrespective
of whether or not at the time Equity Interests of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency) or (ii) in respect of a partnership, the general voting power under
ordinary circumstances to elect the board of directors or other governing board
of such partnership.
"Wholly Owned Subsidiary" means a Subsidiary all the outstanding Equity
Interests (other than directors' qualifying shares) of which are owned by the
Partnership.
38
<PAGE>
ARTICLE 9
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 9.1 Partnership May Consolidate, etc., Only on Certain Terms.
--------------------------------------------------------
(a) The Partnership shall not, in a single transaction or a series of
related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person or
group of Affiliated Persons, or permit any of its Subsidiaries to enter
into any such transaction or transactions if such transaction or
transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of
the properties and assets of the Partnership on a Consolidated basis to
any other Person or group of Affiliated Persons, unless:
(i) either (a) the Partnership shall be the continuing Person or
(b) the Person or each Person in such group of Affiliated Persons (if
other than the Partnership) formed by such consolidation or into
which the Partnership is merged or the Person or each Person in such
group of Affiliated Persons which acquires by sale, assignment,
conveyance, transfer, lease or disposition of all or substantially
all of the properties and assets of the Partnership and its
Subsidiaries on a Consolidated basis (each such Person, the
"Surviving Entity") shall be a corporation or partnership duly
organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia, and such
Person or each Person in such group of Affiliated Persons assumes by
an amendment to this Note in form and substance reasonably
satisfactory to the Noteholder, executed and delivered to the
Noteholder, all the obligations of the Partnership under this Note,
and this Note shall remain in full force and effect;
(ii) immediately before and after giving effect to such
transaction, no Default or Event of Default shall have occurred and
be continuing; and
(iii) The Partnership shall have delivered to the Noteholder,
in form and substance reasonably satisfactory to the Noteholder, a
certificate signed by an officer of the Partnership and an opinion of
counsel to the Partnership each to the effect that such
consolidation, merger, transfer, sale, assignment, lease or other
transaction and any related amendment to the Note comply with this
Article 9 and that all conditions precedent herein provided for
relating to such transaction have been complied with.
39
<PAGE>
(b) The provisions of this Section 9.1 shall not prohibit (i) the
-----------
merger of a Wholly Owned Subsidiary into the Partnership or (ii) the
sale, assignment, conveyance, transfer, lease or other disposal of all or
substantially all of its properties and assets by a Wholly Owned
Subsidiary to the Partnership.
(c) Notwithstanding anything contained in this Section 9.1 to the
-----------
contrary, the Partnership is permitted to reorganize as a corporation,
provided that (A) the successor or surviving corporation ("Successor") is
--------
organized and existing under the laws of the United States, any state
thereof or the District of Columbia, (B) such reorganization is not
materially adverse to the Noteholder; it being understood, however, that
such reorganization shall not be considered materially adverse to the
Noteholder solely because the Successor is subject to income taxation as
a corporate entity, (C) immediately after giving effect to such
transaction, no Default or Event of Default exists, (D) the Partnership's
obligations under the Partnership Agreement to make tax distributions
terminate prior to such reorganization (except with respect to tax
distributions in respect of (i) taxable periods ending on or prior to the
date of such reorganization or (ii) Partners' income tax liability that
results from the actions comprising such reorganization), unless (1) the
Successor is not a party to the Partnership Agreement and (2) the
Successor will neither assume nor be subject to, is not currently, and
will never be, liable and/or responsible for any obligations and/or
duties under the Partnership Agreement, (E) the actions comprising such
reorganization (e.g., the issuance of stock of the corporation in
exchange for assets of or partnership interests in the Partnership or in
exchange for stock of a corporation or corporations holding such
partnership interests, or the merger or consolidation of such
corporations) will not themselves directly result in material income tax
liability to the Successor, (F) the Successor has assumed all obligations
of the Partnership, pursuant to a substitute Convertible Subordinated
Note in the form of Exhibit 9.1(c) hereof, executed and delivered to the
--------------
Noteholder, (G) the Noteholder will not recognize income, gain or loss
for federal income tax purposes as a result of such reorganization and
will be subject to federal income tax on the same amounts, in the same
manner, and at the same time as would have been the case if such
reorganization had not occurred, and (H) immediately after giving effect
to such transaction on a pro forma basis, the Consolidated Net Worth of
--- -----
the Successor is equal to or greater than the Consolidated Net Worth of
the Partnership immediately prior to such transaction (other than as a
result of any tax consequences of such reorganization) and (I) such
transaction either (i) complies with Article X of the Partnership
Agreement or (ii) is approved by Partners holding, in the aggregate, a
number of Units required to amend the Partnership Agreement under Section
13.02 of the Partnership Agreement. The Partnership shall deliver to the
Noteholder a certificate signed by an officer of the Partnership stating
that such reorganization and Note amendment comply with this Agreement
and an opinion of counsel to the Partnership to the effect that such
reorganization and Note amendment comply with clauses (A), (D), (E), (F),
(G), (H), and (I) above.
40
<PAGE>
Section 9.2 Successor Substituted. Upon any consolidation or merger or
---------------------
any sale, assignment, transfer, lease or conveyance or other disposition of all
or substantially all of the assets of the Partnership in accordance with Section
-------
9.1, the successor Person formed by such consolidation or into which the
- ---
Partnership is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted
for, and may exercise every right and power of the Partnership under this Note
(in the case of a reorganization pursuant to Section 9.1(c) above, the
--------------
substitute Note referred to in clause (F) of such Section) with the same effect
----------
as if such successor Person had been named as the Partnership herein. When a
successor assumes all the obligations of its predecessor under this Note (or, in
the case of a reorganization pursuant to Section 9.1(c) above, executes and
--------------
delivers to the Noteholder the substitute Note referred to in clause (F) of
----------
Section 9.1(c) above), the predecessor will be released from those obligations,
- --------------
provided that in the case of a transfer by lease, the predecessor shall not be
- --------
released from liability for the payment of principal and interest on the Note.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Notices. All notices and other communications given or
-------
made pursuant hereto shall be in writing and shall be deemed to have been given
or made if in writing and delivered personally, sent by a nationally recognized
commercial carrier or registered or certified mail (postage prepaid, return
receipt requested) or transmitted by facsimile to the parties at the following
addresses and numbers:
If to the Partnership to:
Brylane, L.P.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Fax No.: (212) 613-9551
With a copy to:
John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Fax No.: (212) 758-7499
41
<PAGE>
If to the Noteholder, to:
Chadwick's, Inc.
c/o The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Attention: President and General Counsel
Fax No.: (508) 390-2457
With a copy to:
Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Fax No.: (617) 951-7050
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made only
as of the date actually received.
Section 10.2 Amendment. This Note may be amended by the parties hereto
---------
only by an instrument in writing signed on behalf of each of the parties hereto.
Section 10.3 Entire Agreement. This Note (including all Exhibits
----------------
hereto) constitutes the entire agreement among the parties and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof.
Section 10.4 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday
--------------
or a day on which banking institutions in the State of New York are not required
to be open. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If any other
operative date for purposes of this Note shall occur on a Legal Holiday, then
for all purposes the next succeeding day that is not a Legal Holiday shall be
such operative date.
Section 10.5 No Recourse Against Others. A general partner, limited
--------------------------
partner, representative, officer, employee or agent, as such, of the Partnership
shall not have any liability for any obligations of the Partnership under the
Note or for any claim based on, in respect of or by reason of such obligations
or their creation. The Noteholder by accepting this Note waives and releases
all such liability. The waiver and release are part of the consideration for
the issuance of the Note.
42
<PAGE>
Section 10.6 Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK
-------------
SHALL GOVERN THIS NOTE, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
SECTION 10.7 WAIVER OF JURY TRIAL. THE PARTNERSHIP HEREBY IRREVOCABLY
--------------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY.
43
<PAGE>
IN WITNESS WHEREOF, the Partnership has caused this Note to be duly
signed as of the date first written above.
PARTNERSHIP: BRYLANE, L.P.,
a Delaware limited partnership
By: VGP CORPORATION
Its: General Partner
By: /s/ Mark J. Doran
---------------------------------
Name: Mark J. Doran
Title: Vice President
44
<PAGE>
EXHIBIT 2.2
ELECTION TO CONVERT
To Brylane, L.P.:
The undersigned owner of this Note hereby irrevocably exercises the
option to Convert this Note, or the portion below designated, into the
partnership units of Brylane, L.P. ("Units"), and directs that the Units
issuable and deliverable upon Conversion, together with any check in payment for
a fractional Unit, be issued in the name of and delivered to the undersigned.
The Noteholder, upon the exercise of its Conversion rights, agrees to
be bound by the terms of the Registration Rights Agreement relating to the Units
issuable upon Conversion of the Note.
Date:
in whole ___ Portion of Note to be Converted ($1,000 or
integral multiple thereof):
$_____________________________________
Signature (for Conversion only)
____________________________________________
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Note or Other
Identifying Number
______________________________
Name
______________________________
Address
______________________________
Taxpayer Identification Number
Signature Guarantee: *_____________________________________________
____________________
*Signature must be guaranteed by a commercial bank, trust company or member firm
of the New York Stock Exchange.
45
<PAGE>
EXHIBIT 9.1(c)
--------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO THE DISTRIBUTION THEREOF, AND NEITHER SUCH NOTE NOR ANY INTEREST THEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED OR PLEDGED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW
COVERING SUCH NOTE OR EACH OF THE ISSUERS (AS DEFINED BELOW) RECEIVES AN OPINION
OF COUNSEL ACCEPTABLE TO BOTH OF THE ISSUERS OR OTHER EVIDENCE REASONABLY
ACCEPTABLE TO BOTH OF THE ISSUERS INDICATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR PLEDGE IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW.
BRYLANE INC.
BRYLANE, L.P.
CONVERTIBLE SUBORDINATED NOTE
DUE 2006
$__________________ [DATE] , 199_
---------
Brylane Inc., a Delaware corporation ("Corporation," which term includes
any successor Person under hereunder), and Brylane, L.P., a Delaware limited
partnership ("Partnership" and, together with the Corporation, the "Issuers,"
which terms include any successor Persons hereunder), promise, jointly and
severally, to pay to Chadwick's, Inc., a Massachusetts corporation
("Noteholder"), the principal sum of $______________ [insert amount of EXCHANGE
PRINCIPAL*] on December 9, 2006 and to pay interest thereon at the rate of
______% [insert EXCHANGE INTEREST RATE**] per annum, at the times and subject
to the terms and provisions set forth herein ("Note"). The Note may be sold,
assigned, transferred or pledged; provided that upon the acquisition by any
--------
transferee of this Note such
- -----------------------------
* "Exchange Principal" means the principal amount of the Partnership Note
outstanding upon the exchange of this Note for the Partnership Note in
accordance with the terms of the Incorporation Agreement or such other agreement
or agreements entered into by the parties thereto in furtherance of the intent
and purpose of the Incorporation Agreement and Article X of the Partnership
---------
Agreement.
** "Exchange Interest Rate" means the rate of interest payable on the
Partnership Note upon the exchange of this Note for the Partnership Note in
accordance with the terms of the Incorporation Agreement or such other agreement
or agreements entered into by the parties thereto in furtherance of the intent
and purpose of the Incorporation Agreement and Article X of the Partnership
---------
Agreement.
<PAGE>
transferee shall become bound by and a party to the Stockholders Agreement, and
(i) for purposes of Sections 4.2 and 6.3 of the Stockholders Agreement, such
------------ ---
transferee's rights and obligations shall be identical to those provided to
WearGuard Corporation under such Sections and (ii) such transferee shall agree
to be bound by Section 3.4 of the Stockholders Agreement as if it were a
-----------
Stockholder as of the date such transferee acquires this Note. This Note is
issued in exchange for the Partnership Note pursuant to the terms and conditions
of the Incorporation Agreement.
ARTICLE 1
INTEREST/PAYMENT
Section 1.1 Interest. The Issuers promise, jointly and severally, to
--------
pay interest on the unpaid principal of the Note in cash quarterly to the
Noteholder on each March 15, June 15, September 15 and December 15 (each, an
"Interest Payment Date"), commencing on _________, ____. The rate of interest
shall be ___% [the Exchange Interest Rate] per annum.
Interest will accrue from the most recent date to which interest has been
paid. Interest will be computed on the basis of a 360-day year on the basis of
the actual days elapsed. To the extent lawful, the Issuers shall pay interest
on overdue installments of interest, if any (without regard to any applicable
grace period), at the rate borne by the Note, compounded annually. Interest on
the Note will be paid to the Noteholder on each Interest Payment Date. Interest
will be paid in immediately available funds by wire transfer to an account
designated by Noteholder.
Anything in this Note to the contrary notwithstanding, if from any
circumstances whatever fulfillment of any provisions of this Note shall involve
transcending the limit of validity prescribed by the usury laws of the State of
New York, then ipso facto the obligation to be fulfilled shall be reduced to the
----------
limit of such validity so that in no event shall exaction be possible under this
Note in excess of the limit of such validity, but such obligation shall be
fulfilled to the limit of such validity and if under any circumstances
whatsoever interest in excess of the limit of such validity will have been paid
by the Corporation in connection with the loan evidenced by this Note, such
excess shall be refunded to the Corporation so that under no circumstance shall
interest on the loan evidenced by this Note exceed the maximum rate allowed by
the State of New York ("Maximum Permissible Rate"). If interest payable by the
Noteholder on any date would exceed the maximum amount permitted by the Maximum
Permissible Rate, such interest payment shall automatically be reduced to such
maximum permitted amount, and interest for any subsequent period, to the extent
less than the maximum amount permitted for such period by the Maximum
Permissible Rate, shall be increased by the unpaid amount of such reduction, to
the extent permitted by law.
2.
<PAGE>
ARTICLE 2
CONVERSION
Section 2.1 Conversion Privilege. The Noteholder may Convert the
--------------------
principal amount hereof (or any portion thereof that is an integral multiple of
$1000) into fully paid and nonassessable shares of Common Stock, $.01 par value
of the Corporation ("Common Stock") at any time prior to 5:00 p.m. (New York
time) on the day prior to the maturity of the Note except that, if the Note is
called for redemption, such Conversion right shall terminate at 5:00 p.m. (New
York time) on the day immediately preceding the redemption date (unless the
Issuers shall each default in making the redemption payment when it becomes due,
in which case the Conversion right shall terminate at 5:00 p.m. (New York time)
on the date such default is cured). The number of shares of Common Stock
issuable upon Conversion of the Note shall be determined by dividing the
principal amount hereof (or any portion thereof that is an integral multiple of
$1000 subject to a Conversion request) Converted by the Conversion price
("Conversion Price") in effect on the Conversion Date (as defined below).
The initial Conversion Price per share of Common Stock is TWENTY-SEVEN
DOLLARS AND FIFTY CENTS ($27.50)***, and is subject to adjustment as provided in
this Article.
The Noteholder is not entitled to any rights of a stockholder of the
Company until the Noteholder has validly Converted the Note into shares of
Common Stock in the manner set forth herein.
Section 2.2 Conversion Procedure. To Convert the Note (or any portion
--------------------
hereof), the Noteholder must (1) complete and sign a notice of election to
Convert substantially in the form attached hereto as Exhibit 2.2, (2) surrender
-----------
the Note to the Corporation and (3) pay any tax, if required. Upon Conversion,
no adjustment or payment will be made for accrued and unpaid interest on the
Converted Note (or applicable portion hereof) or for dividends or distributions
on shares of Common Stock issuable upon Conversion of the Note, but if the
Noteholder surrenders the Note for Conversion (i) on an Interest Payment Date or
(ii) if the Corporation has issued a notice of redemption under Section 3 hereof
setting a redemption date on any December Interest Payment Date, within three
Business Days prior to such December Interest Date, then, notwithstanding such
Conversion, the interest payable on such Interest Payment Date will be paid to
the Noteholder. The number of shares of Common Stock issuable upon Conversion
of the Note is determined by dividing the principal amount
- -------------------
*** This initial Conversion Price is subject to adjustment pursuant to the
provisions of the Convertible Subordinated Note due 2006 previously issued by
the Partnership to Noteholder and pursuant to the terms of Section 2.07 of the
------------
Incorporation Agreement.
3.
<PAGE>
hereof (or any portion thereof that is an integral multiple of $1000 subject to
a Conversion request) by the Conversion Price in effect on the Conversion Date.
If the Noteholder has delivered a Designated Event Purchase Notice
pursuant to Section 4.2 hereof, exercising the option of the Noteholder to
require the Partnership to purchase the Note, the Note may be Converted only if
the notice of exercise is withdrawn as provided in accordance with the terms of
Section 4.4 hereof.
The date on which the Noteholder satisfies all of the Conversion
requirements set forth in this Section is the Conversion date ("Conversion
Date"). As soon as practicable after the Conversion Date, the Corporation shall
deliver to the Noteholder a certificate for the number of whole shares of Common
Stock into which this Note (or portion hereof) shall have been Converted. The
Corporation shall also deliver a new Note for the principal amount, if any, that
was not converted (which new Note shall be identical, except as to principal
amount, to the surrendered Note) and a check payable to the Noteholder for any
fractional share, determined pursuant to Section 2.3. The Person in whose name
-----------
the certificate is registered shall become the stockholder of record on the
Conversion Date and, provided that there is no outstanding principal amount of
the Note remaining, as of such date, the Noteholder's rights as the Noteholder
hereunder shall cease; provided, however, that no surrender of the Note on any
-------- -------
date when the stock transfer books of the Corporation shall be closed shall be
effective to constitute the Noteholder as the stockholder of record of such
shares of Common Stock on such date, but such surrender shall be effective to
constitute the Noteholder as the stockholder of record thereof for all purposes
at the close of business on the next succeeding day on which such stock transfer
books are open; provided further, however, that such conversion shall be at the
---------------- -------
Conversion Price in effect on the date that the Note shall have been surrendered
for conversion, as if the stock transfer books of the Corporation had not been
closed.
Section 2.3 Fractional shares of Common Stock. The Corporation will not
---------------------------------
issue fractional shares of Common Stock upon Conversion of the Note, or any
portion thereof. In lieu thereof, the Corporation will pay an amount in cash
based upon the Daily Market Price of a share of Common Stock on the Trading Day
prior to conversion.
Section 2.4 Taxes on Conversion. The issuance of certificates for
-------------------
shares of Common Stock upon the conversion of the Note shall be made without
charge to the Noteholder for such certificates or for any tax in respect of the
issuance of such certificates, and such certificates shall be issued in the name
of the Noteholder.
Section 2.5 Adjustment of Conversion Price. The Conversion Price shall
------------------------------
be subject to adjustment from time to time as follows:
(a) In case the Corporation shall (1) pay a dividend in shares of
Common Stock to holders of Common Stock, (2) make a distribution in
shares of Common Stock to holders of Common Stock without payment of
consideration therefor,
4.
<PAGE>
(3) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock or (4) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, the
Conversion Price in effect immediately prior to such action shall be
adjusted so that the Noteholder shall be entitled to receive the number
of shares of Common Stock which it would have owned immediately following
such action had the Note been Converted immediately prior thereto. Any
adjustment made pursuant to this subsection (a) shall become effective
--------------
immediately after the record date, if any, in the case of a dividend or
distribution or immediately after the effective date in the case of a
subdivision or combination or a dividend or a distribution made without a
record date, as the case may be.
(b) In case the Corporation shall issue rights or warrants to all
holders of Common Stock entitling them (for a period commencing no
earlier than the record date for the determination of holders of Common
Stock entitled to receive such rights or warrants and expiring not more
than 45 days after such record date) to subscribe for or purchase shares
of Common Stock (or securities Convertible into shares of Common Stock)
at a price per share less than the Current Market Price of a share of
Common Stock on such record date, the Conversion Price shall be adjusted
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding on such record date, plus the number of shares of
Common Stock which the aggregate offering price of the offered shares of
Common Stock (or the aggregate Conversion price of the convertible
securities so offered) would purchase at such Current Market Price, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of
Common Stock offered (or into which the convertible securities so offered
are convertible). Such adjustments shall become effective immediately
after such record date.
(c) In case the Corporation shall distribute to all holders of Common
Stock (i) shares of any class of Equity Interest of the Corporation other
than shares of Common Stock, (ii) evidences of indebtedness or (iii)
other assets (other than (x) regular quarterly dividends out of retained
earnings on the Common Stock in an aggregate amount in any fiscal year of
the Corporation not exceeding 15 percent (15%) of the Current Fair Value
of the Common Stock as of the date of such dividend, or shall distribute
to all holders of Common Stock rights or warrants to subscribe for
securities (other than those securities referred to in subsection (b)
--------------
above), then in each such case the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the Current
Market Price of the Common Stock on the record date mentioned below less
the Common Stock fair market value (as determined in
5.
<PAGE>
good faith by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and described in a
resolution of the Board of Directors) of the portion of the assets so
distributed or of such subscription rights or warrants applicable to one
share of Common Stock, and of which the denominator shall be such Current
Market Price of the Common Stock. Such adjustment shall become effective
immediately after the record date for the determination of the holders of
Common Stock entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the Corporation shall distribute rights or
warrants to subscribe for additional shares of the Corporation's Equity
Interests (other than the shares of Common Stock referred to in
subsection (b) above) ("Rights") to all holders of Common Stock, the
--------------
Corporation may (with the consent of the Noteholder), in lieu of making
any adjustment pursuant to this subsection (c), make proper provision so
--------------
that if the Noteholder Converts the Note, or any portion thereof, after
the record date for such distribution and prior to the expiration or
redemption of the Rights, the Noteholder shall be entitled to receive
upon such Conversion, in addition to the shares of Common Stock issuable
upon such Conversion ("Conversion Shares"), a number of Rights to be
determined as follows: (i) if such Conversion occurs on or prior to the
date for the distribution to the holders of Rights of separate
certificates, or any other form, evidencing such Rights ("Distribution
Date"), the same number of Rights to which a holder of a number of shares
of Common Stock equal to the number of Conversion Shares is entitled at
the time of such Conversion in accordance with the terms and provisions
of and applicable to the Rights; and (ii) if such Conversion occurs after
the Distribution Date, the same number of Rights to which a holder of the
number of shares of Common Stock into which the Note was Convertible
immediately prior to the Distribution Date would have been entitled on
the Distribution Date in accordance with the terms and provisions of and
applicable to the Rights.
(d) In any case in which this Section shall require that an
adjustment be made immediately following a record date for an event, the
Corporation may elect to defer, until such event, issuing to the
Noteholder, if the Note, or any portion thereof, was Converted after such
record date, the shares of Common Stock and other Equity Interests of the
Corporation issuable upon such Conversion over and above the shares of
Common Stock and other Equity Interests of the Corporation issuable upon
such Conversion only on the basis of the Conversion Price prior to
adjustment; and, in lieu of the shares of Common Stock the issuance of
which is so deferred, the Corporation shall issue or cause its transfer
agent to issue due bills or other appropriate evidence of the right to
receive such shares.
Section 2.6 No Adjustment. No adjustment in the Conversion Price shall
-------------
be required until cumulative adjustments amount to 1% or more of the Conversion
Price as last adjusted; provided, however, that any adjustments which by reason
-------- -------
of this Section are not required to be made shall be carried forward and taken
into account in any subsequent
6.
<PAGE>
adjustment. All calculations under this Article shall be made to the nearest
cent or to the nearest one-thousandth of a share, as the case may be.
Section 2.7 Other Adjustments.
-----------------
(a) In the event that, as a result of an adjustment made pursuant to
Section 2.5 above, the Noteholder shall become entitled to receive any
-----------
Equity Interests of the Corporation other than shares of Common Stock,
then the Conversion Price of such other Equity Interests so receivable
thereafter upon Conversion of the Note shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to shares of Common Stock
contained in this Article.
(b) In the event that shares of Common Stock are not delivered until
after the expiration of any of the rights or warrants to subscribe for or
purchase shares of Common Stock referred to in Section 2.5(b) and Section
-------------- -------
2.5(c) hereof, the Conversion Price shall be readjusted to the Conversion
------
Price which would otherwise be in effect had the adjustment made upon the
issuance of such rights or warrants been made on the basis of delivery of
only the number of shares of Common Stock actually delivered.
Section 2.8 Adjustments for Tax Purposes. The Corporation may, at its
----------------------------
option, make such reductions in the Conversion Price, in addition to those
required by Section 2.5 above, as it determines to be advisable in order that
-----------
any stock dividend, subdivision of shares, distribution of rights to purchase
stock or securities or distribution of securities Convertible into or
exchangeable for stock made by the Corporation to its stockholders will not be
taxable to the recipients thereof.
Section 2.9 Notice of Adjustment. Whenever the Conversion Price is
--------------------
adjusted, the Corporation shall promptly mail to the Noteholder a notice of the
adjustment signed by the Chief Financial Officer of the Corporation briefly
stating the facts requiring the adjustment and the manner of computing it. The
notice shall be prima facie evidence of the correctness of such adjustment.
Section 2.10 Notice of Certain Transactions. In the event that:
------------------------------
(a) the Corporation takes any action which would require an
adjustment in the Conversion Price; or
(b) the Corporation shall declare or authorize a redemption or
repurchase of in excess of 5% of the then outstanding capital stock of
the Corporation;
(c) there is a dissolution or liquidation of the Corporation;
7.
<PAGE>
(d) there is an Exchange Event;
the Corporation shall mail to the Noteholder a notice describing the
circumstances and stating the proposed record or effective date, as the case may
be. The Corporation shall mail the notice at least 15 days before such date;
however, failure to mail such notice or any defect therein (i) shall not affect
the validity of any transaction referred to in clause (a) or (b) of this Section
---------- ---
but (ii) shall cause any and all rights the Noteholder would have had had the
Corporation not failed to mail such notice to be preserved until 30 days after
Noteholder actually receives such notice.
Section 2.11 Effect of Reclassifications, Consolidations, Mergers,
-----------------------------------------------------
Changes of Ownership or Sales on Conversion Privilege. If any of the following
- -----------------------------------------------------
shall occur, namely: (i) any reclassification or change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value), (ii) any consolidation or merger to
which the Corporation is a party (other than a merger (a) in which the
Corporation is the continuing corporation, (b) which does not result in any
reclassification of, or change (other than a change in name, or from par value
to no par value, or from no par value to par value), in, outstanding shares of
Common Stock, and (c) in which holders of shares of Common Stock are not
entitled to receive cash, securities or other consideration for shares of Common
Stock as a result of such consolidation or merger), or (iii) any sale or
conveyance of all or substantially all of the property or business of the
Corporation as an entirety, then the Corporation, or such successor or
purchasing Person, as the case may be, and the Noteholder shall, as a condition
precedent to such reclassification, change, consolidation, merger, sale or
conveyance, execute and deliver an amendment to the Note in form and substance
reasonably satisfactory to the Noteholder providing that the Note shall
thereafter be Convertible only into, and upon such Conversion the Noteholder
shall be entitled to receive, the kind and amount of shares of stock or
interests and other securities and property (including cash) receivable upon
such reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock deliverable upon Conversion of
the Note immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Such amendment shall provide for adjustments of the
Conversion Price which shall be as nearly equivalent as may be practicable to
the adjustments of the Conversion Price provided for in this Article. The
foregoing, however, shall not in any way affect the rights the Noteholder may
otherwise have, pursuant to clause (ii) of the last sentence of subsection (c)
----------- --------------
of Section 2.5, to receive Rights upon Conversion of the Note. If, in the case
-----------
of any such consolidation, merger, sale or conveyance, the stock, interests or
other securities and property (including cash) receivable thereupon by a holder
of Common Stock includes shares of stock or other securities and property of a
Person other than the successor or purchasing Person, as the case may be, in
such consolidation, merger, sale or conveyance, then such amendment to the Note
shall also be executed by such other Person and shall contain such additional
provisions to protect the interests of the Noteholder as the Board of Directors
shall reasonably consider necessary by reason of the foregoing. The provision
of this Section shall similarly apply to successive consolidations, mergers,
sales or conveyances.
8.
<PAGE>
ARTICLE 3
REDEMPTION
Section 3.1 Optional Redemption. The Note will be subject to redemption
-------------------
at the Issuers' option on and subsequent to December 15, 2001. On such date and
thereafter, the Note will be subject to redemption at the option of the Issuers
(together with the redemptions described in Sections 3.2 and 3.3, "Optional
------------ ---
Redemption"), in whole or in part (in any integral multiple of $1,000), upon not
less than 30 days' prior notice by mail at the following redemption prices
(expressed as percentages of the principal amount set forth below), in each case
together with accrued and unpaid interest up to but not including the redemption
date. If redeemed during the 12-month period beginning December 15 of the years
indicated below, such redemption price shall be as indicated:
Redemption
Year Price
---- -----
2001...........................104.0%
2002...........................103.2%
2003...........................102.4%
2004...........................101.6%
2005...........................100.8%
2006...........................100.0%
On or after the redemption date, interest will cease to accrue on the Note, or
portion thereof called for redemption, subject to Section 3.8 hereof.
-----------
Section 3.2 Optional Redemption After Change in Control. Notwithstanding
-------------------------------------------
Section 3.1 above, the Note will be subject to redemption at the Partnership's
- -----------
option on and subsequent to a Change in Control. On such date and thereafter,
the Note will be subject to redemption at the option of the Partnership, in
whole or in part (in any integral multiple of $1,000), for a period of 90 days
after the Change in Control, upon not less than 30 days' prior notice by mail at
the following redemption prices (expressed as percentages of the principal
amount set forth below), in each case together with accrued and unpaid interest
up to but not including the redemption date. If redeemed during the 12-month
period beginning December 15 of the years indicated below, such redemption price
shall be as indicated:
9.
<PAGE>
Redemption
Year Price
---- -----
1996...........................108.0%
1997...........................107.2%
1998...........................106.4%
1999...........................105.6%
2000...........................104.8%
2001...........................104.0%
2002...........................103.2%
2003...........................102.4%
2004...........................101.6%
2005...........................100.8%
2006...........................100.0%
On or after the redemption date, interest will cease to accrue on the Note, or
portion thereof called for redemption, subject to Section 3.8 hereof.
-----------
Section 3.3 Optional Redemption Based on Current Market Price.
-------------------------------------------------
Notwithstanding Section 3.1 above, the Note will be subject to redemption by the
-----------
Issuers prior to December 15, 2001 upon 30 days notice at any time commencing
after December 15, 1999 if the Current Market Price of the Common Stock shall be
at least 25% greater than the Conversion Price (as adjusted pursuant to the
terms and conditions hereof and of the Incorporation Agreement) on each Trading
Day in a period of 20 consecutive Trading Days ending not more than 10 days
before such notice is given. On such date and thereafter, the Note will be
subject to redemption at the option of the Issuers, in whole or in part (in any
integral multiple of $1,000), upon not less than 30 days' prior notice by mail
at the following redemption prices (expressed as percentages of the principal
amount set forth below), in each case together with accrued and unpaid interest
up to but not including the redemption date. If redeemed during the 12-month
period beginning December 15 of the years indicated below, such redemption price
shall be as indicated:
Redemption
Year Price
---- -----
1999..........................104.2%
2000..........................103.6%
2001..........................103.0%
2002..........................102.4%
2003..........................101.8%
2004..........................101.2%
2005..........................100.6%
2006..........................100.0%
10.
<PAGE>
On or after the redemption date, interest will cease to accrue on the Note, or
portion thereof called for redemption, subject to Section 3.8 hereof.
-----------
Section 3.4 Notice of Redemption. If the Issuers elect to redeem the
--------------------
Note pursuant to the provisions of Sections 3.1, 3.2 or 3.3 hereof, at least 30
------------ --- ---
days before a redemption date, the Issuers shall mail a notice of redemption to
the Noteholder at its registered address.
The notice shall state:
(a) the redemption date;
(b) the redemption price;
(c) if the Note is being redeemed in part, the portion of the
principal amount of the Note to be redeemed and that, after the redemption
date, upon cancellation of the Note, a new Note in principal amount equal
to the unredeemed portion will be issued in the name of the Noteholder
thereof;
(d) the paragraph of the Note pursuant to which the Note is being
redeemed and the circumstances entitling the Issuers to effect such
redemption; and
(e) the current Conversion Price and the date on which the right to
Convert the Note or portions thereof into shares of Common Stock will
expire.
Section 3.5 Effect of Notice of Redemption. Once notice of redemption is
------------------------------
mailed, the Note becomes due and payable on the redemption date at the price set
forth in the Note.
Section 3.6 Payment of Redemption Price and Cancellation of the Note. On
--------------------------------------------------------
or before the redemption date and upon the tendering of the Note by the
Noteholder to the Corporation, unless the Note has been theretofore Converted
into Common Stock pursuant to the provisions hereof, the Issuers shall deliver
to the Noteholder a certified or bank check sufficient to pay the redemption
price of and accrued interest on the Note up to but not including the redemption
date and cancel the Note or, if so requested by Noteholder, shall transfer such
amount in immediately available funds by wire transfer to an account designated
by the Noteholder.
Section 3.7 Partial Redemption of the Note. The Partnership may redeem
------------------------------
all or any portion of the Note, upon the terms and at the redemption prices set
forth in the Note. Upon cancellation of the Note due to partial redemption of
the Note, the Partnership shall issue at the expense of the Partnership a new
note equal in principal amount to the unredeemed portion of the Note.
Section 3.8 Effect of Default in Payment of Redemption Price. Once a
------------------------------------------------
notice of redemption has been mailed, if the Issuers fail on the redemption date
to pay to the
11.
<PAGE>
Noteholder the redemption price of, and accrued interest on, the Note
("Redemption Payment Default"), then interest on the Note shall continue to
accrue after such redemption date. After the occurrence of a Redemption Payment
Default, the Issuers may thereafter redeem the Note by making the required
payment, except that the Issuers shall mail a notice specifying the date on
which such payment is to be made to the Noteholder at least seven days before
the scheduled payment date.
ARTICLE 4
NOTEHOLDER RIGHT TO CAUSE REPURCHASE
Section 4.1 Repurchase of Note Upon a Change of Control or Releveraging.
-----------------------------------------------------------
If a (i) Change of Control or (ii) a Releveraging (each, a "Designated Event")
shall occur at any time, then the Noteholder shall have the right to require
that the Issuers purchase the Note, in whole only, at a purchase price
("Designated Event Purchase Price") in cash in an amount equal to 101% of the
principal amount of the Note, plus accrued and unpaid interest, to the date of
purchase ("Designated Event Purchase Date"), pursuant to the offer described
below ("Designated Event Offer") and the other procedures set forth in Sections
--------
4.2 and 4.3 of this Article.
- ---
Section 4.2 Notice. Within 30 days following any Change of Control, and
------
at least 15 days before any Releveraging, the Issuers shall mail notice of such
Designated Event (a "Designated Event Purchase Notice") to the Noteholder,
stating or including:
(a) that a Change of Control has occurred, or that a Releveraging is
expected to occur, as the case may be, the date of such event, and that
the Noteholder has the right to require the Issuers to repurchase the
Note, at the Designated Event Purchase Price;
(b) (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Corporation, the most
recent subsequently filed Quarterly Report on Form 10-Q, as applicable,
and any Current Report on Form 8-K of the Corporation filed subsequent to
such Quarterly Report, or, in the event the Corporation is not required to
prepare any of the foregoing forms, comparable financial information and
(ii) the circumstances and relevant facts (to the extent known by the
Issuers) regarding such Designated Event and, to the extent available, pro
---
forma historical income, cash flow and capitalization after giving effect
-----
to such Designated Event, if any;
(c) the Designated Event Purchase Date, which, in the case of a Change
in Control, shall be no earlier than 30 days nor later than 60 days from
the date such notice is mailed or such later date as is necessary to
comply with any applicable securities laws or regulations, and in the case
of a Releveraging shall be no later
12.
<PAGE>
than the first Business Day after the Releveraging (or, if practicable,
the day of the Releveraging);
(d) that the Designated Event Offer is being made pursuant to this
Article and that the Note properly tendered pursuant to the Designated
Event Offer will be accepted for payment at the Designated Event Purchase
Price;
(e) the Designated Event Purchase Price;
(f) that the Note must be surrendered on or prior to the Designated
Event Purchase Date to the Corporation at the office of the Corporation;
(g) that the Note tendered will continue to accrue interest and that
unless the Issuers default in the payment of the Designated Event Purchase
Price, the Note accepted for payment pursuant to the Designated Event
Offer shall cease to accrue interest after the Designated Event Purchase
Date; and
(h) the procedures for withdrawing a tender.
Section 4.3 Payment and Delivery. Upon receipt by the Corporation of the
--------------------
proper tender of the Note by the Noteholder, the Noteholder shall (unless the
tender of the Note is properly withdrawn) thereafter be entitled to receive
solely the Designated Event Purchase Price with respect to the Note. Upon
surrender of the Note for purchase in accordance with the foregoing provisions,
the Note shall be paid by the Issuers at the Designated Event Purchase Price in
the manner set forth in Section 3.6; provided, however, that installments of
-------- -------
interest whose Stated Maturity is on or prior to the Designated Event Purchase
Date shall be payable to the Noteholder. If the Note tendered for purchase
shall not be so paid upon surrender thereof, the principal thereof (and premium,
if any, thereon) shall, until paid, bear interest from the Designated Event
Purchase Date at the rate borne by the Note.
Section 4.4 Withdrawal of Notice. A Designated Event Purchase Notice may
--------------------
be withdrawn before or after delivery of the Note by the Noteholder to the
Corporation at the office of the Corporation, by means of a written notice of
withdrawal delivered by the Noteholder to the Corporation at the office of the
Corporation not later than 5:00 p.m. (New York time) two Business Days prior to
the Designated Event Purchase Date specifying that the Noteholder rejects the
Designated Event Offer and withdraws the Designated Event Purchase Notice.
13.
<PAGE>
ARTICLE 5
SUBORDINATION
Section 5.1 Note Subordinate to Senior Indebtedness. The Issuers
---------------------------------------
covenant and agree, and the Noteholder by its acceptance hereof, likewise
covenants and agrees, that, to the extent and in the manner hereinafter set
forth in this Article, the Indebtedness represented by the Note and the payment
of the principal of, premium, if any, and interest hereon are hereby expressly
made subordinate and subject in right of payment as provided in this Article to
the prior payment in full, in cash or cash equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of all Senior Indebtedness.
This Note and the Indebtedness represented hereby constitute Subordinated
Indebtedness for purposes of and as defined in the Senior Subordinated Notes.
This Article shall constitute a continuing offer to all Persons who, in
reliance upon such provisions, become holders of, or continue to hold Senior
Indebtedness; and such provisions are made for the benefit of the holders of
Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
Section 5.2 Payment Over of Proceeds Upon Dissolution, Etc. In the
-----------------------------------------------
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the either Issuer or to its creditors, as
such, or to its assets, or (b) any liquidation, dissolution or other winding up
of either Issuer, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of either Issuer, then and in any
such event:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or cash equivalents or, as acceptable to each
holder of Senior Indebtedness, in any other manner, of all amounts due on
or in respect of all Senior Indebtedness, before the Noteholder is
entitled to receive any payment or distribution of any kind or character
(excluding Permitted Junior Securities) on account of principal of,
premium, if any, or interest on the Note; and
(b) any payment or distribution of assets of either Issuer of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), by set-off or otherwise, to which the Noteholder (in
its capacity as Noteholder) would be entitled but for the provisions of
this Article shall be paid by the liquidating trustee or agent or other
Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior Indebtedness may have
been issued, ratably according to the aggregate amounts remaining unpaid
on account of the
14.
<PAGE>
Senior Indebtedness held or represented by each, to the extent necessary
to make payment in full in cash or cash equivalents or as acceptable to
the holders of Senior Indebtedness, in any other manner, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section, the Noteholder shall have received any payment or
distribution of assets of either Issuer of any kind or character, whether
in cash, property or securities, in respect of principal, premium, if any,
and interest on the Note before all Senior Indebtedness is paid in full,
then and in such event such payment or distribution (excluding Permitted
Junior Securities) shall be paid over or delivered forthwith directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior Indebtedness have been
issued for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full in
cash or cash equivalents or, as acceptable to each holder of Senior
Indebtedness, any other manner, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.
The consolidation of either Issuer with, or the merger of either Issuer
with or into, another Person or the liquidation or dissolution of either Issuer
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article 9 shall not be deemed a dissolution, winding up, liquidation,
---------
reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities of either Issuer for the purposes of this Section if the Person
formed by such consolidation or the surviving entity of such merger or the
Person which acquires by conveyance, transfer or lease such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance, transfer or lease, comply with the
conditions set forth in Article 9.
---------
Section 5.3 Suspension of Payment When Senior Indebtedness in Default.
---------------------------------------------------------
(a) Unless Section 5.2 shall be applicable, upon the occurrence and
-----------
during the continuance of a Payment Default, no payment or distribution of
any assets of either Issuer of any kind or character (excluding Permitted
Junior Securities) shall be made by either Issuer on account of principal
of, premium, if any, or interest on, the Note, or on account of the
purchase, redemption, defeasance or other acquisition of or in respect of
the Note, unless and until such Payment Default shall have been cured or
waived or shall have ceased to exist or the Designated Senior Indebtedness
shall have been discharged or paid in full in cash or cash equivalents, or
in any other manner as acceptable to each holder of such Designated Senior
Indebtedness, after which the Issuers shall (subject to the other
provisions of this Article) resume
15.
<PAGE>
making any and all required payments in respect of the Note, including any
missed payments.
(b) Unless Section 5.2 shall be applicable, upon (1) the occurrence
-----------
and during the continuance of a Non-payment Default and (2) receipt by the
Noteholder and the Issuers from a representative of the holder of any
Designated Senior Indebtedness (collectively a "Senior Representative") or
the holder of any Designated Senior Indebtedness of written notice of such
Non-payment Default, no payment or distribution of any assets of either
Issuer of any kind or character (excluding Permitted Junior Securities)
shall be made by either Issuer on account of any principal of, premium, if
any, or interest on, the Note, or on account of the purchase, redemption,
defeasance or other acquisition of or in respect of the Note for a period
("Payment Blockage Period") commencing on the date of receipt by the
Issuers of such notice and continuing until the earliest of (subject to
any blockage of payments that may then or thereafter be in effect under
subsection (a) of this Section) (x) 179 days after receipt of such written
--------------
notice by the Issuers (provided any Designated Senior Indebtedness as to
which notice was given shall theretofore have not been accelerated), (y)
the date on which such Non-payment Default is cured or waived or ceases to
exist or on which the Designated Senior Indebtedness related thereto is
discharged or paid in full in cash or cash equivalents, or in any other
manner as acceptable to the holders of Designated Senior Indebtedness or
(z) the date on which such Payment Blockage Period shall have been
terminated by written notice to the Issuers from the Senior Representative
or holder of Designated Senior Indebtedness initiating such Payment
Blockage Period, after which, in the case of clause (x), (y) or (z), the
---------- --- ---
Issuers shall (subject to the other provisions of this Article including
paragraph (a) above) promptly resume making any and all required payments
-------------
in respect of the Note, including any missed payments. Notwithstanding
any other provision of this Note, in no event shall a Payment Blockage
Period under this paragraph (b) extend beyond 179 days from the date of
-------------
the receipt by the Issuers of the notice referred to in clause (2) of this
----------
paragraph (b) ("Initial Blockage Period"). Any number of notices of Non-
-------------
payment Defaults may be given during the Initial Blockage Period; provided
--------
that during any period of 365 consecutive days only one Payment Blockage
Period under this paragraph (b) may commence and the duration of such
-------------
period may not exceed 179 days. No Non-payment Default with respect to
Designated Senior Indebtedness that existed or was continuing on the date
of the commencement of any Payment Blockage Period will be, or can be,
made the basis for the commencement of a second Payment Blockage period,
whether or not within a period of 365 consecutive days, unless such Non-
payment Default shall have been cured or waived for a period of not less
than 90 consecutive days. The Issuers will deliver notice to the
Noteholder promptly after the date on which any Non-payment Default is
cured or waived or ceases to exist or on which the Designated Senior
Indebtedness related thereto is discharged or paid in full.
16.
<PAGE>
(c) In the event that, notwithstanding the foregoing, the Issuers
shall make any payment to the Noteholder prohibited by the foregoing
provisions of this Section, then and in such event such payment shall be
paid over and delivered forthwith to a Senior Representative or as a court
of competent jurisdiction shall direct.
Section 5.4 Payment Permitted if No Default. Nothing contained in this
-------------------------------
Article or elsewhere in this Note shall prevent the Issuers, at any time except
during the pendency of any case, proceeding, dissolution, liquidation or other
winding-up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Issuers referred to in Section 5.2 or under the
-----------
conditions described in Section 5.3, from making payments at any time of
-----------
principal of, premium, if any, or interest on the Note.
Section 5.5 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
After the payment in full, in cash or cash equivalents or, as acceptable to each
holder of Senior Indebtedness, in any other manner of all Senior Indebtedness,
the Noteholder shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Note shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Noteholder would
be entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by the Noteholder, shall, as among the Issuers, their creditors other than
holders of Senior Indebtedness, and the Noteholder be deemed to be a payment or
distribution by the Issuers to or on account of the Senior Indebtedness.
Section 5.6 Provisions Solely to Define Relative Rights. The provisions
-------------------------------------------
of this Article are intended solely for the purpose of defining the relative
rights of the Noteholder on the one hand and the holders of Senior Indebtedness
on the other hand. Nothing contained in this Article or elsewhere in this Note
is intended to or shall (a) impair, as among the Issuers, their creditors other
than holders of Senior Indebtedness and the Noteholder the obligation of the
Issuers, which is absolute and unconditional, to pay, to the Noteholder the
principal of, premium, if any, and interest on the Note as and when the same
shall become due and payable in accordance with its terms; (b) affect the
relative rights against the Issuers of the Noteholder and creditors of the
Issuers other than the holders of Senior Indebtedness; or (c) prevent the
Noteholder from exercising all remedies otherwise permitted by applicable law
upon default under the Note, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of creditors or
other marshaling of assets and liabilities of either Issuer referred to in
Section 5.2, to receive, pursuant to and in accordance with such Section, cash,
- -----------
property and securities otherwise payable or deliverable to the Noteholder, or
(2) under the conditions specified in Section 5.3, to prevent any payment
-----------
prohibited by such Section or enforce their rights pursuant to Section 5.3(c).
--------------
17.
<PAGE>
Section 5.7 Noteholder to Effectuate Subordination. The Noteholder
--------------------------------------
agrees to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article, including, in the event of any
dissolution, winding-up, liquidation or reorganization of either Issuer whether
in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely
filing of a claim for the unpaid balance of the indebtedness of the Issuers
owing to the Noteholder in the form required in such proceedings and the causing
of such claim to be approved. If the Noteholder does not file a proper claim at
least 30 days before the expiration of the time to file such claim, then the
holders of Senior Indebtedness, and their agents, trustees or other
representatives are authorized (but shall not have any obligation) to do so for
and on behalf of the Noteholder.
Section 5.8 No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure to act on the
part of the Issuers or by any act or failure to act, in good faith, by any
such holder, or by any non-compliance by the Issuers with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section,
--------------
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Issuers or the Noteholder without
incurring responsibility to the Noteholder and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Noteholder to the holders of Senior Indebtedness, do any
one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (2) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (3) release any Person liable in any manner for the
collection or payment of Senior Indebtedness; and (4) exercise or refrain
from exercising any rights against the Issuers and any other Person;
provided, however, that in no event shall any such actions limit the right
-------
of the Noteholder to take any action to accelerate the maturity of the
Note pursuant to Article 7 of this Note or to pursue any rights or
---------
remedies hereunder or under applicable laws if the taking of such action
does not otherwise violate the terms of this Article, subject to the
rights, if any, under this Article, of the holders, from time to time, of
Senior Indebtedness to receive the cash, property or securities receivable
upon the exercise of such rights or remedies.
Section 5.9 Reliance on Judicial Orders or Certificates. Upon any
-------------------------------------------
payment or distribution of assets of the Issuers referred to in this Article,
the Noteholder shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding
18.
<PAGE>
up or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Noteholder for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Issuers, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article, provided that the foregoing shall
--------
apply only if such court has been fully apprised of the provisions of this
Article.
Section 5.10 No Suspension of Remedies. Nothing contained in this
-------------------------
Article shall limit the right of the Noteholder to take any action to accelerate
the maturity of the Note pursuant to Article 7 of this Note or to pursue any
---------
rights or remedies hereunder or under applicable law, subject to the rights, if
any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
Section 5.11 Reinstatement. The provisions of this Article shall
-------------
continue to be effective or reinstated, as the case may be, if at any time any
payment of the Senior Indebtedness is rescinded or must otherwise be returned by
any Senior Representative, any bank which is party to the Bank Credit Facility
or any other holder of Senior Indebtedness upon the insolvency, bankruptcy or
reorganization of the Issuers or Brylane Capital Corp., a Delaware corporation,
or any successor Person thereto, or otherwise, all as though such payment had
not been made.
Section 5.12 Amendments to Article 5. Notwithstanding any other
-----------------------
provision of this Note, no change, modification or amendment of any provision of
this Article shall be effective against any holder of Senior Indebtedness that
did not consent to such change, modification or amendment.
ARTICLE 6
COVENANTS
Section 6.1 Payment of Principal, Premium and Interest. The Issuers will
------------------------------------------
duly and punctually pay the principal of, premium, if any, and interest on the
Note in accordance with the terms of the Note.
Section 6.2 Pro Rata Distributions. All distributions of the Partnership
----------------------
to Partners will be pro rata.
Section 6.3 Partnership or Corporate Existence. Subject to Article 9,
---------------------------------- ---------
each of the Issuers will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate or partnership existence, as the
case may be, and the corporate or
19.
<PAGE>
partnership existence of each Subsidiary; provided, however, that neither of the
-------- -------
Issuers shall be required to preserve any such corporate existence of any such
Subsidiary if the Board of Directors or Board of Representatives, as the case
may be, shall determine that the preservation thereof is no longer desirable in
the conduct of the business of such Issuer and the Subsidiaries as a whole and
that the loss thereof would not reasonably be expected to have a material
adverse effect on the ability of either Issuer to perform its obligations
hereunder; and provided, further, however, that the foregoing shall not prohibit
-------- ------- -------
a sale, transfer or conveyance of a Subsidiary or any of its assets in
compliance with the terms of this Note. Each of the Issuers will, and will
cause its Subsidiaries to, obtain and preserve qualification to do business as a
foreign limited partnership or a foreign corporation, as the case may be, in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Note.
Section 6.4 Stay, Extension and Usury Laws. Each of the Issuers
------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Note; and each of the Issuers (to the extent it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Noteholder, but will suffer and
permit the execution of every such power as though no such law has been enacted.
Section 6.5 Preservation of Noteholder's Right to Receive Common Stock.
----------------------------------------------------------
The Corporation covenants and agrees that it shall not enter into any
agreements, make any arrangements or amend its Certificate of Incorporation or
bylaws in a manner that would restrict the Noteholder's right or ability to
receive Common Stock upon Conversion of the Note in the manner set forth herein.
Section 6.6 The Corporation to Provide Stock. The Corporation shall at
--------------------------------
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, solely for the purpose of issuance upon
conversion of the Note as herein provided, a sufficient number of shares of
Common Stock to permit the conversion of the outstanding principal amount of the
Note into shares of Common Stock.
Section 6.7 Financial Statements. The Noteholder shall be entitled to
--------------------
receive, and the Corporation may satisfy its obligations to the Noteholder
pursuant to this Section 6.7 by delivering to the Noteholder, the financial
-----------
statements and other information required to be delivered to a Stockholder
pursuant to the terms of Section 3.1 of the Stockholders Agreement.
-----------
Section 6.8 Related Party Transactions. After the date of issuance of
--------------------------
the Note neither the Issuers nor any Subsidiary shall, without the written
consent of the Noteholder, enter into any transaction with any executive
officer, director, partner or Affiliate (other than
20.
<PAGE>
a wholly-owned subsidiary) of either Issuer, any Affiliate of any executive
officer, director, or partner of either Issuer, or any partner, executive
officer, director or Affiliate of any Subsidiary other than (A) transactions
that are at least as favorable to such Issuer or the Subsidiary as could have
been obtained on an arm's-length basis with a Person who is not an executive
officer, director, partner or Affiliate of such Issuer or an Affiliate of an
executive officer, director, or partner of such Issuer, or a partner, executive
officer, director or Affiliate of any Subsidiary (as determined in the good
faith judgment of the Board of Directors) or (B) the transactions contemplated
by the Credit Card Agreement and the Trademark Agreement.
Section 6.9 Reservation of Shares; Listing of Shares, Etc.
---------------------------------------------
(a) The Corporation shall at all times reserve and keep available, out
of its authorized and unissued stock, solely for the purpose of effecting the
Conversion of the Note the full number of shares of its Common Stock deliverable
upon conversion of the entire principal amount of the Note or portion thereof
not theretofore Converted.
(b) If any shares of Common Stock required to be reserved for purposes
of Conversion of the Note hereunder require registration with or approval of any
governmental authority under any Federal or State law before such shares may be
issued upon Conversion, the Corporation will in good faith and as expeditiously
as possible endeavor to cause such shares to be duly registered or approved, as
the case may be. If the Common Stock is listed on the New York Stock Exchange
or any other national securities exchange or admitted for trading on the
National Association of Securities Dealers Automated Quotation System, the
Corporation will, as expeditiously as possible, if permitted by the rules of
such exchange or the NASD, cause to be listed and keep listed on such exchange
or such quotation system, upon official notice of issuance or upon admission for
trading, all shares of Common Stock issuable upon Conversion of the Note.
(c) The shares of Common Stock issuable upon conversion of the Note,
when the same shall be issued in accordance with the terms hereof, are hereby
declared to be and shall be fully paid and nonassessable shares of Common Stock
in the hands of the holders thereof.
ARTICLE 7
DEFAULTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever used herein,
-----------------
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be occasioned by the provisions of Article 5 or be
---------
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
21.
<PAGE>
(a) there shall be a default in the payment of any interest on the Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(b) there shall be a default in the payment of the principal of (or
premium, if any, on) the Note at its Stated Maturity, upon acceleration,
optional or mandatory redemption, required repurchase or otherwise;
(c) (i) there shall be a default in the performance, or breach, of any
covenant or agreement of the Issuers (other than a default in the
performance or breach of a covenant or agreement which is specifically
dealt with in clause (a) or (b) or in clauses (ii) or (iii) of this clause
---------- ------------ ----- ------
(c)) and such default or breach shall continue for a period of 30 days
---
after written notice has been given, by certified mail, to the Issuers by
the Noteholder; (ii) there shall be a default in the performance or breach
of the provisions of Article 9; or (iii) the Issuers shall have failed to
---------
make or consummate a Designated Event Offer in accordance with the
provisions of Article 4;
---------
(d) one or more defaults shall have occurred under any agreements,
indentures or instruments under which either Issuer or any Subsidiary then
has outstanding Indebtedness in excess of $7,500,000 in the aggregate and,
if not already matured at its final maturity in accordance with its terms,
such Indebtedness shall have been accelerated;
(e) one or more judgments, orders or decrees for the payment of money
in excess of $7,500,000 (net of amounts covered by insurance pursuant to
which payments are made within 10 days after the applicable period
described in clause (ii) of this paragraph (e) (treating any deductibles,
----------- -------------
self-insurance or retention as being not so covered)), either individually
or in the aggregate, shall be entered against either Issuer or any
Subsidiary or any of their respective properties and shall not be
discharged and either (i) any creditor shall have commenced an enforcement
proceeding upon such judgment, order or decree, or (ii) there shall have
been a period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of an appeal or otherwise, shall not be
in effect;
(f) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of either
Issuer or any Significant Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or (ii) a decree or order adjudging
either Issuer or any Significant Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in
respect of either Issuer or any Significant Subsidiary under any
applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
either Issuer or any Significant Subsidiary or of any substantial part of
any of its property, or ordering
22.
<PAGE>
the winding up or liquidation of its affairs, and any such decree or order
for relief shall continue to be in effect, or any such other decree or
order shall be unstayed and in effect, for a period of 60 consecutive
days; or
(g) either Issuer or any Significant Subsidiary (i) commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (ii)
consents to the entry of a decree or order for relief in respect of either
Issuer or any Significant Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy law or to the commencement of any
bankruptcy or any insolvency case or proceeding against it, (iii) files a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or state law, (iv) (x) consents to the filing of such
petition or to the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of either Issuer or such Significant Subsidiary or of any
substantial part of its property, (y) makes an assignment for the benefit
of creditors, or (z) admits in writing of its inability to pay its debts
generally as they become due, or (v) either Issuer or any Significant
Subsidiary takes any corporate or partnership action in furtherance of any
such actions in this paragraph (g).
-------------
The Issuers shall deliver to the Noteholder within five Business Days
after the occurrence thereof, written notice of any Default, its status and what
action the Issuers are taking or proposes to take with respect thereto.
Section 7.2 Acceleration of Maturity; Rescission and Annulment. If an
--------------------------------------------------
Event of Default (other than an Event of Default specified in clause (f) or (g)
---------- ---
of Section 7.1 that occurs with respect to either of the Issuers or any
-----------
Significant Subsidiary) shall occur and be continuing, the Noteholder may
declare the Note due and payable immediately at its outstanding principal amount
together with accrued and unpaid interest, if any, to the date the Note becomes
due and payable by a notice in writing to both of the Issuers and, if the Bank
Credit Facility is in effect, to the agent under the Bank Credit Facility, and
upon any such declaration, such principal and interest shall become due and
payable immediately, except if the Bank Credit Facility is in effect, any such
acceleration shall not be effective until the first to occur of (l) an
acceleration under the Bank Credit Facility or (2) the fifth Business Day after
receipt by both of the Issuers and by such agent under the Bank Credit Facility
of such written notice given hereunder, and thereupon the Noteholder may, at its
discretion, proceed to protect and enforce its rights by appropriate judicial
proceeding. If an Event of Default specified in clause (f) or (g) of Section
---------- --- -------
7.1 occurs with respect to either of the Issuers, or any Significant Subsidiary
- ---
and is continuing, then the Note shall ipso facto become and be immediately due
---- -----
and payable, in an amount equal to the outstanding principal amount of the Note,
together with accrued and unpaid interest, if any, to the date the Note becomes
due and payable, without any declaration or other act on the part of the
Noteholder.
23.
<PAGE>
In the event a declaration of acceleration arising from an Event of
Default specified in clause (d) of Section 7.1 shall have occurred and be
---------- -----------
continuing, such declaration of acceleration shall be automatically annulled if
the Indebtedness that is the subject of such Event of Default has been
discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness and, if such Indebtedness is not
Senior Indebtedness, such rescission has been made without any payment or other
transfer or grant or any tangible or intangible property or right to such
holders in connection with such recision, and written notice of such discharge
or recision, as the case may be, shall have been given to the Noteholder by the
Issuers and by the holders of such Indebtedness or a trustee, fiduciary or agent
for such holders, within 75 days after such declaration of acceleration in
respect to the Note, and (x) no other Event of Default has occurred during such
75-day period, and (y) no Default arising from such discharge has occurred
during such 75-day period, which, in either case, has not been cured or waived
during such 75-day period.
At any time after such declaration of acceleration has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Noteholder as provided hereinafter in this Article, the Noteholder by
written notice to the Issuers, may rescind and annul such declaration and its
consequences. No such rescission shall affect any subsequent or other Event of
Default or impair any right consequent thereon.
Section 7.3 Restoration of Rights and Remedies. If the Noteholder has
----------------------------------
instituted any proceeding to enforce any right or remedy under this Note and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Noteholder, then and in every such case the
Partnership and the Noteholder shall, subject any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Noteholder shall
continue as though no such proceeding had been instituted.
Section 7.4 Rights and Remedies Cumulative. No right or remedy herein
------------------------------
conferred upon or reserved to the Noteholder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
Section 7.5 Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Noteholder to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Noteholder may be exercised from time to time, and as
often as may be deemed expedient, by the Noteholder.
24.
<PAGE>
Section 7.6 Waiver of Past Defaults. The Noteholder by notice to the
-----------------------
Issuers may waive an existing Event of Default and its consequences. When an
Event of Default is waived, it is cured and ceases; but no such waiver shall
extend to any subsequent or other Event of Default or impair any right
consequent thereon.
ARTICLE 8
DEFINITIONS
Section 8.1 Definitions. For all purposes of this Note, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article 8 have the meanings assigned to
---------
them in this Article 8, and include the plural as well as the singular;
---------
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Note as a whole and not to any particular
Article, Section or other subdivision; and
(d) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be. Acquired Indebtedness shall
be deemed to be incurred on the date of the related acquisition of assets from
any Person or the date the acquired Person becomes a Subsidiary, as the case may
be.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person (or any partner of such
Person) or (ii) any other Person that owns, directly or indirectly, 5% or more
of such Person's (or any partner of such Person's) Voting Equity Interests or
any executive officer or director of either of such other Persons. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
25.
<PAGE>
"Bank Credit Facility" means the Credit Agreement, dated as of December 9,
1996, among, inter alia, the Issuers, Morgan Guaranty Trust Company of New York,
----- ----
as agent, Merrill Lynch Capital, as documentation agent and the lenders party
thereto, as such agreement, in whole or in part, may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing).
"Bankruptcy Law" means Title 11, United States Code or any similar federal
or state law for debtor relief.
"Board of Directors" and "Board" each means the board of directors of the
Corporation.
"Board of Representatives" means the board of representatives or
directors, management committee or any authorized committee thereof responsible
for the management of the business and affairs of the Partnership or its General
Partner.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to close.
"Capital Lease Obligation" of any Person means any obligations of such
Person and its subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total voting power of all classes of Voting Equity Interests of
the Corporation; provided that the Permitted Holders "beneficially own" (as so
--------
defined) a lesser percentage of such Voting Equity Interests than such other
Person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new members of the Board of Directors whose election to such Board or whose
nomination for election by the holders of Equity Interests of the Corporation
was approved by (a) a Permitted Holder or (b) a vote of at least 66-2/3% of the
members of the Board of Directors then still in office who were either members
of the Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any reason to
constitute a majority of such Board of Directors then in
26.
<PAGE>
office; (iii) the Corporation consolidates with or merges with or into any
Person or conveys, transfers or leases all or substantially all of its assets to
any Person, or any corporation or partnership consolidates with or merges into
or with the Corporation in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Corporation are changed into or
exchanged for cash, securities or other property, other than any such
transaction where the outstanding Voting Equity Interests of the Corporation are
not changed or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Corporation or where (A) the
outstanding Voting Equity Interests of the Corporation are changed into or
exchanged for (x) Voting Equity Interests of the surviving corporation or
partnership which are not Redeemable Equity Interests or (y) cash, securities
and other property (other than Equity Interests of the surviving corporation)
and (B) no "person" or "group" other than Permitted Holders owns immediately
after such transaction, directly or indirectly, more than the greater of (i) 35%
of the total outstanding Voting Equity Interests of the surviving corporation or
partnership and (2) the percentage of the outstanding Voting Equity Interests of
the surviving corporation or partnership owned, directly or indirectly, by
Permitted Holders immediately after such transaction; or (iv) the Corporation is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under Article
-------
9 of the Note.
- -
"Common Stock" means the common stock of the Corporation.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss), Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash
Charges deducted in computing Consolidated Net Income (Loss) in each case, for
such period, of such Person and its subsidiaries on a Consolidated basis, plus
the amount of Partner Tax Distributions for such period, all determined in
accordance with GAAP consistently applied, to (b) the sum of Consolidated
Interest Expense for such period and cash and non-cash dividends paid on any
Preferred Equity Interest of such Person during such period; provided that (i)
--------
in making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and (A) bearing a
--- -----
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of such Person, a fixed or floating rate of interest,
shall be computed by applying, at the option of such Person, either the fixed or
floating rate and (ii) in making such computation, the Consolidated Interest
Expense of such Person attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
--- -----
upon the average daily balance of such Indebtedness during the applicable
period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for Federal, state, local and foreign income taxes of such Person and
its consolidated subsidiaries for such period as determined in accordance with
GAAP consistently applied.
27.
<PAGE>
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Consolidated Subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount, (ii) the net cost under
interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation and (iv) accrued interest,
plus (b) (i) the interest expense attributable to Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person during such
period and (ii) all capitalized interest of such Person and its Consolidated
Subsidiaries, in each case as determined in accordance with GAAP consistently
applied.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period as determined in accordance with GAAP consistently
applied, adjusted, to the extent included in calculating such net income (loss),
by excluding, without duplication, (i) all extraordinary gains and losses, net
of taxes, (ii) the portion of net income (loss) of such Person and its
Consolidated Subsidiaries allocable to minority interests in unconsolidated
Persons to the extent that cash dividends or distributions have not actually
been received by such Person or one of its Consolidated Subsidiaries, (iii) net
income (loss) of any Person combined with such Person or any of its Subsidiaries
on a "pooling of interests" basis attributable to any period prior to the date
of combination, (iv) any gain or loss, net of taxes, realized upon the
termination of any employee pension benefit plan, (v) net gains or losses (less
all fees and expenses relating thereto), net of taxes, in respect of
dispositions of assets other than in the ordinary course of business or (vi) the
net income of any Subsidiary to the extent that the declaration of dividends or
similar distributions by that Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Subsidiary or its shareholders.
"Consolidated Net Worth" of any Person means the Consolidated
stockholders' equity or partners' capital (excluding Redeemable Equity
Interests) of such Person and its subsidiaries, as determined in accordance with
GAAP consistently applied.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, as determined in accordance
with GAAP consistently applied (excluding any non-cash charge which requires an
accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied. The term "Consolidated" shall have a similar meaning.
28.
<PAGE>
"Conversion" or "Convert" means the right of the Noteholder to purchase
shares of Common Stock, which purchase is effected by receiving all or part of
the principal amount of the Note and returning such amount to the Corporation to
purchase shares of Common Stock for the Conversion Price as determined in this
Note, provided that the cash payment of the principal amount of the Note and the
cash payment of the Conversion Price will be offset against each other with the
result that no actual cash payment will be made by either party to the other.
"Credit Card Agreement" means the Credit Card Processing Agreement between
World Financial Network National Bank, a national banking association and wholly
owned subsidiary of The Limited, Inc., a Delaware corporation, and any successor
thereto, and the Partnership, dated as of August 30, 1993, and any other
agreement or agreements entered into by the Partnership for similar purposes, as
any such agreement or agreements may be amended from time to time.
"Current Market Price" per share of Common Stock on any date shall be
deemed to be the average of the Daily Market Prices for the shorter of (i) 30
consecutive Business Days ending on the last full Trading Day on the exchange or
market referred to in determining such Daily Market Prices prior to the time of
determination or (ii) the period (not less than five Business Days) commencing
on the date next succeeding the first public announcement of the issuance of the
relevant rights or such warrants or such other distribution or such negotiated
transaction through such last full Trading Day on the exchange or market
referred to in determining such Daily Market Prices prior to the time of
determination.
"Daily Market Price" means (i) in the case of a security listed or
admitted to trading on any securities exchange, the closing price, regular way,
on such day, or if no sale takes place on such day, the average of the closing
bid and asked quotations regular way on such day or (ii) in the case of a
security not then listed or admitted to trading on any securities exchange, the
last reported sale price on such day, or if no sale takes place on such day, the
average of the high bid and low asked quotations regular way on the day in
question in the over-the-counter market as reported by the National Association
of Securities Dealers Automated Quotation System, or if not so quoted, as
reported by National Quotation Bureau, Incorporated, or a similar organization.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Designated Event" means either a Change in Control or a Releveraging.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Bank Credit Facility and (ii) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $20,000,000 and is
specifically designated in the instrument
29.
<PAGE>
evidencing such Senior Indebtedness or the agreement under which such Senior
Indebtedness arises as "Designated Senior Indebtedness" by either Issuer.
"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person.
"Event of Default" has the meaning specified in Article 7 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"General Partner" means VGP Corporation, a Delaware corporation and any
other Person who becomes a general partner of the Partnership in accordance with
the terms of the Partnership Agreement.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of this Note.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
contained in this Section guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services without requiring that such property
be received or such services be rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include endorsements
--------
for collection or deposit, in either case in the ordinary course of business.
"Incorporation Agreement" means that certain Incorporation and Exchange
Agreement dated as of October 14, 1996 by and among FS Equity Partners II, L.P.,
FS Equity Partners III, L.P., FS Equity Partners International, L.P., Lane
Bryant Direct Holding, Inc., The Limited, Inc., WearGuard Corporation, the
Corporation and the Noteholder ("Original Incorporation Agreement"), as amended
and restated by that certain First Amended and Restated Incorporation and
Exchange Agreement dated as of December 9, 1996 by and among the parties to the
Original Incorporation Agreement, Noteholder, Leeway & Co. and the NYNEX Master
Trust ("Amended and Restated Incorporation
30.
<PAGE>
Agreement"), a copy of which is attached as Exhibit 8.1(I) hereto, as amended
--------------
from time to time.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Equity Interest of such Person, or any warrants, rights or options to
acquire such Equity Interest, now or hereafter outstanding, (ii) all obligations
of such Person evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even if the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), but excluding trade payables arising in the ordinary course of
business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
----------- ---
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Equity Interests issued by
such Person valued at the greater of their voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends, and (ix) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing of any liability of the types referred to in clauses (i) through
-----------
(viii) above. For purposes hereof, the "maximum fixed repurchase price" of any
- ------
Redeemable Equity Interest which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Equity Interest as if
such Redeemable Equity Interest were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Note and if such price is
based upon, or measured by, the fair market value of such Redeemable Equity
Interest, such fair market value to be determined in good faith by the board of
representatives or directors or other governing body of the issuer thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate swaps,
caps, floors, collars and similar agreements) and/or other types of interest
rate hedging agreements from time to time.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
31.
<PAGE>
"Non-payment Default" means any event (other than a Payment Default) the
occurrence of which entitles one or more Persons to accelerate the maturity of
any Designated Senior Indebtedness.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Partnership Agreement" means that certain Agreement of Limited
Partnership of Brylane, L.P. dated August 30, 1993 by and among VGP Corporation,
VLP Corporation, Lane Bryant Direct Holding, Inc. and WearGuard Corporation, as
amended.
"Partnership Note" means the Convertible Subordinated Note due 2006,
issued December 9, 1996 by the Partnership to Chadwick's, Inc., a Massachusetts
corporation.
"Partner Tax Distributions" means, with respect to the Partnership,
amounts distributable by the Partnership to holders of Equity Interests of the
Partnership of amounts necessary pursuant to the Partnership Agreement to
satisfy current income tax liabilities of such holders attributable to such
Equity Interests as a result of income of the Partnership.
"Payment Default" means any default in the payment of any amount of
Designated Senior Indebtedness as and when due whether at maturity, by
acceleration, upon a date set for prepayment or otherwise, including principal,
premium, if any, interest, commitment fees, letter of credit fees or
reimbursement obligations in respect of letters of credit under Designated
Senior Indebtedness.
"Permitted Holders" means (i) The Limited, Inc., a Delaware corporation,
and any of its Affiliates, (ii) Freeman Spogli & Co., a California general
partnership, and any of its Affiliates, (iii) WearGuard Corporation, a Delaware
corporation, and any of its Affiliates, (iv) the Noteholder, and any of its
Affiliates, (v) 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, and any of its Affiliates and (vi) the NYNEX Master Trust, a trust
governed by the laws of the State of New York ("NYNEX"), and any of its
Affiliates; provided that the Partnership and its Subsidiaries shall not be
--------
deemed Affiliates of The Limited, Inc., Freeman Spogli & Co., WearGuard
Corporation, Noteholder, Leeway & Co. or NYNEX for purposes of this definition.
"Permitted Junior Securities" means, so long as the effect of any
exclusion employing this definition is not to cause or permit the Note (or any
securities proposed to be issued as "Permitted Junior Securities") to be treated
in any case or proceeding or similar event described in clause (a), (b) or (c)
---------- --- ---
of Section 5.2 as part of the same class of claims as the Senior Indebtedness or
-----------
any class of claims pari passu with, or senior to, the Senior Indebtedness, for
any payment or distribution, debt or equity securities of either Issuer (or any
successor corporation) that are provided for by a plan of reorganization or
readjustment
32.
<PAGE>
and that are subordinated at least to the same extent that the Securities are
subordinated to the payment of all Senior Indebtedness then outstanding;
provided that (1) if a new corporation results from such reorganization or
- --------
readjustment, such corporation assumes any Senior Indebtedness not paid in full
in cash or cash equivalents or, as acceptable to the holders of Senior
Indebtedness, in any other manner in connection with such reorganization or
readjustment and (2) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Equity Interests" means, with respect to any Person, any Equity
Interest of any class or classes (however designated) which is preferred as to
the payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over Equity Interests of any other class in such Person.
"Redeemable Equity Interest" means any Equity Interest that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be required to be redeemed prior to any Stated Maturity of the
principal of the Note or is redeemable at the option of the holder thereof at
any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Releveraging" means a transaction or series of transactions (the
"transaction") (a) in which the Stockholders receive cash or other assets (other
than their equity interests in the Person that carries on the business of the
Corporation after such transaction) having a fair market value in excess of 75%
of the aggregate Current Market Price of the Common Stock held by such holders
before such transaction, and (b) immediately after which those Persons who were
Stockholders immediately before such transaction own, directly or indirectly,
together with the lenders in such transaction, at least 85% of the aggregate
equity interests in the Person that carries on the business of the Corporation,
in connection with which the Corporation or any of its Subsidiaries has created,
issued, assumed, guaranteed, or otherwise in any manner become directly or
indirectly liable for or with respect to or otherwise incurred (collectively,
"incurred") any Indebtedness immediately after which (on a pro forma basis) the
--- -----
Consolidated Fixed Change Coverage Ratio for the Corporation for the four full
fiscal quarters for which financial information is available immediately
preceding the incurrence of such Indebtedness taken as one period (and after
giving pro forma effect to (i) the incurrence of such Indebtedness and (if
--- -----
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of such four-quarter
period; (ii) the incurrence, repayment or retirement of any other Indebtedness
by the Corporation and
33.
<PAGE>
its Subsidiaries since the first day of such four-quarter period as if such
Indebtedness was incurred, repaid or retired at the beginning of such four-
quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter period);
(iii) in the case of Acquired Indebtedness, the related acquisition; and (iv)
any acquisition or disposition by the Corporation and its Subsidiaries of any
company or any business or any group of assets constituting an operating unit
out of the ordinary course of business, whether by merger, stock purchase or
sale, or asset purchase or sale, or any related repayment of Indebtedness, in
each case since the first day of such four-quarter period, assuming such
acquisition or disposition had been consummated on the first day of such four-
quarter period) is less than 2.50:1.00.
"Rights" shall have the meaning set forth in Section 2.4(c).
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy laws whether or
not allowable in such proceeding) on any Indebtedness of the Company (other than
as otherwise provided in this definition), whether outstanding on the date of
this Note or thereafter created, incurred or assumed, and whether at any time
owing, actually or contingently, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Note. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall include the principal of, premium,
if any, and interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy laws
whether or not allowable in such proceeding) on all monetary obligations of
every kind and nature of the Issuers from time to time owed under (i) the Bank
Credit Facility, including, without limitation, fees, reimbursement obligations
in respect of letters of credit and indemnity and expense reimbursement
obligations and (ii) the Senior Subordinated Notes. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (i) Indebtedness evidenced by
the Note, (ii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is without
recourse to either Issuer, (iii) Indebtedness that is represented by Redeemable
Equity Interests, (iv) any liability for foreign, federal, state, local or other
taxes owed or owing by either Issuer and (v) Indebtedness of either Issuer to a
Subsidiary or any other Affiliate of such Issuer or any of such Affiliate's
subsidiaries (other than Indebtedness in respect of the Bank Credit Facility).
"Senior Representative" means a representative of one or more holders of
Designated Senior Indebtedness.
34.
<PAGE>
"Senior Subordinated Notes" means the 10% Senior Subordinated Securities
due 2003, Series B, issued by the Partnership and Brylane Capital Corp., a
Delaware corporation pursuant to the Indenture dated as of August 30, 1993 by
and among the Partnership, Brylane Capital Corp., United States Trust Company of
New York, as trustee, and the other parties listed thereto.
"Significant Subsidiary" means any Subsidiary of either Issuer in which
such Issuer's and its other Subsidiaries' (x) investments in and advances to
such Subsidiary exceed 5% of the total assets of the Issuer and its other
Subsidiaries Consolidated as of the end of the most recently completed fiscal
year, (y) proportionate share of the total assets (after intercompany
eliminations) of such Subsidiary exceeds 5% of the total assets of the Issuer
and its other Subsidiaries Consolidated as of the end of the most recently
completed fiscal year, or (z) equity in the income from continuing operations
before income taxes, extraordinary items and cumulative effect of a change in
accounting principles of the Subsidiary exceed 5% of the income of the Issuer
and its other Subsidiaries Consolidated for the most recently completed fiscal
year.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the date specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Stockholder" means a Stockholder as defined in the Stockholders
Agreement.
"Stockholders Agreement" means that certain Stockholders Agreement
attached as Exhibit E to the Original Incorporation Agreement, as the same will
---------
be amended by the Amended and Restated Incorporation Agreement, or such other
form of Stockholders Agreement entered into pursuant to Article X of the
---------
Partnership Agreement.
"Subordinated Indebtedness" means any Indebtedness of either Issuer
subordinated in right of payment to the Note.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Equity Interests of which is at the time owned, directly or indirectly,
by either Issuer or by one or more Subsidiaries.
"Trading Day" shall mean (A) if the applicable security is listed or
admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which the New York Stock Exchange or another
national securities exchange is open for business, (B) if the applicable
security is quoted on The Nasdaq National Market, a day on which trades may be
made thereon or (C) if the applicable security is not so listed, admitted for
trading or quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
35.
<PAGE>
"Unit" means on ownership interest in the Partnership of a Limited
Partner, and shall include, except as otherwise provided in Sections 9.07 and
-------------
9.08 of the Partnership Agreement, any and all rights and obligations of such
- ----
Partner under the Partnership Agreement with respect thereto.
"Voting Equity Interests" means Equity Interests of the class or classes
pursuant to which the holders thereof have (i) in respect of a corporation, the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of a corporation (irrespective
of whether or not at the time Equity Interests of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency) or (ii) in respect of a partnership, the general voting power under
ordinary circumstances to elect the board of directors or other governing board
of such partnership.
"Wholly Owned Subsidiary" means a Subsidiary all the outstanding Equity
Interests (other than directors' qualifying shares) of which are owned by either
Issuer.
ARTICLE 9
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 9.1 Corporation May Consolidate, etc., Only on Certain Terms.
--------------------------------------------------------
(a) The Corporation shall, in a single transaction or a series of
related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person or
group of Affiliated Persons, or permit any of its Subsidiaries to enter
into any such transaction or transactions if such transaction or
transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of
the properties and assets of the Corporation on a Consolidated basis to
any other Person or group of Affiliated Persons, unless:
(i) either (a) the Corporation shall be the continuing Person or
(b) the Person or each Person in such group of Affiliated Persons (if
other than the Corporation) formed by such consolidation or into which
the Corporation is merged or the Person or each Person in such group
of Affiliated Persons which acquires by sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the
properties and assets of the Corporation and its Subsidiaries on a
Consolidated basis (each such Person, the "Surviving Entity") shall be
a corporation or partnership duly organized and validly existing under
the laws of the United States of America, any state thereof or the
District of Columbia, and such Person or each Person in such group of
Affiliated Persons assumes by an amendment to this Note in
36.
<PAGE>
form and substance reasonably satisfactory to the Noteholder, executed
and delivered to the Noteholder, all the obligations of the
Corporation under this Note, and this Note shall remain in full force
and effect;
(ii) immediately before and after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(iii) The Corporation shall have delivered to the Noteholder, in
form and substance reasonably satisfactory to the Noteholder, a
certificate signed by an officer of the Corporation and an opinion of
counsel to the Corporation each to the effect that such consolidation,
merger, transfer, sale, assignment, lease or other transaction and any
related amendment to the Note comply with this Article 9 and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
(b) The provisions of this Section 9.1 shall not prohibit (i) the
-----------
merger of a Wholly Owned Subsidiary into the Corporation or (ii) the sale,
assignment, conveyance, transfer, lease or other disposal of all or
substantially all of its properties and assets by a Wholly Owned
Subsidiary to the Corporation.
Section 9.2 Successor Substituted. Upon any consolidation or merger or
---------------------
any sale, assignment, transfer, lease or conveyance or other disposition of all
or substantially all of the assets of either Issuer in accordance with Section
-------
9.1, the successor Person formed by such consolidation or into which an Issuer
- ---
is merged or to which such sale, assignment, transfer, lease, conveyance or
other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of either Issuer under this Note with the same
effect as if such successor Person had been named as either Issuer herein. When
a successor assumes all the obligations of its predecessor under this Note, the
predecessor will be released from those obligations, provided that in the case
--------
of a transfer by lease, the predecessor shall not be released from liability for
the payment of principal and interest on the Note.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Notices. All notices and other communications given or made
-------
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally, sent by a nationally recognized
commercial carrier or registered or certified mail (postage prepaid, return
receipt requested) or transmitted by facsimile to the parties at the following
addresses and numbers:
37.
<PAGE>
If to either Issuer to:
Brylane Inc.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Chief Financial Officer
Fax No.: (212) 613-9551
With a copy to:
John M. Roth
Freeman Spogli & Co. Incorporated
599 Lexington Avenue, 18th Floor
New York, New York 10022
Fax No.: (212) 758-7499
If to the Noteholder, to:
Chadwick's Inc.
The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Attention: President and General Counsel
Fax No.: (508) 390-2457
With a copy to:
Arthur G. Siler, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Fax No.: (617) 951-7050
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made only
as of the date actually received.
Section 10.2 Amendment. This Note may be amended by the parties hereto
---------
only by an instrument in writing signed on behalf of each of the parties hereto.
Section 10.3 Entire Agreement. This Note (including all Exhibits hereto)
----------------
constitutes the entire agreement among the parties and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof.
38.
<PAGE>
Section 10.4 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday
--------------
or a day on which banking institutions in the State of New York are not required
to be open. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If any other
operative date for purposes of this Note shall occur on a Legal Holiday, then
for all purposes the next succeeding day that is not a Legal Holiday shall be
such operative date.
Section 10.5 No Recourse Against Others. A director, officer, employee
--------------------------
or agent, as such, of either Issuer shall not have any liability for any
obligations of either Issuer under the Note or for any claim based on, in
respect of or by reason of such obligations or their creation. The Noteholder
by accepting this Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Note.
Section 10.6 Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK
-------------
SHALL GOVERN THIS NOTE, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
Section 10.7 Waiver of Jury Trial. The Issuers hereby irrevocably waive,
--------------------
to the fullest extent permitted by law, all rights to trial by jury in any
action, proceeding, or counterclaim (whether based upon contract, tort or
otherwise) arising out of or relating to this Note or any of the transactions
contemplated hereby.
IN WITNESS WHEREOF, the Issuers have caused this Note to be duly signed as
of the date first written above.
ISSUERS: BRYLANE INC.,
a Delaware corporation
By:
----------------------------
Name:
Title:
BRYLANE, L.P.,
a Delaware limited partnership
By:
----------------------------
Name:
Title:
39.
<PAGE>
EXHIBIT 2.2
ELECTION TO CONVERT
To Brylane Inc.:
The undersigned owner of this Note hereby irrevocably exercises the
option to Convert this Note, or the portion below designated, into shares of
Common Stock of Brylane Inc. ("Common Stock"), and directs that the shares of
Common Stock issuable and deliverable upon Conversion, together with any check
in payment for a fractional share, if any, be issued in the name of and
delivered to the undersigned.
The Noteholder, upon the exercise of its Conversion rights, agrees to
be bound by the terms of the Registration Rights Agreement relating to the
shares of Common Stock issuable upon Conversion of the Note.
Date:
in whole Portion of Note to be Converted ($1,000 or
--- integral multiple thereof):
$
----------------------------
Signature (for Conversion only)
----------------------------
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Note or Other
Identifying Number
----------------------------
Name
----------------------------
Address
----------------------------
Taxpayer Identification
Signature Guarantee: *
----------------------------------------------
- ----------------
*Signature must be guaranteed by a commercial bank, trust company or member firm
of the New York Stock Exchange.
<PAGE>
EXHIBIT 10.77
UNIT SUBSCRIPTION AGREEMENT
---------------------------
This Unit Subscription Agreement (this "Agreement") is entered into as
of December 5, 1996 by and among Brylane, L.P., a Delaware limited partnership
(the "Partnership"), VP Holding Corporation, a Delaware corporation ("VP
Holding"), 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", and collectively with FSEP II and FSEP III, "FSEP"), VGP
Corporation, a Delaware corporation (the "FS General Partner"), VLP Corporation,
a Delaware corporation (the "FS Limited Partner"), 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"), and NYNEX Master Trust, a trust governed by
the laws of the State of New York ("NYNEX" and together with FS Limited Partner,
WearGuard and Leeway, the "Investors").
R E C I T A L S:
- - - - - - - -
A. The Partnership is governed in accordance with the terms and
conditions of that certain Agreement of Limited Partnership of the Partnership
dated as of August 30, 1993 by and among the FS General Partner, the FS Limited
Partner, Lane Bryant Direct Holding, Inc., a Delaware corporation, WearGuard
Corporation, a Delaware corporation and amended by Amendment No. 1, Amendment
No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment No. 6,
Amendment No. 7 and, as of the Closing (as defined below), by Amendment No. 8
thereto (as amended from time to time, the "Partnership Agreement").
B. The Partnership has determined that it is in its best interest to
purchase substantially all of the assets (the "Acquisition") used in the
"Chadwick's of Boston" catalog division (the "Division") of the TJX Companies,
Inc., a Delaware corporation ("TJX"), pursuant to the terms and conditions of
that certain Asset Purchase Agreement by and among TJX, Chadwick's Inc., a
Massachusetts corporation and a wholly-owned subsidiary of TJX ("Chadwick's")
and the Partnership dated October 18, 1996 (as in effect on such date, the
"Purchase Agreement").
C. In connection with the Acquisition, Leeway and NYNEX each wish to
become a Limited Partner and each of the Investors wishes to subscribe for and
acquire Units at a price of $20.00 per Unit by committing to invest in the
Partnership the amount of capital set forth opposite its name on Schedule 1
----------
hereto (with respect to each Investor, its "Capital Contribution"), all pursuant
to the terms and conditions of this Agreement and the Partnership Agreement.
1
<PAGE>
D. The FS General Partner and the FS Limited Partner are wholly-
owned subsidiaries of VP Holding, which is controlled by FSEP.
E. Capitalized terms not otherwise defined herein shall have the
meanings therefor as set forth in the Partnership Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Investors' Capital Contributions and Issuance of Units.
------------------------------------------------------
(a) Subject to the terms and conditions of this Agreement, each
Investor hereby agrees to on or before the closing of the transactions
contemplated by the Purchase Agreement ("Closing"), deliver to the Partnership,
as a contribution, its Capital Contribution in the amount set forth opposite its
name on Schedule 1 attached hereto by wire transfer of immediately available
----------
funds.
(b) In consideration for each Investor's Capital Contribution, (i)
each of Leeway and NYNEX shall become a Limited Partner of the Partnership
pursuant to the terms of the Partnership Agreement and (ii) the Partnership
shall issue to each Investor the number of Units of the Partnership as is set
forth opposite such Investor's name on Schedule 1 hereto (with respect to each
----------
Investor, the "Subscription Units") all effective as of the Closing.
2. Representations and Warranties of Investors. Each Investor
-------------------------------------------
represents and warrants to the Partnership that:
(a) Organization. The Investor is duly organized, validly existing
------------
and in good standing under the laws of its state of Incorporation, organization
or formation, and has all requisite power and authority to own its properties
and to carry on its business as now being conducted.
(b) Authorization; No Violation. The Investor has full power and
---------------------------
authority to execute and deliver this Agreement and the other agreements
provided for in Section 4 herein, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated on its part hereby
and thereby. The execution and delivery of this Agreement by the Investor, and
the consummation by the Investor of the transactions contemplated hereby, have
been duly authorized by all requisite action on the part of the Investor. This
Agreement has been or will have been when entered into duly executed and
delivered by the Investor, and constitutes or will constitute when entered into
the valid and legally binding obligation of the Investor, enforceable against
the Investor in accordance with its terms, except as such enforceability is
limited by (i) applicable bankruptcy, insolvency or
2
<PAGE>
similar laws affecting creditor's rights generally and (ii) equitable principles
of general applicability. The execution, delivery and performance of this
Agreement, and the consummation by the Investor of the transactions contemplated
hereby, will not, with or without the giving of notice or the passage of time or
both, (a) violate the provisions of any material law, rule or regulation
applicable to the Investor; (b) violate the provisions of the Investor's
governing documents; (c) violate any material judgment, decree, order or award
of any court, governmental body or arbitrator applicable to the Investor; or (d)
conflict with or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Investor pursuant to, any indenture, mortgage, deed of trust or other material
agreement or instrument to which it or its properties is a party or by which the
Investor is or may be bound, except for such violations, conflicts, breaches,
defaults or the like which, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the assets, business
operations, financial condition or results of operations of the Investor, taken
as a whole ("Investor's Material Adverse Effect").
(c) Investor's Own Account. The Investor's Subscription Units are
-----------------------
being acquired for investment purposes only, for its own account, without a view
to the distribution or sale thereof.
(d) Access to Information. The Investor (i) is familiar with the
---------------------
business of the Partnership and its Subsidiaries; (ii) has had an opportunity to
discuss with representatives of the Partnership and its Subsidiaries the
condition of and prospects for the continued operation and financing of the
Partnership and its Subsidiaries and such other matters as the Investor has
deemed appropriate in considering whether to invest in the Subscription Units;
and (iii) to the best of its knowledge, has been provided access to all
available information about the Partnership and its Subsidiaries requested by
the Investor.
(e) Units Not Registered. The Investor understands that the
--------------------
Subscription Units have not been registered under the Securities Act of 1933
(the "Act") or registered or qualified under the securities laws of any state
and that the Investor may not transfer the Subscription Units unless they are
subsequently registered under the Act and registered or qualified under
applicable state securities laws, or unless an exemption is available which
permits Transfers without such registration and qualification.
3. Representations and Warranties of the Partnership. The
-------------------------------------------------
Partnership hereby represents and warrants to the Investors as follows:
(a) Organization. The Partnership is a limited partnership duly
------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite power and authority to own its properties and to
carry on its business as now being conducted. A certified copy of the
Certificate of Limited Partnership of the Partnership, as amended to date, has
been previously delivered to each Investor and is complete and correct.
3
<PAGE>
(b) Authorization; No Violation. The Partnership has full power and
---------------------------
authority to execute and deliver this Agreement and the other agreements
provided for in Section 4 herein, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated on its part hereby
and thereby. The execution and delivery of this Agreement by the Partnership,
and the consummation by the Partnership of the transactions contemplated hereby
(including, without limitation, the Acquisition), have been duly authorized by
all requisite partnership action on the part of the Partnership. This Agreement
has been or will have been when entered into duly executed and delivered by the
Partnership, and constitutes or will constitute when entered into the valid and
legally binding obligation of the Partnership, enforceable against the
Partnership in accordance with its terms, except as limited by (i) bankruptcy,
insolvency or similar laws affecting creditor's rights generally and (ii)
equitable principles of general applicability. The execution, delivery and
performance of this Agreement, and the consummation by the Partnership of the
transactions contemplated hereby (including, without limitation, the
Acquisition), will not, with or without the giving of notice or the passage of
time or both, (a) violate the provisions of any law, rule or regulation
applicable to the Partnership; (b) violate the provisions of the Partnership
Agreement or the Certificate of Limited Partnership of the Partnership; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator applicable to the Partnership; or (d) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of the Partnership pursuant
to, any indenture, mortgage, deed of trust or other agreement or instrument to
which it or its properties is a party or by which the Partnership is or may be
bound, except for such violations, conflicts, breaches, defaults or the like
which, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the consummation of the Acquisition or the
assets, business operations, financial condition or results of operations of the
Partnership, taken as a whole ("Partnership's Material Adverse Effect").
(c) Regulatory Approvals. All consents, approvals, authorizations and
--------------------
other requirements prescribed by any law, rule or regulation that must be
obtained or satisfied by the Partnership and are necessary for the consummation
of the transactions contemplated by this Agreement (including, without
limitation, the Acquisition) have been, or will be prior to the Closing,
obtained and satisfied, except for such failures to so obtain or satisfy which,
individually or in the aggregate, would not reasonably be expected to have a
Partnership's Material Adverse Effect.
(d) Litigation. The Partnership is not a party to, nor, to the
----------
knowledge of the Partnership, has been threatened with, and none of the assets
of the Partnership are subject to, any litigation, suit, action, investigation,
proceeding, unfair labor practice complaint or grievance or controversy before
any court, administrative agency or other governmental authority relating to or
affecting the assets of the Partnership that would reasonably be expected to
have a Partnership's Material Adverse Effect. To the knowledge of the
Partnership, the Partnership is in compliance with all judgments, orders, writs,
injunctions or decrees of any court, administrative agency or governmental
authority to which the
4
<PAGE>
Partnership or its assets are subject, except for such failures to be in
compliance which, individually or in the aggregate, would not reasonably be
expected to have a Partnership's Material Adverse Effect. There are no actions,
proceedings or investigations pending or, to the knowledge of the Partnership,
threatened against the Partnership, or, to the knowledge of the Partnership,
pending or threatened against any other party challenging the validity or
propriety of the transactions contemplated by this Agreement (including, without
limitation, the Acquisition).
(e) Financial Statements. Attached hereto as Schedule 3(e) are (i)
-------------------- -------------
the audited balance sheet of the Partnership as of February 3, 1996, and (ii)
the unaudited statements of operations and statements of cash flows for the
twenty-six weeks ended August 3, 1996 (the "Partnership's Financial
Statements"). The Partnership's Financial Statements have been prepared in
accordance with generally accepted accounting principles applied consistently
with the Partnership's past practices and accounting policies, except for
changes expressly noted therein, and present fairly, in all material respects,
the consolidated financial position and results of operations and cash flows of
the Partnership as of the dates and for the periods covered thereby, subject, in
the case of interim financials, to the absence of footnotes and to customary
year end adjustments.
(f) Absence of Certain Changes. Since August 3, 1996, the Partnership
--------------------------
has not suffered any event or condition of any character which in any one case
or in the aggregate has had a material adverse effect, or any event or condition
which individually or in the aggregate has or would reasonably be expected to
have a Partnership's Material Adverse Effect; it being understood that the
Partnership has incurred or expects to incur debt in order to finance the
transactions contemplated by the Purchase Agreement.
(g) Partnership Documents. A copy of the Partnership Agreement dated
---------------------
as of August 30, 1993 and each of Amendments Nos. 1 through 8 thereto have been
previously delivered to the Investors, each such document is complete and
correct, and except for such Amendments Nos. 1 through 8 there are no amendments
or modifications to the Partnership Agreement.
(h) Disclosure. As of October 17, 1996, the draft form of preliminary
----------
prospectus of the Partnership bearing such date furnished to the Investors did
not (without giving effect to the transactions contemplated by this Agreement)
contain any misstatement of material fact or omit to state any material fact
necessary to make the statements made therein, in light of the context in which
they are made, not misleading (it being understood that such preliminary
prospectus does not contemplate or incorporate the Acquisition).
(i) Capital Structure. The capital structure of the Partnership will
-----------------
be, immediately after giving effect to the consummation of the transactions
contemplated hereby, as set forth on Schedule 3(i) hereto. Other than as set
-------------
forth on Schedule 3(i) hereto, the Partnership does not have outstanding any
-------------
securities convertible into or exchangeable for
5
<PAGE>
any of its Units or any rights to subscribe for or to purchase, or any warrants
or options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to any Units.
(j) Units. The Subscription Units, when issued and delivered to the
-----
Investors, (i) will have been duly authorized, validly issued, fully paid and
nonassessable, (ii) will be free and clear of all pledges, security interests,
proxies (subject to the terms and conditions of the Partnership Agreement),
liens, encumbrances, equities and claims and (iii) will be issued without
violation of any preemptive rights.
(k) Entire Agreement. This Agreement, the Partnership Agreement (as
----------------
amended by Amendment No. 8), the First Amended and Restated Incorporation and
Exchange Agreement in the form attached hereto as Exhibit 4(c), as it may be
------------
amended from time to time, the Transaction Agreement dated as of July 13, 1993
among the FS General Partner, the FS Limited Partner and the transferors
referred to therein, as amended by that Amendment No. 1 to Transaction Agreement
dated August 30, 1993, and the Purchase Agreement (collectively the "Investment
Agreements"), together with all of the documents and agreements described in the
Investment Agreements, set forth all rights and obligations applicable to the
Partnership, Units, holders of Units (in their capacity as holders of Units) and
holders of shares of common stock of Brylane Inc. (in their capacity as
stockholders), with respect to or related to the subject matter hereof and of
the Investment Agreements, except rights and obligations applicable to or
related to certain employees of (i) the Partnership and/or its Subsidiaries and
(ii) the Division and except as set forth in the Investment Agreements, there
are no agreements between Brylane Inc., the Partnership, the FS General Partner,
the FS Limited Partner or any of their respective Affiliates, on the one hand,
and Leeway or NYNEX on the other, relating to the subject matter of the
Investment Agreements.
(l) ERISA. The assets of the Partnership do not constitute "plan
-----
assets" (within the meaning of Department of Labor Regulations 29 CFR (S)
2510.3-101), and to the knowledge of the Partnership, the purchase of the
Subscription Units by NYNEX and Leeway as contemplated by this Agreement shall
not constitute any non-exempt prohibited transaction under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Internal
Revenue Code of 1986, as amended or other violation under ERISA.
4. Conditions Precedent to Closing. The obligations of the
-------------------------------
Investors and the Partnership hereunder are subject to the satisfaction or
waiver, on or prior to the Closing, of all of the conditions set out below in
Sections 4(a) and 4(b). The obligations of the Investors hereunder are further
subject to the satisfaction or waiver, on or prior to the Closing, of all of the
conditions set out below in Section 4(e). The obligations of the Partnership
hereunder are further subject to the satisfaction or waiver, on or prior to the
Closing, of all of the conditions set out below in Sections 4(c) and 4(d).
6
<PAGE>
(a) Closing of Purchase Agreement. The Closing shall have occurred.
-----------------------------
(b) Amendment No. 8 to Partnership Agreement. Each of the parties
----------------------------------------
hereto shall have entered into Amendment No. 8 to Agreement of Limited
Partnership substantially in the form attached as Exhibit 4(b) hereto
------------
("Amendment No. 8") along with the other parties thereto, and shall have
delivered such executed Amendment No. 8 on the Closing.
(c) Incorporation and Exchange Agreement. Each of Leeway and NYNEX
------------------------------------
shall have entered into the First Amended and Restated Incorporation and
Exchange Agreement substantially in the form attached hereto as Exhibit 4(c)
------------
("Incorporation Agreement") along with the other parties thereto, and shall have
delivered such executed Incorporation Agreement at the Closing.
(d) Accuracy of Investors' Representations and Warranties. The
-----------------------------------------------------
representations and warranties of each of the Investors set forth in this
Agreement and in any of the documents and agreements entered into pursuant to
this Agreement shall be true and correct in all material respects as of the
Closing as if made on that date.
(e) Accuracy of the Partnership's Representations and Warranties. The
------------------------------------------------------------
representations and warranties of the Partnership set forth in this Agreement
and in any of the documents and agreements entered into pursuant to this
Agreement shall be true and correct in all material respects as of the Closing
as if made on that date.
(f) Legal Opinion. Each Investor shall receive an opinion of counsel
--------------
to the Company in form and substance reasonably satisfactory to each Investor
with respect to the matters specified in the first sentence of Section 3(a),
Section 3(b), Section 3(c), Section 3(i), Section 3(j) and Section 3(l).
5. Use of Proceeds. The proceeds from the sale of the Subscription
---------------
Units acquired by the Investors shall be used by the Partnership to consummate
the Acquisition.
6. Obligation to Sell Units; Rights of Inclusion. From the date of
---------------------------------------------
the Closing until the Drag Along/Tag Along Date:
(a) If FSEP or any of its Affiliates intends to offer, sell, assign,
grant a participation in or otherwise transfer (each, a "Transfer") to any
Person or Persons other than FSEP or its Affiliates (i) all of the shares of
common stock of VP Holding held by FSEP and any of its Affiliates, (ii) all of
the shares of capital stock of the FS General Partner and the FS Limited Partner
held, directly or indirectly, by FSEP and any of its Affiliates or (iii) all of
the Units held by the FS General Partner, the FS Limited Partner and any of its
Affiliates (whether such sale is by way of purchase, exchange, merger or other
form of transaction), upon the request of FSEP, each of WearGuard, Leeway and
NYNEX shall sell
7
<PAGE>
all of its Subscription Units on the same terms and conditions as apply to the
FSEP sale, except (i) if applicable, for differences based on the fact that
Units and not stock are being sold) and (ii) none of WearGuard, Leeway or NYNEX
shall be required to make any representation or warranty in connection with such
Transfer other than as to such Person's valid ownership of its Subscription
Units, free and clear of all liens and encumbrances other than those arising
under applicable securities laws, and such Person's authority, power and right
to enter into and consummate such Transfer without violating any other
agreement.
(b) If FSEP or any of its Affiliates proposes to Transfer (i) all or
any part of the capital stock of VP Holding then held by such Person, (ii) all
or any part of the shares of capital stock of the FS General Partner or the FS
Limited Partner then held, directly or indirectly, by FSEP and any of its
Affiliates or (iii) all or any part of the Units held by the FS General Partner,
the FS Limited Partner or any Affiliates of FSEP to any Person (other than a
Subsidiary of FSEP) (each, a "Tag Along Offer"), FSEP shall provide written
notice of such Tag Along Offer to WearGuard, NYNEX and Leeway. Such notice
shall identify the purchaser, the amount of capital stock and/or Units 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, FSEP will provide such information, to
the extent reasonably available to FSEP, 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 Subscription Units on the same
terms and conditions as FSEP or any of its Affiliates. For purposes of this
paragraph (c), "Applicable Percentage" means, in connection with any Transfer by
FSEP or any Affiliate of FSEP, the percentage of FSEP's (direct or indirect)
interest in the Partnership to be sold pursuant to such Transfer. Each such
W,L&N Tag Along Right shall be exercisable by delivering written notice to FSEP
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 FSEP, directly or indirectly, transfers shares
of Common Stock or Units to an Affiliate, such Affiliate shall agree in writing
to be bound by the provisions of this subsection (c).
(d) Each of Leeway and NYNEX acknowledge and agree that FSEP has
granted certain tag-along rights ("Management Tag Along Rights") to certain
employees of (i) the Partnership and its Subsidiaries and (ii) the Division and,
as a consequence thereof, in the event Leeway or NYNEX desire to exercise a
W,L&N Tag Along Right with respect to any Transfer, the securities Transferred
by FSEP, WearGuard, Leeway and NYNEX, as the case may be, shall be reduced as
necessary, on a pro rata basis, to accommodate the Management Tag Along Rights.
8
<PAGE>
(e) Each of WearGuard's, Leeway's and NYNEX's rights and obligations
pursuant to this Section 6 shall survive any partial termination of this
Agreement and continue until the earlier of (i) the Tag Along/Drag Along Date or
(ii) completion of any Initial Public Offering.
7. Miscellaneous.
-------------
(a) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(b) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three Business Days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) a party may designate for itself by like notice):
If to the Partnership:
BRYLANE, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Peter J. Canzone
Fax: (212) 613-9551
If to the FS Limited Partner:
FREEMAN SPOGLI & CO. INCORPORATED
599 Lexington Avenue, 18th Floor
New York, New York 10022
Attention: John Roth
Fax: (212) 758-7499
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
9
<PAGE>
Fax: (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.
Fax: (201) 992-5620
If to NYNEX:
Mellon Bank, N.A., as Trustee
for NYNEX Master Trust
One Mellon Bank Center
Room 3346
Pittsburgh, Pennsylvania 15258-0001
Attention: Robert F. Sass
Fax: (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.
Fax: (212) 682-7246
and to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: I. Scott Gottdiener, Esq.
Fax: (212) 455-2502
(c) Amendments. This Agreement may be amended only by a written
----------
agreement executed by all the parties hereto.
(d) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
10
<PAGE>
(e) Entire Agreement. This Agreement and the documents and
----------------
instruments referred to herein constitute the entire agreement and understanding
among the parties pertaining to the subject matter hereof and supersedes any and
all prior agreements, whether written or oral, relating hereto.
(f) 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 party hereto under this Agreement may be assigned, except
that (i) any party hereto may assign its rights hereunder to (A) an Affiliate of
such Person or (B) in the case of any Investor, to one purchaser of more than
50% of the Subscription Units then held by such Investor provided that, prior to
--------
such assignment, such Affiliate or purchaser, as the case may be, shall enter
into a written agreement to be bound by the terms and conditions of this
Agreement applicable to such assignor and (ii) 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 Partnership, (B) such
transfer does not result in an increase of more than one beneficial owner of
Units for purposes of Section 3(c)(1) of the Investment Company Act of 1940 or
an increase of more than one Partner of the Partnership for purposes of Treasury
Regulation Section 1.7704-1(h) 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. For purposes of
this Section 6(f), 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.
(g) Headings. Introductory headings at the beginning of each section
--------
and subsection of this Agreement are solely for the convenience of the parties
and shall not be deemed to be a limitation upon or description of the contents
of any such section and subsection of this Agreement.
(h) Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same Agreement.
(i) Remedies. Each party to this Agreement acknowledges and agrees
--------
that in the event of any breach of this Agreement by any one of them, any of the
parties, as the case may be, would be irreparably harmed and could not be made
whole by monetary damages. Each party accordingly agrees (a) to waive the
defense in any action for specific performance that a remedy at law would be
adequate and (b) each party, 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.
11
<PAGE>
(j) The representations and warranties of each Investor and the
Partnership herein shall survive the Closing.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
BRYLANE, L.P.,
a Delaware limited partnership
By: VGP Corporation
Its: General Partner
By: /s/ John M. Roth
--------------------------------------------
Name: John M. Roth
------------------------------------
Title: President
-----------------------------------
VP HOLDING CORPORATION,
a Delaware limited partnership
By: /s/ John M. Roth
--------------------------------------------
Name: John M. Roth
------------------------------------
Title: President
-----------------------------------
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: /s/ John M. Roth
--------------------------------------------
Name: John M. Roth
------------------------------------
Title: Vice President
-----------------------------------
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
-----------------------------------
13
<PAGE>
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
-----------------------------------
WEARGUARD CORPORATION,
a Delaware corporation
By: /s/ Barbara A. Austell
--------------------------------------------
Name: Barbara A. Austell
------------------------------------
Title: Treasurer
-----------------------------------
VLP CORPORATION,
a Delaware corporation
By: /s/ John M. Roth
--------------------------------------------
Name: John M. Roth
------------------------------------
Title: President
-----------------------------------
VGP CORPORATION,
a Delaware Corporation
By: /s/ John M. Roth
--------------------------------------------
Name: John M. Roth
------------------------------------
Title: President
-----------------------------------
14
<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/ John Muir
--------------------------------------------
Name: John Muir
------------------------------------
Title: Assistant Vice President
-----------------------------------
NYNEX MASTER TRUST
By: MELLON BANK, N.A., solely in its capacity as
Trustee for the NYNEX MASTER PENSION TRUST
(as directed by NYNEX Corporation), and not
in its individual capacity
By:
--------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
15
<PAGE>
EXHIBIT 10.78
AMENDMENT TO PERFORMANCE
PARTNERSHIP UNIT OPTION AGREEMENT
This AMENDMENT TO PERFORMANCE PARTNERSHIP UNIT OPTION AGREEMENT (this
"Amendment") is executed by the undersigned Optionee ("Optionee") of Brylane,
L.P. (the "Partnership"), and by the Partnership, as of this _____ day of
December 1996.
R E C I T A L S
- - - - - - - -
WHEREAS, the undersigned is the holder of an option (the "Option") to
purchase Partnership units (the "Units") pursuant to that certain Performance
Partnership Unit Option Agreement (the "Agreement") entered into as of
_________, 199__ by and between the Partnership and Optionee pursuant to the
Partnership's 1993 Performance Partnership Unit Option Plan, dated August 30,
1993, as amended on February 22, 1994 (the "Plan");
WHEREAS, the Partnership desires to amend the Agreement to ensure that
the calculation regarding whether the performance target has been met includes
the cash flow generated by the business of the recently acquired Chadwick's of
Boston catalog division of The TJX Companies, Inc., and by the KingSize catalog
division business of the Partnership;
WHEREAS, in consideration for making the performance target more
easily achievable by the Partnership, the Partnership desires to amend the
Agreement to raise the exercise price of the Option, if applicable, to $15.00
per Unit; and
WHEREAS, in order to effect these changes in vesting and exercise
price, if applicable, for the Option, Partnership and Optionee desire to amend
the Agreement as set forth below.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, the Partnership and Optionee hereby agree to amend the
Agreement as follows.
1. Definitions; References. Each term used herein which is not
-----------------------
defined herein shall have the meaning assigned to such term in the Agreement.
Each reference to "hereof," "hereunder," "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Agreement as amended hereby.
2. Amendment of Section 1 of the Agreement. The Purchase Price of
---------------------------------------
the Units shall be amended to "$15.00" per Unit, in the first sentence of
Section 1.
<PAGE>
3. Amendment of Schedule A to the Agreement. Section 2 of Schedule
----------------------------------------
A attached to the Agreement shall be amended in its entirety to read as follows:
"2. PERFORMANCE CRITERIA:
The achievement by the business of the Partnership as it exists
as of December 10, 1996 (the "Business") of operating cash flow of the
Business (which term means the earnings before reductions for
interest, taxes, depreciation and amortization of the Business, and
before any charges attributable to the write-ups of inventory to fair
market value on each of the date the Partnership purchased the assets
from the Transferors as described in the Partnership Agreement, the
date the Partnership purchased the assets of the KingSize division
from WearGuard Corporation, and the date the Partnership purchased the
assets of the Chadwick's of Boston division from The TJX Companies,
Inc.), for the Measurement Period, of at least $323,000,000 ("Targeted
Cash Flow"). Targeted Cash Flow represents 95% of projected operating
cash flow of the Business for the Measurement Period."
This Amendment may be executed in counterparts, each of which when
taken together with the others shall constitute one and the same document.
IN WITNESS WHEREOF, the Partnership and Optionee have executed this
Amendment as of the date and year first above written.
PARTNERSHIP: OPTIONEE:
BRYLANE, L.P.
- ------------------------------- --------------------------------
By: Peter J. Canzone Please Print Name:
Its: Authorized Representative
--------------------------------
Street Address
--------------------------------
City, State Zip Code
2
<PAGE>
EXHIBIT 10.79
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
THIS ACCOUNTS RECEIVABLE PURCHASE AGREEMENT dated as of December 9, 1996
(the "Agreement"), is between BRYLANE, L.P., a Delaware limited partnership (the
"Seller") and ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation ("ADS").
WHEREAS, the Seller desires to sell and ADS desires to purchase certain
accounts receivable arising under Chadwick's Deferred Billing Program, which
includes the attendant right to present such receivable to the Credit Card
Issuer for payment on the applicable deferred billing date.
THE PARTIES HERETO, INTENDING TO BE LEGALLY BOUND, hereby agree as follows:
SECTION 1
AMOUNT AND TERMS
1.1. PURCHASE COMMITMENT OF ADS.
1.1.1. Purchase. ADS agrees, subject to the terms and conditions of
--------
this Agreement and provided that no Event of Termination (or any condition or
event which would constitute an Event of Termination with the giving of notice
or lapse of time, or both) (the definitions of those and other capitalized terms
used herein having the meanings provided in Section 8) then exists to purchase
Accounts from time to time on and after the date hereof but prior to December
31, 1999 (the "Termination Date") in respective amounts selected by the Seller
from time to time as provided in Section 1.2 hereof, provided that the aggregate
--------
amount at any one time outstanding shall not exceed the amount set forth in
Section 1.2.1.
1.1.2. Commitment. The maximum amount of all Accounts purchased from
----------
the Seller under this Agreement shall not exceed in the aggregate the sum of
$100,000,000 (the "Commitment") at any time.
1.2. PURCHASES.
1.2.1. Receivables Base. ADS shall, upon the terms and conditions
----------------
set forth herein, purchase Accounts from the Seller from time to time in
principal amounts at any one time outstanding up to an amount that equals the
lesser of the Commitment or the Receivables Base. Subject to the terms and
conditions of the Agreement, the Seller may sell Accounts to ADS at any time or
from time to time from the date of the Agreement until the earlier of (a) the
Termination Date or (b) the End of the Commitment. Each Account shall be an
Eligible Account and shall be purchased at a price equal to the book value as
reflected on the Seller's books in accordance with GAAP less the Applicable
Purchase Discount for the applicable Individual
<PAGE>
Program, as reflected on Exhibit 1.2.1. The Applicable Purchase Discount shall
be determined as of the date the initial Account is purchased under each
Individual Program.
1.2.2. Funding of Purchases. Each purchase shall be funded by ADS no
--------------------
more frequently than one time per week in federal funds or other immediately
available money of the United States, either in the form of (i) a Variable Rate
Funding (individually a "Variable Rate Funding" and collectively the "Variable
Rate Fundings"); or (ii) a Fixed Rate Funding (individually a "Fixed Rate
Funding" and collectively the "Fixed Rate Fundings"). Each Fixed Rate Funding
shall be in the initial principal amount of $1,000,000 or any larger amount
which is a whole multiple of $100,000. All ADS' costs of funding the Variable
Rate Fundings and the Fixed Rate Fundings shall be passed through from ADS to
Seller.
1.2.3. Availability of Funds. ADS will pay to the Seller the funds
---------------------
for each Purchased Account (the "Funds"), at an account designated by Seller, on
or before the Funding Date.
1.2.4. Funding Procedures. Except as otherwise provided herein,
------------------
Accounts shall be purchased by ADS at the Seller's written request (a "Purchase
Request") which shall be delivered to ADS by 11:00 a.m. on the Request Date and
shall specify (i) the total amount of the Accounts to be purchased; (ii) the
Funding Date; and (iii) whether the Funding will be a Fixed Rate Funding (and if
so, the applicable Fixed Rate Period) or a Variable Rate Funding. The request
shall be accompanied by (i) a report regarding compliance by Seller with the
procedures of all Credit Card Issuers on all Eligible Accounts included in the
Receivables Base and (ii) a Funding Certificate.
1.3. COMMITMENT FEE. The Seller shall pay, on the date hereof, ADS a
commitment fee of $250,000 in consideration of the commitment of ADS to purchase
Accounts hereunder; provided, however, that Seller shall only pay this fee if
-----------------
ADS' funding source charges ADS a corresponding fee.
1.4. UNUSED FEE. As consideration for the commitment to purchase Accounts
made pursuant to this Agreement, the Seller shall pay ADS an unused fee computed
at the rate of twenty five basis points per annum on the average daily
difference between $100,000,000 and the aggregate balance of all Funds then
outstanding starting with the date of this Agreement, said fee to be computed on
the basis of the actual number of days elapsed over a year of 360 days and to be
payable monthly on the last Domestic Banking Day of each calendar month
commencing on January 31, 1997; provided, however, that Seller shall only pay
-----------------
this fee if ADS' funding source charges ADS a corresponding fee.
1.5. TRANSACTION FEES. The Seller shall pay to ADS a transaction fee of
$0.03 per each individual Customer Account purchased hereunder. Such fees will
be paid by Seller upon receipt of a monthly invoice. Seller shall pay, or
reimburse ADS promptly for any fees of Credit Card Issuers for processing the
Purchased Accounts.
2
<PAGE>
1.6. TRANSACTION COSTS. ADS will invoice Seller on the last day of each
month for its funding charges, specifying in reasonable detail the nature and
calculation thereof (which shall be conclusively correct absent manifest error),
and Seller shall pay such amounts promptly upon receipt thereof; provided,
---------
however, that ADS shall not charge to Seller any incremental borrowing costs
- -------
that ADS incurs due to a default under its financing arrangements unless such
incremental costs are caused by an Event of Termination (or an event which would
constitute an Event of Termination with the giving of notice or lapse of time or
both) of the Seller hereunder.
SECTION 2
GENERAL TERMS
2.1. PAYMENTS OWING TO ADS. The Seller shall make all payments hereunder
to ADS, at its main office, 4590 East Broad Street, Columbus, Ohio, in
immediately available funds prior to 3:00 p.m., on the date such payments shall
become due in accordance with the terms hereof. For the purpose of computing
the available portion of the Commitment, ADS shall have the right, in its sole
discretion, to treat as outstanding Funds under the Agreement the unpaid amount
of any interest, fees, costs or expenses otherwise then due and payable under
the Transaction Documents, provided, however, that such interest, fees, costs or
------------------
expenses shall not be deemed to be outstanding Funds for purposes of Section
1.4.
2.2. PAYMENT TO ADS OR SELLER ON NON-BANKING DAYS. Whenever any payment
to be made hereunder shall be stated to be due on a day other than a Domestic
Banking Day, such payment shall be made on the next succeeding Domestic Banking
Day and such extension of time shall in such case be included in the computation
of payment of interest hereunder, as the case may be.
2.3. FAILURE TO PAY. Whenever any payment due to ADS to be made hereunder
shall become due and payable, whether at the stated maturity thereof or earlier
upon acceleration or otherwise, and the Seller fails to make such payment, the
unpaid amount shall bear interest at the Prime Rate plus 115 basis points. If
the Funds used to purchase Accounts hereunder ever exceed the Total Facility,
the overpaid Funds that (a) relate to a Variable Rate Funding shall bear
interest at the Prime Rate plus 115 basis points or (b) that relate to a Fixed
Rate Funding shall bear interest at the applicable LIBO Rate for such funding
plus 115 basis points plus any applicable costs, premiums, fees or penalties
incurred by ADS; provided, however, that the entire amount of Funds paid shall
-----------------
bear such increased interest rate after the fourth such overpayment.
2.4. OVERPAYMENT. If the aggregate principal amount of all Purchased
Accounts exceeds the Total Facility at any time, the Seller shall immediately,
upon receipt of notice from ADS, purchase from ADS Accounts sufficient to reduce
the outstanding Purchased Accounts to an amount less than or equal to the Total
Facility. Upon any repurchase of an Account by the Seller as contemplated in
this Section 2.4, ADS shall, without further action, be deemed to transfer,
assign, set-over and otherwise convey to the Seller, without recourse,
representation or warranty, all the right, title and interest of ADS in such
repurchased Account, all monies due or
3
<PAGE>
to become due with respect thereto and all proceeds thereof. ADS shall, at the
Seller's expense, execute, or cause to be executed, such documents and
instruments of transfer or assignment and take, or cause to be taken, such other
actions as shall reasonably be requested by the Seller to effect the conveyance
of such account without any adverse claims pursuant to this Section.
SECTION 3
CONDITIONS OF FUNDING OF ACCOUNT PURCHASES
The obligation of ADS to purchase the Accounts from the Seller as provided
for hereunder shall be subject to the following conditions:
3.1. CONDITIONS PRECEDENT TO INITIAL PURCHASE OF ACCOUNTS. Prior to the
initial purchase of Accounts hereunder, the Seller shall furnish to ADS all of
the following, each dated the date hereof (unless otherwise indicated) in form
and substance satisfactory to ADS:
(a) Service Agreement. A properly executed Service Agreement.
-----------------
(b) Financing Statements. Filed forms of UCC-1 Financing Statements
--------------------
reflecting the sale of Accounts hereunder and a UCC-11 lien search report
showing no prior existing liens on the Accounts;
(c) Processing Agreement. A fully executed Processing Agreement
--------------------
between ADS and each Credit Card Issuer ("Processor Agreement"), in a form
satisfactory to ADS, pursuant to which ADS (or Seller as the agent of ADS) will
be permitted to submit Purchased Accounts to each Credit Card Issuer for payment
in accordance with the Service Agreement;
(d) Certified Resolutions. A certified copy of the resolutions of
---------------------
the Board of Representatives of the Seller authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents;
(e) Opinion of Counsel. The favorable opinion of Riordan & McKinzie,
------------------
counsel for the Seller ("Counsel"), addressed to ADS and in the form reasonably
requested by ADS;
(f) Secretary's Certificate. A signed copy of a certificate of the
-----------------------
Secretary or Assistant Secretary of the Seller which shall certify the names of
the officers of the Seller authorized to sign this Agreement and the other
Transaction Documents or certificates of the Seller to be executed and delivered
pursuant hereto, together with the true signatures of such officers. ADS may
conclusively rely upon such certificate until ADS shall receive a further
certificate of the Secretary or an Assistant Secretary of the Seller canceling
or amending the prior certificate and submitting the signatures of the officers
named in such further certificate;
(g) Commitment Fee. Payment of the $250,000 Commitment Fee, if
--------------
applicable; and
4
<PAGE>
(h) Funding Certificate. A Funding Certificate regarding Accounts to
-------------------
be sold as of the day before such initial purchase of Accounts.
3.2. CONDITIONS PRECEDENT TO SUBSEQUENT PURCHASE OF ACCOUNTS. The
obligation of ADS to purchase Accounts hereunder after the initial purchase
shall be subject to the further condition precedent that, at the time of each
subsequent purchase of Accounts, (a) the Seller shall be in compliance with all
of the provisions, warranties (except with respect to Section 4.13.2, under
which the representation and warranty shall be deemed to be made for purposes of
this Section 3.2 only with respect to the Accounts being purchased) and
conditions contained in this Agreement (or, if not in compliance with the
representations and warranties hereunder, such non-compliance is disclosed to
ADS before the Seller requests Funds and ADS waives the non-compliance), (b) a
new Funding Certificate has been delivered to ADS and (c) there shall exist no
Event of Termination (or an event that, with the passage of time or giving of
notice, or both, would constitute an Event of Termination). Each request for
ADS to purchase Accounts hereunder shall be deemed to be a representation and
warranty by the Seller on the date of such purchase of Accounts that the
representations and warranties contained in Section 4 are true and correct
(except that with respect to Section 4.13.2, the representation and warranty
shall be deemed to be made for purposes of this Section 3.2 only with respect to
the Accounts being purchased pursuant to such Request), and that the Seller is
in compliance with the covenants contained in Sections 5 and 6.
SECTION 4
REPRESENTATIONS AND WARRANTIES
The Seller represents and warrants to ADS, which representations and
warranties will survive the execution and delivery of this Agreement, as
follows:
4.1. ORGANIZATION AND GOOD STANDING. The Seller has been duly organized
and is validly existing as a limited partnership in good standing under its laws
of its jurisdiction, with power and authority to own the properties and to
conduct its business as such properties are presently owned and such business is
presently conducted.
4.2. DUE QUALIFICATION. The Seller is duly qualified to do business and
is in good standing, and has obtained all necessary licenses and approvals, in
all jurisdictions in which the failure to maintain such qualification, licenses
and approvals would materially adversely affect (a) the interests of ADS
hereunder, (b) the ability of the Seller to perform its obligations hereunder or
(c) the enforceability of this Agreement.
4.3. POWER AND AUTHORITY; DUE AUTHORIZATION. The Seller has all necessary
power, authority and legal right to (a) execute, deliver and perform this
Agreement, and the other Transaction Documents (to which the Seller is a party)
to be executed and delivered in connection herewith and (b) carry out the terms
of the Transaction Documents to which the
5
<PAGE>
Seller is a party. The Seller has duly authorized, by all necessary partnership
action, the execution, delivery, and performance of this Agreement and the other
Transaction Documents to which the Seller is a party.
4.4. BINDING OBLIGATIONS. This Agreement constitutes, and each other
Transaction Document to which the Seller is a party, when duly executed and
delivered will constitute, a legal, valid and binding obligation of the Seller
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
4.5. NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which the Seller is a
party and the fulfillment of the terms hereof, and the Seller's deferred billing
program and all corresponding agreements, billing statements, credit
applications, and related documents with Customers regarding the deferred
billing program, do not and will not (a) conflict with, result in any breach of
any of the terms and provisions of, or constitute (with or without notice or
lapse of time) a default under, (i) the limited partnership agreement of the
Seller, or (ii) any material indenture, loan agreement, mortgage, deed of trust,
or other agreement or instrument to which the Seller is a party or by which it
is bound, including without limitation the agreements between Seller and each
Credit Card Issuer, or (b) result in the creation or imposition of any Lien
(other than a Permitted Lien) upon Accounts of the Seller which Lien has a
material impact on the enforceability of the Transaction Documents or the
collectibility of Accounts pursuant to the terms of any such material indenture,
loan agreement, mortgage, deed of trust, or other agreement or instrument, other
than the Transaction Documents, or (c) violate any federal, state or local law
or any order, rule, or regulation applicable to the Seller of any court or of
any federal or state regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or any of its
properties, other than a violation that would not materially adversely affect
(x) the interests of ADS hereunder, (y) the ability of the Seller to perform its
obligations hereunder or (z) the enforceability of this Agreement.
4.6. NO PROCEEDINGS. There are no proceedings or investigations pending,
or, to Seller's knowledge, threatened, before any court, regulatory body,
administrative agency, or other tribunal or governmental instrumentality (a)
asserting the invalidity of this Agreement or any other Transaction Document,
(b) seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any other Transaction Document, or (c) seeking any
determination or ruling that might materially and adversely affect (i) the
performance by the Seller of its obligations under this Agreement or (ii) the
validity or enforceability of this Agreement or any of the Transaction
Documents.
4.7. GOVERNMENT APPROVALS. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the Seller
of this Agreement or any other Transaction Document except for filings needed to
perfect the Lien of ADS contemplated by this Agreement.
6
<PAGE>
4.8. FINANCIAL CONDITION. (a) The balance sheets of the Seller at
February 3, 1996, and the related statements of income and partnership equity of
the Seller for the fiscal year then ended certified by Coopers & Lybrand,
independent accountants, copies of which have been furnished to ADS, and the
unaudited balance sheets of the Seller at October 5, 1996, and the related
statements of income and shareholders' equity of the Seller for the fiscal
quarter then ended, fairly present the financial position of the Seller as at
such date and the results of operations of the Seller for the period ended on
such date, all in accordance with generally accepted accounting principles
consistently applied, and (b) since October 5, 1996, to the best of the Seller's
knowledge, there has been no material adverse change in any such position,
business or operations except that borrowings for the Chadwick's transaction
shall not be deemed to be adverse.
4.9. LITIGATION. No injunction, decree or other decision has been issued
or made by any court, government or agency or instrumentality thereof that
prevents, and, to the best of the Seller's knowledge, no threat by any person
has been made to attempt to obtain, any such decision (a) that involves this
Agreement or the other Transaction Documents, or the transactions contemplated
hereby or thereby or (b) that the Seller reasonably believes will involve
liabilities in excess of 10% of the Seller's net worth at the time of
determination.
4.10. CHADWICK'S DEFERRED BILLING PROGRAM. Seller represents and warrants
the narrative description of Chadwick's Deferred Billing Program as set forth on
Exhibit 4.10 is complete and accurate.
4.11. TAX RETURNS AND PAYMENTS; WITHHOLDING TAXES. The Seller has filed
all tax returns required by law to be filed and has paid all taxes, assessments
and other governmental charges levied upon any of its properties, assets, income
or franchises (including without limitation all United States and foreign
withholding taxes), other than those not yet delinquent and those being
contested in good faith for which adequate reserves have been established in
accordance with generally accepted accounting principles. The charges, accruals
and reserves on the books of the Seller in respect to income taxes for all
fiscal periods are adequate in the opinion of the Seller, and the Seller knows
of no unpaid material assessment for additional income taxes for any fiscal
period or of any basis therefor.
4.12. ACCURATE REPORTS. No material information, exhibit, financial
statement, document, book, record or report (excluding projections) furnished or
to be furnished by the Seller to ADS in connection with this Agreement was or
will be inaccurate in any material respect as of the date it was or will be
dated or (except as otherwise disclosed to ADS at such time) as of the date so
furnished, or contained or will contain any material misstatement of fact or
omitted or will omit to state a material fact or any fact necessary to make the
statements contained therein not materially misleading. As to any financial
projections furnished by Seller to ADS, Seller represents that the same were
prepared in good faith upon assumptions believed at the time to be reasonable.
7
<PAGE>
4.13. TITLE TO ACCOUNTS; LIENS.
4.13.1. The Seller has title to, ownership or other interests or
rights sufficient to permit the sale of the Accounts (including all material,
trademarks, service marks, trade names, copyrights and licenses) free and clear
of any Lien and as otherwise necessary to the performance of the Agreement.
Immediately upon the sale and transfer of an Account hereunder, ADS shall have
acquired title to such Account free of all Liens created by or through the
Seller.
4.13.2. As of the date of purchase, each Account will have received
Preliminary Authorization from the applicable Credit Card Issuer and when ADS
(or the Seller as ADS' agent pursuant to the Service Agreement) presents each
Account to a Credit Card Issuer, whether directly or pursuant to the Processor
Agreements, such Credit Card Issuer will accept each Account.
4.13.3. No financing or continuation statement which names the Seller
as debtor has been filed under the Uniform Commercial Code relating to the
Accounts and the Seller has not agreed or consented to cause or to permit in the
future (upon the happening of a contingency or otherwise) any of the Accounts,
whether now owned or hereafter acquired, to be subject to any Lien, except the
Permitted Liens.
4.13.4. As of the date of this Agreement, the Seller has taken or
caused to be taken all actions necessary in order to establish ADS'
precautionary security interests in the Accounts as valid and perfected Liens,
prior to all other Liens.
4.14. CHARACTERIZATION OF TRANSACTIONS. It is the intention of the Seller
that the transactions contemplated herein shall constitute sales of the Accounts
from the Seller to ADS and that the full beneficial interest in and title to the
Accounts not be part of the Seller's estate in the event of the filing of a
bankruptcy petition by or against the Seller under any bankruptcy law. The
Seller will treat the transactions contemplated herein as sales of the Accounts
for accounting, tax and other purposes.
4.15. ADS RIGHT TO SUBMIT ACCOUNTS PURSUANT TO PROCESSOR AGREEMENTS. ADS
shall have, with the merchant identification number provided to ADS under the
Service Agreement, the sole right, either individually or through its agent
under the Servicing Agreement, to submit Accounts for acceptance to the Credit
Card Issuers and their processing agents pursuant to the Processor Agreements.
SECTION 5
AFFIRMATIVE COVENANTS
Until all sums due and owing under this Agreement to ADS have been paid in
full and the Seller no longer has any right to require ADS to purchase Accounts
hereunder, the Seller covenants and agrees as follows:
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5.1. COMPLIANCE WITH LAWS, ETC. The Seller shall comply in all material
respects with all applicable laws, rules, regulations and orders regarding its
operations, except when failure to comply will not have a material adverse
effect on (a) the interest of ADS hereunder, (b) the ability of the Seller to
perform its obligations hereunder or (c) the enforceability of this Agreement.
5.2. PRESERVATION OF CORPORATE EXISTENCE. The Seller shall preserve and
maintain its limited partnership existence, rights, franchises and privileges in
the jurisdiction of its organization, and qualify and remain qualified in good
standing in each jurisdiction where the failure to preserve and maintain such
existence, rights, franchises, privileges and qualification would materially
adversely affect (a) the interests of ADS hereunder, (b) the ability of the
Seller to perform its obligations hereunder or (c) the enforceability of this
Agreement.
5.3. MAINTENANCE OF ACCOUNTS. The Seller shall at all times have title
to, and ownership or other interests in sufficient to permit the sale of the
Accounts (including all material, trademarks, service marks, trade names,
copyrights, licenses and rights in respect of the foregoing) necessary to the
performance of this Agreement.
5.4. MAINTENANCE OF MINIMUM NET WORTH. The Seller shall maintain a
minimum Net Worth in excess of 90% of the Seller's Net Worth at February 1,
1997, before giving effect to any inventory adjustments relating to the
acquisition of Chadwicks.
5.5. REPORTING REQUIREMENTS OF THE SELLER. From the date hereof until the
later of termination of the Commitment or the payment of all amounts owing
hereunder, the Seller shall, unless ADS shall otherwise consent in writing,
furnish to ADS:
(a) Quarterly Financial Statements. As soon as available and in any
------------------------------
event within 60 days after the end of each of the first three quarters of each
fiscal year of the Seller, copies of the Seller's quarterly financial reports,
on Form 10-Q, as filed with the Securities and Exchange Commission (or if the
Seller is no longer required to file such Form 10-Q, the Seller shall furnish
such financial reports containing the information typically found on Form 10-Q)
accompanied by a certificate of the chief financial officer or chief accounting
officer of the Seller to the effect that such statements have been prepared in
accordance with generally accepted accounting principles, and except for year
end adjustments, footnotes and disclosures fairly present the Consolidated
financial position of the Seller as of such date and the Consolidated results of
operations of the Seller for the period ended on such date.
(b) Annual Financial Statements. As soon as available and in any
---------------------------
event within 120 days after the end of each fiscal year of the Seller, a copy of
the Seller's Annual Report, on Form 10-K, as filed with the Securities and
Exchange Commission (or if the Seller is no longer required to file such Form
10-K, the Seller shall furnish such financial reports containing information
typically found on Form 10-K) and as reported on by nationally recognized
independent public accountants.
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(c) Compliance Certificate. As soon as available and in any event
----------------------
within 60 days after the last day of each of the first three fiscal quarters or
120 days after the end of each fiscal year of the Seller, a certificate of the
Seller's chief financial officer to the effect that no Terminations or Events of
Termination have occurred hereunder, or, if such Terminations or Events of
Termination have occurred, a statement explaining the factual circumstances
surrounding the Termination or Event of Termination and the steps Seller is
taking, if any, to cure such Termination or Event of Termination.
(d) Reports to Holders and Exchanges. Copies of any reports which
--------------------------------
the Seller sends to any of its security holders, and any reports or registration
statements that the Seller files with the Securities and Exchange Commission or
any national securities exchange other than registration statements relating to
employee benefit plans and registrations of securities for selling security
holders.
5.6. PAYMENT OF TAXES AND CLAIMS. The Seller shall promptly pay and
discharge all taxes and assessments levied and assessed or imposed upon its
properties or upon its income (including without limitation all United States
and foreign withholding taxes) as well as all material claims which, in the case
of any such tax, assessment or claim if unpaid, might by law become a Lien upon
the Accounts; provided, however, that nothing herein contained shall require the
-----------------
Seller to pay any such taxes, assessments or claims so long as the Seller shall
in good faith contest the validity and stay the execution and enforcement
thereof.
SECTION 6
NEGATIVE COVENANTS
During the term of this Agreement, unless ADS has otherwise agreed in
writing, the Seller covenants and agrees as follows:
6.1. NEGATIVE PLEDGE. The Seller shall not, without the prior written
consent of ADS, which consent may be withheld in ADS' sole discretion, create,
incur, assume or permit to continue any Liens on the Accounts purchased
hereunder, whether now owned or hereafter acquired, except Permitted Liens.
6.2. MERGERS, ACQUISITIONS, SALES, ETC.
6.2.1. The Seller shall not be a party to any merger or
consolidation, except for (a) any such merger or consolidation of the Seller
with a Subsidiary that enters into an agreement with ADS upon such merger or
consolidation, or (b) any such merger or consolidation in which the Seller is
the surviving entity.
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<PAGE>
6.2.2. The Seller shall not sell, transfer, convey or lease all or
substantially all of its assets, including the stock of any Subsidiary except:
(a) for a sale, transfer, conveyance, lease, abandonment or other
disposition from the Seller with or to a Subsidiary or in the ordinary course of
business; or
(b) the sale, transfer, conveyance, lease or other disposition
of assets in the ordinary course of business.
6.3. FINANCIAL COVENANTS. The Seller shall not fail to comply with the
financial covenants set forth in Article V of the Senior Credit Agreement.
6.4. CHADWICK'S DEFERRED BILLING PROGRAM. Seller shall maintain the
Chadwick's Deferred Billing Program described on Exhibit 4.10, and the
Chadwick's Deferred Billing Program shall not be amended, modified, supplemented
or otherwise changed without the prior written consent of ADS.
SECTION 7
EVENTS OF TERMINATION
7.1. EVENTS OF TERMINATION. The following are "Events of Termination":
(a) Service Agreement and Processing Assignment. Seller shall fail
-------------------------------------------
to comply with the terms of the Service Agreement (including without limitation
the failure of the Seller to forward Accounts to the Credit Card Issuer for
payment or the failure of a Credit Card Issuer to fund Accounts when properly
submitted to the Credit Card Issuer by the Seller) or the Credit Card Issuer
shall fail to accept an Account in accordance with the Processor Agreement or
the Credit Card Issuer shall fail to comply with the requirements of the
Processor Agreement;
(b) Payments and Fees. The Seller shall default in the payment of
-----------------
any sums owing hereunder, including without limitation amounts owing under
Section 1.6 hereof; provided such default shall continue for a period of 10
--------
Domestic Business Days;
(c) Representations and Warranties. Any representation or warranty
------------------------------
(other than any representation or warranty contained in Section 4.13.2) made by
the Seller in this Agreement or in connection with any purchase of Accounts
hereunder, or in any report, Funding Certificate, financial statement or other
instrument furnished in connection with this Agreement or the Funds hereunder
shall prove to have been false or misleading in any material respect on the date
made;
(d) Negative Covenants. The Seller shall fail to observe or perform
------------------
any covenant, condition or agreement in Section 5.4 or Section 6 of this
Agreement;
(e) Other Covenants. The Seller shall fail to observe or perform any
---------------
covenant, condition or agreement (other than those mentioned in Section 5.4,
Section 6 or Section 7.3) to
11
<PAGE>
be observed or performed pursuant to the terms hereof and such default shall
continue unremedied for 30 days after written notice thereof to the Seller by
ADS, or the Seller fails to comply with the covenants contained in Section 5.4
or Section 6;
(f) Acceleration of Debt. The holder of any Indebtedness other than
--------------------
amounts owing hereunder in an amount greater than $10,000,000 in the aggregate
shall accelerate the maturity of such Indebtedness;
(g) Judgments. One or more judgments from which no appeal may be
---------
taken or with respect to which the time to appeal has expired for the payment of
money aggregating in excess of 10% of the current assets of the Seller (as
measured pursuant to the Form 10-Q most recently filed with the Securities and
Exchange Commission before the date of the judgment) shall be rendered against
the Seller and the same shall remain undischarged for a period of 30 consecutive
days during which the execution shall not be effectively stayed;
(h) Bankruptcy, Etc. Proceedings seeking appointment of a receiver,
---------------
custodian, trustee or liquidator of the Seller shall be commenced against the
Seller without authorization, consent or application, and shall have not been
alleviated within 60 days of such commencement or the Seller shall (a) make an
assignment for the benefit of, or enter into any composition or arrangement
with, creditors; (b) (i) apply for or consent (by admission of material
allegations of a petition or otherwise) to the appointment of a receiver,
custodian, trustee or liquidator of the Seller of any substantial part of the
properties of the Seller, or (ii) authorize such application or consent, (c)
(i) authorize or file a voluntary petition in bankruptcy, suffer an order for
relief under any federal bankruptcy law, or apply for or consent (by admission
of material allegations of a petition or otherwise) to the application of any
bankruptcy, reorganization, arrangement, readjustment of debt, insolvency,
dissolution, liquidation or other similar law of any jurisdiction, or (ii)
authorize such application or consent, or proceedings to such end shall be
instituted against the Seller without its authorization, application or consent
and shall have not been alleviated within 60 days of the institution thereof;
(d) permit or suffer all or any part of its properties to be sequestered,
attached, or subjected to a Lien through any legal proceeding or distraint which
is not alleviated within 60 days of the commencement thereof; or (e) generally
not pay its debts as such debts become due;
(i) Reorganization, Receiver, Etc. An order, judgment or decree
-----------------------------
shall be entered without the application, approval or consent of the Seller by
any court of competent jurisdiction, approving a petition seeking reorganization
of the Seller or appointing a receiver, trustee or liquidator of the Seller or
of all or a substantial part of the assets thereof, and such order, judgment or
decree shall continue unstayed and in effect for any period of 60 days;
(j) Put Default. The Seller shall have failed to repurchase (or make
-----------
reimbursement in respect of, if applicable) any Account that the Seller is
obligated to repurchase (or make reimbursement for) under Section 7.3, within
the time period specified in Section 7.3;
(k) Unfunded Accounts. The level of Unfunded Accounts experienced in
-----------------
the four most recently completed Individual Programs that generated Accounts in
excess of $1,000,000
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as of any date of determination ever exceeds (as the average of all four of such
Individual Programs) 7.5% of the total amounts of Accounts purchased by ADS
arising under such four Individual Programs.
7.2. RIGHTS UPON TERMINATION EVENT. At any time after an Event of
Termination, ADS shall have the right to do any or all of the following: (a)
declare its obligation to purchase Accounts to be terminated, whereupon the same
shall forthwith terminate and (b) make a demand for payment upon the Seller,
whereupon all fees, costs and all such other amounts owing under the Transaction
Documents shall become forthwith due and payable, without presentment, demand,
protest or other notice of any kind, all of which is hereby expressly waived by
the Seller, notwithstanding anything contained in the Transaction Documents to
the contrary.
7.3. PUT RIGHT FOR CERTAIN BREACHES OF REPRESENTATIONS AND WARRANTIES.
7.3.1. In the event of a breach of the representation and warranty
contained in Section 4.13.2 in respect of any Account, then as the sole and
exclusive remedy for such breach, ADS shall have the right to require the Seller
to repurchase ("put") such non-conforming Account in accordance with the
following terms:
(a) As to any Unfunded Account which has not been accepted by
the Credit Card Issuer or otherwise paid by the 10th day after the
Deferred Billing Maturity Date (the "Put Date"), ADS shall have the
right commencing on the 11th day after the Put Date to put to Seller
such Unfunded Account; provided that (i) such right shall only be
--------
available to the extent that the Unfunded Accounts in respect of an
Individual Program on the applicable Put Date, exceed, in the
aggregate, the Applicable Purchase Discount of the original amount of
all Accounts purchased under such Individual Program, and then only to
the extent of the excess; and (ii) ADS' put right with respect to the
Unfunded Accounts relating to an Individual Program shall in all
events be limited to 5% of the amount of all Accounts purchased under
an Individual Program; and
(b) As to any Deferred Billing Account which is or becomes (i) a
Chargeback Account or (ii) a Return Account after the Deferred Billing
Maturity Date, the Seller shall be required promptly either (x) in
accordance with such Credit Card Issuer's standard procedures, to
reimburse such Credit Card Issuer for the payment previously made for
such Account so as to fully discharge ADS' obligation in respect
thereof, or (y) if ADS is required to make such reimbursement to the
Credit Card Issuer, to reimburse ADS in full on the day the Chargeback
Account or Return Account is required to be funded.
7.3.2. The Seller shall be required to repurchase any Account that is
subject to repurchase under this Section 7.3 (or, if applicable, reimburse the
Credit Card Issuer or ADS, as the case may be, in the circumstances contemplated
by Section 7.3.1.(b) above) at its face value within two Domestic Banking days
after receiving ADS' written notice that ADS is putting such Account to the
Seller pursuant to this Section 7.3.
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<PAGE>
7.3.3. ADS shall (a)upon any repurchase of an Account pursuant to the
Put Right, and (b) for all Unfunded Accounts whose aggregate book value is less
than the Applicable Purchase Discount for the applicable Individual Program,
without further action, be deemed to transfer, set-over and otherwise convey to
the Seller, without recourse, representation or warranty, all right, title and
interest in the repurchased Accounts, all monies due or to become due with
respect thereto and in all proceeds thereof. ADS shall, at the Seller's
expense, execute, or cause to be executed, such documents and instruments of
transfer or assignment and take, or cause to be taken, such other actions as
shall reasonably be requested by the Seller to effect the conveyance of such
account without adverse claims pursuant to this Section.
7.3.4. If the Seller fails to repurchase any Account (or make
reimbursement, if applicable) as provided in this Section 7.3, then such failure
shall constitute an Event of Termination hereunder entitling ADS to exercise all
of its rights as provided hereunder upon the occurrence of an Event of
Termination.
7.4. ALTERNATIVE CHARACTERIZATION. The parties intend that the
transactions consummated herein shall be sales, but as a precautionary measure
in the event for any reason the transactions are not so treated or
characterized, then Seller agrees that ADS will have, and there is hereby
granted to and created in favor of ADS, a security interest under the UCC, and
otherwise in accordance with applicable law, in and to the following:
7.4.1. All Accounts now or hereafter owned or generated by the
Seller, which have been purchased by ADS including, without limitation, (i) all
moneys due and to become due under any Account, (ii) any damages arising out of
or for breach or default in respect of any Account, and (iii) all other amounts
from time to time paid or payable under or in connection with any such Account.
7.4.2. To the extent not otherwise included, all books, records and
ledger cards and all Proceeds or products of any of the foregoing; provided,
---------
however, that any excess Proceeds remaining after the corresponding Obligations
- -------
have been paid to ADS shall no longer be Accounts.
7.4.3. In respect of the Accounts or any part thereof, ADS shall have
such rights and remedies as are provided by the UCC and such other rights and
remedies in respect thereof which ADS may have at law or in equity or under the
Transaction Documents, including without limitation the right to resubmit the
Accounts to the Credit Card Issuers pursuant to the Processor Agreements and
receive the funds therefore. In addition to all of the rights and remedies
given to ADS by this Service Agreement, ADS shall have all of the rights and
remedies of a secured party under the UCC.
7.5. END OF THE COMMITMENT. At the End of the Commitment (whether by
maturity, acceleration, cancellation or otherwise), the Seller shall pay to ADS
the aggregate amount of all outstanding Obligations, including, without
limitation, all unpaid fees and costs, to the extent then matured (whether by
acceleration or otherwise).
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SECTION 8
DEFINITIONS
8.1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings specified:
"Account" means and includes all accounts (whether or not earned by
-------
performance), contract rights, chattel paper, instruments, documents, general
intangibles and all other forms of obligations owing to the Seller from
Customers, pursuant to Chadwick's Deferred Billing Program whether secured or
unsecured, whether now existing or hereafter created, and specifically assigned
to ADS under the Transaction Documents, all guaranties and other security
therefor, and all other rights and remedies of an unpaid lienor or secured party
in respect of the Accounts. Each Account arises from a credit card billing
designated by the Customer and will be presented to the Credit Card Issuer on
the applicable deferred billing date in accordance with Chadwick's Deferred
Billing Program.
"Affiliate" with respect to any Person shall mean each Person that
---------
directly or indirectly (through one or more intermediaries or otherwise),
controls, is controlled by, or is under common control with such Person.
"Agreement" is defined in the preamble.
---------
"Applicable Purchase Discount" means the purchase discount for
Accounts under any Individual Program as set forth on Exhibit 1.2.1.
"Chadwick's Deferred Billing Program" is set forth on Exhibit 4.10.
-----------------------------------
"Chargeback Account" means an Account that was previously accepted by
------------------
a Credit Card Issuer which acceptance is subsequently reversed giving rise to a
reimbursement obligation from the Seller or ADS in favor of the Credit Card
Issuer.
"Closing" shall mean the closing of the transactions described herein
-------
at such location which shall be mutually agreed to among the parties.
" Commitment" is set forth at Section 1.1.2.
----------
"Counsel" is identified at Section 3.1(d).
-------
"Credit Card Issuers" means American Express, Discover and financial
-------------------
institutions that are members of the VISA/MasterCard system and their processing
agents.
"Customer" means any Person who is obligated as an account debtor or
--------
other obligor on, under, or in connection with any Account.
15
<PAGE>
"Defaulted Account" means an Account that is generated by a Customer
-----------------
who is currently in default of the payment terms of such Customer's agreement
with a Credit Card Issuer.
"Deferred Billing Maturity Date" means the date on which Accounts
------------------------------
under a program are scheduled to be presented to the Credit Card Issuers.
"Domestic Banking Days" shall mean days other than Saturdays, Sundays
---------------------
and other legal holidays or days on which the principal office of The Huntington
National Bank is closed.
"Eligible Account" means each Account of the Seller which, at the time
----------------
of determination, meets all the following qualifications: (a) the Seller has
lawful and absolute title to such Account, subject only to the Lien of ADS given
by this Agreement; such Lien constitutes a perfected Lien in the Account prior
to the rights of any other Person and such Account is not subject to any other
Lien whatsoever except Permitted Liens; (b) the Seller has the full unqualified
right to grant a Lien in such Account to ADS as security and collateral for the
Obligations; (c) the Seller received Preliminary Authorization from the Credit
Card Issuer on the date the Account was created; (d) the Account arose from the
sale of goods by the Seller in the ordinary course of business pursuant to a
transaction with a Customer, which goods have been shipped or delivered to the
Customer under such Account; and such sale was an absolute sale and not on
consignment, approval or a sale-and-return basis (other than Seller's normal
return policy); (e) no notice of the bankruptcy, receivership, reorganization,
insolvency, or financial embarrassment of the Customer has been received by the
Seller; (f) the Account is a valid, legally enforceable obligation of the
Customer, and is not subject to any dispute, offset, counterclaim, or other
defense on the part of such Customer; (g) it is not a Defaulted Account; (h) the
terms of the Account require payment pursuant to the Chadwick's Deferred Billing
Program of the Seller on a date that is before the Termination Date; (i) the
Customer on the Account is not (1) the United States of America or any foreign
government, or any department, agency or instrumentality thereof (unless the
Seller and ADS shall have fully complied with the Assignment of Claims Act of
1940, as amended, or any other applicable law governing government Accounts,
with respect to such Account), (2) the Seller, or any Affiliate of Seller or,
(3) located outside the United States or Canada; (j) the Account is denominated
and payable only in United States dollars in the United States; (k) the Account
is not an Unfunded Account if the total volume of Unfunded Accounts exceeds the
Applicable Purchase Discount of any Individual Program; and (l) ADS, acting in
its sole reasonable discretion, has not notified the Seller the Account may not
be considered as an Eligible Account.
"End of the Commitment" means the earlier of the Termination Date or
---------------------
the date on which ADS exercises its rights under Section 7.2(a) following an
Event of Termination.
"Events of Termination" are defined at Section 7.
---------------------
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"Final Authorization" means the approval and acceptance for payment of
-------------------
an Account by the Credit Card Issuer on the applicable Deferred Billing Maturity
Date.
"Financial Statements" means the financial statements described in
--------------------
Section 4.8 hereof and, after the initial Funds are made under the Agreement,
the most recent financial statements of the Seller that have been furnished to
ADS.
"Fixed Rate Funding" means a funding of purchases of Accounts at a
------------------
LIBO Rate for a Fixed Rate Period.
"Fixed Rate Period" means exactly one, two or three months; provided,
----------------- ---------
however, that no Fixed Rate Period may end on a date later than the Termination
- -------
Date.
"Funding" means a transaction in which ADS transfers Funds to Seller
-------
to purchase Accounts.
"Funds" means the monies paid by ADS to Seller to purchase Accounts.
-----
"Funding Certificate" means a certificate, in the form required by ADS
-------------------
that computes the Receivables Base, together with any memo of returns and
credits, remittance report, schedule of Eligible Accounts showing each Customer
transaction giving rise to an Eligible Account and such other supporting
documents and materials which ADS, in its sole reasonable discretion, may
require to be delivered with such certificate. The Funding Certificate shall be
in the form of an electronic transmission delivered by Seller to ADS, with
authorization as determined by ADS in its sole discretion; provided, however,
-----------------
that ADS can demand the Funding Certificate to be delivered in writing at any
time.
"Funding Date" means the date Funds will be made available to Seller,
------------
which will be at least (a) two Domestic Banking Days after ADS receives a
Purchase Request from the Seller for a Variable Rate Funding or (b) four London
Banking Days after ADS receives a Purchase Request from the Seller for a Fixed
Rate Funding.
"GAAP" means generally accepted accounting principles applied on a
----
basis consistent with the accounting principles reflected in the Financial
Statements.
"Indebtedness" means, for any Person (a) all indebtedness or other
------------
obligations of such Person for borrowed money or for the deferred purchase price
of property or services (except for unsecured trade payables or accruals
incurred in the ordinary course of business on normal and reasonable terms), (b)
all indebtedness or other obligations of any other Person for borrowed money or
for the deferred purchase price of property or services, the payment or
collection of which such Person has guaranteed (except by reason of endorsement
for deposit or collection in the ordinary course of business) or in respect of
which such Person is liable, contingently or otherwise, including, without
limitation, by way of agreement to purchase, to provide funds for payment, to
supply funds to or otherwise to invest in such other Person, or otherwise to
assure a creditor against loss, (c) all indebtedness or other obligations of any
other
17
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Person for borrowed money or for the deferred purchase price of property or
services secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien, upon or in
property (including, without limitation, Accounts) owned by such Person, whether
or not such Person has assumed or become liable for the payment of such
indebtedness or other obligations to the extent of the fair market value of the
property covered by such Lien, (d) all direct obligations of such Person in
respect of letters of credit, and (e) all Lease obligations which have been or
should be, in accordance with generally accepted accounting principles,
capitalized on the books of such Person as lessee.
"Individual Program" means any program under the Chadwick's Deferred
------------------
Billing Program offered to Customers in a specific catalog distributed by the
Seller.
"Liabilities", as applied to any Person, shall mean (a) all items
-----------
(except items of capital stock, of capital surplus, of general contingency
reserves or of retained earnings and amounts attributable to minority interest,
if any) which in accordance with generally accepted accounting principles would
be included in determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Liabilities are to be
determined, including specifically capitalized lease obligations and (b) all
obligations secured by any Lien or conditional sale or other title retention
agreement to which any property or asset owned or held by such Person is
subject, whether or not the obligations secured thereby shall have been assumed
(excluding non-capitalized leases which may amount to title retention
agreements).
"LIBO Rate" shall mean, as of the date of each Fixed Rate Funding made
---------
available before the Termination Date, the rate of interest (rounded upward, if
necessary, to the next highest 1/16th of 1%) at which ADS was offered deposits
in United States dollars at 11:00 a.m., London time, in the London Interbank
LIBO Market on the second London Banking Day preceding the date of such Fixed
Rate Funding for delivery on the date of such LIBO Rate Loan, for deposits for a
like period as such Fixed Rate Funding and in an amount equal to the amount of
such Fixed Rate Funding plus 80 basis points. The minimum amount of a Fixed
Rate Funding for purposes of establishing the LIBO Rate shall be $1,000,000.
"Lien" means any mortgage, deed of trust, lien, charge or security
----
interest (including, without limitation, a purchase money security interest as
such term is defined in Section 9-107 of the UCC) or pledge of, any property or
asset, whether now owned or hereafter acquired, and includes the acquisition of,
or agreement to acquire, any property or asset subject to any conditional sale
agreement or other title retention agreement, including a Lease on terms
tantamount thereto or on terms otherwise substantially equivalent to a purchase.
"London Banking Day" means any Domestic Banking Day on which
------------------
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Net Worth" shall be construed in accordance with generally accepted
---------
accounting principles consistent with those applied in the preparation of the
financial statements of the Seller.
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<PAGE>
"Obligations" means (a) the obligations of the Seller to ADS under the
-----------
Agreement, (b) the obligations of the Seller to ADS under the remaining
Transaction Documents, (c) all costs and expenses incurred by ADS in the
collection or the enforcement of any such obligations of the Seller, including,
without limitation, reasonable attorneys' fees and legal expenses, and (d) all
future advances made by ADS for the maintenance, protection or preservation of
the Accounts or any portion thereof.
"Permitted Liens" shall mean any of the following:
---------------
(a) Liens securing taxes, assessments, fees or other governmental
charges or levies, or securing the claims of materialmen, mechanics, carriers,
warehousemen, landlords and other similar Persons;
(b) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance,
social security and other similar laws;
(c) Reservations, exceptions, easements, leases and other similar
title exceptions or encumbrances affecting real property, provided they do not
in the aggregate materially interfere with their use in the ordinary course of
the Seller's business; and
(d) Liens in favor of ADS.
"Person" shall mean and include an individual, partnership,
------
corporation, trust, unincorporated organization, a government or any department
or agency thereof or any other entity.
"Preliminary Authorization" means the authorization of $1.00 that the
-------------------------
Seller obtains from the Credit Card Issuer on the date it receives an order from
a customer, which authorization confirms the validity of the credit card
designated by the Customer as the method of payment.
"Prime Rate" means the interest rate publicly announced from time to
----------
time by The Huntington National Bank as representing its prime rate. The prime
rate is not intended to be the lowest rate of interest charged by The Huntington
National Bank in connection with extensions of credit to debtors.
"Proceeds" has the meaning assigned to that term in the UCC.
--------
"Processor Agreements" means the Processing Agreement between ADS and
--------------------
each institution that processes Accounts for the Credit Card Issuers.
"Purchase Request" means a request from the Seller to ADS to purchase
----------------
Accounts accompanied by all the information required by Section 1.2.4.
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"Purchased Account" means Accounts that have been purchased by ADS
-----------------
that are not yet due to be accepted by a Credit Card Issuer.
"Receivables Base" means the book value of Eligible Accounts as
----------------
reflected on the "Servicing Agent's" records under the Servicing Agreement, net
of all credits, returns, discounts and allowances.
"Request Date" shall mean the date a Funding Request is delivered to
------------
ADS.
"Requirement of Law" means, for any Person, any term, condition, or
------------------
provision of any law, rule, judgment, regulation, order, writ, injunction or
decree of any court or government, domestic or foreign and any ruling of any
arbitrator to which such Person is a party or by which such Person or any of its
assets or property is bound or affected or from which such Person derives
benefits, and, if such Person is a corporation, its charter documents and by-
laws.
"Return Account" means an Account that was previously accepted by a
--------------
Credit Card Issuer in respect of which the Customer returns to Seller all or a
portion of the purchased items, which return results in a credit to that
customer's credit card account, and a corresponding reimbursement obligation to
the Credit Card Issuer.
"Seller" is defined in the preamble.
------
"Senior Credit Agreement" is the Credit Agreement dated as of December
-----------------------
9, 1996 with Morgan Guaranty Trust Company of New York as agent and Merrill
Lynch Capital Corporation as Documentation Agent; as the same may be amended or
modified from time to time.
"Service Agreement" means the Service Agreement between the Seller and
-----------------
ADS attached hereto as Exhibit 8.
"Subsidiary" means any Person of which the Seller shall own, at the
----------
time as of which any determination is being made, directly or indirectly through
a Subsidiary, such number of the outstanding shares of capital stock or other
evidences of beneficial interest having ordinary voting power to elect a
majority of the Board of Directors, or other similar governing body, of such
Person.
"Termination Date" is defined at Section 1.1.1.
----------------
"Total Facility" means the lesser of the Receivables Base or the
--------------
Commitment.
"Transaction Documents" means the Agreement, the Service Agreement,
---------------------
the Processor Agreements, and any financing statements or other agreements,
reports, documents, certificates or instruments required or contemplated hereby
or thereby or otherwise delivered to ADS in connection herewith or therewith
signed by the Seller or any Affiliate relating thereto.
20
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"UCC" means the Uniform Commercial Code as in effect on the date of
---
the Agreement and as the same may be supplemented or amended from time to time
hereafter, of any state or states having jurisdiction from time to time pursuant
to Section 9-103 thereof with respect to all or any portion of the Accounts.
"Unfunded Account" means an Account which is rejected by a Credit Card
----------------
Issuer on the date of presentation.
"Variable Rate Funding" means a Funding of a purchase of Accounts with
---------------------
Funds provided to ADS at the Prime Rate.
8.2. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles.
8.3. RULES OF CONSTRUCTION. All accounting terms used in the Transaction
Documents not otherwise specifically defined in the Transaction Documents shall
be construed in accordance with GAAP. Any other term not specifically defined
in the Transaction Documents shall be construed in accordance with the meaning
for such terms under the UCC in effect from time to time in the State of Ohio.
The meaning of any defined term used in the Transaction Documents shall apply
equally to the singular, plural and other forms of the term defined.
SECTION 9
MISCELLANEOUS
9.1. TERM OF AGREEMENT; SUCCESSORS AND ASSIGNS.
9.1.1. This Agreement and all covenants, agreements, representations
and warranties made herein and in the certificates delivered pursuant hereto
shall survive the purchase of Accounts by ADS and shall continue in full force
and effect until the End of the Commitment or the payment of the Obligations,
whichever is later. Whenever in this Agreement any of the parties hereto are
referred to, such reference shall be deemed to include the successors and
assigns of such party; and all terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
9.1.2. Notwithstanding any other provision hereof, this Agreement may
be terminated by the Seller at any time upon 30 days prior notice upon the
occurrence of a "Change of Control" as defined in the Senior Credit Agreement,
in which case (a) this Agreement shall terminate upon the payment of all the
outstanding Obligations and (b) Seller shall no longer be entitled to sell
Accounts under the Commitment.
9.2. NOTICES. Notices, demands and communications shall be deemed to have
been properly given to the Seller when faxed to Brylane, L.P., at (212) 613-
9567, Attention: Chief Financial Officer or deposited in the United States
mail, registered or certified, postage prepaid,
21
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and addressed to the Seller at 463 Seventh Avenue, New York, New York 10018,
Attention: Chief Financial Officer and Chadwicks, 35 United Drive, West
Bridgewater, Massachusetts 03279, Fax (508) 583-6314, Attention: Chief Financial
Officer, or hand delivered to the same address. Any communication to ADS shall
be deemed properly given if faxed, hand delivered or similarly mailed as
follows:
4590 East Broad Street
Columbus, Ohio 43213
(614) 735-5000
Attention: Robert P. Armiak
9.3. NO IMPLIED WAIVERS. No delay on the part of ADS or the Seller in
exercising any right, power or privilege granted hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof. The rights
and remedies herein expressly specified are cumulative and not exclusive of any
other rights and remedies which ADS or the Seller would otherwise have.
9.4. AMENDMENTS, MODIFICATIONS, ETC. No amendment, modification,
termination, or waiver of any provision of this Agreement nor consent to any
departure by the Seller or ADS therefrom, shall in any event be effective unless
the same shall be in writing and signed by ADS or the Seller, respectively, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice or demand on the Seller in
any case shall entitle the Seller, to any other or further notice or demand in
similar or other circumstances.
9.5. APPLICABLE LAW. This Agreement shall be deemed to be contracts made
under the local laws of the State of Ohio, and for all purposes shall be
construed in accordance with the laws of such state.
9.6. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
9.7. EXPENSES. All fees, costs or expenses, including reasonable fees and
expenses of outside legal counsel, incurred by ADS in connection with either the
preparation, administration, amendment or modification of the Agreement
(including, without limitation, (a) all expenses incurred in obtaining all
necessary judicial and other approvals of the transactions contemplated hereby
or (b) all expenses incurred in conducting any examinations or appraisals which
the Agent, in its sole discretion, deem necessary or appropriate) shall be paid
by the Seller on demand. All fees, costs or expenses, including reasonable fees
and expenses of outside legal counsel, incurred by ADS in connection with the
enforcement of the Agreement shall be paid by the Seller on demand.
22
<PAGE>
9.8. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument. Complete sets of counterparts shall be lodged with the Seller
and ADS.
9.9. ENTIRE AGREEMENT. The Transaction Documents set forth the entire
understanding between the parties concerning the subject matter thereof and
incorporate all prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of the Agreement other than those
set forth in the Transaction Documents. No representation or warranty has been
made by or on behalf of either party to the Agreement (or any officer, director,
employee or agent thereof) to induce the other party to enter into the Agreement
or to abide by or consummate any transactions contemplated by any term of the
Agreement, except representations and warranties, if any, expressly set forth or
referred to in the Transaction Documents. Nothing expressed or implied in any
of the Transaction Documents is intended or shall be construed to confer upon or
give any Person other than the parties hereto and their successors or assigns,
any rights or remedies under or by reason of the Transaction Documents.
9.10. HEADINGS. Headings of the sections of this Agreement are for
convenience only and shall not affect the construction of this Agreement.
9.11. EFFECTIVE DATE. This Agreement shall become effective upon the
later of the execution of a counterpart hereof by each of the parties.
9.12. CONFESSION OF JUDGMENT. The Seller hereby authorizes any attorney
at law to appear for the Seller, in any action on the Agreement, at any time
thereafter, as herein provided, in any court of record in or of the State of
Ohio, or elsewhere, to waive the issuing and service of process against the
Seller and to confess judgment in favor of the holder of the Agreement or the
party entitled to the benefits of the Agreement against the Seller for the
amount that may be due, with interest at the rate herein mentioned and costs of
suit, and to waive and release all errors in said proceedings and judgment, and
all petitions in error, and right of appeal from the judgment rendered.
9.13. TIME. Unless otherwise stated, all time references set forth herein
are stated in Columbus, Ohio time.
9.14. WAIVER OF JURY TRIAL. ADS AND THE SELLER HEREBY VOLUNTARILY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN
ADS AND THE SELLER ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THE SELLER AND ADS IN CONNECTION WITH
THE AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THEREWITH OR THE TRANSACTIONS RELATED HERETO OR THERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT TO ADS TO ENTER INTO THE FINANCING
TRANSACTIONS WITH SELLER. IT SHALL
23
<PAGE>
NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY ADS' ABILITY TO PURSUE ITS
REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR COGNOVIT
PROVISION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT RELATED HERETO.
9.15. TERMINATION OF INTERESTS. Upon payment and performance in full of
the Obligations, and all reasonable costs and expenses incurred by ADS in the
realization upon the Accounts, including without limitation, reasonable
attorneys' fees and legal expenses, this Agreement shall terminate and be of no
further force and effect, and in such event, ADS shall, at the expense of the
Seller, take all action necessary to terminate the rights and interests in favor
of ADS created under this Agreement. Until such time, however, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
9.16. CONFIRMATION BY ADS. ADS hereby confirms that ADS will treat the
transactions contemplated hereby as purchases of the Accounts for accounting,
tax and other purposes.
The parties hereto have caused this Agreement to be duly executed by their
respective duly authorized officers as of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By:_______________________________
Name:_____________________________
Its:______________________________
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
BRYLANE, L.P.
By:_______________________________
Name:_____________________________
Its:______________________________
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<PAGE>
EXHIBIT 1.2.1
APPLICABLE PURCHASE DISCOUNT SCHEDULE (QUARTERLY)
1. THE INITIAL APPLICABLE PURCHASE DISCOUNT SHALL BE 2.5%.
2. THEREAFTER, IF THE AVERAGE ROLLING THEN THE APPLICABLE PURCHASE DISCOUNT
12 MONTH UNFUNDED ACCOUNTS ARE: FACTOR IS:
Less than 2.5% 2.5%
2.5% to 2.749% 2.75%
2.75% to 2.99% 3.0%
3.0% to 3.49% 3.5%
3.5% to 3.99% 4.0%
4.0% to 4.49% 4.5%
4.5% to 4.99% 5.0%
5.0% to 5.49% 5.5%
5.5% to 5.99% 6.0%
6.0% to 6.49% 6.5%
6.5% or Greater 7.0%
3. SELLER SHALL DELIVER TO ADS EACH MONTH A REPORT DETAILING THE AVERAGE ROLLING
12 MONTH UNFUNDED ACCOUNTS.
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EXHIBIT 4.10
CHADWICK'S DEFERRED BILLING PROGRAM
Chadwick's frequently offers its customers a "Deferred Billing
Program" pursuant to which no finance charges will be incurred from the time an
order is placed out of a given catalog until a date specified in that catalog
(the "Deferred Billing Maturity Date"). The Deferred Billing Maturity Date will
not exceed 180 days from the date the catalog is initially mailed. When a
customer chooses to utilize the Deferred Billing Program, the customer will not
be billed until the Deferred Billing Maturity Date, but does provide a credit
card as the medium for payment for the items ordered (a "Deferred Billing
Account"). At the time of sale, an authorization ("Preliminary Authorization")
of $1.00 is obtained from the Credit Card Issuer to verify the customer's credit
card account, but this amount is not billed to the customer. Subsequently, on
the Deferred Billing Maturity Date that is specified in the applicable catalog,
the Deferred Billing Account received from the customer is submitted to the
Credit Card Issuer. At that point, the Credit Card Issuer either purchases the
Deferred Billing Account ("Final Authorization") or rejects the same, under
circumstances discussed below. The charge for the purchased items will then
appear on the customer's next monthly bill from the Credit Card Issuer.
There are certain circumstances under which the Credit Card Issuer
will (i) decline to accept a Deferred Billing Account when presented for payment
on a Deferred Billing Maturity Date or (ii) have the right to subsequently
"charge back" a Deferred Billing Account it has previously accepted. These are
as follows:
1. If the customer's credit card has expired or been cancelled between the
date of the authorization of the Deferred Billing Account and the Deferred
Billing Maturity Date, the Credit Card Issuer will decline that Deferred
Billing Account. Card cancellations frequently arise when the customer
reports that the card has been lost or stolen during the intervening
period.
2. If, on the applicable Deferred Billing Maturity Date, a credit card is near
or over its authorized charge limit, the Credit Card Issuer will on that
date decline the Deferred Billing Account. In such cases, Chadwick's
practice is to resubmit the account until accepted and finally to "force"
it through by presentation without an authorization. In substantially all
cases of this type, the Deferred Billing Account will ultimately be
accepted.
3. As an example, if goods are shipped to but not received by a customer, when
the customer receives the statement from the Credit Card Issuer which
reflects the transaction, the customer will refuse payment on the basis
that the goods were not delivered or perhaps not even ordered in the first
instance. In most circumstances of this type, Chadwick's will accept the
customer's rejection since shipping loss is borne by Chadwick's. Since it
has already purchased the Deferred Billing Account, the Credit Card Issuer
will then "charge-back" the transaction to Chadwick's.
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4. If a customer returns an item to Chadwick's prior to the Deferred Billing
Maturity Date, the Deferred Billing Account will be offset by the return
amount. If an item is returned after the Deferred Billing Maturity Date,
Chadwick's would be required to reimburse the Credit Card Issuer for the
transaction.
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EXHIBIT 8
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (the "Service Agreement"), is made on December 9,
1996, by and between BRYLANE, L.P., a Delaware limited partnership (the
"Servicing Agent"), and ALLIANCE DATA SYSTEMS CORPORATION, a Delaware
corporation ("ADS").
RECITALS:
WHEREAS, on even date herewith, ADS committed to make available one hundred
million dollars ($100,000,000) to purchase accounts receivable from the
Servicing Agent pursuant to the Accounts Receivable Purchase Agreement between
Brylane, L.P. and ADS dated as of the date hereof, as may be amended from time
to time (the "Receivables Agreement"); and
WHEREAS, Brylane, L.P. will sell accounts receivable generated under the
Chadwick's Deferred Billing Program under the Receivables Agreement, and ADS
will purchase such Accounts as defined in Section 1; and
WHEREAS, ADS desires to employ Servicing Agent to perform various servicing
functions in connection with the Accounts purchased by ADS.
NOW THEREFORE, for and in consideration of the commitment to purchase
Accounts from Brylane, L.P. and the benefits to be received therefrom, the
parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. Definitions. Certain capitalized words and terms as used in this
-----------
Service Agreement shall have the meanings given to them in the Uniform
Commercial Code and the Receivables Agreement unless otherwise indicated herein
or the context or use indicates another or different meaning or intent. All
defined terms shall be equally applicable to both the singular and plural forms
of any of the words and terms herein defined. In addition, the following
capitalized words shall have the following meanings when used herein:
"Accounts" means and includes all accounts (whether or not earned by
performance), contract rights, chattel paper, instruments, documents, general
intangibles and all other forms of obligations owing to Brylane, L.P. from the
Customer, pursuant to Chadwick's Deferred Billing Program whether secured or
unsecured, whether now existing or hereafter created, and specifically assigned
to ADS under the Transaction Documents, all guaranties and other security
therefor and all other rights and remedies of an unpaid lienor or secured party
in respect of the Accounts.
"Collection Agent" has the meaning assigned to that term in Section 2.3.1.
28
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"Obligations" means (a) the obligation of the Servicing Agent to repay fees
and charges due and payable under the Receivables Agreement and (b) all costs
and expenses incurred by ADS in the realization upon the Accounts, including
without limitation reasonable attorneys' fees and legal expenses.
"Processing Agreements" means the Processing Agreements dated as of the date
hereof among ADS, Servicing Agent and each Processing Agent.
"Processing Agent" means First USA and any assignee and any additional
processing agent which processes Accounts for the Servicing Agent.
"Requirements of Law" means the Uniform Commercial Code, and all laws
applicable to seizure, recovery and liquidation of secured assets to satisfy an
outstanding obligation.
"Successor Notice" has the meaning assigned to that term in Section 2.3.1.
"Transaction Documents" means this Service Agreement, the Receivables
Agreement, the Processing Agreements and all other instruments or agreements
required or contemplated hereby or thereby.
"Uniform Commercial Code" means Chapters 1301 through 1309 of the Ohio
Revised Code.
Section 2. Provisions Applicable to Servicing the Accounts. The parties
-----------------------------------------------
agree that the following provisions shall be applicable to the Accounts and the
Servicing Agent agrees that during the term of this Service Agreement the
Servicing Agent shall undertake the following servicing activities by and on
behalf of ADS:
2.1. Administrative Matters; Books and Records. The Servicing
-----------------------------------------
Agent shall provide the administrative recordkeeping and accounting services to
ADS regarding the Accounts, as provided herein.
2.1.1. Servicing Agent shall obtain for ADS, with cooperation
from ADS, a separate merchant identification number from each Processing Agent.
2.1.2. Servicing Agent shall obtain for ADS, with cooperation
from ADS, separate Processing Agreements from each Processing Agent.
2.1.3. Servicing Agent shall arrange, with cooperation from
ADS, to have each Processing Agent make all Account payments directly to an ADS-
owned account (not through Servicing Agent), and any payments received by
Servicing Agent will be held in trust and promptly forwarded to ADS.
29
<PAGE>
2.1.4. The Servicing Agent shall not hold its right, title or
interest in, or maintain its records relating to, any Accounts or invoice any
Customer with respect to any Accounts in any name other than its own authorized
name.
2.1.5. ADS may at any time cause the Servicing Agent to verify with
any Customer the status of any Account payable by such Customer. The Servicing
Agent shall direct the Customer to furnish a written response to the request for
verification to a post office box at a post office located in Columbus, Ohio,
which post office box shall be controlled by ADS. The Servicing Agent from time
to time will execute and deliver such instruments and take all such action as
ADS may reasonably request in order to effectuate the purposes of this Section
2.1.5.
2.2. Funding of Accounts. The Servicing Agent shall submit all
-------------------
Accounts to the appropriate Credit Card Issuer or Processing Agent in accordance
with the Chadwick's Deferred Billing Program. On the applicable Deferred
Billing Maturity Date, Servicing Agent shall submit the Accounts to the Credit
Card Issuer on behalf of ADS. Failure of the Servicing Agent to submit the
Accounts to the Credit Card Issuer on the applicable Deferred Billing Maturity
Date shall entitle ADS to exercise its rights under the Processing Assignments.
Servicing Agent shall instruct and cause each Credit Card Issuer and the
Processing Agent to forward the funds for each Account to ADS at a deposit
account of ADS maintained at The Huntington National Bank.
2.3. Collection.
----------
2.3.1. The servicing, administering and collection of the Unfunded
Accounts (including all cash collections, if any) shall be conducted by such
Person ("Collection Agent") so designated by ADS from time to time in accordance
with this Section 2.3.1. The Servicing Agent is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent,
until ADS provides the Servicing Agent with notice ("Successor Notice") of ADS'
decision to designate a Collection Agent other than the Servicing Agent. The
Servicing Agent agrees that it shall terminate its activities hereunder as
Collection Agent on the day following receipt of any Successor Notice.
2.3.2. At any time following the termination of the Servicing Agent's
activities as Collection Agent as described in Section 2.3.1, ADS may designate
as Collection Agent any Person (including ADS) to succeed the Servicing Agent or
any successor Collection Agent, on the condition in each case that any such
Person so designated shall agree to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof. The Collection Agent (other than
the Servicing Agent) may, with the prior written consent of ADS, subcontract
with any other Person for servicing, administering or collecting the Accounts,
provided that the Collection Agent shall remain liable for the performance of
the duties and obligations of the Collection Agent pursuant to the terms hereof.
2.3.3. The Collection Agent shall, as soon as practicable following
receipt, deposit in a deposit account at The Huntington National Bank the
collections of any Unfunded Accounts less, in the event the Servicing Agent is
not the Collection Agent, all
30
<PAGE>
reasonable and appropriate out-of-pocket costs and expenses of such Collection
Agent of servicing, collecting and administering such Accounts. The Collection
Agent's authorization hereunder shall terminate as of the date upon which all of
the Obligations have been paid in full.
2.3.4. The Collection Agent shall take or cause to be taken all such
actions as may be necessary or advisable to collect each Unfunded Account from
time to time, all in accordance with applicable Requirements of Law with
reasonable care and diligence; provided, however, that, if the Servicing Agent
-----------------
is not the Collection Agent, then the Collection Agent shall not contact any
Customer in the name of ADS unless an Event of Termination has occurred. Each
of the Servicing Agent and ADS hereby appoints as its agent the Collection Agent
to enforce its respective rights and interests in and under the Unfunded
Accounts. The Collection Agent shall not extend the maturity or adjust the
outstanding balance of any Unfunded Account; provided, however, the Servicing
-----------------
Agent, while it is Collection Agent, may (a) extend the maturity or adjust the
outstanding balance of any Defaulted Account as the Servicing Agent may
determine to be appropriate to maximize collections thereof or (b) extend,
demand or modify the terms of any Unfunded Account which is not a Defaulted
Account. The Collection Agent shall not adjust the outstanding balance of any
Unfunded Account to reflect any reductions or cancellations in the Unfunded
Account; provided, however, the Servicing Agent, while it is Collection Agent,
-----------------
may adjust the outstanding balance of any Unfunded Account to reflect any
reductions or cancellations in the Unfunded Account to which ADS has consented
in writing. The Servicing Agent shall deliver to the Collection Agent, and the
Collection Agent shall hold in trust for the Servicing Agent, all documents,
instruments and records (including, without limitation, computer tapes or disks)
which evidence or relate to Unfunded Accounts.
2.3.5. The Collection Agent, and the Servicing Agent if the Servicing
Agent is no longer the Collection Agent, shall immediately notify ADS of any
adverse change of which the Collection Agent, or the Servicing Agent if the
Servicing Agent is no longer the Collection Agent, has knowledge which affects
the eligibility of any Unfunded Account owing by a Customer.
2.3.6. If ADS is the Collection Agent, then, with respect to its
conduct as Collection Agent, ADS shall not be liable to the Servicing Agent for
(a) loss of, damage to, or delay in the collection or processing of any items
related to Unfunded Accounts. Other than resulting from its gross negligence or
willful misconduct, and (b) the negligence of third parties with respect to the
collection or processing of any items related to Unfunded Accounts; provided
--------
that ADS has exercised reasonable care in selecting such third parties that
collect or process hereunder. In no event shall ADS have any liability for
consequential, special or indirect damages, even if ADS has been advised of the
possibility of such damages.
2.3.7. The Collection Agent shall be solely responsible for the
payment of any charges due to checks returned for insufficient funds; provided,
---------
however, that the Servicing Agent shall reimburse ADS or any third party
- -------
Collection Agent for such charges incurred.
2.3.8. The right to collect Unfunded Accounts related to a particular
Funding will cease to exist upon payment of the Obligations related to such
Funding.
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2.4. Right of the Servicing Agent to Use the Servicing Agent's Name.
--------------------------------------------------------------
ADS hereby authorizes the Servicing Agent to use the name of the Servicing Agent
when corresponding with or talking to any Customer.
Section 3. Preservation and Protection of Security Interests. Even though
-------------------------------------------------
the transactions evidenced by the Receivables Agreement are intended to be sales
of Accounts to ADS in the Receivables Agreement, Brylane has granted to ADS a
security interest in the Accounts to ADS in order to protect ADS if the
transaction is ever deemed to be a financing rather than a sale. The Servicing
Agent shall faithfully preserve and protect ADS' security interest in the
Accounts and shall, at its own cost and expense, cause such security interest to
be perfected and continue perfected so long as the Obligations or any portion
thereof are outstanding and unpaid and the Commitment under the Receivables
Agreement is in effect, and for such purpose the Servicing Agent shall from time
to time at the request of ADS file or record, or cause to be filed or recorded,
such instruments, documents and notices, including without limitation financing
and continuation statements, as ADS may deem necessary or advisable from time to
time in order to preserve, perfect and continue perfected said security interest
prior to the rights of any secured party or lien creditor. The Servicing Agent
shall do all such other acts and things and shall execute and deliver all such
other instruments and documents, including without limitation further security
agreements, pledges, endorsements, assignments and notices, as ADS may deem
necessary or advisable from time to time in order to perfect and preserve the
priority of said security interest as a perfected lien in the Accounts prior to
the rights of any secured party or lien creditor.
Section 4. Representations and Warranties. The Servicing Agent hereby
------------------------------
represents and warrants to ADS that the Servicing Agent maintains by and on
behalf of ADS a master list of all Customers of the Servicing Agent (the "Master
File"). The Master File contains the complete and accurate name and address of
each Customer, the date of each purchase that creates an Account, the dollar
value of each Account, the payment history for each Account and other
information that ADS may request to be included from time to time. The
Servicing Agent maintains the Master File on computer tape or disk. An updated
Master File shall be delivered to ADS on any date ADS so requests. The Master
File delivered to ADS shall be accurate and complete as of the date of its
delivery.
Section 5. Affirmative Covenants. On and after the date of this Service
---------------------
Agreement, and for so long as any Obligation is outstanding:
5.1. The Servicing Agent shall keep accurate and adequate records and
books of account in which complete entries will be made in accordance with GAAP,
reflecting all financial transactions relating to the Accounts, and sufficient
to identify the Accounts.
32
<PAGE>
5.2. (a) The Servicing Agent shall maintain its chief executive
office, and the office where its information system, is located at the addresses
set forth below:
MIS Office Chief Executive Office
Chadwicks of Boston Brylane, L.P.
35 United Drive 463 Seventh Avenue, 21st Floor
West Bridgewater, Massachusetts 03279 New York, New York 10018
(b) The Servicing Agent shall not move its chief executive office
except to such new location as it may establish in accordance with Section 6.5
below.
5.3. (a) The only original books of account and records of the
Servicing Agent relating to the Accounts are, and will continue to be, kept at
the offices of the Servicing Agent set forth in Section 6.2(a) above.
(b) The location where such books of account and records are kept
shall not be changed by the Servicing Agent except in accordance with Section
6.2(a) above.
5.4. If the Servicing Agent has knowledge that any Event of Termination
has occurred, the Servicing Agent shall give prompt notice in writing of such
happening to ADS.
5.5. The Servicing Agent shall make no changes in the procedures for
assigning Customers to or deleting Customers from the Master File of the
Servicing Agent or for otherwise maintaining such computer records of Accounts
as described in Section 5 hereof.
5.6. The Servicing Agent shall:
5.6.1. Promptly perform, on request of ADS, such acts as ADS may
determine to be necessary or advisable under the UCC to give notice of ADS'
ownership of the Accounts and to create, perfect, maintain, preserve, protect
and continue the perfection of any lien provided for in the Transaction
Documents including placing notations on the Servicing Agent's books of account
to disclose ADS' ownership of the Accounts and ADS and their officers, employees
and authorized agents, or any of them, are hereby irrevocably appointed by the
Servicing Agent as the agents and the attorneys-in-fact of the Servicing Agent,
to do all acts and things which ADS may deem necessary or advisable to establish
and give effective notice of ADS' ownership of the Accounts and to preserve,
perfect and continue perfected liens.
5.6.2. Not (a) grant, create or permit to exist any lien on, of or in
any of the Accounts, (b) permit any levy or attachment to be made against any of
the Accounts or (c) execute or file, or allow to be filed, any financing
statement or other document or certificate constituting notice of the existence
of any lien covering any of the Accounts except financing statements naming ADS
as secured party.
33
<PAGE>
5.6.3. Subject to Section 2.3, not (a) extend, amend or otherwise
modify the terms of any Account, (b) amend, modify or waive any term or
condition of any contract related thereto or (c) redate any invoice or sale or
make sales on extended dating beyond that customary in the Servicing Agent's
industry. Upon the occurrence of an Event of Termination, ADS shall have the
right to extend, amend or otherwise modify the terms of any Account.
5.7. Additional Information. The Servicing Agent shall furnish to ADS
----------------------
promptly after ADS' request therefor, such other information respecting the
business, properties or condition of operations, financial or otherwise, of the
Servicing Agent as may be reasonably requested by ADS.
5.8. Audits. The Servicing Agent shall at any time and from time to
------
time during regular business hours and, so long as no Event of Termination has
occurred and is continuing, upon at least two Domestic Banking Days notice,
permit ADS, or its agents or representatives, (a) to examine and make copies of
and abstracts from all books, records and documents (including, without
limitation, computer tapes and disks) related to the Agreement in the possession
or under the control of the Servicing Agent, (b) to visit the offices and
properties of the Servicing Agent for the purpose of examining such materials
described in clause (a) next above, and to discuss matters relating to the
Servicing Agent's performance hereunder or the Servicing Agent's business,
operations and financial condition with any of the officers or employees of the
Servicing Agent having knowledge of such matters and who are then available, and
(c) to discuss the Servicing Agent's affairs directly with the Servicing Agent's
independent certified public accountants, with notice to the Servicing Agent and
provided that the Servicing Agent shall be entitled to notice of and to
participate in such discussions.. The Servicing Agent agrees to use its best
efforts to make such officers and employees available at such time.
5.9. Power of Attorney. In addition to any other power of attorney
-----------------
granted to ADS by the Servicing Agent under the Transaction Documents, the
Servicing Agent appoints ADS and its respective designees as its attorney, with
power, upon and during the continuance of an Event of Termination, (a) to
endorse the Servicing Agent's name on any checks, notes, acceptances, money
orders, or other forms of payment or security that come into ADS' possession,
(b) to sign the Servicing Agent's name on any invoice or bill of lading relating
to any Accounts, on drafts against Customers, on assignments of Accounts, on
notices of assignment, financing statements and other public records, on
verifications of Accounts and on notices to Customers, (c) to send requests for
verifications of Accounts to Customers, and (d) to do all things necessary to
carry out the provisions of the Transaction Documents. The Servicing Agent
ratifies and approves all acts of such attorney. Neither ADS nor the attorney
will be liable for any acts or omissions nor for any error of judgment or
mistake of fact or law except to the extent such act or omission constitutes
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable until the Obligations have been fully satisfied.
Section 6. Negative Covenants.
------------------
6.1. On and after the date of this Service Agreement and so long as the
Obligations are outstanding, the Servicing Agent shall not change its name
unless, before the effective date of
34
<PAGE>
such change, the Servicing Agent delivers to ADS such financing statements
executed by the Servicing Agent that ADS may request to reflect such name
change, together with such other documents and instruments that ADS may request
in connection with such name change.
6.2. The Servicing Agent shall not establish any different location for
its chief executive office or for the place where the original books of account
and records of the Servicing Agent relating to the Accounts are kept until (a)
it shall have given to ADS written notice, 45 days before doing so, of its
intention to establish such new location, clearly describing each such new
location and providing any other information in connection therewith that ADS
may reasonably request, and (b) with respect to each such new location, it shall
have taken such action, satisfactory to ADS (including without limitation all
action required by Section 3 of this Service Agreement), as may be necessary to
maintain the security interest of ADS in the Accounts at all times fully
perfected and in full force and effect.
Section 7. Remedies for Event of Termination. If an Event of Termination
---------------------------------
occurs, ADS may exercise all remedies available at law or by agreement,
including without limitation, the Transaction Documents.
Section 8. Termination. ADS may, at any time, terminate the various
------------
servicing functions of the Servicing Agent, by giving prior written notice to
Brylane, L.P., as Servicing Agent, and may designate a new Servicing Agent.
Brylane, L.P. agrees that it shall terminate its activities hereunder as
Servicing Agent on the day following receipt of any Successor Notice, and also
agrees that it will cooperate with the transition of serving functions to the
successor servicing agent, provided, however, that Brylane, L.P. shall remain
------------------
subject to all rights, obligations, representations, warranties and covenants
made herein, to the extent applicable, whether or not serving as Servicing
Agent.
Section 9. Amendments, Waivers. No amendment, modification or waiver to
-------------------
this Service Agreement shall be binding unless in writing and signed by the
party to be charged.
Section 10. Governing Law. This Service Agreement is being executed and
-------------
delivered in the State of Ohio and, except to the extent that the laws of any
other jurisdiction are mandatorily applicable, shall in all respects be
interpreted in accordance with the laws of the State of Ohio applicable to
contracts to be performed in the State of Ohio.
Section 11. Counterparts. This Service Agreement may be signed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument.
Section 12. Entire Agreement. This Service Agreement sets forth the entire
----------------
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements, and understandings relating to the subject matter hereof. No
representation, promise, inducement, or statement of intent has been made by any
party which is not embodied in this Service Agreement, and no party shall be
bound by or be liable for any alleged representation, promise, inducement or
statement of intention not embodied herein.
35
<PAGE>
Section 13. Enforceability. Any provision of this Service Agreement which
--------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
Section 14. Captions. Captions and section headings used in this Service
--------
Agreement are for convenience only and shall not affect the construction of this
Service Agreement.
Section 15. Confession of Judgment. The Servicing Agent hereby authorizes
----------------------
any attorney at law to appear for it, in an action on this Service Agreement, as
herein provided, in any court of record in or of the State of Ohio, or
elsewhere, to waive the issuing and service of process against the Servicing
Agent and to confess judgment in favor of the holder of the Service Agreement
against the Servicing Agent for the amount that may be due, with interest at the
rate therein mentioned and costs of suit, and to waive and release all errors in
said proceedings and judgment, and all petitions in error, and right of appeal
from the judgment rendered.
Section 16. Waiver of Jury Trial. ADS AND THE SERVICING AGENT HEREBY
--------------------
VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN ADS AND THE SERVICING AGENT ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
SERVICING AGENT AND ADS IN CONNECTION WITH THE SERVICE AGREEMENT OR ANY OTHER
AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH
OR THE TRANSACTIONS RELATED HERETO OR THERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT TO ADS TO ENTER INTO THE FINANCING TRANSACTIONS WITH SERVICING AGENT.
IT SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY ADS' ABILITY TO
PURSUE ITS REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR
COGNOVIT PROVISION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT RELATED HERETO.
Section 17. Successors and Assigns. This Service Agreement and all
----------------------
covenants, agreements, representations and warranties made herein and in the
certificates delivered pursuant hereto shall survive the purchase of the
Accounts by ADS and the execution and delivery of the Receivables Agreement and
shall continue in full force and effect until the termination of the Commitment
or until payment in full of the Obligations, whichever is later. Whenever in
this Service Agreement any of the parties hereto are referred to, such reference
shall be deemed to include the successors and assigns of such party; and all
terms and provisions of this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
36
<PAGE>
The parties hereto have caused this Service Agreement to be duly executed by
their respective duly authorized officers as of the day and year first above
written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
BRYLANE, L.P.
By:
-------------------------------------
Name:
-----------------------------------
Its: General Partner
ALLIANCE DATA SYSTEMS CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
37
<PAGE>
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (the "Service Agreement"), is made on December 9,
1996, by and between BRYLANE, L.P., a Delaware limited partnership (the
"Servicing Agent"), and ALLIANCE DATA SYSTEMS CORPORATION, a Delaware
corporation ("ADS").
RECITALS:
WHEREAS, on even date herewith, ADS committed to make available one hundred
million dollars ($100,000,000) to purchase accounts receivable from the
Servicing Agent pursuant to the Accounts Receivable Purchase Agreement between
Brylane, L.P. and ADS dated as of the date hereof, as may be amended from time
to time (the "Receivables Agreement"); and
WHEREAS, Brylane, L.P. will sell accounts receivable generated under the
Chadwick's Deferred Billing Program under the Receivables Agreement, and ADS
will purchase such Accounts as defined in Section 1; and
WHEREAS, ADS desires to employ Servicing Agent to perform various servicing
functions in connection with the Accounts purchased by ADS.
NOW THEREFORE, for and in consideration of the commitment to purchase
Accounts from Brylane, L.P. and the benefits to be received therefrom, the
parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. Definitions. Certain capitalized words and terms as used in
------------
this Service Agreement shall have the meanings given to them in the Uniform
Commercial Code and the Receivables Agreement unless otherwise indicated herein
or the context or use indicates another or different meaning or intent. All
defined terms shall be equally applicable to both the singular and plural forms
of any of the words and terms herein defined. In addition, the following
capitalized words shall have the following meanings when used herein:
"Accounts" means and includes all accounts (whether or not earned by
performance), contract rights, chattel paper, instruments, documents, general
intangibles and all other forms of obligations owing to Brylane, L.P. from the
Customer, pursuant to Chadwick's Deferred Billing Program whether secured or
unsecured, whether now existing or hereafter created, and specifically assigned
to ADS under the Transaction Documents, all guaranties and other security
therefor and all other rights and remedies of an unpaid lienor or secured party
in respect of the Accounts.
"Collection Agent" has the meaning assigned to that term in Section 2.3.1.
"Obligations" means (a) the obligation of the Servicing Agent to repay fees
and charges due and payable under the Receivables Agreement and (b) all costs
and expenses incurred by ADS in
<PAGE>
the realization upon the Accounts, including without limitation reasonable
attorneys' fees and legal expenses.
"Processing Agreements" means the Processing Agreements dated as of the
date hereof among ADS, Servicing Agent and each Processing Agent.
"Processing Agent" means First USA and any assignee and any additional
processing agent which processes Accounts for the Servicing Agent.
"Requirements of Law" means the Uniform Commercial Code, and all laws
applicable to seizure, recovery and liquidation of secured assets to satisfy an
outstanding obligation.
"Successor Notice" has the meaning assigned to that term in Section 2.3.1.
"Transaction Documents" means this Service Agreement, the Receivables
Agreement, the Processing Agreements and all other instruments or agreements
required or contemplated hereby or thereby.
"Uniform Commercial Code" means Chapters 1301 through 1309 of the Ohio
Revised Code.
Section 2. Provisions Applicable to Servicing the Accounts. The parties
-----------------------------------------------
agree that the following provisions shall be applicable to the Accounts and the
Servicing Agent agrees that during the term of this Service Agreement the
Servicing Agent shall undertake the following servicing activities by and on
behalf of ADS:
2.1. Administrative Matters; Books and Records. The Servicing Agent shall
-----------------------------------------
provide the administrative recordkeeping and accounting services to ADS
regarding the Accounts, as provided herein.
2.1.1. Servicing Agent shall obtain for ADS, with cooperation from ADS, a
separate merchant identification number from each Processing Agent.
2.1.2. Servicing Agent shall obtain for ADS, with cooperation from ADS,
separate Processing Agreements from each Processing Agent.
2.1.3. Servicing Agent shall arrange, with cooperation from ADS, to have
each Processing Agent make all Account payments directly to an ADS-owned account
(not through Servicing Agent), and any payments received by Servicing Agent will
be held in trust and promptly forwarded to ADS.
2.1.4. The Servicing Agent shall not hold its right, title or interest in,
or maintain its records relating to, any Accounts or invoice any Customer with
respect to any Accounts in any name other than its own authorized name.
-2-
<PAGE>
2.1.5. ADS may at any time cause the Servicing Agent to verify with any
Customer the status of any Account payable by such Customer. The Servicing
Agent shall direct the Customer to furnish a written response to the request for
verification to a post office box at a post office located in Columbus, Ohio,
which post office box shall be controlled by ADS. The Servicing Agent from time
to time will execute and deliver such instruments and take all such action as
ADS may reasonably request in order to effectuate the purposes of this Section
2.1.5.
2.2. Funding of Accounts. The Servicing Agent shall submit all Accounts
-------------------
to the appropriate Credit Card Issuer or Processing Agent in accordance with the
Chadwick's Deferred Billing Program. On the applicable Deferred Billing
Maturity Date, Servicing Agent shall submit the Accounts to the Credit Card
Issuer on behalf of ADS. Failure of the Servicing Agent to submit the Accounts
to the Credit Card Issuer on the applicable Deferred Billing Maturity Date shall
entitle ADS to exercise its rights under the Processing Assignments. Servicing
Agent shall instruct and cause each Credit Card Issuer and the Processing Agent
to forward the funds for each Account to ADS at a deposit account of ADS
maintained at The Huntington National Bank.
2.3. Collection.
-----------
2.3.1. The servicing, administering and collection of the Unfunded
Accounts (including all cash collections, if any) shall be conducted by such
Person ("Collection Agent") so designated by ADS from time to time in accordance
with this Section 2.3.1. The Servicing Agent is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent,
until ADS provides the Servicing Agent with notice ("Successor Notice") of ADS'
decision to designate a Collection Agent other than the Servicing Agent. The
Servicing Agent agrees that it shall terminate its activities hereunder as
Collection Agent on the day following receipt of any Successor Notice.
2.3.2. At any time following the termination of the Servicing Agent's
activities as Collection Agent as described in Section 2.3.1, ADS may designate
as Collection Agent any Person (including ADS) to succeed the Servicing Agent or
any successor Collection Agent, on the condition in each case that any such
Person so designated shall agree to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof. The Collection Agent (other than
the Servicing Agent) may, with the prior written consent of ADS, subcontract
with any other Person for servicing, administering or collecting the Accounts,
provided that the Collection Agent shall remain liable for the performance of
the duties and obligations of the Collection Agent pursuant to the terms hereof.
2.3.3. The Collection Agent shall, as soon as practicable following
receipt, deposit in a deposit account at The Huntington National Bank the
collections of any Unfunded Accounts less, in the event the Servicing Agent is
not the Collection Agent, all reasonable and appropriate out-of-pocket costs and
expenses of such Collection Agent of servicing, collecting and administering
such Accounts. The Collection Agent's authorization hereunder shall terminate
as of the date upon which all of the Obligations have been paid in full.
-3-
<PAGE>
2.3.4. The Collection Agent shall take or cause to be taken all such
actions as may be necessary or advisable to collect each Unfunded Account from
time to time, all in accordance with applicable Requirements of Law with
reasonable care and diligence; provided, however, that, if the Servicing Agent
--------
is not the Collection Agent, then the Collection Agent shall not contact any
Customer in the name of ADS unless an Event of Termination has occurred. Each
of the Servicing Agent and ADS hereby appoints as its agent the Collection Agent
to enforce its respective rights and interests in and under the Unfunded
Accounts. The Collection Agent shall not extend the maturity or adjust the
outstanding balance of any Unfunded Account; provided, however, the Servicing
-----------------
Agent, while it is Collection Agent, may (a) extend the maturity or adjust the
outstanding balance of any Defaulted Account as the Servicing Agent may
determine to be appropriate to maximize collections thereof or (b) extend,
demand or modify the terms of any unfunded account which is not a defaulted
account. The Collection Agent shall not adjust the outstanding balance of any
Unfunded Account to reflect any reductions or cancellations in the Unfunded
Account; provided, however, the Servicing Agent, while it is Collection Agent,
-----------------
may adjust the outstanding balance of any Unfunded Account to reflect any
reductions or cancellations in the Unfunded Account to which ads has consented
in writing. The Servicing Agent shall deliver to the Collection Agent, and the
Collection Agent shall hold in trust for the Servicing Agent, all documents,
instruments and records (including, without limitation, computer tapes or disks)
which evidence or relate to Unfunded Accounts.
2.3.5. The Collection Agent, and the Servicing Agent if the Servicing
Agent is no longer the Collection Agent, shall immediately notify ADS of any
adverse change of which the Collection Agent, or the Servicing Agent if the
Servicing Agent is no longer the Collection Agent, has knowledge which affects
the eligibility of any Unfunded Account owing by a Customer.
2.3.6. If ADS is the Collection Agent, then, with respect to its conduct
as Collection Agent, ADS shall not be liable to the Servicing Agent for (a) loss
of, damage to, or delay in the collection or processing of any items related to
Unfunded Accounts. other than resulting from its gross negligence or willful
misconduct, and (b) the negligence of third parties with respect to the
collection or processing of any items related to Unfunded Accounts; provided
--------
that ADS has exercised reasonable care in selecting such third parties that
collect or process hereunder. In no event shall ADS have any liability for
consequential, special or indirect damages, even if ADS has been advised of the
possibility of such damages.
2.3.7. The Collection Agent shall be solely responsible for the payment of
any charges due to checks returned for insufficient funds; provided, however,
-----------------
that the Servicing Agent shall reimburse ADS or any third party Collection Agent
for such charges incurred.
2.3.8. The right to collect Unfunded Accounts related to a particular
Funding will cease to exist upon payment of the Obligations related to such
Funding.
2.4. Right of the Servicing Agent to Use the Servicing Agent's Name. ADS
--------------------------------------------------------------
hereby authorizes the Servicing Agent to use the name of the Servicing Agent
when corresponding with or talking to any Customer.
-4-
<PAGE>
Section 3. Preservation and Protection of Security Interests. Even though
-------------------------------------------------
the transactions evidenced by the Receivables Agreement are intended to be sales
of Accounts to ADS in the Receivables Agreement, Brylane has granted to ADS a
security interest in the Accounts to ADS in order to protect ADS if the
transaction is ever deemed to be a financing rather than a sale. The Servicing
Agent shall faithfully preserve and protect ADS' security interest in the
Accounts and shall, at its own cost and expense, cause such security interest to
be perfected and continue perfected so long as the Obligations or any portion
thereof are outstanding and unpaid and the Commitment under the Receivables
Agreement is in effect, and for such purpose the Servicing Agent shall from time
to time at the request of ADS file or record, or cause to be filed or recorded,
such instruments, documents and notices, including without limitation financing
and continuation statements, as ADS may deem necessary or advisable from time to
time in order to preserve, perfect and continue perfected said security interest
prior to the rights of any secured party or lien creditor. The Servicing Agent
shall do all such other acts and things and shall execute and deliver all such
other instruments and documents, including without limitation further security
agreements, pledges, endorsements, assignments and notices, as ADS may deem
necessary or advisable from time to time in order to perfect and preserve the
priority of said security interest as a perfected lien in the Accounts prior to
the rights of any secured party or lien creditor.
Section 4. Representations and Warranties. The Servicing Agent hereby
------------------------------
represents and warrants to ADS that the Servicing Agent maintains by and on
behalf of ADS a master list of all Customers of the Servicing Agent (the "Master
File"). The Master File contains the complete and accurate name and address of
each Customer, the date of each purchase that creates an Account, the dollar
value of each Account, the payment history for each Account and other
information that ADS may request to be included from time to time. The
Servicing Agent maintains the Master File on computer tape or disk. An updated
Master File shall be delivered to ADS on any date ADS so requests. The Master
File delivered to ADS shall be accurate and complete as of the date of its
delivery.
Section 5. Affirmative Covenants. On and after the date of this Service
---------------------
Agreement, and for so long as any Obligation is outstanding:
5.1. The Servicing Agent shall keep accurate and adequate records and books
of account in which complete entries will be made in accordance with GAAP,
reflecting all financial transactions relating to the Accounts, and sufficient
to identify the Accounts.
5.2. (a) The Servicing Agent shall maintain its chief executive office,
and the office where its information system, is located at the addresses set
forth below:
MIS Office Chief Executive Office
Chadwicks of Boston Brylane, L.P.
35 United Drive 463 Seventh Avenue, 21st Floor
West Bridgewater, Massachusetts 03279 New York, New York 10018
-5-
<PAGE>
(b) The Servicing Agent shall not move its chief executive office except
to such new location as it may establish in accordance with Section 6.5 below.
5.3. (a) The only original books of account and records of the Servicing
Agent relating to the Accounts are, and will continue to be, kept at the offices
of the Servicing Agent set forth in Section 6.2(a) above.
(b) The location where such books of account and records are kept shall
not be changed by the Servicing Agent except in accordance with Section 6.2(a)
above.
5.4. If the Servicing Agent has knowledge that any Event of Termination
has occurred, the Servicing Agent shall give prompt notice in writing of such
happening to ADS.
5.5. The Servicing Agent shall make no changes in the procedures for
assigning Customers to or deleting Customers from the Master File of the
Servicing Agent or for otherwise maintaining such computer records of Accounts
as described in Section 5 hereof.
5.6. The Servicing Agent shall:
5.6.1. Promptly perform, on request of ADS, such acts as ADS may determine
to be necessary or advisable under the UCC to give notice of ADS' ownership of
the Accounts and to create, perfect, maintain, preserve, protect and continue
the perfection of any lien provided for in the Transaction Documents including
placing notations on the Servicing Agent's books of account to disclose ADS'
ownership of the Accounts and ADS and their officers, employees and authorized
agents, or any of them, are hereby irrevocably appointed by the Servicing Agent
as the agents and the attorneys-in-fact of the Servicing Agent, to do all acts
and things which ADS may deem necessary or advisable to establish and give
effective notice of ADS' ownership of the Accounts and to preserve, perfect and
continue perfected liens.
5.6.2. Not (a) grant, create or permit to exist any lien on, of or in any
of the Accounts, (b) permit any levy or attachment to be made against any of the
Accounts or (c) execute or file, or allow to be filed, any financing statement
or other document or certificate constituting notice of the existence of any
lien covering any of the Accounts except financing statements naming ADS as
secured party.
5.6.3. Subject to Section 2.3, not (a) extend, amend or otherwise modify
the terms of any Account, (b) amend, modify or waive any term or condition of
any contract related thereto or (c) redate any invoice or sale or make sales on
extended dating beyond that customary in the Servicing Agent's industry. Upon
the occurrence of an Event of Termination, ADS shall have the right to extend,
amend or otherwise modify the terms of any Account.
5.7. Additional Information. The Servicing Agent shall furnish to ADS
----------------------
promptly after ADS' request therefor, such other information respecting the
business, properties or condition
-6-
<PAGE>
of operations, financial or otherwise, of the Servicing Agent as may be
reasonably requested by ADS.
5.8. Audits. The Servicing Agent shall at any time and from time to time
------
during regular business hours and, so long as no Event of Termination has
occurred and is continuing, upon at least two Domestic Banking Days notice,
permit ADS, or its agents or representatives, (a) to examine and make copies of
and abstracts from all books, records and documents (including, without
limitation, computer tapes and disks) related to the Agreement in the possession
or under the control of the Servicing Agent, (b) to visit the offices and
properties of the Servicing Agent for the purpose of examining such materials
described in clause (a) next above, and to discuss matters relating to the
Servicing Agent's performance hereunder or the Servicing Agent's business,
operations and financial condition with any of the officers or employees of the
Servicing Agent having knowledge of such matters and who are then available, and
(c) to discuss the Servicing Agent's affairs directly with the Servicing Agent's
independent certified public accountants, with notice to the Servicing Agent and
provided that the Servicing Agent shall be entitled to notice of and to
participate in such discussions.. The Servicing Agent agrees to use its best
efforts to make such officers and employees available at such time.
5.9. Power of Attorney. In addition to any other power of attorney
-----------------
granted to ADS by the Servicing Agent under the Transaction Documents, the
Servicing Agent appoints ADS and its respective designees as its attorney, with
power, upon and during the continuance of an Event of Termination, (a) to
endorse the Servicing Agent's name on any checks, notes, acceptances, money
orders, or other forms of payment or security that come into ADS' possession,
(b) to sign the Servicing Agent's name on any invoice or bill of lading relating
to any Accounts, on drafts against Customers, on assignments of Accounts, on
notices of assignment, financing statements and other public records, on
verifications of Accounts and on notices to Customers, (c) to send requests for
verifications of Accounts to Customers, and (d) to do all things necessary to
carry out the provisions of the Transaction Documents. The Servicing Agent
ratifies and approves all acts of such attorney. Neither ADS nor the attorney
will be liable for any acts or omissions nor for any error of judgment or
mistake of fact or law except to the extent such act or omission constitutes
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable until the Obligations have been fully satisfied.
Section 6. Negative Covenants.
------------------
6.1. On and after the date of this Service Agreement and so long as
the Obligations are outstanding, the Servicing Agent shall not change its name
unless, before the effective date of such change, the Servicing Agent delivers
to ADS such financing statements executed by the Servicing Agent that ADS may
request to reflect such name change, together with such other documents and
instruments that ADS may request in connection with such name change.
6.2. The Servicing Agent shall not establish any different location
for its chief executive office or for the place where the original books of
account and records of the Servicing Agent relating to the Accounts are kept
until (a) it shall have given to ADS written notice, 45 days before doing so, of
its intention to establish such new location, clearly describing each such new
-7-
<PAGE>
location and providing any other information in connection therewith that ADS
may reasonably request, and (b) with respect to each such new location, it shall
have taken such action, satisfactory to ADS (including without limitation all
action required by Section 3 of this Service Agreement), as may be necessary to
maintain the security interest of ADS in the Accounts at all times fully
perfected and in full force and effect.
Section 7. Remedies for Event of Termination. If an Event of
---------------------------------
Termination occurs, ADS may exercise all remedies available at law or by
agreement, including without limitation, the Transaction Documents.
Section 8. Termination. ADS may, at any time, terminate the various
-----------
servicing functions of the Servicing Agent, by giving prior written notice to
Brylane, L.P., as Servicing Agent, and may designate a new Servicing Agent.
Brylane, L.P. agrees that it shall terminate its activities hereunder as
Servicing Agent on the day following receipt of any Successor Notice, and also
agrees that it will cooperate with the transition of serving functions to the
successor servicing agent, provided, however, that Brylane, L.P. shall remain
-------- -------
subject to all rights, obligations, representations, warranties and covenants
made herein, to the extent applicable, whether or not serving as Servicing
Agent.
Section 9. Amendments, Waivers. No amendment, modification or waiver
-------------------
to this Service Agreement shall be binding unless in writing and signed by the
party to be charged.
Section 10. Governing Law. This Service Agreement is being executed
-------------
and delivered in the State of Ohio and, except to the extent that the laws of
any other jurisdiction are mandatorily applicable, shall in all respects be
interpreted in accordance with the laws of the State of Ohio applicable to
contracts to be performed in the State of Ohio.
Section 11. Counterparts. This Service Agreement may be signed in
------------
any number of counterparts, all of which taken together shall constitute one and
the same instrument.
Section 12. Entire Agreement. This Service Agreement sets forth the
----------------
entire understanding of the parties hereto and supersedes any and all prior
agreements, arrangements, and understandings relating to the subject matter
hereof. No representation, promise, inducement, or statement of intent has been
made by any party which is not embodied in this Service Agreement, and no party
shall be bound by or be liable for any alleged representation, promise,
inducement or statement of intention not embodied herein.
Section 13. Enforceability. Any provision of this Service Agreement
--------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
Section 14. Captions. Captions and section headings used in this
--------
Service Agreement are for convenience only and shall not affect the construction
of this Service Agreement.
-8-
<PAGE>
Section 15. Confession of Judgment. The Servicing Agent hereby
----------------------
authorizes any attorney at law to appear for it, in an action on this Service
Agreement, as herein provided, in any court of record in or of the State of
Ohio, or elsewhere, to waive the issuing and service of process against the
Servicing Agent and to confess judgment in favor of the holder of the Service
Agreement against the Servicing Agent for the amount that may be due, with
interest at the rate therein mentioned and costs of suit, and to waive and
release all errors in said proceedings and judgment, and all petitions in error,
and right of appeal from the judgment rendered.
Section 16. Waiver of Jury Trial. ADS AND THE SERVICING AGENT HEREBY
--------------------
VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN ADS AND THE SERVICING AGENT ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
SERVICING AGENT AND ADS IN CONNECTION WITH THE SERVICE AGREEMENT OR ANY OTHER
AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH
OR THE TRANSACTIONS RELATED HERETO OR THERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT TO ADS TO ENTER INTO THE FINANCING TRANSACTIONS WITH SERVICING AGENT.
IT SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY ADS' ABILITY TO
PURSUE ITS REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR
COGNOVIT PROVISION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT RELATED HERETO.
Section 17. Successors and Assigns. This Service Agreement and all
----------------------
covenants, agreements, representations and warranties made herein and in the
certificates delivered pursuant hereto shall survive the purchase of the
Accounts by ADS and the execution and delivery of the Receivables Agreement and
shall continue in full force and effect until the termination of the Commitment
or until payment in full of the Obligations, whichever is later. Whenever in
this Service Agreement any of the parties hereto are referred to, such reference
shall be deemed to include the successors and assigns of such party; and all
terms and provisions of this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
-9-
<PAGE>
The parties hereto have caused this Service Agreement to be duly
executed by their respective duly authorized officers as of the day and year
first above written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
BRYLANE, L.P.
By:
-----------------------------------
Name:
---------------------------------
Its: General Partner
ALLIANCE DATA SYSTEMS CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
-10-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BRYLANE INC.
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/ Upon consummation of the Offering Plan, 100% of the issued and
outstanding shares of common stock of VP Holding Corporation will be 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 this
partnership with a 19.9% profit and loss interest therein; VLP Corporation owns
a 38.8% limited partnership interest. Immediately following consummation of the
Offering Plan, VLP Corporation will also own the remaining 41.3% limited
partnership interest.
/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.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 33-86154) of our report dated March 19, 1996, on our audits of the
combined financial statements of Brylane and the consolidated financial
statements of Brylane, L.P. We also consent to the reference to our Firm under
the caption, "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
December 23, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 33-86154) of our reports dated May 14, 1996,
on our audits of the combined financial statements and financial statement
schedule of Chadwick's, Inc. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 23, 1996
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> FEB-01-1997 FEB-03-1996
<PERIOD-START> AUG-04-1996 JAN-29-1995
<PERIOD-END> NOV-02-1996 FEB-03-1996
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<SECURITIES> 0 0
<RECEIVABLES> 8,443 2,387
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0 0
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<NET-INCOME> 7,313 27,850
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